FLNG operations: Distributable Adjusted EBITDA1 from FLNG Hilli increased by $1.9 million from $92.5 million in Q2 2022 to $94.4 million in Q3, of which Golar’s share was $64.1 million, compared to $62.5 million in Q2. FLNG Hilli’s scheduled maintenance window during the quarter was extended by several days as a result of unscheduled maintenance work. Accruals for overproduction during Q1 and Q2 2022 amounting to $14.4 million were reversed and an estimated $0.9 million of revenue reduction due to demurrage delays was incurred in Q3. After receiving instruction that FLNG Hilli should continue to produce 0.2MTPA of TTF linked production from 2023 until the end of the current contract in July 2026, Golar entered into three swap transactions collectively securing, subject to vessel availability, around $250 million of incremental earnings attributable to Golar:
Including the Brent oil forward curve for 2023 ($88/bbl), the hedged TTF exposure, and the fixed tariff, Golar’s share of Distributable Adjusted EBITDA1 from FLNG Hilli is expected to be approximately $295 million in 2023. Golar’s share of forecast 2023 total annual debt service for FLNG Hilli’s contractual debt is approximately $50 million (debt amortization of approximately $29 million and interest of approximately $21 million). This should therefore generate free cash to Golar of approximately $245 million.
FLNG Gimi construction: Conversion of FLNG Gimi for its 20-year contract with BP scheduled to commence in Q4 2023 was 90% technically complete on November 15, 2022, on track for a 1H 2023 sail away. Pre-commissioning of equipment has commenced. Once commissioned and delivered to the customer in Q4 2023, FLNG Gimi is expected to unlock around $3 billion of Earnings Backlog1 to Golar, equivalent to $151 million in annual Adjusted EBITDA1.
FLNG business development: Golar continues to experience strong customer engagement for new FLNG projects. This includes working with an upstream company for a potential integrated FLNG project, and paid development agreements, one with a supermajor that is exploring FLNG for a proven large gas reserve, and another with an independent E&P company. Under the development agreements both parties commit to deliver a defined scope of work within set deadlines to progress potential new FLNG opportunities and agree on key steps to reach Final Investment Decisions.
We believe that securing attractive delivery of our next FLNG unit will increase Golar’s ability to drive value with prospective FLNG clients.
On the back of a growing opportunity set for new FLNG growth projects, and noting the premium available to providers for early delivery of liquefaction solutions, Golar has placed orders for long-lead items targeted for a 3.5MTPA Mark II FLNG, that can also be interchangeably used on our other FLNG designs. Representing a total commitment of approximately $300 million, ordering of these long-lead items, primarily comprised of compressors, gas turbines, cold boxes and heat recovery steam generators, puts Golar in a position to deliver an FLNG during 2025.
FSRU: Following the sale of FSRU Tundra to Snam in May 2022, Golar agreed to charter the vessel back from Snam until November 2022. Hire received from sub-chartering the vessel to a third party, net of operating costs and hire paid to Snam, amounted to $3.1 million in Q3, recorded under Net income from discontinued operations. Golar also entered into a services agreement to assist Snam with drydocking, site commissioning and hook-up. The total scope of the upgrades to Tundra is expected to amount to $23.5 million between Q3 2022 and 1H 2023, including an administrative fee to Golar. $5.1 million of the total services amount was recognized in Q3.
Prior to receipt of a Notice-to-Proceed to convert the Golar Arctic into a FSRU followed by its sale to Snam as a converted FSRU, the vessel remains under Golar’s ownership and continues to trade as a carrier. During the quarter Golar secured a 12-month charter commencing mid-September which is expected to generate around $16.0 million of annual Adjusted EBITDA.
Financial Summary
Q3 Highlights and recent events
Financial and corporate:
Profitability: Net income attributable to Golar of $141.1 million for the quarter, including:
Golar shares: Repurchased and then cancelled 400,000 Golar shares at a cost of $9.3 million (average $/share). 107.5 million shares issued and outstanding as of September 30, 2022.
Investments: Subsequent to the quarter end, sold 8.0 million CoolCo shares and 6.3 million NFE shares, together raising net proceeds of $430 million, bringing Total Golar Cash1 position to $1.04 billion.
FLNG:
Golar reports today Q3 net income attributable to Golar of $141.1 million and Adjusted EBITDA1 of $85.2 million.
The Brent oil linked component of FLNG 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. A $32.8 million realized gain on the oil derivative instrument was recorded in Q3, in line with the $32.6 million realized in Q2. Golar has an effective 89.1% interest in these earnings. A Q3 realized gain of $45.2 million was also recognized in respect of fees for the TTF linked production, up from the $29.4 million realized in Q2. Golar has an effective 86.9% interest in these earnings. Offsetting this was a $20.9 million Q3 realized loss (100% of which is attributable to Golar) on the hedged component of the quarter’s TTF linked earnings, up on the $7.0 million realized loss recorded in Q2. Collectively a $57.0 million Q3 realized gain on oil and gas derivative instruments was recognized as a result.
The mark-to-market fair value of the FLNG Hilli Brent oil linked derivative asset decreased by $133.1 million during the quarter, with a corresponding unrealized loss of the same amount recognized in the income statement. The mark-to-market fair value of the FLNG Hilli TTF natural gas derivative asset increased by $114.7 million during the quarter with a corresponding unrealized gain of the same amount recognized in the income statement. A $30.7 million unrealized gain in respect of the hedged portion of Q3 2022 TTF linked FLNG Hilli production was also recognized during the quarter. Collectively this therefore resulted in a $12.4 million Q3 unrealized gain on oil and gas derivative instruments.
Following an extended maintenance window during the quarter and upstream infrastructure limits to the amount of feedgas that can be made available for overproduction in Q4, FLNG Hilli’s 2022 production is not expected to exceed 1.4 million tons of LNG. As a result, fees accrued for overproduction during Q1 and Q2 amounting to $14.4 million were reversed in Q3. Of this, $13.8 million is classified under Other operating losses, with the remaining $0.6 million charged to Liquefaction services revenue. An estimated $0.9 million of revenue reduction due to demurrage delays was also incurred in Q3 as a result.
An increase in the NFE share price between July 1 and September 30 resulted in the recognition of a Q3 unrealized mark-to-market gain of $51.4 million on Golar’s 12.4 million NFE shares in Other non-operating income. The fair value of these shares was $43.71 per share as of September 30, 2022. Together with $1.2 million of dividend income from NFE, this collectively contributed to most of the $52.7 million of Other non-operating income during the quarter. Subsequent to the quarter end, Golar sold 6.3 million of its NFE shares. This is expected to result in a Q4 2022 realized mark-to-market gain on listed equity securities of approximately $56.7 million. Sale of the 8.0 million CoolCo shares on November 2, 2022 is expected to generate a gain of approximately $7.0 million, excluding fees.
Balance Sheet and Liquidity:
As of September 30, 2022 Golar had $498.2 million of cash and cash equivalents and $130.9 million of restricted cash, with the quarterly decrease in cash and cash equivalents and increase in restricted cash largely attributable to $38.5 million of collateral posted for guarantees in respect of the Golar Arctic FSRU conversion contract with Snam. Of the $130.9 million of restricted cash, $17.5 million is also attributable to the FLNG Hilli lessor-owned VIE. Total Golar Cash1 therefore amounts to $611.6 million, comprised of $498.2 million of cash and cash equivalents and $113.4 million of restricted cash attributable to Golar. Assuming this remains unchanged from September 30, 2022 and the $430.0 million of net proceeds from the subsequent sale of listed securities is taken into consideration, Total Golar Cash1 increases to $1.04 billion on November 15, 2022. Golar has cancelled the existing undrawn $200.0 million Revolving Credit Facility that was secured by our NFE shares.
Within the $354.3 million current portion of long-term debt and short-term debt as at September 30, 2022 is $347.1 million in respect of the FLNG Hilli lessor-owned VIE subsidiary that Golar is required to consolidate. Golar’s share of Contractual Debt1 amounts to $993.1 million. Net of Total Golar Cash1 of $611.6 million, this falls to around $381.5 million. Inclusive of the $430.0 million of net proceeds from listed securities sold subsequent to the quarter end, this becomes net cash of $48.5 million. If the value of remaining listed securities held as of November 15, 2022 is taken into consideration Golar has net cash of around $451.5 million.
Inclusive of $14.2 million of capitalized interest, $40.1 million was invested in FLNG Gimi during the quarter, increasing the total FLNG Gimi Asset under development balance as at September 30, 2022 to $1.108 billion. Of this, $535.0 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 to be funded out of equity and cash from commissioning hire and operations, net of the Company’s share of remaining undrawn debt amounts to $205.3 million.
Corporate and Other Matters:
As at September 30, 2022, Golar had 107.5 million shares issued and outstanding. There were also 1.0 million outstanding stock options with an average price of $15.41, 0.2 million unvested restricted stock units, and 0.1 million unvested performance stock units awarded. Of the initial $50.0 million approved share buyback scheme, $5.2 million remains available for further repurchases. The Annual General Meeting was held on August 10, 2022.
