Golar LNG Ltd (GLNG) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter results 2010 conference call.

The information to this conference is being recorded.

At this time I would like to turn the call over to your host today, Mr.

Graham Robjohns.

Please go ahead, sir.

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

I'm joined today on the call by Oscar Spieler, the CEO of Golar Energy, and Mr.

Blake Herndon who heads up Golar Commodities.

Okay, the format for the presentation will -- firstly I will run through Golar LNG highlights and financials and then we'll pause for a short time to take any questions specifically related to Golar LNG Ltd.

Then we will come back to continue with the second part of the presentation in respect of Golar LNG Energy and again I will run through highlights and financials and then I will hand over to Oscar and to Blake to update you on operational and commercial matters.

Okay, so, turning through the second slide of the presentation, forward-looking statements, we come to the agenda which, as I say, covers highlights, financial results, a quick look at the vessel portfolio, and then we'll move on to Golar LNG Energy.

Moving on to slide 4 and the second-quarter highlights, we are very pleased to report an improved quarterly earnings for the second quarter of 2010; this is due mainly to the contribution of the Golar Freeze FSRU.

And although the spot market has been weak in the second quarter it is improving with increased rates and currently all Golar spot ships working.

The Golar Freeze FSRU has been refinanced during the quarter with a new $125 million debt facility and the Freeze has now been transferred back from Golar Energy to Golar LNG.

Golar Commodities is moving towards being fully operational and has indeed executed their first trade.

Golar LNG Energy has been short listed during the quarter for the West Java FSRU bid.

Our new management organization, Golar Wilhelmsen Management, or GWM, was established during the quarter and this organization will perform the technical management for all Golar owned FSRUs and LNG carriers.

All vessels should be transferred to the new organization by the end of September and we believe that bringing the fleet together under one manager, in which of course we have a major interest, will give us better control over day-to-day operations which is particularly important, we believe, with regard to our FSRUs.

Golar LNG's strong cash flow outlook has of course been enhanced by the delivery of Golar Freeze and on the back of this the Board has proposed a cash dividend of $0.15 per share with an expectation that this will grow and a target dividend per share rate of $0.25 (sic -- see slide 4) by next quarter.

The Board has also proposed a further stock dividend of Golar LNG energy stock.

Moving over to the next slide, financial highlights, net operating revenues and EBITDA are up, as I have briefly mentioned.

Financial expenses are increased partly due to slightly higher interest rates, but mainly as a result of increased losses on mark to market valuations of interest-rate swaps because of increased long-term interest rates.

Time charter equivalent rates toward TCEs are up slightly and operating expenses are down this quarter.

Turning over the next slide we have the usual historical presentation of revenue and EBITDA which of course are up in the second quarter of 2010.

Moving over to the detailed income statement, which really just details out the financial highlights that I've just run through, but we have a result of $55.6 million revenue for the second quarter, operating income of $13 million and a net loss of $5.7 million.

Moving over to balance sheet assets, the main movement here is the increase in cash and cash equivalents.

And that comes of course as a result of us entering into the new debt facility in respect of the Golar Freeze, the $125 million debt facility.

And on the liability side of course there's a correspondent increase in long-term debt.

In terms of our debt, 60% on a group basis of that is now or is currently swapped to a fixed-rate through interest-rate swaps.

Moving over to the cash flow statement, we have $3.7 million of cash generated through operating activities in the second quarter compared to a negative $1.4 million last quarter and $2.8 million used in investing activities in comparison to $20 million last quarter.

The main movement on the cash flow statement coming in financing activities with the proceeds of $125 million debt facility that I mentioned earlier and of course offset partly by repayment of long-term debt, $35 million of that in respect of existing debt on the Golar Freeze that was repaid at the time of entering into the new facility.

And all those items leave us with a cash balance on a group basis at the end of the quarter of $135.4 million.

Turning over to slide 12, we have the detailed analysis of financial expenses and there you can see the loss on interest rate swap mark to market valuations of $5.4 million as compared to a $2.5 million loss in the previous quarter.

Moving over to the next slide, slide 13, we have the Golar vessel portfolio which I'm sure many of you are familiar with.

The Golar LNG vessels, the long-term contracted vessels are at the top of that slide, the blue bars represent contracted periods, orange options.

There is of course at the moment a sixth vessel within that group, the Ebisu, which is a chartered in vessel but she goes back to her owners during September.

The bottom half of that slide are the Golar LNG Energy vessels, the four older Moss type carriers that are all candidate conversions, three of those we own outright and the fourth vessel, the Gandria, we own 50% of.

And then finally, the four modern LNG carriers three of which are still currently on charter to Shell.

Moving over to the next slide, talk a little bit about the delivery and refinancing of Golar Freeze.

Here are some interesting photographs hopefully.

The top left hand corner is an area shot of the vessel still in the yard; that's the regasification unit on the bow of the ship.

And the picture adjacent to that on the right is the vessel having been completed and left the yard.

The bottom left-hand corner is an aerial shot of the breakwater and the jetty just off of the terminal port in Dubai.

And the bottom right-hand side, a slightly closer up aerial shot of the jetty under construction in Dubai just inside the breakwater.

Okay, well that concludes the first part of the presentation.

As I said to start with, we will now go on to present Golar LNG Energy.

But we will pause just at this time to take any questions that are specifically related to Golar LNG Ltd.

Alternatively there will be another opportunity to [ask] questions at the end of the Golar Energy presentation.

So Operator, I would just like to hand the call back to you for a short time to see if there are any questions at this juncture.

(Operator Instructions).

Operator, I suspect people are waiting to the end of the presentation to ask questions, so I suggest we just move on.

Okay, that's perfect, sir.

Okay, so moving on to Golar LNG Energy and, again, moving through the forward-looking statements page into the agenda.

I will cover highlights of the second quarter, our financial results and then I will, as I said, hand over to Oscar and to Blake to cover LNG shipping, floating regasification and Golar Commodities.

So moving over to the next slide, the highlights for the second quarter.

Second-quarter revenues were pretty much in-line with the first quarter.

There was a contribution from the Golar Freeze immediately prior to its transfer back to Golar Energy, but this was offset in part by a slightly weaker spot market.

Utilization rates were decreased from Q1; however, the outlook for Q3 2010 is quite a bit improved as the market has tightened.

All spot vessels are currently working and will be at least to the close of the quarter.

As I mentioned in the previous presentation, Golar Commodities are moving to be fully operational, executed their first trade, officers and systems are well under way to becoming fully operational and we expect of course activity to increase moving to the fourth quarter.

Like I said, a little bit more about that later.

Golar LNG Energy was short listed for the West Java bid, one of three remaining bidders.

And there was also outside of that, that formal tender bid, a continuing high-level of activity and inquiry around FSRU projects.

Again as I mentioned earlier, Golar Wilhelmsen management was established during the quarter and also in connection with the refinancing of the Freeze, the vessel is being transferred back to Golar LNG.

Moving over to the next slide and financial highlights.

As you can see, net revenues, which are net of voyage expenses are actually higher for the quarter at $10.6 million as compared to $9.1 million last quarter, this is primarily due to lower voyage expenses, principally fuel, resulting in measures we've taken to reduce costs but also helped by the burning of LNG rather than fuel oil.

EBITDA as a consequence is higher at $2.6 million.

Time charter equivalent rates are of course a pour $12,655 in comparison to $16,795 last quarter.

But operating expenses are pleasingly down at only $7,942 per day on average for the fleet.

Moving over to the next slide and the detailed income statement.

The one item I'd like to just draw out on this detail (inaudible) is the depreciation and amortization number which actually includes a gain of $3.5 million arising on the transfer of the Golar Freeze.

This actually represents -- does actually represent depreciation that was previously charged through Golar LNG Energy's income statement, but now is effectively credited back to the income statement as a result of transferring the vessel back to Golar LNG.

That's obviously a non-cash movement.

Moving over to balance sheet assets.

You can see that cash has increased and I will come on to talk a little bit more about that when we get to the cash statement.

On the liability side of the balance sheet you can see that Golar Energy also has interest rate swaps in-place and currently has 54% of its debt fixed to swaps to a fixed rate.

Moving over to the statement of cash flows, you can see that net cash provided by operating activities was a negative $.4 million and that net cash in using that -- investing activities was a positive $5 million.

But the main movements come on the next slide within financing activities.

In connection with the economic transference of the Golar Freeze back to Golar LNG and the resulting [part] extinguishment of the seller's credit, Golar LNG has repaid the $75 million loan that it had borrowed from Energy.

As you can see there, receipt from repayment of loan to parent.

And also paid $35 million in respect of debt that was connected to the Golar Freeze and refinanced at the time of the overall refinancing of the Golar Freeze.

Now whilst economic ownership of the Golar Freeze is passed to Golar LNG by intercompany agreements, Golar Energy currently retains a lease from the third-party lessor bank and also retains a cash deposit securing that lease.

And in addition a capital lease asset, all of these required or are required by GAAP.

But as I say, the economic and cash flow effect of the transfer has indeed taken place.

Okay, so that draws to a close a review of the financials of Golar LNG Energy and now I would like to pass over to Oscar to take us through the first part of the commercial and operational review starting with LNG shipping.

Thank you very much, Graham.

I think as we said in Q1 before cost of the spot market in Q2 and it has been as before costed, it's below due to low demand of LNG and obvious supply of vessels.

In the end of Q2 we saw a tightening of the market, we have (technical difficulty) it into Q3.

There is a surplus of LNG in the market, and we see smaller buyers coming into the market resulting in a larger and better spot market.

Asia has increased their import of LNG 16% year on year first six months.

Going into to the winter market we believe that the market will remain on these levels -- on today's levels and maybe tighten further.

Going over to slide number 26, with reference to the increased activity, we clearly can see increased activity also in the spot market in the graph.

As you can see, there is a much higher activity this year than last year.

Going over to slide number 27.

(inaudible) going forward with a fleet consisting of -- the fleet consisting of 358 vessels and with an order book of [128], most of them will be delivered over the next 12 months.

Taking into account the increased demand going forward this will result in a tighter supply/demand situation when it comes to shipping.

Wood Mackenzie has developed this graph which indicates that we have reached a bottom of the supply/demand curve and that from now on the market should tighten.

It should also be mentioned that a lot of the product vessels have been idle or running at very low utilization over last year and it's likely that these vessels will take most of the new production coming on stream.

However, the main measure is that it looks like the market slowly should improve.

Turning over to slide number [deuce].

As you can see on this chart here, the world needs energy.

[Partial] projects in different countries which we are working on.

The demand for finding efficient ways of importing LNG or energy is increasing and as a leader in that (inaudible) market we are in a good position and firmly believe that many of the countries we see here will attempt to use a floating solution due to low costs, time from [FRD] to first gas, or the challenges of building a land-based terminal in these countries.

Going over to slide number 29.

There are certain critical success factors which we look up on when we look at FSRU projects.

The first and most important is do we have an offtaker of the gas who is willing and able to pay the international LNG price?

Even if the savings are huge by switching from fuel to gas we see that a lot of the projects have an unrealistic price expectation when it comes to LNG price.

Secondly, we need to see a full chain project development capacity (sic -- see slides).

A lot of the countries and products we see have very little knowledge in the LNG area and we need to lead and teach them in a lot of these areas.

We need to find a suitable location for our vessel which could be challenging when it comes to draft and (inaudible).

We also need a [pro-specification] what our clients actually needs, which is a big challenge for a lot of them.

The last thing is that we need a strong counterparty.

This should preferably be an oil major or an energy company who could drive these products through.

This factor which I have mentioned here is one of the reasons why it takes a long time to develop these type of projects.

Going over to slide number 30, again showing a map of the world.

This map shows the projects where there are good progress and developers which have addressed (inaudible) which we have described.

Indonesia is the most advanced where they have issued a tender document where nine companies showed interest, four of these companies sent in a bid, three of them were passing the technical evaluation and the commercial bids have now been opened and are under evaluation.

We believe that we are in an extremely good position based on our previous experience, our cost and most probably we will see an award within the next two weeks.

There are also other projects in indignation which will materialize.

However, they have to send out tender documents.

This is also the case for Israel and Uruguay.

In addition, there are serious projects developing in Middle East, in India and other countries in the Far East.

We believe we can deliver the most cost competitive solution, we have delivered three projects.

Believe that the moss tankers are superior to the membrane tankers.

One of the challenges is to convince that our older and smaller vessels are fit for another year of service.

Okay, Blake, I think that was you going over to page number 31.

Thanks, Oscar.

Golar Commodities has made significant progress ramping up its operations during the quarter and we're on target to meet our internally established objectives.

This slide summarizes the efforts that we're undertaking to build out our operation.

We believe the foundation for a successful trading operation requires a strong physical capability; we're establishing that through (inaudible) appropriate operations expertise and logistics expertise.

Financial sophistication which we have, we have the team to manage risk and use derivatives and appropriate tools to manage those risks.

And balance sheet, we've made good progress in establishing the appropriate credit lines to help us manage working capital requirements in the industry.

Ultimately three sources of value in our trading operation.

Initially in markets like this we believe it comes through arbitrage opportunities, low risk, back to back or close to back to back opportunities, there are significant inefficiencies in the market.

Proprietary trading to some degree, taking (inaudible) risk that result in superior returns.

And ultimately as the market evolves we believe that there's significant value through structured transactions, focused optimization activities and risk management transactions with counterparties.

And we've made great progress, we're building out systems, establishing our commercial activities, building tools, risk management tools and fundamental models to build out the business and (technical difficulty) commercial space we've actually transacted our first physical transactions and expect to be on target throughout the rest of the year.

Thank you, Blake.

Let's go over to the last page where I will try to summarize a bit of how I look upon the situation today.

Personally I have during the last few months moved from being cautious optimistic to be cautious bullish on behalf of the Company.

The order book is on (inaudible) is low.

New capacity of LNG coming on stream.

There are good economical growth in [non-OSD] countries.

The timing for starting of a trading company is optimal, we [are not of] inefficiencies and the industry.

You see there are huge synergies between our Midstream business and trading and we should have a (inaudible) position when it comes to new FSRU projects.

We are also developing (inaudible) projects focusing on logistic -- on the logistics of delivering power from floating units.

We are in the phase of completing a concept study on floating power -- power ship delivering gas to [buyer].

We believe this to represent a big step forward for the Company.

However, it is still early days.

We have not been going very (inaudible) through the different markets today.

We have done that in the past and that was -- so if you have any questions, please go ahead after this.

Thank you very much.

Graham?

Thank you, Oscar.

Operator, we would like to hand the call now over to questions and answers.

(Operator Instructions).

Martin Korsvold, Pareto Securities.

Good afternoon.

First of all, on the trading activity, could you try to give us some idea of the economics you expect there and how much capital you believe it's going to tie up in the near term?

I'll take the first part of that, Martin.

I think that it's probably a little bit too early to start talking about the economics other than the fact of course that we stated last quarter that we expect the commodity division to be profitable within its first year of trading.

And capital, to a great extent, will depend on how quickly trade is ramped up and how much trade we're doing and how many lines of credits we have with banks.

And clearly we will have to put some cash equity into the business to help it operate, but it's dependent on a few things at the moment.

Does that answer your question?

No, (technical difficulty) but thank you for the answer.

Okay, the second question, given your steady cash flow in Golar you're guiding at 75% dividend next quarter.

Can we assume that's going to be the annual run rate going forward?

Yes, I think you could assume that.

Okay.

And thirdly on the market.

Can you give us some idea first of all on where is the time charter rate?

What does it value, none of the last year?

And also just looking at your -- the slide from Wood Mackenzie, it seems it's pointing to a utilization of 80% at peak, which is not that bullish, if you have some comments on that.

Yes, I'll make the first comment.

I'll let Oscar comment after me.

I think you said time charter rates, currently I mean we've been sort of down in the 20s in the second quarter but we're now sort of $30,000 to $40,000 a day.

I didn't quite catch the other bit of that question.

Values, what values and the longer-term time charters have done over the last year and where we are for (multiple speakers).

Well, I mean longer-term time charters; there haven't really been any sort of shipping tenders and bids for long-term deals for quite some time now, so it's sort of difficult to say.

On the Wood Mac chart, I mean we do sometimes think twice about putting the charts in because the -- once you go past about sort of 2014, 2015 obviously it's very dependent on the assumptions that you make with regards to new ships being ordered for new projects.

There have been times in the LNG -- LNG's history where just new ships have just been ordered, when an older ship could have done the same job.

So it really does depend on those assumptions.

But the key thing and why we use it is that obviously there's a lot more clarity within the next couple of years and it shows a clear rebound in utilization.

Okay.

Thank you.

(Operator Instructions).

[Jienum Rose], [ICIS] (inaudible).

Thank you very much, gentlemen, thank you for taking my question.

I was hoping you could give me some more detail on the first executed trade.

Sorry to jump in front of you, Blake, but I suspect that Blake would say that we're right in the middle of that now and it's commercially sensitive at this time.

Okay.

So you aren't able to give any detail at all, is that right?

This is Oscar here.

I think generally going forward we will never give you (inaudible) about our trading, that's information that we can't get out.

Sorry.

Okay, no problem.

Thank you very much.

(Operator Instructions).

Nathan Weiss, Unit Economics.

How are you?

Yes, hi, Nathan.

Two questions.

The first on Golar Energy in terms of share trading; I know the buyback has been in place and the likes.

But any further developments or further thoughts on improving liquidity there?

Yes.

I mean, obviously the buyback remains in place.

I mean, you've obviously seen from the press release that we haven't bought back that many shares.

The main reason for that is that under stock exchange restrictions we are constrained on volume and on price movements as well.

But I think in terms of liquidity generally, I think with some news flow from the Company and some improvement in rates and earnings we'll hopefully increase interest in the stock and increase liquidity a bit.

Okay.

And then the second question on the trading side.

I know you can't talk specific contracts, but what do you view the prospects of being able to steer cargoes towards Golar vessels via the trading entity and how meaningful do you think that could be?

It's Oscar.

I think generally, I mean we have to do this on our (inaudible) distance.

So I mean we will definitely -- if we are in the position we will do it.

But generally we will do these on (inaudible).

We have to be competitive to (inaudible) commodities.

So hopefully we will manage to utilize our vessels, but that depends on how we view the market and how commodity (inaudible) view the market.

Okay.

Thank you.

[Chris O'Neil], Noster Capital.

Good morning, guys.

Yes, good morning, Chris.

Just a quick question.

Just if we think about the liquefaction landscape and especially the marginal liquefaction plants that have come on online over the last 12 months or so.

Do you have a sense of the utilization that they're currently running at, mainly versus the utilization expectations that they might have had at this stage when they first started?

Are we seeing them -- I know there's been some maintenance time for some of them over the summer.

But are you seeing them starting to ramp up a little bit more towards normal utilization levels?

I think there certainly is less maintenance work going on now than previously, so there's more activity.

And also bear in mind of course that when a train starts up it doesn't sort of start up at peak capacity immediately, it takes it a little bit of time.

But -- so that's what I would say.

I don't know whether Blake or Oscar have anything to add to that.

I think generally if you look at a lot of the plants (inaudible) Malaysia, Yemen, Australia, Egypt, Qatar, Russia, all of them, they are running on ready use capacity.

Some of it is ramp up, some of it is operational issues and some of it is also most probably also governed by the oversupply of the LNG in the market.

Got it.

Okay, thank you.

And my other question was already asked.

Thank you very much.

As we have no further questions in the queue at this time, I would like to turn the call back to Mr.

Robjohns.

We just have one question again from [Eric Sasef] of (inaudible) Security.

Hi, guys.

Just one question on -- I recently read that the Golar Arctic was fixed out on a short-term time contract.

Is this correct?

And also do you give a rate for that vessel if so?

We haven't -- it is fixed out on a time charter, yes.

We haven't given a rate -- it's around the 30 mark.

Okay, just curious.

(Operator Instructions).

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

Robjohns for any additional or closing remarks.

Thank you, everyone, for joining us again here today for the presentation of the second-quarter results.

As we've said in the press release and in the presentation, our outlook from where we sit now is much more positive than it was from this time three months ago.

And we look forward to speaking to you again in connection with the presentation of the third-quarter results.

Thank you very much and goodbye.

Ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.

You may now disconnect.