Thank you. Good morning. Good afternoon, everyone. I hope you're all well. Welcome to the Golar LNG Q1 2020 results presentation. My name is Iain Ross. I am CEO of Golar LNG. Today I am joined on the line by our new CFO, Callum Mitchell-Thomson, and Stuart Buchanan, Head of Investor Relations. Before we get started, I would like to acknowledge the huge effort by Golar staff, both shore-based and of course, at sea, for their effort in keeping the business running during this unprecedented period of disruption due to both COVID-19 and depressed commodity prices. Their dedication to Golar, and ultimately to our shareholders, is quite remarkable and worthy of this mention. The safety of our people remains our first priority. Without a healthy workforce, we cannot deliver for our customers. Without delivering for our customers, we will not make any money for our shareholders. It is that simple.
I'd like to draw your attention to forward-looking statement on slide one. If we turn to slide four, let me give you some highlights before Callum takes you through the numbers in more detail. Today, we report an adjusted EBITDA of $76 million on revenue of $123 million for the quarter, which is driven by a solid FLNG performance and strong seasonal results in shipping. Our time charter earnings of $62,000 per day for Q1 2020 represents a 58% rise over the same period last year. We continued to de-risk our shipping portfolio and ended the quarter with a shipping revenue backlog of $126 million. Our FLNG operation makes 100% commercial uptime throughout the quarter, with reduced operating costs and stable EBITDA generation.
In power, we reach commercial operations on Sergipe Power Station, which sees the commencement of a 25-year PPA based on facility availability and a power plant that can be called to dispatch with 60 days notice, which in turn gives great potential for additional income from merchant power. During the quarter, we had three days of dispatch. More on these segments later. Let me firstly welcome Callum to his first results call for Golar, and to take us through the numbers. Thanks, Callum.
Thank you. If you turn to the next page five, the first quarter 2020 financial results. I'd say to echo what Iain said about the dedication of the staff in these tough times. Normally, one would be able to meet many of you in person on this call. I apologize that circumstances are such that we have to do it this way, it should work. Turning our attention to the summary results, you can see at the bottom of the page the adjusted EBITDA in the Q1 2020 column, that Iain referred to. $76 million of adjusted EBITDA, which compares very favorably to the $63 million earned in Q1 2019. As you know, our business is seasonal. At least the shipping business is seasonal, Q4 has tended to be a better quarter. Secondly, the $76 million is a small beat versus net debt consensus.
Where does that $76 million come from? Well, you can see here from shipping and corporate, that's a $34 million figure, which again compares well to the Q1 2019 of $21. As you'll see, for those who are familiar with Golar, the U.S. GAAP divisional split is shipping and corporate together, sometimes referred to as vessel operations. As we go through for this deck, we started a trend which we'll try and continue of splitting out shipping and corporate. You'll see more of that later. That $34 million under shipping and corporate EBITDA is $43 million of shipping and - $7 million of corporate. Again, that $43 million of shipping relates to the positive work that the team has done that Iain referred to.
The second point to note is the FLNG number at $42 million adjusted EBITDA is also stable. That reflects the nature of the business as we think of the business and as we de-risk the shipping portfolio to try and send the ships, the contracts out for longer. That is supported by the very stable nature of the heavily FLNG business. I would also draw your attention to some of the other movements. You will see that our contractual debt, shown at the bottom of the page, is relatively stable. That effectively there are two movements underlying that. There is a $95 million drawdown during the quarter on the Gimi facility. Remember, the FLNG Gimi is under construction. Which is equally offset by a repayment of $70 million on a margin loan and some $24 million of scheduled debt repayments.
I would also draw your attention to the interest rate and equity derivatives number, which occurs under net loss or income. Given COVID-19, therefore interest rates have fallen, as you all know. We've seen a mark to market on our swap book of a drop of between 112 and 115 basis points, that triggers a derivatives loss. In previous quarters, we've had some gains, there is a very limited cash impact that is below the line. The key message from this slide, stable FLNG EBITDA, shipping favorable compared to Q1 2019, an adjusted EBITDA at $76 million, which is a small beat versus net debt consensus. If you now turn the page to page six, on my version. Adjusted EBITDA development over the last 12 months. You will see at the bottom left of the page the $76 million.
As always, we show quarter-on-quarter evolution on the left side of this page, and we also show last 12 months quarterly evolution on the right side of the page. Key messages from this slide. The $76 million compared is lower than the Q4 2019. As I mentioned at the start, Q4 2019, the Q4 in general tends to be one of the better quarters. The movements that have occurred between Q4 2019 and Q1 2020 to highlight, you can see the $15.6 million drop given the lower TCE rates that Iain referred to. One vessel being withdrawn from service to go into conversion, offset by an increase in the utilization rate from 90% to 94%. I'd point out that the TCE rate that we of $61,100 is an improvement on the 2019 TCE rate, which was $300.
The point to note in this left-hand part of the chart is that we've been working away at costs and cost-cutting, and you'll see administrative expenses are down. I'd say that I think for many companies, COVID-19 has seen a reduction in administrative expenses, and we're working to see which of those cost savings can be made permanent and which are a function of the unusual times in which we find ourselves. The right-hand side of this page shows you, as I said, the evolution of Q1 2020 last 12 months, EBITDA of $268 million, as compared to the Q1 2019 last 12 months EBITDA of $22 million. That is broadly, I won't go through the different movements, but if people have questions, we can do that. We turn now to the next page, the development for 2020. Currently, many companies are facing liquidity constraints.
We feel that one of the resilient nature of our business that Iain referred to at the start, the stable EBITDA from Golar LNG, and even within the shipping business, that is something that puts us in a more resilient place than many. Nonetheless, liquidity is a focus for everybody in the current environment. We imagine, therefore, it would be a focus of yours. We wanted to set out in explicit detail how we see our liquidity having evolved over the quarter, and to be very clear with you that we anticipate as we look for what we anticipate to be the current outcome for the remainder of the year, we feel liquidity is sufficient for our group needs. We don't feel the need to draw down on a specific additional facilities as others have done.
Let me spend a little bit of time going through this because this is obviously an important topic in the current environment for all companies. On the left-hand side, you can see the 31st of December 2019, our cash balance $375 million, split between unrestricted cash and restricted cash. For those less familiar with the group, a certain portion of our cash is tied up with LCs, vessel financings, and other debts and leases, and we split that out separately. During the quarter, we had operating cash flow of $86 million. That's defined at the back, and I'll spare you the detail. We had a net CapEx of minus one. That is CapEx that we spent, less the debt we've drawn down to fund that CapEx. Minus one. It's not that we haven't been spending CapEx. We have.
Golar is very much a growth business that is building out assets. We've netted that off against the draw down. You'll see the debt service that remains reasonably stable for the quarter. The two key mode movements to note is during the quarter, we repaid $70 million out of $100 million at balance outstanding on a margin loan, leaving a $30 million balance left at the end of the quarter. That's the $70 million margin loan repayment. In addition, for those of you who are familiar with the group, you remember we had a total return swap in place, which was part of the buyback program. That was unwound during the quarter, and that saw a repayment of $73 million. We closed the quarter with $235 million in cash, split between restricted and unrestricted cash.
For those of you who are interested, you'll see the reduction in restricted cash, which is associated with a change in the total return swap that I just mentioned. What about the remainder of 2020? Well, we are exploring three things which we'll describe at the end in terms of financings. We are looking at refinancing the existing $150 million bilateral loan, which is due in November 2020, and the remaining $30 million balance outstanding on the margin loan that is due in August 2020. We have plans for that. We're in detailed discussions with a number of banks, and we feel that that refinancing is very much routine. One can never say everything. We're not complacent in this current environment, but we feel positive about that outcome.
We want to preemptively focus on the refinancing of one of our vessels, Golar Seal, where the financing is maturing in January 2021. We're in detailed discussions with a specific leasing company, and we have term sheets that are bouncing between us, and that is up for credit approval with them very, very shortly. Finally, you will have seen in the press release that there are two vessels where we've had approaches to those vessels from leasing companies, and we're opportunistically exploring discussions, and those discussions are both very well advanced. It is fair to say those three groups of refinancings are important, but we do feel that they are routine. When we look at them alongside the anticipated CapEx and operating cash flows that we feel we will earn, we feel we have sufficient funds for group needs.
I would make the point that in the current environment, forecasting out much further is difficult in the current environment, but we have a fairly detailed approach to cash flow forecasting and a fairly conservative approach to how we stress test that against shipping rates. With that, as a conclusion, I apologize for the detail, but in the current environment, we thought it was important to be specific and clear. Let me turn back to Iain now to take you through the division by division review.
Thank you, Callum. Turning to slide nine on the deck and shipping. Our revised shipping strategy that we've been discussing with you now for many quarters is contributing well, we think, to our improving TCE and shipping growth story, resulting in that quarter-over-quarter growth from $39,000 a day in Q1 2019 to $62,000 a day this quarter. You can see the adjusted EBITDA profile on the graph together with the utilization wrap-up, and that's clearly part of this strategy. Q1 has had quite a cocktail of pressures on the shipping market. In addition to the seasonal downturn, we've seen demand destruction caused by COVID-19 and oil price linkage, leading to LNG spot price dropping to around $2 million per MMBtu at the end of the quarter.
With some cargoes canceled in the quarter, mostly from the U.S., and more cancellations to follow during Q2 and December months. The effect of these items are a reduction of ton miles and less structural tightness in the sector than we originally thought. Spot rates fell from a high of $130,000 in October to low to mid-$40s by the end of March. Offsetting this is some new production coming up from the U.S. and the potential for deferral of non-committed vessel deliveries over the next couple of years. Industry analysts are now forecasting that 2020 LNG production will be between 1% and 3% higher than 2019, so similar profile. Finally, we have the LNG forward curve for Asian delivery currently in contango towards the fourth quarter, and that may justify some floating production and an associated pickup in rates.
You can see from the graphs on slide 10 that we continue to grow shipping revenue backlog and lock in utilization for the year. If we compare the current position with 12 months ago, we can see that we have six times as much revenue backlog as at this time last year. With the current market volatility, we believe this approach will help insulate us from a further downturn in the shipping rates over the coming months, whilst having enough spot capacity to enjoy the upside as and when it comes through. We expect Q2 TCE to be around $40,000 a day. If we spend the last few minutes talking about how lower LNG prices are impacting the shipping market, let's turn now and talk about how lower LNG prices create upside for Golar in other business segments. Turning now to slide 12, the current LNG market.
Two points to make for this slide. Firstly, with all of the FID deferrals of new build projects that we're seeing, particularly at onshore sites in the U.S. Gulf Coast, we believe the industry will reach a point where some projects will go ahead. Only those that have the right combination of gas supply, gas supply cost, offtake agreement, liquefaction CapEx, volume, and speed to market. The challenge with many of these larger U.S. Gulf Coast projects is that they need huge volumes of production to generate CapEx economies of scale. With FLNG, we can deliver world-class liquefaction costs with a relatively small volume and in the shortest time between FID and the first cargo, with remote building and an Asian shipyard, and therefore minimal impact in permitting onshore.
As the cycle moves back towards supply increases, we believe our proven FLNG units will be at the front of the queue. The second point relates to LNG as a substitution fuel is core to our downstream business in Golar Power. If you look at the tables in the bottom of slide 12, they compare energy cost per MMBtu equivalent. You can see the impact of the global reduction in coal, oil, diesel, and LNG pricing over the last few months. Not only is LNG proving to be cheaper and cleaner fuel than diesel for power generation and transport, but it's been catching up to coal in Europe and is beating pipeline gas in China. How do we benefit from this? Let's turn to slide 13 and FLNG performance. Our FLNG unit Hilli Episeyo offshore Cameroon has delivered another steady performance in quarterly EBITDA.
We're currently offloading the 39th cargo. The message on Hilli is simple. It's reliably producing LNG combination, generating cash consistently. We haven't missed a single cargo. We're generating the most comprehensive operating experience of any floating FLNG company in the world. Let's move to the Gimi conversion project on slide 15. You can see a nice picture of Gimi in dry dock. Last quarter, we showed the rusty old lady heading towards the dry dock, and now you can see she's nice and painted. As previously advised, our customer for the 20-year FLNG lease and operating agreement, BP, served Golar with an FM delay claim as a result of coronavirus impact around the globe.
BP maintains that the delay is still in the order of one year. Golar continues to engage in clarification and active dialogue on the subject, and I hope all these discussions remain confidential at this time. I've got three brief points to make on Gimi. First point, as I said, we remain in active discussion with BP on the matter. Secondly, we're in advanced and positive discussions with our partner and our major contractors on a potential reschedule program that takes into account the deferral of work and associated capital milestone payments. Thirdly, if this delay is implemented, it will result in a substantially de-risked project from a scheduling point of view. An improved liquidity position on the project through 2022, with the final outcome and financial consequence of the delay dependent on the ultimate duration of that delay and cause of the delay claimed by BP.
On the FLNG pipeline, while nothing's clearly going to crystallize in the short term, we're still engaging with several companies around specific projects for both our Mark I design and our Mark II rebuild, which is shaping up to be equally as competitive as Mark I. We think this continued interest in our FLNG experience will position us well for the future. Turning now to downstream, slide 16, and Golar Power's progress over the quarter. We celebrated the commercial operations of Sergipe Plant on the 21st of March, which sees the commencement of a 25-year PPA with capacity payments now started. Concurrent with the plant reaching COD, Shell, the plant operator, has now commenced payment for charter hire of the Golar Nanook to Golar Power. Back to the 21st of March and throughout the quarter, the power station was generating electricity during commissioning.
When we add the three days of dispatch in at the end of March, we ended up the quarter with having produced just under 400,000 MW hours of power and a plant utilization factor of 12%. The average price realized for all power generated was just BRL 140 per MWh . The plant and the FSRU are generating base EBITDA for Golar Power. What else can we do right now to generate more income from Sergipe? Turning to slide 17. We have on the left-hand side the Northeast region of Brazil, and that's the region that Sergipe sits in, the merit order for thermal power plants. The orange bars are the CDU or spot price, and the blue bars show the capacity. As you can see, Sergipe is right at the top.
That means that when not called to dispatch, it is the most cost-competitive thermal power plant and will have the greatest opportunity to create income from merchant power. It's important to remember that the PPA requires 60 days notice prior to dispatch, which means that there will clearly be times when Sergipe is free to generate merchant power. Back to the page, we show a graph of the spot electricity prices against time over the last couple of years. We can see the sector's cyclic, with higher spot prices typically running from May through October and a small blip in January and February. The green line is the plant break-even based on contracted dispatch, but the red line shows the break-even spot price that must be achieved for the plant in merchant mode, assuming in this case, we put an LNG purchase price of $3 per MMBtu.
As you can see, there are many times in the year that running Sergipe in merchant mode will be profitable. In actual fact, $3 is probably a bit high, as we talked about earlier, and that covers BRL 140. Just to give you an example of how profitable, the table below illustrates the potential EBITDA for burning a cargo of LNG through the power station, and that takes about 15 days. For example, if a cargo is purchased at $2.50 and the prevailing spot electricity price is BRL 300 per MWh , then this cargo, burning the whole cargo, would generate around $12 million in EBITDA. This is on top of the capacity-based payments. What else for Sergipe?
Well, in addition, Golar Power started the process for the installation of the gas pipeline that will connect FSRU Nanook to the regional gas network, and we've commenced the customer acquisition process for that. Slide 18 is a reminder of our small-scale LNG hub and spoke strategy. It starts with an FSRU hub located at the terminal, and from this hub, we have three spokes or channels to market. The first is from the FSRU to shore via gas pipeline to a large industrial customer of gas or a power station. This is generally the anchor customer that underpins the initial investment in the terminal, and what we've done at Sergipe is 1,000 + that. The second is to break bulk from the FSRU into small-scale LNG vessels and transport it into neighboring geographies for further distribution to mid-size or smaller scale customers.
The third route is by putting LNG directly into ISO containers and moving them by truck or barge to secondary users deep inland, where there is no current connection to gas pipeline or reticulation and where the opportunity is there to displace more polluting and expensive fuels with gas. Turning to slide 19 for an update on the development of the next terminal at Barcarena and our progress on small scale. At Barcarena, Golar Power continues to make good progress with EPC contractors and equipment suppliers concurrent with offtake discussions. Permitting has been slowed down a bit, however, the project does remain on track for a scheduled FID for the terminal before the end of this year. The FID for the power station is likely to be around the middle of 2021.
We're also making good progress on the potential for an FSU to be located at Suape, and permitting progresses as well for the terminal at Santa Catarina. We continue to look at other international locations that may be suitable to replicate this model. Our partnership with BR is an important channel from the FSRUs into the target customers. BR has 95 supply bases and 7,600 fuel stations throughout the country, and that relationship and its associated planning is progressing well. Again, in small scale, slowed down a little bit once more by COVID-19. Of course, I say commitments with three customers and a committed book of 113,000 cubic meters per day of gas. It's a small start, but an important one that we feel proves out the model.
Total CapEx for the three customers is around $8 million, and we will be generating $7 million in EBITDA in 2021. In addition, we're currently negotiating contracts with a further 21 customers associated with 600,000 cubic meters of gas per day and similar economics. Importantly, we're in discussion with around 200 more customers who've already signed an LOI relating to a further 6 million cubic meters of gas per day. Whilst the COVID-19 issue is slowing the team down a bit, we're making real progress in small scale. It's a low CapEx, fast payback business that's economically attractive for customers whilst of course, helping clean up the planet. We think this is a good story and so do others. Whilst we've nothing concrete as yet, we're receiving interest from potential strategic partners that we can potentially work with to accelerate the Golar Power growth story, particularly outside Brazil.
If we turn to slide 21 now, highlighting the launch of our first ESG report, which is web-based, and details our progress to date on our five key focus areas. Health, safety, security, environmental impact, energy efficiency and innovation, people and community, and governance and business ethics. I've had strong comments from the board on the ESG plan, and we look forward to having further discussions on the topic in due course. Winding up and summarizing our priorities on slide 22. We will continue to de-risk shipping. In FLNG, our focus is to conclude the position on Gimi and to continue to progress discussion for potential expansion and extension of Hilli. In downstream, we'll continue to push the build-out of small scale and develop the terminal at Barcarena.
We'll focus on concluding the refinancing activities that Callum discussed. Of course, we'll continue to push for a sustainable reduction in net G&A and simplification of the group structure. With that, I'd like to hand you back to the operator for Q&A.
Okay, ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Okay, our first question comes from the line of Ken Hoexter . Your line is now open.
Great. Good morning, Iain, Callum. Welcome. Iain, just obviously, I think the one to start on is your thoughts and progress on the shipping spin. If there's any update on your thoughts, is that just off the table in this market? You just proceed as planned, then your view of the mix now you've improved, you noted the amount that's contracted versus spot. What's your thoughts on increasing that in this environment where rates are today, or do you like the mix of almost 50/50?
First question, nothing's happening immediately around the shipping spin. The final point I made in the summary relates to that good old chestnut of group corporate structure and simplification. We haven't given up. We're continuing to explore different ways to make the company comprised of separately investable components as we discussed previously around the difference between shipping, FLNG, and Golar Power. We continue down that path, and we'll update you when we've got something concrete to discuss on that point. Around shipping, I think from our point of view, we like this structure that we've got. We like the profile that we've developed. I think we're building a defensive strategy across the portfolio that we want to protect from that and leaving that opportunity for the upside, whether that's through a contract structure or a couple of spot ships to just to take advantage of any upside.
In doing that, we are happy to take on more term business as it comes along. Obviously, doing that in a very low-priced environment is more tricky than it is when it's on the uptick. I'm just very pleased with the progress that our shipping team's made, particularly with the additional analysis that we're doing in using this to position. Short answer to your question is that I would like to see a bit more of contracted term business, and certainly compared to where we were a year ago, we're great. We've proved our average.
Thanks for that, Iain. Just following up on the Gimi. I'm sure you're limited in what you're able to talk through, but maybe you can just walk us through the process. Is it something that you move toward arbitration? Is there any court system that you progress with, or does it just stay at customer discussion levels and proceed from there?
All right. Yes, you're right. We have a process. Under the terms of the lease and operating agreement, we have a process to follow that determines cause and remedy of any claim event. That process is underway. Importantly, it's expressly defined in the LOA. This is a confidential process, I'm sorry, I can't say anything more on the detail. We will give a full explanation of where we end up, when we've got it formally agreed with both BP and Petrobras.
Well, I think that's helpful to know that there is a defined process in the agreement.
Absolutely.
Okay. Look forward to hearing more on it. My last one is just on Brazil, right? Obviously so many different moving parts here, but when you think about the process and the bid, maybe you can just maybe simplify the bid process for the next steps, whether it's in Barcarena or are there other bids that you're looking at to expand your capacity there?
Yes. We already have a 600-MW power station that we've bid and been awarded at Barcarena. We continue to develop the terminals in the other locations that I mentioned. The process is, Brazil is obviously going to be delayed with any auctions right now due to what's going on there with COVID-19. The process is quite simple. An auction is declared by the government. As we get closer to it, we understand the number of megawatt, and therefore, how competitive we can be. We've got the Sergipe extension, we've got Barcarena as already awarded, Santa Catarina, other places. The idea is that we work out where we can be competitive and then bid into that process using the best combination that we can come up with. These awards can also be swapped around afterwards.
In one way, it's a very, very strict and regimented process. On the other hand, once you've been awarded, you can move some of these projects around. The key to success here is the fundamental point of having locations ready to bid that are approved and qualified. That's where all the hard work goes on in the background, getting these locations ready. We've got many that we're working on to be able to do that.
Let me just wrap up, I guess, on the LNG price environment. Where prices are now, do you expect as we see the reopening obviously creeping up in the U.S. and in Europe accelerating a little bit more, clearly in Asia, I think we've seen a bigger ramp up. Are you expecting that pricing, I don't know, just to follow normal seasonal pattern? Would you expect to see a slow uptick based on the acceleration of the reopenings around the world? Maybe you could just walk through that. I appreciate the time. Thanks.
My outlook on LNG pricing, I think it's probably the same as everyone else's. It's wrong. If you could tell me when the global recovery is going to restart, what the rebound profile will look like, how that will translate into energy demand, what oil demand will be, how OPEC plus and the U.S. shale will respond, how the coal spat between Australia and China that's been recently announced will play out, trade relations between the U.S. and China, then I might have a more informed view. Building with this defensive strategy in order to create resilience. With LNG, we're developing our Mark III, so it's super competitive and staying engaged with customers. I think that it's all we can really do with trying to with forecast. This is not forecasted to be prepared and be ready to move as soon as the opportunity arises.
Wonderful. Appreciate the time. Thank you.
Thanks, Ken.
Okay. Our next question comes from the line of Randy Giveans. Your lines are open.
Howdy, gentlemen. How's it going?
Hey, Randy.
Hey. First, congrats on starting the Sergipe Power Plant during the first quarter. Just kind of following up on that, what are the expectations for the cash flow ramp-up, and how has that Brazilian real depreciation impacted this project? It seemed like initially the EBITDA contribution was around $24 million a quarter. It looks like now it's closer to $19 million a quarter. Is that a good kind of run rate for the remainder of 2020?
It's dominated by or it's influenced by a few things. The Real exchange rate. All our costs and the majority of our debts in Real. There's a bit of a natural hedge there. The other thing that happens, of course, it's linked, as all Brazilian contracts are, as we go through the years. You get some degree of offsetting of one against the other. I don't have in front of me the indexation that we've got coming up.
Okay. The kind of reduction in the debt servicing and interest could offset the reduction in the revenue contribution. Is that fair?
Yes. The debt service and interest, a majority of it's denominated in Brazilian reais, so there's no impact there. The only impact is what comes out the other end as distributable cash, if you like.
Right.
Depending on how you convert it and where you're going to spend it.
Okay. Looking at FLNG, I know you already mentioned a little bit about the process being underway. Do you have some kind of a timeline for that? Is that a few weeks? Is it a few months? Switching over to the Hilli, any updates or kind of ongoing talks with Perenco to either extend the contract on trains one and two, start utilizing train three? Maybe what's more likely, I guess, in your opinion, an extension or an expansion?
I don't have anything else. There's no point in me predicting. We're in a very structured, organized process with BP that we're progressing, and we'll update everyone right at the end of that. I don't know if you're referring to the article that popped up yesterday around Hilli. We obviously don't comment on media speculation. The fact is, we've got a great operating relationship with Perenco, and we've never stopped having commercial discussions with them around the potential for both throughput expansion with the existing contract that's got six years left to run, and equally for the potential to extend that beyond six years. I'll state the obvious, but Perenco is an oil company. In the current environment, we would expect them to be prudent with CapEx and cash conservation.
Whilst we understand that the drilling investment to provide more gas into the current contracts is relatively small, I'd expect a bit of delay there due to the current environment. As to extension, we maintain the position. It would seem to make sense for both Perenco and SNH to continue with Hilli due to the gas that we understand is available in Cameroon waters, and we'll continue to have commercial dialogue in that regard. In the meantime, and importantly, we'll press on with ensuring that Hilli continues to be the best-performing FLNG asset in operation today.
Got it. Okay. I just wanted to see if there were any updates there on Perenco. Just one question for Callum. First, welcome to the big show here, and no need to apologize for detailed financial explanations as you did earlier. We like that. Looking at those multiple refinancings that you were referring to, obviously, you're diving right in with all this work underway. What is the possible net liquidity increase you expect after repaying the current debt on these kind of refinancings?
Thanks for the question, Randy. Which you probably haven't had a chance to see some. There's a little bit at the back end where we talk about what the vessels are. It depends what we do, right? If you look at the field, that is a requirement. We want to be on the front foot and then have that done prior to January. I think the extra liquidity on that, you should think of that as being low. That's heading off the potential put option from the counterparty in January next year. Think of that as being low single, mid-single digits in terms of liquidity gain.
The liquidity gain from the other vessels that we refer to, it depends on which ones we choose to do. We've got three potential situations that we are looking at. We are in very advanced discussions with the counterparties in terms of term sheets, credit committees, et cetera. I think you should think of that as a liquidity gain. All three to occur, you should look at the liquidity gain being north of $50 million, five zero million and sub $100 million. You should think of it in that zone. I must stress that this is opportunistic. People have approached us and said, "We think this is good for you, and we're interested in this." We're looking at it. We're in advanced stages, you never know in the current environment. Things should move quickly.
From those, you should be looking at between $50 million and $100 million were they to occur. Please note the were they to occur.
Yeah. No, that's fair. Just trying to see what kind of leverage you could pull there. Thank you for that color.
Sure.
Good talking with you all.
You too. Thanks, Randy.
Okay. Our next question comes from the line of Mike Rober. Your line is now open.
Hey, good morning, guys. How are you?
Hey, Mike.
Hey. Iain, first one's on the Gimi. I know there's an ongoing process with BP. Just thinking from your perspective, and the actual conversion work being done on the Gimi, what, if any, impact should we expect on the leverage and the syndicated debt associated with that asset as it relates to some degree of schedule relief with the force majeure? I know BP mentioned a year, which is an oddly specific number for someone that's simply looking to sell the gas. Does it have any impact? I know they're the first piece of syndicated debt in the FLNG market ever, I think. Is there any repercussions or any pockets of concern associated with those overlapping processes?
I'll let Callum chip in on this to start with.
Yeah, sure. I think we've been delighted with, Mike, on how our lenders have responded. They get the situation. They understand it. We're keeping them informed. It's a fast-moving situation. We're trying to move three things off the three parts and sides of a triangle off to the right, the BP discussions, the contractor discussions, and the financing line. As things currently stand, I think it's fair to say we're comfortable with where we are. The short answer to your question is no, we don't think there are any repercussions for the financing by moving the financing to the right in terms of the comfort of the lenders. I think they've been very supportive, and we're appreciative of that. They're obviously waiting.
The process there is for us to be able to take the advanced and positive discussions we have with the contractors, price all that up, cost all that up, phase it, and then go back to the lenders and their engineers and say, "Here's where we're at. Are you okay with this?
The initial conversations we've had with them around it's a dynamic, right? We have feedback from the contractors. We keep the lenders informed. The environment is positive. As Iain said at the start, right, we've got a little bit of a way to go to get this finalized, but it's advanced and positive. That's a bit more color around it. At the moment, we think they're along with us and are super supportive.
Got you. Without getting too granular, if I think about the 12-month term referenced by BP, that doesn't trigger anything within the credit documents of the indenture associated with the availability of that capital. I know it doesn't start amortizing until, I believe, commercial delivery. I've got to check. There's nothing that gets triggered, but within just from the timeframe alone. Is that what you're saying?
I've asked that question, Mike, and the answer I've got is no, it does not.
Okay.
There are other things.
That's helpful.
There are other things we care about.
in terms of quantum and tone and everything else. In terms of duration, no.
Okay. That's helpful. I appreciate it. Iain, on the carriers, again, I know this is a process that's been going on for close to two years now, I think. Maybe more.
We've kind of gone full circle. It's a difficult proposition. In fact, I can't think of another time where you've seen that size of a block of carriers that size change hands. Even that was probably smaller. Given what we're looking at now, is it fair to say the most likely scenario is some kind of in-house solution at Golar that doesn't necessarily involve unrelated third parties?
It could be. We're considering all options, Mike. Personal frustration, this is fairly big in that we had the original spinoff with the two other shipping companies thwarted at the end of last year. We had a spinoff that was thwarted by the global downturn that we had. We're not giving up. We'll get it sorted. We just haven't quite landed on the right solution for this time.
We're exploring new options. Callum's come in with some great new ideas. We're clear with that. Look, I'm confident we're going to get there, but I'm reluctant to put a timeframe on it, and I'm so happy that I haven't been more specific about what it will look like, because these things haven't happened, and I've been wrong. Really, we're still preaching on it, and we've got it there on our list of priorities. It's really just to let you know that we're not giving up. We understand the value of having an investable vehicle that is ships and having investable vehicles that are other things. You've got different types of people that may want to invest in those different asset classes, but we're just trying to get it right.
Got you. Okay. On the Hilli, I know you kind of got at this earlier, and I believe previously you've mentioned a preference to extend relative to expanding. I'm sure both would be preferable. If you had to pick one or the other, extending the term and eliminating rollover risk versus adding a third or fourth train is your preference. Is that the right way to think about it in terms of the most likely outcomes? I know there's a bit of horse trading going on between Perenco and the government. Anytime we see articles like that, they're written for a reason by someone to send a message. Should we think of it as, is the most likely scenario an either/or do you think it's likely that we would see something eventually combined where Perenco has done some more drilling?
Well, they could be stepwise. We might get a bit more production coming in within the six year contract. Sorry, the eight year contract, we have six years left. We might get that. Then we have a period of a couple of years to then agree an extension. If you take the premise that it's assuming that LNG prices normalize to somewhere a little bit more attractive than they currently are, and remember that some of this gas is a byproduct. They have condensate-rich fields.
It's not just a pure gas wait for Perenco. If you think about the extension opportunity being attractive to Perenco and SNH, you would then conclude that it's in their interest to talk to us about an extension and try and figure out something over the next couple of years to nail that down. Equally, and we shouldn't forget this, Hilli's got a fantastic reputation with all that operational knowledge that we're building up, and in two years' time, in four years after that, it will be ready to be deployed somewhere. We already ignored interest coming from other parties to say, "Can we have a look at setting something up so that we could take Hilli?" I don't think your statement's right about it's our preference just to extend it.
My preference now is to get additional volume through as much as we possibly can now, because it's cash today for no incremental CapEx. Sure, we want to extend it.
assuming we get the right deal from Perenco and SNH. If we can't extend it with the right deal, I've got a bit of a ground swell of interest that we can explore over the next couple of years to see if we've got something that might be better.
Okay. That's fair. You touched on this. There's one more from me. You touched on Brazil quite a bit, but maybe just to kind of put a point on it. The impact of COVID on the pilot programs you're running in Brazil, I know there's been a lot of interest, and you've had a number of people sign up for MOUs. To what degree has that appreciably extended the timeline for initial commercialization of the merchant share of capacity that you have in Brazil? My apologies if you referenced that in your prepared remarks and I missed it. To what extent, if you can maybe measure it in quarters, do you think that kind of slides your timeline back in terms of how you think about commercializing that process?
Well, it's a good question. The answer is, I don't know exactly, but we've been talking for a while about converting some of these LOIs that we've had into binding agreements, if you like. We got our first three under, 113,000 cubic meters of gas today. I think that starts the ball rolling. It's giving the team confidence around the economics. We've got the deals done, payback in around a year. EBITDA, CapEx of one, CapEx EBITDA rather of one. I think at the end, what we're going to try and do is report back to three customers now, 51 in negotiation. They should be converted relatively in short order. We'll see how we go against that. Another 200 that have signed up to LOAs, or LOIs rather, representing 6 million.
If you add all that together, it's something like one and a 500,000 tons of LNG per year. It's a phenomenal volume. To answer your question more directly, we've got three down. Let's see how we go through quarter two, and let's see how that curve starts to ramp up. I envisage it being a slow start, and then as we get better and better at rolling these out, people will get more confidence. The customers will have analogs to go by in terms of, yes, other people have done this, and I think it will speed up. Yeah, we've taken a little bit of hit on time through the delay in Brazil. I don't think it's over in Brazil yet as well.
Yeah.
Let's see how we go next quarter.
Okay. Perfect. Thanks for your time, guys. Appreciate it.
Cheers.
Okay. Our next question comes from the line of Chris Weatherby. Your line is now open.
Hey, guys. James on for Chris. Just wanted to touch on the Sergipe Power Plant. Exactly how many days so far in 2Q has it actually been on call, and how should we really think about utilization? Then sort of separately, I was wondering if you could help us think about the merchant power opportunity there across the balance of this year, just given COVID and basically the broader slowdown. Just wanted to sort of get a better understanding of the outlook there.
Yeah. Remember, we came on in Q1. We're reporting Q1 numbers now. Q1 came on stream 21st of March, in that period, we had three days, the last three days of the month that we were called to dispatch. Prior to that, it was commissioning. The numbers of 400,000 MW hours relates to a combination of the hours dispatched under the PPA. It was basically three days, and the hours dispatched during commissioning, which I guess is a form of merchant power, but it wasn't done in an economic focus. It was done because we had to run the machines.
Whilst Q2 will be the first full period of availability for merchant power, it won't be truly representative, I don't think, of the earning capacity of the plant, because we're still performing some additional guaranteed and performance tests with our contractor as part of the agreed program. Think about it, the focus was getting commercial acceptance, which we've done, and when that develops, we think it's good. We've got a few other tests and things to tidy up as we go through. Nevertheless, there should still be some opportunity for merchant power in the quarter as the prices come up. Then I think we'll see the third quarter being more representative of what we can probably do. Fourth quarter, I would expect there's a little blip in the middle of the year, but I expect that will come off as well.
This is dominated absolutely by the availability of hydropower, because these plants are called as backup. Obviously, they turn to thermal plants when hydropower isn't available due to the reservoir levels. We've got a team in Brazil that are I think we hired a weather forecaster. We are so connected into the weather forecasting and the level in the dams to be able to protect ourselves, when we think we might be called for dispatch so that we can obviously line up whatever it is that we're going to do around LNG shipments.
Okay, that's helpful. You mentioned the possibility of pipeline gas. Just wanted to get an understanding of sort of the timing and sort of the EBITDA potential from that particular opportunity in Brazil as well.
The timing, we're at the permitting stage. It's still in pilot. I'm thinking from memory, it's about 20 km or something like that. The timing, we might be able to take FID on that later this year or early next year. It just depends on how quickly we can get these permits processed. That's the thing that's probably been slowed down the most through the COVID-19 issues. That's our permitting process. We'll happily give you an update on that a little bit later after we've got through that. EBITDA, we know that it's a relatively low CapEx, potentially good EBITDA generator. We've just started. We've hired a team, and we just started that commercial acquisition process of getting industrial customers on. It's okay.
Let us go through this quarter and for us to give an update on that next time in terms of where we are and the actual EBITDA. Unless, Callum, you've got any insight into the EBITDA numbers, the potential from that outline. Obviously, we wouldn't be doing it if it wasn't a low CapEx, fast return opportunity.
I think that's right. It's a team that's working. They tend to sign up customers on a sort of with a base guaranteed fee and an upside share. You should think of it as the revenue split being between a base and then a kind of upside depending on commodity price differentials. As Iain said, there's a lot of cost here and we respect that and value it. Before that translates into giving you guys detail, we'd like to understand better and see how it works. It looks exciting. It looks very exciting, but we need to feel confident we have a good handle on it. At this stage it's positive, but let's see.
Yeah. Fair enough. I'll leave it there.
Makes sense.
Okay. Our next question comes from the line of Craig Shere. Your line is now open.
Good afternoon, and welcome to Callum.
Hi, Craig.
Iain, you noted Golar's low-cost FLNG development strategy. We certainly agree with that, the primary challenge has been not engineering or construction, but really financings that better match the underlying contract duration. Previously, you've cited financing improvement opportunities in terms of better shipyard terms, infrastructure equity partners, and better debt financings. Can you provide an update on these efforts?
We're still going, Craig, in the same direction. Obviously, there are opportunities for the new build. They're bigger, they're more expensive, but they're very competitive in terms of capital cost a ton. We would be targeting those at customers that obviously have good security around any potential deal that would result in financing, or they can actually be part of the project. They would be fairly large projects. I think it's early days, Craig. We're very much positioning. Nothing is happening specifically around anything close to FID on FLNG projects. What we are doing is we've made very good progress on our Mark III design. This whole economic turmoil that we're going through has put everything on pause a little bit. I guess the message I want to give out is that we're continuing to develop our Mark III design.
We're continuing to stay in touch with customers. In fact, we're having virtual meetings all the time through our FLNG development team to keep these opportunities warm. My final point on is that when the market's ready to address, we're in surplus at the moment, but when we go into deficit and people can see demand pooling requirement for more supply, we will definitely be at the front of the queue.
Very good. Speaking of FLNG, I apologize, I know there's a lot already been asked. On the BP Gimi force majeure, would it be fair to say that there's no reason to think that this could extend beyond the initially claimed one-year delay? It could well result in comfortably less than a one-year delay? Could we get better color on the extent of the delay, potentially by the 2Q call? Would any cost overruns that are associated with the delay necessarily be 100% equity funded? Do you have any rough range of how much those cost overruns could be?
They are all perfectly sensible questions that I'm not going to answer any of them. Listen, we're going through a process. Obviously, if we'll give an update where we are in Q2, if we solve things by the end of that, then we'll do so. As much as I like to explain more, our confidentiality agreement actually precludes us from even talking about any on where we're going. That's just the way it is, and we respect it fine, and we continue our discussions and go through the process.
Fair enough. Last question, sticking with FLNG. I just want to clarify. I believe your Perenco Hilli contract was specifically for 500 Bcf. That with two trains would run eight years, but they could tap a third train and do it more quickly. My question is, if they don't tap Hilli at all for a time, would they then be able to tap that third train under the existing contract to stay within the eight-year time limit?
We've had a few backwards and forwards on this with Perenco. I think we all have a common desire to have that contract an eight-year contract and less about the 500, just because we've got a little bit more. We've had a year and a half of experience, which people aren't actually going to see as experience now, of working on the project itself. You should think about it as an eight-year contract and whatever volume we can put through that it's up to Perenco and SNH to put the necessary changes to any country agreements to allow that to happen. I think the desire is to have an eight-year contract, and let's not worry so much about 500, if that makes sense.
I see. Back to your point before, you'd rather maximize volume today, so to speak, understanding that it won't be maximized the next couple of quarters. They could start tapping the third train, if eventually we get better markets and they want to upsize their oil production and associated gas, then you could discuss about tapping the fourth train down the road.
Yeah. All of the above is possible. You know me and talking about Hilli. Once something's signed, we'll talk about it publicly.
Okay. Thank you very much.
Thanks, Craig.
Okay. Our next question comes on the line of Greg Lewis. Your lines are open.
Yes. Thank you, and good afternoon, everybody.
Hello, Greg.
Hey. Iain, could you talk a little bit about Golar Power? Clearly, as you look at this opportunity in the small-scale distribution, there's a lot happening. Maybe it pushes out a quarter or two, depending on issues surrounding that country around COVID-19. As we think about the opportunities and then the slides you talk about, ISO tanker trucks, some pipelines, other small-scale opportunities, is there any way to think about maybe the CapEx around this to meet this growing demand as it plays out? It seems like a great opportunity. Is this just really free money given that the infrastructure's in place, or are there going to be any calls on additional capital to build out this smaller scale network?
There's no such thing as free money in this world. I've managed to come across. In terms of how Golar Power is going to build this out, they have a very detailed plan. Obviously, it has a number of fronts. They won't all progress in accordance with plans. We'll push ahead on the ones that we get the breakthroughs on as we can. The important point is that as far as we know, and as far as the plans that we've seen going forward, all of the CapEx will be funded from within Golar Power. There's no additional equity requirement to come in that we're aware of. That CapEx will come from a combination of income from Sergipe, and obviously, there's a couple of ships that are owned by Golar Power, and the potential for additional debt facilities that they have.
Golar Power is essentially, at this stage in the development phase, self-sufficient for what it's got in front of it.
Okay, great. Just a question around on slide 17, you have that interesting chart where you talk about the spot prices for power. I guess two questions around that. One is, clearly, we can see the price. Is there any way to quantify, realizing that it is going to be different on an annual basis? Is there any way to think about the call on that demand in terms of megawatts? In terms of, as we look at, it looks like we're moving into a strong part of the year in Q2, Q3, where their prices move higher. Is there any way to think about what that potential capacity call could be to something like Sergipe?
The table on the bottom of that slide 17 is our easy way to think about it. Noting that we've got 60 days notice for dispatches, basically two months. If we're not dispatched, we know that we have two months worth of opportunity. If you think about a cargo being burnt, full cargo, 160,000, 170,000 cubic meters of LNG being burnt over around 15 days, maybe 16 days. If you have a think about how many, 15 days in a 60-day period between now and the end of the year, you feel that we might have the opportunity to burn LNG at a profitable rate. The table basically shows, if you look at the graph, you've got peaking at BRL 500 last year, peaking BRL 300 this year. Choose a number, BRL 200 per MWh , we buy LNG at $2 per MMBtu.
We've got $12.7 million of EBITDA in profit. If you say, it's really a case of having a stab at how many times that sort of event can occur. The point that we're trying to make is there is a spread between the spot price that's called in the region and the fact that we're the most competitive plant that's out there, and therefore, if anyone has the opportunity to make a margin on merchant power, it's at Sergipe.
Okay, great. Just one more from me. You mentioned the global opportunity landscape for Golar Power. Clearly, there's a lot for the company to be doing in Brazil. You are gaining a lot of traction there. As we think about maybe the broader global opportunity set, how should we think about it? Clearly, Brazil is an emerging global economy with tons of port access. Is that how we should be thinking about where the other opportunities could be? Just trying to understand how we should be thinking about that opportunity set globally.
Yeah. Look, I'm not going to name the countries, obviously. We want to have a competitive-
Understood
issue. If you think about countries, locations within countries where there's a population that doesn't have access to electricity or doesn't have access to clean energy, so it's currently burning dirty energy, and where an FSRU would be a fast solution. This model hub and spoke would work. We have about 15 countries that we're working on right now. You're right, the focus is on Brazil. We've got to get that working with Sergipe working. We start the rollout of the small scale, proving the economics of the model, and then we can work out how we transfer that. I mentioned in the past that we have had a bit of strategic interest, if you like, and people that may want to partner with us to accelerate that. The advantage we get with that is obviously some of the grants in some of those locations.
Our Brazilian presence is very strong, and we're not naive to think that you can do everything out of one location. You've got to be kind of multinational about it. You've got to have people on the ground, now, whether that's with a local partner or teaming up with somebody that's already there. That's the kind of process. The focus is first to get Brazil up and running. Sergipe, small scale, we started. Let's get Barcarena done, and then look at how we can expand that, and taking in partnerships as we go.
Okay, perfect. Thank you for answering all my questions. Cheers.
Our next question comes from the line of Jason Gabelman. Your lines are open.
Yeah. Hey, how's it going? I guess, yeah, just going back to the Brazil opportunity. You mentioned, I think a couple of quarters ago, you saw the potential to grow EBITDA in Brazil within Golar Power, your share by $100 million between now and 2025 in kind of a ratable fashion. Is that in line with the opportunity set that you still see, or has that changed a bit?
Well, it's probably what we talked about, though, was a very slow start-up, and I think we've proven that it is a very slow start-up, which has been hampered, obviously, by the COVID-19 situation. As I said previously, let us get a bit of progress through Q2 and Q3 on the run rate in converting these small scale LOIs into binding agreements, and we'll be able to update you on how fast that we're going. Obviously, when we get the Barcarena terminal FID done around by the end of the year, that will have an impact. We can model all we want, but this is going to be determined by physical progress.
Got it. Okay. Thanks for that color. Then just switching gears to the MLP a little bit. Clearly, you made some moves to shore up liquidity there as well and the debt payments that you had to, you were able to push out. Do you see a risk to the structure or, I guess, a better way to phrase it is, how are you thinking about the MLP within the current structure? Is there an opportunity to restructure that subsidiary? I believe there's some recourse debt at the MLP recourse to Golar, the C-corp. Is that something that you're planning to potentially have to deal with down the road?
I've got two comments to make. One is that those questions you'd be better off asking Karl at the MLP call on the half hour. Callum, do you want to comment on any of the points?
I'll just make the point, Jason, that certainly I'm a month into this job, I think a couple of your colleagues referred to the structure of the group and the MLP spin. I think what we intend to do, Iain mentioned it, I'll just reinforce the point, is sort of sit down and look at the group as a whole and say, right, what's the right structure? What gives us the maximum flexibility? What's the right structure that gives us the maximum financing flexibility, what's the right structure that meets the needs of equity holders and bond holders? We're doing that. Then we layer in, I think one of your other colleagues talked about the carrier environment. We need to layer that in. That's stuff that we're doing. We're doing a lot of thinking.
We're doing a lot of modeling and a lot of work. That will continue. I think it's premature to say which direction we'd go and what we would do. It's something that we're absolutely looking at. Maybe the decision is status quo. I'm not sure. It's too soon to say, at least from my perspective. It really is, if you think of the strategic questions, we've covered a lot about Brazil. This is also one of them that's very important. We notice that there's a situation that we need to think hard about. We're thinking hard about it. I won't say anything more than that at this stage. Apologies that I can't. When the time comes where we have a plan and we think it works, we'll be very specific with you. Right now, we're making sure.
Okay. Understood. Thanks for the color.
Okay. Our next question comes from the line of Liam Burke. Your lines are open.
Thank you. Good afternoon. Iain, could you give me a little clarification on the discussion of the build-out of the small scale LNG customers? You mentioned incremental CapEx on the project would be $8 million, that would generate $7 million in annualized EBITDA.
That's right.
Is that the type of return you can expect from the entire project based on additional CapEx and then the additional 200 LOIs?
The short answer is we don't know because we haven't done those deals yet. Think about it as ranging from maybe, if you look at CapEx to EBITDA one times to maybe three times, something like that, and spread across the 200 customers. It's a very-small CapEx, fast payback business. Each customer is different and obviously dependent on where that customer is, how they're getting their LNG, and what kit needs to be provided in order to get it there. That influences the cost of putting that sort of supply chain in. I would suggest think about it between one and three times as a range across those customers. That's what we do this time. What I think we'll do is we'll update you as you go, so as we go through the quarters.
Quarter one, three customers, 21-day negotiating, 200 equating to 113,000 cubic meters of LNG, 600,000, and then up to a monstrous 6 million if we ever get there. We'll update you on that, and then we'll probably update you on the CapEx multiple and payback arrangement that we can come up with.
Okay, great. On Golar Viking, is that project still on schedule?
Golar Viking. Yeah, we had a bit of delay in the first part of the year. It's being converted at the yard in Hudong. Of course, China was hit pretty hard with the early stages of coronavirus. Management is working hard to try to get that back to schedule. There may be a delay there. If there is, it's going to be relatively short. Everything else on the project is on track. We lifted the main compressor module onto the ship last week or the week before. It's going well, and everyone's doing a great job.
Great. Thank you, Iain.
Operator, we're going to have to wind up in the interest of time, I'm afraid.
Okay. That is fine, sir.
In closing remarks from me, I'd like to thank everyone for their participation and interest in Golar. We're certainly weathering this storm, and we think we've got exciting prospects for the future. Please stay safe. We look forward to talking to you next time. Thank you and goodbye.
Thank you.