Business Context and Reporting Period
This Form 6-K filing by Golar LNG Limited, dated February 28, 2007, reports preliminary unaudited results for the fourth quarter and full year ended December 31, 2006. The Company operates as an LNG carrier and logistics provider, with recent strategic moves including the redelivery of the Golar Spirit after a 20-year charter and the acquisition of a 20% stake in the Livorno LNG regasification terminal.
Key Financial Metrics
| Metric | Q4 2006 | Q4 2005 | Full Year 2006 | Full Year 2005 |
|---|---|---|---|---|
| Operating Revenues | $72.7 million | $45.2 million | $239.7 million | $171.0 million |
| Operating Income | $40.4 million | $17.8 million | $115.1 million | $64.7 million |
| Net Income | $33.1 million | $10.6 million | $72.5 million | $34.5 million |
| Basic EPS | $0.51 | $0.16 | $1.11 | $0.53 |
| Net Cash from Operating Activities | $42.4 million | $19.0 million | $117.2 million | $71.0 million |
| Net Cash Used in Investing Activities | ($24.5 million) | ($13.1 million) | ($269.0 million) | ($213.2 million) |
| Cash and Cash Equivalents (End of Period) | $56.6 million | $62.2 million | $56.6 million | $62.2 million |
| Long-Term Debt | $803.8 million | $758.2 million | $803.8 million | $758.2 million |
Additional Metrics: Average daily time charter equivalent (TCE) rates for Q4 2006 were $65,250, up from $52,000 in Q3 2006. Vessel operating expenses for Q4 2006 were $13.0 million. The market value of the investment in Korea Line was $122 million as of February 26, 2007.
Material Changes vs. Prior Period
- Revenue Growth: Q4 2006 revenues increased 61% year-over-year and 30% quarter-over-quarter, driven by higher spot charter rates, improved utilization, and the addition of new vessels (Grandis and Granosa) to the fleet.
- Profitability Surge: Net income for Q4 2006 reached a record $33.1 million, a significant improvement from the $5.9 million net loss in Q3 2006. Full-year 2006 net income more than doubled compared to 2005.
- Investee Earnings: Equity in net earnings of investees rose to $10.6 million in Q4 2006 from $1.6 million in Q3 2006, primarily due to strong performance by Korea Line in the drybulk market.
- Financial Items: Other financial items improved from a $14.1 million loss in Q3 2006 to a $0.9 million gain in Q4 2006, as stable long-term interest rates minimized mark-to-market losses on interest rate swaps.
- Expense Increases: Vessel operating expenses and depreciation increased due to fleet expansion and higher crew costs.
Guidance, Outlook, and Risks
Dividend Declaration: The Board declared a cash dividend of $0.50 per share, payable on or about March 26, 2007, with an ex-dividend date of March 8, 2007. The Board intends to provide regular dividends following the completion of the newbuilding program.
Market Outlook: Spot market rates are expected to soften in Q1 2007 as the winter period concludes and "floating storage" cargoes are discharged. However, Q1 2007 earnings are expected to benefit from the drybulk market and Korea Line results, though likely lower than Q4 2006 spot earnings.
Strategic Initiatives:
- Asset Optimization: The Board is evaluating spinning off LNG logistic investments into a separate listed vehicle, with a decision expected by the end of H1 2007.
- Cyprus Project: Golar Energy Ltd was awarded a license to construct and operate a 240 MW Floating Power Generation Plant (FPGP) off the coast of Cyprus.
- FSRU Conversion: The Golar Spirit is scheduled for entry into the shipyard in August 2007 for conversion to an FSRU, with delivery expected in January 2008.
- Asset Sale: The Company agreed to sell its interest in newbuilding DSME hull number 2244 for approximately $92.5 million to strengthen the balance sheet.
Risks and Contingencies:
- Softening spot rates and potential decline in LNG carrier demand.
- Political events affecting natural gas production and demand.
- Regulatory changes and port access restrictions.
- Financing risks for newbuilding vessels and shipyard delivery delays.
- Disappointment regarding the loss of the Central Sulawesi LNG plant project to Mitsubishi Corporation, though the award is not yet final.
Investor Verification Checklist
- Verify the impact of the $92.5 million sale of the DSME hull interest on the balance sheet and realized profits.
- Monitor the progress of the Cyprus FPGP project, specifically the pending license to import, store, and use LNG.
- Assess the timeline and financial implications of the Golar Spirit conversion to FSRU scheduled for August 2007.
- Track the Board's decision regarding the potential spin-off of LNG logistic assets by the end of H1 2007.
- Confirm the sustainability of spot market rates as the winter season ends and new tonnage enters the market in 2007.