Golar LNG Management Discusses Q4 2012 Results - Earnings Call Transcript

Mar. 4.13 | About: Golar LNG (GLNG)

Golar LNG (NASDAQ:GLNG)

Q4 2012 Earnings Call

March 04, 2013 9:30 am ET

Executives

Brian Tienzo - Chief Financial Officer and Principal Accounting Officer

Doug Arnell - Chief Executive Officer of Golar Management Ltd

Analysts

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Michael Webber - Wells Fargo Securities, LLC, Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Urs M. Dür - Clarkson Capital Markets, Research Division

Herman Hildan - RS Platou Markets AS, Research Division

Operator

Good day, and welcome to the Golar LNG Limited Q4 2012 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Tienzo. Please go ahead, sir.

Brian Tienzo

Thank you, and hello, everyone. Sincere apologies for the delay in starting the presentation. In any event, welcome to Golar LNG's Fourth Quarter Results Presentation. As the administrator said, my name is Brian Tienzo. And as the usual, I'll be taking you through the fourth quarter highlights, as well as the financial highlights. I'm also joined here by our CEO, Doug Arnell, who will take you through the business update and summary and outlook section.

Let's now turn the Page 4 for the Q4 highlights. So Golar reports consolidated operating income of $52.9 million and net income of $22.8 million for the quarter. The Q4 numbers, as most of you will have expected, were negatively impacted by commercial waiting time for the Golar Maria and scheduled drydocking of Golar Spirit. As per our press release, you will have seen a notice to investors and the company's announced that we continue to assess where the Golar Partners can be consolidated from 13 of December 2012 following the Golar Partners' disclosed AGM. Deconsolidation is a significant possibility, but that is something that we're continuing to assess.

During the quarter, Golar secures 5-year charter with energy major for the Golar Maria and that's commenced at the end of November. And Golar Partners repaid both Freeze and Nusantara Regas Satu vendor financing using proceeds from its Norwegian bonds and also the $155 million syndicated debt facility ended in December.

After the quarter and following various mentions of our pursuit on FLNG projects, we announced plans to launch new entity that will pursue floating LNG projects. Golar Partners also completed 2 further follow-on equity issues and uses notes net proceeds of $310 million to part fund its acquisition of Golar Grand, $265 million, and Golar Maria, $215 million purchased from Golar LNG.

Finally, and most recently, Golar was chosen as preferred bidder in Jordan FSRU project. Expect -- it is expected that time charter negotiations will commence during this quarter.

Turning over to Page 6. And for those of you who have read our press release, you will note that we put a note to investors regarding the presentation of the press release. I would just like to spend a few minutes on that. The Golar LNG Partners had its first annual meeting of unitholders on December 13, 2012. At which point, the composition of its Board of Directors changed, so the majority of them were elected in by the unitholders. The company, Golar LNG Limited, nominated all of the elected Directors. By virtue of this, it could be argued that because the majority of the Board of Directors are independents, that they could also make decisions on behalf of Golar LNG Partners, which are independent to Golar LNG Limited. Nevertheless, there are other factors to consider, such as the shareholding of the company of Golar LNG Limited of the partnership, the company's ownership, their general partner and so on. I've mentioned the company's management continues to assess this and, where it continues to be appropriate, to consolidate Golar Partners' numbers. In the event the company has to deconsolidate, the numbers -- the main considerations will be that the assets and liabilities pertaining to the vessels and FSRUs of Golar LNG Partners will have to be de-recognized.

Currently, those are recorded at book value assets and they will be replaced by fair-valuing of Golar LNG's investments in Golar Partners. Furthermore, future drop-downs will be at fair value and no longer at common control transactions. And on an ongoing basis, the share of Golar LNG Limited's profit and losses of GMLP will be recognized as part of operating income.

Regardless of the outcome of our assessment, cash flows to the company are not affected. The conclusion will be reflected in our Form 20-F to be filed in April.

The following presentation assumes that the numbers are on a consolidated basis. Turning over to Page 7. Net operating revenues for the quarter at $107.5 million is down from $117.8 million of Q3. As mentioned just now, these Q4 numbers were negatively impacted by scheduled drydocking of the Golar Spirit, which commenced in December and also of the commercial waiting time for Golar Maria, which expand almost 2 months.

Operating expenses for the quarter were also up to $23.8 million from $19.4 million, mainly because of a buildup of crew in respect of our newbuilding program. There were also higher-than-expected essential spares purchases for FSRUs.

Going down the left, net financial expenses for the quarter is slightly higher at $13.4 million from $11 million from Q3, mainly as a result of the high-yield bond that Golar LNG Partners entered into in October. All of the above results to a net income of $22.8 million versus Q3 numbers of $44.7 million. Further down the page, you will see that utilization has come down slightly from 83.2% from Q3 to 79.1% as of Q4, again mainly as a result of commercial waiting time at the Golar Maria. The dividend for Q4, along with the dividend for Q3, were both -- were paid in December 2012.

Turning over the page to Page 8 where there is a graphical interpretation of net revenue, EBITDA and dividends. As you will see there, the net income and EBITDA for the quarter is down, but the company has maintained its dividend payment of $0.425 per share.

Over the page to balance sheet on assets. Cash and cash equivalents as of December 2012 were close to $500 million. This is a result of the repayment of the Freeze and [indiscernible]vendor financing during Q4, as well as the Golar Grand dropdown also in Q4.

Further down in the newbuildings, you will see that our newbuildings have gone up almost by $90 million as a result of payment of 4 installments during the quarter.

Over the page to liabilities, the points to note there are long-term debt, which has gone up from close to $800 million in Q3 to now $1.1 billion as of December 2012, mainly as a result of the Golar LNG -- Golar Partners bond offering, as well as the NR Satu syndicated facility closed in December. And then our noncontrolling interests had gone up from $150 million as of Q3 to now $180 million as of December 2012, mainly as a result of the equity offerings that we did during that period.

Turning over to Page 11. Points to note are the additions in newbuildings, in vessels and equipments, again, mainly as a result of payments in respect of newbuilding installments. And also further down the page, proceeds from long-term debt, again from the bond offering and also the NR Satu finance facility.

Going over the page to Page 12. As previously mentioned in our Q3 earnings release, we had initiated newbuilding financing projects, and this is an update today. So Golar's progress in its financing -- in newbuilding financing is proceeding according to plan. As you will have seen from our balance sheet as of the year end, the remaining unpaid equity contribution totaled approximately $500 million, but against that, Golar's cash reserves stood at approximately $500 million. This excludes the cash from the Golar Maria dropdown, which was a net amount of $110 million.

After the financing of Golar's equity portion, the deliveries of each of our newbuildings will be funded by a combination of ECAs, so we have now initiated and are now engaged with both Korean and Norwegian ECAs, and we are working through a structure with them. Furthermore, we are exploring various financing structures with banks such as bridge financing and revolving credit facilities. As an option, we also have capability of tapping into the capital market as we have seen -- as we have done a few transactions there. This will include such transaction as bonds and those are under consideration.

Furthermore, the drop-downs to GMLP have been very effective, and to date, our dropdowns have generated approximately $1 billion for the company. And of course, with its newbuild deliveries and other existing assets, the company is confident of future drop-downs, as well as increased dividends through its IDRs. And to conclude that with the above sources of funds at the company's disposal, we expect to continue -- we expect the company to continue its dividend growth without additional equity raising.

I will now hand over the presentation to our CEO, Doug Arnell, who will take you through the market outlook and the summaries.

Doug Arnell

Thanks, Brian. Good day, and good morning to everybody. We'll start the -- my part of the presentation on Slide 13 with the market outlook, which, I think, is fair to say has seen quite a volatile scenario, especially on the spot term rates for shipping charters and that's largely due to the effect you're seeing on the right-hand graphic on this page, which is a comparison of basically the Atlantic/Pacific price arbitrage on LNG versus spot rates for shipping. You can see that through the third quarter, we had quite a drop, in fact, a collapse in the LNG price spread and a corresponding drop in the charter rates. I think it is interesting to note though that through that time period, the spot rates still remain fairly robust, never dropping below $100,000 per day.

As you can see, as we came through the fourth quarter of 2012, we had a steep recovery in the LNG pricing in Asia and a corresponding recovery in the spot market prices.

Despite all that positive outlook in the last couple of months, it is still the case that there are several anomalies on the production side of the LNG market, facilities with unexpected outages, facilities -- new facilities that haven't come on stream on the timing that they were expected, and that has resulted in a lack of available cargoes to be shipped. And it's not just a lack of available cargoes because these projects often have project shipping associated with them, a lot of cases, those ships were released on to the market, so you get a drop in the number of cargoes and an increase in the number of ships available -- open -- ships with open positions in the market.

So looking forward, we are very confident that the production anomalies are going to be solved. The new production facilities are going to come on, which will quickly soak up the vast majority of the open tonnage on the market and rates will continue to strengthen.

Turning to Slide 14 with a bit more of a long-term outlook on the market. Certainly, it's the case that we're entering a phase of rebalancing in the market, but we feel the long-term fundamentals are very attractive. Why is that? Well, it's mostly due to the fact that under construction, we have over 80 million tonnes of new production coming on stream, which represents a 44% increase over current levels. And although the ship order book, which is fairly concentrated with deliveries later this year, 2014 and early '15, which will certainly catch the shipping up with the existing production. Following that, we have a large wave of new production coming on stream, which will soak up the vessels that are in the order book and certainly more vessels are required in the latter half of the decade. The demand for LNG, we see, is very strong. That side of the equation is never in doubt. LNG pricing and the cost of which its produced at existing and new facilities still compare very well, with -- on a heat value parity basis with competing fuels. And so the demand side of the equation is solid.

We can experience some volatility in the shipping sector that spurs off of delays and schedules not met on production facilities. So we've got a keen eye on the major projects to watch out to see how they're coming on stream and how their actual delivery dates will reflect what has been scheduled.

Turning to Slide 15. I think those of you who have been investors for some time in Golar, at least over the last couple of years, we've been showing the same slide and you've, I'm sure, seen a marked shift in the number of vessels that are moving from the bottom of the slide up into the top. The top part of the slide, of course, is the Golar LNG Partners fleet. The bottom part of the slide is Golar LNG Limited's fleet. Less than 2 years ago, when we launched Golar LNG Partners, the promise of it was that Golar LNG Limited had a large inventory of assets where -- with open positions that could be leveraged into longer-term positions, drop-down into the MLP and thereby contribute to funding the growth at the Golar LNG Limited level. Well, I think we're very proud to say and it's very clear that we've delivered on that promise. The growth into Golar LNG Partners has been excellent. And thus, through that structure, Golar LNG Limited, as Brian referred to, has raised close to $1 billion in funding to feed the newbuilding program. We have, again, in less than 2 years, actually doubled the number of vessels inside Golar LNG Partners and you can see them there with their longer-term contracts. Remaining in the Golar LNG Limited, linked in the existing part of the fleet anyway, are our 3 first generation vessels, which are very relevant to our midstream business, which we'll talk about in a moment, and the 2 other modern vessels, Golar Viking and Arctic. Arctic is on charter currently and through into 2015, Golar Viking will come open and be available for charter near the end of this quarter, near the end of the first quarter.

Of course, our inventory of assets does not stop with the existing fleet. We have a significant growth period in the number of assets coming into Golar LNG Limited. Page 16 is a graphic of the open positions that we have coming near term through the early part of 2015. As Brian said, the financing of this part of the fleet is in very good shape. We believe we have covered the anticipated equity portion of all of this program and are optimistic on our ability to use other sources to round out the funding. You can see the first of the newbuild vessels, the Golar Seal, coming for delivery in the third quarter of this year and following that with the other vessels, including 2 FSRUs. We're very optimistic that we're going to see a strong contribution to Golar's growth through these vessels.

Moving on to Slide 17 and an update on our FSRU franchise. We, of course, were somewhat disappointed to be unsuccessful on the Emirates LNG project. However, at the end of the day, the terms, which were tendered finally for that project, were not overly attractive to us. And so although we missed out on having another FSRU asset in the same region to join our Dubai facility, we remain optimistic about that region for further projects. Pointing to that, we have recently been named as the preferred bidder for the Jordan LNG import project. Our contribution to that project will be to provide a long-term charter of an FSRU for which we would utilize our Golar Hull 2024, which is due for delivery in 2014, [indiscernible], the Golar Igloo. Again, we have been awarded as preferred bidder, which means that we do still have to close out formal contractual arrangements with Jordan. And that -- those discussions actually begin this week and we are hopeful that they come to successful conclusion.

The FSRU space continues to be very attractive. There are multiple projects going on. We see the potential for 1 to 2 further awards even in the first half of this year. We always like to put a cautionary note on the timing of FSRU awards. They tend to miss their predicted date somewhat, but we believe the awards that are coming up this year are on fairly firm projects. So we don't expect dramatic delays.

The GasAtacama award, we've talked about again in our press release. We still are the provider of the FSRU for that project. That project continues to suffer some delays in getting to its final investment decision, and we're in the discussions with them to see if we can extend our offer to them to supply the FSRU on terms that will remain attractive to Golar. Again, the FSRU, we referred to this many times, the FSRU market and its place in the LNG industry, we believe has become the default solution for new LNG imports. It's not a temporary solution anymore until someone builds a land-based terminal and stepped in very specific circumstances. Alongside of that, there currently in the market is a limited number of undedicated FSRUs available for prompt delivery. So we're quite optimistic about this space. As such, we -- as we pointed out in our press release, we have been in discussions with our shipyards. Given our optimism on the FSRU side, we are looking at the option to convert some of the existing newbuild carriers to have FSRU capability as well, so they would be -- end up just like our 2 existing FSRUs. They can be used as FSRUs but still have the original design for the carriers so that they can be used as carriers -- as standard carriers with the original performance characteristics. We haven't committed to that plan yet. It's under discussions, but as we progress things, we will let you know as how that comes out.

Turning over the slide to Slide 18. We continue to be very encouraged and excited by our floating LNG production project. Since we have announced this endeavor, we've had excellent feedback from the market, especially from sectors that are looking for a fast-track modular liquefaction solution at low cost and a very simple execution path. We kicked off our FEED with Keppel last year. That is on schedule and on budget and was due to be complete by mid-2013. We anticipate when that FEED study is done, which will pin down the specific costs for the unit, it will also confirm what we suspect that our construction time will be less than 24 months once the initial FEED -- from the time the FEED is completed. So this creates a very, very fast-track project execution opportunity. We believe that the FLNG vessel approach, the floating approach, will have a similar impact on the LNG industry as FSRUs have, which is found to greatly accelerate the number of production sources worldwide just as the FSRUs greatly accelerate the number of market outlooks available to the LNG industry.

We are, as you probably know, still in ongoing discussions with the Douglas Channel LNG project in British Columbia where we were conditionally awarded the offtake of that project on a joint and several basis with the original developers there, LNG Partners. Those discussions are ongoing, and they're focused on the investment terms for Golar to participate. And our commitment to the offtake on that project is conditional to us reaching final investment terms on that project. But, further than that, we -- since we've announced our move into this space, we have had contacts and we are in discussions with several projects globally. A lot of them are at their early stages but a lot of them show very good promise.

Over to Slide 19. Again, we mentioned it briefly in our press release. Given the good reaction from the market and given the execution parameters in this type of business, we've determined that the best way for us to move forward with this is to create a new subsidiary, which we have plans to do -- tentative to have plans to do in the first half of this year. We would plan to maintain ownership of at least 66% of the entity, and we will contribute the 3 existing first generation vessels, which, of course, form the technical basis for our asset offerings into this space. We will contribute the -- all the liquefaction technical work and the FEED work that we're conducting right now and, of course, the projects under development would be executed in this subsidiary. The justification for the subsidiary are several. The execution of these projects will be slightly dissimilar to the carrier business and even somewhat similar to the chartering of FSRUs. We feel that this separate subsidiary will allow us to be [indiscernible] financing for these projects in an optimal way. It will clear up any conflicts that we may have with our chartering customers in this area of the business, and again, allow us to maintain and build up the organizational capabilities and create a focus on this area of the business, which is quite excited. So, the subsidiary will be focused on developing our technical concepts, our organizational capabilities in this area, building and financing liquefaction vessels, promoting the development of new integrated midstream LNG projects. And of course, a follow-on from deploying our floating LNG production vessels is creating new opportunities for LNG carriers and FSRUs in new markets.

So, turning to Slide 20 to wrap up with a summary and outlook. As Brian described, we are currently assessing the suitability of consolidating Partners results in with Golar LNG Limited following the election of the independent directors on December 13. We will make that determination in order to make the filings later this year on time.

Looking back at Q4, our earnings were somewhat off. That was mostly caused by some commercial waiting time on Golar Maria, as we saw the collapse of the arbitrage, pricing arbitrage coming into Q3 and early into Q4. And then, of course, the schedule drydocking of Spirit will continue into the first quarter. The financing of our newbuilding orders is well on track. We have cash on hand currently to fund anticipated -- the anticipated equity portion and are in active discussions with other sources of funds to round out the picture. During the first quarter, following the chartering out of the Golar Maria late last year, we have dropped down the Golar Maria to Golar LNG Partners with net proceeds of $110 million, which further improves our financial situation in Golar LNG Limited. The FSRU franchise continues to progress well. The existing facilities are operating at high utilization and, as we mentioned, we have been selected as preferred bidder for the Jordan FSRU project. On the floating production side, our FEED work is progressing on time and on budget. That work will be completed in the middle of this year and following which a 24-month project execution schedule to have the vessel completely ready. And finally, we are planning to launch a new entity for pursuing floating LNG production projects and other related midstream ventures.

And with that, that brings us to the end of the presentation part of the webcast today. I will now turn it over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Jon Chappell of Evercore Partners.

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Doug, I wanted to ask you in general terms and then more specific terms as regards to GasAtacama, the timing as far as the decision to convert newbuild carriers to FSRUs. So in the instance of the Tundra, it's not delivered until 2015. How long can you extend the GasAtacama before you'd have to make a move to convert that? And then, I guess, as far as the other ones you talked about potentially converting, when would you have to make that decision prior to delivery in order to get an on-time delivery?

Doug Arnell

That's a good question. In terms of GasAtacama, I guess, this is in general for conversion to add on FSRU capability. It sounds a bit obvious but it's true. The longer you get to the normal delivery time of the vessel, the more expensive and difficult it is to convert the carriers. We're using the word conversion, but it's more adding the FSRU capability on to the carriers because once we do this work, the vessel will still be fully utilized as a normal carrier with exactly the same performance characteristics. So the situation with GasAtacama and the other vessels is that, as of today, for some number of the vessels, we can add on the FSRU capability without we expect too much more cost than was originally added on to the FSRU newbuildings that we did that are part of the fleet today. So as long as we are moving toward this now and in the near term, we would expect to see a similar cost. If we get too deep into this year before GasAtacama makes a decision or before we move to make the FSRU addition on our own carriers, then it just -- it's just a matter of cost. It just starts getting more expensive to unwind some of the design and redo the work. As of now, we don't expect, and again, the discussions are ongoing with the yards right now so I'm sort of predicting things that haven't been solidified yet. But we aren't expecting the cost to be too different than the existing FSRUs that we have.

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Okay. Now moving on to the new potential subsidiary, I guess, definite subsidiary, for the FLNG. I mean, I understand the purpose behind it. I guess it's still early stages, but how do we go about modeling this? I mean, it'll obviously be consolidated because you'll own 66% but outside of the 3 first generation assets, where is the cash going to come from for that business in order to finance the investments in FEEDs and whatnot?

Doug Arnell

Well, again, part of the reason for creating this new subsidiary is to raise financing the most effective way we can to participate in the projects. So the financing for the projects will come from various sources. Obviously, we're going to make a contribution to that company initially, which has a certain value. We expect to have a certain amount of available cash following on the launch of the subsidiary. And that cash would generally be used to progress FEED studies, some seed money for the various projects that we're working on which needs some injection of pre-investment decision funds to keep the projects going. So we expect to be able to enter the market and get some -- get the vessel schedule on track, get the projects developing with the cash that we would have available to start the launch of this subsidiary. After that, the raising of finance to implement a full floating LNG production project, they would -- that's going to depend on the nature and the structure of each particular project, most of which aren't in a state yet where we can say exactly what will be the best means to do it. Certainly, we would have all the tools available. I mean, if you do have a fully flanged up project, let's say, where we are merely leasing-in the floating LNG vessel to somebody who has gas reserves, turning it into LNG and shipping it away to market, then on the back of that lease we would be able to raise financing for the construction of the vessel. Golar is more embedded in the project and, again, is creating more of an integrated project. We still would, I believe, be able to raise financing based on the revenue stream that we would solidify in place with that particular project. So project financing is certainly an option, but we think that there's a place for raising further equity in the sub in order to advance those projects. How to specifically model it at this point? I think it's a little bit early days. I think we'll have more news in that and how we intend to structure the company and how we intend to structure the deal we're working on when we actually get closer to the launch.

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Yes, that makes sense. Just one more quick one, then I'll turn it over. I didn't have a chance to go through the entire press release but I really didn't see, by skimming through, an updated CapEx budget. You said $500 million of equity contribution. But Brian, if you can just give us an update of the annual capital budget plan for all the newbuilds and drydockings, both the equity and the total components?

Brian Tienzo

Sure. So I mean, to start up with -- I mean, our newbuilding program is obviously approximately $2.7 billion, of which we've already paid $450 million of that. We -- then there is an additional $500 million to cover as -- what we call the equity portion, which we will pay up from, obviously, from generation of cash and drop-downs and so on. We now have that in place. As we mentioned in the presentation, as of the end of December, we had 500 -- plus $500 million, which excluded Golar Maria dropdown. And so that essentially takes us to the delivery of each of the vessels. And then, of course, we're now in the eve of very progressive discussions with various parties to try and meet that -- those extensions. As far as expenditures are concerned, I think for 2013, there are 5 deliveries, which amount to approximately $700 million and also in the next year is where the majority of the deliveries are. So that's close to $1 billion and then one in 2015. But I think, as already highlighted in the presentation, of course, we are very much progressing the financing options that we're working on, ECAs, banks, capital markets, but we mustn't forget the corporate structure that Golar LNG has been able to make work for its own course. I mean, to date, we've dropped down 4 assets and each of those assets has essentially paid -- has contributed quite a lot of cash to enable the company to pay off some of its equity newbuilding obligations.

Operator

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

Michael Webber - Wells Fargo Securities, LLC, Research Division

I just wanted to follow up, first, on kind of the new midstream co. And just to be clear, anything associated with Douglas Channel or Molecule [ph] ownership would fall under this new code that's initially going to house the other 3 Moss Inc. assets?

Doug Arnell

That would be the intention. Yes, that's right.

Michael Webber - Wells Fargo Securities, LLC, Research Division

Okay. And then, I guess, specifically, you mentioned a minimum ownership of 66%. I mean, is this something where -- I mean is there something going on with the flow? Is there a private buyer in mind here? How do think about -- it just jumps out of me as being a bit odd-- but how do we think about that at this point?

Brian Tienzo

Yes, I mean, I think, we just want to let everyone know that, obviously, Golar's intention is to retain majority ownership of the entity, but we want to keep open the option to be able to find some form of financing outside of Golar that would allow us to progress the project. I mean, the one thing that we want to be able to do is extract some value out of the vessels that we put in there. And although there are old carriers in there, they do have values. They can be converted to FSRUs or in this case, FLNG.

Michael Webber - Wells Fargo Securities, LLC, Research Division

Right. But you're not saying that upon this spin, there's going to be a 34% sale at some point. This is more just a guideline for the future? This is not something -- we will see -- we'll see a sale sometime in the near term?

Doug Arnell

I think it's pretty early days. We wanted to give some early look at our intentions as to how we're going to progress this floating production business. We don't have all the decisions finalized on what the first step is going to look like exactly. Certainly, we'll be coming back to the market when we make that determination.

Michael Webber - Wells Fargo Securities, LLC, Research Division

Right. All right. I mean, it's certainly one of the more -- it seems to be one of the most lucrative portions of the business and certainly, in kind of an infantile stage, so this kind of piques our interest. I guess, separately, around Douglas Channel, and you guys have provided a bit more color here, but can you give us some sort of scale? And I know it's very early, and there are a lot of moving pieces in terms of what your overall ownership could look like in that project. And then may be a bit more color in terms of timing, and when you think you could come to an investment decision and how that should work?

Doug Arnell

Yes. So the -- I guess, we can't be too open about it. It's an ongoing negotiation and subject to confidentiality and things, but the -- I think it's fair to say, the investment -- total investment there is $500 million to $600 million on assets for the first phase. If Golar participates, I would think you would see us contributing or be responsible for contributing at the end of the day 50% to 100% of that amount, either from various sources of funds and again how we financing -- how we finance that kind of endeavor is certainly undetermined [ph] at this point. You don't need all $500 million to get going, obviously, the amount required this year, for example, for that project will be far less than that. So timing on the investment, it's hard to predict. We are working to understand what our options there as quickly as we can. Of course, we're not the only party at the table, so -- and we can't control everybody, unfortunately. But -- so we're hoping it's the near term. But I don't want to go on record with predictions exactly when that will happen.

Michael Webber - Wells Fargo Securities, LLC, Research Division

No, no, no, that's fair. That color is helpful. I guess, just a couple more, and I'll turn it over. Maybe just switching into the carriers. Viking is -- certainly, it seems like it's next up. And just curious as to A, what are you seeing out there right now in terms of the deals for the Viking, in terms of tenure and trying to hit that kind of omnibus mark and whether or not there's a 5-year deal out there? And then in terms of the newbuild carriers, I know you mentioned potentially converting other FSRU, but out of those, say, 9 to 10 carriers, long term how many of those do you think -- or, I guess, intermediate term, how many of those you think will actually be trading in the spot market?

Doug Arnell

Well, again, in terms of what we're seeing in the market now, I think we are still laboring a little bit under market that's short on cargoes or shorter on cargoes than anybody anticipated just from a number of production outages and some late production on new projects. So I think that if I had to predict, it's not necessarily that the first charter following on for Golar Viking would be a longer-term charter, which may -- we may see some shorter-term deals to leg into something longer term, a little bit like -- with Maria, although trying to avoid the 60-day idle time that we had on Maria. Obviously, that's the goal to not let that happen. And then onto the newbuild, again, I think that it's -- as I said, we're coming into a pretty visible rebalancing of the shipping sector. So you've got ships coming on a pretty firm schedule. Everyone can see it. Everyone can find out what the order book looks like. And that what you have is the shipping catching up in a kind of concentrated way, and the production coming out over more elongated time. And that's just naturally how it had to happen. Obviously, the ships are going to end up or arriving ahead of the curve when the new LNG's coming on. And in that period prior to the big wave, you can expect some -- a little bit of volatility on rates and things on the ships as they wait for the production to come on. And we kind of rely on a couple of things. One is that when our newbuild fleet starts coming on, our fleet, along with being one of the largest, will also be one of the most efficient. And so when things get a little bit more balanced, what we will [indiscernible] is that fact that our newbuilds will be among the most attractive ships to charter from a cost and of operational point of view for our charters. And also sitting in the actual open tonnage late this year and next, I believe, there's something like 37 open vessels coming into the market over the next period, and we have 1/3 third of those or a little bit less, 11 of those. So we -- hopefully, we'll be able to show a little bit of market leadership with ships that should be quite attractive to charterers. For me to guess that how many of these ships will be and on what time will be in the shorter-term market versus longer-term market, it's difficult to say right now, but I think the earning power of the fleet will still be good. The shipping supply-demand looks balanced and then undersupply starting in 2016 and '17, so -- or how we think of the market, it was quite optimistic.

Michael Webber - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. Actually one more for me, and I'll turn it over. But I just -- just curious, as you guys are back along the lines of FLNG and that FEED study with Keppel and the 3 Moss Inc. assets heading to the new co. Within the FSRU space and within the FPSO space, we saw a pretty quick conversion from conversions towards newbuilds. And I'm just curious to know what sort of feedback are you guys getting around that conversion and, I guess, the sustainability of kind of conversion assets? And how quickly you think we would see it transition to, say, newbuild FLNGVs, being that you guys already gone through that on the FSRU side?

Doug Arnell

Yes, of course, I mean, it depends which sector you're looking at. There's the creative-style FLNG venture, which is a very field-specific offshore asset that's completely different from what we're talking about here. Those will get developed and done on a spoke basis and usually very, very long time lines. I think you're probably referring to more like what's happened with the where -- Golar, of course, was very successful with the FSRUs with conversions from Moss tankers like, but very quickly, the Korean shipyards figured out how to do that kind of project on a similar -- a little bit slower time line but a similar time line as -- Golar could do conversions. So I'd still say its -- there's still 6 months or more slower than the conversion to be done. I think that kind of thing is natural to have happen. It's a little bit -- I think, on the FSRU side, you can be a little bit more generic on the vessel itself, which needs the Korean shipyards in order to build a generic FSRU newbuild. So it's fairly easy to come into the space and a little bit more complex on a technical side, on the FLNG space, but I'm not going to say it's not something they will get over. So our speed of entry here is critical. I think that we will have to not just still rely on the fact that we are able to create floating LNG assets, but I think we have to be very good at selecting good projects for those assets and be very good at integrating our other franchises into this integrated midstream position, which can turn into more of a self-sustaining optimizable, if you will, business entity that won't be 100% reliant on being the fastest converter of -- or builder of FLNG vessels. But that's certainly our advantage to start off with and get the business going.

Operator

Our next question comes from Fotis Giannakoulis of Morgan Stanley.

Fotis Giannakoulis - Morgan Stanley, Research Division

Can you please clarify to us the distinct roles between the new subsidiary and your partner in the BC LNG project? Will the partner be participating in the construction of the FLNG, or is -- totally separate?

Doug Arnell

Well, as we've announced, all that's really happened is -- formally happened is that us and the original developer LNG Partners have been awarded the offtake on a conditional basis on a joint several basis. That project's been underdevelopment for some time by the original proponents along with their partner, the Haisla Nation. The funding -- who's going to fund which part, who's going to contribute to the floating aspects of the project versus the land-based project, that's all -- I mean, there might be some obvious predictive answers to that, but all of that is under discussion, and we're just not at a point where we can describe exactly what that looks like yet for us.

Fotis Giannakoulis - Morgan Stanley, Research Division

Okay. And you announced, first, as an offtake agreement for 700,000 tonnes. I understand that the capacity of the project will be 2 million tonnes. Does this mean that there's going to be a project with 3 trains, each of around 700,000 tonnes? Why the agreement was at that amount and not for the total amount?

Doug Arnell

Well, the original size of the project is driven by the existing pipeline capacity that serves -- that will serve the project, and that's what set the volume for the Phase 1. Phase 2 depends on expansion of pipelines, which will take a little bit longer time, so the project proponents have set about to execute the 700,000 tonne per year project, because it can come on stream earlier, which we agree with as a project strategy, so -- but the agreement that we are working on that project does contemplate the expanded volumes as well.

Fotis Giannakoulis - Morgan Stanley, Research Division

That's very clear. And in regards to the marketing process of the LNG, you write in your press release that you are in active discussions right now. When do you think that these discussions will be concluded, or at least give us some more details about the preliminary agreement? And do you expect that the sale of LNG will be at some fixed price? Or is it going to be some price that's linked to the price of natural gas in North America? And if you can give us an expectation of what would be the spread? Are we talking about $3, $4 of -- per MMBtu of profit for you or something higher or lower than that?

Doug Arnell

Okay. Well, again, it's very difficult for me to talk about too many details on ongoing discussions with that project. I think, I -- the -- I think, I'd like to pull back a bit and just say that our focus right now is to A, get this FEED study done with Keppel and solidify our technical solution that we are bringing to the market, because that's, in essence -- yes, there's a different size 700,000 tonnes project in Douglas Channel, various other opportunities. But that asset will drive the follow-on opportunities that will allow us to participate in the project. Douglas Channel or any other project, we will look to participate in those projects in the best way we can in order to maximize the value and manage the inherent risks of the project. So unfortunately, I can't really talk about any specific arrangements for off-sales on BC. I think there's a raging debate about sales of LNG from North America into Asia. There's certainly different viewpoints. We would, I think, take a view that the market will speak as to what kind of exposure they want in terms of price indexation and things. And we would be, as a first case, responsive to that market. There seems to be an appetite for pricing that's linked to North American gas price from Asian buyers, and the reasons for that are clear. In terms of what margin people can expect to see on those, far too early to say, it has everything to do with this specific project, the shipping distances, the type of commitment you're making, whether the buyer's contributing equity to the project or not. So it's just too difficult to make a prediction on that, Fotis.

Fotis Giannakoulis - Morgan Stanley, Research Division

Okay. And in relation to your 2 -- the 3 older LNG carriers, does it seem that these vessels, provided the FEED study goes well, will be tied to the FLNG initiative, or we might see any of these vessels bidding for an FSRU contract?

Doug Arnell

Well, I think that the intention is that all 3 of the first generation vessels would be part of the new floating production midstream subsidiary. Because of the nature of the production projects and the fact that you're actually -- by definition, you're introducing new production onto the market, we, obviously, see that there, hopefully, will be good opportunities to integrate entire midstream positions together, which could include carriers and FSRUs, and it could include potential for an FSRU conversion project. We haven't been as focused on FSRU conversions for those vessels, but there are projects out there, not so active at the moment. There are projects out there that first generation vessel conversion for FSRU make perfect sense. And just because those vessels are sitting inside something that we're attaching to our production initiative that we would, certainly, if the deal was right and the value was there, try to participate in the FSRU conversion.

Fotis Giannakoulis - Morgan Stanley, Research Division

Doug, my last question, it has to do with the FSRU tenders, the last 2 tenders, the one that you have been chosen as the preferred bidder, and the second, the Emirates one that you lost. Can you explain to us what were the elements in the technical aspect of the Jordan FSRU project that made you the preferred bidder? And what was the commercial terms that were not satisfactory for them in order to successfully get the Emirates FSRU?

Doug Arnell

I'm not sure you're at -- I can describe exactly what's the Jordanians mostly liked or disliked about our technical solution. The -- it did happen that the technical requirements for the project match up very well with both of our newbuild FSRUs, and we selected the second of the deliveries in order to put the vessel in there. So they're getting a state-of-the-art newbuild FSRU that fits their requirements very well. And again, you seem to be inferring that it was just a technical-based decision to make us preferred bidder. That's not correct. It was a full consideration of all technical and commercial aspects that led to the preferred bidder award in Jordan. I can't speak in -- with specificity about commercial aspects of Emirates LNG project. That's their project, and -- but I think we would say that how this is coming out if we're able to secure the Jordan FSRU project, we like the one we're getting better than the one we didn't get.

Fotis Giannakoulis - Morgan Stanley, Research Division

I understand that. I'm just trying to understand if there is any increased competition on -- for this project. And if rates, from what we have seen, they've been trending lower, which made you not want to participate that -- or made you not to find the acceptable or satisfactory, the Emirates terms?

Doug Arnell

I mean, I wouldn't say -- I mean, it's -- the competition field is not radically different. I mean, especially for near-term projects. There's a very small number of companies with vessels available for these bids. I think what can happen is due to specific characteristics of a project that one company really, really likes and maybe thinking of a strategic position, for example, or some other outside element, then a company can tend to get more aggressive on what terms they're willing to provide to projects, and in that case, you get some downward pressure on things like rates or contractual terms. But I wouldn't say the competitive space is radically changing. Still quite a few projects and a fairly limited field of competitors.

Fotis Giannakoulis - Morgan Stanley, Research Division

Is there any significant risk that somebody will try to outbid you on this Jordanian FSRU project in terms of pricing?

Doug Arnell

Well, the pricing's already gone in, and that -- so that part of the deal is finished. The technical commercial and pricing, all the elements of the bid were submitted previously and the preferred bidder award we've received is based on all of that information.

Fotis Giannakoulis - Morgan Stanley, Research Division

And which part of the bidding process is left right now? And when do you think that this is going to be concluded?

Doug Arnell

Well, we're entering into a exclusive negotiation period with the Jordanians on the time charter terms. They are hopeful to be concluded with that, within the second quarter.

Operator

[Operator Instructions] Our next question comes from Urs Dur of Clarkson Capital Markets.

Urs M. Dür - Clarkson Capital Markets, Research Division

On the FSRUs going forward, a lot of it's been touched upon, but can you guys remind the audience and myself the main upcoming projects under which you're bidding? And any possible timing that you might expect where we see a preferred bidder emerge?

Doug Arnell

Yes, the 2 that we referred to in the press release in the first half of '13, one's in the Middle East and one is in India. I would say there's a list of several other projects, actually, additional projects in the Middle East, which are kind of in the formative stages. India is very active. We're still hopeful that eventually, there'll be a next project come up in Indonesia. But again, the near-term projects are one in the Middle East and one in India.

Urs M. Dür - Clarkson Capital Markets, Research Division

Do you have any color or view as to new projects that you might see on the horizon? Or is that just too commercial that you want to keep close to your vest -- I mean, we've heard rumblings in the marketplace of Brunei considering an FSRU. I'm just wondering if you had any potential market horizons that you might be able to give us on the FSRU side?

Doug Arnell

Well, I mean, countries that have been out in the open talking about potential projects are Bahrain, Egypt, Lebanon, Cyprus, Kuwait, of course, that wouldn't be a new -- well, actually, they are looking at a second potential project. I don't know the status of it, but they have their existing terminal there. India, there's 3 or 4 projects that are at various stages. Indonesia. Of course, Chile is an ongoing interesting situation, where they've been trying to push the FSRU projects along and having trouble getting any of them going. Uruguay has spoken about projects. And there's others -- I just don't have them on the top of my head right now, but there's got to be -- there's always a pretty heavy churn of new FSRU projects. There's -- but -- and we track them all. We don't pursue them all aggressively, because, quite honestly, there's a lot of them that we just don't believe will ever go ahead, and we prefer to focus on high-quality projects. But we're, I think it's fair to say, very optimistic at the amount of market churn still on the FSRU side.

Urs M. Dür - Clarkson Capital Markets, Research Division

Okay, helpful. The Hilli and Gandria listed as spot, and you were going to put them into the new FLNG structure, which is -- sounds exciting and looking forward to seeing how that develops. Do we -- how do we treat them going forward in the model? Do we treat them as idle until they go into the FLNG project? Or what do we do there?

Doug Arnell

I think it's fair to say as this rebalancing phase comes along with the newbuilds being delivered out of the shipyards that the efficiency gap between the newbuilds and first generation vessels is very, very large, and so it'll become increasingly difficult to trade older carriers. It's an actually different interesting dynamic. I'm not sure it gets thought about, but there is a large number of those first generation vessels trading as carriers in the industry right now. And as the newbuilds start coming in, the first point of flex in the fleet certainly will be those first generation carriers coming out of the market. So what we're doing, we're still, obviously, open to carrier opportunities for them. Certainly, our focus is shifting onto the sort of midstream opportunities to utilize those assets. We're going to be minimizing the operating costs associated with those vessels as quickly as possible but keep them in a ready state, so that they can be reactivated quickly or so that they're in a very good condition as they are as they -- as one or more than of them head into a conversion project.

Urs M. Dür - Clarkson Capital Markets, Research Division

Okay. So and you said the FLNG process -- remind me, I'm sure it's in the press release. It'll take, what, 24 months you said or that's just the conversions, so how fast do you think the new structure will be in place? Any guesstimate there?

Doug Arnell

Well, we're targeting the first half, so before the first half of this year is out, we would come with all the details of how that was going to work. And as long as things stay looking how they do today, go ahead and execute on that. The execution time for the vessel itself, I mean, that's part of what the FEED study establishes is the exact schedule, but we're anticipating that following the FEED being completed, again, around the first half of this year. We would have available to us a 24 month execution time-line for the first vessel.

Operator

Our next question comes from Herman Hildan of RS Platou Markets.

Herman Hildan - RS Platou Markets AS, Research Division

Just have a few questions. You mentioned a $400 million to $500 million asset in the first phase of, call it, G FLNG. What kind of production capacity does that asset have? Does it have -- does it like 1.3 million tonnes per year? Or could you give some indications on that?

Doug Arnell

Sorry the first phase of which? I want to make sure we answer...

Herman Hildan - RS Platou Markets AS, Research Division

Yes, you mentioned -- you had a comment where you said that the first phase of the Golar FLNG will be a $500 million to $600 million asset. And what kind of production capacity do you have on the $500 million the $600 million asset?

Doug Arnell

Actually, that was, I think, I believe what I was talking about was the first phase of the Douglas Channel project, which includes a liquefaction asset and also onshore assets related to the liquefaction, which total up to $500 million to $600 million for the 700,000 tonne a year first phase of that project. We actually haven't come out with firm costs yet on the converted first generation vessel that -- for floating LNG. We will have more information on that when we complete the FEED study.

Herman Hildan - RS Platou Markets AS, Research Division

Is it possible to give some sort of indication, just rough indication, of how much of that $500 million to $600 million relates to the asset itself?

Doug Arnell

Sorry, I can't. That's project details. Again, we're not an investor in that project yet. We're working on it. So I'm pretty hesitant to give away too much detail about those. The majority of it is on the liquefaction assets as you might expect.

Herman Hildan - RS Platou Markets AS, Research Division

Of course. And why do you have to wait say 3, 4 or 5 months to spin off the FLNG RU? It sounds like you expect to spin the FLNG off before you complete -- or before you finish the FEED study, is that correct?

Doug Arnell

Of course, the FEED study is one of these things that -- it does have a set completion date, but every day we're working on it. We're learning more and more. The timing on the launch of the subsidiary, yes, we want to be able to have solid information about the cost and schedule for our technical solutions that we're bringing to the table. So within the first half of the year, we'll be ready with that kind of information. And I think we're still working on structuring issues and thinking about how best to take Golar into this business. There's a lot of opportunity there. There's some different risks inherent in the business that Golar, in the past, hasn't had to deal with. So it's a new somewhat different business line for us, and we want to get it right, the first time out and not have any false starts.

Herman Hildan - RS Platou Markets AS, Research Division

Is it the commercial aspects that you're -- that you want to, I guess, conclude a bit more before you kick off a subsidiary?

Doug Arnell

Well, it's everything. It's solidifying what technical solutions we're bringing, a little bit more work, getting the projects, getting familiar with potential projects, and how they can unfold, thinking about how we're going to structure commercially our participation in projects, our preferred way to raise financing for such projects. So it’s kind of a full slate of the business model that we need to be able to speak about clearly before we launch the subsidiary.

Herman Hildan - RS Platou Markets AS, Research Division

And also just the last question. I mean, you mentioned also the efficiency gap between the older and nearer [indiscernible]. Your previous press release you referred to a gap of $20,000 to $40,000 a day, is that -- do you see the willingness by charters to accept that you take parts of that efficiency gain, or is that, call it, more difficult to get through?

Doug Arnell

Well, it might not surprise you to hear just because I say on a webcast that the gap is $20,000 to $40,000 that the charterers don't want to hand that straight over the Golar. The market will work how the market works, and we'll find that inflection point. We certainly very much expect to be sharing in a significant portion of that efficiency uptick.

Operator

We have no more questions in the queue.

Brian Tienzo

Okay, great, so -- well, thanks, everyone for your participation in our fourth quarter results. And as always, we look forward to speaking to you again in May when we announce our Q1 2013 numbers. And then until then. Bye-bye.

Operator

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

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