NET Power Inc. (NYSE:NPWR) Q4 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session reveal several negative indicators: a significant EPS miss, increased project cost estimates, and a lack of detailed guidance on key issues. While the company has strategic plans and partnerships, the need for substantial new capital and the inability to provide specific financial details or guidance create uncertainty. The analysts' questions highlight concerns about cost management and market conditions, further contributing to a negative sentiment. Given these factors, the stock price is likely to experience a negative movement in the range of -2% to -8%.
Key Financial Performance
Reported EPS $-0.46 EPS, down from expectations of $-0.13.
Liquidity Position $533 million in cash, down from approximately $580 million at the end of Q3, reflecting $13 million in operating cash outflows and $29 million in capital expenditures.
Operating Cash Outflows Approximately $32 million for the full year, with $18 million in cash payments to Baker Hughes under the JDA.
Total Capital Expenditures Roughly $70 million for the full year, primarily tied to La Porte upgrades and SN1 development.
SN1 Project Funding Needs Approximately $600 million to $900 million in new capital needed to fully fund the project.
CapEx Estimate for SN1 Revised total installed cost estimate to $1.7 billion to $2 billion, representing an approximately 100% increase from previous estimates.
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Operating Highlights
Equipment Validation Program: Kicked-off the first phase of the equipment validation program with Baker Hughes at the La Porte demonstration facility, achieving successful ignition on demand and accumulating over 140 fired hours to-date.
Standard Plant Design: Launched a large modular multi-unit feasibility study to develop a standardized design targeting coastal locations that enhances scalability and reduces cost.
Project Permian: Completed the front-end engineering and design (FEED) for Project Permian, marking a major milestone for the world’s first utility-scale fully integrated clean gas power plant.
Market Demand: The energy sector is experiencing unprecedented demand for reliable generation capacity, driven by underinvestment in power infrastructure and rapid load growth from AI and data centers.
Cost Optimization: Shifted focus to post-FEED optimization and value engineering to reduce costs for Project Permian, with an estimated total installed cost now between $1.7 billion to $2 billion.
Liquidity Position: Closed 2024 with $533 million in cash, cash equivalents, and investments, down from approximately $580 million at the end of Q3.
Strategic Partnerships: Exploring strategic partnerships and capital solutions to fill the funding gap for Project Permian, estimated to be between $600 million to $900 million.
Modular Design Approach: Focusing on modular design for future projects to enhance scalability and reduce costs.
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Risk or Challenges
Earnings Miss: NET Power Inc. reported an EPS of $-0.46, missing expectations of $-0.13.
Cost Inflation: The total installed cost estimate for Project Permian has increased from $950 million to an estimated $1.7 billion to $2 billion, reflecting significant inflationary pressures in the energy sector.
Supply Chain Challenges: The global energy supply chain is tight, with long lead times for equipment deliveries, potentially pushing project timelines back.
Site-Specific Cost Challenges: Building in West Texas presents unique cost challenges, including high nitrogen content in natural gas requiring additional purification equipment and logistical issues related to transporting large equipment.
Funding Constraints: NET Power needs to secure approximately $600 million to $900 million in new capital to fully fund Project Permian, which poses a risk to project timelines.
Regulatory and Market Pressures: The energy sector is facing unprecedented demand for reliable generation capacity, which is compounded by underinvestment in power infrastructure.
Competitive Pressures: NET Power is competing with larger companies for resources and project financing, which may hinder its ability to negotiate favorable terms.
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Guidance & Outlook
Project Permian FEED Completion: Completed the front-end engineering and design (FEED) for Project Permian, marking a major milestone for the world's first utility-scale fully integrated clean gas power plant.
Cost Optimization: Shifting focus to post-FEED optimization and value engineering to reduce costs for SN1 and standard plant design.
Multi-Unit Projects: Completing feasibility studies for multi-unit projects along the Gulf Coast to demonstrate further cost reductions.
Strategic Partnerships: Seeking to raise capital and form strategic partnerships to commercialize technology.
Modular Design: Evaluating coastal site locations for modular multi-unit deployments targeting 1 gigawatt each.
Industrial Applications: Collaborating with Baker Hughes and Woodside Energy to develop an industrial-scale Net Power solution for smaller applications.
Total Installed Cost Estimate: Revised total installed cost estimate for SN1 to $1.7 billion to $2 billion, reflecting a 100% increase due to inflation and site-specific challenges.
Funding Requirements: Approximately $600 million to $900 million in new capital needed to fully fund Project Permian.
Timeline for Project Permian: Best case for groundbreaking in 2027 with an in-service date in 2029, contingent on securing necessary capital.
Liquidity Position: Closed 2024 with $533 million in cash, cash equivalents, and investments.
Future Capital Deployment: Earmarked $200 million in liquidity for SN1, with expectations to declare FID by year-end if funding is secured.
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Shareholder Return Plan
Liquidity Position: Net Power closed 2024 with $533 million in cash, cash equivalents, and investments.
Capital Allocation for SN1: $200 million has been earmarked for Project SN1.
Funding Needs for SN1: Approximately $600 million to $900 million in new capital is needed to fully fund the project.
Operating Cash Outflows: Operating cash outflows were approximately $32 million for the full year.
Capital Expenditures: Total capital expenditures were roughly $70 million, primarily tied to La Porte upgrades and SN1 development.
Investment Proposition: Net Power aims to develop and license plants rather than construct and own them.
Project Financing: Current SN1 economics can support up to approximately $600 million in project-level financing.
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Key Q&A
Q:Can you break out labor costs, maybe labor productivity assumptions within the FEED at this point?
A:We’re not going to be able to provide a breakdown at this point, but I will provide a summary of some of the drivers here. There is a market supply-demand imbalance that we’ve been seeing in the energy industry and whole electrical gear. Some of the things that we’ve been releasing long-leads are supply-demand challenges. Others are just the escalation that we’ve seen in the industry across the board.
Q:How do you see thermal CapEx declining over the next several years as folks look to bring projects online?
A:From our vantage point, we don’t think we’re going to see CapEx deflation anytime soon, while people continue to have pretty tight supply chains going up to the beginning of next decade.
Q:How are potential data center operators looking at these cost increases as potentially an opportunity to bridge a funding gap?
A:There’s really four ways to approach funding: project-level capital, Net Power Topco-level capital, government support, and commercial partnerships.
Q:Can you talk about some of the milestones we should look for regarding modularization?
A:We’re working with Zachry on the value engineering as we speak to maximize modularization at the project site.
Q:Any change in terms of discussions with the DOE with the new administration?
A:At a high level, Net Power aligns with the administration's goals of domestic energy security and reliable power.
Q:Do you think the power end users are realistic about how tight the crunch is going to be?
A:In my opinion, no. The market is still extremely tight through the end of the decade.
Q:What are the financial players coming to the table focused on?
A:They’re all focused on the pathway for us to deploy these Net Power units at scale.
Q:Can you provide additional details on the industrial-scale Net Power platform?
A:We’re not ready to lay out values on that just yet, but we will in the future.
Q:Can you speak to the opportunity you see in California for Net Power plants?
A:We’re scoping out the first gigawatt of plants that we want to put in California.
Q:Has the number of resources pursuing this opportunity scaled up or down in recent months?
A:We continue to build out the team.
Q:Are you still pursuing opportunities in Northern Indiana?
A:They’re not being delayed so much, but we want to demonstrate the lowest LCOE possible.
Q:Can you expand on commercial activities and dialogue with customers?
A:We’re working through Alberta prefeasibility with our partner up there.
Q:Any movement internationally you could speak to?
A:The US is the best place for our operations.
Q:Review of Unclear Management Responses
A:Management avoided providing a breakdown of labor costs and productivity assumptions within the FEED, stating they cannot provide specific details at this point. Additionally, they did not provide specific values or timelines for the industrial-scale Net Power platform, indicating that they are not ready to lay out values yet.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CCGTs
FID
Gulf Coast
Net Power
Nuclear
PCC
Phases
Power solution
SN
Woodside
Zachry
approach power
area cost
availability
baseload generation
burner testing
capital project
cash outflow
challenge site
combustor can
construction work
cost estimate
cost form
cost increase
cost reduction
craft labor
date
design cost
engineering exercise
form power
funding
information
kilowatt
liquidity
middle
module
optimization
pressure
NPWR Transcript
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NET Power Inc. (NYSE:NPWR) Q4 2024 Earnings Call Transcript
Unknown3-11
The earnings call summary and Q&A session reveal several negative indicators: a significant EPS miss, increased project cost estimates, and a lack of detailed guidance on key issues. While the company has strategic plans and partnerships, the need for substantial new capital and the inability to provide specific financial details or guidance create uncertainty. The analysts' questions highlight concerns about cost management and market conditions, further contributing to a negative sentiment. Given these factors, the stock price is likely to experience a negative movement in the range of -2% to -8%.
NPWR Slides
NPWR Report
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