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Financial Review Golar LNG Limited ("Golar" or the "Company") reports consolidated net income of $15.2 million and consolidated operating income of $27.8 million for the three months ended March 31, 2012 (the "first quarter"). Revenues in the first quarter were $83.1 million as compared to $80.6 million for the fourth quarter of 2011 (the "fourth quarter"). The increase is primarily as a result of the additional revenue contribution from Gimi which was on charter throughout the quarter and further enhanced by the commencement of the new 3 year charters for Golar Grand and Golar Arctic. This is reflected in an improved TCE for the first quarter at $90,464 compared to $86,521 for the fourth quarter. As in the fourth quarter, vessel utilization in the first quarter is effectively 100%. As expected, operating costs in the first quarter at $27.9 million is higher than the fourth quarter at $17.6 million. This is mainly due to the expensed reactivation costs for both Hilli and Gandria and represents costs which cannot be capitalized as they are deemed to be repairs in nature. Given that both vessels' re-activation is nearing completion, it is not expected that operating costs will continue at this high level into the second quarter of 2012. The Company booked an accounting gain of $4.1 million during the quarter arising from its purchase, in January 2012, of the remaining fifty percent (50%) interest in the company that owns the Gandria. This has arisen as the Company is required to re-measure the carrying value of it's existing 50% share in the company and compare that to its fair value which is represented by the $19.5m purchase price. This resulted in a gain of $2.4million. Furthermore, the Company also recognized a gain on a bargain purchase of $1.7 million as the cost of the acquisition is less than the fair value of the net assets acquired. Net interest expense for the first quarter at $6.1 million is slightly higher than the $5.6 million incurred in the fourth quarter mainly due to interest accruing on the Company's March 2012 convertible bond issue. Other financial items increased to a loss of $2.6 million in the first quarter compared to a small loss of $0.05 million in the fourth quarter. This is mainly due to the negative movement in the valuation of currency swaps and forward contracts Financing, corporate and other matters Dividends The Board has proposed to increase the cash dividend by $0.025 cents to a total of $0.35 cents a quarter. This is supported by the commencement of the time charters for both Golar Grand and Golar Arctic and a solid financial situation. The record date for the dividend will be June 13, ex-dividend date is June 11 and the dividend will be paid on or about June 27, 2012. Nusantara Regas Satu ("NR Satu") (formerly Khannur) The Board is pleased to announce that the conversion of NR Satu into an FSRU was technically completed towards the end of March. Following testing and mooring of the vessel at site in Jakarta Bay, the FSRU was officially delivered to the Charterer on May 4 and has been on hire since that date. Golar sees this as a significant milestone in its history as it has once again proven its place as the market leader in FSRU conversions and further expanded it business operations in Indonesia. In cooperation with the Charterer, PT Nusantara Regas, the FSRU is currently being commissioned following which normal operations will commence. Golar Partners has an option to purchase NR Satu from the Company at market value and management is currently discussing the terms and timing of a possible acquisition. Golar Viking The Golar Viking ended its charter arrangements and was delivered under a new contract on May 1. The charter is for a period of approximately 11 months at a rate significantly above its previous charter rate. Newbuildings Having previously announced 2 firm newbuild contracts with Hyundai Samho Heavy Industries Co., Ltd., the Company announced on February 26, 2012 that it has entered into firm contracts with Samsung Heavy Industries Co. Ltd. ("Samsung") for two LNG carriers to be delivered in the second quarter of 2014 and early 2015. The aggregate price for the two ships is approximately $400 million. Each contract also comes with an option for a further carrier for 2015 delivery. Attached to both options is the right to select an FSRU alternative and the vessel contracted for delivery in early 2015 also comes with the option for construction as an FSRU. These orders take Golar's total newbuild order book to 13. All the vessels will be delivered with tri-fuel diesel electric engines and with the lowest boil-off rate available. Golar Grand and Golar Arctic charter The Board is pleased to announce that the new charters for Golar Grand and Golar Arctic commenced during March 2012. The Golar Grand is now employed by an oil major for a duration of three (3) years with an option to extend the charter period for an additional three (3) years. During its employment, the Golar Grand will contribute approximately $39 million in annualised EBITDA. The Golar Arctic is now employed by a major Japanaese trading house for three (3) years. During its employment, the Golar Arctic will contribute approximately $45 million in annualised EBITDA. Reactivation of Hilli and Gandria As announced previously, the Company secured the remaining fifty percent (50%) interest in the company that owns the Gandria and immediately took steps to prepare the vessel for re-activation. The reactivation process for both Gandria and Hilli is nearing completion and the Company expects that both will be available for service in June. Convertible bond The Company announced on February 28, 2012 that it had placed a convertible bond (the "Bond") offering for $250 million. The Bonds have a term of five (5) years, a coupon of 3.75% and a conversion price of $55 per share which represented a premium of 25% over the reference price of $44 per share. The Bond proceeds will primarily be used as a part financing for the newbuilding program. The non amortizing structure and the 5 year maturity of the Bond increases the Company's financial flexibility and creates an opportunity to be more market opportunistic with respect to the chartering out of its new building capacity. De-listing from Oslo Bors The Company announced on April 27, 2012 that it would seek to de-list from the Oslo Bors. The Company has observed its stock movements over the years and seen trading volumes improve in the US while only limited volumes have traded in Norway. The concentration in the US is further supported by the fact that less than 18 % of the total shares, excluding World Shipholding, are currently held in the Norwegian VPS system. With these facts, the Board has determined that there is very limited benefit in having two separate listings. In accordance with Oslo Stock Exchange rules, such a delisting will need support from two thirds of the shareholders present at a special general meeting. Golar's major shareholder, World Shipholding which owns 45.8% of the Company, will vote in favour of the delisting. The Board has called for a special general meeting to be held on June 18, 2012 to seek shareholder support to delist from the Oslo Stock Exchange. Shares and options During the quarter a total of 62,500 options were exercised. In connection with this, the Company issued 62,500 new shares. The total number of remaining options is 786,404. As at the March 31, 2012 the total number of shares outstanding in Golar excluding options is 80,298,752. Shipping During the quarter, strong demand continued for modern LNG carriers. However, consistent with first quarter chartering activities in prior years, downward pressure on rates was experienced as LNG buyers slowed their cargo purchases and the pool of available vessels increased as ships came off their winter charters. Demand was also weaker due to several production plants undergoing maintenance work. Demand for multi-year shipping requirements continued to be driven by high demand for LNG liquefaction projects due to increased exports and fleet renewals. While the short term market saw a decline in rates due to seasonal trends and the challenges faced by the prevailing trading environment, with only 2 firm open positions basis modern tonnage with structural availability in 2012, (i.e. vessels that are not limited by the term they can be offered for), owners with existing structural availability in both 2012 and 2013 continue to command high charter rates but show preference to secure a minimum period of 3 years at historically high rates. Most recently, prompt existing tonnage with structural availability has been fixed between $145,000 to $155,000 per day levels. Whilst the short-term shipping came under downward pressure during the quarter the market started to pick-up momentum towards the end of the quarter. Anticipated Far East LNG demand, strong interest from South America and the restart of production at several plants, following scheduled maintenance, lead to an increase in chartering interest. With anticipated structural tightness during 2012 to 2014, 3 year charters at rate expectations remain close to short term rates. As charters seek to fix vessels in advance of their forthcoming winter requirements, the market is tightening. As a result, owners have the ability to be selective in choosing the length of the charters they wish to pursue. The worldwide LNG fleet currently stands at 365 vessels including FSRUs, with a further 80 on order including FSRU's; 71 vessels have been ordered since January 1, 2011, including 14 vessels ordered in 2012. Today, approximately half the order book is committed to charterers. In the period 2014 to 2015, substantial new LNG supply is anticipated in particular from Australia, 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, four existing modern vessels and eleven newbuilding LNG carriers, in addition to two newbuilding FSRUs, available for employment over the next three years. With this position Golar is uniquely positioned to serve its customers. 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. FSRUs The Board is optimistic with regards to further prospects for growth in Golar's FSRU business. It remains one of the Company's cornerstones for delivering further growth to its shareholders. With the delivery of the West Java Project, Golar's fourth operational FSRU, Golar remains the only company in the world to have delivered operational FSRU projects based on the conversion of an LNG carrier. The Company is also encouraged by current market demands against a small supply pool of FSRU owner/operators and FSRU assets in the 2013/2014 time frame. While global interest is firm and demand rising, of particular note is increasing activity among top tier oil and gas companies in China, East Coast India, and the Middle East. Since the last earnings report, Golar was shortlisted for two FSRU projects while a third project, for which Golar had been previously shortlisted, is nearing a decision point. The Company is exposed to the inherent uncertainties of such projects clearing all necessary hurdles to reach a final investment decision ("FID") however with the number of credible project developers at present, the prospects for at least one new FSRU contract being awarded to Golar within 2012 looks increasingly promising. LNG Market Incremental LNG supplies remained limited in both the Atlantic and Pacific basin regions during the quarter on the back of planned maintenance from Snohvit, Trinidad, Qatar and the unexpected shut-down of Yemen LNG in March due to damage to its LNG supply pipeline. During the early part of the first quarter of 2012, Far East demand was muted as both Korea and Japan's inventory was well stocked for the winter period. Consequently, buying interest became price sensitive and more opportunistic as a direct result of shipping constraints. However, by the end of the quarter, support for Far East price increases surfaced on the back of a further reduction in Japan's nuclear capacity (by March 2012 only 2 of Japan's 54 reactors remained operational with both units expected off-line by the second quarter of 2012) and the proliferation of the counter-seasonal markets in South America (specifically Brazil and Argentina) and the Middle East. With other regions competing for limited spot cargoes, and Japan's demand for prompt deliveries increasing, LNG sellers price expectations strengthened. With the nuclear utilization in Japan hitting zero in the second quarter of 2012 forward appetite for incremental supply in the Far East is now expected to remain strong throughout the summer period, as focus shifts to securing cargoes for the peak summer demand. While Europe remained quiet, South American markets were active with considerable supply moving into both Argentina and specifically Brazil. Prompt demand from Brazil during this period has been driving the short-term buying in the spot market, with Brazil even paying above Asia, preventing Atlantic basin cargoes from moving east. With muted domestic demand in Spain and Belgium there has been a significant up-tick in the amount of re-exports with both Far East and South America discharge intentions. During this quarter re-export opportunities out of the United States had declined to only 3 cargoes on the back of high sellers price expectations, limiting storage opportunities in the Gulf. Europe however had up to 8 cargoes re-exported in the first quarter, including 6 originating from Spain. The market is expected to see more European re-exports throughout the summer as European gas demand is expected to remain weak, while the global market continues to tighten. New LNG supply projects slated to come on line in the coming quarters have suffered minor start-up delays in the first quarter of 2012. Woodside's Pluto Train 1 production has commenced, with the first commercial cargo delivered in early May. Angola LNG, also experienced minor delays and is slated to export its first cargo in June 2012, a set-back of about 2 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 73 million tonnes, with 54 million tonnes slated to come on line by 2016. Furthermore, two projects (Sabine LNG Export / Australia Pacific LNG Train 2) are expected to announce a FID in 2012, adding additional capacity of 22.5 million tonnes to projects under construction. As of today, Cheniere's Sabine Pass has received FERC approval, with an FID expected very shortly. The additional new production in 2012 from Pluto and Angola LNG, together with debottlenecking projects and the ramp up of the significant number of new projects that have recently started up could add up to approximately 14 million tonnes of LNG (or approximately 5.2% of total current production) to the market by the end of 2012. In the same timeframe only 2 conventional size vessels are expected to be delivered, both dedicated to lift project volumes from Malaysia and Angola. Outlook The Company remains fundamentally optimistic about its future prospects both near and long term. Golar has a strong position of available vessel capacity set against a market with undeniably strong fundamentals. The Company has already capitalized on its dominant position of prompt tonnage availability during 2012 with the commencement of term charters of Golar Grand and Arctic which will result in a significant increase in revenues in the second quarter. The new charter recently concluded on Golar Viking will continue this trend with additional upcoming potential on the near term open positions on Golar Maria, Hilli, and Gandria. Turning to the longer term, the Company's newbuild program has absorbed 30 - 40% of the available open capacity fleet wide in the period from late 2013 onwards. Projects already under construction will add close to 73 million tonnes of production annually in the same time frame with upside potential coming from several areas including US exports and further growth in Australia. The Board believes that up to the present time, rates for long term charters have not yet fully matured to the point where it is reflecting the true value of open tonnage in the middle part of the decade. The Company remains confident that this situation will improve as more product comes to the market. The weakness in the overall shipping market as well as the financing markets has clearly limited the Company's potential competitors ability to capitalize on this opportunity and created an interesting window. On the assumption that the projected sale of the FSRU vessel N R Satu to Golar LNG Partners is concluded, Golar expects to be able to take delivery of its entire newbuilding program, maintain a high dividend payment and expand its activities without raising further equity. The Board has further approved a stock repurchase program which authorizes the buy back of up to 10 % of the Company's outstanding stock. The program expires December 31, 2013, and has a maximum repurchase price of $45 per share. The objective of the share buy-back program is to distribute the Company's equity capital to its shareholders in a manner more beneficial to shareholders than through an ordinary dividend. The shares purchased under the program will be kept as treasury shares and may ultimately be cancelled. With the upcoming build up of fleet size, the Board is currently putting a large focus on ensuring it has the organizational capacity to achieve and maintain a first class operational service in technical management of the Company's vessels. The Company has in the recent months significantly strengthened the staff in its management company, Golar Wilhelmsen, in order to prepare for increased activities. With its technical management organization combining the best of both worlds of internal organization control combined with leveraging the systems of Wilhelmsen Ship Management the Board believes it has the right formula to provide its customers with industry leading shipping service. The Company's FSRU franchise remains a cornerstone of the business with four units now operational. Although only a portion of the multitude of new FSRU projects being developed will likely reach FID in the near term, the Board believes that the Company's unmatched project delivery and operations credentials combined with its ability to provide prompt delivery of its two committed newbuild FSRU's will create interesting contracting opportunities with high value contracts and subsequent commitment to additional newbuild orders. The Company's decision to design FSRU's that can operate as LNG trading vessels with comparable performance characteristics creates a high degree of flexibility in ensuring strong revenue contribution from these assets. The Company is still considering opportunities in other LNG infrastructure plays such as power ships and simple LNG producing plants. The economics in these projects are very compelling but they are to a much larger extent based on a close cooperation with end users and with significant higher completion, technical and legislation risk. Operating income (after depreciation) in the second quarter of 2012 is expected to increase by more than 100 % compared to first quarter. The Company expects reduction in operating cost and an increase in revenue as a function of new charters. The results so far in the quarter confirms both these trends. The Board is excited about the way the LNG industry is evolving where a one year charter rate has now reached a point where the cost of a newbuilding is only approximately four times annual EBITDA for a modern vessel. The Board remains confident that the Company is well positioned to deliver strong growth and solid returns to shareholders in the years to come. Golar LNG Limited press release |
