Golar LNG Ltd (GLNG) 2013 Q4 法說會逐字稿

Good day ladies and gentlemen welcome to the Golar LNG Limited Q4 2013 earnings conference.

(Operator Instructions)

At this time on like to turn the conference over to Mr. Brian Tienzo, Chief Financial Officer, please go ahead Sir.

Thank you operator and hello everyone and welcome to Golar LNG's fourth-quarter results, our presentation.

My name is Brian Tienzo as the operator said and as per usual I'll be taking you through the main events of the quarter as well as the financial highlights.

I'm joined, as usual today, by our CEO Doug Arnell who will take you through the business updates and the summary announcement sections.

So let's now turn to page 4 to go through the quarterly highlights.

Golar reports fourth-quarter 2013 net income of $4.3 million, so we had negative impacts in [ordering] vessels but we also had positive market-to-market returns on interest-rate swaps.

EBITDA during the quarter generated was a loss of $5.5 million.

The company during the quarter takes delivery of the Golar Seal and Golar Celsius in October and earnings were negatively impacted also by the Golar Arctic completing it's scheduled drydocking which took on 17.5 days of off-line.

In December, Golar Partners completed its fourth follow-on equity offering and was able to raise net proceeds approximately $150 million and concurrent to this, Golar sells 3.4 million of its common units in Golar Partners raising net proceeds of $99 million.

Golar's Q4 dividend cash proceed remains in line Q3 and the proceeds from the sell down of Partners was mainly to look at the potential FLNG projects that the companies looking to strategic over the next couple quarters.

Furthermore, Golar's agrees to sell it's interest in the FSRU Golan Igloo, the Golar Partners for $310 million subject to certain closing conditions.

Of course the Golar Partners following an equity offering in December is in preparation for the finalization of the sale of the Golar Igloo.

During the quarter we saw Gimi proceed to lay up in the Far East.

This is a result of the company seeing the vessel encourage expensive idling time and in order to be prudent and savings on operating cost, we thought that was a prudent thing to do.

We continue to [spotting] short-term chartering markets remain challenging and with increasing numbers of available vessels.

Nevertheless, [expired] weak results during the quarter the board maintain dividend of $0.45.

Turning over to page 5, subsequent events.

The FSRU Golar Igloo is delivered from the yard in February 5 and proceeds towards Kuwait for delivery into a five-year charter with KNPC and the company expects that the vessel commences this charter from March 1.

Golar concludes the financing of the four vessel sale and leaseback facility with ICBCL and essentially that means that the total CapEx of $2.7 billion for it's new building is now fully funded.

Finally, we signed EPC contract negotiations for the floating liquefaction vessel conversion reaching its final stages with mostly the commercial discussions towards the finalization.

Turning over to page 6, the financial highlights.

So on the left-hand table there, that's showing the Golar standalone results and as you can see the net operating revenues have dropped very slightly from Q3 of $12 million to Q4 of $11.6 million.

During Q4 as mentioned, we saw Arctic drydocking which meant that for 17 1/2 days it was incurring off-line we also saw the delivery of both Seal and Celsius during the quarter and both vessels with significantly idling.

To mitigate that we saw Golar Viking on hire for 58 days but again, with the Gimi idling that means overall the net operating revenues was down very slightly.

Operating expense for the quarter of $12.1 million is up from $9.8 million from Q3 and simply the main reason for that is the addition of both Seal and Celsius to the fleet.

The two, both operating revenues and operating expenses negative impact also means that the EBITDA for the quarter lessened slightly from Q3 to $5.5 million.

Going down the page a little bit, net financial income expense for the quarter is a positive $5.5 million versus a negative of $10.8 million during Q3.

And the main reason for this is the increase in long-term rates from Q3 to Q4 resulting to positive mark-to-market movements during quarter.

The bottom of the left-hand table, we highlighted some numbers so as you can see the vessel numbers have gone up from 5 to 7 because Celsius and Seal delivery, and we also see the significance impact of the idling times on the TCE from $37,963 per day in Q3 to $24,128 today and Q4.

As a result there is also a negative impact to utilization from 40% to 30% in Q4.

However, since Partners IPO subsequent drop-downs, the majority of EBITDA contribution now resides in Golar Partners and if you look at the table to the right of the page, that shows us how the numbers would have looked like at the Golar Group aggregated the Golar Partners vessels.

So that, although there's a slight drop in revenue from $97.4 million to $96.9 million that is essentially the result of the significant idling of the Golar LNG vessels.

EBITDA for the quarter, would have been $67.3 million versus $70 million, again as result of additional vessels.

It's pleasing to know the [MLP] vessels were virtually 100% utilized during the quarter.

Turning over to page 7, look at the Statement of Cash Flows.

The first box that's highlighted there, shows the [opportunities] in operating assets and liabilities have improved from having been negatively impacted from $11.4 million in Q3 to $25 million in Q4.

Again, that's mainly as a result of the mark-to-market movements in interest rate swaps.

The dividends received from Golar Partners is consistent and of course as we see the Igloo dropping down to Golar and Partners we expect that number to remain constant over yet that Golan LNG limited has sold down some of it's stake in partners.

Toward the middle of the page you can see the additions and new buildings and equipment have been up significantly from $80 million in Q3 to $347 million in Q4, mainly as a result of the vessels being delivered.

Other investing activities of $151 million during the quarter is made up of the sell down of LNG Partners by Golar LNG Limited as well as the sale of the bonds that Golan LNG Limited held of the Golar Partners' high-yield bond and that amounted to $35 million.

And finally, we see an increase in long-term debt during the quarter as result of draw down from the eight vessel facility assigned during the summer.

Over the page, page 8, again this is just an indication of how important the Golar group corporate structure is, particularly as the company gets closer to the strategic positions on FLNG.

As we saw, IPO Golar's Partners quarterly dividends have grown by 36% and more significantly Golar's dividend income from Partners have also increased by 70%.

I think what's pleasing to note is that since Q3 2012, [IDR]s received have increased by 400%.

IDRs are currently at 23% level, 25% if you're counting GP.

But as we see the drop-down of the Igloo, which is expected in March, then the 50% IDRs splits should get closer but certainly by the time we get to the potential sell down of Eskimo during the last part of this year, then we should be either at or over the 50% level.

You'll see that there is a bit of a dip in Q4 2013 there shown by the red line and the reduction in there is simply a result of Golar common unit holding sell down in Q4.

However, having said that, once we have if we look at the pro forma dividends per, once the Igloo is dropped [to it's partners] we should see that bounce back up to its current levels.

Turning over to page 9, majority of these points have been covered already but I think more significant to note is that the cash position of the company has improved significantly from $56 million in Q3 to now $125 million in Q4.

Again, as a result of the common unit sell down of Golar LNG Limited to it's Partners as well as the sale of the high yield bond holding of Golar LNG Limited and of course, as we mentioned during in December, prior to the sell down of the units, the funds that are being accumulated there are of course are being used potentially to look at the FLNG related investments as well's general working capital purchases.

Finally, please turn to page 10.

Obviously a couple of years ago, we started on a new build program and to the extent we have accumulated a total CapEx $2.7 billion for 13 vessels it's pleasing to note that the majority of that is essentially funded.

We have today paid installments of $1.29 billion, while there is $1.4 billion still to be financed, the financing for that is already in place of which $703 million will come from the undrawn balance of the eight-unit facility that was signed last year and more recently, the ICBCL sale and leaseback transaction that we had entered into, will add on $736 million on top of that.

There is some characteristics of these sale and leaseback transaction there, but essentially the message is that the company believes we was able to achieve a fairly efficient financing for those for vessels.

Further for that of course, we will look to maximize the drop down numbers for the Golar Igloo and by March we would expect $149 million net of notated assets, notated debt, I should say, that will be contributed to Golar LNG Limited once the drop-down is complete.

Furthermore, we look forward to the potential of drop down of Golar Eskimo Q4 2014 or early Q1 2015.

And perhaps more importantly, as we enter this strategic phase of FLNG the corporate structure that has allowed us to see increase in dividends from the MLP as well as the IDRs.

Of course, there is no hiding from the fact that there is a soft shot to market out there and that the company is putting,, is stress-testing its cash flow and as mentioned in there even in extreme and hypothetical downsize scenarios the company is well-positioned to manage its needs and challenges.

I'll now hand over the presentation to Doug who will go through the market outlooks

Thank you very much Brian and good morning and good afternoon everybody.

I guess we'll start out on slide 11 with the current and short to medium-term outlook in the carrier market.

I guess from the last two years since we started our new build fleet expansion program, we've been giving guidance that certainly when you look out at the supply demand balance for shipping against production capacity this period that we're in right now we are going to see shift capacity increasing at a greater pace than new production capacity.

And certainly I think it's fair to say that, that period of time that we gave guidance on, has arrived.

I guess the thing that's different about the current market and what was unexpected and puts us in a rather downside scenario is that we've had production downside surprises.

So, in 2012 it's established that production volumes in the LNG space dropped by 2% which was unprecedented, never happened before in recent history in the LNG industry and unfortunately in 2013 I think we will see further drop of 2% in liquefaction volumes.

So that's created a bit of a perfect storm because at the same time as those volume reductions which are related to unplanned outages and political difficulties we have the newbuild vessels coming on.

Added to that, the locations of the outages and particularly Egypt, Nigeria, Angola, due to their locations, they actually had the effect of losing those volumes at the effect of pushing the ton mile equivalence down as well as the total volume going down.

So losing that production on the market has two impacts.

One simply, is there's less volume being shipped so you need less ships but also from the standpoint of an independent ship owner generally the portfolio players who were going to lift those cargoes become long and there shipping portfolio and rather than chartering other vessels, they tend to aggressively bid on cargoes to ship on their vessels.

That's putting the independent ship owners and the traders and the short-term marketing companies which we would look to for short-term business, at a disadvantage.

So we've got a table there that shows the impact on the ships, the bottom line is there's more ships out there than we had planned to see but we're hoping that with for example, the Angola project, hopefully going to lift the cargo gear soon and that those ships maybe being be more occupied than they have been things will look up.

The summary of that, is that certainly rates, time charter rates and utilizations have softened and that situation is likely to prevail for the next couple quarters at least.

Aside from some of these outages being solved we don't see anything that really would change the situation.

You can expect to see our, especially on the revenue line, for the first quarter of this year and second quarter as well, to be fairly consistent with what we saw in Q4.

So that's what the market's doing and we can't change that.

We can't control the market however nice that would be, what's important I think is how Golar's responding to it.

And the first and key aspect here is that the Golar LNG fleet as we're taking on these new build deliveries is becoming cutting-edge in terms of efficiencies.

We have had the first voyage on Golar Seal and she performed very well.

In fact, she performed better on the fuel efficiency side than we had projected.

The party that chartered that vessel is very happy with that of course and is coming back looking for more business and of course we're working on that and other opportunities.

So the key for us is to market these efficiencies of these vessels, the fuel savings is significant.

Compared to the early 2000 vintage steam turbine vessels, it's easy to establish a $30,000 a day savings equivalent on the vessel that if you compare to the older generation vessels that would be more like $50,000 a day.

Another way to look at it is that for the same amount of fuel the vessels can travel approximately, roughly 15% faster.

So effectively for the same cost in fuel, our charters can add 15% capacity to their fleet.

Secondly, cost control, all the way from G&A burn rate, through how we manage our idle time cost when we are paying for fuel, all the way through to crew optimization, we have a keen eye on our cost these days obviously.

And so we will minimize to the extent we need to, to keep our performance up.

Obviously integrity of operations and safety are paramount so we would never threaten that.

The other thing is that we have excellent visibility on our cost.

We know how much it costs to operate these ships, we've got good control on our G&A, we've got good control on our fueling cost, so it is unlikely to see any cost side surprises from Golar in the coming quarters.

Financial and cash management due to the really good success we've had on financing the vessels, the two facilities we've got in place, and the fact that we locked in some very good interest rates through swaps over the last two years, gives us again very good visibility, very good forecast ability, on our cash cost and as Brian says, under very pessimistic scenarios that we use in a sort of theoretical case to stress test the balance sheet, we are going to be in good shape for the very long term.

We are, we have done this to some extent already not going to give any specifics on dates or anything but we are working with our shipbuilding partners to manage the timing of the vessel deliveries on the newbuild deliveries.

I don't anticipate anything dramatic, this is months, not years or even just weeks, but you will possibly see some changes to our newbuild delivery schedule going forward and that's an important part of in the near term anyway, managing through the soft chartering market that we are seeing right now.

Moving to slide 12, certainly I said we don't see a reason to see improvement in the next couple quarters we don't really see that it's going to get worse either in the next couple quarters and certainly when you look beyond that, it's a very optimistic scenario.

The new production capacity that we see coming on, very good visibility there have been some delays on various projects but not dramatic and they're getting to the stage now where we can narrow in and be more confident of when those volumes are coming on.

We actually see that the order book is in deficit, if you go out past the 2017, 2018, all the way to 2020 where there are, even a conservative view on which projects will go ahead later in the decade, we see a gap of about 145 vessels or the equivalent of 160,000 cubic meters [per] size.

So, what that sets up is a situation where today the yards would likely not be able to make a delivery if an order was made, a new order was made today for 2016.

You've got heavy activity related to certain FLNG projects that are being conducted at the same yards and at the same time we are seeing, well we have seen last quarter and the quarters prior a real low burn rate in terms of new vessels being ordered.

So, I think it's fair to say that the supply demand balance is looking quite good longer-term.

We think by the middle of next year the all of the newbuild capacity will be absorbed in an effective way and we are looking forward to that time.

A big part of that of course is the US, the DOE has been issuing their non-FDA export licenses which of course, key for a lot of those projects to go ahead the latest one being the Cameron facility.

So now over 60 million tons of liquefaction capacity approved and very likely to go ahead they've got their licenses, they've got customers signed up and the financing likely be in good shape for most of those projects, so that's 90 vessels worth of capacity required just for the US.

Of course, no one's really concerned and we are not that the Asian market will absorb much of that LNG, which of course is a good story for the ton mile left on the fleet.

All of this is leading to and I guess along with pretty significant activity in other shipping sectors the vessel valuations are holding very steady.

You're not seeing any kind of drop off in broker valuations or shipyard quotes, so our view on value of our vessels is not changed at all.

Turning to slide 13, just to look at our existing portfolio of course, this is the full group with the Golar LNG Partnered vessels, up top.

We are certainly proud of how we've been able to build that fleet and increase the number of vessels and increase the distribution capacity of the MLP.

You see the Igloo there of course hasn't been officially dropped down yet, but the sale has been completed subject to the vessel getting in place in Kuwait and getting the commissioning going and getting it to commercial operations.

I will note that on the operations side, where of course all those vessels are on full time charter, we continue to be extremely pleased with our technical management record with Golar Williamson we had 100% uptime on the fleet this quarter, excellent control sticking to budget on cost, and a flawless safety record as well, which of course is important.

Looking down the page that's Golar LNG's fleet, at the moment a bit of a victim of its success in signing long-term contracts for vessels that go into LNG Partners.

And of course, with the change in the supply mix of the vessels the older generation ships which we have three, are now all in lay-up and that's helping us to control cost but as I'll come onto later, certainly we expect our floating LNG conversion proposition to be very successful and all three of those vessels would eventually be destined for that use.

Then you see the two other modern steam turbine vessels, Golar Viking which is open and spot trading.

We did, I think, 58 days or something of business in the quarter still an attractive vessel and of course Golar Arctic is on a full time charter until then the first quarter 2015.

Of course, the two newbuilds Golar Seal and Golar Celsius, as I said we've completed the first voyage on Golar Seal, it went very, very well, no problems whatsoever and performed well and we expect that ship to be very attractive to charters.

Onto slide 14 on our FSRUs continued to be a really good success story for the company for both the Golar Igloo and Golar Eskimo I guess it really couldn't have been better scenario for us ordering those vessels on speculation, having them with prompt availability which was absolutely critical to our success in landing both the contract in Kuwait and the contract in Jordan.

So we've taken delivery of the Golar Igloo and stored up the vessel in Singapore and she's on her way to the Middle East.

That contract will start receiving higher on March 1 we'll be commissioning the vessel through the month of March and on into commercial operations.

So virtually straight from the yard into a contract into a five-year deal and following that straight down into Golar MLP and that's just how we designed it so we are really happy.

We expect to have a similar situation with Golar Eskimo, the construction of that vessel is right on schedule and will complete in plenty of time to go into the contract with Jordan and of course that contract, due to it's nature it's a minimum of 5 years, it's actually a 10-year contract with a 5-year buyout right on the Jordanian side.

That's again a good candidate for the MLP and we expect the dropdown to happen there at an price to be agreed.

The Tundra we are actively marketing, certainly we have a little bit of time there, the vessel delivers near the end of 2015.

There are FSRU opportunities out there brewing away, I would say the pace has come off a little bit on the number of projects that look to be ready to close in the near-term for FSRUs and I also say that in terms of prompt vessels available across the market is probably a little bit more competitive out there right now than it has been in the past, so we are not actually feeling all that bad about a little bit of a gap here we've got on the FSRU side in terms of having a vessel ready for projects.

Slide 15 of course a lot of the companies focus right now in terms of new growth area and new franchise area for us is on floating LNG.

Of course we've talked about our progress on the [feed] study previously that work's substantially complete, proving out very attractive cost parameters, very attractive schedule parameters, and the last several months we've been working on establishing the associated contracts in order to implement that project.

Albeit that process had taken a little bit longer than we had first hoped but to be fair, this is the first of its kind.

It's a bigger project than some of our other conversions, it involves different processing equipment than our other conversions so on both sides of these contracts everybody was to make sure we get it right.

Our partners, in at least in the first vessel is Keppel shipyard for the vessel conversion itself of course, converting a vessel from carrier to an FSRU or carrier to an FPSO or carrier to an FLNG involves a lot of the same skill sets.

We've had successful partnership with Keppel doing three of our existing FSRU conversions so we are highly confident in our ability to execute on this one.

The subcontract for the topsides for the liquefaction processing equipment, we will be having as our partner Black & Veatch, with their precode technology this is a well-established long-term operating process [kit], this is no different than process plants or liquefaction plants you can go look at all over the world.

Thirty or so plants that either are in operation or under construction and millions and millions of tons of LNG successfully liquefied.

So our approach as we've always said here, we are not, we are cutting ground we are plowing new ground in terms of a business area for us but certainly we are not using anything that's new or unproven in terms of technology that the ships will be using effectively what's important there is the storage, the storage tanks and the integrity of the hull.

Thru our FSRU conversions we've certainly proven that for long-term service these ships are absolutely appropriate for such projects.

And then on the Black & Veatch side, proven technology it's operating we're merely putting it on a vessel and we're pretty good at making sure that, in that sense everything is going to work as planned.

At the same time, we've been in anticipation of being able to ready to construct our first vessel we've been working on several projects, I would say that we are on an upside scenario in terms of the number of real opportunities that are coming together.

The first quarter of businesses is for us to be ready to build the vessel but the projects are moving along, we are working on something in the range between 15 million and 20 million tons of equivalent capacity on those projects, not likely that all of those will go ahead in the near-term but it just shows how attractive the technology is working.

Certainly, what we're seeing is that the availability of the feed study which we went and conducted on our own dime, is playing very attractive to would-be project developers and locations where LNG exports are desired or attractive.

Without that feed study permitting can't begin and so that would add another, we're effectively removing a year out of project schedules which we now can go on a long time on LNG projects, so we are very happy with those projects.

In all those cases, we are building strategic partnerships with other companies who can bring their competency and their skill set and their existing involvement in the LNG industry to bare to combine with what we are bringing to the project to make a successful package and move ahead with real projects.

One of the longer-term visions we've always held here in Golar is to, and this is very relevant to our newbuild fleet as it exists or if it grows in the future is that there is very good integration opportunities probably better than we've ever seen before associated with FSRUs.

For example, better integration opportunities anchored off LNG, floating LNG to production projects.

It's a little bit easier commercially to create integrated solutions if you're creating the product and we see that the existence of the floating LNG production business will create a real upside to the value of our carrier fleet.

As I say we are nearing the final stages on that conversion contracts, the Keppel contract and the sub with Black & Veatch.

All the facts are coming together, it's looking very attractive on the private side the costs are coming in where we thought they'd be, the schedule is coming in where we thought it would be and thus we are getting very close to when the board of Golar can make a decision on a firm entry into the first contract, and we expect that to happen in the second quarter 2014.

Moving onto slide 16 just to wrap it up, again we are very, very pleased with our operational track record during the fourth quarter and how it's continued into the first quarter of 2014.

Our operational uptime is excellent, our cost control is excellent, we spent some time asking our customers how we're doing.

I can tell you that we are held in very high regard with our customers so that's nice to see, especially when we see our charters maybe having more choices for ships than they have in the past.

The current market is challenging.

We think we're equipped to deal with it but certainly the unplanned production outages have made the situation slightly more extreme than we were anticipating but again we have tools in our toolkit to deal with that.

The long-term fundamentals remain extremely attractive and until that time we will be marketing the benefits of our vessels very hard.

We'll be controlling costs very closely.

We'll be keeping an eye on our cash and again we've got great visibility on that.

Our financing structures are very solid and stable so we think we are in good shape there and as I said, we will be looking at doing some management of our delivery timetable.

The FSRU franchise we are very happy with, especially with how it's played through to utilize our corporate structure to generate cash for our growth and as I was just talking about the ship conversion contract is nearing finalization.

We are very excited about it, we think we can get to a firm decision in the second quarter of this year, projects are going well and of course we are really hoping to leverage those projects into an integrated midstream business for Golar.

So that completes the presentation part of the call today.

We are certainly happy to take questions and I'll turn it over to the operator to take us to the questions.

(Operator Instructions)

John Chappell, Evercore.

Thank you.

Good afternoon.

Hi John.

Doug.

you mentioned the FLNG conversion basically on budget, basically on schedule from what you thought when you started this whole process.

Can you remind us if you were to move forward in the second quarter, what the time frame would be for the conversion to be completed and start generating revenue?

What the total cost may be?

The timing of the capital outlays?

And then, maybe just a broad range of the returns of that type of project relative to your traditional gas carrier business?

Thanks.

John.

I'll answer some of that fully and the other I'll try my best.

But generally, from full notice to proceed on the contract we are still looking at taking delivery of the vessel in approximately 30 months.

There's probably some pluses and minuses on that depending on some variables on exactly what we build.

But that's about where it is.

And then of course, depending on the location and how much implementation and commissioning work that needs to go on at that location there'll be a couple months beyond that, maybe three or four months beyond that, before we go into commercial operations.

So that's kind of the timeline.

I guess what we have been, what we are bringing here to the market is something that we are going to create what the industry normally creates for a certain price and we are going to do it for quite a bit cheaper.

That's our cost advantage and we expect to get value out of that advantage.

What we say is that some of the benchmarks that you're seeing for tolling structures, now it's not necessarily true that on all our projects there would be a tolling capacity type structure, but it's a easy go-by to go look at the some of the US Gulf Coast's tolling levels that a been done recently which are anywhere sort of $3.00 to $3.50 range for capacity in the US Gulf Coast.

I guess what I'd say is that investors would be extremely happy if we build our one 1.5 million or 2.5 million ton vessel and strike a deal at those levels, the returns will be quite strong.

Okay.

Makes sense.

I wanted also to ask about the chartering strategy for the Seal, the Celsius and the newbuilds.

Obviously you're not lacking in anything long-term or medium-term at these current levels.

But you talked about that $30,000 to $40,000 spread on the fuel efficiencies.

How selective are you being with the trade-off of just finding employment in a market that has over-capacity versus trying to get what you perceive to be premium return because the fuel efficiencies of that vessel?

And how we think about the utilization going forward on those I guess, in the next 18 months?

That's a good question.

It goes without saying we are a going to always to as best we can on rates.

We want to market and make sure that our charters see the benefits that can be accrued using one of these vessels versus one of the older ones.

Having said that, it costs us $6,000 or $7000 a day just to sit, because when we're idling we're paying for the fuel as opposed to the charter.

You actually, you start from quite a negative, you're always pay your OpEx and you're always covering the debt cost on the vessel, but that utilization number is key to us during these times.

So keeping the utilization up is very critical because you get rid of that $6,000 or $7000 a day deficit, which, if you're trying to keep the vessel cold actually is a much higher number.

So when you are on charter you're turning that number around so you sort of in effect, have made $6,000 or $7000 a day or more, net against what you what you were doing when you're idling.

So I would say right now for those vessels we're in utilization mode, but we're never going to charter at rates that are less than they need to be.

Okay I understand.

Super-quick one for Brian and I'll turn it over.

Brian as the ships start to deliver, when does the interest expense actually start showing up on the P&L again?

That's a good point.

Once we, the reason that they're at a period [in this moment our coal LNG is because of esteemed interest] that we see hit interest in debt crediting against expense.

I think it's fair to say that we're close to actually seeing interest appearing now.

I think we may need to track down a couple deliveries at which point you may start seeing interest coming through

Okay, could be in the first quarter or does it ramp, or does it all show up at once?

No, it ramps up.

You basically start from afresh.

But of course the timing of which is going to be very much dependent on the discussions that we are having with respective delivery of title.

True, all right.

Thank you Brian, thanks Doug.

Fotis Giannakoulis, Morgan Stanley.

Yes, good afternoon.

Obviously, most of my questions are about LNG.

But you mentioned, Brian, earlier about, you expressed about the your cash flow on your balance sheet.

I want to know how do you view your dividend?

Did the stress test include the dividend from the -- is there anything scenario from the ones that you run that you might see any risk in it?

I think we advised in a press release, Fotis, that, obviously, the dividend is very important factor of how we look to return certain returns to shareholders.

To that extent -- although this stress test has essentially involved looking at the operational side of the company, dividends to that a certain extent remains constant in these stress tests.

But where we have looked at ways of, as Doug mentioned earlier, ways of looking at how best to operate the vessels and the performance of those vessels against chartering etc., those were where the majority of the components that were being tested.

Thank you for that, that was very clear.

You mentioned Doug, earlier about the US projects that they come online and they haven't received approval.

On an earlier call Gaslov mentioned that there are already some discussions about targeting vessels for the sum of the US projects apart from the [sub diem past].

Have you been, have you anticipating in any of these discussions?

For what type of durations are the potential charters and the tenders, are they under discussion right now?

There are some tenders going on for the US projects, there's tenders going on for other projects, as well.

And except in very specific circumstances, we see all those tenders.

The structures of the charters vary greatly, you still have some conservative charters who are off-taking with 20-year commitments to volume.

So they want a 20-year time charter.

So you still see some of that.

I would say that the industry long-term and the LNG shipping industry has been reducing over the past few years where long-term might be 12 years or 10 years.

So I would say in general that the duration of those charters and the tenders is going down.

I don't think that -- you know the tenders will always participate, and we'll do how we'll do.

But I think what's much more important to us is the fundamentals of how the supply of ships is that facing up to the production.

Because that's really what drives how much leverage we have in the market to create value with our ships.

The cycle that we are seeing now does have a lot in common with the last cycle that we went through where you had an oversupply of ships, largely because ships were arriving before production is coming on, exactly like now.

In that case it happened to be dominated by Qatari ships coming in before Qatari production came on.

When the production came on in Qatar obviously they already had ships dedicated for their production, but that didn't stop the rates for moving up $100,000 a day within six months.

So that's you know that's what's probably more important to us than our relative success in specific tenders for specific project op-take.

Thank you Doug.

Is it possible to elaborate a little bit on the supply and demand?

It now makes at least some discussions that we had on our side.

It seems that 18 of the newbuildings have they come online, this year and next year, they are still open if this number is correct, can you please confirm?

And then if this number is correct, 10 of these 18 vessels that Golar controls, how does this influence your competitive position to charter these vessels and at what levels do see rates for these vessels in 2016 and onwards?

Obviously, our proportion of the total vessels available, a higher proportion is, all else being equal, good news.

Now again the chartering market's pretty soft.

I talked about managing vessel deliveries and I said that it's not going to be anything dramatic, in terms of doing that, but what the problem the industry has right now is there's no liquidity on cargoes.

There's a dearth of cargoes.

So at the moment controlling a majority of the open vessels isn't all that helpful because there's not enough cargoes out there.

That's the situation we need to see improve.

But, as new production comes on, we get past some of these outages, hopefully no more problems in Nigeria, hopefully Angola gets going, we are sitting in a very good spot.

Ten out of 18 sounds about right.

I think in the total order book going all the way out, there is probably 30-odd open vessels of which we have 10.

That's generally -- we feel good about that.

We have the biggest open position.

But at the end of the day we have great value for our charters, and we have to operate these ships properly, and bring these good efficiencies to bear to our customers.

Rates in 2016 onwards, I don't know.

I think there is, I mean again it will depend on if it's spot rates, longer-term rate, it looks like there could be the potential for some dislocation short supply, something like what we saw coming through the last cycle, out in that timeframe, but that's hard to predict of course.

But I think that long-term rates will, in not too long, arrive at a place where we will lock in very good deals that will create good dropdown value for the MLP at that point in time.

Is that $85,000 a day, $90,000, long-term has been sitting in the high 70s and then went to sort of low 80s through the last cycle, mid-80s.

It's all a range in that area.

Thank you Doug.

I want to move to FLNG right now.

You mentioned earlier that it's still open, you think there's going to be a total agreement, or if you're going to be a producer?

Given the fact that this is a new technology, would it be fair to say that the total agreement is more likely, at least, for the first unit?

And my second question on that, is you mentioned the cost is going to be very cheap.

I think in the previous quarter you mentioned it was going to be the lowest cost of usage in the world.

How, at what level do you estimate the cost on dollars per million pounds per annual?

Again Fotis, we're not getting that specific.

If I gave you that number it would be pretty easy calculation towards what our CapEx is on the vessel and obviously in order for us to really to maximize the value of the business, we want to be, we want to have, if we're talking about tolling structures we want to be getting paid the market rate for pulling capacity which is not necessarily, well it's definitely not going to be related to what our capital cost is because we are not on the margin of liquefaction production costs.

So in terms of tolling structure, I guess what I would say is that, and this could change, but I think it's more likely that the first unit that we do will be of a larger size in the range that we are looking.

That might not be true but if I had to guess it would be more closer to the full 2.5 million ton versus the smallest we could do, which would be 0.6 million, 0.7 million tons.

If that is the case I would suspect that, if not all the plant, a portion of the plant would be in some form or fashion something that looks like a tolling agreement because, just the size of that, the size of the associated trade, commodity trade that would be created by that kind of facility would be probably larger than we would want to take on.

But it could be that, that first project is third-party tolling for a large portion of it and we create value in a different way for some part of the capacity, that's hard to say.

Pulling capacity certainly, tolling agreements will certainly be, one part of our value proposition here in one way or another though.

Thank you Doug.

Just a few more details on these agreements, you mentioned earlier that the signing or at least the announcement of some preliminary agreement is going to be in the second quarter this year?

I understand that you are in discussions for a number of potential projects.

Does this discussion include also the transportation?

Meaning, if you do a tolling agreement other than will be vessels of Golar that they will be used for the transportation of LNG?

Well, first of all it's not a preliminary agreement we're looking to sign in or commit to in the second quarter, it's a fully firm, fully termed out agreement.

Second, clearly we would anticipate that when we implement one of these FLNG projects, that we would see Golar vessels shipping the product.

But obviously if we have a great deal with someone that we want to do and they have shipping already in their portfolio and that's not going to work for the deal, then we are not going to fall on our sword over it.

I would say that in the discussions that we're having, we're feeling really good that a good portion of these would involve shipping our Golar vessels.

Depending on where the production facility is, and where the products going, we could, I'm not saying that our newbuild fleet will be existing order book for us would be used this way, but we would soak up the entire Golar newbuild book with two projects.

That's very helpful.

And then just to clarify again on the timing you mentioned earlier, 13 months from the time of the signing of the agreement will be the operation of the unit is that correct?

And is there any additional time depending on what type of agreement you're going to sign and who is going to be the natural gas provider?

It's 30 months delivery at the yard.

And then depending on where we are going, you have transport, so there is some months after that.

For modeling purposes, if you put six months after that being in full commercial operation that's fairly safe.

We would we'll try to beat that, but that's a conservative estimate.

Thank you that's very helpful.

Thank you for all your answers

Thanks Fotis.

Oyvind Berle, DNB Markets.

Oyvind, you'll have to speak up, we can hardly hear you.

Sorry, can you hear me now?

First question is do you have any comments on who the bidders for Equatorial Guinea are?

I mean there's some speculation that Keppel is in one consortia.

Are you affiliated with it?

We don't typically comment on rumors such as those.

We know where our projects are and of course we are working with Keppel on our FLNG projects so we'd rather not comment on those things.

Just a follow up on that, is anyone else working with Keppel on FLNG?

Have to check.

Next question, how do you plan to find a potential FLNG investment?

If you move out forward without a partner, is that a pure equity play, or how do you foresee financing something like this?

I mean we had to look at modeling how best to do this.

Of course, during certain of our discussions, as you will have noted from our press release, we are working with potential partners.

So it could be that we develop a project jointly where they have interest in the project itself.

So that could essentially help to finance the project.

Of course, as we have done in December we monetized Golar LNG shareholding of partners.

I think one justification for that is ultimately these FLNG vessels and related ships that get bundled down together eventually go down to Golar LNG partners.

So there is a potential for us to use that funding vehicle, as well.

But ultimately once you've got a contract that underpins the project of course we will go put there and actually seek specific project finance for the project.

There is a gap that needs to be filled, which is, as we go ahead, and if we go ahead and sign contracts that may have a speculative timing to it, then during that period, it's likely that Golar LNG Limited would come in and step in and initially finance that period until such time as the underlying commercial agreements are done that we can use to project -- finance the project.

Super.

There's a question of what's the capacity for number FLNG units built?

The number we hear is roughly two buy Keppel at any time.

Does that sound feasible, or would you have other yards able to build more if you should really build scale in a short time on this?

Well there's Keppel capacity in Singapore.

I suppose there's other yards that can do it, as well.

Two at a time is achievable.

It's not just Keppel that has the capacity, but Golar has to, as well.

So, I guess I've never really thought about it in terms of the pace of shipyard capacity to build FLNG units.

I hope that becomes an issue.

But I think is going to be more the pace at which opportunities can be commercially structured and financed, which will determine how quickly FLNG units come out onto the water.

Thank you, that's super.

Another question, what's a fair assumption on your earnings on FLNG exports?

What would be a good number to use per a MMBtu exporter?

Or in other words, would a 38 MMBtu be fair, higher?

Lower?

Sorry like an earnings number?

An earnings number.

What would be fair economics to Golar LNG and dollars per MMBtu, please?

Again, we'll come out with a bit more specificity on things like operating cost and such.

Again, we see -- you have to adjust for location and how the product nets back.

But a US Gulf Coast equivalent of $3.50 is a good guidance figure for the tolling revenue of the plant.

And then on the OpEx side, it's not like operating a carrier where FSRU.

It is quite a bit more, but it's two or three times more the cost per day to operate these vessels.

We are still working on refining the number, that's why we are not getting too specific about talking about it.

And we will come out with more guidance on those kind of costs at a later date.

One final question, if I may.

The cost per ton for an FLNG unit, both Exmar and Hirdegard are talking about roughly $500 per ton for a barge unit.

Is that comparable to the numbers you're speaking about?

Yes, we're just not going to get drawn in on getting specific about numbers, but we feel comfortable in competing with our $500 per ton barge.

Thank you so much for your time and congratulations on the results.

Thank you.

Michael Webber, Wells Fargo.

Good morning guys, how are you?

Good, how are you?

This has been a very long call, so I'll keep it short.

You reiterated created the timeline for FLNG, can you maybe give us a little bit of color about what hurdles specifically you guys may have overcome in Q4 and Q1, or what aspect of the project you got a bit closer on?

And what gives you more comfort for Q2 FIDB?

And then also, in terms of the projects you guys have been linked with or what's the potential FLNG, projects that would use a ship-based conversion solution.

They seem be clustered the African and South American/Central American region, in terms of the first potential project that you are talking to.

Do you think it's more likely to come within the West African region or the Americas?

Hopefully that doesn't give too much away, but if you could give any color there that would be helpful

I'm only hesitating because it's not clear to me which ones going to come in faster.

I would say completely different environment, obviously, in the Americas generally the project timeline path can be well-defined, and you can see it.

It's easy to predict timing.

West Africa where you're starting from a clean sheet of paper as to what kind of approvals and licensing has to happen before you can go ahead, and how long that would take is a bit unknown.

So, I think that you know it could be either, but there's different stages of the project.

I think probably, for serious project stuff going ahead like licenses being applied for and permitting and then location specific activities for the vessel that the Americas is possibly more likely.

But the timeline to get in commercial operation in the Americas might be a little longer than it would be, say, than West Africa if we kicked off and got an actual timeline going for licensing and putting a ship in operation there.

So the answer might be slightly different between where we begin to invest in a specific project in earnest versus which ones will come in first in operation.

So Michael I've forgotten the second part of your question.

I was just about to reiterate it.

So in terms of what's changed quarter-over-quarter over or the last three or four months?

What hurdles -- is it pricing?

You don't have to be project specific.

Or was there structural issues with the project that have been delaying FID, what have you guys moved closer to in the last quarter or so?

It's been the nuts and bolts of the contracts between the three key parties here at Golar, Kepplar, and Black & Veatch.

The usual allocations, shall we say of risks and reward.

I wouldn't characterize it that we been taking the time to drill down on pricing or anything like that.

Of course we are also always prudent about that and keep our CapEx in line.

It hasn't been that.

It's just been getting the right execution structure together with the three parties that's taken a little bit of time.

Not driving down costs.

We are taking a bit an approach on this, that the first thing is that this vessel needs to work, and so this isn't an exercise of skinnying down as low as you really, really can.

The economics are very strong, so we just -- you know how you can lose your shirt if you try to save money in this business.

It hasn't been that, the costs has stayed relatively constant from we were seeing come out of the B stage, and merely getting the contract together.

I would say that it's helpful -- we'll probably, when we take a decision second quarter, in terms of firm, specific project to point at where it's going, probably won't exist.

So we'll open up a little gap of risk there.

We are comfortable with that.

You've seen Golar conduct its businesses that way in the past.

The FSRU business worked very well that way.

So we open up a little bit of risk.

But, again, what has changed on the project side is that we see material and able partners stepping up to the plate and making real commitments to work on these projects that we are involved in, and that makes us feel comfortable.

We do need partners in one form or another and we've got good discussions going with them.

It takes some time to solidify those relationships.

But that's another thing that changed, it's more optimistic on that side.

Right and I don't want to belabor the point, because I know you have got your paws around it, but just to be perfectly clear about it, so you're looking at kind of Q2 FID on moving forward with spec conversion from Keppel.

Does that gap you were talking that and a commercial agreement with one of these projects, how wide do expect it to be?

Is that measured in quarters or measured in months?

Well, I would say that projects should be crystallizing, I mean, before the end of the year.

Okay.

If that helps.

I guess it's more quarters in months.

Not years.

That's helpful.

It does look like there, I know these subjects seem to be stacking up so when you look at where you guys are allocating capital for the next year-and-a-half, two years and you look at higher capital split now between FSRUs and carriers, is it likely in your view that we see Golar emerging from this air pocket and spot rates with capital evenly split with liquefaction, re-gas and carriers, or could you be even more heavily weighted toward liquefaction given the size?

Total capital is likely for the next couple years to be weighted towards the conversion projects.

Okay.

One last question and I'll turn it over.

The GP value that you guys have in [Gmail PT] seems to get overlooked quite a bit, but because there's so many big variables.

How do you think about recognizing that value with major CapEx at the parent at this point, given everything that's going on, in terms of float liquefaction and big spend there.

Ccould TF significant GP growth?

How do you think -- you are going to hit the 50-50 split well before that cash flow actually delivers?

How do you think about monetizing that on higher GP spend?

Do you need to acquire growth in this environment?

Chartered growth to provide the growth necessary to make that happen, how you address that and how does that fall from the timeframe of what you're looking at around FLNG?

I think Michael it's right, I think it's fair to say that we've not been over-reliant in the value of the GP in trying to progress our FLNG projects.

I think you're right.

I think there is some murky waters and respect to the valuation of the GP simply because of the variability of the earnings of Golar at the moment.

But I think we have demonstrated the willingness of the strategy of the Company to try and grow the MLP.

I think certainly within the next year we are looking to at least get to the high split.

It's difficult to try and go out and put as much value to that, to the GP, to the LNG prior to the LNG strategy becoming successfully effected.

That's simply because without the demonstration of the success of FLNG, the likelihood is you may actually be undervaluing the GP.

So (Indiscernible - multiple speakers)

You need to know what you have first.

The question is, do you think you can monetize that before you see an actual FLNG delivery within the next 30 months?

There is that possibility.

Certainly that's one of the potential of financing the FLNG's.

But again one thing that we have tested also is a willingness of certain of our investors to actually to take certain risks in respect to FLNG and we see there is that willingness to do that also.

Okay great, that's all I have guys thanks for the time

[Herman Frizen], [Orres Capital Markets].

Good afternoon guys.

Hi

Just a quick question on the timing.

Previously you've indicated you would be willing to potentially (inaudible) reduce the stock of time.

It seems that, that didn't happen so could you maybe shed some color on why you chose not to do that to secure the stock above the project (inaudible).

Certainly we had talked about long lead items and actually that's still the case.

The first real commitment and what establishes the 30-month timeline I've been talking about is the triggering of the long lead procurement.

We could have, I suppose, triggered those orders prior to the full contractual structure being done with Keppel and Black & Veatch.

I guess in the end the valuation was done that that wasn't really necessary nor prudent.

We'll be much more comfortable when Keppel and Black & Veatch and ourselves commit to a project that everyone can look at and feel comfortable with the cost and scheduling before knocking out ordering of long lead items because that wasn't going to be a small capital commitment.

The long lead items of this vessel are expensive.

So yet that is exactly what we will do the first real trigger and what was happening inside the project is the long lead item order.

(Inaudible) decided not to do that because the first project won't most likely be 2.5 million ton asset and as such you talked about the $200 million long lead items initially, but since you're doing the higher end of the scale it means that probably that long lead item is much more expensive as well.

Is that the reason or?

Again, I think we didn't really change tack on the long lead items.

Were going to order long lead items.

What changed was the timing that we estimated to be ready to do so.

And at that timing now is being driven by getting the contracts completed and done with our contracting partners.

And that, it appears to be that it's an internal you've been delaying the project it's not necessarily been an external kind of factor delaying decisions.

Is that correct or?

There's been no internal delays.

Is taken longer than we'd hoped, but it was just shear getting the contract done.

There's been no decision to delay this process at all.

Okay, and on the other side, the comment has been some serious naval partners making commitments.

Is it possible to shed some light on that comments?

I guess where we can benefit from partnerships is in areas where we either don't have the competency, we don't have experience, we don't have the financial heft.

So companies that are looking to step up to serious op-take agreements, possibly in the form of tolling agreements companies who have reserves which fit our particular technology very well and are looking for a monetization path.

Companies and local geographies that have operating experience and a means to manage a development process successfully those are the type of parties that we are looking to work with and those are the type of parties we've had some success in solid discussions going on with now.

Okay and just two more questions very quickly.

You didn't mention anything about the BC project in this presentation.

Is it possible to give a quick update on the process there?

Yes.

The BC project, the story there remains the bankruptcy, the cc AA bankruptcy proceeding in Canada which has put a stay over the material agreements.

The bankruptcy is being claimed by one of the original partners to the project.

Obviously we are somewhat frustrated with that, but again there's not much we can do to move that any quicker.

We didn't give guidance on that simply because it's pretty unclear at the moment.

The attractiveness of the project and the opportunities there are still very attractive to us.

We prefer to talk about that when it clears up and there is more clear path forward.

Okay and just a final additional question on this conference call.

On the delivery cost basis is it impossible to say that most economical liquefaction solution and then also the most efficient vessels, what's the delivery cost (inaudible)?

And then BTU basis, roughly is it $8 to $10 per million MMBtu, or $10 to $14?

Delivery cost, assuming a market rate for vessels and a market rate for tolling through the facility delivered costs of $9 to $10 is a very good estimate.

If you could with respect to the discussion that you had with your, the projects ongoing now, now on the calculation process how much on that spread do you aim to capture?

I guess, you obviously want to do that with the low delivery cost?

I guess I'd answer like this.

On a pure tolling model I guess I've laid out a minimum expectation of how we do in terms of a dollar per million MMBtu that creates the revenue stream.

In terms of the margin, the other margin that's available say back delivered cost near-term or longer-term LNG pricing in Asia, I mean our strategy is going to be to capture as much of that is we can within our abilities.

So, we think there is some scope for us to do that and you do that by integrating your ships with the tolling deal for example.

You do that by, in a measured way, looking at keeping the commodity in your possession and shipping it all the way to Asia and structuring deals that way.

I can't predict exactly how these things are going to be structured.

We think with this technology and our approach and our really good ability to finance these vessels and have them promptly available that we are creating a lot of value over and above the tolling, the tolling model.

We are opening up, we expect to create monetization opportunities for reserves that wouldn't have had otherwise.

We expect to get LNG onstream more quickly than it would've otherwise.

We expect because of those, we won't be labored with a traditional preconstruction project financing overlay that delays our project.

All of these things getting earlier volumes and getting volumes lifted that would not have otherwise, all of those things should accrue more value to us than just the toll.

And we expect to do deals and structures that will achieve that.

So the $9 per million BTUs roughly, that is including Return on Capital throughout the process that you create to deliver the cargoes?

Yes.

I don't think Asia or Japan has been $9 the last couple years.

If you do it now that's a $10 spread that's in L3 $35 million arbitrage; that's pretty substantial

That looks like good business.

But of course to set up one of these projects it's not going to just operate, now it's going to have to operate for the long-term and long-term commitments need to be made to the agreement of the assets payment per gas etc., etc.

Yes, the arbitrage is there.

We believe the arbitrage is going to be strong for some time.

Is not going to be $9 forever.

But we think it's a profitable long-term business.

I'm going to cut off now my questions, just one final.

I thought you brought [nation] into the BC project, are you unable to bring that major into the other projects you're looking at or is that company committed to the BC projects?

I would answer it this way, it's possible that we have, that we will have partnerships that will be leveraged onto multiple locations.

But generally it's not necessarily the case, I would say it tends to be project specific a little bit.

But if we get a good fit going with a partner we wouldn't hesitate to bring them over to another project.

I would say that has not happened to date with any of the people we are working with.

Okay, thank you very much for your time.

Operator, can we take the last question please?

Erik Stavseth, Arctic Securities.

Hi guys.

Hi Erik.

Two quick questions, I'll try to be shorter than my previous guys.

Are you saying that you could be short vessels if you're going to do, you have three conversion candidates?

Of course that's going to be in a staggered manner I presume?

But could you be looking at a situation where Golar is short of the shipping tonnage in say 2017?

If we did three large conversion vessels and depending on the location, and we wanted to use all Golar ships we would run out of ships after two, so I guess the answer is yes.

And my second question is sort of basic, but what kind of leverage would you be looking at for FLNG.

Would that be over 50-50 at equity or any very preliminary thoughts on that?

I think the numbers that are coming out of these projects are so compelling that you can lever it up closer to the 80% maybe even higher than that.

But as we have done with the vessels that we dropped into energy projects, we need to be careful on how we lever it, because obviously we need protect dividend capacity of these projects when they go to Japan.

But to answer your question there is a potential to go higher then around 80%, but we need to tread careful when we actually put those into place.

And also what kind looking at the free cash flow from relatively compelling economics, what kind of percentage of free cash flow would you be able to payout here, any thoughts on that?

We can't be too specific in numbers.

I think it's fair to say we are looking that the numbers and remodeling them.

But obviously we need to, we need to model those even more to be able to come out with numbers as Doug said earlier.

Once certain agreements are signed, then we can be more specific about project cash flows.

And last question, is there any link between leveraging off the various parts of the system that the main shareholder has.

I'm thinking specifically about what Seadrill recently did in Central America?

What's the question?

The question is, what's Golar's ability to leverage off the various system values that are within the framework of the main shareholder?

I mean Seadrill recently did stuff in Mexico with Pemex.

is there any way you can leverage off what they're doing with regards to exploration and production?

Always Eric.

Our principal is pretty good at thinking about all the various businesses and making sure that any business relationships going on with a Seadrill or a Frontline or Golden Ocean Commercial partner if there is an opportunity to build that off that relationship and benefit Golar, absolutely.

But at the end of the day these are fairly big complicated projects.

If you have a partner you can work well together and you both want to go and there's common interest and we've done business together, and Seadrill and before that and all the better to try, try the relationship on a Golar project.

Excellent thanks

Thank you Erik.

That concludes the question-and-answer session for today.

I will hand it back to our speakers for any additional or closing remarks.

Thank you operator and thanks everyone for your participation in these quarters results.

So we look forward to speaking to again in the next quarter.

Thank you and goodbye.

That will conclude today's conference.