Q1 2024 Earnings Summary
- Growing global demand for LNG in Global South markets is leading to increased opportunities for Excelerate Energy. Countries like India are increasing the share of natural gas in their energy mix by 2030, indicating a bullish sentiment and a return to the LNG market.
- Excelerate Energy is actively investing in asset upgrades, which has resulted in 17 years of contract extensions in 2023. These upgrades are valued by customers and have the potential to push margins higher and enhance long-term revenues.
- The company is prioritizing growth and leveraging its global presence to capitalize on opportunities worldwide. With a focus on growth projects in attractive markets and strategic capital allocation, Excelerate Energy is enhancing its growth prospects.
- Excelerate Energy is prioritizing growth investments over shareholder returns, such as dividends or share repurchases. Dana Armstrong stated, "our priority will remain growth" and the company expects to use cash to generate growth in projects, particularly in the Global South. This focus may result in less immediate returns to shareholders and increased capital expenditures.
- The company expects ongoing business development expenses of approximately $20 million per year, which they caution should be considered part of their average run-rate expenses. This suggests that elevated operating expenses may persist, potentially impacting profitability.
- There is uncertainty around capturing unexpected seasonal margins, as prior opportunities may not exist today. Steven Kobos acknowledged that such margins are "unexpected and seasonal" and indicated that they have the "right balance of that in our guidance". This could indicate potentially lower margins going forward.
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Capital Allocation Priorities
Q: How are you weighing share repurchases vs dividends and debt reduction?
A: Management emphasized that growth is the top priority for capital allocation, with plans to use cash to invest in new projects. They have authorized up to $50 million of share repurchases through February 2026, having already purchased $9 million, leaving $41 million remaining. While they will opportunistically use the repurchase program, they will evaluate debt paydowns and potential dividend increases as excess cash becomes available, but growth remains the primary focus. -
Guidance and Run-Rate EBITDA
Q: What is the recurring EBITDA excluding unusual dry-dock costs and growth expenses?
A: Excluding the $20 million spent on dry-dock maintenance this quarter, which occurs every five years, and considering the ongoing $20 million annual business development expense, the run-rate EBITDA would be approximately $350 million to $370 million. Management cautions against excluding growth expenses, as they are essential for a company of their size. -
Project Portfolio Prioritization
Q: How do you prioritize and evaluate potential projects?
A: Projects are prioritized based on market fundamentals, energy needs, and risk-adjusted returns. Management looks at the total addressable market but focuses on markets that require LNG and have economies needing fuel to prevent a shift to coal. They assess projects against country-specific WACC and their hurdle rates, considering financial aspects like entry into desirable markets and counterparty quality. -
Ability to Execute Multiple Projects
Q: Can you undertake multiple large projects simultaneously?
A: Management is aggressively pursuing as many prioritized projects as possible. They have a diverse range of projects, with larger integrated ones being more complex and costly, and smaller projects ranging from $50 million to $200 million. They are confident in advancing multiple projects over the next 18 months. -
Market Outlook and Customer Sentiment
Q: What are customers thinking with LNG market changes?
A: Customers, especially in Global South markets, are returning to the LNG market after disruptions from the Ukraine war. They recognize LNG as a key part of their strategy, with countries like India increasing the share of natural gas in their energy mix by 2030. Sentiment is bullish, with reentry into spot markets and contracting for long-term supply. -
Growth Opportunities Outside FSRUs
Q: Are you considering investments beyond FSRUs?
A: Management is open to investing in assets beyond large-scale FSRUs, including vessels for onshore regasification. They recognize that different markets require various solutions and assess each project depending on market needs, offering a wide range of technical solutions. -
Upgrades to Core Assets and Margin Impact
Q: Could investments in core assets enhance margins?
A: They plan to continue investing in their assets by making upgrades valued by customers, which can enhance long-term revenues and margins. Upgrades could include adding reliquefaction capacity modules, compressors, or other enhancements. These improvements help secure contract extensions and meet evolving customer needs. -
Long-term LNG Supply Agreements Strategy
Q: Will you continue integrating LNG supply agreements?
A: Establishing a diversified LNG supply portfolio is key to their strategy. They plan to build LNG supply in parallel with downstream demand growth, matching flexible U.S. Gulf volumes to their projects. They will assess opportunities to tie agreements together, similar to their deal with Qatar and Bangladesh. -
Potential Upside from Spot Sales in Guidance
Q: Does guidance include upside from spot sales?
A: Guidance includes minimal expectations for incremental cargo sales, as they do not expect significant one-off or seasonal opportunities. While such upside existed in prior years, it is not a material figure in the current guidance. -
Focus on Project Regions
Q: Have market dynamics shifted your regional focus?
A: Management continues to be global and is not writing off any regions, including Sub-Saharan Africa. The Americas have become a focus due to interesting opportunities, but they are prioritizing markets based on near-term prospects without any specific changes in market dynamics driving this shift.
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