· Golar LNG Partners LP reports net income attributable to unit holders of $28.0 million and operating income of $66.9 million for the second quarter of 2016.
· Generated distributable cash flow of $47.9 million1 for the second quarter with a distribution coverage ratio of 1.251.
· Golar Maria completes dry-docking on schedule.
· Draw down on new, five year seven vessel $800.0 million senior secured credit facility.
· Completed acquisition of Golar Tundra.
Financial Results Overview
Golar LNG Partners L.P. ("Golar Partners" or the "Partnership") reports net income attributable to unit holders of $28.0 million and operating income of $66.9 million for the second quarter of 2016 ("the second quarter" or "2Q"), as compared to net income attributable to unit holders of $16.8 million and operating income of $56.1 million for the first quarter ("the first quarter" or "1Q") and net income attributable to unit holders of $41.0 million and operating income of $62.3 million for the second quarter of 2015.
|(USD '000)||Q2 2016||Q1 2016||Q2 2015|
|Total Operating Revenues||111,752||101,065||105,715|
|Other Financial Items||(15,571)||(21,812)||(1,468)|
|Net Income attributable to Golar LNG Partners L.P. Owners||27,982||16,750||41,028|
|Net Debt3(excludes Golar Tundra)||1,321,939||1,252,093||1,291,020|
Total operating revenues increased from $101.1 million in the first quarter to $111.8 million in the second quarter. The $10.7 million increase is principally due to additional revenue in respect of the Golar Igloo which was operational for the duration of 2Q as opposed to being utilised for a third of 1Q as a result of its scheduled winter downtime period during January and February. Additionally the Golar Maria, which incurred 21 days of her scheduled five yearly dry-docking in 1Q, completed on schedule with only five days off-hire in 2Q.
Vessel operating expenses at $16.9 million were $0.7 million higher than the first quarter cost of $16.2 million. Significant additional repairs and maintenance costs were incurred in respect of the Nusantara Regas Satu which completed its annual maintenance window during the quarter. The annual maintenance window is partly in lieu of dry-docking for this FSRU which has been designed not to require dry-docking for the duration of its current charter. Mitigating this additional cost were savings in repairs and maintenance generally for other vessels.
Interest expense at $14.6 million for the second quarter was higher than the first quarter cost of $12.6 million. First quarter interest expense was reduced by a non-recurring $1.9 million credit to lease interest expense as a result of a reduction in the UK Lessor's tax rate. Additionally, higher interest charges were incurred in respect of the new $800.0 million refinancing facility. As at June 30, 2016, the drawn balance of this facility was $775.0 million, approximately $94.0 million higher than the sum of the facilities it refinanced during the quarter as a result of the acquisition of Golar Tundra.
Other financial items resulted in a loss of $15.6 million for 2Q compared to a $21.8 million loss in 1Q. Non-cash mark-to-market losses on interest rate swaps, following further reductions in swap rates during the quarter, contributed $7.1 million of the 2Q loss. The balance is primarily the result of deferred financing costs written off in respect of four debt facilities that were refinanced by the new $800.0 million facility during the quarter.
Higher tax charge in 2Q of $6.0 million compared with $3.5 million in 1Q was mainly due to higher current tax charge in Indonesia in 2Q.
Additional revenues as noted above, offset to some extent by a higher net interest expenses and taxes, resulted in a 2Q distributable cash flow1 of $47.9 million compared to $43.6 million in the first quarter. The distribution coverage ratio1 improved accordingly from 1.14 to 1.25 in 2Q.
It should be noted that until the Golar Tundra commences operations and the arrangements between Golar LNG Limited ("Golar") and the Partnership, including the Partnership's right to require that Golar repurchase the shares of Tundra Corp (the disponent owner and operator of the Golar Tundra) end, Golar will continue to consolidate Tundra Corp, during which time the earnings and net assets of Tundra Corp will therefore not be reflected in the Partnership's financial statements.
On February 10, 2016 the Partnership entered into an agreement to acquire the disponent owner and operator of the FSRU Golar Tundra for a purchase price of $330.0 million less assumed debt of approximately $223.0 million from Golar. The acquisition subsequently closed on May 23, 2016. Concurrent with the closing, the Partnership entered into an agreement with Golar pursuant to which Golar will pay to the Partnership a daily fee plus operating expenses, aggregating to approximately $2.6 million per month, for the right to use the FSRU from May 23 until the date that operations commence under the vessel's charter with West African Gas Limited ("WAGL").
The Golar Tundra arrived off the coast of Ghana at the end of May and issued its notice of readiness the following month. Amounts due under the contract started to accrue from mid July. The charterers of the FSRU, West Africa Gas Limited ("WAGL") have however experienced significant delays with respect to the part of the project for which they are responsible. Golar are, however, entitled to payments equivalent to hire from mid July, for which invoices have been issued, notwithstanding that operations have not yet commenced.
Although Golar and Golar Partners continue to receive assurances that the project remains intact, they have sought and received an opinion which supports its legal position in exercising its rights under the contract should WAGL contest their obligations under the charter. Whilst preserving the right to legal redress Golar is continuing constructive dialog with WAGL with regards to finding a mutually agreeable way forward for the project which continues to be needed and well supported by the Government in Ghana.
Until this has been resolved, the Partnership will continue to receive a daily fee plus operating costs from Golar and Golar will continue to consolidate the vessel as noted above. Should the situation persevere beyond May 23, 2017, the Partnership will have the option to put the Golar Tundra back to Golar.
Corporate and Other Matters
On July 21 2016, Golar Partners declared an unchanged distribution for the second quarter of $0.5775 per unit. This distribution was paid on August 12, 2016 on total units of 62,336,335. Having satisfied the prerequisites as outlined in the Partnerships F-1 prospectus, the Golar-owned 15,949,831 Golar Partners subordinated units converted to common units during the quarter.
As at June 30, 2016 there were 62,336,335 units outstanding in the Partnership, of which 19,115,335 are owned by Golar, including 1,257,408 General Partner units.
Excluding scheduled downtime, the fleet once again reported 100% utilization for the quarter. This reduces to 99.4% when the final 5 days of the Golar Maria dry-dock are taken into account. However, the Golar Spirit required some unplanned maintenance during July and this will likely result in approximately 4 days off-hire for this vessel in 3Q. No further drydocks are planned for the balance of the year unless Golar Grand is taken out of layup, in which case it will then undergo its postponed drydock. The short-term LNG carrier market has seen significant improvement over the last few weeks giving rise to the potential of Golar Grand being brought out of layup. Long-lead items will therefore be ordered so that the Grand is in a position to enter its required dry-docking at short notice should the market continue to be supportive of this.
Financing and Liquidity
Immediately prior to completion of the Golar Tundra acquisition on May 23, 2016 the Partnership closed and drew down on a new five year $800.0 million bank facility. Consisting of a $650.0 million term loan and a $150.0 million revolver, this new facility, secured by seven of the Partnership's eleven vessels, was used to refinance existing credit facilities amounting to approximately $681.4 million. A further $77.2 million was used to pay the outstanding balance due to Golar in respect of the acquired Golar Tundra and $25.0 million of the revolving tranche currently remains undrawn. As noted above although the Partnership's fleet now comprises eleven vessels, the $223 million sale and leaseback facility secured by the Golar Tundra will not be consolidated by Golar Partners until its put option to Golar has expired.
As of June 30, 2016, the Partnership had cash and cash equivalents of $61.2 million and available and undrawn revolving credit facilities of approximately $25.0 million. Total debt and capital lease obligations net of total cash balances (net debt3) (excluding the Golar Tundra debt) was $1,321.9 million as of June 30, 2016.
Based on the above net debt3 amount and annualized4 second quarter 2016 adjusted EBITDA2, Golar Partners' net debt3 to adjusted EBITDA2 multiple was 3.6.
As of June 30, 2016, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,382 million (including swaps with a notional value of $377.2 million in connection with the Partnership's bonds and $300 million of five year swaps entered into during the quarter) representing approximately 104% of net debt3. The percentage of net debt3 covered by interest rate swaps is greater than 100% because currently Golar Tundra debt is not consolidated. The average fixed interest rate of swaps related to bank debt is approximately1.73% with an average maturity of approximately 3.8 years as of June 30, 2016.
As of June 30, 2016, the Partnership had outstanding bank debt of $1,141.2 million with average margins, in addition to LIBOR or fixed swap rates, of approximately 2.53%, a Norwegian Krone (NOK) bond of $155.4 million with a fixed rate of 6.485% and a $150.0 million Norwegian USD bond with a swapped all-in rate of 6.275%. The Partnership has a currency swap to hedge the NOK exposure for the NOK bond. As the US dollar appreciated against the NOK, the fair value of this bond in USD terms has decreased whilst the swap liability has risen. The total swap liability as at June 30, 2016, which also includes an interest rate swap element, was $79.3 million and the restricted cash securing this swap liability was $32.2 million.
Other than approximately 4 days' expected off-hire in respect of the Golar Spirit there is no further expected off-hire for the fleet during 3Q 2016. There are also no further drydocks planned unless it is decided to take the Golar Grand out of layup as noted above. Golar Tundra will not commence operations in 3Q but Golar Partners will receive approximately $2.6 million per month from Golar until operations do commence. Operating earnings in 3Q should therefore be approximately in line with 2Q.
While Golar Partners has no vessels due for re-contracting until the end of 2017, it is encouraging that the short-term LNG carrier market has seen significant improvement over the past few weeks. It has been expected that this market would improve as a function of new LNG production finally coming on stream; the last few weeks is the first evidence of that improvement. Head line charter rates as well as overall charter economics for short-term charters have both improved significantly in 3Q. It would also appear that this improvement in short-term sentiment may also be encouraging charterers' interest in longer-term charters given that one seven year fixture has recently been concluded in the market and Golar is aware of/looking at a number of other potential long-term opportunities.
Golar Partners' three LNG carriers that come off contract at the end of 2017, the Golar Grand, Golar Maria and the Golar Mazo, only represent approximately 21% of current revenues, and if forecast contract revenue of the Golar Tundra is taken into account as well as the 40% non-controlling interest in the Golar Mazo, this percentage falls to approximately 16%. However, with the above noted improvement in the LNG carrier market, there is good expectation that the opportunities for re-contracting these vessels will continue to improve moving forward.
It should be noted that Golar and Golar Partners have considered the possibilities to reset the incentive distribution rights payable to Golar. If an agreement can be found which works for both parties it will improve Golar's liquidity position and strengthen its ability to grow its business and will at the same time also make it easier for Golar Partners to grow its dividend in the future.
Golar Partners has a $2.4 billion revenue backlog, an average remaining contract term of 4.5 years and an average distribution coverage ratio over the last twelve months of 1.28, which excludes the contribution from the Golar Tundra. Golar Partners therefore believes that it has a solid basis with which to support its current distribution. Cost of capital notwithstanding, the Partnership also has significant acquisition opportunities from Golar, in particular the contract FLNG vessel Hilli which delivers in 2017. The recent strengthening of the shipping market, assuming it continues as expected, will also significantly reduce the risk related to the re-contracting Golar Partners' LNG carriers at the end of 2017.
Operating earnings for 3Q are expected to be approximately in line with 2Q and to deliver a similar good coverage ratio1 in relation to the current distribution of $0.5775 per share.
1Distributable cash flow is a non-GAAP financial measure used by investors to measure the performance of master limited partnerships. Distribution coverage ratio represents the ratio of distributable cash flow to total cash distributions paid. Please see Appendix A for a reconciliation to the most directly comparable GAAP financial measure.
2Adjusted EBITDA: Earnings before interest, other financial items, taxes, depreciation and amortization and non-controlling interest. Adjusted EBITDA is a non-GAAP financial measure used by investors to measure our performance. Please see Appendix A for a reconciliation to the most directly comparable GAAP financial measure.
3 Net Debt is defined as short-term debt and current portion of long-term debt plus long-term debt plus obligations under capital leases less cash and cash equivalents less restricted cash.
4Annualized means the figure for the quarter multiplied by 4.
5Revenue backlog or contracted revenue is defined as the contracted daily charter rate of each vessel multiplied by the number of scheduled on-hire days for the remaining term of the contract. Revenue backlog or contracted revenue is not a measure prepared in accordance with GAAP.
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:
· statements about market trends in the floating storage and regasification unit (or FSRU), liquefied natural gas (or LNG) carrier and floating liquefied natural gas vessel (or FLNGV) industries, including charter rates, factors affecting supply and demand, and opportunities for the profitable operations of FSRUs, LNG carriers and FLNGVs;
· statements about Golar Partners and Golar's ability to retrofit vessels as FSRUs or FLNGVs and the timing of the delivery and acceptance of any such retrofitted vessels by their respective charterers;
· Golar Partners ability to increase distributions and the amount of any such increase;
· Golar Partners ability to integrate and realize the expected benefits from acquisitions, including the acquisition of the FSRU, Golar Tundra;
· our estimates of annual contracted revenues generated by the acquisition of the Golar Tundra;
· Golar Partners anticipated growth strategies;
· the effect of the worldwide economic slowdown;
· turmoil in the global financial markets;
· fluctuations in currencies and interest rates;
· general market conditions, including fluctuations in charter hire rates and vessel values;
· changes in Golar Partners' operating expenses, including dry-docking and insurance costs and bunker prices;
· forecasts of Golar Partners' ability to make cash distributions on the units or any increases in cash distributions;
· Golar Partners' future financial condition or results of operations and future revenues and expenses;
· the repayment of debt and settling of interest rate swaps;
· Golar Partners' and Golar LNG Limited's ability to make additional borrowings and to access debt and equity markets;
· planned capital expenditures and availability of capital resources to fund capital expenditures;
· the exercise of purchase options by the Partnership's charterers;
· Golar Partners' ability to maintain long-term relationships with major LNG traders;
· Golar Partners' ability to leverage Golar's relationships and reputation in the shipping industry;
· Golar Partners' ability to purchase vessels from Golar in the future;
· Golar Partners' continued ability to enter into long-term time charters, including charters for floating storage and regasification projects;
· Golar Partners' ability to maximize the use of its vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
· timely purchases and deliveries of newbuilding vessels;
· future purchase prices of newbuildings and secondhand vessels;
· Golar Partners' 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 Golar Partners' ability to comply with, governmental regulations, maritime self-regulatory organization standards, as well as standard regulations imposed by its charterers applicable to Golar Partners' business;
· availability of skilled labor, vessel crews and management;
· Golar Partners' general and administrative expenses and its fees and expenses payable under the fleet management agreements and the management and administrative services agreement;
· the anticipated taxation of Golar Partners and distributions to Golar Partners unitholders;
· estimated future maintenance and replacement capital expenditures;
· Golar Partners' 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 Golar Partners' securities in the public market;
· Golar Partners' 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 Golar Partners file with the U.S. Securities and Exchange Commission.
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.
August 31, 2016
Golar LNG Partners L.P.
Questions should be directed to:
c/o Golar Management Ltd - +44 207 063 7900
Brian Tienzo - Chief Finance Officer
Graham Robjohns - Chief Executive Officer
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Golar LNG Partners L.P. via Globenewswire