Q1 2024 Earnings Summary
- Golar LNG is in advanced discussions for potential FLNG deployments that could encompass more than one unit, including whether to deploy the FLNG Hilli or the Mark II as the next project, indicating significant growth opportunities.
- GLNG is negotiating with multiple potential charterers for the Mark II FLNG, aiming to secure a 2027 delivery, which places them ahead of competitors given constraints on yard availability, enhancing future prospects.
- GLNG expects to increase utilization of the FLNG Hilli from the current 57%-58% to at least 90% in future contracts, leading to higher base rates and improved earnings, and plans to fully utilize all units in future deployments.
- Uncertainty regarding FLNG project deployment could delay revenue generation: The company indicated that both the Hilli and Mark II are being considered for upcoming contracts, stating, "Initially both us and the clients are working on whether him or Mark II should be the first one out". This ambiguity may lead to delays in project execution and affect timely revenue recognition.
- Potential exposure to commodity price risk due to contract structures: Management discussed the trade-off between higher base rates and commodity price exposure, noting that "the higher base, you ask for, obviously, the less carry you get on the upside and vice versa". This suggests that to secure contracts, the company might accept lower fixed rates in exchange for variable earnings tied to commodity prices, potentially increasing vulnerability to price volatility.
- Risk of underutilization of new FLNG units impacting revenues: When reflecting on past projects, the company acknowledged that full utilization depends on clients' needs and gas reserves. They stated, "At the end of the day, as long as the client pays for it, we can utilize whatever they want to use" and explained that the Hilli's underutilization was due to "the gas reserve and the flow rates from the existing wells did not allow for a higher production". This indicates a risk that new FLNG units may not achieve full utilization, potentially affecting revenue projections.
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Hilli Redeployment Timeline
Q: What's the timeline for Hilli's redeployment after July 2026?
A: Upon contract end in July 2026, if Hilli does not stay in Cameroon, it will decommission, possibly undergo a ~3-month yard stay for life extension, and sail to the new site. Commissioning at the new location is expected to be 1–2 months, during which LNG production (and revenue) commences. -
Mark II FLNG Contract Prospects
Q: Could Mark II be contracted soon, possibly for multiple units?
A: Yes, negotiations are advanced; Mark II could encompass more than one unit over time. Multiple parties are interested in Mark II, aiming for full utilization and a 2027 delivery, ahead of others' capacity. -
Contract Terms and Upside Sharing
Q: How are you approaching ideal contract terms for Hilli's recontracting?
A: We aim to cover debt service and minimal equity return with the fixed tolling fee, while sharing upside from higher LNG prices. We're targeting at least 90% utilization, improving upon the current 57–58%. -
Geographic Expansion
Q: Where are new FLNG opportunities outside current regions?
A: We're seeing interest in northern Americas and Middle East beyond West Africa and South America. -
New Hires Impact
Q: How are new commercial hires driving process forward?
A: Their 70 years of industry experience bring in-depth upstream knowledge and relationships, enhancing negotiations and upstream insights. -
Avenir LNG Investment
Q: Is Avenir a source of cash to reinvest elsewhere?
A: Avenir is less strategic now; while we like the investment, we're open to considering monetization for other projects. -
Future Asset Utilization
Q: Will future FLNG units be fully utilized from the start?
A: Yes, unlike Hilli's initial partial utilization, future units aim for full utilization, unless clients prefer otherwise. -
Yard Availability and Project Delivery
Q: How are you securing timely delivery amid yard constraints?
A: Locking in yard slots is crucial; securing a 2027 delivery for Mark II gives us an advantage over competitors. -
Financing and EBITDA Considerations
Q: What base EBITDA is needed for financing future projects?
A: We seek to maximize economic returns; higher fixed rates facilitate better debt financing. For Hilli's recontracting, a base rate proportional to at least 90% utilization is expected.