Golar LNG Ltd (GLNG) 2008 Q4 法說會逐字稿

Good day, and welcome to the Golar Q4 Results 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 from me also to the Golar quarter four 2008 results presentation.

And thank you for taking the time to join with us.

We will follow the usual format for these calls.

I will introduce the call briefly and then hand over to Graham Robjohns, our Chief Financial Officer, to run through the financials.

And then, again, I will return to run through in a little bit more detail some of the business activities over the past quarter, with some comments on the market coming forward.

Following all of that, we will then be more than happy to take questions.

Beginning on slide 3, the agenda for the call is Q4 highlights-- We'll go through the financial results.

We'll spend a little bit of time on our strategy, and we'd like to reintroduce that to you in the call.

We'll touch on the portfolio and activities within the fleet over the past quarter, some comments on the market, and then I'll say some comments on the various business development activities that we have going.

On slide 4, moving on to the highlights, as we anticipated in the call last quarter, there's been a slight improvement in the trading performance of our spot-traded vessels.

And this has been pleasing.

During the quarter, we took redelivery of the Granatina, a vessel we purchased from Shell some 12 months ago and on redelivery of that vessel, renamed her Golar Arctic.

The name Granatina returns to Shell.

We're absolutely delighted to report the success of the commissioning and testing of the FSRU Golar Spirit in Brazil, and we'll come back and talk a little bit more about that.

Equally, we're very proud to have reached a significant milestone in the Gladstone LNG project, and we'll spend some time later in the call outlining that opportunity in a bit more detail.

And then, finally, although we won't spend much time on this call, we would like to report that we've been making very significant and real progress on our floating LNG activities in joint partnership with PTTEP.

At this point, I'll hold the call over to Graham Robjohns, and he'll pick up from there.

Thank you, Gary, and good afternoon, everyone.

Turning over to slide 5, I'd like to start with the financial highlights.

As Gary has just mentioned, we're pleased to be able to report improved operating revenues in the fourth quarter, up from $47 million in Q3 to $49 million in Q4, and also increased EBITDA, excluding gains on sales of assets, to $29 million for the fourth quarter of 2008.

Of course, somewhat overshadowing this improved operational performance has been the $57 million other financial items loss, which makes up the majority of net financial expenses you can see here of $69 million.

This loss is principally in relation to noncash interest rate swap valuations and foreign currency retranslations.

That's been driven by the dramatic fall in long-term interest rates during the quarter - some 200 basis points over the three months, although rates have recovered somewhat since the yearend - and also by the strengthening of the US dollar against the euro, British pounds, and Norwegian kroner, amongst other currencies.

Ironically, both of these events, if sustained, are beneficial to the Company in the long term but result in accounting losses in the short term.

And I shall cover some of the detail of the individual components of that other financial items loss a little bit later.

The resulting effect on net income is a $57.7-million loss for the quarter.

Vessel numbers this quarter - 14, up one with the introduction of the Ebisu to the fleet.

Time charter equivalent rates, or TCEs, have some improvement, from $43,400 last quarter to $46,400 this quarter.

Ship operating expenses-- that's a daily amount - the average daily amount per vessel is up slightly this quarter but pretty much on the run rate for the year.

Turning over to slide 6 and revenue, this slide shows fourth quarter revenue in comparison to the historical progression of quarterly revenues since 2006.

As you can see, we've made some progression since Q2 '08.

Utilization is up, at 84% from 83% in the third quarter.

The Golar Spirit was on the hire for the full quarter, there were no dry dockings in the fourth quarter, and the addition of the Ebisu to the fleet also boosted revenue.

Offsetting this partly was the fact that the Golar Winter entered the shipyard for her FSRU conversion right at the end of Q3 and has therefore not earned anything during Q3.

Turning over to slide 7 is the detailed income statement.

Most of the numbers in the quarter I'll cover elsewhere, but just looking at the 12-month results - the 12 months ended December 2008, we actually made a loss of $9.9 million, as compared to net income of $136 million for 2007, despite some improvement in revenues and operating income this year.

This is largely explained by a reduction in gains on sales of assets and investments in 2008 of $36 million and an increase in noncash other financial items, the bulk of which, of course, we've seen this quarter.

But total for the year is $74 million.

Turning over to slide 8, in these troubled financial market times, it's probably pertinent to take a look at some of our balance sheet and financing key numbers and statistics.

As at December 31, 2008, total assets, excluding restricted cash that is held to repay debt, stand at $1.7 billion.

Our debt and capital lease obligations, again, net of those restricted cash balances, stand at $1 billion.

Our book equities - $452 million.

And our gearing, therefore, stands at 67%, which, taking into account the amount of long-term contracted revenue you have, is not particularly high.

The percentage of our debt that incurs interest at a fixed rate as a result of all the interest rate swaps that we have in place, it's 67%.

And the cost of our total debt, which is based on the swap rates that we have in our interest rate swaps, are three-month LIBOR for our floating debt, and the average margin for all our debt is 4.5%.

That obviously equates to $700 million, or approximately $700 million of our debt cost figures at 4.5% per annum.

Contracted forward revenues stand at $2.1 billion at the end of the year.

As we mentioned in our press release, we have some unfinanced capital commitments which relate principally to the conversion CapEx for the Golar Freeze.

That stands at about $80 million, $45 million of which falls in 2009, and approximately $35 million falls in 2010.

Again, as we said in our press release, we've had some positive discussions with various banks in connection with refinancing the Golar Freeze to obviously cover this capital commitment as well as refinancing the vessel.

And particularly given the very strong contract coverage that the Freeze has with its charter to the Dubai Supply Authority, we believe that these amounts are eminently financeable.

As of yesterday, our market capitalization stood at $346 million, and shares outstanding were 67.2 million.

Turning over to balance sheet assets, one of the main changes there you will see in restricted cash.

You will see the contra to that when we turn over to balance sheet liabilities.

The reduction in that is mainly as a result of foreign exchange movements, which create part of this P&L charge, because we have large cash deposits held in British pounds, which are offset against large lease obligations, which are also denominated in British pounds.

So there's effectively an economic natural hedge, although, in accounting terms the two balances don't quite match.

So turning over to slide 10, balance sheet liabilities, as I said, you can see long-term capital lease obligations have fallen from $942 million to $784 million.

The other major movement on balance sheet liabilities is under current liabilities, which contains the swap-pluses we will see when we move onto a slide in a moment.

$23 million of that has been taken through the P&L this year.

As we mentioned in the press release, we instigated hedge accounting in respect to some of our hedging relationships on October 1, which has meant that an additional $26 million interest rate swap loss has been booked through other comprehensive income, or reserves, and that is also sitting in that balance sheet liability account.

Turning over to slide 11, statement of cash flows, here we have operating activities and investing activities.

You will see net cash provided by operating activities was $17.2 million in the quarter.

Investing activities predominantly related to investment in our FSRU conversion contracts, which amounted to $42 million in the quarter.

On slide 12 - financing activities in relation to statement of cash flows.

And you can see on the first line there proceeds from long-term debt.

It's actually a $285-million revolving credit facility that we drew down in November of the fourth quarter, and, obviously, only $250 million of it was drawn prior to the yearend.

And repayments of long-term debt cover-- the sort of run-rate debt repayment, but, in addition, the debt that was refinanced as part of that new facility.

Turning over to slide 13, we have the analysis of financial expenses.

And the first subsection is lease-related interest income and other interest income and then lease interest expense.

You will note that lease expense and lease income pretty much offset each other.

Then we have debt interest.

And then we have other financial items.

And that $57-million loss, as you can see, is made up of interest rate swap valuation losses.

A loss on the settlement of the fixed-rate debt - part of the debt that we've refinanced with the $285-million facility revolver with a fixed-rate debt - and, therefore, we effectively had to break the embedded swap within it, which cost $9 million.

That was an actual cash cost; however, we immediately refit a similar amount of debt in a swap relationship at an interest rate of about 1.1% lower.

So, therefore, that $9 million will effectively be recovered over time.

$12.8 million relates to net FX gains and losses-- obviously not gains but losses this quarter on lease balances, which I referred to earlier on in the balance sheet-- currency contracts that we have taken out for the contracted currency which had been taken out in order to settle capital commitments in connection with our FSRU conversions, and retranslation of other foreign currency balances.

Equity swap gains and losses are $3.9 million, and financing-related expense write-offs and an investment impairment of $7.6 million, which all adds up to $57 million for the quarter.

And, with that, I will hand back to Gary to carry on with the presentation.

Thank you.

Thanks, Graham.

And I'll now pick up on slide 14 and take the conversation forward from here.

I wanted at this juncture to take a moment out and introduce a redraw, I guess, of our strategy for the Company.

It's not to say that we have in any way changed our strategy.

But we have been making, we think, good progress in delivering against that strategy in the last two years and have invested a little bit of time in trying to redraft the strategy in a way that adds a little bit more information and hopefully better communicates what we're trying to do and what we're trying to achieve.

The strategy is, I guess, appropriately contained within the picture of the ship that you see in the slide.

And at the top we have the three, what we would call, value propositions that we have in each of the three, now, segments of our business, they being shipping, regasification, and liquefaction.

In shipping, we start from a position of strength based on our 35 years' performance and our leading position as an owner and operator of LNG carriers within the industry.

We've been able to add to that successfully in the last couple of years in the area of floating regasification, where I think we can now claim, quite rightly, to be a first mover in this area and with now-proven technology and quite some growing market interest in what we have to offer.

And then, most recently, our move into liquefaction based on our field-first strategy and some powerful partnerships which we have developed in the course of the last two years.

Our business has been characterized in shipping with a modern fleet with secure, long-term charters giving us good, strong forward cash flow; some good relationships; our flexible charter arrangement with Shell; and also our exposure to the spot market.

In floating regasification, we have a very strong mix now of floating storage and regasification unit charters - the two in Brazil and the one in Dubai - plus our joint venture activities in Livorno.

And, most importantly, we have within our fleet assets which are well suited to more of these projects.

And, ultimately, we hope to secure regasification capacity in some of these projects.

On the liquefaction side, I'll talk in a moment a bit about our positioning in Gladstone and also our relationship with PTTEP, which, in time, will deliver us equity LNG, which we hope to be able to link with our spot LNG shipping capability already well established in our regas activities.

All of this is directed towards giving us a diverse and balanced portfolio of assets, full participation in what we would define as the midstream of the LNG supply chain, secure forward cash flows and a strong position from which to grow, delivering, ultimately, strong value for customers, for investors, and for the people we work with in an environment of growing market opportunity.

So, as I say at the outset, we haven't changed our strategy.

But what we have tried to do is try to better represent what we're trying to do and the outcomes that we seek to achieve.

Moving on to slide 15 and the Golar portfolio, really not a lot to comment on here.

The position is pretty much as we reported last quarter, with a couple of changes.

The Granatina, as we previously reported, has switched her name now to the Golar Arctic, and she is now trading in the short-term market.

Golar Winter, you will see, and as Graham's reported, has gone into the shipyard to start her conversion through an FSRU prior to delivery to Petrobras in quarter two.

And, finally, we are not far away now from Golar Frost redelivering to the joint venture, OLT-O, in the first week of June to commence her conversion into an FSRU.

Apart from those sort of fairly minor changes, the portfolio slide has been static.

Moving on to slide 16 and picking up on some of the highlights within the fleet, again, Granatina has been redelivered back to us.

On redelivery, we also changed the technical management of the vessel from Shell/STASCo to our own technical management.

Secondly, Golar Winter is now well into her conversion at Keppel shipyard in Singapore.

It's very pleasing to see that all the major equipment items have now been installed in the vessel for the regas [kits], the new boiler, the turbo generator.

Instrumentation, electrical and control systems are all now installed.

And activity at the moment is around integrating those new major equipment items into the vessel itself.

It's also very pleasing to see a lot of the learnings that we acquired in the course of the Golar Spirit project being transferred into this project - learnings in terms of contract management, progressing the actual execution of the project but also in some of the technical solutions that we've adapted and adopted.

The expected sail-away date for Golar Winter has not changed; it still sits in Q2 2009.

As Graham previously commented, the utilization of the fleet has seen a slight increase-- This is with the exclusion of Golar Winter-- from some 83% utilization to 84%.

And that combined with a slight increase, also, in the TCEs resulted in the improved revenue.

And, finally, but certainly not least, during the quarter-- Early in this quarter - in January, in fact - we saw Golar Spirit complete her commissioning activities and then successfully conclude a series of performance test runs, which involved running each of the three regasification trains on the vessel at a range of different capacities, from her minimum capacity up to the nameplate capacity for each train in turn.

But the whole commissioning exercise went through very well.

We would describe the startup as a flawless startup.

And Petrobras were very kind to write to us following the conclusion of the testing, complimenting Golar on its high standards of professionalism throughout the commissioning period and, indeed, throughout the whole contractual relationship that we have had with Petrobras.

We've included a picture on slide 17, where you can see Golar Spirit sitting at the jetty in Pecem.

Just to describe a little bit of what you can see in the picture, you can see the three (inaudible) hard arms attached to the Golar Spirit forward by the LNG transfer hard arms.

And the three arms opposite side of the jetty-- the vacant side of the jetty is in fact where LNG would be transferred from the shuttle vessel into our regas vessel.

The LNG is then vaporized over time and then sent back ashore via two high-pressure hard arms which are to the aft of the three LNG transfer arms.

You get a sense from the photo of the scope of work that had to be undertaken by Petrobras prior to us commencing the commissioning and testing process, which we've just concluded.

But we're very happy with the way that's concluded.

And the intention now is that Golar Spirit will at some time now travel down to the Rio de Janeiro to start the commissioning of the Petrobras facilities in Rio in advance of the arrival of Golar Winter.

Moving on to slide 18, there are some comments about the market; in particular, the LNG and short-term market.

The LNG supply market really is going through a fairly fundamental transition at the moment.

We see a collapse in demand for gas across the world but, in particular, in the Far East, which is not typical of what you would expect to see this time of year.

And so all this is happening at about a time when we expect to see significant new liquefaction capacity come on stream, whilst some of the new trains are not yet online, so, I guess, still subject to further delays.

It's almost inevitable that we will see some 40 million tons of new LNG come on stream this year, which represents about 30% of the world's total output.

The question really remains is - Where is this LNG going to find its home?

And the expectation is that the Atlantic Basin is going to start to become more dominant in, certainly, the discretionary-traded volumes of LNG.

And so, for us, the trading pattern that we see in the short market is about to swing around from what has been a bit poor to the Far East to what we expect is sellers of LNG looking toward the more liquid markets in the Atlantic Basin, in Europe, and the United States.

Dealing particularly with the shipping, there seems to be very few arbitrage opportunities right at the moment.

We had reported in the quarter results presentation three months ago some evidence of floating storage plays emerging.

That simply is not the case anymore.

The forward curve is quite flat.

The one bit of good news in this story is that with the drop in prices comes a drop in prices for bulkers, and so the opportunity to reposition vessels is becoming more realistic.

But, overall, the outlook, at least for the next couple of months, is quite bearish.

In the medium term, we take a slightly more positive outlook.

As I say, there's a lot of capacity about to come on stream.

There are some long-haul trades starting to emerge.

We see volumes from Australia heading to France at the current moment.

And to the extent that becomes more prevalent as new projects in the Far East in Sakhalin and Tangu start up, then there is opportunity, we think, for longer-haul trades.

And, also, the ships that are identified and contracted against those projects will presumably be absorbed within those projects.

And then, finally for us, the FSRU market is continuing to be very strong, buoyed on by a surplus in LNG supply now looking for a quick, ready market and also some supply disruptions to gas, particularly in Europe, where some countries are looking at diversifying and strengthening their energy security by diversifying their supply sources.

Finally, I'd like to say a few words about Gladstone, and I turn to slide 19 to give a sort of high-level summary of our activities there.

As we reported in the press release, we this week signed a Heads of Agreement, which formalizes Golar's role within the project, a project which we hope will take financial close toward the end of this year.

The project is what we would describe as small or midstream project, taking costs in gas supply from Arrow.

And, at the same time as signing the HOA with Golar, the project company also has signed an HOA with Arrow for the exclusive provision of gas to this project.

The site for the project has been secured via a license agreement with Gladstone Ports Corporation.

And you can see in the photos to the right of the slide the location of our project.

A couple points to make.

It sits opposite Curtis Island, which is the site of the much larger projects being promoted by the oil majors; in particular, Santos, PETRONAS, BG, Origin, Shell, and ConocoPhillips.

They are all intending to locate on Curtis Island.

We are on the other side of the river, using an existing site with an existing port facility adjustment to, you can see in the photo, a cement works and a an ammonia tank.

So the site has been granted to us.

The scope of the project at this stage is a single 1.5 million ton per annum train.

But there's clearly identified potential to expand that project over time.

We have for some time now been working with SK Engineering in Korea and Lang O'Rourke on progressing feed to the point where we have a bankable EPC contract.

The equity participation in the project now is agreed, with Golar agreeing to take 40% of equity within the project.

LNG Ltd.

will also take a 40% equity in the project.

And it's been intended that Arrow, will, although at this stage it's still an option, for them to take a 20% equity in the project.

The capital costs for the project we have advised at $500 million.

And it's perhaps worth spending a moment to define what the $500 million covers and what it doesn't.

The $500 million is purely the processing equipment on plot with inside the (inaudible) limit of the project, so it does not include any works upstream of the plant - so the upstream development and the pipeline that supply it to the plant.

Nor does it include any of the works within the port.

Coal seam gas has the advantage that it is relatively pure methane, so the project capital does not have to contend with handling and separating out LPGs and condensates.

Nor does it have any large or sophisticated pretreatment for the gas prior to liquefaction.

So, whilst that CapEx number might appear low, if you benchmark it against some of the VLE liquefaction projects, there are good reasons for that.

And, indeed, we think it's a strong benefit.

It makes the project particularly robust in low oil price periods such as we're experiencing right at the moment.

As I say, FID is scheduled toward the end of 2009.

And, importantly for Golar, we have been awarded the rights as the sole offtaker from the project, so Golar will buy the full 1.5 million tons per annum and then provide that on a delivered basis to a buyer.

And we have prior to signing the HOA commenced discussions with a number of buyers, and we hope to conclude that, certainly, well before FID later in the year.

The event of Golar taking their position, apart from a margin that we will take, is it will employ one to two of our existing vessels in the transportation of the LNG.

So, for us, a very exciting project and something we're working aggressively on over the course of this year to deliver a financial close.

I think at that point I will wrap up the formal part of the presentation.

But we'd be both very welcome to take questions.

Thank you.

(Operator Instructions).

(Inaudible), Piper Research.

Good quarter.

I would like to ask a couple of questions; the first would relate to the voyage expenses.

The best we see are that the voyage expenses have largely been related to the fuel costs associated with the commercial waiting time and vessel positioning.

Would it be possible for you guys to give us an idea out of the total voyage expenses what proportion of the costs would relate to these fuel costs?

The vast majority relates to fuel costs.

It would be good if you could give us, like, a proportion of like 70% or 80%.

That would be truly helpful.

And what has been the trend in the past few quarters?

That would also be great.

95% relates to fuel.

Okay.

And something that is happening across the quarters?

I'm sorry?

Is (inaudible) that's being maintained across the quarters?

Well, it's a function of two things.

Firstly, LNG tankers and all our LNG tankers when they are on hire are on hire on a time charter basis.

And whilst they're on hire on a time charter, then the charterer pays all fuel costs.

When they are spot trading in the periods that they waiting in between time charters, we pay the fuel costs.

And, therefore, the level of fuel cost is directly related to the amount of commercial waiting time and the utilization of the vessels in any one quarter.

Now, in addition to that, obviously comes the pure cost of buying bunkers and fuel oil for the ship.

If you go back to the sort of summer of 2008, those were sitting at around about $500 or $600 per ton.

And they're now in the sort of $250 per ton.

One other point, just going back related to commercial waiting time, is that when a vessel-- Prior to delivering to a charter, if a vessel has to reposition from its-- the point it's at to the point it will go on hire, the fuel costs for that repositioning would also be for our account.

Okay.

That pretty much answers my first question.

A second question would relate to the FSRU conversions.

Gary, Golar (inaudible)-- The vessels that you just mentioned that you have a bank of legacy assets that you are using to convert now to FSRU.

The most recent one was Golar Spirit.

What kind of impact does this conversion have on the remaining average life?

So, for example, Golar Spirit was a 27-year-old LNG carrier.

Golar Freeze is a 31-year-old LNG carrier.

And your usual, typical, useful life of the vessel as an LNG carrier was 40 years.

So now that you have converted them to FSRUs, would the remaining useful life change?

A couple of comments on that.

Firstly, as part of the conversion process from a vessel to an FSRU, there is quite some effort and time and capital spent to extend the life of the vessel.

So systems are upgraded, and the vessel is generally upgraded.

To some extent, the remaining life, and to the extent we're able to extend the life of the vessel, is dependent upon the trading history of the vessel and where the vessel is going to be used in the future.

In the case of the Golar Spirit, where she's now sitting in sheltered waters in a fairly benign environment, the fatigue loads on the vessel are not anywhere near what they might have been had she continued trading.

Then we can in this case see a 50-year life for the vessel.

But it's a case-by-case assessment based on the life extension--

Did you say--?

I'm so sorry to interrupt you.

Did you say 15 years more?

A total life of 50 years for the vessel.

Okay.

A total of 50 years.

Right.

So that's in the case of Spirit.

And each one of these are assessed on a case-by-case basis.

Okay.

Fair enough.

If I could ask just one more quick question.

The charter hire expenses-- You have two vessels on a chartered-in basis, the Ebisu and Frost.

So what kind of charter hire expenses, if you could give us an indication of the annual charter hire expenses that you are paying on it or the per-daily that you are paying on it, that would be great.

You're quite correct that they are the chartering costs on a bare-boat basis in respect to the Golar Frost and on a time-chartered-in basis in respect to the Ebisu.

I can't, I'm afraid-- It's sort of commercially sensitive, the daily rates for those, so I'm not really able to give you a rate indication of what they are.

Okay Can you give us an indicative figure in terms of what kind of profitability do you have on those or kind of margin that you are generating on those vessels?

Even that would be great.

I think we might decline to answer that question.

It is commercially sensitive to us.

We are continuing to trade those vessels, so we'd prefer not to comment on our hires-- vessels that are currently on hire.

Not a problem.

Okay.

If you would allow me, I'll just ask one more question.

The interest rates that you've just discussed about-- Those are the interest rates on the total debt as well as the capital lease obligations at a cost of debt of 4.5%?

I'm sorry.

Could you say that again?

I didn't quite catch part of that.

Could you say it again?

The interest rate costs that you just mentioned in your press release and as there is in your presentation as 4.5%-- That's both on the long-term debt and the capital lease obligation, I believe.

That's correct.

Yes.

Okay.

And as far as the interest rate on that, could you give us an indication of that?

(Technical difficulty) kind of interest rate that you're earning on your cash and cash equivalents on the balance sheet and, if possible, on the restricted cash?

The answer to that question is an explanation of how we calculate the 4.5%.

Some of our leases are-- I'm getting a little bit technical here.

But they are what we refer to as (inaudible) leases in that the restricted cash balance will, over time, pay off the lease obligation.

And the amount of interest that the restricted cash deposit earns is not that much less than we're paying on the lease obligations.

So, when we're calculating our sort of net debt and net interest cost position, we net the two off against each other.

So it doesn't really have a sort of dramatic effect on the overall interest rate cost.

Right.

So I think that goes for the restricted cash.

But would you be able to give us an indicative interest rate that you earn on your cash and cash equivalents?

Well, we put them in regular bank deposits, and they would earn sort of-- one- to three months, depending on the duration of the deposit, US dollar LIBOR, depending on where interest rates move.

So, obviously, over this last quarter, it's been extremely variable.

I think that will be it.

Thank you so much, Gary and-- That was very helpful.

Thank you.

(Inaudible), Metro Capital.

Nice quarter.

I have two quickies for you, Graham, and two not-so-quickies for you, Gary.

Graham, on the vessel OpEx, which was up around 10% in the quarter when utilization was basically flat and fuel prices were on a downward slope, if you could explain that--

And, also, debt interest expense was up slightly, even though a third of our debt is floating rate.

If you could explain that--

And, Gary, on the project in Gladstone, I'm wondering-- Do we have any obligations to LNG Ltd.

for helping them finance their $200 million piece?

And, if not, that feels to me like it's the biggest question market in this financing environment for a company of its size to be able to raise that money.

How should we get comfortable that that's going to happen?

And also a question on the bearish, near-term view for the spot market.

I'm a little surprised.

Given that delayed projects appear to finally be coming on stream - Qatar, and Sakhalin Island, I read, is due to begin loading its first tanker later in March - I imagine that the ships that had already been commissioned to meet the needs of those projects have been trading, I assume, in the spot market until the projects got started.

And so I would have imagined that we would already have seen or be seeing in the very near term the ships intended to serve those projects pulled out of the spot market.

So I'm wondering-- I do understand the depressed demand side.

But I had always assumed that LNG would wind up finding a home, even if it meant forcing out some of the higher-cost gas in North America.

So how come with us finally seeing the new supply coming on stream the near-term prospects are bearish?

Jeff, maybe I'll take your last question first and then leave the financing discussion for Graham to respond to.

As you described, it is as we see it.

The first of the new projects about to come on stream is probably Sakhalin in March.

And, progressively then throughout the course of the year, we'll see more and more projects come on stream.

I guess in our comments what we were seeking to do was to give some guidance specifically toward Q1, which is reasonably well past us now.

And so we will certainly see the depression of January/February reflected in the Q1 results.

And I think it's going to be Q2 leading into Q3 when we start to see some of this new volume hit, some of the ships get absorbed back into projects and then, as you say and as I think we said in the press release, volumes starting to trade west into more liquid markets as the sort of discretionary cargos are diverted away from the Far East.

So I think we are aligned with your thinking.

It's just a matter of timing.

Our guidance was really trying to give some specific comment with regard to Q1 and, to some extent, Q2 as well.

So, really, very much the immediate and really near-term future.

Yes.

I guess that's the definition.

I understand.

I'll let Graham deal with the financing questions.

The first one, OpEx, Jeff-- Operating expenses don't include fuel costs.

They're all incorporated within the voyage costs.

So the OpEx is things like-- A large part of it is crew costs and maintenance and spares.

So it doesn't particularly go up or down dependent on utilization or movement in fuel costs.

As I briefly mentioned in the presentation, the costs this quarter are pretty much sort of on run rate.

Last quarter, it was possibly abnormally low.

The second question was interest expense.

I think there are two reasons for it being slightly up.

One was a slight increase in the amount of debt as we drew down this new facility in the middle of the quarter.

The second, I think, as you pointed out, of course, is that a big chunk of our debt is swaps or fixed-rate.

The other point is that LIBOR was extremely volatile through the quarter.

So where we had-- In one or two cases where we had debt rolling on three-month LIBOR at points in time where LIBOR spiked-- There were vast divergences between some of the fixed things that we had and others, which caused a slight increase.

Then, on LNG funding, LNG Ltd.

will fund part of its participation via a combination of its own equity.

As you alluded to, we will be providing some equity carry to LNG Ltd., and we will also be providing some level of loan funds to LNG Ltd.

But all that is part of a total package that we agreed under the terms of the HOA, which includes, of course, the pricing of the LNG to go along.

I see.

So, to the extent that we are essentially providing some financing support, maybe we are making it back in terms of the spread that we'll make on the offtake of the LNG.

That's exactly the commercial position.

Yes.

Okay.

Thanks to both of you for your time.

And, for what it's worth, we are supportive of the decision to spend the dividend.

It sounds like they're going to be-- there's the potential for some good uses of the cash.

So we are supportive of that.

Thank you, Jeff.

We certainly hope so and agree.

Ole Stenhagen, SEB.

Congratulations on a great HOA.

That was hugely exciting.

However, if the $500 million investment is so restricted and limited, then obviously that other infrastructure has to be there.

Who will provide that?

Okay.

There are three broad areas of capital required to deliver this project in its entirety.

The upstream-- And when I say upstream, I mean upstream of our plant.

So, from the fence back to the coal seam gas fields some 400 kilometers away is the responsibility of Arrow Energy.

So I think as I mentioned in my presentation, at the same time as signing the HOA with Golar, there was also an HOA signed with Arrow Energy, which set in place the commercial terms for Arrow's participation and also set out the gas supply commercial terms.

Arrow, as you may know, if you've been following all the activities that have been taking place in that part of the world recently, have recently joined forces with Shell.

So Shell have farmed in to the upstream tenements of the Arrow reserves and have taken a 30% position in Arrow.

And that has certainly strengthened significantly Arrow's balance sheet and, we believe, gives them the capacity to fulfill their obligations in terms of delivering the gas to us in a way that's consistent with both their HOA and ours.

The final piece of capital that is required-- Well, just to go back, that delivers the gas from out of the ground into a pipeline and into our site.

Then our site will then clean that gas up and liquefy it and put it into a tank ready to load onto a ship.

The final piece of the jigsaw is in fact the port.

The Port of Gladstone is already a very major port within Australia.

I think I'm right in saying it's the fourth-largest port in Australia.

It's a large, commercial port for the export of coal.

So there is significant port infrastructure already existing in Gladstone.

It is true that there is some dredging required-- some existing dredging to existing channels, I probably should say.

It's not as if we have to establish a whole new shipping channel.

But we do need to widen it a little and enlarge the towing circle.

And there is some upgrading on the wharf that is existing that is required to be able to secure the larger vessels for the LNG.

The funding of that activity is currently under discussion with the Port and clearly needs to be done in concert with some of the other projects which are taking place within the region.

So the way forward on that is not yet 100% clear but manageable within the total scheme of things.

Yes.

I'm still very impressed with the level of investment.

But at least now we know what it is.

I think it looks like you're getting a lot of liquefaction for your money, and I'm impressed with that.

But I want to make sure that I get it right.

I guess-- I did try to make the point in my presentation that it's not probably appropriate to benchmark the capital cost of this project versus more traditional projects in that we're not handling and supplying both LPG and condensate.

So we also miss out on the revenue streams associated with those byproducts as well.

So this is a simpler project.

We handle less products.

We are single-product.

We have less treating to be done.

But, on the downside, we don't get the revenue streams from condensate and from LPG as well.

And it's wholly land-based and you can build a land-based storage tank for the product as it is produced, or will you use your vessels in any context in the plant?

No.

The project is based on a single, 180,000 meter cube tank, land-based.

Okay.

Thank you.

Urs Dur, Lazard Capital.

I guess compliments to the colleagues.

A lot of great questions, and that's encouraging as well.

I guess it's a side comment, but it's more questions than I recall on your calls.

It's great there's a lot of interest.

So I have really simple questions left.

Did you indicate, and you have in the past maybe verbally-- But I understand that first quarter spot market is weaker.

That's clearly laid out by you guys.

Did you indicate a basic level of rate that we could assume?

You know, $40,000, $38,000, $50,000?

No.

We haven't indicated a number.

And I'd certainly-- The headline rate is certainly down around the $40,000, if not a little lower.

Okay.

That's very helpful.

And, then, with the suspension of the dividend, I noticed just again, and, Graham, you may have gone over this.

I'm running around trying to take some notes here.

But, on slide 8, you indicate that the unfinanced FSRU conversion CapEx for 2009 and 2010-- How far does the suspension of the dividend go towards supporting that and/or what kind of financing you think you can get for that unfinanced CapEx.

I think the suspension of the dividend is a cash conservation measure.

It's clear to us and everybody else, I guess, that cash is now a much more valuable commodity than it was.

We feel that investors are giving more appreciation to balance sheet strength than to dividend flow.

And what we said in the press release was at least two quarters or until capital markets normalize.

Now, we have substantial assets.

As I said, we don't believe, given our incredibly strong contract coverage that we are particularly highly leveraged, and we have eminently financeable assets and cash flows.

But in the current credit markets, that's a different proposition.

And therefore we feel it's more appropriate to save that cash for investment than to pay it out.

In terms of the Freeze conversion CapEx, we believe that is financeable, and we have been in discussions and are in discussions with a number of banks.

They've been very positive discussions and responses.

And, because it's such a-- The Freeze contract generates, undiscounted (inaudible), $450 million of revenue over the next ten years.

And the amount of debt on the vessel is only $30 million.

So a refinancing will adequately cover $80 million.

We believe it's doable even in current credit markets.

Yes.

Those are pretty nice ratios.

I just wanted to go through that very quickly, so I have it right.

Thank you very much, and hope to see you soon.

Thank you.

(inaudible).

I think you might briefly touched on, but how much of the short-term debt is maturing in 2009?

It would be around about $60 million to $70 million.

Current portion of long-term debt-- (Inaudible).

If I remember, from January 4, it was $168 million?

Was it then changed?

I'm sorry.

Say that again.

From the annual report in 2007, the debt maturing or--

The reason for that was because of the debt we had on the Golar Frost, which was a very short-term loan.

And, of course, we sold the Frost in June of 2008.

So that debt was repaid out of the proceeds and has gone away.

All right.

Thank you very much.

That was all.

(Operator Instructions).

(Inaudible), Metro Capital.

Sorry about the follow-up, but, Gary, I did want to ask another question about the Gladstone-- the coal seam gas projects.

I notice that Shell has announced that they are looking at a site on Curtis Island which would, I guess, be fed by some of the tenements that they invested in with Arrow.

Do you have any concern?

I know Arrow's trying to be adding to their tenements.

But do you have any concern about the ability of Arrow to meet the needs of the LNG Ltd.

project and potentially have the option for maybe adding another train there while, at the same time, Shell's looking to do their own projects?

It's a good question, Jeff.

We take the view, and I think Arrow have said so in their own recent press releases, that rather than competing, we think the two projects are actually quite complementary.

One of the characteristics of coal seam gas type projects is, rather than gas coming on over a relatively short period of time, there is a need to slowly build up gas flow as wells are drilled and gas flow is increased.

And, in fact, we are in our planning for our little project anticipating a build period of some 18 months from startup to when we reach plateau production.

And so our view and Arrow's view and, I suspect, Shell's view as well, although I haven't spoken directly with them on this, is that having our smaller facility as a means of incrementally growing volume which ultimately will help feed into their larger facilities are actually complementary.

So in terms of small-scale projects leading into larger-scale projects, that makes sense.

Also, if you look at the sort of contingent reserves that Arrow reports, admittedly not proven, but their expectation is that they could be something like 72 cf of gas within their total exploration acreage, of which we need about 2 cf.

So that sort of ratio gives 1 tcf to 2 tcf.

So there's a lot of scope for both of us to be happy and, indeed, for our small project to continue to grow over time as the Shell project requires ramp-up gas, and potentially even some of the other projects might require ramp-up gas.

Okay.

Thanks.

As we have no further questions, I would like to turn the call back over to Gary Smith for any closing or additional remarks.

Well, we again thank you, everyone, for your interest and participation.

And we look forward to joining you again three months from now when we report first quarter of 2009.

Thank you, and have a good day.

Thank you.

That concludes today's conference call, ladies and gentlemen.

You may now disconnect.