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Edited Transcript of GMLP earnings conference call or presentation 26-Nov-19 4:30pm GMT

Q3 2019 Golar LNG Partners LP Earnings Call

HAMILTON BERMUDA-NA Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Golar LNG Partners LP earnings conference call or presentation Tuesday, November 26, 2019 at 4:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graham Robjohns

Golar LNG Partners LP - CEO & CFO

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Conference Call Participants

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* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Gregory Robert Lewis

BTIG, LLC, Research Division - MD and Energy & Shipping Analyst

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Golar LNG Partners LP 3Q 2019 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Graham Robjohns. Please go ahead.

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [2]

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Thank you, and good day, everybody. Welcome to Golar Partners' Q3 2019 Results Presentation. As the operator said, my name is Graham Robjohns, and I'm joined here today by our Head of Investor Relations, Stuart Buchanan. Before we start the presentation, I would encourage participants to read through Page 2, forward-looking statements, in your own time.

Turning over to Slide 3 and our recent highlights. At $35.9 million, our operating income was broadly in line with the second quarter. This result does not, however, include our interest in the operating result of Hilli Episeyo or the capital element of the Golar Freeze contract, which is now classified as a sales-type lease and disclosed as interest income. We generated distributable cash flow of $33.6 million, with a distribution coverage ratio of 1.18x as compared to 1.12x for the second quarter. Very pleasingly, we had a successful quarter in terms of recontracting our vessels. We secured a 2-year charter for the LNG carrier, Golar Maria, commencing November 2020 as well as additional short-term charter coverage from October to April 2020. And we also received a notice of contract award for 2 years for the FSRU Golar Igloo commencing March 2020, and that has a 1-year option period.

Turning over to Slide 4 and our income statement. Our net income for the third quarter was $7.9 million as compared to a $5.5 million lost in the previous quarter. Operating results, taking into account the Golar Freeze capital element of its charter, which is now, as I've said, included in interest income, were a slight improvement on the previous quarter. However, interest rates continue to fall during the quarter, creating another net noncash interest rate swap valuation loss of $10.9 million, although this was a significant reduction to last quarter's loss of $26.5 million.

Turning over to Slide 5. Here, we set out our segment information in order to make a better comparison of our operating results. We have included on this slide some segment information, which shows adjusted EBITDA inclusive of the Golar Freeze and our share of Hilli Episeyo. As you can see, adjusted EBITDA was up from last quarter's $79.5 million at $81 million.

Slide 6 has our balance sheet assets, of which, there were not any significant movement. So we'll move over to Slide 7 and balance sheet liabilities. At the end of the quarter, our adjusted net debt was $1.51 -- $1.55 billion, and this includes $430 million of associated -- debt associated with the Hilli Episeyo. As at quarter end, the percentage of debt swapped to a fixed rate was approximately 98%, and the average fixed rate interest rate swaps related to bank debt is approximately 2.2%, with an average remaining period to maturity of 3.3 years, so we remain well protected from interest rate variability. With an improved EBITDA, our net debt to annualized EBITDA has improved again from last quarter's level of 5 and now stands at 4.8x.

Turning over to the next slide, which is our distributable cash flow. Our distribution coverage ratio has improved for the second quarter running, from 1.01 to 1.18 for Q3. We also expect Q4 coverage to be approximately in line with this, despite Igloo -- the Golar Igloo finishing 1 month early this year at the end of November. This is expected to be compensated for by an improved contribution from both Golar Maria and Golar Mazo. Our new contracts for both Golar Maria and Golar Igloo are, of course, extremely important to underpin our distribution coverage going forward, as well new contracts for Golar Spirit and Golar Mazo, which we continue to work hard on.

On Slide 9, we set out revenue backlog, which as at the end of the third quarter including actions for the Maria and the Igloo, was $2.14 billion. As I've already said, the new contracts for Maria and Igloo are extremely pleasing, and we continue to work hard on looking for business for the Spirit and the Mazo.

Slide 9 (sic) [Slide 10] shows the revenue breakdown of the Partnership's earnings. Equally important to our revenue backlog is the nature and source of that revenue. The graph above highlights the point that the vast majority of our revenue is secured by way of long-term contracts. This form the basis of a strong financial foundation, from which growth can be achieved organically or by acquisition. 60% of our income is contributed by our FSRUs, and 32% of our income from Hilli Episeyo. This contract runs for another 7 years. 8% of our income is from shipping and mostly represented by the long-term contract, which the Methane Princess is currently servicing. This contract remains in place until 2024.

Moving over to the next slide and a little bit on ESG. We believe in Golar that we have a very strong ESG story on the Golar Group. Both the MLP and Golar LNG Limited have been working hard over the last several months to develop our reporting and KPIs.

We believe that natural gas has a critical role to play in providing cleaner energy for many years to come. Gas is a highly complementary companion fuel to renewables. It provides significant emission savings compared to other fossil fuels, most relevant in remote communities that currently have little choice on how they create energy. Our business provides people with cleaner energy at less costs.

In addition, all of our vessels run on LNG, and we have innovative energy-saving solutions on both our FLNG and FSRU vessels in particular. We will focus on ESG reporting -- we will focus our ESG reporting on what really matters to us. We have identified 5 key focus areas, which you can see on the right-hand side of this slide, and we expect to formally start reporting during 2020. We firmly believe that the Golar ESG story is an important one to explain to investors in the wider world.

So moving over to Slide 11, and in summary. The shipping market is bullish, and we have used the opportunity to contract out the Golar Maria. We have some short-term success with the Golar Mazo, and our task now is to find longer-term business program. The FSRU market has also developed in a positive way, stimulated, we believe, by low LNG prices and the increasing interest in small-scale downstream distribution. We're extremely pleased with the new contract award for the Golar Igloo, and we'll continue our efforts to try and find employment for the Golar Spirit. We have a solid financial footing, with $2.14 billion in revenue backlog, a solid distribution coverage ratio of 1.18 and a falling net debt-to-EBITDA ratio.

Thank you. And with that, I'll hand back to the operator to open up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from the line of Greg Lewis.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [2]

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So I'd like to see the coverage ratio. It looked pretty -- looked better than what we've seen in the past, the 1.2. That being said, the stock continues to kind of languish here. At a certain point, how should we be thinking about supporting the stock price through with cash flow from operations? How should we be -- how at least are you thinking about it? Some companies have said, hey, at a certain level, we're buying -- I mean are you comfortable saying at a certain point, hey, our stock is just too cheap here, and we need to be funneling cash to support our stock price?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [3]

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Well, we do have a share buyback authorized program in place, and we have bought a few shares back over the quarter. But I think in terms of stock price and our business moving forward, I would say, most importantly, is the recontracting of our vessels. Obviously, the Mazo and -- the Maria and Igloo is a really great start, and now we need to really focus on the Golar Mazo and the Golar Spirit.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [4]

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Sure. And then just -- on more of a bigger picture question. There's definitely been a fair amount of term contracts over the last, call it, I don't know, 6, 12 months. But it seems like they're -- and some -- obviously, a lot of those are newbuilds, but it seems like they're more from modern tonnage. What has sort of been the feedback from customers around the willingness to put term contracts around steam vessels? Is it really just a function of -- is it the reason? Just kind of curious why we're not seeing as many term contracts around steam vessels as maybe potentially we thought we might have.

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [5]

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Well, to be honest, I'm not sure what the percentage is if you compare it. I mean in the LNG industry, you'll typically see kind of new greenfield projects are reasonably -- or a disproportionate percentage of new LNG carriers going to those new projects.

But in terms of term business, I think you have seen that in the same space, maybe not for sort of 5, 7, 10 years, but certainly term -- I mean the Maria is a couple of years. And then a couple of years ago, we contracted the Grand on a -- admittedly had options in it. It was effectively up to a 7-year contract with 2 plus 1 plus 1 plus 1 plus 1. So I think it's horses for courses, as we say here in the U.K. The steam vessels are run -- come at cheaper rates and for the sort of shorter haul business where cargo size isn't paramount, then there's still good business for them.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [6]

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Okay. Great. And then just one quick follow-up from me. When we think about the Grand and those options, is there a sort of timing around when we -- when those -- when Golar needs to receive notification of those options? Or when you should expect to receive if the first one is actually exercised?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [7]

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I think it will be in the first quarter of 2020.

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Operator [8]

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Next question is coming from the line of Randy Giveans.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [9]

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So yes, congrats on recharging the Golar Igloo. Last call, you mentioned the new contract would likely be below kind of the current contract levels. So with that, what are the terms in terms of either day rate or annual EBITDA contribution for the Igloo as well as for the Maria for day rate there?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [10]

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Yes. I think both are a little bit commercially sensitive. We've put in the earnings release. So if you add the revenue backlog of both contracts together over the term period, it comes to about $95 million. The rates on the Igloo is lower than the previous rate, but it's for a 10-month period and not a 9-month period, but the EBITDA number will still be a bit lower than previously. That's about as much as I can say on the period, Randy.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [11]

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$95 million basically for the -- divided by the 24 months x2? Two years for each?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [12]

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Yes.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [13]

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Okay. And then just to clarify. You mentioned the Mazo. What is the status of that? Is it waiting for a charter? Or are you going to operate it right now, tomorrow, in the spot market?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [14]

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She is operating right now in the spot market.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [15]

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So already employed, has a cargo?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [16]

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Yes, she has some short-term business. I'm not -- that is coming to a close shortly, I think, but she's been operating for the last month or so on the short-term spot market charter.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [17]

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Okay. And then last question. What would be the cost and timing of taking the Golar Spirit out of cold layup? Would you operate it possibly as an LNG carrier? Or you're just going to keep it in cold layup until it gets a contract to convert to an FSRU or use it as a hub maybe for Avenir, something like this? So maybe cost in line and outlook.

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [18]

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Time is a kind of couple of months, few months. I don't think there's a likelihood that she operates as an LNG carrier. But as an FSU, a storage unit or a regas unit, then absolutely, yes.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [19]

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Okay. And the cost for that?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [20]

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And cost for that, it kind of depends on -- I mean she would need a dry dock, but then it really depends on if there is any kind of incremental bits of kits required for the specific business.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [21]

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Sure. But just looking at the dry dock, a couple of million dollars?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [22]

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Oh, no, no, no. Maybe $5 million, $6 million, something like that.

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Operator [23]

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The next question is coming from the line of Jonathan Chappell.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [24]

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So first question. With the Maria and the Igloo now scored away for next year, I understand the Igloo doesn't start until March, the coverage ratio has been inching up, 1.18 now, let's call it, 1.2 gives you a little bit of a buffer. Is there any significant dry docking or off-hire next year, where you can foresee a shortfall on the coverage ratio, given now that you only have the Spirit and cold layup and the Mazo on short-term stuff?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [25]

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No. The Golar Mazo will need to dry dock next year, but other than that, no.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [26]

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All right. So coverage ratio above 1.1, yield at 17%. Let me ask Greg's question maybe a bit of a different way. I mean I know you have the buyback authorization in place, and hopefully, maybe with some refinancing, you can become a bit more aggressive on that. But at a certain point, you start to wonder, is the 17% yield that you're just not getting paid for the contract coverage, the improvements you made on the balance sheet. And I understand there's probably an immediate negative reaction in the capital markets from a distribution cut. But if you're not doing it on a position of weakness and you're doing it because you're not getting any value for it and the cash can be spent otherwise, at what point do you -- I mean you've been doing this 40 -- 42 run rate for over a year now. At what point do you say, we're just not getting the credit for it, and we need to put cash to better use?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [27]

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I mean, I don't think it's a difficult question to answer, Jon. I think we've been saying for a little while that our #1 priority is recontracting our vessels and then see where we're at. I mean obviously, this quarter has been a great step forward in that. Let's see where we get to over the next few months with Spirits and Mazo. And then -- yes, and see where we are.

I mean if we had a -- particularly in Golar Spirit, if we had a significant contract for her, then that is going to make a dramatic difference to our distribution coverage ratio. If the stock is still trading where it is, then we'd have to do some hard thinking, I guess, yes.

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Operator [28]

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Next question is coming from the line of Ben Nolan.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [29]

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The -- I wanted to just clarify on the Igloo for the contract extension. Graham, you said it is on a 10-month basis, similar to the 9-month basis now. But I guess January and February for the 2 extension years are on contract. Is that right? Am I thinking of that correctly?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [30]

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That's right, yes. So it's -- the old contract -- yes, you had a sort of 3-month gap, and this one's a 2-month gap.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [31]

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Okay. And as it relate -- again, just really for modeling purposes. So that $95 million takes into account 10 months of the year for that vessel, along with the contract on the [Golar Maria], correct?

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [32]

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Correct, yes.

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Operator [33]

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There no further questions at this time. Please continue.

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Graham Robjohns, Golar LNG Partners LP - CEO & CFO [34]

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Thank you, operator, and thank you, everybody, for participating in this call. We look forward to speaking to you next quarter. And for the -- those of you in the U.S., I hope we haven't disrupted your Thanksgiving holiday too much, and I wish you a very happy one. Thank you, and speak to you in 3 months.

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Operator [35]

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That does conclude our conference for today. Thank you for participating. You may all disconnect.