Excelerate Energy: The flexible LNG story picks the right time for IPO (on hold: EE)
The basic story
Excelerate (EE) is a flexible name for LNG regasification and other downstream solutions that is expected to IPO on or around 4/12/22. Their history dates back to 2003 starting with a single FSRU (Floating Storage and Regasification Unit) chartered up to present with several FSRUs owned and operated in 7 countries in North and South America, Asia/Pacific, North Africa and the Middle East and they own or operate several LNG receiving terminals. Revenues come from take or pay time charters and terminal services (purchase and resale of LNG). Revenues more than doubled in 2021 compared to 2021. Margins are strong but declined from 2020 to 2021 as purchased LNG (gas sales) was a significant portion. Although they provide secure access to LNG, they now extend to DGS (gas distribution services – small-scale natural gas distribution projects) and LNG to Power (gas-fired power generation). The company also plans to expand the capacity of the existing terminal in some cases and enter new markets.
Macro: (BNEF, Wood Mac, IGU estimates)
After plummeting with the first half of the pandemic, global electricity demand rebounded by 6% in 2021. Electricity demand is expected to increase by around 3% in 2022 and again in 2023. LNG will be needed to meet this demand and coal consumption continues to decline and nuclear capacity remains stagnant. Thus, LNG demand should increase steadily at a rate of 2.3% per year from 2022 to 2025 to 401 mm tons per year, Asia should account for more than half of this growth.
Looking at the longer term, electricity demand is expected to increase by 60% by 2050. As with oil, per capita electricity consumption globally is low but growing. EE noted in their presentation that almost half of the households in the world use less electricity per year than the average American refrigerator. As the world becomes more electrified, LNG forecasters expect demand to outpace electricity demand growth (taking market share), with annual LNG demand doubling by 360 mm TPY in 2020 to 720 mm TPY by 2040.
A bit of Excelerate history
Excelerate is a highly experienced and respected LNG operator. The company has completed more than 2,200 ship-to-ship transfers to date for more than 40 LNG carriers and delivered 5.5 trillion cubic feet to date. They have extensive experience in terminal development and operation as well as experience in asset construction and management, port services, LNG supply, FSRU operation and final gas delivery natural.
FSRU – Ten purpose-built vessels (seven wholly owned pro forma tender) with an average remaining life of 20 years. All ten were built by Daewoo to help them provide reliable service. It is one of the largest fleets of FSRUs, accounting for 20% of all FSRUs in service. These vessels can transport LNG, vaporize it and deliver natural gas to offshore or nearshore facilities. In total, their ten FSRUs have the capacity to provide 61mm TPY of the total transmission capacity.
To put this into perspective, the exploitation at 65% capacityit would still be over 10% of global LNG demand.
Eight of their vessels are on long-term contracts (average 6.9 years) and contract endings are staggered to avoid ‘cliff years’. All FSRU contracts are take-it-or-pay and are designed to minimize commodity risk.
E-Fit terminals (Excelerate Flexible Integrated). Three integrated LNG terminals in operation:
- A 100% owned terminal outside of Boston (Northeast Gate),
- A terminal 80% owned in Bangladesh,
- And the Bahia regasification terminal in Brazil leased until 2023 (they are looking to extend that less now).
E-FITs provide a single interface to customers for: port services (tugs, supply vessels and crew boats), LNG supply assistance – ship-to-ship transhipment assistance, LNG regasification – supply of FSRU, floating storage with onshore regasification, and/or onshore storage, permitting services, EPCIC (engineering, procurement, construction, installation and commissioning) services, as well as operation and vessel and terminal support management.
Terminals can also serve as distribution centers in some cases for LNG to be transported ashore if needed via trucks, trains or small vessels. E-FIT terminals use purchase or payment contracts with terms that minimize commodity risk and span 15 to 20 years. In the infographic below, the bracket on the left is where they operate now. The parenthesis on the right shows their short-term expansion plans.
Advanced development projects. Several E-Fit terminals and downstream opportunities are under development. There are a lot of moving parts here and we don’t have financial control over them at the moment (just not enough data). We note that gas and power sales contracts typically run for 15-20 years, are also take-it-or-pay, and are also structured to minimize commodity risk.
- Albania – Emergency power for Albania to help with the country’s energy security. They have set up memorandums of understanding to study an LNG-to-Power project with Exxon as well as to connect a terminal to the local gas infrastructure. In the meantime, the government has asked them to operate power barges from 3T22 to help supplant high-cost European electricity imports from Albania.
- Argentina – Bahia Blanca – contract awarded in March 2022 for seasonal regasification to supply natural gas to the local market from summer 2022.
- Philippines – The Filipinas Gateway in Batangas Bay will be a terminal with planned natural gas sales and power generation.
- Bangladesh – The Payra LNG terminal (which will be their 3rd there), an FSRU and a terminal with planned sales of natural gas and electricity and they plan to expand the capacity of one of their two existing terminals.
- Vietnam – in active discussions for a potential project.
This is a map of their global footprint.
- Size: 16 mm shares (18.4 mm with shoe)
- Exceptional Thereafter: ~ 106 mm parts.
- Assumed Price: The midpoint of the predicted range is $22.50 with net proceeds between $21 and $24 of $331 to $382 millimeters.
- Use of profits:
- $281 million for growth projects in Brazil, Albania, the Philippines and Bangladesh.
- $50 million for the purchase of vessels as part of the reorganization of the launch entity.
- The supply will fund short-term capital needs, but as they note, this is not a necessary liquidity event for them.
- The company will be majority owned (80%) by the Kaiser family following the offer. Kaiser is not selling any shares with this offer.
- They see no need to raise additional capital for the next two years.
- The deal is expected to close on or around April 12, 2022.
Management is very experienced
- EE’s President has 27 years of experience in “complex energy and infrastructure development projects and general marine operations, in particular LNG transportation, FSRUs, vessel chartering, shipbuilding, operational agreements and financial and fiscal matters of related projects”.
- The Executive Vice President and Chief Commercial Officer has 24 years of experience in “leading the commercial development of oil and gas projects around the world, with a particular focus on LNG, and is responsible for the commercial development of our importing LNG, expanding our customer base and building our global network of regional offices”
- and their Chief Financial Officer has 25 years of experience in “overseeing all global financial reporting, financial planning and analysis, accounting, treasury, tax, financial systems and internal controls and has led companies public and private multinationals in the energy and biotechnology sectors”.
Capital repayment from the start. The company expects to pay a dividend of 10 cents per quarter for an implied yield of 1.8% at the currently expected median offering price. Partial competitor New Fortress Energy (NFE) also has a dividend of one cent per quarter for an implied forward yield of 1.0%.
Management won’t publicly guide ahead of the deal (this is an IPO, not a SPAC) but a degree of growth in 2023 is assured as they get a full year of revenue from the Bahia terminal in Brazil and as the additional developments noted above are We look forward to their first public guidance following the announcement of their 1Q22 results. When we look at names in the LNG space like Cheniere (LNG) and Tellurian (TELL) to more diverse names as a new stronghold, we see the market as having outbid them on the strong macro backdrop depicted above with the crisis European at the origin of the last stage. . As you can see from the table below, this is not a sector that currently fears what we would normally call high multiples and EE compares quite favorably on both TEV/EBITDA and implied dividend yield at the expected median price.
It’s a name we’d like to get to know better and could take a stand in the IPO (personally and potentially in the secondary market for our primary portfolio).
Flexible, integrated LNG terminals bring LNG-intensive regions to market faster, making them a potentially ideal solution for emergency gas supplies. Europe could benefit from several E-FIT terminals given the pressing need for additional gas supply.
This seems to us to be the optimal time to be a publicly traded name in this space (and probably an easy pitch for analysts and brokers). Our feeling is that within a month of the offer, the majority of deal names will start with buy ratings. Plus, we generally like high gross and EBITDA margin games and that fits this bill. We believe that holding EE could be complementary to our position in flexible LNG supplier New Fortress.