Golar Lng Ltd Q3 FY2025 Earnings Call

Welcome to the Golar LNG Limited Third Quarter 2025 Results Presentation. After the slide presentation by CEO, Karl Fredrik Staubo; and CFO, Eduardo Maranhao, there will be a question-and-answer session. I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead.

Thank you, operator, and good morning from our head office in Bermuda. Welcome to Golar's Q3 2025 Earnings Results Presentation. My name is Karl Fredrik Staubo, the CEO of Golar, and I'm joined today by our CFO, Eduardo Maranhao. Before we start the presentation, please be aware of the forward-looking statements. Starting with an overview of Golar, our existing fleet of 3 FLNGs is now fully contracted with 20-year charters, creating a total EBITDA backlog of $17 billion before considering commodity upside and inflation adjustments. With the existing fleet contracted, our primary focus is on developing our fourth FLNG unit. We have made considerable technical and commercial advancements in determining the size and design for this new unit, with three different growth designs being considered: Mark 1, 2, and 3, with liquefaction sizes ranging from 2.5 million tons to 5.4 million tons. We expect to finalize the next FLNG project in the coming months. In the past five months, we've secured over $1 billion in new corporate debt facilities and cleared our October Norwegian bond maturity of $190 million. After these developments, our cash position stands at $1 billion, with net debt around $1.4 billion. In the last year, we generated $221 million in adjusted EBITDA, primarily from Hilli's operations. Our EBITDA is poised to quadruple from contracted amounts as our fleet is fully delivered by 2028. A major highlight from the quarter is the final FID and successful fulfillment of all conditions precedent for the Mark II's 20-year charter in Argentina. This gives us earnings visibility for all of our assets through 2045 and beyond, with the total earnings backlog remaining at $17 billion before commodity upside and inflation adjustments, reinforcing our base to introduce additional FLNG projects. With regards to our FLNG charter agreements, we focus on structuring our long-term contracts to ensure solid infrastructure cash flow with significant protections. All contracts are denominated in U.S. dollars, with cash flows paid offshore and net of local taxes, governed by English law. Operating costs and maintenance CapEx in long-term contracts are either passed through or reimbursable. We also possess added fiscal protections for our two contracts in Argentina, including 30-year export licenses and safeguard from changes in fiscal or regulatory terms via the RIGI framework. We have corporate guarantees from our counterparties' parent companies for a substantial part of the contract backlog to secure cash flows. Our objective is to locate appealing gas reserves globally and leverage our FLNG technology to monetize these assets alongside strong upstream partners. We aim to mitigate country risk by securing robust contractual protections and creating a buffer between Golar's operations and the host countries. In Q3, we experienced one of our strongest quarters ever, adding $8 billion to our firm EBITDA backlog following the FID and conditions precedent for the Mark II charter in Argentina. We also entered the U.S. unsecured market with our first documented $500 million bond at a 7.5% coupon. Furthermore, we retired a Norwegian bond with a net amount of $190 million due in October. We signed the Hilli redeployment agreement, which will reposition the vessel back to its original shipyard in Singapore. We also approved purchasing long lead items for the fourth FLNG and initiated a new $150 million buyback program, continuing our history of repurchasing shares in the past five years. The Hilli continues its leading operational performance, achieving 100% economic uptime and delivering 142 cargoes, totaling over 9.8 million tons of LNG, generating $51 million in adjusted EBITDA for Golar this quarter. Regarding the Gimi, which began commercial operations under a 20-year contract for BP offshore Mauritania and Senegal in June, we are encouraged by improving throughput and fine-tuning operations. We are collaborating with GTA partners to enhance project value through efficiency improvements and debottlenecking production capacity, which could increase Gimi's earnings potential. We are also in advanced discussions to secure a $1.2 billion bank refinancing facility for the Gimi, expected to close soon. Focusing on the Mark II project, we are on schedule for delivery in Q4 2027 and operations to start in 2028. To date, we've invested $1 billion in the $2.2 billion conversion budget, fully funded through Golar's equity. Photos show the ship's progress, including a key laying ceremony for the new mid-ship section that will house the liquefaction plant. Year-to-date, we've secured $14 billion in adjusted EBITDA backlog across Hilli and Mark II, enhancing our portfolio with a base EBITDA of $685 million over 20 years before addressing commodity upside and inflation adjustments. We are committed to adding Unit #4 and have acquired updated pricing and timelines from three shipyards, facilitating our decision-making. In summary, it's evident that the FLNG industry is poised for considerable growth, much like the FPSO sector in the past. We are positioned to capitalize on this development and plan to maintain an active growth strategy as long as we can secure favorable economics relative to our existing contracts. The gas liquefaction industry is governed by three primary cost factors: lifting, liquefaction, and transportation. The U.S. currently leads in LNG exports and incremental supply growth, but our projects are often situated closer to end-users, giving us a competitive advantage. We remain optimistic about identifying and developing gas projects that leverage these advantages. Now, I’ll hand it over to Eduardo for the group results.

Thank you, Karl, and good morning, everyone. I'm pleased to give an overview of Golar's financial performance for the third quarter of 2025. So moving to Slide 18, let's review the key financial highlights of the quarter. Following Gimi's COD in June, this was the first quarter with full operations of both of our units. I'm pleased to share that Gimi has been performing extremely well and daily production is now frequently exceeding base capacity. We achieved total operating revenues of $123 million in the quarter and net FLNG tariffs of $132 million in this quarter. Hilli contributed $51 million to our EBITDA, while Gimi added $48 million this quarter. In connection with the start-up of operations of Gimi, we incurred certain one-off expenses, which are expected to be normalized in the next quarters. When accounting for the corporate and project development expenses this quarter, our total adjusted EBITDA reached $83 million. Total EBITDA for the last 12 months ended in Q3 was $221 million. This quarter, we reported a net income of $46 million. This figure is inclusive of $12 million of non-cash items, such as adjustments in the value of embedded TTF and Brent derivatives within the Hilli contract as well as changes in our interest rate swaps. In October, we raised $500 million under our first U.S.-rated senior unsecured bonds with a new 5-year note at a cost of 7.5%. Following that, we repaid $190 million of our unsecured Norwegian bonds issued back in 2021. Our liquidity now stands at approximately $1 billion of cash on hand. So following that, our net debt position right now stands at just under $1.4 billion. Lastly, we're pleased to declare a dividend of $0.25 per share this quarter with a record date of November 17 and payment scheduled for November 24. Now moving to Slide 19. We continue to focus on accretive growth while maintaining a sustainable policy of shareholder returns. As our units come online, we plan to return most of operating cash flow after debt service to shareholders, while we'll continue to recycle capital through asset level financings and existing debt optimization to fund accretive growth. These are not mutually exclusive. Over the last 5 years, we returned more than $800 million to shareholders, including dividends of over $260 million and buybacks of more than 9.3 million shares at an average price of $125 per share, bringing the total share count to 102 million shares outstanding at the end of Q3. In line with that, I'm pleased to announce that our Board has approved a new buyback program of up to $150 million. Now moving to Slide 20. Following the announcement of the Mark II FID and CP's fulfillment, we now have full visibility of our earnings for the next 20 years. This gives us a clear path to cash flow growth and increased shareholder returns. By 2028, when our 3 FLNG units are fully delivered and operational, we expect our EBITDA to grow by more than 4x compared to the last 12 months. This can grow even further, subject to further commodity upside from Hilli and the Mark II. This incremental free cash flow upside under the SESA charters in Argentina can be estimated at approximately $100 million per year for every dollar per million Btu increase in FOB prices above $8 per million Btu. In 2028, when the Mark II comes online, our free cash flow to equity generation could be around $500 million to $600 million or approximately $5 to $6 a share before further commodity upside. Now moving to Slide 21. So how do we plan to fund that growth? Going forward, we plan to use the liquidity released from debt financing proceeds to be allocated to fund accretive FLNG growth. We have now received final credit approvals for a new $1.2 billion bank facility for FLNG Gimi at improved terms, and we expect it to close within Q4. This facility carries improved terms and conditions compared to the current one and is expected to release net proceeds of over $400 million net to us. At 5.6x the Gimi's annual contracted EBITDA, this is a good example of what can be achieved on the back of our long-term charters. When looking at our existing debt at Hilli and targeting a level of 4x to 5x its annual contracted EBITDA, in that case, even at a lower level than the Gimi one, we could release up to $1 billion in proceeds from that by refinancing the existing debt with a new facility. Similarly, if we apply the same multiples to the Mark II, which is currently completely unencumbered, we could be looking to raise up to $2 billion from new financings. Combined, these 2 transactions could raise up to $3 billion in fresh proceeds, which can be used to fund further FLNG growth. Now moving to Slide 22. Following the confirmation of the contracts in Argentina with the FIDs of Hilli and the Mark II, we now have a total firm EBITDA backlog of more than $17 billion before commodity upside and further inflation adjustments. I wanted to recap how this is built up once all units are in operation. Starting with our share of the Gimi earnings. This is expected to add $150 million, followed by the $285 million from Hilli, as you can see on the slide, and $400 million from the Mark II. When you deduct our corporate expenses, we're left with a base EBITDA of $800 million fully secured for the next 20 years. As I explained before, changes in LNG prices could significantly give a very high upside to us. And in that case, we have a limited downside with a very significant and uncapped upside. For example, if we assume FOB LNG prices of $10 per million Btu, our EBITDA could be in excess of $1 billion per year. At $15, this number could grow to $1.5 billion. As a reference, if all the units were in operation in '22 and assuming LNG prices during that time, we could be earning close to $3.5 billion in that given year. This really shows the huge upside potential of our commodity upside. So lastly, on Slide 23, I wanted to summarize the different ways our investors can have exposure to Golar. Our shares are listed on NASDAQ, and I'm pleased to see increased volumes with daily liquidity exceeding $50 million per day. Following our latest issuance of our new U.S.-rated $500 million unsecured bonds in October, we now have 2 unsecured bonds trading in the market with a total outstanding amount of $800 million. We have also issued $575 million of convertible bonds back in June. So I think that ends this slide here. I'll now hand the call back to you, Karl.

Thanks, Eduardo. Turning to Slide 25 to summarize. We're very pleased with the development of the quarter and in particular, 2025 year-to-date. We remain the only proven service provider of FLNG as-a-service, combined between Hilli and Gimi having now delivered more than 150 LNG cargoes. Our earnings backlog now stands at $17 billion of EBITDA before commodity upside and inflationary adjustments. This will further increase as we add additional units. Our EBITDA is set to quadruple between now and 2028, and the pathway to multiple return in shareholder returns is beyond the quadruple as the EBITDA growth is far in excess of debt service growth. We remain in a strong balance sheet position to provide for additional growth units. Our fully delivered net debt-to-EBITDA stands at around 3.4x with a current cash position of around $1 billion. We're on track to order our fourth FLNG unit, and we're in the process of ordering long lead items during this quarter. Our focus remains on shareholder returns, and we're pleased that the Board approved yesterday a new $150 million buyback program, which is in line with the $812 million returned to shareholders in the last 5 years. That concludes the prepared remarks of today's presentation. I'm happy to turn the call back to the operator for any questions.

Your first question comes from Chris Robertson from Deutsche Bank Securities.

We have noticed some correlation between the share price and the Argentine market following the recent election cycle. One potential way to lessen the market's perception of risk in Argentina is if SESA can secure long-term offtake agreements. Could you provide insights on SESA's current strategy regarding long-term offtake sale purchase agreements and their progress in that area?

We've noticed similar patterns, which is quite interesting. We attempted to clarify the structure of our contracts on Slide 5 of this presentation. These contracts have a duration of 20 years, and we have designed them to be independent of political parties. While we are pleased with the outcome of the election, the final investment decision for the Mark II was made before the election results, and we do not believe that the election outcome will significantly affect our earnings. Nevertheless, we are glad to see the progress. Regarding long-term offtake, that is a decision for SESA. We are shareholders of SESA, and the current plan is to secure offtake for the Hilli volumes for a substantial period. We are encouraged by the level of interest in that offtake. As we mentioned earlier, there is a global push to diversify LNG sources, and Argentina's position with the world's second-largest shale discovery makes it very appealing as a long-term and major LNG exporter in the upcoming decades. We anticipate strong interest from large industrial and trading companies for that volume, and we expect the first offtake contracts to be signed within this quarter.

Great. Just turning to the donor vessels at the moment, they seem to be relatively cheap. That being said, there's a little bit of cost inflation as you probably saw here on long lead items and also from the shipyards just being relatively full. So with that in mind, can you comment if the future projects could target a similar potential CapEx to EBITDA ratio of 5.5x, as you noted in the slides here? Or is that calculation a bit different with recent costs? And if you could comment on where total CapEx stands today on some of the new potential projects?

I think it's fair to say that the topside equipment, the topside equipment cost inflation and construction time offsets the saving of the donor vessel and more so. The cost inflation pressure is higher than what you save on the ship, even if they do partly net off each other, but stronger pressure on the upside to put it that way. However, we're pleased to see that that's also the case for liquefaction fees. And we are planning or targeting to do new projects with similar economics on CapEx to EBITDA ratios versus the existing projects.

And just as a follow-up on that. If you were to move forward with the Mark II having that option at the shipyard, would that be locked in at the similar price of the Fuji? Or has there been some cost inflation that could impact that as well?

You have a cheaper donor vessel than the Fuji. You have higher long lead items. But the overall price, I would say, for this context is broadly in line with a slight increase. Broadly in line with the existing Fuji.

So I have a question related to Gimi and the capacity of that ship. I know you answered something similar before and touched upon it in your presentation, but one of your partners is very vocal about the potential raising the nameplate capacity of that ship. I think the specific number is about 10% to 20% above the current nameplate capacity. So do you have any comments or color on that statement? And if it's possible?

Yes. When discussing nameplate capacity, there are a few figures to consider. The nameplate capacity of Gimi is 2.7 mtpa, while the contracted volume is 2.4 mtpa. The $215 million annual EBITDA figure we mention is based on the 2.4 mtpa, which represents 90% of the 2.7 mtpa. It is possible to produce more than 2.4 mtpa, potentially up to 2.7 mtpa. We are currently evaluating the possibility of exceeding 2.7 mtpa through a debottlenecking process, which may involve upgrading some equipment. However, we cannot specify how much beyond 2.7 mtpa we might be able to produce at this point. Modifying a single component could lead to a production increase of 15% to 20%, but it may also create bottlenecks elsewhere in the liquefaction plant. A comprehensive assessment of the entire system is needed to determine the overall debottlenecking potential. For now, we believe producing more than 2.4 mtpa is feasible, dependent on upstream operations and ambient temperature. Exceeding the design nameplate capacity is possible, but we won't commit to specific percentages until the debottlenecking exercise is complete.

Okay. So my second one is on the market for FLNGs. As you've said, there has been a growing number of LNGs and interest in that market. But we also see new companies that are doing FLNGs like Delfin LNG and Amigo LNG. And these companies are private, so we don't really know much about the CapEx or contract structures that they get for the tollings, etc. But do you have any information when it comes to how do these units compare to yours in terms of competitiveness? And are you also seeing more competition when it comes to potential projects that you are looking at?

We are pleased to see an increase in the adoption of FLNG technology. While I won’t go into specific projects mentioned, it is encouraging to witness this growth. It is important to note that there are still more companies presenting FLNG concepts than those actually implementing them. Moreover, the projects you referenced do not currently offer FLNG as a service; they are using gas they own or control rather than partnering with outside upstream players. Regarding competition for shipyard slots and long lead times, we do see increased competition, but it is driven not only by FLNGs but also by AI data centers, container ships, and LNG ships. However, there is no current competition for FLNG as a service.

First question, I wanted to hit quickly on the buyback. The buyback was linked to those notes you did early this summer. Curious how you're thinking about deploying this program and what metrics you'll be looking at each quarter to decide how much you're going to repurchase?

Spiro, this is Eduardo here. So as we stated during the call, over the last 4.5 years, we bought back over 9.3 million shares. I think we have taken a pretty opportunistic approach to that. Following the convertible bonds, we bought back 2.5 million shares and the previously approved program had then been exhausted. So I think we have received approval yesterday from the Board for a new program of up to $150 million, which we will continue to actively and opportunistically execute in the market in the coming months. I think we will not change our approach to buybacks as we have been consistently doing over the last 4.5 years.

Got it. So that's great to hear. Second question, maybe just moving to the fourth FLNG unit. Curious if you could put a finer point on maybe some of the gating items here to moving forward. I realize you talked about some of them, but you also mentioned going back to potential customers you had spoken to before. Curious how big that list is and maybe why they're stronger candidates now versus not prior?

The list of current clients is clear: Perenco, BP, Kosmos, and the SESA partnership. With Hilli leaving Cameroon, there are significant gas reserves in the country that remain unutilized. Once we depart, LNG exports from Cameroon will cease. We have a demonstrated operating model there and a successful collaboration among all parties. We would be happy to continue our work in Cameroon if we can secure the right resources and terms. For the GTA project, various options are being assessed to improve its unit economics, potentially involving increased liquefaction capacity. In Argentina, there is a strong interest in expanding exports, highlighted by a recent announcement involving YPF, Eni, and XRG. Our current clients are clear, but we are also considering other prospective clients for the Mark II and Hilli projects. Some of these candidates have made progress since last year, securing gas approvals and export rights, which positions them better for FLNG projects. We are continually developing business opportunities, even in regions where we are not yet active. We recognize strong demand from West Africa and South America, and it will be interesting to see if we can explore other potential areas that we are currently discussing.

Maybe I'll just pick up on that last one. It sounds like you are lining up for a fourth vessel order effectively before we know exactly where it's going, similar to what you did last time, makes sense. But I guess my question is going with the Mark I or Mark II or Mark III, each of those kind of has a different market where it could end up going. So I was just wondering if you could kind of talk about where you're seeing the commercial opportunities relative to each of those 3 options.

John, so you're right. As we said in the prepared remarks, we are planning to narrow the design in the coming months. The long lead items, the critical long lead items are, in fact, the same or interchangeable between the designs. It's mainly the gas turbine and the cold box. The difference is the magnitude of how many turbines you order for the different designs. When we make the slot reservation and commitments to the long leads, it is interchangeable. And therefore, the reason for going ahead with that now is that, that's still flexible to design, subject to the deciding design in the next coming months. And that's where we're targeting. Where we see the smaller ones, so the Mark I, that's West Africa business, the way we see it. Mark II is more versatile in terms of geographical or geography. And Mark III effectively currently has 2 projects that we're working on. So that it's fewer projects for Mark II than necessarily for Mark III than the other 2. But yes, so we're now planning to narrow that range to decide on which vessel to go for. There are two important pipelines to note. The simpler one connects the current grid to the Hilli and is currently under construction and progressing well. The other pipeline, which you mentioned, runs from Vaca Muerta to the Gulf of San Matias. This pipeline is part of a SESA work stream that is separate from our contracts since we receive payment as long as we are on site and available, regardless of our liquefaction status. However, it is crucial for us that this pipeline is completed as it enhances our potential and overall economics. SESA is actively working on auctioning the EPC contract and/or establishing a tariff-based service agreement, depending on the chosen model. We understand that they plan to finalize a contract and award it in the first half of next year, and the pipeline construction will take less than two years, aligning well with the arrival of Mark I. They are also addressing all necessary regulatory requirements, including right-of-way and RIGI protection. The positive aspect is that most of the pipeline's route will run alongside the oil pipeline approved last year, so the right-of-way has already been established. We believe this is a straightforward process, and SESA appears pleased with the interest from potential EPC providers for the pipeline.

Just wanted to pick up on just a couple of the previous questions on some of the commercial demand or rather demand for FLNG units. Are there any pockets of demand that surprise you? Any specific regions where you feel commercial discussions have picked up more so than others?

I don't think surprise is the right word. These are very large infrastructure projects that require a lot of stakeholder and a lot of time. So to say that it's surprising, I don't think it's right to characterize. But what we do see is that as we've said a few times on the call, there's an increasing industry adoption. People are not scared of deploying an FLNG anymore. And it's a bit like if your neighbor has one, you want one, too. And if you just look at where FLNGs are deployed or being planned to be deployed in terms of contracts already sanctioned and just look at the neighboring countries, they all have pretty much the similar reserves. Why would your neighbor do something and make billions of dollars of LNG cash flows a year when you're not. And that dynamic is now ongoing, stronger than previous because more people are adopting the projects. The question might be better directed to BP or Kosmos. The process involves interaction, where gas is extracted from the ground, goes through a BP-operated FPSO, and then is sent to the Gimi, which is part of a BP-operated hub before being offloaded. When discussing debottlenecking, it's important to consider the entire process from extraction to loading onto a ship, not just the Gimi. One key performance indicator for an FLNG is the quality of gas entering the unit and the ambient temperature. While adjusting ambient temperature can be challenging, methods like air inlet cooling can be utilized. Hence, debottlenecking is about optimizing the entire value chain to ensure that every dollar spent maximizes output. We're currently exploring ways to enhance gas treatment on the FPSO to deliver a more optimized gas stream to the FLNG, potentially increasing throughput. This conversation does not necessitate moving the Gimi, as it will remain in place. There might be a need for maintenance shutdowns of the trains, but it wouldn’t involve shutting down all four simultaneously; rather, you would take one train offline for a week for upgrades or equipment changes before moving on to the next. This would be coordinated with upstream efforts to enhance output, and the net present value of such initiatives would be significantly favorable even if there isn't immediate incentive to execute them since operations are currently running smoothly. This presents an opportunity that could be beneficial for all parties involved.

You're talking about future projects, and you pretty much have an idea of what the cost of the FLNG is. When you're looking at the implicit returns on that project, are you looking at just tolling agreements? Or do you factor in some sort of commodity premium on the cash flow generation of future LNGs?

The latter. So to explain, we do not want to be in any project if the cash breakeven of the project is not competitive. Then it's a partnership that sets up for failure over time. And by competitive, we mean competitive to U.S. exports. So the way we try to structure the project is to charge what we think is a fair but also attractive to Golar firm tolling part and then a commodity upside if the achieved FOB price significantly overshoots the cash breakeven of the project. In that way, we can make a project with an attractive cash breakeven to all the stakeholders and aligned structure on making money together if and when gas prices go up. The only thing we know is over the next 20 years, nobody knows where the gas price is going. It will be volatile. So it's important to have an attractive cash breakeven and capture the upsides when they're there. Yes. So if you look at our units, they're getting more efficient. The Gimi is slightly more efficient than the Hilli Mark II is quite a bit more efficient than the Gimi, both in terms of fuel consumption, emissions, water intake, many different things. So we're constantly adopting technology advances. Like think of it as a car. If you bought the Volkswagen Golf 5 years ago and you ordered a new one now, it looks very similar, but it's got a nicer radio, better sound system and whatever else it has, better headlights. It's the same car, but it's nicer.

So the buyback program was reloaded in Q3. And in the past, you've shown some flexibility regarding how to reinvest in the company. So my question is, how are you thinking about shareholder returns through buybacks versus that outstanding 30% interest in the Gimi given where the stock is today?

The $150 million is allocated for share buybacks. Regarding the Gimi, Keppel Capital owns a 30% stake. If we can acquire that stake in a way that benefits our FLNG growth or aligns with our current market position, we will certainly consider it. If not, there’s no need for us to pursue the purchase. Okay. To give you an example, up until June this year, the delivery time for a gas turbine was 24 months. In June, some of these were down to almost single suppliers. One of these suppliers sent a letter to all its clients saying lead times increased from 34 months to 24 months to 36 months, resulting in a 1-year delay. If you're an existing client with an ongoing program, you might be able to fit in somewhere in the middle. However, you're facing significant potential delays unless you secure the long-lead items, which is why we are proceeding now. In developing these projects, knowing your start time is essential for driving commercial value. If you keep postponing the critical items, even if the shipyard is ready with everything else, without the topside equipment, you won't get the ship.

This concludes today's question-and-answer session. I will now hand back for closing remarks.

Thank you all for dialing in. As we said, we're now in Bermuda. Eduardo and I will head to New York later today and hope to see some of you there over the course of today and tomorrow. Other than that, thank you for listening in, and we're pleased to stay in touch. Thank you.

Have a good day.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.