Expro Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 14 speakers on the call.

Operator

Good morning, everyone, and welcome to the NFE Third Quarter 2023 Earnings Conference Call. Today's call is to get us started today with opening remarks and introductions. I am pleased to turn the floor over to Managing Director of Strategy and Investor Relations, conference is Mr. Chance Pipitone. Please go ahead, sir.

Speaker 1

Perfect. Thank you, Melinda, and good morning, everyone. Thank you for joining today's conference call, where we will discuss our Q3 2023 results, recent developments, operational highlights and future here at NFE. Call is being recorded and will be available by replay on the Investors section of our website under the subheading Events and Presentations. Call is now open.

Speaker 1

In the same location, you will find a press release regarding our Q3 2023 results and the corresponding presentation that we will walk through on today's call. Call is now open. 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 call is being recorded in the Q3 of fiscal 2020, we encourage participants to review these important disclosures in addition to the description of risk factors contained within our SEC filings. Conference call is now open.

Speaker 1

Now let's dive into the call. My name is again, Chance Pipitone, and joining me today at New Fortress Energy are Wes Edens, our Chairman and Chief Executive Officer Chris Giunta, our CFO Andrew Didi, our Managing Director of New Business and other managers of our senior leadership team. Wes, over

Speaker 2

to you. Great. Thanks, Chance. Welcome, everybody. As Chance may have mentioned, we have presentation that we put together for our term loan beads, it's on our website.

Speaker 2

There's a ton of great information there and I'm not going to go back and belabor that, but there's a lot of great So the earnings deck is a skinny one this quarter because of all the material that is out there. So let's just dive in. Actually, by far the best operational quarter that we've had in the history

Speaker 3

of the

Speaker 2

company. Many, many highlights to talk about in terms of what we've done on the operating side, but a few things to point out. Number 1, 1st and foremost, in our view and many others out there, Our first FLNG unit is now firmly in place. It's been mechanically completed. It's in the field.

Speaker 2

It is connected to the pipeline. It's in the final call is being commissioned, really a remarkable accomplishment by the entire team, 5,400,000 man hours, 2 and a call is a record of a liquefier in the world by every single measure and something we're quite proud of and obviously a real cornerstone of the supply side of our business. And number 2, in Puerto Rico, we completed our 2 power plants down there, the second of which was done call is concluded and completed COD at the end of September. Brannon will talk to that. But obviously, again, built in record time, actually at call is a great impact on the energy system in Puerto Rico, something we're actually very proud of and also a real cornerstone investment for us call is open.

Speaker 2

And something to really build on in terms of our future activities there. Lastly, I'll have Andrew Didi talk about Brazil. We were down Brazil, the other last week, 2 massive accomplishments. The 2 terminals we have done there are now mechanically complete. They both have FSRUs that are headed call to be in place in the next 30 to 45 days or so.

Speaker 2

Brazil is a massive, massive opportunity for us, huge market. There will be a lot of commercial activity that will follow out of this, but getting all of this completed and it really is the culmination of many years of hard work for us across the FLNG, call is being recorded. The Puerto Rican and the Brazilian markets, in many respects, we now have perhaps the 2 best markets in the world for our business that are fully operational and generating cash flow. 2nd highlight of the quarter is we fully financed our balance sheet to Determa on B that closed a few weeks ago. This allows us now to focus on the business in hand of operating our business.

Speaker 2

We expect now to have call is a very direct line to deleveraging the balance sheet and with operating cash flows and asset sales as we march towards investment grade rating, which is our plan over the next call is 12 months to 24 months. Lastly, and of course, the purpose for this call is your earnings call. We had record core operating earnings. Chris will detail them in particular, but basically the transformation of our business where we are now generating cash flows virtually entirely from our customers call is significant for us. Q1, we had $15,000,000 of core operating earnings.

Speaker 2

Q2, we had $49,000,000 in operating earnings. Q3, dollars 195,000,000 in operating earnings. I would expect Q4 to be double or more of that of Q3 and Q1 call is going to be better than Q4. So we really marched a significant distance towards producing better high quality cash flows, 100% downstream conference call and a really great way for us to go into the second half of the year. Look at Page 4 briefly.

Speaker 2

So the quarterly financial results, The 3 pillars kind of of our earnings are quality, duration and growth. As I said before, 100% of our earnings are coming from Downstream customers $208,000,000 of adjusted EBITDA for the quarter. We are now in the last stage of the year. Call is still the same, dollars 1,600,000,000 in adjusted EBITDA for this year, dollars 2,400,000,000 for next year, call is $1,600,000,000 about $200,000,000 that we expect to come from gains on asset sales in the Q4. So there could be some volatility there in terms of just the timing of those, but those are call is pretty straightforward.

Speaker 2

Notably of the $2,400,000,000 that we are forecasting for next year, virtually all of it is already contracted of our $2,400,000,000 estimate for next year, all of it about 2 call is already contracted. So quality of cash flow is coming 100% from downstream customers, duration of our portfolio in excess of 12 years call and the growth, we currently only use about 25% of the capacity of our terminals. So there's a massive potential for organic growth going forward. Page number 5, in spite of the operational performance, we are significantly undervalued as a company. Call is being recorded.

Speaker 2

By every metric that we look at, we are the lowest value across the business. This is something we think will be addressed just simply call is not producing results and operating the company, but from an earnings per share basis, our estimate for this year call is $2.50 to $3 for the year, for next year, dollars 6.50 to $7 So if you apply that to an earnings per share multiple, call is open. There is no cheaper company than us in the infrastructure place on earth. If you look at the enterprise value, the EBITDA, which is a good measure of the leverage of the business, not only are we the lowest value in terms of the earnings multiple, we are by far the least leveraged across these different sectors. Call.

Speaker 2

And lastly, in terms of the growth of the company, our compounded growth rate earnings per share 2022 through 2024, conference call is a 50 5 percent annual growth rate, so extraordinary growth rate. Not only has it been extraordinary growth rate, but we think that the prospects for future growth are absolutely there with the capacity that we have in our terminals and the relatively low utilization.

Speaker 3

Call is now open.

Speaker 2

So with that, let's flip quickly to the construction update. I talked about this a little bit at the beginning. What I'll do is I'll turn this over to various members of the team to talk about it. But we have A handful of very, very significant updates. The punch line is that the vast majority of our construction is completed at this point.

Speaker 2

Call but let's just go through it. I'll have Chris start with the FLNG down in Mexico.

Speaker 4

Yes. Thanks, Wes. Good morning, everybody. The progress in FLNG 1 is nothing short of remarkable. Call is now open.

Speaker 4

We started the process of FLNG from a standing start on March 9, 2021. And in 31 months, we're proud to announce that we have gas into the system call is being recorded and expected to conclude commissioning by the end of the year. While a typical LNG project takes on average 5 to 7 years, but thanks to our incredible employees, contractors, equipment providers and regulators were nearing the completion of 1 of the world's most advanced offshore LNG facilities. So quickly, just a brief recap of what has occurred call is open and an outline of what happens from here. Over the last 60 days, the remaining 2 rigs have moved from their construction site in Corpus Christi to their permanent home in Altamira.

Speaker 4

Call is being jacked up into position, connected to one another and hooked up to the subsea pipeline. On Monday, we opened the valve of the subsea pipeline and moved the call is now open. From now through COD, the process will be to move gas into the turbines and complete commissioning of the power generation system and then move natural gas into our pretreatment module, call is being recorded. Once LNG is produced, the LNG then flows into our floating storage unit, call is available for the company's Q1 2019, which will arrive on-site in about 10 days. Our team has done a phenomenal job completing the various construction work streams methodically and safely commissioning critical equipment call is

Speaker 5

now open. Thanks, Chris. So turning to Brazil and to our downstream business. Call

Speaker 3

is being recorded. We've been talking about Brazil for a while

Speaker 5

and we're very excited

Speaker 3

that on

Speaker 5

the next call we have, we're going to be able to talk about both terminals in Brazil being operations on Page 9, we start with Bacarena. Bacarena has been mechanically complete for a few months and we also have our FSRU that's been undergoing conversion works call is in the Citrium yard in Singapore, the Energo CELSIUS, that will finish mechanical completion under contract at the end of November call will be

Speaker 3

available on the Investor

Speaker 5

Relations section. And we'll move to Brazil. And so the terminal will be in operations at the very end of 2023. A reminder that in Vacaurena, we already have some long term contract. Conference call.

Speaker 5

We have a 30 TBtu 15 year contract that will start when the vessel arrives and start sending gas in early January 2024. Call is open. And then we also have a 25 year PPA for a 6 30 Megawatt power plant. We were excited to announce yesterday that we've closed financing with the Brazilian Development Bank To fully fund CapEx on that power plant, so 100% financed, and then that power plant will start operations in Q3 2025. Call is now open.

Speaker 5

Currently, it's about 37% complete under a fixed priced fixed date EPC contract with Mitsubishi and Toyo Sital. Call is open. We have another over 1,000 megawatts of permits for new power plants adjacent to the terminal, and we are excited to bring this terminal online call is to change a region at the mouth of the Amazon, which has no gas today and is totally reliant on oil based fuels call. On Page 10, we're talking about Santa Catarina, so all the way in the south of Brazil. We've been able to make great progress here.

Speaker 5

And on Monday, we announced the charter of the Energous winter, which will allow us

Speaker 3

conference call. I'll bring the

Speaker 5

terminal online in January of 2024. So we'll sub charter that vessel from Petrobras for 2024

Speaker 3

call is open. And then we'll start our long term

Speaker 5

charter with directly with Energo's for the same vessel at the end of the year. So that vessel will stay in Santa Catarina for the long term. On the right, we're able to show our progress physically here. So we have the offshore terminal going clockwise. We've got the connection to the pipeline.

Speaker 5

Call is

Speaker 3

being recorded.

Speaker 5

Then we have our 32 kilometer pipeline route and then our city gate and gas conditioning station where our pipeline connects to the pipeline system in the region. Call is extremely exciting terminal for us because it's the first time that we're really connected into a full transport pipeline system and that gives us a really diverse set of opportunities. Call is being recorded. In this region, we have baseload supply to existing gas customers, both industrial and local distribution companies. We can provide firm gas call is being recorded in the quarter.

Speaker 5

There's about 2,000 megawatts of existing power plants without firm gas supply. Call is open. We can work with greenfield tower developers, of which there are about 1,000 megawatts of permitted plants in the region. We can also own power plants. Call is a very well regulated and well run capacity market in Brazil that can award long term contracts for power capacity call and also for energy.

Speaker 5

And then we can also provide balancing and other services to the pipeline system. So we have a hugely diverse set of opportunities. We have a terminal, which in both cases for Buck Arena and Santa Catarina is really a 5 or 6 year project, call is now open. We're very excited to own 2 of the LNG terminals in Brazil to bring these online at the end of the year call and look forward to sharing more about our commercial activity on our next call. Brandon, over to you.

Speaker 5

Yes.

Speaker 6

Thank you, Andrew. Brazil is truly a remarkable market for NFV. Moving to Slide 11 for an update on the Puerto Rico mission. Just for a bit of context, Puerto Rico is a place conference call is with about 3,200,000 people, but also shouldn't lose focus there are about 5,000,000 people of Puerto Rican descent living in the mainland U. S.

Speaker 6

So Incredible culture, highly relevant to the history of the U. S. And the extreme focus for us and federal government and others. Puerto Rico actually has unfortunately the dubious honor of having the highest electricity prices in the U. S.

Speaker 6

And the least reliable power. The average Puerto Rican customer is 500 times more likely to be without power than someone in the mainland U. S. After 2 devastating hurricanes and earthquake and other call is being recorded. Issues that they've dealt with over the past 5 years, the federal government has decided to make a $22,000,000,000 investment to rebuild the energy infrastructure conference call is being recorded in the Q3 of 2019.

Speaker 6

After Hurricane Fiona in October 2022, Puerto Rico launched a power system task force conference call is being recorded to stabilize the grid that included agencies such as DOE, FEMA, EPA and others. NFE responded to a call by FEMA and the Army Corps earlier this call is being recorded in the Q3 to install 150 megawatts of power in Palaseco and 200 megawatts in San Juan. We are extremely proud to report that we have completed both projects, call is being recorded both operating in baseload each running over 97% of the time, 2 times more reliable than PREPA's existing system and 25% more reliable call is being recorded in the market. It is the fastest large scale power project that the Army Corps has ever accomplished, which is actually saying something call given their history, our power which is 3 50 megawatts operating, but about 4 25 megawatts installed conference call represents over 10% of the installed power in Puerto Rico today. And after looking at the stats this morning, we're call is providing about 15% of the power that's hitting the grid as we're talking now.

Speaker 6

So what does this mean for the average Puerto Rican citizen? Call is being recorded. This power that we're talking about the 3 50 megawatts is the cheapest power on the island. It's the most reliable. It serves about 5.50 households call is available for the Q3 and Q3.

Speaker 6

And it most importantly has avoided about $600,000,000 of economic loss due to load shed events that occur frequently in this market. Call is now open. We expect this tower to be a lasting part of the Puerto Rican infrastructure. We think about it as megawatts today and then it will support renewable energy call is now open for integration in the future. Because of our performance, we were recently selected to be part of 2 groups who are going to participate in a $5,000,000,000 program launched by the U.

Speaker 6

S. Army Corps to respond to future events on the island. As Wes stated at the beginning of the call, this is an amazing example of the NFE mission, call is to provide capital expertise and vision to those markets to provide reliable power to folks call is being recorded to improve their quality of life and improve their economic outcome. This mission complements the Henera mission, which is our recently launched platform that runs as a private operator, the prepper generation fleet on the Genera side, we're currently developing 500 megawatts of battery project and call will be recorded in over 1 gigawatt of dispatchable generation improvements on behalf of PREPA to continue the mission of grid modernization. Call is now open.

Speaker 6

So with that, I'll turn it over to Chris to update on La Paz.

Speaker 4

Yes, great. Thanks, Brandon. Just a quick refresher on the La Paz power plant. Call is located at our terminal in Baja California Sur or BCS, which utilizes our proprietary ISOFlex Logistics solution to move LNG call is being recorded in cylinders from the large offshore storage vessel to the terminal where they are then unloaded and sent to power plants owned by the CFE as we've done for the past year. Call is now open.

Speaker 4

More recently, we started executing regas operations and power generation at our owned plant, which we constructed beginning in 2021. Call is being recorded. In Q3, we conducted the 2 40 hour reliability tests on each of the 3 turbines and successfully completed conference call is being recorded in the Q3. The photograph on the right side of the page shows our power plant, conference call is comprised of 3 LM6000 turbines capable of supplying up to a maximum of 135 Megawatts into the Baja Power market. Call is being recorded.

Speaker 4

As we have mentioned before, we have an agreement to sell the power plant to the CFE in 2024, but NFE will continue to own the terminal call will be recorded and will supply gas to the power plant until the sale closes. In the meantime, NFE retains the cash flows associated with generating power and selling it into the local market. Call is being recorded. As a side note, NFE retains the cash flows associated with generating power and selling it into the local market. Flip to Slide 13 and this is the Nicaragua power plant.

Speaker 4

The beauty of the Nicaragua development call is that every piece of this project has been done by NFE in some shape or form. So the power plant is constructed, it's on-site, it's waiting gas. We are currently doing permitting and initial construction works for an offshore FSRU terminal. This will be similar to the terminal design that we used call is open. In Santa Catarina, then we will move the gas from offshore through a directional drill to the onshore and then we have existing rights call is a way to move the pipe from the shore to the power plant.

Speaker 4

The freeze is currently in the shipyard and arriving on-site in Q2 of 2024 call will be completed over the course of the next 4 months. This contract is our this terminal is underpinned by a 25 year PPA call is now open with

Speaker 3

a local utility

Speaker 4

and expected to turn on late Q2, 2024. Go ahead and turn to Slide number 15. What you're seeing on Slide 15 is the numerical representation of what Wes has been saying for months. Call is that the company is nearing the completion of our approximately $7,000,000,000 of capital spend over the last 8 years. We have invested in essential infrastructure in key markets call is being recorded for increased power development and fuel switching over the near term.

Speaker 4

Additionally, we were proactive in our investment in critical equipment and construction of liquefaction facilities call will be recorded in the Q3 of 2019. Thank you, conference call, which is approximately $400,000,000 through the end of 2024. Then we have another $150,000,000 in CapEx associated with the completion of the terminals and ship conversions. Call is open. When you offset that with the proceeds from the recently closed Term Loan B and the contractual vessel conversion reimbursement from Energous, this leaves us with a fully funded capital plan call and excess cash.

Speaker 4

When you add to that the over $2,500,000,000 in free cash flow from operations and asset sales over the next 4 excuse me, 5 quarters, call is available on our website. You can see the deleveraging inflection point that we foreshadowed. With these funds, we will be able to fully pay down our revolver and retire the 2025 bonds, call is now putting us at a leverage ratio of below 2 times. Now please turn to Slide 17 and I'll run through the financial performance for the Q3 of 2023. I conference

Speaker 3

call is no cargo sales, no cancellations, no noise from asset sales or impairments.

Speaker 4

Total segment revenue was $514,000,000 and total operating margin was 250,000,000 Downstream operating margin, meaning volumes that we sold through our terminals to our customers was 195,000,000 call is now open. As Wes alluded to, this is an astounding 4 times what it was in Q2 and 13 times what it was in Q1. And yes, we do expect it to nearly double in Q4 of this year. Call is now open. The Ship segment produced another $50,000,000 in operating margin for each of the past two quarters and that's about what you can expect from here to the end of 2024.

Speaker 4

Call is being recorded. Net income for the quarter was $62,000,000 or $0.30 per share on a diluted basis. And as Wes said, we're forecasting between $2.50 $3.50 for the full year. Please turn to Slide 18. We continue to have a good dialogue with the rating agencies, which have been super constructive as we call will be available to pursue our goal of further upgrades and eventually an investment grade rating.

Speaker 4

As Wes has mentioned previously, there are great number of benefits to achieving this goal, including: 1, call is being recorded in the Q3 of 2019. 2, decreased costs of borrowing

Speaker 3

conference call is now open.

Speaker 4

And 3, greater financial flexibility in the form of covenants and market access. Our current corporate ratings are W-, W-1 from S and P, Fitch

Speaker 3

call is on the call and Moody's respectively. And in their

Speaker 4

recent report, Moody's has issued a positive outlook on the corporate family rating. On our recent Term Loan B issuance, we were notched call is above the corporate to w flat from S and P and BA III from Moody's. And in the reports, the agencies cite near term upgrade possibilities as we continue to execute on our business strategy, they emphasize 4 critical themes stabilization of the CapEx profile, earnings visibility and consistency, conference call is now open. Thank you, Steve. Thank you, Steve.

Speaker 1

Thank you, Steve.

Speaker 4

Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 4

Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 4

Thank you, Steve. Thank you, Steve. Thank you, Steve. Call includes net debt of under $3,000,000,000 and target leverage of less than $2,000,000,000 at the end of 2024, increased asset diversity along with duration of our Downstream contracts, stable earnings growth and the 4th box, high free cash flow conversion of our business, which is expected to be in excess of 60% next year, conference call, which we'll touch on the next page. In the last box, the commissioning of critical infrastructure like FLNG, the power assets in Puerto Rico and the terminals in Brazil.

Speaker 4

Call is now open. Finally, move to Slide 19 and we have a walk here of adjusted EBITDA down to net income for 2022 through 2024. Call will be recorded.

Speaker 3

We'll stay on the adjusted EBITDA line for

Speaker 4

just a second. When you look at 2024, it's important to note that over 85% of these cash flows are call is expected to come from volumes sold to our downstream customers through our terminals. In 2024, close to 90% of these volumes are already contracted, call is now open. Meaning we have over $2,100,000,000 of EBITDA essentially backlog. Now move down the page and net income for 2022 conference call was $185,000,000 for 2023 is expected to be around $600,000,000 and around $1,400,000,000 for 2024.

Speaker 4

Call is now open. Then we added back non cash depreciation and amortization to get to the amounts you see highlighted in the black row, which we refer to as free cash flow before CapEx, call is $328,000,000 in 2022, dollars 775,000,000 estimated for this year and $1,650,000,000 estimated for next year. Call is a little bit more compelling about this slide is the precipitous decrease in CapEx from 2023 to 2024. Next year, with only $400,000,000 of growth CapEx, call is on approximately $40,000,000 of maintenance CapEx, we're forecasting over $1,200,000,000 of cash flow that can be used to delever. The conversion of income call is extraordinarily high as we look into 2024 and beyond, which will allow us to pay down debt, reinvest into new projects or return capital to shareholders.

Speaker 4

Call is now open.

Speaker 3

With that,

Speaker 4

I'll turn the call back over to Chance for Q and A.

Speaker 2

What I'd like to do is actually just take a moment and have Ken Nicholson give us an update on our hydrogen business. We've got the hydrogen folks here in the room with us, but there's a lot that is going on there. So there's a couple of slides we've put in the appendix, but Ken, if you could just give us a brief update, that'd be great.

Speaker 7

Call. Thank you, Wes. It's Ken here folks. Slides 21 and 22 in the supplement provide a little bit of an update on the latest with 0 parks. I would say in the 3rd quarter, we continue to establish a lot of momentum with the business.

Speaker 7

We are well on our way to building and establishing a company that we expect call is open. The terminals we're setting up are set up primarily focused on regional demand here in North America, but are also all on Waterfront. And so they have call is a tremendous amount of demand in the international markets. And so call, we've sort of set out the business plan to establish things for a lot of growth going forward. On Slide 21, call.

Speaker 7

Just to give you an update on our first site in Beaumont, Texas, 0 Park 1. This is a site that we had originally planned and designed for 100 megawatts call is expected to be approximately $1,000,000 or up to 50 tons per day of hydrogen production. We are now increasing the scope of the site call is going to 2 folds to 200 megawatts or 100 tons per day of hydrogen. During the quarter, we signed a 100% offtake deal with OCI. Call We're big fans of OCI and what they're doing.

Speaker 7

They operate today a large petrochemical ammonia and methanol production facility in Beaumont and we will be supplying them with green hydrogen as they start producing blue and green methanol and ammonia products. That's a long term deal, represents all of our available capacity for now. We still have the ability to expand call is what we're doing in Beaumont and so we look forward to looking to continue to do that. We're all set with technology, working with folks at electric hydrogen. So the PEM Technology is all set and construction is underway.

Speaker 7

We'll be in a position to turn on the facility late next year and be fully operational as we enter 2025. On Slide 22, the bigger picture is doing more of what we're doing in Beaumont. We have 2 other sites and actually very recently we're adding a 4th that's not on this slide. 1 in the Pacific Northwest that we are advancing rapidly. We've effectively secured the site.

Speaker 7

It's a great site. Similarly in the Northeast, we have secured the site in the Northeast. We have a 4th facility also on the Gulf Coast that we think is very interesting and we're in advanced negotiations to secure that site. As I said, 0Park 1 is fully at FID and construction is underway. The other 2 or 3 situations call will be all set and starting construction we expect in the next 6 months or so.

Speaker 7

If all we do is build 3 parks in the call is being recorded in the Q3 of 2019. So, we're going

Speaker 8

to be looking at the Q3 of 2019. This is a business

Speaker 7

that will generate $150,000,000 of annual EBITDA. The costs to build these facilities are largely debt financed. Our debt facility today at 0 Parks is very, very low cost, very long term. Actually, our borrowing rate is sub-five percent. Call is That only makes an already profitable project even more profitable and more accretive on a cash flow basis.

Speaker 7

So we look forward to continuing to update call is being recorded. Investors as we make our way in developing this company, I think we're going to see a lot of growth in the future.

Speaker 3

Call is now open.

Speaker 1

Thank you, Ken. If I can, I'm going to turn it back to the operator. I'd like to open up the lines for any questions.

Speaker 3

Call is

Operator

And we'll pass just briefly to a similar queue.

Speaker 3

Call will be recorded.

Operator

And we'll go to our first question from Chris Robertson with Deutsche Bank. Please go ahead.

Speaker 3

Call is open.

Speaker 9

Hey, good morning guys. Thanks for taking my question. I just wanted to touch on the expected EBITDA for 4Q here as we reach this inflection point. Call can you kind of clarify or kind of help us bridge here, do you expect any contribution from Non contracted downstream assets in that number, any type of open or spot cargoes or anything that's not clean as you said, Chris?

Speaker 4

Yes. So the short answer is we have one cargo that we do expect to sell in Q4. Other than that, call is The remainder of the earnings are all coming through contracts to the downstream customers through our infrastructure.

Speaker 9

Okay, got it. Yes, that's helpful. And then with regards to the latest asset level financing for the Bahrain of Power project, call Can you talk a bit more about the terms and structure of that financing? Is that something you can draw on over time as the project progresses? Is it more of a lump sum that you'll take call is open.

Speaker 9

In the near term and I guess related to that, will any portion of that go to repay the Baccarena term loan that's coming up due in February or call is that separate?

Speaker 5

Yes. So, hey, it's Andrew. So, quick answer is yes. We will with our first draw fully repay the existing term loan call And then we'll be able to draw over time as we go, as we complete construction financing. So similar to maybe like a term loan A that you'd see in the U.

Speaker 5

S. Call is being recorded in the quarter, but this is obviously with the Brazilian Development Bank and has very long tenure as well. So It's a 20 year tenure on the financing, and in a very advantageous rate. So I think all in, we're below 8% on that piece of debt.

Speaker 9

Okay, got it. Yes, last question for me is just related to the CapEx deployed during the Q3 and then call is kind of the guide for the remainder through 2024. So it looks like some of the CapEx was maybe pulled forward here. Call is Just trying to clarify, it was quite a bit during the Q3. Is that heavily related to CapEx deployed for the development of FLNG 2 and then completing 1 or kind of what was the lumpiness there?

Speaker 4

Yes, it's mostly the work that's being done in FLNG 1. We had call is going to

Speaker 3

be some procurement activities

Speaker 4

for FLNG2 that occurred during the quarter. We also had CapEx that we associated with the deployment of the turbines for the San Juan Power plan. So yes, it's a little lumpy in the Q3. You'll see some more details as we put out the Q later today or first thing in the morning, and happy to go through them with you, Chris.

Speaker 9

All right. Sounds great. I'll turn it over. Thank you.

Operator

We go to Ben Nolan with Stifel. Please go ahead.

Speaker 10

Yes, thanks. So I was hoping to if you maybe give a little bit of color as to the status on The FLNG unit with respect to the DOE, are you now fully cleared to produce LNG? And then also how are you thinking about The deployment of the second echolungi unit or any color you can give around that would be helpful. Thanks.

Speaker 4

Yes. Quick answer is we have resolved and posted on the web our website, the issue that the DOE raised last week. We find it just to be a nomenclature issue and they have agreed with us. So it's a nonevent for us now, Ben. As far as FLNG II is concerned, we are Looking to put units onshore Altamira and have a positive reaction and interactions with the Mexicans.

Speaker 4

Remember, this is This is we are building many of these units. You can put multiple units offshore, you can put multiple units onshore. So calling 1 in one specific place is what the DOE reacted to. And our only point is we have units that can go in either location. We can select to put them in either one as we decide.

Speaker 10

Okay. Thanks. I appreciate that color. And then for my second question, I was going to ask about the $1,000,000,000 of asset sales. Obviously, there's call is the power plant in Baja, but maybe any level of granularity you can add around that.

Speaker 10

And also, I guess, given call is the position of the company generating a lot more free cash flow, a lot less CapEx, sort of maybe talk through the drivers For some of those asset sales as opposed to just holding on to them and the associated cash flows.

Speaker 2

Sure. I'll take a crack at it, Ben. Nice to hear your voice. So we have about $1,500,000,000 in total of We have about $1,500,000,000 in total in assets that we deemed to be non core that are on balance sheet. These are things that, at different points in time were more important to.

Speaker 2

Call So, a brief example would be something like our liquefier that we built down in Miami 7 or 8 years ago. That was a key, key part of Construction of the business and was a real proof of concept milestone for us. Today that unit produces about 100,000 gallons a day. So it's not really a call is a part of our overall supply of the company. So that would be one that would be in that category.

Speaker 2

But for the most part, the assets that we're talking about call is on sale and produce little in the way of free cash flow and little in the way of EBITDA. So they're really just good core assets. They belong well in somebody else's hands and I think it actually cleans up our balance sheet and provides a lot of incremental cash flow for us. Really it's call My list of non core asset sales is 4 or 5 in total. They're all kind of individual independent events on each one of them.

Speaker 2

And I think And expect that those things will actually come to fruition over the next 6 months or so for the most part. So as Chris detailed, when you look at The cash flow profile of the company now that our CapEx spend is down significantly and our earnings generation is up significantly, That plus the cash flow generated from these asset sales will go a long way towards deleveraging the company and call does take us down the path to our goal of becoming investment grade. So it's a we'll report on it every quarter as we go along, but I'd expect call is A handful of sales over the course of the next 6 months or so. There's nothing that we are selling that we think we are sacrificing call is either EBITDA or cash flow 4. So these are all things that are great assets, but they're not at this point in the stage of the company's life material to our future.

Speaker 2

So that makes sense.

Speaker 10

Call Sure. I appreciate it. Thanks, Wes. You bet.

Operator

We'll go next to Sam Margolin with Wolfe Research. Call is

Speaker 11

open. Hi, good morning everybody. Thanks for taking the question. My first question is on the downstream growth outlook and I wanted to refer to one of the slides in the term loan deck because you had an illustrative margin Build up on a per MMBtu basis in that deck. So you mentioned markets where you're displacing diesel and there's a fuel switching call is not a good question.

Speaker 11

And so, I was wondering if

Speaker 2

you could just talk a

Speaker 11

little bit about the opportunity in those fuel switching markets where you have higher embedded margins The illustration in that deck. Thank you.

Speaker 2

Yes. So the I mean, one of the core fundamentals of the business is call is exactly you mentioned, which is going into markets that have a the dominant fuel is diesel and switching them to natural gas is a sure thing. Call When we look at the impact in Jamaica, for example, switching from diesel to natural gas on the plant that we call. First switch back in 2016, total savings to Jamaica Life to Data are in excess of $2,000,000,000 So call is a massively positive savings for them and still generates adequate margins for us. The current level of oil prices and thus the level of call is being generated by that in many of these markets is kind of mid-20s price.

Speaker 2

So you have natural gas prices, Henry Hub right now is around $3.5 So call is being recorded. Obviously, from the low to the high, there's a massive delta between the two. And that's what really drives the behavior of these markets. When I said earlier that I thought that Puerto Rico and Brazil literally might be the best two markets for us on earth for what we do in terms of both call

Speaker 3

is now open. Switching fuel from diesel

Speaker 2

to natural gas and also building new better efficiency power. It's without question that these are call is the 2 most interesting markets for us because of exactly this phenomenon. We have in the Puerto Rico portfolio that we manage right now, There's about 1,000 megawatts of power today that burns diesel versus natural gas. Obviously, that's a huge savings potential for the Puerto Rican ratepayers to switch to natural gas. And for us, it's a very, very steady source of new incremental volumes as we like to transfer going forward.

Speaker 2

So that's basically the path of the company. As I said, going from call is a $15,000,000 in operating earnings in the Q1 to $195,000,000 and then double or more as we go forward is just a massive, massive change in the business call is And it is entirely driven by these longer duration customer downstream volumes. So it's a huge, huge moment in time for us and now you can really start to see it call is going to be the Q4 financials, the Q1 financials, you'll see the full impact in a number of these markets, both in particular in Puerto Rico and Brazil, call is And we expect the growth to continue indefinitely. So it's a great point in time for us.

Speaker 11

Okay. I appreciate that. Thanks. And then the follow-up is maybe just a clarification question for Chris or whoever wants to answer it. But you mentioned that call is a very

Speaker 3

important question.

Speaker 11

FLNG 2 term is sort of a nomenclature issue and these are modular term assets and so the capacity is different call is now open. Across like the names of the reference materials. And so maybe if you could just clarify like what the call. Total capacity would be at the FLNG 2 as described in the deck. And then maybe if you would also share like what total invested capital conference call in the FLNG group would be at that completion of FLNG 2.

Speaker 4

Call Thank you. Yes. So first off, each train is 1.4 tons. So we have conference call is being recorded. We've talked about multiple trains that we are building.

Speaker 4

Right now, we're only focusing on the first one being deployed call is being recorded

Speaker 3

in Altamira Offshore and

Speaker 4

we are evaluating where we will put additional units. As we've discussed previously, call is open. We are permitting sites in Mexico Offshore, which is the one that's permitted now, it's for 2 trains. We are looking to permit for up to 2 trains at call is onshore location and we are also permitting 2 trains at the Louisiana location. So our invested capital is not I can't just Pointed to just any one of those locations, I would say across the module construction and then specifically to the rigs, which are FLNG-1's deployment solution, the total invested capital is around $2,500,000,000 and we've disclosed that.

Speaker 4

Call So we think that that should give you everything you need in order to think about the total paid in capital for each of these units. And we haven't broken it out by

Speaker 3

call is 2, 3, 4 and 5 in

Speaker 4

progress payments, but suffice to say critical equipment has been procured and we have the ability to maintain schedule to be able to put call units both offshore and onshore.

Speaker 11

Okay, understood. Thank you very much.

Operator

Call is open. Our next question or comment comes from the line of Craig Shere with Tuohy Brothers. You may proceed.

Speaker 12

Call is open. Good morning. Thanks for taking the questions. So first, Wes, you've commented a couple of times on the call about conference call is How exciting Puerto Rico and Brazil are. You now have 5 fully executed markets, including those Mexico, Jamaica and Nicaragua.

Speaker 12

Given the whole system when turned on is maybe 20% capacity utilization, My question is, do you see any need for further downstream project origination call is substantial annual growth for years to come.

Speaker 2

Short answer, Craig, it's good to hear you ahead of the call. And is The capacity that we have in these kind of core markets is so much greater than what our current productivity is that we have call is a year of growth organically in each one of these markets. I mean Brazil, and Andrew could probably speak to this better than I, but Brazil is a country Roughly the same size of the United States, about the same population. They use about 5% as much natural gas, right? Call is The ability for us to access these markets now with these terminals is really extraordinary.

Speaker 2

I think There are 6 natural gas terminals in Brazil. 2 of them are not connected to a pipeline. 2 of the call is the remaining 4 are owned by Petrobras and the other 2 are owned by us. So it's a dominant position that we have in that market. Same thing in In Puerto Rico where it's even more the case.

Speaker 2

So, there obviously is still a huge, huge need in the world for cleaner, cheaper power. And I do think that the this whole question of energy transition of course is a meaningful one. But when you have 600,000,000 Africans that have no power when the average energy use in East Africa is 3% of what is the United States. There's just a massive disconnect between call is What people need and what they have access to today. And so of course there'll be markets over time that will actually make sense to us.

Speaker 2

I'd say looking forward from 2024, twenty call is on the call. My expectation is that there are not to be any meaningful incremental terminals added other than the ones we've identified. So we need to finish the terminal in Nicaragua, there's been a well publicized set of filings we've had on the terminal we proposed to build in Ireland. Ireland is the only country in the EU that does not have security supply. I think it's actually madness when you consider call is What is at stake for that economy for there not to be an incremental source of supply?

Speaker 2

And so they came out with a ruling that we disagreed with. We just refiled an appeal to it, call is I think a couple of days ago, Cam, and we expect that that'll be heard in due course and that would be a market that would make a lot of sense for us on many, many levels and call is More importantly, it makes a lot of sense for the Irish people. So we're a big, big fan of that. But short answer is that call is open. With the existing terminals and markets that we have access to right now, we think that there is a massive amount of incremental growth for many years to come simply by executing on it.

Speaker 2

And That's really the focus of the company.

Speaker 12

Thanks. And my second question, I was always very intrigued by the opportunity of conference call is on the call for the Q3 of 2019. Yes. I wonder if you could call speaks to the sticking points that were in the Pemex negotiations for Lacash and prospects still outstanding for

Speaker 2

call. The A little bit of historical context. We owned 50% of the Healy, a ship that was developed by the Golar guys, it's deployed off the coast of Africa. So that's call is an example of a stranded gas field that's being produced basically producing LNG today. Their follow on asset I think conference call was begun in 2017 and maybe FID in 2019 and is expected to be deployed in 2024 in the second half.

Speaker 2

The contrast to that and our activities is actually fairly substantial. I mean, we became FID in March of 2021 And we have the unit deployed today with gas in the system that's being finalized and commissioned before the end of 2023. So call is not a misnomer. It's actually the fastest production of a facility like this in the world. And we do think that with the world's energy needs, these stranded gas fields offshore are going to need a lot of activity like we just conference call is being recorded.

Speaker 2

From our standpoint right now, that is not our plan to incrementally put more in place. We feel like the facility that we have conference call is currently in the Gulf of Mexico plus the proposed development onshore, which is a separate development as we've said many times, call is one that is adequate for our own needs, but I have no doubt that there's a big need and use for the technology and the capabilities that we have call is being recorded as an organization and maybe we'll end up doing that for other people and whatnot, but from a capital investment and from a CapEx call to a specific question on the financial results. We are very focused on FLNG 1 and FLNG 2 at this point and have no plans other than that. But I do think that the broader question that you ask is, does this have applicability to these stranded gas fields offshore? The answer is resounding.

Speaker 2

Of course, it does. I think you'll see a lot of development for it. And I think that the techniques that we have used in creating our own liquefier will be mimicked by others perhaps and we'll see them Crop up in different parts of the world.

Speaker 12

Thank you.

Operator

We'll go next to Ryan Levine with Citi. Please go ahead.

Speaker 13

Good morning. Hoping to follow-up on the FLNG permitting question. Can you just clarify what the onshore DOE application is for, if it's not for a foundry 1 or 2?

Speaker 2

Yes, it's actually super simple. Let me try and clarify it, because I think this is just a I really think this is just an item of confusion. So we applied call is being recorded for DOE permits and received them on our offshore facility. It happens to be located at 12 miles offshore of Altamira, Right, end of story. So and we received the FTA permits were an application for the non FTAs, but also an application for Jones Act.

Speaker 2

We actually had conversations with the various government agencies about all these things and that very much continues on pace. And the separate topic, we are exploring the potential of putting the units onshore in the place also called Altamira. And this is where I think it becomes confusing. Conference call is open. My kind of view of it is that simply the name and the nomenclature was similar enough that I think that the department said, hey, look, if you're going to try to shoehorn your onshore development into your offshore permits, that's not really the deal.

Speaker 2

It has to be independently permitted.

Speaker 13

Call is being recorded. We said, of course, that's not

Speaker 2

our intention. And to the extent that we proceed with the onshore facility, we will file a separate application for that call is being recorded as is required and as is appropriate when that becomes unnecessary. So, we filed that publicly. They responded publicly and said, call is open. Great.

Speaker 2

Thank you for that. And that's the end of the story. There was some misleading reports, frankly, they'll put out in the investor community I said, oh my gosh, this now puts into question whether we have the permits and whatnot. Nothing could be further from the truth and it truly was misleading. I was I'm happy about that honestly, but from our standpoint, it was just a simple misconstrued Question from the DOE that we responded to, they responded to, that's the end of the story.

Speaker 2

So it's actually pretty straightforward from that standpoint.

Speaker 13

Great. Thanks for clarifying. And then on the different topic, can you help bridge the 20 or the 3rd quarter EBITDA and CapEx to your full year guidance

Speaker 3

In terms

Speaker 13

of what the implied ramp for the Q4?

Speaker 4

Yes. So, EBITDA is call is expected for the year to be $1,600,000,000 As Wes said, that does include a little less than $200,000,000 of gains on sales of assets that call. We expect to close by the end of the year, but that leaves you with approximately rounded $1,400,000,000 which we think that the 4th quarter fills.

Speaker 13

Any meaningful drivers embedded in there? Or any can you break out any contribution expected from FLNG That's incorporating your guidance?

Speaker 4

0, Ryan. The only driver is the full quarter utilization of the

Speaker 3

call. Thanks, Dan.

Operator

We go next to Chris Robertson with Deutsche Bank. Please go ahead.

Speaker 9

Hey, sorry guys. I had one last question as a follow-up. Wes, you had mentioned kind of being selected as part of The multiple award task order contract in that $5,000,000,000 pool in Puerto Rico. And Chris, I think you might have mentioned being selected as Two groups there. Can you break that out a bit or clarify kind of what that encompasses in terms of the types of projects that call is focused on.

Speaker 2

Sure. Brandon, you want to do that?

Speaker 6

Yes, no problem. Yes, thanks for the question. This is Brandon. Call is So specifically, the Army Corps, as you rightly point out, put out a new program, which call is $5,000,000,000 of expected investment into the Puerto Rican infrastructure over the coming, let's say 3 to 4 years. We meaning NFE competed with 2 groups on that.

Speaker 6

We meaning NFE were selected with 2 groups. And so the way to go moving forward is Once the Army Corps decides on kind of a portfolio projects, which obviously they intend to pay for, which could be power generation or other similar infrastructure Builds then we would participate. It's not dissimilar to the 2 projects that we won in Palaseco and San Juan. So we would expect call is going to be something similar going forward. So I think the short answer is the Army Corps program is $5,000,000,000 they publicly announced it.

Speaker 6

They will scope that out over the coming conference call is being recorded in the Q3 and Q3 and Q3 earnings

Speaker 3

conference call. Today's conference call is being recorded in the Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and

Speaker 8

Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and Q3 and Q3 earnings conference call.

Speaker 3

Today's call is now open for Q3 and Q3 and Q3 and Q3 and Q3 and Q3 earnings conference call. Today's call is now open for Q3

Speaker 6

and Q3 and Q3 and Q3 and Q3 and Q3.

Speaker 9

Okay. So yes, to clarify, it could include additional downstream power generation assets, and not just selling gas into the market.

Speaker 6

Correct. I think the probably a way to think about it is it's very similar to the 2 projects that we've completed, which is 3 50 megawatts. They just may be at different locations.

Speaker 3

Call is

Speaker 9

Okay, great. That's super helpful. Thank you.

Speaker 11

You're welcome.

Speaker 2

Great. Maybe just to wrap up, call I think we're done with the questions. The 9 years since we started the company, spent $7,500,000,000 building of infrastructure, have 7 terminals that are now up call and 6 of them are operational dominant positions in Brazil and in Puerto Rico. The scale of the business now is truly massive, call is $2,500,000,000 roughly in revenue expected for this year. We expect to roughly double that revenue for next year.

Speaker 2

So $2,500,000,000 going to something close to $5,000,000,000 The conversion of that into free cash flow is probably between 40% to 45% and we trade at the lowest multiple in any infrastructure company I'm aware of on planet Earth. Call is being recorded. So it's good to be first at something, I guess. But with respect to the kind of valuation, obviously, I'm disappointed by it, but I expect that'll change meaningfully as we actually call will deliver these results in Q4 and Q1 endpoints thereafter. And so I think we will get the investors that we deserve and we'll get the valuation that we deserve.

Speaker 2

Call is now, I think you'll be very well rewarded for it. But really a terrific year for us to date. I think it sets us up extremely well call is at both the end of the year and for next year with all the big changes, not only in Puerto Rico, but in Brazil and other markets around the globe. Something that we don't talk about a lot is the developments that we've had in the hydrogen business. That is a business that is, we think call is the dominant hydrogen business in the United States on the green side.

Speaker 2

As far as I'm aware, it may well be the only profitable meaningfully profitable hydrogen business that comes out of the IRA at this point. The business plan that Ken and others have come up with is one that I really call is being recorded in the second half of twenty nineteen. Okay. So, we're going to take call is First, you solve the chemistry problem and the transportation problem is solved for it because you're actually utilizing it right where you're making it in place. So it's a very, very exciting time for the company and we feel great about the quarter that just concluded and the prospects that are going forward.

Speaker 2

And I want to thank everyone for taking the time to listen. We look forward to updating you on our call is Full year results in Q4, sometime

Speaker 3

early next year. Thank you.

Operator

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

Speaker 3

Call is now open.

Speaker 1

Yes. Thank you, Melinda, and thank you, everyone, for joining us today. Again, we remain available, as always, to answer any questions. Call is now open. Please just contact the Investor Relations team, and thank you again.

Speaker 1

Enjoy the rest of your day.

Operator

This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at any time.

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Earnings Conference Call
Expro Group Q3 2023
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