New Fortress Energy Inc (NFE) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the New Fortress Energy Fourth Quarter and Full Year 2020 Conference Call. (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, Josh Kane from Investor Relations. Please go ahead.

Thank you. I would like to welcome you to the New Fortress Energy Fourth Quarter and Full Year 2020 Earnings Call. Joining me here today are Wes Edens, our CEO and Chairman of the Board; Chris Guinta, our Chief Financial Officer; Andrew Dete, leading our Brazil efforts; Alap Shah, the Head of Fast LNG; and Jake Suski, who leads Zero, our Renewable Hydrogen Division.

Throughout the call, we are 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 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 our 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 the quarterly report filed with the SEC.

Now I would like to turn the call over to Wes.

Great. Thanks, Josh, and thanks, everyone, for dialing in. So as usual, we will go through our presentation with you all here, and I've got a number of folks from the team that will pitch in different parts. There's a lot to go through this morning, but we'll try and do so in an expedited fashion, so we'll leave plenty of time for questions. So really a big quarter, a big year for us. First of all, on the operating aside, operating numbers for the quarter were actually quite good, very much in line with what our expectations were. We had 1 terminal that was down in -- or 1 terminal that was down in Puerto Rico. That was part of the scheduled maintenance item. If you ex that out of it, we're basically very much right on top of all the operating numbers, and Chris will go through that in details. But solid operating numbers. And again, the three 0s in terms of incidents and injuries and people without were all 0, so we had a very, very solid operating quarter, and we feel great about that.

Developments that are at the end of their development time and just about ready to turn on in Mexico and Nicaragua. Punchline is very much on time and on budget, expect in the next 30 to 45 days both of those are essentially done and ready to go. Feel great about that. So we're -- in addition to the terminals getting finished, we also -- it was announced that we won a bid to provide 250,000 gallons a day to CFE in Baja, which is great. We've long said, the organic growth from our existing portfolio was a big, big part of the story going forward. That's -- they're the biggest partner for us and not just in Baja, but in Mexico, and we look forward to partnering with them. So that terminal will turn on in May, and our power plant is ready to go at the end of June. So organically, across the board, that's all good.

The big news for the quarter and the big news for the year, of course, we announced earlier. So on January 13, we announced the acquisition of Hygo from Golar and as well as the MLP from them, a portfolio of 13 owned ships and 1 lease ships. The Hygo transaction is really a transformational one that we'll spend some real-time on. Brazil, we think, is perhaps the best market in the world. We now have really a constellation of terminals up and down the coast of it. These are very, very special terminals in that -- not only are they going to be high volumes but also good margins for us.

So Andrew Dete, who's been the point person for us will detail this. But the way we look at those terminals, we think that at the end of the day, they're capable of generating kind of 4 to 5x the volumes that we get from our other terminals. So not all terminals are created equal. This is just a function of the incredible size of that market and the need for gas and power. So 4 to 5x what we think we generate from our other terminals in the portfolio at kind of 50% to 75% of the net margin. So a little bit more competitive in the marketplace. The margins are a little tighter, but the volumes could be considerably larger. So that's a big, big win for us.

We acquired the portfolio of ship assets from Golar. The MLP really less a ship acquisition and really kind of closing the gap on what we needed to provide for our own terminals. So that transaction fits like a glove. It adds immediately $300 million or so in EBITDA. So it's a big incremental amount of cash flow for us, and it actually fills a need that we have for both FSRUs and for FSUs across the portfolio. So that is a great transaction for us.

It looks like we're on schedule to close both those transactions sometime in the next 30 days or so. There's a number of different approvals that are out there, all of which are ordinary course at this point, we think. And I'd say at this point, our goal is to close sometime in the first half of April. And we'll obviously update you as we get closer to that.

Last topic for us and something we'll spend a lot of time on is a huge development for us as we announced yesterday that we are now FID on our first FLNG. So FLNG, this industry loves acronyms, so liquefiers basically is a concept that was pioneered originally by Golar. There's a handful of these floating liquefiers around the world. And in the transaction that we did with the MLP, we acquired a 50% interest in one of those ships, the Hilli. But we have made a modification to that, that we think is a faster, cheaper, better solution for it.

And again, we'll spend some real-time kind of going through that, but the net of it is that this actually allows us to produce our own LNG at prices well below where we can buy LNG in the marketplace. So it both solves a big challenge for us in terms of finding gas for our portfolio, it also creates a massive economic opportunity by basically creating incremental margin in all of this. So we'll talk about that in some detail.

So Page 5, if you look at kind of the detail on all this. So what I did in preparation for this call was simply went back to where we were a year ago. Now a year ago, we were 1 week into this terrible pandemic, and it was pretty quiet here in the office. We had -- we went from a full office on the 11th of March to a handful of people by the 12th and 13th. And by today, the 16th, we were down to literally a skeleton crew. It was me, a handful of people and my dogs. So it was a very, very different place where we were.

We had 5 terminals we were committed to at that point. We had the 2 in Jamaica that were open. The one in Puerto Rico at that point was still under construction. So it was a pretty dark time a year ago. Our total volumes at the time was about 800,000 gallons per day, operationally 1.9 million gallons that were committed. And the gas supply that we had in our portfolio then was about $5.50. So roll forward 12 months and what a difference a year makes. We've gone from 5 terminals to 9 terminals. So the 4 that are operating in Montego Bay, Old Harbour, San Juan and then Sergipe, which is the terminal with the big power plant in Brazil that is operating right now.

There are 5 developing ones. So the 2 Mexico and Nicaragua, which I talked about, and then the Suape terminal that Andrew will talk about, the Barcarena terminal, again, in Brazil; and then a Southeast Asian terminal that we are committed on as well. Volumes have increased dramatically. So 800,000 a day goes to 1.9 million, 1.9 million committed goes to 5.1 million, so 2.5x bigger.

Operating margin goes from basically 0 or negligible to $1.2 billion a year when the terminals that are actually underdeveloped and are completed. So we've taken a massive step forward as a company. And at the bottom of the page, the Fast LNG, as we call it, so rather than floating LNG it's the Fast LNG, which you'll get all detail in a second here. We believe we can produce LNG between $3 and $4 in MMBtu. So a couple of dollars in MMBtu below what it is. And on the right-hand side, this is what really gets us all excited and out of bed early in the morning is, 1 year from now when these terminals are all on, we've got the 9 we're committed to, there's 2 that we are very, very close to being FID on. So it will take us to 11. That takes our volumes up to 19.3 million gallons per day. So a far cry from the 800,000 we were producing a year ago. Operating margin, if we continue to buy in gas at the market, $1.6 billion. And to the extent that we can also then produce our own LNG across the whole portfolio, it adds roughly $1 billion in earnings. So it's a huge transformation for us as a company. We really are in really the last stages of moving from being a development company to an operating company. You can see that the impact of this across the portfolio is really tremendous.

So let's look at the next section. If you look at Page 7. The graphic, the visual of the planet with our different operations spread around, I think, is a compelling one. Obviously, we started in the Caribbean, so there's the Jamaica, Puerto Rico terminals. Then you have Mexico and Central America. Now with Brazil, we'll have 4 terminals in total across there. It's a continent sized country. It's a huge market for us. Biggest market we're in by far. You see that big blue ship that is off the coast of West Africa, that's the Hilli, which is -- again, this 2.4 million ton floating LNG ship that we own a 50% interest in. Then there's FSRUs in the Middle East, in Southeast Asia. We're very close to announcing our first deal in Southeast Asia. So it really has gone from a regional company to a global company. And that creates massive, massive synergies and opportunities for us.

On Page #8, we do show the different terminals. So the 4 that you're -- on the left-hand side, Montego Bay, Old Harbour, San Juan, then the Sergipe portfolio. This is the terminal that actually has the 1.5 gigawatt power plant that we also acquired as part of the Hygo. It's the largest power plant in Latin America. So a very, very significant asset that really anchors that terminal. The 2 that are in construction in the middle of the page here at La Paz and Nicaragua are literally days away from being 100% completed. And then on the right-hand side, we've got the Suape terminal, Barcarena and then the Southeast Asia terminal. And if you flip to Page #9, the 2 that we expect additional FIDs in the next 90 to 120 days, there's a large offshore terminal in Santa Catarina, Brazil and then a terminal we've been working on for quite some time in Shannon, Ireland. We're filing our final planning papers on that at the end of this month that we expect to be FID on that sometime in the middle of the year.

So with that, let me pause and turn it over to Andrew Dete. Andrew as I said, is the person who's the point person for us in Brazil and I think, will give us some great color on what's going on down there. Andrew?

Hey, everybody. Good morning. And I just wanted to go a little bit deeper on Brazil. Just to echo some of the comments that Wes made in the beginning. We're so excited about this because we think really this is the unique market for both volume and margin opportunity in LNG and natural gas. And 3 main reasons we believe that: one is the market opportunity that exists today. So a 35 MTPA market was about 10% of LNG imports in 2019. We see basically 4 to 5x the volume of the current NFC terminals and our terminals in Brazil at 50% to 75% of the margins. The second is the growth of that market.

So we believe the key regulatory reforms are in place to basically emerge from a vertically integrated monopoly run by Petrobras to an open and competitive gas market that will solve supply constraints and also deliver gas to new areas of the country as we see an undeveloped gas grid and gas infrastructure develop over time. And then the third is really the ability to combine those volumes with margin. And so we mentioned this sort of nascent regulatory market and an ability to compete both kind of with LNG sold on Brent oil price linkages as well as with high-priced HFO and diesel in the country. And so when we looked at this acquisition, and we look at the terminals that we're now developing, we just couldn't be more excited about maintaining both the volume and the margin opportunity.

I'll flip to Page 11, which is an overview of the terminals that we have in Brazil. So just to start with this, we loved the Hygo business because what we saw is a really strategically located portfolio of terminals. So a tremendous job that the folks in Hygo did in terms of permitting and getting these assets either operational in the case of Sergipe or ready to construct. And so let me kind of go north to south on the terminals and give a little profile of each one of them.

So starting in the Northeast in the state of Pará with Barcarena. This terminal, from a margin perspective, will be most similar to the operational NFP terminals we have today but with 4 to 5x greater volume potential just because we're in the Brazil market here. Barcarena will be the sole supply of natural gas in the region. So we'll compete with HFO and diesel. And we are both co-located and surrounded by really large industrial demand, not only kind of in the port itself, but certainly as we circle down the Amazon River. You have an industrial opportunity, a power opportunity and a small-scale opportunity that we think is really special and unique. And we're very, very excited about Barcarena.

The next one is Suape. So Suape is in the state of Pernambuco and is a different thing than Barcarena in that here we have gas volumes that are potentially significantly orders of magnitude greater than what we've seen in isolated regions of the world. Because what we have is we have huge demand at a seriously developed industrial port. We have great small-scale demand in the region. As again, we compete with LPG and diesel off the gas grid.

And then we also have a connection to the TAG pipeline which basically runs almost the length of the coast of Brazil from sort of the São Paulo, Rio region all the way to the State of Ceara in the north. And our connection to that means we can access demand centers, both north and south of the Suape terminal itself. Beautiful infrastructure with a fixed jetty already in place. And so we're very excited about Suape. This is all where we are in the process of moving 288 megawatts of PPAs that we required from BR Distribuidora. Third is the Sergipe terminal. So operating 1.5 gigawatt power plant, largest thermal power plant in Latin America, as Wes mentioned. Here, we also have a permitted expansion for up to another 1.7 gigawatts. And so a lot of fixed revenue is coming from that (technical difficulty) And we're obviously excited to pro forma own the Sergipe terminal and the Sergipe power plant.

Going to the south of Santa Catarina. This terminal in South Francisco do Sul in the State of Santa Catarina, really combines both high volumes like we see in Suape with really best-in-class margin potential. So here we'll be connected to the TBG pipeline, and we'll be competing against gas that is coming from Bolivia, which is both declining and frankly, quite expensive to transport all the way West to East from Bolivia. There's also a lot of stranded demand in the south of Brazil. So we'll be adding basically critical infrastructure, the TBG pipeline in terms of gas supply and compression at this point in the pipeline. And so we see the Santa Catarina terminal as combining really some of the high-volume attributes of being on an interstate pipeline, with an ability to basically supply new customers with gas and also convert people from HFO and diesel. Tremendous small-scale opportunity in the region as well and a highly developed region that today pays a lot for LPG and HFO.

So when we look at that portfolio as a whole, we're very, very excited about how strategically located each one of these terminals are, how far along they are in their development. Barcarena today is ready for construction, has all the permitting it needs and can be online very early in 2022. The other 2, also very far along in development, will be online in the first half of '22. And so we're excited to be kind of a first mover in the new open gas market in Brazil and to have these strategic locations from the Hygo acquisition.

Yes. Great. Thanks, Andrew. Look, we want to provide some detail on this because I don't want people to just lump Brazil in as a single point of reference for us. Each one of these terminals is unique. It has its own attributes, its own place in the marketplace. We have specific development and commercial teams that are in place for each one of these now, and we think that each of these individually has a chance to really, really outperform. So it's a big focus for us. Andrew and the team have done a great job in integrating with the team that was on the ground already in Brazil for Golar and Hygo, which we think is a terrific team. And so we are quite excited about that. So Chris?

Yes. Great. So I'm going to turn to Page 14. Thanks, Wes. So when you look at 14, we highlight the strategic importance of the GMLP acquisition. We're purchasing a fleet of vessels that generates a stable stream of contracted cash flows over the next few years. The acquisition also solves our long-term ship needs as we intend to integrate the vessels in our logistics chain once they roll off their current charters. In fact, when you consider the full build-out of the terminals that we acquired in the Hygo transaction and combine that with our own organic growth, we forecast the need of 8 FSRUs and 4 FSUs, which you can see on the left side of the page, pairs very nicely with what we are buying from Golar. So while we have strong consistent cash flows from the MLP now, once the current charges for these vessels expire, we can plug them into the NFE machine and save materially on our expected logistics costs by owning the assets ourselves.

When you take a look at Slide 15, you can really see the velocity of growth that NFE is experiencing. As Wes talked about earlier, this page evidences that we've gone from a development company a year ago, to an operating business with over $830 million of annualized operating margin once Mexico and Nicaragua come online. Further, as we ramp into the over 5 million gallons per day of committed volumes and combine that with a $300 million of cash flow from the MLP, we will be producing over $1 billion in operating margin. When you add the first Fast LNG unit, this takes us to over $1.2 billion in committed operating margins. The breakdown is helpful because you can see the downstream business is the biggest driver of profitability. But as Wes said and as you look at the far right column, by pairing the Fast LNG solution with our downstream demand, the effective per unit margin doubles. Finally, as we convert on our commercial pipeline, we can see a clear path to close to $3 billion in operating margin in the next 1.5 to 2 years.

If you turn to Slide #16, this shows our summary financial information for Q4. And on the whole, it was a fantastic quarter. During the quarter, we achieved our highest single day volume totals in San Juan, in Old Harbour and in Jamalco. We had our highest quarterly revenue and the best operating margin performance to date. Volumes for the quarter were a little less than Q3, which is due to 2 customer-driven maintenance outages, which I wanted to touch on briefly. The first was turbine maintenance that PREPA conducted on the San Juan power plant Unit 6 during November and December. And the second was a diesel commissioning of the Old Harbour power plant. This is a dual fuel plant with NFP providing the backup fuel as well. So while there was a volume reduction, we didn't see any dip in operating margin from that asset. We are expecting a similar maintenance outage in Q1, Q2 for Unit 5 in San Juan and also the installation of our selective catalytic reducer, which will provide further emissions reductions for the power plant.

A quick comment on maintenance that we previously mentioned. As we get more terminals, these maintenance events will be less pronounced and have less of an impact on each quarter's results. Revenue for the quarter was $146 million, and the cost of goods sold was $85 million, which resulted in the $61 million of operating margin you see here. This $61 million was our highest quarter on record and represents approximately 40% margins, which is in line with our target and long-term expectations. I want to highlight that in a quarter where LNG prices range from below $2 to over $30, our average cost of LNG for the quarter was $4.20, which is within 5% of our estimate.

SG&A expense for the quarter was $22 million after normalizing for noncash compensation, development and onetime expenses. This is up slightly, primarily due to some extra headcount on the Mexico and Nicaragua projects, which will migrate to operating expenses going forward. For 2021, we expect corporate SG&A will stay around $80 million annually for the NFE stand-alone business, and increase to approximately $90 million on an annualized basis once we close the transactions.

Last thing I wanted to point out is that the balance sheet remains very healthy with over $600 million of cash on hand at December 31. This is the result of the 2 financing transactions we did in December, raising approximately $550 million in total proceeds.

With that, I'll turn the call back over to Wes.

Great. Thanks, Chris. So let's go to Page #18 and talk about gas. As I've said before, gas is one of the biggest focuses we have as a company. Gas supply is, in many respects, our biggest risk from a financial standpoint of the company. The gas is generally a stable asset in terms of commodity pricing. It's been quite a bit more stable than the oil-based fuels have been over the course of the last couple of years. Although if you look at last year from the low to the high, I think the lowest price that I saw in LNG that was sold commercially in the world was about $1.25. The highest price I saw at the very end of the year was nearly $39. So between the -- now there's a lot of stability in the middle, but obviously, there's big swings on either end of that. And so we're very, very focused on not getting caught by the swings and being able to provide our own portfolio with supply that we can actually rely on in terms of the prices we use for ourselves and then to our customers.

So when you look at Page #18, our volumes operational in Jamaica and Puerto Rico, 2.1 million gallons per day, add in Mexico and Nicaragua that takes us to 3.3 million. Add in Sergipe in the Southeast Asia terminal is going to take it to 5.1 million gallons per day. Divide that by 1.6 million because 1 million tons is basically about 1.6 million gallons. And we have total gas demand today of 3 million tons. We've contracted 2.2 million gallons per day, so 1.3 million tons. So with this, we still need supply for about 55% of our portfolio, 1.7 million tons of gas demand.

So let's look at Page #19. The index priced gas supply is not only a problem for us, but it's also a challenge for our customers. The vast majority of gas in the world is indexed either to Brent or to JKM, which is the Asian price or the Henry Hub. And the problem from a customer standpoint is that virtually none of them have a demand, which is also based upon oil. So if you are running a power plant, if you're running a refinery, if you're running a hotel or a shopping mall and you need electricity for it, the price of oil has little to do with the economics of your business, and yet if you're indexed to the price of gas, you were at the end of that WIP, and you can see from this chart on the right-hand side, that can be a very, very typical place to be. So over the course of the last year, Brent crude prices have nearly doubled, and the power plant revenues haven't doubled. The shopping mall revenues haven't doubled. The refinery prices haven't doubled. And so you end up with a real mismatch between the two. Customers prefer fixed price supply, but that's something that has not been available in the market until this point.

So turn to Page 20. So the genesis of this is we have been interested in the floating LNG markets for a long time. We ourselves have been -- we built our own liquefier, have run it for the last 5 years, have had a lot of experience in the liquefication side. We're fortunate enough to partner up with the Golar guys who really have been the pioneers of many things that have happened in the high seas. They were one of the first parties to actually convert their ships into FSRUs, into floating regas units. There's a handful of FLNG vessels on earth, and they actually own and operate one of them (inaudible) Cameron. That's the Hilli that we now own 50% of. We have a second one, the (inaudible) [Gimi] which is in construction right now. So this all started at the -- in the middle of January. When I basically picked up the phone, I called our technical group. I'm going to turn it over to Alap here in just a second, but Alap, Sean, Sam, kind of our very, very capable technical guys and said, look, let's get on with the Golar guys, let's actually look at doing this in a different way because the little box on the left-hand side of Page 20 represents how the FLNG business had been done until this point.

And to make it very simple, if you want to construct a new ship or you want to convert a ship into a floating liquefier, it takes a long time, and it costs a lot of money. So you look at the 2.4 billion -- 2.4 million tons ship that they're building right now, costs well over $1 billion. To develop the field that actually it would serve us cost a significant amount of capital as well. So the punchline is 4 to 5 years to develop this from end-to-end, and many billions of dollars of development capital. So while the output of it is interesting to us, the process and the price and the timing is not interesting at all. And I just said, look, can we do as we've done in other parts of our business, which is use existing marine infrastructure and repurpose it for what we want to do.

And in very simple terms, the cartoon here shows what we're going to do is, we went out and found a couple of drill rigs with the help of the folks at Golar. So Bob Dawson, (inaudible) and others actually were very helpful to us to hold -- were very helpful to us in finding those. To give some sense of the dimensions of this, we bought basically rigs that originally had a cost basis of over $500 million for $30 million. So essentially buying stuff with pennies and the dollars, we've done in other cases, repurpose them and then try to make the liquefication fit on top of it, which is what we've done. And so maybe I'll do right now is pause, bring in Alap, and Alap, you can give a summary as to what the work we've done thus far.

Thanks, Wes. Good morning, all. So just to give you a little bit background of my role and my technical backgrounds. I'm leading the Technical Solutions group and heading the Fast LNG program here at NFE. I worked at Black & Veatch for 22 years, leading their technologies group prior to joining NFE in January 2020 and was part of the team, worked on Golar, Hilli FLNG a few years ago, when Black & Veatch was doing engineering and design on that.

So as Wes said, we are very excited to update you on our innovative Fast LNG solution. And so focusing on Page 20. The concept we have here is the same as Hilli except a couple of things that give us significant advantage on budget and schedule. The first one is, we are using pre-engineered, fully modular design instead of a stick deal design on Hilli and then the second one is we are using jackup rigs instead of a ship to install liquefaction modules. So flipping on Page '21, you can see we are off to a great start with our terrific partners like Chart, Fluor, Baker Hughes, Kiewit, and Maersk to get the FLNG ready to be deployed in 20 months.

We plan to use Kiewit shipyard in Texas for installation and possibly commissioning prior to taking the jackup rig to the location of gas source. So this approach allows us parallel execution of: one, manufacturing of modules in fabrication yard; and then two, preparing jackup rig and installation modules in a controlled environment such as shipyard. This is a repeatable go-anywhere type of solution, and we plan to repeat this for the next unit, FID in the next 3 to 6 months. Giving back to Wes.

Great. Thanks, Alap. So -- I mean, the summary of this is what we've done is changed the picture of the FLNG market from a 4 to 5-year time line, $4-plus billion in project development costs into something that is much, much more relatable. So total cost of the FLNG unit will be about $500 million. It's a 1.4 million ton output, as Alap said from the LNTP from the notice to proceed that we gave last week, 16 months until we actually have the gear ready to basically install onto the drill rigs at the shipyard. Produces gas for us, we think, at about $3.50. So very simple math for every unit that you build and install, you're generating a couple of dollars of margin below what we would be paying for gas in the marketplace. So $150 million net margin on a $500 million unit, and it gives you tremendous certainty of supply.

So it really -- it's not overstatement to say it changes everything. It basically turns us into a fully integrated company from not just the midstream and downstream business, but now on the upstream side to control our own supply. And if you look at Page 22, the next focus for us is going to be where to get the gas from. And the good news is there is stranded gas and offshore gas all over the world. It's in the Gulf Coast of -- just south of this country. There is significant resources off the coast of Brazil. West Africa is probably the single greatest supply in shallow water of gas, but it's really all over the place. And really, our focus now over the course of the next 30 to 60 days will be to identify the gas source for the first of these, and there's lots and lots of options for us. So it's pretty exciting. And as I said, on Page 23, we show what the margins are for this. It's very simple. So $5.50 minus $3.50, $2 on the capacity that we're actually building here is $150 million. So all good.

Jake, do you want to give an update on hydrogen?

Thanks, Wes. So we've made some significant progress in our hydrogen efforts. After evaluating hundreds of technologies, we've identified the ones that we believe have the path to the lowest cost hydrogen production, meeting our target of $1 per kilogram with virtually no emissions. So what we're doing is we're focused on building 2 very promising businesses along these paths. The first, on Page 25, calling Zero Blue, which we believe has the most commercially viable near-term path. Zero Blue is focused on commercializing technology that would produce hydrogen from low-cost natural resources like natural gas and coal. To make these technologies emissions free, what you can do is actually capture the CO2 inherently in the process and then sequester which is basically permanently storing the CO2 underground. With that, these processes and technologies can be emissions free. A significant advantage of the technologies we've identified here is that they're ready to deploy today at commercial scale. So we're taking several steps to commercialize Zero Blue.

We're securing an exclusive license for technology that's capable of up to 99% inherent carbon capture in the next 30 days. We found a location to sequester economically the CO2 in that process. And we're actively discussing offtake with the major consumer of hydrogen that we believe will just be a really terrific partner for us in the downstream market. We intend to move forward with our first project in the next 3 to 6 months, and we'll look to capitalize this business separately. We believe that Zero Blue is a really scalable solution that has the potential to meet customer demand in the methanol and ammonia industries, where there's a very, very large and growing opportunity for hydrogen.

On Page 26, you can see our -- the second business that we're focused on, which we're calling Zero Green. And Zero Green has a huge potential to reduce emissions across all the energy markets as costs fall. Zero Green is focused on green technologies or renewable technologies that use renewable power to produce hydrogen by splitting water, H2O. We've made our first investment in a technology that we believe is the best in this category called H2Pro. H2Pro has a 95% efficiency and extremely low CapEx, which gives it a significant cost advantage over existing electrolysis, and it's being designed to work very well with intermittent renewables. This technology will be deployed with our first proof-of-concept in the next 12 to 18 months, and we'll be ready to quickly scale up commercial projects very soon after.

Our focus with Zero Green will be also on securing low-cost wind and solar energy to produce the cheapest green hydrogen possible. With $0.02 renewable power, we believe we can achieve around $1 per kilogram hydrogen. And one important factor that we highlight on this page that we think will help accelerate the effort is the supportive government, like we're seeing begin in Europe and Asia. We're optimistic that the U.S. will implement additional measures as early as this year to support the hydrogen industry and that many other markets will follow. As this technology scales, we believe Zero Green just has a really tremendous opportunity for growth to bring emissions down across transportation, power and industrial markets and help our customers decarbonize. Thanks, Wes.

Yes. One of the first places, I think you're going to see this impact is on the shipping side. What's very clear, just based on the volumes of interactions and calls we've got is that the shipping folks are very, very focused on their carbon footprint. I think there's a move afoot to really impose material taxes on the shipping market in terms of fuels. And that's -- when Jake talks about government intervention, that's the most positive way I can think about it is make it more expensive for people, and they'll actually do the right things. That, I think, will translate into LNG volumes in terms of bunkering opportunities, but also ammonia. I think ammonia may be really the fuel of choice that ends up there. And so if you have the ability to produce blue ammonia at scale, I think the market opportunity for that is tremendous.

So this is something we are deeply committed to, not just from a kind of a moral and ethical standpoint in terms of our place on being as good of a partner as we can be on sustainability issues, but there are massive profitability opportunities, I think, is part of this. And probably the path for this once we get to FID on a solution, on the Blue side, is really separately capitalize the company. So be a big participant in it but separately capitalize it either ourselves or with partners. So something to keep an eye on, but we're excited about that.

Just the last couple of thoughts, and then I'll turn it over to questions. So on the financing side, Page 28, one of the things we are preparing to do as we look towards closing the transactions ahead as we've got some financing work to do. And so what we did is put together kind of a financing scorecard for ourselves and evaluating where we are today versus where we were when we got rated here not too long ago. So -- and at every one of these metrics, the answer is we are substantially better than we were at that point in time.

Volumes have grown substantially. Operating margins have gone from negligible to pro forma $1.2 billion. Perhaps most importantly of everything on this page is diversity. So the diversity by geography, diversity by customers. When we had 1, then 2, then 3 terminals, obviously, we're then a function of how our customers are doing, that has a lot to do with what our operating results are.

At the peak of our lack of diversity, our biggest customer was 38% of our revenues. Once we close the Hygo and the MLP transactions, that drops down to 12%. And as these markets then -- as these terminals that Andrew was talking about and others, come online, those numbers are going to go down. So no one customer, no one geography then drives our returns, which that's a big, big issue for us in terms of our own cash flow. And of course, our financing counterparties will be very, very happy about that.

Logistically, we needed a bunch of ships and FSRUs for our portfolio. With one transaction, we're able to close that gap almost perfectly. The transaction really fits us like a glove from an operational standpoint and generates $300 million in cash flow. And then lastly, gas supply is then the one aspect of our business, where we now kind of close the gap and become, as I said, this fully integrated company from stem to stern.

So flip to Page 29, this is -- these are pictures of our capital structure pre and post transaction. So pre-closing transaction, $10.1 billion in total capitalization. 12% of that, so $1.25 billion of debt, 88% of that in equity, 175 million shares outstanding, $8.9 billion. Post-close capital structure, we issued a couple of billion dollars in equity as part of this. We equitized the transaction heavily. Our debt goes up by $1.5 billion, but our equity goes up as well. So still our ratios at the end of the day, 20% debt, 80% equity. We are very committed to becoming an investment-grade company. As we continue to grow, diversify and perform, we think that that's a very achievable goal for us in the next time frame. So...

Operator, we'll open up to questions.

(Operator Instructions) Our first question comes from Spiro Dounis with Crédit Suisse.

First question on Fast LNG. Should we think about that strategy becoming the primary source of gas at Hygo? So different supply arrangements and -- I'm sorry, just -- and to the extent that it is kind of the primary source, just curious how you're thinking about bridging supply gaps in 6 months. But I think as you mentioned, FLNG maybe takes a little over a year, if the customer is sort of not indexed. How do you solve that middle part?

Yes. Well, the answer is that we do think it's going to be a significant portion of our portfolio is going to come from our own activities. But with the geographies that we service, we definitely will have needs to buy in product from the marketplace and probably sell product into the marketplace. So it will make us a much more active LNG counterparty in the business. Again, we're trying to essentially grow wheat in the fields and then sell pasta at the other end. So it's a vertically integrated strategy. But we have a number of significant trading partners right now in terms of the majors that produce LNG. We think that will continue on forever. But we do think that the FLNG component of it is going to be a significant part of our portfolio in both in terms of the economics of it as well as the stability and certainty of supply. It's a meaningful step in the right direction for us.

Got it. It becomes pretty apparent that Asia is going to be a pretty big step-up for you geographically. Curious if there's more significance to that than maybe we're appreciating. And so I'm curious to the extent that you establish that anchor customer in Asia, do you get the sense that it opens the door to the rest of Asia? In other words, is there a line of other countries behind this customer who maybe didn't want to be first, but are more than happy to follow the blueprint once you establish yourselves in the region?

Yes. Look, when you look at the markets around the world, what we think are the 5 most interesting markets just based on size of the population and of economic growth and potential, Brazil is the top of the list. But then South Africa, Indonesia, Philippines, Vietnam, these are all material markets where we think there is tremendous opportunities. About 75% of the world's supply of LNG goes into the Asian region. So it's obviously a big, big part of the overall landscape. We are excited about our first transaction there. There's another list of -- a long list actually of transactions that are behind it. And I think that when you look at the world, it's long ways from New York to the Far East. So establishing a presence that is local in those regions is imperative if you're going to be successful at it. But I think there's going to be a lot of activity in Asia for us for sure. And there has to be the first one before there can be the second one. So we're very excited about this first stab.

Our next question comes from Alonso Guerra-Garcia with Scotiabank.

Really appreciate the detail you provided. The first one on Fast LNG, you've mentioned the high costs required in some of the floating liquefaction projects in the past. I guess, is the idea here with your concept that you'd essentially be able to tap into various supply sources that are ready to go? Or is there any meaningful upstream CapEx that you need to tap -- you need to spend to sort of tap into a gas field?

I think it's mostly just the ordinary course industrial development. Version 1.0 is always less good than version 2.0 and 3.0. And really, the -- as I said, the genesis of this is we looked at liquefication that had been done on ships, and it has been done very successfully. The operating history of the Hilli and the other ships has been quite good. And simply ask the question, is it possible to do it in smaller scale on existing marine infrastructure and thus, kind of reduce the time line that it takes to get it and the cost to get it?

The key that -- the word that a lot used that has been on the tip of our tongues is really modular aspects of it. So basically, we went back to these -- our counterparties, the Charts and the Fluors and the Kiewits and said, can we make these processes modular and thus make them easier to build, easier to install, easier to run. And the answer is yes. And so I think that this makes so much sense. And really and maybe the biggest aspect of it all, other than just the time that it takes to do it is $500 million for a project is something that is eminently financeable, and that's quite different than $2 billion, $3 billion, $4 billion, right?

And I think that that's of the real impediments, I think, in the growth of the FLNG market has been exactly that, is that you guys said you have got a project that I want to do, but it takes $3 billion or $4 billion, it takes 4 or 5 years to do. That's a pretty long pull to get that thing financed properly. Whereas $500 million that we think is through and is being installed next summer. So the summer of 2022 is a much more relatable, much more addressable thing. It also then we can figure that into our own calculations. We look at supply that we need for our own projects. So it's just much more usable in every respect. So...

Yes. Makes sense. Understood. And then maybe as a follow-up on both the Southeast Asia project and the Shannon Ireland project. They both seem pretty close to FID here in a matter of months. Can you talk to the, I guess, steps or milestones that are left for those projects before you think of FID?

Yes. The Southeast Asia is just simply a matter of negotiating contracts. So there's been intense discussions thus far that have been very, very productive, and we think that, that's a matter of a short period of time, we'll be at a good place on that one. Ireland is something where we had to go back to the drawing board from a permitting standpoint in terms of dealing with the local counterparties there. The market for what we want to provide there, we think, is a terrific one. And we're in the later stages of now being prepared to kind of file all our stuff. So I think our thoughts on Ireland would be file this stuff over the course of the next month or so. And hopefully, by the middle of the year, we'll have a real review as to the timing of the terminal.

Our next question comes from Ben Nolan with Stifel.

So well, I'll start with this one. With the new Fast LNG and sort of, especially also with the high volumes going into the new terminals in Brazil, how does the ISO container, ISO terminal idea or concept play into this? Or you sort of maybe shifting back to a more traditional methodology?

It's -- it hasn't changed at all. I mean it's really a question identifying the right tool for the job. So when you got something which is going to be significant volumes. And for us, the volume cut off is around 1.2 million, 1.5 million gallons per day. A 1.5 million gallons per day, remember, each ISO container is 10,000 gallons. That's -- you'd be handling 150 ISO containers, which is something you can imagine doing, but that's a pretty busy terminal. At about those volumes, you're better off the shift to an FSRU strategy.

So -- but the ISO container and the ISO Flex system is about ready to be deployed. I mean our ship is left to shipyard and up the coast of -- the Gulf Coast -- the NFE Zero, which is our first of these small-scale ships that we're deploying, and it's headed to Mexican waters.

So both Mexico and Nicaragua will be using ISO Flex. And for a number of the other opportunities that we're looking at that are not on these sheets, we think it's really appropriate. When you get into the high volumes that we expect in the Brazilian terminals and in Ireland for that matter, those are much more FSRUs. So that's what the equipment that we need there. But even within Brazil, we think the Barcarena terminal is really at the mouth of the Amazon River. There are many, many millions of gallons of diesel and heavy fuel oil that are burned at power plants up and down the Amazon River. And we think some form of ISO Flex will be used there as well. So it is just the tool for the tool kit is what we're really looking for. And we think it's a great solution and one that will find lots of chances to deploy.

Okay. That's helpful. And then as my follow-up, I guess the question is sort of what has changed on producing your own LNG versus maybe Pennsylvania or why wasn't this concept really rolled out, I don't know, 3 or 4 years ago? I mean, what's different now relative to sort of when you first had the idea?

If you're recommending we should have done a few years ago, I missed that phone call somewhere then. But that would have been a helpful one to get. Now look, we have been focused on trying to close the gap on our own supply for a long time.

And Pennsylvania is a project that we think has a lot of merits. We haven't given up on that by any means, but we've spent a lot of time in looking at it. And really what accelerated our thoughts on the FLNG was with the Hygo and the MLP transaction where we acquired 50% of the Hilli, it kind of brought us into the tent on the IP side. We had a great partner in the form of Golar. There may be a number of ways that we work with these guys. Maybe we will separately capitalize a company and look at it. There are a whole host of things that came out of it. But basically, we took our own liquefication technical team, which is a very deep and capable group, and really challenged them to look at existing marine infrastructure and see if we could shorten this up and make it more relatable from a size standpoint. And that's what happened.

And so we feel really great about the process with it. And as usual, it comes down to the people and kind of suspending disbelief and trying to make things happen. But I think the FLNG really does change everything because it takes our great midstream and downstream business and produces now our own supply for, at least in large part. And I think that's just a materially significant advancement for the business model. That's for sure. So...

That's great. And just as a clarification, if I could. The new Southeast Asia terminal is different than the Philippines thing that had been announced last year. Is that -- am I correct?

It is. Specifically, it's a purchase of an existing power plant with a right to then double the size of it. So kind of a 300-megawatt power plant that we would double to 600 megawatts in a country that has got, we think a tremendous amount of opportunity for incremental demand. So it's anchored by a very significant power asset, and we are in the very late stages of kind of getting that finalized. But it is different than the Philippines MoU that we signed at the end of last year.

Our next question comes from Sean Morgan with Evercore.

Wes, so with the FLNG solution that you guys are proposing now, $3.50, I guess, sort of the midpoint is pretty attractive. Is that -- it's difficult sometimes with apples-to-apples to kind of figure out the true cost. Is that an operational marginal cost of per MMBtu? Or is that including the $500 million of CapEx that you're sort of ballparking for the conversion of the jackup rig and the installation of the mid-sized modules?

No. It's actually really simple. So what we're assuming in this is the base cost of gas of $2.50 on an offshore basis, $0.75 to liquefy and operating cost of $0.25 for the marine and OpEx.

So it does not take into account the capital expenditure. And so that's why I quoted as saying at $3.50, were basically producing $150 million in margin on a $500 million capital base, right? So that's a very simple way of doing. If we then apply financing to it and other things, I'd like to look at things on an unleveraged basis. I think it makes things simpler and makes it harder to get confused. So and I think, frankly, when you look at those 3 pieces, $2.50 and $0.75 and $0.25, the $2.50 may well end up being a very high estimate. Mean you remember offshore where the stranded gas is, a lot of times, it is a derivative of oil activity. So people are drilling for oil. There's a lot of associated gas that comes along with it. And especially if you're in deepwater, that is not an asset, but it's a liability. And so that gas is reinjected in many cases or it is flared, which is, of course, a horrible environmental risk. And of course, they're also just wasting the asset basically.

So it may well be that we can actually do a lot better than this. And so we use a range of $3 to $4, but I think that as we get into this, and for people that are listening on the phone that have gas resources, give us a call. I mean, we've already had a number of people call us, but if you've got gas in your business, and you'd like to talk to us about it, we think we would be very interested to do so.

I think the jackup rig is a great tool for shallow water. So it always allows you to access preprocessed molecules that come through pipelines without additional CapEx. That's great. The offshore, the deepwater is where perhaps the greater opportunities are in the semi submersible, which is another form of marine infrastructure similar to the jackup rig, but suitable for kind of deepwater solutions. It may really be the tool that goes along with that.

So this is the top of the first inning in terms of the development of this as a business line. And I think there are many, many opportunities, but the unit economics are actually really straightforward. So $2.50, $0.75 and $0.25, that's our base case. And I think we've got a lot of room for improvement beyond that.

Okay. And so I appreciate that this would plug sort of your operation on the regas side in terms of the demand gap that you'll have of the 1.4 MTPA versus the 1.7 you're projecting kind of medium term. But you're going to be working with an upstream partner that generally, these companies try to capitalize on prices. If, for instance, like (inaudible) production would go down and oil prices to go up, you'd be able to pass kind of the cost through yourself, but your end customer would still be subject to the fluctuation in oil prices, right, just like any commodity buyer? (inaudible) the contract is what I'm saying.

No, no. Today, it would be -- that's true. But I think I've said this many times, if you want to make a great fortune, solve a great problem. And the great problem that people have in getting energy around the world is they're indexed to a volatile index that has no relationship to what their core business is. So I think once we get proof-of-concept and we're producing this and we have a view as to what our own price metrics are, I think there's a very real opportunity for us to pass this through to our customers, give them certainty of not just supply, but of price, and I think that changes everything. I really do.

So you have to walk before you run, but I feel like this -- there has been -- since 2006, there has been a real move to distance gas prices from oil prices. They moved in lockstep for decades together. They really split apart in 2006 when oil went to $140 and gas went down. So the thing really split apart. And there definitely is a relationship between the two, but it's not a pure relationship. And I think from the customer standpoint, there's really no interest in having that relationship for the most part. They don't have a Brent-based offtake. That's not what they're looking for. That's just what they are forced to take because there's no other alternative.

So this really could be, I think, a revolutionary step in terms of what price you're able to provide them -- your customers with and that's a big deal. So -- and the math on this is, as I said, $1.2 billion in margin on what we have right now. If we build all the stuff that Andrew and others are working on, that goes to $1.6 billion. If we then build incremental FLNG to service all that, it adds another $1 billion. So you're taking yourself from negligible margin a year ago to really a bright prospect of $2.5 billion and growing beyond that. So it's a big, big moment for us. And so a lot of work to do, obviously, in proving this out, but it's definitely a huge step in the right direction.

And our last question comes from Greg Lewis of BTIG.

And then, I'll keep it no long as we're on the hour now. Wes, just kind of a big picture question, and I think you kind of touched on it in some of your comments around gas exposure. And as we think about -- as you build out the portfolio, clearly, you're short gas. Clearly, you're going to address that. As we think about -- as the business builds up, is this something where we should expect New Fortress to maybe control 50% of its gas, (inaudible) any 80%? Do you want to be long gas? Any kind of views on how you're thinking about that would be helpful.

Yes. I think that the goal would be eventually to supply the bulk of our activities from us. I mean geography plays a role in this. This business is at the end of the day, a logistics business, right? You're getting the gas in one place and you're supporting customer activities in other parts, and it's a big world. So the map back in the early part of the presentation is a great visual because it just shows you the distances that you're trying to conduct your businesses in.

And I think there's definitely a role for us to buy gas from our trading counterparties, and there's probably a role for us to sell gas to them as we produce in different places. But on balance, I think the economics are overwhelmingly positive. If you're able to do this successfully of supplying your own gas at a material discount to where the market is, and also then be able to control your own supply.

So it's a huge benefit from an operational logistics standpoint. And economically, of course, the map is really easy. So -- but we'll see. I mean, I think this first one, we feel terrific about. We bought the first 2 rigs. They'll be shipped across the ocean here. In the near term, we've got a great technical team that is working on it. And the next big milestone for us is to identify a gas source. So we have lots of thoughts about that. And we've had a number of conversations about it. But again, if there's folks that have interest in talking to us about this, they should give us a call. And then I think if you get the first one done, I think there's many that could fall in succession.

Thank you. I would now like to turn the call back over to Wes Edens for any closing remarks.

Great. Well, thank you all for the time to go through this. We have a lot of different materials. I didn't want to have any one element of this dominate the conversation. Obviously, FLNG is a huge, huge step for us. Our operational success in the quarter was a very, very good one. We've added materially to our terminals portfolio. And last and certainly not least, I think that the whole move to kind of 0 emissions on the hydrogen side is material. And so we -- Jake did a great job of summarizing what has been an intense period of activity for us. And I feel like that's got opportunity that is really material. And I said, again, the place I think you're going to see it manifest itself most immediately is on the shipping side, and we think that those economic upsides there are substantial. So there's a lot to go through, and we've got a big staff with Josh and others that can help folks get through it. But thanks for your time, and we look forward to talking to you in our next quarterly update, which is not too far on the road, kind of 45 days from now. So thank you.

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