Golar LNG Ltd (GLNG) 2011 Q3 法說會逐字稿

Hello, everyone, and welcome to Golar LNG's third-quarter results presentation.

My name is Brian Tienzo, and I will be taking you through our Q3 2011 highlights, as well as our financial results for this quarter.

Our CEO, Doug Arnell, will then take over from that, to go through our business update and Golar's outlook for the LNG sector, and will go through the possibly -- the opportunities we have in the sector.

So let's now turn to page 4 to go through today's Q3 highlights.

Golar LNG reports consolidated operating income of $45.5 million for the quarter and net income of $13.7 million for the third quarter of 2011.

This is a significant improvement from our second-quarter results, mainly due to improved utilization of vessels.

And of course we had earnings contribution for the Gimi, as well as a decrease in OpEx in administrative expenses from (inaudible) as well.

We announced today that we will be paying dividends of approximately $0.30 per share, and this reflects the Board's positive outlook of the Company and the LNG sector in general.

As you know, we also announced a three-year charter which we secured for the Golar Grand during the quarter.

With that, an annualized EBITDA of approximately $39 million per annum.

And again, this reflects improvements in the underlying shipping market conditions.

Furthermore, we successfully reactivated the Golar Gimi and placed her on short-term charter shortly after her reactivation.

We believe that there are further prospects for the vessel, and we think that her capability is to be able to contribute approximately $16 million of annualized EBITDA into 2013.

Shortly after the quarter, Golar successfully dropped down Golar Freeze into our affiliate company, Golar Energy Partners, demonstrating the good structural corporate structure of the Group, with a purchase price of $230 million, partly financed by vendor financing and Golar LNG Partners assuming the existing debt on the vessel.

As to our press release, we've been saying that we perceive continued tightening of shipping markets, and we believe -- and will continue to do so, and have seen spot rates reach approximately $110,000 a day for modern steam vessels.

Let's now turn to page 5, to go through our financial highlights.

So our net operating revenue for the quarter is $77.4 million, which is approximately $4 million more than Q2 2011.

This is because modern carriers were all on charter for the quarter.

We also had earnings contribution for the Golar Gimi, which into charter shortly after its reactivation.

And of course we didn't have any drydock during the quarter, whereas in Q2 2011 we had Golar Maria drydocking.

Our EBITDA has improved significantly from Q2, from $38.9 million to $62.5 million in Q3.

This has obviously been helped by increased revenue, as well as improved operating costs and administration costs.

Our EBITDA was also helped by a net gain in our trading business.

As you can see there, our results are negatively impacted by net financial expenses, which has increased from $15.7 million in Q2 to now $24.9 million in Q3.

The main movement there is essentially mostly due to non-cash from mark-to-market losses on both interest rate swaps, as well as retranslation of foreign currency hedges and accounts that we have.

The highlights as far as day rates are concerned, the two bottom numbers there.

Time charter equivalents with (inaudible) is fairly consistent with the second quarter at $91,614 per day.

But more importantly, our ship operating expenses have decreased from $14,660 a day from Q2 to now $13,547 a day.

Of course, we made an announcement last quarter that the Board is aware of the increasing in both operating and administration costs, and we have implemented ways to try and arrest that, and it is pleasing to see that that has now made its way through to the Q3 results.

Let's now turn to page 6, to go through in more detail our income statement.

As I'd mentioned earlier, our revenue has gone up from $74 million approximately in Q2 to $77 million in Q3.

That has obviously been helped by increased utilization of approximately 99% versus 97% in Q2.

And again, a fairly consistent TCE rate in Q3 versus Q2 as well.

Furthermore, we enjoyed full quarter's increased revenue for the FSRU's in Brazil due to the CPI uplift that are contained in their time charters.

Going down the numbers, so we are now looking at vessel operating expenses and administrative expenses, which you can see have dropped dramatically from Q2 numbers.

Again, as mentioned earlier, we've implemented ways to try and arrest the increase in these costs, and we hope that we are able to maintain these numbers going into Q4.

As announced in last quarter's results, we were expecting net income as far as our trading business is concerned of approximately $5 million and that has been achieved this quarter.

The line other operating gains and losses there and showing a gain of $6.25 million relates to Golar commodities, but the net gain for the business is $5 million because some of the costs related to that gain is within administrative expenses.

Overall, the result for the quarter is pleasing.

Unfortunately, as we mentioned earlier, we were impacted somewhat negatively by mark-to-market losses in our interest rate swaps and FX, which we will go through later.

So comparing Q2 net profit, which was a loss of $621,000, we made net profit this quarter of $13.7 million.

Let's now turn to page 7 to just quickly go through the EBITDA and net revenue pattern over a few years.

So as you can see there, essentially, we've been seeing improvements from Q3 2010 onward.

And of course as per our announcement today, with the Grand charter, as well as Gimi's charter going into Q4, we hope that we should be seeing that improvement further into -- into Q4 as well as 2012.

So let's now go to page 8 to go through the financial expenses analysis.

This is unfortunately one of the main items that have negatively affected our results this quarter, and unfortunately, it is something that is more (technical difficulty) than operational.

So as you can see there, interest-rate swap loss/gain for the quarter is $10.1 million versus $5.7 million during Q2 2011.

And mainly the 3-, 5-year and the 10-year swap rates as of 13th of September have dropped significantly, by about 50 basis points on average, and as a result, we've taken a mark-to-market hit for those.

In other financial items, that shows essentially the foreign currency retranslations that we have to put through, and also the mark-to-market losses we have on foreign currency hedges relating to the Golar Khannur conversion.

Again, both of those negative impacts are non-cash as far as the results are concerned.

If you now turn over to page 9, to go first -- to look at first [the sheet] of our balance sheet.

I've got two numbers highlighted there, the first one being cash and cash equivalents, and it's basically just to highlight that we have the capability to finance our projects.

Obviously, we've spent quite a bit during the quarter for the reactivation of Gimi.

We also spent some on newbuilding installments, as well as Khannur.

But because of the performances of our vessels, we've been able to maintain a quite healthy bank balance.

Further now into sheet, you can see the newbuilding number has gone up from $117 million to $181 million dollars in Q3, again, mostly due to installments paid for our newbuildings -- for our new building program.

Turning over to the next page, the one thing I just highlighted there is the long-term debt, which has gone up slightly, from $694 million in Q2 to $730 million in Q3, mainly because although we made some repayments as far as debt during the quarter, we also drew down the remaining $45 million in our revolving loan with an affiliate company of our main shareholder, World Shipholding.

That is [below] and we expect to repay within the next 18 months.

Going over to page 11, just one number to highlight there.

Again, just highlighting the number of the installment payments we made during the quarter of $109 million.

So that is a mixture of newbuilding installments, Gimi reactivation costs and Khannur conversion costs.

And finally, over the page, wanting to highlight again the cash balance at the end of the quarter, from $148 million in Q2 to now $115 million at the end of September.

And so given the cash percentage that we've put through for capital expenditures, we've been able to maintain quite a decent cash balance.

On that note, I am going to now hand you over to our CEO, Doug Arnell, who will go through our group structure, business update and outlook.

Thanks, Brian, and good afternoon and good morning, everybody.

First, on slide 13, I'd like to talk a little bit about our group structure.

There are two core companies that are in place in Golar's group, Golar LNG Limited and Golar LNG Partners.

Golar LNG Limited is our growth vehicle.

It is where we conduct our business development activities for new FSRU deals.

It is where we hold assets that are -- usually carriers that are in short-term or spot service.

And it is where we house our newbuilding program.

The other company, Golar LNG Partners, is a company that owns long-term contracted assets with stable cash flows.

It is a yield-oriented company, lower-risk -- lower-risk vehicle.

The synergy between those two companies we believe is very strong.

The sell-down of assets into Golar LNG Partners is a very effective way for us to raise capital and fuel growth at the Golar LNG Limited level.

I think it is fair to say we've demonstrated that in recent months with the drop-down of Golar Freeze.

The Freeze drop-down produced $330 million of proceeds, which increase MLP dividends by 11%.

But crucially for Golar LNG Limited, those proceeds will be brought back up into the Company to finance in part upcoming commitments on our newbuild program.

So we are very happy with the way our corporate structure is operating, and we intend to do the same again next year, in the first quarter, and with other assets in the future.

Turning to slide 14, this is our existing portfolio across the Group, both Golar LNG Partners and Golar LNG Limited.

The Golar LNG Partners vessels are shown at the top -- Methane Princess, Golar Winter, Golar Spirit and Golar Mazo.

Of course, we just talked about the Freeze.

That drop-down actually occurred just after the quarter end.

We've shown it in Golar LNG Limited, but of course from here on in, it will be a Golar LNG Partners asset.

So the Golar LNG Partner will have two carriers on long-term service and three FSRUs under long-term contracts.

Golar LNG Limited has three older, first-generation vessels.

The first is the Khannur, which we are going to talk a bit more about later.

It is being converted for FSRU use service.

We have the Hilli, which is still in layup, but we are currently looking at for reactivation.

We have this Gimi, which has been reactivated and was a great success for us.

We spent probably just under $20 million reactivating her, ensuring that her long-term longevity was in place.

And we had really good interest when we came to the market for chartering.

We ended up with a short-term charter at very good rates.

We see just, based on prospects and the people we're talking to about Gimi, that well into 2013, we will be able to do quite well in terms of revenue out of that vessel.

And as Brian said, we are projecting somewhere around $16 million annualized in EBITDA.

So we are now looking at the Hilli, which would be a similar scope of work in order to reactivate her.

And in turn we would expect that the higher revenue on Hilli would look the same.

With a positive decision, which we expect to take in the next days, we would see Hilli in service sometime near the end of the first quarter of next year.

Then we have the four existing modern vessels, one of which we've made an announcement recently on, the Golar Grand, which has gone on a three-year charter with a three-year charters option to an oil and gas major.

We were very happy with the rates achieved on that vessel, and I think it points to the value of a fleet.

The Viking, Maria and Arctic are all coming up for re-chartering next year, and we expect to do as well or better with those.

Turning to slide 15, a little discussion on the market outlook, which I guess it is fair to say we see as positive.

Spot and term rates, term being one- to two-year rates, are certainly strengthening as we go into fourth quarter.

Spot rates, as we said, sitting at about $110,000 a day; one- to two-year rates probably in excess of that.

And with a good outlook for lots of new supplies coming on as we head further into the decade.

A lot of this is being driven by very, very good LNG and natural gas fundamentals put against nuclear uncertainty in Japan and stagnating crude oil growth across the market.

The other factor that we see is that the extreme regional disparity in different natural gas markets, North America to Europe to Asia, is certainly supporting the development of lots of projects which will require midstream infrastructure, FSRUs and carriers.

Another big factor that we see coming along that could create a paradigm shift again for the LNG shipping market is the realization of US LNG export projects.

We have certainly seen some positive announcements in the last weeks, with commercial agreements being reached on specific projects, which is good news.

They aren't at finish line yet, but I would say the outlook is positive.

We believe in the fundamental story of US exports, and again, with some of those projects going ahead, it changes the outlook again in terms of shipping demand.

The one thing we would like to point out as well, though, is that if you look at the long-term charter rate curve, I think it's fair to say there is a strong backwardation in it.

And I would like to stress that it is not because the long-term rates are so low; it's just the short-term rates' uplift is so high that we've created this backwardated situation.

And that is feeding into some decisions where we are currently making on our chartering of our vessels.

I will talk more about that later.

Turning to slide 16, on our newbuild order book, we -- the order book currently stands at nine vessels.

The new bit of news that I'd like to bring forward today, and you will see in our press release, is that we've gone from eight to LNG carriers and one FSRU to now seven LNG carriers and two FSRUs.

We had regas options embedded in our original order with Samsung on the vessels.

We have now triggered one of those regas options, so that one of those carriers is now an FSRU.

So out of those nine vessels, five of them will be delivered in 2013, and four in the earlier part of 2014.

The newbuild carriers will have 160,000 cubic meter capacity.

They will have a best-ever boiloff rate in 0.1%, which is critical for charters when they look at their total cost of utilizing the carriers.

They will be multi-fuel diesel engines, and they will have a 19.5 knots charter speed.

The FSRUs, we will have one FSRU with 160,000 cubic meters of storage and another with 170,000 cubic meters of storage.

These are very high-output FSRUs.

They can throughput up to 5.8 million tonnes per year of LNG.

So if you look across the industry and you see the type of LNG trains that are coming on the market, these FSRUs can absorb significant quantities of LNG out of those LNG production facilities.

The fuel efficiency of these new FSRUs will be greatly increased from FSRUs that are out there in the market today.

Depending on what your assumption is on the cost of LNG or gas which is used to fuel the regas process, we could see savings of up to $20,000 a day on charter costs that are using this FSRU in their regas operations.

In all other respects, expect for the fact that they have regas equipment on them, these vessels are also suitable for carrier service.

They have the same 19.5 knots charter speed, and in all material specs, can perform the same duty as our carriers.

Turning to slide 17, on the back of the strong market fundamentals that we are seeing short-term and also long-term, we feel we are in a very, very good position in terms of our open positions.

The Gimi will come off her current charter very shortly.

We expect that we will be able to back-to-back a new charter for her and extend charters out well into 2013 at good rates.

The three modern vessels that have not been chartered, the first comes open late in the first quarter of 2012; the others, later in the year.

And we expect to be able to do very well with those.

And I referred to the backwardation effect on the ship rate curve.

This is where we will look at making some decisions on those vessels, possibly looking at shorter-term charters in order to take advantage of the shape of that curve and add value to the portfolio.

Then following that in 2013, you see our newbuilds coming along, the LNG carriers and the FSRUs.

And we are very encouraged by the discussions we are having and the interest in chartering those newbuilds.

Turning to slide 18, on our FSRU business, I think what is really key now is that we have added the newbuild FSRUs to our conversion model, our conversion business model.

We think they both complement each other and they are both very marketable in the midstream of the LNG sector.

As has been happening all year and in the back end of last year, there are multiple new LNG FSRU projects coming along.

A lot of them are reaching tender processes.

We are involved in six tender processes at the moment.

Happy to say we are shortlisted on three of those.

LNG FSRU projects come with a lot of development risk, so remains to be seen how many of these projects actually reach the finish line.

But I would say all six are credible projects, and so -- and have a limited competition pool.

So we are very optimistic that we will be able to add a new FSRU to the portfolio in the near-term.

The newbuilds are being proposed into many of those projects.

We strongly believe it is a compliment to the conversion model.

Now that we've ordered FSRUs and they've got fixed delivery dates not too far in the distant future, we can offer both the newbuilds and the conversion on a prompt basis.

The newbuilds provide greater storage capacity for usually higher throughput projects that need a little bit more logistic flexibility.

The conversion, for smaller projects, can be custom built to suit the needs of those smaller projects and at a very cost-competitive level.

Our West Java project, where the Khannur is being converted, is progressing very well.

The regas module is nearly complete.

We are also, a first for Golar, building the mooring structure for that project, and all those things are going well.

I'm going to talk about West Java in a minute.

The existing operations in Brazil and Dubai are going very well, virtually uninterrupted operation of those units, with no problems.

Slide 19 shows you our FSRU fleet.

The Golar Spirit and the Golar Winter are currently operating in Brazil, successfully.

The Golar Freeze has been operating for well over a year now in Dubai, and the acceptance happening earlier in the year which allowed us to drop it down into the MLP.

There is a picture of the Khannur; again, a first-generation vessel being converted into a new life as an FSRU, into an 11-year contract in Indonesia.

A little more specifics on slide 20 on West Java.

The vessel has been in the dock for several months now.

Majority if not all of the procurement items have arrived or are about to arrive at the yard.

The key piece of equipment of course is the regas module.

It is being -- it is fabricated at a separate site, and then gets delivered to the yard at Singapore at Jurong to be mounted on the vessel.

Once that is done, the FSRU is virtually complete, and ready to head to site.

The mooring that we are building consists of these 10 monopiles.

Five of them are in place already.

And so that mooring will be complete before the end of the year and ready for the FSRU to arrive.

As I said, the building of the mooring, that is a first for Golar.

We are really happy that we are able to complete that.

It adds another tool to our toolbox, to be able to credibly say that we can provide the infrastructure as well that goes along with these FSRUs.

I think in summary, we've said this before, and we talk about the competitiveness of floating regas solutions versus land-based.

When the West Java project gets completed and the Khannur is delivered to Indonesia, that will have been a 24-month door-to-door process from prequalification for the tender to onstream of the unit.

That's incredibly fast.

It provides a step change in how LNG projects come together.

And thus, that is why we believe that floating regas solutions are becoming the norm in the industry today, up to small- to medium-sized regas projects.

Turning to slide 21 to wrap up, again, obviously with our new order book and our open positions, our focus is on leveraging those carriers and FSRUs into value and value-adding chartering arrangements.

As I said, the backwardation in the current chartering rate curve that has caught our attention, again, mostly related to the strength of the near-term rates.

It may favor short-term fixtures.

This allows us to accelerate the payout of the initial investment on the asset and create higher value going forward.

The Golar Grand and Gimi charter rates point to -- directly to the increased value of our existing fleet, as we have similar vessels to put into the same market.

So generally, we see good upside in projected earnings.

The overall market is strong.

The fourth quarter, we will have a full quarter of Gimi on hire.

Looking into next year, we may have Hilli reactivated and on charter.

And then also next year, we will be re-chartering the existing modern vessels at what will likely be much stronger rates than they are on now.

Near the end of Q1, we'll have the startup of Khannur.

And of course, future conversions and chartering of our newbuild fleet.

That brings us to the end of the presentation.

Thank you very much.

We would now like to turn it over for questions.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

Yes, good morning, Doug, good morning, Brian.

Congratulations for the good quarter.

I want to ask you -- there are right now 64 newbuildings throughout 2015.

Can you give us an estimate of how many of these vessels they are committed at this point?

And you mentioned about the growth of liquefaction projects, and also, if you can match it with how much of this incremental capacity has already committed shipping capacity.

I don't have numbers in front of me in terms of how much of the newbuild fleet has already been chartered away.

It is a significant portion of it, and we don't always know all the arrangements that have gone on.

I think the important thing I would like to point out about the 16 newbuilds, a lot of that newbuilding will be committed already.

You can see, though, on a macro level quite easily how all that shipping capacity will eventually get soaked up.

I would also like to point out that there are at least that many or more first-generation vessels, a lot of which are now coming out into service.

And if you want to look for long-term swing capacity in the market that you have to consider when looking at the newbuild order book against demand, is that those vessels will be first off the ladder in terms of shipping demand.

And your last part of your question, I didn't catch.

I want to understand if you have any feeling over how much of this incremental liquefaction capacity already has vessels under contracts, or if you have identified liquefaction projects without any capacity.

You mentioned something in your press release, but I understand that you might have a better view.

There certainly are projects out there that are committed to or under late-stage development that it is unclear to us, or certainly seems likely, they do not have shipping capacity directly tied to the project yet.

Is there a number in terms of metric tonnes per annum that you might think that you can give us?

Do you have an estimate of how much of this capacity does not have vessels?

Sorry, I don't have that number in front of me.

Okay.

I want to ask you also about the newbuildings.

A lot of people are wondering about if we can see the order book growing further.

I understand that now the shipyards are getting delivery for 2015.

What are the chances that we see a significant increase of the order book before 2015; let's say, we see more vessels for 2014?

We believe there is very little capacity left to deliver in 2014.

And there doesn't appear to be a lot of desire at the moment to be filling out the last remaining slots that are there in 2014.

If I understand well from your press release, is this -- the fact that -- ordering additional newbuildings, is this part of your considerations?

Would you potentially increase your order book even further, provided that you find slots more shorter-term?

Yes, I think we talked a little bit about this in our press release, that we don't see that there is any big drive to increase the newbuild order book to catch lower prices or anything like that, just because across the shipping sector, it is -- most of the (inaudible).

So we don't really see a run-up in rates.

But if we did see opportunistically to book slots with good timing, we may look to do that, yes.

On the FSRUs, you mentioned that you are involved right now in six tenders.

There is a lot of discussion about increased demand from the Middle East and new import terminal, floating import terminals from Middle Eastern countries.

Could you comment how many of these tenders, they might be coming from the Middle East region, and also give us your view about the expansion of Middle Eastern demand for imports?

I guess I can say with a lot of surety that some of the new FSRUs that get put in place will be in the Middle East.

In fact, some of the stronger outlooks for FSRUs -- maybe not in the near near-term, but if you look out 12, 18 months -- some of the stronger projects to be triggered may indeed be in the Middle East.

Also, in these six tenders, have projects defined the specifications of the vessels?

How many of these tenders might be suitable for the two older or the three older vessels that you have?

To answer your first question, yes, all of those have specified exactly what they need.

I would say it is a pretty even split at the moment.

Some of the projects could take either; some of them are clearly one or the other.

A lot of it is driven by size and charter preference, but it is a fairly even split.

So I understand from that that the decision of potentially exercising more options for FSRUs among your newbuildings is still open and depends on these tenders.

Is that correct?

I would say there's an element of seeing how we do with the current FSRUs before we would decide to order new ones.

But I would point out that it isn't all that expensive or difficult to take the carrier -- take a carrier order and turn it into an FSRU.

We just demonstrated that with triggering this option, that keeps the vessel on the same schedule, but it becomes an FSRU for fairly reasonable cost.

So if we were to increase our order book, you would likely see that as a carrier order, but we would likely build in some flexibility to turn one or more of those into a FSRU if we saw the demand justifying it.

Can you also remind us what is the incremental delivery time and the incremental cost for a certain upgrade?

Well, if you do it in enough time, the incremental time is zero.

And we don't generally release our costs for those kinds of vessels.

I think as well, Fotis, depending on the type of functions you want to trigger off, the costs could vary quite widely.

Okay, gentlemen.

Thank you very much.

Martin Korsvold, Pareto.

Good afternoon, guys.

First of all, on the older vessels, the Gimi, you are guiding [$50] million in EBITDA.

Could you talk what kind of OpEx assumption are you seeing and can you talk a little bit about difference in rate levels you're seeing for short-term employment versus long-term employment for these old assets?

Yes, the operating cost is somewhat higher than on a modern vessel, a couple thousand dollars a day higher, which you would expect.

Did you say difference between short- and long-term on old vessels?

There isn't -- we are looking at long-term opportunities on Gimi.

There is a fairly -- I would say there is a fairly reasonable spread between short-term and long-term, the same backwardation effect you would see across the sector applies to the older vessels.

Our general view is that the market looks quite strong for the next couple of years for first-generation vessels to be used as carriers.

I think that, depending on how the supply/demand balance comes out in shipping in 2014, 2015, the first-generation vessels become the swing capacity.

If you get a little bit of excess in the fleet, you will see those carriers coming out of service in order to balance the market.

Long-term, we believe the Gimi and the Hilli will be FSRUs or some other type of midstream infrastructure, which we can retrieve very, very good value that way.

Okay.

Second, in terms of -- I mean, you're working six projects at the moment.

But could they (inaudible) I guess (inaudible) how many awards we will see in the industry over the next 12 to 18 months?

And a bit (inaudible) around on what to expect from these six contracts that you are currently working.

This is LNG.

It is hard to predict the timing of some of these projects.

Historically, we've been seeing one to two a year.

I don't see any real reason where it would dramatically change from that.

Next year, we may see two awards, maximum three, I would say.

What we like, though, is that we are still the only operator that has been able to effectively complete a conversion of a ship into an FSRU.

We have a stellar operating record.

And quite frankly, the competitive pool for these FSRU projects is fairly small.

It's not nothing, but it's fairly small.

So we are pretty optimistic to get our share of the awards that do happen.

Okay.

Lastly, in your newbuilding on your balance sheet, could you give us the split between what is paid in on the FSRU and what is paid in on the newbuildings?

No, we can't.

Essentially, as we mentioned earlier, as far as cash flow is concerned, that tells you exactly how much we spent on the capital expenditures.

So you've got $110 million in there, but we can't specifically say how much of that is FSRUs and reactivation costs and newbuildings.

Okay.

Lastly, in terms of the drop-down of Khannur, can you talk a little bit about how you think that will be structured?

And also a little bit why a loan was given to GMLP rather than GMLP issuing more units?

I'm going to let Brian answer that.

But first, I just want to go back to something I think I said during the presentation, was that the Khannur would be a potential drop-down at Q1 of next year.

I think it is more accurate to say that the Khannur goes into operation in the first quarter of next year.

As with the Freeze, we will have some period of time with a commissioning and acceptance protocol.

And once that's finished, following that at some point, the Khannur will be dropped into the MLP.

As far as the Khannur drop-down (inaudible), as Doug mentioned, we will be looking at the drop-down of that once it's accepted.

But for the Freeze, obviously we've said all along that this is going to be dropped down, and the price of it will be determined by way of sort of [failure to] (inaudible) from a bank.

Now, the financing of it, obviously, was a hot topic at the time.

I mean, we were entering into a very tumultuous time as far as the capital market is concerned.

We looked at a variety of financing options, including equity raising, external financing, so on.

I think ultimately, both Boards decided that perhaps the best way for both entities would be to try and get a transaction done, but not incur so much cost.

For example, were we to enter into sort of external financing, that we might be stuck with something that was an efficient way of financing.

At the same time, we looked at the equity potential -- the potential raising of equity on that side, and we didn't feel that the market at the time was really reflecting the value of Partners.

So ultimately, we've created value within both entities, in LNG Partners and LNG Limited.

And it reserves -- Golar Energy Partners has then the opportunity to raise a more efficient financing to repay Golar LNG Limited later on, once the market sort of stabilizes a bit or the equity market basically absorbs the benefit that this drop-down has put into LNG Partners.

Okay.

Thanks so much.

Erik Stavseth, Arctic Securities.

Good afternoon, guys.

My question is actually regarding re-exports.

I mean, we are hearing of a number of re-exports in the market, and that this is actually tying up significant shipping capacity.

Are you seeing any change in the contract structure on the (inaudible) -- contract structure which will allow for less re-exports?

Allow for less re-exports?

Well, in a sense that there could be a potential release or more shipping capacity if contracts are not so rigid, as to, for example, going from Nigeria to France and then from France to Far East.

I would say there is some of that going on, some sort of ridiculous trade patterns, but it is really on the fringes.

If we -- if the level of re-export that is going on now, all that efficiency was taken out of the system, I wouldn't see a dramatic effect.

I would say we are generally proponents of freeing up or create more flexibility in the sector.

We would love to see LNG churning more, become more competitive.

It would allow it to get into more markets.

It would make its production more competitive.

That is spurring on more growth.

So I think it is quite the opposite.

We are in favor of more flexibility in the LNG sector.

Okay, thank you.

In terms of your newbuildings being sort of dual-fuel oil, tri-fuel driven, do you see any willing of charters to pay more for those, given the efficiency that you get from operating these vessels?

Yes, I think not necessarily with charters we've done, but I think it is fair to say in the past months that some of the deals that have been done for tri-fuel vessels have been quite strong.

I think there is a premium there, yes.

All right.

Lastly, you mentioned potentially doing more newbuildings.

But you also comment on acquisitions, potential acquisitions in the market.

But are you then talking about secondhand tonnage potentially, or are you talking about rather corporate actions, M&A activity?

I would say in general that we are looking for further investment in the sector.

Secondhand tonnage is definitely a possibility.

Purchasing of somebody else's future newbuilds that are coming is a possibility.

Investing in more FSRU conversions is a possibility, newbuild FSRUs.

So I don't think we are trying to be very specific about it.

We think the -- we think the sector outlook is very strong and we are ready to invest further in it.

I think -- obviously, we see the sector and it is improving quite dramatically.

And the Board obviously realizes that.

So we keep ourselves flexible.

We know that there are opportunities out there, and in order for us to make sure that we reap those rewards, we need to -- as long as the price is right, we need to be ready to be able to sort of transact.

But as I said, the price has got to be right.

All right.

Thank you very much.

Edouard Baldini, Goldman Sachs.

Good morning, good afternoon.

I just have one question regarding your decision to potentially reactivate the Hilli, and also to potentially extend the Gimi charter into 2013.

And given the economics are great, but they are not as good as on the Khannur, clearly.

Should we conclude that there has a sort of drop in interest from regasification charters for those old ships.

Yes, that's my question.

Thank you.

No, not at all.

In fact, the interest just keeps going up.

Keep in mind that a large portion of the work that we would do to reactivate Gimi, for example, is the first thing we do with the vessel upon securing an FSRU contract.

So in many ways, we make ourselves more available and more prompt in order to deliver an FSRU to a project.

I would say also that the contract lengths, when we say 24 months from prequalification to onstream, we actually don't need to take the vessel into the yard until the back six months of that time period.

So it is not as if if we signed an FSRU contract, we would be stopped from using the vessel in carrier service for another long period of time before we actually had to take her into the yard to complete the conversion.

So it is not a signal of that at all.

It is, quite frankly, the fact that we can take these older vessels, breathe some new life into them and make a very good return in the short term.

I think in addition to that, as well, if you look at our slide 14 in the presentation, we do actually say that Gimi has been reactivated and she is available for conversion.

Of course, you are not seeing the same charter rate as compared to Khannur.

But obviously for Khannur, we've spent a lot of money in converting the vessel.

But in the event we were to convert Gimi and Hilli to serve as a long-term charter, I think you would sort of see fairly similar returns then.

Okay, great.

Thanks.

Herman Hildan, RS Platou Markets.

Hi, guys.

I just had a question.

In your presentation, you said the spot market is around $110,000 a day.

There are rumors that you have [defined] one-year or 12 to 18 months rates at substantially higher rates.

Could you give a comment on that?

Yes, one- to two-year rates are higher than spot rate right now.

And also, you talk about the backwardation.

How far down does the backwardation go?

Does it stop at $80,000 a day for a five-year contract, or is it $90,000, or kind of where are the oil companies on the long-term contracts?

There would be varying views on that.

And of course, there is no -- when I talk about a chartering rate curve long-term, it is not like that is something that is [traded] invisible.

But your range would be probably right on -- the $80,000 would be not a bad marker for the low end, and maybe a little higher rate for a high end, the $90,000s.

There is also a big difference between five years and 10 years.

So the backwardation isn't as extreme between five and 10 years.

But I don't think you are too far off there.

Also, you mentioned the earliest you can get to delivery if you go to the yard today is fourth-quarter 2014.

Is that only the Korean yards, or does that include the Japanese yards as well?

When we talk about potential new orders, we are talking about the Korean yards.

Right, so what do you say (multiple speakers).

I don't know that there is a lot of capacity coming out of Japan.

It could happen that a few more vessels are built there, but they would certainly be on a different price structure than the ones we are building.

Yes, because that is kind of what I'm thinking, as well.

The strong yen, that's going to put the Japanese yard out of competition.

But then again, if Australia is going to do long-term contracts with Japan for exports of LNG, surely the Japanese authorities would -- or at least demand that the vessels are built in Japan, right?

I don't know if that's true.

There is always a political angle to these long-term supply deals, and certainly there have been vessels built in Japan.

There will likely be some in the future.

But they will likely be done for political reasons, not because it is the right thing -- the most competitive idea in the market.

Right, because what I am kind of trying to get my head around is, I mean, for an oil company, why would you go into a long-term contract that is substantially higher than $80,000, $90,000 a day, when you can go to the yard and order the vessel and kind of have $80,000, $90,000 a day as a cost?

What is your argument for why you should demand higher rates on the long-term?

Obviously, on the short-term, there is limitation on the yards.

But long-term, that is not necessarily the case.

So could you say something more about your ability to demand higher rates for the long-term charters?

Well, you're right; there is always a capital allocation decision inside major companies.

There is also operating philosophy that comes into play; the different LNG producers handle things differently.

You certainly have seen major companies in the last months signing up long-term charters so they'd do it.

I mean, you could play the argument this way.

If a company is deciding to avoid a shipping company profit at a certain percentage level and spend its own capital, it could also say, well, yes, but the major return expectations on their capital would be probably quite a bit higher than that.

And they may -- there certainly are companies that everybody knows who they are that are facing capital programs in their LNG and upstream arenas that would make it quite attractive to avoid having to sink capital into a vessel.

Then my last question is you did not mention anything about the levels that you have [defined] on the one- to two-year charter.

Is it $150,000, is it higher?

Where is the current one- to two-year charters, and how high will it go before you are accepting or taking on contracts?

Well, I guess if you look at -- if we take what we did on the Grand as a marker, the increment of a one- or two-year deal over the $110,000 spot rate wouldn't be a few thousand dollars.

It would be $20,000, $30,000.

Okay.

That was all.

Thank you very much.

Eliecer Palacios, Maxim Group.

Thank you very much.

Just a couple quick questions.

First one is where do you see the incremental demand for spot?

And around the world, if you can comment on the two, three regions that you expect over the next six months have that incremental demand.

You mentioned South America, so curious to get your thoughts there on Argentina.

And then the second one, you mentioned there is -- you will contemplate having -- acquiring some secondhand LNG carriers.

Curious how many of those you could find available and how much it will take to refurbish them and to put them in the market again for use.

Thank you.

In terms of the spot demand, a lot of it seems to be in the Atlantic Basin.

There is a fair amount of FOB cargoes available out of West Africa.

The re-export, as we were talking earlier with another caller, the re-export market has been very active in the past month, so a lot coming from there.

South American imports, looking at the demand side, have been fairly strong and expect it to be so in the next year as well.

So lots of activity in the Atlantic Basin.

Now obviously, in the past few months, the level of buying into Japan has been extreme.

So although it has cooled off in the last month or so, you certainly saw a lot of activity diverting cargoes into Japan.

That can, in a lot of instances, lengthen the trade distances that the ships are seeing and increase the demand.

Okay.

And then on the potential acquiring secondhand vessels, the availability, and how much it will be to get them up to speed in the market, if you can comment on that, please.

Thank you.

I wouldn't say there is a lot of LNG operators with a for-sale sign on their door at this point in the market.

It would have to be a case where you saw an owner-operator diverting his priorities.

We saw an instance of that with the sale of the Maersk LNG vessels.

In terms of deploying the carriers, that certainly would be an optimistic picture at this point.

If you look at how many vessels there are actually available and open in the next two years, very few.

So it would be very attractive to us to find either an opportunity to purchase some tonnage where the vessels were coming off charter in the relevant time period.

Or certainly if there was a portfolio that contained a lot of long-term contracted assets at good rates and we could make a purchase set at the right levels, it would be attractive for our MLP Company.

Okay, thank you very much.

As there are no further questions in the queue, that will conclude today's Q&A session.

I would now like to turn the call back to your host for any additional or closing remarks.

Thank you all for participating in our Q3 results presentation.

I hope you find the call useful.

And we look forward to speaking to you again next quarter.

Thank you.