Business Context and Reporting Period
Company: Golar LNG Ltd
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2017 (1Q 2017)
Business Overview: Golar LNG is a global provider of LNG shipping, floating storage and regasification units (FSRUs), and floating liquefied natural gas (FLNG) solutions. The company operates through its core shipping business and strategic affiliates including Golar Partners, Golar Power, and OneLNG.
Key Financial Metrics
| Metric (in thousands) | 1Q 2017 | 4Q 2016 |
|---|---|---|
| Total Operating Revenues | $25,110 | $23,063 |
| EBITDA | ($16,204) | ($15,881) |
| Operating Loss | ($41,390) | ($32,707) |
| Net Loss Attributable to Golar LNG Ltd | ($65,843) | $8,624 (Income) |
| Unrestricted Cash Position | $456,710 | $224,190 |
| Total Debt (Current + Non-Current) | $2,271,822 | $1,977,198 |
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 widened to $41.4 million from $32.7 million in 4Q 2016. While revenues increased by $2.0 million due to modest improvements in spot market rates, voyage expenses rose significantly to $12.6 million (from $7.9 million) due to the re-chartering of the Golar Grand and a non-cash accounting provision.
- Depreciation Impact: Depreciation and amortization increased by $8.4 million to $25.2 million, driven by a $9.7 million catch-up charge for the FSRU Golar Tundra following its reclassification from "held-for-sale" to "held-and-used."
- Net Income Volatility: The company swung from a net income of $8.6 million in 4Q 2016 to a net loss of $65.8 million in 1Q 2017. This was primarily driven by a $51.7 million decline in "Equity in net earnings of affiliates," largely due to a $17.0 million non-cash loss on deemed disposal from Golar Partners dilution and operational losses in affiliates.
- Liquidity Improvement: Unrestricted cash increased by $232.5 million to $456.7 million, bolstered by the issuance of a new convertible bond and the refinancing of the Golar Crystal.
Guidance, Outlook, and Material Events
Management Commentary and Outlook
- Market Outlook: Management expects the shipping market to remain disappointing in 2Q 2017 but expresses cautious optimism for 2H 2017 due to increased term charter activity and new LNG volumes coming online (e.g., Cheniere, Yamal LNG).
- Project Milestones:
- Hilli Episeyo (FLNG): Conversion is nearing completion with a tight schedule for commissioning in Cameroon by late September 2017.
- Fortuna (OneLNG): An Umbrella Agreement was signed with Equatorial Guinea. A Final Investment Decision (FID) is targeted for mid-2017.
- Golar Power: The Sergipe project is on schedule for 2020 delivery; financial closing for debt is expected before year-end 2017.
Material Subsequent Events and Financing
- Convertible Bond Issuance: Issued a $402.5 million 2.75% five-year unsecured convertible bond in February 2017. Proceeds net of fees and capped call costs were $360.2 million.
- Debt Refinancing: Repaid the remaining $220 million of the 2012 convertible bond and refinanced the Golar Crystal with a $112 million sale and leaseback facility.
- Golar Tundra Put Option: Golar Partners exercised its Put Option to sell the Golar Tundra back to Golar LNG. The transaction involves a deferred purchase price of approximately $107 million, with Golar Partners receiving an option to acquire up to 25% of the Hilli Episeyo FLNG project in exchange.
- Charter Secured: Secured a firm two-year contract for the Golar Grand commencing in 2Q 2017.
Risks and Contingencies
- Arbitration: Golar is actively pursuing an arbitration award of $23.3 million (plus $22.0 million accrued since Dec 2016) against the charterer of the Golar Tundra (West Africa Gas Limited) for non-payment and lack of infrastructure progress.
- Project Execution: The Hilli Episeyo schedule is described as "tight but achievable"; delays could impact revenue recognition and financing tranches.
- Market Conditions: Continued weakness in spot shipping rates and potential delays in new LNG project ramp-ups pose risks to revenue recovery.
Investor Verification Checklist
- Debt Structure: Verify the terms of the new $402.5 million convertible bond and the impact of the capped call transactions on future dilution.
- Golar Tundra Resolution: Monitor the status of the arbitration claim against West Africa Gas Limited and the final closing of the Put Option transaction with Golar Partners.
- Project Timelines: Confirm the on-schedule delivery and commissioning of the Hilli Episeyo FLNG unit by September 2017 and the FID for the Fortuna project.
- Affiliate Performance: Review the specific operational drivers behind the significant decline in equity earnings from Golar Partners and Golar Power.
- Liquidity Usage: Track the deployment of the $456.7 million unrestricted cash balance against the projected $47 million equity commitment for Fortuna and $75 million for Golar Power in 2017.