Golar LNG Limited
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Golar LNG Limited Q1 2021 Results Presentation. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the call over to your speaker today, Mr. Karl Staubo. Thank you. Please go ahead.

[Karl Staubo:]

Thank you, speaker, and welcome to Golar LNG’s Q1 earnings release. Thank you for taking the time to dial in. My name is Karl Fredrik Staubo, the recently appointed CEO of Golar LNG. Before we get into the quarterly results, please note the forward-looking statements on slide 2.

[Eduardo Maranhão:]

Thanks, Karl, and good morning to everyone. I’m excited to provide an update on our financial results for the first quarter of 2021. So, turning on to slide 5. We can see that the group had a very strong performance in Q1. Total operating revenues for the first quarter were $126 million, which was 7% above the numbers that we had in Q4 of last year. Adjusted EBITDA came in at $78 million and was in line with the previous quarter. A key driver for this performance came from the high utilization and higher charter rates of our carrier fleet, which contributed to total revenues of $63 million. We were able to execute on our shipping strategy and increase TCE rates up to $10,000 a day from the last quarter. FLNG revenues from the Hilli came in line with our expectations at $54 million. Although lower than the previous quarter when we had the effect of overproduction revenues from past years, those numbers reflect the exceptional operational performance of our team, which again delivered 100% commercial uptime. The commencement of operations of our long-term O&M agreement with LNG Croatia resulted in higher management fees, which has also contributed to the increase of our other operating revenues, totaling $9 million in the quarter.

[Karl Staubo:]

Thank you, Eduardo. Turning to slide 8, and our shipping performance. As mentioned, our shipping TCE for the quarter came in at $61,700 a day. We have fixed 90% of remaining vessel days for 2021. Out of the 90% contracted days, 19% is index linked and 71% is on fixed rate charters. We took a cautious approach to shipping exposure coming into 2021 as we saw around 50 newbuild deliveries coming this year, or about two-thirds of deliveries have charter parties and one-third of newbuilds remain open. We are however positively surprised by the strong LNG freight rates we’re currently seeing, despite the normal seasonal weakness during spring and summer months. This furthermore supports our positive outlook for our shipping segment going forward.

[Operator:]

Thank you. So, our first question is from the line of Randy Giveans from Jefferies.

[Randy Giveans:]

First off, obviously, congrats to you, Karl, on the CEO role; Eduardo, on the CFO role. It seems like a great time to begin these new roles here. With that, for the LNG kind of business first, some people are counting the Qatar expansion as somewhat unbeatable, right, because its $5 or so landed costs. Your slide 14 shows that, first, your FLNG projects can beat that. So, I guess two-part question here. Any interest in participating in that tender offer for the 100 to 150 LNG carriers from Qatar? And then, more importantly, for Golar, with trains 3 and 4 having better economics, what are the hurdles and maybe expected time line to get Perenco to ramp up trains 3 and 4? I know you mentioned 1Q ‘22, but any chance for an earlier commencement?

[Karl Staubo:]

Thanks, Randy. So, when it comes to the Qatar tender, we’re obviously aware of it. However, we believe our edge is in upstream and FLNG development. And our incremental dollar is more likely to be spent on that than shipping. So, we have no current plans to attend that tender. When it comes to Hilli and upside in production, I think, most of the agreements that could fit between us and the local government and us and Perenco, is closely finalized, if not finalized. There are, however, existing off-takers and other parties that needs to have agreements with Perenco in place, and such agreements are outside of our control. But with this gas price, it’s sufficient economics for everyone around the table. And every day it’s not producing, it’s an opportunity dollar lost. So, we are encouraged and hopeful that we will find a good common solution for all parties. We do not expect a further ramp-up of significant incremental production. Some production we might be able to bill under the existing overproduction arrangements, but not any substantial increase until Q1 next year.

[Randy Giveans:]

Okay, answered everything there. Good. Now, I guess, for your balance sheet. Obviously, it’s in stellar shape here following the New Fortress shares. I guess, what are your plans for the $1 billion in liquidity? It’s well above your $500 million in remaining CapEx, as you showed on that slide. You have some expensive sale leasebacks you can repay. At the same time, your shares are wildly undervalued. So, do you expect to complete the remaining -- the remainder of the $50 million repurchase in the second quarter? And, can you provide some updated details on the convert refinancing, timing and options there, as well as the NFE for GLNG share exchange?

[Karl Staubo:]

Okay. That’s a few questions. I’ll start, and then Eduardo, please chime in as we go along. So, on the buyback program, you saw that we repurchased 1.2 million shares that we basically have to stop as we entered into the blackout period prior to Q1 numbers. The initial framework we have approval for at Board level is $50 million. And I think it’s fair to assume that as long as the share price keeps trading at the discount to both, book and underlying values, we expect to continue the buyback program. Next sort of question is on the CB. I think what we have said there is that we have a few different alternatives open to us. I think by no sort of particular order, we could do an exchangeable offering at exchangeable internal fee shares. We could do a CB or unsecured bond on GLNG level or we could settle in cash either through cash available from balance sheet or sell-down of derisked assets such as Gimi. So, we have several different venues of addressing that maturity. When it comes to exactly what route we are planning to take, that depends on the relative share price between NFE and GLNG. To some extent, it depends on the absolute share price of GLNG. But by that, I mean, if you are to do a CB on GLNG, you obviously wouldn’t do it around current levels. And lastly, it depends on near-term growth projects. We are planning to address it during second half of this year. And the primary reason for addressing it at that point is that then we are -- we have no restrictions on any of our liquid assets and therefore, are in a position to better way the alternatives. In the interim, we are keeping a close dialogue with constructive investment bank and other investors is proposing different alternatives, and we are keeping them on file and comparing where we think we can do the best solution.

[Randy Giveans:]

Okay. That’s noted. And then, I guess, quickly on the NFE GLNG share exchange. Any additional details or color on that, possibility?

[Karl Staubo:]

We have -- like the exchange offer or distribution of NFE shares, which one are you referring to?

[Randy Giveans:]

You mentioned in the press release, you could exchange NFE shares for Golar common shares in terms of a...

[Karl Staubo:]

Yes. So, that is also down to the relative share price of NFE versus Golar. And it’s something we will consider once we’re out of the lockup period, which is 90 days after closing, which was the 15th of April.

[Operator:]

Our next question is from the line of Chris Wetherbee from Citi.

[James Yoon:]

Good morning, guys. James on for Chris. I just wanted to follow-up on some of the commentary you had around the priorities. Just, when you think about the end markets in terms of LNG carrier side versus the FLNG side, and which one do you sort of see as essentially more -- where you could essentially put capital work sooner? And then also on -- along that line of questioning, is there anything that you need to tidy up before we could potentially see something along the lines of a transaction in either one of those two places?

[Karl Staubo:]

Okay. I’ll kick it off again. So, when it comes to -- yes, our incremental dollar, I think, where we as Golar have more of a unique edge is on upstream and FLNG. As we said in the presentation, we’ve now delivered the 56th cargo of LNG from the Hilli and an unprecedented operating utilization of 100% in delivery. So, we believe that where our edge is at FLNG and upstream, and our incremental dollar will go to FLNG and upstream growth as opposed to shipping. However, as we’ve said in the presentation, we have 10 ships. We have meaningful exposure. We like the outlook, but we do not intend to add ships to our portfolio. And, when it comes to the next steps in terms of when we can do either, like we’ve just concluded the $5 billion EV transaction in selling GMLP and NFE. On the one hand, that’s closed on the 15th of April, but I think for us, we see sort of no immediate pressure to resolve the two. At the same time, we believe part of the reason why we’re trading at a discount to the underlying value is that investors are seeking cleaner exposures to either upstream or shipping. So, we will be opportunistic and try to execute a further simplification as soon as we have an attractive way of doing so. And there, we are exploring different alternatives, both for to spin-out shipping and to also create an upstream company. So, we’re open to either.

[James Yoon:]

Got it. And then, in terms of shipping on that side of the house, prepping it to potentially be split out or whatnot, have -- is there any sort of fact you’re taking to your chartering strategy and potentially trying to like increase coverage or anything along those lines to make it more marketable? Is there any sort of like work to be done, or is that something that really sort of -- if there is a bid for it, do you feel that you could basically be separated sooner rather than later?

[Karl Staubo:]

Yes, sure. So basically, a little while back, 12 months -- or 12 to 18 months back, we changed our shipping strategy somewhat to take more coverage. That was driven really by two things. Number one, we saw a lot of newbuilds entering the market in ‘21, and we did not want to have too much exposure, given the fact that we have 50 new builds coming to market on top of COVID. So, we tried to take quite a bit of coverage. And to some extent, we’ve been positively surprised by how strong the rates. And arguably, we got a bit too conservative. The second reason or driver for us taking this much cover as early as we did it was that this was all done prior to the NFE transaction, where we did not have the same balance sheet position as we have today. So, we wanted to be cautious, not to sort of get any two surprising rates. However, as we tried to state quite clearly on page 8, we have an increasing exposure to the market as we are very optimistic to what the outlook is. And for now, I expect us to be increasingly exposed to the spot market, either through floating rate arrangements or just from vessels naturally rolling off the fixed rate charter.

[James Yoon:]

Got it. I guess, what I’m trying to get at is, if you feel that in order to introduce sort of a strategic -- another transaction, you just need like one or three things, basically, one, to improve the quality of the assets in one way or another, if you think the during the second bucket, I guess, you could say, if you think that the market timing just isn’t right, or in the third, if you just think you need a little bit more time, given the fact that you just did a significant transaction. And it actually sounds like they’re kind of -- the assets are kind of where you want them to be. The market timing isn’t something you’re taking a view on, and it’s really just about sort of putting some distance between you and the last major transaction you did. Is that sort of the right way to think about it, or this -- am I misconstruing that?

[Karl Staubo:]

If there is an interesting transaction we can do tomorrow, I don’t think we have any problems doing it tomorrow. I think it’s commonly known in the marketplace that we’ve been actively looking at alternatives for our shipping fleet, including creating sort of a consolidation play. We do not think we need to do any high grading of our fleet. TFDE carriers are, if you like, the work horse of the industry. And we see the pressure to be more on the steam vessels. So, for us, we don’t expect a high grading. I don’t -- I think we’ve rested out and are complete with the NFE deals. So we have certainly have enough energy and opportunism in the Company that if we find the right transaction tomorrow, we’re happy to go for it. So, for us, it’s a matter of finding the right home for the shipping fleet. We like it the way it is today. We think it’s going to get better. But, at the same time, we do believe that we are somewhat penalized from keeping it in the same company as the upstream. So, we’re open to resolve this as soon as we find the right home.

[Operator:]

Our next question is from the line of Mike Webber from Webber Research.

[Mike Webber:]

So, I wanted to zero in on slide 23, if you don’t mind, because I think it’s helpful. And I just want to make sure I’m interpreting this the right way. And your last question was around -- or at least your last answer was around what to do with the carrier fleet. And it certainly seems like the right analog here is in terms of the value proper Golar as a whole. It’s kind of like TK 2015 where if you can find a home for the carriers, all of a sudden, the value proposition looks a lot simpler and a lot cleaner at Golar. But, I did -- I know you’ve talked to this, but I know that distributing the carriers or sending them didn’t make it onto the strategic initiative slide on slide 23. Given the difficulties in doing that, one, another finding a buyer for a fleet that size or presumably pumping some equity into it, so there’s some value there to distribute. Is it fair to say that as of right now, that looks a bit more difficult than what you’ve listed on slide 23 in terms of distributing NFE shares and some of the other strategic initiatives?

[Karl Staubo:]

Yes. I don’t know exactly what you referred to on slide 23 in the appendix. But, I think what we -- when we say further group simplification, what we mean by that is basically finding a home for shipping or creating the same simplification by potentially spinning out the upstream. So, I think we’re open to both. When it comes to debt optimization on the shipping fleet, we stated in the earnings release today that as part of following the NFE transaction, we have agreed to reduce the debt on four of our ships where we basically invest $60 million of cash into four of the ships, so reducing debt by $15 million a ship in return for a total debt reduction of $102 million. So, we pay in 60, which will be done during early part of Q3. And in return for that, we get $102 million of debt reduction. So, if you want, that’s a $42 million debt saving to Golar, and to some extent, should be seen as further enabling the shipping fleet to the response. And on the other hand, if you look at the implied values of listed peers, that suggests that our shipping fleet has a value of anywhere between sort of $250 million to $350 million of equity. That’s obviously fluctuating with share prices, but that’s where we trace it. And broker…

[Mike Webber:]

Yes. I mean, I would imagine if it had that kind of value, you could just spin it off, right? But I guess, the question is, in terms of evaluating -- it’s a difficult riddle to solve, right? As in you’re not even the first Golar management team to try to tackle that, right? So, it’s an ongoing question mark. In terms of the strategic options of the carriers versus, I think, even on the slide, the crystallization of hidden value in FLNG, the potential structural transaction, I think you’re meaning the strategic transaction on the FLNG side. As it stands today, what’s the -- what the sequence looks like there? Is it more likely that you find something to do with the FLNG assets before you can do something with the carriers, or do you think it’s more likely you find a way to get the carriers out the book first?

[Karl Staubo:]

Perhaps to answer where it stands right today, I think, it would be shipping out and then GLNG -- FLNG and an upstream company.

[Mike Webber:]

Yes. All right. That makes sense. With regards to FLNG, I know if you could put some more specs around Mark III in the deck. And at 5 million tons, it’s obviously bigger than what you’re looking at with the Hilli and the initial technology. I’m trying to compare that with fast LNG, which New Fortress has come out with recently, and you guys obviously have a unique relationship there. To what degree should we look at those as competing technologies, or have you guys kind of moved a little bit to a little -- slightly larger size of the market. If you’re looking to build something that’s producing 5 million tons of LNG, are you just snipping around different projects than FAST LNG would be?

[Karl Staubo:]

I think, we’re excited about NFE deck up as well. To the way we see it, they’re highly complementary. So, FAST LNG is basically based on somewhat lower liquefaction capacity. It obviously stands on the seabed as opposed to float. So, to some extent, it’s more suited for shallower waters. On the other hand, jackup doesn’t have storage. So, what you gain in terms of cost advantage of the liquefaction kit itself, some of that’s partly offset by the need for an FSU lying next to it. So, we think -- and as NFE has been very clear about publicly on their calls at several occasions, we -- the engineering team of Golar are assisting NFE in developing the FAST LNG solution. So, we believe that the two technologies are highly complementary. We believe that the FAST LNG has one very significant advantage in being FAST. It’s very suitable for certain geographies on shallow water but we think for larger stranded or associated gas projects at deeper waters, you need a floating unit simply due to water depth. And in those areas, we can either use our existing Mark I; our Mark III design, which is based on a Mark I; and we’re also looking into our former Mark II design, if you remember that one, which were basically weld in midstream -- or mid section. So, we like the FAST LNG. We also like our FLNG. We don’t see them as direct competitors. We see them as complementary sort of keep to exploit the same very interesting opportunity in producing cheap upstream gas.

[Mike Webber:]

And is the $2.5 million the ballpark CapEx for Mark III, does that -- how much -- does that involve a significant amount of kit for separation and treatment, or do you still -- would you still need to find 5 million tons of pretty dry and clean gas to utilize that technology?

[Karl Staubo:]

That’s mainly based on sort of similar gas pack as a Mark I. Just because Mark III is a newbuild, you have significantly more deck space. So, it is room to fit from more gas treatment, should you want to do that. But, one of the attractions of our FLNG technology is that we are not sort of custom-made to one specific gas field. We’re reusable and redeployable. So, we don’t want to make it sort of too specific, but we can certainly add gas treatment. We’re obviously looking at that in light of the both, associated and stranded gas fields we are reviewing these days. And based on that analysis, I think, the technology and the stripping opportunities we have on board should be sufficient to produce some of those fields.

[Mike Webber:]

Yes. And one more for me and I’ll turn it over. Again, on slide 23, you referenced the target distribution of NFE shares to Golar shareholders. And forgive me if you mentioned this publicly already, but do you have the ballpark approximation of what you think you would realistically look to distribute to Golar shareholders of that side?

[Karl Staubo:]

I think as we say in the press release, it’s linked to the relative share price of GLNG and NFE. It’s linked to near-term growth projects and to some extent, it’s linked to the absolute share price of GLNG. What we mean by that is if we continue to trade at very suppressed share price levels, it’s -- you kind of need to distribute more of the NFE shares to your shareholders in order to unlock the value. But if you can redeploy the capital in near-term attractive growth plays, that can be sort of 2 to 4 times EV EBITDA, as we highlighted in the presentation on integrated upstream opportunities. To some extent, we think that’s arguably even better than what investors can do if we were to distribute the cash. So for us, we will weigh the two, but we will not sit on the NFE shares just to sit on the NFE shares. And we will not do it if we think we have a growth project five-year out, then that’s not the right thing to do. So then we need to execute way quicker than that.

[Operator:]

Our next question is from Omar Nokta from Clarksons.

[Omar Nokta:]

I just wanted to ask about just the Hilli just a bit more to understand kind of the opportunity. When you think about the ramp-up that you’re expecting or your discussion -- you’re having discussions with for ramp-up in Q1 ‘22. Is that based on effectively ramping up train 3 or is it train -- both train 3 and 4, or is it really just sweating trains 1 and 2? Any color you can give there?

[Karl Staubo:]

Okay. So, we’ll try to give as much color as we can. So basically, we’re today producing flat out on train 1 and 2. But given that we have spare capacity and train 3 and 4 are there and kind of well functioning, from time to time, we are utilizing train 3 and 4 for certain overproduction. And we also switch between which trains we produce from to make sure that we maintain the ship at a very high sort of capability. The primary reason for sort of the slow deployment of incremental capacity on Hilli is the need to tie in additional gas fields to produce the gas. What we assume will happen is partial utilization of increased capacity. So, if you want to define it, according to your question, Omar, we’re flat out on train 1, 2, and we’re talking about partial utilization of train 3. But in real life, we’re sort of shifting between all 4 trains to keep the vessel truly operational, but that’s how we see it.

[Omar Nokta:]

Okay. Thanks, Karl. That makes sense. And is there any added CapEx that you need to take on if you were to start partially utilizing 3 in that context?

[Karl Staubo:]

No. No CapEx and very minimal OpEx increase.

[Omar Nokta:]

Okay. All right. And then, just a follow-up -- final follow-up on this is, the contract itself for the Hilli, it goes until 2026. I know it’s still five years out, but given what’s going on in the overall commodity space and you’re being encouraged investing upstream. Is there any talk of extending this contract, or is it still too early?

[Karl Staubo:]

I think, where we’re coming from is that we are not interested in extending that contract until we can get paid for the full CapEx. So, we’ve obviously invested in 4 trains. We’re currently utilizing 2. So, if we were to discuss expansion on the current side, it needs to be for the full capacity or at least we need to be paid for the full capacity of the unit. Simultaneously, we are increasingly encouraged by the integrated upstream model and getting the vessel back in ‘26 could fit very well if we were able to acquire a gas field where we could deploy the ship. The other advantage of Hilli is that she’s obviously -- has a proven track record. So, we know the ship works. And that’s attractive to people that want to continue to use her for tolling operations, and it’s certainly attractive for us if we were able to produce our own gas reserve.

[Operator:]

Our next question is from the line of Sean Morgan from Evercore.

[Sean Morgan:]

I’m sort of intrigued by this concept of moving from pure tolling that you’ve traditionally done with the FLNGs to more of an integrated upstream model. And so, would you seek to partner with an E&P, or would you kind of step out of your comfort zone and seek to actually handle the production and all of the operations that traditionally was done by your partner outside of the vessel?

[Karl Staubo:]

I think, we definitely see the advantage of teaming up with someone who’s got upstream capabilities. We also see that there are several sort of oil producers currently flaring or reinjecting associated gas and it’s an opportunity lost for them and an opportunity for us to exploit. But if you were able to produce that gas, not only will it significantly improve the carbon footprint of such oil production, it will generate very significant incremental earnings to the owner of the field, very similar to that of Perenco in Cameroon. So, we most likely would target an area where we will have a partner upstream. But again, we’re sort of looking into a few different alternatives these days.

[Sean Morgan:]

Okay. And then going back to your ESG report that you released, I was interested to see that 25% lower carbon intensity that you see versus, I guess, your terrestrial peers. Is that -- how do you sort of get to that number? And also, would that sort of just take into account existing operations without the ability for terrestrial LNG producers to reinject liquefied carbon? And is that something you could do offshore as well?

[Karl Staubo:]

Yes. So, if you’re referring to the AER number, which has now been reduced from 9.95 to 8.71, that’s sort of CO2 per ton mile. The way we obtain that is with certain installations on border ships that increased efficiency. And when it comes to the FLNG, it’s also increased utilization of the ships that reduced the carbon footprint on per MMBTU produced. So, those are sort of the primary areas of improvement. We are constantly looking into other sort of engineering tweaks we can do to our existing asset portfolio to improve. We have an internal, what we call, the green team that’s constantly working on improvements across the fleet. And we continue to use Golar’s innovative engineering capability to do improvements. And if you’ve seen on some of our previous reports, we’ve, amongst other, improved the cooling of our FSRU portfolio, now sold to NFE, where we’ve been able to reduce pure consumption by 15% to 20% by improved cooling.

[Sean Morgan:]

Okay. So, that’s mostly on the fleet, though. So for the FLNG relative to a land based, I think, you termed it a mega project. Where are the savings there?

[Karl Staubo:]

That’s mainly due to the efficient liquefaction technology that we utilize and the fact that there’s no physical footprint of the ships that we deploy, given that they’re floating.

[Operator:]

Your next question is from the line of Ben Nolan from Stifel.

[Ben Nolan:]

I want to go back a little bit to the Hilli and Perenco thing. And as I recall, maybe the last quarter you talked about -- or it was discussed that you’d effectively kind of given them an ultimatum that if -- I think by the end of this year, they had not restructured contract that you were not going to renew your contract at the end of the existing term. Any update on that? I mean, how confident are you that they’ve sort of been called to the table here and that it will, in fact, see an increase in the duration and volume?

[Karl Staubo:]

I think, we are very confident that we will find the solution. The primary driver of it is that it’s money to be made from all sides of the table. That includes us, it includes Perenco, and it includes the gas off-taker, and it certainly includes the local government. So, with current gas prices, there’s sufficient economics for everyone around the table. And to that extent, we should see increased capacity. There has been current -- some regulatory challenges that’s been resolved when it comes to production gaps. And there also sort of increased confidence in sufficient gas flow and gas tie in for increased production. And we are confident that we can meet that increased capacity from basically early next year. But as we’ve learned over time, nothing is done until it’s done, but we remain very optimistic. And arguably, we believe we’re closer than ever in having a resolution in the not too distant future.

[Ben Nolan:]

Okay. And they would -- sort of as part of that, it would need to see first quarter of next year, because the time line has slipped a lot over the last number of years. Do you see the first quarter of next year when the volumes begin to tick up and sort of the hard start?

[Karl Staubo:]

I think it’s fair to say that it’s not been enough. We’ve been extremely keen to increase utilization for Hilli, of course, since she was delivered on site. I think for a period of time, we had a non-cooperative gas price. Then, there were certain regulatory challenges in terms of gas production cap that needed to be resolved. And then lastly, it’s a commercial agreement between the various parties. I think, where we are now is that we’re done with all but the commercial agreement. I think part of us around the table already agree. So, it’s a matter of getting, I guess, another signature or two on the agreement, and then we’re done. So, I think it makes a lot of sense, as I said, economically for everyone around. It makes all the sense in the world. We are confident that that’s the timing. And we also think that both, gas flow and gas reserves supports that. And we’ve had some insight into that, which after we pushed hard for a long time. So, we think that that’s the time line we can meet.

[Ben Nolan:]

And then, lastly for me. Coming back to something you talked a little bit about with Mike in terms of the FAST LNG and sort of your helping the New Fortress guys and the idea that it’s complementary, appreciating that it is complementary. It’s not the same exactly, but there are some similarities. I’m curious why you just didn’t do-it-yourself and have them as an off-taker or why that wasn’t part of the arrangement, like it would be for an FLNG unit. They’re complementary, but it’s certainly, I would think, within your capability to do.

[Karl Staubo:]

Absolutely. So, first off, we’re a 9% shareholder of NFE. We’re very optimistic to that story. We think including Hygo and GMLP, they have a very interesting sort of future. We do see the benefit of that model securing long-term certain supply of fixed price gas. And that’s part of our motivation to ensure that our investment in NFE continues to -- or at least see positive momentum. I think, in upstream, altogether, we are exploring different alternatives. I think Mr. Wes Edens said on one of the calls in conjunction with the merger announcement that we might, over time, look at creating a sort of common upstream or common holding company. I think when we are looking at upstream investment and especially the integrated model, one key attraction that we could see is that you fix enough of the off-take to cover all of the costs of the project and then you sit naked on the open capacity, and therefore, basically have a cash breakeven of zero. And anything over that is profit. So, someone like NFE would obviously be an interesting off-taker. After the acquisition of Hygo, they have certainly got sufficient demand to be a sizable off-taker. So for us, that should be a win-win. Nothing whatsoever is carved in stone in that regard. But, it’s obviously a group that we enjoy working with. We think they have made a lot of -- sort of paved the way for downstream development and downstream penetration of FLNG. And we do see some synergies on the upstream side.

[Operator:]

Our next question is from the line of Greg Lewis from BTIG.

[Greg Lewis:]

Hey Karl, we’re on the hour. So, I’ll just ask one question. So just kind of -- just looking for a little bit more color on the relationship right now with New Fortress Energy, you’re working with them. Are you getting paid a consultant -- are you getting paid like a fee for services or you like a right of first refusal on the project or an ability to invest in that, or is it really just, hey, we’re working side-by-side along them, and if we can achieve something, then we’ll figure out how we can benefit from that? Just is there any kind of written contract in place?

[Karl Staubo:]

Okay. So, as part of the merger -- and this has mainly been made public. But, when it comes to the operation of the assets they acquired from us, we continue to technically operate, and there’s also certain transition services that we continue to serve from Golar to NFE. For those services, we get the pre-agreed fee. For anything incremental to those fees, we’re basically paid on a consultancy basis. But, for certain development projects, we see it as an investment, both for us and for NFE and to improve the value of NFE. So, I think it comes down to exactly what parts of the services that you referred to. But, in general, we get compensated for the hours that’s invested into such projects. And then, when it comes to cooperation beyond that, I’ve said that we have a very good relationship sort of on all levels of the respective organizations. And it’s a bit more sort of play as we go. And then, if we find an attractive solution, we’ll see how we potentially can develop it together, or if it makes more sense, to do it on a standalone basis. So, we’re partly doing things together, and we’re partly doing things separately. And I think we have a sort of fairly good understanding of the various targets of the two groups.

[Greg Lewis:]

Okay, great. And then just one -- okay, yes, that’s perfect. Thank you very much for the time everybody.

[Karl Staubo:]

Thank you.

[Operator:]

And for our last question is from the line of Liam Burke from B. Riley.

[Liam Burke:]

Thank you. Hi, Karl. Karl, you talked about the new Mark design and moving away from tolling. The returns on both Hilli and Gimi are very strong. What is the return profile of the new design and then moving away from tolling?

[Karl Staubo:]

I think, a way to think about it is that if someone’s willing to charter something from you, they must make money on chartering it from you. So basically, the way we thought about it is, yes, we make good money on tolling; yes, we will continue to do tolling projects where we see returns as sufficiently attractive. But, if you just look on current gas price and the profit that the people basically chartering FLNG from us, what we make is almost peanuts compared to what they make. And with the cash breakeven support that you have versus historical gas prices, we think it could be very attractive if we were able to produce gas for our own accounts or at least take part in that arbitrage. So, for us, I don’t think you should expect us to depart tolling fees altogether, but we’ve sort of taken another or a slightly deeper look and see that the real economics are in upstream, if you can also have exposure to the sales price of the gas.

[Liam Burke:]

Great. And then, on the FLNG designs, you’ve got the -- you’ve got FAST LNG plus the Mark series. Are you seeing any competing designs out there, or are you pushing the envelope here by providing a faster, cheaper alternative?

[Karl Staubo:]

Petronas has got the floating FLNG unit. Shell’s got the Prelude and Exmar’s got the Tango. So, there are certainly other people that are doing sort of floating liquefaction. I don’t think anyone has -- well, no one has delivered more cargos than we have. And secondly, I don’t think any of the others have a cheaper cost per ton liquefied. And I think the combination of our cost points, our performance track record and sort of the fairly quick speed to market, I think, we are very competitive versus peers. And I think the fact that BP has embraced our FLNG technology is a further testimony to the fact that they don’t see a better solution out there.

[Operator:]

There are no further questions. Please continue.

[Karl Staubo:]

Thank you all for dialing in. Thank you for the interest in Golar. We’re very excited about the future. Finally, it looks like we have some tailwind across our different segments. And we look forward to speaking to you all soon. Thank you.

[Operator:]

So, that does conclude our conference for today. You may all disconnect.