Thank you, speaker, and welcome to Golar LNG's Q1 Earnings Release. Thank you for taking the time to dial in. My name is Karl Fredrik Staubo, the recently appointed CEO of Golar LNG. Before we get into the quarterly results, please note the forward-looking statements on slide two. I'm joined today by Mr. Eduardo Maranhao, who's taken over my former role as CFO of Golar. Eduardo was formerly the CFO of Hygo and is well known to the majority of Golar's stakeholders. We are together looking forward to contributing to the continued success of Golar. Turning to slide three for Q1 highlights. We report adjusted EBITDA for the quarter of $78 million and net income of $25 million, both ahead of consensus estimates. Our shipping portfolio achieved a TCE of $61,700 a day for the quarter, and our shipping revenue backlog stands at $187 million at quarter end.
Hilli continues to deliver 100% uptime, with the 56th LNG cargo currently being offloaded. Gimi remains on schedule and is currently 69% technically complete. During Q1, we announced, and on April 15th, closed the sale of Hygo and the MLP to New Fortress Energy. The transactions will be accounted for in our Q2 numbers, but it's expected to generate an accounting book profit in excess of $650 million, and increase liquidity and liquid assets with around $900 million. We have initiated the announced buyback program of up to $50 million, with 1.2 million shares bought back to date. Our cash balance as of Q1 stands at $245 million and does not include sales proceeds from NFE transactions. I'll now turn the call over to Eduardo to take us through the first quarter numbers.
Thanks, Karl, good morning to everyone. I'm excited to provide an update on our financial results for the first quarter of 2021. Turning on to slide five, we can see that the group had a very strong performance in Q1. Total operating revenues for the first quarter were $126 million, which was 7% above the numbers that we had in Q4 of last year. Adjusted EBITDA came in at $78 million and was in line with the previous quarter. A key driver for this performance came from the higher utilization and higher charter rates of our carrier fleet, which contributed to total revenues of $63 million. We were able to execute on our shipping strategy and increase TCE rates up $10,000 a day from the last quarter. FLNG revenues from the Hilli came in line with our expectations at $54 million.
Although lower than the previous quarter when we had the effect of overproduction revenues from past years, those numbers reflect the exceptional operational performance of our team, which again delivered 100% commercial uptime. The commencement of operations of our long-term O&M agreement with LNG Croatia resulted in higher management fees, which have also contributed to the increase of our other operating revenues totaling $9 million in the quarter. Net income was at $25 million, which is $17 million higher than the previous quarter. This was mainly driven by improvements in non-cash mark-to-market gains in our interest rate swaps following favorable rate movements. On the financing side, our net debt position at the end of Q1 was just close to $2.1 billion and slightly higher than Q4. That was mainly driven by the $45 billion drawdown under the Gimi facility.
We're going to provide further updates on that later on in the presentation. At the end of Q1, our total cash position, as previously mentioned by Karl, was $245 million, and that did not take into account the sales proceeds from the NFE transaction. Moving on to slide six. The closing of the Hygo and GMLP transactions last month have further enhanced our liquidity position. With $150 million of unrestricted cash on hand at the end of the quarter and $131 million of cash proceeds received on April 15th, our balance sheet has been materially strengthened. Based on yesterday's closing price, our stake in NFE is now worth close to $800 million, and that creates a lot of optionality to our funding strategy. Considering that, we have now over $1 billion in liquid assets, as you can see on the left-hand side of the slide.
We are now well-positioned to meet our existing CapEx commitments and also to fund future attractive investment propositions. I wanted to highlight that our focus for 2021 will be centered on optimizing our debt structure, which includes the refinancing of our April 2022 convertible bond. We're going to continue to further simplify our group structure, and we will also looking forward to focus on the FLNG and upstream business development. With that, I'll turn the call back over to Karl.
Thank you, Eduardo. Turning to slide eight and our shipping performance. As mentioned, our shipping TCE for the quarter came in at $61,700 a day. We have fixed 90% of remaining vessel days for 2021. Out of the 90% contracted days, 19 is index-linked, and 71% is on fixed-rate charters. We took a cautious approach to shipping exposure coming into 2021, as we saw around 50 newbuild deliveries coming this year, where about two-thirds of deliveries have charter parties and one-third of newbuilds remain open. We are however positively surprised by the strong LNG freight rates we're currently seeing despite normal seasonal weakness during spring and summer months. This furthermore supports our positive outlook for our shipping segment going forward. In line with our increasingly optimistic outlook for shipping rates, we have an increasing exposure to LNG freight rates through floating rate charters and vessels coming off fixed charters.
We have 3% spot exposure for the second quarter, 11% for Q3, and 40% for Q4, aligned to match the normal seasonal strengthening of LNG freight rates as we enter the winter months. For Q2, we expect to see TFDE TCE rates of around $47,000 a day with 98% fleet utilization on the back of our high contract coverage rate quarter. Turning to slide nine. We are increasingly optimistic about the future outlook for LNG carriers. The total current LNG fleet on the water stands at 597 ships. The fleet comprise of 254 steam carriers, 183 TFDE carriers, 44 Q-Flex and Q-Max, and 116 mega ships, plus another 130 on order.
On the supply side, we believe the order book will be offset by less efficient steam carriers coming off their long-term charters and facing new and stricter emission standards, forcing these vessels to slow steam or be uneconomical for international trading. By number of vessels, the 22% order book compares to 42% of existing vessels on the water being steamships. We think that more than offsets the order book. Demand continues to build with 361 million tons of LNG transported last year. According to Clarksons, one ton of LNG transported consumes 1.4 LNG carrier per year on average. With an anticipated growth over the next three to four years of almost 100 million tons, this assumes 140 incremental ships needed.
Furthermore, increasing distances as most of incremental volume is transported from the U.S. to the Far East consumes two LNG carriers per ton, and hence would require almost 200 ships. Lastly, the three Korean shipyards capable of building high-quality LNG carriers are filling up with container orders, and hence there cannot be any meaningful additions to the order book with delivery before 2024 at the earliest. This makes us very optimistic to the medium and longer-term outlook for LNG carriers, and we are positively surprised by the current seasonal strength in a year of 50 new build deliveries and a demand side still negatively affected by COVID. Turning to slide 10 to elaborate on some of the environmental regulations coming into play. First and foremost, the EEXI, which stands for Energy Efficiency Existing Ship Index, will come into play from 2023.
EEXI is a pledge made by IMO to work towards reducing CO2 emissions by 50% within 2050. That's still far ahead, but due to the long life of assets operated in the LNG industry, this is in many ways a current problem. Additionally, the first goal after 2030, IMO targets 40% cut in carbon intensity. IMO will require all ships across all segments to comply with a commonly agreed index before 1st of January 2023. In order to meet these requirements, all ships trading in international trades need to take action in form of either reducing speed, change to cleaner fuels such as LNG, ammonia or hydrogen, or make other retrofits to the ship designed to increase energy efficiency. For LNG shipping, this will likely result in slow speeding or redundancy of a significant part of the steam carriers.
As mentioned on the previous slide, this represents 42% of the global LNG carrier fleet. Turning to FLNG and starting with Hilli on slide 12. Hilli continues to operate with 100% commercial uptime with its 56th cargo currently being offloaded. We made continuous progress with respect of increased utilization of the Hilli. We have executed all documentation required to remove any production caps on gas reserves and to enable production above the current contract capacity. We are in advanced discussion for additional production anticipated to start up in first quarter of next year. In addition, we would like to remind you that we are now in a territory where we will recognize Brent linked earnings from the second quarter of this year. Golar makes $2.7 million in annual EBITDA for every dollar the Brent curve is above $60.
Based on current Brent forward curves, we expect to continue to see Brent contribution for Hilli in the coming years. Turning to page 13 and an update on Gimi. The conversion project is now 69% technically complete, on track, and on budget. We have surpassed 9 million man-hours with around 2,400 yard workers currently allocated to the conversion on a daily basis. The vessel's fifth and final dry dock has seen all remaining sponson blocks attached to the vessel and is on schedule to be completed within this quarter. Gimi is expected to sail away from Singapore in the first quarter of 2023. It will start to make commissioning revenues from the second quarter of 2023, and it will start its 20-year contract with BP from the fourth quarter of 2023 with a total EBITDA backlog of $4.3 billion.
We also note that Kosmos, BP's partner on the Tortue field, stated in their Q1 report that they are working to maximize the FLNG capacity that fits their current infrastructure. By that infrastructure, they mean the FPSO and the breakwater that the project is putting in place. That would equate to 5 million tons per year. Gimi, as a reminder, has a capacity of 2.5 million tons. In order to meet 5 million tons per year of liquefaction capacity, that will support another Mark I design FLNG, or alternatively, a Mark III design FLNG to satisfy the full 5 million tons. Turning to slide 14, we are now in a territory where the gas price suggests that LNG economics is strongest in upstream. We made an illustrative example of FLNG economics on the left-hand side.
With gas reserved and lifting costs assumed at $1 per MMBtu, $2 tolling fee, which includes a 10% unlevered return to the FLNG owner, we can deliver through FLNG technology, FOB gas at $3 per MMBtu. Based on current healthy shipping rates, shipping to the Far East would add another $1.50 per MMBtu and have a delivered LNG price of $4.50 per MMBtu. As you can see on the right-hand side, this equates to a very attractive downside versus historic JKM pricing with a very healthy upside potential. To illustrate, whenever the dark blue line is above the green line, the FLNG provider will make money. With current JKM price of $10 per MMBtu, this leaves a healthy margin for the gas producer of around $1.4 billion per year.
The risk reward coupled with gas forward prices is what drives both increased interest from majors for our FLNG tolling arrangements, as well as Golar's desire to revert our focus on integrated upstream model where we can capture more of the gas upside. We'll further elaborate what the potential economics of gas upside could look like on page 15 using a Mark III or a 5 million ton per annum FLNG. 5 million tons of liquefaction capacity equates to 250 million MMBtus per year. Hence, a $2 margin equates to $500 million in annual EBITDA. Again, current and forward LNG prices should suggest that economics for such projects would be between 2 x-4x EBITDA.
Integrated gas acquisition production is not a new concept to Golar, but we see fundamentals for this potential upside in Golar's business model stronger than ever due to the supportive gas forward prices, due to our proven track record of 100% utilization on Hilli, and lastly, because we have a balance sheet now capable of lifting such project and execute on this strategy. We're currently pursuing stranded gas and associated gas reserve that may enable the rollout of our integrated upstream strategy. We will update the market as soon as we have further developments on this one. Turning to corporate and strategic focus, we announced today our 2020 ESG report that can be found on our website. Although ESG has been an integral part of Golar's operations since the formation of the company, we are increasing our transparency to the market on our performance.
Some of the highlights of this year's report can be found on slide 17. The carbon footprint of our FLNG technology is competitive to shore-based liquefaction mega projects. We have reduced fleet-wide carbon emissions from an AER of 9.95 to 871. On Hilli, we're now up to 35.4 local employees and have spent more than $10 million of purchases locally. We've also published our ESG targets until 2030. These are either aligned with or exceed any regulatory requirements for our fleet and operations. Turning to slide 18 and the earnings power from our existing asset portfolio. Following the sale of Hygo and the MLP to New Fortress Energy, Golar is significantly simplified, and our asset portfolio and financial performance should be easier to predict and follow.
Our shipping segment comprise of 10 vessels, of which eight are TFDE carriers, one steam carrier, and one FSRU currently operating as a carrier. The fleet is fully delivered and generated an EBITDA over the last 12 months of $121 million. The $10,000 change in rates equates to $32 million in change in EBITDA. We are optimistic that this segment will see improved performance on the back of the strengthened LNG carrier market outlook. On Hilli, we continue to see 100% utilization and with a pro rata last 12 months EBITDA generation of $93 million, we do expect to see further upside on her performance as well. This upside will be driven by billing of potential overproduction, oil derivative earnings, and execution of the advanced discussions on increased capacity utilization from first quarter of 2022.
Gimi, as mentioned, is on schedule to start up its 20-year contract for BP in Q4 2023, adding another $151 million in contracted EBITDA to Golar. We also have further EBITDA potential in uptime bonus on Gimi. Hence, we expect to see a run rate EBITDA based on the existing asset portfolio once Gimi delivers of at least $352 million versus EBITDA for last 12 months at $201 million. As previously discussed, there is significant further upside in FLNG tolling and integrated projects that may add significant further EBITDA potential. To conclude on slide 19, we are optimistic on increased earnings power for our shipping business as we are seeing stronger than anticipated current rates, a positive market outlook, and have increasing exposure to shipping freight rates through our charter portfolio.
On FLNG, we expect increased earnings from Hilli due to the oil derivative earnings and progress on discussions of increased capacity utilization. Gimi remains on time and budget. Gas price is supportive of FLNG growth. We experience increased interest for tolling business and are very excited about the potential to develop integrated gas and FLNG upstream opportunities. On corporate and investments, we have a strong liquidity position following the sale of Hygo and GMLP. This will enable financing of growth projects and debt optimization. Lastly, we will continue to work on further group simplification, likely splitting our midstream shipping business and upstream FLNG business into two separate vehicles over time. That concludes Golar's Q1 earnings presentation. We will thank you all for dialing in. I'll turn over to the operator for any questions.
Thank you. Our first question is from the line of Randy Giveans from Jefferies. Thank you.
Howdy, gentlemen. How's it going?
Hey, Randy.
Hey. First off, obviously congrats to you, Karl, on the CEO role, Eduardo on the CFO role. Seems like a great time to begin these new roles here. With that, for the LNG business first, some people are touting the Qatar expansion as somewhat unbeatable, because it's $5 or so landed cost. Your slide 14 shows that first year your FLNG projects can beat that. I guess two-part question here, any interest in participating in that tender offer for the 100 - 150 LNG carriers from Qatar? More importantly for Golar, with trains three and four having better economics, what are the hurdles and maybe expected timeline to get Perenco to ramp up trains three and four? I know you mentioned 1Q22, but any chance for an earlier commencement?
Thanks, Randy. When it comes to the Qatar tender, we're obviously aware of it. However, we believe our edge is in upstream and FLNG development, and our incremental dollar is more likely to be spent on that than shipping. We have no current plans to attend that tender.
Okay.
When it comes to Hilli and upside in production, I think most of the agreements that should sit between us and the local government and us and Perenco is close to finalized, if not finalized. There are, however, existing off-takers and other parties that need to have agreements with Perenco in place. Such agreements are outside of our control. With this gas price, it's sufficient economics for everyone around the table. Every day it's not producing is an opportunity dollar lost. We are encouraged and hopeful that we will find a good common solution for all parties. We do not expect a further ramp-up of significant incremental production. Some production we might be able to bill under the existing overproduction arrangements. Not any substantial increase until Q1 next year.
Okay. Answered everything there. Good. I guess for your balance sheet, obviously it's in stellar shape here following the New Fortress shares. I guess what are your plans for the $1 billion in liquidity? It's well above your $500 million in remaining CapEx, as you showed on that slide. You have some expensive CLOs you can repay. At the same time, your shares are wildly undervalued. Do you expect to complete the remainder of the $50 million repurchase in the second quarter? Can you provide some updated details on the convert refinancing timing and options there, as well as the NFE for GLNG share exchange?
Okay. That's a few questions. I'll start and Eduardo, please chime in as we go along. On the buyback program, you saw that we repurchased 1.2 million shares. That we basically had to stop as we entered into the blackout period prior to Q1 numbers. The initial framework we have approval for at board level is $50 million. I think it's fair to assume that as long as the share price keeps trading at a discount to both book and underlying values, we expect to continue the buyback program. Next question is on the CB. I think what we have said there is that we have a few different alternatives open to us. I think by no particular order, we could do an exchangeable offering exchangeable into NFE shares.
We could do a CB or unsecured bond on the GLNG level, or we could settle in cash, either through cash available from balance sheet or sell down of de-risk assets such as Gimi. We have several different venues of addressing that maturity. When it comes to exactly what route we are planning to take, that depends on the relative share price between NFE and GLNG. To some extent, it depends on the absolute share price of GLNG. By that I mean, if you are to do a CB on GLNG, you obviously wouldn't do it at around current levels.
Right.
Lastly, it depends on near-term growth projects. We are planning to address it during second half of this year, and the primary reason for addressing it at that point is that then we have no restrictions on any of our liquid assets and therefore are in a position to better weigh the alternatives. In the interim, we are keeping a close dialogue with Constructive Investment Bank and other investors who's proposing different alternatives, and we are keeping them on file and comparing where we think we can do the best solution.
Okay. That's noted. I guess quickly on the NFE GLNG share exchange, any additional details or color on that possibility?
We have the exchange offer or distribution of NFE shares. Which one are you referring to?
You mentioned in the press release you could exchange NFE shares for Golar common shares.
Yeah, of course. That is also down to the relative share price on NFE versus Golar. It's something we will consider once we're out of the lock-up period, which is 90 days after closing, which was the 15th of April.
Got it. All right, well, that's it for me. Thanks so much, and bye-bye.
No problem. Thank you.
Thank you, Randy.
Thank you. Our next question is from the line of Chris Wetherbee from Citi. Thank you. Please ask your question.
Morning, guys. James on for Chris. Just wanted to follow up on some of the commentary you had around the priorities, just when you think about the end markets in terms of the carrier side versus the FLNG side, and which one do you see as essentially more that where you could essentially put capital work sooner? Also along that line of questioning, is there anything that you need to tidy up before we could potentially see something along the lines of a transaction on it in either one of those two places?
Okay. I'll kick it off again. When it comes to our incremental dollar, I think where we as Golar have more of a unique edge is on upstream and FLNG. As we said in the presentation, we now delivered a 56th cargo of LNG from the Hilli and an unprecedented operating utilization of 100% in delivery. We believe that where our edge is FLNG and upstream, and our incremental dollar will go to FLNG upstream growth as opposed to shipping. However, as we've said in the presentation, we have 10 ships. We have meaningful exposure. We like the outlook, but we do not intend to add ships to our portfolio.
Got it.
When it comes to next steps in terms of when we can do either, we've just concluded a $5 billion EV transaction in selling the MLP and NFE. On the one hand, that closed on the 15th of April. I think for us, we see no immediate pressure to resolve the two. At the same time, we believe part of the reason why we're trading at a discount to the underlying value is that investors are seeking cleaner exposures to either upstream or shipping. We will be opportunistic and try to execute a further simplification as soon as we have an attractive way of doing so. There we are exploring different alternatives, both for just shipping and to also create an upstream company. We're open to either.
Got it. In terms of shipping on that side of the house, prepping it to potentially be split out or whatnot, is there any factor you're taking to your targeting strategy and potentially trying to increase coverage or anything along those lines to make it more marketable? Is there any work to be done, or is that something that really, if there is a bid for it, you feel that it could basically be separated sooner rather than later?
A little while back, 12 months or 12-18 months back, we changed our shipping strategy somewhat to take more coverage. That was driven really by two things. Number one, we saw a lot of new builds entering the market in 2021, we did not want to have too much exposure given the fact that we have 50 new builds coming to market on top of COVID. We tried to take quite a bit of coverage, and to some extent, we've been positively surprised by how strong the rates and arguably we got a bit too conservative. The second reason or driver for us taking this much cover as early as we did it was that this was all done prior to the NFE transaction, where we did not have the same balance sheet position as we have today.
We wanted to be cautious not to get any too surprising rates. However, as we try to state quite clearly on page eight, we have an increasing exposure to the market as we are very optimistic to what the outlook is. For now, I expect us to be increasingly exposed to the spot market, either through floating rate arrangements or just from vessels naturally rolling off their fixed rates charter.
Got it. I guess what I am trying to get at is if you feel that in order to do a strategic, another transaction, you just need one of three things. Basically, work done to improve the quality of the assets in one way or another.
If you think that you are in the second bucket, I guess you could say if you think that the market timing just isn't right, or in the third, if you just think you need a little bit more time given the fact that you just did a significant transaction, and it actually sounds like the assets are where you want them to be, the market timing isn't something you are taking a view on, and it is really just about putting some distance between you and the last major transaction you did. Is that the right way to think about it, or am I misconstruing that?
If there's an interesting transaction we could do tomorrow, I don't think we've had any problems doing it tomorrow. I think it's commonly known in the marketplace that we've been actively looking at alternatives to our shipping fleet, including creating a consolidation play. We do not think we need to do any high grading of our fleet. TFDE carriers are, if you like, the workhorse of the industry, and we see the pressure to be more on the steam vessels. For us, we don't expect a high grading. I think we've rested out and are complete with the NFE deal. We certainly have enough energy and the opportunism in the company that if we find the right transaction tomorrow, we're happy to go for it. For us, it's a matter of finding the right home for the shipping fleet. We like it the way it is today.
We think it's going to get better. At the same time, we do believe that we are somewhat penalized from keeping it in the same company as the upstream. We're open to resolve this as soon as we find the right home.
Perfect. Thank you.
Thank you. Our next question is from the line of Mike Webber from Webber Research. Thank you. Please ask your question.
Hello.
Hi, Mike.
Hey, guys. I want to zero in on slide 23, if you don't mind, because I think it's helpful, and I just want to make sure I'm interpreting this the right way. Your last question was around, or at least your last answer was around what to do with the carrier fleet. It certainly seems like the right analog here is in terms of the value prop for Golar as a whole is kind of like Teekay 2015, where if you can find a home for the carriers, all of a sudden the value proposition looks a lot simpler and a lot cleaner at Golar. I know you've talked to this, but I know that distributing the carriers or spinning them didn't make it onto the strategic initiatives slide on slide 23.
Given the difficulties in doing that, one another, finding a buyer for a fleet that size or presumably pumping some equity into it so there's some value there to distribute, is it fair to say that as of right now, that looks a bit more difficult than what you've listed on slide 23 in terms of distributing NFE shares and some of the other strategic initiatives?
I don't know exactly what you refer to on slide 23 in the appendix, I think when we said further group simplification, what we mean by that is basically finding a home for shipping or creating the same simplification by potentially spinning out the upstream. I think we're open to both. When it comes to debt optimization on the shipping fleet, we state in the earnings release today that as part of following the NFE transaction, we have agreed to reduce the debt on four of our ships, where we basically invest $60 million of cash into four of the ships. Reducing debt by $15 million a ship in return for a total debt reduction of $102 million. We pay in $60 million, which will be done during early part of Q3, and in return for that, we get $102 million of debt reduction.
If you want, that's a $42 million debt saving to Golar, to some extent should be seen as further enabling the shipping fleet to respond. On the other hand, if you look at the implied values of listed peers, that suggests that our shipping fleet has a value of anywhere between sort of $250 million-$350 million of equity. That's obviously fluctuating with share prices, that's where we trade it.
Right.
Book or quote is higher than that, of course.
Well, yeah, I would imagine if it had that kind of value, you could spin it off, right? I guess the question is in terms of evaluating, look, it's a difficult riddle to solve, right? You're not even the first Golar management team to try to tackle that, right? It's an ongoing question mark. In terms of the strategic options of the carriers versus, even on the slide, crystallization of hidden value in FLNG is a potential structural transaction. I think you're meaning the strategic transaction on the FLNG side. As it stands today, what's the sequence look like there? Is it more likely that you find something to do with the FLNG assets before you can do something with the carriers? Do you think it more likely you find a way to get the carriers off the books first?
Perhaps to answer where it stands right today, I think it would be shipping out FLNG LNG if FLNG an upstream company.
Yep. All right. That makes sense. With regards to FLNG, I know that you guys put some more specs around Mark III in the deck. At 5 million tons, it's obviously bigger than what you're looking at with Hilli and the initial technology. I'm trying to compare that with Fast LNG, which New Fortress has come out with recently. You guys obviously have a unique relationship there. To what degree should we look at those as competing technologies? Have you guys kind of moved a little bit to a slightly larger size of the market, where if you're looking to build something that's producing 5 million tons of LNG, are you just sniffing around different projects than Fast LNG would be?
I think we're excited about NFE jack-up as well. To the way we see it, they're highly complementary. Fast LNG is basically based on somewhat lower liquefaction capacity. It obviously stands on the seabed as opposed to float. To some extent, it's more suited for shallower waters. On the other hand, a jack-up doesn't have storage. What you gain in terms of cost advantage of the liquefaction kit itself, some of that's partly offset by the need for an FSU lying next to it. We think, and as NFE has been very clear about publicly on their calls at several occasions, we, the engineering team of Golar, are assisting NFE in developing the Fast LNG solution. We believe that the two technologies are highly complementary. We believe that the Fast LNG has one very significant advantage in being fast.
It's very suitable for certain geographies on shallow water. We think for larger stranded or associated gas projects at deeper waters, you need a floating unit simply due to water depth. In those areas, we could either use our existing Mark I, our Mark III design, which is based on a Mark I, and we're also looking into our former Mark II design, if you remember that one.
Yeah
which where we basically weld in a midstream or a midsection. We like the Fast LNG. We also like our FLNG. We don't see them as direct competitors. We see them as complementary sort of kits to exploit the same very interesting opportunity in producing cheap upstream gas.
The $2.5 million is a ballpark CapEx for Mark III. Does that involve a significant amount of kit for separation and treatment? Would you still need to find 5 million tons of pretty dry and clean gas to utilize that technology?
That's mainly based on sort of similar gas spec as a Mark I.
Yeah.
Just because Mark III, when you build, you have significantly more deck space. It is room to fit more gas treatment should you want to do that. One of the attractions of our FLNG technology is that we are not sort of custom-made to one specific gas field. We are reusable and redeployable. We don't want to make it sort of too specific. We can certainly add gas treatment. We're obviously looking at that in light of the both associated and stranded gas fields we are reviewing these days. Based on that analysis, I think the technology and the stripping opportunities we have on board should be sufficient to produce some of those fields.
Yep. Okay. One more thing, I'll turn it over. Again, on slide 23, reference to target distribution of NFE shares to Golar shareholders. Forgive me if you mentioned this publicly already, do you have a ballpark approximation of what you think you would realistically look to distribute to Golar shareholders at this stage?
I think as we say in the press release, it's linked to the relative share price of GLNG and NFE. It's linked to near-term growth projects. To some extent, it's linked to the absolute share price of GLNG. What we mean by that is if we continue to trade at very suppressed share price levels, you kind of need to distribute more of the NFE shares to your shareholders in order to unlock the value. If you can redeploy the capital in near-term attractive growth place, that can be sort of 2 x-4x EBITDA, as we highlight in the presentation on integrated upstream opportunities. To some extent, we think that's arguably even better than what investors can do if we were to distribute the cash.
For us, we will weigh the two, but we will not sit on the NFE shares just to sit on the NFE shares. We will not do it if we think we have a growth project five years out. That's not the right thing to do. We need to execute way quicker than that.
Okay. All right, guys, thanks a ton. I appreciate it.
Thanks, Mike.
Okay, our next question is from Omar Nokta from Clarksons. Thank you. Please ask your question.
I just wanted to ask about just the Hilli just a bit more to understand kind of the opportunity. When you think about the ramp-up that you're expecting or you're having discussions with for ramp-up in Q1 2022, is that based on effectively ramping up train 3? Or is it both train 3 and 4? Or is it really just sweating trains 1 and 2? Any color you can give there?
Okay. We'll try to give as much color as we can. Basically, we're today producing flat out on train 1 and 2. Given that we have spare capacity and train 3 and 4 are there and kind of well-functioning, from time to time, we are utilizing train 3 and 4 for certain overproduction. We also switch between which trains we produce from to make sure that we maintain the ship at a very high capability. The primary reason for the slow deployment of incremental capacity on Hilli is the need to tie in additional gas fields to produce the gas. What we assume will happen is partial utilization of increased capacity. If you want to define it according to your question, Omar, we're flat out on train 1, 2, and we're talking about partial utilization of train 3.
In real life, we're sort of shifting between all four trains to keep the vessel fully operational. That's how we see it.
Okay. Thanks, Karl. That makes sense. Is there any added CapEx that you need to take on if you were to start partially utilizing three in that context?
No. No CapEx and very minimal OpEx increase.
Okay. All right, just a final follow-up on this is the contract itself for the Hilli, it goes till 2026. I know it's still five years out, but given what's gone on in the overall commodity space and you're being encouraged investing upstream, is there any talk of extending this contract or is it still too early?
I think where we're coming from is that we are not interested in extending that contract until we can get paid for the full CapEx. We've obviously invested in four trains. We're currently utilizing two. If we were to discuss extension on the current site, it needs to be for the full capacity, or at least we need to be paid for the full capacity of the unit. Simultaneously, we are increasingly encouraged by the integrated upstream model, and getting the vessel back in 2026 could fit very well if we were able to acquire a gas field where we could deploy the ship. The other advantage of Hilli is that she obviously has a proven track record, so we know the ship works.
That's attractive to people that want to continue to use her for tolling operations, and it's certainly attractive for us if we were able to produce our own gas reserve.
Got it. Great. Thanks, Karl. That's it for me.
Thanks, Omar.
Thank you. Our next question is from the line of Sean Morgan from Evercore. Thank you. Please ask your question.
I'm sort of intrigued by this concept of moving from pure tolling that you've traditionally done with the FLNGs to more of an integrated upstream model. Would you seek to partner with an E&P, or would you kind of step out of your comfort zone and seek to actually handle the production and all the operations that traditionally were done by your partner outside of the vessel?
I think we definitely see the advantage of teaming up with someone who's got upstream capabilities. We also see that there are several oil producers currently flaring or reinjecting associated gas. It's an opportunity lost for them and an opportunity for us to exploit by if we were able to produce that gas, not only will it significantly improve the carbon footprint of such oil production, it will generate very significant incremental earnings to the owner of the field, very similar to that of Perenco in Cameroon. We most likely would target an area where we will have a partner upstream. Again, we're sort of looking into a few different alternatives these days.
Okay. Going back to your ESG report that you released, I was interested to see that 25% lower carbon intensity that you see versus, I guess, your terrestrial peers. How do you sort of get to that number? Would that sort of just take into account existing operations without the ability for terrestrial LNG producers to reinject liquified carbon? Is that something you could do offshore as well?
Yeah. If you're referring to the AER number, which has now been reduced from 995 - 871, that's CO2 per ton mile. The way we've obtained that is with certain installations on board the ships that increase efficiency. When it comes to the FLNG, it's also increased utilization of the ships that reduce the carbon footprint on per MMBtu produced. Those are the primary areas of improvement. We are constantly looking into other engineering tweaks we can do to our existing asset portfolio to improve. We have an internal, what we call the Green Team, that's constantly working on improvements across the fleet, and we continue to use Golar's innovative engineering capability to do improvements.
If you've seen on some of our previous reports, we've, amongst others, improved the cooling of our FSRU portfolio, now sold to NFE, where we've been able to reduce fuel consumption by 15%-20% by improved cooling.
Okay. That's mostly on the fleet, though. For the FLNG relative to a land-based, I think you termed it a mega project. Where are the savings there?
That's mainly due to the efficient liquefaction technology that we utilize and the fact that there's no physical footprint of the ships that we deploy, given that they're floating.
Okay. All right. Thanks a lot, Karl.
Thank you.
Thank you. Next question is from the line of Ben Nolan from Stifel. Thank you. Please ask your question.
Quick. I want to go back a little bit to the Hilli and Perenco thing. As I recall, maybe the last quarter, you talked about, or it was discussed, that you'd effectively given them an ultimatum that if, I think by the end of this year, they had not restructured a contract, that you were not going to renew your contract at the end of the existing term. Any update on that? How confident are you that they've sort of been called to the table here and that it will in fact see an increase in the duration and volume?
I think we are very confident that we will find a solution. The primary driver of it is that it's money to be made from all sides of the table. That includes us, it includes Perenco, and it includes the gas off-taker, and it certainly includes the local government. With current gas prices, there's sufficient economics for everyone around the table, and to that extent, we should see increased capacity. There has been current some regulatory challenges that's been resolved when it comes to production caps. There are also increased confidence in sufficient gas flow and gas tie-in for increased production. We are confident that we can meet that increased capacity from basically early next year. As we've learned over time, nothing is done till it's done.
We remain very optimistic and arguably, we believe we're closer than ever in having a resolution in the not-too-distant future.
Okay. They would, as part of that, it would need to see first quarter of next year, because the timeline has slipped a lot over the last number of years. Do you see the first quarter of next year when the volumes begin to tick up as sort of the hard start?
I think it's fair to say that it's not been enough. We've been extremely keen to increase utilization for Hilli, of course, since she was delivered on site. I think for a period of time, we had a non-cooperative gas price. There were certain regulatory challenges in terms of gas production cap that needed to be resolved. Lastly, it's a commercial agreement between the various parties. I think where we are now is that we're done with all but the commercial agreement. I think part of us around the table already agree. It's a matter of getting, I guess, another signature or two on the agreement, and then we're done. I think it makes a lot of sense, as I said, economically for everyone around. It makes all the sense in the world.
We are confident that that's the timing, and we also think that both gas flow and gas reserves supports that. We've had some insight into that, which after we pushed hard for a long time. We think that's the timeline we can meet.
Right. Lastly for me, coming back to something you talked a little bit about with Mike, in terms of the Fast LNG and you're helping the New Fortress guys and the idea that it's complementary. Appreciating that it is complementary. It's not the same exactly, but there are some similarities. I'm curious why you didn't do it yourself and have them as an offtaker, or why that wasn't part of the arrangement, like it would be for a?
For an FLNG unit, they're complementary, but it's certainly, I would think, within your capability to do.
Absolutely. First off, we're a 100% shareholder of NFE. We're very optimistic about that story. We think including Hygo and GMLP, they have a very interesting future. We do see the benefit of that model securing long-term certain supply of fixed price gas. That's part of our motivation to ensure that our investment in NFE continues to, or at least see positive momentum. I think in upstream altogether, we are exploring different alternatives. I think Edens said on one of the calls in conjunction with the merger announcement that we might, over time, look at creating a sort of common upstream or common tolling company.
I think when we are looking at upstream investment and especially the integrated model, one key attraction that we could see is that you fix enough of the offtake to cover all of the cost of the project, and then you sit naked on the open capacity, and therefore basically have a cash break-even of zero, and anything over that is profit. Someone like NFE would obviously be an interesting off-taker after the acquisition of Hygo. They have certainly got sufficient demand to be a sizable off-taker. For us, that should be a win-win. Nothing whatsoever is carved in stone in that regard. It's obviously a group that we enjoy working with. We think they have made a lot of sort of paved the way for downstream development and downstream penetration of FLNG, and we do see some synergies on the upstream side.
All right. Great. I appreciate it. Thanks, Karl, and congratulations.
Thank you.
Thank you. Our next question is from the line of Greg Lewis from BTIG. Thank you. Please ask your question.
Karl, we're on the hour. I'll just ask one question. Just kind of looking for a little bit more color on the relationship right now with New Fortress Energy. You're working with them. Are you getting paid a consultant? Are you getting paid a fee for services, or do you have a right of first refusal on a project or an ability to invest in that? Is it really just, hey, we're working side by side along them, and if we can achieve something, then we'll figure out how we can benefit from that? Is there any kind of written contract in place?
Okay. As part of the merger, and this has mainly been made public, but when it comes to the operation of the assets they acquired from us, we continue to technically operate, and there's also certain transition services that we continue to serve from Golar to NFE. For those services, we get the pre-agreed fee. For anything incremental to those fees, we're basically paid on a consultancy basis. For certain development projects, we see it as an investment both for us and for NFE and to improve the value of NFE. I think it comes down to exactly what parts of the services that you refer to. In general, we get compensated for the hours that's invested into such projects.
When it comes to cooperation beyond that, I'd say that we have a very good relationship on all levels of the respective organizations, and it's a bit more play as we go, and then if we find an attractive solution, we'll see how we potentially can develop it together or if it makes more sense to do it on a standalone basis. We're partly doing things together, and we're partly doing things separately. I think we have a fairly good understanding of the various targets of the two groups.
Okay, great. Okay, yeah, that's perfect. Thank you very much for the time, everybody.
Thank you.
For our last question is from the line of William Burke from B. Riley. Thank you. Please ask your question.
Thank you. Hi, Karl.
Hi.
Karl, you talked about the new Mark design and moving away from tolling. The returns on both Hilli and Gimi are very strong. What is the return profile of the new design and then moving away from tolling?
I think a way to think about it is that if someone's willing to charter something from you, they must make money on chartering it from you. Basically, the way we thought about it is, yes, we make good money on tolling. Yes, we will continue to do tolling projects where we see returns as sufficiently attractive. If you just look on current gas price and the profit that the people basically chartering FLNG from us, what we make is almost peanuts compared to what they make. With the cash break-even support that you have versus historical gas prices. We think it could be very attractive if we were able to produce gas for our own account or at least take part in that arbitrage.
For us, I don't think you should expect us to depart tolling fees altogether, but we've taken another or a slightly deeper look and see that the real economics are in upstream if you can also have exposure to the sales price of the gas.
Great. On the FLNG designs, you've got the Fast LNG plus the Mark Series. Are you seeing any competing designs out there, or are you pushing the envelope here by providing a faster, cheaper alternative?
Petronas has got the floating FLNG unit. Shell's got the Prelude. Exmar's got the Tango. There are certainly other people that are doing floating liquefaction. No one has delivered more cargoes than we have. Secondly, I don't think any of the others have a cheaper cost per ton liquefied. I think the combination of our cost point, our performance track record, and the fairly quick speed to market, I think we are very competitive versus peers. I think the fact that BP has embraced our FLNG technology is a further testimony to the fact that they don't see a better solution out there.
Great. Thank you, Karl. If there are no further questions, please continue.
Thank you all for dialing in. Thank you for the interest in Golar. We're very excited about the future. It looks like we have some tailwind across our different segments, and we look forward to speaking to you all soon.