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Podcast #88: Jacob Rubin is bullish on $GLNG
Jacob Rubin returns to the podcast for a two part episode. In part two (this episode), Jacob talks about GLNG. You can see part one on FTAI here, see my notes on GLNG here, Jacob’s research on GLNG here, and Jacob’s first podcast appearance here.
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Disclaimer: Nothing on this podcast or on this blog is investing or financial advice; please see our full disclaimer here. The transcript below is from a third party transcription service; it’s entirely possible there are some errors in the transcript!
Transcript begins below
Andrew Walker: All right. Hello! Welcome back to the "Yet Another Value Podcast". I'm your host, Andrew Walker, with me today, I'm excited to have, Jacob Rubin. This is actually part 2 of our podcast with Jacob Rubin. For people who are interested in part 1 where we talked about FTAI. I've got a weird shadow on my face for people on the YouTube. We talked about FTAI in part 1, you can go listen to that, this is part 2. Part 1 had the intro, the background track of everything. But Jacob, part 2, I'm ready to go. GLNG is part 2, so I'll just toss it over to you. What's going on with GLNG?
Jacob Rubin: Yeah, and by the way, you get a medal for we didn't even take a break, for everybody listening. We just, he said, "Should we take a break? Let's go."
Andrew: This is why we hit the gym. I know you're a runner [crosstalk]. This is why you and I have the stamina for, hour and a half long podcast.
Jacob: It is right. So now we're like, 10 seconds later and we're forging ahead. I also meant to say, I noticed that, I should have said on the first pod but a reason to tune into part 2, no mustache. What happened?
Andrew: No, Movember is over, we're to separate, it's good to know you're watching the YouTube videos though.
Jacob: God. It looks great. It looked great. I think I speak for everybody in saying it was a tremendous mustache.
Andrew: My wife, [crosstalk] you are not speaking for my wife, which is a major reason the mustache has gone away.
Jacob: Thank you. Yeah, I can imagine, I can imagine. My wife says, she likes me with a beard better and I go back and forth based on, probably laziness. I kind of am offended by that because it's like, wait, so if I'm clean-shaven, I'm uglier? So, you could be like cover it up.
Anyway, alright, GOLAR, so let's get into it. Like FTAI. The reason I want to put them together is if I wasn't so long-winded and if we didn't have so many good questions to try and rebut or address, I would have tried to do FTAI in half the time. The reason I put them together is they're both simplifying some of the part stories and I don't know about you. But for me, some of the parts is sort of a graveyard for value. It's been awful because you get stuck. It's like it's hard enough to get anyone to care about some industrial company, layer on complexity in different parts that maybe don't fit. It's like, forget about it. So for us, the word, simplifying is the critical component. We want a sum-of-the-parts that is going to stop being a sum-of-the-parts and become a pure play, where you can pick the right multiple, pick the right comps, make some projections, boom, and you have a huge audience. You got Long-Onlys, you got hedge funds, you got retail. Anybody can get it and get excited about it, or not. So these two fit together because this also is the sum-of-the-parts story. We think simplifying, and it's really funny because you announced yesterday that this was one of the names, and just this morning, the first big leg of the simplification was announced.
Andrew: Yep, very timely.
Jacob: It literally happened 30 minutes before we're starting recording. So, we'll talk about it. I, fortunately, was able to read the release and we've done so much work. I think we know exactly what it says. Maybe the structure here would be sort of why it's the opportunity? Why it exist? What it is? and then we'll go through their 3 parts to it [crosstalk]. That's it. And well, let's be tight on this one.
Jacob: GOLAR was 70 bucks in 2014. Now, it's 11. What that means, first of all, is there are people who've been burned their skeletons and anyone who's been around or in it for a while has been, you know, pretty jaded. And I don't think management would shy away from that reality and people, you know, met Tor Trøim, the magnate, who's chairman, and behind it, at various events over the years. And he's compelling, he's personable, frankly, I think he's fantastic. And then the stock doesn't work, and so now they would associate some bad experience with that person or this team, or this asset, or this sector.
So we've got baggage, that's one reason. Two, this is related to natural gas, and you might have noticed that with the proliferation of unconventional drilling horizontal and fracking in the United States. Gas became a great plentiful bioproduct. Gas went to 2 bucks, terrible. Gas is sucked for a long time. And this is LNG, it's in the title. So it's a commodity that's been on its ass and everybody knows it, not to mention ESG and all of that which is very real. And then three, the third reason is the other half of the business is shipping, and shipping has been a complete, you know, horrible place. People are orphaned, you know.
I can tell you personally, I was an investment banker. And I remember in 2006, there's a whole shipping team and they were just cranking on Equity deals, and there's this one and that one, MMTDs, and it was so active and it was the heyday. It was a glorious time to be in shipping and what happened? Very predictable in the supply-demand market, they built-up supply, flooded the market, and then sadly as happens, you hit a demand shock, GFC. And now it's overbuilt and now returns, sucked, and everybody dies and companies go away. They go bankrupt. They had debt, too much debt. Then you have bad apples like dry ships, you know, splitting a thousand times and 99.999% losses. You have foreign jurisdictions, it's Greek domicile, or there's this one domicile. And what happens is banking teams go away, buy-side shops go away. Redemptions galore, and now, nobody looks at it. And then guess what? 10 years of working through supply, ships get scrapped, demand and global GDP rises and eventually, it's go time, and that just happened and in sort of the COVID, we've all seen it. And Danaos went from $375 to $70, and ZIM broken IPO from 11 to 50, you know, and then you can go through GSL. You can go through all of them, whether it's container, I mean, bulk product not so much, but basically, shipping is having a renaissance.
Okay, shipping debt, gas debt, stock debt, this thing, GOLAR has been ignored. That's now, how do we find it? We're value guys. We were looking in gas, we were looking in shipping. We found some names in each, and then we learned about GOLAR. And so, that's sort of how we found it. So now, I'll just tell you, so what are you getting for $11? So, GOLAR LNG is a company with 108 million diluted shares trading at 11. And then, on that, there's north of a couple billion of debt and a minority interest, and then some cash. And so, you know, you add it up, if I want to give specifics, and you come out with an EV consolidated of like 3 and a half-billion dollars. It's a little more complex than that, which is the opportunity. So let's just get maybe, if it's cool, right? let's just get right into it.
So, I'll start maybe nibble around the edges of this thing because the non-core parts we can just, sort of, agree, hive it off, put it over there and then get to the the Crux, which is floating LNG. FLNG, that's the Crux, the core of this business that we really need to talk about and it's a great business and it's why we love it. So the announcement today was shipping. They have ten ships and we predicted that they would spin or sell them. And they kind of did a combo of that, they're spinning it, but with an anchor, putting up 150 million. That's a private shipping company and it's going to list in Oslo in the first quarter. This is all announced this morning and our prediction was that ships present a problem.
The big guys that like a midstream, long-term contracted just producing entity, which is what, like, Cheniere. The guys that like Cheniere, which has a nice fat multiple on, if you exclude its marketing business. Its producing business is generally traded at 12 and a half, 13 times, in most sum-of-the-parts in Cheniere. So that is a big multiple, high quality, just steady-eddy type of asset and there are investors who love that. They don't love ships, because everything I just said is not true about ships. That's boom-and-bust, levered, tons of debt. So the opportunity was twofold. Get ships out of the picture and maybe people will look at FLNG more seriously because we have heard it is a gating item. And second of all, when ships go, there's a billion dollars of debt stapled to ships. This is a massive deleveraging event.
And so, what they announced today is eight of the ten ships are being spun. The average value is 145 million per ship. So you get to almost 1.2 billion of value with 850 million a debt associated with those eight ships. So, rough math is $2.80 of equity value per share of GOLAR, and you de-lever by 850, relative to the 2-odd billion that we have today. Massive deleveraging and value creation and we are getting closer to pure play, I think, and this is where are, you know, the fact that this, I'm recording this right after the announcement. I got to go figure this out. They announced that they were tri-diesel ships and eight of them. And I was looking at the announcement. I think that they have an FSRU, which is a different type of ship, and then a small steamer that they did not sell. That's my best guess. Two ships that FSRU is called the Tundra. It's worth like 250 million bucks with 150 added on it. So you get another dollar a share for Tundra and it's their best asset and so, yes, it's shipping that stays there but it's a very good asset.
Andrew: Yeah, it does look like there's something addressing it in the press release, but I'm with you. The press release was out at 15 minutes before we recorded. So, yeah, it hasn't been that... [crosstalk]
Jacob: We have to figure out the two left. But there's a small steamer and it would make sense that didn't go with it and we'll see what they do with it. Could they milk it in a strong market for cash flows? Yeah. Could they just go find a one-off buyer? Probably. And then I want to hear what they want to do with Tundra because it's actually a different type of ship, it might make sense to keep it. And I know they love that asset. All right, ships are... [crosstalk]
Andrew: About that, there's some stock, NFE, which is publicly traded. They own that, which, you know, people can go do their own work on that. You can value that at market price. I know a lot of people think it's undervalued. But we probably don't need to talk about a ton, about that. So why don't we just... [crosstalk]
Jacob: Let me give you 2 minutes on NFE.
Jacob: Because it's interesting. They went down when the midstream and upstream went to shit for gas, they went, they did some smart moves and went downstream. Assets, that are actually NG's gas and benefit from low gas. One of those is sort of, power-producing in Brazil. They had a big process at one point, they're going to IPO it. They ended up doing a transaction with NFE publicly traded, New Fortress Energy. It's run by Wes Edens from Fortress, okay. So as a result of that they have 18.6 million shares of NS. When you first found GOLAR months ago or whatever, you would have been faced with 18.6 million shares of a 50 dollar NFE, not to be confused with like 23 today. And then you would be hearing GOLAR talking about the convertible maturity in February of 2022 and how they're going to take that out using NFE proceeds. So two things, one, if you wanted to isolate the SOTP value, you could put on a fair trade and short NFE just to get pure play GOLAR ex-NFE.
Andrew: Risky, and I'll just pause right here to remind people. We said in part 1, nothing on this podcast investing vice, everybody should do their own due diligence. I just want to remember that because we didn't put it in part 2, yet.
Jacob: Yes. Oh God, disclaimers, please. This is all my best effort. I'm talking my book. We can change our mind with new info, all the disclaimers, very much. This is part 2, so, go see part 1 and it's in our decks and I'm not advocating what I just said. I'm saying that that is what some people could have done if they wanted to do a fair trade, I mean, hedge funds do that. And it wouldn't have been well, certainly, in hindsight, the dumbest thing, and there was this technical where you know it's a seller. And people are bull and time if what they know you're selling and they know when the convert comes due February. So they know a timetable, it makes all the sense in the world.
And so the thing gets cut in half. Well, what happens? First of all, I think a lot of that technical stuff ran its course and now you should just own GOLAR. Second, they did a straight bond offering and took out the convert. They're going to take out the convert with those proceeds and told the world, forget it, we're not monetizing NFE at these levels. We see what you're doing. We're going to just do a straight debt deal and take it out. So that trade is over. So if you want to go, you know, do something with NFE. That's you. It's a free country, but what I will say is, we ended up as it drew down, doing a lot more work on NFE, and we actually really like it. And we do have a small long position in NFE. And we think it's been overly penalized and it's kind of an opportunity.
All of that said for GOLAR, for this conversation, 4 bucks a share in NFE value at market. If you want to do a Holdco discount, be my guest, because honestly the margin of safety on this investment, it doesn't move a needle. Who cares? Take 50 cents off. It doesn't matter to me, based on how much it's been hammered. To me, that sort of, there's your Holdco discount. Thing just got cut in half. It was 8 bucks a share before, now it's 4, so you know. That's up to you, the listener, the reader, whatever. But I'll just say 4 bucks there and the net value from the 2 ships remaining and the spin value of shipping is 350. So you got 3 dollars and 50 cents and 4, you got 750, it's 11 dollar stock. We haven't even gotten to the real business, in my opinion. That's 750 a value, and we just de levered the hell out of it with the spin.
FLNG, what is it? So, here's the big thing. If we all see that Europe wants to go renewable, right? They want to go wind-solar, they're not even sure they want nukes. And EDF is dealing with that in France. But meanwhile, they've had some stumbles. Cold Winters happen. There's a reason baseload power exists, north to this pipeline to Russia, has geopolitical concerns as they're, you know, going to invade Ukraine. Europe is finding out the hard way with 30 dollar spiking gas that it's good to have some non-renewable, just produces day in, day out. At least for a transition period of 10 to 20, 20 years, right? So what FLNG is exploiting globally, and which I think it now has come into sharp relief, is this idea that you need a transition period. And LNG is a great option, and here's why, it's cleaner than burning diesel.
Jacob: We're cold. It's not as good as just wind energy, fine. And it's incredibly economical particularly when you find stranded gas and you can liquefy it. That's the Holy Grail here, is there all these gas fields off Africa that are freaking huge. So there's one, they're working on 6 Trillion TCF and then their next project is going to be in one, where phase 1, which is it's a BP, Kosmos, sort of, a joint venture and beeping egg. That is 15 trillion TCFE for Phase 1 and the field could have as much as a hundred TCF. So, to give perspective, we ran them, the conversion math on TCFE, to MEBLE, to barrels of LNG and we looked at their production rates. It would take hundreds of years to pull this out. These are huge.
The cost to pull it out, liquefy it, and transport it, is very very low. It's basically a dollar per barrel to get it out of the ground and liquefied, and then you can add a couple of dollars to 3 bucks, whatever, to get it somewhere. So you could be creating for a few dollars per barrel. LNG on a market that right now has spiked to 30 and everyone's worried that it's backwardated. And it's almost always backwardated. And I would point out the geopolitical issues that I mentioned and there's always a possibility of a backwardated structure that could shift up. You know, if Russia becomes a big problem as it kind of feels like it's going, I just saw headlines before we record, if Russia, Putin, she and what they're talking about, it's not good.
That said, this price from 30 could go to 15 and we're still hugely in the money. So, you know, the economic rationale, the ESG rationale, the global energy infrastructure rationale for LNG, I think it's very strong. And what these guys do is floating LNG, they take a ship, they convert it so that it can store and liquefy from a field into LNG and then get it on ships and move it on its way. That's what they do. So here's what's super fascinating, which I had no idea. There are only about five of these things globally and most of them are subscale or don't work. Shell, on this thing called Prelude has sunk, something like that. These are news sources. It, we don't know exactly, north of ten billion dollars, maybe even 15 billion to build one of these and it still doesn't quite work.
Andrew: I went, you can look at the Wikipedia page for this and some of the links I posted in the show notes. It's real. It's interesting stuff looking at what's going on here. Yeah, so very hard to build, and here's what's great. So you'd hear very hard to build and say, oh that sounds risky. These guys built one, it's off the coast of Cameroon, it has been producing for years, it produces 100% uptime. It works. their second project, which is 75% constructed and has already signed a 20-year deal with BP. It's virtually the same design, it's a little different, is it, but the same design. And it already works, the first one. So in terms of de-risking, we feel pretty good. One is producing perfectly and the other is the same design, so,
these guys know what they're doing and nobody else can do it. So that's, you know, that's really exciting.
So, the way we analyze FLNG is, they have three things Hilli, that's the producing one. Gimi, that's 75% constructed, but 20-year contract with BP and then growth projects. So we can just go through the three and add up the value. That's how we do it. We value Hilli, we value Gimi, we value the well, actually, we give zero value to growth, but it's sort of our back pocket of that should be valuable and it sort of just the overall picture of GOLAR. Hilli is going to grow by leaps and bounds for 2 reasons and it's just effing awesome because it's like a multiplicative effect. It's 50 percent utilized right now and they technically only own 45% economics on the 50.
So they have these 4 trains, they run all four trains all the time, but only 1 and 2, technically, are working or producing . And that is tied to the customer, which is the country, and then also a Perenco. Just, how much they want to produce and so they're producing a certain amount and it's utilizing half the asset. And these guys, when we first found this thing, they wanted Perenco to do more and utilize the asset. Obviously, just more utilization of an underutilized asset great leverage there, you know, operating leverage, but also they have 87 percent interest on incremental production, save twice the interest almost on incrementals. So if they turn on more, it's not just one for one. It's they turn on more and they get twice as much of it.
So they have been pushing these guys. We want to do more and eventually and I wasn't privy to the conversations. You could imagine that this deal that runs to 2026. They would say something like, hey, a good thing for us, it's a boat will move it. And if you don't do more between now and 2026, we're going to contract with someone else and it's going to be gone the day our contract's over. I don't know that they did that, but you could imagine they did that. And here's the good news, a few months ago, there was an announcement. Guess what? Perenco is taking up from 1.2 million out of 2-4, 50% utilization. They are taking it up on Gen 1-1.4, an extra 200 thousand per year. They have an option that expires June 30, to do another 200 and we think they could do even more than that. We think. And they're drilling 4 production wells right now. These are not Speck wells, production wells to boost it. And so what you could see is 1.2 goes to 1,4 or 1,6, or 1,8. And of course, beyond that it could go even more. But that is just PERENCO taking these options and doing some more.
And so what we model is, we model 400,000 at the at 87% incrementals. And then, there are 2 caveats on Hilli. The first half is tied to Brent. Every dollar over 60. They get 2.7 million EBITDA. It's just upside. They have a base load volume-based. That's crystal clear, but they get upside. So if it's $70, they'll make 27 more of EBITDA. Okay, then on incremental for train three and four, they have a TTF, that's European nat gas, based upside at the current curve, including backwardation, where they could hedge it in the market, if they wanted to. And for all, I know they're doing it. I don't know if they are, they could make 70 million bucks that EBITDA, just on that upside, not on the base, you know, so you add it all up and what we see is 150 to 200 of EBITDA on what was less than 100 to them, next year. So EBITDA can just about double on Hilli based on production ramps and commodity upside. So that's Hilli, would you want to value that.
This is a producing contracted with upside asset, that's very unique on a huge field that goes forever. To me, that's like, look at Cheniere, exclude Cheniere's marketing business. It feels like 11, 12 times business.
Andrew: No, I think there's only like 5 FLNGs in the world, and some of them as you mentioned. [crosstalk]
Jacob: There are some onshore.
Andrew: Yes. Have any of them transacted? Have we seen any multiples or, kind of, comps?
Jacob: I don't have good transaction counts. I don't.
Andrew: I'm sure you want to talk about Gimi real quick. We're running up on the very end of our time here, so and then I want to ask you questions, but let's talk about... [crosstalk]
Jacob: You got a day job. Yeah, let's do this. Gimi. So 75% built BP 20-year deal similar to Hilli. Difference, they own 70%, not 45, and then with the scale down, 70% of this. They've only sold off 30. It's in a field as I mentioned, it's absolutely enormous off Mauritania and Senegal, so a little bit further north of the continent. So here's what's interesting, BP, this is rougher waters. BP is building breakwaters. They are investing in total, 5 billion dollars for Phase 1. So BP is all-in on this, this gas play. When you have a global major investing in this giant, I think it's like something like 12 huge breakwater facilities, and putting all this infrastructure around it and Gimi is the only option. They can either do Gimi or, which is 20-year contracted with them, or if they realize, they need even more maybe they contract for Mark 3 design, which I'll talk about in a second, which is twice as big with GOLAR. Because the only ones to do it would be GOLAR and then they can get somehow, get out of this contract. But realistically, it's Gimi, right? And so there are options, but it's Gimi. It's absolutely integral to the whole project.
So, the question is, so what is this thing worth? And what's it worth in my opinion is you take the math. It's 215 million of EBITDA for 20 years. They get 70%, it's 151. 151 of EBITDA, every single year for a long time is worth like 10 times now, but if 75% goes to 90%, goes to 100%, and then it leaves the yard, and then it gets on the destination, and it starts producing, then it moves toward the 12 times multiple. So I think they have this choice. I bet there are buyers for 5% or 10% interest in this asset, now, I bet. This is what I would think, but it's going to have some risk. I mean, they have insurance and all that for Black Swan events, but as they take it toward completion. They can get a better multiple. That's how they view it. I think that's true. So it's just up to them. What would they do with the cash? Do they want to do that? I think they probably they go a while longer. I think they're going to hold it and get to completion. But overall we get a whole bunch of more value here.
Andrew: You would know better than me, but just based on, you know, reading a couple of their transcripts and prep for the podcast. I think you're exactly right because they even mention, "Hey, we're at the 75% marker", but the places where most people have overages or had issues. Those are 99% behind us. Most of the remaining is, not that it's simple building that, you know. Huge projects like this but most of the remaining is not where people tend to get tripped up.
Jacob: And this is where you get a little greedy and you keep it for yourself.
Andrew: So why don't you quickly do... you mentioned the value for Gimi and Hilli. I don't think we need to talk growth projects because we're running long and I don't think they're critical to the thesis here. But why don't you just quickly lay out. What is the whole company worth to you?
Jacob: So, you know, on a consolidated basis, we add up NFE, 4 bucks, we add up shipping, now, we have 3 dollars and 50 cents, but they retain third ownership which could go up because they're crushing it. So maybe 4 bucks. So it's 750 or 8 bucks, there. And then we added up, on a sort of per asset basis. We have a slide we'll show the EV debt and enterprise value of each asset and we come out to per share of, I mean, I can just read it off. It's like 13 bucks for Hilli, nine bucks for Gimi. We have a corporate overhead drag. It's not that big. It's sort of 50 Cent, 60 cents a share and then there's corporate net debt away from shipping, away from the Hilli and Gimi debt, which is we staple, when we come up with those per share numbers to those assets. And that corporate debts, like a 1.75 dollars a share. So you add it up, it's like 28 bucks.
Andrew: The math you just laid out is interesting because you said Hilli, net of the Hilli debt is 13 dollars per share, corporate debt plus corporate debt is about $2 per share. So that would come out to, Hilli net of corporate. Everything corporate is about 11, which is about today's share price, which would say you can get NFE for free, you get Gimi for free, you get shipping for free. Is that how you're looking at it and thinking about it?
Jacob: I'm creating FLNG for like 3 bucks.
Andrew: Let me ask my first question. Right?
Jacob: I mean, I'm not counting corp net debt or whatever, so 5 bucks.
Andrew: A lot of this is BIS pool, right? I tweeted this out, but in Q3, they did a walkthrough of their total company EBITDA, you know, out to 2020 Forex. And they said, "Hey, we're projecting 589 million", and their Q3 earnings, they did the same thing and it had gone from 589 to 650, right? Like none of these things are... [crosstalk]
Jacob: The ship is on the higher. Shipping's going nuts.
Andrew: Shipping is on fire. LNG's on fire. [crosstalk]
Jacob: Today they used, you know what they use in the release today, they use the word 'quadruple' when describing FLNG EBITDA out over the next 2 or 3 years. They use the word quadruple. That's a good word.
Andrew: So everything's on fire, right? Everyone can see these underlines. And the company lays it all out very clearly. So my first question is...
Jacob: Why the F, the stock at 11?
Andrew: Yeah. Because you see all this going up, like, EBITDA is going up, everything's on fire and the stock is just flat for the past couple of months. Not that short-term stock performance means anything., but, you know, you tend to see when things go this on fire, the stock response. So the first question would be, why isn't the stock responding? And we could talk about management after that but, I guess, why is the market not waking up to this?
Jacob: Okay. I think it's been a series of explanations. So I mentioned gas and shipping. I think those are real. Then what happened is gas rips, shipping rips. Now, everybody's worried that it's all peak. You'll see shipping companies have stalled out, even though they keep crushing it, become cheaper by the day. They do all the shareholder-friendly stuff and they're just not going higher. I think the people are taking profits PE long, languishing PE firms, finally cashed out. So there's been sort of an overhang of digestion period on anything that just ramps, the way gas, the way shipping has ramped. It's remained muddy. NFE has gone down. The convert was a big worry. It was coming due people wondered about it. Now, that's tackled. Perenco was an issue, now that's tackled. So in our minds after all these things, will Perenco take more? Will they deal with the convert? What about NFE? They've ticked a lot of boxes.
I think spinning shipping is another good one. And I'm hoping it starts making the difference and then the other thing is, this is one of those sort of value conundrums of, at some point, will anyone care? And when you have jaded shareholders in a stock that's gone down so much. It's a non-trivial question. So our bet is that the math has gotten too crazy. That here, Gimi is going to turn on. Shipping is happening, Q1. I think they could announce a Mark 3 and that's a big announcement, it's twice as big as Hilli or Gimi, we'll see. And so our bet here is that we have a margin of safety. We believe in the long-term demand creation that's happened over the last 18 months. We're creating FLNG, so cheap. We think it has approached that sort of critical moment where it has to either private, or strategic, or public markets. It's eventually going to resolve itself, and we're happy owning it here. So that's my best answer.
Andrew: The stock is languishing, I'm with you. Everything seems to be on fire. The company is not unaware of this, right? They put out press releases. They talk about it all this sort of soft. So I was a little interested in the Q3 call. Someone laid out a lot of this math and said, "Hey, you've got, I know you don't want to sell NFE and a has the other thing. You don't want to sell them. But those are liquid. Your company trades for a huge discount. You've got most of the financing taken care of at this point. Why don't you guys think about buying back stocks at this huge discount and the CEO basically said, we have no plans to buy back stock right now, right? So I look at that and say, what does he not get like does he not believe in the math? [crosstalk]
Jacob: Okay, so they reduce a little bit of the share count, it was 109 something, 108 something. I believe one of the refinancing transactions might have inhibited their ability to do that. I need to double check that. It's just off the back of my mind, but I believe that happened. So, let's double-check that. And someone should ask the company on the next call, if I'm wrong, like, are you inhibited in any way from buying back stock at all? I think they might be and it might be a temporary thing or I might be wrong. But I think they're... [crosstalk]
Andrew: Based on their response. I mean you would know better than I, just based on the response. It didn't seem like they were inhibited because they said... [crosstalk]
Jacob: I think it's a recent development, but look, big picture, these guys need to take out the convert. They have a lot of debt and they are building Gimi. So, you know, they have uses of capital right now beyond just the stock. And so, I hear you and overtime if this, if they have a strategy, which is the shipping divestiture or separation, a Gimi and telling the market what's going on. And then putting up massive numbers next year. That's their plan to unlock value. If it doesn't work, dot dot dot. They'll do some other stuff. Tor owns stock and it's his baby, you know, we actually met with him recently, he was traveling through the U.S. He is all in on this thing. These guys are very aligned Carl the CEO is it, and I believe was a banker before. He's incredibly Savvy. And what's interesting is, if you step back when you deal with values cyclical industrials sometimes management teams, you know, they range in how sharp they are. You can talk about promotional this, promotional that. The team here is razor-sharp, every number they have to a decimal point and they are value maximizers and they're looking to make the stock go up, period.
Andrew: I definitely hear that, but I hear all this and earlier you mentioned Gimi, they're going to create huge value. They are at 75%, you thought they could sell a piece of it if they wanted to now, but they're waiting to next year because they think it's gonna be worth a lot more next year. And I get that that makes a lot of sense. But when you look at the stock and we walk through the math that you, you believe in the math suggest, you're buying Hilli, the steer price right now reflects Hilli and you get everything else for free, right? Like why not sell 5% of Gimi right now and go buy it for free on the open market or something. You know, I just... [crosshair]
Jacob: Totally fair. Well, here's what I can tell you is I have this conversation with the company and it's a bunch of us saying, this math is obvious and the economics are contracted. On the other side when I talk to people who aren't involved and don't want to get involved. I hear I don't want any NFE. That's something, different, whatever. And so I quibble with that, like, take 4 dollars and cut in half again. What do I care? It doesn't change my math and they do that and I don't want any fee, fine. So they're over here, forget them. That's a subset, another bunch is shipping. Now we can talk to those incremental buyers who can wake up, once shipping's done. That's another thing I've heard.
And then you know the other one I've heard is well, gas is backwardated. LNG is in the freaking title of the ticker. It's like, well, first of all, is backwardated most of the time. It's still really high and even if it goes where the curve says, it's going to go, they're going to make a ton of money, and it's crazy cheap. And there are reasons for hedging and other things in the real world. why the front end and the long end are different and it's predominantly midstream, not upstream, they've upstream optionality. So maybe the linked stuff next year comes back. But, oh by the way, the path is pretty smooth because next year they crush it on commodity, and in late 2023 and into 2024, Gimi turns on and it doubles EBITDA, and then probably after that, they'll do a Mark 3. So even if commodity is going like this, you're going to have Gimi turn on and goes like this. And so I sort of push back., but that's what I hear. Commodity, NFE, and shipping.
Andrew: You and I haven't talked about this one too much, but it's funny you said all that because those are all of my ahhh.
Jacob: And I get it, and I get it. But my point is, look at the math and look at the long-term demand for FLNG as a product and service in the market. It has a reason to exist. I see signs of it all around and I cut off a billion of debt for shipping 850 today and another 150 if they do more, I simplify and get that out of the picture. We make Gimi progress and we see the numbers inflect from here with Perenco, starting January 1st. And I look at the creation and I just say, I will own this for 3, 4, 5 years, whatever it takes. And I don't care about all those bullshit reasons to not own it and it's a free country, if those hang you up, don't buy it. You know, I'm really here and being an investor with a fun idea. This is not, I don't mean to promote it. If those things hang you up, God Bless.
Andrew: Last question for me. So you mentioned shipping and anyone who's invested for a while and has looked at shipping for a second nose. Like the shipping teams are very, they're very promotional. I think of STNG. I don't know if you ever looked at this, but this is a company that once a month they put out a press release that says we're so bullish that our CEO just bought short-term call options on us. And the stock, always the same word. So, I do worry, like, the math seems to work here and the company won't buy back stock. Lots of people think the CEO is quite promotional and then you've just got the shipping overhang. [crosstalk]
Jacob: Chairman, Karl's not promotional.
Andrew: Chairman, I'm sorry. You believe that the alignment is here, the chairman, this is his baby. He's gonna make this work. So, why do you think like, the traditional shipping, promotional, all that sort of stuff, it doesn't apply?
Jacob: For anyone listening, if you like investing, you should go read The Shipping Man. [crosstalk] It's super fun.
Andrew: I love The Shipping Man actually I loved it so much, I did a write-up on a
old blog, Ride Road Anonymous, and The Shipping Man sequel, my blurb was actually put on The Shipping Man sequel. They like my blurbs and I thought it was wonderful.[crosstalk]
Jacob: The sequeI? I didn't know there's a sequel. Oh, I'm so excited. I'll go read it. Although I got to get through your Cradle series first. I'm like, book 4, 5, but then, I'll read the sequel. Bottom line, I think Tor is great. I've heard, I talked to dozens of shipping teams. I get what you're saying, but I don't even want to say one bad thing about Tor, frankly, because I genuinely like him. But I understand the point, people have been burned, promises have been made. That have not been kept. It is a brutal industry when it's good, rates double, when it's bad, they get cut by 90%. Shipping is going away. What do you have left? Hilli, contracted producing, Gimi, 20 year deal when it turns on its BP, 20 years midstream asset. NFE is a public stock. What is there to promote? Once shipping is off to the side. So fine, whatever, like, I'm going back to the basics of the business and the fundamental mass and I'm fine with it. And I'm impressed with the team, and I don't have the baggage. And if I've talked to people who do and they will say different things, I get that. Karl hasn't been in the seat for all that long. And I think he gets it and he's really savvy and then I like the other guy's would talk to. So, yeah, that's my story.
Andrew: It's crazy compelling. I need to do so much more work here. But you lay out such a crazy compelling story. I mean, really the only thing, look, I'm not an expert in stuff as an expert, to dive into these. So I've got a lot more work to do. But the thing that just really strikes me, they know the math, you know the math, I know the math. It's just strange to me that they won't buy back shares.
Jacob: Yeah, I mean, I told you what I know about it.
Andrew: Yeah. [crosstalk]
Jacob: Well, here's the other thing. I would point out, one of the downsides of having a lot of debt. Is it, can it hamstring you?
Jacob: And they have a lot of debt. Now, shipping is deleveraging and a bunch of debt goes away. And when they ramp up, even though they will ramp up free cash flow and so free cash flow gives you options. And so I think that's just sort of this ancillary benefit of maybe if the stock doesn't move and they finish shipping and they unlock, they change their leverage metrics and unlock some cash, maybe they can do something. But I know, I talked to him about it, yeah, I would love a buyback and so I think either stock goes up or one day they do a buyback. If I had to guess. It's one of the other.
Andrew: Hopefully, it's both right? Buyback and stock goes up. I've got to wrap it up here because I have stuff. Jacob, two ideas and I mean both are very compelling but GLNGs, we went through it... [crosstalk]
Jacob: It's similar, yeah, it's just like that is what it is.
Andrew: Really appreciate you coming on. This is our last episode of the year. So I just want to say to all listeners. Thank you guys so much. This has been a fantastic time. I'm looking forward to doing a ton more of these in the New Year. Hopefully having Jacob back on. I mean we did 1 episode, one idea the first time, two ideas this time. We'll do a four-part for next time. But Jacob thank...
Jacob: Look, people should understand my motivation in part. This is redemption, man. We got to level the score. I got to improve my Andrew Walker batting average. So fingers crossed, some of this stuff I don't look as stupid as I did last time.
Andrew: No. I think these were all very well, but Jacob, thank you for coming on again. Listeners, thank you guys, and we'll see you guys in the new year.