This is the greatest and best article in the world…tribute: New Fortress Energy $NFE

This is not the greatest article in the world, no, this is just a tribute.

Special thanks to Benjamin Demase at the

The ROI Club

for turning me on to New Fortress Energy (NFE), and for having me as a guest on his podcast twice now.  It has been a pleasure and I am very grateful that he would share his audience with me.  Benji is Australian, and Australia is considering deporting Tenacious D over recent comments by Kyle Gass, so I can’t think of a more fitting title for this article.  I asked Benji if he minded being called Benji, and he was too polite to tell me not to call him that, so here we go.

It’s not a controversial thesis that associated natural gas from shale oil drilling is a game changing phenomenon for the USA, we have quickly become the largest exporter of liquified natural gas (LNG), surpassing even Qatar.  Even though the national government in the US has tried to throw a few monkey wrenches into the gears of shale oil, our federated status and Texas’ large size make it hard for the national government to find the jurisdiction to stop it.  If you believe that LNG in the US is an industry that has decades left to go, and that it is trading at a low multiple due to professional managers following ESG mandates, then this might be a great space to choose your spots, and there are a lot of spots to choose from.

1. You can invest early in the chain starting with the mineral rights with Black Stone Minerals (BSM) which both Benji and I have written about.   

2. You can invest in the explorers and producers, I haven’t written about one of those yet, but Vital Energy (VTLE) will probably be an article eventually.

3. You can try to service the E&Ps as Profrac Holdings (ACDC) does.

4. There are the midstream pipelines that move natural gas around, they have the benefit of making money no matter what the price of gas is, as long as the spice flows.  The big drawback is that most are limited partnerships with their own unique tax issues.  

5. There is domestic natural gas consumption such as through nitrogen fertilizer with CVR Partners (UAN) or a domestic utility company.

6. You can try to service those power plants as Babcok and Wilcox (BW) does.

7. Warren Buffett chose the liquefaction terminals with his recent purchase of 75% of Cove Point in Maryland.  Always shrewd to own the bottleneck or the toll booth.  

8. There are the LNG ships themselves such as with Cool Company (CLCO).

9. You can choose to take the other side from Uncle Warren and own the regasification terminals at the port of destination.

10. And finally, you could try to own the foreign utility that burns the natural gas and charges the locals for electricity.

New Fortress Energy occupies slots 7, 8, 9, and 10 with a particular focus on the Brazil and Puerto Rico markets, but with smaller opportunities in Nicaragua, Mexico and Jamaica.  There is a development project in Ireland to compete with my Vermilion Energy (VET), but I can find no estimated timeline to completion.  I would not have thought to look so far down the value chain, as I suppose I have a bias against jurisdictional risk.  Rethinking my presuppositions, however, jurisdictional risk for fossil fuels might be worse in developed economies than in the global south who understand that energy is the bedrock of their economies.

In service to their final stage of power production, and in order to compete with Warren Buffett in a hurry, NFE built a liquefaction facility offshore, I assume to bypass a lot of permitting roadblocks.  This facility is setting Twitter abuzz with enthusiasts tracking the voyage of the first LNG carrier loaded with cargo.  A second liquefaction facility, but onshore, is under construction in Mexico. 

New Fortress has 11 LNG carriers, identical to Cool Company (CLCO) which has a market capitalization of $650 million.  Seven of NFE’s carriers have regasification capability and four do not.  Ten are in service to NFE’s power generation network, and one is chartered out in the meanwhile.

Management of NFE is doing smart things, bringing natural gas all the way to the final customer and capturing a huge stretch of the value chain is fantastic.  Stopping their vertical integration at the point of being a buyer of domestic US natural gas and liquifying it themselves is probably genius.  A lot of investors are waiting for the natural gas price to trend up in the US with more export terminals coming online, but we keep on seeing especially the private explorers and producers drilling new wells with Henry Hub prices below $2 per mmbtu.  Memes abound.

This makes NFE an excellent counterbalance in a portfolio which is already overweight energy stocks.  If US explorers and producers can’t stop won’t stop drilling, then it would be good to own a company that would stand to benefit from lower US domestic natural gas prices in the long run.

As I look at risks to New Fortress, the first place I always look is management incentive alignment and the risk of dilution.  Founder and CEO Wes Edens owns about 15% of the company, was buying in 2019 at $12, and had a modest sell program in 2022 at $45.  It doesn’t get much better than having a founder capitalist CEO steering the ship who doesn’t want to dilute himself.  Share count hasn’t increased since June 2021.

New Fortress is a perfect example of the sorts of opportunities that exist to retail investors in a world where more than half of all invested dollars are in passive ETFs, and of the remainder 60% use quantitative strategies.  There are changes to NFE operationally that data mining won’t reveal.  For example, in 2023, NFE spent $3 billion on capex, funded by $700 million of operating cash flow and $2.3 billion net debt issuance.  In the next twelve months, management is guiding toward only $200 million of capex funded out of cash flow, but they are still planning on spending $1.5 billion on capex annually going forward.   That’s a $500 million free cash flow swing without taking into account the growth of the business, but there is no transition to a steady state, there is still embedded growth.

I do believe a lot of analysts are overstating the decline in future capex.  Management did say that the $3 billion in 2023 was the peak, but there are a lot of growth opportunities ahead of them.  The big difference is now that they are an operating company rather than a development company, they will use asset backed financing to lower their interest rates.  For example, that floating LNG liquefaction platform is valued by NFE at $3 billion, and they are going to borrow $1.5 billion against it to pay down corporate level debt or fund new capex.

Also, management is going to sell part of completed projects in order to pay down debt or fund future growth.  NFE is planning an IPO of their Brazilian business, plus finding a JV partner to buy a block of the business.  I have my doubts that they would pay a special dividend with these funds, they have a stated goal of NFE Brazil being self funded for future growth.  Power contracts in Brazil are typically for 15-20 years.  Some locked in profits for that long should result in a multiple rerating for NFE, Brazilian utilities trade at price to earnings multiples of 10 to 18 right now.

It’s hard to know what multiple NFE would fetch in the market.  It’s own history is short, and the transition from development to operations makes the history hard to compare.  At $7 per share 2025 earnings, and the current price to earnings of 11, that would be a $77 price target.