Golar has resurrected plans to separate its shipping and FLNG interests.
Starting with FLNG, Golar said that the contractual Brent Oil linked component of the ‘Hilli Episeyo’s’ first 1.2 mill tonnes of annual production generates cash flows of about $3 mill per annum for every dollar the Brent oil price is above $60 per barrel, up to an agreed ceiling.
This would generate an additional $34 mill of annual realised gain on oil derivative instruments assuming the Brent oil price on 6th August, 2021 is sustained.
Together with the last 12-months of adjusted EBITDA from the FLNG’s tolling services and inclusive of the expected adjusted EBITDA from the increased capacity utilisation in 2022, ‘Hilli’s’ consolidated 2022 earnings would be around $225 mill, assuming current oil and gas prices and no changes to the existing accounting methods.
Further upside to Hilli's earnings from 2023 can be expected should operator Perenco’s 2021 drilling campaign prove successful.
Golar's pro-rata earnings backlog from FLNG remains unchanged at $3.4 bill, despite quarterly amortisation. This does not include potential additional backlog associated with Perenco/SNH exercising their option to increase ‘Hilli’ production from 2023.
Golar said in its results presentation (see page 8) that it expected to make significant progress on new tolling arrangement FLNG projects, as well as integrated gas projects over the next six to 12 months.
The most promising integrated gas projects currently under review are in West Africa and would utilise a Mark I FLNG solution. For integrated projects, Golar targets a combination of fixed price off-take and merchant sales.
Golar’s second FLNG ‘Gimi’ is thus far unfixed and is over 70% complete in a Singapore shipyard where work was continuing.
Shipping division
As for its shipping division, based on fixtures to date, Golar expects a third quarter TFDE1 TCE1 of around $47,000 per day. Seasonally strong LNG prices continued to be sustained by supply disruptions, a demand recovery in Asia, and strong demand in Europe where inventories remain historically low.
Vessel spot rates also remain counter-seasonally strong and one-year timecharter rates remain above spot rates, signalling higher rates ahead. The term market is also expected to remain active, however the lack of available ships in 2021 means that the focus has shifted to 2022.
Most of the order book is now committed and charterers are increasingly focused on securing access to high quality vessels already on the water. Both rates and tenor are increasing. Golar said that it expected to benefit, as its exposure to this improved market increases.
Most of the current contracts were fixed in 2020 when the market was softer than the current market and what is forecast for 2022.
Compliance with recently approved environmental regulations from 2023 onwards (the IMO’s EEXI) will mainly impact steam LNGCs that account for 254 of the 607 vessels on the water. The most viable compliance option for those carriers is to slow steam, however some may not be viable to trade. The current order book, therefore looks increasingly inadequate, while shipyards are busy with significant ordering activity in other ship types and steel prices have also increased.
As a result, newbuilding prices are rising. Shipyards are reported to be quoting above $210 mill for LNGCs, up from $185-$190 mill in recent years. Rising asset values should benefit Golar's TFDE fleet.
Supported by recent long-term fixtures and the strong improvement in the underlying market, the company now expects materially positive contributions to the Groups results from shipping over the years ahead.
Golar concluded that favourable market fundamentals across its business segments supported the next step in the group simplification process and initiatives have restarted to separate the shipping and FLNG divisions.
