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Golar LNG Limited’s GLNG proactive efforts to expand its services are commendable. The company’s recent acquisition of all minority interests in the FLNG (floating LNG) Hilli is boosting its position in the FLNG sector. The shareholder-friendly approach is praiseworthy. However, elevated operating expenses are hurting the company’s bottom line.
Factors Favoring GLNG
Golar LNG, the leading provider of FLNG services, ranked first in FLNG capacity, is capitalizing on the growing FLNG market, particularly in Africa and North America. In the third quarter of 2024, the company signed a $2.2 billion EPC agreement with CIMC Raffles for its first 3.5mtpa MKII FLNG, with delivery expected in the fourth quarter of 2027. Golar also secured an option for a second unit by 2028. Early access to shipyard slots gives Golar a competitive edge, and the company plans to secure a charter by 2025, followed by debt financing to manage financial risk.
Golar LNG's acquisition of all minority interests in the FLNG Hilli marks a significant step toward consolidating its position in the FLNG sector. On Dec. 24, 2024, Golar LNG acquired all minority interests in the FLNG Hilli from Seatrium and Black & Veatch for $90.2 million. The FLNG Hilli, currently contracted to Perenco in Cameroon until 2026, will later move to Argentina for a 20-year contract. Golar's increased ownership will take effect from Jan. 1, 2025, adding $0.5 billion to its adjusted EBITDA backlog. Golar also made a $7 million payment to Seatrium to resolve other issues.
Golar LNG demonstrates a strong commitment to rewarding its shareholders through dividends and share buybacks. In 2023, the company distributed more than $168 million in dividends and buybacks. In the third quarter of 2024, the company paid out a dividend of $0.25 per share. $74.1 million of the approved share buyback scheme of $150.0 million remains available.
The company exited the third quarter of 2024 with a robust liquidity position, holding approximately $732 million in cash and cash equivalents and a net debt of $646 million. The current ratio (a measure of liquidity) stood at 1.55 at the September-end quarter, which is favorable, as a current ratio above 1 indicates that the company has sufficient cash to meet its debt obligations.
Owing to such tailwinds, GLNG shares have surged 80.8% over the past year compared to the industry’s 17.6% fall.
Image Source: Zacks Investment Research
GLNG: Key Risks to Watch
The northward movement in operating expenses hurts Golar LNG’s bottom line, challenging its financial stability. The surge in operating expenses was primarily caused by inflationary pressure. In the third quarter of 2024, total operating expenses rose 18.5% compared with third-quarter 2023 actuals. Vessel operating expenses, accounting for 56.2% of the total operating expenses, rose 29% year over year.