Golar LNG Limited
Q2 2014 Earnings Call Transcript

Published: 26 Aug 2014

[Operator:]

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

[Brian Tienzo:]

Thank you. Hello, everyone and welcome to Golar LNG's second-quarter 2014 results presentation. As the moderator said, my name is Brian Tienzo, and as per usual I will be taking you through the second-quarter highlights as well as financial highlights for the quarter. As usual, I am joined by our CEO, Doug Arnell, who will take you through the business update summary and outlook sections. So to start the presentation, let's now go to page 4 to go through the second-quarter highlights. Golar reports a second-quarter 2014 net loss of $24.2 million, including a non-cash loss of $13.6 million in interest rate swaps. The EBITDA generated in the quarter amounts to income of $1.1 million. Total pro forma Q2 EBITDA for the Group, including Golar Partners, was $84.3 million. Golar took delivery of LNG carrier Golar Crystal on May 15, its third LNG carrier of its 13 newbuilding program. On June 30 Golar raises $661 million net of fees after the successful follow-on issue of 12.65 million shares of its common stock, including underwriters' options. As expected, spot and short-term chartering markets remains challenging. And despite weak results, but with the strong position of the Company as well as the FLNG growth potential, Directors are confident in maintaining the dividend in this quarter, and it so has declared the same level of dividends as in previous quarters of $0.45 per share. Over to page 5 to look at the subsequent events. On July 2 the Company executed and made effective key agreements for the conversion of the Golar Hilli to a floating liquefaction vessel. We continue to see spot LNG prices as falling below $11, which created strong contango in making storage plays more attractive for traders post the quarter. As a result, utilization of Golar fleet has improved and should be reflected in our Q3 results. Turning over now to page 6 to go through the financial highlights, net operating revenues for the quarter increased from $4.9 million in Q1 to now $17.8 million in Q2. This has been aided primarily of the improvement of the Golar Viking, which was utilized by approximately 50% during the quarter; as well as Seal, which was utilized more than 50% during the quarter. In contrast, both were less than 50% utilization, particularly for the Viking, in Q1. We also saw our operating expenses decrease from $13.8 million in Q1 to $11.8 million in Q2. The main reasons for this is that there was no Igloo in the fleet, in the Golar LNG Limited fleet, in the second quarter, whereas there was a partial presence of the Igloo during the first quarter. Similarly, there were also optimization of crew during the first quarter, of which the majority of the benefits were felt in the second quarter. There is a reflected gain on drop-down of vessels in Q1 of $35.5 million. In contrast, there was a slight adjustment in Q2 of a loss of $0.5 million. So underlying EBITDA for the quarter, excluding the gain or loss in drop-down of vessels, would have been $1.6 million, which would have been an improvement from Q1. But with the loss/gain in drop-down on vessels, our EBITDA is $1.1 million compared to $33.1 million in Q1. The net financial expenses during the quarter is higher at $23.4 million. In contrast $18.6 million was felt in Q1. The majority of the net financial loss in the quarter was due to $13.6 million in non-cash mark-to-market movements as a result of drop in medium to long-term interest rates. There was also $5 million of interest charges on swaps not yet to be associated with notionals during Q2. All of this has resulted to net loss during the second quarter of $24.2 million as opposed to net income of $13 million in Q1. Going to the right-hand side of the page to look at the Golar Group, which incorporates Golar Partners

[Doug Arnell:]

Thanks, Brian. Good morning and good afternoon to everybody. I will start my part of the presentation on slide 11, which is a summary of the Golar Group's asset portfolio. The part top part of the slide, of course, is the Golar LNG Partners fleet, which has now grown to 9 vessels with the drop-down of the Golar Igloo FSRU. This obviously is a hugely important part of the Group's overall performance, with those vessels contributing approximately 87% of the total revenue for the Group. Of course, those vessels are all under long contract, and they depend on operating day in and day out. And I'm pleased to report that the technical operations record for those vessels once again in the quarter has been virtually 100%, which seals the situation for Golar LNG Partners's being a low risk investment for our unitholders. Dropping to the bottom half of the slide, the Golar LNG Limited fleet – of course, the Golar Hilli targeted for FLNG conversion, which we'll talk a little bit about later, that vessel should be delivered to the yard in the near term; with the 2 other first-generation vessels, Gimi and Gandria, still in layup. But, of course, as top candidates for our next conversions for FLNG or FSRU. The balance – or the next several vessels, Viking, Arctic, our existing steam turbine vessels, with the Viking trading in the spot market and the Golar Arctic under charter until early next year. And then following that, you see the 3 newbuild vessels that we've taken delivery of – the Seal, Celsius, and Crystal – which are trading on the spot market and increasingly more successfully so. You see the balance of the deliveries there for the rest of the newbuild carriers that are coming to us. And we are looking forward to taking delivery of those as our fleet modernization and expansion continues. I would like to say that those are the contractual dates that we are showing there for the delivery of those carriers, but there are some discussions around delays to yards – delays to the delivery from the yard that are ongoing. These won't be major changes to the deliveries, but some of those vessels may move out into the earlier part of 2015 or later in this year. Of course, we've got still one more FSRU under construction; you see there the Golar Eskimo, which is scheduled to deliver near December 2014 or January 2015. Turning to slide 12, just discussion about the short-term shipping outlook

[Operator:]

Thank you. The question-and-answer will be conducted electronically. [Operator Instructions] We will now take our first question from Jon Chappell from Evercore. Please go ahead.

[Jon Chappell:]

Good afternoon, guys.

[Doug Arnell:]

Hey, Jon.

[Brian Tienzo:]

Hey, Jon.

[Jon Chappell:]

Hey, Doug, I wanted to ask – or Brian – about the economics of the West African project, if we think about maybe using only 2 to 3 trains. The last presentation you gave had some cost parameters and some return parameters around it. So if my memory serves me correct, about $1.2 billion of all-in costs; $900 million for the actual asset; and then $300 million to kind of get it up and running; and about $350 million to $400 million in EBITDA. So do you simply just, say, if you are only running 2 trains, the EBITDA in the return criteria is cut in half? Or how do the economics work around less than full utilization?

[Doug Arnell:]

Yes. I think that's generally right, Jon. The bottom line is we could have – as we've seen some of these plays where the deliverability of the specific fields that we are looking to produce from don't fill up the vessel completely, we had a decision either to go for a smaller vessel and put less liquefaction facility on it, or build the largest possible that we have on our design. And when you look at the economic efficiency of adding the third and fourth train onto the vessel, it becomes a bit of a no-brainer decision, especially when you see the quantity and quality of opportunities to fully utilize the vessel. So the commitment to a project that doesn't fully utilize the vessel, again, dividing by 2 is approximately right. Although in West Africa, with the value of the gas that we can achieve and the resultant FOB price on the market looks pretty attractive, so we would be exposed to the value of an upside on the margins achieved by that LNG over and above our kind of all-in FOB cost. So dividing by 2 is quite conservative. Not a bad way to model the first 1 until we put the pieces together and could give more firm guidance on how it looks. But, again, we would assume that the utilization of that vessel would in pretty near-term go to 100%.

[Jon Chappell:]

Okay. The other question I had regarding the economics was in the press release – you didn't say anything in the presentation, but there was talk about potentially giving some direct equity participation to some of the vendors. Could you just talk about the thought process behind that? And does that change any of the math, as well? And I guess as a third part to that question, if you don't have 100% equity ownership, and if there is an outside vendor, does that change the ability to drop an asset down to the MLP?

[Doug Arnell:]

Well, the answer to that last part is

[Jon Chappell:]

Okay. One last quick one, and then I'll turn it over, just on the timing of the options. Is it still kind of every 6 months you would imagine them to come out? Or has that changed at all? And, then, also you had mentioned in the press release the capabilities of Keppel and Black & Veatch to potentially deliver 4 to 5 units before any competitors enter the market in a serious way. Given there's only 3 ships for conversion, would you look to create newbuilds, then, for 4 and 5, if you were to go that route? I know it's a long time away.

[Doug Arnell:]

That's right. I mean, the options are structured for 6 months and 12 months from the original agreement date. And, yes, we are comfortable with that. And that would be a good kind of timing for the next couple of vessels. So long as we are doing conversion FLNG units, which we expect to be for some time, and it is what giving us our timing advantage, availability of this class of vessel to do a conversion with is not a constraint on our business, even though we currently only own 3 of them.

[Jon Chappell:]

All right. That makes sense.

[Doug Arnell:]

Right.

[Jon Chappell:]

Thanks a lot, guys.

[Doug Arnell:]

Yes. Okay.

[Operator:]

From RS Platou Markets, we will take our next question from Herman Hildan. Please go ahead.

[Herman Hildan:]

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

[Doug Arnell:]

Well, I think the answer is as soon as we can. But I guess what we are signaling is that these projects may come in packages of reserves that a specific reserve may not fill up the full 4 trains. And this is a signal about how we are able to keep projects on a fast track and get a commitment to go ahead with the firm project as early as possible, more than anything. If the initial quantity of gas deliverability fills up 50%, what we are saying is that we will commit to a project on that basis as long as the rest of the economics and the government approvals come with no noise around it and such. We will commit to a project based on that. And then following that, we will get to work on filling up the vessel. If it comes post-delivery or pre-delivery, that's hard to say. We would in that situation be giving guidance on how we are progressing with filling up the unit. But if that is the style of project that we are going for initially, we'll be focused on closing that first, making sure it's firm on the ground and on path to a successful completion and then working on the next volumes after.

[Herman Hildan:]

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

[Doug Arnell:]

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

[Herman Hildan:]

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

[Doug Arnell:]

That's a good question. The use of the US tolling market – of course, those $3.00 to $3.50 are included in assumption of everything from shipping distance to Asia – so you'd have to compare netbacks to revised price accordingly. The key one I think – well, what I would take from your question is that the 20-year nature of those tolling agreements certainly penalizes them somewhat, because everyone knows that the gas, the oil spread that's being capitalized on here is very visible in the near term and not so visible as you go further out. So there's some potential value, a premium there, in being able to lock down shorter-term contracts. And we will take advantage of that. So the structure that we will enter into, if we do a project like this with shorter-term or lower utilization in, say, West Africa, we would maintain ability to expose ourselves to that kind of premium that we can get from a better location or a premium people are attaching to shorter-term contracts.

[Herman Hildan:]

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

[Doug Arnell:]

I don't think we can give you a number, Herman. We have some assumptions, but until we play this thing out – the way this is going to go is that we need to tie down firm agreements with the relevant gas producer and get comfort from the relevant government that the project is firm. When we have all those pieces together, and we can show our vessel under construction, then we'll go out and test that market in a more formal way, rather than the kind of soundings we're doing now, which kind of informs where we think we are going to be. But I don't think we are ready to give you guidance on that till we come out more in the open with a specific project, and we are marketing those volumes specifically, and we can see what the market will bear.

[Herman Hildan:]

Okay. My next question

[Brian Tienzo:]

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

[Herman Hildan:]

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

[Brian Tienzo:]

It's all going to be very much dependent on, as I said, the commercial agreements. I think, as I said, our base case is to try and push as much as possible. But we need to be realistic. And given that we don't know all of the items to be financed yet, we've been able to achieve quite good financings on vessels that – without charter. So we would expect similar sort of economics for our first floating liquefaction.

[Herman Hildan:]

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

[Doug Arnell:]

Always. Always.

[Herman Hildan:]

So should we expect that you sign up, say, 3 vessels, which I think you guided on that marine money for FLNG?

[Doug Arnell:]

The fact of the matter is there is some dependence on the structure of how the offtake works. So if we get into a project that we are selling DES, then automatically it's Golar vessels coming into that. If we are selling cargoes FOB, it's more of a privileged position to try and make sure it's Golar vessels that get utilized. But there will be nothing other than whatever the prevailing market rate is. It's just that we have some influence to try and make sure that there are Golar vessels available there. For the time frame we are talking about, as well, they are just – if we are starting up in 2017, we are very optimistic about the value that companies will place on volumes coming on-stream in 2017. But we are equally as optimistic about our ability to offer vessels that are available for service in 2017, because that is looking quite tight at the moment. So it's just another advantage that we have with the way we are set up and managing the newbuild fleet.

[Herman Hildan:]

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

[Doug Arnell:]

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

[Herman Hildan:]

Okay. And what kind of cost is that if you buy a stranded gas field? Is that more, call it, for number 4 and 5? Or where in your growth plan do you have that addition to the business coming in?

[Doug Arnell:]

Well, that's very dependent on if the field has – how many development wells have been drilled already in the field? Or is it just one exploration well? It's totally dependent on what the status of the field is. But I can tell you that the reserves will be, to buy, a lot less expensive now than when Golar's FLNG business is fully established with multiple vessels out there and people see that. Those reserves are certainly going to cost a lot more at that time to buy.

[Herman Hildan:]

Okay. Thank you very much.

[Operator:]

We’ll now take our next question from Michael Webber from Wells Fargo. Please go ahead.

[Michael Webber:]

Hey. Good morning, guys. How are you?

[Doug Arnell:]

Good. How are you?

[Michael Webber:]

Good, good. Just a couple of questions on FLNG, and I'll hop off of it. But I wanted to touch again on the 50% utilization you guys referenced on slide 14 and some of the earlier questions. It seems to us the field that you are looking at – they are all fields that are large enough to support 2.5 to 3 mpta. When you are referencing 50% utilization or smaller parcels of gas, what's the major sticking point there? Is it going to be government approval for exploiting that gas? What's typically the biggest part of friction that would drive that lower commitment in terms of utilization?

[Doug Arnell:]

It's 1 of 2 things, neither of which we believe are necessarily negative. But it's either that the counterparty that is ready to go firm the quickest has a reserve or a field that would only result in 50% utilization, or it could be – as you reference – a government isn't ready to consider further exports at a level that's greater than the 50% utilization that we're referencing. But bear in mind that the reason we are comfortable in that situation is, one, it does play to our strength in the scalability of the opportunities we are able to transact on and get these fast-track projects going as soon as possible. But, also, we are not looking at any locations where there isn't really good growth potential and every reason to believe that there's enough gas to fill up the unit. So it's usually – it's just something structural in there, where we could either wait to close the deal and get the full utilization; or go now and close it with pretty good economics and lots of upside. That's the latter that we are choosing to do.

[Michael Webber:]

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

[Doug Arnell:]

Do you mean improved unit economics on the other 2 trains?

[Michael Webber:]

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

[Doug Arnell:]

Yes. I'm not sure how the equity participation thing plays into it. But to us, the 2 trains that are available on the first ship are similar to the upside that we see in the whole rest of the program. There's a huge value in our minds to getting a first project going as soon as possible and getting the industry comfortable with the – or having the industry see that other industry participants are comfortable with the commercial terms and the technology that we are employing. So it just happens that those 2 trains are probably the most marketable. So you could see getting some upside to that. Again, as I had said, for that kind of project, it's very likely that we would maintain an exposure to any upside that offtakers or gas producers put in the existence of that capacity. So we are not locking ourselves down in any way to any specific toll, or level, or whatever for those. I don't want to say that it's – you know, we expect to do better on those 2 trains than the first train. That's hard to say. But we think they are going to be very marketable.

[Michael Webber:]

Okay. That makes sense. I just wanted to shift gears from FLNG. Actually, but before we do that, I wanted to come back to the timeline. And you referenced FID – does that allow for a mid-2017 start-up? If we really kind of zero in on the data point timeline here and think about a binding MOU and/or announcements around who would come in and secure offtake, for at least, I guess, the first 2 trains, how do you see that playing out over the next 12 to 18 months? Is it a scenario where we could see a binding MOU sometime this winter and then offtake agreements, kind of followed by the formalized commercial agreement, kind of Q2 2015? Is that pretty fair?

[Doug Arnell:]

Yes. The timeline we are shooting for – and this industry, as we have all seen, can be prone to a bit slower movement than we would always like. But the steps in this process are to lock down the arrangements with the relevant gas producer. And I would say when that happens, there would likely be some kind of announcement, because following that we would be moving into a phase where we are finalizing approvals and whatever fiscal agreements are required with the relevant government bodies. And so I would say us entering into that phase – i.e., firming things up the gas producer – and into this government phase for the end of this year, and then those negotiations going on into 2015. But generally, for the locations that we are looking at, if we have an FID in committing the project 2 years in advance, then we would be in good shape to have a location ready for the vessel coming out of the yard on the current timing.

[Michael Webber:]

That's helpful. And then just one more related to both the dividend and the balance sheet. You referenced on, I guess, slide 10 kind of extensive stress testing of the balance sheet. And I'm just curious as to whether or not that stress testing included maintaining the current dividend through the delivery of your first project? Obviously, you are better capitalized now than you were in, say, March. And then how should we think about that dividend in general, as you guys are seeing some significant capital outlays with these projects?

[Brian Tienzo:]

Yes. So the way we have approached this stress test, Mike, is to – as I mentioned, so that there are no revenues with the vessels unless the revenue or the charge is already known. The current level of dividend is maintained route throughout. Obviously, there is going to be full OpEx in those vessels as they become delivered. We hadn't factored in any significant growth from the partnership, apart from, obviously, the Eskimo at some point in 2015. And so where that takes us is sort of obviously given the strong liquidity position that we have today through 2014/2015, well into 2016 – so I guess the intention of the Board is to maintain that where possible. Of course, the growth of those dividends is uncertain. And I think we will only see a bit more transparency on those as we get into 2016 and see the improvement in the shipping, and ultimately the introduction of the FLNG projects into the Company.

[Doug Arnell:]

Just to add, it's a stress test; it's not a target, or it's not a signal of an expectation of anything. It's just a scenario that we use to be very conservative, to make sure we keep discipline on our balance sheet and our cash position. We don't expect the earnings to be that bad. We can't assure that dividends are at any given level going forward. But it's just a test we use to maintain discipline on our balance sheet. And we think it's positive for investors.

[Michael Webber:]

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

[Operator:]

From Stifel, we will take our next question from Ben Nolan. Please go ahead.

[Ben Nolan:]

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

[Doug Arnell:]

Well, the FSRU market is getting a lot more mature in terms of how long it takes from the beginning to the end of a process. You know, there's certain deals out there that are ticking along that could go firm right away. If someone wants the Tundra and they can go firm, we're fully free to charter that vessel to that party. These IPP or gas-to-power deals, which I think we are going to see more and more of. As people again to try and take advantage of extremely expensive oil-fired power and increasing environmental clampdown in various markets, I think we're going to see more and more of these. And they take a lot more structuring to put together. So a would-be developer of something like this has to put – has a lot of pieces of the puzzle to make work in order to go firm. LNG supply through the FSRU downstream piping infrastructure and, of course, the key contracts with power producers. So we're quite happy to work with developers of this kind and support them where they commit to us. But everyone is aware that all of those pieces have to come together before they can actually commit to the FSRU. And until that day comes, we aren't committed. We are fully supportive of that project. We very much like the looks of it, or we wouldn't put our name on it; but it has a long ways to go. And, of course, with a prompt vessel like this, where we are committed to the capital, we can't be tied to a project that isn't completely firm. So we are supporting it. We are hopeful it will go ahead, but we will continue to put the Tundra into other projects. And there's other similar gas-to-power projects that we are looking at for the same vessel. Maybe not as far advanced as that one, but that's how we think about the Tundra in Ghana.

[Ben Nolan:]

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

[Doug Arnell:]

Well, they are shooting for – I believe in their press release, they talked about an end-of-the-year FID. So you might handicap that a little bit and put it out into 2015. The actual infrastructure that has to be built at the location is fairly minimal. So even with that kind of timing on a project commitment, they could be ready so that effectively the Tundra will go from the yard, and maybe with a couple of months of open time, straight into that project. As I say, the construction timeline for the facility in Ghana is quite low.

[Ben Nolan:]

Okay. And then moving on to the FSRU – or, sorry, the FLNG market

[Doug Arnell:]

It could very well be that on many of our projects there will be an associated LPG extraction process going on and marketing of those liquids or those products. It likely won't be us doing it. It's fine by us if there's a project that has additional processing requirements, but those additional processing requirements – we have to be convinced that they are economic for our counterparty to move ahead with them, that they can be implemented on a timeline to meet delivery of our vessel. So especially with the heavier hydrocarbons, which tends to be – if you've got a certain amount of product there, and you have got a decent percentage of heavier hydrocarbons, it's unlikely that that will be the constraint on a project moving forward, because those hydrocarbons are valuable. Again, we do have the ability, if there isn't an extraction, to take some level of those products through the process up to a limit. The more concerning one can be if you have a lot of – if it's a sour gas situation with H2S and CO2, which – you know, we would have to be convinced that someone has a solution for those offshore before we would engage with a project like that.

[Ben Nolan:]

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

[Doug Arnell:]

Well, I'll say we are pretty – 100% of the projects we are working on have clean gas. And many of the products we are working on have dry gas. I mean, if you look at the fields running down the entire West Coast – offshore West Coast, Africa, you will find a pretty rosy picture in terms of the number of fields that fit the criteria. And then, of course, if you are in the Americas, you have a situation where the domestic infrastructure takes care of that for you as well.

[Ben Nolan:]

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

[Doug Arnell:]

Well, I think we are testing the waters now is the best way I would describe it. It's an idea that we've had for some time. We aren't hinging our entire strategy on it. We will have to find the right type of partner that has the right approach to – and desire and sort of vision for the business that we do. So I have trouble handicapping it. It's – on the list of priorities, I guess it doesn't really rank up with making sure that our first deal gets closed in the near term and we get going on our second and third deal. So, unfortunately, I don't have a really good answer for you in terms of when you can expect something further on that one.

[Ben Nolan:]

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

[Doug Arnell:]

Yes.

[Ben Nolan:]

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

[Operator:]

Now we’ll take our next question from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

[Fotis Giannakoulis:]

Yes. Hi, guys and thank you. I understand that you put great importance on the signing of this first deal, and you have guided for this first deal there are going to be – for 2 trains. How good of an indication is this first deal about the economics and the commercial and technical viability of this project? I'm trying to understand if this first deal will be followed before the delivery of the FLNG by a second agreement – commercial agreement for the remaining trains? At least there is another field very close to this first deal that you are discussing about that can absorb the entire vessel prior to the delivery of the LNG?

[Doug Arnell:]

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

[Fotis Giannakoulis:]

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

[Doug Arnell:]

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

[Fotis Giannakoulis:]

Okay. That's very clear. Thank you. In terms of this first contract, does this mean that if you sign the first contract for the first 2 trains, you will be willing to move forward with ordering a second vessel? In your press release you talked about 4 to 5 – your ability to deliver 4 to 5 FLNG before your competition. What makes you feel that confident that you can be so far ahead of your competition? Are there any barriers, or what is the competitive advantage that you have and you can move so far ahead?

[Doug Arnell:]

First question – I think it's when we commit to this first project, if it's 2 trains or 4 trains, or whatever it is, that kind of commitment would lead us to be very positively disposed to pulling the trigger on the second vessel. The competitive advantage we have is on 2 fronts, both of which the LNG industry is fairly good at being slow at. One is we are building the vessel with equity financing. Short of having to wait for full agreements and all the usual project finance things that go on, nonrecourse project finance discussions – so that saves us a lot of time. Also, showing that vessel to be ready speeds up gas producers to meet our timeline in order that they could be recipient of the value of associating with the vessel. So that puts a tremendous pace on our development. The second thing is that we are putting that financing against the vessel that we have completed a feed for that can be used multiple times. So the typical project timeline, which may – if you went to try and build Prelude now or some other similar vessel, even from the time that you initiated construction on that, delivery timelines from a newbuild might be 48 months; and preceding that would be a year to a year and a half of pre-feed and feed. So that gives us kind of a – it's, what, 5, 5 1/2, 6 years, if someone was starting today in the traditional fashion to implement the project. We don't see anybody doing it differently besides ourselves. So in that timeline we have the capacity to build that number of projects. And we also see that the economic proposition here for accessing well priced gas and getting it to high-value LNG markets is very good. So that's the basis of that statement.

[Fotis Giannakoulis:]

Thank you. I understand that if I interpret well, what you are saying is that the first agreement or first vessel could mean right away 4 or 5 vessels. The first part of this question is

[Doug Arnell:]

I'll let Brian talk about the equity and all that. But just to touch on the second part of your question, yes, we are looking at projects in the Americas, including the US. Those a different situation than, say, a West African context, whereby if you can make your way through, for the US example, a FERC and a DOE authorization process, you are likely going to have really good running room. The difference is it takes a lot longer to get to that point, which is why those are just projects that are slower to come along. But nobody is going to ask for a permit for 1 vessel in the Americas kind of context.

[Brian Tienzo:]

And on the equity portion that you mentioned is now, Fotis. I mean, the one aim of raising that much equity is, as Doug highlighted earlier, we have a timeline that we are trying to achieve to make sure that the vessel does come out, and it will have an employment when it does come out – which means that we couldn't really have one of the constraints of a timely delivery as financing. So what we wanted to do is raise sufficient funds to be able to continue the conversion process without delay up to the end of 2015. Of course in previous meetings we have said that we will look to have a firm sites for the FLNG by the end of 2015. Of course, having achieved that, that lends itself to a much more efficient way of financing the vessel. To answer your question, we raised that much money in order that we can have the conversion uninterrupted, in order that we can have the FLNG delivered around Q1 2017, and in order that we can make efficient any debt financing that we will expect to put into place, having then achieved a commercial FID on the first conversion.

[Fotis Giannakoulis:]

If you are talking about something large, potential of more than 3 vessels, you have right now 3 conversion candidates. What is the plan for the additional vessels? Are you going to be buying from the secondhand market older Moss-type vessels? Or there is a thought of potentially building a newbuilding liquefaction trending along the same lines?

[Doug Arnell:]

I'll answer that question. Just for the moderator and Fotis, we've got our affiliated company coming up with their earnings call in about 8 minutes, so I'm going to have to answer this one and end off the Q&A. But, Fotis, if you look at the carrier market, and what's happening with the newbuild vessels coming along, and the efficiency upgrade compared to the first-generation vessels, there's obviously going to be a lot of those vessels available. So for conversion candidates, yes, obviously the secondhand or the acquisition of other vessels would be at the heart of our strategy there. Also, I think as you – if you look out in time, you go far enough out, the FLNG units – FSRUs, the conversions were working very well fast-tracked. But smaller units, older vessels, and then eventually the newbuild yards started to catch up. Now you can contract for a newbuild FSRU very effectively. Eventually you could argue that the FLNG units will go the same direction. They would have to go a long ways before we would participate in that approach, but those days will – that eventually the market will evolve to a similar situation. Moderator, I think we are going to have to…

[Fotis Giannakoulis:]

Thank you very much.

[Doug Arnell:]

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

[Brian Tienzo:]

I think that ends the presentation session for Golar LNG's results for the second quarter. Thank you again for your participation in this webcast, and we look forward to sharing with you our Q3 results in 3 months' time. Thank you and goodbye.

[Operator:]

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