Business Context and Reporting Period
Company: Golar LNG Ltd
Filing Type: Form 6-K (Preliminary Fourth Quarter and Financial Year 2014 Results)
Reporting Period: Quarter ended December 31, 2014 (4Q 2014) and Full Year 2014
Business Overview: Golar LNG is a global provider of LNG shipping, floating storage and regasification (FSRU), and floating liquefaction (GoFLNG) services. The period was marked by the delivery of new-build vessels, strategic asset sales to Golar LNG Partners LP, and significant progress on floating liquefaction projects.
Key Financial Metrics
| Metric (in thousands) | 4Q 2014 | 3Q 2014 | Full Year 2014 |
|---|---|---|---|
| Total Operating Revenues | $35,272 | $28,834 | $106,156 |
| Operating Loss | $(8,280) | $(5,357) | $(1,619) |
| Underlying EBITDA* | $7,844 | $5,863 | N/A |
| Net (Loss) Income | $(37,996) | $7,769 | $(41,466) |
| Net Cash from Operating Activities | $13,489 | $18,976 | $24,873 |
| Cash and Cash Equivalents (End of Period) | $191,410 | $390,004 | $191,410 |
| Total Debt (Current + Long-term) | $1,380,787 | N/A | $1,380,787 |
*Underlying EBITDA is defined as earnings before interest, depreciation, amortization, impairments, and non-recurring items.
Material Changes vs. Prior Comparable Period
- Revenue Growth: Time and voyage charter revenues increased to $32.6 million in 4Q from $26.0 million in 3Q, driven by improved spot fleet utilization (57%) and higher charterhire from specific vessels.
- Operating Expenses: Voyage and commission expenses rose by $5.7 million quarter-over-quarter, primarily due to a $4.0 million charge for a 2012 charterer claim and higher fuel costs for new vessels. Operating costs increased $1.6 million due to new-build deliveries.
- Net Loss Driver: The 4Q net loss of $38.0 million contrasts with a 3Q net profit of $7.8 million. This reversal was driven by $32.7 million in non-cash financial and non-recurring charges, including a $12.6 million mark-to-market loss on interest rate swaps and a $13.7 million total return swap loss.
- Depreciation: Increased to $14.1 million in 4Q from $11.2 million in 3Q due to fleet expansion.
Guidance, Outlook, and Management Commentary
Outlook and Market Conditions
- Shipping Market: Expected to remain weak in the first half of 2015 due to new supply and soft demand. Improvement is anticipated in the second half of 2015 as new LNG production capacity comes online and seasonal demand strengthens.
- GoFLNG Strategy: Management maintains that the GoFLNG value proposition is strengthened by low oil prices, offering a lower-cost, lower-risk alternative to traditional land-based projects.
- 1Q 2015 Expectations: Underlying operating results are expected to be weak due to the shipping market, but net results will be positively influenced by an approximate $100 million gain from the sale of the Golar Eskimo to Golar Partners.
Key Developments and Risks
- Asset Sales: Completed the sale of FSRU Golar Eskimo to Golar Partners for $390 million (Jan 2015) and LNG carrier Golar Viking (renamed Salju) for $135 million (Feb 2015).
- Project Progress: The Golar Hilli FLNG project is 4.8% ahead of schedule. A Heads of Agreement was signed for a Cameroon floating liquefaction project with a target first production date of April 2017.
- Liquidity: The company maintains a strong liquidity position with $262 million in cash (including restricted) at year-end, bolstered by $207 million in proceeds from a secondary offering of Golar Partners units in January 2015.
- Dividend: The Board maintained the quarterly dividend at $0.45 per share. No material growth is expected until the shipping market upturns or FLNG units become free cash generative.
- Risks: Forward-looking statements are subject to risks including changes in LNG market trends, financing availability, and the ability to secure long-term employment for FLNG assets.
Investor Verification Checklist
- Non-Cash Losses: Verify the impact of the $35.0 million "Other financial items" loss, specifically the $26.3 million in swap valuation losses, on the reported net loss.
- Asset Sale Gains: Confirm the timing and accounting treatment of the $100 million gain from the Golar Eskimo sale expected in 1Q 2015.
- Liquidity Position: Review the $207 million proceeds from the Golar Partners unit offering and the $180 million equity release from newbuild sale-and-leaseback transactions to assess funding for the GoFLNG program.
- Debt Levels: Note the increase in total debt to approximately $1.38 billion to fund newbuild deliveries and FLNG conversions.
- Share Repurchases: Monitor the execution of the $50 million convertible bond buyback program and the 5% share repurchase program authorized in late 2014.