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- CoolCo Strategically Navigates LNG Market with Fleet Upgrades,Financial Moves
Published: [Current date]
CoolCo,a leading LNG shipping company,is strategically maneuvering thru a dynamic market by optimizing it’s fleet and financial position. The company’s 2024 results highlight key decisions, including taking delivery of the Kool Tiger in October 2024, a newbuild LNG carrier from Hyundai Samho Heavy Industries in South Korea. Simultaneously, CoolCo secured financial flexibility through a sale and leaseback arrangement with a subsidiary of Huaxia Financial Leasing, allowing them to navigate near-term market pressures while actively pursuing long-term charters for vessels like the Kool Tiger and Kool Glacier.
Sale and Leaseback of Kool Tiger
The arrival of the Kool tiger in October 2024 considerably bolstered CoolCo’s fleet. To optimize its financial standing, CoolCo entered into a sale and leaseback agreement with Huaxia Financial Leasing. This arrangement provides CoolCo with crucial financial flexibility, especially given the current market conditions. The agreement includes options for CoolCo to repurchase the LNG carrier during the ten-year lease period, as well as an obligation to repurchase the vessel at the end of the lease period. The sale and leaseback facility is set to mature in October 2034.
Currently, the Kool Tiger “is currently on spot market employment on an interim basis, whilst a long-term charter is pursued,” according to CoolCo’s 2024 results report released on Thursday.This interim strategy allows CoolCo to generate revenue while actively seeking a more stable, long-term charter agreement.
Seeking Long-Term Charters
A core component of CoolCo’s strategy involves securing long-term charters for its vessels. In addition to the Kool Tiger, the company is actively seeking a long-term charter for the kool Glacier, a 2014-built TFDE vessel. Though, CoolCo acknowledges that chartering activity in the fourth quarter “remained subdued.”
CoolCo noted that “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.” Despite this challenging environment,CoolCo successfully secured spot market employment for the Kool Glacier before it entered the yard in late January for scheduled upgrades,demonstrating their ability to adapt to market fluctuations.
Fleet Upgrades and Performance
CoolCo is dedicated to enhancing the performance and efficiency of its LNG carrier fleet through strategic upgrades. The Kool Glacier is currently undergoing upgrades with LNGe specifications and is expected to be in the yard for approximately 50 days. This follows the successful upgrade of the Kool Husky, which entered drydock in September and completed its upgrades ahead of schedule in October.
These LNGe upgrades include a high-capacity sub-cooler retrofit, an air lubrication system, and various minor performance enhancements. CoolCo believes that “the excellent performance of Kool Husky after its performance upgrade to LNGe specification positions it well for continued or choice business opportunities on redelivery at the end of the first quarter. Kool Glacier will be similarly well positioned after its upgrade.” These upgrades are expected to improve fuel efficiency and reduce emissions, making the vessels more attractive to charterers.
CoolCo’s LNG Fleet Composition
CoolCo’s diverse fleet includes seven TFDE LNG carriers acquired from Golar LNG and four LNG carriers purchased from Eastern Pacific Shipping (EPS),its largest shareholder. Furthermore, CoolCo acquired two newbuild LNG carriers from EPS, featuring GTT’s mark III flex membrane cargo tank system, reliquification, air-lubrication, and shaft generators. In June 2023, CoolCo exercised its option with affiliates of EPS Ventures 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. This long-term charter demonstrates CoolCo’s ability to secure notable contracts and generate stable revenue streams.
Financial Results and Market Outlook
CoolCo reported total operating revenues of $84.6 million in the fourth quarter, compared to $82.4 million for the third quarter. Net income for the fourth quarter was $29.41 million, compared to $8.11 million for the prior quarter, primarily due to a mark-to-market gain in its interest rate swaps. The company 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 quarter.
The company reported an adjusted EBITDA of $55.3 million, compared to $53.7 million in the prior quarter.
CoolCo CEO Richard Tyrrell addressed the current market dynamics,stating that sustained high LNG prices in Europe,resulting trading patterns,and the delivery of new vessels have put “significant downward pressure” on the near-term chartering market. He added,”we believe this will start to normalize and eventually pass as additional LNG projects come online and older vessels leave the market.”
“Simultaneously occurring, 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,”
Richard Tyrrell, CoolCo CEO
Tyrrell also noted that the newly delivered Kool Tiger impacted results due to its positioning voyage to the Atlantic basin and subsequent spot market employment. He highlighted the positive performance of Kool Husky after its upgrade to LNGe specifications, stating that it has completed a number of voyages 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,”
Richard Tyrrell,CoolCo CEO
Future Outlook and Dividend Policy
Tyrrell anticipates a “rate normalization” as new LNG projects come online and less efficient vessels are retired. He believes that “there is a clear trajectory towards a substantial re-tightening of supply and demand for shipping.”
Despite a firm backlog of more than $1 billion across the fleet,CoolCo has decided not to declare a dividend at this time. Tyrrell explained, “While rates languish at below economic breakeven on open days, we have not declared a dividend.” He emphasized that this decision will provide financial flexibility and create capacity for opportunistic growth. CoolCo currently has approximately $288 million of liquidity and no debt maturities until mid-2029.
“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,”
Richard Tyrrell, CoolCo CEO
Is the LNG shipping industry facing its biggest shake-up in decades, forcing companies like CoolCo too make bold, strategic moves to survive?
Senior editor: Dr. Anya Sharma, a renowned expert in global energy markets and maritime logistics, welcome to World today News. CoolCo’s recent financial report reveals a fascinating strategic shift in the LNG shipping sector. Can you break down their key moves and how they reflect broader industry trends?
Dr. Sharma: Absolutely. coolco’s actions are a microcosm of the challenges and opportunities facing the liquefied natural gas (LNG) shipping industry. The market is experiencing a period of significant volatility, driven by fluctuating global demand, the influx of new vessels, and the pressure for increased sustainability and environmental compliance. CoolCo’s response highlights three crucial strategies: financial optimization,strategic fleet upgrades,and a focus on long-term charter agreements.
Financial optimization: Sale and Leaseback Strategies
senior Editor: Their sale and leaseback agreement for the Kool Tiger stands out. What are the advantages and potential drawbacks of such a financial maneuver in the current market climate?
Dr. Sharma: The sale and leaseback transaction with Huaxia Financial Leasing is a smart financial strategy for CoolCo. It allows them to inject immediate cash into the business, improving their short-term liquidity and easing pressure from near-term market fluctuations. This liquidity can be used to pursue more lucrative long-term contracts and invest in fleet upgrades.However, it’s crucial to understand that sale and leaseback arrangements increase long-term operational expenses, so a thorough evaluation of the long-term lease agreement’s cost-effectiveness against the potential benefits of securing preferred longer-term contracts is needed. This is a delicate balancing act that requires a deep understanding of the financial forecasting of the commodity market itself and the financial modeling of future charter rates.
Strategic Fleet Upgrades Enhancing Efficiency and Attractiveness
Senior Editor: CoolCo is actively upgrading its fleet, specifically focusing on LNGe specifications. How significant is this investment in improving fuel efficiency and environmental performance?
Dr. Sharma: This is a pivotal move for CoolCo. Upgrades resulting in LNGe specifications, including high-capacity sub-coolers and air lubrication systems, are vital for several reasons. First, they directly enhance operational efficiency, leading to potential cost savings and reduced fuel consumption. Secondly, and equally crucial, these upgrades substantially enhance the marketability and long-term competitiveness of their vessels due to the increasing global emphasis on decarbonization efforts within the maritime sector. Charterers are increasingly prioritizing vessels with such modifications, making CoolCo’s ships more attractive, offering increased competitive advantage.
Securing Long-Term Contracts in a Volatile Market
Senior Editor: The article mentions challenges in securing long-term charters. What’s the current climate like for LNG vessel chartering, and how is coolco positioning itself for success?
Dr.Sharma: The LNG shipping market is characterized by cyclical fluctuations in charter rates. While shorter-term,spot market contracts offer immediate revenue,securing a long-term charter,as CoolCo is seeking to do,offers stability and predictability. This stability reduces operational risk,provides long-term cash flow visibility that helps with long-term business and financial planning,and reduces volatility when calculating the overall weighted average cost of capital. The challenge is that such arrangements require a longer-term vision. CoolCo is demonstrating due diligence by actively pursuing long-term contracts while using interim approaches, such as the spot market, to generate present revenue. This adaptive approach shows a crucial understanding of market dynamics.
Senior Editor: CoolCo’s financial results seem to show a degree of resilience. What are the key takeaways for investors and industry players following their recent performance?
Dr. Sharma: CoolCo’s financial performance demonstrates notable resilience despite market headwinds. Their focus on cost-saving measures, coupled with a portfolio that largely consists of vessels secured under long-term charter contracts, has generated a more reliable income steam. Investors should see this as a sign of effective management strategies.Other LNG shipping companies can learn from CoolCo’s multifaceted approach: combining strategic fleet management, proactive financial risk management, and flexible business models appropriate for handling market uncertainty.
Senior Editor: Dr. Sharma, thank you for providing such insightful perspectives on CoolCo’s strategic approach and the wider LNG shipping market. Readers, please jump into the comments below and share your thoughts and analysis! How do you see the LNG shipping industry evolving in the coming years?