Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2020
Business Overview: Golar provides infrastructure for the liquefaction, transportation, regasification, and downstream distribution of LNG. Its fleet includes LNG carriers, Floating Storage Regasification Units (FSRUs), and Floating Liquefaction Natural Gas (FLNG) vessels. The company operates through three reportable segments: Vessel Operations, FLNG, and Power.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|
| Total Operating Revenues | $224,801 | $211,032 |
| Operating Income | $49,516 | $5,429 |
| Net Loss | $(214,676) | $(105,869) |
| Net Loss Attributable to Stockholders | $(259,881) | $(154,423) |
| Loss Per Share (Basic & Diluted) | $(2.75) | $(1.53) |
| Net Cash Provided by Operating Activities | $45,878 | $10,272 |
| Cash and Cash Equivalents (Total) | $265,196 | $545,420 |
| Total Debt (Net of Deferred Costs) | $2,544,865 | $2,535,827 |
Non-GAAP Metric: Average Daily Time Charter Equivalent (TCE) increased to $53,600 in 2020 from $32,000 in 2019, driven by higher utilization and charter rates in the TFDE fleet.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $13.8 million (6.5%) primarily due to higher utilization and charter rates for the Tri-Fuel Diesel Electric (TFDE) fleet and full utilization of the Golar Arctic. This was partially offset by revenue decreases from the Golar Viking (in conversion) and Golar Tundra (in drydock).
- Operating Income Improvement: Operating income surged to $49.5 million from $5.4 million. This improvement was largely due to a $41.6 million impairment charge in 2019 that did not recur in 2020, alongside reduced voyage expenses and administrative costs.
- Net Loss Expansion: Despite higher operating income, the Net Loss attributable to stockholders widened significantly to $(259.9) million from $(154.4) million. This was driven by:
- Equity in Net Losses of Affiliates: A massive increase in losses recognized from affiliates, totaling $(177.3) million compared to $(39.9) million in 2019. This includes a $135.9 million impairment charge on the investment in Golar LNG Partners LP due to sustained low unit prices.
- Derivative Losses: Losses on derivative instruments increased to $(49.9) million from $(20.4) million, primarily due to unrealized losses on interest rate swaps and an oil derivative instrument related to the Hilli FLNG project.
- Cash Flow: Operating cash flow improved significantly to $45.9 million, aided by cost-saving measures and deferred maintenance due to COVID-19. However, investing cash outflows increased to $(160.0) million due to capital expenditures for the Gimi and Golar Viking conversions.
Outlook, Risks, and Management Commentary
- COVID-19 Impact: The pandemic has caused crew change delays, postponed maintenance, and reduced global LNG demand. While crewing costs may temporarily decline, provisioning costs have risen. Management notes the severity and duration of the impact remain uncertain.
- FLNG Gimi Force Majeure: In April 2020, BP notified Golar of a force majeure claim regarding the Gimi GTA Project, citing COVID-19 as a reason for an expected 12-month delay in the 2022 target connection date. Discussions are ongoing to revise the delivery plan.
- Liquidity and Going Concern: Management asserts the company has sufficient resources for the next 12 months based on stress testing and ongoing discussions with financial institutions. Key upcoming refinancing needs include a $150 million term loan due in November 2020 and put options for the Golar Seal and Golar Tundra.
- Key Risks:
- Continued volatility in commodity prices and charter rates.
- Counterparty performance and force majeure claims (specifically BP and shipyards).
- Ability to refinance debt on acceptable terms.
- UK tax lease challenges (HMRC) with a potential exposure range of $0 to $150.2 million.
Investor Verification Checklist
- Impairment Validity: Verify the assumptions behind the $135.9 million impairment charge on the Golar Partners investment and the likelihood of recovery.
- Refinancing Status: Confirm the status of refinancing discussions for the $150 million term loan due in November 2020 and the put options for the Golar Seal and Golar Tundra.
- Gimi Project Timeline: Monitor the outcome of negotiations with BP regarding the force majeure claim and the revised delivery schedule for the Gimi FLNG.
- Derivative Exposure: Assess the ongoing impact of interest rate and oil price derivatives on future earnings, particularly the unrealized losses on the Hilli FLNG oil derivative.
- Tax Contingency: Review the status of the UK tax lease dispute with HMRC and the potential financial exposure.