Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2016
Filing Date: July 22, 2016
Golar is a midstream LNG company engaged in the transportation, regasification, liquefaction, and trading of LNG. As of July 2016, the combined fleet with affiliates (Golar Partners and Golar Power) totaled 26 vessels (19 LNG carriers and 7 FSRUs). The company is actively developing Floating Liquefaction Natural Gas (FLNG) projects, with the Hilli undergoing conversion and the Gimi and Gandria in lay-up pending conversion notices.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating Revenues | $18,645 | $32,158 |
| Net (Loss) Income | $(77,271) | $24,567 |
| Net (Loss) Income Attributable to Golar | $(80,088) | $21,918 |
| Diluted EPS | $(0.86) | $0.23 |
| Operating Cash Flow | $4,452 | $(55,531) |
| Time Charter Equivalent (TCE) Daily Rate | $8,300 | $22,100 |
| Cash and Cash Equivalents (End of Period) | $92,916 | $376,085 |
| Total Debt (Gross) | $1,963,530 | $1,878,061 |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 42% to $18.6 million, driven by the Golar Arctic being off-hire prior to a new charter, the conclusion of charters for the Golar Crystal and Golar Frost, and increased commercial waiting time for vessels in the Cool Pool.
- Net Loss: The company reported a net loss of $77.3 million compared to a net income of $24.6 million in the prior year. This was primarily due to a $103.6 million gain on the disposal of the Golar Eskimo in Q1 2015 which did not recur, offset by a $26.5 million loss on interest rate swaps and an $8.1 million impairment on a loan receivable.
- Expense Increases: Administrative expenses rose 63% due to increased headcount and legal fees. Depreciation increased 10% due to newbuildings and the reacquisition of the Golar Viking.
- Financial Items: Interest expense decreased 64% to $6.0 million, largely due to capitalized interest on the Hilli FLNG conversion. However, mark-to-market losses on interest rate swaps increased to $23.4 million.
Guidance, Outlook, and Risks
Recent Developments & Liquidity:
- Golar Power Joint Venture: In July 2016, Golar closed a 50/50 joint venture with Stonepeak Infrastructure Partners. Golar received net proceeds of $103 million, significantly improving liquidity. The JV holds two LNG carriers and an FSRU newbuilding.
- Golar Tundra Sale: The sale of the Golar Tundra to Golar Partners closed in May 2016 for $330 million (less debt). The vessel is awaiting charter commencement with West Africa Gas Limited (WAGL). A put option allows Golar Partners to require Golar to repurchase the vessel if the charter does not commence within 12 months.
- Convertible Bonds: $244.8 million in convertible bonds mature in March 2017. Management is exploring refinancing or extension options but is currently planning for full repayment.
Risks and Contingencies:
- Market Conditions: The LNG shipping market outlook remains challenging through the first half of 2016, with limited improvement expected before 2017. This impacts working capital needs for spot market vessels.
- Refinancing Risk: Refinancing for two vessels is delayed. If a guarantee bank does not consent to the Golar Power transaction by December 20, 2016, Golar must refinance $214.4 million or face a repurchase obligation from Stonepeak.
- Tax Litigation: UK tax authorities (HMRC) have challenged similar lease structures. While Golar believes its exposure is limited, a potential range of exposure has been estimated at £0 to £100 million.
- FLNG Conversion: The Hilli conversion is estimated at $1.3 billion total cost, with $571.6 million incurred as of March 31, 2016. Conversions of the Gimi and Gandria are pending final investment decisions.
Investor Verification Checklist
- Convertible Bond Maturity: Verify the status of refinancing discussions for the $244.8 million bond maturing in March 2017.
- Golar Tundra Charter: Monitor the commencement of the WAGL charter for the Golar Tundra to avoid the 12-month repurchase trigger.
- Stonepeak JV Conditions: Confirm receipt of the guarantee bank consent for the Golar Power transaction by the December 20, 2016 deadline.
- FLNG Funding: Assess the drawdown status of the GoFLNG Hilli facility against the remaining $601.7 million capital commitment.
- UK Tax Exposure: Review updates on HMRC litigation regarding the Methane Princess lease and potential indemnity obligations.