Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2012
Business Overview: Golar LNG is a global provider of LNG shipping and regasification services. The company operates a fleet of LNG carriers and Floating Storage and Regasification Units (FSRUs). A significant portion of its assets are held by its subsidiary, Golar LNG Partners LP ("Golar Partners"). The company is currently assessing whether to de-consolidate Golar Partners from its financial statements effective December 13, 2012, which could materially alter reported net income and balance sheet figures.
Key Financial Metrics
| Metric (in millions) | Q4 2012 | Q3 2012 | Full Year 2012 | Full Year 2011 |
|---|---|---|---|---|
| Operating Revenues | $111.8 | $121.1 | $423.0 | $299.8 |
| Operating Income | $52.9 | $70.2 | $208.8 | $121.0 |
| Net Income (Consolidated) | $36.5 | $57.5 | $163.2 | $68.3 |
| Net Income (Attributable to Golar) | $22.8 | $44.7 | $118.2 | $46.7 |
| Operating Cash Flow | $81.9 | $68.8 | $238.3 | $116.6 |
| Cash and Equivalents (End of Period) | $491.0 | $118.5 | $491.0 | $66.9 |
| Total Debt (Current + Long-term) | $1,209.4 | N/A | $1,209.4 | $691.5 |
| Time Charter Equivalent (TCE) | $91,479/day | $98,473/day | N/A | N/A |
Note: Total Debt includes current portion of long-term debt ($79.2M), long-term debt ($1,130.2M), and capital lease obligations ($412.4M).
Material Changes vs. Prior Period
- Revenue Decline: Q4 revenues decreased 7.7% from Q3 ($111.8M vs. $121.1M). This was primarily driven by nearly two months of commercial waiting time for the vessel Golar Maria and the scheduled dry-docking of Golar Spirit.
- Cost Increases: Operating costs rose to $23.8M in Q4 from $19.4M in Q3 due to expanding the crewing pool for upcoming newbuild deliveries. Administrative costs increased to $6.8M from $4.9M, largely due to Front End Engineering and Design (FEED) studies for Floating LNG (FLNG) projects.
- Interest Expense: Net interest expense increased to $9.9M in Q4 from $7.7M in Q3, attributed to the issuance of a $227M high-yield bond by Golar Partners to refinance vendor financing.
- Liquidity Improvement: Cash and cash equivalents surged to $491.0M at year-end 2012 from $66.9M in 2011, bolstered by equity offerings and asset sales.
Guidance, Outlook, and Management Commentary
- De-consolidation Risk: Management is assessing the de-consolidation of Golar Partners. If de-consolidated, Golar LNG would likely report significantly higher net income due to gains on asset sales and revaluation, though the balance sheet would change to reflect an investment rather than consolidated assets/debt.
- Q1 2013 Outlook: Operating results are expected to be negatively impacted in Q1 2013 due to the continued dry-docking of Golar Spirit (approx. 8 weeks) and the upcoming dry-docking of Golar Winter (approx. 6 weeks). Consolidated results are expected to improve from Q4 2012 to Q1 2013 and remain flat through Q2 and Q3 2013.
- Dividends: An accelerated dividend of $0.425 per share was paid in December 2012. The Board expects a minimum dividend of $0.445 per share for Q1 2013.
- Strategic Initiatives:
- FLNG: Progressing FEED study for conversion of Moss vessels into Floating LNG production units; targeting completion mid-2013.
- FSRU: Selected as preferred bidder for the Jordan FSRU project; negotiations to commence in Q1 2013.
- Newbuildings: 13 new vessels are in the pipeline. Management anticipates no new equity is needed to fund these, relying instead on debt markets and dropdowns to Golar Partners.
- Risks: Short-term volatility in charter rates due to production delays and market rebalancing. Execution risks associated with FLNG projects and potential inability to secure financing for newbuilds on favorable terms.
Key Facts for Investor Verification
- Consolidation Status: Verify the final decision on whether Golar Partners will be de-consolidated, as this will fundamentally change the interpretation of future earnings and balance sheet leverage.
- Asset Sales: Confirm the $215M sale of Golar Maria to Golar Partners and the utilization of proceeds for the newbuilding program.
- Debt Refinancing: Note the successful refinancing of vendor financing for the Freeze and NR Satu assets with institutional debt, reducing reliance on internal vendor loans.
- Market Volatility: Monitor spot LNG rates and production outages (e.g., Nigeria, Yemen, Egypt) which are currently creating short-term shipping surpluses and rate pressure.
- FLNG Feasibility: Track the completion of the FEED study and the ability to secure firm off-take agreements for floating production projects, which carry significant execution risk.