New Fortress Energy Inc. (NFE) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentleman. And welcome to NFE Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call will be recorded. I would now like to introduce your host for today's conference, Mr. Alan Andreini, Head of Investor Relations. Sir, you may begin.

Thank you, operator. I would like to welcome all of you to the New Fortress Energy LLC second quarter 2019 earnings call. Joining me today are, Wes Edens; our CEO and Chairman of the Board; Chris Guinta, our CFO; and Brannen McElmurray, our Chief Development Officer. Throughout the call, we are going to reference the earnings supplement that was posted to the New Fortress Energy website yesterday. If you have not already done so, I'd suggest that you download it now. In addition, we will be discussing some non-GAAP financial measures during today's call. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings supplement. Now before I turn the call over to Wes, I would like to point out that certain statements made today will be forward looking statements including regarding future earnings. These statements by their nature are uncertain may differ materially from actual results. We encourage you to review the disclaimer in our press release and investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Wes.

Great. Thanks, Alan. Welcome, everyone. I'm going to refer to the supplement that Alan mentioned and I think that the folks will follow it as well. So let's start on Page number 1. You know, the first six months of the year have been terrific for us. We've had a good start to the year. It's been focused, obviously, potentially on the development side. Brannen will talk about that in just a second. But as you see, when we go to the materials, we're very much, you're transforming from a development company into an operating company. And you'll start to see you know, significant amounts of product flow through our terminals into our customers. And then of course, associate with that significant increases in revenue in the next couple of quarters. Jamaica, we project to reach full run rate in Q1 2020. Puerto Rico is now days away from the terminal being completed. We expect that to be fully online by fourth quarter. Mexico is fully under construction and we expecting to be online by the end of Q2 2020. Downstream. We’ve got the terminals completed in Jamaica and the two terminals under construction in Puerto Rico, Mexico. The power plants in Jamaica, that Brannen will talk about how the 90 megawatt project that JPS has completed, 150 megawatt projects that we have just about completed our big additional sources of demand for us. They're going to come online here in a matter of days. The pipeline continues to build out, we designed a large scale MoU goal on we're quite close to signing one in a second country and there's a long list of other situations that we are pursuing. 1.6 million gallons of committed volumes added since our last quarterly call. Next, you know operational excellence is of course the top of our list. We've had zero recordable safety incidents in the second quarter, 100% availability, 99.4% reliability. We know in these businesses that you know that they are serious businesses where you know consequences can be extreme, if you don't follow the rules and put in place the right. Operating metrics, we feel really good about where we are right now as a young company there. Lastly, I'll have Chris spend some time on our financial initiatives. Not to steal his thunder, but we just did sign a binding commitment to finance $180 million against our Jamaica power plant down in Puerto Rico or in Jamaica. And we're on very good path for $1 billion estimated terminal financing, sometime the next six months or so. So let's get into the deck if you go to Page number 3. This page kind of tells it all in terms of the divine growth that we expect as these terminals come online. Our average per day throughput in the second quarter was 378,000 gallons per day, it's modestly higher than was in the first quarter but not a meaningful sense. You can see us start to click up in the third quarter of 2019 and then really escalate as we go through the fourth quarter in the early part of next year. So all harbor comes online. They've been taking gas from us as their commissioning. We expect them to be fully deployed by the middle of September, so about a month from now. So we see that logged and then Brannen will talk about both that plant and our plant. And then you see the green, the first volumes are going to get out of Puerto Rico. We expect that to be fully completed by the middle of October. We're working hard on that, our partner down there and prep is working hard as well. And then the blue is we see the volume start to come in through in Jamaica. So 378,000 gallons per day second quarter this year. By the second quarter of next year, that's 2.2 million kind of ending up at 2.6. So these are committed volumes only, don't reflect any of the pipeline activity. Put to Page number 4, you'll see how that then turns into dollars and cents. So basically $48 million in earnings at a terminal level. And then Q3, going up to $395 million by the time we're fully deployed. So really very much. Now the story is just the passage of time, it's going to be very beneficial from an earnings perspective. And I'll talk about you know what the incremental volumes can be, as we go down the path. But this is based, this is 2.6 million gallons a day of throughput generates approximately $400 million in terminal earnings by the time we fully deployed by the middle of next year. We've got about 16 million gallons of total pipeline. If we convert half of that, just as an example, you go from 395 million to about 1.7 billion. So the leverage in the system is extraordinary. And we're now in a good place to start execute on that. So I'm going to turn over to Brandon to talk about developments. Brannen.

Great. Thank you, Wes. Good morning, everyone. Thank you for joining us. I'll refer to Page 6. We continue to make great progress on our terminal properties which serves the backbone of our network and gateways for energy. Importantly, 95% of our committed volumes flow through just four assets Montego Bay, Old Harbor, San Juan and La Paz of the four two are operating and two are in construction. We expect to glow gas through San Juan in Q4. We were just there, it looks terrific. And it looks like it's going to actually exceed our expectations. These four terminals represent 2.5 million gallons per day of committed throughput. And importantly, we have lots of built in capacity to serve additional downstream customers, as we add to our network. On Page 7, on the downstream side, which is what we are connecting to our terminals, we've been very productive. We have five big projects that consume most of our committed volume. And the balance is taken up by 30 customers, which are typically better credits and pay a little higher price than our base load customers. 70% of our committed volumes are taken up by just four projects, both Old Harbor, Jamalco and San Juan 5&6, Bogue, as you know, because we talked about it frequently was our original power plant that we supported through Montego Bay, 120 megawatts. Subsequently, the utility has added an additional turban and we think they're also going to make an upgrade to a substation. So what started out as 120 megawatts we believe will grow to 157 megawatts over time, with additional capacity added is just the economy would grow in that area. So we're terrific, you know, we're super excited, you know about the possibility of expanding, you know, our additional assets. In Old Harbor, as Wes mentioned, we have delivered our terminal. So our terminal is up and running has been providing commissioning gas throughout the process. The 190 megawatt power plant developed by the utility looks like it's going to come online right about the middle of September in terms of fully operational on gas and we'll continue to support them as they put that asset into base load operations. So we're super excited about that particular project. Of the four that I referenced, two are operating, as I mentioned in two are under construction. Importantly, in San Juan, which we're building a terminal, we're also assisting prep up the utility, who owns a 400 megawatt – 440 megawatt power plant there in the conversion of that unit, from diesel to natural gas. The conversion has begun, which we're taking responsibility for. We expect to deliver those units in Q4. And importantly, we think that that's going to be a terrific base load customer for that terminal. Jamalco which is a power plant, we've taken responsibility for 150 megawatts equivalent, 100 megawatts of electricity, 50 megawatts of steam is on time and on budget and we expect to deliver that in Q4. And importantly, that gives us just another set of experiences to go develop additional power plants. And that was a Greenfield. Then I'll flip to Page 8. We continue to add downstream assets to our existing terminal properties. The two categories that we focus on the downstream developments are power plants and data centers. Power plants, as you know, require constant availability and supply of feed gas for fuel. So they're terrific customers for our terminals. But data centers are a very close approximation for that, essentially, their industrial facilities 70% of their operating costs are power. And the key ingredient to making a data center work are is basically cheap, reliable power. So we're super excited about potentially adding data center properties is just another thing that we look at as a downstream asset. I mean, essentially, for the data center side, these are 24/7 users of power, terrific credits, because they're typically used by people like Microsoft, Google, Facebook, Amazon, and Apple. So in most of the markets that we're looking at the data center pieces are real potential customer that we can add along to our other power plant and other downstream users. Just to put it in context. In the world in 2018, the top five internet companies spent about $77 billion on data center infrastructure in 2018. And in 2019, we expect the industry to spend $120 billion, which implies about 15 gigawatts of power that they'll consume. Microsoft alone is building about 85 megawatts per week to keep up with their cloud business. So this is a real trend that we're following. And essentially, they need the core asset that we're building, which is reliable, cheap energy. On the power side, just to put it in context. We have about 850 megawatts in development and about 5 gigawatts in discussion, some of which we would take responsibility for, some of which our customers would take responsibility for. And on the data center side, we have about 300 megawatts in development currently, at about 200 megawatts in discussions with represents about 1 million gallons per day.

Yeah, I cannot emphasize enough. I think the downstream assets we develop around these terminals are in many respects our most important projects. We basically end up creating our own demand or essentially negotiated with ourselves. So we know the guy who owns the data centers if we're building data centers. So the power project is in terrific shape that data center development that Brannen referenced you know, feels to me like we are still in the very early innings of what is a very, very long game. And I think the core asset that we have, which is power is really the raw material that really drives these things. So we'll keep a good eye on this. We have very little in our volumes, anticipating building this stuff, but I think there's a lot of promise there. So it's well done by Brannen. So flipping to the next section if you look at Page Number 10, you know, the core of our business our terminals. So the four that would list Montego Bay, Old Harbor, are already commissioned. San Juan will be commissioned in the third quarter first gas in Q4. La Paz just behind it, so done in the first half of next year, pulling online by Q2 2022. Two projects that we are in development on right now in Angola, Luanda the capital city, there's one in the central harbor. Soyo in the North is an offshore facility that would serve as a power plant and other assets up in the north of the country. Shannon, Ireland is what that brand is referenced. That's the if you look at the picture back on Page number 8, that's a rendering of what we think the datacenter development will be there. There's an associated terminal and power plant as well. In Page 11, the operating leverage of the business is extraordinary. As I say, in the infrastructure business, if you want to lose all your money, you build something for one purpose and don't use it, that's a bad outcome. The flip side is also true, though, you can build infrastructure for one purpose, and then use it for two or three or four. It's very little on marginal costs, and it can be extraordinary margins. And that's essentially what we have right now. So the bar chart on the left hand side here, committed volumes right now, as they flow through $395 million in terminal level. Earnings, if we converge, you know, the 16 million gallons of pipelines of conversations we're having right now, converting 50% of that would add another $1.7 billion in earnings. So it's an extraordinary amount of growth. The case study in the right hand side, what your business actually a rendering of actual customer flaws where it works more right now. So building the terminal in the north in San Juan Harbor, we then look at power plants to the west, we look at customers in the south. We look at industrial customers, along the edges of the country. So we think there's going to be many, many customers for us in Puerto Rico that they'll all come out of this first project that we built and Brannen brings online here in a minute. Brannen?

Yeah, you bet. As Wes kind of alluded to, at the beginning of the call, you know, we are incessantly focused on our operations for two reasons. One, from a reputation standpoint, you have to be perfect. And then from a human standpoint, you know, we have lots of people that work for us in our industrial properties. And so we need to be good stewards, so that we can make sure that they go home every day and, you know, can see their families. But on page 13, I'm going to highlight the four metrics that we track on the health and safety environmental. Importantly, we've had zero incidents this quarter, which kind of maintains, you know, are extremely good. And we believe, you know, world class record in this particular category. So we've had zero work incidences, zero, you know, environmental issues, and you know, zero health and process issues. On the availability side, which again, is reputational, this metric, you know, tracks our ability to serve our customers when needed. For this quarter, we were 100%, which means none of our customers ever did not get service as a result of something that we did. These, you know, this statistic has been pretty consistent for us throughout our operating history, we continue kind of improve and remain vigilant on that. From a reliability standpoint, you know, which is essentially how many run hours we can get out of our assets, we continue to maintain 99% plots, which includes, you know, counting for maintenance, both scheduled and unscheduled. So, you know, we love how our assets are performing, which I think reflects, you know, how we think about it from a design construction and operational perspective. And then I think the statistic that, you know, I'm personally most proud of, because I think it reflects, you know, innovative and differentiating experience. On our side, we have over 4,100 LNG truck and ship transfers, which importantly, is the most in this hemisphere. So whereas we started as a new player in the business, we quickly grown into the most experienced player. This particular set of experiences we leverage for credibility, for our customers, but also credentialing for our regulators. So for example, we've taken U.S. Coast Guard to our properties in Jamaican, you know, written around on our ships as we did ship to ship transfer and they get to watch operation in that technology they brought back to the U.S. in the ports which we operate. To now turn it over, probably just one page.

One, you know, thing worth mentioning is the current state of affairs with the LNG market. So you can see from the graph, it's been a tough year for prices for the LNG, given our point of view, which we are quite short cargoes. It's been a very beneficial on outcome that allows us to lower our forecast. The forecast in Chris's financial model is gone from assuming a $6.50 price of LNG, then $5.50, that's a big, big win for us. At our current volumes, every dollar is worth a little over 100 million dollars per year. So it's very significant. We are now looking very hard at locking in prices. And terms over the next five years, it'll facilitate, I think our investors having a good and clear view of what the earnings forecast is going to be going forward. It also helps us I think, on the financing side. So I would expect in the next 30, 60, 90 days that we will make some new material additions to our portfolio and you know, lock in these lower prices. My own view of this is I think that what – this is reflecting right now is the abundance of supply, and lots of uncertainty about trade in particular in the eastern oil stuff is going on. And in China, they've been a big off taker, obviously, historically and given all the trade challenges and that are going back and forth between the U.S. and China. That's one of the things that has drawn the uncertainty. It's also been an unseasonably you know, difficult market in Europe. The storage is already full here as you head into the winter months. So there's a series of technical factors that I think are addressing this. I do think in the long term, there's going to be an excess of demand. And so I think that there's going to be a good market for LNG down the road in the short term. This presents a good market opportunity for us and something that we're focusing now on locking in. So, Chris?

Yeah, great. Thanks, Wes. So I'll spend a few quick minutes talking about the financial results from the second quarter of 2019. And then talk about our progress toward our financial goals and initiatives that we laid out on our last quarter call. And then I'll turn the call back over to Wes to talk about our views on valuation. So first off, I'm directing you to Page 16 of the presentation. The increase in volume sold from Q2 2018 to Q2 2019 was about 91,000 gallons a day, that's largely driven to the increased gas turban that turned on in Montego Bay, and the very end of 2018 we talked about that in the last call. But then you've also seen increases from Q1 2019 due to additional small scale customers being served from the Montego Bay facility. The other driver of volume increase quarter-over-quarter in 2019 was related to the Old Harbor terminal starting to take commissioning gas to supply to the Old Harbor power plant. Going down to revenue, the increase is again largely driven by additional volumes. Then if you look at the operating margin line, one of the things that we talked about on the last quarter call was an expensive cargo that was purchased at the end of 2018. It took us a little bit longer than expected to burn through that cargo just due to the volumes that were being taken by the Old Harbor power plant for commissioning. But I'm pleased to say that that cargo is entirely behind us and we should see kind of the Centrica cargoes that have been discussed previously being for the remainder of 2019. On operating margin, the other kind of driver there is an increase from two to 2018 related to the Golar Freeze being the FSRU, the Floating Storage and Regasification Unit, that's on site, and the Old Harbor terminal. Perhaps the best news is that this is the last quarter we expect to see a negative operating margin. As was said as additional volumes are turning on both in old Harbor, the small scale volume is running through Montego Bay. And then when we introduce gas into San Juan, later this quarter, you'll see us turn to an operating margin positive number going forward. But just moving down to the bottom of the page to talk very quickly about the balance sheet. You know cash on hand at the end of the quarter sits around $260 million. We've added a line here which probably would show the pro forma cash on hand at $438 million. The bridge between the two is the $180 million committed fully underwritten bond financing that we have from National Commercial Bank in Jamaica, which we're extremely pleased to partner with, and I'll talk about further. But the big takeaway on this number is that $238 million cash on hand, fully fund every project that you've committed to at this point. So that includes the completion of the Jamalco power plant in Jamaica, the Old Harbor terminal, anything that's remaining there, the San Juan terminal and the La Paz terminal are all fully funded with cash on the balance sheet plus the pro forma financing. Moving to page number 17. This is kind of an update of what we had in the Q1 call, which is quickly talking about our goals from a financing perspective. The first one was the obtaining a commitment and financing for the Jamalco power plant in Jamaica. We have $180 million fully underwritten commitment. Those bonds, and we'll talk a little bit more about them further on page 18. But their non-recourse back to NFE. And importantly, NFE still has the cash flow generated from the gas sales agreement from the Old Harbor terminal to the Jamalco power plant. The terminal financing that Wes alluded to as well, I mean, when we think about the cash flow, the run rate of about $400 million. You should be able to get somewhere between three to four terms of debt on that on that cash flow stream. So we are anticipating going back out to the market later this year, early Q1 to put in place a more permanent terminal financing secured just by the terminals themselves and the contracts that they have. What this does, and the reason that sequence in this fashion is that it allows you then to free up the liquid fire in Pennsylvania. And we would then seek to fund the remaining costs of the construction of the liquefier through some of the proceeds of that financing, plus some additional project level debt just back to the Pennsylvania facility. On Page 18, I won't go through in detail, but this just kind of outlines the cost of the debt and the collateral package related to the Jamalco financing. What I'm most excited about is that this is about $165 million of third party costs, plus some owners’ costs in order to build the facility. And we're able to, you know, finance $180 million against those costs. Importantly, we then retain the equity interests in the power plant and the debt service, the cash flows to the Jamalco facility minus the debt service still produces about $8 million to $9 million a year of cash flow, that so long as you're in compliance to debt covenants, you can dividend back to the parents. So it allows a lot of upside beyond what we were forecasting. Wes, I will turn it over to you.

Great, thanks, Chris. Just Pages 19 and 20 I'll go through this quickly, and then we'll open it up for questions. Talk about valuation, you know, the big picture for the company, we think the market opportunity for is massive. There is virtually unlimited demand for our assets and our services around the world, as this transition from oil based fields to some combination of natural gas and renewables goes along. The key to unlocking those is to develop the infrastructure that we are now expert at. And what we have demonstrated over and over, is our ability to go into markets, solve, you know complex infrastructure and building issues and bringing online a very short period of time. You know, the margins that results from that are significant. Again, because we are doing everything. We're designing, we're building, we're operating, and most importantly, we are paying for it. We are able to then harvest the true economic benefit and still pass through significant savings to our customers, customer always comes first in our view and saving anywhere from 25% to 50% in some cases of their energy costs and still having you know, margins that are really extraordinary, is really what the business is based on. Lastly, you know, I get asked the question in competition all the time. And I think there's lots of reasons why I think we have been competitive and why we've been successful in many cases, I think they all stem from number one, focusing on what the customer is asked for, what the customer needs, and trying to solve their problems, rather than trying to put forward a solution, it's just something good for us. It sounds like such a basic ethos, but it actually is as important as I say all the time empathy is an incredibly powerful tool. And being empathetic about what your customers are looking forward, whether they're big or small, and then coming up with a solution that addresses that is really the core of the company. You combine that with design, build, manage and pay for. I think I didn't fully understand before we got into the business, how important it was on the financing side that you will pay for yourself. Project finance in these countries is where projects go to die. So having the ability to self-fund these in a prudent and thoughtful way. As we've just demonstrated, and Chris talked about it, once you have built an asset is cash flowing, there's lots of financing alternatives. When you were building it, when you're in development, there really is no substitute for cold hard cash and being able to develop yourself, so that's what is the picture behind the company, if you look at Page 20, and how that we think that translates into valuation. If you simply take the $395 million of run rate capital, or run rate earnings at a terminal level, and apply it 15 times multiple, which we think is actually quite consistent with other ports, terminals, other infrastructure related times, that implies an enterprise value of $5.9 billion, take out $700 million in net debt at that point, that’s $31 a share, so significant premium to where you are today. If you then look at the committed volumes plus 50% of the discussion volumes, that $31 a share then goes to north of $100 a share. And I use this only as an illustration. We don’t know how much we’re going to be able to convert an existing portfolio. In addition, we don’t know how big that portfolio can be. We think the pipeline. When I look at the other transactions, the other things we’re looking at around the world, as we add more and more capability in these different markets, not only to grow at our existing terminal, but add other jurisdictions, other countries other opportunities, I think that the future is virtually unlimited. So this is just meant to be an illustration of what it is. It’s all meaningfully higher than where the share price was last night. And we feel extremely good about our prospects or violation as we go forward for shareholders. So with that, let’s turn over to our questions, operator?

Thank you. [Operator Instructions] And our first question comes from Devin Ryan from JMP Securities. Your line is open.

Great. Good morning, guys. Thanks for taking my questions. I guess, first question on the downstream facility. So clearly, you guys are having a lot of success. And I think the opportunity set, has been evolving quite a bit, like the data center opportunity, which sounds to us bigger than initially articulated. If possible, just expand a little bit more on competitive positioning to win deals with these customers. I think you mentioned negotiating against yourself. So how was the full array services and kind of the complex services that you can offer different than what competitors can offer? And why is the model difficult to replicate?

Well, the, specifically on the data center part of it, and Bran touched on this. The 70% of all expenses, operating expense at the data center is power. And so in the simplest of simple terms, and this has meant to be an illustration of an actual example. When we think of data centers, we think of industrial buildings with really, really good air conditioning and really reliable power. And then as a firm, different part of the firm we develop 8 to 10 million square feet, more industrial space in South Florida and the next five or six developers put together some pad. You know considerable amount of experience on that side and there are obvious differences between that and what happens to the shell of the data center. But the bulk of the magic at the data center happens inside and is done by the customer themselves are addition to that, is to design and build the shell and most importantly to develop, reliable, redundant and inexpensive power. And I think it may well be the case that at the end of the day, we are supposed to be developing data centers next to all of our power sources, because we think that those two things are so synergistic. And I think I touched on before, I do think that putting the customers’ needs first, sounds like such a simple thing, but we see it, we see it violated, over and over again, where people are asked to help provide a solution instead come back what’s good for them, as opposed to what’s good for the customer. So that’s a very, very basic ethos, but it’s kind of the headwaters of our discussions. And number two is, having the ability to do it all yourself. I mean, I think that the example we’re using in Shannon, we certainly are keen to work with the big data center users, and we’re talking to all them and then end of it really robust discussions with them. At the end of the day, I’m not afraid of actually developing something on our own and figure it out that way as well. I mean, there’s just no substitute and do as on a prudent manner, these are not massive expenditures, but there’s no substitute for actually doing things to really learn from them. And the benefit of those experience is you can apply over and over and over again. And that’s what we’ve seen in every aspect of our business. And we frankly, we just don’t see everyone putting together all these different pieces together. And it’s not that I’m – I don’t believe that there is competition. There is of course, there is and it will increase over time, because we’re having a lot of success. But I’m a lot more relaxed about it today than I was a year or two ago, because even though there’s nothing we do that independently is that complicated, through them all together, really does benefit from the experiences that we’ve had. I think for somebody else to then go and compete with that, they need to have those experiences as well and it’s a pretty big world. So we feel really good about the competitive landscape.

Great, thanks for the detail, Wes. And maybe just a follow-up, if I may, on the Pennsylvania liquefier and just, if we can just go in a little more detail there. I mean, with LNG costs, lower today much lower than kind of initially modeled as you were kind of building the plant out. How does this impact I guess the sense of urgency in Pennsylvania or even impact how you’re thinking about the risk reward and moving forward. As I’m sure there’s still kind of an economic upside case here. But it also adds a fair amount of complexity to the story. So I’m just curious to hear the case here, and whether it’s changed at all? And then also just how you’re thinking about the financing there as well?

Yeah, look, we clearly deemphasize financial model. So there’s another dollar of economics is associated with it in the model. So that’s not just changed from when we started six months publicly. In our model was something $5.50 LNG. We think that today, the comparable price that we would create and bring to the ship in Pennsylvania is around $4. So there still is a benefit there. So $1.50 times, 3.6 million gallons is roughly $150 million a year. So you’d be a very good economics 40% margin on cost and so we think it’s certainly worthwhile to pursue, but the sense of urgency is obviously reduced significantly by the chart of shells what’s happened in LNG prices. So I think it’s exactly as Chris alluded, I think, as we proceed with the financing, generate excess proceeds, we’re probably $150 million in incremental capital away from really FID. So it’s not a huge pull from there. You can get project financing readily, isn’t that kind of leverage. And so I do think that we will build out there and I think they will be successful. And it’ll be one more arrow in the quiver in terms of the things that we have done. And so we will do prudently and it is not material in the numbers. It is not a part of our prescription right now. I think 2, 3, 4 years from now, it could be important to have your own supply. That’s clearly not the case with 30 million tons of production coming on as it is right now and where the supply demand is, but we’re in this for the long haul. And I think, 2, 3, 4 years from now, it could be material, so.

Okay. Understood. Thanks, Wes.

Thank you. And our next question comes from Ben Nolan from Stifel. Your line is open.

Great. Thanks, guys. So I have my one question and follow. My first question relates to some of the projects that haven’t yet been fully committed specifically Ireland and Golar, the Dominican Republic. I’m curious what milestones we should be looking for or if you maybe can give any color as to when you expect those? Or if you have any idea when those might convert from being potential to definitive?

Yeah, I’d say the chain of events is MoU followed by negotiate term sheet, followed by GSA, followed by all the permits in hands, you can start construction. So those are the – that’s kind of the path of development. I think probably the top of my list and Brannen might have a different view on this and probably Ireland is the closest to FID right now. We have a set of promise in hand that we need to enhance [Technical Difficulty]

And pardon me, this is the operator, we’re not able to hear you anymore.

Operator?

We can hear you now. Sir, you may proceed.

Okay. Well, I’m not sure where I was, but also Ireland, I think is probably the top of the list of the development projects, because we’ve been – we bought into a project that had add years worked on previous to us, not precisely what we’re planning to build that is very, very helpful to it. So that’s on a very good track. And Golar we are very substantive discussions with them about converting the MoU into a term sheet, and then going down the permanent path. There are there actual milestones that we achieved, but I think, from our perspective, what we anticipate, updating on is, is the project in MoU, is it in term sheet, is it in GSA, so it actually assigned and binding commitments. And then where are we in the permitting side? So obviously, the four terminals, the two in Jamaica, the one in Puerto Rico, the one in La Paz are all completed as the FID is in the process being completed. The other ones are on the path behind that and there are others that we have not yet gone to MUFA station. We are contemplating and conversations we’re having. So that’s how we anticipate updating for folks.

Okay. Appreciate that. My next question relates to Slide number 10 and the terminal infrastructure that is under development. It’s just kind of looking at it, it looks like there’s a number of different and maybe this is for Brannen I’m not sure Wes, but a number of different designs, whether they’re onshore, offshore, with FSR use or not, I’m curious if there is some sort of off the shelf design that you’re sort of working towards or do you envision what you’re doing being entirely bespoke for in every situation?

This is Brannen, I can take that. So if you can – kind of rightly emits a great observation. So if you look at kind of what we’ve done, effectively, we’ve now done one sort of type of every product that we think applies in all the situations that we’ve seen. So you can have, landed offshore, and then what we call kind of our hybrid product, or hybrid plus product, if you will. We are now moving to the point where we’re developing now a design for what we would call kind of our 2.0 energy terminals, where you sort of take the iPhone, right, which came out in 10 years ago, it’s kind of 1.0, look at it, and then now we’re starting to basically iterate it, probably once a year, we think, to come up with a reference design that we can roll out sort of the next model year. So from our perspective, the way we think about it is, you have an energy terminal, and then inside that terminal, you have component, and then those components, we believe will be standard off the shelf built, probably in a climate controlled, fabrication facility in Texas, or Europe or Louisiana, and then ship to site on a skid and then plugged in. And the huge advantage of that, not only, you get control quality and cost and your supply chain generally in terms of reliability, but most importantly, you can control your construction time. Because typically two thirds the cost of every project is the construction. And in our case, if we can do that construction in a facility that’s away from the site, it allows us to run in parallel either entitlement processes, or our site work and our fabrication. So the goal would be to get from a standing start to delivery in between 9 and 12 months, which makes the product offering, extremely compelling plus, because it’s repetitive, effectively we can operate under a standard where everything we build, the goal is to be 10%, cheaper and 10% faster. And if you string along enough of those 10%, you’re really going to have a meaningful advantage versus anyone else who tries to come in and compete with you.

Fair enough. That’s very thorough, I appreciate that Brannen certainly more than I was expecting there. But thanks a lot. I’ll turn it over. Thanks.

Thank you. Our next question comes from Spiro Dounis from Credit Suisse. Your line is open.

Hey, good morning, guys. If you’re just starting out with the recent MoUs sign with Angola, just wonder if you provide a little bit more color there on the scope of potential returns? And maybe more specifically, are these power plants in place yet? Or will you be constructing them? And how should we think about the return should they be sort of similar to the ones you’ve gotten the first few projects or has that market moved?

The projects in Angola are largely a service existing power plants, so they burn diesel today, it’s expensive, it’s dirty, they have significant challenges the contaminated fuel, and one of the things that happens sometimes in these markets is people take the diesel and they replace it with something else that actually comes up to work. So they have significant downtime in some of their plants from contaminated fuel. So it’s a replacement field strategy, which is the easiest one to execute, frankly, because it’s the most obvious benefits to customers since the easiest thing to, they are serving kind of something very specific. So there’s a handful plants in Luanda, that are targeted to be converted, there’s one new plant brand spanking new plant that is developed up in Soyo that would be a potential customer. So that’s the nature of wonders. We could also add down the road, other downstream applications be the power of data centers are others, but that’s not contemplated in the scope of what we’re looking at this moment. Returns we think are very consistent with the other returns we’ve seen. We think that obviously we look at any situation we look at, what the capital needs are, what we think the environment looks like, the degree of difficulty to execute, et cetera and try and make good judgments about what’s a fair return. And we think that these returns look very much in line with the other places we’re doing business.

Understood. And maybe just sticking with Angola, surprised by how quickly you guys are going be able to bring that to market, I guess late next year. When do you think you needs to convert into the committee category to still hit that target? I guess, what’s the latest you’ve got? And then do you think about financing that?

I think if it goes as we hope it does, will be committed by the end of the year. One of the reasons we can convert those plans quickly is that the marine infrastructure that’s in place in the Luanda, that we believe we can access kind of greatly accelerates the process. I’d say, when Brannen talks about all the different types of things that he has developed, what starts the discussion always is the condition the marine environment, and whether you’re able to just, kind of plug and play into something accessory you have to develop it, from a standing star, and particularly in the Luanda that we think there’s a good situation to use their existing port facilities and so that helps that process. But I think our hopes and expectations, if it moves ahead is that we would be in a position to execute like by the end of the year and be providing energy discuss by this time next year, so.

Okay, and then in terms of financing, you may able to tap into that billion dollar facility, you guys are targeting or would this go to another round of financing?

Yeah. Now, as we think as Chris said, we are between cash on hand, the current facility, the debt we put in place in Jamaica, we can fund everything that we have on the list right now. So we have excess of capacities trust to funders will have over $150 million from operations for next year between now and there’s ample sources of capital even before the incremental terminal facility. And certainly we don’t anticipate issue the equity. So we think we’re going to be well financed on it.

Great. Last one for me. What’s your point on leveraging the current infrastructure for several uses, and really exploiting that operating leverage makes total sense? But you guys are obviously running sort of dual tracks here where you’re sort of commercializing what you’ve got in place, and then also, going out and ginning up new business. I guess, just wondering how you think about not spreading yourself too thin or bouncing between maximizing the current terminals, and really exploiting that operating leverage versus maybe going out and really, getting more in discussion contract, how do you guys think about the balance there?

I’d say, from an operational standpoint, what we are very focused on in separating out kind of the big terminal developments that it’s all in the Brannen. But before he spends a lot of his time is focusing on the big terminal stuff, we then have a very talented, small scale development small not diminutive but just smaller kind of downstream development. So that’s how we organized ourselves. That’s we believe creates scalability across the different platforms. And just as we seen, patterns emerge on the terminal side, we also see patterns emerge on the downstream side. So we see customers needing the same kind of solutions, whether it’s a resort in Baker's Bay, Bahamas or in Cabo, San Lucas. So if there are needs or similar and so with that, trying to recreate the wheel and use existing experiences, we think we can actually export a lot of the experiences we’ve in one place to another. And we’re very focused on converting the terminals or in construction the downstream stuffs and construction in the cash flow, and then adding on to it in a prudent manner. I mean, there is literally a hardly a day or week that goes by without some new opportunity cropping up around the globe. And I tell everyone, that the decision to really pursue something in an earnest manner is in certain respects are most important decisions because it takes not just a commitment of capital, but it also takes a commitment of time and focus. So we pass on far more things that we actually go and pursue at the top of the whole pyramid. But hopefully, as we develop as a company, we’ll be able to take on more and more of those things without spreading ourselves to them.

Got it. Appreciate the color. Thanks, everyone.

Thank you. [Operator Instructions] And our next question comes from – and I’m sorry, we will be taking our final question from Jon Chappell from Evercore. Your line is open.

Thank you. Good morning, guys. Yeah, Wes and Chris, I want to follow-up on that last question, just to be clear. So I think Chris did a great job of laying out the financing for the terminals under construction and committed at this point. Wes, you just said that do you think that financing for everything on the list. So Angola makes sense, I think from that size, but Shannon is pretty huge from a volume perspective. So can you remind us what the capital commitments would be if you move forward with Shannon? And based on the financing you have committed today, even if we talked about the entire potential billion dollars? Well, that fully covered Shannon, or would you need something else for Ireland specifically?

The short answer is yes, it would. So but specifically, the terminal that has been designed right now we think the total cost of that is, roughly a couple hundred million dollars, right. It’s basically appeared like financing. So kind of a fancy doc in my non-technical perspective, and then which provides NGL infrastructure, onshore vaporization and then power plant right. So that’s a couple $100 million as pre-power for that. Power and the downstream use of data centers we think will be tied together. And given the nature of the customers we’re talking to, we think we have many, many financing options for them. So whether we choose the project finance that or comes onto under the billion dollar facility, you think there’s lots of different ways to finance. So you’re – in a jurisdiction that is obviously a very high credit quality, you’re talking about customers that are themselves very high credit quality, so the financing aspect of it becomes quite a bit easier. Also, you won’t build, we don’t anticipate building 400 megawatts of power and 500 megawatts worth of downstream development at the same moment in time, I mean, anything’s possible, but it’s much more likely to be scaled into. And so I think the part that you can’t scale into is a couple $100 million in the terminal, we hope to be up here at beyond that, sometime around the end of the year, in terms of what we call our permits, and stuff all that sometime next summer, and how the downstream development turns out, will have a lot to do with how we eventually looked at finances so on.

Okay, that makes sense. And then Chris, if we go to Page 14, and you talked about that new 550 run rate, and as Wes said, taking it down from 650 to 550 is pretty meaningful, I assume that’s not for the third quarter. So let’s be clear about that. And then how do you plan on getting there and then Wes mentioned something about locking in for five years, he just talked about how we get comfort in a very volatile commodity market that has massive seasonality, typically locking in 550 for a five year period?

You know just take those, if you just simply take the math of Henry Hub plus tons 115 plus 250 or so, you end up at roughly $5.50 in NLG, that’s using the base rate of Henry Hub of $2.75 as well. Now, if you look at the five ports, it’s actually if we use the 250 all, it ranges between $5.30 $5.55.

And roughly what 85%, 90% of our downstream customers are Henry Hub base. So at the end of the day, picking the Henry Hub price of is $2.75, or $2.50, or $3 or $2.25 it’s going to be mirrored on the downstream, demand side. So those two things move in lockstep. And I am highly, highly confident that we’re going to be able to generate supply somewhere in that range. And we’ll obviously updated with use with specific numbers, and we have it but right now, there’s lots of folks that we’re talking to, and we think that locking in kind of five or maybe five plus years of supply for these existing assets is the right things to do, both from an earnings stability perspective. And also, they’ll help the financing, finance ability of our terminals are things significant. So those two things together are while we think it’s a good idea and I hope by the time we have another quarter of the call will have a good update for you then.

It’s definitely good idea. As far as visibility, just want to be clear, though. I mean, this isn’t something it’s we’re in the middle of August right now. I mean, the third quarter, we shouldn’t be thinking about 550, we should be thinking about something maybe closer to historical levels in the – in the seven range is that is correct?

I think remodeling perspective, I would use next year as kind of the start date of the 5.50 I not modeling experts, but that’s probably more prudent. But I think, and I’m hopeful will deliver it before then but I think that that’s probably a good place to start with that.

Okay. That makes sense. And then final thing also a little bit of a clarification and what you just laid out $4 in the liquefy or even versus that 550, it’s a massive return on the equity you would need to put into that project. So to say it’s not really a focus right now mean, can you just kind of clarify those comments? Is it still possible for a 2021 start time for the liquefied based on how you see the next 6 to 12 months progressing? Or should we kind of put that further on the back burner as you focus more on the downstream today?

You worry things on, Brannen right now, comes to prominence in time?

Yep, sure. So this is Brannen. So from the plant side on the permits, we have permits in the hand and those come up on a couple of calls, but we’ve actually received our air permit, so it’s been issued. So on the site now, if you were to go look, we’re clearing and grading so we’re kind of leveling it and getting ready for the decision that would be made or could be made in terms of moving forward. So I think is Wes, as articulated in the past, sort of FID plus 18 months, is probably the right way to think about it. So in the event that decision was made at the end of the year or in March, you would then have a 2021 online day.

Yeah, I mean, I think that our thought was that, while we’re going through the permitting process, while we’re still but sorting out the financing for it, it adds more complexity to the story, which I think, frankly, is net negative in terms of valuation. We do things the numbers are significant in terms of what it can add, not just this one plant but prospectively others. But before we get to that, let’s focus on the terminals, let’s get execute what we have in hand. And then when we do have something specific to report I will go ahead and report it is as Brannen and Christo said it’s something we fully intend to complete on. And everything has moved very much in lockstep with what our expectations were, is now we’ll just see how it turns out. And I think a marginal $150 million in EBITDA a good thing. Right, so it certainly is a positive and we think the returns are excellent. But we’ll talk about that in due course.

Okay. Thanks. Thanks, Brannen and Chris.

Thank you. And that does conclude our question-and-answer session for today’s conference. And I like to turn the conference back over to Alan Andreini for any closing remarks.

Thanks, operator. Thank you all for participating on today’s call. If you have any follow-up questions please feel free to reach out to me, my contact information is on our Q2 press release. Finally, we look forward to updating you at Q3. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. Just conclude the program. You may all disconnect. Everyone have a wonderful day.