Golar LNG Limited

Welcome to the GOLAR LNG Limited Q2 2023 results presentation. After the slide presentation by the CEO Karl Fredrik Staubo and the 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.

Hi everyone, and welcome to Goal RLNG's Q2 2023 earnings results presentation. My name is Karl Fredrik Staubo, CEO of Goal RLNG, and I'm accompanied today by our CFO, Eduardo. Before we get into the presentation, please note the forward-looking statements on slide two. On slide three, we present our company overview. We are a focused FLNG player with two FLNGs, Hille, operating in Cameroon, and Gimmi about to deliver and start a 20-year contract for BP. The key changes to our asset portfolio in the quarter was high grading of our FLNG conversion candidate, selling the LNG carrier Gondria and acquiring the LNG carrier Fuji. Fuji has significantly more storage capacity, younger age and lower boil-off and is therefore more suitable for our intended Mark 2 3.5 5 MTPA FLNG conversion. SNAM of Italy had an option to convert the Golar Arctic into an FSRU. This option lapsed in July, and we are now reviewing alternatives for her, including long-term charter or asset sale. Our investments include Avenir LNG, a small-scale LNG carrier business, and Macao Energies, a company founded with Golar as sponsor, targeting small-scale land-based liquefaction and gas monetization through proprietary technology currently under construction. Golar is the world's only independent proven FLNG company. Turning to slide four to illustrate our near-term cash flow growth and further earnings upside in re-contracting of the Hilly and potentially a Mark II FLNG. Hilly continues its market leading operational off time with another quarter of 100% economic utilization. The vessel will operate for Perenco in Cameroon until July 26, and we see strong earnings generation supported by the increasingly attractive commodity exposed earnings for the unit. However, the vessel is currently only 58% utilized versus nameplate capacity. and we see significant potential for increased capacity utilization combined with higher earnings for a recharter of Hilly. The current contract was entered into when our FLNG technology was unproven and Hilly's position as the earliest available FLNG globally continues to increase customer interest in the vessel beyond the current contract. Our second FLNG, Gimi, is about to deliver from Citrium in Singapore to start a 20-year contract for BP. Gimi's shift from capex to earnings will significantly strengthen our free cash flow generation, and we also see significant potential in optimizing the debt facility on Gimi once she is delivered. Our contemplated third FLNG would be a Mark II 3.5 MTPA vessel. If ordered within 2023, the vessel will deliver late 26 and be ready for operations from early 27. A Mark II would increase our total liquefaction capacity from about 5.5 million tons per annum to 9 million tons, or about a 70% increase. Hence, we see three cash flow triggers for the company. Delivery and startup of GIMMI during second half of this year, shifting the vessel cash flow from capex to earnings. Number two, re-contracting of HILI at increased capacity utilization and operational margin. And number three, ordering and chartering of a Mark II FLNG. As you can see on the bottom part of the table, Illustratively, we will have up to 322 MMBTU available for charter from early 2027 onwards. Tariffs in line with the current competitive US export market suggest earnings of about $1 billion from this available capacity. However, our FLNG technology enabled monetization of stranded gas reserves that would otherwise remain undeveloped Hence, we believe significantly higher liquefaction margins should be obtainable. We are currently in discussion with more than six different gas resource owners at various geographical locations focused around West Africa for potential FLNG deployment, all of which with significantly better economic terms than current charters. Turning to slide 5 and highlights for the quarter. Hilly continued its 100% economic uptime, and we now have offloaded our 97th cargo. We're pleased to confirm that we have finalized improved terms for the Hilly financing, reducing the debt margin and extending amortization profile and facility duration. GIMMI is now 97% technically complete, and we expect sale away during September this year. On business development, we have further expanded the MOU we entered into with NNPC in April to now be further developed through a heads of terms, setting out a contractual framework for a joint development of specific gas fields towards potential FLNG deployment. Development of commercial opportunities also continues outside of Nigeria. including commercial term negotiations with gas resource owners and government interaction in potential countries of operation. It should be highlighted that the complexity of offshore gas development drives the timeline for potential announcements of any binding terms for incremental FLNG work. Under corporate and other, Eduardo will cover most of that later in the presentation. But as per our guiding in first quarter, we have declared a quarterly dividend of 25 cents also for Q2. During the quarter, we've also spent about 30 million of our $150 million buyback program announced in May, and we have acquired and canceled about 1.4 million shares. We remain committed to enhancing shareholder returns as our earnings continue to grow. We will now turn to a business update starting with GIMMI on slide 7. As already mentioned, the vessel is now 97% complete and we expect sail away from the shipyard during September. System handover is underway and final testing ongoing. The arbitration process regarding certain pre-commissioning contractual cash flows continue but is not expected to have a wider impact on the 20-year contract with BP. Moving to slide 8, and with the delivery of GIMMI, we are now transitioning cash outflows to earnings for the vessel. The construction of GIMMI commenced in 2019 and has been delayed due to COVID effects at the shipyard and for sub-suppliers. Given that Golar is a company with two key assets, we have currently had around half of the balance sheet not generating cash flow. With GIMI going from capex to cash flow and the increasing commodity earnings from Hili, we see continued earnings growth in the coming years. This is all before a potential FID of a Mark II, which would further boost earnings in the years to come. Turning to slide 9, we have expanded our working relationship with NMPC to include a heads of terms signed in Abuja on August 1st. The heads of terms set out a commercial framework for development of identified gas resources in Nigeria. In addition to the discussions with NMPC, We're also progressing potential FLNG deployment with four independent gas resource owners in Nigeria. In addition to the developments in Nigeria, we see similar developments of more than five potential FLNG deployment opportunities in other West African countries, where we are currently having commercial negotiations with gas resource owners and government interaction in potential countries of operation. Our priority remains to first recharter Hilly before FIDing a Mark II FLNG and then secure the charter for search vessel. Moving to slide 10 and the developments we've done on a Mark II in the quarter. As announced and earlier mentioned on the call, we have high-graded our FLNG conversion candidate, acquiring Fuji and disposing of the LNG carrier Gandra. We've made significant progress with Chinese financing houses for a debt facility of up to $1.5 billion, not contingent on a charter. We'll continue to work with the shipyard to further de-risk construction timeline and pricing. We have increased our pre-FID commitments to about 400 million through a combination of long lead items, engineering work, and the mentioned acquisition of Fuji. And as alluded to, if we FID that project this year, we will deliver within N26. Turning to slide 11. We see robust long-term fundamentals in support of LNG prices. From a macro perspective, the normalization of gas prices has not stopped the strong interest in securing future position. Asian importers are active in entering into long-term SPAs. And as you can see from the left-hand graph, 2023 is lining up to become close to 2022 in terms of total volume contracted. and in 2022 we saw the highest level on record. The consequence of this continued buying interest is a rising price environment. And what we show in the middle graph is the Brent-linked pricing of long-term deals, which is currently ranging between 12.5% to 13.5% of Brent. However, there have been shorter-term deals reportedly done between 16 and 20% of Brent parity. Hence, we share the view of major players such as Shell and BP that LNG demand will remain robust in the long term as it is offering a solution to the energy trilemma the world is currently facing. Balancing energy security, access to affordable energy, and doing so in a sustainable manner. That's part of what we are trying to capture on land through Macau energies, which we'll elaborate on on slide 12. Macau is progressing according to plan, targeting first operations in 2024. Commercial and technical development is ongoing alongside building commercial momentum with clients in the US and South America. Additionally, the company is already positioning to access gas for its liquefaction technology, with several discussions ongoing from gas suppliers. In order to capitalize on the market opportunity that Macau represents, we are evaluating alternatives to facilitate growth above and beyond the commitment already provided by Golar. I'll now hand the call over to Eduardo to take us through the Q2 results.

Thanks, Karl, and good morning, everyone. I'm very pleased to provide an update on our group results for the second quarter of 2023. So turning over to slide number 14, I wanted to show some of the financial highlights of this quarter. We had total operating revenues of $78 million, up 5% versus Q1 2023. As a result of softer Brent and TTF prices in Q2, We had total FLNG tariffs of $99 million, down 10% compared to the previous quarter. FLNG tariff is a key non-GAAP metric comprised of total revenues from liquefaction services, including realized gains on oil and gas derivatives. We expect to see a positive reverse of this item this quarter on the back of higher Brent and TTF prices. We also recorded an adjusted EBITDA of $83 million, Pretty much in line with Q1, despite lower contributions from commodity-linked fees, as I mentioned before. However, reduced costs associated with the Tundra Development Agreement, which has been concluded in May, contributed to improvement in corporate and other adjusted EBITDA. This quarter, we had net income of $7 million, a significant improvement compared to Q1. This figure is inclusive of a total of 72 million non-cash items, such as $77 million unrealized losses from oil and gas derivatives, $10 million unrealized gains in our interest rate swaps, as well as a $5 million impairment upon the sale of Gendra. Our liquidity position remains strong with close to a billion dollars of liquidity. That includes cash on hand and other receivables from the unwinding of our TTF hedges earlier this year. Our total contractual debt stood just shy of $1.2 billion, leaving us with a net debt position of $190 million. Turning over to slide 15, I would like to provide a recap from our historical earnings from Healy. This graph shows our net share of Healy's adjusted EBITDA. And as you can see, the tariff can be broken down into three main components. A fixed tolling tariff of $34 million, which has been in line with the previous quarter. a Brent-linked fee of $15 million this quarter, down from 18 in Q1, and also a TTF-linked fee of $30 million, which is also down from $37 million last quarter. As I mentioned before, we expect that higher oil and gas prices should support increased tariffs for the rest of 2023. Turning over to slide 16, We can see that we remain exposed to TTF prices for the remainder of 2023 between August until December. So to give an idea of how this can improve our earnings, for every dollar per million BTU change in TTF prices, we expect to make an additional $1.4 million in 2023. From 2024 until 2026, this will increase to $3.2 million for every dollar of TTF prices. So just for example, If TTF prices average $15 per million BTU next year, we should make around $48 million just from this tariff alone. In addition to that, when it comes to Brent, the incremental contribution is $2.7 million for every dollar per barrel change above $60 per barrel. As discussed on our last call in May, we managed to negotiate and complete the amendment of the Haley debt facility with improved terms, including a margin reduction and extension of tenor and amortization profile. These changes are expected to release additional free cash flow of approximately $75 million until the end of the current contract in mid-2026. Those new terms are already in place and have become effective since the end of June. Now turning over to slide 17. Our balance sheet remains strong and we have a great level of flexibility to allow for progressive shareholder returns and at the same time to fund our FLNG growth program. Current liquidity, including cash receivables from TTF hedges, amounts to close to a billion dollars and fully supports the development and equity requirements for the construction of the Mark II FLNG. In addition to that, we have several alternatives that could further enhance liquidity in order to fund further growth. including potentially a refinancing of existing debt facilities for both Healy and Gimi that could unlock significant amount of equity should we be required to do so. As discussed on the previous slide, Healy's free cash flow generation of more than $200 million per year fully supports the current dividend and buyback program. These will increase even further upon Gimi's startup, creating room for increasing shareholder returns in the future. This quarter we have declared a dividend of 25 cents a share with a record date of August 21st and payment on or about August 29th. Following the announcement of our $150 million buyback program in May, we have spent $30 million repurchasing 1.4 million shares at an average price of around $21. After that, we had at the end of June 160 million shares outstanding. I'll now hand over the call to Karl for some closing remarks.