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In October 2024, CoolCo took delivery of Kool Tiger from South Korea’s Hyundai Samho Heavy Industries and simultaneously entered into a sale and leaseback financing arrangement with a subsidiary of Huaxia Financial Leasing.
Under this financing arrangement, CoolCo has options to repurchase the LNG carrier during the ten-year lease period and an obligation to repurchase the vessel at the end of the lease period.
The sale and leaseback facility matures in October 2034.
The LNG carrier “is currently on spot market employment on an interim basis, whilst a long-term charter is pursued,” CoolCo said in its 2024 results report on Thursday.
CoolCo said in its previous report that it was seeking long-term employment for this vessel and its 2014-built TFDE vessel, Kool Glacier.
The company said on Thursday that chartering activity in the fourth quarter “remained subdued.”
“Long-term charterers have responded by pushing out their requirements in the expectation that nearer-term cargoes can be transported with vessels from the spot market,” it said.
“Nonetheless, CoolCo successfully found employment in the spot market for its one TFDE vessel Kool Glacier, which became available during the fourth quarter before entering the yard ahead of schedule in late January,” the LNG shipping firm said.
This vessel is scheduled to be in the yard for approximately 50 days and will be upgraded with LNGe specifications, it said.
LNG fleet
CoolCo has seven TFDE LNG carriers it acquired from Golar LNG and the four LNG carriers it purchased from its largest shareholder Eastern Pacific Shipping.
Besides these vessels, CoolCo purchased two newbuild LNG carriers from EPS, and they feature GTT’s Mark III Flex membrane cargo tank system, reliquification, air-lubrication, and shaft generators.
The shipping firm exercised its option with affiliates of EPS Ventures in June 2023 to acquire newbuild contracts for the two 2-stroke LNG carriers scheduled to deliver in the fourth quarter of 2024.
In May, CoolCo entered into a 14-year charter deal with India’s largest gas utility GAIL for one of the newbuild LNG carriers currently under construction in South Korea.
The vessel in question is Kool Panther, now named GAIL Sagar.
Drydocks
CoolCo’s fleet maintained “strong” performance, achieving 92 percent fleet utilization in the fourth quarter, with the offhire period due to the repositioning of vessels between spot charters.
The LNG carrier Kool Husky entered drydock during September which was completed along with upgrades for LNGe specifications ahead of schedule in October, CoolCo said.
These LNGe upgrades included a high-capacity sub-cooler retrofit, an air lubrication system, and various minor performance enhancements, the firm said.
Subsequent to the quarter end, Kool Glacier and Kool Kelvin entered drydock, both with expected completion dates scheduled for before the end of the first quarter of 2025.
“The excellent performance of Kool Husky after its performance upgrade to LNGe specification positions it well for continued or alternative business opportunities on redelivery at the end of the first quarter. Kool Glacier will be similarly well positioned after its upgrade,” CoolCo said.
Results
CoolCo generated total operating revenues of $84.6 million in the fourth quarter, compared to $82.4 million for the third quarter.
The firm reported a net income of $29.41 million in the fourth quarter, compared to $8.11 million for the prior quarter, with the increase primarily related to a mark-to-market gain in its interest rate swaps.
CoolCo achieved average time charter equivalent earnings (TCE) of $73,900 per day for the fourth quarter, compared to $81,600 per day for the prior, primarily due to an increase in available days and lower spot TCE rates that applied to two of CoolCo’s vessels.
The company reported an adjusted Ebitda of $55.3 million, compared to $53.7 million in the prior quarter.
LNG carrier upgrades boosting CoolCo
CoolCo CEO Richard Tyrrell said sustained high LNG prices in Europe, the resulting trading patterns, and the delivery of new vessels have put “significant downward pressure” on the near-term chartering market.
“We believe this will start to normalize and eventually pass as additional LNG projects come online and older vessels leave the market,” he said.
“In the meantime, we benefit from the fact that the majority of our ships are on term charters, which, along with cost savings, enabled us to report moderately higher adjusted Ebitda in the fourth quarter,” he said.
Tyrrell noted this was despite the newly delivered Kool Tiger weighing on results with its positioning voyage to the Atlantic basin and subsequent spot market employment.
He said Kool Husky, CoolCo’s first vessel to be upgraded to LNGe specifications including reliquefaction capabilities, has completed a number of voyages since exiting the yard in the quarter with “excellent” results.
“This positive early experience supports our belief that these upgrades will not only have the potential to add incremental revenues but also improve our overall employment prospects and potential for repeat business,” Tyrrell said.
“Scene is set for rate normalization”
Tyrrell said much of the current vessel supply imbalance is a “function of numerous newbuilds being sublet into the spot market while they await startup on the liquefaction projects they were built to service.”
“These sublets will weigh less on the market over the course of 2025 as Plaquemines, Corpus Christi, LNG Canada, and other smaller projects bring substantially more LNG onto the market,” he said.
“Simultaneously, with steam turbine and other less efficient vessels coming off their initial long-term charters, and expected to fall out of the schedules, and get laid up, the scene is
set for rate normalization from current depressed levels,” he said.
“Moreover, with many new LNG projects in the pipeline at advanced stages, we believe there is a clear trajectory towards a substantial re-tightening of supply and demand for shipping,” Tyrrell said.
No dividend
“While rates languish at below economic breakeven on open days, we have not declared a dividend,” Tyrrell said.
“Our considerable firm backlog of more than $1 billion across the fleet is reasonably well spaced but this doesn’t take away our exposure to vessels that come open over time,” he said.
“Instead of predicting the timing of when markets normalize and risk getting it wrong, we believe that not declaring a dividend at this time will result in the combined benefit of financial flexibility and creating capacity for opportunistic growth (through acquisitions or otherwise) under current circumstances,” he said.
“Such a decision is always best taken from a position of strength as CoolCo enjoys approximately $288 million of liquidity (at year-end 2024), strong operating results, and no debt maturities until mid-2029,” Tyrrell added.