CEO Iain Ross on Q3 2018 Results - Earnings Call Transcript:
A few words now by the Delfin project, which has become more interesting in recent weeks. Delfin is based on our Mark II FLNG design, that can liquefy over 3 million tons per annum at a similar cost per ton to Hilli, and we expect it to be able to deliver the lowest cost liquefaction solution in North America when connected to Delfin’s existing pipeline infrastructure.
A revised ownership structure and leadership within Delfin has created momentum on the project and we are currently in discussions with the Delfin team to establish a joint way forward on the project, and our next activities will be to conclude the development of a vessel specific agreement, and then move on to progressive technical work in parallel with supply and off-take considerations.
Delfin project is a clear candidate for FID later in 2019.
Q&A:
Jon Chappell
Understood. My second question then, the Delfin commentary was surprising and just that it seems like it's moving forward. I was unaware that they'd have had a leadership transition there. So you'd mentioned late 2019, FID, realistically, what's the startup for that potential project and we know it's obviously a significant amount of gas, or are we thinking, are you thinking just one asset first with options on the others or is it realistic that upon the startup it could be a multi-year asset field?
Iain Ross
The way that we are focused is that, let's -- let's get one project away before we get carried away only on the others. So the timescale for building our Mark II we're still working on that. But it's going to be in the order of the same sort of period of time of three and a half to four years. I'd like to say, we're focused on getting one away. And if we do, if we can get that source and get an FID next year on the first train, we'll be more than happy.
Michael Webber
I wanted to circle back to your first couple answers. So when I look at the deck, one of the things that jumped out to me are that Delfin is making an appearance for the first time in a while and then you're highlighting the fact that you could you get some clarity around clearly by Train 3 by the end of the year. But I guess – [Indiscernible] what I heard the answer didn't seem a whole lot different than the commentary we got last quarter. But just curious if I think about aside from the management change at Delfin, I guess, has there been a material change there in terms of the commercialization process or something that would justify I guess kind of moving it up or making that more prominent within your project pipeline? And I get the same question for Hilli Train 3 in terms of maybe the level of engagement between Perenco and the government. When I read that the release, I assume that there was maybe an uptick in conversations there and I think we started make progress. Maybe what’s incrementally different about those two processes today than last quarter?
Iain Ross
If I take the Perenco story first all, obviously there’s a limit to what I can say publicly in terms of what is decided and defined. I can see a pathway to Train 3 being engaged with us. But until Perenco tell me that they've aligned everything internally in their own organization with the government I’m not liberty to expand any further. I just trying to reiterate the fact that we feel confident that we'll have some guidance by the end of the year, and that, things are progressive -- progressing on a positive keel there.
And in terms of Delfin, simply pointing to the fact that Delfin in terms of the Delfin company itself, they’ve reached their shareholder and they’ve got some new leadership there that’s going to revise and increase enthusiasm, momentum on the project. And after a little bit of a lull over the summer this new leadership and enthusiasms translating into stronger engagement with us, and that’s stronger engagement with us is also translating into more focus and momentum and trying to get the solution on the project, so, its incremental progress. I just feel it's worth mentioning that for Delfin because of that renewed focus that we’re seeing from the other side of the table.
Fotis Giannakoulis
Thank you, Iain. I want to ask you about the competitive landscape for new liquefaction projects especially after the LNG Canada, FID that it does not have aligned or end users or offtake, and it seems that also Qatar is going go ahead without having aligned customers. Is it a new norm in order for new projects to FID? Do they need to have the backing and to able to – that the financial bank to be able to go ahead even before the customers are aligned? Then I want to ask specifically about Delfin, if Delfin can take FID without long-term offtakes?
Iain Ross
So, I think it will depend very much on how the project proponent is and how they’re funding the projects. So if you’re big oil and you’re funding project through equity I think its much more straightforward decision to take on whether you’re aligned behind an offtake or not. If you're a smaller entity such as we are then project finance plays a big part in the equation and obviously what we will be looking to in any project is a minimum, is to cover debt service and operational costs on any project through to some form of offtake.
But on that regard if you look at Delfin that's something that we’re considering, it’s a U.S. Gulf of Mexico based projects. So the finance for that you would think will be fairly straightforward and for us considering debt service coverage in OpEx as the starting point for an offtake not a bad place to start. I don’t if that answers your question. Whether it’s a new norm or not, I think this spot market and LNG is going to continue to increase and projects again it just depends how they’re financed whether it's through debt or equity and what combination of both.
Magnus Fyhr
Yes. Hi, guys. Just one question related to the Delfin project, that seems like you said they’re getting more motivated to pursue that project. Can you elaborate what you think that technical challenges are on that project given it’s the first Offshore FLNG project in the Gulf of Mexico, also is the permitting process different for the Offshore FLNG versus an Onshore LNG and where do they stand in the process?
Iain Ross
So coming from your second question back, the Offshore permitting process is quite different and the project as I understand its full permitted. That’s one of the advantages of what Delfin have done in acquiring the pipeline systems that they have. Obviously there are two main differences compared to, for example, West African production that we see the Gulf of Mexico. The first difference is, you've got to be able to disconnect the facility and steam away in the event of an adverse weather such as a hurricane.
And secondly, there’s a requirement in the Gulf of Mexico to use air cooling rather than sea water cooling. And those two elements drove the development of the Mark II design initially. So that its started out as a design focused on the Delfin project and through time it's kind of morphed into – and by the way we can use in West Africa as well because we’re getting enhanced production in terms of more volume, more volume generally means assuming that the gas if there, improve project economics. So for example, back to Fortuna if we use the Mark II design there that would have an improved project return compared to a Mark I design. Anyway, those are the two main changes and we feel confident that our Mark II design can overcome both of those.
