Highlights
-
EBITDA* in the quarter reported a loss
of $17.5 million compared to a 1Q loss of $21.7 million.
-
Golar LNG Limited ("Golar" or "the
Company") and Stonepeak Infrastructure Partners ("Stonepeak")
launched Golar Power, a 50/50 joint venture that will offer
integrated LNG based downstream power solutions and
infrastructure.
-
Golar's 15.9 million subordinated units
in Golar LNG Partners LP ("Golar Partners" or "the Partnership")
converted to common units.
-
Refinanced and then closed the sale of
FSRU Golar Tundra to Golar Partners releasing an incremental $102.8
million of liquidity.
Subsequent events
·
Closed Golar Power transaction
and received $103.0 million in new liquidity. Debt and
operating cash burn in respect of two vessels together with $216.5
million of unfunded capital commitments for the FSRU new-build
removed from Golar's balance sheet.
·
Golar and Schlumberger formed
OneLNG, a joint venture that will offer an integrated upstream and
midstream solution for development of low cost gas reserves to
LNG.
·
Shipping market commences its
recovery with improving utilisation, rates and the re-appearance of
round-trip economics.
Financial Review
Business Performance
|
2016 |
2016 |
(in thousands of $) |
Apr-Jun |
Jan-Mar |
Total operating revenues |
18,370
|
16,557 |
Vessel operating expenses |
(14,064) |
(15,573) |
Voyage, charterhire & commission expenses |
(9,826) |
(10,648) |
Voyage, charterhire & commission - collaborative
arrangements |
(2,331) |
(473) |
Administrative expenses |
(9,689) |
(11,576) |
EBITDA* |
(17,540) |
(21,713) |
Depreciation and amortization |
(19,705) |
(19,444) |
Impairment of long-term assets |
- |
(1,706) |
Net gain on disposals (includes amortization of deferred
gains) |
126 |
126 |
Other operating gains and losses (LNG Trade) |
- |
16 |
Operating loss |
(37,119) |
(42,721) |
* EBITDA is defined as earnings
before interest, depreciation and amortization. EBITDA is a
non-GAAP financial measure. A non-GAAP financial measure is
generally defined by the Securities and Exchange Commission as one
that purports to measure historical or future financial
performance, financial position or cash flows, but excludes or
includes amounts that would not be so adjusted in the most
comparable U.S. GAAP measure. We have presented EBITDA as we
believe it provides useful information to investors because it is a
basis upon which we measure our operations and efficiency.
EBITDA is not a measure of our financial performance under U.S.
GAAP and should not be construed as an alternative to net income
(loss) or other financial measures presented in accordance with
U.S. GAAP.
Golar reported today a 2Q
operating loss of $37.1 million as compared to a loss of $42.7
million in 1Q 2016. Although headline shipping rates remained
relatively unchanged during the quarter there was a modest
improvement in utilisation which increased from 24% in 1Q to 31% in
2Q. Reflecting the uptick in utilisation, total operating
revenues increased from $16.6 million in 1Q to $18.4 million in 2Q.
Voyage, charter-hire and commission expenses including those
from the Cool Pool collaboration increased from $11.1 million in 1Q
to $12.2 million this quarter largely due to the cost of
positioning the Golar Tundra from Singapore to Ghana and the two
carriers formerly chartered by Nigeria LNG into the Cool Pool. As
in the first quarter, included in voyage, charter-hire and
commission expenses is $5.8 million in respect of the cost of
chartering the Golar Grand.
Vessel operating expenses
decreased $1.5 million to $14.1 million. Operating costs for
the Golar Arctic normalised in 2Q having been unusually high in the
prior quarter when additional storing-up and maintenance costs were
incurred in preparation for the vessels two year charter off
Jamaica. Savings were also recorded across most of the
remaining vessels as a result of a general cost reduction exercise.
Administration costs at $9.7 million were $1.9 million lower than
1Q 2016 largely due to a normalisation in project support service
costs.
Relative to 1Q the above resulted
in a $4.2 million decrease in 2Q EBITDA losses and a $5.6 million
decrease in 2Q operating losses.
Net Income
Summary
(in thousands of $) |
2016 |
2016 |
|
Apr-Jun |
Jan-Mar |
Operating loss |
(37,119) |
(42,721) |
Dividend
income |
4,089
|
4,178 |
Interest
Income |
196 |
895 |
Interest
expense |
(13,331) |
(6,022) |
Other
financial items |
(27,471) |
(28,880) |
Taxes |
609 |
676 |
Equity in
net earnings of affiliates |
(17,062) |
(5,397) |
Net income
attributable to non-controlling Interests |
(9,412) |
(2,817) |
Net loss attributable to Golar LNG Ltd |
(99,501) |
(80,088) |
In 2Q the Company generated a net
loss of $99.5 million. Notable contributors to this are summarised
as follows:
-
2Q interest expense at $13.3 million
has increased from the prior quarters $6.0 million. The increase is
largely due to a substantial reduction this quarter in capitalised
interest (a credit to interest expense) in respect of assets under
development. The credit in the first quarter included a catch-up
element for prior quarters. This capitalised interest credit should
now be at normalised levels.
-
Other Financial Items at $27.5 million
for 2Q were in line overall with the prior quarter cost of $28.9
million. A 2Q mark to market loss representing the decrease
in Golar's share price from $17.97 on March 31 to $15.50 on June 30
of $7.8 million was recorded against the Company's Total Return
Equity Swap. Mark-to-market losses on the valuation of interest
rate swaps amounted to $5.9 million in 2Q following further
decreases in long-term swap rates. Amortisation of debt related
expenses increased from $4.4 million in 1Q to $11.1 million in 2Q
following a change in amortisation method.
-
Despite a 67% increase in Golar
Partners reported net income after non-controlling interests, Golar
Partners overall contribution to equity in net losses of affiliates
increased by $11.7 million compared to 1Q. This follows a
one-off non-cash charge of $19.2 million recorded at the end of the
subordination period when the Company's 15.9 million subordinated
units in Golar Partners converted into common units. Cash flows
however remain unchanged. In line with 1Q, the Company has
received $13.2 million in cash distributions in respect of its
investment in Golar Partners.
Commercial
Review
Existing Assets
and Contracts
LNG
Shipping
The modest increase in utilisation
in 2Q from historically low levels in 1Q is underpinned by a much
greater increase in activity. During 2Q 22 spot voyages were
concluded by the Cool Pool relative to only 8 commencing in 1Q.
Much of this additional activity was initially supported by an
ENARSA tender for 35 cargoes into Argentina early in the quarter
followed by tenders for additional cargoes into Egypt. It was
activity in the Atlantic basin where structural availability is
less than the Pacific or Middle East that drove this improvement in
utilisation. Despite the increase in activity, hire rates
throughout 2Q remained low at $30kp/day for TFDE tonnage and sub
$20kp/day for modern steam vessels. Compensation for backhaul
legs was only available in isolated cases.
Subsequent to the quarter end,
chartering activity and LNG charter rates have climbed
steeply. This improvement cannot be explained by seasonal
fluctuations alone. A combination of ramped up production
from new facilities that started producing in late 2015/early 2016,
the withdrawal of spot traded ships in anticipation of the imminent
start-up of their dedicated project volumes and more trading
activity to service recently installed FSRU capacity have
collectively started to absorb some of the excess spot tonnage. The
delayed Gorgon and Angola export projects that weighed heavily on
the 1H shipping market are also now starting up and will be
accompanied by Sabine Pass' Train 2 shortly.
The Company believes that
sentiment is shifting and owners are cautiously confident in the
market over the next 12-24 months. The volume of voyage charters
concluded since 2Q, their headline rates and the re-emergence of
full round trip economics indicates that the anticipated 2H
recovery in the shipping market is finally materialising as
expected. Round-trip voyages are currently being concluded at
rates exceeding $40k/day out of the Atlantic. Rates in the
Pacific have strengthened but not to the same extent with voyages
typically being fixed in the mid-$30k/day range. There are
however certain additional reserves in the fleet should maximum
steaming speeds be reintroduced.
Enquiries from traders and energy
majors for 3-6-12 month charters accompanied by extension options
have increased notably. Discipline among ship owners is also a
welcome sight. Only 4 LNG carriers have been ordered this year to
date with conventional carriers on order currently representing 31%
of the current fleet. Approximately 130 million tonnes of new
production equivalent to 49% of current LNG production is expected
to deliver between now and 2020. Golar expects further
opportunities to emerge over the coming quarters as cargo owners,
mindful of the tightening market seek to secure their shipping at
sensible rates.
FSRUs
Golar's existing fleet of six
operating FSRUs, all of which reside within Golar Partners but are
managed by the Company, have maintained operational excellence
achieving 100% availability during scheduled 2Q operations.
The Golar Tundra arrived off the
coast of Ghana at the end of May and issued its notice of readiness
the following month. Amounts due under the contract started
to accrue from mid-July. Charterers of the FSRU, West Africa Gas
Limited ("WAGL") have however experienced significant delays with
respect to the part of the project for which they are
responsible. Golar Partners who own the FSRU Tundra are
however entitled to payment of hire and invoices have been issued
for this.
Although Golar continues to
receive assurances that the project remains intact, the Company has
sought and received a positive opinion which strongly supports its
legal position in exercising its rights under the contract should
WAGL contest their obligations under the charter. Golar
maintains a constructive dialogue with WAGL with regards to finding
a mutually agreeable way forward for the project which is both
needed and supported by the government of Ghana. The market
generally for FSRUs remains positive as noted further below.
FLNG
The FLNG Hilli conversion project
remains on schedule and within budget. Up to 3,000
contractors are working on the vessel during the day with a night
shift of 300 also now on-board. FLNG Hilli is currently on
track to deliver within its stipulated delivery window. In light of
the suspension of Engie's proposed land based LNG project and
discussions with our partners in Cameroon, local authorities and
key stakeholders, Golar is cautiously optimistic that increased
utilisation of the FLNG Hilli can be achieved after production
start-up. Assuming this occurs and depending on the incremental
uplift in volumes, this will significantly improve the
EBITDA. Based on the configuration of the vessel this
additional EBITDA could be achieved for little or no additional
investment by Golar.
Ophir and Golar continue to
explore ways to develop the Fortuna reserves. Projected economics
even at current gas forward prices are strong and the combined
upstream and midstream investment required to complete the
development should be manageable and financeable.
The biggest challenge for the
project is to secure alignment between the upstream and midstream
partners. Proper alignment should help secure attractive
financing for the entire project. Good progress has been made on
both fronts in the last quarter.
Business Development
Review
FSRU
activities
Over recent quarters Golar has
seen a number of companies express a desire to enter the FSRU
space. Although they have been attracted by the strong
underlying prospects, superior returns and increasing opportunities
relative to conventional shipping, many of them lack the technical
capability required to replicate Golar's own successful conversion
model or do not have the risk appetite to speculatively order a
new-build. A select few will however succeed and this has the
potential to put pressure on margins where competitive tenders
arise. As previously communicated the company has also noted
over time that a large proportion of FSRU projects are being used
to directly support power projects. In many cases these power
projects enjoy returns well in excess of those achieved by the
established FSRU infrastructure providers.
On June 20 Golar entered into a
50/50 joint venture with Stonepeak. This venture, Golar
Power, combines the Independent Power Project experience of
Stonepeak with the terminal and FSRU experience of Golar and will
offer integrated LNG based downstream solutions through the
ownership and operation of FSRUs and associated terminal and power
generation infrastructure. At closing on July 6 Golar Power
assumed from Golar two new-build carrier conversion candidates, the
2017 delivering FSRU new-build and Golar's right to participate in
Brazil's Sergipe power project. Golar Power is now pursuing both
standalone FSRU opportunities and integrated LNG/FSRU supported
power projects and is working on several opportunities which have
the potential to be awarded over the next year. The Sergipe
project is now entering the final stages of its pre Final
Investment Decision ("FID") process. This is a large project
with equally large returns but also risks that must be
managed. The recent strengthening of the Brazilian Reais
against the US Dollar further improves forecasted project economics
and solid progress is being made toward FID in the coming
months.
FLNG - Business
Development Progress
Subsequent to the quarter end,
Golar and Schlumberger formalised plans to co-operate on the global
development of greenfield, brownfield and stranded gas
reserves. On July 25 the two parties established OneLNG, a
joint venture 51% owned by Golar that will develop low cost gas
reserves to LNG. The combination of Schlumberger's reservoir
knowledge, wellbore technologies and production management
capabilities with our own low cost FLNG solution will offer gas
resource owners a faster and lower cost development solution.
By presenting a united one-stop upstream and midstream solution,
OneLNG reduces the number of competing interests in what can be a
complicated set of negotiations and also increases the number of
financing options available. Golar believes that this will
materially improve the likelihood of a project succeeding.
OneLNG was established with $20
million of working capital ($10.2 million funded by Golar) and a
commitment to contribute a further $250 million each upon approval
of the first project.
A separate OneLNG organisation
including a recruited CEO and CFO will be established in due
course. The initial working capital will fund employment
costs for those initially seconded and recruited into the JV as
well as the cost of commissioning extensive research into potential
fields and bringing the first project to a final investment
decision. To this end, OneLNG is now reviewing in detail a
comprehensive list of projects that suit its offering. Whilst
there remains a West African bias to the current shortlist it also
includes projects in Asia that Golar had not previously
contemplated.
Although the cost of feed gas to
North American export projects is significantly higher than West
African gas today, there are also a number of opportunities in this
region that have the potential to be interesting medium term
prospects. These prospects would also represent an
opportunity to diversify the FLNG portfolio of opportunities from
both a gas source (onshore/offshore) and a geographic
perspective.
Financing Review
FSRU Tundra dropdown
On May 23 the sale of Golar Tundra
to Golar Partners was completed. Proceeds from an additional
drawdown against the vessels existing debt facility together with a
balancing payment from Golar Partners collectively added an
incremental $102.8 million liquidity to Golar's 2Q balance sheet.
The Company will however continue to consolidate the company
that owns the Golar Tundra until operations under the contract with
West Africa Gas Limited commence. Included in the contract is a one
year put to Golar in the event that operations do not commence in
accordance with contractual arrangements or no satisfactory
mitigating arrangement is agreed.
FLNG
financing
As at June 30, 2016, $588 million
has been spent on the FLNG Hilli conversion ($619 million including
the vessel). To date, Golar has drawn down $150 million against the
$960 million CSSCL FLNG Hilli facility. As the project remains well
within its $1.2 billion budget, all remaining conversion and site
specific costs for the FLNG Hilli are expected to be satisfied by
this facility. Given that Golar have already invested $400 million
in the conversion of FLNG Hilli, and once the $960 million debt
facility is fully drawn, an equity release of up to $160 million is
expected.
Golar
Power
As well as having strategic merit,
the formation and subsequent sale to Stonepeak of a 50% interest in
Golar Power represents an important first step in the strengthening
of Golar's financial position. Together with the
addition of $103.0 million in new liquidity to the 3Q balance sheet
this transaction removed Golar's obligations to meet the remaining
$216.5 million of instalment payments due to Samsung in respect of
the 2017 delivering FSRU new-build and substantially reduced the
equity call on Golar should the Sergipe project proceed as planned.
Golar has also been relieved of the daily operating and debt
service costs in respect of the two carriers, equivalent to
approximately $50k/day each. Finally, in addition to paying Golar
$103.0 million (net of a $10 million working capital contribution
to Golar Power), Stonepeak have also subscribed to a further $100
million of preference shares in Golar Power. This, together
with an additional $75 million funding commitment from Golar in the
period before 2H 2018 provides Golar Power with the capital it
needs to sustain its asset base, pursue FSRU and other independent
power projects, and, when combined with reasonable debt
assumptions, convert both of its carriers into FSRUs.
Liquidity
Golar's total cash position as at
June 30 was $464.4 million. Of this $280.0 million and $85.9
million respectively is restricted cash relating to the FLNG Hilli
Letter of Credit ("LC") and the Company's total return swap. A
further $37.9 million invested in the FLNG Hilli during 2Q will be
drawable against the CSSCL debt facility in 3Q.
Since the end of June, the
Company's cash position has been improved by the closing of the
Golar Power joint venture with Stonepeak. This transaction
produced a $103.0 million net cash addition to Golar. After another
bank syndication exercise and a reduction in mark-to-market swaps a
further $13.9 million of the $280 million cash backed LC to Perenco
has also been released to Golar. Restricted cash tied up in
this LC now stands at $266.1 million. Efforts continue to be
directed to the release of a further $31 million of this restricted
cash over the next few months.
The next step to a strengthened
balance sheet requires that Golar address its March 2017 maturing
$250 million convertible bond. This bond is secured by shares
in Golar Partners currently worth approximately $240 million. Over
and above the units used to secure the bond, Golar also has
ordinary units in the Partnership worth approximately $90 million
and 100% of the General Partner, all of which are unencumbered.
Golar has also initiated
discussions with commercial banks. The objective of these
discussions is to refinance a material share of the outstanding
convertible bond with a medium term commercial bank line secured by
Golar's stake in the Partnership. This could be supplemented
by the monetisation of dividends associated with the incentive
distribution rights which currently generate $8.6 million in annual
distributions. Such an arrangement could also enhance the
Partnerships ability to make accretive investments in the
future. Several proposals have been received and the Board is
confident that a suitable commercial solution can be agreed.
Corporate and
other matters
As at June 30, 2016, there were
93.1 million Golar shares outstanding including 3.0 million Total
Return Swap shares that have an average price of $41.10 per share.
There were also 2.4 million outstanding stock options in issue with
an average strike price of approximately $51.92 per share.
The Board has left the dividend
unchanged at $0.05 per share for the quarter.
Outlook
Golar has delivered on two
significant commitments since last reporting and changed the
structure of the company as a result. Golar Power is now an
independent downstream entity that is working to build the skills
required to embed its FSRUs directly into power projects thus
sidestepping the risk of slowly becoming an undifferentiated
supplier to what will eventually become a more commoditised
business. At the other end of the value chain is OneLNG, a
combination with Schlumberger that now has the skills and financing
clout required to deliver some of the lowest cost integrated
upstream gas to LNG solutions in the market today. In between
the two is Golar LNG with its shipping portfolio and technical
project development capabilities that will ultimately be the link
between these ventures. The shipping business shows signs of
an anticipated recovery. Improving utilisation, rates and the
re-emergence of full round trip economics should all help to reduce
the cash burn associated with this business from 3Q forward. Golar
LNG will retain the FLNG Hilli which remains well within budget and
on track to deliver off the coast of Cameroon within its contracted
delivery window. Discussions regarding utilisation of the
vessels spare capacity also represent grounds for cautious
optimism.
There are near-term concerns with
the status of the FSRU Tundra contract in Ghana that need to be
addressed. The commercial rational remains sound and the
rhetoric from government and charterers is supportive however the
pace of progress on the ground is not yet reflective of
this.
At a macro level the last 18
months have been overshadowed by the conventional wisdom that China
was no longer in a position to be the LNG demand engine that was
the foundation for the wave of new supply that is now starting to
deliver. Adding to the pessimism has been the reduced demand
from mainstay markets Japan and South Korea. As with the shipping
business we are now starting to see signs of new demand.
Although traditional demand centres Japan and South Korea have
indeed reported recent reductions in LNG imports, China and India
have seen imports increase dramatically over recent months.
The delinking of LNG prices from oil prices and the reduction of
China's LNG gate price is being met by a demand response. In
the case of China there is scope for the gate price to reduce
further and this should stimulate additional demand. India is
also a price sensitive market that is now responding accordingly
both with demand for LNG and also for FSRUs. This together with new
demand in the Middle East should be welcome news for LNG players
and it is for Golar. The Company does however firmly retain
the view that conventional approaches to executing LNG projects
still look unlikely to cost effectively deliver new supply in the
future. This fact underpins Golar's belief in the viability
of its flexible and low cost OneLNG FLNG offering.
The Board is of the opinion that
good progress has been made strategically and financially over the
last year to better position the company for the future.
Forward Looking
Statements
This press release contains
forward-looking statements (as defined in Section 21E of the
Securities Exchange Act of 1934, as amended) which reflects
management's current expectations, estimates and projections about
its operations. All statements, other than statements of
historical facts, that address activities and events that will,
should, could or may occur in the future are forward-looking
statements. Words such as "may," "could," "should," "would,"
"expect," "plan," "anticipate," "intend," "forecast," "believe,"
"estimate," "predict," "propose," "potential," "continue," or the
negative of these terms and similar expressions are intended to
identify such forward-looking statements. These statements
are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond
our control and are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed
or forecasted in such forward-looking statements. You should
not place undue reliance on these forward-looking statements, which
speak only as of the date of this press release. Unless
legally required, Golar undertakes no obligation to update publicly
any forward-looking statements whether as a result of new
information, future events or otherwise.
Among the important factors that
could cause actual results to differ materially from those in the
forward-looking statements are: changes in LNG carriers, FSRU
and floating LNG vessel market trends, including charter
rates, ship values and technological advancements; changes in the
supply and demand for LNG; changes in trading patterns that affect
the opportunities for the profitable operation of LNG carriers,
FSRUs; and floating LNG vessels; changes in Golar's ability to
retrofit vessels as FSRUs and floating LNG vessels, Golar's ability
to obtain financing for such retrofitting on acceptable terms or at
all and the timing of the delivery and acceptance of such
retrofitted vessels; increases in costs; changes in the
availability of vessels to purchase, the time it takes to construct
new vessels, or the vessels' useful lives; changes in the ability
of Golar to obtain additional financing; changes in Golar's
relationships with major chartering parties; changes in Golar's
ability to sell vessels to Golar LNG Partners LP; Golar's ability
to integrate and realize the benefits of acquisitions; changes in
rules and regulations applicable to LNG carriers, FSRUs and
floating LNG vessels; changes in domestic and international
political conditions, particularly where Golar operates; as well as
other factors discussed in Golar's most recent Form 20-F filed with
the Securities and Exchange Commission. Unpredictable or
unknown factors also could have material adverse effects on
forward-looking statements.
August 31, 2016
The Board of Directors
Golar LNG Limited
Hamilton, Bermuda
Questions should be directed
to:
Golar Management Limited - +44 207
063 7900
Oscar Spieler - Chief Executive
Officer
Brian Tienzo - Chief Financial
Officer
Stuart Buchanan - Head of Investor Relations
Interim Results for the Period
Ended 30 June 2016
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Golar LNG via Globenewswire
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