Excelerate Energy Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 12 speakers on the call.

Operator

Good morning all and thank you for joining us for the Accelerate Energy Second Quarter 2024 Earnings Conference Call. My name is Carly, and I'll be the call coordinator for today. I'll now hand over to Craig Hicks, VP of Investor Relations to continue.

Speaker 1

Good morning, everyone. Welcome to Accelerate Energy's Q2 2024 Earnings Call. Participating on the call today are Steven Kovos, Chief Executive Officer and Dana Armstrong, Chief Financial Officer. Also joining the call today are Oliver Simpson, Chief Commercial Officer and David Leiner, Chief Operating Officer. Our Q2 2024 earnings results press release and presentation were released yesterday afternoon and can be found on our website at ir.

Speaker 1

Accelerateenergy.com. I would like to remind everyone that we will be making forward looking statements on this call that involve a number of risks and uncertainties. Our actual results may differ materially from those expressed in these forward looking statements, and we make no obligation to update or revise them. Today's remarks will also refer to certain non GAAP financial measures. We provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation.

Speaker 1

With that, it is my pleasure to pass the call over to Stephen Cobos. Thank you, Craig.

Speaker 2

And to all of you on the call, good morning. Today, I will share with you a story of strength, strong financial results, strong operational performance and strong execution of our strategy. On the financial side, we delivered $89,000,000 of adjusted EBITDA in the 2nd quarter. Our robust FSRU and terminals contract portfolio and our ability to meet our customer commitments, create the foundation for compelling financial performance. In operations, I want to take a moment and salute Accelerate's global team.

Speaker 2

They focus every day on providing critical services to our customers and operating at the highest levels of safety. I'm extremely proud of this team. And when it comes to execution, we are doing what we said we would do. The Accelerate team continues to make great progress towards our plan to grow our company and maximize value for our shareholders. Now I'll provide a recap of our business strategy and an overview of the progress we are making.

Speaker 2

Then I'll turn the call over to Dana for more on our financial results. Let me recap our strategy. We are operating and optimizing our core regasification business. We are executing our comprehensive growth roadmap, and we are focused on 3 key areas for value creation. First, acquiring ownership interest in LNG regasification terminals.

Speaker 2

2nd, establishing a diversified LNG portfolio 3rd, investing in downstream natural gas infrastructure. We are advancing our plans to expand our fleet. Our new build FSRU whole 3,407 remains on schedule for delivery in June 2026. Engineering and fabrication work on 3,407 are underway and the next major milestone in construction, steel cutting, is set for October. We are confident that we will place hold 3,407 with 1 of the projects in our pipeline.

Speaker 2

Several of these projects would be an ideal fit for 3,407. As an operator of 1 of the largest FSRE fleets in the world, we remain bullish on the asset class. Part of our strategy in investing in our fleet is to meet our customers' needs for efficiency, reliability and sustainability. We've got a great example of this with our plan to integrate modular reliquefaction kits onboard our vessels. These will improve the overall efficiency of our operations.

Speaker 2

I'm pleased to report we have placed an order for a reliquet kit and are prioritizing it for integration into our fleet. The purpose of the reliquefaction kit is to recover excess boil off gas by reliquifying and storing LNG in the cargo tanks. It also helps prevent the loss of LNG cargo volume. This means that the energy value of our cargo can be productively used by our customer and not wasted. This technology will enhance the value of the services we provide our customers.

Speaker 2

It will create opportunities for increased revenue generation, and it's going to support development of the regas projects in our pipeline. You'll remember that last quarter, we shared with you a prioritized list of growth opportunities. These projects span the downstream LNG value chain and range from terminal ownership to fully integrated solutions. Today, we want to share 2 tangible proof points of our progress. The first one is a strategic investment we are making to enter the Vietnamese energy market.

Speaker 2

In June, Accelerate signed a term sheet with the Ateco Joint Stock Company, a Vietnamese based private development company with whom we're going to develop a greenfield LNG import terminal in Hai Phong, Vietnam. The Northern Vietnam LNG Terminal or NVLT is anticipated to be the 1st LNG terminal in the region. Vietnam, as you know, is expected to have one of the fastest growing economies in Southeast Asia. And Hanoi, the capital city, is located in the north, and this offers an enticing entry point into the country for Accelerate due to its rapid industrial growth. As domestic production declines, these industrial complexes in the north provide a foundational base of customers with a ready need for LNG, which will play a pivotal role in their energy mix.

Speaker 2

The plant LNG import terminal will have a total import capacity of 1,200,000 tons per annum constructed in 2 phases. Phase 1 of NVLT will have a capacity of 700,000 tons per annum and we expect operations to commence in 2027. The 2nd proof point of our value creation strategy is an integrated solution that is going to allow for the delivery of natural gas supply into South Central Alaska. For over 50 years, the South Central region of Alaska has relied on Cook Inlet natural gas for most local heating systems and electricity generation. But with domestic gas reserves in the Cook Inlet area declining, the region will need to import LNG to meet its anticipated local natural gas needs from 20 28 onwards.

Speaker 2

Accelerate is in advanced discussions with local utilities in South Central Alaska for the development of an integrated LNG terminal in the lower Cook Inlet region. Accelerate would own the FSRU based terminal, source LNG supply as required and sell gas to local utilities and other off takers. The start of commercial operations is targeted for 2028. We talk often with many of you on this call about our efforts in LNG markets all over the world. I can assure you that as an American company, it feels great to bring the critical services we provide to customers here in the United States.

Speaker 2

Let me sum this up. Once again, when it comes to our strategy, we are doing what we said we would do. We look forward to sharing even more information about the NVLT project, the Cook Inlet project and other projects in our pipeline with you in the future. Before I turn the call over to Dana, I want to address the current situation in Bangladesh. As many of you have seen, on Monday, the Prime Minister resigns and a caretaker government is currently being formed.

Speaker 2

During this time, the safety of our team members is and remains our top priority. All of our people are safe. The continuity of our operations is of utmost importance for the country. And as a long term partner of Bangladesh, we continue to operate as usual. As an American company that provides essential energy services to the people of Bangladesh, we are confident we will continue to play a vital role in helping to meet the energy needs of the country.

Speaker 2

With that, I'll now hand the call over to Dana for a deep dive into our numbers for the quarter.

Speaker 3

Thank you, Stephen, and good morning, everyone. As Stephen said, we are pleased with our 2nd quarter financial results. Adjusted EBITDA for the Q2 was $89,000,000 up $14,000,000 or up about 18% versus last quarter. The sequential increase in adjusted EBITDA was driven by the impact of the FSRU Summit drydock, which occurred and was expensed in the Q1 of 2024. As a reminder, because the FSRU Summit is under a build, own, operate, transfer or boot structure, the majority of the dry dock costs were expensed last quarter through the income statement instead of being recorded as maintenance CapEx to the balance sheet.

Speaker 3

We continue to invest in our fleet to ensure that we consistently operate at the highest levels of reliability. Doing so is central to maintaining a best in class fleet of vessels. Our maintenance CapEx spend for the quarter was $21,000,000 and year to date through the Q2, we spent roughly $32,000,000 on maintenance CapEx. As of the end of the second quarter, our total debt including finance leases was 734,000,000 dollars We had $609,000,000 of cash and cash equivalents on hand and roughly all of the $350,000,000 of capacity under our revolver was available for borrowings as of quarter end. With the free cash flows generated by our core regasification business, our stellar balance sheet and the liquidity provided by our revolving credit facility, we remain confident that we have more than sufficient capacity to fund our near term growth and strategic objectives.

Speaker 3

As an update on our share repurchase program, during the Q2 Accelerate purchased 674,000 shares or $11,000,000 of our Class A common stock at a weighted average price of $16.27 per share. Through the Q2, we've utilized 40% of the $15,000,000 share repurchase program that was authorized in early 2024. We will continue to take an opportunistic approach to the share repurchase program throughout the remainder of the previously authorized 2 year tenure, which runs through February 2026. Now let's turn to an update on our financial guidance for 2024. We are raising our previously communicated adjusted EBITDA guidance for 2024.

Speaker 3

For the full year, we are now expecting adjusted EBITDA to range between $320,000,000 $340,000,000 For the full year, we continue to expect maintenance CapEx to range between $50,000,000 $60,000,000 and committed growth capital to range between $70,000,000 $80,000,000 The majority of our committed growth capital range is related to capital spend on our newbuild FSRU Hull 3,407, including a 15% milestone payment due to the shipyard in the Q4 of this year. As a reminder, committed growth capital is defined as capital allocated and committed to specific investments for previously approved capital projects. For the projects that we talked about today, plus the others in our pipeline, once we've signed definitive agreements, we'll layer in the incremental estimated capital spend into our committed growth capital estimates at that time. With that, we'll open up the call for Q and A.

Operator

Thank The Our first question comes from Chris Robertson of Deutsche Bank. Chris, your line is now open.

Speaker 4

Thank you, operator, and good morning, Stephen and Dana. Thanks for taking the time to answer my questions today.

Speaker 3

Good morning.

Speaker 4

This is related to the Alaska proposal. I know one of the concerns that the utilities up there have had is the kind of the extreme title ranges that happen in the Cook Inlet and the operating environment there as it relates to an FSRU. In these discussions, have you guys discussed that particular problem and kind of proposed a technical solution that would assuage their fear around that issue?

Speaker 2

I'll lead off there, Chris, and then hand it over. Also joining Dana and me in the room today are Oliver Simpson, our Chief Commercial Officer and David Leiner, our Chief Operations Officer. So I'll take a crack and then hand it off to David. But now we're well aware of conditions in Cook Inlet. And let's face it, we have embraced tough conditions all over the world.

Speaker 2

Most of our fleet was designed for the North Atlantic. We deal with cyclones in the Bay of Bengal. We have been in all kinds of extreme weather. We're well aware of the tidal conditions of Cook Inlet, and we believe that there are suitable technical solutions for that to provide the sort of reliability that is essential to any of these projects. Energy needs to be reliable, but David's team ultimately will be involved with that.

Speaker 2

So Dave, do you want to add some insight?

Speaker 5

Yes. It's certainly an issue that's on our radar screen and it's going to be a challenge for the project, no doubt. There are existing facilities in the area that are similar to what's proposed for this project. So we feel fairly confident we're going to be able to develop a technical solution. As Stephen says, we do this all over the world in similar challenging environments.

Speaker 5

This one's still a little bit different. But again, it's a technical problem. We have the engineering capabilities. We have a really strong engineering team that can develop a solution that's appropriate for the conditions that are there at the site. So yes, we're fully aware of it and confident we can work through it.

Speaker 4

Okay. Yes, I appreciate the confident tone there. I guess turning to other parts of that project. Would this be part of a, I guess, conversion of the existing Kenai LNG export facility or is this imagined as a new location?

Speaker 2

I'll hand this to Oliver Simpson for a little more color, but the answer to that one is pretty crystal,

Speaker 6

I think.

Speaker 7

Yes. Thanks, Stephen. Thanks, Chris. I think we're focused on delivering a solution to the customers in the region. I mean, I think you just heard from David.

Speaker 7

We have some ideas on the technical solutions. We'll continue to work with our partners there. And there's a number of options to the technical solution. I mean, I think for us ultimately, it's a product that has great fundamentals. There is we see the demand for gas in the Cook Inlet region and that's what we're focused on.

Speaker 7

We'll work on the best technical solution over the course of the project.

Speaker 8

Okay, great.

Speaker 4

I guess last question related to this. The utilities group up there had put out a study with kind of a cost estimate around $700,000,000 for an FSRU solution. Is that a fair starting point for some type of CapEx assumption? Or do you guys have any guidance as it relates to what you think the project might cost?

Speaker 2

I don't think we're going to I mean, we're not in a position to make a comment on the cost, but typically we come in well below that. As you guys know when looking at our other facilities.

Speaker 4

Yes. All right, great. I'll turn it over. Thank you.

Speaker 2

Thanks, Chris.

Operator

Our next question comes from Theresa Chen of Barclays. Theresa, your line is now open.

Speaker 9

Morning. Thank you for taking my questions. On the Northern Vietnam onshore terminal project, Can you give us a little bit more color on the genesis of this project? How long you've been in discussion with this? What got it across the finishing line?

Speaker 9

Any potential economics to think about and other potential projects like this in emerging markets that you're assessing right now?

Speaker 2

I'm going to hand this to Oliver, Teresa. It's good to hear from me, by the way. I'm going to hand it to Oliver. I think what I want to say though in general, we're giving you guys a peek at different types of projects using different types of assets. We've told everybody we love FSRUs, but we're not wed to them if that's not the right solution for a particular project.

Speaker 2

In terms of Vietnam in general, man, we've been looking at Vietnam forever. And over time, I think, I don't know, there have been when you look at all the gas to power to the south and everything else, I think at one time or another, there have probably been more than 50 projects proposed. But we've been patient. We've been a little counterintuitive into what we think will cross the post first in time in terms of demand and the like. But Oliver, you're closer to Vietnam.

Speaker 2

Why don't you take a run at it?

Speaker 7

Yes. Thanks, Theresa. Yes, I think, look, as Stephen said, we've been looking at Vietnam for a while. There's been a number of projects. And stepping back the prospect for LNG in Vietnam, we're extremely bullish on.

Speaker 7

I think when we saw this project, the fundamentals, as Stephen said in his remarks, the fundamentals and launches would be the 1st LNG terminal up there. This is based on industrial demand, on demand that's there today. It's not the LNG to power projects, which we believe in, but we think have slightly longer time line potentially.

Speaker 6

So we looked at a number of projects, but we felt that this one had

Speaker 7

the right attributes for us. And importantly, to your broad question, I think the projects like this is an integrated project where Accelerate brings its international expertise. We can bring our LNG supply portfolio and deliver gas and LNG solutions to these customers. That's what we're doing here in Vietnam. That's what we said we're going to do, but that's also what we're looking to do in other projects around the world.

Speaker 7

So I think this is a good poster child of the type of projects that we're looking at.

Speaker 9

Thank you both for that nuanced answer. Maybe turning to capital allocation, just with the visible growth ahead of you while still executing the share repurchase plan, what is your updated view at this point on balancing growth endeavors, returning cash to shareholders while still optimizing liquidity of the stock and maintaining a healthy balance sheet?

Speaker 3

Hey, Theresa, this is Dana. So I'll just reiterate what we said before. Obviously, growth is our priority. We have several projects. We've talked about these projects in the last quarter call.

Speaker 3

We just highlighted a couple of other projects and more specifics. We'll continue to maintain our best in class fleet. So CapEx on growth projects and CapEx for our existing fleet as well as the new additions. Obviously, we all 3,407 coming out in 2026. That's our priority.

Speaker 3

And we will continue to maintain our dividend. We will look at potentially in that dividend when the time is right. Right now, our focus is on growth. As far as the share repurchase, we're very pleased with where we are there. We've executed $20,000,000 of the $50,000,000 That program runs until February 2026 and we'll continue to use it opportunistically when it makes sense for us based on the share price and other factors.

Speaker 9

Thank you very much.

Speaker 3

Thank you.

Operator

Thank you. Our next question comes from Wade Tsuki of Capital One. Wade, your line is now open.

Speaker 10

Good morning and thank you for taking my questions.

Speaker 1

Would you mind giving us

Speaker 7

a sense, I

Speaker 10

think you sort of answered it already, but what kind of vessel requirements might be required for maybe Alaska or some of the maybe projects that are further up in the queue to whatever extent you feel comfortable discussing that?

Speaker 2

Yes. Thanks, Wade. From the from our chart we shared last time, we showed some were FSRU projects. Some are new building type projects. Some are going to have lower send out, will likely be a conversion.

Speaker 2

And kind of TBD on the specific here, but we do recognize that not all of these projects require enormous send outs. So we'll tailor the vessel for those circumstances. But we do intend to grow our fleet. That is part of this pipeline and we will grow it in the right way. And I guess I can tell you, we continue to evaluate different ways to grow that fleet.

Speaker 2

I mean, it's a bit of an obsession right now.

Speaker 10

Understand. Thank you. Just industry wide, do you know how many FSRUs are under construction today? And I guess, if you ordered one today, when do you think delivery might be?

Speaker 2

No, Wade, there are 2 new buildings, I guess, under construction. Actually, ours is in fabrication and has steel cutting in October. In October, if you ask me, there will be one that's had steel cutting. So maybe that's how I answer that. In terms of when you can get one, Wade, I know that, but I don't want to tell the world.

Speaker 2

So it's a while, it's a while, but we're happy with how we can grow this fleet.

Speaker 10

Awesome. Thank you. Appreciate that. One last one if I could. I'd love to just hear, just from a commercial sense, what the tenor is like, maybe more recently with the customers and maybe how that's changed here in the last few months given all that's going on in the world?

Speaker 2

So the tenor, Wade, do you mean, I mean, you're not talking to our average remaining life of contracts, right? But what's your question go to?

Speaker 10

Yes, really thinking about new projects. And I know following Ukraine and Russia and the gas price spike, we had a little bit of a pause. I'm just kind of curious if the sentiment or psychology to what extent that might have shifted here in the last few months given gas prices, things like that, the global LNG prices, geopolitical, all those other factors that we're doing on the customer?

Speaker 2

I'm going to hand this to Oliver. I'm going to make a couple of just big statements that are gospel for us, and that is the world understands that LNG is a critical fuel. The Global South sees LNG as affordable, as a critical fuel. The whole world sees it as affordable as a suitable bridging fuel. And as your first question to us made clear, there remains a tight within the asset class to regasify LNG beyond the terminals that are out there right now.

Speaker 2

FSRUs are a tight asset class. So I'll leave it at that. But Alfer, you're closer to the customer.

Speaker 7

Yes. I think that's exactly right. And I think what we've seen is the customers on the back of the war in Ukraine, the customers are now coming back. There's LNG. There's a strong pipeline of LNG coming online in the coming years.

Speaker 7

So you're seeing LNG as an affordable fuel again. And we're seeing that the customers are coming to us and they're wanting that integrated solution with the LNG and what we can provide. So I think we feel strongly we have a great product to offer our customers. We're seeing demand for it. And I think in we're picking markets that have the fundamentals.

Speaker 7

So these are markets that need the LNG, need the gas for a long time. So we're selective on where we're going, but we see that long term need.

Speaker 10

Fantastic. Thank you so much. Appreciate it. You have a great day.

Speaker 7

Thank you.

Operator

Thank you so much. Our next question comes from Mike Sala of Stephens. Mike, your line is now open.

Speaker 8

Thanks. Good morning, everybody. Just trying to characterize the 2 projects that you announced here. You said last quarter that 10 of the 12 were kind of in that $50,000,000 to $400,000,000 range. Some were 2, I guess, with Pyra being one of them was longer term and above that range.

Speaker 8

Is it fair to characterize these 2 as kind of toward the higher end of that range and longer term? Just trying to get a sense of how they fit into the pipeline.

Speaker 7

Yes. I'll take that one. Thanks, Mike. Yes, I think that they're in certainly in that range. I think, obviously, each project has its own fundamentals.

Speaker 7

But as we said, in the case of Vietnam, we're extremely bullish on the need for LNG in that country. And the project is it's an integrated project providing gas to customers downstream. So that is we expect to be there for many years. I think Alaska, it's similar to different fundamentals, but also there's a need for LNG in the region. And again, we're looking at this from an integrated point of view.

Speaker 7

So it's view on this.

Speaker 8

Okay. Thanks. And I guess looking at the remaining projects in the pipeline, what would cause you to, I guess, unveil those? Is it giving a term sheet like you have in Vietnam or something else that would be required before you could talk about them?

Speaker 2

Yes, Mike. This is Steven. We wanted we want to be as transparent with you guys as possible, short of it inviting you guys to travel around the world and sit at conference room tables with us or walk around the site. So we want to be as transparent as we can. But we think it's important, as we said last time, we'll come to you guys when we've got tangible proof points.

Speaker 2

We want as much transparency as we can. We want to show you as much consistency as possible. These just happen to be unfolding. It's all a horse race and these horses happen to be ahead at this point in time. And we wanted to we also thought they were good in showing the whole range of opportunities that we're looking at geographically.

Speaker 2

We had hinted last time that we were looking at the Americas. That might have been too faint of a breadcrumb. So we wanted to make clear that we are looking all over the globe and that includes U. S. Of A when it's appropriate.

Speaker 2

So we just thought they were interesting proof points and we were advancing them coming into the quarter in a way that felt like it was comfortable to talk about them and we'll try to continue that.

Speaker 8

Sounds good. Thank you.

Operator

Thank you very much. Our next question comes from Bobby Brooks of Northland Capital Markets. Bobby, your line is now open.

Speaker 6

Hey, good morning guys. Thank you for taking my question. I just want to start off with the re liquefaction technology that you guys are integrating to your current FSRUs. It's a really interesting way to uplift revenue generation on your current footprint. So what I was curious to hear about is, first, how quickly can that technology be added to your current FSRU footprint?

Speaker 6

And then secondly, once that is added, how quickly can you see a financial benefit? Is that something where you need to go back to the customer and renegotiate the contract? Or is that something that's is that something that's already baked into those new contracts? And maybe if you could just give a sense of how incremental this financial benefit would be, that'd be appreciated.

Speaker 2

Hey, Bobby. Good to hear from you. Listen, I'll take the last point. In general, yes, we're going to have some communication with the customer. It's a great benefit, but we're not in the business of giving things away for free.

Speaker 2

So it's a nice piece of kit. We think a customer, it'll pay for itself for a customer, many customers easy within a year. So we think they'll value it, and we think they're going to fly off the shelf. David can talk about timing on it. But we're excited, man.

Speaker 2

This is going to lower emissions of our fleet. Of course, we're excited about it.

Speaker 5

Yes. To build on that, in terms of timeline, so the lead time for this equipment is about 18 months. And we want to buy this equipment or we have bought this equipment now so that it will be ready and available to deploy as soon as our customers decide they want to employ it. And as Stephen says, we know that there's strong demand for it. And by buying it now, that enables us to save our customers from having to make a decision 2 years in advance that they want this technology.

Speaker 5

So we're cutting the implementation time down from a couple of years down to a series of months to be able to deploy this from the time a customer says, yes, we're ready to go. So, yes, roughly 18 months from now, as early as 2026, we could be able to deploy the technology to an existing vessel or something coming into the fleet as well.

Speaker 6

Got it. And have you so you said that you've already bought these lead the items. Is it have you bought enough for all 10 or 11 FSRUs because that's what you guys have jumped to in 2026 or have you only bought it for

Speaker 5

half or any color on that?

Speaker 2

Bobby, we've done our engineering, we've done our design work, we've done the work to ensure that it's plug and play across the different class of vessels within our fleet. But we've placed our initial orders. We expect as we get further customer traction, we will continue this. We're not aware of any other FSRU that has one of these kits on it out there in the world. And David's team does obsess about our fleet being best in class, and we are determined to keep it best in class.

Speaker 2

And you can look over time for us to put it across the fleet. There are I don't want to get into the sausage making. There are 2 or 3 vessels that are used in a way that maybe it's not as useful as it is for the way that most of our customers use their vessels. So it's kind of it shouldn't be surprising how people use these assets vary. But I'd say, over the long run, I'd look to put it on, I don't know, 6 or 7 of the fleet probably.

Speaker 8

Got it.

Speaker 6

And then so the opportunity set for Accelerate is vast on is vast going forward just with these growth opportunities to you guys are pretty to say $50,000,000 to $60,000,000 of quarterly to you guys are producing $50,000,000 to $60,000,000 of quarterly free cash flow and then finally layer in your expertise and history in importing LNG. So you clearly are well positioned to capitalize on those on the vast opportunities set in front of you. What I'm trying to get a sense of is, what are the constricting factors for you going forward? Do you see the $960,000,000 of that dry powder as the limit in terms of what you'd be comfortable putting towards growth or maybe something else? It just really seems like the sky is the limit here for you guys.

Speaker 2

First of all, Bobby, I'd like for you to write copy for Craig, because that's true. I do I do feel no. I feel like, all seriousness, there is an enormous TAM out here. It is enormous. We don't need all of it.

Speaker 2

We don't want all of it. We're kind of picky. We do think there are a lot of markets with the great fundamentals that we're looking for. And I think what you've seen from our proof points today, just a reminder, we are carefully looking all over the world for the right market, the right chance to advance our business model, not just chasing some project somewhere that whose dispatch doesn't make sense. So I do think over time, we are incredibly well positioned with the tools, including our dry powder that we have to bring to bear.

Speaker 2

So I think the TAM is so big that we're going to be able to kill it while still being selective. Got it.

Speaker 6

So and then just maybe last one for me, just kind of a clarifying point. It seems like just reading through how you guys talked about the VNLP, the Vietnam the Vietnam LNG import terminal that you guys did talk about. Is that are you guys going to be would you be selling gas to actually those industrial factories in the market be selling it to utilities? I just kind of wanted to get some clarity on that, like who would be the customers off taking the gas?

Speaker 7

Yes. I'll take that one, Bobby. I think we don't want to get into too much details on the commercials here. But essentially, we the idea, as I mentioned, is an integrated terminal where we will be providing the LNG to that terminal. And the terminal company that we're in that we're partnering will be selling gas and or LNG out of the terminal to local customers, local industries.

Speaker 7

Over time, we'll see exactly how far downstream we are, but we do see that there is demand for the product from the terminal. And I think I'll sort of leave it at that.

Speaker 6

Got it. Yes. So healthy amount of demand, not through utilities, but probably more industrial players there. Thank you very much guys and congratulations on another fantastic quarter.

Speaker 7

Thanks.

Operator

Our next question comes from Pani Satish from Wells Fargo. Your line is now open.

Speaker 4

Great. Thanks. Good morning. On Payra stack now versus some of the other opportunities you're looking at here with Vietnam, Alaska and all those other projects in the backlog?

Speaker 2

Thanks, Puneet. I'll take that one. It's Steven. I would say what I'll tell you about pyro, what I'll tell you about the market is nothing really changes about the need for natural gas in Bangladesh. The supply demand balances, the decline curve and their historic onshore production, All those fundamentals are there.

Speaker 2

So the need remains. But at this point, we're less than a week into a change in government. We don't have the caretaker government's lineup filled out yet. So clearly, when you are anytime you're dealing with a counterparty who's a state energy company like PetroBanglob, they're going to need a remit from a government to proceed with it. We will continue doing some of and that will take a little while.

Speaker 2

We will continue with some of the efforts that were ongoing this year. Some of the Med Ocean, we've got a Med Ocean buoy out there. We're doing all kinds of things to assess what the needs are. We're going to keep doing that because we need to, because this will but things will ebb and flow on that pipeline. Everything doesn't proceed at a uniform pace.

Speaker 2

That's why you want and why we have a robust overall pipeline. But let's not forget, Iris 1 of 12, that's why we came to you all last quarter, 1 of 12 projects in our pipe. That's why we are trying to give you all more color, more detail, more proof points just so you guys have better visibility into what's really going on here at our conference rooms day to day. So yes, I think it's obvious that there would be some slowdown because we don't even have a government yet. Fundamentals are still there.

Speaker 2

I think there's a great opportunity in country for an American energy company to keep providing evermore energy for the people of Bangladesh. So I like our prospects long term.

Speaker 8

Okay. Now that makes sense.

Speaker 4

And then I guess maybe how are you weighing at this point, organic investments versus M and A? Clearly, you've got a robust pipeline here of organic growth opportunities. So how are you kind of thinking about the balance between the 2? And do you think there's more of a bias now on organic investments over M and A? Just curious for your thoughts.

Speaker 2

Puneet, I don't want to make light of it, but we like the deals that we'll make. And we like fundamentals, and we don't really care how they get served up. We know what we like to do. We know we're a critical part of the energy transition. We know LNG is affordable.

Speaker 2

We know LNG needs to find a home. We know most of the world and most of the big players are focused on liquefaction and building their supply portfolios. We are the ones opening markets and finding a way to take that LNG and get it where it needs to go. So we know that's what the need is. How what tool you use to bring us to the table and fit into that value chain, we're going to be agnostic too.

Speaker 4

Got it. Thank you.

Operator

Our next question comes from Zack Van Everin of TPH. Zack, your line is now open.

Speaker 6

Hey, good morning guys. Thanks for taking my question. Just going back to Alaska, it notes you guys are in advanced discussions. I guess what's the timeline in your guys' eyes where you put pen to paper there? What are you looking at far as getting over that hurdle for that project?

Speaker 2

Yes. I'll pass that to Oliver, Zach, because I'm impatient. I always want yesterday, but I'll let the folks actually facing the customer speak to that.

Speaker 7

Yes. I think, look, the timeline we announced the project with a timeline start up of 28. We think that that's achievable for the project. So obviously, I think you can back out of there sort of a rough idea of what sort of time line we'd be looking to get into definitive contracts. It's obviously there's a process we've got to go through in the region.

Speaker 7

I don't think we're going to speak to a specific time line here, but we'll keep working with our partners. And we're confident we can move this along

Speaker 8

fairly quickly.

Speaker 2

The decline curve for the Cook Inlet domestic production is a real thing moving at a real pace though, right? And that's going to drive the need on the timing for papering this, the approvals, everything else because there is going to be a need for this bridge. Or it's going to have to happen.

Speaker 6

Got you. No, that makes sense. I appreciate that. And then between the two projects, I know on the Cook Inlet project, you note that some of it will have or the gas sales will have take or pay style obligations for Vietnam and Alaska. Is a majority of these terminals planned to be take or pay or will you open up some marketing or commodity exposure with these?

Speaker 7

I think the what we're looking at on these types of projects is to get the right level of anchor customers that support the project. We're always interested in trying to see upside opportunities. But I don't think we'll be we're not looking to take commodity risks in these markets. So they're going to be underpinned by the customers that allow us to take FID. And then we'll be looking different markets will have different growth prospects, but we'll be looking to take those opportunities on the growth side.

Speaker 2

Perfect. Thank you guys so much.

Operator

Our next question comes from Craig Shere of 2 Brothers. Craig, your line is now open.

Speaker 11

Good morning. Congratulations on the good quarter. I want to dig a little deeper into Wade's FSRU capacity question. Maybe you could speak to availability of shipyard slots, the timing differences between newbuild and conversion, How you think about conversion? Because you've talked about it for maybe a couple of years or more, but up till now, you've only done new builds.

Speaker 7

And then

Speaker 11

on top of that, FSRU capacity is critical. Obviously, that's not the only thing you do, but that's critical. But what are your thoughts about the need for more long term LNG supply beyond your Venture Global contract?

Speaker 2

Greg, you put the most questions into one question than anybody I know, man. I mean, come on. I will take some of your six questions and then I'll pass it around the table. We've I mean, we've talked you don't know how long we've talked about Vietnam. We talk and look for opportunities for a very long time.

Speaker 2

We have talked about conversions for years. We will pull the trigger on that depending upon the project. We are bullish on the asset class of FSRUs. And by the way, we love being able to geek out, design bespoke new buildings that we know what we need, okay? We think 3,407 is going to be the best in class asset afloat.

Speaker 2

We want more of those 2. Conversions are it's a significant project and it's got its own execution risks just like every other major project. But the reality is there will be some that are suitable for it. Can't tell you what the sequencing will be on when we move to access conversion candidate versus a new building. I mean, as soon as we can give you visibility to that, we will because it's a key element of transparency.

Speaker 2

What I've tried to tell you guys is just not faltering on our view on this. Our view on the TAM, our view on being able to get LNG into these countries, our view on how valuable this asset class is, our view on how sticky that infrastructure will remain in Europe, by the way. We're pretty consistent on everything we say all around that. And from that, you can no doubt divine our intentions, Craig. But you also have some questions about portfolio.

Speaker 2

I'm going to I think that was your 5th or 6th question, Craig. So I'm going to toss 5 and 6 over.

Speaker 7

All right. Yes. Thanks, Steve. And thanks, Craig. I think the sort of the proof points we gave today, Brook Inlet and NVLT, great opportunities for us to expand the LNG portfolio.

Speaker 7

We've talked about the LNG portfolio. I think we had some great successes last year with our inaugural sort of long term deals there. We're now we've got volumes. We're able to bring solutions to our customers now with the LNG when we go into these markets. And we're going to grow that portfolio as the projects come online.

Speaker 7

So it's a balancing act between growing the supply as the demand is there. As I mentioned earlier, we see there's a lot of LNG coming online. We've got some great relationships, great partnerships out there. So I think what we're doing, opening these markets, we're going to have plenty of opportunities to grow that portfolio.

Speaker 11

Great. Just to clarify on the timing difference between new build and conversion as we think about backing into project

Speaker 1

specific timelines? Yes.

Speaker 5

I can certainly take that one, Craig. David Liner here. There is a difference in execution time. A new build on the order of 3, 3.5 years, some can be a little bit shorter than that. Conversion times are generally less than that, but there is the execution risk that goes with conversion, as Stephen mentioned before.

Speaker 5

And that's always something that we we're always managing those 2 when we're looking at a prospective project, you have to understand that execution timeline and the capacity of the vessel that you want to employ before you want to pull the trigger on a conversion or a new build. Of course, a new build is generally going to be a much higher capacity vessel than a conversion. They're going to be more appropriate for a smaller send out type project. So it just depends on

Speaker 2

which project your Conversion would be. Yes, conversion would be more appropriate for a smaller send out.

Speaker 4

For a smaller

Speaker 8

send out, yes.

Speaker 5

Hope that helps, Greg. Great.

Speaker 11

Thank you. That's it. Thank you.

Operator

We currently have no further questions. So I would like to hand back to Stephen Gorgos for closing remarks.

Speaker 2

Listen, I really appreciate the conversation that we had today with Dana and Oliver and David and me. And it's always a pleasure to get with you guys. The questions we got about our strategy in Vietnam, what we're doing in Alaska and our overall value creation strategy. We will continue to be transparent with you guys. We will continue to do what we say we will do.

Speaker 2

With that, thanks very much for your time.

Operator

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

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Earnings Conference Call
Excelerate Energy Q2 2024
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