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Golar LNG Partners LP (GMLP)
Q3 2019 Earnings Call
Nov 26, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to Golar LNG Partners LP 3Q 2019 Conference Call. At this time, all participants are in a listen-only mode. I must advise you that this conference is being recorded today.
I would now like to hand the conference over to your speaker today, Graham Robjohns. Please go ahead.
Graham Robjohns -- Chief Executive Officer
Thank you and good day everybody. Welcome to Golar Partners Q3 2019 results presentation. As the operator said, my name is Graham Robjohns and I'm joined here today by our Head of Investor Relations, Stuart Buchanan. Before we start the presentation, I would encourage participants to read through Page 2 forward-looking statements in your own time.
Turning over to Slide 3 and recent highlights. At $35.9 million, our operating income was broadly in line with the second quarter. This result does not, however, include our interest in the operating result of Hilli Episeyo or the capital element of the Golar Freeze contract which is now classified as a sales type lease and disclosed as interest income.
We generated distributable cash flow of $33.6 million with a distribution coverage ratio of 1.18 times as compared to 1.12 times for the second quarter. Very pleasingly, we had a successful quarter in terms of recontracting our vessels. We secured a two-year charter for the LNG carrier Golar Maria, commencing November 2020 as well as additional short-term charter coverage from October to April 2020. And we also received a notice of contract award for two years for the FSRU Golar Igloo, commencing March 2020 and that has an one-year option period.
Turning over to Slide 4 and our income statement. Our net income for the third quarter was $7.9 million as compared to $5.5 million last -- in the previous quarter. Operating results, taking into account the Golar Freeze capital element of its charter, which is now as I've said, included interest income were a slight improvement on the previous quarter. However, interest rates continued to fall during the quarter, creating another net non-cash interest rate swap valuation loss of $10.9 million. Although, this was a significant reduction to last quarter's loss of $26.5 million.
Turning over to Slide 5, here we set out our segment information. In order to make a better comparison of our operating results, we have included on this slide some segment information which shows adjusted EBITDA inclusive of the Golar Freeze and our share of Hilli Episeyo. As you can see, adjusted EBITDA was up from last quarter's $79.5 million at $81 million.
Slide 6 has our balance sheet assets, on which there were not any significant movement so we move over to Slide 7 and balance sheet liabilities. At the end of the quarter, our adjusted net debt was $1.55 billion [Phonetic] and this includes $430 million of associated debt -- associated with Hilli Episeyo. As at the quarter end, the percentage of debt swapped to a fixed rate was approximately 98% and the average fixed rate interest rate swaps related to bank debt is approximately 2.2% with an average remaining period-to-maturity of 3.3 years. So, we remain well protected from interest rate variability. With an improved EBITDA, our net debt-to-annualized EBITDA has improved again from last quarter's level of 5 and now stands at 4.8 times.
Turning over to the next slide which is our distributable cash flow. Our distribution coverage ratio has improved for the second quarter running, from 1.01 to (Technical Issue) 1.18 [Phonetic] for Q3. We also expect Q4 coverage to be approximately in line with this, despite Igloo -- the Golar Igloo finishing one month early this year at the end of November. This is expected to be compensated for by an improved contribution both Golar Maria and Golar Mazo. And new contracts for both Golar Maria and Golar Igloo are of course extremely important to underpin our distribution coverage going forward as well new contracts for Golar Spirit and Golar Mazo which we continue to work hard on.
On Slide 9, we set out revenue backlog which as at the end of the third quarter including the additions for the Maria and Igloo, was $2.14 billion. As I've already said, the new contracts to Maria and Igloo are extremely pleasing and we continue to work hard on looking for business for the Spirit and Mazo.
Slide 9 shows the revenue breakdown of the partnership's earnings, equally important to our revenue backlog is the nature and source of that revenue. The graph above highlights the point that the vast majority of our revenue is secured by way of long-term contracts. These form the basis of a strong financial foundation from which growth can be achieved organically or by acquisition. 60% of our income is contributed by our FSRUs and 32% of our income from Hilli Episey. These contract runs for another seven years. 8% of our income is from shipping and mostly represented by the long-term contract which Methane Princess is currently servicing. This contract remains in place until 2024.
Moving over to the next slide and a little bit on ESG. We believe in Golar that we have a very strong ESG story and the Golar Group. Both the MLP and Golar LNG Limited have been working hard over the last several months to develop our reporting and KPIs. We believe that natural gas has a critical role to play in providing cleaner energy for many years to come. Gas is a highly complementary companion fuel to renewables. It provides significant emission savings compared to other fossil fuels in most relevant and remote communities that currently have little choice on how they create energy. Our business provides people with cleaner energy at less cost.
In addition, all of our vessels run on LNG and we have innovative energy-saving solutions on both our FLNG and FSRU vessels in particular. We will focus on ESG reporting -- we will focus our ESG reporting on what really matters to us. We have identified five key focus areas which you can see on the right hand side of this slide and we expect to formally start reporting during 2020. We firmly believe that the Golar ESG story is an important one to explain to investors in the wider world.
So moving over to Slide 11 and in summary, the shipping market is bullish and we have used the opportunity to contract out the Golar Maria. We have some short-term successful with the Golar Mazo and our task now is to find longer term business for that.
The FSRU market has also developed in a positive way stimulated, we believe, by low LNG prices and increasing interest in small-scale downstream distribution. We're extremely pleased with the new contract awarded to Golar Igloo and we will continue our efforts to try and find employment for the Golar Spirit. We have a solid financial footing with $2.14 billion in revenue backlog, a solid distribution coverage ratio of 1.18 and a falling net debt-to-EBITDA ratio.
Thank you and with that, I will hand back to the operator to open up for Q&A.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is coming from the line of Greg Lewis. Please go ahead.
Greg Lewis -- BTIG Research -- Analyst
Yes, thank you and good afternoon.
Graham Robjohns -- Chief Executive Officer
Hi, Greg.
Greg Lewis -- BTIG Research -- Analyst
So, I like to see the coverage ratio look pretty -- look better than what we've seen in the past, the 1.2. That being said, the stock continues to languish here. At a certain point, how should we be thinking about supporting the stock price through with cash flow from operations? How should we be -- how at least are you thinking about that? Some companies have said, hey, at certain level we're buying -- I mean, are you comfortable saying at a certain point, hey, our stock is just too cheap here and we need to be funneling cash to support our stock price?
Graham Robjohns -- Chief Executive Officer
Well, we do have a share buyback...
Greg Lewis -- BTIG Research -- Analyst
Yeah, I understood.
Graham Robjohns -- Chief Executive Officer
Provision in place and we have bought a few shares back over the quarter, but I think in terms of stock price and our business moving forward, I would say most importantly is the recontracting of our vessels. Obviously, the Mazo and -- the Maria and Igloo is a really great start and now we need to really focus on the Golar Mazo and the Golar Spirit.
Greg Lewis -- BTIG Research -- Analyst
Sure. And then just -- and then just a more of a bigger picture question. There's definitely been a fair amount of term contracts over the last, call it, I don't know, six months, 12 months, but it seems like there -- and some -- obviously a lot of those are new builds, but it seems like they're more for modern tonnage. What has sort of been the feedback from customers around the willingness to put term contracts around steam vessels? Is it really just the function of -- is the reason -- just kind of curious why we're not seeing as many term contracts around steam vessels as maybe potentially we thought -- we might have?
Graham Robjohns -- Chief Executive Officer
Well, to be honest, I'm not sure what the percentage is if you compare it. I mean -- in the LNG industry, you typically see kind of new greenfield projects, reasonably or disproportionate percentage of new LNG carriers going to those new projects. But in terms of term business, I think, you have seen that in the steam space, maybe not for, sort of, five, seven, 10 years, but certainly term -- I mean, the Maria is a couple of years and then a couple of years ago, we contracted the Grand on a [Indecipherable] we had options in it, but it was effectively up to a seven-year contract with two plus one plus one plus one plus one. So I think it's -- its horses for courses as we say here in the UK. The steam vessels are -- come at cheaper rates and for the sort of whole business where cargo size isn't paramount, then there's still good business for them.
Greg Lewis -- BTIG Research -- Analyst
Okay, great. And then just one quick follow-up for me. When we think about the Grand and those options, is there sort of timing around when those -- when Golar needs to receive notification of those options? Or when you should expect to receive if the first one is actually exercised?
Graham Robjohns -- Chief Executive Officer
I think it will be in the first quarter of 2020.
Greg Lewis -- BTIG Research -- Analyst
Okay, perfect. All right, thank you very much.
Graham Robjohns -- Chief Executive Officer
Thank you. Next?
Operator
Next question is coming from the line of Randy Giveans. Please go ahead.
Randy Giveans -- Jefferies -- Analyst
Howdy guys. How's it going?
Graham Robjohns -- Chief Executive Officer
Hi, Randy. Hi.
Randy Giveans -- Jefferies -- Analyst
Hey. So, yeah, congrats on, obviously, rechartering the Golar Igloo. Last call you mentioned a new contract would likely be below kind of current contract levels. So with that, what are the terms in terms of either day rate or annual EBITDA contribution for the Igloo as well as for the Maria, for day rate there?
Graham Robjohns -- Chief Executive Officer
Yeah, I think both are a little bit commercially sensitive. We've put in the earnings release. So, if you add the revenue backlog of both contracts up together over the term period, it comes to about $95 million. The rates on the Igloo is lower than the the previous rate, but it's for a 10-month period and not a nine-month period, but the EBITDA number will still be a bit lower than previously. That's about as much as I can say I am afraid, Randy.
Randy Giveans -- Jefferies -- Analyst
$95 million basically for the -- divided by the 24 months? Times too?
Graham Robjohns -- Chief Executive Officer
Yeah.
Randy Giveans -- Jefferies -- Analyst
Three years for each? Okay. And then just to clarify, you mentioned the Mazo, what is the status of that? Is it waiting for a charter or are you going to operate it right now, tomorrow in the spot market?
Graham Robjohns -- Chief Executive Officer
She is operating right now in the spot market.
Randy Giveans -- Jefferies -- Analyst
Oh? Already employed, has a cargo?
Graham Robjohns -- Chief Executive Officer
Yes, she had some short-term business. I'm not -- that is coming to a close shortly I think, but she's been operating for the last month or so on the short-term spot market charter.
Randy Giveans -- Jefferies -- Analyst
Great. Okay. And then last question, what would be the cost and timing taking the Golar Spirit out of cold lay-up? Would you operate it possibly as an LNG carrier or you're just going to keep it in cold lay-up until it gets a contract to convert to an FSRU or use it as a hub, maybe, for Avenir or something like this? So may be cost and time and outlook?
Graham Robjohns -- Chief Executive Officer
Time is a kind of a couple of months, few months. I don't think there is a likelihood that she operates as an LNG carrier, but as an FSRU storage unit or a regas, then absolutely, yeah.
Randy Giveans -- Jefferies -- Analyst
Okay. And the cost for that?
Graham Robjohns -- Chief Executive Officer
And cost, well that -- that kind of depends on. I mean, she would need a dry-dock, but then it really depends on if there's any kind of incremental bit of cash required for the specific business.
Randy Giveans -- Jefferies -- Analyst
Sure, but just looking at the dry-dock, a couple million dollars?
Graham Robjohns -- Chief Executive Officer
Oh, no, no, more than that. Maybe $5 million, $6 million, something like that.
Randy Giveans -- Jefferies -- Analyst
Okay, perfect. Well, that's it from me. Thanks so much.
Graham Robjohns -- Chief Executive Officer
Thanks, Randy.
Operator
The next question is coming from the line of Jonathan Chappell. Please go ahead.
Jonathan Chappell -- Evercore -- Analyst
Thank you. Good afternoon, Graham.
Graham Robjohns -- Chief Executive Officer
Hi, Jon. Hi.
Jonathan Chappell -- Evercore -- Analyst
So first question was the Maria and the Igloo now squared away for next year and understanding the Igloo doesn't start until March. The coverage ratio has been inching up, 1.18 now, let's call 1.2 gives you a little bit of buffer. Is there any significant dry-docking or off-hire next year where you can foresee a shortfall on the coverage ratio given now that you only have the Spirit in cold lay-up and the Mazo on short-term staff.
Graham Robjohns -- Chief Executive Officer
No. The Golar Mazo will need to dry-dock next year, but not other than that, no.
Jonathan Chappell -- Evercore -- Analyst
All right. So, coverage ratio above 1.1, yielded at 17%. Let me ask Greg's question maybe a bit of a different way. I mean, I know you have the buyback authorization in place and hopefully maybe with some refinancing, you can become a bit more aggressive on that, but at a certain point do you start to wonder is the 17% yields and you're just not getting paid for the contract coverage, the improvements you've made in the balance sheet? And I understand there's probably an immediate negative reaction in the capital markets from a distribution part, but if you're not doing out of position of weakness and you're doing it because you're not getting any value for it and the cash can be spent otherwise, at what point do you --I mean, you've been doing this 40, 42 [Phonetic] run-rate for over a year now. At what point do you say, we're just not getting the credit for it and we need to put cash to better use?
Graham Robjohns -- Chief Executive Officer
I mean I think it's a difficult question to answer, Jon. I think we've been saying for a little while that our number one priority is recontracting our vessels and then see where we're at. I mean, obviously, this quarter has been a great step forward in that. Let's see where we get to, over the next few months with Spirit and Mazo. And then -- yeah and see where we are. I mean if we had a -- particularly Golar Spirit, if we had a significant contract for her, then that is going to make a dramatic difference to our distribution coverage ratio. If the stock is still trading where it is, then we'd have to do some hard thinking I guess, yeah.
Jonathan Chappell -- Evercore -- Analyst
Okay. No, I understand. Thanks, Graham.
Operator
Next question is coming from the line of Ben Nolan. Please go ahead.
Ben Nolan -- Stifel -- Analyst
Thank you. That's a fantastic accent there. I wanted to just clarify on the Igloo for the contract extension. Graham, you had said it is on a 10-month basis, similar to the nine-month basis now, but I guess, January and February for the two extension years are on contract, is that right? Am I thinking that correctly?
Graham Robjohns -- Chief Executive Officer
That's right, yeah. So, it's the oil contracts. Yeah, you have the sort of three months gap and this one is a two months gap.
Ben Nolan -- Stifel -- Analyst
Okay. And as it relate -- again, just really for modeling purposes. So, that $95 million takes into account 10 months of the year for that vessel along with the contract on the Grand, correct?
Graham Robjohns -- Chief Executive Officer
Correct, yeah.
Ben Nolan -- Stifel -- Analyst
Okay. All right, perfect. Now, that was it for me. I appreciate it. Thanks.
Graham Robjohns -- Chief Executive Officer
Okay. Thanks Ben.
Operator
There are no further question at this time. Please continue.
Graham Robjohns -- Chief Executive Officer
Thank you, operator, and thank you everybody for participating in this call. We look forward to speaking to you next quarter and for those of you in the US, I hope we haven't disrupted your Thanksgiving holiday too much and wish you a very happy one. Thank you and speak to you in three months.
Operator
[Operator Closing Remarks]
Duration: 20 minutes
Call participants:
Graham Robjohns -- Chief Executive Officer
Greg Lewis -- BTIG Research -- Analyst
Randy Giveans -- Jefferies -- Analyst
Jonathan Chappell -- Evercore -- Analyst
Ben Nolan -- Stifel -- Analyst
