Golar shoots skywards

Golar LNG’s stock is running hot in the US today following news of its first dip into the floating LNG market.

Spin-off Golar LNG Partners is also gaining traction in the belief it will benefit from more dropdowns as its parent looks to generate cash for the $500m project.

RS Platou Markets brands the idea to convert up to three ships into floating LNG production vessels as an emerging game changer for Golar.

“If successful, a massive value transfer from oil companies to Golar LNG could emerge as the current LNG production cartel could be broken,” Platou analysts Herman Hildan and Frode Morkedal wrote in a note to clients.

They added: “A successful FLNG conversion will be a big game changer for GLNG as it can offer a full infrastructure solution between gas markets.

“There are still many loose ends on the economics, but we highly recommend owning Golar LNG as the details emerge.”

Golar LNG shares were up 9.86% at $42.74 each on the Nasdaq at the time of writing.

Michael Webber of Wells Fargo, who predicted Golar's FLNG debut last month, said: “We view the move into FLNG, where potential unlevered returns could hit the low-to-mid-20% range (albeit with substantial potential operational/construction risks), as a material positive for GLNG, as it diversifies its asset mix and likely leads to higher return, long-term projects with stable cash flows.”

While no FLNG charters are yet in place for Golar, Webber notes the owner is currently involved in bidding for two potential FLNG projects that could come to fruition over the next several quarters.

One is in west Africa and the other in Douglas Channel, Canada.

Golar says it expects to use cash, future earnings and debt to fund the first conversion, which Webber prices at $500m. An equity issue has been all but ruled out.

The reliance on cash reserves means Golar Partners is likely to benefit from extra dropdowns.

Its units were up 3.14% at $31.21 on the Nasdaq at the time of writing.

Webber says Golar is expected to drop down two or three vessels to the MLP in the next 12 to 18 months.