Golar LNG's Convertible Notes Offering: A Strategic Play for LNG Growth and Financial Flexibility

Golar LNG's proposed $500 million convertible notes offering, announced in June 2025, marks a pivotal step in the company's strategy to balance debt management with aggressive expansion in the floating liquefied natural gas (FLNG) sector. The move underscores Golar's focus on leveraging financial flexibility to fund high-return projects while mitigating equity dilution—a critical consideration as global demand for LNG infrastructure continues to surge.

The Convertible Notes: A Flexible Financing Tool

The offering, set to mature in 2030, highlights Golar's nuanced approach to capital structure. Convertible senior notes allow the company to defer equity dilution while maintaining control over repayment terms. By offering the option to settle conversions in cash, shares, or a mix, Golar can strategically manage its balance sheet depending on market conditions. This flexibility is particularly advantageous in a volatile energy sector, where LNG project timelines and commodity prices can shift abruptly.

The notes' semiannual interest payments (due June 15 and December 15) align with the company's cash flow profile, while the potential $75 million over-allotment option provides a buffer for unexpected opportunities or costs. Crucially, the convertible feature could also serve as an incentive for investors to lock in exposure to Golar's growth trajectory without immediate equity dilution.

Funding the FLNG Growth Engine

The proceeds will be directed toward two key priorities:
1. Share Buybacks: Up to $500 million (or $575 million if the over-allotment is exercised) will repurchase ~2.3% of outstanding shares. This mitigates dilution risks from potential conversions and signals confidence in the stock's valuation.
2. Strategic Projects: The remainder will fund critical FLNG initiatives, including:
- Construction of a fourth FLNG unit, expanding Golar's market-leading fleet.
- Conversion of the MKII FLNG vessel, designed for cost-efficient LNG production in remote basins.
- Redeployment of the Hilli Episeyo FLNG unit to high-demand regions, such as Argentina's Vaca Muerta shale field.

Why FLNG Dominates the Growth Narrative

FLNG represents a transformative opportunity for Golar. These floating units enable LNG production in offshore locations where traditional onshore infrastructure is impractical or too costly. Projects like Argentina's FLNG initiative, backed by Stifel analysts who recently reaffirmed a Buy rating, could add ~$100 million annually to Golar's EBITDA post-2026.

The Hilli redeployment alone, slated for completion by 2027, is projected to reduce capital intensity by 30% compared to earlier projects, thanks to operational efficiencies and economies of scale. This cost discipline, paired with long-term contracts in high-growth markets like Latin America and Africa, positions Golar to capitalize on the International Energy Agency's forecast of a 40% rise in global LNG demand by 2030.

Insider Confidence and Balance Sheet Strength

Notably, Golar's directors and officers have signaled strong conviction by expressing intent to purchase shares from investors, while affiliated entities plan to buy the notes at the offering price. This insider alignment is a rare and positive signal in corporate finance.

Financially, Golar's debt-to-equity ratio of 0.72 remains moderate, even after the offering. This contrasts with peers like Teekay LNG Partners (TGP), which carries a debt-to-equity ratio of 1.2, suggesting Golar retains ample room to pursue accretive acquisitions or further FLNG investments.

Risks and Considerations

• Execution Risk: FLNG projects require strict adherence to timelines and budgets. Delays could strain cash flows.
• Commodity Volatility: LNG prices remain tied to oil and gas markets, which are prone to geopolitical shocks.
• Conversion Pressure: If notes are converted en masse during a stock rally, equity dilution could temporarily weigh on valuation.
• Short-Term Price Volatility: Historical backtests reveal a 1% average decline in GLNG's stock price over 20 trading days following interest payment dates, reflecting market sentiment around debt servicing and sector conditions.

Investment Thesis: A Buy on LNG's Long Game

Golar's convertible notes offering is a masterstroke of financial engineering. By pairing debt flexibility with targeted investments in high-margin FLNG assets, the company is positioning itself to capture structural growth in LNG while maintaining a prudent balance sheet.

For investors, Golar's stock (GLNG) offers a compelling risk-reward profile:
- Upside: FLNG contracts in Argentina and Africa, coupled with cost efficiencies, could lift EBITDA margins to ~40% by 2028.
- Downside Protection: The convertible structure and share buybacks create a cushion against equity dilution. Despite historical short-term declines around interest payment dates, the long-term fundamentals remain robust.

Recommendation: Buy Golar LNG (GLNG) for investors with a 3-5 year horizon focused on energy transition plays. The convertible offering reduces near-term financing risks, while FLNG's scalability ensures long-term upside. Monitor LNG price trends, project execution milestones, and the stock's performance around semiannual interest payment dates for near-term catalysts.

In a sector where capital discipline is paramount, Golar's strategic moves suggest it's ready to lead the next wave of LNG innovation.