GLNG

Business Context and Reporting Period

Company: Golar LNG Ltd.
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended September 30, 2017 (3Q 2017)
Business Overview: Golar LNG is transitioning from a mid-stream shipping company to a fully integrated gas-to-wire energy company. Key strategic assets include the FLNG vessel Hilli Episeyo (Hilli), the OneLNG upstream joint venture, and the Golar Power downstream joint venture.

Key Financial Metrics

Note: EBITDA is defined as operating loss before interest, tax, depreciation, and amortization. The current portion of debt includes $702.1 million related to lessor-owned subsidiaries consolidated under US GAAP; underlying exposure is approximately $400.5 million.

Material Changes vs. Prior Period

• Operating Performance: Operating loss narrowed to $22.9 million from $24.0 million in 2Q 2017. EBITDA improved to a loss of $5.5 million from $6.6 million.
• Revenue: Total operating revenues increased $4.0 million to $32.4 million, driven by a $1.0 million rise in time charter revenues due to improved utilization late in the quarter.
• Expenses: Voyage expenses increased $1.3 million to $13.1 million, largely due to repositioning and cool-down costs for the Golar Tundra. Vessel operating expenses rose $1.7 million to $13.8 million due to fleet management and maintenance costs.
• Net Loss: Net loss attributable to Golar decreased significantly to $43.9 million from $73.8 million. This improvement was driven by:
  • A $7.1 million decrease in interest expense (partially due to capitalization of deemed interest on the Golar Power investment).
  • $4.4 million in non-cash financial income from mark-to-market gains on Total Return Swaps (TRS), interest rate swaps, and IDR Earn-Out Units.
  • A $5.9 million equity loss in affiliates, primarily from Golar Power and OneLNG.

Guidance, Outlook, and Management Commentary

Strategic Transformation

Management emphasizes a transition to an integrated energy model. Key building blocks include:

• FLNG Hilli: Arrived in Cameroon in November 2017. Production of first commercial LNG is anticipated around year-end 2017. Expected to generate ~$164 million annual operating cash flow over 8 years.
• OneLNG (Fortuna Project): Final Investment Decision (FID) expected in early 2018. First gas targeted for 2021.
• Golar Power (Sergipe Project): Financing expected to close in 1Q 2018. Project to commence in Jan 2020, generating ~$330 million annual operating cash flow (50% attributable to Golar).

Market Outlook

The LNG shipping market shows signs of recovery with demand exceeding supply growth for the first time since 2013. Spot rates have risen to 3-year highs. Management expects effective time charter rates in 4Q 2017 to be more than double those in 3Q 2017.

Risks and Contingencies

• Financing: Critical for the Fortuna project FID and Sergipe project completion.
• Commissioning: Timeliness of the Hilli commissioning and production start-up.
• Market Volatility: Fluctuations in LNG prices, charter rates, and vessel values.
• Counterparty Risk: Reliance on joint venture partners and contract counterparties.

Investor Verification Checklist

• Hilli Commissioning: Verify the timeline for the Notice of Readiness and first commercial LNG production in Cameroon.
• Debt Structure: Confirm the drawdown of the $960 million post-delivery sale and leaseback facility for Hilli and the reduction of the Letter of Credit (LC) from $400 million to $300 million.
• OneLNG Financing: Monitor progress on bank and alternative financing for the Fortuna project to ensure FID is achieved in early 2018.
• Golar Partners Transaction: Track the closing of the 50% equity interest sale of Hilli to Golar Partners (expected by April 30, 2018) and the impact on liquidity.
• Shipping Rates: Validate the sustainability of the reported increase in spot and time charter rates into 2018.