GLNG

Business Context and Reporting Period

Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2015
Business Overview: Golar is a leading independent owner and operator of LNG carriers and Floating Storage and Regasification Units (FSRUs). The company is actively transitioning into floating liquefaction solutions (FLNGVs). As of the filing date (August 13, 2015), the fleet includes 19 LNG carriers and 6 FSRUs, with ongoing commitments for newbuilds and conversions.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 53% to $32.2 million, driven by $19.6 million in revenue from newbuild deliveries. This was partially offset by the absence of revenue from the Golar Igloo (sold in 2014) and the Golar Arctic (off-hire).
• Profitability: Net income increased 115% to $24.6 million. This surge was primarily due to a $103.6 million gain on disposal from the sale of the Golar Eskimo to Golar Partners. Excluding this gain, operating performance was pressured by higher voyage expenses and interest costs.
• Expense Increases:
  • Voyage Expenses: Rose 288% to $23.7 million due to charter costs for the Golar Grand (exercised option by Golar Partners) and Golar Eskimo (charterback), plus costs for newbuilds.
  • Interest Expense: Increased 668% to $16.6 million due to higher debt levels and lower capitalization of interest following newbuild deliveries.
  • Depreciation: Increased 45% to $17.7 million due to new vessels entering service.
• Liquidity: Cash and cash equivalents increased significantly to $376.1 million, driven by $406.7 million in net cash provided by financing activities (new debt drawdowns) and proceeds from the sale of Golar Partners units ($207.4 million).

Guidance, Outlook, and Risks

• Strategic Developments:
  • FLNG Projects: Committed to converting the Hilli and Gimi to FLNGVs. Signed a binding Heads of Terms with Ophir Energy for the Gimi (20-year tolling contract). Agreed on terms for a Cameroon FLNG project with Perenco (expected EBITDA of $170M-$300M in first full year).
  • Newbuilds: Ordered a new FSRU from Samsung Heavy Industries (delivery late 2017) and executed agreements to convert the Gandria to an FLNGV.
  • Joint Venture: Formed a 50/50 JV with Stolt-Nielsen for small-scale LNG production and distribution.
• Financing: Received a $960 million financing commitment from CSSC for the Hilli conversion. Management estimates an additional $540 million in credit facilities will be needed to meet conversion commitments.
• Market Outlook: Management notes a negative short-term outlook for the LNG shipping market, forecasting flat rates for the first half of 2015. The company expects to require additional working capital for spot market operations.
• Risks: Key risks include market volatility in charter rates, delays in vessel conversions, regulatory approvals for FLNG projects (specifically in Cameroon), and the ability to secure financing on acceptable terms.

Investor Verification Checklist

• Gain on Disposal: Verify the sustainability of the $103.6 million gain from the Golar Eskimo sale, noting it is subject to purchase price adjustments.
• Debt Structure: Review the reclassification of $433.5 million of ICBC junior loan facilities to "Short term debt" and its impact on liquidity ratios.
• FLNG Execution: Monitor the status of the Cameroon government approvals for the Perenco project and the final investment decision for the Ophir Energy project.
• Financing Commitments: Confirm the drawdown conditions for the $960 million CSSC facility, specifically the requirement to spend $400 million of conversion costs first.
• Related Party Transactions: Assess the impact of the $220 million loan provided to Golar Partners and the charterback arrangements for the Golar Grand and Golar Eskimo.