Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2018 (1Q 2018)
Business Overview: Golar operates in LNG shipping, Floating Storage and Regasification Units (FSRU), and Floating Liquefied Natural Gas (FLNG). The quarter marked the commencement of LNG production on the FLNG Hilli Episeyo and significant progress on the Sergipe power project.
Key Financial Metrics
| Metric (in thousands) | 1Q 2018 | 4Q 2017 |
|---|---|---|
| Total Operating Revenues | $66,190 | $57,587 |
| EBITDA (Non-GAAP) | $22,838 | $19,384 |
| Operating Income | $6,429 | $2,799 |
| Net Loss Attributable to Golar | ($21,002) | $3,823 (Income) |
| Unrestricted Cash | $172,380 | $214,862 |
| Current Portion of Long-Term Debt | $1,368,252 | $1,384,933 |
Margin Analysis: Operating margin improved to approximately 9.7% in 1Q 2018 compared to 4.9% in 4Q 2017, driven by higher revenues and lower administrative expenses, partially offset by increased vessel operating costs.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $8.6 million (15%) quarter-over-quarter. Net revenue from shipping operations (revenue less voyage/charterhire expenses) rose $3.6 million due to improved hire rates and round-trip economics.
- Operating Expenses: Vessel operating expenses increased by $1.3 million to $18.4 million, primarily due to reactivation costs for the Golar Viking. Administrative expenses decreased by $2.7 million to $14.0 million.
- Derivative Gains: An unrealized gain of $13.6 million was recorded on the FLNG derivative instrument due to Brent Crude prices exceeding $60.00/barrel, compared to a $15.1 million gain in the prior quarter.
- Net Loss Drivers: Despite positive operating income, the company reported a net loss of $21.0 million. Key factors included:
- Interest expense surged $7.8 million to $14.0 million (prior quarter was reduced by capitalized interest).
- A non-cash mark-to-market loss of $9.2 million on Total Return Swap (TRS) shares due to a decline in share price.
- Equity in net losses of affiliates totaled $1.5 million, including losses from Golar Power and OneLNG.
Guidance, Outlook, and Material Events
Subsequent Events & Strategic Developments
- FLNG Hilli Episeyo: Commenced LNG production in March; delivered first two cargoes. Final drawdown of the $960 million sale and leaseback facility and dropdown to Golar Partners expected in June 2018.
- BP Tortue Project: Entered into Heads of Terms with BP for a FLNG vessel to service the Greater Tortue/Ahmeyim project. Front End Engineering Design (FEED) to commence, with a Final Investment Decision (FID) expected by end of 2018.
- Sergipe Power Project: CELSE (Golar Power affiliate) closed a $1.34 billion financing facility. The project is fully funded with an estimated all-in Capex of $1.74 billion.
- OneLNG Wind Down: Golar and Schlumberger plan to wind down the OneLNG joint venture due to the inability to secure acceptable financing for the Fortuna FLNG project.
Outlook and Risks
- Shipping Market: Q2 2018 Time Charter Equivalent (TCE) rates are expected to be roughly half of Q1 2018 levels due to seasonal softening. However, a sustainable recovery is anticipated from Q3 2018 driven by new production and supply/demand imbalances.
- EBITDA Projections: Post-acceptance of Hilli Episeyo, base annual EBITDA is projected at $164 million (50% to Golar Partners). Golar's share of annual EBITDA from the Sergipe power station and FSRU is expected to be approximately $100 million.
- Refinancing: $302.7 million in VIE financings are due by end of 2018. Confirmation received for extension of $160 million; remaining debt expected to be replaced by the Hilli Episeyo facility in June.
Investor Verification Checklist
- Debt Refinancing: Verify the successful drawdown of the $960 million Hilli Episeyo sale and leaseback facility in June 2018 to replace the $640 million pre-delivery facility.
- FLNG Acceptance: Monitor the timeline for official customer acceptance of Hilli Episeyo, which triggers full revenue recognition and the dropdown to Golar Partners.
- BP Tortue FID: Track the progress of the BP project to ensure a Final Investment Decision is reached by the end of 2018 to avoid termination fees.
- Fortuna Financing: Assess the viability of alternative financing structures for the Fortuna project given the exit of Schlumberger.
- Share Price Volatility: Monitor the impact of share price fluctuations on the mark-to-market valuation of the Total Return Swap (TRS) shares, which significantly impacts net income.