Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2020
Business Overview: Golar provides infrastructure for the liquefaction, transportation, regasification, and downstream distribution of LNG. The company operates LNG carriers, Floating Storage Regasification Units (FSRUs), and Floating Liquefaction Natural Gas (FLNG) vessels. Key subsidiaries and affiliates include Golar LNG Partners LP ("Golar Partners") and Hygo Energy Transition Ltd. ("Hygo").
Key Financial Metrics
| Metric (in thousands, except per share) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 |
|---|---|---|
| Total Operating Revenues | $319,953 | $309,702 |
| Operating Income | $80,148 | $(8,237) |
| Net Loss | $(206,572) | $(166,826) |
| Net Loss Attributable to Stockholders | $(281,683) | $(236,724) |
| Loss Per Share (Basic & Diluted) | $(2.95) | $(2.35) |
| Net Cash Provided by Operating Activities | $86,399 | $71,551 |
| Cash and Cash Equivalents (Total) | $238,895 | $625,429 |
| Total Debt (Net of Deferred Costs) | $2,541,773 | $2,535,827 |
Liquidity Note: As of September 30, 2020, total cash included $162.2 million in restricted cash. Unrestricted cash and cash equivalents were $76.7 million.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $10.3 million (3.3%) to $319.9 million. This was driven by higher utilization and charter rates for the Tri-Fuel Diesel Electric (TFDE) fleet and full utilization of the Golar Arctic, partially offset by revenue declines from the LNG Croatia (under conversion) and Golar Tundra (drydock).
- Operating Profitability: Operating income improved significantly from a loss of $8.2 million in 2019 to a profit of $80.1 million in 2020. This turnaround was primarily due to a $41.6 million impairment charge in 2019 (related to LNG Croatia and OLT-O) that did not recur in 2020, alongside reduced voyage and administrative expenses.
- Equity in Affiliates: Equity in net losses of affiliates increased to $180.9 million (from $47.6 million in 2019). This was driven by a $135.9 million impairment charge on the investment in Golar Partners due to sustained low unit prices and increased losses from Hygo related to the commencement of the Sergipe Power Plant.
- Derivative Losses: Losses on derivative instruments increased to $54.5 million (from $38.0 million), largely due to unrealized losses on interest rate swaps and the termination of the total return equity swap.
Guidance, Outlook, Risks, and Unusual Items
Recent Developments and Outlook
- Gimi GTA Project: In October 2020, Golar confirmed a revised schedule with BP, extending the target connection date for the Gimi FLNG by 11 months. The force majeure event has concluded, and financing schedules are being adjusted.
- Financing: In November 2020, Golar agreed to terms for a new $100 million corporate revolving credit facility to partially refinance a maturing $150 million Term Loan. Maturities for the Term Loan and Margin Loan were extended to mid-December 2020.
- Hygo IPO: Hygo's IPO process was placed on hold in September 2020 following an internal review regarding allegations against its former CEO. The review found no evidence of bribery at Hygo, but the IPO remains pending.
- Sergipe Power Plant: A transformer incident reduced capacity from 1.5 GW to 1.0 GW. Repairs are expected by Q2 2021. Hygo does not currently expect a material impact on results, though insurance coverage for replacement power costs is being assessed.
Risks and Contingencies
- Debt Maturities: Significant debt facilities mature in December 2020. While refinancing discussions are advanced, there is no guarantee of completion on acceptable terms.
- Hygo Investment: The value of Golar's investment in Hygo is subject to risks including the failure to complete an IPO by July 2021, which could trigger preferential dividend rights for Stonepeak, and ongoing allegations against Hygo's former CEO.
- UK Tax Lease: Golar faces potential exposure of up to $156.5 million related to a challenge by UK tax authorities (HMRC) regarding the Methane Princess lease structure. Golar has appealed the closure notice and maintains its position.
- Legal Proceedings: A putative class action lawsuit was filed in September 2020 alleging false statements regarding Hygo's former CEO. Golar intends to contest the lawsuit.
Investor Verification Checklist
- Debt Refinancing Status: Verify the successful closing of the $100 million revolving credit facility and the refinancing of the remaining $50 million of the Term Loan and the Margin Loan maturing in December 2020.
- Hygo IPO Timeline: Monitor the status of Hygo's IPO and the outcome of the Brazilian government's investigation into the former CEO, as failure to IPO by July 2021 could materially impact Hygo's financials and Golar's investment value.
- Gimi Project Financing: Confirm that lending banks have approved the adjusted financing schedules for the Gimi FLNG project following the 11-month delay.
- Sergipe Power Plant Insurance: Track the resolution of the insurance claim regarding the transformer damage and the cost of purchasing replacement power on the open market.
- UK Tax Lease Exposure: Review updates on the HMRC litigation regarding the Methane Princess lease to assess the potential liability range ($0 to $156.5 million).