Golar LNG Limited (GLNG) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Golar LNG Limited 4Q 2020 results presentation. [Operator Instructions]. I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your speaker, Iain Ross, CEO. Please go ahead.

Thank you, operator. Good morning, good afternoon, everyone, and welcome to the Golar LNG Q4 2020 results presentation. My name is Iain Ross, and I'm the CEO of Golar LNG. Today, I'm joined on the line by CFO, Karl Staubo. We're also pleased to have Tor Olav Trøim, Chairman of Golar LNG with us today; and Stuart Buchanan, Head of Investor Relations. Before we start, I'd like to draw your attention to forward-looking statement on Slide 1. And clearly, there's a lot to cover this quarter, including the transformative deals with NFE for the sale of 100% of Hygo and Golar's share of the Golar Partners business, which incidentally was approved by the MLP unitholders yesterday. Let me kick off by giving you some outcomes for Golar from these deals and some quarterly highlights, before Karl takes you through the numbers in more detail. I'd like to explain 3 related themes. Firstly, why the Hygo deal crystallizes value for Golar; secondly, how these transactions will financially strengthen the company; and thirdly, that this is the first major step along our journey to simplify the group. If we turn to Slide 4, and look at the value created for shareholders, it's a good story. In 2016, Golar invested $290 million into the Hygo JV, which is known as Golar Power in those days. The company built Latin America's largest combined cycle gas-fired power station at Sergipe, supplied by gas from the Golar Nanook and then built a repeatable downstream business around that structure. When the deal with New Fortress completes, Golar will book a profitable gain of $760 million based on today's closing price of NFE shares, which translates to 3x -- 3.2x the invested equity. Turning to Slide 5, and looking at our strength and financial position and just going through the recent activities. We successfully completed the public offering of 12 million shares, raising just over $100 million in December last year. Also, in December, our FSRU LNG Croatia conversion project was commissioned, accepted and subsequently sold to our customer, LNG Hrvatska, releasing total liquidity of $51.7 million after repayment of $113 million in debt. To bring this project in on-time and within budget during 2020 is a strong performance, and I'd like to acknowledge the effort of everyone involved. We repaid the $150 million bilateral facility and the $30 million margin loan, and then executed a new $100 million credit facility. And the agreements to sell both Hygo and our shareholding in Golar Partners to New Fortress energy will deliver a further $131 million in cash, together with 18.6 million shares in New Fortress. So the summary of all of that is that post both NFE deal closings, we will add $204 million in cash to the company, and that's after paying down a total of $193 million in debt. The third element is simplification. And you can see from Slide 6 that the ownership structure is more streamlined. We'll continue to provide operations and maintenance services to the NFE floating assets that they've acquired and we are left with 3 well-defined business activities. On Slide 7, post transaction, we will have an FLNG business, with a contracted adjusted EBITDA run rate that clearly ramps up to $224 million per year when FLNG Gimi comes online in 2024, a shipping business with an adjusted EBITDA run rate over the last 12 months of $123 million, representing an average TCE of around $50,000 per day and the ownership of 8.9% of New Fortress Energy, which is focused on the downstream part of the gas value chain. With the adjusted EBITDA, book value and net debt of each segment laid out this clearly, we feel that the underlying equity value becomes more apparent. Turning now to Page 9 and a run through of our Q4 2020 highlights. Today, we report an adjusted EBITDA of $78 million on revenue of $118 million for the quarter, which is driven by a further solid FLNG performance and an improved result from shipping. In shipping, we achieved adjusted time charter earnings of $52,000 per day, which is in line with guidance, with the TFDEs earning just under $54,000 per day after adjustments, and we ended the quarter with a shipping revenue backlog of $193 million compared to $172 million at the end of Q4 '19. Our FLNG operations maintained 100% commercial uptime through the quarter, with an additional $8 million in revenue recognized as a result of over production on Hilli up to the end of 2020. And the conditional agreement has been entered into with Perenco, which may pave the way for drilling to commence this quarter. FLNG Gimi remains on budget and tracking to the new schedule. Hygo generated $38 million of adjusted EBITDA during the quarter, which, as you can see from the graphic, is largely in line with the last couple of quarters. So more detail on the business segments to follow. Let me now hand you over to Karl to take you through the numbers and more detail on financing.

Thank you, Iain. Turning to Slide 10 and the fourth quarter 2020 financial results. We report operating revenue of $118 million for the quarter, up from $96 million in Q3, driven by a seasonal increase in our achieved shipping TCE, which came in at $53,000 for the quarter, a $12,700 increase from Q3. The FLNG Hilli continued its solid and stable operations, with the mentioned 100% utilization. Following the Q3 announced revised agreement with Perenco, where we removed the 500 Bcf production cap, we have billed Perenco $8 million of incremental revenue for overproduction on the Hilli during 2019 and 2020. Adjusted EBITDA for the quarter came in at $78 million, EBIT against consensus of $70.7 million, driven by the mentioned higher shipping rates and the Hilli overproduction invoice. We report positive net income for the quarter at $9 million. Our net debt position was reduced by $243 million to $2.06 billion as a result of repayment of $80 million under corporate debt facilities secured against Hygo and MLP shareholdings, a repayment of $112 million on the LNG Croatia and an increase in our cash position of $101 million from our December equity offering. This was only offset by $75 million of debt drawn on the Gimi project. Our cash position at quarter end was $254 million, of which $128 million in unrestricted cash and $126 million in restricted cash. The increase in restricted cash related to receivables in conjunction with delivery of the LNG Croatia, which will be received during Q1. We expect a further strengthening of our cash position following the closing of the NFE transactions. Turning to Slide 11. Golar is transitioning from CapEx to cash flow as our infrastructure assets and long-term contracts are delivered from the yards. This is coupled with improving shipping rates and reduced shipping spot exposure through our revised shipping chartering strategy. We have seen a clear trend in our EBITDA over the last 5 years, moving from negative in 2016 and '17 to a stable growth of EBITDA performance during 2018 to 2020. We expect our EBITDA development to continue to build as we take delivery of the Gimi in 2023, as well as potential increased utilizations and oil-linked related revenue from the FLNG Hilli. Turning to the NFE transactions and explaining them on Slide 13. On January 13, Golar announced 2 transactions, where we're selling both Hygo and the MLP to New Fortress Energy. The 2 transactions are independent of each other but , was announced on the same date involving the same counterparts. Starting with the Hygo transaction on the left. Stonepeak and Golar have agreed to sell Hygo. Golar will receive $50 million in cash and 18.6 million shares in New Fortress Energy for its 50% shareholding in Hygo. Based on the closing price of NFE yesterday, this represents a $760 million book gain to Golar and 3.2x equity return over the 5 years we've been invested in Hygo, as earlier described by Iain. On the GMLP transaction. Golar agreed to sell its 30.8% common unit interest in GMLP, as well as its 2% general partner interest for $3.55 per unit. The bid price represented a 27% premium to the closing price of GMLP on January 12, and a 37.5% premium to the 20-day [indiscernible] preannouncement. Golar will receive $81 million in cash proceeds for its common and general partner units. Yesterday, the common unitholders of GMLP voted in favor of the transaction. Both transactions are scheduled to close during first half of 2021, and all parties are working to close as efficiently as possible within that time window. Turning to Slide 14, and a bit of rationale as to why we decided to do the transaction -- both transactions, again, starting on the left with Hygo. NFE and Hygo share a vision of delivering cheaper and cleaner energy to emerging markets. Once we filed our F-1 and later retracted the IPO, we had several suitors around the company. But for us, it's important to team up with someone that share our vision, especially given that we maintain equity exposure in the combined MLP. We think the price that was achieved was attractive, both from a price and execution risk, versus an IPO alternative. The transaction crystallizes the value of Hygo to LNG shareholders, while maintaining exposure to the attractive LNG downstream rollouts. We believe in industry consolidation and this will create the leading LNG downstream company globally. We also see significant advantages in a larger entity with better access to growth capital and a more diversified geographical exposure. Turning to MLP. On the right-hand side, we believe the price, as mentioned, represents an immediate uplift to equity holders but also saw significant benefit to other stakeholders, including unsecured bondholders in the MLP. By selling MLP, we removed the refinancing and the recontracting risk of the MLP asset portfolio. This is execution of the announced strategic alternatives where we were looking to better find strategic alternatives for the MLP contract backlog and asset base. We had a unanimous Board representation for the bid, and we also have a recommendation from independent investment bank as well as proxy advisers. With that, I'll turn it back over to you, Iain, to turn to shipping.

Thanks, Karl. If we turn to shipping on Slide 16. The quarter commenced with JKM around $5.15 per MMBTU, and quoted TFDE headline spot rates of around $59,000 a day. The combination of rapid resumption of U.S. cargoes, strong winter demand from Asia and some unplanned plant outages, pushed JKM up to $15, which, in turn, drove TFDE spot rates to around $160 per day by the end of the quarter. The cold winter conditions saw JKM break $30 per MMBTU and lack of promptly available ships created a further spike in the rates, north of $250,000 a day in early January before dropping back below $100,000 per day by the end of the month. By end of last week, the TFDE rates have dropped back into the 40s. Our Q4 utilization of 77% was disappointingly low due to increased commercial waiting time between 2 spot charters, a mechanical failure and a residual dry dock time on Tundra that we mentioned last quarter. But despite those challenges, and the fact that we've fixed the majority of the TFDEs on term business, we did manage to enjoy a couple of higher-priced charters that will also help lift the Q1 TCE. Our shipping strategy continues to prioritize long-term utilization over short-term opportunities, and you can see from the table on the bottom right of the slide that our annual TCE continues to improve. The TFDE fleet achieved a 2020 full year figure of $50,000 per day for the first time with a similar annual high of 90% fleet utilization. And on Slide 17, you can see that we expect utilization to rebound to around 90% in Q1 '21, which was the backlog of $193 million in place at the start of this year, and the fixtures that we have in place to date is indicating a TFDE TCE of around $60,000 per day for the next quarter. The higher LNG pricing over the last few months has moved the industry momentum back to upstream, so let's have a look at floating LNG production on Slide 19. As we've mentioned, Hilli performed well, 100% commercial uptime and recently offloaded the 52nd cargo. As Karl mentioned, with Brent currently above $60 per barrel, the oil linkage kicks in. And if you remember, that means that for every $1 above $60, this equates to $3 million in additional profit over the course of the year. Our discussions with Perenco and a potential LNG production volume increase within the remaining term of the contract are progressing positively. Should we conclude these discussions successfully, there's likely to be a new risk aligned to tariff payment for the additional volumes. The next step is to finalize the agreement between Golar, Perenco, SNH and the current trains 1 and 2 off-taker, which would allow drilling and testing campaign to commence in the next few months. Any change to the production agreement will likely see the increased volumes in 2022. Turning to Slide 20, and the Gimi project in Singapore. We were engaging a construction workforce of around 2,500 people on a fairly consistent basis per day, that is. We've worked over 7 million man-hours on the project to date with a strong safety record. The fourth dry dock was completed without incident. And you can see from the pictures, we've now attached the [indiscernible] sponsons to the hull. Work continues on outfitting the remaining sponsons, which will be attached as the fifth dry dock planned to commence around the end of this quarter. On FLNG business development, we continue to respond to new tolling inquiries and are developing the most prospective of these with customers. We're carrying out some more engineering work in order to tune our pricing and delivery for the larger capacity newbuild 5 million tons per annum Mark III, concurrent with examining possible redeployment of Hilli post 2026 or a potential market conversion of Gandria. We are reinvestigating both integrated upstream solutions and also the potential to use smaller units with a shorter production lead time to access associated gas is being reinjected or flared. Turning West African undeveloped gas into useful power via LNG is very much part of the energy transition, and we think is also a good business. By example, if you look at the graph at the bottom left of Slide 21, which is price spread between West Africa and FOB LNG delivered at, say, $3, and the forecast LNG pricing is $6. Then the important thing here is that every $1 gas price spread translates to about $250 million in operating margin. So for 5 million ton per annum facility, a $3 spread, as shown here, equates to an illustrative operating margin of $750 million per year. So it's three different development fronts, Mark I conversion, Mark III new build and taking another look at integrated solutions with lots of potential across all of these fronts. Moving to Slide 23. Here, we summarize some of the initiatives being considered to capture the value spread between our share price and the book value. I'll leave it to Tor to comment on share buybacks and distribution of MLP shares as they are Board matters, but let me highlight that we do intend improving debt financing of FLNG Gimi project as we approach COD. We believe we can get debt financing at 5x to 6x EBITDA, which is between $1 billion and $1.3 billion. We will examine the potential to crystallize value in FLNG assets through one or more structural transactions. And we plan to refinance the convertible bond during the second half of this year. And we'll consider using exchangeable bonds against New Fortress shares rather than GLNG. So summarizing our key initiatives to create value on Slide 24. On shipping, we'll continue to maximize full year TCE, and we'll continue to explore separation of the assets. On FLNG, we'll focus on completing the Gimi projects safely on time and on budget. We'll continue to progress the Hilli volume expansion and to develop our Mark III new builds and seat deployment for both the Mark III and the Mark I conversions. Finally, on FLNG, we'll work on integrated upstream LNG developments. We already have a good relationship with New Fortress, and we'll work to create revenue synergies and collaboration in downstream. And, of course, we will work to -- we will continue to examine the various pathways towards further group simplification, specifically through splitting the shipping and FLNG businesses. I'm pleased to now hand you over to GLNG Chairman, Tor Olav Trøim, to take you through his thoughts prior to Q&A.

I think maybe, Karl, you are the best one to take the 2 next slides, and then I'll come back to the primary comments on the FLNG. Okay. If you run that. Okay. I'll go straight into the risk, I'm sorry for this little confusion. What we have learned over the last 7 years is that this business is pretty unpredictable. We don't know where prices goes. I think we've been through, the last 7 years, we have seen oil price above $100. We've seen them on the $37. Just in the last year, we have seen gas prices, and they're going $75 per MMBTU, and we've seen them above $35. So expect the unexpected. However, it's pretty hard to plan for it. The both of Total and [indiscernible] went out this week and said that hydrogen market looks like LNG market looked 40 years ago, promising, but it's going to take time. I have the pain awaiting for 15 years for LNG. We are; entering to this market 20 years ago, and I was probably 15 years too early since the major control of the production and kept LNG prices linked to Brent prices and equals 16% of Brent. And the big volume came from Qatar, Australia and U.S. The majors couldn't any only longer control the prices. The prices went from parity to around 10% of Brent today. So effectively, gas is today 30% cheaper than crude and around 50% cheaper than diesel. And not only is it cheaper, but it's also cleaner. CO2 reduction is one thing, but [indiscernible] and at this particle has probably killed more people on CO2 for the time being. We started to work on an integrated role in 2015, when the oil price collapsed. We did 2 efforts. We started OneLNG and we started Golar Power. Sadly enough, our partner in OneLNG, Schlumberger, withdrew, and we didn't have the capital to do it alone. It was tough times to make money in the upstream business. Since that time, we have developed the downstream activities, where we, together with Stonepeak, invested approximately $600 million, and we built the biggest power station in Latin America. We underpinned -- which was underpinned with a very good PPA. We developed some super attractive terminal permits, which are now coming into play. And we have now put this company into NFE, with making 3.5x money in what has been a very tough energy market. But the merger of Hygo into NFE is not the same. What we're doing as a large shareholder in NFE is to create real power up for downstream LNG activities. While all the majors talk about the lectures and what they're going to do, New Fortress is not only talking, they're doing it. So if you can't beat them, join them, and that's what we decided to do. We share a clear vision with the management and Board of NFE to deliver cheaper and cleaner energy to the emerging market. Gas and LNG is due to the cost structure and the amount of reserves likely to trade at significant discount for the foreseeable future. However, in order to see these downstream activities, we need molecules. If you're going to buy from the majors, they are going to give them the money. Let's look a little bit from the gas market that developed over the last 6 months. And then, you will see on the next slide, you effectively see, we came from a price, which is the blue line, of around -- a little bit less than $5, $5.50. We went all the way down to $2, and then we're up in more than $6 again. The scratched black line is the curve for Brent and similar. So there, you see effectively the price measured in MMBTU in the spread between Brent and gas. So you see, in the summer, there was tremendous upstream margin, but it was negative downside market and negative upstream margins. When you look forward for the next years, we have entered the forward curve for Brent and the forward curve for oil. And you will see oil price indicates the gas parity of around $11, going down to around $9, $9.50 over time. The gas curve for LNG is flat around $6. So there, you see, effectively the profit. And just to tell you how these different colors are backed up. The $1 is what we need in order to develop the streams reserves in Africa going into an FLNG vessel, including return. The $2 is what it takes to liquefy a decent return. The green dollar is the spread you have up to the sales price of LNG. The light blue on top of that, which is the dollar, is effectively a shipping cost to bring it around the world. And the light screen is what you then can take out in the downstream market to gross parity of crude. There is more to be taken out on that market because diesel is, of course, much more expensive than crude, and diesel is, to a large extent, what we're competing with, with LNG. So what you also can see on this curve is the curve is flat around $6, which is an interesting observation. I mean if you follow the market, you saw that last week or 2 weeks ago, the Qataris decided to go ahead with the biggest investment of an LNG train ever in the world in order to produce. And it seems like their target is to deliver LNG around $6 and effectively, thereby, made all development in U.S., more or less, uneconomical. It's a very interesting strategy, very different from Saudi, who let oil price rise and effectively open up for shale. I think it looks like the Qataris have done and say, we can supply this market with a very, very healthy buffer at a level where U.S. cannot be developed. If you look at the summer, there was, as I said, a negative profit in producing LNG and the real money was upstream. Now it's bound out again. As you can see on the second graph today, you see a theoretical spread in the upstream today is around $3.80, while the downstream spread is today, $3.20. That's up to kind of crude, and then there's an additional on top of that. So how can we take out this spread? Let me go on to the next page. We will have 10 years working with a Korean shipyard to develop a 5 million ton vessel. You know what the stage where the design is more or less completed, you see a drawing over there. And we also now have received the proposal for a turnkey contract from the yard. Such a vessel is likely to cost around $500 million production ton, so effectively all together $2.5 billion already installed. And in order to fill such a vessel, you need reserve base of approximately 5 TCF for 20 years, and we can stay there for 20 years. It's my opinion that proven gas reserves is some of the most underpriced assets in the world market. You can buy them for cents per barrel and, thus, it's so far for most operator problem. It's either flare, reinjector or left in the ground because no one has the technology to develop it. Shell has spent $15 billion to build Prelude and it has so far just delivered a handful of cargo. It's been a catastrophe. Golar, and Golar's fantastic people have cracked a nut with a vessel cost of $1.3 billion and we have now delivered 52 cargoes, even if you only produce 50% of our capacity. I'm proud to say that Iain and the team have delivered 100% commercial uptime since we started this thing. We have not been $1 in off-hire. It's a very different story. If you look at the numbers, what we can take out, it's up to 5 million ton vessel today. You will effectively see that if you use that and take off the spread of $3.8, that vessel can make a superprofit of $950 million. Then, you have already included the return for the vessel itself and the upstream activity. If you then pump that into the NFE pipeline and take up the $3.2 in profit, there is over $800 million to be taken out. So effectively $1.750 billion can be made in 1 year by taking out the spread against the real production costs and what we can sell this for in the market today. I think both [indiscernible] at New Fortress and the Board of Golar are extremely excited about this thing, and we want to move fast. We want to leverage unique position we have. And in many ways, we are in process of putting together the OneLNG ID, which we had. The north price was high last time and make the company more integrated. That doesn't mean that all this has to happen in one company. I think we already have the downstream activity in NFE. You might see an FLNG company separated out, and they might see a shipping company together. But we will work together to take out this best on a turnkey basis. And we might do it in the way we do it with Perenco, where we effectively have oil price kicker upside, so we effectively make more money the higher the prices goes, or we can do it on a split tariff basis, where we affect the share risk with the producers. It's been a challenging year we have behind us, but I'm looking forward, and I'm excited. And I'm excited when I see the results, which going to be presented there from 2015. You see the trend in the EBITDA, which is increasing dramatically. And you also see that, that trend will continue in the years to come. We have now kicked the balance sheet with the 2 transactions, both equity rates and the sale to NFE. And there are clear signs that the LNG carrier market is strength in the years to come, with very limited deliveries coming in '22 and '23 and no longer trades -- and longer trades. We have, together with NFE, created what is the leading platform for distribution of LNG. We have LNG Gimi coming in 2 years' time, and they are effectively, in addition, to that, we have Hilli, where we've been talking about additional production coming from train 3 and we also have the oil derivatives coming in, which will give us normally at current prices at $67, which we are today, that's another $21 million if it stayed like that. There are interest, as Iain said, now, every day almost, for people who want to utilize our proven FLNG technology to either fix long-term contracts or, for us, to take up some risk and participate in that $1.7 billion of profit, which [indiscernible]. I again apologize to our shareholders in the most humble way for the performance the last year. It's been a tough market. And in this tough market, we have not been delivered share price. However, we have expressed in the new NFE transaction created significant value for shareholders. And I think we built a unique platform for making money in this energy transition we now see. We don't have to wait, as the guys in Total, 40 years for hydrogen to happen. Gas is the natural substitute to [indiscernible] more and more renewable energy. I mean. I mean talking about making cash tomorrow instead of in 40 years. I hope simplification, which we now have gone through, is appreciated. And if it can help us take out that value gap, which effectively Iain's talked about to see a share price trading around $11 and to see book value of $22, with significant extra value in the FLNG side, triggered the Board to start a buyback program. So we start effectively with $50 million just after the completion of the NFE transaction. But most of all, we want to build a company, which has much leaner cost structure and a much quicker response time than the big majors we are competing with. They are notoriously slow. And there is a massive amount of spread to -- which we have now all the different tools together to take up the event from the gas grid. In the meantime, shareholders should expect a significant increase in the EBITDA, just based on the order backlog we have today and the contracts coming on. I'm excited, and I hope that you, again, can look at Golar as a positive investment, one which is very well positioned for any adjacencies that we could go into. That's by hard cash, not by illusion in our views. Thank you.

Thanks, Tor. I'd like to now hand back to the operator for questions, please.

[Operator Instructions]. Your first question comes from the line of Ken Hoexter from Bank of America.

Thank you for the great details. A lot to unpack. So Iain, maybe I can start off with just the general -- you kind of talked about the 3 new breakdowns, in looking at the swings. But one of them is now holding NFE and the downstream. Maybe you can talk about your view on the future. I mean, you've already detailed the desire to sell the LNG carriers or maybe reorganize that into its own structure, and that's been something you've worked on for a few years. But maybe talk about your thoughts on the downstream exposure now with the NFE holdings?

I mean, the way to think about it, first of all, is our investment thesis right now is this fundamental disconnect between the current equity value of the company and the sum of the parts of the business. So we're still in this journey to simplify the business to realize value from these individual parts of the business that should create overall value for shareholders. I think what we try to lay out today is the fact that we've got simplification in 3 businesses net exposure. With FLNG, we've got a Mark I on Mark II. And as Tor very enthusiastically outlined for us, we're revisiting this integrated operations because of the spreads that are available. It was something that when I joined the company nearly 4 years ago, I was very excited about and started to see that part of the business go. And I'm very enthused of the potential for that to come back. So that's FLNG. In shipping, what we've done is we've stabilized the downside. If you look back over the previous years, we kind of hung out for the big numbers as they came through, but at the cusp of utilization during the leaner months. And what we've put in place is a shipping strategy that will allow us to put a floor on the loss, if you like, from ships, depending on how you look at it, and allow us to play on the upside through 2 avenues. One, is we have some index-linked contracts. So when the rates go up, we can participate there. And we do have a couple of ships available to play in the spot market. Now in shipping, we're pretty well covered for the course of this year. Depending on who you listen to, 2022 can be a very interesting year for shipping in terms of the relative tightness. And I think we're extremely well positioned to make a call on that, halfway to 3 quarters away through this year as we look to our shipping strategy for the years coming. So that's shipping. And I think that flexibility of the shipping strategy will give us choices on what we do with ships, whether they're in the company, out of the company. Because -- I mean I don't think we're in a position to comment at all on how we do that split because FLNG could seek external investments. And as Tor said, we may set up FLNG Co, in which case shipping is less, or we could do it the other way around. I think what we're trying to outline is the flexibility. In downstream, what we have is a collaboration with New Fortress. We will be operating and maintaining the vessels that they've got. And if you think about 2 things. One is that we currently have a shareholding of 9% of New Fortress, so we really want that to do well. We're encouraging on that. But secondly, as that business grows, and they want to take on new vessels, there's an opportunity for us to participate that in providing some of those vessels. So I think what Tor was explaining is that as you look at our spread, there's enough business and work around there for it to be shared around people that are prepared to go after it and realize that value. And that's where we're focused, without being particularly definitive on the -- at this stage on what we'll actually look like. We did a long answer, Ken, but hopefully, that kind of got the point across.

No, it's helpful, especially given how much you have going on and what you've just accomplished with the enterprise , and congrats on getting the Hygo and GMLP sales. I guess, for my final -- or a follow-up and final question would be kind of -- you talked a lot about the FLNG developments. Maybe talk about the -- what happens after the next one, right? What's the timing? Or are you in still in discussions or progress on the third one? And given, without LNG rates have tracked, what are your thoughts on the time frame for that?

So my thoughts things progress while we're in active work with various people in various stages of development. And just if you think -- I guess, the point I'm trying to make, we've got two parallel strategies. We've got our tried and tested strategy there. On the back of Hilli, we realized we had to have a counterparty for tolling FLNG and really has to be a super major with decent balance sheet that can support the financing and offtake. They're the two critical things. The technical part is, for me, the straightforward way. It's getting the project up from an offtake and finance point of view. So that requires a super major. What we're talking about now is going back to, not necessarily tolling, but participating more actively in the integrated environment, as we were trying to do with -- in the OneLNG days and work out a position whereby we can participate in that which will move faster, and it won't require necessarily the same degree of complexity around offtake and therefore, finance. So without being more specific than that, we've got 2 active areas. We've got the Mark I and Mark III in our tolling arena and, at the same time, we've got this integrated idea that we are reinvestigating in right now.

Your next question comes from the line of Sean Morgan from Evercore.

So when we think about Perenco, it's a little bit black box for us as to how they're making their decisions in terms of increasing development at that field. You have the overproduction cap removed. So I guess, one question is, how much higher can you go in terms of over production on the existing 2 trains? And then also, what sense do you get in terms of what Perenco's reservations are? What kind of oil prices they're looking at to sort of make that investment and activate the other 2 trains? I guess, what other information do you have that you can share?

So on your first question, the $8 million that we've invoiced for overproduction, that's from the commencement of operations to December of last year. And that's just a simple factor of dynamics in production. What I would say is the relationship we've got with Perenco, from the operational point of view, is very good. And if they go excess gas or we want to meet the cargo and the timing changes, we end up going up and down a little bit. So that is, I think, is just nice acknowledgment of the overproduction. We're now getting paid for it, which I think in the absence of any other agreement, would continue something in the order of the same on that. But in terms of the deal with Perenco, there's a couple of things to understand. One, is Perenco and then SNH in Cameroon that we have to seek agreement on, these discussions do take time. Secondly, that I think the momentum has changed. And if you look back a year at the gas pricing and the ability to get an offtake agreement structured that's attractive is very hard to do that on the lower gas pricing. I think time is with us now to get that momentum and the pricing is with us now to get that done. And these discussions just take a bit of time. And all I can report is positive progress. And when the deal is done, we will be the first to let everybody know. We'll be very happy about that. Until that deal is done, there's not really enough a lot more I can say.

Yes, I think what I can add on is that there are also conditional agreements within several of the part as stated in the report. It's a place with good likelihood that we will see drilling in the reservoir pretty quickly in order to go up and effectively bring the production well needed to bring more capacity of our EBIT. Nothing is set in stone, but at least I think they've made significant progress over the last few years.

Yes. And so my second question also sort of relates to the Hilli and the FLNG business. And I actually like that Slide 23, where you kind of point out, I think a lot of people are thinking of the valuation gap. And so one of the things that people are trying to get their head around as we talk to investors is the value on the existing assets. So the Hilli -- what are the outs that Perenco would have at the end of the life of the contract? Because it's obviously not in most people's models, but people kind of view it in terms of the underlying value of that business, like that already exists. So what would have to happen for you to either move the asset or recontract with Perenco and sort of -- maybe just a little bit of visibility on what like the end life of that contract looks like?

So that contract will expire in the middle of 2026. It is an 8-year 500 Bcf gas contract, which if you remember, we keep the volume cap of it because of the over production is now an 8-year contract. So that contract will end at that stage. We've got plenty of these other opportunities that we've been talking about or looking at, and particularly the integrated opportunities it would be an ideal fit for Hilli. So we're not focused necessarily on expanding that contract with Perenco at this stage. But what we are focused on is maximizing the value of deploying Hilli, wherever that may be. So for it to stay in Cameroon, we obviously have to be a pretty decent deal for us to consider doing that.

We are informed Perenco that we are leaving in July 2026. We're not dealing to extend the contracts because we think we have a much better alternative elsewhere. So if they have more gas and they have to come back to us, they have no contraction to get it right, whatsoever. I [indiscernible] option or contract so to extend to, say, after July '26.

Okay. So if you were going to move it, you'd probably announce a new location, maybe 24 months or before the deadline?

Yes, it takes 2, 3 years to develop. Because I think they're now -- this is almost the same delivery time as a new building right now. And it has to [indiscernible]. So from that point of view, it's probably more valuable than new building. So I think we are -- this business, by the way, is spot FLNG [indiscernible] today. That's the lead time we take.

Your question comes from the line of Craig Shere from Tuohy Brothers.

Congratulations on the progress. I've got kind of 3 quick ones here. Should the Perenco upsizing come to pass for the remainder of your contract, what are the prospects for favorably refinancing Hilli? And can you elaborate on potential for securing improved shipyard and financing terms? Should you go down the route of cookie cutter, $2.5 billion Mark III projects versus Hilli and Gimi style conversions? And finally, if you do go down the route of the integrated FLNG model you've shared, how do you think about the debt equity mix there?

Karl, do you want to have to go on that first, please?

Yes, sure. So when it comes to potential refi of Hilli, you're right, Craig, that's -- obviously, we have a quite a [indiscernible] under the existing financing. And we think if you increase the EBITDA on the unit and the backlog itself, we should be able to improve the financing to more favorable terms. I also think the more clarity we can give to any potential financial years about alternatives for Hilli, post the Perenco contract that Tor hinted to, will help us in terming out the amortization profile. So to try to answer your quick -- to answer shortly, yes, we think we can refinance the unit if we up the capacity. One thing is, of course, the EBITDA generation for the remainder of the Perenco contract. But equally important is derisking alternatives after the existing Perenco contract. And with the gas -- the current gas price and the gas forward price, we see a lot of support for such derisking, and that will help us in terming out the facility. I think, Iain, do you want to comment on Gimi and yard financing?

And I'm just repeating what I said in the prepared remarks. I mean, we believe, as Gimi heads towards COD, there is an opportunity to refinance that vessel of 5x to 6x EBITDA and $250 million EBITDA, that's $1 billion to $1.3 billion at favorable terms. And we'll -- I think we'll progress our work on that. Again, these things take time to put in place. But I think that would then put us in a good position on -- with Gimi certainly around COD, maybe before or maybe slightly after. But we think that that's perfectly viable.

When it comes to the new buildings and the whole [indiscernible] going to Korea instead of Singapore is that the Korean environment are much cleaner to support the [indiscernible] than the Singaporean. So if you do a turnkey contract in Korea, I think you can probably end up with payment terms of the far from of the ship builders get for shipping things, which means 3x, 10 and 70 by delivery. And that, of course, will change our cash flow dramatically compared to where we are today.

And I guess to the last question, when it comes to integrated project and the capital structure on how we're looking to -- I think we'll review that on a case-by-case basis. Some of the early discussions we're in on that front involves partners. So it has to do with the specific project, the geography and the interest of the partners that we will develop with. In some of these instances, we are also talking about liquefying associated gas. And in such projects, you obviously have other partners that are willing to take the oil bit, and you're basically taking care of a problem for them because today, they're either flaring or reinjecting the gas without being able to monetize it. So this is very much back to the sort of one LNG thought process on what we want to try to utilize.

Your next question comes from the line of Randy Giveans from Jefferies.

Now following the completion of the sale of Hygo to NFE, I guess, assuming the deal closes in April, let's call it, when does your lockup period expire? And can you give a little more details or time line for decisions on what to do with the NFE shares, selling them, taking a margin loan against them kind of in the larger block, dividending them out, what are some options there?

Randy. So this is Karl. Yes, we have the 90-day lockup from the closing of the transaction. So whenever it closes, plus 90 days, and then we are free to do whatever we want to do after those 90 days. We are exploring alternatives. And I think it's fair to say that we receive a lot of inbound proposals from investment banks and other financiers. Alternatives for that ownership block, which is worth around $1 billion or close to $10 per Golar share. If -- we could either margin lend against it or margin loans, you can typically see proceeds of at least 60% LTV. We are looking at alternatives to refinancing the CV involving the NFE shares, which may or may not include an exchangeable. So instead of doing a convertible to the LNG shares, they do an exchangeable to NFE shares. We are also looking at other alternatives. But a primary focus for us is what we have outlined on Slide 23, closing the valuation gap, and we will push forward initiatives to close the gap, and that will very likely include distribution of parts of our NFE holdings to DLNG shareholders.

Got it. And then a quick kind of detailed question. If you were to sell the shares prior to, let's call it, next April, would there be any kind of short-term capital gains on that? Or how would that work in terms of your ownership of the shares. Is it once you collect them? Or have you had them historically? How would that work?

There are no [indiscernible] -- they don't structure in [indiscernible], there will be no tax on the sale of well. But I think it's important to say that we tend to be partners with NFE long term And it is an important part to build that integrated model we have. We will either directly or indirectly be long-term shareholders in NFE. We're not there to cash in that billion. We really believe in what NFE is doing, particularly, it's a part of close to $500 million we have injected into the company now, the EBITA. We have a capacity platform to continue the growth. We successfully started with Hygo, as we said, we started the NFE. I think access to financing with a NFE, no, we don't secure debt and with a market cap of $10 billion. Just a little bit. I know that you estimated this $200 million energy company. But just a little bit comment that they really believe that have a unique position together with them. And they want to be partners. So you will not see a block sale of $1 billion after 91 days, if that's what you're really asking for.

Not as directly, but okay. Noted. And then last question, Slide 24, you mentioned you are seeking industry consolidation for the LNG carriers. Now clearly, there are buyers for LNG carriers as most recently seen with the BlackRock taking GasLog private. So I guess, what are your plans for the LNG carriers? Is the spin-off still on the table in the near term? Or are you pivoting to maybe be a buyer to further consolidate the industry?

I can kick it off and then Iain, you can chime in as we go along. But as of recent communicated to the market previously, we have been looking at alternatives to consolidate the market. From an operational standpoint, we have previously seen the industrial benefits of having a larger fleet through the cool pool, which we have together with GasLog and Dynagas. And as you can have seen from the shipping press, we've also been involved with different sorts of consolidation efforts that has not yet materialized. We are happy to see the start of some consolidation with BlackRock stepping into GasLog. And I think the combination of that transaction and the NFE and Golar transactions, there's now some movement in what's been a very rigid corporate platform within the different LNG shipping companies. And we are looking and discussing with potential partners. We don't rule out any alternative for us. What we believe is that over time, shifting an FLNG, most likely does not belong in the same entity, and we would look to further simplify our corporate structure, number one, to create pure exposures to shareholders and again, with the key motivation to unlock the valuation gap.

Yes. You covered it all. I have nothing more to add to that. That's good.

Noted. Nicely done. Good quarter.

And your next question comes from the line of Ben Nolan from Stifel.

I wanted to dig in a little bit more on the potential for incremental FLNG, the Mark I, the Mark III, and now you've also sort of outlined the possibility of doing a smaller, maybe more expedited version. Sort of 2 parts to this. First of all, in terms of either sort of the integrated model or the tolling model, does there seem to be a favorite or something that is most interesting at the moment to your counterparts? And then secondarily, especially maybe with the integrated model or the smaller scale model, you're looking to do it more on an expedited basis. How quickly can you -- is it realistic to think that something could get off the ground in a more speedy way there?

So maybe I'll take the second one, first. The way -- the secret with the integrated and -- or the smaller model is to get a hold of long lead equipment. And if we can see a string of opportunities ahead of us, it allows us to engage to the supply chain directly and production slots in place for the main equipment, such as the main Cryogenic Heat Exchangers, the refrigerant compressor strings and the like. So I think that's one of the things that we're looking at. The second thing is what type of facility do you put it on? So we're examining different models around that. And I think as we put all that together, for me, it's a case of going ahead with that supply chain management and ordering or preordering, or getting a position where we can get a sort without necessarily putting down a lot of money. And ensuring the supply chain about that sort of string of opportunities going forward. So that's how you do that in a shorter period of time. The actual construction time will depend on the thing that it's sitting on. And so we're not kind of concluded on that yet. But certainly, adopting that cookie cutter approach and doing repeat orders allows us to advance, do the design once, repeat it and then not have to go through that protracted procurement process, put in place supply agreements and they sort of repeat. So that's how you do that. And then on the second one, I don't think I'm going to comment on favorite. But what I would say on the Mark I and mark III, we keep saying it, is that the amount of interest coming through the door is increasing. And we've been saying for the last probably 18 months now that as LNG prices increase, we will get further increased interest for our products because, a, they're proven; and b, they are cheapest and fastest to market. And importantly, the carbon footprint couldn't be very competitive. So without answering your question directly, we've got more -- and the interesting thing is that this number that we're looking at, it changes and rotates as customer processes ebb and flow in time. And I think we've got, to some extent, go at their pace, which is why Tor's frustration with that is one thing on the other reasons we're kind of relaunching the -- the sort of integrated idea when we can set our own phase.

Right. Okay. And then just to pivot a little bit to the downstream side. Obviously, with the Hygo and NFE consolidation and everything you're sort of still involved, but less directly, although you still have the Tundra, and that's really where my question lies. How should we think about that going forward? Are you likely to be participating in tenders for FSRU contracts? Or is that sort of available or sort of spoken for as it relates to the consolidated Hygo, NFE? Or what are your plans for Tundra, I guess?

So Tundra, as you know, is operating in the fuel pool right now as a carrier. My view of Tundra is -- and again, this is very consistent with what we've been saying for the last month, if not years. The value in FSRU is not to just put it out onto charter, as an FSRU earning a marginal return. The value for us is to somehow get into that integrated downstream gas value chain, and that's what we look to do. We haven't really made any progress on that yet. I think we'll let the 2 deals with NFE consolidate, close and then we can sort of take our heads up and start to think about some of the other things. And what we'll do with Tundra will obviously be one of those.

I think what's important to know there, of course, the relationship to NFE goes further back. We were the people who delivered effectively the FSRU for them when it started in Jamaica. We are the people who also do the freeze for them in Jamaica today. In the last couple of months after this, [indiscernible], and I'm sure they are on the phone to these calls, kind of a couple of times a day, and half of it is, of course, to close the transaction. But the rest of it is to develop business together. We want to do business together. And I think if they see an opportunity to put Tundra some workload, we'd together again on that. And that, for us, is smart away. You own 10% of the company, now put it away on the charter rate with some of our competitors are offering these days, is to give us a good return at all.

Your next question comes from the line of Liam Burke from B. Riley.

The execution on Hilli in terms of performance has been very strong. And you've got Gimi coming through plus the 2 Mark projects. Have you seen any competitive response in terms of other alternatives to some of your proposed projects as you go forward?

No.

I think we talked to the biggest player in the FPSO side yesterday, and they have plans for FLNG, but I think they're pretty much given up on it. And of probably the most serious competitor we have.

I think there are plenty of people that are looking to do it. And I think there's one thing, building an FLNG unit. There's another thing building it and safely and reliably operating it for 2 to 3 years. And the knowledge that we've gained in that operation space is quite unique and I think very valuable from Golar's point of view.

Okay. You have monetized your assets or harvest them with nice returns. The FLNG is -- or the Hilli is a nice example of high-return projects. How do you map out the balance between harvesting and reinvesting at high returns as the company unfolds over the next few years?

I think one of the challenges with FLNG that we've talked about is the time it takes from the FID, the final investment decision, to actually generate in cash. And so what we've been doing with the downstream business is looking at ways to supplement that. And with FLNG, what we're trying to do is -- so let me fast forward where we have several of these projects on tolling agreements with super majors on 20- or 25-year contracts, generating hundreds of millions of dollars of EBITDA. That's a very, very attractive investment proposition for infrastructure funds and not on other people see. It's very steady cost terms that are generally completely ambivalent to commodity prices because they are linked on tolling. In order to get there, we're going to be happy to go through that cycle. So what we're looking at is how we can supplement that with some of, if you like, our own business rather than tolling business, where we can participate more directly and more quickly. So if you take a long-term view, then I would see this company as having a tolling business and supplementing that with an integrated business. And we've got to take the opportunities as they come. And I don't know which one goes faster or longer. But essentially, that's the right way the FLNG business is unfolding.

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

Iain, a lot has been covered on strategy. So I guess I'll just ask, clearly, there's a long-term partnership you're making with New Fortress Energy. It seems like they're going to be with their infrastructure network, I guess, combined with what you have. It seems like they're going to be an active player in the LNG bunkering market. I know you still -- I believe you still have that small minority stake in Avenir. How do we kind of square those -- or how do we kind of -- how should we think about that?

Sorry, in terms of what? Can you just...

I mean, I guess -- yes, sure. Is Avenir going to be kind of competing with New Fortress? Is that two different bunkering companies, is there an issue around that or not really?

No, I wouldn't think so. I think the whole thing is likely to be highly collaborative, and that Avenir has got small vessels, which, if you remember, Golar Power, Hygo, has contracted one of the avenue, 7,500 cubic vessels. And so that vessel contract will flip over to New Fortress. So there'll be -- there's already a working relationship in the making there. And the way to think about moving these cargoes around is it's going to be done by lots of different ways. New Fortress have got some other ideas on moving ISO containers directly on barges, there will be avenue type small vessels. I think the way to think about it is as that business grows, the need for different and innovative ways to move LNG around the coast of the various countries they're in will probably be driving the production of those vessels rather than the other way around. So I think it's a pull rather than a push.

Okay. Perfect. Super helpful.

And we have time for one last question, operator.

And your next question comes from the line of Lukas Daul from ABG.

I was just wondering, the last time, on the quarterly call, you mentioned you were sort of looking into ammonia and hydrogen doing some preliminary studies there. Today, it seems to me that you are back to your roots, which is LNG. Is that correctly interpreted?

I think they're quite parallel, really. I think Tor talked about -- he was into LNG, 15 years ago. He doesn't want to wait 15 years for hydrogen. I think there's a couple of things. The first is that we are an LNG company, for sure, and we're going to develop and push and try to lay out a little bit more of the strategy as we sort of deconsolidate some of the assets under the group structure and focus on LNG and shipping and what to do with that again, primarily to create value for our shareholders through bridging that gap that we've discussed quite a bit today. In terms of ammonia and carbon, there are 2 things that we're focusing on. The first is LNG, as a process, is quite carbon-intensive. Now we already have a bit of an advantage with the way we use heat recovery on our floating LNG units, and we have a relatively strong carbon footprint, [indiscernible] is a good carbon footprint, and it's highly competitive against many of the onshore facilities. So one of the things that we've been looking at through technology is how we can bring additional carbon sequestration into our LNG facilities, particularly the Mark III with its big deck space. It's got room for modular CO2 sequestration from the main cryogenic to the turbine strings, the compressor strings, that's the biggest source of CO2. So that's one area we're looking at. Linked to that, and looking at the hydrogen economy, we're doing some studies in the background that says, okay, we can do floating LNG. Our view, and my personal view, is that the way that the world will move hydrogen around, for the hydrogen economy, is in the form of ammonia because it has got higher energy density, it's easier to move, and it is already a proven industry and moving it around. So all we're looking at there is saying, okay, if you can do FLNG, when can you do floating ammonia production and look at the supply chain there. Again, look at what New Fortress are saying in their downstream, they have a commitment through time to progressively change the fuel that their facilities are burning to hydrogen. He hasn't said what format that hydrogen will be in, it could well be ammonia. And I think we'll find, again, as a personal view that many of these engines and turbines will be convertible to ammonia as a fuel. So we can't ignore it. It's important. It's important for the world and society and looking at hydrogen. And I think we've got some of the capability to do it. But it's a long way out, and it's not going to turn cash tomorrow. But we still have to talk about the fact that we're progressing it. So yes, we're an LNG company. We can improve the carbon footprint of CO2 and a natural successor to LNG and energy transition is ammonia.

And then I see sort of the rationale for you cooperating with NFE and peak sort of cooperation and projects. But do you sort of see that dependent on you owning a big stake in that company?

Not necessarily. I just think it creates perfect alignment if you want a shareholding in a company, not necessarily a massive one. But if you have a shareholding in a company and you share future, you share alignment, then you're -- in my experience, the best relationships in business work when both companies benefit from the co-creation of something that's individually bigger than 2 parties working on their own, is working together. And I think that's all we're trying to say, is that we've got a good relationship with New Fortress, we want to develop it and look for revenue synergies along the way. And to keep us aligned, as our Chairman has said, is that we intend to keep some form of stake in that company. And it's good for us as well. We'll benefit as they grow and are successful.

Okay. And in terms of Tor's big picture vision on the LNG. I guess, it's well received in sort of industry circles. But I guess towards the investors, he would immediately be standing off with the methane slip issue. But I was just wondering what is sort of your thoughts around this topic that is definitely on the mind of investors?

So the methane slip is something that we're looking at, and we'll talk a little bit about that when we publish our ESG report around about the same time at 20-F or slightly after that later in the year. The thing with methane slip is you've got to get collaboration with the -- in LNG carriers, for example, it's the engines that create most methane. What the industry is learning is that there's a relationship between the amount of methane slip and how hard the engines are working. And there's a direct correlation then between how much boil-off gas or -- so how much CO2 is emitted, so this is getting more complicated, how much CO2 is emitted, depending on how fast your engines are going. So there's a sweet spot and an optimum position in there where we minimize CO2 and we minimize methane slip through speed. The industry, I believe, needs to work on this collectively, and we're participating in that and through discussions with the manufacturers and doing what we can. So we're actively involved. I think it's an industry collective problem to solve, and I think the industry will get there.

I do want change the world of CO2, and we're talking about hydrogen. You should have in mind that for each kilo of hydrogen -- the hydrogen market today is actually bigger than the LNG market, and it all goes into the refinery industry. For each kilo of hydrogen you produce today, you produce 8.2 kilo of CO2. So kind of -- if you just start to clean up the world, it's nice to start with the hydrogen industry. It is one of the worst polluter on CO2. But we take your point. And I think we're going after everything from slipping of engines to -- and that was also comment from Total [indiscernible] when he had the speech, when you talked about Fortress too early, but their main focus is not to reduce the methane slippage on LNG. Methane slippage and carbon capturing and of those kind things that probably more sensible short-term than kind of long-term trend be talking. You have to focus. I know one thing from having been [indiscernible] over the last 20 years. Nobody bother about the earnings coming 5, 10 years out. Everybody wants earning tomorrow or the day after.

No, I agree. It's just that it seems to be an important issue in the capital markets. So I guess having it addressed would be sort of a good strategy from your side. That's all.

Some are producing papers together with Black & Veatch, which you can find on our homepage. I think the first paper is already out, and there will be more papers coming. It will be a bit part of what you're now talking about as well.

We take our contribution to this the whole environmental and emission side very seriously, and that's why we embarked on our ESG publication journey, some maybe 24 months ago. I don't mean to cut you up, but we are absolutely out of time. So thank you for listening, everybody and for your questions. Please stay safe, and we look forward to sharing our progress with you next quarter. We will end it there and hand it back you, operator. Thanks and goodbye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.