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

Okay. I think we can get started. My name is Theresa Chen. I am the midstream and refining analyst here at Barclays. It is my pleasure to welcome our next company, Excelerate Energy. And from Excelerate, we have Steven Kobos, CEO. Welcome.

Thanks, Theresa.

Thank you for being here, Steven. So maybe diving right into the macro landscape of sorts. So from that perspective, what are your near- and long-term views on LNG fundamentals and also Excelerate's regasification assets? How are they situated within this backdrop?

You bet. Can I take a second Theresa because I do see some of our existing investors out here who have a good feel for what Excelerate does. I know we have some other folks listening in. But just for the benefit of those who aren't as familiar with the Excelerate story, I think more and more people in the past 5 years, obviously know a lot more about LNG. It's not like 5 years ago. [ It's this ] miracle. It's a virtual pipeline. The oceans become your pipeline and all this abundant energy makes it out into the world. Excelerate is probably -- it's not probably, it's the only opportunity to invest in that LNG value chain, which is focused or obsessed with going downstream, opening up new markets and allowing other people through this flexible virtual pipeline to access affordable abundant energy. We're the only ones focused on that. There's a huge TAM out there. Many of the folks here and listening in know we're expecting another 200 million tons coming online between the Qatari North Field expansion, U.S. Gulf, et cetera, meaning opening up additional markets is ever going to be more and more important. We think we're good at it. We think we have a great track record at it, and that's why we're pleased to be here. So -- but talking about LNG in general, and to your question, I think was what do we think about market fundamentals, I'd say just looking at LNG right now, look at U.S. FOB LNG, so we're talking like $5, we're talking 115% times 2, plus 250, you throw in some shipping, that is affordable energy from anywhere around the world no matter how you slice it. So what do we think about the macro. We think the macro is currently very affordable. We think intermediate, the macro will be affordable. And that's -- Excelerate is somewhat unique in that we are agnostic. We know that this commodity needs to be affordable for the wider world for the people who need it. It needs to be competitive with coal in those markets. And as we talk to people, we see more widespread acknowledgment that, yes, if this is affordable, we can build something on this. We can make this a key part of our energy mix around the world.

Makes sense. And then maybe just on the regasification aspect of it and your contract portfolio, specifically, can you talk about the contract portfolio for your base FSRU and terminal assets? What kind of earnings ratability and cash flow stability to your assets offer?

Thank you for that softball. I mean I'm so proud of our business. We have $4 billion of contracted future revenues. We've got an average contract length of 7 years. And I would say it's actually a lot more than that. There are a couple of evergreens at the end of contracts that are maybe pulling that down. But I know those are going to be sticky. So really well over 7 years in my view of -- and 7 years of contracted future length. It's very stable. That's what's generating these very predictable earnings, and we think it's a rock-solid based business and it's going to provide us the springboard we need.

Understood. And looking at your broader strategy, can you maybe provide an overview of the 3 pillars of growth for Excelerate going forward.

So -- well, thanks. The first thing is the base business, like operating and optimizing this reliable base business. And this year, it's 98% of that $330 million of EBITDA is coming off of that base business. So it's no wonder that we want to -- we want to obsess about it. We want to focus on it. We want to invest in our fleet. We want to have best-in-class and continue that. So base business, first and foremost. Secondly, we want to -- 3 things we keep talking about are get -- invest in more LNG import terminals, regasification terminals around the world, step one. Step two, grow your LNG portfolio. And you saw it just in the past or in the year, since last year Barclays Conference, we've added more -- we're up to 1.7 million tons of LNG in our portfolio. We have back-to-back deals on the supply side with Qatar Energy, [indiscernible] Petrobangla, we've reported on that. So we're continuing to focus on the way in which having access to a flexible LNG portfolio is going to allow us to have more of these back-to-back deals, choose our infrastructure returns, which are always going to be front and center part of what we do and go on. And then our third pillar is obviously to find ways to get pull through into the markets, invest in downstream assets and infrastructure, which we hope will provide pull-through demand for vessels for LNG, et cetera. And we think we've made some decent proof points along the way this past year.

Yes. And we're definitely going to get to some of those proof points in a bit. Maybe just more broadly, before we dive into the specifics of your recently announced projects, when you think about optimizing the base business as Pillar 1 and also growing your asset footprint either by acquiring interest in terminals or through organic projects, how do you think about balancing those 2 needs?

They're both important. Which of our children do we love best, both. But as I said, that $330 million of stable EBITDA, it is important, it is important to -- we spend a fair amount on maintenance CapEx because we are determined to maintain a best-in-class fleet. Step one, got to have it. At the same time, we are seeing more and more people want some level of integration or other types of growth. And so you can't have one without the other. And I do want to remind people, it's natural. Of course, I'm excited about the growth projects. Our developers are excited about the growth projects. It's exciting to talk about opening new markets for LNG. It's important to do all of that. I'd be doing everybody in the room and everybody listening online [indiscernible] service though, if I don't remind people of our base business, the steady cash flow, steady EBITDA that's there year-over-year and has been for many, many years. I just want to make sure people know this isn't a start-up. This isn't something we're just coming to you with the development portfolio. This is a work of many years, and we're proud of that book of work.

Got it. And complementing that steady base [ in the ] infrastructure assets, can you talk about the other aspect of commercializing your portfolio of infrastructure, which is marketing the LNG volumes? And specifically into that third pillar, why is it important to diversify your LNG sources.

I think Theresa, I will take the last part first. We've got 10 projects around the world right now. 5 for Atlantic Basin, 5 for Pacific Basin. And at the same time, if you want to talk about the molecule supply, we've got 1 million tons out of Ras Laffan in Qatar and 0.7 million tons from U.S. Gulf. So for us, it seems sensible. Just as it's sensible to have a geographic mix on our projects, it does feel sensible to have a geographic mix on the molecules that we can use to feed those projects. We'll probably want to continue that. Whenever I say I should answer the last part of the question first, I should assume that I've got a good enough memory to remember the first part of the question. But I think you're talking about the relative balance of the molecules with the infrastructure.

Yes. Finding a home downstream.

Yes. But first and foremost, I want everyone listening in today or here to realize we are an infrastructure play. We're going to remain an infrastructure play. That $330 million of EBITDA that's out there, that's almost entirely infrastructure. I am excited, we are all excited to accelerate about doing things that no one in this space has ever done, and that is linking the molecules in a good way. It's never going to get out of sequence. We just added that 1-million-ton back-to-back deal with Qataris and Bangladeshis. I routinely tell our people, I want to see 5 million tons moving through our assets by the end of the decade. That's never going to be more than a side dish and that's going to allow a nice uplift to our infrastructure returns. But just as we said on that Qatari-Bangladesh deal, that was maybe $18 million a year of EBITDA uplift back-to-back, okay. So maybe we do 5 million tons, you're looking, we'd like to see $100 million, $130 million of EBITDA contribution. But at the same time, that $330 million of infrastructure is going to be going up too. So I don't look for it to ever be the majority of who Excelerate is. But we're going to do things others can't do. And we are interested. We do have the balance sheet for that. We do have the reputation with the suppliers who want to do business on us, who know we can do business. Just Qatar, for example, three of our assets regasify over 10% of Ras Laffan's current production. So they know we are a real company. They know we have the capability to do what we say we're going to do. So it is important. It's important who's recognizing us as suitable to be in this market, but it's always going to be a point of balance and support.

Got it. That makes sense. And I want to turn now to your growth potential and the backlog and many aspects of that you go through. So when you think about Excelerate's long-term potential project backlog, how do you weigh new builds versus conversions? What are the pros and cons of each? Are there project-specific vessel requirements to consider as well and the like?

This is probably where I say, "Hey, we're an energy company with ships, we're not a shipping company." So let me just put that out there. That's like random warning, I'll just give out there. We are an energy company with ships. We do think we know how to use these. There are 50 of them out in the world right now. We have 10 of them. There are only 2 on order. We're starting steel cutting on one of them, HULL 3407 with Hyundai next month. Though we have 20% of the world's supply, when you look at regasification capacity, we have 26%, 27% of the global fleet's regas capacity. This means we have a fair amount of big capacity ships. And so our new building is going to have 1 billion cubic feet a day of send-out, and it will go to a thirsty hub. But to look at the redundancy, the reliability, the benefits of being purpose-built, there's nothing like a new building. That said, but we're not tied to any particular class of asset. So there are definitely going to be conversions where we will take older LNGCs and convert them for different projects. For investors here or listening in who want to know the code for that, that's when we start talking about lower capacity send-out needs for some of the projects that are out there. That's probably going to be code for either moving an older FSRU around and sitting at somewhere or doing a purpose-built conversion just because you don't need to take 1 billion cubic feet a day ship and show up to a 200 million scuff facility. So there's a place for all of them. And one of our announcements was for Vietnam, where spoiler alert, we said that's onshore regas, and small tanks onshore. So we're not tied to being a one-trick pony with one class of assets. We're going to adapt as things go along. And frankly, we just care about getting energy into a system, and we'll find the best way to do that.

Okay. So on the point about your new build, FSRU HULL 3407, so you mentioned steel cutting with Hyundai. Can you provide just a general update on the status of construction and time line for delivery? And then I know that you're still kind of in contemplation phase about what ultimately this asset -- what purpose this will serve, but do you have in mind what kind of projects do you think that would be a best fit or the unique criteria for this vessel in particular?

So steel cutting next month, Theresa. And I would like to say and remains -- it is -- does remain on track for June delivery. That's kind of like virtually every other Korean yard project in history that comes out when they say it will come out, and this one's no exception. This will be delivered in June of '26. We're excited about it. It frankly has all the bells and the whistles that we've learned of in the past 20 years. But in terms of what you're looking for here, you're looking for a market that is thirsty and it can have a lot of throughput. And we have all sorts of markets. There are markets which take every molecule they can every day. So our asset in Karachi is like that. It's getting a cargo every 4 days, just push, push, push, 5.5 million tons per annum. So was at 1.25% of total global LNG production going through one of these assets. It's ultimately going to find one of the homes that is thirstier and needs some level of redundancy and we think there are a number of opportunities for that. So I'm excited about that. But again, it's going to be horses for courses and some of the projects are going to require much lower send-out than that.

Understood. And then turning to Vietnam, following up on your earlier comments on -- about this newly announced project. Would you mind that talking about the thought process behind this decision to enter into the Vietnamese energy market in general.

Theresa, I think the thought process is damn, I'm getting tired of waiting to get into Vietnam. I mean, people have been -- in energy have been talking about getting into Vietnam and LNG for it seems like over a decade. And I've seen so many projects talked about over the years. And ultimately, of course, I do want -- we do want to get into it. And part of the reason for that is their ambition. They intend to get up to 20 gigawatts of gas-fired power generation. So that means at some point, Vietnam is going to be importing 20 million tons of LNG and they're going to be a very relevant and important part of the global LNG infrastructure. It occurred to us, we could either sit around waiting until they get everything just perfect to facilitate all that LNG to power investment or we could just get impatient and sneak in the kitchen door. And so we looked in the north, most of the gas powers in the South, we're looking up near Haiphong and we told our team to look for industrial demand that can switch right away or can take it on right away, just as a means to get in that market. So we always talk about how we love markets, not projects. We're determined to get into Vietnam while others are waiting to get into Vietnam and to take advantage of that early mover capacity. So it's like 0.7 million tons. By the way, that 200 million tons that's coming, don't sneeze anyone at 0.7 million tons. Some of it's going to be 0.7 million tons, some of it's going to be 0.5 million tons, some of it's going to be 1 million tons, 2 million tons. That's what the world needs to access this affordable energy. So they've got tremendous ambitions that we don't want to wait until gas-to-power comes online, we want to get a running start at it. I also want to prove to everybody that we'll do something beside FSRUs.

Fair enough. So with this decision to embrace being an early mover to get a running start, I'm sure there are plenty of other places that are thirsty for regasification and gas-to-power, do you see many other opportunities following Vietnam, the decision to enter into Vietnam to participate in greenfield LNG import terminal projects in other EM country from here?

Yes, I think there are definitely going to be opportunities. And we go back to your first question on macro, why are there going to be other opportunities. These are energy-starved markets, and you're going to have an affordable source of energy. So connecting that supplier to that consumer is -- that's the TAM. And so will that TAM exist in other emerging markets? Absolutely. We've liked -- there are many fundamentals we like. We like places that have -- that have access to natural gas already. So they've built -- maybe they've built up CNG stations, maybe they've built up some gas-fired power because they had some domestic production. I'm thinking of Pakistan, I'm thinking of Bangladesh, where U.S. companies have been forever onshore, but where there are steep decline curves. So we're always looking for a basket of market fundamentals that give us confidence in an individual market, but there can be a bunch of those. So I don't -- if you worry about anything, don't worry about the TAM.

Fair enough. Okay. Maybe turning to the domestic front as part of that global TAM. So you recently also had announcement relative to -- in relation to Alaska. Can you provide an update on this project to import LNG into Alaska. How did that project contrition as another part of that question? And just what are the key considerations we should be keeping in mind as this goes forward?

Yes. Obviously, Alaska is one of the most abundantly -- has lots and lots of resources, but let's not forget that we've also put facilities in Kuwait, in Abu Dhabi, in Dubai, Argentina, Brazil, energy systems are complex. And you may be a net exporter of energy, you may still have specific aspects of your system that need to be taken care of. And that's really what Alaska is. So we've had all these counterintuitive projects over the years where someone thinks like they can't need that. And like, yes, actually, there is a need. So it may be a bridging need but what we found is there is an intense interest. There's a concern within the community up there about how long before they need to augment. Generally the thought is they're going to need some support from LNG by 2028. And so it's just been a natural as we look at those fundamentals and have those discussions that we've gotten more and more serious about developing this project. So yes, that's the first thing I'd say, we are developing this project, and we expect intense interest from other off-takers.

Got it. And then just on the base assets, do you have any updated color on the political volatility in Bangladesh? And what is the status of your operations there? And do you have any views on the potential impact to your company over the near and long term?

Thank you. I mean the serious point of concern -- I mean anything is serious when you have a lot of employees in country. And back in July, there were some very uncertain times. We had folks working from home. We didn't want any one out. Our employees, the safety of our mariners going to and from our assets have been paramount concern for us and everyone is healthy, all their families are healthy, et cetera. Now with the change in government, Muhammad Yunus, the 40-year-old level price winner has been installed, very encouraging about who's been installed in that caretaker government, lots of American -- educated American work experience people. What I will tell you is I think there's opportunity in that country, and I think it's a good time to be a U.S. company. There's a well of goodwill to the U.S. and the U.S. government there largely due to the U.S. government support of democracy leading up to the elections earlier in the year. So what I've seen is there will be geopolitical knockout, but I look for the opportunities for U.S. energy company to remain very robust. And beyond that, you go back to a market, their energy balance is about 3.1 Bcf a day of natural gas, including the LNG. Our 2 assets supply 34% of that. So it's a gas-starve country. They need to find ways to get their hands on more energy. And I think we will be an important part of that moving forward.

Very fair. So shifting gears. In addition to providing reliable and efficient gas sources for your customers in Bangladesh and elsewhere, can you talk about Excelerate's sustainability efforts, specifically the integration of modular reliquefaction kits on your vessels? And any color on potential timeline and economics on that?

Thank you. I love this. I kind of geek out on this. And I think I water dripped this to the Street maybe even before I could. And then I told you guys, well, you got to do it now, I mean because we talked about it. But reliquefaction [ reliq ] is a tried-and-true technology. It's on a lot of LNG carriers. But no one's ever put it on an FSRU. So first thing I'll tell you is you're pushing everything to sure that you can every day, those aren't your projects. The projects are ones where you're sitting there as a backstop to hydroelectric power. Someone whose base is in a country where they get most of their power from renewables or even a European mix where your throughput is going to be intermittent. And the reason for that is simple, without getting into the specific of economic street. So just think about it like 0.1% of the cargo if LNG is boiling off every day. And yes, I know it's kind of funny to think about a minus 158 Celsius cargo boiling, but that's how it is. That's just the thermodynamics of it. And so you can rapidly see if you're losing 0.1% of the value of your cargo every day, it makes sense to put one of these on. I think it's going to be a compelling case for our customers that are not sending maximum volumes to shore every day. And we're just very excited about it because it's going to lower emissions. It's going to make sure that, that energy is used for productive purposes. And more than anything, our customers know that we spend time at the drawing board thinking about the economics of their system and their project and how we can improve upon it. So -- and it's a nice way to ensure that our assets remain best-in-class for the long haul. So very excited about that. We're excited about our engineering ensuring that it's plug and play across the fleet, and you can hear -- I'm sure we'll be talking about that more in the future.

Excellent. So my last question, kind of tying all of this together. You're investing your base business, including sustainability efforts in growth, you have a buyback program and the like. So when you think about your broader capital allocation framework, how do you balance all of those endeavors while also maintaining a healthy balance sheet?

Yes. Well, maybe it's a little too healthy right now, Theresa. But I mean our balance sheet has allowed us to do things that others in the space have not been able to do. I mean it's been allowed -- it's allowed us to go out and be building this LNG portfolio. Beyond that, it allows you to be taken seriously with a sovereign who is -- who you're saying, "Hey, I need you to trust me, I need you to know that we will keep your country's energy system upright." And they don't really want to hear that you're levered to the eyeballs. They want to know -- it's been one of the great aspects of being publicly listed that everyone around the world can look us up and have that level of transparency. I'm very proud of that. We are aware we do need to be getting capital back to shareholders, absolutely. I know the portion of that TAM that's in front of us and that we can execute on. So it is attention, but we are aware, we listen to our investors. We will continue to reevaluate the dividend as part of that and we will balance our ability to execute on the TAM in front of us with being responsive to our investors.

Very clear. Thank you very much, Steven. It's a pleasure.

Thanks, Theresa.