New Fortress Energy Inc.

Ladies and gentlemen, thank you for standing by and welcome to the new Fortress Energy first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference's call is being recorded. I would now like to turn the conference over to your host, Josh Kane, with Investor Relations. Please go ahead.

Thank you. I would like to welcome you to the new Fortress Energy first quarter 2021 earnings call. Joining me here today are Wes Edens, our CEO and Chairman of the Board, Chris Genta, our Chief Financial Officer, and Ken Nicholson, Managing Director of Fortress Investment Group and CEO of our new Hydrogen Ventures. Throughout the call, we're going to reference the earnings supplement that was posted to the new Fortress Energy website. If you've not already done so, I'd suggest that you download it now. In addition, we'll be discussing some non-GAAP financial measures during the call today. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Wes, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Wes.

Great. Thanks, Josh, and welcome, everyone. As Josh said, we posted the supplement to the webpage, and that's what I'm going to refer to as we go through it. So let's jump right into it and go to page four. The quarter that just ended has been a historic one for us. It's been an incredibly busy quarter and a productive one. We completed the acquisition of the Hygo company from Golar, as well as the MLP that we bought at the same time. $5.1 billion. We did not issue additional equity. It grows our base of operations dramatically, and I'll talk about that a lot down the road. Very importantly is that the growth of the company that we now envision we believe can be internally generated. the equity that we need to grow the company we can generate from asset sales, and we'll talk about that. We expect to close our first asset sale here this quarter. And with this, the total summation of all this activity, this does firmly establish us as the leading LNG to power company in the world and puts us well on our path to kind of our growth targets we've talked to you about before. I mean, in very simple terms, the way I think of it is the combination of Number one, the terminals that we're acquiring in Brazil, which we think are an extraordinary footprint in one of the fastest-growing countries in the world. Number two, the impending turn-on of our terminals that we're building in La Paz and Nicaragua, both of which we expect to be operational in the next 60 days or less. Number three, the addition of all the logistical infrastructure that we need to make this all happen. So the ships and the FSRUs and all the equipment basically that we bought from the MLP that really slides then into our operational footprint. Number four, the developments we've made on the fast LNG. We'll talk about this at some length later, but in simple terms, just simply closing the loop and basically becoming fully integrated to provide our own feedstock we then use in our midstream and downstream businesses around the world changes the the aspirations of our business dramatically, lowers our costs, may actually increase our operating revenues substantially. So fast LNG is a big thing. And lastly, the hydrogen initiative. So as Josh said, I'll introduce Ken Nicholson, who's been a longtime partner of mine at Fortress, who is going to step in and be the CEO of our new hydrogen initiative. We've got a very, very actionable, our first real commercial activity in that sector. And so all this together, the net of it is we think we have put in place all the pieces we need to create the company that we have, and now it's just simply a matter of the work to kind of do that. We'll have a company that generates in excess of a billion dollars in free cash flow. With the FLNG, we've got the ability to grow that substantially, and we now have the commercial actionable hydrogen initiatives that we've been looking for since we first announced this at the beginning of last year. So it's a lot to talk about. So let's flip to page number five. First of all, the terminals that we are under construction in La Paz and Puerto Sandino, Nicaragua, are both moving along extremely well. These are renderings. These renderings will be replaced with the actual photographs in the next one. We probably will host an investor day in early August in La Paz. I think that's the first one that we'll get down to. So, obviously, as we move forward with that, if you're interested in seeing up close the terminals, The logistic footprint of the Isoflex operations in a trip down to La Paz might be well in order now that the COVID stuff seems to be under control a little bit. But Joshua will help us coordinate that. But that's something we think is in the very near term for us. Puerto Sandino, you know, the turbines are in place. The same things are happening there. What this does in terms of the volumes at the bottom of the page is that Our committed volumes go from approximately 2 million gallons today to 3.3 million gallons. So it's a big step up on the committed volumes. In discussion volumes, another 800,000. So it takes our total volumes from the existing five terminals up to just about 4 million gallons. So it's a big, big step. It roughly doubles what our production is right now. Page number six, Brazil. So the punchline is the Brazil terminals we expect to be online by the first quarter of next year. We had the Brazilian development team up here this week. I'll be in Brazil actually on Sunday. So there's a lot of activity there. But there's been years of work that went into these terminals prior to us acquiring them from Hygo. Now that's turning into these actual terminals on a timeline that are going to culminate in turning on in the first part of next year. And we have just started the process of commercializing these assets. But you can see in the bottom, even with a very, very short period of time in the commercialization side, the volumes that we expect out of these portfolios are dramatic. So Santa Catarina in the south, there's a tender that's outstanding for a number of the distribution companies in that. Swape will be in the middle part of the country, the easternmost part of Brazil, will be really anchored by our own power plant, which is – scheduled to be turned on by the end of next year. Bacarena in the north, you know, we signed an LOI with Norse Hydro. That is a terminal that we think will serve the Amazon Basin and has got tremendous potential to be a very, very productive terminal for us. But, you know, bottom line, the Brazilian terminals plus our existing terminals give us a huge footprint and add up to over 16 million gallons of expected volumes. Page seven, we detail what that looks like from us. So, First quarter of this year, 1.4 million gallons a day. There was a scheduled maintenance event in Puerto Rico that took those volumes down. That will be ending here literally any day. That takes us to roughly 2 million gallons per day of normalized volumes. Those then step up substantially with Mexico and Nicaragua and the Sergipe terminal that produces 3.6 million gallons. And then the big step up is as these Brazilian volumes come on next year, 16.2 million gallons. And frankly, there's a lot of upside to that. So this, as I said at the beginning, it's hard to overstate how significant the addition of the Brazilian volumes on top of our existing assets is step two. But you can see that this generates a substantial amount of volumes and margins. Let's talk about FLNG, so fast LNG for a moment. The cartoon on page number nine, we've shown you before. But basically, the contrast is, if you look at the box on the left-hand side, this is what the floating LNG business looked like when we started this. So there's a handful of these assets that exist around the world. We own 50% of one of them. In the Hygo transaction, we bought half of the Healy, which is deployed off the coast of Cameroon. So the basic notion is, put a liquefier onto a ship, put it over a stranded or offshore gas field, generate low-cost LNG. It's actually an incredibly simple concept. That's the good news. The bad news is it costs billions of dollars to build ships like this, and it takes many years to develop it. So those two things were simply not attractive to us in the timeline for what we're trying to achieve. The challenge that I put to the technical team back in January is can we, rather than use a ship, can we put this gear onto existing marine infrastructure that we can do it, A, much faster, and, B, much cheaper, And the answer is simply, yes, we can. And if you look at the following page, there's the two rigs that we bought that are just about ready to move. They'll actually move later this week. They'll move to that Keywood shipyard in the bottom there, and that's where they'll be stripped down from the things that we don't need, where you can then add in the things that we do need. And then the rendering on the right-hand side is what these things will look like when you put them all together. These are on jack-up rigs. There's other types of marine infrastructure we think this works on as well. Jack-up rigs are really suitable for water depths of several hundred feet. Obviously, things like the semi-submersible ships, et cetera, are appropriate for the thousands of feet kind of deployments. The key for us is, we flipped one more page, is to hit the timeline that we're showing here. We declared FID on our first project in March of 2021. We bought these two jack-up rigs. We are very much now hot and heavy on working to supply gas for them. I'll talk about that in just a second, but there's a lot of promise on that side, so I feel good about that. We expect to be complete with our construction of these in July of 2022. It then will take us roughly 90 days to put the gear in place and to commission it and to put it in place on the gas source and to producing LNG by the end of next year. We talk about this literally every day. I have an 8 o'clock call that basically goes through the technical and gas aspects of this. The team is incredibly engaged and competent. And when you look at page number 12, the places where we are looking at are all the major offshore assets around the world. So there's lots and lots of gas in stranded form or other. So Gulf of Mexico, west coast of Mexico, Brazil, west coast of Africa, obviously Southeast Asia. So there's many, many places in the world where there's gas that is a target for us. And so simply we're trying to find the most suitable and most straightforward one for the first one. And I think once we get proof of concept for the first one, there's lots of different places we can go. So there will be more updates of this to come, but the bottom line is that the impact that it can have on our earnings is substantial. So page 13 is a busy page. So this shows all the different terminals with the volumes that are committed in discussion and total volumes and what the margins for those would generate, so the $1.6 billion. In very, very simple terms, if you Simply take our model right now, which is to assume $5.5 is a cost of LNG. With the FLNG, we believe we can lower that cost by $2 or more, and maybe substantially more in certain of these cases. But $2 on 1.4 million tons is about $150 million. So just for illustration, we say, look, if we basically provided gas to all of our terminals through an FLNG solution, it would add roughly a billion dollars in earnings to us. So it's a huge, huge incremental benefit to us. It also defeases a lot of risk of supplies. There's many different elements of it that are positive for us. But more to come with this. But this gives you a pretty clear demonstration of what it is that we're actually playing for. So let's update. And I'm going to turn this over to Ken and introduce him in just a second. But page 15. Just by way of review, so in the first quarter of last year, we announced that we had a goal, and our goal was to basically decarbonize our activities and be a zero emissions company by 2030. So a very, very aggressive goal, a suitably aggressive one, in my view, given the kind of sustainability issues that we've got around the world. We said we're going to now open our phone lines, talk to people, look at technologies, and see what is out there. with a goal towards creating a commercially viable activity that we can then kind of go ahead with. I believe strongly that sustainability comes from profitability, and that if we can actually create commercially viable options to this, that can really advance the ball far more than just simply investing in VC technologies that may or may not have a commercial application. So we did make an investment in green hydrogen, and then we made an investment in an electrolyzer company based in Israel that we think has got promising But the green hydrogen businesses, in my opinion, today are not commercially viable. I think that that will change, and I think that there's reason to be optimistic about that because I think the governments are going to be very supportive of green hydrogen initiatives, and that's great. But we now believe that the actionable opportunity today lies in clean and renewable fuels. And we've got two different initiatives for that. And with this, today we're actually announcing that we have formed a company Zero Parks. Ken Nicholson, who's been a partner of mine at Fortress for many years in the infrastructure business, is going to be the CEO of that business. If you look on page 16, our focus is initially going to be fuels. So big picture, 51 billion tons of greenhouse gases are released in the atmosphere every year, 37 billion tons of CO2. So roughly 75% of all the greenhouse gas are from CO2. Of the CO2, the vast majority of it comes from fuels. The market itself is there's 36 billion barrels of fuels used annually around the world. Less than 1% is renewable or clean. So the market opportunity for the renewable and clean fuels to take a big chunk of that is gigantic. The opportunity as we see it is to replace a big chunk of this with two different pathways. One is renewable fuels, which the way I It's simply the do no harm business. You're not decarbonizing absolutely, but you are keeping more carbonization from happening basically because you're simply taking what exists right now, repurposing it, recycling it, and turn it into a clean fuel. That's what a renewable fuel is. Clean fuel is a different tack at all. So clean is really hydrogen-based. Hydrogen-based means producing it in a clean way. So again, for definition, green hydrogen is one which is created by using renewable power so there's no emissions. Blue hydrogen is one where you're creating hydrogen. There is absolutely CO2 that is created as part of that process. but you essentially are capturing it. So it's clean from an emissions standpoint, just like green. So if you flip to page 17, these are our two paths. And with that, let me turn it over to Ken. And Ken, maybe just introduce yourself and give a bit of background and then talk about our initiative here.