Q2 2019 Earnings Call
Ladies and gentlemen, thank you for holding your conference will begin shortly please continue to standby.
Good morning, and good afternoon, ladies and gentlemen, thank you for standing by welcome to say he's got a lot LNG limited to Q2 2019 coal.
At this time all participants are in listen only mode. There will be a presentation followed by question and answer session at which time, if you wish to ask a question you'll need to press star one on your tend to find and wait for your name to be announced.
I must advise you the conference is being recorded today on the 29th focus to 2019.
I'd now like I tend to conference over to your first speaker today. He had Brooks CEO . Please go ahead.
Good morning, good afternoon, everyone. Thanks for joining the call today My name is Ian Ross CEO , Golar LNG and today I'm joined by Grant brought Jones CFO , Let's do you have any kind of the head of Investor Relations as Graeme is calling in from outside the office. Today. We also have Brian generally on the coal to discuss any of the financials in the event. The Graham has problems with this for one.
Okay, turning to slide four in the pack, we continue to act on shareholder feedback around the perceived complexity of the business and will focus this discussion on the themes of simplicity, earning stability liquidity a near term volume.
Today, we announced steps to improve simplicity of the business and provide near term value to shareholders through the use of dividend cash to buy back 3 million total return swap shares or a phase period.
We have improved earnings stability in the carrier fleet by placing a number of our ships on either fixed or market like right.
We've improved liquidity and then put in place access to an immediate $180 million and credit facilities on the back of Hilli success, we continue to build out our LNG pipeline and as a result have investment interest in our already contracted backlog from a number of infrastructure funds lets see value and RF LNG contracts.
Operationally on slide five we remain on track to spin out ships before the yearend supported by the new fixtures I mentioned and subject to visible improvement in the market to continue.
Well that's LNG Hilli has produced 25 cargos to date give me conversion project is on track from both a cost and should your point of view.
I'll give a little more detail on the LNG pipeline later in the discussion and we have made good progress on the downstream LNG distribution activities in Brazil through our Golar power business. Following on from the targeted year end completion of this as E Bay Gossip our project.
With these highlights I'll hand over to Graeme to take you through the numbers before having a closer look at the business sectors.
Thank you.
Good day, everybody I'd like to start ups all.
Slide.
A second quarter 2009, two financial results.
Total operating revenues were down this quarter at 97 million Ptwo hundred 14 million last quarter due to the seasonally weak Q2 s shipping look at as well as the impact of dry docking for about ships.
Lower LNG demand in Asia pushed U.S. volumes into Europe amateurs tableau slots at the same time, the softer gas prices elevated vessel deliveries from Boeing to ensure that the long club spot tonnage was much bought sufficient vessel availability throughout the quarter.
Having said that Oh, so you're close outs utilization actually increased from 51% in Q1 to 66 cents in Q2.
The time charter equivalent rate was still down because of the lower day rates.
I was hoping to see that decrease from 39 to 300 in Q1.
To 24400 in Q2, although this was significantly negatively impact.
By the scheduled dry docking of.
Four vessels that spend to portion of Q2 in the shipyard cycle to them from the shipyard.
Okay see for all the vessels have that full being the juice as a result of tolling guessing turn from dry docks and cool Guy post dry dock in Q2 and also preparing for docking Q3, where we have a further three vessels dry docking.
Chartering vessels, leading into dry Ducs also leads to Arkansas.
The reduction in shipping revenues was the key driver behind the reduced adjusted EBITDA our pool.
40 million. In addition to a 3 million write off of the noble energy southernsun or the pricing gains and losses.
That's compared to 9.2 million gain last quarter relating to the final settlement of the Golar tundra contract.
We are reporting a net loss of.
Hundred $13 million in Q2, due in part to the weak shipping results and losses in.
Net losses of affiliates.
Golar LNG partners recorded loss due to a large negative movements in interest rates well look to lock in populations.
Golar power is of course loss, making prior to the start of the synergy play power project in January 2020.
However, this loss has been a significant endeavor negatively impacted derivative valuation movements of one off items totaling 68 million as you can see on the table at the bottom right of the slide.
Or that sort of in the middle of lots at the slowed.
Turning to the balance sheet, a unrestricted cash position was $114 million at June 30, and since the end of the quarter Weve added to our liquidity as soon as I mentioned earlier.
By refinancing our margin loan secured on gold apartments units with a new 110 million facility.
Releasing initially 30 million to unrestricted cash and also a new 150 million debt facility.
It has also been interesting and encouraging that with the success of Holly. So the signing of the contract would be paid for give me a goalless general LNG business development, we have attracted a great deal of interest from infrastructure problems.
We never see multiple expressions of interest and office to invest in the current and future contract and spot club, which we continue to evaluate.
Okay, turning over to the.
Next slide.
Last 12 months adjusted EBITDA was 317 307 million.
And no further adjusted EBITDA, which is adjusted for non recurring items.
Golar LNG partners share Hilli was 197 million, which compares to just 12 million for the 12 months to June lighting.
Well this is a significant improvement it should be noted that volatility in our results continues to be driven by the spot shipping market often posed to shipping spend though and as Laura <unk> LNG and downstream cards, it's come online.
Our results will start to reflect the six plus income stream that we have looked into it.
That will now start to ramp up.
EBITDA from these assets and contracts will increase significantly over the next few years as a function of the schedule starting with the street a power station in January 2020 .
Expected increased utilization of Hilli, and the New Guinea LNG contract term hundred million per annum.
These numbers exclude the 37 million per annum in dividends received from Golar LNG partners as well as some significant upside.
Our last 12 months adjusted EBITDA 187 million is based on that.
Only an average Tc.
Rates of $46000 a day, a 10-K per day increase in this Tc across our fleet equates to a 40 million per annum increase in EBITDA.
Total power is also actively working on multiple downstream FSRU and small scale projects, which are relatively quick to first cash flow and therefore could materially add to EBITDA growth prior to the startup of the Guinea LNG.
Okay, turning to the next slide.
We can see here that.
Even without the assumption of the proposed shipping spinoff.
Earnings will become far more predictable and six contracts start to dominate leaving from 22% fixed rate contracts currently to 71% once KMI is operational.
And turning over to the next slide we have set out Adam calyx of the total return swap.
3 million shares underlying the swap.
These are owned by the bank that we entered into the Trs way.
We have swapped with the bank the economic risks and rewards of the shares the 3 million shares in return to paying the bank interest.
As a result, we have a significant earnings and cash collateral volatility as our share price moves.
One one is beginning to settle cash with the bank to buyback shares or bank can sell shares into the market.
We intend to use the cash collateral that we have posted and two quarterly dividends to fund the buyback of the 3 million shares.
As you can see the cash amount required to buy out over and above the current cash collateral is $21 million.
Okay.
And moving over to the next slide.
Taking a look at our debt position.
And we set out here, our adjusted net debt position, which as at June 30, including 100% of fleets item in 17 78 million debt was 2.3 billion or 1.8 billion, excluding Golar LNG partners share leader.
You should note that the split between the short term and long term contractual debt differs markedly from the balance sheet position as a result of the club to consolidate in Chinese bank leasing companies.
So currently our leads.
An important part of the proposed shipping spinoff is of course, the debt reduction from a balance sheet debt associated with the vessels earmarked for the post shipping spinner equates to a billion, which you can see or not on the slide.
Subsequent to the quarter end as we've mentioned we've improved our liquidity with the refinancing of them are marginal initially, reaching 30 million restricted cash and with the new 150 million debt facility.
We're also of course cleaning up and simplifying our balance sheet by unwinding, our equity tier us on buying back 3 million shares.
Hi, Thank you and with that I will hand back over to Ian.
And are you there.
Sorry.
Thanks, Graham I'm, so turning to slide 11 Nephila Angie.
Our operations on the Hilli are going well with 25 cargoes now produced and 100% effective uptime.
Our discussions with our customer on increasing throughput and potentially duration of the can the contract continue and we remain optimistic that we will have this resolved by year end Hilli is performing well and ready to accept more feed gas with no additional capex modifications required our customer. However has a responsibility to provide to provide us with the gas and sell the LNG product. We believe there's a deal to be done that extends the volume and the duration of the contract and I hope to have more detail in the next quarter.
Give me conversion project is progressing well in Singapore, and we remain on schedule and on budget.
Most of the major equipment has been ordered and the life extension work and fabrication of the Sponsons is progressing well.
And it's great to see that so many of the people working on the project from Golar and from our major contractors have worked previously on healthy and are actively incorporating lessons learned from one project to the next.
And really Thats, what our actual energy business is all about as we build the portfolio. We are thinking about standardization and continuous improvement whether that is as a conversion or in fact as a new build.
And this is important to customers financials contractors and suppliers, who all take heart from reducing the risk in these projects through standardized design standardize designs and repeating a successful formula.
Our portfolio continues to evolve and we have a number of negotiations and active agreements now in place with parties that are interested in exploring multiple locations for Fln GE vessels. This gives us confidence in our product and the competitiveness. It can offer our customers RF LNG strategy has two key elements.
Firstly, we need high caliber customers, who can reliably provide feed gas and put together an offtake agreement that underpins the financing of the project.
Secondly, right now we need co investors to support our equity participation and lift the project with US I can report that we have a number of organizations that are interested in participating in both our existing assets our projects under development and also future portfolio projects. Clearly these investments would come with different levels of investment in premiums depending on development maturity of a project.
Turning to slide 12 and shipping.
The LNG carrier market has had a difficult quarter and this is extended somewhat into Q3 and this has been driven by a combination of weaker LNG prices in Europe , and Asia, which have kept the west to east are closed.
Additional production coming from new facilities, mostly in the U.S and basically adequate available short term shipping for those reduced ton miles.
As Greg mentioned Weve taken this time to shed you'll a number of dry docks of our DSD fleet, which season through the usual major checks on whole LNG tanks, and the like but also the retrofitting of ballast water treatment systems to ensure compliance with Mars and regulations.
We expect all planned drydocking to be complete well before the year end of all our vessels and this means that we will have a full complement of TFT ships all clear of Drydocking for the next five years and ready for the winter season.
Clearly the drydocking eat into TC figures. So next quarter, we'll also experience some of that rate depression effect.
But what's more relevant perhaps is that the fourth quarter should see the spot rates, increasing due to seasonal tightening of the market and the start of the structural disconnect that we and the rest of the industry have been discussing for a while.
We have locked in there is upside on some of our vessels with 60 ft ease on either floating rates, which are linked to the prevailing spot rate or fixed term deals significantly above the current spot prices.
This increased utilization and access to improve rates should see the shipping fleet Tc improved significantly from quarter four onwards, and on that basis, we expect to spin off the fleet before the year end.
Moving to slide 13, and Golar power to initial points to make firstly the Surgibot project is on schedule for completion at the end of the year and commercial operations due to commence January 2020 .
Pre commissioning of the power plant continues the FSRU Golar nuke is being hooked up to its mooring and first fire of the power stations gas turbines is now to you in October commissioning of the plant and gas supply systems is underway and will progress over the coming four months and although the overall timetable as challenging commercial acceptance in January 2020 remains absolutely achievable.
The second point, which is the focus of the slide is that the current lower LNG prices across the globe actually makes the whole thesis of diesel and others fuel switching to LNG, even more attractive from an economic point of view, which also complements the environmental impact.
Last quarter, we discussed the various benefits as switching fuels in Brazil, which is depicted in the lower graphic the combination of those switching benefits and the old price parity downward trend makes the conversion. So it makes the conversation with the gas consumers at the other end more compelling.
So turning to slide 15, and taking a closer look at the development and rollout of the downstream hub model.
In addition to Sushi Bay, we're working hard on terminal projects at Barclays Arena, and the North of Brazil, and Bubba Tonga Bay in the South having received key government licenses for an FSRU terminal in each location.
And there are different development schemes for the three sites.
But the common feature beyond the anchor customer is the ability for golar power to utilize spare capacity in the FSRU and respective downstream LNG diesel switching opportunities conversion of Nonbiting expressions of interest in the gas sales agreements with customers in Brazil is progressing well and we've progressed access to the necessary infrastructure, including ordering some ISO containers to move the LNG of the river access to trucking and access to small scale shipping to move the LNG around the coast.
Back to have first user users online by the second quarter next year.
Slide 16 is a reminder of our group and Golar LNG contracted backlog.
And slide 17 shows that Golar LNG backdrop black oil spreads through time.
Slide 18, and coming back to our sorry, slide 17, and coming back to our themes of simplicity earnings stability liquidity, a near term value for shareholders. We expect to complete the spreading ship of shipping spin off by year end to simplify our capital structure.
Sharply cut our debt and reduce earnings volatility.
The Trs buyback will provide near term value it will reduce shares on issue simplify the balance sheet and decrease volatility in reported earnings.
The new financing facilities have an immediate $180 million alongside the fully underwritten $700 million for the F. LNG Gimme improves liquidity.
Confidence gained from continued operational strength, most notably from Haley's under percent commercial uptime and the fact that Gimme conversion project is on track together with our prospects in LNG going forward is attracting interest from a number of infrastructure funds and finally strong expected FSRU led growth in Brazil through expansion into downstream via our local packs Capex rapid payback model should add near term value to shareholders.
At this point I'd like to pause and hand back to the operator for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone and wait for your name to be announced.
Councillor My question Okay.
We tell us there is a maximum of two questions asked pep participant and that there are no questions from the media once again star one for any questions.
Your first question today is from the line of John Chappell from Evercore. Please go ahead.
Thank you good afternoon guys.
Hey, John .
I want to start with the the LNG spin off and I just wanted a clarification. So you say, it's subject to market conditions, and what I'm trying to understand is it subject to equity market conditions.
It's subject to LNG shipping market following a similar seasonal pattern it has.
The last couple of years and whats the structure look like to kind of help us frame, how that that's going to be <unk>.
Kind of stripped out from the consolidated as this is going to be shares to existing shareholders or you're looking to raise.
Additional funds as part of this process.
So I think the answer the first part of the question is of course, if we've got very poor equity market conditions that will make it more challenging and equally if we don't see the recovery in the shipping markets that we are looking to there were expecting then that is going to make it more challenging those are the two main criteria moving forward, we haven't quite finalized exactly the structure.
Moving into the next phase, but we still are considering.
Brady and another ship owner into the entity and then listing that entity separately.
Okay. That's helpful. And then my follow up question is on just general liquidity and how you think about your growth pipeline.
Clearly there is a lot of different irons in the fire, whether it's other LNG or the expansion of your downstream in Brazil, and you added 180 million in this last quarter are you still fully finance for the projects that we have line of sight on today and how do you think about your liquidity.
Visibility as you pursue some of these other projects down either the downstream or the upstream angles.
Through a common ground.
Yes, yes.
Yes, I think we feel so joel with the.
Okay. So if we put some additional liquidity with this refinancing will launch in London.
The milling facility with the 700 million facility the amount we've already funded into the Gimme project. We also.
And it will give me.
The.
New projects going forward.
Predominately in Golar power orders.
There will be some limited amounts of Capex, obviously as any 50% will come from us as we said in the release some of the cash flow goods coming out too.
Such a poster session then.
Hello.
Governments in funding costs.
We're in a pretty comfortable position as we said yes.
Okay. Thanks, I think so I enjoy doing if I can just add the other message that we would give is that you know as we look to this f. LNG portfolio. The clear message is that we are.
We are recognizing that to lift the next project, we are going to need some investment partner in it.
Budget and is that what you mean I'm sorry to add it to be but is that what you meant by expressions of interest from infrastructure funds, you would use them as a partner to pursue kind of long contracted.
LNG business.
I think there's this so yes, but there's two parts to that we have infrastructure funds interested investing in our existing.
Assets, if you like existing contracted assets and equally we have.
Infrastructure funds and the like interested in working with us in future projects.
So and sometimes there's overlap it's the same it's the same entity and sometimes they're different.
Right, Okay, thanks, very much and thanks, Rob.
Thank you.
Our next question today is from the line of Randy Stevens from Jefferies. Please go ahead.
Howdy German has gone.
Hi, Randy.
Thanks for your questions for me I guess first any updated status for Hillary train three I know three months ago, you into detailed discussions to see another phenomenon as train three D profitability by itself or do you expect it to be paired with train four.
So.
Well look we remain in discussions with Perenco and I really think as a well from both sides to find a solution.
And in terms of.
And Tim that I don't think there's an there's an f. ideas such she may new basically we are ready to go we have a vessel that is able and capable of producing anything up to 2.4 million tons per annum now and it's up to.
Our customers to determine how much additional gas they want to commit to and I think that's where they're obviously.
Wrestling is is what what is that commitment level.
And is it is it going to continue to be.
In line with the country existing contractual arrangement, we have or some of them something different.
We've got a really good working relationship with with Perenco, but one of the things to bear in mind.
Is that a private company like Branco doesn't have any obligation or need to publish any information on their priorities assets expenditure plans or the like unlike and unlike a listed company. They can change their minds about those development plans without having to consider disclosure obligations. So we sometimes struggle to get the full story out of what's happening and until when we got something more from this I'd, rather not say anything more than that I still remain optimistic on the past that there will be utilized and we stick to our target hustling, putting something in place by the end of year.
All right that's fair I guess for my second question, just looking at the stock price down more than 50% from this time last year basically had a nine year low I know you announced a small kind of share repurchase but at what point do you just take it private or at least aggressively kind of repurchase shares and why unwind. The total return swap versus just buying shares in the open market.
Well I'll, let Graham comment in a minute, but as part of the unwinding of the total return swap is that we also recognize the complexity that we've managed to build into this business over the years and is a direct consequence of that as part of the if you think about it as a buyback that's the first place to look Graham do you want to comment further.
Well I mean a color.
We agree what you said, it's improved for buying back shares the obvious thing to do is move the Trs because that does create.
Earnings volatility with movements in the local market valuation.
And it creates.
Cash volatility as cross so the share price moves moves up and down.
So.
Yes.
Randy you kind of said it was a small amount I mean, yes.
3%.
Sure.
Huge was so small.
Thats fair I guess going forward could there be additional share repurchases.
Just using your new liquidity or do you would you need further suspension of dividend.
Well.
I think we take that decision.
As we go along.
I mean, the primary focus for the liquidity that we.
We have raised it to you.
Continue to invest.
As our business.
All right well I'll pass along and cut back in the queue. Thanks, so much.
Thank you.
The next question is from the line of Chris Wetherbee from Citi. Please go ahead.
Hi, guys James on for Chris just wanted to touch on what you're seeing in shipping rate so far.
During Q and if they're going to expectations essentially trying to get to.
Since or are the risks to the market not hitting expectations in the fourth quarter on a potential to life.
The spin off.
So what I would say is is that we've seen an uptick from the end of quarter two into where we our quarter three as you know that the spot rate. If you like is somewhere 50 55 60.
There isn't a day and of course that the big thing where that is how that translates into Tc in the other.
Element being utilization so from our point of view, we have taken six of the 11 ships that are in the cool pool and increase their utilization to 100%.
Ranging from two fixed contracts one that starts.
Actually early next month beginning in September the other one mid October and those are both at.
Rates well in excess of the number I mentioned, so thats, one indication that weve got of fixing of charters for less than a year for those two but they are at significantly higher rates as well as one indication of the rates are going up the second indication the rates are going up and the RT RTC. He will increase is that we have for further vessels on variable rate contracts. So these are contracts, where they are linked to the prevailing spot rate and two of those four have got floor and ceiling elements into our floating at a very slight discount to the rate all different structures. The market's keen to explore different structures and I think for me. That's another indication that the charters are expecting the market to be increasing or else. They would just sit.
Right and take ships on spot. So we have confidence that this thesis and come back to the whole story about the number of ships needed to raise and move the cargoes that have come on and are due to come on there's a shortage and we think for the next couple of years that will play out.
And we still we are seeing evidence in the rate structures and the fixtures that weve done most recently that's holding true.
Got it thanks for the color and then.
Just at a higher level just wanted to touch on the lower gas prices and seeing.
Get your view on what you're seeing in the end market in terms of incoming demand around new projects and just basically get a broader comment about that thank you.
Well the lower gas prices.
Sure if you're if you're sitting with a great big onshore LNG facility in the U.S. and you're trying to get a liquefaction plant going lower gas prices are going to be a bit of a challenge, but there's a couple of things on that.
First of all none of the major customers that we are dealing with these.
Customers I mentioned before none of them will be relying on todays immediate spot gas price to lunch at 20 year project, taking a long term view on gas prices.
And the amount of demand that is going to come into the market and therefore provide pride that drive it to come up and and price, but secondly, as we discussed with what we're trying to do with Golar power the switching of.
Coal heavy fuel oil marine diesel and diesel for transportation to LNG to gas will create demand way in excess of the current wave of demand, which has been driven primarily by.
Basically the Chinese switch from coal fired power stations to gas fired power stations. So we believe that when that transportation light switch.
In addition to the power switch starts to come through the demand rate will accelerate and therefore more LNG will be needed. So you may have a short term.
Fluctuation with low gas prices, but medium to long term, we still see the pricing or we'll get into balance with demand that as to satisfy and then the final point on that is that our solution NFL. Angie is highly competitive. So if there is one project was going to get away is going to be one with golar LNG vessels stuck on the end of it.
Thank you.
Thank you.
The next question is from line of Aston Landmark from family. Please go ahead.
Hi, good afternoon just.
A question on the liquidity I mean, there is a couple of moving parts on the balance sheet after a quarter.
The the margin loan the new facility and the netting of the Trs.
I guess, all those are meaningful numbers than than you point to the release of the letter of credit potentially 75 million. So.
I mean, how much of unrestricted cash do you expect to hold but I am going to University.
140, you have by June .
Well.
Yes.
We don't typically give out.
Full costs of Oh.
Cash balances, but.
I would just refer to the yes also that.
Okay go earlier to Joel's question that.
When it.
This is kind of self funding so.
We just need 30 million in unrestricted cash and that's coming as we said.
So the next two quarters.
Distributions.
So the 100 accumulated from the large alone in the new facility is all available.
Free cash.
As would indeed.
The 75 billion if we if we.
Which are going to let with Perenco analytics to.
Loan pool, so so.
Uh huh.
Yes.
Primarily that cash flow existing cash will be.
I'm going to.
Fund.
Jimmy Capex.
The projects.
And secondly, the new 150 million facility is that linked to Jim give me a sense.
Uh huh.
No no no.
You mean in terms of security.
Okay. Thank you.
Thank you. The next question is from the line of Chriss Snyder from Deutsche Bank. Please go ahead.
Hi, guys. So you talked about progress being made on the downstream, Brazil op opportunity with first users online by Q2 of next year. So you have a 100 million contracted EBITDA over the next 25 years from surgery, Barry and then Doug, but how should we think about the EBITDA upside opportunity here from the downstream and how quickly can we maybe see EBITDA go above that 100 million run rate.
So the way the way that we're thinking about that is that is the build up of.
The elements. So first first is get the customers line up get them signed up second to get the gas supply get it secured third make sure we get access to the infrastructure of the ISO container shipping trucking.
Then we we have to do we know what the pricing will be at that point, then we have to understand and learn about what is costing us to provide that and from that we'll be able to extrapolate what the EBIT projection will be in reality. We go estimates obviously and then from there we can link through scaling of the business. So it's a bit premature for us to be able to comment on the the speed of ramp up of that business, but what we're hoping is that we'll have customers online by Q2 next year and they will be generating EBITDA in excess of that 100 million. What I can tell you yet is how fast that will scale up because we're still working on the plan.
Okay Fair enough, where you think maybe by you we could be exiting 2020.
Maybe meaningfully above 100 million.
I will let you know I'll, let you know when I know.
Okay fair enough.
And then just following up on the Perenco negotiation question from earlier you guys said in the release you plan to complete negotiations by yearend does this mean that you would expect an agreement with Franco by year end or will we just have a resolution by year end good or bad. We can maybe you can maybe start marketing TNT for someone decides pergo. What are you know we I can't plan, what what my customers are going to do I just want to repeat the fact that we are ready willing and able whenever they are due to accept more gas, but what I am saying from a timeline point of view looking at the way the discussions of going seeing enthusiasm both sides to get something done we'll have something meaningful meaningful to report before the end of the year on the capacity of the.
The vessel for Perenco has plans are to use that and how we see that developing over the over the coming years. So.
I don't think its anymore than that but its I expect and I expect we will have some form of agreement in place at least for the any any initial change before the end of the year.
Okay, and you kind of think of disclose at the T. train three economics are pretty similar to train one and train two could you guys were negotiating.
With Franco could the train three economics change up to maybe.
Persuade them a little more.
Has the soft LNG environment.
Weighing on the ability to get this done over the near term.
Well I think think about again I think I made this comment earlier. So perenco has the obligation to sell the LNG. Once we've made it for them. So part of their dilemmas clearly they've got the good two bits to this equation, one where they're going to get the gas foreign can be convinced themselves, what's the volume and for what duration. They can provide this I guess in second.
Who do they sell that gas to and over what period and obviously if youve.
There's an existing arrangement that they have with their off taker and we can.
Play inside that arrangement, if you like and if you've got to generate a new arrangement it might be more difficult with a little bit softer gas prices to get that going but I think.
Im repeating myself again, let's let's see what our customer comes back to us and as soon as we know something that is firm will tell you.
Okay that does it for me thanks for the time.
Thank you. The next question is from the line of Alonso Garik I see at from Scotia, Howard Weil. Please go ahead.
Hi, good morning, and afternoon and team.
Hi on that but.
So you you made reference these new couple of permits in Brazil for Golar power. It sounds like there is still some moving pieces. There what is the timeline for advancing those projects I guess as far as finalizing the permit commitments and then transitioning those that I'd.
I think both really exciting we have.
We are well advanced with permitting and we're probably a couple of years ahead of anyone else that once the permits there. So that's the first thing and we do have.
Permits for the construction of an FSRU terminal obviously, that's the first thing is you know, Brazil, and we've been reporting over the years you need a permit for many many things. So it's a it's part of the little factory that we've got and Golar power is the ability to navigate this this permitting infrastructure and but I think the other development I think is quite encouraging is that we're not sitting back and waiting for the winning of a power project as we did to associate base. If you remember sushi baby one the power project and that underpinned the development of the terminal were looking at the slightly differently now because we've uncovered the.
Downstream infrastructure opportunity and we believe.
That we don't necessarily need to have that power station there do underpinning onto on one of the projects we have.
A major customer that might that take some off take to get the the terminal going and on the other one that could be a small power station, but on both of them. We have the opportunity for downstream distribution. So I wouldn't be surprised in terms of your question on timing that we try and get one of those away is an f. I'd.
This year or at the latest early next year because.
We don't have to wait for a power station to get going in infrastructure. These are incredibly strategic assets and once they are there.
It provides us with competitive advantage.
Got it that's helpful and then if I'm not mistaken. This is the first time, you've talked about mark three and the potential for a five mtpa capacity could you talk about this new development and maybe what you need to get done with the Leviathan interim agreement to move towards if I'd there.
So I mean, the only reason we called out Leviathan then.
A name is because the developers propose developers noble our partners put out a press release. So we wouldn't normally have called that out but with Leviathan. It's it's a it's just a design case on our March three design, which we are currently undergoing a feat.
And essentially by you know the fourth quarter, we will have an assessment of the mountain ocean conditions, the process design and the cost and the schedule and we will be able to go back and see if our vessels competitive in that environment.
So we'll see we'll see what that yields but that's definitely in progress.
Got it thanks, and that's it for me.
Thank you. The next question is from the line of Ben Nolan from Stifel. Please go ahead.
Yes, Hi, this is Frank Galante on for Ben.
Well I have to ask about the.
Wanted to ask about the.
Two new projects. So you called out in the press release and talked about a little bit on the call.
I know theres been a couple of questions asked about it but I'm trying to get a sense for the.
I know you're going about it developmentally in reverse relative to Sergio.
But what what vessels are you looking at to be able to use to.
For the FSRU Sir.
Do you need something the size of the tundra.
Where you could you use something like the spirit.
Right because it theres like there's 66%.
Free utilization for the new currently just trying to get a sense for which vessels would be used in those Brazil projects.
So we experience a good example of something that could be suitable entendre also could be suitable obviously, we are currently marketing tundra for other.
FSRU and terminal opportunities around the world. So it's almost a case of whatever comes first but if you think about.
Right right now if we did nothing else we have two vessels, we could deploy immediately under those FSRU terminals.
The way to think about it is let's get one going see how that goes and we've definitely got one of those vessels to fit that.
I'm cautious about predicting what's your vessel go where because the FSRU business. As you know is it takes an impossibly long time for tendered FSRU contracts to materialize into anything that's been our experience anyway. So we have that we have the vessels, we think would be a good place to put them to work.
Okay. That's helpful and then.
More Brazil questions on the upcoming power auction.
No that the.
In October I believe.
Do you guys have any update on that or any new thinking.
In terms of.
What the implications would be if you want it and kind of competitive nature around that bid if it any color there would be helpful.
So I guess, what I would say is we've got two or three projects lined up its the great unknown with these prior auctions is that you don't know the demand until very close to the power auction. So we'd go.
Different solutions, depending on the divine from different places obviously with associated expansion, we can be very competitive because we've already got the FSRU, but equally we good at least two other locations that we can we can work from so I don't think there's anything more I can comment other than what we've got.
Several options to remain flexible and therefore competitive depending on what the demand scenario looks like when its issues.
Okay No that's helpful.
In that that's all I have thanks very much.
Thanks Mickey.
The next question is from the line of can hook stuff from Bank of America. Please go ahead.
Great Good morning.
On the on the filing and maybe you can just talk about why you ended the delfin discussions maybe provide some more color on on where that.
The comments you made there.
Okay. So if you if you referred to.
The screening criteria that I mentioned in that we need high caliber customers you can reliably provide feed gas and put together an offtake that underpins the financing of the project.
Combined with co investors to lift the project with US we just didnt feel that the delta in opportunity satisfied those criteria and as we've previously said, it's really important for us to put our investment money and resources into the opportunities that have the greatest chance of getting to if I'd.
And then just switching subjects you talked about that were interesting investments, but only in existing streams or some infrastructure projects won what some of the new ones. Maybe just talk about from your perspective, and how is that different than what you've set up with the drop on a GLP would you think about restructuring you've got GLP and maybe spin assets off or income streams off to the infrastructure partners. How are you stepping back and thinking about those kind of comments.
I suppose it really think Matt welcome Graham's comments on this as well, but I look at it and thinking we have these LNG opportunities are lining up the portfolio has developed developing really well and we're acutely aware of our need for capital disciplined going forward and therefore, we need investors to to help us or co invest with us and it's quite interesting because the discussions that we've been having on existing facilities projects that we develop there is definitely a premium to come there and I think if we can convert one of these deals it will show the market what other people think the value of maybe the Hilli maybe to give me and maybe another project as B development.
Thats been developed is.
And that that should give a bit more clarity under the value of these contracts. So the real driver for me is that we need the capital support to lift the project.
Yes, I mean.
Tell us.
To cope with that.
And I think if you think about it.
In order for us to grow quickly or quicker we need.
So we need capital we need to support if you think about in terms of.
I know it's tough.
Sort of a bad memory when Schlumberger.
We have one LNG and we set up so much and 50 50 basis.
To that point, we were at about 50% of every LNG project going forward.
And but that doesn't really have any impacts.
So really all whether they were future dropdown potentials for the the MLP. We just hurts you have 50% of three projects instead of a 100% of one project that's kind of the way to think about it.
Oh, I'm, not saying 50% of the.
Modus operandi I'm, just using that as an example.
Right, but.
Thanks for that in fact, Graham and any but it maybe just to wrap up on that the first part of the question I would would you think about restructuring how youve dropped the assets to jam up here or is this kind of a go forward on future structures only.
I don't think I mean, I think they are unrelated to the separate there are separate discussion really Ken I think.
My focus right. Now is this is what do I have to do to get a project lifted. So we got a good customer they've got an opportunity how do I get it going in from a financing point of view.
Equity equity in finance, that's my immediate focus if we have the opportunity to do something with it around the MLP or whatever later that somebody secondarily, we got to get the project going first.
Which which might be of interest to investors as well.
Yeah, the you mean the risk upfront.
No no the drop down is it like that.
The drag and drop Okay. All right. Thanks for the time guys.
Justin Justin.
Thank you.
Question is from the line of Craig Shere from two brothers. Please go ahead.
Good morning.
<unk>.
Just some linkage or or upside to spot LNG market recovery and to the extent that you succeed in expanding and extending that relationship.
Do you see that materially helping to finalize one of these in infrastructure fund investments.
I mean, it's an interesting line of discussion Craig there is just no appropriate that I comment on any aspect of the negotiation that we that we are having I'd love to but I, just don't think thats appropriate could it could impact I mean, obviously, if we've got more of.
More utilization of Hilli, that's that's perhaps have more value but.
Yes, I don't I don't think it's I, just can't say anymore on the subject sorry.
I understand okay, if I could.
Question.
Guidance was.
Up to 100 million dollar investment opportunity.
That would generate perhaps three times EBITDA or better over time.
[noise] is that still correct and a similar investment opportunity be available from a second FSRU.
Possibly as early as 2020.
So I think I think you're referring to a comment that was made last in the last quarter's release, where we I think we said something like for every if we could get a dollar spread on.
Each MBT you have excess capacity that was put through than that we deal 200 million to Golar I think I think that was it was all of that order I think what we're trying to develop the business an updated so that's like a theoretical.
We havent.
Carried out any of these negotiations and figured out how much of a spread we can actually get nor do we have yet.
Good feel for the ramp up of utilization of that vessel. So rather than continue I mean, that's that's a theoretical envelope. If you like I think the opportunity scale set is probably similar in the other vessels, but what I'm, saying is there is far too early for us to talk about the rate, which we wrap that up to you and we are working on that detail obviously internally.
Yes.
Brazil.
The press release.
Just maybe power.
January .
As a stretch although still doable, how much could that slip.
Well, we've lost a little bit of time over the last three months that mostly from several small issues that tend to happen at the stage of a project and also more recently Weve had some bad weather that slowed down the final hookup, but.
The way to think about it the effective that is that weve used up.
Not all but most of the float on the project, which just means that we have with a plan that shows to get to the end of the year, we will less flow and as it enters this normal in this type of project and so we got less slack to take account of minor delays and if there are any further delays, we'd expect them to be of a shore nature. So I'm, saying days not months, it's we and it's too early to say if there will be any.
The next phases, we gossip the.
Turbines will determine how smoothly they go and if you've ever been involved around commissioning of a large gas turbine plant anyone that would like to predict that to any degree of accuracy is braverman than me.
Understood appreciate the feedback.
Thanks, Craig.
Thank you. The next question is from the line of Lukas still from a BJ. Please go ahead.
Yes. Thanks.
Just circling back on the spin off on that.
Our sort of indicating could happen by the end of the year.
And just to be Crystal clear.
Do you sort of intent to realize any cash proceeds from that and do you have it.
Ownership threshold, but youre talking Cape and the new entity.
I I don't think we're doing we're disclosing any or that we're still working on the structure and obviously when when they got that finalized we'll we'll be announcing.
Okay fair enough.
And then on Brazil is the commercial doctor acceptance so necessary in order to for you start realizing that 100 million in EBITDA or is that going to sort of a going to be triggered body.
First of January date.
No not a gas flow now we know we have to be commercially accepted so we've we've got.
Very detailed plans on the steps that we go through to get the plant ready and then we run an excess short acceptance test at the end so it's such a fairly.
Well known and understood process to go through.
All right. Thank you.
Thank you.
Next question is from the line of Michael Webber from interested parties and please go ahead.
Hey, good morning, guys.
Inlight getting Robert.
Good to hear from me I guess, it's just.
Just a couple of questions Brad.
I mean, just kind of big picture, I think and I can kind of vote, yes, but if I just kind of think about I guess go up from about 30000 foot.
And you guys had mentioned the idea of you know.
Finally capital partner for these projects, which is kind of the primary way to approach them right. Now what you would have thought maybe more more limited capital availability, but then there is kind of a kind of a separate conversation that evolves kind of fixing the cost of capital. So they don't have to do that because I know you ultimately don't want to do that.
If I think about kind of streamlining the goal our structure and the starts I get the total return swap and a carrier spend would kind of maybe easier more straightforward part of that equation.
The downstream business and Golar partners and I'm with the shared assets are going to be much more complicated I guess I guess my question. So one as the experience with the carrier spend and kind of how long its taken for the market.
It's a market dependent process, so as your experience with that increased the likelihood any.
Thats kind of simplification of the Golar structure is more of a grand bargain than a series of these kind of transactions that could take several years.
And then.
Hey.
After that I'll, just I'll stop with that question. There I guess in terms of a follow up I just in terms of the likely likely sequencing for a simplification of galore.
Is it more likely we see a series of these transactions or do you think the yards have gone up and advancing sort of kind of grand bargain transaction, where you kind of simplify the structure and get in a place where you want it.
So Mike I guess, the first part is they experience around the shipping spin off.
It has actually been that bad I mean, what's happened is that they we fight the one of the first questions were asked on the call. We've had two things going against US one is being the the capital markets and the other one's been shipping rates and they've either been.
Contra cyclic to each other in order in violent tandem so that's that and we think we're coming out of the end of that to allow this to happen, but in terms of preparedness getting the financing set up for the ships all of that's been ready so from that point of view that's okay. In terms of the the other elements the jigsaw puzzle our focus in Golar power, which is the obvious other want to discuss is really on building a big sustainable business and that's the that's the immediate priority and if we if we do that and if we are successful in building the business to the extent that we feel we can do with the downstream infrastructure and with multiple hubs for.
LNG and gas distribution, then I think that will be a nice discussion to see who the logical best owner of that business is at that time, but right now our focus is going to be build it.
Rather than worry too much about that part in future.
Good times or more like see a downstream spend before like a GE MLP publication.
I don't think we've we've commented too much in GLP simplification. What we have said is our board has definitely approved spinoffs or spin off of the ships and that's my attention to make that happen.
Okay, all right now, but that's fair.
Let's turn to the pivot to the Delta and then I think you mentioned that.
But earlier in an earlier answer just.
The idea of kind of moving away.
From that project the current trading tariff situation when you kind of roll on that just in terms of the viability of a package deal with that.
Chinese yard export financing, an offtake and kind of.
Looking at the value prop, but I think most people associated with a with a project like dolphin.
We just didn't make enough traction around so the two critical customer and financing.
Elements. So we our portfolio is really coming along nicely and we've got a drop off the ones that we don't think you're going to get there in the near term.
Gotcha Okay.
Thanks for time guys appreciate it.
To me.
Yes.
Thank you. The next question is from the line of Eirik Haavaldsen from Theresa Securities. Please go ahead.
Hi, just a quick one on the new $150 million facility, what's what's really the rationale behind.
You are taking office facility and what kind of facilities is what type of funding.
The rationale is to.
Give us a comfort to lots of liquidity to.
Uh huh.
To to cover our Gimme Capex and other things that we want to do over the next few months just to put us.
Position.
What was the second part of the question now is it the bank facility or is it.
Additional lease filing is it banks thinking soon.
Thank you.
The next question is from the line of Jason gave them and from Cowen. Please go ahead.
Yes, thanks for taking the question.
I just wanted to go back to the discussion on our LNG rates.
Given that the LNG market is oversupplied and the expectation is it's going to be over supply for the next couple of years outside of kind of seasonal demand peaks. It seems like west East arbs could be closed.
Especially.
Outside of winter does that how does how does that mindset kind of figure in.
The decision to spin off the LNG carrier business and I think you mentioned potentially listing it as a separate public entity I mean, do you think that makes sense given potential.
For rates to be volatile or over the next couple of years.
So first point is we don't necessarily show your view the rates are going to be poor over the over the next couple of years, there may be volatility, but we think because of the structural shortage of cargos that need to be moved and ships that are available, noting that there are only so many deliveries due to come out of the of the yards that we will see this deficit and that will force the rates into a more acceptable position.
And the justification for us, making the split and as we said before is that we have some investors are really like our long term sustainable EBITDA business with with.
2030 year contracts and they don't like the fact that they have a cyclic shipping business associated with it.
An equally we've go.
Investors, who would like to invest in the shipping business and have exposure to the euro the things are coming up but they see that we've got these fairly large capital intensive projects.
On the other side of the ledger and the very strong feedback that we've had from the investment community is that our our view to split the two is a sensible way forward.
Got it thanks for that and then just a quick question on the financials. It looked like there was a large.
Cash outflow on accrued expenses it was about $60 million.
What was that related to.
Yeah that unfortunately.
Cash flow statement so.
You'll note from a few quarters ago that reconciles for total.
So.
Total cash including restricted cash.
The beginning of the end of the quarter and therefore it includes.
A load of thermal restricted cash levels that are in these.
Variable interest entities, the Chinese leasing bank subsidiaries that we have to consolidate let me kind of give out information.
So that particular movement related to a move into strategic steps balance in one of those ballys, but not all of it obviously, but the majority of it.
Which is okay.
Yes, so it's not a real movement, which is.
Let's.
That's not particularly helpful but.
So.
No I got that.
Yes that helps clarify it that's it for me thanks.
Thank you and there are no further questions at this time, so I'll hand back to the state has.
Thanks, operator, well I hope this session gave you some detail of our focus on simplicity, earning stability liquidity and near term value for shareholders. We can follow up for more discussion via Stewart in the normal way, but in the meantime, there. Thank you for your attendance and questions. We look forward to updating you on our progress next time, thanks and goodbye.
Thank you that does conclude the conference for today. Thank you for participating you may now disconnect.