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, 2018
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, and liquefaction of natural gas. As of March 31, 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 include the full commercial operation of the Hilli FLNG and the execution of a Heads of Terms agreement for a potential FLNG project with BP in West Africa.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2018 | Q1 2017 |
|---|---|---|
| Total Operating Revenues | $66,190 | $25,110 |
| Operating Gain (Loss) | $6,429 | $(41,390) |
| Net Loss | $(8,397) | $(59,191) |
| Net Loss Attributable to Stockholders | $(21,002) | $(65,843) |
| Basic/Diluted Loss Per Share | $(0.21) | $(0.65) |
| Net Cash Provided by Operating Activities | $31,236 | $(14,500) |
| Cash and Cash Equivalents (Total) | $563,574 | $862,718 |
| Restricted Cash | $391,194 | $397,815 |
| Total Debt (Net of deferred costs) | $2,466,612 | $2,410,847 |
| Average Daily TCE (Non-GAAP) | $36,000 | $13,900 |
Material Changes vs. Prior Period
- Revenue Surge: Operating revenues increased 164% to $66.2 million, driven primarily by a $37.1 million increase in utilization and daily hire rates from vessels in the Cool Pool and the commencement of a new charter for the Golar Glacier.
- Operating Performance: The Company moved from an operating loss of $41.4 million in Q1 2017 to an operating gain of $6.4 million in Q1 2018. This turnaround was significantly aided by a $13.6 million unrealized gain on the FLNG derivative instrument related to the Hilli LTA.
- Depreciation Reduction: Depreciation and amortization expenses decreased by 35% ($8.8 million) due to the cessation of depreciation on the Gandria (end of useful life) and the removal of a catch-up charge previously recognized for the Golar Tundra.
- Cash Flow Improvement: Net cash provided by operating activities improved by $45.7 million, turning positive due to better vessel utilization and lower charterhire payments following the conclusion of the Golar Grand charter-back arrangement.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management notes that while steady rates continued into early 2018, there has been a seasonal softening of rates and utilization. The Company estimates forecast vessel operating expenses for the next 12 months at $46.0 million for its Cool Pool vessels. Liquidity remains a focus, with the Company exploring refinancing options for the Golar Tundra and Golar Seal to meet charter pre-conditions.
Unusual Items
- FLNG Derivative Gain: A $13.6 million unrealized gain was recognized due to Brent Crude prices exceeding the contractual floor in the Hilli LTA.
- Equity Swap Loss: A net loss of $9.2 million was recognized on the total return equity swap, compared to a gain of $13.9 million in the prior year.
Risks and Contingencies
- BP Greater Tortue / Ahmeyim Project: Golar has signed a Preliminary Agreement requiring FEED work and readiness for vessel conversion by July 1, 2018. Default on obligations could result in termination fees of $50 million or more.
- Refinancing Risk: The Golar Tundra and Golar Seal lease financings require effective charters by June 30, 2019, and December 31, 2018, respectively. Failure to secure charters may necessitate refinancing, which is not guaranteed.
- UK Tax Lease Challenge: Ongoing litigation by UK tax authorities regarding similar lease structures poses a potential exposure estimated between £nil and £112 million, though management believes their specific structure differs.
- OneLNG Wind Down: Schlumberger has ended participation in the Fortuna FLNG project, leading to plans to wind down the OneLNG joint venture.
Investor Verification Checklist
- Charter Status: Verify the status of securing effective charters for the Golar Tundra and Golar Seal to avoid refinancing risks.
- BP Project Progress: Monitor the Final Investment Decision (FID) timeline for the Greater Tortue / Ahmeyim project and Golar's ability to meet FEED obligations to avoid $50M+ termination fees.
- Liquidity Position: Review the composition of restricted cash ($391.2 million) versus unrestricted cash ($172.4 million) to assess immediate working capital availability.
- Derivative Valuation: Assess the sustainability of the $13.6 million unrealized gain on the FLNG derivative, which is sensitive to Brent Crude price fluctuations.
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the requirement to maintain at least $50 million in consolidated cash and cash equivalents.