Business Context and Reporting Period
Company: Golar LNG Limited (Bermuda-incorporated)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: Golar is a mid-stream LNG company engaged in the transportation, regasification, and liquefaction of LNG. As of the reporting date, the company operated a fleet of 13 LNG carriers and a 50% equity interest in a 14th vessel. The company is transitioning its business model by converting existing LNG carriers into Floating Storage Regasification Units (FSRUs) for long-term charters with major energy companies such as Petrobras and DUSUP.
Key Financial Metrics (Year Ended Dec 31, 2008)
| Metric | 2008 (in thousands) | 2007 (in thousands) |
|---|---|---|
| Total Operating Revenues | $228,779 | $224,674 |
| Net (Loss) Income | $(9,989) | $136,204 |
| Operating Income | $132,393 | $120,860 |
| Adjusted EBITDA | $191,922 | $268,207 |
| Net Cash Provided by Operating Activities | $48,495 | $73,055 |
| Total Assets | $2,359,729 | $2,573,610 |
| Total Debt & Capital Lease Obligations | $1,590,047 | $1,819,752 |
| Cash and Cash Equivalents | $56,114 | $185,739 |
| Stockholders' Equity | $452,145 | $552,532 |
Note: Debt figures include current and long-term portions of debt and capital lease obligations.
Material Changes vs. Prior Period
- Net Loss vs. Profit: The company reported a net loss of $10.0 million in 2008, a significant decline from a net income of $136.2 million in 2007. This reversal was primarily driven by the absence of one-time gains from the sale of investments (Korea Line) and newbuildings that occurred in 2007, combined with increased financial expenses.
- Financial Expenses: Net financial expenses increased to $132.8 million in 2008 from $65.6 million in 2007. This increase was largely due to mark-to-market losses on interest rate swap derivatives ($30.5 million) and foreign currency derivatives ($60.5 million), as well as fixed-rate debt settlement costs of $9.0 million.
- Operating Performance: Operating income increased to $132.4 million from $120.9 million. This was supported by a $78.1 million gain on the sale of the vessel Golar Frost and the commencement of the Golar Spirit FSRU charter. However, average daily Time Charter Equivalent (TCE) earnings declined to $45,700 from $51,000 due to lower spot rates and commercial waiting time.
- Liquidity: Cash and cash equivalents decreased significantly to $56.1 million from $185.7 million, reflecting dividend payments of $67.4 million and net cash used in investing and financing activities.
Guidance, Outlook, and Risks
- Dividend Suspension: In February 2009, the Board suspended the declaration and payment of dividends to preserve cash flow and strengthen the balance sheet for near-term project opportunities.
- FSRU Conversions: The company is heavily invested in converting vessels to FSRUs. The Golar Spirit and Golar Winter are operational or commencing charters with Petrobras. The Golar Freeze conversion is expected to be completed in Q2 2010 for a charter with DUSUP. Delays or cost overruns in these conversions pose a material risk to cash flows.
- Market Risks: The company faces risks from the global financial crisis, including credit market tightening and potential customer defaults. There is also significant exposure to fluctuations in charter rates, particularly for vessels trading in the spot market or under variable-rate charters with Shell.
- Debt Covenants: The company is subject to strict financial covenants in its loan and lease agreements. While compliant as of March 31, 2009, a deterioration in economic conditions could impair the ability to meet these ratios, potentially triggering defaults.
- Corporate Restructuring: The company intends to restructure by creating a new subsidiary to hold assets not under long-term contracts, potentially raising new equity which would dilute existing shareholders.
Key Facts for Investor Verification
- Customer Concentration: In 2008, 86.3% of revenues came from three customers: BG Group (32.8%), Shell (37.3%), and Pertamina (16.2%). The loss of any single major customer would materially impact cash flow.
- Derivative Exposure: Verify the current fair value and mark-to-market impact of the company's extensive portfolio of interest rate, currency, and equity swaps, which caused significant non-cash losses in 2008.
- FSRU Project Status: Confirm the progress and cost status of the Golar Freeze conversion and the successful performance testing of the Golar Winter to ensure the commencement of the 10-year DUSUP and Petrobras charters.
- Liquidity Position: Assess the sufficiency of the $80 million revolving credit facility with World Shipholding (secured by the Chairman) to fund the remaining FSRU conversion costs and working capital needs given the suspension of dividends.
- Debt Maturity Profile: Review the repayment schedule for the $808.6 million in long-term debt and $790.4 million in capital lease obligations to evaluate refinancing risks in a tight credit market.