New Fortress Energy Inc. (NFE) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the New Fortress Energy LLC First Quarter 2020 Earnings Conference Call. . At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alan Andreini. Thank you. Please go ahead, sir.

Thank you, Gigi. I would like to welcome you all to the New Fortress Energy LLC First Quarter 2020 Earnings Call. Joining me here today are Wes Edens, our CEO and Chairman of the Board; Chris Guinta, our Chief Financial Officer; 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. 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 the call today. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. 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 and may differ materially from actual results. We encourage you to review the disclaimers 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. Thanks everybody for dialing in. I've got a lot to talk about. But before we go into the quarter, I'd like to start by just sharing a couple of thoughts that, I had as I was preparing this with our folks here over the last couple of days. Two main takeaways things that, I'm very thankful for one and first and foremost is our customers. Even in these very difficult times power and gas remain essential goods and services for those people, and I feel honored actually to have them as customers. They continue to deal with the difficulties they had each and every day. And although, volumes in the aggregate from them are down a little bit as a result of the diminished financial times they still showed up every day and we showed up every day to service them. And it's really a terrific benefit for us. Two is that, I'm very grateful for the people that we have especially those people that are in the fields for us. There's no sheltering in place for essential workers and these people showed up to work every day and as a result, we got done what we needed to get done. We had a great quarter and we're off to a very good start of the year and we are because in no small part because of them. As a result of our activities, we had no mass layouts or furloughs. We applied for haven't got any government assistance. We actually were able to raise the salaries of our fuel workers by 50% for the months of April and May in recognition of the jobs they were doing and the times that it was. And I'm very, very proud to be a part of the organization that was able to do this. In New York City, I've been coming to work every day with the skeleton crew here. Our business does not particularly translate well to the shelter at-home crowd as well. And so we've been making adjustments and trying to be productive as we can while, we have some people here, some people at home in here with just my dog. But we've had a very, very good quarter and we'll go through that in detail both in terms of the productivity of what we have we managed to accomplish in the infrastructure build and the pipeline that we have. And I'm happy to say that, both Brannen and Chris shaved and actually put on clean shirts. So they obviously thought this is a Zoom call that we were having this morning here. There's never been a shutdown in my life quite like this. Many industries and companies literally had no revenues whatsoever. So we're very, very fortunate that in this extraordinary times that we have both. But to have these record revenues and complete our infrastructure in Puerto Rico, and get that online and maintain the new business pipeline and profile that we have at the company is remarkable indeed. So with that, let's just turn to the presentation and we'll go through this briefly. And I'll let's start on page number 4. Highlights, I listed them by month. So our business is all about the volumes that we generate. January we average 700,000 gallons per day; February 730,000; March 830,000; April one million gallons per day, the goal is 1.5 million to 2.5 million gallons per day for the remainder of 2020, and there's significant upside to that depending on the outcome of a handful of things that are in progress right now. Montego Bay Old Harbour San Juan are complete and fully operational. The new business pipeline remains very robust. The world has not suddenly gotten electrified on its own or attained its own gas. So there's a lot of new business prospects for us still out there. COVID has obviously impacted our customers, but power and gas are essential goods. We'll talk about it there. So page number 5. This is the volume chart. And as you can see each one of these terminals has come online over time and has grown measurably. So Montego Bay was our first terminal you see. And we go back to the first of the first quarter of 2019, it's been fairly constant. The Old Harbour terminal came on midpoint last year. Puerto Rico came online just a month or so ago. And we've now got new developments in both Nicaragua and in Mexico they are under development as well as other organic growth from these existing terminals. To give you some sense of how that translates the simple chart on the right-hand side is a good illustration of that. It's got a chart that ranges from one million gallons a day to three millions of gallons a day with results that go on an annualized basis from $12 million to $450 million. Obviously, one million gallons is the important line of departure for us at which point the margins for our business grow dramatically. We are through that today. We averaged last couple of days about 1.5 million, 1.6 million, 1.7 billion gallons each one of those days. So we're well through that today with each successive new business opportunity that comes online it only grows from there. Page number 6. I've gotten a lot of questions about COVID obviously and I've gotten a lot of questions about the competition between gas and diesel. And so this is my attempt to explain that. Customers are still using significant volumes of gas and power. On average, their reductions have been about 20%. So as you'd expect we are a derivative of our customers' businesses and those that are impacted by lack of travel hotels transportation have obviously been impacted and their volumes have been down, but are still very meaningful. Oil prices have collapsed absolutely collapsed. The demand destruction of – in the oil business has been tremendous. There's a lot – obviously, a lot of things going on there. But when you look at the oil business two-thirds of all the oil in the world is burned in transportation with airline flights down 95% without people driving cars without as much trucks and ships going around the world, the demand destruction has been tremendous. The good news of course is that that can reverse itself once economies come back online it goes the other way. But what I did is, I simply went back and looked at our price of delivered LNG versus the delivered price of diesel in these markets. This is the approximation we tried to make on both of these. I went back and looked over the last 10 years. And you can see that the averages over the last five years $5.12 in MMBtu; last 10 years $8.47. There's only 15 days in the last 10 years of which would have made more sense to burn diesel than to burn natural gas. So our value proposition remains intact. And this of course is, just the beginning of it. In addition, you've got much, much better environmental profile you have much lower maintenance of your equipment. So we feel very good about our position with this. We've seen no pullback whatsoever from our customers and considering a switch from oil to gas. Page number 7, the new business pipeline continues to be very robust. We're shortlisted for the Puerto Rico temporary power RFP. We're notified of that position on, I guess, late Saturday night or early Sunday. They expect to make decisions on that, in the next couple of weeks, so we can't comment on that obviously. But that's something that we are optimistic about. We think it fits our profile and footprint, very well. Travel limits around the world are obviously still very challenging, but hopefully they'll ease up soon. We've become very familiar with Zoom calls. I had a Zoom call with an Energy Minister yesterday. I've got one here later this morning. So, everyone is adapting to this new world without being able to travel. But I'm hopeful that that will ease soon. These terminals are portals for us and they bring -- for us to bring LNG and power around the company -- the world. Our focus is on the 10 regions as we've previously highlighted, in particular the five that I've shaded in green, are ones that we actively have discussions going on. And I'm very, very optimistic about our prospects here for the rest of the year. So with that, let me turn it over to Brannen, to talk about terminals and operations.

You bet. Thanks Wes. Flipping to page 9, good morning and thank you all for joining, as Wes said, we're very excited to update you on what we've accomplished since we last spoke. And so focusing on page 9, our terminals are complete. We finished our San Juan facility adding a marquee terminal asset to our growing portfolio, along with Mo Bay, Old Harbour and Jamalco. San Juan Unit 5 and 6 were successfully converted to run on natural gas, completing a long-running goal of PREPA. And they could not be more excited. Now, over 400 megawatts at San Juan Power Station runs on natural gas, which is expected to save PREPA millions of dollars and reduce emissions significantly versus diesel. And most importantly, as Wes alluded to in the beginning of the call, is we had demonstrated that even in the most challenging of times, we can deliver on our commitments to customers, at peak we had over 250 workers at the site completing construction and commissioning activities, safely and without incidents. Our employees and those of our partners showed tremendous dedication and commitment. And we're greatly appreciative of all that they have done. As a company we showed tremendous resilience to deliver critical infrastructure in the most challenging period, further adding to our reputation as a go-to critical infrastructure provider. Turning to page 10, with respect to Puerto Rico specifically, our San Juan facility is a significant step towards our strategy to gasify Puerto Rico, providing a compelling option to transition permanently from diesel and HFO, across the island. We believe, there's a tremendous growth opportunity that is highly complementary to PR's strategic plan to modernize its power infrastructure. Over the past few -- over the past week Units 5 and 6 have averaged over 620,000 gallons per day. And we've seen as high as 800,000 gallons per day, as we continue to ramp up. In addition to serving the power plant next door we have a 4-bay truck loading system that can load about one million gallons per day, for delivery to industrial customers. We expect to serve our first customer in just a few weeks. And we'll be adding to that such marquee names as Coca-Cola and others. Most significantly though, the facility itself has significant additional built-in capacity to serve additional power demand that can be added over time. And as Wes alluded to, depending on how the current process in Puerto Rico goes, we expect that if successful we would need to add, no more dollars to the terminal itself to serve that additional demand. Now flipping to page 11 to give you just a snapshot of the operational asset performance, the health safety and welfare of our people is a top priority, as is being a good steward of the environment in the communities, in which we operate. In this moment, we have redoubled our efforts, in this area. And from an operational perspective, no news is good news. Zero, which is the first page on the numbers, probably the most -- the single most important number that we focus in on every day, particularly over such a challenging period over the last few months. I'm happy to report that we continue to achieve Zero, in terms of our recordable incidents on the operational side. And our operators continue to do a terrific job day in and day out. They are truly the face of our business and the ones that our customers look to every day to help support their critical activities. The other numbers on the page that I would point you to is our availability and reliability numbers continue to exceed that of our customers, which is such a critical point because we are actually more reliable than the customers we serve which can ensure they have no disruption of service. And for our customers who provide power to hospitals and first responders policeman and fireman and all the critical services that are providing such needed benefits now that's such an important aspect of what we do. On simply the metrics, we continue to rack up more and more truck and rail tender loads without incidents. So right now we're about 6,000 maybe a little bit more. We have over 420-plus ship-to-ship transfers without incident. This morning I was actually watching a video of a ship-to-ship manoeuvre in Puerto Rico this morning, again continuing our track record of no incidents and a terrific job by our operators. We have the most ship-to-ship and ship to short transfers of any company in the Western Hemisphere. But as always on the operational side we continue and strive to improve. We are looking at technology how to implement technology information technology analyzing data and are just trying to get better and better at what we do. And so now, I'll turn it over to Chris, to talk about the company's financial performance.

Thanks, Brannen. It's great to talk with you all this morning. If you turn to slide number 13, I'd like to walk you through the financial results for Q1 2020. We are very excited to announce that our average daily volumes for the first quarter was over 750,000 gallons per day, this is an increase of 40% from Q4 and more than double from the same quarter in 2019. The increase in volumes is driven by the Jamalco CHP plant coming online and achieving COD during Q1. The plant has been operating at base load capacity and running in line with our volume forecast for over the last 60 days. Revenue for the quarter was $75 million which was our highest quarterly revenue to date. This is a result of the volume increase but slightly offset by a lower average Henry Hub price for the quarter and by a decrease in construction activity revenue recognized in Puerto Rico. Our cost of sales in O&M was higher due to increased volumes. However as we continue to grow we will see massive margin expansion on account of the fixed cost nature of our shipping and terminal OpEx. Our SG&A expense was right at the forecasted, $20 million per quarter when you exclude $3 million of stock-based compensation expense and $6 million of non-capitalizable development-related costs. During Q1, we also had about $10 million of onetime costs that related to the early extinguishment of debt that was expensed when we closed our $800 million term loan facility provided by Apollo in January. Flipping to Page 14, we discuss how we will advance our plan to make our business more efficient. Now that our operating cash flows are online we are taking a close look at the where and how we spend our capital and what we can do to be more profitable. Over 95%, of our operating expenses today are made-up of these four main categories, number one, SG&A expense, which is expected to be approximately $80 million annually which can be refined to achieve increased productivity and scalability. Number two, our current annualized interest expense is around $85 million but this will come down once we complete a refinancing and are able to borrow at a cheaper cost of capital. Number three, shipping costs currently are approximately $85 million for the five vessels that we have on hire and we believe we can drive significantly lower. We think that by focusing on these three expense lines we can save $50 million or more on an annual basis which goes straight to the bottom-line. Number four, today over 60% of our LNG needs are uncontracted. Securing long-term supply at low prices is a primary focus and represents a big opportunity to dramatically increase earnings to the tune of billions of dollars. Briefly on the right side of this page, we demonstrate the strength of the balance sheet. As of March 31, current cash on hand plus our LNG inventory is over $350 million, which combined with the cash flows from committed volumes fully funds all of our committed CapEx and operating activities. Turning to page 15. This is the slide that we've included in prior earnings presentations. It demonstrates the ramp of our committed volumes and the impact on our cash flows. As we have mentioned before while this is not intended to be any formal guidance we do include it to demonstrate that these assets have material cash flow capability as they hit run rate. The graph shows how annualized cash flows from committed volumes will ramp to over $300 million this year alone; and when you include Mexico and Nicaragua, we expect to be over $460 million next summer. It's exciting to note that as we continue to execute on contracting new committed volumes we can clearly see NFE earning well in excess of $1 billion in annual operating margin. With that I turn it back over to Wes.

The questions. Operator?

[Operator Instructions] Our first question comes from the line of Joseph Osha from JMP Securities. Your line is now open.

Hey. I made it to the front of the line. I hope everyone is okay. Thanks for hosting the call. I have two questions. First, you guys point out in the deck that you've been working through a higher-cost supply right now. Obviously, you've got Wes as you pointed out you're still some open exposure. So I'm wondering how we might reasonably expect to see that cost of goods trend over the course of the next couple of quarters?

We do have excess supply in Jamaica assets in particular. And with the lower volumes -- modestly lower volumes that has actually gotten a little bit worse. In total we've got a couple of cargoes extra that we have contracted for that we don't need right now. And I think that what we will do is either sell those on an outright basis or swap them into cargoes we can then use in Puerto Rico. But in any event what you'll see is a financial charge against the extra cargoes that comes out over the next couple of quarters, but the run rate margin that underpins it --it will reflect the actual price that we pay for the gas that we're actually burning. So I don't want to confuse the operational performance of the assets and the run rate of them which I think is the most important financial aspect of the entire business with what is a fairly short-term just oversupply in the one case. But we're 60% undersupplied effectively across the board. And so we have -- and with the prospects that we've got in a knock wood in the short-term that will only grow. So we have a big opportunity with the market where it is to do some really some good things on the price of gas.

Okay. And as a follow-up there might we assume at this point that you probably don't want to go out. I'm confused because I heard Chris talk about contracting more. But wouldn't it make sense to maybe let this existing supply roll off and then just go out and buy spot given how cheap it's gotten? I'm trying to understand your strategy going forward.

Yes. No it's exactly what we said before is that when we get assets up and operational as they are in Puerto Rico right now we want to run them for a period of time and make sure that we understand the measure of what their performance is going to be and their needs. And then once that is settled in then we'll go and look at a longer-term strategy. That's what we did basically in Jamaica. And I think that that's exactly what we're planning to do in Puerto Rico. So -- and in this case we do have an extra couple of cargoes. So there's less of an impetus to go out and rush out and buy a bunch more supply. And right now as I said there could be more swapping or other things we might consider. But we're still undersupplied in a very good market. So that's net-net a huge positive for us.

Okay. Thank you. I will jump back in queue.

Thank you. Our next question comes from the line of Greg Lewis from BTIG. Your line is now open.

Yes. Thank you, and good morning. I guess, my first question is related to the Puerto Rico temporary power RFP realizing that it's a competitive process. Right now would there be any additional CapEx or requirements needed to fill that temporary RFP, or is it just -- how should we be thinking about that?

Well, I can tell you what's public is that there was an earthquake in Puerto Rico on the 6th of January in the southern part of the country that took out one of the main power stations and that was what created this shortage. As they're moving into the summer months they're obviously very keen to cover that gap. So they don't have a disruption of service as the summer months heat up. And even with a reduction of activity with COVID and less travel they still have a significant deficit that they're trying to cover. So that's the industrial logic of the process that they're running. What they've asked for specifically are offers on equipment -- power equipment in various locations. And without being terribly specific about it we have made offers on a number of those locations and feel like with the position that we've got and the infrastructure that's in place obviously, we've got a good standing in that competitive process. And I'm optimistic about it and we'll see what happens in the next couple of weeks. So really you're supposed to be notified at results in sometime in the next 10 days to two weeks or so we'll see how it all plays out. But I think the good news is for the Puerto Ricans, I think that there's a good solution and an economically a very viable one for them. And we hope to be a big part of that solution for them. So we'll find out soon.

And was the actual amount – power amount is that available then like in terms of the size of the potential project or no?

We don't know for sure what they'll do. I've seen estimates in different public meetings and whatnot ranging from as small as 350 megawatts as large as 500 megawatts. Those are obviously significant power needs. It does fit very well with what we had talked about in our last call which is this notion of kind of fast power which is the combination of bringing in these -- fairly mobile turbines and then combining them with gas. Those two things in combination are a very potent combination and allows us to bring very efficient pricing into two locations. So this will be a good test of that for us. And I think if we're successful can be a huge arrow in our quiver kind of going forward and looking at other markets where not only do you want to service existing assets or talk about building longer-term power projects, but of course many countries around the world have got short-term power needs today. And so I think this fast power notion which this is a real-life example and proxy for what could happen is something that is really exciting. We've put a tremendous amount of effort into trying to be as thoughtful and as aggressive about this as we can be. And if we're fortunate enough to be selected, we'll have some real-life experience then to draw on to then look at some other applications for around the world. So it's a really, really good situation.

Okay. Perfect. Thank you very much.

Thank you. Our next question comes from the line of Sean Morgan from Evercore ISI. Your line is now open.

Hey, guys. I had a question. We look at slide 13 obviously the cost of sales is one of the biggest trend in the model, and I'm wondering what proportion of that is fixed and what portion of that $70 million is floating? And could we see -- with an improvement in spot cargoes could we see that -- like what -- how much flexibility do you have there?

Yeah. So, I'll answer that one. Sean, good to talk to you. The bulk of the cost of the sales is obviously the LNG expense. So when you think about the total cost of sales about 70% to 75% of it is LNG about 15% to 20% is ships and 5% to 10% is your terminal OpEx depending on each terminal. I think as Wes said in the first - to answer the first question, as we buy in more supply at market prices, we'll lower our basis below the $5.50 that we've shown in our forecast. And that's material upside to earnings. As you see these numbers in Q1, it's largely due to the legacy cargoes that we have purchased and we are burning through.

Well, Vince, it's one of the things, that's so important about getting this terminal online and operating if the units converted during this COVID time, which is an extraordinary accomplishment. I can't overstate that, because burning fuel that you're buying with a $2 handle into those facilities is obviously a very good and profitable venture in the short run. Now, we expect it to be more normalized. But as Chris said, we use in our model of $5.50. But you'll see the aggregate numbers come down fairly substantially, the more that we burn on the short-term and take advantage of these low prices. So getting turned on is a really big financial deal for us.

And then, on the charges for the excess cargoes because obviously demand has fluctuated a little bit with COVID-19, and I can fully appreciate that you might have been buying for a less economically disrupted scenario than we're kind of facing right now. What's the time line? Like how long do you think it will take in terms of charges? And what's the magnitude of these charges we should expect for the next few quarters or full year?

It's really just the next couple of quarters as things get kind of ironed out. I think the organic numbers, the way I think of them are down a little bit with the COVID impact so down kind of 20% to revenue. So, you go down 20% in terms of volumes on what we expect is not great. It's obviously infinitely better than the vast majority of countries or companies out there in the world. So, our system right now, we would expect to generate kind of 2 million to 2.0 million gallons per day and we think now the average is something 1.5 million, 1.6 million, 1.7 million, something in that range. That's the 20% differential right now. And so we're slightly overbought on that basis. The inorganic, the additions of new terminals and plants like San Juan 5 and 6, like the terminal in Mexico, Nicaragua, et cetera. Those are step functions, which actually then greatly increase our demand for gas. So I can say that from an operational standpoint, net of the building of the terminals the operations of the terminals, the things that the plumbing that matters each and every day. Thinking of ways to take advantage of low term -- low-priced gas onshore offshore LNG otherwise is something that really consumes much of the day for me. I think about it all the time. There's a lot of different thoughts we've got about ways we can deal with that. There's obviously a lot of mayhem in the world. In the past, I have been personally very, very active in distressed situations and there's a lot of distress, right? Anytime you have zero revenues in businesses, there's all kinds of stuff. So I think depending on how long this crisis persists, there could be some significant disruptions and out of that could come some significant opportunities. So those are things that we're thinking about very hard each and every day. And we're blessed to have a very strong balance sheet. We've refinanced our debt as it turns out at a very opportune time. We're now cash flow generative, which is a big deal. So, we've got a lot of different levers that we can pull and hopefully take advantage of this.

And then on the revenue side, I guess you said that following Henry Hub, there's a fixed portion of -- or there's a variable portion of that above the fixed fee that you charge. So we should probably expect some of that to reverse Henry Hub remains kind of more elevated and you'll get a revenue benefit next quarter and bond quarters if that remains sort of the trend?

Yeah, that's right. That's exactly correct, Sean. Remember Henry Hub is a small component. The Henry Hub plus an adder with all of our customers, the Henry Hub components about 25%. So a movement in Henry Hub doesn't change revenues dramatically. But you're correct, as you see an elevation in Henry Hub as we'll see or expect to see over Q2, and going forward you'll see that reflected in revenue as well.

All right. Thanks guys so much.

Yes.

Thank you. [Operator Instructions] Our next question comes from the line of Ben Nolan from Stifel. Your line is now open.

Yeah. Hi. Good morning, guys. I too am glad it is not a Zoom call, because I have not shaved. But, I guess my first question has to do with just sort of the mentality of your customers. Obviously, we're sort of in uncharted territory here, but especially the oil prices being as low as they are has it -- have you seen any of your potential customers sort of maybe being a little bit more guarded or unsure of whether or not they want to actually commit capital or commit their balance sheets effectively when the economic benefit in the immediate term is not as great, or are they more forward-looking than that?

Yes. The short answer is no. We haven't seen it at all. I think 15 days and 10 years kind of tells the story of what really is a stake and that is the minimum. I mean I think one of the things that we are already hearing from the folks in Puerto Rico is the benefits of running gas is just such a cleaner fuel much easier on maintenance easier on the equipment. And that plus the price differential, which has been tremendous is just a net-net win. I mean the savings for 100 megawatts of power over this time frame is literally in the hundreds of millions of dollars. So I don't think that people believe that oil prices are going to stay at $10 or $15 for the next 10 years. And so, they're betting that this price differential that has existed for the last 10 years is going to be reflected in the next 10 years. So I think we don't see any issues with that at all.

Okay. And then shifting over to sort of the incremental developments and it seems at least that – well, Mexico obviously first and foremost curious if you could maybe give an update on any of the timing there and also remaining CapEx. And then also, any movement specific to Nicaragua or any other geography that we call out that is further along in its development process?

Yes. Dredging process in Mexico is nearly complete. We expect that to be done sometime at the end of this month or in the middle of June. That's a tedious process. It's taking a spoon into the water and seeing how much dirt comes out of it. So -- but the guys down there are doing a very good job. And so that will really catalyze the marine development of that. It allows us to bring the ships into the terminal. So that's something that I think could turn on fairly quickly. The Nicaragua was very much in the planning, design and permitting stage. A little bit of delay just in terms of getting people down there and travel because that's restrictive that actually, does make it a little bit more challenging on the permitting side when you can't get people into the country. But this too shall pass. The new business pipeline, the regions that I highlighted are ones where we're having very, very active discussions. And I think it's possible and actually likely that we will sign and announce material MOUs in a couple of these geographies in the next month or two. So again, a little bit more challenging because you can't get into a plane and go to there but people are quickly becoming adapted to Zoom calls, video calls and the like. So I'm actually quite optimistic about the second half of this year. I think the other thing that's not a small thing is that the competition that comes from the big oil majors in particular, I think is going to be reduced. You saw Exxon yesterday, announcing they were cutting back their CapEx by $10 billion on projects. I just think that everybody is dealing with the crisis in their own way. We're fortunate both to have a high-margin business, one that is without a bunch of legacy issues to deal with and it serves customers' most basic needs. So power is right up there next to food and water and air in terms of what you need to survive and prosper. So I feel like the prospects of the business honestly in the context of that just simply couldn't be better.

Okay. And then just lastly maybe for Chris. What – how should we think about remaining CapEx for Mexico but just in general with what's on the books?

Yes. So really it's just as we've projected in the past. I mean I've seen the analyst models and the way that you in particular have the model running from Mexico and Nicaragua is pretty accurate. So less than $100 million remaining to finish Mexico. And Nicaragua you still haven't started spending material capital or were through the permitting and design fit stages. So you've not started much CapEx spend there.

Thanks.

Thank you. Our next question comes from the line of Ryan Levine from Citi. Your line is now open.

Good morning. Can you comment on the bad debt expense and what you're seeing with your contract portfolio? And what recourse the company may have if customers don't pay?

Yes. So I think you're asking about customer receipts. Ryan it's been – we've been great. We have regular conversations with our customers. They've been remarkable as Wes said at the top of the call. Days in AR is actually better in the first quarter than it was in the fourth quarter. We've had no charge-offs. AR that's not current is less than $1 million right now. So you have really strong performance and commitment on the part of our customers.

Okay. And then given your contract portfolio is New Fortress or any of its customers currently pursuing any legal ads doing due to force majeure provisions to adapt to the current environment?

No. There's been no suggestion of force majeure on our side at all. I mean, in fact people need power it's a question of how they're going to get it. And it is the top of the list in terms of their essential concerns. So no there's been no force majeure talked about on our part for or from any of our customers at all.

Okay. And then last question for me. What are you seeing with customer lows or gas demand in April? And how are you forecasting that to transpire or progress throughout the year?

Well the numbers that we're showing in terms of our forecast for the rest of the year this kind of 1.5 million to 2.5 million gallons reflects the current environment. So it would be a little bit better than that if we were in a more normalized environment that we're not. But we still see significant demand for both power and gas across the board and we feel like it's going to be a very strong year as well. I mean the average in April I think for the last seven days has been 1.4 million gallons. So – and we expect it to grow from there. So it's material. The month-by-month March forward that's why I listed those months at the beginning of it is very material.

Are you seeing any delineation between different customer types in terms of low demand in estimate?

Not really. I mean people are nominating I'd say minimal amounts but their contracts are – that are significant but we have not been asked to take less than a minimal amount. So I think that when we are – the gas source to a number of these power plants they tend to be the most efficient. So they're high in the dispatch order. So even if you have diminished demand across the system, the most efficient power still gets dispatched and that's essentially what's happening right now. So...

Okay. Thank you.

You bet.

Thank you. Our next question comes from the line of Marc Solecitto from Barclays. Your line is now open.

Good morning. It looks like the run rate margin target was revised lower by about $10 million on roughly the same volumes. So just wondering if you could help us reconcile the delta there?

Yes. Marc, the run rate volumes shouldn't be changing for the strict reason that they're run rate. The volume ramp over time will be a little bit slower because as Wes described we are seeing a little bit lower nominations from the customers for the Q2 and Q3 time frame that we've received nominations for. So frankly, I wouldn't expect any erosion to run rate volumes and margins are about the same. What you may be seeing is a little bit of a timing difference one quarter to the next but the same numbers that we were forecasting for kind of run rate margins for all five terminals and they're up and operating between now and next summer in the $460 million to $75 million range still remains kind of the same numbers.

Okay. All right. And then I think coming into the year, you had 13 cargoes scheduled for delivery from Centrica in 2020 and I think there was 12 in 2021. Just curious, if you can maybe help us think about the cadence how many have you taken delivery of year-to-date? And like how we should be thinking about those cargoes going forward?

Yes. Hey, Marc, so we've taken four deliveries. Our fifth is coming up and I think it's about a week I think it's in the 12. And the remaining seven cargoes as Wes said, we're a little under our expected consumption in Jamaica. We have the opportunity to take some of those cargoes and swap them to be able to be consumed in Puerto Rico. But what we will do is continue to burn through the cargoes that we have contracted for the remainder of 2020 and then into 2021 and burn through those for the higher-priced cargoes going into Jamaica. But as I was saying, you can leverage your average basis well lower by buying spot cargoes into Puerto Rico. So I do expect that when you average the cost of LNG in Jamaica and in Puerto Rico you can beat the $5.50 number.

Got it. Thank you.

Thank you. Our next question comes from the line of Craig Shere from Tuohy Brothers. Your line is now open.

Good morning. Did the Jamaica oversupply impact the first quarter at all? And are the couple of cargoes of oversupply that will take a couple of quarters to flush out equal to maybe about 6 Bs. And are you in oversupplied because your low-cost third-party tenure announcement from February has already commenced, or is this just off the centric?

Yes. Good morning, Craig. So, to answer your question, in the first quarter you had about $1 million of costs that were related to some logistics delays. So as you know when you have we have to reschedule cargoes, you can add some costs. We had a total of about $1 million and that's running through the cost of goods sold O&M lines in Q1. As you look into the remainder of the year, no, none of the contracted cargoes that we announced in -- on our last call have commenced yet. Those don't start until 2022. So the amount of long position I'm not -- I don't think we want to give the exact number. I think what you're discussing is in the ballpark. And like I said, that's just Jamaica you still have a ton of ability to buy in volumes for Puerto Rico. And to the extent that you'd have excess volumes in Jamaica we'll try to swap those and use those in Puerto Rico.

Great. And with the potential systemic challenges for the cruise line industry, do you see this impacting your regional bunkering plans?

We do think that the cruise ships are a potential customer. They're a relatively small customer in the worldwide fleet or ships, right? So, I think that the big prospects for the shipping markets continue to be the container business which obviously dwarfs the cruise ships. The cruise ships do operate in the Caribbean. They operate in Miami. So they are in our backyard literally. And so, we think that they obviously will be a good candidate and a good customer for us once they resume. And obviously they were -- a few industries were hit as hard as the cruise ship industry was right? So no cruise ships 0 revenues is a pretty devastating blow for them. And for their sake and ours I hope that they recover quickly and become good candidates for it. But no I don't think that in the long term that the bunkering potential worldwide will be really impacted by cruise ships because again the container stuff in particular is just so much more of a bigger market.

I got you. And last question was, do you see this global coronavirus scare and lockdown having any systemic positive or negative implications for your previously envisioned shift to a hydrogen-focused global economy and NFE business?

I think it takes -- it's a really good question. I think it takes it off the front page for people in that they're worried about, first, survival; number two, prosper, right? So, I think that there's a lot of focus on people getting their industries and their businesses corrected. I do think that long term the hydrogen remains a big focus for us and for the world. And I think that times like this are defining moments for people. If you're able to make your fuel locally which a lot of that -- the production of that could be that would actually stem a lot of the issues you might have in terms of transport and moving stuff around during difficult times. But I don't think it has any impact long term. It just probably takes it off the front page of people's perspective right now. So...

Great. Thank you.

Thank you. Our next question comes from the line of Joseph Osha from JMP Securities. Your line is now open.

Hello again gentlemen. I wanted to step away a little bit from some of the intermediate-term questions. Wes, one thing you've talked about is the potential for producing hydrogen. And I seem to be seeing more and more press about that. I'm wondering if you have any kind of update on your plans there and when we might see some more detail? Thank you.

Yes. No the one specific goal that we have this year is to have by the end of the year a pilot project in one of our markets, where we are producing and using hydrogen in the production of power. As I said before, a lot of the modern power equipment can take up to 95% of its fuel could be hydrogen. So you don't have to introduce it in total. But in part we've got one project in particular that we're focused on. It's a modest capital to use. But I think proof-of-concept in this particular part of the sector is incredibly important. We've gotten -- from our last call we got literally hundreds of different e-mails, calls, follow-ups with different people, some a little more inventive than others, but there's a lot -- because there's a lot of interest in people in decarbonizing the world and we support that and applaud that. And as I said before, the big tent is what we want to be a part of. So we want to introduce the concept have a lot of people come to us and we have had a lot. And a number of them are very serious and very meaningful participants in it. And I think at the end of the day, it's going to be the cost of the hydrogen that will drive its adoption, right? So, $1 hydrogen is $6 an MMBtu gas. That pretty set straight its competitive position relative to gas. $2 hydrogen is whatever $15 MMBtu-equivalent which is effectively the same price as where diesel has been historically. Diesel is a little bit cheaper than that today. So, those are the two markers that I think are meaningful. So, I guess you take the dollar price of hydrogen multiply it by 7.5 times and that's the equivalent to the MMBtu, so $1 is $7.50, $2 is $15. So, if you can get to $1 hydrogen, I think you have a big chance of displacing a lot of gas in the production of power. If you get to $2 hydrogen which many people think you can get to in the relatively short term, it has a big, big chance of really displacing diesel. And we want to be part of a proof-of-concept in both of those cases in the near-term. And there's a number of different things we're talking about and hopefully either the next quarter or the quarter after we'll have something meaningful to report here.

Okay. Thanks. And just as a quick follow-up on that. The transportation business in particular some of the fuel cell vehicles that we're seeing are an interesting market they're a small market, but an interesting one. Is that potentially on the menu as well?

Yeah. I think when you looked at the changeover as natural gas is used, for example, in a lot of transportation industries as well the easiest application for it are the so-called return-to-base users, so a high percentage of the garbage trucks in the country use natural gas as they return to base to get refueled every night. Those would be a very likely profile of somebody that could look to do hydrogen FedEx trucks, or UPS trucks, or again people that come back to the same place many of the municipal bus systems in the country run on natural gas right now. Those are all the examples of people that go back to the same place, a forklift operator that uses the same equipment over and over in warehouses. Those are the easiest ones to supply the logistics chain to, and so I think that's where you're most likely to start. When you start talking about supplying long-haul trucking, long-haul automobiles, long-haul airplanes, long-haul shipping, the logistics change become obviously more complex. So -- but I think the short-term return to base users that's where we'll likely end up with our first pilot. And I think there's some promising things to do. Again it gets lost in the mayhem a little bit with the news on COVID and all the disruptions and whatnot. But this too shall pass. And I think once it does that will once again become a mainstream focus not just for us but for lots of folks.

Thank you.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Alan Andreini for closing remarks.

Actually before you give it to close to Alan there is one thing I'd like to say because we didn't talk about it it's kind of a valuation metrics, because we don't -- not something I focus on every day because it's a long-term issue not a short-term issue. But there's a couple of things that we have done that I think are going to be meaningful. Number one, one thing you'll see in the financial statements is that we are converting all of our partnership interest that we hold our interest in the company to just direct shares. We do that because it simplifies the capital structure. As a person that is not -- I don't consider myself an adept accounting statement reader, I want accounting statements and financial statements that a high school kid can read and understand and this is a big step towards that goal. So the interest that I hold and the others that are material holders is all going to be converted. So it will increase the share count to what it's -- what the ordinary course is. There's about 166 million shares. In total they will be -- all show up as regular Class A shares on or about June 8. So I think there are some investors that have been vocal with us because they're only allowed to invest in a percentage of the outstanding shares that are Class A shares. This converts everybody. It's not insignificant tax event for us to actually do so, but it's the right thing in the long term and that's what we've done. It does not pre-stage any anticipated sales or liquidity for myself for -- and the others we're not doing that for that. So there's no change to the 13 new filings or anything else with respect to what our own position would be, but you'll see that reflecting that. Number one. Number two, when you look back at page number five, and the volume charts on this and the margins that are there, three million gallons, $450 million in margin is not a fairy tale but it's something that I expect is very much in the gun sites assuming that we actually have some success here in the second half of the year and we're working very hard to achieve that, and frankly far beyond that. The $450 million in margin it's about $160 million when you subtract out the cost of the SG&A and the finance charges. As Chris said there's only four buckets of cost in our company. There's the people and the SG&A there is shipping there is the cost of the gas and there's the finance charges. Taken in -- collectively those four things there is significant upside in my view to having cost reductions come across the board. One of the benefits of coming to work every day during this is that you have a lot of time to focus on the internal workings of the company. And while I like our company a lot I think that this has given us the opportunity to look hard at how we do things across the board and see if we can be more efficient and more focused on what we're doing and bring more of the money that we make to the bottom line. So the $450 million if we translate it to $300 million or $350 million in pre-tax earnings it would result in a valuation which is already much, much higher than where we trade right now. And so while I'm not focused on the price of the stock today I think it is very, very undervalued. And when you see these numbers roll through next quarter or the quarter after I'd like to think that the market will reflect that. But that's my pitch from a valuation standpoint just how I think about the numbers. So, with that, thanks very much. Alan?

Thank you all for participating in today's call especially in these in trying time. We look forward to updating you after Q2. Stay safe. End of Q&A:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.