GLNG

Business Context and Reporting Period

Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Fourth Quarter and Twelve Months ended December 31, 2003
Filing Date: February 29, 2004
Business Overview: Golar LNG is an international shipping company specializing in the transportation of liquefied natural gas (LNG). The company operates a fleet of LNG carriers and is actively expanding its fleet through newbuilding contracts and strategic investments.

Key Financial Metrics

Liquidity and Debt: The company strengthened its cash position with a $51 million equity offering in December 2003 and lease finance transactions generating a $51 million cash inflow. Total debt includes long-term debt of $593.9 million and long-term capital lease obligations of $616.2 million as of December 31, 2003.

Material Changes vs. Prior Period

• Revenue Growth: Q4 2003 operating revenues increased 26% compared to Q3 2003, driven by the inclusion of a full quarter of trading from the Methane Princess and reduced offhire days across the fleet. Full-year revenue remained flat compared to 2002 due to increased offhire for drydocks and repairs, offset by new vessel revenue.
• Profitability: Net income for Q4 2003 rose to $13.9 million from $7.1 million in Q3 2003. Full-year net income increased 46% to $39.6 million compared to $27.1 million in 2002.
• Non-Operating Items: Q4 2003 included a net gain of $2.8 million from interest rate swaps and a $1.7 million unrealized foreign exchange gain related to capital leases denominated in British Pounds.
• Equity Expansion: Stockholders' equity increased by $106 million during 2003 due to equity issuances in July and December. Shares outstanding increased from 56.0 million to 65.6 million.

Outlook, Risks, and Management Commentary

Outlook and Strategy

• Fleet Expansion: The company expects to add three newbuildings in 2004. One vessel has secured a 10-month charter; others may trade in the spot market. A sixth newbuilding contract was signed with DSME for delivery in mid-2006.
• Market Conditions: Management anticipates spot market rates to strengthen over the next two years as new LNG production capacity comes online in 2004 (Egypt, Algeria, Malaysia). US LNG imports are expected to test terminal capacity.
• Financing: The company has fixed interest rates on $135 million of debt, targeting a 5.8% average cost on the fixed element. Financing for two new vessels due in H1 2004 is progressing.

Risks and Contingencies

• Market Volatility: Results from uncommitted newbuildings may be volatile due to limited excess LNG availability in the short term.
• Project Delays: Environmental approval for the Livorno floating terminal project has been delayed due to a change in the governing committee.
• Operational Risks: Risks include inability to secure financing, political events affecting production, regulatory changes, and shipyard delivery delays.
• Cost Pressures: Newbuilding prices are rising rapidly due to steel price increases and high demand, potentially eroding competitive advantages for larger vessels.

Investor Verification Checklist

• Equity Dilution: Verify the impact of the 9.6 million shares issued in 2003 on future EPS growth.
• Debt Structure: Confirm the terms of the $616 million capital lease obligations and the interest rate exposure on the remaining variable debt.
• Project Viability: Monitor the status of the Livorno and Baja floating terminal projects, specifically regulatory approvals and environmental clearances.
• Charter Securing: Track the employment status of the three newbuildings expected in 2004, particularly the two intended for the spot market.
• Market Demand: Assess the actual uptake of new LNG production capacity in 2004 to validate the forecast of strengthening spot rates.