New Fortress Energy Inc. Q3 FY2023 Earnings Call

Perfect. Thank you, Melinda, and good morning, everyone. Thank you for joining today's conference call, where we will discuss our third quarter 2023 results, recent developments, operational highlights and future here at NFE. As Melinda said, the call is being recorded and will be available by replay on the Investors section of our website under the subheading Events and Presentations. In the same location, you will find a press release regarding our third quarter 2023 results and the corresponding presentation that we will walk through on today's call. As we proceed through the discussion, we will be referring to that presentation. And in that same presentation, you will also find a series of important disclosures related to forward-looking 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. Now let's dive into the call. My name is again Chance Pipitone, and joining me today at New Fortress Energy are Wes Edens, our Chairman and Chief Executive Officer; Chris Guinta, our CFO; Andrew Dete, our Managing Director of New Business and other managers of our senior leadership team. Wes, over to you.

Great. Thanks, Chance. Welcome, everybody. As Chance mentioned, we have a presentation that we put together for our Term Loan B that's on our website. There's a ton of great information there. And I'm not going to go back and belabor that. But there's a lot of great reference materials there. So the earnings deck is a skinny one this quarter because of all the material that is out there. So let's just dive in. Actually, by far, the best operational quarter that we had hit in the history of the company. Many, many highlights to talk about in terms of what we've done on the operating side, but a few things to point out. Number one, first and foremost, in our view and many others out there. Our first FLNG unit is now firmly in place. It's been mechanically completed. It's in the field. It is connected to the pipeline. It's in the final stages of being commissioned, really a remarkable accomplishment by the entire team, 5.4 million man hours over 2.5 years. So a record of a liquefier in the world by every single measure and something we're quite proud of. And obviously, a real cornerstone of the supply side of our business. Number two, in Puerto Rico, we completed our two power plants down there, the second of which was done and completed COD at the end of September. Brannen will talk to that. But obviously, again, built in record time, actually having a great impact on the energy system in Puerto Rico, something we're actually very proud of and also a real cornerstone investment for us in the island and something to really build on in terms of our future activities there. Lastly, I'll have Andrew Dete talk about Brazil. We were down in Brazil together last week, two massive accomplishments. The two terminals we have done there are now mechanically complete. They both have FSRUs that are headed to be in place in the next 30 to 45 days or so. Brazil is a massive, massive opportunity for us, huge market. There will be a lot of commercial activity that will follow out of this. But getting all of this completed is really the culmination of many years of hard work for us across the FLNG, Puerto Rican, and the Brazilian markets. In many respects, we now have perhaps the two best markets in the world for our business that are fully operational and generating cash flow. Second highlight of the quarter is we fully financed our balance sheet, the term loan B that closed a few weeks ago. This allows us now to focus on the business at hand of operating our business. We expect now to have a very direct line to deleveraging the balance sheet and with operating cash flows and asset sales as we march towards an investment-grade rating, which is our plan over the next 12 to 24 months. Lastly, the purpose of this call is the earnings call; we had record core operating earnings. Chris will detail them in particular. But basically, the transformation of our business, where we are now generating cash flows virtually entirely from our customers is significant for us. Q1, we had $15 million of core operating earnings. Q2, we had $49 million in operating earnings, Q3, $195 million in operating earnings. I would expect Q4 to be double or more of that of Q3, and Q1 to be better than Q4. So we really marched a significant distance towards producing better high-quality cash flows, 100% downstream and a great way for us to go into the second half of the year. Look at Page 4 briefly, so the quarterly financial results. The three pillars kind of our earnings are quality, duration, and growth. As I said before, 100% of our earnings are coming from downstream customers, $208 million of adjusted EBITDA for the quarter. We are now in the last stage of the year. Our expectation is still the same, $1.6 billion in adjusted EBITDA for this year, $2.4 billion for next year; about $200 million of that we expect to come from gains on asset sales in the fourth quarter. So there could be some volatility there in terms of just the timing of those, but those are straightforward. Notably, of the $2.4 billion that we are forecasting for next year, virtually all of it is already contracted. Of our $2.4 billion estimate for next year, about $250 million is already contracted. So quality of cash flow is coming 100% from downstream customers, the duration of our portfolio in excess of 12 years. And the growth, we currently only use about 25% of the capacity of our terminals. So there's a massive potential for organic growth going forward. Page 5, in spite of the operational performance, we are significantly undervalued as a company by every metric we look at. We are the lowest value across the business. This is something we think will be addressed just through producing results and operating the company. But from an earnings per share basis, our estimate for this year is $2.50 to $3 for the year for next year, $6.50 to $7. So if you apply that to an earnings per share multiple, there is no cheaper company than us in the infrastructure place on earth. If you look at the enterprise value to EBITDA, which is a good measure of the leverage of the business, not only are we the lowest value in terms of the earnings multiple, we are by far the least leveraged across these different sectors. And lastly, in terms of the growth of the company, our compounded growth rate earnings per share from 2022 through 2024 is a 55% annual growth rate, so an extraordinary growth rate. Not only has it been extraordinary growth, but we think that the prospects for future growth are absolutely there with the capacity we have in our terminals and the relatively low utilization. So with that, let's flip quickly to the construction update. I talked about this a little bit at the beginning. I'll turn this over to various members of the team to talk about it. But we have a handful of very, very significant updates. The punchline is that the vast majority of our construction is completed at this point. Let's just go through, I'll have Chris start with the FLNG down in Mexico.

Yes. Thanks, Wes. Good morning, everybody. The progress in FLNG1 is nothing short of remarkable. We started the process of FLNG from a standing start on March 9, 2021. And in 31 months, we're proud to announce that we have gas into the system and expect to conclude commissioning by the end of the year. While a typical LNG project takes on average five to seven years but thanks to our incredible employees, contractors, equipment providers, and regulators, we're nearing completion of one of the world's most advanced offshore LNG facilities. So quickly, just a brief recap of what has occurred and an outline of what happens from here. Over the last 60 days, the remaining two rigs moved from their construction site in Corpus Christi to their permanent home in Altamira. All three rigs have been jacked up into position, connected to one another, and hooked up to the Subsea pipeline. On Monday, we opened the valve of the subsea pipeline and moved the first gas molecules into our system. The nat gas then flows from the hot tap assembly through the riser to our rig and into our high-pressure let-down valve. From now through COD, the process will be to move gas into the turbines and complete commissioning of the power generation system and then move natural gas into our pretreatment module. Gas flows through the mixed refrigerant compressor and into the cold box where LNG will then be produced. Once LNG is produced, the LNG then flows into our floating storage unit, the NFE Penguin, which will arrive on site in about 10 days. Our team has done a phenomenal job completing the various construction work streams, methodically and safely commissioning critical equipment, and we expect to see the first drops of LNG in the next few weeks. Andrew?

Thanks, Chris. So turning to Brazil and to our downstream business. We've been talking about Brazil for a while. We're very excited that on the next call, we will be able to talk about both terminals in Brazil being in operations. So on Page 9, we start with Barcarena. Barcarena has been mechanically complete for a few months. We also have our FSRU that's been undergoing conversion works in the Seatrium yard in Singapore, the Energos Celsius, which will finish the chemical completion under contract at the end of November, and we'll move to Brazil. The terminal will be in operations at the very end of 2023. A reminder that in Barcarena, we already have some long-term contracts. So Norsk Hydro, we have a 30 TBtu 15-year contract that will start when the vessel arrives and starts sending gas in early January 2024. We also have a 25-year PPA for a 630-megawatt power plant. We were excited to announce yesterday that we've closed financing with the Brazilian Development Bank to fully fund CapEx on that power plant, so 100% financed. That power plant will start operations in Q3 2025. Currently, it's about 37% complete under a fixed price fixed date EPC contract with Mitsubishi and Toyo Setal. We have another over 1,000 megawatts of permits for new power plants adjacent to the terminal, and we are excited to bring this terminal online to change a region at the mouth of the Amazon, which has no gas today and is totally reliant on oil-based fuels. On Page 10, we're talking about Santa Catarina. So, all the way in the south of Brazil. We've been able to make great progress here. On Monday, we announced the charter of the Energos Winter, which will allow us to bring the terminal online in January of 2024. We will subcharter that vessel from Petrobras for 2024. Then we'll start our long-term charter directly with Energos for the same vessel at the end of the year. So that vessel will stay in Santa Catarina for the long-term. On the right, we're able to show our progress physically here. We have the offshore terminal going clockwise. We've got the connection to the pipeline. Then we have our 32-kilometer pipeline route and then our city gate and gas conditioning station where our pipeline connects to the pipeline system in the region. This is an extremely exciting terminal for us because it's the first time that we're really connected into a full transport pipeline system, and that gives us a really diverse set of opportunities.

Thank you, Andrew. Brazil is truly a remarkable market for NFE. Moving to Slide 11 for an update on the Puerto Rico mission. Just for a bit of context, Puerto Rico is home to about 3.2 million people, but also shouldn't lose focus on the fact that there are about 5 million people of Puerto Rican descent living in the Mainland U.S. So an incredible culture highly relevant to the history of the U.S. and extreme focus for us and federal government and others. Puerto Rico actually has, unfortunately, the dubious honor of having the highest electricity prices in the U.S. and the least reliable power. The average Puerto Rican customer is 500 times more likely to be without power than someone in the Mainland U.S. After two devastating hurricanes and earthquakes and other issues that they've dealt with over the past five years, the federal government decided to make a $22 billion investment to rebuild the energy infrastructure system in Puerto Rico. After Hurricane Fiona in October 2022, Puerto Rico launched a power system task force to stabilize the grid, which included agencies such as DOE, FEMA, EPA, and others. NFE responded to a call by FEMA and the Army earlier this year to install 150 megawatts of power in Palaceco and 200 megawatts in San Juan. We are extremely proud to report that we have completed both projects, both operating base loads each running over 97% of the time, twice more reliable than PREPA's existing system and 25% more reliable than private operators who operate in the market. It is the fastest large-scale power project that the Army Corps has ever accomplished, which is actually quite significant given their history. Our power, which is 350 megawatts operating, but about 425 megawatts installed represents over 10% of the installed power in Puerto Rico today. After looking at the stats this morning, we're providing about 15% of the power that is hitting the grid as we're talking now. So what does this mean for the average Puerto Rican citizen? This power that we're talking about, the 350 megawatts is the cheapest power on the island. It's the most reliable. It serves about 550 households and most importantly, has avoided about $600 million of economic loss due to load shed events that occur frequently in this market. We expect this tower to be a lasting part of the Puerto Rican infrastructure. We think about it as megawatts today and then it will support renewable energy integration in the future. Due to our performance, we were recently selected to be part of two groups who are going to participate in a $5 billion program launched by the U.S. Army Corps to respond to future events on the island. As Wes stated at the beginning of the call, this is an amazing example of the NFE mission, which is to provide capital expertise and vision to those markets to provide reliable power to folks to improve their quality of life and improve their economic outcome. This mission complements the Genera mission, which is our recently launched platform that runs as a private operator, the PREPA generation fleet. On the Genera side, we're currently developing 500 megawatts of battery projects and over one gigawatt of dispatchable generation improvements on behalf of PREPA to continue the mission of grid modernization. So with that, I'll turn it over to Chris to update on La Paz.

Yes. Great. Thanks, Brannen. Just a quick refresher on the La Paz power plant. This is located at our terminal in Baja California Sur or BCS, which utilizes our proprietary ISO Flex logistics solution to move LNG in cylinders from the large offshore storage vessel to the terminal where they are then unloaded and sent to power plants owned by the CFE as we've done for the past year. More recently, we started executing regas operations and power generation at our owned plant, which we constructed beginning in 2021. In Q3, we conducted the 240-hour reliability tests on each of the three turbines and successfully completed grid compatibility assurance measures that were required to place the asset into service during Q3. The photograph on the right side of the page shows our power plant, which is comprised of three LM6000 turbines capable of supplying up to a maximum of 135 megawatts into the Baja power market. As we have mentioned before, we have an agreement to sell the power plant to the CFE in 2024, but NFE will continue to own the terminal and supply gas to the power plant until the sale closes. In the meantime, NFE retains the cash flows associated with generating power and selling it into the local market. Flip to Slide 13, and this is the Nicaragua power plant. The beauty of the Nicaragua development is that every piece of this project has been done by NFE in some shape or form. So the power plant is constructed, it's on-site. It's waiting for gas. We are currently doing permitting and initial construction works for an offshore FSRU terminal. This will be similar to the terminal design that we used in Santa Catarina. Then we will move the gas from offshore through a directional drill to onshore, and then we have existing rights of way to move the pipe from the shore to the power plant. The freeze is currently in the shipyard and arriving on site in Q2 of 2024, and the pipeline will be completed over the course of the next four months. This terminal is underpinned by a 25-year PPA with a local utility and is expected to turn on late Q2 2024. Go ahead and turn to Slide 15. What you're seeing on Slide 15 is the numerical representation of what Wes has been saying for months. This is that the company is nearing the completion of our approximately $7 billion of capital spend over the last eight years. We have invested in essential infrastructure in key markets that are poised for increased power development and fuel switching over the near term. Additionally, we were proactive in our investment in critical equipment and construction of liquefaction facilities that will allow us to increase terminal volumes in spite of the current market, which has no prompt availability for long-term offtake. This page shows the remaining spend on FLNG1 and 2, which is approximately $400 million through the end of 2024. We have another $150 million in CapEx associated with the completion of the terminals and ship conversions. When you offset that with the proceeds from the recently closed Term Loan B and the contractual vessel conversion reimbursement from Energos, this leaves us with a fully funded capital plan and excess cash. When you add to that, the over $2.5 billion in free cash flow from operations and asset sales over the next five quarters, you can see the deleveraging inflection point that we foreshadowed. With these funds, we will be able to fully pay down our revolver and retire the 2025 bonds, putting it at a leverage ratio below 2x. Now please turn to Slide 17, and I’ll run through the financial performance for the third quarter of 2023. I must admit this is as excited as I've been to report our financial results because, as we've been telling you, this quarter was true, pure cash flow from our core business. No cargo sales, no cancellations, no noise from asset sales or impairments. Total segment revenue was $514 million, and total operating margin was $250 million. Downstream operating margin, meaning volumes that we sold through our terminals to our customers was $195 million. As Wes alluded to, this is an astounding 4x what it was in Q2 and 13x what it was in Q1. Yes, we do expect it to nearly double in Q4 of this year. The ship segment produced another $50 million in operating margin for each of the past two quarters, and that's about what you can expect from here to the end of 2024. Net income for the quarter was $62 million or $0.30 per share on a diluted basis. As Wes said, we're forecasting between $250 million and $350 million for the full year. Please turn to Slide 18. We continue to have a good dialog with the rating agencies, which have been super constructive as we pursue our goal of further upgrades and eventually an investment-grade rating. As Wes has mentioned previously, there are a great number of benefits to achieving this goal, including access to LNG offtake and trading markets that are currently reserved for investment-grade participants, decreased costs of borrowing, and greater financial flexibility in the form of covenants and market access. Our current corporate ratings are BB-, BB-, B1 from S&P, Fitch, and Moody's, respectively. In the recent report, Moody's has issued a positive outlook on the corporate family trading. On our recent Term Loan B issuance, we were notched above the corporate to BB flat from S&P and Ba3 from Moody's, and in the reports, the agencies cite near-term upgrade possibilities as we continue executing on our business strategy. When you look at the five boxes on this page, you'll note our key highlights include net debt of under $3 billion and target leverage of less than two at the end of 2024, increased asset diversity along with duration of our downstream contracts, stable earnings growth in the fourth box, high free cash flow conversion of our business, which is expected to be in excess of 60% next year, which we'll touch on in the next page. In the last box, the commissioning of critical infrastructure like FLNG, the power assets in Puerto Rico, and the terminals in Brazil. Finally, move to Slide 19, and we have a walk here of adjusted EBITDA down to net income for 2022 through 2024. Let's stay on the adjusted EBITDA line for just a second. When you look at 2024, it's important to note that over 85% of these cash flows are expected to come from volumes sold to our downstream customers through our terminals. On 2024, close to 90% of these volumes are already contracted, meaning we have over $2.1 billion of EBITDA essentially backlog. Now move down the page, and net income for 2022 was $185 million for 2023 is expected to be around $600 million and around $1.4 billion for 2024. We added back noncash depreciation and amortization to get to the amounts you see highlighted in the black row, which we refer to as free cash flow before CapEx; $328 million in 2022, $775 million estimated for this year, and $1.65 billion estimated for next year. What's most compelling about this slide is the precipitous decrease in CapEx from 2023 to 2024. Next year, with only $400 million of growth CapEx and approximately $40 million of maintenance CapEx, we're forecasting over $1.2 billion of cash flow that can be used to deleverage. The conversion of income to free cash flow is extraordinarily high as we look into 2024 and beyond, which will allow us to pay down debt, reinvest in the new projects or return capital to shareholders.

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

Yes. Great. Thank you, Wes. It's Ken here, folks. Slides 21 and 22 in the supplement provide a little bit of an update on the latest with ZeroPark. I would say in the third quarter, we continue to establish a lot of momentum with the business. We are well on our way to building and establishing a company that we expect to be the biggest in North America in what we do and by far and away, is the most profitable. This is a business that will produce green hydrogen and hydrogen logistics terminals to customers in the energy, industrial, and transportation sectors helping to decarbonize all of their businesses. The terminals we're setting up are set up primarily focused on regional demand here in North America, but are also all on waterfront. They have expandability for exports, and there's a tremendous amount of demand in the international markets. We’ve set out the business plan to establish things for a lot of growth going forward. On Slide 21, just to give you an update on our first site in Beaumont, Texas, ZeroPark 1. This is a site that we had originally planned and designed for 100 megawatts of capacity or up to 50 tons per day of hydrogen production. We are now increasing the scope of the site twofold to 200 megawatts or 100 tons per day of hydrogen. During the quarter, we signed a 100% offtake deal with OCI. We're big fans of OCI and what they're doing. They operate today a large petrochemical ammonia and methanol production facility in Beaumont, and we will be supplying them with green hydrogen as they start producing blue and green methanol and ammonia products. That's a long-term deal that represents all of our available capacity for now. We still have the ability to expand what we're doing in Beaumont, so we look forward to continuing to do that. We're all set with technology, working with folks at electric hydrogen. The PEM technology is all set and construction is underway. We'll be in a position to turn on the facility late next year and be fully operational as we enter 2025. On Slide 22, the bigger picture is doing more of what we're doing in Beaumont. We have two other sites, and actually very recently, we're adding a fourth that's not on this slide. One in the Pacific Northwest that we are advancing rapidly. We've effectively secured the site. It's a great site. Similarly, in the Northeast. We have secured the site in the Northeast. We have a fourth facility also on the Gulf Coast that we think is very interesting and we're in advanced negotiations to secure that site. As I said, ZeroPark 1 is fully at FID and construction is underway. The other two or three situations will be all set and starting construction we expect in the next six months. If all we do is build the three parks in the Pacific Northwest, Northeast and down in Beaumont, this is a business that will generate $150 million of annual EBITDA. The cost to build these facilities are largely debt financed, our debt facility today at ZeroPark is very, very low cost, very long-term. Actually, our borrowing rate is sub 5%, that only makes an already profitable project even more profitable and more accretive on a cash flow basis. So we look forward to continuing to update investors as we make our way in developing this company. I think we're going to see a lot of growth in the future.

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

Thank you. We'll go to our first question from Chris Robertson with Deutsche Bank. Please go ahead.

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

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

Okay. Got it. Yes, that's helpful. And then with regards to the latest asset-level financing for the Bahrain and Power project. Can you talk a bit more about the terms and structure of that financing? Is that something you can draw on overtime as the project progresses? Or is it more of a lump sum that you'll take in the near term? And I guess related to that, will any portion of that going to repay the Barcarena term loan that's coming up due in February? Or is that separate?

Yes, it's Andrew. The answer is yes. With our first drop, we will fully repay the existing term loan, and we will be able to draw over time as we complete construction financing. This is similar to a term loan A you'd see in the U.S. or a mini-perm financing, but this involves the Brazilian Development Bank and has a very long tenure. It has a 20-year tenure with a very advantageous rate, and overall, we are below 8% on that piece of debt.

Okay. Got it. Yes, last question for me is just related to the CapEx deployed during the third quarter, and then kind of the guide for the remainder through 2024. It looks like some of the CapEx was maybe pulled forward here. Just trying to clarify it was quite a bit during the third quarter. Is that heavily related to CapEx deployed for the development of FLNG2, and then completing one? Or kind of what was the lumpiness there?

Yes. It's mostly the work that's being done in FLNG1. We had some procurement activities for FLNG2 that occurred during the quarter. We also had CapEx that was associated with the deployment of the turbines for the San Juan power plant. So yes, it's a little lumpy in the third quarter. You'll see some more details as we put out the Q later today or first thing in the morning. And happy to go through them with you, Chris.

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

We will now hear from Ben Nolan with Stifel. Please go ahead.

Yes, thanks. I was hoping you could provide some insight into the status of the FLNG unit in relation to the DOE. Are you now fully cleared to produce LNG? Additionally, what are your plans for the deployment of the second FLNG unit? Any information you can share on that would be appreciated. Thank you.

Yes. Quick answer is we have resolved and posted on our website. The issue that the DOE raised last week, we find it just to be a nomenclature issue and they have agreed with us. So it's a nonevent for us now then. As far as FLNG2 is concerned, we are looking to put units onshore Altamira and have a positive reaction and interactions with the Mexicans. Remember, we are building many of these units. You can put multiple units offshore, you can put multiple units onshore. So calling one into one specific place is what the deal you reacted to. Our only point is we have units that can go in either location, we can select to put them in either one as we decide.

Okay. Thanks. I appreciate that color. And then for my second question, can I ask about the $1 billion of asset sales? Obviously, there's the power plant in Baja. But maybe any level of granularity you can add around that? Also, given the position of the company generating a lot more free cash flow, a lot less CapEx, sort of maybe talk through the drivers for some of those asset sales as opposed to just holding on to them and the associated cash flow?

Sure, I'll give it a go. Ben, it's great to hear from you. We currently have around $1.5 billion in assets that we consider noncore and are listed on our balance sheet. These assets were more significant to us at different times. For instance, we built a liquefier in Miami about seven or eight years ago, which played a crucial role in our business construction and served as a proof-of-concept milestone. Today, that unit produces roughly 100,000 gallons a day, making it a minor component of our overall supply. Most of the assets we aim to sell generate minimal free cash flow and EBITDA. They are quality assets that would be better suited in the hands of others. Selling these assets will help clean up our balance sheet and provide additional cash flow. I have a list of four or five noncore asset sales, each of which is an independent event. I anticipate that these will materialize over the next six months. We do not believe we are sacrificing EBITDA or cash flow by selling these assets; they are all valuable, but they are not critical to our future.

Sure. I appreciate. Thanks for answering all.

We'll go next to Sam Margolin with Wolfe Research. Please go ahead.

Hi, good morning, everybody. Thanks for taking the question. My first question is on the downstream growth outlook. I wanted to refer to one of the slides in the term loan deck because you had an illustrative margin build-up on a per MMBtu basis in that deck. You mentioned markets where you're displacing diesel and there's a fuel-switching aspect, and so your margins are substantially higher than that. I was wondering if you could just talk a little bit about the opportunity in those fuel-switching markets where you have higher embedded margins versus the illustration in that deck? Thank you.

Yes. One of the core fundamentals of the business is exactly what you mentioned, which is going to markets that have diesel as the dominant fuel and switching them to natural gas is a sure thing. When we look at the impact in Jamaica, for example, switching from diesel to natural gas on the plant that we first switched back in 2016, total savings to Jamaica life to date are in excess of $2 billion. It's a massively positive savings for them and still generates adequate margins for us. The current level of oil prices and thus, the level at which diesel is generated, many of these markets are kind of in the mid-20s price. Natural gas prices, Henry Hub right now is around $3.50. There's a massive delta between the two. That's what really drives the behavior of these markets. I thought Puerto Rico and Brazil might be the best two markets for us on Earth for what we do in terms of both switching fuel from diesel to natural gas and also building new, better efficiency power. It’s without question that these are the two most interesting markets for us because of this phenomenon. In the Puerto Rican portfolio we manage right now, there's about 1,000 megawatts of power today that burns diesel versus natural gas. That's a huge savings potential. For Puerto Rican ratepayers switching to natural gas. It provides a steady source of new incremental volumes as we like to transfer going forward. It's a huge moment in time for us. You can see it in our financials for Q4 and Q1 bringing in the full impact in Puerto Rico and Brazil, and we expect this growth to continue indefinitely.

Okay. I appreciate that. Thanks. And then the follow-up is maybe just a clarification question for Chris or whoever wants to answer it. You mentioned that the FLNG2 term is sort of a nomenclature issue, and these are modular assets, and so the capacity is different across like the names of the reference materials. So maybe if you could clarify what the total capacity would be at the FLNG2, as described in the deck. And then maybe if you would also share what total invested capital in the FLNG group would be at that completion of the FLNG2? Thank you.

Yes. Each train weighs 1.4 tons. We are currently focusing on the deployment of the first train in Altamira offshore, while also considering where to place additional units. We have previously mentioned that we are obtaining permits for sites offshore in Mexico, where two trains have already been approved. Additionally, we are pursuing permits for two trains at an onshore location and two trains in Louisiana. It's important to note that our invested capital is not specific to any one location. Overall, including module construction and the deployment solution of the rigs, which is FLNG1, the total invested capital is approximately $2.5 billion. We believe this provides a comprehensive view of the total paid-in capital for these units, though we have not detailed the breakdown for progress payments by unit. However, I can confirm that critical equipment has been acquired, and we are on track to maintain our schedule for deploying multiple units both offshore and onshore.

Okay. Understood. Thank you very much.

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

Good morning. Thanks for taking the questions. So first, Wes, you've commented a couple of times on the call about how exciting Puerto Rico and Brazil are, you now have five fully executed markets, including those in Mexico, Jamaica, and Nicaragua. Given the whole system when turned on is maybe 20% capacity utilization. My question is, do you see any need for further downstream project origination elsewhere in the world? Or do these markets have the ability to sustain substantial annual growth for years to come?

Short answer, Craig, and it's good to hear the call is that the capacity that we have in these core markets is so much greater than our current productivity that we have years of growth organically in each of these markets. I mean, Brazil, and Andrew could probably speak to this better than I. But Brazil is a country roughly the same size as the United States, about the same population that uses about 5% as much natural gas. The ability for us to access these markets now with these terminals is really extraordinary. I think there are six natural gas terminals in Brazil; two of them are not connected to the pipeline, two of the remaining four are owned by Petrobras, and the other two are owned by us. It's a dominant position in that market, same thing in Puerto Rico, where it's even more the case. There is still a huge, huge need in the world for cleaner, cheaper power. I think there will be markets over time that will actually make sense to us. I'd say looking forward from 2024 to 2025, my expectation is there not to be any meaningful incremental terminals added other than the ones we've identified. We need to finish the terminal in Nicaragua. There's been a well-publicized set of funds we’ve had on the terminal we proposed to build in Ireland. Ireland is the only country in the EU that does not have security of supply. I think it's actually madness when you consider the stakes for that economy. They came out with a ruling that we disagreed with. We just refiled an appeal to it a couple of days ago, and we expect that will be heard in due course. That would be a market that would make a lot of sense for us on many levels, and more importantly, make a lot of sense for the average people. Short answer is that with the existing terminals and markets that we have access to right now, we think that there is a massive amount of incremental growth for many years to come simply by executing on it. That's really the focus of the company.

Thanks. And my second question, I was always very intrigued by the opportunity of FLNG deployment in stranded gas plays. Wonder if you could speak to the sticking points that were in the Pemex negotiations for Lakach and prospects for still outstanding stranded gas opportunities around the world in coming years?

A little bit of historical context. We owned 50% of the Heli ship that was developed by the Golar guys deploying off the coast of Africa. That's an example of a stranded gas field that's being produced today. Their follow-on asset, I think, was begun in 2017 and maybe FID in 2019 is expected to be deployed in 2024 in the second half. The contrast to that and our activities is actually fairly substantial. We became FID in March of 2021, and we have the unit deployed today with gas in the system being finalized and commissioned before the end of 2023. Fast LNG is not a misnomer. It's actually the fastest production of a facility like this in the world. We do think that with the world's energy needs, stranded gas fields offshore are going to need a lot of activity like we just deployed. From our standpoint right now, that is not our plan to incrementally put more in place. We feel like the facility we have currently in the Gulf of Mexico plus the proposed development onshore, which is a separate development, is adequate for our own needs. I have no doubt that there's a big need for the technology and capabilities that we have as an organization and maybe we'll end up doing that for other people. From a capital investment and CapEx spending perspective, we are very focused on FLNG1 and FLNG2 and have no plans other than that. I do think the broader question you asked does have applicability to stranded gas deals offshore. The answer is sounding. Of course, it does. I think you'll see a lot of development for it. I think the techniques we have used in creating our own liquefier will be mimicked by others and we'll see them crop up in different parts of the world.

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

Good morning. Hoping to follow up on the FLNG permitting question. Can you clarify what the onshore BOE application is for, if it's not for FLNG1 or 2?

Yes, it's actually super simple. Let me clarify, because I think this is just a, I really do think this is just a miscommunication. We applied for DOE permits and received them on our offshore facility. It happens to be located 12 miles offshore of Altamira. We received the FTA permits, and we have an application for the non-FTAs. We are in discussions with various government agencies about all these things, and that continues on pace. Separately, we are exploring the potential of putting units onshore in a place also called Altamira. This might have become confusing. We filed that publicly, and they responded publicly and said, Great, thank you for that, and that's the end of the story. There was some misleading reports that put out in the investor community saying this puts into question whether we have permits and whatnot; nothing could be further from the truth. It truly was a miscommunication. I was unhappy about that. From our standpoint, it was simply a misconstrued question from the DOE that we responded to, they responded to; that's the end of the story. It's straightforward from that standpoint.

Great. Thanks for clarifying. And then on the different basics, can you help bridge the third-quarter EBITDA and CapEx to your full-year guidance in terms of what the implied ramp for the fourth quarter?

Yes. EBITDA is expected for the year to be $1.6 billion. As Wes said, that does include a little less than $200 million of gains on sales of assets that we expect to close by the end of the year. That leaves you with approximately rounded $1.4 billion, which we think that the fourth quarter fills.

Any meaningful drivers embedded in there? Or can you break out any contributions expected for mass LNG that's incorporated into your guidance?

Zero, Ryan. The only driver is the full quarter utilization of the new San Juan power plant. Thanks, Ryan.

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

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

Sure. Brannen, do you want to want to add?

Yes, no problem. Yes. Thanks for the question. This is Brannen. So specifically, the Army Corps, as you rightly point out, put out a new program which is $5 billion of expected investment into the Puerto Rican infrastructure over the coming, let's say, three to four years. We, meaning NFE, competed with two groups on that. Me, meaning NFE, we were selected with two groups. The way it will go moving forward is once the Army Corps decides on kind of a portfolio of projects, which they intend to pay for—this could be power generation or other similar infrastructure builds—then we would participate. It's not dissimilar to the two projects that we won in Palo Seco and San Juan. We would expect something similar going forward. So I think the short answer is the Army Corps program is $5 billion. They publicly announced it. They will scope that out over the coming months, and then we will participate and compete.

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

Correct. I think the probably way to think about it is it’s very similar to the two projects that we've completed, which is 350 megawatts. They just may be at different locations.

To wrap up because I think we've done other questions, the nine years since we started the company, we spent $7.5 billion building infrastructure, have seven terminals that are now up and six of them are operational, dominant positions in Brazil and Puerto Rico. The scale of the business now is truly massive. A rough estimate is $2.5 billion in revenue expected for this year. We expect to roughly double that revenue for next year, so $2.5 billion going to something close to $5 billion. The conversion of that into free cash flow is probably between 40% to 45%. We trade at the lowest multiple in any infrastructure company I'm aware of on planet Earth. Good to be first at something, I guess. With respect to the kind of valuation, I’m obviously disappointed, but I expect that will change meaningfully as we deliver these results in Q4 and Q1 endpoints thereafter. I think we will get the investors that we deserve, and we'll get the valuation that we deserve. To those of you that are investors in now, I think we'll be very well rewarded for it. It's a terrific year for us to date. It sets us up extremely well both at the end of the year and for next year with all the big changes not only in Puerto Rico, but in Brazil and other markets around the globe. Something we don't talk about a lot is the developments we've had in the hydrogen business. That is a business that we think is the dominant hydrogen business in the United States on the green side. It may well be the only meaningfully profitable hydrogen business that comes out of the IRA at this point. The business plan that Ken and others have come up with is one that I support, which is to turn the hydrogen business into a production that actually occurs at the place where it's used. We take—first, we solve a chemistry problem and the transportation problem to solve for because we're actually utilizing right where we're making it in place. It's a very, very exciting time for the company. We feel great about the quarter that just concluded and the prospects that are going forward. I want to thank everyone for taking the time to listen. We look forward to updating you on our full-year results in Q4 sometime early next year. Thank you.

Yes. Thank you, Melinda, and thank you, everyone, for joining us today. Again, we remain available as always to answer any questions, please just contact the Investor Relations team. Thank you again. Enjoy the rest of your day.

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