Golar LNG Ltd (GLNG) 2005 Q3 法說會逐字稿

Good afternoon, everybody, and welcome to Golar LNG's third-quarter results presentation. My name is Graham Robjohns, and I am joined here as usual with our Executive Vice President Charlie Peile. If we move through the presentation to the contents page and then over to the Safe Harbor statement on page one and to the agenda on page two, you can see that we shall follow a similar format to previous presentations.

Now moving onto page three is the usual Golar portfolio slide, and as you can see, there are no changes with vessels on long-term charterers, but what has changed somewhat is that the spot vessel utilization rate is improving. Of the four Golar Exmar pool vessels, we have three of ours, of course, and one Exmar vessel. Two were fully employed during the quarter as opposed to one last quarter, and we expect Q4 to see some further improvements.

The Golar Winter has some further fixed (inaudible) employed until mid-2006. The Golar Frost is working, and Exmar vessel, the Excalibur, is also working.

We have -- moving over to page four, Q3 and recent events, we have improved spot vessel earnings this quarter, which is the main driver in the improvements of the operating income. And as I said, the contribution from spot vessel looks like it will improve again in Q4.

Interest rate swap gains this quarter pretty much cancel out the loss that we incurred in Q2, and this is due to the fact that the long-term interest rates hit a fairly low point in June 30 and have steadily increased up to the end of September.

The technical management reorganization, which we undercut in early 2005, has, as we have previously reported, commenced very smoothly, and we've also had some positive feedback from our customers. So it's now very pleasing to see that the new structure is also beginning to deliver some cost savings in operating and administrative costs.

We, of course, took a share of Korea Line's loss this quarter, the first time they had reported a loss since we held the stock. This has been driven primarily by the falling dry boat market rates, particularly in relation to vessels that they charter in and charter out. Korea Line added a number of vessels, and they also charter in a significantly higher number of vessels and charter those out in the dry boat market.

As we reported in October, we have recently entered into an equity swap in connection with a share buyback program of up to 3.2 million shares at a time, of course, when we felt that the stock price was right to enable us to add some shareholder value.

To date Scotia Bank, the bank with whom we did the swaps, acquired 600,000 shares at an average price of $11 per share.

Finally, as we said in the press release this morning, all our projects in our portfolio, FSRUs and FPGPs are making good progress, good progress this quarter.

Okay. Move over to the income statement. The main driver here, of course, in the underlying results is the increased spot revenue contribution. As I said, we have had some reduced operating and administration costs this quarter. Up against last quarter, this has been offset by increases in interest cost, which has been resulting from the increase in LIBOR rates and in addition some additional swap fixing that we entered into towards the end of Q2.

Other variances this quarter, of course, are the swing back in the swap valuation that I mentioned earlier and, of course, the Korea Line loss. And overall this has resulted in a net income of 11 million for the quarter.

Moving over to page six, this slide, as you have seen before, just illustrates the breakdown in our net financial expenses and highlights the gain on the swaps. On the balance sheet asset side, not too much to say there. There is not a great deal of change since the previous quarter and likewise on the balance sheet side.

In terms of interest rate fixing, we are still at around about 55, 56% fixed, and that will move up to around 60% as we have prefixed some of the lease obligation that we will take on when the next new building is delivered in January, the Hull 2226.

On the cash flow, as we said before, even though our spot vessels have not been fully utilized with a fixed charter income that our seven ships on long-term charter generate, we still produce a good level of operating cash flow at 19.8 million.

And that sort of concludes the brief summary of the financials, and I shall now pass over to Charlie to talk through the commercial aspects.

Yes, good afternoon. I'm pleased to say that in the commercial side we are a little happier in this quarter. With the background of demand for LNG and energy of all sorts stronger than ever and with much-publicized alleged potential shortages over this winter, it sets a much better backdrop for trying to operate spot ships in the market.

Having said that, the short-term market is very sensitive to U.S., European and Far East pricing and the relationship between them, and we have seen in recent weeks and in the last quarter vessels crisscrossing each other in the Atlantic in an attempt to maximize revenues from the sale of the gas. This has been made possible by the fact that the Egyptians particularly, but all the other new projects that have been under construction, are now getting towards their maximum output. So there has been more gas to trade. With varying volumes lengths, that does mean that there is more ship miles required, and it has led, but most of the ships that we have seen competing with us in the spot market have now subsided, even if only temporarily.

I think that while our utilization has improved, as can be seen from the figures, it is still a fact that the spot sellers are not surprisingly maximizing their revenues by taking most of the benefit of the higher prices. And it is still a very difficult position on rate wise for traders to get a decent margin out of these things. Hopefully that may develop in our favor in the future.

If we move to the next page, page 11, I won't dwell on the fact that the forecast LNG demand is still enormous. The new production on page 12 of the presentation shows that the Nigerians trend 4 or 5 have actually slipped into next year, but the ELNG second project is now up to speed during this year. And the growth is still phenomenal I think is the way to describe it for the future through 2009 and beyond.

In terms of long-term positions, the Qatargas Golar Mazo project is proving very disappointing. There is non-experienced ship operators who have been awarded or about to be awarded we understand a large number of 250,000 cubic meter Qatari ships at rates which would embarrass us very much I have to say.

Other news is that ChevTex, the ChevTex led Brass River project is now tendering for up to 12 vessels. It is not quite clear what size they will go for, but it is in the range 145 to 200,000 cubic meters. As we saw in the spot market review there, the Egyptian properties are now becoming significant in the market, and I think we are seeing a lot of the product is following pricing, and again, as we said before much, although much of it will be carried on project vessels, the varying destinations, whether it is U.S. or Europe or even the Far East, means that there are more opportunities for those non-contracted vessels.

Developments in Iran have to some extent stalled, especially with regard to the Indian projects due to political problems related to the new oil minister in Iran and to problems with pricing I guess as well. And I think although we see the projects that are under late construction or nearly ready are going full ahead to try and maximize their returns from today's spot market. It is still not that easy to finance LNG projects. Though we still will see the regular slippage of some projects coming back as we have seen with Nigeria, and we may see with both Brass and Angola when that comes through.

In the shipyards, they are still enjoying a fantastic development. I think with the project they are all deciding to come on stream at the same time. It is their one hope of sustaining higher prices. Nevertheless, there is an end built overcapacity now whereby probably the world's shipyards can produce 50 ships a year. And once the state of projects -- new projects reduces slightly, you will begin to see a softening in prices, but not probably until 2010 onward.

In terms of our other projects, we are once again not going to be tied down just to say when Livorno might get a confirmation, but we are now extremely optimistic this is within the relatively near-term.

Our development of floating storage and regasification in both the Mediterranean and in the Far East is really developing. I think it does not take a rocket scientist to see how short China is of energy, and we believe there will be good opportunities there in the slightly longer term.

In the U.S. Gulf and Atlantic top technology on the high load system that they are developing in which we have a part, it is also developing at the U.S. site, and I think we will have a potential alongside accelerate and the other projects of a similar type. If we return to the spot business, I mean we see next year as providing further opportunities, mainly for utilization. And I'm delighted to be wrong on this occasion that I did not expect spot rates to increase as much as they have. There has been improvement 30 or 40% in the spot rates, as well as the utilization, and I look forward to being -- continuing to be wrong during next year. But certainly of utilization which will improve our earnings and that we are very confident we will improve. I think that very brief review probably says the commercial side.

Okay. That concludes the presentation, and we should now open up for the question-and-answer session.

(OPERATOR INSTRUCTIONS). Phil Dodge, Stanford Group.

Good afternoon, everybody. Could you talk more specifically about how Golar would fit into the Livorno and Cyprus projects, what the structure would be in particularly Livorno with Avasa (ph) and the Tuscany company coming into the group?

I think on the commercial side the actual negotiations are probably confidential at the moment, but in general terms we would be a partner in the project. We would (multiple speakers)

This is Livorno?

Sorry?

Livorno.

In Livorno, yes. We would be a partner in that project to a greater or lesser extent. We would provide the vessel either on a charter sale or lease for as the floating storage and regas vessel. We are strongly convinced that we will be able to provide ships required to deliver the gas on the same basis.

Has the source of the gas been determined?

I don't know that. I have heard a rumor sort of unofficially that it has, but I don't know that as a fact yet. And I think that the Cyprus project would be on a similar basis, whereby we would have some participation depending on how the structure goes in the project. We provide the vessel at the facility, and we would also further add value by helping in the delivery of gas or the LNG to the floating terminal.

And the source there also yet to be determined?

Obviously for Cyprus it is a relatively small demand about compared to Livorno, and so we would be looking I would say within the Mediterranean for that.

And Livorno you said that you might expect to hear something or might not expect to hear something by the end of the year. Does that imply early 2006 or --?

If you had been following the story, then you would know that every time we make a forecast we are proved ludicrously wrong. So we are hopeful that we will hear by the end of the year.

Are there any meetings scheduled?

I understand (multiple speakers).

Yes, okay. Good luck.

Thank you very much.

Ross Lynn (ph), ABG Sundal Collier.

Your comments about the weak rates for contracts, does that indicate that you're not bidding in the idled vessels for a longtime contract?

I think the returns that these indicate are just not compatible with what we need for our internal target.

So it means that you're not bidding any vessels?

I think you can say that.

I have a second question. The fact that you have outsourced a lot of the management, does that disqualify you from bidding on certain contracts?

No, I mean we would use third-party managers with our customers as they may require, so we can actually tailor our management structure to the requirements of a particular project. We found no problems with that since we started this in March of this year.

Okay. And finally on -- would you say that the spot rates are up some 30 to 40%? Is that based on form (ph) rates in the low 30s, or is that form rates rates even lower than the low 30s?

Form rates lower than that probably.

Okay. So the spot rates are now at --?

I think 30% might be even a little bit pessimistic, but --

So we are seeing rates in the 30s or in the 40s?

It could be in the 40s I think.

(OPERATOR INSTRUCTIONS). No further questions. One moment. Mr. Laird (ph), American Maritime Officers.

Yes, this is Captain Laird. Thank you for taking my questions from American Maritime Officers. I would just like to get the viewpoint from the panel, I'm very concerned in the next few years of the fleet doubling and the shortage of officers, and I would like to see what the cut is with Golar and the fact that the U.S. will be the number one exporter by 2015? And also I think you touched on a little bit with the rates being put down to a low rate with this recent Qatari project. And it's sort of is contradictory to -- if we are in a shortage situation, the rates being pressed, I feel like there's a little bit of risk with the LNG safety record. What is your current cut of this?

Yes, I mean I think we fully agree with that. We cannot see how these guys are going to do it. I think that with the number of officers required I mean that we have seen poaching of crews, it was one of the reasons why we switched to this third-party management because with just 10 ships, we just did not have a big enough pool to compete with the big boys. Now we have done that with third-party managers who are able to command a larger pool of officers, and now we are much more comfortable.

I think that cutting costs accruing is always the biggest cost element in the operation of any LNG ship, and I think cutting costs there will have its attendant risk. I think if the way it is structured for the Qatari contracts and others is that you give a fixed return to the owners, and they must see what they can find from the balance of the operating cost. And if there is pressure from cost increases, crew increases, that must affect the returns to the owners. So there is clearly a potential problem.

I see us going through a very difficult period in the next five years, and I respect Golar as their main mission statement is to protect safety and work along with efficiency, and the U.S. market is not as mature as the Far East and the European market, and we are in a fragile -- public perception is very fragile. So anybody that is doing business in the United States, we would like to see them hold the line, if you will, to maintain the standards that have been in place in the last 40 years. And in addition we do have American officers out there that have a good amount of experience, and hopefully we will be able to pool -- to work into the system as the system develops over the next few years. But I thank you very much for taking my question.

No problem.

Okay. Anymore questions?

No, no more questions for the moment. One moment, please. Mr. Yaver (ph), NDO Marketplace (ph).

Just one final question. Could you say anything about the renewal with the Pertamina contract for the vessels going out in 2006? Is there anything that you can say to enlighten us on that one?

I think things move very slowly in Indonesia, and I think there obviously have been discussions, and the backdrop is a continuing sharp decline in the output from Arun. So I think Pertamina is having a very tough time as to decide what to do. I mean their balance is -- keeps them shipping against being able to export LNG and the facts of what LNG they have to export. I think we will know more by the end of the year.

Okay. That is all. Thank you.

I would just like to make one point regarding an article that has appeared on Tradewinds online this afternoon where it appears that we are aggressively hounding Korea Line in whom we have an investment. My remark was meant to say simply that we may invest all or we may choose to divest. We have the option of doing either. Nothing more than that should be read into any comment. Thank you.

No further questions.

Okay. Well, thank you, everybody, for listening, and we look forward to talking to you all again next quarter. Thank you. Bye-bye.