New Fortress Energy Inc.

Good morning, everyone, and welcome to the New Fortress Energy fourth quarter and full year 2023 earnings conference call. Today's conference is being recorded, and all phone participants are in a listen-only mode. But later, we'll have the opportunity to ask questions. To get us started today with opening remarks and introductions, I'm pleased to turn the floor over to Managing Director of Strategy and Investor Relations, Mr. Chance Pepitone. Please go ahead, sir.

Thank you, Lisa, and good morning, everyone. Thank you for joining today's conference call where we will discuss our record fourth quarter and full year 2023 results, recent developments, operational highlights, and future here at NFE. As Lisa said, the call is being recorded and will be available by replay on the investor section of our website under the subheading events and presentations. In that same location, you will find a press release regarding our fourth quarter and full year results and the corresponding presentation that we'll walk through on today's call. As we proceed through the discussion, we will be referring to that presentation. And in that same presentation, you will also find 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 dive into the call. My name is, again, Shans Pipitone, and joining me today at New Fortress Energy are Wes Edens, Chairman and CEO, Chris Giunta, CFO, Andrew Deedy, Managing Director, and Brandon Meckel-Murray, Managing Director. Thank you.

Wes, over to you. Great. Thanks, Chance, and welcome, everybody. As Chance said, as usual, please refer to the deck that we posted here just a few minutes ago. And let's start at the beginning, so page three. 2023 was a very good year, fourth quarter, a record quarter four as well from an operating perspective. $1.3 billion in EBITDA, $380 million in EBITDA for the quarter, more than doubled earnings per share and FFO for 2022 to 2023. And we're poised to roughly double that again this year. So tremendous financial results. Most importantly, when you look at the second line down, it's not number, but it's the second line, the profit from cargo sales, you'll see zero contribution essentially from cargo sales in Q3 and Q4, which now fully reflects that, uh, Our business is operating through the terminals to our customers and our sales of gas and products and power. And so very much of an operating company now as opposed to a development company. And both the quantity and the quality of those earnings were terrific. So it's actually a very, very good thing. If you look at the bottom, when I say funds from operation, this is a metric that we have borrowed from the real estate business, which we think is actually applicable here. Simply put, it takes earnings per share and adds back the non-cash items like depreciation and amortization. What that means is that on our balance sheet right now, we have many billions of dollars of infrastructure, and that's growing. So there's a significant amount of assets on balance sheet. And so simply adding back those non-cash items gives a more accurate reflection of the earnings power of the company. So when you look at it now, $1.61 in FFO in 2022 is $3.56 in 2023, six plus dollars is our guidance for 2024. We'll talk about Brazil because it's actually a major, major issue for us. We have significant amounts of funds for operations from things that are actually on the books right now that Andrew will talk about in a few minutes that we think takes us to $8 or plus in a couple of years in run rate basis. So very, very significant earnings. Obviously, the combination of core earnings at six plus dollars a share along with the 50% growth rate over the last year and projected for this year, plus a 10 plus year duration of our portfolio gives us a significant competitive advantage. We feel very undervalued at these levels, but now this is something that with these results, we think we can go and attack that aggressively. Let's look at page number four. So operational highlights, of which there are many, which we've just condensed into a short page on the absolute highlights. Let's start in Brazil. We came back from Brazil. late last night. In the news yesterday, you'll see that both the Bacarena and the Santa Catarina terminals are complete and are now hooked up. You know, the market in Brazil is massive. It's a sizable market. You know, it's self on what we have right now. And the prospects for additional growth are actually quite significant. I won't steal Andrew's thunder, but basically 500 million plus in EBITDA from the existing business is obviously a massive result But that is really the tip of the iceberg when you look at the future potential power auctions which are coming. You know, the combination of our terminals and gas and power give us a massive competitive advantage. And this is something that I hope that will be appreciated for here in the very, very short term. Puerto Rico, which has been, you know, a huge part of our success in the last several years, you know, we really highlight the two installations for the FEMA power plants that we built in the middle of last year. These power plants have become essential to the island's energy security, the most reliable power on the island. Brandon runs that business for us. We've added to our already large presence there with these and other initiatives we're working on. We're working with the government closely on many different fronts and are very confident to both grow and continue our business there. Fast Island G, lastly, there's a lot of news around that. So in short terms, we installed the first of our facilities We expect first LNG in the month of March and the first cargo in the month of April. So obviously we're at the very, very tail end of that project. And while it's been a little bit delayed, it's important to note that it still would be the fastest LNG installation in the history of the planet. So we are always aggressive in terms of our objectives, but even with it slipping a little bit on balance, we feel very, very good about what we have done. We just recently announced that FLNG2 is now fully financed. Construction begins in April. We believe that that facility will turn on in the first quarter of 2026. That's a meaningful step as well because it brings us onshore in a terminal that actually has substantial expansion capabilities as well. You know, linking these facilities to our downstream creates a very, very powerful business model. You know, the existing downstream in Puerto Rico and FDA countries make more than covers the amounts of LNG that we will produce from these two facilities. And in recent developments, you know, we obviously disagree with the liquefaction pause that the government has taken. But we're the only company we believe that's not affected by this as a result of our downstream customers and our ability to export to both Puerto Rico as well as, you know, the other FTA countries. So that's a very good news. Page Bob, the financial highlights, you know, both a very tremendous year in both the quantity and quality of earnings. The one thing I would highlight is this run rate number that we have circled on the right-hand side. That reflects, for the most part, what is already in place in Brazil. So obviously going from $1.61 to $3.56 to $6 to $8 plus two years from now when we are fully operational there. The FFO is basically cash flow. We have $6 plus this year. And with the $2 in Brazil and the duration of our portfolio and the competitive advantage we've got in these different markets that we operate in, we feel like the future is extremely bright for us financially. At the same time, you know, growth and net CapEx have peaked and expected to decrease significantly in 2024 and below. You can see the net numbers across the bottom of the page go down by roughly 90% of 2023 to 2024, so a massive decline in CapEx. What that means in simple terms is that the operating earnings that we generate will then go to the bottom line for distributable cash flow for us to to run the business and manage ourselves going forward. Your page six is a key page for us. We look at this page. It basically highlights the three pillars of the company, which are basically power and gas and terminals. We think of this in very simple terms. The terminals provide both the gateway to our markets, but are also the sustainable competitive advantage that is hard for others to create in a timely manner. And so it gives us so much confidence in the growth of our businesses. On the left-hand side, on the power side, you'll see that we are very much of a power company. So 8.689 gigawatts of power. So a very, very large power company that we both own, manage, and provide fuel supply to. The gas in our business right now is largely matched. So we actually – our intention is not to be exposed to changes in market price. And I would say that when you look at our results for the last two quarters of the year, you see a precipitous decline in – the world's LNG prices, and our earnings not only were stable, but they were actually growing. So very, very clear evidence that we are not tied into market prices for LNG. That's not our intention, but the results that speak to it. The bottom line on the terminals is that while they currently have significant amounts of throughput, they also have significant amounts of potential upside utility. So Jamaica, we only use 10% of our utilization. Puerto Rico, 25%. Mexico, 10%, Nicaragua, 20%, Brazil, 40%. So these terminals have got a substantial amount of upside. They require essentially little or no CapEx for us to move more product through them. So we think that the combination of power and gas in terminals is a very, very powerful one and gives us a very, very bright future. The last thing I would say is that there are many companies out there that provide one of these three elements. They either are a power company, sort of IPPs, or they invest in power companies. their gas in terms of either owning the gas in the ground or they own liquefaction. And there are terminals companies or people who operate on a fee basis terminals around the world. Putting them all together is what allows us to actually, number one, and most importantly, serve our customers because it creates this one-stop solution that is so important to them so we can actually be attentive to what their needs are. But number two, it gives you a massive competitive advantage of others that are trying to do the same thing. So it's a very, very powerful combination. With that, I'll turn it over to Brandon to talk about Puerto Rico. Brandon?

Thank you, Wes. Let's move to page nine for the presentation. As Wes so often says, affordable, clean, reliable power is the cornerstone of economic activity, and in that regard, the majority of the world is underserved. There's no better example of this in the U.S. and its territories than Puerto Rico. We've been investing in Puerto Rico's infrastructure since 2017. Following a series of devastating natural disasters, including two hurricanes just two weeks apart, NFE began developing critical energy infrastructure in Puerto Rico to improve reliability and lower energy costs for repairs. Our first project was the San Juan Energy Port, converting an existing combined cycle power plant to burn natural gas rather than diesel and constructing a fuel import terminal to support it. Our operations began in 2020 after completing construction in the depths of COVID, a true testament to the dedication of our team and stakeholders. Today, this facility delivers 15% of the power to the PR grid with reliability in excess of 97%, while significantly reducing emissions and generating over a billion dollars in fuel savings to ratepayers life to date. Most notably, this asset provides NFE a significant, sustainable, competitive advantage on which to deliver more value to Puerto Rico through follow-on infrastructure investments, such as those we will highlight in the next slide. Turning now to page 10. We continue to invest in more reliable, clean, affordable power for Puerto Rico, and in 2023 expanded our presence with two major developments. First, fast power deployments. After a rigorous selection process, NFE was picked by the U.S. government to build and operate 350 megawatts of fast power across two sites in Puerto Rico in order to stabilize the grid. The first site, Palo Seco, 150 megawatts, is located just a few miles from the NFE terminal, allowing us to easily connect our site to existing logistics chain. NFE was awarded the project in February 23 and delivered power to the grid just a few months later in June. making this the fastest large-scale power project in Army Corps history at the time, which is saying something. The second site, San Juan, 200 megawatts, NFU was awarded the project in April of 23 and delivered the power to the grid just a few months later in September. Together, these sites provide 15% of the power to the Puerto Rico grid with reliability in excess of 98%, reduce emissions, and generate hundreds of millions of dollars of savings to rate pair. The second is the privatization of PREPA's thermal generation fleet. NFE's subsidiary, Henera, won the mandate to manage PREPA's thermal generation fleet for at least the next decade in a rigorous privatization process. Henera took over the system July 1st with three goals, to increase reliability, lower cost to ratepayers, and reduce emissions. I'm proud to say that Henera is delivering tangible wins on each of these three goals during its first year of operations. These two developments continue to build on the work we started in 2017 and further enhance the NFE franchise in Puerto Rico. Moving to page 11, the majority of Puerto Rico's generation assets are now managed by NFE or our subsidiary, Hanera PR. Our footprint consists of 5 gigawatts of power across 17 sites, over 700 employees, and most importantly, 1.5 million customers. We manage 85% of Puerto Rico's total generation capacity, but 57% of this capacity continues to run on diesel or HFO. This creates a tremendous near-term opportunity for NFE's business. Our footprint allows us to execute on a variety of strategies, such as fuel switch, supplemental power, and other fuel optimization initiatives that NFE is well-positioned to be the infrastructure provider of choice to deliver value to the Puerto Rico rate pair. Moving to page 12. NFE continues to engage with the Puerto Rican government, FEMA, Army Corps, DOE, and other stakeholders on a broad range of topics. We are bringing advanced generation storage technology to Puerto Rico that improve the level of service for all customers. Puerto Rico has the highest priced and least reliable power in the U.S. and its territories. The average Puerto Rican customer is 600 times more likely to be without power than a customer in mainland U.S. The good news is the situation can be fixed. And here are just a few of the initiatives we are executing on to address it. We're adding large-scale battery energy storage systems to the grid, reducing frequency of load sheds by 90%, adding additional generation through peakers and Blackstart assets, the first new conventional generation on the island in years. And we're implementing a fuel switch and supplemental power strategy to add megawatts now and ancillary services later to strengthen the grid and make it renewable-ready. We continue to invest in Puerto Rico and expand our franchise there by adding essential infrastructure. These projects and experience they bring can be readily applied to other markets addressing similar challenges, creating opportunity for NFE and other jurisdictions seeking solutions to accelerate the energy transition. This drives value to NFE as the solution provider of choice. I will now turn it over to Andrew to talk about the exciting business he and his team are building in Brazil and the tremendous advances made there. Andrew?

Thanks, Brandon. Hello, everyone. Good morning. I'm on page 14 and very excited to announce that our Barca Arena terminal is now operational. Wes and I were here yesterday and had a great event with the governor of the state of Pará and the Minister of Mines and Energy in Brazil. And we stood on the FSRU and looked back at the shore here and that was pretty cool to try to highlight how kind of from the terminal here you can actually see the three big contracts that we have. On the left side here on the top of the page, you can see the Elinorchi Illumina Refinery owned by Norsk Hydro. That's where we have a 15-year agreement to sell 30 TBTUs. Moving a little bit to the right, our current 630-megawatt power plant, which we call Selva, is 50% complete. That will reach commercial operations in July of 2025, and it has a 25-year PPA. And then on the land just adjacent to that to the right, is where we're going to site the new 1.6 gigawatt PPA that we bought from Denim Capital and Saba Energy. That will COD the next year, July 2026, and have a 15-year PPA. So, you know, super exciting for us on many levels to open this terminal. And then also just to be able to kind of see the overall business model, very compact here in one great industrial development. As you can see from the picture, too, you know, what we did here is really extended an offshore jetty. So this is a very cost-advantaged project. And it benefits from the FSRU Energo Celsius, which we just finished completion of converting in a yard in Singapore. And so FSRU arrived a few days ago, fully hooked up, and we're ready to flow gas in Bacarena. So very exciting. Not to be outdone, the next page is we're announcing that the Santa Catarina Terminal is now operational. We've obviously been working on both of these for three years, and I think they've been in, you know, permitting and development for, you know, another five years. And so not totally planned, but they did arrive basically within a day of each other and are getting hooked up also within a day of each other. So another great project here. We'll show more pictures on this in the future, but basically the pipeline here, as you can see, is connected and then actually goes under the water into the left here and for another 30 kilometers until it connects into the big transport pipeline system in Brazil. So super exciting terminal for us. Very different dynamic in terms of being connected into this very liquid pipeline system, which we're going to talk about here. I'll now flip to page 16. Wes alluded to it. You know, we're very, very excited about the opportunity in Brazil. We really believe this is one of the best LNG and power opportunities globally. I'm going to walk through a few reasons for that. And the other thing to remember is not only is it one of the best opportunities, but it really is at a scale that's sort of unprecedented for NFE. So there are three things that I want to highlight in terms of why we love this opportunity. from left to right. So the first one is the overall demand growth for energy in Brazil. There's many ways to kind of come at this stat. What I really like is the 4% year-over-year increase in electricity consumption. That maybe sounds like a modest number, but when you're talking about a grid of 85 gigawatts, 4% is a huge number. And then we spent a lot of time, even just yesterday, with the Ministry of Energy, and what they're actually forecasting is a need for 20 gigawatts of new dispatchable power by 2032. Brazil has a very interesting grid that might actually be a peek into the future for some of the rest of the world, where almost 80%, probably 75% of the power is renewables and hydro. And so they have a very clean grid and a very low-cost grid, and their problem is actually capacity. And so what they need as they grow is more firm capacity, which is what NFE is set up to provide. The second thing is really the mechanism for acquiring new power. So Brazil has a great history of acquiring long-term contracts, for power capacity. So over 35 gigawatts have been awarded in these auctions since 2006, 23 different auctions. In 2024, we expect a new auction for more than eight gigawatts. And these contracts are very sophisticated because they're highly bankable and they index the gas price to international LNG prices. So this really is unique for us in the world in terms of a very well set up, well understood and bankable mechanism to give out long duration contracts for LNG to power. The third is the robust local capital markets. And so what we see in Brazil that we don't really see in a lot of other places is banks and capital markets that are willing to support these long-duration PPAs that are won in the government auctions. We have significant financing support from the Brazil Development Bank, which is called BNDES, where we financed our Selba Power Project. And what this allows us to do is continue to participate in these auctions, build up our portfolio, which today is 2.2 gigawatts. We think that's going to 4 gigawatts or 5 gigawatts this year. And we're able to finance a majority of the project CapEx with really competitive asset level debt. On the right, we just put a couple of stats to compare to the U.S., and it's the same sort of thing we've been saying about the demand. So, you know, Brazil is one-fifth of the energy use per capita in the U.S. and has a population growth that's about five times Flipping to page 17, just to talk a little bit more about the grid and try to underline our opportunity here. So on the left side, you can see what I mentioned is 60% hydro in the grid. That's the real thing to understand about Brazil. When it rains, that's very low cost power and low emissions power. And these are amazing projects. They've also done a great job of building out renewables, so 15% renewables on the grid. However, what that means is 75% of the grid is either seasonal in the case of hydro or intermittent in the case of renewables. And so what Brazil has been very focused on, to their credit, is building out thermal power capacity, which is dispatchable, and basically provides the firming capacity for that entire grid, which allows the hydro and the renewables to grow even more. On the right side is the problem that they've had. So what that means is with all these intermittent sources, you've had a very volatile energy price. And so, you know, we've graphed that here. You can see the inverse correlation between basically hydro storage and the spot price. Brazil thinks a lot about this problem and has done many things. The one thing that's been difficult is just how fast they've grown. And so one of the things to know is that when these hydro plants were first built, the reservoirs were capable of storing enough energy that would last Brazil for many years. Today, that storage lasts about 30 days. And so it's been very hard to keep up with the capacity for growth in Brazil. Flipping now to 2018, One of the things really that underlines the opportunity in Brazil is there isn't enough gas. So there is a gas economy in Brazil today. There's a lot of industrial gas use, but there's not enough gas to go around for both the industrial use and for this thermal power capacity. And so the reason, as they've tried to build this out, that it's been hard to continue to build up the firm capacity is you haven't had enough gas to do it, hence the great opportunity for LNG development. NFE has identified this opportunity in two very distinct areas. and focused ways. On the left side, what we're trying to underline is our regional strategy. So where we see regional gas supply constraints amidst increasing demand is a perfect place for LNG, which we've targeted with our acquisition of Golar LNG in 2021. At the top, the Bacarena Terminal exists very far from any pipeline or onshore gas and is the only gas import point in the region, which is a highly industrialized region where most of the exports for agricultural and mining resources go out of Brazil. Barcarina will be a 2.2 gigawatt power complex, 30 TB to 15-year contract, and then it will become the regional hub for all the LNG demand. So we'll continue to develop power in neighboring states. There are other regional industrial off-takers that we're targeting, and we're the main import point now that we've started for LNG in the region. And then what we really want to highlight is the opportunity at the Santa Catarina Terminal. So the great thing to know about Santa Catarina is through our pipeline connection, we are connected over three and a half gigawatts of existing power plants that do not have firm gas supply or PPAs. Those plants obviously all want to win PPAs, and to do that, they're going to need firm gas supply, and we hope to be the supplier. Also, there's 300 TBTUs of industrial demand today in that pipeline system. Those folks pay a tariff all in that's greater than $18 for MMBTU when including taxes and transport fees. We can be very competitive against that. And so as we start our journey now in Santa Catarina, those are the two opportunities to watch, and we have exciting things on the horizon. On the right side is the second opportunity we want to highlight, which is the power auctions that are coming this year. So Brazil forecasts a need for 20 gigawatts of new dispatchable power by 2032. The light blue here is the retirement of existing thermal power. And the dark blue bars are the Brazil government estimates for the capacity need going out to 2032. We expect there to be an auction of eight gigawatts or more this summer to start kind of chipping away at this. And as we're highlighting in our two terminals, we expect to be a bidder in that auction, both as a developer of new power and as a supplier of firm gas. Page 19 highlights our current business. So on the left side, We just wanted to walk through the current contracts that we have that are going to turn on over the next two years. So we have a 30 TBDU contract turning on now with Norsk Hydro that will go for 15 years. In 2025, we'll COD the 630 megawatt Selva power plant that has a 25-year PPA. And then in 2026, we will COD our 1.6 gigawatt PPA, which is a 15-year contract. That gives us at Bacarena 30 TBDUs of gas supply, 2.2 gigawatts of power, and an 18-year average contract duration. That all equates to $500 million in contracted EBITDA once we're fully run right on these contracts in 2027. On the right side is the near-term growth I just went through. So there's a great need for new power capacity with a sophisticated mechanism to acquire it and local capital markets that are super supportive. Then we have the regional constraints on fuel supply. In Santa Catarina, most of that gas comes from Bolivian supply, which is declining. And in Barcarina, we're the only importer. I also want to go through on page 20 just some quick highlights on the acquisition we announced on December 23rd and how that plays into our overall Brazil strategy. So what we're doing here is we're acquiring a power contract that was won in one of these Brazil auctions in 2021. It's a 1.6 gigawatt simple cycle contract for 15 years and pays a capacity payment of 280 million. And when called on to generate energy, has a gas price of approximately 120% of JKM. Why is this such a great opportunity for NFE? The first is that it leverages our existing infrastructure. So we were able to find a developer who had won this contract but was unable to complete gas supply. We saw a great opportunity to move the contract to our existing terminal and leverage our existing gas supply. It's really, really hard to supply 1.6 gigawatts of power on a response basis if you don't already have gas flowing through the terminal. Because then if he has these baseload contracts, in this case with North Hydro, we're able to leverage that and also supply, you know, spot respond demands contracts like this for power capacity. And so it really shows kind of how the whole terminal works together to support a complex of both industrial gas supply and over 2.2 gigawatts of power. So the third piece is just to demonstrate our significant operational leverage. So when we add this contract to Bacarena, You know, we already have the two contracts in place, the 30 TBTs of gas and the 630 megawatts of power. So we're already paying for all of our expenses, including the FSRU and terminal expenses. And now what we'll make from this contract really drops straight to the bottom line at Barcarina. So really exciting opportunity for us. We're working very collaboratively with the regulatory bodies in Brazil. We've made great progress here and expect to have regulatory sign-off to transfer this PPA to Barcarina in March. Thank you, and I'll turn it to Chris.

Thanks, Andrew. Good morning, everybody. Let's flip to slide 22 and talk through our FLNG projects. Over the last three years, we've assembled an amazing team of employees, contractors, and construction partners that have been working around the clock to make our first FLNG unit a reality. The headline is that we're in the final stages of commissioning and expect first LNG in late March and our first cargo to sale in April, on which I'll go into more detail shortly. But before I do, I want to share just a brief background of how we got to this point. As most of you listening are well aware, the LNG production market is dominated by super majors and national oil companies or by project-focused entities that require 20-year offtake agreements with investment-grade counterparties. At NFV, however, we have stood in the gap and built critical energy infrastructure in emerging markets that need access to LNG now. So in late 2020 and early 2021, we were seeking to add to our LNG supply portfolio and found it difficult to get the quantity and the duration that we required for two primary reasons. First, a lack of overall supply in the market for the midterm period, notably 2024 through 2027, given that all the then currently operating liquefaction projects were nearly 100% contracted. And second, as we were only a single B-rated entity at the time, the credit support and project finance nature of the operating projects did not allow for them to sell substantial quantities to NFE. So move to slide 23, and let's talk about what we did as a response. As I've mentioned on this call before, Wes scheduled a daily call every weekday morning for the last three years where we aim to complete a solution that would be quick to market and allow us to serve the growing needs of our downstream customers. First, we sought to eliminate design slack that would require significant engineering contingencies and immediately went to work building the modules for gas treatment, liquefaction, and power. We executed on long lead procurement in order to focus on speed to market, excuse me, with industry-leading OEMs like Chart, Baker Hughes, and Siemens. We purchased Jackup Rigs to serve as the foundation for the modules, eliminating the long and difficult process of constructing purpose-built marine assets like ships or barges that have been done for other offshore liquefaction solutions. And of course, we chose Top Flight Engineering and Construction Partners in Fleur, Kiewit, Arendelle, Zentec, and others to ensure excellent workmanship. So where did that get us? We'll move to slide 24, and you can see a recent photo of the FLNG unit on location. With respect to our first FLNG unit, we declared FID in March of 2021, and we will have first LNG in March of 2024, making this the fastest large-scale LNG project ever developed. We've completed over 8 million man-hours of construction to date. We've transported rigs to their location in Altamira, completed the hot tap, and introduced feed gas for commissioning. And we have our LNG storage vessel, the NFV Peglin, securely moored and connected to the rigs awaiting LNG loading. Finally, the commissioning and operating teams are aggressively working to produce first LNG, which is scheduled for late March, followed by the first cargo sailing in April. I'm moving to slide 25, and now that we're nearing the conclusion of commissioning for our first FLNG unit, we're turning our attention to FLNG2, which has a much cheaper and faster deployment timeframe, given its onshore nature, pristine pad site, existing infrastructure, and knowledge gained from FLNG-1. The modules are under construction now and will be completed in Q3 2025 and will then ship to Mexico for installation at the Altamira Terminal with expected completion in Q1 2026. The terminal was built by Shell and is in excellent operational condition. There's LNG in the tanks, full deepwater marine berthing capabilities, and ample land to receive the modules. Quite frankly, you could not ask for a better location. FLNG 2 uses the exact same technology and design as FLNG 1, but a completely different contracting strategy, one that allows us for much more certainty around price and schedule. We have a fixed price date certain contract for our modules and a fixed price date certain contract with our civil contractor for the onshore installation. We have 90% of the procurement already completed, and in many cases, the equipment is on location in the Kiewit yard or ready to ship from the original equipment manufacturer. And finally, as Wes mentioned, we're excited to announce we have secured committed financing for a $700 million loan for FLNG2. To date, we have invested a little more than $300 million already, and the balance will be funded by this $700 million construction term loan. Quickly, on slide 26, we wanted to remind investors that LNG produced from our fast LNG units will go to supply our customers through our downstream terminals. With FLNG1 nearly operational and FLNG2 expected to be completed in early 2026, we will have approximately 140 TBTUs in production. The match of our own supply and demand provides significant operating advantages, as well as insulates us from changes in global LNG prices. And importantly, our expected volumes in FTA countries like Mexico and Nicaragua, as well as Puerto Rico, are more than the supply coming online from FLNG 1 and 2, thus removing any concerns over the non-free trade agreement export permit pause recently announced. So now please turn to slide 28, and I'm going to run quickly through the financial performance from the fourth quarter and the full year 2023. Just as was the case in Q3, we had no open market cargo sales and record earnings from our downstream terminals. Total segment operating margin was $427 million, with $372 million of that coming from volumes that we sold through our terminals to our customers. This $372 million is nearly double the $195 we produced in Q3 2023. And for the full year 2023, we produced nearly $1.3 billion in total adjusted EBITDA, which is up 20% from 2022. Net income for the quarter was $217 million, or $1.06 per share on a diluted basis, and $548 million per year, or $2.65 per share. We've also included funds from operations on this page, which Wes described earlier. We had $1.36 per share in the fourth quarter and $3.56 per share for fiscal year 2023. The punchline here is not only the magnitude of earnings, but the quality as well. In the second half of 2023, 100% of our earnings came from sales to downstream customers or vessel charters. And now, with very little equity CapEx required, there should be meaningful cash flows produced each year. Finally, turn to slide 29. And on the left side of the page, we're including a table showing the expected funds from operations for 2024 is around $1.25 billion, less the $250 million of net CapEx that was discussed earlier. which is around $1 billion that can be used to pay down debt. To that end, we are evaluating potential refinancing opportunities to address our debt maturities in the ordinary course, including the six and three quarters notes due 2025, and we will continue to actively monitor market conditions. As part of our process of refinancing and deleveraging goals, we are working with the ratings agencies on six key focus items for 2024. One, debt reduction driven by free cash flow and asset sales. Two, growth initiatives to be funded by asset level debt. Three, adding to our power portfolio with over 2 gigawatts of power in Brazil. Four, increasing volumes and executing long-term fuel switching in Puerto Rico. Five, commercial operations on FLNG 1 and construction of FLNG 2. And six, affirming our dividend policy of 10 cents per share per quarter. With that, I'll pause and turn the call back over to Chance for Q&A.

Thank you, Chris. Operator Lisa, would you please take a moment receive some questions and let's open up the lines.

Thank you, sir. 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. And again, press star 1 to ask a question. Our first question comes from Chris Robertson with Deutsche Bank. Please go ahead, sir. Your line is open.

Hey, good morning, Wes. Hey, guys. Congrats on the strong quarter-over-quarter performance here. Wes, just given the step change in the adjusted EBITDA that we've seen over the last two quarters, it's obvious that the Puerto Rico power generation contracts provide quite a meaningful uplift here. There's been some public filings and reports around FEMA wanting to wind down its involvement as early as mid-March. Can you just speak broadly to what's happening with regards to FEMA, kind of what this means for the current contracts, any potential sources of income and cash related to those assets, and more importantly, what's the longer-term growth opportunity in Puerto Rico on the fuel switching side?

Yeah, that's a great question. I'm going to turn it over to Brandon to answer. I mean, there's actually been a fair amount of public statements, both with regards to the power plants as well as the gas contract and whatnot. I know you have Brandon address it, but it's a great question. It's something we feel great about.

Go ahead. Yep. Thank you, Wes. Great question. I think it's best to kind of start with the facts. We have in place now two two-year contracts that we're about halfway through. Those kind of in the aggregate support 350 megawatts of operational power, but 425 megawatts of installed power. The good news is if you look at the statement side of the Puerto Rican government, including the governor there, there's been an agreement between the governor of Puerto Rico and FEMA to have these units remain and for the governor of Puerto Rico to purchase them. So there's a process ongoing. It's public to have those units transfer from NFE to the government of Puerto Rico. I think most importantly, which is if you look at the system dynamics, that 350 megawatts that will become 425 megawatts represents almost 15 to 20 percent of the installed power base, and without it, Puerto Rico couldn't achieve their reserve margin. So if you look at the criticality of the infrastructure, it has now become essential. In terms of future, there's about one gigawatt of potential conversion, fuel switch, or supplemental power opportunity, because if you look at the way the Puerto Rico grid is evolving, essentially what's happening is is the HFO and diesel plants are going to run off. And in its place, it's effectively going to be gas from a thermal perspective. And then that, over time, will provide ancillary services as the grid continues to transition to renewables. So from an NFE perspective, our strategy is megawatts now, ancillary services later. But under all scenarios, the power that we're providing, supporting, and then ultimately fueling, we expect to be there for the indefinite future. That's helpful, Brandon.

Can I just ask a follow-up? Oh, go ahead. Just a follow-up on that in terms of the conversion opportunity on the gigawatt of power that you mentioned. How many plants is that spread across? What type of timeline would that be in terms of just the conversion opportunity? Like how long does it take to switch from diesel and HFO over to natural gas?

Mm-hmm. So it's three to four, depending on what you want to sort of consider the current state of affairs. And I think, you know, like, you know, all good, you know, development plans, there are near and medium term opportunities. The fortunate fact is there happen to be a few opportunities that are gas ready today. And so they simply need a fueling solution, which we think is in process. Then there are medium-term opportunities that can last anywhere from nine to 12 months in terms of converting existing plant to be gas-ready. Not dissimilar to the project we've already executed in San Juan 5 and 6, because if you recall there, there's a CCGT that we converted. The actual time for conversion is probably four to five months. So it's actually a pretty rapid process. And so these opportunities exist, you know, throughout the island.

Got it. That's helpful. Just go ahead. Yeah, and just the one thing I'd add to that is if you think of the existing power plants for FEMA that Brandon has put in place, those provided a critical need during a short-term period, and the price reflects that because everything happened, as Brandon says, the fastest installation in the history of the Army Corps, which is indeed saying something. The longer-term plan is simply more gas for both this plant as well as others that will get converted at perhaps a lower price than the emergency power. But on balance, our guidance for people is we expect that Puerto Rico will both continue as it currently performs for our system. We think there's significant growth potential for both this, ancillary services, and other initiatives that are underway. So it's nothing but good news.

All right, thanks, Wes. I'll turn it over. I'm sure you have plenty of other questions coming.

And our next question comes from Sam Margolin with Wolf Research. Please go ahead. Your line is open.

Hi. Morning, everybody. Happy Leap Day. Thanks for taking the question. Follow-up on Puerto Rico, because there are a lot of variables between, you know, a new price or sort of a pro forma price and a new term and then upside to volumes and then you know, whatever, um, agreement you come to, uh, when it, when, or if it gets restruck. But I think, you know, the most salient question we get from investors on the inbound side is, you know, is there any scenario where, um, the business model in Puerto Rico changes because of a FEMA negotiation and, and recontracting, but the balance sheet and the leverage ratios are, um, are affected? And, you know, basically, put another way, like, do you see this resolution as something that will ultimately be positive for your leverage ratios on a go-forward basis?

Yep, this is Brandon. I'll take that. I mean, I think, you know, I kind of, I'll echo a little bit where I started with the last question. I think it's important if you, you know, look at what Puerto Rico itself is saying, you know, they are moving through a process where they will acquire the 350 megawatts that we built. I think, you know, from an expectation standpoint, you know, that transaction, you know, will need to close in the you know, a mechanical standpoint, you know, we will receive, you know, cash proceeds for that. And you should expect that Chris and others will kind of use that from a balance sheet perspective, you know, in a way that makes sense consistent with their capital plan and strategy around the credit generally.

Okay. Yeah. I mean, I think that, well, no, just to address, I mean, also, we are halfway through a two-year, you know, term of those contracts. And so, Well, I understand there's interest on people's part to understand what will happen at the conclusion of that. From our standpoint, we are a massive part of the energy solution for Puerto Rico. Brannon, Hanera, the whole, you know, 800 people that work for us down there are busy there every day. And so it's simply not possible to predict the future exactly other than the fact that we have the best information. You see the statements that are made publicly by both, you know, the federal government as well as the governor in Puerto Rico. and others about the nature of these assets. And so we feel great about it. And that's the bottom line. And I think that when you take the sheer math of 1,000 megawatts of additional power that needs to be converted, under any such situation, that's a very positive outcome for us. We're the only material LNG terminal on the island in the area of San Juan where the bulk of the people and the bulk of the power is. So those are the facts. And so I understand the question and would like to be I'd like to predict the future about a lot of different things. But we feel very, very good about it based on the public statements that are out there, as well as our own insight is with respect to this process. And as soon as there's further resolution to that, we'll be happy to share it. But we can't do more than that.

Understood. No, that's very clear. And actually, it's a good transition to a follow-up I had, too, just about the overall competitive landscape, maybe not just in Puerto Rico, but in Brazil, too. You have all this upside. to volume and ultimately power demand in both these markets. And, you know, to date, you've done a really good job of kind of fencing off your domain and, and protecting your market share there. And we'd just love to hear your thoughts about what the competitive landscape is there today and how you can kind of maintain your position. Thanks.

Yeah. You know, I'm going to amplify a little bit with Andrew six. I thought he did a terrific job of laying it out. I mean, I, Brazil, for us, it's been an investment historically of about a billion and a half dollars, right? So we've made a massive investment in the country. We now effectively, not potentially, but effectively today, we have really two of the four operating import gas terminals in a massive country that is an enormous need for additional power. I mean, the way that actually the Brazilian government has managed their renewable portfolio, I think, is a role model for how other countries, including the United States, should think about this going forward. But they basically, between the hydroelectric power and the other renewable power, it's something like 80% of all the power in the country is renewable. What that necessitates is a huge standby capacity to provide the peaks and valleys if it doesn't rain or the sun doesn't shine or the wind doesn't blow. And so, and what they have done going back to 2006 is they have issued these capacity auctions for 35 gigawatts of power, whatever it is, massive amounts of power. So there's a real history of them doing it. And because it's such a large and vibrant country, they actually have an internal capital markets that supports these activities that finances them as well. So it's a remarkable combination of this. And I feel like You know, we've been clear with what we have in hand today, what has already contracted, it's generated $500 million in run rate EBITDA by the middle of 2026. I feel like our value from that, because the cash flow contribution in the current year is nominal, right? Because this is all stuff that is just now coming on. I don't feel like that value is reflected in the valuation of our company at all, but I think that'll change dramatically. You know, we intend to host investors and counterparts and rating agencies probably in the month of April down to there. It's a remarkable thing to see in person. When you see the effect of the decarbonization that it has on the Amazon, one of the most environmentally sensitive parts of the entire planet, it's amazing. And we were there yesterday with the energy minister, with the governor of the state of Pará, and you can see that this is not just a good project in their eyes. It's an essential project. It's something that is desperately needed across the country. And our competitive advantage in The south, in particular, is we have a new gas terminal that opened yesterday. There's going to be auctions that will be coming up, we expect, in the next handful of months. We are the only provider, perhaps, or the major provider of gas, which gives us a massive competitive advantage. And we'll try to detail that now that these are up and running and show you. So I think that what is crystal clear is that the, and I said this in perhaps not clear enough terms, The terminals themselves are the gateways that allow you to service your customers. They are also the gateways to prevent other people from competing with you. And, of course, anybody can build a terminal and it's just money, except it's also time, and time is the only commodity that you can't buy. The terminals that opened yesterday in Brazil, the developments of them were started about eight years ago. And so all you need to compete with us in Brazil right now is a time machine. If you can just go back eight years, you're going to be right there neck and neck with us. If you don't have that time machine, though, it's going to be a pretty complicated thing to compete with. So I couldn't speak about it in more clear terms. And the same thing applies for us in Puerto Rico. The same thing applies for us in Mexico. The same thing applies for us in Nicaragua, et cetera. All these things have characteristics. The markets all have different characteristics. Perhaps none of them is attractive on a long-term basis as Brazil and as Puerto Rico. But all of our terminals are actually in the same competitive environment. position, and that is something which I think is an unbelievable, sustainable competitive advantage.

And we'll move to our next caller with the question, Craig Shear with Tuohy Brothers. Please go ahead, sir. Your line is open.

Good morning. Thanks for taking the question. So you've got this very attractive FEMA contract that's kind of a sugar rush, but you've got all these great opportunities with Puerto Rico fuel switching and Brazil to dramatically fill in and go way beyond that with material downstream growth. But that requires upstream supply. And at the moment, I believe maybe an MTPA of... and SPA with venture global CP2, at least the timing's in doubt. And even with that, all your contracting 2FLNG deployments within two, three years, it could wind up being net short LNG. So my first question is more specifically, how do you think about balancing sources and uses of LNG over the next two to three plus years? And to the degree this becomes an issue, do you see it wind up being a governor on the foot pedal of your downstream growth?

It's a great question. I think it's very interesting because I think that the question that you pose is the opposite of what most people's concerns are. I mean, I think most of the world is now concerned that since you're roughly doubling the supply of LNG in the world by the end of this decade, the question is where is the downstream going to come to support that? When you look at our book of business, and we've been very transparent about it, we are fully contracted in terms of what we produce and what we actually then provide to our customers over the next couple of years. And so we feel, obviously, very good about that. In addition, longer term, we can either simply continue to build more liquefiers if we choose to do that, or more likely, I think, we'll look to the market to supply it. I mean, there's a massive amount of supply in the later part of the decade. And so of the things that I am concerned about with respect to our business right now, Long-term supply of LNG is not anywhere on the list. I just think there's many, many different ways that that issue can be addressed. In the short-term, we've gone through a lot of investment and a lot of focus to get our own liquefiers up and running that addresses the short-term needs in the kind of 24, 25, 26, 27 period. But beyond that, I think that there's more likely to be an abundance of supply than not. And I think, frankly, the most scarce resource by far in the LNG ecosystem around the world will be downstream terminals like ourselves. And they're really, to my knowledge, there's nobody that has the same collection of downstream terminals that has so much in the excess capacity already up and operational that can service all our customers and therefore create a short for all these other long providers to come into. So I think we couldn't be better positioned, honestly, And as a company, based on where we are, given the kind of macro landscape as well.

Great. And last question. On FLNG2, great that you have firm contracting on that so we have a better sense of cost and delivery, but is all you know, Mexican contracting, regulatory approvals, is everything in place at this point? What is left in terms of hurdles to make this 100% locked in?

Yeah, I think we're following the same path that we did on FLNG1, Craig. So you have the CFE as your partner, the president, his cabinet, the successor administration have all expressed strong desire for this project to move forward quickly. I'll tell you that everything that we can apply for now has been applied for, and everything's in the path of moving through approval. So, again, with the government effectively as your partner here, with massive financial incentive themselves for this project to get online, again, we're using existing infrastructure that they're paying for and not really getting the benefit of now, plus the profits in the projects. make this extremely attractive to them, and we don't expect any challenges going forward.

Yeah, and I want to reiterate again what I said earlier, which is the existing FTA approvals that we have, the existing ability for us to bring volumes to Puerto Rico with our downstream volumes mean that essentially we have a home for all of our own production right now, which is a massive difference versus anybody else who's got a new project. I mean, obviously, we expect that this ban will not be a long-term ban. We expect that it'll be resolved at some point in time, But, of course, we can't predict the future, so we don't know when it will happen. Happily, from our standpoint, we are the only company that doesn't care about that because we're actually in a great position as we are right now because of our downstream and where it's all located.

And we'll move to our next caller, Sharif Almarabi with BTIG. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking my questions. So first, I guess a couple of questions ago, this is kind of asking half of that a different way, but realizing the long-term goal of the integrated model is to supply your own LNG to your own terminals. Is there any reason why the company still couldn't take advantage of LNG price arbitrage if they present themselves in the future?

We don't really view ourselves as the merchant business. Really, we want to be in the business of full integration. So we integrate ourselves from liquefaction to transport to terminals to power or gas. And so we don't want to be in the merchant business. We don't want to have to predict that as part of our future. And I think we very successfully have insulated ourselves from these price swings. And again, I'd point to look at the price decline for TTF or JKM in the second half of the year, look at the results of other companies that were exposed to that, compare them to our results over that same period, and you'll see the benefit of that. We think that with this now focus and delivery of our operating results, our goal is to both be very predictable as a company going forward and also to be a growing company as we continue to manage the upside in these different terminals and markets around the world. So that clearly is the objective, and I think that we have made great strides in getting there. It's always a bit of a process, but again, the last two quarters we think are you know, two in a row in terms of actually doing what we said we were going to do. And so we feel really good about that.

Thanks, Wes. And then I want to get a better idea of these additional opportunities in Brazil. Do you have a sense of the turnaround time on that A-plus gigawatt power auction? So how long after holding the auction are winners announced? And do you have a sense how long after that we could see some more gas volumes pull through the Brazil terminals?

Yeah, I'm going to let Andrew go through that. Maybe spend one minute and talk about how the auctions actually work because I think it's quite interesting. Yeah. Yeah, sure. Thanks for the question.

So, you know, generally those auctions are decided the same day. And sorry, not generally. They are decided the same day. They're very transparent. They're done on an electronic platform. You can see all the bids that happen. So the way that we expect this to happen is consistent with history, which is in the next, you know, maybe a couple weeks or month, they'll kind of announce the auctions and There will be a date associated with that. It will be sometime this summer. There will be a month for kind of public consult on the auction rules and different things. They'll take those into account, and then they'll kind of set a firm date for the actual auction. So let's just assume for a second it's kind of June 30th, right? So on June 30th, they'll run the bid electronic platform. At the end of the day, you will know if you've won or not and at exactly what price. Now, to answer your question is when will that actually come online? And so we think this is actually an interesting auction for that because there's probably going to be two kind of subsets of what happens, which would be existing generation and new generation. And we don't know exactly how that might be two auctions or one. It may not matter. But the important thing is the capacity need is so great that we think for the existing generation, which gets a new contract, there's going to be a desire for those to start immediately. The way it'll work is there'll probably be a three- or four-year timeframe for the PPAs to actually start. And so, for example, if your plant has an existing PPA, you know, you can still win this and then kind of contract out. But for plants that are not contracted today, you know, the auction, the government, and the plants are all going to want to start immediately. So that's exciting, and we think it'll lead to new volumes in 2024 and early 2025. Then there'll be the kind of typical auction for new generation, which would be PPAs starting in 2028. with an ability, if you finish those earlier, to start earlier. And so the simple cycle configuration of these auctions for capacity in Brazil is interesting, right, because that's a much more simple construction process. And so we may be able to start sooner than that, but obviously the new generation is going to take construction and will be a little bit later.

That's pretty interesting. Thanks, everyone.

Yeah, I think the thing that just in terms of talking this through with Andrew and the team there, it's so interesting, is that when they announce the auctions, there will be a date. On that date, there will be an electronic auction that you'll be participating in live over the course of the day as you're making your own bids and you're seeing how the market adjusts as they award. And by the end of the day, it will be awarded. So it's an incredibly transparent and buttoned-up process. Again, I think the manner in which the Brazilian government has approached this in the last 20 years is very laudable. I mean, it creates a clear path for people to bid. It creates a clear path for the outcomes to be awarded. This nuance that Andrew was talking about, which is, will it be with existing power plants that perhaps don't have gas that are bid into it, or is it new generation, gives a very unique characteristic to this in that it's an auction for the future, but the future could be very soon if it's existing generation. And that's where You know, there are, again, there are four effective terminals that are in Brazil. Two of them are ours, one of them in the capital, you know, constrained south. So we think the opportunities for us there are tremendous. And I think, you know, I'm not making this be a Brazil education on this call. Again, we're going to host, I think, investors, rating agencies, counterparties, probably sometime in April or May down in Jamaica or in Brazil just to walk through this, which I hope people will take advantage of because, again, We think this as a standalone opportunity is massive. And so I look forward to spending more time along with Andrew.

And our next question comes from Ryan Levine with Citi. Please go ahead, sir. Your line is open.

Thanks for taking my questions. Two questions. One, in terms of the rate payer impact of the potential monetization of the Puerto Rican power plants, how do you see that impacting the end consumer? And to the extent that there's any step down in PPA rates and ratepayer bills, does that create more impetus for further investment in the location or jurisdiction?

Go ahead, Brian.

Yep, I can just add. We'll, you know, kind of start with something I think is an off refrain. You know, the people in Puerto Rico, you know, pay the most for power anywhere in the U.S. and they have the worst service. So, you know, that's kind of the starting point. If you kind of look at the rate impact of the 350 megawatts that we just put in, even in the short period of time, it's roughly two cents or about 10% off the retail rate. So on a go forward basis, because what you're competing with is, Old technology, you know, the average age of the plant there that burns diesel and HFO is about 35 years. So you're talking about heat rates that are 12 or 13, you know, versus, you know, brand new technology today, which would be six, six and a half. So roughly twice as bad. So once you pair that off with the fact that the delivered cost of distillate fuel there is well in excess of, you know, what anybody would really think because of both where they source it from but also the delivery charge, you know, you have a lot of headroom to compete with. So, for example, you know, if you look at the price of diesel today, it's roughly about $22 an MBTU. And so anything less than $22 and maybe to you today is a win for the Puerto Rican rate pair. So there's a lot of headroom in those kinds of numbers.

Okay. And then switching gears, you put out a $1.5 billion gross capex number. What's the composition of it and how much is that selling? Do you want at this stage? And I think in the footnote 21, you mentioned that there's excluded interest capitalization. Is that a material number?

Yeah, so of the 1.25, it really breaks down to a little, we don't break it up by project, but total FLNG spend in the year is about $600 million, about $400 million into Brazil to complete various works on the power plant. Plus, that's an annualized number, right? So that's got some money that's already been spent thus far in Q1. Finally, you've got about $200 million that we expect to spend on fuel switching. in and around Puerto Rico over the next two years. And so it's about half in 2024. As far as capitalized interest, yes, that's exclusive in that number, and it's less than $100 million.

And then, Ryan, I thought we might ask, and so I'll answer the question. So with the $700 million FLNG2 financing being committed, we're now fully financed basically as a company. And now that we have announced our results and have kind of updated people on the company, We're definitely going to evaluate potential refinancing opportunities to address our shorter-term maturities in our bond books. So we are going to actively monitor the market conditions, and that's something which now kind of rises to the right level. So every flower has its season, and we needed to get through, kind of have a couple of quarters of performance as we have, basically clarify both performance as well as CapEx and the business updates that are material in both Puerto Rico and Brazil and elsewhere to But we are definitely going to monitor market conditions and evaluate, you know, different opportunities we've got to address, you know, especially the shortage or maturities of that, so.

And that was our final question from the audience today. Mr. Pepitone, I'll turn it back to you, sir, for any additional or closing remarks you may have.

Thank you, Lisa, and thank you, everyone, for joining us today. Again, we remain available, as always, to answer any questions. Please contact the investor relations team, and thank you again. Enjoy the rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.