UK: FLEX LNG Posts Q3 Results

UK FLEX LNG Posts Q3 Results

FLEX LNG announced its results for the third quarter of 2012.

In the first quarter the front-end engineering and design (FEED) work for a potential project in Papua New Guinea (PNG) was finalised, although subsequently no further progress has been made on this project.

The Company has subsequently been engaged in discussions with Samsung Heavy Industries in relation to the funds previously paid by the Company to Samsung including how they might be applied for alternative purposes. The plan is to apply an amount of paid-in instalments, net of deductions, each to be determined for the construction of LNG carriers and/or regasification vessels.

The parties have so far not been able to agree on the precise terms of such Alternative Deployment, including the level of paid-in instalments that is to be carried over to the Alternative Deployment.

The Company currently believes that either a conclusion will be reached with Samsung on the Alternative Deployment, in the fourth quarter, or will need to pursue steps for alternative options to enable the matter to be resolved.

The cash balances at 30 September were $7.7m ($16.9m) with $1.8m net outflow ($2.2m net inflow) in the quarter and $7.1m net outflow ($7.0m – net inflow) year to date. In the nine months in 2012 the operating cash outflow was $7.1m (principally the operating loss and working capital movements).

The loss before tax was $2.8m ($3.6m) in the quarter and $6.7m ($19.0m) year to date, with a year to date retained net loss of $6.7m ($19.0m). In the current quarter there have been reduced staff and general overhead costs, partly offset by additional legal expenditures. In the year there have also been a net credit of $0.9m on forfeited share options (2011: $3.6m share option charge) and 2011 included a $7.8m financing charge related to the share option provided to IOC and PACLNG.

In the 2011 statutory accounts, the Group recognised an impairment write-down on the new build assets. The Company currently expects to have greater clarity as to the carrying value as negotiations evolve with Samsung. The amount of capital transferred for Alternative Deployment will depend on a number of factors that are not directly under the control of the Group (including the commercial terms for the Alternative Deployment options).

In case the current lack of agreement with Samsung, as to the Alternative Deployment continues, under IAS 36 the Company could be required to recognise a further impairment loss. This would be subject to the Company’s best estimate of the recoverable amount, in relation to the carrying value of the new building assets, covering both the instalment amounts already received by Samsung and the capitalised development costs.

No impairment provision has been made in the Q3 accounts as the Company is unable to reasonably make an impairment estimate at this time given the fact that the Company is currently reviewing alternative options with different impacts on an impairment value.

Outlook, Financing and Risks

In the event that Samsung and FLEX LNG agree to pursue an Alternative Deployment, the Company expects to consider a number of financing alternatives for raising working capital and instalment requirements; this will depend, among other things, on the number of vessels ordered, the debt equity ratio, level of instalments available for redeployment, economic terms of utilisation, final capital cost and market conditions. In the meantime, based upon current levels of cash utilisation, the Company believes that it will have sufficient working capital to last into 2013.

There can of course be no assurance that satisfactory agreement will be reached with Samsung on the Alternative Deployment. For that eventuality the Company has taken steps to be prepared to initiate alternative options to secure the net paid-in capital and therefore is also evaluating the need for and timing of any additional working capital requirements in that scenario.

In all cases where the Company may require additional funding, there can be no assurance that such funds may be raised on terms that are reasonable, if at all.

[mappress]
LNG World News Staff, November 23, 2012; Image: Flex LNG