Earnings Call Transcript - GLNG Q1 2020

Iain Ross, CEO

Thank you. Good morning, good afternoon, everyone. I hope you’re all well. Welcome to the Golar LNG Q1 2020 Results Presentation. I’m 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. Before we get started, I’d like to acknowledge the huge effort by Golar staff, both field based and, of course, at sea, for their effort in keeping the business running during this unprecedented disruption due to both COVID-19 and depressed commodity prices. Their dedication to Golar, and ultimately, to our shareholders, is quite remarkable and worthy of this mention. The safety of our people remains our first priority. Without a healthy workforce, we can’t deliver for our customers. If we’re not delivering for our customers, we won’t make any money for our shareholders. It’s that simple. I’d like to draw your attention to the forward-looking statement on Slide 1. And if we turn to Slide 4, let me give you some highlights before Callum takes you through the numbers in more detail. Today, we report an adjusted EBITDA of $76 million on revenue of $123 million for the quarter, which is driven by a solid FLNG performance and strong seasonal results in shipping. Our time charter for earnings of $62,000 per day for Q1 2020 represents a 58% rise over the same period last year. We continue to derisk our shipping portfolio and ended the quarter with a shipping revenue backlog of $126 million. Our FLNG operation is 100% commercial uptime throughout the quarter, with reduced operating costs and stable EBITDA generation. And in power, we reached commercial operations on Sergipe power station, which sees the commencement of a 25-year PPA based on facility availability and a power plant that can be called to dispatch with 60 days notice, which in turn gives great potential for additional income from merchant power. During the quarter, we had three days of dispatch.

Callum Mitchell-Thomson, CFO

Thank you. And if you turn to the next page, Page 5, the first quarter 2020 financial results. I’d echo what Iain said about the dedication of the staff during these tough times. Normally, one would be able to meet many of you in person on this call. I apologize that circumstances are such that we have to do it this way, but it should work. Turning your attention to the summary results, you can see at the bottom of the page, the adjusted EBITDA in the Q1 2020 column that Iain referred to, $76 million of adjusted EBITDA, which compares very favorably to the $63 million earned in Q1 2019. As you know, our business is seasonal. The shipping business is seasonal, so Q4 has tended to be a better quarter. Secondly, the $76 million is a small beat versus net back consensus. What you can see here, from shipping and corporate, that’s a $34 million figure, which again compares well to the Q1 2019 of $21 million. The second point to note is the FLNG number at $42 million EBITDA. Adjusted EBITDA is also stable, and that reflects the nature of the business as we think of the business and as we derisk the shipping portfolio to try to fend the partnerships, the contracts out for longer. So that is supported by the very stable nature of the Hilli and FLNG business...

Iain Ross, CEO

Thank you, Callum. Turning to Slide 9 on the deck and shipping. Our revised shipping strategy that we’ve been discussing with you now for many quarters is contributing well to our improving TCE and shipping growth story, resulting in that quarter-on-quarter growth from $39,000 a day in Q1 2019 to $62,000 a day this quarter. We’ve seen demand destruction caused by COVID-19 and oil price linkage, leading to LNG spot price dropping to around $2 million per MMBTU at the end of the quarter, with some cargoes canceled in the quarter, mostly from the U.S. and more cancellations to follow during Q2 in the summer months.

Callum Mitchell-Thomson, CFO

...So the key message from this slide is stable FLNG EBITDA; shipping, favorable compared to Q1 2019; and an adjusted EBITDA of $76 million, which is a small beat versus net debt consensus. We anticipate, as we look for what we expect to be the current outcome for the remainder of the year, liquidity is sufficient for our group needs. We don’t see the need to draw down on any specific additional facilities as others have done. During the quarter, we had operating cash flow of $86 million. It’s not that we haven’t been spending CapEx. We have. Golar is very much a growth business that is building out assets...

Iain Ross, CEO

Let me turn back to Iain now to take you through the division-by-division review. Let’s see how we go through this quarter and press through an update on that next time in terms of where we are and the actual EBITDA. Unless, Callum, you’ve got any insight into the EBITDA numbers that’s potential from that pipeline. Obviously, we wouldn’t be doing it if it wasn’t a low-CapEx, fast-return opportunity.

Operator, Operator

Okay, our first question comes from Ken Hoexter. Your line is now open.

Ken Hoexter, Analyst

Great, good morning. Iain, Callum, welcome. So Iain, just – obviously, I think the one to start on is your thoughts and progress on the shipping spin, if there’s any update on your thoughts. Is that just off the table in this market and kind of you just proceed as planned?

Iain Ross, CEO

So first question, nothing’s happening immediately around the shipping spin. But we haven’t given up. We continue to explore different ways to make the company comprised of separately investable components as we’ve discussed previously around the difference between shipping FLNG and Golar Power. We’re still exploring new options. Callum has come in with some great new ideas. And I’m confident we’re going to find a solution.

Ken Hoexter, Analyst

Thanks, Iain. And then just following up on the Gimi, I’m sure you’re limited in what you’re able to talk through, but can you just walk us through the process? Is it something that you move toward arbitration? Is there any court system that you’ve progressed with? Or does it just stay at customer discussion levels and proceed from there?

Iain Ross, CEO

Yes, you’re right. We have a process. Under the lease of the agreement, we have a process to follow that determines the cause and remedy of any close to event. So that process is underway. It’s a complex process, so I can’t speak about any detail now, but we will provide a full explanation of where we end up after we finalize it.

Ken Hoexter, Analyst

All right. I think that’s helpful to know that there is a defined process in the agreement.

Iain Ross, CEO

We already have a 600-megawatt power station that we’ve bid and been awarded in Barcarena. We continue to develop the terminals and the other locations that I mentioned. The process is that any option is declared by the government, and as we get closer, we understand the number of megawatts, and therefore, how competitive we can be. The key to success is the fundamental point of having locations ready to bid that are approved and qualified. That’s where all the hard work goes on in the background, getting these locations ready. We’ve got many that we’re working on.

Operator, Operator

Okay, our next question comes from Randy Giveans. Your line is now open.

Randy Giveans, Analyst

Hi gentlemen, how is it going? Iain, congratulations on starting the Sergipe power plant during the first quarter. Just following up on that, what are the expectations for the cash flow ramp up?

Iain Ross, CEO

Well, it’s influenced by two things. Obviously, the real exchange rate, so all our costs and the majority of our debt’s in reals, so there’s a bit of a natural hedge there. But then the other thing that happens is it gets linked, as all Brazilian contracts do, as we go through the year. So you get some degree of offsetting of one against the other. The only impact is what comes out the other end as distributable cash and how you convert it.

Randy Giveans, Analyst

Okay. And then looking at FLNG, do you have some kind of a timeline for that? Is it a few weeks? Is it a few months?

Iain Ross, CEO

I don’t know, but we’re in a very structured process with BP that we’re progressing. We will give an update where we are in Q2.

Operator, Operator

Okay, our next question comes from the line of Michael Webber. Your line is now open.

Michael Webber, Analyst

Hey good morning guys, how are you? Iain, first one is on the Gimi. And I know there’s an ongoing process with BP. Just thinking from your perspective and the actual conversion work being done in Gimi, what, if any, impact should we expect on the leverage in the syndicated debt associated with that asset?

Iain Ross, CEO

We’re comfortable where we are right now. No repercussions for the financing by moving the financing to the right in terms of the comfort of the lenders. They’ve been very supportive, and we’re appreciative of that. It’s a fast-moving situation.

Michael Webber, Analyst

Got you. And without getting too granular, if I think about the 12-month term referenced by BP, that doesn’t trip any credits or contracts triggers within the credit documents?

Callum Mitchell-Thomson, CFO

No. There are other things we care about in terms of quantum and tone and everything else, but in terms of duration, no.

Operator, Operator

Our next question comes from the line of Greg Lewis. Your line is now open.

Greg Lewis, Analyst

Iain, could you talk a little bit about Golar Power? I mean, clearly, as you look at this opportunity in the small-scale distribution, there’s a lot happening. Is there any way to think about the CapEx around this to meet this growing demand?

Iain Ross, CEO

In terms of how Golar Power will build this out, we have a very detailed plan. All of the CapEx will be funded from within Golar Power, so there’s no additional equity requirement that we’re aware of. Golar Power is essentially at this stage in the development phase, self-sufficient for what has got in front of it.

Ken Hoexter, Analyst

And let me just wrap up, I guess, on the LNG price environment. When – where prices are now, do you expect, as we see the reopening obviously creeping up in the U.S. and Europe, accelerating a little bit more?

Iain Ross, CEO

I mean if you can tell me when the global recovery is going to restart, what the rebound profile will look like, how that will translate to energy demand, then I have a more informed view. We’re trying to forecast this, and this is not forecasted to be prepared and ready to move as soon as the opportunity arises. In closing, I’d like to thank everyone for their participation and interest in Golar. We’re certainly weathering this storm, and we think we’ve got exciting prospects for the future. Please stay safe. We look forward to talking to you next time. Thank you, and goodbye.