Golar LNG Ltd (GLNG) 2013 Q2 法說會逐字稿

Good day, and welcome to the Golar LNG Limited Q2 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.

And hello, everyone, and welcome to Golar LNG's second-quarter 2013 results presentation.

As the moderator said, my name is Brian Tienzo.

And as usual, I'll be taking you through the second-quarter highlights as well as the financial highlights.

I'm joined here by our CEO, Doug Arnell.

And as usual, he will go through the business update, and the summary and outlook section.

So, let's now turn to page 4 to go through the second-quarter highlights.

Golar reports second-quarter 2013 net income of $59 million, including a non-cash gain of $47.9 million on interest rate swaps.

With the IPO and subsequent dropdowns of vessels to Golar Energy Partners, the majority of earnings from the fleet is now coming through Golar Energy Partners.

And so, the EBITDA generated by the remaining vessels in the Golar LNG Limited fleet in the quarter amounted to $8.2 million.

However, with the subsequent dropdowns to Golar LNG partners, the underlying dividends received from partners by Golar LNG Limited has increased to $16 million during the quarter from the first quarter level of $14.4 million.

And as we will see later, the incentive distribution rights are starting to play a major role this level.

As previously mentioned, spot markets remains volatile and inefficient.

And as a result, both -- two of our old first-generation vessels, Hilli and Gandria, are into lay-up in Indonesia.

And this, of course, saves us on some operating costs, and conveniently situates both vessels in the region for potential conversion, either in FSRU or FLNG, in the event that decision is taken in the short-term.

Again, the Board maintains a dividend of $0.45 for the quarter.

This is despite a volatile earnings outlook over the next coming quarters.

And I think it solidifies the Board's confidence in the potential on the medium and long-term opportunity for the Company.

Let's now turn to page 5 to quickly go through the subsequent events.

So there were quite a few -- a lot of activities after 13th of June.

Firstly, there was the $1.1 billion loan facility to pay off for eight of the 13 new buildings by the Company.

Subsequent to that, we entered into a 10-year FSRU time charter for the Golar Eskimo to service an FSRU in Jordan.

Later on, a five-year time charter was signed with Kuwait National Petroleum Company in respect of the Golar Igloo, to service as an FSRU in Kuwait.

And more recently, the Golar Tundra shipbuilding contract was amended to include an FSA capability with a new delivery date of November 2015.

Following handing of its time charter in July, Golar Viking continues to trade in the spot market.

Let's now turn to page 6 to go through the financial highlights.

So the net operating revenues for Golar LNG Limited on a deconsolidated basis dropped slightly from $33.4 million in Q1 to $26.1 million in Q2.

The majority of the contribution in Q2 is from the Arctic of Guinea, of course, contributed to that number, until its Charter completed towards the middle of -- towards the end of June.

And we experienced some commercial rating time for Viking between charters.

The underlying operating costs in the second quarter is the same level as the first quarter cost of $20 million.

However, due to an increase in the crew cost to build up of the newbuildings, the operating expense [has doubled] the operating expenses for the second quarter increased to $12.3 million, resulting in an EBITDA of $8.2 million for the quarter versus $19.5 million in Q1.

Going down the page, the net financial income expenses is a net number of [$48.9 million] positive versus a negative $1.8 million during the first quarter, mainly as a result of positive mark to markets movements in respect of swaps, interest rate swaps that we had entered into last year.

The time charter equivalents during the second quarter improved significantly from [6.66 -- 66,152] per day in Q1 to now 86,955 in Q2.

One factor there of course is the Hilli and Gandria were laid up during Q2, and as a result were not included in the calculation.

The utilization of the vessels also improved significantly from 61.8% in Q1 to 80.3% in Q2.

Going into the consolidated table just to highlight that obviously the numbers the majority are now residing at Golar MLG Partners.

The comparable numbers in respect of the underlying crude results are mostly shown in the Golar Energy Partners financials.

However, since our Partners IPO and subsequent dropdowns that has resulted in the EBITDA contribution of Golar LNG Limited reducing.

However, Golar LNG Limited continued to benefit from drop-down proceeds, as we saw the same for the Golar Maria during Q1, and the ever-increasing contribution to operating cash flow through higher receipt of dividends.

If we turn now to page 7 to go through some of the items in the cash flow.

In Q1, we recognized a gain of $65 million in respect of the Golar Maria dropdown.

That's obviously reduced significantly in Q2, and that amount there is only a portion of the deferred gain that is now amortized through the net income statements.

The second box is of more significance to Golar LNG Limited and it shows the ever-increasing dividends that Golar LNG Limited now receives from Golar Energy Partners.

So from $14.4 million in Q1 to now $16.9 million in Q2, a increase of 17% quarter-to-quarter.

There in the middle of the page is the indicative number in respect of the number the cash amount spent in respect of the newbuilding program of the Company.

So we spent $131 million during Q2 versus $168 million in Q1.

There will be one other installment prior to the first delivery of the vessels that was the end of September, and that will be in the region of $20 million.

So, going over the page to have a quick look at the dividend contribution by partners.

As per the headline earlier, the earnings in Golar LNG Limited will remain volatile during the -- in the short-term, given the volatility in the shipping markets.

However, our operating cash flow will continue to be enhanced by GM LP ownership.

And as you can see there, since the IPO, Golar Partners' quarterly dividends have grown by 34% from the level of [$1.54] at inception at IPO to now $2.06.

From that, Golar dividends as income from Partners has increased by 82%, and of that, IDR has become quite a significant toll in respect of increase in dividends since Q3 2012.

The dividends in respect of the IDRs have increased by 300%.

The current level of IDR is at 23%, and 25% including the GP.

And with additional potential dropdowns to Golar Energy Partners as a result of the two FSRU contracts that we signed post 30th of June, then the IDR level of 50% is becoming closer to recognition.

So, through Golar's ownership of the partnership and contribution from dividends, operational cash flow from newbuildings, the Company is confident about at least maintaining its current level of dividends.

Over the page, we particularly have a look at the main movements in the balance sheet assets section.

So the cash and cash equivalents have decreased from $374 million in Q1 to now $191 million in Q2, mainly as a result of payments of newbuilding installments.

And that is reflected in the second box there, where in Q1, we had newbuildings installments of [$604 million] to now $734 million.

Over the page, there aren't really that many main movements there, just to say that the stockholders equity has improved as a result of the positive net income during the quarter.

Let's now turn to page 11 to go through the financing of the newbuilding program.

So, having confirmed that the Golar Tundra is to develop as an FSRU, the newbuild program CapEx has increased very slightly to now $2.74 billion.

As previously mentioned, the Company has paid $749 million in predelivery installments, and another installment of $20 million is expected before the first delivery in -- towards the end of September.

We currently have cash reserves of approximately $146 million.

To secure the financing for these vessels, we entered into a ECA facility of approximately $1.125 billion against the first date deliveries of the 13 newbuildings.

One of the positives in this deal is, of course, that there is no obligation to put any of the vessels into long-term charters, which allows the Company to keep some flexibility during what we believe to be some turbulent times ahead.

The financing just briefly represents approximately 65% of cost of the vessels.

It has a 12-year repayment profile.

And more importantly, in all-in interest costs for the first seven years of 3.74%, partly as a result of the Company entering into interest rate swaps last year when the level of interest rate swaps were still very competitive.

Another positive to the Group is that the [loan interest deferrable] between Golar and Golar Energy Partners.

So eventually, Golar Energy Partners will be able to benefit from this deal also.

Looking forward then to the balance of approximately $720 million will be funded as follows.

Obviously, the two potential dropdowns to LNG Limited, to LNG Partners of Golar Igloo and Golar Eskimo, will contribute quite a bit -- it's blocking that.

Furthermore, we've started conversations with financial institutions for another multi-unit facility, potentially high yield bonds or short-term revolvers.

And of course, as the vessels get delivered and contribute to Golar's earnings, the operating cash flows, and furthermore, more importantly, [there are no repeat] dividends in [RDRs] should become contributed to plugging that gap.

So I'll now turn the presentation to Doug, who will go through the market outlook with you.

Thank you, Brian, and good day to everybody.

I'll start off my part of the presentation on page 12 with a couple of slides talking about the market outlook.

The current market is quite strong.

It's showing charter rates for modern steam vessels still in excess of $100,000 a day based on recent fixtures.

Although I think it's fair to say in our view that the vessel market over the past few months has been quite illiquid.

The number of reasons why, despite some supply interruptions -- disruptions to normal production levels globally, that the rates continue to be high.

Again, the market is -- remains today to be structurally short on shipping.

Even with the production disruptions, those shortages on the supply side have only just mitigated that structural shortage.

Again, the Asia-Pacific price spreads for LNG maintained at a fairly healthy level, which, of course, encourages the arbitrage between the two regions, and encourages an increase in ton miles for the fleet, which, as you can see from the graphic on the right, are slightly down from 2012 levels but still at historical highs.

Another factor possibly more minor but relevant to the fleet right now is that the large number of vessels that came out of the yard in the 2007 to 2009 fleet buildout are currently going through their first drydockings schedule, which also is keeping drydock levels at historical highs.

And, of course, the rest of the fleet has to accommodate and compensate for those vessels coming out of the market.

Looking forward, we are hopeful that a couple of the projects that have been a little bit delayed coming onstream -- most notably, Angola has started to approve its cargoes and will likely be supportive of ship demand going forward.

And also Algeria ramp-up may finally be taking place.

Granted, the problems continue on in Egypt, but we think the market has taken that into account already and it's already factored into the rates.

So that's kind of the near-term picture.

The long-term picture, obviously, we're still very bullish on, supported recently by new approvals for US projects, while the Lake Charles approval, with that substantial new potential production coming on.

But I think it's fair to say our outlook remains that shipping is still probably short.

When taken into account all the new production that's under construction, and certainly, if you include in production that's been approved for export from the US, then the outlook for long-term supply becomes very encouraging.

As Brian has alluded to, the bridge between the present good market and that strong market when a lot of the big new production comes on, looks slightly uncertain as the market rebalances.

But as we turn to page 13, we will see that there's a couple factors that make us quite optimistic that we will come through that period and find shape, and take advantage of the growth in production starting in 2015.

The graph on the upper left is showing the delta between the modern DFDE vessels and modern steam vessels, which is averaging approximately $15,000 per day.

A little bit of a health warning on that statistic.

It's based on not a whole lot of data, but it's still a good indication that the modern DFDEs are gaining the premium that we would have expected to see.

The absolute potential for a fully loaded DFDE could have a benefit as high as $30,000 a day at current LNG prices.

Again, as we've stated in the past, we're still sitting at about one-third of all of the undedicated newbuild order book.

The other thing to look at is the impact of the older vessels on the fleets, including first-generation vessels, which are certainly slated to be either scrapped, laid up, or certainly, in the case of Golar's first-generation vessels, converted into alternate uses.

They're currently 10% of the -- approximately 10% of the current fleet capacity.

But an interesting statistic is that in a theoretical case, to replace vessels over 20 years of age would require about 30% to 40% of the newbuild order book.

So, 30% to 40% of the newbuild order book would be soaked up just replacing those old 20-year-old or older vessels.

So, the summary of that is that there is a cushioning effect to the market rebalancing with the newbuild order book coming on, with the older inefficient vessels coming out of the fleet.

Turning to slide 14 is a look at our existing portfolio.

And I guess the story here is one which we think is a very good story.

Since the IPO of Golar LNG Partners a little over two years ago, we have converted, as we promised, much of the existing fleets which had been sitting in short-term contracts inside Golar LNG Limited, we've executed long-term contracts on much of that fleet and transferred into the Partner's portfolio.

As such, I think it's something like 76% of the time charter revenues from the fleet now reside in the Golar Partner's structure.

And, of course, along with that came the raising of significant funds which we have put towards our newbuild program.

Remaining in Golar LNG Limited are the three first-generation vessel, which we're very optimistic we will put into good use in our FSRU and FLNG programs.

The two remaining modern vessels, Golar Viking and Golar Arctic, are the main earners at this point for the -- for Golar LNG Limited, but they are the only two earners for Golar LNG Limited.

So when we're showing results which do not consolidate the results of the Golar Energy Partners in there, Golar LNG Limited's earnings look a little challenged.

But obviously, there's a reason for all that, as Golar LNG Limited has become kind of a project development entity, with investments in new projects that it will take into the cycle again, and hopefully, leverage the MLP structure some more.

Speaking of which, turning to page 15 is our current newbuild delivery schedule -- 13 vessels.

The journey towards entering into this new cycle of signing new contracts for these assets, offering them for purchase into the MLP, and raising significant funds and cash at the Golar LNG Limited, that journey has begun with the two FSRU deals that I will talk about later.

You'll see them there as the Golar Igloo and the Golar Eskimo, which both have long-term contracts, which should be attractive to the MLP.

The rest of the fleet, we've seen -- there we have the current delivery dates.

There are some adjustments to those delivery dates.

And some of the carriers and the FSRU's adjustment to carrier dates tend to be just on a subset of the vessels.

And they tend to be three or four weeks.

And the maximum, I believe, is six weeks adjustment in the delivery time table.

The two vessels that have slightly more or larger adjustments to their delivery schedule are the Golar Igloo, due to its needing some preparation for its contract in Kuwait.

That delivery schedule is now 15th of December 2013.

And the Golar Eskimo, which is now going to be -- have some modifications done to enter into the Jordan FSRU contract, is now scheduled for delivery at 24th of December 2014.

And as Brian mentioned earlier, and I'll talk a little bit about later, the Golar Tundra has been converted to include FSRU capabilities.

And, as such, the delivery of that vessel is now out to November 30, 2015.

Just a little bit about operations.

Of course, that previous slide with all those newbuilds requires a pretty significant buildup in operating crew.

And we have full confidence that we will be able to carry that out effectively.

Our own subsidiary, Golar Wilhelmsen Management, that we own and control in partnership with Wilhelmsen, has been showing tremendous performance.

It's in compliance with the relevant standards, with a goal for zero harm to people and minimal environmental footprint.

The performance of Golar Williamson has been excellent in terms of performance uptime.

Pretty close to 100% across the fleet.

Safety statistics, excellent with a long-term instance frequency of zero for 2012 and to date in 2013.

We also, quite critically, have a excellent record of keeping our crew motivated and in the Company, with a retention rate of above 99%.

And I guess the final point, and the most important point, pointing towards the newbuild program, is that we are well underway in terms of hiring our new officer complement for the newbuilding.

It's quite a total of crew, as you can imagine, for those 13 vessels.

But we have a program in place, and we will be ready with our crew to operate those ships when they come out of the yard.

Turning to slide 17.

Obviously, we're just elated with our recent success on the FSRU side.

The two newbuild orders that we had placed both going into good-looking contracts -- one in Kuwait and one in Jordan.

I'll talk a little bit about that later.

But it's certainly, we believe, established Golar as the preferred FSRU provider for long-term service, including our four existing operations, the two new FSRUs going into service will total six firm long-term contracts, which represents approximately 40% to 50% of the entire long-term market for FSRU's.

In response to that, and with an optimism that the FSRU market will continue to grow, we have signed a firm contract with Samsung to add reclassification capacity to the Golar Tundra.

So, this will be a vessel very similar to the first FSRU that's going to Kuwait, in that it's 170,000 cubic meter storage, 750 million cubic feet a day of re-gas capacity; cutting-edge technology.

It will be among the most efficient FSRU's in service.

And, of course, it will retain its ability to trade as a LNG carrier with the DFDE proposal system.

We aren't forgetting about smaller niche opportunities.

There are those kind of projects out there that have potential.

We will continue to look at conversion opportunities for the first-generation vessels, as we do see some of the smaller markets potential to do that.

Turning to slide 18, the FSRU that will be going into Jordan.

Jordan, obviously, seeing some volatility and risk and unpredictability in its existing natural gas supply into the country.

They have decided to turn to LNG in order to create security of supply for their primary energy market.

They have several initiatives underway, including LNG supply tenders and development of the port.

But in the end, when it came to the FSRU, they turned to Golar.

And I think, as with the Kuwait vessel, the reasons for that is that we had made the commitment to build the vessel, and had it available on a comp basis, and we could show a proven track record of operational excellence and reliability.

It's a 10-year contract.

You can see the various earnings contribution that will come out of that contract.

They have -- do have the ability to terminate the contract after five years, but there would be a significant termination payment, were they choose to do that.

Again, the Golar Eskimo that will be going into that trade, it's the second of our FSRU's, the smaller of our FSRU's but only by 10,000 cubic meters.

Still with the 750 million cubic feet a day of re-gas capacity and the high fuel efficiency in the re-gas process.

The startup of that project is scheduled to be late in 2014 or early 2015.

And once again, this vessel will be offered to the MLP for dropdown.

It should be attractive for that basis.

And if that transaction closes, it will obviously increase Partner's dividend, contribute to the increase in Golar LNG Limited's IDRs, and create availability of cash up at the parent level.

Turning to slide 19, the Kuwait FSRU -- Kuwait has been a importer of LNG for several years now.

They have an existing facility for which they had contracted another FSRU on a four-year contract, I believe.

They left themselves the flexibility to rebid that contract and that's what they did.

And we were successful in that rebid process.

And again, contributing to that, having the prompt vessel available.

It's only eight months or so from project award to the vessel going into service, so obviously, the vessel had to be substantially complete in order to meet that requirement.

But also, in this case, the cutting-edge technology and high efficiency of the FSRU contributed strongly to putting us in a good negotiating position to secure this contract.

It's a five-year deal.

The total time charter revenues, including operating costs, are at $213 million.

The contract is seasonal.

Expected nine months of regasification service per year.

The $213 million time charter revenue will not go down.

It could potentially go up, if there are more months in a year that the Kuwait teams decide to use the ship for service.

And if -- when the FSRU is not operating in Kuwait, it will be available to go out to trade as an LNG carrier.

Situated in -- where it is in Kuwait, with the amount of LNG activity going on in that region, we would hope to secure potential fixtures as an LNG carrier heading out of the Middle East, away from the Kuwaiti area in the off-season, and also fixtures coming back into the Middle East to keep the vessel busy during those off-months.

Turning to slide 20 -- sorry -- and our floating liquefaction project, which we continue to be extremely excited about.

The feed that we've had on going on with capital is nearing completion, and we are getting good visibility on what the results should show.

And it's expected to show that the technical and economical viability of our liquefaction solution is sound.

The reflective toll that we would require to recover CapEx and OpEx on the unit would be in the range of $3.00 to $4.00, depending on the throughput level -- which, anybody who's kind of been watching the market for new tolling deals on traditional liquefaction plant, will know that that puts us in a real competitive place with those kind of projects, the difference being that these -- our vessels can be constructed in approximate timeline of 30 months.

We're hoping that could be less.

And we also have the flexibility to do smaller projects with reserve sizes ranging from 500 BCF to 4 TCF.

And we also have the flexibility to do shorter contracts, as low as 10 years, possibly lower.

And of course, the vessels will be built to last and able to enter into longer-term contracts of 25 years.

So we think that there is some significant differentiators with this technology over more traditional liquefaction solutions.

And we're looking forward to taking this out to the market.

We are currently planning for how we will structure and finance our move into this space.

And those decisions will be made over the next months, when the feed with capital is fully complete and we have all the parameters set.

Just a bit about the projects that we're looking at.

Of course we've been involved in the Douglas Channel project for some time now.

We, during the quarter, reached agreement for funding into the project in the form of a loan.

Golar accounting for about 25% of that loan, with sufficient funds to take the project all the way through to the end of the feed process, and to final investment decision.

The feed continues to progress very well.

And certainly the permitting process is well underway with a very supportive regulatory and government bodies involved in the project.

I will say that there is much work to do on the project in terms of commercial and shareholder agreements.

A fair number of issues that need to be worked out and clarified before RFID, but we're confident that if we can get through those issues, the project remains an extremely solid investment.

And we're looking forward to taking it forward, once the shareholder issues are resolved.

We're also looking at several additional opportunities, which are progressing in the Americas and West Africa.

West Africa is looking like an excellent fit for this in terms of niche markets or niche supplies that could feed into Golar's technologies.

There's a number of offshore fields, which either aren't producing because they're too small for other alternate monetization schemes, or they are gas layering, which obviously, is a problem that those relevant -- the relevant countries would be anxious to take care of.

A lot of the gas we're seeing there is relatively clean with a low CO2 content, which is important for our solution.

And we are getting very good traction in terms of host governments and reserve owners to potentially take our solution forward and monetize this gas through LNG.

So turning to slide 22 to wrap it up, obviously, we are very pleased with the last couple of months' activity.

The two long-term FSRU contracts contribute very positively to the Company.

And, of course, as Brian described earlier, the $1.1 billion newbuild facility that we concluded is extremely positive.

The terms that Brian laid out earlier, I think it's very obvious to see are extremely competitive.

And what that leads to is an extremely competitive cost breakeven structure for those newbuild vessels, which puts us in extremely good competitive position against the rest of the fleet.

Operationally, despite some cost overruns, on drydock vessels, with specifically on the -- a couple of the Golar Partner's vessels, we're very happy with our operational uptime performance and safety performance coming out of our Golar Wilhelmsen technical folks.

The medium to long-term shipping fundamentals still looking very strong.

We are very secure and comfortable with the future performance of our newbuilding fleet.

We think it's clear, though, that in the interim period between now and, say, 18 months from now when the bulk of the newbuild order book comes out, there isn't as much production coming onstream as there are ships coming out of the yard.

So clearly, that means there's going to be some rebalancing going on.

We'll be looking at some shorter-term charters, some spot activity to leg through that time period, as we head towards the production increases coming, starting in 2015.

We've described how the success in the contracting of the original fleet in Golar LNG Limited has resulted in the vast majority of the vessel earnings residing in Golar Partners.

Again, as you're looking at Golar LNG Limited's non-consolidated earnings, those will appear challenged.

But obviously, that's as a result of much of the vessels now operating in the MLP structure.

And the benefits of that, including increasing dividends, increasing IDRs, and the cash made available to the parent, are obvious.

And in the near-term for our floating LNG project, again, we are very satisfied with the way the feed has come together.

It's near completion.

The results are playing out about as we expected.

And we think we have a solution that's going to be very competitive in the market, and could certainly lead to unleashing significant value in the production space.

Obviously, the deals are commercially complicated.

They're technically more significant than an FSRU or a carrier deal.

So there are some serious entry barriers to be overcome, but we think we can overcome them.

And again, we will be structuring the financing and the manner in which we'll take this venture forward in the next months.

With that, that wraps up the presentation part of our phone conference today.

And I will turn it back over to the moderator for questions.

(Operator Instructions).

Michael Weber, Wells Fargo.

A lot going on and you guys had a number of releases that kind of came out ahead of the quarter around the financing of FSRU's.

So I kind of wanted to zero in on liquefaction to start and maybe start with Douglas Channel.

Can you maybe give kind of an updated timeframe around RFID?

And then you mentioned a couple of key commercial and shareholder issues, if you can give a little bit more color there, around where that came from.

I think, Doug, you also mentioned that you guys had actually looked at a loan intra-quarter, and maybe some more color on whether or not that was finalized, if you guys would make a 25% at launch.

And then maybe do you expect -- where the financing stands for that project.

Okay.

Yes.

So, in terms of timing, I think that the final investment decision will certainly depend on the feed work being completed for both the production facility and on the onshore facilities.

We're running really hard to try and get those done by the end of September.

That's our goal.

I would say that there's a bit of a risk that that slips a little bit into the fourth quarter, but that's kind of the timing we're working on now.

The issues that we're working around with shareholders and commercial, it's a lot to do with just having to put a lot of details together in a short amount of time.

And the original structure is still holding together but it takes a lot of details.

There's a fair number of commercial agreements for gas supply structuring the shareholder agreements around various parts of the assets, structuring the offtake sales.

So, it's just a matter of getting through all that, which is quite a complex set of agreements.

Nothing more than that.

But I just -- we just don't want anybody to get ahead of themselves.

There is work to be done and commercial issues to be resolved before the final investment decision can take place.

The loan I was referring to was actually the funding that went into the project, I believe this was described in some form in the release we made about, I believe, we included something about Douglas Channel in the first-quarter results release.

But the loan that I was referring to was the loan that went into the project in order to provide funds to take the project to FID, not beyond.

Okay.

Okay.

So that was a loan.

We probably put around $14 million to $15 million in play on this project, both in internal costs and that loan.

The loan is the vast majority of those dollars.

And that loan is collateralized by the project assets, obviously, which include the export license and pipeline capacity, and the engineering work and other (multiple speakers) stuff like that.

(multiple speakers) Yes, that makes sense.

And I interpreted that -- I thought you were talking about a lot more around project here.

That makes sense.

All right.

And maybe just kind of switching gears to the Mosstank conversions.

I mean the same kind of question around the timetable for that feed study.

And then you guys have been talking about this for a couple of quarters and it seems like there's a fair amount of progress being made.

At what point do you start taking more serious indications of interest from potential charterers?

And maybe -- and how does that conversation kind of overlay itself with the feed study?

Okay.

Well, I would say that we are beyond getting readings from charterers on the concept.

We have several development discussions underway with counterparties.

I would say four to five serious ones, not ready for press releases yet or not able to kind of talk about details and things.

But I guess we had, subject to the feed results, we had a decent idea how the facility or the vessel should look post-conversion in terms of costs, and how long it was going to take to -- the construction time.

So we've been able to go and have those discussions with potential charterers and potential partners, because the structure may not be always just a charter for those vessels.

But we've been able to go and have those discussions.

And with the tolling, you can go down to the size we're talking about, reserve size of half a T up to 2 or 3 Ts, that kind of size, you get a lot of interest when you can bring a toll of $3 to $4, because that's kind of what the megaprojects are effectively costing.

But it's been really successful so far.

But again, if you imagine a field in West Africa in a country there and what it takes to kind of get the political interests onboard, interest in exporting their gas, all the kind of work that has to go on, structuring the whole thing, it's going to take some time.

But the economics are so attractive that we just think it's worth putting a good focus on it.

What we haven't come out with or completed our planning for yet is how we will structure the financing for when this venture is going to take -- need some serious or more serious dollars to take forward.

We've talked about launch of a separate entity.

That's certainly a possibility.

But again, we haven't done anything on that front.

We're in the planning stages.

And of course, we'll be letting people know how that's going to work as and when.

Timing-wise, the feed engineering work and cost estimates is effectively done.

It's one or two weeks of work left.

But then actually tie down the contracts to go on ahead and do the conversion will take some more time after that.

That could take as much as a month or so.

So that's the kind of timeframe we're in before we could actually trigger going forward.

And again, going forward can take a lot of forms, depending on how we look around and see how positive we are in the market, it could be a full sprint to getting one built as quickly as we can.

It could be all the way to the other side of the range, which would be let's get these projects developed a little bit further and get them solidified a bit more before we start off.

And of course there are shades of gray in between.

Got you.

No, that's very helpful.

Thanks.

One or two more for me and I'll turn it over.

Around the FSRU market, have you guys put up the releases kind of heading into earnings, and you mentioned the Tundra's delivery date pushed back and you're fully converting that slot to an FSRU candidate.

Is the window to convert additional slots into FSRU's for your existing order book, is that closed at this point?

And how does that, if it is, how does that impact your ability, your tendering ability for forward -- for future FSRU projects?

I guess the question is, how long would the runway be to go out and place another FSRU order if you are successful another tender?

Right.

The window isn't totally closed to convert those slots into an FSRU, but that's just a theoretical case really now.

We are still looking at one of the late carriers to convert.

It's not -- you can always do it but it becomes a case where having Samsung do it in their yard it becomes possibly an economic, depending upon how late you are in the window.

And we could just as easily convert, take delivery of the carrier and convert it ourselves if we wanted to put it into a tender.

And so that's actually the strategy we would follow.

I would say that looking around, we focused pretty heavily on three projects over the last year.

We focused heavily on the Mubadala FSRU in Abu Dhabi.

We focused hard on Kuwait.

We focused hard on Jordan.

Because those clearly were the more firm projects and we felt that it was important to take a good run.

Obviously, we lost one of those and were successful on the other two.

We are of the view that we aren't in too bad a shape, actually, with the Tundra being the next newbuild FSRU coming out in 2015.

We don't think there's an avalanche of new FSRU awards coming for that time.

There could be some and we might, if it's a real prompt one, we might be caught out on it but that was the price to pay to get the two -- Kuwait was obviously going to be firm.

It was already a project.

And Jordan, we just thought always looked really good.

So, yes, we ended up with a gap that came -- they came together all at the same time.

We didn't want to have more than two open spec FSRU's out there.

So this is where we ended up.

But we don't really believe we are going to be in bad shape.

We can get a conversion done in 18 months; 16 months if we hustle.

So, we -- and that gives pretty good visibility for us.

So we think we'll be competitive and not too concerned with our FSRU delivery schedule at the moment.

Got you.

All right, that's helpful.

Last one for me.

The Kuwait FSRU contract for the Igloo, it seems like it's pretty unique in terms of the kind of spot trading window.

Obviously, this would be a bit different, but I'm just curious as to whether or not there is an opportunity to structure a similar contract around a carrier maybe with different windows.

But kind of coming at that from an MLP angle in terms of maybe an ability to kind of meet some cargo requirements for a counterparty also having some optionality, and finding a way to get more coverage in this kind of a volatile and long-term environment.

Basically, is that a contract especially that's reputable on the carrier side?

Yes, well, in fact, you probably know.

I mean, there have been some of those kind of deals done -- not with us -- between owner and charter over the past few months, where it's a multiyear contract but the vessel is only firm onto the charter for a certain number of months per year.

Yes, I -- I mean, we have lots of spot exposure on the vessels, so if we're moving to enter into charters, that wouldn't be the goal to try and leave some spot (multiple speakers) --.

(multiple speakers) Yes.

But certainly, I think just because we have the MLP drive there.

That's true.

But we also got -- I would say the most flexibility across the fleet in terms of being able to optimize what we get for these vessels because of the financing we've been able to put in place.

So, if there is a deal like that, that would be great.

But as long as it's attractive, we wouldn't do it just at this point just because we feel we have to have an MLP.

(multiple speakers) So we think the MLP deals will come.

They could come sooner than we think.

There will be portfolio players that, at some point here, will start looking out into 2015 and '16, and decide that it's time to pull the trigger.

And that's kind of how it went for a lot of the vessels that the original fleet that went into partners, you got a perception -- while the perception was a reality, that the market was starting to tighten up.

And usually it was portfolio players that decided they better put some structural position in place.

And we ended up chartering to them and we ended up dropping those vessels down into the MLP.

And I think that's how it's going to go again.

And I wouldn't be surprised to start seeing some of that in the near-term.

It could be maybe not in '13 but through '14, I wouldn't be surprised if some of those portfolio players aren't starting to look to add structure into their portfolios.

And that's, I think, where the MLP deals will come on the carriers.

Got you.

And that should be the next 6 to 12 to 18 months?

Yes.

Got you.

Okay.

Great.

Thanks a lot for the time, guys, I appreciate it.

(Operator Instructions).

Urs Dur, Clarkson Capital Markets.

Following on the carrier question and the structure of the market, the new modern 160 cubic tri-fuel ships are doing well, as you guys point out in your presentation.

And spot rates, granted, are still a small portion of the market, have been stronger than a lot of people had forecast over the course of this summer.

And taking up lately as well as term rates, at least what's quoted and knowing it's not specifically too liquid, have also remained pretty resilient and moved and picking up as well.

The approach, obviously, you mentioned is to get some ships on charter for the MLP, so you're going to need a length of charter there.

But what's going to happen with the ships coming in '13?

Do you want to run them on spot or very short-term?

Or are you going to try to push them back in delivery date?

Or are you going to lock them up for a longer period of time or is it just going to be a mix?

It's kind of a lawful answer but I think it's going to be a mix.

I mean, to say you want to -- your goal is trade LNG vessels spot I think would be a little bit disingenuous.

We just have taken the approach, if you look back at the approach that we've taken, the typical mid to high-70s deal, low-80s deal for term contracts haven't been attractive to us.

And we haven't needed to do them.

And we prefer to let a lot of the order book go out onto those kind of deals, and those ships that have owners that possibly were looking to firm charters in order to raise financing and that's fine.

So, we just believe that the fundamentals of the market are more strong than that.

And so what we have is the ability to trade the market -- trade the vessels on a shorter-term basis without having to delay deliveries.

Hopefully do well in earnings.

I'm sure we will do fine.

But we'd like to make sure our vessels are open and available to respond to what everybody knows is the large wave of new production coming onto the market, starting in 2015.

And it's a nice broad range of supply.

You've got the Australian supply coming on.

Now you've got US really building up in East Africa with their monster project.

So we just think that we would be remiss if we didn't do our best to take advantage of what is the real increase in demand for ships, which is coming, which is created by that production increase.

Great.

And to what do you attribute the freight rates where we are heading into the winter season?

Can you tell us a little bit about that market?

And what do you attribute the relative strength of the market compared to, say, where we were in June?

And I wasn't saying delay the ships; I'm just wondering -- it doesn't seem to make sense in this market to delay a 13 ship, when the market is as strong as it is, just to get a 14th stamp.

But I was just wondering what your thoughts were there and you answered that.

But can you talk a little bit about what this near-term market is?

Because whether we like it or not, it does seem like investors do react very positively to improving freight rates, as well as the other positive announcements you've had, like the debt facility in the contracts.

But also to just what the general freight market is like.

And can you tell us what you expect in the next two quarters maybe on a chartering outlook?

Well, I mean, from a few months ago, I guess the story has been largely about, you know, the typical things -- well, maybe not typical.

The disruptions that we've seen in the production have not been typical.

The delay in Angola I think has been an interesting dynamic, because that's seven vessels, I believe.

Right.

They either get released into the market or not.

And when you're talking about a market that's kind of with the lack of liquidity that the LNG shipping market, to suddenly have seven new ships that people didn't know were going to be there, released into the market in one region, has a bit of an effect.

So with Angola starting to ship cargoes, I don't believe all those vessels aren't trading any more.

I don't know that for sure, of course, but I believe those vessels are standing by ready to lift Angola cargoes.

That's changed things.

The state of the market now, we expect the arbitrage to be in good shape through this winter.

With that new production coming -- the Angola production coming on, and maybe Algeria selling more cargoes than they have been, we think it's going to be pretty robust.

What I guess the characteristics now has been there's very few ships around.

And I think some cargoes aren't getting lifted because of that.

Because again, it's the right place, right time.

If there isn't a ship available to get to the load port at the right date, then the cargo just doesn't get loaded.

And I think there's been some of that going on.

So, I guess supply/demand balance, which is the only -- you know, is what you really, over any kind of -- except for very, very short-term, what you're relying on -- the balance, from a shipowner's perspective is still in very good shape and will be through the winter.

Rebalancing goes on through next 2014, and I can't predict exactly what rates will do, but there's -- you have to guess there'd be a slight weakness coming through next year.

But not a prolonged one, and nothing like the last cycle that we went through with the 2007 to 2009 huge buildup in the fleet.

And that took three to four years to work out.

Well, three years, anyway.

I don't think that we're looking anything like that this time.

Yes.

No, you've mentioned that before.

You've been very open about that, and I think that that's become sort of a consensus view for '14 and '15 that '14 might be a bit of a gap year with ships delivering ahead of a wall of liquefaction, as you mentioned, hitting '15, and we see a lot coming more in '16 and '17.

So, yes.

No, that's extremely helpful, and really, that's all I had.

Thanks for the color also one the liquefaction.

That was very helpful.

Thank you, guys.

Fotis Giannakoulis, Morgan Stanley.

Yes, I want to ask a little bit more about the spot market.

And you mentioned that the spot market is -- does not cover so much debt for in the LNG sector.

What type kind of utilization can you achieve realistically if you trade spot?

And how shall we start thinking the revenue of the vessels as they hit the water, in the event that it takes a few more months until these vessels get into longer-term contracts?

Well, I don't know if I can get into protecting utilization, Fotis, but just to give kind of our mindset on this, I mean, there's a whole range of answers here.

There's true spot voyage starters, all the way to like six month or one year or eight-month deals, which I would include in my description of short-term business for our vessels.

Our mindset would be that it is idle time on LNG carriers and keeping them cold and the fuel required is quite damaging.

So we will be fairly focused on the utilization figure as opposed to the last dollar on a charter rate.

Because it just doesn't make sense to go idle searching for the highest possible rate.

So, we -- I can't predict the utilization for you, but it's a huge priority to keep these vessels moving.

I understand.

What I would like to ask your help is that let's say that the market is around $100,000 or $110,000 as it is right now.

How can we translate based on what you have seen the last six months into an average rate, given the gaps that you have between one cargo and another?

And if you can also be helpful, you mentioned about the Angola, that is going to bring more cargoes.

Angola has some vessels but they are already contracted for Algeria, but I understand there is some excess capacity that provides spot cargoes.

How many cargoes are available from these two projects?

Well, I don't know if it's so much -- those, the two projects are very different in terms of the shipping that's pointed at them.

It's not so much new cargoes, although you would expect eventually both those facilities may produce over their main fleet capacity.

But it's more where the LNG goes to.

I believe probably the Angola fleet as it stands today was designed to go to the -- 100% of that product to go to the US.

I don't know that for a fact, but that's probably the case.

So, if you -- I think if you look at diverting -- if you diverted all that LNG to Asia -- which, if I was the Angola guys, that's what I'd want to do -- that's probably three more vessels.

But I mean, you can do the math on that as well as I can.

But Algeria -- I'm not sure, to be honest.

I mean, they've got the new train capacity now.

I actually don't know better than -- more than the assumption that they will be anything that's not committed to long-term buyers will be sold on an FOB basis.

And maybe it will be sold in strips or in one-off and -- so, I don't know.

It's a little bit hard to predict the impact of that one on the shipping capacity required.

Thank you, Doug.

Is there a way you can share with your view of how many vessels right now they are trading spot?

I understand that some of the older vessels, they are still trading in the spot market, but there are also some vessels, like the Viking, which are out of contracts.

And some vessels, they are sub-chartered by the charters.

How big is this spot market?

And we heard about some idled -- some vessels, older vessels, that they got idled.

And that helped a lot the rates in the spot market for modern vessels.

Is that the case?

There certainly has been some older vessels coming off charter and assumedly going idle, if not directly into layup, if not people trying to sell them even for scrap.

In terms of what portion of the fleet is operating in a short-term or an unattached to projects, I don't know.

Long run, historically, that -- you probably have better statistics than me, but my own view of it is generally around 20% of the vessels or so.

That's not spot.

That would be what I would call non-project vessels.

So, you tend to get the portfolio guys in that count as well.

But right now, I don't know.

There's probably, at any one time at the moment, there's only two or three vessels in each of the regions available for spot cargoes.

Thank you.

One more question about the chartering.

We read in some of the industry newspapers about the Douglas Channel project and the potential of providing employment for a couple of vessels.

Is that in line with your expectations?

Do you think that Douglas Channel fleet, the first space, will need two ships?

And have there been any discussion between you and your partners of providing this capacity in terms of shipping availability?

Well, it's -- I'm not trying to be -- it will be either one or two vessels for that first phase of that project.

And certainly, it's amongst the issues being discussed, but it would be our intention that if we invested in a liquefaction project, the base case is that it would be Golar vessels lifting the cargo from the project.

Thank you.

One question for -- a couple of questions for Brian.

Brian, I want to ask about your operating expenses.

How shall we think operating expenses, given the fact that you have five vessels, out of which two are idle?

Do these vessels pay operating expenses while they are sitting idle?

And how shall we calculate them?

Yes.

So, I think four of the vessels that are in layup, it's safe to say that the operating expenses is much reduced.

So typically, in the past, we've seen daily operating costs of somewhere between $2500 to $3000 per day.

Of course, when you put them into layup, there is an initial expense.

But once they're in layup, then that would be the typical run rate.

On the modern carriers, they are currently in the region of 12.5 to 13 days.

So, Viking and Arctic would be in that region.

And for Gimi, which was in operation during the quarter, for most of the quarter, then her operating cost is around $1350 to $1400.

(multiple speakers) The one thing that skewed the operating costs in the quarter is the costs incurred, in respect of the crew, newbuild crew buildup.

And of course, that will continue to be the case for this year and probably for the first quarter of 2014.

But otherwise, the underlying vessel operating costs will be along the lines I've just mentioned.

So I understand that the difference from the raise that you gave me for these vessels is this newbuilding crew cost.

Is that correct?

Yes.

Yes.

Okay, thank you.

And my last question is about the credit facility.

You managed to secure a very attractive credit facility without even having any contracts.

But I understand the terms, they are around 12-year profile.

Are the terms going to change as long -- from the time that you will have a contract in place for each of these vessels?

That's very unlikely.

And the reason it's a 12-year profile is because of the involvement of the Korean PCH in there and their OECD guidelines, they can only lend up to 12 years.

However, what can be done obviously is, once those vessels are long-term charters and LNG partners, then LNG partners could layer up on some of those.

And that layer could potentially not necessarily be amortizing.

But the underlying debt that was signed up for has a 12-year profile.

And that's in terms of stretching that, it's pretty limited.

But you can structure it so you could stretch a little bit, about where the Korean ECA are not involved.

Okay, that's all I have.

Thank you very much for your time.

Jon Chappell, Evercore Partners.

Doug, first thing on the timing of the MLP dropdowns, just curious how it works.

With the contract with the Igloo not really starting until March, but then talking about something being done by the end of this year, that the ship not to have to be generating revenue before it's dropped down to the MLP, to kind of offset the dilution from any financing, the MLP would have to take down to buy that ship?

Obviously, it has to be earning revenue from somewhere in order for the MLP to kind of into the dividend mix.

The option there that what we can do is what we're thinking possibly is that if the dropdown were to happen before the end of the year and the interim period between, in between then and March, the parent would charter back the vessel and use her as a carrier probably to take cargo into Kuwait with, and arrive with the FSRU ready for the contract with the cargo already onboard.

So, we see potentially to use the FSRU is a carrier coming into that contract.

And as such, the goal of the parent may charter the FSRU Golar, the parent may charter the FSRU from the MLP until the FSRU Charter begins in March.

Okay, that makes sense.

Just another quick clarification.

From the FLNG commentary you're making before -- the toll of $3 to $4, is that a net number or is that a gross toll?

Gross meaning OpEx?

Yes.

Yes, it includes OpEx.

It includes OpEx.

Great.

It does not include shrinkage.

That's the only thing I should point out about that.

So, the units use a certain amount of fuel, that wouldn't be included.

The cost of that of course depends on the feed gas supply costs.

Two quick ones for Brian, because I know he has another call in 15 minutes.

On the interest expense, when does that start to show up again?

When does the deemed interest kind of get lower than the actual interest expense number that the (multiple speakers) -- P&L?

We've been getting used to not showing interest expense, but I think obviously, when the vessels -- when we take deliveries of the vessels, and therefore drawdown in the facility, perhaps not necessarily on the first two but maybe on the third one, we may, I think that's when the breakeven for interest expense come through.

So obviously, it will ramp up pretty quickly, given that the delivery of the vessels are pretty close to each other.

So, basically, that would put us into the first quarter of next year if we consume zero net interest on the P&L through the rest of this year?

Yes, I think that's about right.

Okay, that's helpful.

Then, finally, obviously we have the new CapEx relatively small for Tundra.

Can you just update us on the CapEx budget, the timing of the capital outlays?

So, actually the majority of that is pretty backend loaded.

So although we've signed up for it, the delivery costs -- the timing of delivery is when the majority of the additional cost is incurred.

Mostly like 70%, 80% on delivery?

Yes.

Yes.

Well, closer to 75%, yes.

75%.

Okay, yes.

Thanks, Brian.

Thanks, Doug.

Sure.

Sorry, moderator, given that we've got a call pretty much immediately after this, can we take the next question as the last call -- the last question?

Yes, of course.

Erik Stavseth, Arctic Securities.

Two quick ones from me.

The first one regards the FLNG.

You're talking about clean gas without CO2, but I was curious if you are also looking at taking out LPG from the gas stream?

Or is it purely going to be LNG that you're looking at?

Well, that's a bit hard to answer.

The facility that we're looking at is not designed to take up significant LPG's.

So it's relatively lean gas, although I wouldn't call it -- I wouldn't classify it as lean but relatively.

If there is an LPG opportunity in association with an LAG monetization platform, obviously, that can be extremely valuable to a project and we wouldn't shy away from it.

We aren't LPG traders nor are we builders of processing plants.

So depending on where it was and if it could be done economically, it could be a big boost to LNG project.

But this particular facility is not designed to deal with LPG.

Okay, cool.

Second question is regarding actually the number of traders in the market.

We just saw Koch supervising trading take a vessel for a year.

They haven't really had any cargoes before.

We're seeing gunfire in the market, traffic in the market.

Is there something that you see -- how do you interpret the traders that haven't been there before, appearing?

I interpret it as good news.

We like to see traders coming into the market, especially ones like Koch.

It's a serious organization.

And certainly if they decide to, can be a big participant in LNG.

Guncore is obviously already kind of doing some things.

No secret Guncore is going to start up an LNG trading desk here shortly.

We are all in favor of more players into this market as a shipowner.

The LNG industry still has a long way to go, and in terms of becoming a properly traded product, which we would look forward to that day.

And more traders getting into the space is an encouraging thing for us.

Okay, thanks.

Moderator?

That will conclude the question-and-answer session for today's call.

I would like to hand back to the speaker for any additional or closing remarks.

Thank you, everyone, for your participation in our quarterly presentation.

As always, we look forward to talking to you again in the third quarter presentation in November.

Thank you and good bye.

That will conclude today's conference call, ladies and gentlemen.

Thank you for your participation.

You may now disconnect.