Business Context and Reporting Period
Company: Golar LNG Ltd.
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2019 (1Q 2019)
Business Overview: Golar operates as an integrated LNG energy company with assets in LNG shipping, Floating Liquefied Natural Gas (FLNG), Floating Storage and Regasification Units (FSRU), and downstream power projects. The company is currently executing a strategic shift to spin off its Trifuel Diesel Electric (TFDE) LNG carrier business to focus on long-term FLNG and downstream infrastructure assets.
Key Financial Metrics
| Metric (in millions USD) | 1Q 2019 | 4Q 2018 |
|---|---|---|
| Total Operating Revenues | $114.3 | $181.9 |
| Adjusted EBITDA | $62.9 | $121.2 |
| Operating Income | $28.9 | ($102.8) Loss |
| Net Loss Attributable to Golar | ($41.7) | ($313.0) |
| Net Cash Provided by Operating Activities | $52.5 | $55.4 |
| Contractual Debt | $2.6 billion | $2.7 billion |
| Adjusted Net Debt | $2.2 billion | $2.2 billion |
| Cash Position (Total) | $690.3 | $704.3 |
| Unrestricted Cash | $212.7 | $217.8 |
Key Operational Metrics:
- Fleet TCE Earnings: $39,300 per day (down from $77,600 in 4Q 2018).
- Fleet Utilization: 51% (down from 93% in 4Q 2018).
- Gross Contract Earnings Backlog: Increased to $10.3 billion (from $7.3 billion).
Material Changes vs. Prior Period
Revenue and Profitability: Total operating revenues decreased by 37% to $114.3 million, driven primarily by a 49% drop in LNG shipping TCE earnings due to seasonal demand weakness, mild winters in Asia, and elevated inventory levels. Despite lower revenues, the company reported an operating income of $28.9 million, a significant improvement from the $102.8 million operating loss in 4Q 2018.
Key Drivers of Variance:
- Derivative Gains: A $28.4 million unrealized gain on Brent oil-linked derivative instruments (mark-to-market) contributed to the operating income turnaround, reversing a $195.7 million loss in the prior quarter.
- Impairment Charge: A non-cash impairment charge of $34.3 million was recognized for the Golar Viking following the signing of a sale and leaseback agreement for its conversion to an FSRU.
- Equity in Affiliates: Equity in net losses of affiliates decreased significantly to $12.9 million from $154.1 million in 4Q 2018, largely due to a one-time $149.4 million impairment in Golar Partners in the prior quarter.
Guidance, Outlook, and Strategic Developments
Strategic Repositioning: The Board has decided to proceed with a spin-off of the TFDE LNG carrier business, subject to market conditions. The parent company will focus on FLNG and downstream assets to secure long-term cash flows. This move aims to reduce net debt and highlight the value of contracted infrastructure assets.
Project Updates:
- FLNG Gimi: Secured a $700 million underwritten financing commitment. Keppel subscribed to 30% of the equity. Conversion works have commenced with a 20-year charter to BP.
- FLNG Hilli Episeyo: Achieved 100% commercial uptime. Discussions are ongoing with Perenco to increase utilization and extend the contract term.
- Golar Viking: Received Final Notice to Proceed for conversion to an FSRU in Croatia. Expected to generate ~$40 million net positive cash in 2020.
- Golar Power (Sergipe): Power plant construction is on track for a January 1, 2020, commercial operation date. The project is pivoting to focus on the downstream small-scale LNG market in Brazil.
Market Outlook: Management expects the LNG shipping market to enter a period of structural shortage in 2019-2020 due to demand growth outpacing supply. Rates are expected to recover in the second half of 2019.
Risks and Contingencies:
- Execution risks related to the spin-off and new FLNG projects.
- Volatility in Brent oil prices affecting derivative valuations and tolling fees.
- Regulatory and permitting challenges for downstream projects in Brazil and other jurisdictions.
- Counterparty performance risks on long-term charters.
Investor Verification Checklist
- Spin-off Feasibility: Verify the timeline and market conditions required for the TFDE fleet spin-off to proceed.
- Derivative Exposure: Assess the impact of Brent oil price volatility on the $28.4 million unrealized gain and future cash flows from the Hilli Episeyo tolling agreement.
- Impairment Validity: Review the fair value assessment of the Golar Viking that triggered the $34.3 million impairment charge.
- Liquidity Position: Confirm the release of the $29.0 million restricted cash from the Hilli Episeyo letter of credit in 2Q 2019.
- Project Financing: Monitor the drawdown and terms of the $700 million financing for the FLNG Gimi project.
- Shipping Market Recovery: Track spot rates and utilization rates to validate the management's forecast of a structural shortage in 2H 2019.