Golar LNG Ltd

NASDAQ:GLNG

Earnings Call Analysis

Golar LNG's Growth Trajectory Boosted by New Projects and Strong Revenue Backlog

In Q3 2024, Golar LNG reported operating revenues of $65 million, slightly up from Q2, while maintaining an adjusted EBITDA of $59 million. The company anticipates a significant boost in capacity with the newly ordered Mark II FLNG, enhancing liquefaction capacity by 70% and potentially doubling EBITDA generation by 2025. A 20-year charter with Pan American Energy could yield an annual adjusted EBITDA of $300 million. Golar holds a robust cash position of $807 million, with plans to increase dividends after derisking existing projects. A second Mark II is under consideration for 2028, indicating strong growth prospects.

Golar LNG's Growth Journey

In the third quarter of 2024, Golar LNG made significant strides in its growth strategy. The company has ordered its third Floating Liquefied Natural Gas (FLNG) unit, known as the Mark II, which will increase its liquefaction capacity by 70%. Expected to be operational by 2027, this new unit positions Golar as the first available FLNG capacity globally, providing a crucial advantage in a competitive market. The potential to double EBITDA generation through this new asset is estimated at an attractive cost—only 50% of Golar's current enterprise value.

Financial Performance Highlights

Golar reported total operating revenues of $65 million for Q3, with FLNG tariffs slightly rising to $89 million from $88 million in the previous quarter. Total adjusted EBITDA remained stable at $59 million, despite some pre-operational expenses from the Gimi FLNG unit. However, the company faced a net loss of $35 million attributed to non-cash adjustments and fluctuations in gas prices. Despite this setback, Golar maintains a strong EBITDA backlog of approximately $11 billion.

Operational Excellence and Future Prospects

The operational performance of the Hilli unit has been exceptional, achieving 100% economic uptime. In Q3 alone, Hilli contributed $68 million in EBITDA. With the current market conditions, Golar is strategically poised to capitalize on rising gas prices, leading to increased distributions from Hilli's contract, which extends until 2026 in Cameroon before transitioning to a new 20-year charter in Argentina. This transition is anticipated to boost Hilli's annual adjusted EBITDA to $300 million post-2026.

Market Strategies and Expansion Plans

Golar is currently focusing on expanding its footprint in the FLNG market, particularly within South America and West Africa. The company has entered into a pivotal 20-year charter agreement with Pan American Energy in Argentina, utilizing gas from the Vaca Muerta shale formation. This vast reservoir, estimated at 300 Tcf, underscores the long-term supply potential for LNG exports. The delivery of Hilli in Argentina is projected for 2027, promising robust growth opportunities.

Financing and Capital Allocation

In September, Golar successfully issued $300 million in bonds, strengthening its liquidity position, which stands at approximately $807 million. Despite having around $646 million in net debt, Golar plans to optimize its capital structure through refinancing options and securing financing for the Mark II FLNG. The potential to raise $1.4 billion based on a $250 million EBITDA is in advanced discussions with lenders. Golar is also committed to maintaining and potentially increasing its dividend, signaling a shareholder-friendly approach amidst its growth initiatives.

Conclusion: Navigating Challenges and Opportunities

The earnings call reflected a mix of challenges due to recent financial losses and ongoing market fluctuations but was largely overshadowed by Golar’s growth prospects. With a solid earnings backlog and strategic contracts in place, Golar LNG is set to navigate the future competitively. Investors should keep an eye on Golar's capacity expansions and refinancing activities as they hold the key to realizing the full potential of the company's assets and long-term growth trajectory.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Golar LNG Limited Third Quarter 2024 Presentation. After the slide presentation by CEO, Karl Fredrik Staubo and CFO, Eduardo Maranhao, there will be a question-and-answer session. [Operator Instructions]

I will pass you over to Karl Fredrik Staubo. Karl, please go ahead.

[Karl Staubo, executive]

Thank you. Hello, and good morning, and welcome to Golar LNG's Q3 2024 Earnings Results Presentation. My name is Karl Fredrik Staubo, 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 on Slide 3 and an overview of Golar.

During Q3, we ordered our third FLNG, a Mark II FLNG, with an annual liquefaction capacity of 3.5 million tonnes per annum. This represents a 70% increase to Golar's own liquefaction capacity, and the Mark II FLNG will deliver within 2027. This will be the first available FLNG for a charter globally. We will provide further information on the value proposition of the Mark II FLNG later in the presentation.

We've also seen positive progress for our 2 existing FLNGs on the water. Hilli continued her market-leading operational performance during the quarter, and positive progress have been made on the conditions precedent for her redeployment under a new 20-year charter in Argentina, following expiry of our existing contract in Cameroon ending in July '26.

During the quarter, we agreed a commercial reset of pre-COD contractual arrangements for the FLNG Gimi under her 20-year contract with BP. An accelerated commissioning has now started, and based on the latest schedule from BP, we anticipate commercial operations date, starting the full cash flow from the 20-year contract to occur in Q2 next year.

We maintained 2 LNG carriers in the fleet. One is the Golar Arctic, which is our legacy assets that we consider for long-term charter or sale. The second carrier, the Fuji is currently on charter until Q1 '25. And following that charter, she will enter CIMC shipyard in China for conversion to the Mark II FLNG.

Our financial investments include a 23.5% shareholding in Avenir LNG and Macaw Energies, which is a fully-owned Golar founded start-up focused on onshore flare to LNG liquefaction.

Our key figures as of Q3 includes a market cap of just around $4 billion, a cash position of just over $800 million, net debt of around $650 million and an EBITDA backlog of approximately $11 billion, inclusive of the Pan American Energy contract in Argentina and excluding commodity exposures that we have been built in the Hilli contracts.

Turning to Slide 4 and the key milestone of the quarter, the ordering of the Mark II. The Mark II represents the next phase of Golar's growth, now as a pure-play FLNG company. The Mark II will increase our own liquefaction capacity by 70%, with the potential to double our EBITDA generation at the project costs, which is approximately 50% of our current EV. So at a 50% increase, we can increase liquefaction capacity by 70% and EBITDA generation by 100, so by definition, accretive.

Total project costs for the FLNG conversion and delivery to our operational sites will be approximately $2.2 billion, which equates to a market-leading cost of just over $600 million per tonne of liquefaction capacity. Delivery of the vessel is expected in Q4 '27, and she will thereby be the first available FLNG capacity globally, delivering at least 2 to 3 years for any competitive FLNG deliveries could be available.

The Mark II FLNG is an evolution of the same liquefaction technology as we have deployed on the Hilli and the Gimi. The combination of the unit, being the earliest available FLNG capacity in the world, our market-leading construction cost per tonne and building upon the technology that has delivered market-leading operational performance since we started FLNG operations in 2018, we believe these 3 factors will drive value to Golar in the contracting of the Mark II.

We are currently in discussions with several potential FLNG opportunities for the vessel deployment, and target to charter the vessel within 2025. As part of the yard agreements, we have secured an option for a second Mark II FLNG, with delivery within 2028.

Slide 5 provides an overview of the global FLNG fleet. Golar retains its position as the market leader for FLNGs, at par with ENI and Petronas in number of assets and market-leading by liquefaction capacity. The most important takeaway from this overview is Golar's position as the only proven provider of FLNG as a service. The other existing FLNG players are focused on utilizing their floating liquefaction units for gas they control or where the target to be the offtaker of the gas for their downstream LNG portfolio.

Another important takeaway is that the FLNG market is growing. We now have 4 units under construction versus 8 units on the water. The FLNG technology pioneered by Golar is now gaining acceptance in the market as the most economical technology to monetize stranded and associated gas reserves globally.

Furthermore, the only open capacity of the total FLNG fleet is our recently ordered Mark II FLNG. As explained, this provides potential charters with gas monetization 2 to 3 years ahead versus ordering an alternative FLNG solution today. This was made possible by our significant commitment to the engineering and placing long lead items in anticipation of this FID of approximately $300 million, which started more than 18 months ago. That's what enables the delivery within '27.

Turning to Slide 6. We have laid out our growth ambitions based on our existing asset base and security [indiscernible] loss. We expect to see strong cash flow growth from organic growth through increased capacity utilization of our existing FLNGs on the water and through our Mark II growth units. The organic growth includes the start-up of Gimi, expected to -- well, she's already started accelerated commissioning now, but we expect first gas from the FPSO late Q4 and full operations in Q2 of next year.

The second phase of the organic growth is the increased capacity utilization of the Hilli when redeploying from our existing charter in Cameroon, ending in July '26, to the announced 20-year charter in Argentina with an estimated startup within '27. Once on their 20-year charters, these 2 existing assets are estimated to generate an aggregate annual EBITDA of approximately $515 million before commodity exposure.

Through the Mark II on order for delivery within '27 and another option for Mark II FLNG to potentially deliver within '28, we see the potential to more than double our liquefaction capacity to more than 12 million tonnes per annum and triple our potential EBITDA generation.

Assuming that the Mark II FLNG is chartered on terms similar to the definitive agreements under the Pan American contract in Argentina entered into in July, each Mark II FLNG could generate approximately $500 million in EBITDA per year before commodity exposure. Hence, with Hilli and Gimi on their respective 20-year contracts, and Mark II on charter at similar terms, Golar could generate $1 billion of run rate EBITDA from '28. If you add to that a second Mark II, we can see a run rate of $1.5 billion of run rate EBITDA by 2030.

Turning to the business update on Slide 8. Hilli continued her market-leading operational track record, and is currently offloading her cargo #122 with more than 8 million tonnes of LNG exported since contract start-up in '18. As explained, Pan American Energy served as the reservation notice in October to utilize the FLNG Hilli for the 20-year definitive agreements with start-up in 2027. We continue to make strong progress to fulfill the conditions precedent within these definitive agreements, and expect all subjects to be lifted within Q1 of next year.

The key milestone for the quarter was to conclude the commercial reset with BP, resolving all contract disagreements and aligning economic compensation for Gimi's arrival in country on January 10 2024 until COD. This commercial reset also unlocks our target to refinance Gimi at improved terms versus the existing facility, and to provide the liquidity release that we intend to utilize for FLNG growth projects.

On the back of the commercial reset, BP and Kosmos has secured an LNG cargo that enables accelerated commissioning, whilst we wait to receive gas from the BP-owned FPSO. Gas was introduced from the accelerated commissioning cargo to Gimi in October, starting the accelerated commissioning.

As alluded to, the major milestone for the quarter was the ordering of the Mark II FLNG to be converted at CIMC Raffles Shipyard in China. We also secured an option for a second Mark II delivering in 2028 as long as we order within '25. We see continued strong development of our FLNG growth pipeline, led by activities in South America and West Africa. We expect to conclude a charter for the recently ordered Mark II FLNG within 2025.

Q3 financial highlights include adjusted EBITDA for the quarter of $59 million, unsecured bond issue of $300 million and a cash position of over $800 million. Eduardo will provide further insight into this quarter's financial performance later on in the presentation.

Macaw Energies have now produced and sold its first ISO containers produced from flare gas in Texas U.S. to industrial clients. We continue to fine-tune operations to adjust for the gas quality variability from associated U.S. shale gas production.

Turning to Slide 9 and the highlights of the Pan American Energy Charter in Argentina. In July, we entered into agreements for a 20-year LNG export projects. In October, we received a reservation notice reserving the Hilli at the FLNG to be utilized under the 20-year definitive agreements. The annual adjusted EBITDA based on the Hilli will be $300 million before commodity exposure.

The project will utilize gas from the Vaca Muerta field onshore Argentina. The Vaca Muerta is the second largest shale gas discovery in the world, with an estimated resource of around [ 300 Tcf ] of gas. This target startup is within '27, which enables us to upgrade and hookup of the Hilli in between charters ending in July '26 and start-up in '27.

As part of the transaction, Golar will become a 10% shareholder in South American logistics. South American will be the offtaker and gas marketing arm of the structure, and this will provide further commodity exposure in addition to the commodity element of the FLNG tariff.

As explained, the charter is subject to customary closing conditions, including regulatory and environmental approvals. We continue to make strong progress in meeting these conditions, and we expect deal completion within first quarter of next year. We're also together with Pan American in advanced discussions to bring additional local and international partners into the project to further enable potential expansion.

The Hilli will initially utilize spare capacity in Argentina's existing pipeline network. Work to construct a dedicated pipeline connecting the FLNG terminal directly to the Vaca Muerta shale formation has also been pursued. This could support a multi FLNG vessel project in Argentina, including opportunities for the Mark II on order.

Turning to Slide 10, an operational overview of our 2 existing assets. Starting with Hilli. Her -- she continued her market-leading operational track record, and are in the process of offloading cargo #122. The existing contract with [ Perenco ] offshore Cameroon runs until July '26, and the vessel will thereafter transit to the Pan American contract in Argentina with increased capacity utilization following a planned maintenance to enable 20-year continuous operations on site in Argentina.

Gimi is on site and have started commissioning activities through an accelerated commissioning plan, and gas was now introduced in October. All of the ongoing commissioning activities are according to plan and design specifications. Based on the latest guidance from BP, first gas from the BP-owned FPSO is now expected in Q4 this year and full COD in next -- in Q2 next year. COD, which is a commencement of operations date will be the start of the 20-year contract duration, starting Golar share of the $3 billion of EBITDA backlog.

Turning to Slide 11. We see strong positive progress for new FLNG opportunities. We continue to progress these opportunities, including commercial and technical work, mainly in the Americas, West Africa, Middle East and Southeast Asia. As explained earlier in the presentation, we see the most active areas being South America and West Africa at the moment.

Increasing project development is driven by Golar's position as the only proven provider of FLNG as a service, our market-leading operational performance, our competitive construction cost advantage and the fact that we have the first available FLNG globally. We remain encouraged by the relative attractiveness of these FLNG growth projects compared to alternative monetization solutions for gas resource owners and the cost competitiveness of these projects versus other LNG export projects out there. And again, we are targeting to fix the Mark II FLNG within 2025.

I'll now hand the call over to Eduardo to present our Q3 results.

[Eduardo Maranhao, executive]

Thank you, Karl, and good morning, everyone. I'm pleased to provide an overview of Golar's financial performance for the third quarter of 2024.

Moving to Slide 13, I would like to walk you through some of the key financial highlights for the quarter. We achieved total operating revenues of $65 million, with FLNG tariffs reaching $89 million, a slight increase from $88 million in Q2. This growth reflects higher realized variable earnings linked to [ Brent ] and TTF prices. We consider FLNG tariffs to be the most accurate measure of all realized liquefaction revenues, including gains from our oil and gas linked fees from Hilli operations.

Total adjusted EBITDA reached $59 million, remaining largely consistent with last quarter, despite the recognition of some preoperational expenses associated to commissioning activities of Gimi as we progress towards COD.

This quarter, we reported a net loss of $35 million, primarily due to noncash adjustments in the value of embedded TTF and branded derivatives within the Hilli contract, reflecting lower oil and gas prices compared to Q2. These movements accounted for approximately $90 million.

Additionally, mark-to-market changes in our interest rate swap portfolio impacted results by about $16 million. While these factors affected our quarterly results, we remain strategically well positioned to benefit from future market improvements, and continue to focus on building our strong long-term earnings backlog.

Following the issuance of our $300 million bonds in September, our share of contractual gross debt reached just under $1.5 billion at quarter end. Despite substantial commitments to the Mark II project, which has been fully equity funded until today, with around $400 million invested so far, our liquidity position remains robust with approximately $807 million of cash on hand. Based on that, our net debt position at the end of the quarter stood at $646 million. This gives us significant flexibility to advance our growth initiatives and drive future value creation.

Lastly, we're pleased to declare a dividend of $0.25 per share this quarter, with a record date of November 25 and payments scheduled for on or around December 2.

Turning to Slide 14. Hilli continued its exceptional performance, achieving 100% economic uptime and reinforcing its market-leading operational track record. Here, we show the evolution of Hilli's EBITDA contribution over the last quarters. Q3 was an excellent quarter for Hilli, delivering a total EBITDA of just over $68 million, which includes $33 million from base tolling fees and approximately $35 million from variable realized Brent and TTF-linked fees.

I wanted to highlight that we remain positively exposed to Brent and TTF prices. So if these prices continue to improve in the coming quarters, we can expect to increase the distributions from Hilli through the duration of each current contract.

Moving on to Slide 15. Hilli's operational track record has been outstanding. Since 2018, we have successfully produced over 8 million [ tonnes ] of LNG, delivering just over 122 cargoes as of today.

On the right-hand side of the slide, we can see how commodity prices can impact our earnings from Hilli. So based on forward Brent and TTF prices, Hilli is expected to generate an adjusted EBITDA net to us of approximately $273 million this year and a total free cash flow of $185 million. Going forward, 2025's [ debt ] service, including principal amortization is expected to come down to $80 million, resulting in total free cash flow net to us of approximately $126 million from Hilli alone.

Turning to Slide 16. This quarter, we reached a significant milestone in our Gimi contract, with the execution of the commercial reset with BP. This contract amendment settled all existing disputes and greatly simplified the contractual cash flows during the commissioning phase. We now expect to receive approximately $220 million in pre-COD compensation inclusive of milestone bonuses, of which approximately $130 million were being invoiced in 2024. Of this amount, $78 million has been received in '24 until today.

Thanks to this commercial reset, we're also able to advance the refinancing of the existing Gimi debt facility, potentially unlocking up to $500 million in liquidity [ plus ], which I'll discuss further on the next slide.

Our balance sheet remains strong, with ample flexibility to support our growth initiatives. After the $300 million bond issuance in September, we're well positioned to manage our upcoming bond maturity next year, with no significant debt repayments expected beyond our asset level debt until 2029.

The significant existing backlog of $4.3 billion from Gimi supports further debt optimization beyond our currently $700 million facility. We're actively engaged in advanced discussions with potential lenders, and are making solid progress towards securing credit approvals and finalizing contract negotiations.

Similarly, with Hilli's backlog approaching $7 billion, we see a strong potential to unlock significant liquidity from it. Currently, the asset level debt stands at approximately $570 million, providing us with also ample room for optimization.

When we look at the Mark II project, we have fully equity funded approximately $400 million to date. We have also received indicative financing terms for around $1.2 billion of asset level debt for the Mark II. However, we believe that once the charter is secured, we are confident in our ability to raise a significantly larger amount at even improved terms, potentially targeting a financing amount equal to 4 to 6x its contracted EBITDA.

So in summary, our strong backlog of over $11 billion from Gimi and Hilli, combined with the potential for significant liquidity release based on ongoing disclosures for additional debt financing, gives us significant financial flexibility. This positions ourselves very well to optimize our capital structure and continue to support our growth initiatives moving forward.

With that, I'll hand the call over to Karl for his closing remarks.

[Karl Staubo, executive]

Thanks, Eduardo. Turning to Slide 19 and some of the key milestones for '24 and our focus for '25. So this year, we have seen some major milestones in the development of Golar. We delivered our second FLNG unit to BP offshore Mauritania and Senegal in January this year. As the project was not ready to start sending us gas at that time, we entered into negotiations with BP to agree a commercial reset of pre-COD contractual arrangements. We're pleased to say that, that reset was met in August, with the benefits that Eduardo just explained.

In July, we reached another key milestone for the company in signing definitive agreements for a 20-year charter with Pan American Energy in Argentina. In light of the recently received reservation notice, this will utilize Hilli with an adjusted EBITDA backlog of $6 billion before commodity exposure.

In September, we issued a $300 million unsecured bond. And just after we FID-ed our third FLNG, the Mark II FLNG with a 3.5 MTPA capacity.

Our action list or focus for '25 is to refinance the Gimi, as just explained by Eduardo, to conclude the conditions precedent under the 20-year contract with Pan American, to secure a charter for the Mark II FLNG and thereafter, secure asset-level financing for the vessel. Once that is locked in, we are planning to execute on our option for a second Mark II to provide further FLNG growth.

So turning to Slide 20, the last slide of the presentation, and to explain what this could mean in numbers. Based on our target to secure a charter for the Mark II on order, Golar could double our FLNG earnings and EBITDA backlog within next year. Based on the 20-year contracts in place for Gimi for BP and Hilli for Pan American, we have an EBITDA backlog standing at approximately $11 billion before commodity exposure today.

If we assume a Mark II contract at similar terms to the Hilli contract entered into in July, we could see the EBITDA backlog increase to over $20 billion before commodity exposure. Again, we're targeting to secure search contract within '25.

Due to the strong balance sheet and financial flexibility, this cash flow and backlog growth is feasible, whilst maintaining shareholder returns that we already have in place and continue to increase them as we derisk the backlog and continue to get units on stream. There's further upside to the backlog from commodity-linked earnings, and that will then be an add-on to the overall earnings we see.

Each Mark II unit has the potential to add around $500 million of annual adjusted EBITDA based on contracts at same terms as they recently entered into Argentina contract. We have secured an option for a second Mark II with delivery in '28, which then would more than double our capacity to 12 MTPA run rate.

That concludes the prepared remarks for our Q3 presentation. I'll now hand the call over to the operator for any questions. Thank you.

[Operator]

[Operator Instructions] And now we're going to take the first question. And it comes from line of Ben Nolan from Stifel.

[Benjamin Nolan, analyst]

Great. I wanted to -- for my first question, I wanted to just dig in a little bit on what's happening in Argentina, if you could. Specifically, it sounds like the Hilli is definitively going and there's not really an option to move it elsewhere, just to clarify that. But then also, there's been a lot of movement between Pan American and YPF and the various projects. Can you maybe just sort of level set how you see the Argentina LNG development playing out from your perspective?

[Karl Staubo, executive]

Ben, so as we explained, the Vaca Muerta is the second largest shale discovery in the world with 300 Tcf. Local consumption in Argentina is around 1 Tcf a year. So there's plenty of capacity to provide for export, and the 300 Tcf are currently hostage to the Argentina domestic market.

In light of the new government in place, there's now a strong drive to enable LNG exports. You're right that there's a lot of different talks in terms of how big you should lead it and so forth. What seems to be clear to everybody is that the Pan American contract utilizing Hilli will be the first outlet for Argentinian LNG exports.

As explained earlier in the presentation, both Pan American and Golar would welcome other Vaca Muerta gas resource owners to partake in the project, to give further gas supplies, but also to provide for FLNG growth. We also think that if we were to source the Mark II on order, that would be the second fastest available liquefaction capacity to Argentina, only beaten by Hilli. So if they are true to the ramp-up of their ambitions of exports, both of those assets should see a home in Argentina, but first and foremost, Hill is now locked in through the reservation notice received in October.

[Benjamin Nolan, analyst]

Okay. And there's no option for that to move somewhere else? Correct?

[Karl Staubo, executive]

That's correct. The reservation notice has been given.

[Benjamin Nolan, analyst]

My second question maybe is for Eduardo. You are talking about -- first of all, continuing to progress on the refinancing of the Gimi that would bring cash out. And then you're talking about potentially after getting a contract on the Mark II, being able to finance more than you're paying for it really. Maybe could you talk to your capital allocation thinking if you are able to do those, then you're going to have a whole lot more cash coming in than it's going out. How are you thinking about sort of what's the right thing to do with that capital? How do you see it playing out?

[Eduardo Maranhao, executive]

Yes. Ben. So I think just starting with the first point here. So when you look at the Gimi refinancing, you're right, we're making further progress on the proposed refinancing that we have been discussing for the last quarter. Right now, we are targeting at $1.4 billion of total financing, and we are in advance of the discussions with potential lenders.

When we look at the Mark II financing, and I think the statement we made in the presentation of between 4 to 6x the contracted EBITDA, I think this is largely driven by the reference or the data points that we have on the current Gimi finance. So if we're targeting $1.4 billion based on a $250 million EBITDA, I think that falls within that range. And we believe that once we have a charter in place for the Mark II, we could be in a position to reach such amounts.

We also have received, as we also stated in the presentation, indicative terms for a proposed $1.2 billion asset level financing for the Mark II. However, this financing would be based on the situation as is. So basically on a situation without a contract. So we believe that once we secure a charter, we could be in a position to also significantly improve the commercial terms of that facility.

And I think the last point with regards to capital allocation, I think Karl touched on that one during the presentation as well. We continue to -- we have plans to maintain our dividend policy as we have today, and we expect to further increase the dividend payments as soon as we derisk our existing projects. So we are progressing with the commissioning of Gimi. And as soon as we reach COD or around that time, we could be in a position to further increase our dividend payment.

And I think our ambition is to further grow our FLNG portfolio. So we have an option to further develop a second Mark II, which, I think, provided that we have visibility on earnings of that contract and we continue to execute on our commercial strategy, we would have the financial ability to take on that project.

[Operator]

Now we're going to take our next question. And the question comes from the line of Chris Robertson from Deutsche Bank line.

[Christopher Robertson, analyst]

I was wondering if you could speak a little bit more on the option you have for a second Mark II at the CIMC Raffles yard. I think at one point, you had communicated that the option had an expiry at the end of the first quarter. But it now it sounds like you have some greater flexibility there, which is good. So I guess, could you talk around when that particular option expires? Is it just throughout the full year of 2025 and a little bit more around what exactly you would need in place to move ahead with the conversion of a second Mark II asset?

[Karl Staubo, executive]

Chris, so you're right. I understand what you're referencing when you say Q1. So what we did say at that point in time is that in order to meet the '28 delivery, the critical item is some of the long-lead items. So similar to what you saw we do on the first Mark I is that we started committing to some longer items before FID-ing the project. And this is, just for us, a little bit of cautiousness in terms of securing an attractive delivery slot without taking on the full risk of the EPC before we secured a charter on the first Mark II.

So there is more flexibility in terms of the EPC contract with the shipyard in Q1, but you do want to see some commitment on long-lead items starting within Q1. And that's really the gating item. Obviously, when you're a repeat buyer of the same equipment, because we're building 2 units or could be building 2 units in relative parallel, there are some advantages with the equipment suppliers as well in terms of lead times versus what we received when we did the first Mark I. So obviously, always easier to be a repeat customer than a new customer. But within Q1, we should make some long-lead commitments. And I think in terms of the EPC contract itself, we have more flexibility than [indiscernible].

[Christopher Robertson, analyst]

Okay. Great. That's helpful. And then my second question, just turning to the Tortue project for a moment. I believe BP and Kosmos were evaluating other types of LNG technology beyond FLNG for the Phase 2 development. Just given the recent commercial reset, and the possibility that a second Mark II asset could be available by 2028 and what could potentially fit into that Phase 2 ambition, are you guys in discussions at all with the Tortue partners around potentially taking an FLNG asset as opposed to some of the other technologies that they were considering at one point?

[Karl Staubo, executive]

We normally don't comment on specific projects like that, other than when we've signed contracts that have been made public. The only thing I'd say is that for the first phase, Kosmos and BP found FLNG to be the most economical and best viable way of monetizing that unit. Since then, I think the FLNG market has proven to become even more of an industry standard, and more people like BP and Kosmos have found FLNG to be the best way of monetizing gas reserves. Certainly, many of the neighboring countries in West Africa are utilizing FLNG technology. So I would think it's very natural that FLNG is at least one of the options they consider, and there are benefits in utilizing the same operator, of course, and there's many synergies, both in terms of offloading, crewing, spare parts and so forth. But in terms or discussions, we're not disclosing anything. And that's our counterparts do.

[Operator]

And the next question comes from the line of [ Christopher Bass Kay ] from Arctic Securities.

[Unknown Analyst]

Can you comment -- please comment a bit on the 10% stake in Southern Energy. What should we expect in terms of CapEx here going forward? And if the CapEx element, if that's thing proportionate with the ownership stake? And additionally, what is the fair CapEx assumption for Hilli between the existing Perenco contract and contract with Pan American Energy? I assume there's a cost element associated with upgrades and movement there.

[Karl Staubo, executive]

Chris. So I'll take the first part, and then Eduardo, you can add on the second [ leg ]. But the cost element on redeployment, what we're saying is that you need to disconnect in Cameroon. You then need to physically travel to a shipyard that needs to do overall work to provide for 20-year continuous operation. And then sales to Argentina to connect. So what we currently estimate is $200 million to $300 million for the total voyage. That includes bunkering crew, tug and FLNG upgrading work. That's the all-in cost of moving, $200 million to $300 million.

On the South American Logistics, Eduardo, do you want to cover that one?

[Eduardo Maranhao, executive]

Yes, sure. So when it comes to Southern Energy, based on our 10% stake, we have entered as part of the definitive agreements into the final forms of the joint venture agreement with Pan American Energy, which stated an indicative budget for the project. That budget is still subject to further review. But as of today, we estimate an amount between $50 million to $100 million of CapEx commitments, which would be attributable to us.

[Operator]

And the next question comes from the line of Alexander Bidwell from Webber Research & Advisory.

[Alexander Bidwell, analyst]

So taking a look at [ Mark III ], what do plans sit for that new build unit? And is there a particular driver that would lead you to select Mark III over a Mark II?

[Karl Staubo, executive]

Alexander, so when it comes to the Mark III, that's a 5 million tonne per annum unit. And as you correctly point out, it's a new build from scratch and not a vessel conversion. Hence, it has a longer construction time, a higher CapEx per tonne, and it's obviously a very large capacity. Hence, we are unlikely to order a Mark III on speculation. We would only do that against a firm contract.

So there are currently no immediate plans to FID such a unit for the reasons you just mentioned, that it's expensive, it takes longer. And based on the yard capacity of the shipyard we would utilize, would likely deliver at the very end of the 2020, so late '29, early 2030 if ordered today. So we see a better value proposition in going for the Mark II. Do you think that would change that is if we do a back-to-back contract for the Mark III that we deem to be attractive.

[Alexander Bidwell, analyst]

All right. And then for my second question, looking at Macaw. So back in Q1, you mentioned you guys would evaluate a separate listing in -- sometime towards the end of 2024. What are your plans with Macaw stand right now? And is a listing in the cards for 2025?

[Karl Staubo, executive]

So yes, you're right that these things go and there's always some tweaking to the design when you go from design phase to live hydrocarbon testing. As we explained in the presentation, the unit has now sold its first ISO containers from flare gas production, but we are tweaking the unit to better deal with the significant intraday changes in gas quality flows from U.S. shale gas. And once we feel that, that's in a more stable territory, we will revisit the thoughts of a separate listing or a business separation of that unit. And that is now a 2025 event, but we have had industrial interests that have been on site to inspect the unit and the technology, and express an interest in continuing to or to gain exposure to the technology and Macaw as a business. So that's an alternative to a separate listing.

[Operator]

[Operator Instructions] And the question comes from the line of Liam Burke from B. Riley Financial.

[Liam Burke, analyst]

You've got the second Mark II slated for 2028. What does the backlog of potential credible inquiries look like? And to give you a sense as to what the cadence would be as you roll out further FLNGs.

[Karl Staubo, executive]

There's plenty of stranded gas reserves in the world. And I think several of the projects we're in discussions for is for more than one unit, including the discussions we've been having in Argentina. So some of these reserves, it's just a matter of getting to first gas. And once you do, you can see expansion. That's true for BP's plans on the Tortue field, whether it's an FLNG or not for the expansion plans. It's true in Argentina and in several other locations that we're currently in discussions for. So I think in addition to new developments, which there are plenty of, there's also expansion of existing that we see as the biggest potential.

And as alluded to earlier on one of the previous questions here, there are some operational synergies that has a real cost advantage to the gas research owner. If you put more than one unit in relative proximity. When it comes to demurrage of loading crude boats, tugboats, spare parts and so forth, that equates to a real saving on [ $1 ] per MMBTU basis, which makes the FLNG alternative even more competitive. So we think that the fact that there are more people now looking into FLNG and the design and operational track record are growing in acceptance is one that we find to support our growth ambitions and also the fact that we're constructing this is around half the cost of where you see incremental capacity being brought on stream in the U.S.

[Liam Burke, analyst]

Okay. And just touching on an earlier question, are those inquiries -- I mean, are there enough of -- for greater capacity than the 3.5 MTPA?

[Karl Staubo, executive]

Yes, it really depends on 2 things: the size of the reserve and the flow, the gas flow. So the GTA project Phase 1 was originally scheduled to be 10 MTPA. The Gimi is just around [ 2.5 ] of production. So then theoretically, there's plenty of capacity there.

In Vaca Muerta, we're talking or YPF in LNG Argentina are talking about [ 15, 20 ] MTPA. And you have several fields like these, not several fields like Vaca Muerta, but several fields like the DTA around the world, so sort of 25 to 30 Tcf that supports easily 10 MTPA of annual production. So the answer is yes.

[Operator]

And now we're going to take our last question for today. And the question comes from the line of Sherif Elmaghrabi from BTIG.

[Unknown Analyst]

First, in the summer, you signed an FLNG agreement with NMPC. Can you just give us an update on how that conversation is going? And are you still thinking we could see a Nigerian LNG project sanctioned by year-end?

[Karl Staubo, executive]

So you're right that we signed the development agreement with NMPC. The target in the project development agreement was by year-end. That seems less likely to us that the Nigerian projects will move forward within this year, mainly because I don't think they have right now a project that's suitable for the FLNGs available. But there's certainly enough reserves in Nigeria and under NMPC's control that they could utilize a Mark II, but to see that happen within '24, we see as unlikely, but they are one of the contenders when we say that we think we'll have the unit contracted within '25.

[Unknown Analyst]

Got it. So then thinking about other contenders, back to Argentina, what needs to happen to get the land-based infrastructure up to speed to handle a second FLNG unit? And more importantly, do you have a sense of how long that might take?

[Karl Staubo, executive]

So what you need is a designated pipeline because Hilli is utilizing spare capacity in the existing network, but it's not sufficient spare capacity in the existing network to go beyond Hilli. So if you want to expand beyond that, there needs to be a designated pipeline from Vaca Muerta to the FLNG location.

Work on search pipeline has started. We estimate, together with the local pipeline companies, a construction time of around 2 years. The plan would be to make the pipeline alongside an existing oil pipeline that's currently under completion. So right of way and the actual location of the pipeline has been identified, and it's a matter of getting financing and FID-ing it.

It's a bit of a chicken and the egg situation because there's no pipeline without incremental FLNGs and there's no incremental FLNGs without the pipeline. So they need to be developed in tandem, but it takes shorter time to construct the pipeline than the FLNG.

[Operator]

Speakers, there are no further questions for today. I would now like to hand the conference over to Karl Fredrik Staubo, for any conclusion. Thank you.

[Karl Staubo, executive]

Well, thank you all for dialing in. It's been a very eventful quarter. We're very pleased with the development, and I think we have a very clear focus for the year ahead. We are working hard to execute. Thanks for dialing in and listening to where we are, and we look forward to talking to you next quarter. Thanks again, and have a good day.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.