Earnings Call Transcript - EE Q2 2022

Operator, Operator

Hello, everyone, and thank you for joining the Excelerate Energy Second Quarter 2022 Earnings Conference. My name is Terrence, and I will be moderating your call today. I now have the pleasure of handing over to your host, Craig Hicks, Vice President of Investor Relations and ESG at Excelerate Energy. Please go ahead, Craig. Your line is now open.

Craig Hicks, Vice President, Investor Relations and ESG

Thank you, and good morning, everyone. Yesterday afternoon, we released our earnings press release, along with the presentation that our President and Chief Executive Officer, Steven Kobos; and our Chief Financial Officer, Dana Armstrong, will speak to you this morning. I would like to remind everyone that we will be making forward-looking statements on this call that involve a number of risks and uncertainties. Our actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update or revise them. During the call, we'll also discuss some non-GAAP financial measures. We provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation. With that, it's my pleasure to pass the call over to Steven Kobos.

Steven Kobos, President and Chief Executive Officer

Thanks, Craig, and thank you all for joining us this morning. Our second quarter results demonstrate our continued strong momentum. We are helping our customers enhance their energy security while supporting their decarbonization efforts, especially during these times of volatile energy prices and heightened attention to climate change. We are focused on strengthening our base business and expanding downstream into new and existing markets as we execute our strategy of deploying flexible LNG infrastructure and gaining valuable access to natural gas markets. I'll focus my remarks today on four topics: Excelerate's second quarter financial results, the value of our downstream business model, the current state of the global LNG market, and progress on our key projects. Dana will then walk through the details of our quarterly performance and our 2022 outlook before we open up the call to your questions. With that, now let's turn to the results for the quarter. Our financial performance during the second quarter was strong and in line with our financial outlook. We delivered $39 million of operating income and $75 million of adjusted EBITDAR in line with our expectations. Our bottom line results during the quarter were driven primarily by another solid performance from our regasification business and increased gas sales at the Bahia terminal in Brazil. We achieved a significant milestone last week with our Board of Directors approving and declaring our inaugural dividend as a public company. This dividend demonstrates the confidence that our Board and management team have in our downstream growth strategy and signals our commitment to returning capital to shareholders. On the commercial front, we are fulfilling our commitment for regasification services at the Bahia Blanca GasPort terminal in Argentina. As we mentioned last quarter, the FSRU Exemplar arrived at Bahia Blanca in May. The Exemplar will provide regasification services through August 31 before being deployed to Finland. And then in July, we signed an MOU with a subsidiary of Engro Corporation to study gas marketing opportunities in Pakistan. This agreement builds on the momentum we have established by extending our reach downstream of our existing terminal to key regasified LNG markets. We also advanced several of our key growth projects during the quarter. The Finland regasification project remains on schedule and is progressing according to plan, and we have advanced our negotiations with the government of Bangladesh for our MLNG expansion and Payra LNG projects. I will talk about these projects in more detail later. And just this week, we signed a letter of intent with Hyundai Heavy Industries for a new 170,000 cubic meter FSRU to be delivered in 2026. This new FSRU, when delivered, will be a critical tool used to support the execution of our integrated projects. Before turning to market dynamics, I want to spend some time on our downstream business model and how it supports our strategy. As an established company, we've been successful in adopting our growth strategy to maximize value for our stakeholders in a myriad of economic conditions. Today, our strategy is focused on strengthening our positions in existing markets and opportunistically offering our customers increased capacity and downstream integrated services. By going downstream after we open a new LNG market, we expect to capture a larger percentage of the economics along the value chain, whether it's through our E-FIT flexible terminal offering or actually selling molecules downstream of our terminals via onshore pipelines. We have created a business model capable of significantly enhancing our growth trajectory. We are confident that going downstream will position Excelerate to thrive, not only in the currently tight LNG supply environment, which is attractive for FSRU charters, but also in a less constrained market as new LNG volumes come online in 2025 and beyond. Now, I'd like to share with you some perspectives on the current state of the global LNG market. Since our last earnings call in May, we've continued to see strong demand for flexible LNG infrastructure across the globe as countries seek energy security and independence. This is not isolated to Europe. Although the energy crisis in Europe and the war in Ukraine have indeed increased the necessity for flexible access to LNG, as European countries continue to displace unreliable Russian pipeline gas deliveries, they are accelerating their efforts to secure flexible LNG infrastructure and available LNG supply. The increased competition for LNG supply has only exacerbated an already tight market, further elevating spot pricing amid strong demand from European countries and driving increased competition between Europe and non-OECD countries. The uncertainty around future flows of Russian pipeline gas and the increased European demand for regasified LNG is likely going to keep Dutch TTF gas pricing at an elevated level heading into the winter season. And with exposure to further curtailments in Russian pipeline volumes, European governments are implementing measures to help manage winter demand. These measures include curbing natural gas demand, mandating natural gas storage filled by October, switching from gas to coal for some power plants, and, of course, increasing imports of LNG. Notably, in June of this year, U.S. LNG imports in Europe exceeded the amount of Russian pipeline gas that flowed to the continent for the first time in history. We support Europe's efforts to enhance its energy security through increased access to global LNG supply. This is why we have made securing access to Europe's gas sales market a priority for Excelerate Energy. During the quarter, we expanded the scope of our Albania project to include broader opportunities for gas sales in Europe's southern gas corridor. The planned Vlora terminal is situated to meet not only the regasified LNG needs of Albania but also to deliver volumes both east and west via existing natural gas infrastructure in the region. In July, we signed an MOU with Overgas, Bulgaria's largest private natural gas distribution company, relating to the sale of regasified LNG downstream of our planned Vlora LNG terminal. We have entered into negotiations with Overgas to sell them up to 1 billion cubic meters per year of regasified LNG for 10 years, using the proposed Vlora-Fier pipeline. Integrated LNG projects like the planned Vlora terminal are a logical solution to help meet the urgent energy needs of countries linked to Europe's southern gas corridor, including Italy, Greece, Bulgaria, and Turkey. Our deployment of the FSRU Exemplar to Finland remains on track and is expected to commence in Q4. As a reminder, last quarter, we reached an agreement with the government of Finland for the Exemplar to provide up to 5 billion cubic meters per year of regasified LNG capacity through a new regasification terminal in Southern Finland. This flexible LNG terminal will bolster the energy security of and support a diversified supply to Finland, while also serving more broadly the needs of the Baltic Sea region. In Bangladesh, LNG remains critical to the country's economy. Our two FSRU terminals currently deliver approximately 20% of Bangladesh's total natural gas supply needs. Due to current LNG price volatility, Bangladesh has minimized importing LNG from the stock market as it looks to relieve the effects of high spot prices on its economy. The country is advancing plans to sign new long-term LNG supply purchase agreements to guarantee more affordable and predictable LNG pricing. The pricing we are seeing for long-term LNG supply remains affordable when compared to the spot market. This strategic action by Bangladesh dovetails with the gas sales agreements we are currently negotiating with the MLNG expansion and Payra projects. Bangladesh also celebrated a major milestone in June, the opening of the Padma River Multipurpose Bridge. This is the largest national infrastructure project in Bangladesh's history. Prior to the completion of this 4-mile long bridge, the only way to cross the Padma River was by ferry. Now, the western half of Bangladesh has greater connectivity to the country's east, which historically has outpaced the west in terms of economic development and growth. The Padma River Bridge is expected to serve as a catalyst for economic growth in Southwest Bangladesh, a region with a population of over 30 million people and home to major urban centers such as Barishal and Khulna, the third largest city after Dhaka and Chittagong. This rapid economic growth in Southwest Bangladesh will further increase energy demand in the region and advance the critical need for regasified LNG as a fuel source. Through the Payra project, Excelerate will play an important role in providing the energy to fuel economic growth in the region for years to come. Now let's turn to the key updates on our growth projects. During the quarter, we advanced the commercial negotiations for our Moheshkali LNG expansion and Payra LNG projects along with our proposed long-term LNG supply agreement. As you know, these projects received their formal approval in principle by the Bangladesh government earlier this year. The Ministry of Energy has since formed a proposal processing committee, or PPC for short, for each of these projects. Similar to the approval in principle, the establishment of these committees is an important milestone and is part of a predictable defined process by the government for the implementation of large-scale energy projects. The PPCs are tasked with managing the formal commercial negotiations for projects and have the authority to finalize definitive contracts. The PPCs held their first meetings in July, and we expect negotiations for Moheshkhali LNG expansion, Payra, and our LNG supply agreement to advance in the coming months. In August, we officially engaged HSBC as our financial adviser to assist us with all financial aspects related to the Payra project. Once realized, long-term sales of regasified LNG into Bangladesh will significantly increase the scale of our global operations. Before I turn the call over to Dana, who will walk through our financial results in more detail, I want to leave you with the following key takeaways. First, our base business has proven to be resilient and continues to drive strong financial results. Our downstream strategy, which is extending our reach in both new and existing markets, enables us to capture a larger percentage of the economics along the value chain. Having the option to deploy FSRUs for time charters or to use them in support of our gas sales business ensures that Excelerate is positioned well to grow through a variety of market cycles. Securing access to Europe's natural gas sales market is a focus area for us in the current global LNG market. Our deployment of the FSRU Exemplar to Finland remains on schedule for the fourth quarter of 2022, and the commercial negotiations for Bangladesh projects are advancing as planned. With that, I'll now turn the call over to Dana.

Dana Armstrong, Chief Financial Officer

Thanks, Steven, and good morning, everyone. Overall, we're pleased with the financial results we delivered for the second quarter, which were in line with our expectations. For the second quarter, we reported a net loss of approximately $4 million. The net loss reported for the quarter was driven by an expected IPO-related one-time charge of $21.8 million. This one-time charge was incurred as a result of the extinguishment of the Excellence lease as part of the FSRU acquisition that was closed concurrently with the company's initial public offering in April 2022. Excluding the one-time charge, our adjusted net income was $20.4 million. As Steven mentioned, our adjusted EBITDAR was $75 million for the second quarter of 2022, up about $4 million versus the first quarter, driven primarily by the commencement of regasification services at the Bahia Blanca in May, and the FSRU expressed resuming operations under its long-term regasification charter in early April, along with higher gas sales volumes at the Bahia terminal in Brazil, partially offset by higher vessel operating costs. In comparison to the second quarter of last year, this year's second quarter adjusted EBITDA was up $10 million, an increase of about 15%. The year-over-year increase was driven primarily by gas sales in Brazil, which commenced in December of 2021. Now let's turn to our liquidity and balance sheet. As of the end of June 2022, Excelerate had $386 million of cash and cash equivalents on hand. Our second quarter operating cash flow was million, and we spent $56 million in cash CapEx in the second quarter, of which $50 million was for the two FSRUs acquired in conjunction with the IPO. Our leverage ratio, which we define as total debt plus finance leases divided by trailing 12 months adjusted EBITDA, was 2.7x as of the end of June 2022. We have historically taken a conservative approach to capitalization. And as a result, we are realizing the benefits of having a strong balance sheet and the financial flexibility to fund our growth. Our strong cash position, in combination with our revolving credit facility, provides us with ample liquidity to fund our ongoing operations, near-term CapEx needs, debt service obligations, and our anticipated quarterly dividend payments. As Steven mentioned earlier, on August 5, our Board of Directors approved our inaugural dividend as a public company. The dividend payment, which is equal to $0.025 per share or $0.10 on an annualized basis, will be paid on September 7 to holders of record as of August 19. Based on the commercial momentum we've established to date and our results midway through 2022, we are reaffirming our full-year financial guidance. For the full year 2022, we still expect our adjusted EBITDA to range between $249 million and $269 million and our adjusted EBITDAR to range between $285 million and $305 million. With that, we'll now open up the call for Q&A.

Operator, Operator

So the first question comes from Devin McDermott from Morgan Stanley.

Devin McDermott, Analyst

So my first one is on Vlora. And it's good to see the additional opportunities there in terms of gas sales in the agreement with Bulgaria. What I wanted to ask, though, is just an update on where we stand in getting formal approvals for that terminal and reaching FID on the project. And then also, how much gas is needed locally for the power generation? Any other local sales within Albania? And then how much is left to elsewhere, potentially?

Steven Kobos, President and Chief Executive Officer

Thanks for joining us again, Devin. I appreciate it. I want to point out that our emergency power project in Albania is fully underway, and the EPC work is in progress. This is great news as there is an immediate and pressing need for power, which is heightened by ongoing circumstances in Europe. This gives us confidence as we move forward with other negotiations. I'll hand it over to Daniel, our Chief Commercial Officer, to provide more insight.

Daniel Bustos, Chief Commercial Officer

Sure. Devin, with the goal of delivering by the end of 2023, we are advancing the project on several fronts in parallel: engineering, permitting, and negotiations. So our ability to deliver will not be based on developing the project in a way where we have an FID. We're taking early actions to secure the timing, and we continue seeing the project in the second half of 2023 to start deliveries. In terms of gas, that's a very good question. Our goal is to have an interconnector that will allow us to deliver up to 5 bcm per year to Europe. The capacity of the FSRU is roughly the same. But just to give you a better proportion, we expect about 1 bcm to be dedicated to the Albanian market and 4 bcm on some of the peaking capacity to be dedicated to the European market.

Devin McDermott, Analyst

Got it. That's very helpful. And then just sticking with Europe more broadly. In terms of expanding the presence or opportunities there, can you talk a little bit more about the types of opportunities beyond Finland and Albania? And then specifically, I'm thinking about the access to additional open FSRU capacity you have over the next few years in your portfolio and whether or not converting an LNG carrier, I think you mentioned you have a kit for that, could be an option for faster time to market?

Steven Kobos, President and Chief Executive Officer

Yes. Absolutely, Devin. I mean we've talked for some time about different approaches we're taking to tonnage, certainly, and we've made an announcement yesterday on one way we're growing the fleet. We're going to continue to look at the possibility of conversions. You typically want a very specific opportunity there because it needs to be kind of bespoke in nature. We continue to see opportunities coming down the pike in Europe. We have our team over there pretty much constantly. I think everybody spent the summer in Europe. But I think all I can really say is the events on the ground, the continual pressure that's being put on everyone in Europe, the growing insecurity about the coming winter has not slowed the pace of interest that we are receiving, but we haven't highlighted any of those opportunities as moving to the mature opportunity pile at this point. But we are definitely seeing the continuation of the interest that we've seen since March.

Operator, Operator

Our next question comes from Michael Blum from Wells Fargo.

Michael Blum, Analyst

I wanted to ask about this LOI for potential new build FSRU. I guess my question is, would you be purchasing this before you have a contract in a specific use for the vessel? Or would you first secure the contracts? Just wanted to understand the sequencing of how that would work. And then, assuming you go forward, what would be the cost and timing to deliver?

Steven Kobos, President and Chief Executive Officer

Thank you, Michael. We are definitely moving forward with that. I can tell you that this is for our fleet. We have some limitations on what we can share regarding Hyundai. We've been considering this since the spring. As I mentioned to Devin, we are also looking at conversions. We are pleased that despite all the global order activity related to liquefaction and the need for additional infrastructure, we have a delivery set for 2026. This will be another best-in-class asset for our fleet. Our fleet operates on a portfolio basis, which has contributed to our success over the years. The plan is that this new asset will likely replace one of our existing vessels with a customer, allowing us to take the right asset with the right attributes to meet the upcoming opportunities in this asset class. While many FSRU owners seem to be looking to sell for short-term gains, we definitely intend to expand our fleet. We have been exploring this for some time and have reviewed all options. We are pleased to partner with Hyundai, the largest shipbuilder globally, and we believe that a 2026 timeline for a custom, best-in-class vessel is exceptional. We are committed to moving forward with this.

Michael Blum, Analyst

Great. Very helpful. My second question is about the CapEx budget for this year. Can you remind us if that has changed at all? Also, where does it stand for 2022 and do you have any early insights into 2023?

Steven Kobos, President and Chief Executive Officer

Yes, Michael, I've got to look across the table at Dana, our CFO, because I don't recall that we gave CapEx guidance. Dana?

Dana Armstrong, Chief Financial Officer

We did not, and we're not giving guidance on '22 CapEx right now.

Operator, Operator

Our next question comes from Matt Taylor from Tudor, Pickering, Holt & Co.

Matthew Taylor, Analyst

I wanted to go back to that southern gas opportunity because I think it could be quite significant. So you got capacity at the terminal of 5 bcm a year. You mentioned one of that could be for Bulgaria. But can you clarify how much of the four remaining will be for Albania? And then the rest, you highlighted various potential countries, but one that screens pretty attractively, at least to us, is Italy, which you signed an MOU last year with Snam on that Vlora-Fier pipeline. So any more color you could provide would be helpful.

Steven Kobos, President and Chief Executive Officer

Sure. Thanks for joining us, Matt. I appreciate it. The beauty of it, and I think I'm looking across the table, I think Bulgaria we're talking about 1 bcm a year there. So we can do the math on that. Obviously, Italy is an attractive component of this, but we shouldn't take our eye off of the markets to the east as well. I mean this part of the European market is integrated though, as you know, parts of Europe are fragmented in their connectivity. But certainly, Italy is a big part of what's driven our interest from the very beginning from the IPO and well before that. It's what drove our interest in Albania, knowing that this upside was there. I'm going to hand it to Daniel because he studied some of these individual markets.

Daniel Bustos, Chief Commercial Officer

The best math for the utilization of the terminal: out of the 5 bcm, 1 bcm for Albania. We are in discussions for 1 bcm for Overgas, and we're going to continue discussions for 3 bcm for the different markets. There's capacity for physical delivery downstream to Italy, and it's one of the markets that we are focusing on, as you mentioned, Snam is one of the critical players in the market, and they are interested in our project, of course, as they show with the MOU. But also, the commercial reverse can bring a lot of attractive markets to the terminal. More for Bulgaria, of course, but also Greece and even Turkey. Our capacity to swap volumes in TAP is going to give us a lot of flexibility, and that's where we are actively involved in negotiations, not only downstream to Italy, which, again, is one of the critical markets, but also on commercial reverse.

Matthew Taylor, Analyst

Great. That's helpful. And just to clarify, too, when you underwrote this, as you're going through the IPO, my understanding was you're focused on Albania and the rest of these opportunities would be upside. So I guess the question is, that return you underwrote for the opportunity and kind of shared, would it be materially getting better here? Is there CapEx for this pipeline and other infrastructure required that would offset?

Steven Kobos, President and Chief Executive Officer

Yes. I guess you have a couple of questions there, Matt. Yes, what we were presenting in the proxy and the show and our discussions throughout was the base LNG to power deal for Albania and some native gas demands there within Albania. We always had on a horizon, just as we do in any market, where can we go further downstream? And frankly, we've always thought, well, what's the logical downstream for Albania, and it's further into the European market. So to your first question, yes, the base deal did not include this. This should be accretive. We're still working on the shares and stakes of any JV partnership for the pipeline and the interconnector. There will be some CapEx. It'll be fairly modest, I would say, and you will see some uplift from it. But we're not in a position to guide you further on that.

Matthew Taylor, Analyst

That's great. And one more, if I may. You mentioned Bangladesh has been load shedding due to elevated LNG pricing. And you've seen this demand reallocation across the world, just given how high gas prices have become. But can you just share, perhaps, Steven and Daniel, what gives you confidence these countries you're targeting won't delay your projects and basically make the case for your projects, even despite these prices that we're seeing on the screen?

Steven Kobos, President and Chief Executive Officer

Yes. Matt, we have been pointing this out for some time. I don’t want to suggest that we predicted it, but we have said that these sovereign nations got a bit too focused on the spot market. While it made sense for a period to manage their delivery costs, that’s no longer the case. They are acting sensibly. However, Bangladesh's economy is in urgent need of energy, and we have highlighted the Padma River Bridge, which we believe will significantly boost the economy in the West. It continues to grow and desperately requires this energy. This is why we have been engaged in extensive negotiations for long-term supply. We have been authorized as a supplier, and that is why we want to prioritize a critical component of the Payra project for long-term supply. The reality is that the current options for long-term supply are affordable for the Bangladeshis, who have expressed this quite openly, but they need more supply. This is why Excelerate is focused on being a crucial part of the infrastructure needed to provide that to them. Overall, this situation is developing in a predictable manner. The Bangladesh government is making a mature shift, and we want to be involved in that transition.

Operator, Operator

The next question comes from David Havens from SMBC Nikko.

David Havens, Analyst

First question relates to the LOI for the Hyundai Heavy contract for a new FSRU. Is there an option embedded with the contract as well for a second vessel?

Steven Kobos, President and Chief Executive Officer

At this point, David, we will discuss that as part of the shipbuilding contract. I mean, we're focused on the specification and advancing the shipbuilding contract. If not to put that into the LOI at this point, I would just be transparent about that. But that is something that we will be discussing.

David Havens, Analyst

Okay. And then the second question relates to the Philippines. I know on the last call, you've talked about shifting that from 2023 to the very latter part of 2024. But do you have any updates as to the status of that project? I mean, obviously, being an open-access terminal, natural gas prices had a very defined effect on the capacity being signed up there. Can you give us an update on where that project stands?

Steven Kobos, President and Chief Executive Officer

Yes, David, you are correct in noting that it is an open-access project. We believe that focusing on open access is the right long-term strategy for the Philippines. However, others involved in projects related to power generation are also sensitive to fluctuations in natural gas prices and overall demand. Daniel, you have been in touch with that team, so could you share some updates on the current developments?

Daniel Bustos, Chief Commercial Officer

Sure. Yes. Philippines is fairly unique in Asia. It has a very mature wholesale power market, with private companies that are clearly playing on it and also on the long-term contracting for power. The disadvantage is, it's a fairly small market. And Steven pointed out, when you try to bring international prices and you're a single player, it can be very difficult, particularly with the prices that we're experiencing. I think that is putting some damping on the ability to develop the projects. Philippines needs the power. They need the gas, and we believe the government is going to move towards facilitating access to LNG. Our bet is still the same. We believe that a terminal that serves the whole market is the best bet. We believe that the fundamentals that we're seeing will support that.

Operator, Operator

The next question comes from Cameron Lochridge from Stephens.

Cameron Lochridge, Analyst

I want to begin with the Vlora terminal and the MLNG expansion in the latter half of '23. Clearly, in the case of Vlora and Albania, there is significant potential for gas sales. You mentioned the 4 bcm of capacity that remains. Regarding these two projects, both set to launch in the latter half of '23, do you have any early insights or an estimate of the base earnings potential for these projects, not including the upside from gas sales? How should we evaluate their earnings capacity? You have consistently generated around $250 million to $270 million in EBITDA over the past few years. What sort of increase in those figures could we anticipate from these two projects?

Steven Kobos, President and Chief Executive Officer

Cameron, we have consistently communicated to the analyst community over the summer and prior that for any initiatives we are currently pursuing, you should consider a CapEx deployment yielding a multiple of EBITDA between 3x to 5x. Historically, the FSRU business has operated around an 8x multiple, but we believe that by moving downstream and aggregating additional services, such as gas sales or others, we can achieve that 3x to 5x multiple. At this moment, we are not prepared to provide any further guidance, but that is certainly our target.

Cameron Lochridge, Analyst

Got it. That's super helpful, Steven. And then I guess just one more question. This is kind of a nuance, but any color you can give on either average realized pricing for the gas sales? I mean, over the second quarter, first half, or just volumes sold, I mean you've substantially increased on the top line for the past couple of quarters. So just any help that we could get in terms of volumes or pricing on the gas sales would be very helpful.

Steven Kobos, President and Chief Executive Officer

Now, this is mainly a question about Brazil, and Dana, you may need to provide some input here because I don't recall how we accounted for some of the Q1 sales in New England.

Dana Armstrong, Chief Financial Officer

Yes, yes. For Brazil, I mean, definitely, if you look quarter-over-quarter, the revenue increase is driven by Brazil, obviously, higher volumes there. But as we've said on previous calls, we negotiate a fixed margin rate on our gas sales contract in Brazil. So even though the revenue will be somewhat lumpy and somewhat volatile, depending on how prices move, our margin rates and our EBITDA will be relatively constant on a rate basis. And so we'll see the benefit of that. Obviously, it's those increased volumes, but you won't see as much volatility in the margins in the revenue.

Steven Kobos, President and Chief Executive Officer

I think the key point regarding Brazil is understanding why the country continues to purchase such large quantities from us. It's interesting that this hasn't led to a drop in demand for our sales. This highlights the ongoing need for LNG; back in April and May, many assumed that all supply would go to Europe. However, that hasn't been the reality, even at the current prices, mainly because other regions have their own energy security needs. While it's important to focus on the situation with Russia, it's also crucial not to overlook the supply issues from Bolivia and the needs of other markets that require what we are offering. I appreciate you bringing this up, as Brazil has been a surprising example of resilient demand despite expectations of a downturn.

Operator, Operator

The next question comes from Marc Solecitto from Barclays.

Marc Solecitto, Analyst

So maybe just staying on Brazil. Just wondering if there's any update on a potential extension or expansion of the existing gas sales agreement there? It seems like a pretty strong demand picture. So just wondering how we should think about that market, going forward?

Steven Kobos, President and Chief Executive Officer

Yes, absolutely, Marc, and thanks for joining us today. I think I've already commented on how happy I am to see this demand in excess of what we anticipated in Brazil, despite these prices. Daniel's regional teams in LatAm, I know, are busy on those negotiations, but any further color you want to provide?

Daniel Bustos, Chief Commercial Officer

Sure. Marc, we see strong fundamentals for 2023. The rest of 2022, Dana already commented. And the basis are a continuation of what we have seen. It's a combination of a strong Brazilian economy, although they are experiencing some headwinds, inflation related, as the rest of the world. Brazil's strong position on commodity exports, both farming and energy, have made the economy extremely solid. And that shows on the demand and on their capacity to pay premium prices for energy. And the second one is the continuous deterioration of Bolivia as a credible supplier that is bringing both a more capacity to import LNG or opportunities to sell gas in Brazil, but also an increased risk. Let's remember, we make money in Brazil, providing both security of supply and gas sales, and the two products are in high demand.

Marc Solecitto, Analyst

Got it. Appreciate the color there. And then maybe just shifting to Pakistan. Can you just expand a bit on the MOU with Engro? What are the volumes being contemplated there? And would there be any investment in onshore infrastructure as part of that?

Steven Kobos, President and Chief Executive Officer

I want to emphasize why Pakistan is important. This is a long-term investment for us, and I'm optimistic about the country's potential. It's the fifth most populated nation in the world and has significant gas connectivity for those who have access. However, domestic production is declining, particularly in Baluchistan, which creates a long-term demand for gas. Currently, due to various macroeconomic challenges, many are hesitant to engage with Pakistan. We understand the long-term prospects and are committed to making inroads now, but we need the government to enhance open access. This initiative will not yield quick returns over the next few quarters; it's a longer-term endeavor that we firmly believe in. We're confident that the issues with the IMF will be resolved, and we plan to strategically position ourselves as downstream opportunities arise. Having traveled to Pakistan repeatedly, I've seen the urgent demand for gas firsthand. Our partnership with Engro, a well-respected company on the Karachi Exchange, reflects our long-term commitment to the Pakistani market.

Operator, Operator

It seems we have no questions at this time. I will now turn it over to Steven Kobos, President and CEO of Excelerate Energy, for any closing comments.

Steven Kobos, President and Chief Executive Officer

Sure. Thank you again to everyone who joined us on today's call. I hope as you can see, we're pleased with the progress we've made through the first half of the year and look forward to providing you with additional updates in the coming months. Until then, if you have any questions, please feel free to reach out to Craig Hicks, our VP of Investor Relations. And with that, thank you.

Operator, Operator

This concludes today's call. Thank you for joining, and you may now disconnect.