New Fortress Energy LLC (NFE) Q1 2019 Earnings Conference Call Transcript

New Fortress Energy LLC (NFE -0.96%)
Q1 2019 Earnings Call
May 15, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to the NFE First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance, please press *0 on your touch-tone telephone. 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 -- Head of Investor Relations

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 Gunta, our CFO; and Brannen McElmurray, our Head of Development.

Throughout the call, we're 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 would suggest that you download it now.

Before I turn the call over the Wes, I would like to point out that certain statements made today will be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports 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'd like to turn the call over to Wes.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

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

Q2 is when we'll begin to see significant ramp-up of our volumes, and as you can see -- and we'll go through this in detail on 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. End of next year as we're fully ramped up on these three properties -- Jamaica, Puerto Rico, and Mexico -- $323 million.

In the quarter, committed and in-discussion volumes increased substantially year-over-year. In addition, there's a significant shadow book behind us, a tremendous amount of commercial activity that we are very optimistic about, and we think that you're gonna see significant amounts of movement in this over the remainder of the year. But from the previous year, committed volumes this time last year, 960,000 gallons per day. At the end of the first quarter, 2.45 million gallons per day. Today, as of May 13th -- this is yesterday -- 2.55 million. So, roughly a tripling of committed volumes. In-discussion volumes even more dramatic. So, 950,000 gallons in-discussion volumes a year ago, 14.4 million at the end of Q1, and that's gone a little bit even since then. So, there's been a substantial increase in the commercial activities.

Lastly, the development side, the bottom line is that our developments are largely on time and on budget. Brannen McElmurray who runs our development will talk about it. Jamaica, Puerto Rice, Mexico, all expected to be up and running in the next 3-12 months.

So, if you could flip to Page 3, please. This is a page that shows solely the volumes that are committed, so this is only contracts in hand, and you can see the ramp-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 that caused the increases, so you can see Puerto Rico coming online in the third quarter, and then $27 million jumps to $95 million, then to $201 million in the Q4. By this time next year, $262 million is the Jamalco power plant comes online. And then lastly as Mexico comes online in Q2 of 2020, it goes to $285 million, $318 million, and then ends next year at $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 could flip then to Page 4, and 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 loads of gas is a very compelling one. I'll show you some numbers on that later on, but a very simplistic way of thinking about it is at current prices, if you switch 100 megawatts of power from diesel to natural gas, you save anywhere from $80-100 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's 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 switch 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's many, many people that we are 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 it gives our revenue base as we go from a single source of a large power provider, 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 gonna be very significant, which is really the transportation part of it. Much of America's busses 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 25-50% depending on the country, and jurisdiction, and tax base, etc., and are much, much clear solutions. We have our first busses that are actually in Jamaica that are being converted, and we've got some industrial trucks that are being converted. We believe that there's a significant business as well on the residential side. Again, in addition to the volumes that we do, the benefit to people and their pocketbook is significant, so on the trust real transportation business is something that is in process right now, and we're actually quite optimistic that that's gonna expand significantly.

The transportation on the water is even much more significant from the volume standpoint. 2020 is when the high-sulfur fuels are not allowed into U.S. waters. It gives ship owners the choice of either installing scrubbers that have got lots of challenges in terms of scrubbing the fuel or converting to natural gas. We think that this is gonna be a monumental shift in the way that ships are powered around the world. To give us some context of the size of this and what it could 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 a year. Just to give you some context for that, one 5,000 container ship burns about the same amount of fuel, so as you get meaningful amounts of conversion in the ship building 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 a developing field for us, but it is potentially so significant that I thought it'd 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, 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 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, and we'll refer back to it in the future.

So, with that, Page 5, I'll flip it over to Brannen. Brannen?

Brannen McElmurray -- Chief Development Officer

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 talk about quite a bit. It's our world-scale terminal, offshore on the southern coast of Jamaica. Couple big milestones to highlight there. We flowed gas for the first time to the terminal on March 6th, 2019, so big milestone for the business. The take-or-pay contract on our side kicks in June 8th, 2019. So, right now, we're helping out Mari Bani 3 east west 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 as you know is an alumina refinery that we're co-locating a combined heat and power unit, about 150 megawatts equivalent of power that we have decided to build ourselves. The steam is gonna 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'll 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 with floating LNG storage and onshore regas. There's two opportunities there. We expect to have a very robust truck-loading operation to serve industrial customers who want either back-up or primary powers in addition to the grid. And then of course, San Juan 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 conversion. So, that project is under construction. We expect to be completed in Q3 and delivering substantial volumes to both PREPA and our industrial customers.

The fourth facility is Mexico in 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 100 megawatts of merchant power that we are developing and we'll sell into the grid. So, again, we expect a 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 Gunta.

Christopher Gunta -- Chief Financial Officer

Great. Thanks, Brandon. So, if you look at Page 10, fundamentally, we're constructing into the contracted cash flows. As Wes said, we expect volumes to grow 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, volumes 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 goods 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 about $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 to the added debt load over 2018. And a couple quick comments on the balance sheet. The bulk of the activity is really in CIP. As you can tell, we have $343 million of construction in progress, PP&E assets that we'll roll over the next 12 months as Brannen was talking about.

If we flip to Page 11, first to comment on the current debt. We currently have in place a 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 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 Jamalco 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.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

So, just to conclude this part of the presentation before we open up to questions, I wanna talk about valuations on Pages 12 and 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, and I'll kinda walk through my analysis of that. On the left-hand side, you can see, as Brannen said and noted in his comments, we build and operate three basic solutions of ports, and it's really a function of the marine conditions that exist. So, on the left-hand side, we show the picture of Old Harbour, and notable because there's no harbor in Old Harbour, so the water depth next to shore is quite shallow. We had to build this three miles offshore. That's the fancy dock in the [inaudible] next to it.

The second alternative is the very first terminal that we built in Montego Bay where basically we're building in an existing port. There's a limited accommodation in terms of the size of 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 positions it, so onshore regas, land, and storage. And third is the terminal that we're showing you in Puerto Rico. So, onshore regas, floating storage is more substantial storage than we have in Montego Bay. Those are basically the three forms of terminals that we think are not only good examples of what we have done thus far but are good representations of what we think we'll find the 10 or 20 years that we build.

If you look on the right-hand side, just to compare them to ports, and we do it kind of point-by-point, No. 1, 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. Getting back on my commercial page, we show that we are firstly starting our business by contracting with the main utility in these countries. We'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 on one versus the other.

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 when you look at the Long Beach Port, and the volumes go up by 2.4%, and U.S. GDP goes up by 2.3%, you can see there's a high correlation between this core economic activity on the one hand and the grown in the other. The off-take agreements that we have for our terminals are significantly superior across the board on both types of ports. I mean, our average contract tenor today is 12 years. The average contract in a liquids port is 2-4 years, and the container ports in many cases, it's just simply a volumetrically 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 expectation that we have for the growth in our terminals are very substantial, and we'll compare very favorably when you look at it versus other ports.

So, if you look at Page 13, let me 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 in valuations is anywhere from 12.5x to 20x, so that's what we're using as 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 in the 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 price is right now.

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

So, last thing I'd like to point you to before opening up for questions is just in the Appendix, there's a couple pages that we put together that are part of our marketing materials that 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. So, you look at Page 15, as we said, our business is very simple. We help our customers replace oil-based fuels with natural gas. We're cheaper, cleaner, and we're renewable friendly alternatives to what they're doing right now.

The next page shows really how our business 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 you look at it, it was printed in 2002, and look backwards, you'll see what the geneses was for our business entirely. So, oil and gas spreads trade in lock-step 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, and many of the countries that we do business, diesel as an alternative is $16-17-18/MMBtu. The natural gas net of the capacity charges and everything else is single digits. This gap is extremely high, and it's one that we think is gonna 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 but a good representation of what the business is.

...

With that, I'm gonna go to the operator, and we'll take questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press *1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press #. To prevent any background noise, we ask that you please put your line on mute once your question has been stated.

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

Joseph Osha -- JMP Securities -- Managing Director

Hey, I made it first. Good morning, everyone. Thank you for the comments.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Thank you.

Joseph Osha -- JMP Securities -- Managing Director

Could we talk a little bit about the planned timing for the liquefaction facility? I see on Page 11 that you've got a financing reference in Q3-Q4 of 2019. I'm wondering if you could just give us an insight into the timing for the ramp of that facility, given what that implies. I do have a follow-up. Thank you.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

The expectation, as Chris said, is that we'll get a financing for the project done in the next quarter or two. We're in conversations with a number of different counterparties. We're gonna finance that independently. When we get that finance, we'll then go FID on it. We have continued to maintain our timeline and our relationship with our service providers, so we've invested a little over $100 million in capital 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. So, that will then result in online approximately 18 months after that, so when we make the announcement of FID at 18 months, that's a good approximate of when we expect it to be effective and up and running.

Joseph Osha -- JMP Securities -- Managing Director

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?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

No big changes. I mean, the LNG market, the model was that $7. We've decreased it to $6.50. It's been a very interesting year for LNG. I haven't talked about it much, but basically, oil is up 30%-plus, and LNG is down 30%-plus, so the gap on the page that I show for representation is exacerbated actually in terms of what's happening in the 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 tariffs, so maybe that has depressed demand in that part of the world for U.S. LNG, and that may be a big part of it, but the bottom line is the 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 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 it we think right now is actually quite a good one.

Joseph Osha -- JMP Securities -- Managing Director

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

Wesley Edens -- Chief Executive Officer and Chairman of the Board

It's not just the timing of it. It's just the volumes. I mean, the backlog of orders is so robust that I think it's not only possible, but it's actually very likely that we'll contract for third-party volumes, not just only short-term but maybe longer term. What we've done in our financial model to make it clear is assume a $6.50 number. 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 sources of LNG as we build the liquefier, there's a lot of room for upside in those numbers. None of it is baked in at this point.

Joseph Osha -- JMP Securities -- Managing Director

Thank you very much.

Operator

Thank you. And our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Your line is now open.

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

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 debt 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 intercompany projects and pretty much is gonna be the same company that will be the customer that will be backing the debt of the liquefier?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Let's take the first question. So, the $320-odd million in EBITDA, we think that the financing that is readily available is 4-6 times EBITDA, so if you take valuation, again, the 12, 15, 20 times-let's take 15 times three, so $4.5 billion in value, we think 40% loan-to-value, which is your 4-6 times multiple is very achievable, and obviously, that's significantly more than what the financing is for the entire company right now. So, we have very comfortable debt loads. We think that the financeability of it is quite high, so at 4 times $300 million, it's $1.2 billion. At 6 times $300 million, it's $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 we'll continue to have a very conservative debt profile. And it's simply from my perspective a matter of time that as the terminals get built, as the cash flows come in, I think the financeability of the company from the terminal's perspective increases dramatically. That's No. 1.

No. 2, with the liquefier and the activities that are both intercompany, it's not certain that the only offtake for that is gonna be intercompany. In fact, we think that the liquefier and 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 about 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 ourselves but from others. The financing that we are looking at for that is actually very conservative. We're talking 50-60% financing on a project basis, so even if the only offtake was ourselves, a single B at this point and hopefully improving credit quality, it's eminently financeable, No. 1. And No. 2, I think if we do look for third parties, then the financeability of it actually increases even more so. But the base level is a very conservative debt profile to begin with.

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

Thank you very much for that. Can you also expand on the Jamalco financing, especially I understand there's still the 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 color about the amortization of the debt, if there's gonna be some amortization of the debt, given the fact that all the projects will be financed with project financing?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

What we're looking at right now, this is actually the most advanced of all the financing -- we've had very, very specific discussions with one of the large counterparties down there -- is I think the financing is two pieces, a baseload that does not have amortization or new material amortization 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 flow that's generated from it. The second piece of it where we're looking is actually a piece of preferred stock, or debt, or some preferred instrument. It also does not have amortization for it.

Those two things together total $225 million, and there's a significant amount of cash flow to cover all that. They're intended to be long-term, permanent financing, so this 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 that's the $225 million in proceeds we're estimating, and then still [inaudible] to own the equity and have excess cash flow [inaudible]. 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.

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

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 that a lot of producers or greenfield producers in the U.S. that they are willing even to accept $2 or less than $2 tolling fee. 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 a third-party [inaudible] with a long-term SBA contract, which is gonna be at around $2 per [inaudible] tolling fee?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

The direct answer is it's not critical at all. In fact, there's no economics associated with liquification on our own in view of the numbers I just shared with you. So, if we simply buy it from the marketplaces, $6.50 delivered to our downstream customers, that's what generates the $320 million of committed cash flows on its way to hopefully many multiples of that. So, actually, there's a complete lack of dependency on our own liquification coming on to hit these numbers kind of period. The second thing is how does it benefit us, it benefits us tremendously because essentially, we are still distributing at prices that are much higher than where the LNG prices, so LNG prices dropping, it increased our margins. It hasn't changed our forecast in terms of what we're gonna do, so our numbers are assuming that we're acquiring volumes at $6.50 when 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 we're looking to sell at $2, or $2.50, or whatever the spreads end up being, that's basically what are behind our modeled numbers for this, but we are still short a material number of cargos, 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 that burn diesel for power that are 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 our long-term plan to produce at least a part of our own production, that's [inaudible] numbers right here, so it's a very --

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

Thank you, Wes. Just to clarify because LNG prices right now in the U.S. go for well below what 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? Where is the timing of the air permit that you are expecting to get?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

The construction of it, we are actually very committed to, and we think if you look at not just spot rates but the markets out 2-3-4 years, the price at which we can produce LNG in the Marcellus is about $4.20, and we think that's still very attractive from an economic perspective, so we still do like the prospects for that. But again, those economics are divorced from what the core business is, and so in terms of the construction part of it, Brannen?

Brannen McElmurray -- Chief Development Officer

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

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

Thank you very much, Wes. Thank you Chris. I'll follow up later on the phone. Thank you.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Thanks.

Operator

Thank you. Again, if you have a question, please press *1 on your touch-tone telephone. And our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.

Craig Shere -- Tuohy Brothers -- Director of Research

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'll also have somewhat fixed gas feedstock pricing that provides a known long-term spread versus your delivered downstream pricing? And presumably, that ought to have a higher valuation multiple than something where the feedstock gas price is fluctuating. Does that make sense? I think I got that right.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

It does. Again, as the core business of the company is the energy infrastructure delivery of gas to customers, 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 10 minutes on liquefication is nothing but upside, so if we were FID in Marcellus, 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 where our foreign volumes are, and it's also fixed-rate, so if you did get some supply or demand spike, it'd be insulated from that. In our numbers, our $320 million in margin by the end of next year, there's no benefit from that whatsoever.

Simply, the math of it at 2.2 million tons, if you were selling at $6.50 versus producing at $4.20, it would add another couple hundred million dollars 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 in the terminals themselves, as I said, I think that it is actually massively undervalued as a company, and that'll be proven I think as these projects come online.

Craig Shere -- Tuohy Brothers -- Director of Research

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 offtake for your Pennsylvania liquefaction. I'm trying to understand is that because there's an ARB opportunity on transport costs, or there's a huge benefit to project finance? How are you thinking about that?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

I mean, I really think of it as an adjacent business. It's not actually part of the terminal's 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 the Marcellus is so much faster, we could supply into people who are looking for volumes right now. And so, that's probably the most significant aspect of it.

We spent half the time talking about the liquefication; it's actually there's not a dollar of liquefication 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 in the numbers as we look at them right now, and if and when we go FID with it, we are contemplating not just being a sole off-taker but having others join in, and we've had a number of inquiries 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 3-6 months, maybe even shorter than that, and when and if it changes, we'll of course be talking about it.

Craig Shere -- Tuohy Brothers -- Director of Research

And 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 a degree in 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?

Wesley Edens -- Chief Executive Officer and Chairman of the Board

It's really the latter. I think that the economics on a piece of paper are very compelling for it, 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 have successfully operated it for a brief period of time, you'll be able to replicate this a number of times. I mean, what I would say is the following. 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, No. 1. No. 2 is there's an excess supply of natural gas in Marcellus that is trapped that is, as an example, that's in other places as well, and I think that this distributed liquefication like we have contemplated there is something that can actually harvest that, and there can be a very, very substantial economic result if it all comes to pass.

That is all icing on the cake. The dimensions of it could be for every liquefier a couple hundred million dollars of marginal earnings, so it could be very significant. That's very significant icing, but if it comes to pass, I think it'll be something that people will 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 I largely over time want to run a match book. Whether that match book comes from our own liquefication, or it comes from third parties, or some combination, which is the most likely event, I want it to largely be locking all the spread between where we're acquiring product and we're distributing it to our customers. That's the basis of the business. The energy infrastructure catalyzes that. That infrastructure I think over time will be prized infrastructure, and that's why I point people to that from a valuation perspective, and so that's kinda how I think about it.

Craig Shere -- Tuohy Brothers -- Director of Research

Understood. One question, I don't wanna belabor the noise in the quarter. I mean, it's clear there was professional fees, equity comp, and that straight lining that FSRU charter, but on the cash flow statement, one thing that 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?

Christopher Gunta -- Chief Financial Officer

Yeah, sure. This is Chris. I mean, the DSO and payables were actually pretty comparable. I mean, AR's 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 there's anomaly in the number, nothing that changes the way in which we're building the working capital assumptions in our model.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

I mean, the three things that contributed to it was a messy quarter is, 1.) The process of going public, 2.) Employee-related compensation, 3.) The one cargo that we bought as a sub cargo. It was a high-priced cargo. So, those three things together kinda roll together. That's what makes the numbers for the quarter what they are. Those are all one-time events, and we think that going forward, you're gonna see a much more normalized path, and that's why we feel comfortable. Those are pretty precise forecasts we're making in terms of the cash flows as we expect it to come in.

On the committed basis, the challenge of being that precise about them is that they are a derivative of the construction activity. We have had great success with that. We feel good about it, but there's a lot of things that could affect the construction of a project a month or two on one side or the other, and we expect they will, 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 3-12 months, so it's relatively short term, and 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.

Craig Shere -- Tuohy Brothers -- Director of Research

Great. Thanks for all the clarity.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Absolutely.

Operator

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

Sara Yakin -- Head of Investor Relations

So, this is Sara. 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 [email protected], and I'd be happy to send you some more details on the trip.

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Great. Look, as we've talked to both investors and counterparties, [inaudible] equity analysts, I think there is a huge benefit to actually seeing the physical terminals in operation for themselves, and so we're gonna accommodate that on a couple of different sites. So, Jamaica is obviously fully up and scaled right now. There's the two terminals that are up and operating. Miami, where our operations center is, is also up and operating. Those are all things we'd 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, it would also be a likely protocol at some point after that. So, if you're interested, please follow up with Sara. We look forward to it. 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 conclude today's program. You may all disconnect, and everyone have a great day.

Duration: 48 minutes

Call participants:

Sara Yakin -- Head of Investor Relations

Wesley Edens -- Chief Executive Officer and Chairman of the Board

Brannen McElmurray -- Chief Development Officer

Christopher Gunta -- Chief Financial Officer

Joseph Osha -- JMP Securities -- Managing Director

Fotis Giannakoulis -- Morgan Stanley -- Executive Director, Equity Research

Craig Shere -- Tuohy Brothers -- Director of Research

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