Golar LNG Limited (GLNG)

CoolCO spinoff details announced today, with listing on the Oslo Exchange imminent.

This is good news, and they appear to have met their original goals in the spinoff.

Here is the December 15 Stifel piece on the original announcement...

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The Ships.

Golar is spinning out eight TFDE vessels that are of an average age of just over seven years. LNG shipping spot rates are currently at strong levels on healthy demand and should remain relatively good over the coming years. Thus, the window is likely open for an LNG shipping pure play. As part of the agreement, Eastern Pacific will make a $150 million investment on the basis of the ships being worth $145 million each or $1.16 billion collectively. With $858 million of debt, the equity value is ~$300 million and leverage would stand at ~75%. That would make Eastern Pacific a ~50% ownership, Golar would own 33%, and with ~$50 million of additional equity financing, remaining public shareholders would own ~17%. While having a standalone LNG shipping equity could be helpful, investors would have to be more optimistic than we are to own the company on the merits of those eight ships alone. Assuming a good valuation, there is the possibility of raising incremental equity capital to grow accretively, although that would be relying on capital markets which may not always work out. Otherwise, paying down debt could accrete value slowly, and assuming spikey LNG shipping spot markets, unexpected cash flows could help build organic equity capital to grow, but that will take time, and favorable LNG shipping markets.

New Golar.

As part of the deal, Golar will receive ~$200 million of cash for 66% ownership in CoolCo and remain invested in CoolCo with 33% of the company, a ~$100 million value. That reaffirms our valuation of the eight shipping assets and turns two-thirds of that into cash, which we believe is fantastic for Golar, given its desire to focus on FLNG production. Following the spin, Golar will have 50% ownership in two similar LNG carriers, full ownership of one FSRU, a stake in New Fortress (NFE), a stake in the Hilli Episeyo FLNG unit, the Gimi which is being built for the Tortue field, and a number of smaller investments. $858 million of debt is set to move with the ships. Based on our spot and contract rate assumptions for 2022, we estimate that EBITDA from the eight ships would be about $125 million. Comparatively, debt service (interest and principal) is probably closer to $130 million. Consequently, owning the ships is actually a slight cash drain on the company, and this is a "good year." While the vessels will accrete value over time as they pay down leverage, it is not a big cash flow loss for GLNG to spin these assets out. Less leverage and more available cash flow should enhance Golar's ability to fund FLNG growth. There is $426 million of remaining capex on the Gimi, which should be largely funded by committed financing. Importantly, we expect at least one but perhaps several new FLNG projects to materialize in 2022, and this transaction is preparing the company for those developments.
Valuation. As part of our $18 sum-of-the-parts valuation, we had been assuming $150 million per vessel, so the $145 million of implied value as part of the transaction is largely in line with our assumptions and reinforces the value proposition. We estimate that Golar remainco EBITDA should be around $250 million and jump to $400 million with the delivery of the Gimi. With $1.6 billion of post-spin fully delivered debt, and assuming 10x EBITDA (a contracted infrastructure multiple), we believe Golar could have a $4 billion enterprise value of which $2.3 billion ($21/share) is equity value, not including any value from NFE shares which are currently worth $400 million ($4/share) or before assuming any growth. Our current target price discounts several years and uses a lower multiple, we certainly believe that level of upside is doable if not likely.

Should situation with Ukraine-Russia-EU-US devolve to war, it is almost certain that Russia would weaponize its NG to EU.

News today indicates the US has been working with major LNG producers to seek new supplies as contingency.

GLNG is very well positioned to provide supply, via its new projection of HILLI, and it is indexed its supply to TTF pricing. All these position GLnG favorably in what may become a chaotic gas market ….

It is interesting that GLNG shares now trade close to the level when the sale of HYGO to NFE occurred.

There was much hoopla than because, at NFE $55/sh, and having received 18.6M NFE shares, the HYGO part was values at $1B.

Today, NFE is $23/sh, meaning that their mark-to-market loss in their NFE holdings is $600M, or about $6/sh.

So what does this mean? I think the fact that GLNG shares haven't declined $6/sh in the last year is indicative of 1- that their other prospects have brightened considerably, 2- that the market had been severely undervaluing GLNG shares for its FLNG business, 3- that the market doesnt believe NFE shares will continue at this low level.

Its some mix of all three. If it is mainly item 3, then the a better trade is to buy NFE shares at their current 52-wk low levels. If NFE shares can't recover, and slide yet more, then eventually there will be a hit to GLNG valuation. If its mainly item 2, then GLNG shares may yet further decibel from NFE as the announcement of a new FLNG contract at the BP Tortue project comes forward in 1H2022.

Dutch TTF futures jumped over 10% today on contracts from April 2022 thru March 2023. They are now prices at about $30/mbtu.

The January-March 2022 TTF rates are today quoted near $50/mbtu.

I would expect to see GLNG to lock more of these astronomical rates in for its augmented HILLI production in 2022, that is indexed to Dutch TTF. Their contract with Perenco call for a floor in income from this new production at about $8/mbtu Dutch TTF.

Dec 15 Flash Note from Stifel Provides an Assessment of Implications of the Planned Spin-Co...

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BUY
Price $11.50 (intraday 12-15-21)
FLASH NOTE

Golar Steps Closer to Being a Pure LNG Infrastructure Company

Summary

This morning Golar announced plans to spin out eight of their LNG carriers into a new company called Cool Company with Eastern Pacific Shipping. The new company plans to list in Oslo in 1Q22 with a equity valuation of ~$300 million. The funds for the new company would be sourced from Eastern Pacific's commitment of $150 million, ~$50 million of incremental equity, allowing Golar to retain a one-third interest.

Importantly, the valuation is right on what we have been assuming in our $18/share sum-of-the-parts analysis. By removing $858 million of debt from the Golar balance sheet, the company should be able to focus capital on developing the floating LNG production business. While the move has been telegraphed for years, and we do not expect it to be transformative to value, we certainly believe should the deal be
finalized, it should be helpful to realizing greater long-term value.

Key Points

The Ships.

Golar is spinning out eight TFDE vessels that are of an average age of just over seven years. LNG shipping spot rates are currently at strong levels on healthy demand and should remain relatively good over the coming years. Thus, the window is likely open for an LNG shipping pure play. As part of the agreement, Eastern Pacific will make a $150 million investment on the basis of the ships being worth $145 million each or $1.16 billion collectively. With $858 million of debt, the equity value is ~$300 million and leverage would stand
at ~75%.

That would make Eastern Pacific a ~50% ownership, Golar would own 33%, and with ~$50 million of additional equity financing, remaining public shareholders would own ~17%. While having a standalone LNG shipping equity could be helpful, investors would have to be more optimistic than we are to own the company on the merits of those eight ships alone. Assuming a good valuation, there is the possibility of raising incremental equity capital to grow accretively, although that would be relying on capital markets which may not always work out.

Otherwise, paying down debt could accrete value slowly, and assuming spikey LNG shipping spot markets, unexpected cash flows could help build organic equity capital to grow, but that will take time, and favorable LNG shipping markets.

New Golar.

As part of the deal, Golar will receive ~$200 million of cash for 66% ownership in CoolCo and remain invested in CoolCo with 33% of the company, a ~$100 million value. That reaffirms our valuation of the eight shipping assets and turns two-thirds of that into cash, which we believe is fantastic for Golar, given its desire to focus on FLNG production.

Following the spin, Golar will have 50% ownership in two similar LNG carriers, full ownership of one FSRU, a stake in New Fortress (NFE), a stake in the Hilli Episeyo FLNG unit, the Gimi FLNG unit which is
being built for the Tortue field, and a number of smaller investments.

$858 million of debt is set to move with the ships. Based on our spot and contract rate assumptions for 2022, we estimate that EBITDA from the eight ships would be about $125 million. Comparatively, debt service
(interest and principal) is probably closer to $130 million. Consequently, owning the ships is actually a slight cash drain on the company, and this is a "good year." While the vessels will accrete value over time as they pay down leverage, it is not a big cash flow loss for GLNG to spin these assets out.

Less leverage and more available cash flow should enhance Golar's ability to fund FLNG growth. There is $426 million of remaining capex on the Gimi, which should be largely funded by committed financing.

Importantly, we expect at least one but perhaps several new FLNG projects to materialize in 2022, and this transaction is preparing the company for those developments.

Valuation.

As part of our $18 sum-of-the-parts valuation, we had been assuming $150 million per vessel, so the $145 million of implied value as part of the transaction is largely in line with our assumptions and reinforces the value proposition. We estimate that Golar Remain-Co EBITDA should be around $250 million and jump to $400 million with the delivery of the Gimi.

With $1.6 billion of post-spin fully delivered debt, and assuming 10x EBITDA (a contracted infrastructure multiple), we believe Golar could have a $4 billion enterprise value of which $2.3 billion
($21/share) is equity value - not including any value from NFE shares which are currently worth $400 million ($4/share) or before assuming any growth.

Our current target price discounts several years and uses a lower multiple, we certainly believe that level of upside is doable if not likely.

Worth listening to this interview … 2yrs ago about the then estimated value of GLNG, given their imminent spinoff. 2 yrs later, and not yet entirely done, but the argument of value in the spinoff, and especially the overall company value remains. They have since sold their Part of Golar Power to NFE, sold their GMLP stake, . The current market value of their NFE 18.6M share holdings is low, that is currently only $400M. The net equity value of the spinoff fleet is about $300M. So those two together are currently market valued at $7/sh. But soon, none of the shipping will be on the balance sheet, as also the HYGO has been divested to NFE last yr, which also cleaned the balance sheet.

So now - much better than 2 yrs ago - you can make a sharper analysis of the value of their FLNG business. Since 2 yrs ago, HILLI has performed flawlessly. Its production is about to increase in 2022, and likely further in 2023. Given the increase value of LNG and oil-indexed Hilli production, HILLI has become a more valuable asset. GIMMI was delayed by COVID, but now is over 75% completed, and will exit from the yard in about a year, and commence a 20-yr contract in less than 2 yrs. Global LNG demand has greatly increased in the last 2 yrs, and it is likely that BP will do an FID for a second FLNG to support the Tortue project.

So what is GLNG’s FLNGs business worth? On an EBITDA level, the HILLI and GIMMI combine to generate roughly $300M annually, with some variability based on the Hilli indexing to TTF and Brent. Once the $800M debt related to the LNGC fleet is removed from the balance sheet, their remaining debt of FLNG related business is about $1.2B.

If the market valued GLNG shares at an enterprise multiple of 10x EBITDA of the existing FLNG business alone, that is $3B. This implies a market value of the shares from the current FLNG side alone of $15-$20/sh. Add in growth via an imminent second BP FLNG contract , the market value of their NFE stake, and investments in the new COOL Co, and in Avenir, and $30+/sh is easy to justify. We currently trade at $11/sh.

https://stockspinoffinvesting.com/golar-lng-the-spin-off-if-it-happens-will-unlock-significant-value/#

Just using the 2022 Dutch TTF futures contract prices of today, it is quite likely that the 8% boast is HILLI LNG production, which is indexed to TTF, will produce over $100M in additional bottom line income in 2022.

Note from their Nov. 9 Q3 presentation that they estimated $85M in additional income from the new production if TTF were to average $28/mmBTU. That was reflecting the front end Jan-March contract rates at that time, though the remaining 2022 months were then less.

Today, the Jan-March contracts are at about $60/mmBTU, and the remainder of 2022 contracts are pricing at near $35-40/mmBTU. Company 2022

Guidance indicated a sensitivity of $2.8M per $1/mmBtU for annual averaged realized prices above $28/mmBtu. So it’s not much of a stretch to see the 8% increase in HILLI 2022 production generating above $100M in income - or about $1/sh.

Here a bit more info of the planned COOL CO, and the investors….

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Israeli billionaire Idan Ofer has joined forces with Norwegian tycoon Tor Olav Trøim to form a new LNG shipping company, CoolCo.

Under the terms of the agreement, Idan Ofer-controlled Eastern Pacific Shipping (EPS) will invest $150m in the new company, which will acquire Tor Olav Trøim-led Golar LNG’s eight TFDE LNG carriers, with plans to raise equity and separately list on Euronext Growth in Oslo during Q1 2022.

CoolCo is also expected to acquire the commercial and technical organisation associated with the operation of Golar’s owned and operated shipping and FSRU assets.

The anticipated IPO proceeds will, together with a contemplated debt refinancing, be used to acquire the vessels from Golar, secure attractive financing and provide CoolCo with working capital to position the company for further growth, EPS said. The outstanding contractual debt associated with the eight ships was $858m as of September 30, 2021.

Golar intends to retain around one-third of the new entity, while EPS will become the largest shareholder and will chair the board of directors.

Cyril Ducau, CEO of Eastern Pacific Shipping, commented: “EPS is pleased to be adding LNG shipping to our diverse shipping portfolio. LNG will play an essential role as a commodity and marine fuel as the world transitions to cleaner energy solutions. Golar’s solid track record, mature platform, and like-minded vision made this investment an easy decision. As a provider of dual-fuel LNG tonnage across all our segments, EPS looks forward to taking a leading role in making CoolCo a world-class leader in LNG shipping, combining our complementary skills and expertise with Golar’s.”

Karl Fredrik Staubo, CEO of Golar, added: “We are encouraged by the strong underlying market fundamentals for LNG carriers The Cool Company transaction will allow Golar to separate its shipping businesses and simplify its corporate structure, while maintaining significant and attractive exposure to the LNG carrier business.”

Announced today - Germany pauses any decision on NordStream. The TTF NG pricing closed near all time high. ??Gas prices across the UK and Europe are on course to return to record highs after Germany said a controversial pipeline from Russia could not be approved amid deepening tensions on the Ukrainian border.The German foreign minister, Annalena Baerbock, said the Nord Stream 2 pipeline could not be given the green light in its current form because it did not meet the requirements of EU energy law.Baerbock added that the escalating tensions on Russia?s border with Ukraine, where the Kremlin has reportedly amassed 100,000 troops, was ?also a factor? because Berlin had agreed with the US that the pipeline should not be used as a political weapon in Moscow?s deteriorating relationship with Kyiv.Sorry we can't display this here yetView on The GuardianIn response, Europe?s benchmark gas price climbed by around 10% on Monday to a high of #$%$116.75 (�142.56) per megawatt hour (MWh), just shy of the record closing price of #$%$116.78/MWh set in early October, according to market price data from ICIS.The UK?s gas market price climbed to 296.35p a therm on Monday, just below the record closing price of 298.475p on 5 October, according to ICIS data.Europe has experienced record high gas prices in recent months owing to a global squeeze on gas supplies. This has been compounded by a slowdown of Russian gas exports to the continent as negotiations over Nord Stream 2 have stalled. Baerbock?s rejection of the pipeline followed a decision last month to suspend the permission process because the project?s ownership structure failed to comply with the EU?s gas directive.Tom Marzec-Manser, the head of gas analytics at ICIS, said some energy traders had held out hope that the pipeline would be able to deliver some gas this winter, and had reacted to signs of a further potential delay by driving prices back towards record highs.