Golar LNG Limited (GLNG) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to today's Golar LNG Limited Q3 2019 results presentation conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded today, November 26, 2019. I would now like to hand the conference over to your first speaker today, Iain Ross. Thank you. Please go ahead.

Thanks operator. Good morning and good afternoon everyone. Welcome to the Golar LNG third quarter results presentation. My name is Iain Ross and I am the CEO of Golar. Today, I am joined in the ring by Graham Robjohns, CFO and Stuart Buchanan, Head of IR. We also have our Chairman, Tor Olav Trøim, on the line and he would like to make a few comments now. Tor Olav Trøim: Hi. Thank you Iain. The Board of Golar LNG has since about five years worked towards a clear target of making Golar into the leading independent developer of LNG solutions, integrated LNG solutions. We feel we have made certain progress when it comes to the asset base under contract backlog. However the track for your investors is that the stock cannot perform. It could be easy to excuse with the fact that energy in the same period that performed 7% to 8% and then energy has been reduced from 21% to 4.5% of S&P. We are not doing that. We are building a company and we want to make money for you guys. It's clear to understand that both existing and potential investors are critical to the fact that we have not delivered on our targeted five units of FLNG strategy. And they are asking when is this simplifying of the business is going including the shipping spin-off. I am one of the five largest shareholder in Golar myself and I have further responsibility as Chairman. So I am sympathetic and truly aware and working under pretty big pressure towards solving these arguments. The world consumes today approximately 200 million barrels of oil equivalent today. Some 85% of that is hydrocarbon energy. And the total consumption of coal in the world is approximately 80 million barrels of oil equivalent versus 11 million barrels of oil equivalent produced from the non-solar. So dirty coal is as of today seven times bigger than what everybody talks about being on solar. We truly believe that being on solar will be a big around efficiency and have a bright future and will show double digit growth. It would however be extremely naïve and impossible to treat as being on solar over the 20 to 30 years can replace the hydrocarbon industry. There are some clear facts to consider. The cost and the environmental effects of producing hydrocarbon as oil, gas and coal are very different. Oil is significantly cleaner than coal. Gas is significantly cleaner than oil. Not only is it cleaner, it's also significantly cheaper. Based on the fundamentals, LNG has grown in the last 10 years from 9% to 10% a year. The LNG volumes have doubled since 2007. These growth rates have been achieved in a market where LNG prices in most periods have been controlled by the majors and been trading around burn parity of 16% of brent. The big volumes which have arrived from U.S., Russia and Australia over the last years have pressed prices down and effectively down to a level of around 8% to 9% of brent price reduction versus oil of around 50%. The major reason for this is that gas is a lot cheaper than oil to produce. We note that gas prices in U.S. currently are $2.5 or equivalent to around $15 oil. I was in Russia together with Russian producers last week and they claim that the upstream gas which goes out into the Yamal project costs slightly less than $1 per MMBtu or effectively $6 per barrel of oil. The reduction of CO2 by converting coal to gas is approximately 50% to 60%. By converting diesel to gas you are reducing CO2 emissions by approximately 30%. So there are more material reductions in SOx, in NOx and particulars as well. That is what the Golar story is about, lowering the cost to produce energy with material environmental benefits. Let's try to fit this into a bit of an understandable example. The diesel price in Brazil which had a diesel crisis a year ago have over the last three, four years been equivalent to $26 per MMBtu. Future LNG prices are today around $6 per MMBtu. This creates a spread between both what the commodity trades at and what the retail sells at of around $18 per MMBtu. If at price delivered LNG at a discount to diesel of for example $4 per MMBtu, that gives every truck driver in Brazil a benefit of $10,000 a day in fuel costs. He will save 170 tons of CO2 emission which is effectively equivalent of planting 27 hectares of trees. So if you add all this together and think that Brazil has 2.7 million trucks, you have actually a $27 billion in savings to be done by converting the whole trip fleet to LNG. The total area I think covered in trees is bigger than England and probably in the order of British Isles and probably it is between the British Isles and Italy. This talk to a little bit what this about. The Board of Golar is, with this background, of the clear opinion that the current valuation of the stock in the market is significantly lower than the true value of the company's assets and the contractual cash flow. In addition to constant market-leading position we have established both upstream and downstream and the value of the static beachhead we have developed over the years. The Board's opinion on this is based on three things. It's based on the company's own calculation of value. It's based on external research and analyses as well as third-party interest from industrial and financing parties for whole or part of our assets. In order to achieve a more effectively priced equity, the Board might in addition to the growth would still [indiscernible] the company consider a sale of part of the cash flow we have built up as well as simplifying the corporate structure around the company. Some industries are getting it with LNG. I think the cruise industry, which 10 years ago had no LNG conversion at all, if you look at newbuildings, LNG in cruise industry today, you will probably find that 80% to 90% of all new cruise ships are delivering with LNG. The container industry is now following. And just coming back from China on Friday, I can say that the 700,000 trucks, they all trading on Chinese's road is a major part of the LNG revolution with the Chinese leading up to. Golar have since the oil price, whatever have happened to the share price, it's a sad story and I can only as Chairman apologize, but at the same time, we have since the oil price collapse in 2014 signed long-term contracts which gives an EBITDA backlog of more than $7 billion. We have built this order backlog by most of the other competitors in the industry have eaten into their backlog and actually suffering more from a bankruptcy situation. We have today solid finance Golar with a very strategic position which I am proud of. So even if trucks ships FSRU, FLNG, it might be confusing for you and it's complicated, I think it's a part of a reflection that the company can't be static in an environment with LNG prices fall 50% versus oil. You have to be in dynamic model. But you have upstream position and downstream position and you move your investment as the prices move. But let's just end with one little comment. Golar is all about one thing. It's delivering cheaper and cleaner energy and monetizing that true long term profitable backlog. I think on that side, we have been pretty successful building $7 billion in order backlog in five-years sort of an oil distressed scenario. So with that introductory comment and this is the passion we are burning for every day, I leave it to Iain and Graham to go through the numbers.

Thanks Tor Olav. I am following on from our Chairman's comments just revisiting the investment thesis for Golar in a little bit more detail. So yes, there is an undeniable need for the world to transition to cleaner sources of energy in order to combat climate change and reduce pollution in our cities. And whilst renewables feature heavily in the energy mix, we know that there will be a long period of transition that will require the cleanest of fossil fuels. And that of course means LNG. And whether it's LNG replacing heavy fuel oil and the global shipping fleet post IMO 2020 or LNG replacing diesel in remote communities in developing countries, the long term forecast growth in LNG demand is clear. Golar participates in this drive for cleaner energy through three separate channels to market. Firstly, through our unique low-cost floating liquefaction vessels. Secondly, through our fleet of LNG carriers. And thirdly, through our downstream business covering FSRUs, terminals, small-scale distribution and power generation. We have contracted backlog of around $6.6 billion in EBITDA and a growth path to $7 billion over long-term contracts that are independent of commodity pricing and importantly will not require any further funding from Golar shareholders to deliver. We will demonstrate more of this to you later in the presentation. We remain committed to delivering shareholder value and these three areas will focus on monetizing our contracted FLNG assets and maximizing value through project delivery and operational excellence, on spinning out our shipping business to create a separately investable entity and on delivering short payback, high-value downstream projects that can be funded from within our Golar Power downstream venture. We believe that Golar has got a strong role to play in helping to change the world's energy sources, reducing the carbon footprint and reducing pollution in our communities. Now just taking a little bit more of a look at the three segments in turn. I think that's on slide four. In shipping, we are pleased with the progress that we have made in securing utilization for the fourth quarter onwards. The strategy we put in place and have implemented over the last six months will see a 300% improvement in Q4 shipping revenue backlog and EBITDA backlog year-on-year. We have a good line of sight to Q4 TCE and expect earnings for the TFDE to reach around $75,000 to $80,000 a day and for the overall fleet including the steam ships to be around $70,000 to $75,000. Recently, dry dock TFDE fleet is on the water, enjoys a good reputation with customers and we remain of the view that placing our ships into the separate vehicle will create a more simplified structure. It will create a vehicle for LNG shipping investors to participate in and it will clearly strengthen Golar's balance sheet. In FLNG, Hilli continues to perform well and we hope that our customer will embark on a drilling program to prove up more reserves next year in order to further develop that contract. We are separately discussing a small increment to existing production commencing in the first quarter next year. And our $1.3 billion Gimi conversion project is on budget and on schedule. We continue to develop our Mark III design with an Asian yard in order to maintain our competitive position and our portfolio is developing well with quality customers. We continue to evaluate offers to invest in our currently contracted assets. And in our downstream business, Golar Power, we are into the hot commissioning of the Sergipe power station after the introduction to the plants and the fully commissioned FSRU Nanook. We demonstrated progression of the business model in winning the Barcarena power project which we think will underpin the development of the Barcarena terminal with FID of that terminal anticipated next year. And the first station FID will be later as it's not due on the lines of 2025 We have made good progress in developing small-scale, securing shipping capacity through Avenir and taking delivery of isocontainers into Brazil. We will dig more into these sectors in a little bit more detail once we have gone through the numbers and I would like to hand now to Graham.

Thank you Iain and good day everybody. Turn over to slide five and starting with the Q3 financials. Our operating revenues were up this quarter at $99 million from $97 million last quarter. And importantly, our voyage expenses were significantly lower due to an improved shipping market even though the quarter was negatively impacted by vessel positioning and repositioning for five drydockings over the quarter. Fleet utilization was similar to last quarter at 65%. Total fleet TCE increased from $24,400 in Q2 to $35,200 in Q3. Both quarters, as I have said, were negatively impacted by the scheduled dry docking of vessels that spent time in the shipyard and tailing to and from shipyards. TCE for the fourth quarter, as Iain has mentioned, are expected to show significant improvement within expected overall TCE in the range of $70,000 to $75,000 a day and for tri-fuel diesel electric vessels at between $75,000 and $80,000 per day. The increase in shipping revenues and the reduction in voyage expenses was the key driver behind the 48% increase to adjusted EBITDA in Q3, up from $40 million in Q2 to $59 million in Q3. We are reporting a net loss of $62 million in Q3 but this is due in large part to negative non-cash derivative valuation movements totaling $62 million as you can see on the table on the right-hand side of this slide. Turning to the balance sheet. Our unrestricted cash position has increased to $250 million as at September 30, aided by the drawdown of the new $150 million debt facility. Liquidity will be further enhanced by the release of approximately $75 million from the Hilli LC restricted cash as we have agreed with Perenco and SNH to mutually reduce guarantee LC requirements. Subsequent to the quarter-end, we closed the $700 million Gimi facility and having reached the $300 million equity requirements, made the first drawdown from this facility. We also terminated and bought back 1.5 million of the TRS shares representing the first 50%. Turning over to slide six. This slide shows our last 12-months adjusted EBITDA at $283 million and after adjusting for one-off gains and the MLP share of Hilli, our further adjusted EBITDA was $183 million which is comparable to the last 12 months as at the end of Q2 2019. Turning over to slide seven. Last 12 months year-on-year EBITDA, you can see, has shown huge improvement over the same period for the previous year. Our last 12 months further adjusted EBITDA for September 30, 2019 was $183 million, as I have said, a massive 300% increase from the $61 million for the last 12 months to September 2018. This is being driven by significant improvement in shipping and a full year's operations of Hilli Episeyo whilst corporate costs have remained constant. Turning over to slide eight and our EBITDA growth. Our current adjusted EBITDA will grow significantly over the coming years through both contracted growth and expected growth from existing assets, contract awards and specific project developments. Importantly, all of this growth is fundable from existing resources. We have our share of EBITDA from Sergipe and Nanook at $99 million starting in Q1 2020 and our 70% share of the Gimi FLNG at a $151 million. At Perenco, we are planning a drilling campaign in the Kribi area to prove up reserves in 2020 and if successful this may lead to further capacity utilization and/or a contract extension for Hilli. We are also in discussions, again as Iain has mentioned, with Perenco with regards to a smaller increase in production will utilize part of train three starting in Q1 2020. The $73 million additional EBITDA shown on this chart is based on the contracted full train three only option that Perenco has. Finally, Golar Power have been awarded a new PPA in Barcarena, Brazil and this project is intended to be the anchor customer and springboard for development of additional downstream LNG distribution in Brazil targeting the displacement of diesel, coal, LPG and heavy fuel. Based on the numerous customer lessons of interest, we have or Golar Power have received and Golar power's project development activity to-date, the Barcarena projects and downstream distribution has the potential, realistic potential to deliver a $100 million in EBITDA share for Golar. Importantly, the equity requirements for these downstream balance are fundable from Golar Power's operating cash flows which starts in Q1 2020. Turning over to slide nine. And here we set out the Gimi CapEx and debt profile to COD. At COD, the total equity requirement on a 100% basis is $493 million, of which $188 million has been paid in as at September 30. The remaining equity requirement is therefore $305 million, of which Golar's 70% share is $214 million. To fund that $214 million, we have $325 million in liquidity made up of $250 million in unrestricted cash on the balance sheet at the end of September and the release of $75 million from the Hilli restricted cash. We have closed and drawed down on the $700 million debt facility, as I have mentioned and importantly as we get nearer to COD, we plan and remain confident in our ability to refinance this facility increasing the debt level and releasing paid in equity back to Golar. Approximately $137 million in CapEx is due post-COD and will be funded from commissioning revenues and operations. Also and as previously discussed, we have had significant interest from a number of infrastructure funds looking to invest in our existing long term FLNG projects and we are evaluating these proposals. A potential sale is not necessary to fund existing CapEx but proceeds could be used to fund equity requirements for future business development. Thank you and with that I will hand back to Iain.

Thanks Graham. I would like to take you now through our operating segments in a little bit more detail, stating with shipping. So I am on slide ten. In shipping, we believe that we are entering a period of structural shortage of ships that's been widely predicted by shipping brokers. We expect the next few years to be strong for the carrier fleet and therefore maintain a view that spinning out the ships remains in the best interest of shareholders. And following the Board's decision to spin the ships back in May, we had been driving towards a spin-off prior to year-end and as mentioned, we were planning to do this in conjunction with some other ship owners in order to create a larger business that can be more responsive to the market. And unfortunately, while that arrangement was ready to go, we had a very late change in the needs of one of the participants that we found unacceptable. And as a result of this, Golar has withdrawn from that arrangement and we will continue to progress alternative mechanisms to complete the spin-off. We have planned to list this month on the Norwegian OTC with the larger group before moving it most probably to the U.S. next year. Our revised plans will now have us look at a direct U.S. listing of Golar-only ships which inevitably means that we will not achieve the spin-off until next year. The delay is disappointing but we do remain committed to the spin-off and believe that, again subject to market conditions, we will get it done this coming year. In the meantime, we are looking forward to the ships making some good money over the coming quarters. Turning to FLNG, slide 11. So Hilli has now offloaded 29 cargos safely and without incident. Any additional LNG production required in 2020 can be handled with ease based on our operating experienced to-date. We have recently completed a planned maintenance shutdown and completed the full scope and restarted without any concerns. Our team is really familiar with the vessel and the operating experience and confidence in the facility continues to grow. I was in Singapore to have a look at Gimi project a couple of weeks ago and things are progressing well. There are a few pictures of the yard activities on slide 12. It was a pleasure to walk around such a well-organized site. The life extension work on this ship is going well. Sponson fabrication is progressing at pace. And it's so good to hear the numerous lessons learned from our Hilli experience being implemented in real-time on a daily basis. We have around 80 Golar and around 1,500 Keppel people working on the project now pushing for sail-away in just over two year's time. $250 million in EBITDA for 20 years remains an attractive investment opportunity for infrastructure funds and as mentioned we continue to evaluate numerous offers for investment in the currently contracted assets. In terms of the FLNG pipeline, we continue to develop opportunities focusing only on the top five that have the most chance of reaching an investment decision. But I must stress that we remain highly disciplined in our capital management and investment decision for future LNG projects would have to come with a fully financed solution. Projects to take time to develop and we therefore we don't really expect any FID for at least a further 12 months. Looking at the downstream business on slide 13. In downstream, our development of Golar Power from a single project at Sergipe to a comprehensive business is progressing well. The whole driver of this downstream business is to displace dirtier, more polluting fuels which are used for transportation or power generation and to replace them with cleaner and in most cases significantly cheaper sources, as Tor explained, cheaper sources of energy being LNG. Because of the double benefit of lower cost and less polluting energy, we are not surprisingly experiencing strong demand from the customer base of remote communities and businesses who will benefit from the forthcoming switch. And as we can see from the map on the slide, our plan is to build out supply capability from strategic hubs around the coasts. Golar power is well advanced in the extensive permitting process for several terminals. And with the recent award of the Barcarena power project underpinning a terminal in the most northern spot on the map, you can hopefully see the coverage you can get from that location. On the ground, Golar Power has made progress by taking position of around 12 isocontainers which will be used to transport LNG to customers on barges, on trucks. We have secured access to shipping via a time charter of a 7,500 cubic meter vessel from a related party company Avenir and we have committed to modular regasification and unloading units. In addition to doing great work for communities, we think this is a superb business. As Graham highlighted, we see growth potential in the next few years across the downstream activities identified so far and by identified, we mean that with real customers through albeit non-binding LOIs for supply of LNG. We expect to have contracted somewhere around $100 million of EBITDA which is a Golar share, importantly funded from within Golar Power cash flow and debt facilities and therefore with no requirement for additional equity from GLNG. Sergipe, which is the cornerstone of this business is into the hot-commissioning phase of the power station. Things there are progressing well and we are looking forward to reaching COD early next year. Some further pictures on slide 14 are included. I visited the site last month and you can tell it's a fully constructed facility. The huge construction workforce is gone and all we have now is the commissioning teams. We are hard at work with the gas now being fed into the plant and they have plenty to do over the coming weeks. Turning to slide 15, I would like to talk a little bit more about ESG. And as I have mentioned, a strategic plan of our business is focused on helping our customers reduce their carbon footprint and then improve their emissions through the use of LNG as a fuel source displacing dirtier and more expensive sources of energy. But equally, in Golar, we are also focused on looking at ourselves and how we can improve what we are doing. And for the last nine months or so, have been running an ESG project that will result in more formal statements and reporting of what we do, where we want to get to and how we are going along that journey. Our five key areas are outlined here on the slide. And the important thing is that we have been focused on these for quite some time. For example, our attention to safety and operational risk management across the business is relentless and it's underpinned by our management focus and the strong culture of continuous improvement. We commissioned studies across the carrier fleet to understand the optimum vessel trim at various speeds in order to improve fuel economy. We deployed heat recovery steam generators on our FLNG units to minimize fuel usage and therefore reduce emissions. And we have patents pending on a design for hydroenergy regeneration from seawater disposal that we are installing on our FSRUs, that again conserves energy. And of course, our Brazilian business model has the cleaning and drilling of remote communities energy consumption right at the heart of it. There is a little more detail of this of our progress in the appendix. And our Board of course is fully behind this ESG drive and management will be submitting its first ESG report to the Board prior to formal release next year. So summing up in slide 16. We believe the backdrop of LNG demand is only set to strengthen as more and more segments of the industry, in both urban and remote communities address growing concerns around climate change and pollution. Whilst renewables are the ultimate destination, gas and especially gas in the form of LNG is a significant part of that journey and will be so for a long time to come. Our work in liquefying and transporting gas as LNG serves as a transition feedstock for remote communities that are currently burning more polluting fuel oil and diesel for transport and power generation. Importantly, we know the switch is coming, thanks to our ability to get cleaner LNG to these communities and its significant cost savings to the consumer. We also know that rightly or wrongly, economic benefits sometimes need to lead environmental ones. And with small-scale LNG distribution, we have both economic and environmental benefits. The model works. And at Golar, we remain focused on delivering what we have committed to and what's in front of us. And that is fully contracted EBITDA run rate of around $440 million per year and expanding to over $600 million per year without any further funding required from Golar LNG shareholders. This is evidenced by close to $7 billion in EBITDA backlog that delivers out past 2050. We believe Golar is a sustainable business. And now, I would like to hand back to the operator and we will take your questions.

[Operator Instructions]. And the first question comes from the line of Jon Chappell from Evercore. Your line is now open. Please ask your question.

Thank you. Good afternoon everybody.

Hi Jon.

Hi Jon.

Iain, I think the last slide is incredibly important with the backlog and the fully funded and I think it speaks to the strategic developments you guys have made and then really set Golar up good for the long term. However, as Tor alluded to, sometimes the market especially in energy and LNG specifically is very short term. So forgive me for asking two kind of short term focused questions. So first with Hilli. Can you just explain a little bit more about the smaller increase in production that could potentially start in 1Q 2020? And you had in one of Graham's earlier slides, still the $73 million of EBITDA run rate from train three. So what would the "smaller increase in production" really translate into from an EBITDA run rate perspective and how real is that for 1Q 2020?

So we are still in discussions is the first thing and therefore until the deal is signed and delivered, it's not delivered. I think you should consider as a fraction of percentage of that train three and separately we hear from our customers that they are embarking on a drilling program to prove up assets. And I see that as a very positive step forward if in fact they continue to do that and we could be in a very different situation this time next year talking about a much larger commitment to Hilli.

A commitment that would include three and possibly four, an extension of one and two? How sizable could that commitment be for understanding that discussion?

Jon, I think that will depend entirely on what they find and what they are prepared to commit to. So I mean I think the good news is they have actually, we believe they are going to move forward the drilling program which is great.

Okay. And my second question is, you mentioned this huge backlog which is obviously real. When you announced the TRS last quarter, you mentioned suspending the dividend for six months. But if you read the press release and you talk about capital return, you mentioned a focus on further growth investments or share buybacks. So has your view on the dividend kind of changed over the last three months? Do you not view that as a six month suspension but more of a permanent suspension with more of a focus on buybacks given where the share price has been over the last few months?

I think, Jon that will be a matter for the Board to decide. But as we sit here before us, certainly if we have any spare cash that's available we will put it to use to maximize its value for shareholders. And within that mix, you have to consider anything that we have, projects that we have to invest in or in fact, buybacks.

Okay. But it sounds like things are fully funded. A lot of cash flows are turning on. So spare cash should accelerate in the early part of next year. And given the timeline that Graham laid out, most of your equity commitments are done. So we should think of more of a capital return unless there's new projects. Is that correct?

That wouldn't be a bad way to look at it.

Okay. Thank you very much Iain.

And your next question comes from the line of Michael Webber from Webber Research. Your line is now open. Please ask your question.

Hi. Good morning guys. How are you?

Hi Mike.

So I wanted to touch on the carrier spin and the breakdown of the process there as they go on for a couple of years. Can you give us a bit more background around kind of what the disagreement was there? And specifically whether it pertained to valuation? And then when we think about 2020 and spinning it in the U.S., should we think about that as maybe as an equity dividend? Or does the high degree of leverage keeps that from being in play and should we expect maybe a more robust process, I guess, when you try to spin it in the U.S.?

Well, the withdrawal from the consortium is quite recent. In fact, we concluded it yesterday. And there's no point going into the detail of it. We just had a structure that didn't work for us. We have got our task list of things to do. And all we are prepared to say at this point is the way that the spin is contemplated now, it will only involve Golar ships. We plan a de-consolidate it. Obviously, it removes the debt from the balance sheet based on the other structure items that are being worked on as we speak.

Got you. I guess within the context of a carrier spin, I guess the sequencing it seemed like it was a play for a carrier spin and then kind of addressing GMLP and then I know you guys also have an option to spin Golar Power. Does dissolving the previous structure and pushing that spin into 2020, is it more likely that we would see a simplification of Golar Partners before we would actually see a Golar carrier spin? Or is that order still in play you think for 2020 in terms of spinning the carriers first and then addressing the rest of the platform?

Well, I think they will they will evolve as a natural solution evolves for each part of the business. The one that's obvious and we have talked about exact plans of what we are trying to do is the shipping spin and obviously we have got a team focused on making that happen. So I think that will be our immediate focus. And how we incorporate bits of the MLP will unfold in the coming months obviously.

Got you. And then just one more, if you will. For Sergipe, in terms of the commercialization progress there on the retail and transportation side, you mentioned some momentum and maybe converting some of those MOUs into firm sales. Is there any update in terms of timeline as when you think you will start to get some of the first ones of those over the line?

No. But I guess the one thing I would say is, it's a very positive process and that we have got pool coming from the customer base because they do see the environmental benefit and they do see the cost benefit. All we have got to do is make sure before we commit to those customers, remember we are committing not only our quality and our price but time, we have got to make sure we have got all our ducks in a row on how we are going to deliver the equipment and get that lined up. And that planning process is happening now. We have got a substantial team working on it. So as that unfolds, we will able to give you more details but it's progressing well.

Do you think we could see the first steps there in Q1 or H1 of 2020 in terms of the first incremental pieces of commercialization there on the retail and transportation side?

I think the reality is, if you take that $100 million, the best way to think about it at this stage with early information is starting in the middle of the year and maybe the middle of the year quarter three start with first income, go all the way out to 2025 when the power station is online, put a straight line between the two. And that's probably not a bad way to look at it and it will illustrate why we demonstrate how we can fund that through cash flows from Sergipe and our other assets. But as this develops, we will obviously provide more information but the focus is on getting the elements of the kit that we have to put in place and the customers signed up and once we have done one customer, we will know how that's going and we can repeat and learn from that and improve on the next one and so on.

Got you. Yes. That's helpful. I appreciate it Thank you guys.

And your next question comes from the line of Craig Shere from Tuohy Brothers. Your line is now open.

Good morning or afternoon. On Jon's Hilli question, I want to confirm if this little piece of train three would be additive to the original 500 Bcf contract or simply a quicker drawdown on the 500 Bcf? And what opportunities there are to potentially self contract West African FLNG to supply your downstream resilient operations?

So I mean the additional amount that we would come through, that's part of the original contract. The contract duration is eight years. So as part of this arrangement, it would essentially be additive to that contract.

So it would still because originally if you tapped train three, it might move to like five years because you just draw down quicker. So this would be completely additive and still be eight years?

Yes. That's correct. It's an eight year contract effectively.

Okay. Great. And the self contracting opportunity?

I mean self contracting opportunity is there. You mean in taking cargos from Hilli to move to other locations, of course that's there. And as we look to develop the Golar Power downstream business and put cargoes through Nanook and eventually the FSRU that goes up to Barcarena, that's a further opportunity. And if we can link the two, if we can obviously link taking a cargo with the production of more LNG, subject to our customer being able to provide the gas of course, then that's obviously something we would look at.

And also on another of Jon's questions around liquidity and share buybacks, I understand that you do plan new financing as Gimi is finished but barring that, it seems that you are just about fully funded assuming you cover 78% of $442 million outstanding equity from 3Q 2019 through 2023 and that also assumes Golar Power self-funds Barcarena and Brazilian downstream. But the self-funding equity investments at Golar Power combined with the accelerated debt amortization is kind of going to sap the opportunity for cash dividends up to the JV partners, GLNG and Stonepeak. My question is, when do you think you are really going to materially turn the corner in liquidity in excess of capital project obligations and enjoy material improving free cash flow at GLNG itself such that you could pursue open-market purchases of shares that are priced near nine-year lows?

So what we tried to lay out today, Craig, is that we have got $440 million of EBITDA backlog contracted with upside to $600 million. Now if you think about what we have had to do to get the first $100 million EBITDA in Sergipe, is build a fairly large power station over a number of years with a fairly large capital commitment and large debt amortization. The second $100 million is going to come with not necessarily less hard work but with certainly more capital ease. And I think that's where we should be looking at in Golar Power is the fact that we can take that cash flow that we are developing from Sergipe and other assets in Golar Power and translate that relatively quickly into another $100 million of EBITDA. And that's just from customers that we have already identified. So that's where our focus is. And in terms of the rest of Golar LNG, we remain disciplined from a capital point of view. Let's deliver on our Gimi project. Let's continue with the ships and do to spin for that. And of course, if we get more upside from Hilli next year or the years to come, then of course that goes straight to the bottomline and cash. So I think we go pathways to cash. We are really clear about what we are working on.

So if I hear you, going forward Golar Power has expansion opportunities that are not only lower CapEx to EBITDA but much faster cash payback realization and if I am hearing that correctly plus obviously with Barcarena of growth through 2025. Do you see this teeing up a successful IPO for the JV?

Potentially. But that's something the IPO Board and JV partners will look at in due course. The absolutely focused for Golar Power right now is to build that business and prove that it's sustainable. And I think with the award of the Barcarena contract, the guys have done a great job in making that next step along the line and turning it from a project to a business.

Great. Thank you very much.

And your next question comes from the line of Greg Lewis from BTIG. Your line is now open. Please ask your question.

Yes. Thank you and good afternoon. Iain, I just had some questions looking for some follow-up. You kind of alluded a couple of times in your prepared remarks about potentially selling off pieces of existing projects. And just kind of would like to have a better understanding of what that structure would look like, i.e. is that something where we are going to, is that going to become a JV where we are going to sell half? Is it we are selling a third? Any kind of and realizing that those discussions may be ongoing. So realizing there could be some sensitivity around that. And then also being as you have mentioned that the projects are fully-funded, is the implication there that the opportunities for additional projects are going to be at least at a similar return or higher return? Just trying to wrap my head around the thought about selling these what are already on the books pretty profitable return projects.

So I guess a couple of questions in there, but if I take the first one first. If you look at the interest in the contracted assets, what we have here is interest largely from infrastructure funds who see a 20, 25 year contract as very attractive because that's how they are setup. And we have talked to a number of different potential participants around slow investment and obviously that investment would do a few things. But most importantly what it would do is, it would probably demonstrate to other people that the value that we have created in building an investment for our CapEx sum and have it sold at an EBITDA multiple that's way in excess of that, that shows that we have delivered value. And I think that's partly what we do. We prove that there's value being created in those assets. So yes, the discussions are ongoing with a number of parties and we continue to evaluate that. And we will only proceed if we think it's going to be the right thing to do for shareholders. In terms of your other point, the FLNG portfolio, if you want to stick on FLNG, remains robust. Not only have we had people talk to us about investing in our existing portfolio, there's a potential for people to invest in future portfolios. But these projects do take time. And I think the message today is that we are not rushing out and trying to desperately find another FID to satisfy a notion of five FIDs in years. What we are doing is, we are focusing on delivering what's in front of us. And I am confident if the right project comes along with the right financing solution, then we will consider taking head in the right manner. And if we do that, it will have returns commensurate with where we expect our FLNG returns to be which is kind of mid-teens return on equity.

Okay. Perfect. Thank you gentlemen. Thank you very much for the time.

Thank you.

And your next question comes from the line of Ben Nolan from Stifel. Your line is now open.

Hi. Thanks. So I had a couple of FSRU, really Golar Power questions. The first is just sort of more broadly, the focus seems to be pretty clearly on quite a number of opportunities in Brazil. Obviously, there's the Croatia one that have been done in the past. But is it fair to assume that for now Brazil is sort of where we should expect things to happen going forward maybe less so other areas of the world?

I think Brazil for us is more in our control. So to answer your question directly, we are still looking at other areas of the world where we see value in combining an FSRU with some downstream infrastructure which would be a terminal pipeline or ultimately a power station. So we are still scouting the world and looking to develop those projects. The difference that we have got in Brazil is that we are creating those projects. So in getting permitting for terminal outlined and winning a power station, we are creating our own market through the end product that we supply which is either gas to consumers in the form of LNG or electrons from our power station. And that's different to say submitting a bid for a tender to simply supply an FSRU. So what we are doing is, as the business grows and as Golar Power grows, we look to internationalize what we are doing in Brazil with the formula is to be around creating our own market with the FSRU being the strategic asset whose capacity we could use for all those downstream things as opposed to going out and just trying to get a return on a bareboat charter rate for an FSRU.

Okay. That's helpful. And then sort of following on that theme, I will throw to squeeze two questions into one here. As we look at Brazil specifically, some of the other projects that you sort of have outlined as potential things, the Santa Catalina project. How did those compare on size? Are they a little bit smaller relative to say Sergipe? And then as it relates to Sergipe specifically, I know over the past you have talked about the opportunity to expand that and have sort of been waiting on winning power contract to be able to do that. Is there any update on where the status of the expansion stands for Sergipe?

So I mean there's a couple of elements to how you should look at the Brazilian market. Remember when we started this journey, it was on the back of the Sergipe power station and we felt that we had to have power stations as the reason that we move forward with FSRUs and terminals. And what we have learned over the last few years, is that's not necessarily the case. First of all, the power contracts that come up are varied. There are two or three a year and the demand is set by the various states or power entities that are looking for the power and you bid against those power contracts. And what we have got is in Golar Power a series of locations that are approved or can easily be approved for power projects. So that's the first differentiator there is. It takes time and energy to get environmental and other approvals in place just to bid for the power projects. The second point is, because we are working on a number of locations, we have flexibility in where we can try and win that power project from. Sergipe expansion is a great example of a power project that we think eventually will be competitive but it just so happens in this instance our offering out of Barcarena was a better offering when you combine all the different elements. And then the third thing is that what we have learned is that the downstream aspects, the ability to sell gas to other users through either direct pipeline into local facilities or importantly a small-scale moving it down the river, that is also an extremely important and lucrative part of the business that we are developing. So it's much more than, let's just get the next power station out there. It's more about getting a strategic locations for a terminal and having the justification to underpin of FID of that terminal, get an FSRU there and start moving gas around and from that power stations and other things will come. So the business has changed a lot over the last couple of years to the good, I would say.

Okay. And just to clarify, again sort of on the size aspect and as it relates to FSRUs. Are many of these things projects that might lend themselves to smaller FSRUs as opposed to the traditional bigger purpose-built [indiscernible]?

Yes. I mean some of the smaller FSRUs are possible maybe as a stop gap. But they tend to be less efficient than the newer ones. And so you have got to look at the whole economic story whether how long you keep the gas there, the quantities of gas and the customer base for drawing it off. So it's obviously something that we have got quite a lot of flexibility versus some of the older FSRUs we have. But also then we have got new FSRUs such as Tundra and conversion candidates and Celsius and Penguin which already sit in Golar Power. So we don't have a shortage of FSRUs that we can deploy to these opportunities.

Okay. Great. I appreciate it. Thanks.

And your next question comes from the line of Randy Giveans from Jefferies. Your line is now open. Please ask your question.

Hi gentlemen. How is it going?

Hi Randy.

Hi Randy.

So first on the LNG shipping side. Now that all your drydockings are complete, are your spot vessels currently employed? And do you expect to lock away more ships on maybe some index-linked charters? We saw that a few months ago. And then separately, any updates on the Golar Viking? Is that still expected to be converted to an FSRU starting, I guess, in January?

Yes. So taking the last one first, Randy. Viking, I think is on charter till February then going into yard. That project is progressing well. Obviously, the ships in the yard but the yards proceeding with fabrication of the re-gas skids and that sort of thing. So yes, that's happening. I think she comes out at yard at the end of next year and then will be transacted through a purchase arrangement to LNG Croatia. And then we will operate and maintain it for the next ten years. So that's firm and fixed and happening. Coming back to the fleet. The strategy that we deployed is, if as you look a year ago when the market was going up and then a month from that, the market was coming down, we had all of our fleet in the spot market, trading on spot with simple cargoes. A couple of them, I think, were index-linked. We have taken that time and put a lot of work in with the chartering department to try and maximize utilization. So we have several of our ships on index-related charter parties so that they take benefit of a rising market. And we also have some protection to support around a falling market where it's not only the rate coming down, there is actually is the lack of utilization. So we have got a got a number of ships on full utilization. We also have a number of ships. So something like, I can't remember the exact number, it is something like four on index-related deals, four on fixed-charter related deals of more than one voyage and two that are enjoying playing in the spot market out of the ten ships that are in the trading through the Cool Pool. And I think that mix is about right. We do want to have a couple that are there to take opportunistic upside on very short voyages that can have higher rates. But largely, we want to get the utilization up in the fleet and continue to have more predictability on the earnings for the ships. And then obviously that's important as they go out on their own next year.

Perfect. Okay. That's fair. And then did you say, going back to the LNG spin, that it will now likely only include Golar ships? And what is the updated timeline for the spin or hurdles or milestones for this to happen in the next few months?

So yes, you are right. It will only include Golar ships. So we are going to do this on our own. We are just regrouping and working through the timelines. And assuming that we do decide to go direct listing to the U.S., it's going to be sometime next year. I guess in the middle of next year by the time we get through all the listing requirements.

But the announcement for the decision would be earlier? Maybe first quarter?

Well, the Board has announced it intends to spin-off the ships. I don't think the Board's intention around the ships has changed. The mechanism and specific arrangement on how we do that is something we are finessing.

Got it. And then, Tor, if you are still on the call, knowing you are around when I ask you some questions, you mentioned you are top five holder of GLNG. You are also disappointed that the share price is down 50% over the past year, like the rest of us are. That said, have you or kind of will you look to purchase additional shares at this steep kind of sale price? And then as Chairman of the Board, Iain mentioned it's kind of up to the Board in terms of dividends or share repurchases at the corporate level going forward. What would be your recommendation?

So Randy, I don't believe Tor is still on the call. Sorry about the big speech you had to make.

All right then, well, I will ask him offline. Thanks so much.

Thank you.

Happy Thanksgiving too.

And to you.

And your next question comes from the line of Chris Snyder from Deutsche Bank. Your line is now open. Please ask your question.

I would be interested to hear the feedback you received as you have been marketing the proposed LNG spin-off over the last couple of months. And I ask because sentiment around LNG shipping is not great. And now the plan is to spin-off an even smaller fleet with not a ton of equity value. I am just curious around the confidence levels you guys have that you can get a deal done in 2020?

We will have to wait and see that how the markets hold up. But I mean our view is it's something that we want to do and we are working on structures so that we can make it happen.

Okay. Fair enough. And I am sure you guys have given this some level of thought but is there any opportunity to sell the LNG shipping fleet? The time charter market appears pretty healthy at the moment. So proposed buyers could put the vessels on cash flow accretive contracts. So even if you just take a haircut on asset prices, it could drive a pretty significant valuation uplift for the broader Golar group.

Everything is at sale for the right price, of course.

That is true. Okay. And then just I guess one more. You guys have clearly made progress on the downstream Brazil opportunity. So you have the $100 million contracted EBITDA over the next 25 years from the Sergipe and the Nanook. But can you provide any color about how we should think about the EBITDA upside opportunity here from the downstream? And how quickly could we see EBITDA go above the $100 million run rate? I am just trying to boil down all the moving parts around the separate projects, all of which have different timings. Any color there to how to think about it or can model it would be appreciated?

So Chris, actually I have done on a previous question. I think at this stage with early information, the best way to think about it is, start EBITDA stream coming in middle of next year, maybe Q3 next year and running in a straight line until we build the power station up at 2025. And doing that, we get confidence that we can fund it from cash flows from the existing business and other debt facilities. And of course, if we get opportunities to accelerate that, we will do so. But I mean realistically, at this time when we are still planning out the data, it's probably the best way to think about it.

Okay. I appreciate the color and thanks for the time guys.

Thank you.

And your next question comes from the line of Chris Wetherbee from Citi. Your line is now open.

Hi guys. James Yoon, on for Chris. I just wanted to actually follow up on Greg's question about simplifying the business and selling potential cash flows. If the LNG market continues to face some headwinds, how would that impact to the simplification and some of the asset sales? Just kind of wanted to get a sense of, if you are getting the valuations you wanted right now? Or if we are going to have to like wait a little bit before you might see something on that might be sold to an infrastructure fund or a similar deal along those lines?

Are you talking about the low cost LNG pricing environment?

Correct. No, just the broader LNG market. Like essentially, are you seeing some of the valuations that you are seeing in sort of the public market feed into some of your other assets and being a potential headwind to any deal that you might do in the private market?

No. We are not seeing any headwinds. I think we got a different structure. I mean if you if you think about LNG, first of all, our EBITDA backlog that we have discussed is unaffected by commodity price. It's locked in as an infrastructure play. And the growth in the downstream business gets even more compelling in a lower LNG price environment. And if you think about it, as that lower LNG price prevails, it is only going to serve to drive that demand higher. More LNG demand requires more production. More production requires more shipping to move it. And our low-cost FLNG solution can cost effectively monetize the gas assets. So low gas prices aren't a headwind to us achieving our targets. And we haven't not done things around simplification because of headwinds around pricing. We have chosen a more complex route by trying to deal with a tripartite situation that hasn't worked for us. So we are going to do it ourselves with the spinning ship off for example. And as it relates to an interest in our FLNG assets, as I said, the contracted backlog is unrelated to commodity pricing and so has no bearing on how an infrastructure fund would view it. So no, I don't think it's causing a problem at all.

So you are getting a level of interest right now where you actually where a deal could be possible?

On infrastructure funds, yes.

Got it. All right. Thank you.

And your next question comes from the line of Jason Gabelman from Cowen. Your line is now open.

Hi. How is it going? If I could just ask a question on the LNG carrier market. You are forecasting a shortage over the next couple of years. But I wonder how you think about that on a seasonal basis? And if it's kind of dependent on the U.S. to East arb being open? You mentioned that the LNG oversupply globally cause that arb to be closed. And I wonder if there's a potential for ton-mile demand to be depressed in the shoulder seasons because that arb would be closed because of an LNG oversupply? I was just wondering if you could comment on kind of how you see the market on a seasonal basis over the next couple of years?

So we still think it will be seasonal. But if you believe the broker reports and you follow-up and you look at our own analysis, we are thoughtful and hopeful that the shoulders won't be as steep as they have been in previous years. So yes, there will still be a seasonal adjustment as cargoes tend to follow but we think the seasons will be lower. In addition to the East-West arb that you have mentioned and yes it's remained closed, but we are still seeing cargoes have got to find destinations. The U.S. cargoes have been going to Europe. Europe's full. So they then slow steam to Southeast Asia and to China. And an interesting fact that I maybe leave you with is, this whole coal for reducing our carbon footprint around the world, one of the easiest ways that shipping companies can do that is to reduce the shipping speed towards boil-off. So you marry boil-off with shipping speed, you take a few knots of the speed and all of a sudden you have combined and improved carbon footprint with slow steaming and effective partial storage so that they can take opportunities of arb as and when they open. I think we will see an awful lot more of that in the coming years.

All right. That's an interesting point. And then just on the Perenco drilling program. When do you expect next year to get an update on what that drilling program has found?

I don't have any firm information on that. Obviously, we are still in discussions. That part of this business is outside of our control. The bit that we can control is making sure that Hilli performs safely and effectively for our customers. So that's what we are doing.

All right. Thanks for the time.

Operator, just to let everyone know, we only have time for one more question.

And we have one more question on the line, sir.

Thank you. Please go ahead.

That comes from the line of Liam Burke from B. Riley FBR. Your line is now open.

Yes. Thank you. Good afternoon. I know you are selective, both from a capital and project basis on the FLNGs, potential FLNGs. Has your success on Hilli provided you with any favorable negotiating leverage, either on the type of projects or the financing or the type of financing partners you can attract?

I think what Hilli has done is prove that the concept works. You can marinize and flow LNG and sell it on a converted ship around the world and have it operate with 100% commercial uptime. I think the BP contract award with Gimi has proven that a top multinational, mega-national oil company can approve that as part of an entrance into their operational environment, which is no small undertaking. So our position on FLNG is to find opportunities that we can deploy these units on. I am not worried about the negotiating position. We believe that going forward we will get a good commercial rate for these units because it adds value to customers. The bigger challenge and there's plenty of opportunities out there. I mentioned we have got the top five that we look at. That's on a long list of maybe 20. The bigger challenge is making sure we can get the operator's requirement to converge directly with the ability to fund and finance these projects and wrap it all in one, under one large buyer. And what we are finding is that by focusing on the bigger companies with stronger balance sheets that can give us more support, that's the way forward. So what we are doing? We are pushing forward to try and get nonbinding term sheets developed for these companies and build a portfolio that eventually will deliver some fruits from that labor.

Great. Thank you.

Thank you.

We have no more questions on the line. You may continue.

Well, thank you everyone for tuning into the Q3 results. Happy Thanksgiving for those of you in the U.S. and who celebrate it and we look forward to catching up with you next time. Good bye.

And this concludes our conference for today. Thank you all for participating. You may now disconnect.