Golar LNG Limited

Good morning, good afternoon, everyone. Welcome to the GOLOR LNG Q2 2020 results presentation. My name is Ian Ross and I'm the CEO of GOLOR LNG. Today, I'm joined on the line by CFO Callum Thompson and Stuart Buchanan, Head of Investor Relations. We're also pleased to have Eduardo Maranhao, CFO of GOLOR Power on the line to participate in today's call. I'd like to draw your attention to the forward-looking statement on slide one. And if we turn to slide four, let me give you some highlights before Callum takes us through the numbers in more detail. Today we report an adjusted EBITDA of $67 million on revenue of $102 million for the quarter, which is driven by a further solid FLNG performance and better seasonal results in shipping. And again, we commend the effort of our whole team in keeping the business running remotely. and to our officers and ratings on board who've coped with longer work cycles than normal and dealing with all sorts of restrictions and constraints in doing their jobs. And I am pleased to report further improvements in our ability to crew change with most of our people now having been changed at. In shipping, our time charter earnings of 45,000 per day for Q2 represents an 88% 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 105 million. Our FLNG operations maintain 100% commercial uptime through the quarter with a further 6% reduction in operating costs compared to the first quarter and stable EBITDA generation. And in downstream, Goal of Power received full capacity payments on Sergipe and Nanook with Gola's share of that equating to $19 million of revenue-less operating costs. The small-scale rollout was boosted by the signing of a partnership with Galileo and the MOU signing with Norsk Hydro for the provision of LNG and regas capacity into the Alunorti alumina refinery in Brazil will reduce the refinery's CO2 output by some 600,000 tons per year. That's the equivalent of the carbon capture of around 10 million tree seedlings planted and grown for 10 years. It's a great ESG story. More details on these segments later. Let me now hand over to Callum to take you through the numbers.

Thank you, Ian. Good morning, everybody. If you turn to page five, the second quarter 2020 financial results are shown in more detail here. Ian mentioned the 103 million of operating revenues. you can see that in the blue column that is a 14% beat on the consensus 90 million for the quarter and is achieved with the stability of the 55 million of SLNG as Ian mentioned given Hilly stability that is a very stable and a well-performing asset and then secondly 48 million of operating revenues from shipping and corporate which is down due to the typical seasonality that Ian referred to in TCE rates, but is an improvement over Q2 in 2019. That change is largely driven by the reduction in TCE rates partly offset by some additional improvements on vessel management, which I'll go to in a second. That produced a net loss for the quarter of 156 million, That net loss is largely driven by the $135.9 million impairment that we took on our shares in Gold Apartments. If you remember, we own approximately 33% of that business, and US GAAP requires us that at the point that we feel a drop in the stock price is anything other than temporary, then we need to take that impairment. We've written the business down. to the current market level, which is again a U.S. gap requirement and something we're happy to do. That revenue performance of 103 million generated the adjusted EBITDA of 67 million that Ian referred to. That in itself is a 23% beat versus NASDAQ EBITDA consensus for the period, and that 23% beat is based off the 14% improved beat on revenues plus some cost cutting that we've managed to achieve that I'll go through on the next slide in a second. That $67 million is broken down by the $41 million out of FLNG, again stable over the quarters, the stability that Ian referred to, plus $32 million from shipping, which is down due to the seasonality on Q1, but is an improvement on the same quarter, Q2 2019. Final point to note on this page is our cash position. I think we've committed to you at the start of quarter one to manage during quarter one to manage the cash position and to preserve liquidity in keeping with many companies in the COVID-19 crisis and we're pleased to see and we're pleased to show that broadly speaking our cash position is stable and that has largely been achieved thanks to the cash generation in the business plus the refinancing that we've managed to achieve one of which ahead of schedule which we will go into in more detail in a second. So adjusted EBITDA of 67, a 23% beat on consensus, stability in FLNG, and seasonality in shipping partially offset by cost cutting. If you turn the page to page six, adjusted EBITDA development over the last 12 months, you'll see the variation on the quarter Q1 on the left-hand side. We'd refer to the reduction in TCE rates down to the 45,000 and that is the impact of that is set out on page you can see in red of the 20 million or so and then working your way down the page you will see the decreases in expenses that I referred to to get us back to partially upset that seasonality. It's important to note that that expense reduction is a function of two factors. The first is some good work by the team in terms of cutting expenses but it also relates to the impact of COVID-19 as with many other businesses. So we're still working our way through how much of once were the global pandemic to ease and business to return more to normal, how much of expenses will come back. So you should not see all of that expense reduction as being a reduction in through cycle run rate, but partially so. It's also important to note on the right hand side of this page that our LTM adjusted EBITDA is broadly stable over the past 12 I promised to talk about cash and liquidity in more detail. If you turn your attention to the next page, page 7, liquidity development for 2020. The bars on the top replay to you what happened in Q1. You'll remember from Q1 our cash balance at the end of 31st of March was $235 million. That is shown in grey in the middle of the page. And then the movements from that going forward to the 30th of June, the $225 million balance that we currently have is set out. Effectively operating cash flow positive, less than in Q1, reflecting the seasonality we've just discussed, partially offset by some capex, debt services stable, some other movements, and then the bear refinancing. We've committed in Q1 that by Q3 we would refinance three vessels, and we've achieved the bear early. That is a refinancing that's given us 40 million of additional liquidity gross, which as you'll see in the bullets below is effectively 38 million of unrestricted cash. The reconciliation between the two is set out later, but broadly speaking, there is some of the debt service associated with the bear included in the 80 million debt service shown on the bar chart. What's the outlook for the rest of the year? There's no real change given what we said to you in Q1, again reflecting our plans and stability. We're in the process of refinancing the 150 million bilateral loan, which is due in November 20, and the 30 million outstanding margin loan due August slash September 20. We had committed to put in place a revolving credit facility with a number of banks. Discussions there are very well advanced and positive. and while we're not finished, we had said that we would aim to have that done in Q3 and we feel that that is very much on track. In addition, we've had two routine refinances which we've committed to, the Frost and the Seal. The Seal will not generate any additional liquidity. That, as we've said previously, is just a removal of the put option that will occur in January next year and the Frost will generate additional liquidity and with that, that's all I feel. We have term sheets broadly agreed. but are working our way through due diligence and other items with the lenders. Naturally, that refinancing is obviously subject to market conditions, but as we sit here today, we feel broadly positive about that. Again, we're comfortable and happy to repeat the last bullet point on the page that we mentioned in the previous results where we said based on achieving these now three, previously it was four refinancing, we feel between that, the anticipated CapEx debt servings and operating cash flow We feel that is sufficient for our needs for the remainder of 2020. Again, no real change. So stable cash balances and the bear refinancing achieved one quarter early. With that, let me turn you back to Ian to take you through shipping in more detail.

Thanks Callum. If we turn to slide 9 and shipping, the second quarter saw continued decline in TFDE spot rates to around about 30,000 a day for much of the period before starting a slow recovery post quarter. These lower rates resulted from a combination of seasonal LNG demand decline and lower overall global economic activity resulting from the COVID pandemic. Further US cancellations kept ton miles low during the quarter, but we still expect a degree of slow steaming and storage to emerge towards the end of the year, boosting rates over the northern winter before overall volumes pick up again in 2021. Our shipping strategy continues to contribute well towards our TCE, protecting the downside through the shoulder season, which is clearly illustrated in the graph on slide 9. If you compare the last three quarters, so Q4-19 through to Q2-20, with the prior corresponding 12-month quarters, Q4-18 through to Q2-19, we're generating significantly more adjusted EBITDA, and that's largely driven through the commercial shipping strategy and associated increased utilization of the fleet. On slide 10, you can see we've offset some of that seasonal decline in rates through and the rest of the LNG community. of the backlog on fixed rates and the other half on some form of market related or floating rate structure. We're focusing on building backlog and managing our costs and at this stage we expect Q3 TCE to be around $35,000 per day. Whilst these lower LNG prices are not great for the current shipping market, we believe that lower LNG prices will continue to stimulate LNG demand as an alternative and cleaner fuel compared to coal and other more polluting fossil fuels. Lower pricing of LNG now will accelerate the use of LNG as a transition fuel for the next 10 plus years, leading to increased demand for liquefaction. The LNG producers will be looking to develop liquefaction projects at a lower cost and with associated increase in LNG volumes being produced, this will in turn lead to increased demand for shipping in the future. Goaler is unique outside the oil and gas majors and NOCs in participating in both the midstream production of LNG and the downstream distribution of LNG to local gas and electricity customers. Turning now to the production of LNG, in our case FLNG, on slide 12. Our FLNG unit Heli-FSAO Offshore Cameroon has delivered another steady performance in quarterly earnings as Callum explained. We've offloaded 42 cargoes, maintaining 100% commercial uptime and have produced over 2.5 million tonnes of LNG since the unit came on stream in 2018. We continue to have an ongoing dialogue with Perenco, our customer, on the potential for increased throughput on hilly, but nothing further to report this quarter in terms of concrete agreements. And we continue to receive incoming interest for the use of hilly post the Perenco contract that runs for the next six years. Turning to slide 13, as previously advised, BPR customer for the 20-year FLNG GIMI lease and operating agreement served GOLA with an FM delay notice as a result of the COVID pandemic and has subsequently maintained its claimed estimate of that delay as being around 12 months. One change over the last quarter has been the impact of the Singapore circuit breaker, as the country's COVID-19 response is known, and the extent to which that shutdown has temporarily impacted the Keppel shipyard, our contractor in Singapore. The yard effectively reopened last month and Keppel is now ramping up the workforce in compliance with the government restrictions with around and 500 workers currently back on the project in accordance with the restart plan. So my three brief points to make on GIMMI this quarter are firstly, we continue to be in active and constructive discussion with BP, our partners, our financiers and our contractors on the matter. Secondly, the reschedule programme now takes into account the delays caused by the Singapore shutdown. and thirdly, whilst not finalised, we anticipate satisfactory closure on this in due course and we don't expect to have a material increase in the total project budget and the overall delay in the project of around 12 months driven by BP's timeline will correspondingly improve our near-term cash flow through delayed equity injections into the project. And I hope you all understand that specific details of these discussions do remain confidential at this time. Briefly on the Viking FSRU conversion project, the project team and contractors are working hard to mitigate any COVID-related challenges. We're now planning for the vessel to depart from China to Europe late September with vessel delivery upon commissioning and completion by the year end according to the original plan. And on the FLNG pipeline, We've extended our collaboration agreement with OneIOC to explore applications for SLNG in their portfolio. And our mark three new build continues to make progress in both refining the design and identifying real deployment opportunities. We believe that our simple process configuration combined with a design one build many mindset will serve to keep costs down, schedules short, and payment terms achievable. And importantly, we also believe that our energy management system delivers a superior efficiency compared to many onshore facilities, resulting in competitively low carbon emissions on a like-for-like basis. Turning now to downstream and GOLA powers progress over the quarter. In terms of development, progress was made on a number of fronts, which we can see on slide 15, with further details on slide 16. The signing of an MOU with Norsk Hydro will involve Golar Power delivering gas to the Alunorti Illumina refinery in Barca Arena. This is a fantastic example of Golar Power bringing a cost-effective solution to a customer that will not only pay less money for fuel, but will significantly improve its CO2 emissions. This commercial customer, together with the previously discussed 605 megawatt PPA award, underpins Golar Power's investment in the FSRU terminal at Barca Arena, with FID anticipated around the end of the year. The terminal will then be a subsequent foundation for the rollout of small-scale distribution across the state of Para, and FID for the power station is anticipated in the middle of next year. The signing of an agreement with Galileo, and Galileo is a producer of both land-based gas and biomethane from landfills, will accelerate the development of the small-scale rollout in the Brazilian states of Bahia and Sao Paulo, with operations expected to commence later this year. This agreement links in nicely with the development of the previously announced partnership agreement with BR in that we can use biomethane-sourced LNG to distribute as a fuel through the BR network across Brazil in addition to the previously described sources from our terminals and FSRUs. The permitting process continues for an FSU to be located at a new terminal at Suape in northeast Brazil The first ISO containers have been delivered into the region, and the terminal FID is expected around the year. Key regulatory and environmental licenses have been obtained for the Santa Catarina terminal, and development planning on that continues to progress. And as we continue to look at a number of international locations that may be suitable to replicate this model, we're currently examining 15 separate opportunities to internationalize the business. So some more detail in the small scale rollout on slide 17. The volumes available for small scale distribution can be seen in the graph on the bottom left side of the slide. With the step increase in the size of the gray column in 2022, that's reflecting the increased volumes available for distribution once the Barcarina FSRU is in place. With the power stations, and also in the case of Barcarina, Alunorti deal, underpinning the development of the terminal and commitment to the FSIU. I think this graph illustrates the upside potential of these vessels really well. And turning volumes into dollars, if we manage to sell half of the spare capacity of these FSIUs and get a margin of, say, 50 cents per MMBTU, that would equate to additional profit of $115 million in 2022. As a reminder, excess FSIU capacity that we have can be utilized for three things. One, power plant expansions and merchant power, and Sajeev gave a good example, and I'll talk a little bit more about that in a sec. Gas marketing, so the sale of natural gas to third parties, Norse Kedro and Alanort is an example of that. And then the third is breaking bulk into small scale, as we've discussed before. So that's using the FSIU as a vessel for LNG storage. We take the gas out as LNG and not as regasified, we think. We continue to make progress on converting expressions of interest on the small scale rollout into committed contracts with a further two executed in the quarter and two more in the third quarter so far. On slide 18 and just detailing out the merchant power opportunity at Sergipe in some more detail. The graph on the left hand side of the slide shows the average electricity spot prices in reais per megawatt hour from December 2016 to the end of 2019. and it clearly shows the seasonality during each year and that's driven by a combination of demand and rainfall and the rainfall determines whether the hydro base load is adequate or whether the fossil fuel plants need to be called to dispatch. And overlaid on that are two lines. The top line, the blue one, is the Sergipe dispatch breakeven cost and that line implies that in theory the plant can be called to dispatch whenever the prevailing spot price is above that line. And the lower green line, represents the merchant break-even cost of running the plant independently from the PPA. The purchase price of LNG influences the position of this line, and here we have it with an LNG purchase price of $3 per MMBTU, which is conservatively high against today's prices. The team at Gola Power have run a back test of the opportunistic merchant power income that could have been made based on the available merchant dispatch windows over the last three years. And this analysis shows that Gola's share of that additional profit could have been around $70 million. That's the Golub LNG share. This translates to around $16 to $18 million net profit for burning a full cargo of Nanook over a two-week period. And remember that we've got 60 days notice for any dispatch under the PPA. I mentioned at the start we've got Eduardo on the call today, as I know there's an increasing amount of interest in Golub Power development story, and he's there to answer some questions. We turn now to slide 20, highlighting some of our ESG projects, which cover our five focus areas and include safety and management engagement campaigns on board the vessels, and active engagement with engine manufacturers to understand key drivers of methane slip, what we can do about improving performance, mental health support of our people, especially as a result of COVID-19. On the right-hand side of the slide, and some pictures showing the results of placing a GOLA-designed hydropower turbine into the flow from the seawater discharge in the regas system and using that to generate energy to power the system. The simple design provides the FSRU with a 7% saving in fuel efficiency and importantly, an estimated saving of 5,000 tons of CO2 per year. So just some examples of what we're doing in the space of ESG. So summarizing our priorities on slide 22. We will continue to de-risk shipping and focus on backlog growth. In SLNG, our focus is to conclude the position on GIMI and continue to progress discussions for potential expansion and extension of HILI and, of course, the development of the new build, Mark III, and future opportunities. In downstream, we'll continue to push the build out of small scale and develop the terminals of Baccarin and Swapi. We'll focus on concluding the refinancing activities that Callum discussed. And of course, we'll continue to push for a sustainable reduction in GAA and simplification of the Goldwork Group structure. With that, I'd like to hand you back to the operator for Q&A.