Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter 2013 (Ended June 30, 2013)
Filing Date: August 29, 2013
Golar LNG Limited operates as a global provider of LNG shipping and storage solutions. Following the IPO of Golar LNG Partners (Golar Partners) in late 2012, the Company's financial results are presented on a deconsolidated basis, with the majority of the operating fleet now residing within the Partnership. The Company acts increasingly as a project development and asset management entity, focusing on newbuilds, FSRU (Floating Storage and Regasification Unit) projects, and FLNG (Floating Liquefaction) development.
Key Financial Metrics
| Metric | Q2 2013 (Deconsolidated) | Q1 2013 (Deconsolidated) | Q2 2013 (Group Wide*) |
|---|---|---|---|
| Net Income | $59.0 million | $85.6 million | N/A |
| Operating Income | ($0.5 million) Loss | $75.9 million | $44.4 million |
| EBITDA | $8.2 million | N/A | N/A |
| Total Revenues | $27.9 million | $35.1 million | $103.8 million |
| Dividend Income (Partnership) | $6.9 million (Reported) | $8.2 million (Reported) | N/A |
| Total Underlying Dividends Received | $16.0 million | $14.4 million | N/A |
| Cash and Equivalents | $191.5 million | $374.0 million | N/A |
| Long-Term Debt | $403.6 million | $490.5 million | N/A |
*Group Wide results include the consolidation of Golar Partners for operational comparison purposes only.
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased to $59.0 million from $85.6 million in Q1 2013. The Q1 figure included a significant one-time gain of $65.2 million on the disposal of the vessel Golar Maria to Golar Partners, which is not present in Q2.
- Operating Loss: Deconsolidated operating results shifted from a $75.9 million profit in Q1 to a $0.5 million loss in Q2. This is primarily due to the absence of the asset sale gain and reduced revenue from the dropdown of Golar Maria and commercial idle days on Golar Viking.
- Revenue Decrease: Deconsolidated operating revenue fell to $27.9 million from $35.1 million. Group-wide revenue also declined to $103.8 million from $108.9 million due to drydockings (Golar Winter, Methane Princess) and idle time.
- Dividend Growth: Underlying cash dividends received from Golar Partners increased to $16.0 million from $14.4 million in the prior quarter.
- Non-Cash Gains: Q2 net income included a $47.9 million non-cash gain on interest rate swaps related to the newbuilding program.
Guidance, Outlook, and Management Commentary
Strategic Developments
- Financing: Secured a $1.1 billion financing facility for eight of its thirteen newbuilds. The facility includes a 95% K-Sure guarantee and KEXIM funding, with an all-in interest cost of approximately 3.74% for the first seven years.
- FSRU Contracts:
- Jordan: Concluded a 10-year time charter for Golar Eskimo with the Hashemite Kingdom of Jordan. Expected to generate ~$46 million annual EBITDA for the first five years.
- Kuwait: Executed a 5-year contract for Golar Igloo with Kuwait National Petroleum Company. Total contract value is approximately $213 million.
- Project Pipeline: The Douglas Channel FLNG project FEED study is nearing completion; a final investment decision is expected in Q3/Q4 2013. The Chile FSRU project remains subject to delays.
Outlook and Risks
- Cash Flow Volatility: Management notes that Q3 and Q4 operating results will be negatively influenced by spot market volatility and commercial waiting times for vessels like Golar Viking.
- Market Conditions: The spot market remains volatile and inefficient. While supply/demand fundamentals are strong, an estimated 35 speculative orders due for delivery in the next two years may temporarily exceed demand.
- Dividend Policy: The Board maintains the quarterly dividend at $0.45 per share, citing confidence in the company's financing position and future cash generation from dropdowns.
- Future Earnings: Deconsolidated earnings are expected to remain challenged until newbuild vessels begin contributing in Q4 2013. Long-term success depends on developing assets and dropping them into Golar Partners.
Investor Verification Checklist
- Non-Cash Income Impact: Verify the extent to which Q2 net income ($59.0M) is driven by the $47.9M non-cash gain on interest rate swaps versus operational cash flow.
- Deconsolidated Operating Loss: Review the sustainability of the deconsolidated operating loss ($0.5M) and the timeline for newbuild vessels to offset these costs.
- Financing Terms: Confirm the specific covenants and repayment schedules of the new $1.1 billion facility and the status of financing for the remaining five newbuilds.
- FSRU Dropdown Timing: Monitor the execution of the planned dropdown of Golar Igloo and Golar Eskimo to Golar Partners to realize the projected EBITDA and cash benefits.
- FLNG Project Viability: Assess the final results of the Douglas Channel FEED study and the associated capital cost estimates before the final investment decision.