Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2020 (Q1 2020)
Context: Golar LNG operates in three segments: LNG Shipping, FLNG (Floating Liquefied Natural Gas), and Golar Power (downstream LNG-to-power and distribution). The quarter was characterized by the onset of the global COVID-19 pandemic, which impacted LNG demand and pricing, alongside significant milestones in the Golar Power segment.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2020 | Q1 2019 | Q4 2019 |
|---|---|---|---|
| Total Operating Revenues | $122,559 | $114,287 | $139,048 |
| Operating Income | $21,158 | $28,864 | $68,896 |
| Adjusted EBITDA | $76,208 | $62,897 | $93,388 |
| Net (Loss)/Income Attributable to Golar LNG | ($104,247) | ($41,741) | $24,768 |
| Adjusted Net Debt | $2,560,838 | $2,197,382 | $2,474,947 |
| Cash Position (Total) | $303,356 | $690,271 | $410,412 |
| Dividend Per Share | $0.00 | $0.150 | $0.00 |
Segment Performance:
- Shipping: Average Daily Time Charter Equivalent (TCE) was $61,900, a 57% increase year-over-year but a decrease from Q4 2019 ($77,000). Utilization rose to 94%.
- FLNG: Hilli Episeyo maintained 100% commercial uptime, generating $54.5 million in revenue.
- Golar Power: The 1.5GW Sergipe power plant reached Commercial Operation Date (COD), triggering earnings under a 25-year PPA.
Material Changes vs. Prior Period
- Net Loss Expansion: The company reported a net loss of $104.2 million in Q1 2020, compared to a net income of $24.8 million in Q4 2019. This swing was primarily driven by a $54.7 million loss on derivative instruments (mark-to-market losses on interest rate swaps and TRS share repurchases) and a $38.0 million equity loss in affiliates (including a non-cash day-one loss on the Golar Nanook deemed disposal).
- Revenue Decline: Total operating revenues decreased 12% sequentially from Q4 2019 ($139.0M) to Q1 2020 ($122.6M). This was due to lower spot rates in the shipping sector and the Golar Viking entering a shipyard for conversion, despite higher fleet utilization.
- Derivative Impact: A sharp drop in Brent Oil prices (from $66.00 to $22.74 per barrel) caused a $27.8 million unrealized loss on the oil derivative instrument linked to the Hilli Episeyo tolling agreement.
- Liquidity Usage: Unrestricted cash fell by $91 million, largely due to $70 million used to repay part of a margin loan and $16.7 million to settle Total Return Swap (TRS) shares.
Outlook, Guidance, and Risks
Management Commentary and Outlook
- Shipping: Management expects Q2 2020 TCE to be around $40,000 per day with utilization of at least 80%. The strategy focuses on fixing more term-based deals to de-risk exposure to spot market volatility.
- Golar Power: The Sergipe project is expected to capitalize on merchant power opportunities where marginal costs exceed LNG purchase prices. The company aims to convert small-scale letters of intent into binding agreements throughout 2020.
- FLNG Gimi: Received a force majeure claim from BP regarding a 12-month delay. Golar is discussing a revised cost and time schedule with contractors to reduce immediate liquidity contributions.
- Refinancing: The company is actively seeking to refinance the remaining $30 million margin loan (due August 2020) and a $150 million term loan secured by Golar Power (due November 2020). Refinancing of Golar Bear and Golar Frost could release $90-$100 million in liquidity.
Risks and Contingencies
- COVID-19 Impact: Pandemic-related lockdowns have reduced global LNG demand and depressed prices, leading to potential US cargo cancellations and lower freight rates.
- Commodity Volatility: Continued volatility in Brent Oil and LNG prices affects derivative valuations and tolling revenues.
- Project Delays: The FLNG Gimi project faces potential delays due to force majeure claims, impacting cash flow timing.
- Financing: Risks associated with refinancing debt in a volatile capital market environment.
Investor Verification Checklist
- Derivative Exposure: Verify the magnitude of mark-to-market losses on interest rate swaps and oil derivatives and their impact on future earnings volatility.
- Liquidity Runway: Confirm the status of refinancing for the $30 million margin loan and $150 million Golar Power term loan maturing in late 2020.
- FLNG Gimi Status: Monitor the resolution of the BP force majeure claim and the revised construction schedule to assess capital call requirements.
- Golar Power Monetization: Track the conversion of small-scale LNG letters of intent into binding contracts and the actual merchant power generation performance of the Sergipe plant.
- Shipping TCE Trends: Validate the Q2 TCE guidance of $40,000/day against prevailing spot market rates and cargo cancellation trends.