Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Unaudited Condensed Interim Financial Report)
Reporting Period: Six months ended June 30, 2018
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, and liquefaction of natural gas. As of June 30, 2018, the Company, together with affiliates Golar Partners and Golar Power, operated a combined fleet of 26 vessels (18 LNG carriers, 7 FSRUs, and 1 FLNG). Key developments included the commercial operation of the Hilli FLNG and the disposal of a 50% interest in the Hilli to Golar Partners in July 2018.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Total Operating Revenues | $125,564 | $53,518 |
| Operating Gain (Loss) | $84,834 | $(65,360) |
| Net Income (Loss) | $44,761 | $(123,720) |
| Net Income Attributable to Stockholders | $15,317 | $(139,651) |
| Earnings Per Share (Basic & Diluted) | $0.15 | $(1.39) |
| Net Cash Provided by Operating Activities | $48,334 | $(34,131) |
| Cash, Cash Equivalents, and Restricted Cash | $827,385 | $781,597 |
| Total Debt (Gross) | $2,743,168 | $2,434,900 |
| Average Daily TCE (Non-GAAP) | $27,800 | $13,600 |
Material Changes vs. Prior Period
- Revenue Surge: Total operating revenues increased by 135% to $125.6 million, driven by a $44.5 million increase in Cool Pool utilization and rates, and the commencement of liquefaction services revenue ($18.6 million) from the Hilli FLNG.
- Profitability Turnaround: The Company moved from an operating loss of $65.4 million in 2017 to an operating gain of $84.8 million in 2018. This was primarily due to a $111.3 million unrealized gain on the FLNG derivative instrument related to the Hilli LTA and improved vessel operations.
- Segment Performance:
- Vessel Operations: Operating loss narrowed significantly from $65.1 million to $18.8 million due to higher TCE rates and reduced depreciation.
- FLNG Segment: Recorded an operating gain of $103.7 million, largely attributable to the derivative gain, offset by $8.0 million in project development expenses and a $10.0 million write-off of the OneLNG trading balance.
- Power Segment: Equity in net losses of affiliates increased to $12.9 million, primarily due to the construction phase of the Sergipe Project.
- Depreciation: Decreased by $9.8 million to $32.8 million, mainly due to the Gandria reaching the end of its useful life and the removal of catch-up charges related to the Golar Tundra.
Guidance, Outlook, Risks, and Unusual Items
- Outlook & Projects:
- Greater Tortue / Ahmeyim Project: Golar exchanged Heads of Terms with BP for a FLNG vessel. Final Investment Decision (FID) is expected by end of 2018. Failure to meet obligations could result in termination fees of $50 million or more.
- Sergipe Project: Financial close reached for the 1.5 GW power plant in Brazil; commercial operations scheduled for January 1, 2020.
- OneLNG: Golar and Schlumberger decided to wind down the OneLNG joint venture due to financing difficulties for the Fortuna FLNG project.
- Liquidity & Debt:
- In June 2018, Golar repaid $640 million on the Hilli pre-delivery facility and drew $960 million on a post-acceptance sale and leaseback, generating $320 million in incremental liquidity.
- Refinancing Risk: The Golar Tundra and Golar Seal lease financings require effective charters by June 30, 2019, and December 31, 2018, respectively, or refinancing will be required. Management is exploring options but cannot guarantee execution.
- Unusual Items:
- Derivative Gain: $111.3 million gain recognized on the Hilli FLNG derivative due to Brent Crude prices exceeding the $60/barrel floor.
- Write-offs: $10.0 million write-off of the OneLNG trading balance deemed unrecoverable.
- Risks: Market softening in LNG rates, potential inability to secure charters for specific vessels, and challenges from UK tax authorities regarding historical tax lease structures (potential exposure estimated at £0 to £112 million).
Investor Verification Checklist
- Derivative Valuation: Verify the assumptions used to calculate the $111.3 million unrealized gain on the Hilli FLNG derivative, specifically the Brent Crude price forecasts and discount rates.
- Refinancing Status: Monitor the status of securing charters for the Golar Tundra and Golar Seal to avoid covenant breaches or forced refinancing.
- BP Project FID: Track the progress of the Final Investment Decision for the Greater Tortue / Ahmeyim project to assess exposure to potential termination fees.
- UK Tax Exposure: Review ongoing communications with HMRC regarding the Methane Princess lease and the potential impact of the £112 million exposure estimate.
- OneLNG Wind-down: Confirm the finalization of the OneLNG dissolution and the recovery status of any remaining assets.