Golar LNG Ltd (GLNG) 2007 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Golar Q1 2007 results presentation. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session, at which time if you wish to ask a question, you will need to press star 1 on your telephone. I must advise you that this conference is being recorded today, Thursday, the 24th of May, 2007.

I would now like to turn the conference over to your speaker, Gary Smith. Please go ahead, sir.

Good day, everybody, and again, welcome to the Golar Q1 2007 highlights. I will start with slide 2. The agenda for today's presentation is a format which we have used before. I will kick off with the highlights for the quarter, hand over to Graham Robjohns, our CFO, who will take us through the financial results. And then I will come back and talk about the market, the portfolio of Golar vessels, highlights from the fleet. And then in this presentation we will focus a little bit more on the projects, because that is quite topical for Golar at the moment.

So if I move to slide 3, the quarter one highlights, just in summary. We're very pleased to report that the quarter was in fact our highest ever net income result, aided by the $41 million of profit we earned from the sale of the newbuilding Hull 2244.

Revenue was down for the quarter, with a somewhat mixed performance on the spot market. Some vessels performed quite well, in fact, where others suffered quite some offhire, awaiting employment. So in aggregate, it was not as strong or anywhere near as strong as the hot market we experienced in quarter 4.

We had strong earnings from Korea Line during the quarter, and we're very pleased to announce today a dividend of $0.50 per share and a 1.24 million in share buyback. In the quarter or in fact just after the end of the quarter, we were awarded two contracts for the employment of FSRUs by Petrobas with a total contract value of some $860 million, and I will spend sometime talking about that a little bit later in the presentation. Then finally, post the end of the quarter we announced the sale of part of the shareholding in Korea Line.

So with those highlights, I will hand over to Graham who will take us now through the financials.

Thank you, Gary, and good afternoon everybody. I guess in terms of results, as Gary has already alluded to, the dominant impact of the quarter was a gain on sale of the newbuilding, DSME Hull 2244, and also the reduction in revenue from the fourth quarter.

So if you move over to slide 4, which is entitled financials revenue on page 4 and start with revenue, you can see here the graph indicates the absolute fall in revenue, and the numbers down at the bottom show the reduction in TCE you can see from 65,200 to 48,400. Three main contributing factors to this reduction. Firstly, the Golar Spirit, which completed its long-term time charter with Pertamina towards the end of Q4; had a short-term charter carrying immediately on from the redelivery from the long-term charter, but then had some significant idle time during the first quarter of 2007.

Secondly, not an impact on TCE, but certainly an impact on absolute revenue. The Golar Freeze was drydocked during the first quarter, whereas there were no drydocks during Q4.

And thirdly, again as Gary has alluded to, there is some general weakening of the spot market for LNG ships moving into the first quarter from the fourth quarter. Now this has been caused by a number of factors. Firstly, there were a number of vessels, probably up to 12 or 15, that have been used for storage plays over the summer through the autumn and redelivering into the winter, that all redelivered right at the end of the year or close to the end of the year.

There are also new vessels that have been delivered during -- in the quarter, which has increased the fleet size. And probably the relatively warm winter in the Far East has not helped the situation either. The result of all that is that, again as Gary said, two of the vessels we delivered at good terms, and we managed to fix them on reasonably long charters and at decent rate. So they traded all through Q1, and certainly in one case will continue trading to 2Q. Some of the other vessels suffered idle time through -- for longer periods during the first quarter.

So moving over to page 5 on the key financials, I've looked at revenue. The second key impact, as I said, is the gain on the sale of a newbuild. We received $92.5 million for the sale of the newbuilding contract, which gave rise to the $41.1 million gain. And within the transaction, there was effectively an implicit price for the vessel of $201 million.

Vessel numbers are constant for the last three quarters now. Of course, that we sold our last newbuilding will be constant for the next two quarters, at least. TCEs are down, as I've already discussed, and ship operating expenses there on a per day basis are up this quarter, but are probably there at a level higher than we would expect as an ongoing run rate.

Turning over to page 6 on the income statement, and there are a couple of items relevant to P&L that I think I should pick up on. One is in relation to Korea Line, which had as Gary said, a very strong quarter during the first quarter on the good, strong drydock market. However, this will be the last quarter that we will see a contribution from Korea Line in our results, as we will no longer equity account for Korea Line, having sold around about half of our shareholder in Korea Line during April. We sold in total 1.1 million shares for consideration of 77 million, which based on the carrying value of those shares on our balance sheet at the 31st of March would give rise to a $22 million profit.

The current value of the remaining shares as of yesterday is approximately $93 million, which again based on the same 31 March balance sheet numbers would give rise to a further profit in the region of $40 million. And I guess we should bear in mind that these shares only cost us $34 million some three years ago.

Secondly, we announced our intention to terminate our equity swap, which helped us swap with Bank of Nova Scotia since October 2005. And during that period, BNS has acquired 1.24 million shares at a total cost to them of $15.3 million. Therefore, if you take our share price as of yesterday and assume the termination happened yesterday, we would make a total gain on that of 6.9 million on a mark-to-market basis. And of that 6.9, 1.4 had already been booked at the quarter ended 31 March 2007. So again, if you assume the termination yesterday, we would have booked a further $5.5 million gain in the second quarter.

Turning over to page 7 on the balance sheet assets, cash has gone up, of course, because of the sale of the newbuild. Set off against that, of course, is the dividend that we paid in the first quarter. And the newbuildings (inaudible) of course, has disappeared.

And on page 8, balance sheet liabilities, there's not too many changes there. So we will skip over to the cash-flow statement on page 9. And there you can see in operating activities (inaudible) the gain on disposal of the newbuilding and the cash flow coming through in investing activities and disposal of newbuildings of 92.618 million, which gives when you take into account the cash dividend of 32.848, which is the last number under financing activities, a net cash increase of some 46 million.

Moving over to page 10 in financial expenses, not too many changes here. The only one I guess is the -- we suffered a small interest rate loss during the quarter, $1.7 million. This is a book loss, of course, as a result of mark-to-market valuations, but again, it's a small gain in 2006.

So that concludes our summary of the financial results. I will hand back to Gary to carry on with the presentation.

Thanks, Graham. I'm now on slide 11, which talks about the industry and generally what is happening within the sort of macro market. Not a lot of change on this slide from the last presentation. The projects slated for starting up this year have yet to start up. Equatorial Guinea startup is imminent, and I guess it is of some interest that the first cargo coming out of Equatorial Guinea, at least last heard, was scheduled to be carried on a Golar vessel.

There are a number of projects lining up to take FID this year. Australia, a couple in Nigeria, in Algeria and Angola. None have yet taken FID that I'm aware of. And projects generally are still troubled by escalating costs and commercial and, I guess, in some cases political complexity as well.

Moving on to slide 12 and narrowing that down a little bit to talk about shipping, as of the end of last month there are now 230 LNG carriers trading. Nineteen ships will deliver for the balance of the year, and we actually heard notice today, in fact, that one LNG shipping at least is headed to the scrap yard. There is 135 ships on order, which will deliver between now and 2010. Shipyard capacity in the years 2010 forward is seen as more than sufficient to cover the projected forward demand for carriers.

So far this year, we have seen coming to service some new technology. Ships are now in operation using fuel -- gas-fueled diesel engines and using the new membrane technology called CS-1. Still to be seen this year is the introduction of the larger size Qflex vessels, which will be employed by Qatar, initially to carry volume into the UK, and also for the first time conventional low-speed diesel propulsion used on LNG carriers. And I think that will be interesting to see how that develops over certainly the balance of this year, but probably more importantly the years to come.

Transportation, the freight market, looking ahead a little bit. We are starting to see from about now some of the oil majors and some of the traders beginning to sort of position themselves to move into a sort of contango summer/winter storage arrangement in anticipation of the rising forward prices. The forward market at the moment would not support flooding storage plays, but the view is that it might, and certainly a number of inquiries are circulating regarding that.

The spot market did come off pretty markedly around January of this year after the floating storage cargoes were delivered in the Far East. And as we have said a couple times now, I guess those, therefore, that discharged early in that period, we are able to secure good, healthy charters as the discharge toward the end of the floating storage ships struggled a little bit to pick up employment. But all those ships are now basically employed. And I guess it is important when they say that the rates that they are employed at were not as bad as we might have feared they could have been.

If you look at prices, gas prices around the world at the moment and the market that seems to be holding strongest is the U.S., where demand is quite strong. Into the UK, we've seen no cargoes going to the Isle of Grain for the last couple of months, and very few spot cargoes going into Zeebrugge or in Belgium. Spain is also essentially full and looking to divert cargoes away. So a lot of diversion of Europe destined cargoes at the moment heading toward the U.S.

We are seeing quite some activity from the new entrants into the LNG trading space, but it is probably worth noting that a lot of them have not yet secured cargoes or those that have, have not secured too many. We've also seen some new entrants into the LNG ship owners' part of the market. And they are managing to find short-term charters that are what we understand to be fairly low rates.

If I move on to slide 14, which is the Golar portfolio slide, a slide that we've used over the quarters for some time now. It is pleasing to note on this slide, though, that there is a lot more blue, and the blue comes about as a result of both Golar Spirit and Golar Winter [fixing] to Petrobas as providing storage, and we will talk a bit about that in a moment.

You will also see Golar Frost in a lighter shade of blue from sort of the end of '07 -- that should be the end of '08, in fact -- where she will go in employment for the Livorno project. And we are also working out our floating storage opportunities for Golar Freeze, but are not yet at a point where we can announce the details of that. So progressively the charter is filling up in blue, populated by two firm FSRU projects and two pending FSRU projects, which leaves the three ships on charter with Shell, the Gracilis, the Grandis, and the Granosa, as the sort of long-term ships exposed to the short-term market.

Moving to slide 15 and just talk briefly about some of the highlights from the fleet. It has been a particularly busy period for the guys on the fleet. We've already so far this year completed two drydocks. We've talked about the Golar Freeze, which drydocked in quarter one. We've also had the Golar Mazo in drydock, although there is no loss of earnings while she docks. So that is why it didn't feature in the discussion on revenues.

We have got the Gimi scheduled to drydock in June, which will finish a fairly busy period first half of the year of drydocking. The balance of the year is free. We are gearing up now for the conversion of Golar Spirit into an FSRU before she goes on to Petrobas. She will go into a shipyard in Singapore in quarter 4 of this year, and will spend some four to five months in dock before coming out and delivering in Brazil.

As we've already discussed, we've seen the sale of DSME Hull 2244 to Maran Gas, and that marks the end of what we consider to be a very successful newbuild program with overseeing the construction of seven LNG carriers over a period of some five years. And the site team that has overseen the construction of those vessels has been redeployed. Obviously, the key members of that site team will form part of the conversion project as we go forward.

And finally, but certainly not least, it is pleasing to report that the fleet continues to operate with good reliability. Over to slide 16, and what I want to do for the remaining two slides in the presentation is talk a little bit about the projects with some focus on Petrobas, because that is the most recent and significant of the projects. The award of the two contracts by Petrobas was the result of a competitive tender process. I think at the outset of that process, there were some 27 organizations that expressed interest, but ultimately only one winner.

The Golar Spirit will go on a 10-year charter to Petrobas commencing Q1 2008, and the Golar Winter will similarly go onto a 10-year charter commencing one year later, Q1 2009. Both of those vessels have a charters option, an extension period of five years, and the contract value is in the region of $860 million.

It is worth noting that the conversion of the two ships is not identical. The Golar Winter is, in fact, or will be designed and built to regasify at double the capacity of the Golar Spirit. Moreover, she will have the flexibility to regassing what we call open loop or closed loop; open loop being the use of seawater as a heat medium to vaporize the liquid natural gas so she can use either seawater or she can use steam raised by the ships boilers.

So it is a much larger scope and greater complexity for Golar Winter than for Golar Spirit. It's also worth noting that both of these vessels retain their flexibility to trade as LNG carriers. So it is not the intent that Golar Spirit will, in fact, spend significant amounts of (inaudible) trading. She will spend, as we understand it, most of her life in Brazil on station receiving and regasifying LNG. However, the Golar Winter, it is intended that we are not required in Rio, which is where she will be employed, then she will continue to trade as an LNG carrier.

The project provides I think or not think, I know -- improved energy security and adversity for Brazil. Brazil has a large dependency on hydropower and also sources gas from neighboring countries, in particular Bolivia. So this is seen as a key energy security project within Brazil.

And finally, if we can just below our own trumpet for a little bit, I think it is worth saying that the time spent developing FSRU technologies over the last couple of years and in particular the commitment to convert Golar Spirit in advance of any identified employment was a major contributor toward Golar winning this what we consider to be very important contract.

If I can then move to the final slide, slide number 16 and, just touch on some of the other projects which are moving along as well. In the last week, it has been announced that the joint venture company, OLTO, has signed -- this is a joint venture company for the Livorno project -- has signed an agreement with Saipem to commence engineering for the conversion of the Golar Frost and to start preparing for the startup of the terminal. So this is a very significant milestone in what has been a fairly lengthy process.

It is also worth noting that over the quarter the prices of land acquisition and construction of onshore facilities, metering stations in particular, has commenced. The capitalization of the joint venture company, OLT Offshore, has been increased by EUR9 million to accommodate this increased level of activity, and the startup remains scheduled before the stat up 2005.

The terminal when it is up and running will provide some 5% of Italy's natural gas requirements. So slow and somewhat steady process, but I think a couple of major milestones have been achieved, even Livorno in the last few days. Cypress, we announced at this presentation a quarter ago that the project had been awarded a license to operate and sell power. Since then, we have made application for a license to actually import and store LNG, and that is now complete and currently under review by the government.

And then just to finish off with a couple of other projects, the LNG Ltd. Padang liquefaction project on the island of Sulawesi in Indonesia still remains alive and active. There is no decision yet by the resource holders, Pertamina and Medco, regarding that project, and we remain hopeful.

Then finally, Torp, which is a company in which we have an equity holding, is progressing. The U.S. Gulf Bienville liquefaction project, the permitting process is advanced, and we are hoping to have confirmation of that project in quarter 3, although it is worth noting that there have been some delays due to the backlog with the U.S. Coast Guard. So somewhat later than we had anticipated, but still remaining hopeful on that front as well.

So that wraps up an overview of the projects and the business, and I think at this juncture we would like to further the discussion open to questions.

Andy Rosenlund, ABGSC.

I have a question regarding the Shell contract. This is the first time you referred to the vessels on the Shell contract as vessels with spot exposure. Could you try to explain a little bit more how that contract is designed and how the rate and utilization is determined on those vessels?

The details of the agreement is subject to a confidentiality agreement, so I'm going to talk in general terms about the way the contract operates. The three vessels are on five-year charter to Shell, and Shell used those vessels to carry cargoes which they have access to within their own portfolio, and where they can't utilize the vessels for their own requirements, then seek to charter those vessels out to third parties.

Where they use the vessels for their own requirement, then we have a mechanism to set the rate which basically reflects the market at that moment in time. Where they charter those vessels out to third parties, then basically we see the proceeds of that charter. But there is no sort of fixed utilization. So where those vessels are not required for Shell's own purposes and they are able to employ those vessels with third parties, then we experience offhire.

Also, probably fair to say that we have always made it clear or tried to make it clear that the vessels chartered are entirely market related and have no fixed element to them.

Okay, thank you. Also, will the deconsolidation of Korea Line have any P&L effect in addition to the gain on the shares sold in the second quarter?

It will have an effect; it will have two effects. Obviously, the gain (inaudible). The second effect will be that whereas in previous quarters we take in a share, effectively 21% of Korea Line results into our P&L, that will no longer occur. The treatment going forward will be that our share holding will be valued on a mark-to-market basis each quarter, and the difference will be booked through other comprehensive income, which is below the line; i.e. there will be no (inaudible) effect. And of course, there will be further gains, hopefully, if we sell the balance of the shares or further shares.

They will be taken against equity on the balance sheet mark-to-market.

Yes.

And in the press release when you sold the shares in late April, you said that your holding was 11%, and in the Q1 report you say that your holding is nine point something.

We actually -- we reported where we sold a block of one million shares. There were a couple of other sort of minor, small sales which meant the total is 1.1. So the percentage is slightly -- the percentage holding now is slightly lower than we had previously indicated.

The other reason why it is slightly lower is because Korea Line had some conversable bonds which were converted late in the first quarter and early in the second quarter, which diluted us very slightly.

Great. Thank you.

[Ben Nolan], Jeffreys.

Good afternoon, Gary and Graham. I had just a couple of questions for you real quickly here. Going back to your Korea Line holdings, could you speak to maybe what your strategy is with respect to your remaining interest on that and whether you intend to, I guess, hold it as an investment going forward, or is it maybe selectively continued to part ways with those shares?

I think [substituting] the medium to long-term is probably to disinvest from that holding. It is just a question of when that may occur.

Okay, great. Also with respect to your dividend payment, obviously this is the second $0.50 dividend in two quarters. Do you guys intend to continue paying out like a $0.50 quarterly dividend, or is that just going to be more as you have the cash available to pay dividends? Or I guess is there a fixed strategy, or is it variable?

It's slightly variable. Obviously, currently at the run rate EBITDA, we are not seeing the position to carry on paying $0.50 dividends. Obviously, our earnings are going to increase in the future, in particular when the Petrobas charters come onstream. We, of course, have -- we've sold a couple of assets and have some cash, and that will have a good liquidity position and the ability to pay dividends out as now we've got no immediate need to all that cash.

We've also come to the current end of our newbuilding program. So that, again, the limited capital commitments.

And then lastly, with respect to the Angola Freeze and the possibility of maybe using that as a floating storage facility, would you consider going ahead and making plans for the conversion similar to what you did on the Spirit before you have a contract? Or was that kind of a onetime thing and you probably won't book any shipyard space until after a contract is in place?

I think the answer to your question is we certainly would consider it. My guess is we probably won't have to. I remain hopeful that employment for that vessel will materialize reasonably soon and that we will go forward with employment in mind. But should that not happen, then I think we would seriously consider taking the same step as we did with Spirit.

Okay, perfect. Well, that's it. I appreciate you guys helping me out with this. Thanks.

Rachid Bendriss, Carnegie.

A question on the Petrobas project. When you announced at the beginning of '06 the Golar Spirit contract with Keppel, you mentioned there a contract value of roughly $90 million for that conversion. A question related to that. First, as a function of this Petrobas contract, should we expect that number to increase on the basis of tailoring the conversion to Petrobas requirements?

And second, given the double the capacity on the Golar Winter, is it as easy to just assume twice the CapEx for that conversion?

Thanks for the question. Just to point out, the $90 million that we announced some time back for the Golar Spirit conversion was, in fact, Singapore dollars. So we are talking a different currency there, just to point that out. The conversion for Golar Spirit is still in line with that number. The exchange rates have moved around a little bit, but it turns out we are not far away from that number for the conversion to the scope, which is somewhat different to the scope we had originally intended for Golar Spirit.

It doesn't quite work out that when you have double the regas capacity and double the complexity, the price doubles. There are some economies of scale, which means that the conversion is perhaps a little bit less than double. But I guess as an approximation it is not too far off, although let me hasten to add that we don't yet have firm contracts for the second conversion. So that is still subject to some discussion and negotiation.

Okay. I also expect -- and today you were talking about Q1 commencement as opposed Q2, which was earlier communicated, and --.

I think that is incorrect. It's April, in fact, so --.

It's April, okay. Now, on what should we assume in terms of yard stay for these conversions? What kind of execution time we are talking about it, and is there a big difference on the Spirit in the winter in that respect?

The spirit conversion is on the order of five months, and it may be a little bit longer for the Golar Winter, again due to the complexity of the conversion.

Okay, very good. Now a final question on spot market. You mentioned that all the while the rates are down from where they were in the very strong Q4 and the new contracts that you achieve into Q2, not as ultimate as bad as you feared. What did you fear and kind of where are we?

Well, just to backtrack a little, I think the Golar Q2 position is a little bit mixed. I think as Graham mentioned, at least one of those vessels which we fixed back in December at fairly attractive rates run through to the middle of the year. Now historically, the spot market has got down to sort of the low to mid $30,000 a day sort of level. And I guess that is we might have feared, and that, in fact, has not eventuated. So I guess that is a positive, yes.

So we are talking like mid to low 40s instead, or 50s, or where are we?

Yes, I mean it is quite variable, but those are sort of numbers that we're talking.

40 to 50?

Yes.

Thanks a lot for your (inaudible).

Andy Rosenlund, ABGSC.

On the slide number 14 where you show your contract coverage going forward, you made a comment about Golar Freeze. And if you -- if Petrobas decides they need a third vessel, will you use another vessel and Golar Freeze for the project that you spoke about earlier, or is the Petrobas contract the potential FSRU contract that you (inaudible)?

Let me try and pick out a couple of the points. Petrobas has said publicly that they are interested in a third vessel. So they haven't yet declared the timings of that, neither the timing for when they will seek offers if that is the process they are going to use, nor the timing for when it was due to go into service. So there remains some unknowns regarding additional Petrobas requirements.

The work that we are doing on Freeze at the moment is, in fact, not for Petrobas but for others. There are several other interested parties that we are talking to. It is not to say that we couldn't switch to Petrobas or indeed look to other ways of fulfilling Petrobas' forward requirement. So at the moment, we have quite a bit of optionality.

I think the important thing to note as far as this discussion is concerned is that we're now working earnestly on the conversion of that vessel; she's the next vessel that becomes available in the portfolio. And there are people today working on that conversion in anticipation of a couple of opportunities, and at the moment those opportunities do not include Petrobas. Obviously, that is a situation we are watching closely.

Which vessel will you use for the Cyprus project? Have you decided on that?

It is likely to be Hilli, Gimi, Khannur, one of those three.

The --?

The Khannur, Gimi, Hilli.

Okay.

Those ships are sister ships, so to some extent interchangeable.

Okay. Finally, the Golar Frost will at one point be sold to OLT, as far as I understand.

That is correct.

Do you expect that to take place on this side of 2007, or will that be off the conversion?

She will sell before the conversion, but it won't be before the end of this year.

Okay, so sometime in 2008?

Correct.

Thank you very much.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Please continue.

If there are no further questions, then I would suggest that we thank you for your participation and bring this presentation to a close. We look forward to speaking with you again in a quarter from now. Thank you very much.

Thank you, goodbye.

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