Golar LNG Limited reports Q1 2022 Net income of $345.2 million
Adjusted EBITDA1 of $93.4 million for the quarter inclusive of FLNG Hilli, Golar Arctic and Golar Tundra but excluding the 8 TFDE vessels and management companies sold to Cool Company Ltd. (“CoolCo”).
Sold 6.2 million New Fortress Energy Inc. (“NFE”) shares in Q2 2022 (“Q2”) realizing net cash proceeds of $253 million. Golar now owns 12.4 million NFE shares following the sale.
Q1 Total Golar Cash and Listed Securities1 position increased by $0.4 billion to $1.3 billion. Golar’s share of Contractual Debt1 decreased by $0.5 billion to $1.7 billion in Q1 and a further $0.5 billion in Q2 after sale of remaining carriers to CoolCo in April.
Agreed to sell the steam turbine carrier Golar Arctic as a converted FSRU to Italy’s Snam for 269 million Euros ($288 million).
Strong progress made on opportunities for FSRU Golar Tundra and on pipeline of FLNG projects.
Shipping spin-off: A key focus for Q1 was the spin-off of our 8 TFDE LNG carriers into CoolCo. CoolCo successfully concluded an upsized $275 million equity raise in January, listed on the Euronext Growth Oslo exchange in February, recruited a designated management team in March and closed its acquisition of 8 LNG carriers and The Cool Pool Limited from Golar during March and April. The sale of the management companies is contemplated to complete in Q2. In total the CoolCo transactions will reduce Golar’s contractual debt1 position by $821 million, release approximately $217 million in cash and cash equivalents to Golar, whilst maintaining a 31.25% shareholding in affiliate, CoolCo.
FLNG operations and commodity hedges: FLNG Hilli maintained its unbroken 4-year record of 100% uptime during the quarter and started to produce its incremental 0.2mtpa of production, increasing scheduled production volume from 1.2mtpa to 1.4mtpa. The incremental 0.2mtpa that has a tariff linked to Dutch Title Transfer Facility (“TTF”) gas prices contributed $22.6 million of incremental proceeds net of commodity swaps to Golar during Q1. The Brent oil linked component of the tariff contributed $15.6 million, bringing Golar’s pro-rata share of gross proceeds from Hilli for the quarter to $64.0 million. Golar’s share of the TTF linked gross proceeds is expected to be $19.0 million in Q2 (fully hedged), $19.0 million in Q3 2022 (fully hedged) and $20.0 million in Q4 2022 (open). Estimated Q4 2022 TTF linked gross proceeds are based on a TTF spot price of $26.90/mmbtu and can be expected to increase (or decrease) by $0.8 million for each $1.00/MMBtu change in the TTF forward price. Hilli’s earnings could increase further from 2023 until the end of the contract if the customer exercises a one-time 0.4mtpa TTF-linked option that expires on July 31, 2022.
FLNG Gimi construction: Conversion of FLNG Gimi for its 20-year contract with BP scheduled to commence in Q4 2023 is 83% technically complete. Once delivered, Gimi is expected to unlock around $3.0 billion of earnings backlog1 to Golar, equivalent to $151 million in annual Adjusted EBITDA1. The commercial start-up of FLNG Gimi together with the commodity linked production from FLNG Hilli could result in Golar’s share of annual Adjusted EBITDA1 generation from Hilli and Gimi exceeding $400.0 million within 3-years, a quadrupling of 2021 FLNG related earnings.
FLNG business development: We are in detailed discussions with existing and prospective clients for new FLNG projects. Some of these projects would offer direct access to gas molecules or allow for a commodity linked earnings component, whilst others are on a tolling basis. Based on envisioned funding and ownership structures we expect that our Total Golar Cash and Listed Securities1 position could fund two FLNG growth projects.
FSRU: On May 18, 2022, Italian energy infrastructure company Snam and Golar signed a contract that will see Golar convert the last of its trading steam turbine LNG carriers, Golar Arctic, into a FSRU for delivery to Snam at a port in Sardinia, Italy. After conversion, acceptance and repayment of any vessel related debt, the FSRU will be sold to the Snam Group for 269 million Euros ($288 million). Initiation of activities including procurement of long lead items for the conversion is subject to Snam’s issuance of a Notice-to-Proceed. Once received, the process of conversion and sale is expected to take up to two years, with the vessel being required in a yard for around 9-months. Prior to entering the yard the Golar Arctic will continue to be traded by Golar as an LNG carrier. The estimated conversion cost is approximately $160 million due to the high specification of equipment required and inflationary market conditions.
Developments in Europe have created an urgent need for more floating LNG terminals. Golar has received multiple approaches from European governments and utility companies for its modern high-spec FSRU Golar Tundra.
Q1 highlights and recent events
Financial and corporate:
Profitability: Net income attributable to Golar of $345.2 million for the quarter, including:
A $344.0 million non-cash mark-to-market gain recognized on NFE shares based on a March 31, 2022 carrying value of $42.61 per share.
A $168.1 million non-cash gain recognized on Hilli Brent oil and TTF natural gas linked derivative instruments.
A discontinued operations net loss of $209.2 million inclusive of a loss on sale/impairment in respect of the 8 carriers sold to CoolCo.
A $31.5 million gain on interest rate swaps.
Hedges: Entered into swap arrangements to hedge 100% of Golar’s exposure to Q2 and Q3 2022 incremental Hilli TTF linked 2022 production at an average TTF price of $25.375/MMBtu.
CoolCo transaction: $184.0 million of cash and cash equivalents released to Golar and $340.1 million of Contractual debt1 removed from balance sheet following sale of first 4 vessels to CoolCo in Q1. Remaining 4 vessels sold in April and disposal of management companies contemplated to complete in Q2 expected to release approximately $33.0 million of cash and cash equivalents and derecognize a further $480.9 million of Contractual debt1.
Shares: Repurchased and then cancelled 368,496 Golar shares at a cost of $6.6 million. 108.0 million shares issued and outstanding as of March 31, 2022.
ESG: 2021 Environment, Social and Governance report published on May 16, 2022.
Invested in Oslo-based Aqualung Carbon Capture in May 2022, a technology company working on a promising carbon capture and separation membrane system that could be used on future FLNG units.
Financing facilities:
Convertible Bond: $317.3 million net outstanding balance of 2.75% $402.5 million Convertible Bonds redeemed on February 15, 2022.
Credit Facility: $131.0 million of new $200.0 million 3-year Corporate RCF drawn on February 4, 2022 and subsequently repaid on May 10, 2022. Facility remains available until 2024.
Bilateral Corporate Facility: Executed a new $250 million 7-year bilateral corporate facility on February 11, 2022. Currently undrawn and available until June 30, 2022.
Finance tax lease case: Settled long running tax dispute in respect of legacy UK finance lease transactions resulting in an approximate $66.0 million final cash settlement (including fees) payable by Golar in Q2.
FLNG:
Utilization: Industry leading operations maintained with 100% commercial uptime by FLNG Hilli.
FLNG Hilli producing additional TTF linked 2022 volumes. Customer drilling campaign to prove up additional reserves completed with well testing underway.
Construction: FLNG Gimi conversion project 83% technically complete. 19-million man-hours worked with strong safety record maintained.
Commercial: Continued progress on new FLNG projects with existing and new prospective counterparties.
Golar reports today Q1 net income attributable to Golar of $345.2 million. Golar also reports Adjusted EBITDA1 of $93.4 million inclusive of FLNG Hilli, Golar Arctic and Golar Tundra but excluding the 8 TFDE vessels and The Cool Pool Limited sold to CoolCo in March and April 2022, and the management companies, the sale of which is expected to complete in Q2. Q1 results associated with the 8 TFDE vessels and the Cool Pool Limited sold to CoolCo and the management companies still to be sold have been reclassified to Discontinued operations with Q1 2021 and Q4 2021 (“Q4”) numbers adjusted on a retrospective basis for comparison in the discussion of material movements below.
Quarterly amortization of the day one gain recognized in respect of the incremental TTF linked production from FLNG Hilli contributed to the $7.3 million increase in Total operating revenues which increased from $72.4 million in Q4 to $79.7 million in Q1. Fees for the additional TTF linked production are accounted for within Realized and unrealized gains/losses on oil and gas derivative instruments. Revenue from shipping (Golar Arctic and Golar Tundra), net of voyage, charter hire and commission expenses was $7.7 million and decreased by $0.6 million from $8.3 million in Q4.
Vessel operating expenses increased, from $13.9 million in Q4 to $19.5 million in Q1, Q4 costs having been suppressed by a $5.4 million insurance recovery.
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 $17.5 million realized gain on the oil derivative instrument was recorded in Q1, up from the $12.9 million realized in Q4. Golar has an effective 89.1% interest in these earnings. A realized gain of $26.2 million was also recognized in respect of fees for the additional TTF linked production that commenced in Q1. Golar has an effective 86.3% interest in these earnings. Offsetting this was a $1.1 million realized loss (100% attributable to Golar) on the hedged component of the quarter’s TTF linked earnings. Collectively a $42.6 million realized gain on oil and gas derivative instruments was recognized as a result.
The mark-to-market fair value of the Hilli Brent oil linked derivative asset increased by $169.6 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. Similarly, the mark-to-market fair value of the Hilli TTF natural gas derivative asset increased by $24.1 million during the quarter with a corresponding unrealized gain of the same amount recognized in the income statement, also driven by an upward movement in expected future TTF prices. Offsetting the unrealized TTF gain is a $25.7 million unrealized loss in respect of the hedged portion of Q2 and Q3 2022 TTF linked Hilli production. Collectively this therefore resulted in a $168.1 million Q1 unrealized gain on oil and gas derivative instruments.
Of the $3.9 million Other operating income in Q1, $3.6 million was recognized in respect of LNG production over and above the quarter’s pro-rata share of 1.4mt of full year 2022 contracted production.
An increase in the NFE share price between January 1 and March 31 resulted in the recognition of a Q1 unrealized mark-to-market gain of $344.0 million on Golar’s 18.6 million NFE shares in Other non-operating income. The fair value of these shares was $42.61 per share as of March 31, 2022. Together with $1.9 million of dividend income from NFE and a foreign exchange gain on the final tax settlement with the UK tax authorities relative to the foreign exchange rate used when recognizing the liability at December 31, 2021, this collectively contributed to $350.2 million of Other non-operating income during the quarter.
