Golar LNG's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.28.14 | About: Golar LNG (GLNG)

Golar LNG Limited (NASDAQ:GLNG)

Q4 2013 Earnings Conference Call

February 28, 2014 10:00 AM ET

Executives

Brian Tienzo – Chief Financial Officer

Doug Arnell – Chief Executive Officer

Analysts

Jonathan B. Chappell – Evercore Partners

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Michael Webber – Wells Fargo Securities, LLC

Herman Hildan – RS Platou Markets

Erik N. Stavseth – Arctic Securities ASA

Operator

Good day ladies and gentlemen and welcome to the Golar LNG Limited Q4 2013 Earnings conference. Today’s conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Brian Tienzo, Chief Financial Officer. Please go ahead, sir.

Brian Tienzo

Thank you, operator and hello everyone and welcome to Golar LNG's fourth quarter results presentation. My name is Brian Tienzo, as operator said. And as per usual, I'll be taking you through the main events of the quarter as well as the financial highlights. I am joined as usual today by our CEO, Doug Arnell, who will take you through the business updates and the summary announcement sections.

So let’s now turn to Page 4 to go through the quarter highlights. Golar reports fourth quarter 2013 net income of $4.3 million, so we had negative impacts in operating vessels, but we also had positive mark-to-market returns on interest rate swaps. EBITDA during the quarter generated was a loss of $5.5 million and the company during the quarter takes delivery of the Golar Seal and Golar Celsius in October and earnings were negatively impacted also by the Golar Arctic completing its scheduled drydocking which took on 17.5 days of time.

In December, Golar Partners completed its fourth follow-on equity offering and was able to raise net proceeds of approximately $150 million and concurrent to this, Golar sells 3.4 million of its common units in Golar Partners raising net proceeds of $99 million.

Golar’s Q4 dividend cash receipt remains in line with Q3, and the proceeds from the sell down of Partners was mainly to look at the potential FLNG projects that the company is looking to strategize over the next couple of quarters.

Furthermore, Golar agrees to sell its interest in FSRU Golar Igloo to Golar Partners for $310 million, subject to certain closing conditions. Of course, the Golar Partners following equity offering in December is in preparation for the finalization of the sale of the Golar Igloo.

During the quarter, we saw Gimi proceed to layup in the Far East. This is a result of the company seeing the vessel encourage extensive idling time and in order to be prudent on savings on operating costs, we thought that, that was a prudent thing to do.

We continue to see spot and short-term chartering market remain challenging and with increasing numbers of available vessels. Nevertheless, and despite the weak results during the quarter, the Board maintains dividend of $0.45.

Turning over to Page 5, subsequent events. The FSRU Golar Igloo delivers from yard on February 5 and proceeds toward Kuwait for delivery into five year charter with KNPC. And the company expects that the vessel commences this charter from March 1.

Golar concludes the financing of the four vessel sale in leaseback facility with ICBCL and essentially that means a total CapEx of $2.7 billion for its newbuilding is now fully funded. Finally, we saw EPC contract negotiations for the floating liquefaction vessel conversion reaching its final stages with most of the commercial discussions towards the finalization.

Turning over to Page 6 on financial highlights. So on the left-hand table there, that’s showing the Golar’s standalone results and as you can see the net operating revenues have dropped very slowly from Q3 of $12 million to Q4 of $11.6 million. During Q4 as mentioned, we saw Arctic drydocking and which meant that for 17.5 days was incurring of time. We also saw the delivery of our Seal and Celsius during the quarter and both vessels were significantly idling.

To mitigate that, we saw the Golar Viking on high for 58 days, but again with the Gimi idling that means the overall the net operating revenues were down very slightly.

Operating expenses for the quarter of $12.1 million is up from $9.8 million from Q3 and simply the main reason for that is the addition of both Seal and Celsius to the fleet.

The both, operating revenues and operating expenses negative impact, also means that the EBITDA for the quarter has lessened slightly from Q3 to $5.5 million.

Going down the page a little bit, our net financial income expense for the quarter is a positive $5.5 million versus a negative of $10.8 million during Q3 and the main reason for this is the increase in lower term rates from Q3 to Q4 resulting to positive mark-to-market movements during the quarter.

At the bottom of the left-hand table there we highlighted some numbers so, as you can see the vessel numbers have gone up from 5 to 7 because of the Celsius and Seal delivery. And we also see the significant impact of the idling times on the TCE from 37,963 per day in Q3 to 24,128 per day in Q4. As a result there is also a negative impact to utilization from 40% to 30% in Q4. However, since Partners’ IPO and subsequent dropdowns, the majority of EBITDA contribution now resides in Golar Partners and if you look at the table to the right of the page, that shows us how the numbers would have looked like had the Golar Group aggregated the Golar Partners vessel. So that, although there is a slight dropdown revenue from $97.4 million to $96.9 million that is essentially a result of the significant idling of the Golar LNG vessels.

EBITDA for the quarter would have been $67.3 million versus $70 million again as a result of additional vessels. It’s pleasing to note that the MLP vessels were virtually 100% utilized during the quarter.

Turning over to Page 7, look at the statements of cash flows. So the first box that's highlighted there shows the other changes in operating assets and liabilities have improved from having been negatively impacted from $11.4 million in Q3 to $25 million in Q4, again that’s mainly as a result of the mark-to-market movements in interest rate swaps.

The dividends received from Golar Partners is consistent and of course as we see the Igloo dropping down to Golar Energy Partners, we expect that number to remain constant albeit that the Golar LNG Limited has sold out some of it’s stake in Partners. So at the middle of the page you can see that additions to newbuildings and equipment have gone up significantly from $88 million from Q3 to $347 million in Q4, mainly as a result of the vessels being delivered.

Other investing activities of $151 million during the quarter is made up of the sell down of LNG Partners by Golar LNG limited as well as the sale of the bonds that Golar LNG limited held of the Golar Partners is high yield bond that amounted to $55 million. And finally we see an increase in long-term debt during the quarter and the result of drawdown from the eight vessel facility was signed during the summer.

Over the Page 8, again this is just an indication of how important the Golar Group corporate structure is, particularly as the company gets closer to strategic decisions on FLNG. Since IPO Golar Partners’ quarterly dividends have grown by 36% and was significantly Golar’s dividend income from Partners have also increased by 70%.

I think what's pleasing to note is that since Q3, 2012, IDRs received have increased by 400%. IDRs are currently at 23% level, 25% if you are counting GP, but as we see the dropdown of the Igloo which is expected in March than a 50% IDR split should get closer but certainly it will probably get to the potential sell down of Eskimo during the last part of this year, then we should be either actually over the 50% level.

You will see that there is a bit of a debt in Q4 2013 there shown by the red line and the reduction in this is simply as a result of Golar’s common units holding sell down in Q4. However, having said that once we have, if we look at the pro forma dividends. Once the Igloo is dropped to LNG upon us and we should see that bounce back up to its current levels.

Turning over to Page 9, majority of these points have been covered already, but I think more significant to note is that the cash position of the company has improved significantly from $56 million in Q3 to now $125 million in Q4, again as a result of the common units sold out in Golar LNG Limited upon us as well as the sale of the high yield bond holding of Golar LNG Limited and of course, as we mentioned during in December prior to the selling of the units, the funds that are being accumulated there of course being used potentially to look at the FLNG related investments as well as general working capital purposes.

Finally, if we turn to Page 10, so obviously a couple of years ago, we started on a newbuild program and to the extend we accumulated total CapEx of $2.7 billion for 13 vessels. It’s pleasing to know that majority of that is essentially funded. We have to-date paid installments of $1.29 billion while there is $1.4 billion still to be financed. The financing for that is already in place of which $703 million will come from the undrawn balance of the eight-unit facility that was signed last year and well recently the ICBCL seven leaseback transaction that we added into will add-on to $736 million on top of that.

There are some characteristics of the seven leaseback transaction there, but essentially the message is that the company believes that it was able to achieve a fairly efficient financing for those four vessels.

Further for that of course, we will look to maximize the dropdown in the numbers for the Golar Igloo and by March, we would expect $149 million net of novated debt that will be contributed to Golar LNG Limited once the dropdown is complete. Furthermore, we look forward to the potential dropdown of Golar Eskimo in Q4 2014 or early Q1 2015 and perhaps more importantly, as we enter this strategic phase of LNG, the corporate structure that has allowed us to see increasing dividends from the MLP as well as the IDRs.

Of course there is no hiding from the fact there is a soft shot market out there the company is putting to lift, stress testing its cash flow and as mentioned in there even in extreme and hypothetical downside scenarios, the company is well positioned to manage its near-term challenges.

I’ll now hand over the presentation to Doug who will go through the market outlooks.

Doug Arnell

Thank you very much Brian, and good morning and good afternoon everybody. I guess we will start out on Slide 11 with the current and short to medium term outlook in the carrier market. I guess from the last two years since we started our newbuild fleet expansion program, we have been giving guidance that certainly when you look out at supply/demand balance for shifting against production capacity, this period that we are in right now we are going to see shift capacity increasing at a greater pace than new production capacity and certainly I think it’s fair to say that, that period of time that we gave guidance is right.

I guess the thing that’s different about the current market and what was unexpected and puts us in a rather downside scenario is that we’ve had production downside surprises. So in 2012, established that production volumes in the LNG space dropped by 2% which was unprecedented, never happened before in recent history and the LNG industry and unfortunately in 2013, I think we’ll see a further drop of 2% in liquefaction volumes.

So that’s created a bit of perfect storm because at the same time as those volume reductions which are related to unplanned outages and political difficulties, we have these new billed vessels coming on. Adding to that the locations of the outages, particularly Egypt, Nigeria, Angola, due to their location they actually have the effect of losing those volume at the effect of pushing the tonne miles equivalents down as well as the total volume going down.

So loosing that production on the market has two impacts; one, simply as there is less volume being shipped, so using less ships, but also from the standpoint of the independent ship owner, generally the portfolio players who were going to lift those cargos become long in their shipping portfolio and rather than chartering out their vessels, they would tend to aggressively bid on cargoes to ship on their vessels. That’s putting their independent ship owners and the traders and the short-term marketing companies which we would look to for short-term business had a disadvantage.

So you have got a table there that shows the impact on the ships. The bottom line is there is more ships out there than we have planned to see, but we are hoping that, for example the Angola project, hopefully going to let the cargo gear soon and those ships maybe being more occupied than that had been, things will look up. The summary of that is that certainly rates, charter, time-charter rates and utilizations have softened and that situation is likely to prevail for the next couple of quarters at least.

Aside from some of these outages being sold, we don’t see anything that really would change the situation and thus you can expect to see especially on the revenue line for the first quarter of this year and second quarter as well to be fairly consistent what we saw in Q4.

So that’s what the market is doing and we can’t change that, we can’t control the market however nice that would be. What’s important I think is how Golar is responding to it. And the first and key aspect here is that, the Golar LNG fleet as we are taking on these newbuild deliveries is becoming cutting-edge in terms of efficiencies.

We have had the first voyage on Golar Seal and she performed very well, infact she performed better on fuel efficiency side than we had projected. The party that charted that vessel was very happy with that of course and he is coming back, looking for more business and of course we are working on that and other opportunities.

So the key for us is to market these efficiencies of these vessels. The fuel savings is significant. Compared to the early 2000 vintage steam turban vessels, it’s easy to establish a $30,000 a day savings equivalent on the vessels that if you compared to the older generation vessels that would be more like $50,000 a day. Another way to look at it is that, for the same amount of fuel the vessel can travel approximately roughly 15% faster. So effectively for the same cost and fuel, our charters can add 15% the capacity to their fleet.

Secondly, cost control; all the way from G&A burn rate through how we manage our ideal time cost when we are paying for fuel, all the way through to crew optimization, we’ve got a keen eye on our cost these days obviously and so we will minimize to the extend we need to be a paramount, so we would never threaten that.

The other thing is that we have excellent visibility on our costs, we know how much it cost to operate these ships, we’ve got good control on our G&A, we have got good control on our fuel costs. So it is unlikely to see any cost side surprises from Golar in the coming quarters.

Financial and cash management; due to the really good success we have had on financing the vessels, the two facilities we’ve got in place and the fact that we locked in some very good interest rates through swaps over the last two years, gives us again very good visibility, very good forecast stability on our cash costs. And as Brian said, under very pessimistic scenarios that we use in the sort of theoretical case to stress test the balance sheet, we are going to be in good shape for the very long-term.

We have done this to some extent already, we are working with our ship dealing partners to manage the timing of the vessel deliveries on the newbuild deliveries. I don’t anticipate anything dramatic, this is months, not years or even just weeks, but you will possibly see some changes to our newbuild delivery schedule going forward and that’s important part of in the near-term anyway managing through the soft targeting markets that we are seeing right now.

Moving to Slide 12, certainly I said, we don’t see reason to see improvement in the next couple of quarters. We don’t really see, that’s when you get, we will see there in the next couple of quarters and certainly when you look beyond that it’s a very optimistic scenario. The new production capacity that we see coming on, very good visibility, there have been some delays on various projects, but not dramatic and they are getting to the stage now where we can narrow in and be more confident of when those volumes are coming on.

We actually see that the order book is in deficit, the people has 2017, 2018 all the way through 2020, where there are even a conservative view on which projects will go ahead later in the decade we see a gap of about 145 vessels of the equivalent 160,000 cubic meters size.

So what that sets up is the situation where today, these yards would likely not be able to make a delivery if a new order was made today for 2016. You’ve got heavy activity related to certain FLNG projects that are being conducted at the same yard. At the same time, we’ve seen in last quarter and the quarters prior, a real lower burn rate in terms of new vessels being ordered.

So I think it’s fair to say that the supply/demand balance is looking quite good. Longer-term, we think by the middle of next year all of the newbuild capacity will be observed in an effective way and we are looking forward to that time. Big part of that, of course is the U.S. the DoE has been issuing their non-FTA export licenses which are of course key for a lot of those projects to go ahead, the latest one being the Cameron facility.

So now over 60 million tonnes of liquefaction capacity approved and very likely to go ahead, is they have got their licenses. They’ve got customers signed up and that’s financing, likely be in good shape for most of those projects, so that’s 90 vessels of capacity required just for the U.S.

No one is really concerned and we are not. The Asian market will observe much of that LNG which of course is a good story for the tonne mile left on the fleet. All of this is leading to and I guess along with pretty significant activity and other shipping sectors that vessel valuations are holding very study. You are not seeing any kind of drop-off in broker valuations or shipyard folks. So our view on value of our vessels has not changed at all.

Turning to Slide 13, just to look at our existing portfolio, of course this a full group with the Golar LNG Partner vessels up top. We are certainly proud of how we’ve been able to build-out fleets and increase the number of vessels and increase the distribution capacity of the MLP. You see the Igloo of course hasn’t been officially dropdown yet but the sales has been completed subject to the vessel getting in place since Kuwait did a commissioning going and getting into commercial operations.

I would note that on the operation side where all those are on full time charter, we continue to be extremely pleased with our technical management record with Golar Wilhelmsen. We had 100% up time on the fleet this quarter, excellent control sticking to budget on cost and flawless safety record as well is of course important.

Looking down the page, let’s Golar LNG’s fleet. At the moment a bit of a victim of it’s success in signing long-term contracts for vessels that are going to Golar LNG Partners, of course with the change in the supply mix of the vessels the older generation ships which we have three, are now all in layup and that’s helping us to control cost, but as I’ll come on to later, certainly we expect our floating LNG conversion proposition to be very successful in all three of those vessels would eventually be destined for that use.

Then you see the two other modern steam turbine vessels, Golar Viking which is open and spot trading. We did I think 58 days or something of business in the quarter, still an attractive vessel and of course Golar Arctic is on a full time charter until end of first quarter of 2015. Of course, the two newbuilds Golar Seal and Golar Celsius as I said, we completed the first voyage on Golar Seal. It went very, very well, no problems whatsoever and performed well and we expect that ship to be very attractive to charters.

On the Slide 14, on our FSRUs, continued to be a really good success story for the company. For both the Golar Igloo and Golar Eskimo, I guess it really couldn’t have been a better scenario for us of ordering those vessels on speculation, having them with prompt availability which was absolutely critical to our success in landing both the contract in Kuwait and the contract in Jordan.

So we’ve taken delivery of the Golar Igloo and stored up the vessel in Singapore and she is on her way to the Middle East. That contract will start receiving higher on March 1, we’ll be commissioning the vessel through the month of March and on into commercial operations. So virtually straight from the yard into a contract, into a five year deal and following that straight down into Golar MLP and that’s just how we designed it. So we are really happy.

We expect to have a similar situation with Golar Eskimo. The construction of that vessel is right on schedule. And we’ll complete in plenty of time to go into the contract with Jordan and of course that contract due to its nature it’s a minimum of five years. It’s actually a 10 year contract with a five year buyout rate on the Jordanian side. So that’s again a good candidate for the MLP and we expect to dropdown to happen there at the price to be agreed.

The Tundra, we are actively marketing certainly got a little bit of time there. The vessel delivers near the end of 2015. There are FSRU opportunities out there growing away, I would say the pace has come off a little bit on the number of projects that booked to be ready to close in the near-term for FSRUs. And I also say that in terms of prompt vessels available across the market is probably a little bit more competitive out there right now than it has been in the past. So we are not actually feeling all that bad about a little bit of a gap here we’ve got on the FSRU side in terms of having a vessel rate for projects.

Slide 15, of course a lot of the company’s focus right now in terms of new growth area, and a new franchise area for us is on floating LNG. Of course, we’ve talked about our progress on the FEED study previously, that work is substantially complete proving out very attractive cost parameters, very attractive schedule parameters. And the last several months we’ve been working on establishing the associated contracts in order to implement that project. Albeit that process has taken a little bit longer than we had first told, but to be fair, this is the first of its kind. It’s a bigger project than some of our other conversions. It involves different processing equipments in our other conversions. So, on both sides of these contracts everybody wants to make sure we get it right.

Our partners at least in the first vessel is, Keppel Shipyard for the vessel conversion itself. Of course converting a vessel from carrier to an FSRU or carrier to an FPSO or carrier to FLNG involves a lot of the same skill set. We’ve had a successful partnership with Keppel during three of our existing FSRU conversions. We’re highly confident in our ability to execute on this one.

These sub-contract for the topsides for the liquefaction processing equipment, we will be having as our partner Black and Veatch with their PRICO technology. This is a well established long-term operating process kit this I no different than process plants, liquefaction plants you can go and look at all over the world, 30 odd so plants that either in operation or under construction and millions and millions tons of LNG successfully liquified.

So our approach is we have always said here, we are cutting groundnuts [ph] and to we are ploughing new ground in terms of the business area for us, but certainly we are not using anything that’s new or unproven in terms of technology that the ships will be using effectively what’s important there is the storage tanks and the integrity of the hall [ph] and through our FSRU conversions, we have certainly proven that for long-term service, these ships are absolutely appropriate for such projects.

And then on the Black and Veatch side, proven technology, it’s operating, we are merely putting it on a vessel and we are pretty good at making through this in that sense everything is going to work as planned.

Of course at the same time, we have been in anticipation of being able to being ready to construct our first vessel. We have been working on several projects I would say that we are on an upside scenario in terms of the number of real opportunities that are coming together. Of course the first quarter businesses for us to be ready to build the vessel, but the projects are moving along. We are working on something in the range between 15 million and 20 million tonnes of the equivalent capacity on those projects, not likely that all of those will go ahead in the near term, but it just shows how attractive the technology is working.

Certainly what we are seeing is that the availability of the FEED study when we conducted on our own time is playing very attractive to would be project developers and locations that where LNG exports are desired or attractive. Without that FEED study, permitting can’t begin and so that would add another – we were effectively removing a year out of project schedules which we know can go on a long time on LNG projects, so we are very happy with those projects.

In all of those cases, we are building strategic partnerships with other companies who can bring their competency and their skill-set and their existing involvement in the LNG industry to bear, to combine with what we are bringing to the project to make a successful package and move ahead with real projects.

One of the longer term visions we’ve always held here in Golar is to, this is very relevant to our newbuild fleets as it exists or if it grows in the future is that there is very good integration opportunities, probably better than we have ever seen before so since these efforts are used for example better integration opportunities anchored off LNG including LNG production projects. It’s a little bit easier commercially to create integrated solutions if you are creating the product and we see that the existence of the floating LNG production business will create a real upside to the value of our carrier fleet.

As they say, we are nearing the final stages on that conversion contracts, the Keppel contract in the sub with the Black and Veatch, all the facts are coming together, it’s looking very attractive on the product side. The costs are coming in where we thought they would be, the schedule is coming in where we though it would be and thus we are getting very close to when the Board can make a decision on the firm entry into the first contract and we expect that to happen in the second quarter of 2014.

Moving on to Slide 16, just to wrap it up; again, we are very, very pleased with our operational track record during the fourth quarter and how it has continued into the first quarter of 2014. Our operational uptime is excellent, our cost control is excellent. We spend some time asking our customers how you are doing? I can tell you that we are held in very high regard with our customers, so that’s nice to see, especially when we see our charters maybe having more choices for ships than they have in the past.

The current market is challenging. We think we are quick to deal with it, but certainly this unplanned production outages have made the situation slightly more extreme than we were anticipating, but again we have tools in our tool kit to deal with that. The long-term fundamentals remain extremely attractive and until that time we will be marketing the benefits of our vessels very hard, we’ll be controlling cost very closely, we will be keeping an eye on our cash and again we have got great visibility on that.

Our financing structures are very solid and stable. So we think we are in good shape there and as I said, we will be looking at doing some management of our delivery timetable.

FSRU franchise, we are very happy with, especially how it’s played through to utilize our corporate structure to generate cash for our growth and as I was just talking about the ship conversion contracts is nearing finalization and we’re very excited about it, we think we can get to a firm decision in the second quarter of this year. Projects are going well and of course we are really hoping to leverage those projects into an integrated midstream business for Golar.

So that completes the presentation part of the call today. We are certainly happy to take questions and I’ll turn it over to the operator to take us through the questions.

Question-and-Answer-Session

Operator

Thank you (Operator Instructions) our first question comes from Jon Chappell of Evercore. Please go ahead, your line is open sir.

Jonathan B. Chappell – Evercore Partners

Thank you, good afternoon guys.

Doug Arnell

Hi Jon.

Jonathan B. Chappell – Evercore Partners

Doug, you mentioned the FLNG conversion basically on budget, basically on schedule from what you thought when you started this whole process, can you just kind of remind us if you were to move forward in the second quarter, what the timeframe would be sort of conversion if you completed and start to generating revenue, was it total cost maybe the timing of the capital outlays and then maybe just a broad range of the returns of that type of projects relative to your traditional gas carrier business?

Doug Arnell

Thanks Jon, I will answer some of that fully, other I’ll try my best, but generally from full notice to proceed on the contract, we are still looking at taking delivery of the vessel in approximately 30 months. There is probably some pluses and minuses on that, depending on some variables on exactly what we build, but that’s about where it is and then of course spending on the location and how much implementation and commissioning work that needs to go on at that location, there will be a couple of months beyond that maybe three, four months beyond that before we go into commercial operations. So that’s kind of the timeline.

I guess what’ve been – what we are brining here to the market is something that we are going to create what the industry normally creates for a certain price, and we are going to do it for quite a bit cheaper. That’s our cost advantage and we expect to get value out of that advantage. What we say is that some of the benchmarks that you are seeing for tolling structure is no it’s not necessarily true that on all projects there would be a tolling capacity type structure.

But it’s an easy go by to look at some of the U.S. Gulf Coasts tolling levels that have been done recently. Which are you know anywhere sort of $3, $350 range for capacity in the U.S. Gulf Coast, I guess what I say is that investors would be extremely happy if we build our 1 million or 1.5 million or 2.5 million tonne vessel and strike a deal at those levels, the returns will be quite strong.

Jonathan B. Chappell – Evercore Partners

Okay, it makes sense. I wanted to also ask about the chartering strategy for the fuel efficiencies in the newbuilds. I mean obviously you are not locking in anything long-term or medium-term at these current levels. But can you talk about that $30,000 to $40,000 spread on the fuel efficiencies? How selective are you being with the trade-off of just finding employment in a market that has over capacity versus trying to get what you perceive to be kind of premium returns because the fuel efficiencies in the vessel and how do we think about the utilization going forward on those, I guess in the next 18 months?

Doug Arnell

Yes, it’s a good question. It goes without saying we are going to always do as best we can on rates. And we want to market and make sure that our charters see the benefits that can be accrued using one of these vessels versus one of the older ones. Having said that, it costs us $6,000 or $7,000 a day just to sit because when we are idling, we are paying for the fuel as opposed to the charter. So you start from a quite a negative, you are always paying your OpEx, and you are always kind of covering the debt costs on the vessel.

But that utilization number is key to us during these times. So keeping the utilization up is very critical because you get rid of that $6,000 or $7,000 a day deficit, which if you are trying to keep a vessel cold actually is a much higher number. So when you are on charter, you are turning that number alone. So you sort of, in fact have made $6,000 or $7,000 a day or more, net against what you were doing when you are idling. So I would say right now for those vessels were in utilization mode, but whenever going to charter rates that are less than they need to be.

Jonathan B. Chappell – Evercore Partners

Okay I understand. Super quick one for Brian, and I’ll turn it over. Brian as the ships are to deliver, when is the interest expense actually starts showing up on the P&L again?

Brian Tienzo

That’s a good point. Well, I mean, I think, the reason that they are on a period or moment Golar LNG is because of its deemed interest that we see hit interest in that for crediting against expense. I think it’s fair to say that we are close to actually seeing interest appearing there. I think we may attract on the couple of deliveries at which point you missed out seeing interest expense coming through.

Jonathan B. Chappell – Evercore Partners

Okay. Could it be in the first quarter or is it kind of ramp or is it about show other ones?

Brian Tienzo

No I think ramps up. You just basically start from a fresh, but of course the timing of which you are going to be very much dependent on, that discussions that we are having in respect of the delivery timing.

Jonathan B. Chappell – Evercore Partners

Yes, true. All right. Thank you, Brian. Thanks Doug.

Operator

Our next question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead. Your line is open.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Yes, good afternoon. Obviously most of the questions are about FLNG, but you mentioned Brian earlier that you did a stress test about your cash flow and your balance sheet. I want to know what the – how do you go to a dividend this stress test included a dividend term. Is there any scenario from the one that you want but you might see any risk on it?

Brian Tienzo

I think we revised in the press release Fotis that obviously dividend is a very important factor of how we look to returns, certain returns to general this. So to that extent although this stress test has essentially involved looking at the operational side of the company dividend to a certain extent remains constant in these stress tests. But where we have looked at ways of – as but Doug mentioned earlier ways of looking at how best to operate the vessels, the performance of those vessels against chattering et cetera. Those where were the majority of the components that were being tested.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Thank you for that, it was very clear. You mentioned Doug earlier about the U.S. projects that they come online and they still haven’t received approvals up on earlier call, GasLog mentioned that there are already some discussions about chartering vessels for some of the U.S. projects apart from the Sabine Pass. Have you really been participating in any of these discussions and for what type of durations out of the potential charters and the tenders, now they are under a discussion right now?

Doug Arnell

Yes. There are some tenders going on for the U.S. projects. There is tenders going on for other projects as well and except in very specific circumstances we see all those tenders. The structures of the charters vary greatly. You still have some conservative charters who are all taking from – with 20 year commitments to volume and so they want a 20 year charter. So you still see some of that.

I would say that the industry long-term in their LNG shipping industry has been reducing over the past few years where long-term like might be 12 years or 10 years. So I would say in general that the duration of those charters and the tenders going down. I don’t think that the tenders, I mean we’ll always participate and we’ll do, how we’ll do but I think what’s much more important to us is the fundamentals of how the supply of ships is pacing up to the production, because that’s really what drives how much leverage we are in the market to create value with our ships.

The cycle that we are seeing now does have a lot in common with the last cycle that we went through where you have had a over supply of ships, largely because ships were arriving before production, its coming on exactly like now, in that case it happen to be dominated by Qatari ships coming in before Qatari production came on, when the production came up from Qatari, obviously they already had ships dedicated for their production, but that didn’t stop the rates from moving up $100,000 a day within six months. So that’s what’s probably more important to us than our relative success in specific tenders for specific project offerings.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Thank you. Is it possible to elaborate a little bit on the supply and demand dynamics, at least some discussions about we had on our side, its seem that 18 of the newbuildings, does they come online this year and next year they are still open, if this number is correct, 10 of these 18 vessels are Golar controlled, how does this influence your competitive position to charter this vessel and at what levels do you see rates for this vessels in 2016 and onwards?

Doug Arnell

Well obviously our proportion of the total vessels available, higher proportion is all that was being equal good news. Now again the targeting market is pretty soft. I talked about managing vessel deliveries and then I said that it’s not going to be anything dramatic in terms of doing that, but what the problem the industry has right now is there is no liquidity on cargos, there is directed cargo.

So at the moment, controlling a majority of the open vessels isn’t all that helpful, because there in not enough cargos out there and that’s the situation we need to see improve, but as new production comes on, we get pass some of these outages, hopefully no more problems in Nigeria, hopefully Angola gets going.

We are sitting in a very good spot. 10 out of 18 sounds about right. I think in the total order book, going all the way out, there are probably 30 odd open vessels at which we have 10. We feel good about that, we have the biggest open position, but at the end of the day, we got to create value for our charters and we have to operate these ships properly and bring these good efficiencies to bear to our customers.

Rates in 2016 onwards, I don’t know, I think there is, again it will depend on if the spot rates, longer term rate, I think there will be – it looks like there could be the potential for some dislocation, short supplied something like what we saw coming through the last cycle out in that timeframe, but that’s hard to predict of course, but I think that long-term rates will and not too long had arrived at a place where we’ll lock-in very good deals that will create good dropdown value for the MLP at that point in time. Is that $85,000 a day, $90,000, the long-terms have been sitting in the high 70s and then to went to sort of low 80s through the last cycle, mid 80s, its all kind of range found in that area.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Thank you Doug, I want to move to the FLNG right now. You mentioned earlier that its still open, I think its going to be a tolling agreement or if you’re going to be a producer, given the fact that this is a new technology would it to be fair to say that tolling agreement is more likely at least for the first unit?

And my second question on that is, you mentioned that the cost is going to be very cheap, I think in the previous quarter you mentioned that it is going to be the lowest cost producer in the world. At what level do you estimate the cost on dollars per million tonnes per annum?

Doug Arnell

Again Fotis, we’re not getting to that specific. I think if I gave you that number I guess there was pretty calculation towards what our CapEx is on the vessel and obviously in order to us for us to really maximize the value of the business, we want to have if we’re talking about total restructuring, we want to be getting paid the market rates or tolling capacity, which is not necessarily while definitely not going to be related to what our capital cost is, because we are not on the margin of liquefaction production cost.

So in terms of the tolling structure, I guess what I would say is that and this could change, but I think its more likely that the first unit that we do will be of a larger size kind of in the range that we’re looking at. That might not be true, but if I had to guess, it would be more closer to the full 2.5 million tonne versus the smallest we could give which would be 0.6 million tonnes, 0.7 million tonnes.

If that is the case, I would suspect that it not all of the plant, a portion of plant would be in some form of fashion something that looks like a tolling agreement, because just the size of that, the size of the associated trade, commodity trade that would be created by that kind of facility, it would be probably larger than we would want to take on, but it could be that first project is third-party tolling for a large portion of it and we create value in a different way for some part of the capacity, that’s hard to say.

Tolling agreements will certainly be one part of our value proposition here in some one way or another though.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Thank you, Doug. Just few more details on the these agreements, you mentioned earlier that the signing of the or at least announcements of some preliminary agreement, it’s going to be in the second quarter of this year. I understand that you are in discussions for a number of potential projects. Does this discussion include also the transportation meaning even and then if you do a tolling agreement of the vessels of Golar but they will be used for the transportation of LNG?

Doug Arnell

Well, first of all it’s not a preliminary agreement that we’re looking to sign in the – commit to in the second quarter. It’s fully formed, fully termed out agreement. Second, clearly, we would anticipate that when we implement one of these FLNG projects that we would see Golar vessels shipping the product. But if we, obviously if we have a great deal with someone that we want to do and they are shipping already in their portfolio and that’s not going to work for the deal then we are not going to fall on our sword over it. But I would say, in the discussions that we’re having, we are feeling really good that a good portion of these would involve shipping on Golar vessels.

So depending on where the production facility is and where the products going, and I’m not saying that our newbuild fleet would be the existing quarter book for us will be used this way but we would soak up the entire Golar newbuild order book with two projects.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

That’s very helpful. And just to clarify again on the timing you mentioned earlier, 13 months from the time of the signing of the agreement will be the operation over the unit. Is that correct? And is there any additional time depending on what type of agreement you are going to sign and who is going to be the natural gas provider?

Doug Arnell

Well, it’s 30 months delivery at the yard. So and then depending on where we are going to that transport, so there is some months after that. I mean for modeling purposes. If you put six months after that being in full commercial operations that’s fairly safe and obviously try and beat that but that's a conservative estimate.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Thank you, that’s very helpful. Thank you for your answers.

Doug Arnell

Okay Fotis.

Operator

Our next question comes from [Indiscernible]. Please go ahead, your line is open.

Unidentified Analyst

Hi, this [Indiscernible].

Doug Arnell

Hi, you are going to have speak out, we can hardily hear you.

Unidentified Analyst

Well sorry, I’ll speak a bit louder. Can you hear me now?

Doug Arnell

Yeah.

Unidentified Analyst

So, first question is, do you have any comments on who the bidders for Equatorial Guinea are? I mean there is some speculation that capital is in on [Indiscernible]. Are you affiliated with those?

Doug Arnell

We don’t typically comment on rumors such as those so we know where the projects are and of course, we know we are working with capital FLNG project, so we rather not comment on those things.

Unidentified Analyst

Okay. Just to follow up on that, is anyone else working with capital FLNG?

Doug Arnell

I have to check with that.

Unidentified Analyst

Okay. The next question, how do you plan to finance potential FLNG investment, if you move out for without a partner. Is that a pure equity play or how do you foresee financing something like this?

Doug Arnell

So, I mean we had to look at modeling how best to do it. It’s of course, during certain of our discussions as you will have noted from our press release you know we are working with potential partners. So, and it could be that we develop a project jointly where they have interest in the project itself. So that could, that could essentially help to finance the project of course. As we have done in December, we monetize Golar LNG shareholding of partners. I think one justification for that is ultimately these FLNG vessels, FLNG vessels and related ships that get bundled down together eventually got down to Golar LNG Partner.

So there is a potential for us to use that funny vehicle as well, but ultimately once you’ve got a contract that underpins the projects, of course we will go out there and actually seek a specific project finance for the project so. There is a gap that needs to be filled which is, if we go ahead and – if we go ahead and sign contracts that may have a speculative timing to it then during that period then it’s likely that Golar LNG limited would come in and step in and initially finance that period until such time as the underlying commercial agreements are done that we can use to finance the project.

Unidentified Analyst

Super. What’s the capacity for number of FLNG units builds, I mean – the number we have is roughly two by Keppel at any time? Does that sound feasible and would you have other yards able to build more if you should really build scale in a short time on this?

Doug Arnell

Yes, well there is Keppel capacity in Singapore as far there is other yards they can do it as well. Two at a time is achievable. It’s not just Keppel that has to have the capacity but Golar has to as well. So I guess I’ve never really thought about it in terms of the pace of shipyard capacity to build FLNG units. I hope that becomes a issue. But I think it’s going to be more the pace at which opportunities can be commercially structured and financed which will determine how quickly FLNG units come out onto the water.

Unidentified Analyst

Thank you. Super. Another question what’s the fair assumption on your earnings. I mean on FLNG exports? What would be a good number to use per MMBtu export or in other word would a 3.8 per MMBtu this year high or lower?

Brian Tienzo

Sorry, I – like an earnings number.

Unidentified Analyst

An earnings number. What would be fair economics to Golar LNG in dollars per MMBtu please?

Doug Arnell

Well, again we are going to – we’ll come out with a bit more specificity on things like operating costs and such. Again we see – I means you have to adjust for location and how the product nets back but a U.S. Gulf Coast equivalent of $3.50 is a good guidance figure for the tolling revenue of the plan. And then on the OpEx side, it’s not like operating a carrier or FSRU it’s quite a bit more, but it’s two to three times more than cost per days to operate these vessels. We are still working on refining that numbers, why we are not getting to specific about talking about it and we will come out with more guidance on those kind of costs at a later date.

Unidentified Analyst

And also one final question, if I may; the cost per tonne for FLNG is both [indiscernible] are talking about roughly $500 per tonne for a barge unit, is that comparable to the numbers you are speaking about?

Doug Arnell

Yes, we are not just not going to get drawn in on getting specific about numbers, but we feel comfortable on competing with $500 per tonne barge.

Unidentified Analyst

Thank you so much for your time and congrats on the results.

Doug Arnell

Thank you.

Operator

Our next question comes from Michael Webber of Wells Fargo, please go ahead your line is now open.

Michael Webber – Wells Fargo Securities, LLC

Hi good morning guys, how are you?

Doug Arnell

Hi Michael, how are you?

Michael Webber – Wells Fargo Securities, LLC

Right now, not very well, so I will keep it short; you have reiterated kind of the timeline for FLNG, can you maybe give us a little bit of color about what hurdles specifically you guys may have overcome in Q4 and Q1 or what aspects of the projects you kind of you got a bit closer on and then what gives you more comfort for Q2 FID and then also in terms of the projects you guys have been linked [indiscernible] FLNG projects would use a shift based conversion solution. They seemed to be kind of clustered around the Africa and South American side, central American region in terms of the first potential projects that you guys are kind of talking to, do you think it is more likely to come within the Western African region or the Americas?

Hopefully I still think it’s too much your way, but if you can give any color there, that will be helpful?

Doug Arnell

I’m only hesitating because I mean it’s sort of – it’s not clear to me which one is going to come in faster. I would say, completely different environment obviously in the Americas, generally the project timeline path can be well defined and you can see it and it’s kind of easy to predict timing.

West Africa, where you kind of starting from a clean sheet of paper as to what kind of accruals and licensing have to happen before you can go ahead and how long that will take is a bit unknown.

So I think that it could be easier, but there is different stages of the project that I think probably for sort of serious projects stuff going ahead like licenses being applied for and permitting and locations specific activities for the vessel that the Americas is possibly more likely, but the timeline to get in commercial operation in the Americas might be little longer than it would be, say that then in West Africa, we kicked off and got an actual time line going for licensing and putting shipping operation there.

So the answer might be slightly different between where we begin to invest in a specific projects and versus which will come in first in commercial operations. So Michael, I forgot the second part of your question.

Michael Webber – Wells Fargo Securities, LLC

[indiscernible] reiterated, so in terms of what’s changed kind of quarter-over-quarter over the last three or four months, what hurdles have you overcome? Is it pop pricing in project specific or was her structural issues of the projects that have been delaying FID I guess, what are you guys are being forced to do in last quarter or so?

Brian Tienzo

Yes. I mean its been the nuts and bolts of the contracts between the three key parties here is Golar capital in Black & Veatch, usual kind of allocations shall we say of risk and reward. I wouldn’t characterize that we’ve been talking the time to drill down on pricing or anything like that. Of course we are always prudent about that and keep our CapEx in line, it hasn’t been that. It’s just getting the right execution structure together with the three parties that will take a little bit of time, not driving down cost.

We are taking a new approach on this thing, the first thing is that this vessel needs to work and so this is an exercise of skinny and down as low as you really, really can. The economics are very strong, so we just, you can sort of loose your shirt [ph] if you try and save money in this business, so it has not been that. The costs have stayed relatively constant from what we’re seeing from [indiscernible] nearly getting the contract together.

I would say that it’s helpful. We will probably, when we take a decision second quarter, in terms of firm specific project to point that where it is going probably won’t exist. So we’ll open up a little gap of risk there, we are comfortable with that seeing Golar conduct its businesses that way in the past, the FSRU businesses worked very well that way as we opened up a little bit of risk, but again what has changed on the project side is that we see a material and able partners stepping up to the plate and making real commitments to work on these project that we are involved in that and that makes us feel comfortable.

We do need partners in one form and other and we’ve got good discussions going with them, take some time to solidify those relationships, but that’s another thing that changes, I am more optimistic on that side.

Michael Webber – Wells Fargo Securities, LLC

Great. And I don’t want to blow away the point because I know you guys have talked around it, but just to be perfectly clear about it, so you are looking at kind of Q2 FID on moving quarter with this spec conversion from Keppel, because that gap you are talking about between that and a commercial agreement with one of these projects, how wide you expect that to be, is that measured in quarters or is that measured in months?

Brian Tienzo

Well. I would say that, project should be crystallizing I mean before the end of the year.

Michael Webber – Wells Fargo Securities, LLC

Okay.

Brian Tienzo

So, I guess that’s more quarters than months.

Michael Webber – Wells Fargo Securities, LLC

That’s helpful. It does look like there are no really projects, they seem to be kind of stacking up stepping up, so when you look at where you guys are allocating capital for the next two year and a half, two years and you look it kind of how your capital is put now between FSRUs and carriers, is it likely in your view that we see goal or kind of emerging from this [indiscernible] and spot rates with capital evenly split with gas and carriers or could it even be more heavily weighted towards the conversion given the size?

Brian Tienzo

Total capital is likely for the next couple years to be weighted towards the conversion projects.

Michael Webber – Wells Fargo Securities, LLC

Yes, okay. One last question and I will turn it over. GP value that you guys have in GMLP is to get overlooked quite a bit, because there are so many big variables, how do you think about recognizing that value with major CapEx they have been at this point, so given any of it is going on in terms of floating liquefaction and big spend there, you could see a significant GP growth, just how do you think you are going to hit the 50/50 split well before that cash flow actually delivers and how do you think about monetizing that and other via GP spend, do you need to acquire growth in this environment, that’s chartered growth that kind of provides the growth necessary to make that happen, just how do you address that and how did that falls in a timeframe of what you are looking at around FLNG?

Brian Tienzo

I think Michael, this is Brain. I think it’s fair to say that, we have not been over-reliant in the value of the GP and trying to progress our FLNG project. I think you are right. I think there is some murky waters in respect of high duration in GP since because of the variability of the earnings of Golar at the moment, but I think we have demonstrated the willingness of, the strategy of the company to try and grow the MLP. I think certainly within the next year, we are looking to at least get to the highest split. It’s difficult to try and go out and put as much value to that to ideas to the GP prior to the sort of FLNG strategy becoming successfully affected, that’s simply because we have a demonstration of the success of the FLNG, delighted that it may have actually end-up valuing the GP, so.

Michael Webber – Wells Fargo Securities, LLC

Right you need to know that you were out first I guess that the question is do you think you can monetize that before it is the actual FLNG delivery within the next 30 months?

Brian Tienzo

There is that possibility. That’s certainly one of the potential of the financing the debt. Again one thing that we have tested also is willingness of searching of our investors to actually take that in risks in respect of FLNG and we see that there is willingness to do that also.

Michael Webber – Wells Fargo Securities, LLC

Okay, great. It was nice guys, thanks for the time.

Brian Tienzo

Thanks Mike,

Operator

Your next question comes from Herman Hildan of RS Platou Markets. Please go ahead.

Herman Hildan – RS Platou Markets

Good afternoon guys.

Doug Arnell

Hi Hild.

Herman Hildan – RS Platou Markets

Hi, just a quick question on the timing, I mean previously you indicated that in the last report that you will be able to potentially willing to do long lead items to reduce the correct startup plan, it seems like that didn’t happen, so could you maybe shed some color on why you chose not to do that to kind of secure the stockpile to project on the other states?

Doug Arnell

Yes. Certainly, we had talked about long lead items and actually that’s still the case. The first real commitment and what establishes the 30 months timeline I have been talking about is the triggering of the long lead procurement. We could have I suppose triggered those orders prior to full contractual structure being done with Keppel and Black and Veatch. I guess in the end, the evaluation was done that really wasn’t necessary nor prudent.

We will be much more comfortable when Keppel and Black & Veatch and ourselves commit to a project that everyone can look at and feel comfortable with the cost and scheduling before knocking our ordering of long lead item, because that wasn’t going to be small capital commitment that these long lead item of this vessel are expensive. So, and yet that is exactly what we will do as the first real trigger and what will be happening inside the project is the long lead item for us.

Herman Hildan – RS Platou Markets

But is it a reason that you kind of decided not to do that because first project most likely will be a [indiscernible] I think you talked about the $200 million long lead item and initially but since you are kind of doing high onto the scale it means probably that long lead items has specialized on to this. Is that kind of the reason?

Doug Arnell

Well again, I think we didn’t really change tracks on the long lead items. We’re going to order long lead items. What changed was the timing that we estimated to be ready to do so, and then that timing now is being driven by the getting to contracts completed and done with our contracting partner.

Herman Hildan – RS Platou Markets

And on that I mean it compares a bit but it’s kind of an internally you’ve been delaying the project, it’s not necessarily been an external kind of – in fact you are delaying the decisions. Is that correct or …

Doug Arnell

No, we definitely – there has been no internal delay. It’s taken longer than we’d hope, but it was just here getting the contract done. There has been no decision to delay this process at all.

Herman Hildan – RS Platou Markets

Okay, and you sort of commented that there has been some serious enable partners making commitments. Is it possible to shed some light on that, comments?

Doug Arnell

Well, I guess where we can benefit from partnerships is in areas where we either don’t have the competency, we don’t have experience, we don’t have the financial heft. So companies that are looking to step up to serious off-take agreements possibly in the form of tolling agreements, companies who have reserves which fit our particular technology very well and are looking for a monetization path, companies in local geographies that have operating experience in a means to manage a development process successfully. Those are the type of parties that we’re looking to work with and those are the type of parties that we’ve had some success and solid discussions going on with now.

Herman Hildan – RS Platou Markets

Okay, and just two more questions very quick, you didn’t mention anything about the BC project in this presentation kind of, is it possible to just give a quick update on the process there?

Doug Arnell

Yes, the BC projects, I guess the story there is, it remains the bankruptcy, the CCAA bankruptcy proceeding in Canada which has put a stay over the material agreements. The bankruptcy is being claimed by one of the original partners to the project. Obviously, we’re somewhat frustrated with that, but this and again there is not much we can do to move that any quicker. We didn’t give guidance on that simply because it’s pretty unclear at the moment. The attractiveness of the project and the opportunities there are still very attractive to us. We prefer to talk about that when it clears up and there is the more clear path forward.

Herman Hildan – RS Platou Markets

Okay, there is a final, its additional question throughout this company’s call. On the delivered cost basis, is it possible to say I mean when the most economical liquefaction solution and then also in other most efficient vessels, what’s the kind of delivered cost nature on MMbtu basis like roughly is it say $8 per MMbtu to $10 per MMbtu or $12 per MMbtu to $14 per MMbtu?

Doug Arnell

Delivered cost assuming a market rate for vessel than a market rate for trolling through the facility, delivered cost of $9, $10 is a very good estimate.

Herman Hildan – RS Platou Markets

Okay, and if you kind of with respect to the discussions that you have with your projects ongoing now. And compared to the Asian crisis, how much of that spread I guess you obviously want to do that with the low delivery costs?

Doug Arnell

Yes, I guess I’d answer like this, on a pure tolling model, I guess I’ve laid out our expected term kind of a minimum expectation of how we do in terms of $1 per MMbtu that creates the revenue stream. In terms of the margin, the other margin that’s available say again that delivery cost against near-term or longer term LNG pricing in Asia, I mean our strategy is going to be to capture as much as that as we can within our ability.

So we think there is some scope for us to do that and you do that by integrating your ships with the tolling deal for example. And you do that by in a measured way looking at keeping the commodity in your possession than shipping it all the way to Asia and structuring deals that way. I can’t predict exactly how these things are going to be structured. We think with this technology and our approach and our really good ability to finance these vessels and have them promptly available that we are creating a lot of value over and about the tolling model.

We are opening up, but we expect to create monetization opportunities from reserves that wouldn’t have had otherwise. We expect to get LNG on stream more quickly than it would have otherwise, and we expect because of those kind of – and we won’t be labored with a traditional pre-construction project financing overlay that delays our project. So all of these things getting earlier volumes and getting volumes lifted that wouldn’t have otherwise all of those things should accrue more value to us than just the toll and we expect to do deals and structures that will achieve that.

Herman Hildan – RS Platou Markets

So the $9 per MMbtu roughly that’s going to be including return on capital throughout the asset that you created to yes to deliver the cargos right?

Doug Arnell

Yes.

Herman Hildan – RS Platou Markets

So, I don’t think Asia, or Japan what had been at $9 the last couple of years. I mean if you do it now it’s a $10 spread that’s MLP $35 million arbitrage since it’s pretty substantial?

Doug Arnell

Looks like a business, yes. But of course to set up one of these projects, it’s not going to just operate now. It’s going to operate for the long-term and long-term commitments need to be made to the payment of the assets, payment for gas et cetera, et cetera. So yet the arbitrage is there. We believe the arbitrage is going to be strong for sometime, it is not going to be $9 dollars forever, but we think it’s a profitable long-term business.

Herman Hildan – RS Platou Markets

And I am going to cut off my questions; just one point, I think you brought the nation and there is a major into that BC project, are you kind of able to bring that major into the other projects that you are looking up or is that company kind of commit which is the BC project?

Doug Arnell

Well, I would answer it this way. I mean it’s possible that we have that we will have partnerships that will be leveraged on to multiple locations, but generally it’s not necessarily the case that I would say it tends to be project specific a little bit, but if we get a good fit going with the partner, we wouldn’t hesitate to bring them over to another project. I would say that that has not happened to-date with any of the people we are working with.

Herman Hildan – RS Platou Markets

Okay, thank you very much for your time.

Doug Arnell

Operator, can we take the last question please.

Operator

Yes, we will take our final question from Erik Stavseth of Arctic Securities. Please go ahead, your line is open.

Erik N. Stavseth – Arctic Securities ASA

Hi guys.

Doug Arnell

Hi Erik.

Erik N. Stavseth – Arctic Securities ASA

So two quick questions, I will try to be shorter than my previous guys. So are you saying that you could be short vessels if you are going to do, you have three conversion candidates, of course that’s going to be in a standard manner I presume, but could you be looking at the were Golar is, it’s short LNG shipping from which let’s say in 2017?

Doug Arnell

Well we did three large conversion vessels and depending on the location and we wanted to use all Golar ships we would run out of ships after two. So I guess the answer is yes.

Erik N. Stavseth – Arctic Securities ASA

Thanks. Second question is, I mean it’s early days, but what kind of leverage would you be looking at FLNG and could that be either 50/50 equity or any preliminary results on that?

Doug Arnell

I think that the numbers that are coming out of these projects are so depending, you can lever it up, closer to the 8%, maybe even higher than that, but as we have done with the vessels that we drop into LNG parts we got to be careful on how we leverage, because obviously we need to protect dividend capacity of these projects when they go to LNG Partners also, but to answer to your question, there is a potential to go higher than 8%, but we need to trend capital when we actually put those into place.

Erik N. Stavseth – Arctic Securities ASA

And also what kind of I mean in terms of free cash flow, it sounds to be relatively compelling economics, what kind of percentage of free cash will you be able to payout here, any thoughts on that?

Brian Tienzo

We can’t be too specific in the amount, I think its fair to say and we are looking at the numbers and remodeling them, but obviously of we need to model those even more to be able to come out with numbers as Doug said earlier, once certain agreements are signed, then we can be more specific about project cash flows.

Erik N. Stavseth – Arctic Securities ASA

All right. Last question, is there any sort of link between leveraging of the various parts of the system that mainly shareholder asked you and I am thinking specifically about procedural reason to bid in Central America?

Doug Arnell

Erik sorry, what’s the question?

Erik N. Stavseth – Arctic Securities ASA

The question is what’s Golar’s ability to leverage of the various system values are within the framework of the main shareholder, I mean Seadrill recently did stuff in the Mexico with Pemex, is there any way you can leverage off what they are doing with regards to exploration in production?

Doug Arnell

Always Erik, I mean our principle is pretty good at thinking about all the various businesses and making sure that any business relationships going on with Seadrill or Frontline, [indiscernible] commercial partner, this is an opportunity to build that relationship and benefit Golar absolutely and at the end of the day these are fairly big complicated projects. If you have a partner that you can work well together and you both want to go and there is common interest and we have done business together in Seadrill before than all the better to try the relationship on Golar profit.

Erik N. Stavseth – Arctic Securities ASA

Excellent, thanks.

Doug Arnell

Okay.

Operator

That concludes the question-and-answer-session for today. I will then hand back to our speakers for any additional or closing remarks.

Doug Arnell

Thank you, operator. And thanks everyone for your participation in this quarters earnings result and then so we look forward to speaking to you again in the next quarter. Thank you and good 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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