Update on Cool Co (CLCO)

Cool Co (CLCO) reported their Q1 2023 results last week. This was the first earnings report since the company moved their listing to the NYSE. I mentioned here when the initially moved
Cool Company is 'ere - Investment Analysis Clubs / Value Hounds - Motley Fool Community

So that link has the Cool Co background, Q3 - Q4 developments, and the subsequent event (sale of Golar Seal).

What does the Q1 2023 report have? Well, to start, the official sale of Golar Seal. The transaction details confirm my earlier comments - an asset sale that nets enough cash to cover a significant chunk of the equity required for the purchase of two additional LNG tankers should be viewed as a positive. After payment of Golar Seal debt, CLCO netted $94.4M

Cool Company Ltd. Q1 2023 Business Update | Coolco (coolcoltd.com)

CLCO also provided more color on the second 3-year charter. The company does say that the 3-year charter does work out to $120K daily. However, the contract is front loaded.

Okay, > $120K to start, a level closer to $120K for a year or two, then something lower than $120K at the end of the year 3? Useful as a data modelling point. But also provides a lot of additional detail. If Q1 2023 TCE rate was $83.7K daily vs $83.6K daily (in prior Qtr), then Q1 results were impacted by several items
i. The deeper digging suggested the four SPV vessels averaged around $70K daily. That drags the TCE avg down.
ii. The Golar Seal charter was @ avg, @below-avg rates,
iii. The $140K daily and the first $120K daily charter move the TCE avg up
iv. The new charter had minimal impact on the TCE avg.
v. Some of the remaining charters are indexed (rates have slumped since Q4 2022)
CLCO CEO did make a comment that two vessels are currently operating at rates below current market rates. To my knowledge, current market rates are well below CLCO’s Q1 avg.

CLCO did bump up the Q1 2023 div by a penny, to 41c/sh.

Where does CLCO go from here?

  • Well, there’s the exercise of the two newbuild options. The deadline for that decision is end-of-June 2023. The options are priced at around $235M - that’s lower than current newbuild price for an LNG tanker (abt $260M). The delivery time-frame (late 2024) would also seem to play in their favor.
  • CLCO has no vessel dry docks in 2023. That’s a small plus.
  • The TFDE vessels (9 of 11 tanker) are not as efficient as the X-DF 2-stroke vessels. CLCO plans to upgrade some of their TFDE vessels in 2024 & 2025

I think CLCO did well with the Golar Seal vessel sale. While I wouldn’t value their remaining TFDE tankers each @ $184M, I would think the vessels are worth more than their 2022 acquired prices. Will CLCO have another equity offering to cover some of the costs of the two newbuilds? Though not a fan of dilution, I think it might be helpful in two ways

  1. Shipping is a capital intensive sector. LNG shipping is even more capital intensive as the primary vessels are quite expensive (as noted earlier, $235M for CLCO option, $260M for a current newbuild)
  2. Increased liquidity. Ofer backed EPS own 58.2% of the CLCO shares. While dilutive, I think more shares would enhance trading liquidity (and maybe institutional ownership)

With a series of nibbles, went from 0 to a small CLCO position.