Golar LNG Ltd (GLNG) 2008 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Golar LNG third quarter result presentation conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Gary Smith. Please go ahead sir.

Thank you very much and welcome everyone to the Q3 results presentation. The format of this presentation will be similar to previous quarters; the agenda you will find on slide three of the slide pack.

I'll lead off with a quick summary of the highlights from the quarter, then hand over to our CFO, Graham Robjohns who will take us through the financials. Then I'll come back and talk through the portfolio, some highlights from the fleet over the last quarter; an overview of the market, particularly the short-term market; and then a summary of where we are with our various mid-stream business development activities.

So beginning with the highlights which is down on slide four of the presentation. The short-term market has favored us slightly over the last quarter. We've seen both improved utilization of the vessels and a slightly improved time charter equivalent for the quarter which was pleasing.

Golar Spirit, as we reported last quarterly results presentation, has arrived on Spirit -- has arrived in Petrobras sorry and is now on hire and has been on hire since July 22.

A lot of activity within the Company over the last quarter on our various liquefaction initiatives. Firstly in developing and finding LNG opportunities in partnership with PTTEP, and good progress has been made there. Similarly we're very pleased with the progress that LNG Limited are making on the Gladstone project which is a project we seek to take a material stake in. We've been able fortunately to sign a $285 million new credit facility in this rather challenging market.

And finally, we're very pleased to be able to again declare a $0.25 per share dividend for the quarter.

I'll hand over to Graham and then come back and talk in a little bit more detail about some of the business activities. Graham?

Thank you Gary and good afternoon everyone. Starting with revenue on slide five, you can see we have an increase in net revenue from around $42 million to $47 million from Q2 to Q3 and a consequent increase in TCE from $39,900 last quarter to $41,400 this quarter.

As Gary said, we have seen some improvement in spot rates during the quarter and utilization was improved. In addition, the increase in revenue is due to the contribution from the Golar Spirit as she went on hire, again as Gary said, on July 22 with Petrobras. Although this has been partly offset by the dry docking of the Methane Princess and the Granatina. The Hilli and the Gandria remained in lay-up throughout the quarter and will continue to remain so in Q4.

Also in the fourth quarter, the Golar Winter will commence her conversion into an FSRU throughout the period. But the Golar Spirit will be on hire for the full quarter. We also anticipate an improved contribution from the Company's spot market vessels and there will be no dry docks during Q4.

Moving over to slide six where we have key financials that run back over the last few quarters. Obviously the transaction with the biggest impact on Q3 is that of the sale of the Golar Frost which resulted in a gain of some $78.1 million and was the major contributing factor to the EBITDA result of $105.9 million and net income of $51.7 million. Although this has been in part offset by the loss on other financial items which I will come back to a little later.

Average daily OpEx was down to $12,192 million this quarter. This has partly been helped by the reduction in operating costs for the Golar -- for the Hilli as the vessel is in layup and that has been done obviously to reduce the costs on the vessel. But also to some extent by a strengthen of the US dollar against other currencies because some of our operating expenses are incurred in currencies other than US dollars. And obviously whilst the strength of the -- or the relative strength of the dollar retain -- remains we will see that improvement sustained.

Moving over to slide seven, the income statement. Gross revenues are up at $58 million from $52.5 million last quarter. To arrive at the numbers we referred to as net revenue on the revenue slide, we deduct voyage expenses from operating revenues. And that revenue is the basis of the average daily hire rates or TCE time charter equivalent rates that we refer to.

Voyage expenses continued at a high level this quarter. This is partly as a result of the level of utilization of our spot vessels because when they're not on hire we pay the fuel costs. But it's also a function of the very high cost of fuel. Moving forward, the declining price of oil should help reduce that cost from Q4 onwards.

Apart from the gain on sale of the Frost, the other major impact on our income statement this quarter was other financial items, as I mentioned earlier, with a loss of $23.1 million. And again I will refer to that a little later in a later slide.

On page eight we have balance sheet assets. I don't have too much to say here other than just to note that our joint venture with Bluewater in connection with the acquisition of the Gandria has been equity accounted and is therefore included in equity and net assets and non-consolidated investees.

On the liability side, as Gary mentioned, we signed a $285 million new credit facility during the quarter. That represented a refinancing of the Methane Princess and the Golar Spirit and provided an additional -- approximately an additional $80 million in liquidity to the Company.

The level of our debt that has been swapped to a fixed rate of interest is currently around 74%. And if you look at our total debt after drawdown of the new facility, to which I've just referred, our total debt and capital lease obligations net of restricted cash, the balance is approximately $1.1 billion. And the total cost of that, if you take into account the interest rates on our swaps, if you assume the three month -- current three month LIBOR and add on our average margin, the total cost comes to approximately 4.75% per annum.

In cash flow on slide ten, the key movements in our cash flow this quarter are the sale proceeds of Golar Frost and the related repayment of the associated debt together with our continued investment in FSRU projects.

Then moving over to slide 11 on financial expenses. Debt interest expenses down this quarter due to the repayment of the Frost loan during the quarter, and also to lower short-term interest rates over the period.

Other financial items which I said I'd come back to, which amount to a loss of $23.1 million, is made up principally of a loss on interest rate swaps of $9.8 million as we've seen a reduction in long-term interest rates. Also FX losses; this relates to re-translation of lease balances which is a non-cash movement. But also we have in place currency forward contracts in respect of the non-US dollar expenses associated with our FSRU CapEx where we've hedged those non-currency expenses and as we have seen the US dollar strengthen, so a loss arises on those forward contracts. Of course, it's an accounting loss now on those swaps but as I mentioned earlier, actually a strong dollar is a good thing for us moving forward as it reduces our costs and expenses that haven't been hedged of course.

The final main component is a mark-to-market loss on equity swaps which principally relates to an equity swap which we entered into during the quarter -- in the quarter in relation to a company called Arrow Energy which is an Australian listed company. We entered into a swap with respect to 13 million shares which is approximately 1.9% of Arrow's share capital. Arrow is the proposed gas supplier to LNG Limited's Gladstone LNG project which Gary will come on to talk a little bit more about later.

Okay, I think that covers the summary of the financial results for the quarter and so I will hand back to Gary to continue the presentation. Thank you.

Thanks Graham and I'll pick up on slide number 12 which is the rather familiar Golar portfolio slide. Only really two comments to make about this slide. As we have previously mentioned the sale of Golar Frost. On sale of Frost, we have chartered her back on a bareboat basis and have been able to re-let the vessel and she's traded profitably throughout the quarter three.

And the other point of note is we have taken delivery of the Ebisu towards the end of the quarter, so right towards the end of September, and again have been able to immediately charter her out through until approximately the middle of next year, and again that has been done on a profitable basis. All the other vessels within the portfolio remain as they previously were, trading in their current charter party.

Moving to slide 13 and some of this we've touched on already. In terms of the fleet highlights, Methane Princess was docked in Keppel shipyard in Singapore from August 12. And at about the same time we had Granatina docking in Sembawang shipyard also in Singapore. Both those dockings went according to plan and both vessels are now back in service and performing as expected.

Golar Winter arrived at Keppel shipyard on September 29, so again right towards the end of the quarter. And she began her conversion to a floating storage and re-gas unit in advance of her being delivered to Petrobras during Q2 next year. To date that conversion is going according to plan. The re-gasification skid for that vessel has been manufactured in Norway by Hamworthy. The re-gas skid is currently in transit having left Norway en route to Singapore for installation.

In advance of that, the ship has been prepared to receive the re-gas skid and other associated works are all progressing to plan. All the equipment that we need to conclude that conversion is currently on order and so far, so good.

Utilization of the fleet has been improved over the quarter with some 83% of utilization compared to 78% in Q2. Those numbers on a like-for-like basis with Spirit excluded.

Golar Spirit herself arrived in Pecem in the north of Brazil on July 22. The vessel is actually scheduled to come alongside the jetty today. I can't say categorically that has happened, but that was the intention. In the period between July 22 and now we've basically been waiting for Petrobras to complete the refurbishment of the jetty where Golar Spirit will operate from.

In the period that Golar Spirit has been sitting off the coast of Brazil, we've been able to complete a fairly comprehensive and detailed commissioning procedure. We've been able now to run all the equipment associated with the conversion, so we've run pumps, the booster pumps, the vaporizers, the new turbo generator and proved the functionality of all the equipment installed. We've been able to tune instrumentation to the extent we're able to. What remains for us to do now is to complete the testing at full load and clearly we can't do that until such time as we are hooked into the receiving hardware on the Petrobras side.

Moving onto slide 14 and talking a bit about the market. On the LNG market side, we've experienced earlier Far East demand during the quarter but we're now starting to see that come off due to the events that are taking place in the wider economy. So whilst we had an earlier than anticipated build in diversions going East, it is looking at the moment like that will start to taper off and we won't see quite the peak that we have seen in previous years over the winter period.

Looking forward, we anticipate significant new liquefaction capacity coming on stream, close to some 70 million tons of new capacity over the course of the year which will soak up a lot of the surplus shipping that is currently available to the market.

With the Far Eastern markets a little softer than they have previously been, the Atlantic Basic becomes a more important destination for us, and in particular we see more cargoes heading toward the US and to Europe.

The shipping market has been roughly balanced during quarter three and we expect that to hold through Q4. We're not anticipating the higher winter rates that we might have expected in other previous years.

There has been some evidence of floating storage plays. We're aware that some of our own vessels have been used for these sorts of plays but I think right now, that opportunity has closed.

As Graham has mentioned, high bunker prices have also not only added to our costs but also in terms of positioning vessels and relocating vessels, has been a significant consideration where we place our vessels in anticipation of where cargoes might become available.

On the new build side, there have been no new orders and indeed one order from a Japanese owner has been canceled and replaced by another type of ship.

We're still very much encouraged by the level of activity that we see in the FSRU market. We continue to field a steady stream of inquiries and I think a lot of countries, particularly in the developing world, are seeing FSRUs as a way of quickly gaining access to LNG, which for them is an attractive fuel source. And I think with a growing length in LNG supply, the ability to actually deliver i.e., FSRU project becomes much more tangible and real.

On slide 15, we've just tried to indicate both the current status with regard to plotting storage terminals, not just Golar but Golar and our competitors. So you see quite a proliferation of terminals starting to appear. And we've also circled the area where we're seeing most of the interest from in terms of new business opportunities.

Unfortunately we were unsuccessful with the PetroSA opportunity. We had high hopes for that opportunity but unfortunately we've been advised that we've not been shortlisted. There are two players still currently in negotiation so the final outcome of that tender is not yet determined, but we've been advised it won't be Golar.

In terms of midstream business development activities, as I think I said in the introduction, liquefaction has been quite a focus for us for the quarter. And in liquefaction, we are pursuing two channels of business opportunity.

Firstly, in the area of floating LNG as we previously announced, we are working now in close cooperation with PTTEP. We have a very clear field first strategy. And activity over the quarter has been focused on screening stranded gas fields which we believe might be suitable for floating LNG, and then developing strategies for gaining access to those stranded gas fields. A lot of work in the screening process and moving now into the engagement with the owners and controllers of those various gas fields.

Similarly, on Gladstone there's been a high level of activity. Gladstone is the coal bed methane project being developed by LNG Limited and Golar is a 16% shareholder in LNG Limited. That project is now drawing to the end of the feed process, where the EPC contract will shortly be available for us to review from SK Engineering. The environmental permitting process is now at an advanced stage. The public hearings have all been heard and we're going through a process of dealing with queries and questions that were raised during the public hearing process.

There's been a process of selecting the equity participants in the project in the LNG offtaker from the project, and Golar has sought to take a material role as both an equity participant and an LNG offtaker, although in pursuing those roles, we have been doing that in competition with others. It's hoped that the announcement of the relative roles of the interested participants will be announced very shortly.

On the shipping side, the market conditions in the spot and short-term we've discussed already; market is flat and expected to hold through Q4. For us, it's been a period of building on existing relationships and making sure that we maintain our presence in this market so that we're prepared to -- we're in a position to benefit when things start to turn up again.

On the re-gasification side, Golar Spirit is now on hire and has been on hire since July 22. Golar Winter has entered the shipyard in Singapore and has begun the conversion process. Golar Freeze, which is the vessel destined for Dubai, is at the moment finishing the detailed engineering phase of her conversion. All the long-term lead items have been ordered and we're about to enter the process of selecting the shipyard for that conversion to take place.

As I previously mentioned, the market inquiry for FSRUs is strong and we continue to aggressively chase out and try and close those opportunities. I think we've very adequately demonstrated the attractive profitability of those projects in the deals we've already done.

At this point, I think we should stop the formal part of the presentation and we'll be pleased to invite questions.

Thank you sir. (Operator Instructions). Our first question today comes from Urs Dur of Lazard CM. Please go ahead.

Good afternoon gentlemen.

Hi Urs.

I have a bit of a cold so you probably hear it in my voice. Everything's really been answered for me I thought. Thank you for the presentation. But with just the one I guess micro question. You say the spot levels have improved and if I'm reading this correctly, you're achieving a TCE of somewhere around $41,000, $42,000 a day in 3Q. How has that progressed now through 4Q? And can you give us any further color on the next couple of quarters, just on that bottom line for the spot?

Urs -- Gary if I just take the point on Q4. As we've alluded to, we think that utilization will be a little better in the fourth quarter and that headline charter rates will be a little better in the fourth quarter and therefore TCEs on the spot ships should be also better in the fourth quarter.

Moving forward into next year, I guess comes a question of gas or LNG supply and demand. We have a lot of product coming to the market towards the end of this year and moving into 2009 and Gary, I don't know whether you want to comment any more on that point?

Sure. Sorry, we should explain maybe, Graham and I are sitting in different parts of the world so if we don't coordinate, our apologies for that.

Indeed we have now a reasonably good view as to what Q4 will look like and certainly the utilization will be improved and the headline charter rates will be at or about the level we've seen in Q3. So we are reasonably confident that we'll see some improvement going into Q4.

Into next year, it's not quite so clear. We have obviously a market which is in some turmoil as a result of what's happening in the broader economy. We have a lot of new capacity about to come on stream and it's not clear to us at this moment exactly where that new capacity will go.

Our expectation, as I think I mentioned, is a lot of it will find its way into the US on the basis that the Far East might be softer than it otherwise might have been. But I guess our base premise is that we should be able to hold at about the level we are, at least for the first half of next year.

Okay. With specifically VoyEx coming off a bit, obviously the TCE is not inclusive of such but do you see a large VoyEx line as well? Would fuel being a bit easier for you then coming forward?

Well two things. The fuel cost should come down and if the utilization goes up, then as Graham said, we have less idle time and that also helps us.

Sure.

But it's -- there isn't good clarity on next year at this moment in time.

No but that's helpful and thank you, the presentation laid out the big plans quite well in my opinion. Thank you very much, appreciate it.

Thank you.

We will now take our next question from Ole Stenhagen of SEB. Please go ahead sir.

Hi, good afternoon. Just two very quick questions. One, there was a third vessel possible to Petrobras. Is that tender finally officially off or is it still being pushed back in time?

And second, when you didn't get that project off South Africa, was that price or was it the type of technical solution that you [came in] or what kind of parameter were you beaten there by your competition?

Sure. I'll take that Graham. In terms of Petrobras, it has been deferred yet again so there have been now a number of deferrals, and the current state of play is that Petrobras have now deferred to early in the New Year. They continue to encourage us to stay engaged and so we continue to do so.

On South Africa, we don't yet have a good handle on the reasoning for us not making the shortlist. The bidding is still in process and so I think we might have to wait until there's a final outcome to get an absolute picture. But our understanding is that one, if not both of the bids that are still in play, have been able to offer up supply of LNG in addition to the FSRU and that was an important component of those bids. So our bid was purely the asset without any LNG supply attached and I think that was attractive. But that's not -- that's just our understanding, we have no confirmation of that. The --

Does that mean -- sorry.

Sorry. The technology that we were offering was different but what I can't comment on is to what extent that was determinant in the outcome.

Does that [offer] the possibility that the eventual winner of that tender might come out for a second tender then, looking for the assets? Because not many other people with gas already or with LNG already have assets to offer.

We have considered that possibility but we don't know for sure.

Thank you.

Thank you. Next we will go to Anders Rosenlund of ABG. Please go ahead.

Thank you. What is the remaining CapEx here?

Remaining -- well as I think we laid out in the press release, unfinanced CapEx that we have relates only now to the Golar Freeze and that amounts to approximately $80 million.

The remaining CapEx on Golar Winter --

Well it depends what you mean by remaining, Anders.

By remaining I mean [estimates] in that before it can go on contract with Petrobras.

Well the -- okay let's step back a minute. The Golar Winter, as at the end of the year, will have approximately $30 million to $35 million CapEx remaining to be spent on it but that has been financed. And the Golar Freeze will have approximately $80 million to $85 million CapEx left to be spent.

Okay but you said $30 million at the end of the year but how much was that at the end of the third quarter?

Okay. Yes for the fourth quarter, I don't have the exact number in front of me, but for both vessels it was in the order of $40 million.

Okay so $30 million plus $40 million?

Yes, although some of the $40 million relates to the Freeze as well as the Winter. I'm not sure what the split is.

Okay so if we use $50 million then, is that a rough estimate?

For which, for the Winter?

For the Winter alone.

Well $50 million to $60 million yes.

$50 million to $60 million okay. And on the Dubai project, in connection with the Q2 report you said that there was $152 million remaining on that conversion. Do you have a figure on that one as well?

$150 million?

No that can't be right.

No that can't be right but --

(Inaudible) of $80 million plus $30 million (inaudible) are we at $100 million and $100 million roughly or --?

That -- well that will be, as I say, as at the end of the year it will be about $80 million and then of the Q4 CapEx, it's probably around $20 million, so about $100 million as at September approximately.

Brilliant. Then I have a question, why did you enter into the equity swaps in Arrow Energy?

Gary, do you want to take that one or --?

Yes I'll take that one. Arrow Energy are the upstream gas supplier to the Gladstone LNG project which is the project that LNG Limited are progressing and it's a project that we're looking to secure a role in. Our belief is that Arrow will benefit from an announcement to proceed with an LNG plant, so we saw benefit there. But we also sought to have participation through the value chain in that project and so taking a position in Arrow gives us a more integrated role within the total project.

Okay. And how large is the equity stake in OLT? What's the invested equity for that project for Golar LNG?

You mean in dollars?

Yes.

It's around in the region of $8 million.

Okay. And my last question is on the Gandria, was that fully paid in Q3?

Yes it was.

Great. Thank you very much.

Thank you. (Operator Instructions). We will now move to Chris O'Neill of Steinberg AM. Please go ahead.

Hi Gary, Graham. Thank you for that presentation and for the big picture. That was great, thank you. I just have a very specific question relating to the debt but given current market conditions, I think it might be quite helpful just to confirm that as per your 2007 20-F, it appears as though you have scheduled debt repayments in 2009 of approximately $168.4 million. But there's also a subsequent note that suggests that $100 million of that relates to the Frost facility. And now that, that debt has been paid down, does that imply that your 2009 scheduled debt repayments will be more in the region of $68 million?

That's correct Chris, yes.

Okay that's great. That's very helpful. And then just with the dividend, so the idea is that going forward, given how you see the world today and obviously caveated for any unforeseen consequences, the intention is to pay $0.25 per quarter going forward?

That is our objective yes.

Very powerful. Thank you very much guys, appreciate it.

Thanks Chris.

Thank you. (Operator Instructions). As it appears we have no further questions, I would like to turn the call back over to Gary Smith for any additional or closing remarks.

Okay. Just to say thank you for joining us in this call and we look forward to having you join us again to present the Q4 results early next year. Thank you very much everybody. Goodbye.

Thank you. Goodbye.

Thank you ladies and gentlemen, that will conclude today's conference call. Thank you for your participation, you may now disconnect.