Golar LNG has reported a Q2 2014 net loss of US$24.2 million (including a non-cash loss of $13.6 million on interest rate swaps).
Golar LNG recorded an operating revenue of US$ 21.1 million in Q2 2014, which was consistent with Q1 operating revenue of US$ 21.0 million.
The loss of earnings following the sale of the Golar Igloo to Golar LNG Partners LP was offset by improved earnings in respect of the Golar Viking and the Golar Seal, both of which experienced improved utilisation.
In June 2014, Golar took material steps toward its first floating liquefaction vessel project through a registered equity offering of 12 650 000 shares of its common stock. The issue price was US$ 54/share with total net proceeds to the company of US$ 661 million. Immediately after closing the equity offering, the Company made a Final Investment Decision (FID) on its first floating liquefaction conversion project by making effective the conversion agreement with Keppel Shipyard Ltd. A portion of the proceeds of the offering was used to fully fund initial milestone payments under the Conversion Agreement and instigate the conversion of an LNG carrier, the Hilli, to a floating liquefaction natural gas vessel. The proceeds will also partly fund future scheduled payments under the Conversion Agreement.
In early August, Golar entered into a cooperation agreement with Quantum Power to support the development of an FSRU project in Ghana. This project is targeting the 170 000 m3 Golar Tundra and hopes to make FID in late 2014 or early 2015.
Construction of the 160 000 m3 FSRU Golar Eskimo is proceeding according to plan and will be complete at the end of 2014 in advance of the scheduled 2015 commencement of service in Aqaba, Jordan.
In May, the company took delivery of its third Samsung built, Tri-fuel Diesel Electric (TFDE) LNG carrier, the Golar Crystal. This vessel has also been financed through the US$ 1.125 billion facility with approximately 65% leverage equal to US$ 128 million. The Crystal remained idle until early August when she commenced the first of two voyage charters that will see her employed into the fourth quarter.
Today, the global LNG fleet consists of approximately 371 vessels (excluding FSRUs and vessels less than 18 000 m3). This has increased by six vessels since the end of May. Although 29 vessels were slated for delivery in 2014, of which 16 are uncommitted, delays to the scheduled delivery dates for some of these together with a contango in forward LNG prices seems to have helped improve the trading environment for the existing fleet. The downward pressure on rates and utilisation, has, at least for the short-term, been halted.
Golar is scheduled to take delivery of 7 new buildings before the end of the year. Some of these will likely slip into 2015 due to delays in yard scheduling.
In July, the company ordered the world's first FLNG vessel based on the conversion of an existing LNG carrier. The primary contract for the FLNG vessel was entered into with Singapore's Keppel Shipyard Ltd. Keppel has simultaneously entered into a sub-contract with global engineering, procurement and construction company Black & Veatch (B&V) who will provide its licensed PRICO® technology, perform detailed engineering and process design, specify and procure topside equipment and provide commissioning support for the FLNGV topsides and liquefaction process. The FLNGV Hilli will have 4 trains and be capable of producing 2.2 to 2.8 million tpa of LNG upon delivery from the yard (ex-Singapore) in February 2017.
Golar are in discussions with several alternative parties with respect to employment of Hilli. Significant progress has been made during these discussions. The Board expects that a final contract can be entered into before year end with subsequent governmental approval to be cleared within the first half of 2015. The Board anticipates, based on the infrastructure in the regions being discussed, that the vessel can be deployed directly after completing the yard work.
Golar also confirmed that it is in the early stages of discussions with a target to find a possible alliance with a dynamic and fast growing E&P company to acquire and develop stranded gas reserves. The pricing level for these assets seems attractive if FLNG technology can be used to monetise the value.
Golar reports that recent shipping rates have shown more short-term strength than was expected at the time of the last quarterly report. Golar does however retain the view that there remains 12 - 18 months of weak market conditions before a meaningful recovery can be anticipated. During this period, the company expects both rates and utilisation to remain low.
The current weakness is created by a 1.6% contraction in LNG production over the last two years, while the supply of vessels has increased by approximately 6%. Between 2014 and 2017 we anticipate a growth in LNG production of 32% but fleet growth to be less than this. These fundamentals should create the framework for a relatively strong recovery.
April and May witnessed the scheduled maintenance of LNG plants in both the Middle East and the Atlantic as well as ongoing problems in Angola. LNG prices in all the main Far Eastern markets were however unaffected due to limited demand. Far East price markers have been fairly low over the past few months and the Atlantic-Pacific price spread reached its lowest level in over three years. The early start-up of the Papua New Guinea project as well as excess cargoes from Bontang, Bintulu and NWS have kept the Pacific market well supplied. In the Atlantic Basin, European reloads reached an all-time high during the second quarter and the lack of end-user demand in Asia led to an increase in the number of Middle East cargoes heading to the Atlantic. Demand in the Atlantic has focused on South America with Brazil in particular buying numerous cargoes. The forward curve for FE prices suggests that winter spot prices will approach long-term contract prices however this is dependent on weather sensitive demand in Northeast Asia returning to the market. Increased NE Asia demand, the ramp-up of Papua New Guinea and potential start up of Australian projects in the fourth quarter should increase supply and aid the shipping market.
The Board of Directors of Golar is pleased that the company fulfilled its commitment to complete and obtain funding for the Company's maiden FLNG vessel as of the end of Q2 2014. Golar believes that the proceeds from the offering put the company on a solid footing to maintain a fast track schedule for yard delivery of the first FLNG vessel in the first quarter of 2017.
The company has made positive progress on securing agreements for the deployment of the vessel to coincide with the delivery timing from the yard.
Although recent weeks have shown a moderate improvement in chartering demand, the Board believes that this is primarily linked to a temporary market condition related to the current contango in the LNG pricing curve going out into the winter of 2014/15. In recognition of the current improved utilisation of the spot vessels, all of which are currently employed, operating results for the third quarter can however be expected to show some minor improvement over the second quarter.
Adapted from press release by Callum O'Reilly
Read the article online at: https://www.lngindustry.com/lng-shipping/26082014/golar-lng-records-net-loss-1278/