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Norway's, Bermuda based Golar LNG Limited is evaluating alternatives for a separation of their shipping segment. This is based on the current positive market outlook for LNG carriers. It would allow investors exposure to a pure-play LNG shipping company.


Golar FLNG Hilli

Golar LNG carrier Hilli floating liquefaction vessel (FLNGV). in Singapore Habour

Golar LNG CEO Karl Fredrik Staubo said the company wad said the company was looking at spiining off it's shipping assets. No doubt the time is right for them given where they were just 6 months ago with collapsed demand and much lower natural gas and LNG prices. The supply squeeze and high prices have opened up a great opportunity for the company.

Why Now?

  • Futher to the supply squeeze, strong demand in Asia, particularly China as they tried to warehouse commodities
  • The China trade war with Australia pushed shipping rates up and added new demand from South Korea and Japan for LNG
  • New International Maritime Organization decarbonization rules that would cut the number of active older LNG carriers starting in 2023
  • These circumstances are likely to keep rates high for the forseeable future
  • Staubo did add that such a spinoff would give investors exposure to a pure-play LNG shipping company.

The company also has floating LNG (FLNG) assets which are in a key place with shipping rates at this time. Staubo said “We (golar) struggle to get the efficient pricing because people that want the shipping exposure don’t necessarily want the FLNG and vice versa,”

“What we’re considering is just to get the shipping fleet into a separate exposure, and then potentially to hand out the share in the shipping venture.”

There are other options such as partnership with another vessel owner available to the company.

Upstream Potential

Part of the rationale, as the CEO said was to maximise shareholder value. They see the opportunity to expand upstream operations within its FLNG segment as that.

Staubo said the company is “currently exploring several fields already producing associated gas, as well as stranded gas opportunities.” Golar has made key upstream hires, bringing on “very experienced” staff from the likes of National Oilwell Varco Inc. and Royal Dutch Shell plc.

“The combination of economically attractive gas fields and our low-cost FLNG solution produces a backdrop where we create an attractive risk-reward considering where LNG prices are trading today, and where they have been trading historically,” Staubo said.

Current FLNG projects

To increase capacity at the Hilli facility offshore Cameroon with partners Perenco and Cameroon’s Société Nationale des Hydrocarbures. This deal would grow Hilli’s capacity by 200,000 tons with utilization at 1.4 million tons in 2022. There is also an option to grow capacity by another 400,000 tons from 2023 to 2026. Hilli, which is the world’s first FLNG facility to be converted from an LNG carrier, offloaded its 59th cargo during the quarter.

Construction on Golar’s Gimi FLNG facility to serve BP plc’s Greater Tortue Ahmeyim project offshore Senega and Mauritania, is 72% complete with a target date of 1Q2023.

Newbuild Mark III FLNG design with 5 million tons of capacity in “Specific commercial and technical discussions with an existing client”

Earnings

Golar reported net income of $471.4 million, which included a gain on its sale of Hygo Energy Transition Ltd. and Golar LNG Partners LP to New Fortress Energy Inc. earlier this year. That compares with a $155.6 million net loss in 2Q2020.

Highlights

Golar reported a quarterly average time charter equivalent rate of $43,700/day versus $61,700 in 1Q2021 and $45,100 in 2Q2020. The company expects rates to be around $47,000/day in the third quarter. Fleet utilization was 98% in the second quarter from 93% logged in 2Q2020. Looking ahead, the company fixed an LNG carrier on a five-year charter with the term to start in 2022. Higher pricing for LNG carrier newbuilds as costs for raw materials such as steel are inching upward. He said new carriers, quoted at $180 million one year ago, are now going for around $210 million. “We see early signs of these trends also creeping across to second-hand values across LNG shipping,” he added.

Outlook

“As with LNG prices, vessel spot rates also remain counter-seasonally strong and one-year time charter rates remain above spot rates, signaling higher rates ahead,” management said.

“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.”

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Golar LNG Limited NASDAQ: $GLNG Spinoff Deja Vu

A reminder back in 2019 Golar looked at a similar spinoff. Then the world as we know it collapsed...

From that  May 2019 report:

The Board has decided to proceed with a spin-off of the Company’s TFDE LNG carrier business, subject to satisfactory market conditions, and to focus the Company’s future activities primarily around FLNG and downstream assets. This will allow LNG shipping investors more direct exposure to the LNG shipping market and reposition Golar’s core business toward LNG infrastructure on long-term contracts.

Golar are in talks with other owners of similar tonnage to join the new shipping company. Management of Golar’s vessels will remain with Golar Management Norway AS. Assuming the joint structure proceeds as planned, Golar's direct exposure to the carrier market will then be limited to one modern steam turbine vessel, Golar Arctic, with Golar Viking contracted to be sold in 2020 post FSRU conversion.

Outlook (2019)

The initial focus in 2019 has been to take FID on the Gimi (BP FLNG) and Viking (LNG Hrvatska FSRU) projects, secure project finance and award contracts for those projects. With those tasks completed, the main focus will be to streamline the company and increase the utilization of existing assets. The intention is to significantly increase the return on investment ("ROI") without committing major capital. Shipping:

With the LNG carrier market showing signs of seasonal recovery and edging into a time-frame where a structural shortage of ships appears inevitable, Golar expects that the new LNG shipping company will be an attractive pure play vehicle for investors to participate in the strong growth and cyclical recovery of the LNG shipping market. This will allow us to reposition Golar and focus primarily on two business lines: FLNG:

Our project teams will work diligently to safely deliver the Gimi project on time and on budget. Golar will also work with Perenco to conclude an agreement to increase utilization and provide a meaningful potential extension to the charter duration for FLNG Hilli Episeyo by the end of 2019.

Development of the robust FLNG pipeline, finance permitting, will add further long-term contract earnings backlog. Golar Power: Golar Power will now develop the downstream small-scale market in Brazil, which can create significant earnings as early as 2020/21. In repositioning Golar as a solid long-term cashflow business from projects that create large cost and environmental benefits for our customers the Company expects to materially broaden investor interest.

With an LNG growth rate of approximately 10% pa, a gross contract earnings backlog1 of $10.3 billion, strong growth in contracted earnings, a well-financed balance sheet, a unique market leading position in FLNG, integrated power projects and a solid pipeline of opportunities, the Board is increasingly optimistic about the future. FLNG Hilli Episeyo is operational, cash-flow generative and constructive progress is being made with respect to utilization of its spare capacity;

The underlying recovery in the shipping market; Golar Power's Sergipe power project and FSRU Nanook are fully financed and less than 11 months from start-up; The award by BP of a 20-year FLNG contract that is expected to deliver annual contracted revenues less forecasted operating costs of approximately $215 million.

Total Contract Earnings Backlog including our proportionate share from equity investments of $6.6 billion, comprised of $2.5 billion from Golar Power, $0.6 billion from Golar Partners and $3.5 billion from Golar. The underlying LNG market growth story remains robust with annual expected demand growth of close to 10% driven mainly by consumers wish for cheaper and cleaner energy.

Hill Episeyo First Production

In Q42017 Golar LNG confirmed first production of LNG had successfully commenced from Hilli Episeyo offshore Cameroon and that the Golar Gandria has been removed from layup and is now at Keppel Shipyard in Singapore.  The deal was agreed in late 2015 between Golar, Gazprom Marketing and Trading, Cameroon’s state-run Societe Nationale des Hydrocarbures and Perenco Cameroon. First LNG deliveries were initially targeted for the second half of 2017. FLNG Hilli Episeyo maintains 100% commercial uptime following acceptance. Export of the vessel's 10th LNG cargo currently in progress.

The first ever FLNG project came on stream in Malaysia last year, developed by Petronas, but the project has operated at a fraction of its production capacity

FLNG

FLNG Hilli Episeyo arrived in Cameroon in late November 2017. Customs clearance, positioning, mooring hook-up and connection to the riser and umbilicals followed shortly thereafter. In early December 2017, a Notice of Readiness, which triggers the commissioning process, was tendered to Perenco and SNH. A ship-to-ship transfer of cool down LNG with the Golar Bear was completed in mid-December 2017, followed by the introduction of feed gas from the onshore processing plant.

Full commissioning of the gas treatment systems is now substantially complete and they are running satisfactorily. Commissioning of the refrigerant trains continued through to February 2018 and first LNG production commenced on March 11 2018. Although Golar reiterates the importance of taking the time it needs to safely commission the vessel, at this time final commissioning, followed by acceptance testing, remains on track for mid-April 2018. Vessel acceptance will trigger the final drawdown against the $960 million CSSCL facility. Commissioning hire at a reduced toll rate began to accrue from January 4, 2018: $9.8 million has now been received in respect of January 2018 and a further $11.1 million will shortly be billed in respect of February 2018.

Source: Criterion Research, Golar LNG

Live From The Pit

 Source: Golar LNG, TradersCommunity

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