Golar LNG Partners LP
Q2 2019 Earnings Call Transcript

Published: 29 Aug 2019

[Operator:]

Ladies and gentlemen, thank you standing by. And welcome to the Golar LNG Partners Q2 2019 Results Call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. [Operator Instructions] I'd now like turn the conference over to your speaker today. Brian Tienzo. Please go ahead, sir.

[Brian Tienzo:]

Thank you moderator. Good afternoon and good morning to all of you. Welcome to Golar Partners' 2Q 2019 results presentation. My name is Brian Tienzo. I am joined here by our Head of Investor Relations Stuart Buchanan.Without further ado, let's start the presentation and I would urge participants to read through page two our forward looking statements in their own time.And so with that done, let's jump over to slide three for the main highlights. With full quarter contributions from Golar Igloo and Golar Freeze we report increased operating income of $36.2 million for the second quarter of 2019 as compared to first quarter operating income of 25.9 million. And as a result this not however, include our interest in the operating results of Hilli Episeyo.During the quarter charters of Golar Grand declared an option to extend this employment for another year at an increased rate. As a result of the foregoing the partnership achieved a distribution coverage ratio of approximately 1.12x and declared a unit distribution of $0.4042 for the quarter.The partnership also took the opportunity to initiate a common unit buyback by taking back approximately $1.5 million worth of units. More recently, and as expected charters of Golar Igloo issued a tender process for FSRU for a two year firm employment plus one year option period and we will of course, bid into that competitively.On that node, let's now turn over the page to go through our income statement highlights. Net results for the second quarter, was a loss of approximately $5.5 million as compared to a loss of $15 million in the last quarter.And this improvement is mainly due to the following factors

[Operator:]

Thank you. Ladies and gentlemen we'll now begin the question-and-answer session. [Operator Instructions] Our first one comes from the line of Randy Giveans from the company of Jefferies. Please go ahead.

[Randy Giveans:]

Howdy gentlemen, how's it going?

[Brian Tienzo:]

Hi, Randy. Good. Thank you.

[Randy Giveans:]

Alright. So yes, other than the small contribution by the LNG carriers, the only asset with I guess revenue uncertainty for the next few years is the Golar Igloo, as you mentioned. So when does the Igloo have to sign that new two year extension? Either with you or with a third party? I know the current contract ends in December. Is it December? Or is it much sooner than that?

[Brian Tienzo:]

So what we gather is that the tender process has kicked-off, that will continue throughout September. And so the likelihood and expectation of the existing charter is that that gets finalized sometime in Q4, obviously, before the commencement of that two year contract, which currently is estimated to be 1 of March 2020.

[Randy Giveans:]

Perfect. Okay. Now, I guess just the switching to the distribution coverage like you said 1.1 plus in 2Q expect to be higher in the coming quarters, just trying to think about distribution, sustainability, I guess, what would call is the distribution to be increased going forward? And then on the other hand, with the 16% yield. I think there's fears of cuts. So what are the chances that gets decreased in the coming quarters?

[Brian Tienzo:]

Well, I mean, it's a good question. I think, clearly we've been pointing towards some positive progress we are making in terms of contracts, securing contracts with various vessels that we have. But clearly, the distribution ratio in itself is not without risks. When we set the current level of distribution, we made some prudent assumptions in terms, of the earnings capability of the vessels, particularly the ones that are open.Those assumptions remain intact today. But as we have seen, over the past six months or so, the shipping market has a way of not necessarily meeting people's expectations. So that is one risk that we have looked at and we have built in some security, but clearly, it remains quite a challenging environment to be in, then that will have a negative impact on the potential of distribution going forward.

[Randy Giveans:]

Alright. I guess more importantly the shipping rates to the LNG carriers don't really add much either way, in terms of kind of distributable cash flow. So for the Igloo, could you sustain the distribution at current levels without winning that tender?

[Brian Tienzo:]

So for the Igloo, we have assumed that the vessel would continue to earn certain amount of earnings, not necessarily sort of an FSRU type level. But clearly, you can't have an economy have the Igloo earning anything. Its contribution today is quite meaningful. But we also made sufficient security to not expect necessarily the same level of earnings that it is achieving today.

[Randy Giveans:]

And still maintain the distribution?

[Brian Tienzo:]

And still be able to maintain certain amount of distribution, correct.

[Randy Giveans:]

Alright. That's it for me. Thanks so much.

[Operator:]

Thank you. Our next question comes from the line of John Chappell from Evercore. Please ask your question.

[John Chappell:]

All right. Good afternoon, Brian.

[Brian Tienzo:]

Hi, John.

[John Chappell:]

Brian, you said yourself that, despite the pipeline, it's hard to envision further growth with the equity trading where it is today. Hard to see it that changing, almost seems like you're kind of stuck here in this range. And maybe a rising market helps that but given what you just mentioned about how the shipping market always disappoints.What's the strategy going forward? If the cost of capital remains prohibited from doing drop downs or anything else? I mean, you mentioned that the masses and in warm layup, do you start disposing assets, you think about winding the company down? Let's start with that. I mean, how do you think of if you're stuck in this mid-teens yields and you can't grow anymore? What are the next steps?

[Brian Tienzo:]

Yes. Thanks, John. I mean, clearly it's frustrating when you have set dividends to a level which we believe is sustainable. We gave ourselves one year to see how that would create hopefully a positive reaction in terms of the equity value of the company. Initially it did but unfortunately, that wasn't sustained and we faced ourselves with I think it's actually touching close to 20% yield at the moment, which is why we took the opportunity to start buying back some of our shares. But to your point, clearly, if it remains along those lines, it's very difficult to look at opportunities out there and that we would be able to maintain that yield growth. It's not impossible.So two things will have to happen. One, clearly we would continue to be opportunistic and look at share repurchase. We do have some certain limitations there in terms of cash that is available to us. We have to make sure that we find the right balance between being able to do that, deploying cash outside of servicing potential CapEx program that may occur as a result of securing long term contracts. And making sure that we use that -- we deploy that cash properly.As far as strategy is concerned, unfortunately to the extent that the yield continues to be where it is, the best that you could potentially do is continue to look at other buybacks that is the most useful way of utilizing the cash.

[John Chappell:]

And look to the extent [like demand] is over, I mean, I get that you'll never make what you should on the spirit, vis a vis what it could actually generate if it did get an FSRU project, but there's no really [NAV] here, but would you sell off maybe some of the older assets that have been in lay out for a period of time and maybe don't have a real feasible path towards the long term project to accelerate the buyback?

[Brian Tienzo:]

Well, I think the good thing is so we haven't completely lost faith in our ability to re contract those. And I think clearly, on the side while it's looking like it's taken a long time to secure long term employment for those vessels, there is actually quite good progress being made particularly for the Golar Spirit and actually similarly onto the Mazo as well.And, of course, we would only continue we only consider that in a long time it looks like it is not an impossible with putting them into long term contracts. But we're quite far away from that at the moment.There is -- for each of those opportunities you mentioned just now, there is a potential for us to have to spend a little bit of money for to get them to position where they are into service or those long term contracts, which is why we're trying to position ourselves as best as we can. But having this discussion at $25 million revolving credit facility to be able to meet those CapEx requirements in the event that they arrive.But we're not quite there yet in terms of obliging to start looking at getting rid of those assets.

[John Chappell:]

Okay. That's all I had Brian, thanks for your thoughts.

[Brian Tienzo:]

Thanks, John.

[Operator:]

Thank you. We've got one more question come through from the line of Ben Nolan from Stifel. Please ask your question.

[Frank Galanti:]

Yeah. Hi, this is Frank Galanti on for Ben. To kind of follow up on John's question, in terms of strategy for the partnership should yield kind of not compress. Is there discussions or talks about potentially rolling up the partnership into the parent?

[Brian Tienzo:]

Well, I think this is something that we've discussed previously. We are looking at a variety of strategies that would allow in some way making that equity currency more efficient for the MLP. I think currently where we are today, as I said we gave ourselves at least a year to try and see where the level of distribution would take us, the new level of distribution would take us.We're not quite there yet in terms of giving up on that. But clearly, there comes a point in time when we have to look at other strategies that would make that MLP a bit more of a currency for GLNG again.We've had a look at various strategies. Roll up is a possibility. We're seeing a lot of activities in the MLP space where the GPS has rolled back up the MLP, a certain amount of consolidation that could be had potentially making good use of longer-term contracts to FSRUs within the fleet. But as I said, I think we need to give the remaining time we have on GMLP to see where that takes us and make a strategic decision before we go ahead and jump in to other boxes.

[Frank Galanti:]

Okay. Yeah. That makes sense. And thanks for that. And then going back to the Golar Spirit and the Igloo, the two efforts are used that are a little bit of a question mark. You mentioned on the Golar Spirit, there's some good optionality. Is that just the Brazilian projects that the parent are working on? Or are there other potential contracts for that? And secondly, the Igloo, if it doesn't -- is not able to be rechartered are there other potential opportunities for other -- those two vessels?

[Brian Tienzo:]

Sure. Taking those in turn on the Golar Spirit. I mean, we talked about Golar Brazil, simply because that's the most progressed, but all of this -- we've been looking at opportunities in Europe as well as Asia. But with -- we are more prominent talking about Brazil simply because that's where we can ride in the back of good work that Golar Power has been doing in Brazil as part of their widening portfolio. And of course, let's not forget, in arriving at the level of distribution we have today, we have completely discounted any earnings from Golar Spirit. So to the extent we are able to secure earnings for the Golar Spirit is actually a huge positive, both to GMLP's earnings into the distribution coverage ratio.As for the Igloo, as I mentioned earlier, I think when we set the dividend level to where it is today, we took a prudent approach as to what it could possibly end up earning post its KNPC charter. And we said that well, okay, there may be a possibility that we are able to redeploy the Golar Igloo in the shipping space, particularly as the shipping market is looking to improve now.And so that's one possibility. But what is sure is that as we join in the bidding process for securing those two-year contracts as [one-year] option. The assumption we've put in the earnings for the Igloo suggests that we can be a better competitive in the way we approach that bidding process.

[Frank Galanti:]

Okay. That makes a lot of sense. Thanks. That's all I had.

[Operator:]

Thank you. There are no further questions at this time.

[Brian Tienzo:]

That's great. Thank you, everyone, for your participation. And yes, see you next quarter.

[Operator:]

Thank you. That does conclude our conference for today. You may all disconnect.