GLNG

Business Context and Reporting Period

Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Third Quarter ended September 30, 2018
Business Overview: Golar LNG operates a fleet of LNG carriers, Floating Storage and Regasification Units (FSRUs), and Floating Liquefied Natural Gas (FLNG) vessels. The quarter marked the first full quarter of operations for the FLNG vessel Hilli Episeyo and a significant improvement in the LNG shipping market.

Key Financial Metrics

Note: Adjusted EBITDA excludes $77.5 million of unrealized Brent oil-linked mark-to-market derivative income. Operating income includes this unrealized gain.

Material Changes vs. Prior Period

• Revenue Surge: Total operating revenues more than doubled from $59.4 million in Q2 to $123.1 million in Q3, driven by the first full quarter of FLNG Hilli Episeyo operations ($54.5 million) and improved vessel utilization.
• Shipping Performance: Fleet utilization increased from 62% in Q2 to 86% in Q3. Daily TCE earnings rose 110% quarter-over-quarter to $41,200, with TFDE vessels averaging $48,100/day.
• Derivative Impact: Operating income was significantly boosted by a $77.5 million unrealized gain on the oil derivative instrument linked to the Hilli Episeyo tolling agreement, compared to $94.7 million in Q2. Realized gain on the same instrument was $11.3 million.
• Expense Increases: Interest expense rose to $32.6 million (from $24.0 million) due to the full quarter of interest on the Hilli Episeyo facility post-acceptance. Depreciation and amortization increased to $28.5 million as the FLNG asset was depreciated for three months versus one month in the prior quarter.
• One-Time Gains: Other operating gains included a $26.0 million cash recovery from legal proceedings regarding the former Golar Tundra contract.

Guidance, Outlook, and Management Commentary

• Dividend Increase: The Board approved an increase in the quarterly dividend to $0.15 per share, citing a solid cash position, improved shipping market, and successful startup of Hilli Episeyo.
• Market Outlook: Management expects Q4 2018 TCE rates to range between $70,000 and $80,000 for all ships, with TFDE vessels in the $85,000 - $95,000 range. Spot rates for TFDE vessels are routinely exceeding $100,000.
• FLNG Expansion: Hilli Episeyo maintains 100% commercial uptime. Discussions are ongoing with operator Perenco regarding the utilization of the vessel's excess capacity. FEED work for the BP Greater Tortue/Ahmeyim project is in final stages, with a Final Investment Decision (FID) expected before year-end 2018.
• Golar Power: The Sergipe power plant project remains on track for operations in January 2020. The FSRU Golar Nanook was delivered and financed with a $235.5 million facility. Golar's share of annual run-rate Adjusted EBITDA from this project is expected to be approximately $45 million after debt service.
• New Venture: Established Avenir LNG Limited, a small-scale LNG entity, with a $24.8 million initial investment (25% stake).

Investor Verification Checklist

• Derivative Volatility: Verify the sustainability of operating income given the heavy reliance on unrealized mark-to-market gains ($77.5 million) from Brent oil price movements.
• Debt Refinancing: Confirm the status of the $134.8 million facility due for refinancing by the end of 2018.
• FLNG Cash Flows: Monitor the realization of cash flows from the Hilli Episeyo oil-linked component, which is based on a three-month look-back of Brent prices.
• Non-Controlling Interests: Review the impact of the 50% equity sale of Hilli Episeyo to Golar Partners on future cash distributions and consolidated net income.
• Project Timelines: Track the FID status for the BP Tortue project and the January 2020 startup date for the Sergipe power plant.