Golar LNG Ltd (GLNG) 2014 Q2 法說會逐字稿

Good day and welcome to the Golar LNG Limited Q2 2014 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Brian Tienzo. Please go ahead.

Thank you. Hello, everyone and welcome to Golar LNG's second-quarter 2014 results presentation. As the moderator said, my name is Brian Tienzo, and as per usual I will be taking you through the second-quarter highlights as well as financial highlights for the quarter. As usual, I am joined by our CEO, Doug Arnell, who will take you through the business update summary and outlook sections.

So to start the presentation, let's now go to page 4 to go through the second-quarter highlights. Golar reports a second-quarter 2014 net loss of $24.2 million, including a non-cash loss of $13.6 million in interest rate swaps.

The EBITDA generated in the quarter amounts to income of $1.1 million. Total pro forma Q2 EBITDA for the Group, including Golar Partners, was $84.3 million.

Golar took delivery of LNG carrier Golar Crystal on May 15, its third LNG carrier of its 13 newbuilding program. On June 30 Golar raises $661 million net of fees after the successful follow-on issue of 12.65 million shares of its common stock, including underwriters' options.

As expected, spot and short-term chartering markets remains challenging. And despite weak results, but with the strong position of the Company as well as the FLNG growth potential, Directors are confident in maintaining the dividend in this quarter, and it so has declared the same level of dividends as in previous quarters of $0.45 per share.

Over to page 5 to look at the subsequent events. On July 2 the Company executed and made effective key agreements for the conversion of the Golar Hilli to a floating liquefaction vessel. We continue to see spot LNG prices as falling below $11, which created strong contango in making storage plays more attractive for traders post the quarter. As a result, utilization of Golar fleet has improved and should be reflected in our Q3 results.

Turning over now to page 6 to go through the financial highlights, net operating revenues for the quarter increased from $4.9 million in Q1 to now $17.8 million in Q2. This has been aided primarily of the improvement of the Golar Viking, which was utilized by approximately 50% during the quarter; as well as Seal, which was utilized more than 50% during the quarter. In contrast, both were less than 50% utilization, particularly for the Viking, in Q1.

We also saw our operating expenses decrease from $13.8 million in Q1 to $11.8 million in Q2. The main reasons for this is that there was no Igloo in the fleet, in the Golar LNG Limited fleet, in the second quarter, whereas there was a partial presence of the Igloo during the first quarter. Similarly, there were also optimization of crew during the first quarter, of which the majority of the benefits were felt in the second quarter.

There is a reflected gain on drop-down of vessels in Q1 of $35.5 million. In contrast, there was a slight adjustment in Q2 of a loss of $0.5 million. So underlying EBITDA for the quarter, excluding the gain or loss in drop-down of vessels, would have been $1.6 million, which would have been an improvement from Q1. But with the loss/gain in drop-down on vessels, our EBITDA is $1.1 million compared to $33.1 million in Q1.

The net financial expenses during the quarter is higher at $23.4 million. In contrast $18.6 million was felt in Q1. The majority of the net financial loss in the quarter was due to $13.6 million in non-cash mark-to-market movements as a result of drop in medium to long-term interest rates. There was also $5 million of interest charges on swaps not yet to be associated with notionals during Q2. All of this has resulted to net loss during the second quarter of $24.2 million as opposed to net income of $13 million in Q1.

Going to the right-hand side of the page to look at the Golar Group, which incorporates Golar Partners: with Golar Partners looking at close to 100% utilization on its vessels, the revenue for the Group would have been $115 million versus $98.9 million in Q1. And the operating costs have continued to be consistent quarter to quarter.

Looking at the bottom left-hand corner of the first table, you will see that the time charter equivalent has improved materially from Q1 to Q2 from Golar LNG Limited. And the utilization is also following the same trend.

Going over to page 7 -- and, again, just to highlight the importance of the Group structure -- since IPO, Golar Partners's quarterly dividends have grown by 42%, and Golar's share of those dividends has increased by 83%. Of course, IDRs, including the GP, are currently at 25% level; and we expect to have reached 50% level by the time the next drop-down is achieved, which we expect to be Q1 2015.

Q4 2013 through Q1 2014 reduction is a result of Golar's common unit holding dropping following its sale of 3.4 million common units in December. More importantly, though, with Group structure already in place and with the floating liquefaction projects under discussion, all of which have a project or tenure of five years or longer, then we would expect this structure to be able to monetize those projects for Golar LNG Limited when the time comes.

Going over to page 8 and just looking at the highlight of LNG movements, cash and cash equivalents have increased from $159 million in Q1 two $485 million in Q2, primarily as a result of the equity issuance at the end of the quarter. You also see that there has been market increases in vessels and equipment, newbuildings, and assets under development as a result of taking delivery of the Crystal; payment of installments on three newbuildings; and, of course, the milestone payments in respect to the Keppel conversion contract.

Turning over to page 9 now, again, the main movements in respect to cash flows reflects the equity offering that was done at the end of the second quarter, as well as the milestone payments and newbuilding payments as a result of that equity issuance. There is, of course, a material increase in cash from quarter to quarter, again, aided by the successful equity issuance at the end of June.

Going over to page 10, so whilst we continue to see weak chartering, the Company remains in a strong liquidity position. The Company has built a solid foundation to go through turbulent times, as we had already mentioned.

Given the financing already in place in respect of eight vessels; and, more recently, the entry of the Company into four selling leaseback transactions with ICBC, the fleet expansion is now fully funded. Of course, monetization of long-term contracts through the Golar structure with GMLP has supported the Company's current dividend level.

And, of course, going forward, future drop-downs are expected to continue to increase dividends in IDRs from the MLP. As part of the liquidity position, and looking at the position going forward, the Company has gone through extensive stress testing of the balance sheet to demonstrate its resilient liquidity position through 2016.

In this testing the Company is issuing zero hire from spot-exposed vessels; that it continues to have minimal earnings in respect of voyage fixtures; and it assumed recovery of carrier and FSRU markets to only begin late 2015. And through this the Company is expected to be able to go through 2014, 2015, and into 2016 without raising equity in respect of these underlying operations.

Furthermore, successful follow-on equity issuance raised of $661 million net of fees to fund the equity portion of its first FLNG vessel conversion means that the Company has essentially raised 50% of the total project cost of its first floating liquefaction project. What is more encouraging is that at the time of the equity issuance, the investor reaction, in fact, was very positive, with the project being very heavily oversubscribed. And, of course, at the back of that, the Company is now looking at the proposals for debt refinancing to complete conversion of the first floating liquefaction project.

And to now go through the business update, I will turn the presentation to our CEO, Doug Arnell.

Thanks, Brian. Good morning and good afternoon to everybody. I will start my part of the presentation on slide 11, which is a summary of the Golar Group's asset portfolio.

The part top part of the slide, of course, is the Golar LNG Partners fleet, which has now grown to nine vessels with the drop-down of the Golar Igloo FSRU. This obviously is a hugely important part of the Group's overall performance, with those vessels contributing approximately 87% of the total revenue for the Group.

Of course, those vessels are all under long contract, and they depend on operating day in and day out. And I'm pleased to report that the technical operations record for those vessels once again in the quarter has been virtually 100%, which seals the situation for Golar LNG Partners's being a low risk investment for our unitholders.

Dropping to the bottom half of the slide, the Golar LNG Limited fleet -- of course, the Golar Hilli targeted for FLNG conversion, which we'll talk a little bit about later, that vessel should be delivered to the yard in the near term; with the two other first-generation vessels, Gimi and Gandria, still in layup. But, of course, as top candidates for our next conversions for FLNG or FSRU.

The balance -- or the next several vessels, Viking, Arctic, our existing steam turbine vessels, with the Viking trading in the spot market and the Golar Arctic under charter until early next year. And then following that, you see the three newbuild vessels that we've taken delivery of -- the Seal, Celsius, and Crystal -- which are trading on the spot market and increasingly more successfully so.

You see the balance of the deliveries there for the rest of the newbuild carriers that are coming to us. And we are looking forward to taking delivery of those as our fleet modernization and expansion continues. I would like to say that those are the contractual dates that we are showing there for the delivery of those carriers, but there are some discussions around delays to yards -- delays to the delivery from the yard that are ongoing.

These won't be major changes to the deliveries, but some of those vessels may move out into the earlier part of 2015 or later in this year. Of course, we've got still one more FSRU under construction; you see there the Golar Eskimo, which is scheduled to deliver near December 2014 or January 2015.

Turning to slide 12, just discussion about the short-term shipping outlook: I'd say through the second quarter we continued to struggle, although it's somewhat improved with pressure on rates and, maybe more importantly, pressure on utilization of the vessels. This is a situation that was existing across the market and affecting the Golar fleet as well.

I'm pleased to say that in the past couple of months, we've been the beneficiary of a slightly weaker summer LNG cargo market, where we saw spot prices dipping to the $10 to $11 range, which opens up a storage opportunity for traders to store LNG onboard carriers for delivery in Asia during the winter months. Of course, to hold LNG on these vessels for that length of time, you have boil-off as a key consideration. And so our new, modern vessels, with the very low boil-off in relation to the rest of the fleet, were very much in demand.

And as such, we have the current full employment of our newbuild spot vessels that we've taken delivery so far. And as well, the Golar Viking, although it's not on hire at the moment, did fairly well through the summer months, as well.

The other positive element that we're seeing is some new production showing itself. PNG has been exceeding expectations. Some early cargo deliveries happening there, and it's soaking up some vessels. And, of course, we're also focused on the Australian projects that are slated to hopefully get online later this year and through 2015.

However, it's certainly fair to say that the supply/demand fundamentals on the shipping side continue to be challenged. We are, at the same time, in a period of fleet expansion ahead of new production; and also, continued disappointing results in some of the existing LNG production facilities, notably Egypt and Angola.

Our approach has remained the same. We are highly focused on controlling our overall overhead and operating costs. And you can see by our results, we have been successful in doing that. And we are also marketing the inherent advantages of the modern vessels with their high engine efficiencies and low boil-out. And I can report that those kind of dynamics, especially with the vessels that have completed their maiden voyages, are showing to be very popular with charters.

The other big element in our success through this period continues to be and will be our top-tier fleet operations record. Of course, safety, and vetting records, and operational uptime are of paramount importance to us. But, of course, they are also extremely important to LNG charterers, who depend on the quality operations for our fleet.

We have been getting excellent feedback from our key charterers on our technical performance. Our uptime -- meaning technical availability for vessels under contract -- is virtually 100%. Outstanding safety record. And again, our vessel vetting statistics are very high, along with customer satisfaction reports, which we canvas on a regular basis.

Turning to slide 13, the long-term shipping outlook continues to be very positive. Obviously this is driven by new production, as mentioned, in Australia; and falling behind that, the United States; and falling behind that, Eastern Africa.

We also expect floating LNG to have an impact on the shipping market going forward. And what you are beginning to see, as we are showing here with the graphics on the right-hand side, is that with the relatively quiet order book and current short-term market in a bit of the doldrums, that the capacity of the yards to keep up with the embedded demand that we're seeing coming for vessel carriers is starting to look very tight.

So those factors combined point to a fairly rosy recovery for owners with existing tonnage that are available to put into this kind of market as it recovers. We are showing here that it looks like in the later part of the decade, early part of next decade, you could require in excess of 50 carriers a year.

The yard capacity historically has only shown one year where more than 50 carriers were delivered in any one year. So, again, the combination of factors here are pointing to a strong recovery. And we are very optimistic about how these assets will perform as investments going forward.

Turning to slide 14 on our FSRU business -- of course, I mentioned earlier the construction of the Golar Eskimo is continuing on schedule. That vessel is committed to Jordan under a 10-year contract which will begin in 2015. Of course, it's a good candidate for drop-down to the GMLP. And as Brian mentioned, that will likely trigger the upper range of the IDRs for GLNG.

Of course, our last FSRU, the Golar Tundra will deliver ex-yard at the end of 2015. I will say --and that vessel is not committed to any project as of yet, although we have some good leads. I would say that the product availability of FSRUs at the moment compared to historical is at a relatively high level.

Our information tells us that there's likely eight to nine FSRUs available in the market today. Four or five of those are of the modern newbuild variety, so the competition for the firm FSRU projects will be slightly higher than it has been in the past.

However, we still like the space very much. There is still not a large number of owners who are playing in this area, and certainly fewer -- a smaller number that can show a credible operating track record.

What we're seeing in the market now, as oil prices maintain high and oil products maintain high levels, that new gas-to-power projects -- either power-plant conversions or brand-new power plants -- are cropping up with projects where FSRUs are a key part of the supply. These are in Africa, Central America, and Caribbean.

And I believe our willingness to work with those kind of projects with a gas-to-power chain has made us an attractive partner for some of those projects going forward -- an example being Ghana, where we have come through a competitive process to be the exclusive provider of an FSRU for that project, which is a power-led deal. And our willingness to embed ourselves in the gas-to-power commodity chain, I believe, was a big factor in why we've been chosen to support that project.

Over to slide 15 and an update on our FLNG project, an exciting new line of our business. At the very end of the second quarter, early third-quarter we executed the contracts for the conversion of the Hilli into an FLNG vessel. We will be building our max design vessel -- four-train vessel for a total capacity of 2.3 million to 2.8 million tonnes per annum.

And that range is there not because it's a different kit, but because depending on the ambient conditions in which the vessel is operating in, you get that kind of variation in the capacity of the unit. The main contract was with a couple of shipyards with a sub for the liquefaction topsides for Black & Veatch. We are very excited about the partnership with those two companies, with their proven track records in their roles on this project.

We announced at the time as well that we have options for two further conversion vessels which trigger in 6 and 12 months from the date of the original contract. So the project really has kicked off in earnest. Of course, we are taking a similar execution path that we have with our various successful FSRU projects, which generally come in very much in line with budget and timing.

The same -- of course, we have used Keppel for some of those FSRU projects, so we are very comfortable working there. And our project team internally in Golar has a lot of the same individuals that have successfully delivered the FSRU projects.

The focus at the moment is on key long-lead procurement items, where we've had confirmation of pricing and delivery that matches up with our forecast. So budget and timing of the project is still on track.

Two of the key items -- the cold box and the refrigerant compressor package -- we expect to award those early in this quarter, later on in this quarter. The project management team within Golar is coming together quite well. The main positions have been filled with excellent people with great track records. Later this month we will be delivering the Hilli to the shipyard in Singapore to begin the ship preparation for the FLNG units.

Turning to slide 16, the projects for our first and subsequent FLNG projects: we continue to be very happy with how these projects are proceeding. Of course, every project has a long list of commercial agreements and government approvals and such that have to go along, but we are making very good progress. And we are satisfied about the prospects for the first FLNG vessel and certainly subsequent vessels as well.

Our focus continues to be for the near-term projects in West Africa and Americas. And just some advice that we'd like to give, looking at the most promising early days projects, most notably in West Africa, where we would be looking at projects that may not fill the FLNG capacity of the initial vessel, the four-train vessel, completely.

Possibly we would be willing to commit to projects with 50% utilization to ensure that we keep the fast-track nature of the project. And we are quite happy to do that. We believe in all of these areas that we are working, the growth prospects for the vessel -- especially as soon as the project goes firm, and people see the vessel is going to be there and operating -- that the utilization of these vessels will be very high in short order.

We continue to believe that the US-based projects that have a towing structure are setting the market for what should be paid with that kind of service, and we believe that our projects will fall in line with that kind of pricing levels. We, at the same time, are always looking to increase our project funnel.

There's certainly a situation and an environment in East Africa and Southeast Asia where there's opportunities to deploy our vessel, and we are expanding our focus to start developing projects there. So all in all we have a high confidence that we'll reach FID on our first location in good time so that the ship delivering from the yard in Singapore will go straight into service.

Additionally, as we mentioned in our press release, although it's very early stages, we have begun discussions pointed at creating alliance to acquire and develop stranded gas reserves. We believe this is supportive of our overall FLNG strategy, as it will ensure that we are able to deploy our FLNG vessels at the pace that we would like to achieve our ultimate size of this business. Once again, these are very early days' discussions. There's no near-term announcements coming on that, but we believe this is a good chance to be part of our forward strategy on FLNG in our full integrated midstream strategy.

So turning to slide 17 to wrap up, again, the short-term shipping situation -- the LNG pricing contango has been supportive of the fleet utilization. And thus the results showing in Q3 should show some minor uptick from Q2. However, the bottom line is that the supply/demand fundamentals will remain challenging for the next year or year and a half, especially on utilization.

We will keep our focus on cost efficiency in our top-tier fleet operation performance and try to keep that utilization as high as we can going forward. Long-term, we continue to be very optimistic about the shipping side of our business, particularly with the new production coming on; and, notably, with our own floating LNG projects making self-generated opportunities to deploy the LNG carriers into long-term business.

The Golar Eskimo, next in line for our FSRU franchise, coming to Jordan in the early part of next year; and then the Golar Tundra on the market potentially into Ghana, but potentially into some of the other projects that we are working on. We have launched and hopefully put a lot of momentum behind our first floating LNG vessel. The yard delivery for that is February 2017, and we reiterate that we have high confidence that that vessel will go straight into operation at the first location that we secure.

Once again, the typical project or initial commitment of gas to our FLNG projects -- we are giving guidance that could see utilization of around 50% as the initial commitment, but we would hope to grow that over time, and fairly optimistic about it. We have high confidence of closing that first transaction for commercial operation within the next year or so, in plenty of time to have direct yard delivery of the FLNG unit.

That completes the summary and outlook. Moderator, I'll turn it back over to you for the Q&A session.

(Operator Instructions) Jon Chappell, Evercore.

Doug, I wanted to ask -- or Brian -- about the economics of the West African project, if we think about maybe using only two to three trains. The last presentation you gave had some cost parameters and some return parameters around it. So if my memory serves me correct, about $1.2 billion of all-in costs; $900 million for the actual asset; and then $300 million to kind of get it up and running; and about $350 million to $400 million in EBITDA.

So do you simply just, say, if you are only running two trains, the EBITDA in the return criteria is cut in half? Or how do the economics work around less than full utilization?

I think that's generally right, Jon. The bottom line is we could have -- as we've seen some of these plays where the deliverability of the specific fields that we are looking to produce from don't fill up the vessel completely, we had a decision either to go for a smaller vessel and put less liquefaction facility on it, or build the largest possible that we have on our design.

And when you look at the economic efficiency of adding the third and fourth train onto the vessel, it becomes a bit of a no-brainer decision, especially when you see the quantity and quality of opportunities to fully utilize the vessel. So the commitment to a project that doesn't fully utilize the vessel, again, dividing by two is approximately right. Although in West Africa, with the value of the gas that we can achieve and the resultant FOB price on the market looks pretty attractive, so we would be exposed to the value of an upside on the margins achieved by that LNG over and above our kind of all-in FOB cost.

So dividing by two is quite conservative. Not a bad way to model the first one until we put the pieces together and could give more firm guidance on how it looks. But, again, we would assume that the utilization of that vessel would in pretty near-term go to 100%.

Okay. The other question I had regarding the economics was in the press release -- you didn't say anything in the presentation, but there was talk about potentially giving some direct equity participation to some of the vendors. Could you just talk about the thought process behind that?

And does that change any of the math, as well? And I guess as a third part to that question, if you don't have 100% equity ownership, and if there is an outside vendor, does that change the ability to drop an asset down to the MLP?

Well, the answer to that last part is: it has no impact on the ability to drop down to the MLP, but to the extent that we are a less-than-100% owner of the asset, then less than 100% of the revenue, if you will, will would be dropped down into the MLP.

However, the other -- the MLP, logically, would be willing to purchase 100% of the MLP, even though the parent doesn't own it all. So you could assume that that would happen depending on the desire of the other equity owners.

I think we've signaled this or talked about this equity participation in the past. There's two sources of that equity. One which we are talking about is key vendors that we would like to have along with us in the ownership of the vessel; or the other type of equity holder could be, for example, an LNG offtaker who prefers to have a small slice of equity in the facility that he's going to be offtaking from.

I wouldn't say that those are large slices of equity. We talked about 10% on the first vessel for key vendors, and it might be a similar level for offtakers or producer partners that we would have in the project. So we would still look -- especially in projects that are just one-off vessels, we would look to hold vast majority of the equity.

The logic behind having the vendors in is that although we are extremely confident about Keppel's ability to deliver Black & Veatch and all the sub-vendors there to deliver a product that will be reliable, the fact of the matter is to LNG buyers or gas producers, this is effectively a new product. And so if we can show the confidence of the equipment vendors to come in and their confidence that the unit is going to work properly and be on time, then that's a good selling point for us. So that's really what's behind that.

Okay. One last quick one, and then I'll turn it over, just on the timing of the options. Is it still kind of every six months you would imagine them to come out? Or has that changed at all?

And, then, also you had mentioned in the press release the capabilities of Keppel and Black & Veatch to potentially deliver four to five units before any competitors enter the market in a serious way. Given there's only three ships for conversion, would you look to create newbuilds, then, for four and five, if you were to go that route? I know it's a long time away.

That's right. I mean, the options are structured for 6 months and 12 months from the original agreement date. And, yes, we are comfortable with that. And that would be a good kind of timing for the next couple of vessels. So long as we are doing conversion FLNG units, which we expect to be for some time, and it is what giving us our timing advantage, availability of this class of vessel to do a conversion with is not a constraint on our business, even though we currently only own three of them.

All right. That make sense. Thanks a lot.

Herman Hildan, RS Platou Markets.

Just a follow-up question in terms of the initial commitment of 50%. Is the thought that you will grow that from, call it, 50% to 100% post-delivery or prior to delivery?

Well, I think the answer is: as soon as we can. But I guess what we are signaling is that these projects may come in packages of reserves that a specific reserve may not fill up the full four trains. And this is a signal about how we are able to keep projects on a fast track and get a commitment to go ahead with the firm project as early as possible, more than anything.

If the initial quantity of gas deliverability fills up 50%, what we are saying is that we will commit to a project on that basis as long as the rest of the economics and the government approvals come with no noise around it and such. We will commit to a project based on that.

And then following that, we will get to work on filling up the vessel. If it comes post-delivery or pre-delivery, that's hard to say. We would in that situation be giving guidance on how we are progressing with filling up the unit. But if that is the style of project that we are going for initially, we'll be focused on closing that first, making sure it's firm on the ground and on path to a successful completion and then working on the next volumes after.

Thank you. And also you mentioned in your report that you expect to sign a contract for the first asset before year-end. Could you give some details on the field that you will be producing on? How large is it going to be?

Those kind of details we are not releasing at this point, Herman. What we were are optimistic about is getting commercial agreements firmly in place with the holder of gas reserves by the year-end. We suspect there may be some government approvals and agreements with governments that leak out into 2015. So a fully firm project following the receipt of those government approvals.

Okay. And also you have been referring to the US tolling market as a benchmark for where you price your services, though the recent contracts in the US have been between $3.00 to $3.50 per million BTU. It sounds like you are going to target some kind of 5- to 10-year contracts. Where would you say the price for tolling is in the US market if you have the 5- to 10-year contracts?

That's a good question. The use of the US tolling market -- of course, those $3.00 to $3.50 are included in assumption of everything from shipping distance to Asia -- so you'd have to compare netbacks to revised price accordingly. The key one I think -- well, what I would take from your question is that the 20-year nature of those tolling agreements certainly penalizes them somewhat, because everyone knows that the gas, the oil spread that's being capitalized on here is very visible in the near term and not so visible as you go further out.

So there's some potential value, a premium there, in being able to lock down shorter-term contracts. And we will take advantage of that. So the structure that we will enter into, if we do a project like this with shorter-term or lower utilization in, say, West Africa, we would maintain ability to expose ourselves to that kind of premium that we can get from a better location or a premium people are attaching to shorter-term contracts.

How large is a premium? If you take kind of the lower end of the US 20-year market, would you add 50% to that, or 30%, or --?

I don't think we can give you a number, Herman. We have some assumptions, but until we play this thing out -- the way this is going to go is that we need to tie down firm agreements with the relevant gas producer and get comfort from the relevant government that the project is firm.

When we have all those pieces together, and we can show our vessel under construction, then we'll go out and test that market in a more formal way, rather than the kind of soundings we're doing now, which kind of informs where we think we are going to be. But I don't think we are ready to give you guidance on that till we come out more in the open with a specific project, and we are marketing those volumes specifically, and we can see what the market will bear.

Okay. My next question: I think you mentioned that you expect to secure about 60% leverage from construction costs. Is that correct?

I think, certainly, the proposals that we are seeing mean that we can probably -- yes, we can probably achieve around that number. Obviously, once all of the commercial agreements are in place and the government permits and so on can be announced, we would expect leverage on the unit to be higher than 50%. But the initial objective is to get to around 60% and try to push for higher from that.

So I saw Exmar managed to get 80% from their first barge in Colombia. That's a realistic achievement after you have finalized the commercial agreements?

It's all going to be very much dependent on, as I said, the commercial agreements. I think, as I said, our base case is to try and push as much as possible. But we need to be realistic.

And given that we don't know all of the items to be financed yet, we've been able to achieve quite good financings on vessels that -- without charter. So we would expect similar sort of economics for our first floating liquefaction.

And final question before I turn it over. In the discussions that you had on the ENARSA project, has their LNG carriers been the part to that discussion to provide vessels for transportation in addition to the production of the cargoes?

Always. Always.

So should we expect that you sign up, say, three vessels, which I think you guided on that marine money for FLNG?

The fact of the matter is there is some dependence on the structure of how the offtake works. So if we get into a project that we are selling DES, then automatically it's Golar vessels coming into that. If we are selling cargoes FOB, it's more of a privileged position to try and make sure it's Golar vessels that get utilized. But there will be nothing other than whatever the prevailing market rate is.

It's just that we have some influence to try and make sure that there are Golar vessels available there. For the time frame we are talking about, as well, they are just -- if we are starting up in 2017, we are very optimistic about the value that companies will place on volumes coming on-stream in 2017.

But we are equally as optimistic about our ability to offer vessels that are available for service in 2017, because that is looking quite tight at the moment. So it's just another advantage that we have with the way we are set up and managing the newbuild fleet.

Okay. And I have to ask one more question. You had a bullet point as well in your presentation about potentially partnering up with someone to acquire stranded gas assets. Does this mean that Golar will have a value driver in the future from the upstream part of the business in addition to the midstream? How should we think about that?

I think how that gets valued is a separate question. But I think the bottom line here, and why we would think about doing that, is that the availability of stranded gas reserves is also not a constraint on this business. But in order to get the velocity of the deployment of our vessels the way we are envisioning it, we believe that a supportive step to take would be to partner up with upstream expertise of a company that has a similar DNA to ours, is looking for fast growth opportunities, and that we in some ways control our own destiny even more on this business plan by ensuring that reserves that are attractive to go into an LNG play or a floating LNG play get the pace of capital investment that they need to get developed so that they can go into the midstream part of the chain, which is Golar LNG's focus.

Okay. And what kind of cost is that if you buy a stranded gas field? Is that more, call it, for number four and five? Or where in your growth plan do you have that addition to the business coming in?

Well, that's very dependent on if the field has -- how many development wells have been drilled already in the field? Or is it just one exploration well? It's totally dependent on what the status of the field is.

But I can tell you that the reserves will be, to buy, a lot less expensive now than when Golar's FLNG business is fully established with multiple vessels out there and people see that. Those reserves are certainly going to cost a lot more at that time to buy.

Okay. Thank you very much.

Michael Webber, Wells Fargo.

Just a couple of questions on FLNG, and I'll hop off of it. But I wanted to touch again on the 50% utilization you guys referenced on slide 14 and some of the earlier questions.

It seems to us the field that you are looking at -- they are all fields that are large enough to support 2.5 to 3 mpta (sic - mtpa). When you are referencing 50% utilization or smaller parcels of gas, what's the major sticking point there? Is it going to be government approval for exploiting that gas? What's typically the biggest part of friction that would drive that lower commitment in terms of utilization?

It's one of two things, neither of which we believe are necessarily negative. But it's either that the counterparty that is ready to go firm the quickest has a reserve or a field that would only result in 50% utilization, or it could be -- as you reference -- a government isn't ready to consider further exports at a level that's greater than the 50% utilization that we're referencing.

But bear in mind that the reason we are comfortable in that situation is, one, it does play to our strength in the scalability of the opportunities we are able to transact on and get these fast-track projects going as soon as possible. But, also, we are not looking at any locations where there isn't really good growth potential and every reason to believe that there's enough gas to fill up the unit.

So it's usually -- it's just something structural in there, where we could either wait to close the deal and get the full utilization; or go now and close it with pretty good economics and lots of upside. That's the latter that we are choosing to do.

Great. Along those points, to what degree can you kind of lever to the risk that you are taking there and committing the 50% utilization to grabbing other, additional equity participation in the project or an offtake? How much incremental upside do you think you can really garner by kind of capitalizing on the risk that you are taking there?

Do you mean improved unit economics on the other two trains?

Yes, and/or degree of participation in offtake, or just more leverage in driving a larger equity participation in the project?

Yes. I'm not sure how the equity participation thing plays into it. But to us, the two trains that are available on the first ship are similar to the upside that we see in the whole rest of the program. There's a huge value in our minds to getting a first project going as soon as possible and getting the industry comfortable with the -- or having the industry see that other industry participants are comfortable with the commercial terms and the technology that we are employing.

So it just happens that those two trains are probably the most marketable. So you could see getting some upside to that. Again, as I had said, for that kind of project, it's very likely that we would maintain an exposure to any upside that offtakers or gas producers put in the existence of that capacity. So we are not locking ourselves down in any way to any specific toll, or level, or whatever for those.

I don't want to say that it's -- you know, we expect to do better on those two trains than the first train. That's hard to say. But we think they are going to be very marketable.

Okay. That makes sense. I just wanted to shift gears from FLNG. Actually, but before we do that, I wanted to come back to the timeline. And you referenced FID -- does that allow for a mid-2017 start-up? If we really kind of zero in on the data point timeline here and think about a binding MOU and/or announcements around who would come in and secure offtake, for at least, I guess, the first two trains, how do you see that playing out over the next 12 to 18 months? Is it a scenario where we could see a binding MOU sometime this winter and then offtake agreements, kind of followed by the formalized commercial agreement, kind of Q2 2015? Is that pretty fair?

Yes. The timeline we are shooting for -- and this industry, as we have all seen, can be prone to a bit slower movement than we would always like. But the steps in this process are to lock down the arrangements with the relevant gas producer.

And I would say when that happens, there would likely be some kind of announcement, because following that we would be moving into a phase where we are finalizing approvals and whatever fiscal agreements are required with the relevant government bodies. And so I would say us entering into that phase -- i.e., firming things up the gas producer -- and into this government phase for the end of this year, and then those negotiations going on into 2015. But generally, for the locations that we are looking at, if we have an FID in committing the project two years in advance, then we would be in good shape to have a location ready for the vessel coming out of the yard on the current timing.

That's helpful. And then just one more related to both the dividend and the balance sheet. You referenced on, I guess, slide 10 kind of extensive stress testing of the balance sheet. And I'm just curious as to whether or not that stress testing included maintaining the current dividend through the delivery of your first project?

Obviously, you are better capitalized now than you were in, say, March. And then how should we think about that dividend in general, as you guys are seeing some significant capital outlays with these projects?

Yes. So the way we have approached this stress test, Mike, is to -- as I mentioned, so that there are no revenues with the vessels unless the revenue or the charge is already known. The current level of dividend is maintained route throughout.

Obviously, there is going to be full OpEx in those vessels as they become delivered. We hadn't factored in any significant growth from the partnership, apart from, obviously, the Eskimo at some point in 2015.

And so where that takes us is sort of obviously given the strong liquidity position that we have today through 2014/2015, well into 2016 -- so I guess the intention of the Board is to maintain that where possible. Of course, the growth of those dividends is uncertain. And I think we will only see a bit more transparency on those as we get into 2016 and see the improvement in the shipping, and ultimately the introduction of the FLNG projects into the Company.

Just to add, it's a stress test; it's not a target, or it's not a signal of an expectation of anything. It's just a scenario that we use to be very conservative, to make sure we keep discipline on our balance sheet and our cash position.

We don't expect the earnings to be that bad. We can't assure that dividends are at any given level going forward. But it's just a test we use to maintain discipline on our balance sheet. And we think it's positive for investors.

Fair enough. Great. That's all I've got, guys. Thanks for the time.

Ben Nolan, Stifel.

I guess my first question has to do with the Tundra and the situation that you guys have in Ghana. How should we think about that as it relates to when you would expect something to be firm? Or when do you stop marketing that vessel for other projects? It's sort of an interesting dynamic, where it's committed but not really committed. How do you think about how that plays out, I guess?

Well, the FSRU market is getting a lot more mature in terms of how long it takes from the beginning to the end of a process. You know, there's certain deals out there that are ticking along that could go firm right away.

If someone wants the Tundra and they can go firm, we're fully free to charter that vessel to that party. These IPP or gas-to-power deals, which I think we are going to see more and more of. As people again to try and take advantage of extremely expensive oil-fired power and increasing environmental clampdown in various markets, I think we're going to see more and more of these.

And they take a lot more structuring to put together. So a would-be developer of something like this has to put -- has a lot of pieces of the puzzle to make work in order to go firm. LNG supply through the FSRU downstream piping infrastructure and, of course, the key contracts with power producers.

So we're quite happy to work with developers of this kind and support them where they commit to us. But everyone is aware that all of those pieces have to come together before they can actually commit to the FSRU. And until that day comes, we aren't committed.

We are fully supportive of that project. We very much like the looks of it, or we wouldn't put our name on it; but it has a long ways to go. And, of course, with a prompt vessel like this, where we are committed to the capital, we can't be tied to a project that isn't completely firm.

So we are supporting it. We are hopeful it will go ahead, but we will continue to put the Tundra into other projects. And there's other similar gas-to-power projects that we are looking at for the same vessel. Maybe not as far advanced as that one, but that's how we think about the Tundra in Ghana.

Okay. And any idea when you would expect something? Should this particular project go forward, any idea what the timeline is for a firm commitment there?

Well, they are shooting for -- I believe in their press release, they talked about an end-of-the-year FID. So you might handicap that a little bit and put it out into 2015.

The actual infrastructure that has to be built at the location is fairly minimal. So even with that kind of timing on a project commitment, they could be ready so that effectively the Tundra will go from the yard, and maybe with a couple of months of open time, straight into that project. As I say, the construction timeline for the facility in Ghana is quite low.

Okay. And then moving on to the FSRU -- or, sorry, the FLNG market: obviously, what you are marketing requires dry, relatively clean gas. When you think about that dynamic, are you sort of targeting areas where the inherent gases are either very dry and clean, or are you also marrying it into projects where there may be some shore-based processing capacity or something else? Is it at all limiting with respect to what your capabilities are? Or are there other workarounds?

It could very well be that on many of our projects there will be an associated LPG extraction process going on and marketing of those liquids or those products. It likely won't be us doing it.

It's fine by us if there's a project that has additional processing requirements, but those additional processing requirements -- we have to be convinced that they are economic for our counterparty to move ahead with them, that they can be implemented on a timeline to meet delivery of our vessel.

So especially with the heavier hydrocarbons, which tends to be -- if you've got a certain amount of product there, and you have got a decent percentage of heavier hydrocarbons, it's unlikely that that will be the constraint on a project moving forward, because those hydrocarbons are valuable.

Again, we do have the ability, if there isn't an extraction, to take some level of those products through the process up to a limit. The more concerning one can be if you have a lot of -- if it's a sour gas situation with H2S and CO2, which -- you know, we would have to be convinced that someone has a solution for those offshore before we would engage with a project like that.

Okay. So is it fair to assume that at least for the initial series of projects, there wouldn't be anything of that sort? It would be pretty straightforward dry gas situations?

Well, I'll say we are pretty -- 100% of the projects we are working on have clean gas. And many of the products we are working on have dry gas.

I mean, if you look at the fields running down the entire West Coast -- offshore West Coast, Africa, you will find a pretty rosy picture in terms of the number of fields that fit the criteria. And then, of course, if you are in the Americas, you have a situation where the domestic infrastructure takes care of that for you as well.

And then sort of going back to the situation where you are talking about potentially partnering with an E&P to develop new projects, how would you handicap that in terms of where your priorities lie? I mean, is that something that -- I know you mentioned that it's a situation where the sooner that you can implement it, the better, in terms of the relative economics before a lot of your FLNG units come to the market. But is that something that we should expect significant progress to be made on in the next, call it, 6 months or 12 months?

Well, I think we are testing the waters now is the best way I would describe it. It's an idea that we've had for some time. We aren't hinging our entire strategy on it. We will have to find the right type of partner that has the right approach to -- and desire and sort of vision for the business that we do.

So I have trouble handicapping it. It's -- on the list of priorities, I guess it doesn't really rank up with making sure that our first deal gets closed in the near term and we get going on our second and third deal. So, unfortunately, I don't have a really good answer for you in terms of when you can expect something further on that one.

That's completely understandable. Have you had some of those discussions to this point, though, with counterparties on the E&P side?

Yes.

All right. Well, very helpful. That does it for my questions. Thanks a lot, guys.

Fotis Giannakoulis, Morgan Stanley.

I understand that you put great importance on the signing of this first deal, and you have guided for this first deal there are going to be -- for two trains. How good of an indication is this first deal about the economics and the commercial and technical viability of this project?

I'm trying to understand if this first deal will be followed before the delivery of the FLNG by a second agreement -- commercial agreement for the remaining trains? At least there is another field very close to this first deal that you are discussing about that can absorb the entire vessel prior to the delivery of the LNG?

Yes. As I was saying earlier, Fotis, there's a few things. One, none of the projects that we're looking at are limited in terms of the existence of enough quantity of gas to fill up the vessel completely in the general area where the vessel is being deployed. So that's one.

Two is: I can't really handicap for you if the vessel will be fully utilized prior to -- or commitments to be fully utilized prior to delivery from the yard or after. As I said, especially in a West African context, where you have multiple gas reserve fields, none of which may be able on their own to fill up the entire vessel, we have a choice -- and this is why we are talking about this -- we have a choice to move now with the initial holder of reserves, who is ready to go; and there is a government who seems to be ready to support the export of those products.

And that quantity is, for example, 50% of the utilization of the vessel. We could wait and try to uber up some more reserves and try to go for the biggest thing possible; but then we'd be making the same error that the LNG industry, we believe, has been making for decades in trying to make -- only do the biggest projects possible. And, thus, you wait years and years for them to go ahead.

We believe the economics, even of a two-train project, are attractive. In fact, they are quite good. And so we see no reason to pull back from committing to that with a firm commitment to bring the vessel to that location in order to fully utilize the whole ship.

Thank you. Thank you, Doug. And regarding the delivery of the vessel, the technical risk about the project, I understand that in the past you have completely dismissed this risk. But just in case there is any delay, who is taking this risk? Or something goes wrong? Is this something that Keppel has guaranteed the timing? Is there any penalty related to any potential display of the vessel that Keppel has agreed to compensate you for?

I can't get into details of what we had agreed with Keppel, as that's not fair to Keppel. But what I would say is that the contract that we have with Keppel has fairly standard EPC-type risks in terms of allocation of being late, for example, between the owner and contractor. So I would just say it's in the best interest of Keppel to have the vessel delivered on time.

Okay. That's very clear. Thank you. In terms of this first contract, does this mean that if you sign the first contract for the first two trains, you will be willing to move forward with ordering a second vessel? In your press release you talked about four to five -- your ability to deliver four to five FLNG before your competition. What makes you feel that confident that you can be so far ahead of your competition? Are there any barriers, or what is the competitive advantage that you have and you can move so far ahead?

First question -- I think it's when we commit to this first project, if it's two trains or four trains, or whatever it is, that kind of commitment would lead us to be very positively disposed to pulling the trigger on the second vessel.

The competitive advantage we have is on two fronts, both of which the LNG industry is fairly good at being slow at. One is we are building the vessel with equity financing. Short of having to wait for full agreements and all the usual project finance things that go on, nonrecourse project finance discussions -- so that saves us a lot of time.

Also, showing that vessel to be ready speeds up gas producers to meet our timeline in order that they could be recipient of the value of associating with the vessel. So that puts a tremendous pace on our development.

The second thing is that we are putting that financing against the vessel that we have completed a feed for that can be used multiple times. So the typical project timeline, which may -- if you went to try and build Prelude now or some other similar vessel, even from the time that you initiated construction on that, delivery timelines from a newbuild might be 48 months; and preceding that would be a year to a year and a half of pre-feed and feed.

So that gives us kind of a -- it's, what, 5, 5 1/2, 6 years, if someone was starting today in the traditional fashion to implement the project. We don't see anybody doing it differently besides ourselves.

So in that timeline we have the capacity to build that number of projects. And we also see that the economic proposition here for accessing well priced gas and getting it to high-value LNG markets is very good. So that's the basis of that statement.

Thank you. I understand that if I interpret well, what you are saying is that the first agreement or first vessel could mean right away four or five vessels. The first part of this question is: it seems that you have raised enough equity for more than one vessel, given what Brian mentioned earlier. What was the reason of raising so much equity? If you go through multiple projects, what would be the approximate equity financing that you are considering?

And the second part is that -- are there any thoughts about, except of this West African projects, looking for the US market? Have you been in discussion about any US-based project that could potentially absorb multiple vessels rather than one or two?

I'll let Brian talk about the equity and all that. But just to touch on the second part of your question, yes, we are looking at projects in the Americas, including the US. Those a different situation than, say, a West African context, whereby if you can make your way through, for the US example, a FERC and a DOE authorization process, you are likely going to have really good running room.

The difference is it takes a lot longer to get to that point, which is why those are just projects that are slower to come along. But nobody is going to ask for a permit for one vessel in the Americas kind of context.

And on the equity portion that you mentioned is now, Fotis. I mean, the one aim of raising that much equity is, as Doug highlighted earlier, we have a timeline that we are trying to achieve to make sure that the vessel does come out, and it will have an employment when it does come out -- which means that we couldn't really have one of the constraints of a timely delivery as financing.

So what we wanted to do is raise sufficient funds to be able to continue the conversion process without delay up to the end of 2015. Of course in previous meetings we have said that we will look to have a firm sites for the FLNG by the end of 2015.

Of course, having achieved that, that lends itself to a much more efficient way of financing the vessel. To answer your question, we raised that much money in order that we can have the conversion uninterrupted, in order that we can have the FLNG delivered around Q1 2017, and in order that we can make efficient any debt financing that we will expect to put into place, having then achieved a commercial FID on the first conversion.

If you are talking about something large, potential of more than three vessels, you have right now three conversion candidates. What is the plan for the additional vessels? Are you going to be buying from the secondhand market older Moss-type vessels? Or there is a thought of potentially building a newbuilding liquefaction trending along the same lines?

I'll answer that question. Just for the moderator and Fotis, we've got our affiliated company coming up with their earnings call in about eight minutes, so I'm going to have to answer this one and end off the Q&A.

But, Fotis, if you look at the carrier market, and what's happening with the newbuild vessels coming along, and the efficiency upgrade compared to the first-generation vessels, there's obviously going to be a lot of those vessels available. So for conversion candidates, yes, obviously the secondhand or the acquisition of other vessels would be at the heart of our strategy there.

Also, I think as you -- if you look out in time, you go far enough out, the FLNG units -- FSRUs, the conversions were working very well fast-tracked. But smaller units, older vessels, and then eventually the newbuild yards started to catch up. Now you can contract for a newbuild FSRU very effectively.

Eventually you could argue that the FLNG units will go the same direction. They would have to go a long ways before we would participate in that approach, but those days will -- that eventually the market will evolve to a similar situation. Moderator, I think we are going to have to --

Thank you very much.

Thanks, Fotis. Do you want to just wrap up?

I think that ends the presentation session for Golar LNG's results for the second quarter. Thank you again for your participation in this webcast, and we look forward to sharing with you our Q3 results in three months' time. Thank you and goodbye.

That will conclude today's conference. Thank you for your participation and have a good day.