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Golar LNG announces Preliminary Fourth Quarter and Financial Year 2009 Results |
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Saturday, 27 February 2010 |
 Golar LNG Limited reports consolidated net income of $17.4 million and consolidated operating income of $19.2 million for the three months ended 31 December, 2009 (the "fourth quarter").
Revenues in the fourth quarter were $65.5 million representing an
increase of 30% from $50.3 million for the third quarter of 2009 (the
"third quarter"). This is mainly as a result of a full quarter's
contribution from the Golar Winter together with the contribution to
revenue from spot traded vessels also showing a marked improvement
despite the drydocking of one vessel. As a result utilisation for the
fourth quarter was at 93% compared to 80% for the third quarter and
fourth quarter average daily time charter equivalents ("TCEs") increased
to $62,471 compared to third quarter TCE of $44,142.
Voyage expenses
decreased from $9.6 million in the third quarter of 2009 to $7.2
million for the fourth quarter mainly due to an improved utilisation of
spot traded vessels. The improvement in utilisation rates has resulted
in lower fuel costs paid for by Golar. Vessel operating expenses were
lower at $14.9 million for the fourth quarter compared to $15.7 million
for the third quarter.
Net interest expense for the fourth quarter at
$11.7 million was down from $12.5 million in the third quarter. This is
mainly due to a decrease in LIBOR during the quarter and a reduction in
debt levels as a result of amortisation from regular repayments.
Other
financial items have decreased from a gain of $10.5 million for the
third quarter to a gain of $7.2 million in the fourth quarter. An
increase in long-term interest rates resulted in mark-to-market
valuation gains of $5.1 million on interest rate swaps as compared to
losses in the third quarter of $2.3 million. However, the total other
financial items gain still decreased because of a gain of $7.8 million
recorded in the third quarter arising from the termination of an equity
swap. Additionally, there were net gains of $2.3 million in the fourth
quarter in respect of currency retranslations and currency forward
contract valuations. During the quarter, the Company also terminated its
equity swap in respect of its own shares which resulted in a net gain
of $0.6 million.
Equity in net earnings of associates relates mainly
to the company's 50% investment Bluewater Gandria NV, the owner of the
vessel Gandria, and the Company's investment in LNG Limited. As a result
principally of the Company's reduction in its ownership stake in LNG
Limited the Company has discontinued equity accounting for this
investment from November 2009.
The gain on sale of investee of $8.4
million represents the sale of 9.6 million LNG Limited shares as
discussed further below.
For the twelve months ended December 31,
2009 Golar reports net income of $23 million, operating income of $31
million and operating revenues of $216 million as compared to, a net
loss of $10 million, operating income of $132 million and operating
revenues of $229 million for the year ended December 31, 2008. The
decrease in operating income is mainly accounted for by a $78 million
decrease in gains on sale of assets in 2009. Net income is increased
despite the fall in operating income as a result of a decrease in other
financial items charges which were loss in 2008 of $82 million as
compared to a gain in 2009 of $44 million. The improvement largely
relates to losses on the mark-to- market valuations of interest rate
swaps, currency derivatives and currency retranslations in 2008 as
compared to gains in respect of the same in 2009.
Financing, corporate and other matters
During the quarter the Company
issued 250,000 new share options with a strike price of $11.80 and also
cancelled 1,058,083 options; additionally 200,000 options were
exercised that had a strike price of $9.89. After this new issue,
cancellation and exercise the remaining outstanding options amount to
1,546,834. Golar Energy also issued share options to directors and
employees totalling 3,940,000 at a strike price $2.20. All options vest
over a period of two years and eight months.
In November 2009, the
Company terminated an equity swap in 300,000 of its own shares,
originally priced at Nok41, and concurrently bought 300,000 at the
market price of Nok73 (approximately $13). The total transaction
realised a gain of approximately $1.7 million of which approximately
$0.6 million is recorded in the fourth quarter. After this transaction
Golar holds a total of 450,000 of its own shares.
In November 2009,
Golar LNG Energy Limited ("Golar Energy") sold a block of 9.6 million
LNG Limited shares which reduces its shareholding to approximately 6.3%
of LNG Limited's issued share capital. The Gladstone LNG Fisherman's
Landing project is discussed more fully below. The sale realised funds
of approximately $11 million and resulted in an accounting profit of
$8.4 million.
In connection with the stock dividend of Golar Energy
shares in respect of the third quarter of 2009 Golar distributed a total
of 6.8 million Golar Energy shares. After this distribution Golar's
total holding is 161.6 million shares or approximately 71%.
As at
December 31, 2009 there was $10 million outstanding under the World
Shipholding $80 million revolving credit facility.
Golar has
continued to work with potential lenders in respect of the financing of
the Golar Freeze. The financing relates to the transfer of the vessel
from Golar Energy to Golar once it goes on charter to the Dubai Supply
Authority. The Board remains confident that, based on indicative offers
received, an acceptable resolution of the refinancing will be
forthcoming.
After Golar Freeze commences its charter in the second
quarter, the 5 ships on long term charter will generate approximately
$72 to $75 million in yearly free cash flow after debt service. This
number is after approximately $50 million in debt amortisation. This
cash flow will further increase in 2013 when Golar Mazo's debt will have
been fully repaid.
The Board expects, based on these fundamentals,
that a cash dividend will commence in respect of the second quarter of
2010. In the meantime however, the Board has decided to propose a second
Golar Energy stock dividend in respect of the fourth quarter of 2009.
One Golar Energy share will be distributed for every 7 shares held in
Golar. Dates for this dividend will be announced separately.
Operational
Review
Shipping
Spot market activity increased favourably in the
fourth quarter which also saw all Golar spot vessels improve their
trading performance. Available tonnage in the Atlantic Basin was fairly
tight although limited opportunities existed for those vessels that were
not cold and load-ready for spot activity. Vessel charter rates were
also up but still have some room for improvement. Low gas prices
supported last quarter's increased activity and, with available (albeit
tightening) ship supply, LNG suppliers have managed to secure transport
at low rates and secure positive netbacks. The market in the second half
of 2009 was further supported by a relatively steep seasonal contango
in the gas market.
This contango is seasonal and has disappeared in
the first quarter of 2010. Recent indications and lack of spot market
activity indicate that winter demand has fallen away quite rapidly,
vessel availability has increased and further competition is becoming
evident from existing project-based ships now providing backhaul
services at rate levels that further undermine the market. However,
increased demand as the world moves out of recession allied to an
increasing flexible supply of LNG in 2010, should in the Company's
opinion, mean that market fundamentals will support a much needed
improvement in charter rates and utilisation going forward, albeit that
at least the first part of 2010 will be very challenging.
The current
fleet stands at approximately 340 ships, a 21% increase from the 280
ships at the end of 2008 driven by an equally significant increase,
albeit somewhat delayed, in LNG production. However, no new orders have
been placed since May 2008 until a recently reported single vessel
order. This means 37 new vessels will be delivered between now and end
2012 compared to 38 Vessels in 2009 and some 53 new deliveries in 2008.
By the end of 2010 only 11 ships currently remain to be delivered
representing only 3% of the total fleet. Contrary to other shipping
markets such a low order book gives reasons for conditional optimism.
Regasification
The
outlook for new floating storage and regasification projects remains
encouraging. Many LNG import terminal developers are taking the
necessary and material steps to support the next wave of floating
regasification contracts after the hiatus in 2009 following the global
financial crisis. Pre-qualification ("PQ")/Request for Proposal ("RFP")
activity is on the rise; regas developers are engaging technical
consultants to scope new projects; and interestingly inquiry among oil
and gas majors has increased. Recent and notable public market activity
includes:
-- Indonesia (West Java): Golar Energy has recently
received a PQ from the Indonesian national oil and gas company,
Pertamina and national gas transmission company, PT Perusahaan Gas
Negara (Persero) Tbk ("PGN") for a ~3 MTA/year offshore LNG receiving
terminal, targeted for a 4Q2011 start-up in West Java. Golar Energy will
submit a PQ. Contract award is targeted for 3Q2010.
-- Indonesia
(Sumatra): Golar Energy has responded with interest in PGNs solicitation
of interest for a ~1-2 MTA/year floating storage and regasification
terminal, targeted for a 1H2012 start-up in North Sumatra. The PQ is
expected to be launched within 1Q2010 with contract award targeted for
4Q2010.
-- Jamaica: Golar Energy has recently submitted a proposal of
interest in response to the Petroleum Corporation of Jamaica's RFP for a
~2 MTA/year offshore LNG receiving terminal, targeted for a 2012
start-up.
-- Israel: Golar Energy has submitted the qualification
documents for the Government of Israel ("GOI") LNG Import Terminal PQ
process for a ~3 MTA/year offshore LNG receiving terminal offshore,
targeted for a 2H2013 start-up. Site selection is still underway. The
GOI is finalizing the qualification process for eligible participants.
--
Uruguay: The governments of Uruguay and Argentina have agreed to build
an LNG regasification terminal to be located in Uruguay to supply
natural gas to both countries. Foster Wheeler Iberia has been retained
to develop the tender basis. Golar Energy is closely monitoring
activities with strong interest.
The Board remains committed to and
confident in delivering the next FSRU contracts and is taking pro-active
steps to position and ensure coverage of the full market. Company
calculations show that floating terminals can be significantly cheaper
and are more flexible than land based alternatives. In addition floating
terminals benefit from a significantly faster time to start up.
Golar
Freeze has been at Keppel Shipyard since September 2009 undergoing its
FSRU conversion prior to its delivery to Dubai Supply Authority (DUSUP)
under a 10 year charter. Work is well advanced and the vessel is
scheduled to leave the shipyard early in the second quarter of 2010. The
Golar Winter has performed well since acceptance on charter in the
third quarter 2009.
Liquefaction
As reported last quarter the
Gladstone LNG Fisherman's Landing Project continues to move forward
positively.
However, during the 4th quarter it became clear that the
upstream gas producing wells would not obtain full environmental
approval needed for financial close until well past March 2010. However,
for the project to maintain the start up target date of end 2012 it
would be necessary to take a firm investment decision (FID) by March
2010. This would result in the need for equity financing over at least a
12 month period. It became apparent that under the above circumstances
and given the reported capital costs, that the project would not
progress under the original HOA's and, as a result, all parties were not
prepared to move forward with them.
With the objective of achieving
project FID by March 2010 and to provide increased certainty of the
project's first LNG shipment in late 2012, Arrow and LNG Ltd agreed in
February 2010 that Arrow will acquire the LNG Ltd subsidiary Gladstone
LNG that holds the rights to develop the Fisherman's Landing site, all
approvals and the pre-development work. LNG Ltd as the 100% owner of
Gladstone LNG had undertaken all the prefunding requirements for the
work in Gladstone LNG, Golar Energy has not had any money at risk and
Golar Energy will not receive any consideration from the acquisition by
Arrow.
As a result of the aforementioned restructuring Golar Energy
has entered into a HOA on the Shipping and Marketing with Arrow for the
sale of LNG from the project. Golar Energy will provide marketing
services to Arrow and Golar Energy will receive a royalty for these
services based on the LNG sales price and quantity. In addition Golar
will time charter two LNG carriers to Arrow to transport the LNG to the
end customer. There are significant conditions precedent to the HOA
agreement which relate to the successful conclusion of a LNG sales and
purchase agreement ("SPA"). If these are not met there is no guarantee
that Golar will have any role in the project. Golar Energy currently has
a HOA with Toyota Tsusho Corporation as buyer of the LNG from the first
train.
This restructuring is clearly a departure from the position
originally planned. However, assuming Golar Energy is successful in
securing this revised role, the restructuring is positive in that it
removes any risk associated with upstream approvals or capital cost
increases and would lock in the employment for two LNG carriers and
provide a minimum royalty with upside related to oil price. Whilst the
absolute cash returns would be lower than previously anticipated there
is also a significantly reduced equity requirement, including no equity
support that Golar Energy was required to provide LNG Limited under the
pre- existing arrangements.
Golar Energy and PTTEP announced in
January 2010 the joint termination of the Heads of Agreement and Joint
Study Agreement governing their joint development of a floating
liquefied natural gas (FLNG) project based on the gas fields in North
West Australia owned by PTTEP. The two Companies also announced their
termination of a Memorandum of Understanding covering their global
cooperation to identify and develop FLNG projects.
Golar Energy will
continue to actively pursue FLNG projects which fit with its financial
objectives and best captures its technical capabilities. Golar Energy's
FLNG strategy will be expanded to include the development of low capital
cost, rapid deployment floating facilities utilising the conversion of
high quality existing LNG carriers, floating technologies for the
liquefaction of pipeline quality gas or associated gas (requiring
minimal processing) and seek other innovative LNG solutions. This
strategy complements Golar Energy's industry leadership position in
floating LNG regasification facilities development. In an era of intense
competition in the LNG industry and the high cost and long lead time of
land based LNG facilities, Golar Energy believes highly cost efficient
approaches based on floating LNG liquefaction, storage and offtake,
shipping and regasification facilities of the types now being developed
by the company will be key to substantial additional growth
opportunities.
Market
Last year's recession along with the
start-up of new production and import capacity triggered a sizeable
shift in the overall distribution of LNG trade. In addition cold weather
across the Northern Hemisphere spurred stronger gas demand in December
with consumption reaching new record highs in parts of Europe. However
enough spare capacity existed throughout the supply chain to prevent
large price spikes.
The U.S. stepped-up its LNG consumption last year
despite the domestic shale gas boom, on the back of falling demand
elsewhere and the abundance of supply at low prices. Last year witnessed
a nearly worldwide crash in industrial gas demand, which in the US
pushed gas prices so low that the fuel began backing out coal in many
parts of the electricity sector, thus preventing a complete collapse in
prices
Far Eastern consumption dropped but recovered somewhat at the
end of last year. There were higher import volumes for Japan, Korea and
Taiwan compared to the same period a year earlier as demand recovered
from the recession-led dip. Prices remained lower than a year previous
however.
The nature of LNG's role in the gas market is set to change
since as much as 60 million tons per year of global LNG is expected to
be flexible supply in 2010. This means that nearly 3% of global natural
gas consumption can be redirected to whatever market offers the best
netback to sellers.
The amount of new LNG capacity coming on line
over the course of 2010 will be circa 23.1 million tons/yr compared to
46.5 million tons/yr last year. The 2010 number may well shift if
Qatar's last train is completed by September, as now scheduled, or the
Peruvian LNG project slips into early 2011, as many expect. Nonetheless
uncommitted LNG is set to double in 2010 to 60 million tons. In
addition, 2009 saw two final investment decisions with Chevron's 15
million tonne Gorgon project and Exxon's 6.6 million PNG LNG project.
Both projects are expected to be operational by 2014.
One notable
development from last year was that December saw the first re- export
from a U.S. LNG storage facility, the cargo being loaded at Freeport and
sold into Korea
Outlook
The LNG sector has suffered as a result
of the global recession and the successful development of shale gas in
the US. This, in combination with new LNG supply coming on stream has
resulted in downward pressure on LNG prices. Several LNG trains around
the world are running at reduced capacity and with the new capacity it
could take some time before we see a balance in the demand and supply
situation. However, this oversupply and increased flexible supply might
also create some arbitrage opportunities which would benefit an over
supplied spot shipping market as well as making more regasification
projects realistic.
There are clear similarities between the more
flexible structure of the LNG market which is now emerging and the
opening of the crude oil market in the 1970's. There is increased
activity by traders and spot cargoes are still at a limited level.
The
break even cost for Mid East LNG production is supported by the value
of associated crude and condensate production and makes it highly likely
that LNG will be a competitive and growing commodity, also in an
environment influenced by increased US shale gas production. The strong
gas demand coming out of China further supports this case.
By end of
2010 there is a significant decline in the rate of growth of the fleet
and with no new buildings ordered during 2009. The Company believes that
we will begin to see a tightening of the shipping market over the next
twelve to eighteen months. Based on the long term demand for LNG the
capacity of the LNG fleet will have to be increased also taking into
account that a number of the old vessels will be scrapped or converted
into regasification or floating liquefaction vessels.
The floating
regasification market is looking more and more promising with increased
interest in floating regasification from all over the world. With the
uncertainties in the global market of the past eighteen months slowly
being overcome project developers in this market seem to be much more
focused and serious and the Company believes that there will be a few
new FSRU contracts awarded during 2010. New players are trying to enter
the market, however the Company believes that Golar Energy is in a good
position to secure contracts based on its previous experience in this
market.
The company has gained valuable floating liquefaction (FLNG)
experience through the work done with PTTEP and other studies. The
Company is extremely cognizant of the significant challenges to
undertake a large scale FLNG project as conceived by some market
participants, both from a technical, commercial and financing point of
view. The Company believes that there are alternative niche markets to
be developed in this sector and during the last 6 months has developed a
FLNG concept for a 1 million ton per annum unit which could liquefy
pre-treated/pipe gas/coalseam gas at a very competitive capital cost per
ton. The company will selectively continue to pursue the FLNG market.
The Company also believes that further worldwide opportunities exist in
solutions which integrate power production and regas projects.
Golar
will use the current weak freight market to seek much needed
consolidation opportunities. The Board is further considering strategic
opportunities to maximize the value of the Company's long term charter
tonnage to the benefit of Golar LNGs shareholders.
Operating results
for the first quarter of 2010 are likely to be significantly negatively
impacted by the seasonal decline in utilisation of the Company's vessels
operating in the spot market. However, Golar now has four of its five
long-term contracted vessels operational with the final vessel due for
delivery to its charterer in the second quarter of 2010. The Company is
further supported by relatively low financial gearing, a healthy cash
position and competitive cash break even rates. There are strong reasons
for expecting a good improvement in shipping rates medium to long term;
however shareholders should be aware that the next few quarters will be
challenging to keep utilisation and rates of the spot ships at
financially rewarding levels.
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.
Source:
Golar LNG
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