GLNG

Business Context and Reporting Period

Company: Golar LNG Limited (Bermuda-incorporated, listed on NASDAQ and Oslo Stock Exchange)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Business Overview: Golar is a leading independent owner and operator of LNG carriers and Floating Storage and Regasification Units (FSRUs). As of December 31, 2009, the fleet consisted of 13 vessels (including a 50% equity interest in one) and three FSRUs. The company operates primarily under long-term time charters with major energy companies (BG Group, Shell, Pertamina, Petrobras) and spot market activities.

Key Financial Metrics (Year Ended Dec 31, 2009)

Note: 2008 results included a one-time gain of $78.1 million from the sale of the vessel Golar Frost, which significantly inflated 2008 operating income compared to 2009.

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues decreased by 5% ($12.3 million) compared to 2008. This was primarily due to the Golar Freeze entering the shipyard for FSRU conversion in September 2009 (earning only 5 months of revenue vs. a full year in 2008) and lower utilization/rates for spot market vessels.
• Return to Profitability: The company returned to net income ($23.1 million) from a net loss ($10.0 million) in 2008. The 2008 loss was driven by the absence of the $78.1 million vessel sale gain and significant mark-to-market losses on derivatives ($82.1 million net financial expense in 2008 vs. $1.7 million in 2009).
• Derivative Gains: Net financial expenses improved dramatically due to mark-to-market gains on interest rate swaps ($17.4 million) and equity swaps ($17.6 million) in 2009, reversing the losses seen in 2008.
• Dividend Suspension: In February 2009, the Board suspended cash dividends to strengthen the balance sheet for project opportunities. No cash dividends were paid in 2009, compared to $1.00 per share in 2008.
• Corporate Restructuring: In August 2009, the company formed a subsidiary, Golar LNG Energy Limited ("Golar Energy"), and completed a private placement raising approximately $115.4 million net of fees. Golar LNG retained assets with long-term secured employment, while Golar Energy acquired assets with less contract exposure.

Guidance, Outlook, and Risks

Outlook and Strategy:

• FSRU Expansion: The company is focused on converting vessels to FSRUs. The Golar Freeze conversion was expected to be delivered to DUSUP in May 2010 for a 10-year charter. The Golar Spirit and Golar Winter are already operating as FSRUs for Petrobras.
• Market Conditions: Management expects an oversupply of LNG carriers to continue into 2010, potentially depressing spot rates. However, long-term charters provide stable cash flow.
• Dividend Policy: The long-term objective is to pay regular dividends, but future payments depend on earnings, capital expenditure requirements, and the ability to refinance debt.

• Customer Concentration: 93.3% of 2009 revenue came from four customers (BG Group, Shell, Pertamina, Petrobras). Loss of any major charter would materially impact cash flow.
• FSRU Conversion Risks: Delays or cost overruns in converting the Golar Freeze could result in liquidated damages or charter termination.
• Debt Covenants: The company is subject to strict financial covenants (minimum cash, debt service coverage). Failure to comply could lead to debt acceleration and vessel loss.
• Interest Rate and Currency Risk: Significant exposure to floating interest rates (partially hedged) and foreign currency fluctuations (GBP, Euro, Brazilian Real), particularly regarding FSRU operating costs and lease obligations.
• Regulatory/Tax Risk: Potential challenges to U.K. tax lease structures or U.S. tax exemption status (Section 883) could increase tax liabilities.

Investor Verification Checklist

• FSRU Delivery Timeline: Verify the status of the Golar Freeze conversion and the expected May 2010 delivery date to DUSUP, as delays carry financial penalties.
• Charter Expirations: Review the expiration dates of key charters (e.g., Gimi and Khannur expiring in 2010) and the company's strategy for re-deployment or conversion.
• Debt Refinancing: Assess the company's ability to refinance maturing debt in the current credit market environment, specifically the $74.5 million due in 2010.
• Derivative Valuations: Monitor the mark-to-market volatility of interest rate and currency swaps, which significantly impacted net income in both 2008 and 2009.
• Dividend Resumption: Confirm the Board's timeline for resuming cash dividends, given the suspension in 2009 and the shift to a stock dividend in 2010.
• Customer Concentration: Evaluate the financial health of the top four charterers (BG, Shell, Pertamina, Petrobras) given the high revenue concentration.