Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: First Quarter ended March 31, 2012
Filing Date: May 30, 2012
Business Overview: Golar owns and operates LNG carriers and Floating Storage and Regasification Units (FSRUs), providing time charter services and LNG trading. The company operates in two segments: Vessel Operations and LNG Trading.
Key Financial Metrics
| Metric | Q1 2012 | Q4 2011 | Q1 2011 |
|---|---|---|---|
| Operating Revenues | $83.1 million | $80.6 million | $67.5 million |
| Operating Income | $27.8 million | $33.8 million | $20.4 million |
| Net Income (Consolidated) | $24.3 million | $27.0 million | $13.8 million |
| Net Income (Attributable to Golar) | $15.2 million | $17.2 million | $16.3 million |
| Earnings Per Share (Basic/Diluted) | $0.19 | $0.21 | $0.24 |
| Operating Cash Flow | $7.8 million | $18.4 million | $24.3 million |
| Cash and Cash Equivalents | $107.9 million | $66.9 million | N/A |
| Total Debt (Long-term + Current) | $903.8 million | $691.5 million | N/A |
| Capital Lease Obligations | $412.4 million | $405.8 million | N/A |
Key Operational Metrics:
- Vessel Utilization: Effectively 100%.
- TCE (Time Charter Equivalent): $90,464 per day (up from $86,521 in Q4 2011).
- Dividend: Increased to $0.35 per share per quarter.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 3.1% quarter-over-quarter (Q4 2011 to Q1 2012) and 23.1% year-over-year (Q1 2011 to Q1 2012). Growth was driven by the full quarter contribution of the vessel Gimi and new charters for Golar Grand and Golar Arctic.
- Operating Costs: Vessel operating expenses rose to $27.9 million from $17.6 million in Q4 2011. This increase is primarily due to expensed reactivation costs for vessels Hilli and Gandria, which are deemed repairs and not capitalizable. Management expects costs to normalize in Q2 2012.
- Non-Operating Gains: The company recorded a $4.1 million gain on the acquisition of the remaining 50% interest in Bluewater Gandria (owner of Gandria). This included a $2.4 million gain on remeasurement of the existing interest and a $1.7 million bargain purchase gain.
- Financing: Net interest expense increased slightly to $6.1 million due to the March 2012 issuance of $250 million in convertible bonds. Other financial items resulted in a $2.6 million loss, largely due to currency swap valuations.
Guidance, Outlook, and Management Commentary
- Q2 2012 Outlook: Management expects operating income (after depreciation) to increase by more than 100% compared to Q1 2012, driven by reduced operating costs and increased revenue from new charters.
- Market Conditions: The LNG shipping market is expected to remain structurally tight through the middle of the decade. While short-term rates faced downward pressure due to seasonal trends, long-term charter rates remain high. The company anticipates strong demand from Japan (due to nuclear capacity reductions) and South America.
- Fleet Expansion: Golar has expanded its newbuilding order book to 13 vessels (11 LNG carriers and 2 FSRUs). Recent orders include four additional carriers, bringing the total contract cost to approximately $2.7 billion.
- Strategic Initiatives:
- FSRU Business: The conversion of Nusantara Regas Satu was completed and delivered in May 2012. Golar remains the only company to have delivered operational FSRU projects based on LNG carrier conversions.
- Dividend Policy: The Board increased the quarterly cash dividend to $0.35 per share, supported by new long-term charters.
- Share Repurchase: Approved a program to repurchase up to 10% of outstanding stock at a maximum price of $45 per share, expiring December 31, 2013.
- Delisting: The company plans to delist from the Oslo Stock Exchange to consolidate trading in the US, pending shareholder approval at a meeting on June 18, 2012.
- Risks: Key risks include inability to secure financing for newbuilds, declines in LNG carrier rates, political events affecting production/demand, and regulatory changes. Forward-looking statements are subject to uncertainties regarding project approvals and market conditions.
Investor Verification Checklist
- Reactivation Costs: Verify the normalization of operating expenses in Q2 2012 following the one-time reactivation costs for Hilli and Gandria.
- Convertible Bond Impact: Monitor the accretion of the $250 million convertible bond liability and its effect on future interest expenses and potential dilution.
- FSRU Project Pipeline: Track the progress of FSRU projects currently in the shortlist or nearing Final Investment Decision (FID), as this is a key growth driver.
- Delisting Approval: Confirm shareholder approval for the delisting from the Oslo Stock Exchange at the June 18, 2012 meeting.
- Customer Concentration: Note that four major customers (Petrobras, DUSUP, Qatar Gas Transport, Pertamina) accounted for approximately 67% of Q1 2012 revenues.
- Newbuilding Deliveries: Monitor the delivery schedule and chartering status of the 13-vessel order book, particularly the 2014-2015 deliveries.