Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Preliminary Fourth Quarter and Financial Year 2019 Results)
Reporting Period: Quarter ended December 31, 2019 (4Q 2019) and Full Year 2019.
Business Overview: Golar LNG operates across the LNG value chain, including shipping, floating liquefaction (FLNG), and power generation (Golar Power). Key assets include the FLNG Hilli Episeyo, the FLNG Gimi (under conversion), and a fleet of LNG carriers and FSRUs.
Key Financial Metrics
| Metric (in thousands) | 4Q 2019 | 4Q 2018 | YTD 2019 | YTD 2018 |
|---|---|---|---|---|
| Total Operating Revenues | $139,048 | $181,939 | $448,750 | $430,604 |
| Net Income/(Loss) Attributable to Golar | $24,768 | $(312,957) | $(211,956) | $(231,428) |
| Adjusted EBITDA | $93,388 | $121,217 | $254,880 | $218,145 |
| Operating Income/(Loss) | $68,896 | $(102,818) | $60,659 | $114,486 |
| Adjusted Net Debt | $2,474,947 | $2,228,980 | $2,474,947 | $2,228,980 |
| Cash Position (Total) | $440,563 | N/A | N/A | N/A |
| Unrestricted Cash | $222,123 | N/A | N/A | N/A |
Shipping Performance: Average daily Time Charter Equivalent (TCE) for 4Q 2019 was $77,000, a significant increase from $35,200 in 3Q 2019. Fleet utilization improved from 65% in 3Q to 90% in 4Q.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 41% quarter-over-quarter (from $98.7M in 3Q to $139.0M in 4Q), driven by a seasonal upturn in shipping rates and 100% uptime for the FLNG Hilli Episeyo.
- Profitability Turnaround: The company reported a net income of $24.8 million in 4Q 2019, reversing a net loss of $82.3 million in 3Q 2019. Operating income swung from a loss of $13.7 million to a profit of $68.9 million.
- Cost Reductions: Voyage, charterhire, and commission expenses decreased from $5.6 million in 3Q to $2.3 million in 4Q due to fewer vessel dry-docks and reduced positioning costs.
- Derivative Gains: A $4.3 million unrealized gain on the oil derivative instrument (linked to Brent Crude prices) contributed to operating income, compared to a $44.2 million loss in 3Q.
- Debt Levels: Adjusted net debt increased to $2.47 billion from $2.29 billion in 3Q 2019, primarily due to the drawdown of $130 million against the FLNG Gimi debt facility.
Outlook, Guidance, and Risks
Management Commentary and Outlook
- 2020 Charter Coverage: Golar has secured charter coverage for 62% of its 2020 available shipping days. 1Q 2020 TCE is anticipated to be around $60,000 per day, substantially higher than the $39,300 achieved in 1Q 2019.
- Project Milestones: The Sergipe power plant in Brazil is on track for commercial operations by the end of 1Q 2020. The FLNG Gimi conversion is progressing to schedule and budget, with operations expected to commence in 4Q 2022.
- Downstream Expansion: Golar Power is pursuing small-scale LNG distribution in Brazil via a partnership with BR Distribuidora and has been awarded a 25-year PPA for the Barcarena power plant.
- Capital Strategy: The company states it is "fully funded" with a $6.6 billion contract earnings backlog. Surplus cash may be used for growth investments or share buybacks.
Risks and Contingencies
- Market Volatility: LNG prices have softened due to new liquefaction capacity coming online. Spot rates are subject to seasonality and global demand fluctuations.
- Project Execution: Risks include delays in the commissioning of the Sergipe power plant, the Gimi conversion, and the Barcarena project.
- External Factors: The filing highlights potential impacts from the Covid-19 outbreak on demand and operations, particularly in China and the Far East, as well as US-China trade discussions.
- Financing: Risks related to the ability to obtain additional financing or refinance existing debt on acceptable terms.
Key Facts for Investor Verification
- FLNG Hilli Episeyo Performance: Verify the continued 100% commercial uptime and the stability of the Brent oil-linked tolling fees.
- Sergipe Power Plant Commissioning: Confirm the Commercial Operations Date (COD) occurs by the end of 1Q 2020 as scheduled to trigger the FSRU Nanook contract acceptance.
- Debt Structure and VIEs: Review the impact of consolidating lessor Variable Interest Entities (VIEs) on the balance sheet, specifically the $1.6 billion in debt and $65 million in restricted cash associated with these entities.
- Share Repurchase Program: Verify the completion of the Total Return Swap (TRS) share purchases (3 million shares total) and the resulting reduction in outstanding shares to approximately 97.8 million.
- 2020 Revenue Backlog: Assess the $172 million revenue backlog secured for 2020 and the exposure to floating vs. fixed rate charters.