Golar LNG Q3 Results 2011
November 17, 2011 at 08:36 AM EST
HAMILTON, BERMUDA -- (Marketwire) -- 11/17/11 --
* Golar LNG reports consolidated net income of $13.7 million and consolidated operating income of $45.5 million for the third quarter of 2011 * Golar LNG announces an increased quarterly cash dividend of $0.30 cents per share * Three year charter plus option for further three years secured for the Golar Grand. Annualised EBITDA contribution from this charter expected to be approximately $39.0 million * Gimi successfully reactivated and chartered out during the quarter. Positive prospects for employment well into at least 2013 with more than $16 million of annualised EBITDA contribution expected to be achieved * Golar LNG successfully "drops-down" Golar Freeze to Golar LNG Partners shortly after quarter end * LNG shipping market tightening. Spot rates reached $110,000/day during the quarter * Six active proposals for conversion and newbuild FSRU charters * Discussions for further term business for existing and newbuild carriers progressing well
Golar LNG Limited ("Golar" or the "Company") reports consolidated net profit of $13.7 million and consolidated operating income of $45.5 million for the three months ended September 30, 2011 (the "third quarter").
Revenues in the third quarter were $77.8 million as compared to $74.0 million for the second quarter of 2011 (the "second quarter"). The increase is primarily as a result of the revenue contribution from Gimi after her reactivation in the third quarter as well as there being no drydocks whereas the Golar Maria was drydocked in the second quarter. Vessel utilisation in the third quarter also improved slightly to 99% as compared to 97% for the second quarter. Average daily time charter equivalent rates ("TCEs") for the third quarter at $91,614 per day is consistent with second quarter at $91,666 per day.
As noted last quarter operating and administrative costs had been on the increase. The Board implemented steps to try to reverse this trend and it is therefore pleasing to note that both operating and administrative costs have decreased this quarter. Operating cost in the third quarter at $15.0 million has decreased from $16.2 million for the second quarter. Furthermore, administrative expenses are also lower in the third quarter at $6.2 million compared to $9.4 million for the second quarter.
With the exception of some minor settlements related to historical time charters which we expect to close out in Q4, all of Golar Commodities' trades have now closed and net trading results for the third quarter at $5.1 million are in line with the Company's expectations at the time of the second quarter results announcement. In line with what was reported in the second quarter results report, Golar Commodities activity should be expected to be limited until market conditions become more favourable.
Net interest expense for the third quarter at $4.9 million is down from $6.7 million in the second quarter due partly to lower debt levels. Furthermore, net interest expense is also reduced due to the accounting requirement to capitalize interest, resulting in a credit to the income statement, based on the Company's capital expenditure. This relates to the newbuilding program instalments and FSRU conversion cost, and is based on weighted average cost of debt. This will continue until the FSRU and newbuildings are delivered.
Other financial items have increased to a loss of $20.0 million for the third quarter compared to a loss of $9.0 million in second quarter. This is partly due to non-cash losses of $2.7 million on mark-to-market valuations of currency forward contracts in the third quarter compared to a gain of $1.1 million in the second quarter. These currency contracts relate to capital expenditure in respect of the Khannur FSRU. The increase is also as a result of increased non- cash losses on the mark-to-market valuation of interest rate swaps of $10.2 million, as compared to $5.7 million in the second quarter, due to the reduction in longer term interest rates. However, lower interest rates are ultimately beneficial to the Company as they reduce unhedged interest cost.
The Company reports operating revenues of $219.2 million, operating income of $87.2 million and a net income of $29.5 million for the nine months ended September 30, 2011. This compares to operating revenues of $179.4 million, operating income of $45.2 million and a net loss of $4.3 million for the nine months ended September 30, 2010.
Financing, corporate and other matters
The Board has proposed an increased quarterly cash dividend of $0.30 per share in respect of the third quarter 2011 results. This reflects the Boards positive outlook of the Company's ability to take advantage of the improvements in shipping opportunities in the near term. The record date for the dividend is December 12, 2011, ex-dividend date is December 8, 2011 and the dividend will be paid on or about December 22, 2011.
As previously announced, the Company completed its sale of the Golar Freeze to Golar LNG Partners L.P on October 19, 2011. Golar sold the FSRU at a price of $330 million. The acquisition was financed by Golar LNG Partners by the assumption of $108 million of senior bank debt and $222 million of vendor financing provided by the Company. It is expected that Golar LNG Partners will refinance the vendor financing facility with external financing before its maturity in 2014. This will lessen the need for the Company to raise external funds to meet its newbuilding commitments for 2013 and 2014.
The Company's newbuilding programme consisting of nine firm contracts with Samsung Heavy Industries Co Ltd is moving ahead on schedule. Starting in 2013 and moving into 2014, Golar will take delivery of seven 160,000 m3 LNG carriers and two FSRU's, one at 170,000 cubic meters and one at 160,000 cubic meters which resulted from the exercise of a "regas" option the Company held as part of the original commitment. The total cost of the programme is approximately $1.9 billion. The initial equity requirement for this was provided by proceeds from the Golar LNG Partners IPO. The balance of the equity requirement is expected to be largely financed by the repayment of the Golar Freeze vendor financing, the expected dropdown of Khannur to Golar LNG Partners and operating cash flow. The newbuilding delivery dates put the Company in a good strategic position to benefit from the continued improvements in the LNG shipping market as worldwide LNG production grows.
After the successful re-activation of Gimi towards the end of August 2011, the vessel was immediately entered into a short term charter which commenced at the beginning of September 2011. The vessel has also been entered as possible candidate for both short and long-term employment and discussions on both fronts are progressing well. The Company anticipates that prospects for carrier service for the Gimi look very promising for at least the next 18 months and an annualised EBITDA contribution of more than $16 million for 2012 should be achievable.
The Company is now giving serious consideration to the reactivation of the LNG vessel Hilli, a first generation vessel currently in lay up in Labuan, Malaysia. A decision on moving forward with this project is imminent and if considered favourable, the vessel should be in service in the first quarter of 2012. The Company anticipates that the charter rates for the Hilli could reach levels similar to that of Gimi.
The Company announced on October 19, 2011 that it had secured a 3 year charter for Golar Grand to a major oil and gas company, the charter was signed in November 2011. The charterer has an option to extend the charter for a further 3 years on the same terms as the original period. The charter will commence from March 2012 and is expected to contribute approximately $39 million in annualised EBITDA to the Company which will further improve earnings for the period from 2012 to 2015. The Board believes that this contract reflects the improving underlying market conditions for LNG carriers and as such anticipates a similar or better economic performance from its three other modern carriers, if chartered for similar periods, which are also open for re-chartering during 2012. The Company has received several interesting proposals in this respect, but has so far refrained from accepting in anticipation that the market will improve in the months to come.
Shares and options
During the quarter a total of 197,098 Golar LNG options were exercised. In connection with this, the Company issued 197,098 new shares. The total number of remaining Golar LNG options is 954,484. The total number of shares outstanding in Golar excluding options is 80,144,857.
During the quarter, strong demand for modern LNG carriers continued. Demand for shipping is being driven by high demand for LNG, liquefaction projects due to increase exports, fleet renewal and conversion of existing short charters to mid term charterers. On the back of strong underlying sentiments, existing tonnage is being secured well in advance of scheduled redelivery from existing Charterers and Charterers actual need. Structural need for shipping continues to outstrip supply of tonnage, either forcing prospective Charterers to adjust their requirements, or leave many potential chartering opportunities uncovered. While small windows of vessel availability will continue to exist in the form of backhaul and short intra-regional voyages, the tight shipping market has forced a number of Charterers to take a more in depth look at first generation vessels available for multiple month periods.
The quarter witnessed another run up in charter rates with spot rates hovering now around $110,000 per day, on a round trip basis, for modern steam vessels and one year charter rates are in excess $120,000 per day. The anticipated structural tightness during 2012-2014 is expected to allow Owners to continue to demand improved freight economics, driving improvements in both charter rates and charter periods.
There is currently a strong backwardation in the LNG shipping charter market. The Company believes that this curve will flatten somewhat, particularly for 3 to 7 year charter periods, as the major players realise the underlying strength of existing shipping demand.
The worldwide LNG fleet currently stands at 363 vessels including FSRUs with a further 64 on order; 51 vessels have been ordered since January 1, 2011. There is today very limited shipyard capacity available before the last quarter of 2014 and diminishing availability for 2015.
In the period 2014 to 2015, substantial new LNG supply is anticipated from Australia and the Middle East, which will require significant and as yet unsecured additional shipping capacity. Additional shipping capacity will also be needed to support the development of new liquefaction capacity, as well as the growing short term / spot LNG trading business (which accounts for, on average, between 18-22% of the overall LNG trade). The development of potential U.S. LNG export capacity will further increase the demand for tonnage. The demand for LNG shipping is also positively affected by the debottlenecking of existing liquefaction facilities, which gives rise to additional LNG production.
Golar currently has three existing first generation vessels (one of which is 50% owned), four existing modern vessels and seven newbuilding LNG carriers available for employment over the next three years. With fundamental evidence of a structural deficit in the supply of LNG carriers in this same time period, the Board believes that the Company is advantageously positioned to lock in solid long term returns. Golar's new vessels will be delivered with historically low boil off rates and will have in all material respects superior operating performance relative to the existing fleet. The Company has already entered into specific discussions with regards to chartering its open tonnage and expects that, in line with what was communicated in the second quarter results report, that several of the Company's open newbuild positions will be covered in the coming months.
Our outlook in this growing sector continues to be very favourable. Within the quarter, the Company participated in two new tender processes increasing the Company's tender involvement to six where Golar is in competition across a small pool of industry competitors. In this regard, the Company is very pleased to announce that during the quarter it has been shortlisted to the final stage of negotiations for two separate projects.
Additionally, and further highlighting the Board's confidence in the sector, the Company exercised its option to convert one of its LNGC newbuildings with Samsung to an FSRU. Golar's first FSRU which has a storage capacity of 170,000 m3 and is flexible to trade as LNGC unit, is expected to be delivered in the second half of 2013. Golar's second FSRU is expected to be delivered during the second quarter of 2014, and although it will have a smaller capacity at 160,000 m3, has similar capabilities in all other respects.
The West Java FSRU project continues to achieve key project milestones. The regasification module is near completion in China with transport to Jurong shipyard planned in November. Mooring construction is well advanced and set to conclude in December. This is the Company's fourth FSRU conversion project and the first to include the construction of an offshore mooring platform, which is all enhancing the Company's execution capability.
Incremental LNG supplies remain available in the market, but limited primarily to West African, US Gulf Coast re-export, NW Europe re-export and Middle East sources.
During this quarter, Far East Buyers entered the market early to secure sufficient access to volumes ahead of the peak winter period. Consequently, buying interest at the moment has subsided due to high inventory levels, a direct result of energy conservation and unseasonal temperatures in Japan. As such, the recent over supply in the Far East for fourth quarter 2011 deliveries have some traders now waiting for late 2011 loadings, in anticipation of a price climb further out. While forward appetite for incremental supply in the Far East is expected to remain strong, the anticipated announcement of which Japanese nuclear reactors will be allowed to restart in 2012 will likely influence and determine Japanese buying interest for the first quarter of 2012 and beyond.
South American markets remains active with considerable supply moving into both Argentina and Brazil on the back of demand, even as their peak season comes to a close. Appetite in South America will continue to grow, with the anticipated Argentina cargo purchase tender for up to 70 spot cargoes for 2012 delivery. Re- export opportunities out of the United States and Europe have gained ground with 24 cargoes exported thus far in 2011.
New projects slated to come on line in the coming quarters have been delayed. Woodside confirmed that the start up of their Pluto Project Train 1 will commence in March 2012 while the developing project in Angola is slated to come on line in the second quarter of 2012. In addition to the new supply projects coming on-line, supply projects in Australia (Australia Pacific LNG and Wheatstone) took final investment decisions. This new production together with debottlenecking projects and the ramp up of the significant number of new projects that have recently started up could add up to 47 million tonnes of LNG (or approximately 21% of total current production) to the market by the end of 2012. In the same timeframe the fleet is expected to increase by only 10 ships or 3% of the existing fleet.
The Company is pleased with recent developments in the LNG carrier sector as it relates to the existing fleet. Golar's ability to lock in very good hire rates on both the Golar Grand and the reactivated Gimi has validated the Board's views on a market moving toward further strength. The Company continues to focus on establishing key long term relationships with significant LNG producers. Charters of this variety represent major portfolio decisions for Charterers and as such can take extended periods of time to work through internal governance processes. The Board is comfortable that the long term fundamentals for LNG shipping will result in strong returns on the investments made to expand the Golar fleet.
The trend in the industry at present has seen the cost and time advantages of floating LNG storage and regasification over equivalent land based solutions result in the majority of new import proposals being pointed at FSRU's. The ability to supply a new high capacity storage vessel on a short time frame with natural gas send out up to 5.8 million tonnes per year of equivalent LNG and high fuel efficiency make Golar's newbuild FSRU's very attractive. Alternatively, for smaller projects or where increased storage capacity is not a priority, Golar's conversion business model remains a well sought after approach to creating incremental import capacity at a competitive price. Golar's experience in successfully delivering FSRU conversion projects has given the Company a unique advantage when bidding for such future projects.
Due to the present backwardation in the current chartering rate curve the Company may consider to operate some of the vessels in the short-term market prior to them being chartered out on a long-term basis. Based on Golar's early newbuild positions and the increase in world LNG capacity in 2015-2016, such a strategy might maximize cash flow and significantly reduce the investment in the first years of operation and will potentially give a better return on a long- term basis.
The Board is continuously considering opportunities to grow the Company through acquisitions and additional newbuildings. Based on the weakness of other shipping markets the Board does not anticipate that newbuild prices will strengthen significantly in the months to come. It will therefore be the availability and advantageous timing of yard slots more than potential future newbuild price increases that will drive further ordering by Golar.
The Board is pleased that EBITDA has increased from $38.2 million for the third quarter of 2010 to $62.5 million of the third quarter of 2011 however the Board is still not satisfied with current underlying EBITDA. Operating income in the fourth quarter is expected to increase further as result of a full quarter of revenue from Gimi. Results for 2012 are likely to improve as a function of the four existing modern vessels' time charters, including the Golar Grand, being re-contracted in 2012 at higher rates with the possible addition of Hilli. The commencement of the Khannur charter in the first quarter of 2012 is likely to increase EBITDA in excess of $40 million per annum.
Shareholders should continue to expect strong growth in operating income over the coming quarters.
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 Registration Statement on Form 20-F and subsequent announcements and reports. Nothing contained in this press release shall constitute an offer of any securities for sale.
November, 17 2011 The Board of Directors Golar LNG Limited Hamilton, Bermuda.
1] Golar LNG Partners is a subsidiary of the Company. Accordingly, the effect of the dropdown of the Golar Freeze to Golar LNG Partners, initially financed by vendor financing by the Company will be eliminated on consolidation for the purpose of the consolidated financial statements.
 Golar LNG Partners is a subsidiary of the Company. Accordingly, the effect of the dropdown of the Golar Freeze to Golar LNG Partners, initially financed by vendor financing by the Company will be eliminated on consolidation for the purpose of the consolidated financial statements.
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
Golar LNG Q3 Results 2011: http://hugin.info/133076/R/1564712/485401.pdf
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