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
http://hugin.info/133076/R/2038695/759795.pdf
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