Business Context and Reporting Period
Golar LNG Limited, a Bermuda-based company engaged in LNG mid-stream activities including shipping, trading, and regasification, filed this Form 6-K on May 23, 2007. The filing contains an unaudited interim report for the three months ended March 31, 2007 (Q1 2007).
Key Financial Metrics
- Net Income: $53.3 million for Q1 2007, compared to $36.6 million (adjusted) for Q4 2006.
- Earnings Per Share (EPS): $0.81 for Q1 2007, compared to $0.56 (adjusted) for Q4 2006.
- Operating Income: $58.6 million for Q1 2007, up from $40.4 million in Q4 2006.
- Operating Revenues: $53.7 million for Q1 2007, down from $57.3 million in Q1 2006.
- Cash and Cash Equivalents: $102.4 million as of March 31, 2007.
- Total Debt: Approximately $863.4 million (sum of current and long-term debt and capital lease obligations) as of March 31, 2007.
- Net Interest Expense: $15.2 million for Q1 2007.
- Average Time Charter Equivalent (TCE) Rates: $48,416 per day for Q1 2007, down from $65,250 per day in Q4 2006.
Material Changes Versus Prior Period
- Gain on Sale of Newbuilding: The primary driver of increased net income was a $41.1 million gain from the sale of newbuilding DSME Hull 2244 to Maran Gas, completed in March 2007.
- Revenue Decline: Operating revenues decreased due to a weaker spot market for LNG trading ships. While two vessels were fixed at good rates, two others suffered extended idle time, and the vessel Golar Freeze was offhire for scheduled drydocking.
- Equity in Earnings: Golar's share of Korea Line Corporation's net income was $14.8 million in Q1 2007, compared to $14.0 million in Q4 2006. However, the company sold 1.1 million Korea Line shares in April 2007, reducing its stake to 9.64% and ending equity accounting for future periods.
- Other Financial Items: A $2.0 million charge in Q1 2007 (vs. a $0.9 million gain in Q4 2006) resulted from book losses on interest rate swap valuations, partially offset by gains on equity swap valuations.
Guidance, Outlook, and Management Commentary
- Dividend and Buyback: The Board declared a cash dividend of $0.50 per share (payable June 19, 2007) and announced the termination of an equity swap with a buyback of 1.24 million shares from Bank of Nova Scotia at a cost of approximately $15.3 million.
- New Contracts: Golar was awarded 10-year contracts by Petrobras to employ Golar Winter and Golar Spirit as Floating Storage and Regasification Units (FSRUs), with an estimated total contract value of $860 million.
- Project Progress: The Livorno project is targeting a Final Investment Decision (FID) in Q3 2007. The Cyprus Floating Power Generating Plant (FPGP) license award was formalized, pending regulatory approval for LNG import/storage.
- Market Outlook: Management anticipates improved utilization for spot vessels in Q2 2007. However, rates have fallen due to fleet additions and the release of storage vessels. The Board expects to make a strategic decision on the future structure of Golar in the next quarter.
- Risks: Forward-looking statements are subject to risks including financing availability, demand changes, rate declines, political events, regulatory changes, and shipyard delivery delays.
Investor Verification Checklist
- Verify the sustainability of earnings excluding the one-time $41.1 million gain on the sale of DSME Hull 2244.
- Confirm the impact of the reduced Korea Line shareholding (9.64%) on future equity earnings.
- Monitor the commencement dates and modification costs for the Petrobras FSRU contracts (Golar Spirit in Q2 2008, Golar Winter in Q2 2009).
- Assess the progress toward the Final Investment Decision (FID) for the Livorno project in Q3 2007.
- Review the execution of the share buyback and the resulting impact on share count and liquidity.