Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: First Quarter ended March 31, 2013
Key Context: The Company has deconsolidated Golar LNG Partners L.P. ("Golar Partners") effective December 13, 2012. Consequently, Q1 2013 results are presented on a non-consolidated basis, with Golar Partners' results recorded as equity in net earnings or dividend income. This filing includes a press release dated May 30, 2013, detailing interim results and subsequent events.
Key Financial Metrics
| Metric | Q1 2013 (Unaudited) | Q4 2012 (Unaudited) |
|---|---|---|
| Operating Income | $75.9 million | $46.8 million |
| Net Income | $85.6 million | $887.7 million |
| Operating Revenues | $35.1 million | $99.2 million |
| Net Revenue (Revenues less Voyage/Commission) | $33.4 million | $105.5 million (Consolidated basis) |
| Operating Expenses | $24.4 million | $52.4 million |
| Net Financial Expenses | ($1.8 million) | ($10.2 million) |
| Cash and Cash Equivalents (End of Period) | $374.0 million | $424.7 million |
| Total Debt (Current + Long-term) | $414.2 million | $504.9 million |
| Dividend Declared | $0.45 per share | $0.425 per share |
Note: Q4 2012 Net Income included a one-time $854.0 million gain on loss of control of Golar Partners. Q1 2013 Operating Income includes a $65.2 million gain on the sale of the Golar Maria to Golar Partners.
Material Changes vs. Prior Period
- Deconsolidation Impact: The most significant change is the removal of Golar Partners' operating results from the consolidated income statement. Revenues and expenses dropped significantly compared to Q4 2012 due to this accounting change, not necessarily a decline in underlying business volume.
- Gain on Sale: Operating income was boosted by a $65.2 million gain from the sale of the LNG carrier Golar Maria to Golar Partners for $215 million. This transaction is recorded at fair value rather than as an equity transfer.
- Operating Performance: On a consolidated basis (including Golar Partners), Net Revenue decreased slightly to $105.5 million from $107.5 million in Q4 2012, primarily due to the Golar Spirit drydocking. However, Time Charter Equivalent (TCE) improved to $94,748/day from $91,479/day.
- Cost Reduction: Operating costs decreased to $21.6 million (consolidated basis) from $23.8 million in the prior quarter, driven by lower crew build-up costs and administrative expenses.
- Layup Strategy: Two older vessels, Hilli and Gandria, entered layup in Indonesia to mitigate operating costs and redeploy crew to newbuilds, impacting revenue generation for these specific assets.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Short-Term: The Board anticipates results for subsequent quarters through August 2013 will be generally in line with Q1 2013, accounting for planned drydockings. Earnings are expected to increase upon the delivery of newbuild vessels starting in August 2013.
- Long-Term: Management anticipates material volatility in LNG shipping rates starting in 2014 due to a large influx of newbuilding deliveries. The Company plans to contract its fleet into a mix of short, medium, and long-term fixtures.
- Dividend: The Board declared an increased quarterly dividend of $0.45, reflecting confidence in long-term fundamentals and the ability to fund cash requirements without raising new equity for the newbuilding program.
- Strategic Expansion: Golar is pursuing a Floating Liquefaction (FLNG) strategy, including a 25% stake in the Douglas Channel LNG Project (FID expected Q3 2013) and plans to launch a separate liquefaction subsidiary in H2 2013.
Risks and Contingencies
- Market Volatility: Significant uncertainty regarding LNG shipping rates and demand, particularly with the re-balancing of the market in 2014-2016.
- Project Execution: Risks associated with the Douglas Channel Project and other FLNG opportunities, including permitting, EPC contracts, and securing financing.
- Operational Risks: Potential for force majeure events affecting production (e.g., Nigeria, Norway) and the ability to secure follow-on charters for vessels like the Golar Gimi (charter ends June 14, 2013).
- Financing: Reliance on securing favorable financing terms for newbuild vessels; the Company intends not to raise new equity for this purpose.
Investor Verification Checklist
- Deconsolidation Accounting: Verify the impact of the $65.2 million gain on the Golar Maria sale on operating income and understand the new reporting structure for Golar Partners distributions.
- Cash Flow Sustainability: Confirm that the $374 million cash balance is sufficient to cover newbuild pre-delivery instalments and operating costs without equity dilution, as management claims.
- Charter Book Status: Investigate the status of the Golar Gimi (charter ending June 2013) and the Golar Viking (transitioning charters) to assess near-term revenue stability.
- FLNG Project Viability: Assess the progress of the Douglas Channel LNG Project and the likelihood of reaching Final Investment Decision (FID) in Q3 2013.
- Debt Maturity Profile: Review the maturity schedule of the $414 million total debt to ensure liquidity coverage aligns with the newbuild delivery schedule.