Stabilis ‘Bullish’ on Mexico, but ‘Thoughtful’ on Approach

Houston-based Stabilis Solutions Inc. reported record revenue last year, and in the fourth quarter bested the number of liquefied natural gas (LNG) volumes to customers with “broad-based increases” in Mexico.

The Mexico business “continued to grow and mature in 2021 and was responsible for approximately 14% of total revenues,” executives said in a fourth quarter earnings call.

Stabilis in recent years had touted the potential for Mexico to be a large growth market ripe for expansion for small-scale suppliers. The company had several potential projects and agreements for Mexico in 2020, building on 2019 acquisitions of LNG marketer and distributor Diversenergy LLC, and a joint venture with CryoMex Investment Group LLC.

CEO Westervelt Ballard Jr. said the potential for Mexico as a lucrative market has not changed, but plans to expand outside the United States were likely on hold for the near future.

He is still “bullish on Mexico and international business.” However, the current global economic pressures from the invasion of Ukraine means Stabilis should be strategic about taking on the regulatory hurdles and related infrastructure costs that come with international expansion.

“I like Mexico. I think there is a future for Stabilis in Mexico, but I just want to make sure we are thoughtful on our approach given our size and scale,” Ballard said.

LNG Premium

Ballard said price premiums on LNG in 2021 helped lift the revenue through the year, but equally high transportation and labor costs gradually tanked its margins.

“We were late to react to inflationary headwinds last year,” Ballard said.

However, a fleet of restructuring and pricing initiatives helped “reverse” those impacts and a stronger return would start being reflected in the earnings early this year. With expectations that commodities and costs will continue to spike from the Russian conflict, the company is trying to buffer market uncertainty with better strategies.

Executives gave indications that other parts of the United States could be on their radar for future investment. The company estimated its aggregate capacity at liquefaction facilities in George West, TX, and Louisiana is about 130,000 gallons/day. Ballard said his best expectations assume Stabilis will eventually hit a limit on capacity at its current rate, which is why it is on the lookout for expansion opportunities.

Those plans could consist of a combination of build outs, new projects or acquisitions, depending on the opportunity.

“Certainly, we have a keen interest in delivering bunkering services along the Gulf Coast, and those are advancing, but this is more of a United States play than a Gulf of Mexico play,” Ballard said.

‘15-year Earnings Play’

Ballard said Stabilis is expecting large returns from the growth of LNG demand from the maritime industry and in aerospace, two unique sectors with different challenges that he believes can be met with economic and reliable supplies of the super-chilled gas.

Stabilis has been pursuing a build up of future bunkering facilities across the Gulf Coast, signing multiple memorandums of understanding with ports and business partners throughout 2021.

Ballard said the development in fuel shortages and more regulation for the maritime industry over the last year means ship bunkering is “rapidly escalating” as a business. He estimated that fuel alternatives to oil represent 12% of ship builds, and half of those orders would create ships that use LNG.

By the second quarter, he said Stabilis expects to start announcing more bunkering initiatives and traction for earnings growth it will build on for several years.
“This is a 10- or 15-year earnings play for us with pretty hyperbolic scalability,” Ballard said.

Most of the concentration for fuel bunkering is outside of the United States, but Stabilis expects the U.S. natural gas supply could expand its position as a future bunkering hub.

Stabilis is also looking toward future gains as a supplier to both public and private space exploration missions.
Ballard said the spike in private interest in aerospace has sparked a race to reduce launch costs and fuel reliability, making LNG the increasingly preferred fuel. He said Stabilis is working on becoming a supplier of the fuel for launches and for secondary vehicles or lab research.

The LNG segment netted Stabilis $20.9 million in revenues in 4Q2021, a 73% increase over the prior-year quarter. The segment accounted for the bulk of the overall revenues in 2021, which increased 91% year/year to $20.9 million.

Stabilis posted a 4Q2021 net loss of $2.3 million (minus 13 cents/share) compared with a net loss of $100,000 (minus 1 cent) in 4Q2020. It posted a 2021 full-year loss of $7.8 million (minus 45 cents/share) compared with a net loss of $6.8 million (minus 40 cents) in 2020.