Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2016 (1Q 2016)
Business Overview: Golar LNG operates in the LNG shipping, FSRU (Floating Storage and Regasification Unit), and FLNG (Floating Liquefied Natural Gas) sectors. The quarter was characterized by a weak LNG freight market, reduced vessel utilization, and strategic asset management including vessel layups and refinancing.
Key Financial Metrics
| Metric (in thousands) | 1Q 2016 | 4Q 2015 |
|---|---|---|
| Total Operating Revenues | $18,645 | $22,994 |
| Adjusted Operating Loss | ($41,157) | ($31,586) |
| EBITDA (Loss) | ($21,713) | ($12,045) |
| Net Loss (GAAP) | ($80,088) | ($70,892) |
| Net Interest Expense | ($5,127) | ($9,179) |
| Cash and Cash Equivalents | $92,916 | $105,235 |
| Total Liquidity (Cash + Restricted) | $460,800 | N/A |
| Dividend Per Share | $0.05 | $0.05 |
Material Changes vs. Prior Period
- Revenue Decline: Time and voyage charter revenues dropped to $16.6 million from $20.1 million in 4Q 2015. This was driven by a sharp decrease in vessel utilization from 42% to 24% as two Nigeria LNG charters concluded.
- Increased Operating Loss: Adjusted operating losses widened by $9.6 million to $41.2 million. Vessel operating expenses rose $2.1 million due to the full quarter cost of the new FSRU Golar Tundra and maintenance for the Golar Arctic.
- Net Loss Drivers: The net loss of $80.1 million was impacted by a $23.4 million mark-to-market loss on interest rate swaps (reversing a prior gain) and an $8.1 million impairment charge on a loan receivable from the cancelled Douglas Channel project. Conversely, net interest expense decreased significantly due to capitalized interest on assets under construction.
- Asset Strategy: The Company placed modern steam vessels Golar Viking and Golar Grand into layup to mitigate costs in the weak spot market.
Guidance, Outlook, and Management Commentary
- Market Outlook: Management expects the shipping market to remain weak in the near term but anticipates a recovery in the second half of 2016 as new LNG production comes online. The FSRU business outlook remains strong due to low gas prices and demand for rapid infrastructure.
- Strategic Initiatives:
- GoFLNG: The Hilli conversion project is on schedule for a September 2017 start-up. A joint cooperation framework with Schlumberger is being formalized to develop stranded gas reserves.
- Golar Power: Heads of terms agreed with ExxonMobil for LNG supply to the 1,500MW Porto de Sergipe project in Brazil. A Final Investment Decision (FID) is anticipated before the end of 2016.
- FSRU Dropdown: The sale of FSRU Golar Tundra to Golar Partners for $330 million was completed in May 2016, expected to add $100 million to 2Q liquidity.
- Liquidity Management: Refinancing of the Golar Seal released $48.7 million in liquidity. The Company is reviewing options for its March 2017 maturing convertible bond, planning to pay it in full at maturity.
- Leadership Change: Oscar Spieler was appointed CEO, replacing Gary Smith, effective May 10, 2016.
Investor Verification Checklist
- Utilization Rates: Verify the trend in vessel utilization (currently 24%) and the impact of the Cool Pool on effective charter rates.
- GoFLNG Hilli Timeline: Confirm the project remains on schedule for the September 2017 start-up and monitor capital drawdowns against the $960 million facility.
- Convertible Bond Maturity: Assess the Company's ability to refinance or repay the March 2017 convertible bond given current equity prices and market conditions.
- FSRU Project Execution: Monitor the status of the Golar Tundra contract in Ghana and the progress of the Brazil Golar Power project toward FID.
- Derivative Exposure: Review the volatility of mark-to-market adjustments on interest rate and equity swaps, which significantly impacted net income in 1Q 2016.