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Golar LNG Limited (NASDAQ: GLNG) 2021 third quarter earnings conference call, at 10:00 AM, November 9, 2021 US Eastern Time
Ladies and gentlemen, good afternoon, and welcome to Golar LNG Limited's third quarter 2021 conference call. At this point, all participants are in a listen-only mode until we conduct a question-and-answer session on the phone and the Internet. Just to remind everyone that this call is being recorded.
I want to hand it to your Mr. Karl Staub. Please start your meeting.
Carl Staub-Chief Executive Officer
Hello everyone, and welcome to Golar LNG's third quarter earnings report. Thank you for taking the time to dial in. My name is Karl Fredrik Staubo, CEO of Golar LNG. Before we enter the quarterly results, please pay attention to the forward-looking statements on the second slide. Today, our Chief Financial Officer, Mr. Eduardo Maranhao, accompanied me to introduce the results of the quarter. Turn to the third slide and Q3 highlights.
We reported that revenue for the quarter was US$107 million, a year-on-year increase of 12%, and adjusted EBITDA was US$74 million, a year-on-year increase of 30%. We expect the revenue of our FLNG division and shipping division to continue to grow strongly, and we will detail the details in this presentation. Starting with FLNG, we continue to provide 100% uptime in Hilli, and Hilli has now delivered the 63rd LNG cargo, more than any other FLNG in the world. In addition, we hedged 50% of the TTF-related product exposure in the first quarter of 22 at a price of US$28 per MMBtu, which means that the first quarter revenue of our No. 3 train production this quarter was US$21.2 million. We also see that the contribution of revenue related to Brent crude oil is increasing, and compared with the revenue of the past 12 months, it is estimated that by 2022, the commodity-related production from Hilli will be Golar's revenue from Hilli [Phonetic ] More than twice. FLNG Gimi is now 75% technically complete and plans to start a 20-year contract with BP in just two years. This will release Golar's $3 billion EBITDA backlog of orders.
We have also experienced the growth momentum of potential new FLNG projects. We continue to have constructive discussions with existing customers on the use of 5 million tons of Mark III new equipment. We are also making rapid progress on potential integration projects. We also saw an increase in the number of potential FLNG customers in different regions this quarter.
Speaking of shipping, our shipping portfolio achieved a TCE of US$49,500 per day during the quarter, an increase of 26% year-on-year. Due to the increased spot exposure of our fleet before 2022, we expect the revenue of this sector to increase as well. We recently signed a one-year time charter contract with one of our ships at a price of approximately US$100,000 per day, increasing our revenue backlog in the shipping department to US$267 million. We see continued strength in LNG transportation, increased interest in three- to five-year leases, and increases in new construction prices and daily rates are driving the increase in asset value.
In terms of corporate and investment, we received $682 million in new financing this quarter. The proceeds from these financing will be used to refinance our upcoming convertible bonds and extend the maturity date of other ship financing. Until FLNG Gimi provides greater financial flexibility to fund attractive FLNG growth projects, we now have no major debt maturities.
I will now transfer the call to Eduardo to let us know the results of the third quarter.
Eduardo Maranhao - Chief Financial Officer
Thanks, Carl, good morning everyone. I am pleased to provide the latest information on financial results for the third quarter of 2021.
Therefore, turning to the fifth slide, we can see that the group's performance in the third quarter was very stable. Total operating income in the third quarter increased to 107 million US dollars, an increase of 13% over the same period last year. Operating performance is very strong, with adjusted EBITDA for the quarter of $74 million, a year-on-year increase of 30%. During the quarter, we recorded a net loss of US$91 million; this was mainly due to a US$157 million non-cash market value adjustment of the equity value of New Fortress Energy at the end of September. This was partially offset by the US$73 million realized and unrealized gains from our oil and gas derivatives. I will discuss this in detail in this lecture. The increase in total operating income can be attributed to strong and continuously improving shipping performance. TCE revenue from our shipping fleet increased to US$49,500 per day in the third quarter, an increase of 13% over the second quarter and an increase of 27% over the third quarter of last year. We expect it will continue to increase as the fleet will re-sign at a higher expected rate.
The total operating income of our FLNG Hilli (including [unidentifiable]) was US$55 million in the third quarter, which was the same as the US$55 million in the third quarter of last year. This figure increases further when including income related to Brent crude oil. For every dollar increase in the price of Brent crude oil by more than US$60, this oil-related portion of Hilli will generate approximately US$3.1 million in additional operating cash flow. Due to price increases, oil derivatives achieved a gain of US$8.9 million in the third quarter, higher than the US$3 million we achieved in the second quarter. Shipping adjusted EBITDA for the quarter was US$30 million, an increase of 58% over the third quarter of 2020. FLNG contributed US$49 million this quarter, which also reflected a significant increase of 20% compared to the same period last year. We expect that in the next two to three years, the adjusted EBITDA power generation of our FLNG division will increase four times from current levels, thanks to Gimi's contract revenue and the increase in revenue from our product exposure to Hilli. Our balance sheet continues to strengthen. As of the end of the third quarter, our total contractual debt was US$2.1 billion, a decrease of 11% from the same period last year. At the same time, our total cash position increased by 15% year-on-year to US$203 million.
So, turning to the sixth slide, as Karl mentioned earlier, we have received up to US$682 million in new financing facilities, including our new 4-year US$300 million unsecured bond that we priced in October. The refinancing of our FSRU Golar Tundra is up to US$182 million, and the new three-year corporate RCF is US$200 million. We also obtained approval to extend the term of one of our ships (Golar Seal in this case) for another three years, from January 2022 to January 2025. Therefore, the combination of these facilities allows us to extend the maturity of our main debt while reducing the interest costs of existing facilities. More importantly, these measures have allowed us to resolve the issue of refinancing convertible bonds on preferential terms and greatly improved the flexibility of our balance sheet. From now to our FLNG Gimi is expected to be delivered in 2023, with no major debts due. Although there will be some shipping-related expiration dates in the next few years, we are still very confident to solve these refinancing issues based on the low value of such channels.
So, now to the eighth slide, I want to talk more about the incredible performance of our FLNG Hilli. In the third quarter, she achieved 100% business uptime and brought Golar more than $50 million in adjusted EBITDA. This quarter, we recently unloaded the 63rd shipment, producing more liquefied natural gas than any other floating liquefaction plant in the world. The tailings brought about by rising oil and gas prices will provide considerable revenue growth without the need for additional capital expenditures. We expect Brent-related expenses in the fourth quarter to generate approximately US$13 million. And based on forward market prices, we are increasingly optimistic about our future contribution in 2022. We also agreed to increase production by 200,000 tons in 2020; an important feature of the agreement is that it allows us to benefit from the incremental production of TTF natural gas prices. Speaking of natural gas prices, we recently hedged part of exporters in the first quarter of 22 at a price of 28 US dollars per million British thermal units. This means that Golar’s net income in the first quarter of next year is approximately 21 million US dollars. From incremental production alone.
Finally, based on the potential three-year option we have agreed with our customers, this incremental output can be further expanded. From 2023 to 2026, this option may increase production by as much as 400,000 tons to 1.6 million tons per year.
I will now turn the call back to Carl.
Carl Staub-Chief Executive Officer
Thank you, Eduardo. Go to slide 9 and dive into more details about this incremental increase in output that might equate to the dollar.
Therefore, Hilli initially contracted half of its installed capacity, which is 1.2 million tons of 2.4 million tons of installed capacity. Golar’s share of the initial 50% utilization rate of EBITDA generation is a fixed annual toll of US$74 million plus petroleum derivatives, of which every US$1 of Brent crude oil price exceeds US$60, and Golar generates US$2.7 million. EBITDA. In July, we announced an increase in capacity utilization to increase production by 200,000 tons from January 1, 2022, or increase capacity utilization from 50% to 58%. The toll for this 8% incremental production is linked to the price of TTF natural gas. Based on the current TTF price, the incremental revenue for Golar from the increase in production in 2022 is $85 million. A $1 change in the price of TTF corresponds to a $2.8 million change in EBITDA. If you have a different view on the price of TTF, you can run your own sensitivity. Of course, the more we grounded Perenco, the Hilli concession, this is a three-year option to increase Hilli's production from 2023 until the end of its current contract in July 2026.
The three-year increase will increase from 4.4 million tons or from 50% to 66% capacity utilization. The 16% optional volume tariff is equivalent to the 22-year increase in capacity utilization associated with TTF prices. Calculating again at the current TTF price, it is equivalent to an annual EBITDA of US$164 million to Golar. The sensitivity here again shows that the change in the TTF price in US dollars will correspond to a change in EBITDA of US$6.5 million. Perenco needs to clearly select 23 to 26 production in the first half of 2022. They are currently working on a drilling plan to link more reserves to the device, and if the result of the ongoing drilling activities, we expect to announce the success of this option. The important point to emphasize is that Golar will not incur capital expenditures to promote capacity increases, and all EBITDA generated will flow directly into net income.
Go to Slide 10 and then update Gimi Construction. Gimi is now technically 75% complete and has completed more than 13 million man-hours to date. More than 99% of the engineering work and procurement of all key components have been completed, and the remaining work is mainly construction and commissioning. We are about two years away from the start of the full contract, which will begin to generate cash flow, from Golar’s current investment of US$540 million in capital unlocking annual EBITDA to Golar’s US$151 million per year for 20 years.
Turning to Slide 11, we believe Golar has unique advantages to achieve attractive FLNG growth. We will now pay more attention to integration projects. We are increasingly inspired by the FLNG market opportunities, and we will explain why. Starting from the upper left corner, this is the illustrative value chain of the FLNG project. The cost of lifting natural gas from the reservoir to the surface is approximately US$1 per MMBtu. FLNG charging arrangements are usually between US$2 and US$3, depending on the counterparty’s maturity and credit quality. You don't need to ship LNG to its end users, and the current freight rate is approximately $1.50 per MMBtu. This means that you can deliver natural gas in Asia at a break-even point of approximately US$5 per MMBtu. Compared with the current natural gas price of US$32 per MMBtu, the profit margin per MMBtu is approximately US$28. This is equivalent to US$2.5 million of FLNG generating EBITDA of US$3.3 billion, or US$5 million of FLNG generating nearly US$7 billion in profits. These profits have driven increased interest in potential leases for new FLNG projects and also explained our desire to seek more commodity-related FLNG contracts.
Obviously, the current natural gas price environment is very high. So, looking at this in the historical context in the upper right corner, you can see that the green line will be the cash break-even point for Asia's $5 natural gas landing. And you can see that compared with historical gas prices, this is a very attractive risk reward, and there are very few scenarios where you don't make money. In most cases, you can get a very healthy profit. Finally, we believe that the strong demand pool for LNG indicates that LNG prices should be stronger in the next 10 years than in the past 10 years, which further supports this strategy. In the lower part of the page, we compare the carbon footprint of our FLNG technology with other land-based and offshore gas liquefaction plants. Our technology is among the best of its kind, and our experience shows that when new charterers consider making investment decisions for new natural gas development, this is an increasingly important attribute for our FLNG technology. Therefore, we continue to believe that the basic macro level supports our initiative to establish a comprehensive FLNG project.
Turning to slide 12, we try to clarify more where we see the most interesting FLNG opportunities. As mentioned earlier, we have seen more and more new projects in new areas considering the use of FLNG for proven natural gas reserves. The most active development is still investing in Africa and the Middle East, where there are abundant natural gas resources with high-quality, low-cost natural gas reserves. We are currently discussing toll bases and integrated projects in these areas.
Turning our attention to shipping on Slide 14, we also expect the revenue of the shipping sector to continue to strengthen. As mentioned by Eduardo, our transportation TCE for this quarter was US$49,500 per day, and we expect the TCE for the fourth quarter of 2021 to be around US$53,500 per day. We believe that we will see an increase in the revenue of this sector. We tried to illustrate this with the dark blue bar chart on the left, which represents the number of charter days. The night blue represents the days of local exposure of blood vessels. Therefore, you can see that the fleet will grow from the current 100% fixed days to approximately 50% spot exposure in the fourth quarter of 2022. The bound red line represents our daily EBITDA of $50,900 for the past 12 months. This is significantly lower than the five-year lease we signed this summer, and it seems to be lower than the one we recently fixed on a charter of approximately US$100,000 per day for a year. The EBITDA for the past 12 months was US$130 million, and the US$10,000 change in our shipping fleet corresponds to a US$32 million change in EBITDA.
We are encouraged by the long-term prospects of LNG transportation, as three to five years of chartering interest increases, the price of new buildings and the increase in revenue lead to an increase in the value of assets. These factors and the deleveraging of the Golar shipping fleet have created healthy equity value for our shipping department. We will remain opportunistic and evaluate alternatives to further simplify the group by separating this part of our business into separate tools. plan.
Turning to Slide 15, the shipping market is strong as expected. The main driving factor is the expansion of arbitrage between Europe and Asia, which has added long-distance trade to the existing pipeline market. The broker’s quotes exceed $200,000 per day, and the entire monthly rate for each month is usually rising year-on-year. On the right, the current geographic arbitrage of LNG prices supports continued strong interest rates through 2022. From 2023, we will also see the full impact of new environmental regulations on effective supply, creating long-term support for interest rates, which in turn explains why charter flights need to repair long-term coverage in the current market.
In Slide 16, we highlighted other key supply and demand events affecting the LNG carrier market and LNG commodity prices. On the demand side, we see a higher frequency of extreme weather conditions, leading to higher peaks in heating and cooling demand. We have seen a general rebound in LNG demand in Asia, with a 10% increase year-to-date, and China’s LNG demand has grown by more than 20%. We see stability in Europe's demand for low renewable energy production. We see high demand for LNG in South America, especially due to the declining and limited supply of hydropower in Brazil, and LNG imports have increased by 600% so far this year.
On the supply side, we have seen a decrease in the number from Russia to Central Europe, which limits the flow to Northwest Europe. We have seen a decrease in supply from some manufacturers, including Trinidad, Nigeria and Peru. Inventory levels in Europe are below the five-year average, and the hurricane season has affected this supply capacity in the United States. So, all in all, all these extreme conditions will affect the higher volatility of the market, which we believe will ultimately benefit our business model, especially shipping.
Turning to Slide 17, we continue to work hard to reduce carbon emissions and have set a clear goal that by 2030, the carbon intensity of our fleet will be reduced by 25% from 2019 levels. We also evaluated our entire fleet in accordance with the new EEXI and CII environmental regulations-we fully comply with all emission standards for our entire fleet, except for Golar Arctic. The Arctic is the only remaining steam carrier in our fleet, and we are exploring commercial alternatives for her so that before the new regulations take effect on January 1, 2023. We are committed to continuing our efforts to reduce our shipping emissions as we see more and more attention coming from the industry pushing boundaries and making LNG a part of the path to net zero.
Moving to the last part, the corporate and strategic focus of Slide 19, we believe that LNG will continue to play an important role in the transition to cleaner energy. We have included here the slides presented by BP in the World Energy Outlook 2020. Today's world consumes approximately 260 million barrels of oil equivalent energy demand every day. Today, 60% of energy comes from oil and coal, and only 40% comes from other energy sources. BP predicts that by 2030, world energy demand will increase by 8%, reaching 280 million barrels of oil equivalent per day.
During the same period, oil and coal are expected to reduce their market share in the global energy structure from 60% to 49%. In order to meet this increased energy demand to offset the reduction in the supply of oil and coal, BP expects that liquefied natural gas and natural gas will become the second fastest-growing energy source after renewable energy. Liquefied natural gas is the cleanest alternative to hydrocarbon fuels, and its flexibility in creating a backup base load energy supply makes the introduction of renewable energy possible. In LNG power plants, sometimes there is not enough sunlight, wind or rain to use renewable energy for production, and work will be buffered. This makes us gratified that we operate in a global growth market and support our view that natural gas demand and natural gas prices in the next 10 years may be higher than the first 10 years supporting FLNG growth projects.
Slide 20 summarizes Golar's inherent profitability in one slide. If we segment the market one by one, in the past 12 months, our EBITDA in shipping was US$130 million. As explained, we expect the generation of EBITDA to increase significantly because the current market rate of LNG carriers is significantly higher than the charter party being launched. Similarly, the US$10,000 change in our shipping fleet is equivalent to a US$32 million change in EBITDA. If you were to market the entire fleet of shipping, you might see rates more than doubled and climb all the way to $287 million in the next year or two.
Speaking of Hilli, we have earned US$92 million in the past 12 months, including US$74 million in fixed tolls and US$18 million in gas revenue. We expect strong growth in EBITDA development from January 1 next year, due to the increase in Brent-related income and the launch of TTF links, all of which will not increase Golar's capital expenditures. Speaking of Gimi, Gimi is currently under construction and will sign a 20-year contract with BP from the fourth quarter of 2023. The device will generate US$151 million for Golar annually over 20 years. Gimi is the only department in our portfolio that has any remaining capital expenditure. The total capital expenditure is US$426 million, of which US$203 is paid by debt and US$223 million is paid by equity.
If we deduct G&A, we get an EBITDA of US$206 million for the past 12 months. Together with Gimi's fixed EBITDA contribution, this will increase EBITDA generation to approximately USD 360 million. Further increase in commodity-related FLNG revenue and increased freight rates may allow EBITDA to grow close to US$500 million to US$600 million in the next two to three years, before any growth items are added. Our contractual debt is US$2.1 billion, remaining capital expenditure is US$400 million, and cash and marketable securities are US$700 million. This means net debt, including $1.8 billion in remaining capital expenditures.
Turning to the last slide, summary and outlook on FLNG, we expect that in the next two to three years, the EBITDA generation of our FLNG division will quadruple, mainly driven by the commodity-related income of Hilli and Gimi. Our market-leading operating record, our proven low-cost design and industry-leading carbon footprint enable Golar to take advantage of the growing demand for LNG projects supported by stronger LNG prices. As mentioned earlier, we are seeing the growth momentum of new tolls and integrated projects. We also expect the shipping sector’s revenue to increase as we increase the market’s exposure to interest rates above the rolling rate.
Finally, on the corporate side, with new financing and refinancing of US$682 million, we have no major debts due before Gimi is delivered. We see the improvement of financial flexibility and the strengthening of market fundamentals, which have provided funding for FLNG growth projects and may further simplify the group. We are optimistic about the direction of our business and believe that Golar is in a good position to take advantage of the current macro tailwinds to benefit our operations and financial leverage until 2022.
This concludes Golar's 2021 third quarter earnings report. Thanks again everyone for dialing in, we will now forward the call to the operator to resolve any problems.
Thank you. [Operator Instructions] Our first question comes from Randy Giveans from Jefferies. Please continue with your question.
Randy Giveans-Jefferies-Analyst
Hello, Carl and Eduardo. How's it going?
Carl Staub-Chief Executive Officer
Eduardo Maranhao - Chief Financial Officer
Randy Giveans-Jefferies-Analyst
Hey. So, yes, first of all, I obviously congratulate the increase in throughput of Hilli 3 train. I know it has been a long time, so there are several questions surrounding this problem. In 2022, more of the 200,000 tons can be pulled to the first. Should we take advantage of rising LNG prices in the first quarter, or should the production cap for the whole year of next year be 50,000 tons per quarter? Second, is there any reason why it cannot start before January 1, or is there a specific deadline or start date? Finally, any obstacles or timetables surrounding further expansion, obviously this is the choice for the first half of next year?
Carl Staub-Chief Executive Officer
Yes, of course. Therefore, the current 200,000 tons will be evenly distributed next year, so it can be considered as 50,000 tons per quarter.
Randy Giveans-Jefferies-Analyst
Carl Staub-Chief Executive Officer
Just like our current production situation, there is some room for overproduction, which can be fine-tuned every quarter. But it also depends on natural gas flow and natural gas price. Therefore, it is not easy to transfer all of this to the high oil prices in the first quarter. In terms of further expansion, they are currently conducting drilling plans. They need to announce their options in the first half of next year. They initially promised to drill a well. We already know that they are now drilling four wells to ensure incremental production. Therefore, if they are likely to announce their choice of one well, we think they are four times more likely to choose four wells. With this natural gas price and Hilli's stable operation, we believe that announcing the 23 to 26 year increment is in everyone's interest. We are still very optimistic that they will do so.
Randy Giveans-Jefferies-Analyst
understood. Then there is another quick part of the question. Is there any way to open it slightly before January 1st to get some upside in the fourth quarter?
Carl Staub-Chief Executive Officer
We believe this will start on January 1, which is a contractual obligation.
Randy Giveans-Jefferies-Analyst
understood. Okay, then turn a bit to your balance sheet, where it is clearly in good condition, with no debt due by 2024, really the smallest capital expenditure, even including Gimi. So, I think there are two questions surrounding this issue. First of all, regarding the timing of conversion and redemption, do you expect to wait until February in the fourth quarter? Second, what is the next use of this additional liquidity? Are there any stock repurchase authorizations where your stock is stubbornly traded between $13-14 instead of further reducing the debt of the LNG transportation company?
Carl Staub-Chief Executive Officer
Do you want to get one, Eduardo?
Eduardo Maranhao - Chief Financial Officer
Yes, of course. So, hi Randy. Therefore, when redeeming the convertible bonds, related to the unsecured [Phonetic] insurance, we have already repaid USD 85 million of the USD 402 million convertible bonds. Therefore, we still use 317, which will expire in February. We plan to redeem these bonds at maturity, so we do not plan to further repay any other bonds before that date.
Randy Giveans-Jefferies-Analyst
Eduardo Maranhao - Chief Financial Officer
And-but the $85 million is already related to the bond issuance. In terms of stock repurchase, with the approval of the board of directors, we still have an allowance of up to $25 million to complete our stock repurchase plan. But we have no further plans or intention to do so in the near future.
Randy Giveans-Jefferies-Analyst
Okay, okay, I think, this is for me. I will let others ask about the spin potential of LNG. thank you very much.
Eduardo Maranhao - Chief Financial Officer
Carl Staub-Chief Executive Officer
[Operator Instructions] Our next question comes from Ken Hoexter of Bank of America. Please continue with your question.
Ken Hawkster-Bank of America-Analyst
great. Hey, Carl and Eduardo. Can you talk about the progress of the FLNG discussion? Are they more like Mark III? Did something pop up on Gandria? Maybe it's just for us, it sounds like you are speeding up some of these discussions, we have heard a lot from Golar in the past. So, I just want to see at what stage do you think they are and how much have they improved?
Carl Staub-Chief Executive Officer
Yes, hello, Ken. So, I think we ran into the same problem during the second quarter conference call in July. At the time, we said that we think there will be major FLNG news within 6 to 12 months. At the time we said that 6 is more likely than 12. I think we will support that guidance, which is in August. So, this gives you some ideas on where we see the time. As for what type of project [Phonetic], we have made progress in terms of charging basis and comprehensive contact. So, I think-if you listened to the Cosmos quarterly conference call yesterday, they discussed the 2nd phase FID decision of the Tortue field in 2022. In that oil field, all the infrastructure except FLNG is built to contain LNG. The output is 5 million tons. We have three and a half years today. In an integrated project, this should be done by Gandria, but it should also be done by some other FLNG solution. So, I want to say that regarding tolls, I think it is more likely to be Mark III [Phonetic]. In integrated projects, we may use a smaller volume, and then use Mark I or Mark II equipment.
Ken Hawkster-Bank of America-Analyst
great. It sounds like something will happen in the next few months, so look forward to it. Thank you. Then according to Randy’s question, the output may increase a bit. But that was on the first two trains. Are they all on the third train? Do you still have a chance to develop the potential of the fourth train? Maybe they have to give you the time frame for the answer in 22 years, isn't it-you mentioned that in the next few months, we are looking for the answer and the scale and scale? thanks.
Carl Staub-Chief Executive Officer
Yes, of course. So, to be clear, Hilli has four trains, we produce from all four trains today, and we interchange the trains we produce. Think of it as buying a new car. Even if it's a new car, don't let it sit idle in the garage for four years before trying to start it. Therefore, you want to make sure that it keeps up with speed and works as expected. Therefore, we constantly exchange the trains we produce. But you are right, we only produced 50% utilization. If you want to equate it with trains, then trains 1 and 2. Incremental production is an increase of 8% in 22 years, and may increase by 16% from 23 to 26 years. All of this can be met on 3 trains. Even if we change between all four trains, they need to be declared before the first six months of 2022 or the end of summer. We should know at the latest.
Ken Hawkster-Bank of America-Analyst
Okay, then increments, you just mentioned any increments from these three trains. Even if there is an exchange, you still haven't considered upgrading it to the fourth.
Carl Staub-Chief Executive Officer
This is related to the natural gas resources we produce and the natural gas flow that Perenco can allow itself to extract, while still being able to execute the off-take agreement they signed until July 2026.
Ken Hawkster-Bank of America-Analyst
perfect. These are my two, thanks for your time. Thanks, Carl. Thanks, Eduardo.
Carl Staub-Chief Executive Officer
Eduardo Maranhao - Chief Financial Officer
Our next question comes from Ben Nolan of Stifel. Please continue with your question.
Frank Galanti - Stifel Nicolaus - Analyst
Yes, very good. This is Ben's Frank Galanti. Thank you for asking our question. I want to follow up Hilli's ideas from a longer-term perspective. Can you tell us about Hilli and Perenco's prospective options beyond 2026? Yes-in other words, yes-at the end of the contract, is it just signing a larger number of new long-term contracts or doing nothing? Are there other options to provide the additional gas needed?
Carl Staub-Chief Executive Officer
Yes, of course. So I think we have been saying that we will not talk about delays until we get the full capacity utilization of the device. We believe that the increased production from January 1 is a step in this direction. The further increase or potential increase from 23 to 26 is another step in this direction. If this is announced, then we can open discussions with Perenco until it is announced or not, but based on Hilli's good track record and current natural gas prices, Hilli is an increasingly attractive unit for several potential charter flights. Our goal is to deploy her in a comprehensive contract so that we can gain more advantages.
Frank Galanti - Stifel Nicolaus - Analyst
OK. Yes, this is very helpful. Then I think for my second question, consider stranded natural gas or more specifically, the currently burning natural gas provides an opportunity for monetization, which is obviously an obvious solution. But these transactions are difficult to achieve. Can you talk about some of the challenges related to this type of natural gas procurement, and then from your perspective, what are the expectations for solving these problems?
Carl Staub-Chief Executive Officer
I think the key factor that the speed of FLNG and FID is at least slower than Golar initially expected is the price of natural gas. So, if you look at the natural gas prices in the past four or five years, it is mainly driving the downstream, which is why we shifted our focus a bit and established Golar power, which was later renamed Hygo and then sold to GMLP. Right now, natural gas prices are currently at spot prices, but they are also on the forward curve in areas that support upstream investment. We believe this is a key driver for unlocking new FLNG projects. So, first and foremost, it is driven by the current but equally important LNG price outlook. This is the key driving factor. Another stumbling block called you need to close is to have all the regulatory permits in a particular area to allow the use of LNG exports, including some time-consuming government approvals.
Frank Galanti - Stifel Nicolaus - Analyst
Okay, very helpful. thank you very much.
Our next question comes from Mike Webber of Webber Research. Please continue with your question.
Mike Weber-Weber Research-Analyst
Hey, good morning, guys. Are you OK?
Carl Staub-Chief Executive Officer
Eduardo Maranhao - Chief Financial Officer
Mike Weber-Weber Research-Analyst
OK. Some of it has been parsed, but when looking at the deck, you seem to put some effort into re-sculpting it and then showing it in a different way, which looks good. But one thing that is a bit absent here is that I think Randy even mentioned the strategic review and what you plan to do with the LNG carrier at the end of his term. I know that is-uh, there is only so much you can get in there, but especially because it involves your ability to go out and chase additional FLNG business, and your ability to finance in attractive ways, with volatility, especially in assets The LNG carrier on the balance sheet has historically been a problem for Golar. So, I'm curious, do you think you will-do you think you will eventually execute or-find a suitable strategic solution for the LNG carrier fleet before considering formal or FID? -An FLNG project may bring you 1 billion to 2 billion US dollars in capital and re-enter the financing market.
Carl Staub-Chief Executive Officer
We simply do not think that shipping rotation is a necessary condition for the new FLNG project. This is definitely not a problem we are doing. As we have emphasized in the past, we now like the prospects of FLNG and shipping very much, but we must admit that we believe that our uniqueness lies mainly in the FLNG market segment, because this is where we have a unique competitive advantage. Therefore, although we like these two market segments, we think that if these two market segments are separately listed vehicles, we may better extract value from these two market segments and will continue to be opportunistic. Pursue such places. Once we have something to update the market, I am very confident that we will do so.
Mike Weber-Weber Research-Analyst
Get you. Digging a little deeper, if you are working on Mark III and 5 MPTA, you might build it where you can get export financing, which will be a bigger endeavor. If you are considering placing a second FLNG asset in Tortue, yes, from your previous point of view, it could be Mark I or Mark II. I would assume that, from the perspective of financing availability, you would do this in China, Korea, and not Singapore. But if I think about it-if I prioritize the project you are looking at, I know that you have made a major shift, turning your attention to the Mark III and the 5 ton market. Do you think your next project is more likely to consider such a big thing? Or will you return to the 2.5 million tons Tortue market? It sounds like Tortue, and it seems to have been in the lead for a long time, but I just want to make sure we are clear about this, because obviously this has an impact on the importance of spending operators on the balance sheet.
Carl Staub-Chief Executive Officer
Today, we have more than 700 million US dollars in cash and securities. I think one of the key changes in FLNG since the original Hilli is that this was not a proven concept at the time, and no one knew whether it would really work in practice. Since 2018, the device is now operating at 100% utilization. This is a proven concept, and BP has already ordered a similar device. As a result, it started to become more like a universal asset. It is not like an FPSO customized for the site. This is a universal asset. Therefore, we do see the availability of financing for these units, which is very different from when we initially signed the contract with Hilli and Gimi. You are right. For new FLNG projects, we may target structures that allow us to significantly reduce equity contributions during the construction phase.
Mike Weber-Weber Research-Analyst
right. I think what stands out in my mind is Equatorial Guinea, well, this was originally after Hilli, and its contract cannot see your financing. I know this is partly because of where it was built, but you also have a complicated factor. The LNG market has turned, and you burn $100 million in that area every year. So, given the market and prospects, obviously this is not a problem now, but who knows where we will be in two to three years. So, I think trying to avoid the repetitive cycle that we have seen many times in the past ten years is the angle I am asking.
Carl Staub-Chief Executive Officer
Yes, no—so, at the end of the day, the resources are still there. It is still a very large resource. It still has very high-quality gas. And it is natural to assume that we are evaluating it with any other integration projects. But as you said, we know why the project failed last time. So, if we are going back, we need to make sure that this time will not happen, but this is a far cry from the only integration project we are working on, so there are currently several under discussion.
Mike Weber-Weber Research-Analyst
Okay, okay. I can take it offline. Thank you for your time. Appreciate it.
Carl Staub-Chief Executive Officer
[Operator Instructions] Our next question comes from Sean Morgan from Evercore. Please continue with your question.
Sean Morgan - Evercore ISI - Analyst
Hi, everybody. Thank you for answering my question. So, just follow up some of the content we discussed on LNG, but when I saw the slide of 11, I saw that we have a very wide range, I think this is 32 means that the comprehensive model is in Asia Spot activities. Therefore, whether there is any need for this integrated model, you mentioned that it will be a smaller model in a smaller build of FLNG. Do you need some form of support-the cost of using SPA to produce assets. If you are going to sign a SPA, do you see interest in the TTF and JKM-based pricing markets based on the recent fluctuations we have seen in Asian and European spot prices, or do you think this might be a bit more interested in Brent crude oil? If in fact you do need to sign the SPA to fund the project.
Carl Staub-Chief Executive Officer
Yes, of course. Therefore, a natural model for integration is that you try to create an asymmetric risk profile, and in doing so, it may be interesting to sell half or a similar amount of transaction volume on the basis of SPA, whether this is related to TTF or JKM net return Whether to link to Brent depends on what you can negotiate with the end user. Then you said that the other half was naked in the market. However, it may be interesting to fund part of such projects through the SPA. What-After all, how the search in SPA looks depends on the negotiation.
Sean Morgan - Evercore ISI - Analyst
OK. Therefore, in terms of arranging financing with export financing tools or more traditional banking tools, you think there is a route that allows you to basically carry out integration projects without relying on the SPA market.
Carl Staub-Chief Executive Officer
It depends on whether you are using an existing unit or a new unit. Just like, I think this is an immature issue, it is very directly related to the company's business development, but we obviously will not enter the FLNG project without funds. Therefore, funding is one of the key attributes when we build a project.
Sean Morgan - Evercore ISI - Analyst
Carl Staub-Chief Executive Officer
Our next question comes from Craig Shere from Tuohy Brothers. Please continue with your question.
Craig Shere - Tuohy Brothers - Analyst
Good morning, our time. Congratulations for a good quarter. Regarding the focus on the integrated approach, we have seen in recent months that the two to three-year deadlock has been broken in the long-term, large-scale land-based LNG contracting. On the basis of Qatar's mid-decade supply, some new FIDs will definitely be carried out in the next few quarters. When we consider the Perenco contract with Hilli in 2026, are you still committed to taking this path on more commodity exposures, even in the mid to late decade?
Carl Staub-Chief Executive Officer
Yes, I think if you go back to the slide 19 we are showing here, LNG is expected to grow 50% from 360 million tons to 550 million tons, and we need to see a significant increase in new liquefaction projects, if we will Meet anywhere near this development. So, the short answer is yes, we are interested in contacting products. But again, as in the previous question, we may associate it with a fixed SPA, linking at least half of the transaction volume to reduce any downside risks and have a large amount of off-site risk exposure.
Craig Shere - Tuohy Brothers - Analyst
Carl Staub-Chief Executive Officer
Very similar to our situation on Hilli.
Craig Shere - Tuohy Brothers - Analyst
very fair. To what extent can you switch to cleaner technologies that are more environmentally friendly? I mean, whether your FLNG design supports hydrogenation at 10% or 20% of the gas flow. Suppose you use renewable electrolysis to produce green hydrogen in a Middle East project that is very economical. Can you use your technical support?
Carl Staub-Chief Executive Officer
I think in this regard, what I want to say is that we have a green team inside Golar, and they are currently exploring a variety of methods to further optimize our FLNG production, including research on the types of potential production enhancements and carbon capture solutions. emission. Likewise, there are many different technologies flowing around these states. Most of them are in the conceptual stage, but are developing rapidly. As the technology gets more and more verified, we are trying to monitor very closely which will also work with several of these companies. So, which way will we take and the form in which I think engineers are more suitable for answering than me. But this is definitely something we are promoting, and the focus of the whole company is very wrong, because we also see that this is a key attribute for obtaining a new FLNG project.
Craig Shere - Tuohy Brothers - Analyst
right. Okay, great. Thank you.
Our next question comes from Omar Nokta of Clarkson Securities. Please continue with your question. Omar is your mute line. Can you unmute yourself? Since the Omar line did not respond, we will proceed to the next one. Our next question comes from Liam Burke of B. Riley. Please continue with your question.
Liam Burke - B. Riley - Analyst
Thank you. Carl, Eduardo, how are you?
Carl Staub-Chief Executive Officer
Eduardo Maranhao - Chief Financial Officer
Liam Burke - B. Riley - Analyst
Carl, the return on commodity-related FLNG is very high and very attractive. Do you see any competitors entering the market and trying to compete for some of these opportunities for you?
Carl Staub-Chief Executive Officer
I agree that they are very attractive. As far as the competitors are trying-a few people are following FLNG, which has been around since we started. I think at present, no one else can prove this technology with the same operating record. So, for now, we feel that we have a very strong competitive advantage. However, if these types of returns prevail, we will assume that others will try to join as we move forward, but we do not currently see any direct competitors.
Liam Burke - B. Riley - Analyst
The next question comes from Chris Wetherbee from Citigroup. Please continue with your question.
James Yoon - Citi - Analyst
Hey guys, James played for Chris. Just want to ask a quick question about the capital structure. Obviously, you are very interested in the February conversion, but just want to know how you are thinking about moving forward. Is there an unsecured target combination? Before we start another project, is there more work to be done, such as essentially, what kind of process are you in, and what is your current final state?
Eduardo Maranhao - Chief Financial Officer
Hi Chris, this is Eduardo. Yes. Therefore, as we explained in the presentation, once we complete and complete all these refinancing, we will only have the expiry date for the ship refinancing. Therefore, there will not be any substantial refinancing between now and Gimi's delivery time. Therefore, we believe that unless any new major projects enter the pipeline, we will make the final investment decision within that time frame. We control almost all refinancing, and there is no need to further explore any other such refinancing in the short term. However, after speaking and listening to Karl introduce all the business development opportunities we are now exploring when deciding to advance any of these projects, funding will be needed and the necessary funds will be provided to explore a major project, for example, the FLNG opportunity. So, I think we will continue to observe, but [unrecognizable] before Gimi is delivered, there will be no major expiration date from now to then.
James Yoon - Citi - Analyst
understood. Because of this, I understand that I probably agreed to switch and underlined the trading prospect line just given. I just want to understand your hedging strategy in essence, whether we should regard it as an essential strategy-a matter of time Or is it something you might do opportunistically, if it makes sense? Just want to understand your hedging strategy?
Carl Staub-Chief Executive Officer
Sorry, is it about TTF hedging?
James Yoon - Citi - Analyst
Carl Staub-Chief Executive Officer
I think for us, if we consider indirect appeal, we will continue to do so opportunistically.
We have a follow-up question, are you willing to accept it?
Carl Staub-Chief Executive Officer
It comes from the background of Ken Hoexter. Please go ahead, sir.
Ken Hawkster-Bank of America-Analyst
Hey, this is really fast. Karl, any thoughts on NFE Avenue's bet [Phonetic]? You mentioned in the press release that it's a bit like-using liquidity potential to fund further development. Is this a goal, or should we expect the monetization of these shares in the short term? I know it’s hard for you to tell public entities, but maybe it’s just your views on the stakes there.
Carl Staub-Chief Executive Officer
I think when it comes to NFE’s shares, we think the company’s current value is seriously undervalued. We obviously know the value of the company because we contributed to the merger, and then GMLP and Hygo. With the convertible bonds we have made, there is absolutely no need for us to sell NFE at the current point in time. And what we said and asked about the market before. But for now, this is a strategic holding that we hope to hold, but we have not locked up our equity in Aveneur [Phonetic], and we have invested approximately US$50 million in this entity; this is a setup. We like its strategic importance. Now that we are no longer the owner of Hygo, it can be said that its importance has decreased.
Ken Hawkster-Bank of America-Analyst
OK. So-sorry, just because it sounds a bit confusing. I mean, it sounds like you are looking at the valuation of the fees and saying, given the valuation rather than the release, I want to be a long-term holder. It sounds like, hey, this is something we might need, and we might want to monetize if we have another project to move forward.
Carl Staub-Chief Executive Officer
I can understand your interpretation of the press release, its purpose, because we have a lot of questions, about our investment of US$540 million in cash in Gimi, which is part of our EV, but no cash flow is currently generated because the unit has not been delivered . The same goes for our shares in the new Fortress Energy and Avenir. Yes, NFE currently pays a small dividend, and Avenir does more. Therefore, the statement mentions the fact that you can obtain Gimi's shares and investment cash or cash value in NFV and Avenir. It may be possible to redeploy these cash to FLNG projects with higher cash yields. This is what it means, and it is definitely not a means to take any immediate action.
Ken Hawkster-Bank of America-Analyst
perfect. This is a good clarification. Thanks, Carl.
Carl Staub-Chief Executive Officer
We seem to have no further questions. At this point, I will return the meeting to you, sir.
Carl Staub-Chief Executive Officer
This concludes the introduction of the third quarter. Thank you all for dialing in, and have a nice day.
Carl Staub-Chief Executive Officer
Eduardo Maranhao - Chief Financial Officer
Randy Giveans-Jefferies-Analyst
Ken Hawkster-Bank of America-Analyst
Frank Galanti - Stifel Nicolaus - Analyst
Mike Weber-Weber Research-Analyst
Sean Morgan - Evercore ISI - Analyst
Craig Shere - Tuohy Brothers - Analyst
Liam Burke - B. Riley - Analyst
James Yoon - Citi - Analyst
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