New Fortress Energy Inc. Q4 FY2021 Earnings Call

Good day and thank you for standing by. And welcome to the NFE Fourth Quarter 2021 Earnings Call. Please be advised this call is being recorded. I would now like to hand the conference over to your host today, Brad McGill Management Director and Head of Investor Relations. You may begin.

Thank you, Justin. Good morning everybody and welcome to New Fortress Energy Fourth Quarter and Full Year 2021 Earnings Call. This call is being recorded and will be available by replay until March 8. We plan to wrap up once our Q4 2021 Investor Presentation that we released this morning. The presentation is posted on our website and will remain available after today’s call. The presentation includes a series of important disclosures related to forward-looking statements and non-GAAP financial measures. We encourage participants to review these important disclosures in addition to the description of risk factors contained in our SEC filings. Joining me here today are Wes Edens, CEO and Chairman of the Board, and Chris Guinta, Chief Financial Officer. Also joining today's call are managing directors, Andrew Dete, and Kasciandro Senem, as well as Ken Nicholson and Patrick Hughes, the Chief Executive and Chief Commercial Officers of our Hydrogen business NFE Zero Parks. And with that, I'll hand the call over to Wes.

Great. Thanks very much, Brad. And welcome everyone. As usual, we have posted to the website a deck that we'll be referring to as we flip through. We have a lot of material to go through today, and we'll try to do so quickly and get to questions here in short order. So start with page number four. So first, the results. Obviously, a record quarter for us at $334 million in EBITDA for the fourth quarter in 2021. Full year 2021 $605 million. The business has grown and matured dramatically, and this really does mark the end of the beginning of us as a company. Eight years ago, we started the company as a development company as we've been developing our terminals and portfolio downstream assets. The financial results mirror that; full year in 2019, adjusted EBITDA negative $115 million, as we were investing in our business, and full year 2020 basically breakeven at $33 million, and then $605 million this year. Very importantly, we are poised, we believe, to be very, very profitable in the future. So our forecast for 2022 is over one billion dollars. We think there's a substantial amount of upside to that number, roughly 85% of that result is essentially already baked, having some of the things worked out as planned. So we're here on March 1, we have 10 months left in the year, and we have lots and lots of opportunities in front of us. So there's lots of growth there. Page number five; as I said, we started the business eight years ago from a blank piece of paper. It's interesting to see how it has really evolved. The architecture of the business, to me, is quite clear. We began the business by focusing on our customers. We started building downstream terminals, to empower assets around the world to solve fuel issues and energy poverty issues, and that is the core of our business and what it means today. That part of our business has grown dramatically. This time last year we had five terminals; today we have 11 in operations or under development. Geographies are also nuanced but an important one, as we've shifted our focus from some of the smaller, more bespoke markets, which are great markets with great opportunities for us, to larger markets with higher volumes that play a key part of our strategy going forward. Also, about this time last year in January, we made a very large acquisition in two pieces: one was to buy the Hygo assets, which were terminals under development, as well as a large power plant under development in Sergipe, Brazil. We have also acquired a large portfolio of ships. The ships and logistics businesses, how we get our products to our markets and customers. Those markets obviously tightened up dramatically in the last year. Both of those acquisitions today look like very well-timed; they have worked out very well. We've added dramatically to our midstream capabilities to match the downstream capabilities. The last part of our business, and the focus for much of this presentation, is the gas. Gas is obviously the biggest cost that we have as a business. It has been an intensifying point of focus for us over the last 18 months; obviously, the geopolitical results recently, particularly in Europe with Russia and all of those geopolitical issues, have only intensified that focus. When you look at our portfolio from a year ago, we roughly doubled the size of it. Kasciandro, who runs our gas front of the business, will talk about that substantially. We are poised to roughly double it again this year. This is the feedstock that we then provide to all of our customers. The way we think of the business now is we built this downstream business; we then have all the capabilities to manage our flow of product that goes into them. With the cheapest and most flexible form of gas, we can do the best job of servicing our customers. That's what creates the opportunities for us. On page number six, Fast LNG, which we've talked about over the last year or so, is now very much in the sights of our strategy. We announced yesterday that we had our first transaction on the tolling side. When you think of Fast LNG, we see it as a way to move liquefaction to the offshore strand of the gas assets and turn that gas into an exportable commodity that can then be used to supplement our portfolio. The core of our gas portfolio is based on long-term supply contracts that we've secured from some of the largest gas producers in the world; that's not a focus that's going to change from this—in fact, it's only going to grow. But the FLNG basically is a way for us to add either long-term high-quality cash flows by providing our equipment to lease into a situation like Congo, which we're doing with ENI, or to actually add to our own portfolio with market volumes that we can then provide to our customers or sell in the business loss. When looking at the next page, this is the dynamic that is created. We then have a very stable portfolio of gas. As we match up our long-term gas contracts with our long-term off-take from our customers, that by adding market volumes on top, we create a dynamic that produces a long LNG basis. But the business model significantly mitigates the risk to it. When you think of being long or short a commodity, that sounds like a scary proposition, and one that is subject to market risk. The way we think of it, we created a model that has bond-like downside and marginal volumes in our portfolio. To the extent that we normalize the market, we simply deliver those to our customers into our terminals and power plants around the world. In the event of market dislocation—as we're experiencing currently—we have the ability to sell those into the marketplace and realize substantial opportunities. The dimensions of this can be significant. We’ve been through a period of relative stability since we started the business from 2014 until recently. Obviously, since last summer and in the last few weeks, we've faced significant disruptions. Our business is oriented around taking advantage of those kinds of opportunities in addition to the base load. So bond-like downside and equity-like upside is the portfolio that we’ve created. So that was down to the downstream. I’ll turn it to Andrew.

Thanks, Wes. Hey everyone, nice to be talking with you again. I'm on page nine. A bit of a scorecard here for our business downstream in 2021. A totally transformational year for us. On the left side, we acquired Hygo for $3.1 billion and GMLP for $1.9 billion. Both were announced in January of last year and closed in April. Our Mexico terminal came online in July. We started flowing gas to the CFE power plants under our contract with CFE there in Baja California. The Sergipe Power Plant is now fully operational, with almost 4,000 run hours, having consumed over 30 TBtu of our supply. We also signed a 15-year 30 TBtu supply agreement with Alunorte, the refining subsidiary of Norsk Hydro, which is co-located with our Barcarena terminal, the largest alumina refinery outside of China. Significant construction progress has been made on our Barcarena and Santa Catarina terminals, both expected to be completed in the second quarter of 2022, both linked to huge associated LNG markets. Regarding our progress on the Hygo and GMLP transactions, we took two terminals in Barcarena and Santa Catarina that were not finished permitting. We completed the final permitting and negotiated an EPC contract, nearing the completion of construction for the offshore terminal. We've made great progress on those terminals and we're very excited about the opportunities in those locations. On the right side, we report a bit of a scorecard. In Q4, we reached 2.9 million gallons a day, up from about 1.8 in the same quarter last year. We have 65 total contracts, with a 15-year weighted average life, and our net present value of the revenue in those contracts exceeds $14 billion. Flipping to page 10, we wanted to show the transition from NFE being a business with premium long-term off-take commitments for LNG to power in the Caribbean, to a truly global downstream LNG portfolio, anchored by long-term stable cash flows but has real upside as we participate in these larger markets. In 2020, we had about 9 MTPA of addressable market, three terminals completed, two under construction, totaling five terminals. Today, we’re at 42 MTPA of addressable market and 11 terminals. A totally different portfolio compared to where we ended last year. We’re excited to discuss how this 42 MTPA addressable market will be tackled over the next year. On page 11, we outline our 2022 growth plans. It will always start with continuing our organic growth from existing terminals, requiring no additional capital, with numerous opportunities right in front of us. In Jamaica, the Jamalco refinery, to which we provide steam from our Jamalco power plant, is switching from HFO to LNG. We aspire to be the supplier, as we see great value proposition. In Puerto Rico, we intend to convert more oil and HFO-fired power plants to natural gas. In Mexico, we hope to expand our contract with CFE, all of which represent vast organic growth potential in the portfolio. We also plan to complete construction of the Barcarena and Santa Catarina terminals in Brazil. We now believe even more in those markets than at the time of the acquisition and are extremely enthusiastic about bringing these online and commencing contracted opportunities to continue augmenting commercial opportunity in these large markets. Santa Catarina specifically is interesting, as it will be our first pipeline-connected market, unlocking new and diverse opportunities. Finally, we’re in the last stages of planning approval for our Shannon LNG terminal and 600 megawatt power plant. This opens opportunities for great long-term supply into Western Europe and access to a highly liquid and flexible market along with the ability to construct combined-cycle power in a currently short power market. Page 12 highlights the integration of the business; I think we’ve achieved that with the acquisition of GMLP and control of over 20 ships today. We finished 2020 with five ships under our control and ownership. Our portfolio is unique. We have strong demand for FSRU and storage capabilities from our ships; this essentially forms our terminal assets. We feel great about the GMLP acquisition and the value of those assets from when we acquired them last year to where they are today. We have become a fully integrated business and portfolio that will grow over time. Page 13 attempts to detail qualitatively what it means for our portfolio to grow from 9 MTPA to 42 MTPA. This growth means our portfolio transitions from being long-term power-focused and small-scale, matching supply contracts with demand contracts, to seeing multiple categories of commercial activity. It is not only long-term power but also merchant power, industrial demand, gas trading, and pipeline balancing, selling capacity in our terminals. We now have a much bigger and diversified portfolio available to us. We will anchor around long-term stable cash flows while tapping into additional upside in other services and markets where we're now active. I’ll turn it back to Wes. Thanks, everyone.

Great, thanks. To lead the gas discussion, I should give a bit of context to the bigger picture on the energy transition. There are two somewhat conflicting themes present when considering the world and energy transition. One theme that we are very focused on is that energy poverty, in various forms, is very real. People in Jamaica use 10% of the electricity per capita that people in the United States use. People in Kenya use 10% of what people in Jamaica use. People in East Africa utilize, in a year, what all of us in this room use in about three days. That's a very real issue. You cannot have a discussion about energy transition without acknowledging that many around the globe are under-electrified, and that has significant implications for economic growth, healthcare, and education. We are tightly focused on this matter. While we strive for a meaningful energy transition to a fossil-free future, we must acknowledge the existing problems of energy poverty and focus on those markets. The second main issue is that climate change is real and decarbonization is not merely an option; it is a mandate for all of us. We need to manage these two issues concurrently. And I believe that people on extremes of either side of the equation truly miss the point of what we're trying to achieve. Folks who advocate for 100% renewable power today do not acknowledge that renewable energy is not dispatchable. When observing the chart before you, you can see that Europe, which boasts some of the world's highest deployments of renewable energy, has had increasing usage of coal plants just last year due to dispatchable energy challenges. Thus, ironically, during this energy transition period, we see some of the highest coal usage right now. On the other side, the forecast of the demand for gas seems structurally undersupplied. A central theme for us is that we believe that the world is on the verge of facing a structural gas shortage. That outlook fundamentally influences our view of our portfolio construction. The drivers of the situation on the right-hand side—underinvestment in oil and gas production, aggressive and unrealistic energy policies, and the premature retirement of coal and nuclear—only intensify the challenges we face. Moreover, geopolitical instability, such as Russia's supplying of 40% of Europe's gas, amplifies the challenges in the current market environment. Despite these constraints, our business is well-positioned to take advantage of the conditions and opportunities offered. I will now turn it over to Kasciandro to discuss our gas supply.

Thank you, Wes. Good morning, everyone. This is a simple chart, which is essentially what all the traders look at every day for transactions. LNG prices aren't expected to dip below $30 until the end of winter 2023, after which prices drop close to $20 for the remaining part of the year. We see a severe market dislocation. By analyzing this, we've devised our strategy to contract LNG. Moving on to page 17, we highlight the positive news: we successfully executed our strategy to contract LNG based on our clients' needs. Our portfolio has increased by over 200% since the beginning of 2021. We're now managing a portfolio of 2.9 million tons, with 2.2 million tons contracted in the market and 0.7 million tons to be produced by our Fast LNG starting in 2023. We do not require LNG from the high-price spot market to meet our clients' needs. The focus on expanding our portfolio in 2021 has also enabled us to advance negotiations for additional long-term LNG supply agreements. We expect to finalize both our Fast LNG and long-term market contracts by Q2 2022. This will set a base portfolio of around 4 million to 5 million tons of LNG per year, ready to support our downstream efforts in high-growth markets that Andrew just presented. On slide 18, I want to delve deeper into the Fast LNG commercial arrangements. We see two primary business models for this. The first involves providing installation services and contracting with a counterparty that will contract 100% of our capacity, while we take a percentage of that capacity—that's ENI, which I will elaborate on further in the next slide. The second business model engages resource owners, utilizing gas production to supply our LNG facility and for local gas requirements. This resembles our approach in Mauritania, where we signed an MoU with the government at the year's end, and the project is presently moving forward with discussions among all relevant parties. Slide 19 addresses our recently announced collaboration with ENI. We are thrilled to collaborate with such an experienced partner in the oil, gas, and LNG sector. ENI not only has significant experience in LNG production, but they recently completed the construction of their own FLNG. Their commitment serves as a profound endorsement of our capabilities. We expect our facilities to be deployed in the Marine 12 assets in the Republic of Congo; these assets lie in shallow waters and hold vast reserves to support our production facility for 20-plus years while enabling the exploitation of extended reserves in upstream flaring gas.

Great. Thanks, Kasciandro. On page 20, we put some simple math to illustrate market volumes' potential implications for us. The production from our first facility generates 63 TBtu. If we use a price of $20 in the market, which today is actually above $30, with a cost of $5, that yields profits of $15 per MMBtu times post-production yields, resulting in incremental revenue for just one unit of a billion dollars. Considering that it costs us $650 million to $700 million to operate, we achieve a very respectable return merely from tolling arrangements. Therefore, we anticipate an excellent market return from leasing our equipment to a partner like ENI; that's one business model. The second model entails handling our own account; uncommitted volumes yield market opportunities that we can either supply to our customers on the downstream side or sell directly to the market in disruption scenarios. Reflecting on the last ten years, we’ve encountered a handful of disruptive phases. We believe that these conditions will likely intensify and continue. While some normality exists, disruptions will present lucrative opportunities, especially in today's favorable market prices, dramatically impacting our potential for upside. I'll now turn the floor over to Ken for an update on our Zero Parks hydrogen business.

Great. Thanks, Wes. Good morning, everyone. I am pleased to provide an update on our Zero Parks business. We anticipate investors will soon recognize NFE as an industry leader in the clean hydrogen space. Page 22 highlights the substantial opportunity for Zero Parks, addressing the global challenge of 51 billion tons of CO2 emissions. A significant 75% of these emissions stem from three primary sectors: industrial, power, and transportation. We engage with customers across these sectors. NFE’s opportunity lies in empowering international clients through our logistics and user base while also addressing domestic needs. We have discussions with industrial companies, steel mills aiming to replace fossil fuels for heat, power plants looking to blend hydrogen into coal boilers for emission reductions, and transportation firms like railroads exploring hydrogen fuel cell motor options, as well as shipping companies seeking to convert to hydrogen and ammonia as fuel. Now turning to page 23, our business plan unfolds in three stages. Our initial step involves identifying and securing the best sites in the U.S. for clean hydrogen production facilities. We focus on sites that are closely located to diverse emitters and industrial end-users, have access to affordable renewable power crucial for producing green hydrogen, and possess logistics capabilities like pipelines, railroads, and ports for establishing cost-effective supply chains for the domestic and international markets. We're nearing the finalization of our first site; I'll go over that shortly. The second step involves targeting customers internationally and domestically, where we are seeing considerable demand. We're making significant progress with late-stage discussions around carbon and hydrogen off-takes. Lastly, our overarching strategy aims not to build just one facility but to develop a portfolio, including clean hydrogen hubs, becoming the largest and most valuable clean hydrogen business in the United States. We expect to capitalize Zero Parks as a distinct entity to expedite its development and potentially spin it off from NFE in the future. On slide 24, our first facility is progressing superbly, a 100-megawatt green hydrogen facility—one of the largest of its kind in the United States. We have ample land for expansion, with a scalable potential up to 500 megawatts, if we proceed in that direction. The plant is located on the U.S. Gulf Coast, an area of expertise where we currently own other terminals and investments. This site has close proximity to valuable industrial demand, with consumers looking to switch from conventional to green hydrogen. Additionally, we are finalizing a competitively priced, long-term renewable power contract. Once this is secured, we will achieve FID for the project. This initial plant will serve as a benchmark for our future developments. We are simultaneously working on securing additional sites in energy-demanding industrial zones that afford low-cost renewable power and robust logistics networks. We anticipate making further announcements concerning additional sites shortly. Slide 25 summarizes the economics surrounding green hydrogen. With production costs around $3 per kilogram, we currently operate at marginal profitability. The sale of green hydrogen ranges from $3 to $4 per kilogram, but we foresee a shift toward higher profitability in the future. Several factors are propelling this trend, such as declining renewable energy costs due to a successful build-out of low-cost wind and solar capacities, improved efficiencies in electrolyzers, and potential government incentives. You may hear details regarding future climate incentives tonight. We expect to introduce a climate bill in 2022, potentially offering $3 per kilogram credits for green hydrogen producers. Our Gulf Coast facility aligns to qualify for these credits, fundamentally altering economic viability. Finally, on page 26, here's what investors can anticipate from us shortly. Within the next 60 to 90 days, we expect to finalize FID and break ground on our first green hydrogen project in the U.S., likely one of the largest in the country. Within six to nine months, we will be securing additional sites for future projects, completing designs, obtaining necessary permits, and forming partnerships with power technology and end-users. Ultimately, our strategy is to establish a portfolio where initial and subsequent projects are funded predominantly with low-cost tax-exempt debt, focusing on sites eligible for such financing. Overall, our goal is to cultivate a valued business within NFE, which can be capitalized and eventually separated, positioning us as one of the premier clean hydrogen organizations in the United States.

Thanks very much, Ken. Good morning, everyone. Before we dive in, let me take a moment to orient everyone to our new and more fitting measure of financial performance, which is adjusted EBITDA. In our earnings release out yesterday and further outlined in our 10K, the adjusted EBITDA measure better reflects the cash flows of our business. To arrive at adjusted EBITDA, we utilize our total segment operating margin, less our regular cash SG&A. By using adjusted EBITDA, we can accurately capture cash flows from our non-controlled subsidiaries such as CELSE and the Golar Hilli FLNG asset. Looking at our report card on the left side of page 28, we noted record revenues, adjusted EBITDA, and net income for both the fourth quarter and the full year 2021. As we look into 2022, we anticipate these results will further increase, influenced by full-year contributions from the GMLP and Hygo mergers as well as new terminals in Brazil and Nicaragua coming online. This will further grow into 2023 as we deploy our FLNG assets. One notable outcome of these improved financial metrics is the overall credit quality of NFE, as most of you may know, we received a rating upgrade to BB minus with a stable outlook from S&P in November. This is a major achievement for NFE, marking a significant milestone on our journey toward an investment-grade business, allowing us to source cheaper, more effective capital while providing greater flexibility with suppliers. Now, shift your attention to slide 29 for a summary of our financial results. Revenue for the quarter was $808 million and over $1.7 billion for the year ended December 31. Adjusted EBITDA was $334 million for Q4 and over $600 million for the full year. SG&A for Q4 was $39 million, and we expect to drive this closer to $30 million to $32 million per quarter in the future. Q4 also saw our first quarterly positive net income of $151 million, with EPS of $0.72. For the full year of 2021, we reported net income of $97 million, equating to approximately $0.47 per fully diluted share. On page 30, we've laid out an update on our financial objectives, which are straightforward, so I’ll quickly cover them. First, as you've previously heard, we’re firmly committed to becoming an investment-grade company and are working our way toward achieving those metrics. We are currently upgraded by S&P and collaborating with other agencies for near-term upgrades. We're targeting three times debt to adjusted EBITDA levels for corporate debt for 2022. Secondly, we've been focused on enhancing our liquidity. We've secured approval to increase our corporate revolver from $200 million to $400 million overall; although that facility remains largely undrawn, it facilitates access to efficient funding, especially with new projects launching. Additionally, we’re seeking to increase our letter of credit facility to $200 million and expect to finalize that within the month. Thirdly, we aim to fund our growth through cash flows from operations and strategic asset transactions. Our conversion ratio of adjusted EBITDA to capital for reinvestment is incredibly high. Moving forward, we project approximately $200 million in interest expense, an effective tax rate around 18%, and minimal maintenance capital expenditures. This suggests ample cash flow availability for new downstream terminals and further FLNG assets. On page 31, we outline our previous statement regarding our expectation to fully fund growth through internally generated capital. As previously noted, our adjusted EBITDA cash flow conversion is exceptionally high. In 2023, we anticipate the $1.5 billion adjusted EBITDA will yield $1 billion in cash available for business growth or shareholder returns. While we remain committed to sustaining this strategy long-term, several near-term opportunities are actively being pursued, such as financing for Jamalco CHP, where $175 million is funded to date and the remaining $110 million expected to finalize within the month. We're also examining the market for our Sergipe Power Plant asset, which has drawn notable interest. Lastly, the long-term integration of our ships with terminal infrastructure holds immense value for signing long-term charter agreements. We believe that through these three asset sales or financings, we can potentially source $2 to $2.5 billion in additional capital for redeployment at attractive yields. Finally, on page 32, you’ll notice an update on our operating terminals. The takeaway here is our proficiency in operations—this slide exemplifies our asset optimization strategy; I’d call it our NFE approach to de-bottlenecking. We wanted to brief you on the production of our Miami liquefier, for instance. We increased production capacity above the nameplate target of 100,000 gallons daily, optimizing ISO-flex assets to transport to Jamaica, serving our consumer-oriented operations. There's been a constant reduction in the time and cost required for each round trip, and we now estimate an incremental generation of $30 million through this project through the end of 2022. Across other terminals in Puerto Rico, Jamaica, and Mexico, we're executing maintenance events as strategic enhancements to bolster productivity and functionality for NFE and our customers' benefit. These efforts warrant recognition for our incredible terminal and power plant operators in the field who tirelessly ensure reliable gas and power supply to our customers. With that, I’ll turn the call back over to Brad to start our Q&A.

Thanks, Chris. We’ll go ahead and take it into Q&A, Justin from here.

Thank you. Our first question comes from Devin McDermott from Morgan Stanley. Your line is now open.

Hey, good morning. Thanks for taking my question. I wanted to ask on Fast LNG. Specifically regarding Fast LNG 1, I was wondering if you could elaborate on how we should view the economics or potential margin to NFE from these tolling agreements. Additionally, could you speak to the remaining development steps, including CapEx expenditures and how those are divided between ENI and NFE?

Sure, we don’t disclose specific terms in our contracts, including this one. However, I will provide a brief overview. Our leasing agreements involve a base-level fee charged as a tolling fee, which remains fairly constant over time. Additionally, we actually take half of the production volumes. These two components provide us with a very strong return. Our return thresholds, as you know, range from mid-teens to mid-20s, and mid-30s, depending on the risk profile. Given this is an investment-grade counterparty and a long-term contract, it sits on the lower end of that scale, but still offers meaningful and stable returns. Importantly, this tolling arrangement not only yields returns; it also supports financing for the entire program as we now have reliable long-term cash flows to develop other FLNG units efficiently. I apologize if that’s not a direct answer, but we won't be specific about any one contract here.

That’s understood. If I could just follow up on the second Fast LNG. In the release, there was mention of taking FID on that, and you’ve mentioned finalizing agreements in the next quarter. Are you envisioning a similar tolling structure for that project or can you provide any additional details?

Yes, we are indeed. The second FLNG will follow a similar approach. The marine infrastructure we’re using for the first FLNG consists of jackup rigs we bought at about $30 million each, effectively scrap value. We have finished that process, and we will commence the installation and liquefaction modules, which we’ll then ship to Congo for operations in the first year. For the second unit, we recently agreed to purchase two Savant ships: large deepwater drilling vessels that excel in shallow and deep waters, offering more versatility to our operations. We acquired them at approximately $22 million each, which is significantly lower than their cost of over $600 million to build. We aim for both units to achieve a similar nameplate capacity of 1.4 million tons, and we’re actively engaging in negotiations for both tolling and marketing opportunities. ENI is one focus, but we see potential in numerous other locations. Our conviction is that FLNG will become standard practice for offshore production globally—akin to how companies adapted FSRUs for terminal use. We believe our expertise will position us as a key participant as this market expands over the coming years.

Great, thanks for the insight.

Thank you. Our next question comes from Sean Morgan from Evercore. Your line is now open.

Hey, thanks. Just to follow up on the vertical integration; I want to understand the fields off the coast of Africa, particularly if they're proven reserves that are currently undeveloped. Also, what are the next steps to transition from the HOA category to firm contracts, and what is required to achieve that?

The Marine 12 field exists is in production right now. It's a very substantial find and operational production by ENI, which is the standard bearer for oil and gas production around Africa. They are not only a high-profile EMP company but also arguably the most sophisticated offshore LNG producer. Engaging them for our technologies is a strong endorsement of what we’ve accomplished. ENI will make a significant capital investment in the field to increase oil and associated gas production, which will lead to our LNG processing opportunity in the facility. We've had extensive interaction with them over the months to finalize the HOA we just announced. Their board has approved the capital investment made in the field. It’s a committed transaction, and we anticipate moving to definitive agreement documentation within the next 30 days.

Okay, thanks, Wes. Switching to the regas side, we've discussed Ireland's volume opportunity before. With the recent developments and shifting European energy dynamics due to Russia’s invasion of Ukraine, have you seen any changes in appetite from Ireland toward more independent natural gas sourcing?

Absolutely. There is tremendous interest. We have pursued this project for a long time and are nearing the final stages with the Planning Commission, the regulatory body overseeing this. We're quite optimistic that we’ll achieve a successful conclusion soon. We initiated this project some years back, but it has become even more pertinent now as energy security is of paramount importance. Currently, a significant portion of Ireland's gas supply comes from a single pipeline, so diversifying into another LNG source offers a critical security solution. While the process has taken considerable time, we are approaching the finish line on this commercial engagement. Andrew, do you have anything to add?

Yes, I'll keep it brief. We have 600 megawatts of power in play there which adds significant value to act as a dispatchable resource alongside LNG. The market is eager and competitive. Given the current focus on energy security, people are increasingly concerned about supply rather than prices. This will certainly influence our strategy in Ireland, spanning long-term contracts and short-term trading. We’re excited to elevate discussions on our commercial strategies once the planning board approves.

Thanks, Andrew, and Wes.

Thank you. Our next question comes from Ben Nolan from Stifel. Your line is now open.

Yes, thanks. Hi, good morning, and congrats on the results. I wanted to touch on your open or net long gas position, which proved impactful in the fourth quarter. Could you discuss how elevated international LNG prices may affect your profitability and net long positions over the next couple of quarters?

Sure, Ben. Our core business focuses on matching customer demand with our gas supply. As we approached the fourth quarter, we had a modestly long bias, leading us to realize exceptional returns. That was facilitated by a lot of hard work from Kasciandro and his teams, who managed excellent logistics and coordinated moving assets and volumes. Given the moderate length position we held, we witnessed remarkably high income. Looking ahead, we’re forecasting over a billion dollars for the coming year, with a substantial portion already solidified. We have addressed customer volumes, portfolio gas, logistics costs, and thus expect to reach similar levels without needing additional growth. This creates a bond-like safety net within our portfolio. Although more uncertainty lies in 2023 as we leverage our FLNG volumes, we still expect favorable market conditions from commercial positions. Our portfolio's architecture sets us up for a billion-plus this year, a billion-and-a-half-plus in the following year as a base case. As I previously detailed, with one liquefier in operation, the current market can yield an additional $1 billion, $1.5 billion, or even $2 billion, indicating our unusual position in the energy sector. This significant outlook should not be overlooked; I believe we have created a structural model rather distinct from other companies in our industry. With these market conditions offering unique insights today, we will capitalize on reversing market volumes and shocks affecting our clientele. Our unique structure reduces risk but enhances upside potential. The strong foundations of our business provide for substantial defensive capacity and emergent opportunities.

So essentially, despite the predictability in the first and second quarters similar to the fourth, we should expect favorable return profiles?

Yes, very much so.

Great. For my second question: regarding the FLNG unit, you mentioned tentatively acquiring half of the off-take based on market rates. Could you elaborate on what drives those rates? For instance, purchasing volumes based on Henry Hub prices certainly does not apply since they’ve diverged. So are you leveraging TTF or oil-based pricing? How should we consider these calculations?

Yes, it's actually a blend of the three indices we consider. We negotiated with ENI to adopt an integrated approach based on Henry Hub, TTF, and JKM pricing. Our goal was to construct a fair purchase price approximating market levels. Today, pricing is indeed favorable, but we're keen on maintaining this level. A significant aspect is securing long-term volumes without requiring substantial credit. Our overall aim is to steadily work toward an investment-grade status, which is critical for accessing long-term supply with minimal credit requirement. This highlights our strategy as we intend to secure long-term supply while avoiding burdensome credit needs.

Perfect, I appreciate the insights. Thanks for taking my questions.

Thank you. Our next question comes from Craig Shere from Tuohy Brothers. Your line is now open.

Good morning, congratulations on a strong quarter and excellent guidance for this year. I want to focus on FLNG further. You have mentioned potential rapid expansion; how soon do you think you could achieve FID for additional FLNG units? Would the current market conditions allow you to concentrate on low-cost upstream opportunities, potentially exceeding demand for your downstream needs, allowing for additional FIDs within the year?

Yes, absolutely. We see numerous opportunities for marine infrastructure suitable for this purpose. The jackup rigs have proven effective for our Congo application and for other shallow water deployments. With the acquisition of the Savant ships, we believe we have amplified our flexibility for either shallow or deep water applications. We expect to move toward FID on our second FLNG—notable that we are now pursuing additional projects. We've seen ENI express great interest in using our technology, and numerous global gas reserves remain. While many may be unexplored, our capacity to leverage our infrastructure holds value as we identify new opportunities. The market exhibit substantial demand that should enable us to proceed with our unit delivery strategy effectively.

Thank you.

Thank you. Our next question comes from Greg Lewis from BTIG. Your line is now open.

Good morning. Thank you. Apologies if I’ve missed the comments, but just a quick check, it seems the market is excited about FLNG. Can you elaborate on how you're intending to structure the contract as you engage with partners moving forward?

Absolutely, the prevailing sentiment regarding FLNG is reflected positively in conversations at all levels. We’re strategically applying the benefits of our infrastructures, engaging in partnerships that could embrace variability in price structures or revenue generation based on our tolling framework. The challenge lies in aligning key players with expectations to optimize opportunity overlaps, leading us toward maintaining competitive contract terms that yield favorable margins as we progress.

Thank you.

Thank you, Wes. And thanks everyone for dialing in. It's great to understand the quarter's updates and the direction for business prospects we have. We’re in a remarkable context at the right time. There should be exciting opportunities ahead. Thank you all and I look forward to future discussions.

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