NFE pivot: The answer is

Investment Analysis Clubs Value Hounds
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Back in Nov 2022, I initiated a post with the subject line–
NFE pivot - is there value or hope for value?
NFE pivot - is there value or hope for value? - Investment Analysis Clubs / Value Hounds - Motley Fool Community

There were updates to that post. But I think there is now as answer to the question.

Based on the most recent NFE earnings announcement, I think the answer is the latter. NFE’s pivot is a hope for value.

Why does HoHum say that? A number of reasons actually.

  1. Per the prior post, NFE had placed a lot of emphasis on Fast LNG. And yet, per the Q4 2022 results, NFE announce that the schedule for the first Fast LNG asset has slipped two months. FWIW, that’s not even operations start-up. Instead of a March 2023 Mechanical completion date, the date slips two months to May 2023. That means there’s still sail time, hook-up, testing, etc, - all with their own issues (this is the first Fast LNG asset to go operational). Fast LNG remains an unproven technology.

  2. Lots of question-marks on the timetable of the other four Fast LNG units. To throw more complexity into the narrative, the “platform” changes. Per the NFE Q3 report, first Fast LNG platform is two jack-up rigs. Second and third Fast LNG units are on fixed platforms, and fourth and fifth Fast LNG are on floater drilling rigs. In Q4 2022 report, no mention of Fast LNG units 2 - 5. The original schedule had late 2023 for a second unit.

  3. Status of two Brazil projects.
    When NFE acquired Hygo from Golar-Stonepeak JV, there seemed to be baby steps on at least one LNG terminal (Barcarena) and some initial discussions on the Santa Catarina terminal. More then two years later, it is still talk. Could Barcarena LNG terminal have a converted FSRU unit ready by Dec 2023? It could. But, I’m leaning towards no. The identified asset is an LNG carrier/tanker. Last I checked it was in the mid-Atlantic waters. Could a new, modern LNG tanker be delivered to a yard for FSRU conversion, and sail to Brazil within 9 months? I guess. Also, no idea on the FSRU plans for Santa Catarina (vessel should have been Golar Penguin conversion, but I don’t think that’s happening).

Q4 2022 Investor Presentation_vF (seekingalpha.com)

Lots of things have to go right for NFE for them to become a successful FLNG-related entity.
Golar LNG (GLNG) are already a successful FLNG entity. They already have a very efficient and productive FLNG asset (FLNG Hilli). They are putting final touches on a second FLNG asset (FLNG Gimi).

Until Feb 2023, both companies benefitted from FLNG Hilli production. NFE monetized on their FLNG Hilli stake by selling the stake back to Golar LNG (GLNG). Short-term NFE gained from the monetization. I think the companies still have at least one project activity in common - Fortuna LNG.

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As I think about it, let me grab the last sentence in #1, and make it
#4. Fast LNG remains an unproven technology.
And the reason being, Slide 24
NFE knew from the project conception, there would be an LNG storage component. If they are now saying there’s a FID on conversion of a modern LNG tanker to being an FSU (Floating Storage Unit), that’s both terrible project management as well as major project cost escalation. I mean, even given the tight project time frame, NFE did/does have options.
a. Golar Mazo - an older LNG tanker the company acquired via the Golar MLP (GMLP) acquisition.
b. NFE could have inquired about an older steam turbine vessel to serve as an FSU
If NFE move ahead with Penguin as FSU conversion, there is an additional cost (should I say, plus an opportunity cost?) Not sure, but Penguin is an LNG carrier currently generating revenue for NFE. So, if NFE take it out of service, and convert it into an FSU, that’s an opportunity cost, right?

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NFE announced Q1 2023 results on 05/04
The pivot move adds another twist. NFE are certainly entertaining.

I left off with NFE selling assets the company acquired from either the Hygo or Golar MLP (GMLP) transactions. NFE had also decided to put a lot of focus on Floating Liquefication of Natural Gas (FLNG) activity via its Fast LNG projects. Five different projects were initially announced.

Now, the new twist. Project hiccups on Fast LNG 1 (Lakach field in Mexico waters) led to NFE rethinking things, Yes, NFE has gone ahead and ordered long lead items Fast LNG units 2 & 3. That’s nice. But, the modules are going to be assembled for each unit, but then transported to Altamira - a land destination! For those not familiar with Altamira, the site is a location that was originally planned as a Mexican LNG import terminal, and initially backed by two energy majors (Shell, Total) and Mitsui

Altamira LNG Terminal - Global Energy Monitor (gem.wiki)

New Fortress Energy Announces First Quarter 2023 Results | Seeking Alpha

Ok, so really what this means is that NFE uses the term FLNG differently than other industry participants. NFE - “we don’t need no steenkin’ floating platform or jack-up rig to produce LNG. NFE will produce LNG on land and then sell it to customers” That’s the plan for units 2 & 3.

Mentioned in the earnings call - FLNG capex only covers Units 1, 2, & 3. And the money already spent on rigs for units 4 & 5 (status now on hold).
What remains an unknown is the impact on margins from this operational change. Units 2 & 3 are supposed to come online during the 2nd half of 2024.

NFE also provided an update on its Blue/Green Hydrogen initiatives. The company expects to spin-off the business in the near future. Financial whales and I have been burned by renewable fuels ideas e.g Amyris (AMRS), in the past. So I have no interest in buying into NFE for a piece of that spin-off.

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