Q2 2023 Golar LNG Limited Earnings Call
Okay.
Welcome to the Golar LNG limited Q2, 2022 Russell's presentation.
After the presentation by the steel cost Fredrick, so bolt and the CFO Heather Mcdonald, there will be a question and answer session.
Information I'll talk a question we'd be providing them.
At this time all participants are in a listen only mode.
I will now pass you over to predict turbo.
Please go ahead.
Hi, everyone and welcome to Golar Lng's Q2, 2023 earnings results presentation.
My name is Karl Fredrik, Starbucks CEO of Golar, LNG and I'm accompanied today by our CFO Eduardo.
Before we get into the presentation. Please note the forward looking statements on slide two.
On slide three we present our company overview.
We are a focused effort N D player with cheerful indeed.
Operating in Cameroon and.
Give me about to deliver and start to 'twenty our contract for BP.
The key changes to our asset portfolio in the quarter was high grading of our LNG conversion candidates.
The LNG carrier gone, there and acquiring the LNG carrier Fuji.
Sure.
And if we can keep more storage capacity younger age and lower boil off and is therefore more suitable for our intended marketshare 3.5 M. P. P. A F LNG conversion.
So I'm always do they have the option to convert the Golar Arctic infant fsrus.
This option lapsed in July and we are now reviewing alternatives for her into anything long term charter or asset sales.
Our investments included Avenir LNG, a small scale LNG carrier business in Macao entities.
Founded with Golar I sponsor targeting small scale land base liquefaction and gas monetization through proprietary technology currently under construction.
Golar is the world's only independent proven LNG company.
Turning to slide four illustrates our near term cash flow growth and further earnings upside in re contracting of the hilli and potentially a mark to F. Lindy.
Hilli continues its market, leading operational uptime with another quarter of a 100% economic utilization.
The vessel will operate for Perenco, Cameroon until July 26, and we see strong earnings generation supported by an increasingly attractive commodity exposed earnings 40 units.
However, the vessel is currently only 58% utilized versus nameplate capacity.
We see significant potential for increased capacity utilization combined with higher earnings for re charter.
The current contract was entered into when article M. D technology was unproven.
And heelys position as the earliest available F. LNG globally continues to increase customer interest in the vessel beyond the current contract.
Our second effort Wendy gave me is about to deliver from C trim in Singapore to start a 20 year contract for BP.
The mix shift from Capex to earnings will significantly strengthen our free cash flow generation.
See significant potential in optimizing the debt facility on give me once she is delivered.
Our contemplated third F. L. M D would be a mark to three five M Tpa vessels.
If ordered within 2023, the vessel will deliver late 'twenty six and be ready for operations from early 'twenty seven.
Our Mark to you would increase our total liquefaction capacity from about five and a half million tons per annum to 9 million tons or about a 70% increase.
Hence, we see free cash flow triggers for the company.
Delivery and startup of give me during second half of this year shifting the vessel cash flow from Capex to earnings.
Number two re contracting on Hilli, I think creates capacity utilization and operational margin.
And number three ordering and chartering of a mark to F O N E.
As you can see on the bottom part of the table.
Strategically we will have up to 322 M. N V to you available for charter from early 'twenty 'twenty seven numbers.
Tariffs in line with the current competitive U S export market suggest earnings of about $1 billion from this available capacity.
However, our <unk> technology enable monetization of stranded gas reserves.
Your wife's remain undeveloped.
Hence, we believe significantly higher liquefaction mergers margins should be obtainable.
We are currently in discussion with more than six different gas resource owners.
Various geographical locations focused around west Africa for potential effort and redeployment.
All of which will significantly better economic terms than current charters.
Okay.
Turning to slide five and highlights for the quarter.
Hey, Lee continued its 100% economic uptime, and we now have offloaded, our 97th cargo.
We're pleased to confirm that we have finalized the improved terms for the hilli financing, reducing the debt margin and extending amortization profile and facility duration.
Gaming is now 97% technical complete and we expect to fade away during September this year.
On business development, we have further our expanded the Mou we entered into with MPC in April to now be further developed through our heads of terms setting out the contractual framework for joint development of specific gasfields towards potential FL NDA deployment.
Yeah.
Development of commercial opportunities also continues outside of Nigeria, including commercial term negotiations with gas resource owners and government interaction and potential countries of operation.
It should be highlighted that the complexity of offshore gas development drives the time line for potential announcements of any binding terms for incremental LNG work.
Other corporate and other Eduardo will cover most of that later in the presentation.
But after our guiding in first quarter, we have declared a quarterly dividend of 25 cents also for Q2.
During the quarter. We've also spent about $30 million of our $150 million buyback program announced in May.
And we have acquired and canceled about one 4 million shares.
We remain committed to enhancing shareholder returns as our earnings continue to grow.
We will now turn to our business upstairs, starting with <unk> on slide seven.
As already mentioned the vessel is now 97% complete and we expect to sail away from the shipyard during September .
System handover is underway and final testing ongoing.
The arbitration process regarding certain pre commissioning contractual cash flows continue but it is not expected to have a wider impact on the 20th contract with BP.
Moving to slide eight.
With the delivery of demand we are now transitioning cash outflows to earnings for the vessel.
The construction of <unk> commenced in 2019, and that's been delayed due to COVID-19 effects at the shipyard and for some suppliers.
Given that Golar is a company with two key assets. We have currently have around half of the balance sheet not generating cash flow.
We'd give me going from Capex to cash flow and the increase in commodity earnings from Hilli, We see continued earnings growth in the coming years.
This is all before a potential <unk> of our March two.
Wed.
Further boost earnings are in the <unk> to come.
Yeah.
Turning to slide nine.
We have expanded our working relationship with MPC to include heads of terms signed in Abuja on August 1st.
The heads of terms set out a commercial framework for development of identified gas resources in Nigeria.
In addition to the discussions with empathy.
We're also progressing potential excellent G deployment with four independent gas resource owners in Nigeria.
In addition to the developments in Nigeria, we see similar developments of more than five potential LNG deployment opportunities in other best African countries.
Where we are currently having commercial negotiations with gas resource owners and government interaction in potential countries of operation.
Our priority remains to first re charter Healey before being a mark to <unk> and then secured a charter for such vessels.
Moving to slide 10, and the developments we've done on a mark to you in the quarter.
As announced earlier mentioned on the call we have high graded RF LNG conversion candidates acquiring Fuji and disposing of the LNG carrier gone there.
We've made significant progress with Chinese financing houses for a debt facility of up to $1.5 billion not contingent on a charter.
We have continued to work with the shipyard to further derisk construction timeline on pricing.
We have increased our <unk> commitments to about 400 million through a combination of long lead items.
Engineering work and the <unk>.
You mentioned acquisition of Virginia.
And as I alluded to a Friday that project. This year, we will deliver within 26.
Turning to slide 11, we see robust long term fundamentals in support of LNG prices.
From a macro perspective, the normalization of gas prices has not stopped the strong interest in securing future position.
Asian importers are active and entering into long term SBS now.
And as you can see from the left hand graph 2023 is lining up to become close to 2022 in terms of total volume contracted.
And then 'twenty two we saw the highest.
Level on record.
The consequent the consequence of this continued buying interest is.
He is a rising price environment.
What we show in the middle graph.
Is the Brent linked pricing long term deals, which is currently ranging between 12 and a half to 13 and a half per cent per Brent.
However, there have been shorter term deals reportedly done between 16 and 20% of Brent parity.
Hence, we shared a view or major players such as shell and BP.
LNG demand will remain robust in the long term as it is offering a solution to the energy trilemma. The world is currently facing.
Balancing energy security.
Access to affordable energy and doing so in a sustainable manner.
Yeah.
That's part of what we are trying to capture all land through Macau energies, which we'll elaborate on slide 12.
Macau is progressing according to plan targeting first operations in 2024.
Commercial and technical development is ongoing alongside building commercial momentum with clients in the U S and South America.
Additionally, the company is already positioning to access gas for its liquefaction technology with several discussions ongoing from gas suppliers.
In order to capitalize on the market opportunity that Macao represents.
We are evaluating alternatives to facilitate growth above and beyond the commitment already provided by Golar.
I'll now hand, the call over to Eduardo to take us through the Q3 results.
Thanks, Carl and good morning, everyone very pleased to provide an update on our group results for the second quarter of 2023.
So turning over to slide number 14, I wanted to show some of the financial highlights of this quarter.
We had total operating revenues of $78 million.
Up 5% versus Q1 'twenty three.
As a result of softer Brent in CTF prices in Q2, we had total F LNG tariffs of $99 million down 10% compared to the previous quarter ethylene G. Tariff is a key non-GAAP metrics comprised of total revenues from liquefaction services, including realized gains on oil and gas derivatives derivatives.
We expect to see a positive reversal of these items this quarter on the back of higher brain into Jeff's prices.
We also recorded an adjusted EBITDA of $83 million pretty much in line with Q1, despite lower contribution from commodity linked fees as I mentioned before however.
However, reduced costs associated with the tundra development agreements, which has been concluded in may contributed to improvement in corporate and other adjusted EBITDA.
This quarter, we had net income of $7 million, a significant improvement compared to Q1.
This figure is inclusive of a total of 72 million noncash items, such as 75, 7% to $7 million unrealized losses from oil and gas derivatives $10 million unrealized gains in our interest rate swaps as well as a $5 million impairment upon the sale of Gander.
Our liquidity position remained strong with close to $1 billion.
Liquidity that includes cash on hand, and other receivables from the unwinding of our CTF hedges early this year.
Our total contract or debt stood at just shy of a $1 2 billion, leaving us with a net debt position of $190 million.
Turning over to slide 15.
I would like to provide a recap from our historical earnings from Healy.
This graph shows our net share of Hilli is adjusted EBITDA and as you can see the tariffs can be broken down into three main components of.
Fixed stalling tariff of $34 million, which has been in line with the previous quarter.
Brent linked fee of $15 million this quarter down from 18 in Q1.
And also a tcf linked fee of $30 million.
Which is also down from $37 million last quarter.
As I mentioned before we expect that higher oil and gas prices should support increased tariffs for the rest of 2023.
Turning over to slide 16.
We can see that we remain exposed to TGF prices for the remainder of 'twenty three between August and through December .
So to give you an idea of how this can improve our earnings for every dollar per million Btu of changing TTS prices, we expect to make an additional $1 4 million in 2023.
'twenty 'twenty four and tier three to six digitally increased to $3 $2 million for every dollar of TTS prices.
So just for example, if Jeff prices averaged $15 per million Btu and next year, we should make around $48 million just from this tariff alone.
In addition to that when it comes to Brent the incremental contribution is $2 7 million for every dollar per barrel change above $60 per barrel.
As discussed on our last call in May we managed to negotiate and complete the amendment of the Hilli debt facility with improved terms, including a margin reduction and extension of Tanner and amortization profile.
These changes are expected to release additional free cash flow of approximately $75 million and through the end of the current contract in mid 2026.
Those new terms that are already in place and have become effective since the end of June .
Now turning over to slide 17.
Our balance sheet remains strong and we have a greater level of flexibility to allow for progressive shareholder returns and at the same time to fund the refugee growth program.
Current liquidity, including cash receivables from TTS hedges amounts to close to $1 billion.
And fully support the development and the equity requirements for the construction of the market U S. LNG.
In addition to that we have several alternatives that could further enhance liquidity in order to fund further growth, including potentially a refinancing of existing debt facilities for both hilli in gaming that could unlock significant amount of equity should we be required to do so.
As discussed on the previous slide <unk> free cash flow generation of more than $200 million per year fully supports the current dividend and buyback program.
This will increase even further upon game as a startup creating room for increasing shareholder returns in the future.
This quarter, we have declared a dividend of <unk> 25, a share with a record date of August 21, and payment owner about August 29.
Following the announcement of our $150 million buyback program in May we have spent $30 million repurchasing one 4 million shares at an average price of around $21.
After that we had at the end of June 160 million shares outstanding.
I'll now hand over the call to Karl for some closing remarks.
Thank you Eduardo and turning to slide 19 for summary.
Starting off on the left hand side, we see a significant earnings growth from the existing asset portfolio with <unk> moving from Capex to cash flow and increased future contribution from our commodity linked earnings familiar.
So you can see from the graph all of the bars above the Green line, which represents total debt service.
Equates to free cash flow to equity.
Turning to bottom left we have an attractive pricing.
EV over a million tons of annually perfection capacity currently standing at around $680 million per ton, which is around half or what Karen shore based liquefaction projects with cost to develop in the U S.
Turning to talk right, we have a balance sheet that enable us to continue to grow the company.
Current cash sits at around $1 billion total net debt adjusted shy of 200.
We haven't initiated shareholder returns through quarterly dividends and $150 million buyback program of which 30 has been spent in during Q2.
We plan on distributing an increasing amount of the free cash flow to equity to our shareholders.
While using our balance sheet capacity for LNG growth projects, namely through Marc <unk> with $3 five empty capacity.
On the bottom right, we have an illustrative capex to EBITA multiple.
Subject to margin per M M Btu on the X axis.
Versus what the Capex to EBITDA multiple would be.
If we deploy at various different rates.
We believe with more than 300 Btu available.
Liquefaction capacity from 2027 onwards, that's where we.
Well positioned to capture monetization of stranded gas reserves in particular in West Africa, but also in other geographical areas and discussion.
This concludes our Q2 earnings presentation. Thank you for listening in and we'll now hand, the call over to the operator for any questions.
Ladies and gentlemen, we will now begin the question and answer session.
If you wish to ask a question. Please press star one one on your telephone.
Wait for your name to be announced.
We are now taking the first question.
Okay.
Please standby.
The first question from Ben Nolan from Stifel. Please.
Please go ahead your line is.
Okay.
Alright, thank you.
Hello, Eduardo and Carl.
I have two hopefully that's okay.
The first is when you move the or the transition on the with Nigeria.
Moving from an memorandum of understanding to hedge the term trying to understand how big of a change that is and how close to a final contract.
Heads of terms is is it.
Are we moving meaningfully closer to a definitive agreement in your opinion or is it just.
I don't know maybe frame that for me.
Hi, Brandon Thanks for the question so.
There is no recipe on how to fix in F&B and the only independent provider of LNG in the world as Golar and we have done two contracts, one with Perenco and one with BP and there were different in nature.
However, the way it works on the ongoing discussions with IMTT is first you signed an Mou to unlock resources in particular on the MPC side.
Following the unlocking of these resources in late April and over a series of meetings in London and in Nigeria.
We havent together developed a framework commercial framework for how to develop.
<unk> resources.
We have been agreed that commercial framework and Thats, what been signed up to through the heads of terms.
By signing the heads of terms.
We unlocked another set of works in.
In particular and for MPC to allocate further resources to further develop these projects.
Given that therefore R&D projects are different in nature, it's difficult to guide on exactly when or how or how material, but it is certainly developing in the right direction.
Okay.
That's helpful and then and then for my second question.
You talk about the Mark to if you are able to secure.
Contract on that asset before the end of the year it would be available in 2027.
And in the same.
At the same time, you talked about the Hilli sort of being first in mind I'm. Just curious if you think it is it is it reasonable to think that you could get a mark mark to contract before the end of the year and stay on that sort of 2027 timeframe.
And so just to clarify if we contract re charter Hilaire.
We will proceed with Mark to you without a contract you don't need to see both hilli and mark to contracted.
I think with all of the projects we have in the pipeline.
We see ourselves increasingly confident both on the re chartering of Hilli and an attractive charter for Mark too.
Just a matter of having a balanced risk reward before we add on close to $2 billion worth of Capex.
Okay.
Yeah.
I guess the implication is that.
You don't think that.
By the end of this year that.
That would be.
Unreasonable et cetera.
That's what we're working towards yes, okay.
Okay, Alright, I appreciate it thank you guys.
Thanks, Matt.
Thank you for your question.
We are now taking the next question.
Please standby and the next question from Chris <unk> from Deutsche Bank. Please go ahead.
Hey, good morning, and good afternoon Carl.
My question's, a follow up to Ben's just.
Looking at the scope of work that might be done.
NNPC is there potential to deploy LTE as well as the mark to asset with LTC.
They have more than enough gas to deploy multiple <unk> in country.
Yes, okay.
That answers my question Alright, Thanks, and then looking at the the five other countries.
Or entities that you are kind of in negotiations or conversations with now do.
Do all of those I guess involvement and see are there are there any IOC is involved in the resources that are being looked at.
Yes.
It's mainly focused on <unk>, but some of them also include <unk>.
Okay, great. Thank you very much I'll turn it over.
Thank you for your question.
We are now taking the next question.
And the next question is from Chris It soon from Webber Research Advisory. Please go ahead.
Hey, good afternoon, Carl and Eduardo how are you.
Good thanks.
Just following up on these and then PC question and you are the projects in West Africa, what will those all be tolling are integrated and just as a follow up to that like how should we expect like how how.
How much ownership should we expect Golar Tad will it be like a 100% or can we see some of those fees are an IOC partners coming on board.
Okay.
Okay. So.
One of the projects, we're pursuing it's a fixed tariff that give me.
They are either fully integrated.
Or a fixed tariffs, we have become a duty exposure more alike, hilli, but even more exposed to commodity.
The reason why we look to structure.
The charters in that way is that we see that it's a lot easier to.
Get a better economics in the project, if you have some upside and downside and sharing with the Iot is.
Our sorry with the agencies as long as that is done.
Done with linkage to highly liquid.
National price indices, such as Brent Tcf, J K M, where scimitar, we can always derisk search pricing movements in the paper market.
What we're targeting.
In terms of okay.
It depends from project to project most of them.
Golar remains the owner of the <unk>. The NRC remains the owner of the upstream and gas treatment. We both worked to have as slim economics on that side as possible and then we share in the gas offtake pricing.
And then you basically achieved the same in some of them, it's being discussed to have.
Sure the economics across the value chain as well.
And if that is to be the case, the resource certainly be need to be big enough to charter the vessel for remaining life.
Whether it's <unk>.
Okay, great. Thank you and take affirmed the contract.
P. P. Forgive me starts up in Q1 next year when the vessel arrives on site or is it contingent on producing for some of your commission card was keen what's going on for Mike.
Cosmos, it's earning calls.
When it comes to that project I think.
<unk> focus is to deliver the <unk> and to deliver it safely on site into the hub.
And then we are not taking it.
Sure.
Risk or responsibility for other parts of the infrastructure.
And the contract mechanisms work, so that there will be cash flow to golar once we start.
Arrive at the site irrespective of the status of.
Other parts of the infrastructure. It is however, fair to say that.
Everybody around the table is incentivized to have the project up and running as soon as possible, but we are not actively part of any other parts of the project then delivering the LNG.
Yes that makes sense.
Thanks for that and I'll turn it over.
Thank you for your question.
There are no further questions I will hand back the conference to Mr. <unk> for closing remarks.
Thank you all for dialing in.
Hope you have a good day and hope to speak to all of you very very soon thank you.
That does conclude the conference for today. Thank you for participating you may hold disconnect.
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Okay.
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Yes.
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