Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Unaudited Condensed Interim Financial Report)
Reporting Period: Nine months ended September 30, 2018
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, and liquefaction of natural gas. As of September 30, 2018, Golar, together with affiliates Golar Partners and Golar Power, operated a combined fleet of 27 vessels (18 LNG carriers, 8 FSRUs, and 1 FLNG). The Company operates three reportable segments: Vessel Operations, FLNG, and Power.
Key Financial Metrics
| Metric (in thousands, except per share) | 2018 (9 Months) | 2017 (9 Months) |
|---|---|---|
| Total Operating Revenues | $248,665 | $85,950 |
| Operating Income | $217,304 | $(88,256) |
| Net Income (Loss) | $141,973 | $(160,194) |
| Net Income Attributable to Golar | $81,529 | $(183,526) |
| Earnings Per Share (Basic/Diluted) | $0.81 | $(1.82) |
| Cash and Cash Equivalents (Total) | $764,163 | $739,065 |
| Restricted Cash | $457,776 | $397,815 |
| Total Debt (Net of Deferred Charges) | $2,619,580 | $2,410,847 |
| Average Daily TCE (Non-GAAP) | $32,200 | $13,300 |
Material Changes vs. Prior Period
- Revenue Surge: Total operating revenues increased by $162.7 million (190%) to $248.7 million. This was driven by the commencement of operations for the Hilli FLNG vessel ($73.1 million revenue) and improved utilization/rates in the Cool Pool ($84.5 million increase).
- Profitability Turnaround: The Company moved from an operating loss of $88.3 million in 2017 to an operating income of $217.3 million in 2018. A significant contributor was a $200.1 million realized and unrealized gain on an oil derivative instrument embedded in the Hilli Liquefaction Tolling Agreement (LTA).
- Segment Performance:
- Vessel Operations: Operating income improved from a loss of $87.9 million to a profit of $3.3 million, aided by a $36.0 million gain from arbitration proceedings regarding the Golar Tundra.
- FLNG: Generated an operating gain of $214.0 million, primarily due to the oil derivative gain, offset by $12.7 million in write-offs related to the dissolution of the OneLNG joint venture.
- Power: Recorded an equity loss of $17.0 million, primarily due to the non-operational status of the CELSE power plant project in Brazil.
- Debt Structure: Total debt increased by approximately $209 million. In June 2018, the Company repaid $640 million on the Hilli pre-delivery facility and drew down $960 million on a new post-acceptance sale and leaseback facility.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Derivative Gains: The $200.1 million gain on the oil derivative is non-cash (unrealized portion) and dependent on Brent Crude prices exceeding a $60/barrel floor.
- Arbitration Recovery: $36.0 million recovered from a former charterer of the Golar Tundra.
- OneLNG Write-off: $12.7 million write-off of trading balances with OneLNG following the decision to wind down the joint venture.
- Outlook and Liquidity:
- Market Conditions: Spot rates approached $100,000 per day in September 2018. The Company estimates $40.2 million in operating expenses for Cool Pool vessels over the next 12 months.
- Refinancing Needs: The Company faces charter pre-conditions for the Golar Tundra (due June 30, 2019) and Golar Seal (due December 31, 2018). Failure to secure charters may require refinancing.
- BP Project: The Greater Tortue / Ahmeyim FLNG project is contingent on a Final Investment Decision (FID) expected by the end of 2018.
- Risks:
- UK Tax Lease: Potential exposure of £0 to £112 million if UK tax authorities challenge the Methane Princess lease structure.
- Derivative Volatility: Significant exposure to oil price fluctuations affecting the Hilli LTA revenue.
- Financing Covenants: Debt agreements contain covenants regarding working capital, tangible net worth, and minimum free cash restrictions.
Investor Verification Checklist
- Derivative Valuation: Verify the sustainability of the $200 million oil derivative gain and its sensitivity to Brent Crude price movements below the $60 floor.
- Charter Status: Confirm the employment status of the Golar Tundra and Golar Seal to assess refinancing risks and potential covenant breaches.
- Restricted Cash: Analyze the composition of the $457.8 million in restricted cash, noting that a significant portion ($175.5 million) is collateral for the Hilli project and $69.4 million for equity swaps.
- OneLNG Dissolution: Review the final financial impact of winding down the OneLNG joint venture and the recoverability of remaining assets.
- UK Tax Exposure: Monitor the status of discussions with HMRC regarding the Methane Princess lease and the potential for a £112 million liability.