Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Second Quarter ended June 30, 2012 (Q2 2012)
Business Overview: Golar LNG owns and operates LNG carriers and Floating Storage and Regasification Units (FSRUs). The company operates two primary segments: Vessel Operations and LNG Trading.
Key Financial Metrics
| Metric (in millions) | Q2 2012 | Q1 2012 | YTD 2012 |
|---|---|---|---|
| Operating Revenues | $107.0 | $83.1 | $190.1 |
| Operating Income | $58.0 | $27.8 | $85.8 |
| Net Income (Consolidated) | $44.9 | $24.3 | $69.2 |
| Net Income (Attributable to Golar) | $35.4 | $15.2 | $50.6 |
| Operating Cash Flow | $59.8 | $7.8 | $67.6 |
| Time Charter Equivalent (TCE) | $97,118/day | $90,464/day | N/A |
| Long-Term Debt | $972.8 | N/A | N/A |
| Cash and Equivalents | $77.5 | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenues increased 29% to $107.0 million from $83.1 million in Q1, driven by new 3-year charters for Golar Arctic and Golar Grand, and new charters for NR Satu and Golar Viking.
- Profitability Surge: Operating income more than doubled to $58.0 million (up 108% from Q1). Net income attributable to Golar rose to $35.4 million from $15.2 million.
- Cost Reduction: Vessel operating expenses decreased to $17.8 million from $27.9 million in Q1, as major reactivation costs for Hilli and Gandria were incurred in the prior quarter.
- Interest Expense: Net interest expense increased to $8.5 million from $6.1 million due to a full quarter of interest on convertible bonds issued in March 2012.
- Financial Items: Other financial items resulted in a loss of $4.4 million (vs. $2.6 million loss in Q1) due to negative valuation movements in currency swaps and forward contracts.
Guidance, Outlook, and Management Commentary
- Dividend Increase: The Board proposed a 14% increase in the quarterly dividend to $0.40 per share, payable September 27, 2012.
- Market Outlook: Management expects earnings to improve in the coming year due to increased charter revenues for Golar Maria and Golar Viking, and potential income from Gandria and Hilli. The shipping market is described as tight with upward pressure on rates due to vessel shortages.
- Newbuild Program: The first of 13 newbuildings is scheduled for delivery in September 2013, with the remainder delivered through Q1 2015. Management expects this to create a steep ramp-up in operating cash flow.
- Strategic Projects:
- Gas Atacama: Awarded a long-term FSRU project in Chile (15-20 year term), expected to generate $47-$48 million annual EBITDA.
- NR Satu Dropdown: Successfully sold the Nusantara Regas Satu (NR Satu) to Golar Partners L.P. for $385 million shortly after quarter-end. Proceeds will fund newbuilding commitments.
- De-listing: The company de-listed from the Oslo Stock Exchange on August 30, 2012, to realize financial savings while maintaining an OTC listing in Norway.
- Risks: Key risks include inability to obtain financing for newbuilds, declines in charter rates, political events affecting LNG production, and regulatory changes.
Investor Verification Checklist
- Gas Atacama Conditions: Verify if the charterer conditions for the Chile FSRU project are met by the end of 2012 to confirm the conversion of the 2015 newbuild.
- NR Satu Financing: Confirm the refinancing of the $155 million vendor financing provided to Golar Partners for the NR Satu acquisition.
- Newbuild Commitments: Monitor the $2.4 billion outstanding contract cost for newbuildings and the company's ability to finance them without additional equity raises.
- Market Rates: Track spot and time charter rates for LNG carriers, particularly for Golar Maria currently trading in the spot market.
- Debt Maturities: Review the schedule for the $972.8 million long-term debt and capital lease obligations, including the March 2017 maturity of convertible bonds.