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Executives

Brian Tienzo - CFO

Doug Arnell - CEO

Analysts

Jon Chappell - Evercore Partners

Michael Webber - Wells Fargo

Fotis Giannakoulis - Morgan Stanley

Martin Korsvold - Pareto

Rishav Puri - Linden Advisors

Golar LNG Limited (GLNG) Q2 2012 Earnings Call August 23, 2012 9:45 AM ET

Operator

Good day ladies and gentlemen and welcome to the second quarter 2012 results presentation conference call. For your information, 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. Hello everyone and welcome to Golar LNG second quarter results presentation. And my name is Brian Tienzo and I will be going through with you the second quarter highlights as well as financial highlights. I am joined here today by our CEO, Doug Arnell, who will take you through the business update and the outlook section.

On that note let’s turn now to page four and to go through our second quarter highlights. Consolidated operating income increased by 108% over Q1 to $58 million. Alongside that, we had net income increase of approximately 133% to $35.4 million.

Quarterly cash dividend been increased by 14% to $0.40 per share. That’s a jump of $0.05 from Q1 and again reflects the Board’s confidence in the company’s earnings capability. There were material increases in average time charter rates and virtual 100% utilization on charted vessels. There is also a significant decrease in operating expenses of 36%.

As announced during the quarter, Nusantara Regas Satu commenced charter on May 4th; the vessel there then completed commissioning and was expected on July 13th. She was subsequently sold out to Golar LNG Partners on July 19th. That SRU has been working well since completion.

Golar LNG successfully achieved an award for the Gas Atacama FSRU and again this amends the company’s profile as one of the leading FSRU solution providers and an FSRU project.

During Q3, Golar Maria re-charted on a voyage basis at historically higher rates. We expect longer-term contracts will be contemplated in the coming months. In July, Golar LNG Partners raised net proceeds from public follow-on offering of approximately $188 million as part of the Nusantara Regas Satu topline.

Let's now turn over the page to go through our financial highlights. Highlighted there are net operating revenue for the quarter of $103 million (inaudible) it’s been increased from $82.3 million from Q1. This is a result of full contribution from Arctic which is approximately $45 million in EBITDA; Grand, which is $39 million approximately in EBITDA and also vast contributions from Viking and Khannur, whose charter commenced during the quarter.

As operating expenses, we mentioned last quarter that the level at which we reported the $27.9 million was exceptionally, high that was particularly as a result of the reactivation cost we incurred for Hilli and the Gandria. In Q2 that level of expenses did not materialize and as a result our operating expenses for Q2 is at a much better level at $17.8 million. Those two factors have contributed to a 65% increase in EBITDA from $48.4 million in Q1 to approximately $80 million in Q2.

Our net financial expenses during Q2 have increased to $12.9 million from $8.8 million in Q1 and this is as a result of two factors, we only incurred partial charge of convertible bond interest in Q1, whereas in Q2 that was a full quarter charge. Similarly, we incurred mark-to-market losses on some of our interest rate swaps as a result of medium to long term swaps declining from levels of Q1 to Q2. All of those factors have contributed to our net income increase of approximately 133% from Q1 to $35.4 million.

Going down to the time charter equivalent rates, as you can see there, there is an increase of approximately 8% from Q1 of 90,464 a day to Q2 level of 97,118 a day. The utilization is slightly down from Q1 to Q2 as a result of idle time for Hilli and the Gandria. Also as announced, we increased our dividend by $0.05 from $0.35 in Q1 to $0.40 in Q2 representing approximately 14% increase.

Going over to page six, this basically highlights the three main metrics that we look at as far as performance is concerned. So from Q1 2011, as you can see the bar graph show that our net revenue as well as our EBITDA have been increasing steadily and as a result of that the Board has been quite confident in increasing the dividend levels to follow those trends. So obviously the increase from Q1 level to Q2 level is a much deeper increase from previous quarters.

We will now turn over the page to page seven to quickly go through our balance sheet. On the asset side, there are only two main movements really that we can point to. Cash and cash equivalents have declined from 31st March level and now simply because we paid a few installments as far as newbuilds are concerned as well as the completion of the Khannur conversion during Q2. That is obviously offset by the increase in vessels and equipments and again, main contribution there is the installments for newbuildings and the Khannur conversion.

Going over the page to the liability side of our balance sheet, one point to note there really just long-term a lot of numbers are pretty stable and really the main decrease there is a result of repayments during the quarter. At the bottomline of the presentation page, we have a fixed interest debt of approximately 83% and we’re averaging approximately 3.15% in weighted average interest.

Going over the page to statement of cash flows; points of interest really are the additions to newbuildings and vessels and equipments. We had quite a bit of increase during Q1 as a result of the newbuilding program, increase in newbuilding program that we put into place. The main movements in Q2, the $38 million as far as additions to newbuildings and vessels and equipments is a result of completion of the Nusantara Regas Satu conversion and on the debt side, we didn’t [incur] to any additional debt during the quarter and (inaudible) compared to from Q1.

That concludes the highlights for financial and now I turn to CEO, Doug Arnell, to go through business updates.

Doug Arnell

Thank you Brian and good morning and good afternoon everybody. I’d like to start my presentation on slide number 10. Obviously as Brian said, we're extremely pleased with the way the second quarter 2012 has gone. We’ve had significant upturn in our earnings and I would just like to go through a little bit what underpinned that because it tells us the story of what we can look forward to in the quarters to come.

So during the second quarter two major new charters began or should I say we had full quarter contribution from both vessels Arctic and Grand, both of the base term of those charters are three years in length with the Grand having a three year option on the backend of it. Also during the quarter, we started up a new charter a little bit early on Golar Viking with a substantial increased day rate.

Again during the quarter, the Nusantara Regas Satu FSRU charter began and it obviously began its contributions by the Golar LNG partners. At the same time, we decreased operating expenses again this is mostly due to the completion of reactivations for both Gandria and Hilli, but important to note there is that the entire fleet now is out of layup and reactivated so we can see a little more predictable with our operating expenses forward as we won't have those kinds of programs on the vessels in the upcoming quarters.

Underpinning all of that activity on chartering has been excellent execution on operation side; we have virtually 100% uptime on our chartered vessels so we are really happy to see that. In upcoming quarters, we have some embedded growth that we are looking forward to for the third quarter as you will see full contribution from Viking in the third, a full contribution from Nusantara Regas Satu in the third quarter and a positive outlook on Maria.

Looking past the third quarter Gandria and Hilli which are still open, we are still very optimistic to put those vessels into service as the move for LNG players to cover their winter positions comes in the next month or so. So a lot of the increased revenue that we are seeing from these charters is not of a spotty nature, it’s more of a term nature we got really good visibility on our earnings and earnings growth coming up in the next quarter and if you look out into next year, we got good visibility up until the time that first new buildings come out in September of next year at which time you should see a steep ramp up in operating cash flow as those vessels begin to contribute.

Turning to slide 11, again key to our whole new build program and financial performance of our group is our group structure as many of you know; we have two main entities in our group Golar LNG Limited and Golar LNG Partners L.P. of which Golar LNG Limited owns 57.5%. This structure is designed to allow Golar LNG Limited to pursue growth with new assets and new long-term charters drop those assets down into Golar LNG Partners, I received the proceeds from that drop down and put those towards further growth in the company.

We are very pleased to have seen that the structure has performed well again recently with the drop down of the Nusantara Regas Satu of which the proceeds were $385 million. Looking out into our financing and equity requirements for our fleet expansion. We surely expect that with operating cash flow, funds from drop downs and some new debt instruments at the Golar Energy Limited, we will be able to fund that fleet expansion, maintain the high dividends that we've been providing thus far and continue with our project development without having to issue any equity at Golar Energy Limited level.

Turning to slide 12 and a little bit of market data here, this graph on the left is a graph which depicts what we feel is probably the most fundamental and base determinate for driving the growth of the LNG fleet at large and that is the addition of new LNG production capacity. Because LNG capacity cost is so much greater than the marginal cost to produce the LNG after the facility is build the actual capacity of the plant is very good proxy for how much product will actually be shift on vessels.

As you can see we're looking at a 34% increase from present up to 2017 that something like 90 million tonnes a year of new LNG production. But I think the really interesting things to note there is that the vast majority of it in fact 70 million tonnes out of that 90 million tonnes is already under construction with another 7 million tonnes per year categorized as probable by Wood Mackenzie.

So this volume is coming and its going to need vessels and at this point the new build order books is lagging behind what will be required for shipping of that production. On the right you see a graph which depicts where that production is coming from which countries, this is of course relevant as people look at shipped trade growth which also influences the ship capacity required to service that production.

Turning to slide 13, on the left you got the up to the end of the quarter reporting of spot and short term charter rates, you can see that through the late part of the first quarter we had a little bit of softness in the spot rate. I don’t think you can really take too much leverage on that, it’s a situation where a very few vessels actually being chartered at that time and probably saw a little bit of drop of in the Asian buying and so the few charters that we were done were a little bit softer on the charter side, but then you can see as we came into the second quarter as that buying picked up again the spot rates picked up.

Again the spot rate while it’s a nice indicator for us to look at and see what the general tone of the market is, its not as relevant as looking out long-term to the overall supply demand balance production coming on and vessels which we are showing on the right hand side. We can see the deficiency in the ship capacity continuing on through into 2014, we view 2015, 2016 as coming into more of a balanced still strong market and then of course you move out into past 2015, '16 more shipping in the capacity is certainly needed.

Turning to slide 14, again this is our existing portfolio, vessels on the water for both Golar LNG Partners and Golar LNG Limited. First the Golar LNG Partners fleet is now up to six vessels, with the addition of Nusantara Regas Satu that contract had a net increase on the average term of the contracts in Golar LNG Partners which is of course what we are looking to do with that company. Down below you see Golar LNG Limited vessels, (inaudible) is on charter through into 2013, Hilli and Gandria are open.

We do expect to have some charter revenues from those vessels beginning later this year through the winter and certainly in the longer term those vessels are still excellent candidates for conversions for floating storage or FSRUs. Below those are our four existing modern vessels which I talked about. Golar Viking is on charter into the spring of next year. Golar Grand and Arctic on longer term three year charters and Golar Maria actually is coming open later in the quarter here. So we expect to have some news on that shortly.

Turning over to slide 15 which is of course our story and what's driving the growth of this company are these open positions starting from now on vessels coming into that positive market story. We have a large number of vessels obviously open and a doubling of the total fleet with the new builds what you see starting with the ship is labeled [HULL 2021]. Two of those vessels are FSRUs, the rest are currently carriers however as I will talk about in a minute the last vessel HULL 2056 is poised to be converted or built as a FSRU instead for our Gas Atacama project.

Turning to slide 16, speaking of our FSRU business, certainly we had active few months here recently again, growing the franchise, Nusantara Regas Satu fully accepted and the charter initiated and operating very, very well. I would say it’s probably our smoothest entry into a charter for our FSRU for to-date. So we are really happy with how that vessel is performing. We were awarded the Gas Atacama FSRU project I will talk about a little bit more shortly.

And we are also currently shortlisted for three other projects which are scheduled for 2012 awards, a little health warning, schedule awards don’t always happen exactly when our charters would like them to but we are looking at some activities through the balance of the 2012.

In terms of new FSRU projects certainly globally it’s remained as robust as it ever was, we count 25 plus new projects being developed and of course we look at a lot of these projects and narrow them to the ones we think are the most incredible. Certainly, we have seen activity in the Middle East accelerating; some incredible projects coming along there as their demand for gas increases significantly. Interestingly, South America now has the most delivered and awarded projects FSRU role them one of which of course is our Gas Atacama project.

We see probably more than five new tender processes which will initiate in 2012 again the Middle East being active; India as well seems to be coming along and possibly China as well. We believe we're extremely well positioned for new awards given our two FSRU new builds that I showed you on a previous slide with one being delivered in September to October of 2013 and the other in the early part of 2014, that 2013 delivery is the only new build FSRU available in that year.

So for projects that are looking for a fast track startup that asset obviously is very attractive. We do have the older vessels available for conversions for smaller projects or markets that conversion will otherwise suite we are certainly pursuing those deals as well and expect that there will be a need for conversion FSRU as going forward as well as the new build. And again, we have found in the recent tender activity including Gas Atacama that are operating track record which is so critical on FSRU projects is really selling well for us.

Turning to slide 17, again Gas Atacama which will be Chile’s first FSRU, we were successful in that bid process it was a long process a lot of work; we are happy to be successful in the end, I think I would say obviously charter rate is a critical factor in these deals but the two factors that I think really put us out in front on that project we won our ability to use our new building order book to create some flexibility for Gas Atacama.

Gas Atacama needed to mark down their FSRU contract terms in order to bid into power sales process that’s going on through the balance of the year, so they have in effect needed that six month subject period or conditional period where they could on depend on delivery and FSRU at a fixed price and date because we have that order book and because we have that last vessel of the carrier ship slot we were able to uniquely provide that optionality to Gas Atacama to support their business.

Also the Gas Atacama power plant is an existing power plant, it has been operating for several years; its in the North of Chile, it services the copper mines in Northern Chile and so if you can imagine the importance of power supply to copper mines which these are standing copper mines there are several large copper mines in the world and they underpinned Chile’s economy, the absolute need for complete dependability on that power supply cannot be overstated.

So when Gas Atacama’s proposing to have their feed gas come through an FSRU it is very, very important for them that they deal to demonstrate dependability on the gas chain of which the FSRU is a very important component. They chose Golar because it is very beneficial for them to put us out in front to show to the mining companies that they have an operator who is accustomed to operate FSRU in quick critical base load applications. I mentioned the power sales process that is the subject of the conditions which still exist on the Gas Atacama time charter.

The time chart is actually completely termed and signed but there is a condition precedent remaining relative to Gas Atacama success in achieving new power sales agreements with the copper mines, we think they are well placed to do so but again until those power sales agreements are finalized that contract will remain conditional. We are taking a huge amount of risk on that if those conditions don’t clear, simply that last vessel on a new build order book will be returned and delivered as an LNG carrier as originally envisioned.

Turning to slide 18, just a nice illustrative model of our haul number 2031, which will be our first FSRU new build delivered in September, October of 2013. She is currently bid in to multiple projects and again because of her prompt delivery, that vessel is proving to be very attractive to perspective charters. It's a large FSRU. It will be 170,000 cubic meters. Up to 750 million cubic feet a day send out and our move to take a speculative position on the FSRU is any risk that's associated with that is mitigated quite nicely as in all respects. The performance characteristics of the haul number 2031 is exactly the same as the other carriers in the new build fleet.

Turning to the last slide, slide 19. Again for a summary and outlook, we had a highly successful quarter. We’re extremely happy with how things went, a significant earnings increase. We were extremely pleased that we had nearly zero off-hire time, improving out the quality and efficiency of our operations.

Looking forward, the outlook is certainly positive with embedded near-term growth that I’ve spoken about and as you move in to the new build period, long-term potential for steep increase in our earnings. The group structure continues to deliver financial flexibility, our increasing operating cash flows drop downs and debt financing will satisfied our new look build obligation, allow us to maintain a high dividend without requirement for further equity raising.

Our Chile FSRU has solidified our leadership position in that space and we are certainly confident of further success on new contracts. So with the strong market outlook and a very, very good position we certainly see future success for Golar.

And with that we're done with the presentation part of the call and I'll turn it back over to moderator for question and answers.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question say comes from Jon Chappell of Evercore Partners. Please go ahead.

Jon Chappell - Evercore Partners

Well, a couple of quick charter questions. So first with the new buildings, you've laid out pretty well on the press release that the market is still back graded and you expect that to narrow a little bit, but assuming about how early you would want to think about chartering some of those and the reason I ask is after the drop down of the Regas Satu, it doesn't appear that there is any assets that would fit the qualifications for a GMLP drop down that obviously was a very successful transaction, it helps a lower your cost to capital. So would you potentially you know take one or two assets maybe charter then a little bit before you typically would just to kind of lock in that revenue security and add to the GMLP growth story.

Doug Arnell

Yeah, maybe not as simple answer to that one Jon, but I mean first of all I think we are pleased with the growth that we have provided to the MLP so far. I think our annual dividend growth rate is something like 11.6%, so that’s a little bit better than we kind of projected when we started out with the MLP.

Secondly, you are right. I mean there's no contracts that are existing that fit that model, but there are certainly assets upcoming that have the potential to fit the bill for the MLP prior to the new buildings coming out. So the Maria for example is open and the Viking will come open in spring time. So just as hypothetical if we in the next near term achieved a charter for Viking that extended out for a reasonable length of time, we could execute that drop down whenever it made more sense, same with Maria.

I think that one thing is for sure we have to be pragmatic about how we play the shorter or medium-term charter market against that need to keep the MLP growth intact and the bottom line is we have to do both and so far we have been pretty successful at it and with the number of assets we have got for to support the MLP, it’s not something that we are entirely worried about and certainly given that we have just done the Nusantara drop down, we feel we have done our job there a little bit and aren't sort of pushing the panic button in any way to feed the MLP in the very, very near term.

Jon Chappell - Evercore Partners

A couple of other quick ones. So I just wanted to be sure the Gandria and the Hilli, are they not employed at all right now even on the spot market. You are just kind of holding them for the winter months when the market may tighten a little bit?

Doug Arnell

Yeah they are not -- they haven’t traded at all. They are both in Asia, they are both warm. We are looking for that right first charter for both of them and which will have to include a gas up and cool down and you know the appropriate type of voice for that generation of vessel. I won't say we are holding them back. We are certainly active and looking for business for them now.

Jon Chappell - Evercore Partners

Right and are they still generating operating cost at a similar level to what they would be when operating or is it at a much lower cost basis while they are in warm [lap]?

Doug Arnell

It is not a lot different. You know the two thirds of the operating cost or so is crewing when they got anchored, you generally have them fully crewed, may be slightly reduced. So somewhat reduced, but not materially.

Jon Chappell - Evercore Partners

And then just can you give us sense what the Maria has been earning in the spot market and it is not the most liquid market in the world, but for the couple of numbers over a wide range though if you can just give any clarity on that, that will be helpful?

Doug Arnell

We don’t release charter rates. Typically there has been some numbers in the press and they are generally above rate, it might be a little hard.

Jon Chappell - Evercore Partners

Okay then last one before turning it over. I know you can't speak much about the FSRU tenders that are hopefully coming up later this year, the terms or the timing, but are they somewhat similar as we look at the Atacama, are they similar to those type of terms from a rate and duration perspective?

Doug Arnell

Certainly, from a duration perspective, yeah they are, well I should say there is a mix; they are certainly the most attractive ones are the longer term charters. There could be some, actually some five-year type deals out there, which you would expect the rates to be a little bit higher to compensate for the shorter-term. The other interesting thing is that on at least a couple of the opportunities are that coming up, they would actually go into service before and significantly before actually the Gas Atacama FSRU would.

Operator

Thank you. We will now take the question from Michael Webber of Wells Fargo. Please go ahead.

Michael Webber - Wells Fargo

I just wanted to follow-up on, first on the Chilean FSRU and potentially converting one of your newbuild slots. Can you give us kind of an idea about the incremental capital that would be required there? I mean this is stopping short or to supplying the multiple on the EBITDA you guys have already [thrown out] potentially for the FSRU, but how should we think about the incremental capital that you guys need to raise above and beyond what we might be expecting for the traditional newbuild?

Doug Arnell

Yeah, Michael that’s tough one to answer. You know obviously extremely sensitive competitive information. I think we have talked about enough about our kind of what the speculative FSRUs are running and that if that kind of vessel be slightly more expensive than that.

Michael Webber - Wells Fargo

And I may have missed this earlier, something like, did you guys give an update on the vendor financing you guys have employed for the Satu and how that process in terms of securing longer-term financing has gone?

Brian Tienzo

Yeah, I mean for the vendors certainly for the Nusantara Regas Satu, I mean we said that there is a sort of process in place to try and refinance that before the end of the year for the vendor financing with respect to the (inaudible) I think obviously we are constantly on the lookout for the best way of refinancing that. We do have a turn within the vendor financing that allows us to keep it up to three years. But I think as long as the market is there to try and refinance it at an efficient way then we will go there, but apparently we're just monitoring the market at the moment. But for Nusantara Regas Satu there is a near term process to try and refinance that.

Michael Webber - Wells Fargo

We heard from some other players in the offshore space about a tightening lending environment actually impacting their ability to re-buy some assets that actually have decent charters on them. I mean have you guys noticed a shift in the net financing in the financing market that is impacting your ability to secure long-term financing at all?

Brian Tienzo

No, not really I mean certainly we've been talking to banks and we talk to them quite regularly to also gauge the appetite out there and the message come across really well which is, if you got a decent charter, hopefully a long-term charter then you’ve got a long list of banks that are keen to get involved in that project.

Michael Webber - Wells Fargo

Last quarter you guys put the share repurchase program out there with the $45 price starting on it, I know your share didn't hang out in the mid to low 30s for too long, but it’s noticeable you guys didn’t buyback any shares during the quarter and instead raising the dividend. Can you talk a little bit about that thought process and how you think about implementing that going forward?

Doug Arnell

Yeah I mean certainly the proposal that was made and the Board took it on; it wasn’t as previously mentioned in previous quarter, we didn’t have specific timelines to when we would effect it; I think obviously the Board is there and constantly monitoring the situation as you can see Golden Ocean did a similar sort of strategy and we have that at the back of our pocket; I think the one think to note of course is that the dividends have gone up and I think given that and the near term visibility of our increased earnings, we can see that at least the dividends will be maintained.

Operator

Thank you. We will now move to Fotis Giannakoulis of Morgan Stanley. Please go ahead.

Fotis Giannakoulis - Morgan Stanley

I want to ask also about the chartering market and you mentioned about the short-term volatility that you expect in the market in the next couple of years and the softness during the summer because of the maintenance of some facilities. Can you let us know where are these facilities located and where do you expect that the charter market will move when the 6.5 million tons will come back to production?

Doug Arnell

I think what’s really important Fotis, on the spot rates, they are quite unpredictable in the really near term in LNG shipping right now because there are some shipping deals being done, so there is very few vessels. So if you get a little bit of shift in say maintenance or usually it’s the Asian LNG buyers coming into the market and so driving an arbitrage, you can get a big swing in the spot rate with one or two deals done.

So the parameters and be able to make a prediction about what’s upcoming when that buying comes on to the market, I think is something that we just aren’t able to do and to be honest we don’t focus on at the time. It’s not really driving our revenue line right now; when we are out with our vessels we are looking at huge range of potential deals from single voyage which would be very few off; we did one in Maria, but it’s time and exception, two to three years to five years to 10; so I think we are not really the ones to make that kind of prediction about what’s going to happen with spot rates in the very near term.

Fotis Giannakoulis - Morgan Stanley

And regards to the location of these facilities (inaudible) line; are these Qatari facilities?

Doug Arnell

I don’t know of the Qatari side had any maintenance going on, may be we can check into that for you Fotis or give a call to Brian and we’ll get you that information.

Fotis Giannakoulis - Morgan Stanley

And how many vessels, modern vessels like Maria, you think are available right now in the market for a short-term voyages?

Doug Arnell

Again it flips around from week-to-week but there is generally been two or three vessel competing for a spot business.

Fotis Giannakoulis - Morgan Stanley

And if we try to put some number of ships that are required for 6.5 million tonnes, lets say assuming that this was a capacity from Qatar, would it be safe to say that something around a couple of vessels for 8 million tonnes would be a good number?

Doug Arnell

We generally, I mean again obviously it's specific to where that is going on, where the ships are going to go. You know, 1.5 million tonnes on a ship over a period of time is not bad. 1.5 ships for a million tonnes is not a bad estimate. So 6 million tonnes is certainly used more than two or three vessels.

Fotis Giannakoulis - Morgan Stanley

Just jumping to the FSRU market and the project that you are currently pursuing. You mentioned that you are short listing three of these additional projects apart from the [Chile] just won. We read in the press that the (inaudible) season for them, FSRU will take place next month. What about the other two at least project fourth quarter event or a third quarter?

Doug Arnell

I am not first of all I am not 100% sure the project you mention is actually going to be a third quarter event. So just little help warning there but all three are important to be and best information we have before the end of the year.

Fotis Giannakoulis - Morgan Stanley

Is it possible to give us a little bit more color about the five additional projects that you mention where out of these projects located when do you think that these projects will be in operation?

Doug Arnell

They are all, the new ones would be all sort of 2014, '15 start ups. They are concentrated in Middle East, India and Asia.

Fotis Giannakoulis - Morgan Stanley

And my last question it's about the new building activity. We have seen some decline in the number of new orders that have come in the last couple of months, is it because of a lack of announcing what is the reason behind this slow activity in it and did you think that we might see some of the importers particularly the importer from this have been past facility to start ordering some vessels in the next couple of quarters?

Doug Arnell

So the first question is about why the ship orders have slow down I think it's we can’t speak for anybody else really and we haven’t been ordering simply because we think that there is better deals to come and the timing hasn’t’ been exactly right. We would like to trend the way the ship building market is going and we definitely think there is possibility that we could do some more ordering if we find the right deal. I think that we have a bit of a luxury of a fairly strong financial position to be able to increase that order book we chose to that’s not necessary the case with other operators. I think the financing situation is generally difficult. Obviously out there right now.

So players haven’t been willing to enter in with new orders when looking out at quite frankly 2015, '16, it’s not like today’s market, it looks a little bit more balanced than you definitely going into a new order you have to be feeling very, very good about the being able to support a shipping fleet long-term.

The buyers of the Sabine LNG all new players with new production have all the options out there to place new orders work charter that tension is always in the system, but we believe that with the nature of the companies that are buying those products or those that are producing new LNG in Australia the decision to deploy capital in a financing constrained environment to deploy capital on vessels is probably unattractive to them so we feel pretty good that a lot of them are going to go the chartering route.

Fotis Giannakoulis - Morgan Stanley

Could you comment there was an article about John Fredrick potentially buying two existing new building contracts this December can you comment on?

Doug Arnell

No.

Operator

Thank you. Our next question comes from the line of (inaudible) DnB Nor Markets. Please go ahead.

Unidentified Analyst

As we saw with TK supposedly fixed one of last week we are 30 months ahead in the mid 80’s region for three years and this spring with contracts roughly 150,000 (inaudible) is still correct, do we see [liquidation] of 70,000 a day and could you help us understand how the market looks right now if we are to fix the vessel for three years and how will this develop?

Doug Arnell

Sorry your question is about like the three year, delivery now for three years. Well I think that what you have seen over the last few months is the people, owners that had a vessel for three year market probably had been pushing for over $150,000 and $160,000 a day for that type of charter. There haven’t been many of them done so where it settles out, I don’t know we can, our three year deal is that we signed the charter started up in late first quarter, we signed the deals round the end of the year. They were certainly not too far below that in what was a less heated market than it is now. So, but it is true that as the spreads going to start tightening as we move out in time here, we get closer to the time when a lot of the new building vessels are on the horizon. So that back gradation is going to start coming out of the market. So the velocity at which that happens is hard to predict .

Unidentified Analyst

Okay, but if you're saying, if I understand you right, the market is still quite hot. So when can we see Maria being fixed in a contract and do you see a three-year plus contract and possible perhaps even a five-year plus contract, which facilitates the drop down to the MLP.

Doug Arnell

Yes it is possible, but again we aren’t being driven solely by creating drop downs for the MLP again. We're quite happy with the growth that we've provided to the MLP so far. When we are looking at chartering the Maria, we will look at all options and as I think we've done a pretty good job to date, we’ll do what's best for the company in terms of value.

Unidentified Analyst

Also on the Hilli and Gandria, how much of that do you see these kind of vessels trading, given their high OpEx, is that a high fuel cost? Are they over the year or will you only see that (inaudible)

Doug Arnell

Yeah they can be. I mean the Gimi is the same performance characteristics really and that vessel will go all the way through this year. It started last September. She will trade all through this year and in to next. So, it's just a matter of finding the right specific trade where the unique nature of those performance characteristic work.

So certainly the winter peak is the most obvious time. It is also the summer peak that exist in the chartering market. Shoulder times are a little bit tougher, but you know we're kind at this point looking at deploying those ships through the winter and then we'll take it from there.

Operator

We will now take a question from Martin Korsvold of Pareto. Please go ahead.

Martin Korsvold - Pareto

Thinking about your first, this is how you are delivering in 2013. I think if I heard your right you mentioned that the three firm contract you are bidding on this 1415 (inaudible) is that looking a bit earlier or are you looking at the business which will fit to the delivery of the Haul 2031.

Doug Arnell

Well, we've got multiple potential FSRU projects there with 2014 delivery. I mean it would have been hard to be that smart that we nailed it exactly that the FSRU project was ready exactly in 2013. We are not too concerned about you know up to a year time in between delivery of the FSRU and when she goes into service on a FSRU project. Two reasons, if the FSRU project is a long-term contract like a 15-year contract, the charter will actually pay you to keep the ship idle. So they don't have any risk of something going wrong with the vessel and between the time it gets delivered and when it goes into the project, so you in effect recover that year anyway.

And as I said those vessels are that FSRU is in all respects and LNG carriers well with the same performance parameter. So it should be very attractive vessel especially September 2013 when we expect vessel demand to be quite strong. So we are not at all really worried about having to get an FSRU project or the day after she comes out of the yard.

Martin Korsvold - Pareto

And the second I guess, one of the three-year contracts that you are bidding on this Indonesia contract where there were some delays, can you give us an update on how that’s looking at the moment, is that fully back on track?

Doug Arnell

Yes, it’s difficult to say Indonesia can be challenging at times in terms of trying to predict when things go ahead, but that’s just the nature of doing business fair and Golar has worked in Indonesia for many, many years quite successfully. So we kind of understand how it works and understand that predicting it isn’t all that easy.

I think the political situation is turning in favor of the project somewhat, but I wouldn’t say it’s very clear. Yet I think it’s in terms of what the charter is saying is about it, they seem quite optimistic about being able to kick off the project before the end of the year. But we have to be honest and say there is a little bit of noise around it and that’s not uncommon with big FSRU project.

So we are still optimistic. I wouldn’t say it’s at the top of the list of likelihood out of the tree that will get awarded before the end of the year.

Martin Korsvold - Pareto

And lastly you also mentioned in your report that you are looking currently looking at (inaudible) and storage. I mean you have been talking about that for quite some time, is there anything you're going on there which you could share with us?

Doug Arnell

Nothing that we can share; I think that it is fair to say internally we've turned up the activity level a little bit in terms of refining our concepts or loading LNG. Again when we talk about floating LNG we are talking about a smaller scale approach to it and not the full scale offshore type project, but so I say the internal activity is ramped up some what and we are trying to get a more refined concept and kind of a approach to the market determine that will work the best, but we don’t. There is nothing new in terms of field development that we can talk about at this point.

Operator

Thank you. We will now take a question from Rishav Puri of Linden Advisors. Please go ahead.

Rishav Puri - Linden Advisors

Just wanted to go over the projected CapEx that you guys have and then you guys mentioned that you don’t expect that there is any equity at the GLNG level and expect that at the GLNG level. So if you could just map out how much CapEx do you have and what do you expect to get from bank financing and then the remaining, how do you expect to fund, how much more would you expect to fund at the GLNG level from that?

Brian Tienzo

I think we've basically mentioned various sources funds we expect to be able to use the fund. The equity portion of the newbuilding program, so the IPO of LNG Partners helped us to get off the ground and whilst the Nusantara Regas Satu, the vendor financing is still outstanding. We have received [$230 million] of that already. There is a $155 million still to come. You can call the freeze vendor financing is out there that is due to LNG Limited, the convertible bond issuance that we did in Q3.

So I think all of that potentially with drop downs and where there are opportunities for long-term charters that attracts new debt financing and that will enable us to take us through to the delivery of the newbuild program. I think as far as the schedule of the newbuild obligations come through, as we previously mentioned it’s very much back ended. So there are obviously installments along the way but majority of the payment come through on delivery.

Rishav Puri - Linden Advisors

So let’s say, drilling down a little bit on this, so let’s say there is around $1 billion of CapEx next year. What can we expect, how much of that would be equity, how much of that would be bank debt, how much of that would be additional unsecured debt or whatever you are expecting?

Brian Tienzo

I mean, that’s very difficult to say. Let’s assume that there are other – there are potentially opportunities that allow us to charter some of the vessels in which case there is potential to raise quite an efficient new debts on those assets. So it’s very much dependent on what you assume to be those vessels that we’ll be doing. I think I mentioned earlier you know as long as the vessel where the vessels have you know any medium to long-term charters there are sufficient good lift of banks out there that very much knee to get involved in those projects.

Rishav Puri - Linden Advisors

Okay. And just one more question from my side. I mean is there like a particular metric that you are aiming for like okay this is debt-to-equity ratio that I want for you know for a long-term basis or you know leverage ratio or anything that we can that you guys think about or have in mind when think you were the long-term you know capital structure to come?

Doug Arnell

Currently has we are, I think we are quite well leveraged, I mean we are certainly not near seven continents that we have. When we talking about the new building program again that's very much dependent on what the state say of those when they come out, and if in the event a carrier was to be on chart for 10 years you can leverage that up you know any way between 70% to 80% quite easily. Whereas obviously if it's on spot then you’re expectation should be anywhere between 60%.

Operator

(Operator Instruction) Gentlemen as we have no further questions, I would like to turn the call back to over for any additional or closing remarks.

Brian Tienzo

Thank you for that and thank you everyone for contributing to the call, from myself and Doug good bye and we look forward to seeing you next quarter. Good bye.

Operator

Thank you. Ladies and gentlemen, that will conclude today’s conference call. Thank you for your participation. You may now disconnect.

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