Good day, and thank you for standing by. Welcome to the Q3 2022 FTAI Infrastructure Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini. Go ahead, sir.
Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure third quarter 2022 earnings call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure, and Scott Christopher, the company's CFO. We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings.
These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements, and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Ken.
Thank you very much, Alan. Good morning, everyone, and welcome to our inaugural quarterly earnings call for FTAI Infrastructure. This morning we'll be discussing the financials as of September 30 on a consolidated basis and providing additional details of the operating and financial performance at each of our four core business units. Also, I'm pleased to report that we will be paying our first dividend as a standalone company, with our board authorizing a $0.03 per share quarterly dividend to be paid to shareholders later this month. I'm gonna kick it off on slide two of the earnings supplement. We posted a very strong third quarter financially and continued to generate momentum across our portfolio.
Adjusted EBITDA for the third quarter came in at $33.2 million from our four core business units, up 25% from $26.5 million in the second quarter of 2022. We continue to see very good progress across our portfolio of companies and expect to generate meaningful growth in the quarters to come as our businesses ramp up operations following recently completed construction and as new contracts kick in. In the aggregate, we are reiterating our target of achieving annual adjusted EBITDA in excess of $200 million in 2023 from our existing platform with no additional investment required to meet that target. We are thrilled with having completed the spin-off of our infrastructure business and are excited about our new standalone infrastructure platform.
As of the end of the third quarter, our company included a diverse portfolio of critical infrastructure businesses comprised of freight railroads, energy terminals, and a power and gas company with aggregate assets of $2.6 billion. Each of our companies is well-positioned for organic growth as projects previously under construction begin revenue service and as multiple initiatives to grow our revenue base take hold. It continues to be a dynamic time in the industrial and energy markets, with inflation, volatile energy prices, and the focus on energy security as prominent as ever, and our assets are extremely well positioned to capitalize on several opportunities. In summary, we believe the combination of diversity and growth across our company make FTAI Infrastructure a unique investment platform, and we're excited about the future. Moving ahead to slide four.
Slide four shows a snapshot of our financial performance at each of our four segments. I'll report more details in the following slides, so just some quick highlights for now. Transtar continues to be a substantial producer of cash flow for us, with EBITDA essentially unchanged for the quarter as slightly softer volumes experienced late in the quarter were offset by higher pricing. More importantly, we made substantial progress on growing our third-party business during the quarter and set the stage for a number of initiatives to kick in starting in January next year. Jefferson continued to ramp up utilization of its capacity, and we're looking forward to a big 2023 in Beaumont.
Repauno, which will remain a smaller part of our portfolio in terms of EBITDA contribution for the remainder of this year and into early next year, has tremendous upside and is on the cusp of entering into long-term contracts for both its existing phase I transloading system as well as the much larger phase 2. Finally, our plant at Long Ridge achieved 100% capacity factor and generated cash flow from excess gas sales. All in, a very good quarter for us. Slide five shows the organization of our company and summary balance sheet. At the time of our spin-off from FTAI, now renamed FTAI Aviation, we issued $800 million in debt and preferred stock, with proceeds used to repay then-existing FTAI debt. We have ample liquidity today and will be putting in place a new $50 million revolving credit facility this quarter.
Importantly, of our total $1.2 billion of debt shown on the balance sheet at September 30, approximately $500 million is issued at our holding company and $700 million is issued at Jefferson, which is non-recourse to our holding company and all of our other businesses. We like to think of Jefferson debt more as an asset than a liability, with extremely low interest cost, average maturity of 14 years, and the flexibility to pay dividends from Jefferson with excess cash flow. We'll now turn to more detail on each of our four core business units. Starting with Transtar on slide seven of the supplement.
Coming off a strong second quarter, Transtar posted solid EBITDA in Q3, generating $39.2 million of revenue and $18.4 million of EBITDA for the quarter. Slightly lower carload volumes were almost entirely offset by increased rate per car, resulting in both revenue and EBITDA for the quarter, largely unchanged from the second quarter. Cash flow continued to be strong as cash proceeds from the sale of non-core assets of $1.4 million offset the bulk of maintenance capital expenditures. We expect to continue to see cash from non-core assets offset the majority of our maintenance CapEx into 2023. More specifically on volumes. The key volume variance involved iron ore shipments at Transtar's Union Railroad in Pennsylvania, which were slower due to the U.S. Steel's temporarily idling of one of two blast furnaces at the Mon Valley Works facility.
Specifically, U.S. Steel moved forward an outage from October to September, impacting shipments of ore late in the quarter. Pricing was stronger for the quarter, with average rate per car increasing $599-$631 per carload. Under our 15-year contract with U.S. Steel, pricing is set based upon an inflation-based index, protecting us from higher operating costs, and we're insulated from higher fuel costs through our 100% fuel pass-through mechanism. We have multiple initiatives underway at Transtar to drive incremental revenue and EBITDA. These programs, which on slide eight of the supplement, are all focused on leveraging Transtar's existing assets and require little to no additional capital investment.
Examples include opening Transtar's in-house equipment maintenance facilities to external customers, expanding our base of third-party freight shippers, generating income from uses of our right of way, and promoting leasing and development of over 700 acres of land that we own adjacent to our rail system. In the aggregate, we expect these third-party revenue opportunities to generate $30 million of annual EBITDA once fully implemented. Now on to Jefferson. Q3 EBITDA at Jefferson was $6 million, up 43%, versus $4.2 million in Q2, as utilization of our terminal capacity continued to steadily ramp up during the quarter. Crude volumes remained strong by a steady inbound flow of Utah yellow wax crudes, while volumes of refined products grew, reflecting a strong export market.
During the third quarter, we renewed our existing contract with Exxon for rail shipments of refined products to Mexico. The new contract has a 5-year term and minimum volume commitments. We're also on track to commence terminal operations under our new 10-year contract with Exxon in January 2023. We expect this contract to generate approximately $20 million of incremental EBITDA annually, creating substantial committed throughput volume to the terminal and providing a springboard for increased growth in volumes. We continue to be very bullish about Jefferson's prospects in the coming quarters and expect revenue and EBITDA to grow materially as we enter 2023. We have substantial assets with ample capacity for growth in place. As we continue to ramp up capacity, a meaningful portion of incremental revenue should drop to the bottom line as we leverage fixed costs.
As shown on slide 10, we estimate that even after the new Exxon contract commences in January, we will have capacity in place to more than double our volume and revenue. Now shifting to slide 11. At Repauno, our key focus is on securing business in 2023 for our phase I transloading system and commencing construction of our much larger phase II system. For phase I, we plan this quarter to execute a multi-year contract with a counterparty that will generate steady positive cash flow for the terminal while phase II is being built. The phase II system is expected to triple our throughput capacity and quadruple our operating margins when it comes online in a couple of years. We have demand from multiple international offtakers, and our goal is to enter into long-term agreements with multiple parties in the coming months.
Phase two is shovel-ready with engineering complete for the new storage tank and all necessary permits have been obtained. We plan to finance all construction costs with tax-exempt debt. Also at Repauno, we continue to see increased interest in the renewable energy space with 250 or more acres primed for development. Our Clean Planet joint venture plans to build its first plastics recycling plant at Repauno, where Clean Planet will convert non-recyclable plastics to renewable diesel and sustainable aviation fuel. We're expected to commence construction of the Clean Planet facility in early 2023 and be complete and operating in mid 2024. Moving on to Long Ridge. Long Ridge generated $11.3 million in EBITDA in Q3, up 53% from $7.4 million in Q2.
The bulk of our EBITDA was derived from power sales as we operated the power plant at full capacity during the quarter. At higher plant capacity factor, we consume more gas, but our team at Long Ridge managed to bring online additional gas production in excess of our plant's needs, allowing us to monetize the excess portion of gas production. We are taking a regularly scheduled maintenance outage of the plant in Q4 and plan to continue the pace of gas production to mitigate the impact of reduced power sales that we expect during the maintenance outage. Moving to slide 13. Development at Long Ridge continues to be robust. During the quarter, we acquired 12,000 acres of additional gas assets in West Virginia, essentially doubling our total gas supply.
This new gas supply can ultimately provide up to 150,000 MMBtu per day, with first production commencing the middle of next year. At current gas prices, that equates to approximately $15 million of monthly EBITDA for Long Ridge. We expect to finance the capital expenditures required to develop gas production with additional debt at Long Ridge and currently are in discussions with multiple lenders. In July, we entered into agreements with Newlight Technologies for the construction of a new $300 million facility to be built on Long Ridge property, which will produce carbon-negative and biodegradable plastic products from natural gas. Long Ridge will sell power and natural gas to Newlight, as well as provide land under a long-term lease. In addition, we expect to be an investor in the project if certain conditions are met.
We expect the facility to be operational in 2024. Finally, we continue to progress efforts to be named one of four national hydrogen hubs under the Department of Energy's program to stimulate clean hydrogen production and use in key markets. Our plant is the first in America to blend hydrogen as fuel, and we believe we are well positioned to receive the hydrogen hub designation and benefit from access to federal grant funding to develop additional behind-the-meter customers. Finally, on slide 14, we have highlighted our energy transition investments. To date, we've made investments or entered into partnerships with three companies that are developing technology and building facilities that decarbonize industrial production and recycle environmentally sensitive products. With minimal capital, we believe these investments represent potentially tremendous upside, can be independently profitable in the near term, and also can be highly complementary to our existing assets.
Each of these companies will be building facilities at one or more of our existing terminals. Whether it's converting waste plastic to sustainable aviation fuel, recycling lithium-ion batteries or carbon capture, all represent massive macro opportunities with only a handful of players with established assets and proven technologies. Our goal is for 2023 to be a big year for our energy transition investments, and we look forward to communicating our progress to everyone in the quarters ahead. In closing, we are reiterating our target of reaching in excess of $200 million of annual EBITDA in 2023. At Transtar, we expect to see the impact of our third-party revenue initiatives to really take hold in the coming months, while at our Jefferson and Repauno terminals, the ramp-up of terminal capacity is continuing at a steady pace as new contracts kick in.
With that, let me turn the call back to Alan.
Thank you, Ken. Michelle, you may now open the call to Q&A.
As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Giuliano Bologna with Compass Point. Your line is now open.
Good morning, you know, congratulations on your, you know, first successful quarter out of the gate. I'll kind of take this in a couple asset by asset. Starting with Transtar, I'd be curious when we think about the $18.4 million EBITDA that you generated in the quarter, is that a good sense of where kind of your floor EBITDA should be with the minimum volume commitments? As a little bit of a follow-on to that, I'm curious how soon the third-party initiatives can begin to contribute to EBITDA and scale, as you start rolling them out.
Thanks, Giuliano. At Transtar, the $18.4 million, I would say if U.S. Steel were honoring just strictly the minimums under the contract, you know, EBITDA would be 5%-10% under that. It's close, but it's not. They're still moving volumes in excess of their minimums under the contract. It's a great contract, 15-year deal and minimum volume set for the first 5 years of the contract. We certainly expect to continue to exceed, you know, those minimums. On your second question, look, we expect all of the initiatives to be fully implemented in 2023, with some of them commencing as early as January. Particularly, we're opening up our five in-house equipment maintenance facilities starting January first.
We should start seeing incremental revenue generated at the very, you know, at the very beginning of next year. Otherwise, you know, all of the other initiatives have already basically been turned on. I just think the impact is something that phases in. I mean, when we bought, you know, Transtar, I think they had, you know, between 10 and 15 third-party customers. We already have north of 30 third-party customers, and so we're already seeing some good progress on that front. Our goal is to have, you know, 50-60 third-party customers as we enter 2023. We staffed up that operation, the commercial, you know, function within the company and expect to continue to see good progress on that front.
That's great. Shifting over to Long Ridge, it's great to see, you know, the power plant running at 100% capacity in the third quarter and, you know, stepping up EBITDA significantly to $11.3 million. I'd be curious what needs to happen to get the run rate closer to the $15 million a quarter or $60 million on an annualized basis for the power plant.
Yeah, the way to think about, you know, Long Ridge is, you know, we generate revenue two ways, power sales and gas sales. The $15 million is a combination of those two things. To achieve the $15 million, we typically would like to produce about 10,000 MMBtu per day of excess gas for sale into the market. During the third quarter, we produced about 3,000 MMBtu of excess gas. It accelerated as we made our way through the quarter, and as of today, I think we're producing about 82,000-83,000 total MMBtu, almost 10,000 MMBtu in excess of what we need. That's a good thing. On the power sales, we generate revenue actually also two ways.
One is from the specific sale of power under our long-term contracts, and the other is through capacity payments that we receive. The capacity auction this year, as some people may know, it came in at lower pricing than we had all originally expected. Historical pricing on capacity auctions for making your power plant available to provide power to the grid, you know, have ranged anywhere between $120-$150 per megawatt-day. This year, they're at $35 per megawatt-day. That equates to about $15 million-$20 million in the aggregate of revenue that, you know, we hope to get back when capacity auctions normalize next year and in the coming years.
For this year, you know, we are gonna see lower capacity revenue, and so some of that was reflected in the third quarter as well.
That's great. Pivoting over to the natural gas assets and the development there. You point out the $15 million monthly EBITDA potential once you're fully rolled out to 150,000 MMBtu per day, which is in 2024, and that comes out to about $180 million a year if you were to annualize that. I'm curious about kind of two different things. When we think about the near term objective of 50,000 MMBtu per day in July of 2023, is it fair to assume that you guys would be roughly around like $5 million monthly on that number? Or are there some overhead costs that would pull that down?
As sort of an aside, I'm curious about how much debt you think you'd need to raise to fund the overall project there on this.
Yeah. Yep, thanks. Good questions. Yes, that's correct. It's a pretty straight relationship between the amount of gas we produce and the incremental EBITDA. The you know, at 50,000 MMBtu, that would be about $5 million a month. At 150,000 MMBtu, it would be at $15 million a month. Look, the acquisition of those gas assets, and that was a big deal. You know, one, we acquired a substantial supply of additional gas for the power plant. More importantly, you know, we have a lot more gas to access to sell into the market, and we continue to produce gas at, you know, $1.30, $1.40 in MMBtu.
At today's gas prices, which you know have been down over the past few weeks, that's still a tremendous, you know, profit potential. To commence development, you know, there's some upfront CapEx that's required. I'm gonna give you a range in terms of the capital. It's about $150 million-$250 million to really get that going, and get to a steady state of producing, you know, sort of midpoint of the 50 to 150 thousand MMBtu per day. That can all be debt-financed. We are in the process of arranging the debt capital at the Long Ridge level, not at FIP, but down at Long Ridge. We're discussing, you know, terms and negotiating with lenders.
I think we'll have that debt in place, you know, prior to year-end, or at least the commitments in place. It takes some time to set up, you know, the first well. We expect to be producing gas, we've right now targeted July first. We hope to beat that, but yeah, that will be a significant adder to revenue and EBITDA, you know, at Long Ridge, starting in, you know, in full force in the third quarter of next year.
That's great. One thing I, you know, just a very quick note on that. When we're talking about the $15 million, that's $15 million. I think the natural gas initiatives are 100% owned as opposed to the power plant that's 50% owned. Is that correct?
No, these will be financed in Long Ridge, they will also be 50% owned. The debt will be issued in the Long Ridge entity that we own 50% of, we would own 50% of that gas.
Got it. That makes sense. Very helpful. Just the last topic on Jefferson. I'd be curious about the impact and the relevance of Exxon terming out the rail to Mexico contract, and if that has a contribution, you know, an additional contribution to EBITDA. The second part to that is, you know, with the first Exxon contract that's supposed to go live, you know, roughly around the end of the year, that gets you around 40%, and you guys are looking at kind of expanding to 90%, which is more than double that.
I'd be curious kind of how you think about the walk and kind of what would drive your volume, you know, running from 40% to 90%, you know, over the next, you know, few quarters.
Yep. No, I appreciate it. The renewed contract is just continued great validation. Obviously, we have a great partnership with Exxon. A new five-year contract with minimum volumes. We're thrilled with the outcome. Yes, there is some incremental EBITDA from the terms of the old contract to the new contract. It's mostly pricing related. There are some price escalators in the new contract, so we'll see some incremental EBITDA. That contract will probably provide just north of $1 million of EBITDA a month. It provides a little less than $1 million of EBITDA a month currently. In terms of the ramp-up of the business, yes, you said it right. You know, we view that as a great opportunity.
We have, you know, we have the ability to double throughput with no need to build more assets and invest more capital. Look, I think there's a long list of opportunities to continue to increase throughput, and it's a momentum game. You know, the relationship with Exxon and Motiva, who are two, you know, core, you know, customers, continues to get better. Exxon, of course, is expanding their refinery in Beaumont, Texas, doubling consumption and output. Both input and output are increasing by 300,000 barrels per day. You've got, you know, the total of 600,000 barrels per day of product.
Even if we only get a small share of that additional volume, that would soak up a significant amount of the, you know, 50% opportunity that you referenced and we referenced in that bar chart, you know, in the Jefferson slides. Obviously, we're in a dialogue with a number of other folks, other refineries in the Beaumont-Port Arthur area. The yellow wax crude movements continue to increase, you know, at a point where we're in the low teens of yellow wax crude trains, you know, per month. That's a good thing. We expect that to continue to be strong, steady at a minimum, and hopefully continue to grow.
Finally, you know, all of the clean fuels, I mean, there's a significant, you know, continued push on whether it's hydrogen-based fuels or renewable fuels. You know, the government passing a series of incentives for the production of renewable fuels and clean hydrogen, you know, only increases the tailwind to us. We're in a dialogue with a number of parties about either the construction of facilities or otherwise just transloading renewable diesel, sustainable aviation fuel, and things like ammonia and other hydrogen-based products. Look, I think there's a long list of opportunities. That's what we need. The team at Jefferson is doing a great job executing. As we make our way into 2023, I think we're well-positioned to continue to win a lot of business.
That's fair. I just have one clarifying question just to make sure I heard you correctly, and then I've asked all my questions, so I'll jump out, you know, back into the queue after this. Will, I think about the $15 million of EBITDA from the natural gas initiatives, that's at the asset level, so you would get roughly half of that on an FIP basis. Is that the right way to think of that?
That's correct.
Awesome. Thank you very much. That was obviously last question, so I'll jump back in the queue. Thank you. Congrats on your first quarter out of the gate.
Please stand by for our next question. Our next question comes from Sherif El-Maghrabi with BTIG. Your line is now open.
Good morning. Thanks for taking my questions. You talked about the projects being fully funded. I'm just wondering how we should think about maintenance CapEx across the segments going forward?
Very low. I mean, Transtar maintenance CapEx is effectively zero, in that, you know, non-core asset sale proceeds offset maintenance CapEx. In the absence, Transtar's maintenance CapEx would be, you know, $5 million or $6 million or so. But we generate, you know, that amount in cash flow from non-core assets, and so it's nil. Jefferson, you know, the assets are very, very new, and so it's another maybe $5 million of maintenance CapEx at Jefferson. Most of the maintenance capital at Long Ridge is already, you know, paid for and warrantied, so when we take any kind of a maintenance outage, any parts replacement or what have you are, you know, already, you know, paid for. Also, you know, it's brand new. And then finally, Repauno, you know, again, similarly, you know, brand new.
Our one storage facility is an underground cavern. It requires zero maintenance. That's the beauty of where we are in the development stage of a lot of these companies. They're so young that we just don't have a tremendous amount of maintenance capital, and we don't envision having much for the years, certainly for the near years to come, next 2 to 3 years. I would say average maintenance capital for the assets today that are in place in the aggregate is probably $5 million.
All right. That's helpful. Thank you. Then for the Clean Planet JV, are you aware if anything like the sustainable aviation fuel will be eligible for tax credits under the Inflation Reduction Act, and can you quantify what that might look like?
It is. You know, one of the things we like about Clean Planet, though, is its business model doesn't rely on incentives and tax credits and what have you. You know, what a lot of these companies do is they ship their product out to California to obtain Low Carbon Fuel Standard credits and what have you. We don't have to do that at Clean Planet, so we're just gonna supply the local market with the product. We are eligible for some credits. You know, the way to think about the Clean Planet business model is these facilities are built slightly smaller because they need to be regionally positioned. You know, the business involves aggregating waste plastics and then processing it into sustainable aviation fuel.
You wanna build these facilities close to population centers where the waste plastics are. Philadelphia is a great market for that. We've also got, you know, the Delta Air Lines refinery right around the corner from us, across the river. You know, we've got a great counterparty for producing sustainable aviation fuel. Each facility costs about $50 million to build, and they are entirely eligible for tax-exempt financing. You know, the costs can be, you know, leveraged materially. Without any incentives, each facility makes, at today's pricing of SAF and renewable diesel, about $15 million of EBITDA. That is a rare, you know, species in the clean fuel space, finding things that generate that kind of profitability without any incentives.
The simple reason for that is the plastic supply is free. It's a waste product and otherwise needs to be disposed in landfills, and the collection companies and the waste management companies have to pay to landfill the product, so they'd be much more happy to just give it to us for free. In Philadelphia, we have three deals already with for supply, and we've managed the supply, you know, side of things, and that's frankly the most complicated part of the business. You know, $15 million off of a $50 million investment, that is before any incentives. The incentives are helpful. They're another $1 million-$2 million of EBITDA. The incentives are more potent in the hydrogen space. That was a very big, you know, boost for production of clean hydrogen.
The Clean Planet business doesn't involve hydrogen. It is, you know, a slightly more, you know, straightforward process. The incentives aren't quite as compelling, but they're still, you know, meaningful. Yes, of course, we'll be eligible to obtain those credits.
Great. That's it for me. Thank you very much.
At this time, there are no further questions. I would now like to turn the conference back to Alan Andreini for closing remarks.
Thank you all for participating in today's conference call. We look forward to updating you after Q4.
This concludes today's conference call. Thank you for participating. You may now disconnect.