Golar LNG Ltd. Earnings Call Nuggets: Shipping Potential and FLNG Opportunity

Golar LNG, Ltd. (NASDAQ:GLNG) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Shipping Potential

Jonathan Chappell – Evercore Partners: Doug, my first question is about comments you made about the shipping potential with the FLNG business both Douglas Channel and any new potential opportunities there. How does the Golar arrangement work with your ownership stake in the structure do you get right of first refusal for shipping requirements or even FSRU’s, is it up for competitive bidding are there any advantages to you being partner in the project when it comes to the shipping or maybe the FSRU’s?

Doug Arnell – CEO: I think it’s fair to say that it’s more of a soft opportunity than hardwired right to put ships in Jon. I think it is a separate part of those projects generally so. If the offtake is being shared by other partners and though I will have an opportunity to put shipping into the project, but at market rates obviously. So we won’t be able to do anything except what the market would otherwise provide. Now obviously when we are in the mix of a partnership and there is things that other people are providing and contributing to the deal. Golar will be seen as the provider shipping. So it does give us a leg up just that we are in partnership. But I wouldn’t say it’s something that its contractual absolute right because that’s just hard to create without people being freighted they are going to pay greater than market rates. Obviously, if we’re off-taking our own LNG, then that LNG will be on Golar ships.

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Jonathan Chappell – Evercore Partners: Then also, Doug, you made some commentary in between quarters regarding potential fitting for some of the LNG newbuild with FSRU capabilities. But there wasn’t any update in this call. You just had the two Eskimo and the Igloo in the fleet list. So are you moving forward with that and how does that kind of setup versus the FSRU bidding processes that you see over the next 18 to 24 months?

Doug Arnell – CEO: Yeah, we certainly were looking at what we could do as some of these FSRU deals firmed up for the two existing orders. We were wanting to trigger potentially a conversion of some of the later delivery carriers. I think the situation in reality is that for both of those FSRU vessels, as often happens, these FSRU projects just took longer than we had hoped to firm up and we didn’t really want to press ahead with those conversions to FSRUs until we had firm projects with the existing orders, so we just sort of timed out on that. But for the very last vessel we are still kind of holding out a view that we may be able to convert that last vessel which is Hull No. 2056 for a conversion to an FSRU, but again we probably won’t pull that trigger until one of the other deals is through…

Jonathan Chappell – Evercore Partners: Then I’ll just ask one more and then I’ll turn it over. There’s been a lot of headlines regarding the softening of the market, and I think a lot of the numbers tend to focus on steam turbine engines. You mentioned again the fuel efficiencies of the dual-fuel or the tri-fuel, diesel-electric engines. Is there any way to kind of quantify when we think about looking at the current market rates and then what your ships may be able to earn as they are delivered with this new technology, the actual kind of spread as far as TCE is concerned with that new technology.

Doug Arnell – CEO: You can quantify, but there are variables and you know we’ve talked about numbers of $20,000 to $40,000 a day, which I think is a fair assessment. There are parameters that you – that are specific to the charterer which impact on where that number is. And that is related to how the vessel is being used, how much idle time it’s having, at what speed do they want to use the vessel, is it slow steaming at a lot of the time or is it going at services speed lot of times. So, there is a lot of variables that depending on how the vessel is going to be used, impact that number. And then of course the chartering community sees that saving and says to themselves what we’d like to capture that saving and have it be a savings to our total shipping cost. So, in effect there is eventually some level of sharing that goes on between the owner and the charterer of these proceed savings, obviously is known and we’re offering the ships with a better performance, so we’re going to much as maintain the bulk of that savings, but obviously we have to offer some level of saving and to have them decide to contract for the vessel in the first place.

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FLNG Opportunity

Fotis Giannakoulis – Morgan Stanley: I would like to ask a few more questions about the FLNG opportunity. And just to clarify, first of all, I saw that the total capacity of each FLNG is something like 2 million tonnes, when is these capacities expected to come online and what is it going to be supplied from?

Brian Tienzo – CFO: Fotis, I guess, you are referring to the converted mass vessel project, the Keppel project. Is that right?

Fotis Giannakoulis – Morgan Stanley: That is correct, yes…

Brian Tienzo – CFO: So, of course, the capacity of these units is depending on ambient conditions of wherever the vessel is located. So, it is hard to pin down, say the capacity is exactly specific number. But for planning purposes, you can think about a capacity for the vessel of up to 2.5 million tonnes per year. The design of the vessel will be modular, however. So, there will be four trains of approximately 0.7 – little under 0.7 million tonnes, to get you to that 2.5 million tonne level. And the reason we are doing it that way is because the opportunities that we are seeing aren’t necessarily for the full 2.5 million tonnes and the gas supply and reserve levels that we are looking at aren’t necessarily sufficient to use up all our capacity, so we want to be able to trigger whatever makes more sense for the first project when we build the first vessel. So, our approach at this point is to – we are trying to widen out the deal funnel, just in terms of your question about where the gas is going to come from. We are going to widen out the deal funnel and look at as many opportunities as we can and when we finish the FEED study in July, we will look at the market and decide how quickly you want to start building the actual vessel related to how mature the opportunity set is. We certainly aren’t focused on just one project right now to give out for the first vessel. By the way, I mean, West Coast of Canada could be a next project – in Western Canada could be the first place for the vessel or it could be somewhere else in the Americas or it could be offshore West Africa. So, we’ve got multiple projects that we are looking at. All of them probably won’t come to fruition, but a subset of (indiscernible) probably will and again we will look out at the market when we finish the FEED study and determine that what pace and what size to build the first vessel.

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Fotis Giannakoulis – Morgan Stanley: Just to understand. How this FLNG connects with Douglas Channel project? I was under the impression that the Douglas Channel project will use one of FLNGs for the liquefaction. You also mentioned about this $500 million cost, what is this cost about? Where does this $500 million go to?

Doug Arnell – CEO: The first phase of Douglas Channel or the first project for Douglas Channel is 0.6 million to 0.7 million tonnes will not be one of the converting mass vessels. This is a good question for us, we should clarify that. That will be a barge-based liquefaction plant, proven technology all very standard equipment, but it will be barge mounted like we built in Asia and float it over to the Douglas Channel. Actually the decision has been made yet, it’s not really on the critical path, but the barge will actually potentially be grounded near shore in the Douglas Channel or we will have the barge floating. But either way pretty simple barge. The project is a little bit small to do the full conversion of the mass vessel so the barge is just much more efficient. The $500 million of course will include that barge a little bit of pipeline facilities, metering facilities, a new jetty of course and LNG loading facilities would be the major components in that capital cost. That cost of course, that’s one of the things we are going to be doing between now and final investment decision is to finalize the cost estimate and get down to a level of certainty that we’re comfortable with and sign up BBC contracts to go ahead with the project…

Fotis Giannakoulis – Morgan Stanley: So given the fact that the total export license is 1.8 million tonnes, we should expect the second barge or expansion of the capacity of this particular barge. What would be the incremental cost, is it a pro rata increase or I would assume there are some savings for the additional capacity from the 600 to 700 tonnes per annum up to 1.8 million?

Doug Arnell – CEO: The same partnership that’s going to pursue the first barge. Has also agreed to begin preparation for looking at the next trading that would use up the rest of that export license, so you’re looking at about a 1.1 million tonne per year project. There will likely be some common facilities that could be shared between the projects, but we’ve got work that out, it’s likely a much improved rather than pro rata quotas it will be sort of the economic picture we’ll certainly take advantage of some economies of scale on projects that’s a little less than double the size of the original one, the cost won’t be too dissimilar to the first project. That project does depend I might add on the expansion of the pipeline that we’ll be using for the first phase, so the plan is to take the pipeline that we are using for the initial project. The company that owns that pipeline is beginning preparations for an expansion of that pipeline, if that pipeline expansion is successful that’s what will trigger the new project.

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Fotis Giannakoulis – Morgan Stanley: Any relations to the FLNG, how do you view the funding of the FLNG and is this a project that Golar intends to develop on its own or we might see more partners and what would be the final take that you think that Golar will have in this investment?

Doug Arnell – CEO: Are you speaking about the converted vessel again for this.

Fotis Giannakoulis – Morgan Stanley: Yes, I am talking about the capital project yes?

Doug Arnell – CEO: We expect that there will be partners in certainly the first number of projects that we used to convert mass vessels for and certainly (capital) was a potential partner as well. It’s on the list. When you look at the Douglas Channel situation and the kind of hurdles you have to overcome to make one of these projects work, it’s really important to leverage your position to draw in either partners or contractual parties or relationship with people who bring attributes that can get you over the line. These projects are very difficult. They are very difficult to get permitted. They are commercially complicated. There’s a large degree of commercial risk to deal with, so we will look to strategic partnerships in almost every project to increase the chances that we’re successful on ever projects. I would say, 25% is about as low as we would go and that’s where we’re at on Douglas Channel at a minimum. If the opportunity to increase that share comes up we probably would do so, but that’s not in our hands. But I would say, 25% is kind of a minimum participation that we would have and we’d probably look to be a little bit above that generally.

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Fotis Giannakoulis – Morgan Stanley: And for this 25% minimum, I understand that it can be higher than that. You think that you have sufficient cash on hand and funding capacity at the Golar level or we might see some capital increase to fund this investment? And also, you mentioned about partners that you intend to bring along including Keppel. Could this partners be also financial institutions that they will seek to invest directly into the Keppel project?

Doug Arnell – CEO: Well, first off, there’s no intention to raise equity – issue equity at the Golar level to fund any of this. We do have an intention to create a separate entity through which we would raise funding for these projects, but how we do that, there’s a menu of options how that entity would raise money including project financing vendor financing separate equity raising, specifically this opportunity. So, we’ve not – at the Golar LNG level seeking to raise specific money for these projects. I’m not sure, quite what you mean about direct investment in the Keppel project by financial institutions. I find that unlikely. We generally – it’s not – I don’t think we’ll be restricted in access to funds to purse these projects, but what we want to do is use our position what we’ve created with our projects is to bring in partners. Yes, they will bring money, but that’s basically to make sure they’ve got a vested interest in making things happen. Those partners will bring along with funding, they will bring along position or a skill set or something of the like that increases the probability of a successful project.

Fotis Giannakoulis – Morgan Stanley: One last question about your shipping and FSRU activity, I don’t think that you have given any guidance about the EBITDA of the Jordan project. Is the assumption that you can do during this call? And secondly about the Viking that came out of contract?

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