Business context and reporting period
New Fortress Energy Inc. (NFE) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. NFE operates LNG and natural-gas infrastructure, power-generation assets and vessels through its Terminals and Infrastructure and Ships segments. The 2022 results include Hygo and GMLP for the full period; the 2021 comparative period includes them only from the April 15, 2021 merger closing, limiting comparability.
Unless noted otherwise, financial amounts below are in millions of U.S. dollars.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $584.9 | $223.8 | $1,090.0 | $369.5 |
| Operating income (loss) | $133.7 | $(12.2) | $300.2 | $(34.5) |
| Net income (loss) | $(178.4) | $(1.7) | $62.8 | $(41.2) |
| Net income (loss) attributable to NFE stockholders | $(169.8) | $(6.0) | $68.5 | $(43.9) |
| Operating cash flow | Not presented separately for the quarter | $170.9 | $(111.4) |
- Operating margins, calculated as operating income divided by revenue, were 22.9% in Q2 2022 and 27.5% for the first half of 2022. Consolidated Segment Operating Margin, a company-defined measure, was $273.3 million and $524.0 million, respectively.
- Q2 net loss included a $345.4 million other-than-temporary impairment of the CELSEPAR equity-method investment, a $48.1 million impairment of CEBARRA assets held for sale, and a $86.5 million tax benefit. Equity-method investment losses totaled $372.9 million. For the first half, the tax benefit was $136.2 million.
- Interest expense was $47.8 million in Q2 and $92.8 million for the first half, versus $31.5 million and $50.2 million in the prior-year periods.
- At June 30, cash and cash equivalents were $138.3 million; restricted cash was $79.6 million. Current assets were $736.6 million and current liabilities $596.0 million. Total debt carrying value was $4,151.5 million; stated debt principal was approximately $4,191.0 million. NFE reported compliance with its debt and lease covenants.
- Capital expenditures were $441.7 million for the first half. Cash and restricted cash together declined $46.1 million, from $264.0 million to $217.9 million, according to the cash flow statement.
Material changes versus the prior comparable period
- Revenue rose substantially year over year, partly because of LNG cargo sales ($309.0 million in Q2; $594.2 million for the first half), higher Henry Hub-linked customer pricing, and the full-period contribution from acquired businesses. Management also said market-priced cargo sales benefited first-half results.
- First-half delivered volumes to terminal customers, excluding third-party cargo sales, fell to 15.6 TBtu from 21.8 TBtu. Management cited lower consumption at certain facilities, including maintenance at San Juan and the Montego Bay port reconfiguration, which was completed in Q2.
- First-half operating cash flow improved by $282.3 million year over year. Investing outflows were lower largely because the prior-year period included merger cash payments; 2022 investing outflows primarily funded project development.
- Debt increased from $3,855.1 million at December 31, 2021 to $4,151.5 million at June 30, 2022, reflecting additional borrowings, including Revolving Facility draws and South Power 2029 Bonds.
Outlook, management commentary, risks and unusual items
- Management said it expects sufficient liquidity from cash, operating cash flows, borrowings and anticipated transactions to fund capital expenditures and working capital for the next 12 months and the reasonably foreseeable future. It reported approximately $2.057 billion of committed expenditures for projects, of which approximately $1.727 billion had been spent through June 30, 2022.
- NFE agreed to sell CELSEPAR and CEBARRA to Eneva for total stated consideration of R$6.10 billion (approximately $1.17 billion at the June 30 exchange rate), subject to adjustments and closing conditions, including regulatory approvals and Eneva shareholder approval. Closing was expected no earlier than October 3, 2022 and was anticipated in Q4. NFE’s precise net proceeds are not stated clearly in the filing text. The sale prompted the CELSEPAR and CEBARRA impairments noted above.
- A July 2022 vessel transaction with an Apollo-affiliated purchaser involved eight vessel sales and contribution of three additional vessels to a joint venture. After repayment of existing debt, NFE expected approximately $1.1 billion of net cash proceeds; closing was expected in Q3 2022. Certain NFE affiliates planned long-term charters, for up to 20 years, for ten vessels.
- NFE said its LNG supply commitments cover approximately 100% of expected needs at specified facilities for six years, while noting that it sourced approximately 96% of first-half 2022 LNG volumes from third parties. LNG price volatility, supply availability, customer concentration, project execution, permitting, foreign exchange and substantial leverage remain material risks. Fast LNG and several projects remain under development and carry construction, financing and regulatory risks.
- The San Juan Facility authorization application remained pending before FERC after the agency’s jurisdictional order was affirmed by the D.C. Circuit. NFE said it was operating while the application remained pending under the terms described in the filing. It reported no material legal proceedings and no significant COVID-19 operational disruptions to date.
- Subsequent to quarter-end, NFE amended and restated its letter-of-credit facility to an initial $250 million, with potential capacity increases of up to $100 million. On August 3, it drew $115 million under the Vessel Term Loan Facility and expected repayment in connection with the vessel transaction.
Most important facts for investors to verify
- Whether the Sergipe Sale received all required approvals, closed on schedule, and produced net proceeds consistent with expectations; confirm final adjustments and any sale-related gain or loss.
- Whether the vessel transaction closed, how much debt was repaid, the resulting net liquidity and financing costs, and the obligations under the long-term vessel charters.
- How recurring operating performance and cash generation compare with results boosted by LNG cargo sales, higher index-linked pricing, acquisition-related contributions and one-time impairment and tax items.
- Whether LNG supply costs, customer volumes, project spending and working-capital needs remain manageable amid commodity-price and foreign-exchange volatility.
- Progress, cost and permitting status for Fast LNG and other development projects, as well as compliance with debt covenants and the pending San Juan authorization.