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spk00: Good day and welcome to the New Fortress Energy fourth quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Hughes, head of investor relations. Please go ahead, sir.
spk06: Thank you, Jess, and good morning, everyone. Thanks for joining today's conference call, during which we will discuss our fourth quarter and full year 2022 results, as well as recent highlights and the very promising outlook for our business. As Jess said, the call is being recorded and will be available by replay on the Investors section of our website under the subheading Events and Presentations. In fact, at that same location on our website, you'll find a press release and the corresponding presentation we're going to step through today. As we proceed through the discussion with Wes and the team, we'll be referring to that presentation. In the presentation, you'll see a series of important disclosures related to forward-looking statements, and non-GAAP financial measures. We encourage participants to review these important disclosures in addition to the description of risk factors contained within our SEC filings. Now let's get underway with the call. This is Patrick Hughes. I look after investor relations here at New Fortress. Joining me today are Wes Edens, our chairman and chief executive officer, Chris Junta, our chief financial officer, and Andrew Deedy and other members of our senior leadership team. Wes, over to you.
spk07: Great. Thanks. Welcome everyone. And format as usual, we're going to flip through the presentation that we posted. So let's just start at the beginning. So page three. 2022 was a very, very good year for the company. Very volatile markets overall in the world. And we delivered, you know, very solid results. Nearly two times the EBITDA and free cash flow of 2021. Probably more importantly, the forecast that we have for the upcoming year is roughly two times the results of 2021 and 22. So very, very good financial results. And not only are the absolute numbers good, but the quality of earnings continues to improve. More and more of our earnings comes from our downstream activities. Those are the long-term data cash flows that actually are Easy to predict and easy to model for all of you, and thus for us. So a very, very good start to the year. Next page, you know, notable highlights. There's a handful that really stand out. Top of the list for us is we signed a contract in the quarter for the power generation assets of PREPA. So PREPA is the utility in Puerto Rico that services the whole island. An effort was made by them several years ago to privatize the two main parts of their business, being number one, the transmission and distribution, which they did about a year and a half ago. Number two was the management of the kind of base load power units, 3,600 megawatts of power in total, 10 units that we actually competed for and were successful for and took over. The contract is a 10-year contract. base fee of just over $20 million. We profit share basically with cost savings of the island up to a cap of $100 million. So there's a substantial amount of upside to the extent that we were able to do as we expect to do, which is cut down the cost of generation for the island. When I took this over, we sat with the governor and other management folks in Puerto Rico in a press conference, basically said our two scorecards for us on the island are number one, the reliability of the service, and number two, the cost of the service. It couldn't be more basic than that. And we said that's what we want to be held accountable for, that's what we intend to focus on, and we think that there is a tremendous amount of upside for us to perform on both of those metrics, perform for the people of Puerto Rico, make their services not shut off, make the load shed, make the cost of it go down, and that's what we want to do. In addition to the This contract, we think there's lots and lots of incremental opportunities on the downstream side, on the development side and whatnot. So this just further solidifies what we think is a great foundational asset for us, the terminal we built down there. actually turned it on in the middle of COVID. So this time of year is reminiscent to me of what it was like three years ago when we had people working in the middle of COVID to get that thing up and running. So it feels great about that, but there's a lot more to come and we'll be talking to you. The timing of this is we expect to be fully mobilized and take over the service sometime around mid-year. So hopefully a lot more to talk about there in the future. Number two, the terminals. So terminals are the core of our business. It's the backbone of our business. We are basically completed or near complete on two major Brazil terminals. Andrew Didi will talk about that in just a second. These are significant in that they are terminals that are located in areas that have, we think, massive amounts of opportunity. Santa Catarina in the south is just about complete. Bacarena in the north is basically complete. We have a big baseload customer up there, two baseload customers up there, in the form of Norse Hydro, which will turn on at the end of this year, as well as a big power plant that we're building. But I'll leave those details to Andrew. But it just continues the march of significant downstream assets for us. That's what we think is our most compelling competitive advantage versus other folks. It takes a lot of time and effort to get to these places, so we feel great about that. But we've got significant opportunities to turn on downstream assets in Puerto Rico, in Mexico, in Nicaragua, and now in Brazil, as well as other geographies that we're pursuing. But this is all about the execution of our base level business, and getting these terminals up and running is a big part of it. Liquifiers, we've talked about a lot. We hosted an investor day down at the end of last year. The first one is basically near completion. Chris will give us an update on that. But the first one is the most important. It's basically the way to fully integrate our business. It's the way to kind of get proof of concept of accessing gas in an offshore capacity. So lots more to talk about with that. But we've made significant progress. And this year we've kind of shifted our focus from the mechanical completion of the unit, which is close, to now the deployment of it, the transfer of it, and of course the operations of it. Lastly, shareholders, you know, the business creates a significant amount of cash flow that affords us the luxury of returning capital to shareholders. I think keeping the company appropriately capitalized but also lean is the right way to make good judgments about incremental opportunities. We expect to continue to generate significant amounts of excess capital And as we do, through a combination of either dividends or stock buybacks, or quite possibly both, as we did in the last 12 months, we'll return capital as we see fit to shareholders. So page five, just a bit about the macro. And Andrew will talk about this in some detail. I don't have to tell anybody in the call, but 2022 was a record year of volatility in the LNG markets. The markets, if you go back and look at the yellow box on the left-hand side, the market was already dislocated at the time that there was the invasion in the Ukraine. So there had already been a significant move up in price that was exacerbated by the blow-up of the Russian pipelines, all the disorder that happened in Europe as a result. That has abated substantially. And what you see on the right-hand side is really a combination of two things. Significant fuel switchings, number one. Number two is just fortuitous warm weather. It's the warmest weather in Europe in the last 50 years or so in the wintertime. So they're the beneficiary of just good fortune, which is great. But what has happened is that the prices between all the alternative fuels, so gas, diesel, coal, have really converged. One thing that is very clear, there was a lot of debate over whether Europe would fuel switch or not back to the dirtier fuels like coal, I think that that debate has been settled. I think last year will end up being the most prolific year of burning coal in Europe ever. When you had a pick between energy security And in the environment, there's no question which way they went. And I think that that's a theme more broadly across the world. Certainly in China, that has also been the case, and Andrew can talk about that a little bit. But the net effect of this for us is that lower prices and converged prices are good for our downstream business. $50 TTF, while it sounds great if you're in the LNG business, is actually not great for your customers. You know, a good rule of thumb is that take that gas price, multiply it times six, that gives you the oil equivalent. So $50 times six is the equivalent of a $300 barrel of oil. If that sounds expensive and unaffordable, it is actually expensive and unaffordable. So having to come back down to a more reasonable level, albeit at a higher price point than where we started, is very, very productive for our business because it becomes much more relatable to our customers, and power and gas solutions now move in line with other fuel sources and that actually is really, really good for our downstream business. So I guess the last thing I'd say is the crisis is not over. The winter of 2023 is still in front of us. This winter is not yet over. We're already talking about next winter. But I think, again, weather, fuel switching, there's big activity levels in Europe to try and add more and more terminals, but they have a big hole to fill, and we still think that there's a significant possibility of some real dislocations in the coming year. So lastly, my last page before I flip over here is just the goals for 2023. Couldn't be more simple from my standpoint. 2023 is really the year to execute. We've nearly doubled the supply that we have in our portfolio, as you can see on the left-hand side here, over a couple-year period, and have matched that with incremental demand. So just to read through that chart on number one, supply was 74 TBTUs in 2021, We are forecasting that to be 184 in 2024, so more than double over that three-year period. Demand, which was fully matched in 2021, we also expect to double. So the goal, the yellow circles in the bottom there show the open volumes that we've got. So you can see anywhere from 15% to 20% of our portfolio is open at the moment. I get a lot of questions about our exposures to market prices, especially with all the volatility and whatnot. Our goal is to largely be matched. It's impossible to be precisely matched. There's always going to be a bias. My bias is always going to be to have a long bias. You need to have inventory to sell to customers that gives you an ax to go and talk to them about gas and power. But we want to have that be as moderate as possible. So kind of 15%, 20% is the size of that. And you'll see that as the year goes on and as next year goes on, we're trying to minimize this exposure to volatility by focusing on our terminals, customers, and operations. downstream business, downstream power, that is our core business that we manage here, and we feel really good about it. The next step for us on the gas and power side is we are very close to buying our first portfolio of really modular units of power, and so that's something that, if it goes as planned, we could be talking about as soon as the next couple of days. The goal for that is to basically give people, different countries and utilities and whatnot, access to gas and power on an expedited basis. Time is the enemy of all these problems. And so when you see, there's a big article in the paper this morning about all the load shedding and the problems that ESCOM has faced in South Africa. That's a good example of it. And the challenge for a lot of those places is not only do they have a problem with the lack of power, but they have a problem with it takes too long then to give a viable solution for it. We think the right solution for that is to kind of even more fully integrate by bringing power into our portfolio, give us the ability to provide solutions in months, not years, as a step towards longer-term solutions that are more efficient. So lots more about that to come. It's just a general marker for you to keep track of. If you see something announced by us that means that we've been successful about this, we feel pretty good about that. But there's a lot of different applications for that where I think it makes a lot of sense. Right-hand side, and the last thing, the liquefiers, as I said, we're closing in on mechanical completion. Transport installation operations now become the things that we're very focused on. The timeline is short, so we're in We've gone from triple-digit days to double-digit days, and so we have, as Chris has talked about before, we have a daily call on this, and our teams are working very, very hard on this. You know, the first one up and running is a massive accomplishment for the company and something we look forward to. Not only is it the first step towards a vertical integration of the business, but it also is a real proof of concept of these stranded and offshore gas assets that Not only for us, but for others we think are big opportunities to do something with. So lots to focus on, but these are the two main areas. So with that, let me turn it over to Andrew.
spk10: Thank you, Wes. Good morning, everyone. I'll step through two slides on the LNG markets and then give an update on NFE commercially. We do want to spend a moment on the markets here just because we're seeing a moment in time and current price levels that we'll talk about that we think are really supportive to the NFE business case. So starting on page eight, there are really two key messages here. The first is a recap of the price environment for LNG in 2022 on the left side. And then second is what we are seeing in terms of LNG prices settling with some amount of stability just below the $20 area, significantly higher than the stable price levels we saw in the time period kind of pre the invasion of Ukraine. So on the left side is a graph of the TTF gas price, which I think, as most of you know, has been the leading indicator for global LNG prices in the last year. graphed against the U.S. domestic gas price, Henry Hub, and then the gas-to-oil parity, which Wes mentioned, which basically converts the Brent oil price to adjust for energy content relative to gas. As you can see on the graph, prices actually started to rise well before the invasion in February 2022 on increasing tightness in the market. We were watching this closely at the time as we were seeing kind of opportunities around the globe. And then that was, you know, extremely exacerbated with the conflict. The balance of the year was then an experience of a relatively illiquid DTF price kind of bouncing up and down, doing the work of balancing a supply short market where you had to draw LNG into Europe, but then even kind of more importantly, you had to actually at different times destroy price sensitive demand. And that's where we really saw real spikes in TTF. On the right is a very simple graphic, but a powerful one for us, showing the difference between levels going back to the end of 2020 and today. This isn't to say that we necessarily think pricing will remain totally stable at these levels. But what we are seeing is a lot of price support for gas below the current level. So what we've been watching for over the course of 2022 is really where gas prices are going to settle at a level that we believe will be higher than the historicals. So as prices come down in the last few months, we are starting to see a strong incremental demand that levelize and support prices. And that's what we're seeing now in the high teens, kind of low $20 per mbtu level for gas. At these levels, LNG cargoes get sold globally, not just into Europe. And we're seeing gas as power turn back on as we get to parity with other fuels for power. Lack of supply and reduced overall liquidity still means there is a ton of volatility in the system. But with adequate storage levels in Europe following a warmer winter than expected, we're really starting to see some stability come back in at levels that are going to be really supportive to our business. So let me flip to page nine and try to focus a little bit more on what this means for NFE's business. So one of the developing themes we're seeing in the market now, really kind of beginning in December of 2022, is the convergence of global fuels for power, so natural gas, diesel, and coal. The graph on the left side equalizes the price of each of these on a per-mm BTU basis, which is the most useful way to look at it because this is really the measure of energy content rather than what we typically see, which is measures of volume or weight. And it shows how these prices as energy content have all come together in the last few months following the kind of 12 to 14 months of volatility. Gas prices reached such high levels in 22 that producers in countries who could switched away from expensive gas and into cheaper fuels, which Wes mentioned. This took some time, but eventually dragged the prices of coal and diesel upwards, gas downwards, and they started to converge around $20 per MMBTU. For NFE, this is a pretty bullish signal for our business because as gas has returned to being long-term competitive as fuel against its alternatives, that's really good for us to kind of sell long-term downstream business in the markets that we're in. So in the last year, it was really hard to justify not selling an incremental LNG that we or others had into Europe with average pricing over $40 per MBTU. But now when we look at the downstream business that we're in in terms of power, industrial gas supply, LNG is competitive against the alternatives. And so that's a really good signal for us and the business we want to be in, which is long-term contracts with customers at the terminals and in the markets that we're already in. On the right side – You know, we also want to bring a very complicated kind of supply-demand balance equation back to a very, very simple point. And this really speaks to kind of the future of 2023, which is we have an aggregate reduction supply with Russia offline. And that's about as simple as it is. There's been a lot of compensation on the demand side to reduce demand and to switch demand from different fuels. But the truth is, you know, the global supply changed and reduced significantly. And, you know, the only thing that will really solve that is further supply capacity in the future. But we're not getting that, you know, in the near term. We're only getting that kind of 2026 plus. And so we're going to continue to see a lot of volatility in that system. But it's a great moment for NFE because as we bring on incremental supply with FLNG this year and then continuing, you know, we really believe that that supply will be gobbled up by the market. And because of what we just went through on the sort of comparative price levels, we think there's a great argument for doing that on a long-term downstream basis. So that's the market moment that we're in today. Flipping to page 11, I'm going to really turn to like an NFE commercial update here. And what we wanted to do is put on the page really how we look at the business, which is trying to show the match between our supply portfolio and our demand portfolio. So you can see, and I'm going to use kind of the 2022 numbers and compare those to kind of 24, because that's sort of the run rate as we see things changing through 23. Our supply is really going from 88 TBTUs to about 180 TBTUs by 2024. And you can see that that's a mix of the increase in our kind of existing third-party supply as well as bringing FLNG1 online. For this analysis, I'm really just looking at FLNG1 to make this very clean today. And then on the demand side, we're also matching that growth. So we're going from 88 TBTUs to 155. So we're seeing 100% increase in supply and about a 75% increase in our contracted demand through downstream terminals. This is the, you know, sort of exact long-term contracted terminal business that NFE wants to be in. And the other really meaningful point here is we're not materially exposed to market prices. So you can see in 2023, we've got about 30 TBTUs of unsold volumes, about the same for 24, and then reducing in 2025 and beyond as we bring on further downstream demand. We think that's a great position for us to be in, which is about 80% contracted. That gives us some incremental supply for new business activities. but keeps our exposure to the market at reasonably tolerable levels. So hopefully this is a good way for you guys to see it as well in terms of seeing the spread business that we're in. And really, you know, we're kind of burying the lead here a little bit, but the growth in that, the sort of tremendous growth in that spread business between 2022 and 2024. Page 12 just tries to substantiate that growth a little bit. So this is on a per terminal basis. tracking the volumes that we see going through our downstream terminals in 2022 and then what we expect through 23 and 24. So you can see here, you know, Jamaica stays relatively stable, but in Puerto Rico we're expecting, you know, incremental demand and have some exciting announcements to come about that. In Mexico, you know, we've increased the supply through our GSA, and we're starting, you know, kind of full run rate operations here very soon. And then, you know, we've got the existing portfolio of terminals, Nicaragua, Barcarina, and Santa Catarina, that are all going to turn on here between now and the end of 23, and that on a 2024 run rate basis are really adding up to this demand that we're going to see through the terminals. So, you know, we really want to make sure that we're communicating clearly on the great kind of downstream long-term contracted growth we have, just executing on what's in front of us between now and the end of this year. Chris, I'll turn to you.
spk02: Great. Thanks. Good morning. Let me direct you to slide number 14, and we'll walk through and update our FLNG-1 construction and development. The next two slides include some recent pictures showing the current state of the modules and the rigs, and as you can see, things are progressing well. On slide 14, you can see the support frame has been installed, along with critical equipment from our suppliers at Chart and Baker Hughes. The support frame is put in place in advance of the module to ensure the stability of the deck of the jack-up rigs. On slide 15, you can see the liquefaction module on the left side and a close-up of the second gas treatment module on the right. All of this will be lifted and installed over the next three weeks or so, and then we will have complete module-to-rig integration and begin land-based testing and commissioning. All of this is to note that we are approximately 80% complete on our construction activities and over 86% complete when you include engineering and procurement. Turn to slide number 16, and frankly, the headline here says it all. We're less than 100 days away from our first FLNG setting sail to its home in Altamira, Mexico. With construction nearing completion, we're focused on installation, commissioning, and operational readiness. Regarding our installation, the Pipelay barge is on location today and loading pipe. Late this week, it will begin the short Pipelay work to connect the Cerro de Tejas pipeline and our FLNG location, and that's expected to take around three weeks. We will then perform the hot tap and connect subsea pipe to our risers, which will ensure that all subsea activity will be completed prior to the FLNG arriving in the field. For commissioning, we've hired a commissioning team to work in partnership with representatives from our original equipment manufacturers to commission as much of the asset in the yard as possible. The construction site provides access to natural gas, power, and utilities, which enable us to test major components such as gas turbines at the Kiewit yard. Also, we can do shore-based testing and validation of control safety systems, instrumentation, and process optimization, all while the assets are getting final touches completed. The onshore commissioning capabilities reduces a typical offshore commissioning timeline by around six weeks. Finally, regarding operations, we've hired our installation, training, and offshore management teams, including our board operators and maintenance technicians. And these folks are working through our critical operating procedures as well as training simulators now. and are being used to complete competency training. We've established our shore base at the port of Altamira for storage needs, commission activities, and ongoing operations. So what does all this mean? Turn to slide number 16 and let me update you on the timeline from today through COD. The current estimate for mechanical completion of our first rig is May 2023. This includes a staggered readiness of the three rigs, and the final is expected to be completed in early June. As mentioned on the previous slide, we have the ability to commission systems on a rig-by-rig basis, and we've sequenced the rigs to maximize readiness ahead of the offshore hookup. We're starting in-the-field construction activities this week, including the pipe lay and other make-ready activities to receive the FSEs. Rigs will be towed from the QER to Altamira as they are completed, but full offshore hookup is expected to be completed in June. This includes the station of the rigs on location and also the installation of the Penguin RFSU. First gas is expected to the units in late June, and our first LNG production will be July 2023 and expect to hit COD in August of 2023. So moving on from our liquefiers, if you're going to get you to turn to slide number 19, and we'll go through some of the financial performance for Q4 2022. For the three months ended December 31st, we had adjusted EBITDA of $239 million and $1.1 billion for calendar year 2022, which is in line with our expectations. The terminal segment operating margin was $196 million and $86 million from the ship segment, and you can find more detail on that in the appendix. The net income for the quarter was $183 million, which is $87 cents per share when excluding impairment charges. And for the year, our net income was $576 million, or $2.74 per share, excluding impairment charges, which is an over 500% increase from 2021. This quarter, we sold 22 TBTUs in total volume, which equates to an average operating margin of around $13 per MMBTU. On slide number 20, we wanted to point out how NFE is accessing flexible debt to support working capital fluctuations. Earlier this month, we completed an upsize to our revolving credit facility to $750 million and increased the letter of credit facility to $325 million. This is an increase of $800 million since the end of 2021. The cost of these facilities is competitively priced and allows for draws and repayments to match the needs of the business. From a liquidity standpoint, as of 12-31-2022, we have over $1.3 billion of cash on hand plus availability under the revolver when you include the upsize, and an additional $325 million of availability under the letter of credit facility. One final comment on the balance sheet. We announced the sale of the Hilly asset to Golar, which is expected to close in the next week or so. In addition to the cash payment and share of purchase, this reduces about $325 million of off-balance sheet debt. Almost done. If you turn to slide number 21, just some quick comments on the progress we've made to increase our credit profile. With a 2022 adjusted EBITDA print of $1.1 billion, we stand at around three times levered and will be under two times based on the 2023 earnings estimates discussed on the call today. Further, as Andrew said, we have two new terminals turning on this year and are focused on selling our volumes under long-term take-or-pay contracts to downstream consumers, thus creating steady and stable cash flows. Given our geographic and customer diversity, combined with the increase of sales to credit-worthy counterparties, we've continued to enhance the quality of our earnings. Finally, in 2023, cash flows are highly predictable and resistant to market movement, given that the majority of our supply is already contracted at known margins. These factors, combined with disciplined capital allocation, contribute to our goal of becoming an investment-grade company. And finally, on slide number 22, this is a testament to the amazing men and women at our terminals, on our vessels, and in our trucks. In Q4, with their continued focus on being a world-class operating company, we delivered 22 TBTUs to our customers, and our regas terminal asset reliability remains around 99%. We continue to optimize logistics and terminal operations and saw significant reductions in costs associated with our small-scale delivery using volumes produced out of our Miami facility. And last, but certainly not least, we had no safety incidents during Q4 and maintain our 0.0 total recordable incident rate. With that, I'll turn the call back over to Patrick for questions.
spk06: Yeah, Jess, I think we're ready for Q&A. If you can tee up the queue, please.
spk00: Certainly. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to ask your question. Our first question comes from Cameron Lockridge with Bank of America. Your line is open, please go ahead.
spk08: Hey, good morning guys. Thanks for taking my questions and congrats on quarter. Thanks. I wanted to maybe start off on the FLNG volume expectations going out through 25. It looks like, if I'm looking at the chart correctly, you know, there may have been a shift in expectations around when your FLNG volumes are expected to come on. I was just wondering if you can confirm that, and if so, you know, provide any color on, you know, what you guys are planning around turning on incremental FLNG volumes. And then on a related note, any update on the permitting progress? particularly in Mexico, anything you can offer there would be helpful.
spk07: Great. Let me take the first one. I'll have Cam, who runs our permitting staff for Genome Council, give you the second. The supply-demand numbers that Andrew walked through and that I referenced at this point assume one FLNG unit. So it's 70 TPTUs per The volume is 1.4 million tons, probably net expected of 65 with weather days and other operational down days during the year. So that's what's in the numbers in front of you. We have a number of other units that are in various stages of development right now, and basically what we have done is a – as a matter of discipline is simply to look at incremental supply being matched with incremental demand. We have lots of options on both additional units in Mexico, the unit that we are right now forecasting to put off the coast of Louisiana, and other situations around the world. So there's lots of opportunity on that side, but it is intended to be, and it is, a disciplined process of not just simply adding supply when we don't have demand, That said, the reference I made to the modular units that we're looking to buy and the increase in our downstream capacity with terminals in Brazil and Nicaragua and elsewhere gives us a lot of opportunities, we think, to really, really incrementally add to our demand part of the equation. And if we did, then we would add to supply. And that's, of course, where the growth comes. And so we're not trying to forecast growth that we can't see the other side of right now. So these numbers that are reflected in front of you we think are very much achievable with what is on the table in front of us right now. There could be some upside to those, but certainly in our years, we think that there's a lot of upside to those, and the FLNG will be a big, big part of that. So, with that, Cam?
spk11: Sure. Thanks, Wes. This is Cameron. I oversee the permitting process in Mexico. I think that update on the permits in Mexico is a very positive one. We have an excellent team fully engaged there. We have a great engagement with the Mexican permitting authorities. And we continue to remain on schedule for all of the permitting milestones that we need to hit to match the timeline that Chris mentioned earlier. So very positive update there.
spk08: That's great. Thank you both for that. Much appreciated. If I could just quick follow up on that. Wes, you mentioned, you know, a very measured approach to deploying new supply via FLNG. I just I want to dig in there a little bit. Is that to imply that before you bring on additional FLNG volumes, you'll want to have contracted offtake agreements in hand? In other words, are we not to expect these FLNG volumes to be purely merchant volumes but rather have dedicated offtake agreements prior to them coming online?
spk07: Yeah, it's the latter. It's really a, there's not a hard and fast rule about it, but we want to have clean line of sight to half of the volumes being deployed before we actually turn the unit on. That said, these units take a while to build. We are nearly done with number one, and we have numbers two and three well under development, so we've got stuff that is on the back burner, basically moving ahead. The volumes at this point would be 2024 volumes, so still volumes that would be in a market which prospectively could be quite a tight one. And so the merchant volumes could be very, you know, valuable to us at that point in time. But we don't want to interject a lot of market volatility into the earnings. We're on a path to high-quality, repeatable, predictable earnings. We think that that's the path that we want to be on. We think that's the path that shareholders want us to be on. And then if we can add to that incrementally, of course, that's a mature amount of growth. I mean, if you just take, you know, 65 or 70 TBTUs, Take our margin, which today is close to $10. Obviously, any incremental asset you bring online is very valuable. Even at $5, these things are actually very valuable. So without any merchant volumes whatsoever, there's a lot of growth potential from one incremental unit. We think we'll have a portfolio, a suite of these over time for sure, but the right way to get from here to there we think is in a measured way.
spk08: Sure. No, much appreciated. And then if I could just squeeze one more in, do you guys plan on disclosing what price you may have hedged at out, you know, over the past several months for some of your open cargoes?
spk07: We don't. You know, we don't report that. I mean, obviously, you know, we made a number of hedges and the market was higher. That's obviously a good thing. In hindsight, we should have hedged everything, but there's challenges there. in terms of doing that, so we did the best that we could, and we think it's actually quite constructive, but no, we don't disclose that. You'll see that show up in the results, though, so.
spk00: I'll move to our next question from Mark Cicillino with Barclays. Your line is open. Please go ahead.
spk01: Hi, good morning. Maybe just to start in your 23 guidance, just wanted to clarify what the embedded assumption is as far as spot prices, and that if we compare the disclosures in slides 11 and 12, I think that implies roughly 36 dbt of cargo sales Just wanted to confirm if you've already locked all those volumes in or patched those?
spk02: Yeah, we do have – I mean, this is Chris. There is about 10 cargoes or so that has exposure, and that's really FOMG. So everything that's expected from our existing supply contract, that's already been sold or has been allocated to downstream customer volumes that are expected to happen over the course of the remainder of the year. So fair point, Mark, that that is kind of the open exposure.
spk07: But some of those cargoes are hedged, obviously. That's right. And as we said, we don't disclose exactly what the hedging positions are. The exposure that we've got at this point, our view, with TTF going down to kind of mid to high teens, is pretty modest at this point. We think that on balance, the amount of market exposure we've got, net of the hedges and net of the absolute price of gas today is actually pretty modest. When you look at the slide that Andrew went through, you can see not only this year, but now years, we're looking at 15% or 20% of our total volumes being open, and that assumes no incremental downstream activity, which, of course, that's not our goal. It's still the end of February. We think there's lots of downstream in front of us, so...
spk01: Got it. That's helpful. And maybe just apologies if I missed it, but as far as the 30 TBTU from FLNG, are you using the current strip in your guide? We are. Great. Got it. Thanks for that. And then maybe just to follow up on the previous question, can you talk about the expected CapEx cadence at this point? And then it relates to your dividend, just how you're thinking about the 40% targeted payout over the next couple of years with the pullback in spot prices, which I guess is partly dependent on the CapEx side as well.
spk02: Hey, Mark. Yeah, so two kind of categories of CapEx, one being FOMG, one being terminals. There's very little remaining terminal CapEx. So between the two terminals in Brazil and then the maintenance stuff at the terminals, that's pretty minimal. I'd say less than $50 million. On CapEx for FLNG number one, we will pay the remaining balance, and I think we have it in the K, but just to step through it, it's around $250 million left to spend, and we'll spend that majority of that is going to be in Q2. So I think in Q1 you'll have – sorry, and I'm thinking from today forward. So from 1231 that you'll see in the K, it's probably closer to $400 million that we'll spend. And that will all go out, I'd say, 100 in Q1, 200 in Q2, and 100 in Q3. That's probably the way to think about it. And then for FLNG2 or others, as Wes has said, you know, we'd be probably very thoughtful about how we continue to move this forward. We've taken careful precision through our legal team in executing excellent contracts that allow us maximum flexibility. with our customers. So we're able to kind of pace out the construction CapEx to match the business needs. Procurement and engineering has largely all been completed. Got it. Appreciate the time.
spk00: Our next question comes from Sam Burwell with Jefferies. Your line is open. Please go ahead.
spk03: Hey, guys. I wanted to maybe unpack the FastLNG CapEx just a little bit. Last week, Chart reported and they disclosed that you guys had made orders for the cold boxes on FLNG's 4 and 5. So, curious, how much of the equipment have you guys procured so far for all the units? And then maybe of the $750 million of guided capex per unit, what percentage of that is sort of equipment versus labor and other equipment?
spk02: Yeah, so Wes has been very deliberate, and we announced this on our earnings, or the investor day, excuse me, in Corpus, that we purchased the long lead equipment so that we have maximum flexibility that when he wants to move forward on the pace of the construction side, we have the ability to do so. So partners at Baker Hughes GE, excuse me, Chart and others are on the ready with equipment so that when we want to continue to move forward on the construction, we can do so. As far as breaking it up, rule of thumb, 30% is probably procurement and engineering, and 70% is construction and make ready. Obviously, the make ready you don't do until you have a location and an expected online date.
spk03: Okay, got it. Very helpful. And just, I guess, sticking with CapEx, like 2023, that still is expected to be $2 billion. I mean, how much of that should be earmarked for the Bark Arena power plant? I think you said that's under construction. Is that more of a 2024 spend? How should we think about sort of non-FLNG CapEx this year and next?
spk02: Yeah, so non-FLNG CapEx is pretty minimal. So their terminals, as I mentioned, and any maintenance CapEx is less than $50 million. You've got a little bit of FSRU conversion, $20-ish million or so. The Bacarena power plant, if Andrew can talk specifics about it, but we also have the Bacarena loan that we have, and it's disclosed in the financial statements. So we expect that to fully fund the development and construction of that power plant over the course of the next 24 months or so, maybe 18 months.
spk10: Yeah, the power plant is being built under a fixed price lump sum turnkey EPC agreement with Mitsubishi between now and July 2025. So actually on a kind of a per quarter basis, it's a pretty modest amount of capex. obviously mostly done through the loan rehab.
spk02: Yeah, so then I think $2 billion is probably a little high from kind of what we were expecting when we announced last quarter. That included probably moving forward at a quicker pace with additional FLNG units that we will now be very thoughtful in how we move forward there to match the online supply with our demand.
spk00: We'll take our next question from Sean Morgan with Evercore. Your line is open. Please go ahead.
spk09: Hey, guys. I think slide 11 is pretty helpful because we get a lot of questions sort of regarding open exposure. And I'm wondering a little bit, you know, the SLNG, it looks like, you know, the fully contracted, some of that would have to be contracted by the MAP for the 121 of kind of third-party gas. So have you... Firstly, is there any difficulty of procuring gas kind of upstream? You have to sign contracts on midstream pipelines and then contracts with E&Ps to basically procure that 63 that you have on flat 11. And then also on the other side, you don't have any firm offtake contracts yet, right? You're just now, you're just sort of maybe saying that instead of being 100% merchant, you're probably... look to assign some of that either shortly before you start producing gas or kind of in the near term after it starts operating.
spk07: Yeah, the first question, the gas that we are going to take on FLNG-1 is Texas gas, right? It comes from Agua Dulce. It comes in a pipeline, a TC pipeline, which 100% of the capacity is contracted with CFE, and they, in turn, are subcontracting to us. So the sticky bit there would be the capacity on that pipeline, but that's the agreement that we have with CFE. The gas out of Texas is obviously very plentiful. There's an oversupply. Prices have come down, obviously. So there's there's massive flexibility in terms of buying Henry Hub Index gas at that location for us. So that's not a challenge, you know, whatsoever. Andrew.
spk10: Hey, Sean. Yeah, I think the way to think about it is, yeah, we're not looking to necessarily sign, like, fixed offtake at the unit, like you might think about some other business models, right? We have a bunch of fixed offtake to our terminals. I think it's 66 contracts now, weighted average life of 15 years. And on page 12, I was showing kind of some of that, right? So if you think about the Barcarina or the Nicaragua contracts, like, That's how we think about our contracted demand through FLNG.
spk07: To Andrew's point, the numbers that are shown on page 11 are aggregates of the entire portfolio. So it's not that we're taking an individual supply contract, be it FLNG or Chenier or Shell or anybody else, and allocating it to a specific location typically. It's really just done in the context of the overall balance of the supply that we have and the balance of demand that we have and the net numbers at the bottom. Okay. Okay, that's really helpful.
spk09: So the CFE effectively has the upstream relationships already set up, so there's no need to do anything there because you're just kind of relying on their gas. And then I guess another question we get a lot, and it also sort of relates to CFE, and, of course, there's two pipelines. You have Valley Crossing and Texas. What is the on-the-water gas price relative to, say, 100 Hub? Can we think of, like, an extra dollar for MMBTU of transit costs and CFE sort of margin built in there? How do you sort of quantify that?
spk07: That's a very good guess. That's, you know, plus or minus exactly what we think it is. Okay.
spk09: All right. Thanks, Wes. That's it for me. Appreciate the time.
spk00: You bet. Our next question comes from Greg Lewis with BTIG. Your line is open. Please go ahead.
spk04: Hey, thank you for taking my question, and good morning, everybody. I was hoping to talk a little bit about the updated EBITDA guidance and kind of maybe some of the puts and some of the takes. You mentioned the volumes. Kind of curious if you've adjusted your spread assumptions. around the EBITDA guidance. And then as we think about that $2 billion number, just looking at consensus, it is still a little bit above where the street is. So really just kind of trying to understand how we should be thinking about it and maybe where some of that delta might be.
spk02: Yes. Greg, so to answer the question, I mean, we had $2.5 billion. We talked about it at the last earnings call, $2 billion now of that. The difference is really just FLNG timing and the downstream execution, as Wes has talked about on this call. We feel really good about two. It is above where a lot of the estimates are today. There's very little volatility in that $2 billion. We feel really comfortable about that. Certainly, the two and a half included a little bit more volumes under the FLNG scenario, and it had a little bit of a higher strip. But as Andrew said, we've termed out more and more of that gas since we announced the call in November of 2022. So very little at risk, and we felt great about the $2 billion for 2023 calendar year.
spk04: Okay, that's great to hear. And then my other question was, When we talk about matching, you know, you reference matching supplies and demand around some of the volumes, and clearly the core of the business is, you know, selling, you know, or not selling but delivering gas to your downstream terminals. Has there been any change in how you're thinking about, the medium-term outlook and the ability to deliver LNG into more of the international market, we'll call it?
spk07: Maybe I can take that. I mean, I think the premise of our business basically is that there is a shortage of gas and power around the world. That was true in absolute terms long before there was a Ukraine invasion. And The prices reflect, I think, the dislocation that exists is there's just more demand for power. There's still a billion-plus people without power in the world. A lot of people have unaffordable power. And so there's no shortage of demand for what our products are. And what we've done in a fairly methodical way over the last eight-plus years is basically build out terminals and power plants in those places to access them. Obviously, today we have... in Jamaica and Puerto Rico and Mexico and Nicaragua and Brazil, there are a handful of other very significant markets we have spent a lot of time on, and we're confident that those will turn into terminals in due course as well. But in the medium-term or long-term basis, there is just no lack of supply. I mean, I think that when you look at the business and the aggregate, I think, number one, the question is, you know, is the macro view of the world the right one, we feel very strongly the answer is yes, a resounding yes. There's a shortage of gas and power. I use the same example all the time. People in Jamaica use 10% as much electricity per capita as we do. People in Kenya use 10% as much electricity per capita as Jamaicans do. So there's a vast need for affordable power. That actually is something we feel more strongly about every day. Number two, I think the question about the businesses are really good at this, right? It's something that we feel like we've demonstrated a pretty good capacity to do things. We're not perfect. We're learning every day. We've got a great group of people, but I think that we now have very, very good proof of concept at every level except for the FLNG, which you are now days away from having proof of concept with. So we feel like that's pretty good. And then the third thing is just the quality and consistency of earnings because I think that Companies are rewarded for being, without surprise, as their shareholders and living with their mission and delivering what they said they're going to do. And as I said at the outset of this, not only do we feel great about the actual volume of earnings, kind of doubling from last year to the year before and then doubling again this year, that's a pretty good path. So we're at $2 billion in EBITDA that translates into $1.3 billion in earnings. So very, very significant earnings when you consider what the value of the company is right now. And I think that the sole missing piece of it, and only time will heal this or address this, is just show that you're actually consistent in what you said you're going to do. And the more diversity we have of terminals, the more diversity we have of customers, the more we control our own upstream inputs of this, which is what the FLNG does, then the higher the quality of the earnings are, and we achieve this, you know, the magical combination of both high-quality earnings and significant growth opportunities. That's the goal that we have as a company. So... Sorry for the long answer to your short question, but that's how I think about it.
spk00: We'll take our next question from Martin Malloy with Johnson Rice. Your line is open. Please go ahead.
spk05: Good morning. I've got kind of a macro question here. With the FLNG assets coming online, would it ever make sense for NFA to potentially invest in upstream gas assets or conversely maybe an upstream gas producer asset? taking equity interest in the FLNG assets to take advantage of the increase in optionality for those molecules?
spk07: It's a great question. It's something we kick around all the time. I think that it would be the ultimate in the integration from kind of cradle to grave of gas out of the ground to power onto a system. You know, the U.S. gas, in my opinion, is especially adjusted for the stability of the jurisdiction and the rule of law, is the cheapest gas on earth. And so simply connecting U.S. domestic gas to international markets is a fantastic idea. And that's essentially what we're trying to do with this first one, where we're basically buying gas out of Texas, and that will be pipeline gas, and then taking it into there. I think the gas assets in the U.S. are very undervalued. And so I'm not an expert at this. We've spent a lot of time looking at it, but I think that The quality and duration and durability of some of those products is actually very, very, very inexpensive relative to the rest of the world. And so I'm a big believer in the value of those assets. And whether it's directly or it's in partnership or some combination of all that, I think that's something we'll explore over time. And obviously it's first step first is get the FLNG so we're connected to the system directly. And then I think those kinds of opportunities are things that we'll think about.
spk05: Okay. My second question, I just wanted to ask about the Hydrogen Zero project and maybe are there any milestones we should be looking out for there?
spk07: Yeah. I mean, I left it out of the presentation because we're actually so far down the tracks of what our thoughts are with regards to that as a business. As we said before, my goal is to get a project fully committed and out of the ground and then in all likelihood spin that off as a separate company because it deserves to have a separate identity. And I think our goal for that is to do so in the first half of this year, if everything goes to plan. We have ordered the long lead items from Plug. We have personnel that are working on it every day. We have a site which is now cleared. We have the bulk of the engineering done. So there's a whole bunch of individual milestones. But rather than kind of clutter up what I think is an otherwise very clean beginning of the year picture for the company, I thought we would just leave that onto the side. But it's a good question to ask. And I think that I think with the IRA and the incentives the government has provided, it makes the US the most attractive place on earth to build hydrogen facilities. The location of those facilities is very, very important because when you create hydrogen, It quickly turns from a chemistry problem into a transportation problem, so you want to be located next to where people are going to use it. Our site down in Beaumont, we think, is ideal because we're close to customers. We're close to a hydrogen pipeline, so that's great. But I think our goal is to actually have a pretty specific update on this and then not to do this in the future. And I think that the prospects for that business, given kind of the macro environment for here in the U.S., the $3 a kilogram production credit are actually quite good. So, thanks for the question.
spk00: And that will conclude today's question and answer portion of the call. I would now like to turn the conference back to Mr. Edens for any additional or closing remarks.
spk06: Jesse, I'll take it. It's Patrick Hughes here. Thanks, everybody, for joining today. We remain available to you, as always, to answer additional questions as they may arise, and we wish you a good day. Thank you.
spk00: Ladies and gentlemen, that does conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.
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