Business Context and Reporting Period
This Form 6-K filing by Golar LNG Limited, dated March 2, 2009, reports preliminary fourth-quarter and full-year 2008 results. Golar is a Bermuda-based company engaged in the shipping, trading, and regasification of liquefied natural gas (LNG). The reporting period covers the three months ended December 31, 2008, and the twelve months ended December 31, 2008.
Key Financial Metrics
| Metric | Q4 2008 | Q3 2008 | Full Year 2008 | Full Year 2007 |
|---|---|---|---|---|
| Operating Revenues | $59.5 million | $58.1 million | $228.8 million | $224.7 million |
| Operating Income | $13.9 million | $89.7 million | $132.4 million | $120.9 million |
| Net Income (Loss) | ($57.7 million) | $51.7 million | ($10.0 million) | $136.2 million |
| Other Financial Items | ($57.0 million) | ($23.1 million) | ($82.1 million) | ($8.2 million) |
| Net Interest Expense | $11.9 million | $11.4 million | N/A | N/A |
| Cash and Equivalents | $56.1 million | $88.9 million | N/A | N/A |
| Total Debt & Lease Obligations | ~$1.0 billion | N/A | N/A | N/A |
| Effective Debt Cost | ~4.5% | N/A | N/A | N/A |
Operational Metrics: Average vessel utilization increased to 84% in Q4 from 83% in Q3. Average daily time charter equivalent (TCE) rates improved to $46,407 in Q4 from $43,443 in Q3.
Material Changes vs. Prior Period
- Net Loss vs. Profit: The company reported a net loss of $57.7 million in Q4 2008, a significant reversal from the $51.7 million net income in Q3 2008. This was driven primarily by a $57 million loss in "Other Financial Items."
- Non-Cash Accounting Losses: The Q4 financial loss includes $23.4 million in non-cash interest rate swap valuation losses and $12.8 million in foreign currency exchange losses due to the strengthening US dollar and falling long-term interest rates.
- Full Year Comparison: For the full year 2008, net income turned to a loss of $10 million compared to $136.2 million in 2007. This decrease is attributed to a $36 million reduction in gains on asset sales and a $74 million increase in other financial items losses.
- Dividend Suspension: The Board suspended dividend payments for at least the next two quarters to strengthen the balance sheet, a change from previous dividend policies.
Guidance, Outlook, and Management Commentary
- Market Outlook: Management anticipates a difficult trading environment for spot vessels in the first half of 2009 due to global economic downturns and a surplus of shipping capacity. Improvement is expected in the second half of 2009 as new LNG production capacity comes online.
- Strategic Shift: The company is diversifying into Floating Storage and Regasification Units (FSRUs) and liquefaction to create a more robust revenue profile. The FSRU Golar Spirit has entered service, and Golar Winter is scheduled for delivery in Q2 2009.
- New Projects: Golar signed a Heads of Agreement for a 40% equity participation in the Gladstone LNG project in Australia, with a target first production date of 2012. Discussions are ongoing for Floating LNG (FLNG) projects with PTTEP.
- Liquidity and Financing: The company successfully drew down on a new $285 million revolving credit facility. Approximately 67% of debt is swapped to a fixed rate. The Board remains confident in refinancing the remaining $80 million capital commitment for the Golar Freeze project.
- Risks: Key risks include the inability to obtain financing for new vessels, prolonged weakness in LNG carrier rates, and the impact of global financial market turmoil.
Investor Verification Checklist
- Verify the sustainability of the $57 million non-cash loss in "Other Financial Items" and its impact on future earnings volatility.
- Confirm the status of refinancing for the Golar Freeze FSRU project ($80 million commitment) given current credit market conditions.
- Monitor the actual utilization rates and TCEs for spot vessels in Q1 2009 against the management's expectation of a "difficult trading environment."
- Assess the progress of the Gladstone LNG project toward a final investment decision and financial close expected in late 2009.
- Review the timeline for the delivery and commissioning of the Golar Winter FSRU scheduled for Q2 2009.