Golar LNG Ltd (GLNG) 2008 Q2 法說會逐字稿

Welcome to the Golar LNG Q2 2008 results presentation conference call. 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 very much, and welcome everyone again to the Golar Q2 highlights presentation. The format will be similar to previous presentations, I will lead off with the highlights, hand over to our CFO Graham Robjohns to run through the financials, and then I'll come back and talk a little bit more about the industry and some of the projects that we are involved with.

Starting on slide three of the presentation pack, sorry, slide four, which is the highlights, on top of the list, and very much in the front of our minds has been the delivery of Golar Spirit to Petrobras. In fact, if you have a chance to flick back to the cover of this presentation, you'll see a photo of Golar Spirit lying off the coast of Brazil, waiting to perform there under the 10 year time charter.

We concluded the sale of Golar Frost to the Livono joint venture OLT-O, so that was concluded, unfortunately not in the quarter, we concluded that on the 2nd of July. In joint venture with Bluewater, an FPSO company, we have acquired the Gandria from [Hogue], and we're using that vessel as the basis of our bid to PetroSA in South Africa for an FSRU project.

Literally within the last couple of hours we have reached and signed an agreement with PTTEP of Thailand to jointly pursue FLNG production opportunities, and I'll come back and talk a bit more about that in the main body of the presentation.

On the short term it's been a difficult quarter for us, we've struggled, along with other industry participants to earn a satisfactory return in that market, and I'll comment a little bit more about that.

During the last quarter presentation we announced with intent to convert the Hilli into an FSRU, and progress is now underway on that conversion.

And then finally it's the intention of the company to pay a cash dividend of $0.24 per share. At that point I'll hand over to Graham and he'll take you through the financials, and then I'll come back and talk in a bit more detail.

Thank you Gary and good afternoon everyone. As Gary said, this has been a difficult trading quarter for spot vessels in the LNG market, and this has not been helped by a number of other factors that have occurred this quarter. Firstly the end of the Hilli charter to BG and therefore her redelivery back into this relatively weak spot market. Second is the extended dry dock of the Khannur, it's a fairly long dry dock period, due mainly to the long deviation time that she took to deviate from her charter to the shipyard in Europe. And we also had a few delays at the yard. Thirdly the expensive fuel costs, that are obviously hitting the entire shipping industry, have hit us particularly hard this quarter because of the increased number of off hire days as well as the increasing cost, and that's of course because under a time charter when the vessels are on hire the charterer pays fuel costs, but when the vessel is off hire, either in waiting or in positioning the vessel, then we would pick up the fuel costs. And finally, because the Spirit has still been in the shipyard undergoing her conversion for the majority of the quarter.

However, looking forward to Q3 we do expect some improvements in spot ship earnings, although we do have two vessels dry docking next quarter, the Princess and the Granatina, although we would anticipate that the total efforts of hire time for those two vessels would actually be slightly less than was incurred for the Khannur.

And most importantly, I guess, we have the Golar Spirit, as Gary has mentioned, has arrived in Brazil and she will effectively go on hire from the 22nd of July. So overall we see an improvement in the revenue line next quarter.

So then moving on to page five of the presentation, in the revenue graph you can obviously see the drop in revenue. That is, albeit Q2 of the year is historically and typically a weak quarter for the spot market. And of course this drop in revenues reflected in the low average TCEs, which is also of course again influenced by the high voyage expenses.

Net revenue is calculated after deducting voyage expenses, and by doing this it makes the TCE number comparative indicator whether a vessel is on a voyage charter, where the owner pays voyage costs, or whether it's on a time charter, where the charterer pays the voyage costs.

Moving over to page six, key financials, EBITDA and operating income are down as a function of the falling net revenue. Net financial expenses have been dramatically impacted by the swing in interest rate swap valuation movements, which were a gain of $18.6 million this quarter as compared to a $15.8 million last quarter, which is caused of course by the increase in long-term interest rates, which are now pretty much back to where they were at the beginning of 2008.

You can also see the vessel numbers are constant, time charter rates we've already covered, and ship operating expenses, which are pretty much in line with the previous quarter on a daily basis.

Moving over to slide seven, the income statement, obviously I've covered revenues on the operating expenses. The increase over the same period last year is due to the addition of the Granatina to the fleet, and also, to some extent, pressure on crew costs. Voyage expenses we've discussed. Administrative expenses are reasonably consistent. Depreciation is slightly reduced, and that is because the Golar Frost, which is an asset held for sale during the second quarter, has not been depreciated. Net interest expenses are down this quarter due to lower floating interest rates. And other financial items, where we see a large gain this quarter of $19.5 million as I have discussed on the previous slide.

Moving over to page eight and the balance sheet, a 1.2 note on the balance sheet assets and it also affects balance sheet liabilities. The Golar Frost sale, as Gary mentioned, occurred on the 2nd of July, and so the fixed assets available for sale there of $153.2 million, which represents the Frost, that will disappear next quarter, as will approximately $100 million of the current portion of long-term debt on the liability side of the balance sheet. And of course the cash balance will increase.

Then moving over to balance sheet liabilities, you'll also note down at the bottom of that slide that we have taken further advantage of the low interest rate environment. I know I've said that long-term interest rates have increased recently, but our last fixings were done back in May, and we now have effectively fixed long-term interest rates at around 73% of our total debt, with an approximate average interest rate, exclusive of the margin, of about 4.5% and with an average maturity of approximately 5.3 years.

On the cash flow, there's not too much to say here. We have been investing, obviously, in the conversion of our vessels, and that is the vast bulk of the $32 million on the line additions to new buildings, vessels, and equipment. And of course, as I mentioned, the sale of the Frost is going to impact this statement significantly next quarter.

On slide 11 is the analysis of interest expenses, where you can see the big variation between this quarter and last quarter, and the net interest rate swap gain/loss, $18.6 million gain this quarter, prior to minority interest; and $15.8 million loss last quarter.

Okay, after that brief summary I'll now hand back to Gary to carry on through the market section.

Okay, and thank you Graham. Just picking up now on slide 12, and some comments about the LNG market generally; the market continues to be characterized by really very strong demand for LNG. I think particularly in this high oil price environment a lot of people are trying to shift their energy mix toward gas. The disappointing part of the story is that there's very little cargo uncommitted, available for sale.

Coupled with that, there have been some outages of some of the Atlantic LNG producers, and the ongoing story of delays for a number of the new liquefaction plants. There is now quite a raft of LNG plants or [trains] scheduled for start up over the next six to nine months, and so there is a very real chance of restoring the change in the next six to nine months.

There's been some interesting pricing phenomenon for gas, and consequently LNG that we've been observing over the last quarter. There's been quite a large spread between summer and winter prices. The forward curve has been quite deep, which has caused a few things, it's caused buyers to start thinking about plotting storage, and there's a few opportunities kicking around in the market right at the moment around that. Producers are also putting a premium on spot cargos to try and capture some of that opportunity for themselves as well.

So the overall market is characterized, I guess, by tight production, some interesting spurts, particularly summer/winter levels of the Atlantic/Far East, and the prospect of some slight supply coming on stream over the next six to nine months, and also a slackening of demand, potentially, in the US, as there seems to be unconventional gas and Canadian gas coming into the market and allowing LNG to be diverted to perhaps more profitable markets.

Moving on to slide 13, and looking at the transportation market, as Graham and I have both comment, the rates for spot ships have been unsatisfactory for the last quarter, and probably will remain that way for a little while longer. To the extent there is a good note to this story, it seems that the reluctance to allow trade vessels below $40,000 per day. So in previous long markets we've seen that number go lower, but it doesn't seem to have happened this time around. So there is a reluctance to completely trash the market.

But ship owners have been forced to assess their exposure, and it's really a double exposure, it's the length in the supplier shipping, but also this increasing bunker cost, which is causing everyone to think seriously about where that division ships, and to the extent they are prepared to reposition to pursue opportunities.

On the new building side, there's not a lot to talk about. Prices are reportedly on the rise, but there's been not a lot of activity in terms of ordering new tonnage, to it's not that easy to verify the talk of increasing prices.

In the quarter there has also been some activity around commissioning new markets, the Costa Azul in Mexico and Bahia Blanca is in Argentina, both new markets for LNG, and so it's a sign of the market becoming a little bit more global, and the demand on ships to commission these facilities has been very welcome.

I've commented also about the seasonal demand, but also there's been a shift of new markets pulling away from some of the more traditional markets. In particular, in Asia we see India at the moment being a very strong buyer of LNG, and in China they're also now back buying spot LNG. And with the Argentinean terminal now up and running, and [Valen] terminal in Brazil South America for the first time is starting to feature as a supply destination for LNG.

The last dot point on this slide just tries to quantify some of the value that's available in some of the spreads that we've been talking about, from $7 to $9 of spread over the seasons, which translates into something like an extra $20 million of cargo, which provides quite some incentive for the traders to do something and that's the market that's being looked at, at the moment, albeit with the crude oil prices coming off, gas prices have started to do the same. So, it's a much more fluid situation as we talked about.

Slide 14 gives some specifics about the shipping fleet. As of the end of Q2, the fleet stood at 270 ships; 28 new ships delivered this year. Now we've got a further 112 on the order book. There are six vessels ordered year-to-date, which is a significant drop off from what we've seen in previous years.

Of interest, for the first time now, we are seeing scrapping of oil vessels. I should add these are rather small and older vessels so they're not having a significant impact on the tonnage situation. But nonetheless, it's a sign of nothing which we haven't seen in LNG shipping too much, at least. And then, the first of the very big Q Max ships to [Qatar] was named and is about to go into service immediately.

On slide 15 is the portfolio slide. We redid it a little bit to separate out the long-term charters and the shorter-term charters at the bottom of the slide. The other two significant changes in the slide have been the addition of the Gandria at the bottom, which is a vessel we've purchased from Hogue in joint venture with Bluewater for the PetroSA FSRU opportunity. And, of course, the sale of the Frost, although we still maintain an ownership stake for the joint venture participation in our OLT-O.

Moving to slide 16, Fleet Highlights, I'm going to talk a little about the Khannur Docking, which was extended by about a week, due to some industrial problems in France, where she was being docked. Her utilization has been low because of the state of the market. Because we've had Khannur in dock, Hilli returning and Frost, in particular and the shell ships have not traded as well as we would've liked, or being utilized as well as we would have liked, we are taking steps at the moment to reduce our operating costs of Hilli and Gandria. We're returning to the ability to remobilize those ships at fairly short notice but we are doing what we can to minimize costs in recognition of the fact that those two ships are unlikely to trade in this current market for some time.

A lot of activity around Golar Spirit; she left the Skiffle shipyard on the 11th of July; sorry, the 11th of June, that should say and sailed to Trinidad, where she collected her cargo and is currently sitting off Brazil and has been there since the 22nd of July, waiting for Petrobras to do the final completion of the shore side facilities before we complete commissioning. To some extent that's been to our favor. It's a way for us to get on and commission the vessel as far as we can, whilst we're sitting off Brazil. Plus that, when we come alongside, the remaining activity should be relatively shortened, as a result.

Granatina is currently in Singapore in Sembawang, going through docking and similarly Methane Princess will dock later this month. Those dockings won't incur, at the same time, all [deviation] costs we did with Khannur. So, the impact of those two dockings should not be as significant as would have helped with Khannur this quarter.

Moving on to slide 17, just a slide to summarize where we are for various FSRU projects. As I've said, Golar Spirit is now delivered to Petrobras. The vessel's been loaded and commissioning has commenced and, if you glance across to the picture to the right of that top point, you will see a photo of the regas skid.

Golar Winter is currently on charter but we will enter Keppel early in October to commence her conversion and, in turn, we'll deliver to Petrobras as their second FSRU in quarter two of next year.

And with Golar Freeze, which is the vessel committed to the Dubai FSRU project, we're now well into detailed engineering; all the major equipment items for that conversion have been ordered. But we're still some way off from the conversion actually commencing.

And we've previously mentioned Golar Frost; the sale has been concluded and we have, in turn, chartered the vessel back until June next year and we'll trade the vessel until she's ready to go into conversion. And we've been quite fortunate in securing a decent charter for her for at least the next 140 days.

With Hilli, we are going through the process of placing orders at the moment for the long lead items. Our intent is to secure a delivery of that vessel as an FSRU within 2010. We believe being able to deliver quickly puts us at an advantage versus the competition that's out there.

And then finally, the Gandria; the Gandria is being used in a competitive tender to PetroSA. It's a project which we are executing in joint venture with Bluewater. The reason for bringing Bluewater into this project is that they have exclusive access to this tandem loading/offloading technology. So, it's the transfer of cryogenic LNG through flexible hoses. And the artist's representation to the right of the slide gives you a sense of what it is we're trying to achieve, where the FSRU is [permanently] at anchor and moored. And the shuttle vessel delivers LNG to the FSRU through a barrel offloading flexible hose system, which is the technology that Bluewater markets. And it originally was delivered by BHP.

That's the FSRU projects and then, just to conclude the presentation on slide 18, it's worth saying a couple of words in relation to the agreement we signed today. For those of you who follow the company, you would probably be aware that we've been, for some time now, working up our FLNG capability. We kicked off in June of 2007 with a study, which we sought the aid of McKinsey with trying to get our heads around the most appropriate strategy and approach in partner selection for Floating LNG.

Floating LNG involves really three areas of technical challenge; one being the containment of LNG, which is a technology which we're very familiar with. It's really what we've been doing or the last 30 years with our shipping.

The second area of technology is the transfer of LNG between the production vessel and the shuttle vessel. And again, we feel quite comfortable with the technical challenges there because they are, indeed, no different to what we're doing in our various FSRU projects. And a point about there is the Bluewater project, which we're doing for the Gandria, pushes the envelope of LNG transfer through flexible hoses.

The third area for Floating LNG where we are facing, for the first time, some new technical challenges has been in the process design. We've had some involvement in that through our association with LNG Limited but, doing it offshore, really is quite a different story. And so, Q4 of last year, we engaged [Kamper] Aragon to do some technical concept studies for us. And really, the combination of the McKinsey study and the Aragon study positions us, then, to start talking with prospective partners to work with.

Our view is we wanted to work with a strong upstream partner and use our capability to design an asset to suit our particular field, rather than develop a generic asset and then try and find a field to suit it.

We've spoken to a few people and we're very pleased today to have announced the relationship with PTTEP. It involves both companies working together to identify fields and then develop those fields into projects. The two companies have very complementary capabilities. Clearly PTTEP are a strong BMP company. They understand what happens below the surface of the earth; we certainly don't. By contrast, we have a strong history and capability in LNG and in developing midstream LNG projects.

The concept is that we would develop projects on a risk-reward sharing basis. We would look to roll this approach out on a worldwide basis and we have a very aligned mind set when it comes to strategy, growth and mode of execution.

So, we're very excited about this announcement and we think it really just completes our elements of the midstream strategy, having secured now, the [parting] terminals to make this next step into [floating liquefaction] for us is then a very important next step in delivering the midstream strategy.

I think at this point I'll conclude and turn the call over to questions.

(OPERATOR INSTRUCTIONS)

Our first question today comes from Urs Duer from Lazard Capital Markets. Please go ahead, sir.

Good morning guys. Can you hear me?

Yes we can, Urs. Good morning.

Yes, we can.

Actually, sorry; good afternoon; excuse me. I've been on four hours sleep for a few days here. Just some questions and this is the most particular on, on the Golar Spirit. So, what do we assume now for on hire days in the third quarter then?

From July 22nd.

From July 22nd, okay great. And then a little bit more on the spot market. You said one to three years improvement in the overall market. Is there any sort of horizon that you can give us in the nearer-term, say, what you expect to develop for the third quarter as well as for the fourth quarter in the spot market? And, in terms of, maybe a guestimate rate?

Yes. Activity is certainly on the increase.

Yes, yes.

So, right at the moment, apart from the Hilli and Gandria, which are somewhat special cases, [several] ships, I think.

Yes.

And rates are on the improve. So, we're talking the high 40s, rather than low 40s at the moment. And our expectation is that we'll climb modestly, as we move into the winter months. It's pretty hard to know how that will go. I mean, if there is a rush for loading cargoes, in the anticipation of stronger winter months, then it could conceivably go well above the 60s. But it's not easy to predict, I Think, assuming a normal sort of market, then, I don't know. I mean, I can certainly see numbers north of 50.

Okay; great. Thank you very much; that's helpful. And then a little bit on page two of the release, just to discuss, possibly, dividends, going forward. It's been mentioned before on the gain on the sale of the Frost, the $78 million and just the way the verbiage is, in the past Golar has had some special dividends or one-off dividends. Are they completely ruled out now? Or are we looking at--.

No, they're not completely ruled out, Urs, but I think, you know, the message is that we have a goal; we set out a goal to maintain a steady dividend. But if we have surplus cash, in common with all John Fredriksen companies, or companies that John's involved in, we will pay it back.

Obviously we have Cap Ex commitments on some pretty exciting projects, and we have some interesting investment opportunities, all of which, we believe, will be accretive to shareholders. So if we have places to invest the cash, which we believe will be a benefit to shareholders, that's what we will do. If we don't, I can assure you, we will give it back.

Okay, very good. And then just the terminology, optimized capital structure of the company, can you discuss that a little bit? I know in the past there's been some discussion of possible spin offs.

I think that was really a convoluted way of sort of saying what I've just said, to be honest, but we're not going to sit on piles of cash.

All right, I've got you, all right, well thank you very much for that then, and I appreciate it.

Thank you. (OPERATOR INSTRUCTIONS) We now have a question from Anders Rosenlund from ABG, please go ahead sir.

Thank you. Could you comment more on the restructuring of the company?

I'm sorry Anders, I didn't quite catch that.

Could you comment some more on the potential restructuring of the company?

Okay, the restructure we are still committed to, absolutely, and as we said in the press release, the sort of end of Q3, beginning of Q4 is still a target date. As we all know there's been some turmoil in the financial markets generally, and that has had, or has been, a factor in the delay in the process, or somewhat delay in the process. But we are still committed to it, and that is still a target for us.

When do you think you can inform the market about stuff like structure and things like that?

Well it will be sort of shortly, around about that time. As I say we're thinking end of Q3, beginning of Q4.

So when you say Q3/Q4, that's a launch of the restructuring?

Yes, so we would expect to announce publicly what is happening prior to the launch of the actual restructure, shortly before.

Will the restructuring involve new equity and/or refinancing of debt?

I can't really say any more I'm afraid.

Okay. And I have another question, what's your current or remaining Cap Ex commitment? If you can split it into the remainder of 2008 and 9 and 10 maybe.

It is approximately, from where we are now, about $70 million to $80 million for 2008 and about $70 million to $80 million, maybe $90 million in 2009 and 10.

Okay. Well I think that's all, thank you.

Thank you. (OPERATOR INSTRUCTIONS) we now have a question from Chris O'Neil from Steinberg Asset Management, please go ahead.

Good morning guys. Congratulations on that announcement of that deal with PTTEP, it's a big deal. I'm sure kind of the more detailed terms you just can't get into right now, but broadly speaking would it be just that PTTEP would be the end of the molecules and you will jointly develop those molecules? Would they have any role in the off-taker side as well? Could you just talk briefly about how the border dynamics of that arrangement may pan out?

Sure. I mean the projects will each be a little bit project specific, but the general principle is we jointly share the risk and reward, which means that Golar will have equity molecules in the production, along with PTT, so this is more than just an asset play, this is us taking a position in the upstream, producing the LNG then selling the LNG. Because Thailand has recently entered the LNG market then there is obviously a desire on their part to acquire our equity production and clearly we would be cognizant of that in anything we set up.

Right. And would there be some aspect for getting some kind of a day rate from an FLNG vessel that would be submitted into the consortium?

Yes, I mean obviously we're not at the point where we are detailing the structure of specific projects, but there are, if you like, two elements to this; one is the provision of the assets, because it will be more than just the FLNG, it will also be the transportation of LNG and whatever investment that might be required in the upstream. But there's also the more merchant side of this switch involved; the sale and purchase of LNG.

Fantastic, well very exciting, so well done guys, and thanks for that, I appreciate it.

Thank you. We now have a question from Simon Ellis from ICIS Heron Capital, please go ahead.

Good afternoon gentlemen. Just another question on the PTTEP deal, I wondered, I'd seen of your FSRU use you attempted to convert existing vessels into floating storage and regasification, question one is, is this something you would try and repeat with floating production vessels? And the second question is, do you have a timeline for when you might have your first floating LNG vessel available on the market?

Okay, we've tried to understand the whole FLNG opportunity, and in doing so, broken that market down into three traunches. At the very small end, indeed, you would see the conversion of an existing LNG carrier to liquefy LNG and then trade it, and indeed, there is one opportunity which we are looking at that involves that type of thinking. There's sort of a middle traunch which we have publicly spoken about previously, which would involve putting a liquefaction kit on the deck of a oil tanker, a bit like an FPSO conversion, and running down continuously into existing LNG carriers. And then the final traunch is a much larger size of project, which people like SBM, Shell, Hogue, Flex, have talked about at some length in the market.

What we've said is we're not going to restrict ourselves to any one of those traunches, and in fact if there's an attractive project in any one of those traunches, then we will pursue it. So that's the first part of your question.

In terms of timeframe, there's quite some motivation on the part of both parties to get on and get this done quickly. Thailand, as a buyer of LNG, clearly sees the benefit of this as a route to LNG, and clearly we as a company focused on developing these sorts of projects, and I would argue now with some track record of delivering projects on a fast rate basis (inaudible).

Okay, thank you Gary.

Thank you. As we have no further questions, I'd like to turn the conference back over to you gentlemen for any additional or closing remarks.

I don't think there's any particular remark we would like to say other than thanking everyone for their participation, and we look forward to repeating this call in a quarter's time. Thank you very much.

Thank you, and goodbye.

Thank you. This will conclude today's conference call. Thank you for your participation ladies and gentlemen.