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, 2016 (Unaudited)
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, liquefaction, and trading of LNG. As of November 2016, Golar and its affiliates (Golar Partners and Golar Power) operate a combined fleet of 26 vessels, including 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.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 (Restated) |
|---|---|---|
| Operating Revenues | $34,927 | $52,302 |
| Net (Loss) Income | $(158,983) | $52,602 |
| Net (Loss) Income Attributable to Golar | $(171,212) | $47,567 |
| Basic/Diluted EPS | $(1.84) | $0.51 |
| Operating Cash Flow | $(59,204) | $(76,180) |
| Investing Cash Flow | $(5,944) | $(83,885) |
| Financing Cash Flow | $24,633 | $343,483 |
| Cash and Cash Equivalents (End of Period) | $64,720 | $374,828 |
| Total Debt (Net of Deferred Costs) | $1,765,556 | $1,835,907 |
| Average Daily TCE (Non-GAAP) | $8,600 | $14,700 |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased by 33% ($17.4 million) primarily due to the conclusion of charters with Nigeria LNG, the Golar Arctic being off-hire for part of the period, and reduced management fee income from Golar Partners.
- Net Loss: The company reported a net loss of $171.2 million attributable to Golar, compared to a net income of $47.6 million in the prior year. This swing was driven by:
- Loss of One-Time Gains: Absence of the $103.5 million gain on the disposal of the Golar Eskimo to Golar Partners recognized in 2015.
- Financial Items: A $75.2 million swing in "Other financial items" to a loss of $56.4 million, largely due to a $35.1 million mark-to-market loss on interest rate swaps and a $7.6 million impairment of a loan receivable related to the Douglas Channel Project.
- Equity Earnings: A $45.7 million decrease in equity earnings from affiliates, turning a $40.2 million gain in 2015 into a $5.6 million loss in 2016.
- Operating Expenses: Administrative expenses increased by 36% ($5.0 million) due to higher headcount and legal fees. Voyage expenses decreased by 48% ($21.9 million) due to the cessation of charter-back arrangements for the Golar Eskimo and Golar Grand.
- Liquidity: Cash and cash equivalents decreased by 83% to $64.7 million, though restricted cash and short-term receivables totaled $476.8 million.
Guidance, Outlook, and Risks
- Market Outlook: Management notes signs of an anticipated recovery in the LNG shipping market with improved utilization and hire rates in Q3 2016, though the pace remains uncertain.
- Joint Ventures:
- Golar Power: Closed a 50/50 JV with Stonepeak in July 2016, receiving net proceeds of $103 million. This JV focuses on FSRUs and power generation (Sergipe project).
- OneLNG: Formed a JV with Schlumberger (Golar 51%) for FLNG development. A $20 million working capital contribution was made, with potential for $250 million additional equity per party upon project FID.
- Fortuna Project: OneLNG and Ophir signed an agreement for a $2 billion FLNG project in Equatorial Guinea, targeting first gas in H1 2020.
- Convertible Bonds: $246.2 million in convertible bonds mature in March 2017. The company is exploring refinancing options, extensions, or equity issuance.
- FLNG Conversions: The Hilli conversion is funded by a $960 million facility (drawdown of $250 million to date). Conversions of Gimi and Gandria are pending financing and firm contracts; cancellation provisions exist if not exercised by December 2016.
- Risks:
- WAGL Charter: The Golar Tundra charter with West Africa Gas Limited (WAGL) has been delayed. Golar has commenced arbitration. If the charter does not commence by May 2017, Golar Partners may exercise a put option requiring Golar to repurchase the vessel for ~$330 million.
- UK Tax Leases: Potential exposure of up to £100 million if HMRC challenges the tax basis of the remaining Methane Princess lease, though management believes the risk is low.
- Refinancing: Uncertainty regarding the timing and execution of refinancing for newbuildings and the Hilli facility.
Investor Verification Checklist
- Convertible Bond Refinancing: Verify the status of discussions to refinance or extend the $246.2 million convertible bonds maturing in March 2017.
- WAGL Arbitration Outcome: Monitor the resolution of the dispute with West Africa Gas Limited regarding the Golar Tundra charter and the potential $330 million repurchase obligation.
- FLNG Project Financing: Confirm the execution of financing for the Hilli post-delivery phase and the Final Investment Decision (FID) for the Fortuna project in Equatorial Guinea.
- Liquidity Position: Assess the sufficiency of unrestricted cash ($64.7 million) versus restricted cash ($476.8 million) to meet working capital needs for vessels in the Cool Pool and lay-up.
- Interest Rate Swap Exposure: Review the impact of the $35.1 million mark-to-market loss on swaps and the company's hedging strategy given the $1.3 billion notional exposure.