Golar LNG - Earnings Call - Q3 2025

Transcript

Operator (participant)

Welcome to the Golar LNG Limited Third Quarter 2025 results presentation. After the slide presentation by CEO Karl Fredrik Staubo and CFO Eduardo Maranhao, there will be a question and answer session. Information on how to ask a question will be provided then. At this time all participants are in a listen only mode. I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead.

Karl Fredrik Staubo (CEO)

Thank you operator and good morning from our head office in Bermuda. Welcome to Golar's Q3 2025 earnings results presentation. My name is karl Fredrik Staubo, the CEO of Golar and I'm accompanied today by our CFO Eduardo Maranhao. Before we get into the presentation, please note the forward looking statements on slide two, starting on slide three and an overview of Golar following our announcement on October 23rd. Our existing fleet of three FLNGs are now fully contracted on 20-year charter durations with a total EBITDA backlog of $17 billion before commodity, upside and inflationary adjustments. Now that the existing fleet is fully contracted, the key focus of the company is now on developing our fourth FLNG unit. During the quarter we've made significant technical and commercial progress in deciding on size and design of our next unit.

As you can see on the bottom half of the slide, we have three different growth designs, the Mark I, II and III, which differ in liquefaction size ranging from 2.5 million tonnes all the way up to 5.4 million tonnes. We're on track to decide on the next FLNG project in the coming months. Over the course of the last five months we've also concluded just over $1 billion in new corporate debt facilities and retired our October Norwegian bond maturity of $190 million. Following these developments, we now have a cash position of $1 billion and a net debt position of around $1.4 billion. Over the last 12 months we generated $221 million of adjusted EBITDA, mainly from the operations of the Hilli. Our EBITDA generation is set to quadruple from contracted EBITDA once our existing fleet is fully delivered during 2028. Turning to slide four.

The highlight of the quarter is for sure the final FID and successful fulfillment of all CPs for Mark II's 20-year charter in Argentina. We now have earnings visibility for all our assets through 2045 and beyond. The total earnings backlog stands at $17 billion before commodity upside and inflationary adjustments, and this creates a very solid base to add further attractive FLNG projects to the portfolio. Turning to Slide five, we highlight some of the key characteristics of our FLNG charter agreements. Golar aims to structure our long-term contracts as solid infrastructure cash flow with meaningful contractual protections. Some of the key attributes to these protections include that all of our contracts are paid in U.S. Dollars, all cash flows are paid offshore, and net of any local taxes in the country where we operate.

All of our contracts are on English law and for all our long term contracts, operating costs and maintenance CapEx is either passed through or reimbursable by our counterparts. In addition to these strong protections, we have further fiscal protections for our two contracts in Argentina including 30-year non-interruptible export licenses, environmental assessment approvals, and protection from any changes to fiscal or regulatory terms including taxes, etc., through the large investment protection under the RIGI framework in Argentina. We furthermore have corporate guarantees from the parent companies of our counterparts for a significant portion of the contract backlog to safeguard the cash flows. Our mission is to identify attractive gas reserves globally and utilize our FLNG technology to monetize these assets.

Together with strong upstream partners, we try to structure the contract in a manner where we reduce the country risk by creating the mentioned strong contractual and regulatory protections as well as creating a buffer between Golar's operations and the country where we operate. These buffers are essentially the charters of the unit which in turn includes Perenco in Cameroon, BP offshore Mauritania in Senegal, and the CESSA consortium in Argentina where we have the pro rata corporate guarantees from the shareholders which comprise Pan American Energy, YPF, Pampa, and Harbour. Turning to Slide seven and a business update for the quarter, Q3 was one of the strongest quarters in the history of Golar, now adding $8 billion of firm EBITDA backlog through the lifting of all CPs and FID for the 20-year charter of Mark II to Argentina.

In addition, we entered the U.S. rated unsecured market with Golar's first ever US documented $500 million bond with a five year duration carrying a 7.5% coupon. In the quarter we also retired a Norwegian bond with a net outstanding amount of $190 million at maturity in October. We've also signed the Hilli redeployment scope in between her contracts in Cameroon and before starting the contract in Argentina where the vessel will return to her original construction shipyard at Seatrium in Singapore. We've also approved the ordering of long lead items for the 4th FLNG and we've approved a new $150 million buyback program in line with our track record of buying back over 9 million shares over the course of the last five years.

Turning to slide 8 and focus on Hilli. Hilli maintains her market leading operational track record with another quarter of 100% economic uptime. We've now delivered 142 cargoes and started up or produced more than 9.8 million tons of LNG. During the quarter the unit generated $51 million of adjusted EBITDA to Golar. Turning to slide two and focus on the GIMI. GIMI started her commercial operations date under a 20 year contract for BP offshore Mauritania and Senegal in June this year. We're very pleased to see that operations are stabilizing and continuously improving in throughput. We're now fine tuning operations with daily production frequently exceeding base capacity. In addition, we're actively working with the GTA partners to identify and develop value enhancing initiatives for the GTA project.

These initiatives include operational efficiencies and debottlenecking of production capacity to improve unit economics and overall throughput, which will then benefit the potential earnings of GIMI overall and beyond the base EBITDA. We're also pleased to announce that we're in very advanced stages of entering into a new credit-approved $1.2 billion bank refinancing facility of the GIMI. We expect this facility to close within this quarter, and Eduardo will explain this in further detail in the later section. Turning to Slide three and a focus on the Mark II. As already explained, the key highlight of the quarter was the FID reached in August and the CP satisfaction met in October. The project remains on schedule for delivery in Q4 2027, and we expect to commence operations in Argentina during 2028.

To date we have spent $1 billion out of the total conversion budget of $2.2 billion and the $1 billion has been fully equity funded by Golar to date. You can see on the pictures some of the progress made on the shipyard in China. To the left you can see the ship which is divided in two parts and now sits on land. In the middle we have had the keel laying ceremony to construct the new midship section which will be 80 meters long and 63 meters wide and will house the liquefaction plant of the units. You can see the module structural assembly ongoing to the far right. This is part of the equipment that will be injected into the midsection.

Turning to Slide 11, year to date we've secured $14 billion in adjusted EBITDA backlog across Hilli and the Mark II, where all of the FID and CPs for Hilli was met in May and for the Mark II between August and October. We see the combination of these two contracts as a very strong addition to Golar's portfolio, generating a base EBITDA of $685 million over 20 years before meaningful commodity upside and inflationary adjustments, both of which Eduardo will explain in further detail later on. Turning to our key focus going forward is adding unit number four, where we explain further details on Slide number 12. As we explained on our Q2 call, we made commitments to the three shipyards to come up with updated pricing, delivery, and payment terms if we were to go ahead with one of the three designs.

We have now obtained search pricing and delivery times from all the three shipyards. The Mark I design is the same design of both the Hilli and GIMI. It's a proven design, we know it well and the current pricing works and aligns with some of the commercial discussions ongoing. The Mark II would be a repeat of the vessel currently under construction and we are pleased to reconfirm time and price with the shipyard. We've also spent a considerable amount of time getting an updated price, time, and schedule for the Mark III, and we continue to see yard pressure for attractive slots and delivery times. We do think that timing is of the essence if you want to lock in attractive delivery. The key pressure item for the delivery of all three assets are long lead items.

These long lead items see significant pressure both on delivery and price, mainly driven by the AI data center boom in the U.S. We now see relatively new entrants into some of these suppliers where companies like Google, Alphabet, Meta and so on are ordering gas turbines in large quantities, putting price pressure and delivery pressure. Being an existing large and long term client of these sub suppliers helps us in securing attractive slots despite the increased competitive landscape. We have therefore gotten board approval to enter into long lead items during this quarter and we expect to do so in the coming weeks and months to safeguard the delivery times now confirmed by the shipyards through over the course of the last few months.

What do we mean when we say we're going to go ahead ordering unit number four? We think the case study of the Mark II over the course of the last 12 months is relevant and what is highlighted on Slide 13. The Mark II, we placed the order in September 24th on speculation even if we had very strong commercial lead. The order was initially on speculation. In May 25th, we signed the 20-year charter with CESSA. FID was met in August and all conditions met in October. What we clearly saw from ordering the unit on speculation alongside the redeployment of Hilli was that we were able to drive considerable commercial value in Golar's favor by having a firm delivery and several commercial opportunities available. We are planning to follow the same recipe for unit number four.

There were several commercial interests both on the Hilli redeployment and on Mark II that lost out to the Argentinians. We have obviously maintained those discussions and we've also developed incremental units, incremental projects. Therefore, we plan on using the same methodology to drive commercial value in our favor. With a similar timeline expected for a new project, the CapEx to EBITDA for the Mark II was 5.5x for a 20 year contract before the commodity upside and the inflationary adjustments. We continue to see a strong development in the commercial pipeline for new projects and we're therefore comfortable to go ahead with ordering the long leads imminently. Turning to page 14, we made further advances for the next units. We've confirmed between 36months-38 months of construction time both for the Mark I and the Mark II and around 48 months for the Mark III.

The primary reason for the longer lead time on the Mark III is that for that unit we are not starting with a donor vessel, but purpose building from the get go and it's also larger in size and require longer time. As already explained, we received updated pricing, delivery and payment terms which are broadly satisfactory to the project economics that we are targeting. We have identified and inspected donor vessels and given the state of the current LNG shipping markets, we're very pleased with the levels in which we can source attractive conversion units. We're now working to narrow commercial opportunity, set and upstream timing and decide on FLNG design. We will target long term infrastructure contracts and we have positioned the balance sheet to facilitate to add one more unit. We're now on track to decide on the fourth LNG vessel in the coming months.

Starting with long lead items imminent, turning to slide 15 and to elaborate a bit on the market opportunity and what we see ahead of us. It's tempting to look to the FPSO industry's development which started in 1985 with its first unit and grew very quickly to around 20 units ten years later. We see and today stands at more than 250 units globally with 10 projects-15 projects added annually. We see a similar development taking place in the FLNG industry. We're very pleased to see the increasing adoption by the industry that FLNGs are the cheapest, quickest and most efficient way of monetizing stranded and associated and flare gas resources globally. Golar pioneered this business with the first delivery in 2018 and the fleet now stands at 14 units with several planned incremental projects in development.

We're pleased with our position as the only proven provider of FLNG as a service, and we plan on maintaining an active growth strategy for as long as we can secure economics along the lines of our existing contracts for 20 year durations. We will however maintain our policy of having maximum one unchartered FLNG at a time.

As we've explained over several calls, but it's still the key premise of our business. Gas liquefaction has three costs: the cost of lifting the gas, the cost of liquefying the gas, and the shipping distance from where the gas is produced to where it's consumed. The largest current exporter in the world of LNG is the U.S.,they also happen to be the largest source of growth of incremental supply over the coming five to 10 years and they also happen to be the most expensive producer, so the incremental producer. Hence, if we can source projects where we can produce the gas significantly cheaper than Henry Hub, we know we have an attractive cost competitive advantage in constructing the liquefaction units and more often than not our projects are closer to end users and therefore have a shipping advantage.

If we have this or continue to develop projects with the three significant cost advantages over the largest and incremental producer in this market, we believe we have a very strong business and one that we will continue to grow. Turning to Eduardo for group results.

Eduardo Maranhão (CFO)

Thank you Karl and good morning everyone. I'm pleased to give an overview of Golar's financial performance for the third quarter of 2025. Moving to Slide 18, let's review the key financial highlights of the quarter following GIMI COD in June. This was the first quarter with full operations of both of our units. I'm pleased to share that GIMI has been performing extremely well and daily production is now frequently exceeding base capacity. We achieved total operating revenues of $123 million in the quarter and net FLNG tariffs of $132 million in this quarter. Hilli contributed $51 million to our EBITDA while GIMI added $48 million this quarter. In connection with the startup of operations of GIMI, we incurred certain one-off expenses which are expected to be normalized in the next quarters.

When accounting for the corporate and project development expenses this quarter our total adjusted EBITDA reached $83 million. Total EBITDA for the last 12 months ended in Q3 was $221 million. This quarter we report a net income of $46 million. This figure is inclusive of $12 million of non-cash items such as adjustments in the value of embedded TTF in derivatives within the Hilli contract as well as changes in our interest rate swaps. In October we raised $500 million under our first U.S. rated senior unsecured bond with a new five year note at a cost of 7.5%. Following that we repaid $190 million of our unsecured Norwegian bond issued back in 2021. Our liquidity now stands at approximately $1 billion of cash on hand, so following that our net debt position right now stands at just under $1.4 billion.

Lastly, we're pleased to declare a dividend of $0.25 per share this quarter with a record date of November 17th and payment scheduled for November 24th. Now moving to Slide 19, we continue to focus on accretive growth while maintaining a sustainable policy of shareholder returns. As our units come online, we plan to return most of operating cash flow after debt service to shareholders. While we'll continue to recycle capital through asset level financings and existing debt optimization to fund accretive growth, these are not mutually exclusive. Over the last five years we returned more than $800 million to shareholders, including dividends of over $260 million and buybacks of more than 9.3 million shares at an average price of under $25 per share, bringing the total share count to 102 million shares outstanding at the end of Q3.

In line with that, I'm pleased to announce that our board has approved a new buyback program of up to $150 million. Now moving to Slide 20. Following the announcement of the Mark II FID and CP's fulfillment, we now have full visibility of our earnings for the next 20 years. This gives us a clear path to cash flow growth and increased shareholder returns. By 2028, when our three FLNG units are fully delivered and in operation, we expect our EBITDA to grow by more than four times compared to the last 12 months. This can grow even further subject to further commodity upside from Hilli and the Mark II. This incremental free cash flow upside under the CESSA charters in Argentina can be estimated at approximately $100 million per year for every dollar per million BTU increase in FOB prices above $8 per million BTU.

In 2028 when the Mark II comes online, our free cash flow to equity generation could be around $500 million-$600 million or approximately $5-$6 a share before further commodity upside. Now moving to slide 21. How do we plan to fund debt growth. Going forward we plan to use the liquidity released from debt financing proceeds to be allocated to fund accretive FLNG growth. We have now received final credit approvals for a new $1.2 billion bank facility for FLNG GIMI at improved terms and we expect it to close within Q4. This facility carries improved terms and conditions compared to the current one and is expected to release net proceeds of over $400 million net to us at 5.6x the GIMI's annual contracted EBITDA.

This is a good example of what can be achieved on the back of our long-term charters. When looking at our existing debt at Hilli and targeting a level 4-5x its annual contracted EBITDA. In that case, even at a lower level than the GIMI one, we could release up to $1 billion in proceeds from that by refinancing the existing debt with a new facility. Similarly, if we apply the same multiples to the Mark II, which is currently completely unencumbered, we could be looking to raise up to $2 billion from new financings. Combined, these two transactions could raise up to $3 billion in fresh proceeds which can be used to fund further FLNG growth.

Now moving to Slide 22, following the confirmation of the contract in Argentina with the FIDs of Hilli and the Mark II, we now have a total firm EBITDA backlog of more than $17 billion before commodity upside and further inflation adjustment. I wanted to recap how this is built up once all units are in operation. Starting with our share of the GIMI earnings, this is expected to add $150 million, followed by the $285 million from Hilli, as you can see on the slide, and $400 million from the Mark II. When you deduct our corporate expenses, we're left with a base EBITDA of $800 million fully secured for the next 20 years. As I explained before, changes in LNG prices could significantly give a very high upside to us, and in that case we have a limited downside with a very significant and uncapped upside.

For example, if we assume FOB LNG prices of $10 per million BTU, our EBITDA could be in excess of $1 billion per year. At $15, this number could grow to $1.5 billion. As a reference, if all the units were in operation in 2022 and assuming LNG prices during that time, we could be earning close to $3.5 billion on that given year. This really shows the huge upside potential of our commodity upside. Lastly, on slide 23, I wanted to summarize the different ways our investors can have exposure to Golar. Our shares are listed on NASDAQ and I'm pleased to see increased volumes with daily liquidity exceeding $50 million per day. Following our latest issuance of our new U.S. rated $500 million unsecured bonds in October, we now have two unsecured bonds trading in the market with a total outstanding amount of $800 million. We have also issued $575 million of convertible bonds back in June. I think that ends this slide here. I'll now hand the call back to you, Karl.

Karl Fredrik Staubo (CEO)

Thanks, Eduardo. Turning to Slide 25 to summarize, we're very pleased with the development of the quarter and in particular 2025 year to date, we remain the only proven service provider of FLNG as a service combined between Hilli and GIMI. Having now delivered more than 150 LNG cargoes, our earnings backlog now stands at $17 billion of EBITDA before commodity upside and inflationary adjustments. This will further increase as we add additional units. Our EBITDA is set to quadruple between now and 2028 and the pathway to multiple return in shareholder returns is beyond the quadruple as the EBITDA growth is far in excess of that service growth. We remain a strong balance sheet position to provide for additional growth units. Our fully delivered net debt to EBITDA stands at around 3.4x with a current cash position of around $1 billion.

We're on track to order our fourth FLNG unit and we're in the process of ordering long lead items during this quarter. Our focus remains on shareholder returns and we're pleased that the board approved yesterday a new $150 million buyback program which is in line with the $812 million returned to shareholders in the last five years. That concludes the prepared remarks of today's presentation and happy to turn the call back to the operator for any questions. Thank you.

Operator (participant)

Thank you. If you wish to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please limit yourself to two questions. To withdraw your question, please press star one one again, we will take our first question. Your first question comes from the line of Christopher Warren Robertson from Deutsche Bank. Please go ahead. Your line is open.

Christopher Robertson (Equity Research Anlayst of VP)

Thank you, operator. Good morning, Carl and Eduardo. Thanks for taking my questions here. We saw some correlation in the share price recently with the Argentine market due to the recent election cycle and one of the things that could help reduce the market's perception of risk around Argentina, perhaps if CESSA is able to lock in long term offtake agreements. I was wondering if you could comment on CESSA's current strategy, what they're currently doing, if they're out competing in the market for long term offtake at sale purchase agreements, and where things stand on that front.

Karl Fredrik Staubo (CEO)

Good morning Chris. We have observed the same, which is interesting. I think we tried to explain the structure of our contract on slide five in this deck. These contracts are for 20-year durations and we have structured them independent of political parties. We subjectively are pleased to see the outcome of the election. However, our contracts, the FID for the Mark II was taken before the outcome of the election and we do not think that it would have any material impact on our earnings, irrespective of outcome. We are pleased to see the development. To answer your question on long-term offtake, that is a CESSA decision. We are obviously shareholders of CESSA, so the current plan is to initially lock in the offtake for the Hilli volumes for a decent period of time and we are pleased to see the activity level and interest for that offtake.

As earlier explained, the world is looking to diversify sources of LNG and the attractiveness of Argentina sitting on the world's second largest shale discovery is very interesting because it will be a long term and very significant exporter of LNG for the coming decades. We see very strong interest from all the big industrial and trading houses for that volume. We do expect them to sign the first offtake contracts within this quarter.

Christopher Robertson (Equity Research Anlayst of VP)

Great, thank you for that. Just turning to the donor vessels at the moment, they seem to be relatively cheap. That being said, there's a little bit of cost inflation as you probably saw here on long lead items and also from the shipyards just being relatively full. With that in mind, can you comment if the future projects could target a similar potential CapEx-EBITDA ratio of 5.5 as you noted in the slides here? Or is that calculation a bit different with recent costs? If you could comment on where total CapEx stands today on some of the new potential projects?

Karl Fredrik Staubo (CEO)

I think it's fair to say that the topside equipment, so the topside equipment cost inflation and construction time offsets the saving of the donor vessel and more so the cost inflation pressure is higher than what you save on the ship, even if they do partly net off each other, but stronger pressure on the upside to put it that way. However, we're pleased to see that that's also the case for liquefaction fees. We are planning or targeting to do new projects with similar economics on CapEx-EBITDA ratios versus the existing project.

Christopher Robertson (Equity Research Anlayst of VP)

Just as a follow up on that, if you were to move forward with the Mark II having that option at the shipyard, would that be locked in at the similar price of the Hilli or has there been some cost inflation that could impact that as well?

Karl Fredrik Staubo (CEO)

You have a cheaper donor vessel than the Fuji, you have as higher long lead items. The overall price I would say for this context is broadly in line. The slight increase broadly in line with exsisting Fuji.

Christopher Robertson (Equity Research Anlayst of VP)

That's my questions. I'll turn it over.

Eduardo Maranhão (CFO)

Thank you, Chris.

Operator (participant)

Thank you. Your next question comes from the line of Evan Colesgard from Clarksons Securities. Please go ahead. Your line is open. Thank you.

I have a question related to Gimi and the capacity of that ship. I know you answered something similar before and touched upon it in your presentation, but one of your partners is very vocal about the potential to raise the nameplate capacity of that ship. I think the specific number is like 10%-20% above the current nameplate capacity. Do you have any comments or color on that statement? And if it's possible.

Karl Fredrik Staubo (CEO)

Yeah. Hey, when you make reference to nameplate, there are a few different numbers. Let's talk about nameplate. The nameplate capacity of Gimi is 2.7 MTPA. The contracted volume is 2.4 MTPA. When we say that the unit makes $215 million of annual EBITDA, that's with reference to the 2.4 MTPA, which is 90% of the 2.7. Is it possible that you can produce more than 2.4 and up towards 2.7?

Yes, absolutely. Is it possible that we can produce more than 2.7? We are evaluating that through the debottlenecking exercise that I mentioned during the call. That could include upgrading certain equipment. The magnitude in percentages over and beyond 2.7. We are not in a position to have a clear stance on today. The way it works is that if you change one single component, that component itself could be like 15% or 20% production increase. Then you face a bottleneck elsewhere in the liquefaction plant. You know, it's a knock on effect and you need to go through the entire system to really gauge the total potential, the bottleneck potential. For now producing more than 2.4, whether that's feasible? Yes, we think so. It's subject to operations upstream and ambient temperature. Is it possible to do over the design nameplate? Perhaps, but that's through the debottleneck exercise and we're not going to commit to any percentages until that exercise is done.

Okay, thank you. My second one is on the market for FLNGs. As you said, there's been a growing number of LNGs and interest in that market. We also see new companies that are doing FLNGs like Delfin LNG and Amigo LNG. These private companies are private, so we don't really know much about the CapEx or contract structures that they get for the tollings, etc. Do you have any information when it comes to how does this, these units compared to yours in terms of competitiveness? Are you also seeing more competition when it comes to potential projects that you are looking at?

We're pleased to see that more people adopt FLNG technology. I do not think I want to go into any of the specific projects that you mentioned, but we're pleased to see increased adoption. I think it's still fair to say that there are more PowerPoint FLNG companies than real FLNG companies. Even including the projects that you mentioned, none of them are offering FLNG as a service. All of them are utilizing gas that they control or in areas where they control. They're not offering this to an upstream partner, an external upstream partner. Do we see increased competition for shipyard slots and long leads? Yes. Some of that is not driven by FLNGs. It's by AI data centers, it's by container ships, it's by LNG ships, but it's also FLNGs for sure. Do we see competition for FLNG as a service right now? No.

Thank you. That's all for me.

Thank you.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Spiro Dounis from Citi. Please go ahead. Your line is open.

Spiro Dounis (Director)

Thanks, operator. Good morning, team. First question, wanted to hit quickly on the buyback. The prior buyback was linked to those notes you did earlier this summer. Curious how you're thinking about deploying this program and what metrics you'll be looking at each quarter to decide how much you're going to repurchase.

Eduardo Maranhão (CFO)

Oh, hi, Spiro, this is Eduardo here. As we stated during the call, over the last four and a half years we bought back over 9.3 million shares. I think we have taken a pretty opportunistic approach to that. Following the convertible bonds, we bought back 2.5 million shares and the previously approved program had then been exhausted. I think we have received approval yesterday from the board for a new program of up to $150 million, which we will continue to actively and opportunistically execute in the market in the coming months. I think we will not change our approach to buybacks as we have been consistently doing over the last four and a half years.

Spiro Dounis (Director)

Got it. It's great to hear. Second question. Maybe just moving to the fourth FLNG unit. Curious if you could put a finer point on maybe some of the items here to moving forward. I realize you talked about some of them, but you also mentioned going back to potential customers you had spoken to before. Curious how big that list is and maybe why they're stronger candidates now versus not prior.

Eduardo Maranhão (CFO)

The list of existing clients is very obvious. It's Perenco, BP, Kosmos, and the CESSA partnership. I think we're obviously with Hilli departing in Cameroon. Cameroon has more gas reserves that are currently not being monetized. The day we leave, there will be no LNG exports from Cameroon. I think we have a proven operating model there. It's been a very successful partnership across all the parties and we would be pleased to continue to work in Cameroon if we can find the right resource and agree the right terms. I think for the GTA project, many options are being evaluated to enhance the unit economics of that project, which could include increased liquefaction capacity. In Argentina there's an expressed interest to continue to grow exports. I think as late as yesterday there was an announcement between YPF, ENI, and XRG.

Those are obviously the existing clients. There were other clients that were, or other prospective clients that were, competing for the Mark II and Hilli. Some of them have now developed further since sort of losing half to the Argentinians last year and have gotten gas approvals, export rights, and so forth that make the project more mature and more positioned to lock in an FLNG. Those are the ones we develop in addition to the continuous business development our BD team continues to develop, and some of them are in areas we're currently not operating in as well. We do see strong demand pull, obviously from West Africa and South America. It would be interesting to see if it would be possible to open other areas as well that we're currently in discussions for.

Spiro Dounis (Director)

Great. I'll leave it there for today. Thank you, gentlemen.

Karl Fredrik Staubo (CEO)

Thank you.

Eduardo Maranhão (CFO)

Thank you

Operator (participant)

Thank you. Your next question comes from the line of John McKay from Goldman Sachs. Please go ahead. Your line is open.

John Mackay (VP Equity Research)

Hey guys, thank you for the time. Maybe I'll just pick up on that last one. It sounds like you are lining up. For fourth vessel order effectively before we know exactly where it's going, similar to what you did last time makes sense. I guess my question is, you. Know, going with a Mark I, or Mark II, or Mark III, each of those kind of has a different market. Where it could end up going. Just wondering if you kind of. Talk about, you know, where you're seeing the commercial opportunities relative to each of those three options.

Karl Fredrik Staubo (CEO)

Yeah. Hi, John. You are right. As we said in the prepared remarks, we are planning to narrow the design in the coming months. The long lead items, the critical long lead items, are in fact the same or interchangeable between the designs. It is mainly the gas turbine and the cold box. The difference is the magnitude of how many turbines you order for the different designs. When we make the slot reservation and commitments to the long leads, it is interchangeable and therefore the reason for going ahead with that now is that that is still flexible to design, subject to the deciding design in the next coming months. That is where we are targeting, where we see the smaller one. The Mark I, that is West Africa business. The way we see it, Mark II is more versatile in terms of geography or geography. Mark III effectively currently has two projects that we're working on so that it's fewer projects for Mark II than necessary for Mark III than the other two. Yeah, we're now planning to narrow that range to decide on which vessel to go for.

John Mackay (VP Equity Research)

I appreciate that. Thanks. Quick second one for me. Just can you remind us the status of the pipeline for Argentina? Kind of what we should look for. Next, when we kind of need to see something moving forward. Any updates there?

Karl Fredrik Staubo (CEO)

There are two relevant pipelines. The least cumbersome one is the one that connects the existing grid to the Hilli that is under construction and very much on track. The one you are referring to is the new pipeline from the Vaca Muerta to the Gulf of San Matias. That pipeline is a CESSA workstream, is independent of our contracts because we are paid as long as we are on site and available, irrespective of whether we liquefy or not. However, it is obviously important for us that that pipeline is built because that is what speaks to the upside and the overall economics. CESSA is now in an active round where they are auctioning out the EPC contract and or a tariff based service agreement subject to which model they go for.

Our understanding is that they expect to enter into a contract and award it in the first half of next year. The construction time of the pipeline is less than two years, hence that should be well within the timeline for Mark II's arrival. They are also in parallel working on all the regulatory framework needed, including right of way protection and so forth. The good thing is that the absolute majority of the distance, the pipeline will go next to the oil pipeline that was approved last year, hence right of way is already, that path has already been laid because you can just go exactly next to it. We think this is a repeat and we understand that CESSA is happy with the engagement from the potential EPC providers of that pipeline.

John Mackay (VP Equity Research)

Clear. Thank you.

Karl Fredrik Staubo (CEO)

Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Alexander Bidwell from Weber Research and Advisory. Please go ahead. Your line is open.

Alexander Bidwell (Associate Analyst)

Good morning. Appreciate the time. Just wanted to pick up on just a couple of the previous questions on some of the commercial demand, or rather demand for FLNG units. Are there any pockets of demand that surprise you or any specific regions? Where do you feel commercial discussions have picked up more so than others?

Karl Fredrik Staubo (CEO)

I do not think surprise is the right word. These are very large infrastructure projects that require a lot of stakeholder and a lot of time. To say that it is surprising, I do not think it is the right characteristic. What we do see is that as we have said a few times on the call, there is an increasing industry adoption. People are not scared of deploying an FLNG anymore. It is a bit like, you know, if your neighbor has one, you want one too.

If you just look at where FLNGs are deployed or being planned to be deployed in terms of contracts already sanctioned and just look at the neighboring countries, they all have pretty much the similar reserves. Why would your neighbor do something and make, you know, billions of dollars of LNG cash flows a year when you're not? That dynamic is now ongoing, stronger than previous because more people are adopting the projects.

Alexander Bidwell (Associate Analyst)

Interesting, that's a great analogy. For my second question, could you talk to, I guess, the key steps to green lighting and optimization or debottlenecking at or on the GIMI. Once you approve or decide the path forward, can you walk us through how the actual work might be executed? Could there be any potential impact to production, etc.?

Karl Fredrik Staubo (CEO)

The question is probably just as well placed to be pure Kosmos. The way this works is it's an interaction, right? The gas comes, is lifted from the ground, then goes through a BP-operated FPSO. The gas is sent to the GIMI, then circulated on a hub that's BP-operated and then offloaded. When you talk about debottlenecking, it's not just GIMI, it's the whole process from the gas is lifted until it's loaded onto a ship. For example, one of the key performance measures of an FLNG is the quality of the gas entering the unit and ambient temperature. Now, ambient temperature is a little bit tricky to play around with, but you can do smart things like air inlet cooling and so forth. When you talk about debottlenecking, it's not just on the FLNG itself, it's through the value chain.

Where does each dollar deployed make the maximum output and how do we work together to optimize that output? For now, that's the discussion. Maybe you can tweak the gas treatment on the FPSO to send a more optimized gas stream to the FLNG and thereby increase throughput, as an example, right? The work we are currently discussing does not require any movement of GIMI. She stays where she is. It might entail maintenance shutdown of the trains, but you never shut down all four. You just do like shut down a train for one week, maybe do certain upgrades or change some of the equipment. You get that back up and running before you do the next one. That would obviously be in accordance with the upstream to boost output and then the NPV of that would be massively positive. If not, nobody's incentivized to do it because it's working today. This is an opportunity set which could benefit everybody.

Alexander Bidwell (Associate Analyst)

All right, thank you. I'll turn it back over.

Operator (participant)

Thank you. Your next question comes from the line of Liam Burke from B. Riley Securities. Please go ahead. Your line is open.

Liam Burke (Managing Director)

Thank you. Hi, Carl. Hi, Eduardo. How are you today?

Eduardo Maranhão (CFO)

We are well. How are you?

Liam Burke (Managing Director)

Just fine, thank you. You're talking about future projects and you pretty much have an idea of what the cost of the FLNG is. When you're looking at the implicit returns on that project. Are you looking at just tolling agreements or do you factor in some sort of commodity premium on the cash flow generations of future LNGs?

Karl Fredrik Staubo (CEO)

The latter. To explain, we do not want to be in any project if the cash break even of the project is not competitive. It is a partnership that is set up for failure over time. By competitive, we mean competitive to U.S. exports. The way we try to structure the project is to charge what we think is a fair but also attractive to Golar firm tolling part, and then a commodity upside if the achieved FOB price significantly overshoots the cash breakeven of the project. In that way, we can make a project with an attractive cash breakeven to all the stakeholders and an aligned structure on making money together if and when gas prices go up. The only thing we know is over the next 20 years, nobody knows where the gas price is going. It will be volatile. It's important to have an attractive cash breakeven and capture the upsides when they're there.

Liam Burke (Managing Director)

Great. Thanks, Karl. In terms of the GIMI operational efficiencies and debottlenecking, are you gleaning anything from that process that can help you on future FLNG projects?

Karl Fredrik Staubo (CEO)

Yes. If you look at our units, they're getting more efficient. The GIMI is slightly more efficient and the Hilli Mark II is quite a bit more efficient than the GIMI, both in terms of fuel consumption, emissions, water intake, many different things. We're constantly adopting technology advances like, think of it as a car. If you bought the Volkswagen Golf five years ago and you ordered a new one now, it looks very similar, but it's got a nicer radio, better sound system and whatever else. It has better headlights. It's the same car, but it's nicer.

Liam Burke (Managing Director)

Okay, I'll be sure to consider that when looking at a car, but thank you, Karl.

Operator (participant)

Thank you. We will take our final question. The final question comes from the line of Sherif Elmaghrabi from BTIG. Please go ahead. Your line is open.

Sherif Elmaghrabi (VP Equity Research)

Hi. Thank you. The buyback program was reloaded in Q3 and in the past you've shown some flexibility regarding how to reinvest in the company. My question is, how are you thinking about shareholder returns through buybacks versus that outstanding 30% interest in the GIMI? Given where the stock is today.

Karl Fredrik Staubo (CEO)

Thats for us. So the $150 million is set for share buybacks. Right. When it comes to the GIMI, that is obviously the 30% stake is owned by Keppel Capital. If that can be acquired accretive to where we can do other FLNG growth and or where we are trading on the market, we will for sure consider it. If not, we do not need to buy it.

Sherif Elmaghrabi (VP Equity Research)

Got it. And then turning to the fleet, if we fast forward a year and you've secured a contract for a fourth FLNG but the order book for gas turbines has obviously grown. Do you have a sense of how that affects delivery timelines for a fifth unit? Is it a few months more than I think he said? Up to 48 months for a Mark III, for example.

Karl Fredrik Staubo (CEO)

Okay, to just give you an example, up until June this year, the delivery time for a gas turbine was 24 months. In June some of these are down to almost single suppliers. In June, one of these suppliers sent a letter to all its clients saying lead times just went from 24 months-36 months. So that's a one year delay. If you're an existing client and you have an existing program, maybe you can sneak in the middle there somewhere. But you're talking significant potential delays unless you lock in the long leads. Which is why we're going ahead now. Because in developing these projects, you need to know when you start up to drive commercial value.

If you keep letting the critical items slide, even if the shipyard is ready on everything else, if you can't get the topside equipment there, you don't get the ship.

Sherif Elmaghrabi (VP Equity Research)

[crosstalk]All right, thank you, Karl.

Operator (participant)

Thank you. This concludes today's question and answer session. I will now hand back for closing remarks.

Karl Fredrik Staubo (CEO)

Thank you all for dialing in. As we said, we're now in Bermuda. Eduardo and I will head to New York later today and hope to see some of you there over the course of today and tomorrow. Other than that, thank you for listening in and we're pleased to stay in touch. Thank you. Have a good day.

Eduardo Maranhão (CFO)

Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.