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Golar LNG Ltd (NASDAQ:GLNG)
Q2 2019 Earnings Call
Aug 29, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Iain Ross -- Chief Executive Officer, Golar Management Limited

Good morning. Good afternoon, everyone. Thanks for joining the call today. My name is Iain Ross, CEO of Golar LNG. And today I'm joined by Graham Robjohns, CFO; and Stuart Buchanan, Head of Investor Relations. As Graham is calling in from outside the office today, we also have Brian Tienzo on the call to discuss any of the financials in the event that Graham has problems with his phone line.

Okay. Turning to Slide 4 in the pack. We continue to act on shareholder feedback around the perceived complexity of the business, and we'll focus this discussion on the themes of simplicity, earnings stability, liquidity and near-term value. Today, we announced steps to improve simplicity of the business and provide near-term to shareholders through the use of dividend cash to buy back 3 million total return swap shares over a phased period. We have improved earnings stability in the carrier fleet by placing a number of our ships on either fixed or market like traits. We've improved liquidity and put in place access to an immediate $180 million in credit facilities. On the back of Hilli success, we continue to build out our FLNG pipeline, and as a result, have investment interests in our already contracted backlog from a number of infrastructure funds that see value in our FLNG contracts.

Operationally, on Slide 5, we remain on track to spin out our ships before the year-end, supported by the new fixtures I mentioned and subject to visible improvement in the market continuing. On FLNG, Hilli has produced 25 cargoes to-date. The Gimi conversion project is on track from both common schedule point of view. I'll give a little more detail on the FLNG pipeline later in the discussion, and we have made good progress on the downstream LNG distribution activities in Brazil, through our Golar Power business following on from the targeted year-end completion of the Sergipe gas project.

With these highlights, I'll hand over to Graham to take you through the numbers before having a closer look at the business sectors. Graham?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Thank you, Iain and good day, everybody. I'd like to start on Slide 5, second quarter 2019 financial results. Total operating revenues were down this quarter $97 million from $140 million in last quarter, due to the seasonally weak Q2 shipping market, as well as the impact of dry docking at four of our ships. Lower LNG demand in Asia pushed US volumes into Europe and reduced ton miles, while, at the same time, softer gas prices and elevated vessel deliveries combined to ensure that demand for spot tonnage was matched by sufficient vessel availability throughout the quarter.

Having said that, our fleet utilization actually increased from 51% in Q1 to 66% in Q2. The time charter equivalent rates were still down because of the lower day rates. Total fleet TCE therefore decreased from $39,300 in Q1 to $24,400 in Q2, although this was significantly negatively impacted by the scheduled dry docking of four vessels that each spent a portion of Q2 in the shipyard and saving to and from the shipyard. The TCE for our TFDE vessels have therefore been reduced, as a result of time getting term from dry docks and cool down those dry dock in Q2 and also preparing for docking in Q3, where we have a further three vessels docking. Chartering vessels lead into dry docks also leads to idle time.

The reduction in shipping revenues was the key driver behind the reduced adjusted EBITDA at $40 million in addition to a $3 million write-off on OneLNG balance in other operating gains and losses, as compared to a $9.2 million gain in the last quarter, relating to the final settlement of the Golar Tundra terminated contract. We are reporting a net loss of $113 million in Q2, due in part to the weak shipping results and losses in equity in net losses of affiliates. Golar LNG Partners recorded a loss due to a large negative movement in interest rates swap mark-to-market valuations. And Golar Power is, of course, loss making prior to the start of the Sergipe power project in January 2020. However, this loss has been significantly -- negatively impacted by derivative in the valuation movements and one-off items totaling $68 million as you can see on the table at the bottom right of the slide -- sorry, in the middle right of the slide.

Turning to the balance sheet, our unrestricted cash position was $140 million as at June 30 and since the end of the quarter we've added to our liquidity, as Iain mentioned earlier by refinancing our margin loan secured on Golar Partner's units with a new $110 million facility releasing -- initially suddenly to unrestricted cash and so a new $150 million debt facility. It is also been interesting and encouraging that with the success of Hilli sale -- the signing of the contract with BP for Gimi and Golar's general FLNG business development, we have attracted a great deal of interest from infrastructure funds. We have received multiple expressions of interest and offers to invest in the current and future Contract Earnings Backlog, we continue to evaluate.

Okay, turning over to the next slide, our last 12 months adjusted EBITDA was $317 million -- $307 million and further adjusted EBITDA, which is adjusted for non-recurring items and Golar LNG Partners' share of Hilli was $187 million, which compares to just $12 million for the 12 months to June '18. While this is a significant improvement, it should be noted that volatility in our results continues to be driven by the spot shipping market. After proposed shipping spin-off and as more of our FLNG and downstream projects come online, our results will start to reflect the fixed price income streams that we have locked in over recent years.

Turning to the next slide. We show here our built-in potential EBITDA growth that will come from our FLNG and downstream assets and some contracts that will now start to ramp up. EBITDA from these assets and contracts will increase significantly over the next few years as a function of the scheduled start of the Sergipe power station in January 2020, expected increased utilization of Hilli and the new Gimi FLNG contract to over $500 million per annum. These numbers exclude the $37 million per annum in dividends received in Golar LNG Partners, as well as some significant upside. Our last 12 months adjusted EBITDA $187 million is based on -- only an average TCE rate of $46,000 a day, a $10,000 per day increase in this TCE across EBIT [Phonetic] which equates to a $40 million per annum increase in EBITDA. Golar Power is also actively working on multiple downstream FSRU and small-scale projects, which are relatively quick to first cash flow and therefore could materially add to EBITDA growth prior to the start-up of the FLNG.

Okay. Turn then to the next slide, and we can see here that even without the assumption of the proposed shipping spin [Technical Issues], our earnings will become far more predictable as fixed contracts start to dominate, moving from 22% current fixed rate contracts currently to 71% [Phonetic] once Gimi is operational. And turn over to the next slide, we have set out here the mechanics of the total return swap. 3 million shares underlie the swap and these are owned by the bank that we entered into the TRS with. If swapped with the bank, the economic risks and rewards of the shares -- the 3 million shares in return for paying interest. As a result, we have a significant earnings and cash collateral volatility as our share price moves. To underline this swap, we can either settle cash with the bank to buy back shares or the bank can sell the shares into the market. We intend to use the cash collateral that we have posted and two quarters of dividend to fund the buyback of the 3 million shares. As you can see, the cash amount required to affect the buyout over and above the current cash collateral is $31 million.

And moving over to the next slide and taking a look our debt position, and we set out here our adjusted net debt position, which as at June 30, including 100% of Hilli's, $878 million debt was $2.33 billion or $1.8 billion, excluding Golar LNG Partner's share of Hilli debt. You should note that the split between the short-term and long-term contractual debt differs markedly from the balance sheet position as a result of the requirement to consolidate Chinese banks leasing companies, so-called VIEs. An important part of the proposed shipping spin-off is, of course, the debt reduction from our balance sheet. The debt associated with the vessels earmarked for the proposed shipping spin-off equates to $1 billion, which you can see marked on the slide. Subsequent to the quarter end, as we have mentioned, we have improved our liquidity with the refinancing of our margin loan, initiating $30 million restricted cash and with the new $150 million debt facility. We're also of course, cleaning up and simplifying our balance sheet by unwinding our equity TRS and buying back the 3 million shares.

Thank you. And with that, I will hand back over to Iain. Iain, are you there?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Sorry. Thanks, Graham. So turning to Slide 11 on FLNG. Our operations on Hilli are going well with 25 cargoes now produced and 100% effective uptime. Our discussed with our customer on increasing throughput and potentially duration of the contract continue, and we remain optimistic that we will have this resolved by year-end. Hilli is performing well and ready to accept more feed gas with no additional capex modification required. Our customer however has the responsibility to provide us with the gas and sell the LNG product. We believe there's a deal to be done that extends the volume and the duration of the contract, and I hope to have more detail in the next quarter.

The Gimi conversion project is progressing well in Singapore and we remain on schedule and on budget. Most of the major equipment has been ordered and the life extension work and fabrication of the sponsors is progressing well. And it's great to see that so many people working on the project from Golar and from our manufacturers [Phonetic] have worked previously on Hilli and are actively incorporating lessons learned from one project to the next. And really that's what our FLNG business is all about. As we build the portfolio, we're thinking about standardization and continues improvement, whether that is a conversion or in fact is a newbuild. And this is important to customers, financiers, contractors, and suppliers who all take heart from reducing the risk in these projects through standardized designs and repeating a successful formula.

Our portfolio continues to evolve and we have a number of negotiations and active agreements now in place, with parties that are interested in exploring multiple locations for FLNG vessels. This gives us confidence in our product and the competitiveness it can offer our customers. Our FLNG strategy has two key elements. Firstly, we need high caliber customers, who can reliably provide feed gas, put together an off-take agreement that underpins the financing of the project. Secondly, right now, we need co-investors to support our equity participation and lift the project with us. I can report that we have a number of organizations that are interested in participating in both our existing assets, our projects under development and also future portfolio projects. Clearly these investments would come with different levels of investment premiums depending on development maturity of the project.

Turning to slide 12 and shipping. The LNG carrier market has had a difficult quarter, and this has extended somewhat in Q3 and this has been driven by a combination of weaker LNG prices in Europe and Asia, which have kept the west to east arc closed. Additional production coming from new facilities mostly in the US and basically adequate available short-term shipping for those reduced tonne miles. As Graham mentioned, we've taken this time to schedule a number of dry docks of our TFDE fleet, which sees them through the usual major checks on hull, LNG tanks and the like, but also the retrofitting of ballast water treatment systems to ensure compliance with maritime regulations.

We expect all planned dry docking to be complete well before the year end of all our vessels, and this means that we will have a full complement of TFDE ships all clear of dry docking for the next five years and ready for the winter season. Clearly, the dry docking eats into TCE figures, so next quarter, we'll also experience some of that rate depression effect. And what's more relevant perhaps is that the fourth quarter should see the spot rates increasing due to seasonal tightening of the market and the start of the structural disconnect that we and the rest of the industry have been discussing for a while. We have locked in this upside on some of our vessels with six TFDEs on either floating rates, which are linked to the prevailing spot rate or fixed term deals significantly above the current spot prices. This increased utilization and access to improved rates should see the shipping fleet TCE improve significantly from quarter four onwards. And on that basis, we do expect to spin-off the fleet before the year end.

Moving to Slide 13 on Golar Power. Two initial points to make. Firstly, the Sergipe project is scheduled for completion at the end of the year and commercial operations are due to commence January 2020. Pre-commissioning of the power plant continues, the FSRU Golar Nanook, is being hooked up to its mooring and first fire of the power station's gas turbines is now due in October. Commissioning of the plant and gas supply systems is under way and will progress over the coming four months. And although the overall timetable is challenging, commercial acceptance in January 2020 remains absolutely achievable.

The second point, which is the focus of the slide, is that the current lower LNG prices across the globe actually makes the whole thesis of diesel and others fuels switching to LNG even more attractive from an economic point of view, which also complements the environmental impact. Last quarter, we discussed the various benefits of switching fuels in Brazil, which is depicted in the lower graphic. The combination of those switching benefits and oil price parity downward trend makes the conversion -- sorry, makes the conversation with the gas consumers at the other end more compelling.

So turning to Slide 15 and taking a closer look at the development and rollout of the downstream hub [Phonetic]. In addition to Sergipe, we're working hard on terminal projects at Barcarena in the North of Brazil and Babitonga Bay in the South, having received key government licences for an FSRU terminal in each location. There are different development schemes for the three sites, but the common feature beyond the anchor customer is the ability for Golar Power to utilize spare capacity in the FSRU. In respect of downstream LNG diesel switching opportunities, conversion of non-binding expressions of interest into gas sales agreements with customers in Brazil is progressing well. And we've progressed access to the necessary infrastructure, including ordering some ISO containers to move the LNG up the river, access to trucking and access to small scale shipping to move the LNG round the coast. We expect to have first users online by the second quarter next year.

Slide 16 is a reminder of our Group and Golar LNG contracted backlog and Slide 17 shows that Golar LNG backlog spread through time.

Slide 18 and coming back to our-sorry Slide 17 and coming back to our themes of simplicity, earnings, stability, liquidity and near-term value for shareholders, we expect to complete the shipping spin-off by year end to simplify our capital structure, sharply cut our debt and reduce earnings volatility. The TRS buyback will provide near term volume. It will reduce shares on issue, simplify the balance sheet and decrease volatility in reported earnings. The new financing facilities have an immediate $180 million alongside the fully underwritten $700 million of FLNG, Gimi improves liquidity. Confidence gained from continued operational strength, most notably from Hilli's 100% commercial uptime and the fact that Gimi conversion project is on track together with our prospects and FLNG going forward is attracting interest from a number of infrastructure funds. And finally, strong expected FSRU led growth in Brazil through expansion into downstream via our low capex rapid payback model should add near-term value to shareholders.

At this point, I'd like to pause and hand back to the operator for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question today is from the line of Jon Chappell from Evercore. Please go ahead.

Jonathan Chappell -- Evercore ISI -- Analyst

Thank you. Good afternoon, guys.

Iain Ross -- Chief Executive Officer, Golar Management Limited

Hey, Jon.

Jonathan Chappell -- Evercore ISI -- Analyst

Iain, I want to start with the LNG spin-off, and I just wanted a clarification. So you say it's subject to market conditions. What I'm trying to understand is it subject to equity market conditions? Is it subject to LNG shipping market following the similar seasonal path that it has the last couple of years? And what's the structure look like that to kind of help us frame how that's going to be kind of stripped off the consolidated? Is this just going to be shares to existing shareholders or are you looking to raise additional funds as part of this process?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I think the answer to the first question is, of course, if we've got very poor equity market conditions, it will make it more challenging and equally, if we don't see the recovery in the shipping markets that we are looking to that we're expecting, then that is going to make it more challenging. Those are the two main criteria moving forward. We haven't quite finalized exactly the structure moving into the next phase, but we still are considering bringing another ship owner into the entity and then listing that entity separately.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. That's helpful. And then my follow up question is on just general liquidity and how you think about your growth pipeline? Clearly, there is a lot of different irons in the fire, whether it's other FLNG or the expansion of your downstream in Brazil, and you added $180 million in this last quarter. Are you still fully financed for the projects that we have line of sight on today and how do you think about your liquidity availability as you pursue some of these other projects down into the downstream or the upstream angles?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Do you want to comment, Graham?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yeah. Yes. So I think -- so Jon with the -- as you said, we got some additional liquidity with this new products in the margin loan new $150 million facility, with the $700 million facility, the amount that we already funded into the Gimi project we are funded on Gimi. The new projects going forward predominantly in Golar Power, there will be some limited amounts of capex, obviously it's only 50% will come from us. And as we said in the release, some of the cash flow that's coming out of the Sergipe power station and the Nanook will promptly go into funding part of that capex. But we're in a pretty comfortable position as we stand now. Yes.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. Thank you.

Iain Ross -- Chief Executive Officer, Golar Management Limited

I think so, Jon if I can just add the other message that we would give is that, as we look to this FLNG portfolio, the clear message is that we are recognizing that to lift the next project, we are going to need some investment partner in that project.

Jonathan Chappell -- Evercore ISI -- Analyst

And is that what you. I'm sorry to added to be, but is that what you meant by expressions of interest from infrastructure funds? You would use them as a partner to pursue kind of long contracted FLNG business.

Iain Ross -- Chief Executive Officer, Golar Management Limited

I think so, yes. But there's two parts to that, we have infrastructure funds interested investing in our existing assets, if you like, existing contracted assets. And equally, we have infrastructure funds and the like interested in working with us in future projects and sometimes overlap. It's the same entity and sometimes they're different.

Jonathan Chappell -- Evercore ISI -- Analyst

Right. Okay. Thanks very much, Iain. Thanks, Graham.

Operator

Thank you. The next question today is from the line of Randy Giveans from Jefferies. Please go ahead.

Randy Giveans -- Jefferies & Company Inc -- Analyst

How are you, gentlemen? How's it going?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Hi, Randy.

Randy Giveans -- Jefferies & Company Inc -- Analyst

So a few questions for me. I guess, first, any updated status for Hilli Train 3? I know three months ago, you were in some detailed discussions, so seeing how those coming along, and is Train 3 FID a possibility by themselves or do you expect it to be paired with Train 4?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So we remain in discussions with Perenco, and I really think there's a will from both sides to find a solution. And in terms of -- I don't think there's an FID as such, I mean, basically we're ready to go. We have a vessel that's able and capable of producing anything up to 2.4 million tons per annum now. And it's up to our customers to determine how much additional gas they want to commit to. And I think that's where they're obviously wrestling, is this what is that commitment level and is it going to continue to be in line with the existing contractual arrangement we have or something different.

We've got a really good working relationship with Perenco. But one of the things to bear in mind is that a private company like Perenco doesn't have any obligation or need to publish any information on their properties, assets, expenditure plans or the like. And unlike a listed company, they can change their minds about those development plans without having to consider disclosure obligations. So we sometimes struggle to get the full story out of what's happening. And until then, we've got something more firm to say, I'd rather not say anything more other than that, I still remain optimistic that capacity will be utilized and we stick to our target having something in place by the end of the year.

Randy Giveans -- Jefferies & Company Inc -- Analyst

All right. That's fair. So I guess, for my second question, just looking at the stock price down more than 50% from this time last year, basically at a nine year low. I know you announced a small kind of share repurchase, but at what point do you just take it private or at least aggressively kind of repurchase shares? And why unwind the total return swap versus just buying shares in the open market?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I'll let Graham comment in a minute, but as part of the unwinding of the total return swap is that we've also recognize the complexity that we've managed to build into this business over the years, and it's a direct consequence of that, as part of it, if you think about it as a buyback, it's the first place to look. Graham, do you want to comment further?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Well, yeah, I mean, I kind of agree what Iain said, but if you're buying back shares, the obvious thing to do is remove the TRS because that does create earnings volatility with movements in the loss to market valuation and it creates kind of cash volatility as the share price moves, moves up and down. And so Randy you kind of said it was a small amount, I mean 30% of shares out is not huge, but it's not small.

Randy Giveans -- Jefferies & Company Inc -- Analyst

That's fair. I guess, going forward, could there be additional share repurchases just using your new liquidity or do you-would you need further suspension of dividend?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Well, I mean, I think we take that decision as we go along. I mean, the primary focus for the liquidity that we have raised is to continue to invest and build out our business.

Randy Giveans -- Jefferies & Company Inc -- Analyst

All right. Well, I'll pass the line and come back in the queue. Thanks so much.

Operator

Thank you. The next question is from the line of Chris Wetherbee from Citi. Please go ahead.

James Yoon -- Citi -- Analyst

Hi, guys. James on for Chris. Just wanted to touch on what you're seeing in shipping rate so far in 3Q. And if they're going -- the expectations, essentially just trying to get a sense of the risks to the market not hitting expectations in the fourth quarter and a potential delay in the spin-off.

Iain Ross -- Chief Executive Officer, Golar Management Limited

So, what I would say is that we've seen an uptick from the end of quarter two into where we are at quarter three is that this spot rate, if you like, is somewhere 50%, 55%, 60% in a day. And of course that, the big thing with that is how that translates into TCE and the other element being utilization. So from our point of view, we have taken six of the 11 ships that are in the Cool Pool and increase their utilization to 100%, ranging from two fixed contracts, one that starts actually early next month beginning in September, the other one in mid-October. And those are both at rates well in excess of the number I mentioned. So that's one indication that we've got of fixing of charters for less than a year for those two, but they're significantly higher rates. So that's one indication that the rates are going up.

The second indication the rates are going up and our TCE will increase is that we have four further vessels on variable rate contracts. So these are contracts where they are linked to the prevailing spot rate. And two of those four have got floor and ceiling elements and two are floating at a very slight discounted rate. All different structures, the markets keen to explore different structures. I think for me, that's another indication that the charters are expecting the market to be increasing or else they would just sit tight and take ships on the spot. So we have confidence that this thesis and come back to the whole story about the number of ships needed to raise and move the cargoes that have come on and are due to come on, there's a shortage. And we think for the next couple of years that will play out. And we still -- we are seeing evidence in the rate structures and the fixtures that we've done most recently that's holding true.

James Yoon -- Citi -- Analyst

Got it. Thanks for the color. And then just at a higher level, I just wanted to touch on the lower gas prices and getting your view on what you're seeing in the end market in terms of incoming demand around new projects and just basically get a broader comment about that? Thank you.

Iain Ross -- Chief Executive Officer, Golar Management Limited

The lower gas prices, sure, if you're sitting with a great big onshore LNG facility in the US and you're trying to get a liquefaction plant going lower gas prices are going to be a bit of a challenge. But there's a couple of things on that. First of all, none of the major customers that we're dealing with these customers that I mentioned before, none of them would be relying on today's immediate spot gas price to launch a 20 year project. They're taking a long term view on gas prices and the amount of demand that's going to come into the market and therefore provide the drive to come up in price.

But secondly, as we discussed with -- what we're trying to do with Golar Power. The switching of coal, heavy fuel oil, marine diesel and diesel for transportation to LNG, to gas will create demand way in excess of the current wave of demand which has been driven primarily by basically the Chinese switch from coal fired power stations, to gas fire power stations. So we believe that when that transportation light switch in addition to the power switch starts to come through the demand rate will accelerate and therefore more LNG will be needed. So you may have a short-term fluctuation with low gas prices but medium to long-term we still see the pricing will get into balance the demand that has to satisfy.

And then the final point on that is our solution in FLNG is highly competitive. So if there is one project it's going to get away, it's going to be one with a Golar FLNG vessels stuck on the end of it.

James Yoon -- Citi -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of Espen Landmark from Fearnley. Please go ahead.

Espen Landmark -- Fearnley Securities AS -- Analyst

Hey. Good afternoon. Just a question on the liquidity, I mean there is a couple of moving parts on the balance sheet after quarter end, I know with the margin loan, the new facility and the netting of the TRS. I guess all those are meaningful numbers and then you pointed that the release of the Letter of Credit potentially is $75 million. So I mean how much of unrestricted cash do you expect to hold by the end of '19 versus the $140 million you have by June?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yeah. We don't typically give out forecast of cash balances that I just referred to the answer that I gave earlier to Jon's question that when -- the TRS is kind of self-funding because we just need $30 million in unrestricted cash and that's coming as we said from the next two quarters distributions. And so, the $180 million from the margin loan in the new facility is all available free cash and as would indeed the $75 million, if [Indecipherable] agreement on that with Perenco in the next month or so. So -- and primarily that cash and our existing cash will be going to fund Gimi capex and other projects.

Espen Landmark -- Fearnley Securities AS -- Analyst

And secondly, the new $150 million facility is that linked to Gimi in any sense?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

No, no, it's not. No, if you mean in terms of security or anything like that, no

Espen Landmark -- Fearnley Securities AS -- Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Chris Snyder from Deutsche Bank. Please go ahead.

Christopher Snyder -- Deutsche Bank -- Analyst

Hey, guys. So you talked about progress being made in the downstream Brazil opportunity with first users online by Q2 of next year. So you have $100 million contract of EBITDA over the next 25 years from Sergipe and Nanook, but how should we think about the EBITDA upside opportunity here from the downstream and how quickly can we maybe see EBITDA go above that $100 million run rate?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So the way that we're thinking about that is the buildup of the elements. So first, is get the customer's lineup get them signed up. Second to get the gas supply get it secured. Third, make sure we got access to the infrastructure, so as the containers are shipping, trucking. Then we have to do, we know what the pricing will be at that point. Then we have to understand and learn about what is costing us to provide that and from that we'll able to extrapolate what the EBIT projection will be in reality, we got estimates obviously. And then from there we can link it through scaling of the business. So it's a bit premature for us to be able to comment on the speed of ramp up of that business, but what we're hoping is that we'll have customers online by Q2 next year and they will be generating EBITDA in excess of that $100 million. What I can't tell you yet is how faster that will scale up because we're still working on the plan.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. Fair enough. So you think maybe by -- we could be exiting 2020 and amount maybe meaningfully above $100 million?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I'll let you know when I know.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. Fair enough. And then just following up on the Perenco negotiation question from earlier you guys said in the release you plan to complete negotiations by year end. Do this mean that you would expect an agreement with Perenco by year end or really just have a resolution by year end good or bad, then we can maybe start marketing T3 and T4 to someone besides Perenco?

Iain Ross -- Chief Executive Officer, Golar Management Limited

What -- I can't plan what my customers are going to do I just I'm going to repeat the fact that we're ready willing and able whenever they are to accept more gas. But what I'm saying from a timeline point of view looking at the way the discussions are going seeing the enthusiasm of both sides to get something done. We'll have something meaningful to report before the end of the year on the capacity of the vessel for Perenco's plans are to use that and how we see that developing over the coming years. So I don't think I can say anymore than that, but I expect -- and I expect we will have some form of agreement in place at least for any initial change before the end of the year.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. And you've kind of -- I think you've disclosed that the Train 3 economics are pretty similar to Train 1 and Train 2. Could -- you guys were negotiating with Perenco could the Train 3 economics change to maybe persuade them a little more. And has the soft LNG environment kind of been weighing on the ability to get this done over the near-term?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Well, think about again I think I made this comment earlier, so Perenco have the obligation to sell the LNG once we've made it for them. So part of their dilemma is clearly they got two Baxter's equation, one, where they are going to get the gas from and can they convince themselves what's the volume and for what duration they can provide this gas. And second who do they sell that gas to and over what period. And obviously if you've -- there is an existing arrangement that they have with their off-taker and we can play inside that arrangement, if you like. And if you got to generate a new arrangement it might be more difficult with a little bit softer gas prices to get that going. But I think I'm repeating myself again, but let's see what our customer comes back to us and as soon as we know something that is firm we'll tell you.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. That's it for me. Thanks for the time.

Operator

Thank you. The next question is from the line of Alonso Guerra-Garcia from Scotia Howard Weil. Please go ahead.

Alonso Guerra-Garcia -- Scotia Howard Weil -- Analyst

Hi. Good morning and afternoon, Iain and team.

Iain Ross -- Chief Executive Officer, Golar Management Limited

Hi, Alonso.

Alonso Guerra-Garcia -- Scotia Howard Weil -- Analyst

So you made reference to these new couple of permits in Brazil for Golar Power. It sounds like there's still some moving pieces there. What is the time line for advancing those projects, I guess, as far as finalizing the permit, commitments and then transitioning those to FID?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I think they're both really exciting. We have -- we are well advanced with permitting and we're probably a couple of years ahead of anyone else that wants to do permits there. So that's the first thing, and we do have permits for the construction of an FSRU terminal obviously that's the first thing. As you know, Brazil and we've been reporting over the years you need a permit for many, many things. So it's part of a little factory that we go in Golar Power is the ability to navigate this is permitting infrastructure.

But I think the other development I think is quite encouraging is that we're not sitting back and waiting for the winning of a power project as we did with Sergipe. So if you remember Sergipe, we won the power project and that underpin the development of the terminal. We're looking at this slightly differently now because we've uncovered the downstream infrastructure opportunity. And we believe that we don't necessarily need to have that power station to underpin on one of the projects we have a major customer that might take some off-take to get the terminal going.

And on the other one it could be a small power station, but on both of them we have the opportunity for downstream distribution. So I wouldn't be surprised in terms of your question on timing that we try and get one of those ways in FID this year or at the latest early next year, because we don't have to wait for a power station to get going in the infrastructure. These are incredibly strategic assets and once we are there, it provides us with competitive advantage.

Alonso Guerra-Garcia -- Scotia Howard Weil -- Analyst

Got it. That's helpful. And then, if I'm not mistaken, this is the first time you've talked about Mark III and the potential for a five mtpa capacity. Could you talk about this new development and maybe what you need to get done with the Leviathan interim agreement to move toward FID there?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I mean, the only reason we called out Leviathan, and a name is because the developers, our proposed developers, Noble and our partners put out a press release, so we would normally have called that out. But with Leviathan, it's just a design case on our Mark III design, which we're currently undergoing a fleet and essentially by the fourth quarter, we will have an assessment of the met-ocean conditions, the process design, the cost and the schedule and we will be able to go back and see if our vessels competitive in that environment. So we'll see what that yields but that's definitely in progress.

Alonso Guerra-Garcia -- Scotia Howard Weil -- Analyst

Got it. Thanks, Iain. That's it for me.

Operator

Thank you. The next question is from the line of Ben Nolan from Stifel. Please go ahead.

Frank Galanti -- Stifel -- Analyst

Yeah. Hi. This is Frank Galanti on for Ben.

Iain Ross -- Chief Executive Officer, Golar Management Limited

Hi, Frank.

Frank Galanti -- Stifel -- Analyst

I wanted to ask about the -- yeah. Hi. Wanted to ask about the two new projects that you called out in the press release and talked about a little bit on the call, and I know there's been a couple questions asked about it, but I'm trying to get a sense for the -- I know you're going about it developmentally in reverse relative to Sergipe, but what vessels are you looking at to be able to use to -- for the FSRUs, do you need something the size of the Tundra, or could you use something like the Spirit, because there's 66% free utilization for the new currently -- just trying to get a sense or which vessels would be used in those Brazil projects?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I mean, the Spirit is a good example of something that could be suitable and Tundra also could be suitable. Obviously, we are currently marketing Tundra for other FSRU and terminal opportunities around the world. So it's almost a case of whatever comes first, but if you think about -- right now if we did nothing else, we have two vessels, we could deploy immediately under those FSRU terminals. The way to think about is, let's get one going, see how that goes and we definitely got one of those vessels to fit that. I'm cautious about predicting which vessel go away, because the FSRU business, as you know, takes an impossibly long time for tendered FSRU contracts to materialize into anything that's been our experience anyway. So we have the vessels, we think it would be a good place to put them to work.

Frank Galanti -- Stifel -- Analyst

Okay. That's helpful. And then more Brazil questions, on upcoming power auction, I know that's in October release, do you guys have any update on that any new thinking in terms of what the implications would be if you won it and kind of competitive nature around that bid, if you can give any color that would be helpful.

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I guess, what I'd say is we've got two or three projects lined up. The great unknown with these power auctions is that you don't know the demand until very close to the power auction. So we've got different solutions depending on the design from different places. Obviously, with the Sergipe expansion we can be very competitive because we've already got the FSRU, but equally we got at least two other locations that we can look at from. So, I don't think there's any more I can comment other than we've got several options to remain flexible and therefore competitive depending on what the demand scenario looks like when it's issued.

Frank Galanti -- Stifel -- Analyst

Okay. That's helpful and that's all I have. Thanks very much.

Iain Ross -- Chief Executive Officer, Golar Management Limited

Thanks.

Operator

Thank you. The next question is from the line of Ken Hoexter from Bank of America. Please go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Great. Good morning. On the FLNG, Iain, maybe you can just talk about why you ended the Delfin discussions maybe provide some more color on where that the comments you made there?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Okay. So if you referred to the screening criteria that I mentioned and that we need high caliber customers, you can reliably provide fleet gas and put together an uptick that underpins the financing of the project combined with co-investors to lift the project with us. We just didn't feel that the Delfin opportunity satisfied those criteria. And as we previously said, it's really important for us to put our investment money in resources into the opportunities that have the greatest chance of getting FID.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And then just switching subject, you talked about there were bit interesting investments, but only in existing streams or some infrastructure projects won some of the new ones, maybe just talk about from your perspective and how is that different than what you set up with the drop on the GMLP, would you think about restructuring, how you got GMLP and maybe spin the assets off or income streams off to infrastructure partners. How are you stepping back and thinking about those kind of comments?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I supposedly really think, I mean, I welcome Graham's comments as well. I will look at it and thinking we have these FLNG opportunities are lining out, the portfolio is developing really well and we're acutely aware of our need for capital discipline going forward. And therefore, we need investors to help us or call investors and it's quite interesting because the discussions that we've been having on existing facilities projects that we developed, there's a definitely a premium to come there. And I think if we can convert one of these deals, it'll show the market what other people think the value of maybe the Hilli, maybe they Gimi and maybe another project is been development -- and that's been developed is and that should give it a bit more clarity on to the value of these contracts. So the real driver for me is that we need the capital support to lift the project.

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yeah. I mean, kind of echo that Iain, and if you think about it in order for us to grow quickly or quicker we need capital and we need that support. If you think about in terms of -- I know it's tough, bit of a bad memory but when Schlumberger, we have within oneLNG and we set up Schlumberger on 50-50 basis and at that point we would have had 50% of every FLNG project going forward. And, but that didn't really have any impacts necessarily on whether they were future drop-down potentials for the MLP. We just had 50% of three projects instead of 100% of one project. That's kind of the way to think, I'm not saying 50% is the modus operandi. I'm just using that as an example?

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Right. But thanks for that insight Graham and Iain. But maybe just to wrap up on that -- the first part of the question. Would you think about restructuring, how you've dropped the assets to GMLP or is this kind of a go forward on future structures only?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I don't think, I think they are unrelated. There are separate discussion really, Ken. I think my focus right now on this is what do I have to do to get a project lifted. So we've got a good customer, there go an opportunity how do I get it going in from a financing point of view, equity -- equity and finance. That's my immediate focus. If we have the opportunity to do something with it around the MLP or whatever later, that for me secondary. We got to get the project going first.

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Which may be of interest to an investors as well.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

You mean the risk upfront?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

No, no. The dropdown at the later.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for the time guys.

Operator

Thank you. The next question is from the line of Craig Shere from Tuohy Brothers. Please go ahead.

Craig Shere -- Tuohy Brothers -- Analyst

[Technical Difficulty] expanding that relationship. Do you see that clearly helping to finalize the infrastructure funding?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I mean it's an interesting line of discussion, Craig. But I don't think it's just not appropriate that comment on any aspect of the negotiation that we are having. I don't want to -- but I just don't think that's appropriate. To the impact, I mean, obviously we've got more utilization of Hilli that's perhaps of more value but yes, I don't think it's I just can't say anymore on the subject, sorry.

Craig Shere -- Tuohy Brothers -- Analyst

Okay, I understand. If I can pick up on the Brazilian downstream question. I think the original guidance was that there was up to $100 million investment opportunity that would generate perhaps three times EBITDA or better over time, is that still correct and would a similar investment opportunity be available from a second FSRU, FID possibly in 2021?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So I think you're referring to comment that was made in the last quarter's release, where we -- I think we said something like where we -- if we could get a dollar spread on each mmbtu of excess capacity that was put through then that we deal $200 million to Golar Power. I thin, it was of that order. I think we're trying to develop the business and update it. So that's like theoretical. We haven't carried out any of these negotiations and figured out how much of a spread we can actually get, nor do we have yet good feel for the ramp up of utilization of that vessel. So rather than continue, I mean, that's a theoretical envelope, if you like. I think the opportunity scale set is probably similar in the other vessels. But what I'm saying is that -- it's far too early for us to talk about the rate at which we ramp that up to and where we're working on that detail obviously internally.

Craig Shere -- Tuohy Brothers -- Analyst

And last on Brazil, the press release kind of suggested that maybe power coming online the -- within January is a stretch although it's still doable. How much could that slip?

Iain Ross -- Chief Executive Officer, Golar Management Limited

Well, we've lost a little bit time over the last three months, but mostly from several small issues that tend to happen at this stage of a project. And also more recently, we've had some bad weather and it slowed down the final hook up. But the way to think about it, the effective way is that we've used up not all but most of the float on the project, which just means that we have a plan that shows to get to the end of the year. We've got less float, and it's just normal on this type of project. And so we got less slack to take kind of minor delays. And if there are any further delays, we'd expect them to be of a short nature. So, I'm saying days, not months. And it's too early to say, if there will be any. The next phase is we gas up the turbines. We'll determine how smoothly they go. And if you've ever been involved around commissioning of a large gas turbine plant, anyone that would like to predict that to any degree of accuracy is a braver man than me.

Craig Shere -- Tuohy Brothers -- Analyst

Understood. Appreciate the color [Phonetic].

Iain Ross -- Chief Executive Officer, Golar Management Limited

Thanks, Craig.

Operator

Thank you. The next question is from the line of Lukas Daul from ABG. Please go ahead.

Lukas Daul -- ABG -- Analyst

Yes. Thanks. Just circling back on the spin-off that you're sort of indicating could happen by the end of the year. Just to be crystal clear, do you sort of intend to realize any cash proceeds from that and do you have a ownership threshold that you would like to keep in the new entity?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I don't think we're disclosing any of that. We're still working on the structure and obviously, when we've get that finalized that, we'll be announcing.

Lukas Daul -- ABG -- Analyst

Okay. Fair enough. And then on Brazil, is the commercial acceptance necessary in order to -- for you to start realizing that $100 million in EBITDA? Or is it going to sort of going to be triggered by the 1st of January date, no matter the cash flows or...

Iain Ross -- Chief Executive Officer, Golar Management Limited

No, we have to be commercially accepted. So we've got very detailed plans and the steps that we go through to get the plant ready, and then we run out a short acceptance test at the end, that's fairly well known and understood process to go through.

Lukas Daul -- ABG -- Analyst

All right. Thank you.

Operator

Thank you. Next question is from the line of Michael Webber from [Indecipherable]. Please go ahead.

Michael Webber -- Wells Fargo -- Analyst

Hi, good morning guys. Just a couple of questions for you, Iain, just kind of big picture, I guess kind of focus this, but if I just kind of think about like Golar from a 30,000 -- and you guys have mentioned the idea of finding capital partners for these projects, which is kind of the best way to approach them right now with kind of maybe more limited capital availability. But then there's kind of a separate conversation that involves kind of fixing the cost of capital so that you don't have to do that, because I know you ultimately don't want to do that.

So if I think about kind of streamlining the Golar structure and the starts as they get the total return swap and the carrier spend would kind of be the easier and more straightforward part of that equation, the downstream business and Golar Partners with shared assets are going to be much more complicated. I guess my questions are; one, has the experience with the carrier spend and kind of how long it's taken for the market -- it's a market dependent process. So has your experience of that, increased the likelihood that any kind of simplification of the Golar structure is more of a grand bargain than a series of these kind of transaction that could take several years?

And then -- I'll stop with that question there. I guess, in terms of -- I'll follow-up, but just in terms of the likely sequencing for a simplification of Golar, is it more likely we see a series of these transactions, or do you think the odds have gone up but eventually with sort of kind of grand bargain transaction where you kind of simplify the structure and get in the place where you want it?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So, Mike, I guess the first part is the experience around the shipping spinoffs; it hasn't actually been that bad. I mean, what's happened is that we've had -- one of the first questions we were asked on the call, we've had two things going against us; one has been the capital markets and the other one's be the shipping rates. And they've either been counter cyclic to each other or in violent tandem. So that's, -- and we think we're coming out of the end of that to allow this to happen. But in terms of preparedness, getting the financing set up for the ships, all of that has been ready. So from that point of view, that's OK. In terms of the other elements of the jigsaw puzzle, our focus in Golar Power, which is the obvious other one to discuss, is really on building a big sustainable business. And that's the immediate priority. And if we do that, and if we are successful in building the business to the extent that we feel we can do with the downstream infrastructure and with multiple hubs for FLNG and gas distribution, then I think that'll be a nice discussion to see who the logical best owner of that business is at that time. But right now, our focus is got to rebuild it rather than worry too much about that part of the future.

Michael Webber -- Wells Fargo -- Analyst

Good. So more likely to see a downstream spend before like a GMLP simplification?

Iain Ross -- Chief Executive Officer, Golar Management Limited

I don't think we've commented too much on GMLP simplification. What we have said is our Board has definitely approved spin-off of the ships and it's my intention to make that happen.

Michael Webber -- Wells Fargo -- Analyst

Okay. All right. That's fair. And just to Delfin, and I think you mentioned it a bit earlier in an earlier answer. The idea of kind of moving away from that project, did the current trading tariff situation play any kind of role and that's just in terms of the viability of the package deal with the Chinese yard export financing and off-take and kind of the value prop that I think most people associated with the project like Delfin?

Iain Ross -- Chief Executive Officer, Golar Management Limited

We just didn't make enough traction around the two critical customer and financing elements. So our portfolio is really coming along nicely and we've got to drop off the ones that we don't think are going to get there in the near term.

Michael Webber -- Wells Fargo -- Analyst

Got you. Thanks for your time, guys. I appreciate.

Operator

Thank you. The next question is from the line of Eric Haavaldsen from Pareto Securities. Please go ahead.

Eric Haavaldsen -- Pareto Securities -- Analyst

Hi. Just a quick one on the new $150 million facility. What's really the rationale behind use of taking off that facility and what kind of facilities? What type of funding?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

The rationale is to give us a comfortable amount of liquidity to cover our Gimi capex and other things that we want to do over the next few months, just to put us in a comfortable position. What was the second part of the question?

Eric Haavaldsen -- Pareto Securities -- Analyst

Is it a bank facility or is it additional lease...

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yes.

Eric Haavaldsen -- Pareto Securities -- Analyst

Yes, it is bank facility. Okay, thank you.

Operator

The next question is from the line of Jason Gabelman from Cowen. Please go ahead.

Jason Gabelman -- Cowen and Company -- Analyst

Yeah. Hi. Thanks for taking the question. I just wanted to go back to this discussion on LNG rates. Given that the LNG market is oversupplied and the expectation is, it's going to be oversupplied for the next couple of years outside of kind of seasonal demand peaks, it seems like east arbs could be closed especially outside of winter. Does that -- how does that mindset kind of figure into the decision to spin-off the LNG carrier business? And I think you mentioned potentially listing it as a separate public entity, I mean, do you think that makes sense given potential -- for rates to be volatile over the next couple of years?

Iain Ross -- Chief Executive Officer, Golar Management Limited

So first point is, we don't necessarily show you a view that the rates are going to be poor over the next couple of years. There may be volatility, but we think because of the structural shortage of cargoes that need to be moved and ships that are available, noting that there are only so many deliveries due to come out of the yards. Then we will see this deficit, and that will force the rates into a more acceptable position. And the justification for us is that making this split, as we've said before is that we have some investors that really like our long-term sustainable EBITDA business with the 20-year, 30-year contracts. And they don't like the fact that they have a cyclic shipping business associated with it. And equally, we've got investors who would like to invest in the shipping business and have exposure to the things that are coming up. But they see that we've got these fairly large capital intensive projects on the other side of the ledger. And the very strong feedback that we've had from investment community is that our view to split the two is a sensible way forward.

Jason Gabelman -- Cowen and Company -- Analyst

Got it. Thanks for that. And then just a quick question on the financials. It looked like there was a large cash outflow on accrued expenses that was about $60 million. What was that related to?

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yeah. Unfortunately, our customer statement is, you'll note from a few quarters ago that it reconciles from total cash, including restricted cash at the beginning and the end of the quarter. And therefore it includes a load of restricted cash movements that are in these verbal interest entities that the Chinese leasing bank subsidiaries that we have to consolidate, and we cannot give that information. So that particular movement related to a movement in restricted cash balance in one of those VIEs, not all of it obviously, but the majority of it.

Jason Gabelman -- Cowen and Company -- Analyst

Okay.

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Yeah. So it's not a real movement, which just makes that statement not particularly helpful, but...

Jason Gabelman -- Cowen and Company -- Analyst

Yes, That helps, clarify it. That's it for me. Thanks.

Operator

Thank you. And there are no further questions at this time, so I'll hand back to the speakers.

Iain Ross -- Chief Executive Officer, Golar Management Limited

Thanks, operator. Well, I hope this session gave you some detail of our focus on simplicity, earnings, stability, liquidity and near-term value for shareholders. We can follow-up for more discussion via Stuart, the normal way. But in the meantime, I thank you for your attendance and questions and we look forward to updating you on our progress next time. Thanks and goodbye.

Duration: 64 minutes

Call participants:

Iain Ross -- Chief Executive Officer, Golar Management Limited

Graham Robjohns -- Chief Financial Officer and Deputy Chief Executive Officer, Golar Management Limited

Jonathan Chappell -- Evercore ISI -- Analyst

Randy Giveans -- Jefferies & Company Inc -- Analyst

James Yoon -- Citi -- Analyst

Espen Landmark -- Fearnley Securities AS -- Analyst

Christopher Snyder -- Deutsche Bank -- Analyst

Alonso Guerra-Garcia -- Scotia Howard Weil -- Analyst

Frank Galanti -- Stifel -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Craig Shere -- Tuohy Brothers -- Analyst

Lukas Daul -- ABG -- Analyst

Michael Webber -- Wells Fargo -- Analyst

Eric Haavaldsen -- Pareto Securities -- Analyst

Jason Gabelman -- Cowen and Company -- Analyst

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