Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: First Quarter 2010 (Ended March 31, 2010)
Filing Date: June 02, 2010
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). The quarter was characterized by a weak spot market for LNG shipping, offset by the commencement of long-term charters for its FSRU fleet.
Key Financial Metrics
| Metric | Q1 2010 | Q4 2009 | Q1 2009 |
|---|---|---|---|
| Operating Revenues | $53.3 million | $65.5 million | $53.9 million |
| Operating Income | $10.7 million | $19.2 million | $6.6 million |
| Net Loss (Attributable to Golar) | $(2.8) million | $17.4 million (Income) | $(5.1) million |
| EPS (Basic) | $(0.04) | $0.26 | $(0.08) |
| Operating Cash Flow | $(1.4) million | $22.2 million | N/A |
| Cash and Equivalents | $82.1 million | $122.2 million | N/A |
| Total Debt (Long-term + Current) | $768.7 million | $782.2 million | N/A |
| Capital Lease Obligations | $782.4 million | $852.9 million | N/A |
| Utilization Rate | 65% | 93% | N/A |
| Avg. Daily TCE | $47,084 | $62,471 | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 18.6% from Q4 2009 ($65.5M) to Q1 2010 ($53.3M) due to a severe downturn in the spot market.
- Utilization Drop: Fleet utilization fell from 93% in Q4 2009 to 65% in Q1 2010, driven by weak demand and an oversupply of tonnage.
- Expense Shifts: Voyage expenses increased to $10.6M (from $7.2M) due to lower utilization and higher fuel costs for positioning spot vessels. Conversely, vessel operating expenses decreased to $13.0M (from $14.9M).
- Financial Items: Other financial items swung from a $7.2M gain in Q4 2009 to a $4.9M loss in Q1 2010, primarily due to mark-to-market losses on interest rate swaps.
- Net Result: The company reported a net loss of $2.8M, contrasting with a net income of $17.4M in the prior quarter.
Outlook, Management Commentary, and Risks
Operational Highlights
- Golar Freeze: The FSRU was delivered under a time charter to Dubai Supply Authority (DUSUP) commencing May 16, 2010. Commissioning is expected in Q4 2010.
- Long-Term Charters: All five of Golar's long-term contracted vessels are now on hire, expected to generate $72M-$75M in annual free cash flow after debt service.
- New Ventures: Established "Golar Commodities" to manage and trade LNG cargoes, targeting full operations by September 2010. Formed a joint venture with Wilhelmsen Ship Management for technical management of the fleet.
- Dividends: Declared a cash dividend of $0.05 per share for Q1 2010, anticipating significant growth over the next 12 months as long-term charters mature.
Market Outlook
Management expects Q2 2010 results to be significantly negatively impacted by continued weak spot market performance. However, the outlook for the medium-to-long term is positive, with expectations of market tightening within 12-18 months due to slowing fleet growth and rising demand in emerging markets.
Risks and Contingencies
- Spot Market Volatility: Continued oversupply of tonnage and weak demand may depress charter rates and utilization in the short term.
- Financing: Risk of inability to obtain financing for new vessels on favorable terms.
- Regulatory/Political: Changes in regulations or political events affecting LNG production and delivery regions.
- Project Termination: Agreements for the Gladstone LNG Fisherman's Landing project were terminated following a takeover proposal of the gas supplier by Shell and PetroChina.
Investor Verification Checklist
- Dividend Sustainability: Verify the timing and magnitude of anticipated dividend growth against the cash flow generation from the five long-term charters.
- Spot Market Recovery: Monitor spot charter rates and utilization trends to assess the timeline for the predicted market tightening (12-18 months).
- Golar Freeze Milestones: Track the commissioning and testing schedule for the Golar Freeze FSRU in Dubai, targeted for Q4 2010.
- Debt Refinancing: Confirm the conclusion of the refinancing facility for the Golar Freeze, expected in June 2010.
- New Trading Venture: Evaluate the operational readiness and initial performance of the new "Golar Commodities" subsidiary by September 2010.