Q3 2019 Earnings Call

So summing up and slide 16.

We believe the backdrop of LNG demand is only set to strengthen as more and more segments of the industry and both urban and remote communities address growing concerns around climate change and pollution.

While struggles are the ultimate destination gas and especially gas in the form of LNG is a significant part in the journey and will be will be so for a long time to come.

I work in liquefy, and transportation and transport and gases L.N.G. serves as a transition feet stop for a remote communities that are currently burning more polluting fuel oil and diesel for transport and power generation.

Importantly, we know the switches coming thanks to our ability to get cleaner l. and g. to these communities and it significant cost saving to the consumer.

We also know that rightly or wrongly economic benefit sometimes need to lead environmental ones and with small scale and old and G. distribution, we have both economic and environmental benefits the model works.

And then go low we remain focused on delivering hope we've committed to and what's in front of us.

That is totally contracted even die run right around $440 million per year, and expanding to over $600 million per year without any further funding required from goal or l. and g. shareholders, it's as evidenced by close to $7 billion and eat it down by book that delivers I'm past 2050.

We believe goal or is a sustainable business.

And now I'd like to hand back the operator will take you cross.

Thank you, ladies and gentlemen, who will now be kinda question answer session. If you wish to ask a question <unk> on your telephone keypad, if you wish to catch any request.

<unk>.

We would like to remind you that each participant it's the only allowed to ask questions set a time to accommodate all participants who wishes to ask that question.

Once again piece practice tar one to ask a question.

And the first question comes from the line off John <unk> from ever car. Her line is still open. Please ask your question.

Thank you good afternoon everybody.

The junk.

And I think a lot slides incredibly important what's the backlog in a fully funded I think it speaks to the strategic developments you guys have made and and really cycle or up good for the long term.

However is torn alluded to sometimes to market, especially in energy and L. and G. Specifically is is very short term. So forgive me for asking to kind of short term focus questions. So first with Philly can you just explain a little bit more about the smaller increase in production that could potentially started in in one to 20 and you had.

Grams earlier slides still the 73 million of you, but I run rate from train three so what would the quote unquote smaller increase production really translate into from a an EAP. It died runrate perspective, and and how real is that for once you 20.

So we were still in discussions is the first thing in there for until the deal signed a delivered it's it's it's it's not deliver I think you should consider it as a as a fraction of percentage Oh, but a trade three.

And and separately we.

We hear from from our customers are they are embarking on a drilling programmed approval assets and I see that as a very positive step forward. If in fact continue to do that and we could be the very different situation. This time next year talking about a a much larger commitment.

A commitment that would include three and possibly for an extension of wanting to <unk>, how sizeable to document it'd be I understand.

Oh, and I think they'll doesn't depend entirely on what they find and what they're prepared to commit to so.

You use as they've actually you know we we believe that go to move forward the drilling program, which is.

Great Okay.

Okay.

Second question is.

You mentioned this huge backlog, which is obviously real when you announced a T.R.S. last quarter, you mentioned suspending the dividend for six months, but if you read the press release and you talk about capital return you mentioned a focus on further growth investments or share buybacks. So is your view on the dividend.

Change was the last three months do you do not do that as a six month suspension, but more of a permanent suspension with more of a focus on buybacks given where the share price has been or the last few months.

I enjoy that'll be a matter for the board to decide but as we said before us I'm certainly if we have any spare cash is available we will put it to use it maximize his value for shareholders.

And within that makes you you have to consider anything that we have producing the up to invest in orange <unk> buybacks.

Okay, but it sounds like things are fully funded a lot of cash flows are turning on some spare cash should accelerate in the early part of next year and given the timeline that that Graham laid out most of your equity commitments are done. So we should think of more of a capital return unless there's new projects that correct.

Oh.

Okay. Thank you very much in.

[laughter].

And your next question comes from the line.

From a Webber research.

Please ask your question.

Good morning go somewhere.

Yeah.

It's so so I wanted to touch on the the carrier span and the the breakdown of the process there and it's the gone for for a couple of years.

You give us a bit more background around around.

What the disagreement was there and whether it's specifically whatever pertained evaluation.

And then when we think about 2020 and kind of spending it in the U.S.

Should we think about that as as maybe that as an equity dividend or does does the high degree of leverage keep from being and play and should we expect maybe a more robust process I guess when you try to spend it.

Well they they.

Withdrew from the Consorted is quite <unk>, we conclude that yesterday and there's no point in going into the detail of it. We just had a a structure that didn't didn't work for us.

Task list of things to do.

Oh, well prepared to say this point is the way that spends contemplated not lonely involve goal of ships, we plan to deconsolidated, although obviously removed that from the balance sheet.

The other stuff to write that are being worked on it.

<unk>.

Gotcha I guess it would in the context of of a carrier spent I guess the the sequencing it seemed like it.

<unk> carrier span and then kind of addressing G.M.L.P. and then I know you guys also have an option to spend Gore go our power does.

I guess, that's the kind of dissolving the previous structure in pushing that's been the 2020 is it is it more likely that we would see a a simplification of Gore power I'm sorry.

Gore partners before we would actually see a a gore carrier spin or is that order still in play you think for 2020 spending the carriers first and then addressing the rest of the <unk>.

Well I think they'll they'll hold as a as a natural solutions are mostly for each part of the business. The one they silvius and we've talked about you know exactly what we're trying to do these they're shipping spin and obviously if you go to team focused on making that happens. So I think that would be our immediate focus on how we incorporate bits is M.L.P. will will unfold.

In the coming months obviously.

Gotcha and then.

One more if you will go out <unk>.

In terms of the commercialization progress there on the retail and transportation side, you mentioned, some momentum and and maybe converting some of those m. or using the from sales is there any update in terms of the timeline is when you think you'll start to get some of the first ones that goes over the line.

No way I guess, the one thing I would say, it's a very positive processing that we've got you know we go poof coming from the customer base because they do you see the environmental benefit and the D.C. the cost benefit well, we got to do is make to fully committed to those customers remember when committing not only a quantity in a price. The time you go to make sure. We've got all our ducks and everyone. How are we going to me.

Deliver the equipment and get outlined out and not planning process is happening now we've got a substantial team working on it so I've I've unfolds, we'll be able to give you more detail.

It's progressing well.

Do you think we could see the first steps there and she won or H. One of 2020 in terms of the first incremental.

Piece of commercialization <unk>.

I think the reality is if you if you take that 100 million the best way to think about at this stage with Italy information is stored in the middle of the year, you know maybe middle of the a quarter three start with the first thing gum go all the way I'm 220, 25, when the the power stations online, but a straight line between the two and that's probably a note by way to look.

Oh.

Demonstrate how we can fun that through cash flows from so she may.

I got another alright, but will you know I just develops will always it provides more information, but we know the focus is on getting the elements of the.

You know they get that we have to put in place and the customer signed up once we've done once you've done one customer will know how that's going to we can repeat learn from that and improve on the next one and so on gotcha. Yeah. No. That's that's helpful. I appreciate it like you got.

<unk>.

And your next question comes from the line off for each year.

Powders.

<unk>.

Good morning.

I ER afternoon.

<unk> Holy question, one or confirm if if this little piece of train three would be additive to the original 500 Bcf contract or simply a quicker draw down on the 500 B.C. off and what opportunities there are two potentially self taught.

Tracked West African F.L., and G. to supply your downstream Brazilian operations.

So.

So they I mean, they the additional my that would come through.

That's part of the original contract contracted duration is it is eight years. So as part of this arrangement we've.

This is it <unk> that I can try.

Yeah.

So it would title because originally if you if your top train three it might move to like five years, because it just dropped on quicker. So this would be completely additive and still be eight years.

Yeah, that's correct, it's <unk>, it's an eight year contract effectively.

Okay great.

And the self contracting opportunity.

I mean, so <unk>, you mean and taking car who's familiar to move to a other locations of course, that's there and as we look to develop the goal of power dentistry business and <unk> and eventually the emphasis I use it goes up to dark arena.

That's a a further opportunity and we can links the too if you can always say like taking a cargo with the production of more L.N.G. subject to our customer being able to provide the gas of course, and that's obviously something we'd look.

And also on another johns questions around liquidity and share buybacks.

Understand that but you do plan new financing as Jimmy's finished but.

During that seems to just about fully funded assuming your covers 70% of 442 million outstanding equity from three to one nine through 2023.

And that also assumes go our power cell phones block rain and Brazilian downstream.

But the cell funding equity investments cycle, our power combined with the accelerated amortization.

Kind of going to set up you know the opportunity for cash dividends up to the J.B. partners G.L.N.G. and Stonepeak.

Question is is you know when you think you're really going to materially turn the corner and liquidity in excess of capital project obligations and enjoying material improving free cash flow out geology itself.

Such that you could pursue open market purchases of shares that our price and your nine year lows.

So what we try to lay out today. Craig is is that we've got you know $440 million of even contracted with a upside to 600.

Now they if you think about what we've got to do to get the first 100 million he'd been done so she pays build a fairly large power station over a number of years.

It's a fairly large capital commitment.

Large debt and large that Amortizations. This second 100 million is going to come with.

<unk> was not necessarily less hard work, but it was certainly more capital eat and I think that's what we should be looking at an angle of power is the fact that we can takes that cash flow that we're developing from so she may and other I sits in in going on par and translate that relatively quickly and another hundred million dollars of of <unk> and that.

From customers that we've already identified so that's where our focus is and in terms of the rest of go around on G., we remain discipline from a capital point of view, let's deliver on.

On a Guinea project, let's continue with the ships and do the spin for that and of course, if we get a more upside from hilly next year, you know or or the the used to come then of course that go straight to the bottom line. So I think we go pathways to cash we're really clear about what we're working on.

So if I hear you going forward goal. Our power has expansion opportunities are are not only lower cat bucks to eat, but but much faster <unk> payback realization.

And if I'm hearing that correctly.

Plus obviously with Bach rainy of grow through 2025, <unk> do you see the teeing up a successful I.P.O. for the J.B.

Oh potentially but that's that's on the the <unk> the absolute focus for go up power right now to build that business improve the it's sustainable.

They were they awarded the bunker in a contract you guys have done a great job and making that next step along the line and turning it from a project to a business.

Oh, great. Thank you very much.

And your next question comes from the line often Greg Louise.

I'm open police ask your question.

Yes, Thank you and good afternoon, Hum and I you know I just had some some questions looking for some follow up you know you kind of alluded a couple of times and you're prepared remarks about potentially selling off pieces of of existing projects and just kind of <unk> would like to have a better understanding of what that structure.

Look like I.D. is that something where we're going to.

Gonna be common Jamie where we're going to sell half as it were selling a third any kind of and realizing that that's discussions may be ongoing so realizing there could be some sensitivity around that and then also is is is you know being as you mentioned that the projects are fully funded is the implication there.

That the opportunities for additional projects are going to be at least at a similar return or higher return.

Just trying to just trying to wrap my had had around you know the thought about selling these water already on the books pretty profitable return projects.

So that's a couple of questions in there, but if I take take the first one first if you look at the interested in the <unk>. We have here is interest largely from infrastructure funds you see 2025 year contract is very attractive because that's that's.

Set up.

We've talked to a number of different potential participants around slow.

Investment.

You know, obviously that investment would would do a few things, but most importantly, what it would do is we probably demonstrate to other people that the volume that we've created in in building an investment for a Catholic some inhabits sold at an even multiple that's way in excess of that that shows that we've delivered value.

That's that's partly <unk>, what we do we prove that there's value being created a in those assets.

Yes, they <unk> discussions are ongoing with a a number of parties and we we continue to evaluate that will only proceed. If we think it's gonna it'd be the right thing to do for for shareholders.

Terms of the other point, the F.L. and G. portfolio, if you want to stick on they fill in G. remains robust.

Not only have we had people talk to us about investing in our existing portfolio, there's a potential for people to invest in future portfolios.

<unk> <unk> do take time and I think the message today is that we're not rushing and drawing to desperately find another F.I.D. to satisfy I notion of five if I.D.'s and five years. What we're doing is we're focusing on delivering what's in front of us and I'm confident if the right project comes along with the right financing solution.

Then we will consider taking a head in in in the right man and if we do that it will have returns and you know for <unk> was that we we expect their F.L.N.G. buttons to be which is kinda made teams return on equity.

Okay, Perfect, Hey, gentlemen, thank you very much for the time.

Thank you.

And your next question comes from the line off <unk> airline is to open.

Oh thanks.

So I had a couple of I guess I had a couple of Fs or you were really go our power questions. The the first is more broadly focused seems to be pretty clearly on.

Quite a number of opportunities in Brazil.

<unk>.

Been done in the past, but is it fair to assume that.

For now Brazil is sort of.

Where we should expect things to happen going forward maybe.

So.

I think I think Brazil for US is is more in our control. So so does your question directly we are still looking at other areas of the world, where we see volume and combining an f. is are you with some downstream infrastructure, which would be at terminal pipeline.

Or you know ultimately a a power station. So we are still scared in the world and looking to develop those projects.

The the difference that we'd go in Brazil, as it were creating those projects so in getting permitting for terminal outlined in winning a power station, we're creating our own market through the end product that we supply which is either gas the consumers in the form of of L. and g. or electrons from up.

<unk> and that's different to say submitting a bid for a tender to simply supply and if it's are you. So what we're doing is is the business grows in this go a power grows.

Internationalize, what we're doing in Brazil, but the formula is to be about Iran, creating our own market was this the f. is are you being the strategic asset whose capacity we could use for almost died stream things as opposed to going out and just trying to get our return on on a bare board chocolate rate for an emphasis here.

Okay. That's helpful. And then and then sort of following on that theme and I'll try to squeeze two questions into one here as as we look at Brazil, specifically some of the other projects that you sort of have outlined his potential things with the the Santa Catalina project I, how how do those compare on.

So they a little bit smaller relative to C.G.P. and then as it relates to surgery based specifically and over the past you've talked about the opportunity to expand that and it was sort of been waiting on winning power contract to be able to do that is there any update on a where that the status of the expansion.

Dan's so.

So I mean, there's there's a there's a couple of elements to how you should look at the Brazilian market remember when we started this journey. It was on the back of this as you say power station and we felt that we had to have power stations as the reason that we we move forward with F. as use F. is are using terminals and what we've learned over the last few years is is that.

I leave the case.

<unk> they they power contracts that come are varied the are the two or three a year.

<unk> by the various states <unk>, they're looking for.

For the power I, you bid against those par contracts and what we've got is in Goma power a series of locations that are approved or can easily be approved for power projects. So that's that's the first differentiate <unk>. It takes time and energy to get environmental and other approvals and place just to bid for the <unk>.

Projects.

Endpoint is because we're working on a number of locations we have flexibility in where we can try and when that power project from so cheap expansion is it a great example of of our project that.

We think eventually will be competitive but it just so happens in this instance are offering a buck arena was it was a better offering when you combine all the different elements.

And then the third thing is that what we learn is that the data stream aspects the ability to sell guy two other users through either direct pipeline into fit local facilities or important late small scale, losing it down the river that is you know also an extremely and.

Portland, and lucrative part of the business that we're developing so it's it's much more than like getting the next person. They should not it's it's more about getting a strategic location for a terminal and having justification to underpin if ideas that terminal get an F.S. are you there and start moving gas around I'm from.

That power stations and other things will come to the business has changed a lot over the last couple of years to the good devastating.

And and just to clarify when I I again sort of on the size aspect of it as it relates to.

Are many of these things.

Projects that might lend themselves to smaller efis or use.

As opposed to the traditional.

Bigger purpose built.

Wow.

Yeah, Yeah, I mean, some of the smaller restaurants. They use are possible maybe is a stopgap, but they tend to be less efficient than the than the the new ones and so you've got to look as a whole economic story weather.

You know how long you keep the gas there the qualities of gas and.

Customer base for drawing it off so it's obviously something that we've got quite a lot of flexibility with with some of the older.

So are usually have but they also then you'd have to say use such as time, drawing conversion candidates and <unk> and.

Power. So we don't have a shortage of F. is so I use that we can deployed to these opportunities.

Okay, Great I appreciate it.

Okay.

And your next flush it comes from the line <unk>.

Open at least ask a question.

[noise] Howdy gentleman how's it going.

<unk>.

Alright, so first on the allergy shipping side, you know now that all your Drydockings are complete all your spot vessels currently employed and do you expect to lock away more ships on maybe some index linked charters. We saw that few months ago, and then separately any updates on the goal or biking is that still expected to be converted to an emphasis or you starting I guess in January .

Yeah, So taking the last one first Randy Viking I think February she's she's on charter to February then going into the yard that project is progressing well Oh, he <unk> in the yard busy yards proceeding with fabrication Oh, the <unk> and that sort of thing so that yes, that's happening thing she comes out.

The yard at the end of next year, and then we'll be transacted through.

A a purchase arrangement to LNG, Croatia, and then we'll operate and maintain or for the next 10 years, so that that's fuhrman fixed in happening.

Coming coming back to the fleet the strategy that we deployed is if you look a year ago when the market was.

Going up and then you know a month from another market was coming down and we had all of our fleet in the in the sport market.

Trading on sport with with simple cargo as a couple of them I think we're index linked we've taken on time and put a lot of working with the chartering department to try and maximize utilization. So we have.

Several of our our ships on index related charter party, so that they take benefit all arising markets.

So have some protection support around to falling market, where it's not only the rate coming down that aren't used to lack of utilization. So we've got a number of ships on food utilization. We also have a number of <expletive> . So somebody like I can't remember the exact number or something like four one on a index later deals for one six chocolate <unk> deals.

More than one boy and two that are enjoying playing the sport market. The 10 ships that run the trading says a cool I think that mixes about right. We do want to have a couple that are there to add take opportunistic upside on very short wages that can have higher rates, but largely want to get the utilization.

In the fleet and continue to have more predictability only earnings for the for the ships in that obesity, that's important as they as they go out on their own next year.

<unk>, Okay Fair and then did you say going back to the allergy spin that it will now likely only include goal our ships and what does he updated timeline for the span or or hurdles or milestones for this to happen in the next few months.

So yes, you're right. You'll only include a goal of ships are we going to do this on our own. We're just regrouping working through the time lines, you know and assuming that we do decide to go direct listening to the U.S. is going to be sometime next year I guess.

Do you ever buy until we get few over listing.

Requirements.

But the announcement for the decision would be earlier, maybe the first quarter.

<unk>, we had the borders and I'm the same to spin off the ships I don't think the boards intention around the ships has changed the mechanism and just pick arrangement and how we do that if something were for nothing.

Got it and then tore if you're still in the call knowing you're around one to ask you. Some question. You mentioned you know your top five holder O.G.L. and G. You also disappointed that the share price is down 50% over the past year on like the rest of US are that said have you are kind of will you looked every purchase or purchase.

Additional shares at at this deep kind of sale price and then as chairman of the board.

And mentioned, it's kind of up to the board in terms of dividends or share repurchase is that the corporate level going forward, but what would be your recommendation.

<unk> I don't believe towards still cool.

Sorry about that big speech at me.

Alright, then of all.

I'll ask him all fine thanks, a lot.

Happy Thanksgiving too.

Yeah.

And your next question comes from the line.

Snyder from Japan Airlines.

Please ask your question.

I would be interested to hear the feedback you receive those who've been marketing the proposed LNG spin off over the last couple of months and I asked because you know sentiment around LNG shipping is not great and now the plan is to spin off and even smaller fleet was not a ton of equity value just curious round the confidence level. So you guys have that you can get a deal down and 2020.

We'll have to wait and see that in the markets hold up but I mean, our view is that it's something we want to do and working on structures. So that we can we can make it happen.

Okay fair enough and I'm sure you guys have given the some level of thought but is there any opportunity to sell the LNG shipping fleet you know the time to market are <unk> pretty healthy at the moment. So you know propose buyers could put the vessels on cash flow occurred if contracts. So even if you just you know take a hair cut on asset prices it could drive a pretty.

Evaluation up left for the broader goal our group.

Everything's it sell for the right price of course.

That is true okay. I didn't just I guess, one you know more you guys have clearly made progress on the downstream Brazil opportunity.

I have the hundred million contract with all for the next 25 years from the surgery paying the new.

But pretty poor any color about how we should think about the upside opportunity here from the downstream and how quickly can we see without go above the 100 million right just trying to boil down all the moving parts around the separate projects all of which have different timings any color. They are to how to think about America model it would be appreciated.

Because I actually yeah I've done it on the previous questionnaire <unk> at this stage with only information the best way to think about it is start to either a stream coming in middle of a next year, maybe Q3 next year and run it in a straight line until we go to parse station up at 2025, and and doing that we get caught.

For this that we can funded from cash flows from the existing business.

Facilities and of course, if we if we get opportunities to accelerate that will do so but I mean realistically. This time when we're still finding out of the data is probably the best way to think about.

I appreciate the color thanks for the time guys.

Thank you.

[noise] and your next question comes from the line.

<unk>.

From city.

<unk>.

Hi, guys chance on again off their Chris just want to actually follow up on.

Craig's question about simplifying the business and selling and cash flows.

Oh I'm G. market continues to fish some men when some of the impact a simplification and some of the asset sales just kinda wanted to get a sense of if you're getting evaluations you wanted right now or if we're going after like wait a little bit before you might see something on that might be sold to an infrastructure fonder similar deal along those lines.

Are you talking about <unk>, the low cost LNG pricing environment.

Correct No D. just brought her Ellen G. market like essentially are you seeing some.

Evaluations that you're seeing instead of the public market feed and do some of the or other assets.

And being a potential headwind any deal they might do in the private market.

Oh, we're not we're not seeing any I had was I think I think we got a it's a different structure I mean, if you if you think about.

A l. and G. for the first of all our <unk> logo. We've discussed is is unaffected by commodity price. It's it's looks in as an infrastructure play.

The growth in the downstream business gets even more compelling in a lower lungi price environment and if you think about it is that lower energy crisis prevails is only going to set up to drive that the mind higher <unk> requires more production or production requires no shipping the meeting to move and our our little cost to L.A.F.L.N.G.

Solution can cost effectively monetizing <unk> prices are in a head just achieving our targets and I you know, we haven't not done things around simplification because of headwinds around pricing we've.

No. We we've chosen a more complex route by trying to deal with a tripod tripartite situation that hasn't worked for us so.

Going to do it ourselves with you know the spending <unk> for example.

As it relates to an interest in M.F.L.N.G. assets as I said the contracted back logo is unrelated to commodity pricing.

And so has no <unk> no bearing on having infrastructure fund would hear it. So no I don't think is causing a problem though.

Here are getting a level of interest right now where you actually were deal could be possible.

<unk> infrastructure ones yeah.

Got it alright, thank you.

<unk>.

And your next question comes from the line off Jason <unk> from call when you're <unk>.

Okay, How's it going if I could just ask a question on the allergy carrier market your forecasting a shortage over the next couple of years, but I Wonder how you think about that on a seasonal basis and if it's kind of dependent on U.S.D. east are being okay.

And you mentioned that the allergy oversupply globally calls that are to be closed and I wonder if there's a potential for Tom mild demand to be depressed in a shoulder seasons.

Because that arbor be closed because of an allergy over suppliers just wondering if you could comment on.

Kind of how to shoot 'em market on a suit seasonal basis over the next couple of years.

So so we still think it'll be sees no but you know if he believes that the broker force than you do follow up when you look at our own analysis, where thoughtful and hopefully this the shoulders will be a steep as they've been in previous years. So yes, they'll still be a seasonal adjustment as as cargo as tend to follow.

But we think the seasons, we'll we'll be lower.

In addition, you know to the east West, though I bet, you've you've mentioned in yeses remained close but we're still seeing car those of go to find destinations U.S. car those have been going to Europe Europe's pool. So the then slow steam to.

Two sets the stage, India, China and the interesting fact, though maybe leave you with is is this whole cold for for reducing our carbon footprint around the world what are the easiest ways. It shipping companies can do that is to reduce the shipping speed towards boil off.

So you marry boil for shipping speed you take a few not so the speed and all of a sudden you've combined and improved carbon footprint with slow steaming ineffective partial storage. So that they can take opportunities of arms as and when the open I think we'll see an awful lot more to that and the coming years.

Alright, that's that's.

Interesting point, and then just talking about Perenco drilling program when do you expect.

Next year to to get.

Date on.

Bought that drilling problem has has found.

I know many from information on that.

We're still in the discussions that part of his businesses is outside of our controller <unk>. We can control is making sure that a highly performs safely and effectively for customers. So that's what we're doing all.

Alright.

Thanks for the time.

Oh price it just to let everyone know, we only have time for one more question.

Mm.