Business Context and Reporting Period
Company: Golar LNG Limited (Bermuda-incorporated foreign private issuer)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited condensed consolidated interim financial statements for the three months ended March 31, 2011.
Business Overview: The Company operates in two primary segments: Vessel Operations (chartering LNG carriers and FSRUs) and LNG Trading (physical and financial risk management). The filing includes significant updates on corporate structure, including the public offering of Golar LNG Partners LP and the acquisition of Golar LNG Energy.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2011 | Q1 2010 |
|---|---|---|
| Operating Revenues | $67,487 | $53,335 |
| Operating Income | $20,445 | $10,651 |
| Net Income (Loss) | $13,816 | $(4,059) |
| Net Income Attributable to Golar LNG Ltd | $16,348 | $(2,752) |
| Basic EPS | $0.24 | $(0.04) |
| Net Cash from Operating Activities | $24,303 | $970 |
| Cash and Cash Equivalents (End of Period) | $128,691 | $82,119 |
| Total Debt (Long-term + Current) | $773,899 | $797,200 (approx) |
| Capital Lease Obligations | $417,848 | $411,875 |
Non-GAAP Metric: Average daily Time Charter Equivalent (TCE) rate increased to $80,700 in Q1 2011 from $47,100 in Q1 2010.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 26.5% to $67.5 million, driven by the full quarter revenue recognition from the Golar Freeze (operating as an FSRU under a 10-year charter with Dubai Supply Authority) and improved spot market rates.
- Profitability Turnaround: The Company moved from a net loss of $4.1 million in Q1 2010 to a net income of $13.8 million in Q1 2011. The Vessel Operations segment generated $22.6 million in net income, offset by a $6.3 million loss in the new LNG Trading segment.
- Derivative Gains: Mark-to-market adjustments on interest rate swaps resulted in a $3.6 million gain in 2011, compared to a $2.5 million loss in 2010, due to rising long-term interest rates.
- Cash Flow: Net cash from operating activities surged to $24.3 million from $1.0 million, primarily due to the operational status of the Golar Freeze.
Guidance, Outlook, and Recent Developments
Recent Developments
- Golar LNG Partners LP IPO: In April 2011, the Company completed a public offering of 13.8 million units of its subsidiary, Golar Partners, raising $310.5 million. Golar LNG's ownership in the subsidiary was reduced to approximately 65%. The Company expects to receive minimum quarterly cash dividends of $10 million from Golar Partners.
- Newbuilding Orders: The Company contracted to build six 160,000 m³ LNG carriers with Samsung Heavy Industries for approximately $1.2 billion. Deliveries are scheduled for 2013 and 2014. Funding will be sourced from cash resources, debt, and proceeds from asset sales to Golar Partners.
- Acquisition of Golar Energy: The Company increased its ownership of Golar LNG Energy from 61.1% to 99.4% through a series of transactions in April and May 2011, initiating a compulsory acquisition to delist Golar Energy from the Oslo Stock Exchange.
- Dividends: A cash dividend of $0.25 per share was declared for Q1 2011 and paid on June 27, 2011.
- Management Changes: Effective June 1, 2011, Doug Arnell replaced Graham Robjohns as CEO of Golar Management Ltd., and Brian Tienzo replaced Robjohns as CFO.
Risks and Contingencies
- Financing Risk: Inability to obtain financing for newbuilding vessels on favorable terms.
- Market Risk: Decline in LNG carrier rates or demand for natural gas.
- Operational Risk: Delays in shipyard delivery schedules or FSRU conversions.
- Regulatory Risk: Changes in rules affecting LNG carriers or port access.
Investor Verification Checklist
- Asset Sales to Golar Partners: Verify the timeline and pricing for the expected sale of the Golar Freeze and Khannur to Golar Partners, as this impacts future cash flows and debt capacity.
- Newbuilding Funding: Confirm the specific debt and equity financing arrangements for the $1.2 billion newbuilding program, given the reliance on future asset sales and market conditions.
- LNG Trading Segment Viability: Monitor the performance of the LNG Trading segment, which recorded a $6.3 million loss in its first full quarter of operation.
- Related Party Transactions: Review the terms of the new $80 million revolving credit facility with a World Shipholding-related entity (LIBOR + 3.5%) and the security requirements for drawdowns exceeding $35 million.
- Customer Concentration: Note that three customers (Petrobras, DUSUP, Pertamina) accounted for approximately 64% of Q1 2011 revenues.