Höegh LNG Holdings Ltd and its subsidiaries reported a total income of USD 106.1 million and an EBITDA of USD 51.9 million for the fourth quarter of 2022, compared to USD 96.1 million and USD 0.1 million for the preceding quarter. The increase in EBITDA was mainly a result of higher revenues from Höegh Giant being redeployed after having been idle since April and reimbursement of certain costs incurred when modifying the two vessels allocated to the contracts in Germany. This increase was partly offset by lower revenues due to idle time and higher vessel operating expenses for three vessels which were in yard to complete class renewals and modifications. The share of result from joint ventures declined quarter-on-quarter due to impairment provisions made for the two Arctic vessels. Furthermore, the EBITDA also increased because of non-recurring administrative expenses incurred in the third quarter not being repeated.

The group recorded a net loss after tax of USD 4.0 million for the fourth quarter of 2022, up from a net loss after tax of USD 45.9 million in the preceding quarter. This increase is mainly related to the above-mentioned increase in EBITDA, partly offset by reversal of the unrealised foreign exchange gains on the unhedged portion of the NOK-denominated bonds. Additionally, the third quarter result included a reduction of provision for potential tax liabilities related to the group’s operations in Indonesia which was not repeated in the fourth quarter.

Operating cash flows increased in the fourth quarter by USD 36.9 million to USD 69.6 million. The increase was mainly driven by higher EBITDA which was partly offset by a lower positive effect from changes in working capital than in the previous quarter. Net cash outflows from investing activities of USD 14.3 million was mainly related to class renewals and modifications to ready three vessels for FSRU operations. Net cash outflows from financing activities of USD 59.6 million during the quarter mainly comprised of regular amortisation of borrowings and lease payments, dividends paid to non-controlling interests in Höegh LNG Partners (HMLP) and interest payments. The net decrease in cash and cash equivalents during the fourth quarter was USD 4.3 million.

On 31 December 2022, Höegh LNG held USD 146.8 million in unrestricted cash (USD 151.1 million). Net interest-bearing debt, including lease liabilities, decreased during the fourth quarter by USD 7 million to USD 1 337 million (USD 1 344 million). Total assets and book equity on 31 December 2022, after adjusting for the mark-to-market of interest rate swaps, were USD 2 404 million (USD 2 427 million) and USD 699 million (USD 706 million) respectively, equivalent to an adjusted book equity ratio of 29% (29%).

For the full year ended 31 December 2022, Höegh LNG reported a total income of USD 380.8 million and an EBITDA of USD 153.2 million, which compares with USD 351.8 million and USD 217.2 million for the previous year. Although revenues increased, the group also incurred higher expenses in 2022, through increased vessel operating expense primarily related to repositioning of three vessels to make them ready for FSRU operations and increased administrative expenses. Höegh LNG reported a net loss of USD 55.4 million for 2022, which compares with a net loss of USD 21.3 million for 2021. The decrease is primarily due to the decrease in EBITDA, partly offset by reversing parts of a tax provision recorded for uncertain tax position in Indonesia in 2021.

Business review

Business development

Fourth quarter was a busy quarter for Höegh LNG, preparing three vessels for FSRU operations in Germany and Brazil. All three vessels completed the preparations at the yard during the quarter, and the two 10-year time charter contracts with the Federal Government of Germany were signed in December and January respectively. Höegh Esperanza and Höegh Gannet are allocated to these two contracts and are already in place in Germany, located in Wilhelmshaven and Brunsbüttel. The third vessel, Höegh Giant, left the yard in November, and is now operating in the LNG carrier market on an interim charter before it is scheduled to go to Brazil in the second quarter of 2023 and commence operations under Höegh LNG’s 10-year time charter contract with TSRP/Compass.

The business development team is in active dialogue with several potential new projects looking for FSRU capacity which could provide growth opportunities for the group in the future.

Operations

The fleet delivered a stable operating performance in the fourth quarter. However, each of Höegh Esperanza, Höegh Gannet, and Höegh Giant were idle for a period of about 35 days on average, while finalising the class renewals and modifications to be carried out to prepare the vessels for FSRU operations. Höegh Esperanza successfully commenced regas operations in Wilhelmshaven in late December 2022 and is on hire under its new contract. Höegh Gannet arrived in Brunsbüttel in January 2023 when hire started to accrue under its new contract. The FSRU is expected to complete its commissioning and commence regas operations in March/April 2023. Neptune, which is employed on a long-term charter with TotalEnergies, successfully commenced regas operations for Deutche ReGas in Lubmin, Germany, during January/February 2023.

Fleet overview and contract coverage

The group’s fleet consists of ten modern FSRUs and two LNG carriers. The entire fleet is either operating under or committed to long-term contracts with strong counterparties. The average remaining contract length per vessel2 was 9.3 years at the end of 2022. The contract coverage for 2023 is close to 100%, with the exception of some expected idle time between contracts for Höegh Giant and Höegh Galleon in 2023.

Russia’s invasion of Ukraine

The situation in Ukraine continues to impact the market for LNG as well as for LNG carriers and FSRUs, in particular since Russia is a major global exporter of crude oil and natural gas. This has led to a surge in demand for LNG, LNG carriers and FSRUs, which has caused LNG prices and FSRU charter rates to increase compared to the period prior to the conflict in Ukraine. While near-terms business opportunities have materialised for the company in Europe, the potential effects on the group’s business and operations of the conflict in Ukraine are complex to project and therefore highly uncertain. For example, the situation may lead to further regional and international conflicts or armed action. It is possible that such conflict could disrupt supply chains and cause instability in the global economy. Additionally, the ongoing conflict could result in the imposition of further economic sanctions by the United States, the European Union and other countries against Russia. While much uncertainty remains regarding the global impact of the invasion, it is possible that such tensions could adversely affect our business, financial condition, results of operation and cash flows. Furthermore, it is possible that third parties with whom we have charter contracts may be impacted by events in Russia and Ukraine, which could adversely affect our operations.

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 close to 100%, and there was no LTI’s recorded during the annualised period up to 31 December 2022.

ESG rating

Sustainability is a high priority for Höegh LNG. The company acknowledges the responsibility to drive the environmental, social and governance agenda through the development of its operations. In October 2022, Höegh LNG was awarded 5 stars with 97/100 score and 1st in Peer Comparison in the GRESB Infrastructure Asset Benchmark Report. With the high score of 97, Höegh LNG outranked the average peers’ score of 81. GRESB is an index that compares companies across a spectre of ESG-criteria, and a global standard for ESG reporting. Höegh LNG has an ambition to stay in the forefront of our industry. A full presentation of Höegh LNG’s sustainability strategy, is presented in the 2021 Sustainability Report published on https://www.hoeghlng.com/Sustainability/default.aspx

Corporate/other activities Acquisition of LNG carrier

On 20 February 2023, Höegh LNG announced an agreement to acquire the 2013-built LNG carrier Golar Seal with 160,000 cbm cargo capacity. Höegh LNG expects to take delivery of the vessel in late March or April 2023 and subsequently employ the vessel in the carrier market on a term time charter. The transaction underpins our growth ambitions. The vessel will be an excellent addition to our fleet and provide flexibility to pursue FSRU conversion opportunities.

Refinancing

In February 2023, Höegh LNG signed a new loan facility agreement with a group of banks to refinance Höegh Esperanza and Höegh Gannet, both employed on long-term contracts in Germany. The new loan facility agreement is for a total amount of USD 685 million and has a tenor of 10 years. The loan amount will be applied to repay the existing loan facilities for the two vessels and general corporate use and will reduce Höegh LNG’s average cost of debt. The facility is split in two tranches, one per vessel. The refinancing of Höegh Esperanza has been completed and the loan tranche was drawn on 21 February 2023. The refinancing of Höegh Gannet is expected to be completed March/April 2023, depending on having successfully completed its commissioning for regas operations in Germany and customary closing conditions.

Höegh LNG Partners LP – voluntary delisting of its preferred units

On 5 December 2022, HMLP announced that the board had approved the delisting of the partnership’s 8.75% Series A cumulative redeemable preferred units and the plans to give notice to NYSE of its intent to delist the preferred units and to withdraw the registration of its preferred units with SEC. The delisting was effective 2 January 2023.

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. On 13 June 2022, the charterer filed a statement of claim with a request for a primary relief and three alternative reliefs. The charterer’s claim of restitution if the LOM is declared null and void is USD 416 million, increasing to USD 472 million by June 2023 plus interest and costs. PT Hoegh LNG Lampung has previously 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 and a claim against the parent company of the charterer for the fulfilment of the charterer’s obligations under the LOM as stated in a guarantee provided by the parent company, with a claim for damages. On 13 June 2022, PT Hoegh LNG Lampung filed its statement of claim, and a statement of defence was filed in September. PT Hoegh LNG Lampung will take all necessary steps and will vigorously contest the charterer’s claims in the legal process. No assurance can be given at this time as to the outcome of the dispute with the charterer of the PGN FSRU Lampung. Notwithstanding the arbitration process, both parties have continued to perform their respective obligations under the LOM. In the event the outcome of the dispute is unfavourable to PT Hoegh LNG Lampung, it could have a material adverse impact on the group’s business, financial condition and results of operations.

Market

Global LNG trade for the fourth quarter of 2022 was 105 million tonnes, which represents a 6% growth compared to the fourth quarter of 2021. LNG carrier spot rates surged to record high levels during the first half of the quarter as Europe raced to secure gas supply for the winter market. As the winter turned out to be mild and the congestion of LNG carriers waiting to discharge started to dissolve, spot rates trended downwards during the second half of the quarter and further into the first quarter of 2023. On the other hand, term rates remained relatively firm and continue to hold up as charterers prefer to stay long in tonnage in case the scenario from last fall and winter is repeated in 2023.

The newbuilding market for LNG carriers was very active during 2022, and yards are fully booked with first possible delivery in 2027. Newbuilding prices are firm at high levels.

The demand for FSRUs remains high. The turnaround in 2022 was driven by European countries looking to ensure security of energy supply with import of LNG to substitute pipeline gas from Russia. Currently, 45 FSRUs are on the water (excluding four barges with limited storage and/or send-out). There is one open FSRU newbuilding on order with expected delivery in 2026 and 2-3 ongoing conversions contracted to specific FSRU projects. Two older conversions with relatively limited storage capacity are in layup. Following the recent surge in demand for FSRUs, most of the world’s fleet of FSRUs is now either employed on existing long-term contracts or committed to FSRU contracts with near-term commencement.

Outlook

Höegh LNG’s near-term focus is to ensure our new FSRU projects commence operations as planned by our customers in Germany and Brazil over the coming months. Furthermore, we are planning for commencement of the contract with AIE in Australia with expected start towards the end of this year.

The demand for FSRUs is expected to remain strong. While Höegh LNG has secured long-term contracts for its entire fleet of FSRUs, our business development team is in active dialogue with several potential new projects looking for FSRU capacity. The acquisition of the LNG carrier Golar Seal provides flexibility to pursue FSRU conversion opportunities.

The group expects that the EBITDA for the first quarter of 2023 will improve compared to the fourth quarter of 2022 with the commencement of the new contracts.

Agencies

Marex Media