Golar LNG Ltd (GLNG) 2021 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Golar LNG Limited Q2 2021 Results Presentation Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Karl Fredrik Staubo. Thank you. Please go ahead.

Hi, everyone, and thank you for bearing with us on some interesting conference call coordination there. Anyhow, we would like to welcome you to Golar LNG's second quarter earnings results presentation. We would like to thank you again for taking the time to dial in. My name is Karl Fredrik Staubo, the CEO of Golar LNG. I'm accompanied today by our CFO, Eduardo Maranhao, to present this quarter's results. Before we get into the quarterly results, please note the forward-looking statements on Slide 2.

Turning to Slide 3. We are delighted to announce Golar's best ever quarterly net income at $471 million, inclusive of a gain on disposal of Hygo Energy Transition and Golar LNG Partners LP to New Fortress Energy. The gain on disposal proves that there is significantly embedded value in our asset portfolio. EBITDA for the quarter came in at $67 million.

Turning to the segment. Hilli continues to deliver 100% uptime with its 59th LNG cargo offloaded. In July, we concluded an agreement to increase the capacity utilization of Hilli. The increased production will deliver near-term cash flow at no additional CapEx to Golar as well as delivering on our targets to increase commodity price exposure to LNG prices. We'll explain this increase in further detail later in the presentation.

In addition to the newly acquired gas exposure, we are currently generating Brent-linked revenue from Hilli's operation. Gimi remains on schedule and is currently 72% technically complete and the construction in Singapore.

Turning to shipping. Our shipping portfolio achieved a time charter equivalent of $46,700 for the quarter. We have seen increasing counter-seasonal strengthening of LNG freight rates in the quarter and recently fixed one of our carriers on a 5-year charter, increasing our shipping revenue backlog to $259 million. We continue to see strengthening near- and long-term fundamentals for our shipping segment and upward pressure, both on rates and asset values.

Turning to corporate, following the close of the sale of Hygo and GMLP to NFE, which closed on April 15, we have booked a book gain of $575 million. The book gain records our 18.6 million shareholding in NFE at an NFE share price of $35.38. Following the proceeds from the NFE transaction, we now have cash and marketable securities of approximately $1 billion.

The cash balance for the quarter ended at $287 million, and we're currently in discussion with key relationship banks for new and refinancing term sheets in excess of $500 million that if concluded, would release more than $250 million in additional liquidity to Golar.

I'll now turn the call over to Eduardo to take us through the second quarter results.

Thank you, Karl, and good morning, everybody. I'm super excited to provide an update on our financial results for the second quarter of 2021. This has been a fantastic quarter for us as we have managed to close both the Hygo and the GMLP transactions on April 15, but we have also continued to observe great commercial and operational performance from our FLNG segment.

If we turn to Slide #5, we can see that the group had a very solid performance in Q2. Total operating revenues this quarter were $104 million or approximately 2% above than the second quarter of 2020. The greatest portion of our revenues came from our FLNG segment, where operating revenues from the Hilli, which includes the base tolling fees increased from $54 million in Q1 to $56 million in Q2. This could be resulted as a -- this could be attributed to a result of overproduction in the quarter. This number does not include the Brent oil linked component, which further enhanced this figure by another $3 million in the quarter. And we will continue to record those gains as a realized gain on derivative instruments.

Revenues from shipping were $42 million, which was down from the $63 million which we observed on Q1, but in line with the numbers of the same quarter of last year. This has been a result of the seasonality in the market, which have pushed overall time charter equivalent rates down from the previous quarter.

Overall, adjusted EBITDA for the group was $67 million and in line with the same number of the last -- of the same quarter of 2020. The main contributor to that has been the FLNG segment, with $45 million from the Hilli while shipping added $27 million to that figure.

Continuing on the segment corporate and others, which includes our business activities of vessel management and other corporate overhead costs, recorded a slightly higher number this quarter with $5 million. This was a result of one-off redundancy costs following the sale of Hygo and GMLP.

As alluded by Karl before, we recorded a record net income of $470 million in this quarter compared to $25 million in Q1. Total gain on disposal from the sale of Hygo and GMLP to NFE contributed to $574 million and unrealized gains from the Hilli Brent oil derivative added another $71 million to that figure. That has been further offset by a provision of tax liabilities, which we have accounted in this quarter and also unrealized mark-to-market losses from our NFE shares.

As of the end of June, the carrying value of our NFE stake was equivalent to $35.38 per share. So as explained by Karl before, we ended the quarter with a total net debt of $2 billion. And from a liquidity point of view, we had total cash reserves of $287 million, out of which $207 million was unrestricted cash. We have also continued to receive term sheets from key relationship lenders for new and replacement debt facilities in excess of $500 million.

If we continue the presentation and turning over to Slide #7, I will give you further information related to the performance of the FLNG Hilli. So the Hilli delivers -- continues to deliver an amazing performance with 100% of commercial uptime. She has completed its 59th cargo during this quarter. It contributed in total of $45 million in EBITDA in Q2 with further upsides to be captured. Our oil linked fee benefits from a high Brent price, and our expectation is to generate an additional $9 million in the next quarter, which is up from the $3 million we recorded in Q2.

We have also agreed with Perenco to increase production in 2022 by 200,000 tonnes, with the option to further increase it by 400,000 from 2023 to 2026.

I will now turn the call back to Karl, so he can talk in more details about these arrangements.

Thank you, Eduardo. Turning to Slide 8. One of the more exciting developments during the quarter was our announced capacity increase for Hilli. Hilli has been -- delivery been contracted for 1.2 million tonnes per year of its totaled 2.4 million tonnes per year liquefaction capacity. We announced increase in capacity, we'll see volumes increase for next year by 17% or 0.2 million tonnes per year to a total of 1.4 million tonnes. In addition, Perenco has committed to a drilling campaign of 2 to 3 wells and been given an option to declare an additional 0.4 million tonnes every year from '23 to '26, increasing total annual production in that period to 1.6 million tonnes per year.

The tariff on the incremental production over and above the existing 1.2 million tonnes will be linked to TPF, delivering on Golar's expressed target to increase gas price exposure and there will be no changes to the tariff on the existing 1.2 million tonnes. Golar will incur no capital expenditure to facilitate the capacity increase and only minor adjustments to OpEx, hence the majority of cash flows will flow to free cash flow, of which Golar has an economic interest of approximately 89% in the oil derivative and 87% in increased capacity production.

Hence, the built-in EBITDA growth for Hilli between '22 and '26 consists of our Brent-linked revenue, which can add $40 million on current forward curves. If you, however, believe that the current Brent price will prevail, the same number increases to $155 million. The increased production will based on TTF forward curves at around $113 million. But if you instead believe that the current TTF will prevail, that can increase to $373 million.

So to put those numbers into perspective, the base remaining EBITDA for Hilli is $751 million. On forward curves, we will see an increase of around $153 million. Or on current rate for the same volumes, you will see an increase of $528 million. So there are significant embedded upside.

Explaining this in some more granularity on Slide 9. Both oil and TTF gas prices are currently in backwardation with forward pricing lower than current spot prices. On the left, you can see the sensitivity where the Hilli Brent link, as mentioned, is worth $40 million on the forward price and $155 million on current Brent around $71 a barrel. The sensitivity to be aware of here is that a dollar change in Brent price equals $3 million change in EBITDA for Hilli on an annual basis.

On the right, you can see the TTF price on the same sensitivity. For 2022, on the forward curve, we will book an incremental earning of $26 million. But if current spot prevails, the same number is $49 million. For '23 to '26, it's $87 million versus $324 million. So the point is that there's significant embedded upside in our existing assets.

Turning to Slide 10. Gimi is now 72% technically complete, on track and on budget. We have booked 10.7 million man hours, and the fifth and final drydock is now complete. We are, as we've been overlong expected, the sail away from Singapore during first quarter of 2023, and we will start to book commissioning revenues from the second quarter of '23 before we start the full contract for 20 years with BP with a total backlog of $4.3 billion in Q4 2023.

Turning to Page 11. We continue to view the underlying macro as highly supportive of our strategy to move further into upstream. The combination of economically attractive gas fields and our low-cost FLNG solution produces a backdrop where we create an attractive risk reward when considering where LNG prices are trading today and where they have been trading historically.

Further progress has been made on our announced initiative to increase our gas exposure, and we have added to our upstream LNG team with very experienced personnel from NOV and Shell. We're currently exploring several fields already producing associated gas as well as stranded gas opportunities, and we will update the market when we're making further progress on these projects.

On the tolling side of our FLNG business, we continue to work with existing and prospective clients on attractive growth projects. And we have seen specific commercial and technical discussions with an existing client for use of a 5 million tonne Mark III newbuilding designs.

Turning to Page 13 and switching gears to shipping. As mentioned, our shipping TCE for the quarter came in at $46,700 a day, and we expect Q3 to be more or less in line at $47,000. This is a result of taking too much charter coverage into 2021, but we are seeing an increasing spot exposure, both for the remainder of '21 and significantly increased into 2022.

As mentioned, we used the countercyclical strength to fix one of our ships on a 5-year charter during the quarter, increasing our backlog to $259 million.

Also, as announced during Q1, we repaid $60 million in upfront debt repayments in return for a total debt reduction of $102 million on 4 of our ships.

Turning to Slide 14. The LNG market, both the commodity itself and shipping freight rates, has witnessed a real upturn in the first half of the year. From a shipping perspective, China's considerable growth in imports as well as higher prices in Asia is pulling tonnage demand higher as witnessed by the 15% growth in tonne miles compared to the first half of 2020. Although the LNG price has remained high, it's been somewhat volatile, benefiting an active trading environment, which again benefits shipping.

Another interesting factor we're paying attention to is the steep rise in asset values as steel prices and reduced shipyard availability start to reflect on LNG newbuilding quotations. LNG carriers was quoted at around $180 million newbuild price around 12 months ago, and it's now up to around $210 million for new orders placed today. We see early signs of these trends also creeping across to secondhand values across LNG shipping.

Turning to Page 15. We don't only see the market being strong at the moment, we see that we have fundamental support for continued strength of LNG freight rates. From a volume perspective, we see the geographical imbalance between growth in supply, which is primarily taking place in the Atlantic and growth in demand, which is still focused in the Asia Pacific and we only see that continuing to materialize over the next 5 years, driving tonne miles. As we have previously alluded to, the shipping market is also likely to face a capacity constraint due to new emission regulations that will impact, in particular, the older part of the fleet on steam propulsion.

The increased obsolesce of tonnage built in the 1990s and earlier, coupled with limited additional orders, should, together with an expanding LNG trade, translate into a tight shipping market balance going forward. Based on the current positive market outlook for LNG carriers, we have reengaged initiatives to refinance our shipping fleet, non-recourse to Golar and evaluate alternatives for a separation of our shipping segment.

Turning again to the last section of the presentation today, corporate and strategic focus. On Slide 17, we've laid out the earnings power of Golar's existing asset portfolio. If you start up on the top line, you can see that our last 12-month adjusted EBITDA for shipping is $119 million. This assumes $48,400 in average TCE. A $10,000 change in the TCE across our shipping segment will increase or decrease EBITDA by $32 million. Hence, if you mark-to-market the fleet to the current 1-year TCE, there's $140 million upside to the EBITDA generation of our shipping fleet, which we then could see come in at around $262 million.

On Hilli, our pro rata last 12 months EBITDA was $84 million. As we have spent on time on the presentation today, we have significant oil upside currently generating cash, plus the agreed Train 3 production with Perenco adding around $70 million of incremental EBITDA based on current TTF and current Brent pricing. That would then increase our pro rata EBITDA from around $84 million to $154 million.

Gimi remains on track to start its 20-year contract in October 2023 and will then add pro rata EBITDA of $151 million.

Netting off corporate & investments, we will then see an EBITDA based on last 12 months plus the contracted EBITDA of Gimi at around $340 million. But with embedded upside included in our asset portfolio, we can easily see this increase by more than $200 million to weigh into the $500 million. If you compare that to our contractual debt position of around $2.2 billion, remaining CapEx of around $400 million and cash and liquid assets of around $1 billion and then a market cap of $1.2 billion, you will see that we're currently trading on an EV/EBITDA to last 12 months' adjusted EBITDA of 8x or 5x if you include the embedded upside in the asset portfolio.

We believe trading between 5x and 8x is a significant discount to where we can monetize 20-year cash flows to BP and also this is also before pricing in any growth across Golar's platform. So we remain optimistic and encouraged by the supporting fundamentals across shipping and FLNG, and we believe we are now at a very healthy capital structure with a significant capital buffer of around $1 billion.

Turning to Slide 18 for a summary and outlook. As announced, we have increased the capacity utilization for Hilli, which will then add anywhere between $113 million in EBITDA backlog on current TTF or $373 million on the current price. We're progressing with an existing customer for the contract of a 5 million tonne Mark III newbuilding, and we have expanded our FLNG team and are currently evaluating several integrated FLNG projects.

On the shipping side, we see term rates higher than spot rates, supporting further fundamental strength. We have an increasing spot exposure across our asset portfolio, and we see asset values rising on the back of a stronger freight market and higher newbuilding prices.

On corporate and investment, our adjusted EBITDA came in at $67 million. Our net income following the sale of NFE was $471 million, which equates to a book equity of $17 a share.

We had a strong cash and liquid asset position of approximately $1 billion. And we will focus our efforts on refinancing our upcoming convertible bond maturity and further group simplification by separating FLNG and shipping.

That concludes the prepared remarks of today's call, and I would like to hand it over to the operator for any questions.

(Operator Instructions) And your first question comes from the line of Ben Nolan from Stifel.

So I'll start, I guess -- well, there's a few things. Let me start with the Mark III that you talked about and the potential development there. Can you maybe frame in how far those conversations are at the moment? Or when you would think is a natural progression towards something more definitive?

Sure. So I think there's a couple of things. When you talk about these type of things, it's always dependent on the charter, taking a binary sort of yes, no decision at the end of the day. But I think there are a number of factors supporting why both the charter, us and every other stakeholder in the project would see benefits in progressing this as quickly as possible. I think number one and the most important driver right now is, of course, the gas price. There's a lot of money left on the table for every day you wait.

Second, it's the cost of building a Mark III when you see steel prices going the way it's going and yard activity sourcing significant orders for fairly large complicated vessels like large container orders, and then waiting 1 day with an investment decision is more than 1 day of delay due to the lack of yard capacity.

Lastly, I think in the search for alternative liquefaction solutions, I think we have proven that the cost point, the carbon footprint and the operational track record of our FLNG technology is more competitive than other solutions. And we are confident that such studies have now been concluded and, therefore, can open up for the next phase, which then should be in everybody's interest to move ahead as quickly as possible.

Okay. So is this something that, I guess -- obviously, maybe it's somewhat out of your control, but is it something that you see as a 2022 kind of event? Is that a fair framework?

Yes, I would say within the next 6 to 12 months, maybe 6 months, more than 12 months, there's -- we should be able to see some significant progress and be able to update the market on significant progress.

Perfect. And then my second question relates to the 5-year contract and really actually just contracting in general. First, I guess, any context on the kind of rate that you can get on a 5-year contract? And then is this something that you're looking to do on other ships, specifically, the one I was thinking of is the Tundra? I mean is there any room for that to be contracted as an FSRU on a long-term basis?

Sure. So there's a couple of things in that question. So when it comes to the 5-year charter, to be specific, that is for a carrier and not for Tundras and FSRU. One of the reasons why we decided to do it is that when you have a meaningful shipping fleet, it's helpful to tie in some of the ships, especially if you can do it way above or well above all-in cash breakeven.

Doing a 5-year term on 1 ship also helps with our discussions with the bank in where and how you can potentially refinance the shipping fleet, nonrecourse to Golar, to prepare the shipping fleet for a separation from our FLNG business. So the driver of why we decided to fix was that we could -- it helps refinancing. It was at an attractive rate compared to what we have made on the ships historically, and we are generating decent free cash flow to equity on that charter.

When it comes to Tundra, we are increasingly confident that we will find work for her as a FSRU. There are several projects where the specifics of Tundra is interesting. Tundra has a very high throughput and 170 cube storage instead of 160. So she is very well suited for certain projects. And if we were to do a shipping spin, that would likely not include Tundra, but we would like to keep Tundra until we have fixed her and then look at alternatives for. That's how we see it.

(Operator Instructions) And your next question comes from the line of Chris Chung from Webber Research.

This is Mike Webber actually on for Chris. So I just wanted to follow up on the carrier spend specifically. So refinancing the carriers, presumably the idea is there to just get them under a single facility to make it easier to spend, but you've been delevering those carriers for a while. Leverage levels, we would assume to be relatively flat, all things considered on a refinance basis?

Yes, I think that's a fair assumption. We're down to around 108 in that per TFDE. I think if you run to the leasing market, you could probably get proceeds slightly above that. If you go for a normal bank financing, it's slightly below that, but it's variations around that number.

So it's really up to the sort of final structure that we see most suitable, whether it sort of makes sense to do a bank package or whether you go with the combination bank lease or full lease. So dependent on exactly what structure we could look like, there could be fairly minimal further deleveraging needed. But on a stand-alone basis, we can refinance the fleet nonrecourse without any further cash injection.

Okay. That's helpful. And so I mean that's always been one of the complicating kind of impediments just spinning the carriers. Do you have an idea, all else equal, what kind of time line you'd be looking at to do that?

I think this year has obviously seen quite a lot of changes across the company portfolio with the NFE transactions concluded. I think we've now sort of freed up time to take a thorough look at this again. And to be fair, I think we -- it was quite public that we were very close to solve this around 2 years ago. It's then been sort of parked for a bit, but now we will reengage any and all such discussions. I think to be fair, there's a lot of corporate activity that's happened across the LNG space with gas load in private and the large corporate transaction in selling of Hygo and GMLP.

So we're encouraged to see that across LNG, and we believe that there are some opportunities worth exploring. And with the rates where they are, it's difficult for investors to obtain pure-play shipping exposure. You can, of course, buy flex, but that's already gone more than 3x. We're encouraged to see that because that makes way for, we think, more shipping exposure, pure-play shipping exposure.

Sure. Acknowledging that you have a number of options in this regard, is the idea -- are you still primarily pursuing scenarios that involve a specific counterparty involved in the carrier fleet or just something where it could be spun out to the public markets?

It could easily be the latter. I don't think -- we're obviously exploring a couple of alternatives and what we think would be the best solution, but a stand-alone without any other involved partners is certainly on the table as well.

Sure. And then my follow-up on the Hilli, and you did a good job of laying out the different scenarios for adding additional volumes there in the deck. Just curious in terms of the term, I know my understanding that there's always been a volume-based contract to begin with, you guys are kind of playing with the volume a little bit now. And I know some of that is contingent on Perenco's inland -- or not inland, in country, I guess, drilling activity.

Has there been any conversation or substantive conversations around extending the term of that -- of the underlying contract on that asset, at least for the baseline volumes? Or is that something you would expect to be more relevant after you figure out toggling to utilize more Trains 3 and 4?

I think the fair thing to say there is that we have been extremely clear with the market and equally clear with Perenco that we are not talking about extension before we see expansion. So there's only one word, starting with an E that we have been open to discuss. We concluded the expansion now in July. So up until now, that's completely off the table for us. I think from here onwards, it's obviously -- the door is more open than it has been in terms of extension.

But back to the slide that we presented in the deck and how we see FLNG economics on Slide 11, our primary target would be to deploy Hilli on a gas field that we control ourselves. But we would certainly be open to find solutions with partners in general, and we like to work with Perenco. So that could be an option as well. But it has -- it needs to come down to what the contract structure look like. We are, of course, encouraged that Perenco will now build another 2 to 3 wells because dependent on the gas flow and the reserves of those wells, I think there are some additional conversations that very quickly will start to escalate. But I think we also tried to mention during the call that we've made some, we think, very good hires in strengthening our upstream team. And we're already seeing some of the benefits of that. And there are some quite interesting fields that we think we can redeploy Hilli on as well.

And your next question comes from the line of Chris Wetherbee from Citi.

James on for Chris. Just wanted to follow up on a lot of questioning around the fleet spin. How does essentially the new regulation sort of play into that? Is there any timing aspect around that or milestones we should be aware of? Or is it essentially all out there? Or is it just something you're just going to ignore and just progress as you see fit, just kind of want to understand if there's anything to be aware of there?

Sure. So the new regulation will come effective from 1st of Jan '23. We see that mainly affecting steam carriers, which we see as a big benefit because they represent just over 40% of the fleet on the water. And if 40% is either obsolete or need to slow down, that will have very positive supply effects. We only have 1 steamer left in our fleet, which is the Arctic. Other than that, we're in the TFDEs, which should be far less affected other than 3 positive support for rates. So we are welcoming that change, and I'm looking forward to it.

I think in terms of triggers, we have previously looked to do shipping spins with partners. And I think it's fair to say that, if we do it again, we will be open to do it with partners, but we will not expose ourselves to a situation where we're reliant on them. And when the debt level per ship is down to the level we're at now, we believe it's fully doable to do this on a stand-alone basis, should we wish to do that as well.

Got it. But given the strength of that catalyst, is it possible -- or do you think it might make sense to wait a little bit or wait until the back half of '22 or maybe even into '23? Or is it just something where you don't think it will actually -- or you expect sort of whatever you're going to get for it to reflect that and it shouldn't be much of a concern one way or the other? Just trying to understand your view for the outlook versus the timing of the spin -- timing?

We agree that as a shareholder holding LNG shipping into that time period is probably one of the more interesting, that's been through the history of LNG carriers. However, we don't necessarily see a spin as a sale. As long as you spin it and maintain the equity, then we think that's fully doable. So if you want to think about it today, you own 1 Golar LNG share, which has FLNG exposure and shipping exposure.

What we see is that we struggle to get efficient pricing because people that want the shipping exposure don't necessarily want the FLNG and vice versa. Hence, for us, what we're considering is just to put the shipping fleet into a separate exposure and then potentially look to hand out the share in the shipping venture. And then instead of holding 1 FLNG share with 2 exposures, you'll have 1 GLNG share, which is an FLNG company and then another share, which is a shipping company.

Got it. All right. And then sort of a separate item, just understanding how you might possibly structure another FLNG deal. You guys have sort of benefited a lot from the flexibility provided by liquidity you've gained. So potentially, like how would you think about funding an FLNG project? Would you take on a partner initially? Would you think about some other source? Just trying to understand how you're thinking about the structure of a potential deal whenever it does come about.

There, you need to distinguish between tolling arrangements, that's deal similar to BP. So if we were to do sort of a repeat of Gimi building against a long-term contract, we would likely do a newbuild and would expect to get yard financing. So the equity requirement during construction would be significantly lower than the sort of pay-as-you-go structure that we have on Gimi and also have on Hilli. And we think we have sufficient cash and marketable securities to fund our share of such project.

When it comes to integrated, if we were to purpose build an FLNG, we would likely require partners, but we are also looking into alternatives for redeployment of Hilli in 2026 when it turns off its existing contracts and then, of course, the CapEx has been taken, and we've already amortized a very large portion of the debt by that time. So then it should be very limited equity need in order to redeploy her on a separate entity, and we also think we can do that from our own balance sheet. So that's how we think about it at the moment.

Our next question comes from the line of Randy Giveans from Jefferies.

Question on the term sheets you received for the new refinancing facilities in excess of $500 million, liquidity release of $250 million there. I guess what assets will be used for collateral? And what are the hurdles or maybe timing to get this closed?

Sure. So we have been looking at some alternatives on how we can free up additional liquidity at fairly attractive terms, and we do believe we have some underlevered assets. So on those term sheets that relates in part to Tundra, which currently has around 107 of debt, we have some letter of credits, which are cash backed that could be released. And we are also having a very sort of underlevered position in NFE, where we have $100 million against our shareholding there. So that's some of the venues that we are exploring.

In addition to those, I think it's fair to say that Gimi is underlevered. We have $700 million of debt against the $4.3 billion backlog project. I think as we have seen increased capacity utilization of Hilli, neither Train 3 or the oil derivative has any leverage against it and neither does are as a near shareholding. So those are some of the venues that we are exploring. We are, of course, price sensitive when discussing these alternatives. But we do see the need -- or we should see the benefit in raising some extra liquidity, if you can do it at attractive terms now that there is significant potential growth pipeline across FLNG, in particular, and these integrated upstream alternatives.

Okay. And then I guess if that does conclude, would that be the way to repay the converts without selling NFE shares with these relatively low prices?

Yes. So as we write in the report, we are -- we try to be very consistent on this since the NFE transaction was announced. We will -- we're now out of the lockup that expired on July 15. And we've always said that we will be sensitive to Golar share price and NFE's share price and near-term funding needs at Golar when deciding on what to do with our shareholding in NFE. And at current levels, we find it best to tap these alternative sources to address the upcoming convertible bond as opposed to having to do anything within our NFE holding.

Got it. I guess last question on Slides 8 and 9. There's pretty significant upside or downside to the Train 3 EBITDA contribution. So it looks like it's entirely linked to TTF. Are you going to hedge any of this? Or do you have a floor EBITDA contribution that you expect for next year?

I think it's fair when it's linked to TTF, neither -- or Perenco would accept to do that at a loss. So the contract is structured in a way where we can't lose money on the incremental production on TTF. And -- but we both wanted to be aligned, and we have, for a long time, as you know, fight to increase the capacity utilization of Hilli, but also to increase the gas exposure. So yes, there is a floor. It's impossible to lose money on it, but there's significant upside.

We don't have any current plans to hedge it out because we like the dynamic of what we're seeing in the LNG market. And if you look at the hedging curve, it's so backward dated that you're probably better off staying spot.

And your next question comes from the line of Sean Morgan from Evercore.

So it looks like the priority right now in terms of additional developments on the FLNG side will be Mark III newbuild. Does this have any implications for the Gandria and the future of Gandria? Is there kind of a market preference for kind of bespoke builds for specific projects? Or do you think that the conversion for the Gandria would still make sense given the right project?

It could certainly make sense. I think what we're trying to say in this report is that we're making progress both on -- like we've tried to say that we separate our FLNG the way we think about FLNG in tolling and in integrated. On the tolling side, the most advanced and most likely near-term discussion is the newbuild Mark III. And in that, you're absolutely correct. But we are absolutely making progress when it comes to integrated as well. And for integrated, Gandria is a solution that could be deployed.

There are some benefits using Gandria. We obviously have a very large study done on her in relation to the Fortuna discussion back in the 1 LNG date. She could be somewhat quicker to deploy given that the hole is already there. But we would remain open to both. But -- if you had to ask about time line, I would say that the Mark III is significantly more likely near term than anything with Gandria. And currently, Gandria is sitting outside of Singapore and has no debt against her and probably has a scrap value of around $20 million that we think a worth as a sourcing of a Mark III design -- sorry, Mark I design significantly more than that.

Okay. And what would the capacity be for the Gandria, if you were to do the conversion compared to the Mark III? I think it's 5% for the Mark III, it's a smaller -- it will be a smaller solution similar to Hilli?

Yes. About [3/4 Hilli]. So...

And your next question comes from the line of Ken Hoexter from Bank of America.

Great. Just on the Hilli, the 100% upside, congrats on keeping that fully running and operating. Is there any scheduled drydocking we should be aware of or anything that slows performance? And then the agreement on the third train, how did the progress -- the discussions progress on the fourth train and the potential to get that up and running? Let me just stop there.

Okay. So just to start off on the latter, Train 4, so Perenco is now proving -- or drilling up 2 to 3 wells. They have an option from '23 to '26 on doing another 0.4 million tonnes, but it really depends on the gas flow and the reserves for those incremental wells. Currently, we do not expect utilization of Train 4 during the current contract period just on the back of what's known to be the reserves at the current location of Hilli. But that could obviously change when you do actual drilling and see the flow and can measure the reserves.

So I think, for that one, I would say it's unlikely that we could do Train 4 during the existing contract period, but it's subject to the outcome of Perenco's drilling campaign that's now coming up. Sorry, and the other half of your question was...

Just a simple one. Is that -- you've had the 59 loads. Is there anything that disrupts that going forward? Any simple drydocking that has to occur any downtime?

There is no current -- there will be no drydocking for the remainder of the contract period. There are some scheduled maintenance windows. And every time we shut down to do those and ramp back up again, it's been done successfully at either the sort of budgeted time or quicker. So we are very happy with that, and we don't foresee any shutdowns or downtime, which is not scheduled and there's certainly no drydocks.

Perfect. And then for the Gimi, is there any impact in -- that you've had on COVID on construction on downtime? And are there, I guess, any constraints on or penalties on delivering late or anything just on the timing of that delivery?

I think it feels like the 11 months of FM was enough of COVID effect on that one. So that we certainly felt. But on a slightly more serious note, we obviously keep monitoring the situation. I think the fifth and final drydock is now complete. We've booked around 10.7 million of the working hours to date, and the project is progressing according to the time line. The only sensitive -- the COVID sensitivity going forward is the availability of sourcing some workers -- non-Singaporean workers and you need to get those into Singapore. If the situation worsens or became more problematic in Singapore, we need alternative plans to source such workers, and we are working with Keppel.

Keep in mind, Keppel Capital is a 30% shareholder here. So we're aligned with Keppel to find solutions to source such workers elsewhere. So I would say the situation is pretty much under control to the extent we can keep a COVID situation on the large construction project under control. There is around 2,500 people working on the vessel every day. And for now, we haven't had any significant COVID outbreaks across the workforce.

Great color. Eduardo, it's a great rundown, great slides on running through the updates on each of the different parts and the simplification of it. Just one last one for me. Just you've mentioned the monetizing the -- potential monetizing of the NFE stake. Is there -- it sounds like you don't have any plans. I mean we passed the July 15 date. It sounds like you want to keep that. Maybe just give us your thoughts on -- given the simplification of the structure, what are your thoughts on the stake there?

I can start and then Maranhao can chime in because he's obviously intimately familiar with Hygo. But -- we -- when we sold GMLP and Hygo to NFE, that in itself injects around $0.5 billion of EBITDA into NFE, around $300 million of which generated from GMLP and Hygo in sharp growth with significant terminals under construction or in development. In Brazil, we will see a significant ramp-up of volumes over the coming months and quarters. So what we see is that if you add the tools for trade, if you like, from GMLP, the embedded growth of Hygo and top that with the existing asset portfolio of NFE, we think that it's an extremely attractive play.

We are, of course, disappointed by how the share price has evolved since the transaction was announced on January 13, but we remain encouraged to see that the industrial and strategically important terminals that NFE is building will get into fruition. If you add the fast LNG solution where we're working together with NFE, we think, if they can obtain that integrated model, there is some very significant potential in that share. And that's why we're encouraged to keep it. But Maranhao knows far more about the Brazilian terminals and the ins and outs of that than others.

Yes. If I may just add a couple of words here on the -- on how we see their performance on the recent terminal developments, I think we remain extremely confident on their ability to deliver on their business plan. In special, with the continuation of the projects that we had ongoing in Brazil, I think the various terminals in different (technical difficulty), we have seen significant progress since we announced the transaction, and we remain in close dialogue, and as I said, really confident on NFE's ability to deliver on that.

So having said that, we really believe that the market does not fully value everything that NFE has been delivering so far. And we have been addressing alternative ways to further provide ample liquidity to Golar to address our upcoming refinancing each as we have explained in the presentation.

And your next question comes from the line of Liam Burke from B. Riley.

Karl, could you go back to the Mark III and how you envision the contract pricing of the project that be tied to TTF? Or is it tolling? Or is it a combination of 2?

On the Mark III, we're currently discussing, and the contract arrangement is a sort of fixed price tolling similar to what we have on Gimi. When it comes to the pricing of the Mark III itself, so the capital expenditure, we expect the fixed price EPC contract.

Okay. Great. And the returns or the attractiveness of these projects or the FLNG projects are pretty nice. Do you see any competition on lower cost alternative or lower-priced alternatives here?

I think it's fair to say that there is like 3, 4 people that are done FLNG. It's a Shell Prelude. You have the EXMAR, Tango, you have the Petronas units and you have us. And then, of course, NFE is working on their fast LNG solution. I think if you take -- if you exclude NFE for a minute, but on the cost per liquefaction, I think we're highly competitive, if not the most competitive. When it comes to operational track record, we have a better track record than any of the ones mentioned with 100% of time since delivery. And from an OpEx point of view, that's also attractive.

So I think at the end of the day, if you look at FLNG economics, again, as highlighted on Slide 11 in the deck, you will see that it's far more important. Well, we are competitive on all these parameters, but the most important thing is that you have a reliant service you're able to capture the upside when gas prices are as they are now or even better if they are like over last winter.

So at the end of the day, I think our price point and our operational track record is the real attractiveness. And when it comes to NFE, I don't think they have any ambition to produce FLNG for others, but rather use that for their own take, so we don't see them as a competitor on tolling business.

And there are no further questions at this time. Please continue.

Thank you all for dialing into the call. Again, sorry for some delays and sort a bit of mess with the conference call dial-in not to get o here, but we're glad that you could all stay on and thanks for relevant questions, and let's speak soon. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.