Golar LNG Partners LP preliminary fourth quarter and financial year 2020 results
Golar LNG Partners LP generated operating income of $32.2 million for the fourth quarter of 2020, exclusive of its interest in FLNG Hilli Episeyo.
The Partnership reported net income attributable to unit holders of $20.7 million for the fourth quarter after accounting for $0.4 million of non-cash mark-to-market interest rate swap gains.
The Partnership generated distributable cash flow1 of $31.6 million for the fourth quarter resulting in a distribution coverage ratio1 of 22.09. Golar Partners entered into an agreement and plan of merger (“the merger”, “the merger agreement”, or “the transaction”) with New Fortress Energy Inc. and certain of its subsidiaries (“NFE”) whereby NFE will acquire all of the Partnership’s common units for $3.55 per unit.
In addition, Golar LNG Limited (“Golar”) entered into an agreement with NFE to transfer all the membership interests in Golar GP LLC to NFE for $5.1 million in cash, equivalent to $3.55 per general partner unit (“the GP Transfer agreement”).
The Partnership’s common unitholders voted to approve the merger with NFE on February 24, 2021. The closing of the merger is also conditioned upon receipt of a number of other approvals and consents.
The Partnership declared a distribution for the fourth quarter of $0.0202 per common unit.
Financial Results Overview
Golar Partners reports net income attributable to unit holders of $20.7 million and operating income (which excludes its share of Hilli Episeyo which is accounted for under the equity method) of $32.2 million for the fourth quarter of 2020 (“the fourth quarter” or “Q4”), as compared to net income attributable to unit holders of $17.4 million and operating income of $32.1 million for the third quarter of 2020 (“the third quarter”, “prior quarter” or “Q3”) and net income attributable to unit holders of $30.4 million and operating income of $36.3 million for Q4 2019.
In order to incorporate the economic performance of the FSRU Golar Freeze into total partnership performance, management has determined that it will measure the performance of the Golar Freeze sales-type lease based on Adjusted EBITDA1 (EBITDA as adjusted for the amount invoiced under sales-type lease in the period).
The Partnership’s Q4 Adjusted Operating Revenues1 including amounts invoiced under the Golar Freeze sales-type lease and the Partnership’s effective share of operating revenues from FLNG Hilli Episeyo, increased by $0.8 million relative to Q3. Following the annual settlement meeting with charterers of the NR Satu, Q3 operating revenues were negatively impacted by the reimbursement of $0.5 million of 2019 operating costs overpaid by the charterers. The remainder of the increase is attributable to recognition of the Partnership’s 2.5% share of revenues from Hilli Episeyo’s 2019 and 2020 overproduction and a higher average daily rate achieved by the LNGC Golar Maria. Voyage and commission expenses at $1.9 million increased by $0.3 million relative to the prior quarter primarily due to positioning costs incurred by the Golar Maria ahead of its term charter that commenced during the quarter. Both utilization and average daily TCE1 were in line with the prior quarter at 98% and $101,100 respectively.
Vessel operating expenses decreased by $1.8 million from $20.1 million in Q3 to $18.3 million in Q4. The cost of charter flights to effect crew changes, quarantine and extending crew contracts decreased for the FSRUs Golar Eskimo and Golar Igloo. Crew costs in respect of the FLNG Hilli Episeyo were also lower for the quarter. Legal and professional costs incurred in connection with the merger with NFE together with the non-cash expensing of certain legacy front end engineering and design costs for Hilli Episeyo both contributed to a $1.8 million increase in administrative expenses, from $3.5 million in Q3 to $5.3 million in Q4.
A decrease in LIBOR rates and ongoing principal repayments resulted in a $1.4 million decrease in interest expense, from $17.8 million in Q3 to $16.4 million in Q4. Further increases in longer-term swap rates resulted in a mark-to-market gain on interest rate swaps and a gain on derivative instruments of $0.4 million during the quarter. As of December 31, 2020, the average fixed interest rate of swaps related to bank debt, including the Partnership’s effective share in respect of Hilli Episeyo was approximately 2.3%.
The third quarter dividend in respect of FLNG Hilli Episeyo was delayed until costs associated with its scheduled early October maintenance window had been accurately estimated. These were finalized during Q4 and the dividend was paid. Surplus cash in Hilli LLC was also distributed to shareholders in the form of a special dividend. The Partnership’s share of this amounted to approximately $3.0 million. Distributable cash flow1 increased as a result and the distribution coverage ratio1 increased accordingly, to $31.6 million and 22.09 respectively.
Fleet utilization at 98% was in line with the prior quarter.
FLNG Hilli Episeyo, which completed its scheduled maintenance window in October, on time and without issue, continues to maintain 100% commercial uptime and reliably deliver quarterly LNG tolling revenues. Charterers Perenco and SNH were also billed for 2019 and 2020 overproduction. The Partnership’s 2.5% share of this amounted to $0.2 million. Early in the new year FLNG Hilli Episeyo achieved another milestone, the production of its 7 millionth cubic meter of LNG and export of its 50th cargo. The vessel continues to maintain 100% commercial uptime and most recently exported its 52nd cargo.
During the quarter, the LNGC Golar Maria commenced its term charter. The vessel is due to undergo its scheduled 5-yearly dry docking in Q2 2021. Logistics associated with reactivating the LNGC Golar Mazo from layup in a COVID-19 constrained environment together with the time and cost associated with completing its required drydock meant that the vessel was not available to trade over the exceptionally strong December/January period. The customized positioning of the FSRU Golar Igloo’s loading arms for the KNPC facility and the need to complete its scheduled winter maintenance window in Dubai also prevented this vessel from easily being traded as a carrier during its scheduled January/February downtime. The vessel has now commenced its 2021 regas season offshore Kuwait.
Financing and Liquidity
As of December 31, 2020, Golar Partners had cash and cash equivalents of $48.8 million. Adjusted Net Debt1 as at December 31, 2020 was $1,399.3 million, including the Partnership’s $389.3 million share of debt in respect of FLNG Hilli Episeyo. Q4 2020 Total Adjusted EBITDA1 amounts to $77.0 million. Based on the above, the Q4 Adjusted Net Debt1 to Annualized Adjusted EBITDA1 ratio was 4.5x. As of December 31, 2020, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,233.8 million (including swaps with a notional value of $250.0 million in connection with the Partnership’s Norwegian USD bonds and $389.3 million in respect of Hilli Episeyo), representing approximately 85% of total debt and finance lease obligations, including assumed debt in respect of Hilli Episeyo, net of restricted cash.
The average fixed interest rate of swaps related to bank debt, including the Partnership’s effective share in respect of Hilli Episeyo is approximately 2.3% with an average remaining period to maturity of approximately 2.9 years as of December 31, 2020.
Outstanding bank debt as of December 31, 2020, inclusive of Hilli Episeyo related debt, was $1,129.0 million, which had average margins, in addition to LIBOR, of approximately 2.43%. As at December 31, 2020, the Partnership also had a November 2021 maturing $150.0 million amortizing Norwegian USD bond with a coupon of LIBOR plus 6.25% and a November 2022 maturing $250 million amortizing Norwegian USD bond with a coupon of LIBOR plus 8.1%. Both bonds have call options at 100% of par until May 2021 and at 105% until maturity thereafter. Inclusive of the accumulated accretion of the potential 5% premium payable at maturity and net of amounts repaid, $142.6 million was outstanding in respect of the November 2021 maturing bond (GOLP02) and $242.5 million was outstanding in respect of the November 2022 maturing bond (GOLP03), as at December 31, 2020. Under the terms of the merger entered into on January 13, 2021, the outstanding Norwegian USD bonds will be settled at par upon closing the transaction. Prior to announcement of the transaction, GOLP02 and GOLP03 traded at approximately 85.5% and 84.0% of par respectively.
The Partnership’s 7-vessel $800 million bank facility had $516 million outstanding at December 31, 2020. Following initial refinancing efforts, existing lead lending banks indicated a willingness to increase their commitment levels in a new facility, from approximately $316 million at year end 2020, to $455 million in a new bank facility. A bank syndication process led by the lead lenders and the Partnership was then launched. This process attracted one incremental additional commitment, bringing the total commitments to $505 million, enough to cover the $503 million outstanding at maturity in April 2021, but less than the target amount of up to $600 million. The softer than desired outcome of the syndication process was believed to be a result of COVID-19 effects on the bank syndication market, as well as non-subscription of smaller existing lenders, some of whom are exiting the shipping sector. As the bank syndication process covered the maturing amount, but would have been unsuccessful in reducing the refinancing needs for the high yield bonds, the Partnership extended the syndication process with the lead banks into mid-February 2021. Under the terms of the merger agreement signed with NFE in the intervening period, this facility will also be repaid upon closing of the merger.
Corporate and Other Matters
On January 13, 2021, Golar Partners announced that it had entered into a merger agreement with NFE.
Upon the merger agreement becoming effective, all of the outstanding common units will be cancelled and automatically converted into rights to receive cash in an amount equal to $3.55 per unit. Upon the GP Transfer agreement becoming effective, Golar will also receive $5.1 million, equivalent to $3.55 per general partner unit. In connection with the transaction, the Partnership’s incentive distribution rights will be cancelled. The Series A preferred units will remain outstanding. Expected to close in the first half of 2021, consummation of the merger remains subject to the receipt of certain regulatory approvals, third party consents and other customary closing conditions.
The merger consideration to be received by common unitholders represents a 27% premium to the closing price of the Partnership’s common units of $2.79/unit on January 12, 2021, and a 37.5% premium to the volume weighted average closing price of those common units for the 20-trading day period ended January 12, 2021.
The Partnership’s Board of Directors, acting upon the recommendation of the Conflicts Committee of the Board of Directors, unanimously approved the proposed transaction and recommended that the Partnership’s common unitholders vote in favor of and to approve the merger. At a Special Meeting of Golar Partners common unitholders on February 24, 2021, unitholders voted to approve the transaction.
As at December 31, 2020, there were 70,738,027 common and general partner units outstanding in the Partnership. Of these, 22,769,977, including 1,436,391 general partner units, were owned by Golar, representing a 32.2% interest in the Partnership.
On January 27, 2021, Golar Partners declared a distribution for the fourth quarter of $0.0202 per unit. This distribution was paid on February 12, 2021 to common and general partner unit holders of record as at February 5, 2021.
A cash distribution of $0.546875 per Series A preferred unit for the period covering November 15, 2020 through to February 14, 2021 was also declared. This was paid on February 15, 2021 to all Series A preferred unit holders of record as at February 8, 2021.
There were 20,000 outstanding and exercisable options as at December 31, 2020. As the exercise price for these options exceeds the per unit merger consideration they will be cancelled upon closing of the merger. A further 58,960 Phantom Units were in issue on December 31, 2020. These will vest upon closing of the merger.
LNG Market Review
The quarter commenced with JKM at around $5.15/mmbtu and quoted steam turbine (“ST”) headline spot rates of around $43,000 per day. The rapid ramping up of US export capacity in October following earlier hurricane related interruptions was met by strong winter demand in key Asian markets. Multiple and significant additional supply outages elsewhere then added upward pressure to LNG prices and widened regional price differentials, pulling more Atlantic LNG to markets in the Far East. As ton miles increased and carrier availability decreased, rates responded with ST spot rates reaching $75,000 per day by late October. Increasing use of European reloads and significant congestion at the Panama Canal added further upward pressure to ton miles as 10-day transit delays sent more vessels around the Cape. Particularly cold weather in Asia, a shortage of cargoes in the East, US facilities producing above nameplate capacity to compensate for further supply outages elsewhere, and a shortage of available vessels then sent both LNG prices and shipping rates on a path to record levels. As noted earlier, the Golar Mazo was not available to trade at this point due to her being in layup and requiring a drydock, Golar Maria had commenced her term charter, and the FSRU Golar Igloo was limited by terminal compatibility and time available due to the performance of scheduled maintenance during her 1.5 month winter downtime. The quarter ended with JKM at around $15.10/mmbtu and quoted ST headline spot rates of around $98k/day. Despite the significant increase in spot rates, term charter rates remained broadly unchanged.
The entry into the merger agreement with NFE by Golar Partners comes after an extensive search for strategic alternatives, and is an attractive solution that creates immediate additional value for the Partnership’s stakeholders. The closing of the transaction is conditional on the receipt of certain regulatory approvals, third party consents and other customary closing conditions, and is expected to occur within the first half of 2021.
Source: Golar LNG Partners LP