Golar has reported a second quarter 2020 operating income of $28.4 mill, compared to an operating income of $21.2 mill in the previous quarter.
Total operating revenues decreased by 17% from $122.6 mill in 1Q20 to $102.2 mill in 2Q20, partially offset by a decrease in voyage, charter hire and commission expenses, from $4.8 mill to $1.5 mill in 2Q.
Despite steady utilisation, operating revenues declined, due to seasonally lower spot rates further depressed by historically low LNG prices. This reduced the daily rate achieved in respect of Golar's spot and index linked charters. Costs of positioning the ’Golar Viking’ to the shipyard in 1Q were not incurred in 2Q. This accounts for $1.5 mill of the $3.3 mill decrease in 2Q voyage, charter hire and commission expenses.
Revenues from vessel and other operations, including management fee income, were $47.7 mill, and, net of voyage, charterhire and commission expenses, decreased by $17 mill to $46.2 mill in the second quarter. Further decreases in LNG prices, as a result of COVID lockdowns, made it uneconomic for many offtakers to lift their US volumes during the quarter.
Reduced LNG production in Malaysia and Egypt, together with maintenance of liquefaction plants elsewhere, removed additional volumes from the market. Re-lets of vessels that would otherwise have lifted this LNG increased short-term vessel availability and compounded the negative impact of historically low LNG prices, which caused significant reductions in shipping rates to support LNG trades.
The quarter began with quoted TFDE carrier headline spot rates at around $44,000 per day and ended with rates at around $30,000, with limited positioning fees. Golar’s strategy of increased charter coverage continued to soften the impact of the seasonal trade patterns. As a result, full fleet TCE earnings decreased from $61,900 in 1Q20 to $45,100 in 2Q20, but increased relative to the $24,400 achieved in 2Q19.
Operating revenues from FLNG ’Hilli Episeyo’ remained stable at $54.5 mill, including base tolling fees and amortisation of pre-acceptance amounts recognised.
Although vessel operating expenses were substantially lower at $24.2 mill than those of 1Q at $30.2 mill, they are expected to increase during the second half of 2020. Repairs and maintenance, procurement of spares, main engine overhauls and associated logistics costs fell during the quarter, all due to COVID related movement restrictions, collectively contributing to around half of the $6 mill reduction. Work delayed by these restrictions will be carried out when they are lifted.
A $2.5 mill insurance recovery in respect of a 2018 claim for ’Golar Viking’ also contributed to a reduction in 2Q vessel insurance expense.
Administrative expenses reduced by 15% from $10.1 million in Q1 to $8.6 million in Q2. This was driven by ongoing cost reduction measures, including reducing payroll and travel costs. Project development expenses at $1.2 million for the quarter were $2.5 million lower than Q1.
Iain Ross, Golar LNG CEO, said: "Golar is pleased to report 2Q operating revenues of $102.2 mill and adjusted EBITDA of $67.2 mill. This was driven by another solid performance in FLNG, with 100% commercial uptime on ’Hilli Episeyo’, and a shipping business that continues to benefit from higher utilisation, delivering a 2Q TCE of $45,100 per day; which is above guidance and represents an 85% increase on the $24,400 achieved in 2Q19. Both Golar Power and Golar LNG Partners also performed well.
“By virtue of its integrated business model, Golar has, to a large extent, insulated itself against LNG price volatility. High LNG prices support the company's upstream FLNG offering, while low LNG prices create strong growth opportunities for Golar Power's downstream business. The latter is clearly evidenced by a surge in business and investor inquiries currently being fielded by Golar Power.
“The weak LNG prices recorded throughout 2Q, often below $2 per MMBtu, are incentivising energy customers to convert diesel, fuel oil and coal based energy generation to LNG. Despite the challenges of COVID, access to cleaner and cheaper energy remains a priority for a vast number of people. The cost and environmental advantages of gas as a transition fuel, mean that, despite a sharp deceleration this year, LNG demand has been more resilient than other more carbon intensive energy sources.
“The appetite for LNG noted by Golar Power in Brazil is not unique. The company is being asked for similar rapid start-up solutions around the world, which we anticipate will result in material and sustainable growth in LNG demand.
“For the time being, these same low LNG prices have however created challenges for financing new liquefaction capacity. The increase in demand and the reduced growth in liquefaction capacity are therefore expected to result in a more balanced LNG market in the next three to four years.
“Golar is focused on sustainability through the delivery of innovative, flexible, reliable, cost effective and implementable solutions to the world’s energy problems. It is therefore uniquely placed to benefit from the accelerated post pandemic shift to a cleaner energy mix," he concluded.