Earnings Call Transcript - GLNG Q2 2020

Iain Ross, CEO

Good morning, good afternoon, everyone. Welcome to the Golar LNG Q2 2020 Results Presentation. My name is Iain Ross, I’m CEO of Golar LNG. Today, I’m joined on the line by our new CFO, Callum Mitchell-Thomson; and Stuart Buchanan, Head of Investor Relations. We’re also pleased to have Eduardo Maranhao, CFO of Golar Power, on the line to participate in today’s call. I want to draw your attention to our forward-looking statements on Slide 1. Now, turning to Slide 4, let me give you some highlights before Callum takes you through the numbers in more detail. Today, we report an adjusted EBITDA of $67 million on revenue of $102 million for the quarter, driven by solid FLNG performance and better seasonal results in shipping. We commend the entire team's effort in keeping the business running remotely and to our offices and crews on board who coped with longer work cycles than normal while dealing with various restrictions and constraints in doing their jobs. I’m pleased to report further improvements in our ability to crew change, with most of our staff having successfully completed their changeovers. In shipping, our time charter earnings of $45,000 per day for Q2 represent an 88% rise over the same period last year. We continue to derisk our shipping portfolio and ended the quarter with a shipping revenue backlog of $105 million. Our FLNG operations maintained 100% commercial uptime throughout the quarter, with a further 6% reduction in operating costs compared to the first quarter, along with stable EBITDA generation. Additionally, in downstream, Golar Power received full capacity payments on Sergipe and Nanook, with Golar’s share equating to $19 million in revenue, less operating costs. The small-scale rollout was buoyed by the signing of a partnership with Galileo, and the MOU signing with Norsk Hydro for the provision of LNG and regas capacity into the Alunorte Alumina refinery in Brazil will reduce the refinery’s CO2 output by around 600,000 tons per year. This is equivalent to the carbon capture of about 10 million tree seedlings planted and grown for 10 years. It’s a great ESG story. More details on these segments later. Let me now hand over to Callum to take you through the numbers.

Callum Mitchell-Thomson, CFO

Well, thank you, Iain. Good morning, everybody. If you turn to Page 5, the second quarter 2020 financial results are shown in more detail here. Iain mentioned the $103 million of operating revenue. You can see that in the blue column. That is a 14% beat on the consensus $90 million for the quarter and is achieved with the stability of the $55 million from FLNG, as Iain mentioned. Given Hilli’s stability, that is a very stable and well-performing asset. Secondly, we recorded $48 million of operating revenues from shipping and corporate, which is down due to the typical seasonality that Iain referred to in TCE rates but is an improvement over Q2 in 2019. That change is largely driven by the reduction in TCE rates, partially offset by some additional improvements in vessel management, which I’ll discuss in a moment. We produced a net loss for the quarter of $156 million, largely driven by a $135.9 million impairment on our shares in Golar Partners. We own approximately 33% of that business, and U.S. GAAP requires us to take that impairment when we deem the drop in stock price as anything other than temporary. We’ve written the business down to the current market level, which conforms to U.S. GAAP requirements and is something we’re comfortable doing. That revenue performance of $103 million generated the adjusted EBITDA of $67 million that Iain referred to, which represents a 23% beat versus NASDAQ EBITDA consensus for the period. That 23% beat is based on the 14% improved beat on revenues, plus some cost-cutting that we’ve managed to achieve that I’ll elaborate on shortly. That $67 million is broken down by $41 million out of FLNG, stable over the quarters, and $32 million from shipping, which is down due to seasonality compared to Q1, but is an improvement on the same quarter in 2019. Lastly, regarding our cash position, we committed at the start of quarter one to manage our cash position and preserve liquidity due to the circumstances of the COVID-19 crisis. I’m pleased to say that our cash position is stable, largely due to continued cash generation in the business and refinancings we managed to achieve, one of which was ahead of schedule. Adjusted EBITDA of $67 million represents a 23% beat on consensus; stability is seen in FLNG and the seasonality of shipping, which is partially offset by cost-cutting. If you turn to Page 6, you will see the adjusted EBITDA development over the last 12 months. Note the variation against the quarter Q1 on the left-hand side. We referred to the reduction in TCE rates down to $45,000, which showed a $20 million impact. Working down the page, you can see the decrease in expenses I mentioned, which works to mitigate the seasonality issues. It’s essential to note that this expense reduction stems from two factors: good work by the team to optimize expenses, alongside the impact of COVID-19. As many companies are experiencing, we’re still navigating how expenses may return once the global pandemic eases, so not all of that expense reduction can be viewed as a reduction in through-cycle run rates. Additionally, our trailing twelve months adjusted EBITDA has remained broadly stable over the past year. Now, regarding cash and liquidity, please turn to Page 7, which shows our liquidity development for 2020. The top bars illustrate Q1 events; our cash balance at the end of March stood at $235 million. This progression continues to the $225 million balance as of June 30, shown here. Operating cash flow is positive, albeit less than in Q1 due to the seasonality just discussed and impacted by some CapEx. Debt service is stable, with other movements less pronounced, followed by the Bear refinancing. We committed in Q1 that by Q3, we would refinance three vessels, and we completed the Bear early, yielding $40 million of additional liquidity gross, approximately $38 million of which is unrestricted cash. The details of the reconciliation between the two will be outlined later, but broadly speaking, some debt service associated with the Bear is included in the $80 million debt represented in the bar chart. As for the outlook for the remainder of the year, there is no real change in what was mentioned in Q1, reflecting our plans and stability. We're in the process of refinancing a $150 million bilateral loan due in November 2020, alongside a $30 million outstanding margin loan due August/September 2020. We've committed to establishing a revolving credit facility with several banks; discussions on that front are advanced and have yielded positive momentum. While we’re not finished, we aim to finalize this by Q3. Additionally, we have two routine refinances that we committed to, the Frost and the Seal. The Seal will not generate additional liquidity, serving mainly to remove the put option that occurs in January next year. The Frost is set to provide additional liquidity, and we have term sheets broadly agreed, currently navigating due diligence and other items with lenders. This refinancing is subject to market conditions, but as it stands, we feel broadly optimistic. Again, it's important to note that based on achieving these now three, previously four refinancing, we believe that anticipated CapEx, debt savings, and operating cash flow will be sufficient to cover our needs for the remainder of 2020.

Iain Ross, CEO

Thanks, Callum. If we turn to Slide 9 and shipping, the second quarter saw a continued decline in TFDE spot rates to around $30,000 a day for much of the period before beginning a slow recovery after the quarter. These lower rates arose from a mix of seasonal LNG demand decline and reduced overall global economic activity stemming from the COVID pandemic. For the U.S., cancellations kept ton miles low during the quarter, but we still expect a degree of slow steaming and storage to emerge toward the end of the year, boosting rates through the northern winter before overall volumes increase again in 2021. Our shipping strategy contributes positively toward our TCE, protecting the downside through the shoulder season, which is clearly illustrated in the graph on Slide 9. Comparing the last three quarters—from Q4 2019 to Q2 2020—with the prior corresponding 12-month quarters from Q4 2018 to Q2 2019, we’re generating significantly more adjusted EBITDA, primarily driven through the commercial shipping strategy and the increased utilization of the fleet. On Slide 10, you can see that we’ve offset some of that seasonal decline in rates through reduced costs, as Callum indicated, while some operating cost reductions will be incurred later in the year due to implementing deferred maintenance. However, we have carried out permanent cost reductions and will continue to seek more. Despite the backlog burn during the quarter, our backlog remains very strong compared to 12 months ago, with around half of the backlog on fixed rates and the other half on some form of market-related or floating-rate structure. We're concentrating on building backlog and managing our costs. We expect Q3 TCE to be around $35,000 per day. While these lower LNG prices are challenging for the current shipping market, we believe that lower LNG prices will continue to stimulate LNG demand as a cleaner alternative to coal and other more polluting fossil fuels. Lower LNG prices will accelerate its use as a transition fuel for the next decade and beyond, leading to increased demand for liquefaction. LNG producers will look to develop liquefaction projects at lower costs. Associated with this increase in LNG volumes produced, we expect corresponding increase demand for shipping in the future. Golar distinctly positions itself between the oil majors and NOCs in both midstream LNG production and downstream LNG distribution to local gas and electricity customers. Turning now to the production of LNG, specifically our FLNG units. Slide 12 illustrates our Hilli Episeyo offshore Cameroon, which has delivered consistent quarterly earnings, as Callum explained. We’ve offloaded 42 cargoes, maintaining 100% commercial uptime, and we've produced over 2.5 million tons of LNG since the unit came on stream in 2018. We continue to engage with Perenco, our customer, regarding potential increased throughput on Hilli, but have no concrete agreements to report this quarter. We're still receiving interest for the use of Hilli following the Perenco contract that runs for the next six years. Slide 13 discusses the status of our 20-year FLNG Gimi lease and operating agreement with BP, which sent Golar an FM delay notice due to the COVID pandemic and continues to estimate that delay at around 12 months. The impact of the Singapore circuit breaker, known for the country's COVID-19 response, persists, as this shutdown temporarily affected the Keppel Shipyard, our contractor in Singapore. The yard reopened last month, and Keppel is working to ramp up its workforce, currently at around 500 workers on the project adhering to the restart plan. To summarize the status of the Gimi project in three points: Firstly, we’re engaged in proactive discussions with BP, partners, financiers, and contractors regarding the situation. Secondly, we have a rescheduled program that accounts for delays caused by the Singapore shutdown. Thirdly, while discussions are ongoing, we anticipate satisfactory conclusion on this matter, with no expectation of exceeding the total project budget due to the overall delay of approximately 12 months, which will positively impact near-term cash flow through delayed equity injections into the project. Confidently, we must respect that while specific details remain confidential at this time, I regard these updates to be vital. Briefly, on the Viking FSRU Conversion project, the dedicated project team and contractors are diligently working to minimize any COVID-related challenges. Our current plan aims for the vessel to depart from China to Europe around late September, with delivery and commissioning by year-end per the original timeline. Furthermore, we’ve extended our collaboration agreement with one IOC to evaluate FLNG applications in their portfolio. Also, our Mark III newbuild is making headway both in design refinement and identifying deployment opportunities. We believe that our streamlined process design, combined with a 'design one, build many' approach, will keep costs low, timelines short, and achievable payment terms. It's also critical that our energy management system results in superior efficiency compared to many onshore facilities, leading to lower carbon emissions on a comparable basis. Turning now to downstream and the progress made by Golar Power this quarter. Slide 15 provides an overview of our developmental strides, with additional details on Slide 16. The MOU signed with Norsk Hydro outlines Golar Power's delivery of gas to the Alunorte Alumina refinery in Barcarena. This represents an exemplary case of Golar Power providing a cost-effective solution, resulting in a major reduction of CO2 emissions for our customer. This established customer, alongside the previously mentioned 605-megawatt PPA award, supports Golar Power’s investment in the FSRU terminal at Barcarena, with FID expected around year-end. From this point, we anticipate proceeding with small-scale distribution across the State of Para, with FID for the Para station expected in the middle of the upcoming year. The agreement with Galileo, a producer of both land-based gas and biomethane from landfills, further propels the small-scale rollout in the Brazilian states of Bahia and Sao Paulo, with operations slated to commence later this year. This agreement harmonizes with our earlier partnership arrangement with BR, enabling biomethane-sourced LNG to be distributed through the BR network across Brazil, complemented by sources from our terminals and FSRUs. The permitting process is progressing for an FSU positioned at a new terminal in Suape, Northeast Brazil. The first ISO containers have reached the region, with terminal FID projected around year-end. Key regulatory and environmental licenses have been secured for the Santa Catarina terminal, moving forward with development planning. Concurrently, we’re assessing various international locations that could replicate this model; currently, we are exploring 15 different opportunities to internationalize our business. On Slide 17, we provide more details on the small-scale rollout. The volumes available for small-scale distribution are depicted in the graph on the bottom left side of the slide, with a projected increase shown in gray for 2022, indicating the climb in volumes available following the Barcarena FSRU’s implementation. The power stations and the Barcarena Alunorte deal underpin the terminal development and reinforce the FSRU’s commitment. I believe this graph illustrates the immense upside potential of these vessels by translating volumes into revenue. If we successfully sell half of the spare capacity from these FSRUs and achieve a margin of $0.50 per MMBTU, it could yield an additional profit of $150 million in 2022. Excess FSRU capacity offers three main utilizations: Firstly, for power plant expansions, such as the Sergipe project; secondly, for selling natural gas to third parties; and thirdly, utilizing the FSRU as an LNG storage vessel. We continue to advance on converting expressions of interest into committed contracts, having executed two this quarter and two more already this third quarter. On Slide 18, we delve into the merchant power opportunity at Sergipe, illustrated in detail. The graph on the left shows electricity spot prices in reais per megawatt hour from December 2016 to the end of 2029, reflecting yearly seasonality driven by demand and rainfall. The rainfall affects whether the hydro baseload is sufficient for the fossil fuel plants to be called into dispatch. Overlaying are two lines: the upper blue line represents the Sergipe dispatch breakeven cost, indicating the plant can be called to dispatch whenever the prevailing spot price exceeds this line. The below green line signifies the merchant breakeven cost of operating the plant independent from the PPA. The LNG purchase price plays a crucial role in determining this position; our baseline is an LNG price of $3 per MMBTU, which is conservatively high compared to current prices. Our Golar Power team conducted a back test of the potential opportunistic merchant power income realizable based on the dispatch windows available over the last three years, revealing that Golar’s share of that additional profit could be around $70 million. This equates to roughly $16 million to $18 million net profit for a full cargo of Nanook over a two-week period, remembering we have 60 days’ notice before dispatch under the PPA. As previously noted, we have an increasing amount of interest in Golar Power's development story today, so I want to mention that Eduardo is available to address any questions. Moving on to Slide 20, this slide highlights some of our ESG projects that cover our five focus areas, including safety measures and management engagement campaigns on board our vessels, alongside efforts with engine manufacturers to tackle core methane slip challenges by enhancing performance; we are placing a particular focus on mental health support for our personnel, especially as a consequence of COVID-19. The slide also presents photos showcasing the Golar-designed hydropower turbine we integrated into the seawater discharge flow of the regas system, using it to generate energy for the system. This innovative design offers a 7% fuel efficiency savings, equating to an estimated reduction of 5,000 tons of CO2 emissions every year. These exemplify our ongoing efforts in the ESG space. In summary, our priorities detailed on Slide 21 are as follows: We will continue to focus on derisking shipping and prioritize backlog growth. In FLNG, our primary goal is to conclude arrangements for Gimi while continuing discussions regarding potential Hilli expansion and extension, along with developing the newbuild Mark III and future opportunities. In our downstream operations, we will keep pursuing the build-out of small-scale initiatives and progressing the terminals at Barcarena and Suape. Additionally, we’ll maintain our efforts to conclude the refinancing activities Callum mentioned earlier and persist in aiming for sustainable reductions in G&A while simplifying the Golar group structure. With that, I’d like to hand you back to the operator for Q&A.

Operator, Operator

Thank you. Your first question comes from the line of Randy Giveans at Jefferies LLC. Please go ahead; your line is now open.

Iain Ross, CEO

Hi, Randy.

Operator, Operator

I think he may have disconnected, but we'll move on to the next question. It’s coming from Jon Chappell at Evercore ISI. Please go ahead.

Jon Chappell, Analyst

Thank you. Good morning or good afternoon, guys.

Iain Ross, CEO

Hey, Jon.

Jon Chappell, Analyst

Iain, first one for you is strategic. So the press release states the strategic review has been concluded. The Board has approved a range of specific options. However, if I look at this last slide, it seems like every near-term priority is blocking and tackling within the silo. As we consider the imminent breakup of the company and the three different business lines, which do you view as stand-alone at this point with the ability to self-finance themselves? Which may need to remain together because of their different stages of evolution?

Iain Ross, CEO

I’ll let Callum comment in a second, but rather than specifically answering your question, I’d refer you to the overarching strategic plan. The Golar LNG Board has approved an examination of diverse strategic options that management is now developing. As these options mature and become actionable, we will present them to the Board for review. If approved, we will announce that at that time. Callum, do you want to provide any more insight for Jon?

Callum Mitchell-Thomson, CFO

Yes, definitely. Jon, your comment about blocking and tackling is apt. We have two main roles at this time: blocking and tackling is something we’re doing in real detail, and we’ve laid that out for you. This differs from the strategic review and our group structure. It may not have been clear on the page for that reason. Broadly, we have approval from the Board to target the four legs: FSRU, FLNG, shipping, and Golar Power, aiming to simplify and align the group into those segments, confirming that each is a stand-alone entity. We received Board approval for that. In this quarter, we presented routes to achieve that. Once we align those routes and options mature, we aim to return to the Board for approval, depending on the framework we set. As for your other questions, it seems there's an assumption regarding an imminent breakup of the group. We don't perceive it that way; we see a strong future for all four segments working independently. The shipping business, while facing some seasonality right now, has shown improvements. Still, it is the business perhaps least stable in terms of the financing picture. Whereas the other segments, in comparison to shipping, are equally stand-alone. I hope that clarifies your question.

Jon Chappell, Analyst

Yes, that's super helpful. So, procedural approval, not necessarily execution approval. Following up, you’ve spent a lot of time and made considerable progress in Brazil. While it may not be a success story yet, there's a clear path forward. Your commentary about replicating success in other regions is interesting. Without naming regions, can you clarify if the opportunity sets are similar? Additionally, will there be economies of scale in the procedures you've undertaken in Brazil that might lead to quicker go-to-market timelines in some of these other regions?

Iain Ross, CEO

That's a great question for Eduardo.

Eduardo Maranhao, CFO - Golar Power

Yes, certainly, Jon. It’s nice to meet you. Regarding our global ambitions for Golar Power, we're eager to replicate our Brazilian successes, seeing Brazil as a foundation for our global business strategy. A key component of our approach will be partnering with well-established local players, much like we did in Brazil with Sergipe and our small-scale initiatives with BR. We’re actively engaging with potential partners in other regions. Highlighting a few key areas, Southeast Asia presents promising opportunities for development, as do certain countries in West Africa and other nations in Latin America. We feel we have a strong position currently in these markets.

Jon Chappell, Analyst

Okay. Thank you, Eduardo. Thanks, Callum, and Iain.

Iain Ross, CEO

Thanks, Jon.

Operator, Operator

Thank you. Your next question comes from Ben Nolan. Please go ahead; your line is now open.

Ben Nolan, Analyst

Yes, thank you. Eduardo, I’ll follow up on you. You’ve highlighted several activities and developments happening with Golar Power. I’m hoping you could summarize the current landscape or codify these moving pieces into a few simple numbers. Specifically, what’s the CapEx requirement going forward? Also, excluding merchant power, particularly regarding smaller-scale and incremental developments, what’s your outlook for cash flow generation on an annual basis, focusing on Brazil but representing Golar Power overall?

Eduardo Maranhao, CFO - Golar Power

Hi, Ben. When examining future CapEx for upcoming projects, it’s essential to clarify that we have yet to reach FID on certain projects, so detailed figures regarding CapEx and EBITDA projections will be released then. However, merchant power generation will not require any incremental CapEx beyond what we have established. The Golar network is fully integrated with the power plant, allowing for power generation during intervals outside the PPA. Regarding our small-scale strategy, it's highly modular; CapEx will correlate directly with the number of contracts we can secure. We won't engage in speculative spending without corresponding contracts in place. For Barcarena, we announced the MOU with Norsk Hydro, marking a vital milestone toward our final investment decision, expected within the next four to six months. Regarding future CapEx plans, further details will follow after FID for those projects.

Ben Nolan, Analyst

Okay, fair. I’ll leave it there. Transitioning to the FLNG side, it’s been slow on that front. Has there been any improvement in the pace of conversations recently? Additionally, are there updates regarding the potential involvement in a deal in the Mediterranean with Chevron?

Iain Ross, CEO

In response to your question, the pace of discussions remains steady. They haven’t declined, nor have they accelerated, which is consistent enough given the turmoil in the world right now. Despite low LNG prices, we're maintaining active dialogues with potential customers. One arrangement with a significant IOC expired; they requested a one-year extension to consider potential applications of our technology. I believe we're positioned competitively because, once supply meets demand, additional LNG projects will require development, and we are poised at the front of the queue. Our Mark III technology development is yielding highly competitive results regarding dollar per ton, matching the affordable scale at Hilli, with ample capacity.

Ben Nolan, Analyst

Anything new regarding the Mediterranean?

Iain Ross, CEO

No updates on that front. You’ve seen the news; I don’t anticipate movement until Chevron closes, but that’s something best directed to Noble.

Ben Nolan, Analyst

Appreciate it.

Iain Ross, CEO

Thank you, Ben.

Operator, Operator

Thank you. Your next question comes from Randy Giveans at Jefferies LLC. Please go ahead; your line is now open.

Randy Giveans, Analyst

Gentlemen, yes. Sorry, my call dropped earlier. I think Chappell cut my phone line, but I’m back now. First, congrats on the Golar Bear refinancing—good to see you delivered on that. What’s the LTV on the $120 million sale-leaseback, and what are the financing terms? Additionally, if you plan to segregate your debts into each entity, what will happen with the converts?

Callum Mitchell-Thomson, CFO

Good question. We prefer not to disclose the LTV publicly, nor the terms. The terms can be thought of as similar to previous arrangements, perhaps slightly longer in duration. This is commercially attractive as it increases leverage while enhancing liquidity duration-wise. I regret not being able to answer the LTV inquiry, but this is sensitive market information. Regarding the restructuring and the goals for each business segment, we do wish to create stand-alone structures. This will generate free cash flow to equity through the group. By having these four segments, it facilitates financial flexibility to align investor appetites with the risk/return for their respective businesses. We will announce details once we have a clear strategy and plan, prioritizing liquidity right now.

Randy Giveans, Analyst

Understood. So, it appears you may not need to refinance the convert if you silo debt into the other entities.

Callum Mitchell-Thomson, CFO

That’s correct.

Randy Giveans, Analyst

Regarding Golar Power and the contracts and MOUs, what specific hurdles must be overcome to convert those into finalized contracts? What are the steps to taking the Barcarena FID in the next four to six months?

Iain Ross, CEO

Eduardo, would you care to elaborate?

Eduardo Maranhao, CFO - Golar Power

Of course, Randy. The Barcarena FID is not strictly contingent on the advancement of small-scale contracts. While they are complementary, they advance separately. The significant focus for Barcarena will be progressing through necessary permits and regulatory approvals for FID. We received the PPA from the power auction back in October last year, which equips us well, and with the recent MOU with Norsk Hydro, we’ll be poised to take FID once those permits are secured. As for small-scale contracts, we’re engaged with various customers, ranging from smaller clients to larger industrial operations. The scale of operations will naturally take time to convert. However, many customers are focused on their internal approval process to fully commit. While the pandemic presents challenges, our engagement with customers remains strong, and we’re confident in our business plan's viability.

Randy Giveans, Analyst

Is there an expiration date for securing those MOUs or contracts, or is the timeline flexible?

Eduardo Maranhao, CFO - Golar Power

There isn’t a specific deadline for the current MOUs and LOIs. It fundamentally relates to the customers' readiness in progressing both commercially and technically.

Randy Giveans, Analyst

Good to hear. That’s it from me. Glad to see Golar above double digits; keep it going.

Eduardo Maranhao, CFO - Golar Power

Thank you.

Iain Ross, CEO

Thank you, Randy.

Operator, Operator

Thank you. Your next question comes from Mike Webber. Please go ahead; your line is now open.

Mike Webber, Analyst

Hey, good morning, guys. How are you?

Iain Ross, CEO

Hi, Mike.

Callum Mitchell-Thomson, CFO

Hi, Mike.

Mike Webber, Analyst

First question, regarding the strategic review, just to follow up on Jon. For those following Golar for several years, it can feel repetitive in terms of completion. This review has been active for several years now, so I ask: what hurdles are remaining? Are we more or less likely to expect third-party capital involvement than we were a year or two prior in this review's early phases?

Iain Ross, CEO

I think it's clear what we need. We summarized it last quarter: four distinct legs. Step 2 is identifying pathways to achieve that. The Board has backed us to execute, and that involves potentially reaching agreements with others, which are not finalized. We’ll return to the Board once we have everything arranged and a clear path defined. I can’t speak for past perspectives; I can only focus on where we are now. The benefit of having these four legs is that we align each business's risk/return profile with different sector investors. While outcomes are not guaranteed, we find this strategy sensible. I can’t prejudge Board decisions or outside interest, but establishing these segments will facilitate collaboration and investor interest.

Mike Webber, Analyst

I appreciate that clarification. Lastly, regarding Golar Power, your unique distribution strategy focusing solely on Brazil allowed you to develop your business. Now as you consider expanding, do you think you've captured most of the low-hanging fruit in Brazil? Or to what extent does it serve as a benchmark? Would you now be confronting markets with a friendlier regulatory environment as you branch out? What about the feasibility of going all-in elsewhere?

Eduardo Maranhao, CFO - Golar Power

Hi, Mike. We have spent over five years developing our opportunities in Brazil since we were awarded the PPA in Sergipe back in 2015. Therefore, it wasn’t as if we committed all at once but rather increased our footprint as we deepened our market understanding. Our key success has been forging strategic partnerships, as illustrated in Sergipe and our developments with BR Distribuidora. Our collaboration with Petrobras, which goes back to 2007, is instrumental in positioning us today. The Brazilian market, particularly with its opening gas market, remains hugely favorable to our growth thesis and will speed up our development across the nation. Our global growth strategy revolves around building strategic hubs, leveraging multiple revenue streams. In some countries, being first to the market can create lasting advantages since establishing LNG terminals involves extensive regulatory hurdles. Thus, the opportunities across various nations will demand varying approaches. Finding the right partners is crucial.

Mike Webber, Analyst

For laying groundwork for another hub, would you prefer local presence and expertise while sourcing partners? Should we anticipate noticeable CapEx, even on a smaller scale, to establish your footprint?

Eduardo Maranhao, CFO - Golar Power

Absolutely, while initial CapEx won’t be considerable, we aim to enhance our local presence by having dedicated teams in strategic regions. Establishing a footprint through 'boots on the ground' is part of our crucial strategy.

Mike Webber, Analyst

Thanks. I’ll hand it over.

Operator, Operator

Thank you. Your next question comes from the line of Joe Ringheim. Please go ahead; your line is now open.

Unidentified Analyst, Analyst

Hi, gentlemen. How are you?

Iain Ross, CEO

Hey, Joe.

Unidentified Analyst, Analyst

Callum, first regarding financing and liquidity. You’ve refinanced the Bear and indicated plans within the coming quarters for refinancing the Frost and Seal, along with loan security against equity in power and the margin loan. Can you outline how much cash you expect to release from these refinancings?

Callum Mitchell-Thomson, CFO

Certainly. There’s no cash release associated with the Seal; it's mainly about removing the put option occurring in January. For Frost, we previously suggested generating between $50-$90 million in liquidity across all vessels, noting the Bear generated $40 million. For the Frost, you should expect similar results, approximately an additional $30 million to $40 million. Regarding the RCF, the expected liquidity will be minimal since refinancing a $30 million and $150 million loan in conjunction with a $200 million and above RCF leads to small liquidity gains.

Unidentified Analyst, Analyst

Thank you. Additionally, with Golar Power's partnerships and downstream development driving momentum, do you consider New Fortress Energy a relevant peer? Given their success and stock performance, should that be part of your considerations on a potential Power listing?

Eduardo Maranhao, CFO - Golar Power

Hi, Joe. Thank you for your question. New Fortress shares some complementary aspects to our operations in Brazil, but we consider our model, which has enabled us to produce power, capture merchant power upside, drive downstream activities, and cultivate small-scale LNG distribution to be broader. We aim to maintain and deepen our focus in Brazil, promoting our agenda towards global growth.

Unidentified Analyst, Analyst

Thanks for explaining. That’s all from me. Have a great day.

Eduardo Maranhao, CFO - Golar Power

Thank you.

Iain Ross, CEO

Operator, thank you. I’d like to thank everyone for participating today and for your interest in Golar. Please stay safe during this COVID-19 period, and we look forward to sharing our progress with you next quarter. Goodbye.