CoolCo Adapts to LNG market Shifts Through Fleet Enhancements and Prudent Financial Strategy

CoolCo is strategically navigating the evolving LNG market by upgrading its fleet and maintaining financial flexibility amid fluctuating charter rates. The company’s focus on long-term charters and LNGe specification upgrades positions it for future growth as new LNG projects come online.

LNG Market Overview

the LNG chartering market experienced a “subdued” fourth quarter, as noted in CoolCo’s 2024 results report. “Long-term charterers have responded by pushing out thier requirements in the expectation that nearer-term cargoes can be transported with vessels from the spot market.” This shift has created downward pressure on near-term chartering rates, influencing CoolCo’s strategic decisions.

Kool tiger Delivery and financing

In October 2024, CoolCo expanded its fleet with the delivery of the Kool Tiger from Hyundai Samho Heavy Industries. Simultaneously, the company entered a sale and leaseback financing arrangement with a subsidiary of Huaxia Financial Leasing. this arrangement includes options for coolco to repurchase the LNG carrier during the ten-year lease period, which matures in October 2034, and an obligation to repurchase the vessel at the end of the lease. The Kool Tiger “is currently on spot market employment on an interim basis, whilst a long-term charter is pursued.”

Fleet Upgrades and Drydocks

CoolCo is actively upgrading its vessels to LNGe specifications to enhance performance and efficiency. The Kool Husky completed its drydock in October after upgrades including a high-capacity sub-cooler retrofit and an air lubrication system. According to CoolCo, “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.” As of late January,Kool Glacier entered drydock for similar upgrades,with completion expected before the end of the first quarter of 2025. Kool Kelvin also entered drydock, further demonstrating CoolCo’s commitment to enhancing its fleet.

LNG Fleet Composition

CoolCo’s fleet includes seven TFDE LNG carriers acquired from Golar LNG, and four LNG carriers purchased from Eastern Pacific Shipping. additionally, CoolCo has two newbuild LNG carriers from EPS, featuring advanced technologies like GTT’s Mark III Flex membrane cargo tank system, reliquification, air-lubrication, and shaft generators. In May, CoolCo entered a 14-year charter deal with GAIL for one of its newbuild LNG carriers, Kool Panther, now named GAIL Sagar.

Financial Performance

CoolCo reported total operating revenues of $84.6 million in the fourth quarter, compared to $82.4 million in the third quarter. The average time charter equivalent earnings (TCE) were $73,900 per day, a slight decrease from $81,600 per day in the prior quarter, “primarily due to an increase in available days and lower spot TCE rates that applied to two of CoolCo’s vessels.” The company’s adjusted Ebitda was $55.3 million, compared to $53.7 million in the previous quarter.

CEO’s Outlook

CoolCo CEO Richard Tyrrell addressed the market dynamics, stating that sustained high LNG prices in Europe and the delivery of new vessels have put “critically important downward pressure” on the near-term chartering market. Tyrrell believes “this will start to normalize and eventually pass as additional LNG projects come online and older vessels leave the market.” He also highlighted the positive impact of fleet upgrades, noting that Kool Husky has shown “excellent” results post-upgrade, supporting the 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.”

Path to Rate Normalization

Tyrrell anticipates a “significant re-tightening of supply and demand for shipping” as new LNG projects like plaquemines, Corpus Christi, and LNG Canada come online in 2025, absorbing the current vessel supply. He also noted that “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.”

Dividend policy

CoolCo has opted not to declare a dividend, prioritizing financial flexibility and opportunistic growth.Tyrrell stated, “While rates languish at below economic breakeven on open days, we have not declared a dividend.” He emphasized that “rather 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 or else) under current circumstances.” CoolCo maintains a strong liquidity position of approximately $288 million and no debt maturities until mid-2029, reinforcing its strategic financial approach.

CoolCo’s proactive fleet upgrades, strategic financial decisions, and focus on long-term charters demonstrate a resilient approach to navigating current LNG market challenges. By prioritizing efficiency and adaptability, CoolCo is positioning itself for sustained success as market conditions evolve. Stay informed about coolco’s progress and the broader LNG market by following our updates.