Golar LNG Ltd (GLNG) 2018 Q2 法說會逐字稿

Good day, and welcome to the Golar LNG Limited 2Q 2018 Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Iain Ross.

Please go ahead, sir.

Thank you.

Good afternoon, good morning.

Welcome to the Golar LNG Second Quarter 2018 Results Call.

My name is Iain Ross.

And I'm joined today by GLNG CFO, Graham Robjohns; and our Head of Investor Relations, Stuart Buchanan.

And we also have Tor Olav Trøim on the line from Oslo.

I think this call is notable in that after 4 long years, we finally have the Hilli Episeyo up and running.

We have all our current project commitments financed.

The shipping market, despite a weaker second quarter, is poised for a fairly strong period of sustained growth that will deliver cash into the business.

Our next big project being Sergipe should start generating cash in about 16 months, and we're now focused on the next wave of project investments.

So we are in the most stable position as a company than we have been for many years and ready for that next phase of development.

And on the basis of this stability and firmer markets ahead, today, the GLNG board is pleased to announce an increase of the dividend to $0.125 per share.

Let me hand over to Graham to go through the numbers, and we can come back to the business review and outlook.

So over to you, Graham.

Thank you, Iain, and good day to everybody.

We'll start the financial part of the presentation on Slide 3. As anticipated and communicated in last quarter's earnings release, revenues from vessel operations, which are predominately from the Cool Pool, decreased significantly in the quarter as a result of a seasonal softening in the shipping market.

Our fleet utilization fell from 77% in Q1 to 62% in Q2.

Rates also dropped during the quarter.

And collectively, this resulted in a $16,400 a day reduction in daily time charter equivalent earnings from $36,000 in Q1 to $19,600 in Q2.

However, we expect this to reverse in Q3 with an expected more than doubling of Q2 TCE.

Offsetting the decrease in shipping revenue was the contribution from the FLNG Hilli Episeyo, of course.

She was accepted with effect from May 31, and earnings under the contract have started to be recognized in the income statement from this point.

Our total operating revenues, net of voyage, charter-hire and commission expenses therefore increased from $41.7 million in Q1 to $42.9 million in Q2.

And of the total Q2 amount, $24.8 million is derived from vessel and other operations and $18.1 million from FLNG operations.

Our vessel operating expenses increased by $2.1 million to $20.5 million in Q2.

Vessel -- FLNG operating costs for the Hilli's first month in operation amounted to $3.6 million, which is roughly in line with expectations.

And operating costs for the rest of the fleet fell by $1.5 million, offsetting some of this increase.

As a significant part of our G&A costs, we have split out project development expenses from admin expenses this quarter.

These costs include costs associated with the pursuit of specific potential projects and contracts, an increase from $3.3 million in Q1 to $7.9 million in Q2.

The FLNG project development expenses of $6.8 million are predominantly represented by FEED expenses incurred in respect of FLNG conversion project for the BP-Kosmos Tortue projects.

Most of the $1.1 million vessel and other operating-related project costs are recharged to affiliates Golar Power and Golar LNG Partners.

The Brent-linked component of Hilli Episeyo's invoice fees generates additional operating cash flows of approximately $3 million for every dollar increase in Brent crude prices between $60 per barrel and the contractual ceiling.

Monthly billing of this component is based on a 3-month look-back at average Brent crude prices.

This hire component for June amounted to $3 million and has been paid in July.

The fair value of the derivative asset, i.e., the value as at June of the potential future cash flow from the oil-linked hire component, increased by $94.7 million during the quarter, with a corresponding unrealized gain of the same amount.

The fair value increase was driven by changes in the market expectations of future oil prices.

And of course, Brent spot prices increased from around $67 at beginning in the quarter to $77 per barrel at the end.

Together with the realized movement to $3 million, this results in $97.7 million realized and unrealized gain on FLNG delivered -- derivative instruments.

Depreciation and amortization increased as a result of the Hilli Episeyo becoming a depreciating asset.

For the rest of the fleet, it was pretty much in line with the previous quarter.

Interest expenses increased by $10 million to $24 million mainly due to the interest on borrowing costs in respect of the Hilli no longer being capitalized post acceptance and a general increase in rates and an increase in the amortization of deferred debt-related expenses.

Other financial items reported a Q2 gain of $1.8 million, which predominantly represents noncash derivative valuation movements in connection with our equity TRS, interest rate swaps and Golar Partners earn-out units derivative.

As a result of the above, net income for the quarter was $36.3 million.

Moving over to Slide 4 and the balance sheet.

There are a few movements this quarter, the most important of which relates to the drawdown in additional Hilli debt and the resulting cash increase.

Our total short-term cash position as at June 30 was approximately $650 million, of which $375 million was unrestricted.

The increase from $172 million free cash as at March 31 is as a result of our having drawn down post-acceptance $960 million lease financing facility for Hilli Episeyo and having repaid the $640 million construction financing facility.

It should be noted that Q3 -- during Q3 2013, we expect --- 2018, we expect to pay approximately $130 million out to settle final Hilli capital commitments as well as amounts due to minority shareholders Keppel and Black & Veatch.

As a result of the commencement of operations of Hilli, the asset has moved from assets under development to vessels and equipment.

And we also have a movement between short-term and long-term debt and a net decrease in debt as a result of the -- increase in debt as a result of the drawdown of the new facility.

Moving over to Slide 5. We now are in a pretty strong financial position with the acceptance of Hilli and the drawdown of the new long-term lease facility, the closing of the Sergipe financing earlier in the quarter and the commitments Golar Power has received for the Nanook FSRU, all of our and our affiliates' capital commitments are fully funded, and we have $375 million worth of free cash as at June 30.

We are also well progressed with work on financing our new as yet uncommitted projects.

The table on the bottom left shows an analysis of our short-term debt, which has reduced significantly this quarter as a result of the new long-term Hilli financing.

However, we still have $538 million of debt related to bank leasing subsidiaries that, under U.S. GAAP, we are required to consolidate so-called variable interest entities.

However, the vast majority of this debt is not short term to Golar, but GAAP requires us to disclose it as such.

We also have 2 sale and leaseback facilities, the Tundra and Seal, that are both long term but have requirements for term employment by specific dates.

If term employment is not in place by these dates then the bank has an option to require repayment.

We have previously extended these facilities, and now the Seal has a December 31, 2018 employment deadline; and the Tundra, June 2019.

We now are in discussions again with the banks with regards to a further extension of the Seal.

Of course, the result of rising shipping markets significantly increase our options with regards to financing these vessels.

And finally, in the bottom right of this slide, we've shown an analysis of our debt between security class and our net debt position.

So thank you.

And with that, I will hand back to Iain to carry on with the rest of the presentation.

Thanks, Graham.

I'll now go through our business lines of FLNG carriers and power starting with FLNG on Page 6. So Hilli fully accepted by our charter on the 2nd of June with the effective date at the end of May, all 4 trains have been commissioned and tested above nameplate capacity.

Hilli has and continues to operate with 100% commercial availability.

We're very pleased with the way that we're progressing with the vessel, the crew is becoming comfortable with the facility, learning as we go.

And of course, that experience becomes invaluable for the next project.

We've successfully offloaded 5 cargoes to date, and as we speak, are currently offloading the sixth.

We'll continue to focus on production uptime and optimization, demonstrating we are ready to receive more gas from our charter at Perenco when they feel it's the right time to increase production and utilize the third and potentially fourth trains.

Moving on to the BP Mauritania and Senegal project.

Just as a reminder, this project is for an FLNG unit similar to Hilli on a tolling arrangement for 20 years.

The FEED update is being progressed at pace.

We've got a couple of months to go on that.

And there continues to be strong appetite from the lenders interested in financing the project, and that aspect is moving along nicely.

BP is indicating to shareholders that production is targeted to commence before the end of 2021.

So we are gearing ourselves up for an FID decision whenever BP is ready to go, remembering that the overall Tortue project is not just an FLNG vessel but also includes an upstream subsea development, an FPSO and a large breakwater.

So we're continuing to work closely with BP to do all we can to assist them in taking FID for the overall project.

If we look at the FLNG pipeline on Slide 7, in the last 3 months, we've taken control of the FLNG portfolio that was held within OneLNG and we've built a small team around the technical and the commercial development of these potential opportunities.

We are seeing Hilli's proof of concept triggering new interest and adding momentum to existing discussions.

I think that people are really starting to take notice, not only the cost and schedule achievements of Hilli, but also the uptime we've achieved from startup.

This is clearly evidenced through the number of cargoes delivered to date.

We think this is a truly disruptive solution in an industry sector that's not known for its disruptive solutions.

So Golar can create viable early production systems and monetize stranded gas in a way that's now proven and de-risked compared to just a few months ago.

The pipeline of opportunities is being developed.

We've had teams in West Africa in particular having various discussions to move projects along.

And it's clear that our Hilli performance is giving some project sponsors more confidence in our solution.

We have 2 or 3 strong prospects that we hope to be able to take to the next stage in due course, and we also remain committed to obtaining access to gas reserves as part of this strategy.

And in time, we still believe that this will bring enhanced value.

Building on experience in the last few years, we're currently evaluating alternative shipyards that offer more attractive payment terms and long-term financing packages, particularly on the back of the Mark II design, which lends itself to modular construction.

It has higher LNG capacity, it can deal with more complex well streams and can operate in harsher met-ocean conditions.

And on the Fortuna project, to say something about that.

Fortuna continues to be worked.

We certainly have not given up on it.

But really, we can't provide any further information at this stage other than to say that we've made some progress on financing, and there are several interested parties actively considering a position in the project.

So FLNG is obviously a longer-term play that requires project investment to be successful, but we really like this segment as it brings in stable long-term cash over a very long period.

It's difficult to do, but right now, we're leading the market.

And the Hilli deployment remains a clear differentiator that we will try and maintain for as long as possible.

Moving on to more short-term cash inflows in the shipping market.

We retain and maintain our view that the LNG carrier business is poised for rate growth over the coming quarters, and as such, will hopefully bring a long period of earnings drag on the Golar business to a close.

Put simply, a forecast 23% in LNG production over the next 2 years is expected to require some 100-plus vessels to be able to transport that LNG.

Only 66 vessels are currently scheduled to deliver.

And, therefore, it's no longer possible to go out today and order a vessel for delivery before 2021.

And it seems to us to be a structural change in the sector that will have an outcome of driving demand for carriers up, therefore, increasing utilization and ultimately moving the carrier rates up.

In terms of how this has played out, as Graham mentioned in the last quarter, we did see a softening of the market, which we forecast and that led to a halving of the TCE earnings from the first quarter.

But then we saw rates pick up again late May and early June, which we'll see in our third quarter earnings.

And so we expect TCE for Q3 to be at least the same value as Q1, if not higher.

A couple of other indicators that support that.

We're seeing some charterers keen to lock in rates before they go too much higher, and as a result, they're approaching the market for multi-month and multiyear charters.

And in addition, unsolicited offers are also being received for the purchase or potential purchase of individual steam and TFDE carriers.

So we're seeing similar dynamics to those that played out in the second half of 2010 being repeated today.

Based on these supply-demand dynamics, Golar expects to generate significant EBITDA and free cash flow from its carrier fleet over the next 2, 3 years.

You can see from the graph in the bottom left-hand side on Slide 8 what the impact of the TCE rates has on the EBITDA contributions from the ships.

Moving over to the FSRU and power sector.

The Sergipe power station project in Brazil continues to make very good progress and remains on track for January 2020 startup.

We currently have over 2,000 workers on-site installing the main GE supply turbine modules, the pylons and other transmission infrastructure that you can see in the photos on Slide 9.

The FSRU Nanook is due out of the yard in Korea in the next couple of months and will be ready for commissioning in Q1 2019.

That project is fully funded, equity is paid in, the FX exposure has substantially been hedged.

The FSRU financing commitment has been received and the documentation is in its final stages.

From that finance, we expect to release a further $70 million of cash back to Golar Power, on completion and drawdown of that facility, which should see that joint venture self-funding their near-term development.

Our share of expected EBITDA is around $100 million for 25 years, and that's a similar proposition to the FLNG business.

And it's a steady income cash flow for a long period of time after project build phase.

Golar Power is also concluding its options and strategy for participation in the upcoming power auctions in Brazil, and we've got 2 auctions planned between now and the end of the year.

Just moving to the FSRUs.

You have previously heard our views on the challenging nature of the stand-alone FSRU market.

And whilst there are plenty of opportunities to chase, we haven't seen so many actually coming to the market over the last few years.

This does seem to be changing with more tenders coming out, and this will hopefully take some of the excess FSRU capacity off the market.

We're looking at opportunities in Europe, Latin America, Middle East and Southeast Asia, and we'll participate selectively in these tenders and especially, where we feel there's potential to become involved in downstream infrastructure, which will include terminals, pipelines and, of course, power stations in addition to providing that FSRU.

Additionally, we see significant potential for gas to displace diesel in many applications in the very near future.

This is driven by both economic and environmental concerns.

On one hand, we have the IMO 2020 regulations that will impact shipping, but we also have more remote communities that are paying huge costs for their diesel-powered electricity.

These things are all demand for gas, and we'll be looking at our options to monetize fair FSRU capacity and become more involved in the LNG distribution side of things such as LNG fuel trucking, switching nearby mines and industry to LNG power, supplying LNG directly to the grid and supporting additional power stations.

Our FSRUs are the strategic assets that enable these smaller scale activities to happen.

We think this business has a shorter capital cycle time that fits in nicely to generate cash for us between now and when the next wave of FLNG and power station projects are complete.

So summarizing and turning to our outlook.

With Hilli Episeyo in full and stable commercial production and the rising LNG carrier market, we expect stronger cash flow from operations in the short term.

And with Sergipe due to come onstream beginning in 2020, the potential to fix one or more FSRUs on longer-term contracts and the interesting small-scale LNG and LNG distribution market, we expect to see stronger cash flows in the medium term.

And with our proven low-cost and fast LNG concept leading to one or more project FIDs over the next 12 months plus further development of our power business, we expect to see an increase in longer-term cash flows.

Supported by these solid fundamentals, a fully financed balance sheet and a self-funding Golar Power, the board has decided to increase the quarterly dividend from $0.05 per share to $0.125 per share.

Further dividend growth should be expected as the shipping market improves and cash flows from long-term contracts in Golar Power commence.

So thank you.

Before we hand back to the operator for questions, I'd now like to introduce our Chairman, Tor Olav Trøim who's kindly joined us on today's call to say a few words.

Thank you, team.

Thank you to Graham and Iain for their presentation.

I have a fair amount in Golar been asked to have 3, 4 minutes on the -- before the Q&A.

It was commented after the last call from several of the large shareholders that I, as Chairman and big promoter of the Schlumberger venture, should have been there on the call to take heat from the Schlumberger divorce.

The divorce from Schlumberger was sad, and I really believe in the concept of working together with a great upstream partner.

However, in a partnership, you also need a partner who are willing to commit the necessary resources to the partnership.

After Schlumberger in January committed not to do any further material investment in the SPM area, this partnership was clearly not working.

That had nothing to do with our belief in Fortuna project.

It had all to do with their appetite for SPM investments.

It was more about Schlumberger's commitment to their shareholders to focus on existing business than on a valuation of what they were doing together with us.

As stated by Iain, the termination of the Schlumberger agreement has opened new doors and in many ways improved the outlook for this and other prospects.

The Fortuna project is a project which showed great return with LNG prices at around $4 and these obviously are showing significant better return with LNG price at $8.

100% of time and delivery significantly under budget is, in addition, a great testimony to the Golar staff in commencement with the Hilli operation.

It's probably the best advertising for FLNG solutions to monetize stranded gas.

Perenco's return on the first LNG transaction done on a speculative basis is nothing else than spectacular.

I've been involved in Golar for 19 years.

I've all the time been a firm believer in LNG solutions.

Today, I will accept that we started far too early.

At the same time, now it's happening.

The parity to oil is broken, the first line the company have placed are LNG newbuilding orders.

China is delivering as many LNG trucks as Tesla delivering cars, and the big trains from Australia and America is commencing.

LNG is, today, both cheaper and cleaner than alternative fuel uses.

As stated in our Capital Markets Day, there is today a $500 billion yearly arbitrage substituting expensive oil products with cheaper and cleaner gas.

The Chinese clearly see this, looking to a 50% growth in import this year.

This and the opportunity pipeline we today have in Golar makes me excited.

We in Golar generally believe that stranded gas today is one of the most undervalued assets in the LNG chain and thereby also one of the biggest value creation to monetize.

Golar is, with its technology, uniquely positioned to capture this opportunity.

I'm pleased to report that the board of Golar, in connection with the quarterly meeting, revisited our dividend strategy.

We are today nearing completion of a $4 billion investment phase and moving to a cash flow phase, including Hilli, the improved shipping market and the Sergipe and Nanook commencement.

We are fully financed for all the existing activities.

And we had as at June 30 the cash position, including restricted and unrestricted cash, in excess of $650 million.

In view of this, the board agreed to increase the dividend 150% from $0.05 a quarter to $0.125 a quarter or $0.50 on an annual basis.

The board has, at the same time in the Q2 report, given a strong commitment to shareholders that the target is to increase the dividend further in the period to come as the cash flow continues to increase.

This is supported by the contract -- already contracted deals as well as the strong improvement we today see in the shipping market.

Golar is today a fully integrated company with pieces of the puzzles which comes all the way from producing LNG to producing power.

It's a very different company than when we started 20 years ago or even 10 years ago.

I accept that it is a complicated structure, and it's particularly complicated because of the now unwinded OneLNG and Golar Power.

But I hope we, over time, can make it more transparent and easier to understand.

However, the most important thing for me as Chairman of this company and beneficial owner of more than 5.5 million shares, including shares I bought also this year, is that we're coming to start of the cash flow period.

This includes unique projects like the Sergipe and Nanook projects which will start next year, generating cash flow of more than $1 million a day for the next 25 years.

Golar's LNG shares of that cash flow is more than $100 million on a yearly basis.

And the EBITDA backlog based on this project, isolated, is actually larger than the market capitalization of Golar LNG.

I hope my participation in this call confirms to everyone who complained about my no-show in the last call that I as Chairman and large shareholder stands truly behind and are very confident of developments in the our company.

We have a super competent management, which execute extremely well in what is from time to time a very frustrating and bureaucratic business.

I am, as Chairman, however, very excited and confident about the prospect of LNG as cheap and clean energy source and the opportunity this will create for Golar to deliver some return to our shareholders in the years to come, a very good return.

In many ways, in all my business life, which includes 19 years working in the Fredriksen Group, I've never been more excited and convinced that we are in the right growth commodity business.

I want to leave that and hope this gives some evidence that kind of the whole team of Golar are super excited about what's going on.

It is frustrating from time to time, the time it takes to do deals.

But when you can do deals with fixed return cash flow of $1 million a day per day in 25 years, it's -- I think it's all understood by everybody that it takes a little bit of time.

Thank you.

And I hope some of the confidence Iain, Graham and I are trying to give you today also gets reflected by the investors in the period to come.

Thank you.

Thanks, Tor Olav.

And with that, I'd like to hand back to the operator to start the Q&A.

(Operator Instructions) We will take our first question from Jon Chappell from Evercore.

Graham, first one for you, kind of technical but hopefully important.

Can you just help us understand how this Brent-linked part works?

I mean, $94 million addition to the derivative in one quarter seems pretty significant.

And I know Brent was significantly above $60.

But still, is this kind of your forecast over the 8-year term of the contract?

Is this over a 1-year period?

How do you get to this $94 million?

And I guess, most importantly, when does that then translate to real cash on Golar's financial statements as opposed just to this mark-to-market?

Yes.

So Jon, so the real cash comes in the form of the ratio that we gave: that for every dollar that Brent oil is above $60, we earn $3 million a year in cash flow.

So if Brent is $61, we earn $3 million, et cetera, et cetera.

And that will come in over the 8-year term in a monthly basis.

The derivative movement is because under U.S. GAAP, that element of the contract is deemed to be what's called an embedded derivative.

And the valuation is arrived at by looking at the forward oil curve out for the whole contract period and effectively discounting all the expected future cash flows back to today.

And so it's an NPV movement of the total potential value of that element of the contract over the whole contract period.

Okay.

And are you using the -- an oil curve for that?

Or is that an internal estimate?

It's an oil curve, yes.

Okay, all right.

I understand.

And then second one for you, Iain.

Can you just give -- provide a bit of an update on train 3?

I mean, it seems if all 4 trains from Hilli have been up and running above nameplate capacity, the gas is there, no incremental investment: seems to be a slam dunk.

Any update as to the timing of this or what the holdup may be?

Well, I think you've summarized it quite well, Jon.

I mean, we remain engaged with Perenco and we remain ready to accept additional gas.

They've got some issues to work through on their side.

I guess, the important thing from our point of view is there's no further CapEx required for us, and we are ready to roll with train 3. And you've got to think that it's a strong economic prospect for Perenco.

But other than -- I can't say any more than that until we got something firmer to discuss.

But just to be clear, they have enough gas also to fill train 3, right?

I mean, I was always under the impression that if you were to fill train 4, they may have to tap into an adjacent field.

But based on the current field as it sits for trains 1 and 2, that could also fill train 3. So maybe it's an offtake issue, not an investment decision on Perenco's part.

Yes, I think it's quite a complicated story because they've got their gas -- they've got other uses of the gas and perhaps other commitments.

They're just probably trying to work through how they -- sources and uses of gas rather than sources and uses of money that we normally talk about in this call.

So I think it's something they're still working through.

And I remain hopeful and confident that we'll get train 3 occupied and earning cash for us in due course.

But unfortunately, we just can't put a time line on it right now.

We'll now take our next question from Michael Webber from Wells Fargo.

So I wanted to touch on, I guess, one macro question and then on Golar Power.

At a high level, we've been hearing a lot this earnings cycle around the impact of Chinese tariffs on the LNG story broadly.

And there's certainly a case to be made that more expensive U.S. gas on a relative basis should make global projects that much more competitive.

I'm curious, maybe it's a question for Tor, but are you feeling that yet in your discussions with customers and counter-parties?

Maybe a heightened sense of urgency from them around the idea that, hey, the window's open a bit more now where some of these projects are more competitive globally while the U.S. is dealing with tariffs?

I'm just curious, you guys are positioned kind of -- you guys are in an interesting position, being a U.S.-listed company that's levered to global projects as opposed to being levered to kind of the U.S. tariff muck.

So I'm just curious whether you guys are feeling that now and, if not, how you would expect that to trend over the next 6 to 9 months.

Maybe I'll take that.

So look, it's hard to see how the tariffs will bite.

But if there is a negative impact on the U.S. Gulf Coast export projects, we would feel that that's a positive for us for our West African FLNG opportunities.

We don't think that the tariffs will necessarily impact the demand side, so the LNG has got to come from somewhere.

And if there's no negative impact on the U.S. Gulf Coast, then it's still a positive for us as we believe we've got the cheapest LNG solutions.

So at worst, it's neutral, and at best, it's a positive for us.

Okay, that's helpful.

Around Golar Power, at the Investor Day, you guys had talked to some -- a late August kind of a key energy auction that was going on around this time.

I'm just curious whether -- if you can maybe speak to a bit more detail around the progress or likelihood of both kind of an additional FSRU in Brazil as well as the extension, potential extension of your Golar Power project in Sergipe.

So what I could say is that there are -- yes, there are 2 auctions coming up.

One is later this month in the next week, I think, and then there's another one in November.

And we're looking at our options and tactics around both of those.

It's quite a complicated scenario, and -- but we remain committed to engage in those auctions and try and get our best outcome.

So let's -- we'll have to just wait and see.

I just can't tell you any more than that over this line obviously.

How we choose to play and plan to participate is our tactical positioning and I really can't share any more than that with you at this time.

Okay.

And if you'd forgive me, just to jump back to Jon's question then I'll hop off.

Around train 3, your export license -- or Perenco's export license in the country's volume based over 8 years.

And is it fair to assume that the green light of train 3, we would need to see documentation go to the Cameroonian energy ministry to up that license?

And is that kind of a fair way to look at the progress there?

I imagine so.

I think it's probably -- generally, they probably have to do that, yes.

Okay.

And do you know if that process has started yet or no?

I don't believe -- I don't know because it would be going from Perenco.

So we're not privy to that level of interaction between Perenco and the government.

Right, you're already ready to go.

Okay, all right.

I appreciate the time.

Yes, we're definitely ready to go.

We will now take our next question from Ken Hoexter from Merrill Lynch.

Just wanted to follow up on the -- your comment earlier, I think it was either Graham or Iain's, on the BP financial commitments.

You said the banks were very willing to move forward on the BP line.

And just wondering what happened that is different there versus the Ophir move to get financing.

I mean, it seemed like that, that was dragged on by just the financing question.

So was there a -- is there a difference in project commitment from the start?

Or just wondering why the difference where they seem to be getting the financing approval from your comments earlier at an earlier stage.

Maybe I'll start, and Graham may choose to add something.

I mean, there's a fundamental difference between the 2 projects.

One is a project that's -- well, was supported by Schlumberger, and we're obviously in the process of replacing them.

But it's in a country with probably a lot more perceived political country risk in EG than anywhere else.

And in the other project, you've got BP substantially standing behind their financing package, which makes it obviously a better country risk and a more appealing security package for the lenders.

Graham?

Yes, no, I think that's right that it's exactly as Iain said.

Then also, I think that we have seen generally improving confidence in the financing of FLNG units following the start-up and successful operations to date of the Hilli.

I think that's helped a bit as well.

Great.

And then just following up on the cash side.

Is there still restricted cash tied up to the Hilli?

Or now that it's turned live, is the whole large amount of kind of stair-step function of releasing of the restricted cash, has that all been released at this point?

No, it hasn't.

The -- on the balance sheet, the long-term restricted cash of $175 million relates to that Hilli LLC, give or take.

And that will, as you said -- looking at it, will drip out over time, but not -- there'll be some amount that will come out in about a year's time and then a bigger amount that's comes out in a couple of years after that.

So it's more time focused than kind of third, fourth train ramping up?

Yes.

No, it's purely time, yes.

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

Iain, I want to ask about your press release.

You mentioned that you are in the process of evaluating alternative shipyards that they can offer more attractive payment and financing terms.

I'm wondering if you are implying Chinese shipyards, if you think that you could build FLNGs in China in these shipyards, they can provide debt financing?

And what would that mean for your -- the expansion of your pipeline and the potential projects that you could realize if you have the backing of a Chinese inc.

both on the construction and also on the financing side?

So it's a fair -- it's a good question, Fotis.

I mean, it's exactly what we're talking about as one possible scenario, yes.

And I referenced the Mark II design, which is a modular construction.

It's easier to build and lends itself to a variety of different yards that could compete for it.

And obviously, if our solution linked Chinese construction, Chinese financing and potentially Chinese offtake, then that makes for a nice little circle to help some of these opportunities that we're looking at going forward.

So yes, that's why we're considering a broader sweep of builds, if you like.

And I'd just reinforce that it's the Mark II design if we were going to move to do something different.

So hopefully, that answers your question.

Yes.

I mean, is there a timing when you think you should have a good confidence that the Chinese, they can build this FLNG and provide financing?

We already have confidence that a Chinese solution for FLNG is viable.

We've already done that work and bidded the yards.

One more question about the shipping market.

The rate environment is significantly better than it was a quarter ago, and the market seems to keep improving.

I know that in the past, there were some discussions about spinning off the shipping fleet or even merging with another one of your peers.

Is this something that you're still considering, how a certain event could happen?

And when would you position the timing?

So we continue to consider everything that will add value to the shipping fleet, including a combination of all sorts of structures.

What I would say is it's easier to get real about these things when the rates are actually up rather than when we think they might be going to go up.

So it's still something under consideration on what we do with the ships.

We're certainly looking forward to them producing more EBITDA in the short term, that's for sure.

We will now take our next question from Greg Lewis from BTIG.

Iain, in your prepared remarks, you mentioned Brazil as a ripe opportunity set for Golar Power.

I'm just wondering, I think the last time we spoke, you mentioned the potential opportunity in Barcarena.

Is there any -- can you provide any update or color around the potential for this project as we look forward over the next 12, 18 months?

So Barcarena is one of several locations that we're looking at as potential sites for obviously FSRU combined with power station.

And if you recall the previous question around the auctions, that's how we get into those.

So we've got to go through a fairly elaborate process of becoming qualified for any of the power auctions and determining where we can, if you like, bid that supply from.

And Barcarena is one of them, and we're currently juggling a number of those opportunities.

And obviously, with the auctions coming up, it's not appropriate that I give any more detail on that just now.

Barcarena remains a very attractive project opportunity for us, amongst several others.

So we'll just have to see how those auctions play out.

And just to -- it is quite complicated, but it's all driven by the requested demand on the auction side, and that depends what we bid in at the time of the auction and where we bid it in from and the terms at which we are prepared to bid it in from.

So it's quite a complex moving feast of opportunities.

But Barcarena is an attractive project for us, and I'm sure we'll get in there over time whether it's this auction or one further down the road.

Okay, great.

And then on Fortuna and realizing you can't comment much about it, but I think at one point, it was talked about moving the Gandria in and starting the conversion process.

Has that process actually been started?

Or is that sort of on -- is that on hold at this point?

So the Gandria is currently in the Keppel Shipyard in Singapore, and all we've really done is ship surveying and proprietary work.

We kind of put things on pause a little bit with Schlumberger's exit until we can find a new, I guess, cosponsor for the project.

So the survey work's been done, and the ship's sitting there, but we're not currently pushing ahead with any physical activity on the ship pending resolution of how we take the project forward.

Okay.

So -- but -- and just to follow up on that, as I think about that unit there, is there the potential for it to actually leave the yard?

Could -- in other words, how easy would it be for you to move the Gandria to another facility?

It'd be very easy.

We will now take our next question from Herman Hildan from Clarksons.

So the first question.

Obviously, up until this point, I guess the big discussion point with your counter-parties has been obviously the liability, the technology and everything.

Now you've proven that, that works.

What's the -- is financing kind of the main obstacle these days to executing the FLNG project?

Is that fair to say?

It depends which project you speaking about, Herman.

If you look at BP, I think it's just time.

We've got to work through a series of FEED update issues, conclude the financing, conclude our contractual deals both up and down that supply chain.

So I don't think there's a particular barrier there other than BP's desire to take that project forward.

And I think we've talked about Fortuna, that financing has been a barrier in the past.

What I can say is we feel we've made progress in the last 3 months on financing, and we're continuing to get interest from different project participants to move into the slot that Schlumberger had.

In other opportunities that we are looking at, it's too early to say whether finance will be an issue.

But what we do know is that as time goes on, we're relatively confident that if you -- well, let me go back a bit.

If you look at the FPSO market and the financing appetite for FPSOs, when they were first introduced, there wasn't much appetite, and some of the constraints around financing were fairly significant.

And now it's very easy to get FPSO financing.

We think FLNG will go the same way with confidence.

It just so happens that we've, for the last 2 to 3 years, chosen a particularly difficult project in Fortuna to get going from a financing point of view.

I don't know that that's necessarily representative of the whole suite of opportunities.

If you look at those 23 projects that you did kind of on the FLNG opportunity side, first of all, like what's the time span on expected FIDs on those 23 projects?

And the other one is a follow-up question.

And that's obviously, now there's been some -- quite a lot of -- I mean, there's been 30 -- some 30 LNG ships ordered.

And I think now we're looking at 2021 delivery, if you're doing newbuilding.

So kind of the LNG market has flipped upside down, I guess, both from the commodity point of view and your capacity and the delivery schedules and with rates strong even before we go into the winter.

So I'm just kind of curious obviously, you're soon in the position to cherry-pick the projects that you want to pursue, I guess.

And just kind of how is your feel on your position in relation to all these different projects?

So I would hope that in the next 12 months, we get one or more FID approvals for FLNG projects.

We're not, in the short or medium term, contemplating doing anything other than working on projects where we codevelop the opportunity.

So we're not bidding anything.

We're doing it on a -- it's either a single-source tolling basis or we're codeveloping the project.

And to that extent, we are choosing or cherry-picking the opportunities that we want to take forward.

The key here is if you look at that slide as well, these dots on it, we could employ a team of 150 people doing endless studies for everyone that's interested in FLNG at the moment, and we don't want to do that.

We don't want to waste money, and we want to try and get close to project proponents that are serious about taking LNG as their solution or floating LNG as their solution.

And we work with them to kind of codevelop how we move that forward.

In relation to the shipping market, the shipping market will just be a boost for us as we go along, providing additional

(technical difficulty)

to the company over the next few years and help us with what we want to do on the project side.

Yes.

Very final question, also target return on capital for new growth.

Could you give some guidance on what we should expect there?

When you say new growth...

.

Pure tolling and more integrated -- yes, I know it's a very wide answer to that.

But let's say from the pure tolling solution to a more integrated solution, what kind of range are you looking at in terms of return on capital to get you interested?

Well, for FLNG projects, which I assume you're referring to, we're looking at the mid-teens plus, plus-plus depending on the exact structure of the deal, whether it's kind of straight tolling or if there's something more complicated.

But I think that's -- we've talked before a little bit about where we think we should be deploying our capital, and it comes FLNG, number one; FSRU, number two; and shipping, number three, and for the reasons that the returns on FLNG are much higher obviously.

We will now take our next question from Randy Giveans from Jefferies.

So 2 quick questions here.

For the Hilli trains 1 and 2, obviously, the first 50% were dropped.

What is the time line for the remaining 50% drop to GMLP?

Well, as we referred to in the earnings release, both in GLNG's and GMLP's, we have restarted discussions, if you like, post-acceptance and proof of concept, et cetera.

And those discussions are ongoing.

It's -- I don't think we can give you a precise time line on it, though.

Could that be a 2018 event?

Well, everything's possible.

Okay, that's fair.

Now looking at the dividend, what drove that decision to kind of increase it?

I know it's basically a payout from $20 million to $50 million on an annual basis, so not a huge change, but is that kind of a sign of confidence in your available liquidity, balance sheet strength?

And then I know Tor mentioned that possible further increases are a possibility.

So would that require additional projects coming online?

Or could we see that in the coming quarters?

Well, I think just kind of reiterating what Tor Olav said, it's -- I'm trying to sort of summarize that very simply.

We come from a situation where we've had negative cash flow to positive cash flow.

We see that cash flow increasing significantly in the short term with obviously the ramping up of a full quarter's cash flow from the Hilli next quarter and the shipping market rapidly improving.

And we see that improvement being sustained over the next couple of years.

And of course, we've got the Nanook and Sergipe cash flow coming in the sort of short, medium term.

And we are coming from a very financially secure position.

Everything is fully financed, and we've got cash on the balance sheet.

So that's really what's driving our decision.

And as we build the business out, I think shareholders should rightly expect the distribution to increase over time.

Okay.

And then one quick question.

So you mentioned your fleet utilization was above 60% in 2Q '18.

What has it been this summer?

It has been -- I think we referred to the fact that we were expecting the time charter equivalent rates to more than -- probably more than double in Q3 versus Q2.

That is a function of headline rate, and it's also a function of utilization.

I can't give you a precise utilization number, but it's going to be higher than the second quarter.

We will now take our next question from Jason Gabelman from Cowen.

Just a couple of questions.

Firstly, on Hilli train 3, is it fair to say that if you contract train 3, it will also be able to run for 8 years with the given reserves available from Perenco?

Or would it potentially require an additional investment from Perenco to fill full capacity over 8 years?

So I think we've already covered that, and it's largely Perenco's business.

So we will see how that plays out.

All right.

Then if I could just turn to Tortue for a second, what is the probability of a second FLNG being announced for the Tortue project in the next year or soon after the first one takes FID?

And do you see EBITDA generation from those ships being similar to what Hilli could produce EBITDA-wise at full capacity?

So the first part of your question, we're focused 100% on getting the first LNG -- FLNG FID away.

We're not considering the second one, whilst that's clearly an option that BP has.

And secondly, we're not in a position yet to declare what our financial position is likely to be because we haven't concluded the FEED work, which means we haven't concluded our commercial positioning, as I -- we'll circle that X and obviously that links into the finance it as well.

So until all of that work's done, we won't have finalized our deal, if you like, and therefore, until that's done we can't tell you a bit more detail.

What you can take away is the comment that Graham made a few moments ago about our target returns from FLNG.

That's not a bad starting point.

All right, great.

If I could just ask one quick final question.

GMLP's value has obviously been impacted recently.

How important is GMLP for you as a source of cash to sustain the balance sheet?

And as you explore the dropdown of the second 50% of Hilli, are you exploring it at a multiple different from the first dropdown to kind of improve the proposition for GMLP?

I think in relation to the first part of the question, we still are very much believing GMLP is a capital-creating vehicle, if you like, for GLNG, and we own 32% of it.

So it is very important to us.

In terms of multiple, I don't think we can really comment on that.

We're kind of in discussions, and that will come out in due course.

We will now take our next question from Wayne Cooperman from Cobalt Capital.

You got to mine already, so -- great.

It appears there are no further questions at this time.

I would like to turn the conference back to you for any additional or closing remarks.

Oh, bear with me for one moment, please.

Apologies, I see that we have one more question from Chris Wetherbee from Citi.

James on for Chris.

Had a question just about the preference to getting access to cash reserves as well as commitments around trapped gas.

I wanted to know if you actually had any particular plans on actually owning gas-producing assets as opposed to the liquefication, transportation and gas distribution opportunities.

Sorry, Chris (sic) [James], I didn't quite hear your question, but I think you were asking if we still had plans to own gas or participate in the ownership of gas-producing assets.

Is that correct?

Correct.

So the answer is yes.

So the answer is yes.

I mean, the Fortuna project is a classic example of that, that our participation in that would have seen us owning a percentage of that field and then translating that through FLNG.

It remains the company's ambition to participate in the upstream side of the business.

Obviously, we will do that in partnership on a field-by-field basis with other parties that have subsurface competence.

But it's our whole business model to participate at that end of the gas supply chain, taking it right away through liquefaction through the carrier fleet into FSRU and ultimately into power.

And obviously, we were talking more about the small-scale distribution.

So we want to participate where we can along that whole gas chain where it will add money to our business and to our shareholders.

And the upstream part of that is -- remains firmly part of that strategy.

It appears there are no further questions at this time.

I would like to turn the conference back to you for any additional or closing remarks.

Thanks, operator.

So just in closing, thank you all again for listening, tuning in and for your questions.

The message this time has really been about the shift of Golar from where we've been to confidence in our short-, medium- and long-term cash flows through a combination of what we have in place and producing what we have immediately around the corner in terms of coming on stream and the potential pipeline that we've got for further projects and further developments.

So thanks for your interest and continued confidence in us.

And we'll leave it there and talk to you next quarter.

Thanks again.

Bye-bye.

This concludes today's call.

Thank you for your participation.

You may now disconnect.