New Fortress Energy (NFE): The Good, The Bad, and The Ugly
New Fortress Energy: Betting Big on the Natural Gas Boom
Investment Report
Key points:
Infrastructure-Focused Model with Bond-Like Cash Flows: NFE builds and operates LNG terminals, power plants, and shipping assets, aiming for stable long-term revenues once projects are fully operational.
Growing Natural Gas Demand in Latin America: Emerging markets like Puerto Rico, Brazil, and Nicaragua drive NFE’s expansion, leveraging regional transitions from oil to cleaner, cheaper natural gas.
Founder-Led with High Insider Ownership: CEO Wesley Edens holds 19.6% of the company’s shares, receiving no salary or stock awards, aligning management’s interests closely with shareholders.
1. Introduction:
NFE is a complex business with numerous operations, substantial debt, and various catalysts both to the upside and the downside. I am not going to delve into the full natural gas thesis here, but in brief, natural gas consumption is expected to grow in the coming years, primarily driven by underdeveloped countries such as India and those in Latin America. The challenge lies in the significant infrastructure required to produce, export, and utilize natural gas.
Let’s review the value chain:
Mineral Rights: Owning or leasing the rights to extract natural gas.
Exploration & Production (E&P): Discovering and producing natural gas.
Oilfield Services: Providing equipment, technology, and services to E&P firms.
Midstream (Pipelines & Storage): Transporting and storing natural gas from production sites to end users.
Domestic Consumption: Burning natural gas for power generation or industrial processes.
Power Plant Services: Offering equipment and services to gas-fired power plants.
Liquefaction Terminals: Converting natural gas to liquefied form (LNG) for export.
LNG Shipping: Transporting LNG across oceans to foreign markets.
Regasification Terminals: Receiving and converting LNG back to gaseous form for distribution.
Foreign Utilities: Burning natural gas for electricity generation and charging local consumers.
NFE owns and is building liquefaction and regasification terminals, along with shipping capabilities and electricity generation plants, aiming to control the final segment of the value chain.
The company is currently facing difficulties due to excessive debt and management shortcomings in key areas, resulting in highly leveraged operations that will likely require asset sales. It has already sold one asset for $1 billion and is targeting another sale to secure an additional $1 billion. Debt refinancing is also crucial, and the company recently turned to equity markets to raise capital at less-than-ideal valuations. In this thesis, we will evaluate NFE’s various assets and contracts to estimate their potential worth, while also considering the risk of bankruptcy and examining the circumstances under which such an outcome could occur.
2. Business model:
NFE aims to capture the entire value chain of natural gas exports in Latin America. Fundamentally, it operates as an infrastructure company, offering fully integrated natural gas solutions—from operations to logistics. Gas price fluctuations have minimal impact on its earnings due to effective hedging strategies and a balance between securing future upside and ensuring consistent profitability. It is important to note that NFE does not produce natural gas.
Markets:
Understanding each market and its specific operations is critical. NFE provides detailed estimates in its latest financial updates, but in the valuation process, these figures will be discounted to maintain a conservative outlook.
Jamaica (recent sale):
Jamaica is NFE’s oldest market, illustrating the substantial upfront capital expenditure and time required to build facilities for this type of business. From 2015 to 2020, NFE constructed and activated the infrastructure necessary to supply natural gas to Jamaica.
The company significantly influenced Jamaica’s energy transition, as evidenced by changes in the country’s energy sources before and after NFE’s involvement. This positive impact could help NFE secure better contracts in the future, since their proven track record will matter alongside pricing.
NFE recently finalized a transaction with Excelerate Energy to sell its Jamaican assets for $1.055 billion, with proceeds allocated to reducing financial debt. Although the sale price was around nine times EBITDA, it likely alleviates concerns about the company’s bankruptcy risk and demonstrates NFE’s ability to sell assets at a reasonable valuation. Critics note that 15 years of contracted revenue with potential volume increases might warrant a multiple higher than nine times EBITDA. The assumed EBITDA for this deal was $117.2 million, but the company had guided for $200 million in adjusted EBITDA from the facility by 2025. Consequently, the sale effectively values the operation at five times 2025 adjusted EBITDA—reflecting the challenges of negotiating an asset sale under urgent funding needs.
Regarding NFE’s original investment in Jamaica, the company announced in 2015 that it would spend more than $200 million to build an LNG terminal after winning a government contract based on the most competitive offer. The total capital expenditures likely exceeded that figure—potentially double or triple—though further details are not yet available. NFE’s upcoming financial disclosures may clarify whether the asset was ultimately sold at a profit or loss.
Nicaragua.
NFE expects its Nicaragua plant to become operational early next year under a 25-year Power Purchase Agreement (PPA) with the Nicaraguan government. The company projects $175 million in adjusted EBITDA for 2025 and $225 million for 2026. Once fully operational, a conservative valuation for the Nicaragua segment could range from $2 billion to $2.5 billion.
Puerto Rico.
Puerto Rico is among the most complex operations NFE manages. Below is a simplified overview of its current contracts, growth opportunities, and the PREPA/FEMA payment status.
Current contracts:
NFE holds two main contracts. One involves supplying gas to its San Juan LNG facility, which then provides gas to San Juan Units 5 and 6. This contract is active through March 2026. The second contract covers gas supply island-wide for two plants NFE built for the Army Corps of Engineers. This agreement was recently extended by one year, increasing supply capacity from 40 Tbtu to 80 Tbtu; however, Puerto Rico may not be consuming the full 80 Tbtu, as some excess production is apparent from the FLNG plant.
These contracts expire in only a few years. Current Puerto Rico demand is estimated at 50–60 Tbtu, which could generate $350–$400 million in adjusted EBITDA from existing contracts. Nonetheless, a key risk is that these contracts remain secured for only about another year and a half. If they are renegotiated for a longer term—even at lower margins—this could be a significant catalyst, the CEO has confirmed that the government has approached them interested in renegotiating their contracts, the first step was to eliminate the Genera incentive fee which the government felt uncomfortable about. A 15-year contract, even at $300 million in EBITDA with room for volume growth, could value Puerto Rico at approximately $3–$4.5 billion.
Growth on Puerto Rico