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    New Fortress Energy Inc (NFE)

    Q1 2024 Earnings Summary

    Reported on Mar 7, 2025 (Before Market Open)
    Pre-Earnings Price$26.12Last close (May 7, 2024)
    Post-Earnings Price$26.93Open (May 8, 2024)
    Price Change
    $0.81(+3.10%)

    What went well

    • NFE has secured fully financed power projects in Brazil with no need for additional equity capital expenditure from NFE, enhancing financial stability and preserving cash flow.
    • Upcoming power auctions in Brazil present significant growth opportunities for NFE to secure fixed capacity contracts, potentially adding 2.5 gigawatts to their portfolio, leading to increased long-term revenue and market presence.
    • In Puerto Rico, NFE's new 80 TBtu contract and the potential to expand to 300 TBtu due to increased GDP and population growth forecasts indicate substantial growth prospects, potentially tripling their current capacity and driving significant revenue growth.

    What went wrong

    • NFE's financial results are dependent on settlements with the Army Corps and Weston for their emergency power contracts in Puerto Rico, with gross amounts owing over $1 billion. The recovery is expected to be significant but remains uncertain, posing a risk to future earnings if negotiations do not conclude favorably.
    • The company's growth projections in Puerto Rico rely on transitioning short-term contracts to longer-term agreements, potentially changing pricing structures from being linked to 73% of diesel prices to Henry Hub index, which may reduce margins. Additionally, NFE is exposed to LNG price volatility and is only beginning to discuss hedging strategies, which could impact profitability.
    • NFE's expansion plans in Brazil depend on success in upcoming power auctions to be held in August 2024. There is uncertainty regarding the company's ability to secure 2.5 gigawatts of power contracts, and any delays or failures in these auctions could adversely affect projected $1 billion of EBITDA by 2028.

    Q&A Summary

    1. Puerto Rico Contract and LNG Pricing
      Q: How will the 80 TBtu PREPA contract impact margins, and are prices linked to liquid fuel?
      A: NFE's growth in Puerto Rico beyond the 80 TBtu PREPA contract is directly linked to diesel prices at 73% of diesel, ensuring significant savings for customers and substantial margins for NFE. With diesel at roughly $20, 73% equates to about $15, representing both customer savings and strong margins for the company. Long-term contracts are expected to be based on Henry Hub pricing.

    2. EBITDA Outlook and Settlement Proceeds
      Q: How should we treat settlement proceeds in adjusted EBITDA, and is a U-shaped EBITDA performance expected?
      A: The bulk of the settlement proceeds would be considered earnings. The anticipated U-shaped EBITDA performance depends on the speed of fuel switching from distillates to gas in Puerto Rico. Over the next couple of years, NFE expects upside in their numbers due to existing assets' cash flows, particularly in Brazil.

    3. Puerto Rico Volume Ramp-Up Timeline
      Q: What is the timeline to ramp up to 80 TBtu in Puerto Rico?
      A: NFE anticipates reaching 80 TBtu by the end of the year, starting from 25 TBtu currently supplied to San Juan units 5 and 6. The ramp-up includes converting temporary power to permanent power totaling 425 megawatts, utilizing existing assets, and exploring opportunities in Mayaguez. Infrastructure adjustments, asset movement, and obtaining necessary permits are in progress to achieve this target.

    4. Brazil Power Auctions Timing
      Q: When will power from Brazil's auctions come online?
      A: The auctions include a 7-year contract for existing power plants, which can come online immediately, and a 15-year contract for new generation to be online by 2028. New simple cycle power plants could be operational by late 2026 or 2027, with NFE expecting a mix of both products in their portfolio.

    5. CapEx Guidance and Financing
      Q: How should we think about CapEx spend and financing for the rest of the year?
      A: NFE's CapEx guidance remains at $1.5 billion, with $1.25 billion financed. In Q1 2024, they spent $140 million on FLNG 1, with spending tapering off for the rest of the year. Minimal equity CapEx is required for terminals and Puerto Rico conversions, around $100 million each. FLNG 2 and Brazil projects are fully financed through debt.

    6. Additional Brazil Gas Supply Opportunities
      Q: What is the outlook for adding additional gas volumes in Brazil outside power auctions?
      A: NFE announced their first contract at Santa Catarina, a 14 TBtu deal with the Trans Bolivia pipeline. They are engaging with industrial consumers on the pipeline, which has 300 TBtu of existing consumption. NFE offers benefits like lower pipeline fees, flexible contracts, and assistance transitioning to 'free consumer' status. They aim for a portfolio similar to Barcarena, targeting 1 MTPA baseload supply and potentially up to 4 MTPA total contracted supply.

    7. Financing of Brazilian Power Plants
      Q: Is there financing in place for the Barcarena and PortoCem power plants?
      A: The Barcarena power plant is fully financed with BNDES, Brazil's Development Bank, requiring no incremental equity CapEx from NFE. For PortoCem, NFE closed a loan with four Brazilian banks to fund CapEx during construction, with plans to transition to longer-term bond financing.

    8. Merchant Power Opportunities in Brazil
      Q: Can NFE enter agreements with uncontracted power plants in Brazil for merchant power?
      A: While possible, Brazil's grid relies heavily on low-cost hydro and renewables. Merchant opportunities exist mainly during periods when generating power is economically favorable. The primary focus is on auctions providing fixed capacity contracts, coupled with merchant opportunities when the system requires power.

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