Golar LNG Ltd (GLNG) 2006 Q3 法說會逐字稿

Yes, good afternoon, everybody, and welcome to Golar LNG's third quarter results presentation. My name is Graham Robjohns and I'm joined here today by Gary Smith, our CEO, and Graeme McDonald, our group technical director. Moving through the presentation then on page one, we have the ubiquitous forward-looking statements caveat. Then, on page two, in the agenda, items one and two cover the financial results, which I'll take and then I'll hand over to Gary. And Gary will run through the industry section and have a look at market overview, look a little bit at LNG shipping and finally have a look and update on Golar LNG's various projects.

Okay, so moving onto page three, Q3 highlights, there are, I think, really, two key areas that have had a significant impact on the results this quarter. And these fall into two areas -- operating items and financial items. Both revenue and operating income are up this quarter as compared to last quarter and this is being driven by three main events. Our vessels -- exposed spot market have improved earnings this quarter as a result of better rates and utilization. In addition, we've had the Granosa trading for a full quarter on her charter with Shell following her delivery in June of this year. And then, partly offsetting this has been the loss of revenue to offhire of two vessels that have undergone scheduled drydockings during the quarter.

Within other financial items, we've had a significant charge this quarter arising on the mark-to-market reevaluation of interest rate swaps because of the sharp falling long-term interest rates. The difference between the gain last quarter and the loss this quarter is $20 million, and it's obviously the biggest single movement when we compare the two quarters. However, as is probably well recognized by most of you, these interest rate swap valuation movements are book entries only and don't have a cash impact. We have an improved rate outlook for the winter period and we, of course, look forward to that impacts that are taking effect in the fourth quarter. And finally, the Livorno shareholder agreement has been signed this quarter and Gary will talk a little bit more about that later.

So turning over to page four, financials revenue. Profit on this graph, the progression of net revenues quarter by quarter. Revenue is obviously a function of the number of vessels on the charter rates and you can see at the bottom of the slide there and I've put the number of vessels in each quarter and the TCEs per day on average over the fleets in each quarter. And although slightly distorted by the number of vessels in each period, you can see the beginning of the seasonal trend with Quarters 2 and 3 typically faring worse and then picking up in the fourth quarter and the first quarter. And there's also a progressive upward trend as we move out of 2005 and into 2006. I think this chart also shows a level of stability in our earnings, which is, of course, underpinned by the seven vessels that we have fixed on long-term charters. There is, obviously, variability in our earnings, but it's perhaps not as much as you might expect, if you look at the varying in rates in the spot market.

Turning over to page five, key financial numbers. Here, we've shown the progression of the key P&L items quarterly and you can clearly see here the impact of interest rate swaps on net financial expenses. However, as we pointed out in the results announcement, the loss on swaps arises because of a decline in long-term interest rates. However, if interest rates actually turn out to be lower in the future, then this will reduce our interest cost in the future because of the level of floating rate debt that we have. So, that sort of simply, in another way, declining long-term rates cause a charge -- a book charge now. But of course, if they stay low in the future, then that's going to improve long-term earnings. In addition to the vessel numbers in the TCE rates that I have the slide -- on the slide previously -- I've also put the average daily operating expenses for the fleet in the various periods as well.

Moving over to page six, the income statement. I've talked about the increase in revenues and you can see the significant increase over the same period last year, which is due to improved TCEs and the addition of two vessels since last year -- the Grandis, which was -- she was delivered in January of this year -- and the Granosa in June of this year, as I mentioned earlier. Operating expenses, similarly, have increased from last year and are up from $10 million last quarter to $11.1 million this quarter due to the addition of the Granosa to the fleet in this -- in the third quarter of 2006.

Admin expenses are similar to last quarter, but well up from last year, mainly a result of a share option charge that we've been booking this year in respect of options issued at the beginning of 2006. And this quarter's charge is $750,000. Depreciation is a similar story to OpEx in that you can see incremental increases as vessels are added to the fleet. This quarter's charge of $14.7 million is up from $13.7 million last quarter, again as a result of the addition of the Granosa. Interest expense at $16.4 million this quarter -- or a net interest expense, that is -- up from $14.1 million last quarter, has been increased by the addition of the 120 million facility in added in the quarter in respect of the Granosa again. And also, the effect of the increase in short-term interest rates that have affected our floating rate debt.

The increase from $12.4 million to the same period last year is similarly due to additional debt facilities that we've added as a result of new vessels and an increase in interest rates. Other financial items is largely made of up interest rate swap valuation movements which I've already obviously discussed. [Career] line had an improved result this quarter, which resulted in net earnings invested of $1.6 million this quarter.

Moving over to page seven, balance sheet assets. The main change here really is a familiar story. Obviously, you're getting a flavor of this now. The main change in the increase -- is an increase in vessels due to new vessels delivered during the year. And also, the restricted cash balance has increased because the financing on the Grandis that was delivered at the beginning of the year was a UK tax lease and that has a restricted cash bonds that comes along with it.

On the liability side, balance sheet liabilities on page eight, debts and lease obligations are obviously the flip side of adding vessels to the fleet. It refers to the debt that follows the new vessels. And we've put, as usual, the percentage of fixed interest rate debt that we have, which is affected by the interest rate swaps. And as you see, that's at 57%, which has remained fairly consistent for over 12 months now.

Moving over to page nine on cash flows, I think operating cash flow is obviously a good performance indicator as it strips out non-cash items such as the interest rate swap movements. Now, earning margin up on the same quarter last year at $20.2 million for net cash provided by operating activities, but this is because we've paid out $5.1 million in drydock expenditure this quarter, whereas there was a negligible amount for the same quarter last year and that was in respect to the two drydocks that we've undertaken. So, there's an underlying significant improvement there. And indeed, year to date, that $74.9 million net cash provided by operating activities, we're already ahead of the 2005 year number.

Then, on page 10, we've included the usual analysis of financial expenses where you can see all the various elements that make up other financial items. That concludes the financial part of this presentation, so I'll hand over to Gary to go through the balance.

Okay. Thank you, Graham, and good afternoon to everyone. I'm going to just quickly talk about a couple of notable points in the industry, then I'll move on and talk a little bit about shipping and then finally conclude with a few words about Golar projects. I'm looking at the industry liquefaction. Not really a lot to talk about apart from we are aware that RasGas 25 is looking to start up in Q4 of this year. And that's notable for two reasons. That's actually an LNG project that running ahead of schedule, something which doesn't often get reported. So that's notable for that reason. But also, it's a project that was intended to supply either [Rideli] in the UK in terminal is not yet ready, so it could have some impact on cargos going to [further afield] than must be a good use of companies such as Golar.

So, between liquefaction and regas, there's been a phenomena which we've observed over the last quarter or so -- is the increased storage of cargos, both on board ships and it's certainly more than 10 ships out there [for] cargos on board and [inaudible - accent]. So, there's more than 15 on some circumstances, but certainly a large number of ships and also storage taken up with the storage of LNG and also, increased sort of trading and diversions happening within the industry.

On the regas side, another terminal was commissioned during the quarter. The Altamira terminal in Mexico was commissioned and [about] was it was commissioned using one of the Golar ships, the Gracilis, which is currently on charter to Shell. Lake Charles Expansion also was completed in the quarter. In gas prices, we've seen a lot of volatility in the U.S. gas prices with a sharp decline earlier in the quarter when oil prices started to also come off with some recoveries toward the end of the quarter. Then, somewhat more expected firming of Far East prices as the winter approaches.

Moving to slide 12, on the shipping side, some 213 ships are now out there trading. So far this year, 19 ships have been delivered and there's a further 148 ships on order. The very large Qatar ship acquisition program, which commenced some two or three years ago, is now reaching the final stages with all the ships for the current tranch of new projects in Qatar now concluding, and that is expected to have some mark-on effect in the shipyards as the shipyards have certainly geared up their capacity to accommodate the Qatar order and those order books are now starting to soften.

We expect little in the way of activity for long-term term time charters. In fact, as we look forward into 2007, we don't see a lot of new LNG projects taking [FID] over the next 12 months. So the activity for us, I think, is going to be more in the short-term horizon rather than securing long-term time charters in support of new projects. Spot rates at the moment have firmed as a result of this storage phenomena which I mentioned, but also the sort of seasonal diversion into the Far East. Both have had a positive impact on rates and we expect that impact to at least follow into the fourth and probably the first quarter next year.

So I'll move onto page 13 -- slide 13. You can see what will be decided here, probably [inaudible - accent] Golar portfolio. A couple of fairly minor edits to the portfolio. The Spirit has been now charted out until early next year. She comes off of her 20-year term charter with Pertamina in November of this year and we've taken the opportunity in the good short-term market to fix here into the early stages of next year. She will, at some point in time, though, come off charter for the conversion into an FSRU. The Winter -- the Golar Winter -- about two-thirds of the way down the list of ships is now chartered out to the middle of next year. And the Golar Frost is now chartered out until the end of quarter one next year roughly. So full deployment looks pretty solid for Golar.

Moving to slide 14 -- highlights within our fleet. As Graham mentioned earlier and I think we mentioned in the last webcast, the Granosa now has been delivered. She delivered in June and is now fully integrated within the Shell trading fleet and is starting to earn us income. We successfully concluded the drydocking on the Hilli and the Golar Spirit during the quarter -- the Hilli docked in Portugal and the Spirit docked in Singapore. Both those ships are now back in service and trading normally and it's pleasing to have that piece of work behind us.

And as they fairly widely reported and if you have the chance to look at the very front slide in this presentation, you'll see a picture of the Golar Winter in rather unusual surroundings for an LNG ship. She has been, for several months this year, sitting up in Norway with one of the cargos in storage. She's now slowly making her way east. But that experience for Golar has been, I think, invaluable in terms of learning how these ships perform in a sort of storage environment as opposed to a trading, more conventional LNG delivering mode. And I think that put us in good stead for future such transactions going forward. And finally, but certainly not least, we're very pleased to take on board Jan Flatseth as our fleet general manager. Jan joins us from Bergesen where he has acquired a great [piece] of LNG shipping and he strongly strengthens our team on the operational side.

And then finally moving to slide 15, if I can say just a few words about the project portfolio, which is important to Golar in establishing its way forward. Livorno shareholders agreement was signed only in the last couple of weeks -- a long time coming, but very pleasing once achieved. The agreement not only gives us a 20% equity in the project, but also covers our rights with regard to regasification or access to terminal capacity. It sets the terms under which we will sell Golar Frost into the joint venture and provides us, potentially, with the opportunity to provide LNG transportation to the project.

Following behind Livorno -- hopefully not too far behind -- we're quite excited about our participation with LNG Limited in the Padang Indonesian L&G liquefaction project. That project is going through a very interesting phase right at the moment and we're hopeful of being selected by the resource holder Pertamina as the developer for that project on the island of Sulawesi in Indonesia. The conversion of the Golar Spirit into an FSRU is progressing on track. The major equipment items for that project, I think, as we reported last quarter, are now all on order. We are going to try the ship short term on over the winter months to generate a bit of income. And we are in discussion with a number of potential parties -- another party with potential interest in employing that asset in various projects. And finally, we can report with pleasure that the Cyprus Floating Power Generation project is going through the permitting process in Cyprus and making good solid progress.

I think at that point I'll end the presentation and we'll welcome questions.

[OPERATOR INSTRUCTIONS] First, Mr. [inaudible], Enskilda. Go ahead, please.

Good afternoon. I just wanted to -- if you could add a little bit more color on the trade that you see for the Spirit prior to conversion. And also, I was -- I kind of thought that when you were committed for a conversion in terms of the yard, it was quite hard to postpone it. If you could talk a little more about it, please.

Sure. Let me deal with your questions in reverse order. We do have some flexibility with the yard as to when we put Spirit into conversion. So, once the commitment is firm, the timing -- we have a little bit of flexibility. And our judgment has been that it makes sense to continue to earn Golar earnings out of the winter once we continue to firm up employment opportunities for the shippers in FSRU. Ideally, we would put that ship in for conversion having a very strong indication it's not a binding agreement as to where that ship would be employed as an FSRU when she comes out of the yard.

Thank you.

There's no further question on the list.

Okay. I want to thank you all very much for tuning in and listening. And we look forward to speaking with you next quarter. Thank you very much. Good-bye.