Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter ended June 30, 2010 (Interim Results)
Filing Date: August 27, 2010
Golar LNG Limited operates in the LNG shipping and regasification sectors. The period was characterized by a weak spot LNG shipping market in Q2, though conditions tightened toward the quarter's end. Key operational milestones included the delivery of the Golar Freeze FSRU under a time charter and the launch of Golar Commodities, a new trading subsidiary.
Key Financial Metrics
| Metric (in thousands, except per share) | Q2 2010 | Q1 2010 | YTD 6mo 2010 | YTD 6mo 2009 |
|---|---|---|---|---|
| Operating Revenues | $55,668 | $53,335 | $109,003 | $100,678 |
| Operating Income | $13,040 | $10,651 | $23,691 | $8,567 |
| Net Loss (Attributable to Golar) | $(5,710) | $(2,752) | $(8,462) | $6,750 (Income) |
| Basic EPS (Loss) | $(0.08) | $(0.04) | $(0.12) | $0.10 |
| Net Cash from Operating Activities | $3,763 | $(1,376) | $2,387 | $23,418 |
| Cash and Cash Equivalents (End of Period) | $135,360 | $82,119 | $135,360 | $58,412 |
| Total Debt (Long-term + Current) | $834,643 | $768,701 | $834,643 | $782,226 |
| Utilization Rate | 62% | 65% | N/A | N/A |
| Avg. Daily TCE | $47,332 | $47,084 | N/A | N/A |
Material Changes vs. Prior Period
- Profitability: The Company reported a net loss of $5.7 million for Q2 2010, compared to a loss of $2.8 million in Q1 2010. On a year-to-date basis, Golar reported a net loss of $8.5 million, reversing the $6.8 million net income reported for the same period in 2009.
- Revenue Growth: Q2 revenues increased to $55.7 million from $53.3 million in Q1, driven by the Golar Freeze charter, partially offset by weaker spot market performance.
- Expenses: Net interest expense rose to $10.5 million in Q2 from $9.7 million in Q1 due to higher LIBOR rates and increased debt levels from the Golar Freeze refinancing. "Other financial items" increased to a loss of $8.0 million (from $4.9 million in Q1) primarily due to mark-to-market losses on interest rate swaps.
- Debt Structure: Total long-term debt increased to $834.6 million (from $782.2 million at year-end 2009) following a $125 million refinancing of the Golar Freeze.
Guidance, Outlook, and Management Commentary
- Dividend Policy: The Board proposed an increased cash dividend of $0.15 per share for Q2 2010 (up from previous levels) and a stock dividend of one Golar LNG Energy share for every seven Golar shares held. Management targets a normalized dividend of $0.25 per share for Q3 2010.
- Market Outlook: Management anticipates an improved shipping market over the next 12-18 months as global gas demand recovers from the recession and the LNG carrier order book remains low (approx. 3% of the total fleet). Spot market rates are expected to rise as vessel availability tightens.
- Operational Strategy:
- Golar Commodities: The new trading subsidiary executed its first trade in August and expects increased activity from September.
- FSRU Projects: Golar is shortlisted for the West Java FSRU bid in Indonesia and is tracking opportunities in Sumatra and Uruguay.
- Management Consolidation: A joint venture with Wilhelmsen Ship Management (GWM) is taking over fleet management to improve operational control.
- Risks: Key risks include prolonged weakness in LNG carrier rates, inability to secure financing for new vessels, political instability in production/demand regions, and regulatory changes affecting port access.
Investor Verification Checklist
- Dividend Sustainability: Verify the cash flow generation from the five long-term contracted vessels to support the targeted $0.25 per share dividend in Q3.
- Derivative Exposure: Review the impact of interest rate swaps on future earnings, given the $8.0 million loss in Q2 due to mark-to-market valuation.
- FSRU Project Wins: Monitor the outcome of the West Java tender and the progress of the Sumatra and Uruguay projects for future revenue streams.
- Spot Market Recovery: Assess the actual utilization rates and TCEs in Q3 and Q4 to confirm management's forecast of market tightening.
- Debt Servicing: Confirm the terms of the new $125 million Golar Freeze facility and its impact on future interest expense.