Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2015
Business Overview: Golar is a leading independent owner and operator of LNG carriers and Floating Storage and Regasification Units (FSRUs). As of September 30, 2015, the Company owned and operated 14 LNG carriers and managed Golar Partners' fleet of 4 LNG carriers and 6 FSRUs. The Company is actively developing Floating Liquefaction Natural Gas Vessels (FLNGVs), with the conversion of the Hilli underway and agreements signed for the Gimi and Gandria.
Key Financial Metrics
| Metric (in thousands, except per share) | 2015 (9 Months) | 2014 (9 Months) |
|---|---|---|
| Operating Revenues | $79,680 | $70,884 |
| Net Loss | $(118,630) | $(3,470) |
| Net Loss Attributable to Golar LNG Ltd | $(126,768) | $(3,470) |
| Loss Per Share (Basic & Diluted) | $(1.36) | $(0.04) |
| Cash and Cash Equivalents (End of Period) | $222,842 | $390,004 |
| Restricted Cash | $108,017 | $74,162 |
| Total Debt (Current + Long-term) | $1,815,764 | $1,380,787 |
| Net Cash Used in Operating Activities | $(91,564) | $11,384 |
| Average Daily TCE (Non-GAAP) | $16,200 | $35,800 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 12% ($8.8 million) primarily due to the addition of eight newbuild vessels delivered between late 2014 and early 2015. This was partially offset by the redelivery of the Golar Arctic and the disposal of the Golar Igloo.
- Significant Net Loss: The Company reported a net loss of $126.8 million, a sharp increase from the $3.5 million loss in the prior year. This was driven by:
- Financial Items: A $91.6 million loss in "Other financial items," including $41.1 million in unrealized losses on interest rate swaps, $32.3 million in equity swap losses, and a $15.0 million impairment on the Equinox loan receivable.
- Interest Expense: Increased by $46.2 million to $51.6 million due to higher debt levels from newbuild deliveries and VIE loans.
- Depreciation: Increased by $18.8 million due to the new fleet.
- Gain on Disposals: A significant non-cash gain of $103.9 million was recognized from the sale of the Golar Eskimo to Golar Partners in January 2015.
- TCE Decline: Average daily Time Charter Equivalent (TCE) dropped 55% to $16,200, reflecting soft market conditions and higher off-hire days for new vessels.
Guidance, Outlook, and Risks
- Liquidity Outlook: Management believes available resources are sufficient for the next 12 months. Recent post-period cash inflows include $50 million from the Golar Tundra financing, $62.5 million from the Salju refinancing, and $100 million from Golar Partners. A commitment to refinance two newbuilds is expected to release an additional $120 million by January 2016.
- Market Conditions: The LNG shipping market outlook remains negative through the second half of 2016, with low charter rates and utilization. The Company formed the "Cool Pool" in October 2015 to market spot vessels more effectively.
- FLNG Projects: The Hilli conversion is on track for 2017 delivery. Conversions for the Gimi and Gandria are pending final notices to proceed, dependent on securing employment and funding.
- Key Risks:
- UK Tax Leases: A UK court ruling in August 2015 favored HMRC in a test case regarding tax lease structures. While not binding precedent, Golar faces potential liability to return upfront cash benefits (approx. £41 million) if challenged successfully.
- Counterparty Risk: The Company repossessed the Salju (formerly Golar Viking) from Equinox after the borrower failed to meet obligations, resulting in a $15 million impairment.
- Financing: Ability to secure financing for FLNG conversions and refinance existing debt on acceptable terms.
Investor Verification Checklist
- UK Tax Lease Exposure: Verify the potential financial impact of the HMRC ruling on the remaining Methane Princess lease and the indemnity obligations to Golar Partners.
- FLNG Funding Status: Confirm the timeline and funding sources for the Gimi and Gandria conversions, as these are contingent on employment contracts and additional capital.
- Derivative Valuation: Review the $41.1 million unrealized loss on interest rate swaps and the $32.3 million equity swap loss to understand the sensitivity to interest rate and share price movements.
- Equinox Loan Recovery: Assess the valuation and refinancing terms of the repossessed Salju vessel to ensure the $125 million valuation is sustainable.
- Dividend Sustainability: Evaluate the ability to maintain the $0.45 per share dividend given the significant operating cash outflow and net loss.