Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter ended June 30, 2013
Filing Date: August 29, 2013
Golar LNG Limited operates as a global provider of LNG shipping and storage solutions. Following the IPO of Golar LNG Partners (Golar Partners) in late 2012, the Company's financial results are presented on a deconsolidated basis, with the majority of the operating fleet (76% of revenue) now held within the Partnership. The Company retains a significant stake in the Partnership and focuses on project development, newbuilding financing, and asset dropdowns.
Key Financial Metrics
| Metric | Q2 2013 (Deconsolidated) | Q2 2013 (Group Wide/Consolidated) |
|---|---|---|
| Net Income | $59.0 million | $59.0 million |
| EBITDA | $8.2 million | $44.4 million (Operating Income + D&A) |
| Total Revenue | $27.9 million | $103.8 million |
| Operating Income | ($0.5 million) Loss | $44.4 million |
| Cash Dividends Received (Partnership) | $16.0 million | N/A |
| Cash and Equivalents | $191.5 million | $191.5 million |
| Long-Term Debt | $403.6 million | $403.6 million |
Note: Net income includes a non-cash gain of $47.9 million on interest rate swaps. Group wide revenue includes consolidation of Golar Partners.
Material Changes vs. Prior Period
- Revenue Decline: Group wide revenue decreased to $103.8 million in Q2 from $108.9 million in Q1. This was driven by offhire for drydocking (Golar Winter, Methane Princess) and commercial idle time for Golar Viking and Gimi.
- Operating Costs: Total operating expenses increased by $2.4 million quarter-over-quarter, primarily due to a rise in crew costs for the newbuilding program (from $1.4 million to $4.0 million).
- Dividend Income: Underlying cash dividends received from Golar Partners increased to $16.0 million in Q2, up from $14.4 million in Q1.
- Non-Cash Gains: "Other financial items" surged to $47.5 million in Q2 (vs. a loss of $1.9 million in Q1), driven by non-cash gains on interest rate swaps and foreign currency.
- Deconsolidated Performance: The Company's direct operating results (excluding Partnership) showed a net operating loss of $0.5 million, compared to a profit in the prior quarter, due to the loss of revenue from the Golar Maria dropdown.
Guidance, Outlook, and Management Commentary
Strategic Developments
- Financing: Secured a $1.1 billion facility to fund eight of thirteen newbuilds. The all-in interest cost for the initial seven years is approximately 3.74%.
- FSRU Contracts: Concluded a 10-year FSRU time charter for Golar Eskimo with Jordan (approx. $46M annual EBITDA for first 5 years) and a 5-year contract for Golar Igloo with Kuwait (total contract value approx. $213M).
- Asset Dropdowns: The Jordan and Kuwait FSRU vessels are expected to be offered to Golar Partners, which will release cash to Golar LNG and increase distribution potential.
Outlook and Risks
- Cash Flow Volatility: Management notes that Q3 and Q4 operating results will be negatively influenced by spot market volatility and commercial waiting times for vessels like Golar Viking.
- Market Conditions: The spot market remains inefficient. While supply/demand fundamentals are strong, an estimated 35 speculative orders due for delivery in the next two years may temporarily exceed demand.
- Project Risks: The Douglas Channel FLNG project is subject to FEED study results and regulatory approvals. The Chile FSRU project faces indeterminate delays.
- Dividend Policy: The Board maintains the quarterly dividend at $0.45 per share, citing confidence in financing capabilities despite expected earnings volatility.
Investor Verification Checklist
- Non-Cash Earnings Quality: Verify the sustainability of net income by excluding the $47.9 million non-cash gain on interest rate swaps.
- Deconsolidated Cash Flow: Assess the Company's ability to service debt and fund newbuilds based on deconsolidated operating cash flow, which is currently challenged by crew build-up costs and spot market exposure.
- Dropdown Execution: Monitor the timing and terms of the proposed dropdowns of the Jordan and Kuwait FSRU vessels to Golar Partners to confirm expected cash releases.
- Financing Gap: Confirm progress on financing the remaining five newbuild vessels, as the Company currently has a funding gap of approximately $720 million after accounting for the new facility and cash reserves.
- Spot Market Exposure: Evaluate the impact of spot market volatility on the Golar Viking and other non-partnership vessels, which are the sole revenue generators in the deconsolidated results.