Business Context and Reporting Period
Company: Golar LNG Limited (Golar)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2016
Business Overview: Golar is a midstream LNG company engaged in the transportation, regasification, liquefaction, and trading of LNG. As of January 2017, Golar, together with affiliates Golar Partners and Golar Power, operates a combined fleet of 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) | 2016 (9 Months) | 2015 (9 Months Restated) |
|---|---|---|
| Operating Revenues | $57,194 | $79,680 |
| Net Loss | $(176,380) | $(95,399) |
| Net Loss Attributable to Golar LNG Ltd | $(195,155) | $(103,537) |
| Loss Per Share (Basic & Diluted) | $(2.10) | $(1.11) |
| Cash and Cash Equivalents (End of Period) | $137,904 | $222,842 |
| Total Debt (Net of Deferred Costs) | $1,800,291 | $1,835,907 |
| Net Cash Used in Operating Activities | $(47,062) | $(91,564) |
| Average Daily TCE (Non-GAAP) | $9,900 | $16,200 |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased by $22.5 million (28%) primarily due to the conclusion of charters with Nigeria LNG, disposals of vessels to Golar Power and Golar Partners, and the Golar Arctic being off-hire early in the period. This was partially offset by increased utilization in the Cool Pool.
- Increased Net Loss: Net loss attributable to Golar increased by $92.8 million (93%). Key drivers included a $12.2 million loss on the disposal of Golar Power (loss of control), a $1.7 million impairment of long-term assets, and a $7.6 million impairment of a loan receivable related to the Douglas Channel Project.
- Expense Reductions: Voyage, charterhire, and commission expenses decreased by $22.6 million (39%) due to the cessation of charter-back arrangements for the Golar Eskimo and Golar Grand. Interest expense decreased by $16.7 million (32%) largely due to higher capitalized interest on the Hilli FLNG conversion.
- Restatement: Comparative 2015 figures were restated to account for investments in Golar Partners as equity-accounted investments rather than consolidated entities.
Guidance, Outlook, and Risks
- Market Outlook: Management notes signs of recovery in the LNG shipping market in the second half of 2016, with improved utilization and hire rates, expecting momentum to continue into 2017. However, the pace of recovery remains uncertain.
- Liquidity and Financing:
- Convertible Bonds: $247.6 million in convertible bonds mature in March 2017. Golar intends to fund settlement via a November 2016 equity offering ($170 million net proceeds) and a new $150 million term loan facility with Citibank (subject to documentation).
- FLNG Funding: The Hilli conversion is funded by the GoFLNG facility ($250 million drawn to date). The Gimi and Gandria conversions are paused pending financing and firm client contracts.
- Working Capital: Estimated working capital requirements for the next 12 months for Cool Pool vessels are $38.0 million.
- Key Risks and Contingencies:
- Golar Tundra: The vessel is sold to Golar Partners but consolidated due to a put option. It remains idle pending the West Africa Gas Limited (WAGL) charter in Ghana. If the charter does not commence by May 2017, Golar may be required to repurchase the vessel for ~$330 million (less lease obligations).
- UK Tax Leases: Ongoing litigation by UK tax authorities (HMRC) regarding similar lease structures poses a potential exposure estimated at £0 to £100 million, though management believes their specific structure differs.
- Joint Venture Funding: Significant future capital calls are anticipated for Golar Power (Sergipe project) and OneLNG (Fortuna Project in Equatorial Guinea), contingent on Final Investment Decisions (FID).
Investor Verification Checklist
- Convertible Bond Refinancing: Verify the execution of the operative documents for the $150 million Citibank term loan intended to refinance the March 2017 maturing convertible bonds.
- Golar Tundra Status: Monitor the status of the WAGL charter in Ghana and the potential exercise of the put option by Golar Partners requiring a repurchase of the vessel.
- FLNG Project Progress: Track the Final Investment Decision (FID) for the Fortuna Project (Equatorial Guinea) and the Gimi conversion, as these dictate future capital expenditure and financing needs.
- UK Tax Litigation: Review updates on HMRC challenges to UK tax lease structures to assess potential liability exposure.
- Working Capital Sufficiency: Confirm that cash reserves and access to credit lines are sufficient to cover the estimated $38 million operating costs for spot market vessels and upcoming capital calls for joint ventures.