Why Golar LNG Partners Ranks 2nd among MLPs




Coming in behind Viper Energy Partners (VNOM), Golar LNG Partners (GMLP)—an MLP (master limited partnership) primarily involved in LNG (liquefied natural gas) shipping, floating LNG liquefaction, and floating LNG regasification—ranks second in terms of best EBITDA (earnings before interest, tax, depreciation, and amortization) margins among MLPs today.

The partnership posted a TTM (trailing-12-month) EBITDA margin of 83.0% for 3Q17. GMLP’s high EBITDA margins have been driven by its low operating expenses.

However, Golar LNG Partners’ strong EBITDA margin hasn’t translated into high distributable cash flows and net income margins, as in case of Viper Energy Partners (VNOM), due to its high-interest expenses. GMLP reported a net income margin of 25.1% in 3Q17.

Trend in recent quarters

GMLP’s 3Q17 EBITDA margin was its lowest in the past five quarters. The partnership’s EBITDA margin fell to 76.3% in 3Q17, compared with 83.5% in the previous quarter and 85.1% in 3Q16. This represents QoQ (quarter-over-quarter) and YoY (year-over-year) declines of 723 basis points and 883 basis points, respectively.

This decline was primarily due to higher operating costs in 3Q17, which came despite the layup of its Golar Spirit vessel and the dry-docking of its Golar Winter vessel. According to GMLP’s 3Q17 earnings release, “One-off demobilization costs incurred during the quarter mean that layup savings will not be fully realized until 4Q.”

That said, GMLP’s EBITDA margin could keep falling in 4Q17 due to “52-day dry-dock related off-hire of the Golar Winter, the conclusion of the Golar Maria time charter on December 1, and a reduced daily rate receivable from the Golar Grand post October 31.”

However, the partnership is optimistic about its long-term growth prospects, which should be driven by growth in small-mid size FSRU market and new FSRU contracts.

Analyst recommendations

Notably, 54.5% of the analysts surveyed by Reuters recommend a “hold” for GMLP, while 45.5% recommend a “buy.” GMLP’s average target price of $22.8 implies a ~13% upside potential from its current price level.

In the next part, we’ll look into the EBITDA margins for Dorchester Minerals (DMLP).

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