Earnings Call Transcript - GLNG Q3 2022

Operator, Operator

Welcome to the Golar LNG Limited Q3 2022 Results Presentation. At this time, all participants are in a listen-only mode. After the slide presentation by CEO Karl Fredrik Staubo and CFO Eduardo Maranhão, there will be a question-and-answer session. I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead.

Karl Fredrik Staubo, CEO

Thank you, operator, and good morning and good afternoon to all. Welcome to Golar LNG’s Q3 earnings results presentation. My name is Karl Fredrik Staubo, CEO of Golar LNG. I’m accompanied today by our CFO, Mr. Eduardo Maranhão to present this quarter’s results. Please note our forward-looking statements on slide 3. Slide 3 provides an overview of Golar. We own two FLNGs, the Hilli, operating for Perenco in Cameroon, and the Gimi that was part of a 20-year contract for BP next year. We are focusing our efforts on FLNG growth projects and we have developed three different FLNG designs. All three designs are based on the same proven liquefaction technology and maritime interface, but differ in liquefaction capacity. During the quarter, we have placed orders for long lead items for a new Mark II FLNG with a total liquefaction capacity of 3.5 million tons. The most notable change in the Company overview since our last quarters, our share sales totaling $430 million, reducing our CoolCo shareholding from 31.3% to 8.3%. And the sale of NFE shares, reducing our shareholding from around 6% to just shy of 3%. Turning to slide 4 and the highlights of the quarter. Hilli generated an EBITDA to Golar of $64.1 million, a 2.6 times increase from Q3 last year. Perenco declared its 0.2 million tons of production increase from January ‘23 to end of the contract in July of 2026, meaning that we will maintain production at 1.4 million tons per annum for the period. The incremental volume has a tariff linked to TTF gas prices. During the quarter, we entered into hedges for 50% of our Q4 2022 exposure at $70 per MMBtu. We hedged 100% of our 2023 exposure at $50 per MMBtu. And we hedged 50% of our 2024 gas exposure at $51.2 per MMBtu. In total, these hedges provide the cash flow visibility for EBITDA to Golar of around $260 million. As of today, the TTF hedges are currently about $75 million in the money. Turning to Gimi, she is now 90% complete and remains on schedule. We have engaged our three operations, and we’ll have a maritime crew of about 120 persons mobilized onboard the vessel by year-end. On FLNG growth, we continue to see increased client interaction and strong progress on potential new FLNG projects. During the quarter, we have been working with an upstream partner for a very attractive potential integrated FLNG project. We have also signed two development agreements, one with a supermajor and another with an independent E&P company. Under these development agreements, both parties commit to deliver a defined scope of work within set deadlines to progress potential new FLNG opportunities and agree on key steps to reach FIDs. We believe that securing attractive delivery of our next FLNG unit will increase Golar’s ability to drive value with prospective FLNG clients. This is the reason why we have ordered long lead items to secure delivery within 2025. On corporate activities, we have sold 8 million CoolCo shares and 6.3 million NFE shares. The share sales resulted in net proceeds to Golar of $430 million and are in line with our communicated strategy to reduce our shareholding in financial investments to fund FLNG growth. We also bought back 400,000 shares in the quarter at an average price of $23.25 per share. And our share count now stands at 107.5 million shares. We have committed to invest up to $10 million in Macaw Energies energy, a newly established small-scale LNG liquefaction company, targeting land-based stranded gas and associated gas resources, as well as biogas. We’re excited about the strong track record of the Macaw Energies team and believe Golar’s liquefaction expertise combined with the small-scale land focus of Macaw can create a successful combination for small-scale liquefaction opportunities. We are also opportunistically considering strategic partnerships or M&A throughout the LNG value chain. I will now hand the call over to Eduardo to present our Q3 results.

Eduardo Maranhão, CFO

Thanks, Karl. And good morning, everybody. I’m very pleased to provide an update on our group results for the third quarter of 2022. Turning over to slide number 6, I wanted to show some of the financial highlights of this quarter. Our operational performance continues to be very strong. We recorded total FLNG tariffs of $109 million, up 81% compared to Q3 of 2021 on a year-on-year basis. FLNG tariff is comprised of total revenue from liquefaction services and also realized gains on oil and gas derivative instruments. This quarter, we recorded an adjusted EBITDA of $85 million. When compared on a year-on-year basis, this represented an increase of 63% compared to Q3 2021. We recorded net income of $141 million for this quarter, including $51 million of unrealized gains on NSE shares, $25 million of unrealized gains on interest rate swaps, and other derivative instruments, $12 million of unrealized gains on TTF-linked derivatives, as well as $10 million in net earnings from other equity method investments. Our share of contractual debt at the end of Q3 was $993 million, a significant reduction compared to the same quarter of the last year when we had $2.1 billion of gross debt. So moving on to slide number 7, we continue to strengthen our balance sheet, which will allow the Company to pursue future FLNG growth projects. Our cash position currently stands at more than $1 billion today. Total cash at the end of Q3 was $612 million. Further to the end of the quarter, we sold, as Karl mentioned before, 8 million CoolCo shares and 6.3 million NFE shares, raising additional net proceeds of around $430 million. We now have total cash in hand of more than $1.04 billion. When we take into account the value of our listed securities in NSE, CoolCo, and Avenir, our total liquidity position stands just shy of $1.5 billion. When considering our contractual debt, as I said before, of $993 million, we now have a net cash position of $452 million. As you can see on the right-hand side of this slide, we have no significant debt maturities until 2025, which is when our $300 million bonds mature. So, turning to slide number 8, we’d like to provide some further insight into our earnings from Hilli. And I think just by way of recap, the Hilli tariff is comprised of three main components. We receive a fixed tolling tariff, we also have a Brent-linked tariff, as well as a TTF-linked tariff, which started at the beginning of this year. Also, as Karl mentioned before, we have managed to hedge our TTF production at a very attractive level. As a result of that, we continue to see a very strong increase in Hilli’s EBITDA generation, which this quarter totaled $64.1 million, which is 2.6 times the same amount that we had a year before. So, moving on to slide number 9, I wanted to provide some further updates regarding our hedging arrangements. We have entered into swap arrangements to hedge our exposure to TTF including 50% of Q4 2022 at the level of $70 per MMBtu, which has secured $28 million of distributable EBITDA to Golar. We have also hedged 100% of 2023 and 50% of our 2024 TTF-linked production at levels of around $50 per MMBtu and $51 for 2024, which in total have secured an additional $233 million of distributable adjusted EBITDA to Golar. Based on that, our share of Hilli’s EBITDA generation is expected to reach $295 million in 2023. When we consider that our share of the debt service for next year is expected to be around $50 million, we see an expected free cash flow to equity of around $245 million just from Hilli. I’ll now hand over the call to Karl, who will talk a bit more about our future FLNG projects.

Karl Fredrik Staubo, CEO

Thank you, Eduardo. Turning to Slide 11 and I’ll update you on the Gimi construction progress. The unit is now 90% complete and remains on schedule for sail away during the first half of next year, and contract startup during the second half. We expect to start booking commissioning revenues during the second half and contract startup in Q4 of next year. As a reminder, Gimi will generate $151 million in EBITDA to Golar every year for 20 years, once contract startup. On slide 12, we elaborate on the scale of the Gimi construction project. We now have a construction team consisting of an average daily workforce of 4,600 with 24x7 activities. We have worked 26 million man hours to date. We have done 37,000 tons of new steel and equipment installed onboard. We have installed 1,500 kilometers of cables that’s equivalent to the distance between London and Rome. Pre-operations are initiated and we will have a crew of more than 120 people mobilized to the vessel by year-end. Once in operation, the unit will produce about 2.2 million tons of LNG per year, enough to power more than 3 million U.S. homes. Turning to slide 13 and an update on the long lead and commercial developments for new FLNG projects. Based on strong client engagement for FLNG growth projects, we are of the view that securing attractive delivery for a new FLNG unit increases our ability to drive value with prospective FLNG clients. We have therefore placed orders for the main long lead items required for a new Mark II and 3.5 million ton FLNG with total commitments of around $300 million. Included in that we have engaged more than 200 engineers from the topside provider, shipyard, the third-party engineering company, and Golar, all working on Mark II development and to secure attractive delivery within 2025. On the commercial front, we are collaborating with an upstream company to create an appealing integrated FLNG project. We have signed paid development agreements with new potential clients for possible FLNG deployment on large proven gas reserves for both a supermajor and an independent exploration and production company. We anticipate that FLNG economics will continue to be favorable for both the integrated approach and the tolling fee discussions we are currently pursuing. Regarding the value of near-term liquefaction capacity, Exmar recently announced the sale of its FLNG Tango, a 0.6 MTPA liquefaction unit, to ENI for a price between $572 million and $694 million. This translates to approximately $1 billion per ton of liquefaction capacity. Additionally, Kinder Morgan sold 25.5% of their Elba Liquefaction plant, also reflecting an implied value nearing $1 billion per ton. This stands in contrast to our guidance of capital expenditures per ton ranging from $500 to $600. The appeal of charters and the interest from buyers seeking liquefaction assets suggest they are valuing near-term cash flows, reinforcing our confidence in the long lead items we have placed. We have also provided an overview of historical liquefaction FIDs by year. This year, 2022, has seen 26 million tons of liquefaction capacity come online, which some might find surprising given the geopolitical situation and gas prices in Europe and Asia. However, we are not surprised because of the lengthy process involved in environmental approvals, governmental clearances, and the substantial engineering needed for large offshore infrastructure projects. We are encouraged by the activity and agree with S&P Connect's perspective that we will likely witness a notable increase in liquefaction FIDs next year, with a significant portion expected to be FLNGs. Notably, the U.S. is leading the new supply growth, contributing 95 million tons out of the projected 148 million tons of new liquefaction capacity by 2030. Turning to slide 16, we continue to mainly focus on African LNG projects for three reasons. When you do an FLNG project, you have three key cost inputs: source gas, liquefaction costs, and shipping distance to end users. We believe we can source African gas reserves at around $1 to $2 per MMBtu versus current prices of $6. So, 65% of new liquefaction projects have a cost of 2 to 4 times our input costs from the outset. We think we’re advantaged. As alluded to, our CapEx per ton is cheaper than competition, both maritime and land-based liquefaction solutions. And West Africa happens to be closer to end users, both in Europe and Asia. And if you have a business model with three key cost centers, and you’re lower on all three, we think that’s a good competitive advantage from the outset. To summarize, turning to slide 18, a familiar slide from all of our quarterly presentations but yet summarizing the company in one slide. In 2021, we have adjusted EBITDA in the Company of $74 million. Add to that the oil upside and the TTF linkage that Eduardo explained, we see commodity-linked production adding another $200-plus-million delivery of Gimi will add another $151 million of contracted EBITDA, bringing our adjusted EBITDA at current market rates to well north of $400 million. As explained, we now have a cash and listed securities position of $1.4 billion, where $1 billion is in cash and the rest is in liquid securities. Our contractual debt stands at just shy of $1 billion, leaving us with a net cash position of around $0.5 billion. We believe we’re uniquely positioned for FLNG growth, as highlighted on slide 19. We have three FLNG designs ranging from 2.7 million to 5 million tons. On one slide to the right, you can see the track record of FLNGs globally. Stability and production reliability is key for any liquefaction project, and you can see that Hilli has had very stable production since startup, which has not been the case for other FLNG solutions in the same time period. We have the lowest CapEx per ton, and we also have the lowest carbon footprint per ton of liquefaction produced, which altogether gives this compelling story for people considering FLNG. To summarize, we are focused on attractive FLNG growth projects and have now placed orders for Mark II long lead items. We expect our earnings growth to quadruple from 2021 to 2024 levels. We have $1.4 billion of cash and listed securities. We have a book value of $2.8 billion and building as we continue to generate healthy free cash flow to equity. Golar has been around for 75 years, 50 of which in LNG where we have been a market leader in FLNG, both with our proven design and strong operational track record, and combined, this is what gives us confidence to focus our growth efforts on FLNG. That concludes the prepared remarks, so I’ll hand it over to the operator for any questions.

Operator, Operator

Our first question comes from Chris Tsung from Webber Research. Please go ahead; your line is open.

Chris Tsung, Analyst

Just touching on the divestments of CoolCo in NFE share, I guess financing FLNG project. Do you plan to divest the rest for future projects or will there be some percentage of these companies you plan to hold on to? And also what about Avenir?

Karl Fredrik Staubo, CEO

I think what we have previously said and definitely stand by is that we view all of our shareholdings as attractive financial investments, but we will reduce financial investments to focus on core growth, if and when we have core growth. We feel like with our current cash position, we are very comfortable funding the Mark II project that we are now undertaking. It’s safe to say that we don’t need to sell any of our shares to fund that project. But if we do other growth initiatives, we will consider further reducing our shareholdings. But at the moment, as we have previously communicated, we’re happy to be shareholders in all those names and view being shareholders there as better than sitting on cash.

Chris Tsung, Analyst

Great. Thanks. I have another question. In your press release, you mentioned all the long lead items for Mark II. Does that mean the timing for its delivery in 2025 is largely secured, or is it still contingent on when you make the final investment decision?

Karl Fredrik Staubo, CEO

That is what is required to ensure that we still can deliver in 2025. So, by definition, a long lead is the critical timeline. So, as long as you secure the delivery of those, you ensure that you can still take ‘25 delivery. But of course, you need to progress the Mark II investments to safeguard that delivery. So, that means formal FID at some point as well. But for now, we have done everything to ensure that we are on track for delivery in ‘25.

Chris Tsung, Analyst

Great. Thanks. And just to confirm, the Mark II, that’s an integrated model, right?

Karl Fredrik Staubo, CEO

So, the units can be used on integrated and tolling. It’s not like a ship is customized to the commercial model of the ships. The ship is hardware at the end of the day. So, we have discussions for Mark II, both for integrated and tolling, and there are several attractiveness of Mark II. One thing is construction timing. But the way the engineering has been put together, we have received very strong feedback on that design.

Chris Tsung, Analyst

Great. Thank you. That’s it for me. Thank you, Karl.

Karl Fredrik Staubo, CEO

Thank you.

Operator, Operator

Thank you. We’ll now move on to our next question. Please standby. Our next question comes from the line of Ben Nolan from Stifel. Please go ahead. Your line is open.

Frank Galanti, Analyst

Hi, this is Frank Galanti speaking on behalf of Ben. I would like to follow up on Chris's last question regarding the Mark II design, particularly about the vessel. Since this is a conversion, could you explain what type of vessel you need? Have you already made a decision on that, and what are the anticipated costs?

Karl Fredrik Staubo, CEO

Yes. So, basically you use Moss design ships, so you can take an existing carrier. There are plenty of Moss designs out there. One of the disadvantages of Moss as a shipping vessel is that they’re all steam fired, which means that especially with the new regulations coming into effect from the first of January next year, these ships are far less competitive than the more modern ships for shipping activities, meaning that you should be able to pick them up if you want to require them for conversion. We have inspected several suitable candidates, and we are discussing if and when we will acquire a ship for conversion. We can also use the Gandria, which we own. So, we’re not 100% dependent on buying another ship. We would like to buy one with somewhat higher storage capacity, but it’s not the requirement.

Frank Galanti, Analyst

I want to shift the discussion to the Hilli. Given the significantly high global LNG prices and the increased demand in Europe, can you discuss the potential for increasing production at the Hilli? Is there any readily available feed gas in the region? Also, do you have any updates about ramping up Hilli production before the current contract ends?

Karl Fredrik Staubo, CEO

Sure. So Perenco took up the 0.2, so we’re now producing 1.4. The two constraints in terms of increasing capacity are the size of the existing gas reserve and the second is the gas flow from the wells. But I think it would be in everybody’s interest to increase production. It would benefit us, it would benefit Perenco. And the offtaker, which used to be Gazprom has now been nationalized by Germany and changed name to SEFE. SEFE stands for Securing Energy for Europe. So, all else equal, Europe wants more energy, not less energy. So, it could be a triple win, where SEFE gets more volume, Perenco, and we increase production. But it’s really down to the upstream part of it, which is under Perenco’s control. And for now, it’s standing at 1.4 million tons. And I think it’s fair to say that we’re all trying to encourage increased production and see what’s possible. I don’t think it’s right of us to give any guidance on whether or not we think that can happen because it is a bit too early to say, but it’s certainly a potential upside.

Operator, Operator

Our next question comes from the line of Craig Shere from Tuohy Brothers.

Craig Shere, Analyst

So, with the Mark II, you’re now preparing necessarily to be targeted to one of the prospective super major independent E&P FLNG customers you’re negotiating with, or in a really best-case scenario, is there a way you could envision perhaps three FIDs over the next 18 months?

Karl Fredrik Staubo, CEO

Let’s do one at a time. But for sure, like our business is to do FLNG and FLNG growth. We like the development, both of prospective clients and projects, and we are ramping up activities as we have shown, both from ordering long lead, but equally important to engage a significant engineering team. And so, we would certainly not rule out that there could be more than one. I think let’s do one at a time because these are large projects. So I think let’s focus on one at a time. But yes, we’re here to move on this opportunity. We have a balance sheet to support it. We have an organization to support it. And we have focus across the company.

Craig Shere, Analyst

So, when you rightly point out these are large projects, and you don’t want to get too far over your skis, you also noted that the negotiations included both integrated and tolling arrangements, the latter looking a little more like your BP Gimi, I presume. So, I guess, my question is, given your successful execution and construction of these things, shipyard interest, and the potential for another highly rated investment grade decades-long toll, how do you think about your capital funding options, if you were to get a long-term attractive toll? I mean, could that lift a lot of the investment considerations off your shoulders, given the ability to lever that far better than your original Gimi contract?

Karl Fredrik Staubo, CEO

Yes, that's the short answer. We currently have $1 billion in cash and around $450 million in listed securities. There is considerable refinancing potential for both Hilli and Gimi, particularly for Gimi after delivery, which can help us free up cash and secure better terms. In our Q2 presentation, we discussed FLNG growth, and we've received term sheets for financing these projects, even during construction, at favorable terms and with a strong loan-to-value ratio. Therefore, we do not anticipate any constraints on our balance sheet for FLNG growth after the unit; our engineering and operations ultimately dictate capacity and balance sheet limitations.

Operator, Operator

Thank you. We’ll now move on to our next question. Please stand by. Our next question comes from the line of Liam Burke from B. Riley Financial.

Liam Burke, Analyst

Karl, on slide 16, you highlight the production of African gas vis-à-vis Henry Hub. When you look at the FLNG production, just the process itself. Are your next-generation FLNGs more efficient and can they reduce the production cost per MMBtu vis-à-vis Hilli or Gimi?

Karl Fredrik Staubo, CEO

So, like anything, when you build a new model of a car, you make it and then you have a facelift model of a car, it tends to be somewhat more efficient than the previous one. So, we constantly do improvements. So, it’s slightly more efficient. I don’t think at the end of the day that’s what’s going to make it or break it. When it comes to operational cost, the Mark II is 3.5 million tons versus around 2.5 million tons for Mark Is. There are some economies of scale because you don’t need to start up accordingly. So, if you think operating costs per MMBtu produced, it will be somewhat more efficient, but by economies of scale and efficiency improvements of the design.

Liam Burke, Analyst

And do you see any competitive development by anyone else in developing FLNGs? It seems that you are increasing production, you are increasing efficiency and you seem to have a great deal of interest from the energy majors and independent E&P companies.

Karl Fredrik Staubo, CEO

Yes. Right now we are the only ones that do FLNG at the service. The only other FLNGs that operate in the world are oil and gas companies owning FLNGs on their own balance sheet for their own operations. So, the only ones that are doing this as a service today are Golar. Based on what we see out there, you have other people pursuing that. I think most notably is what NFE is doing on the liquefaction solutions, we encourage that because we think it’s needed in the industry to be able to provide shorter timeframes and new liquefaction solutions. But they too are focusing on producing hydrocarbons mainly for their own merchant and where they can use in their downstream development or portfolio. So, as a service, we see limited competition for the size of liquefaction solutions we have from credible competitors.

Liam Burke, Analyst

Great. Thank you, Karl.

Operator, Operator

Thank you. We’ll now move on to our next question. Please stand by. Our next question comes from the line of Sean Morgan from Evercore. Please go ahead. Your line is open.

Sean Morgan, Analyst

Hey, Karl and Eduardo. Thanks for taking the question. I think on the last call, for Q2, we talked about a target date for a new FID announcement by the end of 2022 and we have a month and a half left, so obviously there is still a possibility for that. But when you think about what the biggest bottlenecks are for reaching an agreement, and I guess sort of FID, a new project, is it the upstream negotiations with partners that are extracting the molecules, or is it the nation-space that you kind of have to work with the national oil companies in these West African countries? And just sort of what do you see as the major sticking points in terms of slowing down the timeframe for new announcements?

Karl Fredrik Staubo, CEO

The main challenge for all these projects is the engineering integration with midstream, which involves planning and ensuring the project's feasibility. Once a plan is established that everyone agrees on, obtaining governmental approvals is the next step, and depending on the jurisdiction, this process can be lengthy. However, it can also be streamlined. Ultimately, while commercial terms are very important, they are not the primary hurdle; if everything else aligns, it becomes a matter of distribution. The real time-consuming aspect is the preparation, not the allocation. Regarding timing, we're emphasizing in this presentation the importance of securing a favorable delivery. We believe our ability to create value for clients is growing. When demand exceeds supply, it tends to work in our favor. Therefore, our main focus right now is on executing effectively to create value rather than adhering to a strict deadline that could constrain our options.

Sean Morgan, Analyst

Yes, I believe it's clear that agreeing to unfavorable commercial terms is not ideal. Additionally, there has been notable success in securing some of your floating exposure volumes on TTF and oil. I'm curious about the limitations regarding forward selling of your commodity exposure, as this likely varies between TTF and oil. You've made commitments through 2024, but as you analyze the forward curves in the coming months, will you attempt to sell more exposure looking ahead to the end of 2024 and 2025? How far could this process potentially extend from our current position?

Karl Fredrik Staubo, CEO

The commodity linkages are on Hilli, which has a contract until July 26th. We are considering hedging TTF volumes through that period if the overall price is appealing. It's important for us to balance the market price dynamics with what we can secure to ensure cash flow stability. Additionally, there is a relationship to the margin or risk value associated with the time until we start producing those forward volumes. However, with our current balance sheet, this is not a major limitation. So far, we haven't hedged Brent because there is a ceiling on the Brent tariffs. If we decide to hedge Brent, it will likely involve a collar approach to avoid significant margin calls and to mitigate the risks of large margin volumes. We are inclined to hedge more TTF if the price is favorable, but we are currently less inclined to take action on the Brent side. That could change if we can lock in a favorable long-term price above our earnings max.

Operator, Operator

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

Greg Lewis, Analyst

Karl, I have a question. You mentioned that you currently have a strong cash position and talked about the possibility of refinancing existing projects. Considering your comments on loan to value and the slide showing where other projects have been reselling, could we expect potential financing based on implied value, which might exceed the construction price?

Eduardo Maranhão, CFO

Hi Greg, this is Eduardo here. Yes, the short answer to your question is yes. We have received indications from a few potential lenders for new FLNG projects, which suggest they might be willing to consider financing amounts that exceed the actual construction price of the vessel. When we look at the Gimi, for instance, we have a 20-year contract, and due to this long duration, we can explore financing levels beyond what typical lenders would consider, like the usual 70% or 75% loan to value. In this situation, we’re focusing on the contract's ability to support that debt. We believe that financing in excess of $1.5 billion to $1.6 billion could be feasible just looking at the Gimi alone. However, other banks may take a different approach and assess these assets based on a loan to value basis. In those cases, we think financing levels around 70% to 80% of the asset's value could be achievable.

Karl Fredrik Staubo, CEO

Just to summarize, it’s more prevalent for those that propose those types of financing. It’s driven by the contract value and not the LTV on this deal.

Greg Lewis, Analyst

Thank you for that. That’s good to hear. I wanted to ask about the investment in Macaw Energies. Given the small scale LNG, are there any timelines or frameworks you can share regarding its progress? In other words, could we expect a project from this company in the next two to three years, or might it happen sooner? How active is Macaw? I'm not very familiar with that company.

Karl Fredrik Staubo, CEO

I think one of the attractions there is that what they are looking to do is modularized shore-based small-scale liquefaction. One of the advantages of building smaller scale and in modules is that time to cash flow is shorter. You have plenty of examples of flare gas and stranded gas today. And if you can liquefy the flare gas and use it for something sensible, it’s not only economically attractive, it’s also environmentally the right thing to do. So, those would focus mainly on the U.S. and Latin America. The plan there is to have the modularized design ready for sure within 12 months, subject to how that design then performs and we’ll take the next steps on that one. But, all else equal, it’s exactly what we do on the floating sides that are shore-based on a smaller scale.

Greg Lewis, Analyst

I have one more question. As a follow-up to a previous inquiry about the number of units, we have been working on one project at a time. Karl, when you consider the market, what factors are limiting our ability to undertake more than one project simultaneously? Are these limitations related to shipyards, supply chains, or labor? I would appreciate any insights you can share regarding the potential to manage multiple projects under construction at the same time.

Karl Fredrik Staubo, CEO

It's somewhat affirmative to all of the above. All of those elements are necessary to advance an FLNG project. Ultimately, the key factors are clients who are willing and a project that is sufficiently developed for us to proceed. Regarding most projects, depending on their status, there's a frustrating aspect to consider: the time it takes to reach a final investment decision, since the long lead item is the FLNG rather than the upstream infrastructure. This is why we have decided to place orders for the Mark II long lead items—we recognize how close some of these projects are to development or FID. If we don't have an FLNG ready significantly sooner than if we were to wait to place the order, it enhances the appeal of that delivery timeline.

Greg Lewis, Analyst

Okay. Just to clarify, the $300 million for long lead time items is specifically related to the Mark II. If we were to consider a Mark III design, we could potentially revert to the Mark I, which would likely require fewer resources. If a Mark III design is needed, do you have any estimate on the total cost for those long lead time items?

Karl Fredrik Staubo, CEO

The fact of the matter is that most of the equipment we have ordered is interchangeable across our designs, because they are based on the same topside. So, what we have forward, if you are very interested is centrifugal compressors, gas turbines, cold boxes, and heat recovery steam generators, which are the long lead items, longest lead and biggest components of the topside package. So, we are ordering them with a Mark II in mind because that’s where we see the strongest customer pool. But if for whatever reason we had to put that equipment on to Mark I or Mark III, the absolute vast majority of it can be put on either of those two designs. You need to order more for Mark III, of course, because it’s a bigger liquefaction size.

Greg Lewis, Analyst

Okay. Super helpful. Thank you very much.

Karl Fredrik Staubo, CEO

Thank you.

Operator, Operator

There are no further questions at this time. So, I’ll hand the call back to you for closing remarks.

Karl Fredrik Staubo, CEO

Thank you all for listening to our Q3 results. Have a good day and speak to you all soon. Bye-bye.

Operator, Operator

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