Golar LNG Ltd (GLNG) 2007 Q3 法說會逐字稿

Thank you for standing by and welcome to the Golar Q3 2007 results presentation conference call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (OPERATOR INSTRUCTIONS). I must advise you this conference is being recorded today Monday 19th of November 2007.

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

Thank you very much and welcome everyone to the Golar Q3 results presentation. The format of this call will be along the lines we have used in previous calls. I will quickly run through the agenda and touch on the highlights, hand the call over to Graham Robjohns who I must explain is sitting on the other side of the globe from me so if we lack coordination, please excuse us. He will run through the financials and then hand back to me and I will then run through the market. We will talk a bit about the portfolio which has changed a bit in the last quarter, fleet highlights, projects and a final slide on restructuring.

Turning to slide number 3 then and just quickly running through the highlights for the quarter. Revenues for the quarter and our income have been reasonably in line with expectations. We have produced a quarter not dissimilar to the quarter just gone before. Major impacts have been the Spirit which now has gone in for conversion and so she no longer is earning revenue in the prevailing market in the summer months.

We in saying this have now a reasonably good handle on what Q4 will look like and we can indicate in this call that we are more bullish about the performance in Q4. The quarter was characterized by mark-to-market valuation on the interest rate swap which went against us and Graham will talk a bit about that.

We agreed during the quarter to purchase from Shell a vessel by the name Grand Athena. She is a Daewoo vessel very similar to the Golar Winter and the Methane Princess which already sail in the Golar fleet and we will talk a little bit about that. And then finally, the equity raise that went hand in hand with the purchase of the Grand Athena.

I will now hand over to Graham and he can take you through the financials.

Thank you Gary and good afternoon everybody. As Gary has just said, results are reasonably in line with the quarter that has just gone and if you turn over to page 4 which covers the revenue part of the profit and loss account, you can see that revenue is slightly down on Q2 and Q1 but has held up reasonably well this quarter. Particularly as Gary mentioned it covers the summer period which is traditionally quiet. And also in spite of the fact again as Gary said that the Golar Spirit has not traded at all during the period as she prepared and positioned to enter the shipyard for conversion in readiness for her Petrobras charter.

I think that the problems that the Japanese nuclear plants had earlier in the quarter and the resultant purchase of additional LNG cargoes by Japanese barges certainly help the quarter and saw spot rates spike for a short period and this has certainly helped our utilization which was if you exclude the Spirit idle time, was at 93% for the quarter.

And again as Gary mentioned, the outlook for Q4 is good from a revenue perspective with all our vessels virtually all contracted already through the fourth quarter. The Golar Spirit of course will be in the shipyard throughout the quarter and indeed during Q1 of next year.

So to move over to slide 5 which has the key financial numbers from the income statement, revenue obviously I have just talked about which is slightly down on the previous quarter. EBITDA and operating income are actually slightly up on last quarter and then of course we come to the net financial expenses line which has seen the big swing in Q3. This is due as we explained in the press release to a loss on interest rate swap valuations and unrealized loss I should add on non-cash items of a $11.8 million in Q3 due to a decline in the rate of long-term interest rates whereas of course in Q2, we booked an $8.4 million gain on interest rate swaps and in addition a $6.2 million gain on our equity swap.

The other line item, this is obviously substantially different from the second quarter is the equity and investment earnings minorities in Texas and the main difference there of course is the gain on the sale of our Korea Line shares in the second quarter which is obviously not there in Q3. Vessel numbers obviously constant, time charter equivalent rates as we have just explained, slightly down and ship operating expenses have come down a little bit in the third quarter as well.

Turning over to slide 6 there is the detailed income statement where you can see the split of total operating expenses. Not too much more to say there. On a year-to-date basis, if you looked at the third and the fourth columns, revenue is pretty much in line to where it was this time last year. Costs and expenses are up slightly on the operating expenses line and the admin expenses line. We are of course operating an additional ship this year, the Granosa. Of course the main difference is the gain on sale of the new building which happened during the first quarter of this year, the $41.08 million.

Okay so if we move over to page 7, balance sheet assets, not too many movements here between last quarter or indeed the same period last year. Cash and cash equivalents is up. That has come about obviously from the cash generated from the sale of our new building contract and the sale of the Korea Line shares offset by the dividends that we paid out during 2007.

Moving over to page 8, on the balance sheet liabilities side, you can see that our percentage of fixed interest debt which is where are the fixed interest debt or where we have swaps in places around 59% and that our gearing has been held for relatively constant since this time last year. We are now at 64% and we don't expect that percentage to change dramatically or if it all subsequent to the financing of the Granatina purchase. Obviously you will have seen in the press release that we have raised around $77 million in new equity to part fund the Granatina purchase and the balance of that will come from debt finance that we will be organizing over the next few weeks. But as I say, that gearing ratio won't be affected at all I wouldn't have thought.

Now moving over to slide 9, the statement of cash flows. Just a couple of items to mention there on investing activities, the main movement is additions to new buildings, vessels, and equipment. That is principally our project expenditure on the conversion projects for the Spirit and the Golar Winter. Some new debt that we announced last quarter, we refinanced the Gracilis earlier in the quarter and you can see there is a debt drawdown of $120 million and obviously a debt repayment as well. And the dividends of course that we have paid that have been paid during the quarter.

Moving over to slide 10, which is the usual and analysis of financial expenses that we provide which you can see interest income and interest expense have been relatively constant over the last few quarters and of course the big movement item is the interest rate swap valuation movements and the equity swap.

Okay, well that concludes this sort of brief summary of the financials and I will now hand back to Gary to cover the industry and market overview sections.

Thanks Graham. And I will turn to slide number 11. And slide number 11 just deals with some of the headline items in the industry as they pertain to liquefaction. We saw continued growth in the industry over the first six months in the year at 7.2%, so notwithstanding the various delays that are reported in projects, the industry still continues to grow at a healthy rate and that rate will increase over the next couple of years as some of the big Qatari projects come on stream.

We saw him Snohvit in Norway start up during the quarter and after some bumps during the startup process, she loaded her first cargo on the Arctic Princess and is now producing. Also Statoil and Hydro, Statoil Hydro is [far] along with Cartel. We're awarded a shareholding position in the huge Russian Shtokman Project. That is a project many years out but a significant achievement by those two oil majors.

In Australia, we saw the Woodside Project of Pluto and the Chevron lead project of Gorgon, gaining environmental approval and both those projects are moving towards FID. In fact, Pluto has taken FID and is now in the execution phase. Gorgon is grappling with cost increases and scope increase prior to taking FID.

We have seen Nigeria LNG for the first time in any serious way allowing or relaxing the destination clauses on some of their spot cargoes and seeing Nigerian cargoes divert at [East]. Then we are seeing some operational difficulties in Equatorial Guinea and I think also Woodside in the North West shelf.

But the underlying story continues lots of projects going to go forward but being frustrated by escalating costs, commercial and in some cases political complexity as well.

If I move the slide 11 and focus in a little bit on the shipping, we have now got 248 ships trading; 28 ships delivered so far this year which must be a record for nine months in any year; 137 ships remain on the order book which is now starting to taper off. The peak in terms of the order book has been passed and as we go forward, that order book number should start to reduce over time. And as a result, the shipyards have more insufficient capacity to deal with any new builds that might be ordered.

And just to finish out with a point of interest, the very first of the so-called [Q flake] circles the large 210,000, meter Q vessels for the Qatar Exxon projects delivered during the quarter and it is reported that her maiden voyage will be in fact from Qatar to the Far East towards the very end of the year. Those vessels will now start to deliver fairly regularly going forward and the expectation is that several if not all of them will go into layup awaiting startup of the project to which they are contracted.

In terms of the transportation or the trading market, the Far East still remains by far the market of choice for those cargoes with destination flexibility. The U.S. is pretty well covered in terms of its storage and the UK is increasingly supplied by pipeline and so with very strong prices still in the Far East, a lot of cargo is now being diverted east and that is soaking up vessels. And whilst the rates are not at the spike which we saw very early in the quarter, they are still quite reasonable and most of them are employed and in fact, most vessels have left the Atlantic heading east. And should Korea enter the market as we think they might, then there'd be hope that we might see some escalation in rates.

Moving to slide 14 a change in the Golar portfolio, you can see at the bottom of the slide there the addition of Granatina, we reached agreement with Shell to purchase just in the last few weeks. She is a vessel very similar to both the Golar Winter and the Methane Princess. She is [14] SME, delivered 2003 and we think she provides us as we say in the press release with a very attractive platform for future growth. She will for most if not all of the first year of ownership which will be 2008, charter back to Shell where she is running out an existing charter. And during that charter back period, she will be also managed by [Stelco] which is the ship management part of Shell.

Moving to slide 15, we had one vessel which straddled the quarter end in dry docking. That was completed in Q3 and the rest of the year is clear as far as dry docking is concerned. As I think Graham and I have mentioned previously, the Golar Spirit positioned and then delivered into Keppel Shipyard in Singapore and is now being cut apart and prepared for conversion to go into service as an FSRU on contract to Petrobras and she will deliver early in Q2 next year.

In terms of operating costs, as Graham mentioned in his summary, the cost came off a little bit in Q3 mainly due to some seasonality and some one-off events. But the underlying story I think on cost is still one of pressure particularly in the area of crewing brought about by the rapid expansion of the fleet and the shortage of trained LNG crews but also the weakness of the U.S. dollar is impacting on us to some extent as well.

Moving on to slide 16 and just to quickly update where we are on the various projects which we are progressing. On Petrobras, a significant piece of work to conclude the suite of documents and contracts which underpins the appointment of both those vessels to Petrobras have now all been finalized and executed and basically put to bed. So it was a significant piece of work which we are very glad to report is now complete.

Golar Spirit, as I have said before, is now in the yard and undergoing conversion and the Golar Moss Maritime design engineering project management team is at full strength and working quite efficiently to see these projects delivered in accordance with the schedule.

On other projects, it is getting increasingly busy I would say on this front as there seems to be a growing interest in this approach to providing terminals around the globe. We can report that the Khannur is engaged in commercial discussions for employment at the end of her existing charter. But Golar Freeze as we reported I think it was the last quarter, we have now executed an MOU which is on an exclusive basis for the employment of her as an FSRU. It remains still subject to FID which we would expect very early in the new year.

The Livorno Project entering to its final and critical phase of evaluation. We had hoped and reported that we might have had something to announce by this call but it's unfortunately not the case but we are hopeful that we are only weeks away from determining the fate of the Livorno and hopefully it is (inaudible).

Finally Torp, we don't talk about Torp on every call. Torp, for those of you who are not familiar is a terminal, a floating terminal in the Gulf of Mexico off the coast of Alabama. Golar has equity in the parent company plus also an option to take capacity in the terminal and that project is progressing quietly I would say but positively towards approval for the U.S. Coast Guard and MARAD and we are hopeful that she will be fully permitted early in the year.

And then finally to finish up with the progress report on restructuring, it has been a very busy quarter for us on this front. I think as we reported this time last quarter, we included our study into the restructuring of the company. We looked at two options as to how to divide the company. One was to separate project activities from shipping activities. The second option which we thought was to separate long-term time charters irrespective of asset class from short-term spot charters and project development activity.

And after carefully evaluating both proposals, we have opted for the second which is the separation of long-term charters from the short-term and project development activity. And we have been going through the lengthy process of executing that change in structure and remain hopeful that we will be able to report the final position early in the new year.

So I think at that, I will end the formal part of the presentation and hand the call back for Q&A.

(OPERATOR INSTRUCTIONS). Andre Winther, ABG.

Hi, how do you see the conversion risk on the FSRU's (technical difficulty)

I guess the conversion risk breaks itself into the technical performance of the conversion and then the ability to maintain the timeframe for the conversion. On the technical risk, we are feeling confident -- I mean I preface that by saying that this is the first time that anyone has undertaken such a conversion. So of its nature, it is risky but the technology that we are employing is relatively well understood so the regasification process is a process which is used many times around the globe. It is well understood and mounting it on board a ship should not be too problematic.

The issues really are integrating the regasification equipment within the systems on board the vessel but we feel we have that well in hand. It is almost inevitable that we will have some [feeding] problems when we deliver the vessels but I think they are the sort of problems that you experience with any project of this nature and should be relatively easily resolved.

On timing, with Golar Spirit you might recall we took the decision to convert her at the end of 2005 and so I have been working on that project for quite some time. Petrobras were keen for an early schedule, early delivery of that vessel and in part, he's assisted us in winning that contract and we now have a fairly tight schedule to have her deliver in April in Brazil. But at this point in time, we are holding to that schedule.

Golar Winter delivers a year later and so the schedule there albeit tight is not as immediate as Spirit and so we are feeling a little bit more relaxed on that.

Philip Dodge, Stanford Group.

Hello everybody. Thanks for the comments. First question on the Granatina, would you tell us whether the terms on that with Shell are the same as the three existing charters with Shell?

No, they are not so the three existing charters at a variable market related rate, the Granatina is in a more vanilla [time] charter boat.

Yes, that's what I was interested in. And then another question whether Petrobras has requested tenders for a third vessel for floating storage and regas?

Yes indeed they have and that closes in a matter of days.

Okay. Thanks very much.

[Olaf Stenhager], SEB Enskilda.

Thank you. In fact, several questions starting off with the Granatina, can you comment on the price?

I can give some commentary. The price is not straightforward because of the charter back arrangement so that is why we have not tried to confuse matters by reporting the number of which the transaction was granted. (technical difficulty) I think I would like to answer the question by saying that we used the sale of the new build that took place earlier on this year as the benchmark for determining the price of the purchase of Granatina. So adjusting for both age and size, we were able to arrive at a price for Granatina that was consistent with that transaction and then we factored back in the value of the charter basically to arrive at the deal.

You would say that it is in line with the new building sale price wise? (multiple speakers)

Adjusting for both sides because (multiple speakers).

Absolutely.

Because of slightly different in size and also making some allowance for the difference in age of the vessels as well.

And then looking at the project list, I was hoping to see something with your ownership in this Australian company. Are there projects there that would fit on a project list like this?

Yes, we choose arbitrarily to talk about the third-party vessels investments -- either the [ESO] -- I touched on Torp this time around. LNG Limited, in fact do have a couple of very interesting projects probably the most interesting of them at the moment is the Gladstone project which is based on coal-bed methane in Queensland Northeast Australia. They have signed a letter of intent with Arrow who are the resource holders who have the gas. They are well advanced in their discussions with the Port of Gladstone to secure an existing site with existing port facilities and are working towards a timetable which would take FID on that project second or third quarter next year.

So that project looks pretty promising. It is in a part of the world where politics shouldn't get in the way. The relationship with the gas resource holder is good and subject to the economics stacking up I think that the project could very well go ahead.

The Padang project is still alive notwithstanding what has been said in the press and the reported award to Mitsubishi. There is nothing signed on that project and LNG Limited continue to take an active interest. They maintain a person stationed in Jakarta who maintains contact with that project although it is a little more difficult project to secure.

They are also trying to progress a project in Papua New Guinea and of course they have had the Iranian Prospect on their books for some time but that is obviously a challenging project to get over the line in the current environment. So we are still very positive about LNG Limited. It was just that we choose not to talk about them at every quarter.

But when these projects do you see you being part of the further project development or will you be -- will you be arms length on this and how do you -- because most of these are land-based liquefaction projects, right?

That's correct. Well Papua New Guinea has the potential to be floating but I think it is fair to say most of the projects that are advanced are land-based so certainly the Padang project in Indonesia on the Gladstone project in Queensland are land-based. A Golar has sought three roles in each of these projects. Firstly, as the major shareholder in LNG Limited; we have our (inaudible) shareholder in the project development company. We have shown interest in taking equity in our own right in the various projects. And then thirdly, we have indicated interest as acting as a buyer of the LNG from those projects.

All of that remains subject to working out the detailed terms as the projects mature but it is very clearly flagged that our how interest is not simply as a passive investor in the project developer but as also an equity participant in the (inaudible).

Michael Jones, FBR.

Hi, how are you doing Gary, Graham? I had a question on the decision-making for the Granatina. At this juncture why would you be acquiring going into maybe a challenging spot market? And are you looking for a long-term charter port after the one-year ends?

Well there is a few elements into the answer. Firstly, in the [port], she delivers to us with a charter back so in our view perhaps not held by many but as the large volumes start to come on stream particularly in Qatar throughout 2008, I think the spot market could be a lot more interesting place to be in the back end of next year when she delivers back to us.

With the Granatina -- I'm sorry -- with Golar Winter and potentially Frost out of play or certainly Golar Winter now is chartered right through until conversion into an FSRU so she is no longer available for us to trade spot. And so -- and that is potentially the same with Golar Frost although we don't yet have confirmation with Frost. So effectively apart from the three Shell vessels which we don't manage commercially on a direct basis, we would be out of the spot market.

So one part of the decision-making process was to maintain a presence in that market. We have built ourselves a position and would like to keep that position bearing in mind that we think this is a part of a market which is going to grow. And maintaining the various relationships that we have developed over the last couple of years is important to us. But also I think as we indicate in the press release, the fact that we have done all the work on the conversion of Golar Winter, then to replicate that on this vessel becomes quite an easy task. And so should an opportunity arise where we could further do an FSRU, you -- it could be quite easily and readily based on the work already done on Golar Winter.

[Andrew Rosaland].

Yes, I was wondering what was the back (inaudible) of the FSRU -- the tendering (inaudible), what does that look like? Are there a lot of tenders out now or --?

I didn't quite catch the question.

On the floating storage and regasification units, are there a lot of tenders out? And do you expect them, the tenders out the next couple of months or six months or what does that look like right now?

There is a lot of interest. There are a lot of inquiries and I guess part of our task is to sort through what are the more serious inquiries and which are the people just wanting to understand a little bit more about the industry. But I think in the presentation, we have indicated that we are working very firmly now on projects for the Golar freeze and the Khannur; one of them is likely to be tender based. The other is a direct negotiation, so no tender involved.

I mentioned earlier on the call, Petrobras are right at the moment in the middle of a bid process for their third FSRU and I guess I wouldn't be surprised to see another three or four opportunities realized over the next 12 months. That is purely a guess on my part but just based on the level of interest and our assessment of the quality of that interest, I think it is quite reasonable to assume another three or four FSRUs over the next couple of months.

Awarded during the next 12 months?

Yes. Contracts awarded.

Okay. Thanks.

Andre Winther, ABG.

Hi, do you open up for a U.S. listing of the new entity or do you solely pursue a Norwegian listing?

I think when we announce details of that as we said in a press release, hopefully in the first quarter, we will make that clear at that point in time. I am not sure we can go into that now.

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

Okay, well thank you all very much for listening and if there are no further questions then we will call a halt to this conference call and we look forward to speaking to you all again in three months time. Thank you very much and goodbye.

Thank you. Goodbye.