Golar Lng Ltd Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Golar LNG Limited Q3 2020 Results Presentation Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I must advise you that this conference is being recorded today, Monday, November 30, 2020. I would now like to hand the conference over to your speaker today, Golar CEO, Mr. Iain Ross. Thank you, and please go ahead.

Thank you, operator. Good morning, good afternoon, everyone. Welcome to the Golar LNG Q3 2020 results presentation. My name is Iain Ross, and I am the CEO of Golar LNG. Today, I'm joined on the line by CFO, Karl Fredrik Staubo, replacing Callum Mitchell-Thomson, who has resigned from his position due to personal reasons. We'd like to thank Callum for his contribution to Golar. We're also pleased to have Eduardo Maranhão, CFO of Hygo, and Tor Olav Trøim, Chairman of both Golar LNG and Hygo, with us today. And as usual, we also have Stuart Buchanan, Head of Investor Relations on the call. I'd like to draw your attention to the forward-looking statement on Slide 1. And if we turn to Slide 4, let me give you some highlights before Karl takes you through the numbers in more detail. Today, we reported an adjusted EBITDA of $57 million and revenue of $95 million for the quarter, which is driven by a solid performance in FLNG and steady revenue in shipping. In shipping, we achieved overall time charter earnings of $39,000 per day, which is ahead of guidance, with the TFDEs earning just under $44,000 per day if you exclude drydock days. And we ended the quarter with a shipping revenue backlog of $198 million compared to $147 million at the end of Q3 2019. Our FSRU LNG Croatia conversion remains on track for handover to our customer, LNG Hrvatska, in December, at which time we expect to release $17 million in cash from the project and a further $30 million of cash in January next year. Our FLNG operations maintained 100% commercial uptime through the quarter. The FLNG Gimi force majeure event with BP has ended, resulting in the project schedule being extended by 11 months with no other changes to contractual terms. And in downstream, Paul Hanrahan has been appointed as the new CEO of Hygo Energy Transition, the new name for Golar Power. Fuel capacity payments were earned from the Sergipe Power Station and FSRU in Nanook, and more progress has been made towards our Barcarena Terminal FID. Turning to page five and an update on governance, which we take very seriously. The internal review that was instigated following the allegations against the former CEO of Hygo was completed with no findings of wrongdoing. The review has not identified any evidence establishing bribery or other corrupt conduct involving Hygo and confirmed solid corporate governance and compliance. Eduardo will go through this overall timeline and provide more detail on Hygo later in the presentation. So, more detail on the business segments to follow. Let me now hand over to Karl to take you through the numbers and more detail on financing. Thank you.

Thank you, Iain. I'm looking forward to taking on the role as CFO for Golar. My name is Karl Fredrik Staubo, and I will start by taking you through the summary results on Slide 6. Shipping TCE for the quarter came in at $39,100 per day, higher than our guidance of $35,000 a day and above Q3 of last year at $35,200. However, we were seasonally down from Q2 as expected. FLNG Hilli continued its solid and stable operations with 100% utilization and earnings in line with Q2. Net loss for the quarter ended at $22 million. We reported a cash position for the quarter of $177 million, of which $100 million is restricted cash related to our letter of credit on the FLNG Hilli and consolidated VIE cash balances related to our sale and leaseback financed vessels. The unrestricted cash position for the quarter of $77 million was negatively impacted by $17 million due to having to equity fund Gimi CapEx during the BP FM event. Following the end of the force majeure event, the draw stop under our $700 million facility available during construction has been lifted, and we have made a $75 million draw, which has replaced the $17 million of equity CapEx, increasing our liquidity post-quarter end. This realigns the drawdown ratios to the original debt equity funding ratios. Adjusting for this equity CapEx installment, our cash position for the quarter would have been $94 million. Adjusted EBITDA for the quarter came in at $57 million, a beat against consensus at $53.4 million, driven by higher-than-expected shipping rates. Turning to Slide 7 and adjusted EBITDA development. Quarter-over-quarter, our EBITDA was down by approximately $10 million from $67 million in Q2 to $57 million in Q3, primarily driven by seasonally lower shipping rates, which went from $45,000 a day in Q2 to $39,000 a day, as mentioned. We also faced COVID-19-related closures of the shipyard, where the Golar Tundra was being dry-docked, resulting in significant unscheduled off-hire during the quarter, contributing to the net reduction in our fleet utilization from 93% in Q2 to 80% in Q3. As expected, vessel operating expenses at $28.2 million were higher than those at Q2, which came in at $24 million. The $4 million increase was mainly due to catch-up repairs and maintenance carried out following the lifting of COVID restrictions. As for our trailing last 12 months EBITDA, we are up from $283 million a year ago to $294 million last trailing month, mainly driven by the increase in our achieved shipping rates. Turning to Slide 8 and our corporate financing. We have two corporate facilities maturing before year-end: a $150 million corporate facility secured against our Hygo shareholding and a $30 million margin loan on our shareholding in Golar Partners. To address these upcoming maturities, we have entered into a $100 million committed corporate debt facility secured by our Hygo shares. This will be withdrawable at the maturity of the $150 million facility. Furthermore, we are in advanced discussions for an incremental $125 million corporate credit facility drawable upon Hygo's IPO. Other key financing events that will increase our available liquidity include contractual drawdown on the Golar Bear facility of an incremental $10 million, targeted in January 2021. As Iain explained, the acceptance and delivery of the Golar Viking project converted to an FSRU, and on its way to acceptance to LNG Croatia will free up net liquidity of $47 million between December 2020 and January 2021. We've also received term sheets for opportunistic refinancing of the vessel, Golar Frost, and a potential renewal of the maturing DMLT margin loan, which combined can raise $70 million in liquidity for Golar. The net potential liquidity effect, if we draw on all of these facilities, will be an incremental $172 million in liquidity after repaying the maturing $180 million of corporate debt. So, we're comfortable with the liquidity situation, assuming we draw on all these facilities, and we think that will create significant flexibility to continue the growth of the company. Turning to slide nine, we have an update on our FLNG Gimi conversion funding sources. We have, as Iain alluded to, extended the agreement with BP to extend the project by 11 months. That is expected to come in at an incremental construction cost of $36 million. Furthermore, we have shifted some of the CapEx to later in the construction period to benefit near-term liquidity. For next year, the reduction is $7 million in equity requirements before we increase in 2022 and 2023, so we have pushed the installments slightly out. We're also happy that the increase in the construction CapEx is not more than the $36 million that we plan to be the total increase in construction costs, and we worked hard with our subcontractors to ensure that the increase in costs is not greater, given the 11-month delay. That concludes it for the financing section, and I'll now hand over to Iain to run through the shipping section.

Thank you, Karl. Turning to slide 11, in shipping, the quarter commenced with JKM at around $2.15/mmbtu and quoted TFDE headline spot rates of around $30,000 a day. Seasonal upswing was slower than usual due to a combination of around 120 U.S. cargo cancellations over the summer, higher than normal European storage levels, and weather-related supply interruptions which continued into early September. As production resumed late Q3, the shipping rates resumed their seasonal upswing albeit later and lower than last year. The quarter ended with JKM at around $5.15 per mmbtu and quoted TFDE headline rates of around $59,000 a day. Subsequent to that, we have seen JKM above $7.00 in spot rates, briefly above $100,000 for single voyages before dropping back. Our shipping strategy and our focus on utilization are serving us well. Q3 utilization of 80% is significantly up on Q3 2019. Our TCE of $39k for the quarter was above guidance and was, as Karl mentioned, also adversely affected by the Tundra being in dry dock for much longer than planned due to that COVID shutdown in Singapore, and this will spill over into the early part of Q4. The vessel is, of course, now out of dry dock. Additionally, we've built a $123 million shipping backlog this quarter, which you can see on slide 12. Utilization going into 2021 is strong, with about two-thirds of 2021 fleet days already backed by contract, and whilst we may sacrifice a little of the upside during the winter months, we expect to more than make up for this during the rest of the year, and we're anticipating a TCE of around $50,000 a day for Q4. As LNG prices cycle up and as mentioned, we did see JKM over $7 over the last few weeks, the prospect of FLNG development starts to become more interesting. So, let's now have a look at FLNG in slide 14. Hilli performed well in the quarter with 100% commercial uptime as Karl noted, and she has offloaded the 47th cargo. The annual two-week maintenance shutdown was completed without incident during the quarter, which I think deserves a mention because of the COVID constraints that the team operated under during that time. We agreed an amendment to the LTA with Perenco and SNH which essentially does two things for us. Firstly, it removes the 500bcf cap on the contract volume, converting the contract to an eight-year fixed-duration deal, and secondly, it allows us to invoice for any overproduction during a calendar year, which will amount to around $5 million with overproduction to the end of last year. We expect the agreement to be formalized in due course, and our discussions with Perenco and LNG production volume increased, which is enabled with that amendment within the remaining contract, continue in the right direction, and we anticipate that Perenco will start its well campaign before the end of Q1 next year in order to prove up the additional reserves to potentially increase utilization of Hilli. Should we reach an agreement with Perenco, there will likely be a new risk-aligned tariff payment for that portion of additional volumes rather than a fixed tariff. Turning to slide 15, on FLNG Gimi, we concluded the FM issue with BP, as Karl mentioned, which has resulted in a delay in commercial operations of 11 months, but importantly, all other aspects of the contract remain the same, and the impact on the overall budget is minimal, and the financing milestones have been restructured as Karl described. On the project in Singapore, our contractors have ramped up to over 2,400 people working under COVID restrictions and getting on with the project. We expect the next dry dock, which will include attaching parts to the large sponsons to the hull, to go ahead before the year-end. On the FLNG business development pipeline, we've experienced a material uplift in the level of interest in FLNG with a number of new inquiries during the quarter. The nine opportunities currently being discussed with financially strong counterparties are geographically spread, including potential deployments in West Africa, Asia, the Mediterranean, and the Americas. We're in active engagement on both conversion and new build options, and remain convinced of not only the commercial and schedule benefits of our design but increasingly of the competitive carbon footprint of our offering. Clearly, we're focused on delivering Gimi right now, but these deals do take time to put together. I'd like to think that this potential for good convergence between opportunity is being ready for FID, possibly maybe in 2022, with our availability to put together a financing package for the projects. With that, can I hand over to Eduardo Maranhão to take you through the details on Hygo?

Thank you very much, Iain, and good morning, ladies and gentlemen. So, switching to slide 18, I just wanted to give a brief recap of the major events that took place over the past eight weeks. At the end of September, our IPO efforts were put on hold as a result of allegations involving our former CEO for actions predating his work at Hygo. Immediately after that, our Board of Directors engaged with external legal and accounting advisors in order to conduct a detailed internal review of the company's procedures and existing compliance policies. The final outcome of this review has been delivered at the end of October and has not identified any evidence establishing improper or other corrupt conduct involving Hygo or its executives and confirms solid corporate governance and compliance. Also in September, our existing power station at Sergipe faced issues with one of its four step-up transformers, which temporarily reduced the available generating capacity from 1.5 gigawatts to 1 gigawatt until the end of the second quarter of 2021 when a replacement transformer is expected to be installed. We maintain business interruption insurance cover in place, and we do not expect material financial impact from this event. Also in September, on September 30, Hygo was the only qualified bidder to present a valid offer in the official tender to take over the Bahia terminal from Petrobras. Petrobras subsequently increased Hygo's perceived integrity risk, leading to a temporary disqualification of its bid. We have then appealed this decision and now expect a final outcome from Petrobras before the end of the year. In October, Paul Hanrahan was appointed as our new chief executive officer. As the former CEO of AES Corporation, Paul brings extensive experience in international business development in emerging markets and has the right skill sets to lead our growth prospects. We remain fully committed to the development of our terminal in Barcarena, and after our mutual decision to terminate the existing MoU with Norsk Hydro, we have entered into a new agreement with a state-owned gas distribution company of the Pará state, Gás do Pará, with the goal to supply the existing regional demand for cleaner fuels. In November, we reached an important milestone in the development of the Barcarena terminal when the Brazilian authorities granted us a final authorization called Outorga to build the 605-megawatt power station and associated LNG terminal. As of last week, we have also been shortlisted in the open season tender to supply large natural gas volumes to Copergas, the state-owned gas distribution company of the State of Pernambuco, which has as its shareholders the State of Pernambuco itself, Mitsui, and Petrobras. This is a fundamental commercial initiative to accelerate the development of our terminal in Suape. As seen above, we strongly believe that our ability to develop large-scale projects and enter into long-term partnerships in Brazil remains unchanged. With our network of strategically located terminals and critical downstream infrastructure, we'll continue our mission to deliver cheaper and cleaner energy to this huge market. If I may switch to slide no. 19, the idea would be to give an update on some of the developments in our small-scale LNG business. We continue to execute on our strategy. The first batches of equipment, including ISO containers, mobile regas units, and gas filling stations have arrived in Brazil, and much more are expected in the coming weeks. We have now over 100 ISO containers in the country. In order to supply our first volumes, we have partnered with Galileo to build small liquefaction units in the states of Bahia and São Paulo. Hygo will be the first company to deliver bio-LNG in the country by using biomethane from an existing landfill in São Paulo and transforming it into LNG. In the south of Brazil, we are also building our strategic distribution hub in the city of Uruguaiana, which will allow us to supply the existing demand of this important region, including the states of Rio Grande do Sul, Santa Catarina, and Paraná. If I may switch to slide 20, I also wanted to give an overview of the general update on some of the terminals that we have been developing in Brazil. I wanted to highlight the significant milestones that we have achieved in the Barcarena terminal. Based on those, we believe that we could be in a position to take a final investment decision in the next couple of months. I would like to highlight, for example, the issuance of the installation license for the construction of the LNG terminal and associated facilities for the power plant. We have also been awarded the long-term port concession by CDP for the use of the existing facilities in the Vila do Conde Port in the city of Barcarena. We have also received binding EPC proposals for the construction of the 605-megawatt power station from leading international suppliers. Moving over to Suape, we have also made significant progress over the past quarter. Subject to the receipt of final installation permits, we could also expect the final investment decision in the next couple of months, and upon the arrival of the first veneer vessel expected for next year, Suape is positioned to be the leading distribution center of LNG in Brazil. Our terminal in Santa Catarina is also coming together; preliminary environmental licenses and approvals from both UNTAC and SPU have been obtained, and FID is expected before the end of next year. Lastly, when it comes to Bahia, although we cannot guarantee the outcome of Petrobras's decision, we are confident that our proposed approach is the best solution to address all the commitments made, which also align with the government's efforts to provide cheaper and reliable gas supply to the local Brazilian market. So, considering the development of all our terminals, Hygo could be in a position to deliver over 25 million tons of LNG in Brazil in 2022.

Thanks, Eduardo. If we turn now to slide 21 and our ESG progress, I can highlight a couple of items. Firstly, the carrier fleet achieved best ever fuel efficiency during the quarter, resulting in lower CO2 emissions. The other point that's new is our recently announced partnership with Black & Veatch, under which we will be jointly exploring opportunities to manage some of the processes and activities related to the hydrogen economy. The initial focus will be on two areas: firstly, CO2 management, so capture, storage, and transport initially from the LNG supply chain, but equally it could be from other industrial users; and secondly, floating production of Blue Ammonia, which is ammonia produced using methane while capturing the carbon from the exhaust stream. These two focus areas are clearly related, but there may well be separate market opportunities evolving from this work. Early days, but it does look interesting. So summarizing our priorities on slide 22, we will focus on opportunistic upside now that the majority of the shipping fleet is on term charter. In FLNG, our focus is to deliver Gimi safely, on time, on budget, and continue progress on our discussions for potential expansion of Hilli plus development of our new build Mark III opportunities. In downstream, we have a global focus on reaching FID on the terminal, as Eduardo has said at Barcarena, building the business in Brazil, and pursuing international opportunities, while focusing on concluding the refinancing activities that Karl discussed. Lastly, we’ll complete our budget cycle to confirm a sustainable reduction in G&A and then get back to the simplification of the Golar group structure. I am pleased now to hand over to Golar Chairman, Tor Olav Trøim, for some remarks prior to Q&A.

Thanks, Iain. I think I was on this call a year ago giving you a little bit of reflections from the Board. I want to do it again particularly in this situation we have been through in the last couple of months. This year marks 20 years since we went to Singapore and both the company, which at that time was called Offspring, we ended up with details and knowledge about how to operate ships. We've sent compressed natural gas in 1,600th of the volume, creating down to 167 degrees Celsius and we told them it was a pretty cool business in all possible ways. The vision we had when we bought the company was that LNG was an interesting energy coming forward. At that time, nobody talked about CO2 and pollution; renewable business was extremely small. The reason we liked the opportunity that you could transport large volumes of energy from one part of the world to another part of the world, because we noticed that the energy and gas prices were very different in different countries. Poor countries with high growth in population typically have high power prices and pay too much for power effectively. LNG created a kind of bridge from cheap gas reserves to high gas price power markets, but we were far, far too early. It actually took 15 years for gas to control LNG production, and then LNG became a commodity. In the meantime, the production cost per terminal for LNG production came down, and LNG became cheaper. Golar was a pioneer in this business converting the existing terminal and also delivering the first successful FLNG investment. The FLNG investment we have working today is producing gas with all devices that would have been flared or re-injected. For me, that's sustainable value creation. The focus the world has today on CO2 reduction has created a new world, at least in part of the world; it's important to know that 85% of all energy in the world is still produced from hydrocarbons. For the next 20 to 30 years, hydrocarbons will produce a significant part of the world's energy. If in alumina refineries in Brazil replace heavy fuel plants with LNG, they can save 750,000 tons of CO2 while saving significant energy costs and it looks like a very easy decision to make. For the developing world, energy affordability is their way out of poverty. When you come to Delhi, you understand that pollution is what the politicians are focused on. They take what they can get for the money they have. The good news is that the new technology is making LNG cheaper; if some of you traded LNG at less than $2 per mmbtu, which is $10 oil, you're cutting 30% of CO2 emissions, you're cutting 70% of the particle emissions, and you're cutting 100% of the SOX. If you can convert anything to LNG, you have something healthy and something cheap, and you have a growth commodity. It is a commodity that grows 10% a year. There is not a mining company in the world today that wouldn't think about switching to LNG. Every day you're reading stories about shipping companies building massive container vessels, smaller boat carriers, whatever they may be, converting it to LNG. They do it because it's cheaper, it's cleaner, they expect a carbon tax to hit them, and they're also doing it due to the fact that the global distribution infrastructure for LNG is now coming together. In China, imports during a COVID year are up more than 12%. Last month, they were up 25%. They were down 450,000 trucks working on LNG in that country, and that's the second leg of energy transformation, the transformation from coal to LNG. In India, they just announced last week that they are going to build a massive infrastructure for LNG, including 1,000 petrol stations. I'm proud of the team that has delivered under Iain's stewardship. Technically, they are as good as you can get. I'm proud when companies like Exane and BP come to stay in our offices for several years to learn about LNG technology. I'm proud of the work done by the shipping team to reduce the risk in our shipping portfolio and build relationships with solid partners. I'm proud when I meet the owner-operator of a private oil company who produce 485,000 barrels. I meet the guys who are extremely thankful for what we have delivered together. I'm proud of the fact that the people in Brazil, over the last year, built a pipeline in the fifth-largest nation in the world that might in three years pick up Petrobras's LNG. I'm proud that they know, in a couple of weeks, they will produce biofuels, fueling trucks from landfill status of power, and I'd be working exclusively with the biggest petrol distribution in Brazil. What I'm not so proud of is the way we have financed the market in this company. We have a lot to learn from some of our other competitors. We trade close to 100 Times Book; we're trading at 60% of book value, building power stations, LNG costing more than a billion, and it takes four years before you see the revenues. You need a strong liquidity buffer; and even if the board and management know that we have flexibility in our balance sheet to sort out this financing, investors shouldn't have to concern themselves with short-term liquidity events. Their focus should be on the 20-year cash flow coming towards them and the opportunity that provides for stable long-term dividend yields. As Chairman of the company, I take main responsibility for the fact that too much time has been spent on these matters, but when you have values, you have liquidity, you can get financing, you can borrow on your house when you know you have it rented out for the next 25 years, and you can balance the amortization of that bank loan with your rental income and still have money left over. That's the flexibility we have. With Hygo's save based on the price range will have a value of 900 plus, or Gimi, with a 10 times multiple is worth $2.3 billion. There is significant borrowing capacity. Let me finish with some thoughts on the recent events. It's sad that Callum Mitchell-Thomson decided to leave the company. We liked Callum both personally and professionally. He came with new perspectives. He came from the House of Lords and is going back to the political world. He decided to leave after six months based on personal life preferences, and he left the company with the nice gesture that he will always remain an enthusiastic supporter of Golar and the team. I'm pleased to say that his role has currently been taken over by Karl Staubo, who knows the company very well and who last week confirmed his ability to deliver attractive financing for the company. Let me also touch on the Brazilian events that have impacted us since September 23, when we were meant to price the Hygo bills. The book was covered. This led to the former CEO Eduardo Antonello, who was instrumental in building Hygo from day one and believed in the company. The accusation against Antonello was driven for actions that happened five years before he joined our company. From day one, the board of Hygo maintained that this investigation indicated no wrongdoing was done with Hygo. However, the board initiated an external review of the business; close to 50 people were involved over five weeks going through the company from A to Z, and no wrongdoing was found. It was four weeks of hell with a lot of sleepless nights for a lot of us, and I'm pleased to say that, even if you're still suffering from being drawn into something that should have never involved us, the business is getting back to normal. Subsequent to that event, a lot of new business has been concluded in Brazil, including being awarded critical installation licenses from Brazilian authorities. The deal with BR is progressing well and we expect, as Maranhão mentioned, to take FID on the Barcarena terminal prior to year-end. We are also making good progress on some of these national ventures. I'd like to thank our board member Paul Hanrahan for stepping in to take over the CEO role; Paul has successfully run a Fortune 500 company for 10 years, and certainly has the skill sets and energy to help us make Hygo into the industry leader in energy transition that we truly deserve to be. Both the Hygo board and the Board of Golar LNG are fully committed to complete the IPO process. The SEC documents have been updated with recent events and have been reviewed by auditors and lawyers but have not yet been filed. The timing of the IPO will be driven by market conditions, ongoing business operations, and business development activities. As a result of the delay of the Hygo IPO, Golar has been approached by industrial players expressing interest in different transactions involving Hygo and its assets. The boards of Golar and Hygo will consider these requests, but the main strategy remains to develop the company and its great potential as an independent company through an IPO. People today have extreme focus on new energy drivers like hydrogen, ammonia, and others. Golar, as Iain mentioned to you, is exploring this with a very credible engineering partner, Black & Veatch. We want to be an energy transformation company; however, I've learned one thing through my experience in LNG over 20 years: energy transformation takes time. Today, we are the only independent, truly integrated LNG company developing in Brazil. It's our vision to maximize the value of that strategic position over the next 10 to 20 years with a strong focus on building LNG infrastructure in emerging markets. We don't want to wait 20 to 30 years for costs to come down on hydrogen production, as it has with LNG over the last 20 years. We can find 25-year deals with energy majors, and with BP, we are generating around $6 billion in EBITDA loan backlog. Our target is to build such a platform that new financing instruments become available for us. This is linked with the increased EBITDA, which is already integrated into this company. We need to convert from project financing to corporate financing, and we need to simplify the complexity of the corporate structure, which is a clear target for the Board. We truly support the analysts' opinion that the value of this company is significantly higher than the current share price, and rest assured that the Board will do anything it can to materialize that differential. That might include direct distribution of assets, sale of assets, demerger, or whatever it takes to unveil the underlying value of this team. If we can deliver cheaper and cleaner LNG to the world and provide solid longer-term returns, I think we have a unique and great business model. Now it's time for all of us at Golar to convert a good business model and a great platform into solid returns for our shareholders who truly deserve it. We have work to do. Thank you.

Thanks, Tor Olav. And then with that, I'd like to now hand back to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Okay, our first question comes from the line of Ben Nolan from Stifel. Please ask your question.

Yes, good morning. First, let me say I appreciate the color that you gave on all of the various projects as it related to Hygo and all of the different various things you're doing in Brazil. I did want to ask first of all on you mentioning the Sergipe power plant had a transformer issue. Could you maybe talk through a little bit, and appreciating that it's covered by insurance, but could you maybe talk through a little bit what that might mean with respect to cash flows and earnings from Hygo from the business until it's resolved?

Sure. Hi, Ben, this is Eduardo here. So as I mentioned before, we expect that the transformer will be replaced by the end of the second quarter of next year. And until then, we continue to receive our capacity payments according to the PPA. So the capacity payments remain unchanged. As you may recall, we benefit from a 60-day notice whenever the power plant is called for dispatch. And in the event of the power plant being called for dispatch, we would have to compensate for the exposure between the current spot electricity prices and the prices that we are paid in the contract at the point in time. That exposure is covered by insurance, as mentioned before. So we do not expect a material impact in the event of not being called for dispatch. And in the event of being called for dispatch, we are covered by insurance for that.

Okay. Okay, that's helpful. And then secondly for me, just as it relates to the two-thirds of the shipping book that is now contracted for next year, and I appreciate that probably some of that is on a floating-rate basis. But is there any color that you might be able to give us on the type of rate that you've been able to secure for that two-thirds of the business for next year?

Hi, Ben, it's Iain. So you're right, we do have ships on index-linked charters. A couple of ships that potentially could be in the spot market, but the vast majority of the fleet is on a fixed-rate structure, some of it for up to a year and some of it for slightly longer. We're not guiding to longer-term TCEs. But I think it's fair to say that the structure we put in place and our focus on TCE is moving in the right direction. I think, directionally, we wouldn't want to be going backward from what we've achieved this year.

Okay. So better year-over-year, I guess, is how we should think about modeling it for that portion, yes?

At least as good as.

Okay. All right, perfect. Well, that’s my two questions. I'll turn it over. Thanks, guys.

Thank you.

Thank you. Your next question comes from the line of Mike Webber. Please ask your question.

Hey, good morning, guys. How are you?

Hey, Mike.

Hey, there's clearly a lot to discuss, but I'll start with Hygo. Tor, I know you've mentioned that this is a personal issue related to Callum. Can you confirm that his departure is not connected to what happened with Hygo this fall?

Yes.

Okay, good. And then regarding the review, I think…

I think I specifically said that we have been in contact with some of the biggest shareholders and expressed our feelings that it's not just related to that.

Okay. Yes, just the timing alone just kind of bears the question. But in terms of that review, I mean, it certainly seems like I know there was a pretty lengthy review in terms of digging into some of the details in Brazil pre-IPO and then certainly kind of post-IPO. Were you guys able to coordinate at all with Brazilian authorities? I'm trying to think about an eventual Hygo IPO, if you do go down that road, to what degree can you formally lift any potential overhang there? I guess, maybe the right way to ask that question is, has there been an ongoing dialogue with any of the authorities in Brazil with regard to the LNG business specifically? Or are they giving you any comments there, if you will?

Absolutely, Mike. So, hi, this is Eduardo here. As I mentioned during the presentation, we do not have any impediment to continue operating the business in Brazil. This has been clearly stated by the number of different transactions that we have entered into since all the events took place. So I can refer to MOUs that have been signed with the state-owned entities, and licenses and authorizations that have been granted by the federal government…

Those agreements were all finalized after the initial issues arose, so I'm uncertain if that data stream addresses my question. I'm simply inquiring whether you were able to coordinate with the authorities in Brazil regarding that independent review in any capacity.

Well, when it comes to the authorities, we have not been questioned or asked to provide any further explanation. The events that occurred with Antonello refer to him on a personal level and do not implicate the company in any way.

Sure. Just to shift gears, Tor, you mentioned something in your remarks that I believe we all suspected, which is that you would have been approached right away by interested parties about other strategic options for the Brazilian business, often seen as one of the most valuable assets in the energy transition space. You're in a unique situation since you were nearly finished with an IPO and then had to cancel it. Is the appropriate way to consider the valuation benchmark for assessing strategic interest the value you would have received from the IPO? Is that how you're viewing it, and how should we interpret whether someone could come in with a better offer? Is that the right perspective for deciding when to pursue other strategic transactions?

Yes, if you consider it that way, we had an IPO range of 1.8 to 2.1, but Golar and Stonepeak were not selling any shares; we were issuing primary shares. From that perspective, you might assume we believe the value could be higher and didn't factor in any lower price for these assets. We understand what is working, and we are likely continuing to build value. It was a challenging month, but I believe we are back on track now. I'm very pleased with the team, especially with Paul Hanrahan joining us and bringing in some colleagues he has previously worked with; they are doing an excellent job getting things underway. Regarding potential challenges, I think it will be very difficult for Norsk Hydro to develop their project with LNG without collaborating with Hygo, and they likely recognize that there are no alternatives for them. We've invested five years from the permitting stage to where we are now.

Got you. Let me sneak one more in here for Iain. You mentioned the Gimi and BP, and Kosmos recently downscaled for 2 million to 5 million tons, which implies there's a second FLNG unit that could potentially be in play there. Is that your understanding, and then where would that opportunity rank within those nine or 10 projects that you mentioned you guys are working on?

So, Mike, you know it's not our practice to comment on anything other than contracted work that we've enhanced and it's mentioned many times before and with specific reference to Gimi, any dealings that we have with BP do remain under strict NDA. But I do refer — as you've mentioned, BP's public statements on this subject will be no surprise for you to see that the cost structure of any future phase is important, and then, I'd simply repeat that our view that Golar's floating LNG solutions are cost, schedule, and carbon competitive, and we keep looking for opportunities to discuss our competitiveness with a large number of large and financial counterparties. I would say that speaking specifically and hypothetically about BP, our portfolio of potential FLNG customers is very heavily weighted to large companies that we can finance against, and that can lift projects particularly when you look at their ability to take the cargos themselves. Any company that has the characteristics of being able to sort out their own off-take and give us a good security package with which we can finance the project, then we're very, very interested in speaking to them.

I think Iain and the guys have done a great job selling this to the majors, and I think it's probably not the majors who are afraid of building another premiere. So, from that point of view, today is totally different from what it was three years ago.

Yes, it certainly seems that the opportunity set is actually kind of quietly expanding this product cycle; so, good to hear. I will turn it over. Thanks for your time, guys.

Cheers, Mike.

Thank you. Your next question comes from the line of Sean Morgan from Evercore. Please ask your question.

Hey, everyone. I have a question for Eduardo regarding the Bahia lease with Petrobras. I'm curious if the bid acceptance from Petrobras is still in progress and whether there are other competing bids out there, or if you're effectively the only one left in the running. Additionally, could you clarify what the recent ruling by the Brazilian Mines and Energy Administration regarding Bahia implies? Is Petrobras delaying the process because they're not very interested in leasing this asset, or are there other contractual or legal issues at play?

Hi. So, let me clarify here what exactly was the Bahia terminal tender. We were the only company which was qualified to present a commercial bid, and that took place on September 30th. We presented a commercial offer that met all the commercial, technical, and regulatory requirements posted by Petrobras. Just on the day after that, Petrobras, on the grounds of a perceived integrity risk for Hygo, disqualified Hygo from the process. However, we have remained the only ones that submitted a commercial offer. Based on that, we appealed against Petrobras's decision, and we continue to discuss a final outcome for that process. I'm not in a position to comment on the reasons behind Petrobras's decision, but we firmly believe that there were no reasonable grounds for disqualifying Hygo from the process.

Okay, and is Petrobras obligated to find a lessor for this facility at some point by the Brazilian state?

Yes, they are. As part of the commitment that was made towards the antitrust authority, Petrobras has the obligation to lease the terminal for a minimum period of three years, and that lease should take place in the next few months.

I have a question for Iain regarding the Hilli. Could you explain the reason behind SNH's decision to remove the cap? What was the original purpose of the cap, and were there any concessions made? I believe you mentioned it was an eight-year agreement, so it seems like this is simply an extension of the current contract with updated terms and increased over-capacity.

That's right. The original contract, if you recall, had an endpoint stated as the earlier of 500 bcf through the vessel or eight years; as we've been producing a little over the annual amount each year, that would have potentially brought the contract to an end a few months early. So, what this has done is it's moved the contract to a firm fixed eight-year duration, and we've got about five-and-a-half years left with that, but importantly, there are two things that come out: one is that we are allowed not to be paid for our overproduction; so, we've made about $5 million of overproduction up to the end of 2019. We will bill the amount of 2020 in January next year when that's calculated. That's something that will run through the contract, and then, secondly, importantly with that cap being lifted, it means there's no barrier to being able to come up with a deal that would allow us to put more volumes through the Hilli.

Okay, and I think this is around $5 million of overproduction through the end of '19. So, does that revenue recognition all happen in 4Q of '20?

I believe it will occur in the first quarter, but it could also happen in the fourth quarter of 2020 if we have invoiced by that time. We will provide confirmation on this later.

Okay, thanks. That's all from me.

Thank you. Your next question comes from the line of Randy Giveans from Jefferies. Please ask your question.

Hi, gentlemen, how's it going?

Hey, Randy.

So, looking at the liquidity events, I guess a few questions: what are the terms for the new $100 million credit facility against Hygo? And for the Frost refinancing, that's going to raise an additional maybe $40 million, and you save a marginal amount, an additional $30 million. So, is this your decision to push these refinancings into the first quarter, and how likely is that margin amount to be upsized and completed in the next few months?

Yes, sure. Hi, Randy. So, the terms of the facility are LIBOR plus 500 bps. It's a non-amortizing bullet facility that we have on the corporate level. When it comes to the margin loan, it's a question whether we would like to leverage the shares or not. As you know, we are repaying the margin loan now in mid-December, and we can obviously approach the same banks or a subset of those banks to renew the margin loan. As Tor said previously, there are no immediate plans to do so, but if you don't have leverage on certain shareholdings, you can consider it at a later stage to distribute shareholdings to your shareholders, whether that is at the later stage, either DMLT or Hygo is something that we are considering, but such facility is in place today, and should certainly be able to be put in place. When it comes to the $40 million net liquidity release from the potential refinancing of Frost, we received two different term sheets, both of which given the credit processes of such refinancing is more likely to occur early in the new year rather than now, but one of them we think is extremely effective, and we're pushing ahead in that process. It takes time to tangle on refinancing of the ship, and therefore we're guiding on Q1 events. It could, of course, start earlier, but local lenders find it easier to finance new initiatives early in the new year as opposed to late.

Got it, okay, and then for that non-amortizing credit facility, the LIBOR plus 500 basis points, that's just a one-year term?

It's one plus one.

Got it. All right, and then we can go back to the LNG shipping backlog. You know, it increased by $123 million. Can you provide a little more detail on those charters? Are they all fixed, all floating, and what are the durations of them?

So, the majority of the new backlog, in fact, I think all of the new backlog is fixed-duration, and the longest one is a couple of years. Most of them are around about a year, and there are a couple that might be somewhere in between.

Got it. Good deal, well, let's keep the train moving. Thanks so much.

Thanks, Randy.

Thank you. Your next question comes from the line of Craig Shere from Tuohy Brothers. Please ask your question.

Just want to clarify the Perenco updated agreement does not allow for reduced annual cash flow and volumes are lower, does it, and does the agreement eliminate potential to get upsized and extended terms that could support a favorable project refinancing?

There is no linkage to project financing that I'm aware of that would preclude that, and I can come back to you on the — if we under produce, I don't think we've really contemplated that with the way the vessel is going; I don't believe the way the contract is structured that we're paid for availability and throughput. It’s just that we'd be putting more through, and so, the contracts been restructured for that, but let me come back to that — on that Craig, Stuart will follow up with you in detail. I'm sorry. I don't know yet.

Okay, and on the project finance question, what I meant was if you had upsized, it made it a 15-year agreement, obviously, it would be a no-brainer to be able to get better financing terms on the project. Whereas if it's a little more variable and flexible, even if you're going to make more EBITDA, it's harder to replace.

We're focused right now on increasing the immediate throughput on Hilli, rather than thinking about extending the contract, because the latent value that sits in that vessel, we want to do what we can to get more volume through that vessel and the outcome from that goes straight to our bottom line. So we're not really considering extensions at this stage in the game.

Sorry. I'll just comment on the previous question, the revenue cannot come down on the Hilli under the revised schedule. So with that, Iain said, we're paying for capacity and being there; this cannot come down.

Thanks, Karl.

Thanks, Karl. That's good to know. On Hygo, is there a potential through the new Norsk Hydro aluminum project MoU after the Barcarena, FID and a successful Hygo IPO, and could we see Hygo contract for FLNG itself as far as off-take in the next couple of years?

Okay. So with regards to Norsk Hydro, what I can say is that we continue to have active dialogue with them, and our decisions to take the project ahead and move forward with a potential FID before the end of the year are not entirely connected to discussions with Norsk Hydro. So, we might be in a position to move ahead with the project without their contract. With regards to the potential FLNG supply to any Hygo project, I think this is, of course, one of the potential synergies that we believe can be achieved, and we do contemplate it in some potential projects, especially in the North of Brazil, but this is something that is very premature and very preliminary as of today.

Great, and just clarify there, I guess my thinking was if FID Barcarena, you're the only game in town. There is just no way for these guys to convert, as they have promised the local state to the more emission-friendly natural gas fuel without you. I'm guessing what I'm asking is, if you do go ahead and FID in the next month or two, do you think that there is a decent opportunity for Norsk Hydro to return to the table in coming quarters?

I think what you should do is call Norsk Hydro to see if there are alternatives.

Okay, thank you.

Thanks, Craig.

Thank you. The next question comes from the line of Ken Hoexter from BofA. Please ask your question.

Hey, good morning. Good afternoon, Iain, Karl, Eduardo, Tor, thanks for the detailed updates there before, but maybe towards just your view, you mentioned your kind of view on governance is primary, but yet you're on your fourth CFO here in two years and fourth CEO in five years. I guess just going back some of the questions before, what's the concern here just in lack of continuity, given that much shuffling and to give visibility on the steady hand guiding continuing to guide the company?

I think when you're saying we're on the fourth CFO, I felt completely right because the CFO we had before, Graham Robjohns, he was with us for 20 years. He played different roles, so I don't think that's the guy Callum took over from. So I don't think necessary that's true; we have had two for 20 years effectively. I think he changed that a little bit, but Iain has been here for two years, three and a half. Of course, turnover is never good, and if there is no doubt that this is a kind of challenging place to work, it is hard work in a company with a hard drive, and I can admittedly say that to have an actively involved share might be painful sometimes.

Okay, but I mean factually in that seat, it is the numerically right. But from Robjohns to Callum to Karl, but okay. So I get your point in terms of still at the company for a while. Just let me flip over, Iain, to your thoughts on the costs from the BP delay you mentioned the $36 million. Can you maybe detail those costs, if I've got that right, and is the shipyard fully operational now and what those costs are associated with?

Yes, Ken, so the shipyard is fully operational. It's quite amazing what they're doing in terms of their own and it comes from the Singaporean government to start with. They have strict rules around how do they transport people. So let me give you an example: a lot of the workers live in dormitories, and they sleep in the same area of the dormitory as their fellow workmates for a specific area of the project. They go from their dormitories to their canteen facility and of course directly to their work area. They stay with their workmates all day and then come back and rinse and repeat. The idea behind that is if there is a COVID case, they can isolate a unit very quickly and deal with it. We were dimed to less than 100 people during the four-month shutdown that we experienced in Singapore, and they were really on care and maintenance activity. We're now up to 2,450 as of today working on the project, which is higher than it was before we slowed down and back on track. In terms of the additional costs, the $36 million, a lot of that has gone into storage passivation and care of equipment that was ready to shift from vendors plus additional time-related costs, as you may imagine. You have certain fixed costs that just continue, and they would go 11 months. So as a percentage of the overall budget, the $36 million and $130 million is pretty good under the circumstances.

Great, thank you. And then, lastly, maybe just on going on Hygo, the key risks for the FID at Barcarena and Suape. Eduardo, you mentioned some things might be coming over the next few weeks. Is there a chance for delay or any other issues that could delay that process?

We are highly confident that the progress made in Barcarena today puts us in a very good position to take final investment decisions in a couple of months. When it comes to Suape, we believe that the ... from regulatory approvals that are expected in the coming weeks could be a major driver for that decision.

Great, thanks for taking it. Appreciate the time.

Thanks, Ken.

Thank you.

Thank you. The next question comes from the line of Greg Lewis from BTIG. Please ask your question.

Thank you for the opportunity to ask a question. I noticed in the prepared remarks the discussion around strategic reviews and the company's repositioning. Given the unpredictable nature of capital markets, is it correct to think that Golar's path to solidifying value hinges on Hygo and its IPO before we explore other aspects like NLP and the conventional fleet? I'd appreciate any insights you could share on this.

Well, let me kind of — if I think about how to enable our strategic plan, it hasn't really changed much over the last year, and as Tor mentioned, we will see the shipping parts of the business equate more to the value recognized in the market, but to achieve that vision of creating separate investible businesses, there are a few things we are focused on. Let me list them: First, keeping operations running safely to the satisfaction of the customers. Secondly, working to maximize full-year shipping income; that’s pushing quarter by quarter as we look at it through the course of the year. Lastly, delivering LNG Croatia safely, on time, and on budget before the end of the year to deliver that $47 million in cash and take on the 10-year operations and maintenance contract. Overall, we plan to maximize throughput on the FLNG Hilli first under contract with Perenco. Additionally, delivering Gimi safely, on time, on budget to commence a 20-year contract with BP while considering development for other opportunities. We are committed to distributing the major development projects while focusing on efficient operations across all segments, all while ensuring we have clear goals that align thematically with overall business objectives. Certainly, we want to be involved with the projects that matter for our shareholders. Your answer about whether Hygo is priority one? Absolutely; it's the only track we have right now.

Okay, great. Thanks, everybody.

Thanks, Ken.

Thank you.