Golar LNG Limited (GLNG) Q2 2021 Earnings Call Transcript

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Golar LNG Limited (GLNG -0.64%)
Q2 2021 Earnings Call
Aug 9, 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 Q2 2021 Results Presentation Conference Call. Currently, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Karl Fredrik Staubo. Thank you. Please go ahead.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Hi, everyone, and thank you for bearing with us on some interesting conference call coordination there. Anyhow, we would like to welcome you to Golar LNG's second quarter earnings results presentation. We would like to thank you, again, for taking the time to dial in. My name is Karl Fredrik Staubo, the CEO of Golar LNG. I'm accompanied today by our CFO, Eduardo Maranhao, to present this quarter's results.

Before we get into the quarterly results, please note the forward-looking statements on Slide 2.

Turning to Slide 3, we are delighted to announce Golar's best-ever quarterly net income at $471 million, increasing of a gain on disposal of Hygo Energy Transition and Golar LNG Partners LP to New Fortress Energy. The gain on disposal proves that there is significantly embedded value in our asset portfolio. EBITDA for the quarter came in at $67 million.

Turning to the segments, Hilli continues to deliver 100% uptime with its 59th LNG cargo offloaded. In July, we concluded an agreement to increase the capacity utilization of Hilli. The increased production will deliver near-term cash flow at no additional capex to Golar as well as delivering on our targets to increase commodity price exposure to LNG prices. We'll explain this increase in further detail later in the presentation. In addition to the newly acquired gas exposure, we are currently generating Brent-linked revenue from Hilli's operation. Gimi remains on schedule, and is currently 72% technically complete under construction in Singapore.

Turning to shipping, our shipping portfolio achieved a time charter equivalent of $46,700 for the quarter. We have seen increasing counter-seasonal strengthening of LNG freight rates in the quarter, and recently fixed one of our carriers on a five-year charter increasing our shipping revenue backlog to $259 million. We continue to see strengthening near- and long-term fundamentals for our shipping segment and upward pressure, both on rates and asset values.

Turning to corporate, following the close of the sale of Hygo and GMLP to NFE, which closed on April 15, we have booked a book gain of $575 million. The book gain records a $18.6 million shareholding in NFE, at an NFE share price of $35.38.

Following the proceeds from the NFE transaction, we now have cash and marketable securities of approximately $1 billion. Our cash balance for the quarter ended up $287 million, and we're currently in discussion with key relationship banks for new and refinancing term sheets in excess of $500 million that, if concluded, would release more than $250 million in additional liquidity to Golar.

I'll now turn the call over to Eduardo to take us through the second quarter results.

Eduardo Maranhao -- Chief Financial Officer, Golar Management Ltd.

Thank you, Karl, and good morning, everybody. I'm super excited to provide an update on our financial results for the second quarter of 2021. This has been a fantastic quarter for us, as we have managed to close both the Hygo and GMLP transactions on April 15, but we have also continued to observe great commercial and operational performance from our FLNG segment.

If we turn to Slide number 5, we can see that the Group had a very solid performance in Q2. Total operating revenues this quarter were $104 million, or approximately 2% above than the second quarter of 2020. The greatest portion of our revenues came from our FLNG segment, where operating revenues from the Hilli which includes the base tolling fees increased from $54 million in Q1 to $56 million in Q2. This could be resulted as a -- this could be attributed to a result of our over-production in the quarter. This number does not includes the Brent oil linked component, which further enhanced this figure by another $3 million in the quarter, and we will continue to record those gains as a realized gain on derivative instruments.

Revenues from shipping were $42 million, which was down from the $63 million which we observed on Q1, but in line with the numbers of the same quarter of last year. This has been a result of the seasonality in the market, which has pushed overall time charter equivalent rates down from the previous quarter. Overall, adjusted EBITDA for the Group was $67 million, and in line with the same number of the last quarter -- of the same quarter of 2020. The main contributor to that has been the FLNG segment with $45 million from the Hilli, while shipping added $27 million to that figure.

Continuing on, the segment corporate and others, which includes our business activities of vessel management and other corporate overhead costs, recorded a slightly higher number this quarter with $5 million. This was a result of one-off redundancy costs following the sale of Hygo and GMLP.

As alluded by Karl before, we recorded a record net income of $470 million in this quarter, compared to $25 million in Q1. Total gain on disposal from the sale of Hygo and GMLP to NFE contributed to $574 million and unrealized gains from the Hilli Brent oil derivative added another $71 million to that figure. That has been further offset by a provision of tax liabilities, which we have accounted in this quarter, and also unrealized mark-to-market losses from our NFE shares. As of the end of June, the carrying value of our NFE stake was equivalent to $35.38 per share.

So as explained by Karl before, we ended the quarter with a total net debt of $2 billion. And from a liquidity point of view, we had total cash reserves of $287 million, out of which $207 million was unrestricted cash. We have also continued to receive term sheets from key relationship lenders for new and replacement debt facilities in excess of $500 million.

If we continue the presentation and turning over to Slide number 7, I will give you further information related to the performance of the FLNG Hilli. So the Hilli delivered -- continues to deliver an amazing performance with 100% of commercial uptime. She has completed its 59th cargo during this quarter. It contributed in total of $45 million in EBITDA in Q2, with further upsides to be captured. Our oil linked fee benefits from a high Brent price, and our expectation is to generate an additional $9 million in the next quarter, which is up from the $3 million we recorded in Q2. We have also agreed with Perenco to increase utilization -- production in 2022 by 200,000 tons with the option to further increase it by 400,000 tons from 2023 to 2026.

I will now turn the call back to Karl, so he can talk in more details about these arrangements.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thank you, Eduardo. Turning to Slide 8. One of the more exciting developments during the quarter was our announced capacity increase for Hilli. Hilli has since delivered and contracted for 1.2 million tons per year of its total 2.4 million tons per year liquefaction capacity. The announced increase in capacity will see volumes increase from next year by 17% or 0.2 million tons per year to a total of 1.4 million tons.

In addition, Perenco has committed to a drilling campaign of two wells to three wells, and been given an option to declare an additional 0.4 million tons every year from '23 to '26, increasing total annual production in that period to 1.6 million tons per year. The tariff on the incremental production over and above the existing 1.2 million tons will be linked to TTF delivering on Golar's express target to increase gas price exposure, and there will be no changes to the tariff on the existing 1.2 million tons.

Golar will incur no capital expenditure to facilitate the capacity increase and only minor adjustments to opex, hence the majority of cash flows will flow to free cash flow, in which Golar has an economic interest of approximately 89% in the oil derivative and 87% in the increased capacity production. Hence, the built-in EBITDA growth for Hilli between '22 and '26 consists of our Brent-linked revenue, which can add $40 million on current forward curves. If you, however, believe that the current Brent price will prevail, the same number increases to $155 million. The increased production will based on TTF forward curves add around $113 million. But, if you instead believe that the current TTF will prevail, that can increase to $373 million. So to put those numbers into perspective, the base remaining EBITDA for Hilli is $751 million. On forward curves, we will see an increase of around $153 million, or on current rates for the same volumes, you will see an increase of $528 million. There's significant embedded upside.

Explaining this in some more granularity on Slide 9, both oil and TTF gas prices are currently in backwardation with forward pricing lowered in current spot prices. On the left, you can see the sensitivity, where the Hilli Brent link, as mentioned, is worth $40 million on the forward price and $155 million on current Brent around $71 a barrel. The sensitivity to be aware of here is that a $1 change in Brent price equals $3 million change in EBITDA for Hilli on an annual basis. On the right, you can see the TTF price on the same sensitivity. For 2022 on the forward curve, we book an incremental earning of $26 million. If current spot prevails, the same number is $49 million. For '23 to '26, it's $87 million versus $324 million. So the point is that there's significant embedded upside in our existing assets.

Turning to Slide 10. Gimi is now 72% technically complete, on track and on budget. We have booked 10.7 million man-hours, and the fifth and final drydock is now complete. We are as we've been all along expected to sail away from Singapore during the first quarter of 2023, and we will start to be commissioning revenues from the second quarter of '23 before we start the full contract for 20 years with BP with a total backlog of $4.3 billion in Q4 2023.

Turning to Page 11. We continue to view the underlying macro as highly supportive of our strategy to move further into upstream. The combination of economically attractive gas fields and our low-cost FLNG solution produces a backdrop where we create an attractive risk-reward considering where LNG prices are trading today, and where they have been trading historically. Further progress have been made on our announced initiative to increase our gas exposure. We have added to our upstream LNG team with very experienced personnel from NOV and Shell. We're currently exploring several fields already producing associated gas, as well as stranded gas opportunities, and we will update the market when we are making further progress on these projects. On the tolling side of our FLNG business, we continue to work with existing and prospective clients on attractive growth projects. And we have seen specific commercial and technical discussions with an existing client for use of a 5 million ton Mark III new building design.

Turning to Page 13 and switching gears to shipping. As mentioned, our shipping TCE for the quarter came in at $46,700 a day, and we expect Q3 to be more or less in line at $47,000. This is a result of taking too much charter coverage into 2021, but we are seeing an increasing spot exposure both for the reminder of '21 and significantly increased into 2022. As mentioned, we used the countercyclical strength to fix one of our ships on a five-year charter during the quarter, increasing our backlog to $259 million. Also as announced during Q1, we repaid $60 million in upfront debt repayments in return for a total debt reduction of $102 million on four of our ships.

Turning to Slide 14, the LNG market both the commodity itself and shipping freight rates has witnessed a real upturn in the first half of the year. From a shipping perspective, China's considerable growth in imports as well as higher prices in Asia is pulling tonnage demand higher as witnessed by the 15% growth in ton miles, compared to the first half of 2020. Although the LNG prices remained high, it's been somewhat volatile benefiting an active trading environment, which again benefits shipping. Another interesting factor we're paying attention to is the steep rise in asset values as steel prices and reduced shipyard availability start to reflect on LNG newbuilding quotations. LNG carriers was quoted at around $180 million newbuild price around 12 months ago, and it's now up to around $210 million for new orders placed today. We see early signs of these trends also creeping across to second-hand values across LNG shipping.

Turning to Page 15, we don't only see the market being strong at the moment, we see that we have fundamental support for continued strength of LNG freight rates. From a volume perspective, we see the geographical imbalance between growth in supply, which is primarily taking place in the Atlantic and growth in demand, which is still focused in the Asia-Pacific and we only see that continuing to materialize over the next five years driving ton miles. As we have previously alluded to, the shipping market is also likely to face a capacity constraint due to new emission regulations that will impact, in particular, the older part of the fleet on steam propulsion. The increased obsolescence of tonnage built in the 1990's and earlier, coupled with limited additional orders, should together with an expanding LNG trade translate into tight shipping market balance going forward. Based on the current positive market outlook for LNG carriers, we have reengaged initiatives to refinance our shipping fleet non-recourse to Golar and evaluate alternatives for a separation of our shipping segment.

Turning again to the last section of the presentation today, corporate and strategic focus. On Slide 17, we've laid out the earnings power of Golar's existing asset portfolio. To start up on the top line, you can see that our last 12-month adjusted EBITDA for shipping is a $119 million. This assumes $48,400 in average TCE. The $10,000 change in the TCE across our shipping segment will increase or decrease EBITDA by $32 million. Hence, if you mark-to-market the fleet to the current one-year TCE, there is $140 million upside to the EBITDA generation of our shipping fleet, which we then could see come in at around $262 million.

On Hilli, our pro-rata last 12 months EBITDA was $84 million. As we have spent some time on the presentation today, we have significant oil upside, currently generating cash plus the agreed Train 3 production with Perenco, adding around $70 million of incremental EBITDA based on current TTF and current Brent pricing. That will then increase our pro-rata EBITDA from around $84 million to $154 million. Gimi remains on track to start its 20-year contract in October 2023, and will then add pro-rata of EBITDA of $151 million. Netting off corporate investments, we will then see an EBITDA based on last 12 months plus the contracted EBITDA of Gimi at around $340 million. But with embedded upside included in our asset portfolio, we can easily see this increase by more than $200 million to weigh into the $500 million.

If you compare that to our contractual debt position of around $2.2 billion, remaining capex of around $400 million and cash and liquid assets of around the $1 billion, and then the market cap of $1.2 billion, you will see that we're currently trading on an EV EBITDA to last 12 months adjusted EBITDA of eight times, or five times if you include the embedded upside in the asset portfolio. We believe trading between five times and eight times, is a significant discount to where we can monetize 10-year -- 20-year cash flows to BP, and also -- this is also before pricing in any growth across Golar's platform. So we remain optimistic and encouraged by the supporting fundamentals across shipping and FLNG. And we believe we are now at the very healthy capital structure with a significant capital buffer of around $1 billion.

Turning to Slide 18 for a summary and outlook. As announced, we have increased the capacity utilization for Hilli, which will then add anywhere between $113 million in EBITDA backlog on current TTF, or $373 million on the current price. We're progressing with an existing customer for the contract over 5 million ton Mark III new building, and we have expanded our FLNG team and are currently evaluating several integrated FLNG projects. On the shipping side, we see term rates higher than spot rates supporting further fundamental strength. We have an increasing spot exposure across our asset portfolio, and we see asset values rising on the back of a stronger freight market and higher new building prices.

On corporate and investments, our adjusted EBITDA came in at $67 million. Our net income, following the sale of NFE, was $471 million, which equates to a big equity of $17 a share. We have a strong cash and liquid asset position of approximately $1 billion. And we will focus our efforts on refinancing our upcoming convertible bond maturity, and further Group simplification by separating FLNG and shipping.

That concludes the prepared remarks of today's call, and I would like to hand it over to the operator for any questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Ben Nolan from Stifel. Your line is open. Please ask your question.

Ben Nolan -- Stifel -- Analyst

Hey, good morning. So I'll start, I guess, well, boy, there is a few things. Let me start with the Mark III that you talked about and the potential development there. Can you maybe frame in how far those conversations are at the moment? Or when you would think is a natural progression toward something more definitive?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Sure. So I think there's a couple of things. When you talk about these type of things, it's always dependent on the charter taking a binary sort of yes/no decision at the end of the day. But I think there are a number of factors supporting why both the charter, us, and every other stakeholder in the project would see benefits in progressing this as quickly as possible. I think number one and the most important driver right now is, of course, the gas price. There is a lot of money left on the table for every day you wait. Second, it's the cost of building a Mark III, and when you see steel prices going the way it's going and yard activity sourcing significant orders for fairly large complicated vessels like, large container orders and then waiting one day with an investment decision is more than one day of delay due to the lack of yard capacity. Lastly, I think in the search for alternative liquefaction solutions, I think we have proven that the cost point, the carbon footprint and the operational track record of our FLNG technology is more competitive than other solutions. And we are confident that such studies have now been concluded and, therefore, can open up for the next phase, which then should be in everybody's interest to move ahead as quickly as possible.

Ben Nolan -- Stifel -- Analyst

Okay. So is this something that I guess obviously maybe at somewhat out of your control, but is it something that you see as a 2022 kind of event? Is that a fair framework?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Yes, I would say within the next six months to 12 months, maybe six months, more than 12 months, there we should be able to see some significant progress, and be able to update the market on significant progress.

Ben Nolan -- Stifel -- Analyst

Perfect. Thanks, Karl. So -- and then my second question relates to the five-year contract, and really actually just contracting in general. First, I guess, any context on the kind of rate that you can get on a five-year contract? And then is this something that you're looking to do on other ships? Specifically, the one I was thinking of is the Tundra. I mean, is there any room for that to be contracted as an FSRU on a long-term basis?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Sure. So there is a couple of things in those questions. So when it comes to the five-year charter, to be specific, that is for a carrier and not to a Tundra as an FSRU. One of the reasons why we decided to do it is that when you have a meaningful shipping fleet, it's helpful to tie in some of the ships, especially if you can do it way above or well above all-in cash breakeven. Doing a five-year term on one ship also helps with our discussions with the bank in where and how you can potentially refinance the shipping fleet non-recourse to Golar to prepare the shipping fleet for a separation from our FLNG business. So, the driver of why we decided to fix was that we could -- it helps refinancing, it's also been attractive rate compared to what we have made on the ships historically. And we are generating decent free cash flow to equity on that charter. When it comes to Tundra, we are increasingly confident that we will find work for her as a FSRU. There are several projects where the specifics on Tundra is interesting. Tundra has a very high throughput and 170 cube storage, instead of 160 cube. So she is very well suited for certain projects. And if we were to do a shipping spin, that would likely not include Tundra. But we would like to keep Tundra until we have fixed her, and then look at alternatives for her. That's how we see it.

Ben Nolan -- Stifel -- Analyst

Perfect. All right. Thank you.

Operator

[Operator Instructions] And your next question comes from the line of Chris Tsung from Webber Research. Your line is open. Please ask your question. Chris Tsung, your line is open, please ask your question.

Mike Webber -- Webber Research -- Analyst

Hey, guys, good morning. This is Mike Webber actually on for Chris. How you doing?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Hey. Hi, Mike.

Mike Webber -- Webber Research -- Analyst

Okay, good. So I just wanted to follow up on the carrier spend specifically, so refinancing the carriers presumably the idea there to just get them under a single facility to make it easier spend, but even delevering those carriers for a while, leverage levels we would assume to be relatively flat all things considered on a refinance basis?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Yeah, I think that's a fair assumption. We're down to around 108 [Phonetic] in that per TFDE. I think if you went to the leasing market, you could probably get proceed slightly above that. If you go for a normal bank financing, it's slightly below that, but it's variations around that number. And so it's really up to the sort of final structure that we see most suitable whether it sort of makes sense to do a bank package, or whether you go with the combination bank lease or full lease. So dependent on exactly what structure we could look like, there could be fairly minimal further deleveraging needed, but on a stand-alone basis, we can refinance the fleet non-recourse without any further cash injection.

Mike Webber -- Webber Research -- Analyst

Okay, that's helpful. And so I mean it's always been one of the complicating kind of impediments to spinning the carriers. Given the idea, all else equal, what kind of timeline you'd be looking at to do that?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I think this year has, obviously, seen quite a lot of changes across the Company portfolio with the NFE transactions concluded. I think we now sort of freed up time to take a thorough look at this again, and to be fair, I think, we -- it was quite public that we were very close to solve this around two years ago. It's then been sort of parked for a bit, but now we will reengage any and all such discussions. I think, to be fair, there's a lot of corporate activity that's happened across the LNG space with gas flow [Technical Issues] private, and the large corporate transaction in selling of Hygo and GMLP. So we're encouraged to see that across LNG, and we believe that there are some opportunities worth exploring. And with the rates where they are, it's difficult for investors to obtain pure-play shipping exposure. You can, of course, buy Flex, but that's already gone more than three times. We're encouraged to see that because that makes way for -- we think more shipping exposure, pure-play shipping exposure.

Mike Webber -- Webber Research -- Analyst

Sure. And acknowledging that you have a number of options in this regard, is the idea -- are you still primarily pursuing scenarios that involve a specific counterparty involved in a carrier fleet, or just something where it could be spun out of the public markets?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

No, it could easily be the latter. I don't think -- we're obviously exploring a couple of alternatives and what we think would be the best solution, but stand-alone without any other involved partners is certainly on the table as well.

Mike Webber -- Webber Research -- Analyst

Sure. And then my follow-up on the Hilli. You did a good job of laying out the different scenarios for adding additional volumes there in the deck. Just curious in terms of the term. I know my understanding has always been a volume-based contract to begin with, you guys are kind of playing with the volume a little bit now, and I know some of that is contingent on Perenco's inland -- or not inland, in country, I guess, drilling activity. Has there been any conversations or substantive conversations around extending the term of that -- of the underlying contract on that asset at least for the base -- the baseline volumes? Or is that something you would expect to be more relevant after you figure out toggling to utilize more trains three and four?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I think the fair thing to say there is that we have been extremely clear with the market and equally clear with Perenco that we are not talking about extension before we see expansion. So there is only one word starting with an E that we have been open to discuss. We concluded the expansion now in July. So up until now, that's completely off the table for us. I think from here onwards, it's obviously -- the door is more open than it has been in terms of extension. But back to the slide that we presented in the deck and how we see FLNG economics on Slide 11, our primary target would be to deploy Hilli on the gas field that we control ourselves. But we would certainly be open to find solutions with partners in general, and we'd like to work with Perenco, so that could be an option as well. But it has -- it needs to come down to what the contract structure looks like -- look like. We are, of course, encouraged that Perenco will now drill another two wells to three wells because dependent on the gas flow and the reserves of those wells, I think there are some additional conversations that very quickly will start to esclate. But I think, we also tried to mention during the call that we've made some we think very good hires in strengthening our upstream team, and we're already seeing some of the benefits of that and there are some quite interesting fields that we think we could redeploy at Hilli on as well.

Mike Webber -- Webber Research -- Analyst

Got you. Okay. I'll save my follow-up. Thanks, guys. Appreciate that.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thanks.

Operator

Thank you. And your next question comes from the line of Chris Wetherbee from Citi. Your line is open. Please ask your question.

James -- Citi -- Analyst

Hey, guys. James on for Chris. Just wanted to follow up on the line of questioning around the spin. How does essentially the new regulation sort of play into that? Is there any timing aspect around that or milestones we should be aware of? Or is this essentially all out there areas which is something you're ignored and just progressed. As you see fit, just kind of want to understand if there is anything to be aware of there?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Sure. So the new regulation will come effective from 1st of Jan '23. We see that mainly affecting steam carriers, which we see as a big benefit because they represent just over 40% of the fleet on the water, and if 40% is either obsolete or need to slow down, that will have a very positive supply effects. We only have one steamer left in our fleet, which is the Arctic. Other than that, we're in the TFDE's, which should be far less affected other than fleets through positive support for rates. So we are welcoming that change and I'm looking forward to it. I think in terms of triggers, we have previously looked to do shipping spins with partners, and I think it's fair to say that if we do it again, we will be open to do it with partners, but we will not expose ourselves to a situation where we're reliant on them. And when the debt level per ship is down to the level we're at now, we believe it's fully doable to do this on a stand-alone basis should we wish to do that as well.

James -- Citi -- Analyst

Got it. But given the strength of that catalyst, is it possible or do you think it might make sense to wait a little bit, or wait till the back half of '22 or maybe even into '23? Or is it just something where you don't think that it'll actually -- or you expect sort of whatever you're going to get forward to reflect that and it shouldn't be much of a concern one way or the other, just trying to understand your view for the outlook versus the timing of the spin timing?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

We agree that as a shareholder holding LNG shipping into that time period is probably one of the more interesting that's been through the history of LNG carriers. However, we don't necessarily see a spin as a sale. As long as you spin it and maintain the equity, then we think that's really doable. So if you want to think about it today you own one Golar LNG share, which has FLNG exposure and shipping exposure. What we see is that we struggle to get the efficient pricing because people that want the shipping exposure don't necessarily won't be FLNG and vice versa. Hence, for us what we're considering is just to get the shipping fleet into a separate exposure, and then potentially to handout the share in the shipping venture. And then instead of holding one FLNG share with two exposures, you will have one GLNG share, which is an FLNG company, and then another share which is a shipping company.

James -- Citi -- Analyst

Got it. All right. And then sort of a separate item. Just understanding how you might possibly structure another FLNG deal, you guys have sort of benefited a lot from the flexibility provided by the liquidity you've gained. So potentially like, how would you think about funding an FLNG project? Would you take on a partner initially? Would you think about some other source? Just trying to understand how you're thinking about the structure of potential deal whenever it does come about.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

There you need to distinguish between tolling arrangements, so that's a deal similar to BP. So if we were to do sort of a repeat of Gimi building against long-term contract, we would like to do a newbuild and would expect to get yard financing. So the equity requirement during construction would be significantly lower than the sort of pay-as-you-go structure that we have on Gimi and also have on Hilli. And we think we have sufficient cash and marketable securities to fund our share of such a project. When it comes to integrated, and if we were to purpose build an FLNG, we would likely require partners, but we are also looking into alternatives for redeployment of Hilli in 2026 when it turns off it's existing contract. And then, of course, the capex has been taken, and we've already amortized a very large portion of the debt by that time. So then it should be very limited equity need in order to redeploy her on a separate entity. And we also think we can do that from our own balance sheet. So that's how we think about it at the moment.

James -- Citi -- Analyst

Great, thank you.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thanks.

Operator

Our next question comes from the line of Randy Giveans from Jefferies. Your line is open. Please ask your question.

Randy Giveans -- Jefferies -- Analyst

How are you gentlemen, how's it going?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Hey, Randy.

Randy Giveans -- Jefferies -- Analyst

Question on the term sheets you received for the new refinancing facilities in excess of $500 million, liquidity release of $250 million there. I guess, what assets will be used for collateral? And what are the hurdles or maybe timing to get this closed?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Sure. So we have been looking at some alternatives on how we can free up additional liquidity at fairly attractive terms. And we do believe we have some under-levered assets. So on those term sheets, that relates in part to Tundra, which currently has around $107 million of that. We have some letter of credits, which are cash back that could be released. And we are also having a very sort of under-levered position in NFE, where we have $100 million against our shareholding there. So that's some of the venues that we are exploring. In addition to those, I think it's fair to say that Gimi is under-levered. We have $700 million of debt against the $4.3 billion backlog project. I think as we have seen increased capacity utilization of Hilli, neither Train 3 or the oil derivative has any leverage against it, and neither does our Avenir shareholding. So those are some of the venues that we are exploring. We are, of course, price sensitive when discussing these alternatives. But we do see the need -- or we should see the benefit in raising some extra liquidity, if we can do it at attractive terms now that there is significant potential growth pipeline across FLNG, in particular, and these integrated upstream alternatives.

Randy Giveans -- Jefferies -- Analyst

Okay. And then I guess if that does conclude, would that be the way to repay the converts without selling NFE shares at these relatively low prices?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Yes. So as we write in the report, we are and we tried to be very consistent on this since the NFE transaction was announced. We will -- we were not out of the lockups, that's expired on July 15. We've always said that we will be sensitive to Golar share price and NFE share price and near-term funding needs at Golar when deciding on what to do with our shareholding in NFE. And at current levels, we find it best to tap these alternative sources to address the upcoming convertible bond as opposed to having to do anything within our NFE holding.

Randy Giveans -- Jefferies -- Analyst

Got it. I guess last question on Slides 8 and 9, there is pretty significant upside or downside to the Train 3 EBITDA contribution. So -- and it looks like it's entirely linked to TTF. Are you going to hedge any of this, or do you have a floor EBITDA contribution that you expect for next year?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I think it's fair when it's linked to TTF, neither us nor Perenco would accept to do that at a loss. So the contract is structured in a way where we can't lose money on the incremental production on TTF. But we both wanted to be aligned and we have for a long time, as you know, for it to increase the capacity utilization of Hilli, but also to increase the gas exposure. So, yes, there is a floor. It's impossible to lose money on that, but there is significant upside. We don't have any current plans to hedge it out because we like the dynamic of what we're seeing in the LNG market. Then if you look at the hedging curve, it's so backwardated up. You're probably better off staying spot.

Randy Giveans -- Jefferies -- Analyst

Got it. That is it for me. Thanks so much.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thanks.

Operator

And your next question comes from the line of Sean Morgan from Evercore. Your line is open. Please ask your question.

Sean Morgan -- Evercore -- Analyst

Hey, guys. So it looks like the priority right now in terms of additional developments on the FLNG side will be Mark III newbuild. Does this have any implications for the Gandria and the future of the Gandria? Is there a kind of a market preference for kind of bespoke builds for specific projects, or do you think that the conversion for the Gandria would still make sense given the right project?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

It can certainly make sense. I think what we're trying to say in this report is that we're making progress both on -- we tried to say that we separate our FLNG, the way we think about the FLNG in tolling and then integrated. On the tolling side, the most advanced and most likely near-term discussion is the newbuild Mark III, and in that you're absolutely correct. But we are absolutely making progress when it comes to integrated as well. And for integrated, Gandria is a solution that could be deployed. There are some benefits using Gandria. We obviously have a very large study done on her in relation to -- referred to in our discussion back in the OneLNG days. She could be somewhat quicker to deploy given that the hole is already there. But we will remain open to both. But if you have to ask about timeline, I would say that the Mark III is significantly more likely near term than anything with Gandria. And currently Gandria is sitting outside of Singapore, and has no debt against her, and probably a scrap value of around $20 million. But we think a worth as a sourcing of a Mark III design -- I'm sorry, Mark I design significantly more than that.

Sean Morgan -- Evercore -- Analyst

Okay. And what would the capacity be for the Gandria, if you were to do the conversion compared to the Mark III? I think, its five for the Mark III. It's a smaller -- there will be a smaller solution, similar to Hilli?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Yeah. About a full quarter of Hilli and Gimi. So...

Sean Morgan -- Evercore -- Analyst

All right. Okay, thanks a lot.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thank you.

Operator

Thank you. And your next question comes from the line of Ken Hoexter from Bank of America. Your line is open. Please ask your question.

Ken Hoexter -- Bank of America -- Analyst

Great. Good afternoon, good morning. Just on the Hilli, the 100% upside, congrats on keeping that fully running and operating. Is there any scheduled drydocking we should be aware of or anything that slows performance? And then the agreement on the third train, how did the discussion -- the discussions progress on the fourth train and the potential to get that up and running? Let me just stop there. Thanks.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Okay. So just to start off on the latter, Train 4, so Perenco is now proving or drilling up two wells to three wells. They have an option from '23 to '26 on doing another 0.4 million tons, but it really depends on the gas flow and the reserves for those incremental wells. Currently, we do not expect utilization of Train 4 during the current contract period just on the back of what's known to be the reserves at the current location or Hilli. But that could obviously change when you do actual drilling and see the flow and can measure the reserves. So I think for that one, I would say it's unlikely that we could do Train 4 during the existing contract period, but it's subject to the outcome of Perenco's drilling campaign that's now coming up. Sorry, the other half of your question was?

Ken Hoexter -- Bank of America -- Analyst

Just a simple one. Is that -- you've had the 59 loads, is there anything that disrupts that going forward, any type of drydocking that has to occur, any downtime?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

There is no current -- there will be no drydocking for the remainder of the contract period. There are some scheduled maintenance windows and every time we have shut down to do those and ramp back up again, it's been done successfully at either the -- they've sort of budgeted time or quicker. So we are very happy with that and we don't foresee any shutdowns or downtime, which is not scheduled. And there are certainly no drydocks.

Ken Hoexter -- Bank of America -- Analyst

Perfect. And then for the Gimi, is there any impact in -- that you've had on COVID on construction on downtime? Are there, I guess, any constraints on, or penalties on delivering late or anything just on the timing of that delivery?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I think it feels like the 11 months of FM was enough of COVID effect on that one. So that we certainly felt, but on a slightly more serious note, we obviously keep monitoring the situation. I think the fifth and final drydock is now complete. We've booked around 10.7 million of the working hours to date, and the project is progressing according to the timeline. The only sensitive -- the COVID sensitivity going forward is the availability of sourcing some workers or non-Singaporean workers and you need to get those into Singapore. If the situation worsens or became more problematic in Singapore, we need alternative plans to source such workers and we are working with Keppel. Keep in mind, Keppel Capital is a 30% shareholder here. So we were aligned with Keppel to find solutions to source such workers elsewhere. So I would say, the situation is pretty much under control, to the extent you can keep the COVID situation on the large construction project under control. There is around 2,500 people working on the vessel every day, and for now we haven't had any significant COVID outbreaks across the workforce.

Ken Hoexter -- Bank of America -- Analyst

Great color. And Eduardo, it's a great rundown, great slides on running through the updates on each of the different parts and the simplification of it. Just one last one for me, just you've mentioned the monetizing the potential monetizing of the NFE stake is there -- it sounds like you don't have any plans? I mean, we passed the July 15 date. It sounds like you want to keep that? Maybe just give us your thoughts on given the simplification of the structure, what are your thoughts on the stake there?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I can start and then Maranhao can chime in, because he's obviously intimately familiar with Hygo. But we -- when we sold GMLP and Hygo to NFE, that in itself injects around $0.5 billion of EBITDA into NFE, around $300 million [Phonetic] of which generated from GMLP, and Hygo in sharp growth with significant terminals under construction or in development in Brazil, which will see a significant ramp up of volumes over the coming months and quarters. So what we see is that if you add the tools for trade, if you like from GMLP, the embedded growth of Hygo and top that with the existing asset portfolio of NFE, we think that it's an extremely attractive play. We are, of course, disappointed by how the share price has evolved since the transaction was announced on January 13. But we remain encouraged to see that the industrial and strategically important terminal that NFE is building will get into fruition. If you add the fast LNG solution where we're working together with NFE, we think if they can obtain that integrated model, there is some very significant potential in that share, and that's why we're encouraged to keep it. But Maranhao knows far more about the Brazilian terminals and the ins and outs of that than I do.

Eduardo Maranhao -- Chief Financial Officer, Golar Management Ltd.

Yeah, if I may just add a couple words here on the -- on how we see their performance on the recent terminal developments. I think we remain extremely confident on their ability to deliver on the -- on their business plan in special with the continuation of the projects that we had ongoing in Brazil. I think the various terminals in different jurisdictions [Phonetic] we have seen significant progress since we announced the transaction, and we remain in close dialog. And as I said, really confident on NFE's ability to deliver on that. So having said that, we really believe that the market does not fully value everything that NFE has been delivering so far, and we have been addressing alternative ways to further provide ample liquidity to Golar to address our upcoming refinancing needs as we have explained in the presentation.

Ken Hoexter -- Bank of America -- Analyst

Great. Appreciate the time, guys. Thanks, guys.

Operator

And your next question comes from the line of Liam Burke from B Riley. Your line is open. Please ask your question.

Liam Burke -- B Riley -- Analyst

Thank you. Hi, Karl. Hi Eduardo. How are you?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Hi, Liam.

Eduardo Maranhao -- Chief Financial Officer, Golar Management Ltd.

Hey, how are you there? [Phonetic]

Liam Burke -- B Riley -- Analyst

Karl, could you go back to the Mark III and how you envision the contract pricing of the project? It will be tied to TTF, or is it tolling or is a combination of the two?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

On the Mark III, we're currently discussing the contract arrangement as a sort of fixed price tolling similar to what we have on Gimi. When it comes to the pricing of the Mark III itself, so the capital expenditure, we expect the fixed price EPC contract.

Liam Burke -- B Riley -- Analyst

Okay, great. And the returns or the attractiveness of these projects or the FLNG projects are pretty nice. Do you see any competition on lower cost alternative or lower priced alternatives here?

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

I think it's fair to say that there is like three, four people that have done FLNGs. It's Shell Prelude, you got the Exmar, Tango, you have the Petronas units, and you have us, and then of course NFE is working on their fast LNG solution. I think if you take -- if you exclude NFE for a minute -- but on the cost per liquefaction, I think we're highly competitive, if not the most competitive. When it comes to operational track record, we have a better track record than any of the ones mentioned with 100% uptime since delivery. And from an opex point of view, that's also attractive. So I think, at the end of the day, if you look at FLNG economics, again, as highlighted on Slide 11 in the deck, and you will see that it's far more important. Well, we are competitive on all these parameters, but the most important thing is that you have a reliant service, we're able to capture the upside when gas prices are as they are now or even better if they are like they were last winter. So at the end of the day, I think our price point and our operational track record is the real attractiveness. And when it comes to NFE, I don't think they have an ambition to produce LNG for others, but rather use for their own takes, so we don't see them as a competitor on tolling business.

Liam Burke -- B Riley -- Analyst

Great. Thank you, Karl.

Operator

And there are no further question at this time. Please continue.

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Thank you all for dialing into the call. Again, sorry for some delays and sort of a bit of mess with the conference call dial-in to get go here. But we're glad that you could all stay on and thanks for relevant questions, and let's speak soon. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Karl Fredrik Staubo -- Chief Executive Officer, Golar Management Ltd.

Eduardo Maranhao -- Chief Financial Officer, Golar Management Ltd.

Ben Nolan -- Stifel -- Analyst

Mike Webber -- Webber Research -- Analyst

James -- Citi -- Analyst

Randy Giveans -- Jefferies -- Analyst

Sean Morgan -- Evercore -- Analyst

Ken Hoexter -- Bank of America -- Analyst

Liam Burke -- B Riley -- Analyst

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