Golar LNG Ltd (GLNG) 2006 Q1 法說會逐字稿

Go ahead, Mr. Robjohns.

Good afternoon, ladies and gentlemen, and welcome to Golar LNG's Q1 2006 results presentation. I'm joined as usual here by Charlie Peile; and I am pleased to say although he is currently traveling, Gary Smith, our new CEO, has managed to join us on the telephone as well.

So if we turn through the presentation through page 1, forward-looking statements, and the agenda which follows the usual course of events, on page 2, to now-very-common Golar portfolio slides. Not too much has changed here from last quarter.

The Golar Winter and the Golar Frost are operating on the spot market, and both are committed to short-term employment for the majority of Q2. The Golar Viking and Grandis chartered to Shell; and new build 2234, to be named Granosa, will also be when she is delivered in mid-June. The utilization of these vessels in Q2 also looks encouraging.

Let's turn over to page 4, the Q1 and recent main events. I think -- I mean, we have been saying for a couple of quarters now we have seen steadily improving utilization charter rates for our spot vessels since Q2 2005. This quarter, I'm extremely pleased to say, is no exception, with utilization effectively at around about 95%. Rates have also improved again with an average market rate of around $50,000 a day.

We of course took delivery of the Grandis on January 1, which has helped boost our revenues this quarter. We have the effect of an additional vessel, which increases OpEx and interest costs of course as well; but overall she has made a good positive contribution to net income.

Korea Line's contribution has also increased earnings this quarter; we put $5.6 million as against $1.8 million last quarter. Interest rate swap gains have again had a significant impact to our bottom line. The net gain on other financial items was $9.9 million this quarter (inaudible) million last quarter.

The Shell charters we of course reported last quarter. We're extremely pleased with the way the arrangements have developed and particularly at how the relationship (inaudible) developed through the last few months.

In April, we announced our intention to invest in Australian listed LNG Limited. They have a pretty interesting business model which we believe may well complement some of our own projects. (inaudible) own 19.8% of the company at a cost in U.S. dollar terms of approximately $8.6 million.

Finally, we concluded a $120 million loan facility for our next new build, (inaudible) hull 2234, which as I said is due for delivery in mid-June.

Moving over to the income statement, on page 5, (inaudible) income of $27.9 million this quarter is of course very encouraging, particularly as it comes off the back half of the year to December, to 2005, which was frankly rather disappointing. The main driver here of course is the earnings of our spot vessels, together with the addition of the Grandis to the fleet. As I said earlier, we have seen a significant improvement in utilization and charter rates. For the Viking and Grandis, this has really been as a result of the Shell charters.

The gains on financial items and the contribution of Korea Line have of course played their part in these results; but the underlying revenue development has really been the key here.

Turn over to page 6, the slide as usual just gives you a breakdown of the net financial items. You can see the makeup of that number between lease interest and FX gains and swap gains, etc.

Over on page 7 we have the balance sheet assets; and the main mover there is in vessels and equipment, which reflects the addition of the Grandis to the fleet.

Similarly, on page 8 and the balance sheet liabilities, the increase in long-term capital lease obligations affects the -- reflects the Grandis lease financing that was added at the time for delivery.

Now earlier, of course, I talked about gains that we have made on financial items; and these are primarily interest rate swaps. These gains arise because of the increase in long-term U.S. dollar interest rates, although it is important to stress here that these are not cash items. They're not realized gains, as we keep interest rate swaps to maturity, when we certainly don't speculate with them. The 10-year U.S. Treasury yields have moved from about 4.37% at the beginning of the year to 4.886% at March. Currently they are at about 5.06%.

On the downside, of course, of increasing interest rates -- and short-term interest rates, as I am sure you're well aware, have increased as well as long-term rates -- is that your cost of floating debt increases. However as at March 31, 2006, we have $1 billion worth of debt and net capital lease obligations, of which $630 million or 63% is effectively fixed interest with the use of interest rate swaps. So we are reasonably well protected from the environment of increasing interest rates.

Moving over to cash flow, the net cash provided by operating activities again I think highlights the underlying trading improvement. That movement from $19 million operating cash flow last quarter to $35.2 million (inaudible) quarter. You can also see in investing activities and financing activities the effect, as I say, of the delivery of the Grandis.

(inaudible) very brief summary of the financials. I will now move on to page 10, and I shall pass over to Charlie to give you an overview of the commercial activity.

Good afternoon, ladies and gentlemen, and thanks for joining us again. We start with an overview of the spot market. It is certainly a much brighter picture than we saw last year and has carried on the optimism from the last quarter here.

We are seeing a main feature is consolidation of ships under a smaller number of controlling groups. This has also led to -- because of the high market over last winter, we have seen charters already taking cover in the spot market for next winter, which means signifying that they see that we will see the same pattern again, which is encouraging.

On the spot market itself, there are a few cargos but currently fewer ships. This has shown that, as there are cargoes moving within projects, that the market has proved capable of absorbing a lot of the new buildings that have come out so far and we expect will come out through the balance of this year.

The main reason for this is longer voyages. This has stemmed from the fact that at the turn of the year, the first few months of the first quarter, very high prices in the Far East meant that a lot of vessels went out there (inaudible) traded in the Atlantic or Middle East Atlantic. It could have been as many as -- well, it is as many as 15 ships did that trade, which obviously means that the utilization is much higher in terms of tonne-miles.

Currently the Far East, although there has been a general drop in pricing, the Far East is still stronger, which has continued a trend for vessels to trade out to the Far East and which has kept the tonne-mile position very tight from that point of view, giving an apparent shortage of vessels. A result is the owners that are left there, such as Golar, have benefited very much for improved utilization and some rate improvements.

Turning to the page 11 there, we have a quick overview of the project developments and what is happening on that side of things. The Qatargas Qflex ships are now very, very nearly concluded, after a certain amount of difficulty with financing, but they are now near to conclusion if not concluded. We are seeing a lot of progress on the Nigerian and Angolan projects, all of whom are now in the market looking for vessels.

There has been a certain amount of slow progress apparent in U.S. onshore regas development. There is still progress, but it's been slower, I think, than people would have liked. There seems to be a little gain in momentum from the offshore projects on East and West Coast and in the U.S. Gulf especially.

Turning to the shipyard situation, as we will see in a minute, they are still very optimistic about their future. They are much happier now that steel and raw material prices have dropped by comparison with last year, although they have some uncertainty due to the Korean won strength, which is beginning to have an effect now. Currently, the yards are happily marketing 2010/11 positions; and prices are firm at least with a basic 155,000 cubic meter (indiscernible) fuel diesel electric (inaudible) vessel at about $215 million. So overall, the future demand growth from the shipyard point of view is still assured, but it's the speed of development that we need to watch.

If we turn to page 12, we can see Wood Mackenzie's review of projects for 2006 through 2012. I'm not going to go through in detail, because the Qatargas-2 and 3 projects have already developed somewhat in slightly different ways to Wood Mackenzie's forecast. So you can see the very strong ongoing requirement for tonnage through 2012; and there is still a requirement for 100-odd ships still to come. So you see why the shipyards might be optimistic.

In terms of projects, turning to page 13, in terms of projects' concerns about ship availability, I don't think they need to worry too much, because again -- as per the Wood Mackenzie turn of the year figures -- this is up a bit. There is still a lot of capacity available. If there are 100 ships required 2010 and certainly '11 and '12, you can build 50 ships a year there. So you can supply all the requirements in two years' build. So unless a project is stuck on timing particularly, they will have no issue with tonnage availability.

Page 14 once again summarizes the growth of the fleet, reflecting the project development I think we have seen before, where there are a relatively small number of uncommitted vessels apart from 2009, which we don't view as being a major issue, as we have discussed before. Because it's a very small percentage of the overall fleet.

Just to maintain the optimistic note, the growth in LNG demand through 2015 hardly needs restating. That part is from page 15 through page 16, where we are seeing from Golar LNG's point of view the opportunities that we are looking at, at the moment, some of them technology-based. Floating regasification is becoming more important for us, especially with Livorno permitting in place and the commercial issues being hammered out now.

We have -- our other opportunities are still developing in the Mediterranean, the Far East, and in the U.S. There is also genuine (inaudible) interest in power generation options that we can offer.

Other opportunities we see in the spot or short-term markets, as the situation -- as project tonnage is absorbed, this does give opportunities of a strategic nature for a tramp, as it were, ship owner with free tonnage. Tonnage is needed to provide flexibility for customers; and this again is proving to be the case, not just our theory anymore. This is evidenced by the fact that many charterers are moving to a medium-term coverage situation so that they have a link between their project requirements and the short-term requirement.

Page 17 shows where Golar is now concentrating for its growth, initially on core business consolidation (inaudible) LNG shipowning. As we become stronger in this area, we are once again concentrating on customer service, enhancing safety and operating procedures, and fine-tuning our third-party manager structures, within the service of our existing customers, British Gas, Shell, Sonatrach, RasGas, and Pertamina.

Page 18 is the second area of growth potential for Golar, where in the future we are going to be able to develop new revenue. First of all in shipping, through short, medium, and long-term mix of available tonnage, which really does provide a service for the much larger LNG groups. On the other hand, we are still pushing very hard and are very optimistic about our margin enhancement opportunities. With regas as we have said, our FSRU is going to -- our commitment to that means that we can deliver the earliest possible regas vessel. The economics are compelling as well. So early delivery and economics are where that one is working hard.

Livorno; as we said in the Mediterranean, the U.S., and the Far East; our investment in LNG Ltd.; and our development of an LNG trading capacity -- all of [this] are putting us in a position where from now on we really can expect substantial growth for Golar LNG. That concludes my comments, and I think Gary would now like to say a few words.

Thanks, Charlie. Hello to everyone on the call. I really just wanted to just echo some of the comments that have already been made. I think I firmly believe that the LNG industry is in a great position to grow and also going through some very interesting transitions, some of which we have touched on, on this call. Golar I think is well positioned to take advantage of both the growth in the industry and also from the transitions.

I think our mix of conventional, if I can call it that, LNG shipping contracts, our appetite and experience in providing short-term flexible shipping arrangements, and the portfolio of project opportunities which Charlie just summarized really positions us well for the future.

From my own personal perspective, the opportunity to lead Golar in this very interesting phase is really a great privilege, and I look forward to speaking with you perhaps a bit more [for even] this in future calls over the coming quarters. I think, do we (indiscernible) questions now?

Yes. I think that we can now open up for questions now.

(OPERATOR INSTRUCTIONS) [Linc Dwo] from H.G. Wellington.

A question I get from some people, in essence, why aren't you more like Teekay LNG? To phrase it another way, would you be better off with a greater percentage of long-term contracts and not as many spot contracts?

Yes, I think that if I take that to start with, I think that the trouble with the long-term contracts that Teekay has, they are not very high earning and they would not meet our targets for investment. Don't forget, we do have our BG contracts, which do provide us with a substantial basis.

So they would be unsatisfactory for you in terms of their margin?

I think there's more exciting things to do with our money, and we (inaudible) hope to generate will be better earnings in the long -- in the going forward.

Okay, so all right, that explains your standards. Thanks.

Maybe I could just add to that a little bit. I actually think you need a little bit of a mix, so having all your tonnage contracted at sort of utility shipping returns is not, I think, the best use of the Company's capital. To have a mix of steady income, as we do with the BG and Pertamina charters, but also to be in a position to take advantage of the shorter-term rates and to develop the third string to our bow, which are these projects, I think gives us a much more interesting mix going forward.

Okay.

(OPERATOR INSTRUCTIONS) No further questions.

Okay. Well, I hope that means that we explained everything particularly clearly this quarter. Thank you all for listening, and we look forward to speaking with you again next quarter. Thank you. Bye-bye.