Business Context and Reporting Period
Company: Golar LNG Ltd
Filing Type: Form 6-K (Interim Results)
Reporting Period: Second Quarter ended June 30, 2020
Business Overview: Golar LNG operates an integrated business model across Floating Liquefied Natural Gas (FLNG), LNG Shipping, and Golar Power (downstream LNG distribution and power generation). The company reported solid operational performance despite historically low LNG prices and COVID-19 disruptions.
Key Financial Metrics
| Metric (in thousands, except per share) | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Total Operating Revenues | $102,242 | $96,745 | $224,801 | $211,032 |
| Operating Income | $28,358 | $(23,435) | $49,516 | $5,429 |
| Adjusted EBITDA | $67,150 | $39,663 | $143,358 | $102,560 |
| Net Loss Attributable to Golar LNG Ltd | $(155,634) | $(112,682) | $(259,881) | $(154,423) |
| Adjusted Net Debt | $2,605,848 | $2,258,824 | $2,605,848 | $2,258,824 |
| Cash and Cash Equivalents | $128,661 | N/A | N/A | N/A |
| Total Cash (including restricted) | $265,196 | N/A | N/A | N/A |
| Dividend Per Share | $0.00 | $0.00 | $0.00 | $0.150 |
Shipping Performance: Q2 2020 Average Daily Time Charter Equivalent (TCE) was $45,100, an 85% increase over Q2 2019 ($24,400) and above guidance. Fleet utilization was 93%.
Material Changes vs. Prior Period
- Revenue Growth: Q2 operating revenues increased 6% year-over-year to $102.2 million, driven by stable FLNG tolling fees and higher shipping utilization, despite seasonally lower spot rates.
- Profitability: Operating income improved significantly from a loss of $23.4 million in Q2 2019 to a profit of $28.4 million in Q2 2020. Adjusted EBITDA rose 69% year-over-year.
- Net Loss Expansion: Net loss attributable to shareholders increased 38% year-over-year to $155.6 million. This was primarily driven by a $133.8 million impairment charge on the investment in Golar LNG Partners (due to a "other than temporary" decline in unit price) and a $11.8 million unrealized loss on oil derivative instruments linked to the Hilli Episeyo FLNG.
- Cost Reductions: Vessel operating expenses decreased by $6.0 million compared to Q1 2020, largely due to COVID-related movement restrictions delaying maintenance and repairs.
Outlook, Guidance, and Risks
Management Commentary and Guidance
- Q3 2020 Outlook: Management expects Q3 TCE to be around $35,000 per day with fleet utilization of approximately 78%. This is lower than Q2 due to the Golar Tundra dry-dock and prevailing spot market conditions.
- Golar Power: Anticipates taking a Final Investment Decision (FID) on the Barcarena LNG terminal within 4-6 months and the associated power station six months later. Plans to formalize a partnership with BR Distribuidora S.A. by year-end.
- FLNG Gimi: Construction delays due to Singapore's "Circuit Breaker" are expected to impact the delivery schedule. Discussions with BP are ongoing to agree on a revised plan. The company anticipates the delay will be less than the 12-month force majeure claim currently filed by BP.
- Strategic Review: The Board has approved options to reorganize the company into separate, investible businesses to enhance financial flexibility and transparency.
Risks and Contingencies
- Force Majeure Claims: Ongoing disputes regarding delivery delays for the FLNG Gimi project.
- Market Volatility: Continued exposure to fluctuating LNG and Brent Crude prices, which impact shipping rates and derivative valuations.
- Financing: Risks related to refinancing maturing debt facilities, though progress is reported on a revolving credit facility and vessel-level refinancing (Golar Bear, Frost, Seal).
- Impairment Risk: Potential for further impairment charges on investments in affiliates if market conditions do not improve.
Investor Verification Checklist
- Impairment Charge: Verify the rationale and calculation behind the $133.8 million impairment on the Golar Partners investment.
- Derivative Valuation: Review the mark-to-market loss of $11.8 million on the oil derivative instrument and its sensitivity to Brent Crude price movements.
- Debt Refinancing: Confirm the closing of the revolving credit facility intended to replace the $150 million term loan and $30 million margin loan maturing in late 2020.
- FLNG Gimi Schedule: Monitor the outcome of negotiations with BP regarding the revised delivery schedule and potential force majeure settlements.
- Cash Position: Distinguish between unrestricted cash ($128.7 million) and restricted cash ($136.5 million), noting the portion tied to the Hilli Episeyo Letter of Credit.