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Shares of Golar LNG Surge 11% Today Thanks to New Joint Venture

Image source: Total SA investor presentation

What: Shares of Golar LNG (NASDAQ: GLNG) are up 11.5% as of 10:45 a.m. EDT after the company announced that it had signed a joint venture agreement with private equity firm Stonepeak Energy Partners to invest in both new power projects as well as in further development of Floating Storage and Regasification Units (FSRU).

So What: Golar LNG is a unique entity in the LNG shipping business. Rather than simply being a vessel owner that shuttles LNG cargoes back and forth between terminals, the company is also building out a fleet of floating liquefaction and regasification terminals. Liquefaction terminals could prove to be very valuable for natural gas producers at reservoirs where a stationary LNG facility is too large to justify, or regasification terminals in places where there is a lack of natural gas infrastructure.

As more and more LNG facilities are being built out globally, it's becoming more and more apparent that there will be a supply glut of LNG on the market, which should lower prices. This also means that Golar's regasifiaction assets could see an uptick in demand as those places without their own stationary import terminals want to benefit from lower LNG prices.

For the most part, this deal involves Stonepeak taking an interest in one FSRU under construction, two existing LNG carriers that are candidates for conversion to FSRUs, and the right to acquire two more LNG carriers from Golar LNG to convert to FSRUs. The benefit for Golar is that it has found another financing option to convert these tankers to floating terminals. With the company's debt levels pushing the level of comfort for most investors, this will provide a much needed source of capital for Golar to realize its strategy.

Now What: Getting an injection of cash from private equity was something that Golar needed pretty badly, and it certainly helps the investment thesis for the company. However, the company is still development phase with many of its assets and it will take a while until the company is generating profits. Until that happens and we can see a couple quarters of operational performance, it's probably best to take a wait and see approach with this stock.

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