GLNG

Business Context and Reporting Period

Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended June 30, 2017 (2Q 2017)
Business Overview: Golar LNG is an integrated LNG company involved in shipping, floating storage and regasification units (FSRUs), floating liquefied natural gas (FLNG), and LNG-to-power projects. Key subsidiaries include Golar LNG Partners L.P. (Golar Partners), OneLNG, and Golar Power.

Key Financial Metrics

Note: EBITDA is a non-GAAP measure defined as operating loss before interest, tax, depreciation, and amortization.

Material Changes vs. Prior Period

• Operating Performance: Operating loss improved significantly from $41.4 million in 1Q to $24.0 million in 2Q. EBITDA improved from a loss of $16.2 million to $6.6 million.
• Revenue Growth: Total operating revenues increased by $3.3 million (13%) quarter-over-quarter, driven by a rise in time charter revenues from $20.1 million to $24.0 million.
• Expense Reductions:
  • Voyage expenses declined from $16.9 million to $11.8 million, excluding a non-cash provision in 1Q related to the Golar Grand charter.
  • Depreciation and amortization decreased by $7.8 million to $17.4 million, as 1Q included a 15-month catch-up charge for the Golar Tundra.
• Net Loss Expansion: Despite operational improvements, the net loss attributable to Golar increased to $73.8 million from $65.8 million. This was primarily due to:
  • Financial Items: A $22.4 million expense in 2Q (vs. $14.5 million gain in 1Q) driven by mark-to-market losses on Total Return Swap (TRS) shares and interest rate swaps.
  • Interest Expense: Increased by $1.2 million due to new debt servicing costs from a $402.5 million convertible bond issued in February 2017.
  • Equity in Affiliates: Shifted from a $13.9 million loss in 1Q to a $0.7 million gain in 2Q, largely due to income from Golar Partners offset by losses in Golar Power and OneLNG.

Guidance, Outlook, and Material Events

Project Updates

• Hilli Episeyo (FLNG): Conversion nearing completion; scheduled to depart Singapore for Cameroon in late September/early October 2017. Commissioning hire expected to commence in November 2017. A 6-week delay in start-up is noted but mitigated by extensive pre-commissioning testing.
• Fortuna FLNG (OneLNG): Umbrella Agreement signed with Equatorial Guinea. Final Investment Decision (FID) expected in 2H 2017, though financing has been more challenging than anticipated. Gunvor Group selected as LNG offtaker.
• Golar Power (Sergipe): Project remains on track for financial close in 4Q 2017. Environmental license received; construction underway.
• Delfin LNG: Joint Development Agreement signed with Delfin Midstream for a US Gulf of Mexico project.

Corporate Transactions

• Hilli Episeyo Sale: Entered into a Purchase and Sale Agreement to sell a 50% interest in Hilli Episeyo to Golar Partners and affiliates. Agreed price is $658 million less net lease obligations. Closing expected by April 30, 2018. A $70 million deposit was received in 3Q.
• Golar Tundra: Put option exercised by Golar Partners. Concurrently, a purchase option agreement was entered for Golar Partners to acquire up to 25% interest in Hilli Episeyo.

Market Outlook

Management anticipates a sustainable upturn in the shipping market in 3Q and 4Q 2017, supported by new liquefaction capacity (Gorgon, Cheniere, Wheatstone, Yamal) and a widening bid-ask spread for 2018 fixtures. The long-term outlook is viewed as improved due to solid execution of FLNG projects and a tightening shipping market, despite near-term delays in Fortuna financing and Hilli Episeyo start-up.

Investor Verification Checklist

• Financing Status of Fortuna FLNG: Verify the timeline and terms of the financing facility with the Chinese lender consortium, as delays could impact the FID and project viability.
• Hilli Episeyo Commissioning: Monitor the vessel's departure from Singapore and the subsequent commissioning timeline in Cameroon to ensure the November 2017 Notice of Readiness is met.
• Mark-to-Market Volatility: Assess the impact of share price fluctuations on the Total Return Swap (TRS) and interest rate swaps, which caused significant non-cash losses in 2Q.
• Debt Structure: Review the $960 million sale and leaseback facility for Hilli Episeyo and the $402.5 million convertible bond terms to understand future interest obligations and refinancing risks.
• Transaction Closing: Confirm the closing of the Hilli Episeyo equity sale to Golar Partners and the associated cash inflow of approximately $178-$190 million net payment.