Cool Company Ltd. Q2 2023 Business Update

HAMILTON, Bermuda–(BUSINESS WIRE)–This release includes business updates and unaudited interim financial results for the three (“Q2”, “Q2 2023” or the “Quarter”) and six months (“1H 2023”) ended June 30, 2023 of Cool Company Ltd. (“CoolCo” or the “Company”) (NYSE:CLCO / CLCO.OL).

Q2 Highlights and Subsequent Events

• Generated total operating revenues of $90.3 million in Q2, compared to $98.6 million for the first quarter of 2023 (“Q1” or “Q1 2023”), the reduction mainly related to the sale of Golar Seal in late March 2023.
• Net income of $44.6 million in Q2, compared to $70.1 million for Q1;
• Achieved average Time Charter Equivalent Earnings (“TCE”)¹ of $81,100 per day for Q2, compared to $83,700, per day for Q1, mainly attributable to a lower variable rate charter that is linked to the spot-market;
• Adjusted EBITDA¹ of $59.9 million for Q2, compared to $67.8 million for Q1;
• The Company announced that it has exercised its option to acquire two newbuild 2-stroke LNG carriers from affiliates of EPS Ventures Ltd (“EPS”). The state-of-the-art MEGA LNG carriers (the “Newbuilds”) are scheduled to be delivered from Hyundai Samho Heavy Industries (“HHI”) in Korea in September and December of 2024;
• On June 28, 2023, bank approval was granted for a $70 million increase under the senior secured sustainability linked amortizing term loan (the “$570 million bank facility”), in addition to a reduction in the interest rate margin under the $570 million bank facility from 275 basis points to 225 basis points;
• Declared a dividend for Q2 of $0.41 per share, to be paid to shareholders of record on September 11, 2023.

Richard Tyrrell, CEO, commented:

“During the second quarter, we achieved full utilization across the CoolCo fleet and secured well-timed growth through the exercise of our option on two state-of-the-art newbuild MEGA LNG carriers with deliveries in late 2024, newbuild pricing materially below current levels and committed financing in place subject to documentation. By exercising our option to acquire these vessels with scheduled delivery years well in advance of comparable newbuild orders, we are one of the few independent owners with availability in an early period of rapid expected growth in LNG supply. In conjunction with our three existing vessels that come into the charter market in 2023 and 2024, of which two are currently at rates well below prevailing levels, we have a clear path towards the realization of significant incremental value, cashflow, and continued dividend-paying capacity.

“With the approach of winter in the Northern Hemisphere, which is typically accompanied by a surge in LNG carrier demand related to both increased gas consumption and additional utilization for floating storage, trading arbitrage involving lengthy voyages to the Far East, and weather-related delays that soak up shipping capacity, the market seems tightly coiled. Moreover, the recent extreme volatility in gas pricing demonstrates a continued emphasis on energy security, as importers continue to put a premium on the commodity and the shipping capacity required to ensure security of supply.

“It remains to be seen how the coming winter will ultimately play out, but similar tightness of both cargoes and shipping capacity has historically presaged dramatic inflections in the spot charter market and provided firm support for both rates and charter durations in the more stable time charter market. As owners of modern LNG carriers that will be available for time charter employment through the medium term, we believe that our strategy of combining the certainty of long-term charter coverage with a measured amount of charter market exposure has the potential to shine in the quarters ahead.”

¹ Refer to ‘Appendix A’ – Non-GAAP financial measures and definitions, for definitions of these measures and a reconciliation to the nearest GAAP measure.

Financial Highlights

The table below sets forth certain key financial information for Q2 2023, Q1 2023, 1H 2023 and 1H 2022, split between Successor and Predecessor periods, as defined below.

LNG Market Review

The average Japan/Korea Marker gas price (“JKM”) for the Quarter was $11.06/MMBtu compared to $17.05/MMBtu for Q1 2023. The Quarter commenced with Dutch Title Transfer Facility gas price (“TTF”) at $14.31/MMBtu and quoted TFDE headline spot rates of $58,500 per day. The Quarter concluded with TTF at $10.91/MMBtu and quoted TFDE headline spot rates of $69,250 per day.

The LNG market experienced typical seasonal weakness and relatively lower prices during the quarter, reaching price parity with oil for the first time since before the invasion of Ukraine. Shorter haul voyages to southern hemisphere markets increased, as is customary for the time of year. LNG volumes into Europe remained elevated by historic standards, as LNG replaces Russian pipeline gas and filled onshore storage. European inventory levels reached 78% by the end of the quarter and ~90% today. While the impact of these factors on the LNG carrier spot market was pronounced, the spot market continued to be populated almost entirely by sublets and this only affected CoolCo because of a single remaining variable rate charter. Owner-controlled vessels, of which very few are coming into the charter market in the short-term, have remained focused on time charters of 12 months or longer, where terms have remained largely stable at rates well above those prevailing in recent years, as charterers look to ensure access to carriers through the critical winter season in the northern hemisphere.

With the winter approaching, the supply of LNG carriers available for term employment remains minimal. The recent extreme volatility in LNG commodity pricing is indicative of a very tight supply/demand balance and the relative fragility of global supply chains still adapting to the sudden removal of large volumes of Russian pipeline gas that previously provided a significant proportion of the EU’s energy needs. Whether as a result of geopolitical developments, labor action, industrial issues, or the weather or congestion-related issues that the industry experiences with some regularity, it is clear that the fast-growing LNG market remains highly dynamic. In this environment, importers are prioritizing certainty of access to both the LNG molecules and the transportation capacity, rather than managing towards maximal efficiency and risking being short gas at a critical juncture. We continue to expect that term rates will remain strong and with the potential of sharp seasonal upswing in the spot market, we expect to fix our vessel coming available in September 2023 on attractive terms.

Operational Review

CoolCo’s fleet continued to perform well with no technical off-hire during the Quarter, resulting in a Q2 fleet utilization of 100%, unchanged from Q1. There are no drydocks planned for 2023, with the next drydock expected during the second quarter of 2024.

Business Development

In June 2023, CoolCo signed contracts with HD Hyundai Global Service, a ship service subsidiary of HD Hyundai Group, to retrofit five LNG carriers with sub-coolers for LNG boil-off reliquefaction units. The contract value is approximately $10.0 million per vessel.

On June 28, 2023, the Company announced that it had exercised its option to acquire two newbuild 2-stroke LNG carriers from affiliates of EPS. The Newbuilds are scheduled to be delivered from HHI in Korea in September and December of 2024. Each of the two Newbuilds is being acquired for an amount of approximately $234 million. The initial option exercise price was $56.9 million per vessel, resulting in a total of $113.8 million paid to EPS on July, 3 2023. The Newbuilds, named Kool Tiger and Kool Panther, are expected to be funded with a combination of cash on hand, including cash that was recently released from the sale of the Golar Seal, and committed debt financing.

CoolCo is in discussions with multiple potential charterers seeking work for the Newbuilds.

Financing and Liquidity

In June 2023, the Company announced that the syndicate of existing lenders in the $570 million bank facility approved an increase in the debt amount of $70.0 million and a reduction of the interest rate margin from 275 basis points to 225 basis points. The $570 million bank facility’s underlying, secured overnight financing rate (“SOFR”) exposure is fully hedged and the scheduled amortization has been adjusted proportionally for the increased size. The additional debt funding under this $570 million bank facility will fund the LNGe conversion of five vessels, including retrofits with sub-coolers for LNG boil-off reliquefaction under the recently announced contract with HD Hyundai Global Service.

As of June 30, 2023 CoolCo had cash and cash equivalents of $309.4 million and total short and long-term debt, net of deferred finance charges, amounted to $1,063.9 million. Total Contractual Debt¹ stood at $1,179.4 million, which comprised of $504.4 million in respect of the $570 million bank facility maturing in March 2027, $481.3 million in respect of the four-vessel bank financing facility maturing in May 2029 (the “$520 million term loan facility”), and $193.8 million in respect of the two sale and leaseback facilities maturing in the first quarter of 2025 (Kool Ice and Kool Kelvin).

During Q2, we entered into further floating interest rate (SOFR) swap agreements for a notional amount of $40.0 million in respect of the $520 million term loan facility. Overall, the Company’s interest rate on its debt is fixed or hedged for approximately 90% of the notional debt, adjusting for existing cash on hand, but excluding cash that was earmarked for the option exercise of the Newbuilds.

Corporate and Other Matters

As of June 30, 2023, CoolCo had 53,688,462 shares issued and outstanding. Of these, 31,254,390 shares (58.2%) were owned by EPS Ventures Ltd (“EPS”) and 22,434,072 (41.8%) were publicly owned.

In line with the Company’s variable dividend policy, the Board has declared a Q2 dividend of $0.41 per ordinary share. The record date is September 11, 2023 and the dividend will be distributed to DTC-registered shareholders on or around September 18, 2023, while due to the implementation of Central Securities Depositories Regulation in Norway, the dividend will be distributed to Euronext VPS-registered shareholders on or about September 22, 2023.

Outlook

Since the end of the Quarter, TTF has increased to $12/MMBtu and TFDE spot rates have increased to $120,000 per day.

In the coming years, the global supply of LNG is set to increase by more than 50% on the basis of projects that have already reached FID, of which at least 40 mtpa of capacity has reached FID in 2023 alone, equal to approximately 10% of total 2022 LNG production. In understanding the current 51% order book-to-fleet ratio (by volume), it is critical to understand that the order book has overwhelmingly been built on the basis of long-term contracts to service new liquefaction facilities, with the timing and quantity of their deliveries intended to match the commencement of new production. Furthermore, to the extent that project development delays result in vessels delivering to their charterers before their intended startup time, we would expect to see a dynamic similar to that which has recently prevailed, in which the market is sharply bifurcated between charterers seeking to fill interim periods in the spot market and owners such as CoolCo who are in a position to offer multi-year time charters. A number of additional liquefaction projects remain under development across North America and the Middle East in particular, but also in a wide variety of other geographies as there remains a strong and widespread desire to decarbonize by substituting LNG for the vast amounts of coal still being consumed, particularly in emerging markets.

Among LNG carriers currently on the water, the older, less efficient vessels in the charter market are expected to face growing competitive pressure over time, particularly among the steam turbine vessels that continue to make up over 30% of the global fleet by volume. The imposition of the IMO’s carbon intensity indicator (“CII”) rules from the beginning of this year, as well as forthcoming European carbon pricing set to come into effect next year, are set to increase the relative advantage of modern, efficient TFDE and 2-stroke tonnage such as those in the CoolCo fleet.

The limited supply of modern vessels available for time charter employment through the medium term is concentrated among a small number of owners, including CoolCo. Given the improved bargaining position afforded by a combination of scarcity and concentration, such owners have remained focused primarily on longer-term charters that would bridge the period from now until the next wave of LNG volumes arrives in 2026-2027. A newbuild vessel ordered today would be subject to an approximately 4-year lead time and a purchase price exceeding $260 million, limiting the likelihood of unforeseen newbuild tonnage during that period while further supporting the benchmark against which the overall fleet is priced.

FORWARD LOOKING STATEMENTS

This press release and any other written or oral statements made by us in connection with this press release include forward-looking statements. All statements, other than statements of historical facts, that address activities and events that will, should, could or may occur in the future are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words or phrases such as “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,” “expect,” “could,” “would,” “predict,” “propose,” “continue,” or the negative of these terms and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include statements relating to our ability and expectations to charter available vessels and chartering strategy, outlook, expected results and performance, expected drydockings, delivery dates of newbuilds, intended uses of our financing facilities, dividends and dividend policy, expected growth in LNG supply, expected industry and business trends including expected trends in LNG demand and market trends, expected trends in LNG shipping capacity, LNG vessel supply and demand, trends of the spot market and the term market, and factors impacting supply and demand of vessels such as CII and European carbon pricing backlog, expected trends in charter and spot rates, expectations on rates for future charters, contracting, utilization (including expected revenue backlog), LNG vessel newbuild order-book, expected winter demand, commodity volatility statements under “LNG Market Review” and “Outlook” and other non-historical matters.

The forward-looking statements in this document are based upon management’s current expectations, estimates and projections. These statements involve significant risks, uncertainties, contingencies and factors that are difficult or impossible to predict and are beyond our control, and that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Numerous factors could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements including:

• our limited operating history under the CoolCo name;
• changes in demand in the LNG shipping industry, including the market for modern TFDE vessels and modern 2-stroke vessels;
• general LNG market conditions, including fluctuations in charter hire rates and vessel values;
• our ability to successfully employ our vessels;
• changes in the supply of LNG vessels;
• our ability to procure or have access to financing and refinancing, including financing for the Newbuild Vessels;
• our continued borrowing availability under our credit facilities and compliance with the financial covenants therein;
• potential conflicts of interest involving our significant shareholders;
• our ability to pay dividends;
• general economic, political and business conditions, including sanctions and other measures;
• changes in our operating expenses due to inflationary pressure and volatility of supply and maintenance including fuel or cooling down prices and lay-up costs when vessels are not on charter, drydocking and insurance costs;
• fluctuations in foreign currency exchange and interest rates;
• vessel breakdowns and instances of loss of hire;
• vessel underperformance and related warranty claims;
• potential disruption of shipping routes and demand due to accidents, piracy or political events;
• compliance with, and our liabilities under, governmental, tax environmental and safety laws and regulations;
• information system failures, cyber incidents or breaches in security;
• changes in governmental regulation, tax and trade matters and actions taken by regulatory authorities; and
• other risks indicated in the risk factors included in CoolCo’s Annual Report on Form 20-F for the year ended December 31, 2022 and other filings with the U.S. Securities and Exchange Commission.

The foregoing factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement included in this report should not be construed as exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

As a result, you are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless required by law.

Responsibility Statement

We confirm that, to the best of our knowledge, the interim unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, which have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) give a true and fair view of the Company’s consolidated assets, liabilities, financial position and results of operations. To the best of our knowledge, the financial report for the three and six months ended June 30, 2023 includes a fair review of important events that have occurred during the period and their impact on the interim unaudited condensed consolidated financial statements, the principal risks and uncertainties, and major related party transactions.

August 31, 2023

Cool Company Ltd.

Hamilton, Bermuda

Questions should be directed to:

c/o Cool Company Ltd – +44 207 659 1111

Contacts

+44 207 659 1111 / [email protected]

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