Solid performance from all business
divisions
Iain Ross, CEO, Golar LNG,
said:
"Golar is pleased to report Q2 operating
revenues of $102.2 million and adjusted EBITDA1 of $67.2 million.
This was driven by another solid performance in FLNG, with 100%
commercial uptime on Hilli Episeyo, and a shipping business that
continues to benefit from higher utilization, delivering a Q2 TCE1
of $45,100/day; which is above guidance and represents an 85%
increase on the $24,400 achieved in Q2 2019. Both Golar Power
and Golar LNG Partners also performed well.
By virtue of its integrated business model,
Golar has, to a large extent, insulated itself against LNG price
volatility. High LNG prices support the company's upstream FLNG
offering, while low LNG prices create strong growth opportunities
for Golar Power's downstream business. The latter is clearly
evidenced by a surge in business and investor inquiries currently
being fielded by Golar Power.
The weak LNG prices recorded throughout Q2,
often below $2.00/mmbtu, are incentivizing energy customers to
convert diesel, fuel oil and coal based energy generation to LNG.
Despite the challenges of COVID, access to cleaner and cheaper
energy remains a priority for a vast number of people. The cost and
environmental advantages of gas as a transition fuel, mean that,
despite a sharp deceleration this year, LNG demand has been more
resilient than other more carbon intensive energy sources. The
appetite for LNG noted by Golar Power in Brazil is not unique. The
company is being asked for similar rapid start-up solutions around
the world which we anticipate will result in material and
sustainable growth in LNG demand. For the time being, these same
low LNG prices have however created challenges for financing new
liquefaction capacity. The increase in demand and the reduced
growth in liquefaction capacity are therefore expected to result in
a more balanced LNG market in the next 3 - 4 years.
Golar is focused on sustainability through the
delivery of innovative, flexible, reliable, cost effective and
implementable solutions to the world’s energy problems. It is
therefore uniquely placed to benefit from the accelerated post
pandemic shift to a cleaner energy mix."
Financial Summary
(in thousands of $) |
Q2 2020 |
Q2 2019 |
% Change |
YTD 2020 |
YTD 2019 |
% Change |
|
|
|
|
|
|
|
Total
operating revenues |
102,242 |
96,745 |
6% |
224,801 |
211,032 |
7% |
Net loss
attributable to Golar LNG Ltd |
(155,634) |
(112,682) |
38% |
(259,881) |
(154,423) |
68% |
Adjusted
EBITDA1 |
67,150 |
39,663 |
69% |
143,358 |
102,560 |
40% |
Operating income |
28,358 |
(23,435) |
(221)% |
49,516 |
5,429 |
812% |
Dividend
per share |
— |
— |
—% |
— |
0.150 |
(100)% |
Adjusted net debt1 |
2,605,848 |
2,258,824 |
15% |
2,605,848 |
2,258,824 |
15% |
Q2 2020 Highlights
Financial:
- Cash of $265.2 million as at June 30, 2020.
- Golar Bear refinanced, releasing $37.7 million of liquidity,
ahead of schedule. A further $10 million of liquidity will be
released in Q4.
- Good progress made on a revolving credit facility with a
syndicate of banks to replace the November maturing $150 million
term loan and September maturing $30 million margin loan. Expected
closing is Q3 2020, in line with schedule.
- Term-sheets agreed for the refinancing of the Golar Frost and
Golar Seal, completion remains subject to market conditions.
Golar Power:
- First full quarter of operations of Sergipe power plant and
FSRU Nanook generated revenue less operating costs of $51.0
million, of which $19.0 million is attributable to Golar LNG.
- Partnered with Galileo Technologies to supply initial
small-scale customers in Brazil with up to 45 tons per day of
locally produced Bio-LNG, allowing supply and demand requirements
to be matched.
- Signed a Memorandum of Understanding (“MoU”) with Norsk Hydro
to provide LNG and regasification capacity for their Alunorte
alumina refinery at Barcarena, Para.
- Delivered first batch of ISO containers to Suape.
FLNG:
- FLNG Hilli Episeyo: Vessel off-loaded 42nd cargo, with 100%
commercial uptime maintained. In excess of 2.5 million tons of LNG
exported over the 9 quarters since start-up.
- Previously disclosed FLNG Gimi force majeure claim from BP
Mauritania Investments Ltd (“BP”) in relation to a delay in the
order of 12-months to the target connection date remained in place.
A force majeure delay claim from the conversion shipyard has also
been received. Discussions are progressing well to agree a revised
plan to delivery.
Shipping:
- Q2 2020 Average Daily Time Charter Equivalent (“TCE”)1 earnings
of $45,100 for the fleet, above guidance and substantially higher
than the $24,400 achieved in Q2 2019.
- Golar Tundra entered dry-dock.
- Utilization at 93% in line with Q1, up on 66% achieved in Q2
2019.
- Revenue backlog1 from shipping as at June 30, 2020 stands at
$105 million.
Outlook
Golar Power:
We intend to convert the announced Memorandum of
Understanding with Norsk Hydro into an agreement for LNG and
regasification capacity in Barcarena and take a Final Investment
Decision ("FID") on the terminal within 4 – 6 months. Six months
later we expect to take FID on the associated 605MW power station.
Following the Norsk Hydro announcement, Golar Power has been
approached by a number of other mining companies seeking a similar
solution. These opportunities will be pursued. Based on the deal
announced with Galileo we will also seek to expand the use of
Bio-LNG to meet small scale customer requirements.
Arrangements for locating a Floating Storage
Unit ("FSU") at Suape remain on track to be finalized later this
year. Before the end of 2020 we also expect to formalize our
partnership agreement with BR Distribuidora S.A. and progress our
LNG distribution facilities into BR Distribuidora’s Brazilian fuel
stations to optimize the roll-out of infrastructure and allow
consumers to convert from diesel, heavy fuel oil and coal to
cleaner, cheaper LNG.
Replicating the success of the Brazil gas to
power business internationally remains a focus for the remainder of
2020 and into 2021.
FLNG:
Although most parts of the FLNG Gimi supply
chain have quickly recovered from delays as a result of lockdowns,
progress in the yard was impacted during Q2 by the “Circuit
Breaker” in Singapore. While the situation is now stabilizing as
construction manning ramps up, recovering the lost yard time within
the original schedule is no longer possible. The contemplated delay
to Golar's ability to deliver the vessel is anticipated to be less
than that currently claimed by BP, and constructive discussions
with BP to agree these two schedules are continuing.
We continue to engage positively with charterers
Perenco and SNH on increasing utilization of Hilli Episeyo.
Golar will also continue to develop and market
its Mark III new build FLNG. The Company is increasingly
comfortable that this solution can be delivered at a cost per ton
of LNG that is comparable with Hilli Episeyo and significantly
cheaper than most greenfield land-based LNG facilities.
LNG Shipping:
We expect the Q3 2020 TCE1 to be around $35,000
per day, with utilization of around 78% based on fixtures to date,
a later than anticipated completion of the Golar Tundra dry-dock,
and the prevailing spot market conditions. This compares favorably
to utilization of 65% achieved for Q3 2019. As we move into the
winter market we will continue to seek to place those vessels
coming off contract into new long-term charters, adopting a
portfolio of structures that focus on utilization. Based on the
current gas price contango, the potential upside for rates is
substantially higher than current headline levels. No further
dry-docks are planned this year.
Corporate:
The strategic review has concluded and the Board
has approved a range of specific options to re-organize the company
into separate, attractive and investible businesses to enhance
financial flexibility and transparency by ensuring each business
line is financed on a standalone basis. We intend to implement a
selection of these options in the near future subject to further
Board approval.
Financial Review
Business Performance:
|
2020 |
|
Apr-Jun |
Jan-Mar |
(in thousands of $) |
Vessel and other operations |
FLNG |
Total |
Vessel and other operations |
FLNG |
Total |
Total operating revenues |
47,718 |
|
54,524 |
|
102,242 |
|
68,035 |
|
54,524 |
|
122,559 |
|
Vessel operating expenses |
(11,336) |
|
(12,907) |
|
(24,243) |
|
(16,565) |
|
(13,668) |
|
(30,233) |
|
Voyage, charterhire & commission expenses (including expenses
from collaborative arrangement) |
(1,539) |
|
— |
|
(1,539) |
|
(4,827) |
|
— |
|
(4,827) |
|
Administrative expenses |
(8,348) |
|
(246) |
|
(8,594) |
|
(9,869) |
|
(272) |
|
(10,141) |
|
Project development expenses |
(982) |
|
(266) |
|
(1,248) |
|
(2,557) |
|
(1,132) |
|
(3,689) |
|
Realized gain on oil derivative instrument(2) |
— |
|
— |
|
— |
|
— |
|
2,539 |
|
2,539 |
|
Other operating gains |
532 |
|
— |
|
532 |
|
— |
|
— |
|
— |
|
Adjusted EBITDA(1) |
26,045 |
|
41,105 |
|
67,150 |
|
34,217 |
|
41,991 |
|
76,208 |
|
|
|
|
|
|
|
|
Reconciliation to operating income |
|
|
|
|
|
|
Unrealized loss on oil derivative instrument(2) |
— |
|
(11,810) |
|
(11,810) |
|
— |
|
(27,810) |
|
(27,810) |
|
Depreciation and amortization |
(14,997) |
|
(11,985) |
|
(26,982) |
|
(15,255) |
|
(11,985) |
|
(27,240) |
|
Operating income |
11,048 |
|
17,310 |
|
28,358 |
|
18,962 |
|
2,196 |
|
21,158 |
|
(2) The line item "Realized and unrealized gain
on oil derivative instrument" relating to income from the FLNG
Hilli Episeyo Liquefaction Tolling Agreement is split into,
"Realized gain on oil derivative instrument" and "Unrealized loss
on oil derivative instrument". The unrealized component represents
a mark-to-market loss of $11.8 million (March 31, 2020: $27.8
million loss) on the oil embedded derivative, which represents the
estimate of expected receipts under the remainder of the Brent oil
linked clause of the Hilli Episeyo Liquefaction Tolling Agreement.
The realized component amounts to $nil (March 31, 2020: $2.5
million) and represents the income in relation to the Hilli Episeyo
Liquefaction Tolling Agreement receivable in cash.
Golar reports today Q2 operating income of $28.4
million compared to operating income of $21.2 million in Q1.
Total operating revenues decreased 17% from
$122.6 million in Q1 to $102.2 million in Q2, partially offset by a
decrease in voyage, charter hire and commission expenses, from $4.8
million in Q1 to $1.5 million in Q2. Despite steady utilization,
operating revenues declined due to seasonally lower spot rates
further depressed by historically low LNG prices. This reduced the
daily rate achieved in respect of Golar's spot and index linked
charters. Costs of positioning the Golar Viking to the ship yard in
Q1 were not incurred in Q2. This accounts for $1.5 million of the
$3.3 million decrease in Q2 voyage, charter hire and commission
expenses.
Revenues from vessel and other operations,
including management fee income, were $47.7 million, and, net of
voyage, charterhire and commission expenses, decreased by $17.0
million to $46.2 million in Q2. Further decreases in LNG prices, as
a result of COVID lockdowns, made it uneconomic for many off-takers
to lift their US volumes during the quarter. Reduced production of
LNG by Malaysia and Egypt, together with maintenance of
liquefaction plants elsewhere, removed additional volume from the
market. Re-lets of vessels that would otherwise have lifted this
LNG increased short-term vessel availability and compounded the
negative impact of historically low LNG prices which caused
significant reductions in shipping rates to support LNG trades. The
quarter began with quoted TFDE1 carrier headline spot rates at
around $44k/day and ended with rates at around $30k/day, with
limited positioning fees. Golar’s strategy of increased charter
coverage continued to soften the impact of seasonal trade patterns.
As a result, full fleet TCE1 earnings decreased from $61,900 in Q1
2020 to $45,100 in Q2 2020, but increased relative to the $24,400
achieved in Q2 2019.
Operating revenues from FLNG Hilli Episeyo
remained stable at $54.5 million, including base tolling fees and
amortization of pre-acceptance amounts recognized.
Although vessel operating expenses at $24.2
million were substantially lower than those of Q1 at $30.2 million,
they are expected to increase during the second half of 2020.
Repairs and maintenance, procurement of spares, main engine
overhauls and associated logistics costs fell during Q2, all due to
COVID related movement restrictions, collectively contributing to
around half of the $6.0 million reduction. Work delayed by these
restrictions will be carried out when they are lifted. A $2.5
million insurance recovery in respect of a 2018 claim for Golar
Viking also contributed to a reduction in Q2 vessel insurance
expense.
Administrative expenses reduced by 15% from
$10.1 million in Q1 to $8.6 million in Q2. This was driven by
ongoing cost reduction measures, including reducing payroll and
travel costs. Project development expenses at $1.2 million for the
quarter were $2.5 million lower than Q1.
The Brent Oil-linked component of Hilli
Episeyo's fees generates additional annual cash flows of
approximately $3 million for every dollar increase in Brent Crude
prices between $60.00 per barrel and the contractual ceiling.
Billing of this component is based on a three-month look-back at
average Brent Crude prices. Oil prices below $60 throughout the
look-back period meant that no income was realized in relation to
the oil derivative instrument during Q2, compared to a realized
gain of $2.5 million in Q1.
The mark-to-market fair value of the related
derivative asset decreased by $11.8 million during the quarter,
with a corresponding unrealized loss of the same amount recognized
in the income statement. The fair value decrease was driven by a
further downward movement in the expected future market price for
Brent Oil, despite the spot price for Brent Oil increasing from
$22.74 per barrel on March 31, 2020, to $41.15 on June 30,
2020.
Depreciation and amortization, at $27.0 million
was in line with the prior quarter.
Net Income Summary:
|
2020 |
(in thousands of $) |
Apr-Jun |
Jan-Mar |
Operating income |
28,358 |
|
21,158 |
|
Interest
income |
243 |
|
1,160 |
|
Interest
expense |
(17,003) |
|
(21,041) |
|
Gains(losses) on derivative instruments |
4,864 |
|
(54,721) |
|
Other
financial items, net |
(337) |
|
326 |
|
Income
taxes |
(185) |
|
(197) |
|
Equity
in net losses of affiliates |
(139,365) |
|
(37,936) |
|
Net
income attributable to non-controlling interests |
(32,209) |
|
(12,996) |
|
Net loss attributable to Golar LNG Limited |
(155,634) |
|
(104,247) |
|
In Q2, the group generated a $155.6 million net
loss, compared to a Q1 net loss of $104.2 million. Key items
contributing to this are:
- A reduction in Variable Interest Entities ("VIEs") interest
expense due to lower loan balances and interest rates driving a
$4.8 million decrease in interest expense.
- The more stable interest rate environment in Q2 caused a small
$4.9 million gain on derivative instruments to be recorded during
the quarter, compared to a Q1 loss of $54.7 million.
- The $139.4 million loss in Q2 for equity in net losses of
affiliates primarily comprises the following:
- A $133.8 million net loss in respect of Golar's 32% share in
Golar Partners. Of this, $135.9 million is due to an impairment of
our investment in the Partnership. US GAAP requires an assessment
as to whether a unit price decrease is "other than temporary" and
to write down the value of the investment if that assessment is
unable to demonstrate that the unit price reduction is temporary;
and
- A $5.4 million loss in respect of Golar's 50% stake in Golar
Power. Golar’s share of Q2 revenue less operating costs for the
Sergipe Power Plant and FSRU Nanook, amounted to $19.0 million,
based on a BRL/USD FX rate of 5.47. After accounting for financing
costs, development expenses in respect of Golar Power’s portfolio
of other projects and administration costs, Golar Power generated a
net loss during the quarter.
Net losses attributable to non-controlling
interests relate to the Hilli Episeyo and the finance lease
VIEs.
Financing and Liquidity:
Our cash position as at June 30, 2020 was $265.2
million. This was made up of $128.7 million of unrestricted cash
and $136.5 million of restricted cash. Restricted cash includes
$40.0 million relating to lessor-owned VIEs and $75.9 million
relating to the Hilli Episeyo Letter of Credit, of which $15.2
million has been classified as short-term and is expected to be
released to free cash in Q2 2021 when the next Hilli Episeyo
production milestone is forecast to be met. This continues
management's strategy of releasing as much restricted cash as
possible.
At the corporate level, good progress has been
made with a syndicate of banks on a revolving credit facility.
Secured by our 50% stake in Golar Power, this will replace the
November maturing $150 million facility, and the $30 million margin
loan secured by our interest in Golar Partners.
At the vessel level, Golar successfully
refinanced the Golar Bear during the quarter. The new Golar Bear
financing is a $120 million sale and leaseback facility with a
balloon repayment of $45 million payable in year 7. Including the
release of $5.7 million of restricted cash, the first tranche of
this facility freed $37.8 million of liquidity to Golar during Q2,
net of the first instalment and fees. A further $10.0 million will
be received from the draw-down of a second tranche, expected during
Q4. Terms have also been agreed for the refinancing of Golar Frost
and Golar Seal. In respect of the Golar Frost, the refinancing is
expected to release further liquidity in Q3. The new facility in
respect of the Golar Seal is to replace the current financing that
matures in January 2021. The new facility in respect of this vessel
is expected to be liquidity neutral. Refinancing of the FSRU Golar
Tundra facility by June 2021 is expected to be routine given that
the outstanding debt on this vessel currently represents an LTV of
less than 50%.
At the FLNG level, construction progress during
Q2 was curtailed by the yard closure required as a result of
Singapore's "circuit breaker". Payments to most contractors are
driven by milestones achieved and were therefore limited. Inclusive
of $7.5 million of capitalized interest, $19.3 million was invested
in FLNG Gimi during the quarter, taking the total invested as at
June 30 to $553.0 million. Of this, $225.0 million had been drawn
against the $700 million debt facility. Both the investment and
debt drawn to date are shown on a 100% basis. The yard is gradually
re-opening now however progress during 2H 2020 will also be limited
with milestones and payments expected to be impacted
accordingly.
Included within the $1,200.6 million current
portion of long-term debt and short-term debt as at June 30 is
$1,003.2 million relating to lessor-owned VIE subsidiaries that
Golar is required to consolidate in connection with ten sale and
leaseback financed vessels, including the Golar Bear and Hilli
Episeyo.
Corporate and Other Matters:
As at June 30, 2020, there were 97.8 million
shares outstanding. There were also 2.3 million outstanding stock
options with an average price of $28.83 and 1.0 million unvested
restricted stock units awarded.
Golar’s Annual General Meeting is scheduled for
September 24, 2020 in Bermuda. The record date for voting was July
29, 2020.
Commercial Review
Golar Power (50/50 Golar/Stonepeak
Infrastructure Partners non-consolidated downstream JV):
Operational assets
Golar’s 50% share of Q2 Sergipe Power Plant
revenues and FSRU Nanook charter hire, less operating costs,
amounted to $19.0 million. The Sergipe Power Plant and the FSRU
Golar Nanook, which will be formally inaugurated on August 17 in
the presence of national government authorities, support three
further downstream business lines:
1) Power sales
2) Pipeline gas sales to large industrial and commercial
customers
3) Small-scale LNG distribution using smaller vessels and LNG
isotainers
1) Power sales: As Latin America's most
efficient thermal power plant, the Sergipe Power Plant is the
lowest-cost producer in Brazil's thermal merit order. Whenever it
is economic to dispatch thermal power, it is likely to do so. Power
can be produced and sold in two ways:
- Contracted power is produced when the facility is called upon
to dispatch under the PPA. This power is sold on a cost
pass-through basis and makes up the revenue from capacity payments
described above.
- Merchant power can also be sold when the power station has not
been called upon to dispatch, when the prevailing market price is
above the plant’s marginal cost and when the system operator allows
the plant to dispatch electricity into the grid. This electricity
is marketed through CELSE, 50% owned by Golar Power. Based on
pre-pandemic seasonal demand patterns and at current LNG prices, it
would have been profitable to sell merchant power through much of
Q2. Having been hit hard by COVID, power demand in Brazil is weak,
and, as a result, hydro power has been sufficient to meet the
country’s needs.
The operational status of the Sergipe Power
plant for the first half of 2020 is summarized in the table
below:
|
Q1 2020 |
Q2 2020 |
Total contracted capacity (MW) |
1,551.0 |
1,551.0 |
Total power plant utilization factor |
12% |
15% |
Gross power generated on a contracted basis (MWh) |
384,581 |
512,376 |
Total net variable revenues (BRL millions) |
51.6 |
30.8 |
Total net fixed and variable revenues (BRL millions) |
486.0 |
427.0 |
Average price received (BRL/MWh) |
134.1 |
60.2 |
Using North East Brazil historical PLD spot
electricity price and commodity price data for the last 3 pre-COVID
years, and assuming that the 26 power off-takers would have chosen
to dispatch power whenever it was economic for them to do so based
on their contracted cost of LNG, the Sergipe Power Plant, had it
been operational, would have generated an estimated profit of BRL
1.5 billion, with Golar LNG's share amounting to BRL 375 million.
The ability for the Sergipe Power Plant to generate this additional
profit in future will depend on two factors. Firstly, that the 26
power off-takers will not always be in a position to correctly
forecast electricity prices 60 days ahead and so do not call the
power station to dispatch even when, with the benefit of hindsight,
it would have been economic for them to do so. Secondly, CELSE must
have sufficient LNG on board the FSRU Nanook to regasify and use to
generate power every time the opportunity presents itself. As a
result, future merchant power generation profits will be below this
number and historical prices and patterns cannot be relied upon to
predict the future.
2) Pipeline gas sales to large industrial and
commercial customers: CELSE has commenced permitting work for the
construction of a 30 kilometer pipeline that will connect the Golar
Nanook to the regional natural gas main pipeline network and other
downstream customers. Permitting has been held back in recent
months due to COVID-related closures of government offices. A team
of downstream gas marketers have been engaged and have initiated
work to build a downstream gas sales channel to large industrial
and commercial customers on a cost plus margin contracted
basis.
3) Small-scale LNG distribution using smaller vessels and LNG
isotainers: the small-scale LNG distribution business is currently
implementing this strategy through three routes:
- The Golar Nanook, together with other FSRU and FSU terminals
being developed, can be used as a transshipment location for LNG
for onward downstream distribution. Small-scale vessels can carry
offloaded LNG along coasts/up rivers and connect to onshore truck
loading facilities where LNG can be transferred to ISO containers.
These would then be distributed to industrial, commercial and
residential off-takers which are underserved by traditional
pipeline networks.
- Golar Power has entered into an agreement with Galileo
Technologies for the provision of mini LNG liquefaction solutions.
This agreement includes the introduction of the renewable fuel
source, Biomethane Liquefied Natural Gas (Bio-LNG). The initial
order involves the provision of two LNG production clusters. The
first cluster will involve two LNG production units capable of
producing 30 tons of LNG per day from a mature gas field in the
Brazilian state of Bahia. The second cluster will be installed in
the state of Sao Paulo, where it will capture and liquefy
biomethane from landfills. This cluster will have an initial
production capacity of up to 15 tons of Bio-LNG per day. LNG from
these clusters will be loaded into ISO containers and delivered by
road to end users. Operations are expected to start before the end
of the year.
- Golar Power and BR Distribuidora S.A. are also on track to
formalize their announced partnership by the end of the year. This
partnership seeks to use BR Distribuidora S.A.'s 7,600 fuel
stations and 95 supply bases to facilitate the inland rollout of
LNG supply to Brazil's transportation and industrial sectors.
As at June 30, Golar Power had 185 LOIs
signed/under discussion, 9 contracts under negotiation and 5
executed contracts as shown below:
Customer development status |
Q1 2020 |
Q2 2020 |
LOIs signed/under discussion |
190 |
185 |
Contracts under negotiation |
8 |
9 |
Contracts executed |
3 |
5 |
The 50% Golar Power owned 1.5GW Sergipe Power
Plant has now completed all performance testing with key
contractors, allowing for settlement of outstanding costs and
draw-down of final debt installments. Based on a BRL/USD FX rate of
5.47, total debt for the Sergipe Power Plant as at June 30, 2020 is
USD 984.5 million, of which $246.1 million is attributable to Golar
LNG. Gas for the power project is delivered from the 100% Golar
Power owned FSRU Golar Nanook which has also been earning
throughout the quarter. Outstanding contractual debt in relation to
this vessel, which is denominated in US dollars, amounted to $214.8
million as at June 30.
Growth projects
Progress continues to be made on other growth
projects being pursued. In order of expected FID, these
are:
1) Barcarena Terminal and Power Plant: This
Project represents the first LNG terminal in the North of Brazil.
The initial aim is to supply gas to both Norsk Hydro’s Alunorte
Aluminum plant from mid-2022 and an associated 605 MW thermal power
plant (previously contracted under a 25 year PPA) from 2025.
Concluding final agreements with Norsk Hydro will therefore be an
important step toward FID for the terminal which is expected within
the next 4 - 6 months. Assuming a FID within this timeframe, Golar
Power expects to bring a FSRU into operation during H1 2022.
Thereafter, Golar Power plans to roll out a comprehensive LNG
distribution network across Pará and the region. The recent MoU
with Norsk Hydro is also a major step towards delivering what could
become one of the world’s largest greenhouse gas reduction
initiatives. A FID on the power plant component of the project is
expected in mid-2021.
2) Suape LNG Terminal: Golar Power has signed a
Protocol of Intentions with the government of the State of
Pernambuco to develop an LNG import terminal in the Port of Suape,
Northeast Brazil. Initially, a FSU will be used to supply
LNG. This will connect to onshore truck loading amenities to
facilitate loading of LNG ISO containers. These would then be
distributed to industrial, commercial and residential off-takers in
regions that are underserved or not served by traditional pipeline
networks. Golar Power recently delivered its first batch of ISO
containers to the region. The FSU will also act as a transshipment
location to break bulk LNG for downstream distribution. Subject to
a FID, which is expected before the end of 2020, operations are
expected to commence in mid-2021.
3) Santa Catarina Terminal: Key regulatory and
environmental licenses have been secured to develop the Santa
Catarina FSRU terminal on the southern coast of Brazil. Golar Power
owns 100% of Terminal Gas Sul Ltda., the project company
responsible for development of the terminal.
4) Global Terminal Projects: Golar Power is now
actively seeking to replicate its Brazilian execution model
elsewhere and is in the evaluation or development stage on more
than fifteen other terminals worldwide.
The reinvestment of cash generated by the
Sergipe Power Plant and the Barcarena terminal when operational as
well as other financing are expected to allow Golar Power to fund
these projects without recourse to shareholders, Golar and
Stonepeak.
FLNG:
FLNG Hilli Episeyo continues to maintain 100%
commercial uptime and has now exported more than 2.5 million tons
of LNG since start-up. It recently offloaded its 42nd cargo and
continues to reliably deliver quarterly LNG tolling revenues, less
operating costs, of around $40 million; 50% of which is for GLNG's
account. In future, a significant reduction in associated gas as a
result of lower US oil production, together with the higher cost of
non-associated US gas production, is expected to result in a higher
Henry Hub gas price. This is expected to place enough upward
pressure on global LNG prices to discourage further investment in
onshore US LNG export projects but simultaneously create new
opportunities for competitive gas elsewhere, including West Africa.
A shift toward LNG buyers favoring short-term contracts and smaller
volumes also threatens project developers who rely on long-term
contracts for substantial volumes to secure financing. Hilli
Episeyo is a fully financed, moveable facility with 1.2mtpa of
spare capacity. Ongoing discussions with the vessel’s current
charterer and potential new charterers suggest that the vessel will
remain under long-term charter beyond 2026 and that utilization
will increase.
The attractiveness of FLNG over land based
facilities is becoming better understood by gas asset owners,
resulting in an increased interest in FLNG over the last
quarter.
LNG Shipping:
The quarter commenced with LNG prices at around
$2.26/mmbtu and quoted TFDE headline spot rates of around $44k/day.
During April, the Japan Korea Marker ("JKM") continued to fall,
below $2.00/mmbtu by month-end. Henry Hub futures for June
exceeded TTF prices ("Title Transfer Facility") for the first time
in a decade, and on May 5 exceeded JKM for the first time ever
leading to negative economics in shipping US LNG to both Europe and
Asia. In response, around 130 US cargoes scheduled for loading over
the summer months are believed to have been canceled. LNG export
reductions that occurred elsewhere, including from Malaysia and
Egypt, and other scheduled maintenance of liquefaction plants also
removed LNG from the market that otherwise would have required
shipping. Global liquefaction capacity utilization fell from around
90% in April to around 75% at the end of June. Prompt available
tonnage throughout the quarter typically hovered between 10-15
mainly steam turbine vessels (out of a global LNG fleet of 555).
Quoted spot TFDE shipping rates from early May through to the end
of the quarter rarely exceeded $31,000 per day.
With the completion of Freeport and Cameron T3,
and Elba Island T9 ready for service, the roll-out of the first
wave of US liquefaction is concluding. Originally poised for global
production additions of around 30mtpa, COVID-related market turmoil
and resultant shut-ins will likely see 2020 growth limited to
between 5 and 10mtpa. The un-utilized 20-25mtpa of production
capacity is expected to ramp up from 2021. Between now and 2023,
around 30mtpa of new nameplate capacity is due to become
operational. From 2024, a new wave of projects with a combined
nameplate capacity of around 100mtpa are then scheduled to start-up
in phases, completing in 2027. The low levels of new production
scheduled to come online in the next three years together with
deferral of most FID decisions due to have been reached this year
for additional projects has resulted in a significant reduction in
2020 vessel new build orders.
There is now an emerging optimism among market
players who expect a stronger rate environment heading into the
autumn and seasonally stronger winter. Key Asian markets are
showing signs of recovering demand. This is beginning to erode the
LNG supply overhang, resulting in fewer US cargo cancellations for
September, and should support stronger prices over the coming
months. This is shown by JKM recovering to its current level of
$3.60/mmbtu with March 2021 JKM paper trading at around $5/mmbtu.
The current gas price contango also supports this sentiment. A step
up in inquiries for multi-month charters typically commencing in
September/October and ending in February/March has been noted,
although there is currently a wide bid-ask spread between owner and
charterer. Spot rate sentiment has changed from “flat” to
“increasing”, indicating that the market may have passed its low
point. Based on fixtures to date, Golar currently expects Q3 fleet
utilization of 78% and a TCE1 of around $35,000 per day. Both have
been negatively impacted by dry-dock of the Golar Tundra which is
currently expected to spend an unscheduled 10 additional weeks in
the yard as a result of the "circuit breaker" in Singapore.
Analysts forecast further substantial increases
in LNG prices over the 2020 - 23 period, albeit from a historically
low base. Rising prices are expected to facilitate a re-emergence
of regional price differentials, inter-basin trading and rising ton
miles, all of which will support improving levels of vessel
utilization without compromising LNG’s price competitiveness
relative to other less environmentally friendly energy sources.
Golar Partners (a non-consolidated affiliate of
Golar LNG):
Golar Partners' Q2 adjusted EBITDA1 improved
relative to Q1. This was the result of a full quarter's
contribution from the FSRU Golar Igloo, which commenced its 2020
regasification season on February 24, but was partially mitigated
by reduced hire in respect of the Golar Maria which earned a lower
daily rate during the quarter. Operating costs for the fleet were
also lower due to reduced costs for the FSRU Igloo and lower levels
of scheduled maintenance as a result of COVID-related service
engineer movement restrictions. A much smaller movement in swap
rates during the quarter also reduced the $46.8 million Q1
mark-to-market loss on the Partnerships' interest rate swaps to a
loss of $4.5 million in Q2. As a result, the Partnership reported
Q2 net income of $14.3 million compared to a Q1 net loss of $33.1
million. The distribution coverage ratio1 improved accordingly,
from 17.79 in Q1 to 20.09 in Q2.
On April 1, 2020, the Partnership approved a 95%
reduction in the quarterly common distribution to $0.0202. Golar
Partners will, as a consequence, retain approximately $109 million
annually, allowing the Partnership to focus its capital allocation
on debt reduction, including amortization of its two Norwegian
bonds, thus strengthening its balance sheet while providing
enhanced financial flexibility to consider capital allocation
priorities over time.
Non-GAAP measures
In addition to disclosing financial results in
accordance with U.S. generally accepted accounting principles (US
GAAP), this earnings release and the associated investor
presentation contains references to the non-GAAP financial measures
which are included in the table below. We believe these non-GAAP
financial measures provide investors with useful supplemental
information about the financial performance of our business, enable
comparison of financial results between periods where certain items
may vary independent of business performance, and allow for greater
transparency with respect to key metrics used by management in
operating our business and measuring our performance.
These non-GAAP financial measures should not be
considered a substitute for, or superior to, financial measures
calculated in accordance with GAAP, and the financial results
calculated in accordance with GAAP. Non-GAAP measures are not
uniformly defined by all companies, and may not be comparable with
similarly titled measures and disclosures used by other companies.
The reconciliations from these results should be carefully
evaluated.
Non-GAAP measure |
Closest equivalent US GAAP measure |
Adjustments to reconcile to primary financial statements
prepared under US GAAP |
Rationale for adjustments |
Performance measures |
Adjusted EBITDA |
Net (loss)/income attributable to Golar LNG Limited |
+/- Net financial expense + Other non-operating expenses +/- Income
taxes +/- Equity in net (losses)/ income of affiliates +/- Net
income attributable to non-controlling interests +/- Unrealized
loss/(gain) on oil derivative instrument + Depreciation and
amortization + Impairment of long-term assets |
Increases the comparability of total business performance from
period to period and against the performance of other companies by
excluding the results of our equity investments, removing the
impact of unrealized movements on embedded derivatives and removing
the impact of depreciation, financing and tax items. |
Average daily TCE |
Total Operating revenues |
-Liquefaction services revenue -Vessel and other management fees
-Voyage and commission expenses The above total is then divided by
calendar days less scheduled off-hire days. |
Measure of the average daily net revenue performance of a vessel.
Standard shipping industry performance measure used primarily
to compare period-to-period changes in the vessel’s net revenue
performance despite changes in the mix of charter types (i.e. spot
charters, time charters and bareboat charters) under which the
vessel may be employed between the periods. Assists
management in making decisions regarding the deployment and
utilization of its fleet and in evaluating financial
performance. |
Liquidity measures |
Adjusted net debt |
Net debt based on GAAP measures: Total debt (current and
non-current), net of deferred finance charges - Cash and cash
equivalents - Restricted cash and short-term deposits (current and
non-current) |
Net debt based on GAAP measures + VIE Restricted cash + VIE
consolidation adjustment + Deferred finance charges + TRS
Restricted Cash |
In consolidating the lessor VIEs, we also consolidate their cash
position. We reflect the lessor VIEs’ cash as “restricted cash” on
our Consolidated Balance Sheet as we have no control or ability to
access this cash. In calculating our adjusted net debt based on our
contractual obligation, we remove the lessor VIEs’ restricted cash.
We have elected an accounting policy to show margin cash posted
against our derivative positions separately to the associated MTM
liability. Management believe that these adjustments enable
investors and users of our financial statements to assess our
liquidity based on our underlying contractual obligations and aids
comparability with our competitors. |
Contractual debt |
Total debt (current and non-current), net of deferred finance
charges |
+ VIE Consolidation Adjustment + Deferred Finance Charges |
We consolidate a number of lessor VIEs for our sale and leaseback
facilities. This means that on consolidation, our contractual debt
is eliminated and replaced with the lessor VIEs’ debt. Contractual
debt represents our debt obligations under our various financing
arrangements before consolidating the lessor VIEs. The measure
enables investors and users of our financial statements to assess
our liquidity and the split of our debt (current and non-current)
based on our underlying contractual obligations. Furthermore, it
aids comparability with competitors. |
Reconciliations - Performance Measures
(Adjusted EBITDA)
|
2020 |
2020 |
2019 |
2019 |
(in thousands of $) |
Apr-Jun |
Jan-Jun |
Apr-Jun |
Jan-Jun |
Net loss attributable to Golar LNG Limited |
(155,634) |
|
(259,881) |
|
(112,682) |
|
(154,423) |
|
Net financial expense |
12,233 |
|
86,509 |
|
37,804 |
|
71,048 |
|
Income taxes |
185 |
|
382 |
|
176 |
|
381 |
|
Equity in net losses of affiliates |
139,365 |
|
177,301 |
|
26,970 |
|
39,869 |
|
Net income attributable to non-controlling interests |
32,209 |
|
45,205 |
|
24,297 |
|
48,554 |
|
Operating income |
28,358 |
|
49,516 |
|
(23,435) |
|
5,429 |
|
Adjusted for: |
|
|
|
|
Unrealized loss/(gain) on oil derivative instrument |
11,810 |
|
39,620 |
|
27,630 |
|
(750) |
|
Depreciation and amortization |
26,982 |
|
54,222 |
|
28,121 |
|
56,284 |
|
Impairment of long-term assets |
— |
|
— |
|
7,347 |
|
41,597 |
|
Adjusted EBITDA |
67,150 |
|
143,358 |
|
39,663 |
|
102,560 |
|
Reconciliations - Performance Measures
(Average Daily TCE Rate)
|
2020 |
2020 |
2019 |
(in thousands of $) |
Apr-Jun |
Jan-Mar |
Apr-Jun |
Total operating revenues |
102,242 |
|
122,559 |
|
96,745 |
|
Less: Liquefaction services revenue |
(54,524) |
|
(54,524) |
|
(54,524) |
|
Less: Vessel and other management fees |
(5,131) |
|
(5,050) |
|
(5,141) |
|
Time and voyage charter revenues |
42,587 |
|
62,985 |
|
37,080 |
|
Less: Voyage and commission expenses |
(1,539) |
|
(4,827) |
|
(14,327) |
|
|
41,048 |
|
58,158 |
|
22,753 |
|
Calendar days less scheduled off-hire days |
910 |
|
940 |
|
933 |
|
Average daily TCE rate (to the closest $100) |
45,100 |
|
61,900 |
|
24,400 |
|
Reconciliations - Liquidity Measures
(Adjusted Net Debt)
(in thousands of $) |
June 30, 2020 |
June 30, 2019 |
March 31, 2020 |
Net debt as calculated by GAAP |
|
|
|
Total debt (current and non-current) net of deferred finance
charges |
2,544,865 |
|
2,467,508 |
|
2,557,316 |
|
Less |
|
|
|
Cash and cash equivalents |
(128,661) |
|
(139,834) |
|
(130,976) |
|
Restricted cash and short-term deposits - current and non-current
portion |
(136,535) |
|
(405,586) |
|
(172,380) |
|
Net debt as calculated by GAAP |
2,279,669 |
|
1,922,088 |
|
2,253,960 |
|
VIE consolidation adjustment |
255,129 |
|
111,977 |
|
206,584 |
|
VIE restricted cash |
39,987 |
|
114,976 |
|
68,260 |
|
Deferred finance charges |
31,063 |
|
13,020 |
|
32,034 |
|
TRS restricted cash (1) |
— |
|
96,763 |
|
— |
|
Total Adjusted Net Debt |
2,605,848 |
|
2,258,824 |
|
2,560,838 |
|
Less: Golar Partners' share of the Hilli contractual debt |
(405,750) |
|
(438,750) |
|
(414,000) |
|
Less: Keppel's share of the Gimi debt |
(67,500) |
|
— |
|
(67,500) |
|
GLNG's share of Adjusted Net Debt |
2,132,598 |
|
1,820,074 |
|
2,079,338 |
|
(1) Restricted cash relating to the share
repurchase forward swap refers to the collateral required by the
bank with whom we entered into a total return equity swap.
Reconciliations - Liquidity Measures
(Contractual Net Debt)
(in thousands of $) |
June 30, 2020 |
June 30, 2019 |
March 31, 2020 |
Total debt (current and non-current) net of deferred finance
charges |
2,544,865 |
|
2,467,508 |
|
2,557,316 |
|
VIE consolidation adjustments |
255,129 |
|
111,977 |
|
206,584 |
|
Deferred finance charges |
31,063 |
|
13,020 |
|
32,034 |
|
Total Contractual Debt |
2,831,057 |
|
2,592,505 |
|
2,795,934 |
|
Less: Golar Partners' share of the Hilli contractual debt |
(405,750) |
|
(438,750) |
|
(414,000) |
|
Less: Keppel's share of the Gimi debt |
(67,500) |
|
— |
|
(67,500) |
|
GLNG's share of Contractual Debt |
2,357,807 |
|
2,153,755 |
|
2,314,434 |
|
Please see Appendix A for a capital repayment
profile for Golar’s contractual debt.
Non-US GAAP Measures Used in
Forecasting
Distribution coverage ratio: As
defined in Golar LNG Partners LP most recent quarterly earnings
release (Form 6-K), section "Appendix A - Non-GAAP Financial
Measures and Definitions".
Revenue Backlog: Revenue
Backlog is defined as the contracted daily charter rate for each
vessel multiplied by the number of scheduled hire days for the
remaining contract term. Revenue backlog is not intended to
represent EBITDA or future cashflows that will be generated from
these contracts. This measure should be seen as a supplement and
not a substitute for our US GAAP measures of performance.
Definitions
TFDE: Tri-fuel Diesel
ElectricFSRU: Floating Storage Regasification
Unit
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,” "will," “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:
- our inability and that of our counterparty to meet our
respective obligations under the Lease and Operate Agreement
("LOA") entered into in connection with the BP Greater Tortue /
Ahmeyim Project (“Gimi GTA Project”);
- continuing uncertainty resulting from current or potential
future claims from our counterparties of purported force majeure
under contractual arrangements, including but not limited to our
construction projects (including the Gimi GTA Project) and other
contracts to which we are a party;
- the length and severity of outbreaks of pandemics, including
the ongoing worldwide outbreak of the novel coronavirus
("COVID-19") and its impact on demand for liquefied natural gas
("LNG") and natural gas, the timing of completion of our conversion
projects, the operations of our charterers, our global operations
including impact to our vessel operating costs and our business in
general;
- changes in our ability to obtain additional financing on
acceptable terms or at all;
- Golar Power Limited's ("Golar Power") ability to operate the
Sergipe power station project and related FSRU contract and to
execute its downstream LNG distribution and merchant power sales
plans;
- changes in our relationship with Golar LNG Partners LP ("Golar
Partners"), Golar Power or Avenir LNG Limited ("Avenir") and the
sustainability of any distributions they pay to us;
- failure of our contract counterparties, including our joint
venture co-owners, to comply with their agreements with us or other
key project stakeholders;
- changes in LNG carrier, floating storage and regasification
units ("FSRUs"), or floating liquefaction natural gas vessel
("FLNG"), or small-scale LNG market trends, including charter
rates, vessel values or technological advancements;
- our vessel values and any future impairment charges we may
incur;
- challenges by authorities to the tax benefits we previously
obtained under certain of our leasing agreements;
- continuing volatility of commodity prices;
- a decline or continuing weakness in the global financial
markets;
- fluctuations in currencies and interest rates;
- our ability to close potential future sales of additional
equity interests in our vessels, including the Hilli Episeyo and
FLNG Gimi on a timely basis or at all and our ability to contract
the full utilization of the Hilli Episeyo or other vessels and the
benefits that may to accrue to us as the result of any such
modifications;
- 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 supply of or demand for LNG carriers, FSRUs,
FLNGs or small-scale LNG infrastructure;
- a material decline or prolonged weakness in rates for LNG
carriers, FSRUs, FLNGs or small-scale LNG infrastructure;
- 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, FLNGs or
small-scale LNG infrastructure;
- changes in the supply of or demand for LNG or LNG carried by
sea;
- changes in the supply of or demand for natural gas generally or
in particular regions;
- changes in our relationships with our counterparties, including
our major chartering parties;
- changes in general domestic and international political
conditions, particularly where we operate;
- 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
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
provision of FSRUs, FLNGs, and small-scale LNG infrastructure
particularly through our innovative FLNG strategy and our joint
ventures;
- actions taken by regulatory authorities that may prohibit the
access of LNG carriers, FSRUs, FLNGs or small-scale LNG vessels to
various ports;
- increases in costs, including, among other things, wages,
insurance, provisions, repairs and maintenance; 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.
August 13, 2020The Board of DirectorsGolar LNG
LimitedHamilton, BermudaInvestor Questions: +44 207 063
7900Iain Ross - CEOCallum Mitchell-Thomson - CFOStuart
Buchanan - Head of Investor Relations
- Interim results for the period ended 30 June 2020
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