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, 2017
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, liquefaction, and trading of LNG. As of September 29, 2017, 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, including the conversion of the Hilli, Gimi, and Gandria.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Operating Revenues | $53,518 | $34,927 |
| Net Loss | $(123,720) | $(158,983) |
| Net Loss Attributable to Golar LNG Ltd | $(139,651) | $(171,212) |
| Loss Per Share (Basic & Diluted) | $(1.39) | $(1.84) |
| Net Cash Used in Operating Activities | $(31,163) | $(59,204) |
| Net Cash Used in Investing Activities | $(198,480) | $(5,944) |
| Net Cash Provided by Financing Activities | $348,679 | $24,633 |
| Cash and Cash Equivalents (End of Period) | $343,226 | $64,720 |
| Total Debt (Gross) | $2,353,769 | $2,003,506 |
| Average Daily TCE (Non-GAAP) | $13,600 | $8,600 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by $18.6 million (53%) primarily due to improved utilization and daily hire rates from vessels in the Cool Pool ($17.7M increase) and higher management fee income ($4.7M increase).
- Profitability Improvement: Net loss attributable to Golar LNG Ltd decreased by $31.6 million (24%) compared to the prior year. This was driven by higher revenues, lower vessel operating expenses, and a significant reduction in losses on interest rate swaps.
- Interest Rate Swaps: Net realized and unrealized losses on interest rate swaps improved dramatically from a loss of $35.1 million in 2016 to $3.3 million in 2017, attributed to stability in long-term swap rates.
- Depreciation: Depreciation and amortization increased by $3.4 million, largely due to a $9.7 million catch-up charge for the Golar Tundra after it ceased to be classified as held-for-sale.
- Liquidity: Cash and cash equivalents increased significantly to $343.2 million from $64.7 million, bolstered by new debt issuances and refinancing activities.
Guidance, Outlook, and Material Events
Recent Developments and Transactions
- Convertible Bonds: Issued $402.5 million in 2.75% senior unsecured convertible bonds due 2022 in February 2017. Net proceeds were $360.2 million after fees and capped call costs.
- Margin Loan Facility: Secured a $150 million loan from Citibank in March 2017, secured by Golar Partners common units, to repay prior convertible bonds.
- Hilli FLNG Disposal: Entered into an agreement in August 2017 to sell 50% of the Hilli (FLNG) interests to Golar Partners. The net purchase price is estimated between $178 million and $190 million, subject to closing conditions including the execution of a liquefaction tolling agreement.
- Golar Tundra Put Sale: Golar Partners exercised a Put Right to require Golar to repurchase the Golar Tundra for approximately $107 million (deferred). This amount will be applied against the Hilli purchase price.
- Management Changes: Appointed Mr. Iain Ross as CEO, replacing Mr. Oscar Spieler, who will remain as Executive Advisor.
Risks and Contingencies
- FLNG Project Execution: Risks related to the timely conversion, commissioning, and delivery of the Hilli, Gimi, and Gandria FLNGs. Delays could impact financing and revenue recognition.
- Market Conditions: Exposure to fluctuations in LNG carrier charter rates, vessel values, and Brent Crude prices (which affect tolling fees).
- Financing and Refinancing: The Golar Tundra requires a replacement charter by June 30, 2018, or refinancing may be required. The company is exploring options but cannot guarantee execution.
- UK Tax Lease Benefits: Potential exposure to UK tax authorities challenging lease structures, with an estimated exposure range of £0 to £108 million, though management believes the risk is low.
- Joint Venture Funding: Significant future capital contributions are required for Golar Power (approx. $150M through Q3 2018) and OneLNG (approx. $250M per partner upon Final Investment Decision).
Investor Verification Checklist
- Hilli FLNG Closing Conditions: Verify the status of the Liquefaction Tolling Agreement with Perenco/SNH and the consent of lenders for the Hilli disposal to Golar Partners.
- Golar Tundra Charter: Confirm if a replacement charter has been secured for the Golar Tundra to avoid refinancing risks by June 2018.
- OneLNG Fortuna Project FID: Monitor the Final Investment Decision (FID) timeline for the Fortuna Project in Equatorial Guinea, expected by end of 2017, which triggers significant equity funding requirements.
- Debt Covenants: Review compliance with financial covenants, specifically the requirement to maintain at least $50 million in consolidated cash and cash equivalents.
- UK Tax Litigation: Assess any updates regarding HMRC challenges to the Methane Princess lease structure and potential indemnity obligations.