New Fortress Energy Inc. Q1 FY2022 Earnings Call

Good day and thank you for standing by. Welcome to the NFE First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brett Magill, Managing Director and Head of Investor Relations. Please go ahead.

Thanks, Jemara. Good morning, everyone and welcome to New Fortress Energy's first quarter 2022 earnings call. This call is being recorded and will be available by replay until May 12. This morning, we'll be referencing our Q1 2022 investor presentation, which 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 within 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 other members of our team, including Andrew Dete, Ken Nicholson and Patrick Hughes. So with that, I'll hand the call over to Wes.

Great. Thanks, Brett and thanks, everyone for calling in. As usual, we will be referring to the earnings deck which we posted on the website. So if you could just flip through and follow that, that would be terrific. So with that, let's start at Page 4. So first, the financial results. Q1 was another very good quarter for the company. We've moved kind of solidly out of the development phase of our life into the production part of our life, at least from an earnings standpoint. And you look at the progression of earnings on the page, you can see that very, very clearly. So adjusted EBITDA 2019, negative $115 million; our first positive year of EBITDA 2020, $33 million; last year, $605 million, with the bulk of that coming in the fourth quarter; and the first quarter this year, $258 million. So very much on track to produce what we have guided towards which is approximately $1 billion in adjusted EBITDA this year. Our guidance at the moment is $1.5 billion in 2023 with substantial upside, both that year and beyond, depending on the timing and delivery of our FLNG, which we'll talk about. But the core underlying business, our business which is basically selling gas or selling power to customers around the world is a very, very strong one. Obviously, there have been massive changes and disruptions in the energy market that have implications in both the short and long term, we'll talk about. But the bottom line is that the financial results are very, very promising on the first quarter of the year. Page number 5, what we have laid out here is basically converted the volumes that we have delivered to our customers through our business into the blue boxes which are TBtus. So those are very simple metrics that describe the volumes that we have had. 12 TBtus delivered in 2019, 36 in 2020, 61 in 2021, 80 in 2022 is our forecast. The six on the top of it represents the six TBtus, that's about two cargos that are uncommitted at this point. So that's the marginal long position that we reflect in terms of the volumes. And then things start to change dramatically as you move into 2023 and beyond. The yellow portion of the graph basically represents the TBtus that we expect to produce from our FLNG. So the second half of next year, 39 TBtus, so 24 that are uncommitted in total. So we have a significant long position which is a good position to be in at this point. And then as these start to roll in, you can see that the numbers become dramatically larger, 268 in 2024, 520 in 2025. The goal, obviously, over time will be to convert the yellow lines to the blue lines, right? So essentially, what we will do is take our market volumes and convert them into customer volumes as they become a part of our portfolio. Given market conditions, the yellow parts of this chart represent some of the most scarce things in the world which are LNG volumes that are not committed that are being produced in 2023, '24, '25, given the shortage of energy broadly in the world and specifically LNG with the developments in Europe and elsewhere, these are very, very significant developments for us. Prior to the war in Ukraine, I believed the world was already facing an energy shortage. Over the last couple of years, I traveled extensively in various markets where we operate, and my conclusion last fall was that there is a structural shortage of gas due to increasing energy needs in both developed and developing countries. This situation changed dramatically on February 24 when Russia invaded Ukraine. To provide some context, global production is around 400 million tons of LNG. Currently, Europe sources about 40% of its natural gas from Russia, which amounts to approximately 150 DCM of gas, translating into about 100 million tons. To simplify, with a total production of 400 million tons, one of the largest customers suddenly became short by 100 million tons. Gas from Russia continues to flow, but it's evident that over time, Europeans will prefer to source their energy elsewhere, making energy security a more pressing issue than cost. In simple terms, an additional demand of 100 million tons is not available. The total of 400 million tons currently produced is mostly already allocated. Typically, LNG production involves securing long-term contracts to finance project development, meaning the 400 million tons available are largely obligated. So when we look at the chart on the right side, expected supply additions across the world, you can see that there is very little in 2022, '23, '24, and '25. There are a number of projects that have been declared FID or are in the process of being declared FID that we expect to come on in the second half of the decade, which is not responsive to the world's energy needs in the next three to four years. Literally, the only thing that really is on our horizon are the Fast LNG projects that we have. So we'll talk about that in some detail. Page number 7, I think it's worthy to give a little context of not just the energy crisis but all the other derivative impacts that this has in the world. So, the crisis, in my view, energy is very manifest, is just the beginning of what the real crisis is likely to play out. Obviously, agriculture relies heavily on fertilizer. Fertilizer is created in large part through natural gas. The impact of higher energy prices, which obviously hits the pocketbook of people in their electricity bill every month, also has profound impacts on the cost of the food that they buy. That then turns into inflation. Inflation, obviously, rapid consumer price increases disproportionately affect the people who have the least amount of money. So what I think is about to play out is that not only will you get significant amounts of increase in energy cost to both developed and developing countries around the world but then the knock-on effect of the great increases in the inflation in agriculture and food prices. Food insecurity, mass hunger—there are significant implications for all of this which are only exacerbated by the energy crisis that we have in Ukraine. Lastly, and it's worth noting, is that the climate change goals that many countries have adopted around the world were focused on a phaseout of fossil fuels. When you have the energy crisis that we’ve had in Europe, what happens is that coal gets burned, which delays the impact of these climate change initiatives by 10 or 20 years. So it is not only a significant crisis today but one that, in my view, has got a long duration likely to play out over the next number of years. Page 8, just to put in the context what actually happened in the last 1.5 years. So I went back to the first of last year and basically created the energy hierarchy, the complex from top to bottom. So diesel, Brent, TTF which measures the price of gas brought into Europe, Henry Hub which is our domestic index, and then coal. You can see that energy prices have moved dramatically. Diesel from $10 to $30; Brent from $51 to $110; TTF from $7 to $32; Henry Hub from $258 to $841 yesterday; coal from $2 to $11. So pretty much across the board, there have been massive changes in energy. And while we think that there are significant adjustments ahead, given the duration of the events that are going to play out, we think that this is not going to change quickly. So Page 9, with that overview, what does this mean for our business? In short, there are several aspects of our business which are greatly affected by this, all of them in a substantially positive way. The FSRUs, which Andrew will talk about in just a moment. So FSRUs are the ships with regas capacity that are used to bring gas into markets. They are in great demand with all that has happened in Europe and are in short supply. We are very much the market leader in terms of owning FSRUs; of the world's fleet, about 45 or 46 ships, we own nine of those. So we're about 20% of the market. We have open positions as well. So that's something that Andrew will talk about here in a second. This is a tactical exposure but it's a very, very positive one and one we think will actually result in some very positive results for us in the coming months and days. Fast LNG is really the industry-changing application. As I've said many times, the only commodity that you cannot buy is time. We greenlighted the production of our liquefiers 18 months ago. That, in hindsight, looks like a very good decision. It was done when LNG was $5 or $6 in the world; now it's $35 in the world. We thought it made sense to provide security of supply for our customers and to do that with our own activities. That’s why we started it, and why we bought the equipment and started the industrial process. The events of the last couple of months have made that look very prescient. We have committed to this, as I've said at the beginning of last year. The process we are engaged in is to industrialize the production of these units. Let’s say, it’s like the Henry Ford kind of initiative where we are trying to unitary design, unitary engineering, build them ourselves in a controlled environment. That is how we believe we can actually produce them not only in a high-quality way but in a very, very fast and efficient way. Chris will talk about that in just a second. Lastly, hydrogen. The energy crisis will only accelerate efforts to find alternative sources of energy. We believe that renewables in general will be the beneficiary of this and the focus on this. But long term, we think dispatchable power is the cornerstone of real change to address climate change. And of that, we think that hydrogen is one of the key components of it. So both Ken and Patrick will walk through that in just a moment. So with that, let me turn it to FSRU and talk to Andrew.

Thanks, Wes. Hello, everyone. On the next three pages, we are going to provide a brief update on the rush to add regasification capacity in Europe and what that means for NFE in a commercial context. So on Page 11, let's start with what exists today in Europe. Currently, there are 27 terminals providing 153 MTPA of total capacity. Utilization of these terminals is typically providing about one-fourth of European gas supply right around 100 BCM, meaning utilization of that is actually about half of the capacity. So these terminals have been used seasonally to balance supply and demand. If we exclude Spain and Portugal, which have a meaningful amount of capacity but are not really interconnected into Central Europe gas supply, that reduces the total capacity by about 50 MTPA, down to something like 100 MTPA of total existing capacity in Europe. If we flip to Page 12, what we want to show is how this picture is changing. In 2019, Russian gas imports were just about 100 MTPA, the sort of 140 BCM to 150 BCM Wes mentioned earlier. That's gas being imported from Russia into Europe. To replace that supply with LNG capacity requires approximately a doubling of the existing regas capacity, assuming much higher, almost constant utilization rates. The only way to meet this in the near term is to use FSRU capacity. The typical kind of European land-based storage terminal takes three to four years to construct; FSRUs are able to be deployed today. There are 18 new proposed terminals in Europe that cover some of the need. If we think about actually replacing the full amount of Russian gas supply, that would take almost 25 to 30 FSRUs required to meet that 100 MTPA need. Today, existing in the world, there are only 46 FSRUs and basically none currently available outside of the NFE fleet that we're going to mention here in a second. NFE owns seven currently operating FSRUs with two potential conversions, so a total of nine, which is about 20% of the total market in the world. Moving to Page 13, you can see NFE's current fleet on the left side of the page. We have two FSRUs available now for deployment in 2022. We have the equipment needed to convert an additional FSRU in the next nine to twelve months. And we're seeing charter rates that are up $50,000 to $100,000 a day. So about a 100% increase year-over-year in charter rates, which means that based on what we were seeing last year, deploying an FSRU today is equivalent to about $25 million more in earnings per year per ship. So a lot of activity is happening with the rush to add regas capacity in Europe. We're right in the middle of that and want to be supportive to some of the folks in Europe, helping to add this regas capacity to import more gas and offset the Russian gas and have a great commercial opportunity ahead of us.

Great. So let's turn to the Fast LNG, which is a big part of the focus for the firm and I suspect for the investors as well. So on Page 15, let's talk about where we are. So two steps to the Fast LNG process. One is to obtain the permits to allow us to place our equipment and make it productive, and then two is to actually construct and deploy the assets themselves. So let me touch on the first one, first. So the progress that we've made. We filed for two times, 1.4 million TPA units on March 30. On April 26, we received notice from the U.S. Coast Guard and MARAD that our application was judged to be complete, and that's reassuring. We obviously put a tremendous amount of effort into doing this in both an expedited and professional manner. So this is the 8,000-page application that I talked about in our last earnings call. We are also preparing to file for an additional six units off the coast of Texas in the month of June. We say, and our goal is no better than the 1st of July, but we're hopeful that we can get that done before then. The design that we are using for this is essentially the same design that we have utilized in Louisiana. We will file those permits and move ahead on that as quickly as we can. Chris will talk about what our construction and deployment timeline is. We also continue to make progress with our deployment of a unit in Congo with our partners, Eni. They are one of the world's leaders in oil and gas exploration. We think they're a great counterparty—a tough and very talented group of folks. We are in the final stages of negotiating definitive agreements to back up the MOU that we signed earlier this year. We expect to deploy that in the second half of next year. So I think these two paths are quite balanced and give us a good perspective and that created the equipment to be used by others gives us access to volumes and interactions that are positive regarding how other people view the world, and we're applying that obviously to our own portfolio where we have the greatest impact from a P&L standpoint. In total, eight units would result in 11.2 million tons. When President Biden went to Europe to offer reassurances that the U.S. was going to be supportive of the goal of reducing their energy insecurity, we talked in terms of 15 BCM of gas, equivalent to about 10 million or 11 million tons. This is roughly the amount of gas that we were talking about from the U.S. It is the only gas incrementally that is scheduled to come online in 2023, 2024, and 2025. We think it's highly responsive to that. Our interactions with our own government on the permitting side thus far have been terrific. The proof will be in putting—essentially, getting these both permitted and then built and deployed—but we feel very good about the progress thus far.

Great. Thanks, Wes. As Wes mentioned earlier, we started this campaign a little over a year ago. But over the past six months, we've significantly organized and professionalized the process, starting with a call that Wes leads five days a week. As you can imagine, this ensures people are quite focused and ready for success each and every day. We've hired some of the best liquefaction and construction experts. We now have over 70 fully dedicated people and hundreds of contractors on site, all of whom are intently focused on speed, cost, and safety. Given this is such a large and complex project, we decided to break it up into smaller parts that can be owned and prosecuted independently. First, the engineering and procurement; second, the construction and the commissioning. This is the exact same way that NFE has executed our downstream terminal projects over the last eight years. While we're using world-class equipment providers and construction contractors, this is still NFE's proven IP that is being deployed to manage the process. Also, we’re thrilled to announce that we're opening a new office in Houston this month, where we will house the full FLNG team. Houston, as you all know, provides us access to the top industry talent, proximity to the shipyard which is in Corpus Christi, and integration with our key partners to complete the project. If you turn to Page 17, first, we'll talk about the engineering and procurement aspect. I'm stealing a line from Wes here, but from a design perspective, our goal was to make the Model T factory for LNG. Our units will use the same design, the same equipment, the same operations, and the same unified team to piece everything together. This provides for operational continuity across assets, common spares to save costs, and interchangeability of the team amongst the FLNG assets. Also, we and our expert partners have designed and built the flexibility to accommodate different marine infrastructure depending on the gas supply environment. You can see in the cartoon in the middle of this page which illustrates our ability to place the same technology on jack-ups, fixed platforms, or semi-submersible rigs, all of which do not require any material re-engineering. From a procurement standpoint, we've already placed orders with industry-recognized manufacturers for all long lead items for our first three units, and we're in the process of ordering components for units four through nine. We wanted to ensure we had best-in-class equipment providers which is why we are partnering with the likes of Chart, Siemens, Baker Hughes, and others. And obviously, some of you are wondering about costs in the face of rising inflation. We're hyper-focused on increases that we may see supply-chain-based or with international partners, but these should be offset by efficiencies on the engineering side, given this is largely a copy-and-paste exercise. On our first three units, we have around 70% of the costs already locked in. Moving to Page 18. Let's talk more about what we're doing on construction. And again, here, we've broken it up into a few different pieces. First, modules; second, marine infrastructure; third, pipeline and installation. We've created uniform modules that are fabricated using the same people in the same yard with the same sequencing. As a result, the increased familiarity of each tradesman will make them more efficient. From a marine infrastructure standpoint, as you know, we've already procured three jack-up rigs and have brokers on others. We purchased two semi-submersible drilling rigs, the Sevan units, that are well-suited for deeper water and we've designed and reserved slots for jackets and decks for fixed platform solutions. On the pipeline and installation component, we've done a lot of this in our collective lives and NFE already. It's critical to have this planning done well in advance and to have a top-quality service provider to minimize the time in the field and ensure best pricing. Last, we always focus on our build through the build by thinking about the integration, the commissioning, and the operations. For example, the sequencing of the commissioning is key. The way we've designed this allows us to use gas that’s already available in the queue at the shipyard to commission the power and accommodations modules while we wait to commission the liquefaction and gas treatment modules when we're on-site and connected to our feed gas line. This allows us to get the assets online sooner. Finally, we've hired an amazing new head of FLNG, who is already starting to staff up the team. This way, the people who will be operating the asset will have written the manuals, completed training, drilled, and will be incredibly familiar with the asset, making sure maximum uptime is achieved once the asset is in service.

Great. Excellent. So Page 19, what does this mean for us economically is actually a very simple question, at least in terms of the arithmetic of it. Each unit produces—each 1.4 million tons produces 70 TBtus to generate the P&L from that, you simply need to multiply that 70 times the margin that you expect to receive on the unit. So if you made $10 in margin, it would generate $700 million a year. If you generated $15 in margin, it would be $1.5 billion per unit; $20 would be $1.4 billion. There are eight units, so fill out the arithmetic of that times 8 is the ultimate P&L opportunity that exists with all of this. There are many forecasts in terms of what the market will do. Obviously, predicting the future is a perilous task. I simply took the World Bank price forecast as just one of the reference points. 2022 they are estimating $34 MMBtu in Europe; 2023, $25; 2024, $22. Our estimate of the cost all-in of our LNG at the flange is approximately $6. It could be less than that. It could be $5, even $4.50. But it's basically a range of, let's say, $5 to $6 on one side at $34 or $25 or $22 on the other side. Obviously, the margins are significant. The question we ask ourselves is, given all of the market dynamics, given the shortage that exists in the world right now, what is likely to be the picture for our production in 2023, '24, and '25? The answer is, it could be great or it could be amazing. We think that this is the range of outcomes that exists with this. The goal long term is not just to sell volumes into the marketplace but to convert those volumes to customer volumes. I think that the next leg of this from our standpoint will be to then talk to customers who actually need energy security; they need fuel during these difficult times and convert these short-term volumes that we have into long-term off-take agreements in our terminals around the world. That's the business plan for the unit and the development of it. We've received many calls from a variety of counterparties that are interested in buying volumes from us today. We're not going to sell volumes until we are certain as to the timing of the placement of these. That’s why the group Chris talked about on the construction side, working with other professionals on the permitting side, assuming all comes together, the first time we'll really be selling material volumes is probably sometime later this year or early next year. This is the math and the upside for it. With a $1 billion roughly run rate base of operations from our existing business, the upside from the deployment of these units is material. With that, let me turn it over to the hydrogen team. Patrick?

Yes. Thanks, Wes. We're on Page 21 here. So starting with a look at sort of an update on our hydrogen business. The world’s credible experts are in broad agreement that we must decarbonize energy supplies to achieve global climate goals under the Paris Agreement, and also to address the urgent energy security needs and concerns that Wes touched on earlier in the call. The good news is that, with further technological advancements and cost reductions, clean hydrogen, and specifically green hydrogen produced using electrolysis can, will, and must play a larger role over the medium and longer term. We think there's tremendous value in positioning Zero Parks as an early mover in this vast and rapidly evolving market and we intend to be the largest clean hydrogen producer and supplier in the U.S. To that end, as you can see on the slide, we're building a scalable business with activities throughout the hydrogen value chain. We think there are a few key ingredients for the commercialization and growth of our Zero Parks business, and they're depicted here, really focusing on where we're tasking from a commercial standpoint here over the next couple of months. First, in technology, we're finalizing an agreement with an electrolyzer partner for our first project in Texas, which Ken will touch on more in a minute. The electrolyzer manufacturing space is still quite limited in the grand scheme of what we think the hydrogen market needs to grow to. Solidifying our partnerships with electrolyzer OEMs and booking manufacturing slots in the queue is an important step in support of our future industrial-scale developments. The second is on power. We're constructing a renewable power portfolio, working with some of the nation's leading power producers and renewable developers to ensure that we have reliable long-term low-cost power to support the build-out of our clean hydrogen project pipeline. The third is on land. We're working to secure optimal sites with important attributes for the development of green hydrogen projects, and Ken will take you through this in more detail on the next slide. The fourth is people. As you heard Chris talk about our focus on people in the Fast LNG side of the business and our recent opening of the Houston office. Likewise, on the hydrogen side, to be the nation's leading producer of clean hydrogen, we recognize that we need to build a world-class team of professionals across functions with a particular emphasis on technical expertise and commercial acumen. That’s what we're doing there.

Great. Thank you, Patrick. We'll talk about the path to FID on our first site in just a second here. But on Page 22, our plans are to build a portfolio of green hydrogen production facilities throughout the United States. We've been scouring the country for the best sites to do so. We have a significant acquisition pipeline. Key attributes that we are focusing on are, as Patrick mentioned, first, low-cost renewable power. We can build our own renewable power; we can buy it from others; we're somewhat indifferent. We just need a low-cost, long-term supply of renewable power. Two, regional demand—sites that are surrounded by significant users of natural gas or grey hydrogen today, like power plants, coal-burning power plants, or other transportation businesses. There are a number of areas throughout the United States that are ideal for regional demand. Finally, we need efficient logistics and pipeline infrastructure. We know we can make the green hydrogen at attractive costs, but being able to supply it to domestic and international markets will be essential. Infrastructure is something that we heard Fortress has been heavily involved in over the years, and I believe we have some great sites in our pipeline that could be perfect for green hydrogen production. Today, we have a database of about 24 total sites. About half a dozen of those, we think are prime candidates for green hydrogen production and we look forward to reporting back on our progress in the coming months. Shifting to Page 23, we have several significant events coming up in the next few months and we certainly plan to update the market in the near term regarding development of our first site, as Patrick said, in the Gulf Coast. We expect to achieve FID by June 30. We're making great progress. Shortly after FID, we will break ground on the project—it's about an 18-month build, and so we plan to be in business by the end of next year. We continue to build out the business in parallel with our first project, and we expect to begin to capitalize Zero Parks as a separate company during the second half of the year to continue to fund our development. We expect to issue equity in the business, positioning Zero Parks as a potential spin-off but fund the bulk of the development with tax-exempt debt to achieve the lowest overall cost of capital.

Chris?

Yes. Let's flip to Slide number 25 and I'll quickly walk us through the financial results for the first quarter. The headline, as Wes has already mentioned, is we had $258 million in adjusted EBITDA and we're on track for our goal of this year of $1 billion. The Terminal segment operating margin was $211 million and $89 million from the Ships, and you can find more detail on this in the appendix. On SG&A, we had a few one-time items in Q1 which drove SG&A higher for the quarter. We're implementing some savings initiatives and expect to see this number decline closer to $30 million to $32 million going forward. A comment though: the results of this quarter really solidify our run rate adjusted EBITDA that exceeds $1 billion on its way to north of $1.5 billion for 2023. If you annualize the past six or nine months, they’re all above $1 billion. When we post our Q2 earnings, you’ll see a trailing 12 months above $1 billion. Net income for the quarter was $241 million, which does include a non-cash adjustment for a reduction of deferred tax liability, which is further explained in the release and in the 10-Q; that amount is $77 million. In the quarter, we had $1.13 in earnings per share. If you normalize for the non-tax adjustment, you would still have $0.77 a share, which is our largest share—largest earnings per share we've ever had. Page 26; we repeat what we've talked about in previous quarters, that we expect to fully fund our robust growth initiatives through internally generated cash flow. We have an excellent team that is aggressively working on monetizing assets that are significantly in the money versus what we paid for them. The asset transactions that are in advanced discussions will contribute an estimated $2 billion to $2.5 billion in new proceeds that we will effectively recycle into higher-yielding projects like FLNG. Alternatively, we can obviously choose to pay down debt or return to shareholders in the form of buybacks or dividends. Further, as you can see, our leverage ratios were around 4 times currently, we expect to be under 3 times once FLNG 1 is operational. We'll be talking to rating agencies in the coming weeks, and we hope to be upgraded to BB, BB flat or BB+ this year and then into the investment-grade category in 2023. The only quick comment on liquidity is that in Q1, we did increase our capacity on the revolving credit facility to $500 million and added another $125 million in new commitments.

Yes. The one last comment I'll make before I turn it over to questions is that obviously, the goal for our company, the goal for every company, is transparency regarding earnings. A clear and transparent view of both what we expect today and what we expect in the future is obviously the goal. With developments across the company, we are now in a position to generate significant run rate EBITDA and we have a very significant customer portfolio that exists over 100 customers across eight terminals on our way to 12 terminals worldwide. Now with the addition of FLNG, you go into a different category in terms of the volumes and P&L that they can generate. Chris mentioned it, but it’s actually a significant point. We believe that with our current balance sheet and assets, we've got the performance of those assets. We have the ability to either sell or asset finance those and self-finance, meaning we don’t have to come back to investors and shareholders for capital to grow our business. That’s obviously a massive benefit of our activities. The result of that is you’ll be able to essentially exchange cash flows on very stable assets and redeploy that capital into the cash flows generated by the FLNG. There will likely be timing differences from quarter to quarter. I think the guidance we've given feels very good about the core of our underlying business, which is solid, and we think we have a substantial base to build from. But it is not going to be a widget factory while we're redeploying capital from assets into FLNG. The good news is that the upside from FLNG in this marketplace is gigantic. Even as we are here this morning, we see that Russia is talking about stopping all gas sales to France by the end of May. The energy insecurity that exists in the world is significant. The upside from FLNG units to meet those needs in the short term is dramatic, and there’s likely to be some volatility as we transition from one place to another. But I'm not overly concerned about it and I feel very good about the long-term prospects. We’ll do our best to provide transparency on our progress as we move along. This is a very, very good profile.

Yes. So, Jemara, we'll go ahead and take it into Q&A. For those that have questions, we welcome them. I ask you to ask your question and one follow-up. If you have further questions, please circle back into the queue. So with that, we'll go to Q&A.

Your first question will come from Spiro Dounis with Credit Suisse. Please proceed with your question.

Thanks, operator. Good morning, everyone. I'd like to start off with Fast LNG, specifically regarding the permitting and progress on these six units. Wes and Chris, you mentioned this briefly at the end, but I've been thinking about how to fund that growth, which I believe is around $4 billion over time. It seems like the initial units, due to their cash flow, will finance the later ones. I'm also curious if you're considering a partnership approach for some of these future units. I've noticed several exploration and production companies expressing strong interest in taking on a more direct ownership stake in LNG during this past earnings season.

Yeah. The short answer is that we're—-we've had conversations with a number of different folks, both E&P producers as well as infrastructure investors, and there's a broad array of people that are interested in what we're doing for obvious reasons. I think that the—as we map out the timing of liquidity to fund the growth, the combination of internally generated asset sales and financings plus earnings from even the first unit gives us ample liquidity to fund this entire program. The timing obviously matters. And so, if we did bring in a partner, it would not be out of concern regarding the timing and liquidity cash flows but rather strategic considerations around what we could do with them around the world. And I would, frankly, put Eni into that category. So Eni or any of the other big international oil and gas companies that have operations that are far flung around the world that want to monetize their gas holdings in the short term are great potential partners for us. Obviously, the earnings potential of those units rented out to others is substantially less than the earnings potential for ones that we would do for ourselves, but the credit characteristics, cash flow characteristics, and our ability to finance those assets and provide incremental capital for the next would be balanced. I think it’s the kind of thing that we consider. From a strategic standpoint, the most interesting partners are those who own the gas themselves. This is a case where liquefaction is a process; the actual asset is the molecule of gas that you get. The U.S. is blessed to have substantial amounts of gas and robust pipelines. Therefore, just on a market basis, you can buy a lot. But there are lots of different synergies we think are interesting, both domestically and internationally regarding looking at gas and partnerships.

Got it. That's helpful, Wes. Thanks for that. Second question going to Zero Parks. Maybe if you can, it could be a tough one to answer now because I know you're still trying to develop this entity, but I think a lot of us have struggled to ascribe value here and really capitalize the asset. So I'm just curious, can you give us any sense of the economics, either on a per unit basis, so we can sort of get the math around 12 potential sites, etc., just to try and figure out what the value proposition is here of spinning that asset out at some point for NFE shareholders?

Yeah. Big picture, a typical green hydrogen production facility that we've targeted is about a 100-megawatt production facility, producing about 45,000 kilograms of hydrogen a day. Right now, that business is marginally profitable. We expect it to become a much more profitable business over the next 12 to 24 months. Federal government incentives, $3 a kilogram, higher customer willingness to pay for carbon-free products, higher efficiency in electrolysis technology, and lower renewable power prices will all contribute to that profitability. Each facility, each 100-megawatt facility should produce between $30 million and $40 million of annual cash flow. It should cost about $150 million to build. So you build 10 here for $1.5 billion, generating about $300 million of EBITDA a year.

I mean it is a venture business more than our core infrastructure business. It's a venture business that I believe will turn into an infrastructure business over time. I think actually producing some green hydrogen, getting proof-of-concept and generating cash flow is very, very important. But to take this from being a hobby to an actual industrial business, obviously the scale that is necessary is dramatic. While there are great synergies with the downstream componentry of our business and just the industrial processes of building and running industrial plants like this, we think that this is a company that over time will do its best as an independent entity rather than a subsidiary. That's definitely our plan.

Got it. Very helpful, guys. Thanks for the time.

Your next question will come from the line of Sean Morgan with Evercore. Please proceed with your question.

Hey, guys. One question we've been getting a lot is on the FSRU side with Europe. I know it's only been less than probably 60 days, but are you starting to see inbound on new markets beyond Ireland and Europe that are interested, given the commodity of all these FSRU assets to potentially build new imports into Europe, and just any updates on commercial activity there?

Hey, Sean, it's Andrew. I think the quick answer is certainly—we’re kind of in all the discussions that are happening in Europe, and we've seen it kind of happen in two waves. So you have sort of the initial wave of procurement of FSRUs for terminals that will happen in the future. We've seen some announcements about that. Now, I think we're going to head into a second wave of kind of more concerted terminal building. You’ll see kind of more announcements coming out from various governments as well as some of the major state players in Europe around specific terminals and what ships are going to go where. So I think we continue to see that progression. I would say we're kind of involved in all of those conversations, which have specific requirements, both technically and on the capital and deployment side of how a terminal gets built in Europe. It’s fair to say it’s a pretty chunky list of players, and we're in discussions with all of them and hope to have some exciting announcements soon.

Okay. Then on the FLNG development side, I know you guys are looking at some international projects, but you're also looking at a uniquely U.S. project on the FLNG side. Is there any possibility to get the U.S. government more directly involved? The import-export banks have been talking about—pretty openly about backstopping new projects, and in the first start-up project like yours, it seems like it might make sense. So is there any kind of update you can give on that?

We have not talked with the U.S. government about financing. We're blessed to have a balance sheet and the ability to self-finance, which is—when we look at the elements that are necessary to be in this business, capital is near the top of the list. Capital operating capability are obviously the big components. We've got the capital to do it ourselves. Our real interactions with the U.S. government have been, particularly on the permit side, and not just from permitting agencies, but also lawmakers to provide support for the activities, both locally because this is a local activity, both onshore and offshore, and it’s a huge source of potential economic activity in terms of the construction of it in the shipyards in Texas and Louisiana and elsewhere. Thus far, I can’t be more positive about the interactions we’ve had with the government. What we’re doing is unique but not that different than what has been done already. We’re simply putting our gear onto existing marine infrastructure rather than building it onshore. So it’s not wildly different than before; the venue changes by making it offshore. We think one of the most important aspects of our business, and one of the reasons for our timelines, is that we don’t have to build storage. We can use ships for storage and use our marine acumen and personnel to perform ship-to-ship transfers of the fuel. This results in much smaller environmental permits, being much faster and cheaper. All those elements are great. We like our process and solution. We need the government to give us the green light to install, and we’re engaged with them daily to do so. But the financing side right now has not been a major consideration for us.

Okay. Thanks, everyone.

Your next question will come from the line of Ben Nolan with Stifel. Please proceed with your question.

Yeah. Hi. This is Frank Galanti on for Ben. I wanted to follow up on FSRUs. In the prepared remarks, you talked about three vessels being open, or coming off of availability, two being converted or potentially conversion. You said that one is nine months to twelve months away. Was that the start of conversion with the components and/or was that to be completed sometime in 2023?

Let me clarify that for you. So two open today, one that has started the conversion process, which should be ready to operate as an FSRU in nine months to twelve months. What that means is that we have the regasification equipment available, which is the long lead item in a conversion like this. Having that in inventory and ready to go is a key advantage for us and why we can be confident in the nine months to twelve months. So two today and a third added to that over the next nine to twelve months.

Okay. Perfect. That's helpful. I wanted to ask about capex needs. I know, Wes, you just said that you have the ability to self-finance, primarily through asset sales. But can we get sort of framed in what is committed from a CapEx perspective today, and sort of the different price points around using the three different platforms, between jack-ups, drillships, and fixed platforms? Or is that not the major determinant of total cost for the Fast LNG assets?

Yeah. I'll stay away from the CapEx for the downstream terminals because by and large, they're completed—Brazilian, Nicaragua, and Mexico, you’re all kind of done on that construction. For FLNG, I mean you spent almost 50% of the first unit. We have line of sight to over 85% to 90% confidence in the remaining costs there, so we feel really positive. As you look into numbers two and three, as I mentioned, the long lead item and procurement is done. The bulk of the time and materials components for both engineering and construction is known and is not too dissimilar to FLNG 1. The reason for that is the number of engineering hours needed to design FLNG 1 is significantly greater than that for FLNGs two through nine. All in all, we think costs are relatively similar between numbers one through nine. The question on marine assets; if you were to go back into the market and buy jack-up rigs or semi-submersible rigs, they are significantly more expensive now. This is why we think a fixed platform design may make more sense, particularly when you're going to house these things in the U.S. Gulf of Mexico; they will be there forever, just like many dozens or hundreds of other platforms exist throughout the Gulf. From a CapEx standpoint, as Wes said, there's a pacing component. We have confidence that the cash generated from the transactions we are working on now plus free cash flow from the assets once they turn on is more than enough to fund the full capex development program.

Perfect. That’s all I had. Thank you so much.

Your next question will come from the line of Marc Solecitto with Barclays. Please proceed with your question.

Hi. Good morning. On the pre-application for the six additional Fast LNG permits, can you just talk about the visibility you have into the availability for some of the long lead time items after the first three units that you've already ordered?

The long lead items are really the compressor strings and the turbines, in particular. Those are the highly specialized pieces of equipment, along with the cold box. Those are the big components. There are many other pieces, obviously, hundreds of them, but those are significant. Regarding the first three and potentially four units, we have procured them; that’s why we’re confident regarding the timing of construction. For the additional six units, we have had extensive discussions with our counterparties about this kind of factory application that Chris mentioned. The key to regulating that process is to give long-term commitments so they can produce these on a monthly basis, literally. This gives manufacturers certainty for production lines to hire people and procure their componentry. It’s similar to forward order books for new aircraft. It ensures that manufacturers have visibility and can respond accordingly. This is a multi-dimensional project because we need both the long lead items and componentry, the space to build the modules, and shipyard space to install them. We’re deeply engaged with several counterparties and feel confident the timelines will be quite manageable. Our forecast for FLNG 1, 2, and 3 is 2023, and as Chris said, it’s really a quarterly installation thereafter for 2024 through the middle of 2025.

Got it. That's very helpful. For the $5 to $6 production costs for Fast LNG, can you just break down how much of that is OpEx versus your gas cost assumptions? Just trying to get a sense of the operating cost profile for the Fast LNG assets.

It’s $1 to $1.20, depending on what the installation is. When you look at the curve for gas as you go out a few years, obviously, Henry Hub has spiked significantly in recent days and weeks but the long-term curves are roughly $4. We've got operating costs of about $1 and transport costs around $0.40. Those are the big numbers to keep in mind. If you took the curve today, that would imply a $5.50 all-in cost. That’s why I say that an estimate of $5 to $6 is reasonable. One other thing I should mention is that historically, there’s been a very, very long relationship between gas and oil. In energy equivalency, gas is approximately one-sixth of oil. If you took oil today, which is $110 Brent, one-sixth of that is about $18. I think gas tends to trade at a discount to that historically, but it’s not at a discount today; it’s actually trading at a premium. At a modest discount to that to reflect handling costs and transportation, it tends to trade a little higher than oil. That implies long-term stabilized levels of kind of $15, $18; it would be the equivalent to oil to give some guidance on the ultimate margin for these units once we get past this immediate energy security window. The energy security window from '22 to '26, those numbers could be materially higher. But even long term, we think that the value proposition is compelling for these units.

Got it. Very helpful. Appreciate your time.

At this time, there appears to be no further questions in queue. I would now like to turn it back over to the panel for closing remarks.

Great. Thank you, everyone, for dialing in. I look forward to speaking to you again next quarter. Thanks so much.

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