New Fortress Energy LLC (NFE) CEO Wes Edens on Q1 2019 Results - Earnings Call Transcript

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About: New Fortress Energy LLC (NFE)
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Earning Call Audio

New Fortress Energy LLC (NASDAQ:NFE) Q1 2019 Earnings Conference Call May 15, 2019 8:30 AM ET

Company Participants

Sara Yakin - Head of Investor Relations

Wes Edens - Chairman and Chief Executive Officer

Chris Guinta - Chief Financial Officer

Brannen McElmurray - Chief Development Officer

Conference Call Participants

Joseph Osha - JMP Securities.

Fotis Giannakoulis - Morgan Stanley

Craig Shere - Tuohy Brothers

Operator

Good day, ladies and gentleman. Welcome to NFE First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Sara Yakin, Head of Investor Relations. Please go ahead.

Sara Yakin

Thank you, Chris and good morning, everyone. I would like to welcome you today to New Fortress Energy's First Quarter 2019 Earnings Call. Joining me today are, Wes Edens; our CEO and Chairman of the Board; Chris Guinta, our CFO; and Brannen McElmurray, our Head of Development. Throughout the call, we are going to reference the earnings supplement that was posted to the New Fortress Energy website this morning. If you have not already done so, I'd suggest that you download it 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. These statements by their nature are uncertain may differ materially from actual results. I encourage you to review the disclaimer in our press release and earnings supplement regarding forward looking statements and to review the risk factors contained in our annual and quarterly report filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

With that, I would like to turn the call over to Wes.

Wes Edens

Great. Thanks and welcome everyone. As Sara said, we posted on our webpage, the website the presentation which we are referring to so you can turn to page 2, I'll start there. First quarter was the last quarter that we have as a company before volumes were starting to come in and accelerate. So the earnings for the quarter are actually negative as they are just starting to ramp up. So operating margin which is our defined cash flow at the terminal themselves, a loss of $7.9 million. Total loss for the quarter $60 million of which about half of that were one time expenses related to the IPO and public market activities.

So that will be the end of that. Q2 is we begin to see significant ramp up of our volumes and as you can see we'll go through some detail in the next page. The numbers accelerate actually rapidly. So first quarter this year negative $7.9 million using the contractual cash flows first quarter 2020, $262 million ended next year as we are fully ramped up on these three properties. Jamaica, Puerto Rico and Mexico, $322 million.

In the quarter Committed and In Discussion volumes increase substantially year-over-year. In addition, there's a significant shadow book behind this. A tremendous amount of commercial activity that we are very optimistic about. And we think you're going to see significant amounts of movement in this over the remainder of the year. But from the previous year Committed volumes in this time last year 960,000 gallons per day at the end of the first quarter 2.475 million gallons per day. Today as of May 13th, this is yesterday 2.55 million. So roughly a tripling of Committed volumes. In Discussions volumes even more dramatic. So 950,000 gallons In Discussion volumes a year ago, 14.4 million at the end of the Q1. That's gone up a little bit even since then.

So there's been a substantial increase in the commercial activities. Last in the development side, the bottom line is that our developments are largely on-time and on-budget. Brannen McElmurray who runs our development we'll talk about it. Jamaica, Puerto Rico, Mexico all are expected to be up and running in the next 3 to 12 months.

So you put to page 3, please. This is a page that shows solely the volumes that are committed. So this is only contracts in hand. You can see the ramped up is fairly substantial. So $27 million in operating margin is our forecast for Q2, 2019. We show each one of the material points of reference of that caused the increases. So you can see Puerto Rico coming online in a third quarter and $27 million jumps to $95 million then to $201 million in the Q4. By this time next year, $262 million is that Jamalco power plant comes online. And then lastly as Mexico comes online in Q2 of 2020, comes to $285 million, $318 million and ends next year $323 million.

Each of those events is significant. There's many other incremental events that we think are both possible and frankly likely, but this gives you a good sense of what happens to our cash flow as we simply build out what is in place right now. If you flip then to page 4, I'll talk about the commercial stuff. It has become very clear to us that the pattern for our business commercially is a very, very consistent one. And it really begins with on the left-hand side of the page, our power customers. That's the entry point for our terminals in each country. Base load switch from diesel or heavy fuel to a gas is a very compelling one.

I'll show you some numbers on that later on that but the very simplistic way of thinking about it is at current prices if you switch 100 mega megawatts of power from diesel to national gas you save anywhere from to $80 million to $100 million. So even with a modest shift in a power base, the numbers are actually really significant. The second step of that is once the infrastructure is in place, the industrial customers really come out of the woodwork. And so what they're looking for is either gas for industrial purposes, boilers/ calciners, other things they may do for industrial purposes or looking to build their own CHP, their own combined heat and power plants.

We design, finance and build solutions for our customers to expedite their switched from what they're currently doing to us. We've gone from zero third-party customers away from this to roughly 20 in Jamaica. We think that the prospects in both Puerto Rico and Mexico are extremely robust. There are many, many people that we were in discussions with. And this is just getting started as that infrastructure gets built, but the next leg of this is significant not only in terms of the volumes that can be created by that, but also the diversification that gives our revenue base as we go from a single source of a large power provider that the main utility in the country to now many, many other industrial customers.

The third leg of it is something which I think a year from now is going to be very significant, which is really the transportation part of it. Much of America's buses and garbage trucks run on natural gas. A number of countries around the world, Dominican Republic Colombia others have significant amounts of vehicles that run on gas. So simply switching over from diesel to natural gas can result in savings of 25% to 50% depending on the country and jurisdiction tax base et cetera, and are much, much cleaner solutions.

We have our first buses that are actually in Jamaica that are being converted. We've got some industrial trucks that are being converted. We believe that there's a significant business as well on the residential side. And again in addition to the volumes that we do, the benefit to people in their pocketbook is significant. So on the terrestrial transportation business is something that is in process right now. And we're actually quite optimistic that we can expand significantly.

The transportation on the water is even much more significant from a volume standpoint. 2020 is when the high sulfur fuels are not allowed into US waters. It gives the ship owners the choice of either installing scrubbers that have got lots of challenges in terms of scrubbing the fuel or converting to the natural gas. We think that this is going to be a monumental shift in the way that ships are powered around the world. To give some context to the size of this and what it can mean. The first LNG project that we undertook as a company was we converted the freight train in Florida, largest regional train in the country burns 10 million gallons of diesel year, just to give you some context for that. 15,000 container ship burns about the same amount of fuel.

So as you get meaningful amounts of conversion in the shipbuilding industry, this business a year from now we think could be very, very significant. We don't show it in our numbers at all right now.

Lastly is the developing field for us but it is it is potentially so significant that I thought to be relevant to put it on the page, which is really data centers. The need for data centers for all the data that all of us are using on our phones and the internet and whatnot is substantial. Starting in Ireland where we have both the right to build and operate an LNG terminal, as well as a 500 megawatt power plant. We are looking in process of developing an industrial park really focused on the data center on space. Data centers from our perspective are terrific users of power. The raw material that they need more than anything else is actually power.

So inexpensive power, reliable power, consistent power. In Ireland today about 25% of all the data center activity for Europe is contained within the country. And their most significant issue is power. On the other side of the country where our land and permits reside, we think there's a significant opportunity to do that. When you look at the raw economics of this, once you've already established the infrastructure, the marginal cost to produce is quite low. Currently this does not contribute to our results, but we think it has very clear potential not just in Ireland but other places.

It may well be that when we're done here everywhere that we build gas and power infrastructure we should be building data centers as well. So it's more of a developing theme for us, but something I think is worthy of note, we refer back to it in the future. So with that page 5 flip it over to Brannen. Brannen?

Brannen McElmurray

Yes. Great. Thank you very much. Good morning. On the development side to date, we've completed 15 projects on time and on budget. So we're very proud of that. We have 13 projects in development and obviously we expect that pipeline to grow as the commercial opportunities continue to expand. What I'll do this morning is I'll focus on four projects which in particular constitute 80% of our committed volumes and just take you through that briefly.

The first is the Old Harbour Terminal which we talked about quite a bit. It's our world scale terminal offshore on the southern coast of Jamaica. A couple big milestones to highlight there. We float gas for the first time to the terminal on March 6, 2019 so a big milestone for the business. The take or pay contract on our side kicks in June 8, 2019. So right now we're helping out Marubeni with power and JPS commissioned their new 190 megawatt gas plant. And we're making great strides there.

So we continue to look for new opportunities to add customers and additional demand to the offshore terminal. So we're very excited about that property. The second one is Jamalco which is as an alumina refinery that we're co-locating a combined heat and power unit about 150 megawatt equivalent of power that we have decided to build ourselves. The scheme is going to be given to Jamalco as part of their industrial process and the power is being sold to the National Grid. So we're in the process of construction there. We expect to introduce gas into that facility Q1, 2020. We actually may beat that date and we're very excited about that.

So that will give us another new opportunity both on the product side and potential future expansion in the future. The third property is Puerto Rico. It's a hybrid terminal which flooring LNG storage and onshore ragas. There are two opportunities there. We expect to have a very robust truck loading operation to sub serve industrial customers, who want either backup or primary powers in addition to the grid. And then of course SAM 1, 5 and 6 we share a property line with them, which is a 440 megawatt plant owned by Prepa that we are also assisting in the conversions.

So that project is under construction. We expect it to be completed in Q3 and being delivering substantial launch to both Prepa and our industrial customers. The fourth facility is Mexico and La Paz which we talked about quite a bit. It's also a hybrid terminal with floating storage and onshore Regas with the addition of a 100 megawatts of merchant power that we are developing and will sell into the grid. So again we expect the robust trucking operation plus merchant power operation plus additional folks that will connect to the terminal over time.

And with that I think we'll flip to page 10. And I'll turn it over to Chris Guinta.

Chris Guinta

Yes, great. Thanks Brannen. So if you look at page 10, fundamentally we're constructing into the contracted cash flows. As Wes said, we expect volumes to grow to over from 320,000 gallons per day in the first quarter of 2019 to over 2.6 million gallons over the next 12 months on committed volumes alone. When I look at Q1, 2019, volume for the quarter were up due to additional gas that we sold through the Montego Bay facility to the Bogue power plant and an additional four small scale sites that were turned on during the quarter.

This increased revenue by $4.3 million over the same period in the prior year. From a cost standpoint, the cost of good sold were higher due to an additional vessel being on charter for the 2019 quarter and operating margin was about $11 million lower from Q1, 2018. However, if you were burning a consistent cost of LNG that number would be about $2 million higher. So we had a higher than prior period LNG cargo that was purchased as prices rose in the fourth quarter of 2018.

SG&A for the quarter was $38 million higher which is primarily composed of about $19 million in stock based compensation and another $11 million of professional fees including items related to the IPO and our term loan B efforts. The higher interest expense for the quarter was really due the added debt load from --over 2018. And a couple quick comments on a balance sheet. The bulk of the activity is really in CIT. As you can tell, we have $343 million of construction and progress PP&E assets that will roll over the next 12 months as Brannen was talking about.

If we flip the page 11, first a comment on the current debt. We currently have in place the unitary financing source meaning it's really a single form of financing for the whole company. We put this in place prior to the IPO which fit our business at the time, but importantly the current liquidity position is important to note is that the current liquidity position is enough to fully fund all of our downstream CapEx currently planned. The bottom part of the page we lay out our plan for a more efficient approach to financing. The first is a terminal financing which is meant to mirror the cash flows as they turn on over the next 12 months.

With over $320 million of contracted cash flow, we have a term sheet that we're currently negotiating which is in excess of the current debt load on the balance sheet today. We also have asset level financings that we are negotiating including a term sheet in Jamaica to raise approximately $225 million against the Jamaica CHP plant. The loan to value of that plant will allow us to effectively finance about $135 million plus a raise of another $90 million which will allow us to take about $225 million to recycle against the current value on the balance sheet.

With that I will turn page 12 over to Wes.

Wes Edens

Great. So just to conclude this presentation before we open up the questions. I want to talk about valuation. So on pages 12 to 13. So the way that I think about the valuation is what we are building is a global portfolio of terminals that look very much like both container terminals and liquids terminals with the exception being that I think the financial characteristics of our terminals are significantly better than each of them, right. And I kind of walk through my analysis of that. On the left hand side you can see and as Brannen said and noted in his comments, we build and operate kind of three basic solutions of ports.

It's really a function of the marine conditions that exist. So on the left hand side we show a picture of old harbor in notable because there's no harbor in old harbor. So it's water depth next to shore is quite shallow. We had to build these three miles offshore. That's the fancy dock and the emphasis or either this next to it. The second alternative is the very first term it'll be built up in Montego Bay or basically we're building in existing port. There's a limited combination in terms of size the ships that can come in there. So we basically built 7,000 cubic meters of storage onshore. And then we have a ship that re-progression it. So onshore Regas, landed storage.

And third is the terminal that we're showing you in Puerto Rico. So onshore Regas, floating storage, it's more substantial stores than we have in Montego Bay. Those are basically the three forms of terminals that we think are not only the good examples of what we have done thus far, but are good representations of what we think will find the next 10 or 20 days as we go. If you look at the right-hand side, just to compare them to ports and we do it kind of point by point. Number one, we are in each of these cases the exclusive supplier of natural gas into the country. That is a significant issue and it's not to say that there can't be competition over time, but the bar of entry is reasonably high.

If you start again back on my commercial page and we show that we are first starting our business by contracting with the main utility in these countries. You've already negotiated a bilateral arrangement with the most important form of power. It's a very good place to start. So we have not a monopoly on the products that come into the country at all, but a very, very significant competitive advantage of one versus the other. Ports, liquid ports tend to be storage so they are tanks typically and thus have limited capacity and they're reasonably difficult to grow. Container ports tend to be really a proxy for economic activity in a region.

So you look at the long beach port and it go --the volumes go up by 2.4% and US GDP goes up by 2.3% because there's a high correlation between just core economic activity on the one hand and the growth on the other. The offtake agreements that we have for our terminals are significantly superior across the board on both types of ports. I mean our average contract tenure today is 12 years. The average contract in a liquid sport is 2 to 4 years; in the container ports in many cases it's just simply a volumetric based revenue source.

Lastly and this is the one that I think over time will be the most important is that we have significant excess capacity in each one of our terminals. To date, we actually are running at about 25% of the committed volumes and that allows us to expand dramatically. And again our -- the expectations that we have for the growth in our terminals are very substantial. And will compare very favorably when you look at versus other port.

So if you look at page 13 and when we walk through kind of what the arithmetic looks like. The sample of port and terminal that have transacted is a long one. And the range and valuations is anywhere from 12.5x to 20x. That's what we're using is kind of a range to look at valuations. We believe that our operating margins will grow substantially, but let's just start with the base case of what is committed right now. So if you look at the chart and lower left hand side, 2.6 million gallons per day translates into $323 million in margin; go then to the chart on the right hand side. If you use a range of 12.5x to 15x to 20x that gives you a share price of $21, $26, $35. So kind of double or triple where the prices right now.

In addition, if you then look at the box on the right hand side, using a range of 25%, 50%, a 100% of what are in discussion volumes are right now, the results are even much more dramatic. So at a 25% volume at the lowest multiple it's a $50 share price; at a 100% of our in discussion volumes at the higher multiples $218. So obviously these are for representation purposes. The bottom line is that we think that we are massively undervalued this company. And as you bring the project and cash flows online that the gap between these numbers represented here at what our share price is will close.

So last thing, I'd like to point to before opening for questions it's just in the appendix. These are --there are a couple pages that we put together that are part of our marketing materials we give to our customers. And so they're quite simple. They're designed to be quite simple, but in that way they're also quite effective I think. If you look at page 15, as we said our business is very simple. We help our customers replace oil-based seals with natural gas. We're cheaper, cleaner and we're renewable from the alternatives to what they're doing right now.

The next page shows really how our businesses began. The gas, oil spread is wide today and we expect it to remain wide. So this is the chart that actually I printed out in 2002. So if you look at it, printed in 2002 and look backwards, you'll see what the genesis was for our business entirely. So oil and gas spreads trade in lockstep for decades prior to 2006, oil spikes up to $145 a barrel; gas actually goes down. This gap is significant. As I said today, that the spread is very wide in many of the countries that we do business. Diesel as an alternative is $16, $17, $18 MMBTU. The natural gas net of the capacity charge and everything else is single digits. So this gap is extremely high as one that we think is going to stay high.

And lastly, our business is then just simply to build the infrastructure and provide the logistics to connect the dots between natural gas, our terminals and the customers on the other side. So very simple and very -- but a good representation with businesses.

With that we go to the operator, we'll take questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from the line of Joseph Osha with JMP Securities. Your line is now open.

JosephOsha

Hey, I made it first. Good morning, everyone. Thank you for the comments. Could we talk a little bit about the plan timing for the liquefaction facility? I see on page 11 that you've got a financing reference in Q3, Q4, 2019. I'm wondering if you can just give us an insight into that timing for the ramp of that facility given what that implies now. I do have a follow-up. Thank you.

WesEdens

Yes. The expectation as Chris said is that we'll get the financing for the project in the next quarter or two. We're in conversations with a number of different counterparties. We're going to finance that independently when we get that financed will then go FID on it. We have continued to maintain our timeline and our relationship with our service provider. So we've invested a little over $100 million in capital -- and thus far but the timing for it to go FID is really a function of financing which we think is likely to happen in the next quarter or so. That will then result in online approximately 18 months after that. So that's when we make the announcement of FID at 18 months, that's a good proxy for what we expected to be effective enough to run.

JosephOsha

Okay. Thank you. And then just as a follow up in the model that you all had very kindly distributed. You had a fully loaded cost for third-party LNG. I'm just wondering how comfortable you are with that cost here given developments over the next year and a half or so before Pennsylvania comes online? Any big changes there.

WesEdens

No big changes. I mean the LNG market in the model was at $7. We decreased it to $6.50. It's been a very interesting year for LNG. I hadn't talked about it much but basically oil is up 30 plus percent and LNG is down 30 plus percent. So that gap on the page they show for representation is exacerbated actually in terms of what's happened in LNG markets. Lots of different factors that are influencing that. High on the list of course is the activity in China and the potential for new tariffs. And so maybe that has depressed demand in that part of the world for US LNG and that's that may be a big part of it. But the bottom line is that spot rates are with four handles from where they were $8 a year ago. And so in our model we assume $6.50 that is a significantly higher number than what we would it, would cost us if we were to self generate. So we think there's a lot of upside in that. But just the market for we think right now is actually quite a good one so.

JosephOsha

Okay. And just as the last question given the timing on the liquefier here. Is it possible that we might, you guys now seeking to contract maybe into 2021 on some of these third party volume? And that's it for me. Thank you.

WesEdens

Yes. It's not just the timing of. It's just the volumes. I mean the backlog of orders is so robust, but I think it's not only possible that it's actually very likely that we'll contract for third-party volumes not just in the short term that maybe longer term. What we've done our financial model to make it clear is assume a $6.50, I think that will prove to be quite conservative when we look back on it. And we think that between market sources of LNG and of course our own source of LNG as we build a liquefier, there's a lot of room for upside in those numbers. None of that is baked into this.

Operator

Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Your line is now open.

FotisGiannakoulis

Yes. Good morning and thank you. I would like to ask a little bit more color about the financing of your projects. If you can explain to us if possible on a project basis how much debt can you get or based on the current 2.5 million gallons that you have committed, how much of that you would be able to put on your downstream projects? And how will it work the financing of the liquefier given the fact that the customers of the liquefier will be in their company projects and pretty much is going to be the same company that will be the customer of the --that will be backing the debt of liquefier.

WesEdens

Let's take the first question. So the $320 million odd in EBITDA, we think that the financing that is readily available is 4x to 6x EBITDA. So if you take dilation again the 12x, 15x, 20x, let's take 15x three so $4.5 billion in value. We think 40% loan to value which is your kind of 4x to 6x multiple is very achievable. And obviously that's significantly more than what the financing is for the entire company right now. So with very comfortable debt loads, we think that the financeability of it is quite high. So at 4x is 300 is $1.2 billion, hits 6x 300 it is $1.8 billion. So I think that is a good range for what the potential is. That's probably considerably more than we need as a company. So I think that will -- could have a very conservative debt profile. And it's simply from my perspective a matter of time but as the terminals get built as the cash flows come in, I think the financeability of the company from the terminals perspective increases dramatically. That's number one.

Number two with the liquefier and the activities would that are both inter company, it's not certain that the only off take for that is going to be inter company. In fact, we think that the liquefier and its and kind of both the price and the geography and the timing of it because actually we can deliver this before a number of the other projects that are out there, we started to have significant conversations with people of that off take potential. So it may well be that as we progress with our financing for that that is married up with off take not just from our self but from others.

The financing that we are looking at for that is actually very conservative. We're talking 50 % to 60% financing on a project basis. So even if the only off taker was ourselves or single B at this point and hopefully improving credit quality it's imminently financeable, number one. And number two I think if we do look for third parties to the financeability of it actually increases even more so, but the base level is a very conservative debt to profile to begin with.

FotisGiannakoulis

Thank you very much for that. Can you also expand on the Jamalco financing. Especially, I understand that there are still plan to sell this asset later this year or next year. Is this a bridge financing I assume and can you give us a little bit or call or about the amortization of the debt, is there going to be some amortization of debt given that the fact that all the projects will be financed with the project financing.

WesEdens

What we are looking at right now, this is actually the most advanced of all the financing. We've very, very specific discussions with one large counterparties down there. I think the financing is two pieces. A base load that does not have amortization or no material memorization for a number of years. So it's a very loan to value, very debt like piece of paper that basically does not amortize. There's a tremendous amount of free cash flows generated from it. The second piece of it we are looking is actually a piece of preferred stock or debt or some preferred instrument.

It also does not have amortization for. Those two things together total $225 million and there's no -- there's a significant amount of cash flow to cover all that. They're intended to be long-term, permanent financing. So is not a temporary or bridge like thing. And so what might be an alternative to selling the asset is simply financing at this level which adds to $225 million of proceeds we are estimating. And then still remaining to own the equity and have excess cash flow going. So this is the most developed of the three pieces of financing. It's one that I think is most likely to have incremental news in the next 30 -60, 90 days.

FotisGiannakoulis

Thank you. And one more generic question about the market. We have seen this dramatic decline in LNG prices as you mentioned, and the decoupling from oil. How does this impact your business model? And I wonder there are a lot of producers or Greenfield producers in the US that they are willing even to accept $2 or less than $1 tolling fee. Is there any -- how critical is the construction of the liquefier? Especially as you expand your volume and you might need a second additional capacity beyond your initial project. How critical it is for your growth compared to buying LNG from third parties potentially with a long-term SBA contract, which is going to be at around $2 per MMBTU tolling fee.

WesEdens

Yes. The direct answer is it is not critical at all. In fact, there's no economics associated with the convocation on our own in either numbers that I shared with you. So if we simply buy from the marketplace is $6.50 delivered to our downstream customers that's what generates the $320 million in committed cash flows on its way to hopefully many multiples of that. So actually there's a complete lack of dependency on our own liquefaction coming on JP's numbers kind of period.

The second thing is that I mean how does it benefit us? It benefits as tremendously because essentially you're still distributing at prices that are much higher than where the LNG prices are. LNG prices dropping that increased our margins, it hasn't changed our forecast in terms of what we're going to do and so again our numbers are assuming that we are acquiring volumes in $6.50 and in fact the actual market price for them today is about two-thirds of that. And long-term volumes whether they come from the liquefiers who are looking to sell at $2 or $2.50 or whatever the ultimate spreads ends at being our -- that's basically what are behind our model members for this, but we are still short a material number of cargoes. And that's a big profit opportunity for us, but again is not in these numbers right now. And I think long term, if you believe that the gap between diesel and natural gas is going to stay wide, that's what really provides the impetus for our customers to adopt natural gas. I am very bullish about that spread staying there. There's still a tremendous amount of people in the world who burn diesel for power. They're underserved with power or burn heavy fuel oil in their ships, all these things contribute to what our economics look like.

But really the focus that we have as a company is on the terminals, the energy infrastructure and what the unit economics are associated with that. And as a buyer of gas even apart from long-term plan to produce at least a part of our own production that's what reflected in numbers right here so.

FotisGiannakoulis

Thank you. Just to clarify I mean because of the LNG prices right now in the US Gulf are well below that what they you are using as a working assumption the $6.50 right now I see it's $4.30. I wonder are you still committed on the construction of the first liquefier right now. And where is the timing of air permit that you are expecting to get?

WesEdens

Yes. The construction, we are actually we are very committed we think the long term, if you look at not just spot rates but the markets out two, three, four years, the price at which we can produce LNG in the Marcellus is about $4.20. We think that's still very attractive from an economic perspective. So we still do like the prospects for that. But again it is, those economics are divorced from what the core business is. And so in terms of the construction part of it, Bran?

BrannenMcElmurray

Yes. So to answer your question directly the air permits kind of the long lead in ours. So I expect, I would expect actually have it in June. I think we'll kind of see movement on that likely probably by the end of this month but we would -- we are on track for our kind of permits and entitlements. So from a construction perspective, we've locked in all the pricing for the equipment which is about 20% of kind of the total spend, the design as for all internal purposes complete. We're kind of the last lap of kind of permits and entitlements. So as Wes stated, we'll be absolutely ready to execute in the field once the FID decision is made.

Operator

Our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.

CraigShere

Good morning. Just following a little on Fotis' question about low-cost liquefaction. Isn't one of the keys of your infield Pennsylvania project that you also have somewhat fixed debt feedstock pricing that provides a unknown long-term spread versus your delivered downstream pricing and presumably that offers a higher brought have a higher valuation multiple than something where the feedstock gas prices fluctuating? Does that make sense?

WesEdens

It does. What I would --again as the kind of core business of the company is the energy infrastructure delivering gas to customers, right. And so I think looking at the company in terms of the terminal economics is the right way of looking at it. Everything that has been discussed in the last five or ten minutes on liquefaction is nothing but upside, right. So if we were FIB in the Marcellus, right, which I'm actually quite optimistic that we will be in the near term. That generates $4.20 largely fixed-rate LNG and that compares favorably, it's about where the market is right now ironically, but it also compares very favorably to our forward ones are.

It's also fixed rates, if you did get some supply or demand in a spike that actually caused prices to go, he'd be insulated from that. In our numbers there are $320 million in margin by the end of next year. There's no benefit from that whatsoever. Simply the math of it 2.2 million tons, if you were selling at $6.50 versus producing at $4.20, it would add another couple hundred million in P&L for the company if that was to happen. That's a significant upside that exists and if and when it happens we'll be very excited about that. And I think the investors will be too, but in the interim I think if you just look at the unit economics of the terminals themselves, as I said I think that it is actually massively under dive as a company. And that will be proven I think as these projects come online so.

CraigShere

That makes sense but maybe you can kind of elaborate in terms of Fotis' other question where you mentioned that NFE may not be the only off taker for your Pennsylvania liquefaction. I'm trying to understand is that because there's an hour of opportunity on transport costs or there's a huge benefit to project finance? How are you thinking about that?

WesEdens

I mean I really think of it as an adjacent business is, it's not actually part of the terminals business. It's simply a way to procure the gas for yourself a little bit less expensively. And because the timing to build projects like we're considering in a Marcellus is so much faster, we could supply and the people who are looking for volumes right now. And so that's probably the most significant aspect of it. If we spend half the time talking about liquefaction, it's actually -- there's not a dollar in liquefaction in our numbers right now. So I think it's an interesting adjacency.

It's one that we think could have significant economic benefits for us as a company. It's not material and the numbers as we look at them right now, and if and when we go FID with it, we are contemplating like not just being a sole off tick of it but having others join in and we've had a number of enquiries with that regard. And we'll see how it all plays out. I think this is something that is a relatively short-term issue to be resolved in the next kind of 3 to 6 months maybe even shorter than that. And when and if it changes we'll of course would be talking about it.

CraigShere

I understand you're saying this is icing on the cake side business. Is there a portion that you'd want definitely to retain for your internal integrated book to degree and a couple quarters you FID this and it's obviously objectively an additional success? Do you see it as something that is not only a side thing, but a replicatable side business where you can do more and more projects that have very short lead times, compared to these FERC regulated massive projects where you're able to just keep doing this because you have the know how and kind of grow and not worry so much about what you retain on the initial project?

WesEdens

Yes. It's really latter. I think that the economics on a piece of paper are very compelling for us, right. So that's why we've done this and we believe that once you've established proof-of-concept of having this up and running and successfully operating it for a brief period of time. You'll be able to replicate this number of times. I mean what I would say is define. The chart that shows the gap between oil and gas is what I believe is a very, very long-term phenomenon. And that is the fundamental underpinning of our business, number one.

Number two is there's an excess supply of natural gas, the Marcellus that is trapped that is as an example. There is another place as well. And I think that this distributed liquefaction like we have contemplated there is something that can actually harvest that and there can be a very, very substantial economic result if that all comes to pass. So that is all icing on the cake and it means it's the dimensions of it could be for every liquefier a couple hundred million dollars of margin earnings. So it could be very significant. So I mean that's very -- it's very significant icing, but if it's -- if it comes to past I think it will be something that people really appreciate. And it's a marginal benefit for us. It's not really how we think of the business in terms of the terminals.

The terminals business is largely over time on a running matchbook. Whether that matchbook comes from our own liquefaction or it comes from third parties or some combination which is the most likely event. I want to largely be locking out our spread between where we're acquiring product and we're distributing to our customers, right. That's the basis of the business. The energy infrastructure will catalyze that. It is -- that infrastructure I think over time would be prized infrastructure and that's why I point people to that from evaluation perspective. And so that's kind of how I think about it so --

CraigShere

Understood. One question, I don't want to belabor the noise in the quarter. I mean it's clear there was professional fees equity comp and that's straight lining that FSR you charter, but on the cash flow statement, one thing it jumped out at me is that for a fast growing business you actually had a source of working capital and you would think it's the opposite. Can you speak to the needs for working capital as you grow into this base of business here?

ChrisGuinta

Yes, sure. This is Chris. I mean the DSO and payables were actually pretty comparable. I mean we are collecting AR is going up. You're collecting more capital from the balance sheet and that's really just kind of driving that movement quarter-over-quarter. But we don't see anything anomaly and there's no anomaly in the number or nothing that changes the way in which we're building the working capital assumptions in our model.

WesEdens

I mean the three things we've contributed to was the messy quarters one, the process of going public, two, employee related compensation, three. The one cargo that we bought as a scrub cargo it was a high-priced cargo. Those three things together kind of roll together that's what makes the numbers for the quarter what they are. Those are not -- those are all one-time events. And we think that going forward you are going to see a much more normalized path and that's why we feel comfortable. These are pretty precise forecasts so we're making in terms of the cash flows as we expect them to come in on the committed basis.

The challenge of being that precise about them is that they're a derivative of the construction activity. We have had great success with that. We feel good about it, but there are a lot of things that could affect the construction of a project a month or two on one side or the other and expect to do well. But we're hoping to provide comfort for investors that the main projects there's really four of them constitute 80% of the committed volumes. The timeline to deliver on them is 3 to 12 months. So it's relatively short-term and I think as each quarter goes on, you'll have more and more confidence. I will and I think shareholders will that we're actually hitting those numbers, and I think that the valuation will reflect that so.

End of Q&A

Operator

Thank you And that does conclude today's question-and-answer session. I'd now like to turn the call back to Wes Edens for any further remarks.

Sara Yakin

So this is Sarah. We plan to host Analysts and Investors on site visits to our Jamaica terminals and our Miami operations in early June. If you're interested in joining or if you'd like more information about the trip, please reach out to me directly at ir@newfortressenergy.com, and I'd be happy to send you some more details on the trip.

Wes Edens

Great. And I think but we -- as we've talked to investors and counterparties, rate agencies, equity analysts. I think there is a huge benefit to actually seeing the physical terminals in operations themselves. And so we're going to accommodate that on a couple of different sites. So Jamaica is obviously fully up and scaled right now. There are the two terminals that are up and operating. Miami where our operations center is also up and operating. Those are all things would be delighted to host any and all of you that want to go to it. Puerto Rico which we expect to be done in August or September. I'll also be a likely protocol at some point after that. So if you're interested please follow up the Sarah. We look forward to and thank you for taking the time to call in this morning.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does include today's program. You may all disconnect. And everyone have a great day.