Energia
Interim Results for the Period Ended September 30, 2021
FLNG Hilli achieved another quarter of 100% commercial uptime. Capitalizing on record gas prices, Golar recently hedged half of its Q1 2022 Dutch Title Transfer Facility (“TTF”) exposure from the 0.2mtpa of additional 2022 production at a TTF price of $28/MMBtu, implying additional earnings to Golar for the quarter of $21.2 million (for each $1.00/MMBtu change in TTF, earnings realized by Golar will move by $0.4 million for unhedged volumes during Q1 2022). This implies a gross tolling fee of $11.4/MMBtu for the incremental production. The TTF linked production will, together with the Brent linked fees from trains one and two, see significant increased earnings from Hilli during 2022, with no further capital expenditure required by Golar. The strong commodity price backdrop has also incentivized the current customer of FLNG Hilli to expand its ongoing drilling program, which if successful will allow it to take advantage of its option to increase production by up to 0.4mtpa from 2023-2026.
FLNG Gimi is 75% technically complete. The unit is now around two years from the scheduled start-up date for the 20-year lease and operate agreement with BP that will unlock around $3.0 billion of earnings backlog to Golar.
We expect Adjusted EBITDA generation from our FLNG segment to quadruple from current levels over the next 2-3 years on the back of contracted earnings from Gimi and increased earnings from our commodity exposure on Hilli.
The current strength of LNG prices and favorable price outlook further increases the attractiveness of our FLNG solutions. This is driving momentum for potential new FLNG projects. We are continuing constructive discussions with an existing customer for use of a five-million-ton Golar Mark III newbuild design and rapid progress is being made on potential integrated projects. Our portfolio of prospective FLNG customers across different geographies increased during the quarter.
Shipping Q3 2021 average daily Time Charter Equivalent (“TCE”) earnings of $49,500/day, up 27% on Q3 2020, will continue to increase as the shipping fleet is re-contracted at higher expected rates. Golar recently announced a new 12-month time charter with a gross hire rate of approximately $100,000/day. Increasing exposure to higher freight rates over the course of 2022, rising asset values, tighter environmental regulations that reduce effective vessel supply and deleveraging of Golar's LNG carriers are all contributing to expectations of a significant increase in cash generation from our shipping segment and increase the attractiveness of potential further group simplification by separating our shipping business, potentially deconsolidating approximately $990 million of associated contractual debt.
Golar expects to see a significant increase in Adjusted EBITDA generation over the next 2-3 years, benefiting from operating and financial leverage from its existing asset portfolio in shipping and FLNG. This includes start-up of earnings from Golar's current $540 million of pro-rata capital invested in Gimi (per Q3 2021) in around 2 years. Furthermore, we are well positioned to capitalize on LNG macro tailwinds through an attractive FLNG growth pipeline, with ~$600 million of value in marketable securities (NFE and Avenir), that can be redeployed to significantly higher cash yielding projects.
Financial Summary
Q3 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 $64.1 million (June 30, 2021: $70.6 million gain and September 30, 2020: $0.2 million gain) 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 $8.9 million (June 30, 2021: $3.0 million and September 30, 2020: $nil) and represents the income in relation to the Hilli LTA receivable in cash.
We report today a Q3 net loss of $91.0 million attributable to Golar, and Adjusted EBITDA of $74.5 million, compared to Q2 net income attributable to Golar of $471.4 million, and Adjusted EBITDA of $67.0 million.
Total operating revenues increased from $104.3 million in Q2 to $106.6 million in Q3 and were further supported by a decrease in voyage, charter hire and commission expenses, down from $2.2 million in Q2 to $1.4 million in Q3. The increase in total operating revenues and decrease in voyage expenses was attributable to a seasonally improving shipping performance.
Revenue from shipping, net of voyage, charter hire and commission expenses was $44.6 million and increased by $4.8 million from $39.8 million in Q2. The quarter began with quoted TFDE carrier headline spot rates at around $68,000 per day and ended with rates at around $71,000 per day. Full fleet TCE earnings increased from $43,700 in Q2 to $49,500 in Q3 2021.
Total operating revenues from FLNG Hilli including base tolling fees and amortization of pre-acceptance amounts recognized normalized at $54.5 million in Q3, against $55.7 million in Q2 which benefited from some overproduction during the quarter.
Scheduled repairs to a damaged motor on one of the carriers contributed to a $0.5 million increase in vessel operating expenses, up from $31.4 million in Q2 to $31.9 million in Q3. Administrative expenses decreased by $1.5 million from $10.1 million in Q2 to $8.6 million in Q3, Q2 having been impacted by redundancy costs from an overhead streamlining exercise. FLNG front end engineering and design costs and business development expenses for new FLNG projects accounted for the $1.3 million of Q3 project development expenses.
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, an $8.9 million realized gain on the oil derivative instrument (Golar share equivalent to $7.9 million) was recorded in Q3, up on the $3.0 million realized in Q2.
An ongoing loss of hire claim in respect of the recently repaired motor that failed on board the carrier referred to above accounts for the shipping related Other operating income of $2.3 million and $2.8 million in Q3 and Q2 2021 respectively.
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 $27.3 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 $75.13 per barrel on June 30, 2021 to $78.52 on September 30, 2021.
After entering into agreement with the customer in July 2021 to increase Hilli production by 0.2 million tons in 2022, a derivative asset of $28.3 million, 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 September 30, 2021, the value of this asset increased to $65.1 million. This resulted in the recognition of an unrealized TTF natural gas fair value gain of $36.8 million in the Q3 income statement. Together with the $27.3 million unrealized gain on the Brent oil derivative, a $64.1 million Unrealized gain on oil and gas derivative instruments was reported in Q3.
A decline in the NFE share price between July 1 and September 30 and discounting for the 15-day balance of the six-month holding period restriction resulted in the recognition of a Q3 unrealized loss of $157.5 million for the fair value adjustment on Golar's 18.6 million NFE shares. The carrying value of these shares was $27.75 per share as of September 30, 2021. Netted against this was $1.9 million of dividend income from NFE following its dividend declaration on August 4, 2021. Together these accounted for most of the $153.8 million of Other non-operating losses during the quarter.
As a result of the agreed $60.0 million aggregate prepayment in respect of four sale and leaseback financed LNG carriers in July, interest expense decreased by $0.7 million from $14.5 million in Q2 to $13.8 million in Q3. An increase in swap rates contributed to a $0.6 million gain on derivative instruments in Q3, compared to a $6.9 million loss in Q2.
Equity in net losses of affiliates of $0.7 million is comprised of Golar's 23% investment in small-scale services provider Avenir LNG and 50% stake in Egyptian affiliate, ECGS.
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 September 30, 2021 was $268.2 million. This was made up of $123.7 million of unrestricted cash and $144.5 million of restricted cash. Restricted cash includes $65.1 million relating to lessor-owned VIEs and $60.7 million relating to the Hilli Letter of Credit.
Inclusive of $10.4 million of capitalized interest, $19.1 million was invested in FLNG Gimi during the quarter, taking the total Gimi Asset under development balance as at September 30, 2021 to $850.6 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.
Included within the $1.2 billion current portion of long-term debt and short-term debt as at September 30, 2021, is the December 2021 maturing $100.0 million RCF, $310.9 million in respect of the Convertible Bond, and $802.3 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 September 30, 2021, there were 108.2 million shares outstanding. There were also 2.2 million outstanding stock options with an average price of $19.26 and 0.6 million unvested restricted stock units awarded. Of the initial $50.0 million approved share buyback scheme, $25.5 million remains available for further repurchases.
Golar's Annual General Meeting was held on August 10, 2021 in Bermuda.
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 a capital repayment profile for 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 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.
November 9, 2021
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
Attachment
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