Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter ended June 30, 2011 (Interim Results)
Filing Date: August 23, 2011
Business Overview: Golar LNG operates in two primary segments: Vessel Operations (chartering LNG carriers and FSRUs) and LNG Trading (physical and financial risk management). The company is currently expanding its fleet through newbuilding contracts and managing a significant order book.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 | YTD 6M 2011 | YTD 6M 2010 |
|---|---|---|---|---|
| Operating Revenues | $74.0 million | $55.7 million | $141.5 million | $109.0 million |
| Operating Income | $21.3 million | $13.0 million | $41.8 million | $23.7 million |
| Net Income (Loss) | $6.3 million | $(5.5) million | $20.1 million | $(9.6) million |
| Net Loss Attributable to Golar LNG | $(0.6) million | $(5.7) million | $15.7 million | $(8.5) million |
| EPS (Basic & Diluted) | $0.00 | $(0.08) | $0.20 | $(0.13) |
| Operating Cash Flow | $1.8 million | $3.9 million | $26.1 million | $4.8 million |
| Total Debt Outstanding | $781.3 million | N/A | N/A | N/A |
| Cash and Cash Equivalents | $148.9 million | N/A | N/A | N/A |
Key Operational Metrics:
- Vessel Utilization: 97% (Q2 2011) vs. 91% (Q1 2011).
- Average Daily TCE Rates: $91,666 (Q2 2011) vs. $80,694 (Q1 2011).
- Order Book: 8 LNG carriers and 1 newbuild FSRU.
Material Changes vs. Prior Period
- Revenue Growth: Q2 2011 revenues increased 33% year-over-year, driven by full employment of four modern vessels at improved rates.
- Trading Losses: The LNG Trading segment reported a loss of $11.7 million for the quarter, including $8.7 million in trading losses (mark-to-market). This contrasts with the Vessel Operations segment, which generated $32.7 million in operating income.
- Financial Expenses: Net financial expenses increased to a loss of $9.0 million (Q2) from a small loss in Q1, primarily due to a $5.7 million mark-to-market loss on interest rate swaps caused by falling long-term interest rates.
- Dividend Increase: The quarterly dividend was increased to $0.275 per share, reflecting improved market conditions.
- Acquisition of Golar Energy: The company acquired the remaining shares of Golar LNG Energy Limited, raising $352 million in new equity through a share swap.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Market Conditions: The LNG shipping market remains structurally tight with strong demand for modern tonnage. Rates are expected to remain strong through 2012-2014.
- Trading Strategy: Due to weak performance and market tightening, the company will reduce LNG trading activities until better opportunities arise.
- Future Earnings: Operating income is expected to increase in Q3 due to realized gains from commodity trades. The reactivation of the vessel Gimi (expected September 2011) and the commencement of the Khannur FSRU charter (Q1 2012) are expected to boost results.
- FSRU Projects: The West Java, Indonesia FSRU project is on schedule for Q1 2012 operation. The company is bidding on additional FSRU projects but anticipates not winning the third Brazil FSRU tender.
Risks and Contingencies
- Financing: Risk of inability to obtain financing for the $1.8 billion newbuilding program on favorable terms.
- Market Volatility: Potential material decline in LNG carrier rates or changes in demand due to political events or economic shifts.
- Regulatory: Changes in regulations affecting LNG carriers or port access.
- Execution: Delays in shipyard delivery schedules or FSRU conversion timelines.
Investor Verification Checklist
- Trading Segment Viability: Verify the extent of the reduction in trading activities and the timeline for potential resumption given the $11.7M quarterly loss.
- Newbuilding Financing: Confirm the status of debt financing for the $1.8 billion newbuilding program and reliance on "drop-downs" to Golar Partners.
- Interest Rate Exposure: Assess the impact of the $5.7M swap valuation loss on future cash flows, noting the company's view that lower rates will improve long-term results.
- FSRU Project Timelines: Monitor the operational readiness of the Indonesia FSRU (target Q1 2012) and the speculative FSRU build for future tenders.
- Dividend Sustainability: Evaluate the ability to maintain the increased $0.275 dividend amidst significant capital expenditure obligations.