Höegh LNG Settles USD 23.7 Mn LNG Boil-Off Dispute with Total

Norwegian shipowner Höegh LNG has reached a commercial agreement with French energy major Total to settle the boil-off dispute regarding Neptune and Cape Ann, the two LNG regasification vessels.

As informed, the boil-off claim will be settled for an aggregate amount of USD 23.7 million and paid in installments during 2020.

“The settlement amount, which will be paid by the two joint venture companies owning the vessels, is in line with the provision made in 2017 and is subject to executing final binding agreements between the parties,” Höegh LNG explained.

Höegh LNG Holdings will indemnify Höegh LNG Partners for its 50% share of the settlement amount.

Under the Neptune and the Cape Ann time charters, the joint ventures failed to ensure that the vessels meet specified performance standards during the term of the time charters. The performance standards include the vessels not exceeding a maximum average daily boil-off of LNG.

The dispute settlement was announced in the company’s financial report for the quarter and year ended December 31, 2020.

In the fourth quarter of 2019, Höegh LNG recorded a net profit after tax of USD 4 million, up from USD 3.2 million in the preceding quarter and down from USD 45 million seen in Q4 2018.

Total income for Q4 2019 stood at USD 94.2 million, compared to USD 82.2 million in the previous quarter. As explained, the increase reflects the first full quarter of operations for Höegh Galleon, a higher spot rate achieved for Höegh Giant in the fourth quarter and operation of Höegh Esperanza in FSRU mode for approximately half the quarter.

For the full year ended December 31, 2019, net profit fell to USD 8 million from USD 72 million posted a year earlier.

In 2019, total revenues also dropped to USD 336.1 million from USD 352.7 million reported in 2018. The decrease is mainly caused by USD 40.2 million one-off revenue recognition of remaining contractual commitments from Egas under the amended contract structure implemented in Q4 2018, which is partly offset by higher revenues from a larger operated fleet in 2019 compared with 2018, according to the company.

Refinancing initiatives

During January 2020 Höegh LNG raised NOK 650 million (USD 69 million) in a new unsecured bond loan with a five-year tenor. Together with the previously announced USD 80 million revolving credit facility secured by the company’s common units in Höegh LNG Partners, the new bond loan will be used to refinance the HLNG 02 bond loan maturing in June 2020 and for general corporate purposes.

In addition, Höegh LNG said it is is making good progress with the refinancing of the Independence debt facility’s commercial tranche (USD 61 million), maturing in May 2020.

Coronavirus effect

As informed, the coronavirus outbreak has not had any direct effect on the company’s revenues nor operations, including its FSRU in Tianjin, China, which continues to perform according to contract.

In mid-November 2019, Höegh Esperanza completed its season in LNGC mode and returned to the Tianjin LNG terminal in China to resume FSRU operation.

“However, it seems clear that the outbreak has already impacted the flow of LNG into the Chinese market, and that this affects the market for LNG carriers, since in recent weeks rates have softened considerably compared to previous levels,” the company added.

Outlook

Given the strong increase in liquefaction capacity coming online in the coming years, LNG prices are expected to stay low for the foreseeable future, Höegh LNG said.

The company’s main focus is to secure long-term FSRU employment for the units currently working as LNGCs.

As the coronavirus seems to have temporarily reduced volumes of LNG imported to China and coupled with higher winter temperatures in Asia, and low LNG prices closing the inter-basin arbitrage, LNG carrier market rates have felt a downward pressure.

“This will likely impact the revenues from Höegh Giant’s index-linked charter. The adverse market sentiment could also affect revenues for Höegh Gannet and Höegh Gallant depending on rate levels achieved for their new interim LNGC charters,” the company continued.

“Moreover, the results in the first quarter of 2020 are expected to be negatively impacted by 15-20 days offhire for Höegh Galleon owing to a planned minor upgrade of the vessel.”