Highlights
- Golar LNG Partners LP reports net income attributable to unit holders of $41.0 million and operating income of $62.3 million for the second quarter of 2015.
- Generated distributable cash flow of $41.4 million for the second quarter with a coverage ratio of 1.07.
- Strong operational performance with 100% availability of the fleet for scheduled operations and 94% availability taking account of the Golar Freeze drydock.
- Successful placement of a $150 million bond in the Norwegian bond market.
- Repaid $120 million of the $220 million Golar Eskimo vendor financing together with a maturing $20 million revolving facility also provided by Golar LNG Limited.
- Executed a $180 million refinancing facility in respect of the Golar Maria and Golar Freeze.
Financial Results Overview
Golar LNG Partners L.P. ("Golar Partners" or the "Partnership") reports net income attributable to unit holders of $41.0 million and operating income of $62.3 million for the second quarter of 2015 ("the second quarter or 2Q"), as compared to net income attributable to unit holders of $31.3 million and operating income of $58.7 million for the first quarter of 2015 ("the first quarter or 1Q") and net income attributable to unit holders of $37.8 million and operating income of $62.1 million for the second quarter of 2014.
Second quarter operating income was in line with the same period in 2014. Additional revenue in respect of the Golar Eskimo, which was acquired on January 20, 2015, was offset by reduced earnings from the Golar Freeze as a result of its drydock during the quarter, a full quarter of reduced earnings for the Golar Grand given its new contract rate and associated ownership and operating costs in respect of the Golar Eskimo FSRU. Second quarter 2015 revenue increased by $4.1 million over 2Q 2014 and includes an additional $12.4 million hire in respect of the Golar Eskimo. This was offset in part by a reduction in revenue due to the drydock of the Golar Freeze equivalent to $6.7 million and a $2.1 million revenue reduction in respect of the Golar Grand which was returned at the end of its contract by BG Group in mid-February and re-chartered to Golar LNG Limited ("Golar") at a lower rate. Vessel operating expenses, voyage and commission costs, administration expenses and depreciation and amortisation increased by a collective $4.0 million compared to the same period in 2014 primarily reflecting the additional ownership and operating costs of the Golar Eskimo. Despite additional debt servicing costs on financing of the Golar Eskimo, second quarter 2015 net financial expenses were $3.8 million lower than 2Q 2014. The reduction is predominantly reflective of a $6.0 million non-cash mark-to-market valuation gain on interest rate swaps compared to a $3.3 million loss in 2014. Taxes in respect of 2Q 2015 were $0.8 million higher than the same period in 2014 when a credit to tax expense resulting from a year-to-date reassessment of current tax estimates was recognised.
An increase in revenue net of voyage expenses from $98.5 million in the first quarter to $103.6 million in the second quarter reflects a number of factors. An additional $8.6 million was recognised in respect of the Golar Igloo which was on charter for all of the second quarter, whereas two of its scheduled three months downtime occurred during the first quarter. The Golar Eskimo was also receiving revenue for all of the second quarter compared to 71 days hire received in respect of the first quarter. This resulted in an additional $2.8 million of revenue being recognised in 2Q. Offsetting these was a $6.9 million reduction in revenue from the Golar Freeze which commenced its scheduled drydock during 2Q resulting in 51 days of offhire and a $1.2 million reduction in hire from the LNG carrier Golar Grand which spent part of 1Q on hire to BG Group at a higher rate. The majority of the remaining $1.8 million increase in revenue reflects the longer quarter (91 days versus 90 days).
Vessel operating expenses at $17.2 million were $1.6 million higher than the first quarter cost of $15.6 million. This was mainly due to higher essential repair expenditures across the fleet and higher Golar Freeze non-drydock related repairs in particular. It also reflects a full quarter of operations in respect of the Golar Eskimo which operated for 71 of the 90 days in the first quarter. Administration expenses at $1.5 million were in line with the prior quarter.
Net interest expense at $13.8 million for the second quarter was $1.3 million higher than the first quarter due to a full quarters interest on a $162.8 million debt facility and a $220.0 million vendor loan from Golar, which together financed the acquisition of the Golar Eskimo on January 20. On May 12, Golar Partners issued a USD 150 million bond in the Norwegian bond market, the majority of the proceeds of which were subsequently used to repay existing debt facilities. Other financial items for the second quarter were a loss of $1.5 million compared to a $10.4 million loss in the first quarter. This included non-cash mark-to-market valuation gains on interest rate swaps of $6.0 million in the second quarter as a result of an increase in 3-year and 5-year interest swap rates by 14bps and 26bps respectively. This compares to a $5.9 million loss in the first quarter.
The Partnership's Distributable Cash Flow1 for the second quarter was $41.4 million as compared to $40.7 million in the first quarter and the coverage ratio was 1.07 as compared to 1.06 for the first quarter. The coverage ratio was negatively impacted in the first quarter by 2 months of scheduled downtime for the Golar Igloo and in the second quarter by 51 days offhire for the Golar Freeze scheduled drydock.
1Distributable cash flow is a non-GAAP financial measure used by investors to measure the performance of master limited partnerships. Please see Appendix A for a reconciliation to the most directly comparable GAAP financial measure.
Corporate and other matters
Our General Partner, Golar, announced on August 4, 2015 a unit purchase program of up to $25 million worth of Golar Partners outstanding units over the subsequent 12 months. To date, Golar has purchased 167,000 shares in open market transactions increasing its stake in the Partnership to 30.3% inclusive of its General Partner stake.
On July 27, 2015, Golar Partners declared a distribution for the second quarter of $0.5775 per unit. The second quarter dividend was paid on August 14, 2015 on total units of 62,870,335.
Operational Review
The fleet performed well during the quarter with 100% utilisation of all vessels except for the Golar Freeze which incurred 51 days offhire as a result of its scheduled drydock, which was longer than the anticipated 30-40 days offhire. Golar Freeze recommenced operations in Dubai on July 4 and will therefore report 3 further days offhire in 3Q. The Golar Grand represents the only remaining vessel in the fleet scheduled to be dry-docked before year end. The exact timing of the Golar Grand drydock will however depend on the vessels planned operations and may be postponed into 2016.
FSRU Golar Eskimo arrived off Aqaba on May 25, issued a notice of readiness, commenced its charter on June 24 and went on to complete it's commissioning for the Hashemite Kingdom of Jordan without issue on July 12. Since commencement, the FSRU has since been producing at close to peak capacity and with 100% availability.
Financing and Liquidity
As of June 30, 2015, the Partnership had cash and cash equivalents of $59.5 million and undrawn revolving credit facilities of $80 million. Total debt and capital lease obligations net of total cash balances was $1,305.4 million as of June 30, 2015.
Based on the above net debt amount and annualized2 second quarter 2015 adjusted EBITDA3, Golar Partners debt to adjusted EBITDA multiple was 3.8.
On May 11, 2015 the Partnership launched a USD 150 million five year non-amortising bond in the Norwegian bond market. The oversubscribed issue successfully priced at LIBOR plus 4.4%. Golar Partners intends to list the bond in the Norwegian market. Golar Partners subsequently entered into interest rate swaps to hedge the aggregate principal of the bond such that the all-in interest cost for the $150 million is 6.275%. The majority of the proceeds were used to repay existing debt; $120 million was applied against the vendor financing provided in connection with the acquisition of the Golar Eskimo and a further $20 million was used to extinguish a maturing $20 million revolving facility, also provided by Golar.
On June 16, the Partnership executed a $180 million facility comprised of a $150 million term loan and a $30 million revolving credit facility. The facility was used to repay $133.4 million of long term debt that matured in 2015. Secured against the Golar Maria LNG carrier and Golar Freeze FSRU, the facility has a tenor of 36-months, the $150 million term loan will be repaid in 12 quarterly instalments plus a balloon payment of $114 million at maturity and the facility carries interest at LIBOR plus a margin of up to 195bps.
Golar Partners expects to refinance the remaining $100 million Golar Eskimo vendor loan and the Golar Maria/Freeze facility ahead of their maturities in January 2017 and June 2018.
As of June 30, 2015, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,218.0 million (including swaps with a notional value of $377.2 million in connection with the Partnership's bonds but excluding $100 million of forward starting swaps) representing approximately 93% of net debt. In addition to the Bond swaps, a new $100 million 7-year swap was also entered into and a $55 million swap matured during the quarter. The average fixed interest rate of swaps related to bank debt is approximately 2.14% with average maturity of approximately 3.2 years as of June 30, 2015.
As of June 30, 2015, the Partnership had outstanding bank debt of $970.6 million with average margins, in addition to LIBOR or fixed swap rates, of approximately 2.32%, a Norwegian Krone (NOK) bond of $165.5 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 Norwegian Krone bond. As the US dollar has depreciated against the NOK during the quarter, the value of this bond in USD terms has increased whilst the swap liability has fallen. The total swap liability as at June 30, 2015, which also includes an interest rate swap element, was $68.4 million. The Partnership also has a $100 million vendor loan from Golar entered into in connection with the acquisition of the Golar Eskimo. The vendor loan has a tenor of 2 years and an average interest rate of LIBOR plus 2.84%
2Annualized means the figure for the quarter multiplied by 4.
3Adjusted EBITDA: Earnings before interest, other financial items, taxes, non-controlling interest, depreciation and amortization. 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.
Outlook
Operating earnings and distributable cash flow coverage ratio are expected to improve in the third quarter as a result of improved fleet utilization. The second quarter was negatively impacted by 51 days offhire for the Golar Freeze due to its drydock. There are no drydocks planned for the third quarter and the only other planned drydock for 2015 is the Golar Grand, although this may be postponed until 2016.
Following the acquisition of the Golar Eskimo, Golar Partners has a total revenue backlog of $2.5 billion with an average remaining contract term of 5.5 years, as at June 30, 2015.
Golar Partners distributions have increased 8% for the full year 2014 and 3% for 2015. Further growth via acquisitions will most likely come from vessels within Golar's fleet of 11 modern LNG carriers and 2 newbuild FSRU's that get contracted on a long-term basis in the coming years. Currently the most likely first of these is a potential long-term contract for the Golar Tundra FSRU commencing in 2016. Golar's Ghana FSRU project has made slow progress; Golar is therefore simultaneously pursuing alternative projects. The recent setback in the unit price is however a limiting factor with respect to Golar Partners current ability to grow accretively.
The demand for FSRUs remains strong in an environment of increasing LNG supply and lower LNG prices. Given Golar's recent order of a newbuild FSRU delivering in 2017 plus options for 2 further FSRU's and the level of FSRU enquiry and ongoing discussions, Golar Partners also believes that there will be significant further FSRU growth opportunities through the balance of the decade.
In 2017 and moving forward from then, Golar Partners views Golar's GoFLNG projects as attractive growth opportunities. Golar's first project in Cameroon is expected to receive formal approval by the end of September 2015. Golar has recently announced that it has entered into an agreement for its third GoFLNG vessel with Keppel and Black & Veatch. Golar Partners therefore sees Golar's GoFLNG liquefaction projects as an extremely interesting growth prospect given the high margin and long-term nature of these assets.
With first class operations, a solid revenue backlog, a diversified asset portfolio and a strong balance sheet, the Partnership is strategically well positioned. The current weakness in the MLP market and the expected negative future growth in US oil production have focussed investor attention on MLP's ability to generate stable distributable cash flow. The business model of Golar Partners is not linked to increased US oil production. The Company's distribution is well protected with an average coverage ratio of 1.22 over the last two years. In Comparison to many US oil focused MLP's, who will be influenced by negative growth in shale production, Golar Partners is in the same period operating in the global LNG market which is expected to grow by 7-10% per annum.
The Board is confident that Golar Partners has as of today a sustainable dividend with the potential to increase earnings and distributions to its unitholders over the coming years through growth particularly linked to the acquisition of FLNG and FSRU assets.
August 26, 2015
Golar LNG Partners L.P.
Hamilton, Bermuda
Questions should be directed to:
c/o Golar Management Ltd - +44 207 063 7900
Brian Tienzo - Chief Finance Officer
Graham Robjohns - Chief Executive Officer
