Golar LNG Ltd (GLNG) 2013 Q1 法說會逐字稿

Good day, and welcome to the Golar LNG Limited Q1 2013 Results Presentation.

Today's conference is being recorded.

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

Please, go ahead, sir.

Thank you for that.

Hello, everyone, and welcome to Golar LNG's first quarter 2013 quarter results.

My name is Brian Tienzo and, as per usual, I'll be taking you through the first quarter highlights, as well as the financial highlights also.

I'm joined here also by our CEO, Doug Arnell, who will take you through the business update and summary and outlook sections.

To kick off, let's now turn to page 4 for the Q1 2013 highlights.

As previously announced, Golar LNG Limited now deconsolidates the results of Golar LNG Partners.

And, on the basis that the results of Golar Partners are no longer consolidated, Golar LNG reports operating income of $75.9 million and net income of $85.6 million also.

To the extent we are in a transition period for looking at the results of Golar LNG Limited, we'll also look at the comparative, consolidated numbers of how the numbers would have looked like had we continued to consolidate.

Further on, Golar Partners completes its third follow-on equity offering, raising net proceeds of $130 million in February.

This is by virtue of issuance of 3.9 million units to the public.

GP maintains its 2% shareholding of GMLP.

And, as a result of this equity raising, Golar now owns 50.9% of GMLP.

Golar LNG Limited sells its interests in the company that owns and operates the Golar Maria to partners for $215 million.

This was partly funded by the public offering that Partners did and also via the assumption of $90 million worth of debt associated with the asset.

Subsequent to the drop-down, GMLP increased its dividend to $0.515 per quarter.

And, significantly, Golar now has triggered the 25% IBR threshold as part of the increase of distribution from GMLP.

The results on a consolidated basis were affected by the Golar Spirit's completion of drydocking.

It was on drydock until up to February 26.

We also announced during Q1 that Golar's been chosen as the preferred bidder for Jordan FSRU, and the time charter negotiations and discussions are progressing well.

Finally, the board declares increased dividend of $0.45 for the quarter.

This is despite volatility outlook of the next couple of years.

And board has communicated its intention to maintain this level of dividend.

To date, since the IPO of MLP, Golar LNG's dividend has grown by 80% since Q1 2013.

Moving now to page 5 for the subsequent events and which Doug will go through in much more detail later, Golar has agreed terms to participate in the Douglas Channel LNG project with a view of reaching FID in Q3 2013 and startup for the project of late 2015 or early 2016.

Two factors that are likely to impact earnings on a consolidated basis in Q2 will be the Golar Winter drydocking and its modification work.

Furthermore, Hilli and Gandria entered layup earlier on in Q2 also.

Turning now to page 6, this is really just to go through and highlight the differences resulting of deconsolidation of Golar Partners.

So, as previously announced, the Company has determined that Golar Partners is required to be deconsolidated effective from December 13, 2012, which has -- is a result of the change in the composition of directors of Golar LNG Partners.

The Q1 results which we made public today reflect the deconsolidated basis, but, for the purposes and to help investors analyze the underlying performance of the Group, we're also showing consolidated basis to help out with that.

As previously mentioned, the main impacts of the deconsolidation are, one, to de-recognize the assets and liabilities associated with GMLP, which is then replaced by recognizing the fair value of its investments in Golar Partners.

Furthermore, future drop-downs will be at fair value versus the common control treatment of previous transactions, and gains and losses arising from those drop-downs will be recognized.

Cash distributions received from GMLP derived from ownership of common units, GP units, and IDRs, will not be recognized as dividend income in Golar's books.

More importantly, though, the Company reiterates that cash flows in respect of its relationship with GMLP will not be affected.

As we mention there in the footnote, we have included some appendices to the presentation to help out understanding how the various treatments of investments are shown in the books.

Turning over to page 7, we've got three blocks of columns there.

I will start off with the middle block under the consolidated columns and look at Q4 2012 versus Q1 2013 to show what the underlying performance of the Golar Group looked like.

So, net operating revenues for Q1 2013 are $105.5 million, slightly lower than $107.5 million as in Q4.

This is affected mostly by the Golar Spirit drydocking, which was in drydock up to February 26 but, to some extent, mitigated by a full quarter revenue earnings by the Golar Maria under its new time charter.

To mitigate the reduction in revenue in Q1, we had lower operating costs in Q1 versus Q4.

And, within these operating costs, included are crew employment costs in respect of preparation for the upcoming newbuilding deliveries.

In Q1 2013, within the $21.6 million of operating costs, $1.4 million is related to the crew employment costs of newbuildings.

In Q4 2012, $3.2 million of that is in relation to building up a crew for the newbuild deliveries.

Furthermore, administration cost for the quarter is also lower by approximately $2 million.

Moving down the list going down to net income, as a result of a slight decrease in revenue, savings in operating costs, savings on OpEx, and, to some extent, also some savings in net financial expenses, we get a net income number of $39 million on a consolidated basis.

Further down the list, now looking at the time charter equivalents, as a result of the Golar Maria on charter for most of the quarter, the time charter equivalent for Q1 2013 at $94,748 is better -- has improved versus Q4 2012 at $91,479 per day.

Utilization also improved, again, mostly because of the Golar Maria full employment during the quarter.

Going now to the standalone, deconsolidated numbers, the net operating revenues are simply of the five vessels now left at Golar LNG Limited, which are Gimi, Hilli, Gandria, Viking, and Arctic.

Similarly, operating expenses reflect those five vessels' operating expenses.

But, as I mentioned earlier, any drop-downs now between Golar Partners and Golar LNG Limited will be reflected at fair value, which, because of the Golar Maria drop-down in February, Golar LNG Limited now reflects a gain of $65.2 million during the quarter.

Just a note, of course, that not all of the gain is recognized in the quarter.

Some of the gain is deferred by virtue of certain investments in Golar LNG Partners, and that amount of deferral will be amortized over time.

Nevertheless, regardless of whether it's a standalone basis or on a consolidated basis, Golan LNG Limited declares an increase in the dividend of $0.025 to $0.45 in respect of Q1 results.

Going over to page 8, these highlights really just the various treatments of the Company's investments in Golar LNG Partners.

So now we have three different treatments as far as the different investments are concerned.

Now, looking at investments and available-for-sale securities, those are essentially representing the common units that Golar LNG Limited owns.

Investment in affiliates represents the subordinated units that Golar LNG Limited owns.

And, finally, the cost method investments is where the IDR and the GP units now sit.

Obviously, these numbers will move according to if and when Golar Partners issue additional units.

And, of course, the investments and available-for-sale securities will be re-measured every quarter.

Going over to page 9, as a result of the deconsolidation, the debts associated with the vessels at Golar LNG Partners now move away from Golar LNG Limited's balance sheet.

Hence, the majority of the highlights here is really just showing that the majority of those debts are now out of Golar LNG's balance sheet and will be solely reflected at Golar LNG Partners'.

Lastly, the last highlight there is that Golar LNG Limited's stockholders' equity, which jumped from Q3 2012 from $841,000 to $1.7 million to end of the year 2012, simply because of the gain recognized as a result of the deconsolidation.

Going over to page 10, as mentioned earlier, the cash flows as far as the relationship between LNG Partners and Limited are unaffected.

Hence, any gains or losses arising from the transactions between the two are then added back to our operating activities.

Again, a second highlight there is just to show the number of pre-delivery installments in respect of a newbuilding program that is paid during the quarter.

Going now to page 11 and to discuss the financing on the newbuild program, we continue to progress in financing its program, and, to date, the discussions have been proceeding very positively.

Today, the Company has paid approximately $700 million in pre-delivery installments.

There will continue to -- there will be another $100 million prior to the first delivery in August.

Against that, the Company has cash reserves today of approximately $270 million.

Now, the strategy as far as funding the deliveries are concerned haven't really changed.

We have had very positive discussions and continuing towards refining structures with the ECA.

As mentioned there, they are engaged in a financing plan, and the respect of a number of deliveries is being structured in much progressed discussions with them.

To the extent that discussions have been going very positively, we have had more than sufficient interest from banks and ECAs compared to the number of -- to the financing that we're looking for for the initial deliveries.

We've also been discussing various proposals put forward to us by banks when it comes to funding some of those deliveries by bond transactions.

We have today signed a term sheet in respect of financing one vessel.

We're working through the documentation.

And, finally, one thing, of course, that we mustn't forget is the drop-downs to GMLP to date.

The funding resulting from GMLP drop-downs has generated more than $1 billion.

And, of course, with the deliveries of the vessels coming through, the Company is confident that further drop-downs will occur.

This, of course, alleviates and assists the funding program for the new deliveries.

Finally, a big portion of the financing that's mentioned above is certainly going to be in place by the time the first delivery is -- comes out of the yard.

I now hand over the presentation to Doug, who will go through the commercial and outlook section of our press release today.

Good morning, and good afternoon, everybody.

I would like to start off on page 12.

Again, as Brian mentioned briefly, as part of our earnings presentation today, we are announcing that Golar has entered into firm agreements with respect to the Douglas Channel LNG project.

Now, we talked about this project over the past few quarters.

It's something we've been working on for some time.

But I'll just review what the project is.

It is a project that will take competitively priced natural gas from western Canada, exported via an LNG liquefaction facility, primarily to markets in Asia.

We've been very attracted to this project from the beginning, since we first looked at it, due to the assets that the project has.

And those include firm, existing pipeline capacity all the way back to a very liquid gas supply point.

The project also has a National Energy Board export permit in place for 1.8 million tonnes per year of export for 20 years.

So the combination of those two things and what we have now put in place, which we think is a very excellent partnership, makes for a very, very positive story.

So what we have struck in the past couple days is a framework agreement between ourselves, the Haisla First Nation, the LNG Partners out of Houston, Texas, who are the original developers of the project, and a major energy company, which will be named in due course.

Golar has taken a 25% stake in the project, which means that it will have a right to the eventual investment of at least 25% of the capital in the facilities and a right to 25% control of the offtake.

We're very excited, as I say, about this partnership.

The large energy company, which will be named later, certainly provides very good market capacity for the project.

And we also are very excited to gain partnership with the Haisla First Nation, who will work to ensure that the local community relations are handled in a very positive manner.

The initial size of the project is 0.6 million tonnes to 0.7 million tonnes per year, which corresponds to the level of the pipeline capacity that's in place for the project.

And we expect that the project can be on stream in late 2015 or early 2016.

It should be said that the commitment that the partners have made presently is to fund all the required activities to take the project to its final investment decision.

That means some detailed engineering and some regulatory work in order to lock down the cost and schedule parameters of the project.

We expect that the FID can be taken fairly quickly.

It should happen within the third quarter of this year.

But the investing community should be aware that the FID will be subject to receipt and positive finalization of EPC contracts and the receipt of required regulatory consents in order to construct and operate the project.

As I mentioned, the project has an export permit, which allows an export volume of 1.8 million tonnes per year.

The initial project, as I said, was 0.6 million tonnes to 0.7 million tonnes.

So the partnership will begin investigation of an additional project to use up the rest of that export permit through the construction of another train.

And, again, Golar will have the right and the option to invest in a minimum of 25% of that train and the associated offtake rights.

We're very excited about taking a step forward with our participation in this project.

We believe western Canada, with its huge low-cost-to-produce gas reserves and supportive legal and government situation in place, that this area is going to become a very major LNG export location.

And we're pretty proud that we believe we're in the first project that will export from that area.

So, moving on to slide 13, of course, the Douglas Channel project is just the first and most major part of what has been a strategy that we've been pursuing since -- more formally since last summer.

And that is to drive Golar's business presence further along the value chain; in this case, upstream into the liquefaction space.

We believe that, with our participation in that part of the value chain, we are able to extract a greater portion of the overall net value of bringing low-cost gas to high-value markets.

So we continue along.

As you know and as we've talked about in the past, we continue along with our work on the FEED study with Keppel for the conversion of our first floating liquefaction vessel.

That work is on track to be completed by the end of July.

Also, of course, we are in discussions with various potential gas suppliers and gas supply regions.

We have both -- other projects which will be sourced from pipeline-quality gas in the Americas, and we also are looking at stranded or flared gas opportunities in west Africa and other parts of the world.

We will continue on the path that we've taken in Douglas Channel, where we will strive to retain partners who bring unique assets to the table that will reduce the execution risk of the project.

We will certainly be willing to trade down on equity percentage in the project if we can increase materially the chance of success for the projects.

The deals that we're looking at are extremely attractive from an economic point of view.

But everyone should realize that the execution risk on these deals is great, and there's lots of hurdles to get by before they become firm.

But we certainly think they are very well worthwhile.

Working on, we're very optimistic that some of them will come to fruition.

We talked about forming a separate entity to pursue these projects, an entity that will have a very clear mandate to pursue the value proposition of these type of projects.

We still have that as an intention, although probably a little bit later than we'd indicated in our last quarterly call.

We've determined that, given that the materiality of the funding requirements for the projects that we are working on is not very great at this time and the fact that we are not quite finished with our FEED work with Keppel, led us to delay the launch of this entity and the pursuit of that strategy until the second half of this year.

But we still do have the same intention.

Of course, on all of these projects, one of the great side benefits of this is that we can leverage our franchises on the carrier side and the FSRU side into full-chain market propositions.

And, on every one of these projects, including Douglas Channel, we'll have the firm opportunity to provide shipping to the projects, and we'll be looking for ways that we can also bring our FSRU franchise to bear on the deals.

Turning to slide 14, we'll just step back a bit to look at the near-term LNG market and how it's impacting on shipping at the moment.

I think the story of the past year in the LNG industry and LNG shipping has been that, certainly, production levels have been well below, in aggregate, what was anticipated due to just a lot of unexpected delays and outages in various projects.

In fact, 2012 saw an actual year-on-year reduction in total LNG produced, which is certainly unprecedented in recent history.

Despite all that, shipping rates have remained strong.

And the real reason for that is sort of displayed on that graphic on the top, right-hand corner, where the Atlantic Basin or European price to Asian price spread has been fairly wide, which, of course, tends to draw cargoes to the east, which increases the overall average tonne miles for the fleet.

This has kept demand quite strong for shipping, and that's why you've seen, generally, that rates have remained very, very strong compared to historical levels.

We, in 2013, would expect to see that trend continuing.

I think, on the shipping side, things will be improved by the fact that some of these outages and delays on new liquefaction production coming on will start to be worked through, and you'll start to see those volumes coming on.

And the market should remain fairly strong for shipping through the rest of 2013.

Following on, 2014 and 2015, no question, will be a rebalancing year -- a rebalancing period both to sort of catch up on shipping in terms of the current demand but, also, there's a lot of shipping coming on to the market that is destined to be serving the large quantities of new production that will be coming on late 2015 and 2016.

But, as you can see from the graphic in the top, left-hand corner, the shipping is, as we've all expected and consistently have shown -- the new shipping capacity is coming on one to two years before the large production increases.

Through that period of time, you will see Golar looking at the market in a pragmatic way.

We'll look at a mixture of short-, medium-, and long-term fixtures until the new production hits the portfolios of the major industry players, requiring them to add structural tonnage to their fleets.

Moving on to slide 15, of course, a big driver of change and a big game-changer for the LNG shipping market likely will be the US LNG exports.

Recently, we've had some good news with Freeport LNG becoming the second project to receive their DOE permit to export LNG to non-FTA countries.

With that, combined with the Sabine Pass project, you've got 28 million tonnes per annum of nameplate export capacity.

Why is that so important?

Well, if you look at the stats that we've given there in the bullet points and the differences in LNG carriers required per million tonnes of LNG, you can see that, even if -- with an assumption of the Panama passage, you've got 1.5 LNG carriers per million tonnes per year.

Just taking the first five projects that we think are the most likely to go ahead, that's 60 million tonnes per year.

And, obviously, that's a lot of vessels.

So it's very good news to see Freeport LNG becoming the second project to receive their permit.

Obviously, we can't predict how the DOE is going to handle subsequent permits, but we remain very optimistic on US LNG exports and their impact on carrier demand.

Turning to slide 16, again, showing the Golar Group portfolio, including the Golar LNG Partner vessels.

As we can see, as the quarters go by, that top section of LNG Partners -- the vessel count is going up, and Golar LNG Limited's are going down.

And that's just a sign of the success of what we said we would do with this corporate structure and utilize it as a capital-raising vehicle for our newbuild program.

I will say that we're very proud, again, of our operating performance in the quarter.

All of those vessels, excluding those that are currently going into layup and excluding planned drydock time -- the MLP obviously likes very low risk to its operating performance and its revenue, and our technical operators have responded with less than 1% downtime on the operating assets.

I would also say that the LNG industry, where safety is a paramount factor with, obviously, ourselves and with our charterers, Golar's superior safety performance continues.

Our 12-month, rolling, long-term incident frequency is at zero, which effectively means we've had zero serious incidences in the last 12 months, which is excellent.

Moving on to slide 17 showing our kind of open positions coming up in the next years, again, as I say, as we go through this rebalancing period, through a little bit of volatility in the market, we are still very optimistic.

Why?

Well, as you can see, we have most of our existing modern vessels chartered through 2013 and 2014 with only the Golar Viking being the open position.

And we believe we can work that vessel into the market.

The other three vessels, Hilli, Gandria, and Gimi, of course, as many of you know, we're working on -- always working on conversion opportunities, including attractive floating LNG opportunities conversion of these vessels.

That's the destination for those vessels, and we're optimistic to turn value -- turn those assets into valuable assets.

So the rest of the fleet or vast majority of the fleet are ultra-modern, tri-fuel, diesel-engine vessels, which have a greater fuel efficiency and better boil-out performance than the vast majority of the rest of the fleet.

So we're quite optimistic about how these vessels will perform in the market.

And, as I say, as the new, large quantities of LNG production come into the market, more and more longer-term charter opportunities will present themselves.

Over to slide 18.

FSRU business continues to roll along very well.

The FSRUs that are operating, again, are part of that less than 1% downtime equation I told you about.

So very good performance there.

In terms of new projects and our two newbuild FSRU orders, of course, we announced that we were selected as the preferred bidder for the Kingdom of Jordan FSRU project.

Those discussions have gone on very well to finalize the agreements.

In fact, the agreement is in final form, and it's about to make its way through the Jordanian government approval process, which we hope will happen quite quickly.

And that project will go firm.

They are planning to put the FSRU into operation by the end of 2014 or early 2015, which is when we would expect to deliver that FSRU to them.

That vessel is the Golar Eskimo, which is the smaller of the two FSRUs -- the smaller and later delivery of the FSRU.

It's the 160,000-cubic-meter FSRU.

The larger, 170,000-cubic-meter vessel, the Golar Igloo, is still available.

It will be delivered this fall to us.

It is the only uncommitted FSRU available before 2015, so, as you would expect, there's a great deal of interest on it.

We haven't closed on anything firm for the vessel, but we're certainly in serious discussions with a couple of promising developers.

Gas Atacama -- we are in discussion with that project.

Certainly, as many of you know, it suffered some significant delays from its intended go-firm date of the end of last year.

It's certainly working through its requirement to sign up long-term power purchase agreements on the other side of their power plant before they can go ahead.

We remain the exclusive provider of that FSRU, but the only way to describe the timing of that project is that it's in indefinite delay.

The FSRU market continues to expand and increase.

Certainly, the Middle East and South America are key development areas.

India itself has multiple projects that are moving forward in various stages.

So we expect that FSRU demand will continue, and we expect that Golar will continue to grow its FSRU fleet.

So, moving on to page 19, that wraps up my part of the presentation.

Again, we've had an excellent quarter in terms of results.

We essentially hit the targets that we expected to, with the exception of a little bit of an extension to the drydock period for Golar Spirit.

But we had excellent uptime on our operating assets and continued superior safety performance.

Looking forward to Q2, there are some upcoming drydockings, which we talked about, which will be coming up.

And, longer term, of course, as I've discussed, as the newbuild fleet starts to hit the market a little bit ahead of the new production, we will see some volatility in shipping rates.

We have grown the dividend this quarter again, highlighting the board's confidence in the Company's performance.

And the board certainly does have the firm intention to maintain current levels.

The financing of the newbuild deliveries progresses positively.

We've got offers in excess of what we believe is the financing requirement for the newbuild fleet, so we're quite confident that, when we get to closing the financing deals ahead of deliveries later this year, that we will have more than sufficient access to finance.

FSRU opportunities continuing to expand.

We expect the Jordan approvals to come through imminently, and we can announce that we are firm in that project.

And we are short list on another two projects for our other vessel.

And, of course, our exciting announcement today on the Douglas Channel project, our first entry into the liquefaction business, which, we expect, will be a major value adder to the Group with that project, add-ons to that project in future in that region and other similar projects worldwide.

We will, of course, as I said, schedule a launch of our new entity to pursue these types of projects.

We will line up that launch of that entity when we see the materiality of funding requirements for the Douglas Channel and other projects starting to rise.

And, when we are more complete with our FEED project with Keppel -- so we have our FLNG vessel conversion costs and schedules more solidified.

So that wraps up the presentation part for today.

I'll now turn it over to the moderator for questions.

(Operator Instructions).

Jon Chappell, Evercore Partners.

Doug, my first question's about a couple comments you made about the shipping potential with the FLNG business, both Douglas Channel and any new potential opportunities there.

How does the Golar arrangement work with your ownership stake in the structure?

Do you get right of first refusal for shipping requirements or even for FSRUs?

Is it up for competitive bidding?

Are there any advantages to being partner in the project when it comes to the shipping or maybe the FSRUs?

I think it's fair to say that it's more of a soft opportunity than a hard-wired, right to put ships in, Jon.

I think it is a separate part of those projects generally, so, if the offtake is being shared by other partners, then Golar will have an opportunity to put shipping into the project but at market rates, obviously.

So we won't be able to do anything except what the market would otherwise provide.

Now, obviously, when we're in the mix of a partnership and there's things that other people are providing and contributing to the deal, Golar will be seen as the provider of shipping.

So it does give us a leg up just that we're in partnership.

But I wouldn't say it's something that it's a contractual, absolute right because that's just hard to create without people being afraid that they're going to pay greater than market rates.

Obviously, if we're offtaking our own LNG, then that LNG will be on Golar ships.

Right.

Okay.

And then, also, Doug, you made some commentary in between quarters regarding potential fitting for some of the LNG newbuilds with FSRU capabilities.

But there wasn't any update in this call.

You just had the two, the Eskimo and the Igloo in the fleet list.

So are you moving forward with that?

And how does that kind of set up versus the FSRU bidding processes that you see over the next 18 to 24 months?

Yes.

We certainly were looking at what we could do as some of these FSRU deals firmed up for the two existing orders.

We were wanting to trigger, potentially, a conversion of some of the later-delivery carriers.

I think the situation in reality is that, for both of those FSRU vessels, as often happens, these FSRU projects just took longer than we had hoped to firm up.

And we didn't really want to press ahead with those conversions to FSRUs until we had firm projects for the existing orders.

So we just sort of timed out on that.

But, for the very last vessel, we are still kind of holding out a view that we may be able to convert that last vessel, which is hull number 2056, for a conversion to an FSRU.

But, again, we probably won't pull that trigger until one of the other deals is firm.

Okay.

That makes sense.

And then I'll just ask one more.

Then I'll turn it over.

There's been a lot of headlines regarding the softening of the market.

And I think a lot of the numbers tend to focus on steam turbine engines.

You mentioned again the fuel efficiencies of the dual-fuel or the tri-fuel, diesel-electric engines.

Is there any way to kind of quantify when we think about looking at the current market rates and then what your ships may be able to earn as they're delivered with this new technology, the actual kind of spread as far as TCE is concerned with that new technology?

Yes.

You can quantify it, but there's variables.

We've talked about numbers of $20,000 to $40,000 a day, which I think is a fair assessment.

There are parameters that you -- that are specific to the charterer which impact on where that number is.

And that is related to how the vessel's being used, how much idle time it's having.

At what speed do they want to use the vessel?

Is it slow and steaming a lot of the time, or is it going at service speed a lot of the time?

So there's a lot of variables that, depending on how the vessel's going to be used, impact that number.

And then, of course, the chartering community sees that savings and says to themselves -- well, we'd like to capture that savings and have it be a savings to our total shipping costs.

So, in effect, there's eventually some level of sharing that goes on between the owner and the charterer of these perceived savings.

Obviously, as an owner, we're offering the ship with a better performance, so we're going to want to maintain the bulk of that savings.

But, obviously, we have to offer some level of that savings up to have them decide to contract for the vessel in the first place.

Okay.

Understood.

Thanks for your time, Doug.

Fotis Giannakoulis, Morgan Stanley.

I would like to ask a few more questions about the FLNG opportunity, just to clarify.

First of all, I thought that the total capacity of each FLNG is something like 2 million tonnes.

When is this capacity expected to come online?

And where is it going to be supplied from?

Fotis, I guess you're referring to the converted Moss vessel project, the Keppel project.

Is that right?

That is correct.

Yes.

Okay.

So, of course, the capacity of these units is dependent on (inaudible) conditions of wherever the vessel's located.

So it's hard to pin down and say the capacity is exactly a specific number.

But, for planning purposes, you can think about capacity for the vessel of up to 2.5 million tonnes per year.

The design of the vessel will be modular, however, so there will be four trains of approximately -- a little over 0.7 -- sorry -- a little under 0.7 million tonnes to get you to that 2.5 million tonne level.

And the reason we're doing it that way is because the opportunities that we're seeing aren't necessarily for the full 2.5 million tonnes.

And the gas supply and reserve levels that we're looking at aren't necessarily sufficient to use up all that capacity.

So we want to be able to trigger whatever makes most sense for the first project when we build the first vessel.

So our approach at this point is to -- we're trying to widen out the deal funnel.

Just in terms of your question about where the gas is going to come from, we're going to widen out the deal funnel and look at as many opportunities as we can.

And, when we finish the FEED study in July, we'll look at the market and decide how quickly we want to start building the actual vessel related to how mature the opportunity set is.

We certainly aren't focused on just one project right now to develop for the first vessel.

By the way, west coast of Canada could be -- a next project in western Canada could be the first place for the vessel.

Or it could be somewhere else in the Americas, or it could be offshore west Africa.

So we've got multiple projects that we're looking at.

All of them probably won't come to fruition.

But a subset [of them that we're working on now] probably will.

And, again, we will look out at the market when we finish this FEED study and determine at what pace and what size to build the first vessel.

And, just to understand, how does this FLNG connect with the Douglas Channel project?

I was under the impression that the Douglas Channel project will use one of the FLNGs for the liquefaction.

And, also, you also mentioned about this $500 million cost.

What is this cost about?

Where does this $500 million go to?

Okay.

The first phase of the Douglas Channel, or the first project for Douglas Channel, this 0.6 million to 0.7 million tonnes, will not be one of the converted Moss vessels.

It's a good question for us.

We should clarify that.

That will be a barge-based liquefaction plant, a proven technology, all very standard equipment.

But it will be barge-mounted, likely built in Asia, and floated over to the Douglas Channel.

And it will either -- actually, the decision hasn't been made yet.

It's not really on the critical path.

But the barge will actually, potentially, be grounded near shore in the Douglas Channel.

Or we will have the barge floating.

But, either way, pretty simple barge.

The project is a little bit small to do the full conversion of the Moss vessel.

So the barge is just much more efficient.

The $500 million, of course, would include that barge, a little bit of pipeline facilities, metering facilities, a new jetty, of course, and LNG loading facilities would be the major components in that capital cost.

That cost -- of course, that's one of the things we're going to be doing between now and final investment decision is to finalize the cost estimate and get down to a level of certainty that we're comfortable with and sign up [PPC] contracts to go ahead with the project.

So, given the fact that the total export license is 1.8 million tonnes, we should expect a second barge or expansion of the capacity of this particular barge?

And what would be the incremental cost?

Is it a pro rata increase?

Or I would assume there are some savings for the additional capacity from the 600,000 to 700,000 tonnes per annum up to 1.8 million tonnes.

This same partnership that's going to pursue the first barge has also agreed to begin preparation for looking at the next train that would use up the rest of that export license.

So you're looking at about a 1.1 million tonne per year project.

There will likely be some common facilities that could be shared between the projects, but we'd have to work that out.

It's likely much improved rather than pro rata, Fotis.

It will be -- sort of the economic picture will certainly take advantage of some economies of scale on a project that's a little less than double the size of the original one.

The cost won't be too dissimilar to the first project.

That project does depend, I might add, on the expansion of the pipeline that we'll be using for the first phase.

So the plan is to take the pipeline that we're using for the initial project -- the company that owns that pipeline is beginning preparations for an expansion of that pipeline.

If that pipeline expansion is successful, that's what will trigger the new project.

In relation to the FLNG, how do you view the funding of the FLNG?

And is this a project that Golar intends to develop on its own, or we might see more partners?

What would be the final take that you think that Golar will have in this investment?

Are you speaking about the converted vessel again, Fotis?

Yes.

I'm talking about the Keppel project.

Yes.

Well, we expect that there will be partners in, certainly, the first number of projects that we use the converted Moss vessels for.

And, certainly, Keppel is a potential partner as well.

It's on the list.

When you look at the Douglas Channel situation and the kind of hurdles you have to overcome to make one of these projects work, it's really important to leverage your position to draw in either partners or contractual parties or relationships with people who bring attributes that can get you over the line.

These projects are very difficult.

They're very difficult to get permitted.

They're commercially complicated.

There's a large degree of commercial risk to deal with.

So we will look to strategic partnerships in almost every project to increase the chances that we're successful on every project.

I would say 25% is about as low as we would go, and that's where we're at on Douglas Channel at a minimum.

If the opportunity to increase that share comes up, we probably would do so.

But that's out of our hands.

But I would say 25% is kind of a minimum participation that we would have, and we would probably look to be a little bit above that, generally.

And for this 25% minimum, I understand that it can be higher than that.

You think that you have sufficient cash on hand and funding capacity at the Golar level, or we might see some capital increase to fund this investment?

And, also, you mentioned about partners that you intend to bring along, including Keppel.

Could these partners be also financial institutions that will seek to invest directly into the Keppel project?

Well, first off, there's no intention to raise equity or issue equity at the Golar level to fund any of this.

We do have an intention to create a separate entity through which we would raise funding for these projects.

But how we do that -- there's a menu of options how that entity would raise money, including project financing, vendor financing, separate equity raising specifically for this opportunity.

So we're not at the Golar LNG level seeking to raise specific money for these projects.

I'm not sure quite what you mean about direct investment in the Keppel project by financial institutions.

I find that unlikely.

We generally -- I don't think we'll be restricted in access to funds to pursue these projects.

But what we want to do is use our position in what we created with our project is to bring in partners.

Yes, they will bring money, but that's basically to make sure they've got a vested interest in making things happen.

Those partners will bring -- along with funding, they'll bring along a position or a skill set or something of the like that increases the probability of a successful project.

Thank you, Doug.

One last question about your shipping and FRSU activity.

I don't think that you have given any guidance about the EBITDA of the Jordan project.

Is this something that you can do during this call?

And, secondly, about the Viking that came out of contract --

I think, in respect of the EBITDA for Jordan, I think that we need to first get the full approval of the process, and that's going through the process now.

Suffice to say, though, that the EBITDA of the project isn't dissimilar to some of the numbers you have seen that we've achieved in some of our FRSUs so far.

So that should give you, to some extent, some comfort of it.

And regarding that vessel that came out of contract this quarter?

In the outlook section of our press release today, we mentioned that, for Q2, there should -- investors should expect some downtime for the Golar Viking.

We mentioned the days of it -- sort of 20 to 25 days.

So, to some extent, she is on hire for the majority of the quarter, but there is a bit of sort of commercial waiting time in there also, in between charters.

Okay.

Thank you very much for your answers.

Michael Webber, Wells Fargo.

I'll try to keep it to a couple.

I wanted to go back and touch on Douglas Channel, which is a pretty well worn tread at this point.

But you're coming in at a minimum of a 25% investment.

Maybe -- I'm curious whether you can talk about what keeps that from being majority stake and kind of how you arrived at kind of taking a minority interest but still taking on risk in the project.

Well, I think that, going forward, there's four partners here and various rights to invest or not to invest.

So the opportunity is there.

If some of the other partners -- or one or more of the other partners do not subscribe to their full entitlement for the investment, Golar would have the opportunity to step up.

Yes, it is a minority stake, but there's also no one partner with a majority stake.

So there's already agreed a fairly fair and comfortable governance methodology, which we are very comfortable with.

The project participants here -- the way we've got this structured -- there's really good alignment between the partners.

So interests of the parties are generally going to be not in conflict.

So we're quite comfortable with being able to manage our risk, given a 25% stake.

Got you.

So, basically, it's kind of pro rata across the partners, and there's opportunity if there's a void.

Yes.

Okay.

All right.

Fair enough.

Around -- I guess you talked to an FID in Q3.

And I don't want to get ahead of ourselves.

But can you maybe -- forgive me if you've done this before already -- but kind of lay out a timeframe around when you and your partners would look to sell that gas forward in the market?

I think that's something that I'll defer (technical difficulties).

I think I'll defer on that one until we're able to be more open about who that other -- the large energy company is on the other side, which certainly factors into your question there.

So I think that it's just at a point in time where we'd prefer to discuss that one when we're closer to -- or moved on a little bit down the path towards FID date.

Okay.

That makes sense.

I wanted to quickly just kind of touch on, I guess, the barge versus the Moss tank inversion solution.

And I know you've been kind of going back and forth for a while.

It seems like you've settled on a barge solution.

But, I guess, if it's $500 million for the first investment and then another $500 million for a train, too, give or take, that seems like that would come in north of what you could provide with a Moss tank solution, just based on what I believe a conversion costs there or the ballpark conversion cost.

Are there other factors that kind of drive you towards that barge solution, maybe environmental or what have you, that are kind of facilitating that expedited approval through the Canadian government?

Is there another factor there besides just the pure economics?

Probably the biggest factor, Michael, is that the second project requires a big expansion of that pipeline, which, probably of all the risk factors of all the things that have to get permitted on this sort of package of deals -- that one is the one that we'll be watching the closest and most concerned about.

So the timing of receipt of that permit for the expansion of pipeline, which would allow that second project to go ahead, is, to be honest, a little bit uncertain at this time.

So, to build a vessel, which assumes that all is going to happen and have it here in 2015, you may run a big risk of building way too much capacity for the amount of gas you can get there.

So it's simply a matter of the fact that a prudent call was to just build what we need for that first phase because it could be that that's -- we don't think so, but it could be that that's all that shows up in the end.

All right.

That makes sense.

One more from me, and I'll turn it over.

I know you guys have kind of talked to this in the past.

And it might be a bit premature.

But the assets you would be providing towards Douglas Channel -- are those going to be structured in an MLP-friendly way?

Is that something you eventually envision heading down to GMLP, provided all goes according to plan?

Any color there?

Maybe we can kind of divert that to the call in, I guess, about half an hour.

But any thoughts around that would be helpful.

I think that the way the deal is structured now, if that is how -- we still look like that at FID, which is what we anticipate will happen, there will be some -- the asset investment, certainly, there would be likely MLP-friendly.

It certainly goes into our thinking into how we tried to structure the deal.

Okay.

Great.

All right.

That's all I've got.

Thanks for the time, guys.

Urs Dur, Clarkson Capital Markets.

Very, very simple.

Most of this has been touched upon.

You mentioned in the call that you have -- and it's good for investors.

I get a lot of questions about this -- that you have offers in excess of your debt requirements for your newbuilds.

Is that the entire program, or is that the upcoming five, six?

That's for the entire program.

So, obviously, it's taken us a little longer to get there, but what we wanted to do is get a feel of the interest as far as the banking and ECA community is concerned.

And, over the past couple of weeks, as mentioned, we've had positive developments and discussions on both sides, the ECA and the banking.

And, to the extent -- we've always targeted that, given that we've now paid up to $700 million of the $2.7 billion, we are probably looking at $1.8 billion financing, if we wanted to finance all of them.

And so, when I say in excess interest, it's in excess of the $1.8 billion that we're looking to do.

Excellent.

That's really all I have.

I was wondering, maybe, if you could give me a call offline.

I've got a couple of modeling questions on the deconsolidation.

So, if you have time later, that would be great.

Yes.

Sure.

Thank you.

Oyvind Berle, DnB Markets.

My first question is regarding the Golar Viking, where you mentioned that it would be 20 to 25 days off.

Does that mean that, one, the vessel is going to charter?

And, if so, could you give us an indication of the rate on this vessel, please?

I'm not at liberty to give you rates, Oyvind, but she came off a charter just towards the end of March.

And then she went into sort of a voyage immediately or soon after that.

She has been on sort of commercial waiting time for a few days.

But the expectation is that she now has an employment that will take her through most of June.

So, although she wasn't employed throughout Q2, she was certainly employed for most of Q2.

Okay.

My second question is -- there's a lot of speculation here on the rates that are attainable in the newbuildings.

And the (inaudible) charter coming off is really one of the benchmarks that the market is looking for.

What is your expectation of, let's say, three- to five-year rates for the newbuildings from this fall onwards?

Where is the market right now in your view?

I think we can all take guestimates of where we think the rates are going to be in six months' time.

I think we prefer to just do our talking through deals that we eventually sign up.

Certainly, there's been three- to five-year deals on a newbuilding.

There haven't been many of those.

So it's really hard to say what's been done in the past.

There's been some recent -- a bit longer-term rates, you know, mid-[80s] kind of level.

But I mean the market dynamic is going to change.

That's the bottom line.

And we just need to play it through.

And so it's really difficult to lay out an expectation for you of specific numbers.

When you say volatility will go up, that means rates will go down?

Or am I misreading you here?

It means the predictability in rates is going to be increasingly difficult.

Oh, [we have reached that point].

My final question is -- could you just remind us what is roughly the CapEx for a barge solution versus add-ons on an (inaudible) carrier compared to output of the vessel, please?

Sorry.

Which figures were you looking for?

The CapEx for a barge FLNG solution versus your Moss solution, the add-ons existing on [G carrier].

How much is roughly the CapEx for the unit itself, and how much will the output of the unit be, please?

Well, the liquefaction facilities themselves, whether it's barge-mounted or added onto an LNG vessel, are very similar.

So, for example, it would be -- for a million tonnes, it would be probably under $500 million either way.

And then you just -- the installation onto the vessel is another number, but it's not as material.

And then you just are left with whatever implied value the vessel itself has to give you the comparison.

Okay.

Thank you so much.

That was all I had.

[Nathan Wells, Unis Economics].

Two quick questions.

One, on Douglas Channel, will you be taking the engineering lead?

Will that project at least be partially based off the FEED work that you're currently completing?

We won't be taking the lead on that, Nathan.

It will be -- it's a shared responsibility within the project.

We certainly will be participating in it with our partners.

It does not specifically -- we can't use the FEED work to build the barge in Douglas Channel.

But it's been extremely helpful to be going through the FEED at this point because it is very, very similar equipment and design that's going onto the barge that's going into our FEED study.

So, kind of in an indirect way, we've been able to advance things along quite smoothly and will be able to do so on Douglas Channel because of the FEED work.

Assuming that will work both directions -- that your involvement there might also help your knowledge with other projects that you do later on.

Absolutely.

And, like I say, the next project in western Canada could directly use the FEED work that we're doing at Keppel because we expect it to be a larger one that would be more fitting for the converted Moss vessel.

Great.

A second question.

There's a lot of confusion in the marketplace about what the EBITDA generation or potential earnings of your liquefaction vessels could be.

Can you spell out just a generic project in terms of, say, a 2 million tonne a year project?

Would you expect to deliver roughly 90 bcf a year and we could then translate that into, at a give spread -- say a $5 spread -- it would be $450 million EBITDA?

Kind of how should we start to think about this?

We're trying to get our first sort of deal firmly onto the rails and get it closer to an actual full investment before we provide too much guidance in that way.

Understandable.

Am I a bad analyst if that's how I'm thinking about the projects today?

Well, if you -- I mean, there are some markers out there in the market.

If you take the single previous liquefaction project on the US Gulf coast and look at that, which is essentially framed as a tolling deal at, rough figures, we understand, $3 per million Btu of throughput, you can -- as far as an asset investment, that's a very good go-by to use for some of the things we're looking at.

Great.

Thank you.

[Farad Chadri, Hard Rock Capital].

The question (inaudible) on Douglas Channel.

My understanding was that this project, the Douglas Channel energy partners, which were effectively (inaudible).

It was originally around two years ago, as well as the whole barge solution was announced two years ago.

They did a FEED study on this at (inaudible), and they got the license in February 2012.

You guys are coming pretty late to the game on the Douglas Channel project.

And we're effectively (inaudible) going to take the offtake, which was what you had announced earlier.

And, effectively, we're either going to sell it to market or to some other (inaudible) with providing the transportation services.

It sounds like the transportation services is going to be at market rate.

The offtake is going to be actually some big (inaudible) player, presumably in Korea or Japan or something.

These guys LNG Partners LLC have been doing this for two years.

They have effectively done a lot of work on this already.

What are you paying to get involved with the project for this 25% stake at this stage?

What is your FEED study regarding, if the FEED study has already been done on this project by these guys?

I think it's fair to say that the entrance of Golar and the other entity has allowed the project to take a fresh start.

Yes, it had some things in place, some assets that had been developed by the original partners.

But I can tell you that the project has been framed exactly how we want it.

We're very happy with the structure.

We're very happy having the other partner in there as well.

And, as I said, we will certainly trade equity down in return for mitigating execution risks on the project, and I think that's what we've done.

I don't think we ever announced that we would be taking the offtake from the project.

We certainly carved out rights to do so with our early interaction with the project.

And we held onto those rights, and we've levered them into a position that we're very happy with.

I'm not sure if that answers your question.

Your answer is that the project was effectively dead.

Your involvement has revived it.

Now you're going to effectively bring it to fruition, effectively.

Is that the correct way to put it?

Well, you're paraphrasing a lot.

I never said that the project was dead.

They have some very valuable assets that we are interested in.

And we brought what we could bring.

And the other partner brought what they did.

And the package, I think, will allow us to take the project forward.

It's attractive enough for us and the rest of the partners to put some funding in to do the rest of the work required to take it to FID.

There are some hurdles to get past.

And that's what we're going to do.

The amount of money we're putting in now is not very material in relation to the total investment.

So I guess that's how I'd describe it.

And that amount of money is effectively -- the 25% stake that you're going to get in the project -- do you have to pay for this?

Or is that part of your involvement once you do a spinoff?

Or, like I said, the many different ways you could do the funding -- that will come later?

There's no premium being paid by Golar or the other partner to enter the project.

Any money that's going in is for direct project costs.

All right.

Understood.

On the question of the newbuild (inaudible), I guess I know you just said that you'll let the market [take data] rather than speculate where the rate will be now or six months from now or et cetera.

But can we get some idea when we could expect an announcement on contracts?

Presumably, you will need contracts to take delivery of the vessels with the funding-in-place kind of financing you want to do as opposed to take them on spot or anything.

Just to answer that question, certainly, the financing structures that we're looking at and which I've mentioned, is we have more than interest for what we're looking for.

Actually, (inaudible), the vessels do not have charters.

Now, that doesn't mean, of course, that we'll just leave them there at spot and not charter them.

But what it allows us to do is keep some flexibility as to what kind of employment we put the vessels into.

So chartering is not a requirement in the funding structures that we're looking at.

The charter is not a requirement.

Okay.

So we should not expect -- I mean, you could take delivery of the vessels with the financing in place without having a three- or five-year charter.

Correct.

Yes.

Okay.

Just to clarify, we can do that.

It's not our goal.

I mean, we're working hard to get employment for these vessels.

It's just that we do have the luxury of being able to put this financing in place not dependent on new charters.

Okay.

You said on the (inaudible) efficiency savings that you have to share with the charterer if you were to charter.

If you were on spot, you would keep them all for yourselves.

Now, when you said it's a negotiating process -- the experience from like Eco Vessels and (inaudible) also tells us that the charterers end up taking most of the upside.

I mean, would you say that the negotiating process is any different for LNG with a better relationship as opposed to a more spot market like dry bulk or et cetera?

Well, it's certainly a different market than dry bulk.

Of course.

I mean -- and, also, there's not a lot of historical experience to go by.

I mean, the last time we had a big wave of vessels came through was -- it started ten years ago.

I guess the technology change at that time wasn't so great as it is now.

But ships were getting bigger.

So it's really difficult to point at something.

That equation of how much savings you'll have to give up to the charterer in order to get charters done will, quite frankly, be mostly influenced by how tight the market is and how many auctions they have at that time.

Of course.

So everyone knows the savings are there, which becomes a bit of a moot because, in the shipping discussion, it will be a competitive process just like always.

All right.

Understood.

On the Gas Atacama, you said the project indefinitely delayed.

Most people were expecting earnings to kick in from Q1 2015.

Any kind of color on that when we could expect some resolution?

Really difficult to say.

It's dependent on things that are well removed from anything that we have control over.

The project is tied to -- it's an existing power plant that the FSRU would be supplying.

In order to lock in LNG supply and to pay for the charter itself, the power plant requires new long-term power purchase agreements from the large copper mines of northern Chile.

And, in order for those power purchase agreements to be struck, they're relying on expansions of those projects -- or expansion of those mines.

And those expansion projects are all on the books.

They've been talked about.

They're visible.

But when they get triggered is something that we can't predict.

So that's why our guidance is that we are kind of in indefinite delay.

And the timing of -- when and if it does trigger its kind of trigger date plus three years would be the time that earnings would start to hit.

That's all very helpful.

Just one last question.

We've seen with other liquefaction projects in Australia or southeast Asia or Africa the delays and CapEx blowouts (inaudible).

What do you think could be done to guard against those?

Floating LNG vessels.

It's pretty clear that -- one of the big advantages for floating technology is that you reduce your dependence on local labor.

And that's exactly what happened to sort of floating storage and regas units.

That's why the existence of FRSUs has accelerated the pace of new markets being opened to LNG very greatly, because of those type of advantages.

You just have so much better cost control and financing alternatives.

We just believe that the same impact will come on the liquefaction side.

And Golar will be in there leading the way in our own way, in our own size of projects.

We're not building Prelude.

Shell will go and do that.

There'll probably be other projects of that scale.

But we believe that the small-scale projects, for us -- there's multiple opportunities (technical difficulties).

And we won't be exposed to the kind of risks that the Australian projects have gone through.

So, on the barge, you will be able to get an EPC contract to protect you from CapEx blowout?

Yes.

That's for sure what we will do.

That's the structure of the project as it is today.

All right.

Thank you.

Thank you so much.

Sorry.

Before the moderator takes the next question, I'm aware that there's another presentation after this.

So could we just have the next question as the last question for the Q1 quarter presentation, please?

(Operator Instructions).

Eirik Haavaldsen, Pareto.

Just a quick one.

You say you have -- given your, I would say, competitive advantage in the financing markets, where you have obviously in excess of your funding requirement as you say, will you use that advantage perhaps in order to do some investment from existing newbuilds or existing units under construction where the owners might not have that competitive advantage so to say?

Or do you entirely focus on FLNG and FRSU investments going forward?

Well, as far as -- I mean, for ourselves, obviously, we do have this hanging obligation over our head to try and finance it.

Now, to date, we've been pretty confident in making sure that it gets funded before the first delivery.

And, certainly, the positive outlook is that we will have it in place before then.

I think, because the financing is predicated and secured on vessels, it's very difficult to over-finance yourself and use that for other strategic means.

I think, more likely, if there are any sort of opportunities out there, then we will use other sources of funding from operations, for example, or sort of the bond market, as mentioned earlier, where the financing may not necessarily be secured in the vessels.

Where the interest is is more than we're acquiring.

It's funding specific to the CapEx requirement in respect to the newbuildings.

And it's predicated on involvement of ECAs and the banking community.

All right.

Thank you.

That will conclude today's question and answer session.

I'd like to turn the call back to the speakers for any closing or additional remarks.

Thank you, moderator.

And thank you very much, everyone, for your participation in this quarter's results.

As always, we look forward to again speaking to you again during our second quarter results sometime in August.

Thank you, and goodbye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.