Golar LNG Limited

Thank you. Good morning. Good afternoon, everyone. I hope you're all well. Welcome to the GOLOR LNG Q1 2020 results presentation. My name is Ian Ross. I'm CEO of GOLOR LNG. Today, I'm joined on the line by our new CFO, Callum Mitchell-Thompson, and Stuart Buchanan, Head of Investment Relations. Before we get started, I'd like to acknowledge the huge effort by GOLOR staff, both shore-based and, of course, at sea, for their effort in keeping the business running during this unprecedented time. due to both COVID-19 and depressed commodity prices. Their dedication to GOLA and ultimately to our shareholders is quite remarkable, worthy of this mention. The safety of our people remains our first priority. Without a healthy workforce, we can't deliver for our customers. Without delivering for our customers, we won't make any money for our shareholders. It's that simple. I'd like to draw your attention to a forward-looking statement on slide one, and if we turn to slide four, let me give you some highlights before Callum takes you through the numbers in more detail. Today we report an adjusted EBITDA of 76 million on revenue of 123 million for the quarter, which is driven by a solid FLNG performance and strong seasonal results in shipping. Our time chart for earnings of 62,000 per day for Q1 2020 represents a 58% rise over the same period last year. We continue to de-risk our shipping portfolio and ended the quarter with a shipping revenue backlog of 126 million. Our FLMG operations make 100% commercial uptime throughout the quarter with reduced operating costs and stable EBIT generation. And in power, we reached commercial operations on Sergipe Power Station, which sees the commencement of a 25-year PPA based on facility availability and a power plant that can be dispatched with 60 days notice, which in turn gives great potential for additional income from merchant power. during the quarterly basic dispatch. More on these segments later, let me firstly welcome Callum, whose first results call for GOLA, and take us through the numbers. Thanks, Callum.

Thank you, Ian. If you turn to the next page, page five, the first quarter 2020 financial results, I'd say it's, I'd echo what Ian said about the dedication of the staff in these tough times, and normally one would be able to meet many of you in Kul, Joseph, circumstances are such that we have to do it this way, but it should work. Turning your attention to the summary results, you can see at the bottom of the page the adjusted EBITDA in the Q1 2020 column that Ian referred to. 76 million of adjusted EBITDA, which compares very favorably to the 63 million earned in Q1 2019. As you know, our business is seasonal, at least the shipping business is seasonal, so Q4 has tended to be a better quarter. Secondly, the 76 million is a small beat versus NASDAQ consensus. Where does that 76 million come from? Well, you can see here from shipping and corporate, that's a 34 million figure, which again compares well to the Q1 2019 of 21. As you'll see, for those who are familiar with GOLA, the US GAAP divisional split is shipping and corporate together, sometimes referred to as vessel operations. and as we go through for this deck trying to we started a trend which will try and continue of splitting out shipping and corporate and you'll see more of that later so that's 34 million under shipping and corporate EBITDA is 43 million of shipping and minus 7 million of corporate and again that 43 million of shipping relates to the positive work that the team has done that Ian referred to the second point to note is the FLNG number at 42 million EBITDA adjusted EBITDA is also stable, and that reflects with the business. As we think of the business and as we de-risk the shipping portfolio to try and send the ships, the contracts out for longer, so that is supported by the very stable nature of the HILI and FLNG business. I would also draw your attention to some of the other movements. You will see that our contractual debt, shown at the bottom of the page, is relatively stable. That's effectively, there are two movements underlying that. There is a 95 million and a dollar drawdown during the quarter on the GIMME facility. Remember the SLNG GIMME is under construction, which is equally offset by a repayment of 70 million on a margin loan and some 24 million of scheduled debt repayments. I would also draw your attention to the interest rate and equity derivatives number, which occurs under net loss or income given COVID-19. and therefore interest rates have fallen as you'll know. We've seen on a swap book of a drop of between 112 and 115 basis points and that triggers a derivatives loss. In previous courses we've had some gains and there was a very limited cash impact below the line. So the key message from this slide, stable FMG EBITDA, shipping favorable compared to Q1 2019 and an adjusted EBITDA at 76 million. which is a small fleet versus NASDAQ consensus. Turn the page to page six on my version, adjusted EBITDA development over the last 12 months. You'll see at the bottom left of the page the 76 million and as always we show quarter on quarter evolution on the left side of this page and we also show the last 12 months quarterly evolution on the right side of the page. Key messages from this slide, the 76 million compared is lower than the Q4 2019. As I mentioned at the start of 2019, Q4 in general tends to be one of the better quarters. And the movements that have occurred between Q4 2019 and Q1 2020 to highlight, you can see the 15.6 million drop given the lower TCE rates that Ian referred to, one vessel have been withdrawn from service to go into conversion, offset by an increase in the utilization rate from 90% to 4%. And I'd point out that the TCE rate of 61,100 is an improvement of 19 TCE rate, which is certainly 300. The point to note in this left-hand part of the chart is that We've been working away at costs and cost-cutting, and you'll see administrative expenses are down. I'd say that I think for many companies, COVID-19 has seen a reduction in administrative expenses. We're working to see which of those cost savings are permanent and which are a function of the unusual times in which we find ourselves. The right-hand side of this page shows you, as I said, the evolution of Q1 2020 last 12 months EBITDA of 268 million as compared to the Q1 2019 last 12 months EBITDA of 22 million. Again, that is broadly, I won't go through the different movements, the questions that we can do. If we turn now to the next page, equity development for 2020, there are so many communities facing liquidity constraints We feel that one of the resilient nature of our business that Ian referred to at the start, the stable lead at DAF from Healey, and even within the shipping business, that is something that puts us in a more resilient place than many. But nonetheless, liquidity is a focus for everybody in the current environment. We imagine, therefore, it would be a focus of yours. So we wanted to set out an explicit detail how we see our liquidity having evolved over the quarter. and to be very clear with you that we anticipate as we look for what we anticipate to be the current out time for the remainder of the year, we feel liquidity is sufficient for our group needs. We don't feel the need to draw down on a specific additional facilities as others have done. Let me spend time going through this because this is obviously an important topic in the current environment for all companies. On the left-hand side, you can see the 31st of December, 2019. Our cash balance, $375 million, split between unrestricted cash and restricted cash. For those less familiar with the group, a certain portion of our cash is tied up with LCs, vessel financings, and other bits and pieces, and we split that out separately. During the quarter, we had operating cash flow, $86 million. That's defined at the back, and I'll spare you the detail. We had a net capex of minus one. That is capex that we spent left the debt drawn down to fund that capex. So minus one. It's not that we haven't been spending capex. We have. GOLO is very much a growth business that is building out assets. But we've netted that off against the drawdown. You'll see the debt service that remains reasonably stable for the quarter. Then the two key moments to note is during the quarter, we repaid 70 million out of 100 million at balance outstanding. on a margin loan, leaving a $30 million balance left at the end of the quarter. So that's the $70 million margin loan repealment. And in addition, for those of you who are familiar with the group, remember we had a total swap in place, which was part of the buyback program. That was unwound during the quarter, and that saw a repayment of $73 million. Closed the quarter with $235 million in cash, split between restricted and unrestricted cash. For those of you who are interested, you'll see the reduction in restricted cash, which is associated with a change in the total return swap that I just mentioned. What about the remainder of 2020? Well, we are exploring three things, which we'll describe at the end in terms of financing. We are looking at refinancing the existing $150 million bilateral loan, which is due in November 2020, and the remaining $30 million balance outstanding on and the margin loan that is due in August 2020. We have plans for that. We're in detailed discussions with a number of banks and we feel that that refinancing is very much routine. One can never say everything. We're not complacent in the current environment, but we feel positive about that outcome. Secondly, we want to preemptively focus on the refinancing of one of our vessels, where the financing is maturing in January 2021. We have detailed discussions with a specific Leasing Company, and we have term sheets that are bouncing between us, and that is up for credit approval with them very, very shortly. And then finally, you will have seen in the press release that there are two vessels where we've had approaches across those vessels, drop leasing companies, and we're opportunistically exploring discussions, and those discussions are very well advanced. So it is that those three groups of refinancing are important, but we do feel that they are routine and when we look at them alongside the anticipated capex and operating cash flow that we feel we will earn, we feel we have sufficient funds for group needs. I would make the point that in the current environment forecasting out much further is difficult in the current environment but we have a fairly detailed approach to cash flow forecasting and a fairly concise approach to how we stress test that against shipping rates. So with that as a conclusion, I apologize for the detail, but in the current environment, we thought it was important to be specific and clear. Let me turn back to Ian now to take you through the division by division review.

Thank you, Callum. Turning to slide nine on the deck and shipping. Our revised shipping strategy that we've been discussing with you now for many quarters is contributing to our improving TCE and shipping growth story. resulting in that quarter-and-quarter growth from 39,000 a day in Q1 2019 to 62,000 a day this quarter. And you can see the adjusted EBITDA profile on the graph together with the utilization wrap-up, and that's clearly part of this strategy. Q1 has had quite a cocktail of pressures on the shipping market. In addition to the seasonal downturn, we've seen demand destruction caused by COVID-19 and oil price linkage, leading to LNG spot price dropping to around two million dollars per year at the end of the quarter and with some cargoes cancelled in the quarter mostly from the US and more cancellations to follow during Q2 and December months. The effect of these items are a reduction of 10 miles and less structural tightness in the sector than we originally thought. Spot rates fell from a high of 130,000 in October to low to mid 40s by the end of March. Now offsetting this is some new production coming up from the US and the potential for deferral of non-committed vessel deliveries in the next couple of years. Industry analysts are now forecasting that 2020 LNG production will be between 1% and 3% higher than 2019, so similar profile. And finally, we have the LNG4 curve for Asian delivery currently in contango towards the fourth quarter. That may justify some floating production and an associated pickup in rates. You can see from the graphs on slide 10 that we continue to grow shipping revenue backlog and lock in utilization for the year. If we compare the current position with 12 months ago, and we can see that we have six times as much revenue backlog as we did this time last year. and with the current market volatility we believe this approach will help insulate us from a further downturn in the shipping rates over the coming months, plus having enough spotty to enjoy the upside as and when it comes through. We expect Q2 TCE to be around $40,000 per day. If we spent the last few minutes talking about how lower LNG prices are impacting the shipping market, and let's turn now and talk about how lower LNG prices create upside for Golar. Turning now to slide 12, the current LNG market. Two points to make for this slide. Firstly, with all of the FID deferrals of new build projects that we're seeing, particularly at onshore sites in the US Gulf Coast, we believe the industry will reach a point where some projects will go ahead. but only those that have the right combination of gas supply, gas supply cost, off-take agreement, liquefaction to capex, volume and speed to market. The challenge of many of these larger U.S. Gulf Coast projects is that they need huge volumes of production to generate capex economies of scale. And with FLNG, we can deliver world-class liquefaction costs with a relatively small volume and in the shortest time between FID and the first cargo. with remote building in an Asian ship and therefore minimal impact in permitting. As the cycle moves back towards supply increases, we believe our proven FLNG units will be at the front of the queue. The second place to LNG is a substitution. It's core to our downstream business, Angola Power. If you look at the tables in the bottom of slide 12, they compare energy cost per minute BTU equivalent You can see the impact of the global reduction in coal, oil, diesel and LNG pricing over the last few months. And not only is LNG proving to be cheaper and cleaner than diesel for power generation and transport, but it's catching up to coal in Europe and is beating pipeline gas. So how do we benefit from this? And let's turn to slide 13 and FLNG performance. Our FLNG unit, Heli Episeo, offshore Cameroon, has delivered another steady performance in Portly EBITDA. We're currently offloading the 39th cargo. The message on Heli is simple. It's reliably pre-producing LNG documentation, generating cash consistently. We haven't missed a single cargo. We're generating the most comprehensive operating experience of any floating LNG company in the world. and let's move to the GIMI conversion project on slide 15. You can see a nice picture of GIMI in a dry dock. I think last quarter we showed the rusty old lady heading towards the dry dock and now you can see she's nice and painted. As previously advised, our customer for the 20-year FLNG lease and operating agreement, BP, served GOLA with an FM delay claim as a result of coronavirus impact around the globe. And he maintains that the delay is still in the order of one year Angola continues to engage in clarification and active dialogue on the subject and I hope that the discussions remain confidential at this time. But I've got three brief points to make and give me. First point, as I said, we remain in active discussion with BP on the matter. Secondly, we have advanced and positive discussions with our partner and our major contractors on a rescheduled programme that takes into account the deferral of work and associated capital milestone payments. Thirdly, if this delay is implemented, it will result in a substantially de-risked project from a scheduled point of view and an improved liquidity position on the project through 2022, with the final outcome and financial consequence of the delay dependent on the ultimate duration of that delay and cause of the delay claimed by BP. LNG pipeline, while nothing's clearly going to crystallize in the short term, We're still engaging with several companies around specific projects for both our Mark 1 design and our Mark 2 rebuild, which is shaping up to be equally as competitive as Mark 1. We think this continued interest in our FLNG experience will position us well for the future. Turning now to downstream, slide 16 in Zola Power's progress over the quarter. So we celebrated the commercials of Sojipe plant on the 21st of March. who seized the commencement of the 25-year PPA with capacity payments now started. Concurrent with the plant reaching COD, self-saving the plant operator has now commenced payment for charter hire of the Gola Nanuk to Gola Power. Back to the 21st of March and throughout the quarter, the power station was generating electricity during commissioning and when we add the three days of dispatch and at the end of March, the quarter with having produced just under 400,000 megawatt hours of power and a plant utilization factor of 12%. The average price realized for all power generated was just 340 Brazilian reais per megawatt hour. So the plant and the FSI are generating base EBITDA for Gola Power. But what else can we do right now to generate more income from Sushi Bay? Turn to slide 17. We have on the left-hand side, that's the region that Sergipe sits in, the MET order for thermal power plants. The orange bars are the CPU or spot price, and the blue bars show the capacity. And as you can see, Sergipe is right at the top. And that means that we're not called a dispatch. It is the most competitive, cost-competitive thermal power plant, and we'll have the greatest opportunity to create income from merchant power. It's important to remember that the PPA requires 60 days of this priority, which means that it will clearly be times when Sergipe is free to generate margin power. Back to the page, we show a graph of the spot electricity prices against time over the last couple of years. And we can see the sector's cyclic, with higher spot prices typically running from May through October and a small blip in January and February. The green line is the plant breakeven based on contracted dispatch, but the red line shows the breakeven spot price that must be for the plant in merchant mode, assuming in this case we put an LNG purchase price of $3 per MMBTU. And as you can see, there are many times in the year that running Sojibe in merchant mode will be profitable. And in actual fact, $3 is probably a bit high as we talked about earlier on that government proposing level. Just to give you an example of how profitable the table below illustrates the potential EBITDA for burning a cargo of LNG through the power station, and that takes about 15 days. So for example, if a cargo is purchased at $2.50 and the prevailing electricity price is 300 rai per megawatt hour, then this cargo, burning whole cargo, would generate around $20 million in EBITDA. This is on top of the capacity-based payments. What else for Sergipe? Well, in addition, Goal of Power started the process for the installation of the pipeline that will connect FSIU Nanook to the regional gap and we've convinced the customer acquisition process for that. Slide 18 is a reminder of our small-scale LNG hub and spokes strategy. It starts with an FSIU hub located at the terminal and from this hub we have three spokes or channels to market. The first is from the FSIU to shore via gas pipeline to a large industrial customer of gas or a power station. This is generally the anchor customer that underpins the initial investment and what we've done at the SOGIPE is a helpful effect. The second is to break bulk from the FSIU into small-scale LNG vessels and transport it into neighboring geographies for further distribution to mid-size or smaller scale customers. and the third route is by putting LNG directly into ISO containers and moving them by truck or barge to secondary users deep inland where there's no current connection to gas pipeline or reticulation and where the opportunity is there to destroy polluting and expensive fuels with gas. So turning to slide 19 for an update on the development of the next terminal at Bacarena and our progress on small scale. At Barca Arena, Gola Power continues to make good progress with EPC contractors and equipment suppliers concurrent with off-ticket discussions. Permitting has been slowed down a bit, however. The project does remain on track for a scheduled FID for the terminal before the end of this FID. The power station is likely to be around the middle of 2021. We're also making good progress on the potential for an FSU to be located at Suape and permitting progressives as well for the terminal at Santa Catarina. We continue to look at a number of international locations that would be suitable to replicate this model. Our partnership with BR is an important channel from the FSUs into the target customers. BR has five supply bases, 7,600 fuel stations throughout the country. and that relationship and associated planning is progressing well. And again, in small scale, slow down a little bit once more by COVID-19, we've commitments with three customers and a committed of 113,000 cubic meters per day. It's a small start, but an important one that we feel proves out the model. Total capex for the summers is around $8 million. and we will be generating 7 million in EBITDA in 2021. In addition, we're currently negotiating contracts with a further 21 customers associated with 600,000 cubic meters of gas per day and similar economics. And importantly, we're in discussion with around 200 more customers who've already signed an LOI relating to a further 6 million meters of gas per day. And whilst the COVID-19 issue is slowing the team down a bit, we're now making real progress in small scale. It's a low capex, fast payback business that's economically attractive for customers whilst helping clean up the planet. We think this is a good story and so do others. Whilst we've nothing concrete as yet, we're receiving interest from potential strategic partners that we can potentially work with to accelerate the global power growth story, particularly, I don't So if we turn to slide 21 now, highlighting the launch of our first ESG report, which is web-based, and details our progress to date on our five key focus areas, health, civic and security, environmental impact, energy efficiency and innovation, people and community, and governance and business ethics. I've put some guidance from the board on the ESG plan, and we look forward to having further discussions on the topic in due course. Winding up and summarizing our priorities on slide 22. We will continue to de-risk shipping. In FLNG, our focus is to conclude the position on GIMI and to continue to progress discussion for potential expansion and extension of HIG. In downstream, we'll continue to push the build out of small scale and develop the terminal at Bacharena. We'll focus on concluding the refinancing activities that Callum discussed and of course we'll continue to push sustainable reduction in DNA and simplification of the group structure. With that, I'd like to hand you back to the operator for Q&A.