Golar LNG Limited (NASDAQ:GLNG) Q4 2023 Earnings Call Transcript

Golar LNG Limited (NASDAQ:GLNG) Q4 2023 Earnings Call Transcript February 29, 2024

Golar LNG Limited beats earnings expectations. Reported EPS is $1.06, expectations were $0.5. Golar LNG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Golar LNG Limited Fourth Quarter 2023 Presentation. After the slide presentation by CEO, Karl Fredrik Staubo, and CFO, Eduardo Maranhao, and there will be a question-and-answer session. Information on how to ask a question will be provided then. At this time, all participants are in listen-only mode. I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead.

Karl Fredrik Staubo: Thank you and good day and welcome to Golar LNG’s Q4 2023 earnings results presentation. My name is Karl Fredrik Staubo, I’m the CEO of Golar LNG, and I’m accompanied today by our CFO Mr. Eduardo Maranhao to present this quarter’s results. Before we get into the presentation, please note the forward-looking statements on slide two. We start at slide three and an overview of Golar today. We own two FLNGs, Hilli operating for Perenco in Cameroon, and FLNG Gimi delivered from Seatrium Shipyard in November last year, and currently moored to the GTA Hub offshore Senegal and Mauritania, which will be her home for the next 20-years. We own two LNG carriers. We agreed to acquire the Fuji intended for mark two FLNG conversion and expect to take delivery of the vessel next week.

We also own the LNG carrier Golar Arctic, which is a non-core to our FLNG focus, and we are currently considering options for the vessel, including charter opportunities or a potential sale. We have two financial investments, Avenir LNG, a small-scale LNG shipping company, and Macaw Energies, a land-based liquefaction company targeting monetization of flare gas focused on operations in the Americas. We’re particularly excited about the outlook for Macaw and we’ll share more color on development on that later in the presentation. Turning to slide four, Golar is the world’s largest owner and operator of FLNGs and the only FLNG player offering floating liquefaction as a service. This is relevant as gas resource owners of proven reserves, either stranded, re-injected or flared gas, look to monetize these proven reserves, whilst maintaining meaningful ownership and exposure to their own resource.

Golar’s position as the only service provider of maritime liquefaction enables us to offer these resource owners a unique value proposition. We own and operate the largest FLNG fleet in the world by liquefaction capacity and at par with ENI and Petronas in number of units. Golar pioneered the FLNG concept with the construction and delivery of Hilli, and I’ve also demonstrated the lowest CapEx per ton and market-leading operational track record. Turning to slide five, we provide an overview of the global LNG supply and the attractiveness of FLNG project development. The global LNG market is approximately 400 million tons, and based on projects under construction or pending final investment decision, market supply is estimated to grow by up to 220 million tons or more than 50% by 2030.

The largest incremental producer of LNG will be the U.S. with a current market share of 22% of global volumes and 57% of planned added production. On the far right-hand side, this compares the cost curves of global suppliers’ volumes landed in Europe. This cost stack includes the cost of source gas, liquefaction, and shipping. Based on forward curves for Henry Hub, a significant portion of U.S. volumes have a landed price into Europe of about $10 per MMBtu, providing support for LNG prices. We target LNG developments with significantly cheaper source costs for the gas. Based on our demonstrated lower CapEx per ton and shorter shipping distance from the locations we are targeting, we see landed gas prices for projects currently in discussion of around $5 per MMBtu.

This suggests that the project economics for the FLNG development currently in development by Golar can generate a margin of $5 per MMBtu to where U.S. exports have break-even landed costs. Hence, at this break-even landed cost for the majority of U.S. projects, the EBITDA of the FLNG project in discussion is ranging between $600 million and $875 million, dependent on whether we look at the Hilli or a Mark II FLNG solution, where the economics will be shared between the resource owner and Golar. The attractive break-even cost of these projects also ensure a robust business model if gas prices continue to be volatile. Turning to business updates in the next session and a summary of Q4 and subsequent events on slide seven. Hilli continued their operational excellence, having now delivered 108 cargos since start-up of operation in 2018 and more than 7 million tons of LNG to-date.

Gimi, as explained, has now been moored to the GTA hub and is ready to commence operations under her 20-year contract with BP offshore, Senegal and Mauritania. We continue to progress our Mark II growth project having spent $187 million to-date and taking delivery of the Fuji LNG, our vessel conversion candidate next week. We see strong development for FLNG projects, including redeployment projects for Hilli and new projects for Mark II FLNGs. We’re currently in discussions for chopped opportunities ranging from 12 to 20 year duration and we are pleased that we are aligning commercial terms with gas resource owners. Turning to the right hand side in corporate and other. The financial highlights for the quarter was adjusted EBITDA of $114 million, inclusive of the catch-up of 2022 underutilization of the FLNG Hilli.

Current liquidity position stands at approximately $800 million and Eduardo will provide further details on the financial performance for the quarter later in the presentation. We continue our focus on shareholder returns, declaring a dividend of $0.25 for the quarter and share repurchases of 1.3 million shares during Q4. We also resold $61 million of our unsecured treasury bonds. Following this sale, we now have $200 million of bonds outstanding in the market and $100 million remains in treasury. Turning to slide eight. Gimi sailed away from Sailaway on November 19, completing a four-year construction period. This was extended due to COVID effects on the conversion process. We arrived on the GTA field on January 10, 2024, following an efficient tow from Singapore to Senegal, Mauritania.

The vessel is now moored to the GT Hub with all 26 mooring lines, which will keep the vessel steady and be her home for the next 20-years. As explained the vessel is ready to commence operations and we are currently waiting for feed gas pipeline connection and commencement of operations. The client advises that first gas is expected in Q3 ‘24, subject to final completion of upstream activities and installation of the FPSO. Turning to slide nine and further highlighting the key steps for Gimi and the GTA field to reach COD. With the first two key milestones now concluded, we are waiting to embark on LNG production. The commissioning period is expected to be approximately six months with commercial operations anticipated thereafter. Gimi expects to receive a standby day rate and daily commissioning payments ahead of commencement date.

The commencement date triggers the start of the 20-year lease and operate agreement that unlocks the equivalent of around $3 billion of adjusted EBITDA backlog to Golar, or about $150 million of annual EBITDA. Turning to slide 10 and shifting gears to Hilli. Hilli produced our highest production since startup during 2023. In total, the unit produced 1.46 mtpa during ‘23, inclusive of the 2022 underproduction, and also exceeding the contractual volume by approximately $300,000. The vessel continues its market-leading operational uptime since delivery and we continue to be highly pleased with both the unit, the technology and the operating teams that support the daily operations. Turning to Mark II on slide 11. As previously guided, we have committed more than $400 million to our planned next FLNG vessel, a Mark II FLNG, with a 3.5 mtpa liquefaction capacity.

Long lead items are now 55% completed with construction and we have spent $187 million of the commitment to-date. Next week, we expect to take delivery of the LNG carrier Fuji, which is intended to be used as a conversion candidate for the project. We plan to operate Fuji as an LNG carrier until she will start her conversion work. We have reconfirmed pricing and yard availability for a potential order of a Mark II FLNG and expect 2027 delivery provided that we take final investment decision within 2024. Progress has also been made on a potential Mark II debt facility where terms are being finalized and the facility will not be dependent on a charter for the unit. Turning to slide 12, we have seen strong development of new FLNG projects during the quarter.

We’re pleased that we are aligning around commercial terms with gas resource owners and the attractiveness of these potential gas developments with sufficient resources to support 12 to 20-year charters. We recently signed a framework agreement for a potential new FLNG project, which can either utilize the Hilli or a Mark II FLNG. In addition to the commercial progress made with these counterparts, we’re working on the technical and fiscal terms in parallel. As previously discussed on our quarterly calls, these are large infrastructure projects that need approvals from environmental bodies and governmental sign-ups in addition to commercial agreements with gas resource owners. We’re excited about the development and progress on all these aspects of the potential projects in discussions.

Turning to slide 13, then an update on Macaw, another aspect of our portfolio where we see very positive development. As a reminder, Macaw is a fully-owned subsidiary of Golar. The company is targeting land-based flare-to-LNG mobile solutions that we have named F2X, where the [Indiscernible] containers containing the LNG will be named LIQUIDFLARE. As you can see from the right-hand side of the slide, we have completed the construction of the first unit on time and budget, and we will start production testing in Q2 ’24. We see strong interest from prospective clients that look to monetize flare gas, both for economic and environmental benefits that this technology enables. Once we have proven production, we will evaluate a separate listing of Macaw to facilitate an accelerated rollout of this technology.

I’ll now hand the call over to Eduardo to present our Q4 results.

Eduardo Maranhao: Good morning everyone and thanks Karl. I’m glad to share an overview on Golar’s financial performance during Q4. Turning over to slide 15, I wanted to show some of the highlights of this quarter. Total operating revenues amounted to $80 million with total FLNG tariffs reaching $106 million, an increase of 12%, compared to last quarter. FLNG tariffs is a critical metric which reflects a comprehensive approach to liquefaction revenues, including realized gains on our oil and gas derivatives. Adjusted EBITDA came in at $114 million, up 52% from the previous quarter. Positively impacted by Hilli’s performance, which exceeded her contracted 2023 production volume, resulting in a release of the remaining 2022 underutilization balance of $29 million.

We had a net loss of $31 million in Q4. This figure includes a total of $117 million non-cash items, such as movements in the value of TTF and Brent derivatives, and our interest rate swaps. We closed the year with a total cash position of $753 million and total contractual debt of $1.2 billion. When considering the value of the remaining receivable from our TTF hedges, our net debt position at year-end was $411 million. Now moving to slide 16. We can see the evolution of Hilli’s EBITDA contribution over the last quarters. When looking on a year-on-year basis, Hilli generated $84 million in Q4, which is 15% greater, compared to the previous quarter. That number includes $33 million from base tolling fees. Brent linked fees were up to $20 million from $13 million last quarter and TTF linked fees of $31 million up from $28 million in Q3.

Moving on to slide 17, you can see that we remain exposed to TTF prices for the remainder of 2024, while at the same time expect to benefit from locked-in gains from our previous swaps. These locked-in gains resulting from the unwinding of our TTF hedges will be allocated in addition to our fixed tolling, pitch, and variable brand and TTF revenues. That represents approximately $49 million of EBITDA or approximately $12 million per quarter in 2024. Total debt service including principal amortization is expected to come down to $87 million in 2024, resulting in total free cash flow to equity generation of approximately $174 million based on forward prices for both Brent and TTF. As you can see on this graph, the total free cash flow to equity generated just between 2022 and 2024 is expected to surpass $620 million with room for potential upsides subject to oil and gas prices.

Now moving to slide 18. We remain committed to shareholder returns and as you can see in 2023 we paid over $430 million in dividends, share buybacks and the purchase of NFE’s stake in FLNG Hilli. This quarter we declared the dividend of $0.25 a share with a record date on the 12th of March and payment on the 20th of March. We have also repurchased 1.3 million shares this quarter leaving 104.6 million shares outstanding. Out of the $150 million approved share buyback program, $88 million remains available for further repurchases, which we will continue to opportunistically pursue. I’ll hand it over to Karl now for some closing remarks.

Karl Fredrik Staubo: Thanks, Eduardo. So turning to slide 20 for summary and next steps. We continue to see revenue diversification with delivery of Gimi. And we now have Hilli’s three components, the base revenue; the Brent link and the TTF link, and then the commencement of Gimi’s 20-year contract with BP. On FLNG business development, we see strong progress made, both for redeployment of Hilli and the potential Mark II employment. As explained, we’ve signed a framework agreement with a potential customer that could utilize either of the two liquefaction solutions. The contract in discussions are for commercial terms with durations of 12 to 20-year opportunities. On the Mark II potential FID, long lead items are well progressed.

Yard contract design and engineering is ready for FID and provided we order the vessel within ‘24, we see delivery within ’27. We remain with a strong liquidity position of around $800 million. The Gimi delivery allows for depth optimization. We see potential asset sales in non-core assets, in particular the Golar Arctic, and we are targeting a separate listing of Macaw once the unit has been proven. We remain committed to attractive growth and return to shareholders. We see upside to the dividend once the Gimi starts her contract. And we also see potential release of significant liquidity once we lift the refinancing. We also have continued capacity under our existing share buyback program that we utilized a significant portion of — during 2023.

That concludes the prepared remarks for the Q4 call. Thank you for dialing in. I’ll now hand the call over to the operator for any questions.

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Q&A Session

Operator: Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] And our first question comes from the line of Ben Nolen from Stifel. Please go ahead.

Ben Nolan: Thank you and good morning, guys, or afternoon. I — let’s see, my two questions. The first relates to the Gimi appreciating the timeline that you laid out there with respect to commissioning, et cetera. How should we think about the income statement impact up until the point of commissioning both — is there any revenue or any expense, or are those all just sort of offset against the balance sheet?

Eduardo Maranhao: Hi Ben, Eduardo here. How are you? So as you correctly pointed out, so during the commission and integration phase, we will be capitalizing those revenues until the actual COD start date. So those will be, items which will be reflected in our balance sheet up until COD. They will be amortized equally distributed over the life of the contract.

Ben Nolan: Yes, and the same is true for cost, correct? The costs are capitalized.

Eduardo Maranhao: Yes.

Ben Nolan: Okay, all right, good. So I wanted to — now if I could jump to the Hilli quickly, with respect to the framework agreement that you have. I was hoping that you might be able to give a little bit more color as to, I don’t know, how you — where you think that is in terms of its process and if you have any sense as to when it might be something that is able to move into something more firm?

Karl Fredrik Staubo: I think that the purpose of the framework agreement, which we’re pleased to enter into, is that it sets out an alignment of the commercial terms and very specific next steps that both parties need to meet. We are highly confident about both parties’ ability to meet the timelines put forward in the framework agreement. Where there’s more uncertainty is how that aligns with the governmental bodies and sign-off. Those have been initiated. We’ve had joint meetings with relevant authorities. And based on the indications received thus far, they seem to be aligned to our proposed timeline. But that continues to be the unknown once we talk about exact timing of when this is due. What we have said for a prolonged period is that we want to have visibility on Hilli within ‘24, both because that provides visibility and it also helps us in planning the next phase provided that we need to move from the current location if that will be the case.

So in terms of timing that remains our target.

Ben Nolan: Okay is this West Africa frame it in?

Karl Fredrik Staubo: We’re talking about opportunities both places, not in several places, but the specific framework agreement is not in the West Africa.

Ben Nolan: Okay. All right, I appreciate it. Thank you.

Operator: Thank you for your question. We’re now going to transfer to the next question in the queue. Please stand by. And our next question comes from Liam Burke from B. Riley Financial. Your line is open. Please go ahead.

Liam Burke: Yes, thank you. Hi, Karl. How are you today?

Karl Fredrik Staubo: Good, thanks.

Liam Burke: Karl, you’ve got other investments outside of the FLNG or the Mark II? How are you balancing your investment priorities with the FLNG — your core FLNG with these other, you know, side opportunities?

Karl Fredrik Staubo: That’s a relevant question. So when it comes to Golar, as you know, for the last 2.5 years have been through a bit of a reorganization focusing our efforts on FLNG. In that respect, we have one legacy investment in Avenir LNG, which is a small-scale shipping company that was core to us when we owned Golar Power or Hydro Energy Transition. It’s less core to us now. So the way you should think about Avenir is it’s an investment we like, but we’re not planning to deploy any more capital into it and we’ll be opportunistic as to our ownership in Avenir. When it comes to Macaw Energies, that is something we see to be very much aligned with what we’re doing on the floating side. So what it is, it’s liquefaction of proven reserves, and in this context, flare gas in particular.

We can use the expertise that we’ve built up over FLNGs to capture what we think is a massive market opportunity, both economically, environmentally and politically, to capture flare gas. We see that as a faster way of deploying or getting return on capital investment, which is why we started Macaw at this point in time. However, the absolute majority of our capital will be directed for FLNG growth project. Hence, we’re evaluating a separate spin-off of Macaw to accelerate that business. It’s not one where we as Golar expect to deploy any significant capital beyond what we have. And our capital is for FLNG and FLNG only.

Liam Burke: Got it. Okay. And on the dividend policy, is that — are you looking to maintain that dividend through the cycle or is that something that you’d consider when you’ve got these other investment opportunities going forward?

Karl Fredrik Staubo: When we reinstated dividends last year, we said it’s very important to us that they’re stable, predictable, and increasing over time. Hence, the reason why we put it in initially at $0.25 is because we see that as highly sustainable. We do expect that we can increase dividends over time, but when we do, we want to ensure that it’s a sustainable level. Hence, we want to see the COD of Gimi take place before increasing unless there are other opportunities we see to increase it. But shareholder returns is extremely high on the agenda now and going forward.

Liam Burke: Alrighty. Thank you, Karl.

Karl Fredrik Staubo: Thank you.

Operator: Thank you very much for your question. We’re now going to transfer to the final question in the queue. Please stand by. And our final question comes from Christopher Robertson from Deutsche Bank. Your line is open. Please go ahead.

Ben Moore: Hi, good morning. This is Ben Moore calling for Chris Robertson here at Deutsche Bank. As we look at the LNG landscape in the coming years, new capacity will be coming online in the U.S. Gulf Coast and then Qatar in the near future. As you look at the landscape of FLNG opportunities in this context. Has your perspective changed in the last few quarters as to what types of opportunities are out there?

Karl Fredrik Staubo: No. We think it’s very beneficial because basically when you saw the spike in LNG prices that you had following the Russia-Ukraine situation, in particular the North stream pipeline accident or incident, you saw gas prices go to a level where there was a very strong incentive for end users to substitute away from LNG and natural gas. We think it’s in the industry’s interest that you see long-term, plentiful supply of LNG and further increasing supply sources. So a more stable price environment we think is extremely helpful to end-user demand, which should be very good for industry. In particular, talking about the expansion of Qatar and U.S. volumes, and in particular U.S. volumes, we spent some time on slide five to explain that we see landed cost of these volumes to be pretty much double that of the FLNG projects we’re currently in discussions for.

Hence, we see self-regulating when you have such a large part of the growth in LNG supply with a break-even of twice what we will hopefully have. That should be a self-regulating measure in further underwriting the attractiveness of the project that we — so we welcome the development.

Ben Moore: Thank you. Maybe as a follow-up, can you talk about the current configuration of the Hilli as it relates to the composition of the gas stream? Is the current design equipped to handle wet gas opportunities or is this something that it can be adapted to in the future as you look forward to re-contracting opportunities? We just wanted to try to get a better picture of the types of the fields and opportunities this asset could be deployed to?

Karl Fredrik Staubo: So across all of our FLNG design and the founding principle of our FLNG technology is that we have a generic design. We do not customize to the gas composition. The liquefaction plant is based on pipeline gas quality entering the vessel. To the extent the gas composition of the fields we are evaluating does not fit that quality, the units are dependent on a pretreatment facility that treats the gas strip liquids enters the FLNG. That’s part of the reason why we’re able to achieve the cap expert on that we are and the operational efficiencies that we have achieved. We see it as far more beneficial and safe for operations to separate the two if there is significant gas treatment required.

Ben Moore: Wonderful. Thank you very much.

Operator: At this time — thank you very much for your question. And at this time we’ve run out of time, so I’m now going to hand it back to your speaker, Karl Fredrik Staubo, for any closing remarks.

Karl Fredrik Staubo: Thank you all for dialing in and listening to the updates from the company this quarter. We’re excited about the development and look forward to reconnecting in the next quarter. Wish you all a good day and have a nice day.

Operator: Thank you. And this concludes today’s conference call. Thank you for participating. You may now disconnect.