In the second quarter of 2024, Golar LNG Limited (NASDAQ: NASDAQ:GLNG) reported solid financial results and shared ambitious growth plans. CEO Karl Fredrik Staubo highlighted the company's successful operation of its two Floating Liquefied Natural Gas (OTC:LNGLF) (FLNG (OL:FLNG)) assets, the Hilli and the Gimi, and its strategy to more than double FLNG capacity by 2030.
Golar LNG is actively pursuing deployment opportunities globally and has secured a 20-year charter in Argentina. The company also reached a commercial reset agreement with BP (NYSE:BP), which will facilitate the refinancing of the Gimi FLNG project. Golar LNG reported operating revenues of $65 million and an adjusted EBITDA of $59 million for the quarter, with a strong cash position of approximately $630 million.
Key Takeaways
- Golar LNG aims to more than double its operating FLNG capacity by 2030, targeting an annual EBITDA of around $1.5 billion.
- The company has secured a 20-year charter in Argentina, with discussions ongoing for additional deployments in various regions.
- A commercial reset agreement with BP will allow for the refinancing of the Gimi FLNG project and provide approximately $220 million in payments across 2024 and 2025.
- Golar LNG reported Q2 operating revenues of $65 million, with an adjusted EBITDA of $59 million, and declared a dividend of $0.25 per share.
- The company maintains a strong liquidity position with approximately $630 million in cash and plans to refinance its existing debt facility.
Company Outlook
- Golar LNG is planning to order a third FLNG, Mark II, to expand its capacity.
- The company is in discussions for potential FLNG deployments in West Africa, South America, the Middle East, and Southeast Asia.
- Golar LNG intends to keep its financial investments in Avenir LNG and Macaw Energies and explore strategic alternatives for Macaw's growth phase.
Bearish Highlights
- The company acknowledges the need for additional pipeline infrastructure beyond 3.5 mtpa to support Argentinian gas exports.
- Golar LNG is focused on FLNG projects and does not plan to allocate significant capital to other ventures, such as Macaw.
Bullish Highlights
- Golar LNG sees a significant market opportunity for Argentinian gas exports and aims to be the first enabler for gas exports from the Vaca Muerta area.
- The company has a commercial reset agreement with BP, which includes an accelerated commissioning plan and an expected LNG cargo delivery to shorten the time to commercial operations date (COD).
Misses
- There were no specific misses reported during the earnings call.
Q&A Highlights
- CEO Staubo confirmed that mooring for the project in Argentina is covered by South American Logistics, and only a short pipeline is needed.
- The swap option in Argentina must be executed before the final investment decision (FID).
- Golar LNG plans to fund the Macaw project through proof-of-concept and then explore strategic alternatives for its growth phase.
Golar LNG Limited remains optimistic about its future, with a strategic focus on FLNG projects and the potential to capitalize on global energy demands. The company's financial health and solid operational performance, combined with its growth strategy, position it to take advantage of opportunities in the evolving natural gas market.
InvestingPro Insights
Golar LNG Limited (NASDAQ: GLNG) has demonstrated a strong performance in recent times, and insights from InvestingPro provide additional context to the company's financial health and market position. With a market capitalization of $3.46 billion, the company is trading at a price-to-earnings (P/E) ratio of 24.8, reflecting investor confidence in its earnings potential. The adjusted P/E ratio, taking into account the last twelve months as of Q2 2024, sits slightly lower at 24.58, which aligns with the company's solid financial results reported in the second quarter.
InvestingPro Tips indicate that management has been actively buying back shares, signaling confidence in the company's valuation and future prospects. Additionally, analysts predict that Golar LNG will be profitable this year, which is supported by a strong return over the last three months, with a 24.63% price total return. This positive trend is further highlighted by the company's significant price uptick over the last six months, boasting a 59.89% return.
For readers interested in a deeper dive into Golar LNG's performance and future outlook, InvestingPro offers a total of 12 tips, providing a comprehensive analysis for informed investment decisions. The InvestingPro product, which includes these tips, can be explored further at InvestingPro's GLNG page. As previously announced, we will consider strategic alternatives for the Macaw growth phase once the unit has proven stable operations on live well production. I will now hand the call over to Eduardo to present our Q2 results.
Eduardo Maranhao: Good morning, everyone, and thanks, Karl. Very happy to share an overview on Golar's financial performance during Q2 2024. Turning over to Slide 17, I wanted to go through some of the highlights of this quarter. Total operating revenues amounted to $65 million, with total FLNG tariffs reaching $88 million, up from $86 million recorded in Q1. This increase can be attributed to higher realized Brent and TTF-linked earnings when compared to the previous quarter. We always look at FLNG tariff, as the appropriate metric which reflects all realized liquefaction revenues, including gains on our oil and gas linked fees from Hilli. We reported total net income of $35 million in Q1. When adjusting for other non-controlling interest, the net income attributable to Golar was $26 million. This figure represents a significant improvement on a year-on-year basis when compared to Q2 2023. Adjusted EBITDA came in at $59 million, slightly down when compared to last quarter, mainly because of the recognition of preoperational expenses associated to pre-commissioning activities of FLNG Gimi. Our liquidity position remains strong, with approximately $630 million of cash on hand and expected receivables from our TTF hedges. Based on that, our net debt position at quarter end stood at $569 million. As alluded by Karl, we reached a significant milestone with BP, with the execution of the commercial reset for our FLNG Gimi. We are now able to refinance our existing debt facility of $700 million, out of which only $630 million has been drawn to-date. We are in advanced discussions with potential lenders, and a new facility is now in the credit approval process. This potential new facility offers improved terms with lower financing costs and improved repayment profile versus the current one. We expect to release up to $500 million of additional liquidity net to us upon closing of this new facility. And lastly, this quarter we are declaring a dividend of $0.25 a share, with a record date on the 26th of August and payments on or around the 3rd of September. Now moving to Slide 18. So Hilli maintained 100% economic uptime in its market-leading operational track record. Here, we can see the evolution of Hilli's EBITDA contribution over the last quarters. We're looking on a quarterly basis. Hilli generated $64 million in Q2. This number is inclusive of $29 million from base tolling fees and around $35 million from Brent and TTF-linked fees. We have recently seen higher Brent and TTF prices, so it's important to reiterate that we continue to be exposed to Brent and TTF. So should prices continue to improve in the coming quarters, we should expect increased distributions from Hilli until the end of its current contract. Moving on to Slide 19. So based on current forward prices, Hilli is expected to generate an adjusted EBITDA net to us of approximately $275 million this year. I wanted to highlight that this figure is higher than the amount seen in 2022, when we had higher contribution from Brent and TTF because of higher global energy prices. The 2024 asset-level debt service including principal amortization is expected to come down to $88 million this year, resulting in total free cash flow net to Golar of approximately $190 million in 2024. At the end of Q2, the total debt outstanding for Hilli stood at $577 million. Another great feature from the announcement of our contract with Pan American (TSX:PAAS) is that it could also enable refinancing of this existing facility which could release significant liquidity to us and provide even more flexibility to our balance sheet. Let me now hand the call over to Karl for some closing remarks.
Karl Fredrik Staubo: Thanks, Eduardo. That brings us to Slide 21, which is a summary and next steps. So on Hilli, we maintained a market-leading operational track record, and we are very pleased to have entered into definitive agreements for a 20-year redeployment in Argentina starting at the end of the existing charter. On Gimi, another milestone in concluding the new pre-COD commercial arrangements and accelerated commissioning. Our focus now is to get the unit into COD and to refinance the existing debt facility at improved terms. As explained, we are entering or closing in on ordering our third unit the first Mark II FLNG conversion expected to be ordered later this quarter with delivery within 2027. We're also pleased with the development of our FLNG growth ambitions, and we see strong prospective client interest for additional FLNG projects. As explained by Eduardo, we have a very healthy financial performance and a balance sheet to support our growth ambitions, with a liquidity of just around $600 million, continued focus on shareholder returns and strong cash flow generation potential in new FLNG contracts. All in all, we are very pleased with the progress made in the quarter, in particular on our existing assets, business development and interaction with both existing and prospective FLNG clients. We're excited about the next phase of the company development and our focused growth ambitions to more than double our FLNG capacity by 2030. That concludes the quarterly presentation and we'll now hand the call over to the operator for any questions.
Operator: Thank you. [Operator Instructions] We will now take the first question from the line of Chris Robertson from Deutsche Bank (ETR:DBKGn). Please go ahead.
Chris Robertson: Good morning Karl and Eduardo. Thanks for taking my questions. Karl, I just wanted to circle back on your comments around the potential swap option for Mark II in Argentina. Should we think about the expected annual EBITDA contribution then on a pro forma basis for a larger asset of being over $400 million if you decide to do that?
Karl Fredrik Staubo: Yes. That would then be pro rata for the size, yes.
Chris Robertson: Okay. Got it. And then just with regards to the conversations you are having. You've obviously laid out several regions which you're looking at now including South America, Africa, Middle East and Southeast Asia. Could you give us an idea of just how many potential counterparties you are in discussions with? I mean, the regions helped, but maybe the scope of discussions that you're having?
Karl Fredrik Staubo: I think it is fair to say that the number of counterparts is still concentrated around both West Africa and South America. There are fewer number of clients both on the Middle East and the Southeast Asia opportunities. But we are still very happy with the quality of those discussions that we are having there in both those locations. But the concentration of magnitude is West Africa and South America.
Chris Robertson: Got it. I’ll turn it over. Thank you.
Karl Fredrik Staubo: Thank you.
Operator: We will now take the next question from the line of Ben Nolan from Stifel. Please go ahead.
Ben Nolan:
.:
Karl Fredrik Staubo: That's a good question. So first and foremost, gas resources are plentiful. Like if you compare this to what's deemed to be very large gas discoveries for example, like the Greater Tortue area where Gimi operates, that's a 25 TCF reservoir. Vaca Muerta is 300 TCF. So there is more than sufficient gas, it is onshore and it's relatively easy to extract. Hence, the market opportunity for Argentinian gas exports is massive, probably beyond what just Golar can deliver anyway. We think that the attractiveness of what we can deliver is certainty of supply through a proven assets and with very tangible delivery. We know when Hilli comes off contract. And if we do place the order for Mark II within this quarter, we do know when we have delivery of that vessel, and that's further derisked by the progress made on the long lead items for that asset. So we see as our role to be the first enabler for Argentina or Vaca Muerta specifically, gas exports. The gas is plentiful. And the only, call it the key thing you need to cross is to have a designated pipeline in order to bring the gas to the export side. The existing infrastructure supports at least one FLNG, in order to go beyond that, you need to expand the existing pipeline system.
Ben Nolan: Okay. And would you need -- hopefully, I can get one more. But would you need a bigger pipeline for Mark II versus the Hilli? Or would either -- the existing infrastructure work for either?
Karl Fredrik Staubo: That's why we have substitution right on the first one. So on the first one, you could utilize either Hilli or Mark II. If you go beyond one unit i.e., beyond 3.5 mtpa, you need to look into the pipeline infrastructure.
Ben Nolan: Got it. So my second question as it relates to sort of all of the other opportunities, obviously, Argentina, there is potential for multiple units. But as you are thinking about sort of the opportunity set elsewhere, appreciating that it is diverse. But can you maybe talk through how many of those you think are like single unit kind of situations? Or do you see a lot of situations where there potentially could be multiple units and that would be needed?
Karl Fredrik Staubo: I think if you map out where stranded gas is in the world, it is extremely plentiful, but where it's most obvious is in West Africa. You have very, very large resources of stranded gas sitting in the ground, that could be developed significantly cheaper than for example, incremental US LNG export projects. The shipping distance to end markets, both in Europe and the Far East is shorter, and we believe we can construct FLNG units at the CapEx per tonne at around half the price of where you can create incremental tonne on CapEx per tonne in the US. The competitive advantage of these projects is very significant. The gas is proven and plentiful. So that's where you see the biggest opportunity. And obviously, in addition to areas like the Middle East, they have more than enough gas, and the same is true for certain pockets of South America. But it is basically South America, West Africa and to some extent, Middle East, that could see multiple units. The Southeast Asian opportunities is one unit initially.
Ben Nolan: Right. Okay, thank you.
Operator: Thank you. We will now take the next question from the line of Craig Shere from Tuohy Brothers. Please go ahead.
Craig Shere: Good morning. And thanks for taking my questions. So how quickly could you secure a Hilli refinancing? Could that be a first half 2025 event?
Karl Fredrik Staubo: That can certainly be a 2025 event, yes. So I think once all of the subjects and FID on the project is taken which we explained is expected later this year, it would be natural to look at refinancing initiatives into next year, yes.
Craig Shere: Great. And do you have a second Mark II sold for conversion identified? And when would you have to issue FID for a second Mark II to meet that 2028 delivery?
Karl Fredrik Staubo: Yes, there are plenty of so-called Moss design ships that you can acquire in the market today that are operating as LNG carriers today. And we have identified several vessels that could be suitable candidates. And some of them, we have previously also inspected. FID, if we were to go on the second Mark II, would have to be based on current positions unless we manage to improve them around -- within Q1 '25.
Craig Shere: Thank you.
Operator: Thank you. We will now take the next question from the line of Liam Burke from B. Riley Financial. Please go ahead.
Liam Burke: Yes, thank you. Good morning Karl, good morning Eduardo.
Karl Fredrik Staubo: Good morning.
Eduardo Maranhao: Good morning.
Liam Burke: Karl, we saw the addition of a new fortress to the FLNG providers. Obviously, it's smaller capacity, it is for internal consumption. But are you seeing any other -- understanding these are tough projects to do, but the economics are pretty attractive. Are you seeing anybody else stepping up and trying to provide FLNG as a service?
Karl Fredrik Staubo: So there is one project that has FID out of Samsung (KS:005930) now, which is called Cedar LNG, which is backed by Pembina for an LNG export in Canada. So they're doing that, but they are doing it against locked-in offtake. It's a quite -- I think it's been 15 years in the making, that project. It used – it is former Golar employees that does it, and it was a project that initially was started under Golar. Other than that, we do see people having initiatives, but we haven't seen yet other contenders that have the in-house engineering or operational or financial balance sheet capability to lift such projects, no.
Liam Burke: Great. Thank you. And on your outside investments, how are you balancing future FLNG projects? Now potentially, you have two more on the books versus some of your outside projects like Macaw and Avenir.
Karl Fredrik Staubo: So if you look at Golar over the course of the last three years, basically after Eduardo and myself came in, we've tried to streamline the companies from a diversified fleet portfolio to a very focused FLNG company. Avenir LNG is one legacy investment that we haven't disposed for a number of reasons, but it was an investment made when we owned Golar Power. We like the supply/demand dynamics. We have invested around $50 million. And right now, it is an investment that we have strong belief in and therefore want to keep. We are not planning to deploy incremental capital into it, but we do want to reap the benefits of the investment. When it comes to Macaw. Macaw, the way we see it is a replication of what we are doing in the maritime environment at a smaller scale onshore. But the whole trick is that you capture flare gas that would otherwise be burned into the atmosphere. So i.e., the cost is extremely low of the input, and there is significant environmental benefit of if you managed to crack this solution. So on Macaw, what we're trying to do is to leverage on the technological capabilities of the Golar organization to utilize the same or to capture the same market opportunity that we do at large scale in the maritime environment at smaller scale onshore. However, there should be no confusion that Golar's focus is to grow on FLNG, and that is our focus, and we are not planning to divert any significant capital elsewhere.
Liam Burke: Great. Thank you Karl.
Operator: Thank you. We will now take the next question from the line of Alexander Bidwell from Webber Research & Advisory. Please go ahead.
Alexander Bidwell: Thanks for taking my question here. Just jumping back to Argentina. With the project requiring minimal infrastructure investment, could you provide a little more color on what infrastructure is actually required? Are we talking mostly offshore mooring or an offshore jetty subsea infrastructure? And then how much of this infrastructure would be specific to the asset that's deployed, so either Hilli or Mark II?
Karl Fredrik Staubo: The key things that is required is, as you correctly point out, mooring, mooring is covered by South American Logistics, and a short pipeline from the existing grid to sites and the site selection.
Alexander Bidwell: Right. Thank you. And a quick follow-up. For Mark II and that swap option in Argentina, I thought I heard you say that the swap had to be executed before FID. Is that correct?
Karl Fredrik Staubo: Yes.
Alexander Bidwell: Okay, thank you very much.
Karl Fredrik Staubo: Thank you.
Operator: Thank you. We will now take the next question from the line of Chris Robertson from Deutsche Bank.
Chris Robertson: Hi, guys. Thanks for taking the follow-up question from me. I just wanted to return to Macaw for a moment here. And Karl, you mentioned about not being confused with the focus on FLNG. So with regards to Macaw, is there any potential that you could license out the technology given that you have patent control over it rather than taking -- doing the undertaking yourself?
Karl Fredrik Staubo: Sure. So what we've said quite clearly since we initiated Macaw is that we want to fund it through proof-of-concept. Once proof-of-concept is achieved, hopefully in the relatively near term, our ambition then is to look at strategic alternatives for the growth phase. Golar is not intending to have Macaw fight for our balance sheet resources. And therefore we are looking at any type of structure that could benefit the technology that has been created at Macaw without compromising any of our FLNG growth ambitions.
Chris Robertson: Got it. That’s really clear. Thank you Karl.
Operator: Thank you. I would now like to turn the conference back to Karl Fredrik Staubo for closing remarks.
Karl Fredrik Staubo: Thank you all for dialing in. We are very excited about the quarter that just passed and the direction of where the company is going, and we look forward to talk to you again next quarter. And hopefully, we're then engaged on our FLNG growth phase. Thanks again and have a good day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.