Golar LNG Ltd

NASDAQ:GLNG

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Golar LNG Limited Q2, 2021 Results Presentation Conference Call. Currently, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Karl Fredrik Staubo. Thank you. Please go ahead.

[Karl Staubo, CEO]

Hi, everyone, and thank you for bearing with us, some interesting conference call coordination there. Anyhow, we would like to welcome you to Golar LNG’s second quarter earnings results presentation.

We would like to thank you again for taking the time to dial-in. My name is Karl Fredrik Staubo, the CEO of Golar LNG. I’m accompanied today by our CFO Eduardo Maranhao, to present this quarter’s results. Before we get into the quarterly results, please note the forward-looking statement on Slide 2.

Turning to Slide 3, we are delighted to announce Golar’s best-ever quarterly net income at $471 million, including of a gain on disposal of Hygo Energy Transition and Golar LNG Partners, LP, to New Fortress Energy. The gain on disposal proves that there is significantly embedded value in our asset portfolio. EBITDA for the quarter came in at $67 million.

Turning to the segment, Hilli continues to deliver 100% of uptime with its 59th LNG cargo offloaded. In July, we concluded an agreement to increase the capacity utilization of Hilli. The increased production will deliver near-term cash flow at no additional CapEx to Golar, as well as delivering on our targets to increase commodity projects for sure to LNG prices. We will explain this increase in further detail, later in the presentation.

In addition to the newly acquired GAAP exposure, we are currently generating Brent-linked revenue for Hilli’s operation. Gimi remains unscheduled and is currently 72% technically complete, under construction in Singapore.

Turning to shipping, our shipping portfolio achieved a Time Charter Equivalent of $46,700 for the quarter. We have seen increase in counter-seasonal strengthening of LNG freight rates in the quarter, and recently fixed one of our carriers on a five year charter, increasing our shipping revenue backlog to $259 million. We continue to see strengthening near and long-term fundamentals for our shipping segment, an upward pressure both on rates and asset values.

Turning to corporate, following the close of the sale of Hygo and GMLP to NFE, which closed on April 15, we have booked a book gain of $575 million. The book gain records our 18.6 million shareholding in NFE at the NFE share price of $35.38.

Following the proceeds from the NFE transaction, we now have cash and marketable securities of approximately $1 billion. Our cash balance for the quarter ended at $287 million. And we're currently in discussion with key relationship banks for new and refinancing term sheets in excess of $500 million that if concluded, would release more than $250 million in additional liquidity to Golar.

I’ll now turn the call over to Eduardo to take us through the second quarter results.

[Eduardo Maranhao, CFO]

Thank you, Karl, and good morning, everybody. I'm super excited to provide an update on our financial results for the second quarter of 2021. This has been a fantastic quarter for us, as we have managed to close both the Hygo and the GMLP transactions on April 15. But we have also continued to observe great commercial and operational performance from our FLNG segment.

If we turn to Slide number 5, we can see that the group had a very solid performance in Q2. Total operating revenues this quarter were $104 million, or approximately 2% above than the second quarter of 2020. The greatest portion of our revenues came from our FLNG segment, where operating revenues from the Hilli which includes the base tolling fees increases from $54 million in Q1 to $56 million in Q2. This could be attributed to a result of overproduction in the quarter.

This number does not include the Brent oil linked component, which further enhanced this figure by another $3 million in the quarter, and we will continue to record those gains as a realized gain on derivative instruments.

Revenues from shipping were $42 million, which was down from the $63 million which we observed on Q1, but in line with the numbers of the same quarter of last year. This has been a result of the seasonality in the market, which has pushed overall time charter equivalent rates down from the previous quarter.

Overall, adjusted EBITDA for the group was $67 million, and in line with the same number of the same quarter of 2020. The main contributor to that has been the FLNG segment, with $45 million from the Hilli, whilst shipping added $27 million to that figure.

Continuing on, this segment corporate and orders, which includes our business activities of vessel management and order corporate overhead costs, recorded a slightly higher number this quarter with $5 million. This was a result of one-off redundancy costs following the sale of Hygo and GMLP.

As alluded by Karl before, we recorded the record net income of $470 million in this quarter, compared to $25 million in Q1. Total gain on disposal from the sale of Hygo and GMLP to NFE contributed to $574 million, and unrealized gains from the Hilli Brent oil derivative added another $71 million to that figure.

That has been further offset by a provision of tax liabilities which we have accounted in this quarter, and also unrealized mark-to-market losses from our NFE shares. As of the end of June, the carrying value of our NFE’s stake was equivalent to $35.38 per share.

So, as explained by Karl before, we ended the quarter with total net debt of $2 billion. And from a liquidity point of view, we had total cash reserves of $287 million, out of which $207 million was unrestricted cash. We have also continued to receive term sheets from key relationship lenders for new and replacement that facilities in excess of $500 million.

If we continue the presentation and turning over to Slide number 7, I will give you further information related to the performance of the FLNG and Hilli. So the Hilli continues to deliver an amazing performance with 100% of commercial uptime. She has completed its 59th cargo during this quarter.

It contributed in total of $45 million in EBITDA in Q2, with further upsides to be captured. Our oil linked fee benefits from a high Brent price, and our expectation is to generate an additional $9 million in the next quarter, which is up from the $3 million we recorded in Q2. We have also agreed with Perenco to increase production in 2022 by 200,000 tons, with the option to further increase it by 400,000 from 2023 to 2026.

I will now turn the call back to Karl, so he can talk in more details about these arrangements.

[Karl Staubo, CEO]

Thank you, Eduardo. Turning to Slide 8, one of the more exciting developments during the quarter was our announced capacity increase for Hilli. Hilli has been delivering contracted for 1.2 million tons per year of its total 2.4 million tons per year liquefaction capacity. The announced increase in capacity will see volumes increase for next year by 17%, or 0.2 million tons per year to a total of 1.4 million tons.

In addition, Perenco has committed to a drilling campaign of two to three wells, and been given an option to declare an additional 0.4 million tons every year from ‘23 to ’26, increasing total annual production in that period to 1.6 million tons per year.

The tariff on the incremental production over and above the existing 1.2 million tons will be linked to TTF delivering on Golar’s expressed target to increase gas price exposure, and there will be no changes to the tariff on the existing 1.2 million tons.

Golar will incur no capital expenditure to facilitate the capacity increase and only minor adjustments to OpEx. Hence, the majority of cash flows will flow to free cash flow, of which Golar has an economic interest of approximately 89% in the oil derivative, and 87% in increased capacity production.

Hence, the built-in EBITDA growth for Hilli between ‘22 and ‘26 consists of our Brent linked revenue, which can add $40 million on current forward curves. If you however, believe that the current Brent price will prevail, the same number increases to $155 million.

The increased production will based on TTF forward curves at around $113 million. But if you instead believe that the current TTF will prevail, that can increase to $373 million. So to put those numbers into perspective, the base remaining EBITDA for Hilli is $751 million. On forward curves, we will see an increase of around $153 million, or on current rate for the same volumes, you will see an increase of $528 million. There are significant embedded upsides.

Explaining this in some more granularity on Slide 9, both oil and TTF gas prices are currently in backwardation with forward pricing lowered and current spot prices. On the left you can see the sensitivity where the Hilli Bent link, as mentioned is worth 40 on the forward price and 155 on current Brent around $71 a barrel. The sensitivity to be aware of here is that a $1 change in Brent price equals $3 million change in EBITDA for Hilli on an annual basis.

On the right, you can see the TTF price on the same sensitivity. For 2022, on the forward curve, we book an incremental learning of $26 million. If current spot prevails the same number is $49 million. For ‘23 to ’26, it's $87 million versus $324 million. So the point is that there's significant embedded upside in our existing assets.

Turning to Slide 10, Gimi is now 72% technically complete, on track and on budget. We have worked 10.7 million man-hours, and the fifth and final drydock is now complete. We are as we have been all along expected the sale away from Singapore during first quarter of 2023, and we will start to be commissioning revenues from the second quarter of ’23, before we start the full contract for 20-years with BP, with a total backlog of $4.3 billion in Q4, 2023.

Turning to Page 11, we continue to view the underlying macro as highly supportive of our strategy to move further into upstream. The combination of economically attractive gas fields and our low cost FLNG solution produces a backdrop, where we create an attractive risk reward, considering where LNG prices are trading today, and where they have been trading historically.

Further progress has been made on our announced initiative to increase our gas exposure. We have added to our upstream LNG team with very experienced personnel from NOV and Shell [ph]. We're currently exploring several fields already producing associated gas, as well as stranded gas opportunities, and we will update the market when we're making further progress on these projects.

On the tooling side of our FLNG business, we continue to work with existing and prospective clients on attractive growth projects. And we have seen specific commercial and technical discussions with an existing client for use of a 5 million ton Mark III new building design.

Turning to Page 13, and switching gears to shipping. As mentioned, our shipping TCE for the quarter came in at $46,700 [ph] a day, and we expect Q3 to be more or less in line at $47,000. This is a result of taking too much charter coverage into 2021, but we are seeing an increasing spot exposure, both for the remainder of ‘21 and significantly increased into 2022.

As mentioned, we used the counter cyclical strength to fix one our ships on a five year charter during the quarter, increasing our backlog to $259 million. And also, as announced during Q1, we repaid $60 million in upfront debt repayments in return for a total debt reduction of $102 million on four of our ships.

Turning to Slide 14, the LNG market, both the commodity itself and shipping freight rates have witnessed a real upturn in the first-half of the year. From a shipping perspective, China's considerable growth in imports, as well as higher prices in Asia is pulling tonnage demand higher, as witnessed by the 15% growth in ton-miles compared to the first-half of 2020. Although, the LNG prices remained high, it's been somewhat volatile, benefiting an active trading environment, which again benefits shipping.

Another interesting factor we're paying attention to is the steep rise in asset values, as steel prices and reduced shipyard availability start to reflect on LNG new building quotations. LNG carriers were quoted around $180 million newbuild price around 12-months ago, and it's now up to around $210 million for new orders placed today. We see early signs of this trends also creeping across to secondhand values across LNG shipping.

Turning to Page 15, we don't only see the market being strong at the moment, we see that we have fundamental support for continued strength of LNG freight rates. From a volume perspective, we see the geographical imbalance between growth in supply, which is primarily taking place in the Atlantic, and growth in demand which is still focused in the Asia Pacific, and we only see that continuing to materialize over the next five years driving ton-miles.

As we have previously alluded to, the shipping market is also likely to face a capacity constraint due to new emission regulations that will impact, in particular the older part of the fleet on steam propulsion. The increased obsolescence of tonnage built in the 1990s and earlier coupled with limited additional orders should together with an expanding LNG trade translate into tight shipping market balance going forward.

Based on the current positive market outlook for LNG carriers, we have reengaged initiatives to refinance our shipping fleet non-recourse to Golar, and evaluate alternatives for a separation of our shipping segments.

Turning again to the last section of the presentation today, corporate and strategic focus. On Slide 17, we've laid out the earnings power of Golar’s existing asset portfolio. To start up on the top-line, you can see that our last 12-months adjusted EBITDA for shipping is $119 million. This assumes $48,400 in average TCE. The $10,000 change in the TCE across our shipping segment will increase or decrease EBITDA by $32 million.

Hence, if you mark-to-market the fleet to the current one year TCE, there's $140 million applied to the EBITDA generation of our shipping fleet, which we then could see come in at around $262 million.

On Hilli, our pro rata last 12-months EBITDA was $84 million. As we have spent some time on the presentation today, we have a significant oil upside currently generating cash, plus the agreed Train 3 production with Perenco, adding around $70 million of incremental EBITDA, based on current TTF and current Brent pricing. That will then increase our pro rata EBITDA from around $84 million to $154 million.

Gimi remains on track to start a 20-year contract in October 2023, and will then pro rata EBITDA of $151 million. Netting off corporate investments, we will then see an EBITDA based on last 12-months plus the contracted EBITDA of Gimi at around $340 million. But with embedded upside included in our asset portfolio, we can easily see this increase by more than $200 million to weigh into the $500 million.

If you compare that to our contractual debt position of around $2.2 billion, remaining CapEx of around $400 million, and cash and liquid assets of around $1 billion, and then a market cap of $1.2 billion, you will see that we're currently trading on an EBITDA to last 12-months adjusted EBITDA of 8 times, or 5 times if you include the embedded upside in the asset portfolio. We believe trading between 5 and 8 times is a significant discount to where we can monetize 20-year cash flows to BP, and this is also before pricing in any growth across Golar’s platform.

So, we remain optimistic and encouraged by the supporting fundamentals across shipping and FLNG. And we believe we are now at the very healthy capital structure with a significant capital buffer of around $1 billion.

Turning to Slide 18, for a summary and outlook. As announced we have increased the capacity utilization for Hilli, which will then add anywhere between $113 million in EBITDA backlog on current TTF, or $373 million on the current price. We're progressing with an existing customer for the contract over 5 million ton Mark III new buildings, and we have expanded our FLNG team and are currently evaluating several integrated FLNG projects.

On the shipping side, we see term rates higher than spot rates supporting further fundamental strength. We have an increasing spot exposure across our asset portfolio. And we see asset values rising on the back of a stronger freight market, and higher new building prices.

On corporate and investments, our adjusted EBITDA came in at $67 million. Our net income following the sale of NFE was $471 million, which equates to a book equity of $17 a share. The strong cash and liquid asset position of approximately a $1 billion, and we will focus our efforts on refinancing our upcoming convertible bond maturity, and further group simplification by separating FLNG and shipping.

That concludes the prepared remarks of today's call. And I would like to hand it over to the operator for any questions.

[Operator]

[Operator Instructions] And as your first question comes from the line of Ben Nolan from Stifel. Your lines open. Please ask your question.

[Ben Nolan, Stifel]

Hey, good morning. So, I'll start, I guess -- oh, boy, there's a few things. But let me start with the Mark III that you talked about and the potential development there. Can you maybe frame in how far those conversations are at the moment? Or, when you would think is a natural progression towards something more definitive?

[Karl Staubo, CEO]

Sure. So I think there's a couple of things, when you talk about these type of things, it's always dependent on the charter, taking a binary sort of yes/no decision at the end of the day. But I think there are a number of things supporting why both the charter, us and every other stakeholder in the project would see benefits in progressing this as quickly as possible. I think number one, and the most important driver right now is of course the gas price. There's a lot of money left on the table for every day you wake.

Second, it's the cost of building a Mark III. When you see steel prices going the way it's going, yard activity sourcing significant orders for fairly large complicated vessels like, large container orders, and then waiting one day when an investment decision is more than one day of delay due to the lack of yard capacity.

Lastly, I think in the search for alternative liquefaction solutions, I think we have proven that the cost point, the carbon footprint, and the operational track record of our FLNG technology is more competitive than other solutions. And we are confident that such studies have now been concluded and therefore can open up for the next phase, which then should be in everybody's interest to move ahead as quickly as possible.

[Ben Nolan, Stifel]

Okay. So is this something that I guess -- obviously, maybe it's somewhat out of your control, but is it something that you see as a 2022 kind of event? Is that a fair framework?

[Karl Staubo, CEO]

Yes, I would say within the next six to 12-months, maybe six months, more than 12-months, there we should be able to see some significant progress, and be able to update the market on significant progress.

[Ben Nolan, Stifel]

Perfect. Thanks, Karl. And then my second question relates to the five year contract and really, actually just contracting in general. First, I guess, any context on the kind of rate that you can get on a on a five year contract. And then is this something that you're looking to do on other ships, specifically, the one I was thinking of is the Tundra? I mean, is there any room for that to be contracted as an FSRU on a long-term basis?

[Karl Staubo, CEO]

Sure. So there's a couple of things in those questions. So, when it comes to the five year charter, to be specific that is for a carrier and not for Tundras and FSRU. One of the reasons why we decided to do it is that when you have a meaningful shipping fleet, it's helpful to tie in some of the ships, especially if you can do it way above or well above all-in cash breakeven. Doing a five year term on one ship also helps with our discussions with the bank, in where and how you can potentially refinance the shipping fleet non-recourse to Golar, to prepare the shipping fleet for a separation from our FLNG business.

So the driver of why we decided to fix was that we could – it helps refinancing, it’s also been attractive rates compared to what we have made on the ships historically. And we are generating decent free cash flow to equity on that charter.

When it comes to Tundra, we are increasingly confident that we will find work for her, as a FSRU, there are several projects where the specifics of Tundra is interesting. Tundra has a very high throughput and 170 cube storage instead of 160. So she's very well suited for certain projects. And if we were to do a shipping spin, that would likely not include Tundra, but we would like to keep Tundra until we've fixed her and then look at alternatives for her, that's how we see it.

[Ben Nolan, Stifel]

Perfect. All right. Thank you.

[Operator]

[Operator Instructions] And your next question comes from the line of Chris Tsung from Webber Research. Your lines open. Please ask your question. Chris Tsung, your line is open, please ask your question.

[Mike Webber, Webber Research]

Hey, guys, good morning. This is Mike Webber actually on for Chris. How you doing?

[Karl Staubo, CEO]

Hey, Mike.

[Mike Webber, Webber Research]

Good. So just wanted to follow-up on the carrier spin specifically. So refinancing the carrier presumably the idea is there to just get them under a single facility to make it easier to spin, but even delivering those carriers for a while leverage levels we would assume to be relatively flat, all things considered on a refinance basis.

[Karl Staubo, CEO]

Yeah, I think that's a fair assumption. We’re down to around 108 in that per TFDE. I think if you want to the leasing market, you can probably get proceeds slightly above that. If you go for a normal bank financing, it's slightly below that, but it's variations around that number.

So it's really up to the sort of final structure that we see most suitable, whether it sort of makes sense to do a bank package, or whether you go with a combination bank lease or full lease. So dependent on exactly what structure we could look like there could be fairly minimal further deleveraging needed, but on a standalone basis, we can refinance the fleet non-recourse without any further cash injection.

[Mike Webber, Webber Research]

Okay. That's awful. So I mean, it's always been one of the complicating kind of impediments to spending the carriers. Given the idea all while sequel, what kind of timeline you'd be looking at to do that?

[Karl Staubo, CEO]

I think, mid years obviously seen quite a lot of changes across the company portfolio with the NFE transactions concluded. I think we've now sort of freed up time to take a thorough look at this again. And to be fair, I think we it was quite troubling that we were very close to solve this around two years ago. It's been sort of parked for a bit, but now we will reengage any and all such discussions.

I think, to be fair, there's a lot of corporate activity that's happened across the LNG space with gas [Technical Difficulty], private, and the large corporate transaction in selling of Hygo and GMLP. So we're encouraged to see that across LNG, and we believe that there are some opportunities worth exploring. And with the rates where they are, it's difficult for investors to obtain pure play shipping exposure.

You can of course, buy, but that’s already gone more than three times, we’re encouraged to see that, because that makes way for we think more shipping exposure, pure play shipping exposure.

[Mike Webber, Webber Research]

Sure. And acknowledging that you have a number of options in this regard, is the idea -- are you still primarily pursuing scenarios that involve a specific counterparty, involved in a carrier fleet? Or, just something where it could be spun out to the public markets?

[Karl Staubo, CEO]

It could easily be the latter. I don't think we're obviously exploring a couple of alternatives and what we think would be the best solution, but the long without any other involved partners is certainly on the table as well.

[Mike Webber, Webber Research]

Sure. And then my follow-up on the Hilli, and you did a good job of laying out the different scenarios for adding additional volumes there in the deck. Just curious in terms of the term, I know, my understanding is it's always been a volume based contract to begin with. You guys are kind of playing with the volume a little bit now. And I know some of that is contingent on Perenco’s inland in country, I guess drilling activity. Is there been any conversations or substantive conversations around extending the term of the underlying contract on that asset, at least for the baseline volumes? Or, is that something you would expect to be more relevant after you figure out toggling to utilize more Trains 3 and 4?

[Karl Staubo, CEO]

I think the fair thing to say there is that we have been extremely clear with the market and equally clear with Perenco, that we are not talking about extension before we see expansion. So, there's only one word starting within E that we have been open to discuss. We concluded the expansion now in July, so up until that's completely off the table for us, I think, from here onwards, it's obviously the door is more open than it has been in terms of extension.

But, back to the slide that we presented in the deck and how we see a FLNG economics on Slide 11, our primary target would be to deploy Hilli on the gas field that we control ourselves. But we would certainly be open to find solutions with partners in general. And we like to work with Perenco, so that could be an option as well. But it needs to come down to what the contract structure look like.

We are of course encouraged that Perenco will now build another two to three wells, because dependent on the gas flow and the reserves of those wells, I think there are some additional conversations that very quickly will start to translate.

But, I think we also tried to mention during the call that we've made some, we think very good hires in strengthening our upstream team. And we're already seeing some of the benefits of that, and there are some quite interesting fields that we think we could redeploy Hilli on as well.

[Mike Webber, Webber Research]

Got you. Okay. I'll say my follow-up. Thanks, guys. Appreciate.

[Karl Staubo, CEO]

Thanks.

[Operator]

As your next question comes from the line of Chris Wetherbee from Citi. Your line is open. Please ask your question.

[James Yoon, Citi]

Hey guys, James on for Chris. Just wanted to follow-up on a lot of questioning around the spin. How does essentially the new regulation sort of play into that? Is there any timing aspect around that or milestones we should be aware of? Or, is this essentially all out there areas that just something you're just ignored and just progressed. As you see fit, just kind of want to understand if there's anything to be aware of there.

[Karl Staubo, CEO]

Sure. So the new regulation will come effective from 1st of Jan ’23. We see that mainly affecting steam carriers, which we see as a big benefit, because they represent just over 40% of the fleet on the water. And if 40% is either obsolete or need to slow down, but will have very positive supply effects.

We only have one steamer left in our fleet, which is the Arctic. Other than that we're in the TFDEs, which should be far less affected other than fleets positive support for rates. So we are welcoming that change, and I'm looking forward to it.

I think in terms of triggers, we have previously looked to do shipping spins with partners. And I think it's fair to say that if we do it again, we will be open to do it with partners, but we will not expose ourselves to a situation where we're relying on them. And when the debt level per ship is down to the level we're at now, we believe it's surely doable to do this on a standalone basis should be wish to do that as well.

[James Yoon, Citi]

Got it. But given the strength of that catalyst, is it possible -- or do you think it might make sense to wait a little bit or wait till the back-half of ’22, or maybe even into ‘23? Or, is it just something where you don't think it'll actually – or you expect whatever you're going to get for it to reflect that and it shouldn't be much of a concern one way or the other? Just trying to understand your view for the outlook versus the timing.

[Karl Staubo, CEO]

We agree that as a shareholder, holding LNG shipping into that time period is probably one of the more interesting -- that's been through the history of LNG carriers. However, we don't necessarily see a spin as a sale. As long as you spin it and maintain the equity, then we think that's really doable. So if you want to think about today, you own one Golar LNG share, which has FLNG exposure and shipping exposure.

What we see is that we struggle to get the efficient pricing, because people that want the shipping exposure don't necessarily want the FLNG and vice versa. And for us, what we're considering is just to put the shipping fleet into a separate exposure, and then potentially to handout the share in the shipping venture. And then instead of holding one FLNG share with two exposures, you'll have one GLNG share, which is an FLNG company, and then another share, which is a shipping company.

[James Yoon, Citi]

Got it. All right. And then sort of a separate item, just understanding how you might possibly structure another FLNG deal. You guys have sort of benefited a lot from the flexibility provided by the liquidity you've gained. So potentially, like how would you think about funding an FLNG project? Would you take on a partner initially? Would you think about some other source, just trying to understand how you're thinking about the structure of potential deal whenever it does come about?

[Karl Staubo, CEO]

There, you need to distinguish between a tolling arrangements, so that's deal similar to BP. So if we were to do sort of a repeat of Gimi building against the long-term contracts, we would like to do a newbuild and would expect to get yard financing. So the equity requirement during construction would be significantly lower than the sort of pay as you go structure that we have on Gimi and also have on Hilli. And we think we have sufficient cash and marketable securities to fund our share of such project.

When it comes to integrated, if we were to purpose build on FLNG, we would likely require partners. But we are also looking into alternatives for redeployment of Hilli in 2026, when it turns off its existing contract. And then of course, the CapEx have been taken and we've already amortized a very large portion of the debt by that time. So then it should be very limited equity need in order to redeploy her on a separate entity, and we also think we can do that from our own balance sheet. That's what we think about it at the moment.

[James Yoon, Citi]

Great. Thank you.

[Karl Staubo, CEO]

Thanks.

[Operator]

And next question comes from the line of Randy Giveans from Jefferies. Your lines open. Please ask your question.

[Randy Giveans, Jefferies]

Gentlemen, how's it going?

[Karl Staubo, CEO]

Hey, Randy.

[Randy Giveans, Jefferies]

A question on the term sheets you received for the new refinancing facilities in excess of $500 million, liquidity release of $250 million there. I guess what assets will be used for collateral? And what are the hurdles or maybe timing to get this closed?

[Karl Staubo, CEO]

Sure. So, we have been looking at some alternatives on how we can free up additional liquidity at fairly attractive terms. And we do believe we have some undelivered assets. So on those term sheets that relates in part to Tundra, which currently has around $107 million of that. We have some letter of credits, which are cashback that could be released.

We are also having a very sort of under levered position in NFE, where we have $100 million, again, for shareholding there. So that's some of the venues that we are exploring in addition to those, I think it's fair to say that Gimi is under levered. We have $700 million of debt against the $4.3 billion backlog project.

I think as we have seen increased capacity utilization of Hilli, neither Train 3 or the oil derivative has any leverage against it, and neither does our Avenir shareholding. So those are some of the venues that we are exploring. We are of course, price sensitive when discussing these alternatives. But we do see the need or we see the benefit in raising some extra liquidity if you can do it at attractive terms now that there is significant potential growth pipeline across FLNG, in particular, and these integrated upstream alternatives.

[Randy Giveans, Jefferies]

Okay. And then I guess if that does conclude, would that be the way to repay the converts without selling NFE shares at these relatively low prices?

[Karl Staubo, CEO]

Yes. So as we write in the report, we are trying to be very consistent on this since the NFE transaction was announced. We are now out of the lockups that expired on July 15. We've always said that we will be sensitive to Golar share price and NFE’s share price and near-term funding needs of Golar, when deciding on what to do with our shareholding in NFE.

And at current levels, we find it best to tap these alternative sources to address the upcoming convertible bond, as opposed to having to do anything with our NFE holding.

[Randy Giveans, Jefferies]

Got it. I guess last question on Slides 8 and 9, there's pretty significant upside or downside to the Train 3 EBITDA contribution. So it looks like it's entirely linked to TTF. Are you going to hedge any of this? Or, do you have a floor EBITDA contribution that you expect for next year?

[Karl Staubo, CEO]

I think it's fair when it's linked to TTF, neither us nor Perenco would except to do that at the loss. So the contract is structured in a way where we can’t lose money on the incremental production on TTF. But we both wanted to be aligned and we have for a long time, as you know, for it to increase the capacity utilization of Hilli, but also to increase the gas exposure.

So yes, there is a floor, it's impossible to lose money on that. But there's significant upside. We don't have any current plans to hedge it out, because we like the dynamic of what we're seeing in the LNG market.

Then if you look at the hedging curve, it's so backward dated up, you're probably better off things.

[Randy Giveans, Jefferies]

Got it. That is it for me. Thanks so much.

[Karl Staubo, CEO]

Thanks.

[Operator]

And our next question comes from the line of Sean Morgan from Evercore. Your line is open. Please ask your question.

[Sean Morgan, Evercore]

Hey, guys. So this looks like the priority right now in terms of additional development from the FLNG side will be Mark III newbuild. Does this have any implications for the Gandria and the future of the Gandria? Is there kind of a market preference for kind of bespoke builds for specific projects? Or, do you think that the conversion for the Gandria would still makes sense given the right project?

[Karl Staubo, CEO]

It can certainly make sense. I think what we're trying to say in this report is that we're making progress both on -- we tried to say that we separate our FLNG, the way we think about the FLNG in tolling and then integrated.

On the tolling side, the most advanced and most likely near-term discussion is the newbuild Mark III. And in that you're absolutely correct. But we are absolutely making progress when it comes to integrate it as well. For integrated, Gandria is a solution that could be deployed. There are some benefits using Gandria. We obviously have a very large study done on her in relation before in our discussion back in the one LNG date. She could be somewhat quicker to deploy given that the hole is already there.

But we will remain open to both. But if you have to ask about timeline, I would say that the Mark III is significantly more likely near-term than anything with Gandria. And currently Gandria is sitting outside of Singapore, and has no debt against her, and probably a scrap value of around $20 million. But we think a worth as a sourcing of a Mark I design significantly more than that.

[Sean Morgan, Evercore]

Okay. And what would the capacity be for the Gandria, if you were to do the conversion compared to the Mark III? I think it's five for the Mark III. There'll be a smaller solution, similar to Hilli?

[Karl Staubo, CEO]

Yeah, about the full quarter of Hilli and Gimi.

[Sean Morgan, Evercore]

Okay. Thanks a lot.

[Karl Staubo, CEO]

Thank you.

[Operator]

Thank you. And your next question comes from the line of Ken Hoexter from Bank of America. Your line is open. Please ask your question.

[Ken Hoexter, Bank of America Merrill Lynch]

Great. Good afternoon. Good morning. Just on the Hilli, the 100% upside, congrats on keeping that fully running and operating. Is there any scheduled drydocking we should be aware of or anything that slows performance? And then the agreement on the third train, how did the discussions progress on the fourth train and the potential to get that up and running? Let me just stop there. Thanks.

[Karl Staubo, CEO]

Okay. So just to start off from the latter, Train 4, so Perenco is now proving or drilling up two to three wells. They have an option from ‘23 to ‘26, on doing another 0.4 million tons. But it really depends on the gas flow and the reserves for those incremental wells.

Currently, we do not expect utilization of Train 4 during the current contract period, just on the back of what's known to be the reserves of the current location or Hilli. But that could obviously change when you do actual drilling and see the flow and can measure the reserves. So I think for that one, I would say it's unlikely that we could do Train 4 during the existing contract period, but it's subject to the outcome of Perenco’s drilling campaign, that’s now coming up.

Sorry, the other half of your question was?

[Ken Hoexter, Bank of America Merrill Lynch]

Oh just the simple one. Is that -- you've had the 59 loads, is there anything that disrupts that going forward any type of drydocking that has to occur any downtime?

[Karl Staubo, CEO]

There's no current -- there will be no drydocking for the remainder of the contract period. There are some scheduled maintenance windows. And every time we've shut down to do those and ramp back up again, it's been done successfully, at either the sort of budgeted time or quicker. So we are very happy, without them, we don't foresee any shutdowns or downtime, which is not scheduled. And there are certainly no drydocks.

[Ken Hoexter, Bank of America Merrill Lynch]

Perfect. And then for the Gimi, is there any impact that you've had on COVID on construction on downtime? And are there I guess, any constraints on or penalties on delivering late or anything just on the timing of that delivery?

[Karl Staubo, CEO]

I think, it feels like the 11-months of FM was enough of COVID effect on that one. So that we certainly felt, but on a slightly more serious note. We obviously keep monitoring the situation. I think the fifth and final drydock is now complete. We've booked around 10.7 million of the working hours to-date, and the project is progressing according to the timeline.

The only COVID sensitivity going forward is the availability of sourcing some workers – non-Singaporean workers and we need to get those into Singapore. If the situation worsens, or became more problematic in Singapore, we need alternative plans to source such workers and we are working with Keppel. Keep in mind, Keppel Capital is a 30% shareholder here. So we were aligned with Keppel to find solutions to source such workers elsewhere.

So, I would say the situation is pretty much under control to the extent you can keep a COVID situation on the large construction project under control. There is around 2,500 people working on the vessel every day. For now we haven't had any significant COVID outbreaks across the workforce.

[Ken Hoexter, Bank of America Merrill Lynch]

Great color. And Eduardo it’s a great rundown, great slides on running through the updates on each of the different parts and the simplification of it. Just one last one for me just you’ve mentioned the monetizing the potential monetizing of the NFE stake is there -- it sounds like you don't have any plans. I mean, we passed the July 15 date. It sounds like you want to keep them, maybe just give us your thoughts on given the simplification of the structure, what are your thoughts on the stake there?

[Karl Staubo, CEO]

I can start and then Maranhao can chime in, because he's obviously intimately familiar with Hygo. But when we sold GMLP and Hygo to NFE, that in itself injects around half a billion dollars of EBITDA into NFE, around three under which it generated from the GMLP. And Hygo in sharp growth with significant terminals under construction or in development in Brazil, which will see a significant ramp up of volumes over the coming months, and quarters.

So what we see is that if you add the tools for trade, if you like from GMLP, the embedded growth of Hygo and top that with the existing asset portfolio of NFE, we think that it's an extremely attractive play. We are of course disappointed by how the share price has evolved since the transaction was announced on January 13. But we remain encouraged to see that the industrial and strategically important terminal that NFE is building will get into fruition.

If you add the fast LNG solution where we're working together with NFE, we think if they can obtain that integrated model. There is some very significant potential in that share, and that's why we're encouraged to keep it.

But Maranhao knows far more about the Brazilian terminals and the ins and outs of that than I do.

[Eduardo Maranhao, CFO]

Yeah, if I may just add a couple of words here on how we see their performance on the recent terminal developments, I think we remain extremely confident on their ability to deliver on their business plan. In special with the continuation of the projects that we had ongoing in Brazil, I think there are various terminals in different jurisdictions. We have seen significant progress since we announced the transaction, and we remain in close dialogue, and as I said, really confident on NFE’s ability to deliver on that.

So, having said that, we really believe that the market does not fully value everything that NFE has been delivering so far. And we have been addressing alternative ways to further provide ample liquidity to Golar to address our upcoming refinancing needs, as we have explained it in the presentation.

[Ken Hoexter, Bank of America Merrill Lynch]

Great. Appreciate the time. Thanks, guys.

[Operator]

As your next question comes from the line of Liam Burke from B. Riley. Your line is open. Please ask your question.

[Liam Burke, B. Riley FBR]

Thank you. Hi, Karl. Hi, Eduardo. How are you?

[Eduardo Maranhao, CFO]

Hey, Liam.

[Liam Burke, B. Riley FBR]

Karl, could you go back to the Mark III and how you envision the contract pricing of the project that would be tied to TTF or is it tolling or is it combination of the two?

[Karl Staubo, CEO]

On the Mark III we're currently discussing the contract arrangement as a sort of fixed price tolling similar to what we have on Gimi. When it comes to the pricing or the Mark III itself so the capital expenditure we expect the fixed price EPC contract.

[Liam Burke, B. Riley FBR]

Okay, great. And the returns or the attractiveness of these projects or the FLNG projects are pretty nice. Do you see any competition on lower cost alternative or lower priced alternatives here?

[Karl Staubo, CEO]

I think it's fair to say that there is like three or four people that are doing FLNG. It's a shale producer [ph]. We have the [indiscernible] and you have us. And then of course NFE is working on there, fulfilling the solution. I think, if you exclude NFE for a minute, but on the cost per liquefaction, I think we're highly competitive, if not the most competitive.

When it comes to operational track record, we have a better track record than any of the ones mentioned with 100% uptime since delivery. From an OpEx point of view, that's also attractive.

So I think, at the end of the day, if you look at FLNG economics, again, as highlighted on Slide 11, in the deck, you will see that it's far more important. We are competitive on all these parameters, but the most important thing is that you have a reliance service, you're able to capture the upside when gas prices are as they are now, or even better if they are like they were last winter.

So at the end of the day, I think our price points and our operational track record is the real attractiveness. And when it comes to NFE, I don't think they have any ambition to produce FLNG for others, but rather use for their own take. So we don't see them as a competitor on tolling business.

[Liam Burke, B. Riley FBR]

Great. Thank you, Karl.

[Operator]

And there are no further questions at this time. Please continue.

[Karl Staubo, CEO]

Thank you all for dialing into the call. Again, sorry for some delays and sort of a bit of mess with the conference call dial-in to get go here. But we're glad that you could all stay on and thanks for relevant question. And let’s speak soon. Thank you.

[Operator]

And this concludes today's conference call. Thank you for participating, and you may now disconnect.