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Presentation

Operator: Good day and welcome to the New Fortress Energy Fourth Quarter 2022 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Hughes of Investor Relations. Please go ahead, sir.

Patrick Hughes: Thank you, Jess, and good morning everyone. Thanks for joining today’s conference call during which we will discuss our fourth quarter and full year 2022 results as well as recent highlights and the very promising outlook for our business. As Jess 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 fact, at that same location on our website, you will find a press release and the corresponding presentation we are going to step through today. As we proceed through the discussion with Wes and the team, we will be referring to that presentation. In the presentation, you will see 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 get underway with the call. This is Patrick Hughes. I look after Investor Relations here at New Fortress. Joining me today are Wes Edens, our Chairman and Chief Executive Officer; Chris Guinta, our Chief Financial Officer; and Andrew Dete and other members of our senior leadership team. Wes, over to you.

Wes Edens: Great. Thanks. Welcome, everyone. And format, as usual, we are going to flip through the presentation that we posted. So, let’s just start at the beginning, so Page 3. 2022 was a very, very good year for the company, very volatile markets overall in the world, and we have delivered very solid results, nearly 2x the EBITDA and free cash flow 2021. Probably more importantly, the forecast that we have for the upcoming year is roughly 2x the results of 2021 €“ €˜22. So, very, very good financial results and not only the absolute number is good, but the quality of earnings continues to improve. More and more of our earnings comes from our downstream activities. Those are the long-term dated cash flows that actually are easy to predict and easy to model for all of you and does for us, so very, very good start to the year.

Next page, notable highlights. There is a handful that really stand out. Top of the list for us is we signed a contract in the quarter for the power generation assets of PREPA. So PREPA is the utility in Puerto Rico that services the whole island. An effort was made by them several years ago to privatize the two main parts of their business being, number one, the transmission and distribution, which they did about 1.5 years ago; number two was the management of the kind of baseload power units, 3,600 megawatts of power in total, 10 units that we actually competed for and were successful for and took over. The contract is a 10-year contract, base fee of just over $20 million. We profit share basically with cost savings of the island up to a cap of $100 million.

So there is a substantial amount of upside to the extent that we are able to do as we expect to do, which is cut down the cost of generation for the island. When I took this over, we sat with the Governor and other management folks in Puerto Rico in a press conference, basically said our two scorecards for us on the island are, number one, the reliability of the service; and number two, the cost of the service. It couldn’t be more basic than that. And we said that’s what we want to be held accountable for, that’s what we intend to focus on, and we think that there is a tremendous amount of upside for us to perform on both of those metrics, perform for the people of Puerto Rico, make their services not shut off, make the €“ or load shed, make the cost of it go down, and that’s what we want to do.

In addition to this contract, we think there is lots and lots of incremental opportunities on the downstream side, on the development side and whatnot. So, this just further solidifies what we think is a great foundational asset for us, the terminal we have built down there €“ actually turned it on in the middle of COVID. So this time of the year is reminiscent to me of what it was like 3 years ago when we had people working in the middle of COVID to get that thing up and running. So it feels great about that, but there is a lot more to come and we will be talking to you. The timing of this is we expect to be fully mobilized and take over the service sometime around midyear. So hopefully a lot more to talk about there in the future. And number two, the terminals.

So the terminals are the core of our business, it’s the backbone of our business. We are basically completed or near complete on two major Brazil terminals. Andrew Dete will talk about that in just a second. These are significant and that they are terminals are located in areas that have, we think, massive amounts of opportunity. Santa Catarina in the South is just about complete. Barcarena in the North is basically complete. We have a big baseload customer up there €“ two baseload customers up there in the form of Norsk Hydro, which will turn on at the end of this year as well as a big power plant that we are building. But I will leave those details to Andrew. But it just continues the march of significant downstream assets for us. That’s what we think is our most compelling competitive advantage versus other folks, takes a lot of time and effort to get to these places.

So we feel great about that. But we have got significant opportunities to turn on downstream assets in Puerto Rico, in Mexico, in Nicaragua and now in Brazil as well as other geographies that we are pursuing. So €“ but this is all about the execution of our base level of business and getting these terminals up and running is a big part of it. Liquefiers, we talked about a lot. We hosted an Investor Day down at the end of last year. The first one is basically near completion. Chris will give us an update on that. But the first one is the most important. It’s basically the way to fully integrate our business. It’s the way to kind of get proof of concept of accessing gas and an offshore capacity. So, lots more to talk about with that, but we have made significant progress.

And this year, we have kind of shifted our focus from the mechanical completion of the unit, which is closed, to now the deployment of it, the transfer of it, and of course, the operations of it. Lastly, shareholders. The business creates a significant amount of cash flow and that affords us the luxury of returning capital to shareholders. I think keeping the company appropriately capitalized but also lean is the right way to make good judgments about incremental opportunities. We expect to continue to generate significant amounts of excess capital. And as we do through a combination of either dividends or stock buybacks or quite possibly both as we did in the last 12 months, we will return capital as we see fit to shareholders. So Page 5, just a bit about the macro and Andrew will talk about this in some detail.

I don’t have to tell anybody on the call, but 2022 was a record year of volatility in the LNG markets. So the markets, if you go back and look at the yellow box on the left hand side, the market was already dislocated at the time that there is invasion in the Ukraine. So there had already been a significant move up in price that was exacerbated by the blowup of the Russian pipelines, all the disorder that happened in Europe as a result. That has abated substantially. And what you see on the right hand side is that really a combination of two things: significant fuel switchings, number one; number two is just fortuitous warm weather, right. It’s the warmest weather in Europe in the last 50 years or so in the wintertime. So they are the beneficiary of just good fortune, which is great.

But what has happened is that the prices between all the alternative fuels, so gas, diesel, coal, have really converged. One thing that is very clear, there was a lot of debate over whether Europe would fuel switch or not back to the kind of dirtier fuels like coal. I think that, that debate has been settled. There was actually €“ I think last year will end up being kind of the most prolific year of burning coal in Europe ever. So when you had to pick between energy security and the environment, there is no question which way they went. So €“ and I think that, that is just €“ that’s a theme more broadly across the world. Certainly, in China, that has also been the case and Andrew can talk about that a little bit. But the net effect of this for us is that lower prices and the converged prices are good for our downstream business.

$50 TTF, while it sounds great if you are in the LNG business is actually not great for your customers. Good rule of thumb is that take that gas price, multiply x6, that gives you the oil equivalent. So at $50 x6 is the equivalent of $300 a barrel of oil that sounds expensive and unaffordable. It is actually expensive and unaffordable. So having to come back down to a more reasonable level, albeit at a higher price point than where we started is very, very productive for our business, because it becomes much more relatable to our customers and power and gas solutions now move in line with other fuel sources and that actually is really, really good for our downstream business. So I guess the last thing I’d say is the crisis is not over. The winter of 2023 is still in front of us.

This winter is not yet over. We are talking about next winter. But I think, again, weather, fuel switching, there is big activity levels in Europe to try and add more and more terminals, but they have a big hole to fill and we still think that there is a significant possibility of some real dislocations in the coming year. So lastly, my last page before I flip over here is just the goals for 2023, couldn’t be more simple from my standpoint. 2023 is really the year to execute. We have nearly doubled the supply that we have in our portfolio, as you can see on the left hand side here, over a couple of year period and have matched that with incremental demand. So, just to read through that chart on, number one. Supply was 74 TBTUs in 2021. We are forecasting that to be 184 in 2024, so more than double over that 3-year period.

Demand, which was fully matched in 2021, we also expect to double. So the goal €“ the yellow circles in the bottom there show the open volumes that you have got. So you can see anywhere from 15% to 20% of our portfolio is open at the moment. I get a lot of questions about our exposures to market prices and especially with all the volatility and whatnot, our goal is to largely be matched. It’s impossible to be precisely matched. There is always going to be a bias. My bias is always going to be to have a long bias. You need to have inventory to sell to customers that gives you an axe to go and talk to them about gas and power. But we want to have that view as modern as possible. So kind of 15%, 20% is the size of that. And you will see that as we €“ as the year goes on and as next year goes on, we are trying to minimize this exposure to volatility by focusing on our terminals, customers and operations.

Downstream business, downstream power, that is our core business that we manage here and we feel really good about it. The next step for us on the gas and power side is, we are very close to buying our first portfolio of really modular units of power. And so, that’s something that if it goes as planned, we could be talking about as soon as in the next couple of days. The goal for that is to basically give people, different countries and utilities and whatnot, access to gas and power on an expedited basis. Time is the enemy of all these problems. And so you see there is big article in the paper this morning about all the load shedding and the problems that Eskom has faced in South Africa. That’s a good example of it. And the challenge for a lot of those places is not only do they have a problem with the lack of power, but they have a problem if it takes too long then to give a viable solution for it.

We think the right solution for that is to kind of even more fully integrate by bringing power into our portfolio, give us the ability to provide solutions in months, not years, as a step towards longer term solutions that are more efficient. So, lots more about that to come, it’s just a general marker for you to keep track of. If you see something announced by us, it means that we have been successful about this. We feel pretty good about that. But there is a lot of different applications for that where I think it makes a lot of sense. Right hand side and the last thing, liquifiers, I said we are closing on mechanical completion, transport, installation, operations now become the things that we are very focused on. The timeline is short. So we are in €“ we have gone from triple-digit days to double-digit days.

And so we have, as Chris has talked about before, we have a daily call on this and our teams are working very, very hard on this. The first one up and running is a massive accomplishment for the company and something we look forward to. Not only is it the first step towards a vertical integration of the business, but it also is a real proof of concept of these stranded and offshore gas assets that not only for us, but for others, we think are big opportunities to do something with. So lots to focus on, but these are the two main areas. So with that, let me turn it over to Andrew.

Andrew Dete: Thank you, Wes. Good morning, everyone. I will step through two slides on the LNG markets and then give an update on NFE commercially. We do want to spend a moment on the markets here just because we are seeing a moment in time and current price levels that we will talk about that we think are really supportive of the NFE business case. So starting on Page 8, there are really two key messages here. The first is a recap of the price environment for LNG in 2022 on the left side and then second is what we are seeing in terms of LNG prices settling with some amount of stability, just below the $20 area, significantly higher than the stable price levels we saw in the time period kind of pre the invasion of Ukraine. So on the left side is the graph of the TTF gas price, which I think as most of you know, has been the leading indicator for global LNG prices in the last year; graphed against the U.S. domestic gas price, Henry Hub and then the gas to oil parity, which Wes mentioned, which basically converts the Brent oil price to adjust for energy content relative to gas.

As you can see on the graph, prices actually started to rise well before the invasion in February 2022 on increasing tightness in the market. We were watching this closely at the time as we are seeing kind of opportunities around the globe. And then that was extremely exacerbated with the conflict. The balance of the year was then an experience of a relatively illiquid TTF price kind of bouncing up and down, doing the work of bouncing a supply short market where you had to draw LNG into Europe, but then even kind of more importantly, you had to actually at different times destroyed the price-sensitive demand. And that’s where we really saw real spikes in TTF. On the right is a very simple graphic but a powerful one for us showing the difference between levels going back to the end of 2020 and today.

This isn’t to say that we necessarily think pricing will remain totally stable at these levels, but what we are seeing is a lot of price support for gas below the current level. So what we have been watching for over the course of 2022 is really where gas prices are going to settle at a level that we believe will be higher than the historicals. So as prices come down in the last few months, we are starting to see strong incremental demand that levelize and support prices. And that’s what we are seeing now in the high-teens kind of low $20 per MMBtu level for gas. At these levels, LNG cargoes get sold globally, not just into Europe. And we are seeing gas as power turned back on as we get to parity with other fuels for power. Lack of supply and reduced overall liquidity still means there is a ton of volatility in the system.

But with adequate storage levels in Europe following a warmer winter than expected, we are really starting to see some stability come back in at levels that are going to be really supportive to our business. So let me flip to Page 9 and try to focus a little bit more on what this means for NFE’s business. So when developing things we are seeing in the market now really kind of beginning in December of 2022 is the convergence of global fuels for power, so natural gas, diesel and coal. Graph on the left side equalizes the price of each of these on a per MMBtu basis, which is the most useful way to look at it because this is really the measure of energy content rather than what we typically see, which is measures of volume or weight. And it shows how these prices as energy content have all come together in the last few months following the kind of 12 to 14 months of volatility.

Gas prices reached such high levels in €˜22 that producers in countries who could switched away from expensive gas and into cheaper fuels, which Wes mentioned. This took some time, but eventually dragged the prices of coal and diesel upwards, gas downwards, and they started to converge around $20 per MMBtu. For NFE, this is a pretty bullish signal for our business, because gas has returned to being long-term competitive as fuel against its alternatives. That’s really good for us to kind of sell long-term downstream business in the markets that we are in. So in the last year, it was really hard to justify not selling any incremental LNG that we or others had into Europe with average pricing over $40 per MMBtu. But now when we look at the downstream business that we are in, in terms of power, industrial gas supply, LNG is competitive against the alternatives.

And so that’s a really good signal for us and the business we want to be in, which is long-term contracts with customers at the terminals and in the markets that we are already in. On the right side, we also want to bring a very complicated kind of supply demand balance equation back to a very, very simple point. And this really speaks to kind of the future of 2023, which is we have an aggregate reduction in supply with Russia offline. And that’s about as simple as it is. There has been a lot of compensation on the demand side to reduce demand and to switch demand from different fuels, but the truth is the global supply changed and reduced. And the only thing that will really solve that is further supply capacity in the future, but we are not getting that in the near term.

We are only getting that kind of 2026 plus. And so we are going to continue to see a lot of volatility in that system, but it’s a great moment for NFE, because as we bring on incremental supply with FLNG this year and then continuing, we really believe that, that supply will be gobbled up by the market. And because of what we just went through on the sort of comparative price levels, we think there is a great argument for doing that in a long-term downstream basis. So that’s the market moment that we’re in today. Flipping to Page 11, I am going to really turn to like an NFE commercial update here. And what we wanted to do is put on the page really how we look at the business, which is trying to show the match between our supply portfolio and our demand portfolio.

So you can see, and I’m going to use kind of the 2022 numbers and compare those to kind of €˜24 because that’s sort of the run rate as we see things changing through €˜23. Our supply is really going from 88 TBtus to about 180 TBtus by 2024. And you can see that, that’s a mix of the increase in our kind of existing third-party supply as well as bringing FLNG 1 online. For this analysis, I’m really just looking at FLNG 1 to make this very clean today. And then on the demand side, we’re also matching that growth. So we’re going from 88 TBtu to 155. So we’re seeing a 100% increase in supply and about 75% increase in our contracted demand through downstream terminals. This is the sort of exact long-term contracted terminal business that NFE wants to be in.

And the other really meaningful point here is we’re not materially exposed to market prices. So you can see in 2023, we’ve got about 30 TBtus of unsold volumes, about the same for €˜24 and then reducing in 2025 and beyond as we bring on further downstream demand. We think that’s a great position for us to be in, which is about 80% contracted. That gives us some incremental supply for new business activities, but keeps our exposure to the market at reasonably tolerable levels. So hopefully, this is a good way for you guys to see it as well in terms of seeing the spread business that we’re in. And really, we’re kind of bearing the lead here a little bit, but the growth in that €“ the sort of tremendous growth in that spread business between 2022 and in 2024.

Page 12 just tries to substantiate that growth a little bit. So this is on a per terminal basis tracking the volumes that we see going through our downstream terminals in 2022 and then what we expect through €˜23 and €˜24. So you can see here, Jamaica stays relatively stable. But in Puerto Rico, we’re expecting incremental demand and have some exciting announcements to come about that. In Mexico, we’ve increased the supply through our GSA, and we’re starting kind of full run rate operations here very soon. And then we’ve got the existing portfolio of terminals, Nicaragua, Barcarena and Santa Catarina, that are all going to turn on here between now and the end and that on a 2024 run rate basis are really adding up to this demand that we’re going to see through the terminal.

So we really want to make sure that we’re communicating clearly on the great kind of downstream long-term contracted growth we have just executing on what’s in front of us between now and the end of this year. Chris, I’ll turn it you.

Chris Guinta: Great. Thanks. Good morning. Let me direct you to Slide #14, and we will walk through an update of our FLNG 1 construction and development. The next two slides include some recent pictures showing the current state of the modules and the rigs. And as you can see, things are progressing well. On Slide 14, you can see the support frame has been installed along with critical equipment from our suppliers at Chart and Baker Hughes. The support premium has put in place in advance of the module to ensure the stability of the deck of the jackup rigs. On Slide 15, you can see the liquefaction module on the left side and a close up of the second gas treatment module on the right. All of this will be lifted and installed over the next 3 weeks or so, and then we will have complete module to rig integration and begin land-based testing and commissioning.

All of this is to note that we are approximately 80% complete on our construction activities and over 86% complete when you include engineering and procurement. Turning to Slide #16. And frankly, the headline here says it all. We’re less than 100 days away from our first FLNG setting sale to its home in Altamira, Mexico. With construction nearing completion, we’re focused on installation, commissioning and operational readiness. Regarding our installation, the pipelay barge is on location today and loading pipe. Late this week, it will begin the short pipelay work to connect the pipeline and our FLNG location, and that’s expected to take around 3 weeks. We will then perform the hot tap and connect subsea pipe to our risers, which will ensure that all subsea activity will be completed prior to the FLNG arriving in the field.

For commissioning, we’ve hired a commissioning team to work in partnership with representatives from our original equipment manufacturers to commission as much of the asset in the yard as possible. The construction site provides access to natural gas, power and utilities, which enable us to test major components such as gas turbines at the Kiewit yard. Also, we can do shore-based testing and validation of controlled safety systems, instrumentation and process optimization, all while the assets are getting final touches completed. The onshore commissioning capabilities reduces a typical offshore commissioning time line by around 6 weeks. Finally, regarding operations, we’ve hired our installation, training and offshore management teams, including our Board operators and maintenance technicians.

And these folks are working through our critical operating procedures as well as training simulators now and are being used to complete competency training. We’ve established our shore base at the Port of Altamira for storage needs, commission activities and ongoing operations. So what does all this mean? Turn to Slide #16, and let me update you on the time line from today through COD. The current estimate for mechanical completion of our first rig is May 2023. This includes a staggered readiness of the three rigs and the final is expected to be completed in early June. As mentioned on the previous slide, we have the ability to commission systems on a rig-by-rig basis, and we’ve sequenced the rigs to maximize readiness ahead of the offshore hook-up.

We’re starting in the field construction activities this week, including the pipelay and other make-ready activities to receive the FOCs. Rigs will be towed from the Kiewit yard to Altamira as they are completed and full offshore hook-up is expected to be completed in June. This includes the station of the rigs on location and also the installation of the Penguin FSRU. First gas is expected to the units in late June, and our first LNG production will be July 2023 and expect to hit COD in August of 2023. So moving on from our liquefiers. If you’re going to get you to turn to Slide #19, and we will go through some of the financial performance for Q4 2022. For the 3 months ended December 31, we had adjusted EBITDA of $239 million and $1.1 billion for calendar year 2022, which is in line with our expectations.

The terminal segment operating margin was $196 million and $86 million from the ship segment, and you can find more detail on that in the appendix. The net income for the quarter was $183 million, which is $87 €“ $0.87 per share when excluding impairment charges. And for the year, our net income was $576 million or $2.74 per share, excluding impairment charges, which is an over 500% increase from 2021. This quarter, we sold 22 TBtus in total volume, which equates to an average operating margin of around $13 per MMBtu. On Slide #20, I wanted to point out how NFE is accessing flexible debt to support working capital fluctuations. Earlier this month, we completed an upsize to our revolving credit facility to $750 million and increased the letter of credit facility to $325 million.

This is an increase of $800 million since the end of 2021. The cost of these facilities is competitively priced and allows for draws and repayments to match the needs of the business. From a liquidity standpoint, as of 12/31, we have over $1.3 billion of cash on hand plus availability under the revolver when you include the upsize and an additional $325 million of availability under the letter of credit facility. One final comment on the balance sheet, we announced the sale of the Hilli asset to Golar, which is expected to close in the next week or so. In addition to the cash payment of share repurchase, this reduces about $325 million of off-balance sheet debt. Almost done. If you turn to Slide #21, just some quick comments on the progress we’ve made to increase our credit profile.

With a 2022 adjusted EBITDA print of $1.1 billion, we stand at around 3x levered and will be under 2x based on the 2023 earnings estimates discussed on the call today. Further, as Andrew said, we have two new terminals turning on this year and are focused on selling our volumes under long-term take-or-pay contracts to downstream consumers, thus creating steady and stable cash flows. Given our geographic and customer diversity, combined with the increase of sales to creditworthy counterparties, we’ve continued to enhance the quality of our earnings. Finally, in 2023, cash flows are highly predictable and resistant to market movements given that the majority of our supply is already contracted at known margins. These factors, combined with disciplined capital allocation, contributed to our goals of becoming an investment-grade company.

And finally, on Slide #22, this is a testament to the amazing men and women at our terminals, on our vessels and in our trucks. In Q4, with their continued focus on being a world-class operating company, we delivered 22 TBtus to our customers, and our regas terminal asset reliability remains around 99%. We continue to optimize logistics and terminal operations and saw significant reductions in costs associated with our small-scale delivery using volumes produced out of our Miami facility. And last, but certainly not least, we had no safety incidents during Q4 and maintain our 0.0 total recordable incident rate. With that, I’ll turn the call back over to Patrick for questions.

Patrick Hughes: Yes, Jess, I think we’re ready for Q&A. If you can tee up the queue, please.

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Operator: Our first question comes from Cameron Lochridge with Bank of America. Your line is open. Please go ahead.

Cameron Lochridge: Hey, good morning, guys. Thanks for taking my questions. And congrats on the quarter.

Wes Edens: Thanks.

Cameron Lochridge: I wanted to maybe start off on the FLNG volume expectations going out through €˜25. It looks like, if I’m looking at the chart correctly, there may have been a shift in expectations around when your FLNG volumes are expected to come on. I was just wondering if you can confirm that. And if so, provide any color on what you guys are planning around turning on incremental FLNG volumes? And then on a related note, any update on the permitting progress, particularly in Mexico? Anything you can offer there would be helpful.

Wes Edens: Great. Let me take the first one, I’ll have Cam, who runs our permitting stuff for General Counsel, give you a second. The supply-demand numbers that Andrew walked through and that I referenced at this point, assume one FLNG unit. So 70 TBtus is the volume, 1.4 million tons, probably net expected of 65 with weather days and other operational down days during the year. So that’s what’s in the numbers in front of you. We have a number of other units that are in various stages of development right now. And basically, what we have done as a matter of discipline is simply to look at incremental supply being matched with incremental demand. We have lots of options on both additional units in Mexico, the unit that we are right now forecasting to put off the coast of Louisiana and other situations around the world.

So there is lots of opportunity on that side. But it is intended to be, and it is, a disciplined process of not just simply adding supply but we don’t have demand. That said, the reference I made to the modular units that we are looking to buy and the increase in our downstream capacity with terminals and Brazil and Nicaragua and elsewhere gives us a lot of opportunities, we think, to really, really incrementally add to our demand part of the equation. And if we did that, we would add to supply, and that’s, of course, where the growth comes. And so we’re not trying to forecast growth that we can’t see the other side of right now. So these numbers that are reflected in front of you we, think are very much achievable with what is on the table in front of us right now.

There could be some upside to those. But certainly in outer years, we think that there is a lot of upside to those and the FLNG will be a big, big part of that. So with that, Cam?

Cameron MacDougall: Sure. Thanks, Wes. This is Cameron. I received that permitting process in Mexico. I think the update on the permits in Mexico is a very positive one. We have an excellent team fully engaged there. We have a great engagement with the Mexican permitting authorities and we continue to remain on schedule for all of the permitting milestones that we need to hit to match the time line that Chris mentioned earlier. So a very positive update there.

Cameron Lochridge: That’s great. Thanks. Thank you, both for that. I much appreciate it. If I could just quick follow-up on that. Wes, you mentioned a very measured approach to deploying new supply via FLNG. I just €“ I want to dig in there a little bit. Is that to imply that before you bring on additional FLNG volumes, you’ll want to have contracted offtake agreements in hand? Or in other words, we not to expect these FLNG volumes to be purely merchant volumes but rather have dedicated offtake agreements prior to them coming online?

Wes Edens: Yes, it’s the latter. It’s really a €“ there is not a hard and fast rule about it, but we want to have clean line of sight to half of the volume is being deployed before we actually turn the unit on. That said, these units take a while to build. We are nearly done with number one and we have number two and three well under development. So we’ve got stuff that is on the back burner, basically moving ahead. The volumes at this point would be 2024 volume. So still volumes that would be in a market, which prospectively could be quite a tight one. And so merchant volumes could be very valuable to us at that point in time. But we don’t want to interject a lot of market volatility into the earnings. We’re on a path to high quality, repeatable, predictable earnings €“ we think that, that’s the path that we want to be on with this path our shareholders want us to be on.

And then we can add to that incrementally of course, that’s a material amount of growth. I mean, if you just take 65 or 70 TBtus, take our margin, which today is close to $10, obviously, any incremental asset you bring online is very valuable. Even at $5, these things are actually very valuable. So there is €“ without any merchant volumes whatsoever, there is a lot of growth potential from one incremental unit. We think we will have a portfolio, a suite of these over time, for sure. But the right way to get from here today, we think is an emerging way.

Cameron Lochridge: Sure. No, much appreciated. And then if I could just squeeze one more in. Do you guys plan on disclosing what price you may have hedged that out over the past several months for some of your open cargoes?

Wes Edens: We don’t. We don’t report that. I mean, obviously, we made a number of hedges and the market was higher. That’s obviously a good thing. In hindsight, we should have hedged everything, but there is challenges in terms of doing that. So we did the best that we could. And we think it’s actually quite constructive, but no, we don’t disclose that. You’ll see that show up in the results, though, so…

Operator: We will move to our next question from Marc Solecitto with Barclays. Your line is open. Please go ahead.

Marc Solecitto: Hi. Good morning. Maybe just to start on your €˜23 guidance, I just wanted to clarify what the embedded assumption is as far as spot prices. And then if we compare the disclosures on Slides 11 and 12, I think that implies roughly 36 TBtus of cargo sales. Just wanted to confirm if you’ve already locked all those volumes in or hedged those?

Chris Guinta: Yes, we do have €“ I mean, this is Chris. There is about 10 cargoes or so that have exposure and that’s really FLNG. So everything that’s expected from our existing supply contracts, that’s already been sold or has been allocated to downstream customer volumes that are expected to happen over the course of the remainder of the year. So fair point, Mark, that, that is the kind of the open exposure…

Wes Edens: But some of those cargoes are hedged up.

Chris Guinta: That’s right.

Wes Edens: And as we said, that’s not €“ we don’t disclose exactly what the hedging positions are. The exposure we’ve got at this point, our view with TTF going down to kind of mid to high teens, it’s pretty modest at this point. We think that on balance, the amount of market exposure we’ve got net of the hedges and then the absolute price of gas today is actually pretty modest. I mean, if you look at the slide that Andrew went through, you can see only this year, but out years. We are looking at 15% or 20% of our total volumes being open, and that assumes no incremental downstream activity, which, of course, that’s not our goal. It’s still at the end of February. We think there is lots of downstream in front of us, so…

Marc Solecitto: Got it. That’s helpful. And maybe just €“ apologies if I missed it, but as far as the 30 TBtu from FLNG, are you using the current strip in your guide?

Wes Edens: We are. Yes.

Marc Solecitto: Got it. Thanks for that. And then maybe just to follow-up on the previous question. Can you talk about the expected CapEx cadence at this point? And then it relates to your dividend, just how you are thinking about the 40% targeted payout over the next couple of years with pullback in spot prices. I guess it’s partly dependent on the CapEx side as well.

Chris Guinta: Hey Mark, yes, so two kind of categories of CapEx, one being FLNG, one big terminals. So, there is very little remaining terminal CapEx. So, between the two terminals in Brazil and then the maintenance stuff at the terminal, that’s pretty minimal, I would say less than $50 million. On CapEx for FLNG 1, we will pay the remaining balance. And I think we have it in the K, but just to step through it, it’s around $250 million left to spend. And we will spend that. Majority of that is going to be in Q2. So, I think in Q1, you will have €“ sorry, and I am thinking from today forward. So, from 12/31 that you will see in the K, it’s probably closer to $400 million that we will spend. And that will all go out, I would say, $100 million in Q1, $200 million in Q2 and $100 million in Q3.

That’s probably the way to think about it. And then for FLNG 2, or others, as Wes has said, we would be probably very thoughtful about how we continue to move that forward. We have taken careful precision through our legal team in executing excellent contracts that allow us maximum flexibility with our customers. So, we are able to kind of pace out the construction CapEx to match the business needs. Procurement and engineering has largely all been completed.

Marc Solecitto: Got it. Appreciate the time.

Operator: Our next question comes from Sam Burwell with Jefferies. Your line is open. Please go ahead.

Sam Burwell: Hey guys. I wanted to maybe unpack the Fast LNG CapEx just a little bit. Last week, Chart reported and they disclosed that you guys had made orders for the cold boxes on FLNGs 4 and 5. So, curious how much of the equipment have you guys procured so far for all the units. And then maybe of the $750 million of guided CapEx per unit, what percentage of that is sort of equipment versus labor and other?

Chris Guinta: Yes. So, Wes has been very deliberate, and we announced this on our earnings €“ the Investor Day, excuse me, that we purchased the long lead equipment so that we have maximum flexibility that when he wants to move forward on the pace of the construction side, we have the ability to do so. So, partners at Baker Hughes, GE €“ excuse me, on Chart and others are on the ready with equipment so that when we want to continue to move forward on the construction, we can do so. As far as breaking it up, rule of thumb, 30% is probably procurement and engineering and 70% is construction and make-ready. Obviously, the make-ready you don’t do until you have a location and an expected online date.

Sam Burwell: Okay. Got it. Very helpful. And just I guess sticking with CapEx, like 2023, that still is expected to be $2 billion. I mean how much of that should be earmarked for the Barcarena power plant? I think you said that’s under construction. Is that more of a 2024 spend? How should we think about sort of non-FLNG CapEx this year and next?

Chris Guinta: Yes. So, non-FLNG CapEx is pretty minimal. So, there are terminals, as I mentioned and any maintenance CapEx is less than $50 million. You have got a little bit of FSRU conversion, $20-ish million or so. The Barcarena power plant, if Andrew can talk to specifics about it, but we also have the Barcarena alone that we have and it’s disclosed in the financial statements. So, we expect that to fully fund the development and construction of that power plant over the course of the next 24 months or so, maybe 18 months.

Andrew Dete: Yes. The power plant is being built under a fixed price lump sum turnkey EPC agreement with Mitsubishi between now and July 2025. So, actually on a kind of a per quarter basis, it’s a pretty modest amount of CapEx, obviously, mostly done through the loan we have.

Chris Guinta: Yes. So then, I think $2 billion is probably a little high from kind of what we were expecting when we announced last quarter. That included probably moving forward at a quicker pace with additional FLNG units that we will now be very thoughtful on how we move forward there to match the online of supply with our demand.

Operator: We will take our next question from Sean Morgan with Evercore. Your line is open. Please go ahead.

Sean Morgan: Hey guys. I think Slide 11 is pretty helpful. We get a lot of questions sort of regarding open exposure. And I am wondering a little bit, the FLNG, it looks like the fully contracted, some of that would have to be contacted by the math for the 120 loan of kind of third-party gas. So, have you €“ firstly, is there any difficulty of procuring gas kind of upstream? You have to sign contracts on midstream pipelines and then contracts with E&Ps to basically procure that 63% that you have on Slide 11? And then also on the other side, you don’t have any firm offtake contracts yet, right? Just now, you are just sort of maybe saying that instead of being 100% merchant, you would probably look to sign some of that either shortly before you start producing gas or kind of in the near-term after it starts operating.

Wes Edens: Yes. The first question, the gas that we are going to take on FLNG 1 is Texas gas, right. It comes from Aguadulce, comes in a pipeline, a TC pipeline, which 100% of the capacity is contracted with CFE. And they, in turn, are subcontracting to us. So, the sticky bit there would be the capacity on that pipeline, but that’s the agreement that we have with CFE. The gas out of Texas is obviously very plentiful. There is an oversupply. Prices have come down, obviously. So, there is massive flexibility in terms of buying Henry Hub-indexed gas at that location for us. So, that’s not a challenge whatsoever. Andrew?

Andrew Dete: Hey Sean. Yes, I think the way to think about it is, yes, we are not looking to necessarily sign like fixed offtake at the unit like you might think about some other business models, right. We have a bunch of fixed offtake through our terminals. I think it’s 66 contracts now with an average life of 15 years. And on Page 12, showing kind of some of that, right. So, if you think about the Barcarena or the Nicaragua contracts, like that’s how we think about our charter demand through FLNG.

Wes Edens: To Andrew’s point, the numbers that are shown on Page 11 are aggregates of the entire portfolio. So, it’s not that we are taking an individual supply contract, be it FLNG or Cheniere or Shell or anybody else and allocating to a specific location typically. It’s really just done in the context of the overall balance of the supply that we have and €“ balance of demand that we have and the net numbers at the bottom, so.

Sean Morgan: Okay. That’s really helpful. So, the CFE effectively has the upstream relationships already set up. So, there is no need to do anything there because you are just kind of relying on their gas. And then I guess another question we get a lot it also sort of relates to CFE and of course, there are two pipelines Valley Crossing in Texas. What is the on the water gas price relative to say, Henry Hub? Is it €“ can we think of like an extra dollar per MMBtu of transit costs and CFE sort of margin built in there? How do you sort of quantify that?

Wes Edens: No, that’s a very good guess. That’s plus or minus exactly what we think it is.

Sean Morgan: Okay. Alright. Thanks Wes and that’s it for me. Appreciate the time.

Wes Edens: You bet.

Operator: Our next question comes from Greg Lewis with BTIG. Your line is open. Please go ahead.

Greg Lewis: Hey. Thank you for taking my question and good morning everybody. I was hoping to talk a little bit about the updated EBITDA guidance and kind of maybe some of the puts and some of the takes. You mentioned the volumes, kind of curious if you have adjusted your spread assumptions around the EBITDA guidance. And then as we think about that $2 billion number, just looking at consensus, it is still a little bit above where the Street is. So, really just kind of trying to understand how we should be thinking about it and maybe where some of that delta might be?

Chris Guinta: Yes. Greg, so to answer the question, I mean we had $2.5 billion we talked about at the last earnings call, $2 billion now of that. The difference is really just FLNG timing and the downstream execution, as Wes has talked about on this call. We feel really good about it, too. It is above where a lot of the estimates are today. There is very little volatility in that $2 billion. We feel really comfortable about that. Certainly, the $2.5 billion included a little bit more volumes under the FLNG scenario and it had a little bit of a higher strip. But as Andrew has said, we have termed out more and more of that gas since we announced the call in November of 2022. So, very little at risk, and we feel great about the $2 billion for 2023 calendar year.

Greg Lewis: Okay. That’s great to hear. And then my other question was when we talk about matching €“ your reference matching supplies and demand around some of the volumes. And clearly, the core of the business is selling €“ or not selling, but delivering gas to your downstream terminals. Has there been any change in how you are thinking about the medium-term outlook and the ability to deliver LNG into more of the international market, we will call it?

Wes Edens: Maybe I can take that. I mean I think the premise of our business basically is that there is a shortage of gas and power around the world. That was true in absolute terms, long before there was Ukraine invasion. And the prices reflect, I think the dislocation exists is there is just more demand for power. There is still 1 billion-plus people without power in the world. There is €“ a lot of people on affordable power. And so there is no shortage of demand for what our products are. And what we have done in a fairly methodical way over the last 8-plus years is basically build out terminals and power plants in those places to access them. Obviously, today, we have in Jamaica and Puerto Rico and Mexico and Nicaragua and Brazil.

There are a handful of other very significant markets we have spent a lot of time on, and we are confident that those will turn into terminals in due course as well. But there is €“ the medium-term or long-term basis, there is just no lack of supply. I mean I think that when you look at the business in the aggregate, I think number one, the question is, is the macro view of the world the right one, we feel very strong. The answer is yes, a resounding yes. There is a shortage of gas and power. I use the same example all the time. People in Jamaica used 10% as much electricity per capita as we do. People in Kenya use 10% as much electricity per capita as Jamaicans do. So, there is a vast need for affordable power. That actually is something we feel more strongly about every day.

Number two, I think the question about the businesses are really good at this, right. So, it’s something that we feel like we have demonstrated a pretty good capacity to do things. We are not perfect. We are learning every day. We have got a great group of people. But I think that we now have very, very good proof of concept at every level that except for the FLNG, which you are now a days away from having proof of concept with. So, we feel like that’s pretty good. And then the third thing is just the quality and consistency of earnings because I think that companies are rewarded for being without surprises to shareholders and living with their mission and delivering what they said they are going to do. And as I said at the outset of this, not only do we feel great about the actual volume of earnings kind of doubling from last year to the year before and then doubling again this year, that’s a pretty good path, right.

So, we are a $2 billion in EBITDA. That translates $1.3 billion in earnings, right. So, very, very significant earnings and we consider what the value of the company is right now. And I think that the sole missing piece of it, and only time will heal this or address this, is just show that you are actually consistent in what you said you are going to do. And the more diversity we have with terminals, more diversity we have with customers, the more we control our own upstream inputs of this, which is what the FLNG does, then the higher the quality of the earnings are. And we achieved this €“ the magical combination of both high-quality earnings and significant growth opportunities. That’s the goal that we have as a company. So, sorry for the long answer to your short question, but that’s how I think about it.

Operator: We will take our next question from Martin Malloy with Johnson Rice. Your line is open. Please go ahead.

Martin Malloy: Good morning. I have got kind of a macro question here. With the FLNG assets coming online, would it ever make sense for NFE to potentially invest in upstream gas assets or conversely maybe an upstream gas producer taking equity interest in the FLNG assets to take advantage of the increase in optionality for those molecules?

Wes Edens: It’s a great question. It’s something we kick around all the time. I think that it would be the ultimate in the integration from kind of cradle to grave of gas out of the ground to power and onto a system. The U.S. gas, in my opinion, is especially adjusted for the stability of the jurisdiction and the rule of law, is the cheapest gas on earth. And so simply connecting U.S. domestic gas to international markets is a fantastic idea. And that’s essentially what we are trying to do with this first one where we are basically buying gas out of Texas, maybe the pipeline gas and then taking it into there. I think the gas assets in the U.S. are very undervalued. And so I am not an expert at this. We have spent a lot of time looking at it.

But I think that the quality and duration and durability of some of those products is actually very, very, very inexpensive relative to the rest of the world. And so I am a big believer in the value of those assets. And whether it’s directly or it’s in partnership or some combination of all that, I think that’s something we will explore over time. And obviously, it’s first step first is get the FLNG. So, we are connected to the system directly. And then I think those kinds of opportunities are things that we will think about.

Martin Malloy: Okay. And my second question, I just wanted to ask about the hydrogen zero project. And maybe are there any milestones we should be looking out for there?

Wes Edens: Yes. I mean the €“ I left it out of the presentation because we are actually so far on the tracks of what our thoughts are with regards to that as a business. As we said before, my goal is to get a project fully committed and out of the ground and then in all likelihood, spin that off as a separate company because it deserves to have a separate identity. And I think our goal for that is to do so in the first half of this year if everything goes to plan. We have ordered the long lead items from Plug. We have personnel that are working on it every day. We have a site which is now cleared. We have the bulk of the engineering down. So, there is a whole bunch of individual milestones. But rather than kind of clutter up what I think is an otherwise very clean beginning of the year picture for the company, I thought we would just leave that on to the side.

But it’s a good question to ask. And I think that I think €“ look, I think with the IRA and the incentives the government has provided, makes the U.S. the most attractive place on earth to build hydrogen facilities. The location of those facilities is very, very important because when you create hydrogen, it quickly turns from a chemistry problem into a transportation problem. So, you want to be located next to where people are going to use it. Our site down in Beaumont we think is ideal because we are close to customers or close to hydrogen pipelines, that’s great. But I think our goal is to actually have a pretty specific update on this in the not-too-distant future. So €“ and I think that the prospects for that business, given kind of the macro environment for here in the U.S. and the $3 a kilogram production credit are actually quite good.

So, thanks for the question.

Operator: And that will conclude today’s question-and-answer portion of the call. I would now like to turn the conference back to Mr. Edens for any additional or closing remarks.

Patrick Hughes: Jess, I will take it. It’s Patrick Hughes here. Thanks everybody for joining today. We remain available to you as always, to answer additional questions as they may arise. And we wish you a good day. Thank you.

Operator: Ladies and gentlemen, that does conclude today’s call. We thank you for your participation. You may disconnect at this time and have a great day.