Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2017
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, liquefaction, and trading of LNG. As of December 2017, Golar, together with affiliates Golar Partners and Golar Power, operates a combined fleet of 26 vessels (19 LNG carriers and 7 FSRUs). The company is actively developing Floating Liquefaction Natural Gas (FLNG) projects, most notably the conversion of the Hilli to an FLNG, which arrived in Cameroon in November 2017 for commissioning.
Key Financial Metrics
| Metric (in thousands, except per share) | 9 Months Ended Sep 30, 2017 | 9 Months Ended Sep 30, 2016 |
|---|---|---|
| Operating Revenues | $85,950 | $57,194 |
| Net Loss | $(160,194) | $(176,380) |
| Net Loss Attributable to Golar LNG Ltd | $(183,526) | $(195,155) |
| Loss Per Share (Basic & Diluted) | $(1.82) | $(2.10) |
| Net Cash Used in Operating Activities | $(40,733) | $(47,062) |
| Net Cash Provided by Financing Activities | $300,152 | $23,184 |
| Cash and Cash Equivalents (End of Period) | $286,562 | $137,904 |
| Total Debt (Gross) | $2,329,937 | $2,003,506 |
| Average Daily TCE (Non-GAAP) | $13,300 | $9,900 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by $28.8 million (50%) to $86.0 million, driven primarily by improved utilization and daily hire rates from vessels in the Cool Pool ($24.5 million increase) and higher management fee income ($8.0 million increase).
- Net Loss Improvement: Net loss attributable to Golar decreased by $11.6 million (6%) compared to the prior year, despite higher operating expenses in some categories. This improvement was aided by the absence of a $12.2 million loss on loss of control of Golar Power recorded in 2016.
- Segment Performance:
- Vessel Operations: Generated a net loss of $142.1 million, an improvement of $32.1 million year-over-year due to higher TCE rates.
- Power Segment: Recorded a net loss of $12.5 million, primarily due to the share of net losses in Golar Power (trading activity).
- FLNG Segment: Recorded a net loss of $5.7 million, up from $2.2 million, due to administrative expenses and the share of net losses in the OneLNG joint venture.
- Debt and Liquidity: Total debt increased by approximately $326 million, largely due to new financing for the Hilli FLNG conversion, a new convertible bond issuance ($402.5 million), and a Margin Loan Facility ($150 million). Cash and cash equivalents increased by $148.7 million.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Management Commentary
Management notes that the short-term outlook for the LNG shipping market has improved in 2017 with better utilization and hire rates, a trend expected to continue into 2018. The Hilli FLNG tendered its Notice of Readiness (NoR) on December 3, 2017, with first LNG production expected around year-end. Payment from the customer is expected to commence 30 days post-NoR.
Material Risks and Contingencies
- Hilli Disposal: The sale of 50% of the Hilli to Golar Partners is subject to closing conditions, including customer acceptance and lender consent. Closing is expected by April 30, 2018. Failure to close could impact liquidity and financial results.
- Political and Security Risks: Operations in Cameroon are subject to higher political and security risks, including potential instability and terrorism (e.g., Boko Haram), which could disrupt operations.
- Refinancing Needs: The Golar Tundra and Golar Seal require effective charters by June 30, 2018, to satisfy lease financing pre-conditions. Failure to secure charters may necessitate refinancing.
- UK Tax Lease Challenge: Ongoing challenges by UK tax authorities (HMRC) regarding tax lease structures could result in significant liabilities, though management estimates the exposure range is currently £nil to £108 million.
Unusual Items
- Depreciation Catch-up: A $9.7 million depreciation charge was recognized for the Golar Tundra after it ceased to be classified as held-for-sale in March 2017.
- Interest Rate Swaps: Net realized and unrealized losses on interest rate swaps decreased significantly to $2.4 million in 2017 from $26.9 million in 2016 due to improved long-term swap rates.
Investor Verification Checklist
- Hilli Commissioning Status: Verify the timeline for the completion of commissioning and the commencement of commercial operations and revenue recognition for the Hilli FLNG.
- Hilli Disposal Closing: Monitor the satisfaction of closing conditions for the sale of 50% of the Hilli to Golar Partners, expected by April 30, 2018.
- Charter Renewals: Confirm the status of charter agreements for the Golar Tundra and Golar Seal to ensure compliance with financing covenants by June 30, 2018.
- OneLNG Fortuna Project: Track the Final Investment Decision (FID) for the Fortuna Project in Equatorial Guinea, which could trigger significant equity funding requirements ($250 million per partner).
- UK Tax Litigation: Review updates on HMRC challenges to UK tax lease structures and any potential impact on the Methane Princess lease indemnity.