Golar LNG Partners LP
Q2 2020 Earnings Call Transcript

Published: 13 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Golar LNG Partners LP Second Quarter 2020 Results Presentation. [Operator Instructions] And I would now like to hand the conference over to your speaker, Karl Staubo. Please go ahead.

[Karl Staubo:]

Hi, everyone, and welcome to the Golar LNG Partners Q2 earnings release. My name is Carl Staubo, and I'm the CEO of GMLP. Before we start, I'd like you to please note the forward-looking statements on slide 2 before we jump into slide 3, and the highlights for the quarter. For Q2, we reported operating income of $3.8 million, excluding the partnership interests in the FLNG Hilli, or quarterly net income of $14.3 million. Total adjusted EBITDA of $77.7 million including our ownership interest in the FLNG Hilli distributable cash flow of $28.7 million with a coverage rate ratio of about 20 times following our distribution costs in April this year. We declared a distribution of $0.0202 per common and general partner units. Our bond holders approved an 18-month extension to both of our two unsecured bonds in May this year. On the chartering side, we have chartered the Golar Grand for another year with its existing charter so they declared the option. And for Golar Maria we secured a multi month charter resulting in shipping it utilization of 92% for the quarter. Turning to slide 4, our second quarter 2020 financial results. We had operating revenue for the quarter of $72 million an increase from Q1 operating revenue, which was at $69.8 million as a result of a full quarter operation for the FSRU Igloo. As previously discussed, Igloo has annual maintenance seasons in two out of three months during Q1, and there is existing charter party and that explains the increase in the operating revenues. Operating expense came in at $39 million, down from $42 million in Q1. The decrease in OpEx is caused by Golar Igloo's annual maintenance seasons, which was completed in Q1 under its mentioned scheduled maintenance window in addition to a fleet wide deferral of maintenance work as a result of COVID related challenges in executing standard maintenance work. Losses on derivative financial instruments came in at $4.5 million due to a non-cash mark to market further decline of labor rates in the quarter. Higher quarterly operating revenue and lower operating expenses quarter over quarter made our adjusted EBITDA coming at $77.7 million up from the $72 million last quarter. Turning to Page 5 and our segment information. We have broken down our financial performance by segments. As discussed, our FSRU earnings was up by $6 million for the quarter as Igloo was fully operational. Our LNG carriers have a $3 million lower operating revenue as a result of Maria achieving a lower time charter equivalents in the second quarter versus the first quarter, which is in line with the shifting seasonality. FLNG Hilli continued its very stable operation and had operating revenues just in line with the previous quarter and slightly lower OpEx. So slightly better EBITDA results for the quarter. Turning to Slide 6 and the balance sheet summary. As in the previous quarter, there has been no significant unexpected movements in our balance sheet for the quarter. We ended the quarter with a total cash position of $210 million split between $32.8 million in free cash, and $177.2 million in restricted cash. Our net interest bearing debt at quarter end was $1.48 billion with a net interest bearing debt to EBITDA multiples of 4.8 times down from 5.2 times as guided in Q1. Turning to the debt maturity profile on Page 7. Our $800 million facility secured in four FSRUs and LNG carriers are coming up for maturity in April 2021. At end of the second quarter, the outstanding balance under this facility was $543 million. And the facility will be further amortized to $503 million at maturity in April next year. Following the successful 18-month extension over two unsecured bonds in May this year, the maturities of these facilities are now pushed in November 21 for $150 million unsecured bond and November 22 for the $250 million unsecured bond. Further, as a result of the amendment extend exercise, we will start a $40 million [ph] total annual amortization under both bonds from September this year. So an aggregate 40 and the split in amortization changes as we go along. With an earnings backlog of $1.9 billion before extension options, the announced 95% distribution cap in April shifting cash flow to deleveraging and a net interest bearing debt to EBITDA of 4.8 times. We are confident in a successful refinancing of the upcoming bank and unsecured bond maturities. We have started the constructive dialogue with the lending group behind our 800 banks facility with target to increase the bank facility above its maturing debt balance and use any freed-up liquidity to reduce the size of the unsecured bonds and the refinancing of those. As guided on our first quarter call, we will revert with further updates on the intended refinancing over the next five to six months. Turning to Slide 8 and revenue backlog. We maintain a solid earnings backlog for the quarter, standing at $1.9 billion at quarter end. Key chartering update for the quarter includes the extension of Golar Grand under its existing charter and inline today's term period charter from May 2020 for Golar Maria. She will enter a longer-term charter from November 2020 and might have some gap space between the existing charter and the November 2020, but we're working with the chartering department to fill any gaps there. Turning to Slide 9, we continue to have a diversified earnings backlog. Our $1.9 billion earnings backlog is split 60% on our FSRU fleet, 32% on the FLNG Hilli, and 8% on our shipping fleets that typically tend to have shorter duration charters at lower overall rates compared to FSRUs and LMEs. Turning to Slide 10, we have another stable quarter of operations. We continue the strong operational performance across the fleet. The Hilli has operated on 100% operational utilization since its first floating, and offloaded and just offloaded its 42nd cargo. Our FSRU fleet is back in full utilization as per our Q1 guidance following Igloo's return from its annual scheduled maintenance periods under its existing charter. Shipping utilization increased during the quarter from 74% to 81%, mainly as a result of Golar Mazo interim cold layup and as such we don't consider as part of the operational utilization. Turning to page 11 and a further testimony to the operational excellence of the Golar fleet. We've just celebrated the 250th LNG cargo receive at Nusantara Regas that marks eight years of 100% economic administration under its existing contracts. The unit operates for PT Nusantara Regas in Jakarta, which is the capital of Indonesia, where the unit serves as a critical infrastructure for the capitals power supply. We'd like to take the opportunity to thank Nusantara Regas for existing and continued strong cooperation and our seafarers as well as our technical organization on land for their high-quality service. Turning to page 12, and the continued attractiveness of LNG supports LNG adoption. As you can see from the top two graphs, natural gas is the cheapest hydrocarbon in both Asian and European markets. Year-to-date, the delivered cost of LNG is cheaper than coal in Asia before taking into account the environmental benefits of lower emissions associated with gas-fired energy production. Natural gas and LNG remains very competitively price as a cheap cost of energy, with prices in Europe currently around $2.6 per mmbtu. Only coal is lower in terms of commodity price at $1.9 per mmbtu. However, taking into consideration the current pricing of CO2 in Europe, natural gas is the most cost efficient and cleanest fuel available. It's worth noting that for coal, the cost of CO2 surpasses the cost of the commodity itself, which gives monitor view that coal remains unsustainable source of electricity with natural gas being the natural replacement to provide larger-scale power generation. The forward gas prices as pictured on the bottom left graphs remained at attractive levels, supporting the stability of attractive LNG adoption economics for power plants and other industrial users. As a result of the attractive economic and environmental aspects of LNG IHS expects to see continued attractive growth rates for LNG demand, expected to increase from around 330 million tons per year in 2018 to 475 million tons in 2025, or 6% cumulative aggregate growth in the period. We believe that FSRUs will be an integral part for enabling new adopters that take part in this LNG energy transition. Turning to Slide 13, we see an improving FSRU supply-demand balance. We think there's a reason to be optimistic on the FSRU market based on the incremental demand and uptake of LNG as a fuel. But also from a perspective of supply, we see that FSRU market is showing early signs of improvements. Following a wave of speculative FSRU orders driven by independent owners from 2005 to 2017. We've only seen one speculative order of FSRU tonnage since 2018. The remaining at FSRU Igloo orders have been made against long-term charter contracts or by industrial players for own use. On the demand side, FSRU contract awards has outstripped LNG new building orders since 2015. 2020 year-to-date has only seen in bond charter award despite all time favorable fundamentals for LNG adoption. This is likely due to COVID fatigue by many end users, but we are encouraged to see activity picking up and IHS have referenced more than 16 new FSRU projects versus some 30 projects in operation and 8 under construction. Hence, we remain very optimistic for reconstructing our FSRU fleet once they roll off their existing charters. Turning to Slide 14. We would like to share some of our thoughts on how we are thinking about FSRU recontracting. In addition to the standardized way of participating in tenders and renting out the full capacity of FSRUs, we're also looking into parceling capacity to boost returns. Much like some of our sister company Golar Power is doing for their assets, which they call the Hub Solution. Through fixing our FSRUs in parcels we would typically secure one of taker that are large enough to require base LNG demand sufficient to cover operational expenses, but smaller than meeting the full capacity of an FSRU. Once an initial client is secured, we would then look to tie up of their local of takers for incremental regas demand. Instead of chartering a flat dollar per day charter, we look to charge of takers with a tolling fee of dollars per mmbtu regasified. As you can see from the table on the top part of the slide, a client in need of 250 megawatts would be sufficient to secure a positive EBITDA generation for tolling fees as low as $0.50 per mmbtu. To put 250 megawatts into perspective that equals the energy consumption of 160,000 Americans or a population of 600,000 people on world average energy consumption. Hence, this model can be implemented in several locations currently suffering from high energy prices and producing energy production. Increasing volume can boost the FSRU return significantly consequently securing demand for, for example, 750 megawatts through market penetration for other industrial off takers and small-scale users would generate EBITDA in the region of $21 million to $77 million dependent on average tolling fee between $0.50 and $1.50. To put the 750 into perspective, the Golar Spirit, which is the smallest regas capacity of our entire fleet, can regasify as much as 1.9 gigawatts. And our modern FSRUs can do two to three times that. Hence, whilst full utilization of the FSRUs is unlikely under this model, we believe parceling regas demand and charging tolling fees can generate significantly higher returns than standard FSRU chartering arrangements. As mentioned, this model is very similar to the model applied by our sister company Golar Power. And we are looking to work with the Golar Power team to develop tolling-based arrangements for our fleet in global locations in addition to participating in normal FSRU tendering activity once the existing portfolio rolls off their existing charters. As Iain said on the LNG call earlier today, it's about turning capacity into dollars. And we think this could be a more efficient way than chartering out full capacity. Turning to page 15, this is the progress on our key initiatives within ESG. As announced on our Q1 earnings call, we have published our ESG polls on our website, following the first quarter earnings release. And you can find the link in the footnote on the slide or on the Investors section on our website. As Iain explained on the Golar LNG call, one recent example of our continued ESG focus is that Golar has developed a proprietary design to reduce the energy required to reheat LNG, which is essentially the business of an FSRU. This technology has recently been installed on the Golar Igloo improving efficiency by 7% and reducing fuel consumption by around 5 tons a day, equal to 5,000 tons of CO2 per year. It's similar testimony to Golar's innovative engineering capabilities, where we continue to deliver financial and environmental efficiencies. Turning to Slide 16 to summarize the call. We have a full quarter contribution from Golar Igloo, which improved our quarter over quarter earnings as expected and guided. Furthermore, we expect the third quarter total adjusted EBITDA to be broadly similar to this quarter. We secured a multi-month charter for Golar Maria during the second quarter. Our revenue backlog stands at $1.9 billion before extension options. The record low gas prices favors LNG as a cheaper and cleaner source of energy versus alternatives with new markets opening for potential FSRU contracts seeking access LNG fuel and environmental benefits arbitrage. As explained in detail in this call both through existing or new charter tenders and for the hub and spoke model. Our focus for the next three to six months is refinancing, where we're going to start with seven vessel $800 million bank facility that we tend to address before year end. We've already started constructive dialog with the existing lending group. Once we have secured the bank facility, we will thereafter turn our attention to refinance the two unsecured bonds and our intention is to do so prior to the May 2020 when step up in the coal price from par rate of 105%. We are also looking into strategic alternatives to better use the Partnership's $1.9 billion of revenue backlog to maximize long-term shareholder value, and we're narrowing down that process. That concludes GMLP's second quarter earnings presentation. I'd like to thank you all again for dialing into the call and turn the call over to the operator for questions.

[Operator:]

Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] And our first question comes from the line of Randy Giveans from Jefferies. Please go ahead.

[Randy Giveans:]

Howdy, gentlemen? How's it going?

[Karl Staubo:]

Hey.

[Randy Giveans:]

So, yeah on slide 7 here, you say you're in discussions for refinancing the $800 million that's the facility maturing in April 2021. Do you expect any liquidity increase or possibly a decrease from that refinancing? And what is your ballpark for the underlying asset values of the vessels security in this facility?

[Karl Staubo:]

Yeah, so as I mentioned on the call, just now in the prepared remarks so it's called the 800 facility. The current balance is $543 million [ph] and at maturity the balance will be $543 million [ph]. Our anticipation is that the refinancing of that facility with the same collateral package should see increased liquidity so a higher amount than the maturing amount. And our ambition would be to use any such increased proceeds from any bank refinancing to lower the bond refinancing to be able to do the unsecured bond refi more attractively than if we were needing to roll a larger amount.

[Randy Giveans:]

Got it. All right so any additional free cash or liquidity from refinancings all going to kind of in the bond p?

[Karl Staubo:]

When it comes to leverage on that existing such collateral package, yes that's correct.

[Randy Giveans:]

Okay, would that preclude any repurchases or anything else?

[Karl Staubo:]

I think for us priority is always to keep that Golar [ph] happy first and then with the other sort of capital market instruments. Given that we have a pretty large amount of debt maturities in '21 and '22, I think we'd like to cater our focus to get those refinancing out of the way. But we do also appreciate that we have quite interesting opportunities both for our common equity and our series A preferred units. So all of that will be evaluated that the number priority is to secure as smooth and attractive refinancing as possible.

[Randy Giveans:]

Sure. Yeah, the preferred are certainly pretty extensive here in terms of yield. Again lastly, any kind of updates regarding the Golar Spirit or anything else to be used in Golar Power. And I know you say that these kind of potential for parceling out some of the FSRUs, but what would it take to pull the Golar Spirit out of layup?

[Karl Staubo:]

Sure, so to take one part of the question, first. Spirit has been basically idle for two years. So, to activate her is around, call it $10 million to get her ready for operations and then potentially operate above that. If we are to activate her, we want to do it against the contract. She could be intended either for a normal FSRU job. So charging out the full capacity or a hub and spoke model. Due to the current favorable LNG market dynamics, there are people approaching us with an interest in Spirit. For us, some of these are, what I would identify as frontier markets. And we are now wanting to activate the unit against the credit counterparty we don't see as solid. So for us, it's a matter of picking the right project that can justify the activation costs and making sure that wherever she will end up working, we will get paid. So that's really the consideration from a chartering out the full capacity from a hub and spoke. She's certainly increasingly interesting. And she is part of the common discussion we're having with Golar Power. But there isn't any near term updates. And we will update the market of course as soon as we have anything to report.

[Randy Giveans:]

Perfect. That's it for me. Thanks so much.

[Karl Staubo:]

Thank you, Randy.

[Operator:]

Our following question comes from the line of Ben Nolan from Stifel. Please go ahead.

[Ben Nolan:]

Yeah, good afternoon. My first question relates to sort of contracting. And you mentioned that the parceling or hub and spoke model or obviously for the Spirit, perhaps convergence. But I think you'd mentioned it also being a consideration as some of the other existing FSRUs start to roll out contracts. But curious around that first of all, whether you anticipate in any of the cases that the ones that come sooner rather than later, I guess the Igloo maybe whether those might not or you believe that they will not continue to operate in their existing locations? Or if perhaps, maybe you'd be willing to reduce your charter hire in exchange for being having access to that additional capacity that you might be able to utilize yourself on hub and spoke model? Just trying to get some clarification there.

[Karl Staubo:]

Sure. So on the extension and whether the units will stay where they are following their existing contracts. So for some of these, they have options. And when they do think, given our operational excellence honestly, as long as there isn't any plans to replace FSRUs with anything land based. It is natural to think that the unit would stay. However, with the exception of new Fortress Energy, all of our FSRUs are essentially working for state owned entities of the various geographies. And most of them cannot simply award us with an extension contract or a longer contract without the contract going out on a public tender. It has to do with local procurement laws. So it is likely that most of the locations will continue to be in need of an FSRUs. It's likely that they will go to market to officially tender for an FSRU. But in certain locations, we definitely have an advantage, number one from our operating utilization. But even more importantly, there is customized mooring systems and offload systems. Some of them to the tune of $50 million that's made for the location. It's for us they're amortize over the existing contracts. So on our books they're basically repaid at the end of the current charter. But that would put those in a better position than if someone wanted to do those upgrades in order to secure the contract. So both from an operational point of view and from customized equipment, we are hopeful that we can extend some of the units beyond their existing charters including options. So that's really how we see it. When it comes to lowering our charge rate in order to get access to the units ourselves. And as a general rule, I would say that most of our FSRUs are utilized at the fairly high level. In some of them, they are a matter of national security in order for full power supply. And the last thing they want is someone to do unnecessary ship to ship operations into small scale and similar. So although that's certainly an option for recontracting, it's more challenging under the existing charters. But it could certainly be part of a charter extension discussion. If you have a counterpart that does not need the full capacity where we have amortized the more in system, we could see the unit entering in at the lower level as long as we then without access to part of the smaller scale well part of the capacity to distribute small scale. So, that's again something we both are thinking out from the MLP point of view but obviously discussing with our Golar Power colleagues as well. But it also needs to be an area where we do see demand for a small scale LNG and it's possible to do if you have in certain areas, you have [indiscernible] restrictions and so forth that makes it challenging. But overall, it's certainly an opportunity we're increasingly looking into. And we think you should carry some merits once these existing charters roll off.

[Ben Nolan:]

Okay. And then, secondly, sort of staying on a similar theme and thinking through how you would work with Golar Power. I think Iain mentioned on the last call that the Golar Power is looking to expand or potentially looking at 15 different markets. And really, that the hub and spoke model is core to what Golar Power is doing. I'm trying to think how - what you guys are doing or will hope to do in terms of parceling wouldn't compete necessarily? I mean is there - downstream model is sort of proprietary to them. If you were going to do it on your own. How do you work in combination with them without just chartering the asset to Golar Power?

[Karl Staubo:]

Yes, that's fair. So, I think one shouldn't underestimate the value that Golar Power has built up over the last four years in terms of the capability of putting up these terminals and know how to do parceling and sell down small scale, small scale ship to ship transfers and so forth. So, currently, I agree with you that that knowhow fits in Golar Power. They are a sister company to us throughout the group. And you could see models where we would, for example, JV or team off on assets that could be of interest to Golar Power. At the moment although our fleet is chartered aside from Spirit which we've already addressed. But for extensions, or new charters, it can certainly be interesting for us to look into potential combinations with Golar Power. And I think Golar Power views some of the FSRUs of the MLP as part of the broadened toolbox that they have, where they expand beyond Brazil.

[Ben Nolan:]

I guess my question is, Golar Power, I would imagine would want to get or capture the economics between that hub and spokes sort of model. If they're going to, let's say charter, the Spirit, they would want sort of the full capacity. I mean, because that's sort of their business and their area of expertise, relative to GMLP being able to get back to that?

[Karl Staubo:]

Yes. So, what I'm saying is that, for now, there is no chance for us to build up a competing business with Golar Power. Quite the contrary, we would like to work with Golar Power to develop any chartering opportunities for our unit. I understand that Golar Power would capture a significant part of the economics, but with these some of our assets at least the older ones that are rolling-off contract at various points of times between now and the 2025 with the exception of a Freeze. Then these FSRU do have a cheaper cost for frontier markets due to the lower capacity. So, obviously, if you were to take a new build the return one would need in order to justify putting in new FSRU into a frontier market wouldn't necessarily make sense. And it would be a bit like, going hunting with a bazooka. So, I think we need to - we think we're right sized for a long-term frontier market. We think that if these assets are attractive to frontier markets, where larger vessels might be economical, and we would like to work with Golar Power to monetize that, in addition to participating in tender and normal chartering activity. Because at the end of the day, our primary focus is to make sure the fleet is employed and to make as much money as possible. So both Golar Power enables us to tap into knowhow that they have built up over the last four years and to go jointly to some of these frontier markets. And that's really the plan the way we did.

[Ben Nolan:]

So maybe some sort of profit sharing based on utilization or something of that?

[Karl Staubo:]

For example, you could have a base rate with profit sharing, and then you can have different levels and it could be skewed one way or the other. But at the end of the day, if you open more markets than what you would do if you didn't have that capability.

[Ben Nolan:]

Okay. Understood. I appreciate your answer. Thanks.

[Karl Staubo:]

Thank you.

[Operator:]

Our following question comes from the line of William Bird from B. Riley. Please go ahead.

[William Bird:]

Yes, thank you. Good afternoon. On Slide 14, you talked about parceling the FSU capacity. And bringing on an anchor tenant that covers costs. The incremental returns on the additional capacity sold are pretty high. But how would the returns on investment be on the first tenant or the anchor tenant?

[Karl Staubo:]

Maybe what you're looking for is someone who wants to adopt LNG, but doesn't need or doesn't have demand for the full capacity of an FSRU. So what they're solving for is whatever they're burning today. So if they're burning the civil heavy fuel oil or coal, then you can charge a very hefty tolling fee and it still makes sense for them. Now, I'm not saying we're going to charge several dollars for tolling, but I think you can see a significantly higher tolling fee than if you equate the economics from fixing for capacity on the charter. And we have seen from some of our pairs that you can charge, anywhere from $0.50, and even up to $2, maybe even slightly higher for tolling fees and still have the LNG as input into the power generation to be significantly cheaper than pairs in addition to the environmental benefits. And I think the two goes hand in hand. So what you're really solving for is being cheaper than what they're burning today. And not necessarily the other way around the lowest grades you can get. And that goes back to the previous question. So the rates that you will need to put - if you buy a new FSRU today, you need probably need to put $240 million to $250 million to get it delivered. The tolling fee you need to cover your base including financing costs at such a unit is very different on the same volume is very different from putting one of the older ships and that's the attraction.

[William Bird:]

Okay. And you re-chartered the Golar Maria for two years. Understanding that LNG fleet asset charter terms are starting - and maturities are starting to shrink. Could year re-charter to two year, because that's what the market is or are you looking at a favorable tradeoff between the rate plus the maturity of the charter?

[Karl Staubo:]

So basically, it was just an attractive rate, the way we saw it. We think that for the company on its cash profile, it's helpful to get visibility and we thought it was such an attractive rate. We would not have fixed, if it wasn't an attractive rate. I wouldn't say that the market is two years, maybe even to the contrary, I think it's right now shipping, chartering is fairly short in nature. But some of these older steamers have benefits in certain very significant trades due to lane cargo capacity and draft. And this instance, it's a client who's using it, basically to go from A to B and back to A again. So it goes between two ports. And they find out so to be very efficient product trade. Needless to say, it's not the longest distance in the world. So the higher boil off of the steam vessel is less important to them, because the duration of the actual voyage.

[William Bird:]

Okay. Thank you.

[Karl Staubo:]

Likewise.

[Operator:]

Our following question comes from the line of J Mintzmyer from Value Investors Edge. Please go ahead.

[J Mintzmyer:]

Hi. Good afternoon, gentlemen. Thanks for taking my questions.

[Karl Staubo:]

Thank you.

[J Mintzmyer:]

So looking at the debt situation now. It's clearly spelled out in Slide 7. You're fortunate enough to get those 18-month extensions from the two sets of unsecured bonds. So definitely very happy about that. But 2021, $700 million is a substantial debt maturity? It's the largest maturity that I know of that Golar Partners has ever faced. Correct me if that's wrong. What is the sort of, I guess goal with that? Is it one big bank facility or is it sort of maybe like an asset by asset the leaseback setup or what are sort of the ways around a huge obstacle in '21?

[Karl Staubo:]

Sure. So, I agree, we're fortunate to push out the two bond maturities. What I think we were less fortunate about was that we were about to refinance the 800 facility with a significantly larger facility through a strategic transaction that also involved additional assets. As we explained on the Q1 call, that whole transaction was paused due to COVID. And we were therefore kind of forced - sorry, that transaction was viewed as credit positive. And we wanted to address the bond maturities just after completing the transaction. And due to COVID the transaction was put on hold and pushed out. And right now, to be honest, it's not really on the cards anymore. As you know, most transactions like that require some momentum. So that was the unfortunate myth. And then when we were faced with a situation, we were faced with then I agree we were fortunate to push the bonds. So that's really the backdrop as to why the COVID ended up in that situation. I agree it's a lot maturity. I also agree it's one of those orders that the partnership has ever seen. That said 500 out of the 700 ties to a bank facility on the seven mentioned vessels. As you can see below there, it's the four FRSUs, Spirit, Freeze, Winter and Igloo. And it's the three ships Methane Princess, Grand and Maria. The retiring amount in April next year is $503 million. And we think we can increase the $503 million, somewhat based on that exact collateral package. In addition, we have the vessel called Golar Mazo, where we are 60% holder and that's currently unlevered. It is also idle, so the debt capacity of her is not enough, very, very high. But then again there's still capacity. So our ambition is to increase - as I mentioned earlier, is to increase the 503 to a higher number. And really our target there is to go as high as possible with commercial lenders. And we're currently, as I alluded to, in constructive dialogue with our existing members behind this - the maturity facility. Once we have resolved that situation, we will use any excess liquidity from the bank refinancing to lower the needed bond refinancing. Dependent on the amount of liquidity we are contemplating to roll both the 160 and the 250 unsecured bonds into one new facility. But we really need to figure out how much the banks are willing to them before we can solve the next step. But that's our plan at the moment.

[J Mintzmyer:]

Certainly makes sense. That is tremendous color. I really appreciate that. I think it's helpful for investors to understand where your head's at and what the plans are. I noted you said that Golar Spirit, is of course is under that 503 facility. And you believe you can extend it a little bit higher even with the Golar Spirit right in cold layup. So I would imagine if that Golar Spirit gained an FSRU contract, you would have even more capacity. On that note is there any sort of like strategic location for that? I know it was kind of danced around that earlier on the call. But I mean, you did the Golar Freeze with new Fortress Energy down in Jamaica. And it's been very successful. I know they're doing projects in Nicaragua and some other places in Central America. Are there any strategic fits for that or do you just have to wait for Golar Power?

[Karl Staubo:]

I think - that's another good. So we're obviously fond of what New Fortress Energy is doing. We think they have come a very long way in transforming especially some of these places like Puerto Rico, Jamaica, Nicaragua into LNG. We know that they're looking at different alternatives. They are considering FSRUs in Nicaragua. They're also considering FSU, the floating storage unit, which could also be interesting both for Spirit, Mazo and other vessels. I think we have a good sort of working relationship with New Fortress Energy. So there's certainly something we would be more than happy to work with in order to improve our Spirit. So the way I'll put it is that, yes, we're obviously talking to New Fortress Energy. We're talking to Golar Power about this. We're participating in general tenders that are upcoming for what I would call more frontier markets than the current sort of core FSRU hubs in the world. And most of those are placed in Southeast Asia, but also South America. She could be an interesting candidate. And that's broadly the two geographies where we're looking for her.

[J Mintzmyer:]

Certainly that makes sense. Final question, looking at the Golar Mazo, 60% owned, so also with Golar LNG there and the other 40%. It's been cold day up now for a while. And the LNG shipping market is very challenging and with new builds delivering. And I think Golar themselves talked on the call about how there's a lot of steam ships coming off contract. That market looks like it's only going to get tougher for the older ships like the Mazo. So what is the most realistic plan for that? Is it some sort of conversion or a sale or what are the realistic options on that one?

[Karl Staubo:]

I think where she could be very interesting, one thing is, of course, the activator. And I agree that ties to where the shipping market is going. She could also be useful floating storage unit. And that's actually where we're most actively marketing her. But we are also open to discuss anything that could be of value maximizing for us. We've recognized that having our ideal is just it's a very small cash amount out every day. But it's certainly not coming anything coming in. So anything we can do to change that trend, we are working. And that includes potentially improving her FSU, it could also include a sale. So I guess we're open to any constructive inputs there. And that's really where we see it. There are people that are from time to time making approaches. But for us, again, it's really a matter of show us the money and you'll get the vessel. So it's up to the various alternatives and where we think we can see the best value either getting charter or selling.

[J Mintzmyer:]

Certainly makes sense. Thanks for your time.

[Karl Staubo:]

Likewise. Thank you.

[Operator:]

Our following question comes from the line of [indiscernible] from Bank of America. Please go ahead.

[Unidentified Analyst:]

Yes, hi, guys. On the refinancing, I first wanted to touch on that, and just maybe you could remind us what your leverage or your target leverage levels look like. And then to what extent does the idea of having guaranteed cash flow streams in this $1.9 billion backlog potentially lower the cost of debt? Does that come into the discussions, as you discussed this with your banks?

[Karl Staubo:]

Sure. So you were asking ideal LTV, so, well, target lending, so if you're referring to LTV, I'm not sure if it's really possible to have a target because for us [indiscernible] an FSRU you it's not a liquid second hand market. It's not often if ever one of these are sold. It's not like you put it up on the market. That's the value. And everyone knows what it is. We do, of course, get broker quotes. And yes, we you could do need both parodies and so forth. So the way we're thinking about this is really from the later part of the question from cash flow. And we think the current cash flow that the fleet is throwing off certainly supports the debt. As you can see in the presentation on slide 6, our net debt to annualized adjusted EBITDA is of 4.8 times. As you also know, back in April, we cut our distributions by 95% and redirected by doing that $109 million that was otherwise going to distributions to stay in the company. So for us, the way we're thinking about LTV in this is really we have $503 million of bonds maturing - sorry, bank maturing to refinance, and we currently have $400 million of unsecured bonds that are now amortizing by $40 million per year. So for us, it's really solving for the 500 on the 400, if you like, based on the cash flows that we generate. We want to do it as cheaply as possible and save as much free cash flow as equity for our unitholders as overall possible. But I think before we talk about anything but distributions, we would like to get the bank refinancing out of the way, because at least in our view, that's putting pressure both on our loan pricing, our Series A pricing and most importantly our equity pricing. So for us that's sort of priority number one before we discuss other sort of directions for the cash flow.

[Unidentified Analyst:]

Yes. And you expect that the net debt to adjusted EBITDA to stay in that range around five times or slightly below five times?

[Karl Staubo:]

Yes, is a short answer. Because we have fairly good customer visibility for our fleets. We do continue to reduce them. So as such the EBITDA sorry the nothing just bring debt to EBITDA I will decline from the prior level. And we think that's somewhat responsible when you have an amortizing assets as well. But it really ties together with chartering. So if we do get a very significant extension on one of our units, you can definitely allow yourself to relever those type of units. So for example, if you were to get, once Igloo comes off the contract, if we got that extended for another 10 or 15 years, that obviously changes the debt capacity of her. And that's how we're thinking about it. And then we would certainly address that. And then if and when you do that, then you can relever and then use those private capital for all the means, either growth or distribution.

[Unidentified Analyst:]

Great, that's helpful. And then just my last question on the market. It seems like the order book has been fairly depressed for several years, maybe if you could take a bigger picture view. That doesn't seem - the depressed order book doesn't seem to have been reflected in demand for vessels or rates. Maybe you could talk about what causes that inflection to occur? And what kind of the timeline looks like where we can expect that pickup in demand?

[Karl Staubo:]

Sure. I'll try to address that question if anybody knew exactly that would be great, of course. But my view of the situation or our view of the situation is that we obviously had significant ramp up in liquefaction projects around the world. That's created the corresponding speculative drive into FSRU new builds. So as you can see on Slide 13, once people expected there to be a lot of liquefaction coming online, a lot of the liquefaction capacities was not sold. And people were expecting new geographies to pop up in need of an FSRU to access that new gas, the new liquefaction. And there you can see in dark blue on the left on Slide 13, that there was a big driver of speculative orders that did create somewhat of an overhang in terms of modern FSRUs. You see some of them are currently working as LNG carriers which by definition should be a bad business. When you pay, call it $50 million to $60 million more than the carrier and you operate in the same market, you will certainly earn less than the guy who paid $60 million $70 million less for these vessels. So those FSRUs or use are obviously being marketed that includes support for Golar LNG's side. They have for example, the Golar Tundra, which is exactly an example of that. Although that was actually built against the contract that later failed and Golar was compensated for that. But, that's an example of a modern FSRU sailing around. I think that's also driven the decline in new speculative orders because there's simply a wave of sort of the source to burn through until the market gets really tight again. Now, if you see from 2015, there's been more contract awards than new builds delivered. Part of that is taken out, or most of it is taken up on new builds and some of it is taken out by FSRUs coming off existing contracts. So we do think that we are getting increasingly close to what you would call the inflection point. And we do also think if you see since 2016, there's been six awards every year except from '18, where there was nine. And then year-to-date air today there's one. I think there is a catchup effect once COVID call it releases. We think there will be a massive ramp up in FSRU contract awards. One thing to note is that some of the charters for longer term contracts have also become what I would describe as a bit smarter I believe for tender processes chartering out with full capacity. So if you are fixing for 20 years to a solid state, controlled counterpart, it is in the benefit of the charter to go out very wide with a tender that should also open up for new builds. For those charters, in my mind is really a cost of capital gain. Then you have the other side of the spectrum, which is really the hub and spoke if you want to think about it that way. I think where we fit is somewhere in between. So we obviously can do the hub and spoke in geographies where more modern units can operate, because we have more depreciable assets when they will they have and because we have both storage and we get capacity more fit for those markets. And secondly, if anyone is in need of a shorter term FSRU than the time of the new build, we can be readily available if and when our fleet rolls off its existing contracts. And the good thing is we have a pretty good view of when they do, which gives us plenty of time to plan for how to reconstruct those.

[Unidentified Analyst:]

Great, that's terrific color. Thank you. Thank you for the time.

[Karl Staubo:]

Thank you

[Operator:]

Our following question comes from the line of Mike Robin from Robin Research [ph]. Please go ahead.

[Unidentified Analyst:]

Hey, good morning, guys. How are you?

[Karl Staubo:]

We're good. You?

[Unidentified Analyst:]

Good. It's been a long call and I hopped on the touch late. So forgive me if you handle this already, but with regards to refine the 2021, I think you list on Slide 7, the vessels that secure it. Just curious to what degree is that refinancing somewhat contingent on corporate cash and specifically cash flow tied to the Hilli? And the thought process there being to what degree is that refinancing actually tied to the broader restructuring of the Golar Group?

[Karl Staubo:]

I think I get the question. This collateral package stands on its own feet. If you look on the page and then you go back to look at the charter coverage for the same fleet. You can see that actually the net interest bearing debt to EBITDA figure for the fleet is at least not higher than for the overall company. I would say that the dependent on each individual bank's view, there's reconstructing risk in an FSRU, but there are certainly also contracting risk in an FLNG. So, for them, it's a matter of, I guess how the individual banks look at it. But we do not think that the refinancing of the 800 facility is dependent on Hilli in anyway or from. We do of course, appreciate that we're generating now around 30% of our revenue backlog is from the Hilli. And the FSRUs itself, if you think about it, it's actually the single largest EBITDA contributor. If you view Golar LNG and Golar Partners as one, the single largest EBITDA contributor is FSRUs. That's really before Golar Power bypasses us and before we made the leverage. But that's a segment - that's currently the segments that's generating most cash flow.

[Unidentified Analyst:]

Got you. Okay. That's helpful. Thank guys. Nicely done.

[Karl Staubo:]

Thank you.

[Operator:]

There are no further questions at this time. Please go ahead.

[Karl Staubo:]

Thank you all for listening into our second quarter results. We look forward to continue to stay in touch and to see you all for our third quarter presentation. Thank you.

[Operator:]

That does conclude our conference for today. Thank you for participating. You may all disconnect.