PRELIMINARY FOURTH QUARTER AND FINANCIAL YEAR 2009 RESULTS
(Thomson Reuters ONE) -
Highlights
· Golar LNG Energy reports net income of $1.0 million and operating
income before depreciation and amortisation of $8.1 million
· Spot traded vessel earnings improved with higher utilisation and
rates
· Sale of LNG Limited shares results in net gain of $8.4 million
· Floating regas projects taking shape; Golar LNG Energy well
positioned for next contract(s)
· Restructuring of Gladstone LNG Fisherman's Landing project
Financial Review
Golar LNG Energy Limited ("Golar Energy" or the "Company") reports net income of
$1.0 million and operating income before depreciation and amortisation of $8.1
million for the quarter to December 31, 2009 (the "fourth quarter").
Revenues in the fourth quarter of 2009 (the "fourth quarter") were $22.6 million
as compared to $11.3 million for the third quarter of 2009 (the "third
quarter"), which effectively represents trading from August 12, 2009 until
September 30, 2009. Earnings from vessels operating in the spot market
continued to slowly improve from the position in the first half of 2009. Average
utilisation for the fourth quarter was 90%, with average daily time charter
equivalent rates ("TCEs") at $36,480 per day as compared to $35,616 for the
third quarter.
Voyage expenses, principally fuel costs whilst the vessels are not on time
charter, were $3.0 million for the fourth quarter and operating expenses were
$6.8 million as compared to $0.8 million and $3.8 million respectively for the
third quarter. The increase was due to the short actual trading period recorded
in Golar Energy's books for the third quarter. Administrative expenses were
particularly high in the fourth quarter at $4.7 million ($1.7 million in the
third quarter) largely due to high project development costs and are expected to
be lower moving forward.
Net interest expense was $4.0 million for the fourth quarter as compared to $2.8
million in the third quarter. Other financial items gain of $0.7 million arose
principally due to a gain on the valuation of interest rate swaps as a result of
the increase in long-term interest rates.
Equity in net earnings of associates relates mainly to the company's 50%
investment Bluewater Gandria NV, the owner of the vessel Gandria and the
Company's investment in LNG Limited. As a result principally of the Company's
reduction in ownership stake in LNG Limited the Company has discontinued equity
accounting for this investment from November 2009.
The gain on sale of investee of $8.4 million represents the sale of 9.6 million
LNG Limited shares as discussed further below.
Financing, corporate and other matters
During the fourth quarter the Company issued share options to directors and
employees totalling 3,940,000 at a strike price $2.20. The grant date was
October 23, 2009 and all options vest over a period of two years and eight
months.
In November 2009, Golar Energy sold a block of 9.6 million LNG Limited shares
which reduces its shareholding to approximately 6.3% of LNG Limited's issued
share capital. The sale realised funds of approximately $11 million and resulted
in an accounting profit of $8.4 million.
Operational Review
Shipping
Spot market activity increased favourably in the fourth quarter which also saw
all Golar Energy spot vessels improve their trading performance. Available
tonnage in the Atlantic Basin was fairly tight although limited opportunities
existed for those vessels that were not cold and load-ready for spot activity.
Vessel charter rates were also up but still have some room for improvement. Low
gas prices supported last quarter's increased activity and, with available
(albeit tightening) ship supply, LNG suppliers have managed to secure transport
at low rates and secure positive netbacks. The market in the second half of
2009 was further supported by a relatively steep seasonal contango in the gas
market.
This contango is seasonal and has disappeared in the first quarter of 2010.
Recent indications and lack of spot market activity indicate that winter demand
has fallen away quite rapidly, vessel availability has increased and further
competition is becoming evident from existing project-based ships now providing
backhaul services at rate levels that further undermine the market. However,
increased demand as the world moves out of recession allied to an increasing
flexible supply of LNG in 2010, should in the Company's opinion, mean that
market fundamentals will support a much needed improvement in charter rates and
utilisation going forward, albeit that at least the first part of 2010 will be
very challenging.
The current fleet stands at approximately 340 ships, a 21% increase from the
280 ships at the end of 2008 driven by an equally significant increase, albeit
somewhat delayed, in LNG production. However, no new orders have been placed
since May 2008 until a recently reported single vessel order. This means 37 new
vessels will be delivered between now and end 2012 compared to 38 Vessels in
2009 and some 53 new deliveries in 2008. By the end of 2010 only 11 ships
currently remain to be delivered representing only 3% of the total fleet.
Contrary to other shipping markets such a low order book gives reasons for
conditional optimism.
Regasification
The outlook for new floating storage and regasification projects remains
encouraging. Many LNG import terminal developers are taking the necessary and
material steps to support the next wave of floating regasification contracts
after the hiatus in 2009 following the global financial crisis.
Pre-qualification ("PQ")/Request for Proposal ("RFP") activity is on the rise;
regas developers are engaging technical consultants to scope new projects; and
interestingly inquiry among oil and gas majors has increased. Recent and notable
public market activity includes:
· Indonesia (West Java): Golar Energy has recently received a PQ from
the Indonesian national oil and gas company, Pertamina and national gas
transmission company, PT Perusahaan Gas Negara (Persero) Tbk ("PGN") for a ~3
MTA/year offshore LNG receiving terminal, targeted for a 4Q2011 start-up in West
Java. Golar Energy will submit a PQ. Contract award is targeted for 3Q2010.
· Indonesia (Sumatra): Golar Energy has responded with interest in PGNs
solicitation of interest for a ~1-2 MTA/year floating storage and regasification
terminal, targeted for a 1H2012 start-up in North Sumatra. The PQ is expected
to be launched within 1Q2010 with contract award targeted for 4Q2010.
· Jamaica: Golar Energy has recently submitted a proposal of interest in
response to the Petroleum Corporation of Jamaica's RFP for a ~2 MTA/year
offshore LNG receiving terminal, targeted for a 2012 start-up.
· Israel: Golar Energy has submitted the qualification documents for the
Government of Israel ("GOI") LNG Import Terminal PQ process for a ~3 MTA/year
offshore LNG receiving terminal offshore, targeted for a 2H2013 start-up. Site
selection is still underway. The GOI is finalizing the qualification process for
eligible participants.
* Uruguay: The governments of Uruguay and Argentina have agreed to build an
LNG regasification terminal to be located in Uruguay to supply natural gas
to both countries. Foster Wheeler Iberia has been retained to develop the
tender basis. Golar Energy is closely monitoring activities with strong
interest.
The Board remains committed to and confident in delivering the next FSRU
contracts and is taking pro-active steps to position and ensure coverage of the
full market. Company calculations show that floating terminals can be
significantly cheaper and are more flexible than land based alternatives. In
addition floating terminals benefit from a significantly faster time to start
up.
Liquefaction
As reported last quarter the Gladstone LNG Fisherman's Landing Project continues
to move forward positively.
However, during the 4th quarter it became clear that the upstream gas producing
wells would not obtain full environmental approval needed for financial close
until well past March 2010. However, for the project to maintain the start up
target date of end 2012 it would be necessary to take a firm investment decision
(FID) by March 2010. This would result in the need for equity financing over at
least a 12 month period. It became apparent that under the above circumstances
and given the reported capital costs, that the project would not progress under
the original HOA's and, as a result, all parties were not prepared to move
forward with them.
With the objective of achieving project FID by March 2010 and to provide
increased certainty of the project's first LNG shipment in late 2012, Arrow and
LNG Ltd agreed in February 2010 that Arrow will acquire the LNG Ltd subsidiary
Gladstone LNG that holds the rights to develop the Fisherman's Landing site, all
approvals and the pre-development work. LNG Ltd as the 100% owner of Gladstone
LNG had undertaken all the prefunding requirements for the work in Gladstone
LNG, Golar Energy has not had any money at risk and Golar Energy will not
receive any consideration from the acquisition by Arrow.
As a result of the aforementioned restructuring Golar Energy has entered into a
HOA on the Shipping and Marketing with Arrow for the sale of LNG from the
project. Golar Energy will provide marketing services to Arrow and Golar Energy
will receive a royalty for these services based on the LNG sales price and
quantity. In addition Golar will time charter two LNG carriers to Arrow to
transport the LNG to the end customer. There are significant condition's
precedent to the HOA agreement which relate to the successful conclusion of a
LNG sales and purchase agreement ("SPA"). If these are not met there is no
guarantee that Golar will have any role in the project. Golar Energy currently
has a HOA with Toyota Tsusho Corporation as buyer of the LNG from the first
train.
This restructuring is clearly a departure from the position originally planned.
However, assuming Golar Energy is successful in securing this revised role, the
restructuring is positive in that it removes any risk associated with upstream
approvals or capital cost increases and would lock in the employment for two LNG
carriers and provide a minimum royalty with upside related to oil price. Whilst
the absolute cash returns would be lower than previously anticipated there is
also a significantly reduced equity requirement, including no equity support
that Golar Energy was required to provide LNG Limited under the pre-existing
arrangements.
Golar Energy and PTTEP announced in January 2010 the joint termination of the
Heads of Agreement and Joint Study Agreement governing their joint development
of a floating liquefied natural gas (FLNG) project based on the gas fields in
North West Australia owned by PTTEP. The two Companies also announced their
termination of a Memorandum of Understanding covering their global cooperation
to identify and develop FLNG projects.
Golar Energy will continue to actively pursue FLNG projects which fit with its
financial objectives and best captures its technical capabilities. Golar
Energy's FLNG strategy will be expanded to include the development of low
capital cost, rapid deployment floating facilities utilising the conversion of
high quality existing LNG carriers, floating technologies for the liquefaction
of pipeline quality gas or associated gas (requiring minimal processing) and
seek other innovative LNG solutions. This strategy complements Golar Energy's
industry leadership position in floating LNG regasification facilities
development. In an era of intense competition in the LNG industry and the high
cost and long lead time of land based LNG facilities, Golar Energy believes
highly cost efficient approaches based on floating LNG liquefaction, storage and
offtake, shipping and regasification facilities of the types now being developed
by the company will be key to substantial additional growth opportunities.
Market
Last year's recession along with the start-up of new production and import
capacity triggered a sizeable shift in the overall distribution of LNG trade.
In addition cold weather across the Northern Hemisphere spurred stronger gas
demand in December with consumption reaching new record highs in parts of
Europe. However enough spare capacity existed throughout the supply chain to
prevent large price spikes.
The U.S. stepped-up its LNG consumption last year despite the domestic shale gas
boom, on the back of falling demand elsewhere and the abundance of supply at low
prices. Last year witnessed a nearly worldwide crash in industrial gas demand,
which in the US pushed gas prices so low that the fuel began backing out coal in
many parts of the electricity sector, thus preventing a complete collapse in
prices
Far Eastern consumption dropped but recovered somewhat at the end of last year.
There were higher import volumes for Japan, Korea and Taiwan compared to the
same period a year earlier as demand recovered from the recession-led dip.
Prices remained lower than a year previous however.
The nature of LNG's role in the gas market is set to change since as much as 60
million tons per year of global LNG is expected to be flexible supply in 2010.
This means that nearly 3% of global natural gas consumption can be redirected to
whatever market offers the best netback to sellers.
The amount of new LNG capacity coming on line over the course of 2010 will be
circa 23.1 million tons/yr compared to 46.5 million tons/yr last year. The
2010 number may well shift if Qatar's last train is completed by September, as
now scheduled, or the Peruvian LNG project slips into early 2011, as many
expect. Nonetheless uncommitted LNG is set to double in 2010 to 60 million tons.
In addition, 2009 saw two final investment decisions with Chevron's 15 million
tonne Gorgon project and Exxon's 6.6 million PNG LNG project. Both projects are
expected to be operational by 2014.
One notable development from last year was that December saw the first re-export
from a U.S. LNG storage facility, the cargo being loaded at Freeport and sold
into Korea
Outlook
The LNG sector has suffered as a result of the global recession and the
successful development of shale gas in the US. This, in combination with new LNG
supply coming on stream has resulted in downward pressure on LNG prices.
Several LNG trains around the world are running at reduced capacity and with the
new capacity it could take some time before we see a balance in the demand and
supply situation. However, this oversupply and increased flexible supply might
also create some arbitrage opportunities which would benefit an over supplied
spot shipping market as well as making more regasification projects realistic.
There are clear similarities between the more flexible structure of the LNG
market which is now emerging and the opening of the crude oil market in the
1970's. There is increased activity by traders and spot cargoes are still at a
limited level.
The break even cost for Mid. East LNG production is supported by the value of
associated crude and condensate production and makes it highly likely that LNG
will be a competitive and growing commodity, also in an environment influenced
by increased US shale gas production. The strong gas demand coming out of China
further supports this case.
By end of 2010 there is a significant decline in the rate of growth of the fleet
and with no new buildings ordered during 2009. The Company believes that we
will begin to see a tightening of the shipping market over the next twelve to
eighteen months. Based on the long term demand for LNG the capacity of the LNG
fleet will have to be increased, also taking into account that a number of the
old vessels will be scrapped or converted into regasification or floating
liquefaction vessels.
The floating regasification market is looking more and more promising with
increased interest in floating regasification from all over the world. With the
uncertainties in the global market of the past eighteen months slowly being
overcome project developers in this market seem to be much more focused and
serious and the Company believes that there will be a few new FSRU contracts
awarded during 2010. New players are trying to enter the market, however the
Company believes it is in a good position to secure contracts based on its
previous experience in this market.
The Company has gained valuable floating liquefaction (FLNG) experience through
the work done with PTTEP and other studies. The Company is extremely cognizant
of the significant challenges to undertake a large scale FLNG project as
conceived by some market participants, both from a technical, commercial and
financing point of view. The Company believes that there are alternative niche
markets to be developed in this sector and during the last 6 months has
developed a FLNG concept for a 1 million ton per annum unit which could liquefy
pre-treated/pipe gas/coal-seam gas at a very competitive capital cost per ton.
The company will selectively continue to pursue the FLNG market. The Company
also believes that further worldwide opportunities exist in solutions which
integrate power production and regas projects.
Golar Energy will also use the current weak freight market to seek much needed
consolidation opportunities.
Operating results for the first quarter of 2010 are likely to be significantly
negatively impacted by the seasonal decline in utilisation of the Company's
vessels operating in the spot market. The Company has relatively low financial
gearing, a healthy cash position and competitive cash break even rates. There
are strong reasons for expecting a good improvement in shipping rates in the
medium to long term; however shareholders should be aware that the next few
quarters will be challenging to keep utilisation and rates of the spot ships at
financially rewarding levels.
Forward Looking Statements
This press release contains forward looking statements. These statements are
based upon various assumptions, many of which are based, in turn, upon further
assumptions, including examination of historical operating trends made by the
management of Golar LNG Energy. Although Golar LNG Energy believes that these
assumptions were reasonable when made, because assumptions are inherently
subject to significant uncertainties and contingencies, which are difficult or
impossible to predict and are beyond its control, Golar LNG Energy cannot give
assurance that it will achieve or accomplish these expectations, beliefs or
intentions.
Included among the factors that, in the Company's view, could cause actual
results to differ materially from the forward looking statements contained in
this press release are the following: inability of the Company to obtain
financing for the new building vessels at all or on favourable terms; changes in
demand; a material decline or prolonged weakness in rates for LNG carriers;
political events affecting production in areas in which natural gas is produced
and demand for natural gas in areas to which our vessels deliver; changes in
demand for natural gas generally or in particular regions; changes in the
financial stability of our major customers; adoption of new rules and
regulations applicable to LNG carriers and FSRU's; actions taken by regulatory
authorities that may prohibit the access of LNG carriers or FSRU's to various
ports; our inability to achieve successful utilisation of our expanded fleet and
inability to expand beyond the carriage of LNG; increases in costs including:
crew wages, insurance, provisions, repairs and maintenance; changes in general
domestic and international political conditions; the current turmoil in the
global financial markets and deterioration thereof; changes in applicable
maintenance or regulatory standards that could affect our anticipated
dry-docking or maintenance and repair costs; our ability to timely complete our
FSRU conversions; failure of shipyards to comply with delivery schedules on a
timely basis and other factors listed from time to time in subsequent
announcements and reports. Nothing contained in this press release shall
constitute an offer of any securities for sale.
February 25, 2010
The Board of Directors
Golar LNG Energy Limited
Hamilton, Bermuda
Questions should be directed to:
Golar Energy Management Ltd
Oscar Spieler: CEO - +65 6296 5518
Golar Management Ltd - +44 207 063 7900:
Graham Robjohns: CFO
This information is subject of the disclosure requirements acc. to §5-12 vphl
(Norwegian Securities Trading Act)
[HUG#1388918]
Golar LNG Energy - Q4 2009 Results: http://hugin.info/142200/R/1388918/347158.pdf
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