Golar LNG Limited (GLNG) Q1 2025 Earnings Call Transcript

Golar LNG (GLNG) reported Q1 2025 results, highlighting the securing of two 20-year charters for FLNG Hilli in Argentina and Mark II FLNG, bringing their EBITDA backlog to $17 billion before commodity exposure. Hilli's redeployment in Argentina secures $5.7 billion of EBITDA backlog, while Gimi is in its final commissioning stage with an expected $151 million share of contractual EBITDA based on 90% capacity utilization; the Mark II FLNG conversion remains on schedule for delivery by year-end 2027. Golar is also a 10% shareholder in Southern Energy, providing additional commodity exposure, and declared a dividend of $0.25 per share this quarter.

Analysis

Golar LNG (GLNG) reported a transformative Q1 2025, underscored by the finalization of two 20-year charters in Argentina for its FLNG Hilli and the Mark II unit, significantly de-risking its long-term cash flow profile and expanding its contracted EBITDA backlog to approximately $17 billion before commodity upside. The redeployment of Hilli to Argentina is projected to contribute $5.7 billion in EBITDA backlog, while the Mark II, also destined for Argentina, is on schedule for a year-end 2027 delivery with a CapEx to EBITDA ratio of around 5.5 times before commodity upside. Concurrently, the FLNG Gimi is nearing commercial operations, expected in Q2 2025, which will add an estimated $151 million annually to Golar's share of EBITDA at 90% utilization under its 20-year BP charter, with $196 million in pre-COD payments already invoiced. The company has successfully exited its LNG shipping activities, sharpening its focus on the FLNG segment. Financially, GLNG reported Q1 total operating revenues of $63 million and an EBITDA of $41 million, impacted by lower Brent and TTF prices, but maintains a strong liquidity position with approximately $680 million in cash and declared a $0.25 quarterly dividend. The Argentina contracts feature a compelling commodity upside, with Golar receiving 25% of LNG prices above $8/MMBtu FOB, translating to an estimated $70 million in additional annual EBITDA per dollar increase; this is further augmented by its 10% equity stake in the Southern Energy (SESA) project, bringing the total sensitivity to approximately $100 million in annual EBITDA per dollar above the $8 threshold, with a limited downside exposure capped at $210 million over two years. Risk mitigation for the Argentina projects includes English law charters, USD payments, and RIGI protection offering regulatory stability. Management highlighted the competitive advantages of its FLNG solutions over US land-based liquefaction, including higher gross tariffs ($2.45/MMBtu net of OpEx and maintenance vs. ~$2/MMBtu for US projects), lower CapEx per ton ($600 million for Mark II vs. ~$1 billion for US projects), and direct commodity exposure. The company aims to leverage its strengthened balance sheet, further optimized by the upcoming Gimi refinancing (expected to release ~$370 million in net proceeds to Golar), to fund at least one new FLNG EPC award in 2025, capitalizing on limited shipyard availability and strong market demand. Despite these positive developments, the Chairman noted the current market valuation, with Golar trading around $900 million per tonne of EV/liquefaction capacity compared to higher valuations for US peers, does not fully reflect the company's enhanced backlog and growth prospects, hinting at potential strategic actions if this undervaluation persists.

Key Decisions for Investors

• Investors should recognize Golar LNG's significantly enhanced revenue visibility and earnings potential stemming from its $17 billion contracted EBITDA backlog and the attractive commodity upside linked to its 20-year Argentine FLNG charters, which offer approximately $100 million in additional annual EBITDA for every dollar LNG prices exceed $8/MMBtu FOB.
• Key catalysts to monitor in the near term include the commercial start-up of FLNG Gimi, expected in Q2 2025, the finalization of conditions precedent for the Mark II FLNG charter in Argentina, and progress on the Gimi refinancing which is anticipated to unlock approximately $370 million in liquidity for Golar.
• Consider the company's aggressive growth strategy, aiming for at least one new FLNG project award in 2025, and the potential for value realization highlighted by the Chairman, should the market continue to undervalue its robust backlog, leading FLNG market position, and projected fully delivered net debt to EBITDA of around 2.8 times by 2028.
• While the Argentine contracts offer substantial returns and include risk mitigants such as RIGI protection, investors should continue to evaluate the geopolitical and operational execution risks in Argentina alongside the strong long-term fundamentals of the LNG market and Golar's demonstrated operational track record with Hilli's 100% uptime.