Highlights
- Golar LNG Limited ("Golar" or "the Company") reports operating
income and EBITDA1 in the quarter of $6.4 million and $22.8
million, respectively, compared to 4Q 2017 operating income and
EBITDA1 of $2.8 million and $19.4 million, respectively.
- FLNG Hilli Episeyo commences LNG production.
Subsequent Events
- CELSE, Golar Power's affiliate, closed a $1.34 billion
financing facility for the Sergipe project.
- FLNG Hilli Episeyo delivers first two LNG cargoes, progresses
commissioning and commences acceptance testing with customers
Perenco and SNH.
- Entered into a preliminary agreement and exchanged Heads of
Terms with BP for Tortue project FLNG vessel.
- Fortuna FLNG project facing significant delay due to lack of
acceptable financing solution.
- Golar and Schlumberger plan to wind down OneLNG.
- Significant year-on-year strengthening of LNG prices.
Financial Review
Business Performance
|
2018 |
2017 |
(in thousands of $) |
Jan-Mar |
Oct-Dec |
Total operating revenues |
66,190 |
|
57,587 |
|
Vessel operating expenses |
(18,415 |
) |
(17,076 |
) |
Voyage, charterhire & commission expenses (including expenses
from collaborative arrangement) |
(24,521 |
) |
(19,464 |
) |
Administrative expenses |
(14,016 |
) |
(16,763 |
) |
Unrealized gain on FLNG derivative instrument |
13,600 |
|
15,100 |
|
EBITDA1 |
22,838 |
|
19,384 |
|
Depreciation and amortization |
(16,409 |
) |
(16,585 |
) |
Operating income |
6,429 |
|
2,799 |
|
1 EBITDA is defined as operating income 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 1Q 2018 operating income of
$6.4 million compared to $2.8 million in 4Q 2017. Further
improvements in hire rates and round-trip economics contributed to
a $3.6 million increase in total operating revenue net of voyage,
charterhire and commissioning expenses, from $38.1 million in 4Q
2017 to $41.7 million in 1Q 2018. Vessel operating expenses
increased by $1.3 million to $18.4 million in 1Q 2018. Most of the
increase is due to additional crew, repairs and maintenance and
logistics expenses in respect of the recently reactivated Golar
Viking.
Administrative expenses are lower by $2.7
million, from $16.8 million in 4Q 2017 to $14.0 million in 1Q
2018.
The derivative asset, representing the fair
value of the estimated discounted cash flows of payments due in
respect of FLNG Hilli Episeyo as a result of the Brent Crude price
moving above $60.00 per barrel over the contract term, increased
from $94.7 million to $108.3 million during the quarter. As a
result, an unrealized fair value gain of $13.6 million was recorded
under other operating income.
Net Income Summary
|
2018 |
2017 |
(in thousands of $) |
Jan-Mar |
Oct-Dec |
Operating income |
6,429 |
|
2,799 |
|
Interest income |
1,944 |
|
1,186 |
|
Interest expense |
(13,998 |
) |
(6,220 |
) |
Other financial items, net |
(1,237 |
) |
24,122 |
|
Other non-operating loss |
- |
|
(189 |
) |
Income taxes |
6 |
|
(435 |
) |
Equity in net earnings (losses) of affiliates |
(1,541 |
) |
(6,348 |
) |
Net income attributable to non-controlling interests |
(12,605 |
) |
(11,092 |
) |
Net (loss) income attributable to Golar LNG Limited |
(21,002 |
) |
3,823 |
|
In 1Q 2018, the Company generated a net loss of
$21.0 million. Notable contributors to the $24.8 million decrease
in 1Q 2018 are summarized as follows:
- Interest expense increased by $7.8 million to $14.0 million,
the 4Q 2017 expense having been reduced by higher capitalized
interest on borrowing costs in respect of Hilli Episeyo.
- Other financial items reported a 1Q 2018 loss of $1.2 million.
This non-cash loss was predominantly the result of a mark-to-market
loss of $9.2 million on the three million Total Return Swap ("TRS")
shares following a $2.45 quarter-on-quarter decrease in the
Company's share price, partly offset by a gain of $7.3 million in
respect of mark-to-market valuations of interest rate swaps
("IRS"). This compared to a mark-to-market gain of $20.5 million in
respect of the TRS and a mark-to-market gain of $5.6 million on
IRS's in the previous quarter.
- The $1.5 million 1Q 2018 equity in net earnings (losses) of
affiliates is primarily comprised of the following:
- a $4.8 million loss in respect of Golar's 50% share in Golar
Power Limited ("Golar Power");
- a $1.5 million loss in respect of Golar's 51% share in OneLNG
S.A. ("OneLNG"); and
- income of $4.8 million in respect of Golar's stake in Golar LNG
Partners LP ("Golar Partners" or the "Partnership"). Cash
distributions received from the Partnership are in line with prior
quarters.
Commercial Review
LNG Shipping
Steady rates and charter activity into the
new-year were supported by strong underlying demand for LNG that
helped sustain firm Asian prices and prolong arbitrage
opportunities through to February. The proportion of US exports
destined for Asia in January and February was 57% and 67%,
respectively, with resultant high ton miles supporting rates up to
$85kpd during January. A seasonal softening in activity resulted in
falling LNG prices and an end to inter-basin trading opportunities
in late February. Charter rates dropped accordingly to around
$65kpd. March fixtures for US cargoes to Asia declined to 40%, with
ton miles and rates falling further as a result. By early April,
carrier rates were around $45kpd. Delays to the start-up of the
5.25mtpa US Cove Point facility and production interruptions at the
6.9mtpa Papua New Guinea ("PNG") facility accentuated the negative
impact of seasonality.
Exports from Cove Point have now commenced and
PNG has restarted production. Wheatstone train 2 ("T2") and Ichthys
LNG are also scheduled to commence production, whilst both Yamal T2
and T3 are now expected to start producing before year end. This,
together with a recent step-up in period cover requirements, has
resulted in a sharp reduction in available vessels. Rates are
improving once again and indicate a solid year-on-year
improvement.
Looking further ahead, a 9-month delay to the
start-up of the 13.2mtpa Freeport LNG plant has been confirmed.
Ship broker research indicates that the 2018 newbuild delivery
schedule is adjusting to accommodate this. Approximately 49 carrier
deliveries are now scheduled to deliver in 2018 and liquefaction
trains with a nameplate capacity of approximately 31mtpa are
expected to commence and ramp up production. A further 29 mtpa of
new production is expected to commence in 2019 and 33 mtpa in 2020.
Against this, 32 conventional newbuild vessels are expected to be
delivered in 2019 and 20 in 2020. Despite a recent spike in vessel
orders for delivery in 2020/1, the market remains structurally
short by approximately 25 vessels over the next 2-3 years. Material
improvements in September-March average winter rates, which
increased from around $40kpd in 2016/2017 to around $60kpd in
2017/2018, can also be expected over the coming years.
Strengthening European and Japanese LNG prices (up around 50%)
indicate strong demand for LNG and create good opportunities for US
exports where Henry Hub prices are lower than 2017 levels.
Golar Partners (affiliate)
On January 19 the Partnership executed a 15-year
charter with an energy and logistics company for the provision of
an FSRU in the Atlantic Basin. The capital element of the charter
rate will vary according to demand for regasification throughput,
but includes a cap and a floor that is expected to generate annual
operating income, before depreciation and amortization, of between
approximately $18 and $22 million. The charter also includes
certain termination and extension options.
As anticipated, the Partnership's 1Q 2018
results were negatively impacted by the contractual seasonal
offhire of the FSRU Golar Igloo, materially lower rates and levels
of utilization achieved by the Golar Mazo and Golar Maria in the
carrier spot market and a full quarter's trading by the Golar Grand
at a reduced daily rate. Distribution coverage was particularly low
as a result. Improvements from 2Q 2018 are expected with the
closing of the Hilli Episeyo dropdown and start-up of the Atlantic
FSRU opportunity. The anticipated strengthening of the shipping
market should also contribute increased earnings and distribution
coverage.
FLNG
Commissioning of gas treatment systems and
refrigerant trains on board FLNG Hilli Episeyo continued throughout
the quarter and first LNG was produced on March 12. Minor issues
encountered after March 12 did, however, interrupt the
commissioning of additional trains and the ramp up of production.
By late April stable levels of production were being achieved and a
138,000cbm commissioning cargo destined for China was subsequently
offloaded. Official acceptance testing has commenced and a second
cargo has now been offloaded. Based on the current schedule
the Contract is expected to fully commence in the coming days.
Commissioning fees billed to date amount to
$33.7 million. These will be recognized as deferred revenue on the
balance sheet and released to revenue over the contract term.
Vessel acceptance is also a key trigger for the
final drawdown against the $960 million CSSCL sale and leaseback
facility and closing of the previously agreed dropdown to Golar
Partners. Final drawdown against this facility and closure of the
sale to Golar Partners are expected to take place during June.
Commercial start-up of the world's first low
cost FLNG facility has generated significant interest from gas
companies and led to several new commercial enquires.
Based on experience gained from developing and
constructing Hilli Episeyo, Golar entered into a Preliminary
Agreement and exchanged Heads of Terms with BP Mauritania
Investments Ltd and BP Senegal Investments Ltd (together "BP") for
a FLNG vessel similar to the Hilli Episeyo to service the BP
operated Greater Tortue/Ahmeyim project. Executed on April 19, the
Heads of Terms represents a commitment between Golar and BP to
translate key commercial terms into a full commercial agreement and
to proceed with Front End Engineering Design ("FEED") on the
provision of a FLNG vessel to service the project offshore
Mauritania and Senegal.
The Preliminary Agreement creates obligations on
Golar to progress FEED work and be ready for a vessel conversion
from July 1, 2018 onwards; which would be contingent on a Project
final investment decision ("FID"), expected by the end of 2018. The
Preliminary Agreement also includes an option, but not an
obligation, for BP on a second FLNG vessel. Customary termination
fees apply in the event that FID is not taken.
OneLNG (51/49 Golar/Schlumberger upstream joint
venture)
Recent LNG price increases enhance the already
solid financial returns expected from the Fortuna project. Despite
an agreed development plan and extensive efforts over the last
twelve months by OneLNG and Ophir management, it has not been
possible to finalize an attractive debt financing package. This,
together with other capital and resource priorities, has resulted
in a decision from Schlumberger to end their participation in the
project. Golar and Schlumberger, as a result of this, and based on
the structure of the BP project, plan to wind down OneLNG and work
on FLNG projects as required on a case-by-case basis.
Efforts to find the optimum capital structure
that maximizes value for all Fortuna project stakeholders,
including the government of Equatorial Guinea, continue. Golar does
not see extensive issuance of new equity at current share price
levels as an attractive financing solution. Use of alternative
yards that are able to provide financing and the potential
introduction of a new industrial partner are, however, being
considered. No guarantee can be given that attractive financing for
the project can be achieved and Golar does not intend to provide
any further market updates before any possible financing
alternative is fully committed.
Golar Power (50/50 Golar/Stonepeak
Infrastructure Partners downstream joint venture)
On April 19, CELSE, the 50% Golar Power owned
project company responsible for delivering the 1.5GW Porto de
Sergipe I power project, executed a US$1.34 billion BRL based
non-recourse project finance facility. Facility proceeds will fund
remaining capital expenditures for the power plant, connecting
transmission lines, FSRU mooring infrastructure and a connecting
gas pipeline. Excluding the FSRU, but including interest costs
during construction and a $123 million cash reserve, all-in project
Capex is now estimated at $1.74 billion. The increase in project
Capex is the result of higher than expected financing, cash
reserve, terminal EPC and transmission line costs together with
foreign exchange movements. As of April 19, all-in equity of
approximately $400 million had been paid in by CELSE's controlling
partners. Forecast annual EBITDA1 from the power project (of which
Golar is entitled to a 25% interest), assuming no dispatch, is BRL
based and equivalent to approximately US$300 million at current
exchange rates. Payments under the executed PPA are inflation
indexed over the 25-year term and provide for pass-through of fuel
costs when the power plant is called upon to dispatch.
Concurrent with financial close, Golar Power
also executed contracts with CELSE to charter the FSRU Golar Nanook
for 26 years. The additional year provides for the commissioning
period ahead of project start-up in January 2020 during which
commissioning hire will accrue. The operating cost component will
be paid in 2019, whilst the capital component will accrue and be
paid over the remaining 25 years commencing January 2020. Annual
EBITDA1 accruing to Golar Power from the FSRU is projected to be
approximately US$41 million, with annual escalation indexed to
US-CPI. Further upside potential accrues to Golar Power in the
event that it is able to contract the remaining two-thirds of the
FSRU capacity not utilized by Sergipe I. Strategically located in
NNE Brazil, and within 20km of the main gas distribution network,
the FSRU has the potential to unlock future LNG distribution
opportunities into Brazil.
Having executed Time Charter Agreements, Golar
Power is now in a position to conclude financing discussions, which
are well progressed, for the FSRU Golar Nanook.
Other FSRU conversion prospects are also being
pursued.
Financing Review
Golar's unrestricted cash position as at March
31, 2018 was $172.4 million. Equity contributions to Golar Power,
predominantly represented by installments for the Sergipe project
and FSRU Golar Nanook modification costs, resulted in a cash
outflow of $40.0 million during 1Q 2018. A further capital
contribution payment of $15.0 million was made to Golar Power in
April which included the final equity installment for the Sergipe
project.
The Hilli Episeyo conversion and commissioning
remains within budget. As at March 31, 2018, $1,047.5 million had
been incurred ($1,212.8 million including the original vessel and
capitalized interest) and $640.0 million had been drawn against the
CSSCL pre-delivery facility. Vessel acceptance is the trigger that
permits drawdown against the pre-agreed sale and leaseback
facility. Upon satisfaction of this milestone, Golar expects to
draw down a further $320 million against the sale and leaseback
facility during June. After all remaining Capex, including full
contingency, the net cash inflow is expected to be approximately
$160 million. Of the $175.0 million restricted cash securing the
Letter of Credit, approximately $32 million and $97 million,
respectively, is expected to be released to free cash 12 and 34
months after customer acceptance of Hilli Episeyo.
Included within the $1,368.3 million current
portion of long-term debt is $699.7 million relating to
lessor-owned VIE subsidiaries that Golar is required to consolidate
in connection with seven sale and leaseback financed vessels. Of
the balance associated with VIE financings, two facilities
amounting to $302.7 million are due for refinancing by the end of
2018. Management have received confirmation from one of the
facility lenders, representing approximately $160 million, that
they will, subject to documentation, extend until at least June
2019 and longer if a term charter is entered into in the meantime.
The remaining current portion of long-term debt is predominantly
comprised of the $640.0 million Hilli Episeyo CSSCL pre-delivery
facility. This is expected to be replaced during June 2018 by the
fully drawn long-term $960 million CSSCL sale and leaseback
facility.
Corporate and Other Matters
As at March 31, 2018, there were 101.1 million
shares outstanding, including 3.0 million TRS shares that had an
average price of $43.71 per share. There were also 4.5 million
outstanding stock options in issue. The dividend will remain
unchanged at $0.05 per share for the quarter.
Graham Robjohns was appointed CFO and Deputy CEO
in March 2018. Mr. Robjohns was previously the CEO of Golar LNG
Partners.
Outlook
The acceptance of Hilli Episeyo will validate
Golar's low cost FLNG solution. Valuable lessons learned during
conversion and commissioning also create opportunities to further
enhance the process. Golar now has a significant lead in this very
profitable business.
Post acceptance, hire at the full rate is
expected to generate approximately $164 million of base level
annual EBITDA1, 50% of which will accrue to Golar Partners.
Assuming the current price of $76.63/bbl is sustained, the Brent
link associated with contracted trains 1 and 2 would add
approximately $50 million in additional annual cashflows, all of
which would accrue to Golar. Trains 3 and 4 represent an attractive
commercial opportunity for Perenco and SNH and other proximate
resource holders, and the Company is optimistic that these will be
utilized in due course.
Executing a binding Heads of Terms with BP for
up to two FLNG units to service the Tortue field offshore
Mauritania and Senegal enhances the credibility of Golar's FLNG
offering and is a significant and very positive step both for the
Company and this long-anticipated project. FEED work is being
progressed at pace in order to meet the required timetable for FID
at the end of 2018. Work on the draft commercial and construction
agreements and financing has also commenced. Preliminary financing
discussions indicate a good appetite from a wide variety of
lenders.
The 25-year Sergipe power project is now fully
funded. It is anticipated that the remaining delivery installment
for the Golar Nanook will be financed by a new debt facility. Based
on current exchange rates, Golar's share of annual EBITDA2 from its
effective interest in the power station and FSRU is expected to be
around $100 million. Options to monetize the FSRU Golar Nanook's
65% spare capacity, including the supply of gas directly into the
Brazilian national grid, are also being pursued. Demand for
competitively priced FSRU conversions remains robust and Golar also
has a strong lead in this market.
The seasonal softening of the shipping market
was anticipated. This will negatively impact 2Q 2018 TCE, which is
expected to be around half 1Q 2018 levels. The underlying thesis of
a sustainable recovery in the shipping market from 3Q 2018 does,
however, remain intact. This is supported by new production and
rising ton miles as well as the large price differential between
European and Asian LNG prices and US gas prices.
Start-up of Hilli Episeyo and financial close
for the Sergipe project are two significant steps toward de-risking
the Golar investment case. Earnings from Hilli Episeyo and a
resurgent carrier market are expected to result in significant and
sustained improvements to earnings from 2H 2018 forward. The Board
is pleased with Golar's transformation over the last five years
from a LNG shipping and FSRU company to a more integrated Gas to
Power company. The strategic platform created, including the
long-term FLNG and Power contracts, represents a solid basis for
long-term value creation.
2 EBITDA is a non-GAAP financial measure that is
defined as operating income before interest, tax, depreciation and
amortization. Golar's share of annual EBITDA from its effective
interest in the Sergipe power station and the FSRU Golar Nanook
will be reported as "equity in net earnings of affiliates" in the
consolidated statements of income.
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 liquefied natural gas, or LNG, carrier, floating
storage and regasification unit, or FSRU, or floating liquefaction
natural gas vessel, or FLNG, market trends, including charter
rates, vessel values or technological advancements;
- changes in our ability to retrofit vessels as FSRUs or FLNGs
and in our ability to obtain financing for such conversions on
acceptable terms or at all;
- changes in the timeliness of the Hilli Episeyo acceptance by
the charterer;
- changes in our ability to close the sale of certain of our
equity interests in Hilli Episeyo on a timely basis or at all;
- our inability to meet our obligations under the Heads of Terms
agreement entered into in connection with the BP Greater Tortue /
Ahmeyim Project, prior to FID, which will result in extensive
termination fees;
- changes in the supply of or demand for LNG carriers, FSRUs or
FLNGs;
- a material decline or prolonged weakness in rates for LNG
carriers, FSRUs or FLNGs;
- changes in the performance of the pool in which certain of our
vessels operate and the performance of our joint ventures;
- changes in trading patterns that affect the opportunities for
the profitable operation of LNG carriers, FSRUs or FLNGs;
- changes in the supply of or demand for LNG or LNG carried by
sea;
- changes in commodity prices;
- changes in the supply of or demand for natural gas generally or
in particular regions;
- failure of our contract counterparties, including our joint
venture co-owners, to comply with their agreements with us;
- changes in our relationships with our counterparties, including
our major chartering parties;
- changes in the availability of vessels to purchase and in the
time it takes to construct new vessels;
- failures of shipyards to comply with delivery schedules or
performance specifications on a timely basis or at all;
- our ability to integrate and realize the benefits of
acquisitions;
- changes in our ability to sell vessels to Golar Partners or our
joint venture, Golar Power;
- changes in our relationship with Golar Partners or Golar
Power;
- changes to rules and regulations applicable to LNG carriers,
FSRUs, FLNGs or other parts of the LNG supply chain;
- our inability to achieve successful utilization of our expanded
fleet or inability to expand beyond the carriage of LNG and
provisions of FSRUs particularly through our innovative FLNG
strategy and our joint venture;
- actions taken by regulatory authorities that may prohibit the
access of LNG carriers, FSRUs or FLNGs to various ports;
- our inability to achieve successful utilization of our expanded
fleet or inability to expand beyond the carriage of LNG and
provision of FSRUs, particularly through our innovative FLNG
strategy, or FLNG, and our joint venture;
- changes in our ability to obtain additional financing on
acceptable terms or at all;
- our ability to make additional equity funding payments to Golar
Power to meet our obligations under the shareholders
agreement;
- increases in costs, including, among other things, wages,
insurance, provisions, repairs and maintenance;
- changes in general domestic and international political
conditions, particularly where we operate;
- a decline or continuing weakness in the global financial
markets;
- challenges by authorities to the tax benefits we previously
obtained under certain of our leasing agreements; and
- other factors listed from time to time in registration
statements, reports or other materials that we have filed with or
furnished to the Securities and Exchange Commission, or the
Commission, including our most recent annual report on Form
20-F.
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.
May 31, 2018
The Board of Directors
Golar LNG Limited
Hamilton, Bermuda
Questions should be directed to:
Golar Management Limited +44 207 063 7900
Iain Ross - Chief Executive Officer
Graham Robjohns - Chief Financial Officer and
Deputy Chief Executive Officer
Stuart Buchanan - Head of Investor Relations
- Golar LNG Limited Interim results for the period ended 31 March
2018.pdf
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