Good morning, good afternoon, everyone. Welcome to the Golar LNG Q2 2020 Results Presentation. My name is Ian Ross, and I'm the CEO of Golar LNG. Today, I'm joined on the line by CFO, Callum Richard Thompson and Stuart Buchanan, Head of Investor Relations. We're also pleased to have Eduardo Marinau, CFO of Golar Power on the line to participate in today's call.
I'd like to draw your attention to the forward looking statement on slide 1. And if we turn to slide 4, let me give you some highlights before Calum takes us through the numbers in more detail. Today, we report an adjusted EBITDA of $67,000,000 on revenue of $102,000,000 for the quarter, which is driven by a further solid FLNG performance and better seasonal results in shipping. And again, we commend the effort of our whole team in keeping the business running remotely and to our officers and ratings on board who cope with longer work cycles than normal and dealing with all sorts of restrictions and constraints in doing their jobs. And I am pleased to report further improvements in our ability to crew change with most of our people now having been changed at.
In shipping, our time charter earnings of 45,000 per day for Q2 represents an 88% rise over the same period last year. We continue to de risk our shipping portfolio and ended the quarter with a shipping revenue backlog of $105,000,000 Our FLNG operations maintained 100% commercial uptime through the quarter with a further 6% reduction in operating costs compared to the Q1 and stable EBITDA generation. And in downstream Golar Power received full capacity payments on Sergipe and Nanook with Golar's share of that equating to $19,000,000 of revenue less operating costs. The small scale rollout was boosted by the signing of a partnership with Galileo and the MoU signing with Norske Hydro for the provision of LNG and re gas capacity into the Alunorte alumina refinery in Brazil will reduce the refinery's CO2 output by some 600,000 tons per year. That's the equivalent of the carbon capture of around 10,000,000 tree seedlings planted and grown for 10 years.
It's a great ESG story. More details on these segments later, let me now hand over to Calum to take you through the numbers.
Thank you, Ian. Good morning, everybody. If you turn to Page 5, the Q2 2020 financial results are shown in more detail here. Ian mentioned the $103,000,000 of operating revenue. You can see that in the blue column.
That is a 14% beat on the consensus €90,000,000 for the quarter and is achieved with the stability of the $55,000,000 of FLNG. As Ian mentioned, given Hilli's stability, that is a very stable and a well performing asset. And then secondly, dollars 48,000,000 of operating revenues from shipping and corporate, which is down due to the typical seasonality that Ian referred to in TCE rates, but is an improvement over Q2 in 2019. That change is largely driven by the reduction in TCE rates, partly offset by some additional improvements on vessel management, which I'll go to in a second. That produced a net loss for the quarter of $156,000,000 That net loss is largely driven by the $135,900,000 impairment that we took on our shares in Golar Partners.
If you remember, we own approximately 33% of that business, and U. S. GAAP requires us that at the point that we feel a drop in the stock price is anything other than temporary, then we need to take that impairment. We've written the business down to the current market level, which is, again, a U. S.
GAAP requirement and something we're happy to do. That revenue performance of $103,000,000 generated the adjusted EBITDA of $67,000,000 that Ian referred to. That in itself is a 23% beat versus NASDAQ EBITDA consensus for the period. And that 23% beat is based off the 14% improved beat on revenues plus some cost cutting that we've managed to achieve that I'll go through on the next slide in a second. That $67,000,000 is broken down by the $41,000,000 out of FLNG, again, stable over the quarters, the stability that Ian referred to, plus $32,000,000 from shipping, which is down due to the seasonality on Q1, but it's an improvement on the same quarter, Q2 twenty nineteen.
Final point to note on this page is our cash position. I think we've committed to you at the start of quarter 1 to manage during quarter 1 to manage the cash position and to preserve liquidity in keeping with many companies in the COVID-nineteen crisis. And we're pleased to see and we're pleased to show that, broadly speaking, our cash position is stable. And that has largely been achieved, thanks to the cash generation in the business, plus the refinancings that we've managed to achieve, one of which ahead of schedule, which we will go into in more detail in a second. So adjusted EBITDA of 67%, a 23% beat on consensus, stability in FLNG and seasonality in shipping, partially offset by cost cutting.
If you turn the page to Page 6, adjusted EBITDA development over the last 12 months, you'll see the variation on the quarter Q1 on the left hand side. We'd refer to the reduction in TCE rates down to the 45,000 and that is the impact of that is set out on page you can see in red of the €20,000,000 or so. And then working your way down the page, you will see decreases in expenses that I referred to to get us back to partially offset that seasonality. It's important to note that, that expense reduction is a function of 2 factors. The first is some good work by the team in terms of company expenses, but it also relates to the impact of COVID-nineteen as with many other businesses.
So we're still working our way through how much of once were the global pandemic to ease and business to return more to normal, how much of expenses will come back. So you should not see all of that expense reduction as being a reduction in through cycle run rate, but partially so. It's also important to note on the right hand side of this page that our LTM adjusted EBITDA is broadly stable over the past 12 months. If you now I promise to talk about cash and liquidity in more detail. If you turn your attention to the next page, Page 7, liquidity development for 2020.
The bars on the top replay to you what happened in Q1. You'll remember from Q1, our cash balance at the end of 31st March was $235,000,000 That is shown in gray in the middle of the page. And then the movements from that going forward to the 30th June, the 2.25 $1,000,000 balance that we currently have is set out. Effectively, operating cash flow, positive, less than in Q1, reflecting the seasonality we've just discussed, partially offset by some CapEx, debt services stable, some other movements and then the Bear refinancing. We've committed in Q1 that by Q3, we would refinance 3 vessels, and we've achieved the bear early.
That is a refinancing that's given us 40,000,000 dollars of additional liquidity gross, which, as you'll see in the bullets below, is effectively $38,000,000 of unrestricted cash. The reconciliation between the 2 is set out later, but broadly speaking, there is some of the debt service associated with the BEAR included in the $80,000,000 debt service shown on the bar chart. What's the outlook for the rest of the year? As no real change given what we said to you in Q1, again, reflecting our plans and stability, we're in the process of refinancing the $150,000,000 bilateral loan, which is due in November 'twenty and the $30,000,000 outstanding margin loan due AugustSeptember 'twenty. We had committed to put in place a revolving credit facility with a number of banks.
Discussions there are very well advanced and positive. And while we're not finished, we had said that we would aim to have that done in Q3, and we feel that, that is very much on track. In addition, we've had 2 routine refinances, which we've committed to, the Frost, which and the Seal. The Seal will not generate any additional liquidity. That, as we've said previously, is just the removal of the put option that will occur in January next year, and the FOST will generate additional liquidity.
And with that vessel, I feel we have term sheets broadly agreed, but are working our way through due diligence and other items with the lenders. Naturally, that refinancing is obviously subject to market conditions. But as we picture today, we feel broadly positive about that. Again, we're comfortable and happy to repeat the last bullet point on the page that we mentioned in the previous results where we said based on achieving lease, now 3, previously it was 4 refinancing, we feel between that, the anticipated CapEx, debt service and operating cash flow, we feel that is sufficient for our needs for the remainder of 2020. Again, no real change.
So stable cash balances and the Bayer refinancing achieved 1 quarter early. With that, let me turn you back to Iain to take you through shipping in more detail.
Thanks, Calum. If we turn to slide 9 in shipping, the Q2 saw continued decline in TFDE spot rates to roundabout 30,000 a day for much of the period before starting a slow recovery post quarter. These lower rates resulted from a combination of seasonal LNG demand decline and lower overall global economic activity resulting from the COVID pandemic. For the U. S.
Cancellations kept ton miles low during the quarter, but we still expect a degree of slow steaming and storage to emerge towards the end of the year, boosting rates over the northern winter before overall volumes pick up again in 2021. Our shipping strategy continues to contribute well towards our TCE, protecting the downside through the shoulder season, which is clearly illustrated in the graph on Slide 9. If you compare the last three quarters, so Q4 2019 through to Q2 2020 with the prior corresponding 12 month quarters Q4 2018 through to Q2 2019 were generating significantly more adjusted EBITDA and that's largely driven through the commercial shipping strategy and associated increased utilization of the fleet. On slide 10, you can see we've offset some of that seasonal decline in rates through decreased costs as Callum showed you, albeit that some of these operating cost reductions will be incurred later in the year as we implement some deferred maintenance, but we have implemented permanent cost reductions and we'll continue to seek more. Despite the burn of the backlog during the quarter, our backlog remains very strong compared 12 months ago and you can see that in the picture on the right hand side with around half of the backlog on fixed rates and the other half on some form of market related or floating rate structure.
We're focusing on building backlog and managing our costs. And at this stage, we expect Q3 TCE to be around $35,000 per day. Whilst these lower LNG prices are not great for the current shipping market, we believe that lower LNG prices will continue to stimulate LNG demand as an alternative and cleaner fuel compared to coal and other more polluting fossil fuels. Lower pricing of LNG now will accelerate the use of LNG as a transition fuel for the next 10 plus years leading to increased demand for liquefaction. The LNG producers will be looking to develop liquefaction projects at a lower cost and with an associated increase in LNG volumes being produced.
This will in turn lead to increased demand for shipping in the future. Golar is unique outside the oil and gas majors and NOCs in participating in both the midstream production of LNG and the downstream distribution of LNG to local gas and electricity customers. Turning now to the production of LNG, in our case FLNG on slide 12. Our FLNG unit Hilli Episeyo Offshore Cameroon has delivered another steady performance in quarterly earnings as Calum explained. We've offloaded 42 cargoes maintaining 100 percent commercial uptime and have produced over 2,500,000 tons of LNG since the unit came on stream in 2018.
We continue to have an ongoing dialogue with Perenco, our customer on the potential for increased throughput on Hilli, but nothing further to report this quarter in terms of concrete agreements. And we continue to receive incoming interest for the use of Hilli post the Parenco contract that runs for the next 6 years. Turning to slide 13. As previously advised, BPR customer for the 20 year FLNG Gimi lease and operating agreement served Golar with an FM delay notice as a result of the COVID pandemic and has subsequently maintained its claimed estimate of that delay as being around 12 months. One change over the last quarter has been the impact of the Singapore circuit breaker as the country's COVID-nineteen response is known and the extent to which that shutdown has temporarily impacted the Keppel shipyard, our contractor in Singapore.
The yard effectively reopened last month and Keppel is now ramping up the workforce in compliance with the government restrictions with around 500 workers currently back on the project in accordance with the restart plan. So my three brief points to make on Gimi this quarter Firstly, we continue to be in active and constructive discussion with BP, our partners, our financiers and our contractors on the matter. Secondly, the reschedule program now takes into account the delays caused by the Singapore shutdown. And thirdly, whilst not finalized, we anticipate satisfactory closure on this in due course and we don't expect to have a material increase in the total project budget and the overall delay in the project of around 12 months driven by BP's timeline will correspondingly improve our near term cash flow through delayed equity injections into the project. And I hope you'll understand that specific details of these discussions do remain confidential at this time.
Briefly on the Viking FSRU conversion project, the project team and contractors are working hard to mitigate any COVID related challenges. We are now planning for the vessel to depart from China to Europe late September with vessel delivery upon commissioning and completion by the year end according to the original plan. And on the FLNG pipeline, we've extended our collaboration agreement with 1 IOC to explore applications for FLNG in their portfolio. And our Mark III new build continues to make progress in both refining the design and identifying real deployment opportunities. We believe that our simple process configuration combined with a design 1, build many mindset will serve to keep costs down, schedules short and payment terms achievable.
And importantly, we also believe that our energy management system delivers a superior efficiency compared to many onshore facilities resulting in competitively low carbon emissions on a like for like basis. Turning now to Downstream and Golar Power's progress over the quarter. In terms of development, progress was made on a number of fronts, which we can see on slide 15 with further details on slide 16. The signing of an MoU with Norske Hydro will involve Golar Power delivering gas to the Alunorte alumina refinery in Barcarena. This is a fantastic example of Golar Power bringing a cost effective solution to a customer that will not only pay less money for fuel, but will significantly improve its CO2 emissions.
This commercial customer together with the previously discussed 605 Megawatt PPA award underpins Golar Power's investment in the FSRU terminal at Barcarena with FID anticipated around the end of the year. The terminal will then be a subsequent foundation for the rollout of small scale distribution across the state of Para and FID for the Para station is anticipated in the middle of next year. The signing of an agreement with Galileo and Galileo is a producer of both land based gas and biomethane from landfills will accelerate the development of the small scale rollout in the Brazilian states Bahia and Sao Paulo with operations expected to commence later this year. This agreement links in nicely with the development of the previously announced partnership agreement with BR and that we can use bioethane sourced LNG to distribute adafuel through the BR network across Brazil in addition to the previously described sources from our terminals and FSRUs. The permitting process continues for an FSRU to be located at a new terminal at Suape in Northeast Brazil.
The first ISO containers have been delivered into the region and the terminal FID is expected around
the year.
Key regulatory and environmental licenses have been obtained for the Santa Catarina terminal and development planning on that continues to progress. And as we continue to look at a number of international locations that may be suitable to replicate this model, currently, we're currently examining 15 separate opportunities to internationalize the business. So some more detail in the small scale rollout on Slide 17. The volumes available for small scale distribution can be seen in the graph on the bottom left side of the slide. With the step increase in the size of the gray column in 2022, that's reflecting the increased volumes available for distribution once the Bartarena FSRU is in place.
With the power stations and also in the case of Bartarena Alunorte deal underpinning the development of the terminal and commitment to the FSRU. I think this graph illustrates the upside potential of these vessels really well. And turning volumes into dollars, if we manage to sell half of the spare capacity of these FSRUs and get a margin of say $0.50 per MMBtu, that would equate to additional profit of $150,000,000 in 20.22. As a reminder, excess capacity that we can have that we have can be utilized for 3 things. 1, power plant expansions and merchant power and Sajit basically is a good example and I'll talk a little bit more about that in a sec.
Gas marketing, so the sale of natural gas to 3rd parties, Norske Hydro and Alunorte is an example of that. And then the third is breaking bulk into small scale as we've discussed before. So that's using the FSRU as a vessel for LNG storage. We take the gas out as LNG and not as regasified methane. We continue to make progress on converting expressions of interest on the small scale rollout into committed contracts with a further 2 executed in the quarter and 2 more in the Q3 so far.
On Slide 18, I'm just detailing out the merchant power opportunity at Sergipe in some more detail. The graph on the left hand side of the slide shows the average electricity spot prices in reais per megawatt hour from December 2016 to the end of 2019. And it clearly shows the seasonality during each year and that's driven by a combination of demand and rainfall. And rainfall determines whether the hydro baseload is adequate or whether the fossil fuel plants need to be called to dispatch. And overlaid on that are two lines.
The top line, the blue one is the Sergipe dispatch breakeven costs. And that line implies that in theory, the plant can be called to dispatch whenever the prevailing spot price is above that line. And the lower green line represents the merchant breakeven cost of running the plant independently from the PPA. The purchase price of LNG influences the position of this line and here we have it with an LNG purchase price of $3 per MMBtu, which is conservatively high against today's prices. The team at Golar Power have run a back test of the opportunistic merchant power income that could have been made based on the available merchant dispatch windows over the last 3 years.
And this analysis shows that Golar share of that additional profit could have been around $70,000,000 That's the Golar LNG share. This translates to around $16,000,000 to $18,000,000 net profit for burning a full cargo of Nanook over a 2 week period. And remember that we've got 60 days notice for any dispatch under the PPA. I mentioned at the start, we've got Eduardo on call today as I know there are an increasing amount of there's an increasing amount of interest in Golar Power Development story. He's there to answer some questions.
We turn now to Slide 20 highlighting some of our ESG projects, which cover our 5 focus areas and include safety and management engagement campaigns on both the vessels and active engagement with engine manufacturers to understand key drivers of methane slip, what we can do about improving performance, mental health support of our people, especially as a result of COVID-nineteen. On the right hand side of the slide, there's some pictures showing the results of placing a Golar designed hydropower turbine into the flow from the seawater discharge in the regas system and using that to generate energy to power the system. The simple design provides the FSRU with a 7% saving in fuel efficiency and importantly an estimated saving of 5,000 tons of CO2 per year. So just some examples of what we're doing in the space of ESG. So summarizing our priorities on Slide 22.
We will continue to derisk shipping and focus on backlog growth. In FLNG, our focus is to conclude the position on Gimi and continue to progress discussions for potential expansion and extension of Hilli and of course the development of the new build Mark III and future opportunities. In downstream, we'll continue to push the build out of small scale and develop the terminals of Baqerena and Swati. We'll focus on concluding the refinancing activities that Calum discussed. And of course, we'll continue to push for a sustainable reduction in G and A and simplification of the Golar Group structure.
With that, I'd like to hand you back to the operator for Q and A.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Your first question comes from the line of Randy Giveans. Please go ahead. Your line is now open.
I think I'm not sure he disconnected, but we'll just take the next question. It's coming from Jon Chappell. Please go ahead.
Thank you. Good morning and good afternoon, guys.
Hey, Jon.
Hey, Ian. First one for you is strategic. So, in the press release says that their strategic review has been concluded, the Board's approved a range of specific options. But if I look at this last slide you had, it seems like every kind of near term priority is maybe blocking and tackling within the silos. So as we think about maybe the imminent breakup of the company and the 3 different business lines, which do you view as kind of standalone at this point with the ability to kind of self finance themselves and which maybe need to be together as they're in their different stages of the evolution?
I'll let Calum comment in a second, but rather than commenting specifically on your question, can I really refer you to the overall strategic plan? So the GLNG Board has approved the examination of a range of strategic options that management that we're now developing. And as these strategic options mature and potentially become actionable, we're going to take them back to the Board for consideration. And if approved for execution, we'll announce something at that time. But, Calum, do you want to add any more color for John?
Yes, sure. I mean, John, your point about blocking
and tackling is right. That's what we're we have 2 jobs. We have the blocking and tackling, which we could set out in real detail, which we've done, which is what we're doing and what you can expect from us. That's very different from the strategic review and the structure of the group. So that's why it's not on the page.
The other reason why it's not on the page, and if you remember from Q1, I think we've got broad alignment from the group that there were 4 from we've got approval from the board to target the 4 legs: FSRU, FLNG, shipping and going to power and to simplify and put the group into those 4 legs and ensure that each one of them was stand alone. So that's what we got Board approval for. We then went with being back to the Board in this court to say, here are the routes to achieve that. So not the destination, but the journey to get there. Here are the steps we think we need to take to implement that.
And we gave the Board a range of options, which we referred to in the press release, and the board has selected some for us to then pursue in more detail to see if we can get them across the line to execute them. And that's what we're doing. And once we've reached a point where we think they're executable, we would go back to the Board to say, here's what we've done, do you approve? And then we'd be in a position to make an announcement. And then let me go back to your question.
There are 2 bits in your question. 1 was a sort of I think there was an assumption in your question, which I think probably takes us a step too far, which is, as you said, as you think about the imminent breakup of the group, I don't think we don't see it as neither imminent nor a full breakup of the group. So let me sort of pick you up on that, if I might. I mean, the broad picture of 4 stand alone legs is where we're going. And then secondly, to your question about stand alone financing, in which does one see as being more or less mature, I think everybody would say that the shipping business is a business that is seeing some seasonality right now.
It's perhaps not as poor as it's not been the same seasonality that one had in previous years. I think we've seen that in the results of ourselves and others. But certainly, the shipping business is one of the ones where that is probably less on the spectrum of financing, whereas pick any one of the other businesses, they're probably equally down the line. So hopefully, there was a lot in your question, but hopefully that's covered it.
Yes, super helpful. Thank you. So procedural approval, maybe not execution approval. So on the follow-up then, clearly, you spent a lot of time and made a lot of headway in Brazil and maybe not quite a success story yet, but clearly a path towards that. The interesting commentary about replicating it in other regions, I guess the question there is without even naming regions, are the opportunity sets similar and are there economies of scale in the procedures that you've taken to penetrate the Brazilian market that you could be much quicker to market and kind of start to finish in some of these other regions you're contemplating?
I think that's a great question for Eduardo.
Yes, sure, John. Nice to meet you and happy to answer that one. So I think when we look at our global ambitions for Golar Power, we definitely will try to replicate what we have been doing in Brazil. We really see Brazil as a stepping stone for our global business plan. I think one of the key fundamental strategies of our development will be to try to partner with experienced local players, such as the ones that we have identified in Brazil in the case Sergipe, in the case of our small scale LNG distribution partnership with PR.
So we are actively discussing with a number of potential partners in some other geographies. If I were to highlight just a few key areas, I would say Southeast Asia is definitely one region that we definitely see as a potential area for development of our strategy as well as some other countries in West Africa as well as in other countries in Latin America. I think those are the areas which we believe we have a very strong position as of today.
Your next question comes from the line of Ben Nolan.
And maybe I'll Eduardo, I'll follow with you. Obviously, I think, as John mentioned, a lot going on with Golar Power at the moment. And what I'm hoping that you might be able to do is just maybe put a bow on it a little bit or take all of those moving pieces and codify them into a few simple numbers, specifically sort of based on what you have line of sight on and including a lot of the smaller things, how much is sort of the CapEx requirement going forward? And then also, again, maybe not even including any merchant power, but sort of as you do include a lot of the smaller scale and incremental developments, what do you see as sort of the potential for cash flow generation on an annual basis out of, let's say, Brazil specifically, but that being a proxy for Volpara General?
Okay. Hi, Ben. I think when we look at the future developments of our future projects, I think it's important to highlight the fact that we are yet to take FID on certain projects. So those detailed CapEx figures as well as the full EBITDA projections will be announced by that point in time. But what we can say is that the ability to generate, for example, merchant power will not require any further incremental CapEx from what we have in place today.
So the Golar Nano is fully connected to the power plant, which is able to generate power during the times of the year when it's not generating under the PPA. So this is definitely something that is incremental whenever we are able to run the plant. Another important point is with regards to the small scale strategy, which is highly modular in a way that the CapEx will be proportionate to the number of contracts that we're able to secure. So we are not going to go speculative, spend a substantial amount of money without having the corresponding contracts as offtake. So I think that, that growth goes hand in hand with the commercial developments with regards to the contract to the offtake contracts that we're able to secure.
When we look at Barcarena, I think they have announced the MoU with North Hydro, which is a very important milestone towards our FID, which we believe will be in a position to take a final investment decision in the next 4 to 6 months. So I would say that with regards to the future CapEx plans, they will be more detailed in the future as soon as we take a final investment decision on those projects.
Okay.
All right.
And I'll leave it at
that, I guess. But another thing that maybe jumping over, I guess, from my second question over to the FLNG side. Obviously, it's been pretty slow going for a while. I'm curious, first of all, if there's been any change in the pace of conversations. Maybe also I know that you were selected as one of the potential participants for a possible deal in the Mediterranean and with Chevron moving in there, whether anything has happened with that.
But maybe just a little bit more of a sort of a pace of progress with respect to conversations and discussions on the ethylogy side?
So Ben, I've described the pace of conversations is steady. So it hasn't disappeared and it hasn't really accelerated. And I think that's to be expected with all the turmoil in the world that's going on. And I think it's a good thing that despite the fact that we've got low LNG prices, we're still having active dialogues with potential customers. As I mentioned, we had one arrangement with 1 of the bigger IOCs that expired and they've asked to extend that for another year to continue looking at possible applications of our technology to their development.
So I think it's there. And as I've said many times before on the call, as the supply demand lines cross in the future and more LNG needs to be built out, we believe we'll be at the front of the queue because we are the cheapest and fastest liquefaction projects that can get to market. And we don't have any of the issues that onshore based facilities have around land, picking on land and dealing with local labor issues and all that kind of stuff. So we think we're super competitive. And I'm very pleased with the development in the Mark III work that's being done because that's sending up at this stage to look like it's just as competitive in dollars per ton as the Mark I, the smaller facilities.
And we can do up to 5,000,000 tons in those vessels. So really looking forward to continuing the discussions with potential customers on that.
Okay. And on the Mediterranean side?
Nothing's changed. You've said you've seen the news. I mean, I don't expect anything will happen to that deal with Chevron closes. I wouldn't imagine any movement on that will happen, but that's really something to ask Noble.
Okay. Great. I appreciate it.
Thank you. Your next question comes from the line of Randy Giveans. Please go ahead. Your line is now open.
Hi, ladies and gentlemen. Yes, sorry, my call dropped earlier. I think Chappelle cut my phone line, but back here. Now, first, congrats, obviously, on the Golar Bear refinancing, Doing what you said you were going to do there is good. Now what is the LTV of that $120,000,000 sale and leaseback?
And what are the terms of the financing? And I guess following that, if you plan on dropping your debt into each entity, what happens with the converts?
Good question. So it's not we don't want to disclose publicly what the LTV is on the bear, so nor the terms. You should think of the terms as being broadly similar to previous financings, maybe a touch longer in maybe a bit longer in duration. So when we look at it, we think it's commercially attractive business for us because it both increases leverage, but it increases and gives liquidity, but increases duration. So we think that is good.
I'm sorry that I'm not going to answer your LTV question, but that's sort of that's reasonably market sensitive and it's dependent on each lender. To your question about the restructuring of the business and putting the businesses on a stand alone basis, yes, we do. Yes, we do want to do that. But that, on a through cycle basis, will still generate free cash flow to equity up to the group. And one of the things that we feel confident about is that by having these 4 legs, it increases our financial flexibility to match, as we've discussed in the past, investor appetite risk return profile with the risk return profile of the different businesses.
And that's something that's very important to us, and I think it's important to our investors as well. So I've slightly not answered your question on what are our plans for the convert because we will announce anything were we to have something to announce. And when I've been asked about when we've been asked about converts in the past, we said, yes, given the state of the convert market, there is a clear and sensible refinancing or ALM route for the converts, but we're prioritizing liquidity at the moment. And that's the sort of commitment we've made, and that's one of the reasons why our cash flow is stable. So forgive me for not giving you all the details, but hopefully you can see how we think of it at least.
Sure. That's understandable. So it sounds like you don't necessarily have to refinance the convert, if you do silo the
other debt into the other entities. But No, no, no, no.
All right, I guess,
yes, no, it's fair. All right, second question, turning to Golar Power and those contracts and the MOUs. I guess what specific hurdles are maybe required to convert some of those contracts and take that positive bucarina FID in the next, I think you said 4 to 6 months in the release?
Sure. Eduardo, would you like to comment?
Yes, sure. Hi, Randy. I'm happy to answer that one. So I think the final investment decision of Barcarena is not necessarily linked to the rollout of the small scale contracts. I think they do in some way, they are complementary in their strategy, but we view them as a separate kind of a business development.
So I think Barcarena, it's much more a matter of progressing with the required permits and regulatory approvals to be in a position to take a final investment decision. We have been awarded the PPA back in the power auction that took place in October last year. And now with the recently announced MOU with North Quidl, we believe that once all those permits and approvals are met, we will be in a position to take FID for BARCIAENA. When it comes to the small scale contracts, I think, as you can see, there are a number of contracts and discussions being taken with a number of our customers. And those customers, they range from small customers in some cases to very large industrial customers, which despite the relatively small volumes, the conversion to LNG could require some time.
So our final commercial decision to move ahead to switch to LNG in some cases, it does take a bit of a time. But it's just a matter of really those customers really progressing their internal approval processes to be in a position to fully commit under the contract. So I think we have given a breakdown of the status of the different commercial initiatives that we have today in order to provide a sense of how those discussions are progressing. What we can say is that despite the challenging environment due to COVID, we have been able to secure additional contracts. We have been able to continue to engage with all of the customers in a vehicle way.
And we believe that the season is as strong as plan will be achievable according to our expectations.
Excellent. Yes, thanks all that color. And I guess finally just on that, is there an expiration date where they have to kind of secure or convert those MOUs or contracts? Or is it just kind of whenever they're ready?
No, there is no specific deadline on those specific MOUs and LOIs. As I said, it's a matter of, in some cases, some commercial aspects. In some other, some technical requirements that take a little bit longer for the customers to take a decision to commit to LNG. Got
it. Good deal. Well, that's it for me. Glad to see Golar back above double digits. So keep it going.
Yes. That's very helpful.
Thank you. Your next question comes from the line of Mike Webber. Please go ahead. Your line is now open.
Hey, good morning, guys. How are you?
Hi, Mike. Hi, Mike.
Good. So the first question is on the strategic review and just to kind of follow-up on John. So for I
guess for those of us
that have been following Golar for several years, it can feel a little bit like window dressing in terms of the technicalities of completing a strategic review and putting it to the Board. I mean, this review in effect has been going on for several years at this point. So I'm curious, as you stand now, what are the major hurdles? And are you any more or less likely to involve 3rd party capital today than you were, say, a year, year and a half ago towards the earlier innings of Distribute?
Let me tackle that. It doesn't feel step 1 is where do we want to go. We did that last quarter, 4 legs. Step 2 was identify the routes to get there, did that this quarter. Board approved us to move those routes to get them executed.
That depends on agreements that need to be struck and plans put in place that involve other people. And so the Board said, yes, go ahead and have those conversations, get that organized in some cases. In other cases, it doesn't. And we're getting that all lined up. And then as soon as we've got that lined up, we go back to the board and say, here we go.
And then they'll either say yes or no. So that's the sort of that's the clear path. I can't draw a conclusion from the past before, certainly, at least I got here. To your question about involving 3rd party capital, I now speak personally. I think the benefits of having I think we've signaled quite clearly the benefits of having 4 legs is that it does, as we've said in the past, it allows us to align the business, the risk return of each one of those businesses to the risk return of different sets of investors.
So I think there is a benefit there of doing that, and one wouldn't seek to get aligned like this if it wasn't to make it easier for 3rd party investors to come in, right? So I'm sort of answering your question, but then that's why we're doing it. So that makes all the sense in the world. What I can't do is prejudge a board decision or market conditions or interest from everybody else because that's outside my control. But the purpose of a getting agreement to line up in those four columns is to make this easier.
And the agreement and the debate with the Board is to identify the path to get that. Sure.
So
that's sort of Yes.
I think the Yes. The angle of my yes. The angle of my question is that this in one form or another, let's put it this way, this review has been going on for several years, right? And so there are a number of solutions on the it's not an easy equation to solve for, but there are a number of solutions that have been on the table, some of which I'm sure involves 3rd party or private equity, some of which that don't. And I guess what I'm asking is, as we are now further into, I guess, this iteration of the strategic review, is it fair to say it's less likely to involve 3rd party capital?
And or is it something that you think would be done in a series of transactions or maybe as a group of kind of transaction where we come in one day and we see a release that clearly lays out what the new Golar structure would look like?
It's clear in my mind, Mike, what it needs to be, but I'm one of I'm part of the team, right? And so it's about getting that organized. So it's not a lack of certainly on my side at least, it's not a lack of certainty. But it's basically one has to fill all the pieces together and get everything ready and there's a lot of bits and pieces that need to moving parts that need to work. So that's how I see it.
To your question about, is it a series of steps? Is it a bundle? That depends on the path the Board chooses and different It's sort of better both would be my view. Right.
So I'm asking whether one's more likely or not now at this that we're a few years into it, I guess, of multiple iterations of this. Just trying to see how that process has changed and what we should expect without holding you to a specific answer. Just a bit more color on that in terms of what the most likely scenario is going to look like?
Yes, I'm going to pass that one if I can. I'm sorry, because it requires agreements to be struck with other people and it requires board's approval and all kinds of different steps, right? And it would be wrong of me to give you guidance on that now when those pieces are not in place.
I'm clear where the pieces need
to move, but until they've moved, I really shouldn't I wouldn't be doing my job right if I gave you the detail that I have in my head about what I think is going to happen, right? So I'm sorry, but we need to wait for the sort of agreement to be struck and the Board to approve or not as it will see fit.
Yes. No, we've been waiting. I guess I'm just looking for like any indication of what how it's progressing, but I can take that offline. Eduardo, on the downstream, part of what makes Solar Power so unique and what has made it so successful relative to its peers has been a really thoughtful and deliberate strategy to surround Brazil. So when you've got a lot of competitors swinging and missing and feeling like they're stretched a bit on the global like a global scale, you guys have had success really kind of being all in on Brazil.
So within the context of expanding that elsewhere, I'm curious is that to what degree is that a function of maybe having picked the majority of the low hanging fruit you think is there
in Brazil?
And to what degree is that a function of looking at markets with maybe more amicable power auctions or just trying to get a bit of context around how realistic it would be for you to go all in on another geography, I guess, and why considering the degree of success you're having there?
Okay. Hi, Mike. How are you doing? So I think when we look into Brazil, I think it's important to note that we have been developing this opportunity for over the past 5 years now. That was when we were awarded the PPA in Sergipe back in April 2015.
So I wouldn't say that we have gone all in from day 1. I think that our exposure to Brazil, it has grown over time. I think it's the more we have been getting to know the market and being exposed to the opportunity, I think we increased our presence in the country. I think what was actually extremely important to our current status of in the market was the fact that we were able to identify very strategic partners. In the case of Sergipe, we teamed up with e Brazil.
In the case of the small scale development, we teamed up with the artist of Uyghurra. Golar has been working with Petrobras for a number of years since 2007. So I think that all helped to position ourselves where we are today in the Brazilian market. And I think that particularly to that market, everything that is going on with regards to the opening up of the gas market is extremely positive to our thesis, and this will help to accelerate the development of our strategy across the whole country. But when we go and when we look at the global growth strategy, I think it's important to highlight that one of the key pillars of our strategy is to build strategic hubs from which we are able to not only sell power, we're able not only to sell gas, we're able not only to sell LNG, we're able to do a number of different activities, which as we build up those incremental revenues, they become extremely attractive.
So in some cases, we'll be able to underpin an investment in a given terminal with a relatively low rate of return. But as we grow and as we establish the presence, I think that the most of us become extremely attractive. We use it to say that in certain countries, whoever comes first will be the last one to come because it takes a long time to establish an LNG terminal from a regulatory point of view, from an environmental point of view and from a commercial point of view as well. So I would say that different countries will require different strategies. 1 of the key ways that we believe that we'll be able to be successful, and that will be to find the right partner in the right market.
Got you. Would it be fair to assume and this is the last one I'll turn it over, but in terms of kind of laying the groundwork for one of the strategic hubs, is that something where you would want to have boots on the ground and kind of deliver or kind of develop some degree of local expertise while you're sourcing that partner? And is that something you'd should we see noticeable CapEx, if you will, even if it's on the smaller side as you look to kind of build out that presence in a specific hub?
Absolutely. I would not say a very relevant CapEx in the beginning, but for sure, we intend to increase our presence in even more strategic markets by having boots in the building and having a dedicated team in certain strategic locations. I think that's a key fundamental strategy for to achieve that goal.
Got you. Okay. I'll turn it over. Thanks for the time, guys.
Cheers, Mike. Thank
you. Your next question comes from the line of Joe Ringheim. Please go ahead. Your line is now open.
So, Calum, first on financing and liquidity. You've refinanced the bear and said that you expect within the coming quarters to refinance Frost and Seal as well as the loan secured against the Equity and Power and the margin loan. Can you provide any details around how much cash you expect to release on these refinancings?
Yes. Nothing. 0 cash release on the seal. That's about removing the put that occurs in January or at least addressing the put that occurs in January. For the Frost, I think we had guided previously.
And last quarter, we had said that we were expecting to generate between $50,000,000 $1,000,000 $90,000,000 of additional liquidity across all the vessels. And you'll note that we've just done the bear that generated $40,000,000 So I think for the frost, you should expect us to make good on that commitment and generate something in the region of the balance needed to achieve that. So probably around another 30 or 40. That is that takes care of the vessels. When it comes to the RCF, I think it will be additional liquidity from that will be minimal.
We would expect that we're refinancing a $30,000,000 $150,000,000 And we said that we were looking at an RCF in the region of $200,000,000 So you should assume that the additional liquidity from that is small.
Thanks. And then regarding power, you've announced several partnerships and downstream developments in power recently and clearly capitalizing on the presence in Brazil. And as Eduardo is pointing out, you could also be able to replicate the business model in other regions. My question is, New Fortress Energy, a company involved in terminal and downstream operations in other regions. Do you consider that company to be a relevant peer for Golar Power?
And given the metrics and also that the stock is up 70% this year, is that something you're monitoring in order to consider a potential listing of
power? Hi, Joe. Good talk to you here. I would say that if you look at our businesses, we do have some complementary and some similar activities and business lines as New Portrait Energy. I think that we view the market on which we are most exposed, which is Brazil, as a market that's big enough for us to dedicate most of our time, as we have been doing over the past 4 years since the foundation of Golar Power.
We believe that as we have said earlier today that Brazil is really the stepping stone for our global growth ambitions. If we get it right in Brazil, we're extremely confident that we'll be able to replicate in some way, not necessarily with the same strategy, but we'll be able to replicate the hub strategy in other countries. When you look at all the work that New Fortress is doing in the countries they operate, I think in a way, there are some similarities to what we're doing, but we believe that our businesses and the activities that we're pursuing in Brazil, they are in a way broader in the sense that we are able to generate power. We're able to capture the upside and the incremental revenues from merchant power. We are in the downstream sector.
We are positioned with our small scale LNG distributions, and we are positioning ourselves in a way to capture the spreads between the substitution of more expensive and more pollutant fuels such as diesel, LPG, heavy fuel oil for LNG. So I would say that the range of activities that we are developing and we are currently operating are in a way wider than what they are currently doing.
Thanks for explaining. I think that's it for me. Have a good one.
Thanks, Joe.
Thanks, Joe. You too.
Thank you. Your next question is coming from the line of Chris Wetherbee. Please go ahead. Your line is now open.
Hey, guys. Good morning, good afternoon. This is James on for Chris. Just wanted to touch on the small scale distribution detail you provided. How should we really think about sort of or what should we really expect from the LOIs and then conversions to executed contracts and then sort of like EBITDA per contract on average?
Just trying to get a sense of like what should we should expect from that during the near term or maybe a few years
out? Eduardo? Sure. Nice to talk to you. I think that when we look at the pace of development of our small scale strategy, as I said, despite the COVID environment, we have been able to continue to execute and to continue to engage with customers.
We believe that we'll be able to accelerate the pace of complementary commodities to actually firm costs over the past over the next few quarters. I think it's important that we bring online the other terminals that we are developing such as the Suape terminal, which is one initiative that we are extremely excited with. And we believe that we'll be in a position to, at some point next year, to commence operations of that terminal. And I think there's always a bit of a chicken and egg situation in which some customers, they want to see the commencement and the real start of the activities to really engage. So as you imagine, if you have a sizable industrial operation, it's something that is the energy supply is a critical component of your operation.
So it's not something that they can switch from one day to the other without having 100% sure that what we are promising will be delivered to them in accordance to all the specs and to the level of reliability that is required. So we believe that once operations start, the pace of conversion from LOIs to actual contracts will accelerate.
Got it. And then any color on how to think about the average EBITDA or maybe ranges per these executed contracts?
Currently, I think we are just disclosing the number of actual contracts. As you can imagine, those contracts, they vary quite a bit in terms of volume and also in terms of margin. I don't think it will be appropriate to give an specific margin or specific of average volume as of today. I think we as soon as we commence operations, we'll be able to disclose a bit further those informations.
Okay. Got it. Actually, just before I hand it over, just maybe
to follow-up on that, can
you just maybe give a sense of the direction possibly? Will you imagine to stay relatively stable or should it just move take a step function higher at some point as the project ramps up further?
Eduardo, that's a further question on the small scale ramp up.
Yes. So as I was saying, we believe that once operations start, we'll be able to further accelerate the pace of conversions. Another point on which we are extremely hopeful that we're going to have a great development is with regards to our partnership with the artist and we do have. As it was announced, we entered into commercial partnership with the art, which can expand its scope into the form of a proper partnership. And we continue a very close dialogue and a very close engagement with EDR in order to try to develop that opportunity, which we believe is the greatest opportunity that we have when you look into the Brazilian market.
I think Brazil is a market with over 2,700,000 trucks with a consumption of LNG equivalent volume of close to 35,000,000 tons of LNG. And if we're able to tap that into that market, it's a market which is substantially big and attractive for us to pursue. So we're very excited with the prospects of that opportunity, and we believe that PR is the right partner in the right country.
Got it. Thanks. I'll turn it over.
Thanks, James.
Thank you. Your next question comes from the line of Manjay Ramat. Please go ahead. Your line is now open. Hello, Manjay Rahmat, your line is now open.
Sorry, okay. Yes. Hi, guys. I think this operator got my name wrong there. It's Sanjay Huang from Bank of America.
Maybe just some color on the state of the capacity in the LNG market. I think, Ian, you probably mentioned that there were about 27 vessels scheduled in 'twenty to be delivered and about 75 in 'twenty one and 'twenty two. So maybe just your expectations on that and whether that's changed in a pre COVID, post COVID, some color on that will be helpful.
I think that the there's 2 things happening. One is, of course, we've got new capacity coming on stream, particularly out of the
U. S.
Some of that's been delayed. We've had a whole pile of cargoes delayed. And as we got vessels planned for delivery, there's an anticipation or an themselves. And most and I forget the forgive me, I forget the exact number, but most the majority of those vessels, so certainly over half are already linked into some of these new contracts coming on. So you've got a sort of linkage there.
And then obviously there's some vessels coming into the spot market. What's also interesting is that we have a number of steam turbines in the fleet in the global fleet that are due to come off charter over the next 2, 3, 4, 5 years and they're coming off in a regular number per year. And the interesting thing for those vessels is, whilst they some of them may be completely debt free, they have a very relatively high sorry, low operating efficiency and for that a high operational cost. And it will be interesting to see just how many of those can survive in the spot market and therefore do we see the start of the first wave of LNG carriers being scrapped? So I think the dynamic is changing over the next few years.
Yes, there's new builds, and I think there's some deferral of new builds happening. But equally, we've got some long term charters coming to the end and question about what will happen to those vessels and then what does that do as a knock on effect in consequence to the rest of the fleet.
I think that's helpful. In terms of percentages, would you be able to talk maybe about the percentage of those long term charters coming to the end of that duration? Is a split there?
And in terms of the number of vessels, I'll be making it up. I can get that after. He contacts Stuart afterwards. We'll give you
the detail.
Sure. That's helpful. And maybe just to talk through the development of the Mark III, maybe just providing some color on the time line there and perhaps the different cost economics versus the Hilli. I think in the release, it was mentioned that it'd be one of the lowest costs per tonne LNG Solutions versus Greenfield. So maybe just some color on that would be helpful.
Just two ways to look at it. There's the cost per ton and we've been public in stating that we can do heavy cost per ton all in for less than $500 per ton, and that compares extremely favorably with even the brownfield LNG developments around the world. So that's a kind of a finger in the air number. And what we're seeing is with the new build coming through that the cost to us is always similar nature. And what that means as you translate it through is that the tolling agreement that we can offer customers on our lease arrangements is very competitive in terms of dollars per MMBtu to give us a required return on the project over the lifetime of that project.
So what we're seeing as we've gone through the Mark III design, and I think surprisingly to some of our people, is that the cost that we're able to come up with and keeping the design simple. And I keep saying simple design, but I think it's a very, very important part of what we're trying to do here, Keep the design simple, repeatable and the smarts have gone into what's the sort of the basic design to start with of both the hull and the top sides. And as we start to push the envelope on capacity, we see the economy of scale kicking in per and cost per ton. And those vessels looking like they're going to be very competitive. And I did mention in the prepared remarks, we're also seeing our carbon footprint of those on a like for like basis being globally competitive as well.
So we're pleased with the progress and still pushing.
Sure. That's helpful. And just maybe the time line on the Mark III in terms of
Time line on the Mark III, we've completed our FEED. So client specific activities, we're already we're doing advanced discussions with the yard around what EPC costs would be. What we need is a customer that's prepared to stand up and do this with us, and we'll be ready to go. And I think you're talking about a 4 year cycle from start to finish from the point we take FID. Operator, just in the interest of time, can we make this the last question, please?
Sure. Your next question, it's your last question comes from the line of Jason Zabelman.
I wanted to ask on Golar Power and the cash flow that it's kicking back up to Golar right now. Following the Sergipe startup, are you getting any distributions from Golar Power? And how do you see that evolving over the next few years given the projects that you've laid out to execute within Golar Power? Thanks.
I think when we look at the future cash flow distributions from Golar Power, It was stated before that we intend to use that excess cash flows to fund our existing growth plans. So in a way, we are self funding our growth strategy, and we believe that with the cash flow from Sergipe and from the Nanook, we'll be able to be in a position to fully fund the developments of our operations in the small scale and other projects.
Okay. So is that to suggest no cash flow coming up to the parent right now or in the next couple of years?
In the near term, we don't expect to we believe that we'll be in a better position to fund the existing growth opportunities that we have in our portfolio than to distribute the excess cash flows to the shareholders.
Got it. And if I could just ask a quick question on the restructuring efforts. You're talking about entering new territories and building out storage hubs that could do multiple activities. And I wonder if you do go forward breaking up the company, do you get into a scenario where you're now bidding against competitors for some of those other activities that you're trying to build out from the hub? For example, if you're building a power project and you want to do it with an FSRU, but the FSRU is in a separate company than the power project is in, are you then opening yourself up to potential competitors to bid on that project as well?
Thanks.
Let me take that one guys. So the beauty of the exercise that Calum has explained, I think very well that it creates the opportunity for investable companies that are split by asset classes. So shipping, power, the FSRU and the FLNG companies. The beauty of working across the group is that we have the opportunity to collaborate. And I think if you talk about the FSRU power example, I think there's a big difference between responding to a tender in the market to do a bareboat charter for an FSRU and the taking of an FSRU.
And as Eduardo has described, putting that through development into a hub to create a very strategic asset that multiple downstream businesses can sort of develop from. And I think the having that structure, having the assets in one particular part of the group of companies, if you want to call it that, It actually makes it easier for us to do end of company deals and arrangements and I don't see that an FSRU alone company will have the ability to do what, for example, Golar Power is doing and vice versa. I don't think Golar Power has the appetite to simply respond to tenders for the provision of an FSRU where it can make so much more business out of taking that FSRU and putting it to work. So to the contrary, we actually see great synergies between the groups and the restructuring that we've talked about as we try to make that go forward will create simplicity in the business and facilitate that collaboration in a far easier way.
Great. Thanks for the thought.
Thank you, operator. Thanks to everyone for your participation and your interest in Golar. Please stay safe in these COVID times and we look forward to sharing our progress with you next quarter. And with that, goodbye.