Golar LNG Ltd (GLNG) 2016 Q1 法說會逐字稿

Good day and welcome to the Q1 2016 Golar LNG Limited 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, sir.

Thank you and hello, everyone. Welcome to Golar LNG's first-quarter 2016 quarter results presentation. My name is Brian Tienzo. As per usual, I'll be taking you through the first quarter's highlights, as well as the financial highlights. I'm joined here today by our new CEO, Oscar Spieler, who will take you through the business update, the summary and the outlook section.

To start off with, let's turn to page 3 of the presentation. EBITDA for the quarter is a disappointing loss of $21.7 million, compared to [Q] loss of $12 million, as a result of a continuing weak LNG shipping market. During the more recently, and in April -- sorry, in May -- we concluded the dropdown of the Golar Tundra to Golar Partners, altogether releasing $100 million during the second quarter. In addition to that, we also concluded the Golar Seal refinancing in Q1.

During the quarter, we entered into an [MOU] with Schlumberger to cooperate globally in the development of greenfield, brownfield and stranded gas reserves, using GoFLNG vessels. We now have an ongoing marketing strategy with Schlumberger where literature is available and has been made public. In Q1, the Golar Arctic was chartered to New Fortress Energy for two years FSU service for Jamaica. We also appointed our new director to the Board, Ms. Laurie Wheeler, and she will also be the audit committee chairperson going forward.

We executed a framework agreement with Exxon Mobil for supply of LNG to Brazilian power projects under development by Golar GenPower. Golar FLNG Hilli conversion progresses well and is going according to schedule and remains on budget, and as per their press release, it is now one of the main priorities -- main priority of the Company. We continue the dividend of $0.05 per share for the quarter.

Turning over now to page 4 to go through the financial highlights. Net revenue net of voyager expenses for 1Q FY16 was $5.4 million, compared to net revenue in 4Q of $11.5 million. As already announced, LNG shipping remains difficult. The main decrease in net revenues can be attributed to lower utilization of [pew] vessels, the Celsius, Ice, Kelvin, Seal and Snow, and also lower rates and eventual the redelivery of Frost and Crystal. These were partially offset by some vessels which have contributed to the quarter which didn't contribute in Q4, namely the Bear and the Penguin, which were partly utilized during the quarter. The core pool of vessels contributed approximately $4 million in net revenues during the quarter.

As a result of fewer cargoes happening during the quarter, utilization rates decreased from 42% in 4Q to 24% this quarter. The number of fixtures during 1Q was pretty low, at around 8. In contrast, the number of firm fixtures in 2Q so far is 20. This is an improvement, but we are cautiously optimistic, but we retain the view that we will see some further improvements during the second half this year.

Direct operating cost of the ships increased to $15.6 million from last quarter's $13.4 million, primarily due to the Tundra incurring a full quarter of operating costs following its redelivery in November, 2015. Also, Golar Arctic incurred higher [upstoring] and repairs and maintenance costs in preparation for its charter with Fortress. These were partially offset by improved normal daily operating costs for most of the vessels, which averaged approximately $9,600, compared to $10,000 a day in 4Q. Administration costs for 1Q at $11.6 million is higher compared to $10.1 million in 4Q FY15, mainly due to increased project activities.

Net financial expenses for the quarter amounted to $36 million. Of this, approximately $9.6 million represents net interest charges, which is higher than 4Q of $7.4 million, and this is primarily due to adjustments in respect of sale and leaseback interest charges relating to the VIEs we consolidate from the various [little] companies we have involvement with. This was partially offset by higher deemed interest, due to an adjustment in respect of the Hilli project.

Other financial items for the quarter is predominantly through the mark-to-market losses of interest rate swaps that's amounted to $23.4 million following lower medium to long-term rates, unhedged swaps of $33.1 million, amortization of deferred charges of approximately $4.4 million, and so on. All of these were offset somewhat by non-cash gain of $11.1 million from positive mark-to-market movements in our total return swaps.

Turning over to page 5. Cash and cash equivalents as of end of March was approximately $93 million. Liquidity was improved during the quarter by the conclusion of the refinancing of Golar Seal, which [leaves] approximately $49 million to the balance sheet, which that number is net of fees and advanced debt repayments.

There was a reclassification of certain amounts related to Cameroon project from short-term restricted to long-term restricted cash. This decision has been taken consciously, as we continue to discuss with the guarantee provider how best to release some of the cash collateral sitting in that account.

And the balances sitting in other current assets, including assets held for sale and other current liabilities, including liabilities held for sale, reflect balances relating to Golar Tundra. The FSRU, as you know, was, at the end of March, due for dropdown to Golar LNG Partners and, as such, had to be treated as current.

Assets under development represent our expenditure under GoFLNG Hilli conversion. And as of March, we had spent approximately $572 million. That project is our biggest capital expenditure obligation, but that is, of course, fully funded now and to date, we have drawn approximately $150 million from the facility.

The current portion of long-term debt of approximately $751 million mostly represents balances belonging to various sale and leaseback financings we have entered into. Accounting conventions unfortunately dictate that we consolidate [delenses] on these financings, so whilst we don't have control of how these lenders are financed, we reflect them in our books nevertheless. Of course, the real financial indebtedness of Golar is governed by the financing agreements we have with the banks and we are not obligated to pay anything more than what is reflected under those payment schedules.

Turning over to page 6, to go through liquidity and financing review. It's fair to say the Company's liquidity remains one of the main focus of management and of the Board. Clearly, demands of restricted cash in the balance sheet remains limiting and discussions are ongoing, particularly on that associated with the Cameroon guarantee to find how best to have some of that released as soon as possible. It is therefore pleasing to see a conclusion of the refinancing with the Golar Seal during Q1, and now more recently, the completion of the dropdown of Golar Tundra to MLP in Q2.

In aggregate, those two have contributed approximately $150 million to liquidity recently. Of course, the continuing cash flow from GMLP dividends also provides some support for the Company's operations. As mentioned earlier, the main capital intensive project with the Company under Hilli is fully funded and we have drawn three times from that facility.

There are two financing projects that are just over the horizon which the Company has continued to focus on. One is the convertible bond of $250 million which mature in 2015. We have previously guided investors that we're in discussions with financial institutions to find a balanced solution for this project. However, we take the view that the bonds could be repaid in full on maturity and that the release of the investment in GMLP, which secures the bonds, could be used as security or otherwise to other alternative financings.

Also, we also continue to explore the financing of the second FLNG, the conversion of the Gandrea. However, the resulting financing for this is very much dependent on the counter parties to the project and the eventual economics in the tolling agreement. There is progress in the background of both of these, and the sign from those give us certain optimism that a suitable financing package will be achieved.

Finally, there is in the background good progress being made with third-party investors with regard to restructuring of the Company's FSRU and downstream business. If successful, this will help mitigate losses incurred by ships that are currently in the fleet, as they will become FSA candidates. It will also release liquidity and provide capital to grow these franchises. I'll stop there and now turn the presentation over to previous, and now current again, CEO, Oscar Spieler, to take you through the various business activities and Company outlook.

Thank you, Brian. Let's start on the LNG carriers. But before I start with that, for those who do not know me, I'm not new to Golar. I have been heavily involved in Golar's industry, both the Company back in 2001. I was the CEO from 2009 to 2011, and have since then been heavily involved in all aspects of the technically and commercially in Golar as an advisor to the Board. I've also been very much involved in the development of the Hilli, both commercially and technically. So I'm very familiar with the Company.

Going over to shipping, which is our main challenge of this Company, and the shipping market is at a very low utilization of the world energy [pit], especially the vessels trading in the spot market. We only achieved 24% utilization in Q1, with rates far below our operating cost. We are hopeful that the start of the different LNG plants, like Cheniere, Gorgon and Angola, will increase the demand for shipping. We are not seeing any new building orders for LNG carriers this year, which also will be helping to improve the demand/supply situation.

We believe that the freight market will continue to be weak. Golar will mitigate our exposure to the LNG carrier market by converting as many of our LNG carriers as possible into FSRU, which brings us to the next slide, page number 8.

Golar Tundra is on its way to Ghana and we have carried out some minor modifications in Singapore to meet the charter party requirement. The infrastructure is, as far as we know, not ready; however, we will tender notice of readiness very soon, as per contract.

We have seen that the demand for the FSRUs has increased dramatically over the last year as a function of reduced LNG prices and increased availability of LNG. This, in combination with a decreased time for developing the infrastructure, the fact that Golar has 10 vessels operating, do we want to move away from the very weak freight market, and that Golar is the only FSRU operator who has actually done conversion, we believe that we are in a very good position to dominate this market going forward. The huge potential in this market is clearly demonstrated on the graph on the upper right corner.

When it comes to the Brazilian power project, Golar has an exclusive right to participate 25% in the project and an exclusive right to provide FSRU. The power plant is 1.5 gigavolts with 25-year PPA in Sergipe, northeast region of Brazil. Golar GenPower and a subsidiary of ExxonMobil have agreed, has the terms covering the supply of LNG to the Sergipe project. The development of the turnkey FSE contract and the financing of the project is progressing well. We are looking at alternative ways of financing Golar Power with external parties.

Going over to page number 9, on the GoFLNG. I assume most of you are familiar with the Perenco project, which is an eight-year contract with 1.2 million tons per annum with a startup according to Perenco contract in second half, or Q3 FY17. You recall back to the project on the next slide. The Fortuna field in EG is a [work loss] field with a very low [absolute] cost, due to the gas specification, the location of the field, and the low activity in the oil and gas sector. In spite of the fact that Schlumberger withdraw from the project, Ophir and Golar are working constructively to bring this project forward.

When it comes to Schlumberger, in a conference earlier this year, the CEO of Schlumberger said, "over the past year, we have worked closely with Golar LNG to understand and assess their FNG technology and we are convinced that their offering, combined with our reservoir, well and production system knowledge, represents a compelling offer to address the stranded gas market globally." The finalization of these agreements with Schlumberger are progressing well and the joint marketing literature with Schlumberger is now fully developed.

Going over to page number 10. One of my main tasks going forward as the CEO of Golar would be to oversee that we do whatever we can to deliver Hilli on cost, on schedule. With almost all engineering and purchasing completed, we are now into the most demanding period for capital shipyard in Singapore, where they install all the equipment on board, with pipes, cabling, instrumentation. Certain days, we have seen over 3,000 [capable] employees working on the project. We have an aggressive schedule and are so far on track, both when it comes to schedule and costs.

We have still not decided how much commissioning we will do in Singapore and how much we will do in Cameroon, but we will see it as a big advantage to get as much of the commissioning to be sorted out in Singapore. The pre-operation, the manning of the FLNG, and the site-specific issues, like marine systems, are all under control. The cooperation with Perenco is excellent.

The infrastructure which Perenco built can supply three trains, three of our trains and border vessels, without any additional investment, apart from potential additional drilling costs. We are therefore very optimistic that our customers will, over time, want to utilize the capacity of Hilli. At oil prices up to $60 per barrel, our EBITDA is around [$170] million. With three trains at the same oil price, it increases to $240 million. And at around a Brent price of $100, our EBITDA is $300 million for two trains and $435 million with three.

Bringing us up to the next page, which is summary and outlook, page number 11. We will continue to focus on delivery on Hilli on time and cost and continue to explore possibilities to utilize train number 3. We believe that the shipping will slowly and steadily improve going forward.

The cash position has improved with Seal and Tundra financing, and we are very optimistic on the FSRU market and will put more resources on this going forward and want to increase our market share through conversions. Significant progress on the Sergipe project, both when it comes to LNG supply, EPC contracts, and financing. We are in detailed discussions on external parties to participate and reduce our cash exposure in this project. Fortuna is a world-class gas reserve with a low CapEx to first gas, and we will explore all opportunities to take FID within this year.

A jointly developed cooperation framework that will govern the Golar-Schlumberger end-to-end gas solution offering continues to [have pace]. And the marketing of this solution is now happening, showed on the next page, which brings us over to the Q&A session. Thank you very much.

(Operator Instructions)

We will take the first question from Ben Nolan from Stifel. Please go ahead.

Great. Thanks. I've just two quick ones.

Number one, when thinking about projects away from the first two that are already pretty forward and moved along, I know you were hopeful that there might be an opportunity to execute on at least a third unit by the end of the decade. I'm curious if that time frame or the number of vessels that you might be able to bring to bear during that time period has changed at all as things have developed?

As far as we see that there are sufficient number of market opportunities. I think the restriction with the Company today is more on the financing and offtake side, offtaker side. But there are plenty of opportunities in the market, and also with the agreements which we're doing now with Schlumberger, or establishing with Schlumberger, we believe that that will give us even more opportunities and also enhance our opportunities when it comes to financing and also give some more comfort to the offtakers.

Okay. But sounded like that would probably be, incremental projects might be after the end of the decade. Is that a fair way to think of it?

The startup might be, but the FID will be taken definitely before the end of the decade.

Ben, I think as Oscar said, we are looking at a variety of opportunities out there. We haven't made them public, simply because we want to make material progress on them before we do. There are certain -- majority of these are very suitable for our generic solution, and whilst there are -- the vast majority will probably start towards the back end of this decade, there may be one or two that could fit before the end of this decade.

Okay. That's helpful.

And then switching gears, and I'll turn it over to someone else, you sound to be even a little bit more aggressive than you had been on the FSRU conversion side, talking about converting as many vessels as possible. I'm curious, I know in the past you've said that maybe there would be two to three FSRU projects per year that were coming to the market. And obviously, that's accelerated. But was curious if you could put a number on it, what do you think the total market on an annual basis is for new FSRU awards?

If you look at over the last few years, there's been three to four -- two, three, four. That will most probably improve. Because one of the reasons why we are quite bullish on the FSRU market is that we have our LNG carrier operating in a very low market. So it does make very much to improve our returns.

I think it's fair to say that more recent -- the LNG becoming more affordable to almost everyone who wants to bring in LNG has made the FSRU space much more interesting. And to date, there are a very limited number of FSRUs that can become available within a very short period of time, and we can add to that through our previous expertise in converting LNG carriers.

We now have a suite of FSRU solutions, whether it be a very old steam vessel, such as the one that we converted in 2007, or the more modern steam carriers, such as the Golar Winter and of course, most recently, similar to the Tundra and so on, those could be also used as a proposal. So yes, we understand that there are other LNG shipping companies out there whose ambition is the same as ours, but I think it's fair to say that amongst that group, there are probably -- or there is only one to date who have done that. So we would hope to be able to use that as a strength to provide a solution.

Okay. That's helpful.

Just on those lines, is it fair to think maybe you could do two to three conversions a year? Is that too much to --

I will not answer that question directly, but what we are doing is that we are increasing our market activity dramatically. We will put much more people on this, because we think it's a very, very prosperous market.

Okay. Very good. I'll turn it over to someone else. Thanks a lot.

Thanks, Ben.

Thank you. We will now take the next question from Erik Stavseth from Arctic Securities. Please go ahead.

Hello. I want to follow up on Ben's questions on the FSRUs. Firstly, what type of projects are you seeing? Are these projects that are doing a fuel switch and doing the FSRUs out of economics, or is it more the energy need and then pain point deals that are done?

It's a mixture really, Erik. We're seeing various interests coming out of the Middle East and North Africa, for example, and of course, you'll see the [GIPG] project as an example of that, which is looking for new thermal power. I think, as I said earlier, I think the LNG price as it is today has enabled and has made interesting FSRUs much more so.

And so those people who either using either type of commodity for power consumption is now looking at LNG to supplement that. So we can't be too specific, but I can tell you that it's a variety of uses and requirements that's giving birth to this interest.

All right. And then in terms of cost of timing, you've indicated before that the costs could be in the range of $60 million to $80 million. Correct me if I'm wrong. But could you highlight what the costs of timing would be if you were to get the project, say, by Q3? When could you be up and running and what would the cost of that be on a conversion basis?

I think your cost estimates are pretty accurate. And on the schedule we are talking about, 15 to 16 months from we actually take it [by the]. There are different ways of executing this project. We can order long lead items and wait for the conversion. The conversion itself will take, actually from when we take the vessel into the yard until it's completed will take approximately five to six months. So there are different ways of doing this.

Okay. And then just my final question: Golar Power, could you give us some color on any additional capacity or other projects, whether it's in other areas or in Brazil, that can add to the backlog of Golar Power as a player in the electricity market, as well?

We attended the last auction in Brazil, but that -- from being a quite bigger auction, it was reduced to a very, very low level. So there was hardly any power contracts given. We are working on different things, but I don't have anything specific to add there. There are, people need power, not gas actually, so we are looking into different things, but not really hard. We are focusing on executing the SOGIPA project and to get that in a good position to deliver in 2020.

Thanks.

Thanks, Erik.

Thank you. We will now take the next question from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Yes. Hello, guys, and thank you. And Oscar, congratulations for your reappointment as a CEO.

I want to ask you, you mentioned about a number of opportunities in the FLNG market and you referred to the strong endorsement that Schlumberger gave to Golar's FLNG solution. Given the limited resources that the Company has in terms of capital, how would you think of utilizing these resources, and I'm talking about in relations to the field contract, the field project, vis-a-vis other potential opportunities that may appear with Schlumberger, and if you can also comment on the reference that Cosmos Energy made about your FLNG technology and the potential utilization of this technology for their development?

I will leave the financing to Brian. And as I said, there are a number of projects. I don't think I want to go into specifically any project, because we are sitting in discussions with OFEE, how to skin this cat going forward. So I think we will -- we are discussing different types of doing it, whether it's a [pure tolling fee] or other types of structures.

And when it comes to the FLNG projects, like OFEE, there are two challenges. And it's financing in combination with offtaker, and that's what we have to work with. And if the offtaker are in place and the financing, then financing generally becomes comfortable. But I think I'll leave the word over to Brian on financing.

Thanks, Oscar.

I think that's absolutely correct. I think we mentioned in the press release that to some extent, the way we would be able to finance projects going forward is going to be dependent on who we have that contract with, the offtaker of LNG from that project, and of course, ultimately, how the economics look like from the agreement that we will have with the counter-party.

As far as financing is concerned, going back to the previous Ophir structure, we had gone down a fairly material progression in terms of being able to put something there. And of course, it helped having had the vast majority of the commercial discussions on the project pretty much finalized. Now we expect to see the same going forward on the projects, also.

Clearly, it's very -- in the current situation, it's very difficult to do a lot of these projects without much reliant on -- without too much reliant on debt. That is always going to be the case. I think we need to find a right mixture of debt and equity, to some extent, of the projects going forward.

But I think the way we see it is the economics from those projects that we are under discussions is really compelling. In the event that we have one solid project ahead of us, both debt and equity should fall into place. But as I said, it all very much dependent on the economics and counter parties we end up having with.

When it comes to the Cosmos deal, which you -- that's a gap project in Mauritania and Senegal, where they have very good gas specification, which suits the vessel very well. So it's more the type of a generic vessel from Golar, with very simple mooring systems. So that's an ideal project, a very good company to work with. We have a lot of the same way how to work. We are very entrepreneurial. So Cosmos is a very good partner for us in a project like this.

And can you clarify how much equity do you anticipate that [BISEP] LNG requires? I understand that the Ophir project is not a generic vessel. It requires some additional investment.

If all these opportunities, they appear at your disposal, both with Schlumberger or Cosmos and the Ophir, would you have to choose between one or two of them and abandon some other one that is not that attractive? And what kind of commitments do you have towards Ophir, if Ophir decides to go ahead with an FID and at the same time you have the opportunity to get involved in some of the more generic FLNG opportunities?

I can't really -- we can't really comment too much on Cosmos, Fotis, simply because, as I said, we haven't made any public any specific relationship with them. Having said that, when it comes to -- you ask about the equity portion -- there isn't a set number, simply because it all very much dependent on the mix of contracts you have in the project, the economics of the project, and of course, who the counterparties are. We started off, on the Perenco, we started with $400 million equity and also in a two-train vessel, and of course, the Ophir could be very different with a four-train vessel.

So I don't think it's fair to just ask for a specific number when it comes to equity. Suffice to say that there is always going to be the right balance between debt and equity, depending on which project and counterparties we will have.

One other thing to add is with the six-month delay to the Ophir project, that means that the equity component that you need for that project isn't needed for another six months, which is six months closer to the Hilli becoming cash generative, and of course, what we expect to be a better shipping market and an FSLU market, as well.

Okay. Thank you for that. Oscar, I think that you mentioned earlier about train 3 of the Hilli FLNG; it can be absorbed without any new investment. Do you have any view on the timing of that and how shall we start thinking about the train 4?

No, there are no specific timing on that. There are no detailed discussions on this. But if all parties have invested the CapEx in order to utilize the train number 3, I think everybody's motivated actually to get it in action. So there are no timing on that. And that might be notably after we have seen the vessel commissioned and accepted by Perenco. But hopefully, we can surprise you.

Okay. Thank you.

And my last question is about your new FSU contract. Because we haven't seen so many FSU deals, can you give us a range of how shall we think of the rate of this project or the return, and if there are more FSU opportunities out there for even longer periods?

Unfortunately, we can't give out economics specific to that project, Fotis, because we're under confidentiality. Suffice to say that the outlook from mid-March onwards is EBITDA generative.

Okay. Is this more similar to the LNG, the pricing of LNG carriers, or somewhere between LNG carriers and FSRUs, or how shall we think about it in broader terms? I'm not talking about this particular contract, but I'm talking in general.

Well, I mean, LNG carriers today are very low utilization, Arctic going forward is going to be 100% utilized. So it's very difficult to draw specific comparison.

On FSLU, if you can use the standard vessel, it would be the shipping market. If you have to do some detailed engineering and convert it, there will be another price.

Okay. Thank you very much.

Thanks.

Thank you. We will now take the next question from Jon Chappell from Evercore ISI. Please go ahead.

Thank you. Good afternoon.

Just a couple quick follow-ups. First on the GenPower, you mentioned the Exxon Mobil participation now, and just wondering what's the last steps before FID can be taken on that project? It seems like most of the pieces are in place. Is it just finalizing terms with the financial partner to help share the burden of the cost, or is there another technical issue that needs to be squared away before you can file a report?

I believe it's a combination of everything, more or less that there are still technical work to be done, there are still permits to be given. There are still financing to be completed. So I think that's the combination of everything. And I think plan to take [pall ease] in Q3 this year.

Okay. And then you mentioned also in the presentation, two likely LNG carrier conversions to FSRUs. Was that specifically for this project or was that more on a speculative basis, just to pursue some of those other opportunities you talked about?

I think that's more on the speculative, not necessarily speculative, but we will start one most probably speculative and order long lead items in second half 2016, and didn't think about the GenPower project for those conversions. That will most probably be a new build.

I think don't forget that, so whilst we currently have a new build delivering next year, which could potentially go to SOGIPE project, that project doesn't start until the back end of 2019, beginning of 2020. So there is a potential for us to use the one that delivers next year as an offering for the various FSRU opportunities that we see today and either convert another carrier for the SOGIPE project, or order a new one for the SOGIPE project.

Got it.

And then I noticed in the press release some new commentary regarding the Ophirs, regarding you working together on alternative developments or financing. Can you just explain a little bit more your participation with their negotiating on offtake and how you're working together to potentially help the financing for that?

Well, I think ultimately I think we all agree that it's a very economic project. So we and Ophir are very -- are working hard towards making sure that there is -- we give it as much chance as possible. You'll remember that when we -- when Ophir, I should say -- announced the exit of Schlumberger from that project, I think a lot of people thought that the project was pretty much dead.

However, that's far from the case. We are looking at a variety of structures with them, working alongside them to make sure that both upstream and down -- upstream and midstream get the necessary financing needed to take FID on that project. And really the cooperation is going quite -- is going well.

All right. That's good to hear.

Final one, Brian, on the bond. Obviously, you mentioned there's a lot of different alternatives you're looking at. One thing I wanted to be clear about, though, you mentioned that obviously the GMLP stake is backing that, and if you were to pay down the bond in full, you could use the GMLP stake potentially to arrange other financing. Is the sale of the GMLP stake, or part of that GMLP stake, one of the potential arrows in your quiver to pay down the bond, or would those have to be separate events?

No, I think that they could be separate events, simply because there are certain covenants within Golar that requires us, at the moment, to hold a certain amount of GMLP. So the potential is that we use -- once released, there is a potential for us to use those units as security for other types of financing.

So we don't necessarily need to go down and reduce our share holding of GMLP. There may be some room for us to reduce a little bit, but ultimately the entire amount could be used to leverage up on security financing, to alternative financings.

Okay. That makes sense. Thanks, Brian. Thanks, Oscar.

Thanks, John.

Thank you. And the next question is from Michael Webber from Wells Fargo. Please go ahead.

Good morning. How are you?

Hello, Mike.

I wanted to start first on the regas business. And I know we've parsed over this a little bit already. But I'm just curious as to how those dynamics are changing. If I think about those that have had success in this business, success in the last year or so, it seems as though there's either been a pretty robust shelf involved in terms of assets on the water or that you're seeing players come to the market with consortiums already worked out and they're coming from the upstream, where almost there's a degree of reverse integration that seems to be happening in terms of who's actually able to really grab share in the regas space.

So I guess my question is, one, do you think that's valid? And two, when you think about the growth you see within the regas business going forward, how much of that do you think is going to come from just traditional tenders versus what you are looking at doing in Brazil with Exxon and others?

When it comes to -- if you look at certain projects in Europe now, you will see that they're starting to send out requests around Q1 and they want to have the vessel in Q4. So it seems the developers are able to develop these projects much, much faster due to the fact that some of these countries to get permits is pretty easy. Secondly, there are sufficient -- in a few years from now -- historically, it was very, very difficult to get a hold of LNG. When we went out marketing FSRU carriers in the past, the first thing we asked people, do you have LNG? That's not a question we need to ask anymore. There are sufficient LNG for the developer to grasp.

I think when it comes to whether it will be tenders or like in Brazil, I think there will be a mixture. We are not project developer, as such. We are more like a tolling, toller, we want to just take a tolling for our units. To develop project like SOGIPE is very demanding. You need to have not only the FSRU. You need the pipeline. You need tugs. You needs permits, et cetera, et cetera. So I think we will try to go for the keep things simple and try to go for the simple projects.

Okay. That's helpful.

I did want to follow up on FLNG, and specifically around Ophir. And I know that there's been lots of veiled references to the probability of that project going forward in correlation to what you're also looking at elsewhere and the scalability.

But if I come at it from the angle that you stick with the projects, whatever probability's assigned to that, is there an opportunity now to go in and potentially secure a better return than we were looking at previously, if the entry multiple in that project was closer to 5 times EBITDA than the 3, 3.5 we were looking at with Perenco? As we think about -- you can quantify it in either the run rate EBITDA or the return or the entry multiple, whatever mechanism you'd like to quantify it in, is there an opportunity to increase their potential return there, just given the leverage you have at this point?

I think it would be a bit wrong almost to start a comment on this since, we're not all sitting discussing these things with Ophir. So I'd rather just say pass on this.

Okay. That's fair. Sticking with -- go ahead.

No, no, it's nothing. It's okay. Go ahead.

Okay. That's all right. I guess sticking with FLNG and the collateral you guys have in place for the Hilli, Brian, can you remind us the timing and the magnitude of how that Perenco collateral is released? If my memory serves, I think it goes beyond delivery of the asset. So it would be that restricted cash and how that actually impacts your liquidity. How does that get released over the life of the contract?

That's correct, Mike.

So there is currently $280 million sitting in a collateral account, to which is used to secure the guarantee to the Cameroon project. Now, of that, we are in discussions with the banks to try and release some of that. And to some extent, there is the possibility of being able to do that, simply because it's somehow -- it's not somehow -- but it's dependent also on their ability to be able to syndicate some of the banks' exposure in that.

Having said that, you rightly say that there comes a point in time when the value of the guarantee that we are giving to the Cameroon project comes down. And it's actually -- and that, the trigger there is that one year from the startup of the Hilli, the guarantee reduces from $400 million to $250 million. And that $400 million, there is a -- the collateral is $280 million. So obviously, once you get down to $250 million, then the collateral would come down. And actually, it reduces by approximately $180 million or so.

And then from there onwards, it's the $250 million required. Another year from there, it reduces again to $100 million. By 2019 or so, mid-2019, then the cash collateral would drop to approximately $40 million. So there is cash to come back. But unfortunately, it's frustrating. It's taken a while to get -- to free up some that -- hopefully will be able to free up. But in any event, there is a trigger ahead of us that will require a reduced cash collateral anyway.

Got you. Okay. That's helpful. And I can follow up on the details on that offline.

But to stick with liquidity for a second, in terms of threads to pull in the story here, the forward liquidity is generally the biggest ongoing topic and if I think about the potential capital calls for Golar in the next several quarters, especially as we get into 2017, then you've got the convert to handle potential capital calls from the Ophir project, and then the scalability and the size of the capital calls for anything else you do in West Africa, it seems to be a pretty big variable, as well.

Brian, the question is, one, how do you prioritize your liquidity as it pertains to the option value or the scalability you get out of a new project versus what you're looking at with Ophir? And if you can't swing it, which I'd understand, do you think you have the wherewithal from a liquidity perspective to do all three, to handle that convert in cash, if need be, to handle Ophir's liquidity, or the capital calls on Ophir, and be able to step into, say, a multi-step project with a 2020 startup date with another large player?

I think clearly the level of -- the share price level where we are today makes all of that very difficult. I think given the maturity of the convertible bond coming in March, 2017, we've pointed towards the availability or the release of the MLP units that is married to that bond, and so there is a potential for us to be able to use that to repay the bond in its entirety. So that's one.

And then when it comes to other projects, whether it be Ophir or other FLNG projects, I think the crucial thing there is getting the right economics out of the project. And I think to some extent, we have seen this recently with our discussions to financing the Gandria under the previous structure with Ophir. Where it really mattered is who the counterparties are who is involved in that, and also how much of the LNG is a firm offtake. Because essentially, the lenders will want to see how much cash flow is coming from the project that could be pointed at to service the debt.

And then you almost work backwards to try and see of that cash flow, how much could you afford or how much could the lenders afford to lend you and still be comfortable that they'll get the debt service? But clearly, there needs to be a good balance between debt and equity. And as I said, I think to some extent, we are limited in what we can do today in terms of other projects until such time as all of those factors are much more clear to us.

Okay. All right. No, that was actually very helpful. I appreciate it. I'll stop there and get back in the queue, but thanks for the time, guys.

Thanks, Mike.

Thank you. We will now take the next question from Herman Hildan from Clarksons Platou. Please go ahead.

Good afternoon.

First question, in the report, you say that you expect to make a final decision within the next three months in terms of your participation on the Fortuna project and forgive that FID on the Fortuna is Q4. I'm just wondering how you can conclude in your participation before knowing whether there will be an FID taken or not.

One of the successes of this company going forward is actually to pick the projects which are real and not real. And I think we only need three months to make sure that this project is a project which we will go forward with. That said, we need another three months to actually take FID to prepare all the final documents, et cetera, et cetera, which is already well progressed.

Okay. So there's no reading into that, as a -- Okay. And just finally, or next, on the startup with the Fortuna in 2020 now pushed out from 2019. The question is, will you -- do you still believe the Fortuna will be your second FLNG, or are you aiming to potentially get a vessel before the Fortuna, given that you have a three-year window between the Hilli and the Fortuna, potentially?

It's not unlikely, I would say. We are working on different projects. But for the moment, I will say Fortuna is number two. But it's not unlikely that there could be some other projects which are very shallow water benign, very good gas quality, which we are looking at for the moment.

And just to understand the timing, within what time frame would you need to tie down a new project to have a delivery between the Hilli and the Fortuna, potentially? Is that 2016?

I would say it depends on a lot of factors. And as we've said before, financing and offtake will be crucial to take an FID. And what we have seen is that that takes a pretty long time. And then you have the negotiation between the upstream and the offtakers, et cetera, et cetera. So it has to happen really in the next six, seven months.

And then just finally, you've refinanced, as far as I can see, one out of the six LNG carriers that you indicated you would refinance and generate, I think, $280 million to $320 million of liquidity. Could you give us an update on the time frame you expect to finance all six, or if something's changed with that?

Well, I think it's fair to say that the continuing challenging shipping market has delayed the refinancing and to some extent, some of the people -- some of the banks that we are talking to preferring to see what happens in the shipping market, initially. Having said that, we are in discussions with various financings institutions, so we're not ditching that. It is something that we're working in the background. But given the less predictable timing of any of this refinancing, we would prefer to just go ahead and do it, rather than as previously done, plaster it all over our announcements.

And then just actually one final question on the contingency. In the past, you've guided on how much of the contingency that you've used. Is it possible to say anything with respect to the contingency on the Hilli, how much you've utilized of that?

I don't know exactly what was said during last quarter, but what I can say is that there is no change.

Okay, that's very good. Thank you very much.

Sorry, before we carry on, administrator, would you mind just limiting remain -- because we've got quite a good queue ahead of us, we've got -- limiting remaining questions to either one question, one follow-up, or just two questions, please.

Thank you. We will now take the next question from Ken Hoexter from Merrill Lynch. Please go ahead.

Great. Good morning.

If you could follow up a little bit on the Schlumberger commentary. You mentioned it doesn't -- your agreement with them is different than the Ophir. But maybe delve into that a little bit. Because the timing was odd in terms of your moving forward with the Schlumberger, teaming up while they were stepping aside from the Ophir and now it's been -- is there a reason for their moving aside while you were pressing forward with the agreement with Schlumberger?

I don't think we are fully privileged to that information from Schlumberger. That was a decision taken by Schlumberger themselves. The discussions we are having with Schlumberger is progressing as planned, without initial [suppers]. So I'm not really sure what -- what we heard is that they really have no comments to the gas field and the gas reserves, as such. What they have said is more like that this is a world class gas field.

Okay. And then Oscar, congratulations on your taking over again, or returning to the Company, but with Gary stepping aside, what led to the changes? This is quick turnover at upper management, so maybe a little bit of perception issues here on what's going on. Is this to do with the strategy shift from the FLNG rollout to more an FSRU focus? Is it Golar Power? What led to the relatively quick turnover in management?

It seems like a -- I don't want to call it a revolving door -- but it seems like all the current CEOs have been former CEOs of Golar, as well. Is it a constant switching to sticking with prior management versus a need to promote from within, go to the outside, or maybe you could talk a little about why that quick changeover?

Just make one thing clear. Gary, he resigned and wanted to pursue other opportunities. And I just want to thank him for the job he did and hard work during his time.

So he actually resigned and that role, then the Board came to me and asked me to take over. And after considering it, I found that most probably the best solution, both for the shareholders and for the employees, based on my background in the Company as the CEO, developing the Hilli project, have employed most of the people in the organization, et cetera, et cetera. So that's the reason behind it and the reason why they chose me.

One thing is that I'm sitting in Oslo, where a lot of the activity is going on. We are 85 to 90 people in Oslo, a lot of the development is going on there, and the success going forward is apart from finance and the commercial, actually that is [a lot of] LNG project concept further with Mark 1 and Mark 2. But actually, Gary, he resigned. That's the end of the story.

So not because of, if I may guess, the simplicity they say is a shift from the FLNG focus to an FSRU focus, as you discussed earlier, it's just that they're separate issues or --

I don't think it has anything to do with each other. Gary decided to resign, and the reasons --

Okay. And then on your financing, just the last one -- sorry, real quick questions -- but on the Gandria, I just wanted to confirm what you were saying before is that there is no moving forward with the Gandria until you have firm commitments in place. I guess that was to Michael's question, could you do something in 2020, or what you're saying is nothing moves forward on that FLNG prospect until that, and the bigger focus in the nearer term is back to the FSRUs?

No, I think specifically on the Gandria, Ken, I think what we're saying there is there needs to be a few moving parts that need to come together. And of course, one of the biggest parts is the financing. And to some extent, the project cannot take FID until such thing as that is put into place, or commitment for that is available.

And having said that, though, that is also dependent on the other parts of the project, namely the offtake and the counterparties to be involved in a project. But they're not -- we're not saying that -- we're not -- we're pursuing FSRUs and we're ditching the activities we have on FLNG. Those two can co-exist simultaneously next to each other, and that's exactly what is happening in the organization today.

All right. Appreciate the time, gentlemen. Thank you.

Thanks, Ken.

Thank you.

(Operator Instructions)

We will now take the next question from Chris Wetherbee from Citi. Please go ahead.

Hello. Thanks. Thanks for getting me on the call.

Wanted to ask you about the Hilli and just one of the comments you made about the commissioning in Singapore on-site and how that might potentially play into the progress of the FLNG coming to market. Just want to get a sense or maybe some clarification on any issues that we might think about in terms of timing to get on the project and potentially move forward?

Of course, we will do whatever we can in order to deliver this vessel as early as possible. And I think the most efficient way is to do as much testing in Singapore as possible. If we do testing in Cameroon and we find some issues, it would take much longer time to rectify it. That's the only thing which I said.

So that's the reason for this. And we have actually been thinking about this all the time. It means that we will have a bit later departure from Singapore, but overall schedule will be less. That's the purpose of that exercise.

Okay. So you could actually end up maybe shaving some time off of it, in the grand scheme of things, by doing this in Singapore?

Well, we are definitely going to -- we will be more short with deliveries on the time if we do things in Singapore, I would say.

Okay. That's helpful.

And my one follow-up would just be very technically on administrative expense. Thinking about the model, I understand from a project expense basis the ramp up we've seen, though. But should we expect this level to continue to ramp up or do we flatten out at roughly 1Q levels? I'm just thinking about it because obviously, every dollar counts as we think forward here. How do we think about that number?

I think there's been a lot of ramping up for the past year or so, I would say, Chris, simply because of the number of people we're putting in to develop FLNG and also, to some extent, help out with, now more so, the development of FSRUs. There will come a point where it will be stable, but there is a possibility of that going up again in the event the second FLNG is kicked off.

Okay. All right. That's helpful. Thanks for the time. Appreciate it.

Sure.

Thank you. We will now take the next question from Eirik Haavaldsen from Pareto Securities. Please go ahead.

Just one question on Cameroon, because you sound very confident in Q4 2017 startup for Hilli. You give good color on your progress, but can you give any comment on where Perenco stands at the moment and whether they have a lot of finishing work and drilling to make or what remains to be done there on their end?

Perenco is on schedule, maybe a bit in front. They have started to put down the pipelines. They have ordered all the long lead items. They haven't received the long lead items, so that's always a challenge if something happens. But the feedback we get from them is that they will be on time.

All right. Thank you.

Thank you. We will now take the next question from [Eston Lenmar from Fernley]. Please go ahead.

Hello. Just wondering on the shipping market, being as poor as it is, what would it actually take for you guys to consider laying up some of the more modern vessels, as you've done on the Golar Grand and the Viking?

When it comes to laying off vessels, there's a lot of things to consider. It's the period is one thing, because there are a lot of mobilization and demobilization costs to lay off a ship. You have the trouble of getting people sacked and then you have to employ them again.

So we did a calculation on one-year and two-year and three-year, and even if you actually save a few thousand dollars, it might not be worth it if you think that the cash breakeven is not the cash breakeven. But the breakeven on those vessels are $56,000 and you save a few thousand dollars, it's not worth it for the moment.

If the market goes down below $7,000 a day, I think we will start to consider it maybe, but if it's only for a year, we will still continue. If it's for two years, we see that the market will not improve for the next two years, we will maybe consider it. But it's a lot of different factors, and not only money, but it's also the fact that you lose vesting. You have uncertainty when you start up the vessel with all the electronics, et cetera, et cetera, electronic and instrumentation, and so forth.

So there is a lot of things to consider. And we have done quite a thorough work there and we have found that not to do it at the present market and especially not with hopefully that we will see some improvement of the market. So that's where we are. When it comes to, there is a big difference between the modern and steam vessels, because the steam vessels, when you need to have fire on the boiler, which consumes much more fuel than a modern vessel.

All right. That's helpful. And maybe Brian, if you can comment on the equity portion for a potential FLNG number 2. Is it at better odds now that that number will be lower than on Hilli?

We can't really comment on that for the time being, Eston, simply because there are a few things that we need to put together. We had been aiming for something below Hilli, and we will continue to aim for something below Hilli. Whether or not we can achieve that, to some extent, is going to be dependent on who eventually will be the counterparties, the economic of the project and so on. We made, as I said earlier, we made some good progress on that in a previous structure. But obviously, we're now working with Ophir to try and make sure that both theirs and our financing needs are met under the current -- in the new structure.

All right. Thanks.

Thank you. We will now take the last question from Andy Gupta from HITE Hedge. Please go ahead.

Good morning. Two questions from me.

One is, there was some talk around heads of terms on a third project expected around summer. Are you still seeing those discussions progress where the timing would be the summer?

We are in discussion with certain people. I'm doubtful that that will happen before the summer or during the summer. I think it will be a bit further out.

Do you expect it in 2016 or after?

As we see today, yes. But it's very early days and we need to -- I can't really promise you anything there. But we are in discussion with them every day.

Understood. And then my last question here is, you mentioned in the press release and on the call equity being challenged and the equity needing to improve to finance these growth projects. Are you referring to GLNG and/or GMLP? How are you thinking about this? And also, when I look at GMLP, it seems GMLP at least has capacity to do dropdowns of just debt and not needing to share equity, which could be cash flow positive to yourselves.

I hope we understand you correctly, Andy. There's a very loud echo when you were talking.

But I think when it comes to the equity being challenged and so on, that is certainly the case. And I think the answer really was trying to get to a point where in the current situation, if we are asked to do multiple projects and the equity, Golar's share price doesn't improve sufficiently, then it becomes challenging. There's always going to be certain amount of cash required as an equity portion of each of the projects and the level of that is very much dependent on a few factors. So that was really the main point that we were making.

We weren't really alluding towards the MLP's equity, but certainly what it does make it challenging, though, is obviously being able to drop down vessels at the MLP, if the share price of the MLP doesn't change or improve also. Having said that, over the past three to four months or so, I think you'd agree the MLP share price have recovered, improved markedly. It has, depending on the EBITDA of the MLP, the MLP's buying, there's obviously debt, to some extent, there's debt capacity there. But the dropdown is still a consideration for us, but I think that we need some improvement on both equity to make it that much better accretive.

Got it. Great. Thank you.

That will conclude today's Q&A session. I would now like to turn the call back to the host for any additional or closing remarks.

Hello. It's Oscar. Thank you very much for all your questions. Hopefully, you are happy with it. We will be back in Q2, hopefully with better results and good news. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.