Golar Lng Ltd Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to Golar LNG Limited 4Q 2020 results presentation. I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your speaker, Iain Ross, CEO. Please go ahead.

Thank you, operator. Good morning, good afternoon, everyone, and welcome to the Golar LNG Q4 2020 results presentation. My name is Iain Ross, and I'm the CEO of Golar LNG. Today, I'm joined on the line by CFO, Karl Staubo. We're also pleased to have Tor Olav Trøim, Chairman of Golar LNG with us today; and Stuart Buchanan, Head of Investor Relations. Before we start, I'd like to draw your attention to forward-looking statement on Slide 1. And clearly, there's a lot to cover this quarter, including the transformative deals with NFE for the sale of 100% of Hygo and Golar's share of the Golar Partners business, which, incidentally, was approved by the MLP unitholders yesterday. Let me kick off by giving you some outcomes for Golar from these deals and some quarterly highlights, before Karl takes you through the numbers in more detail. I'd like to explain three related themes. Firstly, why the Hygo deal crystallizes value for Golar; secondly, how these transactions will financially strengthen the company; and thirdly, that this is the first major step along our journey to simplify the group. If we turn to Slide 4 and look at the value created for shareholders, it's a good story. In 2016, Golar invested $290 million into the Hygo JV, which was known as Golar Power in those days. The company built Latin America's largest combined cycle gas-fired power station at Sergipe, supplied by gas from the Golar Nanook and then built a repeatable downstream business around that structure. When the deal with New Fortress completes, Golar will book a profitable gain of $760 million based on today's closing price of NFE shares, which translates to 3x the invested equity. Turning to Slide 5 and looking at our strength and financial position and just going through the recent activities. We successfully completed the public offering of 12 million shares, raising just over $100 million in December last year. Also, in December, our FSRU LNG Croatia conversion project was commissioned, accepted and subsequently sold to our customer, LNG Hrvatska, releasing total liquidity of $51.7 million after repayment of $113 million in debt. To bring this project in on time and within budget during 2020 is a strong performance, and I'd like to acknowledge the effort of everyone involved. We repaid the $150 million bilateral facility and the $30 million margin loan, and then executed a new $100 million credit facility. And the agreements to sell both Hygo and our shareholding in Golar Partners to New Fortress Energy will deliver a further $131 million in cash, together with 18.6 million shares in New Fortress. So the summary of all that is that post both NFE deal closings, we will add $204 million in cash to the company, and that's after paying down a total of $193 million in debt. The third element is simplification. And you can see from Slide 6 that the ownership structure is more streamlined. We'll continue to provide operations and maintenance services to the NFE floating assets that they've acquired, and we are left with three well-defined business activities. On Slide 7, post transaction, we will have an FLNG business, with a contracted adjusted EBITDA run rate that clearly ramps up to $224 million per year when FLNG Gimi comes online in 2024, a shipping business with an adjusted EBITDA run rate over the last 12 months of $123 million, representing an average TCE of around $50,000 per day and the ownership of 8.9% of New Fortress Energy, which is focused on the downstream part of the gas value chain. With the adjusted EBITDA, book value and net debt of each segment laid out this clearly, we feel that the underlying equity value becomes more apparent. Turning now to Page 9 and a run through of our Q4 2020 highlights. Today, we report an adjusted EBITDA of $78 million on revenue of $118 million for the quarter, which is driven by a further solid FLNG performance and an improved result from shipping. In shipping, we achieved adjusted time charter earnings of $52,000 per day, which is in line with guidance, with the TFDEs earning just under $54,000 per day after adjustments, and we ended the quarter with a shipping revenue backlog of $193 million compared to $172 million at the end of Q4 '19. Our FLNG operations maintained 100% commercial uptime through the quarter, with an additional $8 million in revenue recognized as a result of overproduction on Hilli up to the end of 2020. And the conditional agreement has been entered into with Perenco, which may pave the way for drilling to commence this quarter. FLNG Gimi remains on budget and tracking to the new schedule. Hygo generated $38 million of adjusted EBITDA during the quarter, which, as you can see from the graphic, is largely in line with the last couple of quarters. So more detail on the business segments to follow. Let me now hand you over to Karl to take you through the numbers and more detail on financing.

Thank you, Iain. Turning to Slide 10 and the fourth quarter 2020 financial results. We report operating revenue of $118 million for the quarter, up from $96 million in Q3, driven by a seasonal increase in our achieved shipping TCE, which came in at $53,000 for the quarter, a $12,700 increase from Q3. The FLNG Hilli continued its solid and stable operations, with the mentioned 100% utilization. Following the Q3 announced revised agreement with Perenco, where we removed the 500 Bcf production cap, we have billed Perenco $8 million of incremental revenue for overproduction on the Hilli during 2019 and 2020. Adjusted EBITDA for the quarter came in at $78 million, exceeding consensus of $70.7 million, driven by the mentioned higher shipping rates and the Hilli overproduction invoice. We report positive net income for the quarter at $9 million. Our net debt position was reduced by $243 million to $2.06 billion as a result of repayment of $80 million under corporate debt facilities secured against Hygo and MLP shareholdings, a repayment of $112 million on the LNG Croatia and an increase in our cash position of $101 million from our December equity offering. This was only offset by $75 million of debt drawn on the Gimi project. Our cash position at quarter end was $254 million, of which $128 million in unrestricted cash and $126 million in restricted cash. The increase in restricted cash related to receivables in conjunction with delivery of the LNG Croatia, which will be received during Q1. We expect a further strengthening of our cash position following the closing of the NFE transactions. Turning to Slide 11. Golar is transitioning from CapEx to cash flow as our infrastructure assets and long-term contracts are delivered from the yards. This is coupled with improving shipping rates and reduced shipping spot exposure through our revised shipping chartering strategy. We have seen a clear trend in our EBITDA over the last five years, moving from negative in 2016 and '17 to stable growth of EBITDA performance during 2018 to 2020. We expect our EBITDA development to continue to build as we take delivery of the Gimi in 2023, as well as potential increased utilizations and oil-linked related revenue from the FLNG Hilli. Turning to the NFE transactions and explaining them on Slide 13. On January 13, Golar announced two transactions where we're selling both Hygo and the MLP to New Fortress Energy. The two transactions are independent of each other but were announced on the same date involving the same counterparts. Starting with the Hygo transaction on the left. Stonepeak and Golar have agreed to sell Hygo. Golar will receive $50 million in cash and 18.6 million shares in New Fortress Energy for its 50% shareholding in Hygo. Based on the closing price of NFE yesterday, this represents a $760 million book gain to Golar and 3.2x equity return over the five years we've been invested in Hygo, as earlier described by Iain. On the GMLP transaction. Golar agreed to sell its 30.8% common unit interest in GMLP, as well as its 2% general partner interest for $3.55 per unit. The bid price represented a 27% premium to the closing price of GMLP on January 12, and a 37.5% premium to the 20-day preannouncement. Golar will receive $81 million in cash proceeds for its common and general partner units. Yesterday, the common unitholders of GMLP voted in favor of the transaction. Both transactions are scheduled to close during the first half of 2021, and all parties are working to close as efficiently as possible within that time window. Turning to Slide 14 and a bit of rationale as to why we decided to do both transactions, again starting on the left with Hygo. NFE and Hygo share a vision of delivering cheaper and cleaner energy to emerging markets. Once we filed our F-1 and later retracted the IPO, we had several suitors around the company. But for us, it's important to team up with someone that shares our vision, especially given that we maintain equity exposure in the combined MLP. We think the price that was achieved was attractive, both from a price and execution risk, versus an IPO alternative. The transaction crystallizes the value of Hygo to LNG shareholders while maintaining exposure to the attractive LNG downstream rollouts. We believe in industry consolidation and this will create the leading LNG downstream company globally. We also see significant advantages in a larger entity with better access to growth capital and more diversified geographical exposure. Turning to MLP. On the right-hand side, we believe the price, as mentioned, represents an immediate uplift to equity holders but also saw significant benefit to other stakeholders, including unsecured bondholders in the MLP. By selling MLP, we removed the refinancing and the recontracting risk of the MLP asset portfolio. This is execution of the announced strategic alternatives where we were looking to better find strategic alternatives for the MLP contract backlog and asset base. We had a unanimous Board representation for the bid, and we also have a recommendation from an independent investment bank as well as proxy advisers.

Thanks, Karl. If we turn to shipping on Slide 16. The quarter commenced with JKM around $5.15 per MMBTU, and quoted TFDE headline spot rates of around $59,000 a day. The combination of rapid resumption of U.S. cargoes, strong winter demand from Asia and some unplanned plant outages pushed JKM up to $15, which, in turn, drove TFDE spot rates to around $160 per day by the end of the quarter. The cold winter conditions saw JKM break $30 per MMBTU and a lack of promptly available ships created a further spike in the rates, north of $250,000 a day in early January before dropping back below $100,000 per day by the end of the month. By the end of last week, the TFDE rates have dropped back into the 40s. Our Q4 utilization of 77% was disappointingly low due to increased commercial waiting time between two spot charters, a mechanical failure and a residual dry dock time on Tundra that we mentioned last quarter. But despite those challenges, and the fact that we've fixed the majority of the TFDEs on term business, we did manage to enjoy a couple of higher-priced charters that will also help lift the Q1 TCE. Our shipping strategy continues to prioritize long-term utilization over short-term opportunities, and you can see from the table on the bottom right of the slide that our annual TCE continues to improve. The TFDE fleet achieved a 2020 full year figure of $50,000 per day for the first time with a similar annual high of 90% fleet utilization. And on Slide 17, you can see that we expect utilization to rebound to around 90% in Q1 '21, which was the backlog of $193 million in place at the start of this year, and the fixtures that we have in place to date are indicating a TFDE TCE of around $60,000 per day for the next quarter. The higher LNG pricing over the last few months has moved the industry momentum back to upstream, so let's have a look at floating LNG production on Slide 19. As we've mentioned, Hilli performed well, with 100% commercial uptime and recently offloaded the 52nd cargo. As Karl mentioned, with Brent currently above $60 per barrel, the oil linkage kicks in. And if you remember, for every $1 above $60, this equates to $3 million in additional profit over the course of the year. Our discussions with Perenco and a potential LNG production volume increase within the remaining term of the contract are progressing positively. Should we conclude these discussions successfully, there's likely to be a new risk aligned to tariff payment for the additional volumes. The next step is to finalize the agreement between Golar, Perenco, SNH and the current trains 1 and 2 off-taker, which would allow drilling and testing campaign to commence in the next few months. Any change to the production agreement will likely see increased volumes in 2022. Turning to Slide 20, and the Gimi project in Singapore. We were engaging a construction workforce of around 2,500 people on a fairly consistent basis per day. We've worked over 7 million man-hours on the project to date with a strong safety record. The fourth dry dock was completed without incident. And you can see from the pictures, we've now attached the sponsons to the hull. Work continues on outfitting the remaining sponsons, which will be attached as the fifth dry dock planned to commence around the end of this quarter. On FLNG business development, we continue to respond to new tolling inquiries and are developing the most prospective of these with customers. We're carrying out some more engineering work in order to tune our pricing and delivery for the larger capacity newbuild 5 million tons per annum Mark III, concurrent with examining possible redeployment of Hilli post 2026 or a potential market conversion of Gandria. We are reinvestigating both integrated upstream solutions and the potential to use smaller units with a shorter production lead time to access associated gas that is being reinjected or flared. Turning West African undeveloped gas into useful power via LNG is very much part of the energy transition, and we think is also a good business. By example, if you look at the graph at the bottom left of Slide 21, which is the price spread between West Africa and FOB LNG delivered at $3, and the forecast LNG pricing is $6. Then the important thing here is that every $1 gas price spread translates to about $250 million in operating margin. So for a 5 million ton per annum facility, a $3 spread, as shown here, equates to an illustrative operating margin of $750 million per year. So it's three different development fronts, Mark I conversion, Mark III new build and taking another look at integrated solutions with lots of potential across all of these fronts. Moving to Slide 23. Here, we summarize some of the initiatives being considered to capture the value spread between our share price and the book value. I'll leave it to Tor to comment on share buybacks and distribution of MLP shares as they are Board matters, but let me highlight that we do intend improving debt financing of the FLNG Gimi project as we approach COD. We believe we can get debt financing at 5x to 6x EBITDA, which is between $1 billion and $1.3 billion. We will examine the potential to crystallize value in FLNG assets through one or more structural transactions. And we plan to refinance the convertible bond during the second half of this year. And we'll consider using exchangeable bonds against New Fortress shares rather than GLNG. So summarizing our key initiatives to create value on Slide 24. On shipping, we'll continue to maximize full year TCE, and we'll continue to explore separation of the assets. On FLNG, we'll focus on completing the Gimi projects safely on time and on budget. We'll continue to progress the Hilli volume expansion and to develop our Mark III new builds and seat deployment for both the Mark III and the Mark I conversions. Finally, on FLNG, we'll work on integrated upstream LNG developments. We already have a good relationship with New Fortress, and we'll work to create revenue synergies and collaboration in downstream. And, of course, we will continue to examine the various pathways towards further group simplification, specifically through splitting the shipping and FLNG businesses. I'm pleased to now hand you over to GLNG Chairman, Tor Olav Trøim, to take you through his thoughts prior to Q&A.

I think Karl, you should take the next two slides, and then I'll return to discuss FLNG. I'll go straight to the risk; I apologize for the confusion. Over the past seven years, we've learned that this business is highly unpredictable. Price trends are uncertain. We've experienced oil prices over $100 and as low as $37. In the last year alone, gas prices have fluctuated from $75 per MMBTU to above $35. So, expect the unexpected, although planning for it is quite difficult. Both Total and other major companies have indicated that the hydrogen market resembles the LNG market from 40 years ago—it holds promise, but it will take time. Reflecting on my 15-year wait for LNG, we entered this market two decades ago, likely 15 years too soon, as major production control kept LNG prices tied to Brent prices at around 16% of Brent. The significant volume came from Qatar, Australia, and the U.S. The majors lost control of the prices, which shifted from parity to about 10% of Brent today. Presently, gas is approximately 30% cheaper than crude and around 50% cheaper than diesel. Gas is not only cheaper but also cleaner; while CO2 reduction is important, other pollutants have caused more harm than CO2 so far. We initiated an integrated approach in 2015 when oil prices collapsed, launching OneLNG and Golar Power. Unfortunately, our partner in OneLNG, Schlumberger, withdrew, and we lacked the capital to continue alone. It was a challenging time for profitability in upstream. Since then, we've focused on downstream activities, investing around $600 million with Stonepeak to build the largest power station in Latin America, supported by a robust PPA. We’ve developed valuable terminal permits that are now coming to fruition, putting this company in NFE and achieving a 3.5x return in a tough energy market. However, the Hygo merger into NFE is different. As a large shareholder in NFE, our goal is to empower downstream LNG initiatives. While major companies discuss their plans, New Fortress is taking action. So, if you can’t compete, collaborate, which is our strategy. We have a shared vision with NFE's management and Board to provide cheaper and cleaner energy to emerging markets. Due to cost structures and reserves, gas and LNG are expected to trade at a considerable discount for the foreseeable future. In order to engage in these downstream activities, we need molecules. When purchasing from the major companies, they will require significant investment. Over the past six months, we've observed a shift in the gas market. Initially, our price, represented by the blue line, was just under $5 to $5.50. It then dropped to $2 before rising again to over $6. The black line indicates the Brent curve, illustrating the price measured in MMBTU and the spread between Brent and gas. During the summer, there was a substantial upstream margin, but the market faced negative conditions, leading to decreased upstream margins. Looking ahead at the next few years, the forward curves for Brent and oil suggest that gas parity will hover around $11, decreasing to approximately $9 to $9.50 over time, while the LNG gas curve remains stable around $6. This indicates potential profitability. To elaborate on the various costs involved, $1 is necessary to develop streams and reserves in Africa for an FLNG vessel, which includes returns. $2 covers the liquefaction process for a decent return. The green dollar represents the spread from the LNG sales price, while the light blue indicates the shipping costs to distribute globally. The light green reflects what can be extracted in the downstream market, which aligns with the gross parity of crude. Notably, the market for diesel is more lucrative than crude oil, as we are largely competing with it in the LNG sector. The observation of the curve being stable around $6 is interesting. Recently, the Qataris decided to invest in the largest LNG train ever built to enhance production. And it seems like their target is to deliver LNG around $6 and effectively, thereby, made all development in the U.S., more or less, uneconomical. It's a very interesting strategy, very different from Saudi, who let oil prices rise and effectively opened up for shale. I think it looks like the Qataris have done and say, we can supply this market with a very, very healthy buffer at a level where the U.S. cannot be developed. If you look at the summer, there was, as I said, a negative profit in producing LNG, and the real money was upstream. Now it's bound out again. As you can see on the second graph today, you see a theoretical spread in the upstream today is around $3.80, while the downstream spread is today, $3.20. That's up to kind of crude, and then there's an additional on top of that. So how can we take out this spread? Let me go on to the next page. We will have 10 years working with a Korean shipyard to develop a 5 million ton vessel. You know what the stage where the design is more or less completed; you see a drawing over there. And we also now have received the proposal for a turnkey contract from the yard. Such a vessel is likely to cost around $500 million production ton, so effectively all together $2.5 billion already installed. And to fill such a vessel, you need a reserve base of approximately 5 TCF for 20 years, and we can stay there for 20 years. It's my opinion that proven gas reserves are some of the most underpriced assets in the world market. You can buy them for cents per barrel, and thus, it's so far for most operator problem. It's either flare, reinject, or left in the ground because no one has the technology to develop it. Shell has spent $15 billion to build Prelude, and it has so far just delivered a handful of cargo. It's been a catastrophe. Golar, and Golar's fantastic people have cracked a nut with a vessel cost of $1.3 billion, and we have now delivered 52 cargoes, even if you only produce 50% of our capacity. I'm proud to say that Iain and the team have delivered 100% commercial uptime since we started this thing. We have not had $1 in off-hire. It's a very different story. If you look at the numbers, what we can take out, it's up to 5 million tons vessel today. You will effectively see that if you use that and take off the spread of $3.8, that vessel can make a super profit of $950 million. Then, you have already included the return for the vessel itself and the upstream activity. If you then pump that into the NFE pipeline and take up the $3.2 in profit, there is over $800 million to be taken out. So effectively, $1.750 billion can be made in one year by taking out the spread against the real production costs and what we can sell this for in the market today. I think both management at New Fortress and the Board of Golar are extremely excited about this thing, and we want to move fast. We want to leverage the unique position we have. And in many ways, we are in process of putting together the OneLNG ID, which we had. The north price was high last time and made the company more integrated. That doesn't mean that all this has to happen in one company. I think we already have the downstream activity in NFE. You might see an FLNG company separated out, and they might see a shipping company together. But we will work together to take out this best on a turnkey basis. And we might do it in the way we do it with Perenco, where we effectively have oil price kicker upside, so we effectively make more money the higher the prices go, or we can do it on a split tariff basis, where we share risk with the producers. It's been a challenging year we have behind us, but I'm looking forward, and I'm excited. And I'm excited when I see the results which going to be presented there from 2015. You see the trend in the EBITDA, which is increasing dramatically. And you also see that, that trend will continue in the years to come. We have now kicked the balance sheet with the two transactions, both equity rates and the sale to NFE. And there are clear signs that the LNG carrier market is strengthening in the years to come, with very limited deliveries coming in '22 and '23 and no longer trades. We have, together with NFE, created what is the leading platform for distribution of LNG. We have LNG Gimi coming in two years' time, and they are effectively, in addition to that, we have Hilli, where we've been talking about additional production coming from train 3, and we also have the oil derivatives coming in, which will give us normally at current prices at $67, which we are today, that's another $21 million if it stayed like that. There are interest, as Iain said, now, every day almost, for people who want to utilize our proven FLNG technology to either fix long-term contracts or for us to take up some risk and participate in that $1.7 billion of profit. I sincerely apologize to our shareholders for the performance over the last year. It has been a challenging market, and during this time, we have not increased our share price. However, the new NFE transaction has created significant value for our shareholders. We have developed a unique platform to generate profits during this energy transition. Unlike in the past, we do not have to wait decades for hydrogen to become viable; gas is quickly becoming the natural alternative to renewable energy. We are focused on generating cash flow now rather than several years down the line. I believe that the simplification process we've undergone will be recognized, and if it helps us close the value gap, as Iain mentioned, then seeing a share price around $11 with a book value of $22—and additional value from the FLNG sector—prompted the Board to initiate a buyback program, starting with $50 million after completing the NFE transaction. Our goal is to create a company with a leaner cost structure and a faster response time compared to our larger competitors, who tend to be slow. We now have the tools to leverage opportunities from the gas grid. Meanwhile, shareholders should anticipate a significant increase in EBITDA due to our current order backlog and upcoming contracts. I’m excited about our prospects and hope that you can view Golar as a positive investment, well-positioned for any adjacent opportunities that may arise. This assessment is based on tangible cash rather than illusions.

Thanks, Tor. I'd like to now hand back to the operator for questions, please.

Your first question comes from the line of Ken Hoexter from Bank of America.

Thank you for the detailed information. There's a lot to consider. Iain, I’d like to start with the general overview you provided regarding the three new breakdowns and the fluctuations. One of those focuses on NFE and the downstream. Could you share your perspective on what the future holds? You've mentioned plans to sell the LNG carriers or potentially restructure them, a process you've been working on for several years. I'd like to hear your thoughts on the downstream exposure now that we have NFE holdings.

Our current investment strategy focuses on the disconnect between the company's equity value and the actual worth of its individual business segments. We're in the process of simplifying the business to enhance the value derived from these segments, ultimately benefiting our shareholders. Today, we discussed our streamlined approach across three business sectors. In FLNG, we have a Mark I and Mark II, and as Tor enthusiastically shared, we're reassessing our integrated operations due to the available spreads. This was something that excited me when I joined nearly four years ago, and I am optimistic about its potential resurgence. In shipping, we've worked to stabilize potential losses. In previous years, we aimed for significant returns but faced utilization challenges during slower months. Our new shipping strategy establishes a safety net for losses while also allowing us to capitalize on upward market movements through index-linked contracts and a couple of ships available for spot market opportunities. We are well-prepared for this year, and 2022 could present unique opportunities in the shipping sector. Our flexible shipping strategy grants us options regarding the status of our ships, whether they're retained or let go. In terms of FLNG, it might seek external investments, and as Tor mentioned, we could create FLNG Co, which would change the dynamics with shipping. Our objective is to emphasize flexibility. Regarding downstream, we are collaborating with New Fortress, operating and maintaining their vessels. We currently hold a 9% stake in New Fortress and want to see that investment succeed. As their business expands and they consider new vessels, we have a chance to be involved by providing those vessels. Tor highlighted that our business spectrum offers enough work opportunities to be pursued for value realization. Our focus remains on this area, even though we are not ready to define our future structure just yet. I hope this clarifies things, Ken.

No, it's helpful, especially considering everything you have going on and what you've recently achieved with the enterprise, and congratulations on the Hygo and GMLP sales. For my final question, you discussed the FLNG developments in detail. Could you share what comes next? What is the timing? Are you still in discussions regarding the third one? Given the trends in LNG rates, what is your perspective on the timeframe for that?

We are currently engaged in active discussions with several parties at different stages of development. The key message I want to convey is that we are pursuing two parallel strategies. First, we have our established approach that emerged from our experience with Hilli, where we recognized the need for a strong counterparty for tolling FLNG, preferably a supermajor with a solid balance sheet to support financing and offtake. Those two aspects are crucial. The technical side seems straightforward to me; the challenge lies in securing the project from an offtake and finance perspective, necessitating a supermajor's involvement. We are also exploring a more active participation in an integrated environment, similar to our efforts during the OneLNG days, aiming to establish a role that will expedite processes without the same complexities associated with offtake and financing. Currently, we are focused on two active areas: Mark I and Mark III in our tolling sector, while simultaneously reevaluating this integrated approach.

Your next question comes from the line of Sean Morgan from Evercore.

So when we think about Perenco, it's a little bit black box for us as to how they're making their decisions in terms of increasing development at that field. You have the overproduction cap removed. So I guess, one question is, how much higher can you go in terms of overproduction on the existing two trains? And then also, what sense do you get in terms of what Perenco's reservations are? What kind of oil prices they're looking at to sort of make that investment and activate the other two trains? I guess, what other information do you have that you can share?

So on your first question, the $8 million that we've invoiced for overproduction, that's from the commencement of operations to December of last year. And that's just a simple factor of dynamics in production. What I would say is the relationship we've got with Perenco, from the operational point of view, is very good. And if they go excess gas or we want to meet the cargo and the timing changes, we end up going up and down a little bit. So that is, I think, is just a nice acknowledgment of the overproduction. We're now getting paid for it, which I think in the absence of any other agreement, would continue something in the order of the same on that. But in terms of the deal with Perenco, there's a couple of things to understand. One, is Perenco and then SNH in Cameroon that we have to seek agreement on; these discussions do take time. Secondly, that I think the momentum has changed. And if you look back a year at the gas pricing and the ability to get an offtake agreement structured that's attractive is very hard to do that on the lower gas pricing. I think time is with us now to get that momentum, and the pricing is with us now to get that done. And these discussions just take a bit of time. All I can report is positive progress. When the deal is done, we will be the first to let everybody know. We'll be very happy about that. Until that deal is done, there's not really a lot more I can say.

Yes, I think what I can add on is that there are also conditional agreements within several of the parts stated in the report. It's a place with a good likelihood that we will see drilling in the reservoir pretty quickly in order to bring more capacity of our EBIT. Nothing is set in stone, but at least I think they've made significant progress over the last few years.

Yes. My second question also relates to the Hilli and the FLNG business. I appreciate Slide 23, which highlights the valuation gap that many people are considering. One of the key points we discuss with investors is the value of the existing assets. Regarding the Hilli, what options would Perenco have at the end of the contract? This aspect isn’t included in most models, but investors often evaluate it in terms of the underlying value of the existing business. What would need to happen for you to either relocate the asset or recontract with Perenco? Additionally, could you provide some clarity on what the end of that contract might look like?

So that contract will expire in the middle of 2026. It is an eight-year, 500 Bcf gas contract, which, if you remember, we keep the volume cap of it because of the overproduction is now an eight-year contract. So that contract will end at that stage. We've got plenty of these other opportunities that we've been talking about or looking at, and particularly the integrated opportunities it would be an ideal fit for Hilli. So we're not focused necessarily on expanding that contract with Perenco at this stage. But what we are focused on is maximizing the value of deploying Hilli, wherever that may be. So for it to stay in Cameroon, we obviously have to be a pretty decent deal for us to consider doing that.

We informed Perenco that we are leaving in July 2026. We're not dealing to extend the contracts because we think we have a much better alternative elsewhere. So if they have more gas, they have to come back to us; they have no contract to get it right, whatsoever. I do not want to extend the contract to say after July '26.

Okay. So if you were going to move it, you'd probably announce a new location, maybe 24 months or before the deadline?

Yes, it takes 2 to 3 years to develop. The delivery time is similar to that of a new building at this point. It must be developed properly, so from that perspective, it's likely more valuable than a new building. This business is currently a spot FLNG operation, which is the lead time we require.

Your question comes from the line of Craig Shere from Tuohy Brothers.

Congratulations on the progress. I've got kind of three quick ones here. Should the Perenco upsizing come to pass for the remainder of your contract, what are the prospects for favorably refinancing Hilli? And can you elaborate on potential for securing improved shipyard and financing terms? Should you go down the route of cookie cutter, $2.5 billion Mark III projects versus Hilli and Gimi style conversions? And finally, if you do go down the route of the integrated FLNG model you've shared, how do you think about the debt-equity mix there?

Karl, do you want to go on that first, please?

Yes, definitely. Regarding the potential refinancing of Hilli, you are correct that we have a significant amount under our current financing. We believe that by increasing the EBITDA of the unit and the backlog, we can secure better financing terms. Additionally, providing more clarity to potential financial partners about alternatives for Hilli after the Perenco contract, as Tor mentioned, will assist us in shaping the amortization profile. To put it briefly, we believe we can refinance the unit if we enhance its capacity. It's important to consider the EBITDA generation during the remainder of the Perenco contract, but equally critical is identifying alternatives once the current Perenco contract ends. Given the current gas prices and forward pricing, we see strong support for mitigating risks, which will aid us in structuring the financing.

I am reiterating what I mentioned earlier. We believe that as Gimi approaches its commercial operation date, there is a chance to refinance that vessel at 5 to 6 times EBITDA. With $250 million in EBITDA, we are looking at a refinance amount between $1 billion and $1.3 billion on favorable terms. This would position us well with Gimi, possibly around the commercial operation date or shortly thereafter. We see this as a feasible option.

When it comes to the new buildings and the whole shift going to Korea instead of Singapore is that the Korean environment is much cleaner to support the developments than the Singaporean. So if you do a turnkey contract in Korea, I think you can probably end up with payment terms that are far better than the shipbuilders get for shipping things, which means three times, ten and seventy by delivery. And that, of course, will change our cash flow dramatically compared to where we are today.

To address the last question regarding integrated projects and our capital structure, we will assess this situation on a case-by-case basis. Some of our initial discussions involve partners, which means it depends on the specific project, location, and the interests of those partners. In certain instances, we are also considering liquefying associated gas. In these projects, there are usually other partners who would take the oil component, allowing us to solve an issue for them since they are currently flaring or reinjecting gas without the ability to profit from it. This connects back to our OneLNG approach that we aim to leverage.

Your next question comes from the line of Randy Giveans from Jefferies.

Now following the completion of the sale of Hygo to NFE, I guess assuming the deal closes in April, let's call it, when does your lockup period expire? And can you give a little more details or timeline for decisions on what to do with the NFE shares, selling them, taking a margin loan against them kind of in the larger block, dividing them out, what are some options there?

This is Karl. Yes, we have a 90-day lockup period starting from when the transaction closes. Once those 90 days are up, we'll be free to explore our options. We've been receiving numerous proposals from investment banks and other financiers regarding the ownership block valued at approximately $1 billion, or around $10 per Golar share. We could consider margin lending on that, which usually allows for proceeds of at least 60% loan-to-value. We're also evaluating alternatives for refinancing the convertible vehicle involving the NFE shares, which could involve an exchangeable. Instead of a convertible tied to the LNG shares, we might do an exchangeable linked to NFE shares. We're exploring various options, but our main focus remains on addressing the valuation gap as outlined on Slide 23. We will pursue initiatives to bridge that gap, which will likely include distributing part of our NFE holdings to DLNG shareholders.

Got it. And then a quick kind of detailed question. If you were to sell the shares prior to, let's call it, next April, would there be any kind of short-term capital gains on that? Or how would that work in terms of your ownership of the shares? Is it once you collect them? Or have you had them historically? How would that work?

There are no capital gains taxes on the sale of the shares. But I think it's important to say that we tend to be partners with NFE long term. And it is an important part to build that integrated model we have. We will either directly or indirectly be long-term shareholders in NFE. We're not there to cash in that billion. We really believe in what NFE is doing, particularly as it's a part of close to $500 million we have injected into the company now, the EBITDA. We have a capacity platform to continue the growth. We successfully started with Hygo, as we said, we started the NFE. I think access to financing with NFE now, we don't secure debt and with a market cap of $10 billion. Just a little bit. I know that you estimated this as a $200 million energy company. But just a little bit of comment that they really believe that they have a unique position together with them. And they want to be partners. So you will not see a block sale of $1 billion after 91 days, if that's what you're really asking for.

Not as directly, but okay. Noted. And then last question, Slide 24, you mentioned you are seeking industry consolidation for the LNG carriers. Now clearly, there are buyers for LNG carriers as most recently seen with the BlackRock taking GasLog private. So I guess, what are your plans for the LNG carriers? Is the spin-off still on the table in the near term? Or are you pivoting to maybe be a buyer to further consolidate the industry?

I can kick it off and then Iain, you can chime in as we go along. But as previously communicated to the market, we have been looking at alternatives to consolidate the market. From an operational standpoint, we have previously seen the industrial benefits of having a larger fleet through the cool pool, which we have together with GasLog and Dynagas. And as you can have seen from the shipping press, we've also been involved with different sorts of consolidation efforts that have not yet materialized. We are happy to see the start of some consolidation with BlackRock stepping into GasLog. And I think the combination of that transaction and the NFE and Golar transactions, there's now some movement in what's been a very rigid corporate platform within the different LNG shipping companies. And we are looking and discussing with potential partners. We don't rule out any alternative for us. What we believe is that over time, shifting an FLNG, most likely does not belong in the same entity, and we would look to further simplify our corporate structure, number one, to create pure exposures to shareholders and again, with the key motivation to unlock the valuation gap.

Yes. You covered it all. I have nothing more to add to that. That's good.

Your next question comes from the line of Ben Nolan from Stifel.

I wanted to explore further the potential for additional FLNG, including the Mark I, the Mark III, and the possibility of developing a smaller, perhaps faster version. My question has two parts. First, in terms of the integrated model versus the tolling model, is there one that stands out as more appealing to your partners right now? Secondly, particularly with the integrated model or the smaller scale version, how quickly do you think it could realistically be implemented?

I'll address the second question first. The key to the integrated and smaller model is securing long lead equipment. If we can identify a series of upcoming opportunities, it enables us to connect with the supply chain directly and establish production slots for essential equipment, like the main Cryogenic Heat Exchangers and refrigerant compressors. This is one aspect we're considering. The other factor is the type of facility we choose. We're analyzing various models in this regard. As we piece everything together, it comes down to effectively managing the supply chain and ordering or pre-ordering, so we can secure a position without a significant upfront investment. This will help us ensure the supply chain aligns with upcoming opportunities. This approach allows for quicker execution. The actual construction timeline will depend on the foundation, and we haven't finalized that yet. However, using a standardized approach and placing repeat orders enables us to streamline the process, allowing for one-time design work without repeating the lengthy procurement cycle or establishing new supply agreements. Regarding the interest in the Mark I and Mark III, I won't choose a favorite, but we have noted an uptick in interest over the past 18 months as LNG prices rise. Our products are proven, cost-effective, and quick to market, with a competitive carbon footprint. Though I won't answer directly, the number we are observing shifts and changes as customer processes fluctuate. We essentially need to adapt to their pace, which is part of Tor's frustration, and this is one reason we're revisiting the integrated concept when we can control our timeline.

Your next question comes from the line of Greg Lewis from BTIG.

Iain, much has been discussed regarding strategy. So my question is about the long-term partnership with New Fortress Energy. It seems they will be involved with their infrastructure network. Combined with what you already have, it looks like they will play a significant role in the LNG bunkering market. I understand you still hold a small minority stake in Avenir. What is your perspective on this situation?

Sorry, in terms of what? Can you just...

I’m curious if Avenir will be competing with New Fortress. Are they two different bunkering companies, and is there a conflict there or not?

I don't believe that’s the case. This situation is likely to encourage substantial collaboration. Avenir operates smaller vessels, and Golar Power's Hygo has already contracted for one of Avenir's 7,500 cubic vessels. That contract will transition to New Fortress, establishing a working relationship. When it comes to transporting these cargoes, multiple methods will be utilized. New Fortress has plans to move ISO containers directly on barges, in addition to using Avenir-type smaller vessels. As the business expands, the demand for various and innovative methods for transporting LNG across different countries will likely increase the production of those vessels, reflecting a pull from the market rather than a push. And we have time for one last question, operator.

And your next question comes from the line of Lukas Daul from ABG.

I was just wondering, the last time, on the quarterly call, you mentioned you were sort of looking into ammonia and hydrogen doing some preliminary studies there. Today, it seems to me that you are back to your roots, which is LNG. Is that correctly interpreted?

I believe there is a close connection here. Tor mentioned he has been involved with LNG for 15 years and doesn't want to wait another 15 years for hydrogen. We are definitely an LNG company and are working on developing our strategy as we reorganize some of our assets. Our primary goal is to create value for our shareholders by bridging the gap we've discussed. Regarding ammonia and carbon, we are prioritizing LNG, which is a carbon-intensive process. However, we have an advantage due to our heat recovery methods on floating LNG units, resulting in a competitive carbon footprint compared to onshore facilities. We are exploring ways to enhance carbon sequestration at our LNG facilities, especially the Mark III, which has ample space for modular CO2 sequestration linked to the main cryogenic equipment. Additionally, we are studying how to support the hydrogen economy, focusing on the idea that hydrogen will be transported in ammonia form due to its higher energy density, ease of transport, and established industry practices. So we can't ignore it. It's important. It's important for the world and society and looking at hydrogen. And I think we've got some of the capability to do it. But it's a long way out, and it's not going to turn cash tomorrow. But we still have to talk about the fact that we're progressing it. So yes, we're an LNG company. We can improve the carbon footprint of CO2, and a natural successor to LNG and energy transition is ammonia.

And then I see sort of the rationale for you cooperating with NFE and peak sort of cooperation and projects. But do you sort of see that dependent on you owning a big stake in that company?

Not necessarily. I believe having a shareholding in a company creates perfect alignment, even if it's not a large one. When you have a stake in a company and share a common future, it fosters alignment. In my experience, the best business relationships arise when both companies benefit from collaborating on something that is greater than what they could achieve individually. This is essentially what we are communicating: we have a good relationship with New Fortress, and we aim to enhance it while seeking revenue synergies. To maintain our alignment, as our Chairman mentioned, we plan to retain a stake in that company, which will also benefit us as they grow and succeed.

Okay. And in terms of Tor's big picture vision on the LNG. I guess, it's well received in sort of industry circles. But I guess towards the investors, he would immediately be standing off with the methane slip issue. But I was just wondering what is sort of your thoughts around this topic that is definitely on the mind of investors?

We are currently examining the issue of methane slip and will provide more information when we release our ESG report around the same time as our 20-F filing later this year. Methane slip is particularly influenced by the engines in LNG carriers, which are responsible for most of the emissions. The industry is discovering a connection between the level of methane slip and the workload of these engines. There is a direct relationship between the amount of boil-off gas produced and the CO2 emissions, which becomes more complex as engine speeds vary. We are working towards finding an optimal balance that reduces both CO2 emissions and methane slip. I believe this is a challenge that the industry needs to address collectively, and we are actively participating in discussions with manufacturers to contribute to a solution. We recognize that this is a collective problem and are committed to finding a resolution.

I want to make a difference in the CO2 landscape, and hydrogen is a key focus. It's important to note that the current hydrogen market is larger than the LNG market, with most of it going into the refinery industry. For every kilo of hydrogen produced, 8.2 kilos of CO2 are generated. Therefore, starting with the hydrogen sector is a crucial step in addressing pollution, as it is one of the major contributors to CO2 emissions. We acknowledge your perspective, and our approach will encompass reducing emissions from various sources, including engine efficiency. This point aligns with earlier discussions where Total emphasized that their primary objective is not just to minimize methane emissions from LNG. Addressing methane emissions and carbon capture is likely a more practical short-term goal compared to the long-term trends we are aiming for. Focus is essential.

We take our contribution to this whole environmental and emission side very seriously, and that's why we embarked on our ESG publication journey, some maybe 24 months ago. I don't mean to cut you off, but we are absolutely out of time. So thank you for listening, everybody and for your questions. Please stay safe, and we look forward to sharing our progress with you next quarter. We will end it there and hand it back to you, operator. Thanks and goodbye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.