Golar LNG Ltd (GLNG) 2007 Q4 法說會逐字稿

Good day and welcome to the Golar Q4 2007 results presentation. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Gary Smith. Please go ahead, sir.

Thank you and let me add my welcome also to the participants in the conference call. The agenda, which is -- for the call, which is given on slide 2 of the presentation pack, is fairly standard for these presentations. I will quickly run through the highlights for the quarter and then hand over to Graham Robjohns, our CFO, who will run through the financials, then I will come back and talk a little bit about the industry and the market. We will run through the Golar portfolio of vessels, which has changed a little in the last quarter, talk about fleet operating highlights, projects and then finish up with a discussion on the proposed restructuring of the Company.

Turning to slide 3 and dwelling on the highlights for the quarter, it has been a busy quarter for Golar. We, in the quarter raised, $77.5 million of new equity. This was associated with the purchase of the Granatina, which was announced in this presentation at the end of quarter three last year. We concluded at the very end of the year of 2007 the MoU to sell the Golar Frost into the joint venture, which represents the Livorno project for the sum of $231 million.

We had a pleasing quarter from our [op] trading and short-term trading vessels with good utilization of those vessels well into the 90% levels and solid earnings. We took the opportunity at the end of last year to charter in a newbuild vessel by the name of Ebisu through BP really to plug some of the holes that are opening up as a result of finding employment for our other vessels.

We are announcing with this announcement today a cash dividend of $0.25 per share. During 2007, we acquired some 400,000 treasury shares in the Company and a further 200,000 shares have been acquired via an equity swap in the early part of this year. And finally, as Graham will take you through, the results have been impacted by a non-cash interest rate swap valuation loss. So I think, at this point, I will hand over to Graham, who will take you initially through the financials in a bit more detail.

Thank you, Gary and good afternoon, everyone. If you turn over to schedule 4, I will start off with a review of revenues. As Gary said, it has been a quarter in terms of revenue; not quite as good as the same quarter in Q4 2006, but still strong with net revenue at $58.3 million and an overall TCE across the fleet of $57,600 per day. Utilization has been excellent, as Gary said again, at 95% across the fleet and spot rates have also been strong with spot TCEs in excess of $60,000 a day. We should note I guess the element of some seasonality in our business. You can see Q1 and Q4 in each of the years '05, '06 and '07 do tend to be slightly stronger than the summer quarters of Q2 and Q3.

Turning over then to slide 5, the key financial numbers. Revenue, of course, I have just talked about. EBITDA has increased from the prior quarter, up to $40 million from $34 million. That is driven obviously predominantly by the increase in revenue. Net financial expenses are down as although we had another loss on interest rate swaps, which I will talk a little bit more about later. This loss was not as great as we had in the previous quarter. We had an $8.5 million loss this quarter and an $11.8 million loss last quarter.

With the movement in long-term interest rates continuing downward, we expect another loss, a significant loss in Q1. That is, of course, on the basis that long-term rates are at the rates they are (inaudible) some minutes at the end of this quarter. However, offsetting that to some extent will, of course, be a reduction in the interest charged on our floating-rate debt as short-term three-month US dollar LIBOR rates have been declining rapidly since the end of the year as well.

Ship operating expenses have been creeping up over the periods as you can see at the bottom of the page. There this is largely due to -- well, almost entirely due, in fact, to increases in crew costs and we would expect that pressure to continue for some little time, certainly in the first quarter of next year. We also incurred some additional repair costs this quarter, which is one of the reasons why the OpEx per day number is slightly higher.

Turning over to the income statement on slide six, you can see there are gross revenues for the quarter, October to December 2007, in the first column of $61.3 million. Total operating expenses of $36.6 million, which gives us an operating income of $24.7 million and then interest income of $14.5 million, interest expense of $28 million, another financial item loss of $8.1 million. And after minority taxes and movements on [XE] investments, you have a net income of $2.7 million, which equates to an earnings per share of $0.04 based on a weighted average shares in issue of 65.8 million during the fourth quarter.

For the year ended 2007, we have revenues at $225 million, which is slightly down on last year. Operating income though is at its highest that Golar has ever seen. That has been boosted though by the gain on the sale of the newbuild that occurred in Q1 2007. The gain there was $41 million.

Net income for the year ended 2007 has also been boosted by the gain on sale of the Korea Line investment, for which we booked a gain of $73.5 million in aggregate. That $73.5 million is actually shown in two line items under -- just about income before taxes and minority interest where you can see the gain on sale of available for sale securities of $46.276 million and then again just above net income gain on sale of associates of $27.268 million and as I say, the total of those $73.5 million.

That gave us an earnings per share of $2.10 for the year based on the weighted average shares in issue of 65,282,637. And as Gary just said in the highlights, we have declared a dividend of $0.25 per share and it is, as we have said in the press release, the Board's intention, obviously dependent upon results, but it is the Board's intention to continue to pay a regular dividend.

Turning over to slide 7 on the balance sheet assets. One item really to note here and that is cash and cash equivalents. Obviously, you can see it has increased significantly from the same period last year, but that number of $185,739 does include cash from the equity issuance prior to the investment in the Granatina and that equity investment was approximately $60 million.

Turning over to page 8, balance sheet liabilities. The one thing that I guess I would say here, particularly in light of the issues that we have all seen in the banking markets, is that we fully expect our long-term debt and our long-term capital lease obligations to increase over time as we secure further long-term contracted business such as the two Petrobras vessels that we fixed earlier this year. We are bidding on a number of new contracts, as Gary will discuss a little bit more later, in particular for example the [VT3], which is the third FSRU for Petrobras.

Whilst we have seen some pressure on margins from our banks, as I say, given the problems in the banking markets, we do not see any problem with increasing leverage where the assets in question, maybe one particular where the assets in question are backed by solid long-term contracts and indeed, we have very good evidence that that will not be a problem. In fact, the most direct evidence I guess is the debt raising that we did in January of this year for the Granatina, which, of course, was a vessel that had very limited contract coverage for between 9 and 12 months.

In terms of our interest-rate exposure, as I said, long-term interest rates have been falling. We have taken advantage of that and fixed some additional debt. As at the end of the year based on a net debt and net capital lease obligations of around $1 billion, we were 55% fixed and if you look out into 2008, once we have drawn down on the Granatina new debt and added the additional -- an additional $100 million of interest rate swaps, we had a net debt and lease obligations of $1.1 billion and the total amount of fixed debt and interest rate swaps of $650 million giving us a 58% fixed level.

Total shares outstanding at the end of the year, 67,176. That is net of the treasury shares of 400,000 that Gary mentioned in the highlights and as of now, we have 375 shares that we own as treasury shares, having utilized 25,000 for the exercise of share options and 200,000 shares purchased by the total returns swap. Again, as we stated in the press release, it is ultimately the Board's intention to either cancel those shares or use them for share option exercises.

Turning over to slide 9, cash flows in the current quarter. Net cash provided by operating activities of $33,000,896 (sic -- see presentation slides), not quite as strong as the same quarter last year, but still reasonably a good number. We have obviously been investing in our FSRU projects with 23,787 invested in CapEx in relation to those projects and many other numbers of note are down at the bottom of the page. Payments to repurchase equity, $8.2 million and net proceeds from the issuance of equity of $75.7 million.

Turning over to slide 10, this just gives the analysis of our financial expenses in terms of particular highlights. The lease-related interest income and interest expense, which, as you will see, sort of fairly -- stayed fairly constant over time and of course, the interest rate swaps that we have been talking about or I have been talking about earlier, $8.5 million for the quarter, October-December 2007 and $11.8 million for the previous quarter.

Okay. I will now hand back to Gary to carry on with the industry section of the presentation.

Thanks, Graham. And I'll pick the presentation up on page 11 of the slide pack. And just to give a few general comments about the state of LNG industry more broadly, things continue to progress, but I guess with some difficulty would be the headline. Snohvit, which is the recently started Norway -- Norwegian project, is now up and running, but has some technical difficulties and will struggle with throughput restrictions probably for the next year.

Similarly, the latest Nigeria train, Train 6 has started up around the end of last year and is operating, but we understand not yet at full capacity due to some restrictions in supply of gas to the unit.

Several of the other more established projects have also unusually experienced some trouble over the last quarters, so problems in places like Egypt and Trinidad to name a couple, but these problems seem to be resolving with most units now back up at full capacity.

Some good news, we have heard recently that the Yemen Project, which is being sponsored by Total, seems to be on track for an end-of-year startup; however, that is somewhat offset by slippages in other new projects coming on stream. The FIN reports [that] aggregate to some 9 million tons per annum of new capacity slipping out of 2008 into 2009 and then a further 13 million tons per annum slipping from 2009 into 2010. So the projects are coming, but we have typically six to nine months of delays for most projects.

Similarly projects currently not yet committed still going through the development phase are struggling to get to financial close. In the last 12 months, we have seen three projects. Skikda in Algeria, Angola and Pluto in Australia all take final investment decisions, but so far the projects are struggling to get over the hump. But the sense is that things might start to improve from here, so perhaps we are at the ebb as far as new projects coming forward that remains to be seen.

Focusing particularly on shipping, now turning to slide 12, the fleet continues to grow, notwithstanding the problems being experienced with the new projects. So as of the end of January, the fleet stood at 261 ships with some three ships delivered this year, against a fairly strong number of orders delivering in the year 2008.

The total order book of 128 ships, which is now in decline, so the peak in terms of the ships on order has passed and that number will steadily decrease as we go forward. So our shipyard orders have slowed throughout 2007 and certainly into 2008. The reason for this really is the passing of the peak associated with the Qatari projects. The first Qatari ship, the so-called Q-flex vessels, the larger, slow speed diesel ships delivered its first cargo at the end of last year and several of the ships are now delivering, awaiting going into their intended trade at the startup of the Qatari projects.

Looking at the market for transportation in the shorter term, the quarter four, which is what we are talking about here today, was very much strongly influenced by trading into the Far East. It has been reported that some of the bigger players such as BG have had fleets of close to 30 vessels, pursuing the arbitrage that opened up between East and Western markets.

As the winter is now passing and we are moving into the more summer months, a sort of more conventional trade pattern is starting to emerge with less divergence into the East. There have been some more recent spikes with issues in Turkey associated with pipeline gas disruptions in Spain, but these are short in duration.

So as a consequence of trading patterns resuming to more normal markets and the continuing addition to the fleet, the sort of tonne-miles equation is in decline and we are seeing that starting to impact a little bit on rates.

On the upside, we have certainly seen both China and India being more active in the market and showing quite some appetite to purchase and process spot cargoes of LNG and our view is that there still is opportunities out there for the existing players like Golar to be profitable and to continue to employ the ships.

Turning to slide 14, the portfolio slide and there have been some changes on this slide, so I'll quickly run through the vessels and point those out to you. Golar Mazo, no change. Spirit, I will talk about in a moment, but she is now in the yard and undergoing conversion, ready for delivery to Petrobras as our first FSRU in a few months time. Golar Freeze, we are close to hopefully finalizing employment for her at the end of the current charter as an FSRU. We are also in discussions with the current charter on Freeze about extending her period of employment up until the time when she goes into conversion and perhaps taking one of the other vessels back somewhat earlier.

Khannur, Gimi and Hilli unchanged other than it is potentially or it's likely that we will take one of those vessels back earlier than intended in exchange for extending Golar Freeze. Methane princess continues on long-term employment. Golar Winter is fixed out until October of this year, at which time she will undergo conversion to performance Petrobras, its second FSRU. Golar Frost is a vessel, which we have agreed in the last quarter to sell to the Livorno joint venture and that was the vessel I covered in the highlights.

Gracilis, Grandis, Granosa have all performed well in quarter four of last year as ships trading for Shell and we hope that that continues into the coming quarters. Granatina is a new vessel onto the portfolio. That transaction is now completed and she will charter to Shell for the balance of this year before becoming available for other business. Graham mentioned that we are pursuing an opportunity with Petrobras for a further FSRU and that she is a platform for that bid to Petrobras. The final ship on the list is Ebisu, which is a vessel we have chartered in from BP and indeed, we have recently concluded her first and maiden voyage with a charter back to BP.

Moving to slide 15, in terms of the fleet, after a somewhat busy summer period, it is pleasing that there were no dockings scheduled or carried out in quarter four. Overall fleet utilization has been busy as Graham and I think also previously mentioned, so the vessels have all been trading pretty much at capacity throughout the quarter with, of course, the exception of Golar Spirit, which is currently undergoing conversion.

We have had some technical difficulties with the Hilli associated with the turbo generator, but these are being resolved and the vessel is again trading normally. And I think also as Graham mentioned, we continue to face some pressure on operating costs, particularly associated with crewing and this is causing us to think a little bit more differently about how we approach both retention of crew and the cost -- those crew costs.

Slide 16 is really an introduction to the projects and really tries to present to you the way we think about projects and the way we like to think about Golar transitioning into a somewhat broader based company. So we basically are saying that Golar continues to want to remain in the transportation sector. We still see that very much as part of our core business, but clearly looking to move into the regasification arena, which we have been doing with FSRUs and progressively, we are getting more interested in pursuing opportunities in floating liquefaction as well.

Slide 17 addresses the projects currently under execution. Golar Spirit currently in Keppel shipyard in Singapore. The yard team is at full strength. The shipyard is fully mobilized and that conversion is underway. All the major equipment items needed to effect the conversion are in the yard and the delivery to Petrobras remains on schedule for Q2 this year. As the peak for Golar Spirit passes, Golar Winter steps in and takes its place. At the moment, the design activities for the Golar Winter conversion are at full strength.

Similarly, we been having a lot of work going on in the quarter in support of some of the newer business opportunities, which are starting to firm up and they, in part, are addressed on slide 18 and the first of these is the Golar Freeze FSRU, which is a project targeting 2010 delivery and also targeting signing of the charter parties in the early part of this year.

Similarly, Golar Frost, where the vessel has been sold or the MoU has been signed, the vessel delivery will take place around the middle of this year and that project is now working toward finalizing the contract for the conversion of the vessel.

And then a final word on the restructuring, which we have discussed at previous calls. The intent to pursue the restructuring remains as reported in previous calls. The progress toward and the preparation associated with the restructuring is now at a very advanced stage and simply, we are waiting the right opportunity to emerge for us to actually launch the restructuring. We have indicated in the press release that we believe that to be around midyear, quarter three of this year, and so that is the timeframe as we currently envision it.

That concludes the presentation material for this results presentation. But at this moment, we would be very happy to hand the call back to questions and answers.

(OPERATOR INSTRUCTIONS). Anders Rosenlund, ABG.

Yes, hi. I have a question on the Ebisu. I was wondering at what day rate are you chartering that vessel in at and also what kind of expectations do you have generating your margin on that business?

Okay, thanks for the question. I think I will decline the opportunity to answer the first question. Obviously the rate at which we charter that vessel in is somewhat commercially sensitive. I think I prefer not to disclose publicly the rate at which we hire her in, but the main reason for us chartering that vessel in was to maintain a presence in the spot market as our vessels, particularly Winter and Frost and Spirit are progressively being withdrawn from trading in the short-term spot market. Our name and our presence in the spot market was threatened by a lower presence and so we have taken the strategic decision to charter in Ebisu to maintain that presence in the spot market and our expectation is, at least for 2008, is that that should be a zero sum position. It should basically wash out by year-end.

Okay, I also have another question and that is on Golar Freeze. You have been reluctant to disclose who the counterparty on that contract might be. Could you give us some more information where it geographically is located?

Sure. I would love to tell you the counterparty and the location; unfortunately, I am bound by a confidentiality agreement, which, at the moment, precludes me from doing so. But I am prepared to say that the location is a Middle Eastern location and probably that is as much as I should or could say.

How far has this project progressed? Is there a memorandum of understanding? Is there any tensions agreements?

We are at, I would say, the very final stages of the project. There certainly has been an MoU in place for more than a year as we have developed this opportunity. We now have a charter party essentially fully agreed, a technical work-out, which is essentially complete and I am hopeful of this thing being resolved in the near future. I should stress it is not yet finalized.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Ben Nolan, Jefferies.

Hi, Gary and Graham. I had two quick questions for you. I believe that you said just a little bit ago on the Ebisu that it had recently been delivered from the shipyard and was on her maiden voyage. In the press release, you said it was due from the shipyard in June. Is it something that we can expect to earn in say the second quarter or will it be further down the line?

Sorry. I should correct that. It has not yet delivered. It will deliver from the shipyard probably in June and her maiden voyage will be with BP. So our earnings will really start from Q3.

I see, okay. And then also I was just curious if you have any additional color as to any further developments in the Livorno project other than, of course, the agreement to sell your vessel to it. How is it progressing and when may you begin to see some actual revenue generation perhaps from that project?

Okay. The Livorno project is somewhat different to say the Petrobras projects where we are providing the assets to the project and earn a higher -- with Livorno, we see it as part of the joint venture in owning the vessel. So the big transaction for Golar is the sale of the vessel and we have indicated the vessel will transfer ownership by the middle of this year. Then the vessel will probably continue to trade in the period between transfer of ownership and being taken out of service to go into conversion and the current schedule has that vessel then returning to service as an FSRU for a 20-year period beginning sometime in the first half of 2011. So income, which will be in the form of some dividend stream to Golar from the [higher], or from the use of the terminal might commence until 2011. Although the proceeds from the sale of the vessel we should see around the middle of --.

This is Graham. We expect to have an equity interest in that JV company of between 10% and 16%.

Okay. Well, that is all the questions I had. Thank you very much.

Urs Duer, Lazard Capital Markets.

Hi, gentlemen, can you hear me? Great. Thanks. Nice presentation. I just have a very simple question. Mine have been asked. But on the dividend policy going forward, does this dividend represent any change? I mean you did mention that this is hoping to be regular, but as we know that you are somewhat opportunistic with dividends, which is fine, does this represent any dividend policy change at all or is this just consistent with historical?

I think we are saying that our intention is to try and pay a regular dividend. As you say, the Company is opportunistic, to use your words and we have got a lot of projects and developments going on and obviously the results vary. So the goal right down to the minute is not quite the same as a high-yield type vehicle, but we do have a sort of strategic objective of paying -- trying to pay a regular dividend.

Okay, so it is reasonable to model at least a modicum dividend going forward, not necessarily the $0.25, but to expect something quarterly or is that fair?

I would say that's fair, yes.

Okay. Great, that's all I have. Thank you very much.

(OPERATOR INSTRUCTIONS). Rachid Bendriss, Carnegie.

Good afternoon, guys. Two quick questions, one on the sale of the Golar Frost. What should we think about in terms of the gain that you presumably will be realizing on that sale? And secondly, the proceeds [seen] up against your ownership stake in the joint venture?

The gain, Rachid, will be in the ballpark of $70 million. The book obviously in the ballpark of $70 million to $80 million. I'm sorry. I didn't quite catch the second question.

Yes, the second question was related to the proceeds, that $231 million. Is that going to be all cash proceeds or are you taking part settlement in terms of your equity stake in OLT?

Oh, I understand. Well, it will be cash proceeds. Obviously, we have got some debt to pay on the vessel, which is again very approximately about $100 million and we will have additional equity to pay in for our share of our 10% to 16% of the final project equity requirement. Although we would expect the project to be financed around sort of a 70%, 75% debt to equity level. The actual equity requirement out of our cash proceeds will be certainly a minority.

Right. And if I can follow up on that one, any news on kind of what kind of equity requirements (inaudible) OLT, the entire project on a 100% basis.

Yes, I don't think they have announced exactly what the expectation of the capital cost is going to be, but I mean in terms of our equity requirement, I would expect that it is going to be around about, somewhere in the region of $20 million to $30 million.

Okay, that's great. And finally, on the third Petrobras FSRU, I mean there has been constant talk about that since at least the June of last year. Can you give us any flavor on kind of how things are going, what is pushing it and where you see this going from here?

Yes, you are quite right. The invitation to bid came out around the middle of last year. There were some delays introduced by Petrobras in the bidding process, but I think we are now in the final stages of the process, so there have been clarification meetings in recent weeks and I think a very short list now is I think prepared and we remain hopeful of hearing something in weeks, certainly no more than the next couple of months.

Okay, great. Thank you.

Gentlemen, there are no further questions in the queue at this time.

Okay, then we thank people for their participation and we look forward to joining you at the end of Q1 2008. Thank you very much.

Thank you. Goodbye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.