Highlights
·
Golar LNG Partners LP
("Golar Partners" or "the Partnership") reports net income
attributable to unit holders of $26.5 million and operating income
of $53.3 million for the third quarter of 2017.
·
Generated distributable
cash flow of $41.0 million1 for the third
quarter with a distribution coverage ratio of 1.01.
·
Amendments to FSRU
Golar Freeze time charter agreed with Dubai
Supply Authority.
·
Committed to acquire
interest in the FLNG Hilli Episeyo ("Hilli")
from Golar LNG Limited ("Golar").
Subsequent
Events
·
Closed a Series A
Preferred Unit offering raising net proceeds of $134 million.
·
FLNG Hilli on site in Cameroon with production expected to
commence shortly.
·
Declared an unchanged
distribution for the third quarter of $0.5775 per unit.
Financial Results
Overview
Golar LNG Partners LP reports net
income attributable to unit holders of $26.5 million and operating
income of $53.3 million for the third quarter of 2017 ("the third
quarter" or "3Q"), as compared to net income attributable to unit
holders of $53.8 million and operating income of $87.4 million for
the second quarter of 2017 ("the second quarter" or "2Q") and net
income attributable to unit holders of $56.0 million and operating
income of $71.6 million for the third quarter of 2016.
(USD '000) |
Q3 2017 |
Q2 2017 |
Q3 2016 |
Total Operating Revenues |
105,635 |
|
135,969 |
|
113,839 |
|
Adjusted EBITDA 2 |
80,573 |
|
113,539 |
96,885 |
|
Operating Income |
53,295 |
|
87,397 |
71,611 |
|
Non-operating Income |
922 |
|
- |
|
- |
|
Interest Income |
2,105 |
|
1,447 |
1,199 |
|
Interest Expense |
(19,876 |
) |
(18,856) |
(16,344 |
) |
Other Financial Items |
(2,034 |
) |
(7,710) |
7,641 |
|
Taxes |
(4,378 |
) |
(4,652) |
(4,573 |
) |
Net Income attributable to Golar Partners Owners |
26,543 |
|
53,828 |
55,996 |
|
Net Debt 3 |
1,171,153 |
|
1,139,253 |
|
1,305,005 |
|
As anticipated, total operating
revenues decreased, from $136.0 million in the second quarter to
$105.6 million in the third quarter. Two key events contribute to
the $30.4 million decrease. Firstly, on June 23, ahead of its
original contract date, the FSRU Golar Spirit
concluded its charter with Petrobras resulting in the recognition
of a substantial one-off termination fee. Having subsequently
entered temporary layup, the FSRU was non-revenue earning in
3Q. Secondly, on September 19 the FSRU Golar
Winter departed Brazil for scheduled dry-docking resulting in
12 days off-hire in 3Q 2017. Partially mitigating this loss
of revenue was additional hire in respect of the Golar Grand, on hire for a full quarter having spent 13
days of the second quarter in scheduled dry-dock, and the receipt
of a withholding tax refund in respect of the FSRU's Golar Spirit and Golar
Winter. Interest income in respect of the tax refund is
recorded as non-operating income.
Operating expenses at $17.2
million were $1.4 million lower than the prior quarter. Costs in
respect of the Golar Grand and Nusantara Regas Satu normalised during the quarter
having been inflated in 2Q as a result of their respective dry-dock
and five-yearly maintenance program. Additional savings in repairs
and maintenance costs were recorded by the FSRU Golar Eskimo and carrier Golar
Maria.
Administration costs at $4.9
million were $2.7 million higher than 2Q as a result of higher than
normal legal, accountancy, share option and consultancy related
costs. Approximately $1.5 million of this increased cost should be
considered as non-recurring.
Depreciation and amortization at
$26.4 million is in line with 2Q.
Interest expense at $19.9 million
for the third quarter was higher than the second quarter at $18.9
million. The increase reflects a full quarters charge in
respect of the draw down of the $125.0 million revolving facility
in May 2017 and an 11bps increase in LIBOR. The $70.0 million
deposit paid during August in respect of the investment in FLNG
Hilli Episeyo accrues interest at a rate of 5%
and contributed to the $0.7 million increase in interest income for
the quarter. Other financial items recorded a loss of $2.0 million
for 3Q compared to a 2Q loss of $7.7 million. Non-cash
interest rate swap gains of $4.3 million, compared to a $4.1
million loss in 2Q were partly offset by a non-cash $2.5 million
loss following an increase in the mark-to-market valuation loss of
the embedded derivative liability on the earn out units in
connection with the Incentive Distribution Right ("IDR") reset
transaction in October 2016.
Reduced taxes following the
Golar Spirit's departure from Brazil resulted
in a small decrease in the quarterly tax charge from $4.7 million
in 2Q to $4.4 million in 3Q.
As a result of the foregoing, 3Q
distributable cash flow1 was lower at
$41.0 million compared to $72.1 million in the second quarter. The
distribution coverage ratio1 decreased
accordingly from 1.77 to 1.0 in 3Q.
Commercial
Review
On July 12, the Partnership agreed
with the Dubai Supply Authority ("DUSUP") to amend the FSRU
Golar Freeze charter. In return for
agreeing to shorten the charter by one year, DUSUP have forgone
their termination for convenience rights as well as their extension
option rights which were at a significantly lower daily rate.
In the event that the FSRU is re-deployed on new business ahead of
April 2019, the new charter end date, Golar Partners has the right
to terminate its obligations under the DUSUP charter whilst
continuing to receive the capital element of the charter until
April 2019. The operating cost component of the charter hire
will be significantly reduced from November 11, 2017.
The FSRU market has shown clear
signs of weakness with additional competition leading to declining
margins in recent years. However, there has been an
increasing level of interest in an emerging market for mid-sized
1-2mtpa FSRUs where the cost of unutilized capacity on larger and
more expensive FSRUs undermines the economics of a switch to
gas. Golar Partners with its existing fleet is a dominant player in
this market. The Partnership has continued active discussions and
negotiations with potential customers and remains confident of a
new FSRU contract award in the near future.
On October 31, LNG carrier
Golar Grand completed its charter with Golar
LNG Limited ("Golar"). Between May 5, 2017 when the vessel
commenced a new 2-year charter with an oil and gas major, and
October 31, 2017, the vessel had been sub-chartered back from Golar
at the same rate as its new charter. From November 1, 2017
Golar Partners will receive revenue direct from the vessels' new
charterer and cease to receive charter hire from Golar. The new
charter rate is significantly lower than the charter back rate was
to Golar.
Golar Partners continues to pursue
re-contracting opportunities for the LNG carriers Golar Mazo and Golar Maria.
The LNG shipping market continues to tighten and spot rates for
TFDE tonnage have recently exceeded three year highs. As
prompt vessel availability falls to low single digits, rate
increases and a corresponding increase in spot and short-term
opportunities for steam turbine tonnage have also been noted. Golar
Partners is currently working on specific opportunities for the
Golar Maria and Golar
Mazo. The target is to place these vessels into medium to
long-term charters. Until such opportunities are concluded
the vessels will trade in the improving spot market.
Acquisitions
On August 15, 2017, Golar Partners
announced that it had entered into a purchase and sale agreement
(the "PSA") for the acquisition (the
"Acquisition") from Golar and affiliates of
Keppel Shipyard Limited and Black and Veatch of equity interests in
Golar Hilli LLC, which will, on the closing date of the
Acquisition, indirectly own the FLNG Hilli Episeyo
("Hilli"). The acquired interests represent the
equivalent of 50% of the two liquefaction trains, out of a total of
four, that have been contracted to customers Perenco Cameroon SA
and Societe Nationale Des Hydrocarbures ("Perenco and SNH") for an
eight-year term. The acquired interest includes a 5% stake in
any future incremental earnings generated by the currently
uncontracted expansion capacity, but does not include exposure to
the oil linked component of Hilli's revenue
stream. The purchase price for the acquired interests is $658
million less 50% of the net lease obligations under the financing
facility for the Hilli that are expected
to be between $468 and $480 million. Concurrent with the
execution of the PSA, the Partnership paid a $70 million deposit to
Golar.
Subject to the satisfaction of
certain conditions, including the acceptance of the Hilli under its contract with Perenco and SNH, the
closing of the Acquisition is expected to take place on or before
April 30, 2018. Upon closing, the Partnership will apply the
$107 million deferred purchase price receivable from Golar in
connection with the Tundra Put Sale and the $70 million deposit
referred to above against the net purchase price and will pay the
balance with cash on hand. The Partnership estimates that its
proportionate share of the Hilli's annual
contracted revenues less operating expenses will be approximately
$82 million. In accordance with US GAAP the Partnership does not
expect to initially consolidate Golar Hilli LLC and so will reflect
its share of net income on its income statement as "equity in net
earnings of affiliates."
The Acquisition is expected to be
an accretive transaction that will substantially increase the
Partnership's effective revenue backlog5. As
distributable cash from the Acquisition will be used to offset the
expected reduction in earnings related to vessels with expiring
contracts, the Partnership's management does not intend to
recommend to the Board an increase in the Partnership's quarterly
cash distribution as a result of this transaction.
The Hilli
conversion and pre-commissioning is now complete. The vessel
departed Keppel Shipyard on October 1 and left Singapore for
Cameroon with 108 crew on board on October 12. Hilli arrived in Cameroon on November 20 and hook-up
and connection to risers and umbilicals is now underway. The
next period will see tendering of a Notice of Readiness. A
ship-to-ship transfer of LNG for commissioning purposes will be
undertaken followed by commencement of the full commissioning
process. As part of this process Golar anticipates production
of first commercial LNG to take place around year-end. Final
commissioning is expected to complete during the second half of 1Q
2018 and the project remains well within budget.
Discussions have been initiated
with Golar with respect to the possible acquisition of the second
50% of Hilli's contracted capacity. The
Partnership is well positioned for this following completion of its
Series A Preferred Unit offering.
Operational
Review
The fleet performed well during
the quarter achieving 100% availability for scheduled operations.
After accounting for layup of the Golar Spirit
and the scheduled dry-docking of the Golar
Winter, utilization of 95% was recorded for the quarter.
On July 24, the FSRU Golar Spirit arrived in Greece where it subsequently
entered temporary layup on August 4. One-off demobilization
costs incurred during the quarter mean that layup savings will not
be fully realised until 4Q. Normalised daily operating costs
for a vessel in layup are expected to be less than $3,000 per
day.
Golar Mazo
entered Keppel yard on July 24 for its scheduled dry-dock which
completed on August 12. Having completed within the window allowed
under the terms of its charter, no off-hire was incurred. The FSRU
Nusantara Regas Satu also completed its main
class renewal and extensive five-yearly maintenance program early
in 3Q without dry-docking and without interruptions to
production.
Having departed Brazil on
September 19 for its scheduled dry-docking, the FSRU Golar Winter entered the shipyard in Ferrol, Spain, on
September 30. On October 5 the shipyard's workforce initiated
a general strike which continued through to October 27. Third
party suppliers were able to undertake some jobs in their absence,
reducing the impact of the strike. Total off-hire in 4Q is now
expected to be approximately 52 days, 10 more than previously
anticipated.
Financing and
Liquidity
As of September 30, 2017, the
Partnership had cash and cash equivalents of $206.8 million and
restricted cash of $180.3 million. The Partnership's total net
debt3 as at 30
September was $1,171.2 million.
The Nordic bond listing of the USD
250 million non-amortising bond issued in February 2017 and
maturing in 2021 became effective on July 17, 2017. Having
made no further repurchases during the quarter, the outstanding
balance of the October maturing NOK 1,300 million bond, that the
above bond replaces, remained unchanged at NOK 304 million on 30
September. This balance of NOK 304 million was repaid on
October 12, 2017.
Based on the above net
debt3 amount and
annualized4 third quarter
2017 Adjusted EBITDA2, Golar
Partners' net debt3 to Adjusted
EBITDA2 ratio was
3.6. As of September 30, 2017, Golar Partners had interest
rate swaps with a notional outstanding value of approximately
$1,400.0 million (including swaps with a notional value of $453.1
million in connection with the Partnership's bonds) representing
approximately 100% of total debt and capital lease obligations net
of long-term restricted cash.
The average fixed interest rate of
swaps related to bank debt is approximately 1.69% with an average
maturity of approximately 3.6 years as of September 30, 2017.
Outstanding bank debt as of
September 30, 2017 was $1,010.9 million, which had average margins,
in addition to LIBOR, of approximately 2.53%. The Partnership also
has a 2020 maturing $150.0 million Norwegian USD bond with a
swapped all-in rate of 6.275%, the 2021 maturing $250 million
Norwegian USD bond with a swapped all-in rate of 8.194% and the
balance of an October 2017 maturing Norwegian Krone (NOK) bond with
a fixed rate of 6.485%. With respect to the October maturing NOK
bond, NOK 996 million had been repaid as at September 30, 2017. The
Partnership had a currency swap to hedge the NOK exposure for the
remaining NOK 304 million and the total swap liability as at
September 30, 2017, which also included an interest rate swap
element, was $15.2 million. The restricted cash securing this
swap liability was $1.7 million. At maturity, on October 12,
the NOK 304 million balance and associated swap liabilities and
accrued interest, collectively amounting to $54.0 million, were
settled.
On October 24, the Partnership
priced a 4.8 million $25.0 per unit 8.75% Series A Preferred Unit
offering. After exercise of the Underwriters Option for a further
0.72 million units, net proceeds received at closing on October 31
amounted to $133.7 million. Although marginally more
expensive than the most recent bond, the units are perpetual equity
and therefore do not have a refinancing requirement. The Preferred
Units are expected to be treated as equity under US GAAP. Golar
Partners has the option to redeem these units at any time after
five years.
Corporate and
Other Matters
As of September 30, 2017, there
were 70,661,522 units outstanding in the Partnership, of which
22,265,522, exclusive of earn-out units but including 1,413,231
General Partner units, were owned by Golar, representing a 31.5%
interest in the Partnership.
On October 19, 2017, Golar
Partners declared an unchanged distribution for the third quarter
of $0.5775 per unit. This distribution was paid on November 14,
2017 on total units of 70,661,522.
Having paid the minimum quarterly
distribution in respect of each of the four preceding quarters
ending September 30, 2017, the IDR Exchange Agreement required that
the Partnership issue to Golar 50% of the Earn-Out units withheld
at the time of the IDR reset in October 2016. Accordingly, on
November 16 Golar Partners issued to Golar 374,295 common units and
7,639 General Partner units. The agreement also required the
Partnership to pay Golar the distributions that it would have been
entitled to receive on these units in respect of each of those four
preceding quarters. Therefore, concurrent with the
issuance of the above Earn-Out units, Golar also received $0.9
million in cash. After issuance of the first 50% of earn-out units
there were 71,043,456 units outstanding in the Partnership, of
which 22,647,456, exclusive of remaining earn-out units but
including 1,420,870 General Partner units, are owned by Golar,
representing a 31.9% interest in Golar Partners. The
Partnership will issue the remaining 50% of the Earn-Out Units
provided that it has paid a distribution equivalent to $0.5775 for
each of the four quarters up to September 30, 2018.
Total outstanding options as at 30
September were 99,000. The issued options have an initial exercise
price of $20.55 per unit and vest over a three year period.
At the Partnership's Annual
Meeting of Limited Partners on September 27, Carl Steen was elected
as a Class II Director and the General Partner appointed the
Partnership's secretary, Michael Ashford, to replace Andrew Whalley
as one of its three appointed directors.
Outlook
Operating earnings for 4Q 2017
will be negatively impacted by the 52 day dry-dock related off-hire
of the Golar Winter, conclusion of the
Golar Maria time charter on December 1, and a
reduced daily rate receivable from the Golar
Grand post October 31. The Partnership however is
anticipating some spot charter earnings from Golar Maria, and KNPC,
charterers of the FSRU Golar Igloo, have
elected to extend the vessel's annual regas season to December
31.
Agreeing the initial equity
interest acquisition in the FLNG Hilli is
expected to add approximately $0.8 billion of effective revenue
backlog5 and place the
current quarterly distribution on an increasingly firm
footing. The developing small-mid size FSRU market and
a recovering shipping market also provide an increasingly
supportive backdrop for re-contracting the Partnership's available
assets. The Partnership has continued active discussions and
negotiations with potential customers and remains confident of a
new FSRU contract award in the near future.
Proceeds from the recent perpetual
preferred offering will add to a strong existing liquidity
position, improve Golar Partners' capital structure and provide the
Partnership with flexibility to optimise re-contracting options for
existing assets as well as to pursue further accretive
acquisitions. Additional common units in the FLNG Hilli Episeyo represent an obvious near-term
acquisition target that the Partnership is now discussing with
Golar.
The Board is satisfied that high
coverage levels achieved over the prior three years, a strong
balance sheet and the anticipated consummation of the initial
acquired interest in Hilli Episeyo positions
the Partnership to maintain its distribution through the current
transition phase. In the context of firming demand for LNG in
infrastructure hungry markets, the arrival of significant new
volumes should result in a step-up in demand for LNG midstream
assets and growth opportunities for Golar Partners.
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 a
non-GAAP financial measure and 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. Please see Appendix A for a reconciliation to
the most directly comparable GAAP financial measure.
4Annualized
means the figure for the quarter multiplied by 4.
5 Revenue
backlog and effective revenue backlog is defined as the contracted
daily charter rate for each vessel multiplied by the number of
scheduled hire days for the remaining contract term. This is
not a measure prepared in accordance with GAAP. Effective
revenue backlog includes the Partnership's pro-rata share of Hilli
Episeyo revenues which are expected to be recorded as "Equity in
net earnings of affiliates"
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:
-
market trends in the floating storage
and regasification unit (or FSRU), liquefied natural gas (or LNG)
carrier and floating liquefied natural gas vessel (or FLNG)
industries, including charter rates, factors affecting supply and
demand, and opportunities for the profitable operations of FSRUs,
LNG carriers and FLNGs;
-
the ability of Golar LNG Partners LP
("Golar Partners," "we," "us" and "our") and Golar LNG Limited
("Golar") to retrofit vessels as FSRUs or FLNGs and the timing of
the delivery and acceptance of any such retrofitted vessels by
their respective charterers;
-
our ability to maintain cash
distributions and the amount of any such distributions;
-
our ability to consummate the
Acquisition of Hilli Episeyo on a timely basis
or at all;
-
the timeliness of the Golar Hilli Episeyo delivery, commissioning and acceptance by
the charterer;
-
our ability to integrate and realize
the expected benefits from acquisitions and potential acquisitions,
including the FLNG, the Hilli Episeyo;
-
the future share of annual contracted
revenues, net of operating expenses relating to the Hilli Episeyo, which are expected to be 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;
-
general market conditions, including
fluctuations in charter hire rates and vessel values;
-
the liquidity and creditworthiness of
our charterers;
-
changes in our operating expenses,
including drydocking and insurance costs and bunker prices;
-
our future financial condition or
results of operations and future revenues and expenses;
-
the repayment of debt and settling of
interest rate swaps;
-
our and Golar'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 our
charterers;
-
our ability to maintain long-term
relationships with major LNG traders;
-
our ability to leverage the
relationships and reputation of Golar, Golar Power Limited (or
Golar Power) and OneLNG S.A. (or OneLNGSA) in the LNG
industry;
-
our ability to purchase vessels from
Golar, Golar Power and OneLNGSA in the
future;
-
our continued ability to enter into
long-term time charters, including our ability to re-charter
the Golar Spirit, the Golar Mazo and the Golar
Maria following the termination or expiration of their
respective time charters in 2017;
-
our ability to maximize the use of our
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;
-
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;
-
availability of skilled labor, vessel
crews and management;
-
our 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 our
partnership and distributions to our unitholders;
-
challenges by authorities to the tax
benefits we previously obtained;
-
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;
-
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.
Golar LNG Partners L.P.