Excelerate Energy Inc

NYSE:EE

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the Excelerate Energy First Quarter 2022 Earnings Conference Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions]

I will now hand you over to your host, Craig Hicks, Vice President, Investor Relations, to begin. Craig, please go ahead.

[Craig Hicks, executive]

Thanks. Good morning, and welcome to Excelerate Energy's first quarter earnings conference call. On the call today, we have Excelerate's President and Chief Executive Officer, Steven Kobos; Chief Financial Officer, Dana Armstrong; and Chief Commercial Officer, Daniel Bustos. Yesterday afternoon, we released our first quarter earnings press release and posted a presentation on the Investor Relations page of our website.

I would like to remind everyone that during the call today, we will be making forward-looking statements. Our actual results may differ materially from those expressed and implied in these forward-looking statements due to a variety of factors, and we undertake no obligation to update or revise them. During the call, we will also discuss some non-GAAP financial measures. We provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation posted on our website.

With that, it's my pleasure to pass the call over to our CEO, Steven Kobos.

[Steven Kobos, executive]

Thanks, Craig. Welcome, everyone. We appreciate your interest in Excelerate Energy. I want to thank you all for joining us this morning for our first earnings call as a public company. Before we jump into the results for the quarter, I want to highlight a key aspect of Excelerate's business that remains core to our go-forward strategy.

Since 2003, Excelerate has established a strong and proven reputation for providing flexible LNG solutions to markets and diverse environments around the globe. Although our business model today is much different than it was when we started out as a pure-play FSRU business, one thing has remained constant over the years, and that has been our desire to open and expand new markets by providing flexible access to LNG. We believe having access to LNG is essential to assisting countries in their decarbonization efforts while at the same time promoting economic growth and improving quality of life. Simply put, we are committed to changing the way the world accesses cleaner energy.

It's an exciting time in our company's history, and frankly, it's an exciting time to be in the LNG industry. Thanks to the talented team at Excelerate, we've successfully executed our strategy and established substantial momentum in recent years. We've built a solid base business by focusing on operational excellence and providing our customers with the critical LNG regasification services that they need and expect from us. Our ability to deliver on our promises has gone a long way toward creating deeper inroads into our core markets that we believe offer us a real competitive advantage when vying for new opportunities.

Looking ahead, we expect to build on our momentum by executing on the robust commercial opportunities that are now in front of us. As a premier LNG infrastructure provider, we are viewed around the world as the partner of choice for many countries looking to LNG as a means to create dependable energy systems.

With that, let's turn to our results for the quarter. Our financial performance during the first quarter was solid and in line with our expectations. We delivered $13 million of net income and $71 million of adjusted EBITDAR. Our bottom line results during the quarter were driven primarily by the performance of our regasification business as well as natural gas sales in Brazil and New England. The long-term take-or-pay nature of our regasification contracts is the reason why our business model has proven to be so resilient over the years. We're pleased to have delivered these results during what is arguably the most dynamic shift in the energy market since the OPEC oil embargo of 1973.

In addition to operating our day-to-day business, we were also successful in advancing our portfolio of commercial opportunities during the quarter. On the gas sales front, we once again delivered regasified LNG into New England via our Northeast Gateway deepwater port in Boston Harbor. Our gas sales at Northeast Gateway were completed at the end of February. Additionally, we continue to execute our gas sales business in Brazil by completing our first full quarter of natural gas sales in the Bahia regasification terminal.

In February, we received approval from the government of Bangladesh to begin commercial negotiations for the expansion of our E-FIT terminal, Moheshkhali LNG, the extension of our regasification agreement by 5 years to 2038, and an LNG supply agreement to sell up to 1.5 million tons per annum.

In March, we were awarded a seasonal regasification charter for the Exemplar at the Bahia Blanca GasPort terminal in Southern Argentina. The Exemplar arrived at Bahia Blanca on May 15, and she is currently providing regasification services during the winter in Argentina.

Earlier this month, the Bangladesh government issued the approval in principle for the Payra LNG project. We are currently negotiating the integrated deal, which includes an LNG supply agreement to sell 3 million to 4 million tons per annum to the country.

And just last week, we reached an agreement with the government of Finland for FSRU Exemplar to provide up to 5 billion cubic meters per year of regasification capacity through a new regasification terminal in Southern Finland. This important project illustrates the growing demand for flexible access to LNG as countries accelerate their efforts to enhance their energy security.

Now I'd like to share with you some perspectives on the current state of the global LNG market. Over the first half of this year, we have witnessed a paradigm shift in the global LNG market. The energy crisis in Europe and the war in Ukraine have greatly increased the appeal of having flexible access to LNG as a means of promoting energy reliability and enhancing energy security. The potential for further disruptions of Russian pipeline gas to the region resulted in LNG cargoes that ordinarily would have been destined for the Asia Pacific region being diverted to Europe. The increase in LNG volumes being imported Europe have also driven spot LNG prices to record highs as countries who have historically been dependent on Russian gas are now competing for limited LNG supply.

We expect the sequence of events to lead to a new wave of liquefaction projects taking FID, which will be additional to the more than 100 million tons per annum of new supply already announced through 2027. Europe is now faced with the challenge of replacing approximately 150 billion cubic meters per year of Russian gas in order to stabilize energy systems and enhance its collective energy security.

We expect the increased use of FSRUs and integrated E-FIT style terminals across the region to prove to be critical factors in Europe's ability to accomplish this goal. As a result, we expect European countries to accelerate their efforts to secure FSRUs and LNG infrastructure.

We also expect the interest in Europe and energy security to have a spillover effect and increase the pace of decision-making for LNG consumers around the world. It's clear that customers who value flexible access to LNG understand the importance of moving quickly in today's market. As a reminder, we own approximately 20% of the global FSRU fleet. Most of our vessels are equipped with open and closed-loop capabilities, which make them ideal candidates for deployment in both warm and cold water environments. We have the largest FSRU fleet employed for regasification with send-off capacity ranging from 600 to 1,200 million standard cubic feet per day. Our fleet is capable of providing a meaningful portion of the critical regasification capacity that Europe needs now and in the future, and we are confident that we can benefit from these market tailwinds.

We are currently developing a portfolio of integrated growth projects in a variety of locations across our global footprint. In both existing and new markets for Excelerate, we are in active discussions with counterparties looking for FSRUs and LNG solutions to supplement their energy needs. We estimate that our projects in advanced development represent over $1 billion of capital investment opportunities, and we have additional projects in early-stage development identified in Europe, Asia Pacific, Latin America and the Middle East.

Each quarter, as part of our earnings materials, we will provide incremental material updates on our projects as they are available. We'll also provide updates on our projects as they transition from advanced development to in execution. This quarter, you'll see that we've updated our project list to show that we expect the recently announced Finland project to commence service in the fourth quarter of 2022, and we've shifted the timing of the Filipinas project to the second half of 2024.

Because we operate an integrated business model, we have the flexibility to adjust the sequencing of our projects in response to changing market dynamics. And to accommodate the number of projects currently in our pipeline, we are assessing a range of options for increasing our tonnage and optimizing the deployment of our vessels. This approach ensures that we are allocating our assets and resources to projects that maximize value for our shareholders.

As we announced just last week, Excelerate executed a binding agreement with Finland's state-owned transmission operator, Gasgrid, for long-term regasification services utilizing the FSRU Exemplar. We believe this 10-year agreement will allow us to deliver enough regasified LNG capacity to replace completely both Finland's and Estonia's pipeline gas imports from Russia. This FSRU project will serve as a security of supply tool for the government of Finland and for the government of Estonia. We expect to place our FSRU Exemplar in service in the fourth quarter of this year. The terminal will be located in Southern Finland near the Balticconnector pipeline.

In January, we received approval from the Albanian government to proceed with the second phase of the feasibility study for the Vlora LNG terminal and power plant project. In the same month, we were notified that our offer to procure 2 power barges on an emergency basis was accepted by the Albanian government. We have since executed the definitive commercial agreement for 2 years of service and expect the power barges to come online in the second half of this year. Under our previously announced MOU with Albgaz, Albania's natural gas transmission system operator, and with Snam, one of the largest energy infrastructure owners and operators in the world, we are continuing to explore solutions to connect to the Vlora LNG terminal with other European natural gas infrastructure.

Flexible LNG projects like the Vlora terminal have the potential to enhance energy security for Albania, Italy, Greece, Bulgaria and other countries in Europe's Southern Gas Corridor. We expect the Vlora LNG terminal and power plant project to come online in the second half of 2023.

We've spoken before about our growth opportunities in Bangladesh. We continue to advance our proposed MLNG expansion project, which would increase natural gas deliveries to the country through our existing E-FIT terminal in the southeastern part of Bangladesh. We are also advancing our power project, which would support Bangladesh's growing economy by providing natural gas volumes to new and existing LNG customers in the southern and western parts of Bangladesh.

By receiving an approval in principle, the power project has reached a significant milestone in the Bangladesh approval process. We are negotiating the integrated deal with our counterparties and have high confidence that the project will proceed to execution as planned. We expect Payra to be a game changer for Excelerate as it would represent our largest deployment of capital in a project to date and significantly increase the scale of our operations from a global perspective.

Currently, the southern and western regions of Bangladesh receive approximately 100 million standard cubic feet per day of natural gas. We expect the Payra project to increase this amount by providing 500 million standard cubic feet per day of regas capacity at initial in-service. And through its 200 kilometer, 1 billion cubic feet per day onshore pipeline, we expect the Payra project to be capable of providing natural gas to 6 existing combined cycle power plants in the region. In addition to these existing power plants, we are actively exploring opportunities for new power projects along the pipeline route. We expect to complete geophysical surveys and pipeline route selection for the project and to begin our front-end engineering and design study in the next 6 months. The Payra project is targeting an in-service date in 2025.

In addition to the LNG supply deal for the MLNG expansion project, we are negotiating a separate LNG supply deal for Payra that would allow us to sell 3 million to 4 million tons per annum of LNG to the country. On a combined basis, these 2 supply deals would allow us to sell approximately 1% of current global LNG supply annually to Bangladesh over the next 15 to 25 years.

Before I turn the call over to Dana, who will walk through our financial results in more detail, I want to provide you with a summary of our investment thesis. Our primary objective remains to provide superior returns to our shareholders as an integrated LNG infrastructure company committed to addressing the lack of access to cleaner energy around the world. We expect to accomplish this goal by developing a high-quality portfolio of growth projects that provide attractive rates of return and enhancing our existing customer relationships and asset base while integrating further downstream into both our existing markets and new markets. In closing, we believe that Excelerate Energy is a compelling investment opportunity in the downstream LNG value chain.

With that, I'll now turn the call over to our CFO, Dana Armstrong.

[Dana Armstrong, executive]

Thanks, Steven, and good morning, everyone. Overall, we're pleased with our first quarter results. As Steven mentioned, for the first quarter, we achieved adjusted EBITDAR of $71 million, up 12% as compared to the fourth quarter of last year, driven primarily by our first full quarter of gas sales at the Bahia terminal in Brazil, which commenced in December 2021, and the winter seasonal gas sales we delivered via our Northeast Gateway terminal.

We generated operating income of $39 million and net income of $13 million in the first quarter, both up sequentially over the previous quarter. The sequential increase in operating income and net income was driven by the increased gas sales, along with a decrease and depreciation due to the end of our LNG carrier vessel lease in December of last year and lower restructuring costs related to the IPO in Q1 as compared to Q4 of last year.

In comparison to the first quarter of 2021, our first quarter 2022 earnings were down year-over-year due to market headwinds related to recent geopolitical events, including the European energy crisis and the war in Ukraine. The flattening of the JKM versus TTF price spread resulted in fewer opportunities to sub-charter our available vessels and to deliver on spot LNG cargoes in the first quarter of this year.

Now let's turn to an overview of our liquidity and capital resources. At the end of the first quarter, Excelerate had $83 million in cash and cash equivalents. Because the first quarter results we're presenting today occurred before our recent IPO, we think it would be helpful to provide you with additional information on our liquidity position post IPO.

On April 18, we closed on our new $350 million revolving credit facility with a syndicate of banks led by JPMorgan. This revolving credit facility supports the execution of our growth strategy and further enhances our liquidity and balance sheet strength. The facility, which has a 3-year maturity that expires in April 2025, is expected to be used primarily for letters of credit, short-term working capital needs and other general corporate purposes.

As part of the IPO, we generated $416 million of net cash proceeds after underwriting fees, of which $50 million was used as a partial payment along with equity for the purchase of 2 vessels that had previously been on finance leases with a related party. Inclusive of the $366 million in net IPO cash proceeds, our pro forma cash balance was $449 million as of the end of Q1. Our pro forma revolver availability at the end of Q1 was $235 million, netting to a pro forma liquidity position of $684 million. Our pro forma leverage ratio, which is defined as debt and finance lease liabilities over trailing 12 months EBITDA, was about 3x as of March 31. The pro forma adjustment removes the finance lease liabilities for the 2 vessels that were purchased in April concurrently with IPO.

Based on the commercial momentum we've established to date, we are providing full year financial guidance for adjusted EBITDA and adjusted EBITDAR. As a reminder, we focus on adjusted EBITDA and adjusted EBITDAR as our key financial metrics as our earnings metrics are more predictable as compared to revenues, which can be impacted by volatility in LNG prices for our gas and LNG sales component of revenue.

For the full year 2022, adjusted EBITDA is expected to range between $249 million and $269 million, while adjusted EBITDAR is expected to range between $285 million and $305 million. And as mentioned in our S-1, we expect to pay an annualized cash dividend of $0.10 per share to holders of our Class A common stock on a quarterly basis. We expect that these quarterly dividend payments will commence in the third quarter of 2022. In each case, declaration and payment of dividends are subject to Board approval and certain legal requirements.

With that, we will now open up the call for Q&A.

[Operator]

[Operator Instructions] Our first question comes from David Havens from SMBC.

[David Havens, analyst]

I was hoping you can provide a little bit more perspective on what the European opportunity will look like for you. Specifically, do the majority of the projects include both the FSRU and terminals as well as gas sales opportunities?

And then second to that, in terms of availability of FSRUs, you guys have kind of -- you've got a lot of your fleet now is on term commitments. Would you consider M&A? Or what kind of timeline would it take to perhaps acquire a newbuild?

[Steven Kobos, executive]

Thanks, David. Appreciate it. I'm always going to remember this, our first question as a public company, so thanks for doing that.

Europe is presenting a lot of opportunities, and you can look at it just through what we've got out in front of you or in front of the world right now. So the Finland deal is more like our traditional business model but we find it attractive. Now we will continue to look, and we've told the Finns that we're interested in exploring further downstream opportunities both within Finland and within the Baltic Sea region. So just as we have in other projects, we're going to get that -- secure that first and then look what the other opportunities are that we can find downstream in that market.

The flip side of that though would be the Albania Vlora project that we've been working for some time. We're -- we've been quite clear. We like the appeal of the base deal, the gas sales, the power plant, the power generation, but quite obviously, as I mentioned in my comments, we're looking at that also as a great entree point for gas sales into Europe. So I would say in short, we're looking at the full spectrum of opportunities within Europe, and we're always going to try to find a way to sell gas downstream into a market.

Pivoting to your -- the second question we've had as a public company, David, what are we thinking about tonnage. We're not going to take anything off the table as we seek the best way to grow this fleet. We are looking at new buildings. We have a full set of conversion kit in a warehouse that we've had for some number of years, looking for the right conversion candidate, and we won't rule out any other mechanism of expanding tonnage.

[Operator]

Our next question comes from Marc Solecitto from Barclays.

[Marc Solecitto, analyst]

So maybe just to start, and Steven, you kind of touched on this earlier, but with the recent FSRU announcements we've seen out of Europe and tightening supply of available ships in the market today, has that at all affected the competitive dynamics for some of the integrated projects you're pursuing in other markets?

[Steven Kobos, executive]

Marc, thanks for the question. As I mentioned, what we're seeing is people advancing the pace of the decision-making in the rest of the world because they have their own needs. They're not going to be left out. I would say it's no secret that the approval in principle for the Payra project we received out of the Prime Minister's Office in Bangladesh -- and that's a key milestone in their statutory regime of the Quick Enhancement of Electricity and Energy Supply Act of 2010. We've been working on that project for a number of years. That announcement came out within 48 hours of Russia cutting off gas to Poland and Bulgaria. So I think just anecdotally, that's an example of the spillover effect on the pace of decision-making that you'll see around the world.

[Marc Solecitto, analyst]

That's helpful. And then on the potential MLNG expansion, could you maybe provide some context around the opportunity there? I know the press release mentioned potential supply deals for up to 1.5 million tons, but just wondering if there would be any incremental capital costs associated with the expansion.

And then also, I just want to confirm, would you be earning a fixed dollar margin on the additional LNG sales volumes? Or would you be recovering the economics under a terminal use agreement similar to the existing framework there?

[Steven Kobos, executive]

Marc, that is a great question, and we have with us today, Daniel Bustos, our Chief Commercial Officer. I'm going to hand that one to Daniel.

[Daniel Bustos, executive]

Thank you, Steven. Marc, on the MLNG expansion, what we're going to offer is something that you're going to see on our deals. Our goal is to earn, secure capacity payments, extra payments for the expansion of the terminal. Expansion of the terminal is going to imply bringing a bigger vessel. And yes, we're going to have some modest capital outlays for some life extension works on the fixed infrastructure. Those extra activities are going to be covered by incremental capacity payments. On top of that, we expect to make a predictable margin on the LNG sales. So similar to what you will see in our projects, we always seek to secure capacity payments for our capital involved and then emerging on the LNG sales.

[Operator]

Our next question comes from Cameron Lochridge from Stephens Inc.

[Cameron Lochridge, analyst]

So I was hoping we could start -- I was hoping we could go back to the Finland announcement and just start there. Can you provide any color on what the rate structure may look like there relative to your existing contract book?

[Steven Kobos, executive]

Cameron, we don't -- we have not -- don't comment on individual day rates across our competitive landscape with the other vessels. Dana, you might speak to how we could think of that in terms of EBITDA uplift.

[Dana Armstrong, executive]

Yes. On an annual run rate basis, it's about an extra $40 million of EBITDA that we're projecting. We expect to start in the fourth quarter. So we expect 2023, it will be about a $40 million EBITDA outlook on our Exemplar vessel.

[Cameron Lochridge, analyst]

Okay. Great, great. That's very helpful. That's what I was looking for. I guess flipping, I think you have a vessel in Israel that is set to roll off contract at the end of this year. Under that scenario, if my math is right, you would be back to 8 contracted vessels once that Israel vessel rolls off, 8 contracted vessels in 2023. Is that the right number to think about as far as what you're targeting for long-term agreements in '23? Or should we expect to see maybe 1 or 2 others announced as we progress through this year?

[Steven Kobos, executive]

Thanks, Cameron. Again, I'll hand that one over to Daniel.

[Daniel Bustos, executive]

Cameron, our goal is for Excelsior to be employed in Albania. So after Israel, it's going to go to traditional dry dock. We're going to do some enhancements specific for Albania. And since Albania will be a long-term deal, the vessel should be considered employed on the long term.

[Operator]

[Operator Instructions] Our next question comes from Devin McDermott from Morgan Stanley.

[Devin McDermott, analyst]

Congrats on the strong results this quarter. The first question I wanted to ask is going back to MLNG and Payra. It's great to see the continued progress there and the approval in principle. I was wondering if you could just walk us through procedurally from here, the remaining steps to move these projects from advanced development to in execution. So what are the remaining steps we're looking for?

[Steven Kobos, executive]

Devin, that's very helpful. I'll start -- I'm going to start with just lining out why we think or why I stated on the call that we have high expectation of Payra moving to execution and frankly both of those, the MLNG expansion as well. Approval in principle does mean something with respect to the statutory regime that we referenced before. We've been competing out, providing our proposals on the method and manner of technical solution for the need for the Payra project. We've been in a competitive process with other companies, urging different competitive solutions that's been in front of committees all across the Bangladesh government, evaluating those technical expertise.

So the first thing, I guess, I want to emphasize is that approval in principle, under that rigorous technical assessment that the government of Bangladesh has, does mean something. It is a key milestone. It does originate from the Prime Minister's Office. So with that, we have -- as we said, are going to be continuing with -- we've been doing already offshore surveys looking at pipeline routes. But Daniel, why don't you lay out -- I mentioned a couple of the other points earlier, how we see this unfolding from now, but I did want to highlight approval in principle doesn't mean yes, maybe approval in principle is a key milestone in a formal statutory process.

[Daniel Bustos, executive]

Sure, Steven. This kind of process that the Bangladesh government has established probably is a good way to see them. It's similar to one -- you have the defense departments of governments procuring large contracts. You go through a technical process, you get selected, and now we're going to go in more detail with the government in parallel to try to advance as soon as possible.

What we're going to do in parallel is we're advancing on the process for engineering, design and permitting. We're going to start negotiating a gas sales agreement with the Bangladesh government. The Payra project is going to be one where we're going to be selling natural gas, but we need to agree with them the final pipeline route, for example, for the project where the gas is going to be delivered between Payra and Khulna, all these power plants that we're going to serve. So what you're going to see is a parallel process. We're going to be refining the technical characteristics of the project. We're going to refine the pricing. It's a direct negotiation that we're having with the Bangladesh government, and we're going to negotiate the agreement. In the following quarters, we're going to be providing that progress, but it's going to be running in parallel.

[Devin McDermott, analyst]

Got it. Very helpful overview. I wanted to shift over to gas supply and the strategy there. So these are 2 fairly sizable projects. And I was wondering if you could talk to the strategy and also market environment around securing long-term gas supply and, as part of that, address whether or not the current pricing environment is having any impact on customer demand for gas.

[Steven Kobos, executive]

Well, I guess I'll take that last point first, Devin, and that is these projects with Payra, 25 years, MLNG taking it out to another 15, these are governments and people taking a long-view horizon of what needs are and how to satisfy those needs. We also see longer term, LNG looks more affordable. You see people having appetite to enter into rather long-term commitments that aren't that far off from what we have historically seen in terms of what people are willing to do. We've been talking for some time -- I can't get into specifics, with a number of suppliers. And I can tell you that there is appetite for the length of term that we're bringing to the table, especially with the credibility that we have for delivering into Bangladesh that we've established. So we're going to continue to advance those in parallel with the discussions with the Bangladesh government in those negotiations.

[Devin McDermott, analyst]

Got it. Makes a lot of sense. Congrats again on the solid results.

[Steven Kobos, executive]

Thanks, Devin.

[Operator]

We currently have no further questions. So I will now hand back to the management team for any closing remarks. We currently have a question that's just come in from David Havens from SMBC.

[David Havens, analyst]

I just want to follow up real quickly. With the Exemplar going up to Finland, are we going to see Argentina coming back to market next year for the seasonal demand that they may have?

[Steven Kobos, executive]

David, excellent question. I can't speak for the Argentinean government on what that is. We expect though that if there is an ask for the government of Argentina for IEASA for seasonal service in Bahia Blanca for next southern winter, we'll evaluate it, and we suspect that we'll have an asset that we could look at that if it's something that's appealing.

[Operator]

Okay. There are no further questions. So I'll now hand you back over to Steven Kobos for closing remarks.

[Steven Kobos, executive]

Thanks, everyone. We're going to call that a wrap on our very first earnings call. I'm just glad to have all of you guys present and participating in this. We look forward to doing this every quarter. We look forward to giving you predictable material updates as we've done today, and we hope this is the start of a long conversation. We're excited about where Excelerate Energy is positioned. We're excited about market tailwinds that we see right now, and we're excited to continue -- we're excited that people recognize the value of flexible LNG infrastructure to promote energy security and energy reliability across the globe. And we believe we are well positioned to advance on that opportunity set this presents. So thank you all for participating today, and we look forward to next time.

[Operator]

This concludes today's conference call. Thank you for joining. You may now disconnect.