Energia
Golar LNG Limited preliminary fourth quarter and financial year 2021 results
The formation and funding of LNG shipping pure-play CoolCo marks the last major step of Golar LNG Limited's (“Golar" or “the Company”) corporate simplification process. Over the last 12 months that process has involved the sale of assets and subsidiaries for a total enterprise value of approximately $6.2 billion and the refinancing of around $1 billion of debt. This has crystalized underlying value and significantly strengthened our cash and marketable securities position to more than $1.1 billion, facilitating attractive future growth. Golar will now focus on further increasing the value generated by FLNG Hilli and delivering FLNG Gimi to BP. We will seek further FLNG growth projects, leveraging on our market leading track record of FLNG development, construction and operations. We continue to make significant progress on new FLNG projects with existing and new prospective clients and expect a contract award within 2022.
The FLNG Hilli achieved another quarter of 100% commercial uptime. As announced in July 2021, production has seen a 0.2MTPA increase, effective Q1 2022, where the tariff for the incremental production is linked to TTF gas prices. Based on expected TTF linked earnings for Q1 of $22.1 million, $19.0 million for each of Q2 and Q3, and a current Q4 TTF forward price of $29/MMBtu, Golar's share of Hilli's 2022 TTF linked income is expected to be approximately $80 million. This can be expected to increase (or decrease) by $0.9 million for each $1.00/MMBtu change in the TTF forward price. Current customer of FLNG Hilli, Perenco is progressing with its drilling campaign with the purpose to take advantage of its one-time three year option expiring in July 2022 to increase production by up to 0.4mtpa from 2023-2026 on the same TTF linked tolling agreement.
FLNG Gimi is 80% technically complete. Pre-commissioning and testing of multiple systems is now underway with construction on track to meet the scheduled 2023 start-up date for the 20-year lease and operate agreement with BP. This will unlock around $3.0 billion of earnings backlog to Golar. Assuming current Brent oil and TTF prices prevail and Perenco is able to support production of 1.6mtpa from 2023, Golar's share of annual Adjusted EBITDA generation from Hilli and Gimi could exceed $400 million within 3 years, a quadrupling of 2021 FLNG related earnings.
The formation of CoolCo enables an attractive business separation of Golar's 8 TFDE vessels, creating a leading market player for LNG shipping. By separating shipping activities from the FLNG segment, we allow for pure play exposures that may facilitate faster and more attractive growth for both business segments. Golar shares the enthusiasm of 38% CoolCo owner EPS Ventures Ltd. for further consolidation in the sector and sees some interesting near-term opportunities. As a result of the CoolCo transaction Golar will de-consolidate approximately $832.9 million of year-end Contractual Debt associated with the 8 TFDE vessels upon closing, expected during Q1 2022. Golar also expects to receive a cash settlement of approximately $217 million, whilst retaining meaningful exposure to an expected continued strengthening of LNG shipping fundamentals. Golar will equity account for its approximate 31% interest in CoolCo upon closing of the sale and purchase agreements.
The Company will continue to explore conversion, sale, or charter alternatives for its remaining steam turbine vessel Golar Arctic , and TFDE FSRU Golar Tundra. Golar Tundra is one of the highest-spec large FSRUs available in the market for potential charterers looking to secure a rapid backup source of gas. Recent political developments have enhanced the attractiveness of this position.
Financial Summary
Q4 highlights and recent events
Financial and corporate:
Financing facilities:
FLNG:
Shipping:
Financial Review
Business Performance:
(2) The line item “Realized and unrealized gain/(loss) on oil and gas derivative instruments” in the Condensed Consolidated Statements of Operations relating to income from the Hilli Liquefaction Tolling Agreement (“LTA”) and natural gas derivative is split into: “Realized gains on oil derivative instrument” and “Unrealized gain/(loss) on oil and gas derivative instrument”. The unrealized component represents a mark-to-market gain of $32.9 million (September 30, 2021: $64.1 million gain and December 31, 2020: $5.7 million loss) on the embedded oil and gas derivative, which represents the estimate of expected receipts under the remainder of the Brent oil linked clause and 2022 contracted capacity increase clause of the Hilli LTA. The realized component amounts to $12.9 million (September 30, 2021: $8.9 million and December 31, 2020: $nil) and represents the income in relation to the Hilli LTA receivable in cash.
We report today Q4 net income of $6.8 million attributable to Golar, and Adjusted EBITDA of $93.5 million, compared to a Q3 net loss attributable to Golar of $91.0 million, and Adjusted EBITDA of $74.5 million.
Total operating revenues increased from $106.6 million in Q3 to $115.0 million in Q4 and were further supported by a decrease in voyage, charter hire and commission expenses, down from $1.4 million in Q3 to $0.3 million credit in Q4. The increase in total operating revenues and decrease in voyage expenses was mainly attributable to a seasonally improved shipping performance.
Revenue from shipping, net of voyage, charter hire and commission expenses was $52.7 million and increased by $8.1 million from $44.6 million in Q3. The quarter began with quoted TFDE carrier headline spot rates at around $71,000 per day and ended with rates at around the same level, despite a significant spike in rates during the intervening period. Full fleet TCE earnings increased from $49,500 in Q3 to $57,300 in Q4 2021.
Total operating revenues from FLNG Hilli including base tolling fees and amortization of pre-acceptance deferred gains recognized increased $1.9 million to $56.4 million in Q4, against $54.5 million in Q3. Revenues from overproduction account for the $1.9 million Q4 increase. Total overproduction revenues for 2021 amount to $3.2 million and Golar received payment for this in Q1 2022.
An insurance receipt in Q4 accounts for most of the $5.6 million decrease in vessel operating expenses, down from $31.9 million in Q3 to $26.3 million in Q4. As a result of an overhead streamlining exercise earlier in the year and reduced employee stock compensation costs, Administrative expenses decreased from $8.6 million in Q3 to $8.0 million in Q4. Project development expenses at $0.6 million for Q4 declined by $0.7 million, with most of the reduction attributable to a decrease in FLNG front end engineering and design costs.
The Brent oil linked component of Hilli's fees generates additional annual operating cash flows of approximately $3.1 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. As a result of rising prices, a $12.9 million realized gain on the oil derivative instrument (Golar 89.1% share equivalent to $11.5 million) was recorded in Q4, up from the $8.9 million realized in Q3.
A loss of hire claim in respect of a now repaired motor that failed on board one of the carriers accounts for the shipping related Other operating income of $2.3 million in Q3.
Depreciation and amortization, at $26.5 million was in line with the prior quarter.
The mark-to-market fair value of the Hilli Brent oil linked derivative asset increased by $18.4 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.
After entering into agreement with the customer in July 2021 to increase Hilli production by 0.2 million tons in 2022, a derivative asset, representing the fair value of the estimated discounted cash flows of payments due as a result of the TTF natural gas price linked additional 2022 production, was recognized on July 22, 2021. Like the Brent oil derivative above, the TTF derivative asset is adjusted to fair value at each balance sheet date and, on December 31, 2021, the value of this asset increased to $79.6 million. This resulted in the recognition of an unrealized TTF natural gas fair value gain in the income statement of $14.5 million in Q4. Together with the $18.4 million unrealized mark-to-market gain on the Brent oil derivative, a $32.9 million unrealized gain on oil and gas derivative instruments was reported in Q4.
A decline in the NFE share price between October 1 and December 31 resulted in the recognition of a Q4 unrealized mark-to-market loss of $51.6 million on Golar's 18.6 million NFE shares. The fair value of these shares was $24.14 per share as of December 31, 2021. Netted against this was $1.9 million of dividend income from NFE following its dividend declaration on November 2, 2021. Together these accounted for most of the $50.0 million of other non-operating losses during the quarter.
Interest expense at $13.6 million was in line with the prior quarter. A further increase in interest swap rates contributed to a $9.0 million gain on derivative instruments in Q4, compared to a $0.6 million gain in Q3.
Equity in net earnings of affiliates of $1.6 million is comprised of Golar's 23% investment in small-scale services provider Avenir LNG Limited ("Avenir") and 50% stake in Egyptian Company for Gas Services. As it will have Board representation, Golar will also equity account for its 31% interest in affiliate, CoolCo. There will be no quarterly mark-to-market changes in the value of this investment. Indicative proforma results of the shipping segment, as at December 31, 2021 without the 8 TFDE LNG carriers is outlined in Appendix B.
Net income attributable to non-controlling interests relate to the Hilli , the Gimi and the finance lease lessor VIEs.
Balance Sheet and Liquidity:
Our cash position as at December 31, 2021 was $418.8 million. This was made up of $268.6 million of unrestricted cash and $150.2 million of restricted cash. Restricted cash includes $59.2 million relating to lessor-owned VIEs and $60.7 million relating to the Hilli Letter of Credit. Golar's total share of this cash position therefore amounts to $359.6 million. As of December 31, 2021, Golar also had an undrawn RCF of up to $200 million secured by its 18.6 million NFE shares. On February 4, 2022, $131.0 million was drawn against this facility and on February 15, the outstanding balance of our $402.5 million 2.75% convertible bond, of $317.3 million (including interest) was fully redeemed. The Company expects to repay the RCF upon receipt of the net sales proceeds from the CoolCo transaction.
On February 11, 2022, Golar entered into a new $250.0 million bilateral facility with Sequoia Investment Management secured by the Company's equity stakes in FLNG Hilli and Gimi . Available for drawdown until 30 June 2022 and carrying interest of LIBOR + 450-550bps subject to certain financial ratios, this facility has a tenor of 7-years with a bullet maturing in February 2029. Together with remaining cash on hand and approximately $217.0 million receivable in respect of the CoolCo transaction, this facility can be used for FLNG investments. Available funds for investment can be increased further using cash generated from operations and marketable securities.
(3) Based on values as of December 31, 2021 for NFE and Avenir and Golar 31% share of CoolCo at formation.
Inclusive of $10.5 million of capitalized interest, $27.3 million was invested in FLNG Gimi during the quarter, taking the total Gimi Asset under development balance as at December 31, 2021, to $877.8 million. Of this, $410.0 million had been drawn against the $700 million debt facility. Both the investment and debt drawn to date are reported on a 100% basis. Golar's share of remaining capital expenditure, net of the Company's share of the remaining $290.0 million undrawn debt amounts to $210.0 million. Fees receivable during the final commissioning phase can fund a portion of this. Subsequent to the quarter end, a further $75.0 million has been drawn against the $700 million facility.
Included within the $1.1 billion current portion of long-term debt and short-term debt as at December 31, 2021, is $315.6 million in respect of the Convertible Bond, and $707.5 million relating to lessor-owned VIE subsidiaries that Golar is required to consolidate in connection with seven sale and leaseback financed vessels, including the Hilli . Upon closing of the CoolCo transaction, Golar will be left with one sale and leaseback financed asset ( Hilli ) and therefore one lessor-owned VIE subsidiary to consolidate.
Of the $2.9 billion of Vessels and equipment, net on the balance sheet, $1.38 billion relates to the 8 TFDE carriers being transferred to CoolCo. Based on the agreed average TFDE ship valuation of $145 million, the transfer value of these carriers amounts to $1.16 billion. Golar therefore expects to record a loss on sale of between $210-$230 million in Q1 2022. Golar's $125 million investment in CoolCo will be added to Investments in Affiliates on the balance sheet.
Of Golar's $2.2 billion share of Contractual debt as of December 31, 2021, $0.8 billion relates to the 8 TFDE vessels and will be removed from the balance sheet, leaving $1.4 billion. Net of Total Golar cash of $0.4 billion, Net Debt falls to around $1.0 billion. If marketable securities were to be taken into account, this figure reduces by a further $0.6 billion. Assuming current commodity prices prevail, 2022 Adjusted EBITDA could exceed $200 million. This should increase further in 2023 if Perenco exercise their option to increase Hilli production to 1.6mtpa, and should exceed $400 million after the first full year of Gimi operations, expected in 2024. Offering strong debt coverage, near-term earnings power and meaningful growth potential that can be financed, the simplified Golar is expected to be well positioned for new FLNG projects.
Corporate and Other Matters:
As at December 31, 2021, there were 108.2 million shares outstanding. There were also 1.5 million outstanding stock options with an average price of $17.65 and 0.4 million unvested restricted stock units awarded. Of the initial $50.0 million approved share buyback scheme, $25.5 million remains available for further repurchases which will be opportunistically pursued.
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.
Reconciliations - Performance Measures (Average Daily TCE Rate)
Reconciliations - Liquidity Measures (Contractual Debt)
Please see Appendix A for the capital repayment profile of Golar's contractual debt.
Reconciliations - Liquidity Measures (Total Golar Cash)
Non-US GAAP Measures Used in Forecasting
Revenue Backlog: Revenue backlog is defined as the minimum 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 Adjusted 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.
Earnings Backlog: Earnings backlog represents the share of contracted fee income for executed contracts less forecasted operating expenses for these contracts. In calculating forecasted operating expenditure, management has assumed that where there is an Operating Services Agreement the amount receivable under the services agreement will cover the associated operating costs, therefore revenue from operating services agreements is excluded.
Definitions
TFDE: Tri-fuel Diesel Electric engine
FSRU: Floating Storage Regasification Unit
Unrestricted cash : Unrestricted cash refers to our cash and cash equivalents
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 “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,” “expect,” “may,” “could,” “would,” “predict,” “propose,” “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:
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.
February 24, 2022
The Board of Directors
Golar LNG Limited
Hamilton, Bermuda
Investor Questions: +44 207 063 7900
Karl Fredrik Staubo - CEO
Eduardo Maranhão - CFO
Stuart Buchanan - Head of Investor Relations
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act
Attachment
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