Yahoo Finance New Fortress Energy Inc (NFE) (Q1 2024) Earnings Call Transcript Highlights: Strategic ...
EBITDA: $340 million for the quarter, aligning with estimates.
Revenue: Total operating margin from sales to customers through downstream terminals was $350 million.
Net Income: GAAP net income for the quarter was $54 million, or $0.26 per share on a diluted basis.
Adjusted Net Income: Excluding nonrecurring charges, net income for the quarter was $138 million, or $0.67 per share.
Free Cash Flow: Funds from operations for the quarter were $189 million, or $0.92 per share.
Contracted EBITDA: In Brazil, $500 million contracted EBITDA on a run rate 2026 basis.
FLNG Asset Value: Estimated to exceed $3 billion, with production expected to generate significant near-term cash flows.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
New Fortress Energy Inc. (NASDAQ:NFE) reported a solid quarterly EBITDA of $340 million, aligning with estimates and maintaining guidance for the year.
NFE successfully expanded its operations in Puerto Rico, securing contracts for building additional power plants and transitioning the island from distillate fuels to natural gas, which is expected to save billions in costs and reduce emissions.
In Brazil, NFE is in a dominant position in the gas-to-power market, with long-term contracts and two operational LNG terminals, which are expected to generate significant predictable cash flows.
The company is advancing in its FLNG projects, with the first FLNG unit nearing operational status, which will enhance NFE's supply flexibility and financial strength through additional LNG production.
NFE is exploring strategic financial moves, including partnerships and an IPO for its Brazilian operations, aimed at capitalizing on its investments and enhancing shareholder value.
Negative Points
The termination of the FEMA contract in Puerto Rico poses challenges, although NFE is navigating these with new contracts and negotiations for settlement.
Operational risks are evident, such as the recent incident with a pipe fracture in the FLNG project, which could impact schedules and operational efficiency.
The complexity of transitioning Puerto Rico's energy infrastructure may involve unforeseen obstacles and delays, affecting expected outcomes and financial benefits.
Market and operational risks in Brazil, including dependency on continuous auctions and regulatory changes, could affect the stability of NFE's earnings from this region.
Significant capital expenditures are anticipated for ongoing projects, such as FLNG and Brazilian power plants, necessitating careful financial management and potential impacts on liquidity.
Q & A Highlights
Q: Can your incremental Puerto Rico growth beyond the 80 TBtu PREPA contract also be linked to liquid fuel pricing to afford acceptable spreads during sustained elevated LNG market pricing? And can you update us on current spot LNG spreads to perhaps 73% of landed Puerto Rican diesel? And finally, any thoughts on hedging out LNG to liquid spread risk. A: Wesley Robert Edens - New Fortress Energy Inc. - Founder, Chairman & CEO: The contract with Puerto Rico was linked directly to diesel to ensure savings during the transition to gas. The current diesel price is about $20, with 73% being roughly $15, which offers significant savings and margins. The expectation is that short-term contracts during this transition period will use this pricing model, but long-term contracts for new developments will likely be based on Henry Hub. This approach aligns with the transition strategy from short-term high-margin contracts to longer-term, volume-based contracts.
Q: What is the timeline and pathway near term to ramp to the 80 TBtu in Puerto Rico, and what are the main volumes? A: Brannen McElmurray - New Fortress Energy Inc. - MD & Chief Development Officer: The ramp-up to 80 TBtu is expected by the end of the year, starting with 50 TBtu and increasing over the next 1.5 quarters. This involves some infrastructure and logistics developments, as well as finalizing permits. The process aligns with NFE's historical success in Puerto Rico, and the company views 80 TBtu not as a ceiling but as a starting point for further growth.
Q: On the power auction in Brazil, can you remind us when this power would come online? A: Andrew Dete - New Fortress Energy Inc. - Executive Officer: The power auction in Brazil includes two products: one for existing power plants with a 7-year contract that would come online immediately, and another for new generation only with a 15-year contract, expected to be online by 2028. However, new power plants could potentially start earlier, around the end of 2026 or 2027, depending on the construction progress.
Q: Could you talk about the outlook for adding additional volumes in Brazil outside of the power auctions, particularly regarding the Norsk Hydro facility? A: Andrew Dete - New Fortress Energy Inc. - Executive Officer: In addition to the power auctions, NFE is working on securing contracts with large industrial consumers in Brazil, leveraging the transport benefits and flexible contracts offered by the Santa Catarina terminal. The goal is to have a portfolio similar to Barcarena, with a mix of baseload and intermittent capacity contracts linked to international LNG spot prices.
Q: How should we think about CapEx for the remainder of the year, particularly regarding FLNG 1 spending? A: Christopher S. Guinta - New Fortress Energy Inc. - CFO: The total CapEx for FLNG 1 in the first quarter was around $140 million, with expected tapering in the following months. The overall CapEx guidance remains at about $1.5 billion, with significant portions financed through debt, minimizing the need for equity CapEx.
Q: Is it possible to go merchant power and enter agreements directly with the 3.5 gigawatts of power plants without contracts in Brazil? A: Andrew Dete - New Fortress Energy Inc. - Executive Officer: While there is a merchant opportunity in Brazil, especially during times of stress when generating power at these plants is cost-effective, the primary focus is on the power auctions. These auctions provide fixed capacity contracts and the merchant opportunity, offering a more stable and lucrative pathway for NFE.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
