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Edited Transcript of NFE.OQ earnings conference call or presentation 13-Aug-19 12:00pm GMT

Q2 2019 New Fortress Energy LLC Earnings Call

Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of New Fortress Energy LLC earnings conference call or presentation Tuesday, August 13, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan John Andreini

New Fortress Energy LLC - Head of IR

* Brannen McElmurray

New Fortress Energy LLC - Chief Development Officer

* Christopher S. Guinta

New Fortress Energy LLC - CFO

* Wesley Robert Edens

New Fortress Energy LLC - Chairman & CEO

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Conference Call Participants

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* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the NFE's Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Alan Andreini, Head of Investor Relations. Sir, you may begin.

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Alan John Andreini, New Fortress Energy LLC - Head of IR [2]

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Thank you, operator. I would like to welcome all of you to the New Fortress Energy LLC's Second Quarter 2019 Earnings Call. Joining me here today are Wes Edens, our CEO and Chairman of the Board; Chris Guinta, our Chief Financial Officer; and Brannen McElmurray, our Chief Development Officer. Throughout the call, we are going to reference the earnings supplement that was posted to the New Fortress Energy website yesterday. If you have not already done so, I'd suggest that you download it now.

In addition, we will be discussing some non-GAAP financial measures during the call today. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Now before I turn the call over to Wes, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

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

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [3]

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Great. Thanks, Alan. Welcome, everyone. I'm going to refer to the supplement that Alan mentioned, and I think that the folks will follow as well.

So let's start on Page #1. The first 6 months of the year have been terrific for us. We've had a good start to the year. It's been focused, obviously, intensely on the development side. Brannen will talk about that in just a second. But as you'll see when we go through the materials, we're very much transforming from a development company into an operating company. And you'll start to see significant amounts of product flow through our terminals into our customers. And then, of course, associated with that, significant increases in revenue in the next couple of quarters.

Jamaica, we project to reach full run rate in Q1 2020. Puerto Rico is now days away from the terminal being completed. We expect that to be fully online by the fourth quarter. Mexico is fully under construction, and we expect it to be online by the end of Q2 2020. Downstream, we've got the terminals completed in Jamaica and the 2 terminals under construction in Puerto Rico, Mexico. The power plants in Jamaica that Brannen will talk about, the 190-megawatt project that JPS has completed, the 150-megawatt project that we have just about completed, are big additional sources of demand for us. They're going to come online here in a matter of days. The pipeline continues to build out. We signed a large-scale MOU in Angola, and we're quite close to signing one in a second country. And there's a long, long list of other situations that we are pursuing. 1.6 million gallons of committed volumes added since our last quarterly call.

Next, operational excellence is, of course, at the top of our list. We've had 0 recordable safety incidents in the second quarter, 100% availability, 99.4% reliability. We know in these businesses that they're serious businesses where the consequences could be extreme if you don't follow the rules and put in place the right operating metrics. We feel really good about where we are right now as a young company there.

Lastly, I'll have Chris spend some time on our financial initiatives. Not to steal his thunder, but we just did sign a binding commitment to finance $180 million against our Jamalco power plant down in Puerto Rico -- in Jamaica, and we're on a very good path for $1 billion estimated terminal financing sometime in the next 6 months or so.

So let's get into the deck. If you flip to Page #3, this page kind of tells it all in terms of the volume growth that we expect as these terminals come online. Our average per day throughput in the second quarter was 378,000 gallons per day. It's modestly higher than it was in the first quarter but not in a meaningful sense. You can see us start to click up in the third quarter of 2019 and then really escalate as we go through the fourth quarter and early part of next year. So Old Harbour comes online. Well, they've been taking gas from us as they're commissioning. We expect them to be fully deployed by the middle of September, so about a month from now. So we see that. We'll -- and then Brannen will talk about both that plant and our plant.

And then you see in the green, the first lines that we are going to get out of Puerto Rico; we expect that to be fully completed by the middle of October. We're working hard on that. Our partner down there named PREPA is working hard as well. And then the blue, as we see the volumes start to come in through in Jamaica. So 378,000 gallons per day, second quarter this year. By the second quarter of next year, that's 2.2 million, kind of ending up at 2.6 million. So these are committed volumes only, don't reflect any of the pipeline activity.

Flip to Page #4, you'll see how that then turns into dollars and cents. So basically, $48 million in earnings at a terminal level and then Q3, going up to $395 million by the time we're fully deployed. So really, very much now the story is just the passage of time. It's going to be very beneficial from an earnings perspective. And I'll talk about what the incremental volumes could be as we go down the path. But this is based -- this is 2.6 million gallons a day of throughput generates approximately $400 million in terminal earnings by the time they're fully deployed by the middle of next year. We've got about 16 million gallons of total pipeline. If we convert half of that, just as an example, you go from $395 million to about $1.7 billion. So the leverage in the system is extraordinary, and we're now in a good place to start to execute on that.

So I'm going to turn it over to Brannen and talk about the developments. Brannen?

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Brannen McElmurray, New Fortress Energy LLC - Chief Development Officer [4]

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Yes. Great. Thank you, Wes. Good morning, everyone, and thank you for joining us.

I'll refer to Page 6. We continue to make great progress on our terminal properties, which serve as the backbone of our network and gateways for energy. Importantly, 95% of our committed volumes flow through just 4 assets; Montego Bay, Old Harbour, San Juan and La Paz. Of the 4, 2 are operating and 2 are in construction. We expect to [float the gap] through San Juan in Q4. We were just there. It looks terrific, and it looks like it's going to actually exceed our expectations. These 4 terminals represent 2.5 million gallons per day of committed throughput. And importantly, we have lots of built-in capacity to serve additional downstream customers as we add to our network.

On Page 7, on the downstream side, which is what we are connecting to our terminals, we've been very productive. We have 5 big projects that consume most of our committed volumes, and the balance is taken up by 30 customers, which are typically better credits and pay a little higher price than our baseload customers. 70% of our committed volumes are taken up by just 4 projects: Bogue, Old Harbour, Jamalco and San Juan 5 and 6. Bogue, as you know because we talk about it frequently, was our original power plant that we supported through Montego Bay, 120 megawatts. Subsequently, the utility has added an additional turbine, and we think they're also going to make an upgrade to a substation. So what started out as 120 megawatts, we believe, will grow to 157 megawatts over time with additional capacity added as just the economy would grow in that area. So we're terrific -- we're super excited about the possibility of expanding our additional assets.

In Old Harbour, as Wes mentioned, we have delivered our terminal. So our terminal is up and running and has been providing commissioning gas throughout the process. The 190-megawatt power plant developed by the utility looks like it's going to come online right about the middle of September in terms of fully operational on gas, and we'll continue to support them as they put that asset into baseload operations. So we're super excited about that particular project.

Of the 4 that I referenced, 2 are operating, as I mentioned, and 2 are under construction. Importantly, in San Juan, which we're building a terminal, we're also assisting PREPA, the utility, who owns a 400-megawatt -- 440-megawatt power plant there, in the conversion of that unit from diesel to natural gas. The conversion has begun, which we're taking responsibility for. We expect to deliver those units in Q4. And importantly, we think that that's going to be a terrific baseload customer for that terminal.

Jamalco, which is a power plant we've taken responsibility for, 150 megawatts equivalent, 100 megawatts of electricity and 50 megawatts of steam, is on time and on budget. And we expect to deliver that in Q4. And importantly, that gives us just another set of experiences to go develop additional power plants. And that was a greenfield.

Then I'll flip to Page 8. We continue to add downstream assets to our existing terminal properties. The 2 categories that we focus on the downstream developments are power plants and data centers. Power plants, as you know, require constant availability and supply of feed gas for fuel. So they're terrific customers for our terminals. But data centers are a very close approximation for that. Essentially, they're industrial facilities. 70% of their operating costs are power, and the key ingredient to making a data center work are -- is basically cheap, reliable power. So we're super excited about potentially adding data center properties. It's just another thing that we look at as a downstream asset. I mean, essentially, for the data center side, these are 24/7 users of power, terrific credits because they're typically used by people like Microsoft, Google, Facebook, Amazon and Apple. So in most of the markets that we're looking at, the data center pieces are real potential customer that we can add along to our other power plant and other downstream users.

Just to put it in context, in the world in 2018, the top 5 Internet companies spent about $77 billion on data center infrastructure in 2018. And in 2019, we expect the industry to spend $120 billion, which implies about 15 gigawatts of power that they'll consume. Microsoft alone is building about 85 megawatts per week to keep up with their cloud business. So this is a real trend that we're following. And essentially, they need the core assets that we're building, which is reliable, cheap energy.

On the power side, just to put it in context, we have about 850 megawatts in development and about 5 gigawatts in discussion, some of which we would take responsibility for, some of which our customers would take responsibly for. And on the data center side, we have about 300 megawatts in development currently and about 200 megawatts in discussions, which represents about 1 million gallons per day.

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [5]

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Great. Yes. The -- again, emphasizing that, I think the downstream assets we develop around these terminals are, in many respects, our most important projects. We basically end up creating our own demand. We're essentially negotiating with ourselves. So we know the guy who owns the data centers if we're building data centers.

So the power project is in terrific shape. The data center development that Brannen referenced, it feels to me like we are still in the very early innings of what is a very, very long game. And I think the core asset that we have, which is power, is really the raw material that really drives these things. So we'll keep a good eye on this. We have very little in our volumes anticipating building this stuff, but I think there's a lot of promise there. So it's well done by Brannen and the others.

So flipping to the next section. If you look at Page #10, the core of our business are our terminals. So the 4 that we'd list: Montego Bay, Old Harbour are already commissioned; San Juan will be commissioned in the third quarter, first gas in Q4; La Paz, just behind it, so done in the first half of next year, fully online by Q2 2020. Two projects that we are in development on right now in Angola: Luanda, the capital city; there's one in the central harbor, Soyo in the North. It's an offshore facility that would service the power plant and other assets at the -- in the north of the country. Shannon, Ireland is what Brannen just referenced. That's the -- if you look at the picture back on Page #8, that's a rendering of what we think the data center development would be there. There's an associated terminal and power plant as well.

Page 11. The operating leverage of the business is extraordinary. As I say, in the infrastructure business, if you want to lose all your money, you build something for one purpose and don't use it. That's a bad outcome. The flip side is also true, though. If you can build infrastructure for one purpose and then use it for 2 or 3 or 4, it's very little on marginal cost and it can be extraordinary margins. And that's essentially what we have right now. So the bar chart on the left-hand side here. Committed volumes right now as they flow through, $395 million in terminal level earnings. If we convert -- of the 16 million gallons of pipelines of conversations we're having right now, converting 50% of that would add another $1.7 billion in earnings. So it's an extraordinary amount of growth.

The case study on the right-hand side, what you -- this is actually a rendering of actual customer flows that we're exploring right now. So building the terminal in the north in San Juan harbor, we then look at power plants to the west. We look at customers to the south. We look at industrial customers along the edges of the country. So we think there's going to be many, many customers for us in Puerto Rico. It will all come out of this first project that we've built, and Brannen brings online here in the near time. So Brannen?

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Brannen McElmurray, New Fortress Energy LLC - Chief Development Officer [6]

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Yes, you bet. As Wes kind of alluded to at the beginning of the call, we are incessantly focused on our operations for 2 reasons: One, from a reputation standpoint, you have to be perfect; and then from a human standpoint, we have lots of people that work for us in our industrial properties. And so we need to be good stewards so that we can make sure that they go home every day and can see their families.

But on Page 13, I'm going to highlight the 4 metrics that we track on the health and safety and environmental. And importantly, we've had 0 incidents this quarter, which kind of maintains our extremely good and, we believe, world-class record in this particular category. So we've had 0 work incidents, 0 environmental issues and 0 health and process issues.

On the availability side, which again is reputational, this metric tracks our ability to serve our customers when needed. For this quarter, we were 100%, which means none of our customers ever did not get service as a result of something that we did. These -- this is a statistic that's been pretty consistent for us throughout our operating history, and we continue to kind of improve and remain vigilant on that.

From a reliability standpoint, which is essentially how many run hours we can get out of our assets, we continue to maintain 99%-plus, which includes accounting for maintenance, both scheduled and unscheduled. So we love how the assets are performing, which I think reflects how we think about it from a design, construction and operational perspective. And then I think this is a statistic that I'm personally most proud of because I think it reflects innovative and differentiating experience on our side. We have 40 -- over 4,100 LNG truck and ship transfers, which importantly is the most in this hemisphere.

So whereas we started as a new player in the business, we've quickly grown into the most experienced player of this particular set of experiences. We leverage for credibility for our customers but also credentializing for our regulators. So for example, we've taken U.S. Coast Guard to our properties in Jamaica and ridden them around on our ships as we did ship-to-ship transfer, and they got to watch our operation. And that technology, they brought back to the U.S. in ports in which we operate.

So now I'll turn it over.

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [7]

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One thing worth mentioning is the current state of affairs with the LNG market. So -- and you can see from the graph, it's been a tough year for prices for the LNG. Given our point of view, which we are quite short cargoes, it's been a very beneficial outcome that allows us to lower our forecast. The forecast in Chris' financial model has gone from -- assuming a $6.50 price of LNG than a $5.50, so that's a big, big win for us. At our current volumes, every dollar is worth a little over $100 million per year. So it's very significant.

We are now looking very hard at locking in prices and terms over the next 5 years. It will facilitate, I think, our investors having a good and clear view of what the earnings forecast is going to be going forward. It also helps us, I think, on the financing side. So I would expect in the next 30, 60, 90 days, that we will make some new material additions to our portfolio and lock in these lower prices.

My own view of this is I think that what this is reflecting right now is the abundance of supply and lots of uncertainty about trade, in particular in the East with all the stuff that's going on and China, they've been a big off-taker, obviously, historically, and given all the trade challenges and -- that are going back and forth between the U.S. and in China, that's one of the things that has drawn the uncertainty. It's also been an unseasonably difficult market in Europe. The storage is already full here as you head into the winter months. So there's a series of technical factors that I think are addressing this. I do think in the long term, there's going to be an excess of demand. And so I think there's going to be a good market for LNG down the road in the short term. This presents a good market opportunity for us and something that we're focused now on locking in. So Chris?

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Christopher S. Guinta, New Fortress Energy LLC - CFO [8]

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Yes. Great. Thanks, Wes. So I'll spend a few quick minutes talking about the financial results from the second quarter of 2019 and then talk about our progress toward our financial goals and initiatives that we laid out on our last quarter call. And then I'll turn the call back over to Wes to talk about our views on valuation.

So first off, I'm directing you to Page 16 in the presentation. The increase in volumes sold from Q2 2018 to Q2 2019 was about 91,000 gallons a day. That's largely driven to the increased gas turbine that turned on in Montego Bay in the very end of 2018. We talked about that on the last call, but then you've also seen increases from Q1 2019 due to additional small-scale customers being served in the Montego Bay facility. The other driver of the volume increase quarter-over-quarter in 2019 was related to the Old Harbour terminal starting to take commissioning gas to supply to the Bogue -- excuse me, to the Old Harbour power plant.

Going down to revenue. The increase is, again, largely driven by additional volumes. Then if you look at the operating margin line, one of the things that we talked about on the last quarter call was an expensive cargo that was purchased at the end of 2018. It took us a little bit longer than expected to burn through that cargo just due to the volumes that were being taken by the Old Harbour power plant for commissioning. But I'm pleased to say that, that cargo is entirely behind us, and we should see kind of the Centrica cargoes that have been discussed previously being burned through the remainder of 2019.

On operating margin, the other kind of driver there is an increase from Q2 2018 related to the Golar Freeze being the FSRU, the floating storage and regasification unit, that's on site in the -- at the Old Harbour terminal. Perhaps the best news is that this is the last quarter we expect to see a negative operating margin. As Wes said, as additional volumes are turning on both in Old Harbour, the small-scale volumes running through Montego Bay, and then when we introduce gas into San Juan later this quarter, you'll see us turn to an operating margin positive number going forward.

But just moving down to the bottom of the page to talk very quickly about the balance sheet. Cash on hand at the end of the quarter sits at around $260 million. We've added a line here which probably -- which shows the pro forma cash on hand of $438 million. The bridge between the 2 is the $180 million committed, fully underwritten bond financing that we have from National Commercial Bank in Jamaica, which we're extremely pleased to partner with and I'll talk about further. But the big takeaway on this number is that $438 million cash on hand fully funds every project that you've committed to at this point. So that includes the completion of the Jamalco power plant in Jamaica; the Old Harbour terminal, anything that's remaining there; the San Juan terminal; and the La Paz terminal, are all fully funded with cash on the balance sheet plus the pro forma financing.

Moving to Page #17. This is kind of an update of what we had in the Q1 call. But just quickly talking about our goals from a financing perspective, the first one was the obtaining a commitment and financing for the Jamalco power plant in Jamaica. We have $180 million fully underwritten commitment. Those bonds, and we'll talk a little bit more about them further on Page 18, but they're nonrecourse back to NFE. And importantly, NFE still has the cash flow generated from the gas sales agreement from the Old Harbour terminal to the Jamalco power plant.

The terminal financing that Wes alluded to as well, I mean, when we think about the cash flow at run rate of about $400 million, the -- you should be able to get somewhere between 3 to 4 turns of debt on that cash flow stream. And so we are anticipating going back out to the market later this year or early Q1 to put in place a more permanent terminal financing secured just by the terminals themselves and the contracts that they have. What this does and the reason it's sequenced in this fashion is that it allows you then to free up the liquefier in Pennsylvania. And we would then seek to fund the remaining costs of the construction of the liquefier through some of the proceeds of that financing plus some additional project level debt just on -- just back to the Pennsylvania facility.

On Page 18, I won't go through it in detail, but this just kind of outlines the cost of the debt and the collateral package related to the Jamalco financing. What I'm most excited about is that this is about $165 million of third-party costs plus some owner's costs in order to build the facility, and we're able to finance $180 million against those costs. Importantly, we then retain the equity interest in the power plant. And the debt service -- the cash flows to the Jamalco facility minus the debt service still produces about $8 million to $9 million a year of cash flow. That's -- so long as you're in compliance to your debt covenants, you can dividend back to the parent. So that allows a lot of upside beyond what we were forecasting [on a set]. Wes, I'll turn the call back over to you.

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [9]

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Great. Thanks, Chris.

Just Page 19, 20, I'll go through this quickly and then we'll open it up for questions. Talk about valuation. The big picture for the company, we think the market opportunity for it is massive. There is virtually an unlimited demand for our assets and our services around the world as this transition from oil-based fuels to some combination of natural gas and renewables goes along. The key to unlocking those is to develop the infrastructure that we are now expert at and what we have demonstrated over and over, is our ability to go into markets and solve complex infrastructure and building issues and bring it online in a very short period of time.

The margins that result from that are significant. Again, because we are doing everything -- we're designing, we're building, we're operating, and most importantly, we are paying for, we are able to then harvest the true economic benefit and still pass through significant savings to our customers. Customer always comes first in our view, and saving anywhere from 25% to 50% in some cases of their energy cost and still having margins that are really extraordinary is really what the business is based on.

Lastly, I get asked the question on competition all the time. And I think there's lots of reasons why I think we have been competitive and why we have been successful in many cases. I think they all stem from, number one, focusing on what the customer has asked for, what the customer needs and trying to solve their problems rather than trying to put forward a solution that's just something good for us. It sounds like such a basic ethos, but it actually is so important. As I say all the time, empathy is an incredibly powerful tool. And being empathetic about what your customers looking for, whether they are big or small, and then coming up with a solution that addresses that, is really the core of the company.

You combine that with design, build, manage and pay for, I think I didn't fully understand before we got into the business how important it was on the financing side to be able to pay for it yourself. Project finance in these countries is where projects go to die. So having the ability to self-fund these in a prudent and thoughtful way, as we've just demonstrated and Chris talked about it, once you have built an asset and it's cash flowing, there's lots of financing alternatives. When you were building it, when you're in development, there really is no substitute for cold hard cash and being able to develop it yourselves. So that's what is the picture behind the company.

If you look at Page 20 and how that we think that translates into valuation, if you simply take the $395 million of run rate capital or run rate earnings at a terminal level and apply a 15x multiple, which we think is actually quite consistent with other ports, terminals, other infrastructure-related things, that implies an enterprise value of $5.9 billion. Take out $700 million in net debt at that point, that's $31 a share, so significant premium to where you are today. If you then look at the committed volumes, plus 50% of the discussion volumes, that $31 a share then goes to north of $100 a share. And I use this only as an illustration. We don't know how much we're going to be able to convert on the existing portfolio.

In addition, we don't know how big that portfolio could be. We think the pipeline -- when I look at the other transactions, the other things we're looking at around the world, as we add more and more capability in these different markets not only to grow at our existing terminals but add other jurisdictions, other countries, other opportunities, I think that the future is virtually unlimited. So this is just meant to be an illustration of what it is. It's all meaningfully higher than what our share price was last night, and we feel extremely good about our prospects and valuation as we go forward for shareholders.

So with that, let's turn it over to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Devin Ryan from JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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I guess, first question, on the downstream facility. So clearly, you guys are having a lot of success. And I think the opportunity set has been evolving quite a bit, like the data center opportunity, which at least sounds to us bigger than initially articulated. If possible, just to expand a little bit more on competitive positioning to win deals with these customers. I think you mentioned negotiating against yourself. So how is the full array of services and kind of the complex services that you can offer different than what competitors can offer? And why is the model difficult to replicate?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [3]

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Well, the -- specifically on the data center part of it and Brannen touched on this, the -- 70% of all the expenses, operating expenses of the data center is power. And so in the simplest of simple terms, and this is meant to be an illustration not an actual example, when we think of data centers, we think of industrial buildings with really, really good air conditioning and really reliable power. And as a firm, in different part of the firm, we've developed 8 million, 10 million square feet -- I think we've developed more industrial space in South Florida than the next 5 or 6 developers put together. So we've had considerable amount of experience on that side. And there are obvious differences between that and what happens to the shell of a data center. But the bulk of the magic at a data center happens inside. It is done by the customer themselves. Our -- addition to that is to design and build the shell, and most importantly, to develop reliable, redundant and inexpensive power. And I think it may well be the case that at the end of the day, we are supposed to be developing data centers next to all of our power sources, because we think that those 2 things are so synergistic.

And I think I've touched on it before, I do think that putting the customers' needs first. It sounds like such a simple thing, but we see it violated over and over again where people are asked to help provide a solution, instead come back with what's good for them as opposed to what's good for the customer. That's a very, very basic ethos but it's kind of the headwaters of our discussions.

And #2 is, having the ability to do it all yourself. I mean, I think that in the example we're using, in Shannon, we certainly are keen to work with the big data center users, and we're talking to all of them, and we have had very robust discussions with them. At the end of the day, I'm not afraid of actually developing something on our own and figuring it out that way as well. I mean, there's just no substitute -- we're doing this in a prudent manner, these are not massive expenditures. But there's no substitute for actually doing things to really learn from them, and the benefit of those experiences you can apply over and over and over again. And that's what we've seen in every aspect of our business. And we -- frankly, we just don't see everyone putting together all these different pieces together. And it's not that I'm -- I don't believe that there is competition because of course there is and it will increase over time because we're having a lot of success. But I'm a lot more relaxed about it today than I was a year or so ago because even though there's nothing we do that independently is that complicated, doing them all together really does benefit from the experiences that we've had. And I think for somebody else to them go and compete with that, they need to have those experiences as well, and it's a pretty big world. So we feel really good about the competitive landscape.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Great. And maybe just a follow-up, if I may, on the Pennsylvania Liquefier and just -- if we can just go in a little more detail there. I mean, with LNG costs lower today, much lower than you kind of initially modeled as you were kind of building the plan out, how does this impact, I guess, the sense of urgency in Pennsylvania or even impact how you're thinking about the risk/reward in moving forward? I'm sure there's still kind of an economic upside case here, but it also adds a fair amount of complexity to the story. So I'm just curious to hear the case here and whether it's changed at all? And then also, just how you're thinking about the financing there as well?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [5]

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Yes. Look, we've clearly deemphasized a few financial models. So there's not $1 of economics that's associated with it in the model. So that's not just changed from when we started 6 months ago publicly. In our model, assuming $5.50 LNG, we think that today, the comparable price that we would create and bring to the ship in Pennsylvania is around $4. So there still is a benefit there. So $1.50 times 2.6 million gallons is roughly $150 million year. So it would be a very good economics, the 40% margin on cost. And so we think it's certainly worthwhile to pursue. But the sense of urgency is obviously reduced significantly by the chart that shows what's happened to LNG prices.

So I think it's exactly as Chris laid it out. I think as we proceed with the financing, generate excess proceeds, we're probably $150 million of incremental capital away from really FID. So it's not a huge pull from there. You can get project financing readily using that kind of leverage. And so I do think that we will build out there, and I think it will be successful, and it will be one more arrow in the quiver in terms of the things that we have done. And so -- but we'll do it prudently and it is not material in the numbers. It's not a part of our prescription right now. I think 2, 3, 4 years from now, it could be important to have your own supply. That's clearly not the case with 30 million tons of production coming on as it is right now and where the supply/demand is. But we're in this for the long haul. And I think 2, 3, 4 years from now, it could be material. So...

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Operator [6]

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And our next question comes from Ben Nolan from Stifel.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [7]

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I have my one question and a follow-up. My first question relates to some of the projects that haven't yet been fully committed, specifically Ireland, Angola and the Dominican Republic. I'm curious what milestones we should be looking for? Or if you -- maybe you can give any color as to when you expect those? Or if you have any idea when those might convert from being potential to definitive?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [8]

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Yes. I'd say the chain of events is MoU, followed by the negotiated term sheet, followed by GSA, followed by all the permits in hand so you can start construction. So those are -- that's kind of the path of development. I think probably at the top of my list, and Brannen might have a different view of this, probably Ireland is the closest to FID right now. We have a set of permits in hand that we need to enhance

(technical difficulty)

Okay. Well, I'm not sure what that is. But so I'll say, Ireland I think, is probably at the top of the list of the development projects because we've been -- we bought into a project that had, had years of work done previous to us, not precisely what we're planning to build, but it's very, very helpful to it. So that's on a very good track. Angola, we're having very substantive discussions with them about converting the MoU into a term sheet and then going down the permitting path. So there are actual milestones that we achieved but I think it if the -- from our perspective, what we anticipate updating on is, is the project in MoU? Is it in term sheet? Is it in GSA? So it is actually signed and binding with commitments? And then, where are we on permitting side? So obviously, the 4 terminals, the 2 in Jamaica, the 1 in Puerto Rico, the 1 in La Paz, are all completed. So they're FID and in the process of being completed. The other ones are in the path behind that, and there are others that we have not yet gone to an MoU phase -- stage that we are contemplating in the conversations we're having. So that's how we anticipate updating for folks.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [9]

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Okay. I appreciate that. My next question, it relates to Slide #10 and the terminal infrastructure that is under development. Just kind of looking at it, it looks like there's a number of different -- and maybe this is for Brannen, I'm not sure, Wes, a number of different designs, whether they're onshore or offshore or with FSRUs or not. I'm curious if there is some sort of off-the-shelf design that you're sort of working towards? Or do you envision what you're doing being entirely bespoke for -- in every situation?

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Brannen McElmurray, New Fortress Energy LLC - Chief Development Officer [10]

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This is Brannen, I can take that. So if you kind -- kind of rightly and it's a great observation. So if you look at kind of what we've done, effectively, we've now done one sort of type of every product that we think applies in all the situations that we've seen. So you can have landed offshore and then what we call kind of our hybrid product or hybrid-plus product, if you will. We are now moving to the point where we're developing now a design for, what we would call, kind of our 2.0 energy terminals, where you sort of take the iPhone, right, which came out in 10 years ago, it's kind of 1.0, look at it, and then now we're starting to basically iterate it, probably once a year, we think, to come up with a reference design that we can roll out sort of the next model year.

So from our perspective, the way we think about it is, you have an energy terminal and then inside that terminal, you have components, and then those components, we believe, will be standard off-the-shelf, built probably in a climate-controlled fabrication facility in Texas or Europe or Louisiana and then shipped to site on a skid and then plugged in. And the huge advantage of that, not only do you get to control quality and cost and your supply chain generally, in terms of reliability, but most importantly, you can control your construction time. Because typically, 2/3 the cost of every project is the construction. And in our case, if we can do that construction in a facility that's away from the site, it allows us to run in parallel, either our entitlement processes or site work and our fabrication. So the goal would be to get from a standing start to delivery in between 9 months and 12 months, which makes the product offering extremely compelling plus because it's repetitive, effectively we can operate under a standard where everything we build, the goal is to be 10% cheaper and 10% faster. And if you string along enough of those 10%s, you're really going to have a meaningful advantage versus anyone else who tries to come in and compete with you.

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Operator [11]

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Our next question comes from Spiro Dounis from Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [12]

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Maybe just starting off with the recent MoUs signed with Angola. Just wondering if you could provide a little more color there on the scope and potential returns? And maybe more specifically, are these power plants in place yet? Or will you be constructing them? And how should we think about the returns? Should they be sort of similar to the ones you've got in the first few projects? Or has that market moved?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [13]

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The projects in Angola are largely to service existing power plants. So they burn diesel today, it's expensive, it's dirty. They have significant challenges with contaminated fuel. One of the things that happens sometimes to these markets is, people take the diesel and they replace it with something else that actually gums up the works, so they have significant downtime in some of their plants from contaminated fuel. So it's a replacement fuel strategy, which is the easiest one to execute, frankly, because it's the most obvious benefits to customers, it's the easiest thing to -- you're serving kind of something very specific. So there's a handful of plants in Luanda that are targeted to be converted. There's 1 new plant, brand spanking new plant, that has developed up in Soyo that would be a potential customer. So that's the nature of what it is.

We could also add, down the road, other downstream applications, be they power, data centers or others, but that's not contemplated in the scope of what we're looking at, at this moment. Returns, we think, are very consistent with the other returns we've seen. We think that, obviously, when we look at any situation, we look at what the capital needs are, what we think the environment looks like, the degree of difficulty to execute, et cetera, and try to make good judgments about what's a fair return. And we think that these returns look very much in line with the other places we're doing business.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [14]

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Understood. And maybe just sticking with Angola, surprised by how quickly you guys are going to be able to bring that to market I guess late next year. When do you think you'd need to convert into the committed category to still hit that target? I guess, what's the latest you can -- you've got? And then how do you think about financing that?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [15]

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I think that if it goes as we hope it does, we'll be committed by the end of the year. One of the reasons we can convert those plants quickly is that the marine infrastructure that's in place in Luanda, that we believe we can access, kind of greatly accelerates the process. I'd say, when Brannen talked about all the different types of things that he has developed, what starts the discussion always is the condition of the marine environment and whether you're able to just kind of plug-and-play into something that exists or you have to develop it from a standing start. And in particular, in Luanda, we think there's a good situation to use their existing port facilities and so that helps that process. But I think our hope and expectation is, if it moves ahead, is that we would be in a position to have executed it by the end of the year and be providing energy to these guys by this time next year. So...

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [16]

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Okay. And then in terms of financing, will you be able to tap into that $1 billion facility you guys are targeting or would this go to another round of financing?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [17]

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Yes. No, we think that, as Chris said, we're -- between cash on hand, the current facility, the debt that we put in place in Jamalco, we can fund everything that we have on the list right now. So we have excess of capacities for us to fund this. We'll have over $150 million from operations for next year between now -- there's ample sources of capital even before the incremental terminal facility and certainly, we don't anticipate issuing any equity. So we think we're going to be well financed on it.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [18]

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Great. Last one for me. Wes, to your point on leveraging the current infrastructure for several uses and really exploiting that operating leverage makes total sense. But you guys are obviously running, sort of, dual tracks here where you're sort of commercializing what you've got in place and then also going out and ginning up new business. I guess, just wondering how you think about not spreading yourself too thin or balancing between maximizing the current terminals and really exploiting that operating leverage versus maybe going out and really getting more in discussion contracts. How do you guys think about the balance there?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [19]

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I'd say, from an operational standpoint, what we are very focused on is separating out kind of the big terminal developments that -- it's all under Brannen, but I think where he spends a lot of his time is focusing on the big terminal stuff. We then have a very talented, small-scale development, small, not diminutive, but just smaller kind of downstream development. So that's how we've organized ourselves. That's what we believe creates scalability across the different platforms. And just as we've seen patterns emerge on the terminal side, we also see patterns emerge on the downstream side. So we see customers needing the same kind of solutions, whether it's a resort in Baker's Bay, Bahamas or a resort in Cabo, San Lucas. So their needs are similar. And so that trying to recreate the wheel and use, I guess, the experiences, we think we can actually export a lot of the experiences we've had in one place to another. And we're very focused on converting the terminals that are in construction, the downstream stuff under construction into cash flow, and then adding on to it in a prudent manner. I mean, there is literally a -- hardly a day or a week that goes by without some new opportunity cropping up around the globe. And I tell everyone that the decision to really pursue something in an earnest manner is, in certain respects, our most important decisions because it takes not just a commitment of capital, but it also take a commitment of time and focus. So we pass on far more things than we actually go and pursue at the top of the whole pyramid. But hopefully, as we develop as a company, we'll be able to take on more and more of those things without spreading ourselves too thin.

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Operator [20]

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(Operator Instructions) And our next question comes -- and I'm sorry, we will be taking our final question from Jon Chappell from Evercore.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [21]

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Wes and Chris, I want to follow-up on that last question, just to be clear. So I think Chris did a great job of laying out the financing for the terminals under construction and committed at this point. Wes, you just said that you think you've got the financing for everything on the list. So Angola makes sense, I think, from that size. But Shannon is pretty huge from a volume perspective. So can you remind us what the capital commitments would be if you move forward with Shannon? And based on the financing you have committed today, even if we talk about the entire potential $1 billion, would that fully cover Shannon? Or would you need something else for Ireland specifically?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [22]

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The short answer is, yes, it would, right? So -- but specifically, the terminal that is being designed right now, we think the total cost of that is roughly a couple of hundred million dollars, right? It's a -- it's basically a pier-like financing. So kind of a fancy dock in my non-technical perspective, and then we could provide for the LNG infrastructure, all the onshore vaporization and then power plant, right? So that's a couple of hundred million dollars prepower for that. Power and the downstream use of data centers, we think, will be tied together. And given the nature of the customers we're talking to, we think we have many, many financing options for them. So whether we choose to project-finance that or it comes under the $1 billion facility, I think there's lots of different ways to finance it. So you're in a jurisdiction that is obviously a very high credit quality. You're talking about customers that are themselves very high credit quality. So the financing aspect of it becomes quite a bit easier.

Also, you won't build -- we don't anticipate building 400 megawatts of power and 500 megawatts worth of downstream development at the same moment in time. I mean, anything is possible. But it's much more likely to get scaled into. And so I think the part that you can't scale into is the couple of hundred million dollars for the terminal. We hope to be FID on that sometime about around the end of the year in terms of where we file our permits and start all that sometime next summer. And how the downstream development turns out will have a lot to do with how we eventually look to finance it. So...

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [23]

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Okay. That makes sense. And then, Chris, if we go to Page 14 and you talk about that new $5.50 run rate, and as Wes said, taking it down from $6.50 to $5.50 is pretty meaningful. I assume that's not for the third quarter. So let's be clear about that. And then how do you plan on getting there? And I know Wes mentioned something about locking in for 5 years. Can you just talk about how we get comfort in a very volatile commodity market that has massive seasonality typically, locking in $5.50 for a 5-year period?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [24]

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Let me just take those first. The -- if you just simply take the math of Henry Hub plus -- times $1.15, plus $2.50 or so, you end up at roughly $5.50 for LNG, and that's using the base rate of Henry Hub of...

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Christopher S. Guinta, New Fortress Energy LLC - CFO [25]

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$2.75, which is well below now. If you looked at the $5.50 forwards, it's actually -- if you use the $2.50 total it ranges between $2, [approximately] between $5.30 and $5.55.

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [26]

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And roughly what 85%, 90% of our downstream customers are Henry Hub base. So at the end of the day, picking the Henry Hub price, if it's $2.75 or $2.50 or $3 or $2.25 is going to be nearer than the downstream demand side. So those 2 things move in lockstep, and I am highly, highly confident that we're going to be able to generate supply somewhere in that range, and we'll obviously update it with you with specific numbers when we have it. But right now, there's lots of folks that we're talking to. And we think that locking in kind of 5 or maybe 5-plus years of supply for these existing assets is the right thing to do both from an earnings stability perspective and also, it'll help the financing -- financeability of our terminals, we think, significantly. So those 2 things together are why we think it's a good idea, and I hope by the time we have another quarterly call, we'll have a good update for you then.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [27]

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It's definitely a good idea as far as visibility. Just want to be clear, though, I mean, this isn't something -- we're in the middle of August right now. I mean, the third quarter, we shouldn't be thinking about $5.50. We should be thinking about something maybe closer to historical levels, in the $7 range. Is that probably right?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [28]

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Yes. I think from a modeling perspective, I would use next year as kind of the start date of the $5.50. Not that I'm a modeling expert but that's probably more prudent. But I think -- and I'm hopeful we'll deliver it before then, but I think that that's probably a good place to start with that.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [29]

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Okay, that makes sense. And then final thing, also a little bit of a clarification. I mean, Wes, you just laid out $4 with the liquefier even versus that $5.50, it's a massive return on the equity you would need to put into that project. So to say it's not really a focus right now, I mean, you can just kind of clarify those comments. Is it still possible for a 2021 start time for the liquefier based on how you see the next 6 to 12 months progressing? Or should we kind of put that further on the back burner as you focus more on the downstream today?

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [30]

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Where do you think you are, Brannen, right now, in terms of permits and timing?

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Brannen McElmurray, New Fortress Energy LLC - Chief Development Officer [31]

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Yes. Sure. So this is Brannen. So from the plant side on the permits, we have every -- we have permits in hand and this has come up on a couple of calls but we've actually received our air permit, so it's been issued. So on the site now, if you were to go look, we're clearing and grading. So we're kind of leveling it and getting ready for the decision that would be made or could be made in terms of moving forward. So I think, as Wes has articulated in the past, sort of FID plus 18 months is probably the right way to think about it. So in the event that, that decision was made at the end of the year or in March, you would then have a 2021 on-line date.

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Wesley Robert Edens, New Fortress Energy LLC - Chairman & CEO [32]

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Yes. I mean, I think that our thought was that while we're going through the permitting process, while we're still sorting out the financing for it, it adds more complexity to the story, which I think, frankly, is a net negative in terms of valuation. We do think the numbers are significant in terms of what it can add, not just this one plant but with respect to the others. But before we get to that, let's focus on the terminals, let's get -- execute what we have in hand. And then when we do have something specific to report on it, we'll go ahead and report. I mean, as Brannen and Chris both said, it's something we fully intend to complete on. And everything has moved very much in lockstep with what our expectations were. It's now we'll just see how it turns out. And I think a marginal $150 million in EBITDA is a good thing, right? So it certainly is a positive, and we think the returns are excellent, but we'll talk about that in due course.

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Operator [33]

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Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Alan Andreini for any closing remarks.

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Alan John Andreini, New Fortress Energy LLC - Head of IR [34]

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Thank you, operator. Thank you, all, for participating on today's call. If you have any follow-up questions, please feel free to reach out to me. My contact information is on our Q2 press release. Finally, we look forward to updating you after Q3. Thank you.

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Operator [35]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.