Höegh LNG Partners LP
Q2 2017 Earnings Call Transcript

Published: 31 Aug 2017

[Operator:]

Good day, and welcome to the Hoegh LNG Partners Second Quarter 2017 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Tyrrell, Chief Executive Officer and Chief Financial Officer. Please go ahead.

[Richard Tyrrell:]

Thank you, Andrew, and good morning, ladies and gentlemen. Welcome to the Hoegh LNG Partners second quarter 2017 results call. What we're going to see is a strong operational performance that enabled us to generate positive financial results even while we carried out the planned maintenance on the Hoegh Gallant. Our long-term, fixed-rate contracts continued to deliver the strong cash flows that support the partnership's distribution to its unitholders. Additionally, I'm delighted to announce the entry into a term-sheet with MOL for the acquisition of a further 23.5% of the joint venture companies that own the FSRUs Neptune and GDF Suez Cape Ann. The FSRUs have a minimum of 12 and 13 years remaining on their contracts, respectively. And as with the recently announced strategic alliance between Hoegh LNG and Qatar's Nakilat, the partnership's proposed transaction with MOL demonstrates the ability of the partnership and Hoegh LNG to pursue diverse value-generating FSRU opportunities that supplement our core pipeline of drop-downs. On the cover this quarter and [an announced] [ph] proposed transaction, we have the Neptune here serving as an FSRU in Turkey. Page 2 has the forward-looking statements. And on Page 3, there's a glossary of the terms used later in the presentation. Turning to Page 4. The table summarizes the results for the second quarter of 2017. HMLP reported time charter revenues of $35 million for the second quarter of 2017, compared to $22.8 million for the second quarter of 2016. We generated operating income of $23.1 million for the second quarter of 2017 compared to $11.3 million for the second quarter of 2016. Reported net income was $12.2 million for the second quarter of 2017, compared to $4.1 million for the second quarter of 2016. Partners' interest in net income was $9.4 million in the second quarter of 2017. There was no minority interest related to the 49% of the Hoegh Grace not owned by the partnership in the first quarter of 2016, and hence, the partner's interest in net income is the same for the last quarter of $4.1 million. Excluding unrealized losses or gains on derivative instruments, operating income would have been $23.9 million for the second quarter of 2017, compared to $15.5 million for the second quarter of 2016. The partnership's interest in net income would have been $10 million compared to $7.9 million in the second quarter of 2016. Segment EBITDA, which included a 51% contribution from the Hoegh Grace for the second time and our joint venture vessels on a proportional basis increased to $29.6 million for the second quarter of 2017, compared to $24.3 million for the second quarter of 2016. Like the last quarter's presentation, I've highlighted a number of the reoccurring cash flows that are excluded from segment EBITDA in the lower section of the table. As normal, these include the finance lease treatment of the Lampung contract in the U.S. GAAP; the noncash effects of purchase price accounting on the Gallant and Grace; and going in the other direction, deferred revenue related to customer-funded modifications on the Neptune. In addition this quarter, we see tax amounts related to withholding tax in Colombia that is paid directly by the customer, but still flows through our accounts - I should say, corporate tax in Colombia and not withholding tax. This quarter excludes revenues related to tax reimbursement that will become reimbursable in the future under the contracts as tax becomes payable. After payment of distributions and IDRs, coverage for the quarter was 1.06 times and would have been higher if not for the maintenance on the Hoegh Gallant. Turning to Page 5. Segment EBITDA shows the new stabilized level post the acquisition of the 51% of the Hoegh Grace. Adjusted net income shows similar stability, while still being weighed upon by the noncash tax. The distributable cash flow was $15.24 million for the quarter, which equated to the 1.06 times coverage level. Distributions have now increased by 27.4% since our IPO 3 years ago in August 2014. Page 6 provides an update on the assets. The Neptune incurred some additional costs in quarter related to the start of operations in Turkey. Engie is working Cape Ann as both an LNG carrier and an FSRU in advance of it being subcontracted out to H-Energy in India. The PGN FSRU Lampung continues to operate according to contract. The same applies to Gallant, although I will highlight the potential need for another 7 days of maintenance in the fourth quarter of this year that will bring the total maintenance days up to 15 for the year, which, I think, is necessary to assume, given the close to 100% levels of utilization we are still seeing. Lastly, the Hoegh Grace has delivered another strong quarter, as we'll see in the financials shortly. Page 8 summarizes this morning's good news on the potential acquisition of an additional 23.5% interest in the joint venture entities that own Neptune and GDF Suez Cape Ann. Together, the acquisition represents close to another half of an FSRU, and I'm very pleased for the opportunity to deliver on growth potential from beyond a quarter of down pipeline. The cost of the acquisition will be $27.3 million, and as stated in the press release, the 23.5% share of third-party debt less cash, cash equivalents and restricted cash was $101 million as of the June 30 this year. The transaction increases HMLP's exposure to attractive assets that are known quantities. Each has more than 12 years remaining on the initial term of the contracts and a high-quality counterparty in Engie. The transaction is expected to be funded through one or a combination of new credit lines, existing credit lines and equity. It's expected to be immediately accretive to distributable cash flow and represents a value-generating FSRU transaction that will support distribution growth. The transaction is expected to close by September 30, which would mean it contributing a full quarter in the fourth quarter of 2017, this year that is. The transaction is, I believe, highly positive to HMLP's future, but getting back to the present, Page 8 sets out the consolidated P&L for the second quarter. The improvements since this time last year primarily reflect the addition of 51% of the Hoegh Grace to the portfolio. One anomaly to point out is the $151,000 of construction contract expense in the quarter that related to a guarantee claim on the Mooring in Indonesia. The Mooring was sold through HMLP's entities prior to the IPO, hence, the effect. However, the amount is identified by HLNG. The equity in earnings of joint ventures includes the mark-to-market on the swaps, like always. And you will see what it's amounted to in the segmental breakdown coming up. P&L tax is high. But this contains predominantly noncash amounts that will be reimbursed through revenue as they become payable, as I'll get back to in more detail when discussing TCS [ph]. Our segment table on Page 9 breaks out the consolidated vessels from our joint ventures, with other being predominantly SG&A and interest on the seller's credit dating back to Gallant and the revolver with the parent. The majority held FSRU column includes 100% of the Lampung, Gallant and Grace. So this is where the planned maintenance in the Gallant weighed a little, somewhat offset by strong performances from Lampung and Grace. The noncontrolling interest that is removed for the purpose of segment EBITDA is 49% of Grace. And you can gross this up to see the strong performance there. Elsewhere in the majority column, you see a small interest rate swap effect and the tax expense that I'll come back to. Moving on to the joint venture column, it is especially relevant in this quarter, given the news on the acquisition. The JV accounting is expected to remain in place after the transaction is closed, which means this column will reflect a 73.5% interest from the fourth quarter of this year. Again, in the joint venture column, note the effect of interest rate swaps. And moving on to the SG&A - moving across to the SG&A in the other column, it is down on the quarter and compared to the first quarter of 2017. Altogether, the segment reporting EBITDA was $29.6 million. And as a reminder, you can refer to the opening highlights page of the presentation for the reoccurring cash flows that are excluded from this. Page 10 sets out the comparative numbers for the second quarter of 2016. Turning to Page 11. The table details the financial income and expense. The only number that stands out this quarter is the $804,000 of unrealized FX loss. This is primarily related to an Indonesian currency VAT receivable that will be utilized over time, with the customer settling additional VAT amounts. It, therefore, has no impact on cash flows. Page 12 has the balance sheet as of the June 30, compared to the year-end 2016. The June 30 numbers include the acquisition of the Hoegh Grace, which are not included in the year-end numbers and, hence, the bigger totals and the non-controlling interest in relation to the 49% of Grace at the HLNG level. Debt is amortizing on our assets, and we do draw on a revolving credit solicit from the parent to offset this. Accordingly, the revolving credit and seller's credit due to owners and affiliates has increased to $55 million, of which $34 million is the seller's credit related to Gallant. Page 13 sets out our distributable cash flow analysis for the quarter. Starting with the segment EBITDA, we add back other recurring cash flows and make adjustments for noncash elements before deducting financial expenses and cash tax. Because we consolidate the Grace while only owning 51%, everything is further adjusted with non-controlling interest lines. The remainder of the table looks pretty much like the first quarter, and a side-by-side comparison is included in the appendix. The distributable cash flow for the quarter was $15.2 million, which equated to a coverage of 1.06 times. Local taxes complicate the accounting picture because of tax reimbursements, but have a limited impact on cash flows. Our tax expense in the P&L includes current tax expense and deferred tax expense. A majority of our current tax expense can qualify for reimbursement under time charters as it is payable, while deferred tax expense, which will not be payable until later years, does not qualify for reimbursement yet. So this timing difference creates a mismatch between when tax is expensed and when it is reimbursed. In our distributable cash flow, deferred tax is excluded given the reimbursement. To understand the payable tax, our distributable cash flow provides our current tax of $1.1 million and an adjustment for noncash tax of $0.4 million, which is tax that flow through our accounts while being paid directly by the charter. And that amount of $0.7 million is the tax impacting our cash flows. These cash taxes relate to the Hoegh Grace activities, which are expected to be largely compensated by the charterer for in due course and the Indonesian activities, where we're seeking clarification of exemptions that may reduce the tax payable. Once the exemption is clarified, we'll be in a position to obtain the investment from the charterer to the extent that taxes are payable in a given period. But given the uncertainty around that stage, taxes have been recorded without any claim for reimbursement going into the charterer. Slide 14 provides a reconciliation of the distributable cash flow back to the U.S. GAAP measure of net cash provided by operating activities. And that is the last of my tables as they relate to the quarter. Turning back to the future. Page 15 provides an indication of HMLP's future growth. It reflects the MOL transaction, of course, and the Grace 2 transaction, both of which are executable today. It then looks to the pipeline of development projects at the HLNG level. HLNG reported earlier today and provided an update on the Pakistan and Ghana projects. As a result of this, I have advanced Pakistan ahead of Ghana in the order. I've always said that there was uncertainty on which comes first. And as Ghana requires a government decision, it feels less within HLNG's control, compared to Pakistan, where the project is moving forward according to schedule. The advancing of the open order out of Chile represents competence in the asset finding work sooner than Chile coming online. There were no setbacks to report in Chile, but because it is to serve a power station that is still to be built, late 2019 or early 2020 are the earliest realistic start dates. I believe the MOL transaction fits particularly well into this picture. It's a digestible size and another step on the path to our goal of doubling in size by 2020. The 49% of Grace still at the HLNG level also remains ready to drop as soon as it makes sense from a market point of view, and I continue to believe a 2017 transaction, as you can see. Page 16 provides an overview of another positive development for the Hoegh LNG Group, and that is HLNG's alliance with Nakilat. Nakilat is a shipping company of Qatar Inc and is charged with helping on the infrastructure side of opening new markets. And given the Hoegh LNG Group's leadership in the sector, they came to us. Qatar is already the largest exporter of LNG and has ambitious to increase its exports by 30%. New markets will be needed to achieve this, and that's where FSRUs and this alliance come in. It is evidence of a trend we've seen for resource holders to be evermore involved in the development of new markets into which to sell their product. I expect to see more developments along these lines, and it's important to add that HLNG's alliance with Nakilat is not exclusive and won't preclude it from working with others. The investment summary on Page 17 summarizes the investment case for HMLP. It has a growing and diversifying portfolio of FSRUs. It has young assets that meet the critical energy needs of various countries. It has contracts with an average remaining life of 12 years and a steady drop-down pipeline with the potential to deliver accretive growth. Because of the holidays, I'll save a broader market update until an investor day that we're planning to hold on October 10 in New York City, like last year. And with that, I'm happy to take questions.

[Operator:]

[Operator Instructions] The first question comes from Chris Weatherby of Citigroup. Please go ahead.

[Prashant Raghavendra Rao:]

Hi good morning Richard. This is Prashant on for Chris.

[Richard Tyrrell:]

Hi Prashant

[Prashant Raghavendra Rao:]

Hi. So first question, this is very exciting news about acquiring the additional interest in the JV vessels and with the Grace - also the remainder of the Grace coming, still on schedule for 2017. I just wanted to get a sense first on distribution increases that you're recommending and how you think about how timing of the distribution increase, the magnitude and given where yields are and how the market is appreciating MLP yields right now, how that factors into your recommendation to the board.

[Richard Tyrrell:]

Sure. We'll be in a position to make this recommendation when the distribution for the fourth quarter becomes payable in, I guess, late January, early February next, next year. And clearly, distribution and coverage is fungible. Now whether we go for boosting one versus the other, I think will very much depend on things like where we're trading and what the market is looking for. And clearly, we are looking to grow our distributions over time. And this deal will clearly allow us to do that, as well the Grace transaction also. So, I think the question is, how much do you want to increase and buy. As you say, given where we're trading at versus how much you want to sort of allocate to coverage, if you like.

[Prashant Raghavendra Rao:]

Okay, that's helpful. And then just wanted to get a sense of the remainder in the JV vessels. Well first, backing up a little bit for the - well, maybe if you could give us some color on how the evolution of how that developed in terms of going forward with acquiring additional interest in those JV vessels and over the past couple of months what the process was back on discussions. And then looking ahead, will there be either room or scope for acquiring the remainder of the interest and making these vessels wholly owned?

[Richard Tyrrell:]

Well, I think it's a very positive process with MOL, and I think we like them as a partner. So there's many good reasons for keeping them in. I'd say there'd be kind of practical point on this particular transaction, though, was that to refinance those assets without MOL would've been a big, big job. They - there was a number of Japanese banks in the consortium, and they were introduced by MOL. And for that reason, we chose to go for this smaller transaction at this time, which allows the existing facility to remain in place.

[Prashant Raghavendra Rao:]

Okay. That makes sense. And then just one last quick one, and then I'll turn it over. Just wanted to see if there's any update on the Independence, I saw in the 6-K that there's still some issues regarding consent. But wanted to know if that's - just taking a look at your pipeline, your growth pipeline, if - where really we would pencil that in or if we should leave that off the table for now until further notice?

[Richard Tyrrell:]

Yes, I think that would represent upside on what I have in the presentation. And there's a lot of kind of political back and forth in the Baltic region around how the Independence might serve other places and how it might benefit from EU money and that kind of thing. And until those things play out, I think it's highly unlikely that we're going to get consent.

[Prashant Raghavendra Rao:]

Okay, great. Richard, thank you so much for the time. I will turn it over.

[Richard Tyrrell:]

Very welcome. Thanks for the questions.

[Operator:]

The next question comes from Spiro Dounis of UBS Securities. Please go ahead.

[Spiro Dounis:]

Hi good morning Richard, thanks for taking the questions. Just wanted to come back to the MOL deal and more specifically around raising equity from here, sounds like that deal itself won't require much, but I know the remainder of the Grace, I think something around $90 million is kind of what we were targeting in terms of an equity raise. So should we view any future potential equity raise as maybe funding both of those at the same time? Or does it make sense to sort of go after these individually?

[Richard Tyrrell:]

Well, I think, of course that depends on the price at which you're issuing equity. And I think it's nice to have a choice as to how to move forward, because obviously, we react to the conditions. But yes, certainly, as you say, the size of this MOL transaction makes it relatively digestible. And while improving liquidity by issuing equity remains a strategic priority, as you know, for a transaction of that size, there are a number of options, which include convertible, preferred, perpetual preferred, Norwegian bonds and so on that are also, I believe, available.

[Spiro Dounis:]

Okay, got it. So wouldn't necessarily be straight comment, but appreciate the clarification there. Just one other thing that you mentioned was that the MOL deal wouldn't necessarily be consolidated, that the JV was actually - or sorry, the JV kind of would actually still stay in place. Why exactly is that, now that you'd own, call it, near 75%?

[Richard Tyrrell:]

The governance is going to stay the same. So - and that's really what leads the analysis on the accounting. So that's the reason. And I think it's, in a way, quite helpful, because it would allow us to continue to present those JV assets separately. And I think that makes it easier to track their performance.

[Spiro Dounis:]

Okay. That makes sense. I think that’s it from me. Appreciate it.

[Richard Tyrrell:]

Thanks Spiro. Very welcome.

[Operator:]

The next question comes from Ken Hoexter of Merrill Lynch. Please go ahead.

[Ken Hoexter:]

Hi good morning or good afternoon, Richard. Just a clarification on the MOL deal, do you have rights to buy to up to 100%? Are there any stand-stills in place now post this acquisition? Or can you freely enter negotiations at any point to drop that ownership?

[Richard Tyrrell:]

It would be a negotiation. There's no option or anything of that description. I think the practical matter would - related to refinancing the debt. And as I said, in the meantime, we are working quite well with MOL, and we appreciate the partnership. So, I wouldn't say that it couldn't happen, but it's not on the cards for now.

[Ken Hoexter:]

Okay. The SG&A, you talked about driving that down. What was the driver of reducing your cost on the SG&A side?

[Richard Tyrrell:]

I think we always end up with a slightly higher SG&A side in the first quarter, because of all the year-end costs. So, I don't think it was really anything more than that.

[Ken Hoexter:]

Okay. And then the status of the Cape Ann you talked about, with Engie kind of operating it. When does that switch over into full use? Or is that now settled?

[Richard Tyrrell:]

Well it left China. It, as of today, it's operating as an LNG carrier. I know Engie have a short-term FSRU use for it before it goes into its longer-term contract in India. So that's why I sort of - I said they were using it as both. Why exactly why that is, I think that's probably for them to disclose, rather than me.

[Ken Hoexter:]

Okay. But that's not - your contract is still set in terms of rates. It's not dependent on what - whether they're using it in either.

[Richard Tyrrell:]

Yes, totally, totally. Our contract is set, and what I'm referring to, though, is their subcontracts with others.

[Ken Hoexter:]

Okay, great. Thank you.

[Richard Tyrrell:]

Thanks Ken.

[Operator:]

The next question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead with your question.

[Fotis Giannakoulis:]

Richard, I want to focus a little bit on your agreement with Qatar and what does this mean for [indiscernible] market. Are you looking any specific projects to develop right now? Or it's more of a generic agreement that will be identified - that you will identify project in the future?

[Richard Tyrrell:]

Yes, good question. It's relatively early days in that alliance. I'd say that there's - there are a long list of projects that are being discussed, but need to be narrowed down to short lists. And the thought very much there is to identify markets where there is a clear need, and then use Qatar's sort of might, whether it be just in the LNG markets on a sort of G-to-G level to start breaking down the barriers that you kind of often face in market entry.

[Fotis Giannakoulis:]

Can you also discuss, if you can, if this agreement can expand on power projects or if Qatar is considering over making this type of infrastructure investments beyond the actual FSRU in order to create more demand? Any potential areas or countries that you might be looking at through this agreement? And also if you can comment about what does this means for the overall LNG market? We have seen since last quarter, Qatar has made the announcement to grow its production. What does this mean for LNG prices and also for U.S. liquefaction projects?

[Richard Tyrrell:]

Well, I think at the moment, at least conceptually, the scope is very broad. So, I wouldn't necessarily kind of narrow it down to specific regions. And I wouldn't say that downstream elements are necessarily excluded from a Qatari point of view. Whether HLNG chooses to participate in those is another matter. But Qatar has got various pockets of capital, and they can kind of rope in others as required. So that's where things currently stand, but it's probably not going to be to do necessarily a - maybe a broad answer is not what you were looking for, but I think you're going to have to wait until updates on how the alliance is going before we can really sort of like narrow down the scope based upon the short list as it develops. Do I think it's going to impact the U.S.? I'd, of course - Qatar can add more LNG capacity quite cheaply and so can the U.S. So, I don't think it's necessarily going to impact existing U.S. projects because they're probably reasonably competitive versus Qatar, and they clearly offer something a little bit different. But to the extent Qatar aggressively goes out and builds new capacity, will it hit maybe some of the newer projects. Of course, that's possible.

[Fotis Giannakoulis:]

Thank you, Richard. I want to ask you about how many vessels there now are open FSRU vessels in the market. And how many of them are new building vessels? And how many they are older type of vessels vis-à-vis the opportunities, the immediate opportunities that you see for the next 2, 3 years? And also, if you can comment about the chartering of the Gallant in Egypt given the fact that Egypt is planning to bring its own natural gas production in the next few years?

[Richard Tyrrell:]

Sure. Let me start off with the Gallant question. Egypt is bringing on-stream a lot of gas that it can do. So relatively straightforwardly, it has existing infrastructure in place to tie back into. And none of these recent discoveries are particularly challenging. So, we fully expect Egypt to bring on a lot of gas. Yes, the question is ultimately, how much demand will there be? And will they have enough domestically? Or will they still need to import LNG? And yes, on that question, clearly, a lot of moving parts. The fact that they have their own gas now is good for their balance of payments. It's probably going to be good for their economy. It should be good for their energy demand, so that's likely to go up. They have a very, very large power plant, a 15-gigawatt power plant being built that's going to use gas. That's going to require a lot of supply. And then, they have this kind of strange phenomenon where they're obliged to actually supply some for the liquefaction plants, which are in Egypt, on a long-term contract. So it's not inconceivable that you could see LNG coming in one side of the country and going out the other. Exactly how this all shakes out, I think remains to be seen. I mean, all we know so far is that in 2018, they have announced a scaling back of the number of cargoes they're going to import from, I think, around 120 to around 80. But that's still a lot of cargoes, and it's still - you're still going to need two FSRUs to import that number of cargoes. Do you have a follow-up to that, sorry, Fotis?

[Fotis Giannakoulis:]

No, but I want to ask about the supply-demand balance for the FSRU sector. And also, if you can comment about what kind of returns - if you see any changes in the expected rates during your discussions with your customers?

[Richard Tyrrell:]

Sure. The run rate of new awards is at pretty much the same levels where it has been for the last few years. So in the kind of 4 to 6 range. Now I think, that's - you’re providing it's in that range, the markets are reasonably well-balanced, given the new builds that are out there. I think everybody - all the major players, so them being Hoegh LNG, Golar, Excelerate and BW, they have assets, which are available or will become available in the next year or so that can serve that market. And then, you have the few older FSRU conversions coming off hire, I think in 2018 and 2019. So that's probably going to end up competing for slightly different projects that are little bit smaller in scale. And otherwise, the market feels reasonably balanced, if not sort of taking off like a rocket ship. When it comes to economics, the - it is a competitive business. I don't know if there's much evidence at the moment of prices coming down. But clearly, with yard prices coming down to the extent people are bidding their new assets into contracts in the future, they're going to be able to charge a lower price and still get the same return. So based upon that, one would expect rates to come down, provided there isn't any change in the shipyard costs going forward.

[Fotis Giannakoulis:]

Thank you very much Richard for all your answers.

[Richard Tyrrell:]

Thanks for the questions Fotis.

[Operator:]

The next question comes from Sunil Sibal of Seaport Global Securities. Please go ahead.

[Sunil Sibal:]

Hi, good morning, good afternoon Richard. Most of my questions have been heard, but just a couple of ones. I think you mentioned for the Chilean project, looking at end of 2019 to 2020 kind of start-up. I was kind of wondering what are some of the milestones from now on we should we looking at in terms of getting visibility to start upon that project.

[Richard Tyrrell:]

Well, I think, yes, they're still getting through the environmental consultation process. It's the near-term milestone, and of course, that's what delayed the project in the first place. Once that's through, it becomes much more sort of a construction project, and I think the timeline becomes much more controllable.

[Sunil Sibal:]

Is there a set date for when we expect that environmental milestone to be reached or it's a kind of a little bit of a moving target?

[Richard Tyrrell:]

I wouldn't say it's a moving target, but I don't think there's any set time line. It'll take a certain amount of time. I think we've originally thought around 12 months, but it's a process. There's consultations involved, so that time line has some variability around it.

[Sunil Sibal:]

Okay, got it. And then, just one housekeeping question for me. I think for the JV FSRUs, could you indicate when is the debt on those vessels kind of coming up due for refinancing?

[Richard Tyrrell:]

Sure. It's due for refinancing in 2022.

[Sunil Sibal:]

That's the earliest refinancing, correct?

[Richard Tyrrell:]

That's the early refinancing on that debt, as HMLP also has refinancing on other things, which are earlier than that. I think Gallant's got a refinancing in 2019, and then some of Lampung becomes refinance-able in 2021.

[Sunil Sibal:]

Okay, got it. That’s all I had. Thanks for your answers.

[Operator:]

And we have a question from Espen Landmark from Fearnley Securities. Please go ahead.

[Espen Landmark:]

Hi Richard. I just have one question on the MOL transaction. The pricing kind of suggests maybe 275 per 290 ton built FSRU or 8 times EBITDA. I guess, it seems fair, kind of the - given the contract backing it, and it's also accretive on the duration. But the unit has a bit smaller storage than typically on the new builds. Now I'm just curious to hear the approach leading up to the price. And what kind of the assumptions you baked in the renewal rate and residual risk and whatnot? Thanks.

[Richard Tyrrell:]

Sure. Yes, you're correct, the size of those assets are, I think, 145,000. So they're slightly smaller than the average LNG carrier, but not by much. So as Engie is showing, they've got no trouble fitting into certain projects to China, Turkey and India going forward. So I definitely wouldn't say we or necessarily MOL, looks at them as being sort of in any way becoming obsolete. But we looked at the absolute contracted cash flows. We looked at what we thought was a reasonable residual value. Obviously, we wanted to be as conservative as the negotiation would allow us on that, and we're quite pleased with the outcome.

[Espen Landmark:]

Alright, thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Richard Tyrrell for any closing remarks.

[Richard Tyrrell:]

Thanks, Andrew. Well, thank you, everybody, for listening. And if anyone has any follow-up questions, please don't hesitate to get in touch. And in the meantime, enjoy what's left of summer.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.