Business Context and Reporting Period
This Form 6-K, filed on August 23, 2011, by Golar LNG Limited, contains an earnings release for Golar LNG Partners L.P. ("Golar Partners") for the second quarter ended June 30, 2011. This period marks the Partnership's first quarter of reporting following its initial public offering (IPO) completed on April 13, 2011. Golar Partners owns and operates a fleet of two LNG carriers and two floating storage and regasification units (FSRUs), all under long-term charters. Following the IPO, Golar LNG Limited's ownership in the Partnership was reduced to approximately 65%.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 |
|---|---|---|
| Operating Revenues | $39.5 million | $38.0 million |
| Operating Income | $25.4 million | $25.0 million |
| Net Income (GAAP) | $15.6 million | $14.7 million |
| Net Income Attributable to Owners | $13.1 million | $12.2 million |
| Distributable Cash Flow (Non-GAAP) | $18.2 million | N/A |
| Net Financial Expenses | $9.4 million | $10.1 million |
| Cash and Cash Equivalents | $45.4 million | N/A |
| Total Debt and Capital Leases (net of restricted cash) | $429 million | N/A |
| Undrawn Revolving Credit Facilities | $20 million | N/A |
Dividend: Declared $0.385 per unit for the second quarter ($0.3342 per unit on a pro-rata basis from IPO closing through June 30, 2011).
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by approximately 4% year-over-year, driven primarily by inflation escalators in charter contracts. Specifically, two FSRUs chartered to Petrobras saw bi-annual rate increases in April 2011, totaling an approximate 5% increase over a two-year period.
- Operating Costs: Higher operating expenses partially offset the revenue gains, though vessel utilization remained at virtually 100%.
- Financial Expenses: Net financial expenses decreased to $9.4 million from $10.1 million in the prior year.
- Unrealized Derivative Losses: The income statement includes unrealized losses from interest rate swaps ($4.6 million in Q2 2011 vs. $4.1 million in Q2 2010) and currency retranslation/swaps ($0.5 million vs. $1.3 million). These items do not impact cash flow.
Outlook, Guidance, and Risks
Outlook and Growth: Management expressed confidence in delivering solid growth over the next three to five years. Golar Partners holds options to acquire two additional FSRUs (Golar Freeze and Khannur) subject to long-term contracts. The Khannur is scheduled to commence an 11-year charter in Indonesia in Q1 2012. The Partnership also retains the right to acquire other Golar LNG vessels that secure charters exceeding five years.
Liquidity and Hedging: As of June 30, 2011, interest rate swaps covered $316 million of debt. In July 2011, an additional $50 million in swaps was entered into, bringing total coverage to $366 million (85% of net debt) with an average fixed rate of 3.3%.
Risks and Contingencies: Forward-looking statements are subject to risks including global economic slowdowns, fluctuations in charter rates and vessel values, currency and interest rate volatility, bunker price changes, regulatory compliance costs, and potential disruptions to shipping routes due to political events or piracy.
Investor Verification Checklist
- Verify the reconciliation of Distributable Cash Flow ($18.2 million) to Net Income, specifically the adjustments for unrealized derivative losses and maintenance capital expenditures.
- Confirm the status and expected commencement date of the Khannur FSRU charter in Indonesia (Q1 2012).
- Review the terms of the option to acquire the Golar Freeze and Khannur FSRUs and any conditions precedent.
- Assess the impact of the 5% charter rate increase on Petrobras contracts on future revenue projections.
- Monitor the utilization of the $20 million undrawn revolving credit facility and the $45.4 million cash balance against upcoming capital expenditure requirements.