Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter ended September 30, 2013
Filing Date: November 27, 2013
Golar LNG Limited operates in the LNG shipping sector, managing a fleet of LNG carriers and developing Floating Storage and Regasification Units (FSRUs) and Floating Liquefaction (FLNG) projects. Following the IPO of Golar LNG Partners, the majority of the Group's operating fleet resides within the Partnership, while Golar LNG retains a smaller deconsolidated fleet and focuses on newbuilds and project development.
Key Financial Metrics
| Metric | Q3 2013 (Deconsolidated) | Q3 2013 (Group Wide) | Q2 2013 (Group Wide) |
|---|---|---|---|
| Net Income (Loss) | $(13.1) million | Not explicitly stated as single line item | $59.0 million |
| EBITDA | $(3.3) million | Not explicitly stated | Not explicitly stated |
| Total Revenue | $17.0 million | $103.1 million | $103.8 million |
| Operating Income (Loss) | $(11.9) million | $44.5 million | $44.4 million |
| Time Charter Equivalent (TCE) | N/A | $96,220 per day | $107,945 per day |
| Dividend per Share | $0.45 | $0.45 | $0.45 |
Liquidity and Debt:
- Cash and Cash Equivalents: $56.0 million (as of Sept 30, 2013).
- Long-term Debt: $402.4 million.
- Newbuild Financing: Secured a $1.125 billion facility for 8 of 13 newbuilds. Received a financing commitment for 4 of the remaining 5 unfinanced newbuildings.
- Unfunded Balance: Approximately $697 million required to satisfy the newbuilding program prior to the latest commitment.
Material Changes vs. Prior Period
- Revenue Decline (Deconsolidated): Deconsolidated revenue dropped to $17.0 million from $27.9 million in Q2 2013. This was driven by increased commercial waiting time for the Golar Viking and the Golar Gimi earning no hire after mid-June.
- Net Loss: The Company reported a net loss of $13.1 million, including a non-cash loss of $8.2 million on interest rate swaps. This contrasts with a net income of $59.0 million in Q2 2013.
- Group Stability: Despite the deconsolidated loss, Group-wide revenue remained stable at $103.1 million, supported by the performance of vessels within Golar LNG Partners.
- Cost Reduction: Direct vessel operating expenses for the Group declined to $16.9 million from $20.0 million in Q2, despite $3.9 million in expenses related to building the officer complement for newbuilds.
Guidance, Outlook, and Management Commentary
Market Outlook: Management notes that while spot charter rates held firm in Q3, the market remains volatile. An oversupply of vessels is expected to exert downward pressure on rates in 2014 and 2015, with supply troughing in 2015 before tightening in 2016 due to new liquefaction projects.
Operational Highlights:
- FSRU Contracts: Concluded a 10-year FSRU time charter with Jordan (Golar Eskimo) and a 5-year contract with Kuwait (Golar Igloo). These assets are expected to be dropped down to Golar Partners, increasing distributions.
- Newbuild Deliveries: Took delivery of Golar Seal and Golar Celsius in October 2013. Both are currently waiting for cargo.
- Dividend Policy: The Board maintained the quarterly dividend at $0.45, citing stress tests that confirm the ability to pay without new equity even in a weak market scenario.
Risks and Contingencies:
- Utilization Risk: Q4 results are expected to be worse than Q3 due to commercial waiting times for spot vessels and the drydocking of Golar Arctic.
- Project Delays: The Chilean FSRU project faces indeterminate delays, potentially pushing start-up beyond 2015. The Douglas Channel FLNG project faces uncertainty due to the insolvency of a partner (LNG Partners).
- Market Volatility: Exposure to spot market rates and commercial utilization levels for newbuildings entering the market.
Investor Verification Checklist
- Deconsolidated Performance: Verify the sustainability of the deconsolidated operating loss and the reliance on dividend income from Golar Partners for net income.
- Financing Completion: Confirm the finalization of the financing commitment for the remaining four unfinanced newbuildings with ICBC Financial Leasing.
- FSRU Dropdowns: Monitor the timeline for dropping the Jordan and Kuwait FSRUs into Golar Partners to realize the expected increase in distributions and IDR value.
- Q4 Utilization: Track the employment status of the Golar Viking, Golar Gimi, and newly delivered vessels (Seal, Celsius) to assess the severity of the projected Q4 revenue decline.
- FLNG Progress: Review updates on the Douglas Channel project and the resolution of commercial issues following the LNG Partners insolvency.