Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Third Quarter ended September 30, 2019
Business Overview: Golar LNG is an independent developer of LNG infrastructure, operating through three main segments: LNG Shipping, Floating Liquefied Natural Gas (FLNG), and Golar Power (downstream LNG distribution and gas-to-power). The quarter focused on executing a downstream strategy, strengthening liquidity, and advancing the transformation into a leading LNG infrastructure player.
Key Financial Metrics
| Metric (in thousands, except per share) | 3Q 2019 | 3Q 2018 | YTD 2019 | YTD 2018 |
|---|---|---|---|---|
| Total Operating Revenues | $98,670 | $123,101 | $309,702 | $248,665 |
| Net (Loss)/Income Attributable to Golar | $(82,301) | $66,212 | $(236,724) | $81,529 |
| Adjusted EBITDA | $58,932 | $83,528 | $161,492 | $96,928 |
| Operating (Loss)/Income | $(13,666) | $132,470 | $(8,237) | $217,304 |
| Adjusted Net Debt | $2,294,932 | $2,201,731 | $2,294,932 | $2,201,731 |
| Dividend Per Share | $0.00 | $0.150 | $0.150 | $0.325 |
Liquidity Position: Total cash position as of September 30 was $625.4 million (including long-term restricted cash), with $250.2 million unrestricted. Contractual debt stood at $2.7 billion.
Material Changes vs. Prior Period
- Net Loss Improvement: The net loss attributable to Golar narrowed to $82.3 million in 3Q 2019 from $112.7 million in 2Q 2019, driven by improved shipping market conditions and lower voyage expenses.
- Revenue Growth: Total operating revenues increased slightly to $98.7 million from $96.7 million in the prior quarter. Vessel and other operations revenue net of voyage expenses increased by $10.6 million quarter-over-quarter.
- Shipping Performance: Full fleet Time Charter Equivalent (TCE) earnings rose to $35,200 per day in 3Q from $24,400 in 2Q, despite utilization remaining at 65% due to scheduled dry dockings.
- Derivative Impact: A significant unrealized loss of $44.2 million on the oil derivative instrument (linked to FLNG Hilli Episeyo) was recognized due to a decline in Brent Crude prices from $66.55 to $60.78 per barrel. This contrasts with a $27.6 million unrealized loss in 2Q.
- Dividend Suspension: No dividend was declared for 3Q 2019, compared to $0.150 per share in 3Q 2018.
Guidance, Outlook, and Management Commentary
Outlook for 4Q 2019 and 2020
- LNG Shipping: Management anticipates 4Q 2019 TFDE TCE in the range of $75,000 to $80,000 per day, with full fleet TCE expected between $70,000 and $75,000. This represents more than double the 3Q performance. Strong coverage into 1Q 2020 is expected.
- FLNG: FLNG Hilli Episeyo maintained 100% commercial uptime. Discussions are ongoing regarding a production increase utilizing part of Train 3 starting in 1Q 2020. FLNG Gimi conversion is on schedule and budget.
- Golar Power: The Sergipe project is on track for commercial operations in 1Q 2020. The recently awarded 605MW Barcarena power plant (25-year PPA) is expected to trigger a Final Investment Decision (FID) in 1H 2020.
Strategic Developments
- Contract Earnings Backlog: Expected to increase from $6.6 billion to $7.0 billion upon FID for the Barcarena project.
- Shipping Spin-off: The proposed shipping spin-off was not completed due to misalignment between founding parties. Golar remains committed to splitting the ships into a separate vehicle and is revising the mechanism.
- Liquidity Strengthening: Post-quarter end, the company drew down a $700 million FLNG Gimi facility and expects the release of $75 million in restricted cash related to Hilli Episeyo.
Risks and Contingencies
- Market Volatility: Exposure to fluctuations in LNG charter rates, Brent oil prices, and commodity demand.
- Project Execution: Risks related to the timely commissioning of the Sergipe and Barcarena projects and the FLNG Gimi conversion.
- Financing: Dependence on securing financing for future FLNG projects and the ability to monetize existing contracts.
Key Facts for Investor Verification
- Derivative Valuation: Verify the impact of the $44.2 million unrealized loss on the oil derivative instrument and its sensitivity to future Brent oil price movements.
- Shipping Spin-off Status: Monitor the revised mechanism for the shipping spin-off, as the original plan was withdrawn.
- Barcarena Project FID: Confirm the timeline for the Final Investment Decision (expected 1H 2020) and the associated $430 million total capex commitment.
- Liquidity Adjustments: Review the reconciliation of Adjusted Net Debt ($2.3 billion) versus GAAP Net Debt, specifically regarding the treatment of restricted cash and VIE consolidations.
- TRS Share Repurchase: Note the agreement to purchase 1.5 million Total Return Swap (TRS) shares in 4Q 2019 at a cash cost of $69.5 million, with a similar cost expected for the remaining shares in 1Q 2020.