Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter ended September 30, 2009
Filing Date: November 27, 2009
Golar LNG Limited is a Bermuda-based company engaged in the shipping of liquefied natural gas (LNG). The reporting period covers the third quarter of 2009, highlighting the completion of the restructuring of the company into a core shipping business and a new subsidiary, Golar LNG Energy Limited ("Golar Energy"), which focuses on trading, regasification, and liquefaction projects.
Key Financial Metrics
| Metric | Q3 2009 | Q2 2009 | Q3 2008 |
|---|---|---|---|
| Operating Revenues | $50.3 million | $46.8 million | $58.1 million |
| Operating Income | $3.6 million | $1.9 million (implied) | $89.7 million |
| Net Loss | $(1.0) million | Not explicitly stated | $51.7 million (Net Income) |
| Net Interest Expense | $12.5 million | $11.5 million | Not explicitly stated |
| Cash and Cash Equivalents | $154.6 million | $58.4 million (Beginning Q3) | $88.9 million |
| Total Debt (Current + Long-term) | $825.9 million | Not explicitly stated | $784.0 million |
| Utilization Rate | 80% | 69% | Not explicitly stated |
| Average Daily TCE | $44,140 | $37,600 | Not explicitly stated |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased to $50.3 million from $46.8 million in Q2 2009. This was driven by the entry of the Golar Winter into service as an FSRU and improved earnings from spot vessels (Ebisu and Golar Arctic), partially offset by the Golar Freeze being in conversion.
- Operating Performance: Operating income improved to $3.6 million. Voyage expenses decreased to $9.6 million due to better utilization and lower fuel costs, while vessel operating expenses rose to $15.7 million due to FSRU operational costs.
- Financial Items: "Other financial items" decreased from a $24.8 million gain in Q2 to a $10.5 million gain in Q3. This decline was primarily due to a shift from a $10.7 million mark-to-market gain on interest rate swaps in Q2 to a $2.3 million loss in Q3, caused by declining long-term interest rates. This was partially offset by a $7.8 million realized gain from the termination of an equity swap regarding Arrow Energy.
- Debt and Liquidity: Net interest expense increased to $12.5 million due to higher debt levels and costs associated with a loan from World Shipholding Limited. However, cash and cash equivalents increased significantly to $154.6 million, bolstered by a $117 million equity offering by Golar Energy.
Guidance, Outlook, and Management Commentary
- Dividend Policy: Management expects cash dividends to commence in the second quarter of 2010. The company intends to distribute close to 100% of free operating cash flow after debt service from its five long-term contracted ships, projected to generate approximately $75 million per annum once the Golar Freeze commences charter.
- Stock Dividend: To increase liquidity and confirm dividend commitment, the Board proposed a stock dividend of 10 million shares in Golar Energy to Golar LNG Limited shareholders.
- Operational Outlook: The Golar Winter successfully completed commissioning in Brazil. The Golar Freeze is undergoing FSRU conversion at Keppel shipyard, scheduled for delivery in Q2 2010. The spot market faces short-term challenges due to oversupply, but rates and utilization are improving.
- Project Development: Golar Energy remains committed to the Gladstone LNG Fisherman's Landing project, with ground improvement works commencing. The company also continues to pursue FSRU opportunities globally, with inquiries from Israel, Indonesia, Uruguay, and Jamaica.
- Risks: Key risks include the inability to secure financing for new vessels, prolonged weakness in LNG carrier rates, political events affecting gas production/demand, and regulatory changes affecting FSRU access to ports.
Investor Verification Checklist
- Dividend Timing: Verify the commencement of cash dividends in Q2 2010 and the execution of the proposed stock dividend in Golar Energy.
- FSRU Conversion Schedule: Confirm the on-time completion of the Golar Freeze conversion and its entry into the 10-year charter with Dubai Supply Authority (DUSUP).
- Debt Structure: Review the terms of the $80 million revolving credit facility with World Shipholding Limited and the repayment schedule.
- Project Financing: Monitor the progress of financing for the Gladstone LNG project and the appointment of financial advisors (BNP Paribas).
- Market Rates: Track the recovery of spot LNG shipping rates and utilization levels, which remain below historical averages despite recent improvements.