Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Reporting Period: Three months ended March 31, 2023
Business Overview: Golar focuses on floating liquefaction (FLNG) operations, owning and operating marine infrastructure for natural gas liquefaction. Key assets include the operational FLNG Hilli and the Gimi, which is undergoing conversion. The company also maintains a shipping segment and corporate services.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2023 | Q1 2022 |
|---|---|---|
| Total Operating Revenues | $73,968 | $72,938 |
| Net (Loss)/Income | $(92,569) | $410,014 |
| Adjusted EBITDA | $84,148 | $89,657 |
| Cash and Cash Equivalents (Total) | $1,020,729 | $342,687 |
| Net Debt (Gross) | $(1,182,432) | $(1,210,279) |
| Basic EPS (Continuing Ops) | $(0.95) | $5.20 |
Liquidity: As of March 31, 2023, the company held $1,020.7 million in cash and cash equivalents (including short-term deposits), of which $131.3 million was restricted. Management believes existing cash and operating cash flows are sufficient for at least the next 12 months.
Material Changes vs. Prior Period
- Net Income Decline: The company reported a net loss of $92.6 million in Q1 2023 compared to a net income of $410.0 million in Q1 2022. This reversal is primarily driven by:
- Derivative Losses: An unrealized loss of $115.0 million on oil and gas derivative instruments (vs. a gain of $168.1 million in 2022) due to volatility in TTF gas and Brent oil price curves.
- Equity Investment Losses: A realized/unrealized loss of $62.3 million on investments in listed equity securities (New Fortress Energy shares) due to sales and mark-to-market adjustments (vs. a gain of $344.0 million in 2022).
- Discontinued Operations: Q1 2022 included a significant loss from discontinued operations ($208.8 million) related to the CoolCo disposal, whereas Q1 2023 showed a minor income of $0.2 million.
- Segment Performance:
- FLNG Segment: Adjusted EBITDA increased to $97.6 million (from $93.6 million) driven by higher realized gains on oil and gas derivatives, despite a decrease in total operating revenues ($56.2 million vs. $62.9 million) due to lower amortization of Day 1 gains.
- Corporate Segment: Adjusted EBITDA turned negative at $(18.5) million (from $(4.5) million) due to increased project development expenses related to the Snam development agreement.
- Shipping Segment: Adjusted EBITDA improved significantly to $5.1 million (from $0.6 million) due to higher charter rates and full utilization of the Golar Arctic.
- Interest Income: Increased by $11.5 million to $11.5 million, driven by $767.2 million in short-term money market deposits.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- FLNG Growth: The company is advancing the MKII FLNG project, exercising an option to acquire the donor vessel Fuji LNG for $77.5 million. The Gimi conversion is 94% complete, with yard departure postponed to Q3 2023.
- Dividends: Declared a quarterly dividend of $0.25 per share for Q1 2023.
- Capital Return: Approved a $150.0 million share buyback program in May 2023.
- Debt Management: Repurchased $15.9 million of Unsecured Bonds in April 2023 and amended bond terms in May 2023 to introduce a $100 million free liquid assets incurrence test.
Risks and Contingencies:
- Project Delays: Delays in the Greater Tortue/Ahmeyim (GTA) Project infrastructure deliveries could impact the unlocking of Gimi adjusted EBITDA backlog.
- Contractual Disputes: Ongoing interpretation disputes regarding pre-commissioning cash flows under the Gimi LOA with BP.
- Market Volatility: Exposure to commodity price volatility (oil and gas) and foreign exchange rates (Euro/USD, NOK/USD) significantly impacts derivative valuations and earnings.
- Counterparty Risk: Reliance on counterparties (e.g., NFE, CoolCo, Snam) to meet obligations and indemnification requirements.
Key Facts for Investor Verification
- Derivative Exposure: Verify the sensitivity of future earnings to TTF gas and Brent oil price movements, as unrealized derivative losses were the primary driver of the Q1 2023 net loss.
- Equity Method Investments: Confirm the status and valuation of remaining equity interests in Avenir LNG Limited and other joint ventures.
- Project Timelines: Monitor the Q3 2023 yard departure date for Gimi and the resolution of the LOA dispute with BP regarding pre-commissioning payments.
- Liquidity Restrictions: Note that $131.3 million of the $1.02 billion cash balance is restricted, primarily for performance guarantees on Hilli and Arctic.
- Subsequent Transactions: Verify the closing of the Gandria sale ($15.5 million) and the execution of the $150 million share repurchase program.