Exclusive of its interest in FLNG Hilli Episeyo, Golar LNG Partners LP (“Golar Partners” or “the Partnership”) generated operating income of $36.3 million for the fourth quarter of 2019.
After accounting for $10.1 million of interest rate swap gains, the Partnership reported net income attributable to unit holders of $30.4 million for the fourth quarter.
Generated distributable cash flow1 of $34.6 million for the fourth quarter resulting in a distribution coverage ratio1 of 1.21.
Secured a two-year charter for LNG carrier Golar Maria commencing November 2020.
Secured a two-year charter for FSRU Golar Igloo commencing 1Q 2020.
Declared a distribution for the fourth quarter of $0.4042 per unit.
Agreed to extend Golar Grand charter for a further year.
Financial Results Overview
Golar Partners reports net income attributable to unit holders of $30.4 million and operating income (which excludes its share of Hilli Episeyo which is accounted for under the equity method) of $36.3 million for the fourth quarter of 2019 (“the fourth quarter” or “4Q”), as compared to net income attributable to unit holders of $7.9 million and operating income of $35.9 million for the third quarter of 2019 (“the third quarter” or “3Q”) and a net loss attributable to unit holders of $19.0 million and operating income of $31.8 million for 4Q 2018.
Consolidated GAAP Financial Information
(in thousands of $)
Total Operating Revenue
Vessel Operating Expenses
Voyage and Commission Expenses
Gains/(Losses) on Derivative Instruments
Net Income/(Loss) attributable to Golar LNG Partners LP Owners
Non-GAAP Financial Information1
(in thousands of $)
Adjusted Interest Income
Adjusted Net Debt
(in thousands of $)
Total Operating Revenues
Amount invoiced under sales-type lease
Adjusted Operating Revenues 1
Voyage and Commission Expenses
Vessel Operating Expenses
Total Adjusted EBITDA1
* Indirect administrative expenses are allocated to the FSRU and LNG carrier segments based on the number of vessels.
** Relates to the attributable earnings of our investment in Golar Hilli LLC (“Hilli LLC”) had we consolidated its 50% of the Hilli common units.
In May 2019, a modification of the FSRU Golar Freeze charter agreement led to a reassessment of the contract under lease accounting rules. This modification resulted in the contract changing from an operating lease to a sales-type lease ("Golar Freeze Finance Lease"). In order to compare the performance of the Golar Freeze with our wider business, management has determined that it will measure the performance of the Golar Freeze Finance Lease based on Adjusted EBITDA (EBITDA as adjusted for the amount invoiced under sales-type lease in the period). This approach allows the Partnership to compare the Golar Freeze charter agreement with its wider business.
Despite the scheduled December downtime of FSRU Golar Igloo and aided by an improvement in the performance from LNG carriers Golar Maria and Golar Mazo, 4Q Adjusted Operating Revenues1 including amounts invoiced under the Golar Freeze Finance Lease and the Partnership's effective share of operating revenues from FLNG Hilli Episeyo, increased $0.7 million to $107.2 million. Bunker costs incurred in connection Golar Mazo's removal from layup and positioning for a voyage charter resulted in a $0.8 million increase in 4Q voyage and commission expenses.
Pursuant to the Hilli Purchase Agreement, Golar Partners is indemnified for FLNG Hilli Episeyo operating costs over and above an agreed threshold. A bi-annual true-up of Hilli operating costs resulted in a $1.5 million 4Q reimbursement to the Partnership. This contributed to a $0.7 million reduction in operating expenses from $20.4 million in 3Q to $19.7 million in 4Q. Administrative expenses at $3.5 million for the quarter were in line with 3Q.
The impact of a further decrease in LIBOR and ongoing debt repayment contributed to a $1.2 million reduction in interest expense, from $19.8 million in 3Q to $18.6 million in 4Q.
An increase in interest rate swap rates during the quarter contributed to a $9.6 million 4Q gain on derivative instruments, compared to a 3Q loss of $9.9 million. As of December 31, 2019, 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, 4Q distributable cash flow1 increased $1.0 million to $34.6 million. The distribution coverage ratio1 increased from 1.18 in 3Q to 1.21 in 4Q.
A rapid tightening of the shipping market from the end of September meant that steam turbine vessels represented the only available tonnage on more than one occasion during 4Q. This enabled the Golar Maria to be fixed for several months at a higher rate, securing full utilization of the vessel throughout the quarter, and the Golar Mazo to be withdrawn from warm layup for a voyage charter. Collectively, the 4Q Average Daily TCE1 achieved by these two carriers at $32,800 compares favorably to 3Q's $7,300. The quarter commenced with LNG prices at around $5.40/mmbtu, quoted steam turbine spot rates of around $49k per day, and an expectation that new LNG supply and a smoother Chinese demand profile would dampen the customary increase in winter LNG prices. Supported by the start-up of new liquefaction trains, sanctions on a vessel owner, inventory building and contango, rates strengthened with prompt available vessels falling to zero in late October and steam turbine vessel spot rates reaching a 2019 peak of $95k per day. Mild winter temperatures then began to mute the forces of market tightening by making it less likely that spot LNG prices would reach even the small gains implied by the forward curve. Limited remaining storage in Europe and pushback from buyers in Japan and China did, however, continue to absorb tonnage as vessels idled, diverted and slow steamed while waiting to discharge. As vessels began to discharge over the course of December, vessel availability then increased and rates softened. The year ended with spot steam turbine rates at $72k per day and LNG prices where they started on October 1.
During 4Q the Elba Island facility entered commercial service and the first commissioning cargo was shipped from Freeport T2, where commercial operations have since commenced. Based on the ramp-up profile of recently started facilities together with new facilities scheduled to commence, 30mtpa of additional liquefaction capacity is expected in 2020. Equating to vessel demand growth of approximately 17%, this is expected to outpace vessel supply growth of 8%. Although Covid-19 has negatively impacted near-term Chinese LNG demand, prices and vessel spot rates, new demand into the shoulder season is expected from Korea and Japan where coal and nuclear facilities will be taken out of service.
The Golar Maria will be available in the spot and short-term market from 2Q through to late 4Q when the vessel will commence a two-year charter. This charter includes options to extend by a further 1+1+1 years. During February, a 1-year extension to the May 2020 expiring Golar Grand charter was also agreed, at a rate similar to the current level. Golar Mazo is currently idle and will be placed into layup shortly.
Beyond 2020, 147mtpa of new liquefaction capacity is slated to come on stream between 2021 and 2027. Based on current trading patterns, the LNG order book of 116 vessels will not be sufficient to carry this. At approximately 8% of the global fleet, the 35 carriers ordered in 2019 is slightly below the 10-year average. The implications of IMO 2050, principally the implied cap on the useful life of any LNG carrier ordered today, is also starting to feature in the decision-making process for some owners. This emerging caution is welcomed, and should, if maintained in future, result in more controlled ordering and better utilization of the existing global fleet. Near-term, low LNG prices driven by new LNG supply outstripping demand, not helped by Covid-19, is however a concern for the shipping business. Historically cheap LNG prices are nevertheless a significant boost to downstream activity and the Partnership, which has exposure to this business, is positive about FSRU and downstream project development.
During 4Q Kuwait National Petroleum Co. ("KNPC") awarded the Partnership a two-year contract for the FSRU Golar Igloo. Now signed, the contract provides for two years of continued LNG storage and regasification services in Kuwait for KNPC’s regasification seasons beginning in March 2020. This contract may be further extended by KNPC for a further year through to December 2022.
In line with 3Q, fleet utilization of 88% was achieved in the fourth quarter.
Modifications necessary to increase both the regas capacity and operational efficiency of FSRU Golar Igloo were completed in February. The vessel is now in Kuwait where its new regas season commenced six days ahead of schedule on February 24. Golar Igloo has been fitted with a proprietary hydro energy system, that, subject to confirmation by trial, can produce up to 1.2MW of clean energy, equivalent to a 7% system efficiency improvement or savings of around 5 tons of fuel per day when operating at full load. Golar Igloo frequently operates at full load, so this represents an attractive potential fuel saving for the vessel charterer.
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 commenced in 4Q and completed in 1Q 2020. Two vessels, Golar Maria and Golar Mazo, may also dry-dock in 2020. Dry-dock of Golar Maria is currently scheduled for April 2021 but may be brought forward to 4Q 2020 if more practical and economic. Dry-dock of Golar Mazo will be subject to the vessel securing a charter during the year that justifies the cost. Until then Golar Mazo will be placed into cold layup.
Financing and Liquidity
As of December 31, 2019, Golar Partners had cash and cash equivalents of $47.7 million. Including the Partnership's $422.3 million share of debt in respect of FLNG Hilli Episeyo, Adjusted Net Debt1 as at December 31, 2019 was $1,532.0 million. 4Q 2019 Total Adjusted EBITDA1 amounts to $81.4 million. Based on the above, the 4Q Adjusted Net Debt1 to Annualized Adjusted EBITDA1 ratio was 4.7. As of December 31, 2019, exclusive of a $100 million forward start swap, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,457.8 million (including swaps with a notional value of $400.0 million in connection with the Partnership’s bonds and $422.3 million in respect of Hilli Episeyo), representing approximately 95% of total debt and capital 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 4.1 years as of December 31, 2019.
Inclusive of Hilli Episeyo related debt, outstanding bank debt as of December 31, 2019 was $1,245.2 million, which had average margins, in addition to LIBOR, of approximately 2.19%. The Partnership also has a May 2020 maturing $150.0 million Norwegian USD bond with a swapped all-in rate of 6.275% and a 2021 maturing $250 million Norwegian USD bond with a swapped all-in rate of 8.194%. The Partnership is preparing for a refinancing of the May 2020 bond in advance of its maturity date.
On January 28, 2020, Golar Partners entered into an At The Market ("ATM") sales agreement with a sales agent, relating to the Partnership's 8.75% Series A Cumulative Redeemable Preferred Units ("units") representing limited partner interests, at $25.0 per unit. Although the ATM has not yet been utilized, the Partnership may, through the sales agent, offer and sell these units from time to time up to an aggregate value of $120.0 million.
Corporate and Other Matters
As of December 31, 2019, there were 70,738,027 common and general partner units outstanding in the Partnership. Of these, 22,662,977, including 1,436,391 general partner units, were owned by Golar, representing a 32% interest in the Partnership.
On January 28, 2020, Golar Partners declared a distribution for the fourth quarter of $0.4042 per unit. This distribution was paid on February 14, 2020 to common and general partner unit holders of record on February 7, 2020.
A cash distribution of $0.546875 per Series A preferred unit for the period covering 15 November through to 14 February was also declared. This was also paid on February 14, 2020 to all Series A preferred unit holders of record on February 7, 2020.
Total outstanding and exercisable options as at December 31, 2019 were 99,000.
The 4Q award of the two-year Kuwait FSRU contract for Golar Igloo and the two-year contract for Golar Maria, together with the more recent agreement to extend the Golar Grand charter by one year, collectively removes significant re-contracting risk for the Partnership.
First quarter results will be negatively impacted by the customary two month Golar Igloo winter downtime and will not benefit from a contribution to earnings by Golar Mazo. The focus of the Partnership during the quarter will be on the evaluation of its structure and strategy in order to maximize long-term shareholder value whilst also ensuring that it is appropriately debt financed. This evaluation includes potential structured transactions to grow the Partnership, bond and bank debt refinancing and the ongoing pursuit of opportunities to redeploy the FSRU Golar Spirit and carrier Golar Mazo. As previously indicated, future distribution levels will be determined by the relative success of the above as well as the level and terms of new financing and growth capital requirements.
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 disposition of vessels no longer under long-term time charter;
our ability to maintain cash distributions on our units and the amount of any such distributions;
the repayment of debt and settling of interest rate swaps;
our and Golar LNG Limited (“Golar”) ability to make additional borrowings and to access debt and equity markets;
the length and severity of the recent Covid-19 virus outbreak, including its impacts across our business on demand, operations in China and the Far East and knock-on impacts to our global operations;
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;
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 newbuilding vessels;
future purchase prices of newbuildings and secondhand vessels;
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 its charterers applicable to our business;
economic substance laws and regulations adopted or considered by various jurisdictions of formation of us and certain of our subsidiaries;
availability of skilled labor, vessel crews and management;
our general and administrative expenses and our fees and expenses payable under the fleet management agreements and 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.
February 25, 2020
Golar LNG Partners L.P.
Questions should be directed to:
c/o Golar Management Ltd - +44 207 063 7900
Graham Robjohns - 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