Golar LNG: Preliminary Q4 & FY2022 results

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  • Golar LNG Limited (“Golar” or “the Company”) reports 2022 annual net income attributable to Golar of $788 million, record total book value of equity of $2.9 billion and Total Golar Cash1 of $991 million, inclusive of $112 million of restricted cash.
  • Q4 2022 (“Q4” or “the quarter”) net income of $71 million and Adjusted EBITDA1 of $87 million.
  • Exited New Fortress Energy Inc. (“NFE”) investment, by selling 8.3 million shares in NFE for net proceeds of $418 million, and by agreeing to acquire NFE’s interest in Golar Hilli LLC for our remaining 4.1 million NFE shares and $100 million in cash (“the Hilli transaction”), increasing Golar’s run-rate Adjusted EBITDA1 by approximately $70 million.  
  • Exited Cool Company Ltd. (“CoolCo”) investment, by selling 8 million shares in Q4 raising net proceeds of $98 million, and a further 4.5 million shares on February 28, 2023 that are expected to raise net proceeds of around $56 million.
  • Secured an LNG carrier intended for conversion to a 3.5MTPA Mark II FLNG.
  • Unwound 2023 and 2024 Dutch Title Transfer Facility natural gas (“TTF”) hedges locking in approximately $140 million of Distributable Adjusted EBITDA1.
  • Repurchased $141 million of $300 million 2025 maturing unsecured bonds at par.

Golar’s streamlined focus on FLNG positions the company to take advantage of the most profitable segment of the LNG value chain. The recently announced Hilli transaction, the upcoming commencement of the 20-year Gimi contract, and cash flows locked in through the TTF hedges secure strong growth in free cash flow from operations. A strong balance sheet position, low leverage and strong cash flow from operations allow for expansion of the FLNG business and return of value to shareholders. The board and management are exploring alternatives to commence a dividend and/or a new share buyback program.

FLNG Hilli: Distributable Adjusted EBITDA1 from FLNG Hilli increased by $20 million from $94 million in Q3 2022 to $114 million in Q4 2022, of which Golar’s share was $86 million, compared to $64 million in Q3 2022. Due to a combination of upstream technical issues and FLNG Hilli maintenance, 2022 LNG production was 3.5% below the annual contracted 1.4MTPA and a $36 million accounting liability was recognized. The issues that resulted in the reduced production were resolved in Q4 2022 and FLNG Hilli has been producing to schedule since. Subject to customary documentation, Golar and the customer agree that the $36 million 2022 production shortfall will be compensated through overproduction in 2023, where we expect to recognize an additional 2023 Adjusted EBITDA1 of $36 million, offsetting the 2022 underutilization liability with no expected net cash impact to Golar.

In January 2023, Golar effectively unwound its 2023 and 2024 TTF hedges, locking in approximately $140 million of TTF hedged Distributable Adjusted EBITDA1 whilst re-gaining full market exposure to its TTF linked production:

  • January-February 2023: Distributable Adjusted EBITDA1 of approximately $25 million, which includes Golar’s share of TTF invoices for the same period (approximately $12 million  generated from the hedged price);
  • March-December 2023:100% of TTF linked production unwound securing approximately $76 million of Distributable Adjusted EBITDA1 that will be received in equal monthly installments between March-December 2023; and
  • Full year 2024: 50% of TTF linked production unwound securing approximately $49 million of Distributable Adjusted EBITDA1 that will be received in twelve equal monthly installments through 2024.

On February 6, 2023, Golar agreed to acquire NFE’s interest in the FLNG Hilli. Subject to the Hilli transaction closing as planned, Golar’s interest in the currently contracted FLNG Hilli fees from January 1, 2023, will be as follows:

  • 94.6% of Common Units that receive tolling fees from trains 1 and 2, and 5% of TTF fees,
  • 89.1% of Series A units that receive Brent oil linked fees, and
  • 89.1% of Series B units that receive 95% of TTF linked fees.

Golar’s share of annual Distributable Adjusted EBITDA1 from FLNG Hilli is expected to increase by approximately $70.0 million through to the current Liquefaction Tolling Agreement (“LTA”) conclusion in July 2026.

Assuming the Hilli transaction with NFE closes and TTF and Brent oil forward prices of $16.6/MMBtu and $81.3/bbl respectively, 2023 Distributable Adjusted EBITDA1 from FLNG Hilli is expected to be around $335 million. This comprises:

  • $138 million of net tolling fees
  • $101 million of TTF fees locked in for Jan and Feb and from unwinding the March – Dec hedge
  • $37 million of TTF fees from March – Dec exposure (+/- 1$/MMBtu = $2.6 million)
  • $59 million of Brent oil fees (+/- $1/bbl = $2.7 million between $60 floor and contractual ceiling)

For 2024, assuming the Hilli transaction closes and TTF and Brent oil forward prices of $17.9/MMBtu and $77.3/bbl respectively, Distributable Adjusted EBITDA1 from FLNG Hilli is expected to be around $283 million. This comprises:

  • $138 million of net tolling fees
  • $49 million of TTF fees locked in from unwinding the Jan – Dec hedge
  • $48 million of TTF fees from Jan – Dec exposure (+/- 1$/MMBtu = $3.2 million)
  • $48 million of Brent oil fees (+/- $1/bbl = $2.7 million between $60 floor and contractual ceiling)

With significant remaining useful life beyond FLNG Hilli’s initial contract ending July 2026, Golar sees substantial upside in re-contracting at higher capacity and increased tariff.

FLNG Gimi construction: Conversion of FLNG Gimi for its 20-year contract with BP was 92% technically complete on February 12, 2023, still on track for a H1 2023 sail away. The BP owned floating production, storage and offloading vessel (“FPSO”) which needs to be commissioned ahead of Gimi’s commissioning is now in Singapore and is expected to arrive on site in Q2 2023. FLNG Gimi is expected to unlock around $3 billion of Earnings Backlog1 to Golar, equivalent to approximately $151 million in annual Adjusted EBITDA1.

FLNG business development: Golar has seen increasing engagement with prospective clients for a potential redeployment of FLNG Hilli once her current contract ends. Golar’s re-contracting focus is on integrated opportunities together with upstream partners.

Golar has also secured an option to acquire a 148,000 cbm moss design LNG carrier for a MKII FLNG conversion. A non-refundable payment of $5 million was made in February 2023, which, subject to the option being exercised in Q2 2023, will be deducted from the agreed $78 million purchase price. Significant progress has been made with the conversion shipyard, procurement of long lead items and financing. Strong client engagement also continues for potential deployment, and economics are attractive for both integrated and tolling fee opportunities. Securing attractive delivery for this future FLNG unit increases Golar’s ability to drive value with prospective FLNG clients.

Contracting at current gas prices would result in full payback, including upstream capex, in less than two years for typical integrated FLNG projects.

FSRU: Hire received from sub-chartering the FSRU Tundra to a third party until November 2022, net of operating costs and hire paid to Snam Group (“Snam”), amounted to $2 million in Q4, recorded under Net income from discontinued operations. Fees recognized in respect of the services agreement to assist Snam with FSRU Tundra’s drydocking, site commissioning and hook-up amounted to $9 million in Q4.

Financial Summary

(in thousands of $)Q4 2022Q4 2021% ChangeYTD 2022YTD 2021% Change
Net income attributable to Golar LNG Ltd71,4388,009792%787,773413,85190%
Total operating revenues59,14065,513(10)%267,740260,2733%
Adjusted EBITDA87,40956,42355%362,980182,17899%
Golar’s share of contractual debt1843,4282,239,497(62)%843,4282,239,497(62)%

Financial Review

Business Performance:

 20222021
 Oct-DecJul-SepOct-Dec
(in thousands of $)TotalTotalTotal
Net income       67,070     175,435       45,811
Income taxes           (720)             134         1,053
Net income before income taxes       66,350     175,569       46,864
Depreciation and amortization       12,432       12,433       13,832
Unrealized loss/(gain) on oil and gas derivative instruments       72,995     (12,364)     (34,609)
Realized and unrealized MTM (gain)/loss on our investment in listed equity securities     (54,469)     (51,449)       51,566
Other non-operating income           (649)       (1,244)       (1,554)
Interest income       (8,212)       (3,059)             (66)
Interest expense         3,697         4,154       10,365
Losses/(gains) on derivative instruments         1,833     (25,453)       (7,285)
Other financial items, net         2,137           (341)             262
Net income from equity method investments       (6,045)       (9,987)       (1,642)
Net income from discontinued operations       (2,660)       (3,261)     (21,310)
Adjusted EBITDA (1)       87,409       84,998       56,423
 2022
 Oct-DecJul-Sep
(in thousands of $)ShippingFLNGCorporate and otherTotalShippingFLNGCorporate and otherTotal
Total operating revenues        5,469     36,511     17,160     59,140           981     54,893     12,561     68,435
Vessel operating expenses      (1,965)    (15,202)      (1,718)    (18,885)      (1,857)    (14,227)      (1,633)    (17,717)
Voyage, charterhire & commission expenses         (111)         (150)              (9)         (270)         (590)         (150)             25         (715)
Administrative (income)/expenses             37             44      (7,579)      (7,498)              (4)               7    (10,469)    (10,466)
Project development (expenses)/income           (45)      (2,419)      (4,222)      (6,686)             —        2,085           136        2,221
Realized gains on oil derivative instrument (2)             —     77,324             —     77,324             —     57,047             —     57,047
Other operating losses (3)             —    (15,716)             —    (15,716)             —    (13,807)             —    (13,807)
Adjusted EBITDA (1)        3,385     80,392        3,632     87,409      (1,470)     85,848           620     84,998

(2) The line item “Realized and unrealized gain on oil and gas derivative instruments” in the Unaudited Condensed Consolidated Statements of Operations relates to income from the Hilli Liquefaction Tolling Agreement (“LTA”) and the natural gas derivative which is split into: “Realized gain on oil and gas derivative instruments” and “Unrealized gain/(loss) on oil and gas derivative instruments”.

The realized component comprised (i) Brent oil linked fees of $27.8 million (September 30, 2022: $32.8 million), (ii) TTF-linked proceeds of $39.1 million (September 30, 2022: $45.2 million) and (iii) commodity swap income of $10.4 million (September 30, 2022: $20.9 million expense) and represents the contracted amounts in relation to the Hilli LTA receivable in cash.

(3) The line item “Other operating losses” in the Unaudited Condensed Consolidated Statements of Operations includes FLNG Hilli’s underutilization of $15.7 million in Q4 2022, which together with $20.1 million included in “Liquefaction services revenue” amounts to $35.8 million.

 2021
 Oct-Dec
(in thousands of $)ShippingFLNGCorporate and otherTotal
Total operating revenues         2,905       56,406         6,202       65,513
Vessel operating expenses         3,890     (11,907)       (4,460)     (12,477)
Voyage, charterhire & commission (expenses)/income             (75)           (150)             232                 7
Administrative expenses             (13)             (55)       (9,043)       (9,111)
Project development income/(expenses)             143       (1,055)             468           (444)
Realized gains on oil derivative instrument               —       12,935               —       12,935
Adjusted EBITDA (1)         6,850       56,174       (6,601)       56,423

Golar reports today Q4 net income attributable to Golar of $71 million and Adjusted EBITDA1 of $87 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 per barrel and the contractual ceiling. Billing of this component is based on a three-month look-back at average Brent Crude prices. A $28 million realized gain on the oil derivative instrument was recorded in Q4. Golar has an effective 89.1% interest in these earnings. A Q4 realized gain of $39 million was also recognized in respect of fees for the TTF linked production. Golar had an effective 86.9% interest in these earnings. This will increase to an effective 89.4% interest from January 1, 2023 subject to the Hilli transaction closing as planned. A $10 million realized gain (100% of which is attributable to Golar) on the hedged component of the quarter’s TTF linked earnings was also recognized during the quarter. Collectively a $77 million Q4 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 increased by $19 million during the quarter, with a corresponding unrealized gain of the same amount recognized in the income statement. The mark-to-market fair value of the FLNG Hilli TTF natural gas derivative asset decreased by $187 million during the quarter with a corresponding unrealized loss of the same amount recognized in the income statement. A $95 million unrealized gain in respect of the hedged portion of the Q4 2022 TTF linked FLNG Hilli production was also recognized during the quarter. Collectively this resulted in a $73 million Q4 unrealized loss on oil and gas derivative instruments.

During Q4, Golar sold 7.1 million NFE shares. This resulted in a Q4 2022 realized mark-to-market gain on listed equity securities of approximately $61 million in Other non-operating income. A decrease in the NFE share price between October 1 and December 31 resulted in the recognition of a Q4 unrealized mark-to-market loss of $7 million on Golar’s then remaining 5.3 million NFE shares. The fair value of these shares was $42.42 per share as of December 31, 2022. Together with dividend income from NFE, this collectively contributed to most of the $55 million of Other non-operating income during the quarter.

Balance Sheet and Liquidity:

As of December 31, 2022, Total Golar cash1 was $991 million, comprised of $879 million of cash and cash equivalents and $112 million of restricted cash. The quarterly increase in cash and cash equivalents is mainly attributable to $471 million net proceeds from the sale of listed securities, partially offset by the repurchase of $141 million of unsecured bonds. Of the $162 million of restricted cash, $50 million is attributable to the FLNG Hilli lessor-owned VIE.

Within the $373 million current portion of long-term debt and short-term debt as at December 31, 2022 is $365 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 $843 million. Deducting Golar’s share of Contractual Debt1 of $843 million from Total Golar Cash1 of $991 million leaves net cash of $148 million.

Subsequent to the quarter end Golar received an $11 million net dividend from NFE, $46 million proceeds from NFE shares sold, and paid the $5 million non-refundable deposit for the FLNG conversion vessel. Subject to the anticipated closing of the Hilli transaction with NFE, Golar expects to assume $323 million of FLNG Hilli Contractual Debt1 and pay NFE $100 million in cash. It also expects to receive net proceeds of around $56 million from the remaining CoolCo shares sold on February 28, 2023. After reflecting these subsequent events, Total Golar Cash1 increases to $999 million and Golar’s share of Contractual debt1 increases to $1.2 billion.

Inclusive of $15 million of capitalized interest, $44 million was invested in FLNG Gimi during the quarter, increasing the total FLNG Gimi Asset under development balance as at December 31, 2022 to $1.2 billion. Of this, $535 million was drawn against the $700 million debt facility secured by FLNG Gimi. 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, net of the Company’s share of remaining undrawn debt amounts to $183 million.

Expenditure on long-lead items and engineering services for the Mark II FLNG amounted to $27 million as of December 31, 2022, and is included in Other non-current assets.

Corporate and Other Matters:

As at December 31, 2022, Golar had 107.2 million shares issued and outstanding. There were also 1.0 million outstanding stock options with an average price of $15.37, 0.2 million unvested restricted stock units, and 0.1 million unvested performance stock units awarded. During the quarter 0.2 million shares were repurchased and cancelled at an average cost per share of $23.13.

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