Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Second Quarter ended June 30, 2021
Business Overview: Golar operates in LNG shipping and Floating Liquefied Natural Gas (FLNG). The quarter was defined by the completion of the sale of Hygo Energy Transition Limited and Golar LNG Partners LP to New Fortress Energy Inc. (NFE), marking a major step in group simplification. The company operates three reportable segments: Shipping, FLNG, and Corporate and other.
Key Financial Metrics
| Metric (in thousands) | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
|---|---|---|---|---|
| Total Operating Revenues | $104,287 | $102,242 | $230,114 | $224,801 |
| Adjusted EBITDA | $67,026 | $67,150 | $144,638 | $143,358 |
| Net Income (Attributable to Golar) | $471,433 | ($155,634) | $496,797 | ($259,881) |
| Contractual Net Debt (Golar's Share) | $1,979,240 | $2,088,371 | $1,979,240 | $2,088,371 |
| Cash Position (Total) | $338,540 | N/A | N/A | N/A |
Segment Performance (Q2 2021 Adjusted EBITDA):
- Shipping: $27.4 million
- FLNG: $43.9 million
- Corporate and other: ($4.3 million)
Shipping Metrics: Average daily Time Charter Equivalent (TCE) was $46,700 (including loss of hire insurance). Fleet utilization was 98%.
Material Changes vs. Prior Period
Net Income Surge: Q2 2021 net income of $471.4 million represents a massive turnaround from a $155.6 million loss in Q2 2020. This is primarily driven by a one-time gain of $574.4 million from discontinued operations (sale of Hygo and Golar Partners to NFE).
Operating Revenue: Total operating revenues increased slightly by 2% year-over-year to $104.3 million. However, revenues decreased sequentially from Q1 2021 ($125.8 million) due to seasonally weaker shipping performance, partially offset by higher FLNG revenues from the Hilli asset.
Adjusted EBITDA: Remained relatively flat year-over-year ($67.0 million vs $67.2 million) but decreased sequentially from Q1 2021 ($77.6 million) due to lower shipping revenues.
Debt Reduction: Golar's share of contractual net debt decreased by 5% year-over-year to $1.98 billion. A one-off $60 million debt payment in July 2021 resulted in a total reduction of $102 million in LNG carrier-related debt principal.
Guidance, Outlook, and Risks
Outlook:
- Cash Generation: Management expects material improvement in cash generation over the next two years driven by strong LNG shipping markets, increased Hilli utilization, and higher commodity prices.
- Hilli FLNG: Consolidated 2022 earnings for Hilli are projected around $225 million, assuming current oil and gas prices. An agreement to increase capacity utilization in 2022 is expected to add significant earnings backlog.
- Shipping: Q3 2021 TFDE TCE is expected to be around $47,000 per day. The company anticipates materially positive contributions from shipping in coming years due to strong rates and limited vessel supply.
- Refinancing: Golar plans to refinance its convertible bond in the second half of 2021. The company holds $1.0 billion in unrestricted cash and public securities.
Risks and Contingencies:
- Tax Dispute: A provision of $73.3 million was booked in Q2 regarding a long-running tax dispute with UK authorities (HMRC).
- Derivative Volatility: Net income includes significant unrealized gains/losses on oil derivative instruments linked to the Hilli contract (e.g., $70.6 million unrealized gain in Q2).
- Project Execution: Risks related to the Gimi conversion project timeline and the ability to secure financing for new FLNG projects.
- Market Conditions: Exposure to volatility in LNG spot rates, Brent oil prices, and global demand.
Investor Verification Checklist
- Quality of Earnings: Verify the sustainability of the $471.4 million net income, noting that $574.4 million is from discontinued operations (one-time sale) and a significant portion of operating income is driven by mark-to-market unrealized gains on oil derivatives ($70.6 million).
- Debt Maturity Profile: Review the capital repayment schedule, specifically the $100 million credit facility maturing in December 2021 and the $391.8 million convertible bond maturing in February 2022.
- Hilli Utilization: Confirm the execution of the increased capacity utilization agreement for Hilli and the potential for the 2023-2026 option exercise by Perenco.
- Liquidity Position: Assess the $338.5 million cash position (including $131.3 million restricted cash) against upcoming debt obligations and the $125 million estimated remaining contribution for the Gimi project.
- Share Repurchases: Monitor the remaining $25.5 million available under the share buyback scheme and the impact of the NFE shareholding valuation on future earnings.