Golar LNG Partners LP (NASDAQ:GMLP)
Q4 2013 Results Earnings Conference Call
February 28, 2014 11:45 AM ET
Graham Robjohns - Chief Executive Officer
Edward Rowe - Raymond James
Matthew Phillips - Clarkson
Good day and welcome to the Golar LNG Partners LP Q4 2013 Earning Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Graham Robjohns, CEO. Please go ahead, sir.
Thank you very much and good afternoon everybody. Turning to page two, we have our forward-looking statements to slide three of the presentation and we will start with the highlights of the fourth quarter 2013.
I am very pleased to report net income attributable to the unit holders of $47.6 million and operating income of $64.7 million. This was as expected similarly strong results operating results to the third quarter of 2013. We generated distributable cash flow of $44.8 million for the quarter with the coverage ratio of 1.32 as compared to $38.9 million for the fourth quarter. And as you all have noted in the results amount this did benefited from a credit to tax expense but that was also offset by the fact that we of course issued 5.2 million units in December and paid a distribution for the full quarter on those 5.2 million units as the record date for the fourth quarter’s distribution.
Distribution for the fourth quarter is $0.5225. And as I have just mentioned of course we completed the fourth equity follow-on operating raising net proceeds of $150 million which was raised in connection with agreement to acquire from Golar LNG Limited the FSRU Golar Igloo which we’ll talk a little bit more about later.
We also incident some more interest rate swaps earlier in the quarter hedging out, maturing swaps and in connection with additional set for future acquisitions.
Turning now to slide 4, we have the income statement. Operating revenues were up very slightly from $87.6 million in the third quarter to $88.3 million in fourth quarter. Operating expenses were also up from $31.8 million to $33.6 million driven mainly by higher depreciation and amortization and slightly higher administration expenses which led to a very slight decline in otherwise strong operating results of $54.6 million.
Income before tax at $45.6 million was increased from $40.6 million in the third quarter that was driven by lower interest rates, slightly low interest rates expenses, but more particularly by movements in mark-to-market valuation of interest rate swaps which followed in the other financial items line which was a full $1.5 million gain in the fourth quarter as compared to $4 million loss in the third quarter.
Tax you will notice that a $4.3 million credit in the fourth quarter as opposed $2.6 million charge in the third quarter and that related as a result of the readjustment in the current year of tax estimates.
Taking all the above inter account, net income attributable to Golar Partners LP Owners was $47.6 million as compared to $35.4 million for the third quarter.
Moving over to slide five we have balance sheet assets you will notice of course that cash and cash equivalents has increase from $66 million and as of December 31, 2012, but cash is certainly up at around $100 million. Obviously that is largely due to the raising of $150 million in equity in December and in addition to the additional cash balance, we’ve paid down approximately $90 million in revolver balances to safe an interest costs until such time we reach our product position of the Golar Igloo.
Moving over to slide 6. We have balance sheet liabilities our current portion of long term debt has increased somewhat and that is as a results for the fact that the Golar Maria’s debt facility which matures in December of this year as moved into short term debt. We are looking at a number of options to refinance that debt and have a number of discussions ongoing. Those considerations include the possibility of looking at the debt capital markets and including looking at term loan lease which have much reduced debt amortization in comparison to more traditional bank debt, which is attractive to us as it makes the use of our replacement CapEx cash reserves a lot more efficient.
To-date we have used that replacement CapEx reserves to pay down debt which obviously we saw sales of the liability and saved our interest costs. However if we limited enough of debt amortization payments that we had and reinvested that cash in new assets then clearly we will be making a larger return on that investment and would impact, in a second, investing in positive asset every year rather than waiting to the end of the active slide and buying a new asset.
Then the bottom of slide six, you can see that debt net of restricted cash is $878 million that is a little bit lower than otherwise would be because as I mentioned, we’ve paid around $90 million of revolving facilities. But it does give us a net debt to adjusted EBITDA amount of any three times. And we have a hedge percent of 128% so that’s artificially high as and it will kind of normalize as we at the moment we acquire the Golar Igloo and the debt around in $60 million associate with the Golar Igloo. In addition we have around about a 130 million in swaps that mature in April and May of 2014. So I expect that percentage to full to between the 90% and 100% within the next quarter or so.
Turning over to slide seven and distributable cash. As I have mentioned distributable cash at $44.7 million which gave us a coverage of 1.3 times is extremely healthy, it’s attributable to the strong operating results similar to which we had in the third quarter.
It’s been detrimentally affected if you like as I mentioned because of the 5.2 million units that we issued in December, but of course it’s been aided by the tax credit that we brought in or received in the fourth quarter.
Turning over to slide 8. It is a historical development, distributions about distributions and distributable cash flow. And then of course you can see after a period of heavy dry-docking in the fourth quarter of 2012 and the first half of 2013, we have come out through that period and now our coverage ratios are pretty strong, distributions of course have grown strongly since the IPO of 36% since April 2011. And as I say it coverage is now up and strong to match that.
Turning over to slide 9. And of course distribution increase has been driven by the acquisitions that we've made since our IPO for to-date and of course fixed the Golar Igloo is pending that should take effect in March and have some contributions to the first quarter of 2014. And that acquisition comes with the management recommendation to increase distributions further to between $2.18 to $2.20 on an annualized basis. We have, in addition to the Igloo also identified on next acquisition target, the Golar Eskimo, which is another FSRU that will be delivering towards the end of 2014.
Moving over to slide 10. This slide sets out our contract coverages; remain strong at $2.6 billion with an average remaining term of 6.4 years. And as you can see on the right hand side that we are also have pretty creditworthy list of customers.
Moving to slide 11. The numbers related to the Igloo acquisition the purchase price is $310 million. The data acquired or that will be assumed with the best with $161 million so the balance of the proceeds will be furnished with the $150 million equity that we have raised in December.
EBITDAR numbers will be between $32 million and $34 million per annum but that is for -- this charter is slightly unusual because it operates for a 9 month period and then between December and March of each year the rest of it is free for us to trade it elsewhere, because it’s in the winter period and the vessels located in the Middle East next to Qatar which is the biggest LNG producing and train in the world, we think that’s significant opportunity to trade the vessel as an LNG carrier which is publicly capable of doing that $3 million for the three month period. And supplementing that those EBITDAR earnings of 32 to 34 but that’s really 32, 34 exclude any earnings during that 3 month period. Contract term is 5 years and as I have said there is a management recommendation out there to increase distribution to between $2.18 and $2.20 on an annualized basis.
Turning on to slide 12. This details about the next acquisition target. The Golar Eskimo which is a 10 year contract in Jordan. Again for an FSRU, this is a more traditional 12 month contract. The EBITDA for the first five years 46 million, dropped very slightly for the second five years, the rest is very similar, technically vessel to the Golar Igloo and large towards, it’s actually 150 cubic meters and throughput of 750 million cubic feet a day and extremely fuel efficient as well that is tri-fuel diesel electric engines that will save our customer significantly on fuel cost.
Turning over to slide 13 looking at some growth opportunities beyond the Golar and of course Golar LNG had a further 10 new build carriers and FSRUs, 9 carriers delivering over the next 12, 13 months or so and one further new build FSRU. And those of you listened to the Golar LNG call of course parent company’s developing a number of potential floating liquefaction projects, it’s been through feed study with Keppel which has confirmed and proved the technical and economic viability of the solution and relatively short construction period of around 30 months will be we believe economically extremely competitive with any other FLNG solution out there.
The EPC conversion contract discussion are nearing finalization with Keppel and Black & Veatch and there are a number of opportunities and projects being identified in Americas and West Africa. And that clearly of interest in MLP is on great long term contracted assets opportunities for the FLNG unit itself, as well as associated shipping, and the opportunity that the two of these projects could soak up the entire pool of LNG limited new buildings. So, this is significant number amends of asset acquisition potential and as when these projects take [FID].
Moving on to slide 14, and again if you look into Golar’s call and the releases, I am sure you are aware that there is some short term market softness in the LNG carrier space but we believe very strongly and evidence back itself, in the medium to long term, the outlook is extremely positive. There is around 75% increase in production coming over to next six or seven years that will require many, many more than new builds than are currently on order.
On the right hand side the chart, you can see the expected build out of new liquefaction capacity, reaching an additional 184 million tons by 2020 that’s on top of the based currently of around about 230 million to 240 million tons. We’ve actually seen a drop payment in liquefaction production in 2012 and 2013 of around 2% each and that’s been largely due to unplanned maintenance, (inaudible) in Egypt and in West Africa and some startup delays as well.
I think what’s -- this kind of cycle is not totally dissimilar to what happened in the mid 2000s where and there were number of ships delivered before new liquefaction production came on stream. What is I think more positive about this time around is that the liquefaction growth is coming from more than one or two facilities, back in the 2000s, the vast majority of it was coming from Qatar. Here we’re big volumes coming from numerous projects in Australia, the USA another projects around the world.
The near term focus is on Angola and Papua New Guinea, Algeria and Australia which all have project demand. Angola of course should have started already but that will be coming in 2014. And other projects will be ‘14, fairly ‘15. And liquefaction, floating liquefaction project that are executed quickly, so some potential to add material to the volumes [space above] that have not to any great extent been included.
And on the left hand side, we can see how that translates in our view in terms of vessel demand. And we’ve seen the anticipated liquefaction capacity to actually increase between around sort of 80 million to 90 million tons which conservatively is going to require additional 225 carriers by 2020.
And that means if you take out the 110 carriers on order and around 30 carriers that we think will be retired over that period of time which is basically sort of pre 1990s or early 90s LNG smaller, LNG, less efficient LNG carriers. Then we’re going to need in the region of a 145 additional carriers, which if they’re going to hit that total demand requirement in 2020, going to be needed or needed to be ordered by 2017, that will take between 30 and 36 months to build.
If you look at the U.S. alone, the 60 million tons or so that has been DOE approved, that will need at least 90 vessels just in its own right. So, I think that really goes to show that there is extremely strong long-term chartered prospects for all of Golar’s uncharted new builds on top of, of course the opportunity of putting those vessels to work within floating liquefaction projects. And of course bodes extremely well for future acquisitions and distribution growth for LNG partners as MLP remains extremely important financing source for Golar LNG Limited.
So, in summary, we have a very strong contract basis, 2.5 billion in revenue backlog and 6.4 average contract term. We’ve been through this heavy drydock period, we don’t have any drydockings prior to 2015. We have identified acquisitions targets (inaudible) which will come very shortly and of course Jordan towards the end of the year, early ‘15. The market outlook although short-term market a little bit tough now. Structurally moving forward it looks extremely strong there is a tremendous amount of growth to come in this industry. And having such a large sponsor in the form of Golar LNG with available 11 vessels puts us in extremely good position I think moving forward as I said to target additional acquisitions and increase our distributions strongly over the long-term.
And with that I’d like to hand it back to the operator to open up for question-and-answers. Thank you.
Thank you. (Operator Instructions). We will take the first question from Edward Rowe of Raymond James. Please go ahead.
Edward Rowe - Raymond James
Good afternoon guys and congrats on the quarter.
Edward Rowe - Raymond James
I apologize if this was addressed on the GLNG call, but in terms of the growth projects for ‘15 after the Eskimo, can you share with us the potential for the Golar Tundra in terms of receiving potential FSRU contracts or do you believe the opportunity could be more around the LNG carriers as the market starts to become more imbalance closer to the back half of ‘15 and into ‘16?
I think in terms of -- it’s difficult to judge where the strongest opportunity is. I firmly think that there are a number of FSRU opportunities out there that are currently being worked. It depends what your timeframe of contracting is. I think there is a decent likelihood that the Tundra will get some sort of contract within the next 12 months whether that comes before or after a term LNG carrier is somewhat difficult to say.
Edward Rowe - Raymond James
Okay. I appreciate the color. And just a quick really housekeeping question, can you lay out the amount of drydockings that are expected in 2015?
Well, it’s effectively none, there is possible one right at the early 2015, but that relates to Golar Mazo and under the terms of the charter, we don’t suffer any off prior to that plus the charter planes to the drydock didn’t really have any impact other than that there aren’t any.
Edward Rowe - Raymond James
Okay. Thank you.
Thank you. We’ll now move to Michael Webber of Wells Fargo Securities. Please go ahead.
Hey guys this is actually Sam in for Michael. How are you?
Just one quick follow-up question on FLNG, obviously on Golar’s call earlier they noted that FLNG potential for a Q2 FID as you think about the place FLNG would fit in with the GMLP, how should we think about potential fit of perhaps a dropdown in the future of FLNG asset?
Yes. Sorry, just going back to the previous question, I apologize the Golar Freeze also is expected to drydock up in 2015. I apologize again to your question, when you say hit, do mean will be an asset that’s droppable into the MLP or do you mean what’s the time?
A mix of both, so in terms of contract structure seems like there will be longer dated contracts are FLNG assets, so it would be a longer term asset, which could be a fit in terms of dropdown and in terms of timing even that you are looking at 2017 and 2018 potentially for build given the 30 month time, just curious in terms of how you see longer term growth opportunity?
Well, I think you are absolutely right. I mean, they are certainly going to be long dated contracts that certainly will be assets that will be attractive to the MLP and given the 30 month build time and you are talking about sort of 2017, I guess sort of the full run will be available to drop. Was that your question?
Yes. And another quick question regarding the dropdowns potentially in 2014, obviously the Eskimos, the one you guys highlighted is the next potential drop given the LNG carriers are pretty spot on right now the parent, but your perspective, if you just give us a little more color, how you are thinking about what potential dropdowns could fill the GAAP between now in the Eskimo in 2014?
Well, we got immediately, the Golar weekly then between weekly drop in the sort of nine months before we see the Eskimo and really possible thing that could other than that sort of the possibility of third-party acquisition I guess is from Golar, the any other possibility would be LNG carrier, but obviously we’d love to be able to do that. But right now in the current market, it’s tough to see a strong likelihood of contractor M&A within the next six months.
Got it. That's helpful, I think (inaudible) I’ll turn it over.
Thank you. (Operator Instructions). And we have a question from Matthew Phillips of Clarkson. Please go ahead.
Matthew Phillips - Clarkson
Matthew Phillips - Clarkson
Could you go over the Golar Grand options let say the parent again, I’m sure you gone up it before but is it comparable rate to what the vessel is experiencing right now?
No it is about 25% lower.
Matthew Phillips - Clarkson
Okay. Great, thank you. That's all I have.
Thank you. (Operator Instructions). We have no further question from the telephone audience at this point.
Okay. Well, thank you very much everybody for attending on our results conference call. And I look forward to speaking with you all again next quarter. Thank you, operator.
That would conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.
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