Global LNG Surges: Buy The Stock Of The Decade
SU: Hi @Gabriel Castro, CFA - fully agree to add $75mm from letter of credit releasing from Hilli... it's in the PR but not the detailed filing, weird, but agreed.
So Gabriel, do we agree on $185mm unrestricted cash before adding:
- any further LC roll-off from Hilli ($75mm left)
- incremental cash from Power (why can't we add this)
- Gimi construction loan refi (assume this comes as part of $150mm TL take-out just prior to delivery, but after summer lows and equity capex pmts which are front loaded)
Adj. for summer lows/front loading capex reasonable to see <$150mm unrestricted between June-Oct (and that still assumes dividend off, no cash deployment to buybacks, no add'l cash collateral posting on the margin loan (now at 75% LTV), and restricted cash just below $200mm. Probably too small to matter, but does the Hilli oil-link go both ways (Brent $3/bbl below $60).
GC: Thank you very much for your work. I recognize that GLNG is not easy to understand and most people don't dig deeply. I read your conversation in August, good points but not 100% correct despite your good prediction about the price.
I'm very busy right now, but as I promised I will answer you today or tomorrow at the most. I will show my entire model. Some disclosure/background: I've been following GLNG since 2016 and I met directly Troim, the CFO and the CEO and some Golar Power management. GLNG is a big position for us and we are following them very close. Our breakeven price is far from the current price, more or less $19, but we are very long term investors and I believe GLNG could be worth 100$ in the next 10 years.
Quickly, Some mistakes more you did in your numbers (or I misunderstood):
You forgot to add 20M from Hilli T3. Remember that they said Hilli T3 will be partially online in 2020. According to my estimates, It will add at least 20M with no oil-bonus associated.
Hilli Oil-link is a bonus, it only can add money, so it is not working in both ways. We will see some cash flow in 4Q 2019, but it won't add money in 2020 if we won't see a radical improvement in the brent oil price.
You saw now my point about Hilli. They unrestricted 75M. Yeah, it wasn't through a formal PR, but we will see it in 4Q 2019.
GLNG dividend. As you can see in the following link, they paid 1Q and 2Q in 2019 and they removed 3Q and 4Q. The next payment should be announced at the end of februrary but I believe it will be replaced by buybacks. But according to their first initial intention we should model a dividend. they should pay only $0.6 annual dividend in 2020 (98M shares x $0.6= $59M)
www.nasdaq.com/...
As you Know, Golar Power is a different entity. GLNG is not contributing with more cash flow, but they are not going to receive cash flow either because Golar Power needs to deleverage and to fund the new projects. They are going to convert Golar Penguin in a FSRU this year and it will be very profitable because there are a lot of industrial players close to Barcarena.
Sergipe. As far as I can see we will have a small delay, maybe starting late february/ early march. It was planned to start at 31th january, so It won't change the full picture and it is not GLNG fault.
Gimi: they plan to leverage Gimi until 5-6x EBITDA just before coming online (in theory 4Q 2022 but we can expect a small delay as we've seen with Hilli). It will unlock between $300M and $420M. So basically, our discussion is how easy is arrive to this day without a capital increase or sell badly some assets.
Come to you later
SU: Thanks Gabriel,
Early here, so working off IPhone:
- Realize you have benefit of speaking to mgmt, given this just pls for all our sake, only provide intel with publicly sourced info, and not those discussions.
- Hilli T3 - but doesn’t that start up in Q4? The crux of my maths are how low does unrestricted cash get in June-Oct. $30mm also comes on from Viking sale upon conversion completion, but that’s a Dec ‘20 event.
- 3rd time on dividend. That payout dated June was from Q1 (link below). You can separately also get there reading Q1 PR where they last paid the div as a subsequent event, and in Q2 list the dividend as suspended (not paid one last time and suspended going forward).
www.golarlng.com/...
- So dividend was not paid from Q2, Q3 earnings... in theory should be formally removed in favor of buybacks or brought back in upcoming Q4 earnings release. EURN variable dividend has a very similar long tail on they just paid off C/F’s that don’t incorporate the huge Q4 run.
- Golar Penguin: Pls source public filings/transcripts showing that Power c/f will now go towards Penguin conversion. Is conversion in process, or something they are eyeing as next project with Sergipe online. Reason I highlight is because that JV is now making materially less given both the delay and USD/BRL sits at 4.28 vs. 3.70 which is what their maths are based on (unless they hedged?). We don’t have financials from Power to go off of, but what if Power needs to actually raise capital from GLNG and Stonepeak this year to help meet Penguin conversion capex, since cash from Sergipe is now no longer enough?
Agree with bottom line conclusion around leveraging GIMI, that answer very much depends on art, not science. GLNG has already drawn $150mm bridge loan... (brought forward excess loan capacity from the GIMI $700mm construction loan) if you will.
Thank you for doing work. The big swing factor is IF? the last $75mm restricted cash at Hilli should be expected to release in H1 ‘20. Which would keep unrestricted cash +$200mm throughout summer lows. Thennn things like Hilli T3, Viking conversion come on later in the year.
GC: I asked this question specifically. GMLP has enough liquidity but it was easily to do it by this way, just a timing issue to cover a small payment. Now, all it is reestablished. GLNG has its 15M back and GMLP paid a small interest fee.
Nothing relevant.
Being said that, GMLP needs to reduce its dividend or do some M&A. The current situation is not sustainable and GLNG knows it. They know that the MLP space is dead and they need to find the way to convert it to an investable company
SU: Makes sense - butttt in a sick way... from GLNG’s perspective, with GMLP this low... why not keep as much of GMLP’s dividend in tact. It’s clearly not sustainable, but an extra $120mm from preferred’s can keep it going for 2 more payments at least.. preserve the dividend interest rolling up (through summer), meeting whatever margin call GLNG faces on the margin loan by pledging cash collateral against it (restricted cash). It’s a very cowboy trade in nature, but it might just beat out selling GMLP shares today.
GC: Clarify around Hilli. Hilli T3 will be online from january 2020. I mean, it should be online right now and will generate at least 20M EBITDA with no capex.
from GLNG last transcript:
At Perenco, we are planning a drilling campaign in the Kribi area to prove up reserves in 2020 and if successful this may lead to further capacity utilization and/or a contract extension for Hilli. We are also in discussions, again as Iain has mentioned, with Perenco with regards to a smaller increase in production will utilize part of train three starting in Q1 2020.
On the other hand, Perenco agreed on the 75M cash, so it is now unrestricted cash.
from GLNG last transcript:
Our unrestricted cash position has increased to $250 million as at September 30, aided by the drawdown of the new $150 million debt facility. Liquidity will be further enhanced by the release of approximately $75 million from the Hilli LC restricted cash as we have agreed with Perenco and SNH to mutually reduce guarantee LC requirements.
Yeah, I checked some numbers and comments with the management team but I have not material insider information.
On the other hand, I know that PE world has a lot of interest in Gimi and Golar Power assets. IFFF the shipping rates are not as good as we expected and GLNG need 100M/200M just to calm the banks down, they will sell a small stake at a good multiple. To be fair, I think they are going to do it anyway, just to prove the market that it is so wrong with this company.
Regarding GMLP, I saw their last statement. We should be conservative and model a dividend reduction, but I don't know what they are going to do. I think Troim is very smart, they will find the way to maximize the value, mmm... for example buying back the stock with those extra preferreds (120M) because the preferred dividend is less than the current dividend yield. Don't know what they will do, but as I said, I trust Troim:
Golar Partners continues to evaluate its structure and strategy, as referenced in its announcement on October 1, 2019, in order to maximise long-term shareholder value whilst ensuring the Partnership is appropriately debt financed. This activity includes potential structured transactions to grow the Partnership as well as bond and bank debt refinancing whilst also continuing to pursue opportunities for redeployment of the Golar Spirit and Golar Mazo. Future dividend levels and growth prospects will be determined by the relative success of these activities including the level and terms of new financing and growth capital requirements. The Partnership is aiming to finalise the majority of these activities within the next 3 months.
Regarding the dividend. I understood now your comments. Anyway, it is the same. 59M outflow in 2020 unless they prefer to make buybacks. It doesn't matter if you say Q4 or not, the fact is... they paid last dividend in July and they usually pay four dividends: Jan, april, July and october (outflows). So they didn't pay Oct 2019, they didn't pay jan 2020 and they should bring the dividend back in april and pay april, july, oct and jan 2021, 59M in total. right?
Regarding your Golar Power questions. They issued a PR last 21th oct (good news on my birthday). I think it was misunderstood by the market and GLNG didn't obtain the well-deserved credit.
www.golarlng.com/...
They won a project like Sergipe (smaller than) but this time with CELBA. The PPA will start on January 1, 2025, It should require 107M in capex from 2022 to 2025. Of course, this capex will come from Sergipe and Nanook cash flow.
They also announced a FSRU deal. The FSRU will reach the FID in 1H-2020 with operations expected by mid-2021. This FSRU should attend Barcarena (starting in 2025 and probably adding 10M EBITDA per year), but it will be online by mid-2021 because Barcarena plant has a lot of industrial customers around and it could add >25M per year.
So you can't count on Golar Power cash flow because they need this cash flow in order to finance those projects. BUT GLNG will not need to put more money into Golar Power business.
SU: Thanks @Gabriel Castro, CFA. In reverse order:
Dividend - agreed... point is since the true dividend suspension relates to Q2/Q3... they will announce their re-instatement (or sharebuyback) plan in the upcoming Q4 release. Your prior methodology assumed the announcement would come as part of Q1 release.
GMLP - $120mm of new liquidity gives a lot of options, agreed.. and there's a great pair trade to short GMLP pref's yielding 8.75% and go long equity yielding 23% (which will drop on dividend cut), but shorting the pref's has a 60% carrying cost, which essentially eliminates the opportunity.
Asset Sale - IFFFF it was so easy, it should have happened by now, as should the LNG spin. Playing ostrich doesn't help, it only builds uncertainty in the eyes of your investors, and more importantly your lenders. The same way not giving an update on Sergipe even though we are now officially delayed.
Hilli T3 - same issue with Sergipe, it's not EBITDA that matters since my interest/debt amort is not factoring debt paydown on those cash flows, all these projects are highly levered. But all good as more cash flow coming throughout only helps.
We'll see how it plays out. I'm more than willing to miss some upside until I can have higher conviction that around asset sales / LNG spinoff are behind us and I can go long the eventual re-rating to a highly fixed cash flowing business. This logic has worked very well for me to date, less-so for those who doubled down anywhere in the last 6 months except for yesterday.
Actually - since Hilli T3 is just dropping into higher utilization of the asset - full $20mm. Nice!
@Gabriel Castro, CFA - CELBA was picked up.. @J Mintzmyer covered it and I thought gave a great explanation noting it's probably not a swing factor for the stock near term given how far out it is, and so much hyperfocus is on LNG spin, clarity around dividend, and potential for further asset sales in the near term. Apologies @J Mintzmyer if i'm mis-stating your position from the time.
In a similar way he wasn't over-talking the name during its early winter bounce from $11-$15 because truly the big near term fundamental stuff hasn't actually happened one way or another. Similarly I am not and don't think a victory lap is deserved yet even though the stock broke $10 on Friday. We simply need clarity on how large issues that have been surrounding the stock for at least the past 3 months unfold.