GLNG

Business Context and Reporting Period

Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 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. As of March 31, 2020, the fleet included 11 LNG carriers, 1 FSRU, and 2 FLNGs.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased by $8.3 million (7.2%) to $122.6 million, driven by higher utilization and charter rates for the Tri-Fuel Diesel Electric (TFDE) fleet and full utilization of the Golar Arctic. This was partially offset by the Golar Viking entering shipyard conversion.
• Operating Income Decline: Operating income decreased by $7.7 million to $21.2 million. The prior year included a $9.3 million gain from arbitration settlements and a $34.3 million impairment charge in 2019 that did not recur in 2020.
• Net Loss Expansion: Net loss widened significantly to $91.3 million from $17.5 million. This was primarily due to:
  • Derivative Losses: A $54.7 million loss on derivative instruments (vs. $5.7 million loss in 2019), driven by a $51.3 million unrealized loss on interest rate swaps and a $27.8 million unrealized loss on the oil derivative instrument related to the Hilli FLNG.
  • Equity in Affiliates: Equity in net losses of affiliates increased to $37.9 million (vs. $12.9 million), largely due to mark-to-market losses at Golar Partners and the commencement of the Sergipe power plant operations at Golar Power.
• Cash Flow: Net cash provided by operating activities dropped 88% to $6.2 million, largely due to the absence of the $9.3 million arbitration receipt in 2019. Investing activities consumed $107.3 million, primarily for the Gimi and Golar Viking conversions.

Outlook, Risks, and Management Commentary

• COVID-19 Impact: The pandemic has caused significant global economic volatility and reduced LNG demand. Operations face challenges with crew changes, port restrictions, and potential delays in maintenance. Management states the full financial impact cannot be estimated at this time.
• FLNG Gimi Force Majeure: In April 2020, BP notified Golar of a force majeure claim regarding the Gimi GTA Project, estimating a one-year delay in the target connection date. Discussions are ongoing to reschedule the conversion timeline.
• Liquidity and Going Concern: Management asserts sufficient resources to meet liquidity requirements for the next 12 months, citing strong asset fundamentals and ongoing discussions with financial institutions for refinancing. However, the filing notes significant uncertainty regarding the ability to refinance debt and access new funding in volatile markets.
• Key Risks:
  • Continued volatility in commodity prices and LNG charter rates.
  • Force majeure claims and project delays (specifically Gimi).
  • UK tax lease challenges (HMRC) with a potential exposure range of $0 to $150.4 million.
  • Impairment risks on vessel values and equity investments due to market conditions.

Investor Verification Checklist

• Refinancing Status: Verify the status of refinancing for the $150 million term loan due in November 2020 and the put options for the Golar Seal and Golar Tundra.
• Gimi Project Timeline: Monitor updates on the BP force majeure claim and the rescheduled conversion timeline for the FLNG Gimi.
• Derivative Exposure: Assess the impact of continued interest rate and oil price volatility on the company's derivative portfolio and unrealized losses.
• UK Tax Litigation: Review developments in the HMRC challenge regarding UK tax lease benefits and the potential liability exposure.
• Cash Position: Track the utilization of the $303.4 million cash balance, noting that $172.4 million is restricted.