Golar LNG Ltd
NASDAQ:GLNG
Earnings Call Analysis
Q4-2023 Analysis
Golar LNG Ltd
Golar reported a strong finish to the year with total operating revenues at $80 million in the fourth quarter and FLNG tariffs reaching $106 million, marking a 12% increase from the previous quarter. This performance was boosted by Hilli's output exceeding its contracted volume, leading to a significant adjusted EBITDA increase of 52% from the previous quarterly figure, totaling $114 million. Despite these positive figures, a net loss of $31 million was recorded due to noncash items such as derivatives and interest rate swaps. The company emphasized liquidity strength with a year-end cash position of $753 million against total contractual debt of $1.2 billion, bringing the net debt position to $411 million when accounting for TTF hedge receivables.
Looking ahead, the company expects a reduced debt service for 2024 leading to free cash flow to equity generation of approximately $174 million, based on projected Brent and TTF prices. From its FLNG operations alone, Golar anticipates generating upwards of $620 million in free cash flow between 2022 and 2024. Additionally, the firm maintains a commitment to shareholder returns, having allocated over $430 million in dividends, share buybacks, and strategic repurchases in 2023. A consistent dividend policy has been affirmed with the latest dividend payment of $0.25 per share, alongside an active share repurchase program with $88 million remaining for future buybacks.
The company is progressing with its revenue diversification strategy, notably with the commencement of Gimi's 20-year contract with BP and the delivery of FLNG Hilli. Furthermore, Golar has entered into a framework agreement for the redeployment of Hilli and a potential new Mark II project, indicating negotiations for long-term commercial contracts of 12 to 20 years. The current liquidity position remains strong at approximately $800 million, providing flexibility for debt optimization and other initiatives. These include the potential sale of noncore assets like the Golar Arctic and plans for a separate listing of Macaw once the unit is established. This is part of a disciplined approach to growth, ensuring the majority of capital is allocated towards core FLNG projects while considering strategic disposals or spin-offs of noncore ventures like Macaw Energies.
Golar has emphasized a strategy aimed at building stable, predictable, and incrementally increasing dividends over time. The company expressed confidence in sustaining the dividend level and potential increases post-Gimi's commissioning or as other opportunities arise. To underline this approach, significant capital has been reserved solely for FLNG development, ensuring strategic focus and commitment to long-term shareholder value.
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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 2. We start with Slide 3 and an overview of Golar today. We own 2 FLNGs: Hilli operating for Perenco in Cameroon; and FLNG Gimi delivered from Seatrium Shipyard in November last year and currently more to the GTA Hub offshore Senegal and Mauritania, which will be her home for the next 20 years.We own 2 LNG carriers. We agreed to acquire the Fuji intended for Mark II FLNG conversion and expect to take delivery of the vessel next week. We also own the LNG carrier, Golar Arctic, which is a noncore to our FLNG focus, and we are currently considering options for the vessel, including charter opportunities or a potential sale.We have 2 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 4. 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, reinjected 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 have also demonstrated the lowest CapEx per ton and market-leading operational track record.Turning to Slide 5, 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 cost 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 breakeven landed costs. Hence, at this breakeven landed cost for the majority of U.S. projects, the EBITDA of the FLNG projects in discussion is ranging between $600 million and $875 million, dependent on whether we look at the Hilli or Mark II FLNG solution where the economics will be shared between the resource owner and Golar. The attractive breakeven 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 7. Hilli continued their operational excellence, having now delivered 108 cargoes since start-up of operation in 2018 and more than 7 million tons of LNG to date. Gimi, as explained, has now been more 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 charter 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 8. Gimi [ Sailaway ] from Seatrium on November 19, completing a 4-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 more to the GTA Hub with all 26 mooring lines, which will keep the vessels 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 9, and further highlighting the key steps for Gimi and the GTA field to reach COD. With the first 2 key milestones now concluded, we are waiting to embark on LNG production. The commissioning period is expected to be approximately 6 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 start-up during 2023. In total, the unit produced 1.46 mtpa during '23, inclusive of the 2022 under production and also exceeding the contractual volume by approximately $300,000. The vessel continue 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 [ toward 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 and an update on Macaw. Another aspect of our portfolio where we see very positive developments. 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 [ active 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.
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 tariff 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 under utilization balance of $29 million. We had a net loss of $31 million in Q4. This figure includes a total of $117 million noncash items, such as movement 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 receivables 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 fees and variable Brent 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 repurchase of NFE's stake in FLNG Hilli. This quarter, we declared a 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.
Thanks, Eduardo. So turning to Slide 20 for a summary and next steps. We continue to see revenue diversification with delivery of Gimi. Hence, we now have Hilli's 3 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 2 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 debt optimization. We see potential asset sales in noncore 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 look to 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.
[Operator Instructions] And our first question comes from the line of Ben Nolan from Stifel.
Let's say, my 2 questions. The first relates to the Gimi appreciating the time line 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?
Ben, Eduardo here. 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. [indiscernible] they will be amortized equally distributed over the life of the company.
Got it. And the same is true for cost, correct, the costs are capitalized.
Yes.
Okay. All right. Good. So I wanted to -- now if we could -- 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 do 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?
I think 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 time lines 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 time line, but that continues to be the unknown ones 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.
Okay. Is this West Africa, [ just frame it in ]?
We're talking about opportunities in both places -- no, no several places, but the specific framework agreement is not in West Africa.
We are now going to transfer to the next question in the queue. And our next question comes from Liam Burke from B. Riley Financial.
Karl, you've got other investments outside of the FLNG or the Mark II. How are you balancing your investment priorities with the FL -- your core FLNG with these other side opportunities?
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 Hygo Energy Transition. It's less [ core to us ] now. So the way you should think about Avenir is 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 invested, which is why we started Macaw at this point in time.However, the absolute majority of our capital will be directed for FLNG growth projects. 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.
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?
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. The shareholder returns is extremely high on the agenda now and going forward.
We're now going to transfer to the final question in the queue. And our final question comes from Christopher Robertson from Deutsche Bank.
This is Ben Mohr 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 in 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?
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 [ Nordstream ] 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 the 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 5 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 the self-regulating when you have such a large part of the growth in LNG supply with a breakeven of twice what we will hopefully have, that should be a self-regulating measure in further underwriting the attractiveness of the projects that we -- so we welcome the development.
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?
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 fees we are evaluating does not fit that quality. The units are dependent on the pretreatment facility that treats the gas strip liquids enters the FLNG. That's part of the reason why we're able to achieve the CapEx per ton 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 2, if there is significant gas treatment required.
At this time, we've run out of the time. So I'm now going to hand it back to your speaker, Karl Fredrik Staubo, for any closing remarks.
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.