Golar LNG Partners LP Is an IPO With Stable, Growing Cash Flow

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 |  Includes: GLNG, GMLP
by: IPOdesktop

Golar LNG Partners LP (which is expected to trade under the symbol: GMLP) is scheduling a $252 million IPO with a market cap of $819 million at the price range mid-point of $21, for Friday, April 8, 2011.

Conclusion-- expected payout rate is 7% and there is growth potential.

GMLP is a four ship spin-off from parent Golar LNG (NASDAQ:GLNG), and has the option to take two more ships. To date, the parent Golar LNG remains the only company to have retrofitted LNG (liquid natural gas) carriers into floating storage and regasification units [FSRUs]. The parent's stock increased 111% in the last six months, to a market cap of $1.8 billion.

Japan and other countries may de-emphasize nuclear energy and increase usage of natural gas.

GMLP Valuation Metrics

Business-- GMLP is a growth-oriented limited partnership formed by Golar LNG Limited to own and operate floating storage and regasification units (or FSRUs) and LNG carriers under long-term charters, defined as charters of five years or more.

To date, Golar remains the only company to have retrofitted LNG carriers into FSRUs. GMLP believes its relationship with Golar will give GMLP access to Golar's long-standing relationships with major energy companies and shipbuilders.

Dividend Payout– 7%
Minimum quarterly distribution target is $0.3850 per unit, or $1.54 per unit per year. GMLP is forecasting that cash available for distribution generated during the twelve months ending March 31, 2012 will be $66.0 million, enough to meet 100% of the targeted distribution.

Japan-- Japan and other countries may de-emphasize nuclear energy and increase usage of natural gas.

Parent-- Golar LNG Limited (GLNG)
GLNG is one of the world’s largest independent owners and operators of LNG carriers with over 30 years of experience. GLNG developed the world’s first Floating Storage and Regasification Unit [FSRU] projects based on the conversion of existing LNG carriers. GLNG says it “leads the industry with committed projects.”

GLNG's stock increased 111% in the last six months, to a market cap of $1.8 billion. GLNG owns 68% of the limited partnership interest in GMLP, and GLNG will also own the 2% general partnership, as well as 81% of the incentive distribution rights. Golar LNG Energy Ltd, a subsidiary of GLNG,will own 19% of the incentive distribution rights

Fleet-- initlally four ships
Floating Storage and Regasification Unit FSRU fleet:

  • 100% interest in the Golar Spirit, an FSRU retrofitted in 2007 from an LNG carrier built in 1981 that is currently operating under a time charter that expires in 2018 with Petróleo Brasileiro S.A. (or Petrobras), the majority state-owned oil and gas company of Brazil;
  • 100% interest in the Golar Winter, an FSRU retrofitted in 2008 from an LNG carrier built in 2004 that is currently operating under a time charter that expires in 2019 with Petrobras;
  • 100% interest in the Methane Princess, an LNG carrier built in 2003 that is currently operating under a time charter that expires in 2024 with BG Group PLC (or BG Group); and
  • 60% interest in the Golar Mazo, an LNG carrier built in 2000 that is currently operating under a time charter that expires in 2017 with PT Pertamina [PERSERO] (or Pertamina), the state-owned oil and gas company of Indonesia.

Growth Plan:
GMLP further intends to leverage its relationship with Golar to make accretive acquisitions of FSRUs and LNG carriers with long-term charters from Golar and third parties. GMLP has the right to purchase two additional FSRUs from Golar:

  • Golar Freeze, a FSRU recently retrofitted from an LNG carrier built in 1977 that is currently operating under a time charter that expires in 2020 with Dubai Supply Authority (or DUSUP), the exclusive purchaser of natural gas in Dubai; and
  • Khannur, a LNG carrier built in 1977, following the completion of its FSRU retrofitting and acceptance by its charterer, which is expected to occur in the first quarter of 2012. The Khannur is expected to operate under an 11-year time charter with PT Nusantara Regas (or Nusantara Regas) for the West Java LNG project in Indonesia. Nusantara Regas is a joint venture that is 60% owned by Pertamina and 40% owned by the Indonesia distribution firm PT Perusahaan Gas Negara.

Competitive Strengths:
To date, Golar (the parent) remains the only company to have retrofitted LNG carriers into FSRUs.

GMLP (the limited partnership) has secure and stable cash flows from long-term contracts with leading energy companies. All four of the vessels operate under long-term charters with creditworthy counterparties (Pertamina, BG Group and Petrobras). As of December 31, 2010, these charters had an average remaining duration of approximately 9.0 years, no direct exposure to commodity prices and limited exposure to foreign exchange rates.

GMLP believes that Golar's experience in retrofitting the world's first three LNG carriers into FSRUs provides a first-mover advantage in securing future FSRU opportunities and that other companies may experience additional time and cost in the engineering and development phases of an FSRU retrofitting due to their lack of experience.

The parent Golar has a strong reputation in the LNG industry, and GMLP expects to benefit from its relationship with Golar in connection with vessel acquisition opportunities and in developing and maintaining relationships with participants in the LNG industry.

Competition:

GMLP expects substantial competition for providing floating storage and regasification services and marine transportation services for potential LNG projects from a number of experienced companies, including state-sponsored entities and major energy companies.

GMLP anticipates that an increasing number of marine transportation companies—including many with strong reputations and extensive resources and experience—will enter the FSRU market and LNG transportation market.

Use of Proceeds:
The parent Golar LNG limited is offering 100% of the shares in this IPO

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.