Business Context and Reporting Period
Company: Golar LNG Limited (GLNG)
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Reporting Period: Six months ended June 30, 2022
Business Overview: Golar designs, builds, owns, and operates marine infrastructure for LNG liquefaction and regasification. Following the disposal of its LNG carrier fleet and shipping management business to CoolCo Ltd. and the sale of the Golar Tundra FSRU to Snam in 2022, the Company is now focused on its Floating Liquefied Natural Gas (FLNG) portfolio, specifically the operational Hilli and the Gimi under conversion.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|
| Total Operating Revenues | $140,165 | $131,105 |
| Net Income | $696,552 | $570,439 |
| Net Income Attributable to Stockholders | $575,214 | $496,797 |
| Adjusted EBITDA | $190,647 | $80,199 |
| Cash and Cash Equivalents (Total) | $620,264 | $267,632 |
| Total Debt (Net of Deferred Costs) | $1,382,277 | $1,623,300 |
| Net Cash Provided by Continuing Operating Activities | $58,050 | $39,407 |
Material Changes vs. Prior Period
- Net Income Increase: Net income rose 22% to $696.6 million, driven primarily by significant non-operating gains and a reversal of discontinued operations losses.
- Derivative Gains: Realized and unrealized gains on oil and gas derivative instruments totaled $447.3 million (vs. $84.2 million in 2021), largely due to rising Brent crude and TTF gas prices linked to the Hilli FLNG contract.
- Equity Investment Gains: Gains on the investment in New Fortress Energy (NFE) listed equity securities were $295.0 million (vs. a loss of $86.7 million in 2021) due to share price appreciation.
- Discontinued Operations: The period included a net loss of $82.4 million from discontinued operations (CoolCo and TundraCo disposals), compared to a net income of $594.4 million in the prior year (driven by the Hygo/Golar Partners disposal).
- Impairment Charge: A $76.2 million impairment charge was recognized for the Golar Arctic LNG carrier following the agreement to sell it to Snam for conversion to an FSRU.
- Debt Reduction: Total debt decreased by approximately $241 million, primarily due to the full redemption of $315.6 million in 2017 Convertible Bonds and repayment of the Golar Tundra facility.
Guidance, Outlook, and Risks
Recent Developments and Outlook
- Hilli Expansion: In July 2022, the customer exercised an option to increase Hilli capacity by 0.2 million tons/year starting January 2023. The Company entered into swaps in August 2022 to hedge TTF price exposure for this incremental capacity.
- Gimi Project: The Gimi FLNG conversion is ongoing with a target sail-away in the first half of 2023. The Company agreed to a $50 million incentive payment to the shipyard to safeguard this timeline.
- Tundra Development: Entered into a development agreement with Snam in August 2022 to provide engineering and commissioning services for the sold Golar Tundra.
Risks and Contingencies
- Project Execution: Risks regarding the ability of shipyards to meet delivery schedules for the Gimi and Golar Arctic conversions.
- Counterparty Obligations: Uncertainty regarding claims from counterparties (e.g., Hygo, Golar Partners, Snam) and the ability of affiliates (CoolCo, NFE) to meet indemnification obligations.
- Market Volatility: Exposure to commodity price volatility (LNG, oil, gas) and global financial market fluctuations affecting equity holdings.
- Geopolitical: Impacts from the conflict in Ukraine and related sanctions on supply chains and operations.
Investor Verification Checklist
- Derivative Valuation: Verify the assumptions used for the $447 million gain on oil and gas derivatives, specifically the Brent crude and TTF price curves.
- Discontinued Operations: Confirm the final settlement of the CoolCo and TundraCo disposals and the impact on future cash flows from management fees.
- Gimi Timeline: Monitor the Gimi conversion progress and potential cost overruns given the $50 million incentive payment to the shipyard.
- Debt Covenants: Review compliance with financial covenants, specifically the requirement to maintain $50 million in consolidated cash and cash equivalents.
- NFE Equity Exposure: Assess the volatility of the $491.8 million investment in NFE shares and its impact on earnings.