Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New Fortress Energy Inc (NFE, Financial) successfully brought its FLNG 1 asset online in July, which is expected to generate $500 million a year in free cash flow.
- The company has a highly diversified business model with over 90% of expected revenues contracted, providing a stable financial outlook.
- NFE's Nicaragua power plant is 100% complete and ready for operations, with the jetty and pipeline nearing completion.
- The Brazilian terminals are complete, and the CELBA 2 power plant is 70% complete and on track to commence cash flows in the second half of next year.
- NFE has a clear strategy to reduce CapEx significantly in 2025, which will increase free cash flow available for debt service and equity holders.
Negative Points
- NFE's Q2 2024 earnings were significantly below target, with an EBITDA of $120 million compared to the goal of $275 million, primarily due to delays in the FLNG 1 asset deployment.
- The company expects Q3 2024 to also be impacted by the delay, with full production not anticipated until September.
- NFE is in the process of a claim settlement with FEMA for $659 million, which introduces uncertainty regarding the timing and outcome of the settlement.
- The company faces challenges in securing power for its Puerto Rican operations, with regulatory processes still pending for converting mega gens to gas.
- NFE's capital structure includes a significant amount of debt, and the company plans to refinance its 2025 notes soon, which could be challenging in the current market environment.
Q & A Highlights
Q: Can you explain the $500 million EBITDA projection for the back half of the year and any flexibility on timing?
A: The original contract was for two years, and the government has the right to terminate early under various circumstances. We have submitted a claim for $659 million, which is within the expected range. We aim to settle this in the third quarter, but timing is uncertain due to the government process. (Brannen McElmurray, Chief Development Officer)
Q: Regarding the incremental 80 TBTU in Puerto Rico, is there anything that could prevent reaching that threshold?
A: Puerto Rico needs 5,500 megawatts of power, and we are focused on converting existing power plants to gas. The regulatory process is nearly complete, and once done, the additional power will be turned on to gas, making it more likely to dispatch and displace diesel. (Brannen McElmurray, Chief Development Officer)
Q: How are you thinking about hedging natural gas and power exposure given the current market?
A: We essentially have no exposure. Our business is a spread business, buying gas or manufacturing LNG and providing logistics. We have long-term contracts with minimal credit exposure, making our financial footing very secure. (Wesley Edens, Chairman and CEO)
Q: Can you discuss the opportunity in Pennsylvania and Ohio for your fast power solution?
A: Pennsylvania and Ohio are attractive due to their proximity to large population centers and abundant natural gas. The challenge for data centers is getting power from the grid, which can take years. Our fast power solutions can provide power much quicker, making it a compelling opportunity. (Wesley Edens, Chairman and CEO)
Q: After Nicaragua, do you see further downstream growth in 2025 restricted by LNG supply?
A: There is still a shortage of LNG, but we have our own supply to take care of our customers over the next couple of years. We expect a more normalized market by 2027-2028, with significant LNG supply coming online. (Wesley Edens, Chairman and CEO)
Q: How should we think about the $2.5 to $3.5 netback for FLNG in the long term?
A: The netback is included in our $7 average downstream margin. The benefit of producing LNG over the next couple of years versus the market is over $1 billion, making the asset very valuable. (Wesley Edens, Chairman and CEO)
Q: How are you thinking about the capital intensity of the Kandi business and its financing?
A: We believe it will be a capital-light business with long-term offtake contracts to high-creditworthy tenants. We expect it to be highly cash flow-generative with minimal equity capital required. (Wesley Edens, Chairman and CEO)
Q: When do you plan to address the 2025 and 2026 senior notes?
A: We plan to address this in the very near term, despite the current market conditions. We have a commitment in hand for the 2025 notes. (Andrew Dete, Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
