Golar LNG Limited: Interim results for the period ended 31 March 2021
20 May 2021
NFE transactions closed, strong shipping rates despite seasonality, and gas prices supportive of upstream activities
The first quarter and subsequent months have been positive and eventful for Golar. With the announcement of the sale of Golar LNG Partners LP (“GMLP”) and Hygo Energy Transition Ltd. (“Hygo”) to New Fortress Energy (“NFE”) on January 13, and closing of the transactions on April 15, Golar has made significant progress simplifying its business, crystalizing the value of its asset portfolio, and strengthening its balance sheet.
We are encouraged by the strength of shipping rates during what is normally a seasonally weak period, with TFDE1 spot rates currently around $70,000 per day. The negative impact of potential EEXI regulations on the viability of up to 254 steam turbine carriers relative to a global on-the-water fleet of 597 vessels and a 130 vessel orderbook means that Golar’s longer term view of the shipping business has also materially improved. The few shipyards capable of building LNG carriers are filling with container newbuild orders and we do not see potential for significant new LNG carrier orders before 2024. Over the same timeframe LNG trade is expected to continue to grow by a 4% CAGR. This should allow for improved earnings from our carrier portfolio and create a supportive backdrop for this as a stand-alone business.
Current and forward energy prices are also strengthening, increasing the attractiveness of LNG upstream investments and our FLNG technology. We continue to pursue FLNG growth projects including both tolling arrangements and opportunities to develop hydrocarbon exposure through ownership of gas molecules suitable for production by our FLNG technology.
Finally, we are pleased to have appointed Mr. Karl Fredrik Staubo as CEO and Mr. Eduardo Maranhao as CFO. With their GMLP and Hygo backgrounds both have been intimately involved with the business for some time and will be familiar faces to Golar stakeholders, allowing for a seamless transition.
Financial Summary
(in thousands of $) | Q1 2021 | Q1 2020 | % Change | Q4 2020 | % Change
| | | | |
Total operating revenues | 125,827 | 122,559 | 3% | 118,684 | 6%
Adjusted EBITDA | 77,612 | 76,208 | 2% | 78,031 | (1)%
Net income/(loss) attributable to Golar LNG Ltd | 25,364 | (104,247) | 124% | 8,126 | 212%
Golar's share of contractual net debt1 | 2,062,580 | | 2,202,108 | (6)% | 2,065,826 | —%
| | | | | |
Q1 highlights and recent events
Financial:
- Net income of $25.4 million for the quarter.
- Adjusted EBITDA of $77.6 million, in line with Q4.
- Entered into merger agreements for the sale our interest in both Hygo and GMLP to NFE. Upon closing on April 15, Golar received a total of $131 million in cash and 18.6 million Class A shares in NFE in combined merger consideration.
- 1.2 million Golar shares bought back and held as treasury shares at a cost of $13.7 million.
- 18.6 million Class A NFE shares valued at $780 million as of May 19, 2021, the equivalent of $7.08 per Golar LNG share.
- $45 million drawn down against FLNG Gimi debt facility. Total of $345 million drawn down as at March 31, 2021. A further $65 million drawn in early April.
- Agreed a one-off debt payment of $60 million spread evenly across four LNG carriers and an accelerated lease profile resulting in cashflow net savings of $42 million and a total reduction to Golar's remaining debt principal of $102 million.
- Published comprehensive ESG report including audited emissions data and ambitious performance targets.
Shipping:
- Q1 2021 average daily Time Charter Equivalent (“TCE”)1 earnings of $61,700 for the fleet, in line with both expectations and the TCE1 achieved for Q1 2020.
- The TFDE1 TCE1 for the quarter was $65,100.
- Utilization at 97%, up on the 77% achieved in Q4 2020 and the 94% realized in Q1 2020.
- Revenue backlog1 of $187 million as at March 31, 2021.
FLNG:
- FLNG Hilli Episeyo (“Hilli”) currently offloading 56th cargo, with 100% commercial uptime maintained.
- Executed all remaining documentation required to remove the cap on gas reserves available for liquefaction by the Hilli, enable production above the current contract capacity, and advanced discussions on additional production by Hilli anticipated to start-up in Q1 2022.
- FLNG Gimi conversion project 69% technically complete - on track and on budget. Nine million man-hours have now been worked, with around 2,400-yard workers currently allocated to the conversion on a daily basis. The vessels fifth and final drydock that has seen all remaining sponson blocks attached to the vessel is on schedule to complete at the end of Q2.
- Progressing engineering work on a smaller, cheaper, and faster delivering Mark II FLNG design, in addition to our larger Mark III newbuild solution and assisting NFE with their FAST LNG jack-up designs.
- Renewed focus on growth prospects with an emphasis on potential gas acquisitions for integrated FLNG projects.
Outlook
LNG Shipping:
Based on fixtures to date and inclusive of an upward adjustment for loss of hire revenue expected in respect of an ongoing claim for one of the vessels, Golar currently expects a Q2 TFDE1 TCE1 of around $50,500 per day. The market outlook for shipping is improving on firming underlying LNG demand and higher prices. Ton miles are increasing, the likelihood of any summer 2021 cargo cancellations has been reduced, charterers seeking spot tonnage are facing competition from those looking for term charters, all of which are improving the rate outlook. Tighter emissions regulations expected from 2023 may also require slower steaming for a substantial portion of the existing fleet. The market strength can be illustrated by our recent fixture of a 1-year time charter at a level of return not seen in the LNG market since 2010/2011.
FLNG:
Golar will pursue opportunities to use its FLNG technology and unrivalled operational experience to increase its upstream exposure. Focus will be on investments into stranded gas assets or partnering with companies that have associated gas that can be liquefied using existing FLNG assets or a quick delivering, smaller and lower cost alternative. The target will be to enter into LNG off-take agreements sufficient to support financing requirements and retain remaining production for merchant sales. We will continue to pursue pure tolling projects with oil majors where the return is attractive. Our FLNG solutions out-compete almost all onshore facilities in terms of cost per ton, schedule, and carbon footprint.
On Hilli, dialogue with Perenco and SNH to increase throughput continues. Although drilling has not yet commenced, current plans to bring on incremental production from Q1 2022 remain likely. Golar has an economic interest in around 87% of any incremental earnings from increased throughput of train 3. In addition to the train 3 discussions, Hilli is expected to generate Brent Oil linked cash flows, in which Golar has an 89% economic interest, from Q2 2021. The contractual Brent Oil linked component of Hilli's currently contracted production generates incremental cashflows equivalent to approximately $3.0 million per annum for every dollar the Brent Oil price is above $60/barrel, up to an agreed but undisclosed ceiling.
Our FLNG segment has a contract earnings backlog1 of $3.4 billion (Golar's share), an unparalleled operational record and attractive growth prospects. In order to capture hidden value in this segment and to potentially accelerate FLNG growth projects we will consider partnerships at either a project, asset or business level.
Corporate:
Closing the sales of Hygo and GMLP to NFE represent significant steps toward simplifying the group structure, crystallizing value, and strengthening the balance sheet. With $149.9 million of unrestricted cash on hand as at March 31, 2021 and $130.8 million of cash proceeds subsequently received from the sales of Hygo and GMLP on April 15, Golar's balance sheet has been materially strengthened. Golar is now well positioned to meet its existing capital expenditure commitments and to fund attractive investment propositions, including continuation of its share buyback program.
The 18.6 million NFE shares valued at $780 million based on the closing price on May 19 create additional optionality. We see significant potential for the NFE business case driven by their strong growth, track record, and the solid platform NFE has built and acquired through the Hygo and GMLP acquisitions. Subject to the relative share prices of NFE and Golar, near-term growth initiatives, and the absolute share price of Golar, we intend to use the NFE shares for a combination of:
- Debt optimization, including refinancing of the convertible bond;
- Fund growth projects;
- Return to Golar shareholders either by way of direct distribution or by way of a tendered exchange for Golar shares.
In terms of financial reporting, a gain on disposal1 of our equity investments in GMLP and Hygo will be recognized on April 15, 2021. The estimated book profit on the disposals is expected to be in excess of $650 million as of this date. Earnings from these two affiliates, previously impacted by BRL/USD FX changes, will cease to be recognized in the statement of operations from April 15, and our investments in them, classified as ‘held for sale’ on March 31, 2021, will be removed from the balance sheet. Thereafter, while NFE shares continue to be held and dividends declared, dividend income will be recorded in the statement of operations, as will mark-to-market changes in the value of the NFE shares held.
Financial Review
Business Performance:
| 2021 | 2020
| Jan-Mar | Oct-Dec
(in thousands of $) | Shipping | FLNG | Corporate and other | Total | Shipping | FLNG | Corporate and other | Total
Total operating revenues | 62,866 | | 54,397 | | 8,564 | | 125,827 | | 50,727 | | 62,489 | | 5,468 | | 118,684 |
Vessel operating expenses | (15,901) | | (12,301) | | (2,499) | | (30,701) | | (14,629) | | (11,677) | | 89 | | (26,217) |
Voyage, charterhire & commission expenses | (7,317) | | (150) | | (16) | | (7,483) | | (5,792) | | — | | — | | (5,792) |
Administrative expenses | (136) | | (143) | | (8,119) | | (8,398) | | (795) | | (871) | | (6,921) | | (8,587) |
Project development expenses | — | | — | | (1,633) | | (1,633) | | (8) | | (1,363) | | (1,416) | | (2,787) |
Other operating income | — | | — | | — | | — | | 2,730 | | — | | — | | 2,730 |
Adjusted EBITDA | 39,512 | | 41,803 | | (3,703) | | 77,612 | | 32,233 | | 48,578 | | (2,780) | | 78,031 |
| 2020
| Jan-Mar
(in thousands of $) | Shipping | FLNG | Corporate and other | Total
Total operating revenues | 62,985 | | 54,524 | | 5,050 | | 122,559 |
Vessel operating expenses | (16,503) | | (13,892) | | 162 | | (30,233) |
Voyage, charterhire & commission expenses | (4,827) | | — | | — | | (4,827) |
Administrative expenses | (460) | | (310) | | (9,371) | | (10,141) |
Project development expenses | (13) | | (1,132) | | (2,544) | | (3,689) |
Realized gains on oil derivative instrument(1) | — | | 2,539 | | — | | 2,539 |
Adjusted EBITDA | 41,182 | | 41,729 | | (6,703) | | 76,208 |
(1) The line item "Realized and unrealized gain /(loss) on oil derivative instrument" in the Condensed Consolidated Statements of Income/(Loss) relating to income from the Hilli Liquefaction Tolling Agreement is split into, "Realized gains on oil derivative instrument" and "Unrealized gain/(loss) on oil derivative instrument". The unrealized component represents a mark-to-market gain of $10.6 million (December 31, 2020: $5.7 million loss and 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 Liquefaction Tolling Agreement. The realized component amounts to $nil (December 31, 2020: $nil and March 31, 2020: $2.5 million gain) and represents the income in relation to the Hilli Liquefaction Tolling Agreement receivable in cash.
Golar reports today Q1 Adjusted EBITDA of $77.6 million compared to $78.0 million in Q4.
Total operating revenues increased from $118.7 million in Q4 to $125.8 million in Q1, partially mitigated by an increase in voyage, charter hire and commission expenses, from $5.8 million in Q4 to $7.5 million in Q1. Of the $7.1 million increase in total operating revenues, $12.1 million was attributable to an improved shipping performance. Partially offsetting this is reduced revenue from FLNG. Revenue from Hilli reverted to normalized levels in Q1 following the billing of 2019-2020 overproduction in Q4.
Revenue from shipping, net of voyage, charterhire and commission expenses was $55.5 million and increased by $10.6 million from $44.9 million in Q4. The quarter began with quoted TFDE1 carrier headline spot rates at around $160,000 per day and ended with rates at around $33,000 per day, in line with seasonal patterns. Full fleet TCE1 earnings increased from $48,800 in Q4 2020 to $61,700 in Q1 2021, in line with both prior guidance and Q1 2020.
Operating revenues from the Hilli, including base tolling fees and amortization of pre-acceptance amounts recognized, decreased from $62.5 million in Q4 to $54.4 million in Q1 as expected given the billing of 2019 and 2020 overproduction of $8.0 million in Q4. Any potential overproduction for 2021 will be billed in January 2022 and recognized in Q4, 2021.
A full quarter's costs in respect of the FSRU LNG Croatia, for which Golar receives management fee compensation, together with unscheduled repairs of the FSRU Golar Tundra contributed to a $4.5 million increase in vessel operating expenses from $26.2 million in Q4 to $30.7 million in Q1. Administrative and project development expenses decreased $0.2 million and $1.2 million to $8.4 million and $1.6 million respectively.
The mark-to-market fair value of the Hilli Brent oil link derivative asset increased by $10.6 million during the quarter, with a corresponding unrealized gain of the same amount recognized in the income statement. The fair value increase was driven by an upward movement in the expected future market price for Brent Oil. The spot price for Brent Oil increased from $51.80 per barrel on December 31, 2020 to $63.54 on March 31, 2021.
Depreciation and amortization, at $26.5 million was in line with the prior quarter.
Net Income Summary:
| 2021 | 2020
(in thousands of $) | Jan-Mar | Oct-Dec
Adjusted EBITDA | 77,612 | | 78,031 |
Depreciation and amortization | (26,506) | | (26,826) |
Unrealized gain/(loss) on oil derivative instrument | 10,600 | | (5,700) |
Other non-operating income | — | | 5,682 |
Interest income | 34 | | 140 |
Interest expense | (14,546) | | (15,217) |
Gains on derivative instruments | 23,351 | | 2,120 |
Other financial items, net | (310) | | (3,538) |
Income taxes | (257) | | (383) |
Equity in net losses of affiliates | (682) | | (148) |
Equity in net (losses)/earnings of affiliates from discontinued operations | (6,192) | | 4,481 |
Net income attributable to non-controlling interests | (37,740) | | (30,516) |
Net income attributable to Golar LNG Limited | 25,364 | | 8,126 |
In Q1 the group generated $25.4 million of net income, compared to Q4 net income of $8.1 million. Key items contributing to this are:
- A $23.4 million Q1 gain on derivative instruments compared to a $2.1 million gain in Q4, mainly due to an increase in LIBOR rates and the impact this has on the Company's fixed interest rate swaps.
- The $6.2 million of equity in net losses of affiliates from discontinued operations primarily comprises the following:
- $12.8 million net loss in respect of Golar's 50% share in Hygo; and
- $6.6 million net income in respect of Golar's 32% share in GMLP.
Net losses attributable to non-controlling interests relate to the Hilli, the Gimi and the finance lease lessor VIEs.
Financing and Liquidity:
Our cash position as at March 31, 2021 was $298.9 million. This was made up of $149.9 million of unrestricted cash and $149.0 million of restricted cash. Restricted cash includes $54.1 million relating to lessor-owned VIEs and $75.9 million relating to the Hilli Letter of Credit, of which $15.2 million has been classified as short-term and is expected to be released to free cash in June.
After closing the sale of Hygo to NFE in April, our interest in NFE, valued at $780 million as of market close on May 19, replaces our interest in Hygo as security for the $100 million revolving credit facility.
Golar has agreed to make certain amendments to its sale and leaseback arrangements for four of its LNG carriers, the Golar Ice, Golar Kelvin, Golar Glacier and Golar Snow. These amendments include a prepayment of $60.0 million in July 2021, evenly split, across the four sale and leaseback facilities, increased daily debt service and a resulting accelerated lease profile on the Golar Ice and Golar Kelvin, and an obligation to repurchase the Golar Glacier and Golar Snow in April 2023. As a result of these changes we have agreed with the lease counterpart a net saving to Golar of a total of $42 million in combination of reduced remaining debt principal and remaining charter hire due under the remaining sale leaseback period.
Notable cash movements expected in Q2 2021 are summarized as follows:
(in millions of $) |
Opening unrestricted cash balance | 149.9 |
Cash merger consideration - Hygo transaction | 50.0 |
Cash merger consideration - Golar Partners transaction | 80.8 |
Golar's share of expected Gimi CAPEX net of drawdowns | (61.0) |
Repurchase of 1.2 million shares under the share buyback program | (13.7) |
Release of Hilli LC | 15.2 |
Total | 221.2
Inclusive of $10.5 million of capitalized interest, $44.6 million was invested in FLNG Gimi during the quarter, taking the total Gimi asset under development balance as at March 31, 2021 to $702.8 million. Of this, $345.0 million had been drawn against the $700 million debt facility. Both the investment and debt drawn to date are reported on a 100% basis. Based on cash spent as at March 31, 2021, Golar's expected share of contributions to remaining conversion costs up to the point that commissioning hire becomes receivable in 2023 is approximately $164 million.
Included within the $1,354.9 million current portion of long-term debt and short-term debt as at March 31, is the December 2021 maturing $100.0 million credit facility, $387.7 million in respect of the February 2022 maturing convertible bond, and $851.9 million relating to lessor-owned VIE subsidiaries that Golar is required to consolidate in connection with nine sale and leaseback financed vessels, including the Hilli.
Corporate and Other Matters:
As at March 31, 2021, there were 110.1 million shares outstanding. There were also 1.7 million outstanding stock options with an average price of $23.33 and 0.7 million unvested restricted stock units awarded. Subsequent to the quarter end, 1.2 million shares were repurchased at a cost of $13.7 million. Of the initial $50 million approved share buyback scheme, $36.3 million remains available for further repurchases, which are considered attractive at current price levels.
On April 12, 2021 Iain Ross resigned from his position as Chief Executive Officer. Karl Fredrik Staubo has been appointed to replace Iain and assumed his role as CEO on May 13, 2021. Eduardo Maranhao, formerly CFO of Hygo, has been appointed to replace Karl as CFO.
Golar has also published its ESG report. Containing industry leading levels of disclosure, this report includes audited emissions data and long-term measurable reporting targets that will further aid Golar in fulfilling its commitment to be at the forefront of delivering LNG as an alternative to more emission-intensive fossil fuels.
