Good day, and thank you for joining us. Welcome to the New Fortress Energy Third Quarter 2021 Earnings Conference Call. I would now like to turn the call over to your speaker today, Josh Kane from Investor Relations. Please proceed.

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

Great. Thanks, Josh, and welcome, everyone. As usual, please refer to the earnings deck we sent out. We'll walk through that in the next few minutes. Let's start with the first page. It was an excellent quarter. We not only achieved the margins we outlined a month ago, but we've also raised those forecasts by roughly 50% since the start of the year. We accomplished this not by taking a market position, but by leveraging our portfolio of assets and terminals globally, along with their supply, to place ourselves strategically to seize market opportunities. In terms of numbers, for the quarter, we reported $210 million in margin, compared to $171 million from our expectations in July. This represents a significant improvement. Our current estimate for the fourth quarter is $375 million, aligning with our previous expectations. We have booked 98% of the revenues for the quarter, which we feel is very solid at this point. That was $184 million this summer. Overall, there has been an uplift in earnings from mid-year to the second half of the year, with estimates of $219 million, leading to a total operating margin of $585 million for the latter half of the year. Annualized, this totals well over $1 billion, which places us on an excellent path to meet our goals for this year and beyond. We are aiming for $1.1 billion for 2022 and $1.5 billion in 2023. Very strong numbers. On the next page, the key drivers for the business are our terminals division, fast LNG, and energy transition. Our current focus in the terminals segment is to complete our existing projects while selectively adding new terminals globally and driving significant organic growth with minimal capital investment. Over time, this approach will greatly reduce capital spending across the terminal portfolio. Our access to high-margin, high-volume markets like Brazil, Ireland, and Sri Lanka offers excellent capacity for distributing our products, whether for gas, power, or both, in a capital-efficient manner. Moving on to fast LNG, there's much to discuss. Given recent marketplace developments, we believe there is a heightened focus on this area. The decision to proceed with the first liquefier earlier this year is, in retrospect, a very strong one. We will have the only uncommitted liquefier on a large scale completed next year, which is vital in a market that is currently tight and is likely to remain so for some time. We are uniquely positioned to supply this need, potentially with one or two liquefiers. This presents us with excellent opportunities, whether it's generating tolling revenues for customers or enhancing our own merchant portfolio, or possibly both. Finally, on the energy transition front, we have made significant progress. We are close to final investment decision on our first facility, which we anticipate could happen in the next couple of weeks. This facility focuses on blue hydrogen with carbon capture, representing a considerable opportunity in transition fuels that are economically viable at about $1 a kilogram. We are well positioned to benefit from upcoming legislative measures that are likely to encourage and incentivize hydrogen production. Overall, it has been a very strong quarter for us across the board. A common question people have is what is happening in the market. Let's examine Pages 7, 8, and 9 for our thoughts. The chart on the left highlights a significant issue. Systemic underinvestment in the oil and gas sector has led to a decrease in hydrocarbon availability, making us vulnerable to various shocks. From 2014 to 2021, capital investment in oil and gas production dropped from approximately $800 billion to $400 billion today. The right-hand chart shows that capital allocation has shifted from 95% for conventional gas and oil exploration to about a 50-50 split today. These changes have been remarkable in a short time, aligning with our focus on a greener, carbon-free future. However, the reality is that we still need hydrocarbons today. On Page 8, we see the consequences; this systemic underinvestment has made the market susceptible to shocks. Factors such as insufficient rainfall in Brazil affecting hydroelectric power generation, excessive rain in China impacting coal mining, insufficient wind in Europe, reduced Russian supply, and faster economic recovery are all occurring simultaneously and have significantly impacted the market. This unprecedented pricing event could become more common, as we have lowered the surplus available to counteract these shocks, making us more vulnerable to higher prices. On Page 9, we discuss the implications for our markets. We believe the demand for LNG will significantly exceed supply. While considerable LNG production is expected in the latter half of this decade, there are many potential uses for it. I’ve outlined several on the right, which could greatly surpass supply. These uses include coal to gas conversions, oil to gas conversions, the rise of electric vehicles, cryptocurrency mining, hydrogen production, and ship bunkering. There are numerous applications for this product, but only a few sources, which could lead to market shocks as we are currently witnessing, compounded by the fundamental need for energy production and insufficient capacity. Now, let's talk about the terminals. I’ll hand it over to Andrew Dete.

Thanks, Wes. So two pages on Brazil here. And what we want to do is provide a quick macro update on the energy shortage in Brazil and then talk about how that's leading to new business opportunities for NFE. So looking at Page 11, I wanted to provide a continued update on what we've been tracking in terms of energy shortage. So on the left side, kind of as we've been showing with low hydro resource and low reservoir levels in Brazil, of course, leading to low generation numbers for the hydro capacity. So Brazil has about 65% of its installed capacity as hydro. And then last month, those hydros have been providing only about 20% of the actual power supply. So since August 2020, Brazil is actually experiencing the worst hydrological period in the last 100 years. And we're seeing that play out in the actual generation data here on the left side. On the right, what we're showing is that the compensation mechanism for this is almost entirely new LNG supply. So Brazil historically has imported about 3 million to 4 million gallons a day given kind of the 2018, 2019 numbers. But in the last few months, Brazil has been importing 19 million gallons a day in September and 18 million gallons a day in October, and on track for obviously a record year in terms of LNG supply and in terms of thermal power generation. One of the things we find interesting about the graph on the right, which is that we break down the historical supply balance also for domestic gas and for Bolivian gas imports, which you can see over the last five years have both either been static or declining. And so not only is kind of new thermal power the avenue of growth for LNG demand in Brazil, but you don't have growth in other sort of energy sources and natural gas sources. And so while we're seeing this increase, obviously, in thermal generation, driven by LNG, we expect to also see other energy shortages be answered by LNG in Brazil as well and the data are supporting that. If we flip to Page 12, we see how this current shortage is leading to new business opportunities for our terminals. So we're focusing here on the Santa Catarina terminal, which you see in the map on the left. In September, Brazil announced a new emergency power auction, which was run on October 25. They awarded PPAs to 1.2 gigawatts of new power, which will come online starting in May of 2022. So a pretty quick turnaround. We're very happy to be working with these developers. We expect over 900,000 gallons a day of new supply to support over 400 new megawatts. The average power price I cannot disclose was about $0.15 per kilowatt-hour. And the demand profile for these plants is almost 100% firmed over the 44 months, so from May 2022 to the end of 2025. This is obviously an outcome of the crisis that we've seen. The auction responded to this by being focused on the South and Southeast regions of the country, which have been hardest hit by two things, really the shortage in hydro resource in the lowest reservoir levels as well as kind of new power plant formation over the last few years in Brazil, which has been concentrated kind of on renewables and new thermal generation in the Northeast. And so this auction is really a direct response to the situation we've been seeing. And I think our terminal is very well situated. So outside of some very limited domestic gas, our LNG terminal is really the main source of supply for fuel to these new power plants. And so we're really seeing kind of a direct outcome of the themes Wes has been talking about globally, focused on the specific issues into Brazil and look forward to updating everyone more as we make progress with these new power plants.

Great, Thanks, Andrew. Let's talk for a minute about FLNG, and we'll start with my favorite cartoon on Page 14. So just as a reminder for people, what is Fast LNG, it's just basically using existing marine infrastructure to place liquefaction materials onto it. Why do this? Because it's faster, and it's cheaper. So half as much time, half as much capital. And as I said, we went FID on FLNG 1 and the long lead items and that's under construction right now. And the punchline is on time and on budget, expected to be mechanically complete in the middle of next year and then allowing for three or four months for commissioning. We think we're ready to deploy that at the end of the year. If you look at the business opportunities on Page 15, they fall into one of two different camps. Basically, we can take this year, and we can deploy it for others and charge them rent for it. So that's essentially what we have with the Hilli, which we own 50% of. That's a tolling relationship where we build, own and operate, we collect rent from high credit quality tenants. It produces stable and long-term cash flows. Great utilization of the IP, the significant IP that we have here from the technical side to basically create this on behalf of others. The second path is to basically do it for ourselves. So again, we build, own and operate. We own the volumes less predictable cash flows, but the risk is greatly mitigated by the terminals and the downstream operations that we have, and it has the potential to generate significant windfalls. So if you just flip to Page 16, on the tolling side, we have a use case in the form of the Hilli, that gives us a very good example for what the economics of this looks like. So this is a shift that cost $1.2 billion to build. That's 2.4 million tons, 4 trains, 40 months of total construction time. Economics basically are right around $3.25 an MMBtu, and then they get paid another $0.05 for every $1 that Brent is higher than $60 a barrel. So simply, in today's market that will generate about $250 million to $300 million in capacity payments for this installation. Our Fast LNG equivalent is obviously our cost is lower. We're 1.2 million tons versus 2.4 million tons. It takes us 18 months to build it. And because the demand for LNG is so high right now. When you look at the market today and the market for it over the next several years, the next several years are very, very valuable years. As a result, people are willing to pay more in rent to get access to that. So even though you don't have market exposure on the tolling side, because people can benefit from having higher volumes in these elevated markets, they're willing to pay more for rent. That's the simple economic profile of it. So in this case, again, the $275 million to $300 million in capacity payments using similar illustrative rent charges. You can see that while it's not merchant volumes, it's a very, very attractive proposition to simply be providing for others. The merchant potential is remarkable. I took a 2 million-ton example, analyzed it monthly from 2020 to 2021, and compared it to the cost of LNG at $4.50, which reflects our estimated all-in cost. I examined different indices and annualized the impact of selling those volumes in the market at those times. In 2021, the monthly figures were significant: $170 million, $274 million, and $601 million. As we move into late 2021 and 2022, these numbers increase substantially. The key takeaway here is asymmetrical exposure, which in simple terms means having limited downside and exceptional upside. We have a strong network of terminals and assets globally, allowing us to access markets and sell directly to customers, thereby minimizing our market exposure while still benefiting if market conditions improve. The outcomes range from good to extraordinary, potentially generating $2 million to $3 million in additional EBITDA annually from this 2 million-ton scenario. This market is extraordinary, and this approach is effective. Looking at our asset collection, we've invested around $8 billion and dedicated seven years to building them globally. While we will continue to expand selectively, we already have a robust fleet. This effort has been a significant achievement in creating downstream demand, combined with tolling revenues and high infrastructure returns, making for a very powerful strategy. Let's discuss energy transition briefly before I turn it over to Chris. The pie chart on the left side shows our focus areas. Notably, 75% of greenhouse emissions originate from three sectors: industry, power, and transport. Full decarbonization will not happen quickly, and reliance on electrification alone is insufficient for a decarbonized economy. Large fuel consumers for heat and power require low-carbon alternatives. We believe that blue hydrogen, or blue ammonia, is a cost-effective low-carbon solution. There is frequent discussion about blue hydrogen in comparison to green hydrogen. Green hydrogen is produced using renewable power, while blue hydrogen is created by taking natural gas, splitting it into hydrogen, and sequestering CO2, making it effectively clean through this process. Although there is a demand for green hydrogen, much depends on cost. We estimate that blue hydrogen can be produced at around $1 per kilogram. When converting to natural gas terms, this amounts to approximately $7.50, which is highly competitive for various industrial applications and transportation. In contrast, green hydrogen options are currently 3 to 6 times more expensive. While some can afford the premium of green hydrogen, it remains a luxury rather than a necessity for most. We have made significant strides with our partners at FTAI and the infrastructure fund and are approaching final investment decision for our first blue ammonia production facility. This facility has essential components: access to natural gas, a nearby CO2 pipeline for injection, and water for transport. Additionally, the site is situated within a terminal, providing opportunities for low-cost, tax-exempt financing. Once we reach our final investment decision, we will share further details about the financial potential of this project, especially regarding financing access. We anticipate obtaining permits and securing an EPC contract by the end of Q1 2022, with the facility becoming operational within 20 to 24 months thereafter. Page 22, obviously, there's a lot of discussion about, I think, rational efforts on the Build Back Better Act. We are obviously following this closely. When you look at that act and you focus on what it means for hydrogen production, the answer is $15 billion that is awarded for hydrogen production, carbon capture emission reductions of projects. There's been a whole host of different aspects of it that we think are all relevant and actionable within our portfolio. So this, we think, is the right move by the government. I said before, I think the U.S. government can play a major, major role in the transition energy economy. And we are very well positioned to be a beneficiary of that as obviously the efforts that we have taken underway are only enhanced by these kind of programs. So the plan forward, very, very simple, on Page 23. Build this proof-of-concept blue hydrogen plant, utilize our existing downstream infrastructure for both transport and distribution, and then help the transition to heavy polluter industries, shipping, cement and steel are probably the three most likely focuses for us in the near term. Chris?

Yes. Thanks, Wes. Good morning, everybody, and thank you for your time. I wanted to start today with a comment on the amazing work that NFE's employees are accomplishing in partnership with our customers. NFE is now over 800 employees strong, and they work every day to lower energy costs and decarbonize the communities in which we operate. It's a privilege to work alongside these individuals who make our fight against energy poverty possible. And it's as a result of these employees the graph on Slide 25 shows our hyperbolic growth over the last several quarters. In a little over five years, NFE has gone from a small development company to a world leading energy infrastructure business. In fact, if you go back to the initial operations, the online date of our liquefier in Miami took us 18 quarters to get to positive operating margin. Yet in the last year, we've transitioned over $1 billion in annualized margin. Further, as this slide details at the time of our IPO in early 2019, we had negative margin in a fraction of our current employees. Our infrastructure footprint is no less impressive. In 2019, we had only 11 customers across three assets in two countries. Today, we have well over 50 customers across 20 assets in 12 different geographies covering all sides of the globe. Our earnings profile is large, extremely diverse and continues to expand every day to become increasingly stable, predictable and heavily growth oriented. On this page, we highlight the financial performance for 2H 2021, which will be nearly $1.2 billion of annualized operating margin. And as Wes said earlier, we are forecasting $375 million for Q4, of which 98% of those cash flows come from contracts already executed and nominations received from our customers. Now turning our attention to Slide 26 and the financial results for Q3. We sold an average of just under 1.8 million gallons per day for the quarter and earned revenue of $305 million. The Terminals and Infrastructure segment operating margin was $116 million for quarter 3, which is over double any previous quarter in our history. The $20 million increase in our Ship segment operating margin to $95 million as a result of the full quarter's results being included, but was also the beneficiary of elevated spot market charter rates for the Celsius and the Penguin. One thing we wanted to highlight here is the consistent and expected cost of LNG during a quarter that saw spot LNG prices range from $10 to $30 per MMBtu. NFE sourced LNG at an average purchase price of $7.10. Another important thing I wanted to remind everyone of is the fact that all of our customer contracts online in Q3 and over 80% of our contracts at run rate, the underlying commodity is a pure pass-through. So we buy at Henry Hub Plus and we sell at Henry Hub Plus, which provides the foundation of our high margin net spread business. SG&A for Q3 for the core non-growth business was approximately $20 million, excluding costs incurred to develop new projects and other nonrecurring noncash items. A quick comment about the balance sheet. As we included on the page, NFE has over $330 million of cash on hand at September 30 and nearly $700 million of availability on our revolver, our ship facility and our Jamalco financing. Finally, please turn to Page 27, you can see the punchline, which is that NFE is a robust cash flow machine. We are committed to our goal of becoming an investment-grade company, and we are well on our way to achieving investment-grade metrics. We've dramatically increased the scale of the business going from three to 11 terminals across 12 different geographies. We've diversified our cash flows, which include volumetric gas and electricity revenues, capacity payments, shipping, cargo sales, et cetera, and have expanded earnings to over $1 billion in operating margin. We are on target for 3x debt leverage coverage ratios. And lastly, we have derisked the business model by controlling our own shipping costs as a result of the GMLP and Hygo mergers, and will further vertically integrate by producing our own LNG. As we continue our credit enhancement initiatives and get upgraded, we can free up over $200 million of annual cash flow through simplifying and refinancing our capital structure. We expect we can refinance our $2.75 billion of high-yield notes at rates of approximately 300 basis points lower than current borrowing and reduced interest expense by roughly $80 million a year. Furthermore, over time, we can refinance $1 billion of asset-level debt, which removes over $120 million of annual amortization. Unlocking these additional cash flows is the next key step in maximizing our cash flow available for reinvestment or for dividends. With that, I'll turn the call back over to Wes.

Yes. Before we move to questions, please refer to Pages 29 through 32 in the appendix, which are meant for our credit investors on the phone. This is essentially a continuation of what Chris just discussed. When we conducted our first corporate bond issuance in July 2020, only 15 or 16 months ago, it feels like much longer given all that has transpired. At that time, during our discussions with the agencies about our creditworthiness, they agreed to a certain extent, which resulted in our high single B rating. They identified three key areas we needed to improve in order to justify a better rating, which are outlined on Page 29: increased earnings, greater diversity, and more operational history. In a short time, we have made significant progress in all three areas. When we received our initial rating, our operating margin was $200 million. For the second half of this year, it's $585 million and projected at $1.1 billion this year, indicating tremendous growth in earnings. Regarding diversity, we had three terminals, 37 customers, and were operating in 2 geographies at the time of the rating. Now, we have 11 terminals, over 100 customers, and are present in 11 different geographies, demonstrating substantial changes in our diversified footprint. Operationally, at the time of our initial bond transaction, we had no owned ships, employed 300 people, and had limited operational experience. Today, we have over 800 employees and a strong ship portfolio that allows us to effectively serve our customers and access favorable merchant rates in recent months. This is a significant aspect, as without the expertise and capabilities within our shipping operations, our recent successes would not have been possible. Across the board, we have demonstrated major improvements, which are further detailed in the following pages. The run rate earnings discussed earlier are shown on Page 30. Page 31 illustrates our extraordinary diversification in terms of geographies, number of customers, and revenues from our ship portfolio, including 850 ship-to-ship transfers compared to 650 1.5 years ago, with invested capital rising from $675 million to over $7 billion today. Clearly, there's been a dramatic shift in diversity. Our operational history has also significantly improved; when we first received our rating, we had completed 6,000 ISO-container loadings, which we have roughly doubled since. We’ve increased our ship operations from 650 to 840 low ship-to-ship operations, and we believe we have the highest reliability in the hemisphere, rising from 98% to 99%. We feel we have earned high marks on the credit side as well, which we hope will lead to lower borrowing costs and better credit ratings, as Chris mentioned. Now, let's open the floor to questions.

Our first question comes from Spiro Dounis at Credit Suisse.

First question from me, just a two-parter on Fast LNG. I guess based on some of the fine tuning of the strategy here in this morning, it seems like you're nearing a commercial agreement there. So first, I'm just curious, Wes, if you've narrowed down to counterparty and a location. I understand you can't disclose it at this point, just curious how close you are? And the second part of the question, I just want to make sure I understand how you're thinking about Fast LNG now. Has it become more of a natural hedge on the business versus a direct supplier to the terminals? And so in a low price environment, you supply the terminals in an asymmetric upside scenario, you sell it to the highest bidder and effectively subsidize any losses elsewhere? Just trying to understand the mechanics.

Great. The response to the first question is that we are engaged in strong discussions with several companies that have significant gas reserves and are looking to monetize them. Their profiles are similar; they are high credit quality and large oil and gas companies that understand the markets and dynamics. The availability of our liquefier in the near term is very attractive to them. It’s not an exaggeration to say that we are possibly the only ones in the world that have developed a specialized liquefier, which is a risk we have taken on. I believe this risk will likely yield substantial rewards now that we have an asset that aligns with their profiles. While we are not finished pursuing this opportunity, we are optimistic about our prospects on various fronts regarding tolling, which we see as a natural extension of our business, akin to the Hilli project, which has been a valuable learning experience for us. The tolling market has improved due to favorable market dynamics, increasing the value of the product we provide. On the merchant side, the strategy is clear: if we can create merchant volumes at a low price while having access to high-volume markets, even if the market opportunity is limited, we can utilize our terminals and supply gas at competitive prices, resulting in minimal downside risk. In cases of price spikes, as we are currently experiencing, there is significant potential for upside. Additionally, having access to our own gas enhances our ability to serve our customers better. Ultimately, our goal is to meet customer needs for both gas and power, and having gas enables us to be more flexible in doing so. Regarding market observations, the world was generally overconfident and too complacent about gas availability. Many underestimated their volume commitments, thinking they could easily replace them in the market, which we've seen with numerous customers. We provide everything we are contractually obligated to, yet dramatic market price changes can severely limit access to gas at reasonable prices. This has affected individual customers and even entire countries. Presently, there’s a convergence of climate change effects, such as less rain in Brazil, excessive rain in China, and insufficient wind in Europe, combined with higher economic growth and potentially reduced gas supplies from Russia, resulting in a very volatile environment. This has caused gas prices to rise dramatically, from as low as $1.85 two years ago to as high as $30, $35, or $40 recently. Consequently, being positioned for minimal downside and significant upside is crucial. In this business, the three key factors in evaluating it are sustainable competitive advantages. We have a downstream portfolio worth $7 to $8 billion, and we will soon expand our merchant capabilities on the FLNG side and in our customer business, which we believe offers a significant sustainable competitive advantage, providing stable cash flows in normal markets and asymmetric cash flows in volatile ones.

Got it, that's helpful information. For my second question, I'd like to switch topics to blue ammonia. It seems like you're close to moving forward with that. I remember there was a discussion about Zero Parks being spun out and incubating that asset. Can you provide an update on the status of that spinout? Additionally, as we consider funding the capital expenditures for blue ammonia, which entity will be responsible for that, and can you give us a general idea of how to approach this?

Yes, we anticipate a modest amount of cash flow. While we haven't finalized how we will finance it, we're initially looking at a facility size of around $400 million, in partnership with the FTAI team. Ken Nicholson is here with us, and he can provide further details. We expect to finance a significant portion of that with tax-exempt financing, which is a strategic advantage in financing ports and terminals. Regarding whether this company will exist within NFE or as a separate entity, that's something the Board and management will need to consider carefully. I believe the opportunities in the hydrogen and transition energy space are vast enough that a separate identity may be beneficial, so it's not a matter of if, but when this should happen. Ken, you might have some insights on this as well.

Yes, I'd just say, Spiro, on the financing point. As Wes said, we have had a lot of success at FTAI with tax-exempt financings. You can get pretty high leverage at very, very low rates. It's been a particularly strong market with the new tax and spending policies that are coming out of the federal government, so there's fair amount of demand for tax-exempt securities. We did a big tax-exempt financing at our Jefferson terminal at FTAI over the summer, average rates there, unrated were 2%. For this particular project, most of the expenses and construction costs are eligible for tax-exempt financing. So for a $400 million facility, we should be able to get somewhere between $300 million and $350 million of debt financing against it.

Pretty robust price realization there. Can you just talk a little bit about maybe the business model in Santa Catarina against that power backdrop? Is it going to be sort of a fixed fee terminal business? Or do you envision yourself taking some variable cost economics there against the power capacity?

Yes. Thanks for the question. We think it's a great outcome on the power auction and really the right thing for the region and the power shortages. So I think the business will look a lot like our other terminals. We'll have, at Santa Catarina, all sources of downstream demand, so power, industrial, even consumer and residential, and then what we think can be a very kind of robust off-grid or small-scale ISO-container business as well. We don't think about it as any sort of different model. I think you're mentioning almost like a fixed fee model or anything, but we expect to supply gas to our customers through our terminal just like we do everywhere else. And dynamics of the region or access to the pipeline and kind of the overall macro backdrop makes Santa Catarina a really interesting project for us.

I have a follow-up question for Chris. We've seen a change in our operating margin, and the next step is translating that margin into cash. Acknowledging the volatility in the underlying commodity during Q3, we can expect some variation in working capital. Can you help us understand how to anticipate the operating margin converting to cash flow in 2022 as our recent terminal gains maturity? You've mentioned at a high level that it's a strong cash flow business, but could you provide more details on how this will work moving forward?

Yes. If we set aside factors like moving working capital, which is currently occurring as more LNG is both purchased and sold at different times, we should view operating margin by reducing it for SG&A, interest expense, and tax expense. We believe that if we grow operating margin from $1 billion to over $1.5 billion by the end of next year, and then deduct $100 million for core business costs, along with current interest expenses, which are approximately $300 million to $400 million when considering interest and amortization, we aim to decrease or eliminate amortization through refinancing. Our goal is to take that $1.5 billion run rate down through these expenses, resulting in nearly $1 billion available for reinvestment, which will be subject to tax at varying rates across the business. I'm open to discussing tax implications offline, but I think it's reasonable to expect nearly $1 billion of cash added to the balance sheet annually.

So just going back to the Brazil power auction, I'm trying to understand the mechanics of those contracts a little bit. How would the $0.14 per kilowatt translate in terms of revenue and gross margin for MMBtu to align with the existing guidance we have for the models?

Yes. So I don't think we're ready to disclose kind of those details yet, but I'll give you a little bit on how the power option works. So new power producers bid both for an energy price, so like a cent per kilowatt-hour price, and they also get a fixed capacity payment. And so what we're kind of trying to message here is that given the kind of need for return on capital over the 44-month period of the PPAs and sort of Brazil is a strong incentive to incentivize new power generation. These prices cleared at high levels on the power side. And so I think that's the kind of the point of our message here, and we can show some of that breakdown. And as we, I think, get into that business, we'd be able to show kind of more granularity on how we fit into it. But I think for now, our message, we're just trying to show that, obviously, this is an auction that clears at a very high price, which is recognizing the very high need for new power in the region.

Yes. In simple terms, the cost of electricity resulting from this emergency auction was approximately double what the long-term cost had been. This directly reflects what happened to consumers and in the market. There was a demand for power, and due to a shortage of hydroelectric power, an auction was held that cleared competitively at about twice the previous price. We are working diligently to support those who wish to provide this power. As a result, our volumes will increase, but our margins will also be higher than they would have been prior to this market shift. However, as Andrew mentioned, we do not specifically break down margins by asset, terminal, or individual transaction, as we don't believe that would be a productive approach.

Okay. So just a follow-up, though, on the structure of that. Is it going to look like Sergipe where dispatch backup power for hydro? Or will it be baseload power? Or you guys are pursuing a consistent amount of volumes every quarter after the facilities come online?

Yes. Thanks for the question because that's actually mostly public information on the auction. It's baseload power. So most of the plants that cleared are 100% baseload, with a few being slightly less than that. However, it's completely different in Sergipe.

Yes. They definitely could be mixed-use. I think that right now, we are down a path where we're talking to people about a tolling arrangement where they just use the infrastructure to access their own gas assets. We're also then looking at situations where we could buy gas and generate ourselves. So right now, they really are in one of the two camps, but it's entirely conceivable that we would do some kind of transaction where we would both be the tolling provider and also then take some of the volumes. But right now, they're in one camp or the other. But there's no reason why they couldn't be combined.

I was hoping you could clarify the sequential margin increase. Can you explain the Q3 margin growth compared to Q2 in terms of how much was influenced by shipping and how much by merchant power or other factors?

At the end of the day, the volumes we sell go to customers who are either purchasing from us or buying long-term. We don't really separate those customers. We provided clear guidance on our expected margins during normal operations. Looking at the 2022 estimates of $1.1 billion, those figures reflect ordinary business conditions and don't take into account unusual market changes. Access to volumes, particularly through FLNG, could significantly alter those numbers. However, I want to highlight that we achieved these results in a market environment where we entered with a modest short-term supply shortage. We didn't make a significant market directional bet that paid off, which is challenging for sustained outperformance. Our position was mostly market-neutral with a slight short bias in the short term, leading to substantial returns thanks to the flexibility provided by our infrastructure. The results are clear. We entered a market without a directional bet and are on track to make $585 million in the second half of the year. We’ve also provided clear expectations for the following years, without any unusual returns expected.

Okay. And considering the merchant power opportunity, it is clear that Brazil is experiencing low water levels, which likely requires more low water. Regarding the Q4 guidance, can you share insights on the lead times for the merchant power opportunities? Should we expect to receive updates as we look ahead to Q1, given that these lead times are a couple of months? Is this the correct way to approach the situation regarding Sergipe and other locations?

Yes. I think there's kind of two types of opportunities there, right? So I think in something like Sergipe, where you kind of have exposure to the power market, you're able to capitalize on things as they happen in a kind of day-to-day power market. And then we have opportunities that I think are going to look more like the emergency power option we're talking about today. We kind of have a little bit longer-term procurement cycle, but in this case, actually pretty fast, from going to kind of zero to built on new power plants. And so I think we'll see the sort of regulatory mechanism work in both ways. And the point for us, I think, is just being situated to capitalize on those opportunities as they happen, as well as opportunities outside of power that we're going to see coming as we're really feeling the shortages of kind of energy broadly, we feel like our terminals there are obviously well positioned sort of geographically and in markets and with customers to take advantage of this.

Thanks for including me. On the 2 MTPA example for merchant capacity, two questions. Is the 1.2 MTPA project kind of still the cookie cutter? And are we thinking that maybe by the end of next year, we could have three total projects, either operating or, well, passed FID?

The answer to the first question is yes. The dimensions of the infrastructure are actually 1.4 million tons, which we rounded down a bit. The actual production partly depends on weather conditions, as warmer weather can decrease efficiency. The figure of 1.2 million tons is connected to the 1.4 million tons, with 1.4 representing the actual technical specifications for the year, while 1.2 is more of an estimate. We rounded the 2 million tons figure as well. We believe all these numbers assume one or two deployments, but we anticipate there could be many more. Our goal is to establish a factory-like environment for our infrastructure production, enabling us to meet customer demands on the tolling side and support our merchant portfolio. The business is positioned to generate between $1 billion and $1.5 billion or more in ordinary circumstances, with the potential for extraordinary returns if extreme weather events continue annually, which we expect. When evaluating the company's valuation, I believe we are significantly undervalued as a value stock, trading at a single-digit multiple based on actual earnings, which is a metric for value stocks. Typically, an infrastructure business would trade at two or three times that. It feels like we are very undervalued despite being a growth company with substantial growth. The number of companies that started as public entities 17 quarters ago and are projected to produce $1 billion in cash flow is quite limited, and this is just the start for us. I feel that our valuation has significant upside potential. We have unique exposure to one of the most crucial energy markets globally, and we were early adopters of the energy transition, which has been our focus from the beginning. We believe we're very close to having an investable product to capitalize on this opportunity. Over time, market valuations will adjust accordingly, and this will be a pivotal moment for the company, with hopes that our value reflects that soon.

And a quick follow-up. Could you opine on the ability of floaters versus just jack-ups to materially expand the potential opportunity set here?

There are many available ships, which influenced our decision to pursue this solution due to the surplus of drill rigs that can be repurposed. Additionally, there are deepwater ships, like the Savant ships, that are suitable for deeper water installations, and we have plenty of those too. Ultimately, we are aiming for around 100,000 square feet of deck space to accommodate our modules. However, achieving this requires a more technical solution regarding weight distribution and other factors. The goal is to clear 100,000 square feet of deck space using one or more products, which opens up a wide range of infrastructure options for both shallow and deep water installations. Terrific. Thanks, operator. And actually, thanks, everybody, for calling in. Obviously, a terrific quarter and a lot of information, but the path for us is getting clearer by the day. And we're happy to have a chance to share with you. Thanks very much.

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