Ladies and gentlemen, thank you for standing by, and welcome to the Golar LNG Limited Q3 2019 Results Presentation Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I must advise you that this conference is being recorded today, the 26th November 2019. I would now like to hand the conference over to your first speaker today, Gideon Ross. Thank you.
Please go ahead.
Thanks, operator. Good morning, good afternoon, everyone. Welcome to the Golar LNG 3rd quarter results presentation. My name is Ian Ross, and I'm the CEO of Golar. Today, I'm joined in the room by Graham Robjohn, CFO and Stuart Buchanan, Head of IR.
We also have our Chairman, Thorav Troim, on the line, and he would like to make a few comments now.
All right. Thank you, Julian. The Board of Golar LNG has in the last 5 years worked towards a clear target of certain progress when it comes to the asset base and the contract backlog. However, the fact for your investors is that the stock have not performed. It could be easy to excuse with the fact that energy index in the same period that formed 78% and energy has been reduced from 21% to 4.5% of S and P.
We're not doing that. We're building a company and we want to make money for you guys. It truly understands that both existing and potential investors are critical to the fact that we have not delivered on our kind of targeted 5 units of FLNG strategy. And they are asking when is this simplifying of the business model going, including the shipping spin off. I'm one of the 5 largest shareholders in Golar myself, and I have further responsibility as Chairman.
So I'm sympathetic and fully aware I'm working under pretty big pressure towards solving these arguments. The world consumes today approximately 200,000,000 barrels of oil equivalent today. Some 85% of that is hydrocarbon energy, and the total consumption of coal in the world is approximately 80,000,000 barrels of oil equivalent versus 11,000,000 barrels of oil equivalent produced from wind and solar. So dirty coal is, as of today, 7 times bigger than what everybody talks about wind and solar. We truly believe that wind and solar will be with enhanced efficiency, have a bright future and will show up double digit growth.
It would, however, be extremely naive and implausible to think that wind and solar over the next 20 to 30 years can replace the hydrocarbon industry. There are some clear facts to consider. The cost and the environmental effects of producing hydrocarbon as oil, gas and coal are very different. Oil is significantly cleaner than coal. Gas is significantly cleaner than oil.
Not only is it cleaner, it's also significantly cheaper. Based on the fundamentals, LNG has grown in the last 10 years from 9% a year. The L and D volumes have doubled since 2007. This growth rate have been achieved in a market where LNG prices in most periods have been controlled by the majors and been trading around burn parity of 16% of Brent. The big volumes which have arrived from U.
S, Russia and Australia over the last years have pressed prices down and effectively down to a level around 8% to 9% of Brent, a price reduction versus oil of around 50%. The major reason for this is that gas is a lot cheaper than oil to produce. We know that gas prices in U. S. Currently are $2.5 or equivalent to around $15 oil.
I was in Russia together with Russian producers last week, and they claim that the upstream gas, which goes out into the Yamal project, costs less than $1 per MMBtu or effectively $6 for a barrel of oil. The reduction of CO2 by converting coal to gas is approximately 50% to 60%. By converting diesel to gas, you're reducing CO2 emissions by approximately 30%. Further, there are more material reductions in SOx, in NOX in particular as well. That is what the Golar story about, lowering the cost of produced energy with material environmental benefits.
Let's try to put this into a little bit of an understandable example. The diesel price in Brazil, which had a diesel price a year ago, have over the last 3, 4 years been equivalent to $26 per MMBtu. Future LNG prices are today around $6 per MMBtu. This creates a spread between what the commodity trades at and what the retail sales at of around $18 per MMBtu. If we price delivered LNG at a discount to diesel of, for example, dollars 4 per MMBtu, That gives every truck driver in Brazil a benefit of $10,000 a day in fuel costs.
He will save 170 tons of CO2 emission, which is effectively equivalent of planting 27 hectares of trees. So if you add all this together and think that Brazil have 2,700,000 trucks, you have actually a $27,000,000,000 in savings to be done by converting the whole truck fleet to LNG. The total area you can cover in trees is bigger than England. It's probably in the or the British Islands and it's probably between the British Islands and Italy. This shows you a little bit what this is about.
The Board of Golar is with this background of a clear opinion that the current valuation of the stock in the market is significantly lower than the true value of the company's assets and the contractual cash flow. In addition, comes the market leading position we have established both upstream and downstream and the value of the static beachhead we have got the strategic beachhead we have developed over the years. The Board's opinion on this is based on 3 things. It's based on the company's own calculation of value. It's based on external research and analysis as well as 3rd party interest from industrial and financial players financial parties for all or part of our assets.
In order to achieve a more effectively priced equity, the board might in the future might, in addition to the growth, which still spurs the company, consider sale of part of the cash flow we have built up as well as simplifying the corporate structure around the company. Some industries are getting it with LNG. I think the cruise industry, which 10 years ago had no LNG conversion at all. If you look at newbuildings in the L and D in cruise industry today, you will probably find that 80% to 90% of all new cruise ships are delivering with L and D. The container industry is now following.
And just coming back from China on Friday, I can say that the 700,000 trucks that now have trading on Chinese East Road is a major part of the energy revolution with the China leading up to. Bullar have since the oil price, whatever had happened to the share price, it's a sad story and I can only as Chairman apologize. But at the same time, we have since the oil price collapsed in 2014, signed long term contracts, which gives an EBITDA backlog of more than $7,000,000,000 We have built this order backlog, while most of the other competitors in the industry have eaten into their backlog and actually suffering more from a bankruptcy situation. We have today a solid finance Golar with a very strategic position, which I'm proud of. So even if trucks, ships, if it's used, FLNG might be confusing for you and looks complicated, I think it's a part of a reflection that the company can't be static in an environment with LNG prices full 50% versus oil.
You have to be in dynamic model, but you have upstream position, downstream position, and you move your investment as the prices move. But let's just end with one little comment. Golar is all about one thing. It's delivering cheaper and cleaner energy and monetizing that through long term profitable backlog. I think on that side, we have been pretty successful building $7,000,000,000 in order backlog in 5 years on an oil distress scenario.
So with that introductory comment, and this is the passion we're burning for every day, I'll leave it to Ian and Graham to go through the numbers.
Thanks, Olav. And following on from our Chairman's comments, just revisiting the investment thesis for Golar in a little bit more detail. So yes, there's an undeniable need for the world to transition to cleaner sources of energy in order to combat climate change and reduce pollution in our cities. And whilst renewables feature heavily in the energy mix, we know that there'll be a long period of transition that will require the cleanest of fossil fuels, and that, of course, means LNG. And whether it's LNG replacing heavy fuel oil in the global shipping fleet post IMO 2020 or LNG replacing diesel in remote communities in developing countries, the long term forecast growth in LNG demand is clear.
Golar participates in this drive for cleaner energy through 3 separate channels to market: firstly, through our unique low cost floating liquefaction vessels secondly, through our fleet of LNG carriers and thirdly, through our Downstream business covering FSRUs, terminals, small scale distribution and power generation. We've contracted backlog of around $6,600,000,000 in EBITDA and a growth path to $7,000,000,000 over long term contracts that are independent of commodity pricing and importantly will not require any further funding from Golar shareholders to deliver. We'll demonstrate more of this to you later in the presentation. We're committed we remain committed to delivering shareholder value, and these three areas will focus on: on monetizing our contracted FLNG assets and maximizing value through project delivery and operational excellence on spinning out our shipping business to create a separately investable entity and on delivering short payback high value downstream projects that can be funded from within our Golar Power Downstream venture. We believe that Golar has got a strong role to play in helping to change the world's energy sources, reducing the carbon footprint and reducing pollution in our communities.
Now just taking a little bit more of a look at the 3 segments in turn, I think that's on Slide 4 or perhaps 3. In shipping, we're pleased with the progress that we've made in securing utilization for the Q4 onwards. The strategy we put in place and have implemented over the last 6 months will see a 300% improvement in Q4 shipping revenue backlog and EBITDA backlog year on year. We have a good line of sight to Q4 TCE and expect earnings for the TFDEs to reach around $75,000 to $80,000 a day and for the overall fleet, including the steamships, to be around $70,000 to $75,000 Our recently drydock TFDE fleet is on the water, enjoys a good reputation with customers, and we remain of the view that placing our ships into a separate vehicle will create a more simplified structure. It will create a vehicle for LNG shipping vessels to participate in, and it will clearly strengthen Golar's balance sheet.
In FLNG, Hilli continues to perform well, and we hope that our customer will embark on a drilling program to prove out more reserves next year in order to further develop that contract. We're separately discussing a small increment to existing production commencing in the Q1 next year. And our $1,300,000,000 Guinea conversion project is on budget and on schedule. We continue to develop our Mark III design with an Asian yard in order to maintain our competitive position, and our portfolio is developing well with quality customers. We continue to evaluate offers to invest in our currently contracted assets.
And in our Downstream business, Golar Power, we went to hot commissioning of the Sergipe power station after the introduction to the plants and the fully commissioned FSRU Nanook. We demonstrated progression of the business model in winning the Bahrain at Par project, which we think will underpin the development of the Bahrain at Terminal with FID of that terminal anticipated next year. And the power station FID will be later as it's not due online until 2025. We've made good progress in developing small scale, securing shipping capacities through Avenir and taking delivery of ISO containers into Brazil. We'll dig more into these sectors in a little bit more detail once we've gone through the numbers, and I'd like to hand out to Graham.
Thank you, Ian, and good day, everybody. And if we turn over to Slide 5 and starting with the Q3 financials. Our operating revenues were up this quarter at €99,000,000 from €97,000,000 last quarter. And importantly, our voyage expenses were significantly lower due to an improved shipping market, even though the quarter was negatively Total fleet TCE increased from 24,400 in Q2. Total fleet TCE increased from 24,400 in Q2 to 35,200 in Q3.
Both quarters, as I've said, were negatively impacted by the scheduled dry docking of vessels that spent time in the shipyard and sailing to and from the shipyard. TCEs for the Q4, as Iain has mentioned, are expected to show significant improvement with an expected overall TCE in the range of $70,000 to $75,000 a day and for tri fuel diesel electric vessels at between $75,000 $80,000 per day. The increase in shipping revenues and the reduction in voyage expenses was the key driver behind the 48% increase in adjusted EBITDA in Q3, up from €40,000,000 in Q2 to €59,000,000 in Q3. We are reporting a net loss of 6 $2,000,000 in Q3, but this is due in large part to negative non cash derivative valuation movements, totaling $62,000,000 dollars as you can see on the right hand on the table on the right hand side of this slide. So turning to the balance sheet.
Our unrestricted cash position has increased to $250,000,000 as at September 30, aided by the drawdown of the new $150,000,000 debt facility. Liquidity will be further enhanced by the release of approximately $75,000,000 from the Helly LC restricted cash as we have agreed with Perenco and SNH to mutually reduce guarantee LC requirements. Subsequent to the quarter end, we closed the $700,000,000 Gilly facility and having reached the $300,000,000 equity requirement made the 1st drawdown from this facility. We also terminated and bought back $1,500,000 of the TRS shares, representing a first 50%. Turning over to Slide 6.
This slide shows our last 12 months adjusted EBITDA at $283,000,000 and after adjusting for one off gains and the MLP share of Hilli, our further adjusted EBITDA is $183,000,000 which is comparable to the last 12 months and at the end of Q2 2019. Turning over to Slide 7. Last 12 months year on year EBITDA, you can see, has shown huge improvement over the same period for the previous year. Our last 12 months further adjusted EBITDA to September 30, 2019, was $183,000,000 as I said, the massive 300% increase from $61,000,000 for the last 12 months to September 2018. This has been driven by a significant improvement in shipping and a full year's operations of Heli Episeyo, whilst corporate costs have remained constant.
Turning over to Slide 8 and our EBITDA growth. Our current adjusted EBITDA will grow significantly over the coming years through both contracted growth and expected growth from existing assets, contract awards and specific project developments. Importantly, all of this growth is fundable from existing resources. We have our share of EBITDA from Tajipe and Nanook at $99,000,000 starting in Q1 2020 and our 70% share of Gimi FLNG at 100 and 51,000,000 At Pareco, we are planning a drilling campaign in the Caribbean area to prove up reserves in 2020. And if successful, this may lead to further capacity utilization and or contract extension for Hilli.
We are also in discussion, again, as Ian has mentioned, with Prenco with regards to a smaller increase in production that will utilize part of Train 3 starting in Q1 2020. The $73,000,000 additional EBITDA shown on this chart is based on the contracted full Train 3 only option that Perenco has. Finally, Golar Power has been awarded a new PPA in Bacarena, Brazil, and this project is intended to be the anchor customer and SpringBoard development of additional downstream LNG distribution in Brazil, targeting the displacing of diesel coal LPG and heavy fuel. Based on the numerous customer letters of interest we have Golar Power have received and Golar Power's project development activity to date, the Vacaurena project and downstream distribution has the potential the realistic potential to deliver $100,000,000 in EBITDA share for Golar. Importantly, the equity requirements for these downstream developments are fundable from Golar Power's operating cash flows, which start in Q1 2020.
Turning over to Slide 9. Here, we set out the Gimi CapEx and debt profile to COD. At COD, the total equity requirement on a 100% basis is $493,000,000 of which $188,000,000 has been paid in as of September 30. Remaining equity requirement is therefore $305,000,000 of which Golar's 70% share is 214,000,000 dollars To fund that $214,000,000 we have $325,000,000 in liquidity made up of $250,000,000 in unrestricted cash on the balance sheet at the end of September and the release of $75,000,000 from the Hilli restricted cash. We have closed and drawn down the $700,000,000 debt facility, as I mentioned.
And importantly, as we get nearer to COD, we plan and remain confident in our ability to refinance this facility, increasing the debt level and releasing paid in equity back to Golar. Approximately $137,000,000 CapEx is due post COD and will be funded from commissioning revenues and operations. Also, and as previously discussed, we have had significant interest from a number of infrastructure funds looking to invest in our existing long term FLNG projects, and we are evaluating these proposals. A potential sale is not necessary to fund existing CapEx, but proceeds could be used to fund equity requirements for future business developments. Thank you.
And with that, I'll hand back to Iain.
Thanks, Graham. I'd like to take you now through our operating segments in a little bit more detail, starting with shipping. So I'm on Slide 10. In shipping, we believe that we're entering the period of structural shortage of ships that's been widely predicted by shipping brokers. We expect the next few years to be strong for the carrier fleet and therefore maintain the view that spinning out the ships remains in the best interest of shareholders.
And following the Board's decision to spin the ships out back in May, we had been driving towards a spin off prior to the year end. And as mentioned, we were planning to do this in conjunction with some other ship owners in order to create a larger business that can be more responsive to the market. And unfortunately, while that arrangement was ready to go, we had a very late change in the needs of one of the participants that we found unacceptable. And as a result of this, Golar has withdrawn from that arrangement and will continue to progress alternative mechanisms to complete the spin off. We plan to list this month on the Norwegian OTC with the larger group before moving it most probably to the U.
S. Next year. Our revised plans will now have us look at the direct U. S. Listing of Golar only ships, which inevitably means that we will not achieve the spin off until next year.
The delay is disappointing, but we do remain committed to the spin off and believe that again, subject to market conditions, we'll get it done this coming year. In the meantime, we're looking forward to the ships making some good money over the coming quarters. Turning to FLNG, Slide 11. So Hilli has now offloaded 29 cargoes safely without incident. Any additional LNG production required in 2020 can be handled with ease based on our operating experience to date.
We recently completed the planned maintenance shutdown and completed the full scope without any concerns. Our team is really familiar with the vessel, and the operating experience and confidence in the facility continues to grow. As in Singapore, I have a look at the Gimi project a couple of weeks ago, and things are progressing well. There are a few pictures of the yard activities on Slide 12. It was a pleasure to walk around such a well organized site.
The life extension work on the ship is going well. Sponsored fabrication is progressing at pace, and it's so good to hear the numerous lessons learned from our Hilli experience being implemented in real time on a daily basis. We have around 80 Golar and around 1500 Keppel people working on the project now, pushing for sale away in just over 2 years' time. $250,000,000 of EBITDA for 20 years remains an attractive investment opportunity for infrastructure funds. And as mentioned, we continue to evaluate numerous offers for investment in the currently contracted assets.
In terms of the FLNG pipeline, we continue to develop opportunities, focusing only on the top 5 that have most chance of reaching an investment decision. But I must stress that we remain highly disciplined in our capital management. An investment decision for future LNG projects would have to cover the fully financed solution. The projects do take time to develop, and we, therefore, we don't really The projects do take time to develop, and we, therefore, we don't really expect any FID for at least the further 12 months. Looking at the Downstream business on Slide 13.
In Downstream, our development of Golar Park the single project at Sergipe to a comprehensive business is progressing well. The whole drive of this downstream business is to display dirtier, more polluting fuels, which are used for transportation or power generation and to replace them with cleaner and, in most cases, significantly cheaper sources, as Tore explained, cheaper sources of energy via LNG. Because of the double benefit of lower cost and less polluting energy, we're not surprisingly experiencing strong demand from the customer base of remote communities and businesses, who will benefit from the forthcoming switch. And as we can see from the map on the slide, our plan is to build out supply capability from strategic hubs around the coast. Olaparra is well advanced in the extensive permitting process for several terminals and with the recent award of the Vacaena power project, underpinning a terminal in the most northern spot on the map, you can hopefully see the coverage you can get from that location.
On the ground, Golar Power has made progress by taking possession of around 12 ISO containers, which will be used to transport LNG to customers on barges or on trucks. We've secured access to shipping via a time charter of a 7,500 cubic meter vessel from a later departed company, Avenir, we've committed to modular regasification and unloading units. In addition to doing great work for communities, we think this is a superb business. As Graham highlighted, we see growth potential for the next few years across the downstream activities identified so far. And by identified, we mean that with real customers through albeit nonbinding LOIs for supply of LNG.
We expect to have contracted somewhere around $100,000,000 of EBITDA, which is a Golar share, importantly, funded from within Golar Power cash flow and debt facilities, and therefore with no requirement for additional equity from GLNG. Sergipe, which is the cornerstone of this business, is into the hot commissioning phase of the power station. Things there are progressing well, and we're looking forward to reaching COD early next year. Some further pictures on Slide 14 are included. I visited the site last month, and you can tell it's a fully constructed facility.
The huge construction workforce is gone, and all we have now are the commissioning teams. We're hard at work with the gas now being fed into the plant, and they have plenty to do over the coming weeks. Turning to Slide 15, I'd like to talk a little bit more about ESG. And as I've mentioned, the strategic plan of our business is focused on helping our customers reduce their carbon footprint and improve their emissions through the use of LNG as a fuel source displacing dirtier and more expensive sources of energy. But equally in Golar, we are also focused on at ourselves and how we can improve what we are doing for the last 9 months or so, have been running an ESG project that will result in more formal statements and reporting of what we do, where we want to get to and how we're going along that journey.
Our 5 key areas are outlined here on this slide, and the important thing is that we've been focused on these for quite some time. For example, our attention to safety and operational risk management across the business is relentless, and it's underpinned by a management focus and a strong culture of continuous improvement. We commissioned studies across the carrier fleet to understand the optimum vessel trim at various speeds in order to improve fuel economy. We deployed heat recovery steam generators on our FLNG units to minimize fuel usage and therefore reduce emissions. And we have patents pending on a design for hydro energy regeneration from seawater disposal that we're installing on our FSRUs that again conserves energy.
And of course, our Brazilian business model has the cleaning and dreaming of remote communities, energy consumption right at the heart of it. There's a little bit more detail of this in our of our progress in the appendix. And our Board, of course, is fully behind this ESG drive, and management will be submitting its first ESG to report to the Board prior to formal release next year. Slide 16. 1 gs demand is only set to strengthen as more and more segments of the industry and both urban and remote communities address growing concerns around climate change and pollution.
Whilst renewables are the ultimate destination, gas and especially gas in the form of LNG is a significant part of the journey and OIBISO for a long time to come. Our work in liquefying and transporting gases LNG serves as a transition feed stock for remote communities that are currently burning more polluting fuel oil and diesel for transport and power generation. Importantly, we know the switch is coming, thanks to our ability to get cleaner LNG to these communities and a significant cost saving to the consumer. We also know that rightly or wrongly, economic benefits sometimes need to lead environmental ones. And with small scale NL and GE distribution, we have both economic and environmental benefits.
The model works. At AgULA, we remain focused on delivering what we've committed to and what's in front of us, and that is fully contracted EBITDA run rate of around $440,000,000 per year and expanding to over $600,000,000 per year without any further funding required from Golar LNG shareholders. This is evidenced by close to $7,000,000,000 in EBITDA backlog that delivers out past 2,050. We believe Golar is a sustainable business. And now I'd like to hand back to the operator, and we'll take your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. And the first question comes from the line of John Schappel from Evercore. Your line is now open. Please ask your question.
Thank you. Good afternoon, everybody.
Hi, John.
Ian, I think the last slide is incredibly important with the backlog and the fully funded. I think it speaks to the strategic developments you guys have made and really set Golar up good for the long term. However, as Thor alluded to, sometimes the market, especially in energy and LNG specifically, is very short term. So forgive me for asking 2 kind of short term focus questions. So first with Hilli, can you just explain a little bit more about the smaller increase in production that could potentially start in 1Q 'twenty?
You had in one of Graham's earlier slides still the $73,000,000 of EBITDA run rate from Train 3. So what would the smaller increased production really translate into from an EBITDA run rate perspective? And how real is that for 1Q 2020?
So we're still in discussions is the first thing. And therefore, until the deal is signed and delivered, it's not delivered. I think we should consider it as a fraction of percentage of that Train 3. And separately, we hear from our customers that they are embarking on a drilling program prove up assets, and I see that as a very positive step forward if we, in fact, continue to do that. And we could be in a very different situation this time next year talking about a much larger commitment to Heather.
A commitment that would include 3 and 12? How sizable could that commitment be? I understand
your question. I think that will depend entirely on what we find and what they're prepared to commit to. So I mean, I think the good news is that actually, we believe they're going to move forward with the drilling program, which is great.
Okay. And my second question is, you mentioned this huge backlog, which is obviously real. When you announced the TRS last quarter, you mentioned suspending the dividend for 6 months. But if you read the press release and you talk about capital return, you mentioned a focus on further growth investments or share buybacks. So as your view on the dividend kind of changed over the last 3 months, do you not view that as a 6 month suspension but more of a permanent suspension with more of a focus on buybacks given where the share price has been over the last few months?
I think, John, that will be a matter for the Board to decide. But as we sit here before us, certainly, if we have any spare cash that's available, we'll put it to use that maximizes value for shareholders. And within that mix, you have to consider anything that we have projects that we have to invest in or, in fact, buybacks.
Okay. But it sounds like things are fully funded, a lot of cash flows are turning on. So spare cash should accelerate in the early part of next year. And given the timeline that Graham laid out, most of your equity commitments are done. So we should think of more of a capital return unless there's new projects.
Is that correct?
That wouldn't be a bad way to look at it.
Okay. Thank you very much, Ian.
And your next question comes from the line of Michael Webber from Webber Research. Your line is now open. Please ask your question.
Hey, good morning guys. How are you?
Hi, Simon.
So I wanted to touch on the carrier spend and the breakdown of the process there. I know it's been going on for a couple of years. Can you give us a bit more background around around kind of what the disagreement was there and whether it was specifically whether it pertained to valuation? And then when we think about 2020 and kind of spending it in the U. S, should we think about that as maybe as an equity dividend?
Or does the high degree of leverage keep that from being in play? And should we expect maybe a more robust process, I guess, when you try to spin it in the U. S?
Well, the withdrawal from the consortium is quite recent fact that we concluded yesterday. And there's no point in going into the detail of it. We just had a structure that didn't work for us. We've got a task list of things to do. And the way that all we're prepared to say at this point is the way that the spin is contemplated now, it will only involve gold ships.
We plan to deconsolidate it, obviously remove the debt from the balance sheet. This and the other structure items are being worked on as we speak.
Got you. I guess just within the context of a carrier spin, I guess the sequencing, it seemed like it was a flavor of a carrier spin and then kind of addressing GMLP. And then I know you guys also have an option to spin Golar Power. Does the I guess the kind of dissolving the previous structure and pushing that spend into 2020, is it more likely that we would see a simplification of Golar Power I'm sorry, Golar Partners before we would actually see a Golar carrier spin? Or is that order still in play, do you think, for 2020 in terms of spending the carriers first and then addressing the rest of the platform?
Well, I think they'll evolve as the natural solutions evolve for each part of the business. The one that's obvious, and we've talked about exact plans of what we're trying to do is the shipping spin. And obviously, we've got a team focused on making that happen. So I think that will be our immediate focus. And how we incorporate bits of the MLP will unfold in the coming months, obviously.
Got you. And then just one more if you'll go out. For Sur Gipe, in terms of the commercialization progress there on the retail and transportation side, you mentioned some momentum and maybe converting some of those MOUs into firm sales. Is there any update in terms of the time line as when you think you'll start to get some of the first ones of those over the line?
No. But I guess the one thing I would say is it's a very positive process and that we've got pool coming from the customer base because they do see the environmental benefit and they do see the cost benefit. All we've got to do is make sure when we connect to those customers, remember, we're committing not only a quantity and a price but time. We've got to make sure we've got all our ducks in a row and how we're going to make deliver the equipment and get that lined up. And that planning process is happening now.
We've got a substantial team working on it. So as that unfolds, we'll be able to give you more detail. But it's progressing well. Do you think
we could see the first steps there in Q1 or H1 of 2020 in terms of the first incremental
piece of this commercialization there on
the retail and transportation side?
I think the reality is if you take that $100,000,000 the best way to think about it at this stage with early information is start in the middle of the year, maybe the middle of the year, quarter 3, start with first income, go all the way out to 2025 when the power station is online, but a straight line between the 2, and that's probably not a bad way to look at it. And then also demonstrate how we can fund that through cash flows from Sergipe and that's another of our assets. But we'll as this develops, we obviously provide more information. But we the focus is on getting the elements of the kit that we have to put in place and the customer signed up. And once we've done one customer, we'll know how that's going, and we can repeat and learn from that and improve on the next one and so on.
Got you.
Yes, that's helpful. I appreciate it. Thank you, guys.
Thanks, Mark.
And your next question comes from the line of Craig Shere from Tuohy Partners. Your line is now open.
Good morning. Hi. Good afternoon. On John's Hilli question, I want to confirm if this little piece of Train 3 would be additive to the original 500 Bcf contract or simply a quicker drawdown on the 500 Bcf? And what opportunities there
are to
potentially self contract West African FLNG to supply your downstream Brazilian operations?
So the I mean, the additional amount that we've come through, that's part of the original contract. The contract duration is 8 years. So as part of this arrangement, we've this is we've essentially be added to that contract.
So it was still because originally, if you tapped Train 3, it might move to like 5 years because you just draw it down quicker. So this would be completely additive and still be 8 years?
Yes, that's correct. It's an 8 year contract effectively.
Okay, great. And the self contracting opportunity?
I mean self contracting opportunities there, you mean in taking cargoes from Hilli to move to other locations, of course, that's there. And as we look to develop the Golar Power downstream business and put cargo through Nanook and eventually the FSRU that goes up to Barcarena, that's a further opportunity. And if we can link the 2, if we can obviously link taking
a cargo
with the production of more LNG subject to our customer being able to provide the gas, of course, then that's obviously something we'd look at.
And also on another of John's questions around liquidity and share buybacks, Understand that you do plan new financing as Gimi is finished. But barring that, it seems you're just about fully funded, assuming you cover 70% of $442,000,000 outstanding equity from 3Q 'nineteen through 2023, and that also assumes Golar Power self funds, Bacarena and Brazilian downstream. But the self funding equity investments at Golar Power combined with the accelerated debt amortization is kind of going to sap that the opportunity for cash dividends up to the JV partners, GLNG and Stonepeak. My question is, when do you think you're really going to materially turn the corner in liquidity in excess of capital project obligations and enjoy material improving free cash flow at GLNG itself such that you could pursue open market purchases of shares that are priced near 9 year lows?
So what we're trying to lay out today, Craig, is that we've got $440,000,000 of EBITDA backlog contracted with that upside to $600,000,000 Now if you think about what we've had to do to get the first $100,000,000 EBITDA in Sergipe is build a fairly large power station over a number of years with a fairly large capital commitment and large debt and large debt amortization. This second €100,000,000 is going to come with not necessarily less hard work, but with certainly more capital ease. And I think that's what we should be looking at in Golar Power is the fact that we can take that cash flow that we're developing from Xucipe and other assets in Golar Power and translate that relatively quickly into another $100,000,000 of EBITDA. And that's just from customers that we've already identified. So that's where our focus is.
And in terms of the rest of Golar LNG, we remain disciplined from a capital point of view. Let's deliver on our Gimi project. Let's continue with the ships and do the spin for that. And of course, if we get more upside from Hilli next year or the years to come, then of course, that goes straight to the bottom line and cash. So I think we've got pathways to cash.
We're really clear about what we're working on.
So if I hear you, going forward, Golar Power has expansion opportunities that are not only lower CapEx to EBITDA, but much faster cash payback realization. And if I'm hearing that correctly, plus, obviously, with Vaca Raina growth through 2025, do you see this teeing up a successful IPO for the JV?
Potentially, but that's something that the IPO board and the JV partners will look at in due course. The absolute focus for Golar Power right now is to build that business, improve that it's sustainable. And I think with the award of the Vaca Arena contract, the guys have done a great job in making that next step along the line and turning it from a project to a business.
Great. Thank you very much.
And your next question comes from the line of Greg Lewis from BTIG. Your line is now open. Please ask your question.
Yes. Thank you and good afternoon. Ian, I just had some questions looking for some follow-up. You kind of alluded a couple of times in your prepared remarks about potentially selling off pieces of existing projects. And just kind of would like to have a better understanding of what that structure would look like, I.
E, is that something where we're going to is that going to become a JV where we're going to sell half? Is it we're selling a third? Any kind of and realizing that those discussions may be ongoing, so realizing there could be some sensitivity around that. And then also is being as you've mentioned that the projects are fully funded, is the implication there that the opportunities for additional projects are going to be at least at a similar return or higher return? Just trying to wrap my head around the thought about selling these what are already on the books pretty profitable return projects?
So I have a couple of questions in there. If I take the first one first. If you look at the interest in the contracted assets, what we have here is interest largely from infrastructure funds. You see a 20, 25 year contract as very attractive because that's how they're set up. And we've talked to a number of different potential participants around small investment.
And obviously, that investment would do a few things. But most importantly, what it would do is we probably demonstrated to other people that the value that we've created in building an investment for our CapEx and have it sold at an EBITDA multiple that's way in excess of that, that shows that we've delivered value. And I think that's partly what we do. We prove that there's value being created in those assets. So yes, the discussions are ongoing with a number of parties, and we continue to evaluate that.
And we'll only proceed if we think it's going to be the right thing to do for shareholders. In terms of your other point, the FLNG portfolio, if you want to stick on FLNG, remains robust. Not only have we had people talk to us about investing in our existing portfolio, there's a potential for people to invest in future portfolios. But these projects do take time. And I think the message today is that we're not rushing out and trying to desperately find another FID to satisfy a notion of 5 FIDs in 5 years.
What we're doing is we're focusing on delivering what's in front of us. And I'm confident if the right project comes along with the right financing solution, then we'll consider taking it ahead in the right manner. And if we do that, it will have returns for commensurate with where we expect our FLNG returns to be, which is kind of mid teens return on equity.
And your next question comes from the line of Ben Nolan from Stifel. Your line is now open.
Thanks. So I had a couple of FSRU or really go lower power questions. The first is just sort of more broadly, the focus seems to be pretty clearly on quite a number of opportunities in Brazil. Obviously, there's the Croatia one that had been done in the past. But is it fair to assume that for now Brazil is sort of where we should expect things to happen going forward, maybe less so other areas
of the world?
I think Brazil, for us, is more in our control. So to answer your question directly, we are still looking at other areas of the world where we see value in combining an FSRU with some downstream infrastructure, which would be a terminal pipeline or ultimately a power station. So we are still scouting the world and looking to develop those projects. The difference that we've got in Brazil is that we're creating those projects. So in getting permitting for a terminal outlined and winning a power station, we're creating our own market through the end product that we supply, which is either gas to consumers in the form of LNG or electrons from a power station.
And that's different to, say, submitting a bid for a tender to simply supply an FSRU. So what we're doing is, as the business grows and as Golar Power grows, we look to internationalize what we're doing in Brazil. But the formula is to be around creating our own market with the FSRU being the strategic asset whose capacity we can use for all those downstream things as opposed to going out and just trying to get a return on a bareboat charter rate for an FSRU.
Okay, that's helpful. And then sort of following on that theme, and I'll try to squeeze 2 questions into one here. As we look at Brazil specifically, some of the other projects that you sort of have outlined as potential things, the Santa Catalina project. How do those compare on size? Are they a little bit smaller relative to say, CertiPay?
And then as it relates to CertiPay specifically, I know over the past, you've talked about the opportunity to expand that and have sort of been waiting on winning power contract to be able to do that. Is there any update on where the status of the expansion stands for
South Africa? So I mean there's a couple of elements to how you should look at the Brazilian market. Remember, when we started this journey, it was on the back of the Sergipe power station, and we felt that we had to have power stations as the reason that we move forward with FSRUs and terminals. And what we've learned over the last few years is that that's not necessarily the case. First of all, the power contracts that come up are varied.
They are 2 or 3 a year, and the demand is set by the various states or power state entities that are looking for the power, you bid against those power contracts. And what we've got is in Golar Power, a series of locations that are approved or can easily be approved for power projects. So that's the first differentiator is it takes time and energy to get environmental and other approvals in place just to bid for the power projects. The second point is because we're working on a number of locations, we have flexibility in where we can try and win that power project from. Sergipe Expansion is a great example of a power project that we think eventually will be competitive, but it just so happens in this instance, our offering out of Barco Arena was a better offering when you combine all the different elements.
And then the third thing is that what we've learned is that the downstream aspects, the ability to sell gas to other end users through either direct pipeline into local facilities or importantly, a small scale moving it down the river, that is also an extremely important and lucrative part of the business that we're developing. So it's much more than let's just get the next power station up. It's more about getting a strategic location for a terminal and having the justification to underpin FID of that terminal, get an FSRU there and start moving gas around. And from that, power stations and other things will come. So the business has changed a lot over the last couple of years to the good, I would say.
Okay. And just to clarify, when again, sort of on the size aspect and as it relates to FSRUs, are many of these things projects that might lend themselves to smaller FSRUs as opposed to the traditional bigger purpose built
use of equipment?
Yes. I mean, some of the smaller FSRUs are possible maybe as a stock gap, but they tend to be less efficient than the newer ones. And so you've got to look at the whole economic story, whether how long you keep the gas there, the quantities of gas and the customer base for drawing it off. So it's obviously something that we've got quite a lot of flexibility with some of the older FSRUs we have. But also then we've got new FSRUs such as Tundra and conversion candidates in Celsius and Penghur, which already sit Golar Power.
So we don't have a shortage of FSRUs that we can deploy to these opportunities.
Okay, great. I appreciate it. Thanks.
Thank you.
And your next question comes from the line of Randy Giveans from Jefferies. Your line is now open. Please ask your question.
Howdy, gentlemen. How's it going?
Hey, Randy.
All right. So first on the LNG shipping side, now that all your dry dockings are complete, all your spot vessels currently employed And do you expect to lock away more ships on maybe some index linked charters? We saw that a few months ago. And then separately, any updates on the Golar Viking? Is that still expected to be converted to an SSRU starting, I guess, in January?
Yes. So taking the last one first, Randy, Viking, I think, February on charter till February, then going into the yard. That project is progressing well. Obviously, the ship's not in the yard, but the yard's proceeding with fabrication of the regas skids and that sort of thing. So yes, that's happening.
I think she comes out of the yard at the end of next year and then will be transacted through a purchase arrangement to LNG Croatia, and then we'll operate and maintain her for the next 10 years. So that's firm and fixed and happening. Coming back to the fleet, the strategy that we deployed, if you look at a year ago when the market was going up and then on from that, the market was coming down, we had all of our fleet in the spot market trading on spot with simple cargoes. A couple of them, I think, were index linked. We've taken time and put a lot of work in with the chartering department to try and maximize utilization.
So we have several of our ships on index related charter parties so that they take benefit of a rising market, and they also have some protection support around the falling market where it's not only the rate coming down that hurts you, it's a lack of utilization. So we've got a number of ships on full utilization. We also have a number of ships, so something like I can't remember the exact number, but it's something like 4 on index related deals, 4 on fixed charter related deals of more than 1 voyage and 2 that are enjoying playing in the spot market I would say the 10 ships that are in the trading through the Cool Pool. I think that mix is about right. We do want to have a couple that are there to take opportunistic up side on very short voyages that can have higher rates.
But largely, we want to get the utilization up in the fleet and continue to have more predictability on the earnings for the ships. And then obviously, that's important as they go out on their own next year.
Perfect. Okay. That's fair. And then did you say, going back to the LNG spin, that it will now likely only include Golar ships? And what is the updated time line for the spin or hurdles or milestones for this to happen in the next few months?
So yes, you're right. It will only include Golar ships, so we're going to do this on our own. We're just regrouping and working through the time lines. And assuming that we do decide to go direct listing to the U. S, it's going to be sometime next year, I guess, in the middle of year, right, when we get through all the listing requirements.
But the announcement for the decision would be earlier, maybe the Q1?
Well, the Board has announced the intent to spin off the ships. I don't think the Board's intention around the ships has changed. The mechanism and specific arrangement on how we do that is something we're finessing.
Got it. And then, Thor, if you're still on the call, knowing you're around, want to ask you some questions. You mentioned you're a top five holder of GLNG. You're also disappointed that the share price is down 50% over the past year, like the rest of us are. That said, have you or kind of will you look to repurchase or purchase, sorry, additional shares at this steep kind of sale price?
And then as Chairman of the Board, Ian mentioned, it's kind of up to the Board, in terms of dividends or share repurchases at the corporate level going forward, what would be your recommendation?
Taran, I don't believe Thor is still on the call. Sorry about the big speech I had to make.
And your next question comes from the line of Chris Snyder from Deutsche Bank. Your line is now open. Please ask your question.
I would be interested to hear the feedback you received as you've been marketing the proposed LNG spin off over the last couple of months. And I ask because sentiment around LNG shipping is not great. And now the plan is to spin off an even smaller fleet with not a ton of equity value. And just curious around the confidence levels
Right price, of course.
That is true. Okay. And then just, I guess, one more. You guys have clearly made progress on the downstream Brazil opportunity. So you have the $100,000,000 contracted EBITDA over the next 25 years from the Sergipe and the Nuuk.
But could you provide any color about how we should think about the EBITDA upside opportunity here from the downstream? And how quickly could we see EBITDA go above the $100,000,000 run rate? Just trying to boil down all the moving parts around the separate projects, all of which have different timings. Any color there to how to think about it or to model it would be appreciated.
Because I actually asked, Don, on a previous question, I think at this stage with early information, the best way to think about it is start EBITDA stream coming in middle of next year, maybe Q3 next year and run it in a straight line until we build the power station up at 2025. And in doing that, we get confidence that we can fund it from cash flows from the existing business and other debt facilities. And of course, we get opportunities to accelerate that, we'll do so. But I mean realistically, at this time, when we're still planning out the data, that's probably the best way to think about
And your next question comes from the line of Chris Wetherbee from Citi. Your line is now open.
Hi, guys. James Flanagan on for Chris. Just wanted to actually follow-up on Greg's question about simplifying the business and selling potential and cash flows. The LNG market continues to face some headwinds. How much that impact the simplification, some of the asset sales?
Just kind of wanted to get a sense of if you're getting the valuations you wanted right now or if we're going to have to wait a little bit before you might see something that might be sold to an infrastructure fund or similar deal along those lines?
You're talking about the low cost LNG pricing environment?
Correct. No, the just broader LNG market, like essentially, are you seeing some of the valuations that you're seeing in sort of the public market feed in to some of your other assets and being a potential headwind to any deal that you might do in the private market?
No, we're not seeing any headwinds. I think we've got it's a different structure. I mean if you think about LNG, first of all, our EBITDA backlog that we've discussed is unaffected by commodity price. It's locked in as an infrastructure play. And the growth in the downstream business gets even more compelling in a lower LNG price environment.
And if you think about it, as that lower LNG price prevails, it's only going to serve to drive that demand higher. More LNG demand requires more production. More production requires more shipping to move it, and our low cost FLNG solution can cost effectively monetize the gas assets. So low gas prices are in a hindrance. We haven't not done things around simplification because of headwinds around pricing.
We've chosen a more complex route by trying to deal with a tripartite situation that hasn't worked for us. So we're going to do it ourselves with the spinning ship off, for example. And as it relates to interest in our FLNG assets, as I said, the contracted backlog is unrelated to commodity pricing and so has no bearing on how an infrastructure fund would view it. So no, I don't think it's causing a problem at all.
So you're getting a level of interest right now where you actually where a deal could be possible?
On infrastructure funds, yes.
Got it. All right. Thank you.
And your next question comes from the line of Jason Gabelman from Cowen. Your line is now open.
Hey, how's it going? If I could just ask a question on the LNG carrier market. You're forecasting a shortage over the next couple of years, but I wonder how you think about that on a seasonal basis and if it's kind of dependent on U. S. To East arb being opened, you mentioned that the LNG oversupply globally caused that arb to be closed.
And I wonder if there's potential for ton mile demand to be depressed in the shoulder seasons because that arbor would be closed because of an LNG oversupply. I was just wondering if you could comment on kind of how you see the market on a seasonal basis over the next couple of years.
So we still think it will be seasonal. But if you believe that the broker reports and you follow-up and you look at our own analysis, we're thoughtful and hopeful that the shoulders won't be as steep as they've been in previous years. So yes, there'll still be a seasonal adjustment as cargoes tend to follow, but we think the seasons will be lower. In addition to the east west arb that you've mentioned, and yes, it's remained closed, but we're still seeing cargoes have got to find destinations. The U.
S. Cargoes have been going to Europe. Europe's full. So they then slow steam to Southeast Asia and to China. And an interesting fact I'm going to leave you with is this whole call for reducing our carbon footprint around the world.
One of the easiest ways that shipping companies can do that is to reduce the shipping speed towards boil off. So you marry boil off with shipping speed, you take a few knots off the speed and all of a sudden you've combined an improved carbon footprint with slow steaming and effective partial storage so that they can take opportunities of ours as in when they open. I think we'll see an awful lot more of that in the coming years.
All right. That's an interesting point. And then just on the Perenco drilling program, when do you expect next year to get an update on what that drilling program has found?
I don't have any firm information on that. Obviously, we're still in the discussions. That part of this business is outside of our control. The bit that we can control is making sure that Heli performs safely and effectively for our customers. So that's what we're doing.
All right. Thanks for the time.
Operator, just to let everyone know, we only have time for one more question.
And we have one more question on the line, sir.
Thank you. Please go ahead.
That comes from the line of Liam Burke from B. Riley FBR. Your line is now open.
Yes. Thank you. Good afternoon.
Thanks, Matt.
I know you're selective both from a capital and project basis on the FLNGs, potential FLNGs. Has your success on Hilli provided you with any favorable attract?
I think what Hilli has done is prove that the concept works. You can marinize and float LNG and sell it on a converted ship around the world and have it operate with 100% commercial uptime. I think the BP contract award with Gimi has proven that a top multinational mega national oil company can approve that as part of an entrance into their operational environment, which is no small undertaking. So our position on FLNG is to find opportunities that we can deploy these units on. And I'm not worried about the negotiating position.
We believe that going forward, we will get a good commercial rate for these units because it adds value to customers. The bigger challenge, and there's plenty of opportunities out there. I mentioned we've got the top 5 that we look at. That's on a long list of maybe 20. The biggest challenge is making sure we can get the operators' requirements to converge directly with the ability to fund and finance these projects and wrap it all in one under one large banner.
And what we're finding is that by focusing on the bigger companies with stronger balance sheets that can give us more support, then that's the way forward. So what we're doing, we're pushing forward to try and get non binding term sheets developed for these companies and build a portfolio that eventually will deliver some fruits from that level.
Great. Thank you.
Thank you.
We have no more questions on the line. You may continue.
Well, thank you, everyone, for tuning into the Q3 results. Happy Thanksgiving for those of you in the U. S. And who celebrate it, and we look forward to catching up with you next time. Goodbye.
And that does conclude our conference for today. Thank you all for participating. You may now disconnect.