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

Okay. Well, thank you all for joining us today. I have with me Excelerate Energy, Steven Kobos, who's the CEO. And thank you for joining me, Steven.

Pleasure to be here, Emma.

Okay. So as a starting point, I wanted to ask some of the people in the room might not be familiar with your business model. Can you explain kind of where you sit in the LNG value chain and what you provide in terms of your strategy and your operations for your company?

Sure. Well, first of all, thanks to Jefferies for having us today. Thanks for everyone listening in. It's a pleasure to be here. Excelerate Energy is effectively the last mile of the LNG value chain. We are -- we've been in business for, gosh, 23 years, been doing this abroad for -- I think we went to Kuwait and opened up the Kuwaiti market in 2008. So we've been at this for about 18 years, opening up new markets to LNG. What we offer is effectively energy security for folks, whether that's security from an unreliable pipeline neighbor, security from drought, all types of energy security. But typically, as you know, LNG, everybody here is well familiar with LNG, cryogenic liquid, you have to warm it up, you have to send it into a market as high-pressure gas, and that's what our assets do. We've evolved over time, not just from floating regasification assets, but into downstream LNG to power platforms, providing pull-through demand, et cetera. But over the years, we have opened up many new markets to LNG all over the place, taking lots of LNG now. And I'll tell you, now more than ever, that's what's required. I mean there's lots of LNG coming to market. There's plenty of liquefaction. We're going to see an uptick in 50% of capacity. A lot of that will need homes and people -- we are focused on opening up those markets that will be those homes. But let's just jump into what's on your mind.

Yes. I wanted to start with probably what is extremely topical right now. The current conflict in the Middle East, you are developing a project in Iraq, you have contracts that are coming on with Qatar and you have assets in the UAE. Kind of walk me through the impact of the conflict on your business model. And yes, just how it's been developing for you?

Yes. A lot has gone on in the world since we spoke on Thursday at our earnings call, hasn't it? Yes. Thanks for noticing that, Emma. No, a lot has gone on, and those are the sorts of things you navigate as a global energy company. As I said, we've been in the Persian Gulf since we opened up Kuwait to LNG back in 2008. By the way, something -- one thing many of you don't know, Kuwait still takes 6 million tonnes of LNG a year. So sometimes we're asked, why do you take coal to Newcastle? Why do exporters want to import? It's a dynamic that we'll see elsewhere. It's a dynamic we'll see elsewhere. When we first opened up Kuwait, the spread on fuel oil and LNG was allowing the KPC to make an extra $20 million every time an LNG cargo came in, and they were able to burn that for power and export more expensive fuel oil. So we do anticipate being in the Persian Gulf for years to come. Taking your questions in order, it's obviously a very serious situation, and we are taking it quite seriously. So the first point is we have many people in the Persian Gulf, both based onshore and at 2 of our existing floating assets. They are all safe. The 2 assets, one in Dubai and in Abu Dhabi are providing service, contributing to energy security of those markets. And we're proud to work both with Dubai and Abu Dhabi, where we've been for many, many years. So those assets are up and running, and they are continuing to fulfill their obligations. We do have -- we're actually proud of the fact that this year, we just started a 15-year supply contract with Petrobangla. We've sourced those volumes for 15 years from Qatar Energy. Very proud of the relationship we have with Qatar Energy. In other parts of the world, our assets probably regasify about 8 million tonnes of Qatari LNG per annum. So they rely on us. They have confidence in our operations globally, and they know we are a reliable partner. This year, it's -- I see it's -- I want to get it right, Emma, because some folks are listening. And if I don't get it right, my IR friend over there is going to have to issue a correction. So let's go slowly and make sure we get the numbers right. 0.85 million tonnes per annum, we're sourcing this year and next from Qatar and then the following 13 years, it's 1 million tonnes per annum from them. What I'd like to point out to you is we have not received any FM notice from QE for those volumes. It is, however, just a, let's call it, a cargo a month. We've already spoken to the Street. We've already told our investors. We've already told you that the uplift from those cargoes per month is probably $15 million per annum this year and next and then it goes up to about $18 million per annum after that. If this continues and if QE does issue FM for it, then what I would tell you is I don't see any material impact from that, let's call it, $1 million of EBITDA per month so long as things are constrained. But I don't see that persisting for very long, and I don't see it as a material amount. Iraq, yes, kind of -- thank you. Really proud of Iraq. We've been working to land that deal for years. We've always seen Iraq as a real prize. We believe that Iraq will take LNG for many, many years just as Kuwait has taken LNG for many, many years. There are lots of reasons for that. There's an intense deficit now. We're all -- Baghdad still does not have reliable power generation many, many years after the conflict there. We are determined to see that Baghdad will have reliable power generation. We are making it our mission to do that. They have an intense deficit. I will say when we signed the contract -- our contract has a minimum take of 250 million scfs a day of LNG that the Iraqis must take from us a take-or-pay. When we signed that contract in November, they were still getting 800 million scfs a day of Iranian gas by pipeline across the border. That moved to 0 in December. I will tell you, I don't see any chance of those Iranian volumes increasing from 0 on any kind of horizon, meaning that the rather dire situation that Iraq found itself in for nat gas when we signed this contract in November has just gotten even more urgent. What's the impact on that? I'll tell you the impact for 2027 when we hit full year run rate, full year contribution. We indicated on our earnings call, I mean, we did a gymnastics on talking about the overall growth CapEx for that, which we said was like in -- we said was in $470 million, $500 million, somewhere in that range. We said we still expect to build multiple of 5. So you can do the math. We're thinking that, that will have run rate EBITDA of $104 million or $110 million contribution in '27 when we have a full year of it. What I'll tell you is those calculations are based upon the minimum take of 250 million scfs. And I'm telling -- and I'm making the point that their shortfall, which was already extreme, is exacerbated because they're now an additional 800 million scfs a day short. So overall, just as I feel long term that energy security, and we often think that our brand is energy security. But energy security is just being reinforced all around the world. I quoted the Indian Energy Minister, Minister Singh Puri, I think on the earnings call, when we were in Delhi, he said, energy security is survival. I mean that's what the stakes are for the sovereigns that we serve. It is survival. That's why we're critical. That's why we're sought after. People know our 99.9% operational reliability that our fleet has had over the past -- each of the past 2 years. Sovereigns demand that, and it's going to be ever more critical. In terms of Iraq, we've already positioned a lot of equipment to Dubai free zones and the like on the correct side of Hormuz. At this point, I don't see an impact to cost or schedule. Of course, I'm one of those who thinks that alignment of economic interest, someone wanting to get [ Cargo Island ] up and running again, someone wanting to run that country, someone wanting to have an economy will see us to a decent point in the next month or 2. We will come back in earnings, but I don't see a significant -- I don't see any material impact to cost or schedule at this point. TBD, obviously. But what I'd emphasize is the [ base Iraq ] contract is 60 months of uplift. And that 60 months, okay, if the conflict went another month and it shifted by a month or 2, fine. But the 60 months is rock solid, and I think that it's going to be more remunerative as a consequence of this than we thought before. I think I actually answered your question.

No, no, that was...

Your questions. So I hope I did.

Yes. No, definitely, you did. And conflicts, I totally agree, conflicts like this in the Middle East really underscored the importance of your business model to energy security. It's so vital to be able to have an FSRU and bring in cargoes. Now the Iraq deal is different than just having an FSRU and getting a day rate there. And could you talk a little bit about the uplift you get from like an integrated deal there? You touched on the build multiple a little bit, but just walk us through a little bit more about the economics of the project.

Emma, it's really about the evolution of Excelerate as a company. We have thought for a long time that as more and more LNG comes to market, you need to make it easier for your customer to access LNG. I mean when we first were getting going years ago, we were dealing with these very sophisticated NOCs like Kuwait Petroleum in Kuwait, like Repsol in Argentina, like Petrobras, entities that do complex projects, charter hundreds of ships, buy and sell lots of cargo. As this 200 million tonnes of LNG comes online, you need to find other homes with people who aren't used to stacking all of that together. They want a molecule. They want a spark. You need to make -- if you're going to thrive and survive, you need to be able to offer that. We have the balance sheet to do that. We've been building up our LNG portfolio. We offer it in a very conservative -- we buy in an index, we lay it off in the same index, as you know, approach. But because we have minimal leverage like a 1.6 multiple, I think, right now, we're sitting on lots of cash. We are the type of company that can source LNG. So as the demand profile evolves, it is evolving to a type of market that we have been building our company to serve. And frankly, the historic entrance into floating regasification followed more of a shipping model, shipping companies, not a knock on them, but they typically have far higher leverage and are not the sort of people that can -- or entities that can source LNG. So we think the downstream LNG value chain, it's going to be moving more like upstream and liquefaction did. It's going to move from a pure tolling arrangement where you bring your own molecule and you go to your infrastructure and you take your own molecule out. I mean it's not that -- if you think about -- that was the model on some of the early liquefaction projects, purely capacity. I think the market spoke and you saw liquefaction move to another model where you have some liquefaction players that are the largest purchaser of nat gas in the United States. It's an infrastructure player, they source the nat gas, they source vapor, they sell liquid on a long-term basis. What I believe you're seeing is that we have just started to see the shift in the downstream LNG value chain where it's going to follow that same evolution that liquefaction already took. And that's going to narrow the scope of who can compete in that market because it's going to require different balance sheets, different liquidity and the like. And we've been building for that moment for years now. And I believe that inflection point is on us with the LNG wave.

That's really fascinating. I think on the conference call, you said the age of free gas is here, and it really does seem like there's a lot of tailwinds for this business given the LNG macro. I wanted to turn to now talking about the next vessel that you have that is expiring its contract and there's opportunities to recontract it. Could you tell us a little bit about like what you think is the upside there, what you expect going forward from that vessel? It seems like there is an opportunity there, and that's the next kind of big catalyst probably for 2027. So I just want to kind of go through that one next.

Yes. let's talk. I think we've put a lot of building blocks out there for '27 and '28. Like this company is maturing. If you look at our EBITDA now as opposed to IPO, it's obvious that we're maturing as a company. There are a lot of building blocks out there. First, though, run rate EBITDA for a full year of Iraq in '27. As I said, that's probably, call it, $104 million to $110 million. You've got that. Our deal with Petrobangla and sourced from QE, that one, as we said, this year and next year, $15 million contribution. So that's a $15 million building block for 2027. Express is coming back after many years of service in Abu Dhabi. And I won't point exactly to what that uplift for 2027 should be. We have -- that was on an annual 1-year evergreen locked into fairly low legacy rates. We have recontracted 4 of our assets since the IPO, all at elevated rates, highly confident in this current market that, that will be true for the Express. Still TBD, if that's going to be on an integrated deal with supply, which would obviously have a kicker -- I don't want to say kicker. It would obviously be -- when we generally guide to build multiples of 5 to 7 on projects, that's going to be down. Any time you can integrate it, it's going to be closer to the 5, not the 7. But look, we like who brought us to the dance and that was legacy capacity business. I don't think that's what's going to be as popular in the future, but some people will want it. And if we think it's the right tenor of contract, right sort of counterparty, we're not hidebound. We are a little bit like McDonald's. We think the customer is right, and we'll sell them what they want to buy. So we'll see, but it should be another positive uplift to '27. The other building block we put out there is we expect our conversion to be on the water in January of '28. That's going to provide further uplift and more beyond that. So I do think pleased where we are for '26, but '27, you can look at these pieces, you can do the math. It's significant uplift, and that is continuing with the building blocks into '28.

That's amazing. I mean I think that there is a lot of kind of -- you can see the stepping stones for the growth going forward, and it's really impressive. What I wanted to kind of talk about next is we have seen news about like Haldia and a JV in India, growth that's out there that's maybe not in that stepping stone to -- that we've laid out so far. So could you walk me through kind of opportunities and conversations you're having about the portfolio going forward? Like Haldia, you had an MOU with Vietnam. Just walk me through how that's kind of shaping up. And on the call, you said that the opportunities going forward are primarily in South Asia. And just how conversations in that region are moving?

Well, first of all, I love all our opportunities. It's like a mother and father with their children. I love all of our opportunities. And there is more to be done in LatAm. We've also -- and when I talked about the further growth, we've laid out our expectations for the Caribbean to on kind of a 5-year expectation on CapEx and EBITDA, where we said by the -- another 4 years, we expect to have deployed another $80 million of CapEx there -- I'm sorry, $200 million of CapEx, $80 million of EBITDA or so. So we like that. It's a smaller market, but smaller markets can -- are just as important. I would say with the coming wave of LNG, smaller markets are important to everyone because not every project that comes online is going to be 5 million tonnes. Iraq, I think, will grow to 4 million tonnes, but that's atypical. There are going to be lots of million tonne opportunities around the world, 1.5 million, 2 million tonnes. By definition, it has to happen. All that LNG is not going to existing regas capacity. It's not all going to 5 million tonne deals. So that's going to happen. Yes, I was pleased. I got to -- I think it was the only American -- Prime Minister, Modi convened a roundtable of energy CEOs. And there's real conviction. It's the second time I've heard him say and just ratify double down on he wants to get the Indian energy mix to 15% nat gas by 2030, up from 6%, like no doubt about it. That desire is there from the top. You start looking at the Indian pipeline network, and it's finally starting to connect to each other in a meaningful way around the subcontinent. Things can pivot there. He's well aware of the development of the city gas network and what that's going to mean. So we've been in Pakistan and we've been in Bangladesh for ages. Those were mature gas economies who started facing severe decline curves in their domestic production, which made them need LNG immediately. They didn't need to build up their gas demand, their pipeline infrastructure, et cetera. That's a particular market. That's why we were in those 2 markets before we move into the middle. Well, I'll tell you about Haldia. I mean it's counterintuitive. A lot of people would say, why aren't you first going to Gujarat? Why aren't you going to some of those locations? We're going where others aren't. And Calcutta's West Bengal still has 100 million people. If you go through their panhandle or as they call it the Chicken Neck between Nepal and Bangladesh and get to the 7 sisters provinces in the East, that's another 40 million. So you're really talking about 140 million people you could serve. We think it's a good location to be. And we'll see what happens. We do -- it's early stages, but it's not something we're competing for. It's a concession that our joint venture has. We're executing on the land. We're executing on developing that. It's bite size. We think that the right way to enter India first is in a joint venture, first in a minority stake. And the best way to grow India as in so many parts of the world, the best way to do more business in a place is to do some business in a place. So I think as that goes on, it will force us to put more and more personnel on the ground. We'll have a better feel of the further opportunities, and we'll go from there. So it is something that we care about. Vietnam, I have to admit Vietnam is a personal obsession of the CEO, which come on, I'm entitled to have a few of those. And -- we are -- that's different. India has a particular project. We have a partner. We're developing it. In Vietnam, we just continue to try to be of use to Petrovietnam to show the government that we are a reliable partner to provide expertise. And we know, to use an American basketball term, we're going to keep hanging around the hoop. And then we're going to get a bucket from it. But that's -- yes, maybe it is a personal obsession, but it's -- it has great fundamentals. Vietnam is changing. I think the regulatory climate is changing over time with General Secretary, To Lam. And I think when it does take off, it will take off. But I'm not signposting anything there. So South Asia, Southeast Asia, East Asia, those are great. But I assure you there are other opportunities in the Middle East. There are other opportunities in LatAm, and we've already spoken to the opportunities in the Caribbean.

That's great. On the 4Q call, you talked a little bit about like smaller scale opportunities, FSUs and ISO tanks and smaller infrastructure than just an FSRU. So could you talk a little bit about what the opportunity is there and how you see your asset portfolio going forward? Is it still FSRU heavy, but it has these kind of like smaller elements worked in? Just walk us through your thoughts on that.

Well, as I said, it's going to depend on the connectivity of the market you're going to. I do think in India, I expect we're going to have some trucking at first just as we do in the Caribbean. It's going to be about building up demand. So we will have smaller assets. We don't -- on our earnings call, Emma, we don't tell somebody, hey, we just bought 10 ISOs in Jamaica or we just bought 4 freightliner trucks. I mean I don't want to be the CEO that's talking about, hey, we just bought some trucks. That's not who we want to be. At the same time, we've got 1 billion cubic feet a day FSRU rolling out. But what I will tell you is we are determined to be the last mile provider of choice. We are determined to be the downstream LNG infrastructure premier provider. That's not going to be one tool in a toolkit. That is going to be a Swiss Army knife. So the big blade in that Swiss Army knife is the FSRU. But just as we're going with conversions that are anticipating a little lighter send out, that's an adjustment. We can have things that look like our Montego Bay terminal fed by smaller scale to. It's not -- it's still a possibility that Haldia in Calcutta will start off looking more like Montego Bay. So we do like the way -- but we are thinking about once you have an FSRU, that means you have a tank farm. Once you have a tank farm, you can make deliveries from that tank farm to smaller customers. You can source your LNG affordably under long-term contracts. You can break bulk at your tank farm and then either -- however you choose to get it to your end customer. But we're interested in every part of our Swiss Army knife.

That makes sense. What are your thoughts on FSRU conversions versus new builds? You have the new build with Iraq coming on this year. You have an FSRU conversion, Shenandoah in 2028. How do you think about the split of that going forward?

As my English friends would say, horses for courses, like there will be some where we need that Bcf peaking send out. So this won't be our last new build. No question about that. Plus I love the yards. I love the spec that we've evolved over decades, precisely how we like to build those. And I love the reliability, I love all those things. However, conversions make sense for if you're looking at a different send-out profile, which we are. So that's why we're adding that to the mix, kind of excited about it, been working on it for some time. We've already ordered a bunch of the long lead time equipment. Last year, as we continue and contract with the yards, we're going to update growth CapEx for you on that. But as I said, we will have more new builds, but we are going to have FSUs. We are going to have conversions. And we'll probably have more trucks, not probably, we're going to have more trucks. So it's going to go all across the downstream value chain.

That makes sense. Could you do an FSU and a conversion at the same time? Or is there constraints?

No, no, no. I mean FSU depending -- I don't want to geek out on the technical side. It's all about where you want to put it, what the MetOcean data is sloshing. Do you take an old Japanese Kawasaki [indiscernible] because you think that the MetOcean requirements and being partially full might require it. But it's not a significant enhancement. Or you may, depending upon the profile, we are -- for Petrobras, they ask us to make about $32 million of upgrades to the experience, our FSRU in Guanabara Bay, one of the 2 FSRUs we chartered to Petrobras. That's because the profile in Brazil. Brazil is so blessed. I mean they have 80% hydroelectric power. It's amazing. I mean they actually are 90% renewable, but everything is a 2-edged sword. That is fantastic when it rains. But when you face a drought as they faced in 2022, it's very -- it's not like a German's, the dark lull that they speak to, it's not just a few days of cloud and stillness where solar and wind come off. I mean with drought, you see it coming. You -- some of their hydroelectrics, free-flowing river hydro, you see the river levels going down. Then you see the reservoir levels going down. And you can see that your interruption to your reliable power is coming, but it's coming inevitably and in a massive way. And that's why Brazil has to have all of this nat gas and LNG backstop because they have to have an economy 5 years out of 5, not 4 years out of 5. And as a consequence, we're putting some relic there so if Petrobras wants to float a cargo on our FSRU for a couple of years and not have any economic consequence of that, they can. So that's just another example of just listen to what the customer wants, study the market, see what's unique about that market, proactively offer the solution for the customer to that market. And that's how we think about growing the business.

And we talked about this a little bit, but why do you think there isn't new entrants in this space or new people coming in? It seems like you have a really interesting business model. You're getting a 5x build multiple in a rock. Why are there not new companies coming in and trying to do what you're doing?

No, it's interesting. In the 2030s, they will. I mean the IOCs will turn their attention to it eventually depending upon what success they have with the enormous portfolios that they're building up. I do think that's the case. I mean you also probably will see IOCs turning to power a little bit more just to ensure that they have pull-through demand. So that will come in time. The real issue for Excelerate is we're purpose-built at this moment when the entire LNG industry is shifting, when an increase in a commodity globally is going to increase by 50% over the course of 5 years. I mean it's an extraordinary circumstance, and we think we are in the driver's seat while this is happening and that we have been building up the tools for it. It is interesting. If you're a sovereign, and we've kept the lights on for sovereigns for many years, you are not inclined to turn responsibility for keeping the lights and the capital on to somebody who really thought this would be fun line of work to get into. So we do operate our own assets. I admit we obsess about operational uptime because we know sovereigns are counting on us. So that 99.9% uptime last year and this year, it's not just what a fun KPI to have. It's because sovereigns count on us. So track record is a barrier to entry. Having the heft operationally is a barrier to entry. It is a high CapEx business. It helps to have our balance sheet. And as I said, as the industry will move, I believe, inevitably to bundling and more integrated deals where a customer -- yes, there -- the form of their take-or-pay offtake may resemble infra, and we're trying to shape and sculpt it to match our infra contracts as much as humanly possible. But at the end of the day, they want simplicity, and that's going to require low leverage, good balance sheets, all of that. So I think all of that together matters. But we've -- literally in these fraught markets that are dependent upon it, if you go off service, the lights are going off somewhere. The steel plant isn't open for business that next day. The urea plant is not producing fertilizer for farmers. So it is serious business. We sit here in the United States, and we think, well, if one form of dispatch goes, you just look to another form of dispatch. That's not true in many of our markets. So that's why it is so important to have a track record.

I think that's really interesting. And it's actually the IEA in their 2025 gas outlook, we're talking about how companies with liquefaction are going to need to move further down the value chain. And we're hearing it from you, I think, that it will happen going forward. One of the things I wanted to touch on is like we've laid out the organic growth opportunities. How do you feel about inorganic? Is there an area of the portfolio which you don't have or can't grow as much organically and you would like to expand that?

Not a knock on [indiscernible], Emma, but it's amazing what doing a $1 billion deal last year does for deal flow. I mean it's suddenly people can remember your telephone numbers. I do -- I'm glad for that. I guess they needed proof that we actually will move if we see the right opportunity. It's going to have to be an adjacency. It's going to be something that will help us scale, achieve something that we think makes sense in the context of our overall portfolio. But I mean, we're an all of the above strategy. And I expect our corp dev team to work as hard as everybody else in our shop. So I hope we'll be evaluating those opportunities.

That makes sense. Is -- one of the things that was unique and very interesting about Jamaica was this kind of LNG to power element to it. Is that something you could see yourself expanding into more going forward?

On an intentional basis. And it is interesting because I do think people will focus more on creating anchor pull-through demand. But it is going to vary. If it's a stand-alone project somewhere isolated where it doesn't allow you to build further nat gas deliveries off of that pull-through demand, that's one situation. If you see it as an important part of building up a nat gas economy, and you can see that that's -- that justifies the investment in the project, but you have a plan on how you're going to build off of that either by pipe or other deliveries, it's all just going to -- what's the true ultimate pull-through that you can generate by making that investment. So I think that's going to be on a very case-by-case basis, but we're excited to have evolved into that part of the downstream LNG value chain for sure.

Really interesting. And as you know, kind of a final kind of question here, I want to -- what is the story you're trying to tell the equity markets out here? What do you think is the Excelerate story? And then just any kind of closing remarks or final thoughts on what you'd like to leave our audience with.

I think -- I don't think. Our brand -- Excelerate's brand is energy security. Unabashedly, I believe we're best-in-class. We are on a mission. We have opened up probably more new markets to LNG than anyone over the past 20 years. I think the world is starting to realize how critical that is. We intend to scale responsibly and in a disciplined manner over these next 5 years of the wave coming to market. But I said Thursday, the future of LNG is regasification, not liquefaction. At this point, I'm not terribly interested on a couple of more FIDs one way or the other. We know there's going to be an intense increase in supply. We know that, that is going to drive long-term LNG prices ever more affordably for the end customers we wish to serve. And we just wish to be -- we intend to have an unfair share of that market. That's all we want.

Makes sense. All right. Well, thank you so much for joining us today and speaking to the audience about Excelerate.

Thank you, Emma.