Business Context and Reporting Period
Company: Golar LNG Ltd
Filing Type: Form 6-K (Interim Results)
Reporting Period: Quarter ended June 30, 2015 (2Q 2015)
Business Overview: Golar LNG is a midstream gas company focused on LNG shipping, Floating Storage and Regasification Units (FSRUs), and Floating Liquefaction (GoFLNG) projects. The company operates a fleet of LNG carriers and manages the conversion of vessels into floating liquefaction facilities.
Key Financial Metrics
| Metric | 2Q 2015 | 1Q 2015 | 2Q 2014 |
|---|---|---|---|
| Total Operating Revenues | $20.1 million | $32.2 million | $21.1 million |
| Underlying EBITDA | ($25.3) million | ($4.3) million | N/A |
| Net Income (Loss) | ($0.2) million | $24.6 million | ($24.2) million |
| Net Income Attributable to Golar | ($2.6) million | $21.9 million | ($24.2) million |
| Cash and Cash Equivalents | $374.8 million | $376.1 million | $484.7 million |
| Total Debt (Current + Long-term) | $1.82 billion | $1.40 billion | N/A |
| Dividend Per Share | $0.45 | $0.45 | N/A |
Note: Underlying EBITDA is defined as earnings before interest, depreciation, amortization, impairments, and non-recurring items. Net Income for 2Q 2015 was significantly impacted by non-cash financial gains.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues dropped 37% from $32.2 million in 1Q to $20.1 million in 2Q due to deteriorating chartering markets and lower fleet utilization (33% in 2Q vs. 46% in 1Q).
- Operating Loss: Total operating loss widened to $43.4 million in 2Q from $30.7 million in 1Q, driven by lower utilization and higher administrative costs ($9.2 million vs. $7.0 million) related to FLNG project development.
- Net Income Volatility: Despite an operating loss, the company reported a near-break-even net loss of $0.2 million in 2Q, compared to a $24.6 million profit in 1Q. This was primarily due to a $50.8 million non-cash gain in "Other financial items" (mark-to-market on swaps) in 2Q, offsetting the operating loss. In contrast, 1Q included a $97.8 million gain on disposals.
- Cost Structure: Voyage expenses decreased by $2.3 million to $21.4 million, partially due to the release of a $1.5 million provision related to the Golar Grand charter. Vessel operating expenses increased slightly to $14.8 million.
Guidance, Outlook, and Management Commentary
- Market Outlook: Management notes the LNG shipping market remains under pressure with rates in the $25,000–$30,000 per day range. However, utilization is expected to improve in 3Q 2015 following the end of the Golar Eskimo commitment.
- GoFLNG Progress: The Golar Hilli conversion for the Cameroon project is on track and within budget (60% complete). A financing commitment from CSSC has been secured to fund up to 80% of the project. Material commercial terms with Perenco have been agreed, with Final Investment Decision (FID) expected by September 2015.
- Strategic Initiatives:
- Entered into an LNG Carrier Pool ("The Cool Pool") with Gaslog and Dynagas to optimize fleet efficiency.
- Placed an order for a new FSRU with Samsung Heavy Industries (delivery late 2017) with options for two more.
- Committed to converting the Golar Gandria for the Equatorial Guinea project (Ophir Energy), freeing up the Golar Gimi for potential 2018 projects.
- Dividend Policy: The Board maintains the quarterly dividend at $0.45 per share, deeming it sustainable despite weak operating results, supported by liquidity and Golar Partners distributions.
- Risks: Key risks include continued low charter rates, the ability to secure firm employment for newbuilds/conversions, and the timing of regulatory approvals for FLNG projects.
Investor Verification Checklist
- Financing Execution: Verify the finalization of the CSSC financing facility for the Golar Hilli project and the signing of the Tolling Agreement with Perenco by September 2015.
- Utilization Trends: Monitor 3Q 2015 fleet utilization rates to confirm the anticipated improvement following the Golar Eskimo transition.
- Non-Cash Gains: Assess the sustainability of net income by excluding the $50.8 million mark-to-market swap gains, which do not represent operating cash flow.
- Project FIDs: Track the Final Investment Decision status for the Equatorial Guinea (Ophir) and Cedar LNG projects, which are critical for future revenue streams.
- Liquidity Position: Confirm the receipt of the $100 million receivable from Golar Partners regarding the Golar Eskimo sale and the $50 million annual distribution.