Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Golar LNG Limited 4th Quarter 2018 Results Presentation. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you this conference is being recorded today, Wednesday, February 27, 2019.
I would now like to hand the conference over to your first speaker today, Ian Ross. Thank you, and please go ahead, sir.
Thank you. Good afternoon, good morning. Welcome to the Golar LNG 4th quarter 2018 results call. Today, I'm joined by Graeme Robjohn, CFO and Stuart Buchanan, Head of Investor Relations. I'm pleased to report on the back of improved operating revenue, our quarterly adjusted EBITDA increased to $121,700,000 in the 4th quarter, up from $83,500,000 in Q3.
And accordingly, full year 2018 adjusted EBITDA increased to $218,100,000 from up from a loss of $24,000,000 in 2017. The Board has declared a dividend of €0.15 per share. Now while the 4th quarter was clearly buoyed by a strong shipping quarter, The carrier market clearly remains volatile for the time being. I'm going to share our thoughts on that in addition to some more color on yesterday's BP announcement after Graeme takes us through the numbers.
Thank you, Iain, and good day to everybody. I'll start with financial highlights on slide 3 and starting with income statement. We are very pleased to report, as Iain has already alluded to, an extremely strong net operating revenues quarter with increased revenues from $98,300,000 in Q3 to $141,800,000 in Q4. This is, of course, has been driven by significantly improved earnings from the shipping fleet, which recorded average time charter equivalent rates of $77,600 per day for Q4 with spot trifield diesel electric vessels earning $97,300 per day. Other line items down to adjusted EBITDA were generally in line with Q3, except for other operating gains and losses, which reported a reduced Q4 gain of £13,400,000 representing a further but lower cash recovery as a result of proceedings in respect of a former contract for the Golar Tundra.
Adjusted EBITDA was therefore increased from 83,500,000 dollars to 121.2 dollars After a couple of quarters of gains as oil prices rose, the fair market value of Hilli Episeyo oil linked contract derivative asset, I. E, the value of the potential future cash flow from the oil linked higher component in the Hilli contract decreased by €196,000,000 during the quarter with a corresponding unrealized loss of the same amount recognized in the income statement. The fair value decrease was driven by a significant downward movement in the expected future market price for Brent oil. Spot price decreased from $80 to $0.72 per hour per barrel at on September 30 to $50.57 per barrel at December 31. Although, of course, this has since recovered to around $66 per barrel today.
Despite the loss in Q4, the derivative contract still had a positive recorded value on the balance sheet of $84,700,000 as at December 31. I would stress though that this is a non cash fair value movement only. And as long as revenues are above $60 a barrel, we continue to receive cash revenue under the Hilli contract for the Brent linked element. The other large non cash again impact on our net income this quarter is 154,000,000 dollars q4 equity and net losses of affiliates, which is primarily driven by $149,000,000 impairment of the carrying value of Golar's interest in Golar Partners. Golar Partners unit price as of December 31 was 10.80 dollars whereas the unit price at IPO was $22.50 The impairment is based on the year end unit price of 10.80 dollars And given the time that the partnership's unit price is traded below its carrying value, the reduction is now considered other than temporary.
The stock price has, of course, since recovered to $13.78 as at last night's close, but not yet to the levels at IPO. Primarily as a result of these 2 non cash valuation movements, totaling €344,000,000 the company recorded a net loss of GBP 313,000,000 for the quarter. Moving over to Slide 4 and the balance sheet. Golar's total current cash position as of September 30 was 704,000,000 dollars including long term restricted cash and cash related to VIEs. Of this, dollars 218,000,000 was unrestricted and dollars 175,000,000 relates to Hilli Episeyo letter of credit.
Of that $175,000,000 cash securing the Hilli's letter of credit, approximately $110,000,000 is expected to be released to free cash between May of this year and May 2021. Cash outflows during Q4 included $25,000,000 investment in Avenir, dollars 29,000,000 paid in respect to final sums due for the Heliopotheo construction, dollars 18,600,000 paid to Keppel in respect of the initial payments with regard to the conversion of FLNG Gimi and some collateral payments in connection with our margin loan and equity swap. Golar's contractual net debt, which is after adjusting for our consolidated variable interest entities, including 100 percent of Hilli's €910,000,000 debt as at December 31 was $2,100,000,000 or $1,650,000,000 if you exclude GMLP's share of Hilli's debt. As we discussed in the earnings release, we're also in the final stages of getting credit commitments on a $700,000,000 facility for our new project, FLNG Gimi. Turning over to Slide 5.
As the LNG shipping market recovers from its prolonged down cycle that ended in the latter part of 2018 and our new project start up Hilli, of course, in May of 2018 and Sergipe next year, our EBITDA is starting to build. This slide shows full year further adjusted EBITDA for 2018, which removes GMLP's share of Hilli's EBITDA and is adjusted for non recurring items of €200,000,000 for 2018. EBITDA was from shipping was, of course, fairly weak during the course of the 1st 3 quarters of 2018. So if we then take Q4 annualized EBITDA, this rises to $346,000,000 Commencement then of Sergipe in 2020 and now also Gimi in 20 22 will, of course, add significantly to our future cash flows building on our existing EBITDA. And with that, I'll hand back to Iain to carry on with the presentation.
Thanks, Graham. So starting with shipping, Slide 6, It's certainly been an interesting few months in the shipping side of things. So on LNG import side, we saw Chinese and Korean 2018 demand increase by 41% 18% respectively. China entered the buying market earlier in 2018 and with a milder winter the sector experienced a slower than anticipated inventory drawdown which resulted in a higher than normal number of cargoes at sea and a rapid tightening of available ships. And the clear effect of this was to drive LNG carrier rates to all time high levels in November, with short term effective spot rates for TFDE vessels, including positioning in ballast fees briefly reported to be around up to 200,000 per day.
Rates for steam vessels also reached their highest level in 5 years. So following drawdown of the LNG tanks through December, the laden vessels discharged their cargoes. And despite record December LNG imports into Northeast Asia, the combination of falling Brent prices, strong European gas prices and milder weather prevented the Asian arbitrage window from opening. Multiple vessels became then available for spot fixtures and the resulting TFDE and spot prices decreased by the end of the quarter to about $100,000 $85,000 a day respectively. Rates then continued to soften into the Q1 2019 where the spot market is currently fetching headline TFDE rates of somewhere around 50,000 a day.
So notwithstanding the volatility of the last few months, our view of the shipping market remains bullish. The thesis of structural shortage over the next couple of years is unchanged, and we believe what has happened over the last quarter was driven more by the unusual number of laden vessels not being able to discharge rather than an earlier than envisaged structural tightening of the market. And with only around 39 vessels planned for delivery in 2019, matching up with approximately 35,000,000 tonnes per annum of new LNG scheduled to come online in the year. That requires a sort of a conservative average of 1.4 to 1.5 ships per 1,000,000 tonnes. And therefore, leading brokers are forecasting at least a 10 vessel shortfall by the end of 2019.
And considering the same dynamics, this is forecast to increase to a shortage of more than 20 ships by the end of 2020. As previously mentioned, we continue to look at the establishment of a joint structure with other ship owners that allows LNG shipping investors more direct exposure to the LNG shipping market. We've made significant progress with this initiative, including agreement with banks and lessors to secure approximately $1,100,000,000 in financing for the 9 vessels Golar is considering contributing to this new company. And should we complete the potential separation of spin off of the LNG shipping fleet, it's expected to significantly reduce the volatility in our earnings and better position the long term contracting business for infrastructure investors. Under this type of structure, it should also be noted that whilst Golar plans to contribute its TFDE vessels, the technical management of all of our ships will remain with Golar.
Turning now to FLNG on Slide 7. Hilli Episeyo, which completed its first scheduled maintenance window during the quarter without any issue and ahead of schedule, it continues to operate with 100 percent commercial availability. Vessel is currently in the process of exporting its 16th LNG cargo, which is nicely being picked up by the Golar Nanook on its way to Sergipe for commissioning of the power station. In terms of Hilli Train 3, Perenco and SNH have confirmed that the contracted option for the 3rd train may be exercised during the Q4 2019. You may recall under our LTA, a 30 day notice period is required to be is only required to be given to increase the base throughput.
And therefore, we expect this to be increased to 1,800,000 tonnes a year before the end of 2019. And on Train 4, we are in active discussions with Perenco to develop the right gas supply solution, and we expect these discussions to be completed before the end of the year. Yesterday, we announced that Golar has entered into an agreement with BP for the charter of an FLNG unit, Gimi, for a 20 year period expected to commence in the second half of twenty twenty two. Gimi is already a Keppel shipyard where a site team has been assembled. Keppel Capital will be a 30% shareholder in the project.
With a conversion cost of approximately €1,300,000,000 annual contracted revenues less forecasted operating costs of approximately €215,000,000 are expected, equivalent to a total contract earnings backlog of €4,400,000,000 dollars And of the 4,400,000,000 Golar's expected share is 3,100,000,000. As Graham mentioned, initial long term financing of $700,000,000 when supplemented with other financing facilities and taking account of the financing costs during construction, all of that should mean that we will have total equity contribution from the company of around €300,000,000 in respect of our 70% stake in the project. Just on the project, turning to Slide 8, a couple more comments. The Tortue project will produce gas from an ultra deepwater subsea system in 2,850 meters of water located 120 kilometers from the coast of Mauritania and Senegal. The gas will be transferred around 80 kilometers through the flow line to a midwater FPSO, which will process the gas and strip out the liquids.
The gas will then be transferred to the Golar Gimi FLNG facility at an innovative nearshore hub, which will provide shelter and benign met ocean conditions for the vessel. A simple way to evaluate this project is to compare it with Hilli, and we've attempted that on Slide 9. We believe that Gimi is a strong project. And on all the metrics we've noted on Slide 9, we believe Gimi is at least as good or better than Hilli on all terms. But one point that I'd like to emphasize is the following.
With Hilli, we had a prototype. It was a novel design using innovative conversion techniques to marinize proven liquid fraction technology. The bigger risks were around the complexity of bringing together marine systems and large complex power generation needs. Together with more traditional onshore gas processes and essentially creating an offshore version of that. Once construction in Singapore was safely achieved, we then needed a capable team to build the transport, start up and run the vessel.
With Hilli proving itself well and our people becoming more and more familiar with the asset, we find that the move to Gimi is a stepping stone rather than a massive leap. Gimi is essentially a copy of Hilli with the incorporations of lessons learned along the way. Much of the Gimi crew will be able to gain experience from Hilli and we have retained a lot of yard experience to ensure the learning is captured. And by means of example, I was in Singapore yesterday at the shipyard meeting with the key Gimi project technical leadership from Golar, Keppel and Black and Veatch. There were around 50 people in the room, and I asked for a show of hands who had worked on Hilli and was pleasantly surprised to see about 90% of the team had their hands in the air.
Importantly, Golar will also play its part in training and developing Mauritanian and Senegalese nationals for various positions on the project as we have successfully done with Cameroon Nationals for Hilli. So my point is that Gimi is not a prototype. It's been done before, and we have the people to implement the project who will bring their recent and extremely relevant experience. And for me, this significantly derisks the project execution. Now turning to Slide 10 and touching on some other FLNG opportunities.
On a couple of specific projects, project progress has also been made on the development of Delfin in the Gulf of Mexico. Our work continues to establish the right gas supply and offtake combination to enable a financing and yard commitment potentially before the end of 2019. And secondly, of course, note that Ophir Energy's production license with the government of Equatorial Guinea has not been extended. Golar remains engaged with the relevant authorities and other potential operators in the event that the production license is awarded to an operator interested in pursuing Fortuna FLNG as a development solution. Now taking a look at the bubble chart, you can see that the projects have moved around a little bit since we last issued this.
There are 2 notable changes. The first is that with Hilli production continuing to perform well and with BP announcing FID, we're having a real ramp up of interest in our FLNG capability. And the second thing is that the majority of project opportunities, they are moved to being currently weighted towards tolling type projects rather than fully integrated developments. These projects sorry, these points are interlinked and that some of the new opportunities on the chart are being considered to solve current gas supply issues rather than monetizing marginal stranded gas fields, which by definition results in a tolling type arrangement. I would point out that we still have an ambition to participate in the molecules, but there are several tolling opportunities that are maturing fairly quickly right now.
So it's just a matter of prioritization. Where a floating facility is appropriate, we believe that Golar's FLNG solutions remain substantially cheaper and faster to market than alternatives. Turning to Golar Power, Slide 11. Construction of the Sergipe power plant remains on schedule with no significant issues to impede the commencement of operations on in January 2020. Soft yoke mooring base for the FSRU is in position and piles are currently being installed.
Both water and gas pipelines are now installed, and we remain on track for first commissioning fire of the power station around about the end of quarter 2. Just reinforcing, Golar's 2020 share of combined Sergipe and Nanook annual contracted revenues less the forecasted operating expenses is around €100,000,000 per year, and that reduces to approximately €45,000,000 after deduction of debt service costs. This income stream is just around the corner in January 2020. As I mentioned, the FSRU Golar Nanook is currently loading Hilli's 16th cargo, which we'll use for commissioning. Golar Power is also advancing discussions with a view to using some of the available spare capacity in Nanook to support local LNG field opportunities.
This market is still immature, but showing really strong signs of interest in both the LNG trucking and diesel to distributed LNG local power generation. Further FSU and associated downstream infrastructure opportunities are being pursued in Brazil. License approvals for projects are making good progress, including the recently gazetted Barcarena site approval. These licenses put Golar Power in a strong position to develop FSRU terminal projects to win future power options and of course to distribute to LNG locally. And the establishment of Avenir in the 4th quarter will further enhance our ability to move around smaller parcels of LNG and benefit from this market.
Turning to other FSRU business, the redeployment of Golar Freeze to Jamaica and the potential development or deployment rather of a converted Golar Viking to LNG Croatia are evidence of good utilization of older, smaller steam vessels. In Croatia, Golar has agreed to convert the 2,005 built Golar Viking into an FSRU and sell the converted vessel and then operate and maintain the FSRU for a minimum of 10 years. Importantly, conversion CapEx will be funded by stage payments under the agreement. Project FID is subject to certain conditions precedent, including confirmation of project funding and receipt of a notice to proceed from LNG Hrvatska. And finally, on the back of the Sergipe project nearing completion, Golar Power has initiated a review of the strategic alternatives that are available for the business.
Whilst at an early stage, this will involve the development of a growth plan, which will include the financing considerations necessary to deliver that growth. We note that under the original agreement, our joint venture partner has the right to trigger an IPO of Golar Power. And whilst no decision has been taken in this regard, we believe that significant value, which has been built up over the last 4 years and in full compliance with ISC and World Bank environmental, social and governance standards could position Golar Power well with ESG focused investors. So turning to Slide 12. And in summary, Golar enters 2019 in a substantially stronger position than it was 12 months ago.
This is evidenced by FLNG Hilli Episeyo being operational, cash flow generative and the constructive progress is being made with respect to utilization of its spare capacity. Also the underlying recovery in the shipping market. Golar Power's Sergipe power project and the Golar Nanook FSRU are fully financed in less than 11 months from contract startup. Of course, the award by BP of a 20 year FLNG contract that is expected to deliver annual contracted revenues, less forecasted operating costs of approximately 215,000,000 dollars And a total contracted earnings backlog, including our proportionate share from equity investments of $6,600,000,000 comprising $2,500,000,000 from Golar Power, dollars 500,000,000 from Golar LNG. In shipping, mild weather in key Asian markets is suppressing Asian LNG prices and currently preventing inter basin trading activity.
And close to half of the 2019 newbuild vessels are also scheduled to deliver in this quarter. And together, this is contributing to a rise in prompt vessel availability and, of course, softening spot rates. With headline TFDE spot rates currently somewhere around 50,000 a day, based on features to date, Golar expects the Q1 2019 TCE will be significantly reduced in the Q4 and clearly below mid cycle rates. And although the spot rates may be prone to further periods of volatility, our belief in the structural shortage of vessels remains firm. 2019 is expected to be the 1st year since 2012 that the shipping balance will report a deficit in the number of ships required and this deficit is expected to increase into 2020.
New FLNG opportunities are appearing and others are developing on the back of a strong operational performance from Hilli and the award of the BP contract. FLNG is rapidly becoming acknowledged as a strong technical solution, Angola remains the leader in terms of project development and operating experience, including the ability to work with project owners in order to get their projects to an FID. The company expects 2019 operating income to continue to improve, driven by a stronger shipping market and the 1st full year of FLNG Hilli Episeyo operations. In 2020, operations will commence at Sergipe and further production growth from Hilli is also anticipated. Looking back on 2018, I'm extremely pleased with the way the Golar team has responded to some of our earlier setbacks, bounced back and put us in a strong position for the creation of growth in 2019.
Thank you for your attention. I'd now like to hand you back to the operator for questions.
Thank And your first question comes from the line of Michael Webber of Wells Fargo. Please ask your question.
Hey, good morning guys. How are you?
Hi, Mike.
Hey, so there's a ton to unpack within the release. So I'll keep the 2, but I'll keep them pretty broad. The first question is around, I guess, your footprint. There's a couple of things going on within the release. You talk about it seems like you're going to tee up the idea that you could see the more formal spin of Golar Power.
And then you've already talked to kind of the strategic options you're looking at for the LNG carriers and you flush that out a bit. And then you also took a write down on impairment on your stake in GMLP. And if I kind of think about all those within context, it seems like you're kind of realigning or kind of poised to kind of realign your structure and your footprint kind of more in line with the verticals that you're exposed to specifically, which seems like it would make sense from a financing perspective, etcetera. I'm just curious, is that the case? And then within the context of GM your stake in GMLP and GMLP's existence, does rolling that up make sense before you then kind of realign the footprint?
Or would you expect GMLP to continue to kind of exist alongside what would eventually be kind of a couple of new buckets or entities?
Thanks for the question, Mike. I think there's almost as much in your question that we put in our release.
Yes, I know. Sorry. I tried to tie it together as nicely as I could, but you know
I think what we're trying to put out is we acknowledge the complexity of the business. And of course, we were talking and trying to explain what we're considering. We actually haven't decided on any of those items. But it's fair to say that we're looking at ways of making the business more investable or more clear to potential investors as we move forward. So in looking at things that may happen or activities that may happen around the ships, which we talked about before, and highlighting that we're trying to get a growth plan developed for Golar Power on the back of coming to the end of the Sergipe project.
All of those things are natural progressions of the business, I think.
Yes. No, I think that's
Sorry, go ahead, Graham.
Yes. No, that's the I mean, I think Ian said it well.
Okay. Yes. No, that's helpful. And then as we think about your FLNG platform specifically, I know there are a bunch of details to get to on Tortue. But when I think about the next 1 to 2 years and where you're going with that platform.
You're in a better commercial position probably than you've been for that technology and that platform than you have been since inception. But it seems at least from the outside that there's maybe not an obvious leader in the clubhouse in terms of kind of the next target, the next destination for one of your FLNG assets. Can you maybe help us prioritize potential projects and geographies? And maybe specifically, whether you think it's more likely you do something in West Africa next versus another geography?
So there's a few things that have surprised us recently. And the thing that's been the biggest surprise is the volume of incoming calls of people that got current gas problems that would take a vessel tomorrow. If I had a Hilli or a completed Gimi, we could deploy that straight away. There is definitely a demand that's out there. We continue to make good progress with Delfin.
I've got a team that are over in Houston right now having further meetings. These projects, of course, are complex and you dig below the surface and there are many, many items to solve. But we're working very collaboratively and continue to make progress on that project. And whilst I'm not making any prediction of how it will turn out, we definitely have a timeline that if everything fell into place, we could end up with somewhere pretty good by the end of this year. I suspect in addition to that, we will have one of those other gas related, so gas problem projects, if you want to call them that.
It's not a problem, it's an opportunity. But I suspect one of those projects will have the chance of coming to the fore pretty quickly. And that our bubble chart of opportunity has definitely changed. We've dropped a few prospects off that we were perhaps chasing over the last couple of years that are probably too complex and too hard. And that gives you an indication of the number of opportunities that are coming in that are more fruitful.
So being able to move the opportunities around and really try and pick the ones that have got a greater chance of going ahead is interesting. And we've gone through and developed a new way of assessing all of these opportunities. We can be fairly firm in recognizing jobs that projects that may look really good on paper when you dig into them. If they're not going to get there, we just drop them off the table.
Okay. That's helpful. I will probably hop back in the queue. I appreciate the time guys. Thanks.
Cheers, Mark.
Thank you. And your next question comes from the line of Randy Giveans of Jefferies. Please ask your question.
Howdy, gentlemen. How are you?
Hi, Randy. Hi, good. Thanks.
Great, great. All right. So, yes, I guess my first question will be around kind of Tortue announcement. The contract is for the Gimi. But last call, you said the Gandria was already being retrofitted at Keppel.
So if you can kind of touch on what happened to Gandria, why the Gimi instead of that one. But my question also is around the GLNG, kind of $300,000,000 or so in equity needs for the Tortue. Are there any concerns or possibilities maybe around an equity offering needed to pay that? Or how do you expect to fund that? Obviously, you have a pretty robust cash balance, but if you can touch on that.
Okay. Let me take the first part of your question, Randy. On the Gandria, so Gandria was moved to Singapore, gosh, I can't remember, 6, 9 months ago. It was nominated for, of course, the Fortuna project. In anticipation of that project gaining momentum, we elected to take the Gandria into the yard and started survey work on the vessel.
We I think we pointed that out at the time that the work that we were doing was non project specific and would not be used for any conversion project. We didn't actually do an awful lot of physical work on the vessel. It was more condition assessment and understanding what the work scope would be. As of today, we've actually swapped Gandria and Gimi. They were side by side in Keppel Shipyard for a while, which is quite nice, but we've actually moved Gandria back to La Boine and put her in temporary layup until the next opportunity.
And that's really just a space of the shipyard issue.
Yes. So Randy?
If I take the second part of the your question on the 300,000,000, I think the first thing to note is that, of course, it is over a 4 year period. We in terms of operating cash flow, as we mentioned in the prepared notes, we have moved from sort of negative EBITDA in 2017 to pretty strong EBITDA in 2018 and expect that to improve in 2019 with cash flows from operations increasing still further in 2020 once the GPay comes online. And of course, again, as you kind of alluded to in your question, we're starting from a pretty strong cash base in the first place. We had 2 $18,000,000 in free cash on the balance sheet at the end of the year. And we have $110,000,000 of cash that's going to be released over the next couple of years from the Hilli LC.
So all in all, we think we're in a pretty strong position.
Got it. So just to summarize that first question, no need for any kind of equity offering?
Well, I've said we're in a pretty strong position with regards to our cash assets that we have and our operating cash flows that we expect to come over the next 4 years.
Sure. All right. That's fair. I'll leave it at that. Now on the LNG shipping side, are all the vessels in the Cool Pool currently employed?
And then kind of what is the average duration remaining on the current fixtures? I know some Cool Pool contracts are for single cargo, whereas others are for multi month or up to even 1 year. So if you can touch on kind of the cool pool there.
So with the cool pool, I mean, we don't give out specific details on every vessel, but I mean, I think it would be a fair assumption with the rates is depressed. And my commentary in the prepared remarks around the number of spot vessels that have been released this quarter, it would be right to assume that not all of the Cool Pool vessels are working right now. Fixtures continue to be fixed. Right now, we would probably you would want them to be for single voyages because the rates are pool pool, those all of the ships are essential and relatively short term.
Got it. All right.
Well, I'll pass it on
from here and hop back in the queue. Thank you.
Thanks, Andy.
Thank you. And your next question comes from the line of Jon Chappell of Evercore. Please ask your question.
Thank you. Good afternoon. Hi,
Jason. First question
is on the announcement from yesterday. I mean, I think it's great to get a 20 year BP contract in the contract backlog. But the question was the 30% ownership by Keppel Capital. How did that come about? Was that timing on year end from arranging the financing or trying to minimize the cash outflows associated with it?
Or was that something demanded by Keppel? Just seems like maybe giving away a little bit of the upside from the contract.
So John, it's worth going back and recalling the history. So the BP project, the Gimi project, and we didn't talk about it publicly at the time, largely because we weren't allowed to. That project originally belonged within 1 LNG, the joint venture that Golar had with Schlumberger. And if you recall, Schlumberger pulled out. And to be fair to Keppel Capital, they stepped in at very short notice, agreed to put up their balance sheet to support us on the project.
And within just a few days, we managed to convince BP to go with Golar plus a suitable partner, recalling that having Schlumberger in there, obviously, was an attractive proposition until they pulled out. So I think a different way to look at it is that we've gone from having 50% of a project to having 70% of a project. And we've got a partner that's aligned with us in the execution of the job. So I don't think it's a bad outcome at all.
Okay. That makes a lot of sense. Thanks for the reminder there. And then on the LNG aspirations, the shipping business, pretty clear on what you plan to do with the TFDEs. Although I'm only getting to 8 if you take the 2 ships that are pledged to Golar Power for eventual conversion.
So maybe a part 8 of this question is, is there only going to be 1 more vessel pledge to go our power for conversion and one of the other ones would then be part of the 9. But the second part is, what are the plans for the steam vessels? I know the Viking is being converted, hopefully, for Croatia. But are they just going to kind of stay in the Golar structure today and with hope for conversion at some point? Because they obviously didn't do incredibly well in the Q4 in a very tight market.
So just wondering what the long term plan is for them?
Well, I mean, there are not. There's what 6 ships, 6 steam ships. So I mean, what we'll do with those is continue to look for conversion opportunities, be there for FSRUs or others and look when the market turns to put them on probably longer term contracts, if the market permits it. And the 9 ships that I mentioned about potentially going into this new structure reflects the number of TFDEs that we would be left with.
Okay. But so I count 10 TFDE ships in your fleet. 2 of them, I can't remember the names. Just give me one second. The Celsius and the Penguin, I think, were supposedly pledged to go Power as part of the 3 ships there.
Would one of those then be part of this new venture and one of them stick with the Golar Power? Or am I missing something there?
We have a bit of flexibility around there. Nothing has been concluded. But remember, we've also got the Golar Tundra as an FSRU. So I think we've got enough flexibility to guarantee 9 ships going into this new entity if it happens.
Got you. All right. I appreciate it. Thank you, Ian.
Thank you. Your next question comes from the line of Espen Landmark of Fearnley. Please ask your question.
I just had one question really. I mean, I guess many are surprised the Golar share didn't perform in the Q4 when you saw the spot rates rallying. I guess oil prices going the other way had something to do with that. But then you're releasing a short memo in December, which essentially formed the basis for the announcement yesterday, which is a massive project with very firm economics. And today, I think your point is to further progress in essentially everything you do.
And looking at sell side, 21 of 21 analysts covering Golar has a buy rating. And even today, the stock isn't really performing. So this is a tricky question, but the share price is important for you guys as well. So what do you think is the equity market fee that we don't?
That's a question we normally ask you guys. I would say that we the feedback we have had is that the goal is a complex business to look at from the outside. I think some of the things that we've discussed today shows that we're considering how to make the business more easy for investors that only want to invest in part of what we currently participate in, that can be done. So that's part of it. I think there's generally a bit of a negative sentiment on the in the energy stocks at the moment, but I believe that will turn the corner at some point during the course of this year.
But I think more importantly, what we can do in Golar is not sit and react to what the share price is doing, but more importantly, say these are the things that we're going to do and actually deliver on them rather than give hollow promises that we never turn up with. So for me, it's about talking about the fact that we do have the BP contract now. We guided the market towards that happening around about the end of last year. Well, this is only February and we've got a signed deal. I mean, that's pretty exceptional for BP to be able to turn that around in what is a very difficult set of contracts to get negotiated.
So I think there's commitment there. There's momentum in our FLNG business. And I think what we should be doing is focusing on the things that we can do to make a difference to our EBITDA backlog, to our cash that's coming out of the business rather than being overly concerned about what's happening specifically on our share price, which, of course, we can't control.
That's fair points. Thanks, Ayn.
Thank you. And your next question comes from the line of Fotis Giannakoulis of Morgan Stanley. Please ask your question.
Yes. Hi, gentlemen. A couple of questions. First of all, if you can give us a little bit more details about the financing of the Tortue project. You alluded that you might get additional financing from the $700,000,000 Can you give us a little bit more color on that?
And also talk to us about the repayment schedule and how will this be compared with that of the Hilli FLNG?
Yes. Fotis, sure. So I think the first thing to note is, of course, this financing, although it's from different sources, this is kind of from international banks, doesn't look that dissimilar to the situation we have with Hilli where there was a €700,000,000 during the construction period and then increased at COD. What we're saying is that we have or we'll have shortly we expect committed €700,000,000 and that we are pretty clear that as we get close to COD, we will increase that facility either with existing banks or with refinancing. But there are pretty clear indications that, that is the route that we will go down.
So we'll get to close, if not above the €960,000,000 that we have with the Hilli.
In a way, you can give us some guidance on the free cash flow? You also talk about some potential upside on the revenue?
Yes. So in terms of the financing profile, it will not be that the debt facility profile will not be that dissimilar to Hilli. And the over performance which you referred to relates to if we're performing above base capacity. So there's another sort of 10% or so increase if we are absolutely maxing out on the vessel.
Thank you. One more question, a little bit more strategic question. At this point, Golar has several investments in different pockets from shipping to power to FSRU to FLNG. I noticed that the Nanook, except of the fact that it's going to serve the power plant in Brazil is going to be used for the commissioning cargo is going to get gas from the Hilli. I'm trying to see how you think the company in the next couple of years from having separate investments across different parts of the LNG supply chain to becoming a more integrated company.
Is this a plan towards this direction? How shall we think Golar the next couple of years spending its capital and investing in the LNG business?
So I think where we right now see capital investment opportunities being most attractive are in the FLNG end and in the sort of the other end in the downstream in the small scale gas distribution end. Now part of getting into that small scale gas distribution is you need to have access to strategic asset. And the way you describe Nanook is a perfect example of that whereby we have a baseload contract, which is the Sergipe power station contract, providing the underpinning income for the Nanook. So that in itself is a good deal for the Nanook alone. Of course, we've got 2 thirds of the capacity of the Nanook that we can use for other things.
And so therefore, we are very actively working out how we can contract that capacity through further distribution. And I think where we're going to be concentrating on our efforts is to try and stimulate that market because that market is there. It's but it's nascent. It doesn't really exist yet, but it's just I think it's going to be quite significant because you have diesel being burned to generate fuel in remote locations and the equivalent LNG price is very expensive. It's 20, 25, dollars 30 a 1,000,000 Btu equivalent.
And if we can get LNG to that location for a significantly less price, then not only will it make the consumer of that gas to burn for power, make them happy because they're going to pay less, it's also better for the environment. So that and there's a similar story with trucking, which we've spoken about before. So those generating or creating the LNG, so the FLNG business and at the other extreme, working out how to take it from the FSRU into small scale is where we see our capital being deployed. And of course, having an FSRU strategically located is an important part of that. And I think Avenir that we talked about last time is a key component of that value chain because that allows us to break bulk from the big FSRUs into the smaller Avenir ships and take them further down that supply chain.
Can you please clarify which portion of the small scale will be done through Avenir and which portion will be done through Golar? This is not very clear to us.
I think that's evolving. I think it depends where it is and where it's come from. I mean Avenir, there is an overlap, but I think the other way to look at it is there's plenty of business there to share around. Golar Power is active in Brazil, stimulating and developing both the trucking market and the small distributed power generation market. Avenir, as you know, is focusing on the Sardinia terminal, and we're currently building some of the small scale carriers.
So I think the complement of all of that and people working together when this market takes off is really where we're focusing at the moment.
Thank you very much.
Thanks, Alex.
Thank you. And your next question comes from the line of Frode Morkdal of Clarksons Securities. Please ask your question.
Hi, guys. Thank you for that.
Coming back to the financing on the Gimi again. I guess with the 20 year contract and the SEK 4,300,000,000 backlog, you should be able to have even higher debt levels than the SEK 960,000,000 we talked about. Could you just touch upon that? So why not even more debt level and therefore release more of equity back?
I don't disagree. I think I referenced the 960 because that was the debt level on the Hilli. What we've said is that it's 700 during construction. We're pretty clear that as we get close to COD, we'll be able to increase that. And we'll see what that level is.
Okay. Yes. On the Hilli Train 3, can you just remind us on the potential economics? I guess you have EUR 42,000,000 fixed EBITDA on the 2 trains today per quarter. What will it be with Train 3?
I think we've talked about this before. So we've already got a pre existing agreement with our customer that when Train 3 comes on board, there's a slight discount across the 3 trains and we retain the Brent linkage.
So I think we in last quarter's earnings presentation, we showed a slide that showed that under the terms of the option that is contracted, assuming an oil price of $75 a barrel, that would add around $95,000,000 in EBITDA.
And your next question comes from the line of Chris Schneider of Deutsche Bank. Please ask your question.
Thank you. Good afternoon, guys. So my first question is around the spin off. You said there's agreements for $1,100,000,000 of debt financing for the 9 TSDE vessels. Can you just talk about the leverage ratios expected on the spin off entity?
I'm just trying to translate this debt financing into a potential sale price or implied asset valuations?
Well, so it's around about 65 ish ratio.
Okay. So that almost looks like $200,000,000 a vessel We're like almost $190,000,000
Yes. So that $1,100,000 is made up of some existing facilities and some new facility. So on the new facilities, it would be sorry, on some of the existing facilities, the percentage is actually a little bit higher.
Okay, nice.
Just to be clear, we've got existing lease facilities that would roll over. So that's basically what we're saying there. So it's a combination of lease and new debt.
Okay. Fair enough. And can you just remind us how much debt Golar currently has on those 9 vessels roundabout?
It's not dissimilar to that amount.
Okay.
Okay. Thank you for that.
I think there's a fairly detailed analysis in the earnings release, if you review that after the call.
Okay. Thank you. And next question is around Tortue. I think there's expectations that BP will look to expand the project pretty significantly just given their investment that they've made and the massive reserve base. Could you just talk about potential incremental FLNG demand if we do see this significant expansion?
Or is the expectation that BP will kind of just leverage the Gimi with other production equipment that drive Phase II and even Phase III?
BP will require additional liquefaction trains. And we have not had any meaningful discussion with them for many, many months. We've been so focused on trying to get this first one over the line that there just hasn't been any room in the day to and it's not been appropriate to raise that. We'll probably find out in the next few months what BP's plans are now that we've got the first one kicked off. The short answer is we just haven't talked about it.
Okay, fair enough. And then just last one real quick. Could you provide any color on the economics around the Global Viking, the FSRU contract you guys announced?
Well, I think we'll just hold off on that until we get more certainty over that the contract and the CPs. We'll give and when it looks like they're going to be lifted, we'll give a more full brief.
Okay. Thank you. That does it for me. Appreciate the time, guys.
Okay.
Thank you. And your next question comes from the line of Chris Wetherbee of Citigroup. Please ask your question.
Yes. Hey, thanks for taking the question. I guess I wanted to talk a little bit about yard capacity and sort of Golar management capacity. As you think about the potential of running 2 FLNG conversions simultaneously potentially in the future? Is that something that you feel confident both from a yard standpoint
and a management standpoint that can be done?
I believe we can. I mean, we've got as I mentioned earlier, we have an incredibly high percentage of our leadership team that's on the Gimi conversion that has Hilli experience. You don't actually need it to be as high as it is. It's a great thing that it is, but our ability to bring more people in. And I think we're seeing this already as we consider the operations team for the Gimi.
We've already identified many people who will cycle through the Hilli operation and move on to Gimi. So I think there's a couple of things here. One is FLNG is a very sort of buoyant thing in the industry at the moment, and we're getting a lot of interest from people wanting to join Golar. I think we've got enough capacity to be able to do this sort of side by side working and transfer that knowledge as we move forward. And I think that then we then look at the contracting community and move our focus to where is the best place to do that work is the capacity there in the contracting community.
And we have had some of those discussions as well. So regardless of what where the source is as a customer for the next vessel, we're obviously thinking about that now. And in addition to that, of course, we've got an FLNG development team that comprises both technical and commercial people looking to develop that next project to FID stage. And as part of that development journey, they obviously consider these things.
And from a yard standpoint, you're confident in Keppel's ability to be able to do both, if possible?
We've had discussions with Keppel about their ability to do another vessel at some point with a staggered start, and those discussions have been really positive.
Okay. Okay. That's very helpful. I appreciate that. And can you just, I guess, maybe think bigger picture about if you could maybe lay out some of the road map of timing of all of the different things that you guys are working on.
I know there's been a lot of questions sort of touching on how the potential of this business and this company might evolve over the course of the next several years. But could you maybe give us a roadmap of sort of what's priority number 1 versus number 2? And maybe how you think about power and the fleet and everything kind of going forward here? Just be helpful to get an understanding of how you might see this developing and sort of in what type of timeframe?
Okay. So I'll have a go at doing that. So very high level. I mean, if you think about the things that we've talked about today, we've got the potential for something happening with the ships. That's going to be a 2019 activity if it happens, I would imagine, on the basis that we see the market improving and more importantly becoming stable.
This is take we want to take that volatility out of the market to move that way. We've talked about Sergipe coming on stream end of this year, beginning of next year. And therefore, the timing for something around Golar Power's growth platform, That's lined up to be developed this year for an implementation possibly next year. As I said, it's early days. Remember that we've got different we have different teams doing these works, so we can do them in parallel.
The development of a second FID perhaps later in the year, that's a big priority and we're working hard on that with the pipeline of projects that we've got. And then the 4th area, developing and it's part of in some ways, it's part of the Golar Power story, getting the next FSRU lined up that's potentially linked to your power station. And of course, we've talked about Train 3 on Hilli, which we don't have to do very much. We're ready to go, but we expect that we'll be in receipt mode for that before the end of this year. So I think we've got these things running in parallel, but organizationally, we're structured to do these in parallel.
And I think financially we're also, structured to do these in parallel. I don't know if that's too high level for you, but I may be happy to take it offline.
Yes. No, that actually is very helpful in terms of laying out the broad framework. So I really appreciate it. Thanks for the time. I appreciate it.
Okay, Chris. Thanks, Sue.
Thank you. And your next question comes from the line of Erik Halvasten of Pareto Securities. Please ask your question.
Yes. Just quickly, and please forgive me if you already addressed this, but what's the reason for the it seems like Train 3 at Hilli is getting a bit pushed back and there's limited progress. I mean, you've been ready for some time and nothing
Okay
Okay.
So first point is that we haven't pushed it back. Maybe your expectations have been different. But we've been ready. We've run all four trains. We've run 3 at once on several occasions.
So I think there's no problem with our vessel. So then it turns around to gas supply. And Perenco is a privately held company. They're quite secretive and they're very tight with information that they want to be public. So I think all I can say is that they will be drilling additional wells and doing some subsea tiebacks to secure the gas.
And for in order to get the Train 3 working, we don't need any additional governmental approvals. But what I would say is that the representatives from SNH represent the government of Cameroon in the energy sector are very supportive of moving forward. These things just take time and it's about capital allocation within Perenco, getting organized and doing the job safely and to the right level of standards. So it's these things just take time.
Okay. And secondly, you also mentioned in your report very briefly that you remain engaged with the relevant authorities of Equatorial Guinea in case the license is awarded to an operator. Are there any type of discussions ongoing at all with a new potential operator that could be interested? Or is this sort of just phasing out a bit?
I'm sure there are. I mean, I would imagine that the government of Equatorial Guinea are very keen to monetize the gas that's sitting in the Fortuna asset. And I've got no doubt that we'll be talking to a number of potential suitors for the acreage. What we don't know yet is who that will be and we don't know what their monetization plans are. What we do know is if they want to put an LNG facility in, they'll come and talk to
us. Okay. Thank you.
Thank you. And your next question comes from the line of Jason Gabelman of Cowen. Please ask your question.
Yes. Hey, thanks for taking the question. I guess it's just around the progress of your new FLNG projects. It's taken around 3 years from when you FID'd Hilli to get FID on Tortue. And I know there's probably a hope that FID is coming quicker than they have.
But is that a reasonable expectation going forward for how long it takes until you get another FLNG project FID?
Yes. I think it is a reasonable assumption to expect the interval to accelerate. We certainly want it to accelerate. And I think the elements that underpin that assumption are firstly, as I mentioned earlier, the acceptance of Hilli being the, I guess, the proof of concept and the reliable performance that Hilli has been demonstrating to the market. And then secondly, BP selecting Golar's FLNG technology for their Tortue field, which is it's a massive development, and we're right in the middle of their development and key to that project success.
So I think that will we know that that's giving the market increased confidence in the application of liquefaction technology. And when we corporately, publicly declared that we wanted to do 5 FIDs in 5 years, I don't think that was a technically unreasonable ambition. I think it was probably 2 years too early. And having that level of ambition now is for us, it still remains. And I think for the reasons I've mentioned, it's far more possible now than it was a couple of years ago.
Thanks. And just on Hilli Train 3, if I could ask the question a different way. I understand you guys have been ready for quite some time to get Hilli Train 3 utilized. What's changed from an operator standpoint? And the second part of that question is what how long can you operate 3 trains given Perenco's current resource, I think there's been prior estimates of it was either 5 years or 8 years with all three trains running.
Is that still fair? Thanks.
So I don't think anything's really changed around Perenco. If you think about it from their point of view, they contracted with us for the world's first converted FLNG vessel to process their gas. They've been very pleased publicly with the performance and you would expect them to sit and look at this for a few months before deciding they wanted to invest further in it, just to make sure that they were happy and confident with the process. I think the time has come where they've been in parallel looking at the development plans of how they get the additional gas and they're getting to the point where they're feeling more confident in us. They're feeling more confident in their solutions for getting the additional gas and therefore they're indicating to us that towards the end of the year, it seems like it makes sense.
So you got to look at this from their point of view. From our point of view, we were ready months ago, but the world doesn't always work that way. Sorry, I've forgotten your second question.
Just on the number of years you could run 3 trains at full rates?
Well, the agreement that we've got relates to 8 years of 500 BCF. And if we go outside those parameters, then we will have a different conversation. I think it's fair to say that when we get to that point, we'll have figured out how to get Train 4 on board as well and we'll wrap all that up together. But that will be in once you've sold the Train 4 thing, then we'll figure out how to do that and then advise.
Thanks.
Thank you. Your next question comes from the line of Greg Lewis of BTIG. Please ask your question. Hello, Greg, your line is open. Please ask your question.
Hello, Greg. Your line is open. Please ask your question. I'm sorry, we're getting no response from Greg. Hello, Greg, can you hear me?
No, this is Graham, operator. Should we move on to the next question? Yes. We've actually got about just under 10 minutes left before we need to cut the call. So we'll move on.
Certainly, sir. The next question comes from the line of Magnus Fyhr of Seaport Global. Please ask your question.
Thank you. My questions have already been answered. Thanks.
Thanks, Magnus. Thank you.
Thank you. And the next question comes from the line of Craig Shere of Tuohy Brothers. Please ask your question.
Hello. Thanks for taking the question. I just had was wondering if you had more color around Delfin, if you think that the key linchpin would be more supply rather than offtake and where you think that might fall in the pecking order of the likely next couple FLNG projects that you might have?
Thanks, Craig. So we as I mentioned, we're working actively on Delfin at the moment. We've got a team in Houston working with the Delfin guys. We've got a work program over the next 2 months to try and understand more of the threshold issues. And of course, the main threshold issues are connecting the LNG supply and the LNG offtake.
If we can get the offtaker and the supplier aligned, there's a few different ways you can do it. And we're just working through the various permutations, finding out who's currently interested, particularly in the wave of the ExxonMobil Qatar announcement. Does that influence anything. But we remain really engaged in Delfin. And I can assure you that if we can find a sensible way through the supply and offtake issues and get ourselves around aligned around all the activities to be done, it will be right up there in the list.
These projects are all by definition complex. And there's a lot of work in picking the ones that you want to invest time in, if that makes sense. And we're investing time in Delfin. So that should tell you where it sits in importance.
And do you see the off takers more likely to respond with certainty of supply? Is there a particular linchpin that you see start getting this ball rolling?
Yes. I think you're right, Craig. It's linking the offtaker to the supply, so they get comfort. It's how do you underpin the supply side to make sure that the offtaker is satisfied with that, because both Golar and Delfin are fairly small entities. So we're working pretty hard on trying to join those dots at the moment.
Very good. Thank you.
Thank you. Your next question comes from the line of Donald McLee of Berenberg. Please ask your question.
Hey, guys. I was curious to hear your takeaways from the Kosmos announcement around potentially selling down their stake in the Tortue project and particularly on the amount and quality of the interested parties and then how that might tie into increased interest from the gas problem projects that you mentioned?
So first of all, I think you should address that question to Kosmos. We've got no further comment on that. There's 2 types of FLNG project opportunity that are emerging. 1 is that we still think it's a great way of monetizing gas. So if someone has a smaller stranded field that they just it's worthless, they cannot get it to market.
It's not big enough to underpin a large onshore facility. Then our FLNG technology and working with them to make that happen makes a lot of sense. These are more complex than somebody saying, I've got gas. I've had to shut in wells or in flaring or whatever, and I can fill one of your vessels now. Can we have one, please?
So there are 2 types of project emerging. And I think in the short term, we're putting more emphasis on the latter and on the gas problems, if you like, knowing that the other opportunities are still going to be there because there's no other way to monetize that gas at the moment.
Okay. And then if you had to put a time line to maybe the advantage to commercialization for those gas problem projects versus the standard reserves, how quicker to market would you say those projects can happen?
Well, I think in the next year or 2, we should see a few of these tolling type projects coming up. And then if you could imagine a scenario where we've got sort of more than 2, 3, 4, pick a number FLNG opportunities, then in parallel and slightly behind, we're developing these tolling arrangements. And I do believe that we've got both a technical and commercial advantage at the moment around FLNG. At some point in the future, years hence, that will diminish and that's where we want to be in the molecules. So we're then using our technology to liberate our share of gas in a reservoir and then push it down the supply chain.
Okay. Thank you. That's all my questions. Really helpful.
Thank you. There are no further questions. Sir, please continue.
Thanks for your attention everyone and your many questions today. I firmly believe that at Golar, we're on the right track and are making good progress towards building a strong and sustainable LNG and gas infrastructure business. We've covered a lot of ground today, so happy to follow-up with you through the normal channels, cover any more questions and, of course, take your feedback. Otherwise, that's it until next quarter. Thank you, and goodbye.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect. Speakers, please