Golar LNG Ltd (GLNG) Q1 2021 Earnings Call Transcript

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Golar LNG Ltd (GLNG 1.94%)
Q1 2021 Earnings Call
May 20, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Golar LNG Limited Q1 2021 Results Presentation. [Operator Instructions]

I would now like to hand the call over to your speaker today, Mr. Karl Staubo. Thank you. Please go ahead.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you, speaker, and welcome to Golar LNG's Q1 earnings release. Thank you for taking the time to dial in. My name is Karl Fredrik Staubo, the recently appointed CEO of Golar LNG.

Before we get into the quarterly results, please note the forward-looking statements on Slide 2. I'm joined today by Mr. Eduardo Maranhao, who has taken over my former role as CFO of Golar. Eduardo was formerly the CFO of Hygo, and is well known to the majority of Golar's stakeholders. We are together looking forward to contributing to the continued success of Golar.

Turning to Slide 3 for Q1 highlights. We reported adjusted EBITDA for the quarter of $78 million and net income of $25 million, both ahead of consensus estimates. Our shipping portfolio achieved a TCE of $61,700 a day for the quarter and our shipping revenue backlog stands at $187 million at quarter end. Hilli continues to deliver 100% uptime with the 56th LNG cargo currently being offloaded. Gimi remains on schedule and is currently 69% technically complete.

During Q1, we announced and on April 15th closed the sale of Hygo and GMLP to New Fortress Energy. The transactions will be accounted for in our Q2 numbers, but is expected to generate an accounting book profit in excess of $650 million and increased liquidity and liquid assets with around $900 million. We have initiated the announced buyback program of up to $50 million with 1.2 million shares bought back to-date. Our cash balance as of Q1 stands at $245 million and does not include sales proceeds from NFE transactions.

I'll now turn the call over to Eduardo to take us through the first quarter numbers.

Eduardo Maranhao -- Chief Financial Officer

Thanks, Karl, and good morning to everyone. I'm excited to provide an update on our financial results for the first quarter of 2021.

So turning on to Slide 5. We can see that the group had a very strong performance in Q1. Total operating revenues for the first quarter were $126 million, which was 7% above the numbers that we had in Q4 of last year. Adjusted EBITDA came in at $78 million and was in line with the previous quarter. A key driver for this performance came from the higher utilization and higher charter rates of our carrier fleet, which contributed to total revenues of $63 million.

We were able to execute on our shipping strategy and increase TCE rates up $10,000 a day from the last quarter. FLNG revenues from the Hilli came in line with our expectations at $54 million, although lower than the previous quarter when we had the effect of over-production revenues from past years. Those numbers reflect the exceptional operational performance of our team, which again, delivered 100% commercial uptime. The commencement of operations of our long-term O&M agreement with LNG Croatia resulted in higher management fees, which have also contributed to the increase of our other operating revenues, totaling $9 million in the quarter.

Net income was at $25 million, which is $17 million higher than the previous quarter. This was mainly driven by improvements in non-cash mark-to-market gains in our interest rate swaps, following favorable rate movements. On the financing side, our net debt position at the end of Q1 was just close to $2.1 billion and slightly higher than Q4. That was mainly driven by the $45 million drawdown under the Gimi facility. We're going to provide further updates on that later on in the presentation. So at the end of Q1, our total cash position, as previously mentioned by Karl, was $245 million. And that did not take into account the sales proceeds from the NFE transaction.

So moving on to Slide 6, the closing of the Hygo and GMLP transactions last month have further enhanced our liquidity position. With $150 million of unrestricted cash on hand at the end of the quarter and $131 million of cash proceeds received on April 15, our balance sheet has been materially strengthened. Based on yesterday's closing price, our stake in NFE is now worth close to $800 million, and that creates a lot of optionality to our funding strategy. Considering that, we have now over $1 billion in liquid assets, as you can see on the left hand side of this slide.

We're now well positioned to meet our existing capex commitments and also to fund future attractive investments propositions. I wanted to highlight that our focus for 2021 will be centered on optimizing our debt structure, which includes the refinancing of our April '22 convertible bonds. We're going to continue to further simplify our group structure, and we're also looking forward to focus on FLNG and upstream business developments.

So with that, I'll turn the call back over to Karl.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you, Eduardo. Turning to Slide 8, and our shipping performance. As mentioned, our shipping TCE for the quarter came in at $61,700 a day. We have fixed 90% of remaining vessel days for 2021. Out of the 90% contracted days, 19% is index linked and 71% is on fixed rate charters. We took a cautious approach to shipping exposure coming into 2021 as we saw around 50 newbuild deliveries coming this year or about two-thirds of deliveries have charter parties and one-third of newbuilds remain open.

We are however positively surprised by the strong LNG freight rates we're currently seeing despite the normal seasonal weakness during spring and summer months. This furthermore supports our positive outlook for our shipping segment going forward. In line with our increasingly optimistic outlook for shipping rates, we have an increasing exposure to LNG freight rates through floating rate charters and their forthcoming off fixed charters. We have 3% spot exposure for the second quarter, 11% for Q3 and 40% for Q4, aligned to match the normal seasonal strengthening of LNG freight rates as we enter the winter months. For Q2, we expect to see TFDE TCE rates of around $47,000 a day with 98% fleet utilization on the back of our high contract coverage for the quarter.

Turning to Slide 9. We are increasingly optimistic about the future outlook for LNG carriers. The total current LNG fleet on the water stands at 597 ships. The fleet comprised of 254 steam carriers, 183 TFDE carriers, 44 Q-Flex and Q-Max, and 116 mega ships, plus another 130 on order. On the supply side, we believe the order book will be offset by less efficient steam carriers coming off their long-term charters and facing new and stricter emission standards, forcing these vessels to slow steam or be uneconomical for international trading. By number of vessels, the 22% order book compares to 42% of existing vessels on the water being steam ships. So we think that more than offsets the order book.

Demand continues to build with 361 million tons of LNG transported last year. According to Clarksons, 1 ton of LNG transported consumes 1.4 LNG carrier per year on average. With an anticipated growth over the next three to four years of almost 100 million tons, this assumes 140 incremental ships needed. Furthermore, increasing distances as most of incremental volume is transported from the U.S. to the Far East, consumes two times -- or two LNG carriers per ton, and hence, would require almost 200 ships.

Lastly, the three Korean shipyards capable of building high quality LNG carriers are filling up with container orders, and hence, there cannot be any meaningful additions to the order book with delivery before 2024 at the earliest. This makes us very optimistic to the medium and longer term outlook for LNG carriers, and we are positively surprised by the current seasonal strength in a year of 50 newbuild deliveries and our demand side still negatively affected by COVID.

Turning to Slide 10 to elaborate on some of the environmental regulations coming into play. First and foremost, the EEXI, which stands for Energy Efficiency Existing Ship Index, will come into play from 2023. EEXI is a pledge made by IMO to work toward reducing CO2 emissions by 50% within 2050. That's still far ahead, but due to the long life of assets operated in the LNG industry, this is in many ways, a current problem. Additionally, the first goal after 2030, IMO targets 40% cut in carbon intensity.

IMO will require all ships across all segments to comply with a commonly greed index before 1st of January 2023. In order to meet these requirements, all ships trading in international trades need to take action in form of either reducing speed, change to cleaner fuels, such as LNG, ammonia or hydrogen or make other retrofits to the ship design to increase energy efficiency. For LNG shipping, this will likely result in slow speeding or redundancy of a significant part of the steam carriers. And as mentioned on the previous slide, this represents 42% of the global LNG carrier fleet.

Turning to FLNG and starting with Hilli on Slide 12. Hilli continues to operate with 100% commercial uptime with its 56th cargo currently being offloaded. We've made continuous progress with respect to increased utilization of the Hilli. We have executed all documentation required to remove any production caps on gas reserves and to enable production above the current contract capacity. We are in advanced discussion for additional production anticipated to start up in first quarter of next year. In addition, we would like to remind you that we are now in a territory where we will recognize Brent-linked earnings from the second quarter of this year. Golar makes $2.7 million in annual EBITDA for every dollar the Brent curve is above $60. Based on current Brent forward curves, we expect to continue to see Brent contribution for Hilli in the coming years.

Turning to Page 13 and an update on Gimi. The conversion project is now 69% technically complete, on track and on budget. We have surpassed 9 million man hours, with around 2,400 yard workers currently allocated to the conversion on a daily basis. The vessel's fifth and final drydock has seen all remaining sponson blocks attached to the vessel and is on schedule to be completed within this quarter. Gimi is expected to sail away from Singapore in the first quarter of 2023. It will start to make commissioning revenues from the second quarter of 2023. And it will start its 20-year contract with BP from the fourth quarter of 2023 with a total EBITDA backlog of $4.3 billion.

We also note that Kosmos, BP's partner on the Tortue field, stated in their Q1 report that they are working to maximize the FLNG capacity that fits their current infrastructure. By that infrastructure, they mean the FPSO and the breakwater that the project is putting in place. That would equate to 5 million tons per year. Gimi, as a reminder, have a capacity of 2.5 million tons. Hence, in order to meet 5 million tons per year of liquefaction capacity, that will support another Mark I design FLNG or alternatively a Mark redesign FLNG to satisfy the full 5 million tons.

Turning to Slide 14. We are now in a territory where the gas price suggests that LNG economics is strongest in upstream. We made an illustrative example of FLNG economics on the left hand side. With gas reserve and lifting costs assumed at $1 per MMBTU, $2 tolling fee, which includes a 10% unlevered return to the FLNG owner, we can deliver through FLNG technology, FOB gas at $3 per MMBTU. Based on current healthy shipping rates, shipping to the Far East would add another $1.5 per MMBTU and have delivered LNG price of $4.5 per MMBTU. As you can see on the right hand side, this equates to a very attractive downside versus historic JKM pricing with a very healthy upside potential.

So to illustrate, whenever the dark blue line is above the green line, the FLNG provider will make money. With current JKM price of $10 per MMBTU, this leaves a healthy margin for the gas producer of around $1.4 billion per year. The risk reward coupled with gas forward prices is what drives both increased interest from majors for our FLNG tolling arrangements as well as Golar's desire to revert our focus on integrated upstream model where we can capture more of the gas upside.

We further elaborate what the potential economics of gas upside could look like on Page 15, using a Mark III or a 5 million ton per annum FLNG. 5 million tons of liquefaction capacity equates to 250 million MMBTUs per year. Hence, a $2 margin equates to $500 million in annual EBITDA. Again, current and forward LNG prices should suggest that economics for such projects will be between 2 to 4 times EV EBITDA.

Integrated gas acquisition and production is not a new concept to Golar, but we see fundamentals for this potential upside in Golar's business model stronger than ever due to the supportive gas forward prices, due to our proven track record of 100% utilization on Hilli, and lastly, because we have a balance sheet now capable of lifting such project and execute on this strategy. We're currently pursuing stranded gas and associated gas reserve that may enable the rollout of our integrated upstream strategy, and we will update the market as soon as we have further developments on this front.

Turning to corporate and strategic focus. We announced today our 2020 ESG report that can be found on our website. Although ESG has been an integral part of Golar's operations since the formation of the company, we are increasing our transparency through the market on our performance.

Some of the highlights of this year's report can be found on Slide 17. The carbon footprint of our FLNG technology is competitive to shore-based liquefaction mega projects. We have reduced fleetwide carbon emissions from an AER of 9.95 to 8.71. And on Hilli, we have -- we're now up to 35.4 local employees and have spent more than $10 million of purchases locally. We've also published our ESG targets until 2030. These are either aligned or exceed any regulatory requirements for our fleet and operations.

Turning to Slide 18 and the earnings power from our existing asset portfolio. Following the sale of Hygo and GMLP to New Fortress Energy, Golar is significantly simplified and our asset portfolio and financial performance should be easier to predict and follow. Our shipping segment comprised of 10 vessels, of which eight are TFDE carriers, one steam carrier and one FSRU currently operating as a carrier. The fleet is fully delivered and generated an EBITDA over the last 12 months of $121 million. A $10,000 change in rates equates to $32 million in change in EBITDA. We are optimistic that this segment will see improved performance on the back of the strengthened LNG carrier market outlook.

On Hilli, we continue to see 100% utilization. And with a pro rata last 12 months EBITDA generation of $93 million, we do expect to see further upside on her performance as well. This upside will be driven by building of potential overproduction, oil derivative earnings and execution of the advanced discussions on increased capacity utilization from first quarter of 2022.

Gimi, as mentioned, is on schedule to start up its 20-year contract with BP in Q4 2023, adding another $151 million in contracted EBITDA to Golar. We also have further EBITDA potential in uptime bonus on Gimi. Hence, we expect to see a run rate EBITDA based on the existing asset portfolio once Gimi delivers of at least $352 million versus EBITDA for the last 12 months of $201 million. As previously discussed, there is significant further upside in FLNG tolling and integrated projects that may add significant further EBITDA potential.

So to conclude on Slide 19, we are optimistic on increased earnings power for our shipping business as we are seeing stronger than our anticipated current rates, a positive market outlook, and have increasing exposure to shipping freight rates through our charter portfolio. On FLNG, we expect increased earnings from Hilli due to the oil derivative earnings and progress on discussions of increased capacity utilization, and Gimi remains on time and budget. Gas price is supportive of FLNG growth, and we experienced increased interest for tolling business and are very excited about the potential to develop integrated gas and FLNG upstream opportunities.

On corporate and investments, we have a strong liquidity position following the sale of Hygo and GMLP. This will enable financing of growth projects and debt optimization. Lastly, we will continue to work on further group simplification, likely splitting our midstream shipping business and upstream FLNG business into two separate vehicles over time.

That concludes Golar's Q1 earnings presentation. We will thank you all for dialing in. And I'll turn over to the operator for any questions.

Questions and Answers:

Operator

[Operator Instructions] So our first question is from the line of Randy Giveans from Jefferies. Thank you. Please ask your question.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Howdy, gentlemen. How's it going?

Karl Fredrik Staubo -- Chief Executive Officer

Hey, Randy.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Hey. First off, obviously, congrats to you, Karl, on the CEO role; Eduardo, on the CFO role. It seems like a great time to begin these new roles here. With that, for the LNG kind of business first, some people are counting the Qatar expansion as somewhat unbeatable, right, because its $5 or so landed costs. Your Slide 14 shows that, first, your FLNG projects can beat that. So I guess two part question here. Any interest in participating in that tender offer for the 100 to 150 LNG carriers from Qatar? And then, more importantly, for Golar, with trains 3 and 4 having better economics, what are the hurdles and maybe expected time line to get Perenco to ramp up trains 3 and 4? I know you mentioned 1Q '22, but any chance for an earlier commencement?

Karl Fredrik Staubo -- Chief Executive Officer

Thanks, Randy. So when it comes to the Qatar tender, we're obviously aware of it. However, we believe our edge is in upstream and FLNG development. And our incremental dollar is more likely to be spent on that than shipping. So we have no current plans to attend that tender.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Okay.

Karl Fredrik Staubo -- Chief Executive Officer

When it comes to Hilli and upside in production, I think, most of the agreements that could fit between us and the local government and us and Perenco, is closely finalized, if not finalized. There are, however, existing off-takers and other parties that needs to have agreements with Perenco in place, and such agreements are outside of our control. But with this gas price, it's sufficient economics for everyone around the table. And every day it's not producing, it's an opportunity dollar lost.

So we are encouraged and hopeful that we will find a good common solution for all parties. We do not expect a further ramp up of significant incremental production. Some production we might be able to bill under the existing overproduction arrangements, but not any substantial increase until Q1 next year.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Okay. Answered everything there. Good. Now I guess for your balance sheet. Obviously, it's in stellar shape here following the New Fortress shares. I guess, what are your plans for the $1 billion in liquidity? It's well above your $500 million in remaining capex, as you showed on that slide. You have some expensive sale leasebacks you can repay. At the same time, your shares are wildly undervalued. So do you expect to complete the remaining -- the remainder of the $50 million repurchase in the second quarter? And can you provide some updated details on the convert refinancing, timing and options there as well as the NFE for GLNG share exchange?

Karl Fredrik Staubo -- Chief Executive Officer

Okay. That's a few questions. I'll start and then Eduardo, please chime in as we go along. So on the buyback program, you saw that we repurchased 1.2 million shares that we basically have to stop as we entered into the blackout period prior to Q1 numbers. The initial framework we have approval for at board level is $50 million. And I think it's fair to assume that as long as the share price keeps trading at the discount to both book and underlying values, we expect to continue the buyback program.

Next sort of question is on the CB. I think what we have said there is that we have a few different alternatives open to us. I think by no sort of particular order, we could do an exchangeable offering at exchangeable internal fee shares. We could do a CB or unsecured bond on GLNG level or we could settle in cash either through cash available from balance sheet or sell-down of derisked assets such as Gimi. So we have several different venues of addressing that maturity.

When it comes to exactly what route we are planning to take, that depends on the relative share price between NFE and GLNG. To some extent, it depends on the absolute share price of GLNG. But by that, I mean, if you are to do a CB on GLNG, you obviously wouldn't do it around current levels. And lastly, it depends on near-term growth projects. We are planning to address it during second half of this year. And the primary reason for addressing it at that point is that then we are -- we have no restrictions on any of our liquid assets, and therefore, are in a position to better way the alternatives. In the interim, we are keeping a close dialogue with constructive investment bank and other investors is proposing different alternatives, and we are keeping them on file and comparing where we think we can do the best solution.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Okay. That's noted. And then I guess quickly on the NFE GLNG share exchange. Any additional details or color on that, possibility?

Karl Fredrik Staubo -- Chief Executive Officer

We have -- like the exchange offer or distribution of NFE shares, which one are you referring to?

Randy Giveans -- Jefferies & Company Inc. -- Analyst

You mentioned in the press release, you could exchange NFE shares for Golar common shares in terms of a [Speech Overlap]

Karl Fredrik Staubo -- Chief Executive Officer

Yeah. Yeah, of course. So that is also down to the relative share price of NFE versus Golar. And it's something we will consider once we're out of the lockup period, which is 90 days after closing, which was the 15th of April.

Randy Giveans -- Jefferies & Company Inc. -- Analyst

Got it. All right. Well, that's it for me. Thanks so much. Good luck.

Karl Fredrik Staubo -- Chief Executive Officer

Thanks, Randy. Thank you.

Eduardo Maranhao -- Chief Financial Officer

Thank you, Randy.

Operator

Thank you. Our next question is from the line of Chris Wetherbee from Citi. Thank you. Please ask your question.

James Yoon -- Citi -- Analyst

Good morning, guys. James on for Chris. I just wanted to follow-up on some of the commentary you had around the priorities. Just when you think about the end markets in terms of LNG carrier side versus the FLNG side, which one do you sort of see as essentially more -- where you could essentially put capital work sooner? And then also on -- along that line of questioning, is there anything that you need to tidy up before we could potentially see something along the lines of a transaction in either one of those two places?

Karl Fredrik Staubo -- Chief Executive Officer

Okay. I'll kick it off again. So when it comes to -- yeah, our incremental dollar, I think where we as Golar have more of a unique edge is on upstream and FLNG. As we said in the presentation, we've now delivered the 56th cargo of LNG from the Hilli and an unprecedented operating utilization of 100% in delivery. So we believe that where our edge is at FLNG and upstream, and our incremental dollar will go to FLNG and upstream growth as opposed to shipping. However, as we've said in the presentation, we have 10 ships. We have meaningful exposure. We like the outlook, but we do not intend to add ships to our portfolio.

And when it comes to the next steps in terms of when we can do either, like we've just concluded the $5 billion EV transaction in selling GMLP and NFE. On the one hand, that's closed on the 15th of April, but I think for us, we see sort of no immediate pressure to resolve the two. At the same time, we believe part of the reason why we're trading at a discount to the underlying value is that investors are seeking cleaner exposures to either upstream or shipping. So we will be opportunistic and try to execute a further simplification as soon as we have an attractive way of doing so. And there we are exploring different alternatives, both for to spin-out shipping and to also create an upstream company. So we're open to either.

James Yoon -- Citi -- Analyst

Got it. And then in terms of shipping on that side of the house, prepping it to potentially be split out or whatnot. Is there any sort of fact you're taking to your chartering strategy and potentially trying to like increase coverage or anything along those lines to make it more marketable? Is there any sort of like work to be done or is that something that really sort of -- if there is a bid for it, do you feel that you could basically be separated sooner rather than later?

Karl Fredrik Staubo -- Chief Executive Officer

Yeah, sure. So basically, a little while back, 12 months or 12 to 18 months back, we changed our shipping strategy somewhat to take more coverage. That was driven really by two things. Number one, we saw a lot of newbuilds entering the market in '21, and we did not want to have too much exposure, given the fact that we have 50 new builds coming to market on top of COVID. So we tried to take quite a bit of coverage. And to some extent, we've been positively surprised by how strong the rates. And arguably, we got a bit too conservative.

The second reason or driver for us taking this much cover as early as we did it was that this was all done prior to the NFE transaction where we did not have the same balance sheet position as we have today. So we wanted to be cautious not to sort of get any two surprising rates. However, as we tried to state quite clearly on Page 8, we have an increasing exposure to the market as we are very optimistic to what the outlook is. And for now, I expect us to be increasingly exposed to the spot market either through floating rate arrangements or just from vessels naturally rolling off the fixed rate charter.

James Yoon -- Citi -- Analyst

Got it. I guess, what I'm trying to get at is, if you feel that in order to introduce sort of a strategic -- another transaction, you just need like one or three things, basically, work done to improve the quality of the assets in one way or another, if you think the during the second bucket, I guess, you could say, if you think that the market timing just isn't right or in the third, if you just think you need a little bit more time given the fact that you just did a significant transaction. And it actually sounds like they're kind of -- the assets are kind of where you want them to be. The market timing isn't something you're taking a view on, and it's really just about sort of putting some distance between you and the last major transaction you did. Is that sort of the right way to think about it or this -- am I misconstruing that?

Karl Fredrik Staubo -- Chief Executive Officer

If there is an interesting transaction we can do tomorrow, I don't think we have any problems doing it tomorrow. I think it's commonly known in the marketplace that we've been actively looking at alternatives for our shipping fleet, including creating sort of a consolidation play. We do not think we need to do any high grading of our fleet. TFDE carriers are, if you like, the work horse of the industry, and we see the pressure to be more on the steam vessels.

So for us, we don't expect a high grading. I don't -- I think we've rested out and are complete with the NFE deal. So we have certainly have enough energy and opportunism in the company that if we find the right transaction tomorrow, we're happy to go for it. So for us, it's a matter of finding the right home for the shipping fleet. We like it the way it is today. We think it's going to get better. But at the same time, we do believe that we are somewhat penalized from keeping it in the same company as the upstream. So we're open to resolve this as soon as we find the right home.

James Yoon -- Citi -- Analyst

Perfect. Thank you.

Operator

Thank you. Our next question is from the line of Mike Webber from Webber Research. Thank you. Please ask your question.

Michael Webber -- Webber Research Advisory -- Analyst

Hello?

Karl Fredrik Staubo -- Chief Executive Officer

Hey, Mike.

Michael Webber -- Webber Research Advisory -- Analyst

Hey, guys. So I wanted to zero in on Slide 23, if you don't mind, because I think it's helpful, and I just want to make sure I'm interpreting this the right way. And your last question was around -- or at least your last answer was around what to do with the carrier fleet. And it certainly seems like the right analog here is in terms of the value proper Golar as a whole. It's kind of like TK 2015 where if you can find a home for the carriers, all of a sudden, the value proposition looks a lot simpler and a lot cleaner at Golar. But I did -- I know you've talked to this, but I know that distributing the carriers or sending them didn't make it on to the strategic initiative slide on Slide 23. Given the difficulties in doing that, one, another finding a buyer for a fleet that size or presumably pumping some equity into it, so there's some value there to distribute. Is it fair to say that as of right now that looks a bit more difficult than what you've listed on Slide 23 in terms of distributing NFE shares and some of the other strategic initiatives?

Karl Fredrik Staubo -- Chief Executive Officer

Yeah. I don't know exactly what you referred to on Slide 23 in the appendix. But I think what we -- when we say further group simplification, what we mean by that is basically finding a home for shipping or creating the same simplification by potentially spinning out the upstream. So I think we're open to both.

When it comes to debt optimization on the shipping fleet, we stated in the earnings release today that as part of following the NFE transaction, we have agreed to reduce the debt on four of our ships where we basically invest $60 million of cash into four of the ships, so reducing debt by $15 million a ship in return for a total debt reduction of $102 million. So we pay in $60 million, which will be done during early part of Q3. And in return for that, we get $102 million of debt reduction. So if you want, that's a $42 million debt saving to Golar, and to some extent, should be seen as further enabling the shipping fleet to the response.

And on the other hand, if you look at the implied values of listed peers, that suggests that our shipping fleet has a value of anywhere between sort of $250 million to $350 million of equity. That's obviously fluctuating with share prices, but that's where we trace it, and broker cost earned and other costs.

Michael Webber -- Webber Research Advisory -- Analyst

Yeah. I mean, I would imagine if it had that kind of value, you could just spin it off, right? But I guess, the question is, in terms of evaluating -- it's a difficult riddle to solve, right? I mean, you're not even the first Golar management team to try to tackle that, right? So it's an ongoing question mark. In terms of the strategic options of the carriers versus, I think, even on the slide, the crystallization of hidden value in FLNG, the potential structural transaction, I think you're meaning the strategic transaction on the FLNG side. As it stands today, what the sequence looks like there? Is it more likely that you find something to do with the FLNG assets before you can do something with the carriers or do you think it's more likely you find a way to get the carriers out the book first?

Karl Fredrik Staubo -- Chief Executive Officer

Perhaps to answer where it stands right today, I think it would be shipping out and then GLNG -- FLNG and an upstream company.

Michael Webber -- Webber Research Advisory -- Analyst

Yeah, all right. That makes sense. With regards to FLNG, I know if you could put some more specs around Mark III in the deck. And at 5 million tons, it's obviously bigger than what you're looking at with the Hilli and the initial technology. I'm trying to compare that with FAST LNG, which New Fortress has come out with recently, and you guys obviously have a unique relationship there. To what degree should we look at those as competing technologies or have you guys kind of moved a little bit to a little -- slightly larger size of the market? If you're looking to build something that's producing 5 million tons of LNG, are you just snipping around different projects than FAST LNG would be?

Karl Fredrik Staubo -- Chief Executive Officer

I think, we're excited about NFE's deck up as well. To the way we see it, they're highly complementary. So FAST LNG is basically based on somewhat lower liquefaction capacity. It obviously stands on the seabed as opposed to float. So to some extent, it's more suited for shallower waters. On the other hand, jackup doesn't have storage. So what you gain in terms of cost advantage of the liquefaction kit itself, some of that's partly offset by the need for an FSU lying next to it. So we think -- and as NFE has been very clear about publicly on their calls at several occasions, we -- the engineering team of Golar are assisting NFE in developing the FAST LNG solution.

So we believe that the two technologies are highly complementary. We believe that the FAST LNG has one very significant advantage in being FAST. It's very suitable for certain geographies on shallow water, but we think for larger stranded or associated gas projects at deeper waters, you need a floating unit simply due to water depth. And in those areas, we can either use our existing Mark I; our Mark III design, which is based on a Mark I; and we're also looking into our former Mark II design, if you remember that one, which where we basically weld in midstream -- or mid section. So we like the FAST LNG. We also like our FLNG. We don't see them as direct competitors. We see them as complementary sort of keep to exploit the same very interesting opportunity in producing cheap upstream gas.

Michael Webber -- Webber Research Advisory -- Analyst

And is the $2.5 million the ballpark capex for Mark III, does that -- how much -- does that involve a significant amount of kit for separation and treatment or do you still -- would you still need to find 5 million tons of pretty dry and clean gas to utilize that technology?

Karl Fredrik Staubo -- Chief Executive Officer

That's mainly based on sort of similar gas pack as a Mark I. Just because Mark III is a newbuild, you have significantly more deck space. So it is room to fit more gas treatment, should you want to do that. But one of the attractions of our FLNG technology is that we are not sort of custom-made to one specific gas field, we're reusable and redeployable. So we don't want to make it sort of too specific, but we can certainly add gas treatment. We're obviously looking at that in light of the both, associated and stranded gas fields we are reviewing these days. And based on that analysis, I think, the technology and the stripping opportunities we have on board should be sufficient to produce some of those fields.

Michael Webber -- Webber Research Advisory -- Analyst

Yeah. And one more for me and I'll turn it over. Again, on Slide 23, you referenced the target distribution of NFE shares to Golar shareholders. And forgive me if you mentioned this publicly already, but do you have the ballpark approximation of what you think you would realistically look to distribute to Golar shareholders of that side?

Karl Fredrik Staubo -- Chief Executive Officer

I think as we say in the press release, it's linked to the relative share price of GLNG and NFE. It's linked to near-term growth projects. And to some extent, it's linked to the absolute share price of GLNG. What we mean by that is, if we continue to trade at very suppressed share price levels, it's -- you kind of need to distribute more of the NFE shares to your shareholders in order to unlock the value. But if you can redeploy the capital in near-term attractive growth plays, that can be sort of two to four times EV EBITDA, as we highlighted in the presentation on integrated upstream opportunities.

To some extent, we think that's arguably even better than what investors can do if we were to distribute the cash. So for us, we will weigh the two, but we will not sit on the NFE shares just to sit on the NFE shares. And we will not do it if we think we have a growth project five year out, then that's not the right thing to do. So then we need to execute way quicker than that.

Michael Webber -- Webber Research Advisory -- Analyst

Okay. Got it. Thanks for the time. I appreciate it.

Karl Fredrik Staubo -- Chief Executive Officer

Thanks, Mike.

Operator

The next question is from Omar Nokta from Clarksons. Thank you. Please ask your question.

Omar Nokta -- Clarksons Platou Securities AS -- Analyst

I just wanted to ask about just the Hilli just a bit more to understand kind of the opportunity. When you think about the ramp up that you're expecting or your discussion -- you're having discussions with for ramp up in Q1 '22. Is that based on effectively ramping up train 3 or is it train -- both train 3 and 4 or is it really just sweating trains 1 and 2? Any color you can give there?

Karl Fredrik Staubo -- Chief Executive Officer

Okay. So we'll try to give as much color as we can. So basically, we're today producing flat out on train 1 and 2. But given that we have spare capacity and train 3 and 4 are there and kind of well functioning, from time to time, we are utilizing train 3 and 4 for certain overproduction. And we also switch between which trains we produce from to make sure that we maintain the ship at a very high sort of capability.

The primary reason for sort of the slow deployment of incremental capacity on Hilli is the need to tie in additional gas fields to produce the gas. What we assume will happen is partial utilization of increased capacity. So if you want to define it, according to your question, Omar, we're flat out on train 1, 2, and we're talking about partial utilization of train 3. But in real life, we're sort of shifting between all four trains to keep the vessel truly operational, but that's how we see it.

Omar Nokta -- Clarksons Platou Securities AS -- Analyst

Okay. Thanks, Karl. That makes sense. And is there any added capex that you need to take on if you were to start partially utilizing three in that context?

Karl Fredrik Staubo -- Chief Executive Officer

No. No capex and very minimal opex increase.

Omar Nokta -- Clarksons Platou Securities AS -- Analyst

Okay, all right. And then, just a follow-up -- final follow-up on this is, the contract itself for the Hilli, it goes until 2026. I know it's still five years out, but given what's going on in the overall commodity space and you're being encouraged investing upstream. Is there any talk of extending this contract or is it still too early?

Karl Fredrik Staubo -- Chief Executive Officer

I think, where we're coming from is that we are not interested in extending that contract until we can get paid for the full capex. So we've obviously invested in four trains, we're currently utilizing two. So if we were to discuss expansion on the current side, it needs to be for the full capacity or at least we need to be paid for the full capacity of the unit. Simultaneously, we are increasingly encouraged by the integrated upstream model. And getting the vessel back in '26 could fit very well if we were able to acquire a gas field where we could deploy the ship. The other advantage of Hilli is that she's obviously -- has a proven track record. So we know the ship works. And that's attractive to people that want to continue to use her for tolling operations, and it's certainly attractive for us if we were able to produce our own gas reserve.

Omar Nokta -- Clarksons Platou Securities AS -- Analyst

Got it. Thanks, Karl. That's it from me.

Karl Fredrik Staubo -- Chief Executive Officer

Thanks, Omar.

Operator

Thank you. Our next question is from the line of Sean Morgan from Evercore. Thank you. Please ask your question.

Sean Morgan -- Evercore ISI -- Analyst

I'm sort of intrigued by this concept of moving from pure tolling that you've traditionally done with the FLNGs to more of an integrated upstream model. And so would you seek to partner with an E&P or would you kind of step out of your comfort zone and seek to actually handle the production and all of the operations that traditionally was done by your partner outside of the vessel?

Karl Fredrik Staubo -- Chief Executive Officer

I think, we definitely see the advantage of teaming up with someone who's got upstream capabilities. We also see that there are several sort of oil producers currently flaring or reinjecting associated gas, and it's an opportunity lost for them and an opportunity for us to exploit. But if you were able to produce that gas, not only will it significantly improve the carbon footprint of such oil production, it will generate very significant incremental earnings to the owner of the field, very similar to that of Perenco in Cameroon. So we most likely would target an area where we will have a partner upstream. But again, we're sort of looking into a few different alternatives these days.

Sean Morgan -- Evercore ISI -- Analyst

Okay. And then going back to your ESG report that you released, I was interested to see that 25% lower carbon intensity that you see versus I guess your terrestrial peers. Is that -- how do you sort of get to that number? And also, would that sort of just take into account existing operations without the ability for terrestrial LNG producers to reinject liquefied carbon? And is that something you could do offshore as well?

Karl Fredrik Staubo -- Chief Executive Officer

Yeah. So if you're referring to the AER number, which has now been reduced from 9.95 to 8.71, that's sort of CO2 per ton mile. The way we obtain that is with certain installations on border ships that increased efficiency. And when it comes to the FLNG, it's also increased utilization of the ships that reduced the carbon footprint on per MMBTU produced. So those are sort of the primary areas of improvement.

We are constantly looking into other sort of engineering tweaks we can do to our existing asset portfolio to improve. We have an internal, what we call, the green team that's constantly working on improvements across the fleet. And we continue to use Golar's innovative engineering capability to do improvements. And if you've seen on some of our previous reports, we've, among other, improved the cooling of our FSRU portfolio, now sold to NFE, where we've been able to reduce pure consumption by 15% to 20% by improved cooling.

Sean Morgan -- Evercore ISI -- Analyst

Okay. So that's mostly on the fleet, though. So for the FLNG relative to a land-based, I think you termed it a mega project. Where are the savings there?

Karl Fredrik Staubo -- Chief Executive Officer

That's mainly due to the efficient liquefaction technology that we utilize and the fact that there's no physical footprint of the ships that we deploy given that they're floating.

Sean Morgan -- Evercore ISI -- Analyst

Okay, all right. Thanks a lot, Karl.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question is from the line of Ben Nolan from Stifel. Thank you. Please ask your question.

Ben Nolan -- Stifel -- Analyst

Great. I want to go back a little bit to the Hilli and Perenco thing. And as I recall, maybe the last quarter you talked about -- or it was discussed that you'd effectively kind of given them an ultimatum that if -- I think by the end of this year, they had not restructured contract that you were not going to renew your contract at the end of the existing term. Any update on that? I mean, how confident are you that they've sort of been called to the table here and that it will, in fact, see an increase in the duration and volume?

Karl Fredrik Staubo -- Chief Executive Officer

I think, we are very confident that we will find the solution. The primary driver of it is that it's money to be made from all sides of the table. That includes us, it includes Perenco and it includes the gas off-taker and it certainly includes the local government. So with current gas prices, there's sufficient economics for everyone around the table. And to that extent, we should see increased capacity.

There has been current -- some regulatory challenges that's been resolved when it comes to production gaps. And there are also sort of increased confidence in sufficient gas flow and gas tie-in for increased production. And we are confident that we can meet that increased capacity from basically early next year. But as we've learned over time, nothing is done until it's done, but we remain very optimistic. And arguably, we believe we're closer than ever in having a resolution in the not too distant future.

Ben Nolan -- Stifel -- Analyst

Okay. And they would -- sort of as part of that, it would need to see first quarter of next year because the time line has slipped a lot over the last number of years. Do you see the first quarter of next year when the volumes begin to tick up and sort of the hard start?

Karl Fredrik Staubo -- Chief Executive Officer

I think it's fair to say that it's not been enough. We've been extremely keen to increase utilization for Hilli, of course, since she was delivered on site. I think for a period of time, we had a non-cooperative gas price. Then there were certain regulatory challenges in terms of gas production cap that needed to be resolved. And then lastly, it's a commercial agreement between the various parties. I think, where we are now is that we're done with all but the commercial agreement. I think part of us around the table already agree. So it's a matter of getting, I guess, another signature or two on the agreement and then we're done.

So I think it makes a lot of sense, as I said, economically for everyone around. It makes all the sense in the world. We are confident that that's the timing. And we also think that both, gas flow and gas reserves supports that. And we've had some insight into that, which after we pushed hard for a long time. So we think that that's the time line we can meet.

Ben Nolan -- Stifel -- Analyst

Right. And then lastly for me. Coming back to something you talked a little bit about with Mike in terms of the FAST LNG and sort of your helping the New Fortress guys and the idea that it's complementary, appreciating that it is complementary. It's not the same exactly, but there are some similarities. I'm curious why you just didn't do it yourself and have them as an off-taker or why that wasn't part of the arrangement, like it would be for an FLNG unit? They're complementary, but it's certainly, I would think, within your capability to do.

Karl Fredrik Staubo -- Chief Executive Officer

Absolutely. So first off, we're a 9% shareholder of NFE. We're very optimistic to that story. We think including Hygo and GMLP, they have a very interesting sort of future. We do see the benefit of that model securing long-term certain supply of fixed price gas. And that's part of our motivation to ensure that our investment in NFE continues to -- or at least see positive momentum.

I think in upstream, altogether, we are exploring different alternatives. I think Mr. Wes Edens said on one of the calls in conjunction with the merger announcement that we might over time look at creating a sort of common upstream or common holding company. I think when we are looking at upstream investment and especially the integrated model, one key attraction that we could see is that you fix enough of the off-take to cover all of the costs of the project and then you sit naked on the open capacity, and therefore, basically have a cash breakeven of zero, and anything over that is profit.

So someone like NFE would obviously be an interesting off-taker. After the acquisition of Hygo, they have certainly got sufficient demand to be a sizable off-taker. So for us, that should be a win-win. Nothing whatsoever is carved in stone in that regard, but it's obviously a group that we enjoy working with. We think they have made a lot of -- sort of paved the way for downstream development and downstream penetration of FLNG. And we do see some synergies on the upstream side.

Ben Nolan -- Stifel -- Analyst

All right, great. I appreciate it. Thanks, Karl, and congratulations.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of Greg Lewis from BTIG. Thank you. Please ask your question.

Gregory Lewis -- BTIG -- Analyst

Hey, Karl. We're on the hour, so I'll just ask one question. So just kind of -- just looking for a little bit more color on the relationship right now with New Fortress Energy, you're working with them. Are you getting paid a consultant -- are you getting paid like a fee for services or you'd like a right of first refusal on the project or an ability to invest in that or is it really just, hey, we're working side-by-side along them, and if we can achieve something, then we'll figure out how we can benefit from that? Just any kind of -- is there any kind of written contract in place?

Karl Fredrik Staubo -- Chief Executive Officer

Okay. So as part of the merger -- and this has mainly been made public. But when it comes to the operation of the assets they acquired from us, we continue to technically operate, and there's also certain transition services that we continue to serve from Golar to NFE. For those services, we get the pre-agreed fee. For anything incremental to those fees, we're basically paid on a consultancy basis. But for certain development projects, we see it as an investment both for us and for NFE and to improve the value of NFE. So I think it comes down to exactly what parts of the services that you referred to. But in general, we get compensated for the hours that's invested into such projects.

And then when it comes to cooperation beyond that, I've said that we have a very good relationship sort of on all levels of the respective organizations. And it's a bit more sort of play as we go. And then if we find an attractive solution, we'll see how we potentially can develop it together or if it makes more sense to do it on a stand-alone basis. So we're partly doing things together and we're partly doing things separately. And I think we have a sort of fairly good understanding of the various targets of the two groups.

Gregory Lewis -- BTIG -- Analyst

Okay, great. And then just one -- OK, yeah, that's perfect. Thank you very much for the time everybody.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you.

Operator

And for our last question is from the line of Liam Burke from B. Riley. Thank you. Please ask your question.

Liam Burke -- B. Riley -- Analyst

Thank you. Hi, Karl.

Karl Fredrik Staubo -- Chief Executive Officer

Hi.

Liam Burke -- B. Riley -- Analyst

Karl, you talked about the new Mark design and moving away from tolling. The returns on both Hilli and Gimi are very strong. What is the return profile of the new design and then moving away from tolling?

Karl Fredrik Staubo -- Chief Executive Officer

I think a way to think about it is that if someone's willing to charter something from you, they must make money on chartering it from you. So basically, the way we thought about it is, yes, we make good money on tolling; yes, we will continue to do tolling projects where we see returns as sufficiently attractive. But if you just look on current gas price and the profit that the people basically chartering FLNG from us, what we make is almost peanuts compared to what they make. And with the cash breakeven support that you have versus historical gas prices, we think it could be very attractive if we were able to produce gas for our own accounts or at least take part in that arbitrage. So for us, I don't think you should expect us to depart tolling fees altogether, but we've sort of taken another or a slightly deeper look and see that the real economics are in upstream, if you can also have exposure to the sales price of the gas.

Liam Burke -- B. Riley -- Analyst

Great. And then, on the FLNG designs, you've got the FAST LNG plus the Mark series. Are you seeing any competing designs out there or are you pushing the envelope here by providing a faster, cheaper alternative?

Karl Fredrik Staubo -- Chief Executive Officer

Petronas has got the floating FLNG unit. Shell's got the Prelude and Exmar's got the Tango. So there are certainly other people that are doing sort of floating liquefaction. I don't think anyone has -- well, no one has delivered more cargos than we have. And secondly, I don't think any of the others have a cheaper cost per ton liquefied. And I think the combination of our cost points, our performance track record and sort of the fairly quick speed to market, I think, we are very competitive versus peers. And I think the fact that BP has embraced our FLNG technology is a further testimony to the fact that they don't see a better solution out there.

Liam Burke -- B. Riley -- Analyst

Okay, great. Thank you, Karl.

Operator

And there are no further questions, please continue.

Karl Fredrik Staubo -- Chief Executive Officer

Thank you all for dialing in. Thank you for the interest in Golar. We're very excited about the future. Finally, it looks like we have some tailwind across our different segments. And we look forward to speaking to you all soon. Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Karl Fredrik Staubo -- Chief Executive Officer

Eduardo Maranhao -- Chief Financial Officer

Randy Giveans -- Jefferies & Company Inc. -- Analyst

James Yoon -- Citi -- Analyst

Michael Webber -- Webber Research Advisory -- Analyst

Omar Nokta -- Clarksons Platou Securities AS -- Analyst

Sean Morgan -- Evercore ISI -- Analyst

Ben Nolan -- Stifel -- Analyst

Gregory Lewis -- BTIG -- Analyst

Liam Burke -- B. Riley -- Analyst

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