Golar LNG Limited has reported net income of $11.7 million and operating income of $7.3 million for the three months ended June 30, 2008 (the "second quarter"). Net income has been positively impacted by unrealised non-cash gains on interest rate swap mark-to-market valuations totalling $17.8 million.
Revenues in the second quarter were $52.5 million as compared to $58.8 million for the first quarter of 2008. Spot charter rates have been lower but also utilization has decreased from 94% last quarter to 74% this quarter. The decrease in the number of days on hire for the fleet is largely due to vessel waiting time and positioning, during which time the Company pays for fuel costs. Voyage expenses, which mainly relate to fuel costs, have therefore increased significantly from $1.5 million in the first quarter to $10.4 million for the second quarter, not helped by rising fuel costs. Second quarter average daily time charter equivalent rates (TCE’s) were $39,890 per day compared to $53,068 per day during the first quarter.
The vessel Khannur drydocked during the quarter and the Methane Princess and the Granatina will drydock during the third quarter of 2008. The Hilli and the Gandria are not expected to have earnings during the third quarter and steps have been taken to reduce operating costs on these vessels until charter opportunities arise. The Golar Spirit left the shipyard on June 11, collected a cargo in Trinidad and then proceeded to Pecem, Brazil tendering notice of readiness on July 22. Testing of the vessel will not commence until the end of August whilst Petrobras finalise the shore side receiving facility.
Net interest expense for the second quarter was $12.8 million, down from $14.6 million for the first quarter. The decrease in interest expense is driven by lower interest rates on floating rate debt. Other financial items were a gain of $19.5 million in the second quarter compared to a loss of $21.4 million for the first quarter. This has primarily resulted from unrealised interest rate swap valuation gains of $18.6 million (before minority interest) as compared to a loss of $15.1 million in the first quarter. The gains are due to the rise in long term interest rates. As at June 30, 2008 approximately 73% of the Company’s debt and capital lease obligations was effectively swapped to a fixed rate at an average rate of 4.5% excluding margin and with an average period to maturity of 5.3 years. Net income per share for the second quarter was $0.17 as compared to a loss per share of $0.23 for the first quarter.
Based on results for the quarter end ended June 30, 2008 and taking into consideration expectations for the balance of the year, the Board has declared a dividend of $0.25 per share for the quarter, which is in line with the dividend for the fourth quarter of 2007 and the first quarter of 2008. A gain on the sale of the Golar Frost of approximately $78 million will be recognised in the third quarter and this, together with capital expenditure requirements and investment opportunities will be taken into account when the Board sets dividend levels going forward.
The Board will seek to optimize the capital structure of the Company to endeavour to achieve the highest possible long-term return on equity invested. The record date for the dividend is August 26, 2008, ex dividend date is August 22, 2008 and the dividend will be paid on or about September 10, 2008.
Corporate and Other Matters
Conversion of Golar Spirit was completed during the quarter with the ship leaving Keppel ship yard in Singapore on June 11 against a target completion of May 31. The vessel loaded a commissioning cargo in Trinidad en route to Pecem Brasil and delivered to Petrobras under the long term time charter party on July 22. The vessel is currently standing off Pecem waiting for final completion of the shore side facilities before final commissioning and testing can be completed. The delivery of Golar Spirit marks a significant milestone in the delivery of the Company’s strategy to develop its midstream business activities. It also marks the world’s first converted FSRU in a growing market for FSRU's.
Following on the from the two FSRU charters with Petrobras and as previously announced, Golar signed a further 10 year FSRU charter this quarter with the Dubai Supply Authority for the Golar Freeze as a converted FSRU. This contract is a further demonstration of the Company’s strategic development.
The sale of Golar Frost to the OLT Offshore ("OLT-O") joint venture (Livorno project) was completed on July 2 with the vessel immediately chartered back to Golar on a competitive bareboat basis. The vessel was subsequently sub-chartered out on a 140 day time charter. The vessel will continue to trade in the spot market until June 2009 when the vessel will redeliver to OLT-O in advance of its conversion to a FSRU. The sale of Golar Frost and the previously advised signing of the EPC contract with Saipem for the conversion of the vessel and other associated works represent a significant milestone in what has been a long and at times challenging project development phase.
This achievement has been a clear indication of the continuous commitment by the joint venture to deliver this project and confidence in the selected technology. With the recent takeover of Endesa Europa by E.ON. Ruhrgas the OLT-O joint venture sees E.ON. Ruhrgas take over the position once held by Endesa Europa.
Golar has agreed to partner with Bluewater for the purposes of bidding for an offshore LNG FSRU opportunity with South Africa's national oil company, PetroSA. Golar and Bluewater will be equal partners in a joint venture formed specifically for this opportunity. Additionally, and in conjunction with this bid, Golar and Bluewater have agreed to acquire the 1977 built Moss type 126,000 m3 LNG Carrier, Hoegh Gandria. The vessel is intended to be used as the converted offshore FSRU.
Bluewater are providing their proprietary LNG tandem loading system which forms an important part of the offer to PetroSA.
Golar is now placing orders for the long lead delivery items for the Hilli FSRU conversion project thereby securing the ability to deliver this vessel as a FSRU within 2010. Encouraged by the success of speculatively commencing the conversion of Golar Spirit the Company believes securing the earliest possible delivery of the vessel as a FSRU along with the growing interest around the world to adopting floating terminals as a means of quickly and efficiently accessing LNG places the Company in a strong position to secure the next available FSRU opportunity.
The Company is encouraged by the progress being made by LNG Ltd. in its pursuit of the Gladstone LNG project with an Engineering and Construction Service Contract recently awarded to SK Engineering and Construction for the FEED phase of the project. The final investment decision for the project remains targeted for early 2009. The Company views this project as an excellent opportunity to further develop an integrated position in the midstream of the LNG supply chain.
Along with many others in the industry Golar views coal-bed methane as a significant potential area of development for LNG in general.
Notwithstanding operational difficulties being experienced by several LNG producers in recent months, LNG supply rose by 1.4 bcf/d in June year-on-year.
In the run up to the northern winter there is again evidence of rising gas storage outside of the US by traders, producers and consumers in anticipation of higher winter prices. We believe several spot cargos are being lined up to load in Q3 with discharge expected to be in the Far East this winter to take advantage of the steep contango on the NBP forward strip.
There are 5 new liquefaction projects coming on stream over the next 9 months which have the potential to loosen the current tight LNG market. If these projects all come on stream at the forecast date, they will add 3.8 bcf/d of additional LNG supplies by summer of 2009. On the demand side, there are at least 3 new importers which will be importing an additional 0.7 – 0.9 bcf/d in summer 2009. What is less clear is the potential for further delays as each of these projects moves into the final phases of construction and start commissioning.
Overall it is expected that these developments will have a positive impact on the forward market for short term LNG shipping and signs are starting to appear of an improvement in the market.
The world LNG tanker fleet stood at 270 by the end of June with the order book for new vessels now standing at 112 and 3 small older vessels are reported to have been scrapped this year. Qatar’s shipping company Nakilat, named its first QMax vessel at Samsungs yard in Korea in July. The vessel is the first of 14 QMax vessels ordered by Nakilat.
The interest in floating midstream solutions by all industry participants continues to be strong with a healthy level of enquiry in FSRU, SRV and FLNG opportunities being experienced by Golar and others looking to position themselves in this sector.
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