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, 2011
Filing Date: February 22, 2012
Business Overview: Golar LNG is an independent LNG shipping company operating two primary segments: Vessel Operations (chartering LNG carriers and FSRUs) and LNG Trading. The company focuses on securing long-term charters and expanding its fleet through newbuildings and reactivations.
Key Financial Metrics
| Metric | Q4 2011 | Q3 2011 | Full Year 2011 | Full Year 2010 |
|---|---|---|---|---|
| Operating Revenues | $80.6 million | $77.8 million | $299.9 million | $244.0 million |
| Operating Income | $33.8 million | $45.5 million | $121.0 million | $60.2 million |
| Net Income (Consolidated) | $27.0 million | $21.1 million | $68.3 million | $(5.4) million |
| Net Income (Attributable to Golar) | $17.2 million | $13.7 million | $46.7 million | $0.4 million |
| Operating Cash Flow | $18.4 million | $72.0 million | $116.6 million | $51.7 million |
| Long-Term Debt | $627.2 million | N/A | $771.5 million (Total) | $797.2 million (Total) |
| Cash & Equivalents | $66.9 million | $115.4 million | $66.9 million | $164.7 million |
| Dividend per Share | $0.325 | $0.300 (Implied) | N/A | N/A |
Operational Metrics:
- Vessel Utilization: 100% (Q4 2011) vs. 99% (Q3 2011).
- Average Daily TCE: $86,521 (Q4 2011) vs. $91,614 (Q3 2011).
- Spot Rates: Increased from $110,000/day to $135,000/day by end of Q4.
Material Changes vs. Prior Period
- Revenue Growth: Q4 revenues increased 3.6% sequentially due to the full quarter contribution of the vessel Gimi. Full-year 2011 revenues rose 23% compared to 2010.
- Profitability Surge: Full-year 2011 net income attributable to Golar ($46.7 million) represents a massive turnaround from a net income of $0.4 million in 2010. This was driven by higher operating income and a significant reduction in mark-to-market losses on financial instruments.
- Cost Increases: Q4 operating costs rose to $17.6 million from $15.0 million in Q3, primarily due to a $3.5 million reactivation cost for the Gimi.
- Financial Items: Other financial items improved from a $20.0 million loss in Q3 to a negligible $0.05 million loss in Q4, attributed to the reversal of mark-to-market losses on interest rate swaps.
- Debt Structure: The company extended its revolving credit facility with World Shipholding from $80 million to $250 million to finance newbuilding installments.
Guidance, Outlook, and Strategic Developments
Management Commentary and Outlook
Management expresses a positive outlook, citing a tightening LNG shipping market and a structural deficit in carrier supply for 2012-2014. The Board expects Q1 2012 EBITDA to be in line with Q4 2011 (excluding reactivation costs). EBITDA is projected to grow by more than 40% in Q2 2012 following the commencement of charters for Grand, Arctic, and revenue contributions from reactivated vessels Hilli, Gandria, and Khannur.
Key Strategic Actions
- Newbuildings: Signed firm contracts for two LNG carriers with Hyundai (delivery 2014) at a total price of ~$400 million. Fixed-price options exist for two additional carriers. Total order book now includes nine LNG carriers and two FSRUs.
- Charter Wins: Secured a three-year charter for Golar Arctic with a major Japanese trading company, expected to contribute $45 million in annualized EBITDA starting Q2 2012.
- Asset Reactivation:
- Hilli: Reactivation project underway; expected to generate income in Q2 2012. Cost estimated at $20 million.
- Gandria: Acquired remaining 50% interest for $19.5 million; reactivation underway for Q2 2012 contribution.
- Gimi: Successfully reactivated and fully utilized in Q4.
- Divestiture: Completed the first "dropdown" of the FSRU Golar Freeze to Golar LNG Partners L.P. for $330 million (including debt assumption).
- Dividends: Proposed increased quarterly cash dividend of $0.325 per share.
Risks and Contingencies
- Market Risks: Potential decline in LNG carrier rates, changes in demand due to political events or nuclear restarts in Japan, and global financial market turmoil.
- Operational Risks: Inability to secure financing for newbuildings, shipyard delivery delays, and rising operational costs (crew, insurance, maintenance).
- Regulatory Risks: Changes in regulations affecting LNG carriers or port access.
Investor Verification Checklist
- Reactivation Costs: Verify the actual costs and timeline for the reactivation of Hilli ($20M estimated) and Gandria to ensure they align with Q2 2012 revenue expectations.
- Newbuilding Financing: Confirm the terms and availability of the extended $250 million credit facility and the ability to finance the remaining $1.6 billion in newbuilding installments.
- Charter Execution: Monitor the execution of the Golar Arctic charter and the securing of charters for the remaining open newbuild positions.
- Market Rates: Track spot and time charter rates to validate the management's assumption of a structural supply deficit and sustained high rates through 2014.
- Dividend Sustainability: Assess the cash flow impact of the increased dividend ($0.325/share) against the capital expenditure requirements for the expanding fleet.