Höegh LNG Holdings and its subsidiaries reported a total income of USD 87 million for the second quarter of 2021, compared with USD 84 million in the preceding quarter.
This increase mainly reflects a compensation received from AGL following the termination of the FSRU project at Crib Point, reimbursement of environment tax expensed as opex during the quarter, and Höegh Giant having fewer idle days than in the first quarter in connection with the start-up of the contract with H-Energy in India. These factors were partly offset by Höegh Galleon operating a full quarter under the charter extension with Cheniere at a lower time charter rate and Arctic Princess being off-hire for approximately one month in connection with its scheduled dry-dock and class renewal.
Höegh LNG reported an EBITDA of USD 52.7 million for the second quarter, up from USD 51.8 million in the preceding three months. This increase reflects changes in income as described above, as Opex and SG&A were in line with the first quarter of 2021, save for the above-mentioned environmental tax which was reimbursed through the increased revenue.
Höegh LNG recorded a net loss after tax of USD 19.4 million for the second quarter of 2021, down from a loss of USD 2.4 million in the preceding quarter. This decrease mainly reflects certain one-off financing costs, including costs related to the refinancing of PGN FSRU Lampung which have been expensed in full due to the issues with completing the arranged refinancing, and a tax provision of USD 10.6 million which was recorded for a tax uncertainty following the conclusion by the Indonesian tax authority’s 2019 tax audit of a subsidiary of the group. USD 2.7 million of the amount became payable in July 2021. The group disagrees with the conclusion of the tax audit and intends to contest the tax authority’s position.
Operating cash flows rose in the second quarter by USD 21.4 million to USD 55 million. The net increase was driven mainly by changes in working capital, predominantly caused by temporary timing effects. Other sources of cash during the quarter comprised USD 39.6 million in proceeds from borrowings. Uses during the quarter mainly comprised USD 30.8 million in debt amortisations and lease payments, buy-back of bonds, dividends paid to non-controlling interests in Höegh LNG Partners (HMLP), payment of debt issuance costs and debt amendment costs, and interest payments. The net decrease in cash and cash equivalents during the second quarter was USD 5.4 million.
At 30 June 2021, Höegh LNG held USD 122.2 million in current unrestricted cash (USD 127.5 million). Net interest-bearing debt, including lease liabilities, decreased during the second quarter by USD 5.9 million to USD 1 524 million (USD 1 530 million). Total assets and book equity at 30 June 2021, after adjusting for the mark-to-market of interest rate swaps, were USD 2 495 million (USD 2 515 million) and USD 722 million (USD 752 million) respectively, equivalent to an adjusted book equity ratio of 29% (30%).
For the first half of 2021, Höegh LNG reported a total income of USD 171 million and EBITDA of USD 104.6 million, which compares with USD 169 million and USD 117.3 million respectively for the same period of 2020. The decrease in EBITDA primarily reflects class renewals and maintenance conducted in the first half of 2021 and vessels commencing new interim LNGC charter contracts at lower charter rates. Höegh LNG reported a net loss of USD 21.7 million for the first half of 2021, which compares with a USD 1.9 million profit for the same period of last year. The decrease is due to the above-mentioned tax provision and one-off financial costs expensed in Q2 2021.
Höegh LNG is experiencing limited operational impacts from Covid-19 and no contractual effects. Ensuring the health and safety of its personnel continues to be the group’s highest priority. Höegh LNG is truly grateful for the extraordinary effort displayed by its seafarers during these challenging times. Per 11 August 2021, the group has been able to vaccinate around 42% of the maritime personnel.
The Covid-19 situation is dynamic and could change quickly – in particular with regard to maritime personnel and vessel operational logistics, including repairs and maintenance. Although Höegh LNG’s operations are not directly affected by the Covid-19 pandemic at present, the group has been taking and will continue to take necessary measures to mitigate risks to employees and its operations. The group is continuously monitoring the Covid-19 situation and undertaking scenario analysis and other evaluations to address any changes related to the health, safety and wellbeing of personnel, or to the LNG and FSRU markets, government restrictions, and other aspects potentially affecting operations and the business.
The main effect of the Covid-19 situation continues to be delays to scheduled crew changes, and Höegh LNG is working continuously to ensure the welfare of its maritime personnel by making these delays as short and as few in number as possible. While the group has been able to conduct full or partial crew changes on all the vessels in the fleet, the situation remains challenging for the maritime industry as a whole owing to travel restrictions and quarantine regulations. Nevertheless, all FSRUs and LNGCs are fully operational and crewed in accordance with relevant safety and regulatory requirements, all charter parties remain unchanged and in force, and revenues are being collected in accordance with contractual terms.
Fleet overview and contract coverage
The group’s fleet consists of 10 modern FSRUs and two LNG carriers. Five of the FSRUs are in Höegh LNG Partners’ fleet, and the remaining in Höegh LNG Holdings’ fleet. One of Höegh LNG Partners’ FSRUs is on an internal charter to Höegh LNG Holdings, which has sublet the FSRU to a third party.
The group has 100% contract coverage for 2021.
The fleet delivered a stable operating performance in the second quarter. As communicated in the interim report for the first quarter of 2021, Höegh Giant has commenced the contract with H-Energy in India. In the second quarter, Höegh Esperanza commenced its new LNGC contract and Arctic Princess was off-hire for approximately 1 month owing to drydocking to conduct its 15th anniversary class renewal.
Höegh LNG continues to develop its pipeline of FSRU projects, and several have achieved important milestones over the quarter.
The company continues to work with Australian Industrial Energy (AIE) on optimizing the TCP for its Port Kembla project where AIE has already started construction of the onshore infrastructure.
Höegh LNG is also working with utility customers to secure two further contracts.
Environment, social and governance (ESG)
Technical availability and LTI statistics
Safe and reliable operation of its fleet is a key focus for the group, especially in the current circumstances, and the results demonstrate a strong record of performance. Technical availability was 99.9% by the end of the second quarter, and there was one LTI recorded in May 2021.
Pending arbitration with the charterer of PGN FSRU Lampung
The charterer under the lease and maintenance agreement for the PGN FSRU Lampung (“LOM”) served a notice of arbitration (“NOA”) on 2 August 2021 to declare the LOM null and void, and/or to terminate the LOM, and/or seek damages. PT Höegh LNG Lampung (“PT HLNG”) has served a reply refuting the claims as baseless and without legal merit and has also served a counterclaim against the charterer for multiple breaches of the LOM. PT HLNG will take all necessary steps and will vigorously defend against the charterer’s claims in the legal process. Notwithstanding the NOA, both parties are continuing to perform their respective obligations under the LOM. No assurance can be given at this time as to the outcome of the dispute with the charterer of PGN FSRU Lampung.
Höegh LNG Holdings Ltd. completed a NOK 330 million bond loan tap issuance in June in the HLNG04 bond loan, paired with a buy-back of NOK 101 million in the HLNG03 bond loan. The tap issue was priced at 97% of par value.
HMLP is in the process of refinancing the debt facilities for its joint ventures which own Neptune and Cape Ann. These debt facilities, which are not part of the consolidated debt of the group, mature in November 2021 and June 2022, respectively.
HMLP is also on the process of refinancing the Lampung debt facility. The commercial tranche of the Lampung facility becomes due on 29 September 2021 and the export credit tranche can be called if the commercial tranche is not refinanced. The ongoing refinancing of the Lampung credit facility that had been scheduled to close by the end of the second quarter of 2021 is not yet completed due to the failure by the charterer to countersign certain customary documents related to the new credit facility. These circumstances have left HMLP exposed to having to arrange alternative refinancing, or rearrange the existing refinancing, in the short term in advance of the commercial tranche of the Lampung facility’s maturity on 29 September 2021. HMLP has asked the existing lenders to approve a six-month extension to the maturity date to allow for more time to complete a refinancing and has commenced discussions with existing lenders and certain other potential lenders about this. HMLP expects that the terms of any alternative refinancing, if it is successful in finalizing such refinancing, are likely to be less favourable than the terms of the originally agreed refinancing. No assurance can be given at this time as to the outcome of the dispute with the charterer of PGN FSRU Lampung, or of the aforementioned discussions with lenders. Höegh LNG Holdings Ltd. is the guarantor of the FSRU Lampung credit facility.
Subsequent to the balance sheet date the group has completed the refinancing of the Höegh Giant debt facility with a new 5-year facility. Höegh LNG Holdings Ltd. has also repaid the up to USD 80 million credit facility with proceeds from the HLNG04 bond tap issuance in June and a new bank facility.
Distribution from Höegh LNG Partners
Höegh LNG Partners declared a quarterly distribution of USD 0.01 per unit for the second quarter on 27 July 2021.
Global LNG trade rose by 11% year-on-year in the second quarter 2021, reaching 94.7 million tonnes.
LNG carrier rates saw a seasonal decline in the first quarter of 2021. The seasonal decline was however shorter than usual this year as rates started to improve in April to relatively strong levels which have continued through the summer and into the third quarter.
One short-term FSRU contract was awarded in the quarter, a seasonal regasification contract in Bahia Blanca, Argentina.
During the second quarter, the FSRU Ertuglrul Gazi started FSU operations in Turkey. In addition, the FSRU Vasant 1 arrived in Ghana and the FSRU KARMOL LNGT Powership Africa arrived in Senegal.
Currently, 42 FSRUs are on the water (excluding four smaller barges), following the delivery of one unit in the second quarter of 2021. Of these, 31 are committed on FSRU contracts and 11 are available and/or trading as LNGCs. The orderbook comprises one FSRU newbuilding and three converted FSRUs, and the three conversions are all committed under firm contracts.
Höegh LNG’s main commercial focus is to conclude firm long-term FSRU employment for the four units currently trading on interim LNGC contracts. Even though Covid-19 has created uncertainty in energy markets, the LNG market is continuing to perform well, and business development activity was high in the second quarter. It is not possible to forecast the short- and long-term impacts of Covid-19 on Höegh LNG’s business accurately, other than to say that, at the date of this report, its effect on employees, operations and revenues has been limited.
HMLP’s main focus is to address the pending refinancing of its PGN FSRU Lampung debt facility and the dispute with the charterer of PGN FSRU Lampung. No assurance can be given at this time as to the outcome of the dispute or of the discussions with lenders.
The EBITDA for the third quarter of 2021 will be positively affected by Arctic Princess being fully operational after it completed its 15th anniversary class renewal in the second quarter and with Höegh Giant operating a full quarter under its new contract with H-Energy.