Excelerate Energy, Inc. (EE) Earnings Call Transcript & Summary

Good afternoon, everyone. You have Jeremy Tonet here, Senior Utilities and Midstream Equity Analyst here at JPMorgan Equity Research. This afternoon, we're very excited to be joined by Steven Kobos, CEO of Excelerate Energy to walk through everything that's happening in the story. We're going to start off with some quick opening remarks, go through some of the questions I have here. But if people in the audience do have questions, please let us know, and we'll try to work those in as well. But for right now, I'll turn it over to you.

Thanks, Jeremy. Really glad to be here. Appreciate it. To keep this short, some of you here in person, some of you joining us on the call today are familiar with the story, some are not. We're obviously in the LNG space. What's unique about Excelerate is, if you follow LNG, you're well aware of the increase in production globally, you're aware of Qatar's North Field expansion. You guys are invested in or following increase in U.S. FIDs, you know about all of that, you know the increase that's coming at the end of the decade. I would say what's unique about Excelerate is we are one of the few people in the space that are deploying our capital out there in the world in the markets that are going to absorb this LNG. The ones out there I mean presently in operation in Bangladesh, where we supply 34% of a country of 170 million souls natural gas needs and Pakistan 18%. So we're out there. We are creating demand. Someone needs to create that demand. This LNG needs a home. This LNG is becoming more and more affordable, and that's driving a return of the global south to the table and discussing it as part of their overall mix. So I don't -- I don't want to turn this into prepared remarks. But I just -- if you guys don't know, Excelerate, you need to because it's a critical part of the LNG value chain for the foreseeable future. But let's just turn it to Q&A, Jeremy.

Great. Thank you for that overview to start. Just wondering, we get the question a lot. Curious how you answer, how do LNG prices influence your business model. This year, how has the movement impacted, what you expect? How is the transition to a more contracted business model with less commodity price exposure unfolded over time? Where do you see this going into the future?

Thanks, Jeremy. A lot of questions there, and I love it because we want to talk about all of those. In terms of lower LNG prices, we think that's going to be a persistent theme into the future. And I will say we're somewhat different from many LNG players because that's a good thing. It's a good thing that you're a credible alternative to coal in markets. It's a good thing that the global South can afford it. You're seeing -- they were sidelined for a long while following the war, but they are back at the table. You're seeing this in all kinds of ways. You're seeing it with India increasing their percentage take that they expect by 2030. You're seeing it the return of buyers in the spot market, and you're seeing it with examples as with Excelerate, selling 1 million tons a year for 15 years into Bangladesh. So you're seeing folks get -- adapt to lower price points and return to the table. That's good for everyone. Obviously, we have -- following the war, our 10 FSRUs are fully contracted on great contracts. We were able to recontract 40% of the fleets in the 2 years since the war at higher rates. We're now looking at $7 billion of future contracted revenues. 7 years average remaining contract on those as we have continued to recontract. So we think we've got a high-quality infrastructure portfolio, and the demand for that is going to grow over time as folks in the South understand that they can afford it and it's a good alternative to coal.

Got it. That makes a lot of sense to us. Lower price stability is certainly good for the business model. Maybe pivoting towards new FSRU additions, if you could remind us, I guess, of the time line to these additions and then beyond new builds, what do you see as the options to expand the fleet here at this point? And how do you think about economics between these different options?

Super. First, our -- we have a new building coming out of Hyundai Heavy Industries in June of '26 that remains on schedule. It's going to be a best-in-class asset capable of pushing 1 billion cubic feet of gas and we're very excited to welcome it to the fleet. We remain engaged with all of the major yards about further increases to the fleet. We think there's the right time in place to do that, and we'll continue to update you as that continues, but we are engaged. FSRUs are expensive bits of kit. We all know that. It's a whole lot of different things. It's a storage facility. It's a regas facility baked into one, and I threw out -- we've got a single -- a single FSRU in Pakistan that pushed 5.25 million tons last year. So I sometimes say these creatures are beast. They really can have more of an impact on a market than people realize. It's always going to be a core part of the business. We think we're good at it. We think we're good at operating them. We are looking at -- conversions will likely be for bespoke projects that might have a lower send-out requirement than some of the fleets. So we would likely think about repurposing our fleet portfolio. But we're proud we have 20% of the world's FSRUs, about 27% of the regasification capacity. And that's because we know when people need LNG, they tend to need more LNG and we build accordingly for that. We're going to look at other assets Jeremy for -- we've signaled not everything has to be through an FSRU. We will look at other options. We're not a religion tied to FSRUs. We're about -- we are almost religious in our drive to get LNG to people who need it and to displace coal, but how we do it, it's going to vary on a case-by-case basis.

Got it. That's very helpful there. And as you think about the FSRU expansions, the stable business is in the terminals, how do you view the interplay between this part of the business and gas sales going forward? What do you think about portfolio mix between the 2 going forward?

Well, right now, and as we contracted with the FSRU Sequoia with Petrobras in Q4 at high end of the rates, we're looking at, I would say, in 2024, the numbers are out there, that's probably 98% core regasification business, that is a critical component of who we are. That is predictable, that is take-or-pay that is not tied to utilization. Those are great English law contracts and it's very predictable revenue and margins. We're very proud of it, and we hope we get the recognition for that. I don't want to create any confusion about LNG. We have signed this uplift with Qatar that will be contributing in '26. I mean, from Qatar into Bangladesh that's going to contribute from '26 onward. We have our VG volumes. These are always going to be incremental uplift, and I'll use the proof point of what we did in Bangladesh. We went to the government, and they said, "We want more capacity. " We said that's fine. We're going to give you. We're going to modify the ship so it can push 1 million tons more per annum, but we want to sell that to you. And so we made a modest CapEx investment, and then that allowed you -- we told folks, it's probably going to be a $15 million to $18 million uplift from say LNG sales, but think about that, Jeremy, really as we like the return on that project before. We have made modest CapEx investments. We're going to increase the integrated, aggregated returns on the project. That's what we're looking to do elsewhere. You can say what we do is really hard. You can say we have high barriers to entry to people coming into the space. But the reality is if you're doing that, you want to get -- you want to increase the return even beyond the good infrastructure returns we're getting, and that's our goal.

Got it. That's very helpful. Can you remind us of the details of the long-term contract to purchase 0.5 to 1 MTPA of LNG from Qatar, just how that works, I guess, at this point? And how you see this, I guess, aligning with the business model going forward more?

Yes. I mean as I was alluding to, and I guess I'm proud of it. At the same time, I don't want to confuse anyone because we've got this great predictable base business, great EBITDA. It's kicking off. We're very proud of that. We're proud of the payment track record dating back to 2008. Great payments. It's because people have to have that service and you pick your markets the right way, and you'll be fine. Thank you for letting me emphasize on that. We are buying DES Bangladesh from Qatar Energy. We're selling DES over 15 years, starts off, 0.85, ramps up first couple of years to 1 million tons. It's just -- it's a good proof point of what you can do. And look, we've always been proud of our balance sheet. We've always thought of ourselves as an energy company, more so than a shipping company. So we always wanted to have the muscle to be able to go do that. And what I'd say about Qatar Energy is with the utmost respect for them, we moved 10% of Qatar's global production -- current production of LNG across the rails of our ships. And we do that reliably all the time. There aren't people like Excelerate and QE is selling to on a long-term basis. They sell the super majors, they sell the sovereigns. There might be a Japanese utility or 2 that looks like Excelerate size. So what I'm trying to say is our reputation within industry with folks like Qatar Energy with folks like Petrobras is the A list. That's made to fight through my lost my voice and keep trying to make the case before we need to have that same reputation on Wall Street as we do within industry. But let's not get confused. We're not becoming a trading house whatsoever. We are going to have we think we're going to improve what are already solid infrastructure returns by integration.

Got it. That makes sense. And maybe taking a step back, looking at a high level here. I think you've discussed recently the ability to have more meaningful conversations with customers and convert this to projects. I'm just wondering, as you talked about, I guess, the credibility that this provides for the company and how you think about getting more of these projects through the pipeline to FID?

Thank you. I mean we did last earnings call, we tried to maybe we've been too conservative or too shy about what we're doing and trying to balance that right, get a little more transparency, see how hard we're paddling below the surface while trying to look elegant on top. I would say the biggest thing that happened is you've finally seen through the decrease in prices, the 2 mild winters in Europe, all of that, you've finally seen everybody to return to the table. And as I said, the ways in which you know that the global South is back to the table, our long-term sales into Bangladesh. Bangladesh is back in the spot market. India has announced their goals for some -- India is buying long-term volumes as well. I don't -- I guess I shouldn't get into who's selling to whom, but there have been some recent past 6 months, indications, of which are just showing a general enthusiasm to be in the space and get into infrastructure. And it is allowing us to have those discussions. Probably been traveling too much in faraway places. It's probably why I don't have a voice. But no, there is enthusiasm out there and they're serious about it. They know that this is going to be an affordable part of the energy mix for a long time.

Got it. That makes sense. And maybe going back to the duck paddling in like paddling beneath the water very active. A lot of irons in the fire, seems like for Excelerate these days. And I guess if you -- maybe you could walk us through your 12 most important projects as you identified, kind of talking about what types of initiatives they are as well as, I guess, how do you think about why it's important for Excelerate to own interest in onshore pipelines -- terminals, sorry.

I'll take that last part first, Jeremy. It's important because, again, we're good at what we do. We have opened up markets to LNG that are now a significant portion of global offtake. That's a lot of sustained efforts to do that. I do think we need to be looking at ways to integrate supply when we can to further enhance the returns for that outlay of effort and know-how. And to the extent we enjoy any type of reputational mode exploit that. So -- and I think you have a better chance of getting the pull-through on the vessels, pull-through on the molecules if you're there in the terminals. So we have a key interest in doing that. I'm trying to -- in terms of going through the pipeline itself, clearly, at the moment, all of that stable $325 million EBITDA for '24 is tied to FSRUs. FSRUs are big assets. They're size of U.S. nuclear carriers. It's no small thing. They're great value for places. I mean places that need LNG don't have the local resources, logistics, manpower to build. It's great if -- well, some Americans are challenged on Gulf Coast U.S., even where you've got all the advantages that you could have in the world. You can imagine in other parts of the world, how critical it is to do a lot of that in a controlled quality space like a shipyard and then show up. So FSRUs are always going to help you move a lot of volumes. They're expensive and going back to -- we don't want to be -- we do want to do more of them. We're bullish on the assets. We've got the new one coming best-in-class. We're going to have more, but we are mindful that's not the only way to get people what they need. And so what you saw on that -- from our deck from earnings was really want to showcase that not everything -- don't think of us as an FSRU company. Just think of us as this integrated energy company that's created infrastructure. So some of them will be breaking bulk, just need a cheaper asset there to serve us really a tank to it. Some will have different means of distribution. So -- and in some instances, you might have storage offshore and limited regas kits on it. I think what we were trying to convey to people, they're different markets we care about. We never think about projects. Projects is -- when you think about project when you're in a very mature space and what's my dispatch here and how much is it going to be utilized in all of this? If you focus on markets and overwhelming need for what you are providing you're going to succeed. They're going to want more and it doesn't hurt that they'll pay you too. So all those things come together when you focus on markets. I did -- I called out some of the markets we're interested in. Those are just huge demographic points you can't get away from and we've seen it. If you have a big enough population, if you have a solid economic growth that you need to support, and we all know power and energy goes one-to-one with GDP as a country is developing. If all those pieces are there, that's where we need to be. And we're hopefully showcasing some of that as well.

Got it. Makes sense. And maybe diving into those markets a little bit more, if I could, as it relates to the opportunity sets as you see it. I want to get your current thoughts on Europe, particularly Finland and Germany, if you could kind of walk us through what you're seeing there?

Yes. I mean Europe wasn't -- till the war, if you told me 3, 4 years ago, we'd be in Finland and Germany, I would have found that very surprising, but it was a natural reaction to the war to see what help was needed and if that was a good opportunity for Excelerate. And Gasgrid Finland, excellent customer, AA rated Federal Republic of Germany directly with the government, AAA-rated, great offtaker. Those have been good for us, and we're proud to be in those markets. Finland, I think, we had a lot riding on our operations when the Baltic Connector pipeline was disrupted by a ship dragging an anchor. We were supplying something like 98.5% of Finland's natural gas for 2 to 3 months, and we were that insurance that was being called on to pay and we delivered flawlessly. In the middle of that, they had a cold snap, where it was negative 42 or whatever Celsius and Fahrenheit crossover. I call it damn cold. But, we've looked at the numbers from Gasgrid on what the estimates are for what that country would have paid out or suffered in economic harm if that reliability in gas not been there and I'm not at liberty to share it, but it is an eye-popping number. So to be there, to be a credible source of supply when it's absolutely needed and there's no backup to you. I mean we want people thinking about us that way. So Europe, as you move forward, I don't know they've had a couple of really mild winters, but so is Boston. We'll see what happens. And if there are different opportunities that come up in the future, even though -- even though Europe has added 14 FSRUs, they still haven't replaced Russian volumes entirely. So they clearly need this infrastructure for a long time to come, regardless of what they do, and we want to be part of that long-term need, and then we'll see where it goes from here.

Got it. That makes sense. Maybe pivoting, I guess, to the other side of the world in South Asia, just current thoughts there. I think assets deployed in Bangladesh and Pakistan, you talked about India may be there in the future. Could you just walk us through, I guess, the dynamics you're seeing there?

Yes. As I said, they're back -- they're back there. I'm privileged I've gotten to go to Bangladesh for 12 years now, Pakistan for 10 and I've been going to India now for a while. And I've seen just different stages of South Asian economic development. You followed the GDP trends over time. The reality is those 3 countries combined are $1.8 billion folks, that's a whole lot. It's like we think about our global TAM. Global TAM is enormous. We're not trying to go out there and swallow this global TAM. We just want an unfair share. That's all we want. So it's really the same with South Asia. They are -- you can't ignore 25% of the world's population. You don't need a tremendous increase in consumption to really make a huge difference globally, and we do want to be part of that. So we're in places at very different stages of development. And we think we have a part to play across it. And then two, with our 2 projects with Petrobras, Petrobras for Brazil, in general, I would say, is kind of a snapshot of the future. They've got 70% hydropower. They're going to push another 10%, say, solar and wind. That's amazing. 80% renewable power, but they still have drought. It's like going back to biblical times, and the world's first renewable is will it rain or not. Now that's more predictable, intermittency than other intermittencies are, but in the same way that Germany has just added gas-fired power generation because they know they need that backstop to intermittency. These are these first world problems, and we think there's a great future in helping those first world problems. We also think that there's a great future in lifting people to the next level of development on their own trajectory. So I do hope there's a place for Excelerate across that spectrum.

Got it. That makes a lot of sense, 1.8 billion people, a lot of people.

It's a lot of people.

And so you mentioned Brazil there and want to maybe just continue with South America a bit more, what opportunities that you see there. Argentina included, how do you see the future there?

Yes. We've been in Argentina, 15 years, we've been in Brazil over 10. And they're in different situations. They're both impacted, I would say, quite a bit by the decrease in Bolivian production. And at the same time, they've exploited Vaca Muerta in a good way, but there's still more that they need to know to do there in Argentina results wise. So I do think -- it's a different play in both those markets. It's a security of supplied play. I think -- I mean, long term, I think you could see Argentina helping to deal with shortfalls in Bolivian gas. I do think LNG is an important part of that mixture there. And as I said, Brazil is just such a powerful case study on the need for as you advance on your energy transition trajectory to make sure you've got your safety nut in place. And I do think Petrobras in Brazil is very responsible about how they manage them. But I think we have a good opportunity set there, and we clearly have a great reputation as evidenced by Petrobras going back well and picking us in October for their long-term deal.

Got it. Makes sense. That's helpful. And what you walked though it sounds like a very deep global opportunity set as it relates to regas. Just wondering how you think about this versus downstream potential projects, how they compete? What do you think about the need for downstream given everything that we talked about with the regas?

Yes. The main thing -- just taking a step back, big picture, we do need to see more regas capacity being installed around the world. From my vantage point, the only people really serious about it these days are the Chinese who are adding significant quantities of regas capacity. I think that's about on their part that intermediate and long-term LNG prices are coming down and they want to be prepared to deal with that on a mercantile basis. I think that's a significant indication from them. That means others should be following suit and should be more focused on installing more regas capacity. As I said, I think the South is focused on it. And it's just a matter of helping them get there. But it is a need, it is affordable, can compete with coal. So we do think any -- we want the right markets, and we want to. When I'm back here 10 years, hopefully, it's Craig Hicks out there. He's here in my seat at that time, hopefully, I'm on a beach somewhere. But when we're back here in 10 years, I want to be talking about the great track record we've continued to have on payments, and that's going to come from identifying the correct projects, correct markets and continuing to go, but we want to get downstream because it's needed. And obviously, we want to generate pull-through and some integration opportunities to get those infrastructure returns up even higher.

Got it. Got it. Makes sense. And just last one, maybe if I could, as it relates to capital allocation philosophy. You recently announced a buyback, which I think caught some people by surprise. It seems like the stock market reacted favorably to that. Just wondering if you could walk us through how these things -- how capital allocation priorities mix in your mind?

Well, thank you Jeremy. I don't know who had the question on the earnings call. I think -- I mean I had -- I mean, we had to do it. The share price was too low, it didn't make any sense whatsoever. It was an excellent use of some dollars. We're always thinking about returning money to shareholders. I will say the focus is on growth right now because we have this confluence of total TAM, our individual opportunities, the reputation we are facing at the moment, the relative competitive landscape. We have to have a focus on growth. I'm always mindful as we hit those milestones that will have greater comfort of what we are adding to this company, we'll obviously evaluate dividends and tied to those small strands. But I want to be clear, the focus at the moment is growth.

Got it. That makes sense. We do have a minute. If there's any questions in the audience, but not seeing any at this time, I think we'll wrap it up there. Thank you very much for taking the time. We really appreciate it. Thank you, everyone.

Thank you, Jeremy.

Thanks.