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Earnings Transcript for GLNG - Q1 Fiscal Year 2024

Operator: Welcome to the Golar LNG Limited Quarter One 2024 Presentation. After the slide presentation by CEO, Karl Fredrik Staubo; and CFO, Eduardo Maranhao, there will be a question-and-answer session. Information on how to ask a question will be provided then. At this time, all participants are in listen-only mode. I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead.
Karl Fredrik Staubo: Thank you, operator, and welcome to Golar LNG's Q1 2024 earnings results presentation. My name is Karl Fredrik Staubo, CEO of Golar LNG, and I'm accompanied today by our CFO, Eduardo Maranhao to present this quarter's results. Before we get into the presentation, please note the forward-looking statements on Slide 2. We start at Slide 3 and an overview of Golar today. We own two FLNG assets
Eduardo Maranhao: Good morning, everyone, and thanks, Karl. I'm pleased to share an overview on Golar's financial performance during Q1. Turning over to Slide 16, I wanted to show some of the highlights of this quarter. Total operating revenues amounted to $65 million with total FLNG tariffs reaching $86 million, down from $110 million recorded in the same quarter last year. This reduction can be attributed to lower realized Brent and TTF linked earnings when compared to last year. We always look at FLNG tariff as the appropriate metric, which reflects all realized liquefaction revenues, including gains on our oil and gas linked fees. We had a net income of $66 million in Q1. This figure represents a significant improvement on a year-on-year basis. Adjusted EBITDA came in at $64 million, down 24% when compared to the same quarter in 2023, as a result of lower Brent and TTF prices, which ultimately impacted Hilli's earnings. Our liquidity position remains strong with approximately $700 million of cash on hand and expected receivables from our closed TTF hedges. Based on that, our net debt at the quarter end stood at $550 million. We continue to execute on our share buyback program this quarter which reduced the number of outstanding shares to 104 million at the end of the quarter. So now moving on to Slide 17. Hilli maintained 100% economic uptime and its market-leading operational track record. Here we can see the evolution of Hilli's EBITDA contribution over the last quarter. When looking on a year-on-year basis, Hilli generated $64 million in Q1, this number includes $31 million from base tolling fees. Brent and TTF-linked fees were down to $15 million and $18 million, respectively. We retain exposure to Brent and TTF, so should prices continue to improve in the coming quarters, we should expect increased distributions from Hilli until the end of its current contract. Moving on to Slide 18. You can see that we remain exposed to oil and gas prices for the remainder of 2024, while at the same time expect to benefit from locked-in gains from our previous TTF swaps. Based on current forward prices, Hilli is expected to generate approximately $274 million this year, while debt service, including principal amortization is expected to come down to $87 million in 2024, resulting in total free cash flow to equity of just under $200 million per year. So, moving on to Slide 19. We remain committed to shareholder returns and executing on our share buyback program. As you can see, in 2023, we paid over $168 million in dividends and share buybacks. With the recently announced dividend of $0.25 this quarter, the total amount of dividends in buybacks in '24 will exceed $40 million. We've bought back approximately 0.7 million shares this quarter, leaving 104 million shares outstanding at the end of the quarter. Out of the $150 million which was approved last year, $74 million remain available for further repurchases, which we will continue to opportunistically pursue. This quarter, we are declaring a dividend of $0.25 per share with a record date on the 10th of June and payment on the 17th of June. Now turning over to Slide 20. As we approach the startup of the 20-year Gimi contract with BP, we have the opportunity to improve our current debt structure and release a significant amount of equity which is tied to that project. We have been in close dialogue with various lenders and have recently executed term sheets for refinancing alternatives ranging from around $1 billion to up to $1.4 billion. As of today, we have drawn $630 million under the existing $700 million facility. So when running the numbers based on our 70% stake, a potential refinancing could unlock more than $0.5 billion net to Golar. This is another stepping stone towards our funding plan for the Mark II project. We have been actively negotiating a new long term financing package for the Mark II of approximately $1.2 billion. So when considering the expected net proceeds from a potential Gimi refinancing, plus around $300 million which Karl mentioned earlier today, which has been fully equity funded until now, which includes the purchases of long lead equipment and the acquisition of the donor vessel, the LNGC Fuji. This proposed financing will support our funding strategy to move ahead with the Mark II project FID in the coming quarters. I'll now hand over the call to Karl for some closing remarks.
Karl Fredrik Staubo: Thanks, Eduardo. I'll now turn to Slide 22 to outline the summary and the next steps. So, on Hilli, our utmost focus is to maintain the market leading operational track record and focus on re-contracting the vessel at the end of current charter. We're very pleased with the developments of the potential 20-year charter, which we are currently in detailed negotiations for. On Gimi, our ambition is to conclude the Pre-COD cash flow mechanisms with BP and continue the very positive progress to COD. As Eduardo just explained, we are also focusing on the debt optimization through a potential refinancing of this vessel. Turning to Mark II, we have spent $270 million to-date with target FID subject to final yard contract, a construction facility being available, and charter visibility on either Hilli or the Mark II. As explained earlier in the presentation, we have gotten reconfirmation of a CapEx per tonne of 600 million per mtpa and a target 2027 delivery if ordered this summer. Under Corporate and Investments, we are targeting a separate listing of Macaw energies, a sale or long-term charter of Golar Arctic, and we remain committed to strong shareholder returns supported by current strong cash flow generation with significant upside both from re-contracting of Hilli and ordering and contracting of Mark II. We have significant financial flexibility in debt optimization and continued capacity under the existing share buyback program. That concludes the prepared remarks and we're happy to open up for any questions.
Operator: Thank you. [Operator Instructions] We will take our first question. Your first question comes from the line of Ben Nolan from Stifel. Please go ahead. Your line is open.
Ben Nolan: Thank you, and good morning -- afternoon, Karl and Eduardo. So, my first question, as you made progress on this framework agreement and there's a little bit left to be done, but it seems like it's likely to move forward, hopefully, that's not an overstatement. I was hoping that you maybe can give a little bit more color on a few things. First of all, is it for Mark II? Is that how we should think about it? And then along with that -- could it potentially encompass more than one unit?
Karl Fredrik Staubo: Hi, Ben. Yes. It could potentially encompass more than one unit over time. And initially…
Ben Nolan: Okay.
Karl Fredrik Staubo: Both us and the client are working on whether Hilli or Mark II should be the first or nut.
Ben Nolan: Okay. All right. I appreciate that. And then, on the Hilli, comes off (ph) contract in the middle of 2026, is there any potential or is there a way at which it could start a new contract that same year just as there need to be a little downtime or upgrades and so forth?
Karl Fredrik Staubo: That's 100% dependent on the location in which we recontract. Of course, if we were to stay on-site in Cameroon, we obviously do not need to go to shipyard. If we go to one of the neighboring countries subject to water depth, we might not need to go for any vessel upgrades, but it's also linked to the duration of re-contracting. And if you're looking for close to 20 hours operations, we believe it would be beneficial to have a relatively short yard stay to ensure continuous operation in the 20-year period and don't have any need to go for maintenance at that time.
Ben Nolan: Okay. All right. I appreciate it. Thank you.
Operator: Thank you. We will take our next question. And your next question comes from the line of Alexander Bidwell from Weber Research Advisory. Please go ahead. Your line is open.
Alexander Bidwell: Good morning. This is Alex on for Greg Waisikowski this quarter. Thank you for taking my questions. Just a quick one here on Hilli. So what -- could you give us a sense of the -- I guess, the general time line you'd be looking at for redeployment? I'd like a little bit more color on once she comes off in July, what's the, I guess, the path to first gas at whatever the new project is? You mentioned before that you're looking at potentially bringing her into a yard to do some maintenance and some refit work. But are we expecting sort of a similar type commissioning time line once she gets on site that you'd see on Gimi?
Karl Fredrik Staubo: Yeah. Hi, Alex. So provided she does not stay in country, what you would have to do is to decommission the vessel from its existing sites. We would likely then sail to a yard. We do not need to go to a dry dock at all. So that is most likely to be either to buy dry docks Tenerife (ph) or similar. The primary reason to do it is life extension for a longer-term contract. We expect the yard stay to take plus/minus three months, and then you then sail down to location of operation. We do not expect a six-month commissioning period once we're on site. We had a significantly shorter than six months commissioning period of Hilli when we first started operation in Cameron. And given that the vessel has produced -- been producing for eight years, we know that all of the systems, pumps, generators and so forth are working well. So we expect a significantly shorter commissioning period. We would expect more in the tune of one to two months. But through commissioning period, you are producing LNG, so it's not like commissioning period is without revenue.
Alexander Bidwell: All right. Thank you very much. And one quick question on Mark II. So what sort of lessons learned, have you guys been applying from your Mark I designs on this new design? And do you guys expect to see, say, optimized -- an optimized design for ease of maintenance or lowering your maintenance costs on the facility?
Karl Fredrik Staubo: That's a very good question. So dependent on how detailed we should go in this call, I suggest we keep it relatively high level. But the key benefit of Mark II over Mark I is that the entire liquefaction plant is built on an entire new mid-section. So if you look at the illustration here, you can see that all of the liquefaction is built on a new unit, which is 80 meters long and 60 meters wide. That means that we could modularize the whole construction of the liquefaction plant and then add the storage being the ship. That's the benefit of Mark II. On Mark I, we have the liquefaction on one side of the ship and support vessels on the other. That means that it's far more stick building in a Mark 1 than a Mark II, hence, on Mark II, it's quicker, easier to operate, less space restriction and enables modularized build, which is to a larger extent than Mark I repeatable. So yes, there are significant learning effects, more space, but the same technology.
Alexander Bidwell: All right. Thank you very much. That’s all from my side.
Karl Fredrik Staubo: Thanks, Alex.
Operator: Thank you. We will take our next question. And your next question comes from the line of Chris Robertson, Deutsche Bank. Please go ahead. Your line is open.
Chris Robertson: Hey. Thank you for taking my questions. Good morning, or afternoon Karl, and Eduardo. My question is just centered maybe around more theoretical scenarios here in terms of how you're looking at ideal contract terms, let's say, for a re-contracting of the Hilli? I mean, it's -- given that you would potentially want the full utilization of the asset. But as we're thinking here about the choices kind of with the pricing outlook for LNG here, how much would, in your mind, to be ideal for the base tolling arrangement versus commodity price exposure as it relates to just capacity?
Karl Fredrik Staubo: Hi, Chris. That's an interesting trade-off. So I think it's fair to say that the higher base, you ask for, obviously, the less carry you get on the upside and vice versa. What we tend to see is that the potential charter or upstream partners are far more open to share on the upside as supposed to cover on the downside. So on the balance, what we want to cover is debt service and sort of a minimal return to equity on the fixed tolling and then have an attractive breakeven on where we share the upside from.
Chris Robertson: Okay. That's fair. And I guess, Karl, you had mentioned some other geographies pursuing FLNG beyond the two focus regions that you typically looked at in West Africa and South America. Can you go into a little bit more detail on where you're seeing that?
Karl Fredrik Staubo: Other geographies includes further north in the Americas and Middle East.
Chris Robertson: Okay. Got it. And then last question follow-up. As you brought in a new Commercial Officer here, as well as development personnel, you said that you've realized some gains so far or at least some help there. Can you go into a little bit more detail on exactly either what they bring to the table in terms of their network or expertise or how are they driving the process forward from a day-to-day perspective?
Karl Fredrik Staubo: So with reference to your question on sort of the upside sharing, people with in-depth experience from upstream business development is very helpful to our commercial team because we have further insights into where and how much we can share of the upstream. And obviously, with the combined 70 years of successful industry experience, they have significant relationships to potential upstream partners. So it's both the benefits of in-depth knowledge of the upstream part of the value chain and the relationships.
Chris Robertson: Got it. That’s great color. Thank you very much for the time. I’ll turn it over.
Karl Fredrik Staubo: Thank you.
Operator: Thank you. We will take our next question. And your next question comes from the line of Liam Burke from B. Riley Financial. Please go ahead. Your line is open.
Liam Burke: Thank you. Hi, Karl. Hi, Eduardo. How are you?
Karl Fredrik Staubo: Well, Liam.
Liam Burke: Karl, in your discussions on the negotiations on the Mark II, are you talking with multiple parties or is this competition on the other side for the access to the first Mark II or is it one potential charter looking at multiple projects?
Karl Fredrik Staubo: From the chartering side, it's more than one for sure. There are several different we're talking to Mark II. What we see both across Hilli and Mark II and in this market in general is, time to cash flow is important, and therefore, we think it's important to safeguard delivery. Obviously, it's clear to the whole market from when Hilli is available, that's from July '26 onwards. And we think it's important to safeguard a '27 delivery for Mark II because that's far ahead of where we think others could introduce liquefaction capacity. We also see a constraint on yard availability in general for maritime assets and locking in the yard slot, we think is an important step in also securing attractive commercial results.
Liam Burke: Got it. Great. Thank you. And on Avenir, I mean you mentioned it, but are you satisfied with the progress there or is that a source of cash that you can reinvest in other projects?
Karl Fredrik Staubo: It's fair to say that Avenir was more core to us when we own Golar Power or later renamed the Hygo, but we like the investment, and Avenir recently added another two new builds to the fleet. So we currently have a fleet of five vessels on the water and two newbuilds under construction. We see that the supply-demand balance for small-scale LNG ships is highly attractive with a large part of the commercial fleet ranging from cruise liners, container vessels, dry bulk carriers, tankers and so forth, now being ordered with LNG dual fuel, but very limited LNG bunkering infrastructure, that combined with small-scale distribution of LNG, we think is -- provides a very attractive backdrop for small-scale LNG. But you're right to say that the investment is less strategic to us than what it used to be when we were more involved on the downstream side.
Liam Burke: Great. thank you, Karl.
Karl Fredrik Staubo: Thank you.
Operator: Thank you. [Operator Instructions] We will take our next question. Your next question comes from the line of Greg Lewis from BTIG. Please go ahead. Your line is open.
Greg Lewis: Hey, thanks. Good afternoon, everybody. Hey, Karl. I was hoping to get a little bit more clarity on the -- in the press release or in the prepared remarks and the presentation, you talked about the advanced negotiations. Realizing when we did the Hilli, I guess, about a decade ago, we really just wanted proof-of-concept and therefore, hey, we had a unit that maybe only had two trains working. Obviously, you did a great job and scaled it up to three. Is there any way to kind of think about from lessons learned. If we're going to move forward with the new project, would we even contemplate doing something where the vessel maybe wasn't fully max -- fully utilized on, like the Hilli making sure that, that fourth train was up and running.
Karl Fredrik Staubo: Obviously, if we build more units, the plan is to fully utilize them for sure. But at the end of the day, as long as the client pays for it, we can utilize whatever they want to use. But we're sure the target is to fully utilize. I think part of the reason for the current contract structure of Hilli was that it's the first FLNG deployment in the world, and it was a proof-of-concept. And at the time of entering into the facility, the gas reserve and the flow rates from the existing wells did not allow for a higher production. Obviously, we are targeting full utilization of all of our units on all commercial discussions.
Greg Lewis: Okay. And then I know it's kind of been touched on between the puts and takes between any negotiation. Do you want to higher base rate? Do you want to hire tolling, what kind of upside. Is there any reason why just given that the unit is basically -- we can borrow against it. As we think about maybe borrowing against it, is there any kind of floor levels we should be thinking about in terms of EBITDA generation for the Hilli, just if we think about being able to borrow against it to then go after the next project?
Karl Fredrik Staubo: So our focus is obviously to maximize economic returns based on the resources available to us, and that's our target for all of our projects. And we recognize that with a higher firm base, you get more attractive debt financing versus a lower base and more variable earnings. So we're obviously looking at equity returns in what we think are likely gas price scenarios and that's how we manage that side. When you say guiding on base, we have a base today, which is based on 57% or 58% utilization. I think we wouldn't talk to a new contract if it was less than at least 90% utilization. So I think it's fair to assume that you will have at least a pro rata increase in the base rates that you see today.
Greg Lewis: Okay. Great to hear. Thank you very much for the thoughts.
Karl Fredrik Staubo: Thanks, Greg.
Operator: Thank you. With no further questions, I would like to hand back for closing remarks.
Karl Fredrik Staubo: Thank you, all for dialing in. We hope you found the update interesting. We're certainly very pleased with the developments of the company. We look forward to speak to you all soon, and have a great day.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.