Golar LNG: Interim Results For The Period Ended June 30, 2012
- Golar LNG reports operating income of $58.0 million for the second quarter of 2012, an increase of 108% from the first quarter.
- Golar LNG reports consolidated net income of $35.4 million for the second quarter of 2012.
- Nusantara Regas Satu ("NR Satu" - formerly Khannur) delivered and started its charter on May 4th and successfully completed acceptance tests.
- Hilli and Gandria have completed their reactivation and will be marketed for future trading as well as for project work.
- Golar LNG increases quarterly dividend by 14% to $0.40 cents per share, driven by improved cashflow and stronger market outlook.
- Golar LNG completed the sale of interests in the companies that own and operate the floating storage and regasification unit ("FSRU"), NR Satu to Golar Partners L.P. ("Golar Partners" or the "Partnership"), a subsidiary of Golar, shortly after quarter-end.
- Golar Partners successfully raised net proceeds from a public follow-on equity offering of approximately $188 million.
- Golar has been awarded the Gas Atacama Mejillones Seaport's FSRU project for a long term charter (subject to certain conditions) of one of the Company's FSRU newbuilds.
Golar LNG Limited ("Golar" or the "Company") reports consolidated net income of $35.4 million and consolidated operating income of $58.0 million for the three months ended June 30, 2012 (the "second quarter").
Revenues in the second quarter were $107.0 million as compared to $83.1 million for the first quarter of 2012 (the "first quarter"). The increase is primarily as a result of increased rates for Golar Arctic and Golar Grand throughout the quarter following the commencement of their new 3 year charters and, both NR Satu and Golar Viking commencing new charters in May. This is reflected in an improved average Time Charter Equivalent ("TCE") rate for the second quarter at $97,118 per day compared to $90,464 for the first quarter.
Operating costs in the second quarter at $17.8 million are lower than the first quarter at $27.9 million. This is mainly due to the majority of the expensed reactivation costs for both Hilli and Gandria being incurred in the first quarter of 2012 as both vessels completed their reactivation in April.
Net interest expense for the second quarter at $8.5 million is higher than the $6.1 million incurred in the first quarter mainly due to a full quarter's interest charge accruing on the Company's convertible bond issue in March 2012.
Other financial items increased to a loss of $4.4 million in the second quarter compared to $2.6 million in the first quarter. This is mainly due to the negative movement in the valuation of currency swaps and forward contracts.
Tax expense is higher this quarter at $0.4 million compared to a first quarter's tax credit of $1.2 million. This is mainly due to tax provisions made in respect of our Indonesian operations related to the ownership and management of the Company's fourth FSRU, the NR Satu. However, the tax exposure in Indonesia is mitigated by the recognition of revenue from the charterer such that the taxes paid are fully recovered.
Financing, corporate and other matters
With the delivery of the NR Satu and a full quarter's earnings at new charter rates for both Grand and Arctic, the Board has proposed that the cash dividend be increased by $0.05 cents to a total of $0.40 cents a quarter. The record date for the dividend will be September 13, ex-dividend date is September 11 and the dividend will be paid on or about September 27, 2012.
The Company announced on July 5, 2012 that it had been awarded the Gas Atacama Mejillones Seaport's FSRU Project ("Gas Atacama"). The initial term of the contract, which remains subject to certain Charterer conditions being met by the end of 2012, is for 15 or 20 years and is expected to generate an average annual EBITDA of approximately US$47-US$48 million. On top of the initial term, Gas Atacama has three five-year contract extension options. Should the conditions on the contract be met, the Company plans to exercise the option to have its LNG carrier newbuild scheduled for completion in early 2015 constructed as an FSRU. If the conditions are not met, the Company will take delivery of an LNG carrier as originally envisioned.
Golar LNG Partners follow-on equity offering
Golar Partners successfully closed a public offering of 5,500,000 common units on July 16 at a price of $30.95 per common unit. In addition, the Underwriters exercised in full their option to purchase a further 825,000 common units bringing the total number of units sold to 6,325,000. Golar GP LLC, the Partnership's general partner, maintained its 2% general partner interest in the Partnership and Golar subscribed to 969,305 common units in a private placement at a price of $30.95 per unit. The net proceeds to the Partnership from the public offering were approximately $188 million. Following the closing, the Company owns 10,296,559 common units and 15,949,831 subordinated units representing an approximate 55.5% interest in the Partnership. By virtue of its ownership of the General Partner which owns 946,355 units, the Company's total interest in the Partnership now stands at approximately 57.5%. The proceeds were used to part finance the Partnership's purchase of the Nusantara Regas Satu from the Company on July 19.
Nusantara Regas Satu
As previously announced, the conversion of NR Satu was completed in April and the FSRU was delivered to the Charterer on May 4. The FSRU successfully completed its acceptance procedures on July 13. The FSRU has been in operation without any major technical issues since its delivery.
Subsequent to the successful acceptance by its Charterer, the Company completed its sale of interests in the companies which own and operate the NR Satu to Golar Partners on July 19, 2012. Golar sold the FSRU for $385 million. The acquisition was financed by Golar Partners by raising gross proceeds of $230 million from its equity offering and $155 million of vendor financing provided by the Company. The vendor financing is expected to be refinanced when Golar Partners enters into bank financing in respect of the NR Satu. This is expected to be completed in the near future. The proceeds received by the Company from this sale will in part be used to meet some of its 2013 and 2014 newbuilding commitments.
Golar Maria charter
The summer market is somewhat softer driven by approximately 6.5 million tonnes of production capacity being temporarily closed down for regular maintenance work. Nevertheless, Golar Maria, which was redelivered from the charterer in August, is currently trading in the spot market at attractive rates.
The Board expects the shortage of ships to manifest itself in increasing short-medium term charter rates later in the year as players re-enter the market to build stocks for winter and ships ordered for the Angola LNG project are deployed on their term charters. Angola LNG expects to launch in September. When the Company feels that market rates better reflect the underlying reality it will consider longer term charter options for the Maria.
De-listing from Oslo Bors
The Company announced on April 27, 2012 that it would seek to de-list from the Oslo Bors. A Special General Meeting was held on June 18, 2012 to seek shareholder support for this and an overwhelming majority voted in favour of the proposal. An application to de-list was made to Oslo Bors in July and the Company will now de-list from the Oslo Stock Exchange on August 30, 2012.
As previously announced by the Company in its Special General Meeting notice, Golar will maintain a VPS register, and, subsequent to its de-listing, will maintain an OTC listing in Norway. This will mean that Norwegian shareholders will be able to continue holding and trading their shares in Norway but that the Company will also be able to realize the financial savings it was seeking.
Shares and options
During the quarter a total of 25,000 options were exercised. In connection with this, the Company issued 25,000 new shares. The total number of remaining options is 760,029. As at June 30, 2012 the total number of shares outstanding in Golar excluding options is 80,323,752.
The market tightened during the second quarter as a result of stronger Far East demand for LNG and increasing availability of cargoes both in the Atlantic and Pacific basins. Charter rates experienced upward pressure due to a lack of vessel availability.
Increasing LNG production and increasing tonne/mile ratios as well as fleet renewals will continue to drive demand for medium and long-term charters. Shorter-term tightness in the market is expected to remain through 2012-13.
With much of the overhang of tonnage restricted to First Generation vessels in the East during the second quarter, chartering interest in both regions remained unfulfilled. As such, with anticipated structural tightness expected and with strong demand for tonnage, a bullish sentiment within the shipping market continues.
The worldwide LNG fleet currently stands at 364 vessels including FSRUs, with a further 83 on order including FSRU's/FPSO's. Seventy four vessels have been ordered since January 1, 2011, including 17 vessels ordered in 2012. Today, half the order book is committed. Delivery of most of this order book is not scheduled to commence until Q3 2013 leaving demand unaddressed until the middle of the decade.
The Board continues to look with confidence for further FSRU growth. The Company's optimism in the last earnings report has in part been met following its successful bid for the GasAtacama project. Demand continues to accelerate for new FSRU projects worldwide, especially where a fast track start-up is a high priority. Possessing the only uncommitted newbuild FSRU available for 2013 delivery and one of only two available for 2014 delivery, the Company believes that it is well positioned to meet this need for a rapid solution.
Project development activities are particularly strong in the Middle East and India while South America continues to lead the way with the largest number of delivered, operating and awarded projects. Against this back drop of very strong demand for new FSRU projects is a small supply pool of firm FSRU assets for lease by experienced FSRU Owner/Operators. A strong operational track record combined with robust underlying demand means Golar remains well placed to win further contracts. The Company is one of two FSRU players shortlisted for three separate projects. Five additional projects are expected to issue tender invitations during the remainder of 2012.
Despite some production issues reported at several projects, and some scheduled maintenance, incremental spot LNG supplies became available during the quarter facilitating trading opportunities.
Far East demand, particularly in Japan, increased during the quarter which created competition with the counter seasonal markets in the Middle East and South America pushing up LNG prices. Considerable supply moved into Argentina, much of it replacement cargoes following Repsol's cancelled supply contracts. Brazil also appeared as a new entrant into the trading market, trading spot cargoes that were originally intended for Brazil. While demand in Europe remained weaker, LNG prices rose on the back of strong interest to re-export cargo's to markets in the Atlantic and Pacific basins.
Towards the end of the quarter, with increasing supply ramping up from Australian projects, decreasing oil prices and milder weather, demand and prices softened. The summer lull could however be short-lived as Asian players are likely to re-enter the market this fall to start building stocks for the winter months.
New LNG supply is now entering the market. In Australia, Woodside's Pluto Train 1 production officially commenced commercial operations in late May. Following its start-up, the project produced at a higher than expected rate. Angola LNG delayed its launch which is now expected to export its first cargo by mid-September, a set-back of about 5 months from its original target date. In addition to these, supply projects under construction in both the Atlantic and Pacific Basin have reached close to 80 million tonnes.
Both Australia Pacific LNG and Petronas' FLNG project have formally announced a final investment decision ("FID") whilst Sabine LNG Export is expected to announce a final FID in the third quarter. The sanctioning of these projects adds additional capacity of approximately 23 million tonnes to projects under construction. In addition to the new production in 2012 from Pluto and Angola LNG and projects already under construction, large natural gas reserves in new regions such as North America, East Africa and the Eastern Mediterranean are expected to drive the need for LNG vessels higher.
The Board is pleased with the performance of the Company during the quarter as the underlying strength of the LNG shipping sector has led to greatly improved earnings. The technical performance of both the LNG carrier and FSRU fleets has been excellent with close to 100% up-time on the chartered vessels demonstrating Golar's commitment to operational excellence.
The Board expects that earnings in the coming year will improve as a function of increased charter revenues for Golar Maria and Golar Viking as well as potential income from Gandria and Hilli. The first of the thirteen newbuildings is scheduled to be delivered in September 2013. With all newbuildings being delivered in the period between September 2013 and first quarter 2015. This will create another steep ramp up in the Company's operating cash flow.
The present charter market indicates a strong backwardation for longer charter durations. The Board is optimistic that long term rates will however improve as a function of a solid vessel supply / demand situation and restricted amount of newbuildings available. The Company has received several proposals for long term charters but does not find the rate levels attractive. The Board sees the short to medium term market as financially attractive while the Company waits for long term rates to escalate.
Shareholders should be prepared for short term volatility in the market in the next two to three years, however it is becoming increasingly clear that significant amounts of new tonnage will have to be brought to the market to meet the expected 90 mmtpa increase in LNG production in the period to 2017. With its 13 uncommitted newbuildings and 7 existing vessels Golar is in a very strong position to help meet this demand.
The drop down of NR Satu has increased Golar's financial flexibility. The Board expects that through operational cash flow, new bank debt and further drop downs the Company can fully finance the newbuilding program and also maintain a high dividend capacity without raising additional equity.
The large spread in global gas prices and relative cheapness of gas versus oil is likely to spur strong growth and high activities in the years to come. Golar is spending significant time in order to find investment opportunities which can capitalize on this trend. The Company is currently working actively on liquefaction projects, power projects as well as floating storage and regasification projects.
The Company's success in the tender for the GasAtacama Mejillones LNG import project has demonstrated Golar's market leading position in Floating Storage and Regasification. Key to the success in this project was the Company's strong influence with the key shipbuilding yards as well as its demonstrable operational track record. With final investment decisions upcoming on new and credible FSRU projects, and the limited pool of providers with a track record of delivering and operating such assets, the Board is hopeful of more lucrative FSRU contracts in the relatively near term.
Operating results are expected to grow further in the third quarter and further positive development and high growth is expected to continue in the periods that follow. The Board is excited about the company's current positioning and the opportunity to deliver a solid return to shareholders in the years to come.
Forward Looking Statements
This press release contains forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including examination of historical operating trends made by the management of Golar LNG. Although Golar LNG believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies, which are difficult or impossible to predict and are beyond its control, Golar LNG cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.
Included among the factors that, in the Company's view, could cause actual results to differ materially from the forward looking statements contained in this press release are the following: inability of the Company to obtain financing for the new building vessels at all or on favourable terms; changes in demand; a material decline or prolonged weakness in rates for LNG carriers; political events affecting production in areas in which natural gas is produced and demand for natural gas in areas to which our vessels deliver; changes in demand for natural gas generally or in particular regions; changes in the financial stability of our major customers; adoption of new rules and regulations applicable to LNG carriers and FSRU's; actions taken by regulatory authorities that may prohibit the access of LNG carriers or FSRU's to various ports; our inability to achieve successful utilisation of our expanded fleet and inability to expand beyond the carriage of LNG; increases in costs including: crew wages, insurance, provisions, repairs and maintenance; changes in general domestic and international political conditions; the current turmoil in the global financial markets and deterioration thereof; changes in applicable maintenance or regulatory standards that could affect our anticipated dry-docking or maintenance and repair costs; our ability to timely complete our FSRU conversions; failure of shipyards to comply with delivery schedules on a timely basis and other factors listed from time to time in registration statements and reports that we have filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 20-F and subsequent announcements and reports. Nothing contained in this press release shall constitute an offer of any securities for sale.
August 22, 2012
The Board of Directors
Golar LNG Limited
Questions should be directed to:
Golar Management Limited - +44 207 063 7900
Doug Arnell - Chief Executive Officer
Brian Tienzo - Chief Financial Officer
 Golar LNG Partners is a subsidiary of the Company. Accordingly, the effect of the dropdown of the Nusantara Regas Satu to Golar LNG Partners, partly financed by vendor financing for $155 million with the balance of $230 million paid in cash, will be eliminated on consolidation for the purpose of the consolidated financial statements.
Golar LNG Q2 Results 2012