Golar LNG Ltd (GLNG) 2009 Q2 法說會逐字稿

Good day, and welcome to the Golar Q2 2009 results presentation conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Mr.

Graham Robjohns.

Please go ahead, sir.

Thank you and good afternoon, everybody, and welcome to the Golar LNG second-quarter results presentation.

I am joined here today by Oscar Spieler, who is Golar LNG Energy's CEO, and also at Ian Walker, who is our Vice President of Chartering.

So turning straight into the presentation and going past the forward-looking statements caveat on page two we move to the agenda where you see we will cover Q2 highlights, Q2 financial results.

We will have a look at the Golar vessel portfolio, a quick look at business development, and then I guess most importantly a look at Golar LNG Energy's strategy and Golar LNG Ltd.'s strategy moving forward.

So moving over to page four and Q2 highlights.

Earnings from spot trading ships have declined in the second quarter pretty much as anticipated with reduced rates and utilization in Q2.

There are, however, some signs of recovery emerging with more LNG production coming to the market over the coming months.

And, indeed, just recently we charted out the Golar Arctic and the Ebisu that have both been fixed on short-term charters from mid-August.

Our recently announced restructuring and equity offering, which I will come back to talk about more later, provides, we believe, the platform for growth within the Midstream LNG supply chain for Golar LNG Energy and also transforms Golar LNG Ltd.

into a high-paying dividend entity.

Golar and PTTEP recently announced the signing of agreements to jointly enter into FEED studies in relation to developing our floating liquefaction project offshore northwest Australia.

This project has progressed pretty quickly and I think one of the reasons for that is not least because, of course, PTTEP actually owns the gas in this project within a company called Coogee Resources.

And that, of course, removes a lot of commercial obstacles.

With regard to the Gladstone Project this continues to make progress and indeed also Golar LNG Energy continues a dialogue with prospective LNG buyers for the LNG that Golar is off-taking from the project.

Golar LNG Energy also continues to aggressively pursue FSRU projects.

There are several limitations to bid that look likely to be coming to market over the next few months and also there is continuing dialogue with many other interested parties.

Turning over to page five, financial highlights.

With net revenue down from $42.5 million to $35.5 million and EBITDA down from $22.1 million to $17.1 million results obviously disappointing.

But as I said, not entirely unexpected particularly as the Golar Arctic and the Ebisu, which I just mentioned have now gone on charter for mid-August, were idle throughout the quarter.

Also, the Golar Freeze was returned from her long-term charter at the end of May and she is now on her way down to Singapore to enter the shipyard to undergo conversion to an FSRU.

Net financial expenses; as you can see a $13.3 million gain are obviously much improved, but that is mainly due to the mark-to-market valuation of derivative instruments, in particular interest rate swaps and equity swaps actually as well.

$8.7 million of the gain in relation to swaps related to equity swaps, and much of that gain related to the equity swap we had in Arrow Energy.

And a further approximately $7.8 million gain will be booked in the third quarter as we have now terminated that swap and realized the gain.

As you can see, time charter equivalent rates have fallen from the first quarter of 2009 from $45,000 a day to $37,600 a day as a fleet average.

Utilization is down also, as I say, from 80% in Q1 to 69% in Q2 although operating costs on a daily basis have fallen.

The next slide is just a graphical presentation of net revenue, that is revenue less voyage expenses, and EBITDA over the past eight or so quarters.

Then moving over to slide seven on the income statement.

I have covered most points here.

You can see other financial items at gain of $24.7 million.

This obviously had a significant impact on the income statement this quarter and that has resulted in net income of $11.8 million and earnings per share of $0.18.

Moving over to slide eight -- slide eight and slide nine which are the balance sheet assets and liabilities.

I don't have anything in particular to say in respect of the balance sheet, so we move on to cash flow statement on slide 10.

There again coming back to this issue of non-cash mark-to-market valuation of derivatives.

You can see the impact of that in operating activities and the changes in mark-to-market value of derivatives and foreign exchange gains and losses of $26.8 million.

Under investing activities, of course, the additions to new buildings are in respect of the CapEx on our FSRU projects.

And moving over to slide nine, financing activities other than the repayment of debt that occurs each quarter, the item of note is the proceeds from long-term debt, $20 million.

That is in respect to the drawdown from an $80 million revolving credit facility which we entered into with Golar LNG's main shareholder, World Shipholding, right at the end of the second quarter.

Moving on to slide 12 and financial -- the analysis of financial expenses at the top.

You can see the split of lease and debt interest, and then to the bottom of the table you can see the breakdown of the $24.8 million gain, which is $10.7 million in relation to interest rate swaps, which is a big increase on the previous quarter.

The net FX gain on lease balances, currency contracts, and other current retranslations are $6.5 million, and the equity swap gain, which I referred to earlier, the bulk of which relates to the Arrow Energy swap, which as I said has now been terminated, and there will be a further $7.8 million gain booked to the third quarter.

So then we turn over to slide 13 and the Golar vessel portfolio.

We have restructured this slightly to indicate the split between what we refer to the Golar LNG Group, which is mostly focused on long-term contracts, and the Golar LNG Energy Group, which is focused on short-term trading and conversion of vessels.

In the LNG Group obviously we have the Princess, Winter, Spirit, and Mazo which are all on long-term contracts.

The name of the charterer seems to have dropped off of the Spirit, but that is obviously Petrobras.

LNG Ltd.

also has the Ebisu, which is a chartered-in vessel which is chartered in up until mid-2010.

Then also comes the Golar Freeze, which has been transferred to Golar LNG Energy whilst it undergoes its conversion process, but there is of course there an intention to transfer back to Golar LNG Ltd.

after its conversion by the exercise of an option to acquire.

Then we have the Khannur and the Gimi that are both currently on higher to BG Group under long-term contracts.

And together with the Hilli, the Hilli is actually currently in lay up, both vessels are the prime targets or candidates for FSRU conversion similar to, of course, the Freeze, the Spirit, and the Winter that we have already done or are now in the process of doing.

The Gracilis, the Grandis, and the Granosa are all modern ships that are on time charter with Shell until the end of 2010, and the Golar Arctic is a another modern ship.

She is trading in the spot market, and as a mentioned earlier has recently entered into a short-term charter until the end of 2009.

And the Gandria, which is a vessel that we own 50% with Bluewater Energy, is a -- she is actually the sister ship to the Golar Freeze, another older vessel and also, of course, a candidate for FSRU conversion.

Turning over to slide 14 and business development.

There are, of course, two main areas of developed -- business development for us -- liquefaction and regasification.

On the liquefaction side two main projects; one of course is Gladstone.

We have had there some positive results and feedback from technology reviews -- the review of the technology that is going to be used in the project on the base Foster Wheeler and SK Engineering.

There has been good progress on final FEED by the main EPC contract, SK Engineering and Laing O'Rourke.

During the quarter there has been acceptance of the membrane tank technology by the Australian authorities and separately Golar LNG Energy has been involved in detailed discussions with potential LNG buyers of Golar's off-take from the projects.

Our floating liquefaction project, which has been developed within cooperation agreement with PTTEP, has also progressed.

We have, as I mentioned earlier, signed FEED study agreements with PTTEP in relation to a specific project in northwest Australia and the technical concept development and project execution, commercial concept planning continues at some pace.

On the regasification side of the business, the FSRUs is continued strong inquiry.

The Company is aggressively pursuing projects in FSRUs.

We expect, again, as a mentioned earlier, some invitations to bid to come to market over the next few months, specifically Israel, Indonesia, and Uruguay.

And also interestingly with increasing LNG supply and also some lower pricing fundamentals that creates opportunities for LNG importers to get FSRU projects off the ground, that makes them a lot more feasible.

So turning over to slide 15 and I will now take a look at that strategy of Golar LNG Energy and Golar LNG Limited.

We will start with Golar LNG Energy and I can start with the rationale for the split of the Company which was to create two companies.

One an aggressive, well-funded, high growth midstream LNG company, which is LNG Energy Ltd., and a lower risk, high-yield, long-term shipping chartering company, which is the pre-existing company, Golar LNG Limited.

First, LNG Ltd.

will have two LNG carries, three FSRUs on long-term contracts, forward revenues of $1.9 billion, and EBITDA of $155 million a year.

That is as when the Freeze comes back to LNG Ltd.

and starts on her charter in the second quarter of 2010.

Pretty limited CapEx therefore subsequent to that going forward and therefore a high dividend capacity.

The vast majority of long-term financing in place, and of course a controlling stake in Golar LNG Energy.

For Golar Energy it has four modern LNG carriers -- as we have mentioned, 3.5 1970s built MOSS carriers which are ideal conversion candidates, a project portfolio with significant value upside, pretty competent organization with a proven track record in developing FSRU projects, and also the Company has long-term financing in place.

Turning specifically to Energy's strategy, which is to create a leading LNG Company that is not solely devoted to pure LNG shipping, but takes exposure in a large part of the value chain by providing innovative and flexible solutions for the production in the midstream segment.

Again, as I have said, three principal segments which cover shipping and trading, regasification, and production and liquefaction.

And bringing all those together, one of the key focuses is to try and create and establish a trading platform with access to gas molecules and regasification capacity.

And thereby not only to be able to maximize the utilization of our spot ships, but also to further benefit from trading opportunities and storage plays.

Additionally, we would look to use the modern tonnage in long-term employment scenarios within integrated projects, whether that be with a liquefaction project or a regas project.

On the regasification side obviously the really, the key there is to win contracts to employ the four existing older vessels that we have in FSRU-style projects that we have already achieved with Petrobras and Dubai Supply Authority.

To develop additional FSRU solutions and also consider taking participation in land-based terminals to strengthen this strategic platform that I was talking about, i.e., by taking regasification capacity.

And then on the production and liquefaction side, we are looking at taking equity position in floating and land-based liquefaction projects.

This participation could well include non-operating exposure to upstream assets.

As an example of that, of course, is the PTTEP project where we have the option to farm in to the gas resource.

That is proven gas resources I would add.

Moving over to slide 17, which is really sort of summing up what we have in those three factors of the strategy -- production and liquefaction, the two liquefaction projects that we have talked about.

We are looking there to capture the upside in the gas value, not just leasing assets, and we are also looking at additional opportunities to bundle liquefaction with transportation and regasification.

An example there is oftentimes people looking at regas projects are also looking for gas and so if you are able to supply transportation and gases it can make these projects a lot easier to get off the ground.

On the transportation side, we have for modern ships of course.

Three of these are on the spot-related contracts with Shell until the end of 2010, and that is for the four ships secures LNG transportation capacity for our own FSRU and liquefaction projects moving forward and also positions the Company to benefit from strengthening market for LNG shipping moving forward.

On the regasification side, again, as we said before, we have got these four 1970s-built MOSS carriers that are prime candidates for conversion.

Two of these are currently operated on long-term time charters and two are currently in layup.

Having the assets also enables the Company to bid for FSRU projects with a relatively short lead time and also gives a significant cost advantage of newbuildings.

And then finally on page 18, we come to Golar LNG Limited strategy, which is, I guess, relatively simple in comparison to Golar Energy's.

And that is to operate its five vessels on long-term contracts safely, professionally, and cost efficiently, to be an active shareholder and maximize the value of the Company's shareholding in Golar LNG Energy, and also to organize the Company's financing with the purpose, of course, of optimizing cash flow in order to be able to sustain the highest possible long-term dividend payment to shareholders.

And with regard to those dividend payments, I refer you back to what I said earlier on in the presentation that the five long-term contracted vessels -- the Spirit, Mazo, Princess, Winter, Freeze -- have approximately $1.9 billion in contracted revenue.

Once the Freeze is delivered and up and running on charter those five ships will generate approximately $155 million in EBITDA and $75 million in free cash flow, which will increase again once the Golar Mazo debt is fully paid in 2013.

And, of course, there is significant upside through the ownership in the new project company, Golar LNG Energy Ltd.

Okay.

Well, that sort of draws to a close the presentation this quarter and I would now like to open up the call for questions.

(Operator Instructions) Urs Dur, Lazard Capital Markets.

Good afternoon, everybody.

Informative presentation.

You mentioned in the release a possible share distribution or dividend to Golar holders of Golar's position in Golar Energy.

Can you give us -- and maybe you mentioned it and I didn't hear it -- but can you give us any color on that?

Just saying second half 2009, is that about it?

Yes, pretty much.

I mean there has been no decision made on how many and exactly when, but that is most definitely under serious consideration to make a distribution to existing shareholders of some of the energy shares.

Yes, okay.

Very good.

And then just going forward from a Golar LNG perspective -- obviously as that is what I am looking at.

What are the prospects, I guess, of the relationship with Golar Energy going forward in regards to -- is there an agreement between the two formally about having access to purchase projects from Golar Energy over time or is that just a working arrangement?

There is no formal agreement, no.

But I think that given the two companies' strategy and shareholder base, if LNG, for example, landed a long-term contract and developed an asset then there is a strong likelihood that the equity that Golar LNG Ltd.

would be able to raise may well be cheaper.

And therefore it could well be beneficial for Energy to sell that asset to Ltd.

and use the equity to go on and raise other projects, but there is nothing formal in place.

Okay, that is what I thought.

That is great; that is good color.

Maybe also you mentioned -- maybe you mentioned it, but again I don't see it.

Where are or can you give us an idea of where we are spot rate-wise now?

And I know you mentioned that you chartered two ships on short-term charter.

Can you give us -- I guess, since you didn't I guess you can't but I'm going to ask anyway.

Can you give us any sort of round indication as to where those levels are?

I think I can say that in the second quarter rates were sort of in the 20s.

That is now moving up to the 30s and we hope that it will see it move on from there.

But I think that is probably about as much as we want to say.

But you are seeing -- and more of a macro question -- so you are seeing more opportunities for short-term contracts at this point in time that are less egregiously cheap than previously then?

Yes, definitely.

The demand is getting better in general to move LNG?

Yes.

Okay, well, there is also more production coming to market as well which helps.

Well, yes.

No, absolutely, and I do recall the growth that is in line to come on and you have been very good at showing us that.

No, I appreciate it and thank you very much for your time.

[Levon von Redden], [RK Capital].

Most of my questions are related to Energy.

Any pro forma balance sheet information -- cash, debt -- that you might be able to provide?

Also, if any kind of capital requirements either for, I guess, Gladstone or anything along those lines?

I am trying to get some feel for what the cash requirements will be in that business over the next six to 12 months or so.

Yes, I mean in terms of balance sheet and financial information, we are going through the process right at this minute of moving Golar LNG Energy to full listing status on the (inaudible).

So financial information will be coming out over the next month or so.

With regard to capital expenditure, I mean it depends what exactly you were looking for.

I mean obviously we are not right at this stage at final investment decision.

If you look at the total CapEx requirement for the liquefaction plant and the Gladstone project, it's in the region of $500 million to $550 million.

Okay.

The other question I had is I am just trying to make sure I understand the reasoning behind having Freeze at Energy and then potentially shifting it over to Golar?

Was that a function of where, I guess, the deal with the controlling shareholder was made?

Is there a particular reason why it wasn't simply shifted into or left at Golar in the first place?

Well, I guess there are two reasons.

One is that, obviously, it's Golar LNG Energy's business now to develop FSRU conversion projects and that is where the skill set and skill base is.

But also there are some financing structures around Freeze that made it reasonably complicated to split now.

But the first one is the primary reason.

Finally, you kind of talked a little bit about what is happening on the demand side from an LNG perspective.

Can you help me understand what is happening from the supply side, ships that are coming into the market for the balance of this year, 2010, 2011?

I am just trying to get some feel for how much additional capacity is going to be added.

Yes, sure.

I will let my colleague, Ian Walker, answered that one.

Yes, there is a number of ships still to come into the market this year.

We have seen maybe about 26, 27 vessels already delivered this year.

There is probably another, well, similar amount still to come.

These are mainly allocated to projects or project-based vessels.

Next year we see maybe about 18 vessels being delivered and maybe one or two of these being on spot.

In 2012 we see -- sorry, 2011 may be about 14 vessels.

Again, mainly allocated to projects.

Angolan vessels are coming out; we are seeing two Titans or two [flags] vessels coming out, maybe a couple on the spot; TMT and [Knutzen] have vessels coming.

It drops way down to three vessels coming out in 2012.

So, again, flex for the LNG vessels and I think a Tokyo gas or a Tokyo electric vessel.

So if we look at what orders have been placed as well, last year we saw about six or seven orders being placed in the first half of last year and nothing since then.

There may be something ordered next year, but unknown at present so not confirmed.

And looking forward, there is not too much else coming out.

So I think as the new projects are delivered and these projects take up and soak up some of that delivering capacity then the market, spot market certainly will become tighter.

So we hope that vessels in the spot market will be employed due to increasing project capacity and maybe a reduction in lengthy maintenance and outages due to also an increase in demand as we go forward.

And I think previously you commented that energy you had expected to be at least breakeven based on certain spot market rates.

Can you kind of repeat what your thought process was there?

Yes, I think the rate that we quoted it was around $40,000, $41,000, $42,000 a day, something like that, for the modern ships.

For breakeven?

Yes.

Okay.

And we should just kind of keep an eye open for filings for any of the balance sheet information as it relates to --?

Yes, exactly.

Yes, that hopefully, as I said, should be coming relatively quickly with the listing.

Okay, thank you.

Frederik Lunde, Carnegie.

Good afternoon.

Just a question on the -- what is driving the spot markets.

Is that actually new demand?

I mean new [cargoes] coming to market or is that just on opening the new training thus far or is it demand?

Well, I mean demand is a bit depressed at the moment actually.

We have seen limited activity over the last few months and have seen some basically low demand in the Far East resulting in, for instance, Sakhalin producing cargoes and only outlet they can find there would be Kuwait.

In the West there have been some supply available, mainly coming out of Trinidad, and we have seen the Henry Hub prices and NBP prices fluctuating on different curves and the gas sellers and equity holders there basically preferring to sell their product into the spot market.

Some of the majors have been taking these cargoes on very slim margins and locking into their access to the markets that they have.

And we will also see some new or new-ish players such as Citigroup, who we have as a charter at the moment, or Morgan Stanley who are at least demonstrating that there is some activity in this marketplace.

There is also -- there has been limited floating storage opportunities this year, although there are some.

I guess it's difficult to say how many precisely are out there are, because we don't know what the majors are doing within their portfolio.

I guess also sort of summary we are really seeing limited activity in east and west.

The rates that we see at the moment have been unchanged for a couple of months; they have improved slowly.

I think going forward probably as we come into the heating season we will see a bit of a lift in demand and a bit of a lift in the rates as the tonnage and the capacity tightens in the marketplace.

So I guess looking forward we are seeing a number of influencing factors, and I guess in summary it's brighter later in the forecast.

And also we are seeing some very large projects like Gorgon and PNG LNG moving forward now.

What do you expect in terms of transportation capacity for those?

Do you expect (inaudible) that you actually order new vessels earmarked for those projects or would it turn to the spot market given [the impact] of the day rates?

Yes, I mean typically, typically a new project in the LNG market is typified by conservatism, again.

And they -- in the (inaudible) projects we will tend to specify the tonnage, although there are a couple of indications in the marketplace that PNG, for instance, and another project may look to existing vessels in the marketplace.

That being the case, there is certainly a lot of tonnage offered on spec and operating in the spot market and available will be soaked up, which will really tighten things up in the spot market.

Difficult to say to what extent that will happen.

All depends upon what the projects themselves do decide and how their economics pan out.

Great.

And one question on what I think is more exciting long-term, I mean the Gladstone facility.

Would agree that is first in line among the projects?

If you compare that to FSRU projects and the PTTEP project, do you think that one is first in line or --?

Difficult to say -- it's Oscar Spieler speaking.

I mean the Gladstone project is progressing more or less according to plan and the first pass around 2013.

So I think that is the first project which will see the first gas, yes.

On the liquefaction side, but I think it's eminently possible that we -- [first cash] is running from an FSRU project because we can get there pretty quickly.

And if you look at Energy's strategy I mean there is two -- it's the regas, the liquefaction.

And the major focus in Energy for the moment is to go for the regas project because that is where you will see the cash first.

They are also, of course, working hard on the liquefaction and they are looking at the different type of concepts, not only for the Coogee and for the Gladstone, but also for other projects to see whether it's possible to have some cash from liquefaction earlier as well.

Just a follow-up on Gladstone.

The CapEx seems extremely favorable comparing to most other projects I have seen.

Can you give us some more flavor on how that is achievable and also on the economics, I mean, the off-take model?

How should we model this?

The reason -- well, there are a couple of reasons for the CapEx being pretty low.

One is that the gas is (inaudible) dry, there is no need to deal with the LPGs from the gas.

And also that the gas -- the CapEx only covers the capital commitment for inside the boundary fence at the plant, so getting the gas to the plant is gas supplies CapEx.

So that is probably the main reason for it being, the CapEx being relatively slow as to what you are used to seeing.

And I think, I guess the other reason is it's relatively small; it's relatively small scale.

The liquefaction plant will be built off-site in Korea and then shipped in and constructed, which is a lot more efficient than building it on site.

And, sorry, I think the second part of your question was --?

How should we think about the economics of this project in terms of the off-take agreements?

Can you just give some flavor on how to think about the revenue side?

Yes, it's a difficult one, obviously, because we are within discussions right now.

But I mean, you can -- what I guess you can, you can pretty see if you work it out for yourself, you are talking about 1.5 million tons which is about 77 million Btus.

And so -- picking a number out of the sky, if you are selling at $10 per MMBtu that is $700 million a year in revenue.

Obviously, that doesn't tell you how that is cut up between gas supply or liquefaction plant and off-taker, but that is sort of scale of the numbers that we are talking about.

Great, thanks.

Jeffrey Schwarz, Metropolitan.

Good morning or good afternoon, gentlemen.

A couple of quick questions here.

What portion of the third quarter should we assume that the Winter will be on higher for?

Probably now not until the end of the third quarter.

So we will not -- we won't have booked any revenue for the third quarter?

A small amount, yes, but not for the full quarter.

Okay.

And tell me about in the -- have you begun to spend any capital on the speculative, I guess, pre-conversion phase for the Hilli?

And how do long do you think it would take to bring a project to market if/when you were to sign up a counterparty for an FSRU, since I know you have ordered some of the long lead time items already for the Hilli?

Yes, in terms of financial commitment, we have ordered some of the long lead times.

That is lead items that as you say that commitment, a few million dollars, $3 million or $4 million.

In terms of timing, I will let Oscar --

I think it depends on whether we will be required to design a new system or not.

But if we could take (inaudible) off the Spirit, Freeze, or Winter we are talking about in the region of 18 months, 18 to 24 months.

We have been in discussion with certain players and we have told them around 18 months if everything goes well.

Great, thank you.

Lastly, I don't know where on your -- in the pecking order you have the possibility of a US listing for Golar Energy.

Is that something that is on the horizon, and if so when might you hope to be able to achieve that?

Jeff, I chuckled because the thought of a US listing following directly on the Oslo listing doesn't fill me with joy, but I mean it's a very fair and valid point.

And I think it's something that could be considered certainly.

Obviously we have some very exciting projects; all of which are well likely to require further equity if they are successful and really take off and, therefore, the US listing may well be beneficial.

But if and when that might happen is probably, I guess, a little bit early now.

And we should be expecting the Oslo listing some time in the near future?

Yes, we are shooting for early October.

Okay.

Thank you, gentlemen.

David Bhatti, Nordea Markets.

I was wondering if you could tell us a bit more about these invitations of bids regarding the Israel and I believe it was Indonesia and Uruguay projects.

And also who you think would be probable bidders for such a project?

I mean, obviously difficult to say who the probable bidders might be.

The requirements differ in the three projects and the -- I am not sure any of them have necessarily stated whether --.

I think they have all talked publicly about the fact that the invitation to bid will be coming and that is our expectation, but they haven't formally been issued yet.

And just a follow-up on that.

How do you see the timeline for this?

On the invitations to bid?

Yes.

I think our expectation is that they will be out within the next month or so.

It's difficult to be absolutely certain about it, of course.

That will be something you would bid the Hilli on?

Most probably, yes.

It does depend on the specifics of the project, but certainly all other things being equal she would be the first to vessel to bid, yes.

Okay, thank you.

(Operator Instructions) [Andrew] Rosenlund, ABGSC.

Thank you.

Will we be getting a full P&L on the full balance sheet for Energy before the third-quarter report?

In connection with the listing, yes.

Okay.

Great, thank you.

As we have no further questions, I would like to turn the call back over to Mr.

Graham Robjohns for any additional or closing remarks.

Okay, thank you very much and thank you to everybody for joining us this quarter.

We look forward to joining you next quarter, which will effectively cover the results of two companies, Golar LNG Ltd.

and Golar LNG Energy.

Thank you very much and have a good day.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.