GLNG

Business Context and Reporting Period

Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Unaudited Condensed Interim Financial Report)
Reporting Period: Three months ended March 31, 2019
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, and liquefaction of natural gas. As of May 22, 2019, the combined fleet with affiliates (Golar Partners and Golar Power) totaled 27 vessels (18 LNG carriers, 8 FSRUs, 1 FLNG). The company operates three reportable segments: Vessel Operations, FLNG, and Power.

Key Financial Metrics

Segment Performance:

• Vessel Operations: Operating loss of $(29.2) million, driven by a $34.3 million impairment charge on the Golar Viking and reduced Cool Pool utilization.
• FLNG: Operating income of $58.1 million, primarily due to $54.5 million in liquefaction revenue from the Hilli and a $30.6 million gain on oil derivatives.
• Power: Equity in net losses of affiliates of $(4.0) million.

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 73% to $114.3 million, largely due to the commencement of liquefaction services revenue from the Hilli FLNG ($54.5 million), which was non-existent in Q1 2018.
• Impairment Charge: A non-cash impairment loss of $34.3 million was recognized on the LNG carrier Golar Viking following the agreement to convert and sell the vessel to LNG Hrvatska.
• Derivative Gains: The FLNG segment recorded a $30.6 million gain on oil derivatives (realized and unrealized) due to Brent Crude price increases, compared to $13.6 million in Q1 2018.
• Interest Expense: Increased 110% to $29.4 million, primarily due to lower capitalized interest on the Hilli conversion (now operational) and higher LIBOR rates.
• Equity in Affiliates: Shifted from a $4.8 million gain in Q1 2018 to an $8.9 million loss in Q1 2019, driven by losses in Golar Partners and Golar Power.

Guidance, Outlook, and Risks

Recent Developments & Outlook:

• FLNG Gimi: Received a firm $700 million financing commitment for the conversion of the Gimi into an FLNG for the BP Greater Tortue Ahmeyim project. Conversion costs are estimated at $1.3 billion, with operations expected to commence in 2022.
• Golar Viking: Received Notice to Proceed for conversion to an FSRU for LNG Hrvatska. The vessel will be sold for €159.6 million upon completion, with Golar retaining a 10-year operation and maintenance contract.
• Spin-off: The Board resolved to spin off the TFDE LNG carrier business to focus on FLNG and downstream assets.
• Dividends: Declared a dividend of $0.15 per share for Q1 2019.

Risks and Contingencies:

• Liquidity: While management believes cash reserves are sufficient for the next 12 months, execution of new credit facilities for the Gimi conversion and working capital is not guaranteed.
• UK Tax Lease: Ongoing challenges by HMRC regarding UK tax lease structures could result in exposure estimated between £nil and £115.0 million, though management believes the risk is low.
• Market Conditions: Exposure to volatility in LNG carrier rates, FSRU/FLNG demand, and commodity prices.

Investor Verification Checklist

• Impairment Validity: Verify the fair value assessment of the Golar Viking that triggered the $34.3 million impairment charge.
• Derivative Exposure: Review the sensitivity of the $30.6 million oil derivative gain to future Brent Crude price fluctuations.
• Financing Execution: Monitor the closing of the $700 million facility for the Gimi FLNG conversion and the €159.6 million sale of the Golar Viking.
• Debt Covenants: Confirm compliance with financial covenants, specifically the requirement to maintain $50 million in consolidated cash and cash equivalents.
• Spin-off Details: Track the progress of the TFDE LNG carrier spin-off and its impact on the consolidated balance sheet.