Financial Review
Business Performance
|
2016 |
2016 |
(in thousands of $) |
Oct-Dec |
Jul-Sep |
Total operating revenues |
23,063 |
|
22,267 |
|
Vessel operating expenses |
(11,424 |
) |
(12,102 |
) |
Voyage, charterhire & commission expenses |
(7,918 |
) |
(8,031 |
) |
Voyage, charterhire & commission expenses -
collaborative arrangements |
(4,715 |
) |
(3,621 |
) |
Administrative expenses |
(14,887 |
) |
(9,808 |
) |
EBITDA* |
(15,881 |
) |
(11,295 |
) |
Depreciation and amortization |
(16,826 |
) |
(16,997 |
) |
Operating loss |
(32,707 |
) |
(28,292 |
) |
* 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 4Q 2016
operating loss of $32.7 million as compared to a 3Q loss of $28.3
million. As stated in the 3Q report, the observed
improvements in shipping rates and activity levels during the final
weeks of 4Q will not translate into improved net revenues until 1Q
2017. Utilisation and voyage expenses during 4Q remained
relatively stable at 39% and $12.6 million respectively (versus 37%
and $11.7 million in 3Q). Included in voyage, charter-hire and
commission expenses is $4.9 million in respect of the cost of
chartering the Golar Grand from Golar
Partners.
Vessel operating expenses
decreased a further $0.7 million to $11.4 million in 4Q following
settlement of a 2014 insurance claim in respect of the Golar Viking. Administration costs on the other hand
reflected a $5.1 million increase over 3Q to $14.9 million in
4Q. Increases in non-cash share option charges following the
awards made in November 2016 and project costs due to increased
project development activity make up the majority of the movement
from 3Q. Depreciation and amortisation at $16.8 million is in
line with 3Q.
Relative to 3Q the above resulted
in a $4.6 million increase in EBITDA* losses from a loss of $11.3
million in 3Q to a loss of $15.9 million in 4Q and a $4.4 million
increase in operating losses from a loss of $28.3 million in 3Q to
a loss of $32.7 million in 4Q.
Net Income
Summary
|
2016 |
2016 |
(in thousands of $) |
Oct-Dec |
Jul-Sep |
Operating loss |
(32,707 |
) |
(28,292 |
) |
Interest
income |
528 |
|
436 |
|
Interest
expense |
(15,455 |
) |
(15,564 |
) |
Other
financial items |
20,832 |
|
22,772 |
|
Loss on
disposal |
3,701 |
|
(12,184 |
) |
Other
non-operating expenses |
(132 |
) |
- |
|
Taxes |
(450 |
) |
(246 |
) |
Equity in
net earnings of affiliates |
15,457 |
|
15,681 |
|
Net income
attributable to non-controlling interests |
(5,453 |
) |
(6,546 |
) |
Net loss attributable to Golar LNG Ltd |
(13,679 |
) |
(23,943 |
) |
In 4Q the Company generated a net
loss of $13.7 million. Notable contributors to this are summarised
as follows:
-
Interest income, expense and other
financial items are each in line with the prior quarter.
-
A $3.7 million adjustment was made in
4Q to reduce the provisional 3Q $12.2 million non-cash loss
recognised on disposal of Golar Power.
-
Golar accounts for its interests in
Golar Partners and Golar Power using the equity method of
accounting and reports their contribution under equity in net
earnings of affiliates. The $15.5 million 4Q equity in net earnings
of affiliates is primarily comprised of a $9.1 million loss in
respect of Golar's 50% share in Golar Power and net earnings of
$25.0 million from the Company's stake in Golar Partners.
Distributions received from the Partnership amounted to $15.1
million during the quarter.
The reported
financial results contained herein for the fourth quarter of 2016
are preliminary in particular in relation to two outstanding items
as explained further below
Golar Power -Status of affiliate's valuation
exercise
In October 2016,
the Company's affiliate, Golar Power elected to buy out the project
developer's, Genpower, 50% equity interest in the entity which
holds the investment in the Sergipe project company. Accordingly,
Golar Power has accounted for this step acquisition as a business
combination. The initial accounting requires a valuation exercise
to be performed in order to reflect all identifiable assets and
liabilities acquired at fair value. This valuation exercise is in
progress and is expected to be finalized by the time the Company's
Form 20-F is filed. Adjustments arising from this valuation, which
are expected to result in a gain, will impact the following line
items in the financial statements, "investments in affiliate" and
"Equity in net earnings in affiliates" in the Company's balance
sheet and income statement, respectively. There will be no
impact on the Company's reported net cashflows. The Company's
preliminary fourth quarter results presented herein exclude all
fair value adjustments arising from this transaction and the
valuation exercise.
IDR Reset
In October 2016,
the Company received 3.7 million common units and 0.1 million
general partner units (inclusive of 0.8 million earn-out units) in
exchange for enabling Golar Partners to reset its IDRs. The
accounting for this transaction is complex. As a result the
Company is still in the process of completing its assessment as to
the appropriate accounting treatment under US GAAP for this
transaction. With regard to the Company's preliminary fourth
quarter results, no gain or loss has been recognized in the
Company's statement of income in respect of this transaction and
the Company has presented all interests exchanged in Golar Partners
on a historical carrying value basis. The alternative accounting
treatment would be to recognize this transaction on a fair value
basis. Accordingly, the potential impact, once the final accounting
has been determined may be quantitatively material to the Company's
income statement and balance sheet. However, this would not impact
the Company's reported net cash flows. Any adjustment to reflect
the final conclusion will be made in the financial statements
included when the form 20-F is filed.
Commercial
Review
LNG
Shipping
LNG chartering activity was light
for the first half of the quarter. Into December fixing
activity increased as stronger Asian demand coincided with supply
outages at Gorgon T1 and Brunei. Asian LNG prices quickly
responded rising steeply toward $10mmbtu. This widened the export
spread for US cargoes, many of which were redirected from their
more proximate markets of South America, Europe, the Middle East
and India toward the Far East. The resultant increase in ton
miles combined with thin tonnage availability resulted in a step-up
in rates for available Atlantic based vessels. The increase in ton
miles was also sufficient to negate the negative impact of supply
outages in the Pacific basin where rates also responded to firming
expectations.
Into January, a cold snap in
Europe saw European LNG prices ramp up to equalise with Eastern
indices. Inter-basin arbitrage opportunities closed and spot
LNG prices in both basins subsequently declined in lock-step as
Gorgon production resumed and European temperatures rose.
Vessel rate expectations have since eased back.
Seasonal fluctuations and supply
outages aside, new production continues to deliver with T9 of
Malaysia LNG, Petronas FLNG1 and train 2 operations of Gorgon and
Sabine Pass now in ramp-up mode. Gorgon T3 and Sabine Pass T3 &
4 together with Wheatstone are all on track for start-up this year.
Consensus estimates indicate that approximately 35 million tons of
new LNG will reach the market in 2017, more than twice the new
production delivered in 2016. It is however important to note that
a material portion (approximately 24 million tons) of the new 2017
production is due to commence in the second half of the year and
that this will not therefore influence the shipping balance until
the end of the year. All in, approximately 125 million tonnes
of new production equivalent to 47% of current LNG production is
expected to deliver between now and 1Q 2021.
Although the market remains long,
prompt available shipping is approximately half what it was in
January 2016. Increased activity in the market for short to
medium term charter arrangements from the major operators has been
noted.
Golar
Partners
The 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 4Q operations.
On December 23, Golar Partners
received notice of Petrobras' intention to terminate the FSRU Golar
Spirit charter in June 2017, 14 months ahead of schedule.
Current rainfall is supporting reliable hydro power in Brazil which
in turn has facilitated Petrobras' inclusion of its nearest
expiring FSRU contract in its cost savings program. The
Partnership will receive a termination fee approximately equivalent
to 62% of EBITDA* which would have otherwise been earned between
June 2017 and August 2018. Golar Spirit is now being actively
marketed for new opportunities with particular focus on smaller
scale developments.
The FSRU Golar Tundra remains at
anchor off the coast of Ghana. Charterer, West Africa Gas Limited
("WAGL") received parliamentary approval for their gas sales
agreement in October and have commenced some works but the major
construction works of a connecting pipeline, jetty and breakwater
are yet to be completed. Until this infrastructure is in
place the FSRU cannot commence operations. While Golar remains in
dialogue with WAGL regarding an alteration of the existing charter
agreement, including a later start-up and an extension of the
charter period, we are actively protecting our legal right with
regard to collection of amounts due under the charter.
In order to mitigate the consequences of non-payment, Golar has
requested and awaits WAGLs permission to trade the ship in the
short term market.
Golar Partners right to put the
vessel back to Golar expires in late May. In view of the
current situation, if a mutually agreeable alternative arrangement
cannot be found there is a risk that the vessel will be put
back. This being the case, the Company will assume
legal ownership of the vessel and repay approximately $107 million
to the Partnership.
Downstream -
Golar Power
On October 17, CELSE, a project
company 50% owned by Golar Power and 50% by Ebrasil, reached a FID
on its 25 year Brazilian FSRU-to-power project. CELSE
subsequently entered into two agreements:
1) A lump-sum turn-key EPC
agreement with General Electric to build, maintain and operate a
1.5GW combined cycle power station, and
2) A flexible Sale and Purchase
Agreement with Ocean LNG Limited, an affiliate of Qatar Petroleum
and ExxonMobil to provide the power station with LNG.
All-in capital expenditure for the
power station and supporting infrastructure is expected to be
BRL4.3 billion. After deducting the cost of chartering in the FSRU
and assuming no dispatch of power, the Sergipe project is expected
to generate a projected annual EBITDA* of BRL1.1 billion.
Additional returns can be earned if the power station is called
upon to dispatch.
Good development progress is now
being made and the project remains on track to distribute power to
its 26 committed off takers from January 2020. Site groundworks and
offshore engineering together with procurement, licencing, logistic
and permitting activities necessary to bring the 90+ large modules
to site and import the new build FSRU Nanook are all underway.
When called upon to dispatch, the
FSRU Nanook will be approximately 35% utilised. Remaining capacity
can be used for an expansion of the Sergipe power complex.
This is actively being developed to be offered into future energy
auctions. Structures for commercialising the remaining FSRU
capacity via its integration into the Brazilian grid are also being
independently pursued by Golar Power and CELSE. Any returns
generated from this will be additional to the FSRUs 25-year $39
million annual EBITDA*, all of which accrues to Golar Power.
Long-lead items for Golar Power's
first FSRU conversion were ordered in January. This enables Golar
Power to commit to provide an FSRU for a project start-up as early
as May 2018. Several commercial leads with the potential to
crystallise into time charters by mid-2017 are in the pipeline.
LNG prices remain competitive on a
burn parity basis even after seasonal uplifts. The scale of new
production soon to arrive can be expected to place a de-facto lid
on LNG prices until new markets have been opened up to absorb the
uncontracted length. Inexpensive LNG can therefore be
expected to remain very supportive of the FSRU business for at
least the next 2-3-years. Golar Power is actively pursuing
several specific integrated LNG to power opportunities
globally.
FLNG
The FLNG Hilli conversion is
proceeding to plan and remains under budget. During recent months
approximately 4,500 contractors have been working on the vessel.
Testing and pre-commissioning has commenced and will continue in
Singapore until the vessel is scheduled for redelivery from the
yard in May. Commissioning and production are scheduled to
start by the end of September. Perenco are on track with
their scope of works in Cameroon and SNH are firmly committed to
their stake in the project. The Government is also supportive
of opportunities to draw upon neighbouring stranded gas reserves to
increase utilisation of the FLNG Hilli, recently renamed Hilli
Episeyo.
Upstream -
OneLNG
On November 10, OneLNG signed a
binding Shareholders Agreement with Ophir Holdings and Ventures
Limited to establish a joint venture to commercialise Ophir's
2.6Tcf Fortuna gas reserves, offshore Equatorial Guinea. The joint
venture, 66.2% and 33.8% owned by OneLNG and Ophir respectively,
will own both Ophir's share of the Block R licence and the FLNG
vessel Gandria which are collectively expected to produce between
2.2-2.5mtpa of LNG over 15-20 years.
A signed term-sheet with a
syndicate of Far Eastern banks has been received and documentation
is now progressing. Good progress toward securing the
requisite governmental approvals has also been made. As previously
communicated, FID is expected to be taken within the first half of
2017 and the Gandria is now positioning to Keppel shipyard where
refurbishment work will be initiated.
Including upstream and midstream
development CAPEX, the project is expected to cost $2.0 billion to
develop. Of this, approximately $1.5 billion will be used to
convert the FLNG Gandria and $0.5 billion will cover upstream work
necessary to bring gas from ground to vessel. After Ophir's
injection of up to $150 million and assuming debt of $1.2 billion,
OneLNG will be expected to contribute approximately $650 million.
With respect to its $332 million share, Golar can expect to receive
credit for the LNG carrier Gandria and associated down payments
already made to Keppel. Any credit receivable with respect to
the Company's intellectual property contribution and guarantees
provided will likely be reflected in a greater than 51% share of
OneLNG's 66.2% stake in the joint venture accruing to Golar. The
national gas company of Equatorial Guinea, Sonagas, has also
expressed interest in taking a stake in the midstream FLNG Gandria.
Although this would not change the ownership structure of the joint
venture, it would reduce its stake in the FLNG Gandria.
Investment by Sonagas would further improve stakeholder alignment
and reduce the above equity contributions required from OneLNG and
Ophir.
OneLNG is working actively on 4-5
additional projects, each involving 1 or more FLNG unit. The
structures of these opportunities range from fully integrated
projects where OneLNG will also be reserve holders to projects
where FLNG units are rented on a tariff basis to major gas
companies.
Financing Review
Liquidity
Golar's unrestricted cash position
as at December 31, 2016 was $224.2 million. Subsequent to
February's convertible bond issue, the cash position is
approximately $543 million today. Of the outstanding $250 million
March maturing convertible bond, $30 million was purchased prior to
year-end. The $220 million balance will be serviced by the undrawn
$150 million margin loan and proceeds raised from other financing
activities.
FLNG Hilli
Episeyo financing
As at December 31, 2016, $678
million has been spent on the Hilli Episeyo conversion ($732
million including capitalised interest) and $250 million has been
drawn against the $960 million CSSCL facility. A further $34.5
million of restricted cash associated with the Perenco Letter of
Credit was released to liquidity in 4Q reducing the restricted cash
tied up in this facility to $232 million as at December 31.
Convertible
financing
On February 17 the Company closed
a new $402.5 million senior unsecured 5-year 2.75% convertible
bond. The conversion rate for the bonds will initially equal
26.5308 common shares per $1,000 principle amount of the bonds.
This is equivalent to an initial conversion price of $37.69 per
common share or a 35% premium on the February 13 closing share
price of $27.92. The conversion price is subject to
adjustment for dividends paid. 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 cover approximately 10,678,647 common
shares, have an initial strike price of $37.69 and an initial cap
price of $48.86. The cap price of $48.86, which is a proxy for the
revised conversion price, represents a 75% premium to the February
13 closing price. Including the $31.2 million cost of the
capped call the all-in cost of the bond is approximately 4.3%. Bond
proceeds net of fees and the cost of the capped call amount to
$360.2 million.
Proceeds from the convertible bond
will be used to fund the Company's initial equity participation in
the Fortuna FLNG project, to meet its commitments to Golar Power
and for general corporate purposes.
Concluding the new convertible
bond affords Golar the flexibility to manage timing differences
between investment commitments and the release of other identified
sources of funding without being exposed to the risk of delays,
unsupportive market conditions or working capital shortfalls.
The Company anticipates that
significant cash will be released during the first year following
start-up of Hilli Episeyo. Major components of this include
$160 million equity released from the final loan draw-down, $87
million released from the letter or credit in favour of Perenco and
$170 million in expected EBITDA* from operations.
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; accounting
adjustments relating to Golar's ownership in Golar Power;
accounting adjustments relating to the accounting treatment of
general partner units Golar holds in Golar LNG Partners LP; as well
as other factors discussed in Golar's most recent Form 20-F filed
with the Securities and Exchange Commission. In particular, there
is no guarantee that any expectations set forth in "Golar Power -
Status of affiliate's valuation exercise" and "IDR Reset" will have
the impact on our balance sheet or income statement described
therein. 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.