NFE - NASDAQ

Good day, everyone. And welcome to the NFE Second Quarter 2023 Earnings Conference Call. Today's conference is being recorded and all phone participants are in a listen-only mode, but later you will have the opportunity to ask questions. To get us started today with opening remarks and introductions, I am pleased to turn the floor to Managing Director of Strategy and Investor Relations, Mr. Chance Pipitone. Please go ahead, sir.

Perfect. Thank you, Jim. And good morning, everyone. Thanks for joining today’s conference call where we will discuss our second quarter 2023 results, recent development, operational highlights, and future here at New Fortress Energy. As Jim said, the call is being recorded and will be available by replay on the Investors section of our website under the subheading Events and Presentations. And in the same location, you will find a press release regarding our second quarter 2023 results and the corresponding presentation that we’ll walk through on today’s call. As we proceed through the discussion, we will be referring to that presentation, In that same presentation, you will also find a series of important disclosures related to forward-looking statements and non-GAAP financial measures. We encourage participants to review these important disclosures in addition to the description of risk factors contained within our SEC filings. Now, let’s dive into the call. My name is again Chance Pipitone. And joining me today at New Fortress Energy are Wes Edens, our Chairman and Chief Executive Officer; Chris Guinta, our CFO; Andrew Dete, our Managing Director of New Business; and other managers of our senior leadership team. Wes, over to you.

Great. Nice, Chance. And welcome, everybody. Lots of talk about today. So let's start with page number three, the numbers and go from there. Quarterly results for the quarter were solid. The EBITDA for the quarter, $246 million, is down for the first quarter. Virtually 100% of that is just a function of the geography of timing of some cargo sales. The core earnings were basically flat quarter-over-quarter. Compared to the first half of last year, we're up significantly, so $541 million last year in the first half, $686 million in this year. Perhaps, more importantly, the guidance that we see now for the rest of the year, $1.6 billion for 2023 and $2.4 billion in 2024, little bit of reduction of guidance there for this year, just as a function of a few of the projects delivering late, but still very, very solid earnings for the rest of the year. And our future is incredibly bright. You flip to page number four. This is a very, very interesting page at the beginning of the presentation. So to say the least, these are very exciting times for the company. After many years of hard work and many billions invested, we now have five major infrastructure projects, all delivering essentially at the same time. Having $3.2 billion invested in projects that turn into productive, revenue producing assets is life changing for the company, and there's a couple of material points here. One, it greatly increases our revenue potential as a company. Obviously, you're converting construction projects into revenue producing assets. And that's actually a huge, huge change. Two is, it changes the nature of our company from one that is a mix today of about 50% of our revenues coming from merchants sales to customer volumes, to one that is virtually all customer sales going forward. That greatly improves both the quality, reliability and transparency of our earnings going forward. You're going to see that manifest itself both the second half of this year and then going on in the future. Three, it opens up a number of new markets to us, huge markets with tremendous potential. I'll click through the major ones now. Puerto Rico, which is already a market for us, but is now much, much larger with the acquisition of the PREPA fleet, Genera, the temporary projects we've done there. Brandon McElmurry [ph] will talk about that in detail. But as we will explain, this is a massive, massive opportunity for the company. Number two, Brazil. Two large terminals coming online that greatly increase our capacity as a company, increasing total capacity of throughput by nearly 35%. Huge addressable market. Our first entry into it, both of them are coming online in the next few weeks. Three, Ireland. We won our first power auction last quarter, and believe we're finally very close to be the first and only LNG terminal in the country. All these together are increasing our capacity to grow materially and, most importantly, without material amounts of additional CapEx. This is truly the apex of our capital spend, and we now no need to just operate and grow revenues with very little in additional capital spend. It's an amazing moment for us as a company, and the next 30 to 60 days will be transformational to us. It's all made possible through the hard work and dedication of literally thousands of people that have made this happen. Just a little context to appreciate how big $3.2 billion in infrastructure actually is. A few years ago, in another line of work, we built an arena in Milwaukee for our Bucks, Amazing arena. I'm a little biased, but my view is it's the best in the league. That was a total of $525 million in CapEx. It took us about two-and-a-half years to build. What we're doing here at NFE is equivalent of building and deliver six of these arenas at the same time in countries throughout the world, which if it sounds hard, it's because it's plenty hard. It's hard to identify markets. It's hard to get a commercial foothold and get in business. And it's very hard to fund. And, of course, it's hard to execute. That said, nothing that we're doing here is unproven or dangerous or experimental. And in some form, it's all been done before. And in many cases, many, many times around the world, which is what makes it doing it at the same time, both reasonable and feasible if you're organized and dedicated, which we are. These are big construction projects. So there's things to talk about every day. And we do, but all on track, and once we're done, will truly transform the company. They'll produce significant reliable cash flows going forward, require very little CapEx, and so does the cash flow, much of that will go straight to the bottom line, deleverage and reduce debt of the company. And it's now a very straight shot for us to become an investment grade company in the not-so-distant future. New markets with major avenues to grow, essential infrastructure at exactly the right time. So page number 5. These are a list of the projects. So, there's FLNG 1, which Chris Guinta will talk about, the liquefier, which is in the process of being deployed as we speak, is materially complete. Puerto Rico power, half of which is operational, the other half will be operational in the next few weeks that Brandon will talk about. Barcarena and Santa Catarina are two terminals in Brazil that Andrew Dete will talk about. And last one, La Paz power plant, a 135 megawatt plant that has been commissioned as we go right now. $3.2 billion of infrastructure being converted from construction to revenue producing, which has a significant impact on the company. Page 6 is perhaps my favorite page of the entire presentation because it shows the history of the company. What you see here on this page is the number of terminals in yellow, going from one in 2016 to three in 2020 to five here in 2023 and seven in 2024. The capacity that each one of those has has been listed below. Just as a point of reference, we show 20 TBtus, 1 million tons of LNG is 50 TBtu. So this was – we started our business in Montego Bay, with basically 40% of 1 ton of capacity. We have grown that materially as these different markets have come online to 620 TBtus of capacity today, 920 TBtu next year. As you'd expect, LNG volumes then through these terminals then follow. So, 8 TBtu in 2017, 74 TBtu in 2021, 136 TBtu this year, 185 TBtu and substantial growth beyond that going forward. And lastly, of course, you'd expect that to convert to EBITDA. We look at the bottom line. It's truly remarkable progression of EBITDA, from losing money as we're developing assets, obviously, to a place where we're essentially breaking even in 2020 to one which has gone from $33 million in 2020, $605 million in 2021, about $1.1 billion in 2022, $1.6 billion this year, $2.4 billion to follow. So truly a remarkable, remarkable path. With that, let me turn it over to Chris to talk about our FLNG 1. Great.

Great. Thanks, Wes. And good morning, everybody. Please turn to slide number 8 where we provide some added details on the completion of Fast LNG number 1. So as mentioned, thanks to the incredible effort by our team at Corpus Christi and in Mexico, we continued continue to make major progress and we're nearing our goal of COD by the end of this quarter. At this point, each of the rigs have achieved mechanical completion, and we're in the process of commissioning various systems while the remaining rigs are still in the queue at shipyard. As a reminder, FLNG is comprised of three specific rigs with the names Pioneer 1, 2 and 3. Pioneer 1 is the gas processing module. This is connected to the subsea riser and it dehydrates and prepares the gas for liquefaction. This unit is expected to mobilize and be installed around August 23. Pioneer 2 is the liquefaction module that includes the chart cold box and Baker Hughes compressor, which together change the vapor into LNG. This unit is expected to mobilize and be installed around August 28. Pioneer 3 houses the accommodations, power and electrical control hub, and this is the unit that has already been mobilized and installed offshore. From a marine construction standpoint, all activities have been completed, including the installation of the hot tap assembly on the [indiscernible] pipeline, a 3 kilometer pipeline lateral to our FLNG asset and the anchor mooring installation for our storage vessel. In addition, our floating storage vessel, the Penguin, has completed all of its make ready activities and currently in transit to Altamira where it will clear in and hook up to its installed moorings later this month. The next step is to sail units P1 and P2 over the next couple of weeks to their location offshore, and then we expect to introduce first gas in September and sell our first cargo in October of 2023. As we've discussed before, the NFE timeline is organized with much greater focus on speed to market that prosecutes the various stages in parallel path as opposed to traditional projects that follow a much more linear model. When looking at additional FLNG, and it's given that we've already done all the engineering and design, we believe future modules will be completed in around 18 months. This is what allows us to deploy FLNG 2 and 3 modules in the second half of next year. While the cost of FLNG 1 will come in just shy of around $900 a ton, the future costs of modules and onshore installation for balance of plant is expected to be roughly $650 a ton. If you turn to slide number 9, this is really intended to evidence the value of the strategy that we've employed. Our decision to build the units while we're still completing engineering did lead to efficiencies. However, the resulting benefits far outweigh the challenges we incurred on FLNG 1. Moving down the slide, there are really two primary reasons why we feel that adding FLNG into our supply portfolio poses outsized value. First, the value of LNG now means that you'll effectively own the FLNG asset for free, well ahead of when any competitive supply can come online. The graph on the left side of this page demonstrates what I'm alluding to here. We believe that no other LNG project with available capacity will come online before 2027. And if you assume three years at 70 TBtus per year, that's 210 TBtus available for sale. The difference between a traditional LNG supply agreement of 115% of Henry Hub plus $2.50 versus the forward curve is on average around $7 over the next three years. If you multiply that by our 210 TBtus, you get approximately $1.5 billion in proceeds in the time between our COD and when a competing project is online. The second point of having our own LNG supply is that it provides greater operational flexibility to serve our customers. Remember when you have long term SPAs, you're locked into loading schedules over a year in advance, which provides very little latitude when you're running a global downstream regas business. Further, you risk curtailments in the wake of operational issues by the supplier that could lead to knock-on impacts in our supply chain. As a result, having our own FLNG supply that can serve as a complement to our core portfolio of offtake agreements is the best way to be prepared to satisfy all of our customer needs. With that, I'll hand the call off to Andrew to talk about capacity and customers.

Thanks, Chris. Good morning, everyone. We're on page 11. And I've got three slides here that are going to dig in a little bit more on what Wes went through on slide 6 around capacity in our terminals. So, slide 11 shows how we calculate the capacity of an LNG terminal at NFE. We're going to take the example of Montego Bay, which is our first terminal. So, Q4 2016 COD. Mo Bay is 8,000 cubic meters of landed storage. So onshore storage. And then we have an LNG vessel there. In the picture, you can see both the bullet tanks in the left part of the picture and then the ship coming alongside. Mo Bay is serving Jamaica Public Service, JPS, on a long term contract for gas supply to the Bogue powerplant. And it's also our main small scale hub in Jamaica. So we serve over 20 industrial and hospitality customers from the Montego Bay terminal, mostly through truck loading. On the right side is how we calculate capacity. So what we do is we take our 8,000 cubic meters of storage and we assume two reloads a week. That's not really conservative, nor is it too aggressive. That's right at about kind of a comfortable pace for our refilling. And then we take that 16,000 cubic meters a week times 52 weeks a year, we get to 832,000 cubic meters a year. We convert by multiplying by 24 into TBtus and we have a capacity of 24 TBtus. So I'll put that into page 12, which basically takes that rubric and shows it across the portfolio on the left side. So these are all of our operating terminals, which total about 385 TBtus. And then what we're showing are the four expansions that we expect to bring online before year end 2024. So Puerto Rico upsize, Barcarena in Brazil, Santa Catarina in Brazil and Nicaragua. All which then get us to a total number of 920 TBtus. Or using the rule of thumb of 50 TBtus equals 1 ton, about 18 million tons of regas capacity in our portfolio. That's a greater than 100% increase between now and year-end 2024. And the utilization numbers on the right show how our LNG volumes track through those terminals. So by the end of 2024, we'll have a portfolio of about 3.6 MTPA of LNG supply going through a regas portfolio of about 18 MTPA of regas. So that's just about a 20% utilization rate there in the yellow box on the right side. Page 13 walks through a little bit of how we see growth coming from these increases in capacity. So two main ways in which NFE will grow from here. The first is increased utilization in our current terminals. And the second is to enter new markets and continue to grow as we have in the past. There's a few reasons why we think increasing utilization and organic growth is extremely advantageous for NFE. First, call out that the current terminal utilization is relatively modest. So at about 20%, we have a lot of room for growth, both operationally and commercially. This organic growth is highly accretive margin. So in our case, not only have we paid for the infrastructure, so this growth doesn't have any incremental CapEx, but it also has very, very low incremental OpEx because typically we are already paying for the FSRU and the onshore terminal operations. So the margins on any new customers or new volumes that we push to the terminal are accretive to what we currently have. And then third is the embedded position we have in these growth markets. Brandon is going to go through the example of Puerto Rico, which is really a crown jewel in our portfolio at the moment and the sort of development position and the growth that we see over the next few years. That's going to continue to happen in the rest of our portfolio as we grow with Puerto Rico being a great example for how we see that happening. On the right side, we'll continue to also develop new terminal infrastructure. So in addition to the opportunities we have in Brazil and Ireland, we're also looking at opportunities in the Caribbean and Central America where we've traditionally been, and then also South Africa and Vietnam, which both represent high growth, high population markets that are exciting for LNG. We typically target a return on invested capital of over 20% on the terminals, so they're relatively capital light, relative to their opportunity commercially. And then we want to call out the portfolio value we see in continuing to grow terminal capacity. So as Wes walked through, one terminal going to seven, LNG capacity of 20 TBtus going to 920 TBtus. This unlocks tremendous opportunities for organic growth across the portfolio and across time, and then that increasing scale and diversity of cash flows makes NFE a much better business as we go. I'll turn it over to Brandon now.

Thanks, Andrew. And good morning. Thank you all for joining us. As Wes mentioned at the beginning of the call, we've been investing in Puerto Rico since 2017. So I'll refer you to slide 15. And just a little bit of context. Puerto Rico is a US Commonwealth with 3.5 million people with amazing culture and history. It imports over 20 million barrels of HFO and diesel a year to generate power, which is highly unusual compared to the US mainland. In addition, it has a stated goal of being 100% renewable by 2050. The power generation that exists today is old, inefficient, unreliable and heavily carbonized. And most importantly, it's not positioned to integrate renewable resources. It's the perfect energy transition opportunity to move to natural gas and away from distillates in support of increased integration renewables over time. NFE's involvements in Puerto Rico started in 2017. In September 2017, Hurricane Maria Category 5 hurricane struck the island and severely damaged the electrical grid. Like others, NFE responded to the call to rebuild and opened its LNG terminal in 2020 next to the San Juan power plant in the north of the island in record time for a facility of that type across the world. The terminal supported 300 megawatts of the island's most efficient and low emission dispatchable power and significantly has generated millions of dollars of savings to date by displacing diesel fuel with natural gas. Most importantly, the terminal positioned NFE to quickly respond to the needs of the island to accelerate both the reconstruction of the power grid and the deployment of renewables. I move to page 16. In 2021, PREPA privatization got underway. PREPA is the largest utility publicly owned utility in the US with 1.5 million customers, $4.5 billion operating budget, 20,000 miles of T&D and 5 gigawatts of generation across 17 sites. It serves a peak power demand of around 4 gigawatts, two-thirds fueled by distillates and about a third on gas. Historically, there has been significant underinvestment there that has led to the least reliable and most expensive electrical system in the US. To put it in context, someone in Puerto Rico is 630 times more likely to lose power than someone in the mainland. Government has decided that PREPA needed to be privatized to better use reconstruction funds and accelerate the energy transition. In 2017, the Government of Puerto Rico launched a privatization process. In 2021, the government privatized the transmission and distribution system with a private owner. The same year, NFE decided to compete for privatization. In 2022, it won the privatization mandate for generation. And in July of 2023 of this year, it took over the generation system under the name Genera, which is an NFE company. Today, NFE manages over 83% of the generation system, which is about 5 gigawatts. 700 people, $3 billion operating budget including fuel, and billions of dollars of reconstruction funds to rebuild the generation system. Our mandate is simple. Improve reliability and lower cost. I move to page 17. The US government is very focused on creating a clean and resilient power grid in Puerto Rico. The federal government and all of its agencies in coordination with the Commonwealth are investing $20 billion to rebuild the power grid that will lead to a zero carbon reliable, efficient system, which we expect to be a model for the mainland in the world. The system still requires dispatchable power that can serve the peak demand, which would include power fueled by gas, hydrogen and energy storage. The result we expect to be a model for how other systems are done. On page 18, I focus on the current event that we're working on in Puerto Rico. In late 2022, in the wake of Hurricane Fiona, FEMA called for 350 megawatts of emergency power to stabilize the grid. FEMA launched a process to acquire and bring in 350 megawatts of fast power to the island immediately. In that process, NFE was selected to provide all of the power generation units and gas for up to two years to provide grid stabilizing power. NFE responded to this call by deploying assets and expertise, it installed 7 units at Palo Seco in 60 days turning on in the beginning of July, and is in the process of completing the installation of an additional 200 megawatts at San Juan, where our existing terminal is, and we expect that to be completed in the next several weeks. To give you context for such a fast deployment, NFE brought its experience across the entire portfolio and the developments that we have done to date. Our team installed turbines, emissions controls, substations and other high voltage electric gear, a lot of balance of plant and, most importantly, fueling infrastructure to support this power in a clean and sustainable way. NFE used all the skills and installed the 350 megawatts in record time. This is the fastest project ever accomplished by FEMA of this type in the world. I move to page 18. There are several ways that NFE can help Puerto Rico and the US government reach their goals. Number one, provide the island with short term power to fill immediate need for megawatts which is capacity now. The best example would be the 350 megawatts that is currently being installed and the additional megawatts that are contemplated to increase this installation over the next several months. Number two, supply any conversions of existing diesel and oil power plants to transition away from expensive and carbon intensive distillate fuels and better position the power system to support renewables. A great example of this would be continuing to support diesel and HFO where possible, which is about 2.5 gigawatts of additional installed plant today that is capable of being converted. Number three, participate in any long term power solution. The island will be transitioning to renewables over the next several decades, but still must maintain the installed plant to supply over 3.7 gigawatts of peak demand, which requires dispatchable power. 75% of the island's mainland is in the San Juan metro area where our terminal is, which perfectly positions us to expand and accelerate that goal. The goals are to facilitate the US government's commitment to invest over $20 billion to rebuild the power grid that will lead to a zero carbon reliable efficient system, which again will be a model for how this area and others around the world, similar situation, will do it. The end state we expect in Puerto Rico will be renewable power supported by affordable dispatchable power that will be fueled by gas, hydrogen and supported by energy storage. Through NFE and Genera, we want to accelerate that transition with high quality infrastructure that best supports the integration and operation of renewables. Puerto Rico is a great transition example for us, and one that we believe we could model in other areas. We believe it can be replicated around the world as others seek to accelerate the same energy transition. And with that, I'll turn it over to Chris.

Thanks, Brandon. Please turn to slide number 21 [Technical Difficulty] financial Performance for the second quarter of 2023. During Q2, we had $561 million in revenue and $246 million of adjusted EBITDA, which combined with Q1 had us at $686 million of adjusted EBITDA for the first half of 2023. Segment operating margin was $239 million for Terminals and $54 million for the Ship segment. And you can find more detail in the appendix. The net income for the quarter was $120 million, which is $0.58 per share on a diluted basis. This quarter, we sold 25 TBtus in total volumes, which equates to an average EBITDA margin of around $10 per MMBtu. As Wes mentioned, the primary driver of the change in EBITDA during Q2 as opposed to Q1 is the cargo sales, which accounts for about $195 million or 95% of the decrease quarter-over-quarter. On a go forward basis, from an earnings perspective, we are replacing most of the cargo sale earnings with volumes being sold to downstream customers through our regas terminals on a long term basis. Perhaps the best example of this is the migration of cash flows derived from downstream contracted sales through our terminals, which will be around 60% of 2023 adjusted EBITDA to over 85% of 2024 adjusted EBITDA. Just to point out, the average contracted term is around 12 years, with over 80% of these sales being to investment grade counterparties. This is the long term predictable net spread business that we've been building toward. And finally, a quick comment here on the balance sheet. Since the end of June, we've closed on another $500 million of financing, which includes an incremental $100 million in the turbine financing, bringing us to $200 million in total and $400 million term loan that will be taken out with an asset level financing against FLNG 1. And just to note, historically, the company has funded our growth by choosing to finance our development projects on balance sheet. And then once the assets are operational, we can back lever them on a discrete standalone asset basis. This is a trend we will continue to execute. With that, I'll turn the call back over to Chance.

Yes. Thank you, Chris. Let's turn it back to the operator. I'd love to open up the lines for questions.

[Operator Instructions]. We'll hear first from Chris Robertson at Deutsche Bank.

Just wanted to circle back on the CapEx guidance for 2024 here, especially with regards to FLNG 2 and 3 as those are currently under construction. Maybe just a question for Chris, can you walk through the latest [Technical Difficulty] CapEx guidance [Technical Difficulty] and talk about the financing of those for the next year? I'm just trying to get to why has CapEx guidance come down so much in 2024 compared to last update when these two units are still under construction?

Fundamentally, we've invested over 35% of the cost of FLNG 2 and 3 already using equity. So, the view is that we should be able to borrow debt against the asset to fund the remaining CapEx plans. From a terminal CapEx standpoint, we've almost completed all the spend for Barcarena and Santa Catarina and Nicaragua. That's all less than $100 million remaining. And then, you have on a go forward basis, only around $50 million a year – we have about $50 million a year for maintenance CapEx on the terminals. Just circling back to the top of your question. We've funded $1.3 billion already against FLNG number 1. So, there's very modest costs remaining this year to complete that asset.

On FLNG 2 and 3, you said you've already invested over 35% in those two.

That's right. That's right.

Yeah. Maybe just to amplify a little bit, one of the aspects of the business when you're constructing or financing assets on balance sheet, when they are constructed and producing cash flows, you can then go pursue financing on an asset basis. That's what we've done with power plants, other assets in the past. And so, one of the significant aspects of the business and the reason why the CapEx goes down so precipitously is that now that you are going from the construction phase to the operating phase, the financeability at attractive levels of those assets increases markedly. And so, if you look at the total CapEx that we've invested across the spectrum in the FLNG assets, it's the $1.3 billion in FLNG 1, it's the additional $0.5 billion or so in FLNGs 2 and 3. That complex in its entirety is then very financeable in terms of the incremental capital we need to complete 2 and 3 and thus the CapEx that needs to go into it is so low. So it appears to be a precipitous drop in CapEx. It actually is a precipitous drop in CapEx. When I say it's the apex, it truly is the apex of all this stuff. And as it converts now into income producing assets, very, very easy, very straightforward to finance. When you look at the LNG liquefier complexes, generally speaking, they are financed at approximately 80% loan to value. So if you look at Venture Global or Cheniere or any of these other complexes that are out there, they're highly debt financed on that side, while they're in construction. Those are supported by long term contracts which is – that's the that's the plus and minus for it. In our case, we have lots of downstream customers, now they support these assets. And the asset is essentially completed. So it makes the financeability of this extremely straightforward.

I guess final follow-up with this line of questioning is around – has there any been any cost savings, I guess, as the projects have come onshore rather than the offshore original proposal?

Yeah, no. Massive cost savings. The first of anything, you get the Pioneer premium [indiscernible]. But so the first asset, as Chris said, is $1.3 billion for a 1.4 million tonne liquefier for just under $1,000 a ton. For numbers 2 and 3 and onshore and utilizing the existing infrastructure, those costs go down fairly significantly.

Yeah. So, on modules alone, we think the cost is down about $125 million to $150 million each. So that's $250 million across those two. And then onshore work, as you can imagine, is definitely cheaper to complete than the offshore stuff. We won't have any rig modifications or improvements to do here. And the site, as we talked about in the last call, is miraculous. This site has already had its geotech. It's had full berthing, tanks, everything you would need to really plug and play.

Next, we'll hear from Mike Patterson at Morgan Stanley.

My question is regarding your preferred shares on Golar LNG, the 8.75s. Some time ago, these were delisted. They're currently not marginable. They can't be solicited. They traded on the Pink Sheets. And I'll give you an example. They traded about a 16% yield. Yesterday it was showing on the market about 14%. A trade went through at 11.5. And it just seems like quite a disservice to the shareholders of these preferreds to do that. Do you have any plans or what's your comments on these preferreds?

This is Chris. Why don't you shoot me a note offline, and we can talk through this. We have put out this information publicly before and I'm happy to talk you through it. The financials are available. And we can go through it offline.

Well, with all due respect, for about three months, I've tried to call in, email and I never do get a return response on this. And so, can you address how come that they're not listed? And would you consider listing these shares?

Mike, so the shares are not listed. They were delisted when we took private the GMLP equity in 2021. We provide everything required for compliance with those shares. And we will continue to do so.

So you're just fine with them trading at $0.45 on the dollar and it's doing this to the shareholder. And like I say, I'd take it offline, but I can't ever get a call answered, responded to at all. But it sounds like you're just not going to do anything regarding them, right?

Mike, we're happy to look at what you're describing. But we stay in compliance with those shares. And we provide all the information that's required on a quarterly basis.

Our next question will come today from Cameron Lochridge at Bank of America.

Congrats on getting everything in Puerto Rico set up. And sounds like FLNG 1s will be moving well. So congrats on that. I really just wanted to ask, wanted to circle back on the CapEx piece and unpack that a little bit. I understand there's some nuances with regards to maybe the financing of the CapEx to 2023 and 2024. But really, I just want to unpack the difference in messaging around last quarter's CapEx guidance and this quarter's. There's about $1 billion difference between what you were expecting last year – sorry, last quarter, and what you're expecting now for 2023 and 2024. So just help us walk through that delta there if you don't mind?

Yeah. I think, fundamentally, it's kind of what we were describing to the first question that Chris had. We believe that we're able to debt financed the balance of FLNG 2 and 3 construction using the invested capital that we've already put in place from 1 and 2 and 3. So I think it's just fundamentally a difference in the presentation quarter-over-quarter that this is showing that we are able to use the debt capacity [indiscernible].

From a capital structure standpoint, if we look at page number 4, so you've got the total of $7 billion in balance sheet and infrastructure on the company right now. Of that, about $6 billion has been funded over the last few handful of years. So, massive amounts of infrastructure investment on balance sheet. As I said, the big difference really from a financing standpoint is that once assets go from construction projects to revenue producing, the financeability of them changes materially. And so, that's really why we now don't believe that we'll have material amounts of equity CapEx at all to invest going forward. We've already made the investment. They're now all turning into revenue producing assets. And with that, the financeability of them goes up substantially. And to give a little bit of context to just the quality of the business, $7 billion of infrastructure, which that's the core of the company, and producing $1.6 billion, and our forecast $2.4 billion, in EBITDA next year, that's roughly a 30-plus-percent infrastructure yield. To my knowledge, it's the best infrastructure yield on anything on any company I'm aware of in the world. Obviously, when you produce those kinds of revenues and long-term revenues and customer-facing revenues, the financeability of those projects goes up longer. And that's essentially what you're seeing play out in front of your eyes right now. That's why it's so transformational.

In other words, the $2.9 billion that was originally slated to be equity CapEx is now going to be $1.9 billion of equity CapEx and, call it, $1 billion of debt CapEx. Is that fair?

That's exactly right.

Moving on to Puerto Rico, really disappointing 2024 guidance generally. Can you give us some context? Obviously, a lot coming online, especially in Puerto Rico, big back half last year. What should we be expecting as far as Puerto Rico's contribution to that $2.4 billion? And also Barcarena as well, what are we expecting there?

I'll let Brandon talk about Puerto Rico specifically. We don't provide specific guidance on a terminal or a country basis. Andrew walked through kind of what the volumetric capabilities are in each of these markets. But for a whole variety of reasons, we don't think it's appropriate to show margin market by market. That's not really a great idea for our counterparty's constituents. There's lots of different factors that apply to that. So I understand that that would be simpler and easier to model, and we appreciate that. But there's a host of other competing factors that make it not really possible. So you can see the volumes go through. Puerto Rico, in particular – and again, I'll let Brandon talk about this – but in the short term, the very short term – the short term power will actually be turned on. So Palo Seco plant is up and running. It's probably the most reliable power plant on the island right now. I think 99-plus-percent. So it's actually performing like gangbusters. The San Juan project is in the last handful of weeks from being COD and up and running as well. And then there's a whole host of other projects to follow. Maybe, Brandon, if you could talk about that a little.

As Wes said, I think the way we think about it is we've got this amazing asset, which is the terminal in the north. We built it, anchored around the 300 megawatt power plant that's adjacent to it. But as Andrew referenced earlier, there's amazing, embedded capacity in the terminal for expansion and to support other projects. I think the best example is the 350 megawatts that we're currently installing on a two-year arrangement. And then as you can imagine, as the Puerto Rico assets that are installed today on island that are using HFO and distillates, as those retire and are replaced, then the terminal is there to support incremental power that develops over time. So the way to think about the Puerto Rico strategy evolving is it has a short term, intermediate term and then long term aspect. And over time, what you should expect is the incremental installed megawatts that are being fueled by some type of natural gas/hydrogen blend increases over time, so it hits your 3,700 megawatt peak demand even as your renewables and others come online. And again, 70% of the population lives in the San Juan metro area. The NFE terminal is the principal critical piece of infrastructure that sits in that region. So, all of that transition will pass in some way shape or form through that asset. And so, you should expect the contribution to grow over time.

As Brandon said, it is without a doubt, in our opinion, the largest energy transformation event in the world and it happens to be a commonwealth of United States. And so, they've got the capital available to do the right things. Right now, the island has got tremendous resources. It's an amazing place, but for the electricity and energy system. And so, at 630 times more likely for the power to shut off than would be if you lived in Miami or New York or Chicago, obviously, that's not the right answer. And we're very, very happy to be in the thick of it. We think that there's significant commercial opportunities as a result. But more importantly, there's just significant opportunities to do the right thing for Puerto Rico. I feel like it's got the potential to be Hawaii, except people don't pay taxes, right? So it's got tremendous commercial opportunities as an island and as a commonwealth. We feel very blessed to be there. And we really are in the thick of what is, without a doubt, the biggest energy transformation any market that we're aware of in the world. So there's a lot more to come in the next handful of months and years.

Sam Burwell at Jefferies, you have our next question.

The CapEx has been fairly belabored at this point, but maybe ask from a balance sheet perspective. It seems like you're adding on a lot of debt. And I respect the fact that it's secured against these assets, but there's material amount of interest expense that's going to come with this. So, like, what are you comfortable with adding to the balance sheet in terms of debt? How much interest expense are you comfortable layering on? The EBITDA guidance has been lowered. So there's probably going to be free cash flow in the back half of the year if CapEx is pretty light, but how soon can we expect for genuine free cash flow generation, so that you guys can start paying down the revolver?

Immediately. You look at the balance sheet, it's actually an incredibly unleveraged balance sheet. So all of the assets that we have basically invested in, so the Brazilian assets, the liquefier, all the liquefier stuff that we're working on, that's all unleveraged. So you actually are talking about billions and billions of dollars of assets that are unleveraged on the balance sheet. And now that you are now putting them into revenue producing generation, you'll now start to put leverage against them. You say that there's a lot of debt and interest expense. I'm not aware of an asset-based infrastructure company as low leveraged as what we are on earth. So I actually think it's exactly the opposite way to describe. I think that the big use of capital during the building period has been the unleveraged use of equity capital to fund construction. We've done that on balance sheet. Right now, as these turn on, and literally the timeframe for them turning on is the next two weeks, four weeks, six weeks, eight weeks, so it's an incredibly short period of time, you then will start to produce material amounts of cash flow. And with such little amounts of capital needed to go into CapEx, you should expect immediately for there to be deleveraging and cash flow to go to it. So, from a timing standpoint, we're halfway through roughly the third quarter right now, the fourth quarter and thereafter, we expect virtually all this stuff to be up and running. And so, you'll see immediate impacts on cash flow and deleveraging to the bottom line.

The follow-up would be just on the CapEx that was deployed in 2Q. It looks like that was – that $900 million? So, what comprised that number?

Yeah, it's predominantly FLNG 1, 2 and 3. That's the bulk of it.

Yeah, some capital in Puerto Rico. It's all these projects. We list all the projects. We show you what the capital is. The $3.2 billion in capital is out the door. So, it is ironic. I think it's literally the opposite of your question. It is the most unleveraged balance sheet that I'm aware of for an infrastructure company. And now that they're actual revenue producing, we're going to go put debt against them. The debt, actually, we can do so at very, very competitive levels, right? We've financed our Barcarena power plant, we've financed our power plant that we installed in Puerto Rico, and it's actually quite straightforward to produce revenue producing assets. It's hard to finance construction projects. That's why we've done it on balance sheet. And I think when you think about it, we've actually – from a standing start as a company, we've managed to build and invest $7 billion into infrastructure assets. That's what our balance sheet is. That is a foundational fortress like balance sheet to actually start with. And now you're going to put modest amounts of debt against it and bring all the cash flow to the bottom line. It's going to be – I've used the word many times. It is transformational in terms of the financial picture of the company going forward, and it's going to happen right now.

Our next question today comes from the line of Martin Malloy at Johnson Rice.

I was wondering if you could broadly talk about the Brazil terminal and commercial opportunities to put additional volumes through those terminals and maybe the timing of potential announcements around that.

Barcarena is mechanically complete. We will COD in Q4 of this year and we'll immediately start up a contract with Norsk Hydro. We see some material expansion opportunities right at the port, which will actually be very accretive to the kind of EBITDA and operating margin of the terminal. There's four other customers, a little bit smaller than Norsk Hydro, but still meaningful for us, that can connect to our pipeline. We hope to find agreements with those guys over the next few months. Beyond that, we would obviously hope to expand our volumes to Norsk Hydro over time, and that's still the biggest alumina refinery in the world. We're obviously providing volumes for their alumina refining process, so calcination and to fire their boilers, but there's a lot more growth we can do with them, both on the sort of process side, as well as on the power side. So definitely more to do there. And then, we're 20% complete on our 600 megawatt combined cycle power plant. We have another parcel of land there, which effectively could accommodate another over 600 megawatts. There's some exciting power options coming up in Brazil, kind of various flavors, some that are more capacity based, some that are more energy based, but they're all kind of interesting for that site. And so, we see a ton of avenue for growth there. There's also sort of regional growth. There's a few power auctions coming up in Brazil for kind of regional capitals to bring gas in the form of gas to power projects. We think Barcarena is sort of the sole import point in that northern region of Brazil. It's really the interesting place to import gas and then distribute it throughout the region. So, a lot happening in Barcarena. And always, that accelerates when we actually turn on. So, the Celsius is in the yard, being converted into an FSRU now. We expect that to arrive at Barcarena commissioned terminal in Q4. So very excited for that. With Santa Catarina, we've had great progress on the physical construction sites. We're mechanically complete today, which is very exciting. It's a an amazing terminal that, unlike Barcarena, connects into an existing pipeline system. And so, we built the terminal as well as got a 33 kilometer pipeline connecting into the TBG pipeline system in South Brazil. So it's very exciting. That gives us kind of a number of opportunities that we're actually pursuing, basically, between now and the end of the year to sell gas to customers on the pipeline, to sell services to some of the pipeline companies, so who are looking for pipeline balancing and other sort of capacity services we can provide. And then there's also a power story in the south as well. So, power plants today that can't access enough gas or can't access gas at all. And then, over time, the terminal to act as a main import point for gas into the sort of already gas using region of South Brazil. So a lot more to come there. And that's really where we're accelerating our commercial activity around kind of mechanical completion, signing up contracts over the next few months, and getting that asset online Q1 of 24. So, a lot more to come in Brazil. That's really just the start. And look to spend more time on that in future calls.

Yeah. The other thing which we don't probably do enough of that is talking about the real impact that we have on the environment with the projects that we have. The Barcarena plant, which is again next to Norsk Hydro, the biggest aluminum smelter in the world, Norsk Hydro, I believe, is the largest buyer of oil in South America. And essentially what you're going to do is turn off the oil and turn on the gas. And by doing so, they will save billions of dollars in fuel costs. And they will save thousands and thousands of tons of CO2. We look across the portfolio, something we've talked about doing, and I'll make an effort to get this out and on there, we have saved our customers billions and billions of dollars. The impact of a country like Jamaica switching into natural gas versus diesel the last number of years, the impact of the Commonwealth of Puerto Rico, the country of Mexico, delivered diesel into these countries is roughly 2x the price of delivered gas is. So it's billions and billions of dollars to these countries. And in many cases, their cost of fuel is their number one cost as a country. So, A, we've saved tremendous amounts of money by investing this critical infrastructure and getting the countries. B, we've made them much, much more environmentally friendly. And of course, we all want zero carbon. That's what everyone in the world wants. We want that as well. And that's a big part of our hydrogen initiatives and others, but this is a major, major stepping stone to doing so. Last thing and I just want to get back to the whole question on the finance of the infrastructure. The average infrastructure company, so a data center company, a company with toll roads, a company with ports is leveraged probably to the tune of 6 or 7 or 8 or even 9 times leverage. Our assets are turning on now. Our leverage by the end of next year is roughly 2 times. It's a massively different complex. And the notion that is somehow, like, highly leveraged is just so far from the actual reality of what an infrastructure company looks like. And it's $7 billion in infrastructure. We're an infrastructure company. And our average term of our contracts is 10 years. And again, the way I think about the valuation of this, and I'll just do it in simple terms, if I owned $7 billion in coffee shops, my forward sales on my coffee shops would be zero, because no one's buying coffee tomorrow. I have $7 billion in infrastructure where, over the next 10 years, I'm expecting to collect $10 billion, $12 billion, $15 billion, $20 billion, and growing beyond that. So, it is essential infrastructure. It's very long term customer cash flows. The vast majority of it is to investment grade customers. And our leverage is very low. That's the economic proposition of the company. I just want to reinforce that because I think we talked around. I just want to make sure you hear from me kind of directly how I think of it.

Just as a follow-up. I did want to ask about the hydrogen strategy and maybe if you could give us a flavor for the level of interest from industrial customers in terms of offtake potential for these projects. I know your first project is surrounded by industrial customers and also I know Entergy has got a power plant that talks about using hydrogen down there.

Martin, it's Ken Nicholson here. I'll take that question. We actually included a few slides in the appendix of the materials. I think hydrogen broadly is something we're going to be talking more and more about as we make our way through the remainder of 2023 because there's a there's a lot going on. Beaumont is doing great. You mentioned it. Yes, huge market. One of the biggest markets for hydrogen demand. So it's a great place for us to start our first facility. I would say the commercial conversations are going extremely well. Our deal with our technology provider is set for 100 megawatts of equivalent hydrogen production. Under that deal, we have an option to expand to 200 megawatts. I would say it is extremely likely that we will be exercising that option to expand. There's plenty of land available for the expansion. And there's a heck of a lot of demand. The demand is coming from refineries and clean fuel producers, petrochemical companies and other consumers of hydrogen. The site that we are building on in Beaumont is on a nexus of multiple pipeline systems, including several hydrogen pipes. And so we have low cost distribution to the entire Beaumont/Port Arthur market. So going very well. That's step one in Beaumont. At the same time, we're progressing a number of new facilities focused on the Northeastern US, Pacific Northwest, and an additional site on the Gulf Coast, not that far from Beaumont. Look, I think, good progress being made. This really should be the largest pure play green hydrogen business and a first mover in what's an incredibly dynamic sector.

And we'll hear from Ryan Levine at Citi.

I have just one clarifying question. What's driving your SG&A assumptions in your forecast time period? And what are the drivers of any variance to that?

The SG&A assumptions are all being driven by kind of an organic grounds up look at the businesses. When you start a business, Ryan, from scratch and you build up the capabilities we've got, you bring a lot of people, you bring a lot of systems, a lot of process. And then, over time, you have a real chance to go back and reset it and kind of validate how you're organized, how you do things, what the costs are, et cetera. And we feel like there are a significant potential for savings in our processes just as we mature as a company. I think actually the move into Puerto Rico for Genera and the associated people that are down there is also another big factor for us where we've got now a big operating company that's essentially a power company. So many of our activities in terms of back office and whatnot, we think we can rationalize and centralize that. We just feel like there's a tremendous amount of potential in terms of normalizing that. And as you move out of this phase of this significant infrastructure spend – and again, $6 billion or $7 billion in infrastructure spend in a handful of years, obviously, there's a tremendous amount of building activity that goes on. That now goes down precipitously. And with that comes down a lot of costs and one off costs and everything else. And so, you really can rationalize it. And I think that you'll see, certainly, next year for us much more lean and refined SG&A process that actually generates the same kind of results and much, much lower costs.

Is there a certain region within the company that has the biggest opportunity to streamline or cut some of those costs?

It's really in the operation side. If you think about it, you've got people who operate power plants and people who operate terminals and people who operate logistics stuff. And as you get more scale, in each of these sectors, there should be a lot of cost efficiencies that come into it. And that's exactly what we think is going to happen. It's probably the biggest single cost that, I think, is inefficient, but it's just the nature of how you grow the business is on the shipping side because you need a lot of ships to provide the logistics that we've got. As we build out these new terminals in Brazil, as we actually modify and improve our terminal in Puerto Rico, you take out massive cost savings just by simply being more efficient in how you use those ships. So I wish that it was easier to do from a standing start, which is the reality of it. And my experience is that you need to build it up and be operationally efficient. And then you need to really kind of optimize, and that's the phase that we're going through. And I think you're going to see over the next couple of quarters really, really significant changes in SG&A and significant changes of the shipping side as we get more efficient of those two areas.

And that is our final question from our audience today. Mr. Pipitone, I will turn it back to you, sir, for any additional or closing remarks that you have.

Perfect. Thank you, Jim. And thank you everyone for joining us today. We remain available as always to answer questions. If you please contact the investor relations team at [email protected]. Thank you. And enjoy the rest of the day.

Great. Thanks, everyone.