Business Context and Reporting Period
Company: Golar LNG Limited
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended June 30, 2016 (2Q 2016)
Business Overview: Golar LNG Limited operates in the LNG shipping, FSRU (Floating Storage and Regasification Unit), and FLNG (Floating Liquefied Natural Gas) sectors. The quarter was marked by strategic restructuring, including the launch of two joint ventures (Golar Power and OneLNG) and the sale of the FSRU Golar Tundra to Golar LNG Partners LP.
Key Financial Metrics
| Metric (in thousands) | 2Q 2016 | 1Q 2016 |
|---|---|---|
| Total Operating Revenues | $18,370 | $16,557 |
| EBITDA (Loss) | $(17,540) | $(21,713) |
| Operating Loss | $(37,119) | $(42,721) |
| Net Loss Attributable to Golar | $(99,501) | $(80,088) |
| Interest Expense | $(13,331) | $(6,022) |
| Cash and Cash Equivalents (End of Period) | $64,720 | $92,916 |
| Total Restricted Cash | $476,785 | N/A |
| Total Debt (Current + Long-term) | $1,765,556 | N/A |
Note: EBITDA is a non-GAAP measure defined as earnings before interest, depreciation, and amortization. Total restricted cash includes $280.4 million related to the FLNG Hilli Letter of Credit and $85.9 million related to the Total Return Swap.
Material Changes vs. Prior Period
- Operational Improvement: Operating loss narrowed by $5.6 million to $37.1 million, driven by a $4.2 million improvement in EBITDA. This was primarily due to a $1.5 million reduction in vessel operating expenses and a $1.9 million decrease in administrative costs.
- Revenue Growth: Total operating revenues increased 11% to $18.4 million, reflecting improved vessel utilization which rose from 24% in 1Q to 31% in 2Q.
- Net Loss Expansion: Despite operational improvements, the net loss attributable to Golar widened to $99.5 million from $80.1 million. Key drivers included:
- Interest Expense: Doubled to $13.3 million due to a reduction in capitalized interest credits.
- Mark-to-Market Losses: $7.8 million loss on the Total Return Equity Swap and $5.9 million on interest rate swaps.
- Equity in Affiliates: A $19.2 million non-cash charge recorded upon the conversion of 15.9 million subordinated units in Golar Partners to common units.
- Liquidity Events: The sale of the FSRU Golar Tundra to Golar Partners released $102.8 million in liquidity during the quarter.
Guidance, Outlook, and Strategic Developments
Strategic Transactions
- Golar Power: Launched a 50/50 joint venture with Stonepeak Infrastructure Partners. The transaction closed in July 2016, providing $103.0 million in new liquidity and removing $216.5 million in unfunded capital commitments for an FSRU new-build from Golar's balance sheet.
- OneLNG: Formed a joint venture with Schlumberger (51% owned by Golar) to develop low-cost gas reserves to LNG. Initial working capital is $20 million, with a commitment to contribute up to $250 million each upon project approval.
Market Outlook
- Shipping Market: Management anticipates a recovery in the second half of 2016, citing improving utilization, rising charter rates (Atlantic round-trip voyages exceeding $40k/day), and the re-emergence of full round-trip economics.
- FSRU Market: Demand remains positive, though the Golar Tundra project in Ghana faces delays with the charterer (WAGL). Golar maintains a strong legal position regarding hire payments.
- FLNG Hilli: The conversion project remains on schedule and within its $1.2 billion budget. Discussions regarding utilizing spare capacity are ongoing.
Risks and Contingencies
- Convertible Bond: A $250 million convertible bond matures in March 2017. Golar is in discussions with commercial banks to refinance this obligation, potentially using its stake in Golar Partners as collateral.
- Restricted Cash: Significant cash ($280 million) remains restricted by the FLNG Hilli Letter of Credit, though efforts are underway to release portions of this.
- Project Delays: The Ghana FSRU project faces execution risks, though the commercial rationale remains sound.
Investor Verification Checklist
- Refinancing Progress: Verify the status of discussions to refinance the $250 million convertible bond maturing in March 2017.
- Ghana Project Status: Monitor the operational commencement of the Golar Tundra FSRU in Ghana and the resolution of delays with West Africa Gas Limited (WAGL).
- Liquidity Release: Track the release of restricted cash tied to the FLNG Hilli Letter of Credit and the impact on working capital.
- Joint Venture Execution: Assess the progress of Golar Power and OneLNG in securing new projects and generating revenue.
- Shipping Rates: Confirm the sustainability of the reported recovery in LNG shipping rates and utilization rates in the second half of 2016.