Golar’s Q2 Better than Expected

Golar LNG Ltd. (GLNG - Snapshot Report) posted second-quarter results on Friday. The company said GAAP net income rose to $11.9 million, compared to $11.7 million in the year-ago quarter primarily due to a gain related to non-cash interest rate and equity swap valuation. Excluding this gain, loss per share came in at 7 cents, better than the Zacks Consensus Estimate for a 10-cent loss.

Golar is a mid-stream LNG company engaged in the acquisition, ownership, operation and chartering of LNG carriers and floating storage re-gasification units (FSRUs).  At the end of the quarter, the company’s portfolio consisted of 13 vessels and a 50% equity stake in a LNG carrier.

The Bermuda-based company said operating revenues fell 10.8% year over year to $46.8 million. The decline was primarily caused by the fact that 2 vessels, Golar Winter and Golar Arctic, were idle in the quarter, while the charter for another vessel, Golar Freeze, ended in May. Average utilization slipped to 69% from 78% in the year-ago quarter, while average daily time charter equivalent rates (TCEs) declined to $37,600 per day, compared to $39,900 per day over the same period a year ago. The sluggish rates were attributable to a reduction in demand for LNG, especially in the Far East, coupled with an oversupply of LNG shipping tonnage due to project delays and plant outages.
 
Total operating expenses, as a percentage of revenue, increased by 9.8% year over year to 95.9% mainly on account of higher voyage expenses related to commercial waiting time and vessel positioning due to lower utilization. Accordingly, operating margin came in at 4.1%, compared to 14% in the year-ago quarter, while operating income plunged 73.5% to $1.9 million.
 
Earlier this month, the company announced the completion of a restructuring program aimed at spinning off its assets to a new entity, Golar LNG Energy. The new entity also raised about $110 million through a private placement of shares to Norwegian and international institutional investors. Under the program, Golar transferred assets worth $824 million and debt obligations of $487 million to Golar Energy. Post restructuring, Golar is now left with 5 vessels and long-term charter agreements with a total contract value of approximately $1.9 billion.
 
The company ended the quarter with cash and equivalents of $58.4 million, compared to $72.1 million in the year-ago period. During the quarter, the company entered into an $80 million revolving credit facility with World Shipholding, carrying an 8% interest rate, available for a period of 2 years. The company also deployed about $28.6 million towards capital expenditure and $23.2 million for repayment of debt.

Looking ahead, management expects the addition of Golar Freeze, which is undergoing a conversion from a LNG carrier to a FSRU vessel, to boost performance during the second-half of the year. The company also sees improvement in charter rates, with new LNG production coming to market over the next few months, leading to increased demand for floating storage. Moreover, third-quarter performance is also expected to be positively impacted by an income of $7.8 million related to the termination of an equity swap in respect of Arrow Energy Ltd.
 
Meanwhile, the full-year Zacks Consensus Estimate has slipped to a loss of 6 cents per share, compared to a profit of 2 cents a week-ago. However, next-year’s earnings estimate has edged up a penny over the past week and is currently pegged at $1.34 per share.

Read the full analyst report on GLNG