Golar LNG Ltd (GLNG) 2017 Q1 法說會逐字稿

Good day, and welcome to the Golar LNG Limited Q1 2017 Conference Call.

Today's conference is being recorded.

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

Please go ahead, sir.

Thank you, moderator, and good day to everyone, and welcome to Golar LNG's Q1 2017 Earnings Call.

As the moderator said, my name is Brian Tienzo.

And I'm joined today by our CEO, Oscar Spieler, he's actually sitting in Oslo today.

And our Head of Investor Relations, Stuart Buchanan.

So let's start today's call by turning to Page 3 of the presentation.

Operating loss and EBITDA in the quarter reported a loss of $41.4 million and $16.2 million respectively, compared to Q4 loss of $32.7 million and $15.9 million.

While there was an improvement in revenue in the quarter, this was negatively impacted by non-cash adjustments.

We also issued a $402.5 million, 2.75% 5-year unsecured convertible bond during the quarter, and that came with a capped call that gives an effective conversion premium price of 75% and $48.8 respectively.

Following that, we repaid the balance of the 2012 5-year convertible bond and refinanced the debt facility in respect of the LNG carrier, Golar Crystal.

The combination of the extinguishments of the old bond, the new bond raising and also the equity of small equity offering we did in November 2016, and the availability of a new credit facility has enabled the company to be in a much better footing.

We also secured a firm 2-year contract for Golar Grand commencing Q2 2017, and a 12-month contract to our carrier commencing in Q1 2018.

After the quarter, the following material events occurred.

While LNG's Fortuna joint venture executed an Umbrella Agreement with the Republic of EG to establish the fiscal and legal framework for the Fortuna FLNG project.

Following that, the Fortuna midstream EPC contract was awarded, and project is on track for a mid-2015 -- '17 FID.

And a put option in respect of FSRU Golar Tundra was exercised by Golar Partners and simultaneously entered into purchase option agreement with Golar to acquire up to 25% interest, representing 50% of the contracted capacity in FLNG Hilli Episeyo.

The transaction is expected to close in June, subject to customary closing conditions.

And finally, recently OneLNG's relationship with the Republic of EG continues to strengthen, as both enter into a memorandum of understanding to find a monetization solution for stranded gas, focusing on Blocks O and I offshore Malabo.

Let's now turn to Page 4 to go through the financial highlights.

Total operating revenues for the quarter at $25.1 million is higher than 4Q at $23.1 million.

This is mainly due to improvement in rate reserve during the latter part of 4Q '16, and into the early part of Jan '17.

It also translated to increase in TCE of 14,189 per day to -- for 1Q against 10,893 per day in the previous quarter.

While net revenue this quarter at $8.2 million is lower than 4Q at $10.5 million, this is mainly due to the recalculation, to be honestly, in respect to the Grand following its firm employment for the major oil and gas company, which was also concluded during Q1, which led to a non-cash provision.

Going forward, such provision will be reversed and a credit released to the income statement.

Operating cost is consistent with 4Q level, whilst G&A expenses decreased from 4Q levels.

4Q costs were particularly high due to various projects and financial reporting activities.

All of the above have led to a loss before depreciation of approximately $16.2 million, which is consistent to 4Q at $15.9 million.

In addition to the quarter's operating losses, our non-cash loss of $17 million arising out of deemed disposal of GMLP shares as a result of its follow-on offering and mark-to-market losses, increase in interest cost in the new bond offset by a non-cash gain on our total return swap contributed to the net loss for the quarter of $65.8 million.

Turning now over to Page 5 to look at the balance sheet.

As you can see, the balance sheet, as of 31st of March '17, shows a marked improvement compared to the end of 2016 balance sheet.

Following the company's execution of the equity offering of $170 million in November, the conclusion of the convertible bonds of 100 -- $402 million in February, and the drawing down from a new credit facility in March, the company has materially bolstered its liquidity, and at the same time extinguishing its near-term debt maturity.

The company do not now have any debt maturing until October 2019, and only then it will be approximately $85 million across 3 ships.

This is manageable.

You will note that our balance sheet currently shows approximately $849 million classified as current portion of long and short-term debt.

Of this, $300 million is related to the Hilli loan, which we're required to classify as short-term, as we expect this will be refinanced by an already existing facility in March 2018.

Furthermore, this category also includes balances belonging to the lessors of the assets, which we financed in the sale and leaseback.

Accounting convention requires us to consolidate those lessor companies, albeit where now they have control nor exposure of those balances.

This amounts approximately $490 million.

The overriding message that comes out of this balance sheet is that the company is now in a much better position to meet those challenges and opportunities ahead.

On that note, I now pass the presentation over to our CEO, Oscar Spieler, to take you through various business franchises

Thank you, Brian.

Let's go over to Page #6.

The LNG carriers' earnings have improved from previous quarters, however, slightly lower than we expected.

The number of spot fixes so far this year is $104 billion versus $134 billion in the same period last year.

We have seen increased request for interest for our time charters for long and medium-term pictures.

And the Golar Group has fixed 2 vessels on medium-term, one having started up in May 2017, and the other one scheduled to start in Q1 2018.

We believe that this increased interest with the time charter reflects an increasing understanding amongst industry participants that the growth in LNG production is higher than the growth in the shipping capacity, and that the market will tighten.

The orange graph in the upper right corner on the slide -- on the slide, illustrates this unsold stuff based on forecasted LNG production, our fleet growth utilization will increase going forward.

We believe that we will start to see an effect of this increased production in autumn this year.

At the present, the market is slightly above USD 30,000 per day and with approximately 50% balance on this.

And an estimated utilization of the fleet of around 50%, so the effective time charter earning will be around $15,000.

Going over to Page #7, the FSRU market and the Sergipe project.

The piling and the foundation work on the -- for the gas turbines have been completed and the GE EPC contract is progressing according to schedule on the Sergipe project.

The permitting works for FSRU and related infrastructures are going according to schedule, however, it will be a challenge going forward.

The project has a lot of governmental and local support, which will help in this respect.

They're making good progress on financing, and expect that all loan agreements will be done to permit a financial close by the end of 2017.

We are looking at delaying the delivery of Nanook and potentially carrying out the required modification needs for the Sergipe project at Samsung, so that Nanook will go directly from Samsung to Sergipe and start on its 25-year time charter around mid-2019.

Let me go over to the FSRU.

Middle of the new production coming online, and there are a lot of uncommitted volumes, we believe that the demand for FSRUs will improve.

Our estimate is that 20% to 30% of the increased production is uncommitted and will put pressure on reprices, making LNG even more competitive relatively to alternative energy sources.

The market -- the FSRU market is changing slightly, with an increase for at least on smaller and cheaper FSRUs, which could be positive for our steam vessels.

We also see that customers are occasionally ordering FSRUs themselves, and that new competitors are entering the market affecting the margins in the FSRU segment.

When it comes to Tundra, it is still anchored off the coast of Ghana, and unfortunately it does not seem that our customer have made any progress on their end.

In the meantime, we have and are pursuing our contractual rights -- contractual and legal right and have been granted an interim arbitration award for $23 million, which they will enforce as soon as possible.

Then it comes -- moving over to Page #8, at Hilli, which is our major project.

And Hilli is a project where I spend most of my time and focus, and we are making fairly good progress.

All equipment has been installed, and we are now in the middle of the pre-commissioning and reinstatement of systems and equipment.

Liquid pressure testing, nitrogen, helium testing, leak testing, drying out of system, flushing, restaging, et cetera.

As we start with the [ability] and the engineering issues, operation preparation is on schedule.

All spare parts has been purchased, mooring is modeled onto the heavy lift, ready to sail.

Escort tugs has been secured.

And over the last month, the progress at the yard has been slower than we anticipated, even though we still have around 4,000 people on board at capital, on a 24/7 basis, with around 3,500 during daytime and 500 at night.

Provided that we are able to recover some of the lost production over the last month, and that we follow the trends going forward, we still believe that it is possible to turn a notice of readiness at the end of September in Cameroon.

Our focus now is to make sure that the investment is complete when we leave Singapore, and that the pre-commission is done properly, and make sure that when Hilli leaves the yard it is ready to start commissioning after arriving Cameroon.

The next major milestones when it comes to Hilli will be when the rig is installed in Cameroon in end of July and Hilli leaves Singapore, and then we tender our notice of readiness in Cameroon.

The CapEx focus is well within the budget, and Perenco is on schedule when it comes to their work in Cameroon.

As we have said before, the Hilli will be renamed Hilli Episeyo at the mooring ceremony on the 2nd of July in Singapore, with all key stakeholders present.

The relation between these key stakeholders is extremely good, and we will take up discussion on utilizing the remaining 2 cranes as soon as Hilli has been accepted and start producing.

Turning over to Slide #9.

OneLNG, the grand contributor in Golar and Schlumberger is spending 95% of their resources on the big Fortuna project to FID, and the project is on track from mid-FID -- mid-2017 FID.

We have signed the Umbrella agreement that covers the legal and fiscal framework in Equatorial Guinea, and we have awarded the midstream contract to Keppel.

The major outstanding issue to take FID is to finalize the financing, with a consortium of Chinese lenders in addition to the upstream EPCIC contract, and to agree with our partners that when it comes to the offtake structure and obtain Ophir shareholder approval.

Turning over to Page #10.

OneLNG signed a binding MOU to explore liquefaction and monetization of stranded gas on Block O and I offshore Malabo in Equatorial Guinea.

The blocks increased total proven 2.5 Tcf of gas.

We see this as a potentially increasing opportunity, however, still a lot of work has to be done both commercially and technically to ensure that this state-led project is viable.

In addition, there are several other interesting projects in the provincial from LNG, with the main focus on West Africa.

However, as I said before, the focus is on getting the Fortuna project over the line.

Golar LNG are making new progress on MARK II, which will enhance the gasification and operational envelope of our FLNG offering.

The target for MARK II is to reduce the unit cost compared to Hilli and improve our competitiveness further.

Golar is working on several FLNG projects in Americas, and we believe, based on the LNG prices, we believe that it will remain under pressure over the coming years.

This will further stimulate the demand for Golar's low-cost FLNG execution model.

Going over to the final slide, Slide #11.

There is some finance transaction, including resetting of the IDRs, raising equity issuance of the convertible bond and the margin loan has strengthened Golar's balance sheet and its ability to finance future SNG and power projects.

This will be further improved when we'll do the Golar Partners transaction.

Golar Partners has exercised its right to put Tundra back to Golar, at the same time Golar grants the GMLP the option to a 25% equity interest in the FLNG Episeyo, which will most probably happen midyear.

The shipping market is challenging, but we remain positive based on increased production, which is delivery -- delivering and ramping up, as we speak.

The Sergipe project is on track, with an expected financial close end of the year.

The Hilli project remains on with the budget on a tight schedule to be able to tender a notice of readiness in end of September.

And we expect the Fortuna project to take FID around middle of the year.

And when it comes to FLNG projects, we are, as I've said, in the middle of several different opportunities, but we focus on getting Fortuna over the line.

Our -- Golar's immediate priority is, however, to complete and commission the Hilli, and we look forward to providing important updates on that at the forthcoming Q2 and Q3 result presentations.

By that, we go over to Q&A.

(Operator Instructions) We will take our first question today from Ben Nolan from Stifel.

So I have I guess 2 Hilli related questions, if I might.

The first is -- and really, I guess, they're both around the expansion of the third and fourth trains.

How soon after the startup of train 1 and the whole approval process and everything else being finished, how soon would you expect those actually -- the contract and revenue generative?

Generally, the informal discussions we have with our stakeholder here is that they would like to see a stable operation of Hilli, but all stakeholders are extremely positive when it comes to starting off train 3 and 4, due to the fact that there are minimal CapEx involved both for the state and for provincial in order to increase the production.

If you say that, we will -- the schedule we established and have commissioned this by March 2018.

So a few months after, I think it will be mid next year.

Okay, perfect.

And then there was a comment in the press release about how to think through the drop-down of the trains to GMLP.

And it said in there that any potential expansion of capacity would not be included in it as a drop-down candidate.

I'm just making sure that I'm understanding that correctly.

That means any improvements in utilization over and above sort of the nameplate capacity rather than, say, trains 3 and 4 being drop-down candidates.

So trains 3 and 4 you would think of those as drop-down candidates in the MLP, correct?

And just any improvements in utilization and pricing as a function of oil pricing, would be kept at GLNG, is that correct?

Generally -- that's generally correct.

So the priority is obviously, establishing the drop-down structure for the capacity that's already being firmly employed to the first 2 trains.

And the announcement is really concentrating on announcing specifically 1/2 of those first 2 trains, and hence approximately 50% of the employed capacity.

What we expect will happen, of course, is that as and when the trains 3 and 4 become live, and we have visibility on the cash flows and those then this structure is sufficiently flexible such that GMLP would -- could also opt to buy cash flows from those 2 trains, as long as they're incremental to the existing production.

So what GMLP does not intend to do is to buy into any variability arising out of the changes in commodity prices.

We will take our next question today from Jon Chappell from Evercore.

Oscar, last time we talked about, kind of the first mover advantage, that the FLNG conversion solution had.

And as you talk with this new potential project in Equatorial Guinea, and the 3 to 4 other projects that you're looking at, can you just give us a reminder of how your solution compares from a timing perspective to some of the other potential opportunities out there?

We are -- I think what we have said that, generally is that we are able to have 3 projects at the same time.

One project at the early stage, one in the middle and one at the final stage.

When it comes to the projects we are working on, we are working on several projects in West Africa.

As we have said, some of them are, I think, FID to '19, some of them could happen before, it depends a bit.

And then we're working on a few projects in Americas, which can be earlier.

So all things are under development, so it's a bit early to say any firm dates here before the Equatorial Guinea project.

Okay.

My second question has to do with the Sergipe project, I mean it's a bit confusing.

You say you're still on schedule, but that there's the main challenge as far as the regas terminal being permitted.

What kind of timing should we think about for getting some clarity on that part of the entire project?

As I said, I don't think -- that's a challenge.

It's not our main challenge, it's a challenge.

And I will say that with all the provincial and governmental support we have on this project, I don't see this as a big problem.

I never seen Sergipe as a major problem on this project because of the support we have from the government for it and the provincial state.

Sorry, moderator, it's Brian here.

Just to clarify on the answer that I gave to the previous question regarding the Hilli train.

I think just to highlight that MLP isn't actually -- right now isn't actually buying trains 3 and 4. The announcement is in respect of the capacity of train 1 really.

And as such time as trains 3 and 4 are able to firm up employment, then those capacity, incremental capacity could be part of option for the MLP, if they wish to, to option to exercise and buy the cash flows out of those -- that capacity also.

We will take our next question today from Michael Webber from Wells Fargo.

Brian, first of all, thanks for clarifying that.

But first question is for you.

If -- on Slide 8, you kind of run through the Hilli time line, and I was hoping -- I know the first question kind of spoke to this, but maybe to get a bit more specific.

Can you kind of walk us through that time line and how that should impact the P&L and the balance sheet?

So when we should actually start to see either revenue from commissioning cargoes that are getting carried on Golar vessels, the actual startup of the contract?

Just maybe kind of walk through that time line and how it respects -- impacts the P&L?

The way we're seeing it at the moment, Mike, is that the vessel is still targeted to get to Cameroon by the end of September, at which point we will tender her ready for commissioning.

During the commissioning process, there will be revenues accruable during that time and obviously, that depends on what we can do during that period also.

So really, during Q4, there will already be certain amount of revenues accruing that is -- that's going to the P&L.

At the full contract rate?

No, it's sort of -- our expectation is that it will ramp up to full contract rates.

So you can imagine, we have 3 -- we have 4 trains, we can -- the expectation, of course, is that we will try and commission sufficient trains enabled to -- for us to be able to satisfy the performance metrics under their contracts, so we're not limited to just using 2 trains, so that gives us the flexibility.

But the expectation is that we don't expect to be at full capacity immediately, it's more of a ramp-up process.

But regardless, there will be -- we expect fully that in Q4, we already started seeing revenue coming into Golar LNG Limited.

At that point in time, if the first train -- if the 50% capacity of the contracted trains has already been dropped to MLP, then a portion of that will, obviously, be due to the MLP, depending on what actually happens.

Okay, that's helpful, and I can follow-up with more details offline.

My follow-up is actually around Fortuna and kind of getting that over the line.

Just curious, it seems like there's been kind of maybe a bit of a shift around kind of thought process around offtake and SPAs.

Can you give a sense on how much of the gas, especially with Fortuna, you guys think you will have sold for at the time of FID?

And maybe kind of how you think about different ways to maximize the economics, kind of, that's currently associated with that project?

We are in the middle of discussion with our partners now.

And as -- and we are discussing different options.

One is to sell all the LNG, others are trying to utilize the, I think, in Europe and others sell half of the LNG, but there's no definite conclusion on this, and we are in the middle of a discussion there now.

But there is obvious big potential that you can optimize the offtake automatically, if you take care of it yourself instead of selling it to a third-party.

Great.

So as you look at it today, and you're kind of playing with house money a bit, because I know there's -- you've got redundancies built in to the signed kind of binding terms agreements from, I think, 3 or 4 different buyers.

But as you will potentially stretch that, is there -- you think half of that gas at a minimal would be kind of sold for on a long-term basis and you kind of play with the rest?

Or is it even more wide open than that?

I believe that -- I mean, as I said, we are in the middle of a discussion, and I think we will have to sell some of it at term so we are able to cover the debt coverage.

But we are in the middle of the discussion there on the conclusions.

It'll just be a calculation on what we are doing there.

In addition to that, I think in order -- the main -- well, not the main, but one of the things that we will, obviously, do is sell sufficient volumes in order to satisfy the debt.

And then anything over and above that, we'll, obviously, try and maximize the possible returns, but the structure for that isn't yet defined.

We will take our next question today from Fotis Giannakoulis from Morgan Stanley.

Congratulations for the latest announcement with Equatorial Guinea.

I want to focus on that and try to understand how comparable this project is with the previous 2 FLNG projects that we're working on.

From what I see, this is an existing field that is already producing liquid.

Can you give us a little bit more color on the cost of gas and the economics of this project?

And how this compared with the other 2?

And more specifically, I want to ask, a few months ago, Charif Souki offered an $8 delivered price of gas to Asia.

Is this something that you can deliver?

And what would be the equivalent delivered cost from this Equatorial Guinea project?

Well, this project is very preliminary.

It is -- what we have agreed is to agree to try to see whether we can find a feasible solution.

This is a state oil -- state-led project.

So -- and it's, as you said, it's on an existing field with different oil companies involved.

We will act as a midstream provider mainly, in the beginning, to try to see whether we can find a midstream solution.

The gas of these fields, there are, you can say it's 2 different boats, one is -- one of the field they are producing today, they are reinjecting the gas, and -- sorry, [ship] the gas.

We don't know exactly the quality of the gas, but what we have seen so far looks quite promising.

There is then another field, which is a pure gas field.

We don't know exactly the gas composition there either.

So there is -- it's a very, very, very early stages when it comes to this.

But when it comes to the technical solution, if you say that the gas is comparable to something between EG and Cameroon, it's a very comparable project, and you can be able to utilize more or less exactly the same technology.

But it's too early, it's a lot of commercial work, it's a lot of technical work, which needs to be done before we know whether this is a real project or not.

When it comes to cost, we believe that the gas from our West African projects should be in the region of -- into the vessel at around $2.

Then we have, let's say, $2.50 to $3 liquefaction toll, and then $1 in transportation, then $0.50 in regas.

I think we are able to meet what the number you just mentioned.

I want to ask you about what is your view and your take from your discussions about the commercial reach of LNG?

And if the buyers are there to sign long-term offtakes and if you can give us a little bit of an overview of the commercial environment and the appetite of buyers for long-term gas?

We are in discussion with different offtakers, there are traders, there are companies, there are different type of companies, and it seems that there are real interest for offtake from our project definitely.

Everybody see that we are on the low cost end of the -- of an LNG production.

We are competitive, down to equivalent oil price of $30, $40.

So I think we see that there are demand for these type of projects.

If you look at the flow of LNG coming out of the market over the next few years, we believe that LNG price will be quite challenged.

And of course, that will also lead to that -- quite a lot of projects will be not able to take FID which -- but, however, we are trying to cut the cost further in order to be even more competitive and increase our competitiveness.

But when it comes to offtake, a lot of different structures are discussed.

Personally, I believe that our cost breakeven for West African project, if it wasn't for financing and our partners, I think we would go much more in the spot market on those cargoes and they did great, I think, in Europe.

So we will just make sure that we are able to get rid of the LNG, and then we are open to the spot market, which I think will be higher than what we see in the long-term market for LNG sales today.

We will take our next question today from Gregory Lewis from Crédit Suisse.

Actually, I'm going to ask you just a -- as I look at the stock down 8%, the press release looked pretty good, the presentation looked pretty good.

As I look at the language, you mentioned that the Hilli, potentially the delivery schedule is tight.

Now that's fine.

I guess, what I'm wondering, is there any penalty if the Hilli were to sort of just start up a month or 2 late?

Does that matter at all, other than the realization -- other than the delay in realization of cash flows?

No.

First -- I'll answer the third question first.

There are no penalties before after 6 months plus 21 days.

So even if we are 2 months delayed and we used 4 months for commissioning, there are no penalties for us as such.

And what I said -- yes, so that's very important to understand.

When it comes to the tight schedule, it's -- we don't see any showstoppers to complete this vessel, so there are no technical problems, engineering issues, there are no missing equipment or anything like that, misalignments.

It's just to get it completed, and we are pushing there on every day and on there every second week almost.

And we are -- we believe that we are able to deliver this in the region as we have said -- the dates we have said.

So but I think it's a very good question.

There are no penalties as such before after 6 months after 1st of October plus 21 days.

Then there is $100,000 penalty after that for the next 180 days, is it?

Yes.

Okay, great.

And then on the Tundra, I don't think it was a surprise that it was put back.

But I guess if you could talk a little bit about the arbitration.

I mean, it looks like -- is it correct that you've already received the $20-plus million for the 2016 period?

And if you could just sort of update us a little bit on that and -- as well as potentially where we -- what could happen to the Tundra over the next 6 to 12 months?

Greg, so the award that we mentioned is an interim award.

The arbitration has given us an interim award.

It hasn't been sent to our bank account yet, if, I think, it's the question that you're trying to get an answer to.

However, the next step for us is to get a formal judgment on that award and then enforce it, and actually get the money.

In addition to that, we would also then start claiming on the second half of what is due to Golar at the moment.

And given that we've been given an interim award in our initial claim, then we would expect the same on that also.

And as far as the Tundra position is concerned, we are still in dialogue with the charterers.

But as we mentioned during the call, what we want to be able to do also is continue to press them that this is what we're talking to them.

We are -- we have to enforce our legal rights under the contract.

And that's been made clear to the counsel, I think.

We will take our next question today from Herman Hildan from Clarksons Platou.

The first question is on the start-up of the Hilli.

I mean, we've seen over the -- in recent times that the solution of the barge using the same technology as you.

What -- also, I guess, there's been some learning from the Petronas FLNG.

Can you kind of try to walk us a bit through what do you see as the key learning from what you see from the Petronas FLNG?

And also what do you see as a key to get the successful start above the Hilli?

We -- when it comes to the startup of the barge in China that was delayed, not mainly due to technical issues, it was more commercial issues.

And the actual commissioning of the barge was pretty straightforward, when they actually started it.

What we learned from that project, you have the same commissioning manager from Black & Veatch on our project, so we have all the learning from that project into our project directly.

And what was the main issues was actually it was humidity in the pipes, cleanliness, et cetera, et cetera.

But apart from that, we've seen that we have got all the learnings from that Chinese barge, which has exactly the same agreement.

When it comes to the Petronas vessel, we don't have a lot of knowledge -- we don't really get a lot of feedback from them and also it's a completely different liquefaction process, so I don't think we have too much to learn.

But I think, in general, when it comes to process -- starting up processes like this, we know from the experience from Black & Veatch, which has started up several or more than 20 plants like this.

We know where the problems are, and we are taking measures in order to avoid this.

In addition, we have also invested $4 million, $5 million in a dynamic simulator, so we have 4, 5 people sitting more or less 24/7 testing this process here in Oslo.

And of course, instead of doing this testing during commissioning, we are doing this testing here, and we believe that, that will save us a lot of time during commissioning when these people have been operating this plant.

And so it's a replica of the system on board, and we believe that, that will save a lot of time during commissioning and problems.

So you're not really worried about the (inaudible) startup?

Of course we are worried, but it's not something -- it will work.

It could take time, and I think we are taking the measures in order to minimize the problems during startup and commissioning.

Folks, I'm a bit curious about Equatorial Guinea.

Could you kind of -- you say that the Blocks I and O are there stated, but still you decided to kind of make it, call it, an announcement in the press release.

Could you talk a bit about how that developed?

And why you decided to put it in a press release if it's still very early stages and kind of the dialogue with the government in Equatorial Guinea?

As you saw maybe yesterday, this was announced by the government 2 days ago, so we felt it was applicable to keep it in our press release as well.

But -- and I think it's an interesting project.

We will work together with the government, which will lead the project, and we'll have contacted all the parties and the stakeholders in these blocks.

And then we will facilitate the technical potential and also assist in the commercial solutions.

But it's very early stages.

We will take our next question today from Chris Wetherbee from Citigroup.

This is Prashant on for Chris.

I wanted to follow on Greg's question regarding the tight, achievable language in the materials today regarding the Hilli.

And thank you for the color you've provided in terms of like the first 6 months and the penalties, and that you still expect there's technical issues for the vessel.

But I just kind of wanted to, within those parameters, get a sense of if this was to be pushed past the end of September, would you still expect -- is it fair to say that you'd still expect a startup by the end of the year?

Or is it a matter of weeks, sort of?

If you could just help us think about maybe what you're envisioning, in case there's a delay, how meaningful could that be?

Okay.

So if you -- you can say that there are x amount of work remaining.

So if we have some problems with the progress on that remaining work, then we are talking about weeks, maybe up to a month.

If they both manage to progress the work and have the right progress, you could potentially be at that amount of work in that region.

When it comes to -- if you have -- if you suddenly have a -- so that's how I see it today.

When it comes to -- but if something happens, if there should be an incident onboard, a fire or whatever, then it's a completely different case, but we don't make -- we are making all efforts to take care of the safety and trying to preserve the equipment as it is.

So we are extremely careful when we do the precommissioning in order to avoid these type of incidents.

But when it comes to -- it's nothing which is worried about that we are not able to complete the vessel, it's just -- it's the amount of work.

If you look -- we are spending approximately -- I think in the end, they will spend around 80 million hours capital on this project, which is more like double what they anticipated.

So the scope of work is a bit -- a much higher than they anticipated.

So I'm really not worried in that respect at the end of maybe -- it's not a 6 months delay, it's -- we're talking about weeks, up to a month or something in that region.

Okay, that's extremely helpful.

And sort of picking up on something you mentioned there, the scope of the work has been more than expected, but you guys have been able to come in significantly under budget for the conversion with the equity release coming up upon completion.

That kind of turns to the next project, I'm looking at Gandria.

The $1.5 billion cost, is that -- I mean, it seems like it's higher than what the Hilli was.

Are there costs that could be taking up their equity release that sort of built into that $1.5 billion number?

Or are there -- it's the nature of the project drive that -- sort of change -- makes the difference?

It's a completely different project.

Hilli receives treated gas from shore and are moored at shallow waters.

The Fortuna trial may be a deep water.

It's a much more complicated marine system.

It produces directly from the well, so we need a glycol system, so actually we are manufacturing a completely new bow, which we will not be able to overcome the necessary footprint to take on board the new equipment.

So there are much more equipment on board at Hilli.

It's glycol, it is some more as in the case of when it comes to chugs and so forth and so forth.

So it's a more complicated vessel as such.

(Operator Instructions) We will now take our next question from Magnus Fyhr from Seaport Capital Global.

Can you give -- maybe you can give us an update on the spot market.

I know you've seen some contract there, but what -- where do you have seen the current surplus is in the market?

How many ships are working in the spot market currently?

I don't exactly have the number how many is working there, but if you look at going forward, most of the newbuilds coming out of the -- from newbuilding, they are project vessels.

So the majority of the vessels, the newbuilds, they are going into the spot market, as I said.

I have the numbers here somewhere, but -- and of course, we also see that there are some redeliveries.

Quite a lot of those redeliveries are steam vessels, which is not really competitive to DFDE vessels.

Here we see -- also see that there are some redeliveries on the DFDE vessels, but that's more next year than this year.

But if you look at supply demand on LNG carriers compared to the production, there will be deficit on vessels going forward.

We see more activity in the market these days on request for time charters, both long term and medium term.

We see more activity in the spot market these days than last year.

Actually, we had August more or less booked a few weeks ago.

That's the first time in the group's whole history the whole Golar vessels were booked actually for few weeks.

So that was really good.

But of course, we have been a bit disappointed about Q1 and also Q2 compared to what we saw in the beginning of the year, but we see also based on the reports that a lot of the production will actually start now in Q3 and Q4.

And therefore, we believe that we will see a tighter market going forward.

Magnus, just in addition to that, I mean typically Q2 is normally the shoulder of the cycle anyway.

So to some extent, if you look back in previous years, Q2 is typically the time when you would see a bit of weakness in the market.

And of course, to some extent, that's been precipitated a little bit by the current stakes today.

But I think if you look at the number of -- sorry, the number of production coming online, the number of tonnes of LNG being produced, expected to be produced by the end of this year versus the number of ships that are delivering, there is certainly unexpected impact of that to the current spot surplus.

So whilst we're not seeing an immediate impact, we're not seeing the immediate impact of that now, I think the expectation is, and I think the consensus amongst ourselves, but also of other shipping owners is that, that will have a positive impact by the time we get to the end of this year.

And then controlling so many ships in the Cool Pool, I mean, do you think that could happen earlier?

Sorry, I didn't quite get that.

Would you mind just rereading that?

Yes, with so many vessels that you control through the Cool Pool, and, I mean, let's call it the spot market maybe 30, 40 vessels, I mean, can you see that happen earlier or do you think that's an event in 2018?

I think to some extent, one thing that we've been seeing is that the average performance of the Cool Pool has been above average of the spot fleet -- the worldwide spot fleet.

So to some extent, you can see the impact of the Cool Pool already there.

Now whether or not we would see that earlier, in all honesty, we don't know.

I think simply by the number of vessels being made available by virtue of they could be positioned all over the world.

I think that will have a benefit for us.

(Operator Instructions) We will take our next question today from Matt Niblack from HITE Capital.

Just a clarification on the backlog on the FLNG side.

So is the fact that you've announced a second potential project in Equatorial Guinea, is that a sign that you're less optimistic about some of the other projects you're bidding on, like Cosmos and others, and that therefore, you want to move forward here?

Or do you see a path of being able to execute this as well as some of these other projects you're working on?

So I think the announcement really, to some extent, was just mirroring what the EG government has put out.

As Oscar said earlier, it's very early stage yet in that project, and it has no bearing or impacts on the other discussions that we're having on other opportunities.

It's just another one -- another potential opportunity out there that we're exploring.

Okay.

And now that you're a way into the partnership with Schlumberger, is there an updated view on how many of these boats you could potentially be developing simultaneously that aren't cash flowing?

I think we said previously that we could have 5 projects of different progression in one go.

I think we're not wavering too far away from that of different progression, I should say.

We're not wavering too far away from that, particularly as some of the projects that we're looking at, at least one FLNG vessel requirements.

And so that's -- we're still working under that assumption and, of course, there's being -- we're working on the MARK II version as well, which hopefully could help us achieve that objective.

Great.

And then last question, could you provide some more color on the benefits of the MARK II version?

The MARK II version is -- one thing, you've got the industrializing the production of FLNG version, so it's a bit more standardized.

It's a bigger storage, it's a new vessel.

It could be ultra new or more modern vessel than the Hilli and those vessels.

We are increasing the production.

We are potentially -- we are making a footprint, so we are able to take more complex gas.

We are able to -- we have -- we have space to store condensate, so that means that we are able to take a wider gas specification.

The vessel will also be able to operate in the offshore environment potentially.

So there are many benefits of that.

And the focus here is not only to enhance and look for those vessels, but also to reduce the costs.

We believe that there are potential further savings, so I think we will be able to do that actually.

We will take our next question today from John Humphreys from Bank of America.

I just had a question on Fortuna.

As far as, as you mentioned before, selling enough gas to cover the debt.

If you could give sort of an idea of what percentage of volume that would be pricing parameters, the number of counterparties you're speaking with that would make you feel comfortable enough to cover the debt, and if that offtake contract is critical to FID in mid-2017?

So I think as far as the specific number of amounts to be sold for the debt, for the time being, John, I would rather not comment on that.

I think it's safe to say though that it's a fraction of the amounts that the vessel can produce given the current -- the characteristics of the debt today.

As mentioned, again, we have guys discussing the structure on the offtake.

It is something that we would like to have in place for FID.

But I think to the extent that the discussions now is with limited number of parties, i.e., the fact that the discussions with them sufficiently mature, we've got a very good idea of what we -- what sort of economics we can get out of those.

But the structure isn't yet in place, and that's an ongoing discussion to have.

Okay.

And then the second being on to the possession of the Gandria, if you could just, there were some articles a couple of weeks back about lay-up dispute and things like that of where the -- if you have possession of the Gandria and kind of the status of that?

Yes.

The Gandria has been laid-up for many, many years.

The lay-up of either has really not done the services (inaudible) was expected to do, and there are a dispute around very small amounts.

And we -- and he has -- he is trying to take possession of the vessel.

We are in contact with the police and military and political people in Indonesia, and we believe that we would have solve that in the next few weeks.

I think they're trying to go on board again tomorrow, but we don't think this is a big problem.

It's in the -- so we believe that we will be able to solve this in -- maybe a matter of the next few weeks.

Okay.

So you see a resolution prior to when financing and offtake agreement should come together for FID, so this should...

Definitely.

That is more easier.

We will definitely be able to solve that before FID taken, in one way or the other.

There are no further questions at this time over the telephone.

Thank you, moderator.

I guess that ends the Q1 earnings call for this time around.

And thank you, everyone, for your contribution and participation.

And we look forward to speaking to you again in the next quarter's earnings call.

Thank you, and goodbye.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.