Golar LNG Ltd (GLNG) 2014 Q1 法說會逐字稿

Good day, and welcome to the Golar LNG Limited Q1 2014 earnings conference call.

Today's conference is being recorded.

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

Thank you, moderator.

Hello, everyone, and welcome to Golar Energy's first quarter 2014 results presentation.

Like the moderator said, my name is Brian Tienzo.

And as per usual, I'll be taking you through the first quarter highlights for 2014, as well as financial highlights.

I am joined here today by our CEO, Doug Arnell, who will go through with you the business update and summary and outlook section.

So let's now turn to page 4 so I can take you through the Q1 highlights.

Golar reports first quarter 2014 net income of $13 million, and including the gain on sale of Golar Igloo to GMOP, the Company's EBITDA that was generated during the quarter amounts to an income of $33.1 million.

Golar also took delivery of the FSIU Igloo in February, with the vessel's maiden cargo that was delivered and boarded, commissioned and concluded successfully on Kuwait.

The vessel has subsequently started its 10-year charter with KNPC, commencing from 1st of March 2014.

Golar has also completed a sale of its interest in -- after signing Igloo to Golar Partners for $310 million on the 27th of March, 2014.

Furthermore, the Company concluded its financing of four of its remaining five vessels during the quarter, through a sale and leaseback transaction with ICBC.

During the quarter, we saw Gimi commence lay-up in the Far East.

And as we'll be highlighting later on, its spot and short-term chartering markets remains a liquid and lightly traded based on historical standards.

While its results are poor for the quarter, the Board nevertheless recognizes the importance of shareholder compensation through dividends, and as such, the Board has maintained a dividend of $0.45 for the quarter.

Over to page 5 on subsequent events, Golar took delivery of the Golar Crystal in May.

And as for our Q1 Earnings Release, we are also now announcing that the Company is confirming timing has taken position on post furthermore there is floating, and into production units before the end of June 2014.

Turning over to page 6, and looking at the column to the left of the page, you will see the net operating revenues for Q1 is slightly higher than Q4, at $14.8 million, and is due to various factors including the full Arctic revenue during the quarter, in comparison Arctic drydock in Q4.

As mentioned, Igloo also contributed to -- close to one month revenue during the quarter, whereas Viking and Celsius were mitigating or lessened to revenue through quite high voyage expenses incurred during the quarter.

The operating expense during the quarter, $13.8 million versus $12.1 million during Q4, is pretty much in line with expectations.

However, as we have mentioned previously, the Management is -- through a drive of controlling costs during the pretty turbulent chartering times.

Halfway through the column there, you will see a $35.5 million gain, and this relates to the Golar Igloo dropdown that was concluded at the end of March.

You will note in our press release that $8.5 million of gain is further deferred, and will be subsequently released through the P&L during the life of the vessel.

Further down the page, comparing the tighten -- the PC equivalents between Q1 and Q4, you will see a slight improvement to $26,104 today versus Q4 of $24,128 a day.

Again, as a result of -- the majority of that improvement is through a full revenue of Arctic, and also one month's -- close to one month's revenue of Golar Igloo.

The side of the page is a comparison of the Golar group, including the [Admiral Peace] fleet, and you will see that the EBITDA numbers for Q1 is better than Q4.

Again, the majority of that is through the contribution of the Golar Igloo at delivering that during the quarter.

Turning over to page 7, again, we would like to highlight the importance of the dividend contribution by Golar Energy partners, and how this relationship has helped Golar Energy Limited come through the [seven and] times in the chartering space.

Golar's dividend income from Pilot has increased by 70% since Golar Partners' IPO.

Since Q3 of 2012, the total IDR's received have increased by approximately 400%, and whilst IDR's are currently at 23% level, we estimate that we are very close to the 50% threshold by the time the potential Eskimo dropdown is completed.

You will note that the dividend received on Golar Energy Limited during Q1 and Q4 2014 has dropped very slightly from the levels of Q3 2013, and that is a result of Golar Energy's dilution of the shareholdings of Golar Energy partners in December.

However, following the increase in the distribution of Golar Energy partners, which Golar Energy will received in Q2, the earnings or the dividends received from Golar Energy partners will have normalized.

Turning over to page 8, and just looking at the highlights of the Company's balance sheet, you will note there that the cash level, both at the end of Q4 and also the end of Q1, is pretty robust.

Of course, the end of December 2013 cash level was helped by the dilution of the sale of Golar Energy Partners units by Golar Energy Limited.

And cash and cash equivalents values at the end of March 2014 was as a result of the dropdown of Golar Igloo.

You will note there that both current assets and short-term debt are quite high [during] this quarter, and that is as a result of the LNG trade that the Company did during the quarter.

Turning over to page 9, again, the Company is reporting pretty weak results, but the liquidity position of the Company is pretty robust.

Golar has, throughout this period, built a solid foundation to ride through its turbulent times.

Of course, the fleet expansion is now fully funded through the eight vessel ECA backed financing, where the Company is able to achieve 65% LTV and approximately 3.75% all-in interest costs on eight of those vessels.

Furthermore, there were recent completed transaction of the [ICB] sales L through [SN] leaseback transaction, where the Company achieved 90% LTV at less than 6% all-in interest cost, are both attractive financing terms for the Company.

Monetization of long-term contracts through GMLP, which fuels increases in dividends and IDR's for Golar, has also been evident, firstly through the Igloo dropdown that occurred at the end of March, and of course, the potential Eskimo dropdown in early 2015.

So whilst weak results are prevailing at the moment, the cash that has resulted from all of the factors have given the Company robust liquidity standing, and of course, probably more importantly, leaves it well-positioned for the chartering upturn, which the Company expects in 2015.

And also the opportunities brought about by its FLNG projects.

I will now hand over the presentation over to Doug, who will go through the business updates with you.

Thank you, Brian.

And good afternoon, good morning, everybody.

I'll start my part of the presentation on slide 9, where we'll have a quick summary of the Golar Group fleet, both Golar LNG Partners and Golar LNG Limited.

You see at the top of the page there we now have nine vessels inside the Golar LNG Partner fleet, with the addition of Golar Igloo in late March.

With the start of four vessels when Golar Partners was IPO'd, we have had very good success in growing LNG Partners and dropping down those vessels into the fleet, generating cash for Golar LNG Limited to fund our growth.

And there's lots more growth potential available, as we see down below, with the Golar LNG Limited fleet.

You'll see there are the variety of classes of vessels that we've got.

The top three vessels, Gimi, Hilli and Gandria, three conversion candidates in lay-up, available for our new FLNG program, which we'll talk about later.

The spot vessels Viking, Seal, Celsius, and the newly delivered Golar Crystal and Golar Arctic, which is on a shorter-term charter presently.

The following vessels, you will see the balance of the new-build deliveries coming.

All of them carries, except for Golar Eskimo, which is an -- sorry -- Golar Tundra and two -- sorry, the Golar Eskimo and the Golar Tundra, which deliver later on in the program.

We have been working with our shipyard partners to manage delivery timing on some of the vessels.

You will see the new estimated delivery timings there on that slide, which we presently expect the vessels to come.

So this is somewhat different than what was originally planned.

We've worked cooperatively, again with our shipyard partners, to manage the deliveries in the face of a lack of cargoes in the market, and a need to manage our way through the ship capacity out there in the market.

I will say that, for the chartered vessels, particularly on Golar LNG Partners, we had 100% operating uptime on all those vessels, which is of course critical in providing a risk-free dividend to the unit holders.

And so we're very proud of that again.

As Brian says, another key element to this program is that we included our second tranche of financing, which leaves the new-build fleet fully funded, and sets us up really well for a rational strategy going forward in the chartering market.

Turning to slide 10, with the discussion of the present or short-term shipping market, as predicted, and as previewed by ourselves in our previous quarterly releases, the short-term shipping market remains over-supplied, and likely will do so for the balance of 2014.

The market is -- continues to be plagued by underperforming LNG production.

The year-on-year production for the last two years has been down, some percentage points, while at the same time, we've had a lot of new-build capacity coming onto the market, and it continues to come.

Some bright spots on the horizon, PNG has loaded its first cargo, and we expect some ramp-up, both of cargoes -- ramp-up of production from that project in the second half of this year.

Algeria is ramping up two new trains.

However, on the downside, Angola continues to suffer major delays, and will be at reduced flows even through 2015, and Egyptian volumes remain constrained.

Added to that dynamic, at the moment, as we come into the summer season, the Atlantic/Pacific pricing arbitrage, which can drive a lot of ship demand, has been quite collapsed of late, due to large inventories in key buyers in Asia.

And so you're not getting the diversion traffic that supports ship capacity from time to time.

What our approach to this is, is to again, as we've said before, we'll have a keen eye on controlling costs.

No surprises on operating costs, and minimize what we can while maintaining a safe and efficient operating performance record.

We will, and have been, marketing the significant economic advantages of our modernized fleet.

These vessels clearly provide significant savings to our charters in their all-in cost of shipping the product.

We can say that our experience has been, charters out there that are that have been utilizing the new-build vessels are very positive on their performance.

The savings, you could see it on paper, but until the ships do a couple voyages and it really hits home, you can't -- you don't really see the effect.

So we've seen the charters who have had the new-builds coming back for more, and we expect that to continue.

In fact, we expect that the rate differentials between the modern new-builds and the older steam vessels to continue to widen, as the advantages of the ships seep into the planning of our charters.

Turning to slide 11, and where things certainly look to visibly brighten up, beginning with PNG later this year, and including Algeria, is the start of over 90 million tons of liquefaction capacity that will be coming online by the end of 2016.

All of that volume -- and you can see the projects there, down below, putting aside potential delays and upsets on the project, all of that volume is under construction, and on its way.

So again, the demand for vessels is clearly visible.

At full capacity, adding up all those projects using a fairly conservative estimate of ton miles, the demand is close to 100 vessels.

When you combine that with certainly -- with rates at or near where they are now, the older first generation steam turbine vessels will likely be pushed out of the market.

We estimate that's 20 to 30 old, inefficient vessels will be either laid up or sent for scrap, and only 90 vessels delivered in that same period.

So we think that it's very clear that the market will return to a structural deficit sometime during this 2015-2016 timeframe.

Charters who -- most of them will have a long-term planning outlook, we believe, in the not-too-distant future, will begin to look to adding structural tonnage to their positions.

This trend of new production capacity coming on is set to continue past 2016, where the US export projects and other areas, such as East Africa and Western Canada, start to become relevant.

In the case of the US, certainly, and Western Canada, those projects drive high ton mile shipping demand.

And so we see this trend of a structural deficit continuing.

The current weak market is leading to a dearth of new ship orders; there have been very few orders this year.

And so we see that, starting in the 2016-2017 timeframe, this market is going to tighten up.

And we believe that the tightness will likely sustain and be more extreme than it was the last cycle.

Turning to slide 12, FSRU update, we continue to be very pleased with our FSRU franchise.

Of course, the latest news is the Golar Igloo successfully being delivered to Kuwait and commissioned during March.

She's on a five-year contract there, so we can at least see -- at least five years of service for KNPC.

The charter's a bit unique in our portfolio, where it's on hire for nine months out of the year, and then the vessel is free to trade for the other three months, which are the winter months, December through February.

We think that with the vessel position in the Middle East in December through February, that there's good potential for that vessel to be utilized during the off-season to carry cargoes.

The commissioning on our very first new-build FSRU went very smoothly.

No more than a couple weeks, she was fully up and running.

And I know that the charter is quite pleased with the performance on boil-off gas management and fuel efficiency, which are of course critical for their all-in costs.

The next FSRU on our schedule is the Golar Eskimo.

That vessel is on schedule at the yard.

It will be delivered to us in December of this year.

Of course, in the middle of last year, we signed a firm charter with Jordan for that vessel.

It's a 10-year contract.

And that project will start sometime early in 2015.

Of course, that long-term contract is another excellent candidate for drop-down to Golar Partners, and will likely trigger the higher the 50% split on the IDR's for the Golar GP.

The third new-build FSRU, the Golar Tundra, is scheduled for delivery in November 2015.

So we've got a fair ways off before that vessel is due to be delivered from the yard.

So the opportunities we are looking at, Southeast Asia is looking interesting.

Some opportunities in Africa, and also in the Med.

But we also expect that, over the coming months, that some other opportunities will crystallize, and we feel very confident that that FSRU will be employed at the time she's delivered.

Turning to slide 13, for something that we've been very focused on of late, our floating LNG production project.

We said last quarter that we anticipated a decision on this project for the second quarter of this year, and that's exactly what we're on track to do.

We are on track for completion and funding of the conversion of the Golar Hilli, and the EPC contracts for that during Q2 of 2014.

The contracts, which are all completed and ready to go, are with Keppel shipyard out of Singapore for the vessel conversion, with a subcontract for the process top sides of Black & Veatch.

The construction period of the project is 31 months.

So with a June trigger, that puts us out at the end of 2016 for vessel delivery.

We think we've put together, at Golar Keppel and Black & Veatch, an excellent winning formula.

Of course, we have a successful track record in financing, owning and operating innovative floating LNG midstream assets, particularly on the FSRU side, where the execution model is very similar to this.

We, of course, have worked with Keppel on our -- three of our previous FSRU's.

We will have the same team on our side overseeing the FLNG project that did the FSRU, so we have a high degree of confidence there.

Keppel has a shipyard, top notch, certainly one of the top conversion yards in the world, to say the least, both in the FSRU side and on FPSO's as well.

Black & Veatch, our choice of technology, this was, I think, an obvious choice for us.

We were looking for something that was reliable, something that was proven, and cost-effective.

And Black & Veatch pre-co technologies, all of that, they have a growing position worldwide of the units, very similar to what we will use on this project.

So what we're developing with this project is a new paradigm in the LNG production space, which we think is badly needed.

It's a -- we intend that these projects will be faster, more cost-effective, and smaller bite-size floating project, with a much simpler financing model.

And of course, with our existing carrier and FSRU franchises, we'll be set to string together midstream value chains for production right through the FSRU's.

Turning to slide 14, while we're not releasing any specific capital costs on the project, just to give some guidance on economics and comparison, that stack chart is current projects globally, and the cost elements there that make up the all-in delivered price for LNG out of those locations.

Zeroing in on the liquefaction part of that stack, you can see that, based on the assumptions that were used here, with 15% pretax rate of return -- and I believe it's actually 25-year projects.

But at any rate, they range from $2.88 per million BTU to $7 per million BTU.

And we can confirm that, even at the lower end of this cost range, our model can deliver superior returns.

Not only that, the floating project, just like with FSRU's, has several advantages over the traditional approach to LNG projects.

The cost advantage that we will provide with this unit does not depend on having huge economies of scales and massive LNG volumes, in order to reach these low unit costs.

Our costs, where we can be competitive with these projects shown above, is maintained even on the smaller volumes of our target, which is 1 million to 2.5 million tons per annum.

Reliability, we've chosen a simple approach, with proven technology to mitigate unplanned outages and startup delays.

Predictability.

We've all seen what can happen to the mega-projects.

Cost overruns, schedule delays, with this project being executed inside a shipyard, we are certainly believe we'll be relatively inflation proof, and good control on schedule, compared with in-situ LNG construction projects.

Finance-ability.

Our approach to funding these projects will be different from how normal mega-projects nonrecourse project financings are done, which often cause huge delays for kicking off projects.

We won't have that overlay on our projects, and we'll be building the vessel, funding it, and making it available to the projects.

Speed of execution.

Again, the floating asset, the timeline of permitting a project and the construction, will be dramatically improved with this asset, definitely up to 50% of the total project cycle, as is usually experienced by a large-scale land-based LNG production projects.

Turning to slide 15, a little bit on the project pipeline, and the funnel of projects that we're working on, we've been out marketing and receiving feedback from developers, reserve owners, marketers, ever since we completed the feed for the project last August.

I can tell you that the feedback we're getting is very positive, and the interest is high.

We expect that the business cycle that we'll see going on here with the FLNG and this approach is similar to that in the FSRU business.

We expect a rapid acceleration in the execution of new projects, due to the inherent benefits I described earlier, most notably the scalable aspect.

To be able to economically produce a project of the size of 1 million to 2.5 million TPA, opens up options for reserves and gas supply on the project that certainly are not available with the traditional approach.

And again, as with FSRU's, what we'll see is a large opportunity for would-be new entrants to the LNG commodities space, which will reshape the market in the years to come.

We're developing a portfolio of projects.

Most of them, the ones that we are active on, are at the MOU stage, for which we have executed multiple agreements.

The follow-on definitive agreements are currently being negotiated.

Various relevant government agencies are engaged, and of course, off-take discussions with LNG commodity players are ongoing.

We've designed this vessel to be a generic approach to the market.

It has a specific operating element -- operating envelope, sorry, which requires clean and relatively dry feed gas, which at first blush may look like a limitation.

But I can tell you that the vessel is finding multiple applications with offshore fields, with smaller reserve bases, again, that will never find a way to a land-based project or even a situation where the gas is being flared, or existing domestic pipeline quality gas.

So sourcing gas and finding gas that's suitable for this vessel is not going to be a problem.

Citing the vessel for the projects we are looking at, all of the projects have relatively low-cost fixed infrastructure, meaning the -- fixed infrastructure meaning the jetty and tie-in pipeline, and local infrastructure of that nature.

$0.15 to $0.40 per million BTU, way on the outside, is the kind of cost we're looking at for the projects, so no big overhang there.

And the sites are normally near shore or inside port, without any huge cost elements, such as capital or maintenance dredging.

So all-in costs, $0.15 to $0.40, is what we're seeing, in addition to the vessel cost itself, to take gas to LNG and load it on carriers.

Of course, the execution model remains relatively complex compared to a lot of the projects Golar has worked on in the past.

The vessel must be permitted and licensed with relevant government agencies, so we have to get through that.

And then the commodity chain, which underpins the revenues that pays for the capital recovery on the assets, needs to be put together.

And so that is a relatively time-consuming and complex process.

However, we see, with the economic rent available here, and the time to market that we are coming with late 2016, early 2017, that the commercial motivation is also there to offset that risk.

So turning to slide 16, just to wrap up, again, our uptime on our charter vessels was nearly 100% during the quarter, reflecting our continued operational excellence, which we're very proud of.

Our summary of the market is that the short term market is over-supplied.

We've been predicting that.

We're in the middle of it now.

But certainly, the recovery is visible, with medium-term ramp-up over the next years, 2015 and 2016, driven by most primarily Australian projects.

And then continuing on where US projects become more relevant, the long-term is certainly set for a structural deficiency.

Our positive balance sheet allows us to maintain a strategic position, to wait for the recovery in the market, and to position ourselves for integration with our FLNG projects.

Again, we'll be marketing the high efficiency of our new-build fleet.

We'll have a keen eye on cost control, and as we have shown, we've been managing our delivery timetable.

The FSRU franchise continues to deliver well, with great integration and cooperation with our corporate structure, vis-a-vis Golar Partners.

We've delivered on Golar Igloo on time, and the vessel is performing perfectly.

And finally, as I just went through, we're set to complete and fund our maiden FLNG ship conversion contracts in June of this year, leading to a shipyard delivery late in 2016.

We think doing this creates significant commercial and strategic early mover advantage.

And we're very, very optimistic about the unique opportunity for value that's created for investors out of this project.

So that concludes this presentation part of our webcast today.

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

Thank you.

(Operator Instructions)

Herman Hildan, RS Platou Markets.

You mentioned before that you're going to -- that the positive go-forward position will be taken in June.

Could you elaborate on what this relates to this -- a contract with Keppel, or is it FID?

What kind of announcement will we see from Golar, when this go-forward position is taken?

Yes.

The contracts that we will be targeting to go firm are the EPC contract with Keppel and the subcontract with Black & Veatch.

Associated with that will be, of course, funding decisions on that -- the first payment that happens with that contract is a down payment that happens the day the contract becomes effective.

So, that will all be going on in June as well.

And in terms of financing, what are you expecting on the leverage of this?

The leverage -- I guess the answer's different, depending on the stage of the project we're talking about.

We're unlikely to announce a firm contract at the same time that we're triggering the start of construction on the vessel.

We don't think it'll be too long in the future that we'll be having that contract, but obviously, it's difficult to leverage too high on an asset like this without a firm contract.

After the contract is completed -- I'll let Brian talk about that, how he's thinking about that.

Yes.

Thanks, Doug.

So, as Doug mentioned during the FLNG slides just now, I think the initial take by Golar in respect of the construction is that Golar itself will fund the initial conversion contract.

There will come a point when we become firm on certain contracts.

And at that point, that's when we will seek to project finance, or at least put leverage on the construction itself.

I think, in the meantime, in the background, whilst the conversion contracts and the contracts with Black & Veatch have been negotiated, we've also been looking at a variety of financing opportunities for the initial phase.

And those are obviously progressed in the background also, and will be effected, once the contracts with Black & Veatch and Keppel are firmed up.

And in terms of the equity investment that Golar will make, obviously, it can (inaudible) your current funding on the 30 new-builds are basically for 12 of the 13 vessels, so you can leverage off Eskimo.

You could probably do some downside of common units?

My question is really: Do you expect to make any, call it, equity raises to finance the initial vessel?

I think all we can say at this point is: A lot of options are being studied and analyzed, but certainly at the time we announced the effectiveness of the contract, the funding of the contract will also be announced and described.

Okay.

And in terms of potential projects, Ophir has a [new thing] picture of your FLNG on their block R. Is that, call it, one of the near-term contracts that you think you'll sign, or what region do you expect to sign the first FLNG?

You'll have to ask Ophir what they're intending on that project, but I wouldn't say it's high up on our priority list of projects at the moment.

You'll have noticed we didn't speak specifically about projects.

One, that's because we have confidentiality agreements in place.

And two, we would only speak on projects once they become firm up, but I think Ophir's intentions are unknown to us.

Whilst we had discussions with them, as Doug said, they're not necessarily on the top 10 of our list.

Okay.

And my final question: What kind of duration do you expect to have on the first FLNG contract?

5, 10 years, or -- ?

I don't know if it's the first LNG project, but the other benefit of this approach is that we don't need to do 20-year commitments on this project to make the whole thing hold together, and to get it financed, and have it create value.

We can look at smaller reserve bases that maybe are supplied over a seven- to eight-year term, and do just fine with that.

Especially in cases where you have negative value on gas that's being flared, maybe you don't have 20 years of gas, but you can do a shorter-term project.

And given that the asset is floating and re-deployable, or available for incremental gas at the same location from a different field, we'll be able to execute projects that are of a shorter duration.

We just think that's a huge advantage to getting this acceleration that we're looking at to get new production onto the market.

Okay.

My real question is really: Will the contract -- will the asset be intended for the MLP?

Will the duration of the contract be longer than five years?

In the vast majority of cases, it will be longer than five years.

Okay.

Thank you very much.

I think what I would add to that is: It's not just the FLNG asset that's relevant to the MLP at that point, because certainly, in a lot of cases, there will be carrier opportunities in association with that same project, and in some cases, FSRUs.

So, you may have an entire chain of assets put together for longer than five-year contracts that can be dropped down to the MLP, so it's tremendous growth potential for partners.

So, are you bidding or negotiating on projects now where you will offer the full infrastructure?

I would say the nature of these projects isn't really -- although there's some element of it, it's not really a bidding scenario.

And we are looking for opportunities where gas wants to get to an LNG market, somewhere around the end of 2016.

And those kind of projects don't have time to run a bid process, but they are projects that are ready to get developing and get to an execution phase.

So, again, we're not really exposed to bid situations in most of the cases, although there is some element of that in the projects we're working on.

Okay.

Thank you.

Fotis Giannakoulis, Morgan Stanley.

Apparently, you have done a lot of projects about the FLNG.

And I want to ask: How do you expect the contract with Keppel to be structured?

How much of the cost will be paid upfront upon signing?

And how much you are expecting expected to pay upon delivery?

Without getting too much detail, it's -- again, because we are bound by confidentiality agreements, there is a significant down payment on kick-off of the project.

Slightly more, possibly, than on a normal new-build ship contract.

And then the contract percolates along at a certain slope, and then there's another large payment on delivery.

So, it is two larger payments on the front and back end, but there are progress payments along the way, as well.

It's probably more akin to conversion contracts -- FSRU conversion contracts that we've seen, rather than shipbuilding contracts.

Okay.

That's clear.

And you mentioned in your previous call that your goal is to keep control of all the FLNGs, which means that you're going to have at least 50% of the project.

But based on the discussions that you have with commercial partners, what kind of ownership shall we expect for each of these units?

The LNG industry likes to have its off-takers investing in the liquefaction asset, so we see interest in some of that.

Again, Fotis, it'll depend.

If we are doing a project with a large player that's already in the industry, has other liquefaction assets, is comfortable with all that, we may see ownership for the vessel at a higher level.

But I don't think -- of the vessel itself, I think 20% is a good guideline for what we would see as being held by a third party.

Okay.

That's much higher than what we were expecting.

And I think, Doug, you mentioned back in February that at least the first unit is going to be on the larger scale.

Is this still going to be the case?

And do you have any expectation regarding the additional couple of units that -- it seems more likely that you are going to exercise your option to build?

Yes.

So, I think one of the -- I don't know if it is surprises, but one of the learnings over the last year is that once we find an opportunity that works for 1-million-ton type size, we quickly realized that it's likely that even a smaller project like that, for various reasons, would turn into a larger-size project.

So, most of the opportunities we're working on are of the larger variety.

And certainly this first spec vessel, we will be building the four-train set-up, which is the, depending on ambient conditions, is the 2.5- to 2.8-million-ton per annum vessels.

It could happen, but I doubt it.

It could be that the second or third vessels is smaller.

I don't think so, though.

I think we're going to find that the range of projects is closer to the 2.5-million size.

And even if we don't have identified reserves for that rate, having -- adding a train on -- adding the fourth train onto this asset is extremely cost-effective.

So, it's a pretty easy decision to make to have all four trains of capacity on the vessel.

Thank you, Doug.

You just said that the first payment, the down payment, is going to be quite substantial amount.

I assume that this also demonstrates your confidence that this project will go ahead, and that there are commercial agreements in discussion?

I think, in three months ago, you said that you are in discussion for 15 to 20 million tons of capacity.

How are these discussions been developing?

Have you narrowed down the number of potential commercial partners?

Is there any commercial agreement that might be closer than the rest?

And if you can give us a little bit more color about the tolling versus LNG production that you're going to develop yourself, and marketing of the LNG?

Okay.

In terms of the number of projects that we're working on, I will tell you that the discipline that we are having to apply is to not work on too many of the projects, so that we don't get scattered and, too, lack of focus on the important ones.

Availability of gas for this unit is absolutely not an issue.

There's opportunities, because of the scalability of the unit, and the fact that it's floating and really flexible.

There's all sorts of opportunities.

The trick is to find a site and partners, and a commercial structure, that can carry the project through.

So, yes, I think 15 to 20 million tons of opportunities being worked on is a comfortable estimate still.

No, we haven't narrowed down.

As I said, these projects are commercially complex.

They take a long time to put together.

We're not going to put our eggs in one basket.

We don't need to.

We've got two other options for conversions.

We've got conversion candidates ready to go.

So, we don't really look at it that way.

We're leaning forward on multiple projects, and it's a bit simple to say it, but it's kind of a first-come, first-serve.

And the handful of very serious projects that we're working on, we're very busy on.

Serious negotiations, serious discussions, for getting permitting going and that kind of thing.

But, again, we don't want to get too much focus on a single project until it reaches the point where we believe it's going to go firm.

We don't want to get ahead of ourselves, but we are extremely optimistic on the project side.

In terms of structure, there's a lot of ways to structure these things, Fotis.

Whether or not Golar takes a position on the commodity side, those decisions will be taken depending on the specific project, but it's a separate revenue stream than what we're talking about here.

No matter how it's structured, if Golar's on the commodity side or not, a part of that structure, you can assume there will be some tolling component, which underpins the revenue stream going into the vessel company.

So, it'll be very clear, the payments coming into the FLNG asset.

That's for financing purposes.

That's for purposes of the drop-down.

That's how the LNG industry is used to having things structured.

So, if we do a commodity transaction beside it, that will be just a whole other revenue stream separate from the tolling.

Thank you, Doug.

If you can also help me clarify some of the numbers.

I remember that you had mentioned that the cost of operating a vessel like that is expected to be something like 2 to 3 times an FSRU.

If my calculation is correct, that means around $20 million per annum.

And you had also mentioned that, in the North America, the tolling revenue could be $3 to $3.50 per MMBtu.

That makes something like $350 million per unit for the 2.5 million tons.

Is this a number that sounds reasonable?

And in terms of construction cost, am I reading your press release correct, that you're talking about 3 times EBITDA is going to be the conversion cost?

Yes, that's the guidance we're giving, Fotis.

If you look at the capital costs or enterprise value of the single FLNG project, against (technical difficulty) strictly the tolling revenue, with an assumption that the market indication or comparative economics to the US Gulf Coast projects, which I think that marker is around $3.50.

So, with that kind of toll, even adjusted for locations in terms of deliveries into Asia, netback adjustments and all that, against the enterprise value is a factor of 3, yes.

I would say on the OpEx, I can't remember what you just said, but I think that guidance is okay.

I think, if it's 4 or 4.5 times an FSRU type operating cost, that's fairly safe.

Okay.

Thank you.

And one last question.

When these vessels will be delivered, when the commercial contracts are in place, is the plan to be dropped down to GMLP?

Or you have thought that you can potentially create a separate MLP vehicle just for the liquefaction projects?

Fotis, I think the initial intention is that these assets, as Doug mentioned earlier, are MLP type assets.

So, the contracts will be of tenor that are droppable to the MLP.

I think, as you can imagine, the size of these assets will be far greater than the FSRUs that we've been dropping down, to some extent.

We may follow a similar Seadrill type model, where part of the asset is dropped down at -- one at a time, as opposed to the entirety being dropped down.

Whether or not we create another MLP specific to these assets is not really something that's crossed our mind.

I think it's something that we'll have to see as and when we start getting the -- we start firming up on the type of assets, and the location of those assets are much more visible to us.

And in terms of drop-down multiple, if the construction multiple is only 3 times the EBITDA, how high can the drop-down multiple -- is part of Golar's intention to maximize the profit from the drop-down upfront?

Or the profit will be maximized at the GP level?

No.

Whilst we've been using EBITDA multiples to guide, to some extent, to give some guidance on FSRU drop-downs and vessel drop-downs to the MLP, in the process, it's always that we have to follow the conflicts committee's recommendations to the Board of Golar LNG Partners and Limited.

And they have to go through the contracts that are within that vessel.

And they have to value those contracts, the residual value, the risks associated with those contracts.

And they will come back with a suggestion.

But I guess the way we then explain how those are reached is through an EBITDA multiple.

So, we're not always -- or we're not trying to maximize the profit, as such.

It's just following the fair market value of the conflicts committee's suggestion.

Thank you, Brian.

If you allow me one final question, and if you can present us: What are the potential risks?

It seems that you are pretty confident on this project.

Do you have any proprietary technology here or expertise that -- why wouldn't other companies try to replicate that?

Or producers that they have access to the natural gas wouldn't try to do something like that on their own?

Are there any risks that you would like to present us here, regarding the completion of such an ambitious project?

The risk is generally on the project-specific side, Fotis: the permitting and the licensing, and all of the commercial structuring that has to go on.

That's why we'll be working on multiple projects, because, a way to mitigate that kind of risk is to have several irons in the fire.

But in terms of the technology risk and the construct-ability risk, that's something we're least concerned about.

There is nothing new going on in this project.

The execution model is very similar to our FSRUs.

The conversion yard we're using is the top conversion yard in the world.

The technology we're using is used today all over the world.

The only difference is we're going to mount it up on a ship.

And mounting equipment up on a ship so that it works is something that Golar and Keppel have done in combination many times.

So, having this vessel work properly is not high up on the list of our risk.

I think the risk is on the specific projects.

And, again, we're mitigating that by working on several.

And we're pretty confident that if we have trouble on one or two, the others will come through.

Thank you, guys, for your generous time.

Jon Chappell, Evercore.

Moderator, maybe we move on to the next question?

Ben Nolan, Stifel.

And just to change pace a bit from all the FLNG discussion, could I maybe get you to talk about the pace of FSRU contracting?

Have you, in the past -- since the first of the year, have you seen much in the way of new incremental interests that hadn't been there previously?

Is there any level of acceleration?

Or conversely, are there people that had been very serious that maybe aren't quite as serious about it at this point?

That's a subjective thing, I guess.

I think the number of -- today, the number of FSRU projects that we believe will actually go ahead, new ones, is probably slightly lower than it has been over the past couple years.

I always said that if it's one to two, maybe on the outside, three fixtures of FSRUs globally per year, that's about right.

I'm not sure we'll keep up that exact pace from today for the next few months.

There are projects out there.

We respond to inquiries all the time.

We're pretty good at filtering when things are firm or not.

But I guess, in summary, we'd say that we're not feeling too bad that our next FSRU isn't delivering till the end of next year.

Because the prompt projects, which we like to look at -- if we're going to build a speculative vessel, we like to look at projects that can take advantage of a prompt vessel.

There just aren't that many out there that we think are firm.

Now, we can always be proven wrong.

Projects can surprise you.

But I'd say it's a little bit lower right now than in the past.

Okay.

That's interesting.

And has there been any -- and I would have thought that maybe given everything that's going on in Russia and Ukraine, that western Europe would have been a little bit more aggressive.

Has that not been the case?

Western Europe -- we've highlighted this -- reading between the lines, that's what we were saying in some of our releases today, that some of that uncertainty could drive new opportunities for FSRUs.

But it's not really western Europe, because western Europe currently is pretty much oversupplied on re-gas capacity.

But projects -- Lithuania has a project now.

And eastern European countries, that's a different story.

That's where we think possibly could drive some interest.

Okay.

That's helpful.

And then last question for me: I know that earlier you had mentioned -- historically, you guys have highlighted the fuel-consumption or burn-off differential between the tri-fuel vessels and the steam-power vessels.

And how you're looking to capitalize on that in terms of the rates that you're able to earn.

I was hoping that maybe you could quantify where you are in that process?

Or at least in a percentage terms, how much of that value do you think you're capturing today, as opposed to what you ultimately feel like you may be able to capture?

I think, in today's market, it's more about a situation where we'll have more success keeping utilization rate on the vessel up because of those cost advantages.

There's a lot of vessels out there right now, new-builds and steam vessels, and the charters can be pretty picky about rates.

So, what I would say is that the spread is all over the place, from what we've seen, between the new-build vessels and the steam vessels, depending on what day of the week it is, and which vessels are vying for a cargo.

In general, though, I'd say it's a lot tighter now than it's going to be.

In general, if you put spot aside, which is -- it's hard to get any indications out of that right now, because there's so few cargoes.

But if you look at the one- to two- or three-year deals that are going around, I think the spread is quite narrow.

And that's one thing I think we're going to see opening up.

It's not looking like it's more $10,000 or $15,000 a day at times, which is quite narrow given the savings.

But that kind of a buyer's -- indication of a buyer's market.

So, as these charters have the new-build vessels coming into their portfolio more and more, I think we'll see that premium spread out.

And the preference to charter the new-builds will gain momentum going forward.

Okay.

That's helpful, and that does it for my questions.

I appreciate it, guys.

Jon Chappell, Evercore.

On the options, you mentioned 6 and 12 months on the options for the second and third potential FLNGs.

What are you looking for before deciding to move forward with that?

Is it progress on the first one with Keppel and Black & Veatch?

Would you like to have a contract on the first one in place?

Is it commercial discussions?

How do we think about the decision to move forward with those two options?

It's not a look-see on how the project's going with Keppel on the first one.

But we -- I would characterize it like this: We would like to be extremely confident, and the options were set with this kind of timing in mind.

We would like to be extremely confident of, or have, in fact, signed, a firm commercial arrangement for the first vessel.

Okay.

And I don't want to harp on the timing of that.

Obviously, you wouldn't sign that 2.5 years before delivery of the asset.

But how close to the actual delivery would you really feel comfortable?

Or I should say, as you're approaching the delivery, late 2016, when would you start to feel uncomfortable, if you didn't have a commercial contract in place for the first one?

We're uncomfortable all the time, Jon.

That's our job.

(laughter) We just need stress, but it keeps us focused.

But it's an interesting way to theme the question.

I don't think we've been thinking about that.

It's hard for me to answer.

We're closing in on projects.

I would be surprised if we go out a year and we don't have that done.

Okay.

That's all I have here on that.

Is that helpful?

(multiple speakers) Yes, it does.

Two more quick ones.

Thanks for giving us an updated schedule on the delivery of the new-buildings after last quarter.

Is there any wiggle room left, potentially, with delaying those even further?

As you think about all those fourth-quarter 2014 deliveries, versus the midterm industry time horizon that you talked about of improving late 2015?

For now, we've finished those discussions with the shipyards.

So, you don't know whether there's wiggle room until you reinitiate something like that.

And we've just completed getting this new schedule set.

I don't know whether there would be more wiggle room or not.

We are relatively comfortable with this schedule.

We are uncomfortable with the state of the market right now.

But in the time when we get out into the back end of this year, we're going to rally a lot of the vessels are coming, we're hopeful that things are starting to improve, and we don't need to worry about that anymore.

Okay.

There's also, of course, the factor that, as we go through 2014 and 2015, a lot of these shipyards are ramping up in their LNG-related activities.

And, of course, those take away resources from building LNG carriers.

So, it may not be that Golar LNG itself initiates certain wiggle room on these deliveries.

It could be that the yards themselves take that initiative.

That would certainly be helpful.

Last one for you, Brian.

I know that, obviously, given the tone of this call, FLNG is all that matters right now.

But trying to get my arms around a clean first quarter.

This other financial items of about $16.7 million, looking through the press release, it said non-cash swap losses.

How much of that is non-cash, as we try to figure out a clean 1Q?

Off the top of my mind, I think it's approximately $10 million to $11 million of that, non-cash.

And then there is about $3.5 million or so on hedge swaps, i.e., interest-rate swaps interests that aren't hedged on specific notional financing.

So, almost that entire number would be considered one-time in nature, basically?

It's not recurring.

Yes.

Correct.

Thanks a lot, Brian.

Thanks, Doug.

Michael Webber, Wells Fargo.

It's been a long and meandering call, so I just want to -- I'll keep it short.

But just to home back in on Jon's question around, really, the data point that's the most important, which is the commercial agreement.

Without pinning you guys down to a date, it seems like first-half 2015 is probably the most likely time frame for a commercial agreement.

Am I hearing you guys right around that?

Yes.

Could be sooner, and there is -- the news flow, as well, can start a lot earlier.

There will be a time on some of those projects where they will just have to become visible, because there will be visible permitting activities going on, specific locations and government bodies making [us spend some] things.

So, I think that -- I think two things.

Investors will begin quite soon to start hearing some news flow about the specific projects.

It's just that, now, before we have got the ship going firm, we weren't terribly excited about telling everybody where we're working.

And then, like I said, if we aren't in at least one firm agreement in the first half of 2015, I'll be pretty surprised.

Now, that firm agreement may have some conditionality on a specific operating permit or something.

But that kind of risk can be evaluated at the time.

So, that's, I think, the best guidance we can give.

Okay.

No.

That's helpful, and pretty direct.

Around the financing, I know you guys have talked about -- a bit about this earlier.

But just to be completely clear on this: You've got the financing more or less locked up for the long lead items that you guys are talking about, in terms of your initial order with Keppel.

And then you went through -- vaguely went through the payment schedule.

In terms of thinking about that, is there a chance that there could be a capital call associated with the building of this asset before the drop-down of the Eskimo?

Is there a chance that you guys have to further cash-collateralize the spec build before you actually see drop-down proceeds?

Or anything that would need to trigger an equity raise or something along those lines?

Or is that payment structure with Keppel such that the bulk of that is going to be later in 2015, where you guys are going to have more options?

Mike, I mentioned earlier, whilst the actual results we have dropped down in the last [set] towards the end -- beginning of 2015, the initial payment, as to make the contract effective, obviously happens well before that.

Now, we haven't mentioned in our press release, firmly, how we're going to go about financing that.

I think, obviously, in the background, we've got a very good hand on what we're going to do to be able to do that.

I think, at the time that we announced firming the Hilli contract is probably the right time to be able to talk about the financing for that because, obviously, they go hand in hand.

But I think, suffice to say, we've looked at various options, and we believe we've come to a conclusion on what the best one is to go for.

Okay.

Yes, and to an earlier question, I can't remember who it was, but you talked to the fact that there is a bit of a larger upfront payment associated with this build, and you've obviously already raised some capital associated with this, I guess it was six months to a year ago.

On a percentage basis or on -- if you can give us some degree of scale around what you guys have now and versus what you guys could be looking at?

Any help there?

The previous question was basically under the assumption that you guys had that initial payment more or less down.

And the question was: Would you have another capital call?

Just some color around the scale of the initial outlay versus what you guys have already raised?

I think, just to clarify, when we initially raised the finance -- some of the funds at the end of 2013, we did say it was for long-lead items.

We didn't specifically say, of course, that it's for the initial payment of the Keppel and Black & Veatch contracts.

Now, admittedly, the Keppel and Black & Veatch contracts are probably a bit more substantial than what we raised.

But, again, I think suffice to say that we have sufficient grasp on what we need to put into place to be able to make that effective.

And I'll -- it sounds like I'm avoiding the question, but as I said, I think the financing and effectiveness of that contract being announced need to go hand in hand together.

Sure.

Okay.

All right.

We'll wait for more color on that.

Just one or two more for me, and I'll hop off.

I know you guys have talked about Pemex in the past, and they've got a 5 million - five [MBtu] project now in the Gulf.

It seemed like the way these options are structured with Keppel that you would need to do a single asset first, or another project first, before we could look at biting off something like a Pemex.

Is that the right way to think about it, in terms of the order?

I don't remember talking too much specifically about Pemex, but Mexico as a country, opportunities for this asset, I think, are very positive.

And whether or not Pemex is talking about different size things or anything, we don't know exactly what their plans are, and their whole program.

But Mexico has an interesting situation, where they are importing extremely expensive LNG on the Pacific side, while building up huge actual gas reserves of their own and building up capacity, bringing gas from the US.

So, interesting gas dynamic there, but the bottom line is: We've got a domestic grid building up with supplies that fit our vessel very well.

So, I think it could be interesting.

Okay.

That's helpful.

One more, just around the Tundra.

And I know you addressed the FSRU market a bit earlier, and you said it's getting more competitive.

Obviously, that steady stream of FSRU cash flow is supporting your MLP currency.

And as we get closer to the Tundra delivery, that it's going to get a lot more focus.

At what point, in terms of the construction and the contracting of that asset, do you guys start looking harder at other avenues for providing growth and keeping supporting that currency, be it through acquiring pre-chartered assets, or finding some other way to augment the back end of that drop-down profile?

If the market is assuming the Tundra gets done, and it's getting -- the environment's getting more competitive, how do you handle that back end of the year drop-down pipeline?

That's probably more of an MLP question.

But I think, whilst Golar LNG Limited and Partners do have this partnership agreement that allows Golar LNG Partners to pick and choose the vessels to buy from LNG Limited, of course, Partners itself has the ability to look out of that circle and buy assets from the outside and continue that growth.

Now, obviously, at the moment, it's not very transparent where additional drop-downs could be put to LNG Partners once the Tundra is done.

I think certainly -- I'm confident that you would be -- we'd have a charter for the Tundra by the time it comes out.

But it's very difficult to over-promise on other assets, given, one, the chartering market is very soft.

And, of course, the FLNG project development in Golar LNG Limited is only starting.

So, it's -- I guess the answer is: MLP has the ability to look out of the LNG space -- Golar LNG space to continue that growth.

Right.

Okay.

And before I hop off, just to go back to Jon's final question around that -- coming to the continuing EPS number.

You're looking at $13.5 million to $14.5 million of unrealized gains that's reflected in that other number.

Should we be stripping out that entire number?

Or just $14.5 million to get to your continuing EPS?

I think the majority of that number needs to be stripped out.

Because, one, it's very -- if you look at our number in Q4, it was a positive $20 million or something.

So, it needs to be stripped out because, one, it's volatile, and, two, it's non-cash.

Okay.

So, the whole thing.

All right.

I appreciate it, guys.

Thanks.

Thank you.

As there are no further questions, I would like to turn the call back to the speaker for any additional or closing remarks.

Yes.

Thanks, moderator.

Thanks, everyone, for the contribution to this quarter's call.

It's been a pleasure talking to you.

And as always, we look forward to speaking to you again in the next quarter's presentation.

Thank you, and goodbye.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.