New Fortress Energy Inc. (NFE) Earnings Call Transcript & Summary

Thank you, everybody. Good morning. This is Brett Magill, Managing Director and Head of Investor Relations at NFE. We appreciate you joining us this morning for our July 2022 Investor Update. This call is being recorded and will be available by replay within the Investors section of our company website under Events and Presentations. We will be making forward-looking statements so we encourage you to review our important disclosures on forward-looking statements within our website and along with other risk factors contained in our SEC filings. Joining me here today are Wes Edens, CEO and Chairman of the Board; Chris Guinta, CFO; as well as Andrew Dete and other members of our leadership team. So with that, I'll hand the call over to Wes.

Great. Thanks, everyone, for dialing in, and happy post fourth of July holiday. We have -- we've put out a series of press releases today, and I just want to take an opportunity and run through briefly what they are all talking about and give a little bit of context to it. I'll have Andrew talk about our ships deal. These all ended up getting signed up as transactions on Friday and on Saturday. There is, to a certain extent, just some coincidence that it all happened on the same day. We've actually been working on these for a long time, and they all kind of came together at the end of last week. But a little bit of context. So obviously, the LNG and gas world is in a real state of flux right now. Access to gas prior to the Russian transaction was -- or invasion was very constrained and it only gotten worse. And just a little context for this, so as I -- I think I first said this back in January 2021, we went FID on the first of our liquefiers. We now have 3 of them under construction. We started this 18 months ago. And at that time, I thought that actually the process of finding gas at reasonable prices under reasonable terms in reasonable jurisdictions was going to be fairly straightforward and kind of set sail around the world to do so. I kind of, as I've said before, I visited 19 countries last year like I was a high school exchange student. And we have a number of promising potential sources of gas. But our conclusion at the end of that was that there really was no place better, in many respects, than the U.S. U.S. is one of the largest producers of natural gas in the world. It's obviously got great rule of law and access to infrastructure and whatnot. And so the first filing that we made for a liquefier ourselves, we made back in March 30 of this year. That application is in -- off the coast of Louisiana. We filed with MARAD under the Department of Transportation and have had steady progress on the permits and believe very much that we're well on track to do all that. So that's all prior to these transactions. Today, we have several announcements that are -- at least a number of them are actually related in some ways. They are, as I said, coincident in terms of the timing of them. But maybe if I can just start and walk through each of the transactions in Mexico, and then I'll have Andrew talk about the ship's financing we did as well. So in Mexico, the first transaction that we announced was with Pemex to partner with them on a field that they have already spent a fair bit of time and money on developing. It's called the Lakach field, L-A-K-A-C-H. This is a field that is just under 1 Tcf of gas. It is relatively deep water. It's about 3,000 feet of water. They have spent significant amounts of capital developing it. They have 7 exploratory wells and the resource is now fully vetted. That's the good news. And the better news from our collectors' standpoint is that our technology and what we have developed is really a perfect match for what they have got there. And so what we expect to do in this transaction is go in, complete the wells and put in the capital to do so. That will then get the wells flowing. We'll bring the gas into shallower water. We will then basically put in place a gas treatment plant and one of our FLNG units, and the gas will be treated and then split, and a portion of it will come onshore for domestic use, which is great for Mexico and Mexican consumers, and a portion of it we'll use in our liquefier. This is a model that I believe will have great relevance around the world because there's obviously significant gas resources offshore. And many of the places where they are located, there's both a big need, a very significant need to have gas to use for consumers onshore. And there's also a significant upside and benefit for the country and for ourselves collectively to then have gas available for export with all that's going on in the world. So this transaction, I feel although it is one-of-a-kind and with respect to what is developed at Pemex, I think it is one of many of the type of these transactions that we feel have been out in the world. The timing for it is we expect to be fully completed on documentation over the course of the next couple of weeks. A significant amount of the equipment that is necessary for the completion has already been purchased and is in various warehouses and places around the world with Pemex, which is great. So from a backlog and logistics standpoint, we feel great about that. And our goal right now is to be in operation by the end of next year, so basically, kind of Christmastime 2023. So that's an aggressive time frame but one that we think is actionable. And our goal is to both have the field that is completed, have the gas treatment ready to go, have the pipeline that runs to shore so that Mexican consumers can start to receive gas by the end of next year. And we can start to have gas for export with our FLNG unit. So that's the timing of all of that. The second and third transactions are with the same entity, so CFE, which is one of the most important companies in Mexico. It's basically the electrical company, so they provide electricity kind of throughout the country. We've got 2 different transactions with them. First, in Baja, California, we developed a terminal over the last number of years. We -- that terminal operates, brings in natural gas. Our customer for the gas, in large part today, are 2 CFE plants that exist in the peninsula. So we're very proud of the fact that we're able to partner with them, bring in gas, decarbonize the peninsula so they can shut off diesel and turn on natural gas. That's obviously a big part of our mission, and they have been terrific partners with us on that. And we have a terminal that has excess capacity. We also have developed a power plant. It's a 135-megawatt power plant that we'd developed with the intention of running it as a merchant plant. Over the course of the last several months, we've had a number of conversations with CFE. They have an agenda. It's a very open agenda where they're very focused on owning and managing their own power assets inside the country. This, again, is a unique situation in that we've got a brand-new power plant ready to go. It's a gas-fired power plant. It's basically located on the ground, so the terminal that we have there in La Paz. And their desire is to buy that asset from us and then enter into a long-term gas agreement. And that's basically what we have shook hands on. There's still details to be worked out in terms of the price of the asset, the price of the gas we provide and all that. But I'm quite optimistic that given the conversations that we have had with the President, with the head of the CFE, with others that we feel very good about the likelihood that we actually have reached commercial terms with them in the very short term. But we signed an agreement on Friday with myself and Mr. Bartlett in the presence of the President to basically signify that we were well advanced in this. We anticipate completions of this and now just have to work out the details that are important, obviously, but we feel very good about that. The second transaction is on the other side of Mexico. So it's in the Gulf of Mexico. There's a city called Altamira. It's notable from our standpoint, is that a pipeline, a large pipeline runs from Texas subsea to Altamira before it makes kind of a right-hand turn and goes onshore. What we have agreed to do with the CFE as our partner again is basically build an LNG offshore hub. So I think our initial plan would be to put 2 liquefiers in place there. The CFE would be -- have profits interest in them. So we'll provide the capital but they will basically provide the gas that they'll purchase in -- on our behalf and provide transportation. They own the firm transport on that pipeline, so they'll basically be -- they're experts in terms of both buying gas and transport. They'll be providing that. That's the partnership. We will then take that gas. It will be obviously already treated gases coming out of the great state of Texas for the most part. So it's in perfect shape to then be processed, turned into LNG that is available for export or potentially they can use it within Mexico, because there's needs for gas in different regions of Mexico. So -- and to see if they'll be our partner there. So these are 3 independent transactions. What they all lead towards is giving us more diversity and more paths to market for our FLNG products, and that's significant. And if there's 1 thing to take away from the call from my standpoint, it's that before 6:00 this morning, we released the press release, the world knew that we are focused on the 1 site with MARAD in Louisiana. And that site -- those paths have gone from 1 to 3, which is significant. And so I feel very much it's just a matter of timing before all 3 of these are operational. Our goal, obviously, given the state of the world, is to get them as operational as quickly as possible. We are making great progress on the construction of the units. We have -- we are FID on our 3 units, so we've got ample product and kit ready to go. And now it's just a matter of doing the work to complete the permits and to complete the construction and then install and make them operational. So obviously, the impact of these 3 transactions plus the MARAD transaction is significant, life-changing is -- with respect to the finances of the company, so we are already a highly profitable and stable enterprise. We're highly rated from a credit standpoint. These transactions together will have significant impacts on our profitability in years to come. And we will memorialize that and provide some guidance with respect to what we think will happen once we have our next earnings call in August. So that's obviously something we're very focused on. But the first and most important thing is that we are now have gone from kind of 1 to 3 in terms of the paths that we've got. Last thing, and I'm going to turn it over to Andrew. So one of the other commitments that we made earlier this year is to pay for all this activity, we are very focused on doing so with internally generated funds. We're blessed to have a very substantial balance sheet. We own significant amounts of assets, both infrastructure assets as well as marine assets. And so what we have done as a firm is focused on internally-generated sources of funds from power plants that we could sell or finance and ships and other marine assets so we can actually generate the funds to do so. And the net of it is, our goal earlier when we started this whole program was to generate between $2 billion and $2.5 billion. That's what we estimated is what it would take for us to build and deploy our first 4 liquefiers and that plus cash flows just generated from operations that make us a self-sufficient company going forward. And I'm extremely happy to say that with the ships transaction being the last of the significant pieces of this, we are now fully funded. So we expect no external equity issue, external debt issuance to get there. In fact, this is a deleveraging transaction at the end of it. With that, let me turn it over to Andrew to walk through the ships' transaction. Andrew?

Thanks, Wes. Good morning, everyone. So last April, we closed 2 acquisitions, 1 for the Golar MLP and 1 for Hygo, formerly Golar Power. After those transactions, we ended up with 11 LNG vessels, so 6 FSRUs and 5 LNG storage ships or carrier ships. And so as Wes outlined, we set out a few months ago to look for a transaction that provided us 3 different things: one was upfront proceeds; two was a long-term control of the operations of these vessels; and three was the growth platform to meet our future marine infrastructure needs. So with our transaction announced this morning with Apollo, we think we've achieved all 3 of those things. So on the upfront proceeds, we're going to, after paying down asset-level debt and transaction fees, we expect a net $1.1 billion of cash proceeds out of the $2 billion enterprise value of the transaction. Number two is on long-term control. NFE will charter 10 of the 11 vessels for 20 years. So there's 1 vessel, the Nanook that's already on charter for 22 years so that one is not being chartered by NFE. But the remainder of the portfolio will be chartered by NFE. Some will be chartered now at the start of the transaction and others have current third-party charters that, as they expire, will then be chartered by NFE. So in doing that, we created a portfolio of long-term, stable infrastructure-light cash flows that was well received by the market, both our equity partner Apollo and by debt providers during a very challenging macro backdrop. Three is the growth platform. So we're very excited to be partnering with Apollo. They'll own 80% of the new JV. NFE will stay in at 20%. And together, we plan to use that vehicle to meet NFE's growing marine infrastructure needs, both on FLNG and on our downstream infrastructure going forward. So we're very happy to have a partner very experienced in the shipping business, very experienced in investing in infrastructure assets like this and ready to invest with us for future growth. So in the end, we get $1.1 billion of net cash. We reduced asset-level debt and simplified our overall credit story. And we're very, very happy to be partnering with Apollo and the debt providers to this JV for a new beginning on a growing platform that will be the place where we really found all of our marine infrastructure needs going forward. With that, I'll turn it back to Wes. Happy to answer any questions you guys have on that portfolio.

Yes. So this is just meant to be a good summary of it. Obviously, with the IR team and all the folks, we're happy to answer the questions. We've got just a brief summary of all this. There's a lot to digest in a short period of time. One thing I would say is that -- it's really a shout-out to both Andrew and the Apollo team and the other folks that concluded the ships transaction. These are pretty challenging debt markets in general. And I think that the combination of very stable long-term cash flows, a high credit quality counterparty, both from the people who currently lease a number of these ships as well as ourselves long term, and last but not least would be decarbonizing nature of the activities that we're in, all kind of came together to get this financing pulled together with an extremely high-quality group of folks as counterparties. And we think that, that is the ultimate positive testimony about what the strength of the business is. And I'd say from my standpoint, getting ourselves access to the world's LNG markets has obviously been the focus for some time and the source of all of our activities. Now being able to put paid next to the bill to pay for all that and having done it internally, as we said, we thought we could. In fact, we actually were able to do so and kind of followed through on the promise that we made, I think, is a significant development. So that's all that we have, really, right now. And I guess we've got 5 minutes. If there -- if anybody does have a question, we're happy to answer. But if there's not, we'll move on.

We have 1 question from Craig Shere at Tuohy Brothers.

Your line is open, Craig.

Could you comment on the amount of retained merchant LNG capacity involved in the Mexican agreements? And maybe you can also just comment on the cost of 20-year marine charters these days.

Sure. Maybe answer the second question first. Go ahead, Andrew.

Yes. Craig, yes, we -- there's obviously not a super-liquid market for 20-year charters, but there is a pretty liquid market around different maturity dates. So we think these charters that we have put in place based on the differences of each asset are basically market. And we think it's obviously a very good deal for us going forward to kind of have market charters in place and secure long-term control of these assets. And then obviously, we also retain our stake in the JV, which helps us kind of get comfortable there as well.

And then with respect to the merchant volume, so each 1 of the units is 1.4 million tons. Lots of conversions in this business as we all know is that, that's the equivalent of 70 TBtus of gas production. So the permits that we filed in Louisiana were for 2 times 1.4, so 70 plus 70 so 140 TBtus. The Lakach field is 1 unit, so that's 70 TBtus. And then there's also additional gas sales. So we actually -- the way that the transaction is structured, we have 2 sources of revenues. One is we get paid kind of the Henry Hub equivalent for the gas sales that go onshore, and then we have the gas available ourselves and we would have the full capacity of the 70 TBtus. That's our portion of it. With respect to Altamira, the transaction we're contemplating with CFE would give them 10% of the kind of merchant volumes available for their P&L on the first unit, 15% on the second and we've talked about incremental to that. We use the word hub because I believe that this is -- this could be potentially, the beginning of a significant development in addition to what we are actually contemplating permitting. But bottom line would be 70 plus 70, so 140 TBtus, 2.8 million tons in Louisiana, 70 in Lakach, another 1.4 million tons. That takes us up to 4.2 million tons and then the equivalent of kind of 90 -- I guess, 88.5% of 140. So whatever that rounds down to for the balance. So just over 6 million tons, all of which would be merchant volumes. And in this market, obviously, there is tremendous interest in those volumes. So the minute that we have volumes that are really slated and scheduled for sale, we obviously have many, many willing buyers.

Okay. It looks like that's what we have for Q&A. And I really appreciate everybody's time today. If you do have questions, please send me a note and happy to get on the phone or trading mills.

Right. Thanks very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.