Financial Review
Business Performance
|
2017 |
2016 |
(in thousands of $) |
Jan-Mar |
Oct-Dec |
Total operating revenues (including revenue from
collaborative arrangement) |
25,110 |
|
23,063 |
|
Vessel operating expenses |
(12,944 |
) |
(11,424 |
) |
Voyage, charterhire & commission expenses |
(12,593 |
) |
(7,918 |
) |
Voyage, charterhire & commission expenses -
collaborative arrangement |
(4,336 |
) |
(4,715 |
) |
Administrative expenses |
(11,441 |
) |
(14,887 |
) |
EBITDA* |
(16,204 |
) |
(15,881 |
) |
Depreciation and amortization |
(25,186 |
) |
(16,826 |
) |
Operating loss |
(41,390 |
) |
(32,707 |
) |
* EBITDA is defined as operating
loss before interest, tax, 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 reports today a 1Q 2017
operating loss of $41.4 million as compared to a 4Q loss of $32.7
million. As expected, the observed improvements in shipping
rates and activity levels during the final weeks of 4Q and into
January translated into a modest improvement in 1Q 2017 operating
revenues. Contrary to expectations, this additional spot market
activity together with reduced payments to Golar Partners in
respect of the dry-docked Golar Grand did not
result in a reduction to reported voyage expenses. Of the $16.9
million 1Q voyage expenses, $9.6 million represents the cost of
chartering the Golar Grand from Golar
Partners. This compares to a 4Q charge of $4.9 million.
Execution of a new charter-party for the vessel in February
triggered an additional non-cash accounting provision that will be
released to voyage expenses between February and October 31, when
the obligation to charter-in the vessel from Golar Partners
expires.
Vessel operating expenses
increased $0.7 million to $12.9 million in 1Q. Operating costs in
4Q were positively impacted by settlement of an insurance claim in
respect of the Golar Viking. Administration
costs decreased $2.7 million from $14.1 million in 4Q to $11.4
million in 1Q. Prior quarter costs were negatively impacted by
legal and professional fees together with the write off of deferred
financing costs. Of this $11.4 million, a total of $5.0 million of
fleet management costs and costs directly attributable to
affiliates OneLNG, Golar Power and Golar Partners have been
recharged. Depreciation and amortisation at $25.2 million is $8.4
million higher than 4Q following a 15-month catch-up charge,
equivalent to $9.7 million, in respect of the FSRU Golar Tundra which was not depreciated whilst accounted
for as an asset held-for-sale. This was offset by reduced
depreciation in respect of the LNG carrier Gimi which reached the end of its accounting useful
life in December 2016.
Net Income
Summary
|
2017 |
2016 |
(in thousands of $) |
Jan-Mar |
Oct-Dec |
Operating loss |
(41,390 |
) |
(32,707 |
) |
Interest
income |
1,024 |
|
1,442 |
|
Interest
expense |
(19,257 |
) |
(17,684 |
) |
Other
financial items |
14,456 |
|
23,670 |
|
Gain on
loss of control of Golar Power |
- |
|
3,701 |
|
Other
non-operating income (expenses) |
62 |
|
(132 |
) |
Taxes |
(189 |
) |
(450 |
) |
Equity in
net earnings of affiliates |
(13,897 |
) |
37,760 |
|
Net income
attributable to non-controlling interests |
(6,652 |
) |
(6,976 |
) |
Net (loss) income attributable to Golar LNG Ltd |
(65,843 |
) |
8,624 |
|
In 1Q the Company generated a net
loss of $65.8 million. Notable contributors to this are summarised
as follows:
·
Interest expense has
increased $1.6 million primarily due to the cost of servicing the
February issued $402.5 million convertible bond that replaces the
balance of a $250 million convertible bond repaid in early
March.
·
Other financial items
reported 1Q income of $14.5 million, most of which was derived from
mark-to-market gains on the 3 million Total Return Swap ("TRS")
shares following a $4.99 quarter on quarter increase in the
Company's share price. Swap rates also continued to increase,
albeit at a slower pace, resulting in further non-cash
mark-to-market interest rate swap gains.
·
Gain on loss of control
of Golar Power in 4Q pertains to a $3.7 million adjustment to the
provisional 3Q $12.2 million non-cash loss recognised on disposal
of Golar Power. No further adjustments were recorded in 1Q.
· The loss of
$13.9 million 1Q equity in net earnings of affiliates is primarily
comprised of the following:
- a $4.1 million
loss in respect of Golar's 50% share in Golar Power;
- a $1.2 million
loss in respect of Golar's 51% share in OneLNG;
- a $8.7 million
loss in respect of Golar's stake in Golar Partners.
This represents a significant fall
relative to overall 4Q earnings of $37.8 million. Golar Partners
earnings in 1Q declined as a result of scheduled off-hire of the
FSRU Golar Igloo and dry-dock off-hire for the
carrier Golar Grand. The Golar Partners
contribution also includes a non-cash loss on deemed disposal of
$17.0 million, being the dilutive impact on our ownership interest
due to further issuances of common units by Golar Partners in
February 2017.
Commercial
Review
LNG
Shipping
Despite showing some improvement
over the prior quarter, the shipping market remained weak in 1Q.
Fleet TCE(1) increased
from 10,893 in 4Q to 14,189 in 1Q. The improvement was partly
driven by a number of vessels in the Cool Pool that secured
short-term charters in the $30k per day range.
The underlying trend remains
positive as new liquefaction projects continue to deliver. Gorgon
and Cheniere Trains 3 have exported their commissioning cargoes and
are now in ramp-up mode, Cheniere T4 remains on track for a 2017
start, Petronas exported the world's first FLNG cargo from their
PFLNG Satu facility in early April, Wheatstone has affirmed the
mid-year start-up of T1 to be followed 6-8 months later by T2, and
Yamal LNG remains on track for an early October start-up. In
addition to this, Malaysia's T9 and now Gorgon T2 both continue to
ramp up production.
Approximately 34 million tons of
new LNG is expected to come on line in 2017 representing 13% growth
against 2016 global production. Against this, shipping capacity is
expected to grow by approximately 9%. This mismatch is expected to
have a positive impact on shipping over the same time frame.
Consensus among ship-owners of a sustained recovery from 3Q has
firmed, aided by a notable increase in inquiries for medium to
long-term vessel requirements, particularly for the lifting of open
US volumes. With this in mind, and in addition to the charter
secured by Golar Partners for the Golar Grand,
the Golar group has also fixed a vessel to a Far Eastern utility.
Scheduled to start in 1Q 2018, the 12-month charter at rates close
to cash break-even, comes with a six-month extension option and
flexibility to nominate the closest vessel at the time to the
required delivery point.
(1)
Non-U.S. GAAP Financial
Measure: Time charter equivalent, or TCE, rate is a measure
of the average daily performance of a vessel. For time
charters, this is calculated by dividing total operating revenues
(excluding vessel and other management fee), less any voyage
expenses, by the number of calendar days minus days for scheduled
off-hire.
Golar
Partners
Golar Spirit,
which is scheduled to be redelivered by Petrobras in June, is being
marketed for new opportunities. The market for smaller low cost
FSRUs is quite active as the cost of significant unutilised
capacity on larger FSRUs can undermine the economics of a switch to
gas in certain niche markets. Smaller units like the Golar Spirit are therefore able to provide a more
economic solution.
During the quarter, Golar Partners
secured new business for the LNG carrier Golar
Grand. The vessel was removed from lay-up on February 14 for
repairs and relocated to Singapore for dry-dock, which completed on
April 14. On May 5, the vessel commenced a firm two-year charter
with a high quality oil and gas major. Golar will continue to
sub-charter the Golar Grand from the
Partnership until October 31, 2017, when its obligation expires.
Between May 5 and October 31, daily hire from the new charter will
accrue to Golar.
The FSRU Golar
Tundra remains anchored off the coast of Ghana. Charterer, West
Africa Gas Limited, has made no further progress with the
construction of supporting land-based infrastructure. Golar has
been granted an interim arbitration award of $23.3 million which
the company is now actively pursuing. This covers the period up to
December 31, 2016. Since then, a further $22.0 million has become
due and this will also be pursued through the arbitration process,
in addition to amounts accruing thereafter. The Company is now
seeking an award against the guarantor.
Golar Partners has now exercised
its right ("Put Right") to require Golar to repurchase the company
("Tundra Corp"), the disponent owner and operator of the FSRU
Golar Tundra, at a price equal to the original
purchase price (the "Put Sale") paid by the Partnership in its
acquisition of Tundra Corp in May 2016 (the "Purchase Price").
In connection with the exercise of
the Put Right, the Partnership and Golar have entered into an
agreement pursuant to which the Partnership has agreed to sell
Tundra Corp to Golar on the date of the closing of the Put Sale
(the "Put Sale Closing Date") in return for Golar's promise to pay
an amount equal to approximately $107 million (the "Deferred
Purchase Price") plus an additional amount equal to 5% per annum of
the Deferred Purchase Price (the "Additional Amount"). The Deferred
Purchase Price and the Additional Amount shall be due and payable
by Golar on the earlier of (a) the date of the closing of the
acquisition of the Hilli Shares and (b) March 31, 2018. The closing
of the Put Sale is expected to occur in June 2017, subject to
customary closing conditions. In addition to the Deferred Purchase
Price, Golar will be liable for the charterhire payments due under
the sale and leaseback financing arrangement.
The Partnership has agreed to
accept the Deferred Purchase Price and the Additional Amount in
lieu of a cash payment on the Put Sale Closing Date in exchange for
Golar granting to the Partnership the option (the "Golar Hilli Episeyo Purchase Option") to purchase, at fair
market value, up to a 25% equity interest (the "Hilli Shares") in
Golar Hilli Corp. ("Hilli Corp"), the owner of the FLNG vessel
Hilli Episeyo.
Under the new agreement with
Golar, the Partnership has the ability to exercise the Golar
Hilli Episeyo Purchase Option at any time on
or before March 31, 2018. There can be no assurance that the
Partnership will exercise the Hilli Purchase Option or that it will
consummate an acquisition of the Hilli Shares. The acquisition by
the Partnership of the Hilli Shares will be subject to, among other
things, the approval by the Conflicts Committee of the
Partnership's board of directors of the decision to purchase the
Hilli Shares, the fair market value to be paid for the Hilli Shares
and the other terms of the purchase.
In addition, the purchase
agreement for the Hilli Shares will provide that the Partnership
will not be required to consummate the purchase of the Hilli Shares
if, among other things, the Golar Hilli
Episeyo shall not have been delivered to and
accepted by Perenco Cameroon SA and Societe Nationale Des
Hydrocarbures ("Perenco") and commenced its commercial operation
under the eight year Liquefaction Tolling Agreement with Perenco
for the first two of four liquefaction trains of Golar Hilli Episeyo. The purchase price to be paid by the
Partnership for the Hilli Shares would be reduced by the sum of the
unpaid Deferred Purchase Price plus the unpaid Additional Amounts
on the date of the closing of the Hilli Shares.
A 25% interest in the Hilli Shares
is effectively 50% of the first two of a total of four liquefaction
trains. It is not expected, in the event a purchase is agreed, that
the Partnership would be acquiring exposure to any oil price linked
elements of the tariff under the Perenco contract or to the
potential expansion capacity of Hilli Episeyo.
It is expected that Golar Partners can fund the equity component of
the purchase without the need for raising additional funds.
Downstream -
Golar Power
The Sergipe project that will
deliver LNG fuelled power to 26 committed power off-takers from
2020 is proceeding to plan. Site works are substantially complete
with foundations for the gas turbines now in place and the General
Electric sponsored EPC project continues on schedule and budget.
With regards to the required project debt financing credit
approvals are also progressing, with financial closing expected
before 2017 year-end. Permitting of the regas terminal, which
represents the greatest challenge so far, is progressing
well.
Construction of the FSRU Golar Nanook, that will support the Sergipe project, is
on schedule for delivery towards year-end. In the event that
builders Samsung are selected to carry out the requisite
modifications, delivery will likely be pushed back by around ten
months, limiting the time available for trading prior to its
mid-2019 start-up. A decision on this is expected shortly, as is a
fully executed 25-year time charter party, both of which will
facilitate the FSRU delivery installment financing process.
A significant portion of the 115
mtpa of new LNG supply currently under construction will soon
become available in the market. It is expected that much of this
will likely end up in frontier markets that favour low cost,
flexible, quick delivering FSRUs. Several FSRU projects with award
potential over the next two years have been identified, a few of
which could potentially be awarded this year and commence
operations in 2018. Although gas is becoming an increasingly
attractive component of the global energy matrix and the market for
FSRUs is growing, most initiatives are being sponsored by private
enterprises that require additional technical and financial
support. Golar Power is therefore looking to capitalise on and
replicate the experience of Sergipe to offer unique support to
those developing LNG-to-power projects.
The regas module for the first of
its modern LNG carrier conversions is scheduled to deliver in early
2018, positioning it to support any project with a requirement for
a 2H 2018 FSRU. Several opportunities are being pursued that fit
with this time-frame.
FLNG
The FLNG Hilli
Episeyo conversion is nearing completion. All equipment has
been installed and testing and pre-commissioning work is underway
and will continue in Singapore until departure from the yard, which
is expected to be in around 6 weeks. Seawater trials, storing-up
and potentially LNG bunkering in Singapore will follow redelivery
from the yard. A naming ceremony has been scheduled for July 2. The
mooring has now been completed and is en-route to Cameroon in
advance of hook-up and initiation of commissioning and production
at the end of September. Perenco are on track with their scope of
works.
More than 16 million man hours
have been worked by Keppel to date and approximately 4,000 workers
are expected to remain on-board the vessel through to completion.
Provided that remaining works progress according to current plans
and no unforeseen issues arise, the schedule to meet the
end-September start in Cameroon is tight but achievable. The FLNG
Hilli Episeyo conversion remains within
budget.
Upstream -
OneLNG
On May 2, Ophir Energy, OneLNG,
GEPetrol and The Republic of Equatorial Guinea signed a detailed
Umbrella Agreement that defines the full legal and fiscal framework
for the 2.6Tcf Fortuna gas reserves, offshore Equatorial Guinea.
Concluding this multi-year exercise represents a critical step
toward FID. Contingent upon the Umbrella Agreement are two
other key milestones, including draw-down against a financing
facility and sale of LNG offtake. A third identified
milestone, namely the award of upstream EPCIC and midstream EPC
contracts, has since been part satisfied following Golar's
execution of an amended EPC contract for the conversion of the LNG
vessel Gandria. The effectiveness of the
EPC contract executed by Golar does however remain subject to a
FID.
Including upstream and midstream
development capital expenditure, the Fortuna project is expected to
cost approximately $2.0 billion to develop. Of this, approximately
$1.5 billion will be needed to convert the FLNG Gandria and $0.5 billion will cover upstream work.
Documentation for a midstream facility of up to $1.2 billion with a
consortium of Chinese lenders is ongoing and now remains the
time-critical input for FID. Should the Equatorial Guinea
government elect to invest in up to 30% of the mid-stream as they
are entitled to, the ownership structure of the Fortuna joint
venture would remain unchanged, however its stake in the FLNG
Gandria would reduce.
OneLNG continues to make good
progress exploring other projects. On May 29 it entered into a
binding Memorandum of Understanding with the Ministry of Mines and
Hydrocarbons of Equatorial Guinea to explore the liquefaction and
commercialisation of natural gas. Efforts will be focused on Blocks
O and I offshore Malabo. Agreement terms place obligations on both
parties to find a technical and commercial solution to monetise gas
that is either stranded or being re-injected in liquids production.
That commercial solution is to include the provision of an FLNG
vessel, associated infrastructure and the creation of an LNG sales
vehicle. The parties seek to reach definitive agreements to proceed
by December 2017 but no later than December 2018. In addition to
this, OneLNG is also working on 3-4 additional projects, each
involving one or more FLNG unit.
Following last year's successful
barge-based commissioning of identical liquefaction technology to
that used on Hilli Episeyo, Petronas have
recently exported the world's first LNG cargo from an FLNG unit
offshore Malaysia. Whilst proof of quite different concepts, both
examples help build support for FLNG amongst an inherently
conservative audience.
Financing Review
FLNG Hilli
Episeyo financing
As at March 31, 2017, $710.0
million has been spent on the Hilli Episeyo
conversion ($774.8 million including capitalised interest) and $300
million has been drawn against the $960 million CSSCL facility. A
material portion of the outstanding capital expenditure is payable
upon charterer acceptance of the vessel. This will closely coincide
with receipt of a final $260 million tranche of debt which is
drawable upon the earlier of vessel acceptance or after three
months hire has been received. At this point, likely to be early
2018, the company expects to release approximately $160 million of
equity. A further $87 million of the outstanding $232 million
letter of credit will be released a year after
acceptance.
The $300 million drawn to date
against the project financing facility has been reclassified as
short-term debt and will be replaced by the pre-arranged $960
million sale and leaseback facility after vessel acceptance,
expected within 12-months.
Convertible
bonds
On February 17, the Company closed
a new $402.5 million senior unsecured five-year 2.75% convertible
bond with an initial conversion price of $37.69. To mitigate the
dilution risk of conversion to common equity, the Company also
entered into capped call transactions costing approximately $31.2
million. The capped call transactions have an initial strike price
of $37.69 and an initial cap price of $48.86, the cap price of
$48.86 being a proxy for the revised conversion price and
representing a 75% premium. The conversion price will be adjusted
for future dividends paid. Bond proceeds, net of fees, and the cost
of the capped call amounted to $360.2 million.
On March 4, the company drew down
on a three-year $150 million margin loan secured by 20.9 million
Golar Partners common units and, on March 7, the outstanding $220
million balance of the 2012 five-year $250 million convertible bond
was repaid.
Golar Crystal
refinancing
On March 14, Golar drew down $112
million against a ten-year sale and leaseback facility agreed with
a subsidiary of COSCO Shipping in respect of the LNG carrier
Golar Crystal. Concurrent to this, an existing
2019 maturing $101 million Korean ECA backed facility was repaid.
This transaction released approximately $18.9 million including
restricted cash to 1Q liquidity.
Liquidity
Golar's unrestricted cash position
as at March 31, 2017 was $456.7 million. This will be used to fund
the Company's initial equity participation in the Fortuna FLNG
project, expected to be approximately $47 million in 2017, to meet
its remaining commitments to Golar Power, expected to be
approximately $75 million in 2017, and for general corporate
purposes.
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 or Golar Power
Limited; 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.
As a result, you are cautioned not
to rely on any forward-looking statements. Actual results may
differ materially from those expressed or implied by such
forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise unless
required by law.