Golar LNG Ltd (GLNG) 2006 Q4 法說會逐字稿

Good afternoon, everybody. My name is Gary Smith, and I'm joined here this afternoon by Graham Robjohns, our CFO. We'll break the presentation into two parts: Graham will lead off with highlights and a summary into the financial performance in quarter four, and then I'll return and talk a bit more about the market and what form we have, and some of the projects that we've got going.

Thank you, Gary, and good afternoon everybody. We'll move through the presentation past the forward looking statements page on page 1, on page 2 we have the agenda, and then we move through to financial highlights on page 3.

And we are, of course, extremely pleased to be able to report Golar's highest ever quarterly revenues, operating and net income. Revenues are up 30% at $72.7 million, primarily as a result of strong spot vessel earnings, with higher charter rates and utilization. The [courts] also benefited from there also being no drydocks during the period, whilst there were 2 in Q3, and there will be 1 in the first quarter of 2007.

The operating expense was a little higher in the quarter, but operating income is still up 69% on last quarter at $40.4 million. The winter period has obviously been extremely good for Golar, but having said that, there has been a slight softening of the market as we move out of winter and towards spring.

Financial items. In contrast to Q3, there was limited movement in the long-term interest rates during the quarter, and therefore swap valuations, which very often have a significant impact on Golar's P&L, have had an insignificant impact this quarter, Which is in stark contrast to Q3, where we had an extremely large loss.

Investment in Korea line, which we equity account for, has proved very profitable this quarter. Korea line had an extremely strong quarter on the back of a buoyant dryboat market, and we expect, moving into Q1, that the results will be strong as well. And this of course will positively impact Golar's results in respect of our 20% share of their net income.

We have declared our first dividend of $0.50 a share, and having now completed our new building programme, and with the charter coverage that we have, we believe that we have a good basis for a more regular dividend going forward. That is, of course, always dependent upon actual results.

And finally, in terms of highlights, and something that Gary will talk a little bit more about later, we are very pleased to report that we have been awarded a licence to operate our floating power generation plant in Cyprus.

Moving over to page 4, the slide on revenues. I guess this tells its own story. You can see the significant increase in revenue in Q4. We have added five vessels to the fleet over the period covered by this slide, but the main impact in Q4 is, of course, the increase of average TCE, which you can see down the bottom of the slide, which has increased from 52,000 a day to 65,200.

Moving over to slide 5, which is the key financials, which shows the progression of key P&L items over a period of time. Revenue, EBITDA, and operating income all show a significant improvement, as I've already discussed, both quarter on quarter and year on year. And that financial expense is lower in Q4 as compared to Q3, due to the large loss on the interest rate swapping in Q3 again, as I mentioned earlier. And equity investment earnings are significantly improved due to Korea line's strong results.

And all this resulted in a net income of $33.1 million for the quarter, which you will note is only just short of last year's full 12 month results.

Moving on to slide 6, we have the detailed income statement, and the quarterly numbers are already been through for the 12 months to December of 2006. Revenues, operating income and net income are similarly also significantly increased on 2005. And the main factors that have influenced this improvement are the addition of two new vessels in 2006, but also the improvement of the earnings of the spot vessels. Both of those have been slightly offset by the higher interest rates in 2006 as compared to 2005.

Moving over to slide 7, we have the balance sheet assets. A couple of movements there to point out. One, the equity net assets of investees or nonconsolidated associates as it's described there, that's made up of the book value of our investment in Korea line which is $18.9 million and the balance is our investment in LNG Limited and OLT Offshore, which is related to the Livorno project, which was an investment this quarter. Vessels and equipment have also obviously increased because of the two vessels that we've added to the fleet during 2006.

Moving over to balance sheet liabilities, on slide 8. Again, because of the addition to the two new vessels, we've got an increase in long-term debt and capital lease obligations. In terms of the debt that's swapped to a fixed rate, I mentioned the impact of interest rate movement, obviously that only impacts that floating rate debt. 57% of our debt, effectively, is swapped to a fixed rate, and that's been fairly constant for more than 12 months now.

On slide 9, the cash flow standing; not surprising, as we had such a good quarter. The operating cash flow is an extremely healthy $42.4 million. Investments include additions to new buildings and vessels, which presents our last new building instalment under our now concluded new build programme, And also the purchase of our interest in LRT offshore, the Livorno project company. And we've also paid down $23.4 million of debt during the quarter.

That almost concludes the financial part of the presentation. Of course, on slide 10, we just have an analysis of financial expenses, which gives you the breakdown of lease interest, lease income and the other financial items.

So I'll now hand over to Gary to talk a little bit more about the commercial side of business.

Thanks, Graham.

I'll begin by saying a little bit about the LNG industry and the market, and then move on and talk about our portfolio, a little bit about the fleet, and then finish up with a few words on the projects.

In terms of the industry, I think the industry still continues to go forward strongly. There will be some nearly 14 million tonnes of new production added globally in the year 2007, with new greenfield projects starting up Equatorial Guinea, and in Norway, Snohvit, and a new train in Nigeria, and some existing projects being de-bottlenecked and expanded.

2007 also sees anticipated new projects being announced: Pluto in Australia, further projects in Nigeria, Algeria, Angola and probably more which I have not listed there. So we're still strong toward growth in LNG generally, although this is somewhat tempered by projects continuing to be troubled cost escalations and commercial and sometimes political complexity of these projects. So the underlying story is one of growth, but with some difficulty and, as always in this industry, it can be quite lumpy.

Moving specifically with shipping, we now have, we believe, 216 ships trading globally, 28 new ships were delivered in the calendar year 2006, and some 33 ships will deliver this year from an order book of 146. So again, on the shipping side, you see the strong growth matching the growth expected in the liquefaction. The shipyard capacity is, while stretched during the large Qatari shipbuilding programme, is now starting to ease off a little so, there's no concern about capacity in the yards for new tonnage.

It's worth commenting that 2007 will see the commissioning of some new technical initiatives within the industry, so we'll see the larger 2000, nominally 2000 Qflex vessels delivering later this year. They also come along with what is a diesel propulsion ships, which are new to LNG shipping, and that will bring with it all of the complexity and risk of bringing new technology into the industry. We will also see, hopefully, the bringing into service of duel fuel diesel propulsion engines and the CS-1 membrane after a sort of false start in the last 12 months.

I was talking about the freight market, more specifically, as Graham has indicated, we enjoyed a fairly tight market in the leadup to Christmas. There were, we can't confirm exactly, but we believe of the order of some 15 ships still in cargo bays, primarily delivering into the Far East in anticipation of heightened demand. All those ships have now discharged, and those ships have returned back to the normal spot-trading market, and this has somewhat depressed rates.

Additionally, we've had a fairly warm winter, almost around the globe, and that has helped to hold gas prices down, and not cause last-minute diversion of cargoes and the crew that pulls on the freight market. It's worth commenting that we've seen some new entrants, both on the LNG trading side, and this year we'll see some new competitors come into the market on the shipping side as well. And with those new entrants, we'll see some additional uncommitted tonnage also.

And then finally, I'd like to comment that along with the continual string of new projects being announced, we see a continual stream of opportunities for long-term charters, and we are selectively taking an interest in those long-term opportunities.

If I could move to slide 14, which is the portfolio slide familiar to our regular listeners. The significant change on this slide is the last ship, the DSME Hull 2244, where in recent weeks, we have signed an agreement to sell the ship, and so that marks the end of that new build programme, and for the time building, we would like to report a portfolio of 6, I'm sorry, 12 LNG carriers, 6 of which are long-term charters, 3 are now chartered to Shell, and 3 of which we are short-term managing ourselves.

If I could move to slide 15, just briefly a few highlights from the fleet; I think, as Graham had previously mentioned, we benefited in Q4 from no refits after a fairly heavy refit programme in Q3, and as we speak the Golar Freeze is about to come out of dock and redeliver for our one and only refit in quarter 1. It's pleasing to report that the fleet continues to offer high reliability and availability. We have, as you'll see if you go through the numbers, some increase in OpEx which has primarily gone up solely due to crewing cost increases, and these increases are in line with what's being experienced probably across the industry.

As previously mentioned, our new build programme is now complete, so we now will go through a phase of demobilization within the shipyard and consolidation within the fleet operations. And I'll just make a brief comment that we uniquely, I think, enjoy the opportunity to benchmark between the different fleet managers that we employ within Doha, and we are some work to leverage off that, and to improve our overall operations as a result of that opportunity.

If I can turn to the last slide,16, and say a few words about the projects which we have in that portfolio. Livorno continues to make good progress, and it's also pleasing to report that the actual physical work will begin on the project within a matter of weeks, where they will start constructing the onshore metering station, and preparing to lay pipe from the Italian grid to the beach.

Perhaps in concluding that we note that LNG Limited is facing difficulty and strong competition with the Padang opportunity, I think I reported this last time. Well it's important to draw to the point that there's still no decision on that project, and we remain hopeful, although the signs are not promising.

The FSRU conversion project, which was announced some time back, continues to progress on track, and it's also pleasing to note that we're seeing increased interest in these sort of projects, particularly over the last couple of months.

I am, [indiscernible] this presentation, we were awarded the licence to construct the 240MW floating power generation plant, which will be located off Cyprus. That's a significant milestone; it's not the final milestone in that project, but there are still some more [presents] to be gained, but it's a significant step forward nonetheless.

And then, finally, and I'm including this presentation, we'd just like to note that the board has initiated a study to determine the best way and the best vehicle to take these various projects forward. We're at a stage now where several of these projects are maturing; the demand and the effort required to plan these projects is becoming more substantial, and so we're taking this opportunity to assess the best way of taking these projects forward and what is the appropriate resource needed to deliver these projects with the objective of getting a high level of focus on the delivery.

So, with those remarks, I think I can conclude the formal presentation and we'd be happy to take questions.

You will now begin the question and answer session.

[OPERATOR INSTRUCTIONS]

The first question is from Andy Rosenlund. Please ask your question.

Hi. My first question -- I have a couple questions. First question is do you expect to have been able to obtain very high stock rates for vessels that not on long-term contracts in Q4? Can you give an indication what kind of rate levels those vessels were able to obtain?

I'd be happy to give a range, rather than the specific for the particular vessels. I guess in vessels fixed over Q4, particularly toward the end of Q4, we were in this mid 70s to mid 80s thousand dollars per day range.

And how does that compare with what you're seeing with Q1?

This is a sort of dynamic situation, some of those charters would continue on through Q1. We're seeing numbers sort of in the 50s and 60s at the moment.

Okay.

And if I may continue, did you have any gas price exposure to any of those charters in Q4 in the second of 2006?

In the second half of 2006, we had a novel charter arrangement on the Golar Winter, which in fact did give us some exposure, which translated through onto our charter rate. So, there was some exposure, but it's a complicated arrangement.

Is that included in the 70 to 80 figure that you provided?

Yes.

Okay, great.

The next question comes from Philip Dodge. Please ask your question.

Good afternoon, thanks for your comments. My question was also on the natural gas price sensitivity in the charter rates. Do you expect to pursue that kind of charter going forward, or was the Winter sort of a one-time opportunity?

No, we're very keen to do those style of charters going forward. To some extent, we're hostage to the market, so when the market conditions encourage those sorts of charters, then we're very keen to do it.

I would stress, Phil that exposure in terms of the rate, the effective rate that you would get on the ship, that once we go into the transaction, we're not sitting with gas price exposure, i.e., we're not in a posi-, we know what our result's going to be, we're not in a position where we could end up with an enormous loss.

How much of the Winter was factored into that $75,000 to $85,000 rate in the December quarter for the spot charters? Or maybe it was in the overall rate, I'm not sure.

I'm sorry, could you just explain that in a different way, Phil? I'm not sure we follow you.

Yes. What I understood was in the charter TCE rate that you gave, and also the $75,000 to $85,000 in the spot market for the December quarter, the gas price sensitivity of the Winter was included in that.

The effective charter rate on the Winter was included in our overall average TCE rate of 65. The 75 to 85, or whatever number Gary gave, was an indication of some of the spot deals that were done during Q4.

So that's just a measure of the market as a whole?

Yes.

I guess my question would be -- how much of the $65,000 reflected the gas price sensitivity in the Winter charter?

It's difficult to give a specific answer, because it's a complete average number. I'm certain of what we can say that Winter charter commenced back in June, so it went over the summer period, and we were certainly getting a better rate from her over the summer than we would have done in the spot market. So there was a benefit to us from that perspective.

All right. Thanks, Graham.

[OPERATOR INSTRUCTIONS]

Your next question is from Andy Rosenlund. Please ask your question.

On the potential investment on the Cyprus infrastructure project -- what kind of investments are you planning to undertake there, and what kind of return on capital employed should a project like that be able to yield?

I think we're still a ways, a fair way away from giving you specific guidance on that. It's a sizable project, so maybe, several hundred million dollars sort of CapEx, but exactly how that project will be structured and the benefit we might derive, I think it's too early to give an indication.

Okay, that's fine. Also, we are hearing from different market observers that the cost break-even levels for new LNG export capacity has gone through the roof. Do you have any assessment what the break-even [hand-to-hand] price on new projects are currently for the projects [in the selling phase]?

I think it would be, I think that's a part of a business that we're not directly involved with, so I'm not sure it's a question that we can correctly answer.

Okay. And just finally, looking at your portfolio, it seems to me that your Spirit and Frost is covered in Q1 and Winter through the first half of the year, is that correct?

That's correct, yes.

The Spirit had some idle time in Q1, but she starts a new fixture in the next couple of days.

Okay. Great. Thank you very much.

Your next question is from Jeffrey Schwartz. Please ask your question.

Good morning, gentlemen, or good afternoon. That last statement on the last slide talking about with the project portfolio maturing, the board initiating a study, is quite mysterious. Is there any sort of any further elaboration that you could provide perhaps to give a general sense of the type of approaches that are being considered?

Jeff, sorry, it wasn't intended to be mysterious. If that's how it's come across, that certainly wasn't the intent. We're just very conscious that from sort of nurturing these projects, it was sort of in a early development phase, some of it is starting to become quite real, quite tangible, and indeed quite large. So internally, our existing organization probably isn't suitable to take it forward, and indeed, as you'll see in the press packet, we've considered amongst the major opportunities, in fact, spinning off that part of the activity to an associated organization but one with a dedicated focus, And from that we will have the resource to deliver the projects.

So it's really an identification of the fact that we're about to go into a very different phase, and wanting to get the right level of focus and delivery on those projects, and not try to have them competing for attention within the existing shipping framework as well. So it could well be that we do that within Golar or it will be that we initiate a new vehicle.

Having offered up those possibilities, then, let me provide feedback from one perspective, but really from one shareholder, which is the notion of there being two separate vehicles that can enable shareholders to choose the type of risk profile they want and the type of exposure that they want -- it seems desirable to me.

Thank you. That's appreciated.

[OPERATOR INSTRUCTIONS]

There are no further questions at this time, sir. Please continue.

I think that if there are no further questions, then we thank you for your attention and participation, and look forward to the same discussion in one quarter from now.

Thank you very much.

Thank you. Bye bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.