Golar LNG Ltd (GLNG) 2006 Q2 法說會逐字稿

Good afternoon, everybody, and welcome to Golar's Q2 results presentation and webcast. I am Gary Smith and I am joined this afternoon by Charlie Peile and Graham Robjohns.

Our presentation will be in three parts. Charlie will lead off, providing a bit of an overview of what has been happening in the industry over the last quarter, which hopefully will provide some context for the Golar performance presentation. Graham will then follow on with a walk through the results as experienced in quarter two and then I will come back to sum up at the end and try and put our results in the context of the Golar strategy. So, Charlie?

Yes, good afternoon, everybody, and thank you for joining us. We are starting with a little bit of an overview of the industry, as Gary said, and certainly the quarter has seen a number of developments, which I'd deem very positive. We're seeing some new front-end engineering and development contract issue for projects such as Equatorial Guinea. But on the negative side, we have seen rising costs which have caused some delays to a number of projects, both those under construction and delaying some of the FID, final investment decision, that we need for the new projects to come onstream.

There is progress in U.S. onshore and offshore project development on the regasification side, albeit slow. And on the positive side, we have seen both Altamira, in Mexico and Guangdong in China have come online.

On the shipping side, we've seen the beginning of the end of the enormous Qatar ship acquisition program. This is intended to be concluded by the year end with another large order by that time.

In the shipbuilding side, certainly some of the slippage in the projects has freed up berths earlier than that been thought before. But the yards claim that other ship sectors are sustaining pricing. And in this slightly thin market at the moment due to the project slippage, prices are unchanged. And on a standard 155, 160,000 cubic meter vessel is still available in the range of 215, $220 million and still available 2010.

Certainly in terms of the overall industry, we are seeing -- we're still confident about the future demand. Really what we are seeing now is the question of the speed of development, and this is the issue.

If you see the next page, the forecast LNG demand figures, just a restatement. It is still very positive for the medium term and this should be remembered in the background of any slippage in timing and price increases, which is only to be expected in LNG.

I think the next page shows you the development of the new projects for production, dominated by Qatar. And the ship requirement for these is still very strong.

I think the new ones in the quarter that have come through are Angola, Hyproc Peru, [Bras] LNG and Olokola. And they are developing, although maybe not on the schedule that had first been thought of.

If you turn to the next page, you'll see the fleet development and how that is a major factor in terms of LNG shipping at the moment. The number of ships delivering during 2007, 8, and 9 is very large.

And as we have seen before, on the next graph, Page 7, the shipyard capacity is still plentiful in terms of availability of yard space for new projects as they do come online.

If we turn to the spot market, in the last part of this quarter, we've seen production outages, some of it due to some inefficiencies and breakdowns and some of it due to what you would expect for summer down time.

In terms of pricing and LNG pricing in both the Far East and the U.S., prices have been down from last winter's highs substantially. And only U.S. [spot] builds in recent weeks have kept demand moving as Europe storage is absolutely full. One of the major highs of the quarter was seeing a number of spot cargoes going into India.

In terms of spot tonnage supply, we have vessels that traded out in the late winter to the Far East, have returned into the Atlantic, and with the downturn, have led to some bubble of oversupply at the moment, ahead of production resumption in the autumn and the last quarter of this year.

There is still a very strong expectation for this winter's demand. This has kept charters seeking over winter coverage. This has kept potential rates firm and gives us good hope for the last quarter of the year.

And furthermore, as the projects have slid back in time, some adjustment of interim tonnage has led to a number of charters taking two to three-year coverage.

On the next page, we turn to Golar's portfolio and the position with the new Shell contracts is a little different to what we have been used to. We have the Mazo still trading between Indonesia and Taiwan. The Golar Spirit, when she concludes with Pertamina, is expected to trade as an FSRU.

The Golar Freeze, the Khannur, the Gimi, the Hili are all trading for BG, as is the Methane Princess, the newer vessel. The Golar Winter is currently trading on a spot charter to Shell, and the Golar Frost for Suez LNG, which will take it through to the end of the year. And then we would expect her to take up the Livorno position sometime through next year.

The Gracilis, the Grandis, and the Granosa are trading under the Shell arrangement. And certainly compared to last year, we have seen a very good improvement in utilization, although this quarter has not been quite so good as the first quarter.

And we're still waiting for our last new building vessel, the DSME Hull 2244, which will deliver in July of next year.

I will now hand you over to Graham, who will tell you how that has affected our numbers. Thank you very much.

Thank you, Charlie, and good afternoon, everybody. We are of course, extremely pleased to be able to present effective results that continues the improvement from the first quarter and shows a significant improvement on last year, although, as Charlie has just said, slightly weaker than Q1.

Our spot vessel charter rates were pretty much in line with Q1, albeit that the utilization has reduced a little and has impacted earnings, particularly as a result of positioning between charters.

Interest rate swap gains have been a factor this quarter as they were last quarter. And although since June the 30, rates have declined somewhat so we may see some reversal of that.

Korea Line -- result -- the contribution from Korea line is down somewhat in the second quarter. And Korea Line had us some one-off income from the sale of three charters in the first quarter and were it not for that, the results have been fairly comparable.

The drydock market has improved somewhat in the third quarter, so we may see some improvements moving forward.

We have seen some interesting commercial developments, particularly in relation to LNG storage and forward sales and we have seen some benefit of that in the second quarter. And Gary and Charlie will talk a little bit more about that later.

Other highlights of Q2 -- the latest new building, Granosa, was delivered on the 16th of June and went into a charter with Shell along with the two other vessels. We drew down $120 million loan facility in connection with that delivery. And we completed our investment in LNG Ltd. We now hold a 19.7% stake.

Moving over to the next slide, Slide 11, I have some key financial numbers. The net operating revenues, EBITDA and operating income really show some of the things that we have been talking about. The big improvement in rates and utilization of the spot vessels this year against last year. In addition, of course, to one extra vessel, the Grandis, was delivered on the 1st of January 2006. And a slight weakening from Q1 to Q2, which, as we said, has resulted in slightly worse utilization.

Net financial expenses, as you can see, is impacted significantly by the movement in swap valuations. We have had gains in Q1 and Q2 of 2006 and we saw losses in 2005. And as I said, the long-term interest rates have come off a little bit since June 30, so we may see some reversals over those gains.

Time charter equivalent rates -- effectively shows the combined effect of utilization in charter rates and tell a similar story to what we have already been talking about. And ship operating expenses -- it is pleasing to see, shows some downward trend.

Moving over to the income statement, most of that, we have really covered and talked about, so I'll move straight over to the balance sheet assets on Page 13. The main movement here is the delivery of the Granosa, so we have had an increase in vessels and equipment and a reduction in the balance of new buildings.

And then moving onto Page 14, on the liability side, the other side of that of course is the increase in debt in relation to the Granosa. And also, the addition of that debt, we are still at 56% fixed interest, balance of our debt.

Moving over to Slide 16, on the cash flow -- again, the main impacts here are the additions to fixed assets and additional debt.

And then on Slide 16, we have the usual [knowledge] of the net financial expenses, which explains our lease interest and lease income, the effect of the swap gains, and FX movements on the leases.

Okay so I will now hand back to Gary.

Okay, if I can turn to Slide 17, and just so I'm putting to the context of our strategy, how we are traveling. Firstly, our strategy conveniently revolves or combines into two parts. The first part revolves around what we would call our core business or LNG ship earning. And in this part of our business, drivers are to enhance safety and operational structures within an industry, which poses a very high importance on good safety and the high quality operations, to continue the development of our third party manager. The transition to the third party manager is now pretty much well behind us. But we continue to have to support and pay due attention to the operations that those managers provide us with.

Customer service -- LNG shipping is very much a relationship business. And maintaining and developing good relationships with the customers is one way of insuring ongoing business.

Commercial flexibility is also something which Golar likes to differentiate itself from its competitors to some extent. And this is perhaps well demonstrated by the Shell deal, where we have broken our very traditional mold in LNG shipping to do something a little bit more innovative.

And then finally, to build on our existing capital base, which has some very large plays in the industry amongst it and to try to do great deals, if you like.

The second part of our strategy is around margin enhancements, moving away from core LNG shipping into something a little bit different. In this area we are really focusing on three different areas. Firstly, we have a portfolio of regas opportunities, and I will talk a little bit about them in a minute. As Graham mentioned in his piece, we have now concluded our investment into LNG Ltd., which now gives us some exposure into the liquefaction and the upstream of shipping. And then finally, we see opportunity as a shipowner, and particularly a spot ship owner, to participate in LNG trading activities.

In terms of the last quarter, how is that playing out against our strategy? Well, the Shell deal now is fully operational. All three ships have delivered into that deal. It is commercially innovative, and we believe sets us up well for the next five years, which is the term of that deal.

On the spot ships that we continue to trade ourselves, we see the winter period starting to firm up, as Charlie indicated in his piece. And we are confident that the remainder of the year looks quite good.

The other thing that we're starting to see in the market is various charters looking for sort of what we would call mid-term charters, three to five years, and that is an opportunity for us to perhaps look at them as well.

On the margin enhancement side, the floating regas projects are all progressing at a good pace, but one of them in particular is now entering a very crucial stage, with the liquidity in place, we are now rapidly approaching FID and structuring of the shareholders' agreement for that particular project.

On the Spirit FSRU conversion, again, making good progress, in discussion with a number of prospective charterers, and major equipment items for that conversion, the [parrots], the loading arms, the processing equipment -- that has all now been ordered.

And then finally, on the trading side. We did participate in this month in a floating storage to provide the charter where the Contango and the forward price of LNG was exploited to underwrite the charter for a vessel. And we view that as a new arm of business which we would like to continue to develop going forward.

Okay. I think we will stop at that point and be very happy to take questions.

(OPERATOR INSTRUCTIONS). Mr. [Deutsche], [Adver] Group.

First question, give us some additional details on the charter for the winter, where apparently you participate in any results from storage, which sound like they were positive. How does that work? Can you help us out a little bit?

Well, we are a little bit restricted in the amount of detail we can go into, but I can give you the principles of how the deal works. There are, within LNG, strong seasonal variations in price. And by purchasing a cargo and then storing it and selling it at a later date, you can take advantage of the forward Contango in the market. At least we sufficiently seek to recover the costs associated with the storage and hopefully make a bit of money at the end as well. And that is the principal work.

Two parts -- you get paid something for the charter and then there's some second parts on participation in the storage results?

In principle, that is how it works, yes.

And my other question is whether you have lined up the supply for Livorno -- or how that stands?

The supply for Livorno is being lined up by our partners, which are some Endesa and Amga. They are very much in discussions at the moment with I think two potential suppliers but the deal is not yet done.

(OPERATOR INSTRUCTIONS). Mr. Robjohns, there is no more questions.

Okay. Well, we thank you for your participation and attendance. We look forward to coming back and apprising you of Q3 results in three months' time. Thank you.