Golar LNG Partners LP
Q3 2020 Earnings Call Transcript

Published: 30 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to Golar LNG Partners LP Third Quarter 2020 Earnings Presentation. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be a question and answer session . I must advise you that this conference is being recorded today 30th of November 2020. I would like to hand the conference over first speaker today, Karl Staubo, President and CEO, please ahead, sir.

[Karl Staubo:]

Thank you, speaker and welcome all to the Golar LNG Partners Q3 earnings release. Please make a note of the forward looking statements on Page 2. I'll then proceed to Page 3, recent highlights.

[Operator:]

And sir, your first question comes from the line of Randy Giveans from Jefferies.

[Randy Giveans:]

Well, I guess the big news around the refinancing of the $800 million facility maturing in April. Can you provide some more details on that, maybe in terms of how big you expect the new facility to be, maybe when you expect to close it and what kind of rate and duration are you looking at?

[Karl Staubo:]

So, at maturity, the existing facility will be $503 million. We have previously announced that we have a target to increase that amount. And I would say, to give you a bit of a broad range, we're targeting anywhere between $500 million to $600 million and we're obviously shooting for the higher end of the range. In terms of duration, we're looking at the five year duration. And I think your last question was around pricing and we expect that to come in sort of plus/minus 300 bps.

[Randy Giveans:]

So, LIBOR, plus or minus 300 bps, pretty attractive there. And then timing for that?

[Karl Staubo:]

So basically, we now have commitments from these four existing lenders. We expect to grow the commitments during syndication, but the four banks have spoken for well over 50% of any target proceeds.

[Randy Giveans:]

And then for the other news around the Hygo partnership. What can we expect from that? And then maybe separately or possibly in correlation with that, any updates on the Golar Spirit possibly to be used down in Brazil?

[Karl Staubo:]

So when it comes to the partnership, I think we've laid out a pretty clear strategic plan. It ties together with financing. Step one, refi the bank. Step two, refi the bonds. We're targeting to do that in Q1 or Q2, but before the step-up from par to 105 and step three, I think once you concluded one, two, you take a bit of a breath to see alternatives but we would then likely look to growth initiatives where our focus will be on adding longevity to the backlog and to reduce the average age of the fleet. So those are the three primary targets. We are also considering alternatives for the corporate structure given that we have observed that the amount of MLPs in the world, basically has been reduced since 2014 where they peaked at around 74 MLPs in total and we’re now down to sub 40. The characteristics of the MLP corporate structures seem to have had more capital market support and provided for more efficient pricing in the past than what it does. Today, there's certainly nothing that's been concluded one way or the other, but it's something we're looking into to consider for the company going forward.

[Operator:]

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

[Liam Burke:]

Karl, you mentioned your debt to trailing EBITDA ratio. You're refinancing your debt. You want to take a pause and then potentially get back to growth mode by adding assets. Is there a target debt to trailing EBITDA number that you have a ratio that you have in mind before you would step up your growth initiatives, or are you just going to take them as they come along?

[Karl Staubo:]

So it’s obviously ties together with both the contract portfolio, the existing asset group and what you're buying. If you're buying something that's young with long contracts, I think you can allow for -- or with loan contracts, you can allow for a higher net debt to EBITDA ratio for those assets than what you can for aging assets with the shorter charter duration. So for us, it's about matching the debt and the profile to the asset and the contract portfolio. We're currently happy to see that the ratio is below 5, and we continue to see that declining as we continue to amortize at least on the existing structure on both our bank and bonds. And for now, I think, we would have -- in order to achieve an efficient pricing on our debt capital market instruments, I think we should try to avoid going anywhere above 5% or at least not materially above. And were we to make an exception to that it needs to be backed by a solid backlog.

[Liam Burke:]

And this is much longer term based on your time line, but when you would go back to growth mode. Is there any particular asset that you would look towards or would you just be opportunistic as they came up?

[Karl Staubo:]

We'll certainly be opportunistic; I think that's without doubt. On the other hand, I also think that we should continue to focus mainly within LNG infrastructure assets. One asset that come to mind that should be particularly interest if Golar LNG were to fix its vessel, the Golar Tundra on the long-term contract. That's a candidate that we would find a lot of interest in, just given that it's a very modern FSRU. It would significantly reduce the average age of our fleet, and it would add the high-spec FSRU to the group and further strengthen our position as a high quality FSRU provider. But currently that vessel is operating as a ship in the core company, and we're basically reliant on either funding a charter for her ourselves or relying for either Hygo or the LNG to do it. And then we would then need to sit down and have a discussion on that afterwards.

[Operator:]

Your next question comes from the line of Christian from Webber Research.

[Unidentified Analyst:]

I wanted to ask about the Hilli, I know in the Golar LNG call that the cap was removed and that the Hilli Episeyo is going to be able to bill for over production, and that the amount was $5 million through inception to 2019. I wanted to ask if, one, just to confirm, is Golar LP receiving this as well? And two, is the amount $5 million to be split between the two or is that $5 million for Golar and then $5 million for the LP? Thanks.

[Karl Staubo:]

I'll actually see because I have Stuart Buchanan and Brian Tienzo from the Golar team is also with me on the call. I think I can make a first comment and then see if any of them have anything to add to that question. But we view the lifting of the 500 Bcf cap as a very positive signal. Basically, if Perenco were to utilize any capacity under Train 3 and 4 with the cap in place, they would essentially shorten the contract duration of Train 1 and 2, of which we own 50%. We would obviously need to be compensated for that as we have basically brought into the unit with more or less a fixed cash flow Perino stream for the initial contract. However, with the lifting, not only do we see it as an effective, call it contract extension because the unit will not be terminated if there's a higher volume being produced. And secondly, we think also the removal of the cap pay way for increased utilization of the ship, which we know is a requirement from our parent company's Golar point of view in terms of they would like to see increased utilization before discussing expansion. When it comes to how the increased over production will be split, Stuart or Brian, is that something you have a clear view on?

[Brian Tienzo:]

Karl, it's Brian here. Just very briefly. So as everyone here will remember that the reason that GMLP bought into the Hilli initially was for the cash flows that flow through the initial contract that didn't immediately contemplate the changes to the tolling agreement. So to that effect, what these changes do mainly is really for the benefits of the common units that reside at GLNG and the other shareholders within GLNGs, namely Keppel and Black & Veatch, hold a very minority shareholding. There is a small amount of residual benefit to GMLP, because it does also have a sort of interest in any expansion revenue coming out of these type of changes. But the vast majority go to GLNG and to the other shareholders, namely Keppel and Black & Veatch.

[Stuart Buchanan:]

And just to the last part of your question there, the total amount that we expect to receive in respect to overproduction from 2018 through to the end of 2019 is $5.1 million. And as Brian said, the high percentage of that, around 88% of that will be for Golar LNG's account with 10% for Keppel's account and a very small percentage potentially for Golar Partners account. But the total is $5.1 million shared roughly according to those percentages.

[Unidentified Analyst:]

Through 2019 and then you guys would build for 2020 later in Q4 or early Q1, is that right?

[Stuart Buchanan:]

So, for 2020, we expect to bill in early Q1. And if we've overproduced, that will be additional to the $5.1 million that you mentioned earlier.

[Unidentified Analyst:]

And just a quick question on the refinancing for the seven vessels. Are you guys planning to close this in Q4 or is it an early 2021 event?

[Karl Staubo:]

I think the company would obviously like to get that transaction done as soon as possible, and we're definitely pushing forward to close it as soon as possible. I think there are two considerations from the bank side. One of them is that generally banks are more happy to fund early in the new year than late in an all there so that might push timing. And the other one is the outcome of general syndication, how well received the contemplated facility is and how long we will need in order to syndicate the balance of the amount we're seeking. So those are the two considerations. Given that we're now 30th of November, and we're saying that there is a potential chance we could go this year, we're certainly making some progress, but I don't think we want to commit right now to which side of the year this should come under, but we are targeting to close this as soon as possible.

[Operator:]

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

[Ben Nolan:]

So, I have a couple. First of all, just on the Igloo that I believe still has the seasonal adjustments as part of the contract and sometimes December is including, sometimes it's not. Any color there as to whether or not we should think of revenue generation on the Igloo for December?

[Karl Staubo:]

You're right that she's got essentially a contract for almost 10 out of 12 months, it's actually just over 10 months. And normally, the maintenance window falls in the winter months. And as we guided in this presentation, we do not expect Q4 earnings to be materially different from Q3. So, you should expect the maintenance window to fall within the first quarter and not in Q4.

[Ben Nolan:]

And then also curious as it relates to the Spirit, you'd mentioned possibility or two new potential contracts that could start in 2022. I guess, first of all, are either of those two Hygo? And in terms of when you would expect those to be announced in order to make a 2022 start-up. Is that something that happens in the first half of next year?

[Karl Staubo:]

In terms of the latter part of your question, yes, it would happen in the first half because you would need to activate and likely do certain upgrades to the vessel dependent on what type of contract it would get. Out of the contract discussions for Spirit, one of them is Hygo related.

[Operator:]

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

[Ken Hoexter:]

The status of the Golar Mazo, what the customer move it from lay-up and if spot rates are trending above 50,000, do you look to operate that in the market near term?

[Karl Staubo:]

So, she's in cold layup in Indonesia at the moment. The biggest cost of getting her back into operation is taking her through class. So, it's basically a decision to take a true class whether the current rate support it? Yes, on the spot market. On term, most likely not for steam vessel. So we are most likely considering her to be activated for a floating storage assignment to be used as an ?

[Ken Hoexter:]

Yes. And then you noted -- well, I guess, your vessel OpEx was up $1.5 million sequentially, given some of the logistics. Maybe just talk about your expectations going forward. Is this kind of peak level and then you see it declining given some of these COVID expenses? Or given there are no costs from some of your laid up vessels if they do end up coming on in any fashion, you see that climbing. Maybe just thoughts on OpEx.

[Karl Staubo:]

So when it comes to OpEx, I think the quarter is pretty much in line. We had obviously the full first quarter of Mazo being fully idle. Of course, OpEx will increase if we activate Mazo and/or Spirit. But then again, we wouldn't activate it if we didn't have earnings that far surpassed operating cost naturally. We need some return, both for that service and for shareholders or unitholders. So I think that you should suspect that the current OpEx should remain more or less sort of run rate. Obviously, with the caveat that it should increase if we were to charter any of the units, but then it would be with a more than corresponding increase in revenues.

[Ken Hoexter:]

Just to clarify, though, would OpEx not come down then if you noted that it was spiked up on some of these COVID expenses, or do you really see this as a good run rate for OpEx?

[Karl Staubo:]

I think basically across the fleet in Golar, we are doing various initiatives to reduce the OpEx. I think last quarter, we had some catch-up work to do and some inside the maintenance window but we think largely, the current rate is more or less in line with how we should see it going forward.

[Operator:]

Sir, we got another question comes from the line of Greg Lewis from BTIG.

[Greg Lewis:]

I was hoping you could talk a little bit more about the opportunities for some of the cold lay-up steam vessels. It's interesting because if we were to look a handful of years ago, it seemed like a lot of the LNG infrastructure assets were going to be newbuilds, they were going to be big, they were going to be expensive. And now it seems like the path of least resistance for some of these up in terminals and maybe some of these remote areas have been more around older steam vessels, whether that's for size or cost. And so just thinking about that kind of curious what you think is the opportunity not only for the cold lay-up vessels, but maybe for some of these other assets that are rolling off contract over time. Just really how you're thinking about that and the opportunity for maybe some of these steam vessels with the second life as infrastructure terminal whether it's an FSU-type opportunity?

[Karl Staubo:]

So basically, historically, LNG infrastructure has been based on large scale operations. Basically, been logged in that growing and very large LNG carrier into FSRU servicing significant power plants just to give you some relation to scale on the FSRU in Hygo that's servicing the Sergipe power plant, which is a 1.65 gigawatt plant. At full capacity of the plant, it would only utilize one third of the regas capacity of the FSRU. So historically, this has been very large, very expensive CapEx projects for large infrastructure assets. Now that LNG is becoming more abundant and also trading in smaller parcel sizes and we also do see a steep incline in the amount of cargoes being traded in the spot markets, you can actually get the hold of LNG. You open up the market to industrial off-takers that are keen to do the sort of greener and cleaner and not to say cheaper substitution to LNG, but then they need infrastructure that is fit for purpose. And doing large expensive projects in such regions simply doesn't make sense. So therefore, redeploying steamers where you've depreciated the book value to a level where you can defend using such assets for adoption in emerging markets is really how we see these units being utilized. And potentially, as I alluded to, storage units where you can have them either anchored up and distribute small scale volumes by ISO containers or otherwise from the ship or from small scale ship distribution from a ship that sits offshore somewhere. So a lot of opportunities like that, especially in Southeast America and Southeast Asia is what we're looking into.

[Operator:]

No more questions at this moment. Please continue.

[Karl Staubo:]

Okay. With that, I would thank you all for dialing in and for your interest in Golar Partners, and we look forward to provide you, hopefully, with an update on our financing in the not too distant future. And if not, we speak in connection with the Q1 results next year. So thank you all for . Thank you.

[Operator:]

This concludes our conference for today. Thank you for participating. You may now all disconnect.