Golar LNG is chartering out ships as it looks to spin off its gas carrier segment by year-end.
The Tor Olav Troim-backed gas transporter reported in its second quarter earnings statement Thursday that five ships have been fixed on time charters, three on 1 to 5 year index-linked contracts and two on multi-month deals, with four starting in the third quarter.
"Earnings are expected to improve; supported by new term contracts, a tighter supply demand balance, seasonally stronger rates and additional trading days for the fleet," the company said.
"The market faces an impending structural shortage of shipping: in 2019, vessel demand growth of 15% is expected against supply growth of 8%. Further vessel demand growth of 14% is expected in 2020, with supply growth lagging at 9%."
In May, Troim told TradeWinds that he was looking to split off Golar LNG's shipping segment into its own company and was lobbying Awilco LNG and TMS Cardiff Gas to sign on.
Thursday, the company said it hoped to complete the spin-off by the end of 2019.
For the second quarter, Golar LNG's shipping segment brought in $42.2m in revenue, but lost $26.6m on an operating basis, a year-over-year decline from $12.9m.
Deutsche Bank's Chris Snyder said headwinds in the spot market have "clouded favorable fundamentals."
"We are encouraged to see Golar place six LNG carriers on term contracts (4 floating, 2 fixed), a move we have been advocating for with the term market offering mid to high-teens returns at leading edge rates" of $85,000 per day, he wrote.
"We think the move to term employment will drive improved results over the coming quarters and support valuation ahead of Golar's shipping fleet spin-off."
Second quarter performance
The shipping segment's performance contributed to a $112.7m loss for the period, versus a $36.3m profit the year prior, thanks in part to lower operating revenues in a seasonally weak quarter.
The company also announced $180m in new financing facilities, taken on to de-risk its balance sheet while terminating its dividend for the next two quarters in order to buy back 3 million shares.
The buybacks are intended to push Golar LNG's total outstanding share count below 100 million.
Jefferies analyst Randy Giveans said suspending the dividend will save $30m and with buy backs running the company $31m.
He reiterated his buy rating on the stock.
"In short, with a steep contango in LNG prices for the remainder of the year, and multiple new liquefaction projects coming online in 2H19, we believe increased fixture activity will drive both ton-mile demand and LNG shipping rates in coming months," he wrote.
