Highlights and subsequent events
- Golar LNG Partners LP (“Golar Partners” or “the Partnership”) generated operating income of $32.1 million for the third quarter of 2020, exclusive of its interest in FLNG Hilli Episeyo.
- After accounting for $1.1 million of non-cash mark-to-market interest rate swap losses, the Partnership reported net income attributable to unit holders of $17.4 million for the third quarter.
- The Partnership generated distributable cash flow1 of $20.7 million for the third quarter resulting in a distribution coverage ratio1 of 14.50.
- The Partnership entered into a cooperation agreement with Hygo Energy Transition Limited ("Hygo"), formerly known as Golar Power Limited, to develop terminals using Golar Partners' asset portfolio.
- Increased utilization of the carrier Golar Maria helped lift the Partnership's overall fleet utilization to 98% for the quarter.
- The Partnership declared a distribution for the third quarter of $0.0202 per unit.
Financial Results Overview
Golar Partners reports net income attributable to unit holders of $17.4 million and operating income (which excludes its share of Hilli Episeyo which is accounted for under the equity method) of $32.1 million for the third quarter of 2020 (“the third quarter” or “Q3”), as compared to net income attributable to unit holders of $14.3 million and operating income of $32.8 million for the second quarter of 2020 (“the second quarter” or “Q2”) and net income attributable to unit holders of $7.9 million and operating income of $35.9 million for Q3 2019.
|Consolidated GAAP Financial Information|
|(in thousands of $)||Q3 2020||Q2 2020||Q3 2019|
|Total Operating Revenue||71,113||72,114||75,818|
|Vessel Operating Expenses||(14,015)||(12,991)||(14,740)|
|Voyage and Commission Expenses||(1,571)||(2,359)||(1,685)|
|Losses on Derivative Instruments, net||(1,051)||(4,472)||(9,937)|
|Net income attributable to Golar LNG Partners LP Owners||17,360||14,264||7,924|
|Non-GAAP Financial Information1|
|(in thousands of $)||Q3 2020||Q2 2020||Q3 2019|
|Adjusted Interest Income||114||416||925|
|Adjusted Net Debt||1,438,258||1,483,319||1,551,154|
|Q3 2020||Q2 2020||Q3 2019|
|(in thousands of $)||FSRU*||LNG Carrier*||FLNG**||Total||FSRU*||LNG Carrier*||FLNG**||Total||FSRU*||LNG Carrier*||FLNG**||Total|
|Total Operating Revenues||58,276||12,837||26,018||97,131||59,033||13,081||26,018||98,132||63,490||12,328||26,018||101,836|
|Amount invoiced under sales-type lease||4,600||—||—||4,600||4,550||—||—||4,550||4,600||—||—||4,600|
|Adjusted Operating Revenues 1||62,876||12,837||26,018||101,731||63,583||13,081||26,018||102,682||68,090||12,328||26,018||106,436|
|Voyage and Commission Expenses||(1,450)||(121)||—||(1,571)||(935)||(1,424)||—||(2,359)||(1,002)||(683)||—||(1,685)|
|Vessel Operating Expenses||(9,627)||(4,388)||(6,048)||(20,063)||(8,525)||(4,466)||(5,611)||(18,602)||(9,542)||(5,198)||(5,686)||(20,426)|
|Total Adjusted EBITDA1||49,706||6,994||19,849||76,549||51,654||5,747||20,285||77,686||55,676||5,207||20,109||80,992|
* Indirect administrative expenses are allocated to the FSRU and LNG carrier segments based on the number of vessels.
** Relates to effective share of revenues and expenses attributable to our investment in Golar Hilli LLC (“Hilli LLC”) had we consolidated our 50% ownership of the Hilli common units.
In order to incorporate the economic performance of the FSRU Golar Freeze into total company performance, management has determined that it will measure the performance of the Golar Freeze sales-type lease based on Adjusted EBITDA1 (EBITDA as adjusted for the amount invoiced under sales-type lease in the period).
The Partnership's Q3 Adjusted Operating Revenues1 including amounts invoiced under the Golar Freeze sales-type lease and the Partnership's effective share of operating revenues from FLNG Hilli Episeyo, decreased by $1.0 million relative to Q2. The decrease from $102.7 million to $101.7 million was primarily the result of a scheduled step down in the daily rate earned for one of the Partnership's FSRUs after passing a five-year service milestone. Voyage and commission expenses at $1.6 million decreased by $0.8 million relative to the second quarter. Reduced bunker consumption by the Golar Maria which experienced less idle time during the quarter accounts for much of this decrease. Having spent a full quarter in layup, Golar Mazo was not included in utilization or fleet wide average daily time charter earnings1 ("TCE") calculations in Q3. As a result, both utilization and TCE1 improved. Utilization increased from 92% in Q2 to 98% in Q3 whilst TCE1 increased from $96,300 in Q2 to $100,700 in Q3.
Vessel operating expenses increased by $1.5 million from $18.6 million in Q2 to $20.1 million in Q3. Additional crew costs continue to be incurred as a result of the complex logistics associated with crew changes during the COVID outbreak. In anticipation of the FLNG Hilli Episeyo's annual maintenance window in early October, additional spares were also purchased during the quarter. Lower legal and professional fees account for much of the $0.5 million decrease in administrative expenses, which reduced from $4.0 million in Q2 to $3.5 million in Q3.
Interest expense increased $0.7 million from $17.1 million in Q2 to $17.8 million in Q3. A full quarter's interest expense on the two May 20, 2020 amended high yield bonds at a higher margin and recognition of a potential 5% premium payable at maturity on each bond was partially offset by the impact of a decrease in LIBOR and ongoing debt principal repayments.
Losses on derivative instruments reduced by $3.4 million from $4.5 million in Q2 to $1.1 million in Q3 due to a small increase in longer-term swap rates during the quarter that resulted in a mark-to-market gain on interest rate swaps. As of September 30, 2020, the average fixed interest rate of swaps related to bank debt, including the Partnership's effective share in respect of Hilli Episeyo was approximately 2.3%.
Declaration of the third quarter dividend in respect of FLNG Hilli Episeyo was delayed until costs associated with its scheduled early October maintenance window had been accurately estimated. The Partnership received its third quarter dividend in October. Q3 distributable cash flow1 and the distribution coverage ratio1 decreased accordingly, to $20.7 million and 14.5 respectively.
Utilization increased during the quarter, from 92% in Q2 to 98% in Q3, driven by a full quarter in layup for the Golar Mazo and fewer idle days for the Golar Maria.
FLNG Hilli Episeyo, which completed its scheduled maintenance window in October, on time and without issue, continues to maintain 100% commercial uptime. It recently offloaded its 47th cargo and continues to reliably deliver quarterly LNG tolling revenues, less operating costs, of around $40 million; 50% of which is for GMLP's account.
Although some of the tasks postponed as a result of COVID related movement restrictions have been carried out, it has not been possible to do everything planned. Operating costs did not therefore increase to the extent expected in Q3 and ongoing restrictions mean that some tasks will be further deferred, possibly to the spring of 2021. Despite the additional challenges posted by the current operating environment, the Partnership was pleased to note that the FSRU Golar Winter recently completed four consecutive years with zero lost time incidents ("LTI"), equivalent to 1.2 million LTI free exposure hours. Following the recent launch of an energy management initiative, fuel performance for the carrier fleet under Golar's management has also improved significantly, saving our customers money, and, more importantly, helping the environment in the process.
Financing and Liquidity
As of September 30, 2020, Golar Partners had cash and cash equivalents of $42.3 million. Including the Partnership's $397.5 million share of debt in respect of FLNG Hilli Episeyo, Adjusted Net Debt1 as at September 30, 2020 was $1,438.3 million. Q3 2020 Total Adjusted EBITDA1 amounts to $76.5 million. Based on the above, the Q3 Adjusted Net Debt1 to Annualized Adjusted EBITDA1 ratio was 4.7x. As of September 30, 2020, exclusive of a $100.0 million forward start swap, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,152.3 million (including swaps with a notional value of $250.0 million in connection with the Partnership’s bonds and $397.5 million in respect of Hilli Episeyo), representing approximately 78% of total debt and finance lease obligations, including assumed debt in respect of Hilli Episeyo, net of restricted cash.
The average fixed interest rate of swaps related to bank debt, including the Partnership's effective share in respect of Hilli Episeyo is approximately 2.3% with an average remaining period to maturity of approximately 3.1 years as of September 30, 2020.
Inclusive of Hilli Episeyo related debt, outstanding bank debt as of September 30, 2020, was $1,157.0 million, which had average margins, in addition to LIBOR, of approximately 2.19%. As at September 30, 2020, the Partnership also had a November 2021 maturing $150.0 million amortizing Norwegian USD bond with a coupon of LIBOR plus 6.25% and a November 2022 maturing $250 million amortizing Norwegian USD bond with a coupon of LIBOR plus 8.1%. Both bonds have call options at 100% of par until May 2021 and at 105% until maturity thereafter. Inclusive of the accumulated accretion of the potential 5% premium payable at maturity and net of amounts repaid, $146.5 million was outstanding in respect of the November 2021 maturing bond and $246.6 million was outstanding in respect of the November 2022 maturing bond, as at September 30, 2020. Given the low interest rate environment and plans to refinance both bonds ahead of their new maturity dates, the Partnership has refrained from entering into new contracts to replace those bond related swaps that matured during Q2 or to extend the duration of those that remain.
The Partnership has now obtained credit approval from lead banks in connection with the refinancing of the 7-vessel $800 million facility, of which, as at September 30, 2020, $529 million was outstanding. Expectations are this could be increased after a syndication exercise.
Corporate and Other Matters
As of September 30, 2020, there were 70,738,027 common and general partner units outstanding in the Partnership. Of these, 22,769,977, including 1,436,391 general partner units, were owned by Golar, representing a 32.2% interest in the Partnership.
On October 27, 2020, Golar Partners declared a distribution for the second quarter of $0.0202 per unit. This distribution was paid on November 13, 2020 to common and general partner unit holders of record as at November 6, 2020.
A cash distribution of $0.546875 per Series A preferred unit for the period covering August 15, 2020 through to November 14, 2020 was also declared. This was paid on November 16, 2020 to all Series A preferred unit holders of record as at November 9, 2020.
Total outstanding and exercisable options as at September 30, 2020 were 24,000. A further 58,960 Restricted Stock Units are in issue which will vest over three years.
At the Partnership's Annual General Meeting on September 24, Neil Glass was elected as a Class I Director and Carl Steen was elected as a Class II Director. Neil Glass has also been appointed to the Partnership's Audit Committee.
LNG Market Review
The quarter commenced with JKM at around $2.15/mmbtu and quoted steam turbine ("ST") headline spot rates of around $20k/day. Further US cargo cancellations over the summer months and higher than normal European storage levels resulted in a slower seasonal recovery in shipping rates. Hurricane related interruptions also cut US supply in early September and contributed to a buildup of tonnage in the Atlantic. This temporarily halted carrier rate increases being seen from late August and further boosted LNG prices that were increasing as a result of earlier supply re-balancing. As production resumed, a widening of the west-east arbitrage quickly absorbed available vessels and freight rates resumed their upward seasonal trajectory. The quarter ended with JKM at around $5.15/mmbtu and quoted ST headline spot rates of around $43k/day.
Full utilization of available US export capacity and increasingly long haul trades are currently supported by strong winter demand in key Asian markets and supply outages elsewhere, leading to higher LNG prices and widening regional price differentials into Q4. The LNG Carrier, Golar Maria is expected to achieve around 80% utilization for Q4 and record a TCE1 similar to that achieved in Q3. Her term contract is scheduled to commence around the end of this year.
Up to 20-25 million tons of unutilized liquefaction capacity may return to the market in 2021. Growing underlying demand and limited new nameplate capacity additions through to 2023 are expected to result in LNG prices that do not compromise its competitiveness relative to other less environmentally friendly fuels but do support a more sustained increase in US-Asia trade and ton-mile demand for shipping.
Golar Partners agreed with Hygo on August 31 to terminate the existing omnibus agreement between the two parties and to replace that with a new cooperation agreement. The intention of the cooperation agreement is that both parties will work together to develop hub-spoke LNG terminal solutions utilizing Golar Partners’ available asset portfolio, where those assets are suitable. The terms and structure of the commercial cooperation will be worked on a project by project basis given the customized nature of each potential terminal. As well as leveraging the expertise of the Hygo team to develop FSRU terminals and parcel regasification demand, this agreement will, alongside normal FSRU tendering activity, increase the Partnership’s re-contracting options, and provide an opportunity to potentially earn higher returns than those typically available from standard FSRU contracts in the current market.
Golar Partners will, together with the Hygo team, commence work on assessments of the addressable markets for small scale LNG distribution and fuel switching opportunities for larger industrial users in the regions around the Partnership's FSRUs.
As expected, LNG carrier spot rates have improved substantially in recent months in line with seasonality. This will have little impact on the Partnership's expected total adjusted EBITDA1 for Q4 which is expected to be broadly similar to Q3, however it does reflect a firming underlying demand for LNG and a gradual return to more traditional trading patterns. This can create upward pressure on ton miles over the coming years resulting in a more supportive backdrop for re-contracting or extending the current Golar Grand charter in May 2021.
FORWARD LOOKING STATEMENTS
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:
- the ability of Golar LNG Partners LP (“Golar Partners,” “we,” “us” and “our”) and Golar LNG Limited' (“Golar”) to make additional borrowings and to access debt and equity markets;
- our ability to repay our debt when due and to settle our interest rate swaps;
- our ability to enter into long-term time charters, including our ability to re-charter floating storage and regasification units (“FSRUs”), liquefied natural gas (“LNG”) carriers and floating liquefied natural gas units (“FLNGs”) following the termination or expiration of their time charters;
- our ability to maximize the use of our vessels, including the re-deployment or disposal of vessels no longer under long-term time charter;
- the length and severity of outbreaks of pandemics, including the recent worldwide outbreak of the novel coronavirus ("COVID-19") and its impact on demand for LNG and natural gas, the operations of our charterers, our global operations and our business in general;
- the liquidity and creditworthiness of our charterers;
- the effect of a worldwide economic slowdown;
- changes in commodity prices;
- turmoil in the global financial markets;
- fluctuations in currencies and interest rates;
- market trends in the FSRU, LNG carrier and FLNG industries, including fluctuations in charter hire rates, vessel values, factors affecting supply and demand, and opportunities for the profitable operations of FSRUs, LNG carriers and FLNGs;
- availability of skilled labor, vessel crews and management, including possible disruptions caused by the COVID-19 outbreak;
- our vessel values and any future impairment charges we may incur;
- disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;
- future sales of our securities in the public market;
- our anticipated growth strategies;
- the future share of earnings relating to the FLNG, Hilli Episeyo ("Hilli"), which is accounted for under the equity method;
- our ability to integrate and realize the expected benefits from acquisitions and potential acquisitions;
- our ability to make cash distributions on our units and the amount of any such distributions;
- changes in our operating expenses, including dry-docking and insurance costs and bunker prices;
- estimated future maintenance and replacement capital expenditures;
- our future financial condition or results of operations and future revenues and expenses;
- 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 and Hygo Energy Transition Ltd. (“Hygo”), formerly known as Golar Power Limited, in the LNG industry;
- the ability of Golar and us 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 purchase vessels from Golar and Hygo in the future;
- timely purchases and deliveries of new build vessels;
- future purchase prices of new build 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 our charterers applicable to our business;
- our general and administrative expenses and our fees and expenses payable under the fleet management agreements and the management and administrative services agreement between us and Golar Management (or the “Management and Administrative Services Agreement”);
- challenges by authorities to the tax benefits we previously obtained;
- the anticipated taxation of our partnership and distributions to our unitholders;
- economic substance laws and regulations adopted or considered by various jurisdictions of formation or incorporation of us and certain of our subsidiaries;
- 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; 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.
November 30, 2020
Golar LNG Partners L.P.
Questions should be directed to:
c/o Golar Management Ltd - +44 207 063 7900
Karl Fredrik Staubo - Chief Executive Officer
Stuart Buchanan - Head of Investor Relations
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act