Golar LNG Partners L.P. reports net income attributable to unit holders of $8.2 million and operating income of $26.2 million for the third quarter of 2011, as compared to $10.4 million and $24.0 million for the third quarter of 2010.
Operating results were improved mainly due to an increase in revenue as a result of higher charter rates due to inflation escalators contained within the charters, in particular the two floating storage and regasification units ("FSRUs") on charter to Petrobras, but also due to slightly lower operating costs. All vessels operated well throughout the quarter with 100 per cent utilisation.
Net financial expenses were higher at $14.9 million for the third quarter, compared to $10.9 million for the same period last year. This is principally due to an increased loss in respect of the mark-to-market valuation of interest rate swaps.
For accounting purposes, in accordance with U.S. GAAP, Golar Partners is required to recognize in the income statement market valuations of certain financial items. These include the change in the fair value of certain of its derivative instruments, principally interest rate swap derivatives, as well as the retranslation of long-term lease balances denominated in British Pounds and the valuation of related currency swaps. These gains or losses do not affect cash flow or the calculation of distributable cash flow. They are unrealized gains or losses included in the income statement and will only become realized if a derivative or a lease is terminated. Other Financial Items in the third quarters of 2011 and 2010 reflect such losses. In respect of interest rate swaps, the unrealized loss was $8.7 million and $3.2 million in the third quarter of 2011 and 2010 respectively. In respect of net currency retranslation and currency swaps, the unrealized loss was $1.5 million in the third quarter of 2011 and $2.9 million in the third quarter of 2010.
The Partnerships Distributable Cash Flow for the third quarter at $18.4 million is a slight improvement from $18.2 million in the second quarter of 2011.
Golar Partners declared a dividend for the third quarter of $0.40 per unit, representing a 4% increase from the previous quarters distribution. The dividend was paid on November 14, 2011.
Golar Freeze Acquisition
In October, 2011, the Board was pleased to announce the acquisition of the floating storage and regasification unit ("FSRU"), Golar Freeze from Golar LNG Limited for a purchase price of $330 million.
The Golar Freeze is operating under a 10 year long-term contract with Dubai Supply Authority ("DUSUP") with a remaining firm contract period of approximately 8.5 years. DUSUP has the right to extend the charter term for up to an additional five years.
During the firm contract period the expected contribution is approximately $46 million in additional annual revenues and approximately $8 million in annual Distributable Cash Flow based on the current financing structure.
Financing and Liquidity
As at September 30, 2011, the Partnership had cash and cash equivalents of $52.7 million and undrawn revolving credit facilities of $20 million. Total debt and capital lease obligations, net of restricted cash, was $418.0 million as of September 30, 2011.
The Golar Freeze acquisition was financed by the assumption of approximately $108 million of senior bank debt and with vendor financing provided by Golar LNG in the form of a loan in the amount of approximately $222 million.
Had the Golar Freeze drop down occurred as at September 30, 2011, the total debt and capital lease obligations, net of restricted cash, would have been $748 million including the $222 million vendor financing.
The senior bank debt that has been assumed has two tranches, the first of which matures in June 2015. The interest payable on the senior bank debt has been swapped to a fixed rate giving an all-in cost of approximately 4.0%. The vendor financing has a term of three years and a fixed interest rate of 6.75%. It is expected that the vendor financing will be refinanced prior to its maturity with third party debt and/or in connection with the acquisition of potential further assets from Golar LNG in the future.
As at September 30, 2011, Golar Partners had interest rate swaps with a notional outstanding value of $366 million representing approximately 88% of senior bank debt and capital lease obligations, net of restricted cash. In connection with the Golar Freeze acquisition in October 2011, the Partnership has acquired a further $108 million of interest swaps, increasing the total to $474 million. This would have represented approximately 90% of senior bank debt and capital lease obligations, net of restricted cash, as of September 30, 2011, after adjusting for the Golar Freeze senior bank debt. The average fixed interest rate of these swaps is approximately 2.8%. Average margins paid on outstanding debt, including the Golar Freeze debt in addition to the interest rate are approximately 1.5%.
Outlook?
Following the acquisition of Golar Freeze, the Partnerships management recommended to the Board that the quarterly distribution rate be increased to $0.43 per common unit for the quarter ended December 31, 2011. As noted above the Board has decided to approve an earlier commencement of part of this increase, by increasing the third quarter dividend to $0.40 per unit, with the balance of the increase to be considered for the fourth quarter of 2011. An increase to $0.43 per unit represents an 11.7% increase in distribution.?The Golar Freeze transaction marked the first step in the Partnerships growth strategy. Golar Partners also has an option to acquire the FSRU Khannur, which is contracted under an 11 year charter to Nusantara Regas (a joint venture between Pertamina and Indonesian gas distributor PGN) in Indonesia commencing in the first quarter of 2012. Golar Partners also has the right to acquire any of Golar LNG Limiteds LNG carriers and FSRUs that in the future obtain charters of greater than five years. In addition to the Khannur, Golar LNGs current fleet consists of four modern LNG carriers, two older LNG carriers and a 50% share in a third, seven newbuilding LNG carriers ordered and two newbuilding FSRUs ordered.
The Partnership has entered into discussions with Golar LNG in connection with entering into mutually acceptable transactions in respect of LNG carriers that have charters for periods of less than 5 years. The Board believes that such transactions might provide interesting opportunities to grow Golar Partners at a faster rate. However, the Board will in this respect pay proper attention to any increased risk of lowering the Partnerships average contract term.
The fundamental outlook for the LNG industry over the coming years is increasingly positive. LNG supply and demand are forecasted to grow strongly and this will require additional infrastructure including LNG carriers and FSRUs. Added to this is the now firm expectation of LNG exports from the US with BGs announcement of a 20 year supply contract with Cheniere Energy, which will require further shipping. The Board is therefore excited about the Partnerships future prospects and the possibility to grow Golar Partners and increase quarterly distributions going forward.
Operating results were improved mainly due to an increase in revenue as a result of higher charter rates due to inflation escalators contained within the charters, in particular the two floating storage and regasification units ("FSRUs") on charter to Petrobras, but also due to slightly lower operating costs. All vessels operated well throughout the quarter with 100 per cent utilisation.
Net financial expenses were higher at $14.9 million for the third quarter, compared to $10.9 million for the same period last year. This is principally due to an increased loss in respect of the mark-to-market valuation of interest rate swaps.
For accounting purposes, in accordance with U.S. GAAP, Golar Partners is required to recognize in the income statement market valuations of certain financial items. These include the change in the fair value of certain of its derivative instruments, principally interest rate swap derivatives, as well as the retranslation of long-term lease balances denominated in British Pounds and the valuation of related currency swaps. These gains or losses do not affect cash flow or the calculation of distributable cash flow. They are unrealized gains or losses included in the income statement and will only become realized if a derivative or a lease is terminated. Other Financial Items in the third quarters of 2011 and 2010 reflect such losses. In respect of interest rate swaps, the unrealized loss was $8.7 million and $3.2 million in the third quarter of 2011 and 2010 respectively. In respect of net currency retranslation and currency swaps, the unrealized loss was $1.5 million in the third quarter of 2011 and $2.9 million in the third quarter of 2010.
The Partnerships Distributable Cash Flow for the third quarter at $18.4 million is a slight improvement from $18.2 million in the second quarter of 2011.
Golar Partners declared a dividend for the third quarter of $0.40 per unit, representing a 4% increase from the previous quarters distribution. The dividend was paid on November 14, 2011.
Golar Freeze Acquisition
In October, 2011, the Board was pleased to announce the acquisition of the floating storage and regasification unit ("FSRU"), Golar Freeze from Golar LNG Limited for a purchase price of $330 million.
The Golar Freeze is operating under a 10 year long-term contract with Dubai Supply Authority ("DUSUP") with a remaining firm contract period of approximately 8.5 years. DUSUP has the right to extend the charter term for up to an additional five years.
During the firm contract period the expected contribution is approximately $46 million in additional annual revenues and approximately $8 million in annual Distributable Cash Flow based on the current financing structure.
Financing and Liquidity
As at September 30, 2011, the Partnership had cash and cash equivalents of $52.7 million and undrawn revolving credit facilities of $20 million. Total debt and capital lease obligations, net of restricted cash, was $418.0 million as of September 30, 2011.
The Golar Freeze acquisition was financed by the assumption of approximately $108 million of senior bank debt and with vendor financing provided by Golar LNG in the form of a loan in the amount of approximately $222 million.
Had the Golar Freeze drop down occurred as at September 30, 2011, the total debt and capital lease obligations, net of restricted cash, would have been $748 million including the $222 million vendor financing.
The senior bank debt that has been assumed has two tranches, the first of which matures in June 2015. The interest payable on the senior bank debt has been swapped to a fixed rate giving an all-in cost of approximately 4.0%. The vendor financing has a term of three years and a fixed interest rate of 6.75%. It is expected that the vendor financing will be refinanced prior to its maturity with third party debt and/or in connection with the acquisition of potential further assets from Golar LNG in the future.
As at September 30, 2011, Golar Partners had interest rate swaps with a notional outstanding value of $366 million representing approximately 88% of senior bank debt and capital lease obligations, net of restricted cash. In connection with the Golar Freeze acquisition in October 2011, the Partnership has acquired a further $108 million of interest swaps, increasing the total to $474 million. This would have represented approximately 90% of senior bank debt and capital lease obligations, net of restricted cash, as of September 30, 2011, after adjusting for the Golar Freeze senior bank debt. The average fixed interest rate of these swaps is approximately 2.8%. Average margins paid on outstanding debt, including the Golar Freeze debt in addition to the interest rate are approximately 1.5%.
Outlook?
Following the acquisition of Golar Freeze, the Partnerships management recommended to the Board that the quarterly distribution rate be increased to $0.43 per common unit for the quarter ended December 31, 2011. As noted above the Board has decided to approve an earlier commencement of part of this increase, by increasing the third quarter dividend to $0.40 per unit, with the balance of the increase to be considered for the fourth quarter of 2011. An increase to $0.43 per unit represents an 11.7% increase in distribution.?The Golar Freeze transaction marked the first step in the Partnerships growth strategy. Golar Partners also has an option to acquire the FSRU Khannur, which is contracted under an 11 year charter to Nusantara Regas (a joint venture between Pertamina and Indonesian gas distributor PGN) in Indonesia commencing in the first quarter of 2012. Golar Partners also has the right to acquire any of Golar LNG Limiteds LNG carriers and FSRUs that in the future obtain charters of greater than five years. In addition to the Khannur, Golar LNGs current fleet consists of four modern LNG carriers, two older LNG carriers and a 50% share in a third, seven newbuilding LNG carriers ordered and two newbuilding FSRUs ordered.
The Partnership has entered into discussions with Golar LNG in connection with entering into mutually acceptable transactions in respect of LNG carriers that have charters for periods of less than 5 years. The Board believes that such transactions might provide interesting opportunities to grow Golar Partners at a faster rate. However, the Board will in this respect pay proper attention to any increased risk of lowering the Partnerships average contract term.
The fundamental outlook for the LNG industry over the coming years is increasingly positive. LNG supply and demand are forecasted to grow strongly and this will require additional infrastructure including LNG carriers and FSRUs. Added to this is the now firm expectation of LNG exports from the US with BGs announcement of a 20 year supply contract with Cheniere Energy, which will require further shipping. The Board is therefore excited about the Partnerships future prospects and the possibility to grow Golar Partners and increase quarterly distributions going forward.