Annual Report & Accounts 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ]
[X]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2009
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
OR
[ ]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number
000-50113
Golar LNG Limited
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Bermuda
(Jurisdiction of incorporation or organization)
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)
Georgina Sousa, (1) 441 295 4705, (1) 441 295 3494
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class
Common Shares, par value $1.00
Name of each exchange
on which registered
NASDAQ (GS)
Securities registered or to be registered pursuant to section 12(g) of the Act.
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close
of the period covered by the annual report.
67,576,866 Common Shares, par value $1.00
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
No
X
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 of 15(d) of the Securities Exchange Act 1934.
Yes
No
X
Note- Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one).
Large accelerated filer
Accelerated filer X
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP
X
International Financial Reporting Standards as
issued by the International Accounting
Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow.
Item 17
X
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-
2 of the Exchange Act).
Yes
No
X
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes
No
INDEX TO REPORT ON FORM 20-F
PART I
PAGE
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...................... 2
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE.....................................................
2
ITEM 3.
KEY INFORMATION .........................................................................................................
2
ITEM 4.
INFORMATION ON THE COMPANY ..............................................................................
20
ITEM 4A.
UNRESOLVED STAFF COMMENTS ...............................................................................
38
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS .......................................
38
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ........................................
62
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS ................................................................................................................
66
ITEM 8.
FINANCIAL INFORMATION ............................................................................................
67
ITEM 9.
THE OFFER AND LISTING ...............................................................................................
68
ITEM 10.
ADDITIONAL INFORMATION.........................................................................................
69
ITEM 11.
ITEM 12.
PART II
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .....................................................................................................
DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES ........................................................................................................
76
77
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ...............................
77
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS..................................................................................................
77
ITEM 15.
CONTROLS AND PROCEDURES.....................................................................................
77
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT ...................................................................
79
ITEM 16B.
CODE OF ETHICS ..............................................................................................................
79
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES......................................................
79
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ......
80
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS.....................................................................................................................
80
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT… ..................................
80
ITEM 16G.
CORPORATE GOVERNANCE… ......................................................................................
80
PART III
ITEM 17.
FINANCIAL STATEMENTS ..............................................................................................
81
ITEM 18.
FINANCIAL STATEMENTS ..............................................................................................
81
ITEM 19.
EXHIBITS ............................................................................................................................
82
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage
companies to provide prospective information about their business. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other
statements, which are other than statements of historical facts.
Golar LNG Limited, or the Company, desires to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe
harbor legislation. This report and any other written or oral statements made by us or on our behalf may include
forward-looking statements, which reflect our current views with respect to future events and financial performance.
When used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,”
“potential,” “will,” “may,” “should,” “expect” and similar expressions identify forward-looking statements.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn,
upon further assumptions, including without limitation, management’s examination of historical operating trends,
data contained in our records and other data available from third parties. Although we believe that these
assumptions were reasonable when made, because these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot
assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by
reference herein, important factors that, in our view, could cause actual results to differ materially from those
discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and
interest rates, general market conditions, including fluctuations in charter hire rates and vessel values, changes in
demand in the tanker market, including changes in demand resulting from changes in the petroleum production
levels of the organization of the petroleum exporting countries, or OPEC, and worldwide oil consumption and
storage, changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs,
changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from
pending or future litigation, general domestic and international political conditions, the current turmoil in the global
financial markets and deterioration thereof, potential disruption of shipping routes due to accidents, political events
or acts by terrorists, and other important factors described from time to time in the reports filed by the Company
with the Securities and Exchange Commission, or the Commission.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
Throughout this report, the “Company,” “Golar,” “we,” “us” and “our” all refer to Golar LNG Limited and to its
wholly owned subsidiaries. Unless otherwise indicated, all references to “USD,”“U.S.$” and “$” in this report are
U.S. dollars.
A. Selected Financial Data
The following selected consolidated and financial and other data summarize our historical consolidated
financial information. We derived the information as of December 31, 2009 and 2008 and for each of the years in
the three-year period ended December 31, 2009 from our audited Consolidated Financial Statements included in
Item 18 of this annual report on Form 20-F, which were prepared in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP.
The selected income statement data with respect to the years ended December 31, 2006 and 2005 and the
selected balance sheet data as of December 31, 2007, 2006 and 2005 has been derived from audited consolidated
financial statements prepared in accordance with U.S. GAAP not included herein.
The following table should also be read in conjunction with the section of this annual report entitled Item 5,
“Operating and Financial Review and Prospects” and the Company’s Consolidated Financial Statements and Notes
thereto included herein.
2
Fiscal Year Ended
December 31,
2007
2009
2005
(in thousands of U.S. $, except number of shares, per common share data,
fleet and other financial data)
2008
2006
Income Statement Data:
Total operating revenues
Gain on sale of vessel/newbuilding
Vessel operating expenses (1)
Voyage and charter-hire expenses (2)
Administrative expenses
Restructuring costs
Depreciation and amortization
Impairment of long-lived assets
Gain on sale of long-lived assets
Operating income
Gain on sale of available-for-sale securities
Net financial expenses
Income (loss) before equity in net earnings of
investees, income taxes and noncontrolling
interests
Income taxes and noncontrolling interests
Equity in net earnings (losses) of investees
Gain on sale of investee
Net (loss) income
Earnings (loss) per common share
- basic (3)
- diluted (3)
Cash dividends declared and paid per common
share
Weighted average number of shares – basic (3)
Weighted average number of shares - diluted (3)
Balance Sheet Data (as of end of year):
Cash and cash equivalents
Restricted cash and short-term investments (4)
Amounts due from related parties
Long-term restricted cash (4)
Equity in net assets of non-consolidated investees
Newbuildings
Vessels and equipment, net
Vessels under capital lease, net
Total assets
Current portion of long-term debt
Current portion of obligations under capital
Long-term debt
Long-term obligations under capital leases (5)
Noncontrolling interest (6)
Stockholders’ equity
Common shares outstanding (3)
228,779
78,108
61,868
33,126
17,815
-
62,005
110
430
132,393
-
(132,761)
(368)
(7,215)
(2,406)
-
(9,989)
(0.15)
(0.15)
1.00
67,214
67,214
56,114
60,352
538
557,052
30,924
-
668,141
893,172
2,359,729
71,395
6,006
737,226
784,421
41,688
452,145
67,577
224,674
41,088
52,986
10,763
18,645
-
60,163
2,345
-
120,860
46,276
(65,592)
101,544
(6,248)
13,640
27,268
136,204
2.09
2.07
2.25
65,283
65,715
239,697
-
44,490
9,582
13,657
-
56,822
-
-
115,146
-
(52,156)
62,990
(8,306)
16,989
-
71,673
1.09
1.05
-
65,562
65,735
171,042
-
37,215
4,594
12,219
1,344
50,991
-
-
64,679
-
(39,319)
25,360
(9,323)
18,492
-
34,529
0.53
0.50
-
65,568
65,733
185,739
52,106
712
792,038
14,023
-
659,018
789,558
2,573,610
80,037
5,678
735,629
1,024,086
36,983
552,532
67,577
56,616
52,287
778
778,220
97,255
49,713
669,639
796,186
2,566,189
72,587
5,269
803,771
1,009,765
32,436
507,044
65,562
62,227
49,448
17
696,308
65,950
111,565
533,008
676,036
2,230,695
67,564
2,466
758,183
801,500
27,587
434,554
65,562
216,495
-
60,709
39,463
19,958
-
63,482
1,500
-
31,383
-
(1,692)
29,691
(10,062)
(4,902)
8,355
23,082
0.34
0.34
-
67,230
67,335
122,231
40,651
795
594,154
21,243
-
653,496
992,563
2,492,436
74,504
8,588
707,722
844,355
162,673
495,511
67,577
3
Cash Flow Data:
Net cash provided by operating activities
Net cash (used in) provided by investing
Net cash (used in) provided by financing
activities
Fleet Data (unaudited)
Number of vessels at end of year (7)
Average number of vessels during year (7)
Average age of vessels (years)
Total calendar days for fleet
Total operating days for fleet (8)
2009
2008
2007
2006
2005
42,800
(56,460)
48,495
(83,548)
73,055
224,435
117,219
(268,993)
71,026
(213,176)
79,777
(94,572)
(168,367)
146,163
152,779
13
13
15.6
4,892
3,351
14
13
13.9
4,836
3,617
12
12
14.7
4,380
3,732
12
11.52
13.7
4,214
3,845
10
10
15.3
3,645
2,976
Other Financial Data (Unaudited):
Average daily time charter equivalent earnings (9)
Average daily vessel operating costs (10)
$47,400
$13,410
$45,700
$13,041
$51,000
$12,097
$55,700
$10,558
$46,200
$10,210
Footnotes
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Vessel operating expenses are the direct costs associated with running a vessel including crew wages,
vessel supplies, routine repairs, maintenance and insurance. In addition, prior to the April 2005
reorganization relating to the outsourcing of our day-to-day vessel management activities to third party ship
managers, vessel operating expenses also included an allocation of overheads allocable to vessel operating
expenses.
The majority of our vessels are operated under time charters. Under a time charter, the charterer pays
substantially all of the vessel voyage costs, which are primarily fuel and port charges. However, we may
incur voyage related expenses when positioning or repositioning vessels before or after the period of a time
charter, during periods of commercial waiting time or while off-hire during a period of drydocking.
Charter-hire expense – refers to the charge for vessels chartered-in under operating leases.
Basic earnings per share is computed based on the income available to common shareholders and the
weighted average number of shares outstanding. Treasury shares are not included in the calculation. The
computation of diluted earnings per share assumes the conversion of potentially dilutive instruments.
Restricted cash and short-term investments consist of bank deposits, which may only be used to settle
certain pre-arranged loan or lease payments and deposits made in accordance with our contractual
obligations under our equity swap line facilities. Please see the section of this annual report entitled Item 5,
“Operating and Financial Review and Prospects – Results of Operations” for a discussion of our equity
swap line facilities.
We have entered into eight lease financing arrangements, which are classified as capital leases.
Noncontrolling interest refers to a 40% ownership interest held by Chinese Petroleum Corporation in the
Golar Mazo and 26.2% held in Golar LNG Energy Limited by Private Investors.
In each of the periods presented above, we had a 60% ownership interest in one of our vessels and a 100%
ownership interest in our remaining vessels except for in 2008 and 2009 when we had chartered-in two
vessels under short term charters.
The operating days for our fleet is the total number of days in a given period that the vessels were in our
possession less the total number of days off-hire. We define days off-hire as days spent on repairs,
drydockings, special surveys and vessel upgrades or during periods of commercial waiting time during
which we do not earn charter hire.
4
(9)
Non-GAAP Financial Measures
TCE. In order to compare vessels trading under different types of charters, it is standard industry practice
to measure the revenue performance of a vessel in terms of average daily time charter equivalent earnings,
or “TCE.” For time charters, this is calculated by dividing total operating revenues, less any voyage
expenses, by the number of calendar days minus days for scheduled off-hire. Under a time charter, the
charterer pays substantially all of the vessel voyage related expenses. However, we may incur voyage
related expenses when positioning or repositioning vessels before or after the period of a time charter,
during periods of commercial waiting time or while off-hire during drydocking. The following table
reconciles our total operating revenues to average daily TCE. However, TCE is not defined under U.S.
generally accepted accounting principles or U.S. GAAP. We note, however, that because not all companies
use identical calculations, this presentation of TCE may not be comparable to similarly titled measures of
other companies in our industry.
2009
Year Ended December 31,
2008
2007
2006
2005
(in thousands of U.S.$, except number of days and
average daily TCE)
Total operating revenues ......
Voyage expenses ..................
216,495
(20,093)
228,779
(24,483)
224,674
(10,763)
239,697
(9,582)
171,042
(4,594)
196,402
204,296
213,911
230,115
166,448
Calendar days less
scheduled off-hire days ....
Average daily TCE
(to the closest $100) .............
4,145
4,298
4,197
4,130
3,602
47,400
45,700
51,000
55,700
46,200
(10)
We calculate average daily vessel operating costs by dividing vessel operating costs by the number of
calendar days.
B. Capitalization and Indebtedness
Not Applicable
C. Reasons for the Offer and Use of Proceeds
Not Applicable
D. Risk Factors
Some of the following risks relate principally to our business or to the industry in which we operate. Other
risks relate principally to the securities market and ownership of our shares. Any of these risks, or any additional
risks not presently known to us or risks that we currently deem immaterial, could significantly and adversely affect
our business, our financial condition, our operating results and the trading price of our common shares.
Risks Related to our Business
We generate a substantial majority of our revenue from a limited number of customers under long-term agreements,
the unanticipated termination or loss of one or more of these agreements or these customers would likely interrupt
our related cash flow.
We receive a substantial majority of our revenues and cash flow from a limited number of customers.
During the year ended December 31, 2009, we received 93.3% of our revenues from four customers, BG Group plc,
or BG, accounted for 27.4%, Royal Dutch Shell Plc, or Shell, accounted for 20.4%, PT Pertamina (PERSERO), or
Pertamina, accounted for 18.1% and Petrobras accounted for 27.4% of our total operating revenues, respectively.
After the conversion of the Golar Freeze in the second quarter of 2010, into floating storage re-gasification units, or
FSRUs, the vessel will be scheduled to be employed under 10-year time charter with Dubai Supply Authority, or
DUSUP. Upon such employment we expect to receive a majority of our revenue from BG, Shell, Pertamina,
Petrobras and DUSUP.
5
We may be unable to retain our existing customers if:
1.
2.
our customers are unable to make charter payments because of its financial inability, disagreements with us
or otherwise;
in certain circumstances, our customers may exercise their right to terminate their charters early, in the
event of:
a.
b.
c.
d.
a loss of the vessel or damage to it beyond repair;
a default of our obligations under the charter, including prolonged periods of off-hire;
a war or hostilities that would significantly disrupt the free trade of the vessel;
a requisition by any governmental authority;
e. with respect to the Golar Spirit, Golar Winter and Golar Freeze, upon six months’ written notice
at any time after the fifth anniversary of the commencement of the charter, the charterers
(Petrobras and DUSUP) may exercise their option to terminate the charter upon payment of a
termination fee;
f. with respect to the Golar Spirit and Golar Winter, Petrobras may exercise its option to purchase
each vessel after a specified period of time; or
g. with respect to the Golar Freeze, the charterer may terminate the charter because we fail to deliver
the vessel on time or the vessel fails to satisfy certain contractual performance requirements after
delivery.
3.
a prolonged force majeure event affecting the customer, including damage to or destruction of relevant
production facilities, war or political unrest which may prevent us from performing services for that
customer.
The loss of any of our customers may have an adverse effect on our business, results of operations and
financial condition.
Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for
which we will face substantial competition.
One of our principal objectives is to enter into additional medium or long-term, fixed-rate LNG carrier or
FSRU time charters. The process of obtaining new long-term time charters is highly competitive and generally
involves an intensive screening process and competitive bids, and often extends for several months. LNG carrier or
FSRU time charters contracts are awarded based upon a variety of factors relating to the vessel operator, including:
• shipping industry relationships and reputation for customer service and safety;
• LNG shipping and FSRU experience and quality of operations (including cost effectiveness);
• quality and experience of seafaring crew;
• the ability to finance LNG carriers at competitive rates and financial stability generally;
• being able to deliver the LNG carrier or FSRU within the time frame required;
• willingness to accept operational risks pursuant to the charter; and
• competitiveness of the bid in terms of overall price.
We operate some of our vessels on fixed-term charters or in the spot/short-term charter market for LNG vessels.
Failure to find profitable employment for these vessels, or our other vessels following completion of their fixed-term
agreements, could adversely affect our operations.
6
Currently, we have ten vessels contracted on medium or long-term charters, which expire between 2010
and 2024, and one vessel commencing its long-term charter in the second quarter of 2010, respectively. Our other
vessels are available for trade or trading in the spot/short-term charter market, the market for chartering a liquid
natural gas, or LNG, carrier for a single voyage or short time period of up to one year. However, two of our vessels
(one of which is our 50% equity interest in the vessel, the Gandria) are currently in lay-up and are unlikely to trade
for the balance of 2010. Medium to long-term time charters generally provide reliable revenues but they also limit
the portion of our fleet available to the spot/short-term market during an upswing in the LNG industry cycle, when
spot/short-term market voyages might be more profitable.
The charter rates payable under time charters or in the spot market may be uncertain and volatile and will
depend upon, among other things, economic conditions in the LNG market. The supply and demand balance for
LNG carriers and FSRUs is also uncertain. In the period from 2004, the excess supply of vessels over demand has
negatively impacted our results and we expect this oversupply to continue during 2010 as LNG carriers continue to
be delivered ahead of LNG production projects for which they were built. Until these LNG production projects
commence and utilize some of these vessels, the supply of LNG carriers is likely to be greater than the demand,
which would have a negative impact on charter rates and levels of utilization of LNG carriers in the spot short-term
charter market. Additionally, the fall in demand for natural gas worldwide due to the current economic climate and
the subsequent fall in gas prices could have a negative impact on LNG shipping demand. The earnings from our
vessels on medium-term charters to Shell will also be impacted by the development of charter rates and demand in
the spot market. These factors could also influence the results of operations from spot market activities and the
Shell charters during and beyond 2010.
We also cannot assure you that we will be able to successfully employ our vessels in the future or re-deploy
our LNG carriers and FSRUs following completion of their fixed-term agreements at rates sufficient to allow us to
operate our business profitably or meet our obligations. If we are unable to re-deploy an LNG carrier or FSRU, such
as the LNG carriers currently in lay-up, we will not receive any revenues from that vessel, but we may be required to
pay expenses necessary to maintain the vessel in proper operating condition. A decline in charter or spot rates or a
failure to successfully charter our vessels could have a material adverse effect on our results of operations and
ability to meet our financing obligations.
Our charters with Shell have variable rates and certain termination rights.
Three of our vessels are time chartered to Shell, the Golar Viking, the Golar Grand and the Golar Maria, under
five-year charter agreements, which may be terminated by Shell under certain circumstances. The charter rates we
earn from these medium-term charters are variable and are directly connected to prevailing market rates. In the
event that Shell does not employ the vessels for their own use, they must market the vessels for use by third parties.
If Shell cannot find employment for these ships there could be periods where the vessels incur commercial waiting
time and do not generate revenues. If these vessels are not employed profitably, or the charters are terminated, our
cash flows may be seriously impacted.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to
meet their obligations could cause us to suffer losses or otherwise adversely affect our business.
We enter into among other things, charter-parties with our customers, conversion contracts with shipyards,
credit facilities with banks, interest rate swaps, foreign currency swaps and equity swaps. Such agreements subject
us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us
will depend on a number of factors that are beyond our control and may include, among other things, general
economic conditions, the condition of the LNG market and charter rates. In addition, in depressed market
conditions, our charterers and customers may no longer need a vessel that is currently under charter or may be able
to obtain a comparable vessel at a lower rate. As a result, charterers may seek to renegotiate the terms of their
existing charter parties or avoid their obligations under these contracts. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which could have a material adverse effect
on our business, financial condition, results of operations and cash flows.
Due to the lack of diversification in our lines of business, adverse developments in the LNG industry would
negatively impact our results of operations, financial condition and our ability to pay dividends.
Currently, we rely primarily on the revenues generated from our business of transporting and regasifying
LNG. Due to the lack of diversification in our lines of business, an adverse development in our LNG business, or in
7
the LNG industry, generally would have a significant impact on our business, financial condition and results of
operations and our ability to pay dividends to our shareholders.
We may incur losses if we are unable to expand profitably into other areas of the LNG industry.
A principal component of our strategy is to expand profitably into other areas of the LNG industry beyond
the traditional transportation of LNG for example liquefaction projects. Other than the recent FSRU conversions of
the Golar Spirit and the Golar Winter, we have not been involved in FSRU or other LNG industry businesses and
our expansion into these areas may not be profitable and we may incur losses including losses in respect of expenses
incurred in relation to project development. Our ability to integrate vertically into upstream and downstream LNG
activities depends materially on our ability to identify attractive partners and projects and obtain project financing at
a reasonable cost.
If there are substantial delays or cost overruns in completion of the modification of our vessels to FSRUs or if they
do not meet certain performance requirements our earnings and financial condition could suffer.
In September 2007, we entered into time charter agreements with Petrobras which required the
modification of the Golar Spirit and the Golar Winter FSRUs. After their respective conversions, both the Golar
Spirit and the Golar Winter are chartered by Petrobras on 10-year time charters.
In April 2008, we entered into a time charter with DUSUP which required the modification of the Golar
Freeze into a FSRU. The time charter is for a period of 10 years with a charterer’s option to extend the charter for
an additional five years. The DUSUP charter will commence on the delivery of the vessel, which we expect in the
second quarter of 2010. The Golar Freeze entered the shipyard to begin modification work in September 2009.
Due to the highly technical process, retrofitting an existing LNG carrier for FSRU service may only be
performed by a limited number of contractors, thus, a change of contractors may result in higher costs or a
significant delay to our existing delivery schedule. Furthermore, the completion of the retrofitting of LNG carriers
is subject to the risk of cost overrun. Any delay in delivery to DUSUP would likely lead to us paying liquidated
damages. Any substantial delay in the modification of our LNG vessels into FSRUs would result in our breach of
the DUSUP time charter agreement, which may lead to its termination. In addition, if the vessel does not meet the
performance requirements under the charter, the charter rate could be adjusted downwards or the contract cancelled.
The occurrence of any or a combination of the above risks would have a significant negative impact on our cash
flows and earnings.
An increase in costs could materially and adversely affect our financial performance.
Our vessel operating expenses and drydock capital expenditure depend on a variety of factors including
crew costs, provisions, deck and engine stores and spares, lubricating oil, insurance, maintenance and repairs and
shipyard costs, many of which are beyond our control and affect the entire shipping industry. Also, while we do not
bear the cost of fuel (bunkers) under our time charters, fuel is a significant, if not the largest, expense in our
operations when our vessels are idle during periods of commercial waiting time or when positioning or repositioning
before or after a time charter. The price and supply of fuel is unpredictable and fluctuates based on events outside
our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil
and gas producers, war and unrest in oil-producing countries and regions, regional production patterns and
environmental concerns. These may increase vessel operating and drydocking costs further. If costs continue to
rise, they could materially and adversely affect our results of operations.
We may be unable to attract and retain key management personnel in the LNG industry, which may negatively
impact the effectiveness of our management and our results of operation.
Our success depends to a significant extent upon the abilities and the efforts of our senior executives. While
we believe that we have an experienced management team, the loss or unavailability of one or more of our senior
executives for any extended period of time could have an adverse effect on our business and results of operations.
A shortage of qualified officers and crew could have an adverse effect on our business and financial condition.
LNG carriers and FSRUs require a technically skilled officer staff with specialized training. As the world
LNG carrier fleet and FSRU fleet continue to grow, the demand for technically skilled officers and crew has been
8
increasing, which has led to a shortfall of such personnel. Increases in our historical vessel operating expenses have
been attributable primarily to the rising costs of recruiting and retaining officers for our fleet. In addition, our
FSRUs will require an additional engineer, deck officer and cargo officer. Furthermore, each key officer crewing an
FSRU must receive specialized training related to the operation and maintenance of the regasification equipment. If
we or our third party ship managers are unable to employ technically skilled staff and crew, we will not be able to
adequately staff our vessels. A material decrease in the supply of technically skilled officers or an inability of our
third party managers to attract and retain such qualified officers could impair our ability to operate or increase the
cost of crewing our vessels, which would materially adversely affect our business, financial condition and results of
operations and significantly reduce our ability to make distributions to shareholders.
In addition, the Golar Spirit and Golar Winter are employed by Petrobras in Brazil. As a result, we are
required to hire a certain portion of Brazilian personnel to crew these vessels in accordance with Brazilian law. Any
inability to attract and retain qualified Brazilian crew members could adversely affect our business, results of
operations and financial condition.
Terrorist attacks, piracy, increased hostilities or war could lead to further economic instability, increased costs and
disruption of our business.
Terrorist attacks such as the attacks on the United States on September 11, 2001, the bombings in Spain on
March 11, 2004, in London on July 7, 2005, and the attacks in Mumbai on November 26, 2008, and the continuing
response of the United States and others to these attacks, as well as the threat of future terrorist attacks in the United
States or elsewhere, continue to cause uncertainty in the world’s financial markets and may affect our business,
operating results, financial condition, ability to raise capital and future growth. The continuing presence of the
United States and other armed forces in Iraq and Afghanistan may lead to additional armed conflict around the
world, which may contribute to further economic instability in the global financial markets. These uncertainties
could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past,
political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected
vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our business, financial condition, results of operations and
ability to pay dividends. Terrorist attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very
large crude carrier not related to us, may in the future also negatively affect our operations and financial condition
and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility and
turmoil of the financial markets in the United States and globally. Any of these occurrences could have a material
adverse impact on our revenues and costs.
In addition, LNG facilities, shipyards, vessels (including conventional LNG carriers and FSRUs), pipelines
and gas fields could be targets of future terrorist attacks or piracy. Any such attacks could lead to, among other
things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including
insurance costs, and the inability to transport LNG to or from certain locations. Terrorist attacks, war or other
events beyond our control that adversely affect the production, storage, transportation or regasification of LNG to be
shipped or processed by us could entitle our customers to terminate our charter contracts, which would harm our
cash flow and our business.
Terrorist attacks, or the perception that LNG facilities, LNG carriers and FSRUs are potential terrorist
targets, could materially and adversely affect expansion of LNG infrastructure and the continued supply of LNG to
the United States and other countries. Concern that LNG facilities may be targeted for attack by terrorists has
contributed to significant community and environmental resistance to the construction of a number of LNG
facilities, primarily in North America. If a terrorist incident involving an LNG facility, LNG carrier or FSRU did
occur, in addition to the possible effects identified in the previous paragraph, the incident may adversely affect
construction of additional LNG facilities or FSRUs or the temporary or permanent closing of various LNG facilities
or FSRUs currently in operation.
Our loan and lease agreements are secured by our vessels and contain operating and financial restrictions and
other covenants that may restrict our business and financing activities and our ability to make cash distributions to
our shareholders.
Covenants in our loan and lease agreements require the consent of our lenders and our lessors or otherwise
limit our ability to:
9
• merge into or consolidate with any other entity or sell or otherwise dispose of all or substantially
all of their assets;
• make or pay equity distributions;
•
•
incur additional indebtedness;
incur or make any capital expenditure;
• materially amend, or terminate, any of our current charter contracts or management agreements; or
•
charter our vessels
If the ownership interest in us controlled by World Shipholding Ltd of Liberia, a company indirectly
controlled by Trusts established by John Fredriksen for the benefit of his immediate family fell below 25% of our
share capital, a default of some of our loan agreements and lease agreements to which we are a party would occur.
Similarly, if we were to be in any other form of default which we could not remedy, such as payment default, our
lessors, having legal title to our leased vessels, or our lenders, who have mortgages over some of our vessels, could
be entitled to sell our vessels in order to repay our debt and or lease liabilities.
Covenants in our loan and lease agreements may effectively prevent us from paying dividends should our
board of directors wish to do so and may require us to obtain permission from our lenders and lessors to engage in
some other corporate actions. Our lenders’ and lessors’ interests may be different from those of our shareholders
and we cannot guarantee investors that we will be able to obtain our lenders’ and lessors’ permission when needed.
This may adversely affect our earnings and prevent us from taking actions that could be in our shareholders’ best
interests. As of March 31, 2010, we were in compliance with all of the covenants contained in our loan and lease
agreements.
If we do not maintain the financial ratios contained in our loan and lease agreements or we are in any other form of
default such as payment default, we could face acceleration of the due date of our debt and the loss of our vessels.
Our loan and lease agreements require us to maintain specific financial levels and ratios, including
minimum amounts of available cash, ratios of current assets to current liabilities (excluding current long-term debt),
ratios of net debt to earnings before interest, tax, depreciation and amortization and the level of stockholders’ equity,
minimum loan to value clauses and debt service coverage ratios. Although we currently comply with these
requirements if we were to fall below these levels we would be in default of our loans and lease agreements and the
due date of our debt could be accelerated and our lease agreements terminated, which could result in the loss of our
vessels. Our ability to comply with covenants and restrictions contained in our loan and lease agreements may be
affected by events beyond our control, including prevailing economic, financial and industry conditions. If market
or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If
restrictions, covenants, ratios or tests in our debt instruments are breached, a significant portion of the obligations
may become immediately due and payable. In the event we enter into waiver agreements with our lenders for
covenant breaches, such waiver agreements may result in a significant increase in our debt cost. We may not have,
or be able to obtain, sufficient funds to make these accelerated payments and if we are unable to repay debt under
the credit facilities, the lenders could seek to foreclose on those assets. In addition, obligations under our financing
arrangements are secured by certain of our vessels and guaranteed by our subsidiaries holding the interests in our
vessels.
We may not have sufficient cash from operations to enable us to pay quarterly dividends following the establishment
of cash reserves and payment of fees and expenses.
We may not have sufficient cash available each quarter to pay quarterly dividends. The amount of cash we
can distribute depends upon the amount of cash we generate from our operations, which may fluctuate based on,
among other things:
• the rates we obtain from our charters;
• the level of our operating costs, such as the cost of crews and insurance;
• the continued availability of LNG, liquefaction and regasification facilities;
• the number of unscheduled off-hire days for our fleet and the timing of, and number of days required
for, scheduled drydocking of our vessels;
10
• prevailing global and regional economic and political conditions;
• currency exchange rate fluctuations; and
• the effect of governmental regulations and maritime self-regulatory organization standards on the
conduct of our business.
The actual amount of cash we will have available for distribution also will depend on factors such as:
• the level of capital expenditures we make, including for maintaining vessels, building new vessels,
acquiring existing vessels and complying with regulations;
• our debt service requirements and restrictions on distributions contained in our debt instruments;
• fluctuations in our working capital needs;
• our ability to make working capital borrowings, including to pay distributions to shareholders;
• the amount of any cash reserves, including reserves for future capital expenditures and other matters,
established; and
• our ability to raise debt finance in respect of expenditure relating to the conversion of the Golar Freeze
and to refinance its existing debt.
We may not be able to obtain financing to fund our growth or our future capital expenditures, which could
negatively impact our results of operations, financial condition and our ability to pay dividends.
In order to fund future FSRUs, liquefaction projects, vessel acquisitions, increased working capital levels or
other capital expenditures, we may be required to use cash from operations, incur borrowings or raise capital
through the sale of debt or additional equity securities. Use of cash from operations may reduce the amount of cash
available for dividend distributions. Our ability to obtain bank financing or to access the capital markets for any
future debt or equity offerings may be limited by our financial condition at the time of such financing or offering, as
well as by adverse market conditions resulting from, among other things, general economic conditions and
contingencies and uncertainties that are beyond our control. Our failure to obtain funds for future capital
expenditures could impact our results of operations, financial condition and our ability to pay dividends. The
issuance of additional equity securities would dilute your interest in our Company and reduce dividends payable to
you. Even if we are successful in obtaining bank financing, paying debt service would limit cash available for
working capital and increasing our indebtedness could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability pay dividends.
Eight of our vessels are financed by U.K. tax leases. In the event of any adverse tax changes or a successful
challenge by the U.K. Revenue authorities with regard to the initial tax basis of the transactions or in the event of an
early termination of a lease, we may be required to make additional payments to the U.K. vessel lessors, which
could adversely affect our earnings and financial position.
Eight of our vessels are financed by U.K. tax leases. In the event of any adverse tax changes to legislation
affecting the tax treatment of the leases for the U.K. vessel lessors or a successful challenge by the U.K. Revenue
authorities to the tax assumptions on which the transactions were based, or in the event that we terminate any of our
U.K. tax leases before their expiration, we would be required to return all or a portion of, or in certain circumstances
significantly more than, the upfront cash benefits that we have received or that have accrued over time, together with
fees that were incurred in connection with our lease financing transactions, or post additional security or make
additional payments to the U.K. vessel lessors. Any additional payments could adversely affect our earnings and
financial position. The upfront benefits we have received equates to the cash inflow we received in connection with
the six leases we entered into during 2003 (in total a gross amount before deduction of fees of approximately £41
million British pounds, or GBP). Two of our U.K. tax leases accrue benefit over the term of the leases. The
remaining six UK tax leases were structured so that a cash benefit was received up front.
Servicing our debt and lease agreements substantially limits our funds available for other purposes.
A large portion of our cash flow from operations is used to repay the principal and interest on our debt and
lease agreements. As of December 31, 2009, our net indebtedness (including loan debt, capital lease obligations, net
of restricted cash and short-term deposits and net of cash and cash equivalents) was $878.1 million and our ratio of
11
net indebtedness to total capital (comprising net indebtedness plus shareholders’ equity and noncontrolling interest)
was 0.57.
We may also incur additional indebtedness to fund our possible expansion into other areas of the LNG
industry, for example in respect of our FSRU projects. Debt payments reduce our funds available for expansion into
other parts of the LNG industry, working capital, capital expenditures and other purposes. In addition, our business
is capital intensive and requires significant capital outlays that result in high fixed costs. We cannot assure investors
that our existing and future contracts will provide revenues adequate to cover all of our fixed and variable costs.
An increase in interest rates could materially and adversely affect our financial performance.
As of December 31, 2009, we had a total long-term debt and net capital lease obligations (net of restricted
cash) outstanding of $1,011.6 million of which currently $358.2 million is exposed to a floating rate of interest. We
use interest rate swaps to manage interest rate risk. As of December 31, 2009, our interest rate swap arrangements
effectively fix the interest rate exposure on $643.4 million of floating rate bank debt and capital lease obligation. In
addition there is $10 million of fixed rate debt. If interest rates rise significantly, our results of operations could be
materially and adversely affected. Increases and decreases in interest rates will affect the cost of floating rate debt
but may also affect the mark-to-market valuation of interest rate swaps which will also affect our results.
Additionally, to the extent that our lease obligations are secured by restricted cash deposits, our exposure to interest
rate movements is hedged to a large extent. However, movements in interest rates may require us to place more
cash into our restricted deposits and this could also materially and adversely affect our results of operations.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
Currency exchange rate fluctuations and currency devaluations could have an adverse effect on our results
of operations from quarter to quarter. Historically our revenue has been generated in U.S. Dollars, but we incur
capital, operating and administrative expenses in multiple currencies.
We are exposed to foreign currency exchange fluctuations as a result of expenses paid by certain
subsidiaries in currencies other than U.S. Dollars, such as GBP, in relation to our administrative office in the U.K.,
operating expenses incurred in a variety of foreign currencies including Euros and Singapore Dollars, among others;
and multiple currencies including Euros, Singapore Dollars and Norwegian Krone in respect of our FSRU
conversion contracts. If the U.S. Dollar weakens significantly this could increase our expenses and therefore could
have a negative effect on our financial results.
Under the charters for the Golar Spirit and the Golar Winter, we will generate a portion of our revenues in
Brazilian Reais. Income under these charters is split into two components. The component that relates to operating
expenses (the minority) is paid in Brazilian Reais, whereas the capital component is paid in U.S. Dollars. We will
incur some operating expenses in Brazilian Reais but we will also have to convert Brazilian Reais into other
currencies, including U.S. Dollars, in order to pay the remaining operating expenses incurred in other currencies. If
the Brazilian Real weakens significantly, we may not have sufficient Brazilian Reais to convert to other currencies
to satisfy our obligations in respect of the operating expenses related to these charters, which would have a negative
effect on our financial results and cash flows.
We have entered into currency forward contracts or similar derivatives to mitigate our exposure to these
foreign exchange rate fluctuations in respect of our capital commitments relating to our FSRU conversion contracts.
Eight of our vessels are financed by U.K. tax leases, seven of which are denominated in GBPs. The
majority of our GBP capital lease obligations are hedged by GBP cash deposits securing the lease obligations or by
currency swap. However, these are not perfect hedges and a significant strengthening of the U.S. Dollar could give
rise to an increase in our financial expenses and could materially affect our financial results (See Item 11- Foreign
currency risk).
Exposure to equity price risk in our shares and in the shares of other companies could adversely affect our financial
results.
12
As a result of our holding of treasury shares as of March 31, 2010 we are effectively exposed to the
movement in our share price in respect of 450,000 treasury shares.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of
a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the United States, may be subject to a 4%
U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax
under Section 883 of the Code and the applicable Treasury Regulations recently promulgated thereunder.
We expect that we and each of our subsidiaries will qualify for this statutory tax exemption and we will
take this position for U.S. federal income tax return reporting purposes. However, there are factual circumstances
beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to U.S.
federal income tax on our U.S. source income. Therefore, we can give no assurances on our tax-exempt status or
that of any of our subsidiaries.
If, we or our subsidiaries, are not entitled to exemption under Section 883 of the Code for any taxable year,
we, or our subsidiaries, could be subject for those years to an effective 4% U.S. federal income tax on the gross
shipping income these companies derive during the year that are attributable to the transport or cargoes to or from
the United States. The imposition of this tax would have a negative effect on our business and would result in
decreased earnings available for distribution to our shareholders.
United States tax authorities could treat us as a “passive foreign investment company”, which could have adverse
United States federal income tax consequences to U.Ss holders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal
income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of
“passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the
production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends,
interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and
royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S.
shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income
derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or
other disposition of their shares in the PFIC.
Based on our current and expected future method of operation, we do not believe that we will be a PFIC
with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to
derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe
that our income from our time chartering activities does not constitute “passive income,” and the assets that we own
and operate in connection with the production of that income do not constitute passive assets.
There is, however, no direct legal authority under the PFIC rules addressing our method of operation. We
believe there is substantial legal authority supporting our position consisting of case law and United States Internal
Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and
voyage charters as services income for other tax purposes. However, we note that there is also authority which
characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly,
no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute
a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders will face
adverse U.S. tax consequences. Under the PFIC rules, unless those shareholders make an election available under
the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be
liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon
excess distributions and upon any gain from the disposition of our common stock, as if the excess distribution or
gain had been recognized ratably over the shareholder’s holding period of our common stock. Please see the section
13
of this annual report entitled “Taxation” under Item 10E for a more comprehensive discussion of the U.S. federal
income tax consequences if we were to be treated as a PFIC.
We are a holding company, and our ability to pay dividends will be limited by the value of investments we currently
hold and by the distribution of funds from our subsidiaries.
We are a holding company whose assets mainly comprise of equity interests in our subsidiaries and other
quoted and non-quoted companies. As a result, should we decide to pay dividends we would be dependent on the
performance of our operating subsidiaries and other investments. If we were not able to receive sufficient funds
from our subsidiaries and other investments, including from the sale of our investment interests, we will not be able
to pay dividends unless we obtain funds from other sources. We may not be able to obtain the necessary funds from
other sources on terms acceptable to us.
Risks Related to the LNG Shipping and FSRU Industry
The operation of LNG carriers and FSRUs is inherently risky, and an incident involving significant loss or
environmental consequences involving any of our vessels could harm our reputation and business.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
• Marine disaster;
•
•
•
Piracy;
Environmental accidents; and
Business interruptions caused by mechanical failure, human error, war, terrorism, political action
in various countries, labor strikes, or adverse weather conditions.
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of
our vessels in an oil spill or other environmental disaster may harm our reputation as a safe and reliable LNG carrier
operator.
If our vessels suffer damage, they may need to be repaired. The costs of vessel repairs are unpredictable
and can be substantial. We may have to pay repair costs that our insurance policies do not cover. The loss of
earnings while these vessels are being repaired, as well as the actual cost of these repairs, would decrease our results
of operations. If one of our vessels were involved in an accident with the potential risk of environmental
contamination, the resulting media coverage could have a material adverse effect on our business, our results of
operations and cash flows, weaken our financial condition and negatively affect our ability to pay dividends.
The recent global financial crisis could negatively impact our business.
Recently, the credit markets and the financial services industry have been experiencing a period of
unprecedented turmoil and difficulties characterized by the bankruptcy, failure, or sale of various financial
institutions. The ongoing global financial crisis affecting the banking system and financial markets has resulted in a
severe tightening in the credit markets, a low level of liquidity in financial markets, and volatility in credit and
equity markets. This financial crisis may negatively impact our business and financial condition in ways that we
currently cannot predict. In addition, the uncertainty about current and future global economic conditions caused by
the financial crisis may cause our customers and governments to defer projects in response to tighter credit,
decreased cash availability and declining customer confidence which may negatively impact the demand for our
services. The recent tightening of the credit markets may further negatively impact our operations by affecting the
solvency of our suppliers or customers which could lead to disruptions in delivery of supplies such as equipment for
conversions, cost increases for supplies, accelerated payments to suppliers, customer bad debts or reduced revenues.
Furthermore, a further decline in our share price or significant adverse change in market conditions could require us
to take a further material impairment charge related to our long-term assets.
The recent economic downturn may affect our customers' ability to charter our vessels and pay for our services and
may adversely affect our business and results of operations.
The recent economic downturn in the global financial markets may lead to a decline in our customers'
operations or ability to pay for our services, which could result in decreased demand for our vessels and services.
14
Our customer's inability to pay could also result in their default on our current contracts and charters. The decline in
the amount of services requested by our customers or their default on our contracts with them could have a material
adverse effect on our business, financial condition and results of operations. We cannot determine whether the
difficult conditions in the economy and the financial markets will improve or worsen in the near future.
Decreases in charter rates for LNG carriers and FSRUs when we are seeking to re-deploy our vessels may
adversely affect our earnings.
Charter rates for LNG carriers and FSRUs fluctuate over time as a result of changes in the supply-demand
balance relating to current and future LNG capacity. This supply-demand relationship largely depends on a number
of factors outside our control. The LNG market is closely connected to world natural gas prices and energy markets,
which we cannot predict. A substantial or extended decline in natural gas prices could adversely affect our charter
business as well as our business opportunities. Our ability from time to time to charter or re-charter any vessel at
attractive rates will depend on, among other things, the prevailing economic conditions in the LNG industry.
The LNG transportation industry is competitive and we may not be able to compete successfully, which would
adversely affect our earnings.
The LNG transportation industry in which we operate is competitive, especially with respect to the
negotiation of long-term charters. Competition arises primarily from other LNG carrier owners, some of whom
have substantially greater resources than we do. Furthermore, new competitors with greater resources could enter
the market for LNG carriers and FSRUs and operate larger fleets through consolidations, acquisitions, or the
purchase of new vessels, and may be able to offer lower charter rates and more modern fleets. If we are not able to
compete successfully, our earnings could be adversely affected. Competition may also prevent us from achieving
our goal of profitably expanding into other areas of the LNG industry.
Our vessels are required to trade globally and we must therefore conduct our operations in many parts of the world,
and accordingly our vessels are exposed to international risks, which could reduce revenue or increase expenses.
We conduct global operations and transport LNG from politically unstable regions. Changing economic,
regulatory and political conditions in some countries, including political and military conflicts, have from time to
time resulted in attacks on vessels, mining of waterways, piracy, terrorism and other efforts to disrupt shipping. The
terrorist attacks against targets in the United States on September 11, 2001, the military response by the United
States and the conflict in Iraq may increase the likelihood of acts of terrorism worldwide. Acts of terrorism, regional
hostilities or other political instability could affect LNG trade patterns and reduce our revenue or increase our
expenses. Further, we could be forced to incur additional and unexpected costs in order to comply with changes in
the laws or regulations of the nations in which our vessels operate. These additional costs could have a material
adverse impact on our operating results, revenue, and costs.
The aging of our fleet may result in increased operating costs in the future, which could adversely affect our
earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel.
As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to
maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates
also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations,
including environmental regulations, safety or other equipment standards related to the age of vessels may require
expenditures for alterations or the addition of new equipment, to our vessels and may restrict the type of activities in
which our vessels may engage. As our vessels age, market conditions might not justify those expenditures or enable
us to operate our vessels profitably during the remainder of their useful lives.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our
business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the
South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and 2009, the frequency of
piracy incidents against commercial shipping vessels increased significantly, particularly in the Gulf of Aden off the
coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with us, was
captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these piracy
15
attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the
Gulf of Aden temporarily was in May 2008, premiums payable for such coverage could increase significantly and
such insurance coverage may be more difficult to obtain. In addition, crew costs, including those due to employing
onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses
from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of
an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a
material adverse impact on our business, financial condition and results of operations.
Our insurance coverage may be insufficient to cover losses that may occur to our property or result from
our operations.
The operation of LNG carriers and FSRUs is inherently risky. Although we carry protection and indemnity
insurance, all risks may not be adequately insured against, and any particular claim may not be paid. Any claims
covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be
brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is
maintained through mutual protection and indemnity associations, and as a member of such associations we may be
required to make additional payments over and above budgeted premiums if member claims exceed association
reserves.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future.
For example, more stringent environmental regulations have led in the past to increased costs for, and in the future
may result in the lack of availability of, insurance against risks of environmental damage or pollution. A marine
disaster could exceed our insurance coverage, which could harm our business, financial condition and operating
results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our
insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain
certification with applicable maritime self-regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance
more difficult for us to obtain. In addition, upon renewal or expiration of our current policies, the insurance that
may be available to us may be significantly more expensive than our existing coverage.
We may incur significant liability that would increase our expenses if any of our LNG carriers or FSRUs discharged
fuel oil (bunkers) into the environment.
International environmental conventions, laws and regulations, including United States’ federal laws, apply
to our LNG carriers and FSRUs. If any of the vessels that we own or operate were to discharge fuel oil into the
environment, we could face claims under these conventions, laws and regulations. We must also carry evidence of
financial responsibility for our vessels under these regulations. United States law also permits individual states to
impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and a
number of states have enacted legislation providing for unlimited liability for oil spills.
Any future changes to the laws and regulations governing LNG carrier and FSRU vessels could increase our
expenses to remain in compliance.
The laws of the nations where our vessels operate as well as international treaties and conventions regulate
the production, storage, and transportation of LNG. Our operations are materially affected by these extensive and
changing environmental protection laws and other regulations and international conventions, including those relating
to equipping and operating our LNG carriers and FSRUs. We have incurred, and expect to continue to incur,
substantial expenses in complying with these laws and regulations, including expenses for vessel modifications and
changes in operating procedures. While we believe that we comply with current regulations of the International
Maritime Organization, or IMO, any future non-compliance could subject us to increased liability, lead to decreases
in available insurance coverage for affected vessels and result in the denial of access to, or detention in, some ports.
Furthermore, future United States federal and state laws and regulations as then in force, or future regulations
adopted by the IMO, and any other future regulations, may limit our ability to do business or we may be forced to
incur additional costs relating to such matters as LNG carrier construction, maintenance and inspection
requirements, development of contingency plans for potential leakages and insurance coverage.
16
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
If we are in default of certain obligations, such as those to our crew members, suppliers of goods and
services to our vessels or shippers of cargo, these parties may be entitled to a maritime lien against one or more of
our vessels. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through
foreclosure proceedings. In a few jurisdictions, claimants could try to assert “sister ship” liability against one vessel
in our fleet for claims relating to another of our vessels. The arrest or attachment of one or more of our vessels
could interrupt our cash flow and require us to pay to have the arrest lifted. Under some of our present charters, if
the vessel is arrested or detained for as few as 14 days as a result of a claim against us, we may be in default of our
charter and the charterer may terminate the charter.
Growth of the LNG market may be limited by infrastructure constraints and community and political group
resistance to new LNG infrastructure over concerns about environmental, safety and terrorism.
A complete LNG project includes production, liquefaction, regasification, storage and distribution facilities
and LNG carriers. Existing LNG projects and infrastructure are limited, and new or expanded LNG projects are
highly complex and capital intensive, with new projects often costing several billion dollars. Many factors could
negatively affect continued development of LNG infrastructure and related alternatives, including FSRUs, or disrupt
the supply of LNG, including:
•
•
•
•
•
•
increases in interest rates or other events that may affect the availability of sufficient financing for
LNG projects on commercially reasonable terms;
decreases in the price of LNG, which might decrease the expected returns relating to investments
in LNG projects;
the inability of project owners or operators to obtain governmental approvals to construct or
operate LNG facilities;
local community resistance to proposed or existing LNG facilities based on safety, environmental
or security concerns;
any significant explosion, spill or similar incident involving an LNG facility, LNG carrier or
FSRU; and
labor or political unrest affecting existing or proposed areas of LNG production and regasification.
We believe some of the proposals to expand existing or develop new LNG liquefaction and regasification
facilities may be abandoned or significantly delayed due to the factors mentioned above. If the LNG supply chain is
disrupted or does not continue to grow, or if a significant LNG explosion, spill or similar incident occurs, it could
have a material adverse effect on our business, results of operations and financial condition and our ability to make
cash distributions.
Risks Related to our Common Shares
Our Chairman may have the ability to effectively control the outcome of significant corporate actions.
World Shipholding Ltd., a company indirectly controlled by Trusts established by John Fredriksen, our
chairman, for the benefit of his immediate family, beneficially owns 46.18% of our outstanding common shares. As
a result, Mr. Fredriksen and his affiliated entities have the potential ability to effectively control the outcome of
matters on which our shareholders are entitled to vote, including the election of all directors and other significant
corporate actions.
Fluctuations in the price and volume of shares of listed companies generally could result in the volatility of our
share price.
Generally, stock markets have recently experienced extensive price and volume fluctuations, and the
market prices of securities of shipping companies have experienced fluctuations that often have been unrelated or
disproportionate to the operating results of those companies. Our share price has been subject to significant
17
volatility. Since September 30, 2009, the closing market price of our common shares on the NASDAQ has ranged
from a high of $13.90 per share on October 21, 2009 to a low of $10.59 per share on December 22, 2009, largely
reflecting the market for shares such as ours. As of April 27, 2010, our share price was $13.00. The market price of
our common shares may continue to fluctuate due to factors such as actual or anticipated fluctuations in our
quarterly or annual results and those of other public companies in our industry, the suspension of our dividend
payments, mergers and strategic alliances in the shipping industry, market conditions in the LNG shipping industry,
shortfalls in our operating results from levels forecast by securities analysts, announcements concerning us or our
competitors and the general state of the securities market. The market for common shares in this industry may be
equally volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares that you
may have purchased at a price greater than or equal to its original purchase price.
The company currently owns 68% (December, 31 2009: 73.8%) of Golar Energy’s shares, investor ownership in
Golar Energy may be further diluted with potential issuance of additional common shares including stock dividends.
Further exchange listings and/or stock dividends may have the following effects:
• Golar Energy may issue additional common shares or we may sell all or part of our holdings in
Golar Energy further diluting your indirect ownership interest.
• Conflicts of interest may arise between the noncontrolling shareholders who currently own 32%
and us, the majority shareholder who own 68%.
• The amount of cash available for paying dividends may decrease.
• The market price of our common shares may decrease.
Because we are a Bermuda corporation, you may have less recourse against us or our directors than shareholders
of a U.S. company have against the directors of that U.S. Company.
Because we are a Bermuda company the rights of holders of our common shares will be governed by
Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law
may differ from the rights of shareholders in other jurisdictions. Among these differences is a Bermuda law
provision that permits a company to exempt a director from liability for any negligence, default, or breach of a
fiduciary duty except for liability resulting directly from that director’s fraud or dishonesty. Our bye-laws provide
that no director or officer shall be liable to us or our shareholders unless the director’s or officer’s liability results
from that person’s fraud or dishonesty. Our bye-laws also require us to indemnify a director or officer against any
losses incurred by that director or officer resulting from their negligence or breach of duty except where such losses
are the result of fraud or dishonesty. Accordingly, we carry directors’ and officers’ insurance to protect against such
a risk. In addition, under Bermuda law the directors of a Bermuda company owe their duties to that company, not to
the shareholders. Bermuda law does not generally permit shareholders of a Bermuda company to bring an action for
a wrongdoing against the company, but rather the company itself is generally the proper plaintiff in an action against
the directors for a breach of their fiduciary duties. These provisions of Bermuda law and our bye-laws, as well as
other provisions not discussed here, may differ from the law of jurisdictions with which investors may be more
familiar and may substantially limit or prohibit shareholders ability to bring suit against our directors.
Future sales of our common shares could cause the market price of our common shares to decline.
Sales of a substantial number of our common shares in the public market, or the perception that these sales
could occur, may depress the market price for our common shares. These sales could also impair our ability to raise
additional capital through the sale of our equity securities in the future.
Because our offices and most of our assets are outside the United States, you may not be able to bring suit against
us, or enforce a judgment obtained against us in the United States.
We, and all our subsidiaries, are or will be incorporated in jurisdictions outside the U.S. and substantially
all of our assets and those of our subsidiaries and will be located outside the U.S. In addition, most of our directors
and officers are or will be non-residents of the U.S., and all or a substantial portion of the assets of these non-
residents are or will be located outside the U.S. As a result, it may be difficult or impossible for U.S. investors to
18
serve process within the U.S. upon us, our subsidiaries, or our directors and officers, or to enforce a judgment
against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which
we or our subsidiaries are incorporated or where our or the assets of our subsidiaries are located would enforce
judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of
applicable U.S. federal and state securities laws or would enforce, in original actions, liabilities against us or our
subsidiaries based on those laws.
Investor confidence and the market price of our common stock may be adversely impacted if we are unable to
comply with Section 404 of the Sarbanes-Oxley Act of 2002.
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to include in our
annual report on Form 20-F, our management's report on, and assessment of the effectiveness of, our internal
controls over financial reporting. If we fail to maintain the adequacy of our internal controls over financial
reporting, we will not be in compliance with all of the requirements imposed by Section 404. Any failure to comply
with Section 404 could result in an adverse reaction in the financial marketplace due to a loss of investor confidence
in the reliability of our financial statements, which ultimately could harm our business and could negatively impact
the market price of our common stock. We believe the ongoing costs of complying with these requirements may be
substantial.
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts
of the world could have a material adverse impact on our results of operations, financial condition and cash flows,
and could cause the market price of shares of our common stock to decline.
Over the recent period, global financial markets have experienced extraordinary disruption and volatility
following adverse changes in the global credit markets. The United States and other parts of the world are exhibiting
deteriorating economic trends and have been in a recession. For example, the credit markets in the United States
have experienced significant contraction, deleveraging and reduced liquidity, and governments around the world
have taken highly significant measures in response to such events, and may implement other significant responses in
the future. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations
and other requirements. The SEC, other regulators, self-regulatory organizations and exchanges have enacted
temporary emergency regulations and may take other extraordinary actions in the event of market emergencies, and
may effect changes in law or interpretations of existing laws.
Recently, a number of financial institutions have experienced serious financial difficulties and, in some
cases, have entered into bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have
resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of
their mortgage and asset-backed securities portfolios. These difficulties have been compounded by a general decline
in the willingness by banks and other financial institutions to extend credit. These difficulties may adversely affect
the financial institutions that provide our credit facilities and may impair their ability to continue to perform under
their financing obligations to us, which could have an impact on our ability to fund current and future obligations,
including our ability to take delivery of our new vessels.
We face risks attendant to changes in economic environments, changes in interest rates and instability in
the banking and securities markets around the world, among other factors. Major market disruptions and the current
adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely
affect our business or impair our ability to borrow amounts under our credit facilities or any future financial
arrangements. We cannot predict how long the current market conditions will last. However, these recent and
developing economic and governmental factors, including proposals to reform the financial system, may have a
material adverse effect on our results of operations, financial condition or cash flows and could cause the price of
shares of our securities to decline significantly or impair our ability to make distributions to our shareholders.
Safety, environmental and other governmental requirements expose us to liability, and compliance with current and
future regulations could require significant additional expenditures, which could have a material adverse effect on
our business and financial results.
Our operations are affected by extensive and changing international, national, state and local laws,
regulations, treaties, conventions and standards in force in international waters, the jurisdictions in which our vessels
operates and the country in which our vessels are registered, including those governing the management and
disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, water
19
discharges and ballast water management. These regulations include the United States Oil Pollution Act of 1990, or
OPA, the United States Clean Air Act and United States Clean Water Act, the United States Marine Transportation
Security Act of 2002, the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended,
or CLC, the International Convention for the Prevention of Pollution from Ships of 1975, the International
Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966, or
LL Convention, and implementing regulations adopted by the International Maritime Organization, or IMO (the
United Nations agency for maritime safety and the prevention of pollution by vessels), the European Union, and
other international, national and local regulatory bodies.
In addition, vessel classification societies also impose significant safety and other requirements on our
vessels. In complying with current and future environmental requirements, vessel-owners and operators such as
ourselves may also incur significant additional costs in meeting new maintenance and inspection requirements, in
developing contingency arrangements for potential spills and in obtaining insurance coverage. Government
regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become
stricter in the future and require us to incur significant capital expenditures on our vessels to keep it then in
compliance, or even to scrap or sell our vessels altogether. For example, various jurisdictions, including the United
States, are considering or have enacted legislation imposing more stringent requirements on air emissions and ballast
water discharges from vessels.
Many of these requirements are designed to reduce the risk of oil spills and other pollution, and our
compliance with these requirements can be costly. These requirements can also affect the resale value or useful life
of our vessels, require a reduction in cargo-capacity, ship modifications or operational changes or restrictions, lead
to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in certain ports.
Under local, national and foreign laws, as well as international treaties and conventions, we could incur
material liabilities, including cleanup obligations, natural resource damages and third-party claims for personal
injury or property damages, in the event that there is a release of petroleum or other hazardous substances from our
vessels or otherwise in connection with our current or historic operations. We could also incur substantial penalties,
fines and other civil or criminal sanctions, including in certain instances seizure or detention of our vessels, as a
result of violations of or liabilities under environmental laws, regulations and other requirements. For example, OPA
affects all vessel-owners shipping oil to, from or within the United States. OPA allows for potentially unlimited
liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in United
States waters. Similarly, the CLC, which has been adopted by most countries outside of the United States, imposes
liability for oil pollution in international waters. OPA expressly permits individual states to impose their own
liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries.
Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for
unlimited liability.
Extensive and changing environmental laws and other regulations, compliance with which may entail
significant expenses, including expenses for ship modifications and changes in operating procedures, affect the
operation of our vessels. These expenses could have an adverse effect on our business operations at any time.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a mid-stream LNG company engaged primarily in the transportation, regasification and liquefaction
of LNG. We are engaged in the acquisition, ownership, operation and chartering of LNG carriers and FSRUs
through our subsidiaries and the development of liquefaction projects. As of March 31, 2010, our fleet consisted of
13 vessels and a 50% equity interest in one LNG carrier. We lease eight vessels under long-term financial leases,
we own four vessels including a 60% interest in the Golar Mazo that we own through a joint arrangement with the
Chinese Petroleum Corporation, the Taiwanese state oil and gas company and we chartered-in one vessel under a
short-term charter. Seven of our vessels (LNG carriers and FSRU’s) are currently contracted under long-term
charters (two of which come to an end during 2010) and three vessels are in medium-term, five-year market related
charter contracts with Shell. The Golar Freeze is scheduled to commence its long-term charter in May 2010. We
are incorporated under the laws of the Islands of Bermuda and maintain our principal executive headquarters at Par-
la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda. Our telephone number at that address is +1 (441) 295-
4705. Our principal administrative offices are located at One America Square, 17 Crosswall, London, United
Kingdom.
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Our business was originally founded in 1946 as Gotaas-Larsen Shipping Corporation. Gotaas-Larsen
entered the LNG shipping business in 1970 and in 1997 was acquired by Osprey Maritime Limited, or Osprey, then
a Singapore listed publicly traded company. In May 2001, World Shipholding Ltd., a company indirectly controlled
by Trusts established by John Fredriksen for the benefit of his immediate family, acquired Osprey, which was then
delisted from the Singapore Stock Exchange. On May 21, 2001, we acquired the LNG shipping interests of Osprey
and we listed on the Oslo Stock Exchange in July 2001 and on Nasdaq in December 2002. World Shipholding
currently owns 46.18% of our issued and outstanding common shares.
Since May 2001, our primary acquisitions and capital expenditures have been in connection with the
construction of seven newbuildings, one vessel acquisition and FSRU conversions. During the three years ended
December 31, 2009, we invested $527.4 million in our newbuildings, vessels and equipment, FSRU conversion
costs as well as dry docking costs, included in this is the acquisition of the Golar Arctic for the purchase price of
$185 million from Shell in 2008. We also sold the Golar Frost to OLT Offshore Toscana S.p.A, or OLT-O, in July
2008, recognizing a gain of $78.1 million in the period.
During 2007 and 2008, we entered into time charter agreements which required the conversion or
modification of three LNG carriers, the Golar Spirit, Golar Winter and the Golar Freeze FSRUs. We entered into
10-year time charter agreements with Petrobras for the Golar Spirit and the Golar Winter and with DUSUP for the
Golar Freeze, commencing upon delivery of each of these vessels. Employment of the Golar Spirit commenced in
July 2008, the Golar Winter commenced its long-term charter in September 2009, and we expect Golar Freeze to
commence its long-term charter in May 2010.
During the three years ended December 31, 2009, we invested a total of $44.2 million to acquire interests in
a number of companies, principally:
•
•
•
In July 2008, we invested an initial sum of $22.0 million in a (50:50) Dutch Antilles incorporated
joint venture named Bluewater Gandria N.V., or Bluewater Gandria, with Bluewater Energy
Services B.V., or Bluewater, formed for the purposes of pursuing opportunities to develop
offshore LNG FSRU projects. The initial equity investment was used to acquire a 1977 built
LNG carrier, the Gandria, for conversion and use as a FSRU.
In 2006, we purchased 23 million shares in LNGL, an Australian publicly listed company, for a
consideration of $8.6 million, making us LNGL’s largest shareholder. In November 2009, we
sold 9.6 million LNGL shares which reduced our shareholding to approximately 6.3%. The sale
realised funds of approximately $11 million and resulted in an accounting profit of $8.4 million.
In November 2006, we invested $5.0 million to purchase a 20% interest in OLT-O, an Italian
unincorporated company involved in the construction, development, operation and maintenance of
a FSRU. As of December 31, 2009, we had a 2.7% interest.
During 2007, we disposed of our entire interest in Korea Line Corporation, or Korea Line, a Korean
shipping company listed on the Korean stock exchange, which we had acquired during 2003 and 2004 at a cost of
$34.1 million, which resulted in an aggregate gain of $73.6 million.
On June 22, 2009 we formed a wholly owned subsidiary Golar LNG Energy Limited (“Golar Energy”)
under the laws of Bermuda. On August 12, 2009 Golar Energy completed its corporate restructuring and private
placement offering, whereby it acquired the interests in our wholly owned subsidiaries, which collectively own
interests in eight liquefied natural gas (“LNG”) vessels, a 50% equity interest in another LNG carrier and certain
other investments. As at 31 December 2009 we owned 73.8% of Golar Energy. Golar Energy is a publicly listed
Bermudan company, listed in Norway on the Oslo Axess specializing in the acquisition, ownership, operation and
chartering of LNG carriers and floating storage regasification units (“FSRUs”) and the development of liquefaction
projects. As of December 31, 2009, Golar Energy operated a fleet of eight LNG carriers and had a 50% equity
interest in another LNG carrier.
Further details of the corporate restructuring and private placement offering are provided below:
• We transferred to Golar Energy capital stock in our wholly owned subsidiaries and other
equity
common shares in the Golar
interests and investments, in exchange for 168.5 million new
21
Energy at a subscription price of $2 per share, giving rise to consideration
to deferred consideration (“seller’s credit”) in respect of the Golar Freeze.
of $337 million in addition
•
•
Immediately subsequent to the corporate restructuring described above Golar Energy issued 59.9
million new common shares to private institutional investors at a subscription price of $2 per share as
part of the private placement resulting in aggregate gross proceeds of $119.7 million. This includes
$9.7 million of proceeds relating to the 4.8 million additional shares issued under the “greenshoe”
option which were exercised in September 2009 in connection with the private placement.
In connection with the private placement 12 million
warrants were also issued to private investors.
Each warrant gives the holder the right to subscribe for one new share in Golar Energy at a
subscription price of $2 per share. The warrants can only be exercised on December 15, 2010.
B. Business Overview
We are a leading independent owner and operator of LNG carriers and FSRUs. As of March 31, 2010, we
have a fleet of 13 vessels, 10 LNG carriers, 3 FSRUs and a 50% equity interest in a further LNG carrier. We are
seeking to further develop our business in other mid-stream areas of the LNG supply chain other than shipping, in
particular innovative LNG solutions such as FSRUs and floating LNG production.
The Natural Gas Industry
Natural gas is a growing energy source and its growth is expected to continue for the next 20 years.
According to the IEA new gas fired power plants and industrial (especially petrochemicals) usage are expected to
provide a substantial part of this incremental demand. Their 2009 International Energy Outlook reference case
forecasts a rise in worldwide consumption from 104 trillion cubic feet (“Tcf”) in 2006 to an estimated 114 Tcf this
year and rising to 152.5 Tcf by 2030 – an average annual rise of 1.6% from 1990 to 2030 with the largest rises over
the same period being in China (5.1% p.a.) and India (4.1% p.a.).
The primary factors contributing to the growth of natural gas demand include:
•
Environmental: Natural gas is a clean-burning fuel. It produces less carbon dioxide and other
pollutants and particles per unit of energy production than coal, fuel oil and other common
hydrocarbon fuel sources.
• Demand from Industry and Power Generation: According to the IEA, natural gas is the fastest
growing fuel source for electricity generation worldwide accounting for around 35% of the worldwide
natural gas consumption by 2030. Also by 2020 industrial consumption is forecast to consume
around 40% of worldwide gas use.
• Market Deregulation: Deregulation of the gas and electric power industry in the United States,
Europe and Japan, has resulted in new entrants and an increased market for natural gas.
•
•
Significant Natural Gas Reserves: As of January 2009 reserves of natural gas were estimated at
approximately 6,254 Tcf or approximately more than 55 times the 114 Tcf of natural gas estimated to
be consumed worldwide in 2009 and 69 Tcf more than the previous year’s estimate.
Emerging economies: According to EIA’s 2009 prediction projected average increases in emerging
economies (non-OECD) consumption of natural gas will be c2.2% per year up to 2030, compared to
0.9% per annum for OECD economies.
The LNG Industry
Overview
LNG is liquefied natural gas, produced by cooling natural gas to –163°C (-256° Fahrenheit), or just below
the boiling point of LNG’s main constituent, methane. LNG is produced in liquefaction plants situated around the
globe near gas deposits. In its liquefied state, LNG occupies approximately 1/600th the volume of its gaseous state.
Liquefaction makes it possible to transport natural gas efficiently and safely by sea in specialized vessels known as
LNG carriers. LNG is stored at atmospheric pressure in cryogenic tanks. LNG is converted back to natural gas in
regasification plants by raising its temperature.
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The first LNG project was developed in the mid-1960s and by the mid-1970s LNG had begun to play a
larger role as energy companies developed remote gas reserves that could not be served by pipelines in a cost-
efficient manner. The LNG industry is highly capital intensive and has historically been characterised by long-term
contracts. The long-term charter of LNG carriers to carry the LNG is, and remains, an integral part of almost every
project.
Production of LNG has grown from 147 mt p.a. in 2005 to 188 mt p.a. in 2009 and is forecast to rise to 302
mt p.a. by 2015. Five new producing countries entered the market in the same period.
Production
There are three major regional areas that supply LNG. These are (i) Southeast Asia, including Australia,
Malaysia, Brunei, Indonesia and Russia (ii) the Middle East, including Qatar, Oman and United Arab Emirates,
with a recently commissioned facility in Yemen, and (iii) the Atlantic Basin countries, including Algeria, Egypt,
Equatorial Guinea, Libya, Nigeria, Norway and Trinidad with facilities under construction in Angola. For the first
time, South America will enter into the LNG Liquefaction industry when Peru completes construction of their LNG
project in Q2 of this year. The expansion of existing LNG production facilities is one of the major sources of
growth in LNG production and most projects with gas reserves available are considering growth of production. By
April 2010 there were 23 liquefaction facilities in operation in 17 countries.
Consumption
The two major geographic areas that dominate worldwide consumption of LNG are East Asia; including Japan,
South Korea, Taiwan and China; and Europe, specifically Spain, France, Italy, Belgium and Turkey. In 2009, East
Asia (including China) accounted for approximately 58% of the global LNG consumption a reduction from 64% in
2008. Eight LNG import terminals operate in the United States and a ninth is due to be commissioned shortly. In
addition Costa Azul in Baja California, Mexico provides gas to Southern California.
Argentina became the first Latin American country to import LNG in June 2008 via its Bahia Blanca
Gasport terminal followed by Brazil via our converted LNG Carriers the Golar Spirit, and Golar Winter. Chile also
has two LNG Import terminals.
There are currently 23 LNG importing countries with more than 80 importing terminals with a further 4
under construction. In 2008, Japan and South Korea remained the two largest importers of LNG, accounting for
approximately 56% of the aggregate world LNG imports. Almost all natural gas consumption in Japan and South
Korea is based on LNG imports.
The LNG Fleet
As of the end of January 2010, the world LNG carrier fleet consisted of 341 LNG carriers (including 12
FSRUs and Regasification Vessels, or RVs and 14 vessels currently in Lay-up) with a total capacity of greater than
45 million cubic meters. Currently there are orders for around 40 (of all sizes) new LNG carriers (including 7
FSRU, RV vessels and Production units) with expected delivery dates through to end 2011.
The current ‘standard’ size for LNG carriers is approximately 155,000 cbm, up from 125,000 cbm during
the 1970’s. To assist with transportation unit cost reduction the average size of vessels is rising steadily and we
have now seen the first deliveries of Q Max LNG Vessels of up to 266,000 cbm. There are also some smaller LNG
carriers, mainly built for dedicated short distance trades.
LNG carriers are designed for an economic life of approximately 40 years. Therefore all but a very few of
the LNG carriers built in the 1970s still actively trade. In recent contract renewals, LNG vessels have been placed
under time charters with terms surpassing their 40th anniversaries, which demonstrate the economic life for such
older vessels. As a result, limited scrapping of LNG carriers has occurred or is likely to occur in the near future. In
view of the fact that LNG is clean and non-corrosive when compared to other products such as oil and given that
more has tended to be spent on maintenance of LNG vessels than oil tankers, the pressure to phase out older vessels
has been much less than for crude oil tankers. We cannot, however, say that such pressure will not begin to build in
the future.
While there are a number of different types of LNG vessels and “containment systems,” there are two
dominant containment systems in use today:
23
•
•
The Moss system was developed in the 1970s and uses free standing insulated spherical tanks
supported at the equator by a continuous cylindrical skirt. In this system, the tank and the hull of
the vessel are two separate structures.
The Membrane system uses insulation built directly into the hull of the vessel, along with a
membrane covering inside the tanks to maintain their integrity. In this system, the ship’s hull
directly supports the pressure of the LNG cargo.
Illustrations of these systems are included below:
Moss System
Membrane System
Of the vessels currently trading and on order, approximately 66% employ the membrane containment
system, 30% employ the Moss system and the remaining 4% employ other systems. Of the newbuilds vessels on
order that have employed the membrane containment system, have done so primarily because it most efficiently
utilizes the entire volume of a ship’s hull.
The maximum worldwide production capacity for LNG carriers is in the region of approximately 40 ships a
year after the rapid expansion of production facilities over the past five years, particularly in Korea. The actual
output depends upon the relative cost of LNG ships to other vessels and the relative demand for both. The
construction period for an LNG carrier is approximately 28-34 months. However, based on current yard availability,
the earliest delivery date for a new LNG vessel ordered today is 2012. Any new project/trade with LNG vessel
demand before then will have to rely on existing or ordered vessels until potential new orders can be delivered.
LNG Regasification Terminals
There are over 70 LNG regasification terminals operating in 22 countries. The long term outlook for global
gas and demand has stimulated growth in LNG production and trade, as well as the necessary expansion of
regasification infrastructure. Many existing regasification terminals have considered or are currently in the process
of capacity expansions. By the end of 2010, global LNG regasification is forecasted to be approximately 563 MTA
while global liquefaction capacity is forecasted to be 267 MTA. Most of the LNG regasification terminals presently
in operation, and most of those currently under development, are onshore facilities. Many of these terminals are in
heavily populated regions and environmentally sensitive coastal areas, which face significant opposition from a
range of government, community, and environmental groups. In many instances, this opposition has caused lengthy
and costly delays in obtaining permits and the ultimate completion of these LNG regasification terminals.
Additionally, when an importing region’s natural gas demand is seasonal, onshore regasification terminals are more
likely to increase the average cost of LNG in periods of greater demand to financially compensate for when an
onshore terminal sits underutilized during periods of low demand.
Floating Storage and Regasification Units
In response to the limitations and political difficulties faced by onshore land-based terminals, many LNG
importers around the world are exploring onshore and offshore floating LNG regasification terminals as a cost
effective and politically attractive alternative to land based onshore facilities.
We believe floating storage and regasification units are economically attractive, technically acceptable and
flexible. In most cases FSRUs cost much less than land-based schemes of a similar size. Whilst general cost
comparisons must be treated with caution, as the circumstances surrounding floating and land-based developments
can affect the cost of both significantly. Our experience to date indicates that FSRUs of the order of 2–4 MTA are
likely to be significantly cheaper than equivalent land-based plants.
FSRUs are generally faster to bring into operation: time is saved by not having such an extensive planning
and permitting process as that normally associated with onshore developments; and the construction time is reduced,
assuming the conversion of an existing LNG carrier, because much of the required equipment (storage, power and
24
utilities) is already available and in place. The conversion projects carried out on the Golar Spirit and the Golar
Winter suggest two years from the final investment decision to the delivery of the vessel: 18 months for engineering
and procurement, and six months for the shipyard work.
We also believe that FSRUs are attractive because of the flexibility that they provide in terms of location
and use. Depending on their design and configuration, FSRUs can be moved from one demand centre to another and
may retain the ability to trade as LNG carriers.
Opposition to onshore LNG regasification plants has been strong in many places. Floating storage and
regasification offers a way of distancing the energy solution from local opposition and potentially avoiding a lengthy
and difficult approvals process.
FSRUs are disadvantaged to onshore terminals and GBSs because they generally have less storage and
regasification capacity, and may require an offshore natural gas pipeline infrastructure to transport the gas to shore.
The figure below depicts an FSRU.
In general, FSRUs can be divided into four subcategories:
•
•
•
•
permanently located offshore;
permanently alongside (with LNG transfer being either directly ship to ship or over a jetty);
shuttle carrier with regasification and discharge offshore (sometimes referred to as energy bridge);
and
shuttle carrier with alongside discharge.
The unloading process used by FSRUs involves the vaporization of LNG and injection of natural gas
directly into one or more pipelines.
Compared to onshore terminals, FSRUs and other offshore LNG solutions are in the early stages of
commercialization. Several companies such as Golar, Exmar SA, Excelerate Energy and Höegh LNG are actively
pursuing and marketing FSRU terminals to LNG importers around the world. We are the first company to enter into
an agreement for the long-term employment of a FSRU with a LNG importer. Golar’s first FSRU has been
delivered to Petrobras and is currently operational. Our second FSRU, Golar Winter, commenced its long-term
charter with Petrobras in early September 2009 and our third FSRU commitment, the Golar Freeze, is scheduled for
delivery to DUSUP in May 2010. We believe several other LNG shipping companies are currently evaluating the
costs and the technology of FSRUs, but none have entered the commercial market.
25
We believe, based on the FSRU commitments earned to date and strong market inquiry that FSRUs are
viewed as an accepted means of LNG regasification and storage, particularly in locations where political or
environmental concerns may prevent onshore facilities or in locations where the demand for LNG is for small to mid
scale LNG import projects or seasonal.
To address a number of the above challenges, floating storage and regasification terminals have been
successfully delivered and are now operating. There are currently six operational FSRU/RV terminals in the world
and a further four that have been sanctioned. Of these ten terminals three are permanently alongside (although two
of these, Golar Winter and Golar Spirit, can also transport LNG), one is permanently located offshore (Livorno
project using Golar Frost), three use Excelerate Energy vessels as shuttle carriers with alongside discharge, and three
are shuttle carrier terminals with regasifiaction and discharge offshore (2 Excelerate Energy and 1 GDF Suez/
Höegh LNG).
Competition – LNG carriers and FSRUs
While the majority of the existing world LNG carrier fleet is employed on long-term charters, there is
competition for the employment of vessels whose charters are expiring and for the employment of vessels which are
not dedicated to a long-term contract. Competition for long-term LNG charters is based primarily on price, vessel
availability, size, age and condition of the vessel, relationships with LNG carrier users and the quality, LNG
experience and reputation of the operator. In addition, vessels may operate in the emerging LNG carrier spot market
that covers short-term charters of one year or less where there is currently significant competition due to an
oversupply of LNG carriers.
We believe that we are the only independent LNG carrier and FSRU owner and operator that focuses solely
on LNG, other independent shipping companies also own and operate LNG carriers and have new vessels under
construction including BW Gas ASA (Norway), Exmar S.A. (Belgium), Teekay LNG Partners, L.P, Höegh LNG
and three Japanese ship owning groups, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and K Line, which traditionally
provided LNG shipping services exclusively to Japanese LNG companies, are now aggressively competing in
western markets. In addition, new competitors that have recently entered the LNG shipping market include Maran
Gas Maritime and Dynagas Ltd of Greece, A P Moller of Denmark, Overseas Shipholding Group of USA and
Knutsen O.A.S Shipping AS of Norway. There are other owners who may also attempt to participate in the LNG
market if possible.
In addition to independent LNG operators, some of the major oil and gas producers, including Royal Dutch
Shell, BP, and BG own LNG carriers and intermittently contract for the construction of new LNG carriers. National
gas and shipping companies also have large fleets of LNG vessels which have and will likely continue to expand.
These include Malaysian International shipping Company, or MISC, National Gas Shipping Company (Abu Dhabi)
and Qatar Gas Transport Company, or Nakilat.
FSRUs are in an early stage of their commercial development and thus there is less competition than the
more mature commercial market of LNG carriers. However, interest in the sector is expected to increase.
Currently, Golar, Exmar, Excelerate Energy, Höegh LNG, Mitsui O.S.K. lines and MISC Berhad are among the
companies actively competing for FSRU projects.
Our Business Strategy
We are one of the world’s largest independent owners and operators of LNG carriers with over 35 years of
experience and we developed the world’s first Floating Storage and Regasification Unit based on the conversion of
existing LNG carriers. Our strategy is to grow our business and to provide competitive returns to our shareholders
with regular dividends while providing safe, reliable and efficient LNG shipping and FSRU service to our
customers.
When the Golar Freeze has commenced its long-term charter, expected to be in May 2010, we will have five long-
term charters with expiration dates (excluding option periods) of between 2017 and 2024. Our goal is to pay regular
quarterly dividends from the cash flow generated by these contracts. Our dividend payments will be based on
present earnings, market prospects, current capital expenditure programs as well as investment opportunities.
26
Golar LNG Energy
In addition, through our subsidiary Golar LNG Energy Limited (“Golar Energy”), we plan to further grow
our LNG shipping and FSRU business and we are developing opportunities to diversify into other areas of the mid-
stream LNG supply chain to enhance our margins.
Our main focus in our development of further mid-stream LNG business is maritime based and relatively
small scale and low cost solutions.
In respect of our shipping operations we intend to build on our relationships with existing customers and
continue to develop new relationships. We aim to earn higher margins through maintaining strong service-based
relationships combined with flexible and innovative LNG shipping solutions. We will also seek long-term
employment for our LNG carriers within integrated LNG projects that we may be involved in and will look to
participate in LNG trading opportunities to maximise the utilization and returns from our vessels operating in the
spot market.
In 2008 we delivered the world’s first FSRU converted from a LNG carrier, in 2009 we delivered the
world’s second FSRU converted from a LNG carrier and in 2010 we will deliver the third. We intend to take
advantage of our leading position in this relatively new market, as well as our LNG experience and our shipping
assets to grow our FSRU business.
In furtherance of our strategy to grow our business and maximise returns for our shareholders we are
actively seeking opportunities to invest upstream and downstream in the LNG supply chain, where our shipping
assets and over 35 years of industry experience can add value. We believe we can achieve this aim while at the
same time diversifying our sources of income and thereby strengthening the Company.
We are investing in both established LNG operations and technologies and newly developing technologies;
including floating regasification operations, floating LNG production and floating power production from natural
gas. We expect to continue our focus on these LNG solutions and related shipping services as a major area for our
business development.
Specific projects we are actively pursuing include the following:
FSRU Projects:
We have entered into time charter agreements with Petrobras in respect of the Golar Spirit and the Golar
Winter and with DUSUP in respect of the Golar Freeze, which requires the conversion of these vessels into FSRUs.
All three FSRUs will be chartered by Petrobras or DUSUP for 10-year periods, with options to extend the charter for
up to an additional five years. The Golar Spirit commenced its charter in July 2008 and the Golar Winter
commenced its charter in early September 2009. The charter for the Golar Freeze is scheduled to commence upon
completion of its conversion and delivery of the vessel in Dubai which we expect in May 2010. We are actively
pursuing other similar project opportunities, which include the provision of technical marine and LNG expertise for
other technically innovative projects.
In 2006, we subscribed for 23 million shares in two tranches in Liquefied Natural Gas Limited (LNGL) an
Australian publicly listed company at a cost of $8.6 million. We purchased the first tranche of 13.95 million shares
in May 2006, at a cost of $5.1 million and the second tranche of the balance of the shares in June 2006, at a cost of
$3.5 million. Our subsidiary company Golar LNG Energy Limited subsequently sold shares realising US$11
million in cash and an approximate US$8 million gain. The company’s current ownership interest in LNGL is
approximately 4%. LNGL is a company focused on developing LNG liquefaction projects acting as a link between
previously discovered but uncommercial gas reserves and potential new energy markets. We intended to participate
in LNGL’s projects, as a buyer of LNG and a provider of shipping requirements. In February 2009, we announced
our entry into a Heads of Agreement relating to our 40% participation in the Gladstone LNG project. We expected
the other project participants to be LNGL (40%) and Arrow Energy Limited (gas supply to the project, (20%)). We
also agreed to provide certain equity funding support to LNGL. Arrow Energy Limited has recently agreed a
takeover proposed from Royal Dutch Shell and PetroChina. Primarily as a result of this all agreements in respect of
this project have terminated. Our original collaboration agreement with LNGL remains in place.
In January 2010 Golar Energy and PTTEP announced the joint termination of the Heads of Agreement and
Joint Study Agreement governing their joint development of a floating liquefied natural gas (FLNG) project based
27
on the gas fields in North West Australia owned by PTTEP. The two Companies also announced their termination of
a Memorandum of Understanding covering their global cooperation to identify and develop FLNG projects.
Since June 2002, we have been involved in an Italian offshore floating storage and regasification project off
the coast of Livorno, Italy. In November 2006, we acquired 20% of shares in OLT-O, at a cost of $5 million. In
December 2007, we entered into an agreement with OLT-O for the sale of and conversion into a FSRU of the Golar
Frost, for $231 million and the sale was completed in July 2008. In March 2008, OLT-O signed a contract with
Saipem S.p.A. for the conversion of the Golar Frost at a cost of €390 million (approximately $500 million) and also
signed an agreement with SNAM RETE Gas for the construction of the pipeline connecting the terminal to the
national grid. In January 2008, the board of directors of OLT-O agreed a capital increase of €200 million
(approximately $260 million). We did not contribute to the capital increase and we have not committed to any
further contributions. The current shareholding position is Group Iride 46.79% (subdivided between Iride Mercato
41.71% and ASA Livorno 5.08%), E.ON Ruhrgas 46.79%, OLT Energy 3.73% and Golar 2.69%. The vessel is
currently undergoing conversion in Dubai Drydocks under the EPCIC contract with Saipem. First commercial gas
delivery is expected in 2011.
In 2008, Golar and Bluewater formed a joint venture company Bluewater Gandria for the purposes of
bidding to develop an offshore LNG FSRU opportunity with South Africa's national oil company, PetroSA. In
connection with this bid, Bluewater Gandria acquired the 1977 built Moss type 126,000 m3 LNG Carrier, Hoegh
Gandria (renamed Gandria). The vessel was intended to be used as a converted offshore FSRU. The bid for the
offshore LNG FSRU opportunity with PetroSA was not successful. We and Bluewater continue to pursue other
opportunities to develop an offshore FSRU project which could potentially utilise Gandria.
We own a 14.8% ownership interest in TORP Technology AS, or TORP, which we acquired in 2005 at a
cost of $3 million. We also have an option to use 33.4% of the capacity of TORP’s offshore Alabama regasification
terminal. TORP holds the rights to the HiLoad LNG Re-gasification and is planning to build an offshore LNG
regasification terminal. The HiLoad LNG Re-gasification unit is a floating L-shaped terminal that docks onto the
LNG carrier using the patented friction based attachment system (rubber suction cups) creating no relative motion
between the carrier and the terminal. The HiLoad LNG Re-gasification unit is equipped with standard regasification
equipment (LNG loading arms, pumps and vaporizers) and can accommodate any LNG carrier. In June 2009,
TORP re-submitted to the U.S. Coast Guard an application for a license to build, own and operate the Bienville
Offshore Energy Terminal for receipt and regasification of LNG. TORP is also developing other potential projects
for its Hi Load LNG Regasification unit. The ultimate size of our potential investment has yet to be determined.
In December 2005, we signed a shareholders’ agreement with The Egyptian Natural Gas Holding
Company, or EGAS, and HK Petroleum Services in respect of the setting up of a jointly owned company named
Egyptian Company for Gas Services S.A.E., or ECGS, for the development of hydrocarbon business and in
particular LNG related business. We have 50% of the voting rights, a 45% economic interest in ECGS and we
would share in 50% of ECGS’s losses. In 2008, the company established administrative offices in Cairo.
Additionally; our activities have been registered with EGAS and Egyptian General Petroleum Corporation, or
EGPC, which allows for ECGS to participate and compete in EGAS and EGPC sponsored tenders. In 2009, ECGS
was awarded a contract to provide anchor handling and towing services (AHTS) and to support a two well drilling
program with options for extension. ECGS continues to make positive progress in developing its capability as a
provider of offshore marine services (to include drilling services) in conjunction with its objective to develop its
business foothold in the Egyptian LNG market. The ultimate size of our potential investment has yet to be
determined.
We will consider the acquisition of new assets through third party acquisition or through newbuilding
contracts to support our business expansion.
Customers
We receive a substantial majority of our revenue from long-term charter agreements with four customers,
BG, Shell, Pertamina and Petrobras.
Since 1989, we have chartered vessels to Pertamina. Our revenues from Pertamina were $40.4 million,
$37.1 million and $37.2 million for the years ended 2009, 2008 and 2007, respectively, representing 18.0%, 16.2%,
and 16.6% of our revenues over the same period, respectively. Pertamina currently charters one vessel from us.
28
Since 2000, we have chartered vessels to BG. Our revenues from BG were $61.3 million, $75.1 million,
and $84.9 million for the years ended 2009, 2008 and 2007, respectively, representing 27.0%, 32.8% and 37.8% of
our revenues over the same period, respectively. BG currently charters three vessels from us.
Since 2006, we have chartered vessels to Shell. Our revenues from Shell were $45.6 million, $85.3 million,
and $58.8 million for the years ended 2009, 2008 and 2007, respectively, representing 20.0%, 37.3% and 26.2% of
our revenues over the same period, respectively. We currently charter three vessels to Shell on five-year charters,
which contain a variable charter hire rate which is tied to the spot market and two vessels on short-term charters.
These agreements represent a significant extension of our relationship base and an important strategic link with
Shell, who is one of the oldest and largest operators in the LNG market.
Since July 2008, we have chartered a vessel to Petrobras under a 10-year charter. We commenced a second
FSRU charter in early July 2009. Our revenues from Petrobras for 2009 were $61.3 representing 27.0% of our
revenues over the same period.
We continue to develop relationships with other major players in the LNG industry and with new customers
as evidenced by our recent agreements with Petrobras for two 10-year FSRU time charters and DUSUP for one 10-
year FSRU time charter.
Our Fleet
Current Fleet
As of end April 2010 , we operated a fleet of 13 vessels and we have a 50% equity interest in another
vessel. Our current fleet represents approximately 5% of the worldwide LNG carrier fleet (of vessels larger than
100,000 cbm) by number. We lease eight LNG carriers under long-term financial leases, we own three vessels and
we have a 60% ownership interest in another LNG carrier through a joint arrangement with the Chinese Petroleum
Corporation, the Taiwanese state oil and gas company. We have also chartered-in one vessel on a short-term
charter.
The following table lists the LNG carriers in our current fleet:
Vessel Name
Hilli
Year of
Delivery
1975
Flag
Capacity
cbm.
125,000 UK
Gimi
1976
125,000 UK
Type
Moss
Moss
Charterer
n/a (1)
BG
Golar Freeze
1977
125,000 MI
Moss/FSRU(2)
Khannur
Golar Spirit
1977
1981
125,000 UK
128,000 MI
Moss
Moss/FSRU
Chartered to BG
until June 2009.
Thereafter chartered
to DUSUP upon
conversion to an
FSRU which we
expect to be
completed in the
second quarter of
2010.
BG
Chartered to
Petrobras as an
FSRU.
Golar Mazo (3)
2000
135,000 LIB
Moss
Pertamina
Methane Princess
2003
138,000 UK
Membrane
BG
Golar Winter
2004
138,000 MI
Membrane/
FSRU
Commenced its
long-term charter
with Petrobras as an
29
Current
Charter
Expiration
n/a
Charter
Extension
Options
n/a
2010
2020
2010
2018
2017
2024
2019
Terms extending
up to 2025
A three-year term
and an additional
two-year term
Two additional
five-year terms
Two additional
five-year terms
A three-year term
and an additional
two-year term
Vessel Name
Year of
Delivery
Capacity
cbm.
Flag
Type
Current
Charter
Expiration
Charter
Extension
Options
Charterer
FSRU in September
2009
2005
140,000 MI
Membrane
Shell
2011
2006
145,700
IOM
Membrane
Shell
2011
2006
145,700 MI
Membrane
Shell
2011
2003
140,000 MI
Membrane
Spot Trading
n/a
Golar Viking
(formerly known
as the Gracilis)
Golar Grand
(formerly known
as the Grandis)
Golar Maria
(formerly known
as the Granosa)
Golar Arctic
(formerly
known
Granatina)
Ebisu (4)
the
as
2008
145,000 BAH
Moss
Spot Trading
Gandria (5)
1977
126,000 NIS
Moss
n/a(1)
n/a
n/a
Key to Flags:
LIB – Liberian, UK – United Kingdom, MI – Marshall Islands, IOM – Isle of Man , BAH – Bahamas, NIS –
Netherlands Antillies
(1) Currently, the Hilli and Gandria are layed-up in Labuan, Malaysia.
(2) In 2008 we entered into an agreement to convert the Golar Freeze into a FSRU. Following its delivery to
us in the second quarter of 2010, the Golar Freeze is scheduled to commence a 10-year time charter with
DUSUP.
(3) We have a 60% ownership interest in the Golar Mazo with the remaining 40% owned by Chinese
Petroleum Corporation.
(4) In October 2008, we chartered-in the Ebisu under a two-year time charter party.
(5) In connection with our joint venture Bluewater Gandria we have a 50% equity interest in the Gandria with
the remaining 50% owned by Bluewater.
Newbuildings
We have entered into newbuilding contracts for the delivery of seven LNG carriers since the beginning of
2001, six of which have already been delivered, the seventh newbuilding was sold for gross consideration of $92.5
million, realizing a profit of $41.0 million. The sale was completed in March 2007.
Our Charters
Our vessels transport LNG from various facilities around the world. Two of our vessels serve under long-
term time charter arrangements, one serving routes between Indonesia and Taiwan, while the other is involved in the
transportation of LNG from facilities in the Middle East, North Africa and Trinidad to ports principally in the United
States and Europe but also Japan. A further three of our vessels are or will be operating on long-term charters
providing FSRU services before the end of 2010 and a further three vessels are under charter to Shell and operate
worldwide. These charters generally provide us with stable income and cash flows.
Two of our current LNG carriers long-term time charters come to an end in 2010 while the Hilli and our
50% equity interest in the Gandria are currently layed-up in Labuan, Malaysia providing possible FSRU conversion
opportunities. The Golar Arctic, purchased from Shell in January 2008, is currently operating on the spot market as
is the Ebisu, our chartered-in vessel. The Golar Mazo is chartered by Pertamina, the state-owned oil and gas
company of Indonesia. The Golar Mazo, which we jointly own with the Chinese Petroleum Corporation, transports
LNG from Indonesia to Taiwan under an 18-year time charter that expires at the end of 2017. Pertamina has options
to extend the Golar Mazo charter for two additional periods of five years each.
30
Under the Pertamina charter, the operating and drydocking costs of the Golar Mazo are compensated by
Pertamina on a cost pass-through basis. Pertamina also pay for hire of the vessel during scheduled drydockings up
to a specified number of days for every two to three year period.
BG Charters: BG, through its subsidiaries, charters three of our vessels on long-term time charters. These
vessels, the Khannur and Gimi, (both approaching the end of their long-term commitments to BG) and the Methane
Princess each transport LNG from export facilities in the Middle East and Atlantic Basin nations to ports on the east
coast of the United States, Europe and Japan. BG determines the trading routes of these vessels. The Golar Freeze
commenced a five–year charter with BG on March 31, 2003 and was redelivered to us in June 2009, as noted above.
The charters for the Gimi and the Khannur will expire in August 2010 and the last quarter of 2010 respectively.
Petrobras Charters: In September 2007, we entered into 10-year time charter agreements with Petrobras
which required the conversion of the Golar Spirit and the Golar Winter into FSRUs. The Petrobras charters
commence on the delivery of each of the vessels. The Golar Spirit commenced its charter in July 2008 and the
Golar Winter commenced in September 2009. The time charter employment for these vessels is covered by two
contracts, a time charter party covering hire of the vessel payable in United States dollars and an operating and
services agreement payable in Brazilian Reais. These two agreements are interdependent and when combined have
the same effect as the time charters for our LNG carriers. Petrobras has the option to purchase the vessel(s) after the
second anniversary of delivery to Petrobras and they also have the option to terminate the charter after the fifth
anniversary of delivery to Petrobras for a termination fee.
DUSUP Charter: In April 2008, we entered into a time charter with DUSUP which requires the conversion
of the Golar Freeze into a FSRU. The time charter is for a period of 10 years with a charterer’s option to extend the
charter for an additional five years. The DUSUP charter will commence on the delivery of the vessel, which we
expect in May 2010. DUSUP has an option to terminate the charter after the fifth anniversary of delivery to DUSUP
upon payment of a termination fee.
In the event of the late delivery of the Golar Freeze, DUSUP have the right to receive compensation in the
form of a full pass through of any liquidated damages received by us from our suppliers, including the shipyard.
Shell Charters: Shell currently charters three of our vessels on five-year charters. The rates we earn from
these charters are market related, and therefore variable. As with all our other charters we may suffer periods of off-
hire when the vessel is unable to transport cargo, however there is also the possibility of periods when we will not
receive charter hire, in the event that Shell have no requirement for a given vessel in a given period and cannot sub-
charter it to a third party. Although this structure effectively leaves the company open to market risk we believe that
our utilization rate (i.e. the number of days for which we are paid hire in any given period) may be improved.
Shell’s international gas and LNG trading structures afford significantly more opportunity to create and sustain
ongoing vessel utilization than is available to a stand-alone shipping company.
The five-year charter periods on the respective vessels commenced in January 2006 for the Grand, March
2006 for the Viking and June 2006 for the Maria, and are each scheduled to terminate in 2011. However, Shell has
termination rights throughout the charter period.
Our charterers may suspend their payment obligations under the charter agreements for periods when the
vessels are not able to transport cargo for various reasons. These periods, which are also called off-hire periods,
may result from, among other causes, mechanical breakdown or other accidents, the inability of the crew to operate
the vessel, the arrest or other detention of the vessel as the result of a claim against us, or the cancellation of the
vessel’s class certification. The charters automatically terminate in the event of the loss of a vessel.
Charter Renewal Options
Pertamina Charter: Pertamina has the option to extend the charter of the Golar Mazo for up to 10-years by
exercising the right to extend for one or two additional five-year periods. Pertamina must give two years notice of
any decision to extend. The revenue during the period of charter extension will be subject to adjustments based on
our actual operating costs during the period of the extension.
BG Charters: BG has the option to extend the Methane Princess charter for two, five-year periods.
Petrobras Charters: Petrobras has the option to extend the charter period for both vessels, the Golar Spirit
and the Golar Winter for up to five years by exercising its right to extend for an initial two year term and then a
further three year term.
DUSUP Charter: DUSUP have the option to extend the charter of the Golar Freeze up to October 2025.
31
Golar Management Limited and Ship Management
Golar Management Limited (previously known as Golar Management (UK) Limited), or Golar
Management, a wholly owned subsidiary of ours which has offices in London and Oslo provides commercial,
operational and technical support and supervision and accounting and treasury services to us.
Prior to February 2005, Golar Management provided all services related to the management of our vessels
other than some of our crewing activities. Since February 2005, Golar Management has subcontracted to
internationally recognized third party ship management companies the day-to-day vessel management activities
including routine maintenance and repairs; arranging supply of stores and equipment; ensuring compliance with
applicable regulations, including licensing and certification requirements and engagement and provision of qualified
crews. Ultimate responsibility for the management of our vessels, however, remains with Golar Management.
Our third party ship managers are Thome Ship Management (Singapore), and Wilhelmsen Ship
Management (Norway). We recently transferred the management of our three vessels chartered to Shell from
STASCO to Thome and Wilhelmsen. Our decision to employ third party managers was primarily driven by our need
to secure long-term high quality seafaring workforce for a growing fleet. We recognized that external ship
management companies have access to larger pools of officers that can be trained to become LNG officers. With the
expansion of the global LNG fleet, a shortage of well-qualified officers is considered a significant threat to operators
in this shipping segment We also wanted to take advantage of economies and efficiencies of scale afforded by these
managers.
Vessel Maintenance
We are focused on operating and maintaining our LNG carriers to the highest safety and industry standards
and at the same time maximizing revenue from each vessel. It is our policy to have our crews perform planned
maintenance on our vessels while underway, to reduce time required for repairs during drydocking. This will reduce
the overall off-hire period required for dockings and repairs. Since we generally do not earn hire from a vessel
while it is in drydock we believe that the additional revenue earned from reduced off-hire periods outweighs the
expense of the additional crewmembers or subcontractors.
Insurance
The operation of any vessel, including LNG carriers and FSRUs, has inherent risks. These risks include
mechanical failure, personal injury, collision, property loss, vessel or cargo loss or damage and business interruption
due to political circumstances in foreign countries and/or war risk situations or hostilities. In addition, there is
always an inherent possibility of marine disaster, including explosion, spills and other environmental mishaps, and
the liabilities arising from owning and operating vessels in international trade.
We believe that our present insurance coverage is adequate to protect us against the accident related risks
involved in the conduct of our business and that we maintain appropriate levels of environmental damage and
pollution insurance coverage consistent with standard industry practice. However, not all risks can be insured, and
there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate
insurance coverage at reasonable rates.
The FSRUs are treated as vessels by our insurers and the term “vessel” also covers FSRUs in the following.
We have obtained hull and machinery insurance on all our vessels against marine and war risks, which
include the risks of damage to our vessels, salvage or towing costs, and also insure against actual or constructive
total loss of any of our vessels. However, our insurance policies contain deductible amounts for which we will be
responsible. We have also arranged additional total loss coverage for each vessel. This coverage, which is called
hull interest and freight interest coverage, provides us additional coverage in the event of the total loss of a vessel.
We have also obtained loss of hire insurance to protect us against loss of income in the event one of our
vessels cannot be employed due to damage that is covered under the terms of our hull and machinery insurance.
Under our loss of hire policies, our insurer will pay us the daily rate agreed in respect of each vessel for each day, in
excess of a certain number of deductible days, for the time that the vessel is out of service as a result of damage, for
a maximum of 240 days. The number of deductible days varies from 14 days for the new ships to 30 days for the
older ships, also depending on the type of damage; machinery or hull damage.
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Protection and indemnity insurance, which covers our third-party legal liabilities in connection with our
shipping activities, is provided by a mutual protection and indemnity association, or P&I club. This includes
third-party liability and other expenses related to the injury or death of crew members, passengers and other
third-party persons, loss or damage to cargo, claims arising from collisions with other vessels or from contact with
jetties or wharves and other damage to other third-party property, including pollution arising from oil or other
substances, and other related costs, including wreck removal. Subject to the capping discussed below, our coverage,
except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident.
The thirteen P&I clubs that comprise the International Group of Protection and Indemnity Clubs insure
approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each
association’s liabilities. Each P&I club has capped its exposure in this pooling agreement so that the maximum
claim covered by the pool and its reinsurance would be approximately $5.45 billion per accident or occurrence. We
are a member of Gard and Skuld P&I Clubs. As a member of these P&I clubs, we are subject to a call for additional
premiums based on the clubs’ claims record, as well as the claims record of all other members of the P&I clubs
comprising the International Group. However, our P&I clubs have reinsured the risk of additional premium calls to
limit our additional exposure. This reinsurance is subject to a cap, and there is the risk that the full amount of the
additional call would not be covered by this reinsurance.
For our operating FSRUs we have, due to formulations in their Time Charter Party contracts, also placed
Comprehensive General Liability (“CGL”) insurance. This type of insurance is common for offshore operations and
is additional to the P&I insurance. Our cover under the CGL insurance is $150 million per unit.
Environmental and Other Regulations
Governmental and international agencies extensively regulate the handling and carriage of LNG. These
regulations include international conventions and national, state and local laws and regulations in the countries
where our vessels operate or where our vessels are registered. We cannot predict the ultimate cost of complying
with these regulations, or the impact that these regulations will have on the resale value or useful lives of our
vessels. Various governmental and quasi-governmental agencies require us to obtain permits, licenses and
certificates for the operation of our vessels. Although we believe that we are substantially in compliance with
applicable environmental laws and regulations and have all permits, licenses and certificates required for our
operations, future non- compliance or failure to maintain necessary permits or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of our vessels.
A variety of governmental, quasi-governmental and private organizations subject our vessels to both
scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities,
harbor masters or equivalent, classification societies, relevant flag state and charterers, particularly terminal
operators and oil companies. Some of these entities require us to obtain permits, licenses, certificates and approvals
for the operation of our vessels. Our failure to maintain necessary permits, licenses, certificates and approvals could
require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or
lead to the invalidation or reduction of our insurance coverage.
Our third party Ship Managers are certified to the International Standards Organization (ISO)
Environmental Standard for the management of the significant environmental aspects associated with the ownership
and operation of a fleet of LNG carriers. This certification requires that the Company commit managerial resources
to act on its environmental policy through an effective management system.
Regulation by the International Maritime Organization
The International Maritime Organization (IMO) is a United Nations agency that provides international
regulations affecting the practices of those in shipping and international maritime trade. The requirements contained
in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code,
promulgated by the IMO, govern our operations. The ISM Code requires the party with operational control of a
vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety
and environmental protection policy setting forth instructions and procedures for operating its vessels safely and also
describing procedures for responding to emergencies. Our Ship Managers hold a Document of Compliance for
operation of Gas Carriers.
Vessels that transport gas, including LNG carriers and FSRUs, are also subject to regulation under the
International Gas Carrier Code, or IGC, published by the IMO. The IGC provides a standard for the safe carriage of
LNG and certain other liquid gases by prescribing the design and construction standards of vessels involved in such
carriage. Compliance with the IGC must be evidenced by a Certificate of Fitness for the Carriage of Liquefied
Gases in Bulk. Each of our vessels is in compliance with the IGC and each of our newbuilding/conversion contracts
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requires that the vessel receive certification that it is in compliance with applicable regulations before it is delivered.
Non-compliance with the IGC or other applicable IMO regulations, may subject a shipowner or a bareboat charterer
to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in
the denial of access to, or detention in, some ports.
The IMO also promulgates ongoing amendments to the international convention for the Safety of Life at
Sea 1974 and its protocol of 1988, otherwise known as SOLAS. This provides rules for the construction of ships
and regulations for their operation with respect to safety issues. It requires the provision of lifeboats and other life-
saving appliances, requires the use of the Global Maritime Distress and Safety System which is an international
radio equipment and watchkeeping standard, afloat and at shore stations, and relates to the Treaty on the Standards
of Training and Certification of Watchkeeping Officers, or STCW, also promulgated by IMO. Flag states, which
have ratified the Convention and the Treaty generally, employ the classification societies, which have incorporated
SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
In the wake of increased worldwide security concerns IMO did issue “The International Security Code for
Ports and Ships” (“ISPS”). The objective of the ISPS, which came into effect on July 1, 2004, is to detect security
threats and take preventive measures against security incidents affecting ships or port facilities. Our Ship Managers
have developed Security Plans, appointed and trained Ship and Office Security Officers and all ships have been
certified to meet the ISPS Code.
Air Emissions
In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Effective
May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts
and prohibits deliberate emissions of ozone depleting substances (such as halons and chlorofluorocarbons),
emissions of volatile organic compounds from cargo tanks, and the shipboard incineration of specific substances.
Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established
with more stringent controls on sulfur emissions. We believe that all our vessels are currently compliant in all
material respects with these regulations. Additional or new conventions, laws and regulations may be adopted that
could require the installation of expensive emission control systems and adversely affect our business, results of
operations, cash flows and financial condition. In October 2008, the IMO adopted amendments to Annex VI
regarding emissions of sulfur oxide, nitrogen oxide, particular matter and ozone-depleting substances, which
amendments enter into force on July 1, 2010. The amended Annex VI will reduce air pollution from vessels by,
among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships by reducing the
global sulfur fuel cap initially to 3.50% (from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a feasibility review to be completed no later than
2018; and (ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine engines,
depending on their date of installation. The United States ratified the Annex VI amendments in October 2008, and
the U.S. Environmental Protection Agency, or EPA, promulgated equivalent emissions standards in late 2009. The
European directive 2005/33/EU, which is effective from January 1, 2010, bans the use of fuel oils containing more
than 0.1% sulphur by mass by any merchant vessel while at berth in any EU country. Our trading vessels have
achieved compliance by being arranged to allow burning gas only in their boilers when alongside. Low sulphur
marine diesel oil (LSDO) has been purchased as the only fuel for the Diesel Generators. In addition we are in the
process modifying the boilers on some of our vessels to also allow operation on LSDO.
Ballast Water Management Convention
IMO has negotiated international conventions that impose liability for oil pollution in international waters
and the territorial waters of the signatory to such conventions. For example, IMO adopted an International
Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in
February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory
ballast water exchange requirements (beginning in 2009), to be replaced in time with mandatory concentration
limits. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant
shipping. To date there has not been sufficient adoption of this standard for it to take force.
Bunkers Convention / CLC State certificate
The International convention on Civil Liability for Bunker Oil Pollution 2001, or the Bunker Convention,
entered into force in State Parties to the Convention on November 21, 2008. The Convention provides a liability,
compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker
oil. The Convention make the ship owner liable to pay compensation for pollution damage (including the cost of
preventive measures) caused in the territory, including the territorial sea of a State Party, as well as its economic
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zone or equivalent area. Registered owners of any sea going vessel and seaborne craft over 1,000 gross tonnage, of
any type whatsoever, and registered in a State Party, or entering or leaving a port in the territory of a State Party,
will be required to maintain insurance which meets the requirements of the Convention and to obtain a certificate
issued by a State Party attesting that such insurance is in force. The State issued certificate must be carried on board
at all times.
P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable
signatory states to issue certificates. All of our vessels have received “Blue Cards” from their P&I Club and are in
possession of a CLC State-issued certificate attesting that the required insurance cover is in force.
The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility
for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its
flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates flag states based on factors such as
sufficiency of infrastructure, ratification of international maritime treaties, implementation and enforcement of
international maritime regulations, supervision of surveys, casualty investigations and participation at IMO
meetings.
Environmental Regulation—OPA/CERCLA
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade
in the United States, its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.
territorial sea and its 200 nautical mile exclusive economic zone. The United States has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the
discharge of hazardous substances other than oil whether on land or at sea. Both OPA and CERCLA impact our
operations.
Under OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly,
severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened
discharges of oil from their vessels. OPA defines these other damages broadly to include:
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natural resources damage and the related assessment costs;
real and personal property damage;
net loss of taxes, royalties, rents, fees and other lost revenues;
lost profits or impairment of earning capacity due to property or natural resources damage; and
net cost of public services necessitated by a spill response, such as protection from fire, safety or
health hazards; and
loss of subsistence use of natural resources.
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000
per gross ton or $17.088 million for any double-hull tanker that is over 3,000 gross tons (subject to possible
adjustment for inflation) (relevant to the Golar LNG carriers). The Act specifically permits individual states to
impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some
states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In
some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining
tanker owners’ responsibilities under these laws.
CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and
provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to the greater of
$300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per
gross ton or $0.5 million for any other vessel. These OPA and CERCLA limits of liability do not apply if an
incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or
by a responsible party’s gross negligence or wilful misconduct, or if the responsible party fails or refuses to report
the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each
preserve the right to recover damages under existing law, including maritime tort law. We anticipate that we will be
in compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels will call.
OPA and the U.S. Coast Guard also require owners and operators of vessels to establish and maintain with
the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential liability under
OPA and CERCLA. Vessel owners and operators may satisfy their financial responsibility obligations by providing
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a proof of insurance, a surety bond, self-insurance or a guaranty. Each of our shipowning subsidiaries that has
vessels trading in U.S. waters has applied for, and obtained from the U.S. Coast Guard National Pollution Funds
Center, three-year certificates of financial responsibility, supported by guarantees which we purchased from an
insurance-based provider. We believe that we will be able to continue to obtain the requisite guarantees and that we
will continue to be granted certificates of financial responsibility from the U.S. Coast Guard for each of our vessels
that is required to have one.
Other U.S. Environmental Initiatives
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances, and ballast water
in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the
form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of
removal, remediation and damages and complements the remedies available under OPA and CERCLA.
Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that
impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than U.S. federal law.
European Union Regulations
In October 2009, the European Union amended a directive to impose illicit ship-source discharges of
polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and
the discharges individually or in the aggregate result in deterioration of the quality of water. Criminal liability for
pollution may result in substantial penalties or fines and increased civil liability claims.
Greenhouse Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or
UNFCCC, which refer to as the Kyoto Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting
countries are required to implement national programs to reduce emissions of certain gases, generally referred to as
greenhouse gases, which are suspected of contributing to global warming. Currently, the emissions of greenhouse
gases from international shipping are not subject to the Kyoto Protocol. However, international negotiations are
continuing with respect to a successor to the Kyoto Protocol, which sets emission reduction targets through 2012,
and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations,
including the United States and China, signed the Copenhagen Accord, which includes a non-binding commitment
to reduce greenhouse gas emissions. The European Union has indicated that it intends to propose an expansion of
the existing European Union emissions trading scheme to include emissions of greenhouse gases from vessels, if
such emissions are not regulated through the IMO or the UNFCCC by December 31, 2010. In the United States, the
EPA has issued a final finding that greenhouse gases threaten public health and safety, and has proposed regulations
governing the emission of greenhouse gases from motor vehicles and stationary sources. The EPA may decide in
the future to regulate greenhouse gas emissions from ships and has already been petitioned by the California
Attorney General to regulate greenhouse gas emissions from ocean-going vessels. Other federal and state
regulations relating to the control of greenhouse gas emissions may follow, including the climate change initiatives
that are being considered in the U.S. Congress. In addition, the IMO is evaluating various mandatory measures to
reduce greenhouse gas emissions from international shipping, including market-based instruments. Any passage of
climate control legislation or other regulatory initiatives by the E.U., U.S., IMO, or other countries where we operate
that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we
cannot predict with certainty at this time.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to
enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or the
MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued
regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject
to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 and
imposes various detailed security obligations on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS Code is designed to protect ports
and international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel must attain an
International Ship Security Certificate from a recognized security organization approved by the vessel's flag state.
Among the various requirements are:
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on-board installation of automatic identification systems to provide a means for the automatic
transmission of safety-related information from among similarly equipped ships and shore
stations, including information on a ship’s identity, position, course, speed and navigational
status;
on-board installation of ship security alert systems, which do not sound on the vessel but only
alert the authorities on shore;
the development of vessel security plans;
ship identification number to be permanently marked on a vessel's hull;
a continuous synopsis record kept onboard showing a vessel's history including, the name of the
ship and of the state whose flag the ship is entitled to fly, the date on which the ship was
registered with that state, the ship's identification number, the port at which the ship is registered
and the name of the registered owner(s) and their registered address; and
compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt
from MTSA vessel security measures non-U.S. vessels that have on board, as of July 1, 2004, a valid International
Ship Security Certificate attesting to the vessel’s compliance with SOLAS security requirements and the ISPS Code.
We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code, and our
fleet is in compliance with applicable security requirements.
Inspection by Classification Societies
Every oceangoing vessel must be “classed” by a classification society. A classification society certifies
that a vessel is “in-class,” signifying that the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the vessel’s country of registry and the
international conventions of which that country is a member. In addition, where surveys are required by
international conventions and corresponding laws and ordinances of a flag state, the classification society will
undertake them on application or by official order, acting on behalf of the authorities concerned.
Our FSRUs are “classed” as vessels and have obtained the additional class notation REGAS-2 signifying
that the regasification installations are designed and approved for continuous operation. The reference to “vessels”
in the following, also apply to our FSRUs.
For maintenance of the class certificate, regular and extraordinary surveys of hull, machinery, including the
electrical plant and any special equipment classed, are required to be performed by the classification society, to
ensure continuing compliance. Vessels are drydocked at least once during a five-year class cycle for inspection of
the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will
issue a “recommendation” which must be rectified by the shipowner within prescribed time limits. The
classification society also undertakes on request other surveys and checks that are required by the regulations and
requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in
class” by a classification society, which is a member of the International Association of Classification Societies. All
of our vessels have been certified as being “in class.” The Golar Mazo and Golar Arctic is certified by Lloyds
Register, and our other vessels are each certified by Det Norske Veritas. Both being members of the International
Association of Classification Societies.
In-House Inspections
Our ship managers carry out inspections of the ships on a regular basis; both at sea and while the vessels
are in port, while we carry out inspection and ship audits to verify conformity with managers’ reports. The results of
these inspections, which are conducted both in port and underway, result in a report containing recommendations for
improvements to the overall condition of the vessel, maintenance, safety and crew welfare. Based in part on these
evaluations, we create and implement a program of continual maintenance for our vessels and their systems.
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C. Organizational Structure
See the section of this annual report entitled Item 19, “Exhibits - Exhibit 8.1” for a list of our significant
subsidiaries.
D. Property, Plant and Equipment
For information on our fleet, please see the section of this item entitled “Our Fleet.”
We do not own any interest in real property. We sublease approximately 7,000 square feet of office space
in London for our ship management operations.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
Overview and Background
The following discussion of our financial condition and results of operations should be read in conjunction
with the sections of this annual report entitled Item 3, “Key Information – Selected Financial Data,” Item 4,
“Information on the Company” and our audited financial statements and notes thereto. Our financial statements
have been prepared in accordance with U.S. GAAP. This discussion includes forward-looking statements based on
assumptions about our future business. Please read the section of this annual report entitled “Cautionary Statement
Regarding Forward Looking Statements” for more information. You should also review the section of this annual
report entitled Item 3, “Key Information - Risk Factors” for a discussion of important factors that could cause our
actual results to differ materially from the results described in or implied by the forward-looking statements.
Market Overview and Trends
Our principal focus and expertise is the transportation and regasification of LNG and liquefaction of natural
gas. We are engaged in the acquisition, ownership, operation and chartering of LNG carriers and FSRUs through
our subsidiaries and the development of liquefaction projects. As of April 2010, our fleet consisted of 13 vessels
and a 50% equity interest in a further LNG carrier. A full fleet list is provided in Item 4.D, “Information on the
Company - Our Fleet” showing the vessels that we currently own and charter-in.
We currently have three vessels, the Golar Arctic, the Ebisu, the Hilli and a fourth vessel, our 50% equity
interest vessel, the Gandria, not committed to contracts for the balance of 2010 with the Hilli and Gandria are
currently in lay-up. Rates payable in the market for LNG carriers may be uncertain and volatile. The supply and
demand for LNG carriers is also uncertain. In the period from 2004, the excess supply of vessels over demand has
negatively impacted our results and we expect this oversupply to continue during 2010 as LNG carriers continue to
be delivered ahead of LNG production projects they were built for. While we believe there could be up to a 16%
increase in LNG production capacity during 2010 which would increase the worldwide LNG shipping requirement
the fall in demand for natural gas worldwide due to the current economic climate and the subsequent fall in gas
prices has had and is likely to continue to have a negative impact on LNG shipping demand. In addition, we have in
recent years observed a seasonal trend in rates with the rates earned in the summer months depressed compared with
winter rates but we cannot be sure this will continue in the future.
The earnings from our vessels on charter to Shell will also be impacted by the development of charter rates
and demand in the spot market. These factors could also influence the results of operations from spot market
activities and the Shell charters beyond 2010.
Please see the section of this annual report entitled Item 4, “Information on the Company – Business
Overview – the LNG industry” for further discussion of the LNG market in 2009 and 2008.
Factors Affecting the Comparability of Future Results
Our historical results of operations and cash flows are not indicative of results of operations and cash flows
to be expected in the future, principally for the following reasons:
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The Golar Spirit, the Golar Winter and the Golar Freeze will be operated in a substantially different
manner. In July 2008, the Golar Spirit commenced FSRU service under its long-term charter with
Petrobras. The Golar Spirit generated $39 million of total operating revenue for the year ended December
31, 2009.
The Golar Winter has operated in the spot market under short-term time charters since its delivery in 2004
until its entry into the shipyard for retrofitting for FSRU service in September 2008. The vessel completed
its FSRU conversion and was redelivered from the shipyard in May 2009 and commenced FSRU service in
September 2009. Whilst in the shipyard, the Golar Winter did not generate any revenue. In 2009, the
Golar Winter generated $18.5 million (2008: $19.4 million) of total operating revenue.
The Golar Freeze has operated under a long-term charter with BG since 2003, which expired in June 2009.
Following the end of its BG charter, it entered the shipyard for retrofitting for FSRU service in September
2009. Upon delivery and acceptance by its charterer (expected in May 2010), the Golar Freeze will be
operated as a FSRU under a 10-year time charter.
The Hilli, Gimi and Khannur have come or are coming to the end of their charters and may also operate
differently in the future. We anticipate that in time we will convert some or all of these vessels for FSRU
service in the future. The Gimi and Khannur redelivery to us from long term time charters will occur during
2010.
FSRU operating expenses will be higher than the operating expenses for LNG carriers and will increase
our exposure to foreign exchange rates. Our historical operating expenses reflect the operation of the
Golar Spirit and the Golar Winter (until the commencement of their respective FSRU services in July 2008
and September 2009), and the Golar Freeze as LNG carriers. Following the completion of their retrofitting
and operation as FSRUs, we expect to incur higher operating expenses on average with respect to their
operation as FSRUs compared to conventional LNG vessels. We expect these increased operating
expenses to be offset by increased charter hire revenues. In addition, the majority of our expenses and
revenues have in the past been denominated in U.S. Dollars. Under the Petrobras charters, we will incur a
portion of our expenses and receive a portion of our revenues in Brazilian Reais and, therefore, we expect
to have increased exposure to foreign exchange rates.
• We expect to incur additional Brazilian taxes in connection with our operation of the FSRUs in Brazil.
Our operation of the Golar Spirit and the Golar Winter will result in our being subject to Brazilian taxes on
the revenue we receive under the operation and services agreement with Petrobras. For the year ended
December 31, 2009, we incurred $1.1 million of Brazilian taxes in connection with the Golar Spirit and
Golar Winter FSRU charter.
• We expect a significant increase in bank margins as a result of the recent economic crisis should we
refinance any of our existing facilities or enter into new facilities.
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Investment in projects. We are continuing to invest in and develop our various projects, the costs we have
incurred historically may not be indicative of future costs.
Factors Affecting Our Results of Operations
We believe the principal factors that will affect our future results of operations include:
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the number of vessels in our fleet, including our ability to deliver the Golar Freeze successfully to its
charter;
whether Petrobras exercises its options to acquire the Golar Spirit or the Golar Winter and, if so, whether
we can effectively redeploy the proceeds from any such exercise;
whether Petrobras exercises its option to terminate the Golar Spirit or the Golar Winter charters upon
payment of a termination fee;
whether DUSUP exercises its option to terminate the Golar Freeze charter upon payment of a termination
fee;
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•
•
our ability to maintain good relationships with our five key existing customers (including Petrobras) and to
increase the number of our customer relationships;
increased demand for LNG shipping services, including FSRU services, and in connection with this
underlying demand and supply for natural gas and specifically LNG;
our ability to employ our vessels operating in the spot market and rates and levels of utilization achieved by
our vessels under charter to Shell;
the success or failure of the LNG infrastructure projects that we are working on or may work on in the
future;
our ability to successfully employ our vessels at economically attractive rates, as our charters expire or are
otherwise terminated;
our ability to obtain debt financing in respect of our capital commitments in the current difficult credit
markets and the likely increase in margins payable to our banks for new debt;
the effective and efficient technical management of our vessels;
our ability to obtain and maintain major international energy company approvals and to satisfy their
technical, health, safety and compliance standards; and
economic, regulatory, political and governmental conditions that affect the shipping industry. This includes
changes in the number of new LNG importing countries and regions and availability of surplus LNG from
projects around the world, as well as structural LNG market changes allowing greater flexibility and
enhanced competition with other energy sources.
In addition to the factors discussed above, we believe certain specific factors have impacted, and will
continue to impact, our results of operations. These factors include:
•
•
•
•
•
•
•
•
•
the hire rate earned by our vessels and unscheduled off-hire days;
non-utilization for vessels not subject to fixed rate charters;
pension and share option expense;
mark-to-market charges in interest rate, equity swaps and foreign currency derivatives;
foreign currency exchange gains and losses;
our access to capital required to acquire additional vessels and/or to implement our business strategy;
the performance of our equity interests;
increases operating costs; and
our level of debt and the related interest expense and amortization of principal.
Please see the section of this annual report entitled Item 3, “Key Information - Risk Factors” for a
discussion of certain risks inherent in our business.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts when analyzing our performance. These
include the following:
Total Operating Revenues. Total operating revenues refers to time charter revenues. We recognize
revenues from time charters over the term of the charter as the applicable vessel operates under the charter. We do
not recognize revenue during days when the vessel is off-hire, unless the charter agreement makes a specific
exception.
40
Off-hire (Including Commercial Waiting Time). Our vessels may be out of service, that is, off-hire, for
three main reasons: scheduled drydocking or special survey or maintenance, which we refer to as scheduled off-
hire; days spent waiting for a charter, which we refer to as commercial waiting time; and unscheduled repairs or
maintenance, which we refer to as unscheduled off-hire.
Voyage and charterhire Expenses. Voyage expenses, which are primarily fuel costs but which also
include other costs such as port charges, are paid by our customers under our time charters. However, we may incur
voyage related expenses during off-hire periods when positioning or repositioning vessels before or after the period
of a time charter or before or after drydocking, which expenses will be payable by us. We also incur some voyage
expenses, principally fuel costs, when our vessels are in periods of commercial waiting time. Charterhire expenses
being the cost of chartering in vessels to our fleet.
Time Charter Equivalent Earnings. In order to compare vessels trading under different types of charters,
it is standard industry practice to measure the revenue performance of a vessel in terms of average daily time charter
equivalent earnings, or “TCE.” For our time charters, this is calculated by dividing time charter revenues by the
number of calendar days minus days for scheduled off-hire. Where we are paid a fee to position or reposition a
vessel before or after a time charter, this additional revenue, less voyage expenses, is included in the calculation of
TCE. For shipping companies utilizing voyage charters (where the vessel owner pays voyage costs instead of the
charterer), TCE is calculated by dividing voyage revenues, net of vessel voyage costs, by the number of calendar
days minus days for scheduled off-hire. TCE is a non-GAAP financial measure. Please see the section of this
annual report entitled Item 3, “Key Information - Selected Financial Data” for a reconciliation of TCE to our total
operating revenues.
Vessel Operating Expenses. Vessel operating expenses include direct vessel operating costs associated
with operating a vessel, such as crew wages, which are the most significant component, vessel supplies, routine
repairs, maintenance, lubricating oils, insurance and management fees for the provision of commercial and technical
management services.
Depreciation and Amortization. Depreciation and amortization expense, or the periodic cost charged to
our income for the reduction in usefulness and long-term value of our ships, is related to the number of vessels we
own or operate under long-term capital leases. We depreciate the cost of our owned vessels, less their estimated
residual value, and amortize the amount of our capital lease assets over their estimated economic useful lives, on a
straight-line basis. We amortize our deferred drydocking costs over two to five years based on each vessel’s next
anticipated drydocking. Income derived from sale and subsequently leased assets is deferred and amortized in
proportion to the amortization of the leased assets.
Administrative Expenses. Administrative expenses are composed of general overhead, including personnel
costs, legal and professional fees, costs associated with project development, property costs and other general
administration expenses. Included within administrative expenses are pension and share option expenses. Pension
expense includes costs associated with a defined benefit pension plan we maintain for some of our office-based
employees (the U.K. Scheme). Although this scheme is now closed to new entrants the cost of provision of this
benefit will vary with the movement of actuarial variables and the value of the pension fund assets. Share option
expense refers to the compensation cost for employee stock options granted in 2006 and later.
Interest Expense and Interest Income. Interest expense depends on our overall level of borrowings and
may significantly increase when we acquire or lease ships. During a newbuilding construction or FSRU retrofitting
period, interest expense incurred is capitalized in the cost of the newbuilding or vessel. Interest expense may also
change with prevailing interest rates, although interest rate swaps or other derivative instruments may reduce the
effect of these changes. Interest income will depend on prevailing interest rates and the level of our cash deposits
and restricted cash deposits.
Other Financial Items. Other financial items include financing fee arrangement costs, amortization of
deferred financing costs, market valuation adjustments for interest rate swap, foreign currency swap and equity swap
derivatives and foreign exchange gains/losses. The market valuation adjustment for our derivatives may have a
significant impact on our results of operations and financial position although it does not impact our liquidity.
Foreign exchange gains or losses arise primarily due to the retranslation of our capital lease obligations and the cash
deposits securing those obligations that are denominated in GBP. Any gain or loss represents an unrealized gain or
loss and will arise over time as a result of exchange rate movements. Our liquidity position will only be affected to
the extent that we choose or are required to withdraw monies from or pay additional monies into the deposits
securing our capital lease obligations or if the leases are terminated.
41
Inflation and Cost Increases
Although inflation has had a moderate impact on operating expenses, interest costs, drydocking expenses
and overhead, we do not expect inflation to have a significant impact on direct costs in the current and foreseeable
economic environment other than potentially in relation to insurance costs and crew costs. It is anticipated that
insurance costs, which have risen over the last three years, will continue to rise over the next few years and rates
may exceed the general level of inflation. LNG transportation is a specialized area and the number of vessels has
increased rapidly. Therefore, there has been an increased demand for qualified crew, which has and will continue to
the same extent to put inflationary pressure on crew costs. Only vessels on full cost pass through charters would be
protected from any crew cost increases. The impact of these increases will be mitigated to some extent by the
following provisions in our charters:
•
•
The Golar Mazo’s charter provides for operating cost and insurance cost pass-throughs and so we
will be protected from the impact of the vast majority of such increases.
The Methane Princess’ charter provides that the operating cost component of the charter hire rate,
established at the beginning of the charter, will increase by a fixed percentage per annum, except
for insurance, which is covered at cost.
• Under the OSAs for both the Golar Spirit and the Golar Winter, the hire amounts are payable in
Brazilian Reais. The hire payable under the OSAs covers all vessel operating expenses, other than
drydocking and insurance which are covered under the Time Charter Party. The hire amounts
payable under the OSAs were established between the parties at the time the charter was entered
into and will be adjusted based on a specified mix of consumer price and U.S. Dollar foreign
exchange rate indices on an annual basis.
Results of Operations
Our results for the years ended December 31, 2009, 2008 and 2007 were affected by several key factors:
•
•
•
•
•
•
•
•
•
a realised gain arising on the termination of the Company’s equity swap in respect of Arrow
Energy which resulted in a net gain of approximately $7.8 million and the disposal of a percentage
of our equity interest in Liquified Natural Gas Limited (“LNGL”) in November 2009 resulting in
an aggregate gain of $8.4 million;
the movement in mark-to-market valuations of our derivative instruments and the impact of the
adoption of hedge accounting, effective from October 1, 2008 for certain of our interest rate swap
derivatives; and
bank loan and other financing arrangements that we have entered;
the acquisition of the Golar Arctic (formerly known as the Granatina) in January 2008;
the gain on disposal of the Golar Frost in 2008 and our newbuilding DSME Hull 2244 in 2007,
realizing a gain of $78.1 million and $41.1 million, respectively;
our vessels not on long-term charters affected by commercial waiting time. During 2009, Golar
Arctic and the Ebisu operated in the spot market; and the Hilli was in lay-up. Also the three
vessels on five-year charters with Shell; the Grand, Viking and Maria, (“Shell vessels”) are
subject to variable (market) charter rates and commercial waiting time;
periods of time 3 of our vessels spent in shipyards undergoing retrofitting for FSRU service;
share options expense.
the disposal of our entire equity interest in Korea Line in 2007 resulting in an aggregate gain of
$73.6 million and a corresponding decrease in its contribution to equity in net earnings of
investees;
The impact of these factors is discussed in more detail below.
42
Year ended December 31, 2009, compared with the year ended December 31, 2008
Operating revenues, voyage and charter-hire expenses and average daily time charter equivalent
(in thousands of $)
Total operating revenues
Voyage and charter-hire expenses
2009
2008
Change
Change
216,495
(39,463)
228,779
(33,126)
(12,284)
(6,337)
(5%)
(19%)
The decrease in total operating revenues in 2009 compared to 2008 can primarily be explained by:
•
off-hire time incurred by the Golar Freeze upon entering the shipyard to commence its FSRU
retrofitting in September 2009. The vessel earned approximately five months of revenue in 2009 as
opposed to a full year of earnings in 2008.
• An overall decline in charter rates and lower utilization levels of our vessels trading on the spot market
or in lay-up in 2009 (the Golar Frost, Golar Arctic and the Ebisu), including our vessels operating
under the Shell five-year charters subject to variable (market) charter rates and commercial waiting
time (the Grand, Maria and Viking). The total operating revenues generated by these vessels in 2009
were $63.9 million as compared to $79.6 million in 2008.
•
•
the Golar Arctic which was acquired in January 2008 went on charter to Shell for the remainder of
2008 whereas the vessel had a considerable period of off-hire during 2009.
the Hilli did not earn revenue in 2009 compared to 4 months of 2008 after entering into lay-up in April
2008.
Partially offset by an increase in operating revenues arising from:
• A full year’s revenue of the Golar Spirit in 2009 as opposed to approximately 6 months in 2008.
Voyage and charter-hire expenses, which largely relate to fuel costs associated with commercial waiting
time, vessel positioning costs and charterhire expenses increased by $6.3 million in 2009 compared to 2008,
principally as a result of reduced levels of utilization in 2009 which resulted in higher fuel costs payable by us.
While a vessel is on-hire, fuel costs are typically borne by the charterer, whereas during periods of commercial
waiting time, fuel costs are borne by us. This increase is also as a result of the increased charterhire costs on the
Ebisu which we chartered in late September 2008, thus we incurred approximately 3 months of charterhire costs in
2008 as opposed to a full year in 2009.
Calendar days less scheduled off-hire days....................
2009
4,145
2008
4,298
Change
(153)
Change
(4%)
Average daily TCE (to the closest $100)........................ $ 47,400
$ 45,700
$
1,700
4%
Average daily TCE is calculated as $47,400 and $45,700 in 2009 and 2008, respectively. The increase in
average daily TCE can be explained by the reasons described above and primarily as a result of higher charterhire
rates received for the FSRU vessels.
The available trading days of our vessels trading in the spot market during 2009 and the vessels under the
Shell five year charters was 1,957 and 2,640 days in 2009 and 2008, respectively. Commercial waiting days in 2009
and 2008 were 38% and 26% of available trading days for these vessels, respectively.
Gain on sale of vessel/ newbuilding
(in thousands of $)
Gain on sale of vessel/ newbuilding
2009
-
2008
78,108
Change
(78,108)
Change
(100%)
In July 2008, we sold the Golar Frost to OLT-O for $231.0 million, recognizing a gain on sale of $78.1
million.
43
Vessel Operating Expenses
(in thousands of $, except for average daily vessel
operating costs)
Vessel operating expenses
2009
60,709
2008
Change
Change
61,868
(1,159)
(2%)
Average daily vessel operating costs
13,410
13,041
(383)
(3%)
The decrease in vessel operating expenses is mainly due to the Hilli being in lay-up for the entirety of 2009
and therefore incurring reduced operating costs as well as the fact that the Golar Frost redelivered to its new owners
in May 2009
This decrease is partially offset by increased operating costs of the Golar Spirit and the Golar Winter due to
increased costs for operating FSRU vessels, in particular increased crew costs as well as general operating cost
increases.
Administrative Expenses
(in thousands of $)
Administrative expenses
2009
19,958
2008
17,815
Change
2,143
Change
12%
The increase in administrative expenses in 2009 compared to 2008 was mainly due to:
•
an increase of $3.5 million in expenses relating to project business development. These costs
include legal fees consultants and professional expenses, contractor costs and travel expenses;
This is partially offset by
•
a decrease of $2.4 million in the charge relating to share options.
Depreciation and Amortization
(in thousands of $)
Depreciation and amortization
2009
63,482
2008
62,005
Change
1,477
Change
2%
Depreciation and amortization has increased mainly due to a full year’s depreciation for the Golar Spirit
capitalized FSRU assets in 2009 compared with approximately 6 months in 2008 and also the commencement of
depreciation of the costs arising from completion of the Golar Winter FSRU retrofitting in July 2009.
This is partially offset by the depreciation cost for the Golar Frost for 3 months in 2008 compared to no
depreciation in 2009.
Impairment and gain on long-lived assets
(in thousands of $)
Impairment of long-lived assets
Gain on sale of long-lived assets
2009
1,500
-
2008
110
430
Change
1,390
(430)
Change
1,263%
(100%)
The impairment charge in 2009 and 2008 relates to parts ordered for the FSRU conversion project that were
not required for the conversion of the Golar Spirit and therefore reflects a lower recoverable amount for these parts.
Some of these parts were used in the retrofitting of the Golar Freeze during 2009. In mid 2008, we sold some of
these parts recognizing a gain on sale of $0.4 million. As of December 31, 2009, the total carrying value of the
remaining equipment (net of the impairment provision) is $13.6 million.
Net Financial Expenses
(in thousands of $)
Interest income from capital lease restricted cash
deposits
2009
11,464
2008
42,869
Change
(31,405)
Change
(73%)
Other interest income
246
2,959
(2,713)
(92%)
44
(in thousands of $)
Interest Income
Capital lease interest expense
Other debt related interest expense
Interest Expense
Mark-to-market adjustments for interest rate swap
derivatives
Net foreign currency adjustments for re-translation
of lease related balances and mark-to-market
adjustments for the Winter lease related currency
swap derivative
Mark-to-market adjustments for foreign currency
derivatives (excluding the Winter lease related
currency swap derivative)
Mark-to-market adjustments for equity swap
derivatives including gain on termination
Fixed-rate debt settlement costs
Finance transaction-related costs previously
capitalized
Other than temporary impairment of available-for-
sale securities
Other
Other Financial Items, net
2009
11,710
(19,730)
(38,144)
(57,874)
17,385
2008
45,828
(53,157)
(43,332)
(96,489)
(30,459)
Change
(34,118)
33,427
5,188
38,615
47,844
Change
(74%)
63%
12%
40%
157%
8,387
(7,964)
16,351
205%
9,699
(9,520)
19,219
202%
17,603
(8,748)
26,351
301%
-
-
-
(8,998)
(4,189)
8,998
4,189
100%
100%
(1,871)
1,871
100%
(8,602)
44,472
(10,351)
(82,100)
1,749
126,572
17%
154%
Lease deposit interest income decreased by $31 million in 2009 compared to 2008 due mainly to a
substantial decrease in interest rates in 2009 compared to 2008. This was also due to a lower requirement in certain
of our capital lease related restricted cash deposits in lieu of the additional security afforded to the lessors as a result
of our entry into long-term charters with the respective vessel. The depreciation of GBP against the U.S. Dollar also
impacted our interest income earned on our letters of credit, or LC deposits, denominated in GBP.
Capital lease interest expense decreased to $19.7 million in 2009 compared to $53.2 million in 2008 as a
result primarily of the decrease in interest rates in 2009 compared with 2008. Some of the decrease can also be
attributed to the effect of the depreciation of GBP against the U.S. Dollar on interest expense on our lease balances
denominated in GBP.
The decrease in other debt related interest expense by $5.2 million was for the most part driven by lower
USD LIBOR interest rates in 2009.
Mark-to-market adjustments for interest rate swap derivatives resulted in a gain of $17.4 million in 2009
compared to a loss of $30.5 million in 2008. In the year ended 2008, there was a persistent decline in long-term
swap rates however throughout the year ended December 31, 2009 interest rate swap rates began to level out and in
some cases began to increase thus in effect, cancelling out some of the loss incurred in 2008. During 2008 we
adopted hedge accounting for certain of our interest rate swaps, effective as of October 1, 2008. Accordingly, a
further $11.6 million gain (2008: $26 million loss), which would have been recognized in current earnings have
been accounted for as a movement in other comprehensive income.
Foreign exchange gains and losses arise as a result of the retranslation of our capital lease obligations, the
cash deposits securing those obligations and the movement in the fair value of the currency swap used to hedge the
Golar Winter lease obligation. The gain in 2009 was mainly due to the appreciation of the U.S. Dollar against GBP.
Of the $8.4 million net foreign exchange gain in 2009, a gain of $21.0 million (2008: $51 million loss) arose in
respect of the mark-to-market valuation of the Golar Winter currency swap representing the movement in the fair
value. This swap hedges the currency risk arising from lease rentals due in respect of the Golar Winter GBP lease
rental obligation, by translating GBP payments into U.S. Dollar payments at a fixed GBP/USD exchange rate (i.e.
Golar receives GBP and pays U.S. Dollars). The gain arose due to the appreciation of the U.S Dollar against the
GBP during the year and represents an unrealized gain. The loss on retranslation of the lease obligation in respect of
45
the Golar Winter lease, which this swap hedges, was $12.8 million (2008: $44.5 million gain). This loss represents
an unrealized loss.
Mark-to-market adjustments for currency swap derivatives resulting in a gain of $9.7 million (excluding
the Winter lease related currency swaps as already discussed above) refers to currency forward contracts entered
into in 2008 and 2009 in connection with our various FSRU conversion projects.
Mark-to-market adjustments for equity swap derivatives resulting in a gain of $17.6 million in 2009 refers
to equity swap, or Total Return Swap, transactions linked to our own shares and that of Arrow Energy Limited, a
company listed on the Australian stock exchange, under short-term arrangements. There was no obligation by us to
acquire any shares from either of the counterparties. Both equity swaps were terminated during the year ended
December 31, 2009.
In 2008 the fixed-rate debt settlement costs of $9.0 million arose from the refinancing of the Methane
Princess loan in connection with the new Golar LNG Partners credit revolving facility entered into in November
2008. At the time of the refinancing, $125 million of the Methane Princess loan was fixed-rate debt. Accordingly,
simultaneous with the refinancing of the original debt the fixed-rate debt portion was cancelled resulting in the
charge. However, we immediately entered into interest rate swaps for a similar amount of debt at a lower interest
rate.
Finance transaction-related costs of $4.2 million in 2008 previously capitalized associated with our plans
for a corporate restructuring and financing were written-off in 2008 due to the passage of time since these costs were
initially incurred.
The other-than-temporary impairment charge in 2008 of $1.9 million relates to our investment in BW Gas
Limited originally acquired at a cost of $2.4 million in 2008, which is listed on the Oslo stock exchange. During the
fourth quarter of 2008, we concluded that unrealized losses on the investment were other-than-temporary by virtue
of the severity of the decline in the market value versus the cost basis. Accordingly, amounts previously recognized
as unrealized losses amounting to $0.4 million were reclassified from the statement of equity and recognized within
the income statement. In addition, the Company recognized losses from impairment from available-for-sale
securities totalling $1.5 million immediately in the income statement in the fourth quarter of 2008. There was no
other-than-temporary impairment charge in 2009.
Other items represent, amongst other things, bank charges, the amortization of debt related expenses,
foreign currency differences arising on retranslation of foreign currency and gain or losses on short term foreign
currency forward contracts. The difference is mainly due to a write-off of $1.5 million financing fees that occurred
in 2008 as a result of the refinancing of the Methane Princess loan and the portion of the Golar Gas Holding loan
relating to the Golar Spirit, that were replaced by the new Golar LNG Partners revolving credit facility.
Income Taxes
(in thousands of $)
Income taxes
Change
222%
Income taxes relate primarily to the taxation of our U.K. based vessel operating companies and our
Brazilian subsidiary recently established in connection with our Petrobras long-term charters. The increase in
income taxes from $0.5 million in 2008 to a $1.6 million charge in 2009 was mainly due to Brazilian taxes of $1.1
million arising from the Golar Spirit and also the commencement of the Golar Winter charter with Petrobras during
2009.
Change
1,133
2009
1,643
2008
510
Equity in Net Losses of Investees including Gain on Sale of Investee and Available-for-sale Securities
(in thousands of $)
Share of losses in other investees
Equity in net losses of investees
2009
(4,902)
(4,902)
2008
(2,406)
(2,406)
Change
(2,496)
(2,496)
Change
104%
104%
Gain on sale of investee
8,355
-
8,355
100%
Equity in net losses of investees relates mainly to the company’s 50% investment in Bluewater Gandria
NV, the owner of the vessel Gandria, and the Company’s investment in LNG Limited. The increase in our share of
the loss from $2.4 million in 2008 to $4.9 million in 2009 relates principally to our share of the losses incurred by
LNG Limited (‘LNGL’), as a result of expenditure incurred in relation to LNGL’s primary project, the Gladstone
46
project and also our share of Bluewaters’ loss for a full year in 2009 as opposed to approximately six months in
2008.
In November 2009, we sold a block of 9.6 million LNG Limited shares which reduced our shareholding to
approximately 6.3% of LNG Limited's issued share capital. The sale realised funds of approximately $11 million
and resulted in an accounting profit of $8.4 million.
Net Income
As a result of the foregoing, we recognized net income of $31.5 million in 2009, representing an increase
from a net loss of $3.3 million in 2008.
Noncontrolling Interest
(in thousands of $)
Noncontrolling interest
2009
8,419
2008
6,705
Change
1,714
Change
26%
Noncontrolling interest refers to the 40% ownership interest held by Chinese Petroleum Corporation in the
Golar Mazo and a 26.21% interest held by private investors in the Golar LNG Energy Limited a subsidiary newly
formed in 2009. The movement of $1.7 million in the year ended December 31, 2009 relates primarily to the Golar
Mazo 2009 profit. The remainder relates to the noncontrolling interest portion of the net loss of $2.2 million in Golar
LNG Energy Limited from inception to December 31, 2009.
Year ended December 31, 2008, compared with the year ended December 31, 2007
Operating revenues, voyage and charter-hire expenses and average daily time charter equivalent
(in thousands of $)
Total operating revenues
Voyage and charter-hire expenses
2008
2007
Change
Change
228,779
(33,126)
224,674
(10,763)
4,105
(22,363)
2%
(208%)
The increase in total operating revenues in 2008 compared to 2007 can primarily be explained by:
•
•
the addition to the fleet of the Golar Arctic acquired in January 2008 and the charter-in of the Ebisu
under a two year charter in October 2008;
the commencement of the Golar Spirit’s 10-year charter with Petrobras in July 2008, pursuant to its
redelivery from the shipyard on completion of its FSRU retrofitting in June 2008. The Golar Spirit
first entered the shipyard for conversion in October 2007.
Partially offset by a decline in operating revenues arising from:
•
•
off-hire time incurred by the Golar Winter upon entering the shipyard at the end of September 2008 for
its FSRU retrofitting until its redelivery to us in May 2009;
an overall decline in charter rates and lower utilization levels of our vessels trading on the spot market
or in lay-up in 2008 (the Golar Frost, Golar Winter, Golar Arctic, the Ebisu and the Hilli), including
our vessels operating under the Shell five-year charters subject to variable (market) charter rates and
commercial waiting time (the Grand, Maria and Viking). The total operating revenues generated by
these vessels in 2008 were $103.9 million as compared to $139.4 million in 2007.
Voyage and charter-hire expenses, which largely relate to fuel costs associated with commercial waiting time and
vessel positioning, increased by $22.4 million in 2008 compared to 2007, principally as a result of charter-hire
expense for the charter-in of the Golar Frost and Ebisu in 2008, higher fuel costs and lower utilization. While a
vessel is on-hire, fuel costs are typically borne by the charterer, whereas during periods of commercial waiting time,
fuel costs are borne by us.
Calendar days less scheduled off-hire days....................
2008
4,298
2007
4,197
Change Change
639
15%
Average daily TCE (to the closest $100)........................ $ 45,700
$ 51,000
$
(5,300)
(10%)
47
Average daily TCE is calculated as $45,700 and $51,000 in 2008 and 2007, respectively. The decrease in
average daily TCE can be explained by the reasons described above, primarily the lower spot rates and utilization of
the spot vessels and the vessels operating under the Shell five year charters.
The available trading days of our vessels trading in the spot market during 2008 and the vessels under the
Shell five year charters was 2,640 and 2,190 days in 2008 and 2007, respectively. Commercial waiting days in 2008
and 2007 were 26% and 20% of available trading days for these vessels, respectively.
Gain on sale of vessel/ newbuilding
(in thousands of $)
Gain on sale of vessel/ newbuilding
2008
78,108
2007
41,088
Change
37,020
Change
90%
In July 2008, we sold the Golar Frost to OLT-O for $231.0 million, recognizing a gain on sale of $78.1
million.
In February 2007, we sold our newbuilding DSME Hull 2244 to an unrelated third party for gross
consideration of $92.5 million, resulting in a gain on sale of $41.1 million.
Vessel Operating Expenses
(in thousands of $, except for average daily vessel operating
costs)
Vessel operating expenses
2008
61,868
2007
Change
Change
52,986
8,882
17%
Average daily vessel operating costs
12,793
12,097
696
6%
The increase in vessel operating expenses is mainly due to the addition of the Golar Arctic to our fleet in
January 2008 and the rising cost of recruiting and retaining officers for the fleet. In addition, from January 1, 2008
we changed the base currency of salaries paid to the majority of our seafaring officers from U.S. dollars to Euros.
Accordingly, the depreciation of the U.S. Dollar against the Euro has contributed significantly to the increase in
vessel operating expenses. Moving forward, a stronger U.S. Dollar is likely to reduce operating expenses.
It should be noted that during their period of retrofitting, vessel operating expenses for the Golar Spirit and
Golar Winter that are not attributable to the retrofitting have been charged to the consolidated statement of
operations. The average daily operating expenses of our vessels for 2008 and 2007 were $12,793 and $12,097,
respectively. Average daily vessel operating expenses are calculated by dividing vessel costs by the number of
calendar days.
Administrative Expenses
(in thousands of $)
Administrative expenses
2008
17,815
2007
18,645
Change
(830)
Change
(4%)
The decrease in administrative expenses in 2008 compared to 2007 was mainly due to:
•
a decrease of $2.9 million in the charge relating to employee share options. For further details
please see the section of this annual report entitled Item 18, “Consolidated Financial Statements:
Note 26 – Share Capital and Share Options.”
Partially offset by:
•
•
•
an increase of $0.9 million in salary and related expenses mainly due to the depreciation of GBP
against the U.S. dollar, an increase in employee numbers and higher pension costs;
higher property related expenses, which increased by $0.5 million in 2008, arising from the
relocation to new offices in London at the end of 2008. This includes the effect of a provision for
the rental costs of our former office space until the end of its lease in mid 2009; and
higher legal and professional costs mainly relating to a higher level of commercial activity.
48
Depreciation and Amortization
(in thousands of $)
Depreciation and amortization
2008
62,005
2007
60,163
Change
1,842
Change
3%
Depreciation and amortization has increased mainly due to the addition of the Golar Arctic to the fleet in
January 2008 and the commencement of depreciation of the costs arising on completion of the Golar Spirit’s FSRU
retrofitting. This increase was partially offset by the sale of the Golar Frost in July 2008 and the cessation of
depreciation upon classification of the vessel as held-for-sale in March 2008.
Impairment and gain on long-lived assets
(in thousands of $)
Impairment of long-lived assets
Gain on sale of long-lived assets
2008
110
430
2007
2,345
-
Change
(2,235)
430
Change
(95%)
100%
The impairment charge in 2008 and 2007 relates to parts ordered for the FSRU conversion project that were
not required for the conversion of the Golar Spirit and therefore reflects a lower recoverable amount for these parts.
In mid 2008, we sold some of these parts recognizing a gain on sale of $0.4 million. As of December 31, 2008, the
total carrying value of the remaining equipment (net of the impairment provision) is $15.4 million.
Net Financial Expenses
(in thousands of $)
Interest income from capital lease restricted cash
deposits
Other interest income
Interest Income
Capital lease interest expense
Other debt related interest expense
Interest Expense
Mark-to-market adjustments for interest rate swap
derivatives
Net foreign currency adjustments for re-translation
of lease related balances and mark-to-market
adjustments for the Winter lease related currency
swap derivative
Mark-to-market adjustments for foreign currency
derivatives (excluding the Winter lease related
currency swap derivative)
Mark-to-market adjustments for equity swap
derivatives including gain on termination
Fixed-rate debt settlement costs
Finance transaction-related costs previously
capitalized
Other than temporary impairment of available-for-
sale securities
Other
Other Financial Items, net
2008
42,869
2007
47,944
Change
(5,075)
Change
(11%)
2,959
45,828
(53,157)
(43,332)
(96,489)
(30,459)
6,962
54,906
(60,690)
(51,646)
(112,336)
(13,689)
(4,003)
(9,078)
7,533
8,314
15,847
(16,770)
(57%)
(17%)
12%
16%
14%
(123%)
(7,964)
350
(8,314)
(2,375%)
(9,520)
-
(9,520)
(100%)
(8,748)
7,438
(16,186)
(218%)
(8,998)
(4,189)
(1,871)
(10,351)
(82,100)
-
-
-
(8,998)
(4,189)
(100%)
(100%)
(1,871)
(100%)
(2,261)
(8,162)
(8,090)
(73,938)
(358%)
(906%)
Lease deposit interest income decreased by $5.1 million in 2008 compared to 2007 due to lower capital
lease related restricted cash deposits following a reduction in our lessors’ security requirements in recognition of the
additional security afforded to the lessors from our entry into long-term charters with the respective vessel and the
effect of the depreciation of GBP against the U.S. Dollar on interest income earned on our letters of credit, or LC
deposits, denominated in GBP.
49
Capital lease interest expense decreased to $53.2 million in 2008 compared to $60.7 million in 2007 as a
result of the effect of the depreciation of GBP against the U.S. Dollar on interest expense on our lease balances
denominated in GBP.
The decrease in other debt related interest expense by $8.3 million was mainly driven by lower USD
LIBOR interest rates partially offset by higher average debt levels of $980.6 million in 2008 compared to $961.4
million in 2007. This was due principally to the addition of the Golar Arctic $120 million loan facility; a net
incremental increase of approximately $39 million (net of the fixed debt breakage costs of $9.0 million, but
excluding the remaining $35 million not yet drawn as of December 31, 2008) arising under the refinancing with the
new Golar LNG Partners revolving credit facility; offset by the repayment of the Golar Frost loan facility in July
2008.
Mark-to-market adjustments for interest swap derivatives resulted in a loss of $30.5 million in 2008
compared to $13.7 million in 2007. This is mainly due to the decline in long-term swap rates. During 2008 we
adopted hedge accounting for certain of our interest rate swaps, effective as of October 1, 2008. Accordingly, a
further $26.0 million loss, which would have been recognized in current earnings have been accounted for as a
movement in other comprehensive income.
Foreign exchange gains and losses arise as a result of the retranslation of our capital lease obligations, the
cash deposits securing those obligations and the movement in the fair value of the currency swap used to hedge the
Golar Winter lease transaction. The loss in 2008 was mainly due to the appreciation of the U.S. Dollar against GBP.
Of the $8.0 million net foreign exchange loss in 2008, a loss of $51.0 million (2007: $2.7 million gain) arose in
respect of the mark-to-market valuation of the Golar Winter currency swap representing the movement in the fair
value. This swap hedges the currency risk arising from lease rentals due in respect of the Golar Winter GBP lease
rental obligation, by translating GBP payments into U.S. Dollar payments at a fixed GBP/USD exchange rate (i.e.
Golar receives GBP and pays U.S. Dollars). The loss arose due to the appreciation of the U.S Dollar against the
GBP during the year and represents an unrealized loss. The gain on retranslation of the lease obligation in respect of
the Golar Winter lease, which this swap hedges, was $44.5 million (2007: $2.7 million loss). This gain also
represents an unrealized gain.
Mark-to-market adjustments for currency swap derivatives resulting in a loss of $9.5 million (excluding
the Winter lease related currency swaps as already discussed above) refers to currency forward contracts entered
into in 2008 in connection with our various FSRU conversion projects.
Mark-to-market adjustments for equity swap derivatives resulting in a loss of $8.7 million in 2008 refers to
equity swap, or Total Return Swap, transactions linked to our own shares and that of Arrow Energy Limited, a
company listed on the Australian stock exchange, under short-term arrangements. There is at present no obligation
by us to acquire any shares from either of the counterparties.
Fixed-rate debt settlement costs of $9.0 million arose from the refinancing of the Methane Princess loan in
connection with the new Golar LNG Partners credit revolving facility entered into in November 2008. At the time
of the refinancing $125 million of the Methane Princess loan was fixed-rate debt. Accordingly, simultaneous with
the refinancing of the original debt the fixed-rate debt portion was cancelled resulting in the charge. However, we
immediately entered into interest rate swaps for a similar amount of debt at a lower interest rate.
Finance transaction-related costs of $4.2 million previously capitalized associated with our plans for a
corporate restructuring and financing were written-off in 2008 due to the passage of time since these costs were
initially incurred.
The other-than-temporary impairment charge of $1.9 million relates to our investment in BW Gas Limited
originally acquired at a cost of $2.4 million in 2008, which is listed on the Oslo stock exchange. During the fourth
quarter of 2008, we concluded that unrealized losses on the investment were other-than-temporary by virtue of the
severity of the decline in the market value versus the cost basis. Accordingly, amounts previously recognized as
unrealized losses amounting to $0.4 million were reclassified from the statement of equity and recognized within the
income statement. In addition, the Company recognized losses from impairment from available-for-sale securities
totalling $1.5 million immediately in the income statement in the fourth quarter of 2008.
Other items represent, amongst other things, bank charges and the amortization of debt related expenses.
The increase by $8.1 million in 2008 compared to 2007 is primarily due to foreign currency losses arising on
retranslation of foreign currency balances, principally held for the settlement of FSRU conversion costs. In addition,
in 2008, we wrote-off $1.5 million financing fees, as a result of the refinancing of the Methane Princess loan and the
50
portion of the Golar Gas Holding loan relating to the Golar Spirit, that were replaced by the new Golar LNG
Partners revolving credit facility at the end of 2008.
Income Taxes
(in thousands of $)
Income taxes
Change
270%
Income taxes relate primarily to the taxation of our U.K. based vessel operating companies and our
Brazilian subsidiary recently established in connection with our Petrobras long-term charters. The increase in
income taxes from a credit of $0.3 million in 2007 to a $0.5 million charge in 2008 was mainly due to Brazilian
taxes of $0.8 million arising upon the commencement of the Golar Spirit’s charter with Petrobras in July 2008;
offset by deferred tax income in respect of Golar Spirit’s unutilized trading losses incurred during its FSRU
retrofitting.
Change
809
2007
(299)
2008
510
Equity in Net (Losses) Gains of Investees including Gain on Sale of Investee and Available-for-sale
Securities
(in thousands of $)
Share of net earnings in Korea Line
Share of losses in other investees
Equity in net losses (gains) of investees
2008
-
(2,406)
(2,406)
2007
14,922
(1,282)
13,640
Change
(14,922)
(1,124)
(16,046)
Change
(100%)
(87%)
(118%)
Gain on sale of available-for-sale securities
Gain on sale of investee
-
-
46,276
(46,276)
(100%)
27,268
(27,268)
(100%)
The decline in Equity in net (losses) gains of investees, Gain on sale of investee and Gain on sale of
available-for-sale securities is principally due to the disposal of Korea Line in 2007.
Korea Line is a Korean Shipping company listed on the Korean Stock Exchange. From June 2004 to April
2007, we held a 21% interest in the company. In April 2007, we disposed of 1.1 million shares in Korea Line for a
net gain of $27.3 million as presented in the line item “Gain on sale of investee,” which brought our interest down to
10%. Accordingly, as of the date of the disposal, we ceased to equity account for our share of Korea Line’s net
earnings. Between May and June 2007, we disposed of the balance of our shareholding for a net gain of $46.3
million, which has been shown in the line caption “Gain on sale of available-for-sale securities.”
Net Loss
As a result of the foregoing, we recognized a net loss of $3.3 million in 2008, decreased from net income of
$142.8 million in 2007.
Noncontrolling Interest
(in thousands of $)
Noncontrolling interest
2008
6,705
2007
6,547
Change
158
Change
2%
Noncontrolling interest refers to the 40% ownership interest held by Chinese Petroleum Corporation in the
Golar Mazo.
B. Liquidity and Capital Resources
Liquidity and cash requirements
We operate in a capital intensive industry and we have historically financed our purchase of LNG carriers,
FSRU conversion projects and other capital expenditures through a combination of borrowings from and leasing
arrangements with commercial banks, cash generated from operations and equity capital. Our liquidity requirements
relate to servicing our debt, funding investments, including the equity portion of investments in vessels and
investment in the development of our project portfolio, funding working capital, payment of dividends and
maintaining cash reserves against fluctuations in operating cash flows.
51
The majority of our revenues from our time charters are received monthly in advance. Inventory
requirements, consisting primarily of fuel, lubricating oil and spare parts, are low due to fuel costs, which represents
the majority of these costs, being paid for by the charterer under time charters. Although many of our vessels are on
long-term time charters, we may require additional working capital in relation to our vessels operating in the spot
market depending on their employment and possibly in respect of the three ships we have chartered to Shell, as these
charters are at market related rates. We believe our current financial resources, together with cash generated from
operations are sufficient to meet our working capital requirements for our current business, for at least the next 12
months. As of December 31, 2009 our working capital which is defined as current assets less current liabilities was
showing net liabilities of $23.6 million (2008: $122.2 million). However within current liabilities we include our
mark-to market valuations of our swap derivatives which represented $55.4 million of these liabilities (2008: $123.6
million). In the year ended 2008, there was a persistent decline in long-term swap rates. However throughout the
year ended December 31, 2009 interest rate swap rates began to level out and in some cases began to increase thus,
in effect, cancelling out the loss incurred in 2008 and reducing the liability. We have no current intention of
terminating these swaps and realising this liability. For further information refer to Note 21 & 27 of the Company’s
audited Consolidated Financial Statements included herein for detail.
Our FSRU conversion projects (in respect of initial capital outlays and loss of earnings of the vessel during
modification) will result in increased working capital requirements. More specifically, additional facilities were
required to meet our capital commitments in respect of the Golar Freeze FSRU conversion project, which will be
delivered to DUSUP in May 2010. In June 2009, we entered into an $80 million revolving credit facility with
World Shipholding, to provide short-term bridge financing. The facility accrues fixed interest at a rate per annum of
8% together with a commitment fee of 0.75% of any undrawn portion of the credit facility. The revolving credit
facility is available for a period of two years. All amounts due under the facility must be repaid within two years
from the date of the first draw down. We drew down an initial amount of $20 million on June 30, 2009 and a further
$10 million during the quarter to September 30, 2009. $20 million was repaid in November 2009. The facility is
currently unsecured. However, in order to draw down amounts in excess of $35 million we will be required to
provide security to the satisfaction of World Shipholding. This is envisaged to take the form of a second priority lien
over cash generating assets.
In February 2009, our board of directors suspended the declaration and payment of dividends to
shareholders in order to increase cash flow and strengthen the balance sheet for near-term project opportunities.
On June 22, 2009 we formed a wholly owned subsidiary Golar LNG Energy Limited (“Golar Energy”) and
on August 12, 2009 Golar Energy completed its corporate restructuring and private placement offering, whereby it
acquired the interests in our wholly owned subsidiaries, which collectively own interests in eight liquefied natural
gas (“LNG”) vessels, a 50% equity interest in another LNG carrier and certain other investments. Golar Energy’s
private placement of 59.9 million new shares at a subscription price of $2 per share raised approximately $115.4
million net of fees. At the same time Golar Energy issued 12 million warrants to subscribe for further shares on
December 15, 2010 at $2 per share. This new equity will be used to fund the development of new business including
FSRU projects and working capital requirements. In the interim and prior to refinancing the Golar Freeze, this new
equity has also been used to fund capital commitments in respect of the Golar Freeze. Golar Energy is a publicly
listed Bermudian company, listed in Norway on the Oslo Axess specializing in the acquisition, ownership, operation
and chartering of LNG carriers and floating storage regasification units (“FSRUs”) and the development of
liquefaction projects.
Our funding and treasury activities are conducted within corporate policies to maximize investment returns
while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S.
dollars with some balances held in GBPs, Singapore Dollars, Norwegian Krones and Euros. We have not made use
of derivative instruments other than for interest rate and currency risk management purposes, except in the case of
our equity swaps and natural gas forward contracts, which are discussed further, please see the section of this item
entitled “Derivatives.”
Cash flows
The following table summarizes our cash flows from operating, investing and financing activities:
52
(in millions of )
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided (used in) by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2009
43.8
(56.5)
78.8
66.1
56.1
122.2
Year Ended December 31,
2008
48.5
(83.5)
(94.6)
(129.6)
185.7
56.1
2007
73.1
224.4
(168.4)
129.1
56.6
185.7
The increase in cash and cash equivalents in 2009 was principally due to the completion of the equity
offering in respect of Golar LNG Energy raising $115 million in the third quarter of 2009 as noted above.
In addition to our cash and cash equivalents noted above, as of December 31, 2009 and 2008, we had short-
term restricted cash of $40.6 million and $60.4 million, respectively, that represents balances retained on restricted
accounts in accordance with certain lease, loan and equity swap requirements. These balances act as security for
and over time are used to repay lease and loan obligations and for settlement of obligations (if any) under our equity
swaps. As of December 31, 2009 and 2008, our long-term restricted cash balances were $594.2 million and $557.1
million, respectively. These balances act as security for our capital lease obligations and the majority is released
over time in line with the repayment of our lease obligations.
Net cash provided by operating activities
Cash generated from operations decreased by $4.7 million in 2009 compared to 2008, primarily as a result
of the lower earnings from our vessels operating on the spot market arising both from a decline in spot rates and
lower utilization, in addition, to the fact that Golar Freeze was undergoing conversion for approximately 6 months
of 2009. This was offset by higher earnings from the Golar Spirit following its successful FSRU retrofitting and
commencement of its long-term charter with Petrobras in 2008.
Cash generated from operations decreased by $24.6 million in 2008 compared to 2007, primarily as a result
of the lower earnings from our vessels operating on the spot market arising both from a decline in spot rates and
lower utilization. In addition, the Golar Winter was offhire throughout the last quarter of 2008 as it entered the
shipyard to commence its FSRU retrofitting. This was offset by higher earnings from the Golar Spirit following its
successful FSRU retrofitting and commencement of its long-term charter with Petrobras and the addition of the
Golar Arctic and the Ebisu to the fleet in 2008.
Net cash used in/ provided by investing activities
Net cash used in investing activities of $56.5 million in 2009 was mainly due to the following:
• Additions to vessels and equipment of $113 million comprising payments in respect of our various
FSRU conversion projects;
Partially offset by:
•
•
Release of $15 million from our deposits held as security for our capital lease obligations mainly in
recognition of the additional security afforded to the lessors from our entry into long-term charters
with the respective vessels.
Proceeds of $11 million from the sale of the LNG Limited shares.
Net cash used in investing activities of $83.5 million in 2008 was mainly due to additions to vessels and
equipment of $322 million comprising the acquisition of the Golar Arctic for consideration of $185 million with the
balance primarily relating to payment in respect of our various FSRU conversion projects. This was partially offset
by proceeds of £231 million from the sale of the Golar Frost.
Net cash used in investing activities in 2007 of $224.4 million was primarily due to the receipt of net
proceeds from the disposal of our newbuilding DSME Hull 2244 amounting to $92.6 million and the piecemeal sale
of our entire equity interest in Korea Line, which amounted to aggregate proceeds of $171.6 million. Our other
investing cash flows related to additions to vessels and equipment (including payments relating to our FSRU
conversions) of $47.0 million.
53
Net cash used in/ provided by financing activities
Net cash provided by financing activities is principally generated from funds from new debt and lease
finance offset by debt repayments and new equity issuances.
Net cash provided by financing activities during the year ended December 31, 2009 of $78.8 million was
primarily as a result of the proceeds of $115.4 million from the issuance of equity in Golar LNG Energy Limited
which occurred during 2009. This was partially offset by the repayment of $71.4 million of long term debt and
proceeds from long term debt of $45 million of which $10 million relates to the Greenwich facility and $35 million
relates to the final drawdown of the Golar LNG Partners facility in the first quarter of 2009.
Net cash used in financing activities during the year ended December 31, 2008 of $94.6 million was a
result of the payment of cash dividends of $1.00 per common share, or a total of $67.4 million and borrowings in the
aggregate of $370.0 million, of which $120.0 million related to the financing for the Golar Arctic and $250 million
was in respect of the refinancing of existing loans under the new revolving credit facility. We made debt
repayments of $377.0 million of which $202.2 million related to the refinancing in connection with the new Golar
LNG revolving credit facility and $94.9 million related to the repayment of the Golar Frost facility upon receipt of
proceeds from its sale.
As noted above, in February 2009, our board of directors suspended the declaration and payment of
dividends to shareholders to increase cash flow and strengthen the balance sheet for near-term project opportunities.
In 2007, we utilized borrowings in the amount of $120.0 million to refinance the Viking. We made total
debt repayments of $180.7 million, of which $110.0 million related to the Viking refinancing. On the termination of
the equity swap we received proceeds of $8.0 million. We bought back and subsequently cancelled 1,241,300 of our
shares at a net cost of $22.8 million. We purchased an additional 400,000 of our shares at a cost of $8.2 million. In
2007, we commenced paying dividends and for the year ended December 31, 2007 had declared and paid in the
aggregate of $2.25 per common share, or a total of $145.8 million.
Borrowing activities
Long-Term Debt
The following is a summary of our long-term debt facilities. Please see Note 23 to the Company’s audited
Consolidated Financial Statements included herein for detail.
Mazo facility
In November 1997, Osprey, our predecessor, entered into a secured loan facility of $214.5 million in
respect of the vessel, the Golar Mazo. This facility, which we assumed from Osprey, bears floating rate interest of
LIBOR plus a margin. The loan is repayable in bi-annual installments ending in June 2013 at which point the
facility will be repaid in full. The debt agreement requires that certain cash balances, representing interest and
principal payments for defined future periods, be held by the trust company during the period of the loan.
Golar Gas Holding facility
In March 2005, we refinanced two existing loan facilities in respect of five of our vessels with a banking
consortium. This new first priority loan, or Golar Gas Holding Facility, is for an amount of $300.0 million. The loan
accrues floating interest at a rate per annum equal to the aggregate of LIBOR plus a margin. The loan is secured by
the assignment to the lending banks of a mortgage given to Golar Gas Holding Company Inc., a subsidiary of ours,
by the lessor of four of the five vessels that are part of the Five Ship Leases. In November 2008, as part of the
refinancing detailed below under the new “Golar LNG Partners revolving credit facility,” we repaid $46.3 million in
respect of the Golar Spirit. The loan has a term of six years and is repayable in 24 quarterly installments with a final
balloon payment of $55.7 million payable on April 14, 2011. As of December 31, 2009, the balance outstanding on
the loan facility was $90 million.
Gracilis facility
In January 2005, we entered into a commercial loan agreement in the amount of $120 million for the
purpose of financing newbuilding hull number 1460, the Viking (formerly known as the Gracilis). This facility was
refinanced in August 2007. The refinanced Gracilis facility is for an amount of $120 million. The total amount
outstanding at the time of the refinancing was $110 million.
Under the structure of the Gracilis facility the bank loaned us funds of $120.0 million, which we then
loaned to a newly created entity of the bank, (“Investor Bank”). With the proceeds, the Investor Bank then
subscribed for preference shares in a Golar group company. Another Golar company issued a put option in respect
of the preference shares. The effect of these transactions is that we are to pay out fixed preference dividends to the
54
Investor Bank and the Investor Bank is required to pay fixed interest due on the loan from Golar to Investor Bank.
The interest repayments to us by Investor Bank are contingent upon receipt of these preference dividends. In the
event these dividends are not paid, the preference dividends will accumulate until such time as there are sufficient
cash proceeds to settle all outstanding arrearages. Applying our interpretation of the standard relating to the
consolidation of variable interest entities to this arrangement, we have concluded that we are the primary beneficiary
of Investor Bank and accordingly have consolidated it into our group. Accordingly, as of December 31, 2009, the
Consolidated Balance Sheet and Consolidated Statement of Operations includes Investor Bank’s net assets of $nil
and net income of $nil, respectively, due to elimination on consolidation, of accounts and transactions arising
between Golar and the Investor Bank.
The Gracilis facility accrues floating interest at a rate per annum equal to the aggregate of LIBOR plus a
margin. The loan has a term of 10 years and is repayable in 39 quarterly installments with a final balloon payment
of $71.0 million due on August 19, 2017. The loan is secured by a mortgage on this vessel.
Granosa facility
In April 2006, we entered into a secured loan facility for an amount of $120.0 million, for the purpose of
financing our newbuilding, the Maria (formerly known as the Granosa), which we refer to as the Granosa facility.
The facility bears a floating rate of interest of LIBOR plus a margin and had an initial term of five years with 20
quarterly installment repayments commencing September 15, 2006. In March 2008, the Granosa facility was
restructured to lower the margin and extend the term of the facility to December 2014, with a revised final balloon
payment of $80.8 million due in December 2014.
Golar Arctic facility (formerly known as the Granatina)
In January 2008, we entered into a secured loan facility for an amount of $120.0 million, for the purpose of
financing the purchase of LNG carrier Golar Arctic, which we refer to as the Golar Arctic facility. The facility
bears a floating rate of interest of LIBOR plus a margin, has an initial term of seven years and is repayable in 27
quarterly installments commencing April 2008, and a final balloon payment of $86.3 million.
Golar LNG Partners revolving credit facility
In September 2008, we entered into a new $285 million revolving credit facility with a banking consortium
to refinance existing loan facilities in respect of two of our vessels the Methane Princess and the Golar Spirit. The
loan is secured against the assignment to the lending bank of a mortgage given to us by the lessors of the Methane
Princess and the Golar Spirit, with a second priority charge over the Golar Mazo.
This new facility accrues floating interest at a rate per annum equal to LIBOR plus a margin. The initial
draw down amounted to $250 million in November 2008. The total amount outstanding at the time of the
refinancing in respect of these two vessels’ refinanced facilities was $202.2 million. We drew down a further $25.0
million in January 2009, and the remaining $10.0 million of the facility in March 2009. The loan has a term of 10
years and is repayable in quarterly installments commencing in May 2009 with a final balloon payment of $102.5
million due in February 2018.
World Shipholding facility
In June 2009, we entered into an $80 million revolving credit facility with World Shipholding , a company
indirectly controlled by trusts established by our Chairman, John Fredriksen for the benefit of his immediate family.
The facility accrues fixed interest at a rate per annum of 8% together with a commitment fee of 0.75% of any
undrawn portion of the credit facility. The facility will be available for a period of two years. All amounts due
under the facility must be repaid within two years from the date of the first drawing. We drew down an initial
amount of $20 million on June 30, 2009 and a further $10 million in July 2009. In November 2009, we made a
repayment of $20 million. The balance outstanding on the facility at December 31, 2009 was $10 million. The
facility is currently unsecured. However, in order to draw down amounts in excess of $35 million we will be
required to provide security to the satisfaction of World Shipholding. This is envisaged to take the form of a second
priority lien over cash generating assets.
As of December 31, 2009 and 2008, we had total long-term debt outstanding of $782.2 million and $808.6
million, respectively.
The outstanding debt of $782.2 million as of December 31, 2009, was repayable as follows:
55
Year ending December 31,
(in millions of $)
2010
2011
2012
2013
2014
2015 and thereafter
74.5
120.3
52.8
46.9
115.9
371.8
782.2
The margins we pay under our current loan agreements are over and above LIBOR at a fixed or floating
rate and currently range from 0.7% to 1.15%.
Capital Lease Obligations
The following is a summary of our Capital Lease Obligations. Refer to Note 24 to the Company’s audited
Consolidated Financial Statements included herein for detail.
Five Ship leases
In April 2003, we entered into our first finance lease arrangement. We sold five, 100 percent owned
subsidiaries to a financial institution in the United Kingdom (U.K.), which we refer to as the U.K. Lessor. The
subsidiaries were established in Bermuda specifically to own and operate one LNG vessel as their sole asset.
Subsequent to the sale of the five entities, we entered into 20-year leases in respect of each of the five vessels under
five separate lease agreements, which we refer to as the Five Ship leases. Our obligation to the U.K. Lessor is
primarily secured by letters of credit, which are themselves secured by cash deposits which since June 2008 are now
placed with the Lessor. Lease rentals are payable quarterly. At the end of each quarter the required value of the
letters of credit to secure the present value of rentals due under the leases will be recalculated taking into account the
rental payment due at the end of the quarter. The surplus funds, in our cash deposits securing the LC’s, released as a
result of the reduction in the required LC amount are available to pay the lease rentals due at the end of the same
quarter.
The profiles of the Five Ship leases are such that the lease liability continues to increase until 2008 and
thereafter decreases over the period to 2023 being the primary term of the leases. The value of deposits used to
obtain letters of credit to secure the lease obligations as of December 31, 2009, was $426 million.
Methane Princess lease
In August 2003, we entered into our second finance lease arrangement. We novated the Methane Princess
newbuilding contract prior to completion of construction and subsequently leased the vessel from the same financial
institution in the U.K., which we refer to as the U.K. Lessor. Our obligation to the U.K. Lessor is primarily secured
by a letter of credit, which is itself secured by a cash deposit which since June 2008 is now placed with the Lessor.
Lease rentals are payable quarterly. At the end of each quarter the required value of the letter of credit to secure the
present value of rentals due under the lease will be recalculated taking into account the rental payment due at the end
of the quarter. The surplus funds, in our cash deposits securing the LC, released as a result of the reduction in the
required LC amount are available to pay the lease rentals due at the end of the same quarter.
The profile of the Methane Princess lease is such that the lease liability continues to increase until 2014 and
thereafter decreases over the period to 2034 being the primary term of the lease. The value of the deposit used to
obtain a letter of credit to secure the lease obligation as of December 31, 2009, was $153 million.
Golar Winter lease
In April 2004, we signed a lease agreement in respect of our newbuilding the Golar Winter, to which we
refer to as the Golar Winter lease, with another U.K. bank (the “Lessor”) for a primary period of 28 years. Under
the agreement we received an amount of $166 million. Our obligations to the Lessor under the lease are secured by
(inter alia) a letter of credit provided by another U.K. bank (the “LC Bank”). We deposited $39 million with the LC
bank as security for the letter of credit at the same time we entered into the lease. The effective amount of net
financing received is therefore $127 million before fees and expenses. In May 2008 and October 2009 , $37 million
and $15.3 million, respectively, of this deposit was released to us in consideration of the additional security afforded
to the lessor by the long-term time charter of the Golar Winter with Petrobras.
56
The Golar Winter lease is denominated in GBP while its cash deposit is denominated in USD. In order to
hedge the currency risk arising from the GBP lease rental obligation we have entered into a 28 year currency swap,
to swap all lease rental payments into U.S. Dollars at a fixed GBP/USD exchange rate, (i.e. Golar receives GBP and
pays U.S. Dollars).
Grandis lease
In April 2005, we signed a lease agreement in respect of our newbuilding, the Grand (formerly known as
the Grandis), to which we refer to as the Grandis lease, with another U.K. bank (the “Grandis Lessor”) for a primary
period of 30 years. Under the agreement we received an amount of $150 million of which $47 million was received
in April 2005 with the remainder received on delivery of the vessel in January 2006. Our obligations to the lessor
under the lease are secured by (inter alia) a letter of credit provided by another U.K. bank. This letter of credit is
secured by a cash deposit of $45 million, which we deposited at the same time as entering into the lease. The
Grandis lease obligation and associated cash deposit are both denominated in USD. The effective amount of net
financing was therefore $105 million, before fees and expenses.
New Long Funding Finance Lease
In March 2010, the Company terminated three of the leases within the Five Ships Leases and immediately entered
into three new long funding finance leases (“LFFL’s”) in respect of the same ships. The LFFL’s have an initial term
of approximately 12 years from inception. The lease obligations under the LFFL’s are secured by cash deposits of
the same value. The cash deposits will be used to service the entirety of the lease obligations.
As at December 31, 2009, the Company is committed to make minimum rental payments under capital
lease, as follows:
Year ending December 31,
(in thousands of $)
2010
2011
2012
2013
2014
2015 and thereafter
Total minimum lease payments
Less: Imputed interest
Present value of minimum lease payments
Five Ship
Leases
22.7
28.6
30.0
31.5
49.7
516.1
678.5
(251.8)
426.8
Methane
Princess
Lease
6.9
7.2
7.5
7.8
8.1
278.1
315.7
(162.9)
152.8
Golar
Winter
Lease
10.4
10.4
10.4
10.4
10.4
182.1
234.1
(103.7)
130.4
Grandis
Lease
9.3
9.3
9.3
9.3
9.3
212.6
259.2
(116.2)
142.9
Total
49.4
55.5
57.2
59.0
77.6
1,188.8
1,487.5
(634.5)
852.9
For all our leases other than the Grandis lease, lease rentals include an interest element that is accrued at a
rate based upon GBP LIBOR. In relation to the Winter Lease, we have converted our GBP LIBOR interest
obligation to USD LIBOR by entering into the cross currency swap referred to above. We receive interest income
on our restricted cash deposits at a rate based upon GBP LIBOR for the Five Ship leases and the Methane Princess
lease, and based upon USD LIBOR for the Winter lease. Our lease obligation in respect of the Grand and the
associated cash deposit are denominated in USD. Seven of our leases are therefore denominated in GBPs. The
majority of this GBP capital lease obligation is hedged by GBP cash deposits securing the lease obligations or by
currency swap. This is not however a perfect hedge and so the movement in currency exchange rate between the
U.S. Dollar and the GBP will affect our results (please see the section of this annual report entitled “Item 11-
Foreign currency risk”).
In the event of any adverse tax changes to legislation affecting the tax treatment of the leases for the U.K.
vessel lessors or a successful challenge by the U.K. Revenue authorities to the tax assumptions on which the
transactions were based, or in the event that we terminate any of our U.K. tax leases before their expiration, we
would be required to return all or a portion of, or in certain circumstances significantly more than, the upfront cash
benefits that we have received or that have accrued over time, together with fees that were financed in connection
with our lease financing transactions, or post additional security or make additional payments to the U.K. vessel
lessors. Any additional payments could adversely affect our earnings and financial position. The upfront benefits
we have received equates to the cash inflow we received in connection with the six leases we entered into during
2003 (in total a gross amount before deduction of fees of approximately £41 million British pounds, or GBP). Two
57
of our U.K. tax leases accrue benefit over the term of the leases. The remaining six UK tax leases were structured so
that a cash benefit was received up front.
Debt and lease restrictions
Our existing financing agreements (debt and leases) impose operating and financing restrictions on us
which may significantly limit or prohibit, among other things, our ability to incur additional indebtedness, create
liens, sell capital shares of subsidiaries, make certain investments, engage in mergers and acquisitions, purchase and
sell vessels, transfer funds from subsidiary companies to us, enter into time or consecutive voyage charters or pay
dividends without the consent of our lenders and lessors. In addition, our lenders and lessors may accelerate the
maturity of indebtedness under our financing agreements and foreclose upon the collateral securing the indebtedness
upon the occurrence of certain events of default, including our failure to comply with any of the covenants contained
in our financing agreements. Our various debt and lease agreements of the Company contain covenants that require
compliance with certain financial ratios. Such ratios include equity ratios, working capital ratios and earnings to net
debt ratio covenants, debt service coverage ratios, minimum net worth covenants, minimum value clauses, minimum
free cash restrictions in respect of our subsidiaries and us. With regards to minimum levels of free cash we have
covenanted to maintain at least $25 million of cash and cash equivalents on a consolidated group basis.
As of December 31, 2009, we complied with all covenants of our various debt and lease agreements.
In addition to mortgage security, some of our debt is also collateralized through pledges of shares by
guarantor subsidiaries of Golar.
Derivatives
We use financial instruments to reduce the risk associated with fluctuations in interest rates and foreign
currency exchange rates. We have a portfolio of interest rate swaps that exchange or swap floating rate interest to
fixed rates, which from a financial perspective, hedges our obligations to make payments based on floating interest
rates. We may also enter into derivative instruments for trading purposes, in order to manage our exposure to the
risk of movements in the price of natural gas, which can impact our charter rates, and to some extent for speculative
purposes. As of December 31, 2009, our interest rate swap agreements effectively fixed our net floating interest rate
exposure on $643 million of floating rate debt, leaving $358 million exposed to a floating rate of interest. Our swap
agreements have expiry dates between 2010 and 2015 and have fixed rates of between 1.99% and 5.04%. We also
enter into equity swaps.
In June 2008, we entered into an equity swap line with Nordea Bank of Finland PLC (“Nordea”), for a term
of six months. The equity swap line allows Nordea to acquire an amount of shares up to a maximum of 1.0 million
in us during the accumulation period, and we carry the risk of fluctuations in the share price of those acquired
shares. Nordea is compensated at their cost of funding plus a margin. As of December 31, 2008 a total of 300,000
shares had been purchased under this scheme. Pursuant to the termination of the equity swap in January 2009, we
entered into arrangements with the same counterparty under similar terms for a maximum of 300,000 shares This
equity swap terminated in November 2009.
In addition to the above equity swap transactions indexed to our own securities, in July 2008, we entered
into a one-year equity swap arrangement relating to securities in another company, Arrow, a company listed on the
Australian stock exchange. This equity swap was terminated in the third quarter of 2009 resulting in a net gain of
approximately $7.8 million.
As noted above, we have entered into a currency swap to hedge an exposure to GBPs in respect of the
Golar Winter Lease.
We enter into foreign currency forward contracts in order to manage our exposure to the risk of movements
in foreign currency exchange rate fluctuations. We also receive some of the revenue in respect of the Spirit and
Winter charters in Brazilian Reais. We are affected by foreign currency fluctuations primarily through our FSRU
projects, expenditure in respect of our ships drydocking, some operating expenses including the effect of paying the
majority of our seafaring officers in Euros and the administrative costs of our UK office. The currencies which
impact us the most include, but are not limited to, Euros, Norwegian Krone, Singaporean Dollars and, to a lesser
extent, GBPs.
58
Capital Commitments
Vessel Conversion
As of December 31, 2009, we had a contract with Keppel Shipyard and others for the conversion of the
Golar Freeze into a FSRU. In April 2008, we entered into a time charter agreement with DUSUP for the Golar
Freeze, which requires the conversion of the vessel into a FSRU. Accordingly, as of December 31, 2009 and March
31, 2010, we are committed to incurring costs in connection with the retrofitting of the Golar Freeze into a FSRU.
In addition, we have ordered equipment in connection with the speculative conversion of the Hilli. As of these
dates, the estimated timing of the remaining commitments under our present contracts in connection with these
conversions is below:
(in millions of $)
2010
Critical Accounting Estimates
March 31, 2010
December 31, 2009
27.5
27.5
55.1
55.1
The preparation of the Company's financial statements in accordance with U.S GAAP requires that
management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following is a discussion of the accounting policies applied by the
Company that are considered to involve a higher degree of judgement in their application. Refer to the Note 2,
“Summary of Significant Accounting Policies” of the Consolidated Financial Statements.
Vessels and impairment
Our vessels are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In assessing the recoverability of our vessels' carrying amounts, we must
make assumptions regarding estimated future cash flows and estimates in respect of residual or scrap value. Factors
we consider
include significant
underperformance relative to expected operating results and significant negative industry or economic trends.
important which could affect recoverability and
impairment
trigger
We follow a traditional present value approach, whereby a single set of future cash flows is estimated. If
the carrying value of a vessel were to exceed the undiscounted future cash flows, we would write the vessel down to
its fair value, which is calculated by using a risk-adjusted rate of interest.
During the fourth quarter of 2009 as was the case in 2008 we considered the deterioration in the economic
environment as a continuing potential indicator of impairment of our vessels. We assessed the potential impairment
of our vessels by comparing the undiscounted cash flows of our vessels to their carrying values over the existing
service potential of our vessels. The projected net operating cash flows for each vessel were determined by
considering the charter revenues from existing time charters for their fixed contracted term and an estimated daily
time charter equivalent for vessels operating in the spot market or at the end of their time charter (based on historical
average trends as well as future expectations available for each vessel) over the vessels’ remaining estimated life,
which on average for our fleet extends over a 25-year period. Expected outflows for vessel drydockings and vessel
operating expenses are based on our historical average operating costs and assume an average annual inflation rate
of 2%. Operating days take into account the periods when each vessel is expected to undergo their drydocking, the
frequency of which depends on factors such as their age and whether operating as an FSRU. Assumptions are in
line with the Company’s historical performance. Our assessment concluded that step two of the impairment analysis
was not required and no impairment of vessels existed as of December 31, 2009, as the undiscounted projected net
operating cash flows exceeded their carrying value.
The cash flows on which this assessment is based is highly dependent upon our forecasts, which are
subjective and although we believe the underlying assumptions supporting this assessment are reasonable it is
therefore reasonably possible that a further decline in the economic environment could adversely impact our
business prospects over the next year. This could represent a triggering event for a further impairment assessment of
our vessels.
Since inception, our vessels have not been impaired. However, an impairment charge of $1.5 million
(2008: $0.1 million) was recognized, in respect of parts ordered for the FSRU conversion project that were not
59
required for the conversion of the Golar Spirit. Refer to Note 6 of the Company’s audited Consolidated Financial
Statements included herein for detail.
Time Charters
We account for time charters of vessels to our customers as operating leases and record the customers’
lease payments as time charter revenues. We evaluate each contract to determine whether or not the time charter
should be treated as an operating or capital lease, which involves estimates about our vessels’ remaining economic
useful lives, the fair value of our vessels, the likelihood of a lessee renewal or extension, incremental borrowing
rates and other factors.
Our estimate of the remaining economic useful lives of our vessels is based on the common life expectancy
applied to similar vessels in the LNG shipping industry. The fair value of our vessels is derived from our estimate
of expected present value, and is also benchmarked against open market values considering the point of view of a
potential buyer. The likelihood of a lessee renewal or extension is based on current and projected demand and
prices for similar vessels, which is based on our knowledge of trends in the industry, historic experience with
customers in addition to knowledge of our customers’ requirements. The incremental borrowing rate we use to
discount expected lease payments and time charter revenues are based on the rates at the time of entering into the
agreement.
A change in our estimates might impact the evaluation of our time charters, and require that we classify our
time charters as capital leases, which would include recording an asset similar to a loan receivable and removing the
vessel from our balance sheet. The lease payments to us would reflect a declining revenue stream to take into
account our interest carrying costs, which would impact the timing of our revenue stream.
Capital Leases
We have sold several of our vessels to, and subsequently leased the vessels from U.K. financial institutions
that routinely enter into finance leasing arrangements. We have accounted for these arrangements as capital leases.
As identified in our critical accounting policy for time charters, we make estimates and assumptions in determining
the classification of our leases. In addition, these estimates, such as incremental borrowing rates and the fair value
or remaining economic lives of the vessels, impact the measurement of our vessels and liabilities subject to the
capital leases. Changes to our estimates could affect the carrying value of our lease assets and liabilities, which
could impact our results of operations. To illustrate, if the incremental borrowing rate had been lower than our
initial estimate this would result in a higher lease liability being recorded due to a lower discount rate being applied
to its future lease rental payments.
We have also recorded deferred credits in connection with some of these lease transactions. The deferred
credits represent the upfront cash inflow derived from undertaking financing in the form of U.K. leases. The
deferred credits are amortized over the remaining economic lives of the vessels to which the leases relate on a
straight-line basis. The benefits under lease financings are derived primarily from tax depreciation assumed to be
available to lessors as a result of their investment in the vessels. If that tax depreciation ultimately proves not to be
available to the lessor, or is clawed back from the lessor (e.g. on a change of tax law or adverse tax ruling), the
lessor will be entitled to adjust the rentals under the relevant lease so as to maintain its after tax position, except in
limited circumstances. Any increase in rentals is likely to affect our ability to amortize the deferred credits, increase
our interest cost and consequently could have a negative impact on our results and operations and our liquidity.
Pension Benefits
The determination of our defined benefit pension obligations and expense for pension benefits is dependent
on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are
described in Note 22 of the notes to our Consolidated Financial Statements included in this annual report and
include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in
compensation. In accordance with U.S. GAAP, actual results that differ from our assumptions are accumulated and
amortized over future periods and therefore, generally affect our recognized expense and recorded obligation in such
future periods. We are guided in selecting our assumptions by our independent actuaries and, while we believe that
our assumptions are appropriate, significant differences in our actual experience or significant changes in our
assumptions may materially affect our pension obligations and our future pension expense.
Recently Issued Accounting Standards and Securities and Exchange Commission Rules
Effective July 2009, the Financial Accounting Standards Board (‘‘FASB’’) codified accounting literature into a
single source of authoritative accounting principles, except for certain authoritative rules and interpretive releases
issued by the SEC. Since the codification did not alter existing U.S. GAAP, it did not have an impact on the
60
Company’s consolidated financial statements. All references to pre-codified U.S. GAAP have been removed from
these financial statements.
In June 2009, the FASB issued new guidance relating to the accounting for transfers of financial assets. The
purpose of this guidance is to improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects
of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. These requirements are effective for us for transfers occurring on
or after January 1, 2010. The Company does not expect the adoption of this guidance to have a material impact on
its consolidated financial statements.
In June 2009, the FASB issued new guidance relating to the consolidation of variable interest entities. This
guidance changes how a company determines when an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated and requires a company to provide additional disclosures
about its involvement with variable interest entities and any significant changes in risk exposure due to that
involvement. This guidance is effective for interim and annual periods beginning after November 15, 2009. The
Company does not have any significant interests in variable interest entities and therefore does not expect the
adoption of this guidance to have a material impact on its consolidated financial statements.
In October 2009 the FASB issued new guidance related to revenue recognition for arrangements with multiple
deliverables and those which include software elements. The issues address certain aspects of the accounting by the
vendor that involve more than one deliverable or unit of accounting. The guidance will allow companies to allocate
arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction’s
economics and will remove non-software components of tangible products and certain software components of
tangible products from the scope of existing software revenue guidance. For contracts with software elements this
will result in the recognition of revenue similar to that for other tangible products. This guidance is effective for
annual periods beginning after June 15, 2010. Early adoption is permitted and may be prospective or retrospective.
The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
statements.
In December 2007, the Financing Accounting Standards Board issued new guidance relating to Non-controlling
Interests in Consolidated Financial Statements, which requires (1) non-controlling interests (previously referred to as
minority interest) to be reported as part of equity in the consolidated financial statements, (2) losses to be allocated
to non-controlling interests even when such allocation might result in a deficit balance, (3) notes that changes in
ownership will be treated as equity transactions, (4) notes that upon a loss of control any gain or loss on the interest
sold will be recognized in earnings, and; (5) notes that reported net income will consist of the total income of all
consolidated subsidiaries, with separate disclosure on the face of the income statement of the split of that income
between controlling and non-controlling interests. It is effective for annual periods beginning or after December 15,
2008. On adoption of this standard, except for the reclassification of non-controlling interest to Equity, the adoption
of this standard does not have a material impact on the Company’s consolidated results of operations, financial
position or cash flows.
C. Research and Development, Patents and Licenses
Not Applicable
D. Trend Information
Please see the section of this item entitled “Market Overview and Trends.”
E. Off-Balance Sheet Arrangements
Charter-hire payments to third parties for certain contracted-in vessels are accounted for as operating
leases. We are also committed to make rental payments under operating leases for office premises under operating
leases. The future minimum rental payments under our non-cancellable operating leases for office premises are
disclosed below in the tabular disclosure of contractual obligations.
F. Contractual Obligations
The following table sets forth our contractual obligations for the periods indicated as at December 31, 2009:
61
(in millions of $)
Long-Term Debt (1)
Interest Commitments on Long-Term
Debt (2)
Capital Lease Obligations (3)
Interest Commitments on Capital Lease
Obligations
Operating Lease Obligations
Purchase Obligations:
FSRU Conversion (4)
Egyptian Venture (5)
Other Long-Term Liabilities (6)
Total
Total
Obligation
782.2
165.2
Due in Due in 2011
- 2012
173.1
54.3
2010
74.5
33
Due in
2013 – 2014
162.8
44.9
Due
Thereafter
371.8
33
852.9
634.5
14.1
55.1
3.7
-
2,507.7
7.6
41.8
12.2
55.1
-
-
224.2
21.6
91.1
1.1
-
3.7
-
344.9
32
104.5
0.8
-
-
-
345
791.7
397.1
-
-
-
-
1,593.6
(1) As of December 31, 2009, taking into account the hedging effect of our interest rate swaps, $358.2 million of
our long-term debt and capital lease obligations (net of restricted cash deposits), was floating rate debt ,which
accrued interest based on USD LIBOR.
(2) Our interest commitment on our long-term debt is calculated based on an assumed average USD LIBOR of
3.97% and taking into account our various margin rates and interest rate swaps associated with each debt.
(3)
In the event of any adverse tax rate changes or rulings our lease obligations could increase significantly (see
discussion above under “Capital Lease Obligations”).
(4) This refers to the contracted costs for the retrofitting of the Golar Freeze into FSRUs. As at December 31,
2009, we had a contract with Keppel Shipyard for the conversion of the Golar Freeze and with other
suppliers for equipment and engineering for the conversion of the Golar Freeze into a FSRU.
(5)
In December 2005, we signed a shareholders’ agreement in connection with the setting up of a jointly owned
company named Egyptian Company for Gas Services S.A.E (“ECGS”), established to develop hydrocarbon
business and in particular LNG related business in Egypt. As at December 31, 2009, we were committed to
subscribe for common shares in ECGS for a further consideration of $3.7 million payable within five years of
incorporation, at dates to be determined by ECGS’s board of directors.
Furthermore, as at December 31, 2009, we had a commitment to pay $1.0 million to an unrelated third party,
contingent upon the conclusion of a material commercial business transaction by ECGS as consideration for
work performed in connection with the setting up and incorporation of ECGS. This liability has been
excluded from the above table, as the timing of any cash payment is uncertain.
(6) Our Consolidated Balance Sheet as of December 31, 2009, includes $76.4 million classified as “Other long-
term liabilities” of which $43.7 million represents deferred credits related to our capital lease transactions
and $32.6 million represents liabilities under our pension plans. These liabilities have been excluded from
the above table as the timing and/or the amount of any cash payment is uncertain. See Note 25 of the
Consolidated Financial Statements for additional information regarding our other long-term liabilities.
G. Safe harbor
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections,
intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We
caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary
from actual results and the differences can be material. Please see “Cautionary Statement Regarding Forward-
Looking Statements” in this report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Information concerning each of our directors and executive officers and certain key officers of our
subsidiary management companies who are responsible for overseeing our management as at March 31, 2010 is set
forth below.
62
Name
Age
Position
John Fredriksen
Kate Blankenship
Frixos Savvides
Hans Petter Aas
Katherine Fredriksen
Georgina Sousa
Graham Robjohns
Oscar Spieler
Graeme McDonald
65
45
58
64
26
60
Chairman of the Board, President and Director
Director and Audit Committee member
Director and Audit Committee member
Director
Director
Company Secretary
Chief Executive Officer - Golar LNG Management
45
49 Chief Executive Officer - Golar Energy Management
53
Executive Vice-President Business Development
- Golar Management
Chief Operating Officer - Golar Management
Jan Flatseth
66
John Fredriksen has served as the Chairman of the Board, President and a director of the company since our
inception in May 2001. He has been the Chief Executive Officer, Chairman of the Board, President and a director of
Frontline Ltd since 1997. Frontline is a Bermuda based tanker owner and operator listed on the New York Stock
Exchange (NYSE), the London Stock Exchange (LSE) and the Oslo Stock Exchange (OSE). Mr Fredriksen has
established Trusts for the benefit of his immediate family which indirectly control World Shipholding, our largest
shareholder. He has been a director of Golden Ocean Group Limited, a Bermuda company listed on the Oslo Stock
Exchange, since November 2004 and has also served as a director and the Chairman of Seadrill Limited, a Bermuda
company listed on the Oslo Stock Exchange and recently NYSE, since May 2005.
Kate Blankenship has served as a director since July 2003 and was Company Secretary from our inception in 2001
until November 2005. She served as our Chief Accounting Officer from May 2001 until May 31, 2003. She has
been a director of Frontline since August 2003 and served as Chief Accounting Officer and Secretary of Frontline
between 1994 and October 2005. Mrs. Blankenship has served as Chief Financial Officer of Knightsbridge Tankers
Limited from April 2000 until September 2007 and was Secretary of Knightsbridge from December 2000 until
March 2007. Mrs. Blankenship has served as a director of Ship Finance since July 2003, Seadrill since May 2005,
Golden Ocean since November 2004 and Independent Tankers Corporation since February 2008. She is a member
of the Institute of Chartered Accountants in England and Wales.
Frixos Savvides has served as a director since August 2005. Mr. Savvides was a founder of the audit firm PKF
Savvides and Partners in Cyprus and held the position of Managing Partner until 1999 when he became Minister of
Health of the Republic of Cyprus. He held this office until 2003. Mr. Savvides is currently a senior independent
business consultant, and holds several Board positions. Mr. Savvides has been a director of Frontline since July
2005. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
Hans Petter Aas has served as a director since September 2008. Mr. Aas has had a long career as a banker in the
international shipping and offshore market, and retired from his position as Global Head of the Shipping, Offshore
and Logistics Division of DnB NOR in August 2008. He joined DnB NOR (then Bergen Bank) in 1989, and has
previously worked for the Petroleum Division of the Norwegian Ministry of Industry and the Ministry of Energy, as
well as for Vesta Insurance and Nevi Finance. Mr. Aas is also a director and Chairman of Ship Finance and Knutsen
Offshore Tanker Co ASA and has recently become a director of the Norwegian Export Credit Guaranty Institute.
Katherine Fredriksen has served as a director since September 2008. Ms. Fredriksen is a graduate of the Wang
Handels Gymnas in Norway and has studied at the European Business School in London. Ms. Fredriksen is the
daughter of Mr. John Fredriksen our Chairman. Ms. Fredriksen is also a director of Frontline, Seadrill and
Independent Tankers Corporation Limited.
Georgina E. Sousa has served as Secretary of the company and its subsidiaries since November 30, 2005. She is
also Head of Corporate Administration for Frontline. Up until January 2007, she was Vice-President-Corporate
Services of Consolidated Services Limited, a Bermuda Management Company having joined the firm in 1993 as
Manager of Corporate Administration. From 1976 to 1982 she was employed by the Bermuda law firm of Appleby,
Spurling & Kempe as a Company Secretary and from 1982 to 1993 she was employed by the Bermuda law firm of
Cox & Wilkinson as Senior Company Secretary.
63
Graham Robjohns has served as Chief Executive Officer of Golar LNG Management since November 2009. He
served as our Group Financial Controller since May 2001, as our Chief Accounting Officer since June 2003 and is
also currently Chief Financial Officer of Golar Management, a position he has held since November 2005. He was
financial controller of Osprey Maritime (Europe) Ltd from March 2000 to May 2001. From 1992 to March 2000 he
worked for Associated British Foods Plc. and then Case Technology Ltd (Case), both manufacturing businesses, in
various financial management positions and as a director of Case.
Prior to 1992, he worked for
PricewaterhouseCoopers in their corporation tax department. He is a member of the Institute of Chartered
Accountants in England and Wales.
Oscar Spieler has served as Chief Executive Officer of Golar Energy Management since August 2009. He served
as Chief Executive Officer of Sea Production Ltd from October 2006 until October 2008 and was CEO of Frontline
Management AS from 2003 to 2006, and prior to that time Technical Director of Frontline Management AS since
November 1999. From 1995 until 1999, Mr. Spieler served as Fleet Manager for Bergesen, a major Norwegian gas
tanker and VLCC owner. From 1986 to 1995, Mr. Spieler worked with the Norwegian classification society DNV,
working both with shipping marine operations and offshore assets.
Graeme McDonald is Executive Vice President of Business Development of Golar Management. He was
previously Chief Technical Officer and prior to that he was general manager of the fleet, a position he held with
Osprey, since 1998. He has worked in the shipping industry since 1973 and held various positions with Royal Dutch
Shell companies, including manager of LNG shipping services at Shell International Trading and Shipping
Company Ltd. and manager of LNG marine operations at Shell Japan Ltd.
Jan Flatseth is Chief Operating Officer of Golar Management. He joined the company in September 2006 as
General Manager Fleet. Prior to joining Golar he held the position of Assistant Technical Director and Fleet
Manager responsible for the LNG/C fleet of BW Gas. Mr. Flatseth has a M.Sc. degree in Naval
Architecture/Marine Engineering from the Norwegian Institute of Technology. He spent 13 years at DNV and was
the Head of Section Gas and Chemical Carriers until 1982. After leaving DNV, he served in senior management
positions at Helge R. Myhre/Kværner Shipping from 1982 -1995. The company was a subsidiary of the industrial
group, Kvaerner, set up to own and operate gas carriers. Mr. Flatseth remained with the company when Havtor
acquired Kvaerner Shipping and a year later when it all became part of the large shipping group Bergesen DY ASA
(“BW Gas”).
Mr. Tor Olav Trøim has, effective from October 5, 2009, resigned from his position as director and officer of Golar
LNG Limited in order to fulfill his appointment as chairman of the board of Golar LNG Energy Limited. No
replacement has been appointed.
B. Compensation
For the year ended December 31, 2009, we paid to our directors and executive officers aggregate cash
compensation of $1,722,305 and an aggregate amount of $400,385 for pension and retirement benefits. For a
description of our stock option plan please refer to the section of this item entitled “Option Plan” below.
C. Board Practices
Our directors do not have service contracts and do not receive any benefits upon termination of their
directorships. The Board established an audit committee in July 2005, which is responsible for overseeing the
quality and integrity of our financial statements and its accounting, auditing and financial reporting practices, our
compliance with legal and regulatory requirements, the independent auditor's qualifications, independence and
performance and our internal audit function. Our audit committee consists of two members, Kate Blankenship and
Frixos Savvides, who are also both Company Directors. Except for an audit committee the Board does not have any
other committees.
As a foreign private issuer we are exempt from certain requirements of the Nasdaq Stock Exchange that are
applicable to U.S. listed companies. Please see the section of this annual report entitled Item 16G. “Corporate
Governance” for a discussion of how our corporate governance practices differ from those required of U.S.
companies listed on the Nasdaq Stock Exchange.
D. Employees
As of December 31, 2009, we employed approximately 25 people in our offices in London and Oslo. We
contract with independent ship managers to manage, operate and to provide crew for our vessels. We also employ
approximately 382 seagoing employees, of which approximately 32 are employed directly by us and 350 are
employed through our independent ship managers.
64
E. Share ownership
The following table sets forth information as of March 31, 2010, regarding the total amount of common
shares owned by all of our directors and officers on an individual basis.
Director or Officer
John Fredriksen*
Kate Blankenship
Graham Robjohns
Common Shares of
$1.00 each
31,203,900
**
**
Percentage of
Common Shares
Outstanding
46.18%
**
**
* Mr. Fredriksen may be deemed to beneficially own 31,203,900 shares of common stock, par value $1.00 per share (the
"Common Shares"), of Golar LNG Limited (the "Issuer") through his indirect influence over World Shipholding Ltd., the shares
of which are indirectly held in trusts (the "Trusts"). The beneficiaries of the Trusts are certain members of Mr. Fredriksen's
family. Mr. Fredriksen disclaims beneficial ownership of the 31,203,900 Common Shares except to the extent of his voting and
dispositive interests in such Common Shares. Mr. Fredriksen has no pecuniary interest in the 31,203,900 Common Shares.
** Less than 1 %
Our directors and executive officers have the same voting rights as all other holders of our Common
Shares.
Option Plan
Our board of directors adopted the Golar LNG Limited Employee Share Option Plan in February 2002.
The Plan authorizes our Board to award, at its discretion, options to purchase our common shares to employees of
the Company, who are contracted to work more than 20 hours per week and to any director of the Company.
In August 2009 the board of directors of Golar LNG Energy Limited (“Golar Energy”) adopted the Golar
Energy share option plan with similar terms to the Golar LNG share option plan.
Under the terms of these plans, the Boards may determine the exercise price of the options, provided that
the exercise price per share is not lower than the then current market value. Options that have not lapsed will
become immediately exercisable at the earlier of the vesting date, the option holder’s death or change of control of
the Company. All options will expire on the tenth anniversary of the option’s grant or at such earlier date as the
board may from time to time prescribe. The Plan will expire 10 years from its date of adoption.
As of March 31, 2010, 5.5 million of the authorized and unissued common shares were reserved for issue
pursuant to subscription under options granted under the Company’s share option plans (1.5 million in respect of
Golar LNG and 4 million in respect of Golar Energy). For further detail on share options please read Item 18 -
Consolidated Financial Statements: Note 26 – Share Capital and Share Options.
Details of share options held by our directors and officers as of April 28, 2010 in both Golar LNG Limited
and Golar LNG Energy Limited are set out in the following tables below:
Golar LNG Limited
Director or Officer
John Fredriksen
Frixos Savvides
Kate Blankenship
Graeme McDonald
Graham Robjohns
Jan Flatseth
Hans Petter Aas
Katherine Fredriksen
Number of Common
Shares Subject to Option
500,000
75,000
75,000
75,000
175,000
75,000
75,000
75,000
Exercise Price per
Ordinary Share
$5.75 - $11.07
$11.07
$11.07
$11.07
$11.07- $11.32
$9.41
$11.07
$11.07
Expiration Date
2011
2011
2011
2011
2011 - 2014
2012
2014
2014
The exercise price of options, granted in 2006 and later, are reduced by the value of dividends paid, on a
per share basis. Accordingly, the above figures show the reduced exercise price as of March 31, 2010.
65
Golar LNG Energy Limited
Director or Officer
John Fredriksen
Kate Blankenship
Graeme McDonald
Graham Robjohns
Oscar Spieler
Jan Flatseth
Number of Common
Shares Subject to Option
50,000
50,000
286,000
300,000
600,000
264,000
Exercise Price per
Ordinary Share
$2.20
$2.20
$2.20
$2.20
$2.20
$2.20
Expiration Date
2014
2014
2014
2014
2014
2014
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
The Company is indirectly controlled by another corporation (see below). The following table presents
certain information regarding the current beneficial ownership of the common shares with respect to each major
shareholder who is known by the Company to own more than 5% of the Company’s outstanding common shares as
of March 31, 2010. Information for certain holders is based on their latest filings with the SEC or information
delivered to us. The number of shares beneficially owned by each person or entity is determined under SEC rules
and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a
person or entity beneficially owns any shares that the person or entity has the right to acquire as of May 31, 2010 (60
days after March 31, 2010) through the exercise of any stock option or other right.
Owner
World Shipholding Ltd. (1)
Steinberg Asset Management, LLC (2)
Common Shares
Amount
Per cent
31,203,900
12,354,192
46.18%
18.28%
(1) Our Chairman, John Fredriksen, indirectly influences World Shipholding Ltd.
(2) Information derived from the Schedule 13G/A of Steinberg Asset Management, LLC filed with the Commission
on February 16, 2010.
Our major shareholders have the same voting rights as all other holders of our Common Shares.
The Company is not aware of any arrangements, the operation of which may at a subsequent date result in a
change in control of the Company.
As at March 31, 2010, 29,891,428 of the Company’s common shares are held by 29 holders of record in the
United States.
According to a Schedule 13G filed on February 12, 2010, Allianz SE reported beneficial ownership of
3.69% of our outstanding common shares.
B. Related party transactions
There are no provisions in our Memorandum of Association or Bye-Laws regarding related party
transactions. However, our management’s policy is to enter into related party transactions solely on terms that are at
least equivalent to terms we would be able to obtain from unrelated third parties. The Bermuda Companies Act of
1981 provides that a company, or one of its subsidiaries, may enter into a contract with an officer of the company, or
an entity in which an officer has a material interest, if the officer notifies the Directors of its interest in the contract
or proposed contract. The related party transactions that we have entered into during the year ended December 31,
2009 are discussed below.
Net (expenses) income from related parties:
(in thousands of $)
Frontline Ltd. and subsidiaries (“Frontline”)
Seatankers Management Company Limited (“Seatankers”)
Ship Finance AS (“Ship Finance”)
66
2009
(261)
(82)
195
Frontline, Seatankers and Ship Finance are each subject to the indirect control of Trusts established by our
chairman, John Fredriksen, for the benefit of his immediate family.
Net expense/ income from Frontline, Seatankers and Ship Finance comprise fees for management support,
corporate and insurance administrative services, net of income from supplier rebates and income from the provision
of serviced offices and facilities.
Receivables(payables) from related parties:
(in thousands of $)
Frontline
Seatankers
Ship Finance
2009
488
(106)
115
497
Receivables and payables with related parties comprise primarily of unpaid management fees, advisory and
administrative services. In addition, certain receivables and payables arise when the Company pays an invoice on
behalf of a related party and vice versa. Receivables and payables are generally settled quarterly in arrears.
During the year ended December 31, 2009, Faraway Maritime Shipping Company which is 60% owned by
us and 40% owned by China Petroleum Corporation, or CPC, paid dividends totalling $3.4 million of which 60%
was paid to CPC.
In June 2009, the Company entered into an $80 million revolving credit facility with World Shipholding, to
provide short-term bridge financing. The facility accrues fixed interest at a rate per annum of 8% together with a
commitment fee of 0.75% of any undrawn portion of the credit facility. The revolving credit facility is available for
a period of two years. All amounts due under the facility must be repaid within two years from the date of the first
draw down. The Company drew down an initial amount of $20 million on June 30, 2009 and a further $10 million
during the quarter to September 30, 2009. $20 million was repaid in November 2009. The facility is currently
unsecured. However, in order to draw down amounts in excess of $35 million the Company will be required to
provide security to the satisfaction of World Shipholding. This is envisaged to take the form of a second priority lien
over cash generating assets
C. Interests of Experts and Counsel
Not Applicable
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information
See Item 18
Legal Proceedings
There are no legal proceedings or claims that we believe will have, individually or in the aggregate, a
material adverse effect on us, our financial condition, profitability, liquidity or our results of operations. From time
to time in the future we or our subsidiaries may be subject to various legal proceedings and claims in the ordinary
course of business.
Dividend Distribution Policy
Our long-term objective is to pay a regular dividend in support of our main objective to maximise returns to
shareholders. The level of our dividends will be guided by current earnings, market prospects, capital expenditure
requirements and investment opportunities.
In February 2009, our board of directors suspended the declaration and payment of dividends to
stockholders to increase cash flow and strengthen the balance sheet for near-term project opportunities.
Our Board has declared two quarterly dividends in 2010 in respect of the third and fourth quarter of 2009.
These dividends comprised the distribution of one Golar LNG Energy Limited share for every seven Golar LNG
Limited shares held. The monetary equivalent of the first dividend was $0.25 and of the second was $0.23.
67
Any future dividends declared will be at the discretion of the board of directors and will depend upon our
financial condition, earnings and other factors. Our ability to declare dividends is also regulated by Bermuda law,
which prohibits us from paying dividends if, at the time of distribution, we will not be able to pay our liabilities as
they fall due or the value of our assets is less than the sum of our liabilities, issued share capital and share premium.
In addition, since we are a holding company with no material assets other than the shares of our
subsidiaries through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries’
distributing to us their earnings and cash flow. Some of our loan agreements limit or prohibit our and our
subsidiaries’ ability to make distributions to us without the consent of our lenders.
In 2008, the Board declared four quarterly dividends in the aggregate amount of $1.00 per share on our
common stock in February, May, August and November. Aggregate payments were $67.4 million for dividends
declared in 2008.
Commencing in 2007, the Board declared three quarterly dividends and an extraordinary dividend in the
aggregate of $2.25 per share on its common stock in February, May, June and August. Aggregate payments were
$145.8 million for dividends declared in 2007.
B. Significant Changes
None
ITEM 9. THE OFFER AND LISTING
A. Listing Details and Markets
Our common shares have traded on the Oslo Stock Exchange (OSE) since July 12, 2001 under the symbol
“GOL” and on the Nasdaq National Market since December 12, 2002 under the symbol “GLNG.”
The following table sets forth, for the five most recent fiscal years from January 1, 2005 and for the period
ended March 31, 2010, the high and low prices for the common shares on the Oslo Stock Exchange and the Nasdaq
National Market.
OSE
NASDAQ
High
Low
High
Low
Three months ended March 31, 2010
First Quarter
Fiscal years ended December 31
NOK75.75
NOK63.00
$13.40
$10.60
2009
2008
2007
2006
2005
NOK77.75
NOK123.00
NOK154.50
NOK102.00
NOK98.50
NOK23.00
NOK29.00
NOK76.25
NOK71.00
NOK66.00
$13.90
$22.79
$27.70
$15.29
$15.75
$2.63
$3.96
$12.00
$12.00
$10.31
The following table sets forth, for each full financial quarter for the two most recent fiscal years from
January 1, 2008, the high and low prices of the common shares on the Oslo Stock Exchange and the Nasdaq
National Market.
Fiscal year ended December 31, 2009
OSE
NASDAQ
High
Low
High
Low
First quarter
Second quarter
Third quarter
Fourth quarter
NOK58.00
NOK57.00
NOK67.00
NOK18.80
NOK23.00
NOK48.10
$8.35
$8.82
$11.45
NOK77.75 NOK62.00
$13.90
$2.63
$3.02
$7.52
$10.59
68
Fiscal year ended December 31, 2008
OSE
NASDAQ
High
Low
High
Low
First quarter
Second quarter
Third quarter
Fourth quarter
NOK123.00
NOK110.00
NOK102.00
NOK76.00
NOK84.50
NOK78.00
NOK68.00
NOK29.00
$22.79
$22.00
$18.60
$13.04
$16.79
$15.26
$11.50
$3.96
The following table sets forth, for the most recent three months, the high and low prices for our common
shares on the OSE and the Nasdaq National Market.
March 2010
February 2010
January 2010
OSE
High
Low
NOK75.00
NOK71.75
NOK75.75
NOK67.75
NOK63.00
NOK68.50
NASDAQ
High
$12.85
$12.12
$13.40
Low
$11.35
$10.60
$11.60
On March 31, 2010, the exchange rate between the Norwegian Kroner and the U.S. Dollar was NOK5.98 to
one U.S. Dollar.
ITEM 10. ADDITIONAL INFORMATION
This section summarizes our share capital and the material provisions of our Memorandum of Association and
Bye-Laws, including rights of holders of our shares. The description is only a summary and does not describe
everything that our Articles of Association and Bye-Laws contain. The Memorandum of Association and the Bye-
Laws of the Company have previously been filed as Exhibits 1.1 and 1.2, respectively to the Company’s
Registration Statement on Form 20-F, (File No. 000-50113) filed with the Commission on November 27, 2002, and
are hereby incorporated by reference into this Annual Report.
At the 2007 Annual General Meeting of the Company, our shareholders voted to amend the Company’s
Bye-laws to ensure conformity with recent revisions to the Bermuda Companies Act 1981, as amended. These
amended Bye-laws of the Company as adopted on September 28, 2007, were filed as Exhibit 1.2 to the Company’s
Annual Report on Form 20-F for the year ended December 31, 2007, (File No. 001-50113) filed with the
Commission on May 12, 2008, and is hereby incorporated by reference into this Annual Report.
A. Share capital
Not Applicable
B. Memorandum of Association and Bye-laws
Our Memorandum of Association and Bye-laws. The object of our business, as stated in Section Six of our
Memorandum of Association, is to engage in any lawful act or activity for which companies may be organized under
The Companies Act, 1981 of Bermuda, or the Companies Act, other than to issue insurance or re-insurance, to act as
a technical advisor to any other enterprise or business or to carry on the business of a mutual fund. Our
Memorandum of Association and Bye-laws do not impose any limitations on the ownership rights of our
shareholders.
Under our Bye-laws, annual shareholder meetings will be held in accordance with the Companies Act at a
time and place selected by our board of directors. The quorum at any annual or general meeting is equal to one or
more shareholders, either present in person or represented by proxy, holding in the aggregate shares carrying 33
1/3% of the exercisable voting rights. The meetings may be held at any place, in or outside of Bermuda that is not a
jurisdiction which applies a controlled foreign company tax legislation or similar regime. Special meetings may be
called at the discretion of the board of directors and at the request of shareholders holding at least one-tenth of all
outstanding shares entitled to vote at a meeting. Annual shareholder meetings and special meetings must be called
by not less than seven days’ prior written notice specifying the place, day and time of the meeting. The board of
directors may fix any date as the record date for determining those shareholders eligible to receive notice of and to
vote at the meeting.
69
Directors. Our directors are elected by a majority of the votes cast by the shareholders in the annual
general meeting. The quorum necessary for the transaction of the business of the board of directors may be fixed by
the board but unless so fixed, equals those individuals constituting a majority of the board of directors who are
present in person or by proxy. Executive directors serve at the discretion of the board of directors.
The minimum number of directors comprising the board of directors at any time shall be two. The board of
directors currently consists of five directors. The minimum and maximum number of directors comprising the board
from time to time shall be determined by way of an ordinary resolution of the shareholders of the Company. The
shareholders may, at the annual general meeting by ordinary resolution, determine that one or more vacancies in the
board of directors be deemed casual vacancies. The board of directors, so long as a quorum remains in office, shall
have the power to fill such casual vacancies. Each director will hold office until the next annual general meeting or
until his successor is appointed or elected. The shareholders may call a Special General Meeting for the purpose of
removing a director, provided notice is served upon the concerned director 14 days prior to the meeting and he is
entitled to be heard. Any vacancy created by such a removal may be filled at the meeting by the election of another
person by the shareholders or in the absence of such election, by the board of directors.
Subject to the provisions of the Companies Act, a director of a company may, notwithstanding his office,
be a party to or be otherwise interested in any transaction or arrangement with that company, and may act as
director, officer, or employee of any party to a transaction in which the company is interested. Under our Bye-Laws,
provided an interested director declares the nature of his or her interest immediately or thereafter at a meeting of the
board of directors, or by writing to the directors as required by the Companies Act, a director shall not by reason of
his office be held accountable for any benefit derived from any outside office or employment. The vote of an
interested director, provided he or she has complied with the provisions of the Companies Act and our Bye-Laws
with regard to disclosure of his or her interest, shall be counted for purposes of determining the existence of a
quorum.
Dividends. Holders of common shares are entitled to receive dividend and distribution payments, pro rata
based on the number of common shares held, when, as and if declared by the board of directors, in its sole
discretion. Any future dividends declared will be at the discretion of the board of directors and will depend upon
our financial condition, earnings and other factors.
As a Bermuda exempted company, we are subject to Bermuda law relating to the payment of dividends.
We may not pay any dividends if, at the time the dividend is declared or at the time the dividend is paid, there are
reasonable grounds for believing that, after giving effect to that payment;
• we will not be able to pay our liabilities as they fall due; or
•
the realizable value of our assets, is less than an amount that is equal to the sum of our
(a)
(b)
(c)
liabilities,
issued share capital, which equals the product of the par value of each common share and the
number of common shares then outstanding, and
share premium, which equals the aggregate amount of consideration paid to us for such
common shares in excess of their par value.
In addition, since we are a holding company with no material assets, and conduct our operations through
subsidiaries, our ability to pay any dividends to shareholders will depend on our subsidiaries’ distributing to us their
earnings and cash flow. Some of our loan agreements currently limit or prohibit our subsidiaries’ ability to make
distributions to us and our ability to make distributions to our shareholders.
C. Material contracts
None
D. Exchange Controls
None
E. Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as
amended (the “Code”), existing and proposed U.S. Treasury Department regulations (the “Treasury Regulations”),
administrative rulings and pronouncements, and judicial decisions, all as of the date of this Annual Report.
70
Taxation of Operating Income
U.S. Taxation of our Company
Shipping income that is attributable to transportation that begins or ends, but that does not both begin and
end, in the United States will be considered to be 50% derived from sources within the United States. Shipping
income attributable to transportation that both begins and ends in the United States will be considered to be 100%
derived from sources within the United States. We are not permitted by law to engage in transportation that gives
rise to 100% U.S. source income.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be
100% derived from sources outside of the United States. Shipping income derived from sources outside of the
United States will not be subject to U.S. federal income tax.
Unless exempt from U.S. federal income tax under section 883 of the Code, we will be subject to U.S.
federal income tax, in the manner discussed below, to the extent our shipping income is derived from sources within
the United States.
Based upon our current and anticipated shipping operations, our vessels are and will be operated in various
parts of the world, including to or from U.S. ports. For the 2009, 2008 and 2007 taxable years, the U.S. source gross
income that we derived from our vessels trading to or from U.S. ports was $5,489,000, $6,321,000 and $12,652,000
respectively, and the potential U.S. federal income tax liability resulting from this income, in the absence of our
qualification for exemption from tax under section 883 of the Code, or an applicable U.S. income tax treaty, as
described below, would have been $219,000, $253,000 and $506,000, respectively.
Application of Section 883 of the Code
We have made special U.S. federal tax elections in respect of all our vessel-owning or vessel-operating
subsidiaries incorporated in the United Kingdom that are potentially subject to U.S. federal income tax on shipping
income derived from sources within the United States. The effect of such elections is to disregard the subsidiaries
for which such elections have been made as separate taxable entities for U.S. federal income tax purposes.
Under section 883 of the Code and the final regulations promulgated thereunder, we, and each of our
subsidiaries, will be exempt from U.S. taxation on our respective U.S. source shipping income, if both of the
following conditions are met:
• we and each subsidiary are organized in a “qualified foreign country,” defined as a country that
grants an equivalent exemption from tax to corporations organized in the United States in respect
of the shipping income for which exemption is being claimed under section 883 of the Code (the
“Country of Organization Requirement”); and
•
either
- more than 50% of the value of our stock is treated as owned, directly or indirectly, by
(the “Ownership
foreign countries
individuals who are “residents” of qualified
Requirement”); or
-
our stock is “primarily and regularly traded on an established securities market” in the United
States or any qualified foreign country (the “Publicly-Traded Requirement”).
The U.S. Treasury Department has recognized (i) Bermuda, our country of incorporation, and (ii) the
countries of incorporation of each of our subsidiaries that has earned shipping income from sources within the
United States as a qualified foreign country. Accordingly, we and each such subsidiary satisfy the Country of
Organization Requirement.
Due to the public nature of our shareholdings, we do not believe that we will be able to substantiate that we
satisfy the Ownership Requirement. However, as described below, we believe that we will be able to satisfy the
Publicly-Traded Requirement.
71
The Treasury Regulations under section 883 of the Code provide that the stock of a foreign corporation will
be considered to be “primarily traded” on an “established securities market” if the number of shares of each class of
stock that are traded during any taxable year on all “established securities markets” in that country exceeds the
number of shares in each such class that are traded during that year on “established securities markets” in any other
single country. Our stock was “primarily traded” on the NASDAQ stock market (“NASDAQ”), an “established
securities market” in the United States, during 2009.
Under the Treasury Regulations, our common stock will be considered to be “regularly traded” on an
“established securities market” if one or more classes of our stock representing more than 50% of our outstanding
shares, by total combined voting power of all classes of stock entitled to vote and total value, is listed on the market
(the “Listing Requirement”). Since our common shares are listed on the NASDAQ, we will satisfy the Listing
Requirement.
The Treasury Regulations further require that with respect to each class of stock relied upon to meet the
Listing Requirement: (i) such class of stock is traded on the market, other than in minimal quantities, on at least
60 days during the taxable year or 1/6 of the days in a short taxable year (the “Trading Frequency Test”), and (ii) the
aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of
shares of such class of stock outstanding during such year, or as appropriately adjusted in the case of a short taxable
year (the “Trading Volume Test”). We believe that our common shares satisfied the Trading Frequency Test and the
Trading Volume Test in 2009. Even if this were not the case, the Treasury Regulations provide that the Trading
Frequency Test and the Trading Volume Test will be deemed satisfied by a class of stock if, as we expect to be the
case with our common shares, such class of stock is traded on an “established securities market” in the United States
and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide that our common shares will not be
considered to be “regularly traded” on an “established securities market” for any taxable year in which 50% or more
of the outstanding common shares, by vote and value, are owned, for more than half the days of the taxable year, by
persons who each own 5% or more of the vote and value of the outstanding common shares (the “5% Override
Rule”). The 5% Override Rule will not apply, however, if in respect of each category of shipping income for which
exemption is being claimed, we can establish that individual residents of qualified foreign countries (“Qualified
Shareholders”) own sufficient common shares to preclude non-Qualified Shareholders from owning 50% or more of
the total vote and value of our common shares for more than half the number of days during the taxable year (the
“5% Override Exception”).
Based on our public shareholdings for 2009, we were not subject to the 5% Override Rule for 2009 in
respect of all U.S. source shipping income. Therefore, we believe that we satisfy the Publicly-Traded Requirement
and we and each of our subsidiaries are entitled to exemption from U.S. federal income tax under section 883 of the
Code in respect of our U.S. source shipping income. To the extent that we become subject to the 5% Override Rule
in future years (as a result of changes in the ownership of our common shares), it may be difficult for us to establish
that we qualify for the 5% Override Exception.
If we were not eligible for the exemption under section 883 of the Code, our U.S. source shipping income
would be subject to U.S. federal income tax as described in more detail below.
Taxation in Absence of Section 883 of the Code
To the extent the benefits of section 883 of the Code are unavailable with respect to any item of U.S. source
shipping income earned by us or by our subsidiaries, such U.S. source shipping income would be subject to a 4% tax
imposed by section 887 of the Code on a gross basis, without benefit of deductions. Since under the sourcing rules
described above, no more than 50% of the shipping income earned by us or our subsidiaries would be derived from
U.S. sources, the maximum effective rate of U.S. federal income tax on such gross shipping income would never
exceed 2%. For the calendar year 2009, we and our subsidiaries would be subject to tax under section 887 of the
Code in the aggregate amount of $219,000.
Gain on Sale of Vessels
If we and our subsidiaries qualify for exemption from tax under section 883 of the Code in respect of our
U.S. source shipping income, the gain on the sale of any vessel earning such U.S. source shipping income should
likewise be exempt from U.S. federal income tax. Even if we and our subsidiaries are unable to qualify for
72
exemption from tax under section 883 of the Code and we or any of our subsidiaries, as the seller of such vessel, is
considered to be engaged in the conduct of a U.S. trade or business, gain on the sale of such vessel would not be
subject to U.S. federal income tax provided the sale is considered to occur outside of the United States under United
States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the
United States. If the sale is considered to occur within the United States, any gain such sale may be subject to U.S.
federal income tax as “effectively connected” income at a combined rate of up to 54.5%. To the extent
circumstances permit, we intend to structure sales of our vessels in such a manner, including effecting the sale and
delivery of vessels outside of the United States, so as to not give rise to “effectively connected” income.
U.S. Taxation of U.S. Holders
The term “U.S. Holder” means a beneficial owner of our common shares that is a U.S. citizen or resident,
U.S. corporation or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S.
federal income tax regardless of its source, or a trust if a court within the United States is able to exercise primary
jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust, and owns our common shares as a capital asset, generally, for investment purposes.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the
status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our
common shares, you are encouraged to consult your tax advisor.
Distributions
Any distributions made by us with respect to our common shares to a U.S. Holder will generally constitute
dividends, to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income
tax principles. We expect that dividends paid by us to a non-corporate U.S. Holder will be eligible for preferential
U.S. federal income tax rates (through 2010) provided that the non-corporate U.S. Holder has owned the common
shares for more than 60 days in the 121-day period beginning 60 days before the date on which our common shares
becomes ex-dividend and certain other conditions are satisfied. However, there is no assurance that any dividends
paid by us will be eligible for these preferential rates in the hands of a non-corporate U.S. Holder. Legislation has
been previously introduced in the U.S. Congress which, if enacted in its present form, would preclude our dividends
from qualifying for such preferential rates prospectively from the date of its enactment. Any dividends paid by us,
which are not eligible for these preferential rates will be taxed as ordinary income to a non-corporate U.S. Holder.
Because we are not a U.S. corporation, U.S. Holders that are corporations will not be entitled to claim a dividends-
received deduction with respect to any distributions they receive from us.
Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to
the extent of the U.S. Holder’s tax basis in his or her common shares, and thereafter as a taxable capital gain.
Sale, Exchange or other Disposition of Our Common Shares
Subject to the discussion below under “Passive Foreign Investment Company,” a U.S. Holder generally
will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount
equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holder’s tax basis in the common shares. Such gain or loss will be treated as long-term
capital gain or loss if the U.S. Holder’s holding period in such common shares is greater than one year at the time of
the sale, exchange or other disposition. Otherwise, such gain or loss will be treated as short-term capital gain or loss.
An individual U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company
Notwithstanding the above rules regarding distributions and dispositions, special rules may apply to U.S.
Holders (or, in some cases, U.S. persons who are treated as owning our common shares under constructive
ownership rules) if we are treated as a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax
purposes. We will be a PFIC if either:
•
at least 75% of our gross income in a taxable year is “passive income”; or
73
•
at least 50% of our assets in a taxable year (averaged over the year and generally determined based
upon value) are held for the production of, or produce, “passive income.”
For purposes of determining whether we are a PFIC, we will be treated as earning and owning the income
and assets, respectively, of any of our subsidiary corporations in which we own 25% or more of the value of the
subsidiary’s stock, which includes Golar Energy. To date, our subsidiaries and we have derived most of our income
from time and voyage charters, and we expect to continue to do so. This income should be treated as services
income, which is not “passive income” for PFIC purposes. We believe there is substantial legal authority supporting
our position consisting of case law and U.S. Internal Revenue Service (the “IRS”) pronouncements concerning the
characterization of income derived from time charters and voyage charters as services income for other tax purposes.
However, there is also authority which characterizes time charter income as rental income rather than services
income for other tax purposes.
Based on the foregoing, we believe that we are not currently a PFIC and do not expect to be a PFIC in the
foreseeable future. However, in the absence of any legal authority specifically relating to the Code provisions
governing PFICs, the IRS or a court could disagree with our position. In addition, however, there can be no
assurance that we will not become a PFIC if our operations change in the future.
If we become a PFIC (and regardless of whether we remain a PFIC), each U.S. Holder who owns or is
treated as owning our common shares during any period in which we are so classified, would be subject to U.S.
federal income tax, at the then highest applicable income tax rates on ordinary income, plus interest, upon certain
“excess distributions” and upon disposition of our common shares including, under certain circumstances, a
disposition pursuant to an otherwise tax free reorganization, as if the distribution or gain had been recognized
ratably over the U.S. Holder’s entire holding period of our common shares. An “excess distribution” generally
includes dividends or other distributions received from a PFIC in any taxable year of a U.S. Holder to the extent that
the amount of those distributions exceeds 125% of the average distributions made by the PFIC during a specified
base period. The tax at ordinary rates and interest resulting from an excess distribution would not be imposed if the
U.S. Holder makes a “mark-to-market” election, as discussed below.
In some circumstances, a shareholder in a PFIC may avoid the unfavorable consequences of the PFIC rules
by making a “qualified electing fund” election. However, a U.S. Holder cannot make a “qualified electing fund”
election with respect to us unless such U.S. Holder complies with certain reporting requirements. We do not intend
to provide the information necessary to meet such reporting requirements.
If we become a PFIC and, provided that, as is currently the case, our common shares are treated as
“marketable stock,” a U.S. Holder may make a “mark-to-market” election with respect to our common shares.
Under this election, any excess of the fair market value of the common shares at the close of any tax year over the
U.S. Holder’s adjusted basis in the common shares is included in the U.S. Holder’s income as ordinary income. In
addition, the excess, if any, of the U.S. Holder’s adjusted basis at the close of any taxable year over the fair market
value is deductible in an amount equal to the lesser of the amount of the excess or the net “mark-to-market” gains on
the common shares that the U.S. Holder included in income in previous years. If a U.S. Holder makes a “mark-to-
market” election after the beginning of its holding period of our common shares, the U.S. Holder does not avoid the
PFIC rules described above with respect to the inclusion of ordinary income, and the imposition of interest thereon,
attributable to periods before the election.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States will be subject
to information reporting requirements. Such payments will also be subject to “backup withholding” if made to a
non-corporate U.S. Holder and such U.S. Holder:
•
•
•
•
fails to provide an accurate taxpayer identification number;
provides us with an incorrect taxpayer identification number;
is notified by the IRS that it has failed to report all interest or dividends required to be shown on its
U.S. federal income tax returns; or
in certain circumstances, fails to comply with applicable certification requirements.
74
If a shareholder sells our common shares to or through a U.S. office or broker, the payment of the proceeds
is subject to both U.S. information reporting and “backup withholding” unless the shareholder establishes an
exemption. If the shareholder sells our common shares through a non-U.S. office of a non-U.S. broker and the sales
proceeds are paid to the shareholder outside the United States, then information reporting and “backup withholding”
generally will not apply to that payment. However, U.S. information reporting requirements, but not “backup
withholding,” will apply to a payment of sales proceeds, including a payment made to a shareholder outside the
United States, if the shareholder sells the common shares through a non-U.S. office of a broker that is a U.S. person
or has some other contacts with the United States.
“Backup withholding” is not an additional tax. Rather, a taxpayer generally may obtain a refund of any
amounts withheld under “backup withholding” rules that exceed such taxpayer’s U.S. federal income tax liability by
filing a refund claim with the IRS, provided that the required information is furnished to the IRS.
Bermuda Taxation
Bermuda currently imposes no tax (including a tax in the nature of an income, estate, duty, inheritance,
capital transfer or withholding tax) on profits, income, capital gains or appreciations derived by us, or dividends or
other distributions paid by us to shareholders of our common shares. Bermuda has undertaken not to impose any
such Bermuda taxes on shareholders of our common shares prior to the year 2016 except in so far as such tax applies
to persons ordinarily resident in Bermuda.
The Minister of Finance in Bermuda has granted the Company a tax exempt status until March 28, 2016,
under which no income taxes or other taxes (other than duty on goods imported into Bermuda and payroll tax in
respect of any Bermuda-resident employees) are payable by the Company in Bermuda. If the Minister of Finance in
Bermuda does not grant a new exemption or extend the current tax exemption, and if the Bermudian Parliament
passes legislation imposing taxes on exempted companies, the Company may become subject to taxation in
Bermuda after March 2016.
Liberian Taxation
The Republic of Liberia enacted a new income tax act effective as of January 1, 2001 (the “New Act”). In
contrast to the income tax law previously in effect since 1977 (the “Prior Law”), which the New Act repealed in its
entirety, the New Act does not distinguish between the taxation of a non-resident Liberian corporation, such as our
Liberian subsidiaries, which conduct no business in Liberia and were wholly exempted from tax under the Prior
Law, and the taxation of ordinary resident Liberian corporations.
In 2004, the Liberian Ministry of Finance issued regulations pursuant to which a non-resident Liberian
corporation engaged in international shipping, such as our Liberian subsidiaries, will not be subject to tax under the
New Act retroactive to January 1, 2001 (the “New Regulations”). In addition, the Liberian Ministry of Justice
issued an opinion that the New Regulations were a valid exercise of the regulatory authority of the Ministry of
Finance. Therefore, assuming that the New Regulations are valid, our Liberian subsidiaries will be wholly exempt
from Liberian income tax as under the Prior Law.
If our Liberian subsidiaries were subject to Liberian income tax under the New Act, such subsidiaries
would be subject to tax at a rate of 35% on their worldwide income. As a result, their, and subsequently our, net
income and cash flow would be materially reduced by the amount of the applicable tax. In addition, we, as
shareholder of the Liberian subsidiaries, would be subject to Liberian withholding tax on dividends paid by such
subsidiaries at rates ranging from 15% to 20%.
F. Dividends and Paying Agents
Not Applicable
G. Statements by Experts
Not Applicable
H. Documents on display
Our Registration Statement became effective on November 29, 2002, and we are now subject to the
informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these
75
requirements we will file reports and other information with the SEC. These materials, including this document and
the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the
Commission at 100 Fifth Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates
from the Public Reference Section of the Commission at its principal office in Washington, D.C. 20549. The SEC
maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC.
I. Subsidiary Information
Not Applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate and foreign currency exchange risks. We
enter into a variety of derivative instruments and contracts to maintain the desired level of exposure arising from
these risks.
Our policy is to hedge our exposure to risks, where possible, within boundaries deemed appropriate by
management.
A discussion of our accounting policies for derivative financial instruments is included in Note 2 to our
Consolidated Financial Statements. Further information on our exposure to market risk is included in Note 27 to the
Consolidated Financial Statements.
The following analyses provide quantitative information regarding our exposure to foreign currency
exchange rate risk and interest rate risk. There are certain shortcomings inherent in the sensitivity analyses
presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates
change instantaneously.
Interest rate risk. A significant portion of our long-term debt and capital lease obligations is subject to
adverse movements in interest rates. Our interest rate risk management policy permits economic hedge relationships
in order to reduce the risk associated with adverse fluctuations in interest rates. We use interest rate swaps and fixed
rate debt to manage the exposure to adverse movements in interest rates. Interest rate swaps are used to convert
floating rate debt obligations to a fixed rate in order to achieve an overall desired position of fixed and floating rate
debt. Credit exposures are monitored on a counterparty basis, with all new transactions subject to senior
management approval.
As of December 31, 2009, the notional amount of the interest rate swaps outstanding in respect of our debt
and net capital lease obligation was $643.4 million (2008: $795.4 million). The principal of the loans and net capital
lease obligations (net of restricted cash) outstanding as of December 31, 2009 was $1,011.6 million (2008: $1,010.7
million). Based on our floating rate debt at December 31, 2009, a one-percentage point increase in the floating
interest rate would increase interest expense by $5.8 million per annum. For disclosure of the fair value of the
derivatives and debt obligations outstanding as of December 31, 2009, see Note 27 to the Consolidated Financial
Statements.
Foreign currency risk. Except in the course of our vessel leases and FSRU conversions, the majority of our
transactions, assets and liabilities are denominated in U.S. Dollars, our functional currency. Periodically, we may be
exposed to foreign currency exchange fluctuations as a result of expenses paid by certain subsidiaries in currencies
other than U.S. Dollars, such as GBPs, in relation to our administrative office in the UK and operating expenses
incurred in a variety of foreign currencies and Brazilian Reals in respect of our Brazilian subsidiary which receives
income and pays expenses in Brazilian Reals. Based on our ongoing GBP expenses for 2009, a 10% depreciation of
the U.S. Dollar against GBP would increase our expenses by approximately $1.3 million.
We are exposed to some extent in respect of the lease transactions we entered into during the year ended
December 31, 2003, which are denominated in GBP, although these are hedged by the GBP cash deposits that
secure these obligations. We use cash from the deposits to make payments in respect of our leases. Gains or losses
that we incur are unrealized unless we choose or are required to withdraw monies from or pay additional monies into
the deposits securing our capital lease obligations. Among other things, movements in interest rates give rise to a
requirement for us to make adjustments to the amount of GBP cash deposits. Based on these lease obligations and
76
related cash deposits as at December 31, 2009, a 10% appreciation in the U.S. Dollar against GBP would give rise to
an increase in our financial expenses of approximately $0.1 million.
In April 2004, we entered into a lease arrangement in respect of the Golar Winter (as noted above), the
obligation in respect of which is also denominated in GBP. However, the cash deposit, which secures the letter of
credit, which is used to secure the lease obligation, is significantly less than the lease obligation itself. We refer to
this as a “funded” lease. We are therefore exposed to currency movements on the difference between the lease
obligation and the cash deposit, approximately $130.4 million as at December 31, 2009 (2008:$105.6 million). In
order to hedge this exposure we entered into a currency swap with a bank, which is also our lessor, to exchange our
GBP payment obligations into U.S. Dollar payment obligations. We could be exposed to a currency fluctuation risk
if we terminated this lease.
We are exposed to some extent in respect of FSRU conversion projects we are undertaking. The costs of
these conversions are mainly denominated in Euros, Singapore Dollars and Norwegian Kroners. In order to limit
our exposure to foreign currency fluctuations, we have entered into foreign currency forward contracts. As of
December 31, 2009, we have fixed the exchange rate of approximately 47% of the expected total foreign currency
denominated cost of our conversion projects. A 10% depreciation of the U.S. Dollar against the currencies we have
not hedged would increase our remaining expected conversion cost by approximately $0.4 million.
The base currency of the majority of our seafaring officers was changed in 2008 from U.S. Dollars to
Euros. Based on the expected crew costs for 2010, a 10% depreciation of the U.S. Dollar against Euro would
increase our crew cost by approximately $1.4 million.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt securities
Not Applicable
B. Warrants and rights
Not Applicable
C. Other securities
Not Applicable
D. American depository shares
Not Applicable
ITEM 13. DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Management assessed the effectiveness of the design and operation of the Company’s disclosure controls
and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period
covered by this annual report as of December 31, 2009. Based upon that evaluation, the Principal Executive Officer
and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of
the evaluation date.
(b) Management’s annual report on internal controls over financial reporting
77
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal
executive and principal financial officers and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles and includes
those policies and procedures that;
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with authorizations of Company’s
management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree or compliance with the
policies or procedures may deteriorate.
Management conducted the evaluation of the effectiveness of the internal controls over financial reporting
using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) published in its report entitled Internal Control-Integrated Framework.
Our management with the participation of our Principal Executive Officer and Principal Financial Officer
assessed the effectiveness of the design and operation of the Company’s internal controls over financial reporting
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2009. Based upon that
evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company’s internal
controls over financial reporting are effective as of December 31, 2009.
The Company’s independent registered public accounting firm has issued an attestation report on the
Company’s internal control over financial reporting.
(c) Attestation report of the registered public accounting firm
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report which appears on page F-2 of the consolidated financial statements.
(d) Changes in internal control over financial reporting
There were no changes in our internal controls over financial reporting that occurred during the period
covered by this annual report that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree or compliance with the
policies or procedures may deteriorate.
78
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect
that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that Kate Blankenship, a director, qualifies as an audit committee financial
expert and is independent, in accordance with SEC Rule 10a-3 pursuant to Section 10A of the Exchange Act.
ITEM 16 B. CODE OF ETHICS
The Company has adopted a Code of Ethics, filed as Exhibit 11.1 to this Annual Report that applies to all
employees. Furthermore, a copy of our Code of Ethics can be found on our website (www.golarlng.com).
ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
The following table sets forth, for the two most recent fiscal years, the aggregate fees billed for professional
services rendered by the principal accountant for the audit of the Company’s annual financial statements and
services provided by the principal accountant in connection with statutory and regulatory filings or engagements for
the two most recent fiscal years.
Fiscal year ended December 31, 2009
Fiscal year ended December 31, 2008
$955,221
$794,211
(b) Audit –Related Fees
The following table sets forth, for the two most recent fiscal years, the aggregate fees billed for professional
services in respect of assurance and related services rendered by the principal accountant related to the performance
of the audit or review of the Company’s financial statements which have not been reported under Audit Fees above.
These services comprise assurance work in connection with financing and other agreements.
Fiscal year ended December 31, 2009
Fiscal year ended December 31, 2008
$0
$0
(c) Tax Fees
The following table sets forth, for the two most recent fiscal years, the aggregate fees billed for professional
services rendered by the principal accountant for tax compliance, tax advice and tax planning.
Fiscal year ended December 31, 2009
Fiscal year ended December 31, 2008
$11,955
$0
(d) All Other Fees
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The following table sets forth, for the two most recent fiscal years, the aggregate fees billed for professional
services rendered by the principal accountant for other services.
Fiscal year ended December 31, 2009
Fiscal year ended December 31, 2008
$446,998
$1,714,000
(e) Audit Committee’s Pre-Approval Policies and Procedures
The Company’s board of directors has adopted pre-approval policies and procedures in compliance with
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require the Board to approve the appointment of the
independent auditor of the Company before such auditor is engaged and approve each of the audit and non-audit
related services to be provided by such auditor under such engagement by the Company. All services provided by
the principal auditor in 2008 were approved by the Board pursuant to the pre-approval policy.
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable
ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
In November 2007, we announced that the board of directors had authorized the repurchase of up to
1,000,000 of our common stock in the open market. During the period from November 2007 to December 2007, we
repurchased 400,000 shares with a total value of $8,202,000. For the year ended December 31, 2008, we did not
acquire any further shares under the plan, but we made piecemeal disposals of an aggregate of 50,000 shares upon
exercise of share options, bringing our total holding of treasury shares to 350,000 as at December 31, 2008.
Accordingly, the remaining shares that may be repurchased under the plan is 600,000.
In June 2008, we entered into a new equity swap line with a bank, for an original term of six months,
whereby the bank may acquire up to a maximum of 1.0 million shares in Golar during the accumulation period, and
the Company carries the risk of fluctuations in the share price of those acquired shares. The bank is compensated at
their cost of funding plus a margin. As of December 31, 2008, the bank had acquired 300,000 Golar shares under
the program at an average price of $19.52. The equity swap terminated in January 2009, resulting in a realized gain
of $0.2 million. Since then we have entered into additional equity swap arrangements with the same counterparty
under similar terms for a maximum of 300,000 shares. The equity swap expired in November 2009 resulting in a
realised gain of approximately USD1.7 million after taking into account financing costs. As of March 31, 2010 no
further shares were purchased under the scheme.
ITEM 16 F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 16 G. CORPORATE GOVERNANCE
As a foreign private issuer, the Company is exempt from many of the Nasdaq corporate governance
requirements. In accordance with the Nasdaq rules, the practices followed by the Company in lieu of these
requirements are described below:
Independence of directors. Consistent with Bermuda law, we are exempt from Nasdaq's requirement to
maintain three independent directors. We currently have three members of the board of directors, Frixos
Savvides, Kate Blankenship and Hans Petter Aas, who are independent according to Nasdaq's standards for
independence.
Audit Committee. Consistent with Bermuda law, we are exempt from certain Nasdaq requirements
regarding our audit committee. The Company’s management is responsible for the proper and timely
preparation of the Company’s annual reports, which are audited by independent auditors.
Compensation Committee. In lieu of a compensation committee comprised of independent directors, the
full board of directors determines compensation.
80
Nomination Committee. In lieu of a nomination committee comprised of independent directors, the full
board of directors regulates nominations.
Share Issuance. In lieu of obtaining shareholder approval prior to the issuance of designated securities,
consistent with Bermuda law, the Company’s board of directors approves share issuances.
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
We specifically incorporate by reference in response to this item the report of the independent registered
public accounting firm, the Consolidated Financial Statements and the notes to the Consolidated Financial
Statements appearing on pages F-1 through F-50.
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ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual report:
Number
Description of Exhibit
1.1*
1.2*
1.3*
1.4*
4.1*
4.2*
4.3*
4.4*
4.5
8.1
Memorandum of Association of Golar LNG Limited as adopted on May 9, 2001, incorporated
by reference to Exhibit 1.1 of the Company’s Registration Statement on Form 20-F, filed with
the SEC on November 27, 2002, File No. 00050113, or the Original Registration Statement.
Amended Bye-Laws of Golar LNG Limited dated September 28, 2007, incorporated by
reference to Exhibit 1.2 of the Company’s Annual report on Form 20-F for fiscal year ended
December 31, 2007.
Certificate of Incorporation as adopted on May 11, 2001, incorporated by reference to Exhibit
1.3 of the Company’s Original Registration Statement.
Articles of Amendment of Memorandum of Association of Golar LNG Limited as adopted by
our shareholders on June 1, 2001 (increasing the Company’s authorized capital), incorporated
by reference to Exhibit 1.4 of the Company’s Original Registration Statement.
Golar LNG Limited Stock Option Plan, incorporated by reference to Exhibit 4.6 of the
Company’s Original Registration Statement.
Management Agreement between Golar LNG Limited and Frontline Management (Bermuda)
Limited, dated February 21, 2002, incorporated by reference to Exhibit 4.8 of the Company’s
Original Registration Statement.
Five Ship Leases Agreement, between Golar Gas Holding Company, Inc. and Sovereign
Finance Plc, dated April 8, 2003, incorporated by reference to Exhibit 4.5 of the Company’s
Annual report on Form 20-F for fiscal year ended December 31, 2005.
Loan Agreement, between Golar Gas Holding Company, Inc. and Citibank N.A, Nordea Bank
Norge ASA, Den norske Bank ASA and Fortis Bank (Nederland) N.V, dated March 21, 2005,
incorporated by reference to Exhibit 4.6 of the Company’s Annual Report on Form 20-F for
the fiscal year ended December 31, 2005.
Bermuda Tax Assurance, dated May 22, 2001.
Golar LNG Limited subsidiaries
11.1*
Golar LNG Limited Code of Ethics.
12.1
12.2
13.1
13.2
15.1*
Certification of the Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of the Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal Executive
Officer.
Certification under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal Financial
Officer.
Korea Line Corporation financial statements for the year ended December 31, 2006 provided
pursuant to Regulation S-X, Rule 3-09 incorporated by reference to exhibit 15.1 of the
Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006.
* Incorporated herein by reference.
82
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it
meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date
April 30, 2010
Golar LNG Limited
(Registrant)
By
/s/ Graham Robjohns
Graham Robjohns
Principal Financial and Accounting Officer
Exhibit 8.1
Subsidiary
Jurisdiction of Incorporation
Golar Gas Holding Company Inc.
Golar Maritime (Asia) Inc.
Gotaas-Larsen Shipping Corporation
Oxbow Holdings Inc.
Republic of Marshall Islands
Republic of Liberia
Republic of Marshall Islands
British Virgin Islands
Faraway Maritime Shipping Company (60% ownership)
Republic of Liberia
Golar LNG 2215 Corporation
Golar LNG 1444 Corporation
Golar LNG 1460 Corporation
Golar LNG 2220 Corporation
Golar LNG 2234 Corporation
Golar LNG 2226 Corporation
Golar LNG 2216 Corporation
Golar International Ltd.
Gotaas-Larsen International Ltd.
Golar Maritime Limited
Golar Management Limited
Golar Freeze (UK) Limited
Golar Khannur (UK) Limited
Golar Gimi (UK) Limited
Golar Hilli (UK) Limited
Golar Spirit (UK) Limited
Golar 2215 (UK) Limited
Golar Winter (UK) Limited
Golar 2226 (UK) Limited
Republic of Marshall Islands
Republic of Liberia
Republic of Marshall Islands
Republic of Marshall Islands
Republic of Liberia
Republic of Marshall Islands
Republic of Marshall Islands
Republic of Liberia
Republic of Liberia
Bermuda
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Golar Servicos de Operacao de Embaracaoes Limited
Brazil
Golar Trading Corporation
Golar FSRU 1 Corporation
Golar FSRU 2 Corporation
Golar FSRU 3 Corporation
Golar FSRU 4 Corporation
Republic of Marshall Islands
Republic of Marshall Islands
Republic of Marshall Islands
Republic of Marshall Islands
Republic of Marshall Islands
Golar Partners Operating Limited Liability Company
Republic of Marshall Islands
Golar LNG Partners Limited Partnership
Golar Offshore Toscana Limited
Golar Energy Management
Golar LNG Management Limited
Golar LNG Energy Limited
Golar Energy Limited
Cyprus
Cyprus
Bermuda
Bermuda
Bermuda
Cyprus
1
Exhibit 12.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
I, Graham Robjohns, certify that:
1. I have reviewed this annual report on Form 20-F of Golar LNG Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act rules 13(a)- 15(f)) for the Company and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
d) disclosed in this report any change in the Company’s internal controls over financial reporting that
occurred during the period covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the Company’s internal controls over financial reporting; and
5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of
directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the Company's internal control over financial reporting.
Date: April 29, 2010
/s/ Graham Robjohns
Graham Robjohns
Principal Executive Officer
1
Exhibit 12.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
I, Graham Robjohns, certify that:
1. I have reviewed this annual report on Form 20-F of Golar LNG Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act rules 13(a)- 15(f)) for the Company and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
d) disclosed in this report any change in the Company’s internal controls over financial reporting that
occurred during the period covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the Company’s internal controls over financial reporting; and
5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of
directors (or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the Company's internal control over financial reporting.
2
Date: April 29, 2010
/s/ Graham Robjohns
Graham Robjohns
Principal Financial Officer
3
Exhibit 13.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Annual Report of Golar LNG Limited (the “Company”) on Form 20-F for the year ended
December 31, 2009 as filed with the Securities and Exchange Commission, or the SEC, on or about the date hereof
(the “Report”), I, Graham Robjohns, the Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company
and furnished to the SEC or its staff upon request.
Date: April 29, 2010
/s/ Graham Robjohns
Graham Robjohns
Principal Executive Officer
4
Exhibit 13.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Golar LNG Limited (the “Company”) on Form 20-F for the year ended
December 31, 2009 as filed with the Securities and Exchange Commission, or the SEC, on or about the date hereof
(the “Report”), I, Graham Robjohns, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company
and furnished to the SEC or its staff upon request.
Date: April 29, 2010
/s/ Graham Robjohns
Graham Robjohns
Principal Financial Officer
GOLAR LNG LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm .................................................................... F-2
Audited Consolidated Statements of Operations for the years ended December 31,
2009, 2008 and 2007 ............................................................................................................................... F-4
Audited Consolidated Statements of Comprehensive Income for the years ended
December 31, 2009, 2008 and 2007 ........................................................................................................ F-5
Audited Consolidated Balance Sheets as of December 31, 2009 and 2008............................................. F-6
Audited Consolidated Statements of Cash Flows for the years ended December
31, 2009, 2008 and 2007.......................................................................................................................... F-7
Audited Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2009, 2008 and 2007..................................................................................... F-9
Notes to Consolidated Financial Statements.......................................................................................... F-10
Report of Independent Registered Public Accounting Firm
To the Board of Directors and shareholders of Golar LNG Limited
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, shareholders' equity and comprehensive income and cash flows present fairly, in all material
respects, the financial position of Golar LNG Ltd and its subsidiaries at December 31, 2009 and
December 31, 2008, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included under Item 15 of the Form 20-F. Our responsibility is
to express opinions on these financial statements, and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
F-2
Report of Independent Registered Public Accounting Firm (Continued)
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in
which it accounts for non-controlling interests in 2009.
/s / PricewaterhouseCoopers LLP
West London, United Kingdom
April 29, 2010
F-3
Golar LNG Limited
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
(in thousands of $, except per share data)
Operating revenues
Time charter revenues
Total operating revenues
Note
2009
2008
2007
216,495
216,495
228,779
228,779
224,674
224,674
Gain on sale of vessel/newbuilding
15
-
78,108
41,088
Operating expenses
Vessel operating expenses
Voyage and charter-hire expenses
Administrative expenses
Depreciation and amortization
(Loss) on sale of long-lived asset
Impairment of long-lived assets
Total operating expenses
Operating income
60,709
39,463
19,958
63,482
-
1,500
185,112
31,383
61,868
33,126
17,815
62,005
(430)
110
174,494
132,393
52,986
10,763
18,645
60,163
-
2,345
144,902
120,860
6
Gain on sale of available-for-sale securities
11
-
-
46,276
Financial income (expenses)
Interest income
Interest expense
Other financial items, net
Net financial expenses
Income (loss) before equity in net earnings of
investees, income taxes and noncontrolling
interest
Income taxes
Equity in net earnings of investees
Gain on sale of investee
Net income (loss)
Net loss attributable to noncontrolling interest
Net income (loss) attributable to Golar LNG Ltd
Earnings per share attributable to Golar LNG
Ltd stockholders:
Per common share amounts:
(Loss) earnings - Basic
(Loss) earnings - Diluted
Cash dividends declared and paid
7
8
11
11
9
9
11,710
(57,874)
44,472
(1,692)
45,828
(96,489)
(82,100)
(132,761)
54,906
(112,336)
(8,162)
(65,592)
29,691
(368)
101,544
(1,643)
(4,902)
8,355
31,501
(8,419)
23,082
(510)
(2,406)
-
(3,284)
(6,705)
(9,989)
299
13,640
27,268
142,751
(6,547)
136,204
$0.34
$0.34
-
$(0.15)
$(0.15)
$1.00
$2.09
$2.07
$2.25
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Golar LNG Limited
Consolidated Statements of Comprehensive Income for the years ended December 31, 2009, 2008,
and 2007
(in thousands of $)
Note
2009
2008
2007
COMPREHENSIVE INCOME (LOSS)
Net income attributable to Golar LNG Limited
Other comprehensive income (loss), net of tax:
(Losses) gains associated with pensions
Unrealized gains (losses) on marketable
securities held by the Company and investee
Other-than-temporary impairment of available-
for-sale securities reclassified to the income
statement
Unrealized net gain (loss) on qualifying cash flow
hedging instruments
Other comprehensive income (loss)
Comprehensive income (loss)
22
7
7
27
23,082
(9,989)
136,204
(3,455)
9,942
(1,821)
(399)
1,562
13
-
399
11,615
(25,916)
-
-
18,102
41,184
(27,737)
(37,726)
1,575
137,779
Comprehensive income (loss) attributable to:
Stockholders of Golar LNG Limited
Non-controlling interest
38,902
2,282
41,184
(33,870)
(3,856)
(37,726)
137,779
-
137,779
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Golar LNG Limited
Consolidated Balance Sheets as of December 31, 2009 and 2008
(in thousands of $)
Note
2009
2008
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash and short-term investments
Trade accounts receivable
Other receivables, prepaid expenses and accrued income
Amounts due from related parties
Inventories
Total current assets
Long-term assets
Restricted cash
Equity in net assets of non-consolidated investees
Vessels and equipment, net
Vessels under capital leases, net
Deferred charges
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt
Current portion of obligations under capital leases
Trade accounts payable
Accrued expenses
Amounts due to related parties
Other current liabilities
Total current liabilities
Long-term liabilities
Long-term debt
Obligations under capital leases
Other long-term liabilities
Total liabilities
18
13
14
18
11
15
16
17
19
23
24
20
21
23
24
25
EQUITY
Share capital 67,576,866 common shares of $1.00 each
issued and outstanding
Treasury shares
Additional paid-in capital
Contributed surplus
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
26
26
122,231
40,651
5,879
5,690
795
6,882
182,128
594,154
21,243
653,496
992,563
8,979
39,873
2,492,436
74,504
8,588
23,529
22,257
298
76,586
205,762
707,722
844,355
76,413
1,834,252
67,577
(6,841)
96,518
200,000
(18,819)
157,076
495,511
162,673
658,184
2,492,436
56,114
60,352
11,352
11,666
538
4,748
144,770
557,052
30,924
668,141
893,172
10,292
55,378
2,359,729
71,395
6,006
21,454
25,929
140
142,105
267,029
737,226
784,421
77,220
1,865,896
67,577
(6,834)
291,952
-
(34,639)
134,089
452,145
41,688
493,833
2,359,729
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Golar LNG Limited
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
(in thousands of $)
Note
2009
2008
2007
Operating activities
Net (loss) income
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation and amortization
Amortization of deferred charges
Undistributed earnings of non-consolidated investees
Gain on sale of available-for-sale securities
Gain on sale of vessel and newbuilding and long-lived assets
Gain on sale of long-lived assets
Gain/loss on sale of investee
Gain/loss on termination of equity swap
Compensation cost related to stock options
Unrealized foreign exchange (gains) losses
Fixed-rate debt settlement costs
Drydocking expenditure
Impairment of long-lived assets
Other than temporary impairment of available-for-sale securities
Trade accounts receivable
Inventories
Prepaid expenses, accrued income and other assets
Amount due from/to related companies
Trade accounts payable
Accrued expenses
Interest element included in long-term lease obligations
Other current liabilities
Net cash provided by operating activities
Investing activities
Additions to newbuildings
Additions to vessels and equipment
Long-term restricted cash
Investment in associated companies
Investment in available-for-sale securities
Proceeds from disposal of long-lived assets
Proceeds from sale of investments in available-for-sale
securities
Proceeds from sale of investments in investees
Settlement on termination of equity swaps
Restricted cash and short-term investments
Net cash (used in) provided by investing activities
31,501
(3,284)
142,751
63,483
1,280
4,559
-
-
-
(8,355)
(15,904)
1,689
12,955
-
(9,807)
(1,500)
-
5,473
(2,238)
7,145
(99)
2,075
(3,671)
1,182
(46,005)
43,763
-
(112,945)
18,168
(85)
-
-
-
11,010
7,691
19,701
(56,460)
62,005
2,773
2,406
-
(78,108)
(430)
-
(832)
3,092
(42,767)
8,998
(19,598)
110
1,871
2,133
(725)
4,715
138
12,778
(2,158)
1,908
93,470
48,495
-
(322,183)
42,352
(25,970)
(2,372)
233,244
165
-
(538)
(8,246)
(83,548)
60,163
1,072
(12,422)
(46,276)
(41,088)
-
(27,268)
(7,438)
5,962
2,309
-
(14,694)
(2,345)
-
(7,194)
(857)
8,636
(11)
(1,130)
(2,504)
3,163
12,226
73,055
(1,103)
(47,041)
211
-
-
92,618
93,688
77,907
7,974
181
224,435
F-7
Golar LNG Limited
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
(Continued)
(in thousands of $)
Financing activities
Proceeds from long-term debt
Repayments of long-term capital lease obligations
Repayments of long-term debt
Financing costs paid
Cash dividends paid
Dividends paid to noncontrolling partner
Payments to repurchase treasury shares
Proceeds from disposal of treasury shares on exercise of
stock options (including receipt of dividends)
Proceeds from issuance of equity on exercise of stock
options
Proceeds from issuance of equity
Proceeds from issuance of equity in subsidiaries to
noncontrolling interest (1)
Net cash provided (used in) by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest paid, net of capitalized interest
Income taxes paid
Footnote:
Note
2009
2008
2007
24
25
24
28
44,999
370,000
120,000
(6,883)
(71,396)
-
-
(1,360)
(3,912)
(5,497)
(377,044)
(13,600)
(67,438)
(2,000)
-
(4,770)
(180,693)
(168)
(145,772)
(2,000)
(31,024)
1,974
1,007
-
-
-
115,392
78,814
66,117
56,114
122,231
-
-
715
75,345
(94,572)
(129,625)
185,739
56,114
(168,367)
129,123
56,616
185,739
51,145
950
62,768
575
68,306
1,030
(1) Following the successful completion of the Private Placement Offering in August 2009, Golar Energy received total
cash proceeds of USD 115.4 million, net of fees and offering expenses, from the issuance and sale of 59,843,000 shares
to the private institutional investors, at a subscription price of USD 2 per share. This included USD 9.7 million of cash
proceeds relating to 4,843,000 additional shares issued under the “Green Shoe” option.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Golar LNG Limited
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2009, 2008 and 2007
(in thousands of $)
Share
Capital
Treasury
Shares
Additional
Paid in
Capital
Contrib-
uted
Surplus
Accumulated
Other
Comprehen-
sive Loss
Accumul-
ated
Earnings
Non-
controlling
Interest
Total
Stockholders’
Equity
Balance at December 31, 2006
65,562
Net income
Cash dividends
Grant of share options
Exercise of share options
Equity in gain on disposal of
treasury shares by investee
Gain on issuance of shares by
investees
Other comprehensive income
Share issue
Non-controlling interest
capital distribution
Repurchase and cancellation
of ordinary shares
Purchase of treasury shares
-
-
-
56
-
-
-
3,200
-
(1,241)
-
-
(8,201)
-
-
-
-
-
-
-
-
-
-
214,011
-
(8,477)
235,948
32,436
539,480
-
-
6,838
377
856
574
-
72,146
-
(6,130)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,575
-
-
-
-
136,204
(145,772)
176
282
-
-
-
-
-
(15,452)
-
6,547
-
-
-
-
-
-
-
(2,000)
-
-
142,751
(145,772)
7,014
715
856
574
1,575
75,346
(2,000)
(22,823)
(8,201)
Balance at December 31, 2007
67,577
(8,201)
288,672
-
(6,902)
211,386
36,983
589,515
Net (loss) income
Cash dividends
Grant of share options
Disposal of treasury shares on
exercise of share options
Gain on issuance of shares by
investees
Non-controlling interest
capital contribution
Other comprehensive loss
-
-
-
-
-
-
-
-
348
-
1,019
-
-
-
-
-
3,092
(479)
667
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,737)
(9,989)
(67,438)
-
130
-
-
-
6,705
-
-
-
-
1,856
(3,856)
Balance at December 31, 2008
67,577
(6,834)
291,952
-
(34,639)
134,089
41,688
Net income
Grant of share options
Share options cancelled
Exercise of share options
Disposal of treasury shares
Gain on issuance of shares by
investees
Non-controlling interest’s
purchase price paid in excess of
net assets acquired from parent
Transfer to contributed
surplus(1)
Non-controlling interest
capital contribution
Other comprehensive income
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(7)
-
-
-
-
-
-
1,689
(181)
(1,655)
965
-
-
-
-
-
-
3,748
-
(200,000)
200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
15,820
23,082
-
181
985
(1,261)
-
-
-
-
-
8,419
-
-
-
-
-
-
-
(3,284)
(67,090)
3,092
670
667
1,856
(31,593)
493,833
31,501
1,689
-
(670)
(1,268)
965
3,748
-
110,284
110,284
2,282
18,102
Balance at December 31, 2009
67,577
(6,841)
96,518
200,000
(18,819)
157,076
162,673
658,184
Footnote:
(1) Contributed Surplus is ‘capital’ that can be returned to shareholders without the need to reduce share capital. This
change took place in the third quarter of 2009 thereby giving Golar LNG greater flexibility when it comes to declaring
dividends.
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Golar LNG Limited
Notes to Consolidated Financial Statements
1.
GENERAL
Golar LNG Limited (the “Company” or “Golar”) was incorporated in Hamilton, Bermuda on May 10,
2001 for the purpose of acquiring the liquefied natural gas (“LNG”) shipping interests of Osprey
Maritime Limited (“Osprey”), which was owned by World Shipholding Limited, a company indirectly
controlled by Trusts established by John Fredriksen for the benefit of his immediate family. Mr.
Fredriksen is a Director, the Chairman and President of Golar. As of December 31, 2009, World
Shipholding Limited owned 46.18% (2008: 46.17%) of Golar.
As of December 31, 2009, the Company operated a fleet of twelve LNG carriers and floating storage
regasification units (“FSRUs”), six of which are currently employed under long-term charter contracts.
As of April 2010, the Company leased in eight of its vessels under long-term lease agreements, owned
three vessels including a 60% ownership interest in one other vessel, the Golar Mazo, and chartered-in
one vessel under a short-term charter. The Company also has a 50% equity interest in a thirteenth vessel.
In connection with a corporate restructuring of Golar and a private placement offering in 2009, Golar
LNG Energy Limited (“Golar Energy”) was incorporated in June 2009, under the laws of Bermuda. As
part of this reorganisation, Golar established Golar Energy as a wholly-owned subsidiary, and transferred
interests in eight liquefied natural gas (“LNG”) vessels, a 50% equity interest in another LNG carrier, the
Gandria and certain other investments. Golar Energy is a publicly listed Bermudan company, specializing
in the acquisition, ownership, operation and chartering of LNG carriers and floating storage regasification
units (“FSRUs”) and the development of liquefaction projects.
Through the reorganisation on August 12, 2009, Golar retained the assets with long-term secured
employment and steady cash flow. Golar will thereby have the potential to offer its shareholders a yield
reflecting its contracts and cash flow. Golar Energy acquired assets with significantly less contract
exposure than the assets being retained by Golar.
Further detail of the corporate restructuring and private placement offering are provided below:
•
• Golar transferred to Golar Energy capital stock in its wholly owned subsidiaries and other equity
interests in investments, in exchange for 168.5 million new common shares in the Company at a
subscription price of $2 per share, giving rise to consideration of $337 million and deferred
consideration (“seller’s credit”) in respect of the Golar Freeze..
Immediately subsequent to the corporate restructuring described above, Golar Energy issued 59.8
million new common shares to private institutional investors at a subscription price of $2 per
share as part of the private placement resulting in aggregate gross proceeds to Golar Energy of
$119.7 million. This includes $9.7 million of proceeds relating to the 4.8 million additional
shares issued under the “Green Shoe” option which were exercised in September 2009 in
connection with the private placement.
In connection with the private placement 12 million warrants were also issued by Golar Energy to
private investors. Each warrant gives the holder the right to subscribe for one new share in Golar
Energy at a subscription price of $2 per share. The warrants can only be exercised on December
15, 2010.
•
Golar Energy’s ordinary shares are listed on the Oslo Stock Exchange.
F-10
2.
ACCOUNTING POLICIES
Basis of accounting
The financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America. Investments in companies in which the Company directly or indirectly holds
more than 50% of the voting control are consolidated in the financial statements, as well as certain
variable interest entities in which the Company is deemed to be subject to a majority of the risk of loss
from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns,
or both. All inter-company balances and transactions are eliminated. The non-controlling interests of the
above mentioned subsidiaries are included in the Consolidated Balance Sheets and Statements of
Operations as “Non-controlling interests”.
On January 1, 2009, the Company adopted a newly issued accounting standard for its non-controlling
interests. In accordance with the accounting standard, the Company changed the accounting and reporting
for its minority interests by recharacterising them as non-controlling interests and classifying them as a
component of equity in its consolidated Balance Sheet. The newly issued accounting standard requires
enhanced disclosures to clearly distinguish between the Company’s interests and the interests of non-
controlling owners. At December 31, 2009 the Company’s primary non-controlling interests relate to
Golar LNG Energy Limited and Faraway Maritime Shipping Corporation of which it has a controlling
interest of 73.8% and 60% respectively. The presentation and disclosure requirements of the newly issued
accounting standard were applied retrospectively and only change the presentation of non-controlling
interests and its inclusion in equity. There was no significant impact on the Company’s ability to comply
with the financial covenants contained in its debt covenant agreements.
A variable interest entity is defined by the accounting standard as a legal entity where either (a) equity
interest holders as a group lack the characteristics of a controlling financial interest, including decision
making ability and an interest in the entity’s residual risks and rewards, or (b) the equity holders have not
provided sufficient equity investment to permit the entity to finance its activities without additional
subordinated financial support, or (c) the voting rights of some investors are not proportional to their
obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns
of the entity, or both and substantially all of the entity’s activities either involve or are conducted on
behalf of an investor that has disproportionately few voting rights.
The guidance further states a variable interest entity to be consolidated if any of its interest holders are
entitled to a majority of the entity’s residual returns or are exposed to a majority of its expected losses.
See note 23, describing the arrangements under the Gracilis Loan facility and note 24 in respect of the
Five Ships Leases.
Investments in companies over which the Company exercises significant influence but, does not
consolidate are accounted for using the equity method. The Company records its investments in equity-
method investees on the consolidated balance sheets as “Equity in net assets of non-consolidated
investees” and its share of the investees’ earnings or losses in the Consolidated Statements of Operations
as “Equity in net earnings of investees.” The difference, if any, between the purchase price and the book
value of the Company’s investments in equity method investees is included in the accompanying
Consolidated Balance Sheets in “Equity in net assets of non-consolidated investees.”
Investments in which the Company has a majority interest but in which it does not control, due to the
participating rights of noncontrolling interests, are accounted for using the equity method.
F-11
Revenue and expense recognition
Revenues include minimum lease payments under time charters, fees for repositioning vessels as well as
the reimbursement of certain vessel operating and drydocking costs. Revenues generated from time
charters, which are classified as operating leases by the Company, are recorded over the term of the
charter as service is provided.
Reimbursement for drydocking costs is recognized evenly over the period to the next drydocking, which
is generally between two to five years. Repositioning fees (which are included in time charter revenue)
received in respect of time charters are recognized at the end of the charter when the fee becomes fixed
and determinable. However, where there is a fixed amount specified in the charter, which is not
dependent upon redelivery location, the fee will be recognized evenly over the term of the charter. Where
a vessel undertakes multiple single voyage time charters, revenue is recognized, including the
repositioning fee if fixed and determinable, on a discharge-to-discharge basis. Under this basis, revenue
is recognized evenly over the period from departure of the vessel from its last discharge port to departure
from the next discharge port. For arrangements where operating costs are borne by the charterer on a pass
through basis, the pass through of operating costs is reflected in revenue and expenses.
Under time charters, voyage expenses are paid by the Company’s customers. Voyage related expenses,
principally fuel, may also be incurred when positioning or repositioning the vessel before or after the
period of time charter and during periods when the vessel is not under charter or is offhire, for example
when the vessel is undergoing repairs. These expenses are recognized as incurred.
Revenue includes amounts receivable from loss of hire insurance, which is recognized on an accrual
basis, to the value of $nil, $0.7 million and $nil for the years ended December 31, 2009, 2008 and 2007,
respectively.
Vessel operating expenses, which are recognized when incurred, include crewing, repairs and
maintenance, insurance, stores, lube oils, communication expenses and third party management fees.
Gain on sale of vessels/ newbuildings
Gain on sale of vessels or newbuildings is recognized when all risks have been transferred and are
determined by comparing proceeds received with the carrying value of the vessel or newbuilding.
Cash and cash equivalents
The Company considers all demand and time deposits and highly liquid investments with original
maturities of three months or less to be equivalent to cash.
Restricted cash and short-term investments
Restricted cash and short-term investments consist of bank deposits, which may only be used to settle
certain pre-arranged loan or lease payments and deposits made in accordance with its contractual
arrangements under Equity Swap Line facilities. The Company considers all short-term investments as
held to maturity in accordance with guidance Accounting for Certain Investments in Debt and Equity
Securities. These investments are carried at amortized cost. The Company places its short-term
investments primarily in fixed term deposits with high credit quality financial institutions.
Inventories
Inventories, which are comprised principally of fuel, lubricating oils and ship spares, are stated at the
lower of cost or market value. Cost is determined on a first-in, first-out basis.
F-12
Vessels and equipment
Vessels and equipment are stated at cost less accumulated depreciation. The cost of vessels and
equipment less the estimated residual value is depreciated on a straight-line basis over the assets’
remaining useful economic lives. Residuals values are provided by third party independent valuers and
are adjusted downwards if required.
Refurbishment costs incurred during the period are capitalized as part of vessels and equipment and
depreciated over the vessels’ remaining useful economic lives. Refurbishment costs are costs that
appreciably increase the capacity, or improve the efficiency or safety of vessels and equipment.
Drydocking expenditures are capitalized when incurred and amortized over the period until the next
anticipated drydocking, which is generally between two and five years. For vessels that are newly built or
acquired, the Company has adopted the “built-in overhaul” method of accounting. The built-in overhaul
method is based on the segregation of vessel costs into those that should be depreciated over the useful
life of the vessel and those that require drydocking at periodic intervals to reflect the different useful lives
of the components of the assets. The estimated cost of the drydocking component is amortized until the
date of the first drydocking following acquisition, upon which the cost is capitalized and the process is
repeated.
Useful lives applied in depreciation are as follows:
Vessels
Deferred drydocking expenditure
Office equipment and fittings
40 years
two to five years
three to six years
Interest costs capitalized in connection with the conversion of vessels into LNG Floating Storage
Regasification Units (“FSRUs”) for the years ended December 31, 2009, 2008 and 2007 were $1.3
million, $1.7 million and $0.5 million, respectively.
Vessels under capital lease
The Company leases certain vessels under agreements that have been accounted for as capital leases in
accordance with the guidance Accounting for Leases. Obligations under capital leases are carried at the
present value of future minimum lease payments, and the asset balance is amortized on a straight-line
basis over the remaining economic useful lives of the vessels. Interest expense is calculated at a constant
rate over the term of the lease.
Deferred credit from capital leases
In accordance with the guidance, Accounting for Sales with Leasebacks, income derived from the sale of
subsequently leased assets is deferred and amortized in proportion to the amortization of the leased assets
(See note 25). Amortization of deferred income is offset against depreciation and amortization expense in
the Consolidated Statement of Operations.
Impairment of long-lived assets
In accordance with the guidance, Accounting for the Impairment or Disposal of Long-Lived Assets, the
Company continually monitors events and changes in circumstances that could indicate carrying amounts
of long-lived asset may not be recoverable. When `such events or changes in circumstances are present,
the Company assesses the recoverability of long-lived assets by determining whether the carrying value of
such assets will be recovered through undiscounted expected future cash flows. If the total of the future
cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets.
F-13
The Company assessed the potential impairment of its vessels and other long-lived assets by comparing
the expected undiscounted cash flows of its long-lived assets to their respective carrying values. The
Company concluded there was no impairment of its long-lived assets as of the fourth quarter 2009. The
outlook for the world economy is currently uncertain and therefore it is possible that the Company’s
business prospects could decline over the next year. This could represent a triggering event for a further
assessment of the carrying value of the Company’s long-lived assets and may lead to a write-down of
these assets. In respect of parts ordered for the FSRU conversion project that were deemed not necessary
for the completion, the Company incurred impairment charges.
Deferred charges
Costs associated with long-term financing, including debt arrangement fees, are deferred and amortized
over the term of the relevant loan. Amortization of deferred loan costs is included in “Other financial
items, net” in the Consolidated Statement of Operations. If a loan is repaid early, any unamortized
portion of the related deferred charges is charged against income in the period in which the loan is repaid.
Marketable securities
In accordance with the guidance Accounting for Certain Investments in Debt and Equity, the Company’s
investments in marketable securities in which the Company does not have the ability to exercise
significant influence over the investee are classified as available-for-sale securities and are carried at fair
value. Net unrealized gains or losses on available-for-sale securities are reported as a component of
accumulated other comprehensive income. Realized gains and losses on available-for-sale securities are
computed based upon the historical cost of these securities applied using the weighted-average historical
cost method.
The Company analyzes its available-for-sale securities for impairment during each reporting period to
evaluate whether an event or change of circumstances has occurred in that period that may have a
significant adverse effect on the fair value of the investment. The Company records an impairment
charge through current-period earnings and adjusts the cost basis for such other-than-temporary declines
in fair value when the fair value is not anticipated to recover above cost within a reasonable period after
the measurement date, unless there are mitigating factors that indicate that an impairment charge through
earnings may not be required. If an impairment charge is recorded, subsequent recoveries in fair value
are not reflected in earnings until sale of the security. The Company records these investments within
“Other non-current assets” in the Consolidated Balance Sheet.
Unlisted investments
Unlisted investments in which the Company holds less than a 20% interest and in which it does not have
the ability to exercise significant influence over the investee are initially recorded at cost and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company records these investments within “Other non-current assets” in the
Consolidated Balance Sheet.
Derivatives
The Company uses derivatives to reduce market risks associated with its operations. The Company uses
interest rate swaps for the management of interest rate risk exposure. The interest rate swaps effectively
convert a portion of the Company's debt from a floating to a fixed rate over the life of the transactions
without an exchange of underlying principal.
F-14
The Company seeks to reduce its exposure to fluctuations in foreign exchange rates through the use of
foreign currency forward contracts.
From time to time the Company enters into equity swaps. Under these facilities the Company swaps with
its counterparty (usually a major bank) the risk of fluctuations in the Company’s share price and the
benefit of any dividends, for a fixed payment of LIBOR plus margin. The counterparty may acquire
shares in the Company to hedge its own position. However, there is no obligation by the Company to
purchase any shares from the counterparty. In addition the Company may also enter into equity swap
arrangements indexed to other companies.
All derivative instruments are initially recorded at cost as either assets or liabilities in the accompanying
Consolidated Balance Sheet and subsequently remeasured to fair value, regardless of the purpose or intent
for holding the derivative. Where the fair value of a derivative instrument is a net liability, the derivative
instrument is classified in “Other current liabilities” in the Consolidated Balance Sheet. Where the fair
value of a derivative instrument is a net asset, the derivative instrument is classified in “Other non-current
assets” in the Consolidated Balance Sheet, except if the current portion is a liability, in which case the
current portion is included in “Other current liabilities.” The method of recognizing the resulting gain or
loss is dependent on whether the derivative contract is designed to hedge a specific risk and also qualifies
for hedge accounting. Effective October 1, 2008, the Company commenced hedge accounting for certain
of its interest rate swap arrangements designated as cash flow hedges in accordance with the guidance on
Accounting for Derivatives and Hedging Activities. For derivative instruments that are not designated or
do not qualify as hedges under the guidance, the changes in fair value of the derivative financial
instrument are recognized in earnings and recorded each period in current earnings in “Other financial
items, net”.
When a derivative is designated as a cash flow hedge, the Company formally documents the relationship
between the derivative and the hedged item. This documentation includes the strategy risk and risk
management for undertaking the hedge and the method that will be used to assess effectiveness of the
hedge. If the derivative is an effective hedge changes in the fair value are initially recorded as a
component of accumulated other comprehensive income in stockholders’ equity. The ineffective portion
of the hedge is recognized immediately in earnings, as are any gains or losses on the derivative that are
excluded from the assessment of hedge effectiveness. The Company does not apply hedge accounting if
it is determined that the hedge was not effective or will no longer be effective, the derivative was sold or
exercised, or the hedged item was sold or repaid.
In the periods when the hedged items affect earnings, the associated fair value changes on the hedged
derivatives are transferred from stockholders’ equity to the corresponding earnings line item on the
settlement of a derivative. The ineffective portion of the change in fair value of the derivative financial
instrument is immediately recognized in earnings. If a cash flow hedge is terminated and the originally
hedged item is still considered probable of occurring, the gains and losses initially recognized in
stockholders’ equity remain there until the hedged item impacts earnings at which point they are
transferred to the corresponding earnings line item (i.e. interest expense). If the hedged items are no
longer probable of occurring, amounts recognized in stockholders’ equity are immediately reclassified to
earnings.
Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the
same category as the cash flows from the items being hedged.
F-15
Foreign currencies
The Company’s and its subsidiaries’ functional currency is the U.S. dollar as all revenues are received in
U.S. dollars and a majority of the Company’s expenditures are made in U.S. dollars. The Company’s
reporting currency is U.S. dollars.
Transactions in foreign currencies during the year are translated into U.S. dollars at the rates of exchange
in effect at the date of the transaction. Foreign currency monetary assets and liabilities are translated
using rates of exchange at the balance sheet date. Foreign currency non-monetary assets and liabilities
are translated using historical rates of exchange. Foreign currency transaction and translation gains or
losses are included in the Consolidated Statements of Operations.
Fair Value measurements
The Company accounts for Fair Value Measurements in accordance with the FASB guidance using
fair value to measure assets and liabilities. The guidance provides a single definition of fair value,
together with a framework for measuring it, and requires additional disclosure about the use of fair value
to measure assets and liabilities.
Stock-based compensation
In accordance with the guidance on Share Based Payment the Company is required to expense the fair
value of stock options issued to employees over the period the options vest. The Company amortizes
stock-based compensation for awards on a straight-line basis over the period during which the employee
is required to provide service in exchange for the award - the requisite service (vesting) period. No
compensation cost is recognized for stock options for which employees do not render the requisite
service. The fair value of employee share options is estimated using the Black-Scholes option-pricing
model.
Earnings per share
In accordance with the guidance relevant for “Earnings per Share”, basic earnings per share (“EPS”) is
computed based on the income available to common stockholders and the weighted average number of
shares outstanding for basic EPS. Treasury shares are not included in the calculation. Diluted EPS
includes the effect of the assumed conversion of potentially dilutive instruments. Such potentially
dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a
loss per share.
Pensions
Defined benefit pension costs, assets and liabilities are recognized in accordance with the guidance on
Accounting for Defined Benefit Pension and Other Postretirement Plans, which requires adjustment of the
significant actuarial assumptions annually to reflect current market and economic conditions. The
guidance states that full recognition of the funded status of defined benefit pension plans to be included
within a Company’s balance sheet. The pension benefit obligation is calculated by using a projected unit
credit method.
Defined contribution pension costs represent the contributions payable to the scheme in respect of the
accounting period.
Operating leases
In accordance with the guidance on operating leases, initial direct costs (those directly related to the
negotiation and consummation of the lease) are deferred and allocated to earnings over the lease term.
Rental income and expense are amortized over the lease term on a straight-line basis.
F-16
Income taxes
Income taxes are based on a separate return basis. The guidance on income taxes prescribes a recognition
threshold and measurement attributes for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. On adoption of this guidance there was no change
to the Company’s financial position.
Deferred tax assets and liabilities are recognized principally for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. Realization of the deferred
income tax asset is dependent on generating sufficient taxable income in future years.
Comprehensive Income
The Company follows the relevant guidance in Reporting Comprehensive Income and its components in
the Consolidated Financial Statements.
As at December 31, 2009 and 2008, the Company’s accumulated other comprehensive loss, net of tax
consisted of the following components:
(in thousands of $)
Unrealized net loss on qualifying cash flow hedging instruments
(Losses) gains associated with pensions
Unrealised gains on marketable securities
2009
11,615
(12,178)
9,942
(18,819)
2008
(25,916)
(8,723)
-
(34,639)
Gain on issuance of shares by investees
The Company recognizes a gain or loss when an equity method investee issues its stock to third parties at
a price per share in excess or below its carrying value resulting in a reduction in the Company’s
ownership interest in the investee. The gain or loss is recorded in the line “Additional paid-in capital.”
Treasury shares
Treasury shares are recognized as a separate component of equity at cost. Upon subsequent disposal of
treasury shares, any consideration is recognized directly in equity.
Use of estimates
The preparation of financial statements in accordance with U.S. GAAP requires that management make
estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
F-17
3.
SUBSIDIARIES AND INVESTMENTS
The following table lists the Company’s principal subsidiaries and their purpose as at December 31, 2009.
Unless otherwise indicated, we own a controlling interest in each of the following subsidiaries.
Name
Golar Gas Holding Company Inc.
Jurisdiction of
Incorporation
Marshall Islands
Purpose
Holding Company and leases four
vessels
Golar Maritime (Asia) Inc.
Republic of Liberia
Holding Company
Gotaas-Larsen Shipping Corporation Marshall Islands
Holding Company
Oxbow Holdings Inc.
British Virgin Islands Holding Company
Faraway Maritime Shipping
Company
Republic of Liberia
Owns Golar Mazo
Golar LNG 1444 Corporation
Republic of Liberia
Previously owned the Golar Frost
Golar LNG 1460 Corporation
Marshall Islands
Owns Gracilis
Golar LNG 2215 Corporation
Marshall Islands
Leases Methane Princess
Golar LNG 2216 Corporation
Marshall Islands
Owns Golar Arctic
Golar LNG 2220 Corporation
Marshall Islands
Leases Golar Winter
Golar LNG 2226 Corporation
Marshall Islands
Leases Grandis
Golar LNG 2234 Corporation
Republic of Liberia
Owns Granosa
Golar International Ltd.
Republic of Liberia
Vessel management
Gotaas-Larsen International Ltd.
Republic of Liberia
Vessel management
Golar Maritime Limited
Bermuda
Management
Golar Management Limited
United Kingdom
Management
Golar Freeze (UK) Limited
United Kingdom
Operates Golar Freeze
Golar Khannur (UK) Limited
United Kingdom
Operates Khannur
Golar Gimi (UK) Limited
United Kingdom
Operates Gimi
Golar Hilli (UK) Limited
United Kingdom
Operates Hilli
Golar Spirit (UK) Limited
United Kingdom
Operates and leases Golar Spirit
Golar Winter (UK) Limited
United Kingdom
Operates Golar Winter
Golar 2215 (UK) Limited
United Kingdom
Operates Methane Princess
Golar 2226 (UK) Limited
United Kingdom
Operates Grandis
Golar Servicos de Operacao de
Embaracaoes Limited
Brazil
Management company
Golar Trading Corporation
Marshall Islands
Charters-in vessels under operating
leases
Golar FSRU 1 Corporation
Marshall Islands
Contracted for the conversion of the
F-18
Name
Jurisdiction of
Incorporation
Purpose
Golar FSRU 2 Corporation
Marshall Islands
Golar FSRU 3 Corporation
Marshall Islands
Golar FSRU 4 Corporation
Marshall Islands
Golar Energy Limited
Cyprus
Golar Offshore Toscana Limited
Cyprus
Golar Spirit to a Floating Storage
Regasification Unit (“FSRU”)
Agent for the conversion of the
Golar Freeze into a FSRU
Contracted for the conversion of the
Golar Winter into a FSRU
Provides contribution for
conversion of the Golar Freeze
the
Holds licence for the construction
of a floating power station for the
generation of electricity
Holds investment in associate, OLT
Offshore LNG Toscana S.p.A
Golar GP LLC – Limited Liability
Company
Golar Partners Operating LLC –
Limited Liability Company
Golar LNG Partners LP – Limited
Partnership
Marshall Islands
Holding company
Marshall Islands
Holding company
Marshall Islands
Holding company
Golar LNG Management
Bermuda
Management company
Golar Energy Management
Bermuda
Management company
Golar LNG Energy Limited
Bermuda
Holding company
4.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective July 2009, the Financial Accounting Standards Board (‘‘FASB’’) codified accounting literature
into a single source of authoritative accounting principles, except for certain authoritative rules and
interpretive releases issued by the SEC. Since the codification did not alter existing U.S. GAAP, it did not
have an impact on the Company’s consolidated financial statements. All references to pre-codified U.S.
GAAP have been removed from these financial statements.
In June 2009, the FASB issued new guidance relating to the accounting for transfers of financial assets.
The purpose of this guidance is to improve the relevance, representational faithfulness, and comparability
of the information that a reporting entity provides in its financial statements about a transfer of financial
assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial assets. These requirements are
effective for us for transfers occurring on or after January 1, 2010. The Company does not expect the
adoption of this guidance to have a material impact on its consolidated financial statements.
In June 2009, the FASB issued new guidance relating to the consolidation of variable interest entities.
This guidance changes how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated and requires a company to
provide additional disclosures about its involvement with variable interest entities and any significant
F-19
changes in risk exposure due to that involvement. This guidance is effective for interim and annual
periods beginning after November 15, 2009. The Company does not expect the adoption of this guidance
to have a material impact on its consolidated financial statements.
In October 2009, the FASB issued new guidance related to revenue recognition for arrangements with
multiple deliverables and those which include software elements. The issues address certain aspects of the
accounting by the vendor that involve more than one deliverable or unit of accounting. The guidance will
allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner
that better reflects the transaction’s economics and will remove non-software components of tangible
products and certain software components of tangible products from the scope of existing software
revenue guidance. For contracts with software elements this will result in the recognition of revenue
similar to that for other tangible products. This guidance is effective for annual periods beginning after
June 15, 2010. Early adoption is permitted and may be prospective or retrospective. The Company does
not expect the adoption of this guidance to have a material impact on its consolidated financial
statements.
5.
SEGMENTAL INFORMATION
The Company has not presented segmental information as it considers it operates in one reportable
segment, the LNG vessel market. During 2009, 2008 and 2007, the vast majority of the Company’s fleet
operated under time charters and in particular with four charterers, Pertamina, Petrobras, BG Group plc
and Shell. Pertamina is the state-owned oil and gas company of Indonesia. Petrobras is a Brazilian energy
company. BG Group plc and Shell are both head quartered in the United Kingdom. In time charters, the
charterer, not the Company, controls the choice of which routes the Company's vessel will serve. These
routes can be worldwide. Accordingly, the Company's management, including the chief operating
decision makers, does not evaluate the Company’s performance either according to customer or
geographical region.
In the years ended December 31, 2009, 2008 and 2007, revenues from the following customers accounted
for over 10% of the Company’s consolidated revenues:
(in thousands of $)
BG Group plc
Shell
Pertamina
Petrobras
2009
2008
2007
61,299
45,564
40,449
61,261
27% 75,119
20% 85,323
18% 37,066
-
27%
33% 84,930
37% 58,786
16% 37,247
-
-
38%
26%
17%
-
6.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors events and changes in circumstances that could indicate carrying
amounts of long-lived asset may not be recoverable. The Company assessed the potential impairment of
its vessels by comparing the undiscounted cash flows of its vessels to their carrying values over the
existing service potential of the vessels. The Company concluded that there was no impairment of its
vessels.
However, in respect of parts ordered for the FSRU conversion project that were deemed not necessary for
the completion of the conversion of the Golar Spirit, the Company incurred impairment charges for the
years ended December 31, 2009, 2008 and 2007 totalling $1.5 million, $0.1 million, and $2.3 million,
respectively. During the fourth quarter of 2009, some of the assets were used in the conversion of the
Golar Freeze. In 2008, some of these parts were sold recognizing a gain on sale of $0.4 million. As of
F-20
December 31, 2009, the total carrying value of the remaining equipment (net of the impairment provision)
is $13.5 million.
7. OTHER FINANCIAL ITEMS, NET
(in thousands of $)
Amortization of deferred financing costs
Financing arrangement fees and other costs
Finance transaction-related costs previously
capitalized
Other than temporary impairment of available-for-
sale securities
Mark-to-market adjustment for interest rate swap
derivatives (See note 27)
Mark-to-market adjustment for foreign currency
derivatives (See note 27)
Gain (loss) on termination of equity swap derivatives
(including mark-to-market adjustment) (See note 27)
Natural gas forward contract (See note 27)
Foreign exchange gain (loss) on capital lease
obligations and related restricted cash, net
Foreign exchange gain (loss) on operations
Other
2009
(1,287)
(1,305)
-
2008
(2,773)
(9,265)
(4,189)
2007
(1,928)
(818)
-
-
(1,871)
-
17,385
(30,459)
(13,689)
31,045
(60,531)
17,603
(8,748)
-
(12,959)
(6,010)
-
44,472
-
43,047
(7,688)
377
(82,100)
2,658
7,438
386
(2,308)
99
-
(8,162)
Amortization of deferred financing costs amounts to $1.3 million and $2.8 million for the years ended
December 31, 2009 and December 31, 2008 respectively. The 2008 balance includes a write-off of
deferred finance charges relating to the refinancing of the Methane Princess loan and the Golar Spirit
portion of the Golar Gas Holdings loan in November 2008.
Finance arrangement fees and other costs were $1.3 million and $9.3 million for the years ended
December 31, 2009 and December 31, 2008 respectively. The cost has decreased significantly in 2009
from 2008 due to fixed-rate debt settlement costs of $9.0 million arising from the refinancing of the
Methane Princess loan in connection with the new Golar LNG Partners revolving credit facility entered
into in September 2008. At the time of the refinancing $125 million of the Methane Princess loan facility
was fixed-rate debt. Accordingly, simultaneous with the refinancing of the original debt the fixed rate
debt portion was cancelled resulting in the charge. However, the Company immediately entered into
interest rate swaps for a similar amount of debt at a lower interest rate.
Finance transaction-related costs of $4.2 million refer to costs previously capitalized associated with the
Company’s plans to separate the Company’s long-term charters from other business opportunities. These
costs were written-off in 2008.
For 2008, the Company recognized other-than-temporary impairments on available-for-sale securities (as
defined under SFAS 115) totalling $1.9 million. During the first three quarters of 2008, the Company
recognized unrealized losses on available-for-sale securities totalling $0.4 million. These unrealized
losses were recognized and presented as a component of other comprehensive income. During the fourth
quarter of 2008, the Company concluded unrealized losses on available-for-sale securities were other-
than-temporary based on the severity of the decline in the market value versus the cost basis.
Consequently, amounts previously recognized as unrealized losses and presented as a component of other
F-21
comprehensive income, were reclassified and recognized within the income statement. In addition, the
Company recognized losses from impairment on available-for-sale securities totalling $1.5 million
immediately in the income statement in the fourth quarter of 2008.
The foreign exchange loss on capital leases and related restricted cash for the year ended December 31,
2009 arises as a result of the retranslation of the capital lease obligations and related restricted cash
securing those obligations.
8.
TAXATION
The Company adopted the relevant guidance in Accounting for Uncertainty in Income Taxes, on January
1, 2007. However, the adoption of this guidance did not result in any change to the Company’s liability
for unrecognized tax benefits.
The components of income tax expense are as follows:
(in thousands of $)
Current tax expense:
U.S.
U.K.
Brazil
Total current expense
Deferred tax expense (income):
U.K.
Total income tax expense (income)
2009
-
(218)
1,098
880
763
1,643
2008
-
433
805
1,238
(728)
510
2007
-
(299)
-
(299)
-
(299)
Bermuda
Under current Bermuda law, The Minister of Finance in Bermuda has granted the Company a tax exempt
status until March 28, 2016, under which no income taxes or other taxes (other than duty on goods
imported into Bermuda and payroll tax in respect of any Bermuda-resident employees) are payable by the
Company in Bermuda. If the Minister of Finance in Bermuda does not grant a new exemption or extend
the current tax exemption, and if the Bermudian Parliament passes legislation imposing taxes on
exempted companies, the Company may become subject to taxation in Bermuda after March 2016.
United States
Pursuant to the Internal Revenue Code of the United States (the "Code"), U.S. source income from the
international operations of ships is generally exempt from U.S. tax if the Company operating the ships
meets certain requirements. Among other things, in order to qualify for this exemption, the company
operating the ships must be incorporated in a country which grants an equivalent exemption from income
taxes to U.S. citizens and U.S. corporations and must be more than 50% owned by individuals who are
residents, as defined, in such country or another foreign country that grants an equivalent exemption to
U.S. citizens and U.S. corporations. The management of the Company believes that it satisfied these
requirements and therefore by virtue of the above provisions, it was not subject to tax on its U.S. source
income, except in the case of certain intra group income during 2006 for which a provision of $0.2
million has been made.
A reconciliation between the income tax expense resulting from applying either the U.S. Federal or
Bermudan statutory income tax rate and the reported income tax expense has not been presented herein as
F-22
it would not provide additional useful information to users of the consolidated financial statements as the
Company’s net income is subject to neither Bermuda nor U.S. tax.
United Kingdom
Current taxation income of $0.2 million, charge of $0.4 million and income of $0.3 million for the years
ended December 31, 2009, 2008 and 2007, respectively, relates to taxation of the operations of the
Company’s United Kingdom subsidiaries, which includes amounts paid by one of the U.K. subsidiary’s
branch office in Oslo. Taxable revenues in the U.K. are generated by U.K. subsidiary companies of Golar
and are comprised of management fees received from Golar group companies as well as revenues from
the operation of eight of Golar’s vessels. These vessels are sub-leased from other non-U.K. Golar
companies, which in turn are leased from financial institutions. The statutory tax rate in the U.K. is
currently 28%.
In December 2007, the U.K. tax authorities commenced an examination of the Company’s U.K. income
tax returns for 2006. As of December 31, 2009, the examination remains ongoing. The Company does
not anticipate that this examination will result in a significant change to its financial position. As at
December 31, 2009, the 2009 U.K. income tax returns had not been filed. Accordingly, once filed these
and the years 2008, 2007, 2006, 2005 and 2004 remain open for examination by the U.K. tax authorities.
The Company records deferred income taxes to reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company recorded deferred tax assets of $0.1 million and $0.9
million at December 31, 2009 and 2008, respectively which have been classified as non-current and
included within other long-term assets (See note 19). These assets relate to differences for depreciation
and net operating losses carried forward.
Brazil
Current taxation charge of $1.1 million, $0.8 million and $nil for the years ended December 31, 2009,
2008 and 2007, respectively, refers to taxation levied on the operations of the Company’s Brazilian
subsidiary commencing in 2008.
Other jurisdictions
No tax has been levied on income derived from the Company’s subsidiaries registered in Liberia, the
Marshall Islands and the British Virgin Islands.
Deferred income tax assets are summarized as follows:
(in thousands of $)
Deferred tax assets, gross
Valuation allowances
Deferred tax assets, net
2009
1,083
(956)
127
2008
3,182
(2,292)
890
The valuation allowances on deferred tax assets decreased by $1.4 million (2008: increased $1.0 million).
In future periods, depending upon the financial results, managements’ estimate of the amount of the
deferred tax assets considered realizable may change, and hence the valuation allowances may increase or
decrease.
F-23
9.
EARNINGS PER SHARE
Basic earnings per share for the year ended December 31, 2009 is calculated with reference to the
weighted average number of common shares outstanding during the year. Treasury shares are not
included in the calculation. The computation of diluted EPS for the years ended December 31, 2009,
2008 and 2007, assumes the conversion of potentially dilutive instruments.
The components of the numerator for the calculation of basic and diluted EPS are as follows:
(in thousands of $)
2009
2008
2007
Net (loss) income attributable to Golar LNG Ltd
available to stockholders – basic
23,082
23,082
(9,989)
(9,989)
136,204
136,204
The components of the denominator for the calculation of basic EPS and diluted EPS are as follows:
(in thousands)
Basic earnings per share:
Weighted average number of shares
Weighted average number of treasury shares
Weighted average number of common shares
outstanding
Diluted earnings per share:
Weighted average number of common shares
outstanding
Effect of dilutive share options
Common stock and common stock equivalents
(Loss) earnings per share are as follows:
Basic
Diluted
2009
67,577
(347)
67,230
67,230
105
67,335
2009
$0.34
$0.34
2008
67,577
(363)
67,214
67,214
-
67,214
2008
$(0.15)
$(0.15)
2007
65,314
(31)
65,283
65,283
432
65,715
2007
$2.09
$2.07
For the year ended December, 31 2008, stock options representing rights to acquire 2.7 million of
common stock were excluded from the calculation of diluted loss or earnings per share because the effect
was antidilutive. Stock options are antidilutive when the exercise price of the stock option is greater than
the average market price of the common stock or when the results from operations are a net loss.
10. OPERATING LEASES
Rental income
The minimum contractual future revenues to be received on time charters as of December 31, 2009, were
as follows:
F-24
Year ending December 31,
(in thousands of $)
2010
2011
2012
2013
2014
2015 and thereafter
Total
Total
219,266
196,358
196,497
189,266
190,012
942,179
1,933,578
The long-term contract for one of the Company’s vessels is a time charter but the operating costs are
borne by the charterer on a pass through basis. The pass through of operating costs is not reflected in the
minimum lease revenues set out above.
The cost and accumulated depreciation of vessels leased to third parties at December 31, 2009 and 2008
were $1,572 million and $273 million; and $1,390 million and $240 million, respectively.
Rental expense
Charter hire payments to third parties for certain contracted-in vessels commencing in 2009 are accounted
for as operating leases. The Company is also committed to making rental payments under operating
leases for office premises. The future minimum rental payments under the Company’s non-cancellable
operating leases are as follows:
Year ending December 31,
(in thousands of $)
2010
2011
2012
2013
2014
Total minimum lease payments
Total
12,241
545
545
545
213
14,089
Total rental expense for operating leases was $19.9 million, $9.1 million and $0.2 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
11.
EQUITY IN NET ASSETS OF NON-CONSOLIDATED INVESTEES
At December 31, 2009, the Company has the following participation in investments that are recorded
using the equity method:
Bluewater Gandria NV (“Bluewater Gandria”)
Liquefied Natural Gas Limited (“LNGL”) (1)
Egyptian Company for Gas Services S.A.E (“ECGS”)
2009
50.00%
-
50.00%
2008
50.00%
15.96%
50.00%
(1) LNGL ceased to be accounted for under the equity method during the year ended December 31, 2009.
Please refer to note 19.
F-25
The carrying amounts of the Company’s investments in its equity method investments as at December 31,
2009 and 2008 are as follows:
(in thousands of $)
Bluewater Gandria
LNGL(1)
ECGS
Equity in net assets of non-consolidated investees
2009
20,142
-
1,101
21,243
The components of equity in net assets of non-consolidated investees are as follows:
(in thousands of $)
Cost
Equity in net earnings of investees
Equity in net assets of non-consolidated investees
2009
24,207
(2,964)
21,243
2008
22,335
7,505
1,084
30,924
2008
32,734
(1,810)
30,924
Quoted market prices for ECGS and Bluewater Gandria are not available because shares in ECGS and
Bluewater Gandria are not publicly traded. The market value at December 31, 2009, of the Company’s
investment in LNGL, based on quoted market prices, was $13.45 million.
Bluewater Gandria
In July 2008, the Company acquired a 50% interest in the voting rights of Bluewater Gandria for an initial
equity sum of $22.0 million. Bluewater Gandria is a newly incorporated unlisted company, which has
been formed for the purposes of pursuing opportunities to develop offshore LNG FSRU projects.
Bluewater Gandria is jointly owned and operated together with a third party. Accordingly, the Company
has adopted the equity method of accounting for its 50% investment in Bluewater Gandria, as it considers
it has joint significant influence.
ECGS
In March 2006, the Company acquired 0.5 million common shares in ECGS at a subscription price of $1
per share. This represents a 50% interest in the voting rights of ECGS. ECGS is a newly incorporated
unlisted company, which has been set up to develop hydrocarbon business and in particular LNG related
business in Egypt. ECGS is jointly owned and operated together with other third parties. Therefore the
Company has adopted the equity method of accounting for its 50% investment in ECGS, as it considers it
has joint significant influence.
LNGL
In April 2006, the Company signed an agreement with LNGL, an Australian publicly listed company, to
subscribe for 23 million of its shares in two tranches, at A$0.50 per share. The Company purchased the
first tranche of 13.95 million shares in May 2006, at a cost of $5.1 million, and the second tranche in June
2006, at a cost of $3.5 million. The consideration paid in excess of the fair value of the Company’s share
of net assets acquired, amounted to $7.5 million and has been recognized as goodwill. Pursuant to the
issuance of shares by LNGL, as of December 31, 2008 and 2007 the Company held a 15.96% and 16.97%
interest, in LNGL, respectively. LNGL is a company focused on acting as a link between previously
discovered but uncommercial gas reserves and potential new energy markets. The Company had adopted
the equity method of accounting for its investment in LNGL on the basis that it considered it had
significant influence as demonstrated by its Board representation and position as LNGL’s largest
F-26
shareholder. On restructuring of Golar LNG which took place on August 12, 2009 the investment was
transferred to Golar LNG Energy Limited (“Golar Energy”), for further details on this refer to Note 1.
Subsequently in November 2009, Golar Energy sold a block of 9.6 million LNG Limited shares which
reduced its shareholding to approximately 6.3% of LNG Limited's issued share capital. The sale
realised funds of approximately $11 million and resulted in an accounting profit of $8.4 million.
As a consequence of the dilution of the Company’s interest to 6.3% in 2009 and other notable
factors, the Company concluded that it no longer held significant influence. Accordingly, the
Company changed its accounting treatment of the investment from the equity method to the cost
basis as of November 10, 2009.
12.
GAIN ON ISSUANCE OF SHARES BY INVESTEES
For the years ended December 31, 2009, 2008 and 2007, the Company’s additional paid-in capital
included a gain or loss on issuance of shares by investees, as shown below:
(in thousands of $)
LNGL
Other investments
2009
965
-
965
2008
533
134
667
In year ended December 31, 2009, LNGL announced a number of share placements in which the
Company did not take part. This issue, in addition to various share options being exercised during the
year along with the sale of 9.6 million shares in the latter part of the year, resulted in the dilution of the
Company’s shareholding in LNGL to 6.3%.
13.
TRADE ACCOUNTS RECEIVABLE
As at December 31, 2009, trade accounts receivable are presented net of allowances for doubtful
accounts. The provision for doubtful debts was $nil and $nil for the years ended December 31, 2009 and
2008, respectively.
14. OTHER RECEIVABLES, PREPAID EXPENSES AND ACCRUED INCOME
(in thousands of $)
Other receivables
Prepaid expenses
Accrued interest income
Provision for taxes (See note 20)
15. VESSELS AND EQUIPMENT, NET
(in thousands of $)
Cost
Accumulated depreciation
Net book value
F-27
2009
2,619
1,531
1,540
-
5,690
2008
2,055
1,037
8,574
-
11,666
2009
748,372
(94,876)
653,496
2008
746,181
(78,040)
668,141
Drydocking costs of $12.1 million and $10.0 million are included in the cost amounts above as of
December 31, 2009 and 2008, respectively. Accumulated amortization of those costs as of December 31,
2009 and 2008 were $4.4 million and $5.0 million, respectively.
As at December 31, 2009 and 2008, included in the above amounts is equipment with a net book value of
$1.3 million and $1.5 million, respectively.
Depreciation and amortization expense for the years ended December 31, 2009, 2008 and 2007 was $21.1
million, $21.1 million, and $19.4 million, respectively.
As at December 31, 2009 and 2008, vessels with a net book value of $652.2 million and $666.7 million
respectively were pledged as security for certain debt facilities (See note 23).
In July 2008, the Company sold the Golar Frost to OLT-O recognizing a gain of $78.1 million.
Accordingly, pursuant to the acquisition of a second-hand vessel the Golar Arctic (formerly known as the
Granatina) as of December 31, 2009, Golar owned four vessels (2008: four).
16. VESSELS UNDER CAPITAL LEASES, NET
(in thousands of $)
Cost
Accumulated depreciation and amortization
Net book value
2009
1,261,876
(269,313)
992,563
2008
1,125,114
(231,942)
893,172
As of December 31, 2009, Golar operated eight (2008: eight) vessels under capital leases. These leases
are in respect of two refinancing transactions undertaken during 2003, a lease financing transaction during
2004 and another in 2005.
Drydocking costs of $32.4 million and $37.7 million are included in the cost amounts above as of
December 31, 2009 and 2008, respectively. Accumulated amortization of those costs at December 31,
2009 and 2008 were $19.5 million and $18.3 million respectively.
Depreciation and amortization expense for vessels under capital leases for the years ended December 31,
2009, 2008 and 2007 was $45.9 million, $44.6 million and $44.6 million, respectively.
17. DEFERRED CHARGES
Deferred charges represent financing costs, principally bank fees that are capitalized and amortized to
other financial items over the life of the debt instrument. If a loan is repaid early any un-amortized
portion of the related deferred charges is charged against income in the period in which the loan is repaid.
The deferred charges are comprised of the following amounts:
(in thousands of $)
Debt arrangement fees and other deferred financing charges
Accumulated amortization
2009
13,784
(4,805)
8,979
2008
13,813
(3,521)
10,292
F-28
Amortization expense of deferred charges, for the years ended December 31, 2009, 2008 and 2007 was
$1.3 million, $1.2 million and $1.5 million, respectively.
18. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
The Company’s short-term and long-term restricted cash and investment balances in respect of its debt
and lease obligations and equity swap facilities are as follows:
(in thousands of $)
Total security lease deposits for lease obligations
Restricted cash relating to the Mazo facility
Restricted cash relating to the Equity swap facilities
2009
623,605
11,200
-
634,805
2008
588,376
11,272
17,756
617,404
Restricted cash does not include minimum consolidated cash balances required to be maintained as part of
the financial covenants in some of the Company’s loan facilities, as these amounts are included in “Cash
and cash equivalents”.
As at December 31, 2009, the value of deposits used to obtain letters of credit to secure the obligations for
the lease arrangements described in note 24 was $623.6 million (2008: $588.4 million). These security
deposits are referred to in these consolidated financial statements as restricted cash and earn interest based
upon GBP LIBOR for the Five Ship Leases and the Methane Princess Lease and based upon USD LIBOR
for both the Golar Winter and Grandis Lease. The Company’s restricted cash balances in respect of its
lease obligations are as follows:
(in thousands of $)
Five Ship Leases security deposits
Methane Princess Lease security deposits
Golar Winter Lease security deposits
Grandis Lease security deposits
Total security deposits for lease obligations
Included in short-term restricted cash and short-term investments
Long-term restricted cash
2009
426,821
151,776
-
45,008
623,605
(29,451)
594,154
2008
390,849
137,511
15,008
45,008
588,376
(31,324)
557,052
The analysis of short-term restricted cash and short-term investments at December 31, 2009 and 2008 is
as follows:
(in thousands of $)
Short-term lease security deposits
Restricted cash and short-term investments relating to the Mazo
facility (See note 23)
Restricted cash relating to the Equity swap facility
Short-term restricted cash and short-term investments
2009
29,451
11,200
-
40,651
2008
31,324
11,272
17,756
60,352
F-29
19. OTHER NON-CURRENT ASSETS
(in thousands of $)
Deferred tax asset (See note 8)
Other cost-method investments
Available-for-sale securities (See note 7)
Other long-term assets
2009
127
23,805
-
15,941
39,873
2008
890
10,347
360
43,781
55,378
Other investments relate to the Company’s investment in TORP Technology AS (“TORP Technology”),
LNGL and in OLT–O. TORP Technology, which was acquired in February 2005, is a Norwegian
registered unlisted company, which is involved in the construction of an offshore regasification terminal
in the US Gulf of Mexico. As at December 31, 2009, the Company’s investment in TORP Technology
amounted to $3.0 million representing a 14.8% equity interest in the investee’s issued share capital.
LNGL is an Australian publicly listed company, as a consequence of the dilution of the Company’s
interest to 6.3% in 2009 and other notable factors, the Company concluded that it no longer held
significant influence. Accordingly, the Company changed its accounting treatment of the investment from
the equity method to the cost basis as of November 10, 2009. As of December 31, 2009 the Company’s
investment in LNGL was $13.5 million (See note 11).
OLT-O is an Italian incorporated unlisted company, which is involved in the construction, development,
operation and maintenance of a FSRU terminal to be situated off the Livorno coast of Italy. Prior to
2008, the Company accounted for its investment in OLT-O under the equity method of accounting.
Pursuant to the dilution of its interest to 2.7% in 2008 the Company changed to the cost-method of
accounting. As at December 31, 2009, the Company’s investment in OLT-O was $7.3 million amounting
to a 2.7% interest in OLT–O issued share capital (See Note 11).
Other long term assets contains $13.5 million (net of an impairment charge) which relates to equipment
which was not utilized in the Golar Spirit FSRU conversion following changes to the original
specification (See Note 6).
20.
ACCRUED EXPENSES
(in thousands of $)
Vessel operating and drydocking expenses
Administrative expenses
Interest expense
Provision for taxes (See note 8)
2009
7,405
6,151
8,536
165
22,257
2008
6,263
4,832
14,285
549
25,929
Vessel operating and drydocking expenses accruals are composed of vessel operating expenses including
direct vessel operating costs associated with operating a vessel, such as crew wages, vessel supplies,
routine repair, maintenance, drydocking, lubricating oils, insurances and management fees for the
provision of commercial and technical management services.
Administrative expenses accruals are composed of general overhead, including personnel costs, legal and
professional fees, costs associated with project development, property costs and other general expenses.
Interest expense accruals relate to the overall level of borrowings and may change due to the acquiring or
lease of ships, change in prevailing interest rates of interest rate swaps and other derivative instruments.
F-30
21. OTHER CURRENT LIABILITIES
(in thousands of $)
Deferred drydocking, operating cost and charterhire revenue
Mark-to-market interest rate swaps valuation (See note 27)
Mark-to-market currency swaps valuation (See note 27)
Mark-to-market equity swaps valuation (See note 27)
Deferred credits from capital lease transactions (See note 25)
Other creditors
2009
5,659
36,354
19,043
-
3,964
11,566
76,586
2008
13,527
65,329
50,088
8,211
3,964
986
142,105
Other creditors balance for the year ended December 31, 2009 includes among other things charterhire
that has been received in advance of the year end which relates to 2010.
22.
PENSIONS
Defined contribution scheme
The Company operates a defined contribution scheme. The pension cost for the period represents
contributions payable by the Company to the scheme. The charge to net income for the year ended
December 31, 2009, 2008 and 2007 was $0.7 million, $0.4 million and $0.3 million, respectively.
Defined benefit schemes
The Company has two defined benefit pension plans both of which are closed to new entrants but which
still cover certain employees of the Company. Benefits are based on the employee’s years of service and
compensation. Net periodic pension plan costs are determined using the Projected Unit Credit Cost
method. The Company’s plans are funded by the Company in conformity with the funding requirements
of the applicable government regulations. Plan assets consist of both fixed income and equity funds
managed by professional fund managers.
The Company uses a measurement date of December 31 for its pension plans.
The components of net periodic benefit costs are as follows:
(in thousands of $)
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Net periodic benefit cost
2009
480
2,742
(1,130)
718
2,810
2008
491
2,945
(1,564)
444
2,316
2007
502
2,850
(1,695)
573
2,230
The estimated net loss for the defined benefit pension plans that will be amortized from accumulated
other comprehensive income into net periodic pension benefit cost during the year ending December 31,
2009 is $0.4 million (2008: $0.7 million).
The change in benefit obligation and plan assets and reconciliation of funded status as of December 31
are as follows:
F-31
(in thousands of $)
Reconciliation of benefit obligation:
Benefit obligation at January 1
Service cost
Interest cost
Actuarial loss (gain)
Foreign currency exchange rate changes
Benefit payments
Benefit obligation at December 31
2009
45,135
480
2,742
5,410
815
(3,349)
51,233
2008
51,281
491
2,945
(3,777)
(2,768)
(3,037)
45,135
The accumulated benefit obligation at December 31, 2009 and 2008 was $49.5 million and $43.3 million,
respectively.
(in thousands of $)
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Foreign currency exchange rate changes
Benefit payments
Fair value of plan assets at December 31
(in thousands of $)
Funded status at end of year (1)
Unrecognized actuarial loss
Net amount recognized
2009
16,341
2,587
2,358
707
(3,349)
18,644
2009
(32,589)
-
(32,589)
2008
24,732
(5,064)
2,228
(2,518)
(3,037)
16,341
2008
(28,794)
-
(28,794)
Employer contributions and benefits paid under the pension plans include $2.4 million and $2.2 million
paid from employer assets during the year ended December 31, 2009 and 2008, respectively.
(1) The Company’s plans are composed of two plans that are both under funded at December 31, 2009
and December 31, 2008.
The details of these plans are as follows:
(in thousands of $)
Projected benefit obligation
Fair value of plan assets
Funded status at end of year
December 31, 2009
Marine
UK
Scheme
Scheme
(40,814)
(10,419)
10,358
8,286
(30,456)
(2,133)
(51,233)
18,644
(32,589)
Total
December 31, 2008
UK
Scheme
(6,922)
6,361
(561)
Marine
Scheme
(38,213)
9,980
(28,233)
(45,135)
16,341
(28,794)
Total
The amounts recognized in accumulated other comprehensive income consist of:
(in thousands of $)
Net actuarial loss
2009
12,191
2008
8,723
The asset allocation for the Company’s Marine scheme at December 31, 2009 and 2008, and the target
allocation for 2010, by asset category are as follows:
F-32
Marine scheme
Equity
Bonds
Other
Total
Target allocation
2010 (%)
30 - 65
10 - 50
20 - 40
100
Target allocation
2009 (%)
30 - 65
10 - 50
20 - 40
100
Target allocation
2008 (%)
30 – 65
10 – 50
20 – 40
100
The asset allocation for the Company’s UK scheme at December 31, 2009 and 2008, and the target
allocation for 2010, by asset category are as follows:
UK scheme
Equity
Bonds
Total
Target allocation
2010 (%)
80
20
100
Target allocation
2009 (%)
80
20
100
Target allocation
2008 (%)
80
20
100
The Company’s investment strategy is to balance risk and reward through the selection of professional
investment managers and investing in pooled funds.
The Company is expected to make the following contributions to the schemes during the year ended
December 31, 2010, as follows:
(in thousands of $)
Employer contributions
UK scheme
647
Marine scheme
1,800
The Company is expected to make the following pension disbursements as follows:
(in thousands of $)
2010
2011
2012
2013
2014
2015 - 2019
UK scheme Marine scheme
3,000
3,000
3,000
3,000
3,000
16,000
226
259
226
226
226
2,425
The weighted average assumptions used to determine the benefit obligation for the Company’s plans at
December 31 are as follows:
Discount rate
Rate of compensation increase
2009
6.02%
4%
2008
6.2%
3.9%
The weighted average assumptions used to determine the net periodic benefit cost for the Company’s
plans for the year ended December 31 are as follows:
Discount rate
Expected return on plan assets
Rate of compensation increase
F-33
2009
6.1%
6.94%
4.23%
2008
6.0%
6.9%
4.2%
The overall expected long-term rate of return on assets assumption used to determine the net periodic
benefit cost for the Company’s plans for the years ending December 31, 2009 and 2008 is based on the
weighted average of various returns on assets using the asset allocation as at the beginning of 2009 and
2008. For equities and other asset classes, the Company has applied an equity risk premium over ten year
governmental bonds.
23. DEBT
(in thousands of $)
Total long-term debt due to third parties
Less: current portion of long-term debt due to third parties
Long-term debt
2009
782,226
(74,504)
707,722
2008
808,621
(71,395)
737,226
The outstanding debt as of December 31, 2009 is repayable as follows:
Year ending December 31,
(in thousands of $)
2010
2011
2012
2013
2014
2015 and thereafter
Total
74,504
120,315
52,811
49,921
115,925
371,750
782,226
The Company’s debt is denominated in U.S. dollars and bears floating interest rates except for $125
million of fixed-rate debt as of December 31, 2007, which was terminated in November 2008 upon
refinancing of the Methane Princess facility. The weighted average interest rate for the years ended
December 31, 2009 and 2008 was 2.90% and 4.82%, respectively.
As of December 31, 2009, the margins Golar pays under its loan agreements are over and above LIBOR
at a fixed or floating rate range from 1.15% to 0.70% (2008: 1.2% to 0.70%).
At December 31, 2009, the Company’s debt was as follows:
(in thousands of $)
Mazo facility
Golar Gas Holding facility
Gracilis facility
Granosa facility
Golar Arctic facility
Golar LNG Partners credit revolving facility
World Shipholding facility
Maturity date
2013
2011
2017
2014
2015
2018
2012
83,828
90,014
105,109
104,525
111,250
277,500
10,000
782,226
Mazo facility
The Mazo facility was assumed by the Company in May 2001 and the amount originally drawn down
under the facility totalled $214.5 million. The loan is secured on the vessel Golar Mazo. The facility
bears floating interest rate of LIBOR plus a margin and repayments are due bi-annually and commenced
F-34
in June 2001, ending in June 2013 at which point the facility will be repaid in full. The debt agreement
requires that certain cash balances, representing interest and principal repayments for defined future
periods, be held by a trust company during the period of the loan. These balances are referred to in these
consolidated financial statements as restricted cash.
Golar Gas Holding facility
In May 2001, the Company entered into a secured loan facility with a banking consortium for an amount
of $325 million and in October 2002 entered into a secured subordinated loan facility for an amount of
$60 million. These loans were first re-financed in April 2003 and again in March 2005 when a subsidiary
of the Company, Golar Gas Holding Company Inc., entered into a refinancing transaction with a banking
consortium in respect of these loans. The new first priority loan (the “Golar Gas Holding facility”) is for
an amount of $300 million. The total amount outstanding at the time of the refinancing was $242.3
million. The loan accrues floating interest at a rate per annum equal to the aggregate of LIBOR plus a
margin. The loan is secured by the assignment to the lending banks of a mortgage given to Golar by the
lessor of the four vessels that are part of the Five Ship Leases (See note 25). In November 2008, as part
of the refinancing detailed below under the new “Golar LNG Partners revolving credit facility”, $46.3
million was repaid in respect of the Golar Spirit. The loan has a term of six years and is repayable in 24
quarterly installments with a final balloon payment of $55.7 million due on April 14, 2011. As of
December 31, 2009, the balance outstanding on the loan facility was $90 million.
Gracilis facility
In January 2005 the Company signed a loan agreement with a bank for an amount of $120 million for the
purpose of financing newbuilding hull number 1460, the Viking (formerly known as the Gracilis). This
facility was refinanced in August 2007. The refinanced loan (“Gracilis facility”) is for an amount of $120
million. The total amount outstanding at the time of the refinancing was $110 million.
The structure of the Gracilis facility is such that the bank loaned funds of $120 million to Golar, which
the Company then re-loaned to a newly created entity of the bank, (“Investor Bank”). With the proceeds,
Investor Bank then subscribed for preference shares in a Golar group company. Another Golar company
issued a put option in respect of the preference shares. The effect of these transactions is that Golar is
required to pay out fixed preference dividends to the Investor Bank and the Investor Bank is required to
pay fixed interest due on the loan from Golar to Investor Bank. The interest payments to Golar by
Investor Bank are contingent upon receipt of these preference dividends. In the event these dividends are
not paid, the preference dividends will accumulate until such time as there are sufficient cash proceeds to
settle all outstanding arrearages. Applying FIN 46(R) to this arrangement, the Company has concluded
that Golar is the primary beneficiary of Investor Bank and accordingly has consolidated it into the Golar
group. Accordingly, as at December 31, 2009, the Consolidated Balance Sheet and Consolidated
Statement of Operations includes Investor Bank’s net assets of $nil and net income of $nil, respectively,
due to elimination on consolidation, of accounts and transactions arising between Golar and the Investor
Bank.
The Gracilis facility accrues floating interest at a rate per annum equal to the aggregate of LIBOR plus a
margin. The loan has a term of 10 years and is repayable in 39 quarterly installments with a final balloon
payment of $71.0 million due on August 17, 2017. The loan is secured by a mortgage on this vessel.
F-35
Granosa facility
In April 2006 the Company signed a loan agreement with a bank for an amount of $120 million for the
purpose of financing newbuilding hull number 2234, the Maria (formerly known as the Granosa), which
is secured by a mortgage on this vessel. The facility bears floating interest rate of LIBOR plus a margin
and had an initial term of five years with quarterly repayments on the loan commencing September 15,
2006. In March 2008, the facility was restructured to lower the margin and to extend the term of the
facility to December 2014, with a revised final balloon payment of $80.8 million due in December 2014.
Golar Arctic facility
In January 2008, the Company entered into a secured loan facility for an amount of $120 million, for the
purpose of financing the purchase of the LNG carrier, the Golar Arctic (formerly known as the
Granatina), which we refer to as the Golar Arctic facility. The facility bears a floating rate of interest of
LIBOR plus a margin, has an initial term of seven years and is repayable in 27 quarterly installments
commencing April 2008 with a final balloon payment of $86.3 million payable on January 14, 2015.
Golar LNG Partners revolving credit facility
In September 2008, the Company refinanced existing loan facilities in respect of two of our vessels the
Methane Princess and the Golar Spirit and entered into a new $285 million revolving credit facility with
a banking consortium. The loan is secured against the assignment to the lending of a bank mortgage
given to the Company by the lessors of the Methane Princess and the Golar Spirit, with a second priority
charge over the Golar Mazo.
This new facility accrues floating interest at a rate per annum equal to LIBOR plus a margin. The initial
draw down amounted to $250.0 million in November 2008. The total amount outstanding in respect of
the two vessels’ refinanced facilities was $202.3 million. The Company drew down a further $25.0
million in February 2009 and the remaining $10.0 million in March 2009. The loan has a term of ten
years and is repayable in quarterly installments commencing in May 2009 with a final balloon payment of
$102.5 million due in February 2018.
Methane Princess facility
In August 2003, the Company refinanced an existing loan in connection with a lease finance arrangement
in respect of newbuilding the Methane Princess. The new facility, (the “Methane Princess facility”) was
for $180 million and was repayable in monthly installments with a final balloon payment of $116.4
million payable in August 2015. In November 2008, as part of the refinancing detailed above under the
new “Golar LNG Partners revolving credit facility”, the Methane Princess loan was repaid with the
proceeds from the refinancing. The total amount outstanding at the time of refinancing was $156.0
million. At the time of the refinancing $125 million of the Methane Princess facility was fixed-rate debt.
Accordingly, on refinancing these were broken incurring fixed-rate debt settlement costs of $9.0 million
(see note 7).
World Shipholding facility
In June 2009, the Company entered into an $80 million revolving credit facility with World Shipholding
Ltd, to provide short-term bridge financing. World Shipholding is indirectly controlled by Trusts
established by John Fredriksen for the benefit of his immediate family, the largest shareholder in the
company. The facility accrues fixed interest at a rate per annum of 8% together with a commitment fee of
0.75% of any undrawn portion of the credit facility. The revolving credit facility is available for a period
of two years. All amounts due under the facility must be repaid within two years from the date of the first
draw down. The Company drew down an initial amount of $20 million on June 30, 2009 and a further
$10 million during the quarter to September 30, 2009. $20 million was repaid in November 2009. The
facility is currently unsecured. However, in order to draw down amounts in excess of $35 million the
F-36
Company will be required to provide security to the satisfaction of World Shipholding. This is envisaged
to take the form of a second priority lien over cash generating assets.
Certain of the Company’s debt are collateralized by ship mortgages and, in the case of some debt, pledges
of shares by each guarantor subsidiary. The existing financing agreements impose operating and
financing restrictions which may significantly limit or prohibit, among other things, the Company's ability
to incur additional indebtedness, create liens, sell capital shares of subsidiaries, make certain investments,
engage in mergers and acquisitions, purchase and sell vessels, enter into time or consecutive voyage
charters or pay dividends without the consent of the Lenders. In addition, Lenders may accelerate the
maturity of indebtedness under financing agreements and foreclose upon the collateral securing the
indebtedness upon the occurrence of certain events of default, including a failure to comply with any of
the covenants contained in the financing agreements. Various debt agreements of the Company contain
certain covenants, which require compliance with certain financial ratios. Such ratios include equity ratio
covenants and minimum free cash restrictions. With regards to cash restrictions Golar has covenanted to
retain at least $25 million of cash and cash equivalents on a consolidated group basis. As of December
31, 2009 and 2008, the Company complied with the debt covenants of its various debt agreements.
24. CAPITAL LEASES
(in thousands of $)
Total long-term obligations under capital leases
Less: current portion of obligations under capital leases
Long term obligations under capital leases
2009
852,943
(8,588)
844,355
2008
790,427
(6,006)
784,421
As at December 31, 2009, Golar operated eight (2008: eight) vessels under capital leases. These leases
are in respect of two refinancing transactions undertaken during 2003, a lease financing transaction during
2004 and another in 2005.
The first leasing transaction, which took place in April 2003, was the sale of five 100 per cent owned
subsidiaries to a financial institution in the United Kingdom (UK). The subsidiaries were established in
Bermuda specifically to own and operate one LNG vessel as their sole asset. Simultaneous to the sale of
the five entities, Golar leased each of the five vessels under five separate lease agreements (“Five Ship
Leases”). The Company determined that the entities that owned the vessels under the Five Ship leases
were variable interest entities in which Golar had a variable interest and was the primary beneficiary.
Upon transferring the vessels to the financial institutions, Golar measured the subsequently leased vessels
at the same amounts as if the transfer had not occurred, which was cost less accumulated depreciation at
the time of transfer.
The second leasing transaction, which occurred in August 2003, was in relation to the newbuilding, the
Methane Princess. The Company novated the Methane Princess newbuilding contract prior to completion
of construction and leased the vessel from the same financial institution in the UK (“Methane Princess
Lease”).
F-37
The third leasing transaction, which occurred in April 2004, was in relation to the newbuilding, the Golar
Winter. The Company novated the Golar Winter newbuilding contract prior to completion of
construction and leased the vessel from a financial institution in the UK (“Golar Winter Lease”).
The fourth leasing transaction, which occurred in April 2005, was in relation to hull number 2226
(Grandis). The Company novated the Grandis newbuilding contract prior to completion of construction
and leased the vessel from the same financial institution in the UK (“Grandis Lease”).
Golar’s obligations to the lessors under the Five Ship Leases and Methane Princess Lease are primarily
secured by letters of credit (“LC”) provided by other banks. Golar’s obligations to the lessor of the Golar
Winter Lease and Grandis Lease are partly secured by a LC. Details of the security deposits provided by
Golar to the banks providing the LC’s are given in Note 18.
As at December 31, 2009, the Company is committed to make quarterly minimum rental payments under
capital leases, as follows:
Year ending December 31,
(in thousands of $)
2010
2011
2012
2013
2014
2015 and thereafter
Total minimum lease payments
Less: Imputed interest
Present value of minimum lease
payments
Five ship
Leases
22,698
28,553
29,981
31,480
49,731
516,101
678,544
(251,756)
Methane
Princess
Lease
6,942
7,223
7,501
7,809
8,109
278,090
315,674
(162,885)
Golar
Winter
Lease
10,401
10,403
10,403
10,403
10,403
182,063
234,076
(103,656)
Grandis
Lease
9,324
9,324
9,324
9,324
9,324
212,555
259,175
(116,229)
Total
49,365
55,503
57,209
59,016
77,567
1,188,809
1,487,469
(634,526)
426,788
152,789
130,420
142,946
852,943
The profiles of the Five Ship Leases are such that the lease liability continues to increase until 2008 and
thereafter decreases over the period to 2023 being the primary term of the leases. The interest element of
the lease rentals is accrued at a rate based upon floating British Pound (GBP) LIBOR.
The profile of the Methane Princess Lease is such that the lease liability continues to increase until 2014
and thereafter decreases over the period to 2034 being the primary term of the lease. The interest element
of the lease rentals is accrued at a rate based upon floating British Pound (GBP) LIBOR.
The Golar Winter Lease is for a primary period of 28 years, expiring in April 2032. The lease liability is
reduced by lease rentals from inception. The interest element of the lease rentals is accrued at a rate
based upon floating rate British Pound (GBP) LIBOR.
In common with the Five Ship Leases and the Methane Princess Lease, the Golar Winter Lease is
denominated in British Pounds. However, unlike these other leases the cash deposits securing the lease
obligations are significantly less than the lease obligation itself. In order to hedge the currency risk
arising from re-translation of the GBP lease rental obligation into US dollars, the Company entered into a
28 year currency swap in April 2004 to hedge all lease rental payments under the Golar Winter Lease into
US dollars at a fixed GBP/USD exchange rate. In addition as of December 31, 2009, the Company had
entered into interest rate swaps of $105 million (2007: $105 million) to fix the interest rate in respect of
its Golar Winter lease obligations for a period ranging from three to ten years.
F-38
The Grandis Lease is for a primary period of 30 years, expiring January 2036. The lease liability
is reduced by lease rentals from inception. The interest element of the lease rentals is accrued at
a rate based upon floating rate USD LIBOR. In contrast to the Company’s other leases the
Grandis lease obligation and the cash deposits securing the lease obligation are denominated in
USD. However, in common with the Golar Winter Lease, the cash deposits securing the lease
obligation are significantly less than the lease obligation itself. As of December 31, 2009, the
Company had entered into interest rate swaps of $72 million (2008: $82 million) to fix the
interest rate in respect of its Grandis lease obligations for a period of seven years.
In March 2010, the Company terminated three of the leases within the Five Ships Leases and
immediately entered into three new long funding finance leases (“LFFL’s”) in respect of the
same ships. The LFFL’s have an initial term of approximately 12 years from inception. The lease
obligations under the LFFL’s are secured by cash deposits of the same value. The cash deposits
will be used to service the entirety of the lease obligations.
25. OTHER LONG-TERM LIABILITIES
(in thousands of $)
Pension obligations (See note 22)
Deferred credits from capital lease transactions
Other
Deferred credits from capital lease transactions
(in thousands of $)
Deferred credits from capital lease transactions
Less: Accumulated amortization
Short-term (See note 21)
Long-term
2009
32,589
43,692
132
76,413
2009
74,121
(26,465)
47,656
3,964
43,692
47,656
2008
28,794
47,656
770
77,220
2008
74,121
(22,501)
51,620
3,964
47,656
51,620
In connection with the Five Ship Leases and the Methane Princess Lease entered into in the year ended
December 31, 2003 (See note 24), the Company recorded an amount representing the difference between
the net cash proceeds received upon sale of the vessels and the present value of the minimum lease
payments. The amortization of the deferred credit for the year is offset against depreciation and
amortization expense in the Consolidated Statement of Operations. The deferred credits represent the
upfront benefits derived from undertaking finance in the form of UK leases. The deferred credits are
amortized over the remaining estimated useful economic lives of the vessels to which the leases relate on
a straight-line basis.
26.
SHARE CAPITAL AND SHARE OPTIONS
The Company’s ordinary shares are listed on the Nasdaq Stock Exchange and the Oslo Bors Stock
Exchange.
F-39
As at December 31, 2009 and December 31, 2008, authorized and issued share capital is as follows:
Authorized share capital:
(in thousands of $, except per share data)
100,000,000 common shares of $1.00 each
2009
100,000
2008
100,000
Issued share capital:
(in thousands of $, except per share data)
67,576,866 (2007: 67,576,866) outstanding issued common shares of
$1.00 each
2009
2008
67,577
67,577
In November 2007, the Company completed a direct equity offering of 3.2 million common shares in a
placement in Norway, at a price of NOK133 per share ($24.30).
Treasury shares
In October 2005, the Board of the Company approved a share buyback scheme and in connection with
this established a facility for a Stock Indexed Total Return Swap Programme or Equity Swap Line (See
note 27) with a bank. In May 2007, the Company terminated this facility, recognizing a gain of $7.4
million in earnings (See note 7). In 2007 in connection with the termination of this facility, the Company
bought back and cancelled 1.2 million shares from the bank at a cost of $22.8 million, which was
deducted from shareholders’ equity. Accordingly, the net cost to the Company of the shares acquired
after taking account of the equity swap gain was $15.4 million in 2007.
In November 2007, the Company’s Board of Directors approved the purchase of up to a maximum of
1.0 million shares in the Company. Between November and December 2007, the Company, through
market purchases, acquired a total of 0.4 million shares at an average price of $20.55 per share, for total
consideration of $8.2 million.
During 2009 and 2008, the Company disposed of 200,000 and 50,000 treasury shares respectively in
connection with the exercise of share options.
In November 2009, the Company terminated an equity swap in 300,000 of its own shares, originally
priced at NOK41, and concurrently bought 300,000 at the market price of NOK73 (approximately $13).
The total transaction realised a gain of approximately $1.7 million of which approximately $0.6 million is
recorded in the fourth quarter.
As at December 31, 2009 Golar holds a total of 450,000 of its own shares (2008: 350,000) at a nominal
value of $1.00 per share and an aggregate market value of $5.8 million (2008: $2.3 million).
Share options
In July 2001, the Company’s Board of Directors approved the grant of options to eligible employees to
acquire an aggregate amount of up to 2.0 million shares in the company.
F-40
In July 2001, the Company’s Board of Directors granted options to certain directors and officers to
acquire 0.4 million shares at a subscription price of $5.75 per share. These options vested on July 18,
2002 and are exercisable for a maximum period of nine years following the first anniversary date of the
grant.
Under the terms of the Company’s employee share option scheme, which was approved by the
Company’s Board of Directors in February 2002, options may be granted to any director or eligible
employee of the Company or its subsidiaries. All options will expire on the tenth anniversary of the
option’s grant or at such earlier date as the Board of Directors may from time to time prescribe. The
exercise price for the options may not be less than the average of the fair market value of the underlying
shares for the three trading days before the date of grant. No consideration is payable for the grant of an
option.
During the years 2008, 2007 and 2006, the Company granted 0.6 million, 0.6 million and 1.3 million
share options, respectively, to certain employees and directors of the Company and its subsidiaries. The
options have a five year term and vest equally over three years from the grant date.
A condition of the 1.3 million share options awarded in 2006 provided that upon voluntary termination by
an option holders’ employment with the Company and its subsidiaries, provided the first anniversary of
the date of grant had elapsed, a reduced cash settlement based on the intrinsic value would be paid.
Accordingly, those share option awards eligible for this cash settlement feature were originally classified
as a liability with the remainder classified as equity. During 2007, the Company made an amendment to
these options, to replace the right to cash compensation feature with an equivalent right to exercise
options for a limited period of time. As the modification impacted no other terms the incremental
compensation cost was $nil. The impact of the modification affected 16 option holders and resulted in the
reclassification of these options from liability to equity. Therefore following the remeasurement of the
fair value of the share options at the modification date there is no further requirement to remeasure at
subsequent reporting dates.
On October 23, 2009, the Company announced that 1,058,083 (equity classified) share options previously
awarded to employees in October 2007 and August 2008 were to be cancelled. In consideration for the
acceptance of cancellation of these options, new share options in Golar’s new consolidated subsidiary
Golar LNG Energy Ltd (“Energy”) were granted to employees of Golar Management (a subsidiary of the
Company) and directors of the Company or Energy.
Golar Energy issued share options to directors and employees totalling 3,940,000 at a strike price of
$2.20. The Company also issued 250,000 new share options with a strike price of $11.80; additionally
200,000 options were exercised that had a strike price of $9.89. After this new issue, cancellation and
exercise the remaining outstanding options amount to 1,546,834. All the new options issued vest over a
period of two years and eight months.
The cancellation and concurrent reissue is accounted for as a modification in the Golar LNG Group.
Accordingly, the modified value being the unamortized cost of the cancelled awards plus the incremental
fair value of the modification is amortized over the new vesting periods.
As at December 31, 2009, all the Company’s share options are classified as equity. Accordingly, the
grant date or the modification date fair value for stock options not exercised is recognized in
shareholders’ equity as additional paid-in capital with a corresponding charge to the Consolidated
Statement of Operations. The Company may use either authorized unissued shares of Golar or treasury
shares held by the Company to satisfy exercised options.
F-41
The fair value of each option award is estimated on the grant date or modification date using the Black-
Scholes option pricing model. The weighted average assumptions used are noted in the table below:
Risk free interest rate
Expected volatility of common stock
Expected dividend yield
Expected life of options (in years)
At
modification
date
2007
4.0%
31.5%
0.0%
2.5 years
At grant date
2009
2.4%
54.4%
0.0%
3.5 years
2008
4.0%
33.6%
0.0%
3.6 years
2007
4.4%
33.1%
0.0%
3.7 years
The assumption for expected future volatility is based primarily on an analysis of historical volatility of
the Company’s common stock. The Company uses the simplified method for making estimates as to the
expected term of options, based on the vesting period of the award and represents the period of time that
options granted are expected to be outstanding. The dividend yield has been estimated at 0% as the
exercise price of the options, granted in 2006 and later, are reduced by the value of dividends, declared
and paid on a per share basis.
A summary of option activity (including both the Golar LNG Limited and Golar LNG Energy Limited
options) as at December 31, 2009, 2008 and 2007, and changes during the years then ended are presented
below:
(in thousands of $, except per share data)
Options outstanding at December 31, 2006
Granted during the year
Exercised during the year
Forfeited during the year
Options outstanding at December 31, 2007
Granted during the year
Exercised during the year
Options outstanding at December 31, 2008
Granted during the year
Exercised during the year
Forfeited during the year
Options outstanding at December 31, 2009
Options exercisable at:
December 31, 2009
December 31, 2008
December 31, 2007
Shares
(In ‘000s)
Weighted
average
exercise
price
1,558
607
(56)
(31)
2,078
642
(50)
2,670
4,190
(200)
(1,173)
5,487
1,272
1,240
703
$12.84
$22.77
$12.55
$14.30
$14.31
$18.20
$12.43
$14.51
$2.77
$9.89
$20.16
$4.51
$10.12
$11.59
$9.49
Weighted
average
remaining
contractual
term
(years)
4.4
3.7
3.2
2.2
1.2
2.5
3.4
The exercise price of all options except for those issued in 2001, is reduced by the amount of the
dividends declared and paid; the above figures for options granted, exercised and forfeited show the
F-42
average of the prices at the time of granting, exercising and forfeiting of the options, and for options
outstanding at the beginning and end of the year the average of the reduced option prices is shown.
The intrinsic value of share options exercised in the years ended December 31, 2009, 2008 and 2007 was
$0.7 million, $0.3 million and $nil, respectively.
As at December 31, 2009, the intrinsic value of both outstanding and exercisable share options was
$3.8 million (2008: $1.7 million).
A summary of the status of the Company’s non-vested share option activity and related information for
the years ended December 31, 2009, 2008 and 2007 follows:
(in thousands of $, except per share data)
Options non-vested at December 31, 2006
Granted during the year
Vested during the year
Forfeited during the year
Options non-vested at December 31, 2007
Granted during the year
Vested during the year
Options non-vested at December 31, 2008
Granted during the year
Vested during the year
Forfeited during the year
Options non-vested at December 31, 2009
Shares
(In ‘000s)
1,258
607
(481)
(9)
1,375
642
(587)
1,430
4,190
(409)
(996)
4,215
Weighted
average fair
value at grant
date or
modified date
$7.92
$7.30
$5.29
$5.02
$8.66
$4.21
$8.61
$6.68
$1.21
$9.49
$5.59
$1.22
The total fair value of share options vested in the years ended December 31, 2009, 2008 and 2007 was
$3.9 million, $5.1 million and $2.5 million, respectively.
Compensation cost of $1.7 million, $3.1 million and $5.9 million has been recognized in the Consolidated
Statement of Operations for the years ended December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009, the total unrecognized compensation cost relating to options outstanding of $4.3
million (2008: $5.3 million) is expected to be recognized over a weighted average period of 1.8 years.
27.
FINANCIAL INSTRUMENTS
Interest rate risk management
In certain situations, the Company may enter into financial instruments to reduce the risk associated with
fluctuations in interest rates. The Company has entered into swaps that convert floating rate interest
obligations to fixed rates, which from an economic perspective hedge the interest rate exposure. The
Company does not hold or issue instruments for speculative or trading purposes. The counterparties to
such contracts are major banking and financial institutions. Credit risk exists to the extent that the
counterparties are unable to perform under the contracts; however the Company does not anticipate non-
performance by any of its counterparties.
F-43
The Company manages its debt and capital lease portfolio with interest rate swap agreements in U.S.
dollars to achieve an overall desired position of fixed and floating interest rates. Effective October 1,
2008, the Company commenced hedge accounting for certain of its interest rate swap arrangements
designated as cash flow hedges. The net gains and losses have been reported in a separate component of
accumulated other comprehensive income to the extent the hedges are effective. The amount recorded in
accumulated other comprehensive income will subsequently be reclassified into earnings in the same
period as the hedged items affect earnings. As at December 31, 2009, the Company does not expect any
material amounts to be reclassified from accumulated other comprehensive income to earnings during the
next twelve months.
During the years ended December 31, 2009, 2008 and 2007, the Company recognized a net loss of $0.5
million, $0.1 million, and $nil, respectively, in earnings relating to the ineffective portion of its interest
rate swap agreements.
As of December 31, 2009, the Company has entered into the following interest rate swap transactions
involving the payment of fixed rates in exchange for LIBOR as summarized below. The summary also
includes those that are designated as cash flow hedges:
Instrument
(in thousands of $)
Interest rate swaps:
Receiving floating, pay fixed
Notional value
Maturity Dates Fixed Interest Rates
643,875
2010- 2015
1.99% to 5.04%
At December 31, 2009, the notional principal amount of the debt and capital lease obligations outstanding
subject to such swap agreements was $643.9 million (2008: $795.4 million).
Foreign currency risk
The majority of the vessels’ gross earnings are receivable in U.S. dollars. The majority of the Company’s
transactions, assets and liabilities are denominated in U.S. dollars, the functional currency of the
Company. However, the Company incurs expenditure in other currencies. Certain capital lease
obligations and related restricted cash deposits of the Company are denominated in British Pounds. There
is a risk that currency fluctuations will have a negative effect on the value of the Company’s cash flows.
A net foreign exchange gain of $8.4 million arose in the year ended December 31, 2009 (2008: $8.0
million net gain) as a result of the retranslation of the Company’s capital lease obligations and the cash
deposits securing those obligations net of the gain (2007: loss) on the currency swap referred to below.
The net gain arose due to the appreciation of the British Pound against the U.S. Dollar during the year.
This net gain represents an unrealized gain and does not therefore materially impact the Company’s
liquidity. Further foreign exchange gains or losses will arise over time in relation to Golar’s capital lease
obligations as a result of exchange rate movements. Gains or losses will only be realized to the extent
that monies are, or are required to be withdrawn or paid into the deposits securing our capital lease
obligations or if the leases are terminated.
As described in note 24, in April 2004, the Company entered into a lease arrangement in respect of the
Golar Winter, the obligation in respect of which is denominated in GBP. In this transaction the restricted
cash deposit, which secures the letter of credit given to the lessor to secure part of Golar’s obligations to
the lessor, is much less than the obligation and therefore, unlike the Five Ship Leases and the Methane
Princess Lease, does not provide a natural hedge. In order therefore to hedge this exposure the Company
entered into a currency swap with a bank, who is also the lessor, to exchange GBP payment obligations
into U.S. dollar payment obligations as set out in the table below. The swap hedges the full amount of the
F-44
GBP lease obligation and the restricted cash deposit is denominated in U.S dollars. The Company could
be exposed to currency risk if the lease was terminated.
In addition, to limit the Company’s exposure to foreign currency fluctuations from its obligations under
its various FSRU conversion projects the Company enters into foreign currency forward contracts.
As of December 31, 2009, the Company has entered into the following foreign currency forward contracts
as summarized below:
Instrument
(in thousands)
Currency rate swaps:
British Pounds
Euros
Norwegian Kroner
Singapore Dollar
Notional amount
Receiving in
foreign currency
Pay in
USD
Maturity
dates
Average
forward rate
USD foreign
currency
65,546
2,700
49,000
20,000
105,975
3,869
8,472
14,236
2032
2010
2010
2010
1.6168
1.4329
0.1729
0.7118
The counterparties to the foreign currency swap contracts are major banking institutions. Credit risk
exists to the extent that the counterparty is unable to perform under the contract; however the Company
does not anticipate non-performance by any of its swap counterparties.
As of December 31, 2009, the company is not exposed to any equity price risk.
Fair values
The carrying value and estimated fair value of the Company’s financial instruments at December 31, 2009
and 2008 are as follows:
(in thousands of $)
Non-Derivatives:
Cash and cash equivalents
Restricted cash and short-term investments
Long-term restricted cash
Long-term unlisted investments
Marketable securities
Short-term debt – floating
Long-term debt – floating
Short-term obligations under capital leases
Long-term obligations under capital leases
Derivatives:
Interest rate swaps liability
Foreign currency swaps liability
Equity swaps liability
2009
Carrying
Value
2009
Fair Value
2008
Carrying
Value
56,114
60,352
557,052
10,347
360
71,395
737,226
6,006
784,421
2008
Fair Value
56,114
60,352
557,052
N/a
360
71,395
737,226
6,006
784,421
122,231
40,651
594,154
N/a
13.458
74,504
707,722
8,588
844,355
36,354
19,043
-
65,329
50,088
8,211
65,329
50,088
8,211
122,231
40,651
594,154
10,347
13,458
74,504
707,722
8,588
844,355
36,354
19,043
-
F-45
The carrying value of cash and cash equivalents, which are highly liquid, is a reasonable estimate of fair
value.
The estimated fair value for restricted cash and short-term investments is considered to be equal to the
carrying value since they are placed for periods of less than six months. The estimated fair value for
long-term restricted cash is considered to be equal to the carrying value since it bears variable interest
rates, which are reset on a quarterly basis.
The fair value of the Company’s marketable securities is determined using the closing quoted market
price.
As at December 31, 2009, the Company did not identify any events or changes in circumstances that
would indicate the carrying value of its unlisted investments in both TORP Technology, LNGL and
OLT–O were not recoverable (See note 19). Accordingly, the Company did not estimate the fair value of
these investments as at December 31, 2009.
The estimated fair value for floating long-term debt is considered to be equal to the carrying value since it
bears variable interest rates, which are reset on a quarterly or six monthly basis. The estimated fair value
for long-term debt with fixed rates of interest of more than one year is estimated by obtaining quotes for
breaking the fixed rate at the year end, from the related banking institution.
The estimated fair values of long-term lease obligations under capital leases are considered to be equal to
the carrying value since they bear interest at rates, which are reset on a quarterly basis.
The fair value of the Company’s derivative instruments is the estimated amount that the Company would
receive or pay to terminate the agreements at the reporting date, taking into account current interest rates,
foreign exchange rates, closing quoted market prices and the creditworthiness of the Company and its
swap counterparties.
The Company adopted the guidance on fair value measurement as of January 1, 2008. The adoption of
this guidance did not have a material impact on the financial statements of the Company. The guidance
applies to all assets and liabilities that are being measured and reported on a fair value basis. The
guidance requires new disclosure that establishes a framework for measuring fair value in U.S. GAAP
and expands disclosure about fair value measurements. The guidance enables the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for
ranking the quality and reliability of the information used to determine fair values. The guidance requires
assets and liabilities carried at fair value to be classified and disclosed in one of the following three
categories:
Level 1: Quoted market prices in active markets for identical assets and liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the valuation of the Company’s financial instruments by the above
guidance on fair value measurements pricing levels as of December 31, 2009:
F-46
(in thousands of $)
Interest rate swaps – liability position
Foreign currency swaps – liability position
Marketable Securities
Quoted
market prices
in active
markets
(Level 1)
-
-
13,458
Significant
Other
Observable
Inputs
( Level 2)
36,354
19,043
-
Total
36,354
19,043
13,458
The guidance further states that the fair value measurement of a liability must reflect the non-performance
risk of the entity. Therefore, the impact of the Company’s creditworthiness has also been factored into
the fair value measurement of the derivative instruments in a liability position.
Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents, restricted cash and short-
term investments to the extent that substantially all of the amounts are carried with Nordea Bank of
Finland PLC, Mizuho Corporate Bank, Lloyds TSB Bank plc, The Bank of New York, Bank of Scotland,
Alliance & Leicester and Fokus Bank. However, the Company believes this risk is remote.
During the year ended December 31, 2009, four customers accounted for 93% of the total operating
revenues of the company. These revenues and associated accounts receivable are derived from its three
time charters with BG Group plc, one time charter with Pertamina, three time charters with Shell and two
time charters with Petrobras. Pertamina is a state enterprise of the Republic of Indonesia. Credit risk is
mitigated by the long-term contracts with Pertamina being on a ship-or-pay basis. Also, under the various
contracts the Company’s vessel hire charges are paid by the Trustee and Paying Agent from the
immediate sale proceeds of the delivered gas. The Trustee must pay the ship owner before Pertamina and
the gas sales contracts are with the Chinese Petroleum Corporation. The Company considers the credit
risk of BG Group plc, Petrobas and Shell to be low.
During the years ended December 31, 2009, 2008 and 2007, Petrobras (2009 only), BG Group plc,
Pertamina and Shell each accounted for more than 10% of gross revenue.
During 2008, Pertamina, BG Group plc and Shell accounted for revenues of $37.1 million, $75.1 million
and $85.3 million, respectively.
During 2009, Petrobras, Pertamina, BG Group plc and Shell accounted for revenues of $61.3 million,
$40.4 million, $61.3 million and $45.6 million, respectively.
28. RELATED PARTY TRANSACTIONS
Net (expenses) income from related parties:
(in thousands of $)
Frontline Ltd. and subsidiaries (“Frontline”)
Seatankers Management Company Limited
(“Seatankers”)
Ship Finance AS (“Ship Finance”)
F-47
2009
(261)
(82)
195
2008
95
(35)
37
Frontline, Seatankers, Ship Finance, Arcadia and World Shipholding are each subject to significant
influence or the indirect control of Trusts established by our chairman, John Fredriksen, for the benefit of
his immediate family.
Net expense/income from Frontline, Seatankers and Ship Finance comprise fees for management support,
corporate and insurance administrative services, net of income from supplier rebates and income from the
provision of serviced offices and facilities.
During the years ended December 31, 2007, the Company entered into forward contracts, which Arcadia
executed on the Company’s behalf for the purpose of hedging its risk exposure to the risk of the movement
in the price of natural gas effecting charter rates and for speculative purposes. In the years ended December
31, 2007 the realized gain on termination of these natural gas forward contracts receivable from Arcadia was
$0.4 million, and have been included within other financial items.
During 2007, in connection with the Company’s equity offering in November 2007 (See note 26), Golar
entered into a share loan with World Shipholding, whereby World Shipholding loaned 3.2 million common
shares in Golar to the Company’s agent for the purpose of satisfying sales to investors in the private
placement. Subsequently, the Company settled the share loan with a new issue of common shares. In
addition in March 2007, World Shipholding also provided the Company with a short-term loan of $25
million. The loan was repaid on March 30, 2007 along with interest of $37,000.
In December 2009, the Company entered into an $80 million revolving credit facility with World
Shipholding, to provide short-term bridge financing, please refer to note 3.
As of December 31, 2009, World Shipholding, which is indirectly controlled by Trusts established by
John Fredriksen for the benefit of his immediate family, owned 46.18% (2008: 45.97%) of Golar (see
note 23).
Receivables (payables) from related parties:
(in thousands of $)
Frontline
Seatankers
Ship Finance
Arcadia
2009
488
(106)
115
-
497
2008
385
(24)
37
-
398
Receivables and payables with related parties comprise primarily of unpaid management fees, advisory and
administrative services. In addition, certain receivables and payables arise when the Company pays an
invoice on behalf of a related party and vice versa. Receivables and payables are generally settled quarterly
in arrears.
During the years ended December 31, 2009, 2008 and 2007, Faraway Maritime Shipping Company,
which is 60% owned by Golar and 40% owned by China Petroleum Corporation ("CPC"), paid dividends
totalling $3.4 million, $5.0 million and $5.0 million, of which 60% was paid to Golar and 40% was paid
to CPC.
F-48
29. CAPITAL COMMITMENTS
Vessel Conversion
In April 2008, the Company entered into a time charter agreement with DUSUP, which requires the
conversion of the Golar Freeze into a FSRU. As at December 31, 2009, the Company had a contract with
Keppel Shipyard and other suppliers for equipment and engineering in connection with the conversion of
the Golar Freeze into a FSRU. Accordingly, as of December 31, 2009, the Company had a commitment
to incur costs in connection with the retrofit of the Golar Freeze into a FSRU. In addition, as of
December 31, 2009 and 2008, the Company had committed to incur $0.5 million and $2.5 million
respectively for equipment in connection with the speculative conversion of the Hilli.
As at December 31, 2009, the estimated timing of the remaining payments in connection with these
conversions are due to be paid as follows:
(in thousands of $)
Payable in 12 months to December 31, 2010
55,141
55,141
30. OTHER COMMITMENTS AND CONTINGENCIES
Assets Pledged
(in thousands of $)
Book value of vessels secured against long-term loans
and capital leases
December 31,
2009
December 31,
2008
1,644,835
1,559,858
Other Contractual Commitments and contingencies
Insurance
The Company insures the legal liability risks for its shipping activities with Gard and Skuld. Both are
mutual protection and indemnity associations. As a member of a mutual association, the Company is
subject to calls payable to the associations based on the Company’s claims record in addition to the
claims records of all other members of the association. A contingent liability exists to the extent that the
claims records of the members of the association in the aggregate show significant deterioration, which
results in additional calls on the members.
Tax lease benefits
The benefits under lease financings are derived primarily from tax depreciation assumed to be available to
lessors as a result of their investment in the vessels. In the event of any adverse tax changes to legislation
affecting the tax treatment of the leases for the U.K. vessel lessors or a successful challenge by the U.K.
Revenue authorities to the tax assumptions on which the transactions were based, or in the event that we
terminate any of our U.K. tax leases before their expiration, we would be required to return all or a
portion of, or in certain circumstances significantly more than, the upfront cash benefits that we have
received or that have accrued over time, together with fees that were financed in connection with our
lease financing transactions, or post additional security or make additional payments to the U.K. vessel
lessors. Any additional payments could adversely affect our earnings and financial position. The upfront
benefits we have received equates to the cash inflow we received in connection with the six leases we
entered into during 2003 (in total a gross amount before deduction of fees of approximately £41 million
British pounds, or GBP). Two of our U.K. tax leases accrue benefit over the term of the leases. The
F-49
remaining six UK tax leases were structured so that a cash benefit was received up front. As at December
31, 2008, the total unamortized balance of deferred credits from capital lease transactions (See note 24)
was $51.6 million. A termination of any of these leases would realize the accrued currency gain or loss.
As at December 31, 2008, this was a net accrued loss of approximately $10.1 million.
Other
In December 2005, the Company signed a shareholders’ agreement in connection with the setting up of a
jointly owned company to be named Egyptian Company for Gas Services S.A.E (“ECGS”), which was to
be established to develop hydrocarbon business and in particular LNG related business in Egypt. As at
March 31, 2010, the Company was committed to subscribe for common shares in ECGS for a further
consideration of $3.7 million payable within five years of incorporation, at dates to be determined by
ECGS’s Board of Directors.
As at December 31, 2009, the Company had a commitment to pay $1.0 million to a third party, contingent
upon the conclusion of a material commercial business transaction by ECGS as consideration for work
performed in connection with the setting up and incorporation of ECGS.
31.
SUBSEQUENT EVENTS
In March 2010, the Company terminated three of the leases within the Five Ships Leases and immediately
entered into three new long funding finance leases (“LFFL’s”) in respect of the same ships. The LFFL’s
have an initial term of approximately 12 years from inception. The lease obligations under the LFFL’s are
secured by cash deposits of the same value. The cash deposits will be used to service the entirety of the
lease obligations.
In April 2010, the conversion of the Golar Freeze to a FSRU was completed. The ship had been
undergoing conversion in Singapore since October 2009. The ship will sail from Singapore to Dubai to
commence its 10 year time charter with Dubai Supply Authority to commence its 10 year charter.
F-50
Golar LNG Limited. – Corporate Governance Statement
Golar LNG Limited (“Golar” or the “Company”) is a limited company incorporated under the laws of
Bermuda. The Company is headquartered in Hamilton, Bermuda. The Company's activities are the
responsibility of the board of directors elected by its shareholders (the “Board”).
The day-to-day management of the Company is performed by its subsidiary, Golar Management
Limited (“Golar Management”) formerly known as Golar Management (UK) Limited, under the terms
of a written management agreement. Golar Management is headquartered in London, United
Kingdom. Golar’s shares have their primary listing on the Oslo Stock Exchange. The Company
maintains a secondary listing on Nasdaq.
As a company incorporated in Bermuda, Golar is subject to Bermuda law in respect of its corporate
governance. Bermuda law is, to a considerable extent, based on English law in this area.
As a consequence of the listing of the Company’s shares on the Oslo Stock Exchange and Nasdaq, the
Company is expected to meet certain standards in relation to the principles governing its corporate
governance.
These standards are, in relation to the Oslo Stock Exchange, documented in "The Norwegian code of
practice for corporate governance" (the "Norwegian Code"). The Norwegian Code is published on
the website of the Oslo Stock Exchange – "www.ose.no". This is, from a legal point of view, a non-
binding recommendation which all companies listed on the Oslo Stock Exchange is required to relate to
on a "comply or explain" – basis.
The Nasdaq corporate governance rules (the "Nasdaq Rules") permit exemptions to foreign issuers
when the Nasdaq Rules are contrary to a law, rule or regulation of any public authority exercising
jurisdiction over such issuer or is considered contrary to generally accepted business practices in the
issuer’s country of domicile.
Golar is committed to ensuring that its principles of corporate governance meet the highest standards
and generally supports the principles set forth both in the Norwegian Code and the Nasdaq Rules.
Being subject to three different set of corporate governance regulations nevertheless means that Golar
will have to rely on various exceptions from the individual sets of rules.
The Board believes that the Company’s current corporate governance policies and procedures meet
the requirements both of Bermuda law and the Nasdaq Rules.
Golar’s corporate governance policies and procedures are explained below in relation to the Norwegian
Code.
1.
IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE
The Board recognizes the importance of sound corporate governance. The Board believes that the
policies and procedures it has implemented and maintains in this respect meet this standard.
The Board has approved and implemented a corporate code of business ethics and conduct reflecting
Golar’s basic corporate values and formulating ethical guidelines in accordance with these. The
corporate code is posted on the Company's website.
2.
BUSINESS
Golar is subject to Bermudian corporate law, which does not require the objects clause of the
Company’s Memorandum and Articles of Association to be clearly defined. The Company has clear
objectives and strategies for its business.
The business of Golar and its subsidiaries comprises ownership and operation of LNG tankers. The
Company's Annual Report includes a more specific description of the business, including the overall
objectives and current strategy of the Company. The Company's Annual Report can be accessed at
the Company's website: www.golarlng.com.
3.
EQUITY AND DIVIDENDS
As of December 31, 2009, Golar’s total stockholders’ equity was $495,511,000.
83
The Board is of the opinion that the equity capital is appropriate, considering the Company's
objectives, strategy and risk profile.
Golar’s objective is to give its shareholders a competitive return on their invested capital over time.
The return is to be achieved through a combination of an increase in the value of its shares and the
payment of dividends. The Company’s long-term objective is to pay a regular dividend. The level of
dividends will be guided by current earnings, market prospects and capital expenditure requirements
and investment opportunities.
The Company’s ability to declare dividends is also regulated by Bermuda law, which prohibits the
declaration and payment of dividends if, at the time of distribution, a company is not able to pay its
liabilities as they fall due or the realizable value of a company’s assets is less than the sum of its
liabilities, issued share capital and share premium accounts.
The Board is currently authorized by the shareholders to issue 32,423,000 further shares
(representing the difference between the Company’s authorized and issued share capital). There is, in
accordance with Bermuda corporate law, no time limit, on the Board's authority to increase the
Company's equity capital based on this authority. If the shareholders of Golar wishes to limit the
Board’s ability to raise capital through the issuance of additional shares, Bermuda law allows them to
resolve to reduce the authorized capital and the reduction could reduce the authorized capital to the
level actually in issue.
The Norwegian Code sets out that board authorisations to issue new shares should be divided into
separate mandates, each to be considered and voted upon by the General Meeting. It is the
Company’s opinion that these guidelines must be seen in connection with the division of powers
between the general meeting and the board of directors of Norwegian companies. Complying with such
guidelines would require an amendment to the Company’s Articles of Association, and would also be a
clear deviation from Bermudian company law and tradition. The Company will therefore maintain its
current practice where the Board has greater flexibility to issue new shares than what is the case with
boards of Norwegian companies.
Bermuda corporate law and the Company's Bye-laws allow the Company to repurchase its own shares.
There is no time limitation on the Board's authority to repurchase shares. The Company’s holding of
treasury shares as of December 31, 2009 was 450,000.
4.
EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE
ASSOCIATES
Golar has only one class of shares.
The shareholders in a Bermuda company do not have any preferred right to subscribe for further
shares when such are issued.
Golar will, if acquiring its own shares, always do this through purchases on either of the stock
exchanges on which its shares are listed and at prevailing stock exchange prices.
The Company's policy is to enter into related party transactions solely on terms that are at least as
favorable to the Company as those that can be obtained when contracting with an unrelated third
party.
It follows from the Bermuda Companies Act that an officer or director of the Company shall, at the first
available opportunity, notify the Board of his interest in any material contract or any person that is a
party to a material contract of the Company. Further, the Company’s Bye-law 88, contains a specific
provision addressing Director’s interests.
5.
FREELY NEGOTIABLE SHARES
Subject to the provision of the Company's Bye-law 34, Golar's shares are freely transferable. The
Bermuda Monetary Authority recognizes the free transferability or shares that are listed on Nasdaq
and the Oslo Stock Exchange.
Bye-law 34 provides the Board with the option to decline to register the transfer of any share if the
registration of such transfer would be likely to result in 50% or more of the aggregate issued share
capital of the Company being held or owned directly or indirectly by a person or persons resident for
tax purposes in a jurisdiction which applies a controlled foreign company tax legislation or a similar tax
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regime which, in the Board's opinion, will have the effect that shareholders are taxed individually for a
proportion of the Company's profit.
6.
GENERAL MEETINGS
Golar holds its general meetings on an annual basis in accordance with the applicable provision of the
Bermuda Companies Act. The notice period is, according to the Company’s Bye-law 51, no less than 7
days' notice which shall be provided in writing. Shareholders who cannot attend the meeting in person
can vote by proxy.
7.
NOMINATION COMMITTEE
The Board acts as the Company’s nomination committee, and is therefore nominates candidates for
election as directors. In addition, shareholders have a Common Law right under Bermuda law to put
forward nominations.
8.
CORPORATE ASSEMBLY AND BOARD OF DIRECTORS, COMPOSITION AND
INDEPENDENCE
The Board of Golar currently consists of five directors.
Two of the directors, Mr. John Fredriksen and Ms. Katherine Fredriksen represent the Company’s
largest shareholder, World Shipholding Ltd., and are thus not independent in relation to them.
The remaining three directors, Mrs. Kate Blankenship, Mr Hans Petter Haas and Mr. Frixos Savvides
are holders of a limited number of options to subscribe for shares in the Company.
The Norwegian Code suggests, in its explanatory notes to the provisions dealing with director
independence, that the ownership of options, per se, leads a director to be considered non-
independent in relation to the Company’s management.
It is Golar’s opinion that the number of options held by Mrs. Kate Blankenship, Mr. Hans Petter Haas
and Mr. Savvides is at a level which does not influence their ability to act independently from the
Company’s management.
All of them are thus considered as independent directors.
Golar does not have any corporate assembly or other non-executive supervisory body apart from the
Board.
9.
THE WORK OF THE BOARD OF DIRECTORS
The Board of Golar has elected Mr. John Fredriksen as its chairman.
The Board has established an audit committee, which is responsible for overseeing the quality and
integrity of the Company’s financial statements and its accounting, auditing and financial reporting
practices, compliance with legal and regulatory requirements, the independent auditor's qualifications,
independence and performance and internal audit function. The audit committee consists of two
members, Mrs Kate Blankenship and Mr Frixos Savvides, who are also both Company Directors.
Except for an audit committee the Board does not have any other subcommittees with specific
responsibility for part of the Board’s overall obligations.
10.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board believes that they have put in place satisfactory internal control systems addressing risk
management. The Company's own ethical code supplements these systems.
Furthermore the Company performs an annual assessment of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures and its internal controls over financial
reporting pursuant to Rule 13a-15(e) and Rule 12a- 15(f) of the Securities Exchange Act of 1934.
Details of which are provided in Item 15 of the Company’s 20-F Filing.
Relevant risk factors to the Company's activities are continuously reviewed by the Board. The main
risk factors are furthermore commented upon in the Company's annual report available on the
Company's website.
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11.
REMUNERATION OF THE BOARD OF DIRECTORS
In lieu of a compensation committee comprised of independent directors, the full Board determines its
compensation. The overall amount of the remuneration of the Board is approved at the AGM annually.
The directors have been granted options to subscribe for shares in the Company. These options are
governed by the Rules of the Company's Share Option Plan. Further details of the number of options
granted and applicable terms are given in the Company's annual report.
12.
REMUNERATION OF THE EXECUTIVE MANAGEMENT
Day-to-day management of Golar is performed by the employees of Golar Management under the
terms of the Management Agreement referred to above. Golar has no employees.
All employees of Golar’s subsidiaries qualify for participation in the Company’s share option scheme.
Further details of the Company’s share option plan are set out in Note 26 to the Company’s
Consolidated Financial Statements.
13.
INFORMATION AND COMMUNICATION
Golar publishes annual and quarterly reports at its website. The Company acknowledges the
importance of providing shareholders in particular and the equity market in general with correct and
relevant information about the Company and its activities.
14.
TAKE-OVERS
It is the opinion of the Board that, in the event a take-over bid is made for the Company's shares, the
shareholders in the Company shall be treated equally and provided with sufficient information and
time to consider such an offer.
15.
AUDITOR
The Company's independent auditor, appointed by its general meeting, is PricewaterhouseCoopers.
Information on the fee paid to the auditor can be found in the Company's Annual Report
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Golar LNG Limited
Par-la-Ville Place Fourth Floor
14 Par-la-Ville Road
Hamilton HM 08 Bermuda
Tel: (+1) 441 295 4705
Fax: (+1) 441 295 3494
Golar Management Ltd
13th Floor One America Square
17 Crosswall London EC3N 2LB
United Kingdom
Tel: +44 (0)207 063 7900
Fax: +44 (0)207 063 7901
Website
www.golarlng.com