Golar LNG Partners LP (GMLP) CEO Brian Tienzo on Q4 2018 Results - Earnings Call Transcript

Feb. 27, 2019 4:19 PM ETGolar LNG Partners LP (GMLP)19 Comments
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Golar LNG Partners LP (NASDAQ:GMLP) Q4 2018 Earnings Conference Call February 27, 2019 11:30 AM ET

Company Participants

Brian Tienzo - Chief Executive Officer and Chief Financial Officer

Conference Call Participants

John Chappell - Evercore

Michael Webber - Wells Fargo

Fotis Giannakoulis - Morgan Stanley

Randall Giveans - Jefferies

Operator

Good afternoon, ladies and gentlemen. Thanks for standing by. And welcome to the Golar LNG Partners LP 4Q 2018 Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] I must advice you that this is recorded today on Wednesday, 27 February, 2019.

And I would now like to turn it over to our speaker today, Mr. Brian Tienzo. Please go ahead, sir.

Brian Tienzo

Thank you, moderator, and good afternoon, and good morning to all of you. Welcome to Golar Partners' 4Q 2018 Results Presentation. My name is Brian Tienzo. I am joined here by our Head of Investor Relations, Stuart Buchanan. So let's start the presentation by jumping over to Slide 3 for the main highlights.

We report income of $31.8 million for the fourth quarter of 2018. This result is not however include our interest in operating result of Hilli Episeyo. During the fourth quarter, we continue to experience the tail end of off-high days in respect to Methane Princess drydocking and Golar Freeze's modification. Despite this and as I guide in last quarter's earnings announcement with the help of full quarter's contribution from Golar Mazo and Hilli Episeyo, the fourth quarter saw improvement in distributable cash flows and resulted in an increase distribution coverage ratio of 1.2 times. There was further positive news for The Partnership as charters above Golar Igloo and Golar Grand exercise our options to extend the vessels employment for another year. As a result of the foregoing, The Partnership announced unit distribution of $40.40 for the quarter.

So let's now turn over the page to go through our income statement highlights. Net results for the fourth quarter was a loss of $19 million, as compared to an income of $49 million in the third quarter, and is mainly due to the following non-cash factors. In the third quarter, the remaining income in Golar Freeze and reduce of charter was recognized in that quarter. This amounted to $33.5 million. However, this income will actually be received by The Partnership's pro-rata up to April 2019. Of course, this is taken into consideration when we estimate our distribution coverage.

Also due to decrease in medium to long term swap rights, relative to levels of the end of the third quarter, we booked in this quarter a non-cash negative mark-to-market loss of approximately $27.5 million.

And finally, and to a much lesser degree, we saw an increase in G&A to $4.7 million this quarter from $2.9 million in the previous quarter, due mainly finalization of management fees. The above are offset by four quarters earnings contribution from the Golar Mazo and Hilli Episeyo. We also witnessed a slight increase in net interest expense in the quarter, due to a small rise in labor and higher debt balance follow the drawn down of $50 million from our revolving credit facility.

Turning over the Page 5, the balance sheet assets. Cash and cash equivalents increased 96.6 million at the end of Q4 competitor go third cash level of $75.8 million. During quarter, $50 million was drawn from available credit facilities, an anticipation of paying capital expenditures following the completion of the drydocking for Methane Princess, the modifications for the Golar Freeze and the January 2019 drydocking of Golar Igloo. As of end of 4Q, The Partnership still had $25 million of undrawn credit facility remaining.

Going over to Slide 6, balance sheet liabilities. At the end of the quarter, our net debt position was $1.58 billion. This includes $455.3 million associated with Hilli Episeyo. As at the quarter end, the percentage of debt swapped to fixed rate was approximately 100%. The average fixed interest rate of swaps related to bank debt is approximately 2.2% with an average remaining period to maturity of approximately 4.6 years. So The Partnership is pretty well protected from interest rate variability.

Based on the above, our net debt to equity ratio was 5.1 times, however while we to include the actual cash at Golar Freeze for the quarter, this ratio would be improved and would go up to approximately 4.5 times.

Turning off the Slide 7. So the solid results achieved in the quarter have manifested itself in a material improved 4Q distribution coverage of 1.2 times. Live to date distribution coverage of 1.12 times remains pretty strong and it's a slight improvement from last quarter's ratio of 1.11 times. Once we expect 1Q 2019 ratio to decrease from the 4Q level, mainly due to the Golar Igloo two months of regas regular season and the following factors give us confidence that we should see improved ratio again from 2Q '19 and onwards. Firstly, Golar Igloo extended charter of just recommence. Secondly, charters of Golar Grand have exercised extension option and the economics of this option is superior to its previous earnings. And finally Golar Freeze is expected to have complete its commissioning in Jamaica and earning full higher.

Furthermore, whilst an improved shipping market is not built into our earnings anticipation, we nevertheless expect 2Q '19 to show some improvement which could further improve earnings through our spot shipping exposure into Golar Mazo.

So let's turn over now to Slide 8 to look at shipping update. With new build deliveries in 2019 expected to be front loaded and along with this and unseasonably warm winter so far, these factors have negatively affected shipping dynamics during the first quarter of '19. However, looking ahead and as a shipping balanced graph suggest, they are both shipping forecast for the rest of the year and indeed for 2020 remains positive.

With the Golar Maria and charter until summer and now Golar Grand's employment extended to at least spring 2020. The Partnership short term shipping exposure is limited to the Golar Mazo. Since October 2018, the Golar Mazo have been in full time employment up until recently. However, the vessel could experience some commercial waiting time until shipping sufficiently improves, which is expected to occur in early summer. Of The Partnership's revenue backlog of $2.3 billion, shipping revenue accounts for 7% and less than 1% of backlog revenue is associated with short term contracts. So shipping volatility will have limited impact in The Partnership's earnings.

Finally, just some words into Golar Spirit. So the FSRU is currently in cold layup, offshore Greece. We have achieved no earnings contribution in our forecast, but of course in the background, we are working various employment possibilities in Brazil, West Africa and the Caribbean to name a few areas. Investors should be assured then that we are actively in pursuit of employment for the vessel.

Starting off with the Slide 9 which The Partnership's revenue backlog and a $2.3 billion, this remains significant. And most notable movement from previous version of this life and our existing fleet is on Golar Igloo and Golar Grand, those charters have been extended by one year. And in the case of Golar Grand, the charter maintains a multi-year options are increasing daily rates. We continue to be excited but the potential drop down candidates which include cash flows from the Hilli Episeyo, FSRU Nanook and associated cash flows in the Sergipe power project. Golar LNG share of the EBITDA of the latitude is approximately $100 million over our 25 years.

Furthermore, Golar's latest FSRU project would be the cosmos with a 20 year contract term and an annual EBITDA of $215 million. The characteristics that are very attracted to The Partnership and will add to our growth story that is becoming even more compelling.

Also pleasing to see the longevity of these growth contracts with an average tenure of more than 20 years. Each is akin to pipeline contracts and therefore mitigate residual risk. However, funding growth remains a challenge for The Partnership. And so we will now look at that in the following slide.

So looking at Slide 10, the progression of times along The Partnership to build up its debt capacity, simply as a byproduct of that, that is reducing more quickly than the asset life or the contract life to which those debts are secured by. Further work will be done in 2019 to try and enhance The Partnership's debt capacity by refinancing some of the facilities that better matches the asset life or contract life.

In addition to debt capacity, The Partnership's unit price has also improved materially since the beginning of the year. Even more pleasing is our observation of some retail volume seem to have made a comeback. How long this keeps, remains to be seen. Even so, the current common unit price still as a way to go for this currency to be viable as funding source for accretive acquisitions. So whilst growth prospects for the partnership already exists within the short term, it's currently facilitate such growth is still under development.

Let's now turn to Page 11 to summarize. So financial results continue to improve and once we may see a small drop in earnings contribution during 1Q due to of regas season of Golar Igloo, contract extension for Golar Igloo, Golar Grand and M&A commencement of Freeze 15 year charter. Our 2019 prognosis remains positive. The Golar Igloo continues to build in its operating excellence with another quarter one blemish operational record, is one of the foundations for long term contracts are being secured by Golar LNG. And these contracts are compelling growth opportunities for the partnership when its acquisition currency becomes available again.

That ends the presentation. I turn now the presentation back to the moderator for a Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of John Chappell from Evercore.

John Chappell

Thanks. Good afternoon, Brian.

Brian Tienzo

Hi, John.

John Chappell

First one is really simple, on the Grand, Is there any way you can kind of provide a magnitude on the increase of the contract extension? And then also, I mean, I know we'll have to wait and see how other options are treated, but maybe just a broad range of magnitude on the inflationary increases on those that they were to be exercised?

Brian Tienzo

I'm afraid I can't, only to say that the increasing rate as a result of the charter exercising their option materially improves the economics of the initial two year charter. It almost doubles.

John Chappell

Okay, that helps. The second one and I know this is difficult, and listen, we'll do our own analysis on it as well. But given the seasonality of the Igloo, given what's happened in the market with Mazo, I thought your point that your financial leverage to the volatility of the spot market is pretty minimal at this point. But is there a chance that the coverage ratio falls below one in the first quarter? And then is there a scenario with the Igloo back online in the second quarter even if the Mazos not utilize it all that it would be below one in the second quarter?

Brian Tienzo

It's difficult to say simply because we're not through Q1 yet, but one of the things that we did at looking at the new level of distribution is use very conservative assumptions. We are within those assumptions to date. And if the performances of the various vessels within those assumptions remain within the parameters, I don't think that we will go below one. Saying that of course as I said, avoiding any mishaps or fires and so on and so forth, then we would expect to be close to a double just around the one mark.

John Chappell

Okay, I'll stick to my two and I appreciate it, Brian. Thank you.

Operator

Thank you. The next question comes from the line of Michael Webber from Wells Fargo.

Michael Webber

Hey good morning, Brian, how you doing?

Brian Tienzo

Hi, Mike.

Michael Webber

Hey, so just to start off with a kind of high level question around kind of the Golar Universe and I kind of got at this on the Golar Coal, but it's a good question for you as well. There it looks like some big pieces are set to move around in terms of the carrier spin Golar Power, I'm just curious, it kind of begs the question of GML's position within that structure is kind of currently constituted. And I know that sounds a bit like a like a loaded question, but just in terms of what we're seeing there, including the right down at the parent, how should we interpret that as it pertains to the next year or two for Golar Partners as is currently positioned within the Golar structure?

Brian Tienzo

Look, I think clearly the Golar Parent is looking at the various business franchises that it has and trying to find ways to make sure that evaluation of those business franchises are properly reflected in share price. I mean that's pretty obvious. As far as GMLP's involvement in that, I think to the extent that it is decided that there is a spin-off of the vessels of the ship. I'm not entirely so worried too much about simply because I think if the currency is there, we've shown that there is already like growing and compelling growth opportunity for the partnership and those contracts and respective network and so on and so forth are actually better in my view been particularly as they're very long term in China. Of course, it's not lost is us, that there are challenges there of the MLP Universe in general. But I think to the extent that, we can get through the hurdles that we see today, not just in Golar Partners, but also the MLP universe. The currency comes back, I think there's a fantastic growth opportunities beyond.

Michael Webber

Okay, now that's helpful, I know that's kind of a tough question to the answer today. And I appreciate you taking a swing at it. Just to, kind of piggyback on there the question on the Igloo, that's a particularly large chunk of cash flow. I know then you got the one year extension, I believe was flat. Is it - what's the right timetable for us to think about in terms of a more permanent solution there, be it an open tender or long term extension? I think last year we kind of went up until the deadline which kind of triggered an extension. Is it I that as a similar scenario on the table, is that even contractually available, or do you think you'd find a long term solution before that?

Brian Tienzo

Oh, well, I mean, it to the extent that, we're looking beyond the one year extension with the same charter. We're already in the background, we're already looking at other opportunities for the Igloo. I think the challenge is going to be that well, as you rightly say, there was an intention but a charter to go to tender last time. I think the timing of that tender didn't go according to plan. And so as a result, it became a bilateral discussion between us and them. Clearly, they have that time in their hand at the moment. So there is an expectation clearly from ourselves that they will go to tender. And we will participate in that tender. But at the same time, we can't just limit our participation to that. We are live looking at various opportunities as well. And there are few and those opportunities are actually more of a long day to then potential extension on the current charters intention to tender.

Michael Webber

Gotcha. Is there any visibility into a timetable for that yet?

Brian Tienzo

No. I mean it's very much driven by KNPC. I'm sure that this is right end, and margin win already, they don't make it public.

Michael Webber

Okay. All right. Appreciate the time. Thanks.

Brian Tienzo

Sure.

Operator

Next question comes from the line of Fotis Giannakoulis from Morgan Stanley.

Fotis Giannakoulis

Yes. Hi, Brian, and thank you. Brian, I want to ask you about the potential growth projects that you mentioned. You mentioned the difficulty in financing these projects. I'm wondering if there have been any discussions of Golar providing any sort of financing that will allow you to do this acquisitions. And also what is the status of the refinancing of the loan of the Hilli that will increase the free cash flow from this project?

Brian Tienzo

Hi, Fotis. So on the first question absolutely, I mean that discussion exists. But as you can appreciate at the same time, we need to be able to show that regardless of whether this seller's credit takes effect. At some point, the seller's credit has to be sold. And so of course it gives the sponsor more encouragement and confidence to be able to use the seller's credit as a mechanism for acquisition for GMLP as we see both equity and debt capacity improving. So that is available to us. But that's more of a short term measure.

And then on the second point, on the refinancing, that's still in our cards. It's a big number to manage and of course one of the bigger factors in making sure that that's done properly is to include a portion of the Hilli in there. The discussion with the lenders is ongoing. But at the same time, we can't really push too much particularly if the market that we're trying to tap for this refinancing isn't as good as we're hoping to. But that's certainly in the cards for 2019 on execution.

Fotis Giannakoulis

And regarding the assets, the older assets that you have, the shipping assets, how do you view these assets in your balance sheet given the fact that the GMPL was originally track shoot as a company that we have assets with long term cash flows. Are there any opportunities that these assets will be deployed under long term contracts? I understand that you have a very close relationship with new NFC, GMLP have been looking. They clearly looking for FSRUs for their projects. Is this something that you would - that there are high expectations or could you potentially dispose these assets completely?

Brian Tienzo

I think, it's good point you mentioned the relationship between Golar and NFC I think clearly that it - the goal of Freeze is second asset that we have deployed with them. I think there is clearly an ambition and effort to grow within the Caribbean and the discussion along those lines happening within Golar. I mean but we're not just limiting ourselves to that. I mean there are various opportunities for small scale are used we're seeing very suitable for the Golar Spirit for example. Whilst Mazo remains a vessel today for shipping purposes. She is also first rate candidate for another Episeyo to enter into very long term contract.

I think the unfortunate thing, of course is that these contracts Episeyo typically take a long time to do. And so once there are opportunities out there that we can pursue, the timing of those opportunities is very difficult to pin down. So which is why one of the reasons I've just been keeping that away from too much discussion on the slides. But clearly in the background, we're working very hard to make sure that these vessels, the shipping vessels are put away in long term contracts in one shape of form.

Fotis Giannakoulis

But you do not have any plans of disposing any of these or you're going to keep them until you find the long term contract. Is that correct?

Brian Tienzo

So, if I mean - clearly, if an opportunity arises, and it's the right opportunity, particularly for the vessels that of an age, then we will definitely consider it.

Fotis Giannakoulis

Thank you very much, Brian.

Operator

Thank you. The next question comes from the line of Randall Giveans from Jefferies.

Randall Giveans

Howdy, gentlemen, how are you?

Brian Tienzo

Hi, Randy.

Randall Giveans

Hey, so two quick questions here I guess. First, it looks like you repurchased about $4.5 million worth of common units in 4Q '18. Is there about 10 million are still remaining in that authorization. And then when does that expire, and any more kind of plans for further unit repurchases are kind of holding off on that for now?

Brian Tienzo

So, the approval we have is actually up to 50 million. So we've used up a small fraction of that to date. I mean in fact, the strategy to do some of the buyback in December is worked out pretty well into the extent that we - those units are now if you want in the money so to speak. But we just got to see what opportunity there are. It's not an ingrained opportunity within ourselves to keep doing that but if it's right price then we'll continue doing it. But as I said, the share price, the unit price has improved somewhat, hopefully it maintains that way. And if it improves further more than we do have a currency to use.

Randall Giveans

Sure. Okay. And then with that looking at the kind of distribution coverage ratio, I guess was like 1.2 times in 4Q '18, probably is similar levels in 2019. Previously you've kind of guided to maybe a target of 1.1, 1.2 times. So thinking about maybe timing and scale of possible distribution increases or movements in the future, I guess what's more likely, a distribution increase or cut over the next two years?

Brian Tienzo

So when we looked at the change in distribution a quarter back, we're looking at the long timeline of at least two and a half years. So - and then under those scenarios, and then the very conservative assumptions, we needn't have to do anything on the distribution. So from that perspective, I think that distribution is - really looking at distribution isn't unnecessary. Clearly what is more important to us is making sure that we do have a currency to be able to grow. There is no point in increasing distribution where we are today under the current levels of coverage until such time, as you know, we are able to do to plug some of the reconstruction race that will come in a few years' time. I mean, I think the priority is got to be get a currency in place, have a look at the pretty long term tender available that is coming and replay and get rid of the residual risk and contracting risk that happens in a few years' time.

Randall Giveans

Sure. All right. Well, that's it for me, I'll pass it on. Thanks again.

Brian Tienzo

Thanks, Randy.

Operator

Thank you. We have no further questions, sir, if you wish to continue?

Brian Tienzo

Thank you, moderator. And just to thank everyone for their participation today. And we look forward to seeing you again in the next quarter. Thank you and goodbye.

Operator

Thank you. Ladies and gentlemen, that does concludes the call for today. Thank you all for participating. You may now disconnect.

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