Golar LNG Partners Issues Results
Bermuda’s Golar LNG Partners L.P today [Feb.21] reports net income attributable to unit holders of $23.1 million and operating income of $33.7 million for the fourth quarter of 2011, as compared to $22.9 million and $28.8 million for the fourth quarter of 2010.
As required by US GAAP, following the acquisition of the floating storage and regasification unit [FSRU] “Golar Freeze” from Golar LNG Limited, the results for the fourth quarter of 2011 and comparative numbers for the fourth quarter of 2010 assume that the “Golar Freeze” was wholly owned by the partnership for the entire period that the vessel has been under the common control of Golar. These results therefore include the historical carved out results of the “Golar Freeze”.
Operating results were improved due to increased revenue as a result of inflation escalators within the Petrobras charters and also as a result of lower operating expenses. All vessels operated well throughout the quarter with 100 percent utilisation.
The acquisition of the “Golar Freeze” for $330 million from Golar was funded by the Partnership assuming debt of $108 million and $222 million of vendor financing provided by Golar. This has resulted in the partnership’s net interest expenses increasing to $6.9 million for the fourth quarter, compared to $4.4 million for the same period last year.
The floating storage and regasification unit [FSRU] “Golar Freeze”
Other financial items were a loss of $0.5 million for the fourth quarter as compared to a gain of $0.9 million for the same period in the prior year. The variance mainly relates to the changes in non-cash mark-to-market valuations of financial derivative instruments, principally interest rate swaps and currency swaps.
The partnership has accounted for the acquisition of the “Golar Freeze” as a transfer under common control. Under this method the carrying book value of the net assets acquired are recognised on the partnership’s balance sheet. The excess of proceeds paid by the partnership over Golar’s historical cost is accounted for as an equity distribution to Golar.
The partnership’s Distributable Cash Flow for the fourth quarter at $20.5 million is an improvement from $18.4 million in the third quarter of 2011.
Golar Partners declared a dividend for the fourth quarter of $0.43 per unit, representing a 7.5% increase from the previous quarter’s distribution. The dividend was paid on February 15, 2012.
“Golar Winter” Modifications and Charter Extension
As announced on January 19, 2012, Golar partners has reached agreement with Petrobras to make certain modifications to the “Golar Winter” FSRU and to extend the term of the contract by 5 years to 2024.
Petrobras have taken the decision to move the Golar Winter FSRU from its present site in Rio de Janeiro to Bahia and as a consequence the vessel will require certain modifications including the addition of LNG loading arms. Golar Partners has agreed to make these modifications and Petrobras have agreed to an increase in the charter rate in return for the upgrades to be made to the vessel.
In addition to the five year extension, Golar Partners will receive, in nominal terms, approximately $24 million in additional revenue over the term of the contract before the effect of rate escalation as provided for in the time charter.
The vessel is due to be delivered at its new site in the third quarter 2013 at which point the new charter rate will commence. The vessel is expected to incur offhire time of approximately the same amount as would be incurred during its normal five yearly drydocking, which will be undertaken at the same time. Golar Partners will enter into an agreement with Golar under which Golar will undertake the modification work.
Golar Partners will finance the modification work with cash and undrawn credit facilities but may also take the commitment into account in future debt or equity transactions.
The contract extension means the average contract length in the partnership is increased to approximately 9.2 years and total contracted revenue is improved significantly to approximately $1.9 billion.
As a result of the above there are no longer purchase options in respect of both the “Golar Winter” or the “Golar Spirit”.
Golar LNG Limited’s Newbuilding Programme
Golar recently announced that it has entered into contracts with Hyundai Heavy Industries to build two LNG carriers for delivery in 2014. This increases Golar’s newbuild programme to eleven vessels consisting of nine LNG carriers and two FSRUs. Five of the newbuilds are due for delivery in 2013 with the rest in 2014. Given the positive outlook for the LNG market, Golar’s expanded newbuilding program is extremely positive for the future growth potential of the Partnership.
“Golar Freeze” Acquisition
The partnership successfully acquired the “Golar Freeze” from Golar in October 2011. The purchase price was $330 million and was financed by assuming the existing debt on the FSRU and $222 million of vendor financing from Golar. The “Golar Freeze” is expected to contribute approximately $46 million in additional revenues during the remaining contract period of 8.5 years.
As a result of the “Golar Freeze” acquisition the partnership has increased its dividend from $0.385 per quarter at IPO to $0.43 per quarter.
Financing and Liquidity
As at December 31, 2011 the partnership had cash and cash equivalents of $46.0 million and undrawn revolving credit facilities of $20 million. Total debt and capital lease obligations net of restricted cash was $726.2 million as of December 31, 2011.
Based on the above debt amount and annualised fourth quarter EBITDA Golar Partners has a debt to EBITDA multiple of 4.3 times, which leaves significant flexibility to finance further growth given debt covenant requirements of 6.5 times.
As noted above GAAP requires that the “Golar Freeze” be recorded on the partnership’s balance sheet at the historical book value in Golar’s books. The excess of the purchase price over this carrying value, which amounted to $165 million, is treated as a distribution to Golar and has therefore reduced book equity.
As at December 31, 2011, Golar Partners had interest rate swaps with a notional outstanding value of $466 million representing approximately 92% of senior bank debt and capital lease obligations, net of restricted cash. The average fixed interest rate of these swaps is approximately 2.7%. Average margins paid on outstanding debt, including the Golar Freeze debt in addition to the interest rate are approximately 1.5%. The fixed rate of interest paid on the Golar LNG loan is 6.75%.
Outlook
The acquisition of the “Golar Freeze” marked the first step in the Partnership’s growth strategy. The transaction has given rise to a quarterly distribution increase from $0.385 per unit to $0.43 per unit which represents an 11.7% increase from the minimum quarterly distribution set at the initial public offering in April 2011.
The agreements with Petrobras in connection with the “Golar Winter” are also very positive for the partnership. In addition to increased revenue following the modifications to the vessel, the extension of the contract by 5 years to 2024, for a contract that has inflation escalation built into it, provides significant future cash flow stability with some growth.
This is also positive for the partnership’s debt financing ability because financing banks will give significant credit to the extended contracted cash flow. The extension is also evidence of the recognition of the partnership and Golar as an operator of FSRU’s.
Growth for 2012 is expected to come from Golar Partners option to acquire the FSRU “Khannur”, which is contracted under an 11 year charter to Nusantara Regas [a joint venture between Pertamina and Indonesian gas distributor PGN] as well as the potential dropdown from Golar of additional LNG carriers. Golar Partners has the right to acquire any of Golar’s LNG carriers and FSRUs that in the future obtain charters of greater than five years. In addition to the “Khannur”, Golar’s current fleet consists of four modern LNG carriers, three older LNG carriers, nine newbuilding LNG carriers ordered and two newbuilding FSRUs ordered.
The fundamental outlook for the LNG industry over the coming years continues to be positive. LNG supply and demand are forecasted to grow strongly and this will require additional infrastructure including LNG carriers and FSRU’s. Particularly positive for LNG shipping is the development of LNG exports from the US which will likely have a high shipping requirement given that much of the output is likely to be shipped to Asia. The growth in LNG supply improves the ability of new markets to access LNG, which is leading to the continued strong interest in FSRU solutions.
The board therefore believes that Golar Partners has outstanding potential and opportunity to increase quarterly cash distributions and to be one of the fastest growing MLP structures in the years to come.
Golar LNG Partners is a Bermuda-based limited partnership. It was created by Golar LNG Limited to own and operate floating storage and regasification units [FSRU] and liquefied natural gas [LNG] carriers that provide maritime transportation under long-term charters.
Parent Golar focuses on FSRU and LNG project development, trading, transport, and storage contracts that are shorter term. Golar LNG Partners’ fleet consists of two FSRU vessels and two LNG carriers; it has rights to buy two more FSRUs from the parent, which enjoys long-standing relationships with major energy companies and shipbuilders.
