Business Context and Reporting Period
Company: Golar LNG Ltd
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended March 31, 2015 (1Q 2015)
Business Overview: Golar LNG is a global provider of LNG shipping, FSRU, and FLNG solutions. The quarter was characterized by a weak spot market for LNG carriers, resulting in declining fleet utilization, offset by significant asset sales and progress on Floating LNG (FLNG) projects.
Key Financial Metrics
| Metric (in thousands USD) | 1Q 2015 | 4Q 2014 |
|---|---|---|
| Net Income | $24,567 | $(37,996) |
| Underlying EBITDA | $(4,281) | $7,844 |
| Total Operating Revenues | $36,526 | $35,272 |
| Operating Loss (excl. gains) | $(30,735) | $(8,280) |
| Cash and Cash Equivalents | $376,085 | $191,410 |
| Total Debt (Current + Long-term) | $1,839,318 | $1,380,787 |
| Dividend per Share | $0.45 | $0.45 |
Note: Underlying EBITDA is defined as earnings before interest, depreciation, amortization, impairments, and non-recurring items.
Material Changes vs. Prior Period
- Net Income Surge: The company reported a net profit of $24.6 million, a significant turnaround from a $38.0 million loss in 4Q 2014. This was primarily driven by a provisional $100 million gain on the sale of the Golar Eskimo to Golar LNG Partners LP.
- Operating Performance Decline: Excluding the gain on disposals, the company incurred an operating loss of $30.7 million, worsening from an $8.3 million loss in the prior quarter. Underlying EBITDA swung from a $7.8 million profit to a $4.3 million loss.
- Fleet Utilization: Fleet utilization dropped from 57% in 4Q 2014 to 46% in 1Q 2015 due to weak spot market rates and the delivery of new vessels (Golar Snow, Kelvin, Ice) which remained idle for part of the quarter.
- Expense Increases: Voyage and commission expenses rose $15.2 million, largely due to chartering costs for the Golar Eskimo and Golar Grand and an $8.8 million accounting charge related to the Golar Grand charter guarantee. Depreciation increased $3.6 million due to new vessel deliveries.
- Liquidity Position: Cash and cash equivalents increased to $376 million from $191 million, bolstered by proceeds from the sale of Golar Partners units ($207 million net) and debt drawdowns for newbuilds.
Guidance, Outlook, and Risks
- Market Outlook: Management expects the LNG chartering market to remain weak in 2Q 2015, with utilization and operating results likely to deteriorate further. However, the company believes the market bottom has been reached, with gradual improvement expected from 3Q 2015 onwards as new markets (Pakistan, Jordan, Egypt) come online.
- FLNG Progress:
- Hilli (Cameroon): Negotiations with Perenco are in final stages; project progress is 42% against a 39.7% schedule. First production targeted for April 2017.
- Gimi (Equatorial Guinea): Binding Heads of Terms signed with Ophir Energy for a 20-year tolling contract. FID expected in H1 2016.
- Third GoFLNG: Discussions initiated with Keppel for a third vessel.
- Dividend Policy: The Board maintained the quarterly dividend at $0.45 per share. No material growth is expected until the shipping market recovers or FLNG units become free cash generative.
- Risks and Contingencies:
- Market Volatility: Significant exposure to spot charter rates and vessel values.
- Project Execution: FLNG projects involve complex commercial and technical agreements; they are not considered firm until binding contracts are signed.
- Financial Instruments: Net income is materially influenced by mark-to-market valuations of interest rate swaps and total return swaps. A $32 million loss was recorded in 1Q, though a $50 million gain is anticipated in 2Q based on May 26 valuations.
Investor Verification Checklist
- Gain on Disposal: Verify the $100 million provisional gain on the Golar Eskimo sale and the structure of the $220 million loan provided to Golar Partners.
- Underlying EBITDA Quality: Assess the sustainability of operations given the $4.3 million underlying EBITDA loss and the $8.8 million non-recurring charge related to the Golar Grand guarantee.
- Debt Levels: Review the increase in total debt to ~$1.84 billion and the drawdown of $548 million for newbuild financing.
- FLNG Financing: Confirm the status of the $320 million invested in the Hilli conversion and the availability of the projected 70% debt financing pending commercial agreements.
- Derivative Exposure: Monitor the impact of mark-to-market adjustments on interest rate and total return swaps, which caused a $32 million loss in 1Q but are projected to generate a $50 million gain in 2Q.