GLNG

Business Context and Reporting Period

Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Unaudited Condensed Interim Financial Report)
Reporting Period: Six months ended June 30, 2019
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, and liquefaction of natural gas. As of June 30, 2019, the company, together with affiliates Golar Partners and Golar Power, operated a combined fleet of 27 vessels (18 LNG carriers, 8 FSRUs, and 1 FLNG). Golar directly owns 12 LNG carriers, one FSRU, and one FLNG (Hilli Episeyo).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 68% to $211.0 million, driven primarily by the FLNG segment. The Hilli FLNG generated $109.0 million in revenue (vs. $18.6 million in 2018) following its full operational acceptance in May 2018.
• Operating Loss in Vessel Segment: The Vessel Operations segment reported an operating loss of $55.8 million (vs. $18.8 million loss in 2018). This was significantly impacted by a $41.6 million non-cash impairment charge on long-term assets.
• Impairment Charges: A $34.3 million impairment was recognized on the Golar Viking LNG carrier due to a signed sale agreement for its future conversion to an FSRU. Additionally, a $7.3 million impairment was recorded on the investment in OLT Offshore LNG Toscana S.P.A.
• Derivative Losses: Losses on derivative instruments increased to $20.4 million (vs. a gain of $1.1 million in 2018), primarily due to unrealized losses on interest rate swaps and equity swaps.
• Interest Expense: Interest expense rose 41% to $53.7 million, largely due to $29.3 million less capitalized interest on the Hilli FLNG conversion compared to the prior year.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Liquidity: Management believes it has sufficient facilities to meet liquidity requirements for at least the next 12 months. As of June 30, 2019, total cash and restricted cash stood at $545.4 million, though $405.6 million was restricted.
• Financing: In August 2019 (subsequent to period end), Golar refinanced its Margin Loan Facility (increased to $110 million) and entered a new $150 million term loan facility.
• Project Development: The Gimi FLNG conversion is on track for completion in 2022. A $700 million underwritten financing commitment has been received for the project, subject to conditions.

Risks and Contingencies

• EU Tax Jurisdictions: Bermuda and the Marshall Islands were listed as non-cooperative jurisdictions by the EU, though Bermuda was removed in May 2019. The impact on the Marshall Islands remains uncertain and could lead to sanctions or banking restrictions.
• UK Tax Lease Challenge: HMRC is challenging similar UK tax lease structures. While not binding precedent, the potential exposure for Golar's remaining lease (Methane Princess) is estimated between £0 and £115.0 million.
• Financing Execution: There is no certainty that proposed new credit facilities for the Gimi conversion will be executed in time or at all.

Investor Verification Checklist

• Impairment Validity: Verify the fair value assumptions used for the $34.3 million Golar Viking impairment and the $7.3 million OLT-O write-down.
• Restricted Cash Utilization: Assess the liquidity position considering that 74% of total cash ($405.6 million) is restricted for specific purposes (e.g., Hilli project, equity swap collateral).
• Derivative Exposure: Review the $950 million notional interest rate swap portfolio and the $96.8 million cash collateral posted for the equity swap.
• Gimi Project Financing: Monitor the status of the $700 million underwritten financing commitment and the $1.3 billion total conversion cost.
• UK Tax Liability: Track developments in the HMRC litigation regarding the Methane Princess lease and potential indemnification obligations.