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    Golar LNG Ltd (GLNG)

    Q3 2023 Earnings Summary

    Reported on Jan 27, 2025 (Before Market Open)
    Pre-Earnings Price$21.99Last close (Nov 20, 2023)
    Post-Earnings Price$21.87Open (Nov 21, 2023)
    Price Change
    $-0.12(-0.55%)

    What went well

    • Increased earnings potential from Hilli recontracting: Upon recontracting, Golar expects to raise Hilli's utilization from around 1.4 million tonnes per annum to between 2 million and 2.2 million tonnes, significantly boosting earnings. Additionally, targeting higher or more attractive economics in the new contract could further enhance profits, and refinancing Hilli could be triggered by the new contract.
    • Strong demand for Hilli's FLNG capacity: Golar is in detailed commercial discussions with three different opportunities for redeployment after 2026, with several other gas resource owners expressing interest. As the only FLNG available for gas monetization in early 2026-2027, Golar is well-positioned to secure attractive contracts.
    • Gimi's operating expenses are passed through under the contract with BP, ensuring stable margins during operations and commissioning. Furthermore, Golar is actively working to shorten the commissioning period of Gimi, which could accelerate the start of the 20-year contract and lead to earlier revenue recognition and increased cash flows.

    What went wrong

    • The redeployment of the Hilli after its current contract ends in July 2026 may result in significant downtime and capital expenditures. Management estimates a 6 to 12 months downtime and CapEx ranging from $50 million to $200 million for potential vessel upgrades and relocation, which could impact cash flows and increase expenses.
    • The company's focus on funding future FLNG growth projects, such as the Mark II FLNG requiring a total CapEx of around $2 billion, may limit available cash for shareholder returns. Management indicated that cash on hand is allocated for growth projects and redeployment costs, potentially reducing near-term dividends or share buybacks.
    • Earnings are significantly influenced by variable fees linked to Brent and TTF prices, which are volatile and subject to market fluctuations. Adjusted EBITDA guidance for 2024 has been updated based on current forward curves for these commodities, indicating potential lower earnings if prices remain subdued.

    Q&A Summary

    1. Gimi's Commissioning Timeline
      Q: When will Gimi arrive and generate revenue?
      A: Gimi is expected to arrive at the GTA hub in late December or early January after a 60-day transit, subject to weather conditions. Upon arrival, if gas is available, commissioning will start immediately and take up to 6 months, though efforts are underway to shorten this period. During commissioning, Golar will earn a fixed day rate plus a tolling fee for LNG produced.

    2. Hilli Recontracting Opportunities
      Q: What's the status of Hilli's recontracting?
      A: Golar is in detailed commercial discussions with multiple parties to recontract Hilli after its current contract ends in 2026. They aim to maximize returns by balancing asset value and market demand, leveraging competitive tension from interested gas resource owners.

    3. Gimi Refinancing and Use of Proceeds
      Q: Can Gimi be refinanced before commissioning completion?
      A: Yes, refinancing is feasible before commissioning is complete. Golar has received attractive term sheets and is focusing on these options now that construction risk is mitigated. Proceeds may be used for growth projects like expanding the FLNG portfolio, rather than shareholder returns.

    4. Hilli's Preparation Costs and Downtime
      Q: What downtime and CapEx are needed for Hilli's next contract?
      A: Relocating Hilli for a new 10–20 year contract may require 6–12 months of downtime, including transportation and vessel upgrades. CapEx could range from $50 million to $200 million, depending on location and contract terms.

    5. Mark II CapEx and Financing Needs
      Q: What's the investment needed for Mark II upon FID?
      A: Total CapEx for Mark II is approximately $2 billion. Golar has committed $400 million to date, with $155 million already spent. Upon FID, an incremental $1.6 billion is needed, with expected debt financing of $1–1.2 billion, leaving an equity requirement of around $800 million.

    6. Dividends vs. Share Buybacks
      Q: How do you view dividends versus share buybacks?
      A: Golar aims to return operating cash flow to shareholders through both dividends and buybacks. With shares trading at a discount, they believe buybacks are a sensible way to return value. They have approximately $117 million remaining under the existing buyback program and are currently paying out less than half of free cash flow to shareholders.

    7. Hilli's Earnings Potential and Refinancing
      Q: Can Hilli's earnings increase and be refinanced upon recontracting?
      A: Yes, increasing Hilli's capacity utilization to 2–2.2 million tonnes per annum from the current 1.4 million tonnes will boost earnings. Improved contract terms and higher capacity will enhance earnings, making refinancing opportunities available.

    8. Adjusted EBITDA Guidance Change
      Q: Why did the 2024 EBITDA guidance change?
      A: The main difference is updated forward curves for Brent and TTF, which affect the variable fees on Hilli and hence the adjusted EBITDA projections for 2024.

    9. Gimi's Operating Expenses and Pass-Throughs
      Q: How do Gimi's operating expenses compare to Hilli's?
      A: Gimi's forecasted operating expenses are similar to Hilli's, with the bulk being crew costs. Under contract arrangements, operating expenses are passed through to customers during commissioning.

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