Enerflex Ltd. Updates on EH Cryo Project in Kurdistan

Enerflex Ltd. Offers Key Updates on EH Cryo Project

CALGARY, Alberta – Enerflex Ltd. (TSX: EFX) (NYSE: EFXT) has provided a noteworthy update regarding its modularized cryogenic natural gas processing facility located in Kurdistan, referred to as the EH Cryo project. The situation has evolved, impacting the project's future significantly.

Project Suspension and Contract Termination

In the second quarter of 2024, Enerflex made the difficult decision to suspend operations at the EH Cryo project due to a tragic drone attack at a nearby facility. This incident led to the demobilization of Enerflex’s personnel, prompting the Company to issue a notice of Force Majeure to its customer. The ongoing conditions and inability to meet contract obligations have compelled Enerflex to formally terminate the agreement with its client.

Understanding the Arbitration Process

Following the termination, Enerflex’s customer has initiated arbitration proceedings, putting forth certain claims that Enerflex deems to be baseless. The Company plans to vigorously contest these claims while also pursuing recovery of any outstanding amounts related to the EH Cryo project. As of the end of the third quarter of 2024, the project’s net asset position stood at a substantial $161 million.

Financial Implications of Project Termination

Following the project's termination, approximately $75 million worth of work previously included in the Company’s Engineered Systems (ES) backlog will likely be reversed in the fourth quarter of 2024. Despite hopes for revenue from the EH Cryo project contributing minimally to gross margins, the decision to terminate has led to a reassessment of future projections.

Financial Security Considerations

Since the project's initiation, Enerflex has maintained a $31 million letter of credit to uphold obligations tied to the project. The Company considers any potential drawing on this financial security under the existing circumstances as inappropriate, as it would increase the amount owed by the customer. Furthermore, such a drawing is not anticipated to significantly affect Enerflex's financial standing, which is illustrated by the $588 million available for future draws at the end of Q3 2024.

About Enerflex

Enerflex operates as a leading global provider dedicated to delivering comprehensive energy infrastructure and energy transition solutions. The Company offers a range of services, from modularized products to integrated solutions that focus on natural gas, low-carbon technologies, and treated water solutions. Enerflex prides itself on its team of over 4,600 skilled professionals united by a mission to transform energy for a sustainable future.

Market Presence and Future Outlook

Trading on the Toronto Stock Exchange and the New York Stock Exchange under the symbols EFX and EFXT respectively, Enerflex continues to prioritize sustainability initiatives alongside the importance of natural gas in the energy sector. It remains committed to navigating the challenges ahead while advocating for eco-friendly practices.

Frequently Asked Questions

What led to the suspension of the EH Cryo project?

The EH Cryo project was suspended due to a fatal drone attack at a nearby facility, which raised safety and operational concerns.

What are the financial implications for Enerflex after terminating the EH Cryo project?

Enerflex anticipates reversing approximately $75 million from its ES backlog, though it does not expect significant negative impacts on its overall financial position.

How does Enerflex plan to address the arbitration initiated by its customer?

Enerflex intends to vigorously dispute the baseless claims made during arbitration and seek to recover outstanding amounts associated with the project.

What is Enerflex's market strategy moving forward?

Enerflex aims to balance its focus on energy transition solutions while ensuring the continued role of natural gas in the energy mix.

Who can be contacted for investor or media inquiries regarding Enerflex?

For inquiries, Marc Rossiter (CEO), Preet S. Dhindsa (CFO), and Jeff Fetterly (VP of Investor Relations) can be reached via provided emails.

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