Welcome to Golar LNG's Q4 earnings results presentation. My name is Karl Fredrik Staubo, CEO of Golar LNG. I'm accompanied today by our CFO, Mr. Eduardo Maranhão, to present this quarter's results. Before we get into the presentation, please note the forward-looking statements on slide two. Turning to slide three. This morning, we sold our remaining shareholding in Cool Company Ltd. for net proceeds of about $56 million. Since our last earnings call, we have also exited our shareholding in New Fortress Energy and bought back their stake in our FLNG, Hilli. Our only current shareholding is Avenir LNG with a book value of around $42 million. Our core business is owning our two FLNGs. Hilli operating for Perenco in Cameroon. Hilli generates significant operating cash flows due to its commodity-linked tariff.
The unit is coming up for recontracting in July 2026. We're very optimistic to increase utilization and improve commercial terms for the unit upon recontracting. Gimi is expected to start its 20-year contract for BP on the Tortue field outside Mauritania and Senegal later this year. She will start to engage cash flow on the more than $1.2 billion invested in the project to date. We are also actively pursuing ordering of a Mark II FLNG with an annual liquefaction capacity of 3.5 million tons per annum. We'll get back to that later in the presentation. Turning to slide four and the Q4 highlights. Golar reports a 2022 net income of $788 million and a record book value of $2.9 billion, equivalent to about $27 a share.
Our cash position stands at approximately $1 billion or $9.3 a share. In total, we have monetized $572 million in cash during Q4 2022 and Q1 year-to-date by exiting New Fortress Energy and Cool Company. We also used our remaining 4.1 million shares in NFE as part settlement to acquire NFE stake in Hilli. During Q4, we repurchased $141 million or 47% of the outstanding amount of our unsecured bonds. We also utilized our remaining buyback basket to repurchase and cancel 0.2 million shares. We currently have around 107.2 million shares outstanding. The board and management are now exploring alternatives to commence a dividend and/or a new share buyback program. We had an active quarter for Hilli. The unit generated $86 million in EBITDA.
We unwound our 2023 and 2024 TTF hedges, securing approximately $140 million in TTF-linked earnings and increased our exposure to TTF prices. We also agreed to acquire NFE stake in Hilli, effective from January 1st this year. We expect that transaction to close during the 1st quarter of this year. Gimi is now 92% complete and on schedule for sail away during 1st half. As mentioned, we significantly progressed our FLNG growth ambitions by securing a donor vessel for Mark II FLNG conversion, as well as progressed yard and financing discussions for that unit. We continue to favor the economics of integrated FLNG projects and are actively working with upstream partners to develop attractive integrated projects. I'll now hand the call over to Eduardo to present our Q4 results.
Thanks, Karl. Good morning, everyone. I'm very pleased to provide an update on our group results for the fourth quarter of 2022. Turning over to slide number six, I wanted to show some of the financial highlights of this quarter. 2022 was a record year for Golar. Our net income on Q4 was $71 million, leading to a record net income of $788 million for the full 2022 calendar year. This was our highest net income to date and represented an increase of 90% when compared to 2021. We now have a record total book equity of $2.9 billion with a debt-free balance sheet and strong cash reserves of more than $1 billion to support further FLNG growth.
This quarter, we recorded an adjusted EBITDA of $87 million, an increase of 2% when compared to the previous quarter. On a year-on-year basis, our total adjusted EBITDA in 2022 has grown to $363 million, an increase of 16% compared to 2021. It's important to highlight that even after the disposal of our shipping business, we have continued to grow our cash generation due to strong performance from our FLNG business, where we almost doubled our EBITDA to $367 million compared to $191 million in 2021. I'll provide some further details regarding this in the next slide. Total FLNG tariffs on Q4 were $129 million, up 18% compared to the previous quarter.
FLNG tariff is comprised of total revenues from liquefaction services and realized gains on oil and gas derivative instruments. Due to a combination of upstream technical issues in Q4 and Hilli maintenance, 2022 LNG production was 3.5% below the annual contracted volume. In a non-cash accrual of $36 million liability was recognized. Our stated operating revenues from FLNG were lower in Q4 when compared to the previous quarter. The issues that resulted in the reduced production were resolved last year, and Hilli has been producing to schedule since then. We expect that this production shortfall will be compensated through overproduction in 2023, where we expect to recognize an additional EBITDA of $36 million, offsetting the 2022 underutilization liability, with no expected net cash impact to Golar.
As pointed out by Karl, we have bought back $141 million of unsecured bonds at par in Q4, which brought our share of contractual debt at the end of the quarter to $844 million. Our total cash position at the end of the year stood at just shy of $1 billion, at $991 million. Moving on to slide seven. We continue to strengthen our balance sheet to allow the company to pursue new FLNG growth projects. Our cash position currently stands at more than $1 billion, even when considering the acquisition of NFE's interest in Hilli, which will require a $100 million cash payment as part of the total consideration, and is expected to close in Q1.
The acquisition of Hilli is expected to increase our run rate adjusted EBITDA by $70 million annually. We will also add a further $323 million in debt. Despite this incremental debt, we expect to remain debt-free due to cash receivables of $140 million, which were locked in with the unwinding of the TTF hedges earlier this year. As you can see on the right-hand side of the slide, we have significantly de-leveraged our balance sheet from approximately $2 billion of net debt just two years ago at the end of 2020, to a debt-free position we have today. Moreover, we almost doubled our EBITDA to $363 million, which we saw in 2022. We expect this to continue to increase post-acquisition of the remaining interest in Hilli and once FLNG Gimi commences operation.
Moving on to slide eight, I would like to provide some further insight into our earnings from Hilli. The Hilli tariff is comprised of three main components: the fixed tolling tariff, a Brent-linked fee, and a TTF-linked fee that started on first of January of last year. We have managed to hedge our TTF-linked fees at very attractive levels, as a result of that, we saw a very strong increase in Hilli's EBITDA, generating $86 million net to us in the last quarter, which is almost 3x greater than what we saw in the same quarter of 2021. Moving on to slide nine, I wanted to provide some further details regarding the deal we did with NFE to increase our exposure on Hilli.
On February sixth, we agreed to acquire NFE's interest in the FLNG Hilli by paying $100 million in cash, plus our remaining 4.1 million NFE shares, and also we assumed $323 million of contractual debt. The deal is expected to close in Q1, after that, we will control 94.6% of common units that receive tolling fees from trains one and two, plus 5% of the TTF fees. We will also own 89.1% of Series A and B units, which benefit from further upside with high Brent and TTF prices. The deal brings immediate cash flow to Golar, contributing an additional $70 million of EBITDA per year until the end of the current liquefaction agreement in July 2026.
We believe on significant earnings upside potential with higher utilization and improved commercial terms upon recontracting at the end of the current contract. Further upside could be achieved in the next months with a potential refinancing of the existing debt. Moving on to slide 10. Let's take a closer look on the expected earnings from Hilli. On the back of our increased shareholding of 94.6% of Hilli common units, the base tolling fees are expected to double in 2023 to around $138 million. Following the unwinding of our TTF swaps, we remain open for the period between March to December of this year, and we remain 100% open between 2024 until the end of the contract in 2026.
We also remain exposed to Brent prices, and for every dollar increase in oil prices, that would result in an incremental EBITDA of $2.7 million net to us. Based on forward TTF and Brent curves, this will bring our expected EBITDA from Hilli in 2023 alone of up to $335 million and around $283 million in 2024. Our share of debt service is expected at around $119 million this year, resulting in free cash flow to equity of close to $216 million just from Hilli. I'll now hand over the call to Karl, who can talk a bit more about some business updates.
Thank you, Eduardo. Turning to slide 12, an FLNG Gimi construction update. Gimi is now 92% complete and on track for sail away during first half of 2023. All heavy lifts are on board and commissioning are underway. We currently have an average daily workforce of 4,300 workers with 24/7 activities and more than 30 million man-hours worked to date. We expect the unit to sail away towards the end of Q2 and arrive on site ready for start-up during Q3. Turning to slide 13, we have now secured a vessel for Mark II conversion. The vessel is a Japanese-built 2004 vintage Moss design carrier with a storage capacity of 148,000 cubes.
We have agreed to pay $5 million in a reservation fee that will be deducted from the total acquisition price of $77.5 million once the acquisition option is declared. We continue to order long lead equipment and have currently committed $320 million of long lead items and have more than 200 engineers between the shipyard, topside provider and Golar actively working on the project. We've made significant progress during the quarter with the conversion shipyard and confirmed delivery within 2025 based on the current schedule. We believe that securing an attractive delivery for this unit increases our ability to drive value with prospective FLNG clients. We've also been to China and received strong interest from lending banks for a construction and long-term financing for Mark II unit.
We're actively working on several chartering opportunities for the project, including an attractive integrated opportunity together with an upstream partner. Turning to slide 14. Following the acquisition of NFE stake in Hilli, Golar now controls a total liquefaction capacity of about 4.1 million tons per annum. With no net debt, our market cap and enterprise value is currently essentially the same number. Dividing our EV over our liquefaction capacity implies that Golar trades at $590 per ton of liquefaction capacity. The latest public transactions of liquefaction capacity, including Eni's acquisition of Exmar's Tango FLNG and Kinder Morgan's sale of part of its Elba facility, suggest market pricing for liquefaction in excess of $1 billion per ton. If you apply that $1 billion per ton of liquefaction capacity to Golar, that would equate to around $38 a share.
That is also for the best-performing FLNG technology in the world with the lowest carbon footprint out of what's currently available in the marketplace. Turning to slide 15. Slide 15 is well known throughout our latest earnings report, but sets out the business model for FLNG. Subject to the area of operation, we can feed gas into an FLNG at between $1-$3 per MMBtu. Add to that OpEx and fuel cost of around $0.60 per MMBtu, and we can deliver FOB gas at between $2-$4. Or we can ship to end users in Europe or Asia for another $1.40 per MMBtu. Hence, FLNG technology enables monetization of stranded or associated gas landed into Europe or Asia at between $3-$5 per MMBtu.
This compares to a forward market between $10-$15 per MMBtu between now and 2030. The total margin for an FLNG project is between $5-$10 per MMBtu, and the key discrepancy when comparing FLNG projects is how that margin is divided between the resource owner, the upstream company, and the FLNG provider. A typical tolling fee project charges a tariff anywhere between $2-$3.5 per MMBtu, giving the charterer of the FLNG unit the vast majority of the upside in the project. In most cases, the FLNG technology is what makes the project monetizable.
This is why we mainly focus on integrated projects where we together with an upstream partner enable the monetization of stranded or associated gas reserves and take out the full spread between the cash break-even of the liquefaction project and prevailing market prices. Based on current gas prices, integrated projects have a payback in less than two years, including both the FLNG and upstream CapEx. Turning to summary and slide 17. This further builds on the slide that Eduardo showed on Hilli, but adding into effect the start of operation of Gimi with full run rate from 2024.
We expect to see continued earnings and free cash flow to equity growth on the back of increased ownership in Hilli, increased commodity-linked earnings, and the start-up of Gimi for its 20-year contract with BP. We see further upside in increased capacity utilization of Hilli upon contract renewal in July 2026 and through incremental Mark II FLNG that we can be funded by the existing balance sheet flexibility. We also see potential to improve free cash flow to equity by optimizing the debt facilities on our existing assets, Gimi and Hilli. The board and management are therefore exploring alternatives to start to return value to shareholders through dividend or stock repurchases. To summarize today's call, we will turn to slide 18. Golar reports 2022 annual net income of $788 million and a record book value of $2.9 billion.
We have a cash balance of around $1 billion, low leverage and operating cash flow growth that allow for both FLNG expansion and the engagement of shareholder returns. We see strong client interaction with focus on integrated contract opportunities for the reasons that we have explained and the full project payback in less than two years in current gas price environments. We believe Golar is very attractively priced both on cash flow multiples and dollar per ton of liquefaction capacity, especially in light of recent transactions. This concludes our Q4 earnings presentation. Thank you for listening in. We'll now hand over to the operator for any questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. There will be a limit of two questions per person on today's call. Please stand by while we compile the Q&A queue. Our first question comes from the line of Ben Nolan from Stifel. Please go ahead. Your line is open.
Yeah. Thank you. Good morning, Karl and Eduardo, or afternoon, I guess. Let's see, how am I gonna do my two questions? We'll start with the potential for a return of capital to shareholders either through dividends or share repurchases. As I recall, there was some covenant issues that prevented you guys from being able to do that, as part of your credit facilities. Could you maybe talk through what those are, if they've been resolved, if there is anything in the way of potentially that direction for capital allocation?
Yeah. Hi, Ben. The only restriction we currently have is under the unsecured bonds, where we are currently not allowed to start a dividend until March, April 2024, at which point we can start.
Okay.
The question is if it's any ways we could make that earlier.
Right. I suppose the answer is you're working on it. That's the read through there?
Yes.
Okay. All right. I suppose we'll stay tuned. For my next question, I'm curious, there was some updates about the potential expansion of the Tortue field, you know, where the Gimi is going. It looks as though that project is going a to a different design. Just curious where you guys stand on that. If it is not sort of replicating the, your, you know, your design, your FLNG design, what, how you approach that particular opportunity.
The first and foremost, we're obviously involved in the project through phase one and the startup of Gimi. We obviously note that BP and Kosmos Energy was out yesterday with a pre-FEED study for a potential gravity-based solution. We note that this is a pre-FEED study that would take some time to develop. It would be a less proven technology for the area. We also note that they were considering to use electric-driven liquefaction technology, which would be a novel application in a region without abundant renewable energy sourcing. You could source the electricity from land, but in land it's still fueled by gas or oil, so we don't really see the benefit of doing that shore-based.
At the end of the day, it's up to the charters to decide what direction they want to take. We, as we've tried to highlight a few times during this call, would rather focus our efforts on integrated project as opposed to expanding further fixed tolling-based contracts for majors, especially in this inflationary environment. We see it less interesting to spend very big CapEx in the next three years on construction only to be repaid on a fixed tariff for 20 years thereafter.
Okay. All right. I have more, but I'll respect the two limit, and if there's time at the end, I'll jump back in. I appreciate it. Thank you, Karl.
Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Amit Mehrotra from Deutsche Bank. Please go ahead. Your line is open.
Hi, guys. This is Christopher Robertson on for Amit. Thanks for taking our questions.
Hi, Chris.
Hi. Just to kind of piggyback off of Ben's questions regarding the dividend versus share repurchase. I mean, you kind of laid out a scenario for a much higher share price earlier in the presentation. Do you think is the current thinking maybe around share repurchases given where the shares trade at today? With regards to a dividend, I know it's pretty early to maybe think about this given that you're having some ongoing discussions there, but, can you talk about a policy you're thinking about? Is that going in a direction of a steady state dividend policy, or how should we think about that?
Chris, you broke up a bit, but I think I captured most of what you referred to. A repurchase and a dividend would fall under the same restriction in the current unsecured bonds. In the event they were to engage, we wouldn't currently be able to do it until March, April of 2024. When it comes to the balance between dividend and repurchase, this is still under exploration between board and management, and no firm decisions have been made either way, but we're working at alternatives to identify. I think if you highlight, we believe that both compared to book value of equity, cash flow multiples, and dollar per ton comparisons to recent transactions, we see significant value in the stock today.
Got it. Then can you talk about the potential for future projects as it relates to kind of holding some cash back on the balance sheet going forward, not just the Mark II project that you've kind of laid out here, but further projects?
I think as Eduardo alluded to, the free cash flow to equity just from operations, from Hilli and Gimi would be sufficient to pay, or to start returning very healthy amounts of cash flow to shareholders. You can do all of that even without touching $1 billion of cash. $1 billion of cash is more than sufficient to fund a Mark II growth project. We have plenty of capacity to both grow and return cash flow to equity, and they're not mutually sort of exclusive.
Yeah. Got it. Yeah, certainly a lot of liquidity here. All right. Thank you for taking the questions.
Thanks, Chris.
Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Chris Tsung from Webber Research. Please go ahead. Your line is open.
Hi. Good afternoon, Karl and Eduardo. How are you?
All good. You?
Hi, Chris.
Good. Thank you. Thank you. Just looking at your presentation, it looks like the cost for Mark II increased around, like, 7%. Like, I think you guys said $300 million last quarter. Just wanted to ask, is that higher price from like a higher cost environment or is it just, ordering more equipment? Just lumping in a second part of this is just, does that change your guidance on what the dollar per ton cost for an FLNG?
Okay. I assume you're referring to slide 15 and the balance. What we used for illustrative purposes, which slide 15 is meant to be, is that we use the dollar per ton that you derive at on slide 14. We just said that you buy Golar today at 590. If you use 590 as the same basis, what would that equate to in implied equity fraction earnings, or cost versus EBITDA?
No.
We do believe that we can create, the Mark II, somewhat cheaper than that value.
Okay. Yeah, 'cause I think in the prior earnings, you guys guided to around, like, $500-$600 a ton, for your-
We maintain that guidance.
I'm sorry? You maintain that?
Yeah.
Okay, great. Thanks. As my second question, I think you touched on this before as well. Just how much liquidity could you unlock if you refinance the Hilli and Gimi?
Eduardo, you wanna tackle that one?
Yeah, sure. I think we discussed that on the previous call. We have assessed a different number of alternatives to potentially extract further value from Hilli and Gimi. Depending on which one we would pursue, we could see the potential to unlock just on Gimi alone, values of in excess of $1.2 billion-$1.3 billion. That would require a further refinancing of the existing facility. We could be doing that either in the capital markets or pursuing a new commercial bank facility. We still believe that we would be better off, eliminating completely the construction risk. We don't expect to take any sort of a refinancing activities before the commencement of operations of Gimi.
I think, with the current cash position that we have and as discussed and pointed out by Karl as well, further enhanced by the cash flow generation from Hilli, we have more than enough to sustain both the further growth on FLNGs but also to commence the payments in the near future. I think we will try to be optimistic when it comes to refinancing.
That's great. That's it for me. Thank you, guys.
Thank you.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Our next question comes from the line of Liam Burke from B. Riley Financial. Please go ahead. Your line is open.
Thank you. Hi, Karl. How are you?
Hi, Liam.
Karl, are you seeing any competing FLNG players in the market, looking for potential projects that you would think would be more in line with Golar?
I think the biggest competitor as such is majors that control fields building the assets for own balance sheet, unlike what BP and Kosmos is planning on the expansion of Tortue.
Okay. You don't see any players like NFE, stepping in and competing, for that, for your business?
As we've said on numerous occasions, when it comes to NFE, we think that the Fast LNG technology that they are pursuing is complementary to that of Golar. They are mainly targeting smaller resources in shallower waters and seem to focus mainly on U.S. Gulf of Mexico. We think that's complementary to those projects that we are pursuing, and we like their technology, and think that they have again, complementary technology to ours and don't see them as a direct competitors for any of the projects we are currently developing.
Okay, great. Thanks, Karl.
Thank you.
Thank you. We'll now move on to our next question. Our next question comes from the line of Ben Nolan from Stifel. Please go ahead. Your line is open.
Hi. I told you I'd be back. I wanted to just cover a little bit more on the Mark II. In the presentation you said that you have a shipyard slot confirmed for a 2025 delivery. I'm curious when you would need to have the vessel in the yard in the first place, or when you would actually start spending other than for the acquisition of the ship and long lead time items, but actual construction of that. Could you remind us what you're thinking in terms of what the total CapEx cost for Mark II would be?
Sure. Okay. Mark II is slightly different in sort of concept than that of Mark I. If you go, for example, on slide 13, you can see that the liquefaction plant itself is planned to be built from scratch on a new ship midsection. You bring the ship in, you basically chop the ship in the middle, and you weld on the ship to either side of the liquefaction plant. Hence, to keep that schedule, we would start to construct the midsection where the vast majority of the long leads is intended for. We would need the ship to be in the shipyard to start preparation work on the ship itself this time next year.
For us, it's more important to get going on the midsection than to get the ship into the shipyard this side or during this year. That's how this unit is built, which means that it's less stick building into an existing unit. You basically put the liquefaction plant in the middle and then add the storage. In terms of CapEx, it's slightly dependent on what mooring system that we will end up using. We believe around somewhere between $1.8 billion and $2 billion should be feasible.
Okay, perfect. That is good color, Amit. I suppose that in the interim period after you take delivery of the ship and before it goes in the shipyard, you would just trade it in the spot market or something. Is that a fair assumption?
No, I think the way we try to structure the whole Mark II, two project is that we commit and secure the time frames, but we try to limit the cash drag until we actually need the equipment. When it comes to the ship itself, that's why also why we structured it as an option where we pay $5 million to reserve the ship. We need to pay somewhat more money but not the full amount upon the duration of the option. The final installment is paid upon delivery, which is likely to be around this time next year. Q1.
Okay. All right. Very clear. Appreciate it. Thank you.
Thank you.
Thank you, Ben. Thank you. There are no further questions at this time, so I'll hand the call back to Karl for closing remarks.
Thank you all for listening in to our quarterly presentation. We're very excited about the development of the project, during 2022. Both hope and plan to keep the same pace of progress during 2023. Thank you for your continued interest and support in the company. We wish you all a good day, and bye-bye.