Cool Company Ltd. Q3 2023 Business Update

HAMILTON, Bermuda–(BUSINESS WIRE)–This release includes business updates and unaudited interim financial results for the three (“Q3”, “Q3 2023” or the “Quarter”) and nine months (“9M 2023”) ended September 30, 2023 of Cool Company Ltd. (“CoolCo” or the “Company”).




Q3 Highlights and Subsequent Events

  • Generated total operating revenues of $92.9 million in Q3, compared to $90.3 million for the second quarter of 2023 (“Q2” or “Q2 2023”);
  • Net income of $39.21 million in Q3, compared to $44.61 million for Q2, decrease was primarily due to lower unrealized mark-to-market gains on our interest rate swaps;
  • Achieved average Time Charter Equivalent Earnings (“TCE”)2 of $82,400 per day for Q3, compared to $81,100 per day for Q2;
  • Adjusted EBITDA2 of $62.8 million for Q3, compared to $59.9 million for Q2;
  • Subsequent to the Quarter, the Company announced that it had entered into sale and leaseback financing arrangements (the “Sale and Leasebacks”) with Huaxia Financial Leasing Co. Ltd for the two state-of-the-art MEGA LNG carriers (the “Newbuilds”);
  • Declared a dividend for Q3 of $0.41 per share, to be paid to shareholders of record on December 7, 2023.

Richard Tyrrell, CEO, commented:

“In the third quarter, we benefited from strong operational performance, a seasonal uplift on our variable rate contract and the fleet’s fixed-rate, medium- and long-term charter coverage. Additionally, we took measured exposure to the charter market in the form of one vessel that we chose to deploy directly in the spot market while waiting for the right term opportunity. The net result was a sequentially higher TCE level at $82,400 per day. While not currently reaching the levels seen in the months following the Russian invasion of Ukraine, rates in the early fourth quarter have settled in at levels above historic norms for both the industry and for the CoolCo fleet. This provides us upside on legacy contracts as they renew and scope to maintain TCE performance.

“During the second half of 2023, newbuild deliveries have been limited and overall fleet supply has remained well-balanced against demand. The last two newbuilds in the market from independent owners that deliver ahead of CoolCo’s 2024 deliveries have now secured long-term employment, positioning our Newbuilds as both the next in line and some of the only uncommitted newbuilds currently available before 2026. Newbuild pricing has remained elevated relative to historical levels at approximately $260 million per vessel, which along with the current interest rate environment is providing significant support to the long-term charter rates available for newbuilds while also discouraging incremental newbuild orders. Moving forward, a continued strength in gas prices and tightening regulations are expected to put increasing pressure on the large number of remaining steam turbine vessels in the market, likely resulting in heavy scrapping in the coming years.

“As the weather begins to turn colder in the Northern Hemisphere, seasonal support for LNG Carrier demand typically ratchets up. We have thus far seen only limited term chartering activity ahead of the 2023/24 winter market, but with the continued absence of Europe’s traditional supply backstop from Russian pipeline gas and few vessels currently employed as floating storage, the potential for weather events to produce volatility, and thus demand for LNG carriers, is heightened. Ultimately, energy security remains a top priority for many LNG importing nations, and we expect European demand to remain strong and Asian demand to continue its recovery. In the meantime, CoolCo is financially well positioned with $1.5 billion of contracted revenue backlog as of quarter end and built-in near-term earnings growth from its fully financed Newbuilds. We plan to maintain a patient, long-term perspective in our vessel chartering decisions intended to provide attractive returns and well-supported dividends for our shareholders.”

Financial Highlights

The table below sets forth certain key financial information for Q3 2023, Q2 2023, 9M 2023 and the nine month period ended September 30, 2022 (“9M 2022”), split between Successor and Predecessor periods, as defined below.

 

Q3 2023

Q2 2023

9M 2023

9M 2022

(in thousands of $, except TCE)

Successor

Successor

Successor

Successor

Predecessor

Total

Time and voyage charter revenues

84,523

82,071

257,761

104,535

37,289

141,824

Total operating revenues

92,901

90,316

281,864

122,723

43,456

166,179

Operating income

48,336

45,484

145,844

62,055

27,728

89,783

Net income 1

39,170

44,646

153,952

54,431

23,244

77,675

Adjusted EBITDA2

62,754

59,894

190,466

75,964

33,473

109,437

Average daily TCE2

(to the closest $100)

82,400

81,100

82,400

66,500

57,100

63,800

Note: As noted previously, the commencement of operations and funding of CoolCo and the acquisition of its initial tri-fuel diesel electric (“TFDE”) LNG carriers, The Cool Pool Limited and the shipping and FSRU management organization from Golar LNG Limited (“Golar”) were completed in a phased process. It commenced with the funding of CoolCo on January 27, 2022 and concluded with the acquisition of the LNG carrier and FSRU management organization on June 30, 2022, with vessel acquisitions taking place on different dates over that period. Results for the nine months that commenced January 1, 2022 and ended September 30, 2022 have therefore been split between the period prior to the funding of CoolCo and various phased acquisitions of vessel and management entities (the “Predecessor” period) and the period subsequent to the various phased acquisitions (the “Successor” period). The combined results are not in accordance with U.S. GAAP and consist of the aggregate of selected financial data of the Successor and Predecessor periods. No other adjustments have been made to the combined presentation. We cannot adequately benchmark the operating results for the nine month period ended September 30, 2023 against the previous period reported in our comparative unaudited financial information without combining the applicable Successor and Predecessor periods and do not believe that reviewing the results of the periods in isolation would be useful in identifying trends in or reaching conclusions regarding our overall operating performance.

LNG Market Review

The average Japan/Korea Marker gas price (“JKM”) for the Quarter was $11.81/MMBtu compared to $11.06/MMBtu for Q2 2023. The Quarter commenced with Dutch Title Transfer Facility gas price (“TTF”) at $10.91/MMBtu and quoted TFDE headline spot rates of $69,250 per day. The Quarter concluded with TTF at $12.61/MMBtu and quoted TFDE headline spot rates of $188,750 per day. The TFDE headline spot rate has subsequently fallen to $167,500 per day, however, achieving this rate is very much dependent on vessel position given market illiquidity.

Coming out of the seasonally quieter summer months in the northern hemisphere, the LNG carrier market has continued to be characterized by a relative lack of chartering liquidity. Both trading opportunities that rely on LNG carriers for floating storage capacity and periods of West-East arbitrage have been limited. Despite European gas storage reaching full capacity, concerns about security of supply have supported gas prices, leading to LNG being regasified rather than held in floating storage.

With Russian pipeline gas still off limits to the majority of Europe, importers have a limited buffer to the risk of natural gas demand spikes during winter weather events. In this context, exacerbated by LNG carrier positioning and recent constraints in the Panama Canal, there is an increased potential for volatility, regional arbitrage, and atypical trading and chartering activity if importers find themselves facing a gas shortage.

The ultimate outcome of the upcoming winter market is yet to be seen, but volatility in the LNG market is likely to be a significant feature in the coming months and years. This is especially true as more destination-flexible volumes enter the market, and energy traders play an increasingly prominent role.

Operational Review

CoolCo’s fleet continued to perform well with a Q3 fleet utilization of 97.3% with the remaining covered by a ballast bonus, compared to 100% for the first half of the 2023. There are no drydocks planned for 2023, with the next drydock expected during the second quarter of 2024.

Subsequent to the Quarter, a ship management services customer has decided to transfer up to nine vessels for which CoolCo currently provides technical management to managers that solely provide ship management services over the course of 2024. This is not expected to materially impact CoolCo’s earnings and we expect to incur some immaterial restructuring costs to adjust our operations in light of this change.

Business Development

On June 28, 2023, the Company announced that it had exercised its option to acquire the Newbuilds, Kool Tiger and Kool Panther from affiliates of EPS Ventures Ltd. (“EPS”). The Newbuilds are scheduled to be delivered from Hyundai Samho Heavy Industries (“HHI”) in Korea in September and December of 2024. The two Newbuilds have been acquired for an amount of approximately $234 million per vessel. The initial option exercise price was $56.9 million per vessel, resulting in a total of $113.8 million paid to EPS on July 3, 2023.

In October 2023, the Company announced that it had entered into Sale and Leasebacks for the Newbuilds with Huaxia Financial Leasing Co. Ltd. The Sale and Leasebacks are on a fixed rate per day basis for 10 years, with extension options, an implied fixed interest rate just under 6% and a minimum loan-to-value of 80%, with potential for additional capacity contingent upon the terms of the charter employment that the Company anticipates securing in advance of the Newbuilds’ deliveries. The Sale and Leaseback financing also offers pre-delivery financing of the Newbuilds.

CoolCo continues to be in discussions with multiple potential charterers seeking employment for the Newbuilds.

Financing and Liquidity

In July 2023, the Company announced that the syndicate of existing lenders in the $570 million bank facility approved a reduction of the interest rate margin from 225 basis points to 220 basis points after the Company achieved the sustainability criteria outlined in the loan agreement.

As of September 30, 2023, CoolCo had cash and cash equivalents of $152.2 million and total short and long-term debt, net of deferred finance charges, amounted to $1,045.3 million. Total Contractual Debt1 stood at $1,161.4 million, which comprised of $494.8 million in respect of the $570 million bank facility maturing in March 2027, $481.3 million in respect of the $520 million term loan facility, maturing in May 2029, and $185.3 million in respect of the two sale and leaseback facilities maturing in the first quarter of 2025 (Kool Ice and Kool Kelvin).

Overall, the Company’s interest rate on its debt is fixed or hedged for approximately 85% of the notional amount of debt, adjusting for existing cash on hand.

Corporate and Other Matters

As of September 30, 2023, CoolCo had 53,688,462 shares issued and outstanding. Of these, 31,254,390 shares (58.2%) were owned by EPS Ventures Ltd (“EPS”) and 22,434,072 (41.8%) were publicly owned.

In line with the Company’s variable dividend policy, the Board has declared a Q3 dividend of $0.41 per ordinary share. The record date is December 7, 2023 and the dividend will be distributed to DTC-registered shareholders on or around December 15, 2023, while due to the implementation of the Central Securities Depositories Regulation in Norway, the dividend will be distributed to Euronext VPS-registered shareholders on or around December 20, 2023.

Outlook

Since the end of the Quarter, TTF has increased to $14.51/MMBtu and TFDE spot rates have increased to $167,500 per day.

In the coming years, the global supply of LNG is set to increase by more than 50% based on projects that have already reached Final Investment Decision (“FID”). At least 40 million tonnes per annum (mtpa) of capacity have reached FID in 2023 alone, equivalent to approximately 10% of total LNG production in 2022. To understand the current 51% orderbook-to-fleet ratio (by volume), it is critical to recognize that the orderbook has overwhelmingly been built based on long-term contracts to service new liquefaction facilities. The timing and quantity of their deliveries are intended to match the commencement of new production. Furthermore, to the extent that project development delays result in vessels delivering to their charterers before their intended startup time, we would expect to see a dynamic similar to that which has recently prevailed. In such a scenario, the market is sharply divided between charterers seeking to fill interim periods in the spot market and owners such as CoolCo, who are in a position to offer multi-year time charters. Numerous liquefaction projects are still under development in North America, the Middle East, and various other geographies. This supply is expected to meet gas demand arising from the continued strong and widespread desire to decarbonize both through complementing renewables with gas and gas substituting for the vast amounts of coal still being consumed.

Among LNG carriers currently on the water, the older, less efficient vessels in the charter market are expected to face growing competitive pressure over time, particularly among the steam turbine vessels that continue to make up over 30% of the global fleet by volume. The imposition of the International Maritime Organization’s (IMO) carbon intensity indicator (CII) rules from the beginning of this year, as well as forthcoming European carbon pricing set to come into effect next year, are set to increase the relative advantage of modern, efficient TFDE and 2-stroke tonnage, such as those in the CoolCo fleet.

The limited supply of modern vessels available for time charter employment through the medium-term is concentrated among a small number of owners, including CoolCo. Given the improved bargaining position afforded by a combination of scarcity and concentration, such owners have remained focused primarily on longer-term charters that would bridge the period from now until the next wave of LNG supply is expected to arrive in 2026-2027. A newbuild vessel ordered today would have a lead time of approximately four years and a purchase price exceeding $260 million, limiting the likelihood of unforeseen newbuild tonnage during that period while providing support for the rate benchmark against which the overall fleet is priced.

1 Net income includes mark-to market gain on interest rate swaps amounting to $9.7 million for Q3 2023, $16.7 million for Q2 2023 and $20.4 million for 9M 2023.

2 Refer to ‘Appendix A’ – Non-GAAP financial measures and definitions, for definitions of these measures and a reconciliation to the nearest GAAP measure.

FORWARD LOOKING STATEMENTS

This press release and any other written or oral statements made by us in connection with this press release include forward-looking statements. All statements, other than statements of historical facts, that address activities and events that will, should, could, are expected to or may occur in the future are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words or phrases such as “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,” “expect,” “could,” “would,” “predict,” “propose,” “continue,” or the negative of these terms and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include statements relating to our expectations on chartering and chartering strategy, outlook, expected results and performance, expected drydockings, delivery dates of newbuilds, dividends and dividend policy, expected growth in LNG supply, expected industry and business trends including expected trends in LNG demand and market trends, expected trends in LNG shipping capacity including expected scrapping and expected costs and timing for newbuilds, expected impacts to our restructuring costs due to our adjustments in operations, LNG vessel supply and demand, and factors impacting supply and demand of vessels such as CII and European carbon pricing backlog, rates and expected trends in charter and spot rates, expectations on rates for future charters, contracting, utilization (including expected revenue backlog), LNG vessel newbuild order-book, expected winter demand and volatility statements under “LNG Market Review” and “Outlook”, statements about our ship management business and other non-historical matters.

The forward-looking statements in this document are based upon management’s current expectations, estimates and projections. These statements involve significant risks, uncertainties, contingencies and factors that are difficult or impossible to predict and are beyond our control, and that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Numerous factors could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements including:

  • our limited operating history under the CoolCo name;
  • changes in demand in the LNG shipping industry, including the market for modern tri-fuel diesel electric (“TFDE”) vessels we acquired from Golar LNG Limited (the “Original Vessels”) and four vessels, comprising of two modern 2-stroke and two TFDE, acquired from Quantum Crude Tankers Ltd, an affiliate of EPS (the “Acquired Vessels”) (the Original Vessels and Acquired Vessels are collectively referred to as the “Vessels”);
  • general LNG market conditions, including fluctuations in charter hire rates and vessel values;
  • our ability to successfully employ our vessels and at attractive rates;
  • changes in the supply of LNG vessels;
  • our ability to procure or have access to financing and refinancing;
  • our continued borrowing availability under our credit facilities and compliance with the financial covenants therein;
  • potential conflicts of interest involving our significant shareholders;
  • our ability to pay dividends;
  • general economic, political and business conditions, including sanctions and other measures;
  • changes in our operating expenses due to inflationary pressure and volatility of supply and maintenance including fuel or cooling down prices and lay-up costs when vessels are not on charter, drydocking and insurance costs;
  • fluctuations in foreign currency exchange and interest rates;
  • vessel breakdowns and instances of loss of hire;
  • vessel underperformance and related warranty claims;
  • potential disruption of shipping routes and demand due to accidents, piracy or political events and/or instability, including the ongoing conflicts in the Middle East;
  • compliance with, and our liabilities under, governmental, tax environmental and safety laws and regulations;
  • information system failures, cyber incidents or breaches in security;
  • adjustments in our ship management business and related costs;
  • changes in governmental regulation, tax and trade matters and actions taken by regulatory authorities; and
  • other risks indicated in the risk factors included in CoolCo’s Annual Report on Form 20-F for the year ended December 31, 2022 and other filings with the U.S. Securities and Exchange Commission.

The foregoing factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement included in this report should not be construed as exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

As a result, you are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless required by law.

Responsibility Statement

We confirm that, to the best of our knowledge, the interim unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023, which have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) give a true and fair view of the Company’s consolidated assets, liabilities, financial position and results of operations. To the best of our knowledge, the financial report for the three and nine months ended September 30, 2023, includes a fair review of important events that have occurred during the period and their impact on the interim unaudited condensed consolidated financial statements, the principal risks and uncertainties, and major related party transactions.

November 28, 2023

Cool Company Ltd.

Hamilton, Bermuda

 

Questions should be directed to:

c/o Cool Company Ltd – +44 207 659 1111

 

Richard Tyrrell – Chief Executive Officer

Cyril Ducau (Chairman of the Board)

John Boots – Chief Financial Officer

Antoine Bonnier (Director)

 

Mi Hong Yoon (Director)

 

Neil Glass (Director)

 

Peter Anker (Director)

COOL COMPANY LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

For the three months ended

 

For the nine months ended

 

Jul-Sep

2023

 

Apr-Jun

2023

 

Jul-Sep

2022

 

Jan-Sep

2023

 

Jan-Sep

2022

(in thousands of $)

Successor

(Consolidated)

 

Successor

(Consolidated)

 

Successor

(Consolidated)1

 

Successor

(Consolidated)

 

Successor

(Consolidated)1

Predecessor

(Combined

Carve-out)2

Time and voyage charter revenues

84,523

 

 

82,071

 

 

54,713

 

 

257,761

 

 

104,535

 

37,289

 

Vessel and other management fee revenues

3,860

 

 

3,757

 

 

3,684

 

 

10,993

 

 

3,684

 

6,167

 

Amortization of intangible assets and liabilities – charter agreements, net

4,518

 

 

4,488

 

 

7,434

 

 

13,110

 

 

14,504

 

 

Total operating revenues

92,901

 

 

90,316

 

 

65,831

 

 

281,864

 

 

122,723

 

43,456

 

 

 

 

 

 

 

 

 

 

 

 

Vessel operating expenses

(18,556

)

 

(18,835

)

 

(11,409

)

 

(55,979

)

 

(24,781

)

(7,706

)

Voyage, charter hire and commission expenses, net

(1,137

)

 

(877

)

 

(855

)

 

(3,512

)

 

(1,212

)

(1,229

)

Administrative expenses

(5,936

)

 

(6,222

)

 

(3,696

)

 

(18,797

)

 

(6,262

)

(5,422

)

Depreciation and amortization

(18,936

)

 

(18,898

)

 

(13,447

)

 

(57,732

)

 

(28,413

)

(5,745

)

Total operating expenses

(44,565

)

 

(44,832

)

 

(29,407

)

 

(136,020

)

 

(60,668

)

(20,102

)

 

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

 

 

 

 

 

4,374

 

Operating income

48,336

 

 

45,484

 

 

36,424

 

 

145,844

 

 

62,055

 

27,728

 

 

 

 

 

 

 

 

 

 

 

 

Other non-operating income

 

 

21

 

 

 

 

42,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income/(expense):

 

 

 

 

 

 

 

 

 

 

Interest income

2,176

 

 

2,791

 

 

330

 

 

6,484

 

 

389

 

4

 

Interest expense

(20,379

)

 

(19,863

)

 

(8,500

)

 

(59,727

)

 

(15,172

)

(4,725

)

Gains on derivative instruments

9,689

 

 

16,705

 

 

9,527

 

 

20,393

 

 

9,527

 

 

Other financial items, net

(605

)

 

(414

)

 

(868

)

 

(1,411

)

 

(2,227

)

622

 

Financial income/(expense), net

(9,119

)

 

(781

)

 

489

 

 

(34,261

)

 

(7,483

)

(4,099

)

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and non-controlling interests

39,217

 

 

44,724

 

 

36,913

 

 

154,132

 

 

54,572

 

23,629

 

Income taxes, net

(47

)

 

(78

)

 

(141

)

 

(180

)

 

(141

)

(385

)

Net income

39,170

 

 

44,646

 

 

36,772

 

 

153,952

 

 

54,431

 

23,244

 

Net (income)/loss attributable to non-controlling interests

(340

)

 

344

 

 

(1,091

)

 

(1,283

)

 

(1,902

)

(8,206

)

Net income attributable to the Owners of Cool Company Ltd

38,830

 

 

44,990

 

 

35,681

 

 

152,669

 

 

52,529

 

15,038

 

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) attributable to:

 

 

 

 

 

 

 

 

 

 

Owners of Cool Company Ltd

38,830

 

 

44,990

 

 

35,681

 

 

152,669

 

 

52,529

 

15,038

 

Non-controlling interests

340

 

 

(344

)

 

1,091

 

 

1,283

 

 

1,902

 

8,206

 

Net income

39,170

 

 

44,646

 

 

36,772

 

 

153,952

 

 

54,431

 

23,244

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

Cool Company Ltd – +44 207 659 1111 / ir@coolcoltd.com

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