- Exclusive of its interest in FLNG Hilli Episeyo, Golar LNG Partners LP (“Golar Partners” or “the Partnership”) generated operating income of $27.7 million for the first quarter of 2020.
- After accounting for $46.8 million of non-cash mark-to-market interest rate swap losses, the Partnership reported a net loss attributable to unit holders of $33.1 million for the first quarter.
- Generated distributable cash flow1 of $25.4 million for the first quarter resulting in a distribution coverage ratio1 of 17.79.
- Agreed to extend the LNGC Golar Grand charter for a further year.
- Declared a distribution for the first quarter of $0.0202 per unit.
- Karl Fredrik Staubo appointed to succeed Graham Robjohns as CEO.
- Bondholders approved 18-month extensions to the May 2020 and May 2021 maturing high yield bonds.
- LNGC Golar Maria secured coverage for the majority of its available hire days between April 2020 and commencement of its term charter in Q4 2020, assuming exercise of a charterer option.
Financial Results Overview
Golar Partners reports a net loss attributable to unit holders of $33.1 million and operating income (which excludes its share of Hilli Episeyo which is accounted for under the equity method) of $27.7 million for the first quarter of 2020 (“the first quarter” or “Q1”), as compared to net income attributable to unit holders of $30.4 million and operating income of $36.3 million for the fourth quarter of 2019 (“the fourth quarter” or “Q4”) and a net loss attributable to unit holders of $15.0 million and operating income of $25.9 million for Q1 2019.
|Consolidated GAAP Financial Information|
|(in thousands of $)||Q1 2020||Q4 2019||Q1 2019|
|Total Operating Revenue||69,815||76,563||69,910|
|Vessel Operating Expenses||(16,212)||(14,495)||(16,810)|
|Voyage and Commission Expenses||(2,184)||(2,484)||(1,858)|
|(Losses)/Gains on Derivative Instruments||(46,835)||9,610||(13,967)|
|Net (Loss)/Income attributable to Golar LNG Partners LP Owners||(33,144)||30,395||(14,998)|
|Non-GAAP Financial Information1|
|(in thousands of $)||Q1 2020||Q4 2019||Q1 2019|
|Adjusted Interest Income||549||758||1,075|
|Adjusted Net Debt||1,513,004||1,532,040||1,588,162|
|Q1 2020||Q4 2019||Q1 2019|
|(in thousands of $)||FSRU*||LNG Carrier*||FLNG**||Total||FSRU*||LNG Carrier*||FLNG**||Total||FSRU*||LNG Carrier*||FLNG**||Total|
|Total Operating Revenues||53,441||16,374||26,018||95,833||58,975||17,588||26,018||102,581||53,405||16,505||26,018||95,928|
|Amount invoiced under sales-type lease||4,550||—||—||4,550||4,600||—||—||4,600||—||—||—||—|
|Adjusted Operating Revenues 1||57,991||16,374||26,018||100,383||63,575||17,588||26,018||107,181||53,405||16,505||26,018||95,928|
|Voyage and Commission Expenses||(1,313)||(871)||—||(2,184)||(1,231)||(1,253)||—||(2,484)||(1,124)||(734)||(180)||(2,038)|
|Vessel Operating Expenses||(11,495)||(4,717)||(6,003)||(22,215)||(9,574)||(4,921)||(5,240)||(19,735)||(11,793)||(5,017)||(5,953)||(22,763)|
|Total Adjusted EBITDA1||42,819||9,433||19,885||72,137||50,874||10,125||20,415||81,414||38,111||9,265||19,577||66,953|
* Indirect administrative expenses are allocated to the FSRU and LNG carrier segments based on the number of vessels.
** Relates to effective share of revenues and expenses attributable to our investment in Golar Hilli LLC (“Hilli LLC”) had we consolidated its 50% of the Hilli common units.
In order to compare the performance of the FSRU Golar Freeze with our wider business, 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).
As is customary, the Partnership's Q1 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, declined relative to Q4. The decline from $107.2 million to $100.4 million was largely a result of the scheduled winter down time of the FSRU Golar Igloo, which commenced its 2020 regas season on February 24, at a lower contract rate, as well as a reduction in revenue in respect of the LNGC Golar Mazo which commenced layup preparations during the quarter. Reduced broker commissions in respect of the Golar Igloo and lower bunker costs for the Golar Mazo contributed to a $0.3 million reduction in Q1 voyage, charterhire and commission costs. Fleet wide average daily time charter earnings1 ("TCE") decreased from $95,000 in Q4 to $93,500 in Q1.
The 54 days of scheduled Q1 winter down time for the Golar Igloo was used to complete planned maintenance and store up the vessel ahead of its 10-month 2020 regas season. These costs account for most of the $2.5 million increase in vessel operating expenses, up from $19.7 million in Q4 to $22.2 million in Q1. At $3.8 million for the quarter, administrative expenses were $0.3 million higher than Q4. Professional fees incurred in respect of a strategic review account for most of this.
The impact of a further decrease in LIBOR and ongoing debt repayment contributed to a $1.1 million reduction in interest expense, down from $18.6 million in Q4 to $17.5 million in Q1.
A significant decrease in interest rate swap rates during the quarter contributed to a $46.8 million Q1 non-cash mark-to-market loss on derivative instruments, compared to a Q4 gain of $9.6 million. As of March 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 2.4%.
As a result of the foregoing, Q1 distributable cash flow1 decreased $9.2 million to $25.4 million. A 95% reduction in the quarterly distribution, from $0.4042 per common and general partner unit, to $0.0202, contributed to a significant increase in the distribution coverage ratio1 from 1.21 in Q4 to 17.79 in Q1.
The quarter commenced with LNG prices at around $5.30/mmbtu and quoted steam turbine ("ST") spot rates of around $72k per day. Increases in US LNG supply combined with a mild winter continued to feed a counter-cyclical drop in international gas and LNG prices. Covid-19 lockdowns in the Far East and Europe added to negative sentiment. During February 2020, LNG pricing made it unprofitable to send US LNG to Europe. At this point, it was decided to place the carrier Golar Mazo, which had been idle throughout the quarter to date, into cold layup. LNG prices in the Far East then rebounded as those markets emerged from lockdown whilst prices in Europe sank as its lockdown started. Resultant arbitrage trading from Europe to the Far East briefly increased ton miles. Floating storage due to port delays, tank tops and contango pricing also supported longer voyages and vessel demand. Spot rates responded accordingly, briefly increasing in late-March, before declining once again as India entered lockdown and JKM dropped below $2/mmbtu. The quarter ended with LNG at approximately $2.35/mmbtu and quoted spot ST rates of around $40k/day. Despite an overall increase in global fleet utilization and steady vessel demand, spot charter rates followed the downward trajectory in LNG prices, accentuated by the emerging reality of US cargo cancellations.
During Q1, Freeport and Cameron T2 entered commercial operations and the Elba Island facility continued to ramp up. Commissioning of Cameron T3 commenced in April 2020, with commercial operations due to commence in Q3 2020, and Freeport T3 commenced commercial operations during Q2 2020.
Subsequently, during Q2 2020 LNG prices have dipped below $2/mmbtu for a more sustained period as a result of high inventories in Europe and Asia following a mild winter, further softening of demand in the wake of Covid-19, and a wave of supply tenders. In response, over 60 US cargoes scheduled for loading over the summer months are believed to have been cancelled. Prior to this the US was understood to be exporting 60-70 cargoes per month. Although these developments have negatively impacted the rates achieved by the Golar Maria since completing a multi-month charter at the end of March, the vessel has successfully secured further charters. Assuming options are exercised on the current charter, the vessel will have secured utilization for the majority of its available days between April 2020 and its term charter that begins in late Q4 2020.
For the remainder of the year, Covid-19 related demand uncertainty continues to weigh on LNG prices raising the prospect of additional US cargo cancellations. Pre-Covid-19 expectations that 2020 would see 30mtpa of additional LNG production are therefore no longer appropriate. An increasingly unpredictable inter-basin trade also makes ton miles difficult to model, however they are expected to increase in the second half of the year. Although the market remains highly volatile, leading industry analysts expect 2020 LNG production to be in the region of 1-3% above 2019 levels. Low near-term LNG prices, high summer inventories and expectations of rising US gas prices on the back of reduced oil production are currently expected to pave the way for a contango and stronger carrier rates into the winter months. As a result, the Partnership is confident that the current charterer of the Golar Maria will exercise their option to retain the vessel until late Q4 2020. Importantly, low oil prices and lower LNG spot prices should also facilitate a significant shift to gas fired power production bolstering demand for LNG, its freight, and for FSRUs.
During February 2020, a one year extension to the May 2020 expiring Golar Grand charter was agreed, at a rate similar to the current level. The Golar Igloo also commenced its new two-year charter in Kuwait. This contract may be further extended by charterer, Kuwait National Petroleum Co., for an additional year through to December 2022.
Idle time for the Golar Mazo together with the scheduled winter downtime of Golar Igloo both contributed to a fall in fleet utilization, down from 88% in Q4 to 82% in Q1.
Mechanical modifications to the Golar Igloo that provide additional peak send-out redundancy were completed in February 2020, ahead of commencing the FSRUs 2020 regas season on February 24. Golar's proprietary hydro energy system that can produce up to 1.2MW of clean energy, equivalent to a 7% system efficiency improvement or savings of around five tons of fuel per day when operating at full load, was also installed on board. Trials are going well with energy savings of around 1MW and improvements to the hydraulic performance of the vessel's sea water system being observed. Completed within budget and without incurring off-hire, Golar's first in-water class renewal (akin to a dry-dock) of a vessel, the FSRU Golar Eskimo, also completed in Q1 2020.
Having commenced layup preparations in late February 2020, it is now unlikely that the Golar Mazo will be dry docked this year. Although both boilers have been switched off and preservation works are complete, Covid-19 prevented the vessel's crew from disembarking until mid-May. As a result, operating costs for this vessel, although lower, will not be down to customary layup levels until later in Q2. Golar Maria will now be dry-docked in Q2 2021, having secured business in the months between April 2020 and its term charter commencing in late Q4 2020.
Financing and Liquidity
As of March 31, 2020, Golar Partners had cash and cash equivalents of $35.1 million. Including the Partnership's $414.0 million share of debt in respect of FLNG Hilli Episeyo, Adjusted Net Debt1 as at March 31, 2020 was $1,513.0 million. Q1 2020 Total Adjusted EBITDA1 amounts to $72.1 million. Based on the above, the Q1 Adjusted Net Debt1 to Annualized Adjusted EBITDA1 ratio was 5.2. As of March 31, 2020, exclusive of a $100.0 million forward start swap, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,439.3 million (including swaps with a notional value of $400.0 million in connection with the Partnership’s bonds and $414.0 million in respect of Hilli Episeyo), representing approximately 93% 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 2.4% with an average remaining period to maturity of approximately 3.9 years as of March 31, 2020.
Inclusive of Hilli Episeyo related debt, outstanding bank debt as of March 31, 2020, was $1,215.6 million, which had average margins, in addition to LIBOR, of approximately 2.19%. As at March 31, 2020, the Partnership also had a May 2020 maturing $150.0 million Norwegian USD bond with a swapped all-in rate of 6.275% and a May 2021 maturing $250 million Norwegian USD bond with a swapped all-in rate of 8.194%. Preparations for a refinancing of the $150 million bond were at an advanced stage in late February however a rapid Covid-19 induced deterioration in the capital markets prevented these from being completed. Consultations with a group of bondholders in late March 2020 concluded that the Partnership should seek to amend and extend both the May 2020 maturing $150 million bond and the May 2021 maturing $250 million bond. Following a period of negotiation, a meeting was held on May 5, 2020 where both sets of bondholders approved the amendment proposal, which included an 18-month extension to the original maturity dates for each of the bond issues.
Other than the 18-month extensions, key amendments common to both bonds include a 185 basis points margin increase from May 2020, amortization payments that commence on September 30, 2020 and continue on interest payment dates through to maturity, call options at 100% of par until May 2021 and at 105% until maturity thereafter, a cap on distributions to common and general partner unit holders ($0.0808 per annum) and restrictions on the assumption of additional debt until both facilities have been repaid. Given the low interest rate environment, over hedging of the $250 million bond following the introduction of an amortization profile, and plans to refinance both bonds ahead of their new maturity dates, the Partnership has, to date, chosen not to enter into new swap contracts for any unhedged period as a result of these extensions.
Corporate and Other Matters
As of March 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. During the quarter, as part of its ongoing simplification exercise, Golar LNG Limited repurchased 107,000 units underlying a small Total Return Swap that it had in the Partnership. These units were then transferred from public ownership to Golar LNG.
On the back of a rapid deterioration in capital market conditions caused by Covid-19 and the implications of this for the planned refinancing of the May 2020 maturing bond, the Company decided on April 1 to reduce the quarterly common and general partner unit distribution to $0.0202 per unit (from $0.4042 per unit in the previous quarter). The Partnership will, as a consequence, retain approximately $109 million annually, allowing the Partnership to focus its capital allocation on debt reduction, including amortization of its two bonds, thus strengthening its balance sheet while providing enhanced financial flexibility to consider capital allocation priorities over time.
On April 27, 2020, Golar Partners declared a distribution for the first quarter of $0.0202 per unit. This distribution was paid on May 14, 2020 to common and general partner unit holders of record as at May 7, 2020.
A cash distribution of $0.546875 per Series A preferred unit for the period covering February 15, 2020 through to May 14, 2020 was also declared. This was paid on May 15, 2020 to all Series A preferred unit holders of record as at May 8, 2020.
Total outstanding and exercisable options as at March 31, 2020 were 99,000.
On May 1,2020, the Partnership appointed Mr. Karl Fredrik Staubo as its Chief Executive Officer, succeeding Graham Robjohns. Mr. Staubo has ten years of experience advising and investing in Shipping, Energy and Infrastructure companies from Magni Partners Ltd. and Clarksons Platou Securities. At Clarksons Platou Securities, he worked in the Corporate Finance division, the last three years as Head of Shipping. During his time with Magni Partners, Mr. Staubo worked as an advisor to the Golar group and was extensively involved in the amend and extension solution for the Partnership's two Norwegian bonds.
Covid-19 has added significant downward pressure to LNG prices, resulting in intra-basin LNG trade over inter-basin trade. Although this has been negative for the overall shipping balance, this trade pattern is better suited to the Golar Maria and Golar Grand and will have contributed to their high utilization levels, despite the challenging market. Current LNG prices compare favourably to other sources of energy, including pipeline gas, coal, heavy fuel oil and diesel. This is expected to result in increased utilization levels on FSRUs that might normally only be used as backup for, or to supplement, other energy sources.
These same historically low gas prices are introducing new buyers and creating new markets for LNG - markets that have, in some cases, recently had their first taste of clean air in a generation. FSRUs are a quick delivering, low-cost, flexible alternative infrastructure solution that can meet the needs of these markets. Together with other opportunities being developed by Golar Power Limited, the Partnership is therefore highly confident that it will re-contract its currently contracted FSRU fleet once their contracts start to expire in 2022/3.
Having extended the bond maturities, attention will return once again to the review of the Partnership's strategic alternatives including structure and strategy to better use the $2.0 billion of revenue backlog1 to maximize long-term shareholder value. This could include the sale of assets, for which unsolicited offers have been received. In the meantime, second quarter results will be positively impacted by a full quarter's contribution from the Golar Igloo, partly mitigated by reduced rates achieved in respect of the Golar Maria
FORWARD LOOKING STATEMENTS
This press release contains certain forward-looking statements concerning future events and Golar Partners’ operations, performance and financial condition. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond Golar Partners’ control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to:
- the ability of Golar LNG Partners LP (“Golar Partners,” “we,” “us” and “our”) to enter into long-term time charters, including our ability to re-charter floating storage and regasification units (“FSRUs”) and liquefied natural gas (“LNG”) carriers following the termination or expiration of their time charters;
- our ability to maximize the use of our vessels, including the re-deployment or disposal of vessels no longer under long-term time charter;
- our and Golar LNG Limited (“Golar”) ability to make additional borrowings and to access debt and equity markets;
- our ability to repay our debt when due and to settle our interest rate swaps;
- the length and severity of outbreaks of pandemics, including the recent worldwide outbreak of the novel coronavirus ("COVID-19") and its impact on demand for LNG and natural gas, the operations of our charterers, our global operations and our business in general;
- market trends in the FSRU, LNG carrier and floating liquefied natural gas vessel (“FLNG”) industries, including fluctuations in charter hire rates, vessel values, factors affecting supply and demand, and opportunities for the profitable operations of FSRUs, LNG carriers and FLNGs;
- our vessel values and any future impairment charges we may incur;
- our ability to maintain cash distributions on our units and the amount of any such distributions;
- the ability of Golar and us to retrofit vessels as FSRUs or FLNGs and the timing of the delivery and acceptance of any such retrofitted vessels by their respective charterers;
- challenges by authorities to the tax benefits we previously obtained;
- our ability to integrate and realize the expected benefits from acquisitions and potential acquisitions:
- the future share of earnings relating to the FLNG, Hilli Episeyo ("Hilli"), which is accounted for under the equity method;
- our anticipated growth strategies;
- the effect of a worldwide economic slowdown;
- turmoil in the global financial markets;
- fluctuations in currencies and interest rates;
- changes in commodity prices;
- the liquidity and creditworthiness of our charterers;
- changes in our operating expenses, including dry-docking and insurance costs and bunker prices;
- our future financial condition or results of operations and future revenues and expenses;
- planned capital expenditures and availability of capital resources to fund capital expenditures;
- the exercise of purchase options by our charterers;
- our ability to maintain long-term relationships with major LNG traders;
- our ability to leverage the relationships and reputation of Golar and Golar Power Limited (“Golar Power”) in the LNG industry;
- our ability to purchase vessels from Golar and Golar Power in the future;
- timely purchases and deliveries of new build vessels;
- future purchase prices of new build and secondhand vessels;
- economic substance laws and regulations adopted or considered by various jurisdictions of formation of us and certain of our subsidiaries;
- our ability to compete successfully for future chartering and newbuilding opportunities;
- acceptance of a vessel by its charterer;
- termination dates and extensions of charters;
- the expected cost of, and our ability to comply with, governmental regulations, maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business;
- availability of skilled labor, vessel crews and management, including possible disruptions caused by the COVID-19 outbreak;
- our general and administrative expenses and our fees and expenses payable under the fleet management agreements and the management and administrative services agreement between us and Golar Management (or the “Management and Administrative Services Agreement”);
- the anticipated taxation of our partnership and distributions to our unitholders;
- estimated future maintenance and replacement capital expenditures;
- our and Golar's ability to retain key employees;
- customers’ increasing emphasis on environmental and safety concerns;
- potential liability from any pending or future litigation;
- potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;
- future sales of our securities in the public market;
- our business strategy and other plans and objectives for future operations; and
- other factors listed from time to time in the reports and other documents that we file with the U.S. Securities and Exchange Commission (the “SEC”).
Factors may cause actual results to be materially different from those contained in any forward-looking statement. Golar Partners does not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Golar Partners’ expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
May 28, 2020
Golar LNG Partners L.P.
Questions should be directed to:
c/o Golar Management Ltd - +44 207 063 7900
Karl Fredrik Staubo - Chief Executive Officer
Stuart Buchanan - Head of Investor Relations
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act