Ladies and gentlemen, thank you for standing by, and welcome to the NFE's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Mr. Josh Kane, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you. I'd like to welcome you to the New Fortress Energy Third 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 Sam Abdalla, Vice President of Project Development. Throughout the call, we're going to reference the earnings supplement that was posted to the New Fortress Energy website. If you've not already done so, I'd suggest that you download it now. In addition, we'll 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 review the risk factors contained in our quarterly report filed with the SEC. Now, I'd like to turn the call over to Wes.

Great. Thanks, Josh. Thanks, everyone for calling in early on the 29th here. As Josh said, if you have had a chance to either pop on your screen or download the management presentation that we'll be - we refer to as we go through this, it'd be helpful to have you - have it in front of you. So with that, let's turn to the beginning and start with Page number four. We had a very, very productive quarter. It's our first full quarter as - in our COVID world. We had a number of initiatives when we started the quarter and I'm happy to say that we actually achieved most of what we have set out to do. Starting first and foremost with production. So, as we mentioned in our last earnings call that July 10th was a big date for us. That was the date when both of the turbines turned on down in Puerto Rico. That basically was the moment that we've kind of switched from being a development company to an operating company and I'll go through it in just a second, but the bottom line is that we achieved record volumes, 1.8 million gallons per day for the quarter. Actually had a peak in the month of September at about 2 million gallons and we're well on the way to being the cash flow enterprise that we set out to be. Second of all, the development for us, both our large-scale developments in our terminals and then the smaller developments for our customers also had a very productive quarter. Challenges for sure from the COVID environment and there were some delays, but they're modest and the - we'll have Sam go through them here in just a few minutes, but the tagline is that basically…

Thank you, Wes, and good morning, everyone. Our business is about terminals and customers we supply from those terminals. Currently, we have three terminals in operation and two terminals under construction. The two under construction and I'm moving to Slide number nine are largely on track and we achieved significant milestones. Talking about the La Paz, the Mexico terminal, we encountered couple months of delay because the - some of the government offices were closed between March and July due to COVID. The project is on track right now. We have 110 people on site currently. By next month, we will have 150 people on site and the completion of the terminal will be by mid-December of this year and the power plant completion will be by end of Q1 next year. We also realized there is an increasing demand on power in La Paz and on - in Baja in general. So we filed for a new generation license and we achieved - and we got the preliminary approval from the authority. So we went ahead and bought new land and we filed for the permit and we actually received the construction permit for the new land by next - last week. So we'll keep you posted. We don't - we're not sure what will happen with this, but it looks very promising. Moving to Nicaragua, the project is on track for completion by Q1 of next year - end of Q1 next year or early Q2. We signed the port concession in Nicaragua, we bought the land for the power plant, and we finalized the engineering and filed for the permit. This week, we finalized the contract with the - EPC contract with the power plant contractor and they are mobilizing to the site next month. So moving…

Right, if you look at - on the following page, there is a cartoon that we showed before which demonstrates kind of how this all works. And bottom line is that we think this is a real game-changer, basically by using ISO containers and filling them up from the big ship and then bringing them to shore and offloading them with just cranes and typical kinds of equipment you'd find in ports already, we basically skip a step of having an intermediate ship. That reduces our CapEx by about 50% and reduces our OpEx by about 50%. It takes the time to deliver from 24 to 36 months down to three to six months. So it's a - it's a huge change across and the first two places where the pilots will be in Nicaragua and in Mexico and you'll see this will transform from a cartoon showing this process to actual performance here in just a few months. So it's a big deal for us. Flipping now briefly to the new business side on Page 14, as I mentioned earlier, we reorganized our sales into two distinct functions; the organic sales groups with our existing terminals and then new terminals and then targeting around the world. We've added more than a dozen new people. The build-out of the origination network for us across the world, we think is a significant step for us forward as an organization and I think - I'm very happy with the people that we have brought in, the organization that we've created. I think the results would speak for themselves here shortly. If you look on Page number 15, just take a quick look at the - what organic growth really means. Here, the five terminals that are under construction are up and running…

Yeah, thanks, Wes. Good morning, everybody. Appreciate the time to update you on the results for Q3, but first to talk about COVID. As Wes said, we made a carefully considered decision to return to work, and I'm happy to share a few details. As an essential industry, our responsibility to keep the lights on for our customers drove us to find a comprehensive safety plan to return to the office. And as Wes said, we are so proud of our team for their response to support our customers in the wake of the pandemic. As Wes said, the Company provided bonuses for the essential workers staying on site at our power plants and our gasification terminals. Additionally, we created our own version of the NBA bubble at the corporate offices. We instituted daily questionnaires and no-touch thermal temperature checks. We increased the frequency of cleaning the office including COVID deep cleans on a bi-weekly schedule and we've taken on a new floor to double our office space and maintain social distancing. Most importantly, we've required mandatory weekly testing for the whole Company and we've administered over 3,200 tests in the last six months. This has resulted in a safe and productive work environment with knock on wood, no in-office transmission. Excited to announce, we've hired over 60 people, we've completed eight construction projects, signed eight new contracts or MOUs representing over 2.5 million gallons per day, all while selling record volumes for the quarter. Our successes during the pandemic are owed to great customers, dependable vendors and dedicated employees who have been extraordinarily committed during these challenging times. If you turn to Slide number 26, I will quickly walk you through the summary financial information for the quarter. The biggest driver of our results, as you know, and as…

Great. Operator, we will open up to questions.

Thank you. [Operator Instructions]. Our first question comes from Sean Morgan with Evercore ISI. Your line is now open.

So, one thing I've been wondering about with OPEC kind of looking at easy production and Libya possibly coming back online, there's a question that maybe -- there may be some easing in the price of crude, and I think that kind of might have an impact on sort of the diesel competitive cost and the high sulfur fuel oil kind of moving lower. Is there any risk that if that spread compresses that some of your existing customers in Puerto Rico and Jamaica, do they have the ability to switch power sources and essentially use diesel instead of natural gas from - that they are acquiring from you? Or are they pretty much fixed into what power source they're kind of generating from?

Well, generally the answer is that they are committed. I mean, we have a range of contracts, they range from merchant contracts to long-term committed contracts. The bulk of our contracts are long-term take or pay. The average term of our contracts is roughly 12 years. So, for the most part, they are, but there are some that have the optionality to switch back and forth. One thing I'll say is, we had done this study for one of our investors this summer. We look back at the previous ten years of data, looking at the delivered price of diesel versus the delivered price of gas in their country, it was an island country. And over that ten years, there were 24 days that diesel was cheaper. So, out of 3,650 days roughly, there were 24, so less than 1% of the days was it actually cheaper. Of course, we had long-term, very, very low prices, as you had a little bit of a dip this spring that could -- that could definitely impact that. But I think that from a cost competitive standpoint, the last 10 years or any guide, over 99% of the time we are cost competitive. In addition to that, as long as you are around that there is a lot of other hidden cost of running liquid fuels on the maintenance side and the operational side in particular. Turbines don't like running on diesel. And so, the marginal cost of maintenance and marginal cost of taking care of the equipment, the O&M costs are a little bit higher and people definitely care about the environment. I think one of the real misconceptions people have is that, somehow if you're a developing country and you're trying to get your energy situation under control, you don't care as much about the environment as people in developed countries. And from my perspective that's just flat out, not the way that it is. So, I think if you're -- if there was anything close to parity, you would - of course would switch, but again historically it's been -- it's been much to the favor of gas over that period of time.

Okay, And then just another [Technical Difficulty]

Sorry.

Sean, I think we lost you.

[Technical Difficulty] I'm curious if you have at all any clarity that you can disclose in terms of what you've re-contracted and what your kind of gas price is starting to shape up for 2021 and how much of that is hedged, and how much of that's kind of spot exposure?

We haven't -- we haven't done anything material that's reportable on the hedging side. Yeah, there's a lot that is in the works right now. We still have significant open position next year. I'd say my commentary over the quarter is that the impact of the -- all the hurricanes that hit the Gulf Coast and shut downs there, there is a fire of -- at one of the producers in Norway, there is just a handful of events that happened. And so, you took out a fair amount of supply. And with that, prices rose a bit over the course of the -- of the quarter. But our position is still in long-term, very, very much in the money. There has been very, very little impact, when you look at it quarter-over-quarter of the value of the long-term position and there is some short-term volatility and you'd expect to get that. I think most people in the market would believe that there is going to be some volatility over the next couple of years, as you get the short term swings in supply and demand, but you have a significant amount of production, which is expected to come on in 2024 and 2025 that will lead to a very oversupplied market and that allows us to have a lot of flexibility in terms of the kinds of contracts that we could get. So, we don't have anything specifically to disclose. We feel really good about this right now. I mean, in Q3, we bought gas sub $3, Q4 will probably be in context wise around $4, even though the market is $5 plus today. So, we're in a good position here for the fourth quarter and feel very good about the aggregate position going forward. But as I mentioned before, this is something that is a focus point for me personally and for the firm. And I think we'll have some good developments to talk about here in the not so distant future, so.

Okay. Thanks, Wes.

Yeah.

Thank you. And our next question comes from Devin McDermott with Morgan Stanley. Your line is now open.

Good morning. Thanks for taking the question. So, the first one I wanted to ask on is hydrogen and I appreciate the additional time and detail you provided on this call. And also congrats on the significant steps you're taking just over the past few months in advancing the zero ambition that you all have. I wanted to talk about the specific next steps here as we think about really the next few years and executing on this strategy and I think you all talked about doing some pilot projects with the H2Pro investment. I was wondering if you could comment on kind of what you're seeing there in terms of what those projects might look like? Any comments on customer demand for green hydrogen as well? And then should we think about additional tech investments to count, for example, you talked about the gas and coal pyrolysis, is that something where you could make some seed investments as well. I really was kind of framing up the next few years in terms of the opportunity set and capital allocation around this opportunity.

Yeah, well, there are two answers to that. One is, with respect to the prototypes, really we're trying to identify technologies we think have promise, make an investment in the company and then become a partner to build the prototype to get field data to support what the theoretical data is in the lab. So that's the general thesis that we have. H2Pro, we think is very a capable group, we like their technology. So, we want to see that out and in the field, build the prototype with them and get that deployed. And so that's the one specific thing. What I -- when I laid out the numbers on water, gas and coal, I did so because my view about this, my intention of this is to try to find a technology, trying to find a process, trying to find a way to really deal with the climate change issues in a very, very broad way and you need to have scale to do so. And the one page that laid out, Devin, which show kind of theoretical best price of $0.80 and $0.60 and $0.20. Those are really theoretical best prices today and of course things could change, but that's if everything works out perfectly. And I'd lay that out because simply if you then add on a capital cost, then you ended up at $1 for example on electrolysis that's still roughly twice as expensive as what people can burn natural gas in their power plants here in the U.S. today. So that is not going to actually solve the problem unless either the government makes it more expensive for people to burn fossil fuels or they give you some production credit. So, then when you go to the right hand side of the page, you…

No. That's great and really helpful context. And my second question and I'm going to switch here a bit to the growth opportunities you have with the many existing portfolio. And I think the additional detail and disclosure on the small-scale opportunity and the execution you've had there is really good to see. You highlighted the $1.2 billion of P&L opportunity from increasing the utilization on existing terminals. And I guess the question I have is; one, any logistics constraints that would prevent you from going to theoretical 100% utilization as you highlighted in that slide that we should be thinking about? And then secondly, I think on the slide, it talks about 50,000 gallons per day from the nine customers you've executed on so far. And in the remarks, you also talked about a 190,000 of small-scale within the portfolio. So just kind of bridging those two numbers and thinking how -- what's likely to come here over the next 12 to 18 months?

Yeah, I mean the answer to the first question, there is no constraints at all. As I have often said in the infrastructure business, if you -- it's actually very simple. If you create infrastructure for one purpose and you don't use it, you lose all your money; if you create it for one purpose and you use it, you could earn a decent return; if you create it for one purpose and use it for two or three or four, that's how you make outsized returns in the business. And so, this is just simply like an attempt to do the latter, which is basically take the infrastructure, the logistics, the people, personnel that we have in place and go aggressively into those markets because we have a massive competitive advantage. And so our renewed focus on that, and Sam touched on it a little bit, we've got milestones, we've got our first couple of customers turned on in Puerto Rico. We've got our first contract signed in Mexico. We think that there are many, many of those to follow, and that is really low hanging fruit. And so, it's got a real focus for us in those markets. We think there's significant incremental demand. As you can tell from that table, we've got significant operational flexibility to service them. So that's a -- that's a really big focus for us. And then the beauty of it is obviously because there is no lag time in the logistics and the infrastructure, those are the kinds of things that could translate into earnings and sales for us in the very near term. And that's really the focus.

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

I wanted to return a little bit to this issue of hydrogen in the transportation market, because the price points there that that market will bear are potentially higher, in particular if you look at running hydrogen and fuel cell. So I'm wondering if you look at what might be economically viable there doing electrolysis on the side, as you talked about Wes and whether that might work at say a $1.50 kilogram or something?

Yeah. No it's -- it is really interesting because the process that we've been going through with this is basically twofold. One is, how do you create hydrogen at the lowest possible price, which is a big focus? And then two is, if you had inexpensive hydrogen, what would you do with it? And it's very, very similar to what we looked at when we built this business as our core business, because we knew that once we sell for the logistics and the infrastructure to bring LNG, the questions like, what were the customers that would be most obviously you'd go to? Our answer for that obviously was to go to power because power generation is in a single place. So it's kind of simpler logistics and the needs that they have are daily and they are significant, so that became the answer. We also have some transportation customers, right. So at one point, we owned -- in a different company here, we owned the biggest LNG trucking fleet in America. We have supplied the bus system in Jamaica with natural gas. So there is number -- if you look at the development of natural gas as a transportation fuel, what you see is that it developed around places where logistics became actually fairly straightforward, so the kind of return to base users, so garbage trucks, municipal bus systems, UPS trucks, FedEx trucks, they all come back to the same thing to refuel because that's why I -- when I show that the fuel price there you're 100% right. You look at it and say Gosh, $15 in MMBtu. We can make it a lot cheaper than that, that's great. There is an asterisk next to it because we have to get it there. And so, hydrogen trucks or…

Yeah, for sure. Can I ask a follow-up? Actually it's not a follow up, it's a completely different question. I'm wondering if you're starting to see from some of your new markets, any demand related to using gas as a firming resource alongside renewables?

Well, you know, I think that the energy plans that I see over and over in these countries are some combination of gas-fired power and renewables. I mean renewables are awesome, right. They're are clean. They have gotten much, much cheaper, much more cost competitive. The negative obviously, they're not dispatchable. So here in New York City, I'm looking at the window today, it's pretty rainy and misty, solar resources wouldn't be working very well right now. So, you need something else to kind of go alongside of it. And what I -- this is what really kind of got me very focused on the whole hydrogen thing is that, if you have hydrogen, that is effectively the battery that you need to like support you on days like today. And so - and allow for a much, much higher percentage of renewables in your system because you know then you've got a very active battery to do it and your choice is hydrogen as a battery or batteries as batteries. And right now, the differences are not even close. And I think -- and also, you also have to think about it like I'm trying to be very, very intellectually honest about looking at the process of creating the hydrogen and looking at it, how we create, how clean it is and etc. We should apply that same rigor to creating batteries, right? So, if you are going to actually make a battery, there's a whole bunch of stuff that goes into it and we should just think about that production process and line it up side by side and see which one is really cleaner, as well as cheaper and I think our analysis, our conclusion obviously is that hydrogen actually, if you can do it properly is very, very competitive and very, very clean. But there is no doubt that gas I think is going to play a big role. We see not only gas in terms of the new power plants, but then again, replacing existing thermal power and my first big discussion two nights ago with one of the Asian customers that is deadly serious about converting out of a big coal fired business -- operation into natural gas. So, these prices are pretty competitive, but environmentally on top of that, it's a big, big plus. So, there is no doubt that gas is a big part of the energy infrastructure of -- for the developing worlds, so.

Thank you.

Thank you. Our next question comes from Christine Cho with Barclays. Your line is now open.

Well, you guys have worked hard to get to a position of being free cash flow positive in your base business and that has maybe distinguished yourself a bit from some other clean type companies, clean energy. So this might be a bit of a longer-dated question, but just curious how you think about maintaining a positive free cash flow position given the magnitude of opportunities that you've alluded to? And maybe as a follow on, a couple of quarters ago, you referenced that a potential equity issuance and it sounds like most of these investments are modest in size, so probably not applicable in near-term, but depending on the scale of investment, could we see those come to market in conjunction with one of these investments and that's how you kind of increased the flow of the stuff?

Yeah, it's a -- that's a really, really good question, Christine. I think that, look, we're very, very focused on free cash flow. And while it's great to talk about all the upside, the potential in the hydrogen stuff and that's obviously a real passion around here, the business is made every day with free cash flow that's generated from our operations and they are significant, they are consistent as you can see from our presentation of them, and most importantly they're growing. So, I really believe that when the two terminals are completed and we bring another couple of projects to FID by the second half of next year, we could double our free cash flow estimates, where we are right now to match the dimensions of the transactions. When I say that, I'm very focused on a handful of countries, it's countries that we think not necessarily going to have a 1,000 megawatts or 2,000 megawatts or 3,00 megawatt projects, the ones where we can do incrementally the same kind of things we've done before, 300 megawatts, 400 megawatts, 500 megawatts in projects and then do that over and over, because the economies are big and growing. And I'm deadly serious about being a Company that generates billions of dollars in free cash flow on a very consistent and straightforward manner and doing so faster than not. That's what the whole focus on the logistics chain, the ISO flex, the ability to get to these markets quickly is something that we are laser focused on. That plus the organic growth. So the cash flow generation is something that we're very focused on. And you're right, most of the investments we have looked at in terms of incremental things have been modest in size, but the capital required for…

Well, that was really helpful. Thanks. And then just separately, is there any update you can provide us with the FERC proceedings around the Puerto Rico terminal?

There is no update. We sent a response letter, it's all public. Everything is out there, as you can see their letter, you can see back our response, we feel 100% good about our position, and but we haven't heard back from them. So, we asked for them to respond expeditiously, they didn't. So I don't control that, but now we feel very good about our position. So...

So okay, thank you.

Thank you. And our last question for today - one moment. Our next question for today, and our last question for today comes from Ryan Levine with Citi. Your line is now open.

Thank you. What do you anticipate is the most efficient way to transport hydrogen to some of the new purchases current end markets and would you have any intention in pursuing the infrastructure to help facilitate that?

It's a great question, Ryan. The hydrogen can be frozen, it's a smaller, lighter atom, so it takes a little bit more energy. I think it could freeze at about 100 degrees colder than does LNG. So that part of the infrastructure works. There seems to be some challenges in putting it into pipelines, right. So, we talked to the technical people, I guess the atom is so small, there is some permeability issues and whatnot. So, it's a real issue. One of the things I think is really interesting about the production of it though potentially is electrolysis if that was your feedstock for hydrogen, you could perform that onsite, potentially. So actually obviate the need for transportation, that's one significant benefit other than something to really think about. Also again depending on the feedstock, that's why I layout that feedstock page, you could use the feedstock, transport that and then have your hydrogen production on site. So, I think what's likely is you'll see distributed production is kind of the way we think about it like fill hydrogen in a box effectively, where we've got different production technologies that then travel to where they are used. That's why I'm so focused on price because when you look at the big users for the ones that leap off the page, the industrial users and the power plants and you could potentially actually create your own hydrogen on those sites. That's in effect of what's being done today, it's been done in a super-duper like dirty way. And I think it's amazing, I put those numbers there, maybe they didn't surprise you, they surprised me. I was shocked to see that actually hydrogen has a bigger market than is LNG today. The users for it are basically the refineries, right. The refineries use a lot of it for industrial purposes and of course it's used a lot in the production of fertilizers. So, for things like methanol and for urea and ammonia, in particular. One of the other things, people have talked about is, it's fairly easy to turn hydrogen into ammonia and then ship ammonia, that's done commonly, it's actually shipped all over the place. And then you can either use it as ammonia when it gets there in some way, shape or form or you have a fairly simple cracker in place and actually split it back out. So -- but your question is like spot on, a great question. It will be first, find a cheap way to make it, second, find a use for it and third, trying to figure out how to get it from point A to point B, that's actually - that is the logic chain to get from one place to the other. And we're still on one, making progress on one. Once we get to one, two is in gunsight, three will be a big part of the solution for it though, so planning for some good options.

Thank you. And I'm showing no further questions in the queue at this time, I'd like to turn the call back to the speakers for any closing remarks.

Great. Well, thanks everyone for calling in. Obviously, we're happy to follow up on any follow-up questions through Josh or anybody else in Investor Relations Group and we look forward to talking to you after our next quarter in the New Year. Thank you.

Ladies and gentlemen, thank you for the participation on today’s conference. This does conclude your program. And you may all disconnect.