What is FLNG? – Floating liquefied natural gas
First of all, FLNG states for Floating liquefied natural gas. Natural gas is extracted from the wellborn and transferred to the floating vessel. Then, the natural gas is treated, liquefied (-160 degrees Celsius) and storage in the FLNG vessel until it is offloaded by another LNG vessel.
Golar LNG has one operating FLNG vessel, the Golar Hilli Episeyo and another one under construction Golar Gimi. Apart from these two vessels, Golar is working in future opportunities starting FID decisions in 2022 (9 opportunities at the moment following its 3Q20 conference call)
The main characteristic of this projects is they are long term projects with secured cash flows. Golar converts a LNG carrier into an FLNG. Consequently, Golar contracts a high leverage to finance the conversion of the vessel. However, when the FLNG start operations, it means a continuous stream of cash flow for Golar for many years, enough to pay the debt and make some money.
FLNG – Golar Hilli Episeyo – The pioneer
FLNG Hilli Episeyo was the world’s first FLNG vessel converted from an LNG carrier. It started its operations from Perenco in Cameroon in 2018. It has an 8-years contract until 2026.
The Hilli Episeyo has 4 trains with a total capacity of 2.4 MTPA. However, only trains 1 & 2 are in operation.Consequently, current production is 1.2 MTPA from trains 1 & 2. Golar is in negotiations with Perenco to extend the contract behind 2026 and increase the utilisation by opening the train 3. This step would be important as the ownership of the first two trains is share with Golar Partners LP (Golar LNG has 70% ownership). By contrast, Golar LNG owns 100% of train 3.
Hilli Episeyo generates approximately $164MM in EBITDA of base tolling income yearly. It generates around $45 MM operating cash flow/year. Moreover, when Brent prices are higher than $60, Golar obtains additional $3MM per each dollar that Brent is higher than $60 up to a limit of $100.This is calculated on three months look back at prices.
FLNG – Golar Gimi (coming in the 4Q23)
Golar is building the Golar Gimi for the Greater Tortue Ahmeyim project in Senegal/Mauritania (in the border) for BP. The cost of the project is approximately $1.3 billion and it is expected to be operative in 4Q23 (after an 11-month force majeure event-trig
Golar share in Gimi is 70%. Meanwhile, Keppel (the shipyard) owns the remaining 30%. It has a capacity of 2.4MTPA and all of it has a 20 years contract.
So far, Golar LNG has paid $318MM(70%) of equity for Gimi and it needs to pay $276MM before COD in 4Q23. Apart from this, Golar will contract a total debt of $700MM in 4Q23. These two amounts add the total $1.3 Billion total cost of the project.
FLNG – Attractive opportunities for the Golar LNG future
FLNG Golar Hilli and Gimi are not the last FLNG related project that Golar has on the backlog. Although, it is still to soon to advance any new deal. Golar is in negotiations with different potential customers to ink new FLNG projects to take the FID in 2022.
Golar has recently added five new opportunities to four ongoing discussing. For all of them, Golar is marketing the new build Mark III FLNG solution
The long-term strategy of Golar is to sell the shipping division, do the IPO of Hygo and main the FLNG business. As Golar Hilli is showing, this segment of the business is highly profitable and there are important counterparts such as Shell or BP talking to reach future agreements.