Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended September 30, 2016 (3Q 2016)
Business Overview: Golar operates in LNG shipping, Floating Storage and Regasification Units (FSRUs), and Floating Liquefied Natural Gas (FLNG). The quarter was marked by the deconsolidation of the Golar Power business unit (closed July 6, 2016) and the formation of the OneLNG joint venture with Schlumberger.
Key Financial Metrics
| Metric (in thousands) | 3Q 2016 | 2Q 2016 |
|---|---|---|
| Total Operating Revenues | $22,267 | $18,370 |
| EBITDA (Non-GAAP) | ($11,295) | ($17,540) |
| Operating Loss | ($28,292) | ($37,245) |
| Net Loss Attributable to Golar LNG Ltd | ($23,943) | ($84,601) |
| Cash and Cash Equivalents (Sep 30, 2016) | $137,904 | N/A |
| Restricted Cash (Sep 30, 2016) | $266,815 | N/A |
| Total Debt (Current + Non-Current) | $1,800,291 | N/A |
Note: EBITDA is defined as operating loss before interest, tax, depreciation, and amortization. Debt figures include amounts related to consolidated Variable Interest Entities (VIEs).
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 21% from $18.4 million in 2Q to $22.3 million in 3Q, driven by improved vessel utilization (31% in 2Q to 37% in 3Q) and higher spot rates (approaching/exceeding $40k/day for TFDE tonnage).
- Expense Reduction: Vessel operating expenses decreased $2.0 million to $12.1 million, primarily due to the deconsolidation of Golar Penguin and Golar Celsius post-July 6 and lower insurance costs. Depreciation and amortization fell $2.7 million to $17.0 million for similar reasons.
- Profitability Improvement: EBITDA loss narrowed by $6.2 million to $11.3 million. Operating loss decreased by $8.9 million to $28.3 million.
- Net Loss Volatility: Net loss attributable to Golar improved significantly from $84.6 million in 2Q to $23.9 million in 3Q. This was largely due to a $22.8 million gain in "Other Financial Items" (vs. a $27.5 million loss in 2Q) driven by mark-to-market gains on Total Return Swaps and interest rate swaps, partially offset by a $12.2 million non-cash loss on the disposal of Golar Power.
Guidance, Outlook, and Strategic Developments
Management Commentary and Outlook
- Shipping Market: Management expects 4Q shipping results to be approximately in line with 3Q. The market shows signs of tightening with increased spot fixtures (approx. 300 expected in 2016 vs. 190 in 2015). 1Q 2017 utilization is projected to reach 3Q 2016 levels.
- Strategic Projects:
- Golar Power: Reached Final Investment Decision (FID) on the Sergipe power project in Brazil. A 25-year FSRU agreement was signed. The project is expected to generate projected annual EBITDA of BRL 1.1 billion.
- OneLNG: Signed a binding agreement with Ophir to develop the Fortuna reserves in Equatorial Guinea using FLNG technology. The project is expected to cost $2.0 billion and generate annual EBITDA of $560 million.
- FLNG Hilli: Conversion remains on schedule and within budget, with operations expected to commence in Cameroon in ten months.
- Dividend: Quarterly dividend remains unchanged at $0.05 per share.
Risks and Contingencies
- FSRU Golar Tundra: The vessel remains at anchor off Ghana. While the charterer (WAGL) received parliamentary approval for gas sales, Golar has commenced legal proceedings to collect amounts due. No revenue was recognized in 3Q, though a payment was received in November.
- Market Risks: Forward-looking statements are subject to risks including changes in LNG carrier rates, vessel values, financing availability, and counterparty performance.
- Accounting Changes: The Company restated comparative 2015 figures to account for its stake in Golar Partners under the equity method. This does not affect cash flows or liquidity.
Investor Verification Checklist
- Deconsolidation Impact: Verify the extent to which the improved 3Q results are driven by the removal of Golar Power assets versus organic operational improvements.
- Non-Cash Items: Assess the sustainability of the net loss improvement, noting the $22.8 million gain from financial derivatives and the $12.2 million non-cash loss on Golar Power disposal.
- Liquidity Position: Confirm the availability of unrestricted cash ($137.9 million) versus restricted cash ($266.8 million tied up in Letters of Credit) to fund upcoming equity contributions for OneLNG and FLNG Hilli.
- Project Execution: Monitor the progress of the Fortuna FID (contingent on debt financing and government approvals) and the Golar Tundra legal resolution in Ghana.
- Market Rates: Validate the sustainability of the reported spot rate increases ($40k/day) and utilization rates (37%) in the context of new LNG supply coming online in 4Q 2016 and 2017.