UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended
December 31, 2017
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)
2nd Floor, S.E. Pearman Building, 9 Par-la-Ville Road, Hamilton HM 11, Bermuda
(Address of principal executive offices)
Michael Ashford, (1) 441 295 4705, (1) 441 295 3494
2nd Floor, S.E. Pearman Building, 9 Par-la-Ville Road, Hamilton HM 11, 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 per share
Name of each exchange
on which registered
Nasdaq Global Select Market
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.
101,118,289 Common Shares, par $1.00, per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
X
No
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 X
Accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use
the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes
No
X
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
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
PART I
PAGE
INDEX TO REPORT ON FORM 20-F
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3.
KEY INFORMATION
ITEM 4.
INFORMATION ON THE COMPANY
ITEM 4A.
UNRESOLVED STAFF COMMENTS
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8.
FINANCIAL INFORMATION
ITEM 9.
THE OFFER AND LISTING
ITEM 10.
ADDITIONAL INFORMATION
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15.
CONTROLS AND PROCEDURES
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B.
CODE OF ETHICS
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
ITEM 16G.
CORPORATE GOVERNANCE
1
1
1
27
53
53
78
83
84
85
86
95
96
96
97
97
98
98
98
99
99
99
100
ITEM 16H.
MINE SAFETY DISCLOSURE
PART III
ITEM 17.
FINANCIAL STATEMENTS
ITEM 18.
FINANCIAL STATEMENTS
ITEM 19.
EXHIBITS
SIGNATURES
101
101
101
102
105
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.
We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are 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. As a result, you are cautioned not to rely on any forward-looking statements.
In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in liquefied natural gas, or LNG, carrier, floating storage and regasification unit, or FSRU, or floating liquefaction natural gas vessel, or FLNG,
market trends, including charter rates, vessel values or technological advancements;
changes in our ability to retrofit vessels as FSRUs or FLNGs and in our ability to obtain financing for such conversions on acceptable terms or at all;
changes in the timeliness of the completion of the FLNG Hilli
Episeyo
(the " Hilli
") commissioning and subsequent acceptance by the charterer;
changes in our ability to close the sale of certain of our equity interests in Hilli
on a timely basis or at all;
changes in the supply of or demand for LNG carriers, FSRUs or FLNGs;
a material decline or prolonged weakness in rates for LNG carriers, FSRUs or FLNGs;
changes in the performance of the pool in which certain of our vessels operate and the performance of our joint ventures;
changes in trading patterns that affect the opportunities for the profitable operation of LNG carriers, FSRUs or FLNGs;
changes in the supply of or demand for LNG or LNG carried by sea;
changes in commodity prices;
changes in the supply of or demand for natural gas generally or in particular regions;
failure of our contract counterparties, including our joint venture co-owners, to comply with their agreements with us;
changes in our relationships with our counterparties, including our major chartering parties;
changes in the availability of vessels to purchase and in the time it takes to construct new vessels;
failures of shipyards to comply with delivery schedules or performance specifications on a timely basis or at all;
our ability to integrate and realize the benefits of acquisitions;
changes in our ability to sell vessels to Golar Partners, or our joint ventures Golar Power Limited ("Golar Power") and OneLNG S.A. ("OneLNG");
changes in our relationship with Golar Partners, Golar Power or OneLNG;
changes to rules and regulations applicable to LNG carriers, FSRUs, FLNGs or other parts of the LNG supply chain;
our inability to achieve successful utilization of our expanded fleet or inability to expand beyond the carriage of LNG and provisions of FSRUs
particularly through our innovative FLNG strategy and our joint ventures;
actions taken by regulatory authorities that may prohibit the access of LNG carriers, FSRUs or FLNGs to various ports;
our inability to achieve successful utilization of our expanded fleet or inability to expand beyond the carriage of LNG and provision of FSRUs,
particularly through our innovative FLNG strategy, or FLNG, and our joint ventures;
changes in our ability to obtain additional financing on acceptable terms or at all;
our ability to make additional equity funding payments to Golar Power and OneLNG to meet our obligations under each of the respective shareholders'
agreements;
increases in costs, including, among other things, crew wages, insurance, provisions, repairs and maintenance;
changes in general domestic and international political conditions, particularly where we operate;
a decline or continuing weakness in the global financial markets;
challenges by authorities to the tax benefits we previously obtained under certain of our leasing agreements; and
•
other factors listed from time to time in registration statements, reports or other materials that we have filed with or furnished to the Securities and
Exchange Commission, or the Commission.
Please see our Risk Factors in Item 3 of this report for a more complete discussion of these and other risks and uncertainties.
We caution readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward
looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the
forward looking statements.
We undertake no obligation to publicly update or revise any forward looking statements, except as required by law. If one or more forward looking
statements are updated, no inference should be drawn that additional updates will be made.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
Not applicable.
ITEM 3. KEY INFORMATION
Throughout
this
report,
unless
the
context
indicates
otherwise,
the
"Company,"
"Golar,"
"Golar
LNG,"
"we,"
"us,"
and
"our"
all
refer
to
Golar
LNG
Limited
or
any
one
or
more
of
its
consolidated
subsidiaries,
including
Golar
Management
Limited,
or
Golar
Management,
or
to
all
such
entities.
References
in
this
Annual
Report
to
"Golar
Partners"
or
the
"Partnership"
refer,
depending
on
the
context,
to
our
affiliate
Golar
LNG
Partners
LP
(Nasdaq:
GMLP)
and
to
any
one
or
more
of
its
subsidiaries.
References
to
"Golar
Power"
refer
to
our
affiliate
Golar
Power
Limited
and
to
any
one
or
more
of
its
subsidiaries.
References
to
"OneLNG"
refer
to
our
joint
venture
OneLNG
S.A.
and
to
any
one
or
more
of
its
subsidiaries.
Unless
otherwise
indicated,
all
references
to
"USD"
and
"$"
in
this
report
are
to
U.S.
dollars.
A. Selected Financial Data
The following selected consolidated financial and other data, which includes our fleet and other operating data, summarizes our historical consolidated
financial information. We derived the statement of operations data for each of the years in the three-year period ended December 31, 2017 and the balance sheet
data as of December 31, 2017 and 2016 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 statements of operations data with respect to the years ended December 31, 2014 and 2013 and the selected balance sheet data as of
December 31, 2015, 2014 and 2013 have been derived from Consolidated Financial Statements prepared in accordance with U.S. GAAP not included herein.
1
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
our Consolidated Financial Statements and notes thereto included herein.
Years Ended December 31,
2017
2016
2015
2014
2013
(in
thousands
of
U.S.
$,
except
number
of
shares,
per
common
share
data,
fleet
data
and
other
financial
data)
Statement of Operations Data:
Total operating revenues
Vessel operating expenses
Voyage, charter-hire and commission expenses (including collaborative
arrangement)
Total operating expenses
Operating (loss) income
Net financial (expense) income
Equity in net (losses) earnings of affiliates
143,537
55,946
61,292
244,094
(85,457)
(32,788)
(25,448)
80,257
53,163
47,563
221,364
(141,091)
(59,541)
47,878
102,674
56,347
69,042
234,604
(36,380)
(174,619)
55,985
Net (loss) income attributable to the stockholders of Golar LNG Ltd
(179,703)
(186,531)
(171,146)
106,155
49,570
27,340
146,488
(2,116)
(87,852)
42,220
(48,017)
(0.55)
(0.55)
1.80
191,410
74,162
425
746,263
344,543
345,205
1,648,888
3,899,742
112,853
1,241,133
2,237,422
93,415
99,828
43,750
14,259
118,332
63,766
41,768
3,099
109,555
1.36
1.28
1.35
125,347
23,432
3,111
766,024
767,525
—
811,715
2,591,666
29,305
663,239
1,771,727
80,580
(1.79)
(1.79)
0.20
(1.99)
(1.99)
0.60
(1.83)
(1.83)
1.35
214,862
222,265
175,550
703,225
—
1,177,489
2,077,059
4,764,287
1,384,933
1,025,914
1,796,304
101,119
224,190
183,693
232,335
648,780
—
731,993
2,153,831
4,256,911
451,454
1,525,744
1,909,826
101,081
105,235
231,820
180,361
541,565
13,561
501,022
2,598,771
4,269,198
693,123
1,342,084
1,916,179
93,547
47,134
(433,769)
377,307
(38,551)
(2,222)
159,728
(344,649)
(255,956)
514,430
24,873
(1,429,270)
1,470,460
67,722
(533,067)
165,978
14
14
12.6
5,370
3,885
14
15
11.7
5,864
4,034
17
14
9.7
5,647
4,481
13
9
10.8
2,133
2,059
7
6
18.7
2,012
1,501
17,500 $
11,374 $
10,100 $
10,359 $
14,900 $
11,783 $
33,100 $
23,240 $
38,300
21,745
2
(Loss) earnings per common share
- basic (1)
- diluted (1)
Cash dividends declared and paid per common share
Balance Sheet Data (as of end of year):
Cash and cash equivalents
Restricted cash and short-term deposits (2)
Non-current restricted cash (2)
Investments in affiliates
Newbuildings
Asset under development
Vessels and equipment, net
Total assets
Current portion of long-term debt and short-term debt
Long-term debt
Total equity
Common shares outstanding (1) (in
thousands)
Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Fleet Data:
Number of vessels at end of year
Average number of vessels during year
Average age of vessels (years)
Total calendar days for fleet
Total operating days for fleet (3)
Other Financial Data:
Average daily time charter equivalent earnings, or TCE (4) (to the closest
$100)
Average daily vessel operating costs (5)
$
$
Footnotes
(1) Basic earnings per share are calculated based on the income available to common shareholders and the weighted average number of our common shares
outstanding. Treasury shares are not included in this calculation. The calculation of diluted earnings per share assumes the conversion of potentially dilutive
instruments.
(2) Restricted cash consists of bank deposits, which may only be used to settle certain pre-arranged loans or lease payments or deposits made in accordance with
our contractual obligations under our equity swap line facilities, letter of credit facilities in connection with our tolling agreement, bid or performance bonds for
projects we may enter. Short-term deposits represents highly liquid deposits placed with financial institutions, primarily from our consolidated VIEs, which are
readily convertible into known amounts of cash with original maturities of less than 12 months.
(3) The total operating days for our fleet is the total number of days in a given period that our vessels were in our possession less the total number of days off-
hire. We define days off-hire as days lost to, among other things, operational deficiencies, drydocking for repairs, maintenance or inspection, scheduled lay-up,
vessel conversions, equipment breakdowns, special surveys and vessel upgrades, delays due to accidents, crewing strikes, certain vessel detentions or similar
problems, or our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew, or periods of
commercial waiting time during which we do not earn charter hire.
(4) Non-U.S.
GAAP
Financial
Measure
: Time charter equivalent, or TCE, rate is a measure of the average daily performance of a vessel. TCE is calculated only
in relation to our vessel operations segment. For time charters, this is calculated by dividing total operating revenues (excluding vessel and other management fee),
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. TCE rate is a standard shipping industry performance measure used primarily to
compare period-to-period changes in a company's performance despite changes in the mix of charter types (i.e. spot charters, time charters and bareboat charters)
under which the vessels may be employed between the periods. We include average daily TCE rate, a non-U.S. GAAP measure, as we believe it provides
additional meaningful information in conjunction with total operating revenues, the most directly comparable U.S. GAAP measure, because it assists our
management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may
not be comparable to that reported by other companies. The following table reconciles our total operating revenues to average daily TCE rate.
Operating revenues
Less: Vessel and other management fee
Net time and voyage charter revenues
Voyage expenses*
Calendar days less scheduled off-hire days**
Average daily TCE rate (to the closest $100)
Years Ended December 31,
2017
2016
2015
2014
2013
(in
thousands
of
U.S.
$,
except
number
of
shares,
per
common
share
data,
fleet
and
other
financial
data)
143,537
(26,576)
116,961
(48,933)
68,028
3,885
17,500
80,257
(14,225)
66,032
(25,291)
40,741
4,034
10,100
102,674
(12,547)
90,127
(23,434)
66,693
4,481
14,900
106,155
(10,756)
95,399
(27,340)
68,059
2,059
33,100
99,828
(9,270)
90,558
(14,259)
76,299
1,994
38,300
* The TCE calculations for 2017, 2016 and 2015 exclude charter-hire expenses which arose from the charter back arrangements with Golar Partners with respect to
the Golar
Grand
and, for 2015, the Golar
Eskimo
. This amounted to $12.4 million, $22.3 million and $45.6 million for the years ended December 31, 2017, 2016
and 2015, respectively.
**
This excludes days when vessels are in lay-up, undergoing dry dock or undergoing conversion.
(5) We calculate average daily vessel operating costs by dividing vessel operating costs by the number of calendar days. Calendar days exclude those from vessels
chartered in where the vessel operating costs are borne by the legal owner, and those of vessels undergoing conversion.
3
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
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 common 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 Company
We
cannot
guarantee
that
the
Hilli
contract
will
progress
favorably.
We are party to a Liquefaction Tolling Agreement, or LTA (refer to "Item 4. Information on the Company-A. History and Development of the Company-
FLNG segment-Liquefaction Tolling Agreement"), with Perenco Cameroon, or Perenco, and Societe Nationale de Hydrocarbures, or SNH, (together, the
"Customer") related to a floating liquefied natural gas export project offshore Kribi, Cameroon that employs the converted Hilli. The Hilli conversion completed in
October 2017 and she arrived in Cameroon on November 20, 2017 where she is undergoing commissioning activities. We expect acceptance testing procedures to
commence shortly. We tendered her notice of readiness, or NoR, on December 3, 2017 upon completion of pre-commissioning activities, starting the
commissioning period. The Hilli
started generating commissioning payments at a reduced rate from January 4, 2018. First LNG was produced from the Hilli
mid-
March 2018. The initial term of the LTA is eight years. However, given the complex nature of the project, the new and highly technical nature of the FLNG vessel
conversion process, and that the LTA is contingent on the satisfaction of significant conditions which, if not satisfied or waived by the Customer, may result in
termination prior to or after employment commences, we cannot assure you that we will be entitled to continue invoicing the Customer under the terms of the LTA
during the remainder of the commissioning period or once fully operational post vessel acceptance.
The
pending
Hilli
Disposal
may
not
close
as
anticipated
or
it
may
close
with
adjusted
terms.
We expect the Hilli Disposal (refer to "Item 4. Information on the Company-A. History and Development of the Company-FLNG segment-The Hilli
Disposal") to close on or around April 30, 2018, subject to certain closing conditions. However, in the event Customer acceptance is delayed beyond April 30,
2018, both parties have agreed to extend the closing date for the Hilli Disposal to May 31, 2018. If these conditions are not satisfied or waived, we will not
complete the Hilli Disposal. Certain of the conditions that remain to be satisfied include, but are not limited to:
•
•
•
•
•
the Hilli’s
timely acceptance by the Customer under the LTA;
the continued accuracy of the representations and warranties contained in the Hilli Sale Agreement;
the performance by each party of its obligations under the sale agreement;
the absence of any decree, order, injunction, ruling or judgment that prohibits, or other proceedings that seek to prohibit, the Hilli Disposal or makes the
Hilli Disposal unlawful; and
the execution of certain agreements related to the consummation of the Hilli Disposal.
We cannot provide assurance that the pending Hilli Disposal will close by May 31, 2018, or at all, or that the Hilli Disposal will close without material
adjustments.
The
operations
of
Golar
Hilli
Corporation
("Hilli
Corp")
in
Cameroon
under
the
LTA
will
be
subject
to
higher
political
and
security
risks
than
operations
in
other
areas
of
the
world.
The operations of Hilli Corp in Cameroon under the LTA will be subject to higher political and security risks than operations in other areas of the world.
Recently, Cameroon has experienced instability in its socio-political environment. Any extreme levels of political instability resulting in changes of governments,
internal conflict, unrest and violence, especially from terrorist organizations prevalent in the region, such as Boko Haram, could lead to economic disruptions and
shutdowns in industrial activities. In addition, corruption and bribery are a serious concern in the region. The FLNG operations of Hilli Corp in Cameroon
4
will be subject to these risks, which could materially adversely affect our revenues, our ability to perform under the LTA and our financial condition.
In addition, Hilli Corp will maintain insurance coverage for only a portion of the risks incident to doing business in Cameroon. There also may be certain
risks covered by insurance where the policy does not reimburse Hilli Corp for all of the costs related to a loss. For example, any claims covered by insurance will
be subject to deductibles, which may be significant. In the event that Hilli Corp incurs business interruption losses with respect to one or more incidents, they could
have a material adverse effect on our results of operations.
Due
to
the
new
and
sophisticated
technology
utilized
by
the
Hilli,
the
operations
of
the
Hilli
are
subject
to
risks
that
could
negatively
affect
our
earnings
and
financial
condition.
The Hilli
is the world’s first LNG carrier to have been retrofitted for FLNG service. Due to the new and sophisticated technology utilized by the Hilli
, the
operations of the Hilli
are subject to risks that could negatively affect our earnings and financial condition. FLNG vessels are complex and their operations are
technically challenging and subject to mechanical risks and problems. Unforeseen operational problems with the Hilli
may lead to loss of revenue or higher than
anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business, financial condition, results of operations
and ability to make cash distributions to our unitholders.
Further, the highly technical work is only capable of being performed by a limited number of contractors. Accordingly, a change of contractors for any
reason would likely result in higher costs and a significant delay to our delivery schedules. In addition, given the novelty of our FLNG conversion projects, the
completion of retrofitting our vessels as FLNG vessels could be subject to risks of significant cost overruns. If the shipyard is unable to deliver any converted
FLNG vessel on time, we might be unable to perform related charters. Any substantial delay in the conversion of any of our vessels into FLNG vessels could mean
we will not be able to satisfy potential employment.
Furthermore, if any of our FLNG vessels, once converted, are not able to meet certain performance requirements or perform as intended, we may have to
accept reduced charter rates. Alternatively, it may not be possible to charter the converted FLNG vessel at all, which would have a significant negative impact on
our cash flows and earnings.
If
the
letter
of
credit
is
not
extended,
our
earnings
and
financial
condition
could
suffer.
Pursuant to the terms of the LTA for the aforementioned project, the converted Hilli
arrived in Cameroon on November 20, 2017 and began
commissioning activities. The Hilli
will provide liquefaction services for an initial term of eight years. In accordance with the terms of the LTA, we have obtained
a letter of credit issued by a financial institution to our Project Partners that guarantees certain payments we are required to make to them under the LTA. The letter
of credit was set to expire on December 31, 2017, but it automatically extends for successive one year periods until the tenth anniversary of the acceptance of the
Hilli
to perform the agreed services for the project, unless the financial institution elects to not extend the letter of credit. The financial institution may elect to not
extend the letter of credit by giving notice at least ninety days prior to the current December 31, 2018 expiration date or December 31 in any subsequent year. If the
letter of credit (i) ceases to be in effect or (ii) the financial institution elects to not extend it, unless replacement security for payment is provided within a certain
time, then the tolling agreement may be terminated and we may be liable for a termination fee of up to $400 million. Accordingly, if the financial institution elects
at some point in the future to not extend the letter of credit, our financial condition could be materially and adversely affected.
We
and
Schlumberger
will
have
an
obligation
to
make
additional
payments
to
OneLNG.
We and Schlumberger have each agreed to make up to an additional $250 million of capital contributions to OneLNG, pursuant to and in accordance with the
terms of the Joint Venture and Shareholders’ Agreement, namely a final investment decision is taken on a OneLNG project. While we believe we will be able to
arrange funding for the full amount of our obligations, to the extent we or Schlumberger do not timely make the required capital contributions, such failure to
provide the necessary equity funding could have material adverse consequences for OneLNG, and we and Schlumberger will have the right to purchase the other’s
interest in OneLNG if the other defaults in such funding obligations. Such a purchase could take place voluntarily even if there is no default in funding or other
obligations.
The
success
of
our
investment
in
OneLNG
is
subject
to
the
various
risks
related
to
OneLNG’s
business.
OneLNG’s business is subject to a variety of risks, including, among others, any inability of Schlumberger and us to successfully work together in the
shared management of OneLNG, any inability of OneLNG to identify and enter in appropriate projects, any inability of OneLNG to obtain sufficient financing for
any project it identifies, any failure of upstream LNG producing
5
projects connected with OneLNG’s activities, and other industry, regulatory, economic and political risks similar in nature to the risks faced by us.
Additionally, OneLNG’s participation in the joint operating company, or JOC, and the development of the Fortuna Project (see "Item 4. Information on
the Company-B. Business Overview-Floating LNG Regasification-Floating Liquefaction Vessels-OneLNG - Golar/Schlumberger FLNG Joint Venture" for further
detail) is subject to a variety of risks, including, among others, the failure to satisfy all the conditions precedent to effectiveness of the JOC Shareholders’
Agreement, including agreement of final project terms and documentation, execution of documentation for project debt financing with respect to the conversion of
the Gandria
, approval by the government of Equatorial Guinea and final investment decision of OneLNG or Ophir, and other risks such as an inability of Ophir
and OneLNG to successfully work together in the shared management of the JOC, risks related to the conversion of the Gandria
similar in nature to the risks
related to the Hilli
conversion, and the failure of the Block R License to yield the projected amount of LNG.
The expected total capital expenditure for the Fortuna Project is approximately $2.0 billion to reach first gas, of which a significant portion is expected to
be debt financed. While we believe that we, together with OneLNG, will be able to arrange financing as required for the conversion of the Gandria
, to the extent
that we do not obtain the necessary financing in a timely manner and OneLNG or Ophir fail to make any payments required in connection with the Fortuna Project,
the Fortuna Project could be delayed which may negatively affect OneLNG and our business operations and financial results.
The
implementation
of
the
Fortuna
Project
and
other
similar
projects
in
the
future
is
outside
the
area
of
our
core
expertise
and
we
are
required
to
rely
on
the
experience
of
our
joint
venture
partners.
The development of the Fortuna Project or other similar projects will expose us to risks associated with the development of gas fields. We have not had
substantial experience in the area of gas field development and have therefore partnered with more experienced joint venture partners in connection with these
projects. While we plan to rely on our joint venture partners to carry out this work, the development of gas fields is outside our core expertise and we are exposed
to risks in connection with gas field developments. Such risks include the geological nature of gas fields, including unexpected drilling conditions and irregularities
in geological formations, equipment failures, fires, blow-outs or accidents, shortages or delays in the availability of appropriate equipment, and competition from
oil and gas companies for the acquisition and development of assets and licenses.
If
there
is
a
delay
or
default
by
a
shipyard
or
if
a
shipyard
does
not
meet
certain
performance
requirements,
our
earnings
and
financial
condition
could
suffer.
We have entered into an agreement with Keppel Shipyard Limited, or Keppel, and Black & Veatch Corporation, or Black & Veatch, for the conversion of
one of our oldest LNG carriers, the Gimi,
into a FLNG (in addition to the Hilli
, which has completed her conversion). We have also agreed contract terms for the
conversion of the Gandria
into a FLNG. In the event the shipyards do not perform under the contracts and we are unable to enforce certain refund guarantees with
third party banks for any reason, we may lose all or part of our investments, which would have a material adverse effect on our results of operations, financial
condition and cash flows.
In addition, the conversions and newbuilding are subject to the risk of delay or default by the shipyards caused by, among other things, unforeseen quality
or engineering problems, work stoppages or other labor disturbances at the shipyards, bankruptcy of or other financial crisis involving the shipyards, weather
interference, unanticipated cost increases, delays in receipt of necessary equipment, political, social or economic disturbances, inability to finance the construction
of the vessel and inability to obtain the requisite permits or approvals. In accordance with industry practice, in the event the shipyards are unable or unwilling to
deliver the vessel, we may not have substantial remedies. Failure to convert, construct or deliver the vessels by the shipyards or any significant delays could
increase our expenses and diminish our net income and cash flows.
We
have
a
substantial
equity
investment
in
Golar
Power
that
is
subject
to
the
risks
related
to
Golar
Power’s
business.
We have a substantial equity investment in Golar Power. In addition to the value of our investment, we expect to receive cash distributions from Golar Power
and management fee income from the provision of services to Golar Power under a management and administrative services agreement for the vessels in Golar
Power’s fleet. The value of our investment, the income generated from our investment and the management fee income are subject to a variety of risks, including
the risks related to Golar Power’s business. In turn, Golar Power’s business is subject to a variety of risks, including, among others, any inability of Stonepeak and
us to successfully work together in the shared management of Golar Power, any inability of Golar Power to identify and enter into appropriate projects, any
inability of Golar Power to obtain sufficient financing for any project it identifies, any failure of upstream and downstream LNG producing projects connected with
Golar Power’s activities, and other industry, regulatory, economic and political risks similar in nature to the risks faced by us.
6
Although Golar Power has approved making a final investment decision in connection with the Sergipe Project, we cannot assure you that the Sergipe
Project will proceed as planned. The capital expenditure for the power station and terminal components of the Sergipe Project, including taxes and financing costs,
is estimated at 4.3 billion Brazilian Reals, which is equal to approximately $1.3 billion at current exchange rates. Of this amount, the majority will be funded
by Centrais Electricas de Sergipe S.A., or CELSE, with debt financing. While we believe that CELSE will be able to arrange the financing as necessary for the
power station and terminal, to the extent that CELSE does not obtain the necessary financing in a timely manner, the completion of the project could be delayed.
This may negatively affect Golar Power and our business operations and financial results.
In addition, the Sergipe Project is subject to a variety of risks including General Electric’s completion of the Sergipe Project in accordance with the terms
of the related EPC contract. Additionally, constructing and operating a power plant is subject to certain risks that include unscheduled plant outages, equipment
failure, labor disputes, disruptions in fuel supply, inability to comply with regulatory or permit requirements, natural disasters or terrorist acts, cyber attacks or
other similar occurrences, and inherent risks which may occur as a result of inadequate internal processes, technological flaws, human error or actions of third
parties or other external events. The control and management of these risks depend upon adequate development and training of personnel and on the existence of
operational procedures, preventative maintenance plans and specific programs supported by quality control systems which reduce, but do not eliminate, the
possibility of the occurrence and impact of these risks. The hazards described above, along with other safety hazards associated with our operations, can cause
significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment, contamination of, or damage to, the environment and
suspension of operations. The occurrence of any one of these events may result in Golar Power, through its ownership interest in CELSE, being named as a
defendant in lawsuits asserting claims for substantial damages, environmental cleanup costs, personal injury and fines and/or penalties.
Also, exchange rate fluctuations between the U.S. Dollar and the Brazilian Real could have an adverse impact on the results of operations of Golar Power
with respect to its investments in Brazil, including its investments in the Sergipe Project through CELSE. The principal currency for revenue and operating
expenses is the U.S. Dollar; however, a significant portion of expenses for CELSE will be paid in Brazilian Real. This exposure to foreign currency could lead to
fluctuations in Golar Power’s net income and net revenue due to changes in the value of the U.S. Dollar relative to the Brazilian Real.
We
are
obligated
to
make
additional
payments
to
Golar
Power
in
connection
with
the
related
Shareholders
Agreement.
As a closing condition to the Golar Power joint venture transaction, we and Stonepeak entered into an Investment and Shareholders Agreement with respect
to Golar Power that governs, among other things, its management and funding. Under the agreement, we and Stonepeak have agreed to contribute additional equity
funding to Golar Power, on a pro rata basis, including (i) up to an aggregate of $150 million due through to mid-2018 and (ii) additional amounts as may be
required by Golar Power subject to the approval of its board of directors.
While we believe we will be able to arrange funding for the full amount of our pro rata obligations, to the extent we or Stonepeak do not timely make the
required payments, such failure could have material adverse consequences for Golar Power, and failure by us to fulfill our payment obligations could adversely
impact our interests in Golar Power.
We
may
guarantee
the
indebtedness
of
our
joint
ventures.
We may provide guarantees to certain banks with respect to commercial bank indebtedness of our joint ventures. This includes the debt under our $1.125
billion loan facility borrowed by Golar Power’s subsidiaries that own the Golar
Celsius
and Golar
Penguin
, which are our former subsidiaries that we
contributed to Golar Power. Following our contribution of those subsidiaries, they continue to owe the debt associated with the Golar
Celsius
and Golar
Penguin
to the lenders under our $1.125 billion loan facility, which we guarantee. Failure by any of our joint ventures, including Golar Power, to service its debt
requirements and comply with any provisions contained in its commercial loan agreements, including paying scheduled installments and complying with certain
covenants, may lead to an event of default under the related loan agreement, including our $1.125 billion loan facility. As a result, if our joint ventures are unable
to obtain a waiver or do not have enough cash on hand to repay the outstanding borrowings, the relevant lenders may foreclose their liens on the vessels securing
the loans or seek repayment of the loan from us, or both. Further, by virtue of our guarantees with respect to our joint ventures, this may reduce our ability to gain
future credit from certain lenders.
7
We
may
not
be
able
to
obtain
financing,
to
meet
our
obligations
as
they
fall
due,
to
fund
our
growth
or
our
future
capital
expenditures,
which
could
negatively
impact
our
results
of
operations,
financial
condition
and
ability
to
pay
dividends.
In order to fund future FLNG vessel and FSRU retrofitting projects, liquefaction projects, newbuilding programs, vessel acquisitions, increased working
capital levels or other capital expenditures, we may be required to use cash from operations, incur additional borrowings, raise capital through the sale of debt or
additional equity securities or complete sales of our interests in our vessel owning subsidiaries operating under long-term charters to Golar Partners. Our ability to
do so 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. In addition, our use of cash from operations may reduce the
amount of cash available for dividend distributions. Our failure to obtain funds for future capital expenditures could impact our results of operations, financial
condition and our ability to pay dividends. Furthermore, our ability to access capital, overall economic conditions and our ability to secure charters could limit our
ability to fund our growth and capital expenditures. The issuance of additional equity securities would dilute your equity interest in us and reduce any pro rata
dividend payments without a commensurate increase in cash allocated to dividends, if any. 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 to pay dividends.
A pre-condition of the lease financings for both the Golar
Tundra
and the Golar
Seal
is for these vessels to be employed under effective charters by June 30, 2018
and December 31, 2018, respectively, or we could be required to refinance the vessels. We are currently exploring our refinancing options, including extension of
the lenders’ deadlines for satisfaction of such. While we believe we will be able to refinance these vessels or extend the lenders' deadlines, failure to do so could
have an adverse effect on our results of operations, cash flows, financial condition and ability to pay dividends.
Servicing
our
debt
agreements
substantially
limits
our
funds
available
for
other
purposes
and
our
operational
flexibility.
A large portion of our cash flow from operations is used to repay the principal and interest on our debt agreements. As of December 31, 2017, our net
indebtedness (including loan debt, net of restricted cash and short-term deposits and net of cash and cash equivalents) was $1.8 billion and our ratio of net
indebtedness to total capital (comprising net indebtedness plus shareholders' equity) was 0.50.
Our consolidated debt could increase substantially. We will continue to have the ability to incur additional debt. Our level of debt could have important
consequences to us, including:
•
•
•
•
Our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired
or such financing may not be available on favorable terms;
We will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise
be available for operations, future business opportunities and dividends to stockholders;
We may be more vulnerable than our competitors with less debt to competitive pressures or a downturn in our industry or the economy
generally; and
Our flexibility in obtaining additional financing, pursuing other business opportunities and responding to changing business and economic
conditions may be limited.
Our ability to service our indebtedness will depend upon, among other things, our future financial and operating performance, which will be affected by
prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control, as well as the interest rates applicable
to our outstanding indebtedness. If our operating income is not sufficient to service our indebtedness, we will be forced to take actions, such as reducing or
delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity
capital. We may not be able to effect any of these remedies on satisfactory terms, or at all. In addition, a lack of liquidity in the debt and equity markets could
hinder our ability to refinance our debt or obtain additional financing on favorable terms in the future.
8
A
decline
in
the
market
value
of
Golar
Partners’
common
unit
price
could
result
in
breaches
of
our
Margin
Loan
Facility.
We entered into a loan agreement, dated March 3, 2017, among one of our wholly-owned subsidiaries, as borrower, Golar LNG Limited, as guarantor,
Citibank N.A., as administrative agent, initial collateral agent and calculation agent, and Citibank N.A., as lender. We refer to this as the Margin Loan Facility. If
the outstanding balance of the Margin Loan Facility were to exceed the specified loan-to-value ratio threshold (for example, as a result of a decline in the aggregate
market value of the pledged securities), we would be required to pledge additional cash or cash equivalents as collateral under the Margin Loan Facility or repay a
portion of the Margin Loan Facility. If we were unable to pledge such additional collateral or repay a portion of the Margin Loan Facility Citibank N.A. could
accelerate our debt and foreclose on our Golar Partners common units pledged as collateral under the term loan credit facility. Our term loan credit facility could
thus increase our vulnerability to adverse economic and industry conditions.
Our
financing
agreements
are
secured
by
our
vessels
and
contain
operating
and
financial
restrictions
and
other
covenants
that
may
restrict
our
business,
financing
activities
and
ability
to
make
cash
distributions
to
our
shareholders.
In
addition,
because
of
the
presence
of
cross-default
provisions
in
certain
of
our
and
Golar
Partners’
financing
agreements
that
cover
both
us
and
Golar
Partners,
a
default
by
us
or
Golar
Partners
could
lead
to
multiple
defaults
in
our
agreements.
Our obligations under our financing arrangements are secured by certain of our vessels and guaranteed by our subsidiaries holding the interests in our
vessels. Our loan agreements impose, and future financial obligations may impose, operating and financial restrictions on us. These restrictions may require the
consent of our lenders, or may prevent or otherwise limit our ability to, among other things:
•
•
•
•
•
•
merge into, or consolidate with, any other entity or sell, or otherwise dispose of, all or substantially all of our assets;
make or pay equity distributions;
incur additional indebtedness;
incur or make any capital expenditures;
materially amend, or terminate, any of our current charter contracts or management agreements; or
charter our vessels.
Our loan agreements and lease financing arrangements also require us to maintain specific financial levels and ratios, including minimum amounts of
available cash, minimum ratios of current assets to current liabilities (excluding current portion of long-term debt), minimum levels of stockholders’ equity and
maximum loan amounts to value. If we were to fail to maintain these levels and ratios without obtaining a waiver of covenant compliance or modification to our
covenants, we would be in default of our loans and lease financing agreements, which, unless waived by our lenders, could provide our lenders with the right to
require us to increase the minimum value held by us under our equity and liquidity covenants, increase our interest payments, pay down our indebtedness to a level
where we are in compliance with our loan covenants, sell vessels in our fleet or reclassify our indebtedness as current liabilities and could allow our lenders to
accelerate our indebtedness and foreclose their liens on our vessels, which could result in the loss of our vessels. If our indebtedness is accelerated, we may not be
able to refinance our debt or obtain additional financing, which would impair our ability to continue to conduct our business.
Moreover, in connection with any waivers and/or amendments to our loan and lease agreements, our lenders may impose additional operating and
financial restrictions on us and/or modify the terms of our existing loan and lease agreements.
Because of the presence of cross-default provisions in certain of our and Golar Partners’ loan and lease agreements that cover both us and Golar Partners,
a default by us or Golar Partners under a loan or lease agreement and the refusal of any one lender or lessor to grant or extend a waiver could result in the
acceleration of our indebtedness under our other loan and lease agreements even if our or Golar Partners’ other lenders or lessors have waived covenant defaults
under the respective agreements. A cross-default provision means that if we or Golar Partners default on one loan or lease, we would then default on our other
loans containing a cross-default provision.
9
Exposure
to
equity
price
risk
in
our
shares
could
adversely
affect
our
financial
results.
As a result of holding an equity swap, which we refer to as our Total Return Swap, in our own securities, as of April 6, 2018 , we are exposed to the
movement in our share price in respect of 3.0 million shares under the equity swap. Should the price of our shares fall materially below the level at which the
shares were acquired, the equity swap mark-to-market valuations could adversely affect our results. In addition, the equity swap has a credit arrangement, whereby
we are required to provide cash collateral equal to 20% of the initial acquisition price and to subsequently post additional cash collateral that corresponds to any
further unrealized loss. As of December 31, 2017, cash collateral of $58.4 million has been provided. In the event the share price declines, the cash collateral
requirements could adversely affect our liquidity and financial position.
We
are
exposed
to
volatility
in
the
London
Interbank
Offered
Rate,
or
LIBOR,
and
the
derivative
contracts
we
have
entered
into
to
hedge
our
exposure
to
fluctuations
in
interest
rates
could
result
in
higher
than
market
interest
rates
and
charges
against
our
income.
As of December 31, 2017, we had total outstanding debt of $2.4 billion, of which approximately $0.9 billion was exposed to a floating interest rate based
on LIBOR, which has been volatile recently and could affect the amount of interest payable on our debt. In order to manage our exposure to interest rate
fluctuations, we use interest rate swaps to effectively fix a part of our floating rate debt obligations. As of December 31, 2017, we have interest rate swaps with a
notional amount of $1.3 billion representing 138.7% of our total floating rate debt. While we are economically hedged, we do not apply hedge accounting and
therefore interest rate swaps mark-to-market valuations may adversely affect our results. Entering into swaps and derivatives transactions is inherently risky and
presents various possibilities for incurring significant expenses. The derivatives strategies that we employ currently and in the future may not be successful or
effective, and we could, as a result, incur substantial additional interest costs or losses.
In the future, our financial condition could be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under
loans that have been advanced at a floating rate. Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired
impact on our financial conditions or results of operations.
We
will
have
to
make
additional
contributions
to
our
pension
scheme
because
it
is
underfunded.
We provide a pension plan for certain of our current and former marine employees. As of December 31, 2017, there were 11 active members and 220
pensioners. Members do not contribute to the plan and it is closed to any new members. As of December 31, 2017, the plan is underfunded by $38.9 million at the
current contribution level, and we will need to increase our contributions significantly in order to avoid the plan’s assets being extinguished. Such contributions
could have a material and adverse effect on our cash flows and financial condition.
We
have
a
substantial
equity
investment
in
our
former
subsidiary,
Golar
Partners,
that
from
December
13,
2012,
is
no
longer
consolidated
with
our
financial
results,
and
our
investment
is
subject
to
the
risks
related
to
Golar
Partners’
business.
As of December 31, 2017, we had an ownership interest of 31.8% (including our 2% general partner interest) in Golar Partners, in addition to 100% of the
incentive distribution rights, or IDRs, which we account for under the equity method of accounting. The aggregate carrying value of our investments in Golar
Partners as of December 31, 2017 was $467.1 million , which represents our total interests in the common and general partner units and the IDRs. The common
units of Golar Partners are listed on the NASDAQ Global Market, which as of December 31, 2017, had a quoted unit price of $22.80. The estimated fair value of
our investments in Golar Partners is calculated with reference to the quoted price of the common units, with adjustments made to reflect the different rights
associated with each class of investment. If the price of the common units declines, such that the fair value of our investments in Golar Partners falls below
carrying value, and it is determined to be due to other than temporary reasons, we would be required to recognize future impairment charges that may have a
material adverse effect on our results of operations in the period that the impairment charges are recognized.
In addition to the value of our investment, we receive cash distributions from Golar Partners, which amounted to $52.3 million for the year ended
December 31, 2017. Furthermore, we receive management fee income from the provision of services to Golar Partners under each of the management and
administrative services agreement and the fleet management agreements, which amounted to $13.7 million for the year ended December 31, 2017.
The value of our investment, the income generated from our investment and the management fee income is subject to a variety of risks, including the risks
related to Golar Partners’ business as disclosed in its respective public filings with the SEC. The occurrence of any such risks may negatively affect our financial
condition. As of April 6, 2018 , Golar Partners had a fleet of 10 vessels which we manage under the management agreements referred to above, seven of which
currently operate under medium
10
to long-term charters with a concentrated number of charterers that include Petrobras, Dubai Supply Authority, PT Nusantara Regas, The Government of
Hashemite Kingdom of Jordan and Kuwait National Petroleum Company. Accordingly, a significant risk to Golar Partners is the loss of any of these customers,
charters or vessels, including rechartering its three vessels recently coming off charter, or under certain operational circumstances, a decline in payments under any
of the charters, which could have a material adverse effect on its business and its ability to make cash distributions to its unitholders if the vessel was not re-
chartered to another customer for an extended period of time.
We
operate
the
majority
of
our
vessels,
through
the
Cool
Pool,
in
the
spot/short-term
charter
market,
which
is
subject
to
volatility.
Failure
by
the
Cool
Pool
to
find
profitable
employment
for
these
vessels
could
adversely
affect
our
operations.
As of April 6, 2018 , we had eight LNG carriers and one FSRU operating in the spot market within the Cool Pool. Please see "Item 4. Information on the
Company-B. Business Overview-Cool Pool" for further detail. The spot market refers to charters for periods of up to twelve months. Spot/short-term charters
expose the Cool Pool to the volatility in spot charter rates, which can be significant. In contrast, 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 in the spot market are uncertain and volatile and will depend upon, among other things,
economic conditions in the LNG market.
If the Cool Pool is unable to find profitable employment or re-deploy ours or any of the other Cool Pool participants' vessels, we will not receive any
revenues from the Cool Pool, but we may be required to pay expenses necessary to maintain that vessel in proper operating condition. A sustained decline in
charter or spot rates or a failure by the Cool Pool to successfully charter its participating vessels could have a material adverse effect on our results of operations
and our ability to meet our financing obligations.
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 time charters for our LNG carriers and FSRUs. 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 are awarded based upon a variety of factors relating to the vessel operator, including but not limited to:
•
•
•
•
•
•
•
•
LNG shipping and FSRU experience and quality of ship operations;
shipping industry relationships and reputation for customer service and safety;
technical ability and reputation for operation of highly specialized vessels, including FSRUs;
quality and experience of seafaring crew;
the ability to finance FSRUs and LNG carriers at competitive rates, and financial stability generally;
construction management experience, including, (i) relationships with shipyards and the ability to get suitable berths and (ii) the ability to obtain
on-time delivery of new FSRUs and LNG carriers according to customer specifications;
willingness to accept operational risks pursuant to a charter, such as allowing termination of the charter for force majeure events; and
competitiveness of the bid in terms of overall price.
We expect substantial competition for providing floating storage and regasification services and marine transportation services for potential LNG projects
from a number of experienced companies, including state-sponsored entities and major energy companies. Many of these competitors have significantly greater
financial resources and larger and more versatile fleets than we and the Cool Pool do. We anticipate that an increasing number of marine transportation companies,
including many with strong reputations and extensive resources and experience, will enter the FSRU market and LNG transportation market. This increased
competition may cause greater price competition for time charters. As a result of these factors, we and the Cool Pool may be unable to expand our relationships
with existing customers or obtain new customers on a profitable basis, if at all, which could have a material adverse effect on our business, results of operations,
financial condition and ability to make cash distributions.
11
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.
Significant demands are placed on our management as a result of our growth. As we expand our operations, we must manage and monitor our operations,
control costs and maintain quality and control. In addition, the provision of management services to our affiliates, Golar Partners, Golar Power and OneLNG,
including the supervision of vessel conversions to FSRUs or FLNGS, has increased the complexity of our business and placed additional demands on our
management. 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.
Failure
to
comply
with
the
U.S.
Foreign
Corrupt
Practices
Act,
the
UK
Bribery
Act
and
other
anti-bribery
legislation
in
other
jurisdictions
could
result
in
fines,
criminal
penalties,
contract
terminations
and
an
adverse
effect
on
our
business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing
business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with
the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, and the Bribery Act 2010 of the United Kingdom, or the UK Bribery Act. We are subject, however,
to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such
anti-corruption laws, including the FCPA and the UK Bribery Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties,
curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged
violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and
can consume significant time and attention of our senior management.
In order to effectively compete in some foreign jurisdictions, we utilize local agents and/or establish entities with local operators or strategic partners. All
of these activities may involve interaction by our agents with government officials. Even though some of our agents or partners may not themselves be subject to
the FCPA, the UK Bribery Act, or other anti-bribery laws to which we may be subject, if our agents or partners make improper payments to government officials or
other persons in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violation of such anti-bribery laws
and could incur civil and criminal penalties and other sanctions, which could have a material adverse effect on our business and results of operations.
An
increase
in
costs
could
materially
and
adversely
affect
our
financial
performance.
Our vessel operating expenses and drydock capital expenditures 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
operating under voyage charters, are idle during periods of commercial waiting time or when positioning or repositioning before or after a time charter. If costs
rise, they could materially and adversely affect our results of operations.
A
shortage
of
qualified
officers
and
crew
could
have
an
adverse
effect
on
our
business
and
financial
condition.
FLNGs require a technically skilled officer staff with specialized training. If we are unable to employ technically skilled staff and crew, we will not be
able to adequately staff our vessels particularly as we take delivery of our converted FLNG vessels. A material decrease in the supply of technically skilled officers
or an inability 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.
As
our
fleet
grows
in
size,
we
may
need
to
improve
our
operations
and
financial
systems
and
recruit
additional
staff
and
crew;
if
we
cannot
improve
these
systems
or
recruit
suitable
employees,
our
business
and
results
of
operations
may
be
adversely
affected.
As our fleet and the fleets of our affiliates grow, we may have to invest in upgrading our operating and financial systems. In addition, we may have to
recruit well‑qualified seafarers and shoreside administrative and management personnel. We may not be able to hire suitable employees to the extent we continue
to expand our fleet. Our vessels require technically skilled staff with specialized training. If we are unable to find and employ such technically skilled staff, we may
not be able to adequately staff our
12
vessels or the vessels of our affiliates. If we are unable to operate our financial and operations systems effectively or we are unable to recruit suitable employees,
our results of operation and may be adversely affected.
We
are
subject
to
certain
risks
with
respect
to
our
contractual
counterparties,
and
failure
of
such
counterparties
to
meet
their
obligations
could
cause
us
to
suffer
losses
or
otherwise
adversely
affect
our
business.
We have entered into, and may enter in the future, contracts, charter contracts, newbuilding contracts, vessel conversion contracts, credit facilities with
banks, sale and leaseback contracts, 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 and the overall financial condition of the counterparty. 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
ability
to
pay
dividends.
Currently, we rely primarily on the revenues generated from our or our affiliates' LNG carriers and FSRUs, proceeds from sales of interests in our vessels
on long-term time charters to Golar Partners and cash distributions from Golar Partners. Due to the lack of diversification in our lines of business, an adverse
development in our LNG carrier and FSRU business, in the LNG industry or in the offshore energy infrastructure industry generally would have a significant
impact on our business, financial condition, results of operations and ability to pay dividends to our shareholders.
We
may
be
subject
to
litigation
that,
if
not
resolved
in
our
favor
and
not
sufficiently
insured
against,
could
have
a
material
adverse
effect
on
us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury
claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties and other litigation
that arises in the ordinary course of our business. Although we always intend to defend such matters vigorously, we cannot predict with certainty the outcome or
effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on
us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which may have a material adverse effect on our financial
condition. Please read "Item 8 Financial Information-Legal Proceedings and Claims."
We
previously
entered
into
six
UK
tax
leases,
of
which
one
lease
remains,
being
that
of
the
Methane
Princess
lease.
In
the
event
of
any
adverse
tax
changes
or
a
successful
challenge
by
the
UK
Revenue
authorities,
or
HMRC,
with
regard
to
the
initial
tax
basis
of
these
transactions
or
in
relation
to
our
2010
lease
restructurings,
or
in
the
event
of
an
early
termination
of
the
Methane
Princess
lease,
we
may
be
required
to
make
additional
payments
principally
to
the
UK
vessel
lessor
or
Golar
Partners,
which
could
adversely
affect
our
earnings
and
financial
position.
We previously entered into six UK tax leases, of which one lease remains, being that of the Methane Princess lease, albeit following the deconsolidation
of Golar Partners in 2012 the capital lease obligation is no longer included within our consolidated balance sheet. However, by virtue of certain indemnity
provisions under certain agreements with Golar Partners, we have agreed to indemnify Golar Partners in the event of any tax liabilities in excess of scheduled or
final scheduled amounts arising from the Methane Princess lease and termination thereof. HMRC has been challenging the use of similar lease structures and has
been engaged in litigation of a test case for some years. In August 2015, following an appeal to the Court of Appeal by the HMRC which set aside previous
judgments in favor of an unrelated tax payer, the First Tier Tribunal (UK court) ruled in favor of HMRC. In the event of any adverse tax changes or a successful
challenge by HMRC with regard to the initial tax basis of the six UK tax leases, or in relation to our 2010 lease restructurings, or in the event of an early
termination of the remaining Methane Princess lease, we may be required to make additional payments principally to the UK vessel lessor or Golar Partners, which
could adversely affect our earnings and financial position. We could be required to return all, or a portion of, or in certain circumstances significantly more than,
the upfront cash benefits that we received in respect of our lease financings, including the 2010 or subsequent termination restructurings. The gross cash benefit we
received upfront on these leases amounted to approximately £41 million British Pounds (before deduction of fees). We are currently in conversation with HMRC
on this matter, presenting the factual background of our position. Please refer to note 31 "Other Commitments and Contingencies" - UK tax lease benefits, of our
Consolidated Financial Statements included herein.
13
Our
consolidated
lessor
variable
interest
entities
may
enter
into
different
financing
arrangements,
which
could
affect
our
financial
results.
By virtue of the sale and leaseback transactions we have entered into with certain entities of Chinese financial institutions that are determined to be
variable interest entities, or the lessor VIEs, where we are deemed to be the primary beneficiary, we are required to consolidate these lessor VIEs into our results.
Although consolidated into our results, we have no control over the funding arrangements negotiated by these lessor VIEs such as interest rates, maturity and
repayment profiles. In consolidating these lessor VIEs, we must make assumptions regarding the debt amortization profile and the interest rate to be applied against
the lessor VIEs’ debt principle. Our estimates are therefore dependent upon the timeliness of receipt and accuracy of financial information provided by these lessor
VIE entities. For additional detail refer to note 5 "Variable Interest Entities" of our Consolidated Financial Statements included herein. As of December 31, 2017,
we consolidated lessor VIEs in connection with the lease financing transactions for seven of our vessels. For descriptions of our current financing arrangements
including those of our lessor VIEs, please read "Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Borrowing Activities."
The funding arrangements negotiated by these lessor VIEs could adversely affect our financial results.
We
are
exposed
to
U.S.
dollar
and
foreign
currency
fluctuations
and
devaluations
that
could
harm
our
reported
revenue
and
results
of
operations.
Our principal currency for our operations and financing is the U.S. dollar. We generate the majority of our revenues in the U.S. dollar. Apart from the U.S.
dollar, we incur a portion of capital, operating and administrative expenses in multiple currencies.
Due to a portion of our expenses being incurred in currencies other than the U.S. dollar, our expenses may, from time to time, increase relative to our
revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, the British Pound, and the Norwegian Kroner, which could
affect the amount of net income that we report in future periods. We use financial derivatives to hedge some of our currency exposure. Our use of financial
derivatives involves certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that
the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
Tax risks
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 as amended, 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 we or our subsidiaries derive during the year that are attributable to the
transport of 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. Please see “Item 10. Additional Information-E. Taxation" for further information.
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.S.
shareholders.
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 during the taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets during
such taxable year 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
14
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 and certain
information reporting requirements. 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 shares, as if the excess distribution or gain had been
recognized ratably over the shareholder's holding period of our common shares. Please see the section of this annual report entitled "Taxation" under "Item 10.
Additional Information-E. Taxation" for a more comprehensive discussion of the U.S. federal income tax consequences if we were to be treated as a PFIC.
A
change
in
tax
laws
in
any
country
in
which
we
operate
could
adversely
affect
us
Tax laws and regulations are highly complex and subject to interpretation. Consequently, we and our subsidiaries are subject to changing laws, treaties
and regulations in and between countries in which we operate. Our tax expense is based on our interpretation of the tax laws in effect at the time the expense was
incurred. A change in tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate
on our earnings. Such changes may include measures enacted in response to the ongoing initiatives in relation to fiscal legislation at an international level such as
the Action Plan on Base Erosion and Profit Shifting of the Organization for Economic Co-Operation and Development.
We
may
become
subject
to
taxation
in
Bermuda
which
would
negatively
affect
our
results.
At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable by us or by our shareholders in respect of our shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed
on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to
any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by
us in respect of real property owned or leased by us in Bermuda. We cannot assure you that a future Minister would honor that assurance, which is not legally
binding, or that after such date we would not be subject to any such tax. If we were to become subject to taxation in Bermuda, our results of operations could be
adversely affected.
Risks Related to Our Industry
The
operation
of
LNG
carriers,
FLNGs
and
FSRUs
is
inherently
risky,
and
an
incident
resulting
in
significant
loss
or
environmental
consequences
involving
any
of
our
vessels
could
harm
our
reputation
and
business.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
•
•
•
marine disasters;
piracy;
environmental accidents;
15
•
•
•
•
•
bad weather;
mechanical failures;
grounding, fire, explosions and collisions;
human error; and
war and terrorism.
An accident involving any of our vessels could result in any of the following:
•
•
•
•
•
•
death or injury to persons, loss of property or environmental damage;
delays in the delivery of cargo;
loss of revenues from or termination of charter contracts;
governmental fines, penalties or restrictions on conducting business;
higher insurance rates; and
damage to our reputation and customer relationships generally.
Any of these circumstances or events could increase our costs or lower our revenues.
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. Further, any such environmental accident or the total loss of any of our vessels could harm our reputation as a safe and reliable LNG Carrier, FLNG
and FSRU owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs or loss
which could negatively impact our business, financial condition, results of operations, cash flows and ability to pay dividends.
Our
results
of
operations
and
financial
condition
depend
on
demand
for
LNG,
LNG
carriers,
FSRUs
and
FLNGs.
Our business strategy focuses on expansion in the LNG shipping sector, the floating storage and regasification sector and the floating liquefaction sector.
While global LNG demand has continued to rise, the rate of its growth has fluctuated for several reasons, including the global economic downturn and continued
economic uncertainty, fluctuations in the price of natural gas and other sources of energy, the continued increase in natural gas production from unconventional
sources, including hydraulic fracturing, in regions such as North America and the highly complex and capital intensive nature of new and expanded LNG projects,
including liquefaction projects. Accordingly, our results of operations and financial condition depend on continued world and regional demand for LNG, LNG
carriers, FSRUs and FLNGs, which could be negatively affected by a number of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
price and availability of natural gas, crude oil and petroleum products;
increases in the cost of natural gas derived from LNG relative to the cost of natural gas;
decreases in the cost of, or increases in the demand for, conventional land-based regasification and liquefaction systems, which could occur if
providers or users of regasification or liquefaction services seek greater economies of scale than FSRUs or FLNGs can provide, or if the
economic, regulatory or political challenges associated with land-based activities improve;
further development of, or decreases in the cost of, alternative technologies for vessel-based LNG regasification or liquefaction;
increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new,
pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;
negative global or regional economic or political conditions, particularly in LNG-consuming regions, which could reduce energy consumption or
its growth;
decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of
natural gas less attractive;
any significant explosion, spill or other incident involving an LNG facility or carrier, conventional land-based regasification or liquefaction
system, or FSRU or FLNG;
a significant increase in the number of LNG carriers, FSRUs or FLNGs available, whether by a reduction in the scrapping of existing vessels or
the increase in construction of vessels;
infrastructure constraints such as delays in the construction of export or liquefaction facilities, the inability of project owners or operators to
obtain governmental approvals to construct or operate LNG facilities, as well as
16
•
community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism; and
availability of new, alternative energy sources, including compressed natural gas.
Reduced demand for LNG or LNG liquefaction, storage, shipping or regasification, or any reduction or limitation in LNG production capacity, could have
a material adverse effect on prevailing charter rates or the market value of our vessels, which could materially adversely affect our results of operations and
financial condition.
Oil prices ranged between approximately $42 and $60 in 2017. Natural gas prices ranged from approximately $2.60 to $3.75 in 2017. New LNG supply
and the prospect of significant additional volumes over the coming 3-years that will exceed near-term demand has resulted in a “decoupling” of LNG prices from
oil. An abundance of available LNG in both the Pacific and Atlantic basins also led to a narrowing of the gap in pricing in different geographic regions. This has
continued to adversely affect the length of voyages in the spot LNG shipping market and consequently suppressed spot rates and medium term charter rates for
charters. Although the arrival of substantial volumes of new LNG over the next three years is expected to positively impact the shipping market and remain
supportive of the FSRU business, a prolonged period of low LNG prices could negatively impact new investment decisions for large-scale LNG liquefaction
projects. Whilst potentially a positive catalyst for cost competitive liquefaction solutions including floating liquefaction, this has potentially negative long-term
demand consequences both for LNG carrier and FSRU demand. Any sustained decline in the delivery of new LNG volumes, chartering activity and charter rates
could also adversely affect the market value of our vessels, on which certain of the ratios and financial covenants we are required to comply with in our credit
facilities are based.
Growth
of
the
LNG
market
may
be
limited
by
many
factors,
including
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 floating liquefaction, storage and
regasification, 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 production, liquefaction or regasification facility, FSRU or LNG carrier;
and
labor or political unrest affecting existing or proposed areas of LNG production, liquefaction and regasification.
We expect that, as a result of the factors discussed above, some of the proposals to expand existing or develop new LNG liquefaction and regasification
facilities may be abandoned or significantly delayed. 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.
Fluctuations
in
overall
LNG
demand
growth
could
adversely
affect
our
ability
to
secure
future
time
charters.
LNG trade increased by around 11% from 265 million tonnes per annum ("mtpa") in 2016 to 293 mtpa in 2017. Growth in 2016 and 2015 amounted to
6% and 1.6% respectively. As a result of geopolitical issues, LNG export capacity was removed from the market in 2012, resulting in a small reduction in trade. No
trade increases were recorded in 2013 or 2014. Delays to the start-up of new liquefaction projects and geopolitical issues impacting existing facilities can impact
LNG demand growth and consequently the number of time charter opportunities for LNG carrier, FLNG and FSRU owners. Future growth in the LNG trade, and
therefore requirements for LNG liquefaction, shipping and regasification is highly uncertain and could fall if existing markets for LNG decline, new users and uses
for LNG do not materialize as anticipated and no major export projects are sanctioned over the coming years. In the event that we have not secured long-term
charters for the vessels in our fleet, a reduction in LNG trade could have an adverse effect on our ability to secure future term charters at acceptable rates.
17
A
reduction
in
world-wide
energy
consumption
could
adversely
affect
our
business.
While the most recent Energy Information Administration, or EIA, International Energy Outlook (2016), has reported that worldwide energy consumption
is expected to increase by 48% from 2012 to 2040, with natural gas consumption expected to increase 69%, from 120 trillion cubic feet, or Tcf, in 2012 to 203 Tcf
in 2040, there is no guarantee that the worldwide energy markets will experience such increases. Any decrease in energy and natural gas consumption could have
an adverse effect on our revenues and profitability as there will likely be decreased demand for our services.
Changes
in
the
supply
of
and
demand
for
vessel
capacity
may
lead
to
a
reduction
in
charter
hire
rates
and
profitability
for
FSRUs
and
LNG
carriers.
The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels, conversion of vessels to other
uses, and loss of tonnage as a result of casualties. Hire rates for LNG carriers, and to a lesser extent FSRUs, may fluctuate over time as a result of changes in the
supply-demand balance relating to current and future capacity of FSRUs and LNG carriers. This supply-demand relationship largely depends on a number of
factors outside our control, such as world natural gas prices and energy markets. A substantial or extended decline in natural gas prices could adversely affect our
or the Cool Pool’s ability to charter or recharter vessels at acceptable rates or our ability to acquire and profitably operate new FSRUs or LNG carriers. Hire rates
for FSRUs and LNG carriers correlate to the price of newbuilding FSRUs and LNG carriers. If rates are lower when we or the Cool Pool are seeking a new charter,
our earnings and ability to make distributions to our shareholders will suffer. While we currently believe that there is demand for additional tonnage in the near-
term, an over-supply of vessel capacity combined with a decline in the demand for such vessels, may result in a reduction of charter hire rates. If such a reduction
continues in the future, upon the expiration or termination of our vessels’ current charters, we or the Cool Pool may only be able to re-charter vessels at reduced or
unprofitable rates or we or the Cool Pool may not be able to charter vessels at all, which would have a material adverse effect on our revenues and profitability.
Vessel
values
may
fluctuate
substantially
and,
if
these
values
are
lower
at
a
time
when
we
are
attempting
to
dispose
of
vessels,
we
may
incur
a
loss
and,
if
these
values
are
higher
when
we
are
attempting
to
acquire
vessels,
we
may
not
be
able
to
acquire
vessels
at
attractive
prices.
Vessel values can fluctuate substantially over time due to a number of different factors, including:
•
•
•
•
•
prevailing economic and market conditions in the natural gas and energy markets;
a substantial or extended decline in demand for LNG;
increases in the supply of vessel capacity;
the type, size and age of a vessel; and
the cost of newbuildings or retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment,
changes in applicable environmental or other regulations or standards, customer requirements or otherwise.
As our vessels age, the expenses associated with maintaining and operating them are expected to increase, which could have an adverse effect on our
business and operations if we do not maintain sufficient cash reserves for maintenance and replacement capital expenditures. Moreover, the cost of a replacement
vessel would be significant.
During the period a vessel is subject to a charter, we will not be permitted to sell it to take advantage of increases in vessel values without the charterers’
agreement. If a charter terminates, we may be unable to re-deploy the affected vessels at attractive rates and, rather than continue to incur costs to maintain and
finance them, we may seek to dispose of them. When vessel values are low, we may not be able to dispose of vessels at a reasonable price when we wish to sell
vessels, and conversely, when vessel values are elevated, we may not be able to acquire additional vessels at attractive prices when we wish to acquire additional
vessels, which could adversely affect our business, results of operations, cash flow, financial condition and ability to make distributions to shareholders. Please
refer to "Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Critical Accounting Policies and Estimates-Vessel Market
Values" for further information.
The
market
for
LNG
transportation
and
regasification
services
is
competitive
and
we
may
not
be
able
to
compete
successfully,
which
would
adversely
affect
our
earnings.
The market for LNG transportation and regasification services in which we operate is competitive, especially with respect to the negotiation of long-term
charters. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Furthermore, new competitors
with greater resources could enter the market for LNG carriers or FSRUs and operate larger fleets through consolidations, acquisitions or the purchase of new
vessels, and may be able to offer
18
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.
A
cyber-attack
could
materially
disrupt
our
business.
We rely on information technology systems and networks in our operations and administration of our business. Our business operations could be targeted
by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could
materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information in our systems.
Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations.
Recent action by the United Nation’s International Maritime Organization, or IMO, Maritime Safety Committee and U.S. agencies indicate that
cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. This might
cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However,
the impact of such regulations is hard to predict at this time.
Terrorist
attacks,
increased
hostilities
or
war
could
lead
to
further
economic
instability,
increased
costs
and
disruption
of
our
business.
LNG facilities, shipyards, vessels (including FSRUs and conventional LNG carriers), pipelines and gas fields could be targets of future terrorist attacks.
Terrorist attacks, war or other events beyond our control that adversely affect the production, liquefaction, storage, transportation or regasification of LNG to be
shipped or processed by us could entitle our customers to terminate our charters, which would harm our cash flow and our business. 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, FSRU or LNG carrier did occur, the incident could adversely affect construction of
additional LNG facilities, FSRUs or FLNGs or the temporary or permanent closing of various LNG facilities or FSRUs currently in operation.
In addition, continuing conflicts and recent developments in Europe, with respect to the Ukraine and Russia, in the Middle East, including Israel, Iraq,
Syria and Yemen, and in Africa, including Libya and the areas where Boko Haram operates, such as Nigeria and Cameroon, and the presence of the United States
and other armed forces in Afghanistan, Iraq and Syria may lead to additional acts of terrorism and armed conflict around the world, which may contribute to
economic instability and uncertainty in global financial markets or could impact our operations. As a result of the above, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally. These uncertainties could also adversely affect our ability to obtain additional financing
on terms acceptable to us or at all. In the past, political instability has 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 have also affected vessels trading in regions throughout the world. Any of these
occurrences, or the perception that our vessels are potential terrorist targets, could have a material adverse effect on our business, financial condition, results of
operations, cash flows and ability to pay dividends.
Acts
of
piracy
on
ocean-going
vessels
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, Strait of Malacca, Arabian Sea,
Red Sea, Gulf of Aden off the coast of Somalia, Indian Ocean and Gulf of Guinea. Sea piracy incidents continue to occur, particularly in the Indian Ocean, and
increasingly in the Gulf of Guinea and Strait of Malacca, with tanker vessels vulnerable to such attacks. Yet, some sources report there was a drop in the number of
piracy incidents in 2016. If piracy attacks result in regions in which our vessels are deployed being characterized as “war risk” zones by insurers or Joint War
Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to
obtain. In addition, crew and security equipment costs, including costs which may be incurred to employ onboard security armed guards to comply with Best
Management Practices for Protection against Somalia Based Piracy, or BMP4, or any updated version, 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 or hijacking as a result of an act of
piracy against our vessels, increased costs associated with seeking to avoid such events (including increased bunker costs resulting from vessels being rerouted or
travelling at increased speeds as recommended by BMP4), or unavailability of insurance for our vessels, could have a material adverse impact on our business,
financial condition, results of operations and cash flows, and ability to pay dividends, and may result in loss of revenues, increased costs and decreased cash flows
to our customers, which could impair their ability to make payments to us under our charters.
19
Our
insurance
coverage
may
be
insufficient
to
cover
losses
that
may
occur
to
our
property
or
result
from
our
operations
or
our
insurance
costs
may
increase
significantly.
The operation of LNG carriers and FSRUs is inherently risky. Although we carry 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 vessels 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 be subject to increased premium payments, or calls, if the value of our claim records or the claim records of other members of the protection and
indemnity associations through which we receive insurance coverage for tort liability (including pollution-related liability) significantly exceed projected claims. In
addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in
significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay
dividends.
Our
vessels
may
call
on
ports
located
in
countries
that
are
subject
to
restrictions
imposed
by
the
U.S.
or
other
governments,
which
could
adversely
affect
our
business.
Although no vessels operated by us have called on ports located in countries subject to sanctions and embargoes imposed by the U.S. government and
countries identified by the U.S. government as state sponsors of terrorism, such as Iran, Sudan and Syria, in the future our vessels may call on ports in these
countries from time to time on our charterers’ instructions. None of our vessels made any port calls to Iran in 2017. The U.S. sanctions and embargo laws and
regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and
regulations may be amended or strengthened over time.
In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran
Sanctions Act. Among other things, CISADA expanded the application of the prohibitions to companies such as ours and introduced limits on the ability of
companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.
In addition, in 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation
of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in
violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting
business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat
Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions
regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a
provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the
President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran
to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person
otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a
variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s
vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran
entitled the “Joint Plan of Action,” or JPOA. Under the JPOA it was agreed that, in exchange for
20
Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and EU would voluntarily suspend certain
sanctions for a period of six months. On January 20, 2014, the U.S. and E.U. indicated that they would begin implementing the temporary relief measures provided
for under the JPOA. These measures included, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and
automotive industries from January 20, 2014 until July 20, 2014. The JPOA was subsequently extended twice.
On July 14, 2015, the P5+1 and the EU announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action
Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability to develop and produce nuclear
weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S.
jurisdiction and does not involve U.S. persons. On January 16, 2016, the United States joined the EU and the UN in lifting a significant number of their nuclear-
related sanctions on Iran following an announcement by the International Atomic Energy Agency, or the IAEA that Iran had satisfied its respective obligations
under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time.
Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to
refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC's sanctions lists; and (4) revoking
certain Executive Orders and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of “Transition Day,” set to
occur on October 20, 2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful activities.
As a result of the crisis in Ukraine and the annexation of Crimea by Russia earlier in 2014, both the U.S. and EU have implemented sanctions against
certain persons and entities. In addition, various restrictions on trade have been implemented which, amongst others, include a prohibition on the import into the
EU of goods originating in Crimea or Sevastopol as well as restrictions on trade in certain dual-use and military items and restrictions in relation to various items of
technology associated with the oil industry for use in deep water exploration and production, Arctic oil exploration and production, or shale oil projects in Russia.
The U.S. has imposed sanctions against certain designated Russian entities and individuals, or U.S. Russian Sanctions Targets. These sanctions block the property
and all interests in property of the U.S. Russian Sanctions Targets. This effectively prohibits U.S. persons from engaging in any economic or commercial
transactions with the U.S. Russian Sanctions Targets unless the same are authorized by the U.S. Treasury Department. While the prohibitions of these sanctions are
not directly applicable to us, we have compliance measures in place to guard against transactions with U.S. Russian Sanctions Targets which may involve the
United States or U.S. persons and thus implicate prohibitions.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such
compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to
changing interpretations. We are subject to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take
actions determined to be in violation of such sanctions and embargo laws. Any such violation could result in fines, penalties or other sanctions that could severely
impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or
not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies
that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to
divest from, our common stock may adversely affect the price at which our common stock trades. Moreover, our charterers may violate applicable sanctions and
embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In
addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with
individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in
operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments.
Investor perception of the value of our common stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental
actions in these and surrounding countries.
Our
vessels
operating
in
international
waters,
now
or
in
the
future,
will
be
subject
to
various
federal,
state
and
local
laws
and
regulations
relating
to
protection
of
the
environment.
Our vessels traveling in international waters are subject to various existing regulations published by the IMO, such as marine pollution and prevention
requirements imposed by the IMO.
21
The IMO International Convention for the Prevention of Pollution from Ships of 1973 as from time to time amended, and generally referred to as
MARPOL, can affect our operations. In addition, our LNG vessels may become subject to the International Convention on Liability and Compensation for Damage
in Connection with the Carriage of Hazardous and Noxious Substances by Sea, or the HNS, adopted in 1996 and subsequently amended by the April 2010
Protocol, which is discussed further below.
In addition, national laws generally provide for a LNG carrier or offshore LNG facility owner or operator to bear strict liability for pollution, subject to a
right to limit liability under applicable national or international regimes for limitation of liability. However, some jurisdictions are not a party to an international
regime limiting maritime pollution liability, and, therefore, a vessel owner’s or operator’s rights to limit liability for maritime pollution in such jurisdictions may be
uncertain.
Our vessels operating in U.S. waters now or, in the future, will be subject to various federal, state and local laws and regulations relating to protection of
the environment, including, but not limited to, the Oil Pollution Act of 1990, or the OPA, the U.S. Comprehensive Environmental Response, Compensation, and
Liability Act, or the CERCLA, the Clean Water Act, or the CWA, and the Clean Air Act, or the CAA. In some cases, these laws and regulations require us to
obtain governmental permits and authorizations before we may conduct certain activities. These environmental laws and regulations may impose substantial
penalties for noncompliance and substantial liabilities for pollution, including joint and several liability and strict liability. Failure to comply with these laws and
regulations may result in substantial civil and criminal fines and penalties. As with the industry generally, our operations will entail risks in these areas, and
compliance with these laws and regulations, which may be subject to frequent revisions and reinterpretation, may increase our overall cost of business.
Please see “Item 4. Information on the Company-B. Business Overview-Environmental and Other Regulations- International Maritime Regulations of
LNG Vessels" and "-Other Regulations" below for a more detailed discussion on these topics.
Our
operations
are
subject
to
substantial
environmental
and
other
regulations,
which
may
significantly
increase
our
expenses.
Our operations are affected by extensive and changing international, national and local environmental protection laws, regulations, treaties and
conventions in force in international waters, the jurisdictional waters of the countries in which our vessels operate, as well as the countries of our vessels’
registration, including those governing oil spills, discharges to air and water, and the handling and disposal of hazardous substances and wastes. These regulations
include, but are not limited to, MARPOL, including designation of Emission Control Areas, or ECAs, thereunder, the IMO International Convention on Civil
Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as CLC, the International Convention on Civil Liability for
Bunker Oil Pollution Damage, or Bunker Convention, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and
generally referred to as SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the IMO
International Convention on Load Lines of 1966, as from time to time amended, the International Convention for the Control and Management of Ships’ Ballast
Water and Sediments in February 2004, or the BWM Convention, the HNS, the OPA, requirements of the U.S. Coast Guard, or USCG, and the U.S. Environmental
Protection Agency, or EPA, the CERCLA, the CWA, the CAA, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime Transportation Security Act of
2002, or the MTSA, and European Union, or EU, regulations.
Many of these requirements are designed to reduce the risk of oil spills and other pollution. In addition, we believe that the heightened environmental,
quality and security concerns of insurance underwriters, regulators and charterers will lead to additional regulatory requirements, including enhanced risk
assessment and security requirements and greater inspection and safety requirements on vessels. We expect to incur substantial expenses in complying with these
laws and regulation, including expenses for vessel modifications and changes in operating procedures.
These requirements can affect the resale value or useful lives of our vessels, 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 and joint
and several liability and strict liability, in the event that there is a release of hazardous substances from our vessels or otherwise in connection with our operations.
We could also become subject to personal injury or property damage claims relating to the release of or exposure to hazardous materials associated with our
operations. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension
or termination of our operations, including, in certain instances, seizure or detention of our vessels.
22
Please see “Item 4. Information on the Company-B. Business Overview-Environmental and Other Regulations- International Maritime Regulations of
LNG Vessels" and "-Other Regulations" below for a more detailed discussion on these topics.
Further
changes
to
existing
environmental
legislation
that
is
applicable
to
international
and
national
maritime
trade
may
have
an
adverse
effect
on
our
business.
In June 2015 the IMO formally adopted the International Code of Safety for Ships using Gases or Low flashpoint Fuels, or the IGF Code, which is
designed to minimize the risks involved with ships using low flashpoint fuels- including LNG. The IGF Code will be mandatory under SOLAS through the adopted
amendments. The IGF Code and the amendments to SOLAS became effective January 1, 2017.
Further legislation, or amendments to existing legislation, applicable to international and national maritime trade are expected over the coming years in
areas such as ship recycling, sewage systems, emission control (including emissions of greenhouse gases), and ballast treatment and handling. The United States
has recently enacted legislation and regulations that require more stringent controls of air and water emissions from ocean-going vessels. Such legislation or
regulations may require additional capital expenditures or operating expenses (such as increased costs for low-sulfur fuel) in order for us to maintain our vessels’
compliance with international and/or national regulations.
Regulations
relating
to
ballast
water
discharge
coming
into
effect
during
September
2019
may
adversely
affect
our
revenues
and
profitability.
The IMO has imposed updated guidelines on ballast water management systems specifying the maximum amount of viable organisms allowed to be
discharged from a vessel’s ballast water. Depending on the date of the IOPP renewal survey, existing vessels must comply with the updated D-2 standard on or
after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted
organisms. The costs of compliance to the updated guidelines may be substantial and adversely affect our revenues and profitability.
Climate
change
and
greenhouse
gas
restrictions
may
adversely
impact
our
operations
and
markets.
Due to concern over the risk of climate change, a number of countries, U.S. states, the E.U. and the IMO have adopted, or are considering the adoption of,
regulatory frameworks to reduce greenhouse gas emission from vessel emissions. These regulatory measures may include, among others, adoption of cap and trade
regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. Additionally, a treaty may be adopted in the future that
includes restrictions on shipping emissions. Compliance with changes in laws and regulations relating to climate change could increase our costs of operating and
maintaining our vessels and could require us to make significant financial expenditures that we cannot predict with certainty at this time.
Due to the nature of our business, existing or future laws, regulations, treaties or international agreements related to greenhouse gases and climate change,
including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws, regulations, treaties or
international agreements reduce the worldwide demand for oil and gas. In addition, such laws, regulations, treaties or international agreements could result in
increased compliance costs or additional operating restrictions, which may have a negative impact on our business.
Please see "Item 4. Information on the Company-B. Business Overview-Environmental and Other Regulations- International Maritime Regulations of
LNG Vessels" and "-Other Regulations" below for a more detailed discussion on these topics.
Maritime
claimants
could
arrest
our
vessels,
which
could
interrupt
our
cash
flow.
Crew members, suppliers of goods and services to our vessels, shippers of cargo or other parties may be entitled to a maritime lien against one or more of
our vessels for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure
proceedings. In a few jurisdictions, such as South Africa, 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 large sums of money to have the
arrest lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is
subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner 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.
23
Governments
could
requisition
our
vessels
during
a
period
of
war
or
emergency.
A government could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the
owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes
the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels may
negatively impact our business, financial condition, results of operations, cash flows, and ability to pay dividends.
Compliance
with
safety
and
other
vessel
requirements
imposed
by
classification
societies
may
be
very
costly
and
may
adversely
affect
our
business.
The hull and machinery of every large, oceangoing commercial vessel must be classed by a classification society authorized by its country of registry. The
classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and
SOLAS. The Golar
Arctic
, the Golar
Frost
and the Golar
Bear
are certified by the American Bureau of Shipping and all our other vessels are each certified by
Det Norske Veritas. The American Bureau of Shipping and Det Norske Veritas are all members of the International Association of Classification Societies. All of
our vessels have been awarded ISM certification or are in the process of being certified and are currently “in class” other than two LNG carriers, of which the Gimi
is layed up and scheduled to be converted by Keppel and the Gandria
has recently been taken out of lay-up and entered Keppel's shipyard to commence generic
work in readiness for her conversion into a FLNG
As part of the certification process, a vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s
machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Each of the vessels in our
existing fleet is on a planned maintenance system approval, and as such the classification society attends onboard once every year to verify that the maintenance of
the equipment onboard is done correctly. Each of the vessels in our existing fleet is required to be qualified within its respective classification society for
drydocking once every five years subject to an intermediate underwater survey done using an approved diving company in the presence of a surveyor from the
classification society.
If any vessel does not maintain its class or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports
and will be unemployable. We would lose revenue while the vessel was off-hire and incur costs of compliance. This would negatively impact our revenues and
reduce our cash available for distributions to our shareholders.
The
smuggling
of
drugs
or
other
contraband
onto
our
vessels
may
lead
to
governmental
claims
against
us.
We expect that our vessels will call in ports where smugglers may attempt to hide drugs and other contraband on vessels, with or without the knowledge
of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessels and whether with or without the
knowledge of any of our crew, we may face governmental or other regulatory claims that could have an adverse effect on our business, financial condition, results
of operations, cash flows, and ability to pay dividends.
Changing
laws
and
evolving
reporting
requirements
could
have
an
adverse
effect
on
our
business.
Changing laws, regulations and standards relating to reporting requirements, including the UK Modern Slavery Act 2015 and the European Union General
Data Protection Regulation (“GDPR”), will create additional compliance requirements for companies such as ours. To maintain high standards of corporate
governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with evolving standards.
The Modern Slavery Act 2015 requires any commercial organizations that carry on a business or part of a business in the UK which both (i) supply goods
or services and (ii) have an annual worldwide turnover of £36 million to prepare a slavery and human trafficking statement for each financial year ending on or
after March 31, 2016. In this statement, the commercial organization must set out the steps it has taken to ensure there is no modern slavery in its own business and
its supply chain, or state that it has taken no such steps. The Secretary of State may enforce the duty to prepare a slavery and human trafficking statement by means
of civil proceedings against the organization concerned.
To the extent that we are found to be non-compliant of the requirements of the UK Modern Slavery Act 2015, whether with or without our knowledge, we
may face governmental or other regulatory claims that could have an adverse effect on our business, financial condition, results of operations, cash flows, and
ability to pay dividends.
24
GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on data breaches
within 72 hours and be bound by more stringent rules for obtaining the consent of individuals on how their data can be used.
GDPR will become enforceable on May 25, 2018 and non-compliance may expose entities to significant fines or other regulatory claims which could
have an adverse effect on our business, financial conditions, results of operations, cash flows and ability to pay distributions.
Risks Related to our Common Shares
If
we
fail
to
meet
the
expectations
of
analysts
or
investors,
our
stock
price
could
decline
substantially.
In some quarters, our results may be below analysts’ or investors’ expectations. If this occurs, the price of our common stock could decline.
Important factors that could cause our revenue and operating results to fluctuate from quarter to quarter include, but are not limited to:
•
•
•
•
•
•
•
prevailing economic and market conditions in the natural gas and energy markets;
negative global or regional economic or political conditions, particularly in LNG-consuming regions, which could reduce energy consumption or
its growth;
declines in demand for LNG or the services of LNG carriers, FSRUs or FLNGs;
increases in the supply of LNG carrier capacity operating in the spot/short-term market or the supply of FSRUs or FLNGs;
marine disasters; war, piracy or terrorism; environmental accidents; or inclement weather conditions;
mechanical failures or accidents involving any of our vessels; and
drydock scheduling and capital expenditures.
Most of these factors are not within our control, and the occurrence of one or more of them may cause our operating results to vary widely.
Our
common
share
price
may
be
highly
volatile
and
future
sales
of
our
common
shares
could
cause
the
market
price
of
our
common
shares
to
decline.
Historically, 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 common shares have traded on the Nasdaq Global Select Market, or Nasdaq, since December 12, 2002 under the symbol
"GLNG." We cannot assure you that an active and liquid public market for our common shares will continue. The market price for our common shares has
historically fluctuated over a wide range. In 2017, the closing market price of our common shares on Nasdaq ranged from a low of $19.50 on October 26, 2017 to a
high of $29.95 per share on December 27, 2017. As of April 6, 2018 , the closing market price of our common shares on Nasdaq was $28.05. The market price of
our common shares may continue to fluctuate significantly in response to many 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, developments in our FLNG investments, shortfalls in our operating results from levels forecast by securities analysts,
announcements concerning us or our competitors, the general state of the securities market, and other factors, many of which are beyond our control. The market
for common shares in this industry may be equally volatile. Therefore, we cannot assure our shareholders that they will be able to sell any of our common shares
that they may have purchased at a price greater than or equal to the original purchase price.
Additionally, 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.
We
may
issue
additional
common
shares
or
other
equity
securities
without
our
shareholders’
approval,
which
would
dilute
their
ownership
interests
and
may
depress
the
market
price
of
our
common
shares.
We may issue additional common shares or other equity securities in the future in connection with, among other things, vessel conversions, future vessel
acquisitions, repayment of outstanding indebtedness or our equity incentive plan, in each case without shareholder approval in a number of circumstances.
25
Our issuance of additional common shares or other equity securities would have the following effects:
•
•
•
•
our existing shareholders’ proportionate ownership interest in us will decrease;
the amount of cash available for dividends payable on our common shares may decrease;
the relative voting strength of each previously outstanding common share may be diminished; and
the market price of our common shares may decline.
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
and
affiliates.
We are a holding company whose assets mainly comprise equity interests in our subsidiaries and other quoted and non-quoted companies and our interest
in our affiliates. 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 would 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.
Because
we
are
a
Bermuda
corporation,
our
shareholders
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, including with respect to, among
other things, rights related to interested directors, amalgamations, mergers and acquisitions, takeovers, the exculpation and indemnification of directors and
shareholder lawsuits.
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 and 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 or its directors, but rather the company itself is
generally the proper plaintiff in an action against the directors for a breach of their fiduciary duties. Moreover, class actions and derivative actions are generally not
available to shareholders under Bermuda law. 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 shareholders may be more familiar and may substantially limit or prohibit a shareholder's ability to bring suit against our
directors or in the name of the company. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name
of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would
result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are
alleged to constitute a fraud against minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders
than that which actually approved it.
It's also worth noting that under Bermuda law, our directors and officers are required to disclose to our board any material interests they have in any
contract entered into by our company or any of its subsidiaries with third parties. Our directors and officers are also required to disclose their material interests in
any corporation or other entity which is party to a material contract with our company or any of its subsidiaries. A director who has disclosed his or her interests in
accordance with Bermuda law may participate in any meeting of our board, and may vote on the approval of a material contract, notwithstanding that he or she has
a material interest.
Because
our
offices
and
most
of
our
assets
are
outside
the
United
States,
our
shareholders
may
not
be
able
to
bring
a
suit
against
us,
or
enforce
a
judgment
obtained
against
us
in
the
United
States.
We, and most of our subsidiaries, are incorporated in jurisdictions outside the U.S. and substantially all of our assets and those of our subsidiaries are
located outside the U.S. In addition, most of our directors and officers are non-residents of the U.S., and all or a substantial portion of the assets of these non-
residents are located outside the U.S. As a result, it may be difficult or impossible for U.S. investors to serve process within the U.S. upon us, our subsidiaries, or
our directors and officers, or to enforce
26
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 our subsidiaries'’ assets 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.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a midstream LNG company engaged primarily in the transportation and regasification of LNG and the liquefaction of natural gas. We are engaged
in the acquisition, ownership, operation and chartering of LNG carriers and FSRUs, and the development of LNG projects, including the provision of FLNGs,
through our subsidiaries, affiliates and joint ventures.
As of April 6, 2018 , we, together with our affiliates Golar Partners and Golar Power, have a combined fleet of 26 vessels, comprised of 18 LNG carriers,
seven FSRUs and one FLNG. Of these vessels, six of the FSRUs and four of the LNG carriers are owned by Golar Partners and are mostly on long-term time
charters. Eight of our vessels and two of Golar Power's vessels are participating in the LNG carrier pool, referred to as the Cool Pool. In addition our affiliate,
Golar Power, has one newbuilding commitment for the construction of a FSRU, which is scheduled for delivery from the shipyard in the second half of 2018. Of
the remaining vessels, the Gimi
is being contemplated for conversion into a FLNG. The Gandria
entered Keppel's shipyard in March 2018 to commence generic
work in readiness for her conversion into a FLNG, which is expected to commence after we issue a notice to proceed. The Hilli
completed her conversion into a
FLNG in October 2017 and she arrived in Cameroon on November 20, 2017 where she is undergoing commissioning activities. We expect acceptance testing
procedures to commence shortly.
We intend to leverage our relationships with existing customers and continue to develop relationships with other industry participants. Our goal is to earn
higher margins through maintaining strong service-based relationships combined with flexible and innovative LNG shipping, FSRU and FLNG solutions. We
believe customers place their confidence in our shipping, storage, regasification and liquefaction services based on the reliable and safe way we conduct our, our
affiliates’ and our joint ventures’ LNG operations.
In line with our ambition to become an integrated LNG midstream asset provider and our experience of converting LNG carriers into FSRUs, we have
successfully converted one of our LNG carriers, the Hilli
, into a FLNG. We have entered into definitive contracts with Keppel and Black & Veatch for the
conversion of two LNG carriers, the Gimi
and the Gandria
, into FLNGs. These developments are complementary to our existing core business, namely LNG
shipping and provision of FSRUs, and so we remain firmly committed to our shipping and FSRU franchises. In addition, our aim is to find strong strategic partners
that have an interest in utilizing one or more of our FLNGs.
We are listed on Nasdaq under the symbol "GLNG". We were incorporated under the name Golar LNG Limited as an exempted company under the
Bermuda Companies Act of 1981 in the Islands of Bermuda on May 10, 2001 and maintain our principal executive headquarters at 2nd Floor, S.E. Pearman
Building, 9 Par-la-Ville Road, Hamilton HM 11, 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 and our telephone number at that address is +44 207 063 7900.
Golar
Partners
In September 2007, we formed Golar Partners under the laws of the Republic of the Marshall Islands as a wholly-owned subsidiary. Golar Partners was
formed to own vessels with long-term charters, typically five years or longer, through wholly-owned subsidiaries in order to distribute the different risk profiles of
the different vessel types of total fleet controlled or affiliated with Golar. Golar Operating LLC, or the General Partner, our wholly-owned subsidiary, was also
formed in September 2007 to act as the general partner of Golar Partners under the limited partnership agreement of Golar Partners, and under that agreement the
General Partner received a 2% general partner interest and 100% of the IDRs in Golar Partners.
In April 2011, we completed the IPO of Golar Partners. Golar Partners is listed on Nasdaq under the symbol "GMLP". In connection with this IPO, we
entered into an omnibus agreement, or the Omnibus Agreement, governing, among other things when the Company and Golar Partners may compete against each
other as well as rights of first offer on certain FSRUs and LNG carriers.
Since December 2012, Golar Partners has been considered as an affiliate entity and not as our controlled subsidiary. As of April 6, 2018 , we own 100%
of the general partner units and 30.4% of the common units in Golar Partners, in addition to 100% of the IDRs.
27
Since the IPO of Golar Partners, we have sold equity interests in six vessels to Golar Partners for an aggregate value of $1.9 billion. As of April 6, 2018 ,
Golar Partners had a fleet of ten vessels acquired from or contributed by us to provide funding for our FLNG projects as well as our growth.
Further, in August 2017, we entered into a purchase and sale agreement with Golar Partners for the disposal from Golar and affiliates of Keppel and Black
& Veatch of 50% of the common units in Golar Hilli LLC which will, on the closing date of the sale, indirectly (via its wholly-owned subsidiary) be the disponent
owner the Hilli
. Please refer to refer to "Item 4. Information on the Company-A. History and Development of the Company-FLNG segment-The Hilli Disposal"
for further information.
The majority of the proceeds received from the sales of these vessels to Golar Partners have been used to make installment payments under our
newbuilding program. Furthermore, the sale of these assets has made Golar Partners a more profitable company, which has resulted in increased distributions to
unitholders of the Partnership. As a major shareholder of Golar Partners, and the beneficial owner of Golar Partners' IDRs, we have benefited from the increased
distributions.
Golar
Power
In order to further develop and finance our LNG based downstream investment opportunities, in June 2016, we formed Golar Power, a 50/50 joint venture with
investment vehicles affiliated with the private equity firm Stonepeak Infrastructure Partners, or Stonepeak. The joint venture company, Golar Power, offers
integrated LNG based downstream solutions, through the ownership and operation of FSRUs and associated terminal and power generation infrastructure. Golar
Power currently has a 50% interest in a Brazilian corporation, CELSE, that was formed for the purpose of constructing and operating a combined cycle, gas fired,
power plant with installed capacity of 1,515 megawatts located in the municipality of Barra dos Coqueiros in the State of Sergipe in Brazil ("Sergipe Project"). The
cost of constructing the power plant and related terminal, including taxes and financing costs, is estimated at $1.3 billion. Golar Power also owns a FSRU newbuild
that is currently being constructed at Samsung shipyard, and two modern 160,000 cbm trifuel LNG carriers, the Golar
Penguin
and the Golar
Celsius
, currently
operating in the Cool Pool, suited for conversion to FSRUs. Golar Power has entered into an Omnibus Agreement with Golar Partners, under which Golar Partners
has a right of first refusal with respect to any transfers or sales of any LNG carrier or FSRU owned by Golar Power and operating under a charter for five or more
years. We account for our investment in Golar Power under the equity method.
OneLNG
In July 2016, we formed OneLNG, a joint venture with Schlumberger B.V., or Schlumberger, a subsidiary of Schlumberger Group, which is intended to
offer an integrated upstream and midstream solution for the development of low cost gas reserves and the conversion of natural gas to LNG. OneLNG will be the
exclusive vehicle for both joint venture parties for all future projects that involve the conversion of natural gas to LNG and can utilize both Schlumberger’s
production management services and Golar’s FLNG capabilities. We hold 51% and Schlumberger the remaining 49% of the shares in OneLNG and we have equal
management and governance rights. By virtue of substantive participation rights held by Schlumberger, we account for our investment in OneLNG under the equity
method.
Vessel operations segment
Vessel
acquisitions
and
capital
expenditures
Since January 1, 2015, we invested $601 million in our vessels and equipment, and newbuildings comprising:
•
•
four newbuildings (three LNG carriers and one FSRU); and
the LNG carrier LNG
Abuja
for $20 million in April 2015, albeit she was subsequently sold in July 2015.
Disposals
Since January 1, 2015, we have entered into the following sale and purchase transactions:
•
In January 2015, we sold our interests in the companies that own and operate the FSRU, Golar
Eskimo
(including charter) for $388.8 million less the
assumed $162.8 million of bank debt plus other purchase price adjustments. Golar Partners financed the remaining purchase price by using $7.2 million
cash on hand and the proceeds of a $220 million loan from us, which was fully repaid in 2015;
28
•
•
•
•
•
In May 2016, we sold our equity interests in the company ("Tundra Corp") that is the disponent owner of the Golar
Tundra
and the related time charter
for $330 million less the net lease obligations under the related lease agreement with China Merchant Bank Financial Leasing, or CMBL, plus other
purchase price adjustments. At the time of sale, the Golar
Tundra
was subject to a time charter with West Africa Gas Limited, or WAGL. Concurrent
with the closing of the sale of Tundra Corp, we entered into an agreement with Golar Partners (as amended, the "Tundra Letter Agreement") which
provided, among others, that in the event the Golar
Tundra
had not commenced service under the charter with WAGL by May 23, 2017, Golar Partners
had the option (the "Tundra Put Right") to require us to repurchase Tundra Corp at a price equal to the original purchase price (the "Tundra Put Sale").
The Golar
Tundra's
project made limited progress and, on May 30, 2017, Golar Partners elected to exercise the Tundra Put Right.
In connection with the exercise of the Tundra Put Right, we and Golar Partners entered into an agreement pursuant to which we agreed to purchase
Tundra Corp from Golar Partners on the date of the closing of the Tundra Put Sale (the "Put Sale Closing Date") for an amount equal to $107 million (the
"Deferred Purchase Price") plus an additional amount equal to 5% per annum of the Deferred Purchase Price (the "Additional Amount"). The Deferred
Purchase Price and the Additional Amount shall be due and payable by us on the earlier of (a) the date of the closing of the Hilli Disposal and (b) March
31, 2018. Golar Partners have agreed to accept the Deferred Purchase Price and the Additional Amount in lieu of a cash payment on the Put Sale Closing
Date in return for an option (which Golar Partners have exercised) to purchase an interest in the Hilli
. The closing of the Tundra Put Sale occurred on
October 17, 2017; and
In August 2017, we entered into a purchase and sale agreement with Golar Partners for the disposal from Golar and affiliates of Keppel and Black &
Veatch of 50% of the common units in Golar Hilli LLC which will, on the closing date of the sale, be the indirect disponent owner of the Hilli
. Please
refer to refer to "Item 4. Information on the Company-A. History and Development of the Company-FLNG segment-The Hilli Disposal" for further
information.
In addition:
As discussed above, following the acquisition of the LNG
Abuja
in April 2015, we subsequently sold her in July 2015 for cash consideration of $19
million, resulting in the recognition of an impairment loss of $1 million;
In February 2015, we completed the sale of our LNG carrier, the Golar
Viking
, to a third party for $135.0 million. In connection with the sale, we
provided initial bridging finance of $133.0 million plus a revolving credit facility of $5 million. However, due to the acquirer’s difficulties in realizing any
short-haul cabotage trade opportunities in Indonesia, we agreed to the repossession of the vessel in consideration for extinguishment for the outstanding
balances on the loan receivables. Accordingly, we repossessed the vessel in December 2015; and
In connection with the formation of the Golar Power joint venture, we contributed to it our former subsidiaries that: (i) own the Golar
Penguin
and the
Golar
Celsius;
(ii) holds the FSRU newbuilding contract with Samsung; and (iii) holds the rights to participate in the Sergipe Project. Subsequently in
July 2016, we received net proceeds of $113 million from our sale to Stonepeak of 50% of the ordinary share capital of Golar Power. Accordingly,
effective from the date of the sale to Stonepeak, we deconsolidated the results and net assets of Golar Power.
Since January 1, 2015, we have also refinanced certain of our vessels pursuant sale and leaseback arrangements as further described in note 5 "Variable
Interest Entities" of our Consolidated Financial Statements included herein.
Investments
Since January 1, 2015, we have acquired and divested interests in a number of companies including:
•
Golar
Partners
-
In January 2015, we completed a secondary offering of 7,170,000 of Golar Partners common units, at a price of $29.90 per unit,
generating net proceeds of $207.4 million. In August 2015, our Board of Directors approved a unit purchase program under which we could purchase up
to $25 million worth of Golar Partners outstanding units over 12 months. Pursuant to the terms of the program, we purchased $5.0 million worth of Golar
Partners’ units prior to its expiry.
Further, on October 13, 2016, we entered into an equity exchange agreement with Golar Partners in which we reset our rights to receive cash distributions
in respect of our interests in the incentive distribution rights, or Old IDRs, in exchange for the issuance of (i) a new class of incentive distribution rights,
or New IDRs, (ii) an aggregate of 2,994,364 common units and 61,109 general partner units, and (iii) an aggregate of up to 748,592 additional common
units and up to 15,278 additional general partner units that may be issued if target distributions are met ("the Earn-Out Units"). Based on the
29
agreement, half of the Earn-Out Units ("first tranche") would vest if Golar Partners paid a distribution equal to, or greater than, $0.5775 per common unit
in each of the quarterly periods ended December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017. Having satisfied the minimum
quarterly distribution in respect of these quarters, Golar Partners issued to Golar 374,295 common units and 7,639 general partner units on November 15,
2017. The agreement also required Golar Partners to pay Golar the distributions that it would have been entitled to receive on these units in respect of
each of those four preceding quarters. Therefore, in connection with the issuance of the above Earn-Out Units, Golar also received $0.9 million in
dividends in the period. The remaining Earn-Out Units ("second tranche") will be issued if Golar Partners pay a distribution equal to $0.5775 per common
unit in the periods ending December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018. The New IDRs result in the minimum distribution
level increasing from $0.3850 per common unit to $0.5775 per common unit. The fair value of the Old IDRs was not materially different to the fair value
of all of the newly issued instruments. Accordingly, as of April 6, 2018 , we own the following interests in Golar Partners: 30.4% of the common units,
the 2% general partner interest (through our ownership of the general partner) and all the New IDRs. Together, these investments amount to
approximately 31.8% ownership interest in Golar Partners and 100% of the New IDRs.
Golar
Wilhelmsen
- In September 2015, we acquired the remaining 40% interest in GWM from Wilhelmsen Ship Management (Norway) AS, for $0.2
million, making it our wholly-owned subsidiary. Golar Management uses the services of GWM to provide the technical, commercial and crew
management services both to our and Golar Partners’ vessels. GWM was subsequently renamed Golar Management Norway AS, or GMN.
Golar
Power
- As discussed above, we entered into certain agreements to form Golar Power with Stonepeak in June 2016.
OneLNG
- As discussed above, we entered into a Joint Venture and Shareholders’ Agreement with Schlumberger to form OneLNG in July 2016.
•
•
•
FLNG segment
FLNG
Hilli
On May 22, 2014, we entered into an Engineering, Procurement and Construction agreement with Keppel for the conversion of the LNG carrier the Hilli
to a FLNG. Keppel simultaneously entered into a sub-contract with the global engineering, construction and procurement company Black & Veatch. Black &
Veatch, will provide their licensed PRICO ® technology, perform detailed engineering and process design, specify and procure topside equipment and provide
commissioning support for the Golar's topsides and liquefaction process. We also entered into a Tripartite Direct Agreement with Keppel and Black & Veatch,
which among other things ensures our ability to enforce all obligations under both the Engineering, Procurement and Construction agreement and the sub-contract.
The Hilli
conversion completed in October 2017 and she arrived in Cameroon on November 20, 2017 where she is undergoing commissioning activities. First LNG
was produced from the Hilli
in mid-March 2018. We expect acceptance testing procedures to commence shortly. The total estimated conversion and vessel and site
commissioning cost for the Hilli
, including contingency, is approximately $1.3 billion. As of December 31, 2017 , the total costs incurred in respect of the Hilli
FLNG conversion and vessel and site commissioning was $1,177.5 million .
In connection with the conversion of the Hilli
to a FLNG, in September 2015, we entered into financing agreements with a subsidiary of CSSC (Hong
Kong) Shipping Co. Ltd., or CSSCL. The facility is split into two phases; pre-delivery and post-delivery financing (see note 23 "Debt" of our Consolidated
Financial Statements included herein).
30
Liquefaction
Tolling
Agreement
("LTA")
In October 2015, Hilli Corp entered into a binding term sheet for FLNG tolling services with the Customer for the development of the Hilli Project. The
binding term sheet has been converted into a LTA with the Customer and the LTA was executed on November 29, 2017. Under the LTA, the Hilli
will provide
liquefaction services for the Customer until the earlier of (i) eight years from the date the delivered Hilli
is accepted by the Customer (the “Acceptance Date”), or
(ii) at the time of receipt and processing by the Hilli
of 500 billion cubic feet of feed gas. As discussed previously, the Hilli
tendered its NoR on December 3, 2017.
Following the NoR, the commissioning process of testing the Hilli
and preparing it for service commenced in December 2017. Under the LTA, the commercial
start date to begin providing liquefaction services is the earlier of 180 days after the scheduled commissioning start date or the Acceptance Date, as may be
extended by the parties. Under the terms of the LTA, the Hilli
is required to make available 1.2 million tonnes of liquefaction capacity per annum, which capacity
will be spread evenly over the course of each contract year. The Customer will pay Hilli Corp a monthly tolling fee, which will fluctuate to a certain extent in
relation to the price of Brent Crude. The Customer has an option to increase liquefaction capacity to greater than 1.2 million tonnes per annum. The LTA provides
certain termination rights to the Customer and Hilli Corp. The LTA provides for the payment by Hilli Corp of penalties of up to $400 million (which reduces
gradually as LNG production increases, reducing to $100 million once 3.6 million tonnes of LNG has been produced), $300 million of which is secured by a letter
of credit, in the event of Hilli Corp’s underperformance or non-performance, with the penalties decreasing after the second anniversary of the Acceptance Date. If
the Customer elects to terminate the LTA prior to the second anniversary of the Acceptance Date, the Customer will be obligated to pay Hilli Corp $400 million,
with termination payments decreasing if the LTA is terminated after the second anniversary of the Acceptance Date.
The
Hilli
Disposal
On August 15, 2017, we entered into a purchase and sale agreement (the "Hilli Sale Agreement") with Golar Partners for the disposal (the "Hilli
Disposal") from Golar and affiliates of Keppel and Black & Veatch of common units (the "Disposal Interests") in Golar Hilli LLC. On the closing date of the Hilli
Disposal, Golar Hilli LLC will indirectly (via its wholly-owned subsidiary) be the disponent owner of the Hilli
. The Disposal Interests represent the equivalent of
50% of the two liquefaction trains, out of a total of four, that are contracted to the Customer under the eight-year LTA. The sale price for the Disposal Interests is
$658 million less net lease obligations under the financing facility for the Hilli
(the "Hilli Facility"), which are expected to be between $468 and $480 million.
Concurrently with the execution of the Hilli Sale Agreement, we received a further $70 million deposit from Golar Partners, upon which we pay interest at a rate of
5% per annum.
The closing of the Hilli Disposal is subject to the satisfaction of certain closing conditions which include, among others, the commencement of
commercial operations under the LTA and the formation of Golar Hilli LLC and the related Pre-Closing Contributions. In addition, in connection with the closing,
Golar Partners expect to provide a several guarantee of 50% of Hilli Corp’s indebtedness under the Hilli Facility.
Upon the closing of the Hilli Disposal, which is expected to occur on or around April 30, 2018, we, along with Keppel and Black & Veatch, will sell 50%
of the Hilli Common Units to Golar Partners in return for the payment by Golar Partners of the net purchase price of between approximately $178 and $190
million. Golar Partners will apply the $107 million Deferred Purchase Price receivable from us in connection with the Tundra Put Sale and the $70 million deposit
referred to above against the net purchase price and will pay the balance with cash on hand. However, in the event Customer acceptance extends beyond April 30,
2018, both parties have agreed to extend the closing date for the Hilli Disposal to May 31, 2018.
The description of the Hilli Sale Agreement contained in this report is a summary and is qualified in its entirety by reference to the terms of the Hilli Sale
Agreement.
Other
FLNG
conversions
We have entered into definitive contracts with Keppel and Black & Veatch for the conversion of the Gimi
and the Gandria
into FLNGs, subject to certain
conditions to the contracts’ effectiveness and issuance of notices to proceed with the conversions. These agreements are similar to the agreements that we entered
into with respect to the Hilli
conversion.
The Gandria
contract was subsequently extended to June 29, 2018 and the Gimi
contract was extended to December 30, 2018. Effectiveness of each
remains subject to issuance of a final notice to proceed. As previously discussed, the Gandria
entered Keppel's shipyard in Singapore in March 2018 to commence
generic work in readiness for her conversion into a FLNG, which is expected to commence after we issue a notice to proceed under the conversion contract entered
into with Keppel and Black & Veatch.
31
OneLNG
Joint
Venture
In July 2016, we formed OneLNG with Schlumberger, which is intended to offer an integrated upstream and midstream solution for the monetization of
stranded gas reserves and the conversion of natural gas to LNG. We hold 51% of the shares and Schlumberger the remaining 49% in OneLNG and the parties share
equal management and governance rights. Both Golar and Schlumberger have agreed pursuant to the OneLNG Joint Venture and Shareholders’ Agreement that
any new FLNG business development will be initiated by OneLNG. If the Board of Directors of OneLNG chooses not to proceed with an identified project, Golar
or Schlumberger will be free to pursue the project independently. In addition, we or Schlumberger could leave OneLNG on mutual consent. It is anticipated that we
will contribute the Gandria
to OneLNG for conversion into an FLNG in connection with the Fortuna Project.
Power segment
In July 2016, we formed a 50/50 joint venture, Golar Power, with Stonepeak. Golar Power offers integrated LNG based downstream solutions, through
the ownership and operation of FSRUs and associated terminal and power generation infrastructure. Please refer to Golar Power disclosure earlier in this section
for further detail.
B. Business Overview
Together with our affiliates, Golar Partners and Golar Power, we are a leading independent owner and operator of LNG carriers and FSRUs. Collectively,
our fleet is comprised of 18 LNG carriers, seven FSRUs and one FLNG. As of April 6, 2018 , Golar Power has one remaining newbuilding commitment for the
construction of a FSRU, the Golar
Nanook
, scheduled to be delivered during the second half of 2018, and we have agreements for the conversion of two further
LNG carriers, the Gimi
and the Gandria
, into FLNGs. Our vessels provide or have provided LNG shipping, storage and regasification services to leading
participants in the LNG industry including BG Group plc, ENI S.p.A, Petróleo Brasileiro S.A., or Petrobras, Dubai Supply Authority, PT Pertamina (Pesero), the
Cool Pool and many others. Our business is focused on providing highly reliable, safe and cost efficient LNG shipping and FSRU operations. We are seeking to
further develop our business in other midstream areas of the LNG supply chain, with particular emphasis on innovative floating liquefaction solutions.
As well as growing our core business and pursuing new opportunities along our value chain, we also offer commercial and technical management services
for Golar Partners’ and Golar Power’s fleet and certain, mainly technical, services to OneLNG. Pursuant to vessel management and services agreements in place
with both Golar Partners and Golar Power, we are reimbursed for all of the operating costs in connection with the management of their fleet, in addition to a 5%
margin.
We intend to maintain our relationship with Golar Partners, Golar Power and OneLNG and pursue mutually beneficial opportunities, which we believe
will include the sale of additional assets to Golar Partners and Golar Power to provide funding for our LNG projects as well as continue our growth.
Fleet
Current
Fleet
As of April 6, 2018 , our current fleet comprises two LNG carriers undergoing or being contemplated for conversions into FLNGs, the Hilli
currently
undergoing commissioning, 10 LNG carriers and one FSRU (which are included within the combined fleet of 26 vessels described above).
The following table lists the LNG carriers and FSRUs in our current fleet as of April 6, 2018 :
32
Year of
Delivery
Capacity
Cubic
Meters
Flag
Type
Charterer/ Pool
Arrangement
Current Charter
Expiration
Charter Extension
Options
2017
1976
1977
2003
2005
2013
2014
2014
2014
2014
2015
2015
2015
2015
125,000
125,000
126,000
140,000
140,000
160,000
160,000
160,000
162,000
160,000
160,000
160,000
162,000
170,000
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
MI
FLNG Moss
Perenco
Moss
Moss
Membrane
Membrane
Membrane
Membrane
Membrane
Membrane
Membrane
Membrane
Membrane
Membrane
FSRU Membrane
n/a
n/a
An energy and
logistics company
n/a
Cool Pool
Cool Pool
Cool Pool
A major Japanese
trading company
Cool Pool
Cool Pool
Cool Pool
Cool Pool
Cool Pool
2025
n/a
n/a
2019
n/a
n/a
n/a
n/a
2019
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Vessel Name
Existing
Fleet
Hilli
(1)
Gimi
(2)
Gandria
(2)
Golar
Arctic
(3)
Golar
Viking
(4)
Golar
Seal
(5)
Golar
Crystal
(5)
Golar
Bear
(5)
Golar
Glacier
Golar
Frost
(5)
Golar
Snow
(5)
Golar
Ice
(5)
Golar
Kelvin
(5)
Golar
Tundra
(5)(6)
Key to flag:
MI – Marshall Islands
(1) The Hilli
conversion completed in October 2017 and she arrived in Cameroon on November 20, 2017. We expect acceptance testing procedures to
commence shortly. The Hilli
was converted from a LNG carrier which was originally constructed in 1975.
(2) Two of our vessels, the Gimi
and the Gandria
, are being contemplated for conversion into FLNG vessels. The Gimi
is currently in lay-up. The Gandria
entered Keppel's shipyard in Singapore in March 2018 to commence generic work in readiness for her conversion into a FLNG, which is expected to
commence after we issue a notice to proceed.
(3) The charter commenced in March 2016. The charter expiration date is a date, to be determined at the charterer’s option, within 30 days before or after the
26 month charter term. The charter has subsequently been extended to end on the earlier of: (i) the acceptance date of a Golar Partners’ FSRU contracted
by the charterer and Golar Partners under a long-term charter, and (ii) January 15, 2019.
(4) This vessel is currently operating in the spot market, outside of the Cool Pool.
(5) As of April 6, 2018 , we have eight vessels operating in the Cool Pool. See "Cool Pool" below.
(6) Following buy back of the Golar
Tundra
from Golar Partners, she subsequently joined the Cool Pool in November 2017, and is operating as a LNG
carrier.
Our charterers may suspend their payment obligations under the charter agreements for periods when the vessels are not able to transport cargo (or
perform regasification or liquefaction) 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 a 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.
33
Cool Pool
In October 2015, we entered into a Pool Agreement with Dynagas Ltd., or Dynagas, GasLog Carriers Ltd., or GasLog, and a pool manager equally owned
by Dynagas, GasLog and Golar, or the Pool Manager, to form a LNG carrier pooling arrangement, or the Cool Pool, to market LNG carriers (154,000-162,000
cbm) that are currently operating in the LNG shipping spot market. We refer to Dynagas, GasLog and Golar collectively as the Pool Participants. The Cool Pool
allows the Pool Participants to optimize the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing. The
objective of the Cool Pool is to serve the transportation requirements of the LNG shipping market by providing customers with reliable, more flexible, and
innovative solutions to meet their increasingly complex shipping requirements.
As of April 6, 2018 , the Cool Pool consisted of 17 modern, high quality and essentially equivalent LNG carriers powered by fuel efficient Tri Fuel Diesel
Electric propulsion technology and one FSRU operating as a LNG carrier. Dynagas, GasLog and ourselves currently contribute three vessels, five vessels, and 10
vessels (including the two owned by Golar Power), respectively, to the Cool Pool. The Pool Participants have agreed under the Pool Agreement to contribute to the
Cool Pool any additional vessels with similar specifications that they acquire.
The Pool Agreement provides for the Cool Pool to focus exclusively on charters of 12 months' duration or less. Scheduling the employment of a vessel in
excess of 12 months remains the mandate of the respective Pool Participant. If a pool vessel is chartered by a Pool Participant for a charter that exceeds 12 months
in duration (or the Pool Participant has agreed to sell the vessel), such vessel may be withdrawn from the Cool Pool provided a minimum commitment period
(described below) has passed, the Pool Participant provides 30 days’ notice and such vessel generally satisfies any outstanding charter commitment.
Under the Pool Agreement, the Pool Manager is responsible, as agent, for the marketing and chartering of the participating vessels and paying other
voyage costs such as port call expenses and brokers' commissions in relation to employment contracts, but each of the Pool Participants continues to be fully
responsible for the financing, insurance, manning and technical management of their respective vessels. For its services, the Pool Manager receives a fee equal to
10 percent of the costs and overhead of the Cool Pool. Pool earnings (gross earnings of the pool less costs and overhead of the Cool Pool and fees to the Pool
Manager) are aggregated and then allocated to the Pool Participants in accordance with the number of days each of their vessels are entered into the pool during the
period.
The Pool Participants have agreed to participate in the Cool Pool for an extended minimum commitment period to October 2019. After this date, each
Pool Participant may terminate its participation in the Cool Pool, provided the Pool Manager is allowed 30 days to complete any charter negotiations and such Pool
Participant’s vessels satisfy any charter commitments.
Golar Management
Golar
Management
Golar Management, our wholly-owned subsidiary which has offices in London, Oslo, Kuala Lumpur and Split, provides commercial, operational and
technical support and supervision and accounting and treasury services to our, Golar Partners’ and Golar Power's vessels. In addition, under the management and
administrative services agreements we have entered into with Golar Partners, Golar Power and OneLNG, certain officers and directors of Golar Management
provide executive officer functions for their benefit. In addition, the administrative services provided by Golar Management include: (i) assistance in commercial
management; (ii) execution of business strategies of Golar Partners, Golar Power and OneLNG; (iii) bookkeeping, audit and accounting services; (iv) legal and
insurance services; (v) administrative and clerical services; (vi) banking and financial services; (vii) advisory services; (viii) client and investor relations; and (viii)
integration of any acquired business.
Golar Management is reimbursed for reasonable costs and expenses it incurs in connection with the provision of these services. In addition, Golar
Management receives a management fee equal to 5% of its costs and expenses incurred in connection with providing these services. Parties may terminate the
management and administrative services agreement by providing 120 days written notice.
Golar
Management
Norway
AS
("GMN")
In September 2010, Golar Wilhelmsen was established as a joint venture between Golar and Wilhelmsen Ship Management (Norway) AS, or Wilhelmsen,
and was staffed by both Wilhelmsen and Golar employees. Since September 2015, Golar Wilhelmsen has been a wholly-owned subsidiary, and thus was renamed
Golar Management Norway AS (or "GMN"). The company continues to provide in-house technical, commercial and crew management services, pursuant to the
management agreements mentioned above.
34
Our Business Strategy
Golar’s vision is to break the mold in LNG. Our strategic intent is to become an integrated gas to power energy business. We aim to combine our marine expertise
and innovative floating LNG assets with strong industry partnerships to provide the most competitive LNG solution to monetize natural gas reserves and deliver
LNG, ship the LNG, regasify the LNG through our FSRUs, and ultimately generate and sell power from our gas-fired power stations.
Our four strategic focuses are to:
•
Operate
a
high-quality,
first
class
LNG
carrier
fleet:
We own and operate a fleet of high quality LNG carriers with an average age of 5.4 years. Eight of
our ten carriers were delivered within the last five years and utilize fuel efficient propulsion and low boil-off technology. Our vessels are compatible with
most LNG loading and receiving terminals worldwide.
• Maintain
leadership
in
FSRUs
and
embed
this
into
future
power
projects
through
our
affiliate,
Golar
Power:
We are one of the industry leaders in the
development, delivery and operation of both newbuild and converted FSRUs based on a strong record of successful project delivery and highly reliable
vessel operation. Our joint venture, Golar Power, is currently seeking new FSRU project and power station opportunities in addition to the building of our
first integrated gas to power project at Sergipe in Brazil.
•
•
Develop
new
FLNG
opportunities
through
our
joint
venture
with
Schlumberger,
OneLNG:
OneLNG offers resource holders an integrated solution to
monetize stranded gas reserves. Our OneLNG investment proposition is built on a sound technical and commercial offering, derived from structurally
lower unit capital costs and short lead times. OneLNG allows smaller resource holders, developers and customers to enter the LNG business and occupy a
legitimate space alongside the largest resource holders, major oil companies and world-scale LNG buyers. For the established LNG industry participants,
the prospect of OneLNG’s low-cost, low-risk, fast-track solution should provide a compelling alternative to the traditional giant land-based projects -
especially in a low energy price environment.
Leverage
our
affiliation
with
Golar
Partners
to
monetize
long-term
midstream
contracts:
We believe our affiliation with Golar Partners positions us to
pursue a broader array of opportunities. Since the Partnership’s IPO in April 2011, we have sold six vessels to Golar Partners in exchange for
consideration of $1.9 billion. In addition to this, we shortly expect to close the sale of an interest in the Hilli
(see discussion under "the Hilli Disposal").
Golar has invested a substantial portion of its sale proceeds in newbuild and asset conversion projects that are expected to generate attractive returns for
the Company over the coming years. As of April 6, 2018 , we have a 31.8% interest (including our 2% general partner interest) in Golar Partners and hold
100% of its IDRs.
However, we can provide no assurance that we will be able to implement our business strategies described above. For further discussion of the risks that we face,
please read "Item 3. Key Information- D. Risk Factors".
The Natural Gas Industry
Predominantly used to generate electricity and as a heating source, natural gas is one of the "big three" fossil fuels that make up the vast majority of world
energy consumption. As a cleaner burning fuel than both oil and coal, natural gas has become an increasingly attractive fuel source in the last decade. The moderate
capital cost of gas fired power plants, the relatively high fuel efficiency and attractive pricing of gas together with its cleaner burning credentials and abundance
mean that natural gas is expected to account for the largest increase in future global primary energy consumption.
According to the most recent EIA International Energy Outlook (2017), worldwide energy consumption is projected to increase by 28% from 2015 to
2040, with total energy demand in non-OECD countries increasing by 41%, compared with an increase of 9% in OECD countries. Natural gas consumption
worldwide is forecast to increase by 43% between 2015 and 2040. Reduced emphasis placed on nuclear power which previously played a more prominent role in
Japan and South Korea’s planned energy mix or its subsequent phasing out in other countries such as Germany together with a concerted effort by China to address
domestic coal induced air quality issues over the coming years will see natural gas feature more prominently as the substitution fuel of choice.
In recognition of its environmental benefits, the G20 has endorsed the role of natural gas as part of the transition to a cleaner energy mix. The lower
carbon intensity of natural gas relative to coal and oil makes it an attractive fuel for the industrial and electric power sectors. Natural gas has an established
presence in this sector which can be expected to increase over time. If
35
the market for electrically charged vehicles expands as anticipated, additional demand for electricity, and therefore gas, can also be expected. From an
environmental perspective, LNG as a direct fuel for transport is also a viable emissions mitigant. Use of LNG in the automotive sector is minimal today but
expected to increase over time. Relative to petroleum and other liquids, the International Gas Union, or IGU, states that use of LNG in transportation can reduce
emissions of CO 2 by up to 20% whilst emissions of nitrogen oxide can be cut by up to 90% and particulate matter by up to 99%. Emissions of sulfur oxide can
potentially be eliminated altogether. Increasing concern about sulfur oxide is making LNG an increasingly attractive alternative for fueling ships. A significant cut
in the allowable sulfur content of fuel as directed by the International Maritime Organization becomes effective in 2020 and a variety of newbuild ships that utilize
LNG as a fuel are now under construction. Engine manufacturers for buses, heavy trucks, locomotives and drilling equipment have also started building dual fuel
engines that use LNG. China is leading the roll-out of LNG corridors for LNG fueled vehicles and Europe is following suit. Selected railways and heavy vehicle
fleet operators in the U.S. are now using LNG as a fuel and maturing small scale LNG technology that can be used to access other isolated customers and reach
new markets also represents a promising opportunity that is being pursued globally. The EIA expects that natural gas consumption for transportation will grow
close to 500% between 2015 and 2040.
Natural gas accounts for approximately 25% of global energy demand according to the IGU. Of this, 10% is supplied in the form of LNG. This compares
to just 4% in 1990. Countries that have natural gas demand in excess of the indigenous supply must either import natural gas through a pipeline or, alternatively, in
the form of LNG aboard ships. LNG is natural gas that has been converted into its liquid state through a cooling process, which allows for efficient transportation
by sea. Upon arrival at its destination, LNG is returned to its gaseous state by either an FSRU or land based regasification facilities for distribution to power
stations and consumers through pipelines. The EIA expects that world LNG trade will nearly triple between 2015 and 2040.
Natural gas is an abundant fuel source, with the Oil and Gas Journal estimating that, as of January 1, 2016, worldwide proved natural gas reserves were
6,950 Tcf having grown by 40% over the past 20 years. Almost three-quarters of the world's natural gas reserves are located in the Middle East and
Eurasia. Russia, Iran and Qatar accounted for 54% of the world's natural gas reserves as of January 1, 2016, and the United States, the fourth largest holder of
natural gas reserves, will see an increase in production growth from 24 Tcf per annum in 2012 to 35.3 tcf per annum in 2040. Production in the Australia/New
Zealand region is forecast to increase from 2.1Tcf per annum in 2012 to 7.0Tcf per annum in 2040 with the majority originating from Australia. A significant
portion of the Australian volume has now entered the market. Sizeable new discoveries have also been made on the east coast of Africa in countries including
Mozambique, Tanzania and Kenya. With an average growth rate of 7% since 2000, LNG supply has grown faster than any other source of gas and the IGU expect
further expansion of this share going forward.
The EIA predicts a substantial increase in the production of "unconventional" natural gas, including tight gas, shale gas and coalbed methane. Shale gas
production is expected to be focused on the U.S., China and Canada. Recoverable reserves of this unconventional gas are, however, variable and uncertain.
Improvements in the hydraulic fracturing process used to produce this gas could result in upward revisions to existing reserves however the significant water
requirements of the process together with environmental concerns could equally constrain the recoverability of many known reserves.
Although the growth in production of unconventional domestic natural gas has eliminated LNG demand in the U.S., the long-term impact of shale gas and
other unconventional natural gas production on the global LNG trade is unclear. Substantial increases in the extraction of U.S. shale gas in 2008-2009 initially
suppressed demand for U.S.-bound LNG and therefore shipping. Between 2010 and 2013, a number of cargoes were then redirected from the U.S. to the Far East
which increased LNG ton miles and demand for LNG shipping. The advent of Australian volumes, closer to their main Far Eastern LNG markets then suppressed
ton miles, reducing demand for shipping between 2014 and 2016. More recently, ton miles have begun to rise again as increasing levels of Far Eastern demand is
satisfied by new U.S. export volumes that started to deliver into the market from the end of 2016. A further 50 million tons of new liquefaction currently under
construction in the U.S. is expected to deliver over the coming three years. A significant portion of this new production will likely find a home in the faster growing
and more distant markets of the Middle East, India and the Far East. Ton miles and shipping demand are therefore expected to continue increasing through to the
end of the decade.
Liquefied Natural Gas
Overview
The need to transport natural gas over long distances across oceans led to the development of the international LNG trade. The first shipments were made
on a trial basis in 1959 between the United States and the United Kingdom, while 1964 saw the start of the first commercial-scale LNG project to ship LNG from
Algeria to the United Kingdom. LNG shipping provides a cost-effective and safe means for transporting natural gas overseas. The LNG is transported overseas in
specially built tanks on double-hulled ships to a receiving terminal, where it is offloaded and stored in heavily insulated tanks. In regasification facilities at the
36
receiving terminal, the LNG is returned to its gaseous state (or regasified) and then carried by pipeline for distribution to power stations and other natural gas
customers.
The following diagram displays the flow of natural gas and LNG from production to consumption.
LNG Supply Chain
The LNG supply chain involves the following components:
Exploring
and
drilling:
Natural gas is produced and transported via pipeline to natural gas liquefaction facilities located along the coast of the producing
country. The advent of floating liquefaction also sees the gas being piped to offshore liquefaction facilities.
Production
and
liquefaction:
Natural gas is cooled to a temperature of minus 162 degrees Celsius, transforming the gas into a liquid, which reduces its
volume to approximately 1/600th of its volume in a gaseous state. The reduced volume facilitates economical storage and transportation by ship over long
distances, enabling countries with limited natural gas reserves, and limited access to long-distance transmission pipelines or concerns over security of supply to
meet their demand for natural gas.
Shipping:
LNG is loaded onto specially designed, double-hulled LNG carriers and transported overseas from the liquefaction facility to the receiving
terminal.
Regasification:
At the receiving terminal (either onshore or aboard specialized LNG carriers called Floating Storage and Regasification Units “FSRU”s),
the LNG is returned to its gaseous state, or regasified.
Storage,
distribution,
marketing
&
power
generation:
Once regasified, the natural gas is stored in specially designed facilities or transported to power
producers and natural gas consumers via pipelines.
The basic costs of producing, liquefying, transporting and regasifying LNG are much higher than in an equivalent oil supply chain. This high unit cost of
supply has, in the recent past, led to the pursuit of ever-larger land based facilities in order to achieve improved economies of scale. In many recent cases, even
these large projects have cost substantially more than anticipated. To address the escalating costs, more cost competitive floating liquefaction solutions across a
spectrum of project sizes have been developed by a handful of oil majors and also by Golar. Many previously uneconomic pockets of gas can now be monetized
and this will add to reserves and further underpin the long term attractiveness of gas. Golar’s FLNG solution, which focuses on the liquefaction of clean, lean,
pipeline quality gas, is expected to be one of the cheapest liquefaction alternatives in today’s market. As such, it represents one of the only solutions to have
remained economically viable following the substantial drop in oil and LNG prices that commenced in October 2014. FLNG allows smaller resource holders,
developers and customers to enter the LNG business and occupy a legitimate space alongside the largest resource holders, major oil companies and world-scale
LNG buyers. For the established LNG industry participants, the prospect of the lower unit costs and lower risk profile of Golar’s FLNG solution provide an
important and compelling alternative to the traditional giant land based projects especially in this current energy price environment.
According to Poten and Partners, LNG liquefaction produced 103 million tonnes per annum of LNG in 2000. This increased to around 293 million tonnes
per annum by 2017 according to Shell. Approximately 85 million tonnes per annum of new LNG production capacity is expected to come into operation between
2017 and 2020. Based on current trading patterns and ton miles and assuming retirement of vessels 35 years or older, the order book of approximately 100
conventional LNG carriers together with the current surplus of carriers on the water is anticipated to be insufficient to carry this new expected production.
37
The
LNG
Fleet
As at March 2, 2018, the world LNG carrier fleet consisted of 527 LNG vessels (including 28 FSRUs, 36 vessels less than 46,000 cbm, 6 floating storage
units, or FSUs and 4 floating liquefaction or FLNG units). There were also orders for 121 new LNG carriers (including 10 FSRUs, 11 vessels less than 46,000 cbm,
1 FSU and 1 FLNG unit), the majority of which will be delivered between now and 2019.
The LNG carriers on order define the next generation of employable carriers in regards to size and propulsion. The current "standard" size for LNG
carriers has increased substantially since the 1970s, while propulsion preference has shifted from a steam turbine to the more fuel efficient Dual/Trifuel Diesel
Electric or M-type, Electronically-controlled Gas Injection systems.
While there are a number of different types of LNG vessel and "containment system", there are two dominant containment systems in use today:
•
•
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. The membrane system most efficiently utilizes the entire
volume of a ship's hull, and is cheaper to build. Most of our LNG carriers are of the membrane type.
Illustrations of these systems are included below:
Most newbuilds on order employ the membrane containment system because it most efficiently utilizes the entire volume of a ship's hull, is cheaper to
build and has historically been more cost effective for canal transits. In general, the construction period for an LNG carrier is approximately 28-34 months.
Seasonality
Historically, LNG trade, and therefore charter rates, increased in the winter months and eased in the summer months as demand for LNG for heating in the
Northern Hemisphere rose in colder weather and fell in warmer weather. In general, the tanker industry including the LNG vessel industry, has become less
dependent on the seasonal transport of LNG than a decade ago. The advent of FSRUs has opened up new markets and uses for LNG, spreading consumption more
evenly over the year. There is a higher seasonal demand during the summer months due to energy requirements for air conditioning in some markets or reduced
availability of hydro power in others and a pronounced higher seasonal demand during the winter months for heating in other markets. Autumn and particularly
spring tend to be weaker periods for LNG carrier rates relative to winter and summer.
38
Floating LNG Regasification
Floating
LNG
Storage
and
Regasification
Vessels
Floating LNG storage and regasification vessels are commonly known as FSRUs. The figure below depicts a typical FSRU.
The FSRU regasification process involves the vaporization of LNG and pressurizing and injection of the natural gas directly into a pipeline. In order to
regasify LNG, FSRUs are equipped with vaporizer systems that can operate in an open-loop mode, a closed-loop mode, or in both modes. In the open-loop mode,
seawater is pumped through the system to provide the heat necessary to convert the LNG to the vapor phase. In the closed-loop system, a natural gas-fired boiler is
used to heat water that is circulated in a closed-loop through the vaporizer and a steam heater to convert the LNG to the vapor phase. In general, FSRUs can be
divided into four subcategories:
•
•
•
•
FSRUs that are permanently located offshore;
FSRUs that are permanently near shore and attached to a jetty (with LNG transfer being either directly ship to ship or over a jetty);
shuttle carriers that regasify and discharge their cargoes offshore; and
shuttle carriers that regasify and discharge their cargoes alongside.
Our business model to date has been focused on FSRUs that are permanently moored offshore or near shore and provide continuous regasification service.
Demand
for
Floating
LNG
Regasification
Facilities
The long-term outlook for global natural gas supply and demand has stimulated growth in LNG production and trade, which is expected to drive a
necessary expansion of regasification infrastructure. While worldwide regasification capacity still exceeds worldwide liquefaction capacity, a large portion of the
existing global regasification capacity is concentrated in a few markets such as Japan, Korea and Taiwan, or is in the wrong place. Domestic production of shale
gas and the advent of U.S. LNG exports mean that substantial U.S. Gulf Coast regasification capacity is no longer required. Much of the European regas capacity is
also underutilized. In China, now the world’s second largest market for LNG, there has been a shortage of regas capacity and demand for regasified LNG exceeded
land based regas capacity at the end of 2017. Elsewhere there is significant demand for regasification infrastructure in other Asian markets, the Middle-East and
Central/South America as well as in Africa and the Caribbean. We believe that the advantages of FSRUs compared to onshore facilities, as detailed in the
paragraphs below, make them highly competitive in these markets. In Asia, the Middle East, Caribbean and South America most new regasification projects utilize
an FSRU.
Floating LNG regasification projects first emerged as a solution to the difficulties and protracted process of obtaining permits to build shore-based LNG
reception facilities (especially along the North American coasts). Due to their offshore location,
39
FSRU facilities are significantly less likely than onshore facilities to be met with resistance in local communities, which is especially important in the case of a
facility that is intended to serve a highly populated area where there is a high demand for natural gas. As a result, it is typically easier and faster for FSRUs to
obtain necessary permits than for comparable onshore facilities. More recently, cost and time have become the main drivers behind the growing interest in the
various types of floating LNG regasification projects. FSRU projects can typically be completed in less time (2 to 3 years compared to 4 or more years for land
based projects) and at a significantly lower cost (20-50% less) than land based alternatives.
FSRU
Golar
Eskimo
moored
off
the
port
of
Aqaba
in
Jordan
In addition, FSRUs offer a more flexible solution than land based terminals. They can be used as an LNG carrier, a regasification shuttle vessel or
permanently moored as an FSRU. FSRUs can be used on a seasonal basis, as a short-term (1-2 year) regasification solution or as a long-term solution for up to 40
years. FSRUs offer a fast track regasification solution for markets that need immediate access to LNG supply. FSRUs can also be utilized as bridging solutions
until a land-based terminal is constructed. In this way, FSRUs are both a replacement for, and complement to, land-based regasification alternatives.
Floating
LNG
Regasification
Vessel
Fleet
Size
and
Ownership
Compared to onshore terminals, the floating LNG regasification industry is fairly young. There are a limited number of companies, including Golar as
well as Exmar, Excelerate Energy L.P., Hoegh LNG ASA, BW Gas and Mitsui O.S.K. Lines that are operating FSRU terminals for LNG importers around the
world. Golar was the first company to enter into an agreement for the long-term employment of an FSRU based on the conversion of an existing LNG carrier.
Competition
-
LNG
Carriers
and
FSRUs
As the FSRU market continues to grow and mature there are new competitors entering the market. In some cases, project developers have also ordered
FSRUs without involving a third party provider. Expectations of rapid growth in the FSRU market has given owners the confidence to place orders for FSRUs
before securing charters. This has led to more competition for mid and long-term FSRU charters. Competition for these long-term charters is based primarily on
price, LNG storage capacity, efficiency of the regasification process, vessel availability, size, age and condition of the vessel, relationships with LNG carrier users
and the quality, LNG experience and reputation of the operator.
More recently it has been noted that an increasing number of emerging markets for LNG require smaller volumes on more flexible terms. Demand growth
within these markets is also subject to higher levels of uncertainty. A large industrial user or small utility may represent initial anchor demand for a FSRU with the
expectation that new end users will cluster around the anchor customer or that other users nearby will switch from more expensive fuels to take advantage of an
FSRU's underutilized regas capacity over time. A FSRU that provides for small scale offloading also allows for other less proximate demand to be met. Excess
capacity that will never be utilized on larger and more expensive newbuild FSRUs undermines this business model. As the only market participant with a proven
low cost conversion model, suitable available conversion candidates and existing FSRU assets, Golar is in a good position to capitalize on this mid-size FSRU
market.
We believe that, together with our affiliates, Golar Partners and Golar Power, we are one of the world's largest independent LNG carrier and FSRU
owners and operators. As of April 6, 2018 , we, together with our affiliates Golar Partners and Golar Power have a fleet of 26 vessels comprised of 16 LNG
carriers, seven FSRUs, one FLNG and two FLNG conversion candidates. Our
40
LNG carrier newbuildings have storage capacity of approximately 160,000 cbm to 162,000 cbm; a 0.1% boil-off rate; tri-fuel engines; and are capable of charter
speeds of up to 19.5 knots. Our newbuild FSRUs range in capacity from 160,000 cbm to 170,000 cbm and can provide regasification throughput of up to 750
thousand cubic feet per day (or 5.8 million tonnes per annum). The FSRUs can, subject to the customer's requirements, remain classified as an LNG carrier,
flexible for LNG carrier service, or be classified as an offshore unit, remaining permanently moored at site for a long contract duration without the requirement for
periodic dry docking.
We compete with other independent shipping companies who also own and operate LNG carriers. Additionally, some of the major oil and gas producers,
including Royal Dutch Shell and BP own LNG carriers. National gas and shipping companies also have large fleets of LNG vessels that have expanded and will
likely continue to expand. These include Malaysian International Shipping Company, or MISC, National Gas Shipping Company located in Abu Dhabi and Qatar
Gas Transport Company, or Nakilat.
Floating
Liquefaction
Vessels
FLNG
Hilli
Episeyo
shortly
before
departure
from
Singapore
Golar’s floating liquefaction strategy is to target stranded reserves (such as coal bed methane and shale gas or lean gas sourced from offshore fields) and
convert this to LNG. These feed gas streams require little to no gas processing prior to liquefaction. Golar’s liquefaction solution places proven onshore technology
on board an existing LNG carrier using a rapid low-cost execution model resulting in a vessel conversion time of approximately three years. In 2014 Golar
executed agreements with Keppel and Black & Veatch for the conversion of the LNG carrier Hilli
to an FLNG vessel at Keppel’s shipyard in Singapore. FLNG
Hilli
has a production capacity of up to 2.5 million tonnes per annum and on board storage of approximately 125,000 cubic meters of LNG. The FLNG Hilli
delivered from Keppel's shipyard in October 2017 and proceeded to Cameroon, arriving in late November 2017. Commissioning of the vessel commenced in
December 2017 and production of LNG began in mid-March 2018. We expect acceptance testing procedures to commence shortly. After customer acceptance,
Golar expects to close the sale of an initial equity interest in the vessel to Golar Partners. Hilli
is the world’s first FLNG vessel based on a converted LNG carrier
and one of only four FLNG vessels globally.
41
OneLNG
-
Golar/Schlumberger
FLNG
Joint
Venture
In July 2016, we formed OneLNG with Schlumberger. OneLNG is intended to offer an integrated upstream and midstream solution for the monetization
of stranded gas reserves and the conversion of natural gas to LNG. The combination of Schlumberger's high quality reservoir analysis, infrastructure engineering
and sub-sea development together with Golar’s FLNG and LNG midstream experience delivers a unique offering to the market.
OneLNG is now staffed and working on several projects around the world. One of these is the Fortuna Project in Equatorial Guinea. This project includes
Schlumberger’s sub-sea development connecting directly to a FLNG vessel that should enable OneLNG, together with the Government of Equatorial Guinea and
Ophir Energy Plc., to deliver first gas in 2021. The project involves the formation of a JOC and, in the event of a final investment decision, it is expected that Ophir
will contribute their share of Equatorial Guinea’s Block R license, projected to be equivalent to approximately 2.2-2.5 million tons per annum of LNG production
over 15-20 years. Similar opportunities to this, as well as pure tolling based projects analogous to the FLNG Hilli
contract, are being considered elsewhere. Some
of these opportunities require more than one FLNG vessel.
Hilli
Conversion
Contract
The primary contract for the Hilli
conversion was entered into with Keppel during mid-2014. Keppel simultaneously entered into a sub-contract with
global engineering, procurement and construction company, Black & Veatch, who provided their licensed PRICO ® technology, performed detailed engineering
and process design, specified and procured topside equipment and provided commissioning support for Golar’s topsides and liquefaction process.
Following execution of the above contract, Golar entered into negotiations with a wholly-owned subsidiary of Keppel for their purchase of a 10% non-
controlling interest in a subsidiary which owns the Hilli
. Both a share purchase and sale agreement and a shareholders agreement were negotiated and the
agreements were executed and the transactions closed in early September 2014. During November 2014, Golar also executed agreements with Black & Veatch
International Company, a subsidiary of Black & Veatch, for a further 0.9% non-controlling interest in the same subsidiary.
Gimi
and
Gandria
Conversion
Contracts
We have entered into definitive contracts with Keppel and Black & Veatch for the conversion of the Gimi
and the Gandria
into FLNGs, subject to certain
conditions to the contracts’ effectiveness and issuance of notices to proceed with the conversions. These agreements are similar to the agreements that we entered
into with respect to the Hilli
conversion.
The Gandria
contract was subsequently extended to June 29, 2018 and the Gimi
contract was extended to December 30, 2018. Effectiveness of each
remains subject to issuance of a final notice to proceed. As previously discussed, the Gandria
entered Keppel's shipyard in Singapore in March 2018 to commence
generic work in readiness for her conversion into a FLNG, which is expected to commence after we issue a notice to proceed under the conversion contract entered
into with Keppel and Black & Veatch.
Customers
During the year ended December 31, 2017, we received the majority of our revenues from the Cool Pool.
In 2017, we had up to nine vessels operating in the Cool Pool. Our revenues from these vessels were $106.3 million (91% of our total time and voyage
charter revenues), $51.1 million and $6.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Vessel Maintenance
We are focused on operating and maintaining our vessels 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 dry-docking. This
reduces the overall off-hire period required for dockings and repairs. Since we generally do not earn hire from a vessel while it is dry-docking we believe that the
additional revenue earned from reduced off-hire periods outweighs the expense of the additional crew members or subcontractors.
42
Risk of Loss, Insurance and Risk Management
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.
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. The maximum coverage varies
from 180 days to 360 days, depending on the vessel. The number of deductible days varies from 14 days to 60 days, depending on the vessel and type of damage;
machinery or hull damage.
Protection and indemnity insurance, which covers our third-party legal liabilities in connection with our shipping activities, is provided by mutual
protection and indemnity associations, or P&I clubs. 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 Hilli
pollution is $250 million per incident and $1 billion per vessel per incident for all other
vessels. 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.
The insurers providing the Hull and Machinery, Hull and Cargo interests, Protection and Indemnity and Loss of Hire insurances have confirmed that they
will consider FSRUs as vessels for the purpose of providing insurance. For the FSRUs we have also arranged an additional Comprehensive General Liability
insurance. This type of insurance is common for offshore operations and is additional to the P&I insurance.
We will use in our operations our thorough risk management program that includes, among other things, computer-aided risk analysis tools, maintenance
and assessment programs, a seafarers' competence training program, seafarers' workshops and membership in emergency response organizations. We expect to
benefit from our commitment to safety and environmental protection as certain of our subsidiaries assist us in managing our vessel operations. GMN, received its
ISO 9001 certification in April 2011, and is certified in accordance with the IMO's International Management Code for the Safe Operation of Ships and Pollution
Prevention, or ISM, on a fully integrated basis.
Inspection
by
Classification
Societies
Every large, commercial seagoing 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 vessel's country of registry and the international conventions of which
that country is a member. In addition, where surveys are required
43
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.
Generally FSRUs are "classed" as LNG carriers with 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 three paragraphs, also applies to FSRUs.
For maintenance of the class certificate, regular and special 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 "condition of class" which
must be rectified by the ship owner within prescribed time limits. The classification society also undertakes on request of the flag state other surveys and checks
that are required by the regulations and requirements of that 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. Golar
Arctic
, Golar
Frost
and Golar
Bear
are certified by American Bureau of Shipping and
all our other vessels are certified by Det Norske Veritas. Both societies are members of the International Association of Classification Societies. All of our vessels
have been awarded ISM certification and are currently "in class" other than two LNG carriers, the Gimi
and the Gandria
, with the Gimi
currently layed up and
scheduled to be converted into a FLNG by Keppel and the Gandria
recently removed from lay-up and delivered to Keppel's shipyard in Singapore to commence
generic work in readiness for her conversion into a FLNG.
In-House
Inspections
GMN carries out inspections of the vessels on a regular basis; both at sea and when the vessels are in port, while we carry out inspection and vessel audits
to verify conformity with the manager's reports. The results of these inspections 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.
Environmental and Other Regulations
General
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties,
national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and
environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of
contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including
vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port
authorities (applicable national authorities such as the United States Coast Guard (“USCG”), harbor master or equivalent), classification societies, flag state
administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and
other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the
temporary suspension of the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns
have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that
emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations.
We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material
permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations are frequently
changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these
requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact
could result in additional legislation or regulation that could negatively affect our profitability.
44
It should be noted that the U.S. is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For
example, in April 2017, the U.S. President signed an executive order regarding environmental regulations, specifically targeting the U.S. offshore energy strategy,
which may affect parts of the maritime industry and our operations. Furthermore, recent action by the IMO’s Maritime Safety Committee and United States
agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity
threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to cultivate
additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations
is hard to predict at this time.
We believe that GMN is operating in compliance with the International Standards Organization, or ISO, Environmental Standard for the management of
the significant environmental aspects associated with the ownership and operation of a fleet of LNG carriers. GMN received its ISO 9001 certification (quality
management systems) in April 2011 and the ISO 14001 Environmental Standard during summer 2012. This certification requires that GMN commit managerial
resources to act on our environmental policy through an effective management system.
International
Maritime
Organization
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the “IMO”), has
adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to
as MARPOL 73/78 and herein as “MARPOL,” adopted the International Convention for the Safety of Life at Sea of 1974 (“SOLAS Convention”), and the
International Convention on Load Lines of 1966 (the “LL Convention”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to
drybulk, tanker and LPG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to
oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to
sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.
Vessels that transport gas, including LNG carriers and FSRUs, are also subject to regulation under the International Code for the Construction and
Equipment of Ships Carrying Liquefied Gases in Bulk, or the IGC Code, published by the IMO. The IGC Code 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. The completely revised and updated IGC
Code entered into force in 2016, and the amendments were developed following a comprehensive five-year review and are intended to take into account the latest
advances in science and technology. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases in Bulk.
Non-compliance with the IGC Code 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. We believe that each of our
vessels is in compliance with the IGC Code and each of our new buildings/conversion contracts requires that the vessel receive certification that it is in compliance
with applicable regulations before it is delivered.
Air
Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. 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 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, as explained below. Emissions
of “volatile organic compounds” from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such
as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
45
The IMO’s Marine Environmental Protection Committee (“MEPC”), adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen
oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by,
among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th
session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from the current 3.50%) starting from January 1, 2020. This
limitation can be met by using low-sulfur complaint fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will
be required to obtain bunker delivery notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content. This
subjects ocean-going vessels in these areas to stringent emissions controls, and may cause us to incur additional costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA
were not permitted to use fuel with sulfur content in excess of 0.1%. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has
designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going
vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. If other ECAs are approved by the IMO, or other
new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S Environmental Protection
Agency (“EPA”) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of
our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of
installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen
Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S.
Caribbean Sea ECAs designed for the control of NOx with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could
apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for
nitrogen oxide for ships built after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As a result of
these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI is effective as of March 1, 2018 and requires ships above 5,000 gross
tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and
implement Ship Energy Efficiency Management Plans (“SEEMPS”), and new ships must be designed in compliance with minimum energy efficiency levels per
capacity mile as defined by the Energy Efficiency Design Index. Under these measures, by 2025, all new ships built will be 30% more energy efficient than those
built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety
Management
System
Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for
Maritime Claims (the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that all of
our vessels are in substantial compliance with SOLAS and LL Convention standards. Under Chapter IX of the SOLAS Convention, or the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), our operations are also subject to environmental standards and
requirements. 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 describing
procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for
compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may
decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by
a vessel’s management with the ISM Code requirements for a safety management system. No
46
vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code.
We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are
required by the IMO. The document of compliance and safety management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength,
integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July
1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk
carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the
building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-
based Ship Construction Standards for Bulk Carriers and Oil Tankers (GBS Standards). Amendments to the SOLAS Convention Chapter VII apply to vessels
transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (“IMDG Code”). Effective
January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic
Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). As of
February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and
STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to
confirm compliance.
Pollution
Control
and
Liability
Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to
such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM
Convention”) in 2004. The BWM Convention entered into force on September 9, 2017. The BWM Convention requires ships to manage their ballast water to
remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM
Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory
concentration limits, and require all ships to carry a ballast water record book and an international ballast Water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that the dates are triggered by the
entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing
vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (IOPP) renewal
survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70.
At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date
existing vessels are subject to certain ballast water standards. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of
ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged,
and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D2
standard on or after September 8, 2019. For most ships, compliance with the D2 standard will involve installing on-board systems to treat ballast water and
eliminate unwanted organisms. Under the requirements of the BWM Convention installation of ballast water treatments, BWT systems will be needed on all our
LNG Carriers. As long as our FSRUs are operating as FSRUs and kept stationary they will not need installation of a BWT system. Ballast water treatment
technologies are now becoming more mature, although the various technologies are still developing. The additional costs of complying with these rules, relating to
certain of our older vessels are estimated to be in the range of between $2 million and $3 million per vessel and will be phased in over time in connection with the
renewal surveys that are required.
Once mid-ocean ballast exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost compliance could
increase for ocean carriers and may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country
to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to
conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. The costs of compliance with a
mandatory mid-ocean ballast exchange could be material, and it is difficult to predict the overall impact of such a requirement on our operations.
47
Anti
Fouling
Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti fouling Systems on Ships, or the “Anti fouling Convention.” The
Anti fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks
and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before
the vessel is put into service or before an International Anti fouling System Certificate is issued for the first time; and subsequent surveys when the anti fouling
systems are altered or replaced. We have obtained Anti fouling System Certificates for all of our vessels that are subject to the Anti fouling Convention.
Compliance
Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or 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 USCG and European Union
authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union
ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be
maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed
by the IMO and what effect, if any, such regulations might have on our operations.
United
States
Regulations
The
U.S.
Oil
Pollution
Act
of
1990
and
the
Comprehensive
Environmental
Response,
Compensation
and
Liability
Act
The U.S. Oil Pollution Act of 1990 (“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 or operate with the U.S., its territories and possessions or whose vessels operate in U.S.
waters, which includes the U.S.’s territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited
circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or
chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators 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, including bunkers (fuel). OPA defines these other damages broadly to include:
•
•
•
•
•
•
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
injury to, or economic losses resulting from, the destruction of real and personal property;
loss of subsistence use of natural resources that are injured, destroyed or lost;
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and,
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or
health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015, the USCG adjusted
the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100 per gross ton or $939,800 (subject
to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal
safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible
party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident
where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal
activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High
Seas Act.
48
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as
damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health
effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war.
Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300
per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the
release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of
applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to
provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners
and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which
the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of
insurance, a surety bond, qualification as a self-insurer or a guarantee. We plan to comply with the USCG’s financial responsibility regulations by providing
applicable certificates of financial responsibility.
The 2010 Deepwater
Horizon
oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including the raising of liability caps
under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, the status of several of these
initiatives and regulations is currently in flux. For example, the U.S. Bureau of Safety and Environmental Enforcement (“BSEE”) announced a new Well Control
Rule in April 2016, but pursuant to orders by the U.S. President in early 2017, the BSEE announced in August 2017 that this rule would be revised. In January
2018, the U.S. President proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling, vastly expanding the U.S. waters that are
available for such activity over the next five years. The effects of the proposal are currently unknown. Compliance with any new requirements of OPA may
substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional
legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries,
provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil
spills. Many 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. Moreover, some states
have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type
of legislation have not yet issued implementing regulations defining tanker owners’ responsibilities under these laws. The Company intends to comply with all
applicable state regulations in the ports where the Company’s vessels call.
Other
United
States
Environmental
Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions
of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate
emissions resulting from vessel loading and unloading operations which may affect our vessels.
The U.S. Clean Water Act (“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.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our
vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs,
and/or otherwise restrict our vessels from entering U.S. Waters. The EPA requires a permit regulating ballast water discharges and other discharges incidental to
the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels
(the “VGP”). On March 28, 2013, the EPA re-issued the VGP for another five years from the effective date of December 19, 2013. The 2013 VGP focuses on
authorizing discharges incidental to operations of commercial vessels, and contains numeric ballast water discharge limits for most vessels to reduce the risk of
invasive species in U.S. waters, stringent requirements for exhaust
49
gas scrubbers, and requirements for the use of environmentally acceptable lubricants. For a new vessel delivered to an owner or operator after December 19, 2013
to be covered by the VGP, the owner must submit a Notice of Intent (“NOI”) at least 30 days (or 7 days for eNOIs) before the vessel operates in United States
waters. We have submitted NOIs for our vessels where required.
The USCG regulations adopted under the U.S. National Invasive Species Act (“NISA”) impose mandatory ballast water management practices for all
vessels equipped with ballast water tanks entering or operating in U.S. waters, which require the installation of certain engineering equipment and water treatment
systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, and/or may otherwise restrict
our vessels from entering U.S. waters. The USCG has implemented revised regulations on ballast water management by establishing standards on the allowable
concentration of living organisms in ballast water discharged from ships in U.S. waters. As of January 1, 2014, vessels were technically subject to the phasing-in of
these standards, and the USCG must approve any technology before it is placed on a vessel. The USCG first approved said technology in December 2016, and
continues to review ballast water management systems. The USCG may also provide waivers to vessels that demonstrate why they cannot install the new
technology. The USCG has set up requirements for ships constructed before December 1, 2013 with ballast tanks trading within the exclusive economic zones of
the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3-first scheduled drydock after January 1, 2014; and (2) ballast
capacity above 5,000m3-first scheduled drydock after January 1, 2016. All of our vessels have ballast capacities over 5,000m3, and those of our vessels trading in
the U.S. will have to install water ballast treatment plants at their first drydock after January 1, 2016, unless an extension is granted by the USCG.
The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA
issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not
have the requisite technology installed, but will not grant any waivers. In addition, through the CWA certification provisions that allow U.S. states to place
additional conditions on the use of the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast requirements
including, in some states, specific treatment standards. Compliance with the EPA, USCG and state regulations could require the installation of equipment on our
vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost,
or may otherwise restrict our vessels from entering U.S. waters.
Two recent United States court decisions should be noted. First, in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the
EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that the 2013 VGP will remain in effect until the EPA
issues a new VGP. The effect of such redrafting remains unknown. Second, on October 9, 2015, the Sixth Circuit Court of Appeals stayed the Waters of the United
States ("WOTUS") rule, which aimed to expand the regulatory definition of “waters of the United States,” pending further action of the court. In response,
regulations have continued to be implemented as they were prior to the stay on a case-by-case basis. In February 2017, the U.S. President issued an executive order
directing the EPA and U.S. Army Corps of Engineers to publish a proposed rule rescinding or revising the WOTUS rule. In January 2018, the Supreme Court held
that the federal district courts, not the appellate courts, have jurisdiction to hear challenges to the WOTUS rule. Also in January 2018, the EPA and Army Corps of
Engineers issued a final rule pursuant to the President’s order, under which the Agencies will interpret the term “waters of the United States” to mean waters
covered by the regulations, as they are currently being implemented, within the context of the Supreme Court decisions and agency guidance documents, until
February 6, 2020. Litigation regarding the status of the WOTUS rule is currently underway, and the effect of future actions in these cases upon our operations is
unknown.
European
Union
Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for 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. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all
types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for
pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council
of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport,
and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually starting on
January 1, 2018, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as
determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard
ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and
control over classification
50
societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply.
Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive
2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the
EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports.
International
Labour
Organization
The International Labor Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (“MLC
2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships above
500 gross tons in international trade. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse
Gas
Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework
Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to
reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol,
and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the
Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in
Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. On June 1,
2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement. The timing and effect of such action has yet to be
determined, but the Paris Agreement provides for a four-year exit process.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of
greenhouse gas emissions from ships was approved. In accordance with this roadmap, an initial IMO strategy for reduction of greenhouse gas emissions is expected
to be adopted at MEPC 72 in April 2018. The IMO may implement market-based mechanisms to reduce greenhouse gas emissions from ships at the upcoming
MEPC session.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also
committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships calling at EU ports
are required to collect and publish data on carbon dioxide emissions and other information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas
emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the
U.S. President signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions. In response to that order, on October 16,
2017, the EPA proposed to repeal the Clean Power Plan, its first standards on carbon dioxide emissions from power plants. On December 28, 2017, the EPA
published an Advance Notice of Proposed Rulemaking outlining its plans to replace the Clean Power Plan if the repeal moves forward. Although the mobile source
emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA or individual U.S. states could enact environmental regulations that would
affect our operations. For example, California has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions 40% by 2030.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty
adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make
significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be
indirectly affected to the extent that climate change may result in sea level changes or more intense weather events.
Vessel
Security
Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as
the U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the
implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities,
some of which are regulated by the EPA.
51
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the
International Ship and Port Facilities Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To
trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag
state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The following are among the
various requirements, some of which are found in the SOLAS Convention:
•
•
•
•
•
•
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, 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 USCG regulations, intended to be aligned with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security
measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS
Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the
SOLAS Convention and the ISPS Code. GMN has developed Security Plans, appointed and trained Ship and Office Security Officers and each of our vessels in our
fleet complies with the requirements of the ISPS Code, SOLAS and the MTSA.
Vessel
Safety
Regulations
The Maritime Safety Committee adopted paragraph 5 of SOLAS regulation III/1 to require lifeboat on-load release mechanisms not complying with new
International Life-Saving Appliances, or LSA Code requirements to be replaced no later than the first scheduled dry-docking of the ship after 1 July 2014 but, in
any case, not later than 1 July 2019. The SOLAS amendment, which entered into force on 1 January 2013, is intended to establish new, stricter, safety standards for
lifeboat release and retrieval systems, aimed at preventing accidents during lifeboat launching, and will require the assessment and possible replacement of a large
number of lifeboat release hooks.
All our vessels that were docked in or after 2014 had the lifeboat release and retrieval systems overhauled and modified where found necessary.
According to SOLAS Ch V/19.2.10, all vessels shall have an Electronic Chart Display and Information Systems, or ECDIS, installed in the period from
2012 to 2018. Our LNG vessels must have approved ECDIS fitted no later than the first survey on or after July 1, 2015. All our vessels now have an ECDIS
installed and our Officers have been sent to specific training courses.
C. Organizational Structure
For a full list of our subsidiaries, please see Exhibit 8.1 to this annual report and note 4 "Subsidiaries" of our Consolidated Financial Statements included
herein. All of our subsidiaries are, directly or indirectly, wholly-owned by us except for Hilli Corp, which is 89% owned by us with the remaining 11% held by
third party entities.
D. Property, Plant and Equipment
For information on our fleet, please see the section of this item entitled "Fleet".
We do not own any interest in real property. We lease approximately 7,000 square feet of office space in London, 32,000 square feet of sublet office space
in Oslo, for our ship management operations, 1,600 square feet of office space in Malaysia, 4,700 square feet of office space in Croatia and approximately 1,300
square feet of office space in Bermuda.
52
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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 4. Information on the Company" and our audited financial statements and notes thereto, included herein. 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. You should also review the
section of this Annual Report entitled "Cautionary Statement Regarding Forward Looking Statements" and "Item 3. Key Information-D. 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 certain forward-looking
statements.
Overview and Background
Please see "Item 4. Information on the Company" for further details.
Market Overview and Trends
Historically, spot and short-term charter hire rates for LNG carriers have been uncertain, which reflects the variability in the supply and demand for LNG
carriers. The industry has not, however, experienced a structural surplus of LNG carriers since the 1980s with fluctuations in rates and utilization over the
intervening decades reflecting short-term timing disconnects between the delivery of new vessels and delivery of the new LNG they were ordered to transport.
During the last cycle, an excess of LNG carriers first became evident in 2004, before reaching a peak in the second quarter of 2010, when spot and short term
charter hire rates together with utilization reached near historic lows. Due to a lack of newbuild orders placed between 2008 and 2010, this trend then reversed from
the third quarter of 2010 such that the demand for LNG shipping was not being met by available supply in 2011 and the first half of 2012. Spot and short-medium
term charter hire rates together with fleet utilization reached historic highs in 2012. During 2013, hire rates and utilization slowly declined from these all-time highs
reaching an equilibrium around the third quarter of 2013 when the supply and demand of vessels was broadly in alignment. From late 2013, the pace of newbuild
LNG carrier deliveries outstripped the supply of new LNG liquefaction, with the supply of LNG carriers exceeding shipping requirements throughout 2014, 2015
and 2016. Historically low charter rates and levels of utilization were recorded in early 2016 and rates and utilization levels remained subdued through to the first
half of 2017 despite new Australian volumes. Thereafter, the anticipated arrival and ramp up of new U.S. LNG volumes and an associated increase in ton miles
began to absorb the built-up surplus of LNG carriers. It is anticipated that the market will reach an equilibrium position during the second half of 2018 and then be
short of LNG carriers from late 2019 provided there are no significant unplanned outages at existing liquefaction facilities as a result of geopolitical or other
unexpected events.
There are significantly fewer FSRUs than LNG carriers however their market has grown from zero in 2005 to 28 in operation or available for hire as of
March 2, 2018. There are also 10 FSRUs currently on order. Plentiful supply of cheap LNG has encouraged continued growth in demand for FSRUs and we expect
this to continue. However, the number of competitors for FSRU business has increased and is expected to continue to increase which will have a negative impact
on margins.
Having dropped to around $27 per barrel early in 2016, Brent Crude spot prices have since recovered and stabilized at levels between $60 and $65 per
barrel. Natural gas prices have also recovered. Although significant additional LNG supply over the coming three years may result in a another "decoupling" of
LNG prices from oil, demand for LNG, particularly as a result of faster than expected coal-to-gas switching by China, has surprised to the upside and been
supportive of LNG prices. An increasing portion of the new demand for LNG from Far Eastern markets is being satisfied by new U.S. supply. This has resulted in
an increase in ton miles, vessel utilization and hire rates and the trend is expected to continue. The arrival of substantial volumes of new LNG over the next three
years is expected to reflect positively on the shipping market and remain supportive of the FSRU business. Continued strong LNG demand growth that matches this
supply is also expected. Should demand not be sustained, falling LNG prices could negatively impact new investment decisions for large-scale LNG liquefaction
projects. While potentially a positive catalyst for cost competitive liquefaction solutions including floating liquefaction, this has potentially negative long-term
consequences both for LNG carrier and FSRU demand. Any sustained decline in the delivery of new LNG volumes, chartering activity and charter rates could also
adversely affect the market value of our vessels on which certain of the ratios and financial covenants we are required to comply with in our credit facilities are
based.
53
Please see the section of this Annual Report entitled "Item 4. Information on the Company-B. Business Overview-The Natural Gas Industry" for further
discussion of the LNG market.
Factors Affecting the Comparability of Future Results
Our historical results of operations and cash flows are not necessarily indicative of results of operations and cash flows to be expected in the future,
principally for the following reasons:
•
•
•
•
•
•
For
periods
when
vessels
are
in
lay-up
or
under
conversion,
vessel
operating
and
voyage
costs
will
be
lower.
The Hilli
and the Gandria
were
both placed in lay-up in April 2013. The Hilli
and the Gandria
were delivered to Keppel's shipyard in September 2014 and March 2018,
respectively, to commence their conversions into FLNGs. The Hilli
completed her conversion in October 2017 and is currently undergoing
commissioning in Cameroon. We expect acceptance testing procedures to commence shortly. The Gandria
remains in Keppel's shipyard where
generic work has commenced in readiness for her conversion into a FLNG. The Viking
was placed in lay-up in December 2015 and, in February
2018, she was reactivated and entered into the spot market. The Gimi
was placed in lay-up in January 2014 and is currently still in lay-up, but has
been earmarked for use in our FLNG vessel conversion projects, pending lodgment of their final notices to proceed. We receive no revenues for
vessels while they are in lay-up or being converted, but we benefit from lower vessel operating costs, principally from reduced crew on board,
and minimal maintenance requirements and voyage costs.
Our
results
will
be
dependent
in
part
on
the
performance
of
the
Cool
Pool.
In October 2015, we, along with GasLog and Dynagas, established
the Cool Pool to market our LNG carriers which are currently operating in the LNG shipping spot market. As of April 6, 2018 , we had
contributed eight (2017: eight) of the 18 vessels to the pool. Each of the vessel owners continues to be responsible for the manning and the
technical management of its respective vessels. Our share of the net pool revenues will be dependent upon the performance of the Pool Manager
in securing employment and negotiating rates for all of the pool vessels.
We,
or
our
consolidated
entities,
may
enter
into
different
financing
arrangements.
Our current financing arrangements may not be
representative of the arrangements we will enter into in the future. For example, we may amend our existing credit facilities or enter into other
financing arrangements, which may be more expensive. In addition, by virtue of the sale and leaseback transactions we have entered into with
certain lessor VIEs, where we are deemed to be the primary beneficiary of the VIEs, we are required to consolidate these VIEs into our results.
Although consolidated into our results, we have no control over the funding arrangements negotiated by these lessor VIEs such as interest rates,
maturity and repayment profiles. For additional detail refer to note 5 "Variable Interest Entities" of our Consolidated Financial Statements
included herein. As of December 31, 2017, we consolidated lessor VIEs in connection with the lease financing transactions for seven of our
vessels. For descriptions of our current financing arrangements, please see note 23 "Debt" of our Consolidated Financial Statements included
herein.
The
costs
of
our
projects
may
change.
We are continuing to invest in and develop our various projects, such as FLNG conversion. The costs we
have incurred historically for our projects may not be indicative of future costs.
Our
results
are
affected
by
fluctuations
in
the
fair
value
of
our
derivative
instruments
. The change in fair value of our derivative instruments
is included in our net income. These changes may fluctuate significantly as interest rates, the price of our common shares or the price of
commodities fluctuate. This includes changes in the fair value of the Hilli
LTA embedded derivative. Our Total Return Swap has a credit
arrangement, whereby we are required to provide cash collateral on the initial acquisition price and to subsequently post additional cash
collateral that corresponds to any further unrealized loss.
Gains
or
losses
from
the
disposal
or
deemed
disposals
of
our
investments
accounted
for
under
the
equity
method
. In January 2015, we
disposed of 7.2 million of our common units in Golar Partners and recognized a gain on disposal of $32.6 million. In addition we recognize a
gain or loss on deemed disposals in our affiliates, where we suffer a dilution in our ownership interest when our investee issues additional equity
interest which we do not participate. In 2017, we recognized a $17.0 million loss in connection with Golar Partners' capital transactions.
54
•
Deconsolidation
of
Golar
Power
from
July
2016.
Pursuant to the disposal of a 50% ownership interest in Golar Power to Stonepeak in July
2016, Golar Power was deconsolidated by Golar. A summary of the key significant changes impacting the income statement that occurred in
2016, when compared to historic periods, as a consequence of the deconsolidation, include:
◦
◦
◦
A decrease in operating income and individual line items therein, specifically relating to the two trading LNG carriers, the Golar
Celsius
and the Golar
Penguin
that were operating in the Cool Pool.
On deconsolidation of Golar Power in July 2016, we recognized a loss on loss of control of $8.5 million.
Equity in net earnings (losses) of affiliates, to reflect our 50% share of the results of Golar Power from its deconsolidation date in July
2016. Included within this line item for 2016, was our share of the fair value remeasurement gain arising on Golar Power’s 50%
retained investment in the entity which holds the investment in the Sergipe Project. The recognition of this gain was triggered by Golar
Power’s step acquisition of the other 50% equity interest as held by the project developer, Genpower in October 2016.
Factors Affecting Our Results of Operations
We believe the principal factors that will affect our future results of operations include:
•
•
•
•
•
•
•
•
•
•
•
•
•
the success of the Pool Manager in finding employment and negotiating charter rates for our vessels and the vessels other participants in the Cool
Pool;
revenues generated by the Hilli
, pursuant to vessel acceptance by the Customer under the LTA;
the number and types of vessels in our fleet and the fleets of our affiliates;
our ability to maintain good working relationships with our key existing charterers and to increase the number of our charterers through the
development of new working relationships;
increased demand for LNG shipping services, including FSRU and FLNG services, and in connection with this underlying demand for and supply of
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;
the success or failure of the LNG infrastructure (including FLNG) projects that we and our affiliates are working on or may work on in the future,
including the Hilli’s
timely acceptance by the Customer under the LTA;
our ability to execute strategic and mutually beneficial sales of our assets, including the Hilli
, similar to the past sale of six of our vessels conducted
with Golar Partners, for aggregate purchase consideration of $1.9 billion, and our ability to secure charters of an appropriate duration for the assets
being sold;
our ability to obtain funding in respect of our capital commitments;
the success of our affiliates in their operations;
the effective and efficient technical management of ours, Golar Partners' and Golar Power's 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, including changes in the number of 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 related to our and our joint ventures' or affiliates' operations have impacted,
and will continue to impact, our results of operations. These factors include:
55
•
•
•
•
•
•
•
access to capital required to acquire additional vessels and/or to implement business strategy;
level of debt and the related interest expense and amortization of principal;
the performance of our equity interests;
employment of vessels;
the hire rate earned by vessels and unscheduled off-hire days;
non-utilization of vessels not subject to fixed rate charters;
pension and share option expenses;
• mark-to-market charges in the Hilli
embedded derivative, interest rate and equity swaps and foreign currency derivatives;
•
•
•
•
foreign currency exchange gains and losses;
equity in earnings of affiliates;
increases in operating costs; and
prevailing global and regional economic and political conditions.
Please see the section of this Annual Report entitled “Item 3. Key Information-D. 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:
Operating
revenues
(including
revenue
from
collaborative
arrangement)
.
Total operating revenues primarily refers to time and voyage charter
revenues. We recognize revenues from time and voyage 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. Operating revenues includes revenues from
vessels engaged in collaborative arrangements, such as the Cool Pool. Specifically, for the Cool Pool, pool earnings (gross earnings of the pool less costs and
overheads of the Cool Pool and fees to the Pool Manager) are aggregated and then allocated to the Pool Participants in accordance with the number of days each of
their vessels are entered into the pool during the period.
Off-hire
(including
commercial
waiting
time).
Our vessels may be out of service, off-hire, for three main reasons: scheduled drydocking or vessel
upgrade 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.
Vessel
and
other
management
fees.
As part of our operations we provide various management and administrative services to our joint ventures and
affiliates.
Voyage,
charterhire
expenses
and
commission
expenses
(including
expenses
from
collaborative
arrangement).
Voyage expenses, which are primarily
fuel costs but which also include other costs such as port charges, are paid by our charterers 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. While a vessel
is on-hire, fuel costs are typically paid by the charterer, whereas during periods of commercial waiting time, fuel costs are paid by us. Charter-hire expenses refer to
the cost of chartering-in vessels to our fleet and commissions relate to brokers' commissions. Furthermore, voyage, charterhire expenses and commission expenses
includes related expenses attributable to vessels engaged in collaborative arrangements, such as the Cool Pool. In relation to the vessels participating in the Cool
Pool, voyage expenses and commissions include a net allocation from the pool participants' vessels less the other participants' share of the net revenues earned by
our vessels included in the Cool Pool.
56
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. This is calculated by dividing time and voyage charter
revenues (including those from collaborative arrangements, such as the Cool Pool), less any voyage expenses, 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. TCE is a non-U.S. GAAP financial measure. Please see the section of this Annual Report entitled “Item 3. Key Information-A.
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 vessels, 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 generally over five years based on each vessel's next anticipated drydocking.
Administrative
expenses.
Administrative expenses are comprised 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 UK
Scheme and Marine 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.
Unrealized
gain
on
Hilli
derivative
instrument.
In December 2017, we recognized a derivative asset in relation to the Hilli
LTA. The derivative asset
represents the fair value of the estimated discounted cash flows of payments due as a result of the Brent Crude price moving above the contractual floor of $60.00
per barrel over the contract term. The derivative asset is adjusted to fair value at each balance date, the changes in fair value are recognized in each period in
current earnings in "Unrealized gain on FLNG derivative instrument", which forms part of our operating results.
Interest
expense
and
interest
income.
Interest expense depends on our and our consolidated lessor VIE entities overall level of borrowings, including
costs associated with such borrowing. By virtue of the sale and leaseback transactions we have entered into with lessor VIEs, where we are deemed to be the
primary beneficiary, we are required to consolidate these VIEs into our results. Accordingly, although consolidated into our results, we have no control over the
funding arrangements negotiated by these lessor VIE entities which includes the interest rates to be applied. For additional detail refer to note 5 "Variable Interest
Entities" of our Consolidated Financial Statements included herein. Furthermore, our estimation process is dependent upon the timeliness of receipt and accuracy
of financial information provided by these lessor VIE entities. During construction of a newbuilding, FSRU or FLNG retrofitting period, interest expense incurred
is capitalized in the cost of the newbuilding or retrofitted vessel. In addition this treatment may also apply to certain of our equity method investments, meeting
specific criterion, during the period prior to commencement of their planned principal operations. 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.
Impairment
of
non-current
assets
. 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 make assumptions regarding estimated future cash flows, the
vessels' economic useful life and estimates in respect of residual or scrap value.
Other
financial
items.
Other financial items include financing fee arrangement costs such as commitment fees on credit facilities, market valuation
adjustments for derivatives, interest rate cash settlements 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. Although for certain of our derivative arrangements
such as our total return equity swap cash collateral maybe required to be posted. As at December 31, 2017 cash collateral amounting to $58.4 million has been
provided against our Total Return Swap (see note 18 "Restricted Cash and Short-term Deposits" of our Consolidated Financial Statements included herein).
57
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. LNG
transportation is a business that requires specialist skills that take some time to acquire and the number of vessels is increasing. Therefore, there has been an
increased demand for qualified crews, 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 fully protected from crew cost increases.
Results of Operations
Our results for the years ended December 31, 2017, 2016 and 2015 were affected by several key factors:
•
•
•
•
•
•
•
•
•
Golar
Tundra
, one of our newbuildings, was delivered in 2015, which was affected by commercial waiting time;
Our vessels were affected by commercial waiting time, including our newbuildings and vessels in lay-up. The Hilli
and the Gandria
were placed in
lay-up in April 2013, the Gimi
in January 2014 and the Golar
Grand
and the Golar
Viking
in December 2015;
Charter-hire expenses of $17.4 million , $28.4 million and $28.7 million for the year ended December 31, 2017, 2016 and 2015, respectively, arising
from the charter-back of the Golar
Grand
(2015 includes the charter-back of Golar
Eskimo
) from Golar Partners, under an agreement executed at the
time of the disposal to Golar Partners. On November 1, 2017, the Golar
Grand
arrangement concluded;
Additions in operating costs of $nil, $2.0 million and $1.8 million in 2017, 2016 and 2015, respectively, in connection with our crewing pool in
anticipation of the delivery of our newbuilds (prior to the transfer of this newbuilding to Golar Power upon the deconsolidation of Golar Power in
July 2016, see note 7 "Deconsolidation of Golar Power" of our Consolidated Financial Statements included herein);
Interest costs of $72.4 million, $50.3 million and $7.1 million were capitalized in 2017, 2016 and 2015, respectively, in relation to the FLNG
conversion of the Hilli,
the investment in our affiliate, Golar Power and our newbuilding under construction;
Gains or losses arising on the disposal of our investment in the common units of Golar Partners. This includes deemed disposals, being the dilutive
impact on our ownership interest due to further issuances of common units by the Partnership;
Gains arising from disposals to Golar Partners;
Deconsolidation of Golar Power in July 2016, which resulted in the recognition of a loss on loss of control of $8.5 million;
The realized and unrealized gains and losses on mark-to-market adjustments for our derivative instruments of $19.5 million gain, $17.5 million gain
and $96.5 million loss in 2017, 2016 and 2015, respectively, and the impact of hedge accounting, which we ceased during 2015, for certain of our
interest rate and equity swap derivatives;
• Mark-to-market gain of $15.1 million in 2017, on the embedded derivative in relation to the Hilli
LTA.
•
•
•
Impairment loss arising on the loan and associated interest receivables from the Douglas Channel Project consortium. Given the announcement of a
negative Final Investment Decision, we reassessed the recoverability of the loan and accrued interest receivables from the Douglas Channel LNG
Assets Partnership, or DCLAP, and concluded that DCLAP would not have the means to satisfy its obligations under the loan. Accordingly, we
recognized an impairment charge of $7.6 million in 2016;
Impairment loss arising on certain loan facilities granted to Equinox in February 2015, in connection with their acquisition of the vessel, the Golar
Viking
, from us. Due to concerns with recoverability of these loans, we recognized a loss of $15 million upon repossession of the vessel;
Share options expense on options granted during 2017, 2016 and 2015; and
58
•
Project expenses such as those relating to FLNG project development.
The impact of these factors is discussed in more detail below.
A. Operating Results
Year ended December 31, 2017 , compared with the year ended December 31, 2016
As of December 31, 2017 , we managed our business and analyzed and reported our results of operations on the basis of three segments: Vessel
operations, FLNG and Power. Although our segments are generally influenced by the same economic factors, each represents a distinct product in the LNG
industry. See note 8 "Segment Information" of our Consolidated Financial Statements included herein.
The following details our consolidated revenues and expense information for the three segments for each of the years ended December 31, 2017 and 2016
:
Vessel operations segment
(in
thousands
of
$,
except
average
daily
TCE)
2017
2016
Change
% Change
December 31,
Total operating revenues
Vessel operating expenses
Voyage, charter-hire and commission expenses (including expenses from
collaborative arrangements)
Administrative expenses
Depreciation and amortization
Impairment of non-current assets
Other operating gains - LNG trading
Operating loss
143,537
(55,944)
(61,171)
(46,092)
(76,522)
—
—
80,257
(53,163)
(47,563)
(42,384)
(72,972)
(1,706)
16
(96,192)
(137,515)
63,280
(2,781)
(13,608)
(3,708)
(3,550)
1,706
(16)
41,323
79 %
5 %
29 %
9 %
5 %
(100)%
(100)%
(30)%
Equity in net earnings of affiliates
1,503
37,344
(35,841)
(96)%
Other Financial Data:
Average Daily TCE (1) (to the closest $100)
Calendar days less scheduled off-hire days
17,500
3,885
10,100
4,034
7,400
(149)
73 %
(4)%
(1) TCE is a non-GAAP financial measure. For a reconciliation of TCE rates, please see “Item 3. Key Information-A. Selected Financial Data."
Total
Operating
revenues:
Operating revenues increased by $63.3 million to $143.5 million for the year ended December 31, 2017 compared to $80.3
million in 2016 . This was principally due to an increase in revenue of:
•
•
•
$54.7 million as a result of improved utilization and daily hire rates, including repositioning fees, from our vessels participating in the Cool Pool for the
year ended December 31, 2017 compared to the same period in 2016 ;
$1.3 million in revenue from the Golar
Arctic
which was fully utilized for the year ended December 31, 2017 compared to the same period in 2016 when
she was mostly off-hire during the first quarter in preparation for her charter on March 23, 2016 with an energy and logistics company; and
$12.4 million in management fee income, from $14.2 million in 2016 to $26.6 million in 2017 , from the provision of services to Golar Partners, Golar
Power and OneLNG under our management and administrative services and ship management agreements. The increase is primarily a result of the
services provided to Golar Power and OneLNG throughout the year ended December 31, 2017 , whereas, services were only provided to Golar Power and
OneLNG for a portion of 2016, subsequent to their formation in July 2016.
59
These are partially offset by a decrease of $4.5 million in revenue in 2017 from the Golar
Penguin
and the Golar
Celsius
following the deconsolidation of
Golar Power, and thus its fleet, from July 2016.
The increase of $7,400 in average daily TCE rate to $17,500 for 2017 compared to $10,100 in 2016 is primarily due to the overall increase in charter rates
and utilization levels of our vessels in 2017.
Vessel
operating
expenses:
Vessel operating expenses increased by $2.8 million to $55.9 million for the year ended December 31, 2017 , compared to
$53.2 million in 2016 . This was principally due to an increase of:
•
•
•
$2.3 million in relation to the Gandria
, mainly due to the settlement of its lay-up fees;
$1.8 million in operating costs in relation to our vessels operating in the Cool Pool; and
$3.0 million related to bringing in-house our technical operations and the related change in classification of fleet management related administrative costs
from administrative expenses to vessel operating costs.
These are partially offset by a decrease of $4.5 million in operating expenses in 2017, in relation to the Golar
Penguin
and the Golar
Celsius
following the
deconsolidation of Golar Power, and thus its fleet, from July 2016.
Voyage,
charterhire
and
commission
expenses:
Voyage, charterhire and commission expenses largely relate to charterhire expenses, fuel costs associated
with commercial waiting time and vessel positioning costs. While a vessel is on-hire, fuel costs are typically paid by the charterer, whereas during periods of
commercial waiting time, fuel costs are paid by us. The increase in voyage, charterhire and commission expenses of $13.6 million to $61.2 million for the year
ended December 31, 2017 compared to $47.6 million in 2016 was primarily due to an increase of $26.6 million of voyage expenses that arose from the increased
utilization of our vessels participating in the Cool Pool, which are subsequently recouped from the charterer.
This has been partially offset by:
•
•
•
a decrease of $9.6 million in charterhire expense relating to the charter back of the Golar
Grand
from Golar Partners. The decrease is due to: (i) Golar
Grand’s
drydocking from February to April 2017, which resulted in no charterhire payable to Golar Partners and (ii) on November 1, 2017, the Golar
Grand
arrangement concluded;
a decrease of $2.0 million from the Golar
Penguin
and the Golar
Celsius
following the deconsolidation of Golar Power, and thus its fleet, from July 2016;
and
a decrease of $0.6 million from Golar
Arctic
as she incurred significant voyage costs prior to commencement of her charter in 2016 with an energy and
logistics company.
Administrative
expenses:
Administrative expenses increased by $3.7 million to $46.1 million for the year ended December 31, 2017 compared to $42.4
million in 2016 . This was primarily due to an increase in salaries and benefits of $14.0 million, mainly as a result of an increase in headcount, and an increase in
travel costs of $1.4 million in connection with the various new ventures and associated projects entered into during the second half of 2016, such as Golar Power
and OneLNG. This was partially offset by (i) a decrease of $1.8 million in legal and professional fees; (ii) a decrease in administration expenses due to greater
capitalization of certain costs directly associated with the conversion of the Hilli
into a FLNG; and (iii) a general decrease following a change in the classification
of fleet management related administrative costs to vessel operating expenses as discussed under vessel operating expenses above.
Depreciation
and
amortization:
Depreciation and amortization increased by $3.6 million to $76.5 million for the year ended December 31, 2017
compared to $73.0 million in 2016 . This was primarily due to an increase of $15.5 million in depreciation expense in 2017 relating to the Golar
Tundra
. This
includes a $9.7 million depreciation catch up charge recognized upon the vessel ceasing to be classified as held-for-sale in March 2017.
This was partially offset by a decrease in depreciation and amortization of:
•
•
$5.7 million from the Golar
Penguin
and the Golar
Celsius
following the deconsolidation of Golar Power, and thus its fleet, from July 2016; and
$5.2 million from the Gimi
as she reached the end of her useful life at December 31, 2016.
Impairment
of
non-current
assets:
In December 31, 2016 , we realized an impairment charge amounting to $1.7 million related to equipment classified
as "Other non-current assets" due to the uncertainty of its future usage. During the year ended December 31, 2017 , there was no comparable amount.
60
Equity
in
net
earnings
of
affiliates:
(in
thousands
of
$)
2017
2016
Change
% Change
Equity in net earnings in Golar Partners
17,702
37,716
(20,014)
(53)%
December 31,
Net loss on deemed disposal of investments in Golar
Partners
Share of net earnings (loss) in other affiliates
(16,992)
793
1,503
—
(372)
37,344
(16,992)
1,165
(35,841)
100 %
(313)%
(96)%
The share of net earnings in Golar Partners represents our share of equity in Golar Partners. The decrease in the share of net earnings in Golar Partners is
as a result of a decrease in the underlying performance of Golar Partners in 2017. Our share of net earnings in Golar Partners is partially offset by a deemed loss on
disposal of $17.0 million in 2017, as a result of dilution in our holding in Golar Partners due to further issuances of common units by Golar Partners in February
2017. As of December 31, 2017, we held a 31.8% (2016: 33.9% ) ownership interest in Golar Partners (including our 2% general partner interest) and 100% of
IDRs.
FLNG segment
(in
thousands
of
$)
2017
2016
Change
% Change
December 31,
Total operating expenses
Unrealized gain on FLNG derivative instrument
Operating gain (loss)
(4,365)
15,100
10,735
(3,576)
—
(3,576)
(789)
15,100
14,311
22 %
100 %
(400)%
Equity in net loss of affiliates
(8,153)
—
(8,153)
100 %
Total
operating
expenses
: This relates to non-capitalized project related expenses comprising of legal, professional and consultancy costs.
Unrealized
gain
on
FLNG
derivative
instrument:
In 2017, we recognized a $15.1 million unrealized fair value gain relating to the Hilli
LTA embedded
derivative. This represents the fair value movements from the initial value ascribed to the derivative upon effectiveness of the LTA in December 2017 and the fair
value at the balance sheet date. See note 1 "General" of our Consolidated Financial Statements included herein for further details.
Equity
in
net
loss
of
affiliates:
Pursuant to the formation of OneLNG in July 2016, we account for our share of net losses in OneLNG.
FLNG
Conversions
Hilli
FLNG
conversion
In September 2014, the Hilli
was delivered to Keppel, in Singapore for commencement of her FLNG conversion. The Hilli
completed her conversion in
October 2017 and is currently undergoing commissioning. We expect acceptance testing procedures to commence shortly. Subsequent to acceptance, we will
commence recognition of revenue pursuant to the Hilli
LTA.
Power segment
In June 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power, with investment vehicles affiliated with the private equity
firm Stonepeak. The purpose of Golar Power is to offer integrated LNG based downstream solutions through the ownership and operation of FSRUs and associated
terminal and power generation infrastructure.
61
In October 2016, Golar Power took its Final Investment Decision on the Porto de Sergipe Project, enabling CELSE to enter into a lump sum full turn-key
EPC agreement with General Electric to build, maintain and operate the 1.5GW combined cycle power plant in Sergipe, Brazil. The power plant is currently under
construction and is scheduled to deliver power to 26 committed off-takers for 25 years from 2020.
(in
thousands
of
$)
2017
2016
Change
% Change
December 31,
Equity in net (losses) earnings of Golar Power
(18,798)
10,534
(29,332)
(278)%
Pursuant to the deconsolidation of Golar Power in July 2016, we have accounted for our remaining 50% ownership interest in Golar Power under the
equity method.
The share of net losses of Golar Power principally relates to trading activity of the Golar
Celsius
and the Golar
Penguin
operating as LNG carriers within
the Cool Pool arrangement (further described in note 29 "Related Parties" of our Consolidated Financial Statements included herein) and the results of operations
from Golar Power's Brazilian subsidiaries.
Our share of net earnings in Golar Power in 2016 of $10.5 million includes $21.9 million, being our share of the fair value remeasurement gain arising on
Golar Power’s 50% retained investment in the entity which holds the investment in the Sergipe Project. The recognition of this gain was triggered by Golar
Power’s step acquisition of the other 50% equity interest as held by the project developer, Genpower, in October 2016.
Other operating results
The following details our other consolidated results for the years ended December 31, 2017 and 2016:
December 31,
(in
thousands
of
$)
2017
2016
Change
% Change
Total other non-operating expense
Interest income
Interest expense
Other financial items, net
Income taxes
Net income attributable to non-controlling interests
(81)
5,890
(59,305)
20,627
(1,505)
(34,424)
(8,615)
2,969
(71,201)
8,691
589
(25,751)
8,534
2,921
11,896
11,936
(2,094)
(8,673)
(99)%
98 %
(17)%
137 %
(356)%
34 %
Total
other
non-operating
expense:
On July 6, 2016, we closed the disposal of a 50% ownership interest in Golar Power, the entity that owns and
operates Golar
Penguin
, Golar
Celsius
, newbuild Golar
Nanook
and LNG Power Limited, which holds the rights to participate in the Sergipe Project. This
resulted in the recognition of a loss of $8.5 million in 2016. There was no comparable amount in 2017.
Interest
income:
Interest income increased by $2.9 million to $5.9 million for the year ended December 31, 2017 , compared to $3.0 million for the same
period in 2016 due to returns on our fixed deposits that had been made in 2017, using the proceeds from our financing activities in the first quarter of 2017.
Interest
expense:
Interest expense decreased by $11.9 million to $59.3 million for the year ended December 31, 2017 compared to $71.2 million for the
same period in 2016 and is primarily due to higher capitalized interest on borrowing costs recognized in 2017 in respect of the Hilli
FLNG conversion and our
investment in Golar Power, as well as lower interest expense arising on the loan facilities of our lessor VIEs. This is partially offset by an increase of:
•
•
•
$8.2 million in interest expense in relation to the $402.5 million convertible bonds issued in February 2017, which replaced the old $250 million
convertible bonds that were repaid in early March 2017;
$6.0 million in interest expense from the $150.0 million margin loan that we entered into in March 2017; and
$13.1 million in interest expense from the additional $275 million drawn down on the Hilli
pre-delivery facility during 2017.
62
Other
financial
item
s :
Other financial items decreased by $11.9 million to a gain of $20.6 million for the year ended December 31, 2017 compared to a
gain of $8.7 million for the same period in 2016 as set forth in the table below:
(in
thousands
of
$)
2017
2016
Change
% Change
December 31,
Mark-to-market adjustment for interest rate swap derivatives
Interest expense on undesignated interest rate swaps
Net realized and unrealized gain (losses) on interest rate swap agreements
Mark-to-market adjustment for equity derivatives
Impairment of loan
Financing arrangement fees and other costs
Amortization of debt guarantee
Foreign exchange loss on operations
Other
6,614
(3,802)
2,812
16,622
—
(677)
1,548
(888)
1,210
20,627
2,818
(10,153)
(7,335)
24,819
(7,627)
(404)
1,563
(1,909)
(416)
8,691
3,796
6,351
10,147
(8,197)
7,627
(273)
(15)
1,021
1,626
11,936
135 %
(63)%
(138)%
(33)%
(100)%
68 %
(1)%
(53)%
(391)%
137 %
Net
realized
and
unrealized
gains
(losses)
on
interest
rate
swap
agreements
: Net realized and unrealized gains (losses) on interest rate swaps increased to
a gain of $2.8 million for the year ended December 31, 2017 from a loss of $7.3 million for the same period in 2016 . As of December 31, 2017 , we have an
interest rate swap portfolio with a notional amount of $1.3 billion, none of which are designated as hedges for accounting purposes. The improvement in the mark-
to-market position of our interest rate swaps is due to the increase in long-term swap rates for the year ended December 31, 2017 compared to prior year.
Mark-to-market
adjustment
for
equity
derivatives
(or
equity
swap):
In December 2014, we established a three month facility for a Stock Indexed Total
Return Swap Programme or Equity Swap Line with DNB Bank ASA in connection with a share buyback scheme. The facility has been subsequently extended to
June 2018. The equity swap derivatives mark-to-market adjustment resulted in a net gain of $16.6 million recognized in the year ended December 31, 2017
compared to a net gain of $24.8 million for the same period in 2016 . The gain in 2017, is due to the continued improvements in the Company's share price during
2017.
Impairment
of
loan:
Given the announcement of a negative final investment decision from the Douglas Channel Project consortium, we reassessed the
recoverability of the loan previously granted by Golar and accrued interest receivables from DCLAP, and concluded that DCLAP would not have the means to
satisfy its obligations under the loan. Accordingly, during the year ended December 31, 2016 , we recognized an impairment charge of $7.6 million. There was no
comparable amount for the year ended December 31, 2017.
Net
income
attributable
to
non-controlling
interests:
We are party to sale and leaseback arrangements for seven vessels with the lessor VIEs. While we
do not hold any equity investments in these lessor VIEs, we are the primary beneficiary. Accordingly, these lessor VIEs are consolidated into our financial results
and thus the equity attributable to the financial institutions in their respective variable interest entities are included in non-controlling interests in our consolidated
results.
Year ended December 31, 2016 , compared with the year ended December 31, 2015
The following details our consolidated revenues and expense information for the three segments for each of the years ended December 31, 2016 and 2015
:
63
Vessel operations segment
(in
thousands
of
$,
except
average
daily
TCE)
2016
2015
Change
% Change
December 31,
Total operating revenues
Vessel operating expenses
Voyage, charter-hire and commission expenses (including expenses from
collaborative arrangements)
Administrative expenses
Depreciation and amortization
Impairment of non-current assets
Gain on disposals to Golar Partners
Impairment of vessel held-for-sale
Other operating gains - LNG trading
Loss on disposal of vessel held-for-sale
Operating loss
80,257
(53,163)
(47,563)
(42,384)
(72,972)
(1,706)
—
—
16
—
(137,515)
102,674
(56,347)
(69,042)
(28,657)
(73,732)
(1,957)
102,406
(1,032)
—
(5,824)
(31,511)
(22,417)
3,184
21,479
(13,727)
760
251
(102,406)
1,032
16
5,824
(106,004)
(22)%
(6)%
(31)%
48 %
(1)%
(13)%
(100)%
(100)%
100 %
(100)%
336 %
Equity in net earnings of affiliates
37,344
55,985
(18,641)
(33)%
Other Financial Data:
Average Daily TCE (1) (to the closest $100)
Calendar days less scheduled off-hire days
10,100
4,034
14,900
4,481
(4,800)
(447)
(32)%
(10)%
(1) TCE is a non-GAAP financial measure. For a reconciliation of TCE rates, please see “Item 3. Key Information-A. Selected Financial Data."
Operating
revenues:
Operating revenues decreased by $22.4 million to $80.3 million for the year ended December 31, 2016 compared to $102.7 million
in 2015 . This was principally due to a decrease in revenue of:
•
•
•
•
•
•
•
•
$21.7 million from the Golar
Crystal
and Golar
Frost
following the conclusion of their charters with Nigeria LNG in March 2016 and their subsequent
entry into the Cool Pool;
$10.0 million from the Golar
Celsius
and Golar
Penguin
following the deconsolidation of Golar Power, and thus its fleet, from July 6, 2016;
$2.0 million from the Golar
Arctic
as she was mostly off-hire during the first quarter of 2016 prior to the commencement of her two year floating storage
unit charter on March 23, 2016 with an energy and logistics company in Jamaica;
$1.4 million from the Golar
Eskimo
relating to revenue earned prior to her disposal to Golar Partners in January 2015; and
$1.3 million from the Golar
Grand
relating to revenue earned prior to her being placed into cold lay-up in December 2015.
This was partially offset by an increase in revenue of:
$11.2 million in respect of six of our vessels (excluding the Golar
Crystal
and the Golar
Frost
) operating in the Cool Pool due to the overall increase in
utilization for these vessels in the period;
$1.0 million from the Golar
Tundra
relating to revenue earned from the WAGL time charter; and
$1.7 million to $14.2 million with respect to management fee income from the provision of services to Golar Partners under our management and
administrative services and fleet management agreements compared to $12.5 million for the same period in 2015.
The decrease of $4,800 in average daily TCE rate to $10,100 for 2016 compared to $14,900 in 2015 is primarily due to the overall decline in charter rates
and low utilization levels of our vessels in 2016.
Vessel
operating
expenses:
Vessel operating expenses decreased by $3.2 million to $53.2 million for the year ended December 31, 2016 , compared to
$56.3 million in 2015 . This was principally due to a decrease of:
64
•
•
•
•
•
$4.2 million in operating costs in relation to the Golar
Celsius
and Golar
Penguin
following the deconsolidation of Golar Power, and thus its fleet, from
July 6, 2016;
$2.7 million in operating costs in relation to our eight vessels operating in the Cool Pool;
$1.2 million in management fee costs due to our bringing in-house the technical operations;
$0.3 million from the Golar
Eskimo
in connection with her disposal to Golar Partners in January 2015; and
lower operating costs from our vessels in lay-up, namely the Gimi
, the Gandria
and the Golar
Viking
.
This was partially offset by an increase of $5.0 million of operating costs in relation to the Golar
Tundra
, which was delivered in November 2015.
Voyage,
charterhire
and
commission
expenses:
Voyage, charterhire and commission expenses largely relate to charterhire expenses and fuel costs
associated with commercial waiting time and vessel positioning costs. The decrease in voyage, charterhire and commission expenses of $21.5 million to $47.6
million for the year ended December 31, 2016 compared to $69.0 million in 2015 was primarily due to a decrease of:
•
•
•
•
$13.8 million in charterhire expense relating to the charter-back of the Golar
Eskimo
from Golar Partners. The charter-back arrangement with Golar
Partners was in connection with the disposal of the Golar
Eskimo
in January 2015, with the arrangement ending in June 2015. No comparable charterhire
expense was therefore recognized in 2016; and
$13.3 million in charterhire expense relating to the charter-back of the Golar
Grand
from Golar Partners. The charter-back arrangement was pursuant to
Golar Partners' exercise of its option in February 2015 under the Option Agreement executed in connection with the disposal of the vessel to Golar
Partners in 2012. In 2015 these costs included $8.8 million of incremental liability arising from the re-measurement of Golar's guarantee obligation to
Golar Partners. In addition, pursuant to entry of the Golar
Grand
into lay-up in December 2015, the daily charterhire rate was lowered to account for
operating costs savings.
This was partially offset by an increase of:
$1.4 million of voyage expense in relation to the Golar
Tundra
, which was delivered in November 2015; and
$3.3 million of voyage, charterhire and commission expense in relation to the Golar
Crystal
and Golar
Frost
following the conclusion of their charters
with Nigeria LNG in March 2016 and their subsequent entry into the Cool Pool.
Administrative
expenses:
Administrative expenses increased by $13.7 million to $42.4 million for the year ended December 31, 2016 compared to $28.7
million in 2015 . This was primarily due to an increase of (i) $7.0 million in salaries and benefits following an increase in headcount partly due to the bringing in-
house of technical operations; (ii) $2.0 million in professional fees as a result of increased projects and business expansion activities; (iii) $2.1 million in share
options expense pursuant to the grants in 2016; and (iv) partially offset by a decrease in administration expenses due to capitalization of certain costs directly
associated to the conversion of the Hilli
to a FLNG.
Depreciation
and
amortization:
Depreciation and amortization decreased by $0.8 million to $73.0 million for the year ended December 31, 2016
compared to $73.7 million in 2015 . This was primarily due to lower depreciation of $5.2 million from the Golar
Celsius
and Golar
Penguin
following the
deconsolidation of Golar Power from July 2016, and lower depreciation in relation to the Golar
Tundra
upon its classification as held-for-sale from December 31,
2015 upon which depreciation ceased to be recognized.
This was partially offset by an increase of:
•
•
$0.9 million from our newbuildings delivered in the first quarter of 2015 (i.e. Golar
Ice
, Golar
Kelvin
and Golar
Snow
); and
$3.7 million from the Golar
Viking
, which was sold on January 20, 2015 but subsequently reacquired on December 4, 2015, resulting in a full twelve
months' depreciation charge in 2016.
Impairment
of
non-current
assets:
In December 31, 2016 , we realized an impairment charge amounting to $1.7 million related to equipment classified
as "Other non-current assets" due to the uncertainty of its future usage. During the year ended December 31, 2015 , the impairment charge amounting to $2.0
million relates to parts initially ordered for the Golar
Spirit
FSRU retrofitting in 2007, which were not utilized following changes to the original project
specifications. Some of these parts were used in subsequent conversions, however, due to the deterioration in the market in 2015, the carrying value of the residual
parts were fully impaired.
65
Gain
on
disposals
to
Golar
Partners:
In January 2015, we sold 100% of our interests in the companies that own and operate the FSRU, the Golar
Eskimo
, to Golar Partners and recognized a gain on disposal of $102.4 million.
Impairment
of
vessel
held-for-sale:
In April 2015, we acquired the LNG vessel, LNG
Abuja
, for $20.0 million. In July 2015, she was sold to a third party
for $19.0 million. Accordingly, as of the reporting period ended June 30, 2015, the vessel was classified as held-for-sale and we recognized an impairment loss of
$1.0 million.
Loss
on
disposal
of
vessel
held-for-sale:
In February 2015, we sold the LNG carrier, Golar
Viking
, to PT Perusahaan Pelayaran Equinox, or Equinox, at
a sale price of $135.0 million resulting in a loss on disposal of $5.8 million. There was no comparable transaction in 2016.
Equity
in
net
earnings
of
affiliates:
(in
thousands
of
$)
Share of net earnings in Golar Partners
Gain on disposal of investments in Golar Partners
Share of net (loss) earnings in other affiliates
December 31,
2016
2015
Change
% Change
37,716
—
(372)
37,344
23,124
32,580
281
55,985
14,592
(32,580)
(653)
(18,641)
63 %
100 %
(232)%
(33)%
Our share of net earnings in Golar Partners is partially offset by a charge for the amortization of the basis difference in relation to the gain on loss of
control recognized on deconsolidation in 2012.
The net gain on disposal of investments in Golar Partners of $32.6 million relates to the disposal of 7.2 million common units in Golar Partners in January
2015.
FLNG segment
(in
thousands
of
$)
Total operating expenses
Operating loss
December 31,
2016
2015
Change
% Change
(3,576)
(3,576)
(4,869)
(4,869)
1,293
1,293
(27)%
(27)%
The net loss for FLNG in 2016 and 2015 amounted to $3.6 million and $4.9 million , respectively, which mainly relates to non-capitalized project related
expenses comprising of legal, professional and consultancy costs.
As of December 31, 2016 and 2015, the total costs incurred and capitalized in respect of the Hilli
conversion amounted to $732.0 million and $501.0
million, respectively.
Power segment
(in
thousands
of
$)
December 31,
2016
2015
Change
% Change
Equity in net (losses) earnings of affiliates
10,534
—
10,534
100%
Our share of net earnings in Golar Power includes $21.9 million, being our share of the fair value remeasurement gain arising on Golar Power’s 50%
retained investment in the entity which holds the investment in the Sergipe Project. The recognition of this gain was triggered by Golar Power’s step acquisition of
the other 50% equity interest as held by the project developer, Genpower, in October 2016. The balance principally relates to the trading activities of the Golar
Celsius
and the Golar
Penguin
operating as LNG carriers within the Cool Pool arrangement (see note 29 "Related Parties" of our Consolidated Financial
Statements included herein) and the results of operations from Golar Power's Brazilian subsidiaries.
Golar Power was formed in 2016 and thus had no comparable amounts for 2015.
66
Other operating results
The following details our other consolidated results for the years ended December 31, 2016 and 2015:
December 31,
(in
thousands
of
$)
2016
2015
Change
% Change
Total other non-operating expense
Interest income
Interest expense
Other financial items, net
Income taxes
Net income attributable to non-controlling interests
Net loss attributable to stockholders of Golar LNG Ltd
(8,615)
2,969
(71,201)
8,691
589
(25,751)
(186,531)
(27)
6,896
(68,793)
(112,722)
3,053
(19,158)
(171,146)
(8,588)
(3,927)
(2,408)
121,413
(2,464)
(6,593)
(15,385)
31,807 %
(57)%
4 %
(108)%
(81)%
34 %
9 %
Total
other
non-operating
expense:
The increase for the year ended December 31, 2016 , is mainly attributable to the loss on loss of control of Golar
Power, which resulted in a loss of $8.5 million.
Interest
income:
Interest income increased by $3.9 million to $3.0 million for the year ended December 31, 2016 compared to $6.9 million for the same
period in 2015 . The decrease was primarily due to:
•
•
the higher interest income recognized in 2015 from the $220 million Eskimo vendor loan provided to Golar Partners in January 2015 to partly finance its
acquisition of the Golar
Eskimo.
The Eskimo vendor loan was repaid in full in November 2015, thus there is no comparable interest income in 2016; and
the interest income earned on the loan facilities granted to Equinox in connection with their acquisition of the LNG carrier, Golar
Viking
, in February
2015. Following the impairment of the loan receivables in the third quarter of 2015, we ceased recognition of interest income. There was no comparable
interest income in 2016.
Interest
expense:
Interest expense decreased by $2.4 million to $71.2 million for the year ended December 31, 2016 compared to $68.8 million for the
same period in 2015 and is primarily due to higher capitalized interest on borrowing costs recognized in 2016 in respect of the Hilli
conversion. This is partially
offset by (i) higher interest expense arising on the loan facilities of our lessor VIEs; and (ii) additional interest on the new financing facility in connection with the
Golar
Viking
.
Other
financial
item
s :
Other financial items decreased by $121.4 million to a gain of $8.7 million for the year ended December 31, 2016 compared to a
loss of $112.7 million for the same period in 2015 as set forth in the table below:
(in
thousands
of
$)
2016
2015
Change
% Change
December 31,
Mark-to-market adjustment for interest rate swaps derivatives
Interest expense on undesignated interest rate swaps
Net realized and unrealized losses on interest rate swap agreements
Mark-to-market adjustments for equity derivatives
Impairment of loan
Financing arrangement fees and other costs
Amortization of debt guarantee
Foreign exchange loss on operations
Other
2,818
(10,153)
(7,335)
24,819
(7,627)
(404)
1,563
(1,909)
(416)
8,691
(12,798)
(15,797)
(28,595)
(67,925)
(15,010)
(1,841)
2,800
(2,126)
(25)
15,616
5,644
21,260
92,744
7,383
1,437
(1,237)
217
(391)
(112,722)
121,413
(122)%
(36)%
(74)%
(137)%
(49)%
(78)%
(44)%
(10)%
1,564 %
(108)%
67
Net
realized
and
unrealized
losses
on
interest
rate
swap
agreements
: Net realized and unrealized losses on interest rate swaps decreased to a loss of $7.3
million for the year ended December 31, 2016 from a loss of $28.6 million for the same period in 2015. As of December 31, 2016, we have an interest rate swap
portfolio with a notional amount of $1.3 billion, none of which are designated as hedges for accounting purposes. The decrease in mark-to-market losses from our
interest rate swaps is due to the increase in long-term swap rates for the year ended December 31, 2016.
Mark-to-market
adjustment
for
equity
derivatives
(or
equity
swap):
In December 2014, we established a three month facility for a Stock Indexed Total
Return Swap Programme or Equity Swap Line with DNB Bank ASA in connection with a share buyback scheme. The facility has been subsequently extended to
June 2017. The equity swap derivatives mark-to-market adjustment resulted in a net gain of $24.8 million recognized in the year ended December 31, 2016
compared to a net loss of $67.9 million for the same period in 2015. The gain in 2016, from a loss in 2015, is a reflection of the improvement in the company's
share price during 2016.
Impairment
of
loan:
Given the announcement of a negative final investment decision from the Douglas Channel Project consortium, we reassessed the
recoverability of the loan previously granted by Golar and accrued interest receivables from DCLAP, and concluded that DCLAP would not have the means to
satisfy its obligations under the loan. Accordingly, during the year ended December 31, 2016, we recognized an impairment charge of $7.6 million. For the year
ended December 31, 2015 we recognized a $15.0 million impairment loss on the loan receivable due from Equinox entered into in connection with the disposal of
the vessel, the Golar
Viking
, in February 2015.
Financing
arrangement
fees
and
other
costs:
The higher financing arrangement fees and other costs of $1.8 million in 2015 arose mainly from the
recognition of a $1.2 million counter-guarantee liability, wherein we had agreed to act as a guarantor for 49% of the maximum potential liability that Genpower
was exposed to after entering into an insurance agreement policy to cover the execution of the works for the implementation of the TPP Porto de Sergipe I Project
in Brazil. There is no comparable cost in 2016.
Amortization
of
debt
guarantee
: The amortization of debt guarantee of $1.6 million for the year ended December 31, 2016 decreased by $1.2 million
compared to the same period in 2015. This is primarily due the prior year ended December 31, 2015 including the release of our debt guarantee provision of $2.2
million pursuant to the refinancing of certain debt facilities in Golar Partners for which we had previously provided a guarantee.
Net
income
attributable
to
non-controlling
interests:
During 2016, we were party to sale and leaseback arrangements for six vessels (2015: five) with the
lessor VIEs. While we do not hold any equity investments in these lessor VIEs, we are the primary beneficiary. Accordingly, these lessor VIEs are consolidated
into our financial results and thus the equity attributable to the financial institutions in their respective variable interest entities are included in non-controlling
interests in our consolidated results.
B. Liquidity and Capital Resources
Liquidity and Cash Requirements
We operate in a capital intensive industry and we have historically financed the purchase of our vessels, conversion projects and other capital expenditures
through a combination of borrowings from debt transactions, leasing arrangements with financial institutions, cash generated from operations, sales of vessels to
Golar Partners and equity capital. Our liquidity requirements relate to servicing our debt, funding our conversion projects, funding investment in the development
of our project portfolio, including our affiliates, funding working capital, payment of dividends and maintaining cash reserves to satisfy certain of our borrowing
covenants (including cash collateral requirements in respect of certain of our derivatives and as security for the provision of letters of credit) and to offset
fluctuations in operating cash flows.
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 British Pounds, Singapore Dollars, Norwegian Kroners,
Euros and Central African CFA Franc. 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.
Our short-term liquidity requirements are primarily for the servicing of debt, working capital requirements, investments in Golar Power and OneLNG and
conversion project related commitments due within the next 12 months. The short-term outlook
68
in the LNG shipping market has improved over the last few months. Whilst certain challenges remain, 2017 demonstrated signs of a recovery, as anticipated, with a
general improvement in utilization and hire rates. Steady rates and charter activity continued into the new year, supported by strong underlying demand for LNG.
More recently, however, there has been a seasonal softening of rates and corresponding reductions in utilization. As such, the extent and the pace of the recovery
and the impact on the Company's results is unknown. Accordingly, we may require additional working capital for the continued operation of our vessels in the spot
market (via the Cool Pool). The need for additional working capital is dependent upon the employment of the vessels participating in the Cool Pool and fuel costs
incurred during idle time. We remain responsible for manning and technical management of our vessels in the Cool Pool. We estimate that total forecast vessel
operating expenses relating to our vessels in the Cool Pool for the next 12 months is $43.0 million, based on our historical average operating costs. Additionally,
we require a small amount of working capital for our vessel currently in lay-up.
As of April 6, 2018 , we have a fleet of 14 vessels, of which two vessels are on a medium-term charters, eight vessels are operating on the spot market (via
the Cool Pool), one vessel is operating on the spot market (outside of the Cool Pool), one vessel is in lay-up, one vessel entered Keppel’s shipyard in March 2018
to commence generic work in readiness for its conversion into a FLNG, and one vessel, the Hilli
, is undergoing commissioning activities. We expect acceptance
testing procedures to commence shortly.
As of December 31, 2017 , we had cash and cash equivalents (including short-term deposits) of $ 612.7 million , of which $ 397.8 million is restricted
cash. Included within restricted cash is $174.7 million in respect of the issuance of the letter of credit by a financial institution to our project partner involved in the
Hilli
FLNG project, $58.4 million cash collateral on our Total Return Swap, and the balance mainly relating to the cash belonging to Lessor VIEs that we are
required to consolidate under U.S. GAAP. Refer to note 18 "Restricted Cash and Short-term Deposits" of our Consolidated Financial Statements included herein
for additional details.
Since December 31, 2017 , significant transactions impacting our cash flows include:
Receipts:
•
receipt of $ 13.1 million in February 2018, in respect of cash distributions for the quarter ended December 31, 2017 , from Golar Partners in relation
to our interests in its common and general partner units held at the relevant record date, albeit $12.0 million was used to satisfy principal and interest
repayments on the Margin Loan Facility as a result of 20,852,291 of Golar Partners common units held by us being pledged as security for the
obligations under the facility; and
•
receipt of $9.8 million and $11.1 million in February 2018 and March 2018, respectively, pursuant to invoices issued in relation to the Hilli
LTA.
Payments:
•
•
•
additional capital contributions of $55.0 million, in aggregate, to Golar Power;
payments of $10.1 million, in aggregate, in cash distributions to our shareholders in January 2018 and April 2018 in respect of the quarters ended
September 30, 2017 and December 31, 2017, respectively; and
payment of scheduled loan and interest repayments.
A pre-condition of the Golar
Tundra
lease financing with CMBL (refer to note 5 "Variable Interest Entities" of our Consolidated Financial Statements
included herein) is for the FSRU to be employed under an effective charter. The recent termination of the WAGL charter by us means that we now have to find a
replacement charter by June 30, 2018 or we could be required to refinance the FSRU. A similar pre-condition also applies to the Golar
Seal
lease financing with
CCBFL (refer to note 5 "Variable Interest Entities" of our Consolidated Financial Statements included herein), whereby the vessel is to be employed under an
effective charter by December 31, 2018 or we could be required to refinance the LNG carrier. Accordingly, to address our anticipated working capital requirements
over the next 12 months, in the event we are unable to secure a charter for the Golar
Tundra
or the Golar
Seal
, we are currently exploring our refinancing options,
including extension of the lenders’ deadlines for satisfaction of such. While we believe we will be able to obtain the necessary funds from these refinancings, we
cannot be certain that the proposed new credit facilities will be executed in time or at all. However, we have a track record of successfully financing and
refinancing our vessels, even in the absence of term charter coverage. Recent successes include the refinancing of the Golar
Crystal
in March 2017. In addition to
vessel refinancings, if market and economic conditions are favorable, we may also consider further issuances of corporate debt or equity to increase liquidity, as
demonstrated by our convertible bond offering in February
69
2017, which raised net proceeds of $360.2 million. We also entered into a Margin Loan Facility in March 2017, which raised proceeds of $150 million.
With respect to our Golar Power joint venture with Stonepeak, under the shareholders' agreement, we and Stonepeak have agreed to contribute additional
funding to Golar Power, on a pro rata basis, including (i) an aggregate of approximately $150 million in the period through to the third quarter of 2018; and (ii)
additional amounts as may be required by Golar Power, subject to the approval of its board of directors. In connection with Golar Power’s election in October 2016
to increase its ownership interest in the Sergipe Project from 25% to 50% by buying out the project developer GenPower, this is expected to result in an additional
funding requirement of between $20 million to $50 million to be shared with Stonepeak, with the initial $20 million already paid.
In connection with our joint venture OneLNG, under the joint venture and shareholders' agreement with Schlumberger, once a OneLNG project reaches
final investment decision, we and Schlumberger will each be required to provide $250 million of new equity. Contributions to this new equity may include
intellectual property amongst other items. OneLNG and Ophir Energy ("Ophir") have signed a shareholders' agreement to develop a project in Equatorial Guinea.
The effectiveness of the shareholders' agreement is subject to certain conditions precedent including final investment decisions by OneLNG and Ophir, securing of
financing and governmental approval which may occur in the first half of 2018. Accordingly, we anticipate, in the event of a final investment decision, to fund the
estimated $2 billion project cost, assuming debt financing and Ophir’s investment of $150 million, OneLNG will be expected to invest approximately $650 million
(this is inclusive of the aggregate of $500 million new equity required under the OneLNG shareholders' agreement). The cash contribution from the Company to
the project remains uncertain as the timing of capital expenditure for the project is not yet finalized due to the payment profile of certain contracts continuing to be
negotiated. Furthermore, the amount of our contribution to the project within the next 12 months will be determined by the timing of the final investment decision,
which is yet to be taken. Our recent financings will contribute towards our 51% share of the equity contribution into OneLNG in the 2018 to 2020 period. Credit
can be expected for both the intellectual property and the LNG carrier Gandria
contributed by Golar into the Equatorial Guinea project.
We have performed stress testing of our forecast cash reserves under various theoretical scenarios, which include assumptions such as extremely prudent
revenue contributions from our fleet, full operating costs and maintaining our dividend payments based on our most recent pay out, and accordingly are confident
of our ability to manage through the near term cash requirements.
Medium
to
Long-term
Liquidity
and
Cash
Requirements
Our medium and long-term liquidity requirements are primarily for funding the investments for our conversion projects including investments into our
new joint ventures, Golar Power and OneLNG, as discussed above, and repayment of long-term debt balances. Sources of funding for our medium and long-term
liquidity requirements include new loans, refinancing of existing financing arrangements, public and private debt or equity offerings, potential sales of our interests
in our vessel owning subsidiaries operating under long-term charters (including that of the Hilli
), and potential use of our investment in the common units of Golar
Partners subject to adherence to certain debt covenant requirements as to the maintenance of minimum holdings.
In connection with the conversion of the Hilli
into a FLNG, we entered into the FLNG Hilli facility in September 2015. The FLNG Hilli facility is
designed to fund up to 80% of the project cost and is split into two phases: a pre-delivery credit facility and post-delivery sale and leaseback financing. The first
phase enables us to draw down up to 60% of the construction cost, however not more than $700 million, from the pre-delivery facility to fund the conversion. The
second phase is triggered upon the satisfaction of certain payment milestones under the LTA along with other conditions precedent contained in the FLNG Hilli
Facility, and will allow for the aggregate draw down of the lower of up to 80% of the construction cost (up to a maximum of $1.2 billion) or market value as
determined on acceptance date, however not more than an aggregate of $960 million. We expect that all remaining commissioning costs for the Hilli
will be
satisfied by this debt facility, but additional costs may arise. To date we have drawn down $640 million under the pre-delivery facility. As of December 31, 2017,
the outstanding capital commitments in relation to the Hilli
conversion was $ 146.8 million .
We have also executed FLNG conversion contracts for both the Gimi
and the Gandria
. As of the current date, we have not executed notices to proceed
for either vessel. As of December 31, 2017, we have made $21.0 million of advances in relation to the conversion of the Gimi
and $10.0 million for the Gandria
.
The Gimi
and the Gandria
conversion contracts provide the flexibility wherein certain beneficial cancellation provisions exist which, if exercised prior to contract
expiry, will allow termination of contracts and recovery of previous milestone payments, less cancellation fees. The Gimi
contract has recently been extended to
expire on December 30, 2018 and the Gandria
contract will expire on June 29, 2018. In view of the prevailing uncertainty in the energy markets and the delay in
the timing of the final investment decision of Ophir's Fortuna Project to mid-2018, we do not intend to accelerate the conversion of either vessel before satisfactory
financing and/or firm client contracts are in place.
70
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.
(in
millions
of
$)
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended December 31,
2017
2016
2015
47.1
(433.8)
377.3
(9.3)
224.2
214.9
(38.6)
(2.2)
159.7
119.0
105.2
224.2
(344.6)
(256.0)
514.4
(86.2)
191.4
105.2
In addition to our cash and cash equivalents noted above, as of December 31, 2017, we had restricted cash and short-term deposits of $397.8 million . The
restricted cash was comprised principally of (i) $174.7 million cash collateral deposited in connection with the issuance of a $300 million letter of credit by a
financial institution to our project partner involved in the Hilli
FLNG project; (ii) $58.4 million in relation to the cash collateral requirements in relation to our
Total Return Swap; (iii) $130.1 million held by the lessor VIE entities that we are required to consolidate under U.S. GAAP into our financial statements as VIEs
(see note 5 "Variable Interest Entities" of our Consolidated Financial Statements included herein for further details); and (iv) $33.8 million of cash deposits
required in connection with the financial covenant compliance related to the financing of three of our vessels.
Net
cash
provided
by
(used
in)
operating
activities
Cash provided by operating activities increased by $85.7 million to $47.1 million in 2017 compared to cash utilized of $38.6 million in 2016. The increase
in cash generated in 2017 was primarily due to:
•
•
•
•
the continued tightening of the LNG shipping market, which resulted in an overall increase in charter rates and higher utilization levels of our vessels
trading in the Cool Pool;
an increase of $9.1 million in 2017, compared to 2016, of cash collateral released in relation to the letter of credit issued to our project partner under the
Hilli
LTA;
lower charterhire payments relating to the charter-back of the Golar
Grand
from Golar Partners as a result of her drydocking in 2017 in addition to the
charter-back arrangement ending on November 1, 2017; and
improvement in the general timing of working capital in 2017 compared to the same period in 2016.
Cash utilized by operating activities decreased by $306.1 million to $38.6 million in 2016 compared to cash utilized of $344.6 million in 2015. The
decrease in cash utilized in 2016 was primarily due to:
•
•
•
in the prior year 2015, we made a net deposit of $280.0 million cash collateral in connection with the issuance of the $400 million letter of credit to our
project partner. In addition, during 2016, $48.1 million of cash collateral was returned to Golar;
a $10.4 million decrease in drydock expenditures in 2016 compared to the same period in 2015; and
improvement in the general timing of working capital in 2016 compared to the same period in 2015.
Net
cash
used
in
investing
activities
Net cash used in investing activities of $433.8 million in 2017 comprised mainly of:
•
•
milestone payments of $390.6 million relating to the FLNG conversion of the Hilli
; and
additional capital contributions of $111.0 million in respect of our investment in Golar Power.
71
This was partially offset by:
•
•
a deposit received of $70.0 million from Golar Partners in respect of the Hilli Sale Agreement in August 2017;
net cash inflows of $11.2 million from restricted cash primarily due to the decrease in cash collateral requirements provided against our Total Return
Swap.
Net cash used in investing activities of $2.2 million in 2016 comprised mainly of:
•
•
•
•
installment payments of $19.2 million in respect of Golar
Nanook
prior to her disposal to Golar Power;
milestone payments of $200.8 million relating to the FLNG conversion of the Hilli
;
payment of $10.2 million in respect of our investment in OneLNG; and
additions to vessels and equipment of $14.5 million .
This was partially offset by:
•
•
•
purchase consideration received of $107.2 million from Golar Partners in respect of the sale of the Golar
Tundra
in May 2016;
net purchase consideration received of $113.3 million from Stonepeak in respect of their acquisition of a 50% interest in Golar Power in July 2016;
and
net cash inflows of $22.9 million from restricted cash primarily due to the decrease in cash collateral requirements provided against our Total Return
Swap.
Net
cash
provided
by
financing
activities
Net cash provided by financing activities is principally generated from funds from new debt, debt refinancings, debt repayments and cash dividends. Net
cash provided by financing activities of $377.3 million in 2017 arose primarily due to proceeds of $928.4 million from our debt facilities, including:
•
•
•
•
$275.0 million drawn down on the FLNG Hilli facility in relation to the conversion of the Hilli
to a FLNG;
$112.0 million of debt proceeds in connection with our refinancing of the Golar
Crystal
debt facility (see note 5 “Variable Interest Entities” of our
Consolidated Financial Statements included herein);
$150.0 million of debt proceeds from the Margin Loan Facility entered into in March 2017; and
$391.4 million of debt proceeds from the new convertible bond which closed in February 2017.
This was partially offset by:
•
•
•
•
loan repayments of $446.6 million , which includes the settlement of the balance outstanding on the refinanced Golar
Crystal
facility of $101.3
million in March 2017 as well as the buyback of the old convertible bond, which matured in March 2017, amounting to $219.7 million;
payment of $31.2 million for capped call transactions entered into in conjunction with the issuance of the new convertible bond mentioned above;
payment of dividends of $20.4 million ; and
net cash outflows of $50.1 million relating to restricted cash balances held by our lessor VIEs as well as the cash collateral requirements with respect
to the $1.125 billion debt facility.
Net cash provided by financing activities of $ 159.7 million in 2016 arose primarily due to proceeds from our debt facilities, including:
•
•
•
$200 million drawn down on the FLNG Hilli facility in relation to the conversion of the Hilli
to a FLNG;
$205.8 million of debt proceeds which refers to amounts drawn down by our lessor VIEs under their respective loan arrangements (see note 5
“Variable Interest Entities” of our Consolidated Financial Statements included herein), in connection with our refinancing of the Golar
Seal
debt
facility amounting to $162.4 million, the releveraging of the Golar
Tundra
lease by $25.5 million and the balance of $17.9 million relating to short-
term debt proceeds arising in the ICBCL lessor VIEs; and
proceeds of $169.9 million in relation to a registered equity offering which was closed in November 2016.
72
This was partially offset by:
•
•
•
•
loan repayments of $271.9 million , which includes the settlement of the balance outstanding on the refinanced Golar
Seal
facility of $106.6 million
in March 2016;
payment of dividends of $54.3 million ;
net cash outflows of $74.6 million relating to restricted cash balances held by our lessor VIEs as well as the cash collateral requirements with respect
to the $1.125 billion debt facility; and
purchases of our common shares at an aggregate cost of $8.2 million .
Borrowing Activities
As of December 31, 2017, we had total outstanding borrowings, gross of capitalized borrowing costs, of $2.4 billion, secured by, among other things, our
vessels, our ownership in Golar Partners, and unsecured convertible bonds outstanding of $340.2 million. Please refer to note 23 "Debt" of our Consolidated
Financial Statements included herein for further detailed information on our borrowings as of December 31, 2017 as well as note 32 “Subsequent Events” of our
Consolidated Financial Statements included herein for further detailed information on our borrowing activities since January 1, 2018.
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 have also entered into equity derivative swaps, Total Return Swap Agreements, or TRS, in line with our share repurchase program.
Interest
rate
swap
agreement
As of December 31, 2017, we have interest rate swaps with a notional amount of $1.3 billion representing approximately 51.8% of our total debt. Our
swap agreements have expiration dates between 2018 and 2021 and have fixed rates of between 1.13% and 1.94%. The total unrealized gain recognized in the
consolidated statement of operations relating to our interest rate swap agreements in 2017 was $6.6 million .
Total
Return
Swap
agreement
In December 2015 we entered into a Total Return Swap agreement, or TRS, related to 3.0 million of our common shares, which is indexed to our own
common shares. In addition, we entered into a forward contract for the acquisition of 107,000 shares in Golar Partners at a price of $19.75. The total
unrealized gain recognized in the consolidated statement of operations relating to our TRS agreement in 2017 was $16.6 million .
The settlement amount for the TRS transaction will be (A) the market value of the shares at the date of settlement plus all dividends paid by the Company
between entering into and settling the contract, less (B) the reference price of the shares agreed at the inception of the contract plus the counterparty's financing
costs. Settlement will be either a payment by the counterparty to us, if (A) is greater than (B), or a payment by us to the counterparty, if (B) is greater than (A).
There is no obligation for us to purchase any shares under the agreement and this arrangement has been recorded as a derivative transaction, with the fair value of
the TRS recognized as an asset or liability as appropriate, and changes in fair values recognized in the consolidated statement of operations.
In addition to the above TRS transaction, we may from time to time enter into short-term TRS arrangements relating to securities in other companies. The
above TRS transactions were our only TRS agreements as of December 31, 2017.
Hilli
LTA
Following the Hilli
LTA becoming effective in December 2017, and on commencement of the commissioning activities, we recognized a derivative asset
("day one gain") of $79.6 million , representing the fair value of the estimated discounted cash flows of payments due to us as a result of the Brent Crude price
moving above the contractual floor of $60.00 per barrel over the contract term. The derivative asset is subsequently remeasured to fair value at each balance sheet
date. The fair value as of December 31, 2017 was $94.7 million and, as a result, the total unrealized gain recognized in the consolidated statement of operations
relating to this this derivative was $15.1 million .
73
Foreign
currencies
The majority of our gross earnings are receivable in U.S. dollars. The majority of our transactions, assets and liabilities are denominated in U.S. dollars,
our functional currency. However, we also incur a small portion of expenditure in other currencies. We are affected by foreign currency fluctuations primarily
through 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 Kroner, Singaporean Dollars,
Central African CFA Franc and, to a lesser extent, British Pounds.
Capital Commitments
FLNG
conversion
Our FLNG conversion commitments is described in Item 18 - Financial Statements: note 30, "Capital Commitments".
Critical Accounting Policies and Estimates
The preparation of our 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 us that are considered to involve a higher
degree of judgment in their application. See note 2 "Accounting Policies" of our Consolidated Financial Statements included herein.
Revenue
and
related
expense
recognition
Revenues include minimum lease payments under time charters, fees for repositioning vessels and gross pool revenues. Revenues generated from time
charters, which we classify as operating leases, are recorded over the term of the charter as service is provided. However, we do not recognize revenue if a charter
has not been contractually committed to by a customer and ourselves, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its
next voyage.
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.
Revenues generated from management fees are recorded rateably over the term of the contract as services are provided.
Under time charters, voyage expenses are generally paid by our 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.
Vessel operating expenses, which are recognized when incurred, include crewing, repairs and maintenance, insurance, stores, lube oils, communication
expenses and third party management fees. Bunkers consumption represents mainly bunkers consumed during unemployment and off-hire. Furthermore, in relation
to our vessels participating in the pool, voyage expenses and commissions from collaborative arrangements include an allocation of our net results from the pool to
the other participants. Each participants' share of the net pool revenues is based on the number of pool points attributable to its vessels and the number of days such
vessels participated in the pool.
Pool revenues and expenses under the Cool Pool arrangement have been accounted for in accordance with the guidance for collaborative arrangements.
Accordingly, we have presented our share of the net income earned under the cool pool arrangement across a number of line items in the income statement. For net
revenues and expenses incurred relating specifically to Golar’s vessels and for which we are deemed the principal, these will be presented gross on the face of the
income statement in the line items "Time and voyage charter revenues" and "Voyage, charter-hire and commission expenses". For pool net revenues generated by
the other participants in the pooling arrangement, these will be presented separately in the income statement in revenue from collaborative arrangements.
74
Vessels
and
impairment
Description:
We review vessels and equipment for impairment whenever events or circumstances indicate the carrying value of the vessel may not be
fully recoverable. When such events or circumstances are present, we assess recoverability by comparing the vessel's projected undiscounted net cash flows to its
carrying value. If the total projected undiscounted net cash flows is lower than the vessel’s carrying value, we recognize an impairment loss measured as the excess
of the carrying amount over the fair value of the vessel. As of December 31, 2017 , for seven of our vessels (refer to note 9 "Impairment of Non-current Assets" of
our Consolidated Financial Statements included herein), the carrying value was higher than their estimated market values (based on third party ship broker
valuations). As a result, we concluded that an impairment trigger existed and so performed a recoverability assessment for each of these vessels. However, no
impairment loss was recognized as, for each of these vessels, the projected undiscounted net cash flows was significantly higher than its carrying value.
Judgments
and
estimates
: The cash flows on which our assessment of recoverability is based is highly dependent upon our forecasts, which are highly
subjective and, although we believe the underlying assumptions supporting this assessment are reasonable and appropriate at the time they were made, it is
therefore reasonably possible that a further decline in the economic environment could adversely impact our business prospects in the next year. This could
represent a triggering event for a further impairment assessment.
Accordingly, the principal assumptions we have used in our recoverability assessment (i.e projected undiscounted net cash flows basis) included, among
others, charter rates, ship operating expenses, utilization, drydocking requirements and residual value. These assumptions are based on historical trends but
adjusted for future expectations. Specifically, forecasted charter rates are based on information regarding current spot market charter rate (based on a third party
valuation), option renewal rate with the existing counterparty or existing long-term charter rate, in addition to industry analyst and broker reports. Estimated
outflows for operating expenses and drydockings are based on historical costs adjusted for assumed inflation.
Effect
if
actual
results
differ
from
assumptions
: Although we believe the underlying assumptions supporting the impairment assessment are reasonable, if
charter rate trends and the length of the current market downturn vary significantly from our forecasts, management may be required to perform step two of the
impairment analysis that could expose us to material impairment charges in the future. Our estimates of vessel market values may not be indicative of the current or
future market value of our vessels or prices that we could achieve if we were to sell them and a material loss might be recognized upon the sale of our vessels.
Vessel
market
values
Description
: Under "Vessels and impairment", we discuss our policy for assessing impairment of the carrying values of our vessels. During the past few
years, the market values of certain vessels in the worldwide fleet have experienced particular volatility, with substantial declines in many vessel classes. There is a
future risk that the market value of certain of our vessels could decline below those vessels' carrying value, even though we would not recognize an impairment for
those vessels due to our belief that projected undiscounted net cash flows expected to be earned by such vessels over their operating lives would exceed such
vessels' carrying amounts.
Judgments
and
estimates
: Our estimates of market value assume that our vessels are all in good and seaworthy condition without need for repair and, if
inspected, would be certified in class without notations of any kind. Our estimates for our LNG carriers and FSRUs are based on approximate vessel market values
that have been received from third party ship brokers, which are commonly used and accepted by our lenders for determining compliance with the relevant
covenants in our credit facilities. Vessel values can be highly volatile, such that our estimates may not be indicative of the current or future market value of our
vessels or prices that we could achieve if we were to sell. In addition, the determination of estimated market values may involve considerable judgment given the
illiquidity of the second hand market for these types of vessels.
Furthermore, in relation to the vessels, the Gimi
and the Gandria
, whilst they have been earmarked for conversion into FLNG vessels, for consistency
with the methodology applied in our impairment review, estimated vessel market values for these vessels is on the basis they operate as LNG carriers/FSUs.
Effect
if
actual
results
differ
from
assumptions
: As of December 31, 2017 , while we intend to hold and operate our vessels, were we to hold them for
sale, we have determined the fair market value of our vessels, with the exception of the seven vessels, were greater than their carrying value. With respect to these
seven vessels, the carrying value of these vessels exceeded their aggregate market value. However, as discussed above, for each of these vessels, the carrying value
was less than its projected undiscounted net cash flows, consequently, no impairment loss was recognized.
75
Consolidation
of
lessor
VIE
entities
Description
: As of December 31, 2017 , we leased seven vessels under finance leases from wholly-owned special purpose vehicles (“lessor SPVs”) of
financial institutions in connection with our sale and leaseback transactions. While we do not hold any equity investments in these lessor SPVs, we have
determined that we are the primary beneficiary of these entities and accordingly, we are required to consolidate these variable interest entities (“VIEs”) into our
financial results. The key line items impacted by our consolidation of these VIEs are short-term and long-term debt, restricted cash and short-term deposits and
interest expense.
Judgments
and
estimates
: In consolidating these lessor VIEs, on a quarterly basis, we must make assumptions regarding the debt amortization profile and
the interest rate to be applied against the VIEs’ debt principle. Our estimates are therefore dependent upon the timeliness of receipt and accuracy of financial
information provided by these lessor VIE entities. Upon receipt of the audited annual financial statements of the lessor VIEs, we will make a true-up adjustment for
any material differences.
Effect
if
actual
results
differ
from
assumptions
: If audited financial statements of the lessor VIE are not available upon filing of the annual financial
statements, there might be differences between the numbers included in our Consolidated Financial Statements and that reported by the VIE, which could be
material.
Exchange
of
Incentive
Distribution
Rights
“IDR
Reset”
Description
: On October 13, 2016, we entered into an equity exchange agreement with Golar Partners in which we reset our rights to receive cash
distributions in respect of our interests in the incentive distribution rights, or Old IDRs, in exchange for the issuance of (i) New IDRs, (ii) an aggregate of 2,994,364
common units and 61,109 general partner units, and (iii) an aggregate of up to 748,592 additional common units and up to 15,278 additional general partner units
that may be issued if target distributions are met (“the Earn-Out Units”). Half of the Earn-Out Units (“first tranche”) will vest if we pay a distribution equal to or
greater than $0.5775 per common unit in each of the quarterly periods ended December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017. The
remaining Earn-Out Units (“second tranche”) will be issued if the first tranche of the Earn-Out Units vest and we pay a distribution equal to $0.5775 per common
unit in the periods ending December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018.
The New IDRs result in the minimum distribution level increasing from $0.3850 per common unit to $0.5775 per common unit. The fair value of the Old
IDRs was not materially different to the fair value of all of the newly issued instruments.
Analogizing to the step acquisition guidance in ASC 323 (Investments - Equity Method and Joint Ventures) we calculated a new basis difference on the
new units that were issued as part of the equity exchange.
Furthermore, we applied "carry over" accounting under the remit of the guidance of ASC 845 (Non-monetary Transactions) and determined that the Earn-
Out Units met the definition of a derivative.
The overall effect of the IDR Reset on the transaction date was (i) a reclassification of the initial fair value of the derivative from “Investment in
affiliates” to “Other non-current assets” of $15.0 million, and (ii) the residual carrying value of the Old IDRs (after reclassification of the derivative fair value) was
reallocated across the new instruments on a relative fair value basis.
Having satisfied the minimum quarterly distribution in respect of these quarters, Golar Partners issued to Golar 374,295 common units and 7,639 general
partner units on November 15, 2017.
Judgments
and
estimates
: The fair value of the Earn-Out Units was determined using a Monte-Carlo simulation method. This simulation was performed
within the Black Scholes option pricing model then solved via an iterative process by applying the Newton-Raphson method for the fair value of the earn out units,
such that the price of a unit output by the Monte Carlo simulation equaled the price observed in the market. The method took into account the historical volatility,
dividend yield as well as the share price of the Golar Partner common units as of the IDR reset date and at balance sheet date.
Effect
if
actual
results
differ
from
assumptions
: Changes in the share price of the Partnership's common units might impact the historical volatility
assumption, and in turn, the valuation of our Earn-Out Units and result in material gains or losses in the future.
Recently Issued Accounting Standards
See Item 18. Financial Statements: note 3 "Recently Issued Accounting Standards".
76
C. Research and Development, Patents and Licenses
Not applicable.
D. Trend Information
Please see the section of this item entitled "- Market Overview and Trends" and "Item 4. Information on the Company - B. Business Overview - The
Natural Gas Industry."
E. Off-Balance Sheet Arrangements
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, 2017 :
Total
Due in 2019 –
Due in 2021 –
(in
millions
of
$)
Long-term and short-term debt (1)
Obligation
Due in 2018
2,434.9
1,393.2
Interest commitments on long-term debt and other interest rate
swaps (2)
Operating lease obligations (3)
Purchase obligations:
Egyptian Venture (4)
FLNG conversion (5)
Other non-current liabilities (6)
Total
245.2
5.3
—
146.8
—
77.4
1.4
—
146.8
—
2020
330.1
69.8
2.4
—
—
—
2022 Due Thereafter
450.3
261.2
53.0
1.5
—
—
—
45.0
—
—
—
—
2,832.1
1,618.8
402.3
504.8
306.2
(1) The obligations under long-term and short-term debt above are presented gross of deferred finance charges and exclude interest.
(2) Our interest commitment on our long-term debt is calculated based on assumed LIBOR rates of between 1.44% to 3.04% and take into account our
various margin rates and interest rate swaps associated with each financing arrangement.
(3) We are committed to making rental payments under operating leases for office premises.
(4) As at December 31, 2017, 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 the Egyptian Natural Gas Holding Company, or 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.
(5) This refers to our committed costs for the completion of the conversion of the Hilli
into a FLNG. It does not include the Gimi
and the Gandria
since
these vessels, as at December 31, 2017, had not yet entered into conversion and had not delivered their notices to proceed, among other conditions.
77
(6) Our Consolidated Balance Sheet as of December 31, 2017, includes $132.5 million classified as "Other non-current liabilities" of which $72.1 million
represents the FLNG deferred revenue, being the corresponding liability upon initial recognition of the LTA derivative asset, $37.5 million represents
liabilities under our pension plans, $11.4 million represents other guarantees provided to Golar Partners and represents the fair value of the costs to
decommission the mooring to which the Hilli
will be attached for the duration of the contract in Cameroon. These liabilities have been excluded from
the above table as the timing and/or the amount of any cash payment is uncertain or in the case of the derivative, this represents deferred revenue. See
note 24 ''Other Non-current Liabilities'' of our Consolidated Financial Statements included herein for additional information regarding our other non-
current liabilities.
For details of the Company's outstanding legal proceedings and claims, please see note 31 "Other Commitments and Contingencies" of our Consolidated
Financial Statements included herein.
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
Directors
The following provides information about each of our directors as of April 6, 2018 .
Name
Tor Olav Trøim
Daniel Rabun
Fredrik Halvorsen
Carl Steen
Niels Stolt-Nielsen
Lori Wheeler Naess
Michael Ashford
Age
Position
55
63
44
67
53
47
71
Chairman of our Board of Directors and Director
Director, Audit Committee member and Nomination Committee member
Director
Director, Audit Committee member, Compensation Committee member and Nomination Committee
member
Director and Compensation Committee member
Director and Audit Committee Chairperson
Director and Company Secretary
Tor
Olav
Trøim
has served as a director of the Company since September 2011 and appointed as the Chairman of the Board in September 2017. Mr.
Trøim previously served as a director and vice-president of the Company from its incorporation in May 2001 until October 2009, after which time he served as a
director and Chairman of the Company's listed subsidiary, Golar LNG Energy Limited. Mr. Trøim graduated with a M.Sc Naval Architect from the University of
Trondheim, Norway in 1985. He was formerly an Equity Portfolio Manager with Storebrand ASA (1987-1990), and Chief Executive Officer for the Norwegian Oil
Company DNO AS (1992-1995). Mr. Trøim was a director of Seatankers Management in Cyprus from 1995 until September 2014. Mr. Trøim also served as a
director and Chairman of ITCL, a director of Seadrill Limited, Golden Ocean Group Limited, Golden State Petro (IOM I-A) Plc, Archer Limited, Golar LNG
Partners LP, Seadrill Partners LLC and as an alternate director of Frontline Ltd until September 2014. He currently holds controlling interests in Magni Partners
Bermuda and Magni Partners UK. He also serves as a director in Stolt-Nielsen Limited, Borr Drilling and Valerenga Football Club.
Daniel
Rabun
has served as a director since February 2015 and was appointed Chairman in September 2015. Mr. Rabun resigned as Chairman in
September 2017 and was appointed a non-executive director on that date. He also serves on our Audit Committee and Nomination Committee. He joined Ensco in
March 2006 as President and as a member of the Board of Directors. Mr. Rabun was appointed to serve as Ensco's Chief Executive Officer from January 1, 2007
and elected Chairman of the Board of Directors in 2007. Mr. Rabun retired from Ensco in May 2014. Prior to joining Ensco, Mr. Rabun was a partner at the
international law firm of Baker & McKenzie LLP where he had practiced law since 1986. In May 2015, Mr. Rabun became a member of the Management
Development and Compensation Committee of Apache Corporation. He has been a Certified Public Accountant since 1976 and a member of the Texas Bar since
1983. Mr. Rabun holds a Bachelor of Business Administration Degree in Accounting
78
from the University of Houston and a Juris Doctorate Degree from Southern Methodist University. Mr. Rabun serves as a non-exective director of Apache
Corporation.
Fredrik
Halvorsen
has served as a director since February 2015. He is the founder of Ubon Partners, a private investment company focused on
technology and growth companies, and chairman of Acano, one of its core holdings. He was CEO and President of Seadrill Management UK from October 2012
until July 2013 and also worked for Frontline Corporate Services Ltd from October 2010 until July 2013. Prior to this, Mr. Halvorsen held various roles including
CEO of Tandberg ASA (until the Company was sold to Cisco Systems), senior positions at Cisco Systems Inc. as well as at McKinsey & Company.
Carl
Steen
has served as a director since January 2015 and currently serves on our Audit Committee, Compensation Committee and Nomination
Committee. He has also served on Golar Partners' board of directors since his appointment in August 2012. Mr. Steen graduated in 1975 from ETH Zurich
Switzerland with a M.Sc in Industrial and Management Engineering. After working for a number of high profile companies, Mr. Steen joined Nordea Bank from
January 2001 to February 2011 as head of the bank’s Shipping, Oil Services & International Division. Mr. Steen holds directorship positions in various Norwegian
and international companies including Euronav NV, Wilh Wilhelmsen Holding ASA and Belships ASA.
Niels
Stolt-Nielsen
has served as a director since September 2015 and also serves on our Compensation Committee. Mr. Stolt-Nielsen is a shareholder in Stolt-
Nielsen Limited, and has served as a director of Stolt-Nielsen Limited since 1996 and as Chief Executive Officer since 2000. He served as Interim Chief Executive
Officer of Stolt Offshore S.A. from September 2002 until March 2003. He was the President of Stolt Sea Farm from 1996 until 2001. He has served as Chairman of
Avance Gas Holding Ltd. since 2010. Mr Stolt-Nielsen graduated from Hofstra University in 1990 with a BS degree in Business and Finance. Mr Stolt-Nielsen
brings with him extensive shipping, customer relations and logistical experience.
Lori
Wheeler
Naess
was appointed as a director and Audit Committee Chairperson in February 2016. Ms Naess was most recently a director with
PricewaterhouseCoopers in Oslo and was a Project Leader for the Capital Markets Group. Between 2010 and 2012 she was a Senior Advisor for the Financial
Supervisory Authority in Norway and prior to this she was also with PricewaterhouseCoopers in roles in the U.S., Norway and Germany. Ms Naess is a U.S.
Certified Public Accountant.
Michael
Ashford
served as Company Secretary from October, 2016 before being appointed to the Board in September, 2017. Mr Ashford is a Chartered
Secretary and is a current member and Past President of the International Council of the Institute of Chartered Secretaries and Administrators. Mr Ashford has
previously held various directorship and company secretary positions in shipping and aviation companies.
Executive Officers
The following provides information about each of our executive officers as of April 6, 2018 .
On March 19, 2018, Graham Robjohns replaced Brian Tienzo as our Chief Financial Officer. In addition, Mr. Robjohns assumed the role of Deputy Chief
Executive Officer of Golar. Previously, Mr. Robjohns served as Golar Partners' Principal Executive Officer since July 2011. Mr. Tienzo will serve as the Principal
Executive Officer of Golar Partners and will continue to serve as the Principal Financial Officer and Principal Accounting Officer of Golar Partners.
Name
Iain Ross
Graham Robjohns
Øistein Dahl
Hugo Skår
Age
Position
56
53
57
50
Chief Executive Officer – Golar Management
Deputy Chief Executive Officer and Chief Financial Officer – Golar Management
Chief Operating Officer – Golar Management Norway
Chief Technical Officer – Golar Management
Iain
Ross
has served as Chief Executive Officer since September 21, 2017. Between 2002 and joining Golar, Mr. Ross held various executive level
positions with project delivery firm WorleyParsons Limited. Positions included Group Managing Director, Development, an ExCo position with responsibility for
leadership of the Global Hydrocarbons, Power, Infrastructure and Mining Sectors, the development of the group Strategy, Mergers & Acquisitions (including
integration of acquired companies) and, finally, as leader of their Digital Technology start-up. Mr. Ross has a bachelor's degree in Mechanical Engineering from
Heriot-Watt University, is a Fellow of Engineers Australia and certified International Director from INSEAD.
79
Graham
Robjohns
was appointed as our Deputy Chief Executive Officer and Chief Financial Officer in March 2018. Between July 2011 and March
2018, Mr. Robjohns acted as Golar Partners' Principal Executive Officer and, from April 2011 to July 2011, as their Chief Executive Officer and Chief Financial
Officer. Mr. Robjohns also served as Chief Executive Officer for Seadrill Partners LLC from June 2012 to August 2015. He has served as a director of Seadrill
Partners LLC since 2012. Mr. Robjohns served as the Chief Financial Officer of Golar from November 2005 until June 2011. Mr. Robjohns also served as Chief
Executive Officer of Golar from November 2009 until July 2011. Mr. Robjohns served as Group Financial Controller of Golar Management from May 2001 to
November 2005 and as Chief Accounting Officer of Golar Management from June 2003 until November 2005. He was the Financial Controller of Osprey
Maritime (Europe) Ltd from March 2000 to May 2001. From 1992 to March 2000, Mr. Robjohns 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, Mr. Robjohns worked
for PricewaterhouseCoopers in their corporation tax department. He is a member of the Institute of Chartered Accountants in England and Wales.
Øistein
Dahl
has served as Managing Director of Golar Management Norway (previously Golar Wilhelmsen) since September 2011 and as Chief
Operating Officer of Golar Management since April 2012. Prior to September 2011, he worked for the Leif Höegh & Company Group (roll-on roll-off, tank, bulk,
reefer general cargo and LNG vessels). He held various positions within the Höegh Group of companies within vessel management, newbuildings and projects, as
well as business development before becoming President for Höegh Fleet in October 2007, a position he held for four years. Mr. Dahl has also worked within
offshore engineering and with the Norwegian Class Society, DNV-GL. Mr. Dahl has a M.Sc degree from the NTNU technical university in Trondheim, Norway.
Hugo Skår has served as Vice President, Project Management for Golar Management since 2004 and became Chief Technical Officer in 2009. Mr. Skår
has been responsible for our successful FSRU conversion projects. Mr. Skår has a MSc degree in Naval Architecture. He worked for nine years at Bergesen
(Newbuilding & Project Division) and has extensive experience from newbuilding supervision and VLCC conversions to floating production storage offshore.
From 2001 to 2004, he served as Site Manager and Project Manager for the construction of Bergesen's new LNG carriers.
B. Compensation
For the year ended December 31, 2017 , we paid to our directors and executive officers aggregate cash compensation (including bonus) of $3.9 million
and an aggregate amount of $0.1 million for pension and retirement benefits. During the year ended December 31, 2017, we granted options covering 0.4 million
common shares at a weighted average exercise price of $23.08 with an expiration date of 2022. For a description of our stock option plan please refer to the section
of this item entitled "E. Share Ownership - Option Plan" below.
In addition to cash compensation, during 2017 we also recognized an expense of $1.9 million relating to stock options issued to certain of our directors
and employees. See note 26 “Share Capital and Share Options” of our Consolidated Financial Statements included herein.
C. Board Practices
Our directors do not have service contracts with the Company and do not receive any benefits upon termination of their directorships. Our board of
directors 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 three members, Lori Wheeler Naess, Daniel Rabun and Carl Steen who are all
Company directors. In addition, the board of directors also has compensation and nominations committees, details of which are further described in "Item 16G.
Corporate Governance".
Our board of directors is elected annually at the annual general meeting. Officers are appointed from time to time by our board of directors and hold office
until a successor is elected.
As a foreign private issuer we are exempt from certain Nasdaq requirements 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.
80
D. Employees
As of December 31, 2017 , we employed approximately 180 people in our offices in Cameroon, Croatia, London, Malaysia and Oslo. We also employ
approximately 619 seagoing employees. These employees serve both Golar and Golar Partners.
E. Share Ownership
The table below shows the number and percentage of our issued and outstanding common shares beneficially owned by our directors and officers as of
April 6, 2018 . Also shown are their interests in share options awarded to them under our various share option schemes. The subscription price for options granted
under the schemes will normally be reduced by the amount of all dividends declared by us in the period from the date of grant until the date the option is exercised.
81
Director
or
Officer
Beneficial
Ownership
in
Common
Shares
Interest
in
Options
Tor Olav Trøim
Number of shares
5,233,953 (1)
%
5.18%
Daniel Rabun
Fredrik Halvorsen
*
*
*
*
Carl Steen
—
—
Niels Stolt-Nielsen
2,421,313 (2)
2.39%
Lori Wheeler Naess
—
—
Michael Ashford
Iain Ross
Graham Robjohns
—
—
—
—
—
—
Øistein Dahl
*
*
Hugo Skår
—
—
Total
number of
options
Exercise price
Expiry date
8,251
2,750
150,000
5,310
103,970
11,840
75,000
11,905
3,950
5,310
3,970
3,950
5,310
3,970
3,950
5,310
3,970
3,950
5,310
3,970
3,950
3,950
300,000
17,003
16,502
45,000
4,600
29,250
11,200
25,000
75,000
6,100
50,000
8,400
100,000
6,100
50,000
8,400
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.18
1.18
55.80
21.35
27.06
27.52
21.35
27.06
27.52
21.35
27.06
27.52
21.35
27.06
27.52
21.35
27.06
27.52
21.35
27.06
27.52
27.52
21.13
5.18
1.18
55.80
55.80
23.20
27.52
24.15
55.80
55.80
23.20
27.52
55.80
55.80
23.20
27.52
2018
2018
2019
2021
2022
2023
2021
2022
2023
2021
2022
2023
2021
2022
2023
2021
2022
2023
2021
2022
2023
2023
2022
2018
2018
2019
2020
2021
2023
2018
2019
2020
2021
2023
2019
2020
2021
2023
* Less than 1%.
(1) Drew Holdings Limited, a company controlled by Tor Olav Trøim, is party to separate TRS agreements relating to 3,745,953 common shares, which are included within this
balance.
(2) Included within this balance are 2,329,838 shares which are owned by Stolt-Nielsen Limited, a company controlled by Niels Stolt-Neilsen.
Our directors and executive officers have the same voting rights as all other holders of our common shares.
82
Option Plans
Our board of directors adopted an Employee Share Option Plan, or the Plan, in February 2002, as amended and restated in October 2007. The Plan
authorized our board to award, at its discretion, options to purchase our common shares to employees of the Company, who were contracted to work more than 20
hours per week and to any director of the Company.
Under the terms of the Plan, the board of directors could 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 of directors may from
time to time prescribe.
The Golar Long Term Incentive Plan (the "LTIP") was adopted by our board of directors, effective as of October 24, 2017. The purpose of the LTIP is
primarily to provide a means through which Golar and its affiliates may attract, retain and motivate qualified persons as employees, directors and consultants.
Accordingly, the LTIP provides for the grant of options and other awards as determined by the board of directors in its sole discretion.
As of December 31, 2017 , 0.5 million of our authorized and unissued common shares were reserved for issue pursuant to subscription under options
granted under the Company's share option plans. For further detail on share options please see note 26 "Share Capital and Share Options" of our Consolidated
Financial Statements included herein.
The exercise price of options are reduced by the value of dividends paid, on a per share basis. Accordingly, the above figures show the reduced exercise
price as of April 6, 2018 .
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
The following table presents certain information as of April 6, 2018 regarding the beneficial ownership of our common shares with respect to each
shareholder that we know to beneficially own more than 5% of our issued and outstanding common shares:
Owner
FMR LLC (1)
Capital Research Global Investors (2)
Barrow, Hanley, Mewhinney and Strauss, LLC (3)
Vanguard Whitehall Funds (4)
Common Shares
Number
Percent
10,108,065
9,266,165
6,640,482
5,342,908
9.99%
9.16%
6.57%
5.28%
(1) Information derived from the Schedule 13G/A of FMR LLC filed with the Commission on February 13, 2018.
(2) Information derived from the Schedule 13G/A of Capital Research Global Investors filed with the Commission on February 14, 2018.
(3) Information derived from the Schedule 13G of Barrow, Hanley, Mewhinney and Strauss LLC filed with the Commission on February 12, 2018.
(4) Information derived from the Schedule 13G/A of Vanguard Whitehall Funds filed with the Commission on February 02, 2018.
Our major shareholders have the same voting rights as all of our other common shareholders. To our knowledge, no corporation or foreign government
owns more than 50% of issued and outstanding common shares. We are not aware of any arrangements the operation of which may, at a subsequent date, result in
our change of control of the Company.
B. Related party transactions
There are no provisions in our Memorandum of Association or Bye-Laws regarding related party transactions. 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 their interest in the contract or proposed contract.
83
The related party transactions that we were party to between January 1, 2017 and December 31, 2017 are described in note 29 "Related Party
Transactions" of our Consolidated Financial Statements included herein.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information
See ''Item 18. Financial Statements''
Legal
proceedings
and
claims
In October 2016, we formally commenced arbitration proceedings against WAGL to recover amounts due under the charter arrangement. We believe we
have strong merits to our case. However, there can be no assurance that our position will prevail or that we are able to negotiate a mutually agreeable way forward.
We may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision will be recognized in the
financial statements only where we believe that a liability will be probable and for which the amounts are reasonably estimable, based upon the facts known prior
to the issuance of the financial statements.
UK
tax
lease
benefits
During 2003 we entered into six UK tax leases. Under the terms of the leasing arrangements, the benefits are derived primarily from the tax depreciation
assumed to be available to the lessors as a result of their investment in the vessels. HMRC has been challenging the use of similar lease structures and has been
engaged in litigation of a test case, with an unrelated party, for some years. In August 2015, following an appeal to the Court of Appeal by the HMRC which set
aside previous judgments in favor of the tax payer, the First Tier Tribunal (UK court) ruled in favor of HMRC. We have reviewed the details of the case and the
basis of the judgment with our legal and tax advisers to ascertain what impact, if any, the judgment may have on us and the possible range of loss. We are currently
in conversation with HMRC on this matter, presenting the factual background of our position. See note 31 “Other Commitments and Contingencies” of our
Consolidated Financial Statements included herein for further details.
Dividend
distribution
policy
Our long-term objective is to pay a regular dividend in support of our main objective to provide significant returns to shareholders. The level of our
dividends will be guided by current earnings, market prospects, capital expenditure requirements and investment opportunities.
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,
such as any restrictions in our financing arrangements. 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 and affiliates through which we conduct our
operations, our ability to pay dividends will depend on our subsidiaries and affiliates distributing to us their earnings and cash flow. Some of our loan agreements
limit or prohibit our and our subsidiaries' and affiliates' ability to make distributions to us without the consent of our lenders.
For 2017, our board of directors declared quarterly dividends in June 2017, September 2017, December 2017 and February 2018 in the aggregate amount
of $19.7 million, or $0.20 per share.
For 2016, our board of directors declared quarterly dividends in June 2016, September 2016, December 2016 and February 2017 in the aggregate amount
of $19.5 million , or $0.20 per share.
84
For 2015, our board of directors declared quarterly dividends in June 2015, September 2015, December 2015 and February 2016 in the aggregate amount
of $130.8 million , or $1.40 per share.
B. Significant Changes
There have been no significant changes since the date of our Consolidated Financial Statements included in this report, other than as described in note 32
''Subsequent Events'' of our Consolidated Financial Statements included herein.
ITEM 9. THE OFFER AND LISTING
Listing Details and Markets
Our common shares have traded on the Nasdaq since December 12, 2002 under the symbol "GLNG".
The following table sets forth, for the periods indicated the high and low prices for the common shares on the Nasdaq.
Year ended December 31
2017
2016
2015
2014
2013
Quarter ended
Second quarter 2018 (1)
First quarter 2018
Fourth quarter 2017
Third quarter 2017
Second quarter 2017
First quarter 2017
Fourth quarter 2016
Third quarter 2016
Second quarter 2016
First quarter 2016
Nasdaq
High
30.20 $
26.49 $
51.89 $
74.44 $
41.55 $
Nasdaq
High
28.98 $
31.64 $
30.20 $
24.20 $
28.50 $
29.18 $
26.49 $
22.89 $
24.67 $
21.53 $
Low
19.32
9.42
13.50
31.21
30.51
Low
26.47
24.45
19.32
19.94
20.23
23.33
20.22
14.96
14.32
9.42
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
85
Month ended
April 2018 (1)
March 2018
February 2018
January 2018
December 2017
November 2017
October 2017
Nasdaq
High
28.98 $
30.22 $
29.31 $
31.64 $
30.20 $
26.46 $
23.24 $
Low
26.47
26.22
24.45
26.87
23.62
21.06
19.32
$
$
$
$
$
$
$
(1) For the period from April 1, 2018 through to April 6, 2018 .
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 common shares. The description is only a summary and does not describe everything that our Memorandum 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 2013 Annual General Meeting of the Company, our shareholders voted to amend the Company's Bye-laws to ensure conformity with revisions to
the Bermuda Companies Act 1981, as amended. These amended Bye-laws of the Company as adopted on September 20, 2013, were filed as Exhibit 3.1 to our
report on Form 6-K filed with the Commission on July 1, 2014, and are hereby incorporated by reference into this Annual Report.
A. Share capital
Not applicable.
B. 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.
Shareholder
Meetings
. 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. 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.
The Companies Act provides that a company must have a general meeting of its shareholders in each calendar year. The Companies Act does not impose
any general requirements regarding the number of voting shares which must be present or represented at a general meeting in order for the business transacted at
the general meeting to be valid. The Companies Act generally leaves the quorum for shareholder meetings to the company to determine in its Bye-laws. The
Companies Act specifically imposes special quorum requirements where the shareholders are being asked to approve the modification of rights attaching to a
particular class of shares (33.33%) or an amalgamation or merger transaction (33.33%) unless in either case the Bye-laws provide otherwise. The Company's Bye-
laws do not provide for a quorum requirement other than 33.33%.
There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our common shares.
86
The key powers of our shareholders include the power to alter the terms of the Company's Memorandum of Association and to approve and thereby make
effective any alterations to the Company's Bye-laws made by the directors. Dissenting shareholders holding 20% of the Company's shares may apply to the Court
to annul or vary an alteration to the Company's Memorandum of Association. A majority vote against an alteration to the Company's Bye-laws made by the
directors will prevent the alteration from becoming effective. Other key powers are to approve the alteration of the Company's capital including a reduction in share
capital, to approve the removal of a director, to resolve that the Company be wound up or discontinued from Bermuda to another jurisdiction or to enter into an
amalgamation or winding up. Under the Companies Act, all of the foregoing corporate actions require approval by an ordinary resolution (a simple majority of
votes cast), except in the case of an amalgamation or merger transaction, which requires approval by 75% of the votes cast unless the Bye-Laws provide otherwise.
The Company's Bye-laws only require an ordinary resolution to approve an amalgamation. In addition, the Company's Bye-laws confer express power on the board
to reduce its issued share capital selectively with the authority of an ordinary resolution.
The Companies Act provides shareholders holding 10% of the Company's voting shares the ability to request that the board of directors shall convene a
meeting of shareholders to consider any business which the shareholders wish to be discussed by the shareholders including (as noted below) the removal of any
director. However, the shareholders are not permitted to pass any resolutions relating to the management of the Company's business affairs unless there is a pre-
existing provision in the Company's Bye-laws which confers such rights on the shareholders. Subject to compliance with the time limits prescribed by the
Companies Act, shareholders holding 20% of the voting shares (or alternatively, 100 shareholders) may also require the directors to circulate a written statement
not exceeding 1000 words relating to any resolution or other matter proposed to be put before, or dealt with at, the annual general meeting of the Company.
Majority shareholders do not generally owe any duties to other shareholders to refrain from exercising all of the votes attached to their shares. There are
no deadlines in the Companies Act relating to the time when votes must be exercised.
The Companies Act provides that a company shall not be bound to take notice of any trust or other interest in its shares. There is a presumption that all the
rights attaching to shares are held by, and are exercisable by, the registered holder, by virtue of being registered as a member of the company. The company's
relationship is with the registered holder of its shares. If the registered holder of the shares holds the shares for someone else (the beneficial owner) then if the
beneficial owner is entitled to the shares, the beneficial owner may give instructions to the registered holder on how to vote the shares. The Companies Act
provides that the registered holder may appoint more than one proxy to attend a shareholder meeting, and consequently where rights to shares are held in a chain,
the registered holder may appoint the beneficial owner as the registered holder's proxy.
Directors.
The Companies Act provides that the directors shall be elected or appointed by the shareholders. A director may be elected by a simple
majority vote of shareholders, at a meeting where shareholders holding not less than 33.33% of the voting shares are present in person or by proxy. A person
holding 50% or more of the voting shares of the Company will be able to elect all of the directors, and to prevent the election of any person whom such shareholder
does not wish to be elected. There are no provisions for cumulative voting in the Companies Act or the Bye-laws and the Company's Bye-laws do not contain any
super-majority voting requirements. The appointment and removal of directors is covered by Bye-laws 86, 87 and 88.
There are procedures for the removal of one or more of the directors by the shareholders before the expiration of his term of office. Shareholders holding
10% or more of the voting shares of the Company may require the board of directors to convene a shareholder meeting to consider a resolution for the removal of a
director. At least 14 days’ written notice of a resolution to remove a director must be given to the director affected, and that director must be permitted to speak at
the shareholder meeting at which the resolution for his removal is considered by the shareholders.
The Companies Act stipulates that an undischarged bankruptcy of a director (in any country) shall prohibit that director from acting as a director, directly
or indirectly, and taking part in or being concerned with the management of a company, except with leave of the court. The Company's Bye-Law 89 is more
restrictive in that it stipulates that the office of a Director shall be vacated upon the happening of any of the following events (in addition to the Director's
resignation or removal from office by the shareholders):
•
•
•
•
If he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that he
shall be removed from office;
If he becomes bankrupt or compounds with his creditors;
If he is prohibited by law from being a Director; or
If he ceases to be a Director by virtue of the Companies Act.
87
Under the Company's Bye-laws, the minimum number of directors comprising the board of directors at any time shall be two. The board of directors
currently consists of seven directors. The quorum necessary for the transaction of business of the board may be fixed by the board and shall constitute a majority of
the board. The minimum and maximum number of directors comprising the board of directors 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-Law 92, 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.
The Company’s Bye-law 94 provides the board of directors with the authority to exercise all of the powers of the Company to borrow money and to
mortgage or charge all or any part of our property and assets as collateral security for any debt, liability or obligation. The Company’s directors are not required to
retire because of their age, and the directors are not required to be holders of the Company’s common shares. Directors serve for a one year term, and shall serve
until re-elected or until their successors are appointed at the next annual general meeting. The Company’s Bye-laws provide that no director, alternate director,
officer or member of a committee, if any, resident representative, or his heirs, executors or administrators, whom we refer to collectively as an indemnitee, is liable
for the acts, receipts, neglects or defaults of any other such person or any person involved in our formation, or for any loss or expense incurred by us through the
insufficiency or deficiency of title to any property acquired by us, or for the insufficiency or deficiency of any security in or upon which any of our monies shall be
invested, or for any loss or damage arising from the bankruptcy, insolvency, or tortuous act of any person with whom any monies, securities, or effects shall be
deposited, or for any loss occasioned by any error of judgment, omission, default, or oversight on his part, or for any other loss, damage or misfortune whatever
which shall happen in relation to the execution of his duties, or supposed duties, to us or otherwise in relation thereto. Each indemnitee will be indemnified and
held harmless out of our funds to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such director, alternate director, officer, committee member or resident representative (or in his reasonable belief that he is acting as any of the
above). In addition, each indemnitee shall be indemnified against all liabilities incurred in defending any proceedings, whether civil or criminal, in which judgment
is given in such indemnitee’s favor, or in which he is acquitted or in connection with any application under the Companies Act in which relief from liability is
granted to him by the court. The Company is authorized to purchase insurance to cover any liability it may incur under the indemnification provisions of its Bye-
laws. The indemnity provisions are covered by Bye-laws 138 through 146.
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 our liabilities.
In addition, since we are a holding company with no material assets, and conduct our operations through subsidiaries and our affiliates, our ability to pay
any dividends to shareholders will depend on our subsidiaries' and affiliates 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.
88
Share
repurchases
and
preemptive
rights
. Subject to certain balance sheet restrictions, the Companies Act permits a company to purchase its own shares
if it is able to do so without becoming cash flow insolvent as a result. The restrictions are that the par value of the share must be charged against the company's
issued share capital account or a company fund which is available for dividend or distribution or be paid for out of the proceeds of a fresh issue of shares. Any
premium paid on the repurchase of shares must be charged to the company's current share premium account or charged to a company fund which is available for
dividend or distribution. The Companies Act does not impose any requirement that the directors shall make a general offer to all shareholders to purchase their
shares pro
rata
to their respective shareholdings. The Company's Bye-Laws do not contain any specific rules regarding the procedures to be followed by the
Company when purchasing its own shares, and consequently the primary source of the Company's obligations to shareholders when the Company tenders for its
shares will be the rules of the listing exchanges on which the Company's shares are listed. The Company’s power to purchase its own shares is covered by Bye-
laws 9, 10 and 11.
The Companies Act does not confer any rights of pre-emption on shareholders when a company issues further shares, and no such rights of pre-emption
are implied as a matter of common law. The Company's Bye-Laws do not confer any rights of pre-emption. Bye-Law 8 specifically provides that the issuance of
more shares ranking pari
passu
with the shares in issue shall not constitute a variation of class rights, unless the rights attached to shares in issue state that the
issuance of further shares shall constitute a variation of class rights. Bye-Law 12 confers on the directors the right to dispose of any number of unissued shares
forming part of the authorized share capital of the Company without any requirement for shareholder approval. The Company’s power to issue shares is covered by
Bye-laws 12, 13, 14, and 15.
Liquidation.
In the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share in our assets, if any, remaining
after the payment of all of our debts and liabilities, subject to any liquidation preference on any outstanding preference shares.
C. Material contracts
The following is a list of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our
subsidiaries is a party, for the two years immediately preceding the date of this Annual Report, each of which is included in the list of exhibits in Item 19:
1. Rules of Golar LNG Limited Bermuda Employee Share Option Scheme.
2. Omnibus Agreement dated April 13, 2011, by and among Golar LNG Limited, Golar LNG Partners LP, Golar GP LLC and Golar Energy Limited.
3. Amendment No. 1 to Omnibus Agreement, dated October 5, 2011 by and among Golar LNG Limited, Golar LNG Partners LP, Golar GP LLC and Golar
Energy Limited.
4. Bermuda Tax Assurance, dated May 23, 2011.
5. Bond Agreement dated March 5, 2012 between Golar LNG Ltd and Norsk Tillitsmann ASA as bond trustee.
6. Engineering, Procurement and Construction Contract, dated May 22, 2014 by and between Golar Hilli Corporation and Keppel Shipyard Limited.
7. Facilities Agreement, by and among Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar Hull
M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for a $1.125 billion facility,
dated July 25, 2013.
8. Supplemental Agreement between Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar Hull
M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for $1.125 billion facility,
dated October 1, 2013.
9. Second Supplemental Agreement between Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar
Hull M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for $1.125 billion
facility, dated August 28, 2014.
10. Third Supplemental Agreement between Golar Hull M021 Corp, Golar Hull M026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar Hull
M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for $1.125 billion facility,
dated December 11, 2014.
11. Letter Agreement, dated as of January 20, 2015, by and between Golar LNG Limited and Golar LNG Partners LP.
12. Loan Agreement, dated as of January 20, 2015, by and between Golar LNG Limited and Golar LNG Partners LP.
13. LNG Time Charter Party, dated May 27, 2015, by and between Golar Grand Corporation and Golar Trading Corporation.
14. Engineering, Procurement and Construction Contract, dated July 21, 2015 by and between Golar Gandria N.V. and Keppel Shipyard Limited.
15. Memorandum of Agreement, dated September 9, 2015, by and between Golar Hilli Corporation and Fortune Lianjiang Shipping S.A.
89
16. Pre-delivery Financing Agreement related to the Hilli
conversion dated September 9, 2015 by and between Fortune Lianjiang Shipping S.A. and Golar
Hilli Corporation.
17. Purchase, Sale and Contribution Agreement, dated February 10, 2016, by and between Golar Partners Operating LLC and Golar LNG Ltd, providing for,
among other things, the sale of the Golar
Tundra
.
18. Management and Administrative Services Agreement, effective as of April 1, 2016, between Golar LNG Partners LP and Golar Management Limited.
Share Purchase Agreement, dated June 17, 2016, by and between Golar LNG and Stonepeak Infrastructure Fund II Cayman (G) Ltd.
19. Investment and Shareholders Agreement, dated July 5, 2016, by and among Golar LNG Limited, Stonepeak Infrastructure Fund II Cayman (G) Ltd and
Golar Power Limited.
20. Joint Venture and Shareholders' Agreement, dated July 25, 2016, by and between Golar GLS UK Limited and Schlumberger B.V.
21. Second Amended and Restated Agreement of Limited Partnership of Golar LNG Partners LP dated October 19, 2016.
22. Exchange Agreement, dated October 13, 2016, by and among Golar LNG Partners LP, Golar LNG Limited and Golar GP LLC.
23. Engineering, Procurement and Construction Contract, dated December 27, 2016, by and between Golar Gimi Corporation and Keppel Shipyard Limited.
24. Indenture, dated February 17, 2017, between Golar LNG Limited and Deutsche Bank Trust Company Americas as a Bond Trustee.
25. Loan Agreement, dated March 3, 2017, by and between Golar ML LLC and Citibank N.A.
26. General Management Agreement, dated April 4, 2017, by and between Golar Management Ltd and Golar Power Limited.
27. Purchase and Sale Agreement, dated August 15, 2017, by and among Golar LNG Limited, KS Investments Pte. Ltd., Black & Veatch International
Company and Golar Partners Operating LLC.
28. 2017 Long-Term Incentive Plan.
29. Liquefaction Tolling Agreement, dated November 29, 2017, between Societe Nationale de Hydrocarbures, Perenco Cameroon SA, Golar Hilli
Corporation and Golar Cameroon SASU.
For a further discussion of these contracts and the related transactions, please refer to "Item 4. Information on the Company-A. History and Development
of the Company," "Item 4. Information on the Company-B. Business Overview," “Item 5. Operating and Financial Review and Prospects-A. Operating Results,”
"Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources," “Item 6. Directors, Senior Management and Employees--E. Share
Ownership,” "Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions" and “Item 10. Additional Information--E. Taxation.”
D. Exchange Controls
The Bermuda Monetary Authority, or the BMA, must give permission for all issuances and transfers of securities of a Bermuda exempted company like
us, unless the proposed transaction is exempted by the BMA's written general permissions. We have received a general permission from the BMA to issue any
unissued common shares, and for the free transferability of the common shares as long as our common shares are listed on the Nasdaq. Our common shares may
therefore be freely transferred among persons who are residents or non-residents of Bermuda.
Although we are incorporated in Bermuda, we are classified as non-resident of Bermuda for exchange control purposes by the BMA. Other than
transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into or out of Bermuda to pay dividends to U.S. residents
who are holders of our common shares or other non-resident holders of our common shares in currency other than Bermuda Dollars.
E. Taxation
The following is a discussion of the material U.S. federal income tax, Bermuda tax and Liberian tax considerations relevant to a U.S. Holder, as defined
below, of our common stock. This discussion does not purport to deal with the tax consequences of owning our common stock to all categories of investors, some
of which, such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies, persons
holding our common stock as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark-
to-market method of accounting for their securities, persons liable for alternative minimum tax, persons who are investors in partners or other pass-through entities
for U.S. federal income tax purposes, dealers in securities or currencies, U.S. Holders whose functional currency is not the U.S. dollar and investors that own,
actually or under applicable constructive ownership rules, 10% or more of our shares of common stock, may be subject to special rules. This discussion deals only
with holders who hold the shares of our common stock as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax
consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of our common stock.
90
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.
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 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 Treasury Regulations promulgated thereunder, we, and each of our subsidiaries, will be exempt from U.S. federal
income 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; this is also known as the
"Country of Organization Requirement"; and
either:
– more than 50% of the value of our stock is treated as owned, directly or indirectly, by individuals who are "residents" of qualified foreign
–
countries; this is also known as the "Ownership Requirement"; or
our stock is "primarily and regularly traded on an established securities market" in the United States or any qualified foreign country; this is also
known as 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 qualified foreign countries. 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.
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, an "established securities market" in the United States, during 2017.
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; this is also known as the "Listing Requirement". Since our common shares are listed on the Nasdaq, we will satisfy the Listing Requirement.
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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 one-sixth of the days in a short taxable year; this is also known
as 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; this is also known as the "Trading
Volume Test." We believe that our common shares satisfied the Trading Frequency Test and the Trading Volume Test in 2017. 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; this is also known as 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, or "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; this is also known as the "5%
Override Exception."
Based on our public shareholdings for 2017, we were not subject to the 5% Override Rule for 2017. Therefore, we believe that we satisfied the Publicly-
Traded Requirement for 2017 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
Exemption
Under
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% U.S. federal income 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 2017, we
and our subsidiaries would be subject to $nil aggregated tax under section 887 of the Code.
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 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 U.S. 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. 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.
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.
92
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 and
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 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 tax rates in the hands of a non-corporate U.S. Holder. Any dividends paid by us,
which are not eligible for these preferential tax 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 generally 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 its
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. A 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, or 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
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 Partners. 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, also known as 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, there can be no
assurance that we will not become a PFIC if our operations change in the future.
93
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 dispositions 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.
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 tax 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 tax basis at the close of any taxable year over the fair market value of the common shares is deductible in an amount equal to the lesser of
the amount of the excess or the net "mark-to-market" gains 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.
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.
In addition to the above consequences, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be required to file IRS form 8621 with
the IRS for that year with respect to such U.S. Holder's common stock.
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.
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.
94
Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are non-U.S. Holders and
certain U.S. entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code and the applicable Treasury Regulations) are required
to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset for each taxable year in which the aggregate
value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Specified foreign financial assets would
include, among other assets, our common stock, unless the common stock were held through an account maintained with a U.S. financial institution. Substantial
penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally,
the statute of limitations on the assessment and collection of U.S. federal income tax with respect to a taxable year for which the filing of IRS Form 8938 is
required may not close until three years after the date on which IRS Form 8938 is filed. U.S. Holders (including U.S. entities) and non-U.S. Holders are encouraged
to consult their own tax advisors regarding their reporting obligations under Section 6038D of the Code.
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 2035, 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 31, 2035, 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 extension of 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 31, 2035.
Liberian
Taxation
Under the Consolidated Tax Amendments Act of 2010, our Liberian subsidiaries should be considered non-resident Liberian corporations which are
wholly exempted from Liberian taxation effective as of 1977.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We will file reports and other information with the U.S. Securities and Exchange Commission, or the Commission. These materials, including this
document and the accompanying exhibits, may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the Commission at 100
F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330. The Commission
maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically
with the Commission.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rate, commodity price 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, when possible, within boundaries deemed appropriate by management.
95
A discussion of our accounting policies for derivative financial instruments is included in note 2 “Accounting Policies” of our Consolidated Financial
Statements included herein. Further information on our exposure to market risk is included in note 28 “Financial Instruments” of our Consolidated Financial
Statements included herein.
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 obligation 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, 2017, we are over hedged. This is in connection with the FLNG Hilli facility, which
currently bears a fixed interest rate, but will convert to a floating rate interest, upon delivery of the Hilli
as a converted FLNG and subject to satisfaction of certain
conditions.
As of December 31, 2017, the notional amount of interest rate swaps outstanding in respect of our debt obligation was $1.3 billion. The principal of our
floating rate loans outstanding as of December 31, 2017 was $900.9 million. Based on our floating rate debt at December 31, 2017, a one-percentage point increase
in the floating interest rate would increase our interest expense by $4.2 million per annum. For disclosure of the fair value of the derivatives and debt obligations
outstanding as of December 31, 2017, see note 28 “Financial Instruments” of our Consolidated Financial Statements included herein.
Foreign
currency
risk
. 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, which includes
British Pounds, or GBP, Norwegian Kroners, or NOK, and Euros, in relation to our administrative office in the UK and operating expenses incurred in a variety of
foreign currencies. Based on our GBP expenses for 2017, a 10% depreciation of the U.S. Dollar against GBP would have increased our expenses by approximately
$2.3 million.
We operate a branch in Norway, where the majority of expenses are incurred in NOK. Based on our NOK administrative expenses incurred in 2017, a
10% depreciation of the U.S Dollar against NOK would have increased our expenses by $2.8 million.
The base currency of the majority of our seafaring officers' remuneration was the Euro. Based on the crew costs incurred in 2017, a 10% depreciation of
the U.S. Dollar against the Euro would have increased our crew cost for 2017 by approximately $2.3 million.
Equity
risk.
As of December 31, 2017 , we are party to a Total Return Swap, or TRS, contract indexed to 3,000,000 of our own shares, whereby we carry
the risk of fluctuations in the market price of our shares. The settlement amount for the contract will be (A) the market value of the shares at the date of settlement
plus the amount of dividends paid on the shares by us between entering into and settling the contract, less (B) the reference price of the shares agreed at the
inception of the contract plus the counterparty's financing costs. Settlement will be either a payment from or to the counterparty, depending on whether (A) is more
or less than (B). The contract has been extended to expire in June 2018. The weighted average reference price was $43.30 per common share. As of December 31,
2017, we had also entered into a forward contract for the acquisition of 107,000 shares in Golar Partners at an average price of $19.75. The open position of both
contracts at December 31, 2017, exposes us to market risk associated with our share price and the share price of Golar Partners, and it is estimated that
a 10% reduction in both share prices as at December 31, 2017, would generate an adverse mark-to-market adjustment of approximately $9.2 million, which would
be recorded in our consolidated statement of operations.
Commodity
price
risk.
As of December 31, 2017 , we have a derivative asset in relation to the Hilli
LTA, representing the fair value of the estimated
discounted cash flows of payments due as a result of the Brent Crude price moving above the contractual floor of $60.00 per barrel over the contract term. The
derivative asset is adjusted to fair value at each balance date and, on December 31, 2017, the value of this asset is $94.7 million. Movements in the price of Brent
Crude will cause the derivative asset, and resulting fair value movements, to fluctuate. However, we bear no downside risk should the Brent Crude price move
below $60.00.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
96
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURE
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Under the supervision of our Company’s Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our
disclosure controls and procedures, pursuant to Rule 13a-15(e) of the Exchange Act of 1934, as of December 31, 2017. At the time our Annual Report on Form 20-
F for the year ended December 31, 2017 was filed on April 16, 2018, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2017.
(b) Management's annual report on internal controls over financial reporting
In accordance with the requirements of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, the following report is provided by management
in respect of our internal control over financial reporting. As defined in the Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, internal control
over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing
similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Consolidated 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 GAAP, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
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.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Securities and Exchange Act of 1934, as amended. Our internal control system was designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our published Consolidated Financial Statements for external purposes under generally accepted accounting
principles.
In connection with the preparation of our annual Consolidated Financial Statements, management has undertaken an assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational
effectiveness of those controls. Based on this assessment, management has concluded and hereby reports that as of December 31, 2017, the Company’s internal
control over financial reporting was effective.
The Company’s independent registered public accounting firm has issued an attestation report on the effectiveness of 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, 2017 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report which appears on page F-3 of our Consolidated Financial Statements.
97
(d) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the period covered by this Annual Report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Lori Wheeler Naess, 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 Securities Exchange Act of 1934.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Ethics that applies to all the employees of the company and its subsidiaries. A copy of our Code of Ethics may be found on
our website www.golarlng.com . This web address is provided as an inactive textual reference only. Information contained on our website does not constitute part
of this Annual Report. We will provide any person, free of charge, a copy of our Code of Ethics upon written request to our registered office
ITEM 16C. 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, 2017
Fiscal year ended December 31, 2016
$
$
1,479,984
1,989,721
Total audit fees incurred with respect to Ernst & Young LLP were approximately $1.5 million and $2.0 million for 2017 and 2016, respectively.
(b) Audit-Related Fees
The following table sets forth, for the two most recent fiscal years, the aggregate fees billed for assurance and related services, not included under "(a)
Audit Fees", 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, 2017
Fiscal year ended December 31, 2016
(c) Tax Fees
$
$
608,312
63,636
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, 2017
Fiscal year ended December 31, 2016
$
$
145,010
109,663
98
(d) All Other 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 other services that are not included in the scope of the current year audit or tax services as mentioned above. This majority of the balance comprises of advisory
services provided during the year.
Fiscal year ended December 31, 2017
Fiscal year ended December 31, 2016
(e) Audit Committee's Pre-Approval Policies and Procedures
$
$
223,752
170,416
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 our board of directors 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 2017
and 2016 were approved by our board of directors pursuant to the pre-approval policy.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In November 2014, our Board of Directors approved the purchase of up to 5% of the outstanding common stock of the Company over a two year period
ended November, 2016. Accordingly, at the time of close of scheme, we had repurchased 0.5 million shares for an aggregate cost of $20.5 million.
October 2015
January 2016
As of November 30, 2016 (1)
Total number of
shares purchased as
part of publicly
announced plans or
Average price paid
per share
programme
40.90
41.07
40.97
300,000
200,000
500,000
Maximum number
of shares that may
be purchased under
the plans or
programme (1)
4,400,000
4,200,000
—
Total number of
shares purchased
300,000 $
200,000 $
500,000 $
(1) The Board approval lapsed in November 2016 and therefore no further shares were purchased under the scheme.
In connection with the Board approved share repurchase scheme discussed above, this was partly financed through the use of total return swap or equity
swap facilities with third party banks, indexed to our own shares. We carry the risk of fluctuations in the share price of those acquired shares. The banks are
compensated at their cost of funding plus a margin. As at December 31, 2017 , the counterparty to the equity swap transactions had acquired 3.0 million shares in
the Company at an average price of $43.30. The effect of our Total Return Swap in our consolidated statement of operations as at December 31, 2017 is an
unrealized marked-to-market gain of $16.6 million . There is at present no obligation for us to purchase any shares from the counterparty.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
99
ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception under Nasdaq Rule 5615, or Nasdaq listing standards available to foreign private issuers, we are not required to comply with all
of the corporate governance practices followed by U.S. companies under the Nasdaq's listing standards, which are available at www.nasdaq.com. As a foreign
private issuer, we are permitted to follow our home country practices in lieu of certain Nasdaq corporate governance requirements. We have certified to Nasdaq
that our corporate governance practices are in compliance with, and are not prohibited by, the laws of Bermuda.
We are exempt from many of the Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit
opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq's corporate governance practices and the establishment and
composition of an audit committee and a formal written audit committee charter. The practices we follow in lieu of Nasdaq's corporate governance requirements
are as follows:
Independence of directors . We are exempt from certain Nasdaq requirements regarding independence of directors. Consistent with Bermuda law, our
board of directors is not required to be composed of a majority of independent directors. Currently, four of the seven members of the board of directors, Daniel
Rabun, Lori Wheeler Naess, Carl Steen and Fredrik Halvorsen are independent according to Nasdaq's standards for independence. Our board of directors does not
hold meetings at which only independent directors are present.
Audit Committee . We are exempt from certain Nasdaq requirements regarding our audit committee. Consistent with Bermuda law, the directors on our
audit committee are not required to comply with certain of Nasdaq’s independence requirements for audit committee members, and the Company's management is
responsible for the proper and timely preparation of the Company's annual reports, which are audited by independent auditors. However, the committee currently
consists of three independent directors, Lori Wheeler Naess, Daniel Rabun and Carl Steen.
Compensation Committee . We are exempt from certain Nasdaq requirements regarding our compensation committee. Consistent with Bermuda law, our
compensation committee may consist of members who are not independent directors. The committee is currently comprised of Carl Steen and Niels Stolt-Nielsen.
The primary responsibility of this committee is to review, approve and make recommendations to the board regarding compensation for directors.
Nomination Committee . We are exempt from certain Nasdaq requirements regarding our nomination committee. Consistent with Bermuda law, our
nomination committee may consist of members who are not independent directors. However, the committee is currently comprised of two independent directors,
Carl Steen and Daniel Rabun. The primary responsibility of this committee is to select and recommend to the board, director and committee member candidates.
Share Issuance . In lieu of obtaining shareholder approval prior to the issuance of securities in certain circumstances, consistent with Bermuda law and our
Bye-Laws, the board of directors approves share issuances.
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq's corporate governance rules
or Bermuda law. Consistent with Bermuda law, and as provided in our amended Bye-laws, we will notify our shareholders of shareholder meetings at least seven
days before such meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting.
We believe that our established corporate governance practices satisfy the Nasdaq listing standards.
100
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following financial statements listed below and set forth on pages F-1 through to F-61 are filed as part of this Annual Report.
Separate Consolidated Financial Statements and notes thereto for Golar Partners for each of the years ended December 31, 2017, 2016 and 2015 are being
provided as a result of Golar Partners meeting a significance test pursuant to Rule 3-09 of Regulation S-X for the three years ended December 31, 2017 and,
accordingly, the financial statements of Golar Partners for the year ended December 31, 2017 as filed in the Annual Report on Form 20-F of Golar Partners, filed
with the Commission on April 16, 2018 , are hereby incorporated by reference and considered to be filed as part of this Annual Report on Form 20-F.
101
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**
1.5**
2.1**
2.2**
4.1**
4.2**
4.3**
4.4**
4.5**
4.6**
4.7**
4.8**
4.9**
Memorandum of Association of Golar LNG Limited as adopted on May 9, 2001, incorporated by reference to Exhibit 1.1 of Golar LNG Limited’s
Registration Statement on Form 20-F, filed with the SEC on November 27, 2002, File No. 00050113, or the Original Registration Statement.
Bye-Laws of Golar LNG Limited amended and adopted September 20, 2013, incorporated by reference to Exhibit 3.1 to Golar LNG Limited’s
Report of Foreign Issuer on Form 6-K filed on July 1, 2014.
Certificate of Incorporation as adopted on May 10, 2001, incorporated by reference to Exhibit 1.3 of Golar LNG Limited’s Original Registration
Statement.
Certificate of deposit of memorandum of increase of share capital of Golar LNG Limited registered on June 20, 2001 (increasing Golar LNG
Limited’s authorized capital), incorporated by reference to Exhibit 1.4 of Golar LNG Limited’s Original Registration Statement.
Certificate of deposit of memorandum of increase of share capital of Golar LNG Limited registered November 6, 2014, incorporated by reference
to Exhibit 1.6 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2014.
Form of share certificate incorporated by reference to Exhibit 2.1 of Golar LNG Limited’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2010.
Indenture, dated February 17, 2017, between Golar LNG Limited and Deutsche Bank Trust Company Americas as a Bond Trustee ,
incorporated
by reference to Exhibit 2.2 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2016.
Rules of the Bermuda Employee Share Option Scheme, incorporated by reference to Exhibit 4.6 of Golar LNG Limited’s Original Registration
Statement.
Omnibus Agreement dated April 13, 2011, by and among Golar LNG Limited, Golar LNG Partners LP, Golar GP LLC and Golar Energy Limited,
incorporated by reference to Exhibit 4.2* of Golar LNG Partners L.P. Annual Report on Form 20-F for the fiscal year ended December 31, 2011.
Amendment No. 1 to Omnibus Agreement, dated October 5, 2011 by and among Golar LNG Limited, Golar LNG Partners LP, Golar GP LLC and
Golar Energy Limited, incorporated by reference to Exhibit 4.2(a)* of Golar LNG Partners L.P. Annual Report on Form 20-F for the fiscal year
ended December 31, 2011.
Bermuda Tax Assurance, dated May 23, 2011, incorporated by reference to Exhibit 4.4 of Golar LNG Limited’s Annual Report on Form 20-F for
the fiscal year ended December 31, 2013.
Bond Agreement dated March 5, 2012 between Golar LNG Ltd and Norsk Tillitsmann ASA as bond trustee, incorporated by reference to Exhibit
4.6 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2012.
Engineering, Procurement and Construction Contract, dated May 22, 2014 by and between Golar Hilli Corporation and Keppel Shipyard Limited,
incorporated by reference to Exhibit 5.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on September 4, 2014.
Facilities Agreement by and among Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar
Hull M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for a $1.125
billion facility, dated July 25, 2013, incorporated by reference to Exhibit 4.9 of Golar LNG Limited Annual Report on Form 20-F for the fiscal
year ended December 31, 2013.
Supplemental Agreement between Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp, Golar
Hull M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for $1.125 billion
facility, dated October 1, 2013, incorporated by reference to Exhibit 4.14 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year
ended December 31, 2014.
Second Supplemental Agreement, by and among Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022
Corp, Golar Hull M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for
$1.125 billion facility, dated August 28, 2014, incorporated by reference to Exhibit 4.15 of Golar LNG Limited Annual Report on Form 20-F for
the fiscal year ended December 31, 2014.
4.10**
Third Supplemental Agreement between Golar Hull M2021 Corp, Golar Hull M2026 Corp, Golar Hull M2031 Corp, Golar Hull M2022 Corp,
Golar Hull M2023 Corp, Golar Hull M2027 Corp, Golar Hull M2024 Corp, Golar LNG NB 12 Corporation, and a consortium of banks for $1.125
billion facility, dated December 11, 2014, incorporated by reference to Exhibit 4.16 of Golar LNG Limited Annual Report on Form 20-F for the
fiscal year ended December 31, 2014.
102
4.11**
4.12**
4.13**
4.14**
4.15**
4.16**
4.17**
4.18**
4.19**
4.20**
4.21**
4.22**
4.23**
4.24**
4.25**
4.26**
4.27**
4.28**
4.29 *
8.1 *
11.1**
Letter Agreement, dated as of January 20, 2015, by and between Golar LNG Partners LP and Golar LNG Limited, incorporated by reference to
Exhibit 4.17 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2014.
Loan Agreement, dated as of January 20, 2015, by and between Golar LNG Partners LP and Golar LNG Limited, incorporated by reference to
Exhibit 4.18 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2014.
LNG Time charter party dated May 27, 2015 between Golar Grand Corporation and Golar Trading Corporation, incorporated by reference to
Exhibit 4.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on August 13, 2015.
Engineering, Procurement and Construction Contract, dated July 21, 2015 by and between Golar Gandria N.V. and Keppel Shipyard Limited,
incorporated by reference to Exhibit 4.20 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2015.
Memorandum of Agreement, dated September 9, 2015, by and between Golar Hilli Corporation and Fortune Lianjiang Shipping S.A., providing
for, among other things, the sale and leaseback of the Hilli
, incorporated by reference to Exhibit 4.21 of Golar LNG Limited Annual Report on
Form 20-F for the fiscal year ended December 31, 2015.
Pre-delivery Financing Agreement related to the Hilli conversion dated September 9, 2015 by and between Fortune Lianjiang Shipping S.A. and
Golar Hilli Corporation, incorporated by reference to Exhibit 4.2 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on
December 24, 2015.
Purchase, Sale and Contribution Agreement, dated February 10, 2016, by and between Golar Partners Operating LLC and Golar LNG Limited,
providing for, among other things, the sale of the Golar
Tundra,
incorporated by reference to Exhibit 4.23 of Golar LNG Limited Annual Report
on Form 20-F for the fiscal year ended December 31, 2015.
Management and Administrative Services Agreement, effective as of April 1, 2016, between Golar LNG Partners LP and Golar Management
Limited ,
incorporated by reference to Exhibit 4.20 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31,
2016.
Share Purchase Agreement, dated June 17, 2016, by and between Golar LNG and Stonepeak Infrastructure Fund II Cayman (G) Ltd ,
incorporated
by reference to Exhibit 4.21 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2016.
Investment and Shareholders Agreement, dated July 5, 2016, by and among Golar LNG Limited, Stonepeak Infrastructure Fund II Cayman (G)
Ltd and Golar Power Limited ,
incorporated by reference to Exhibit 4.22 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year
ended December 31, 2016.
Joint Venture and Shareholders' Agreement, dated July 25, 2016, by and between Golar GLS UK Limited and Schlumberger B.V. ,
incorporated
by reference to Exhibit 4.23 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2016.
Exchange Agreement, dated October 13, 2016, by and among Golar LNG Partners LP, Golar LNG Limited and Golar GP LLC, incorporated by
reference to Exhibit 10.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K of Golar LNG Partners LP, filed on October 19, 2016.
Second Amended and Restated Agreement of Limited Partnership of Golar LNG Partners LP dated October 19, 2016, incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form 8-A/A of Golar LNG Partners LP, filed on October 19, 2016.
Engineering, Procurement and Construction Contract, dated December 27, 2016, by and between Golar Gimi Corporation and Keppel Shipyard
Limited ,
incorporated by reference to Exhibit 4.26 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31,
2016.
Loan Agreement, dated March 3, 2017, by and between Golar ML LLC and Citibank N.A. ,
incorporated by reference to Exhibit 4.27 of Golar
LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2016.
General Management Agreement, dated April 4, 2017, by and between Golar Management Ltd and Golar Power Limited ,
incorporated by
reference to Exhibit 4.28 of Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2016.
Purchase and Sale Agreement, dated August 15, 2017, by and among Golar LNG Limited, KS Investments Pte. Ltd., Black & Veatch International
Company and Golar Partners Operating LLC, incorporated by reference to Exhibit 4.1 to Golar LNG Limited’s Report of Foreign Issuer on
Form 6-K filed on September 29, 2017.
2017 long-term incentive plan, incorporated by reference to Exhibit 4.6 to Golar LNG Limited's Registration statement on form S-8, filed on
November 20, 2017.
Liquefaction Tolling Agreement, dated November 29, 2017, between Societe Nationale de Hydrocarbures, Perenco Cameroon SA, Golar Hilli
Corporation and Golar Cameroon SASU.
Golar LNG Limited subsidiaries.
Golar LNG Limited Corporate Code of Business Ethics and Conduct, incorporated by reference to Exhibit 14.1 of Golar LNG Limited’s Annual
Report on Form 20-F for the year ended December 31, 2003.
12.1 *
Certification of the Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
103
12.2 *
13.1 *
13.2 *
15.1 *
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.
Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP.
_________________________
* Filed herewith.
** Incorporated by reference.
101. INS* XBRL Instance Document
101. SCH* XBRL Taxonomy Extension Schema
101. CAL* XBRL Taxonomy Extension Schema Calculation Linkbase
101. DEF* XBRL Taxonomy Extension Schema Definition Linkbase
101. LAB* XBRL Taxonomy Extension Schema Label Linkbase
101. PRE* XBRL Taxonomy Extension Schema Presentation Linkbase
104
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.
SIGNATURES
Date
April 16, 2018
By
Golar LNG Limited
(Registrant)
/s/ Graham Robjohns
Graham Robjohns
Principal Financial and Accounting Officer
105
GOLAR LNG LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm s
Audited Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Audited Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Audited Consolidated Balance Sheets as of December 31, 201 7 and 2016
Audited Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Audited Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-9
F-10
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Golar LNG Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Golar LNG Limited (the “Company”) as of December 31, 2017 and 2016, the related
consolidated statements of operations, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2017
and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 16, 2018 , expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
London, United Kingdom
April 16, 2018
F-2
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors of Golar LNG Limited
Opinion on Internal Control over Financial Reporting
We have audited Golar LNG Limited’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
Golar LNG Limited (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated
financial statements of the Company and our report dated April 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) 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 (3) 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.
/s/ Ernst & Young LLP
London, United Kingdom
April 16, 2018
F-3
Golar LNG Limited
Consolidated Statements of Operations for the years ended December 31, 2017 , 2016 and 2015
(in
thousands
of
$,
except
per
share
data)
Notes
2017
2016
2015
Operating revenues
Time and voyage charter revenues
Time charter revenues - collaborative arrangement
Vessel and other management fees
Total operating revenues
Operating expenses
Vessel operating expenses
Voyage, charter-hire and commission expenses
Voyage, charter-hire and commission expenses - collaborative arrangement
Administrative expenses
Depreciation and amortization
Impairment of non-current assets
Total operating expenses
Gain on disposals to Golar Partners
Impairment of vessel held-for-sale
Unrealized gain on FLNG derivative instrument
Other operating gains - LNG trading
Loss on disposal of vessel held-for-sale
Operating loss
Other non-operating expense
Net loss on loss of control of Golar Power
Other non-operating expense
Total other non-operating expense
Financial income (expense)
Interest income
Interest expense
Other financial items, net
Net financial expense
Loss before equity in net (losses) earnings of affiliates, income taxes and
non-controlling interests
Income taxes
Equity in net (losses) earnings of affiliates
Net loss
Net income attributable to non-controlling interests
Net loss attributable to stockholders of Golar LNG Ltd
Loss per share attributable to Golar LNG Ltd stockholders
Per common share amounts:
Loss per share – basic and diluted
Cash dividends declared and paid
29
29
29
17
9
6, 29
1
7
29
29
10
11
14
12
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-4
88,634
28,327
26,576
143,537
55,946
22,511
38,781
50,334
76,522
—
52,302
13,730
14,225
80,257
53,163
36,423
11,140
45,960
72,972
1,706
244,094
221,364
—
—
15,100
—
—
—
—
—
16
—
(85,457)
(141,091)
—
(81)
(81)
5,890
(59,305)
20,627
(32,788)
(118,326)
(1,505)
(25,448)
(145,279)
(34,424)
(179,703)
(8,483)
(132)
(8,615)
2,969
(71,201)
8,691
(59,541)
(209,247)
589
47,878
(160,780)
(25,751)
(186,531)
90,127
—
12,547
102,674
56,347
69,042
—
33,526
73,732
1,957
234,604
102,406
(1,032)
—
—
(5,824)
(36,380)
—
(27)
(27)
6,896
(68,793)
(112,722)
(174,619)
(211,026)
3,053
55,985
(151,988)
(19,158)
(171,146)
$
$
(1.79) $
0.20 $
(1.99) $
0.60 $
(1.83)
1.35
Golar LNG Limited
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017 , 2016 and 2015
(in
thousands
of
$)
Notes
2017
2016
2015
COMPREHENSIVE LOSS
Net loss
Other comprehensive income (loss):
Gain (loss) associated with pensions, net of tax
Net gain (loss) on qualifying cash flow hedging instruments (1)(2)
25, 27
27
Comprehensive loss
Comprehensive loss attributable to:
Stockholders of Golar LNG Limited
Non-controlling interests
Comprehensive loss
(145,279)
(160,780)
(151,988)
157
1,616
1,773
(556)
3,606
3,050
2,851
(4,440)
(1,589)
(143,506)
(157,730)
(153,577)
(177,930)
34,424
(143,506)
(183,481)
25,751
(157,730)
(172,735)
19,158
(153,577)
(1) Includes share of net gain of $1.6 million , $3.6 million and net loss of $4.8 million on qualifying cash flow hedging instruments held by an affiliate for the years ended December 31, 2017 ,
2016 and 2015 , respectively. Refer to note 27.
(2) No tax impact for the years ended December 31, 2017 , 2016 and 2015 .
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-5
Golar LNG Limited
Consolidated Balance Sheets as of December 31, 2017 and 2016
(in
thousands
of
$)
Notes
2017
2016
ASSETS
Current assets
Cash and cash equivalents
Restricted cash and short-term deposits
Trade accounts receivable *
Amounts due from related parties
Inventories
Other current assets
Total current assets
Non-current assets
Restricted cash
Investments in affiliates
Cost method investment
Asset under development
Vessels and equipment, net
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Current portion of long-term debt and short-term debt
Trade accounts payable *
Accrued expenses *
Amounts due to related parties
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Amounts due to related parties
Other non-current liabilities
Total liabilities
Commitments and contingencies
EQUITY
Share capital 101,118,289 common shares of $1.00 each issued and outstanding (2016:
101,080,673)
Treasury shares
Additional paid-in capital
Contributed surplus
Accumulated other comprehensive loss
Retained (loss) earnings
Total stockholders' equity
Non-controlling interests
Total equity
Total liabilities and equity
* This includes amounts arising from transactions with related parties (see note 29).
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-6
18
29
15
18
14
19
16
17
20
23
21
29
22
23
29
24
30, 31
26
5
214,862
222,265
14,980
7,898
7,408
6,047
224,190
183,693
3,567
—
7,257
7,510
473,460
426,217
175,550
703,225
7,347
1,177,489
2,077,059
150,157
4,764,287
1,384,933
70,430
105,895
8,734
62,282
1,632,274
232,335
648,780
7,347
731,993
2,153,831
56,408
4,256,911
451,454
24,559
78,462
135,668
78,984
769,127
1,025,914
1,525,744
177,247
132,548
—
52,214
2,967,983
2,347,085
101,119
(20,483)
1,538,191
200,000
(7,769)
(95,742)
1,715,316
80,988
1,796,304
4,764,287
101,081
(20,483)
1,488,556
200,000
(9,542)
103,650
1,863,262
46,564
1,909,826
4,256,911
Golar LNG Limited
Consolidated Statements of Cash Flows for the years ended December 31, 2017 , 2016 and 2015
(in
thousands
of
$)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization
Amortization of deferred charges and debt guarantees
Equity in net losses (earnings) of affiliates
Gain on disposals to Golar Partners
Net loss on loss of control of Golar Power
Loss on disposal of vessel held-for-sale
Impairment of vessel held-for-sale
Dividends received
Compensation cost related to stock options
Net foreign exchange losses
Amortization of deferred tax benefits on intra-group transfers
Impairment of non-current assets
Impairment of loan receivable
Drydocking expenditure
Change in assets and liabilities:
Restricted cash
Trade accounts receivable
Inventories
Other non-current and current assets
Amounts due to related companies
Trade accounts payable
Accrued expenses
Other current liabilities (1)
Net cash provided by (used in) operating activities
Investing activities
Additions to vessels and equipment
Additions to newbuildings
Additions to asset under development
Investment in subsidiary, net of cash acquired
Proceeds from disposal of investments in affiliates
Additions to investments in affiliates
Short-term loan granted
Proceeds from repayment of short-term loan granted
Proceeds from disposals to Golar Partners, net of cash disposed
Proceeds from loss of control of Golar Power, net of cash disposed
Proceeds from repayment of short-term loan granted to Golar Partners
Proceeds from disposal of fixed assets
Notes
2017
2016
2015
(145,279)
(160,780)
(151,988)
17
6
7
9
18
F-7
76,522
(900)
25,448
—
—
—
—
52,666
8,991
1,620
—
—
—
—
57,110
(11,413)
(151)
(102,453)
(27,130)
1,593
28,666
81,844
47,134
(1,349)
—
(390,552)
—
—
(123,107)
—
—
70,000
—
—
—
72,972
13,732
(47,878)
—
8,483
—
—
55,517
5,816
1,429
(1,715)
1,706
7,627
—
47,834
(567)
987
14,924
(9,444)
(28,511)
(3,410)
(17,273)
(38,551)
(14,477)
(19,220)
(200,821)
—
—
(10,200)
(1,000)
—
107,247
113,321
—
—
73,732
(2,073)
(55,985)
(102,406)
—
5,824
1,032
52,800
4,125
2,404
(3,488)
1,957
15,010
(10,405)
(280,000)
911
(2,252)
(6,361)
15,259
8,944
21,479
66,832
(344,649)
(26,110)
(559,667)
(111,572)
(16)
207,428
(5,023)
(2,000)
400
226,872
—
20,000
18,987
Restricted cash and short-term deposits
Net cash used in investing activities
Financing activities
Proceeds from short-term and long-term debt (including related parties)
Payment for capped call in connection with bond issuance
Repayments of short-term and long-term debt (including related parties)
18
23
23
23
Financing costs paid
Cash dividends paid
Proceeds from exercise of share options
Purchase of treasury shares
Proceeds from issuance of equity
Restricted cash and short-term deposits
Net cash provided by financing activities
Net (decrease) increase 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
11,239
(433,769)
22,928
(2,222)
(25,255)
(255,956)
928,432
405,817
918,801
(31,194)
(446,626)
(1,564)
(20,438)
(1,167)
—
—
(50,136)
377,307
(9,328)
224,190
214,862
—
(271,858)
(8,372)
(54,348)
1,435
(8,214)
169,876
(74,608)
159,728
118,955
105,235
224,190
—
(215,363)
(23,266)
(121,358)
225
(12,269)
—
(32,340)
514,430
(86,175)
191,410
105,235
34,479
1,240
24,828
555
35,450
1,278
(1) Includes accretion of discount on convertible bonds of $11.8 million , $5.7 million and $5.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
F-8
Golar LNG Limited
Consolidated Statements of Changes in Equity for the years ended December 31, 2017 , 2016 and 2015
(in
thousands
of
$)
Balance at December 31, 2014
Net loss
Dividends
Exercise of share options
Grant of share options
Forfeiture of share options
Cancellation of share options
Transfer of additional paid-in capital
Other comprehensive loss
27
Treasury shares
Notes
Share
Capital
93,415
Treasury
Shares
—
—
—
—
—
—
—
—
—
(12,269)
Additional
Paid-in
Capital
1,307,087
—
—
93
6,358
(2,521)
786
6,003
—
—
—
—
132
—
—
—
—
—
—
Balance at December 31, 2015
93,547
(12,269)
1,317,806
Net loss
Dividends
Exercise of share options
Grant of share options
Forfeiture of share options
Net proceeds from issuance of shares
Other comprehensive income
Treasury shares
26
27
—
—
59
—
—
7,475
—
—
—
—
—
—
—
—
—
(8,214)
—
—
1,376
7,865
(892)
162,401
—
—
Balance at December 31, 2016
101,081
(20,483)
1,488,556
Net loss
Dividends
Exercise of share options
Grant of share options
Forfeiture of share options
Other comprehensive income
Issuance of convertible bonds
—
—
38
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,204)
11,098
(120)
—
39,861
27
23
Balance at December 31, 2017
101,119
(20,483)
1,538,191
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-9
Contributed
Surplus
Accumulated Other
Comprehensive Loss
Retained
Earnings
(Losses)
Non-
controlling
Interests
200,000
—
—
—
—
—
—
—
—
—
200,000
—
—
—
—
—
—
—
—
200,000
—
—
—
—
—
—
—
200,000
(6,579)
—
—
—
—
—
—
(4,424)
(1,589)
—
(12,592)
—
—
—
—
—
—
3,050
—
(9,542)
—
—
—
—
—
1,773
—
(7,769)
641,844
(171,146)
(161,824)
—
—
—
—
—
—
—
308,874
(186,531)
(18,693)
—
—
—
—
—
—
103,650
(179,703)
(19,689)
—
—
—
—
—
(95,742)
1,655
19,158
—
—
—
—
—
—
—
—
20,813
25,751
—
—
—
—
—
—
—
46,564
34,424
—
—
—
—
—
—
80,988
Total
Equity
2,237,422
(151,988)
(161,824)
225
6,358
(2,521)
786
1,579
(1,589)
(12,269)
1,916,179
(160,780)
(18,693)
1,435
7,865
(892)
169,876
3,050
(8,214)
1,909,826
(145,279)
(19,689)
(1,166)
11,098
(120)
1,773
39,861
1,796,304
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 ("World Shipholding").
As of December 31, 2017 , our fleet comprises of 12 LNG carriers, one Floating Storage Regasification Unit ("FSRU") and one Floating Liquefaction Natural Gas
vessel ("FLNG"). We also operate, under management agreements, Golar LNG Partners LP's ("Golar Partners" or the "Partnership") fleet of 10 vessels and Golar
Power Limited's ("Golar Power") fleet of two LNG carriers and one newbuilding commitment. Collectively with Golar Partners and Golar Power, our combined
fleet is comprised of 18 LNG carriers, seven FSRUs and one FLNG.
We are listed on the Nasdaq under the symbol: GLNG.
As used herein and unless otherwise required by the context, the terms "Golar", the "Company", "we", "our" and words of similar import refer to Golar or anyone
or more of its consolidated subsidiaries, or to all such entities.
FLNG
Hilli
In July 2014, we ordered our first FLNG vessel based on the conversion of our existing LNG carrier, the Hilli
Episeyo
(the " Hilli
"). The Hilli
conversion
completed in October 2017, and she arrived in Cameroon on November 20, 2017 where she is undergoing commissioning activities. We expect acceptance testing
procedures to commence shortly.
The Liquefaction Tolling Agreement ("LTA") with Perenco Cameroon ("Perenco") and Societe Nationale de Hydrocarbures ("SNH") (together, the "Customer"),
was executed on November 29, 2017 and considered legally effective on December 19, 2017 when all conditions precedent were met.
Following the effectiveness of the LTA, a derivative asset of $79.6 million was recognized ("day one gain"), representing the fair value of the estimated discounted
cash flows of payments due to us as a result of the Brent Crude price moving above the contractual floor of $60.00 per barrel over the contract term. The derivative
asset is subsequently remeasured to fair value at each balance sheet date. The fair value as of December 31, 2017 was $94.7 million (see note 28). This resulted in
the recognition of an “Unrealized gain on FLNG derivative instrument” of $15.1 million in 2017 presented under "Other operating income" in our Consolidated
Statements of Operations. The corresponding liability relating to the initial fair value of the FLNG derivative of $79.6 million (see notes 22 and 24) was deferred
and will be released to earnings on a straight-line basis over the term of the LTA, commencing upon customer acceptance of the vessel.
Golar
Partners
Golar Partners is our former subsidiary, which is an owner and operator of FSRUs and LNG carriers under long-term charters (defined as five years or longer from
the date of the dropdown). We completed the Initial Public Offering ("IPO") of Golar Partners in April 2011. Our ownership interest (including our 2% general
partner interest) in Golar Partners as of December 31, 2017 and 2016 is 31.8% and 33.9% , respectively.
Golar
Power
In June 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power, with a private equity firm, Stonepeak Infrastructure Partners
("Stonepeak"). Golar Power offers integrated LNG based downstream solutions through the ownership and operation of FSRUs and associated terminal and power
generation infrastructure that was formed for the purpose of constructing and operating a combined cycle, gas fired, power plant in the State of Sergipe in Brazil
("Sergipe Project"). See note 14 for further details.
OneLNG
On July 25, 2016 Golar and Schlumberger B.V. ("Schlumberger") entered into an agreement to form OneLNG S.A. ("OneLNG"), a joint venture, with the intention
to offer an integrated upstream and midstream solution for the development of low cost gas reserves to LNG. In accordance with the joint venture and shareholders'
agreement, Golar holds 51% and Schlumberger the remaining 49% of OneLNG. See note 14 for further details.
Going
Concern
The financial statements have been prepared on a going concern basis. Our assessment is largely dependent on the Hilli
acceptance, of which testing procedures are
expected to commence shortly. Based on progress to date, we are confident that the Hilli
will be accepted.
A pre-condition of the Golar
Tundra
lease financing with CMBL (refer to note 5) is for the FSRU to be employed under an effective charter. The termination of the
WAGL charter by us means that we now have to find a replacement charter by June 30, 2018 or we could be required to refinance the FSRU. A similar pre-
condition also applies to the Golar
Seal
lease financing with CCBFL (refer to note 5), whereby the vessel is to be employed under an effective charter by
December 31, 2018, or we could be required to refinance the LNG carrier. Accordingly, to address our anticipated working capital requirements over the next 12
months, in the event we are unable to secure a charter for the Golar
Tundra
or the Golar
Seal
, we are currently exploring our refinancing options, including
extension of the lenders’ deadlines for satisfaction of such. While we believe we will be able to obtain the necessary funds from these refinancings, we cannot be
certain that the proposed new credit facilities will be executed in time or at all. However, we have a track record of successfully financing and refinancing our
vessels, even in the absence of term charter coverage. In addition to vessel refinancings, if market and economic conditions are favorable, we may also consider
further issuances of corporate debt or equity to increase liquidity, as demonstrated by our convertible bond offering in February 2017, which raised net proceeds of
$360.2 million . We also entered into a Margin Loan Facility in March 2017, which raised proceeds of $150 million .
Furthermore, with respect to our Golar Power joint venture with Stonepeak, under the shareholders' agreement, we and Stonepeak have agreed to contribute
additional funding to Golar Power, on a pro rata basis, including (i) an aggregate of $ 150 million in the period through to the third quarter of 2018; and (ii)
additional amounts as may be required by Golar Power, subject to the approval of its board of directors. In connection with Golar Power’s election in October 2016
to increase its ownership interest in the Sergipe Project from 25% to 50% by buying out the project developer GenPower, this is expected to result in an additional
funding requirement of between $ 20 million to $ 50 million to be shared with Stonepeak, with the initial $ 20 million already paid.
In connection with our joint venture OneLNG, under the joint venture and shareholders' agreement with Schlumberger, once a OneLNG project reaches final
investment decision, we and Schlumberger will each be required to provide $ 250 million of new equity. Contributions may include intellectual property amongst
other items. OneLNG and Ophir have signed a shareholders' agreement to develop a project in Equatorial Guinea. The effectiveness of the shareholders' agreement
is subject to certain conditions precedent including final investment decisions by OneLNG and Ophir, securing of financing and governmental approval which may
occur in the first half of 2018. Accordingly, we anticipate in the event of a final investment decision, to fund the estimated $ 2 billion project cost, assuming debt
financing and Ophir’s investment of $ 150 million , OneLNG will be expected to invest approximately $ 650 million (this is inclusive of the aggregate of $ 500
million new equity required under the OneLNG shareholders' agreement). The cash contribution from the Company to the project remains uncertain as the timing
of capital expenditure for the project is not yet finalized due to the payment profile of certain contracts continuing to be negotiated. Furthermore, the amount of our
contribution to the project within the next twelve months will be determined by the timing of the final investment decision, which is yet to be taken. Our recent
financings will contribute towards our 51% share of the equity contribution into OneLNG in the 2018 to 2020 period. Credit can be expected for both the
intellectual property and the LNG carrier Gandria
contributed by Golar into the Equatorial Guinea project.
To address our anticipated working capital requirements over the next 12 months, we remain in ongoing negotiations with financial institutions for the refinancing
of one or more of our vessels. However, given the recent challenging market conditions, which are now showing signs of an anticipated recovery, timing of these
refinancings still remains uncertain. While we believe we will be able to obtain the necessary funds from these refinancings, we cannot be certain that the proposed
new credit facilities will be executed in time or at all. However, we have a track record of successfully financing and refinancing our vessels, even in the absence of
term charter coverage, and our recent success has included the refinancing of the Golar
Crystal
in March 2017, in connection with which we raised an additional
$9.2 million in additional cash and also allowed the release of $6.8 million from restricted cash. In addition to vessel refinancing, if market and economic
conditions are favorable, we may also consider issuance of corporate debt or equity to increase liquidity, as demonstrated by our recent equity offering in
November 2016 and convertible bond offering in February 2017.
F-10
Accordingly, we believe that, based on our plans as outlined above, we will have sufficient facilities to meet our anticipated liquidity requirements for our business
for at least the next 12 months as of April 16, 2018 and that our working capital is sufficient for our present requirements. While we cannot be certain of execution
or timing of all or any of the above financings, we are confident of our ability to do so. Furthermore, we have performed stress testing of our forecast cash reserves
under extreme and largely theoretical scenarios, which include assumptions such as $ nil revenue contributions from our fleet, full operating costs and maintaining
our dividend payments based on our most recent payout, and accordingly are confident of our ability to manage through the near term cash requirements.
2.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting and presentation
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The year ended December 31, 2017 includes a depreciation catch-up charge of $9.7 million in respect of the Golar
Tundra
, which was previously not depreciated
whilst accounted for as an asset held-for-sale. Previously, the assets and liabilities associated with the agreement to sell our interests in the companies that own and
operate the FSRU the Golar
Tundra
to Golar Partners were classified as held-for-sale. As of March 31, 2017, these assets and liabilities no longer qualified for
classification as held-for-sale. Furthermore, on May 30, 2017, Golar Partners exercised its Put Right in respect of the Golar
Tundra
. Accordingly, as of March 31,
2017 (and for all retrospective periods), these assets and liabilities are presented as held for use in the Consolidated Balance Sheets.
The accounting policies set out below have been applied consistently to all periods in these consolidated financial statements, unless otherwise noted.
Principles of consolidation
Investments in companies in which we directly or indirectly hold 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
subsidiaries were included in the Consolidated Balance Sheets and Statements of Operations as "Non-controlling interests".
A variable interest entity ("VIE"), 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. A party that
is a variable interest holder is required to consolidate a VIE if the holder has both (a) the power to direct the activities that most significantly impact the entity's
economic performance and (b) the obligation to absorb losses that could potentially be significant to the VIE or the right to receive benefits from the VIE that could
potentially be significant to the VIE.
Business combinations
Business combinations are accounted for under the acquisition method. On acquisition, the identifiable assets, liabilities and contingent liabilities of a subsidiary
are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is
recognized as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. bargain purchase) is credited to
the Consolidated Statements of Operations in the period of acquisition. The consideration transferred for an acquisition is measured at fair value of the
consideration given. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The results of subsidiary undertakings are included from the date of acquisition.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we will recognize a
measurement-period adjustment during the period in which we determine the amount of the adjustment,
F-11
including the effect on earnings of any amounts we would have recorded in previous periods had the accounting been completed at the acquisition date.
Reporting currency
The consolidated financial statements are stated in U.S dollars. Our functional currency is the U.S. dollar as the majority of the revenues are received in U.S.
dollars and a majority of our expenditures are made in U.S. dollars. Our reporting currency is U.S. dollars. Transactions in other currencies during the year are
converted into U.S. dollars at the rates of exchange in effect at the date of the transaction. Non-monetary assets and liabilities are converted using historical rates of
exchange. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the U.S. dollar are translated to reflect the year-
end exchange rates. Resulting gains or losses are reflected separately in the accompanying Consolidated Statements of Operations.
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.
As of December 31, 2017 , we leased seven vessels under finance leases from wholly-owned special purpose vehicles (“lessor SPVs”) of financial institutions in
connection with our sale and leaseback transactions. While we do not hold any equity investments in these lessor SPVs, we have determined that we are the
primary beneficiary of these entities and accordingly, we are required to consolidate these VIEs into our financial results. The key line items impacted by our
consolidation of these VIEs are short-term and long-term debt, restricted cash and short-term deposits, non-controlling interests and interest expense. In
consolidating these lessor VIEs, on a quarterly basis, we must make assumptions regarding the debt amortization profile and the interest rate to be applied against
the VIEs’ debt principal. Our estimates are therefore dependent upon the timeliness of receipt and accuracy of financial information provided by these lessor VIE
entities. Upon receipt of the audited annual financial statements of the lessor VIEs, we will make a true-up adjustment for any material differences.
In assessing the recoverability of our vessels’ carrying amounts, we make assumptions regarding estimated future cash flows and estimates in respect of residual or
scrap value. Significant assumptions used include, among others, charter rates, ship operating expenses, utilization, drydocking requirements and residual value.
Fair value measurements
We account for fair value measurement in accordance with the accounting standards 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.
Revenue and related expense recognition
Revenues include minimum lease payments under time charters and gross pool revenues. Revenues generated from time charters, which we classify as operating
leases, are recorded over the term of the charter as service is provided. However, we do not recognize revenue if a charter has not been contractually committed to
by a customer and ourselves, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
Repositioning fees (included in time and voyage charter revenues) 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.
Revenues generated from management fees are recorded rateably over the term of the contract as services are provided.
Under time charters, voyage expenses are generally paid by our 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.
F-12
Vessel operating expenses, which are recognized when incurred, include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses
and third party management fees. Bunkers consumption represents mainly bunkers consumed during unemployment and off-hire. Furthermore, in relation to our
vessels participating in the pool, voyage expenses and commissions from collaborative arrangements include an allocation of our net results from the pool to the
other participants. Each participants' share of the net pool revenues is based on the number of pool points attributable to its vessels and the number of days such
vessels participated in the pool.
Pool revenues and expenses under the Cool Pool arrangement have been accounted for in accordance with the guidance for collaborative arrangements.
Accordingly, we have presented our share of the net income earned under the Cool Pool arrangement across a number of line items in the income statement. For net
revenues and expenses incurred relating specifically to Golar’s vessels, and for which we are deemed the principal, these will be presented gross on the face of the
income statement in the line items "Time and voyage charter revenues" and "Voyage, charter-hire and commission expenses". Pool net revenues generated by the
other participants in the pooling arrangement will be presented separately in the income statement as revenue and expenses from collaborative arrangements. Refer
to note 29 for an analysis of the income statement effect for the pooling arrangement for the year ended December 31, 2017 .
Cash and cash equivalents
We consider 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 deposits
Restricted cash consists of bank deposits which may only be used to settle certain pre-arranged loans, bid bonds in respect of tenders for projects we have entered
into, cash collateral required for certain swaps, and other claims which require us to restrict cash.
Short-term deposits represent highly liquid deposits placed with financial institutions, primarily from our consolidated VIEs, which are readily convertible into
known amounts of cash with original maturities of less than 12 months.
Trade accounts receivables
Trade receivables are presented net of allowances for doubtful balances. At each balance sheet date, all potentially uncollectible accounts are assessed individually
for purposes of determining the appropriate provision for doubtful accounts.
Inventories
Inventories, which are comprised principally of fuel, lubricating oils and vessel spares, are stated at the lower of cost and net realizable value. Cost is determined
on a first-in, first-out basis.
Investments in affiliates
Affiliates are entities over which we generally have between 20% and 50% of the voting rights, or over which we have significant influence, but over which we do
not exercise control or have the power to control the financial and operational policies. Investments in these entities are accounted for by the equity method of
accounting. This also extends to entities in which we hold a majority ownership interest, but we do not control, due to the participating rights of non-controlling
interests. Under this method, we record our investment in the affiliate at cost (or fair value if a consequence of deconsolidation), and adjust the carrying amount for
our share of the earnings or losses of the affiliate subsequent to the date of the investment and report the recognized earnings or losses in income. Dividends
received from an affiliate reduce the carrying amount of the investment. The excess, if any, of the purchase price over book value of our investments in equity
method affiliates, or basis difference, is included in the Consolidated Balance Sheets as "Investments in affiliates". We allocate the basis difference across the
assets and liabilities of the affiliate, with the residual assigned to goodwill. The basis difference will then be amortized through the Consolidated Statements of
Operations as part of the equity method of accounting. When our share of losses in an affiliate equals or exceeds its interest, we do not recognize further losses,
unless the Company has incurred obligations or made payments on behalf of the affiliate.
We recognize gains and losses in earnings for the issuance of shares by our affiliates, provided that the issuance of such shares qualifies as a sale of such shares.
F-13
Exchanges of a controlled asset or group of assets that does not meet the definition of a business for a non-controlling interest
Under the guidance of ASC 845, we have elected the accounting policy choice to apply "carry over" accounting to any applicable exchanges which fall under the
remit of this guidance. The application of "carry over" accounting means that any such in-scope exchange will have an initial $nil income statement impact.
Cost method investments
Cost method investments 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. Dividends received from cost method investments are recorded in the Consolidated Statements of Operations in the line item
"Dividend income".
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. Depreciation includes depreciation on all owned vessels and amortization of vessels accounted
for as capital leases. Management estimates the residual values of our vessels based on a scrap value cost of steel and aluminum times the weight of the ship noted
in lightweight ton. Residual values are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons.
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 five years. For
vessels that are newly built or acquired, we have 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. When a vessel is disposed, any unamortized drydocking expenditure is charged against
income in the period of disposal.
Vessel reactivation costs incurred on vessels leaving lay-up include both costs of a capital and expense nature. The capital costs include the addition of new
equipment or modifications to the vessel which enhance or increase the operational efficiency and functionality of the vessel. These expenditures are capitalized
and depreciated over the remaining useful life of the vessel. Expenditures of a routine repairs and maintenance nature that do not improve the operating efficiency
or extend the useful lives of the vessels are expensed as incurred as mobilization costs.
Useful lives applied in depreciation are as follows:
Vessels
Deferred drydocking expenditure
Office equipment and fittings
Asset under development
40 years
five years
three to six years
An asset is classified as asset under development when there is a firm commitment from us to proceed with the construction of the asset and the likelihood of
conversion is virtually certain to occur. An asset under development is classified as non-current and is stated at cost. All costs incurred during the construction of
the asset, including conversion installment payments, interest, supervision and technical costs are capitalized. Interest costs directly attributable to construction of
the asset is added to the cost of the asset. Capitalization ceases, and depreciation commences, once the asset is completed and available for its intended use.
F-14
Interest costs capitalized
Interest is capitalized on all qualifying assets that require a period of time to get them ready for their intended use. Qualifying assets consist of vessels under
construction, assets under development and vessels undergoing conversion into FSRUs or FLNGs for our own use. In addition, certain equity method investments
may be considered qualifying assets prior to commencement of their planned principal operation. The interest capitalized is calculated using the rate of interest on
the loan to fund the expenditure or our weighted average cost of borrowings, where appropriate, from commencement of the asset development until substantially
all the activities necessary to prepare the assets for its intended use are complete.
If our financing plans associate a specific borrowing with a qualifying asset, we use the rate on that borrowing as the capitali z ation rate to be applied to that
portion of the average accumulated expenditures for the asset provided that does not exceed the amount of that borrowing. We do not capitali z e amounts beyond
the actual interest expense incurred in the period.
Asset retirement obligation
An asset retirement obligation, or ARO, is a liability associated with the eventual retirement of a fixed asset.
The fair value of an ARO is recorded as a liability in the period when the obligation arises. The fair value of the ARO is measured using expected future discounted
cash outflows. When the liability is recognized, we also capitalize the related ARO cost by adding it to the carrying amount of the related fixed asset. Each period,
the liability is increased for the change in its present value. Changes in the amount or timing of the estimated ARO are recorded as an adjustment to the related
liability and asset.
Held-for-sale assets and disposal group
Individual assets or subsidiaries to be disposed of, by sale or otherwise in a single transaction, are classified as held-for-sale if the following criteria are met at the
period end:
• Management, having the authority to approve the action, commits to a plan to sell the assets or subsidiaries;
•
•
•
•
The asset or subsidiaries are available for immediate sale in its present condition subject only to terms that are usual and customary for such sales;
An active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
The sale is probable; and
The transfer is expected to qualify for recognition as a completed sale, within one year.
The term probable refers to a future sale that is likely to occur, the asset or subsidiaries (disposal group) is being actively marketed for sale at a price that is
reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made
or that the plan will be withdrawn.
A disposal group is classified as discontinued operations if the following criteria are met: (1) a component of an entity or group of components that has been
disposed of by sale, disposed of other than by sale or is classified as held-for-sale that represents a strategic shift that has or will have a major effect on our
financial results or (2) an acquired business or non-profit activity (the entity to be sold) that is classified as held-for-sale on the date of the acquisition.
Assets or subsidiaries held-for-sale are carried at the lower of their carrying amount and fair value less costs to sell. Interest and other expenses attributable to the
liabilities of a disposal group classified as held-for-sale shall continue to be accrued. On classification as held-for-sale, the assets are no longer depreciated.
If, at any time, the criteria for held-for-sale is no longer met, then the asset or disposal group will be reclassified to held and used. The asset or disposal group will
be valued at the lower of the carrying amount before the asset or disposal group was classified as held-for-sale (as adjusted for any subsequent depreciation and
amortization), and its fair value. Any adjustment to the value is shown in Consolidated Statements of Operations for the period in which the criterion for held-for-
sale was not met.
F-15
Impairment of non-current assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of non-current assets may not be recoverable. When such events
or changes in circumstances are present, we assess the recoverability of non-current 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, we recognize an
impairment loss based on the excess of the carrying amount over the lower of the fair market value of the assets, less cost to sell, and the net present value ("NPV")
of estimated future undiscounted cash flows from the employment of the asset ("value-in-use").
Other-than temporary impairment of investments
Where there are indicators that fair value is below carrying value of our investments, we will evaluate these for other-than-temporary impairment. Consideration
will be given to (1) the length of time and the extent to which fair value is below carrying value, (2) the financial condition and near-term prospects of the investee,
and (3) our intent and ability to hold the investment until any anticipated recovery. Where determined other-than-temporary impairment, we will recognize an
impairment loss in the period.
Deferred charges
Costs associated with long-term financing, including debt arrangement fees, are deferred and amortized over the term of the relevant loan under the effective
interest method. Amortization of debt issuance costs is included in interest expense. These costs are presented as a deduction from the corresponding debt liability,
consistent with debt discounts.
Derivatives
We use derivatives to reduce market risks associated with our operations. We use interest rate swaps for the management of interest rate risk exposure. The interest
rate swaps effectively convert a portion of our debt from a floating to a fixed rate over the life of the transactions without an exchange of underlying principal.
We seek to reduce our exposure to fluctuations in foreign exchange rates through the use of foreign currency forward contracts.
From time to time, we enter into equity swaps. Under these facilities, we swap with our counterparty (usually a major bank) the risk of fluctuations in our 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.
All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying Consolidated Balance Sheets 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" and "Other non-current liabilities", as appropriate, in the Consolidated Balance Sheets. 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 Sheets. 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. The Company has historically hedge accounted for certain of its interest rate swap arrangements designated as cash flow hedges. However, since 2015,
the Company ceased hedge accounting for any of its derivatives. 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 each period in current earnings in "Other financial items" in the Consolidated
Statements of Operations.
The fair value of the FLNG derivative was determined using the estimated discounted cash flows of the additional payments due to us as a result of oil prices
moving above a contractual oil price floor over the term of the LTA. Significant inputs used in the valuation of the FLNG derivative include management’s
estimate of an appropriate discount rate and the length of time to blend the long-term and the short-term oil prices obtained from quoted prices in active markets.
The changes in fair value of our FLNG derivative is recognized in each period in current earnings in "Unrealized gain on FLNG derivative instrument".
Convertible bonds
We account for debt instruments with convertible features in accordance with the details and substance of the instruments at the time of their issuance. For
convertible debt instruments issued at a substantial premium to equivalent instruments without conversion features, or those that may be settled in cash upon
conversion, it is presumed that the premium or cash conversion option represents an equity component.
F-16
Accordingly, we determine the carrying amounts of the liability and equity components of such convertible debt instruments by first determining the carrying
amount of the liability component by measuring the fair value of a similar liability that does not have an equity component. The carrying amount of the equity
component representing the embedded conversion option is then determined by deducting the fair value of the liability component from the total proceeds from the
issue. The resulting equity component is recorded, with a corresponding offset to debt discount which is subsequently amortized to interest cost using the effective
interest method over the period the debt is expected to be outstanding as an additional non-cash interest expense. Transaction costs associated with the instrument
are allocated pro-rata between the debt and equity components.
For conventional convertible bonds which do not have a cash conversion option or where no substantial premium is received on issuance, it may not be appropriate
to separate the bond into the liability and equity components.
Provisions
In the ordinary course of business, we are subject to various claims, lawsuits and complaints. Management, in consultation with internal and external advisers, will
provide for a contingent loss in the financial statements if the contingency had occurred at the date of the financial statements and the likelihood of loss was
probable and the amount can be reasonably estimated. If we determine that the reasonable estimate of the loss is a range and there is no best estimate within the
range, we will provide the lower amount within the range.
Pensions
Defined benefit pension costs, assets and liabilities requires adjustment of the significant actuarial assumptions annually to reflect current market and economic
conditions. Our accounting policy states that full recognition of the funded status of defined benefit pension plans is to be included within our Consolidated
Balance Sheets. 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 and are recorded in the Consolidated
Statements of Operations.
Guarantees
Guarantees issued by us, excluding those that are guaranteeing our own performance, are recognized at fair value at the time that the guarantees are issued, or upon
the deconsolidation of a subsidiary, and reported in "Other non-current liabilities". A liability for the fair value of the obligation undertaken in issuing the guarantee
is recognized. If it becomes probable that we will have to perform under a guarantee, we will recognize an additional liability if the amount of the loss can be
reasonably estimated. The recognition of fair value is not required for certain guarantees such as the parent's guarantee of a subsidiary's debt to a third party. For
those guarantees excluded from the above guidance requiring the fair value recognition provision of the liability, financial statement disclosures of such items are
made.
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.
Stock-based compensation
In accordance with the guidance on share based payments, we are required to expense the fair value of stock options issued to employees over the period the
options vest. We amortize 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 reward - 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
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.
F-17
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.
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.
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.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on the
tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognized directly in the statement of
comprehensive income is recognized in the statement of changes in equity and not in the Consolidated Statements of Operations.
Penalties and interest related to uncertain tax positions are recognized in “Income taxes” in the Consolidated Statements of Operations.
Related parties
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making
financial and operating decisions. Parties are also related if they are subject to common control or significant influence.
Gain on issuance of shares by subsidiaries
We recognize a gain or loss when a subsidiary issues its stock to third parties at a price per share in excess or below its carrying value resulting in a reduction in our
ownership interest in the subsidiary. The gain or loss is recorded in the line "Additional paid-in capital".
Gain on disposals to Golar Partners
Where we have a gain or loss upon disposal of a subsidiary or business to Golar Partners, the gain or loss is recognized in the Consolidated Statements of
Operations at the time of sale as a component of operating income.
Segment reporting
A segment is a distinguishable component of the business that is engaged in business activities from which we earn revenues and incur expenses whose operating
results are regularly reviewed by the chief operating decision maker, and which are subject to risks and rewards that are different from those of other segments. We
have identified three reportable industry segments: vessel operations, FLNG and Power (see note 8).
3.
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting
pronouncements
that
have
been
issued
but
not
adopted
In May 2014, the FASB issued ASU 2014-09 Revenue
from
Contracts
With
Customers
(Topic
606)
and subsequent amendments. The standard provides a single,
comprehensive revenue recognition model and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective on either a full or
modified retrospective basis for us on January 1, 2018. We do not expect a material impact on the adoption of this standard on our Consolidated Financial
Statements; however significant new disclosures will be introduced.
F-18
In February 2016, the FASB issued ASU 2016-02 Leases
(Topic
842)
and subsequent amendments. This standard requires a lessee to recognize right-of-use assets
and lease liabilities on its balance sheet for all leases with terms longer than 12 months and introduces additional disclosure requirements. Lessors are required to
classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition and provides guidance for sale and leaseback
transactions. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been
transferred through a lease contract. The standard will become effective on a modified retrospective basis for us on January 1, 2019. We are evaluating the impact
of this standard on our Consolidated Financial Statements and related disclosures. Due to the transition provisions for lessors, the most significant impact of the
adoption of this standard will be the recognition of lease assets and lease liabilities on our balance sheet for those leases where we are a lessee that are currently
classified as operating leases.
In June 2016, the FASB issued ASU 2016-13 Financial
Instruments
-
Credit
Losses
(Topic
326):
Measurement
of
Credit
Losses
on
Financial
Instruments
which
requires recognition and measurement of expected credit losses for financial assets and off balance sheet credit exposures. The guidance is effective on a modified
retrospective basis for us on January 1, 2020 with early adoption permitted. We are evaluating the impact of this standard on our Consolidated Financial Statements
and related disclosures.
In August 2016, the FASB issued ASU 2016-15 Statement
of
Cash
Flows
(Topic
230):
Classification
of
Certain
Cash
Receipts
and
Cash
Payments
, which among
other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the statement of cash flows.
The guidance is effective on a retrospective basis for us on January 1, 2018 and results in presentational changes to our Consolidated Statement of Cash Flows.
In November 2016, the FASB issued ASU 2016-18 Statement
of
Cash
Flows
(Topic
230):
Restricted
Cash
, which requires that restricted cash be included with
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statement of cash flows. The guidance is
effective on a retrospective basis for us on January 1, 2018 and results in presentational changes to our Consolidated Statement of Cash Flows and related
disclosures.
In January 2017, the FASB issued ASU 2017-01 Business
Combinations
(Topic
805):
Clarifying
the
Definition
of
a
Business
which clarifies the definition of a
business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The guidance is effective on a prospective basis for us on January 1, 2018. As a result, this increases the likelihood that future vessel dropdowns may
be considered the acquisition of an asset rather than a business combination. However, this will be dependent upon the facts and circumstances of each prospective
transaction. We do not expect a material impact on the adoption of this accounting standard to our Consolidated Financial Statements and related disclosures.
In February 2017, the FASB issued ASU 2017-05 Other
Income
-
Gains
and
Losses
from
the
Derecognition
of
Non-Financial
Assets
. The guidance provides
clarification on the definition of "in substance non-financial assets", the scope exemption with ASC 610 and partial sales of non-financial assets. The guidance is
effective on a prospective basis for us on January 1, 2018. Any gain on sale from future dropdowns will be recognized in full on the disposal date. There will be no
significant impact to our Consolidated Financial Statements and related disclosures.
F-19
4.
SUBSIDIARIES
The following table lists our significant subsidiaries and their purpose as at December 31, 2017 . Unless otherwise indicated, we own a 100% ownership interest in
each of the following subsidiaries.
Name
Golar LNG 2216 Corporation
Golar Management Limited
Golar Management Malaysia Sdn. Bhd.
Golar Management Norway AS
Golar Management D.O.O
Golar GP LLC – Limited Liability Company
Golar LNG Energy Limited
Golar Gimi Corporation
Golar Hilli Corporation (89%)*
Golar Gandria N.V.
Golar Hull M2021 Corporation
Golar Hull M2022 Corporation
Golar Hull M2027 Corporation
Golar Hull M2047 Corporation
Golar Hull M2048 Corporation
Golar LNG NB10 Corporation
Golar LNG NB11 Corporation
Golar LNG NB12 Corporation
Golar Tundra Corporation
GVS Corporation
Golar Shoreline LNG Limited
Jurisdiction of Incorporation
Purpose
Marshall Islands
United Kingdom
Malaysia
Norway
Croatia
Marshall Islands
Bermuda
Marshall Islands
Marshall Islands
Netherlands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Bermuda
Owns Golar
Arctic
Management company
Management company
Management company
Management company
Holding company
Holding company
Owns Gimi
Owns Hilli
Owns and operates Gandria
Leases and operates Golar
Seal**
Leases and operates Golar
Crystal
**
Owns and operates G olar
Bear
Leases and operates Golar
Snow**
Leases and operates Golar
Ice**
Leases and operates Golar
Glacier**
Leases and operates Golar
Kelvin**
Owns and operates Golar
Frost
Leases and operates Golar
Tundra**
Owns and operates Golar
Viking
Holding company
* The Hilli
was sold to Golar Hilli Corporation ("Hilli Corp") prior to the commencement of her conversion into a FLNG. Keppel Shipyard Limited ("Keppel") and Black &
Veatch Corporation ("Black & Veatch") hold the remaining 10% and 1% interest, respectively, in the issued share capital of Hilli Corp.
** The above table excludes mention of the lessor variable interest entities (''lessor VIEs'') that we have leased vessels from under finance leases. The lessor VIEs are wholly-
owned, newly formed special purpose vehicles ("SPVs") of financial institutions. While we do not hold any equity investments in these SPVs, we have concluded that we are the
primary beneficiary of these lessor VIEs and accordingly have consolidated these entities into our financial results. Refer to note 5 for additional detail.
5.
VARIABLE INTEREST ENTITIES ("VIE")
As of December 31, 2017, we leased seven vessels (December 31, 2016: six vessels) from VIEs under finance leases, of which four were with ICBC Finance
Leasing Co. Ltd, or ICBCL; one with a subsidiary of China Merchants Bank Co. Ltd, or CMBL; one with CCB Financial Leasing Corporation Limited, or CCBFL;
and one with a COSCO Shipping entity, or COSCO.
ICBCL
Lessor
VIEs
Commencing in October 2014, we sold the Golar
Glacier
, followed by the remaining three newbuilds (the Golar
Kelvin
, Golar
Snow
and Golar
Ice
) to ICBCL
entities in the first quarter of 2015. The vessels were simultaneously leased back on bareboat charters for a term of ten years . We have several options to
repurchase the vessels at fixed predetermined amounts during the charter periods with the earliest date from the fifth year anniversary of commencement of the
bareboat charter, and an obligation to purchase the assets at the end of the ten year lease period.
F-20
CMBL
Lessor
VIE
In November 2015, we sold the Golar
Tundra
to a CMBL entity and subsequently leased back the vessel on a bareboat charter for a term of ten years . We have
options to repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the third year anniversary of the commencement
of the bareboat charter, with an obligation to repurchase the vessel at the end of the ten year lease period.
CCBFL
Lessor
VIE
In March 2016, we sold the Golar
Seal
to a CCBFL entity and subsequently leased back the vessel on a bareboat charter for a term of ten years. We have options to
repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the fifth year anniversary of the commencement of the
bareboat charter, with an obligation to repurchase the vessel at the end of the ten year lease period.
COSCO
Lessor
VIE
In March 2017, we sold the Golar
Crystal
to a COSCO entity and subsequently leased back the vessel on a bareboat charter for a term of ten years. We have
options to repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the third year anniversary of the commencement
of the bareboat charter, with an obligation to repurchase the vessel at the end of the ten year lease period.
While we do not hold any equity investments in the above SPVs, we have determined that we have a variable interest in these SPVs and that these lessor entities,
that own the vessels, are VIEs. Based on our evaluation of the agreements, we have concluded that we are the primary beneficiary of these VIEs and, accordingly,
these VIEs are consolidated into our financial results. We did not record any gains or losses from the sale of these vessels as they continued to be reported as
vessels at their original costs in our consolidated financial statements at the time of each transaction. The equity attributable to ICBCL, CMBL, CCBFL and
COSCO in their respective VIEs are included in non-controlling interests in our consolidated financial statements. As of December 31, 2017 and 2016 , the
respective vessels are reported under “Vessels and equipment, net” in our consolidated balance sheets.
The following table gives a summary of the sale and leaseback arrangements, including repurchase options and obligations as of December 31, 2017 :
Vessel
Golar
Glacier
Golar
Kelvin
Golar
Snow
Golar
Ice
Golar
Tundra
Golar
Seal
Golar
Crystal
Effective from
October 2014
January 2015
January 2015
February 2015
November 2015
March 2016
March 2017
Sales value (in $
millions)
First repurchase
option (in $ millions)
Date of first
repurchase option
Repurchase
obligation at end of
lease term
(in $ millions)
204.0
204.0
204.0
204.0
254.6
203.0
187.0
173.8
173.8
173.8
173.8
168.7
132.8
97.3
October 2019
January 2020
January 2020
February 2020
November 2018
March 2021
March 2020
142.7
142.7
142.7
142.7
76.4
87.4
50.6
End of lease term
October 2024
January 2025
January 2025
February 2025
November 2025
March 2026
March 2027
A summary of our payment obligations (excluding repurchase options and obligations) under the bareboat charters with the lessor VIEs as of December 31, 2017,
are shown below:
(in
$
thousands)
Golar
Glacier
Golar
Kelvin
Golar
Snow
Golar
Ice
Golar
Tundra
(1)
Golar
Seal
Golar
Crystal
(1)
2018
17,100
17,100
17,100
17,100
24,545
15,151
12,151
2019
17,100
17,100
17,100
17,100
23,360
15,193
11,925
2021
17,100
17,100
17,100
17,100
21,136
15,151
11,471
2022
17,100
17,100
17,100
17,100
20,067
15,151
11,266
2023+
29,985
32,795
32,795
35,700
51,286
45,495
45,522
2020
17,147
17,147
17,147
17,147
22,260
15,151
11,718
F-21
(1) The payment obligations relating to the Golar
Tundra
and Golar
Crystal
above include variable rental payments due under the lease based on an assumed LIBOR plus a
margin.
The assets and liabilities of the lessor VIEs that most significantly impact our consolidated balance sheets as of December 31, 2017 and 2016, are as follows:
Golar
Glacier
Golar
Kelvin
Golar Snow Golar Ice
Golar
Tundra
Golar Seal
Golar
Crystal
2017
Total
2016
Total
16,179
53,003
16,379
8
38,514
3,778
2,202
130,063
70,021
(in
$
thousands)
Assets
Restricted cash and short-term deposits (see
note 18)
Liabilities
Debt:
Short-term interest bearing debt (see note 23)
31,659
182,540
22,393
134,954
198,613
143,849
104,006
818,014
388,628
Long-term interest bearing debt - current
portion (see note 23)
Long-term interest bearing debt - non-current
portion (see note 23) *
7,650
121,586
160,895
—
—
182,540
8,000
131,105
161,498
—
—
—
—
—
—
—
—
15,650
21,532
252,691
624,384
134,954
198,613
143,849
104,006
1,086,355
1,034,544
*These balances are net of deferred finance charges
The most significant impact of the lessor VIEs operations on our consolidated statements of operations is interest expense of $37.4 million , $44.1 million and
$31.6 million for the years ended December 31, 2017 , 2016 and 2015, respectively. The most significant impact of the lessor VIEs cash flows on our consolidated
statements of cash flows is net cash received in financing activities of $51.5 million , $154.2 million and $704.2 million for the years ended December 31, 2017 ,
2016 and 2015, respectively.
6.
DISPOSALS TO GOLAR PARTNERS
In January 2015, we sold our interests in the company that owns and operates the Golar
Eskimo
to Golar Partners.
(in
thousands
of
$)
Cash consideration received (1)
Carrying value of the net assets sold to Golar Partners
Gain on disposal
Golar Eskimo
226,010
(123,604)
102,406
The gain from the sale of the Golar
Eskimo
in January 2015 was $102.4 million and has been recognized in the consolidated statements of operation under "Gain
on disposals to Golar Partners" for the year ended December 31, 2015.
(1) The cash consideration for the Golar
Eskimo
comprised of $390.0 million for the vessel and charter less the assumed bank debt of $162.8 million less purchase price
adjustments of $1.2 million .
7.
DECONSOLIDATION OF GOLAR POWER ENTITIES
In June 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power Ltd ("Golar Power"), with investment vehicles affiliated with the
private equity firm Stonepeak Infrastructure Partners ("Stonepeak"). The purpose of Golar Power is to offer integrated LNG based downstream solutions through
the ownership and operation of FSRUs and associated terminal and power generation infrastructure. The transaction closed on July 6, 2016 with the receipt of net
proceeds of $113 million from the disposal of 50% of our holding in the ordinary share capital of Golar Power to Stonepeak. Accordingly, effective from this date,
we deconsolidated the results and net assets relating to the two vessels; the Golar
Penguin
and the Golar
Celsius
, the newbuild Golar
Nanook
and LNG Power
Limited, which holds the rights to participate in the Sergipe Project. On the same date, we commenced equity accounting for our residual interest in Golar Power
and we recorded an investment in Golar Power of $116 million , which represents the fair value of our remaining 50% holding in Golar Power's ordinary share
capital. We calculated a loss on disposal of $8.5 million .
F-22
The table below illustrates how the loss on loss of control has been calculated:
(in
thousands
of
$)
Net proceeds (a)
Fair value of 50% retained investment in Golar Power (b)
Fair value of counter guarantees from Golar Power (c)
Total fair value of Golar Power
Less:
Carrying value of Golar Power’s net assets (d)
Guarantees issued by Golar to Golar Power (e)
Loss on loss of control of Golar Power
As of July 6, 2016
113,000
116,000
3,701
232,701
236,713
4,471
(8,483)
(a)
Net
proceeds
received
for
the
disposal
of
50%
in
Golar
Power
The table below shows the purchase consideration we received for the disposal of a 50% interest in the ordinary share capital in Golar Power that was acquired by
Stonepeak:
(in
thousands
of
$)
Consideration received from Stonepeak
Less: Fee paid in relation to the transaction
Net proceeds
(b)
Fair
value
of
the
retained
investment
in
Golar
Power
As of July 6, 2016
116,000
(3,000)
113,000
The fair value of our retained investment, being the 50% interest in the ordinary share capital in Golar Power has been recorded at $116 million . The fair value was
determined with reference to the consideration of $116 million we received from Stonepeak pertaining to the 50% ordinary share capital interest they acquired.
Thus given that this was negotiated between third parties, this is representative of fair value.
(c)
Fair
value
of
counter
guarantees
from
Golar
Power
A number of counter guarantees were entered into by Golar Power for the benefit of Golar LNG, specifically to reimburse Golar for the historic legacy debt
guarantees discussed in (e) below. In aggregate, based on the agreed premiums the fair value of these counter guarantees were calculated as $3.7 million .
F-23
(d)
Carrying
value
of
Golar
Power's
net
assets
The table below shows the underlying carrying value of Golar Powers' net assets at the deconsolidation date:
(in
thousands
of
$)
ASSETS
Current
Cash and cash equivalents
Restricted cash
Trade accounts receivable
Other receivables, prepaid expenses and accrued income
Short term amounts due from related parties
Inventory
Total
current
assets
Non-current
Newbuildings
Vessels, net
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current portion of long-term debt
Trade accounts payable
Accrued expenses
Total
current
liabilities
Non-current
Long-term debt
Total liabilities
Equity
Stockholders’ equity
Total liabilities and stockholders' equity
(e)
Guarantees
issued
by
Golar
to
Golar
Power
As at July 6, 2016
10,992
15,463
1,474
178
3,000
952
32,059
50,436
387,261
469,756
20,032
969
21,357
42,358
190,685
233,043
236,713
469,756
In accordance with ASC 460, the guarantees issued by us in respect of Golar Power and its subsidiaries (previously not recognized) were fair valued as of the
deconsolidation date which amounted to a liability of $4.5 million . This comprises of the following items:
(in
thousands
of
$)
Debt guarantees
Shipyard guarantee
Total guarantees
As of July 6, 2016
3,283
1,188
4,471
Debt
guarantees
-
The debt guarantees were previously issued by Golar to third party banks in respect of certain secured debt facilities relating to Golar Power and
subsidiaries. The liability which is recorded in "Other non-current liabilities" is being amortized over the remaining term of the respective debt facilities with the
credit being recognized in "Other financial items". See "Transactions with Golar Power and subsidiaries" in note 29.
F-24
Shipyard
guarantee
-
Golar has provided Samsung with a guarantee of settlement in relation to the shipbuilding contract of Golar
Nanook
, which now forms part
of Golar Power's asset base. The liability which is recorded in "Other current liabilities" is being amortized on a straight line basis until delivery of the vessel with
the credit being recognized in "Other financial items". See "Transactions with Golar Power and subsidiaries" in note 29.
8.
SEGMENT INFORMATION
We are a project development company. We own and operate LNG carriers and FSRUs and provide these services under time charters under varying periods. As of
December 31, 2017 , we are in the process of commissioning our first FLNG vessel and have entered the power market in an effort to become a midstream LNG
solution provider. Our reportable segments consist of the primary services each provides. Although our segments are generally influenced by the same economic
factors, each represents a distinct product in the LNG industry. Segment results are evaluated based on net income. The accounting principles for the segments are
the same as for our consolidated financial statements. Indirect general and administrative expenses are allocated to each segment based on estimated use.
The split of the organization of the business into three reportable segments is based on differences in management structure and reporting, economic characteristics,
customer base, asset class and contract structure. As of December 31, 2017 , we operate in the following three reportable segments:
•
•
•
Vessel
operations
– We operate and subsequently charter out vessels on fixed terms to customers.
FLNG
– In 2014, we ordered our first FLNG based on the conversion of our existing LNG carrier, the Hilli.
The Hilli
FLNG conversion has been completed
and the vessel currently undergoing commissioning. We expect acceptance testing procedures to commence shortly.
In July 2016, we entered into an agreement with Schlumberger B.V. ("Schlumberger") to form OneLNG, a joint venture, with the intention to offer an
integrated upstream and midstream solution for the development of low cost gas reserves to LNG. OneLNG will be the exclusive vehicle for all projects that
involve the conversion of natural gas to LNG which require both Schlumberger Production Management services and Golar's FLNG expertise. As a result
we report the equity in net earnings (losses) of OneLNG in the FLNG segment.
Power
– In July 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power, with private equity firm Stonepeak. Golar Power
offers integrated LNG based downstream solutions, through the ownership and operation of FSRUs and associated terminal and power generation
infrastructure.
F-25
(in
thousands
of
$)
Vessel
operations
FLNG
Power
Other (1)
Total
Vessel
operations
FLNG
Power
Other (1)
Total
Vessel
operations
FLNG
Other (1)
Total
December 31, 2017
December 31, 2016 (3)
December 31, 2015
Statement of
Operations:
Total operating revenues
Depreciation and
amortization
Other operating expenses
Other operating gains
and losses
143,537
(76,522)
—
—
(163,207)
(4,365)
—
15,100
Operating (loss) income
(96,192)
10,735
Inter segment operating
income (loss) (2)
Segment operating (loss)
income
4,568
—
(91,624)
10,735
—
—
—
—
—
—
—
—
—
—
—
—
143,537
80,257
(76,522)
(72,972)
—
—
(167,572)
(144,816)
(3,576)
15,100
16
—
(85,457)
(137,515)
(3,576)
(4,568)
—
275
—
(4,568)
(85,457)
(137,240)
(3,576)
—
—
—
—
—
—
—
—
—
—
—
—
80,257
102,674
(72,972)
(73,732)
—
—
(148,392)
(156,003)
(4,869)
16
95,550
—
(141,091)
(31,511)
(4,869)
—
—
—
—
—
102,674
(73,732)
(160,872)
95,550
(36,380)
(275)
—
203
—
(203)
—
(275)
(141,091)
(31,308)
(4,869)
(203)
(36,380)
Equity in net earnings
(losses) of affiliates
Balance sheet:
1,503
(8,153)
(18,798)
—
(25,448)
37,344
—
10,534
—
47,878
55,985
—
—
55,985
Total assets
3,025,244
1,515,463
228,696
(5,116)
4,764,287
3,152,311
978,614
126,534
(548)
4,256,911
3,398,667
870,804
(273)
4,269,198
Investment in affiliates
472,482
2,047
228,696
Capital expenditures
1,349
390,552
—
—
—
703,225
391,901
512,046
10,200
126,534
33,698
200,820
—
—
—
648,780
234,518
541,565
—
565,777
111,572
—
—
541,565
677,349
(1) Eliminations required for consolidation purposes.
(2) Inter segment operating income (loss) relates to management fee and charterhire revenues between the segments.
(3) We no longer consider LNG trading a separate reportable segment. Given the previously reported segment information was immaterial for all periods presented, we have
included these amounts within the vessel operations segment.
Revenues from external customers
During the year ended December 31, 2017 our vessels operated predominately within the Cool Pool.
In the years ended December 31, 2017 , 2016 and 2015 , revenues from the following customers accounted for over 10% of our consolidated time and voyage
charter revenues:
(in
thousands
of
$)
The Cool Pool (1)
An energy and logistics company
Nigeria LNG Ltd
Major commodity trading company
2017
106,302
9,235
—
—
91%
8%
—%
—%
2016
51,075
7,975
—
—
77%
12%
—%
—%
2015
5,771
—
37,994
16,167
6%
—%
42%
18%
(1) The 2017 Cool Pool revenue of $106.3 million includes revenue of $28.3 million that is separately disclosed in the consolidated statements of operations as from a
collaborative arrangement. The balance of $78.0 million was derived from Golar vessels operating within the Cool Pool, and is included within the caption "Time and voyage
charter revenues" in the consolidated statements of operations. See note 29.
The above revenues exclude vessel and other management fees from Golar Partners (see note 29).
Geographic segment data
In time and voyage charters for LNG carriers (or our FSRU, operating as a LNG carrier), the charterer, not us, controls the routes of our vessels. These routes can
be worldwide as determined by the charterers. Accordingly, our management, including the chief operating decision maker, do not evaluate our performance either
according to customer or geographical region.
F-26
9.
IMPAIRMENT OF NON-CURRENT ASSETS
Vessels
The following table presents the market values and carrying values of seven of our vessels that we have determined to have market values that are less than their
carrying values as of December 31, 2017 . However, based on the estimated future undiscounted cash flows of these vessels, which are significantly greater than
the respective carrying values, no impairment was recognized.
(in
thousands
of
$)
Vessel
Golar
Arctic
Golar
Bear
Golar
Frost
Golar
Ice
Golar
Kelvin
Golar
Snow
Golar
Viking
2017 Market value (1)
2017 Carrying value
84,300
187,300
187,800
190,000
189,800
189,500
88,500
137,600
189,400
193,600
198,000
191,400
197,700
116,400
Deficit
53,300
2,100
5,800
8,000
1,600
8,200
27,900
(1) Market values are determined using reference to average broker values provided by independent brokers. Broker values are considered an estimate of the market value for the
purpose of determining whether an impairment trigger exists. Broker values are commonly used and accepted by our lenders in relation to determining compliance with relevant
covenants in applicable credit facilities for the purpose of assessing security quality.
Since vessel values can be volatile, our estimates of market value may not be indicative of either the current or future prices we could obtain if we sold any of the vessels. In
addition, the determination of estimated market values may involve considerable judgment, given the illiquidity of the second-hand markets for these types of vessels.
Long-lived assets
The following table presents the impairment charge recognized in relation to equipment included in "Other non-current assets", acquired due to uncertainty of the
future usage of this equipment:
(in
thousands
of
$)
Impairment charge
2017
—
2016
1,706
2015
1,957
10.
OTHER FINANCIAL ITEMS, NET
(in
thousands
of
$)
Mark-to-market adjustment for interest rate swap derivatives (see note 28)
Interest expense on undesignated interest rate swaps (see note 28)
Mark-to-market adjustment for equity derivatives (see note 28)
Impairment of loan (1)(2)
Financing arrangement fees and other costs
Amortization of debt guarantee
Foreign exchange loss on operations
Other
2017
6,614
(3,802)
16,622
—
(677)
1,548
(888)
1,210
20,627
2016
2,818
(10,153)
24,819
(7,627)
(404)
1,563
(1,909)
(416)
8,691
2015
(12,798)
(15,797)
(67,925)
(15,010)
(1,841)
2,800
(2,126)
(25)
(112,722)
(1) Given the announcement of a negative Final Investment Decision from the Douglas Channel Project consortium in 2014, we reassessed the recoverability of the loan and
accrued interest receivables from the Douglas Channel LNG Assets Partnership ("DCLAP") and concluded that DCLAP would not have the means to satisfy its obligations under
the loan. Accordingly, we recognized an impairment charge of $7.6 million in 2016.
F-27
(2) The amount for the year ended December 31, 2015 relates to the impairment of the loan due from Equinox in connection with the disposal of the Golar
Viking
to Equinox in
February 2015.
11.
INCOME TAXES
The components of income tax expense (benefit) are as follows:
(in
thousands
of
$)
Current tax expense:
UK
Norway
Croatia
Malaysia
Total current tax expense
Deferred tax expense:
UK
Amortization of tax benefit arising on intra-group transfers of non-current assets
Total income tax expense (benefit)
Year ended December 31
2017
2016
2015
1,120
327
21
10
1,478
27
—
1,505
712
272
45
6
1,035
90
(1,714)
(589)
435
—
—
—
435
—
(3,488)
(3,053)
The income taxes for the years ended December 31, 2017 , 2016 and 2015 differed from the amount computed by applying the Bermuda statutory income tax rate
of 0% as follows:
(in
thousands
of
$)
Income taxes at statutory rate
Effect of deferred tax benefit on intra-group transfers of non-current assets
Effect of movement in deferred tax balances
Effect of adjustments in respect of current tax in prior periods
Effect of taxable income in various countries
Total tax expense (benefit)
Bermuda
Year ended December 31
2017
—
—
27
(5)
1,483
1,505
2016
—
(1,714)
90
(334)
1,369
(589)
2015
—
(3,488)
—
(330)
765
(3,053)
Under current Bermuda law, we are not required to pay corporate income taxes or other taxes (other than duty on goods imported into Bermuda and payroll tax in
respect of any Bermuda-resident employees). We have received written assurance from the Minister of Finance in Bermuda that, in the event of any such taxes
being imposed, we will be exempted from taxation until March 31, 2035.
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 we satisfied these requirements and therefore by virtue of the above provisions, we were not subject to
tax on our U.S. source income.
F-28
United Kingdom
Current taxation of $ 1.1 million , $0.7 million and $0.4 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, relates to taxation of the
operations of our UK subsidiaries. Taxable revenues in the UK are generated by our UK subsidiary companies and are comprised of management fees received
from Golar group companies (including related parties) as well as revenues from the operation of certain of Golar's vessels. These vessels are sub-leased from other
non-UK Golar companies.
As at December 31, 2017 , the statutory rate in the UK was 19% .
There are ongoing inquiries and discussions with the UK tax authorities for certain subsidiaries in relation to tax depreciation claims. If the UK tax authorities
successfully challenged the availability of the tax depreciation claims, this would impact Golar's or that of the lessor banks' tax returns from 2003 onwards. Further
detail on this matter is included within ''Other commitments and contingencies'' (see note 31).
Our deferred income tax asset is as follows:
(in
thousands
of
$)
Deferred tax asset
Year ended December 31
2017
31
2016
4
Our deferred tax assets are classified as non-current and included within Note 20, ''Other non-current assets''. These assets relate to differences for depreciation and
other temporary differences.
Other jurisdictions
Taxable income in Norway, Croatia and Malaysia relate to taxation of the operations of our Norway, Croatia and Malaysia subsidiaries and are comprised of
management fees received from Golar group companies.
No tax has been levied on income derived from our subsidiaries registered in Liberia, the Marshall Islands and the British Virgin Islands. Under the Consolidated
Tax Amendments Act of 2010, our Liberian subsidiaries should be considered non-resident Liberian corporations which are wholly exempted from Liberian
taxation effective as of 1977.
There are no potential deferred tax liabilities arising on undistributed earnings within the Company. This is because no tax should arise on the distribution of any
retained earnings.
Jurisdictions open to examination
The following table summarizes the earliest tax year that remain subject to examination by the major taxable jurisdictions in which we operate:
Jurisdiction
UK
Norway
12.
LOSS PER SHARE
Earliest
2015
2014
Basic earnings (loss) per share ("EPS") is calculated with reference to the weighted average number of common shares outstanding during the year.
The components of the numerator for the calculation of basic and diluted EPS are as follows:
(in
thousands
of
$)
Net loss attributable to Golar LNG Ltd stockholders - basic and diluted
2017
(179,703)
2016
(186,531)
2015
(171,146)
F-29
The components of the denominator for the calculation of basic and diluted EPS are as follows:
(in
thousands)
Basic and diluted loss per share:
2017
2016
2015
Weighted average number of common shares outstanding
100,597
93,933
93,422
Loss per share are as follows:
Basic and diluted
$
2017
(1.79) $
2016
(1.99) $
2015
(1.83)
The effect of stock options and convertible bonds have been excluded from the calculation of diluted EPS for each of the years ended December 31, 2017 , 2016
and 2015 because the effect was anti-dilutive.
13.
OPERATING LEASES
Rental income
The minimum contractual future revenues to be received on time charters in respect of our vessels as of December 31, 2017 , were as follows:
Year ending December 31
(in
thousands
of
$)
2018
Total
3,618
3,618
The cost and accumulated depreciation of vessels leased to third parties at December 31, 2017 and 2016 were $191.1 million and $53.6 million ; and $191.1
million and $47.5 million , respectively.
Rental expense
We are committed to making rental payments under operating leases for office premises. The future minimum rental payments under our non-cancellable operating
leases are as follows:
Year ending December 31
(in
thousands
of
$)
2018
2019
2020
2021
2022
Total minimum lease payments
Total
1,361
1,205
1,205
1,205
301
5,277
Total rental expense for operating leases was $19.3 million , $29.6 million and $42.8 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.
In prior years, the Golar
Eskimo
and the Golar
Grand
were chartered back from Golar Partners under agreements executed at the time of their disposals to Golar
Partners. The Golar
Eskimo
and the Golar
Grand
charter-back arrangements with Golar Partners ceased in June 2015 and October 2017, respectively.
F-30
14.
INVESTMENTS IN AFFILIATES AND JOINT VENTURES
At December 31, 2017 and 2016 , we have the following participation in investments that are recorded using the equity method:
Golar Partners (1)
Egyptian Company for Gas Services S.A.E ("ECGS")
Golar Power
OneLNG
The Cool Pool Limited ("Pool Manager") (2)
2017
31.8%
50%
50%
51%
33%
(1) As of December 31, 2017, we held a 31.8% (2016: 33.9% ) ownership interest in Golar Partners (including our 2% general partner interest) and 100% of the IDRs.
(2) The Pool Manager is a Marshall Islands service company that was established in September 2015 to facilitate the joint operations under the Cool Pool.
The carrying amounts of our investments in our equity method investments as at December 31, 2017 and 2016 are as follows:
(in
thousands
of
$)
Golar Partners
ECGS
Golar Power
OneLNG
Equity in net assets of affiliates
The components of equity in net assets of non-consolidated affiliates are as follows:
(in
thousands
of
$)
Cost
Dividend
Equity in net earnings of other affiliates
Share of other comprehensive income in affiliate
Equity in net assets of affiliates
2017
467,097
5,385
228,696
2,047
703,225
2017
877,810
(287,263)
107,553
5,125
703,225
2016
33.9%
50%
50%
51%
33%
2016
507,182
4,864
126,534
10,200
648,780
2016
746,918
(234,597)
133,001
3,458
648,780
Quoted market prices for ECGS, Golar Power and OneLNG are not available because these companies are not publicly traded.
Golar Partners
Golar Partners is an owner and operator of FSRUs and LNG carriers under long-term charters. Golar Partners is listed on the NASDAQ. Since the deconsolidation
date of Golar Partners in December 2012, we have accounted for all our investments in Golar Partners under the equity method. The initial carrying value of our
investments in Golar Partners was based on the fair value on the deconsolidation date.
Exchange
of
Incentive
Distribution
Rights
"IDR
Reset"
On October 13, 2016, we entered into an equity exchange agreement with Golar Partners in which we reset our rights to receive cash distributions in respect of our
interests in the incentive distribution rights, or Old IDRs, in exchange for the issuance of (i) New IDRs, (ii) an aggregate of 2,994,364 common units and 61,109
general partner units, and (iii) an aggregate of up to 748,592 additional common units and up to 15,278 additional general partner units that may be issued if target
distributions are met ("the Earn-Out Units"). Based on the agreement, half of the Earn-Out Units ("first tranche") would vest if Golar Partners paid a distribution
equal to, or greater than, $0.5775 per common unit in each of the quarterly periods ended December 31, 2016, March 31, 2017, June 30, 2017 and September 30,
2017. Having satisfied the minimum quarterly distribution in respect of these quarters, Golar Partners issued to Golar 374,295 common units and 7,639 general
partner units on November 15, 2017. The agreement also required Golar Partners to pay Golar the distributions that it would have been entitled to receive on these
units in respect of each of those four preceding quarters. Therefore, in connection with the issuance of the above Earn-Out Units, Golar also received $0.9
F-31
million in dividends in the period. The remaining Earn-Out Units ("second tranche") will be issued if Golar Partners pay a distribution equal to $0.5775 per
common unit in the periods ending December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018. The New IDRs result in the minimum distribution
level increasing from $0.3850 per common unit to $0.5775 per common unit. The fair value of the Old IDRs was not materially different to the fair value of all of
the newly issued instruments.
In relation to the IDR Reset transaction, we applied "carry over" accounting under the remit of the guidance of ASC 845 (Non-monetary Transactions) and
determined that the Earn-Out Units met the definition of a derivative. Accordingly, the overall effect of the IDR Reset on the transaction date was (i) a
reclassification of the initial fair value of the derivative from "Investment in affiliates" to "Other non-current assets" of $15.0 million , and (ii) the residual carrying
value of the Old IDRs (after reclassification of the derivative fair value) was reallocated across the new instruments on a relative fair value basis. As of
December 31, 2017 , following the issuance of the first tranche of the Earn-Out Units, the fair value of the derivative amounted to $7.4 million .
As of December 31, 2017 , the aggregate carrying value of our investments in Golar Partners was $467.1 million , which represents our total ownership interest
(including our 2% general partner interest) in the Partnership of 31.8% and the IDRs. As of December 31, 2017 , the estimated market value of our investments in
Golar Partners' common units, determined with reference to the quoted price of the common units, was $484.0 million .
Dividends received for the year ended December 31, 2017 and 2016, in relation to our investment in Golar Partners amounted to $52.3 million and $54.7 million ,
respectively.
ECGS
In December 2005, we entered into an agreement with the Egyptian Natural Gas Holding Company and HK Petroleum Services to establish a jointly owned
company, ECGS, to develop operations in Egypt, particularly in hydrocarbon and LNG related areas.
In March 2006, we 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 and, in December 2011, ECGS called up its remaining share capital amounting to $7.5 million . Of this, we paid $3.75 million to maintain our 50% equity
interest.
As ECGS is jointly owned and operated together with other third parties, we have adopted the equity method of accounting for our 50% investment in ECGS, as we
consider we have joint control. Dividends received for each of the years ended December 31, 2017 and 2016 were $ nil and $0.2 million , respectively.
Golar Power
In July 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power, with private equity firm Stonepeak. Under the terms of the
shareholders' agreement in relation to the formation of the joint venture company, we disposed of the entities that own and operate Golar
Penguin
, Golar
Celsius
,
newbuild Golar
Nanook
and LNG Power Limited to Golar Power. As a result, commencing July 6, 2016, Golar Power and its subsidiaries have been considered as
our affiliates and not as controlled subsidiaries of the Company. Accordingly, with effect from July 6, 2016, our investment in Golar Power has been accounted for
under the equity method of accounting.
Under the shareholders' agreement, we and Stonepeak have agreed to contribute additional funding to Golar Power on a pro rata basis (see note 1). During the year
ended December 31, 2017 , we contributed a further $111.0 million to Golar Power as a result of this agreement.
Golar Power offers integrated LNG based downstream solutions through the ownership and operation of FSRUs and associated terminal and power generation
infrastructure that was formed for the purpose of constructing and operating a combined cycle, gas fired, power plant in the State of Sergipe in Brazil.
OneLNG
On July 25, 2016 Golar and Schlumberger B.V. ("Schlumberger") entered into an agreement to form OneLNG, a joint venture, with the intention to offer an
integrated upstream and midstream solution for the development of low cost gas reserves to LNG. OneLNG is the exclusive vehicle for all projects that involve the
conversion of natural gas to LNG, which require both Schlumberger Production Management services and Golar's FLNG expertise. In accordance with the joint
venture and shareholders' agreement, Golar holds 51% and Schlumberger the remaining 49% of OneLNG. By virtue of substantive participation rights held by
Schlumberger we account for our investment in OneLNG under the equity method of accounting.
F-32
The Cool Pool ("Pool Manager")
In October 2015, we entered into an LNG carrier pooling arrangement with GasLog Carriers Ltd ("GasLog") and Dynagas Ltd ("Dynagas") to market our vessels
which are currently operating in the LNG shipping spot market. As of December 31, 2017, the Cool Pool comprised of 19 vessels, of which nine vessels were
contributed by us, five vessels by GasLog, three vessels by Dynagas and two vessels by Golar Power. The vessel owner continues to be fully responsible for the
manning and the technical management of their respective vessels. For the operation of the Cool Pool, a Marshall Islands service company ("Pool Manager") was
established in September 2015. The Pool Manager is jointly owned and controlled by us, GasLog and Dynagas.
Summarized financial information of the affiliated undertakings shown on a 100% basis are as follows:
(in
thousands
of
$)
December 31, 2017
December 31, 2016
ECGS
Golar
Partners
Pool
Manager
Golar
Power
One LNG
ECGS
Golar
Partners
Pool
Manager
Golar
Power
One LNG
Balance
Sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interest
Statement
of
Operations
Revenue
Net income (loss)
37,476
311,496
40,661
61,374
333
2,115,875
—
713,646
25,836
180,087
40,661
1,203
1,399,683
—
76,544
—
—
60,033
174,656
—
14,955
—
10,941
—
—
34,415
160,927
9,695
59,419
19,939
163
2,091,781
—
567,646
23,648
215,472
9,695
1,203
1,432,807
—
67,976
—
—
60,613
211,060
—
—
1,137
—
—
44,052
1,047
433,102
144,848
159,460
7,354
—
60,786
441,598
73,348
—
(7,899)
(14,883)
(595)
185,742
—
4,059
21,068
—
(1,200)
15.
OTHER CURRENT ASSETS
(in
thousands
of
$)
Prepaid expenses
Other receivables
16.
ASSET UNDER DEVELOPMENT
(in
thousands
of
$)
Purchase price installments
Interest costs capitalized
Other costs capitalized (1)
2017
3,045
3,002
6,047
2016
2,982
4,528
7,510
2017
962,709
116,416
98,364
1,177,489
2016
653,378
53,985
24,630
731,993
(1) Other capitalized costs includes asset retirement obligation and direct overhead costs on the conversion of the Hilli
.
In May 2014, we entered into agreements for the conversion of the Hilli
to a FLNG vessel. The primary contract was entered into with Keppel. The Hilli
was
delivered to Keppel in Singapore in September 2014 for the commencement of her conversion. As at December 31, 2017, the Hilli
FLNG conversion had
completed and the vessel was undergoing commissioning activities.
The total estimated conversion and vessel and site commissioning cost for the Hilli
, is approximately $1.3 billion . Interest costs capitalized in connection with the
Hilli
conversion for the year ended December 31, 2017 was $62.4 million (2016: $49.8 million ).
F-33
17.
VESSELS AND EQUIPMENT, NET
(in
thousands
of
$)
Cost
Accumulated depreciation
Net book value
2017
2,431,136
(354,077)
2,077,059
2016
2,438,720
(284,889)
2,153,831
Drydocking costs of $37.4 million and $44.7 million are included in the cost amounts above as of December 31, 2017 and 2016 , respectively. Accumulated
amortization of those costs as of December 31, 2017 and 2016 were $24.3 million and $22.7 million , respectively.
Depreciation and amortization expense for each of the years ended December 31, 2017 , 2016 and 2015 was $76.5 million , $73.0 million and $73.7 million ,
respectively.
As at December 31, 2017 and 2016 , vessels with a net book value of $ 2,032.7 million and $2,106.1 million , respectively, were pledged as security for certain
debt facilities (see note 31).
As at December 31, 2017 and 2016 , included in the above amounts is office equipment with a net book value of $3.9 million .
18.
RESTRICTED CASH AND SHORT-TERM DEPOSITS
Our restricted cash and short-term deposits balances are as follows:
(in
thousands
of
$)
Restricted cash relating to the total return equity swap (1)
Restricted cash in relation to the Hilli
(2)
Restricted cash and short-term deposits held by lessor VIEs (3)
Restricted cash relating to the $1.125
billion
debt
facility
(4)
Restricted cash relating to office lease
Bank guarantee
Total restricted cash and short-term deposits
Less: Amounts included in current restricted cash and short-term deposits
Long-term restricted cash
2017
58,351
174,737
130,063
33,752
813
99
397,815
222,265
175,550
2016
70,016
231,947
70,021
43,656
388
—
416,028
183,693
232,335
(1) Restricted cash relating to the share repurchase forward swap refers to the collateral required by the bank with whom we entered into a total return equity swap
requiring a collateral of 20% of the total purchase price and subsequently adjusted with reference to the Company's share price (see note 28).
(2) In November 2015, in connection with the issuance of a $400 million letter of credit by a financial institution to our project partner involved in the Hilli
FLNG
project, we posted an initial cash collateral sum of $305.0 million to support the performance guarantee. Of this amount, pursuant to progression with the
syndication process, $48.1 million and $25.0 million were released to us in December 2016 and December 2015, respectively, as free cash. Accordingly, as of
December 31, 2016 and 2015, the restricted cash balance amounted to $231.9 million and $280.0 million , respectively.
Under the provisions of the $400 million letter of credit, the terms allow for a stepped reduction in the value of the guarantee over time and thus conversely a
reduction in the cash collateral requirements. Effective December 19, 2017, the $400 million letter of credit reduced to $300 million . The corresponding release of
$57.2 million cash collateral reduced the cash collateral requirement to $174.7 million at December 31, 2017.
In November 2016, after certain conditions precedent were satisfied by the Company, the letter of credit required in accordance with the signed LTA was re-issued
and with an initial expiry date of December 31, 2017, the letter of credit will automatically extend, on an annual basis, until the tenth anniversary of the acceptance
date of the Hilli
by the charterer, unless the bank should exercise its option to exit from this arrangement by giving three months' notice prior to the annual renewal
date.
F-34
(3) These are amounts held by lessor VIE entities that we are required to consolidate under U.S. GAAP into our financial statements as VIEs (see note 5).
(4) Restricted cash refers to cash deposits required under the $1.125 billion debt facility (see note 23). The covenant requires that on the second anniversary of
drawdown under the facility, where we fall below a prescribed EBITDA to debt service ratio, additional cash deposits with the financial institution are required to
be made or maintained.
Restricted cash does not include minimum consolidated cash balances of $50.0 million (see note 23) required to be maintained as part of the financial covenants for
our loan facilities, as these amounts are included in "Cash and cash equivalents".
19.
COST METHOD INVESTMENT
(in
thousands
of
$)
OLT Offshore LNG Toscana S.p.A ("OLT–O")
2017
7,347
2016
7,347
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. As of December 31, 2017 and 2016, our investment in OLT-O was $7.3 million , representing a 2.7% interest in OLT–O's
issued share capital. We received no dividends from our investment in OLT-O for either of the years ended December 31, 2017 and 2016.
20.
OTHER NON-CURRENT ASSETS
(in
thousands
of
$)
FLNG derivative (see note 28) (1)
Other long-term assets, including deferred tax asset (see note 11) (2)
Mark-to-market interest rate swaps valuation (see note 28)
Derivatives - other (see note 14) (3)
2017
94,700
37,891
10,166
7,400
150,157
2016
—
36,386
5,022
15,000
56,408
(1) "FLNG derivative" refers to a derivative embedded in the Hilli
LTA. See note 1 for further details.
(2) "Other long-term assets" is mainly comprised of payments made relating to long lead items ordered in preparation for the conversion of the Gimi
and the
Gandria
into FLNG vessels, following agreements to convert them. As of December 31, 2017 and 2016, the aggregate carrying value was $31.0 million , of which
the amount relating to the Gandria
as of December 31, 2017 was $10.0 million (December 31, 2016: $ nil ). In 2017, Keppel agreed to allow $10.0 million of the
payments earmarked for the Gimi
to be utilized against the Gandria
conversion. The Gimi
and the Gandria
conversion contracts provide the flexibility wherein
certain beneficial cancellation provisions exist which, if exercised prior to contract expiry, will allow termination of contracts and recovery of previous milestone
payments, less cancellation fees. The Gimi
contract has recently been extended to expire on December 30, 2018 and the Gandria
contract will expire on June 29,
2018; and
(3) "Derivatives - other" refers to the Earn-Out Units issued to us in connection with the IDR Reset transaction with Golar Partners in October 2016 (see note 14).
F-35
21.
ACCRUED EXPENSES
(in
thousands
of
$)
Vessel operating and drydocking expenses
Administrative expenses
Interest expense
Current tax payable
2017
10,978
9,572
84,249
1,096
105,895
2016
8,063
8,826
60,634
939
78,462
Vessel operating and drydocking expense related accruals are composed of vessel operating expenses, such as crew wages, vessel supplies, routine repairs,
maintenance, drydocking, lubricating oils, insurances and management fees for the provision of commercial and technical management services.
Administrative expenses related accruals are comprised of general overhead, including personnel costs, legal and professional fees, costs associated with project
development, property costs and other general expenses.
22.
OTHER CURRENT LIABILITIES
(in
thousands
of
$)
Deferred drydocking, operating cost and charterhire revenue
Mark-to-market interest rate swaps valuation (see note 28)
Mark-to-market currency swaps valuation (see note 28)
Mark-to-market equity swaps valuation (see note 28)
FLNG deferred revenue - current portion (see note 24)
Guarantees issued to Golar Partners (see note 29)
Dividends payable
Other (1)
(1) As of December 31, 2017 and 2016, included within "Other" is $6.5 million due to Keppel (see note 23).
23.
DEBT
(in
thousands
of
$)
Total long-term and short-term debt
Less: current portion of long-term debt and short-term debt
Long-term debt
F-36
2017
1,044
—
223
40,141
7,463
—
5,032
8,379
62,282
2016
1,036
1,470
993
56,763
—
5,064
5,047
8,611
78,984
2017
2016
2,410,847
(1,384,933)
1,025,914
1,977,198
(451,454)
1,525,744
The outstanding debt as of December 31, 2017 is repayable as follows:
Year ending December 31
(in
thousands
of
$)
2018
2019
2020
2021
2022
2023 and thereafter
Total
Deferred finance charges
Total
Golar debt (1)
VIE debt (2)
Total debt
559,225
118,186
180,603
19,811
399,237
69,434
1,346,496
(22,004)
1,324,492
834,004
1,393,229
15,650
15,650
15,650
15,650
191,800
1,088,404
(2,049)
1,086,355
133,836
196,253
35,461
414,887
261,234
2,434,900
(24,053)
2,410,847
(1) Included within current portion of long-term debt and short-term debt, due by December 31, 2018, is $525.0 million relating to the Hilli
pre-delivery facility which is expected to mature in
May 2018, when we will draw on the post-delivery financing (sale and leaseback arrangement).
(2) These amounts relate to certain lessor entities (for which legal ownership resides with financial institutions) that we are required to consolidate under U.S. GAAP into our financial
statements as variable interest entities (see note 5).
At December 31, 2017 and 2016, our debt was as follows:
(in
thousands
of
$)
Golar Arctic facility
Golar Viking facility
2017 Convertible bonds
2012 Convertible bonds
Margin Loan
FLNG Hilli facility
Hilli
shareholder
loans:
- Keppel loan
- B&V loan
$1.125
billion
facility:
- Golar Crystal facility
- Golar Bear facility
- Golar Frost facility
2017
65,600
52,083
340,173
—
119,125
525,000
44,066
5,000
—
96,975
98,474
2016
Maturity date
72,900
57,292
—
218,851
—
250,000
44,066
5,000
101,280
107,749
109,415
2019
2020
2022
2017
2020
2018
2027
2027
2019/2026*
2019/2026*
2019/2026*
Subtotal (excluding lessor VIE loans)
1,346,496
966,553
ICBCL
VIE
loans:
- Golar Glacier facility
- Golar Snow facility
- Golar Kelvin facility
- Golar Ice facility
CMBL
VIE
loan:
- Golar Tundra facility
CCBFL
VIE
loan:
- Golar Seal facility
COSCO
VIE
loan:
- Golar Crystal facility
Total debt (gross)
Deferred finance charges
Total debt
161,876
162,566
182,540
134,954
169,526
170,566
182,540
152,056
2018/2024**
2018/2025**
**
**
198,613
205,145
2026**
143,849
157,120
2026**
104,006
2,434,900
(24,053)
2,410,847
—
2027**
2,003,506
(26,308)
1,977,198
F-37
* The commercial loan tranche matures earlier of the two dates, with the remaining balance maturing at the latter date. However, in the event that the commercial tranche is not refinanced within
five years, the lenders have the option to demand repayment.
** This represents the total loan facilities drawn down by subsidiaries of ICBC, CMBL, CCBFL and COSCO, which we consider to be VIEs. We determined that we are the primary beneficiary
of these VIEs as we are expected to absorb the majority of these VIEs’ losses and residual gains associated with the vessels sold and leased backed from them. Accordingly, these VIEs and their
related loan facilities are consolidated in our results. In consolidating these VIEs, on a quarterly basis, we must make assumptions regarding (i) the debt amortization profile; (ii) the interest rate
to be applied against the VIEs’ debt principal; and (iii) the VIE’s application of cash receipts. Our estimates are therefore dependent upon the timeliness of receipt and accuracy of financial
information provided by these lessor VIE entities. Upon receipt of the audited financial statements of the lessor VIEs, we make a true-up adjustment for any material differences. See note 5.
Golar Arctic facility
In December 2014, we entered into a secured loan facility for $87.5 million for the purpose of refinancing the Golar
Arctic
. The Golar
Arctic
facility bears interest
at LIBOR plus a margin of 2.25% and is repayable in quarterly installments over a term of five years with a final balloon payment of $52.8 million due in
December 2019.
Golar Viking facility
In December 2015, we entered into a $62.5 million secured loan facility, with certain lenders, to finance the Golar
Viking
upon repossession of the vessel from
Equinox. The facility is repayable in quarterly installments over a term of five years with a final balloon payment of $37.8 million due in December 2020. This
facility bears interest at LIBOR plus a margin of 2.5% .
2017 Convertible bonds
On February 17, 2017, we closed a new $402.5 million senior unsecured five years 2.75% convertible bond. The conversion rate for the bonds will initially
equal 26.5308 common shares per $1,000 principal amount of the bonds. This is equivalent to an initial conversion price of $37.69 per common share, or a 35%
premium on the February 13, 2017 closing share price of $27.92 . The conversion price is subject to adjustment for dividends paid. To mitigate the dilution risk of
conversion to common equity, we also entered into capped call transactions costing approximately $31.2 million . The capped call transactions cover
approximately 10,678,647 common shares, have an initial strike price of $37.69 , and an initial cap price of $48.86 . The cap price of $48.86, which is a proxy for
the revised conversion price, represents a 75% premium on the February 13, 2017 closing share price of $27.92 . Including the $31.2 million cost of the capped
call, the all-in cost of the bond is approximately 4.3% . Bond proceeds, net of fees and the cost of the capped call, amounted to $360.2 million . On inception, we
recognized a liability of $320.3 million and an equity portion of $39.9 million .
Margin Loan Facility
We entered into a loan agreement, dated March 3, 2017, among one of our wholly-owned subsidiaries, as borrower, Golar LNG Limited, as guarantor, Citibank,
N.A., as administrative agent, initial collateral agent and calculation agent, and Citibank, N.A., as lender. We refer to this as the Margin Loan Facility. Pursuant to
the Margin Loan Facility Citibank, N.A. provided a loan in the amount of $150 million . The Margin Loan Facility has a term of three years , an interest rate of
LIBOR plus a margin of 3.95% and is secured by our Golar Partners common units and their associated distributions, and in certain cases, cash or cash equivalents.
The Margin Loan Facility contains conditions, representations and warranties, covenants (including loan to value requirements), mandatory prepayment events,
facility adjustment events, events of default and other provisions customary for a facility of this nature. The loan was primarily used to pay a portion of the
amounts due under our 3.75% convertible senior secured bonds due March 2017, or the Prior Convertible Bonds. Concurrently with the repayment of the Prior
Convertible Bonds, the trustee for these bonds released our Golar Partners common units that had been pledged to secure them. In connection with the entry into
the Margin Loan Facility, we pledged 20,852,291 Golar Partners common units as security for the obligations under the facility.
As at December 31, 2017 , dividends and interest of $30.9 million have been applied against the $150 million principal of the Margin Loan Facility.
FLNG Hilli facility
In September 2015, in connection with the conversion of the Hilli
to a FLNG, we entered into agreements with a subsidiary of CSSCL for a pre-delivery credit
facility and post-delivery sale and leaseback financing. Both the pre-delivery facility and the post-delivery sale and leaseback financings are dependent upon
certain conditions precedent before drawing down, in the case of the pre-delivery financing, or execution of the sale and leaseback, in the case of the post-delivery
financing.
F-38
Hilli
pre-delivery
facility
Under the pre-delivery credit facility, a subsidiary of CSSCL will lend us up to $700 million or 60% of the initial project budget for the conversion of the Hilli
to
partly finance the costs of conversion. The credit facility is non-amortizing with the principal payable at the earlier of August 30, 2018 or sale of the converted Hilli
to a subsidiary of CSSCL under the sale and leaseback arrangement (described below under “Hilli post-delivery sale and leaseback financing”). The facility bears
interest at a fixed rate of 6.25% per annum. As of December 31, 2017, the borrowings outstanding under the pre-delivery facility was $525 million . Subsequent
drawdowns are dependent upon reaching further conversion milestones relating to project spend.
Hilli
post-delivery
sale
and
leaseback
financing
Upon the satisfaction of certain payment milestones under the LTA, along with other conditions precedent contained in the Hilli Facility, we are permitted an
aggregate draw down of the lower of up to 80% of the construction cost (capped at $1.2 billion ) or market value as assessed on acceptance date, however not more
than an aggregate of $960 million . The proceeds of this sale and leaseback financing will be used, in part, to pay off the Hilli
pre-delivery financing described
above. We will subsequently lease back the vessel on a bareboat charter for a term of 10 years. We have options to repurchase the vessel throughout the charter
term, commencing from the fifth year anniversary of the commencement of the bareboat charter, with an obligation to repurchase the vessel at the end of the ten
year lease period.
Hilli shareholder loans
Keppel
loan
In September 2014, our subsidiary, Golar GHK Lessors Limited ("GGHK"), entered into a Sale and Purchase Agreement with KSI Production Pte Ltd (''KSI''), a
subsidiary of Keppel, to sell 10% of its ownership in Golar Hilli Corporation ("Hilli Corp") for $21.7 million . In consideration KSI paid the equity value of the
shares and acquired a portion of the loans made by GGHK to Hilli Corp. The loan amounted to $21.7 million and is shown under "Long-term debt" in our
consolidated financial statements. The loan bears interest at 6% per annum. Installment payments of 2.5% of the value of the loan are payable on a six -monthly
basis beginning 12 months after final acceptance of the FLNG with a balloon payment 120 months after final acceptance. Since September 2014 through to
December 31, 2015, additional cash calls were issued to meet funding requirements relating to the conversion of the Hilli
to a FLNG. However, during 2015, due to
surplus cash balances it was agreed by the Hilli Corp shareholders to return an amount of surplus cash to both KSI and Golar. The amount to be returned to KSI
was $9 million and resulted in a decrease in the Keppel loan by the same (1) . Accordingly, as of December 31, 2017 and 2016, the balance outstanding under the
Keppel shareholder loan was $44.1 million .
(1) As of December 31, 2017 and 2016, $6.5 million surplus cash remains to be returned to KSI and is captured within “Other current liabilities” (see note 22).
B&V
loan
In November 2014, our subsidiary, GGHK, entered into a Sale and Purchase Agreement with Black & Veatch International Company (''B&V''), a subsidiary of
Black & Veatch, to sell approximately 1% of its ownership in Hilli Corp for $5.0 million . In consideration B&V paid the equity value of the shares and acquired a
portion of the loans made by GGHK to Hilli Corp. The loan amounted to $5.0 million and is shown under "Long-term debt" in our consolidated financial
statements. The loan bears interest at 6% per annum. Installment payments of 2.5% of the value of the loan is payable on a six -monthly basis beginning 12 months
after final acceptance of the FLNG with a balloon payment 120 months after final acceptance.
$1.125 billion facility
In July 2013, we entered into a $1.125 billion facility to initially fund eight of our newbuildings. The facility bears interest at LIBOR plus a margin. The facility is
divided into three tranches, with the following general terms:
Tranche
K-Sure
KEXIM
Commercial
Proportion of facility
Term of loan from date
of drawdown
40%
40%
20%
12 years
12 years
5 years
Repayment terms
Six-monthly installments
Six-monthly installments
Six-monthly installments, unpaid balance to be
refinanced after 5 years
F-39
The facility bears interest at LIBOR plus a margin of 2.10% for the K-Sure tranche of the facility and 2.75% for both the KEXIM and commercial tranche of the
loan.
The K-Sure tranche is funded by a consortium of lenders, of which 95% is guaranteed by a Korean Trade Insurance Corporation (or K-Sure) policy; the KEXIM
tranche is funded by the Export Import Bank of Korea (or KEXIM). Repayments under the K-Sure and KEXIM tranches are due semi-annually with a 12 year
repayment profile. The commercial tranche is funded by a syndicate of banks and is for a term of five years from date of drawdown with a final balloon payment
depending on drawdown dates for each respective vessel. In the event the commercial tranche is not refinanced prior to the end of the five years, both K-Sure and
KEXIM have an option to demand repayment of the balances outstanding under their respective tranches.
The facility is further divided into vessel-specific tranches dependent upon delivery and drawdown, with each borrower being the subsidiary owning the respective
vessel. As of December 31, 2017 , the aggregate balance of the facility was $195.4 million and relates to two of our vessels: the Golar
Bear
and the Golar
Frost
.
However, we continue to guarantee the debt relating to the Golar
Celsius
and the Golar
Penguin
that was assumed by Golar Power in connection with the
formation transaction in 2016 (see note 7).
Redemption of 2012 Convertible bonds
The proceeds from our 2017 financings (the Margin Loan Facility and 2017 Convertible bonds), as described above, were used to redeem and settle our obligations
under the 2012 Convertible bonds during 2017.
The 2012 Convertible bonds refer to our issuance in March 2012 of convertible bonds, which raised gross proceeds of $250.0 million , in a private placement
offering, with a maturity date of March 2017.
Lessor VIE debt
The following loans relate to our lessor VIE entities, including ICBCL, CMBL, CCBFL and COSCO, that we consolidate as variable interest entities (“VIEs”).
Although we have no control over the funding arrangements of these entities, we consider ourselves the primary beneficiary of these VIEs and we are therefore
required to consolidate these loan facilities into our financial results. Refer to note 5 for additional information.
ICBCL VIE loans
Golar
Glacier
facility
In October 2014, the special purpose vehicle ("SPV"), Hai Jiao 1401 Limited, which owns the Golar
Glacier
, entered into secured financing agreements for
$184.8 million consisting of a senior and junior facilities which are denominated in USD. The senior loan facility of $153 million is a 10 year non-recourse loan
provided by ICBC Brussels, with first priority mortgage on the Golar
Glacier.
The facility bears interest at LIBOR plus a margin and is repayable in semi-annual
installments with a balloon payment on maturity. The short-term junior loan facility of $31.8 million is provided by ICBCIL Finance Co., a related party of ICBCL.
The junior loan facility bears interest at 6% and is repayable on demand.
Golar
Snow
facility
In January 2015, the SPV, Hai Jiao 1402 Limited, which owns the Golar
Snow
, entered into secured financing agreements for $182.6 million consisting of senior
and junior loan facilities which are denominated in USD. The senior loan facility of $160.0 million is a 10 year non-recourse loan provided by ICBC Brussels,
with a first priority mortgage on the Golar
Snow
. The senior loan facility bears interest at LIBOR plus a margin and is repayable in semi-annual installments with
a balloon payment on maturity. The junior loan facility of $22.6 million is provided by ICBCIL Finance Co., a related party of ICBCL. The junior loan facility
bears interest at 6% and is repayable on demand.
Golar
Kelvin
facility
In January 2015, the SPV, Hai Jiao 1405 Limited, which owns the Golar
Kelvin
, entered into a secured financing agreement for $182.5 million . The loan facility
is provided by ICBCIL Finance Co., a related party of ICBCL. The loan facility is denominated in USD, bears interest at 6% and is repayable on demand.
F-40
Golar
Ice
facility
In February 2015, the SPV, Hai Jiao 1406 Limited, which owns the Golar
Ice
, entered into a secured financing agreement for $172.0 million . The loan facility is
provided by Skysea Malta Capital Company Limited, a related party of ICBCL. The loan facility is denominated in USD, bears interest at 2.78% and is repayable
on demand.
CMBL VIE loan - Golar
Tundra
facility
In November 2015, the SPV, Sea 24 Leasing Co Ltd, which owns the Golar
Tundra
, entered into a secured financing agreement. The loan facility is denominated
in USD, bears interest at LIBOR plus a margin and was repayable in 2016. In April 2016, Sea 24 Leasing Co Ltd refinanced its debt facilities and entered into
long-term debt facilities (the "Tundra Lessor VIE Debt facilities"). The Tundra Lessor VIE Debt facilities bear interest at LIBOR plus a margin and are repayable
as balloon payments on maturity.
A pre-condition of the Golar
Tundra
lease financing with CMBL is for the FSRU to be employed under an effective charter. The recent termination of the WAGL
charter by us means that we now have to find a replacement charter by June 30, 2018 or we could be required to refinance the FSRU. As a result, we have
classified the Golar
Tundra
facility as short-term debt as of December 31, 2017 .
CCBFL VIE loan - Golar
Seal
facility
In March 2016, the SPV, Compass Shipping 1 Corporation Limited, which owns the Golar
Seal
, entered into a long-term loan facility for $162.4 million . The
loan facility is denominated in USD, is a 10 year loan, bears interest at 3.5% and is repayable in quarterly installments with a balloon payment on maturity.
Similarly to the Golar
Tundra
above, a pre-condition of the Golar
Seal
lease financing with CCBFL is for the LNG carrier to be employed under an effective
charter by December 31, 2018 or we could be required to refinance the LNG carrier. As a result, we have classified the Golar
Seal
facility as short-term debt as of
December 31, 2017 .
COSCO VIE loan - Golar
Crystal
facility
In March 2017, the SPV, Oriental Fleet LNG 01 Limited, which owns the Golar
Crystal
, obtained an internal loan from its parent company, COSCO Shipping, to
fund the purchase of the Golar
Crystal
. The internal loan bears no interest and is repayable on demand.
Debt restrictions
Certain of our debts 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, 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, 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. Many of our debt agreements contain certain covenants, which require compliance with certain financial
ratios. Such ratios include current assets: liabilities and equity ratio covenants and minimum free cash restrictions. With regards to cash restrictions, we have
covenanted to retain at least $50.0 million of cash and cash equivalents on a consolidated group basis. In addition, as of December 31, 2017 there are cross default
provisions in certain of our and Golar Partners' and Golar Power's loan and lease agreements.
In addition to mortgage security, some of our debt is also collateralized through pledges of equity shares by our guarantor subsidiaries.
As of December 31, 2017, we were in compliance with all our covenants under our various loan agreements.
F-41
24.
OTHER NON-CURRENT LIABILITIES
(in
thousands
of
$)
FLNG deferred revenue (1)
Pension obligations (see note 25)
Guarantees issued to Golar Partners (see note 29)
Other (2)
2017
72,138
37,537
11,429
11,444
132,548
2016
—
37,873
11,429
2,912
52,214
(1) This represents the corresponding liability upon recognition of the LTA derivative asset. This deferred gain will be amortized to earnings in line with revenue
recognized over the term of the LTA host contract, commencing on the customer's acceptance of the Hilli
. The initial amount recognized of $79.6 million , of
which $72.1 million is non-current. The current portion of FLNG deferred revenue is included in "Other current liabilities" (see note 22).
(2) Included in Other is asset retirement obligation of $9.8 million . The corresponding asset of $9.8 million is recorded within asset under development (see note
16).
25.
PENSIONS
Defined
contribution
scheme
We operate a defined contribution scheme. The pension cost for the period represents contributions payable by us to the scheme. The charge to net income for the
years ended December 31, 2017 , 2016 and 2015 was $1.7 million , $1.3 million and $0.2 million , respectively.
The total contributions to our defined contribution scheme were as follows:
(in
thousands
of
$)
Employers' contributions
2017
1,656
2016
1,324
2015
1,035
Defined
benefit
schemes
We have two defined benefit pension plans both of which are closed to new entrants but still cover certain of our employees. 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. Our plans are funded by us 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.
We use December 31 as a measurement date for our 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
2017
313
1,901
(843)
1,182
2,553
2016
302
2,051
(806)
1,060
2,607
2015
379
2,042
(946)
1,195
2,670
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 ended December 31, 2017 is $1.4 million (2016: $1.2 million ).
F-42
The change in benefit obligation and plan assets and reconciliation of funded status as of December 31 are as follows:
(in
thousands
of
$)
Reconciliation of benefit obligation:
Benefit obligation at January 1
Service cost
Interest cost
Actuarial loss
Foreign currency exchange rate changes
Benefit payments
Benefit obligation at December 31
The accumulated benefit obligation at December 31, 2017 and 2016 was $50.2 million and $49.1 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
$)
Projected benefit obligation
Fair value of plan assets
Unfunded status (1)
2017
2016
50,376
313
1,901
873
1,008
(3,300)
51,171
49,473
302
2,051
3,547
(1,887)
(3,110)
50,376
2017
2016
12,503
1,039
2,316
1,076
(3,300)
13,634
2017
(51,171)
13,634
(37,537)
13,194
1,994
2,342
(1,917)
(3,110)
12,503
2016
(50,376)
12,503
(37,873)
Employer contributions and benefits paid under the pension plans include $2.3 million (2016: $2.3 million ) paid from employer assets for the year ended
December 31, 2017 .
(1) Our plans compose of two plans. The details of these plans are as follows:
December 31, 2017
December 31, 2016
(in
thousands
of
$)
Projected benefit obligation
Fair value of plan assets
Funded (unfunded) status at end of year
UK Scheme
(11,654)
12,968
1,314
Marine
Scheme
(39,517)
666
(38,851)
Total
UK Scheme
(51,171)
13,634
(37,537)
(10,461)
10,651
190
The fair value of our plan assets, by category, as of December 31, 2017 and 2016 were as follows:
(in
thousands
of
$)
Equity securities
Debt securities
Cash
Marine
Scheme
(39,915)
1,852
(38,063)
2017
9,921
3,047
666
13,634
Total
(50,376)
12,503
(37,873)
2016
8,936
2,860
707
12,503
F-43
The amounts recognized in accumulated other comprehensive income consist of:
(in
thousands
of
$)
Net actuarial loss (see note 27)
2017
12,799
2016
12,956
The actuarial loss recognized in other comprehensive income is net of tax of $0.3 million , $0.0 million , and $0.0 million for the years ended December 31, 2017 ,
2016 and 2015 , respectively.
The asset allocation for our Marine scheme at December 31, 2017 and 2016 , by asset category are as follows:
Marine
scheme
Equity
Bonds
Cash
Total
The asset allocation for our UK scheme at December 31, 2017 and 2016 , by asset category are as follows:
UK
scheme
Equity
Bonds
Total
2017 (%)
2016 (%)
—
—
100
100
30-65
10-50
20-40
100
2017 (%)
2016 (%)
76.5
23.5
100
75.2
24.8
100
Our investment strategy is to balance risk and reward through the selection of professional investment managers and investing in pooled funds.
We are expected to make the following contributions to the schemes during the year ended December 31, 2018, as follows:
(in
thousands
of
$)
Employer contributions
We are expected to make the following pension disbursements as follows:
(in
thousands
of
$)
2018
2019
2020
2021
2022
2023 - 2027
The weighted average assumptions used to determine the benefit obligation for our plans for the years ended December 31 are as follows:
Discount rate
Rate of compensation increase
2017
3.40%
2.32%
F-44
UK scheme
Marine scheme
541
3,000
UK scheme Marine scheme
460
325
350
570
365
2,460
3,000
3,000
3,000
3,000
3,000
12,500
2016
3.87%
2.38%
The weighted average assumptions used to determine the net periodic benefit cost for our plans for the years ended December 31 are as follows:
Discount rate
Expected return on plan assets
Rate of compensation increase
2017
3.87%
6.75%
2.38%
2016
4.34%
6.75%
2.07%
The overall expected long-term rate of return on assets assumption used to determine the net periodic benefit cost for our plans for the years ended December 31,
2017 and 2016 is based on the weighted average of various returns on assets using the asset allocation as at the beginning of 2017 and 2016. For equities and other
asset classes, we have applied an equity risk premium over ten year governmental bonds.
26.
SHARE CAPITAL AND SHARE OPTIONS
Our ordinary shares are listed on the Nasdaq Stock Exchange.
As at December 31, 2017 and 2016 , our authorized and issued share capital is as follows:
Authorized share capital:
(in
thousands
of
$,
except
per
share
data)
150,000,000 (2016: 150,000,000) common shares of $1.00 each
Issued share capital:
(in
thousands
of
$,
except
per
share
data)
101,118,289 (2016: 101,080,673) outstanding issued common shares of $1.00 each
2017
150,000
2016
150,000
2017
101,119
2016
101,081
We issued 38,000 and 132,000 common shares upon the exercise of stock options for the years ended December 31, 2017 and 2016 , respectively.
Public
equity
offerings
We closed a registered public offering of 7,475,000 of our common shares, par value $1.00 per share, in November 2016. We raised net proceeds of approximately
$170.0 million .
Treasury shares
In November 2014, our board of directors approved a new share repurchase program under which we may repurchase up to 5% of Golar's outstanding stock over a
two year period, which is now closed. As at December 31, 2017 and 2016, we had repurchased 0.5 million shares for a consideration of $20.5 million and was
party to a Total Return Swap, or TRS, indexed to 3.0 million of Golar's shares at an average price of $43.30 . There is at present no obligation for us to purchase
any shares from the counterparty.
Share options
In February 2002, our board of directors approved the Golar LNG Limited Share Option Scheme ("Golar Scheme"). The Golar Scheme permits the board of
directors, at its discretion, to grant options and to acquire shares in the Company to employees and directors of the Company or its subsidiaries. Options granted
under the scheme will vest at a date determined by the board at the date of the grant. The options granted under the plan to date have five year terms and vest
equally over a period of three to four years. There is no maximum number of shares authorized for awards of equity share options, and either authorized unissued
shares or treasury shares in the Company may be used to satisfy exercised options.
The Golar LNG Limited Long Term Incentive Plan ("LTIP") was adopted by our board of directors, effective as of October 24, 2017. The maximum aggregate
number of common shares that may be delivered pursuant to any and all awards under the Company’s LTIP shall not exceed 3,000,000 common shares, subject to
adjustment due to recapitalization or reorganization as provided under
F-45
the LTIP. The LTIP allows for grants of (i) share options, (ii) share appreciation rights, (iii) restricted share awards (iv) share awards, (v) other share-based awards,
(vi) cash awards, (vii) dividend equivalent rights, (viii) substitute awards and (ix) performance-based awards, or any combination of the foregoing as determined by
the board of directors or nominated committee in its sole discretion. Either authorized unissued shares or treasury shares (if there are any) in the Company may be
used to satisfy exercised options.
During 2017 and 2016, the Company granted to directors and employees 0.4 million and 1.9 million share options, respectively.
In 2017, the Company extended the life of 95,138 share options to September 30, 2018. The options were originally awarded from 2009 to 2011. Incremental
compensation cost of $0.6 million was recognized in the year ended December 31, 2017 , representing the excess of the fair value of the options at modification
date over the original fair value at grant date.
As at December 31, 2017 , 2016 and 2015 , the number of options outstanding in respect of Golar shares was 4.0 million , 3.8 million and 2.2 million , respectively.
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 as at grant date are noted in the table below:
Risk free interest rate
Expected volatility of common stock
Expected dividend yield
Expected term of options (in years)
2017
1.8%
54.5%
0.0%
2016
1.8%
55.0%
0.0%
2015
1.8%
53.1%
0.0%
3.8 years
5.0 years
5.0 years
The assumption for expected future volatility is based primarily on an analysis of historical volatility of our common stock.
Where the criteria for using the simplified method are met, we have used this method to estimate the expected term of options based on the vesting period of the
award that represents the period of time options granted are expected to be outstanding. Under the simplified method, the mid-point between the vesting date and
the maximum contractual expiration date is used as the expected term. Where the criteria for using the simplified method are not met, we used the contractual term
of the options of five years.
The dividend yield has been estimated at 0.0% as the exercise price of the options are reduced by the value of dividends, declared and paid on a per share basis.
A summary of option activity as at December 31, 2017 is presented below:
(in
thousands
of
$,
except
per
share
data)
Options outstanding at December 31, 2016
Exercised during the year
Forfeited during the year
Granted during the year
Options outstanding at December 31, 2017
Options exercisable at:
December 31, 2017
December 31, 2016
December 31, 2015
Shares
(in '000s)
Weighted average
exercise price
Weighted average
remaining
contractual term
(years)
3,835
(20)
(238)
440
4,017
$
$
$
$
$
1,139 $
108 $
190 $
39.81
2.98
40.58
22.98
37.92
37.92
2.84
3.97
3.9
3.0
2.53
0.83
0.87
F-46
The exercise price of all options is reduced by the amount of dividends declared and paid; the above figures for options granted, exercised and forfeited show the
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, 2017 , 2016 and 2015 was $0.3 million , $1.3 million and $0.4 million ,
respectively.
As at December 31, 2017 and 2016, the aggregate intrinsic value of share options that were both outstanding and exercisable was $ nil as the exercise price was
higher than the market value of the share options at year end.
The total fair value of share options which fully vested in the years ended December 31, 2017 , 2016 and 2015 was $13.6 million , $0.1 million and $0.1 million ,
respectively.
Compensation cost of $8.8 million , $5.8 million and $3.7 million has been recognized in the consolidated statements of operations for the years ended
December 31, 2017 , 2016 and 2015 , respectively. In addition, share options cost of $1.8 million , $0.8 million and $0.6 million have been capitalized as part of
the cost of the conversion of the Hilli
for the years ended December 31, 2017 , 2016 and 2015 , respectively, representing share options awarded to employees
directly involved in the conversion.
As of December 31, 2017 , the total unrecognized compensation cost amounting to $20.0 million relating to options outstanding is expected to be recognized over a
weighted average period of 1.6 years .
27.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss
As at December 31, 2017 , 2016 and 2015 , our accumulated other comprehensive loss balances consisted of the following components:
(in
thousands
of
$)
Net gain on qualifying cash flow hedging instruments, including share of affiliate
Losses associated with pensions
Accumulated other comprehensive loss
The components of accumulated other comprehensive loss consisted of the following:
2017
5,030
2016
3,414
(12,799)
(12,956)
(7,769)
(9,542)
2015
(192)
(12,400)
(12,592)
Balance at December 31, 2014
Other comprehensive income (loss) before reclassification
Amount reclassified from accumulated other comprehensive income
Net current-period other comprehensive income (loss)
Transfer of additional paid in capital
Balance at December 31, 2015
Other comprehensive (loss) income
Balance at December 31, 2016
Other comprehensive income
Balance at December 31, 2017
Pension and post
retirement benefit
plan adjustments
Gains (losses) on
cash flow hedges
Share of affiliates
comprehensive
income (loss)
Total accumulated
comprehensive (loss)
income
(15,251)
2,851
—
2,851
—
(12,400)
(556)
(12,956)
157
(12,799)
4,042
—
382
382
(4,424)
—
—
—
—
—
4,630
(4,822)
—
(4,822)
—
(192)
3,606
3,414
1,616
5,030
(6,579)
(1,971)
382
(1,589)
(4,424)
(12,592)
3,050
(9,542)
1,773
(7,769)
See note 28 for the details relating to the amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2017 , 2016 and 2015
.
F-47
28.
FINANCIAL INSTRUMENTS
Interest rate risk management
In certain situations, we may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. We have entered into swaps that
convert floating rate interest obligations to fixed rates, which from an economic perspective hedge the interest rate exposure. We do 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 we do not anticipate non-performance by any of our counterparties.
We manage our debt portfolio with interest rate swap agreements in U.S. dollars to achieve an overall desired position of fixed and floating interest
rates. Historically, we hedge accounted for certain of our interest rate swap arrangements designated as cash flow hedges. The net gains and losses had been
reported in a separate component of accumulated other comprehensive income to the extent the hedges were effective. The amount recorded in accumulated other
comprehensive income would have subsequently been reclassified into earnings in the same period as the hedged items affected earnings. However, since 2015, we
have ceased hedge accounting for any of our derivatives.
As of December 31, 2017 and 2016, we were party to the following interest rate swap transactions involving the payment of fixed rates in exchange for LIBOR as
summarized below:
Instrument
(in
thousands
of
$)
Interest rate swaps * :
Receiving floating, pay fixed
Receiving floating, pay fixed
Year end Notional value
Maturity
Dates
2017
2016
1,250,000
2018/ 2021
1,250,000
2018/ 2021
Fixed Interest Rates
1.13% to 1.94%
1.13% to 1.94%
* This excludes any interest rate swap agreements designated and qualifying cash flow hedges in our equity method investments.
The effect of cash flow hedging relationships relating to swap agreements on the consolidated statements of operations was as follows:
(in
thousands
of
$)
Effective portion gain reclassified from
Accumulated Other Comprehensive Loss
Ineffective Portion
Derivatives designated as hedging instruments
2017
2016
2015
2017
2016
2015
Interest rate swaps
Other financial items, net
Foreign currency risk
—
—
382
—
—
—
The majority of the vessels' gross earnings are receivable in U.S. dollars. The majority of our transactions, assets and liabilities are denominated in U.S. dollars, our
functional currency. However, we incur expenditure in other currencies. There is a risk that currency fluctuations will have a negative effect on the value of our
cash flows.
Commodity price risk
Liquefaction services revenue in respect of the Hilli
will be recognized after customer acceptance of the vessel. A derivative asset, representing the fair value of the
estimated discounted cash flows of payments due as a result of the Brent Crude price moving above the contractual floor of $60.00 per barrel over the contract
term, was recognized in December 2017 on commencement of commissioning. Golar bears no downside risk should the Brent Crude price move below $60.00.
F-48
Equity price risk
Our Board of the Directors have approved a share repurchase scheme, which is being partly financed through the use of total return swap or equity swap facilities
with third party banks, indexed to our own shares. We carry the risk of fluctuations in the share price of those acquired shares. The banks are compensated at their
cost of funding plus a margin. As at December 31, 2017 , the counterparty to the equity swap transactions had acquired 3.0 million shares in the Company at an
average price of $43.30 . In addition, we entered into a forward contract for the acquisition of 107,000 shares in Golar Partners at an average price of $19.75 . The
effect of our total return swap facilities in our consolidated statement of operations as at December 31, 2017 is a gain of $16.6 million . There is at present no
obligation for us to purchase any shares from the counterparty.
In addition to the above equity swap transactions linked to our own securities, we may from time to time enter into short-term equity swap arrangements relating to
securities of other companies.
Fair values of financial instruments
We recognize our fair value estimates using a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy has three levels based on
reliability of inputs used to determine fair value as follows:
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; and
Level 3: Unobservable inputs that are not corroborated by market data.
There have been no transfers between different levels in the fair value hierarchy during the year.
The carrying value and fair value of our financial instruments, excluding short-term receivables and payables, at December 31, 2017 and 2016 are as follows:
(in
thousands
of
$)
Non-Derivatives:
Cash and cash equivalents
Restricted cash and short-term deposits
Cost method investments (1)
Current portion of long-term debt and short-term debt (2)(3)
Long-term debt – convertible bond (3)
Long-term debt (3)
Derivatives:
FLNG derivative (4)
Interest rate swaps asset (4) (5)
Interest rate swaps liability (4)(5)
Foreign exchange swaps asset (4)(5)
Foreign exchange swaps liability (4)(5)
Total return equity swap liability (4)(6)
Earn-Out Units asset (4)(7)
Fair value
2017
2017
2016
2016
Carrying
Carrying
Hierarchy
Value
Fair Value
Value
Fair Value
214,862
397,815
7,347
214,862
397,815
7,347
1,393,229
1,393,229
430,361
224,190
416,028
7,347
484,705
218,851
224,190
416,028
7,347
484,705
219,428
340,173
701,498
94,700
10,166
—
51
223
40,141
7,400
701,498
1,124,105
1,124,105
94,700
10,166
—
51
223
40,141
7,400
—
5,022
1,470
—
993
56,763
15,000
—
5,022
1,470
—
993
56,763
15,000
Level 1
Level 1
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
F-49
(1) The carrying value of our cost method investments refers to our holdings in OLT Offshore LNG Toscana S.p.A (or OLT-O). As we have no established method of
determining the fair value of this investment, we have not estimated its fair value as of December 31, 2017, but have not identified any changes in circumstances which
would alter our view of fair value as disclosed.
(2) The carrying amounts of our short-term debts and loans receivable approximate their fair values because of the near term maturity of these instruments.
(3) Our debt obligations are recorded at amortized cost in the consolidated balance sheets. The amounts presented in the table, are gross of the deferred charges amounting to $
24.1 million and $ 26.3 million at December 31, 2017 and December 31, 2016 , respectively.
(4) Derivative liabilities are captured within other current liabilities and derivative assets are captured within non-current assets on the balance sheet.
(5) The fair value of certain derivative instruments is the estimated amount that we 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 our creditworthiness and that of our counterparties.
(6) The fair value of total return equity swaps is calculated using the closing prices of the underlying listed shares, dividends paid since inception and the interest rate charged
by the counterparty.
(7) The Earn-Out Units were issued to Golar in connection with the IDR Reset transaction between Golar and Golar Partners in October 2016. Refer to note 14 for further
detail.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
•
•
•
•
•
•
•
•
•
•
The carrying values of trade accounts receivable, trade accounts payable, accrued liabilities and working capital facilities approximate fair values because
of the near term maturity of these instruments.
The carrying value of cash and cash equivalents, which are highly liquid, is a reasonable estimate of fair value.
The carrying value for restricted cash and short-term deposits is considered to be equal to the estimated fair value because of their near term maturity.
The estimated fair value for the liability component of the unsecured convertible bonds is based on the quoted market price as at the balance sheet date.
The estimated fair values for both the floating long-term debt and short-term debt to a related party are considered to be equal to the carrying values since
they bear variable interest rates, which are adjusted on a quarterly or six-monthly basis.
The fair value measurement of a liability must reflect the non-performance of the entity. Therefore, the impact of our credit worthiness has also been
factored into the fair value measurement of the derivative instruments in a liability position.
The fair value of the Earn-Out Units was determined using a Monte-Carlo simulation method. This simulation was performed within the Black Scholes
option pricing model then solved via an iterative process by applying the Newton-Raphson method for the fair value of the Earn-Out Units, such that the
price of a unit output by the Monte-Carlo simulation equaled the price observed in the market. The method took into account the historical volatility,
dividend yield as well as the share price of the Golar Partners common units as of the IDR Reset date and at balance sheet date.
The fair value of the FLNG derivative was determined using the estimated discounted cash flows of the additional payments due to us as a result of oil
prices moving above a contractual oil price floor over the term of the LTA. Significant inputs used in the valuation of the FLNG derivative include
management’s estimate of an appropriate discount rate and the length of time to blend the long-term and the short-term oil prices obtained from quoted
prices in active markets.
The credit exposure of interest rate swap agreements is represented by the fair value of contracts with a positive value at the end of each period, reduced
by the effects of master netting arrangements. It is our policy to enter into master netting agreements with counterparties to derivative financial instrument
contracts, which give us the legal right to discharge all or a portion of the amounts owed to the counterparty by offsetting them against amounts that the
counterparty owes to us.
Our pension plan assets are primarily invested in funds holding equity and debt securities, which are valued at quoted market price. These plan assets are
classified within Level 1 of the fair value hierarchy (see note 25).
The following table summarizes the fair value of our derivative instruments on a gross basis (none of which have been designated as hedges) recorded in our
consolidated balance sheets as of December 31, 2017 and 2016:
F-50
(in
thousands
of
$)
Asset Derivatives
FLNG derivative
Earn-Out Units asset
Interest rate swaps
Foreign exchange swaps
Total asset derivatives
Liability Derivatives
Interest rate swaps
Foreign exchange swaps
Total return equity swap
Total liability derivatives
Balance sheet classification
2017
2016
Other non-current assets
Other non-current assets
Other non-current assets
Other non-current assets
Other current liabilities
Other current liabilities
Other current liabilities
94,700
7,400
10,166
51
112,317
—
223
40,141
40,364
—
15,000
5,022
—
20,022
1,470
993
56,763
59,226
We have elected not to offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable master
netting arrangements. However, if we were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in our
consolidated balance sheets as of December 31, 2017 and 2016 would be adjusted as detailed in the following table:
Gross amounts
presented in the
consolidated balance
sheet
2017
Gross amounts not
offset in the
consolidated balance
sheet subject to netting
agreements
Gross amounts
presented in the
consolidated
balance sheet
Net amount
2016
Gross amounts not
offset in the
consolidated balance
sheet subject to netting
agreements
Net amount
(in
thousands
of
$)
Total asset derivatives
Total liability derivatives
10,166
—
—
—
10,166
—
5,022
1,470
(1,351)
(1,351)
3,671
119
The total return equity swap has a credit arrangement that requires us to provide cash collateral equaling 20% of the initial purchase price and to subsequently post
additional cash collateral that corresponds to any further unrealized loss. As at December 31, 2017 cash collateral amounting to $58.4 million has been provided
(see note 18).
Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents and restricted cash to the extent that substantially all of the amounts are carried with
Nordea Bank of Finland PLC, DNB Bank ASA, Citibank, Standard Chartered and Danske Bank. However, we believe this risk is remote, as they are established
and reputable establishments with no prior history of default.
There is a concentration of financing risk with respect to our long-term debt to the extent that a substantial amount of our long-term debt is carried with K-Sure,
KEXIM and commercial lenders of our $1.125 billion facility, as well as with ICBCL, CMBL, CCBFL and COSCO in regards to our sale and leaseback
arrangements (see note 5). We believe these counterparties to be sound financial institutions. Therefore, we believe this risk is remote.
We have a substantial equity investment in our former subsidiary, Golar Partners, that from December 13, 2012 is considered as our affiliate and not our controlled
subsidiary. As of December 31, 2017, our ownership interest was 31.8% and the aggregate carrying value of the investments recorded in our balance sheet as of
December 31, 2017 was $467.1 million , being the total of our ownership interest (common and general partner interests) plus IDRs. Accordingly, the value of our
investments and the income generated from Golar Partners is subject to specific risks associated with its business. Golar Partners operates in the same business as
us and as of December 31, 2017 had a fleet of ten vessels managed by us, under contract, with seven of these vessels operating under medium to long-term charters
with a concentrated number of charterers: Petrobras, Dubai Supply Authority, PT Nusantara
F-51
Regas, The Government of Hashemite Kingdom of Jordan and Kuwait National Petroleum Company. Furthermore, in the event the decline in the fair value of
these investments falls below the carrying value and it was determined to be other-than-temporary, we would be required to recognize an impairment loss.
We also have a substantial equity investment in our joint venture, Golar Power. As of December 31, 2017, our ownership interest was 50% and the aggregate
carrying value of the investment recorded in our balance sheet as of December 31, 2017 was $228.7 million . Accordingly, the value of our investment and the
income generated from Golar Power is subject to specific risks associated with its business. Golar Power offers integrated LNG based downstream solutions
through the ownership and operation of FSRUs and associated terminal and power generation infrastructure. Furthermore, in the event the decline in the fair value
of this investment falls below the carrying value and it was determined to be other-than-temporary, we would be required to recognize an impairment loss.
A further concentration of supplier risk exists in relation to our vessels undergoing or pending FLNG conversion with Keppel and Black & Veatch. However, we
believe this risk is remote as Keppel are global leaders in the shipbuilding and vessel conversion sectors while B&V is a global engineering, procurement and
construction company.
F-52
29.
RELATED PARTY TRANSACTIONS
a) Transactions with Golar Partners and subsidiaries:
Income
(expenses):
(in
thousands
of
$)
Management and administrative services revenue (i)
Ship management fees revenue (ii)
Charter-hire expenses (iii)
Gain on disposals to Golar Partners (iv)
Interest income on vendor financing loan (iv)
Interest expense on short-term credit facility (v)
Share options expense recharge (vii)
Interest expense on deposits payable (viii)
Total
2017
7,762
5,903
(17,423)
—
—
—
228
(4,622)
(8,152)
2016
4,251
6,466
(28,368)
—
—
(122)
181
(1,967)
(19,559)
Receivables
(payables):
The balances with Golar Partners and subsidiaries as of December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
Trading balances owing to Golar Partners and subsidiaries (v)
Methane Princess lease security deposit movements (vi)
Deposit payable (viii)
Total
2017
(4,144)
(3,464)
(177,247)
(184,855)
2015
2,949
7,577
(41,555)
102,406
4,217
(203)
297
—
75,688
2016
(21,792)
(2,006)
(107,247)
(131,045)
(i) Management
and
administrative
services
agreement
-
On March 30, 2011, Golar Partners entered into a management and administrative services agreement
with Golar Management, a wholly-owned subsidiary of Golar, pursuant to which Golar Management will provide to Golar Partners certain management and
administrative services. The services provided by Golar Management are charged at cost plus a management fee equal to 5% of Golar Management’s costs and
expenses incurred in connection with providing these services. Golar Partners may terminate the agreement by providing 120 days written notice.
(ii) Ship
management
fees
- Golar and certain of its affiliates charge ship management fees to Golar Partners for the provision of technical and commercial
management of Golar Partners' vessels. Each of Golar Partners’ vessels is subject to management agreements pursuant to which certain commercial and technical
management services are provided by Golar Management. Golar Partners may terminate these agreements by providing 30 days written notice.
(iii) Charter-hire
expenses
-
This consists of the charterhire expenses that we incurred for the charter back from Golar Partners of the Golar
Grand
in 2015, 2016
and 2017, and for the comparative period in 2015 this also includes the Golar
Eskimo
.
In connection with the sale of the Golar
Grand
to Golar Partners in November 2012, we issued an option where, in the event that the charterer did not renew or
extend its charter for the Golar
Grand
beyond February 2015, the Partnership had the option to require us to charter the vessel through to October 2017. In
February 2015, the option was exercised. Accordingly, we recognized charterhire costs of $17.4 million , $28.4 million and $28.7 million for the year ended
December 31, 2017, 2016 and 2015, respectively, in relation to the Golar
Grand.
On November 1, 2017, the Golar
Grand
guarantee concluded.
The above disclosure excludes the net effect of the non-cash credit of $5.1 million , $6.1 million and $3.9 million for the year ended December 31, 2017, 2016 and
2015, respectively. This relates to the Golar
Grand
guarantee obligation, which includes recognition of a loss on remeasurement in 2017 and 2015, less
amortization of the guarantee obligation.
In connection with the sale of the Golar
Eskimo
in January 2015, we entered into an agreement with Golar Partners to charter back the vessel until June 30, 2015.
Accordingly, we recognized charterhire costs of $12.9 million for the year ended December 31, 2015.
F-53
In addition, in exchange for entering into the charter back arrangement for the Golar
Eskimo
we agreed with Golar Partners that should we achieve a favorable
renegotiation and extension of the charter with the charterer, which increased the value of the charter sold along with the vessel, Golar Partners would pay
additional consideration to us equivalent to any increase in value. No charter renegotiation took place and no additional consideration was due or paid.
(iv) Gain
on
disposals
- This refers to the gains arising on the disposals of the Golar
Eskimo
to Golar Partners. This disposal is further described in note 6.
In January 2015, we completed the disposal of our interests in the companies that own and operate the FSRU, the Golar
Eskimo
, which resulted in a gain on
disposal of $102.4 million . To part fund the purchase, we provided Golar Partners with a $220.0 million loan facility which was non-amortizing with a balloon
payment due in December 2016 and bore interest at a rate equal to LIBOR plus a blended margin of 2.84% . The loan facility also contained an early repayment
incentive fee of up to 1.0% of the loan amount which was called by Golar Partners following early repayment of the loan in November 2015. Resulting in an
incentive fee of $ 1.1 million .
(v) Trading
balances
- Receivables and payables with Golar Partners and its subsidiaries are comprised primarily of unpaid management fees and expenses for
management, advisory and administrative services and may include working capital adjustments in respect of disposals to the Partnership, as well as charterhire
expenses. In addition, certain receivables and payables arise when we pay an invoice on behalf of a related party and vice versa. Receivables and payables are
generally settled quarterly in arrears. Trading balances owing to or due from Golar Partners and its subsidiaries are unsecured, interest-free and intended to be
settled in the ordinary course of business. They primarily relate to recharges for trading expenses paid on behalf of Golar Partners, including ship management and
administrative service fees due to us. In January 2016, we received funding from Golar Partners in the amount of $30 million for a fixed period of 60 days. Golar
Partners charged interest on this balance at a rate of LIBOR plus 5.0% . In November 2015, we received funding from Golar Partners in the amount of $50 million
for a fixed period of 28 days. Golar Partners charged interest on this balance at a rate of LIBOR plus 5.0% .
The decrease in trading balances to $4.1 million as of December 31, 2017 from $21.8 million as of December 31, 2016 is mainly attributable to the reduction of
charter-hire payables as a result of the expiration of the Golar
Grand
arrangement in November 2017, discussed in (iii) above, and various settlements made to
Golar Partners during the year.
(vi) Methane
Princess
lease
security
deposit
movements
- This represents net advances from Golar Partners since its IPO, which correspond with the net release of
funds from the security deposits held relating to a lease for the Methane
Princess
. This is in connection with the Methane
Princess
tax lease indemnity provided to
Golar Partners under the Omnibus Agreement. Accordingly, these amounts will be settled as part of the eventual termination of the Methane
Princess
lease.
(vii) Share
options
expense
-
This relates to a recharge of share option expense to Golar Partners in relation to share options in Golar granted to certain of Golar
Partners directors, officers and employees.
(viii) Interest
expense
on
deposits
payable
Expense
under
Tundra
Letter
Agreement
- In May 2016, we completed the Golar Tundra Sale and received a total cash consideration of $107.2 million . We agreed
to pay Golar Partners a daily fee plus operating expenses for the right to use the Golar
Tundra
from the date the Golar Tundra Sale was closed, until the date that
the vessel would commence operations under the Golar Tundra Time Charter. In return, Golar Partners agreed to remit to us any hire income received with respect
to the Golar
Tundra
during that period. It was further agreed that, if for any reason the Golar Tundra Time Charter had not commenced by the 12 month
anniversary of the closing of the Golar Tundra Sale, Golar Partners had the right to require that we repurchase the shares of Tundra Corp at a price equal to the
purchase price. Accordingly, by virtue of the put option, we continued to consolidate the Golar
Tundra
for the periods whilst the put option remained in place, thus
we have accounted for $2.2 million and $2.0 million as interest expense for the year ended December 31, 2017 and 2016, respectively.
Deferred
purchase
price
- In May 2017, the Golar
Tundra
had not commenced her charter and, accordingly, Golar Partners elected to exercise the Tundra Put
Right to require us to repurchase Tundra Corp at a price equal to the original purchase price. In connection with Golar Partners exercising the Tundra Put Right, we
and Golar Partners entered into an agreement pursuant to which we agreed to purchase Tundra Corp from Golar Partners on the date of the closing of the Tundra
Put Sale (the "Put Sale Closing Date") in return we will be required to pay an amount equal to $107.2 million (the "Deferred Purchase Price") plus an additional
amount equal to 5% per annum of the Deferred Purchase Price (the "Additional Amount"). The Deferred Purchase Price and the Additional Amount shall be due
and payable by us on the earlier of (a) the date of the closing of the Hilli Disposal (see below) and (b) March 31, 2018. We agreed to accept the Deferred Purchase
Price and the Additional Amount in lieu of a cash receipt on the Put Sale Closing Date in return we have provided Golar Partners with an option (which Golar
Partners have exercised) to purchase an
F-54
interest in Hilli Corp. We have accounted for $1.1 million as interest expense for the year ended December 31, 2017 , in relation to the Deferred Purchase Price.
Deposit
received
from
Golar
Partners
- On August 15, 2017, we entered into a purchase and sale agreement (the "Hilli Sale Agreement") with Golar Partners for
the disposal (the "Hilli Disposal") from Golar and affiliates of Keppel and Black & Veatch of common units (the "Disposal Interests") in Golar Hilli LLC. On the
closing date of the Hilli Disposal, Golar Hilli LLC will indirectly (via its wholly-owned subsidiary) be the disponent owner of the Hilli
. The Disposal Interests
represent the equivalent of 50% of the two liquefaction trains, out of a total of four, that are contracted to the Customer under an eight -year LTA. The sale price for
the Disposal Interests is $658 million less net lease obligations under the financing facility for the Hilli
(the "Hilli Facility"), which are expected to be between
$468 and $480 million . Concurrently with the execution of the Hilli Sale Agreement, we received a further $70 million deposit from Golar Partners, upon which
we pay interest at a rate of 5% per annum. We have accounted for $1.3 million and $nil as interest expense for the year ended December 31, 2017 and 2016 ,
respectively, in relation to the $70 million deposit from Golar Partners.
The closing of the Hilli Disposal is subject to the satisfaction of certain closing conditions which include, among others, the commencement of commercial
operations under the LTA and the related Pre-Closing Contributions.
Other
transactions:
Golar
Partners
distributions
to
us
- Golar Partners has declared and paid quarterly distributions totaling $52.3 million , $54.7 million , and $52.1 million to us for
each of the years ended December 31, 2017 , 2016 and 2015 , respectively.
Exchange
of
Incentive
Distribution
Rights
-
Pursuant to the terms of an Exchange Agreement (the “Exchange Agreement”) by and between Golar and Golar
Partners we exchanged all of our incentive distribution rights in the Partnership (“Old IDRs”) in October 2016. Under the terms of an Exchange Agreement, the
first target distribution was met in November 2017, accordingly, Golar Partners issued 50% of the Earn-Out Units ( 374,295 common units and 7,639 general
partner units) under the Exchange Agreement (see note 14).
Conversion
of
subordinated
units
-
In June 2016, the subordination period expired and all the subordinated units in Golar Partners were converted into common
units.
Indemnifications
and
guarantees:
a) Tax
lease
indemnifications:
Under the Omnibus Agreement, we have agreed to indemnify Golar Partners in the event of any tax liabilities in excess of scheduled
or final settlement amounts arising from the Methane
Princess
leasing arrangement and the termination thereof.
In addition, to the extent Golar Partners incurs any liabilities as a consequence of a successful challenge by the UK Tax Authorities with regard to the initial tax
basis of the transactions relating to any of the UK tax leases or in relation to the lease restructuring terminations in 2010, we have agreed to indemnify Golar
Partners.
The maximum possible amount in respect of the tax lease indemnification is not known as the determination of this amount is dependent on our intention of
terminating this lease and the various market factors present at the point of termination. As of December 31, 2017 , we recognized a liability of $11.5 million
(2016: $11.5 million ) in respect of the tax lease indemnification to Golar Partners representing the fair value at deconsolidation in December 2012.
b) Performance
guarantees:
We issued performance guarantees to third party charterers in connection with the Time Charter Party agreements entered into with
the vessel operating entities who are now subsidiaries of Golar Partners. These performance guarantees relate to the Golar
Freeze
, the Methane
Princess
and the
Golar
Winter
. The maximum potential exposure in respect of the performance guarantees issued by the Company is not known as these matters cannot be
absolutely determined. The likelihood of triggering the performance guarantees is remote based on the past performance of both our and Golar Partners' combined
fleets.
c) Disposal
of
Golar
Eskimo,
Golar
Igloo
and
Golar
Maria:
Under the Purchase, Sale and Contribution Agreements entered into between Golar Partners and us on
December 15, 2014, December 5, 2013 and January 30, 2013 in relation to the Golar
Eskimo,
the Golar
Igloo
and the Golar
Maria
, respectively, Golar has agreed
to indemnify Golar Partners against certain environmental and toxic tort liabilities with respect to the assets that Golar contributed or sold to Golar Partners to the
extent arising prior to the time they were sold and to the extent that Golar Partners notify us within five years of the date of the agreements.
F-55
d) Golar
Tundra
financing
related
guarantees:
In November 2015, we sold the Golar
Tundra
to a subsidiary of CMBL (see note 5) and subsequently leased back
the vessel under a bareboat charter (the “Tundra Lease”). In connection with the Tundra Lease, we are a party to a guarantee in favor of Tundra SPV, pursuant to
which, in the event that Tundra Corp (our subsidiary) is in default of its obligations under the Tundra Lease, we, as the primary guarantor, will settle any liabilities
due within five business days. In addition, Golar Partners has also provided a further guarantee, pursuant to which, in the event we are unable to satisfy our
obligations as the primary guarantor, Tundra SPV may recover this from Golar Partners, as the deficiency guarantor. Under a separate side agreement, we have
agreed to indemnify Golar Partners for any costs incurred in its capacity as the deficiency guarantor.
Omnibus
Agreement
In connection with the IPO of Golar Partners, we entered into an Omnibus Agreement with Golar Partners governing, among other things, when we and Golar
Partners may compete against each other as well as rights of first offer on certain FSRUs and LNG carriers. Under the Omnibus Agreement, Golar Partners and its
subsidiaries agreed to grant a right of first offer on any proposed sale, transfer or other disposition of any vessel it may own. Likewise, we agreed to grant a similar
right of first offer to Golar Partners for any vessel under a charter for five or more years that we may own. These rights of first offer will not apply to a (a) sale,
transfer or other disposition of vessels between any affiliated subsidiaries, or pursuant to the terms of any current or future charter or other agreement with a charter
party or (b) merger with or into, or sale of substantially all of the assets to, an unaffiliated third-party. In addition, the Omnibus Agreement provides for certain
indemnities to Golar Partners in connection with the assets transferred from us.
b) Transactions with Golar Power and affiliates:
In June 2016, we entered into certain agreements forming a 50/50 joint venture, Golar Power, with investment vehicles affiliated with the private equity firm
Stonepeak. The purpose of Golar Power is to offer integrated LNG based downstream solutions through the ownership and operation of FSRUs and associated
terminal and power generation infrastructure. The transaction closed on July 6, 2016 with the receipt of net proceeds of $113 million from the disposal of 50% of
our holding in the ordinary share capital of Golar Power to Stonepeak. Accordingly, effective from this date, we deconsolidated the results and net assets relating to
the two vessels; the Golar
Penguin
and the Golar
Celsius
, the newbuild Golar
Nanook
and LNG Power Limited, which holds the rights to participate in the
Sergipe Project. On the same date, we commenced equity accounting for our residual interest in Golar Power and we recorded an investment in Golar Power of
$116 million , which represents the fair value of our remaining 50% holding in Golar Power's ordinary share capital.
Net
revenues:
The transactions with Golar Power and its affiliates for the twelve months ended December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
Management and administrative services revenue
Ship management fees income
Debt guarantee compensation (i)
Share options expense recharge (ii)
Total
Payables:
The balances with Golar Power and its affiliates as of December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
Trading balances due to Golar Power and affiliates (iii)
Total
2017
5,711
824
775
135
7,445
2017
(935)
(935)
2016
1,965
335
488
—
2,788
2016
(4,442)
(4,442)
(i) Debt
guarantee
compensation
-
In connection with the closing of the Golar Power and Stonepeak transaction, Golar Power entered into agreements to
compensate Golar in relation to certain debt guarantees (as further described under the subheading "Guarantees and other") relating to Golar Power and
subsidiaries. This compensation amounted to an aggregate of $0.8 million and $0.5 million income for the year ended December 31, 2017 and 2016 , respectively.
(ii) Share
options
expense
-
This relates to a recharge of share option expense to Golar Power in relation to share options in Golar granted to certain of Golar
Power's directors, officers and employees.
(iii) Trading
balances
- Receivables and payables with Golar Power and its subsidiaries are comprised primarily of unpaid management fees, advisory and
administrative services. In addition, certain receivables and payables arise when we pay an invoice
F-56
on behalf of a related party and vice versa. Receivables and payables are generally settled quarterly in arrears. Trading balances owing to or due from Golar Power
and its subsidiaries are unsecured, interest-free and intended to be settled in the ordinary course of business.
Guarantees
and
other:
a) Debt
guarantees
-
The debt guarantees were previously issued by Golar to third party banks in respect of certain secured debt facilities relating to Golar Power
and subsidiaries. The liability which is recorded in "Other non-current liabilities" is being amortized over the remaining term of the respective debt facilities with
the credit being recognized in "Other financial items". As of December 31, 2017, the Company guaranteed $182.3 million of Golar Power's gross long-term debt
obligations. The debt facilities are secured against specific vessels. As described in (i) above we receive compensation from Golar Power in relation to the
provision of the guarantees.
b) Shipyard
guarantee
-
In connection with the newbuilding contract for the construction of a FSRU, we provided a guarantee to cover the remaining milestone
payments due to the shipyard. Pursuant to the formation of Golar Power and closing of the Stonepeak transaction, Golar Power's subsidiary, entered into a counter
guarantee with us to indemnify us in the event we are required to pay out any monies due under the shipyard guarantee.
c) Golar
Power
Purchase
Option
- Under the shareholders' agreement, Golar Power has the right for 18 months from July 6, 2016 to purchase another two of our
vessels at their respective fair values. In connection with any such transaction, Ordinary Shares will be issued based on the fair market value of the vessel(s) at the
time of their respective contribution.
d) Golar
Power
contributions
- under the shareholders' agreement, we and Stonepeak have agreed to contribute additional funding to Golar Power, on a pro rata
basis, including (i) an aggregate of $150 million in the period through to the second half of 2018; and (ii) additional amounts as may be required by Golar Power,
subject to the approval of its board of directors.
c) Transactions with OneLNG and subsidiaries:
On July 25, 2016 Golar and Schlumberger entered into a joint venture and shareholders' agreement to form OneLNG, a joint venture, with the intention to offer an
integrated upstream and midstream solution for the development of low cost gas reserves to LNG. In accordance with the joint venture and shareholders'
agreement, Golar holds 51% and Schlumberger the remaining 49% of OneLNG. Both Golar and Schlumberger have agreed pursuant to the OneLNG joint venture
and Shareholders’ Agreement that any new FLNG business development will be initiated by OneLNG. If the Board of Directors of OneLNG chooses not to
proceed with an identified project, Golar or Schlumberger will be free to pursue the project independently. By virtue of substantive participation rights held by
Schlumberger we account for our investment in OneLNG under the equity method of accounting.
Net
revenues:
The transactions with OneLNG and its subsidiaries for the year ended December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
Management and administrative services revenue
2017
6,463
Receivables:
The balances with OneLNG and its subsidiaries as of December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
Trading balances due from OneLNG (i)
2017
7,898
2016
586
2016
719
(i) Trading
balances
- Receivables and payables with One LNG and its subsidiaries are comprised primarily of unpaid management fees, advisory and
administrative services. In addition, certain receivables and payables arise when we pay an invoice on behalf of a related party and vice versa. Receivables and
payables are generally settled quarterly in arrears. Trading balances owing to or due from OneLNG are unsecured, interest-free and intended to be settled in the
ordinary course of business.
Guarantees
and
other:
a) OneLNG
contributions
- In connection with our newly formed joint venture, OneLNG, (see note 14) under the joint venture and shareholders' agreement with
Schlumberger, once a OneLNG project reaches final investment decision, we and Schlumberger will each be required to provide $250 million of new equity.
Contributions may include intellectual property amongst other items.
F-57
d) Transaction with other related parties:
Net
revenues
(expenses):
The transactions with other related parties for the years ended December 31, 2017 , 2016 and 2015 consisted of the following:
(in
thousands
of
$)
Golar Wilhelmsen (i)
The Cool Pool (ii)
Magni Partners (iii)
Total
2017
—
59,837
(260)
59,577
Receivables
(Payables):
The balances with other related parties as of December 31, 2017 and 2016 consisted of the following:
(in
thousands
of
$)
The Cool Pool (ii)
Magni Partners (iii)
Total
2016
—
32,254
(4,282)
27,972
2017
14,004
6
14,010
2015
(2,246)
1,992
—
(254)
2016
3,490
(137)
3,353
(i) As of September 4, 2015, pursuant to the acquisition of the remaining 40% interest, we held a 100% ownership interest in Golar Wilhelmsen, thus making it a
controlled and fully consolidated subsidiary from that date. Previous to that we held a 60% ownership interest in Golar Wilhelmsen, which we accounted for using
the equity method. Golar Wilhelmsen recharges management fees in relation to provision of technical and ship management services. Accordingly, from
September 4, 2015, these management fees are eliminated on consolidation.
(ii) The
Cool
Pool
-
For the year ended December 31, 2017 we recognized net income of $59.8 million from our participation in the Cool Pool. Trade accounts
receivable includes amounts due from the Cool Pool, amounting to $14.0 million as of December 31, 2017 (December 31, 2016: $3.5 million ).
The table below summarizes our net earnings (impacting each line item in our consolidated statement of operations) generated from our participation in the Cool
Pool:
(in
thousands
of
$)
Time and voyage charter revenues
Time charter revenues - collaborative arrangement
Voyage, charter-hire expenses and commission expenses
Voyage, charter-hire and commission expenses - collaborative arrangement
Net income from the Cool Pool
2017
77,975
28,327
(7,683)
(38,781)
59,838
2016
37,345
13,730
(7,681)
(11,140)
32,254
(iii) Magni
Partners
-
Tor Olav Trøim is the founder of, and partner in, Magni Partners Limited, a privately held UK company, and is the ultimate beneficial owner
of the company. Pursuant to a management agreement between Magni Partners Limited and a Golar subsidiary, for the year ended December 31, 2017 Golar was
recharged $0.3 million for services provided on behalf of our affiliates. In December 31, 2016, Golar was recharged $3.9 million (this includes $3.0 million in
relation to the transaction with Golar Power, which has been recorded as part of the loss on disposal of Golar Power in the income statement) for advisory services
from a partner and director of Magni Partners Limited, other than Mr Trøim. In addition, Golar was recharged $0.1 million for travel relating to certain board
members and $0.3 million for other travel and out of pocket expenses. All charges have been recharged to Golar at cost.
F-58
30.
CAPITAL COMMITMENTS
FLNG conversions
We entered into agreements for the conversion of the Hilli,
the Gimi
and the Gandria
into FLNGs in May 2014, December 2014, and July 2015, respectively, with
Keppel and Black & Veatch. As at December 31, 2017, the estimated timing of the outstanding payments in connection with the Hilli
conversion are as follows:
(in
thousands
of
$)
Payable within 12 months to December 31, 2018
146,782
As we have not lodged our final notice to proceed on the Gimi
and the Gandria
conversion contracts, we have excluded the Gimi
and the Gandria
capital
commitments in the above table. If we decide to lodge our final notices to proceed, the total estimated conversion, vessel and site commissioning cost for the
conversion of the Gimi
and the Gandria
, including contingency, is approximately $1.2 billion and $1.5 billion , respectively. If we do not issue our final notice to
proceed for the Gimi
conversion, we would have to pay a minimum of $20.0 million in termination fees.
31.
OTHER COMMITMENTS AND CONTINGENCIES
Assets pledged
(in
thousands
of
$)
Book value of vessels secured against long-term loans (1)
2017
2,032,747
2016
2,106,062
(1) This excludes the Hilli
which, as of December 31, 2017 and 2016, was classified as an "asset under development" (see note 16). The Hilli
is secured against the FLNG Hilli
facility (see note 23).
As at December 31, 2017 and 2016, 20,852,291 Golar Partners common units were pledged as security for the obligations under the Margin Loan Facility (see note
23).
Other contractual commitments and contingencies
UK
tax
lease
benefits
During 2003 we entered into six UK tax leases. Under the terms of the leasing arrangements, the benefits are derived primarily from the tax depreciation assumed
to be available to the lessors as a result of their investment in the vessels. As is typical in these leasing arrangements, as the lessee we are obligated to maintain the
lessor’s after-tax margin. Accordingly, in the event of any adverse tax changes or a successful challenge by the UK Tax Authorities (''HMRC'') with regard to the
initial tax basis of the transactions, or in relation to the 2010 lease restructurings, or in the event of an early termination of the Methane
Princess
lease, we may be
required to make additional payments principally to the UK vessel lessor, which could adversely affect our earnings or financial position. We would be required to
return all, or a portion of, or in certain circumstances significantly more than, the upfront cash benefits that we received in respect of our lease financing
transactions, including the 2010 restructurings and subsequent termination transactions. The gross cash benefit we received upfront on these leases amounted to
approximately £41 million British Pounds (before deduction of fees).
Of these six leases, we have since terminated five , with one lease remaining, being that of the Methane
Princess
lease. Pursuant to the deconsolidation of Golar
Partners in 2012, Golar Partners is no longer considered a controlled entity but an affiliate and therefore as at December 31, 2017, the capital lease obligation
relating to this remaining UK tax lease is not included on our consolidated balance sheet. However, under the indemnity provisions of the Omnibus Agreement or
the respective share purchase agreements, we have agreed to indemnify Golar Partners in the event of any tax liabilities in excess of scheduled or final scheduled
amounts arising from the Methane
Princess
leasing arrangements and termination thereof.
HMRC has been challenging the use of similar lease structures and has been engaged in litigation of a test case for some years. In August 2015, following an
appeal to the Court of Appeal by the HMRC which set aside previous judgments in favor of the tax payer, the First Tier Tribunal (UK court) ruled in favor of
HMRC. The tax payer in this particular ruling has the election to appeal the courts’ decision, but no appeal has been filed. The judgments of the First Tier Tribunal
do not create binding precedent for
F-59
other UK court decisions and therefore the ruling in favor of HMRC is not binding in the context of our structures. Further, we consider there are differences in the
fact pattern and structure between this case and our 2003 leasing arrangements and therefore is not necessarily indicative of any outcome should HMRC challenge
us, and we remain confident that our fact pattern is sufficiently different to succeed if we are challenged by HMRC. HMRC have written to our lessor to indicate
that they believe our lease may be similar to the case noted above. We have reviewed the details of the case and the basis of the judgment with our legal and tax
advisers to ascertain what impact, if any, the judgment may have on us and the possible range of exposure has been estimated at approximately £ nil to £112
million British Pounds. We are currently in conversation with HMRC on this matter, presenting the factual background of our position.
Legal
proceedings
and
claims
We may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision will be recognized in the
financial statements only where we believe that a liability will be probable and for which the amounts are reasonably estimable, based upon the facts known prior
to the issuance of the financial statements.
Other
In December 2005, we 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 December 31, 2017
, we 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.
We are party to a shareholders’ agreement with a consortium of investors to fund the development of pipeline infrastructure and a FSRU which are intended to
supply two power plants in the Ivory Coast. The project is currently in the initial design phase, with FID currently expected to be taken in the first half of
2018. Negotiations are underway with third party lenders for the financing of construction costs in the event a positive investment decision is made. During the
initial phase of the project, our remaining contractual commitments for this project are estimated to be in the region of €0.5 million . In the event a positive FID is
taken on the project, this could increase up to approximately €15 million . This figure is dependent upon a variety of factors such as whether third party financing is
obtained for a portion of the construction costs. The timing of this range of payments is dependent on whether and when FID is made, progress of negotiations with
lenders for non-investor financing, and the progress of eventual construction work. The nature of payments to the project could be made in a combination of capital
contributions or interest-bearing shareholder loans.
32.
SUBSEQUENT EVENTS
On February 28, 2018, we declared a dividend of $ 0.05 per share in respect of the quarter ended December 31, 2017 and paid this in April 2018. In addition, Golar
Partners made a final cash distribution of $ 0.58 per unit in February 2017 in respect of the quarter ended December 31, 2017, of which we received $ 13.1 million
of dividend income in relation to our common and general partner units held at the record date.
During 2018 (up until filing date), we drew down an additional $115.0 million under the FLNG Hilli facility. To date we have drawn down $640.0 million under
this facility.
On March 19, 2018, Brian Tienzo stepped down as CFO of Golar and took up the position of CEO and CFO of Golar Partners. He will retain certain
responsibilities for group financing activities. On the same date, Graham Robjohns stepped down as CEO of Golar Partners and took up the role of CFO and
Deputy CEO of Golar.
In March 2018, we extended the Golar
Arctic
charter with an energy and logistics company to the earlier of (i) January 15, 2019 or (ii) the delivery of a
replacement FSRU from Golar Partners to the charterer.
F-60
LIQUEFACTION TOLLING AGREEMENT
between
SOCIÉTÉ NATIONALE DES HYDROCARBURES
and
PERENCO CAMEROON SA
and
GOLAR HILLI CORPORATION
and
GOLAR CAMEROON SASU
Dated: November 29, 2017
1
1 Definitions, Interpretation and Language 5
2 Term and Effectiveness 20
3 Scope of Services 21
4 Operation Manuals and Measurement 23
5 Compensation for Services 25
6 Invoicing and Payment 27
7 Taxes 29
8 FLNG Facility 30
9 Start-Up 35
10 Receipt of Gas 42
11 Delivery of LNG 44
12 Scheduling 47
13 Interruption to Services 52
14 Inventory Management 56
15 LNG Loading and Transportation 57
16 Force Majeure 68
17 Credit Support 71
18 Termination 72
19 Liabilities and Indemnification 74
20 Insurance 76
21 Representations and Warranties 77
22 Assignment 78
23 Change in Control 79
24 Confidentiality 79
25 Business Principles 82
26 Health and Safety 83
Table of Contents
2
27 Quality Assurance and Quality Control 86
28 ISPS Code 86
29 Choice of Law and Dispute Resolution 86
30 Communications and Notices 87
31 Miscellaneous 89
Annex 1 FLNG Vessel Specifications 94
Annex 2 Project Specifications 96
Annex 3 LNG Specification 101
Annex 5 Acceptance Test Principles 103
Annex 6 Form of Acceptance Certificate 105
Annex 7 Conditions of Use 106
Annex 8 Approved LNG Vessels 110
Annex 9 Allotted Loading Times and Demurrage Rates for LNG Vessels 111
3
THIS LIQUEFACTION TOLLING SERVICES AGREEMENT (the “ Agreement ”) is made on 2017 between:
(1)
(2)
(3)
(4)
SOCIÉTÉ NATIONALE DES HYDROCARBURES , a company established and duly incorporated under the laws of the Republic of Cameroon
under company registration number RC Yaoundé J-58 with its registered office at P.O. Box 955, Yaoundé, Cameroon, represented for the purposes of
this Agreement by [*****], duly authorised for the purposes hereof (“ SNH ”);
PERENCO CAMEROON SA , a limited liability company with a board of directors, with a share capital of [*****], established and duly incorporated
under the laws of the Republic of Cameroon under company registration number RC/DLA/1982/B/8367, with its registered office at P.O. Box 1225
Douala, Cameroon, represented for this purpose by [*****], duly authorised for the purposes hereof (“ Perenco ”);
GOLAR HILLI CORPORATION , a company established and duly incorporated under the laws of the Marshall Islands, under company registration
number 68975, with its registered office located at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960,
represented for the purposes of this Agreement by Mr Iain Ross, duly authorised for the purposes hereof (“ Golar ”); and
GOLAR CAMEROON SASU , a simplified limited company with a sole shareholder, with a share capital of CFA Francs ten million (XAF
10,000,000),
under company registration number
RC/DLA/2015/B/3350, with its registered office located at Avenue de Gaulle 600. Bonanjo, PO Box 1404, Douala, Cameroon, represented for the
purposes of this Agreement by Mr John Johansen, duly authorised for the purposes hereof (“ Golar Cam ”).
established and duly incorporated under the laws of the Republic of Cameroon,
SNH, Perenco, Golar and Golar Cam, and their respective successors and permitted assignees (if any), may sometimes individually be referred to throughout this
Agreement as a “ Party ” and collectively as the “ Parties ” (and, where the context requires, each of SNH and Perenco may together be referred to as a single
Party, and each of Golar and Golar Cam may together be referred to as a single Party).
RECITALS :
(A)
(B)
(C)
(D)
Perenco and SNH (collectively the “ Customer ”), Golar and Golar Cam are committed to the development of a floating liquefied natural gas (“ FLNG
”) export project offshore Kribi, in Cameroon (the “ Project ”).
The Customer has, pursuant to the Sanaga Sud PSC (as defined below), secured the rights to produce and transport Gas and to export LNG from
Cameroon, and, pursuant to the Sanaga Sud PSC, is authorised to provide Feed Gas for the Project.
The parties have entered into a Binding Term Sheet dated 15 October 2015, as amended and supplemented by Addendum No.1 dated 30 October 2015,
pursuant to which the Parties set out the basis on which Golar and Golar Cam would make the Services available to the Customer in order to execute the
Project.
The Parties and the Republic of Cameroon have entered into the Gas Agreement (the “ Convention Gaziere ”) dated 30 September 2015, in order to
establish the technical, legal, financial, customs and economic framework between the Parties on the one hand, and the Republic of Cameroon on the
other (including the rights for the Customer to liquefy Gas and export LNG from Cameroon).
(E)Golar and Golar Cam now wish to make the Services available to the Customer, and the Customer desires to purchase and pay Golar for the Services and to Lift
LNG from the FLNG Facility, in accordance with the provisions hereof.
NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged it is agreed as follows:
1
1.1
DEFINITIONS, INTERPRETATION AND LANGUAGE
Definitions
4
In addition to any terms or expressions defined elsewhere herein, the terms or expressions set out below shall have the following meanings in this
Agreement.
“[*****] -Day Schedule ” shall have the meaning set out in Clause 12.4(a).
“[*****] -Day Period ” shall have the meaning set out in Clause 12.3(a).
“[*****] -Day Schedule ” shall have the meaning set out in Clause 12.3(a)(i).
“ Acceptance Date ” means the date upon which delivery of the FLNG Facility is accepted or deemed to be accepted by the Customer, as evidenced by
the Parties’ execution or deemed acceptance of the Certificate of Acceptance pursuant to Clause 9.4(h) , and “Acceptance” shall be deemed to have
occurred upon such acceptance.
“ Acceptance Minimum Requirements ” means the key functional requirements of the FLNG Facility as further detailed in Annex 5.
“ Acceptance Test Protocol ” shall have the meaning set out in Clause 9.2(a).
“ Acceptance Tests ” means the testing of the FLNG Facility further detailed in the Acceptance Test Protocol (the principles of which are set out at
Annex 5) and which are required to determine whether the FLNG Facility meets the Acceptance Minimum Requirements.
“ Actual Laytime ” shall have the meaning set out in Clause 15.7(b).
“ Adverse Weather Conditions ” means weather and sea conditions actually experienced at or near the FLNG Facility that are sufficiently severe
either: (a) to prevent an LNG Vessel from proceeding to berth, or loading or departing from berth, in accordance with one or more of the following: (i)
regulations published by a Governmental Authority, (ii) an Approval or (iii) an order of a Pilot or a mooring master; or (b) to cause an actual
determination by the Master of an LNG Vessel that it is unsafe for such vessel to berth, load or depart from berth; or (c) to cause an actual determination
by the Master of the FLNG Vessel that it is unsafe for an LNG Vessel to berth, load or depart from berth.
“ Affiliate ” means a Person (other than a Party) that directly or indirectly controls, is controlled by, or is under common control with, a Party, and for
such purposes the terms “ control ”, “ controlled by ” or other derivatives shall mean the direct or indirect ownership of fifty per cent (50%) or more of
the voting rights in a Person or control of the Board of a Person and shall include, for the avoidance of doubt, Golar LNG Partners LP (or its successors
in title) and Golar Partners Operating LLC (or its successors in title).
“ Agreement ” means this agreement, together with the Annexes attached hereto, which are hereby incorporated into and made a part hereof.
“ Allotted Berth Time ” shall have the meaning set out in Clause 15.11(b).
“ Allowed Laytime ” shall have the meaning set out in Clause 15.7(a).
“ Annual Feed Gas Schedule ” means the schedule of Customer’s Daily Feed Gas deliveries for a Contract Year issued by the Parties pursuant to
Clause 12.2(d).
“ Applicable Amount ” [*****].
“ Approvals ” means all consents, authorisations, licences, waivers, permits, approvals and other similar documents from or by a Governmental
Authority.
“ Approved Provider ” shall have the meaning set out in Clause 20.2(a)(ii).
“ ARQ ” means the aggregate of the RMQs over a Contract Year.“
5
Arrival Location ” shall mean the pilot boarding station as further described in the Marine Operations Manual.
“ Arrival Temperature ” shall have the meaning set out in Clause 15.1(d).
“ Audit Defects ” shall have the meaning set out in Clause 26.4(c).
“ Bank Guarantee ” shall have the meaning set out in Clause 17.2(a).
“ Bar(g) ” means bar gauge or gauge pressure measured with reference to atmospheric pressure (1 atm).
“ Base Agreement ” shall have the meaning set out in Clause 31.5(b).
“ Base Capacity ” means LNG liquefaction capacity of either:
(1) 1.2 MMTPA; or
(2) the LNG liquefaction capacity notified by the Customer in the event that the option at Clause 5.1(b) is exercised by the Customer and the required
notification has been provided by Golar
or pro rata thereof in the first and last Contract Year. In respect of the first Contract Year, the Base Capacity shall be calculated from the Acceptance
Date, notwithstanding that the first Contract Year may commence after the Acceptance Date.
“ BCF ” means billion cubic feet.
“ Binding Term Sheet ” shall have the meaning set out in Recital (C).
“ Brent Crude Price ” has the meaning given to it in Clause 5.1(a).
“ British Thermal Unit ” or “ BTU ” means the amount of heat required to raise the temperature of one (1) avoirdupois pound of pure water from fifty-
nine degrees Fahrenheit (59°F) to sixty degrees Fahrenheit (60°F) at an absolute pressure of fourteen point six nine six (14.696) pounds per square inch.
“ Business Day ” means any day other than a weekend day or banking holiday in any of Yaoundé, London or New York.
“ Cargo ” shall mean a quantity of LNG, expressed in MMBTU, to be Lifted onto an LNG Vessel in relation to which Golar and Golar Cam have
rendered Services to Customer hereunder.
“ Change in Control ” means that any of the following events has occurred:
(a)
(b)
(c)
any Person (other than an Affiliate) becomes the beneficial owner directly or indirectly, of voting securities of a Party representing more than
fifty per cent (50%) of the Party’s outstanding voting securities or rights to acquire such securities or acquires control of a majority of the
Board or otherwise acquires de facto control;
any sale, lease, exchange or transfer (in one transaction or a series of transactions) by Golar of the FLNG Facility, other than in respect of
specific finance arrangements where Golar retains control and use of the FLNG Facility; or
[*****].
“ Change in Law ” means the occurrence of any of the following after 15 October 2015:
(a)
the enactment of any new law;
6
(b)
(c)
(d)
the modification, repeal, or withdrawal of any existing law;
the commencement of any law which had not become effective on 15 October 2015; or
a change in the interpretation or application by any Governmental Authority having jurisdiction over any of the Parties or the subject matter
of this Agreement of any law.
“ Claims ” means claims, demands, legal proceedings or actions that may exist, arise or be threatened currently or in the future at any time following the
Effective Date, whether or not of a type contemplated by any Party, and whether based on federal, provincial, local, statutory or common law or any
other applicable law.
“ Classification Society ” has the meaning given to it in Annex 1.
“ Commercial Operations Manual ” shall have the meaning set out in Clause 4.2(a).
“ Commercial Start Date ” has the meaning given to it in Clause 9.4(a).
“ Commissioning Activities ” means leak testing and flushing, feed gas commissioning and start up activities and liquefaction plant commissioning and
start up activities to be further detailed in the Commissioning Programme.
“ Commissioning Period ” means the period between the Scheduled Commissioning Start Date and Acceptance, during which the Commissioning
Activities and the Acceptance Tests are to be carried out by the Parties in accordance with the Commissioning Programme and Acceptance Test
Protocol.
“ Commissioning Programme ” shall have the meaning set out in Clause 9.2(b).
“ Commissioning Retainage Limit ” means [*****].
“ Completion of Loading ” means, following loading of a Cargo on the relevant LNG Vessel, (i) the disconnection of all the flange couplings of her
cargo manifold from the flange couplings of the loading lines at the FLNG Facility and (ii) the disconnection of the flange coupling of her vapour return
line from the flange coupling of the vapour receipt line at the FLNG Facility. In the case an LNG Vessel loads a Cargo in multiple separate parcels and
decouples from the FLNG Facility between parcels (due to the additional time required for the FLNG Facility to finish producing the Expected Lifting
Quantity after loading the previous parcel), Completion of Loading shall be deemed to occur after the disconnection of the relevant flange couplings
mentioned in the prior sentence following the loading of the final parcel.
“ Confidential Information ” means the terms of this Agreement and the fact of its entry, and all written and oral information directly or indirectly
disclosed by Golar, Golar Cam or Customer to each other and shall include, without any limitation being implied, all notes, analyses, compilations,
studies and all other documents relating to the FLNG Facility and the Liquefaction Project, including notes, analyses, compilations or documents
generated by Golar Golar Cam or Customer having received Confidential Information and which contain or are directly or indirectly or otherwise
generated from such information. For the avoidance of doubt, Confidential Information includes operational information related to Customer.
“ Consequential Loss ” means:
(a)
(b)
any indirect, incidental, consequential, exemplary or punitive loss or damages; and
any direct or indirect: loss of income or profits, loss of anticipated income or profits, loss of goodwill, loss of business, loss of bargain, loss of
anticipated saving, loss of use (partial or total), loss and/or deferral of production, loss of contracts, loss of revenues, or loss of reputation.
For the avoidance of doubt Consequential Loss shall not include (i) any compensation for the Services (including the Fee) or compensation payable
during suspension of the Commissioning Period pursuant to
7
Clause 9.3; (ii) payment of liquidated damages pursuant to Clause 9.3; (iii) any deduction due as a consequence of Services Unavailability pursuant to
Clause 13.3(d); (iv) payment of SPA Costs pursuant to Clause 13.3(d); (v) payment of demurrage pursuant to Clause 15.7(c); or (vi) any termination
fees payable pursuant to Clause 18.2.
“ Contract Year ” means, for the first Contract Year, the period from the day after both the following have occurred: (a) the Acceptance Date and (b)
the Lifting Programme is issued pursuant to Clause 12.2(e) to the following 31 December, and then each successive period of twelve (12) months
beginning on 1 January. The last Contract Year shall commence on 1 January and end on the last day of the Term as set out in Clause 2.1.
“ Contract Year Reconciliation ” has the meaning given to it in Clause 13.3(d)(ii).
“ Credit Supports ” shall mean the Golar Credit Support and the Customer Credit Support.
“ Cubic Metre ” means a volume equal to the volume of a cube each edge of which is one (1) metre.
“ Customer ” has the meaning set out in the Recital (A).
“ Customer Delay Event ” means:
[*****]
in each case, other than due to (i) any fault, negligent act or omission of Golar or Golar Cam or any Golar Indemnified Person or (ii) an event of Force
Majeure.
“ Customer Indemnified Person ” means:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
the Customer and each of its Affiliates;
any Person selling, supplying or otherwise delivering Feed Gas for or on behalf of Customer to FLNG Facility;
any Person executing any agreement pursuant to which Customer or any of Customer’s Affiliates sells or agrees to sell LNG (unless such
Person has signed the Conditions of Use Agreement);
any owner and operator of Transport Pipelines delivering Feed Gas for or on behalf of Customer;
any Transporter (unless such Transporter has signed the Conditions of Use Agreement);
contractors and subcontractors of any tier of any of the foregoing (including tugs, tug owners and operators, pilot vessels, pilot vessel owners
and operators, and security vessels, security vessel owners and operators) in connection with the Customer’s Facilities; and
the Representatives of each of the foregoing,
provided that it shall not include any member of Golar’s Group.
“ Customer Personnel ” means those persons designated as such by the Customer to Golar.
“ Customer’s Credit Support ” means the Perenco Credit Support and the SNH Credit Support.
“ Customer’s Facilities ” means all fixed and moveable assets and equipment which the Customer uses and/or controls and operates from time to time
for the purpose of producing, processing and thereafter providing Feed Gas at the Gas Receipt Point and taking delivery of LNG at the LNG Delivery
Point, including but not limited to the subsea facilities, the risers, the offshore facilities (including the Sanaga-1 platform), the Bipaga central process
facilities and the pipelines (including the pipelines connecting the
8
Sanaga-1 platform and the Bipaga central process facilities and the pipeline connecting the Bipaga central process facilities and the FLNG Facility).
“ Customer’s Group ” means Customer’s Indemnified Persons.
“ Customer’s Inventory ” means, at any given time, the quantity in MMBTUs (whether positive or negative) that represents LNG and Gas held in the
custody of Golar at the FLNG Facility on behalf of Customer as recorded in Customer’s Inventory Account.
“ Customer’s Proposed Lifting Programme ” shall have the meaning set out in Clause 12.2(b).
“ Daily Feed Gas Quantity ” shall have the meaning set out in Clause 12.3(b)(i).
“ Daily LDs ” means pre-Acceptance liquidated damages payable by Golar to the Customer for delay or failure in delivery and/or failure of acceptance
testing by the Commercial Start Date (for reasons not primarily attributable to a Customer Delay Event or Force Majeure) at the rates specified in Clause
9.4(e).
“ Dated Brent ” has the meaning given to it in Clause 5.1(a).
“ Dated Brent Index ” has the meaning given to it in Clause 5.1(a).
“ Day ” means a period of twenty-four (24) consecutive hours beginning and ending at 00:00 hrs Cameroon time, and “ Daily ” shall be construed
accordingly.
“ Definitive Financing Agreements ” means, collectively, all contracts executed by the Lenders and sponsors of Golar or its Affiliates in connection
with the financing of the Project.
“ Demurrage Event ” shall have the meaning set out in Clause 15.7(c)(i).
“ Discloser ” shall have the meaning set out in Clause 24.1(a).
“ Dispute ” means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation or otherwise)
arising out of, relating to or connected with this Agreement, including any dispute as to the construction, validity, interpretation, termination,
enforceability or breach of this Agreement, as well as any dispute over arbitrability or jurisdiction.
“ Downstream Facilities ” means (1) all berthing and marine facilities at the FLNG Site for berthing LNG Vessels at the FLNG Facility (including, but
not limited to, LNG Vessels, fireboats, tugs and escort vessels), and (2) any receiving facilities at an unloading port (including, but not limited to, those
facilities located at the relevant unloading port that are used by the buyer under an LNG SPA for the fulfilment of its obligations thereunder, which
include (i) the LNG Vessel berthing facilities and the unloading port facilities, (ii) the LNG unloading, receipt, storage, treatment (if necessary) and
regasification facilities, (iii) the Gas (and LNG, if applicable) processing facilities and the transmission pipelines, and (iv) all ancillary equipment), in
each case whether or not owned or operated by the Customer.
“ Effective Date ” shall mean the date on which all Conditions Precedent in Clause 2.3 have been satisfied or waived in accordance with the terms
thereof.
“ Encumbrance ” means any mortgage, pledge, lien, charge, adverse claim, proprietary right, assignment by way of security, security interest, title
retention, preferential right or trust arrangement or any other security agreement or arrangement having the effect of security.
“ ETA ” shall have the meaning set out in Clause 15.4(b)(i).
“ Expected Lifting Quantity ” means the quantity of LNG (expressed in MMBTUs unless otherwise indicated) to be Lifted in connection with a
scheduled Lifting as set out in the Lifting Programme.
“ Export Licence ” means the export license granted to the Customer pursuant to the Gas Convention.
9
“ Failure to Lift ” shall have the meaning set out in Clause 13.5.
“ Fee ” shall have the meaning set out in Clause 5.1.
“ Feed Gas ” means Gas delivered to the FLNG Facility in relation to the Services.
“ Feed Gas Quantity Delivered ” means at any time, the quantity in MMTBUs of Feed Gas actually delivered to the Gas Receipt Point and credited to
the Customer’s Inventory, as measured on board the FLNG Vessel.
“ Feed Gas Specification ” shall have the meaning set out in Clause 10.2.
“ Final Notice ” shall have the meaning set out in Clause 15.4(b)(iv).
“ Firm Feed Gas Schedule ” shall have the meaning set out in Clause 12.2(b).
“ First Notice ” shall have the meaning set out in Clause 15.4(b)(i).
“ FLNG Facility ” means, collectively, the FLNG Vessel, the Mooring, and other facilities to be provided by Golar and its Affiliates for the liquefaction
of LNG for export, including all marine facilities, riser and umbilical, and related equipment between the Gas Receipt Point and the LNG Delivery
Point, to be situated at the FLNG Site.
“ FLNG Site ” is the location set out in Annex 2.
“ FLNG Vessel ” shall mean the “ Hilli
Episeyo
” floating liquefaction vessel as more precisely described in Annex 1 (FLNG Vessel Specifications).
“ Flag State ” has the meaning given to it in Annex 1.
“ Force Majeure ” shall have the meaning set out in Clause 16.1.
“ Full Cargo Lot ” means the maximum quantity of LNG (expressed in cubic metres) that the particular LNG Vessel can safely load, carry and
discharge after taking into account (among other factors) the maximum quantity of LNG that can practically be loaded onto the LNG Vessel at the
FLNG Facility, the gross cargo capacity of such LNG Vessel, any port restrictions, allowances for usual operational constraints such as boil-off, the
required draft upon arrival at the relevant discharge port, and LNG heel quantity on board, up to a maximum quantity of [*****] m 3 Cubic Metres.
“ Gas ” means any hydrocarbon or mixture of hydrocarbons consisting predominantly of methane which is in a gaseous state.
“ Gas Agreement ” shall have the meaning set out in Recital (D).
“ Gas Receipt Point ” shall be the flange connection between the Customer’s hook up spool and Golar’s pipe.
“ Golar Credit Support ” has the meaning given to it in Clause 17.1(a).
“ Golar Indemnified Person ” means each of Golar, Golar Cam, Golar LNG Limited, Golar LNG Partners, Golar Partners Operating LLC and their
respective Affiliates, personnel and crew at the FLNG Facility, contractors and subcontractors of any tier of any of the foregoing in connection with the
FLNG Facility, and Representatives of each of the foregoing, provided that it shall not include any member of the Customer’s Group.
“ Golar Notice of Readiness ” has the meaning given to it in Clause 9.2(h).
10
“ Governmental Authority ” means, in respect of any country, any national, regional, provincial or local government, or any subdivision, agency,
commission or authority thereof (including any maritime authorities, port authority or any quasi-governmental agency).
“ Gross Heating Value ” means, when expressed in BTU/SCF, the quantity of heat produced by the complete combustion in dry air of one SCF of dry
ideal natural gas and the condensation of all the water formed, with the initial and final temperature and pressure being fifteen Degrees Celsius (15°C)
and one (1) atm respectively calculated according to ISO 6976. Gross Heating Value is equivalent to higher heating value (HHV).
“ Gross Negligence ” means a negligent act or negligent failure to act of a person, which act or omission would reasonably be perceived as entailing an
extreme degree of risk of injury to a person or physical loss of or damage to property (considering the probability and magnitude of the potential injury,
loss or damage), coupled with the person’s actual awareness of (and indifference to) such extreme risk.
“ Group ” means in relation to Customer, the Customer Indemnified Persons, and in relation to Golar or Golar Cam, the Golar Indemnified Persons.
“ Heel LNG Quantity ” has the meaning set out in Clause 9.6(b)(ii).
“ Hook-Up Activities ” means the lifting of mooring chains and soft yoke and the connection of the riser and umbilical to be carried out following the
FLNG Vessel’s arrival and mooring at site.
“ Imbalance ” shall have the meaning set out in Clause 12.5(a).
“ Insolvency ” means:
(a)
(b)
(c)
(d)
(e)
(f)
a party suspends payment of its debts or is unable or admits its inability to pay its debts as they fall due;
a party passes a resolution, commences proceedings or has proceedings commenced against it (which proceedings commenced against it are
not stayed within twenty-one (21) days of service thereof on that party) in the nature of bankruptcy or reorganization resulting from
insolvency, or for its liquidation or for the appointment of a receiver, administrator, trustee in bankruptcy or liquidator of its undertakings or
assets;
a party enters into any composition or scheme of arrangement with its creditors generally (or any class thereof) for the forgiveness or
forbearance of debt (in whole or in part) save in the course of reconstructions or amalgamations previously approved in writing by the other
party;
a petition is presented or an order is made by any competent court or other appropriate authority or a resolution is passed for bankruptcy,
dissolution or winding up of a party;
a liquidator, manager, administrator, receiver or trustee is appointed or an encumbrancer takes possession of the undertaking or property of a
party or any material part of the undertaking or property of a party and is not paid out or discharged within twenty-eight (28) days unless such
appointment or possession is being contested by the party in good faith by appropriate proceedings and is paid out or discharged within forty-
five (45) days; and
a party ceases to carry on its business except for the purposes of corporate restructuring in a way which will shall not affect or interfere with
its duties and obligations under this Agreement.
“ Insubstantial Non-Conformity ” means any minor or insubstantial non-conformity in the FLNG Facility (as required under this Agreement) that does
not and shall not (a) affect the FLNG Vessel’s compliance with the rules, regulations and requirements of the Classification Society, Flag State or
applicable law; (b) impair the safe and efficient operation of the FLNG Facility; (c) affect the ability of Golar and/or Golar Cam to provide the Services.
11
“ Intellectual Property Rights ” shall mean all patents, copyright, database rights, design rights, trade secrets, confidential know how, moral rights,
trademarks and service marks (all whether registered or not and including all applications for any of them and all equivalent rights in all parts of the
world), and all rights of confidence, whenever and however arising for their full term and including any divisions, reissues, re-examinations,
continuations, continuations-in-part and renewals thereof.
“ International LNG Terminal Standards ” means, to the extent not inconsistent with the express requirements of this Agreement, or applicable Law,
the international standards and practices applicable to the ownership, design, construction, equipment, operation or maintenance of a single or multi user
floating LNG liquefaction facilities, established by the following (such standards to apply in the following order of priority): (i) a Governmental
Authority having jurisdiction over the FLNG Facility; (ii) the FLNG Vessel’s Flag State; (iii) the FLNG Vessel’s Classification Society; and (iv) any
other internationally recognised non-governmental agency or organisation, including the International Maritime Organisation (IMO), Society of
International Gas Tankers and Terminal Operators (SIGTTO), Oil Companies International Marine Forum (OCIMF), and The International Group of
LNG Importers (GIIGNL), with whose standards, practices and guidelines it is customary for Reasonable and Prudent Operators of such floating
liquefaction facilities to comply.
“ International LNG Vessel Standards ” means, to the extent not inconsistent with the express requirements of this Agreement or applicable Law, the
international standards and practices applicable to the ownership, design, construction, equipment, operation or maintenance of LNG vessels established
by the following (such standards to apply in the following order of priority): (i) a Governmental Authority with jurisdiction over the LNG Vessel; (ii)
the LNG Vessel’s flag state; (iii) the LNG Vessel’s classification society pursuant to Clause 15.2(h); and (iv) any other internationally recognised non-
governmental agency or organisation, including the International Maritime Organisation (IMO), the Society of International Gas Tankers and Terminal
Operators (SIGTTO), Oil Companies International Marine Forum (OCIMF) and the International Group of LNG Importers (GIIGNL), with whose
standards, practices and guidelines it is customary for Reasonable and Prudent Operators of LNG Vessels to apply.
“ Inventory Account ” shall have the meaning set out in Clause 14.2(a).
“ ISM Code ” shall have the meaning set out in Clause 15.2(b).
“ Late Lifting ” shall have the meaning set out in Clause 13.3(d)(ix).
“ Lender ” means (a) any and all banks, financial institutions and other financing parties providing all or a portion of any financing, refinancing or
credit support to Golar or its Affiliates related to the FLNG Facility and the general business operations of Golar or its Affiliates, and any trustee or
agent acting on behalf of such banks, financial institutions or financing parties, and (b) any provider of any hedging arrangement required under the
terms of (a) above, including an interest rate swap transaction, forward interest rate swap transaction, and any trustee or agent acting on behalf of such
provider.
“ Liabilities ” means all liabilities, costs, claims, disputes, demands, suits, legal or administrative proceedings, judgments, damages, losses and expenses
(including reasonable attorneys’ fees and other reasonable costs of litigation or defence), and any and all fines, penalties and assessments of, or
responsibilities to, Governmental Authorities.
“ LIBOR ” means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the
administration of that rate) for Dollars for a period of one (1) month and as displayed on the “LIBOR 01” or “LIBOR 02” page on the Thomson Reuters
screen (or any replacement of the Thomson Reuters page which displays that rate) or on the appropriate page of such other information service which
publishes that rate from time to time in place of Thomson Reuters at or about 11:00 a.m. (London time) on the day that is two (2) London Banking Days
prior to (i) the due date of the payment to bear interest, and thereafter, (ii) the first Business Day of each succeeding calendar month.
“ Lift ” or derivatives of the same means Customer’s receipt, loading and transport of a quantity of LNG from the FLNG Facility, utilising LNG
Vessels.
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“ Lifting ” means the loading of LNG onto an LNG Vessel for the account of Customer, in connection with a Scheduled Arrival Window as specified in
the Lifting Programme.
“ Lifting Programme ” means the schedule of Liftings, Scheduled Arrival Windows and Expected Lifting Quantities for a Contract Year issued and
updated by the Parties pursuant to Clause 12.
“ Liquefaction License ” means the licence to treat and liquefy natural gas and to store and deliver the resultant LNG granted to Golar Cam pursuant to
Clause 4 of the Gas Convention.
“ Liquids ” means liquid hydrocarbons capable of being separated or extracted from Gas, including ethane, propane, butane and longer-chain
hydrocarbons.
“ LNG ” means Gas in a liquid state at or below its boiling point at or near atmospheric pressure.
“ LNG Commissioning Heel ” shall have the meaning set out in Clause 9.6(b).
“ LNG Cool Down Cargo” shall have the meaning set out in Clause 9.6(a).
“ LNG Cool Down Cargo Transfer Time ” shall have the meaning set out in Clause 9.3(b).
“ LNG Delivery Point ” shall be the junction point on the flanges connecting the loading manifold on the LNG Vessel with the flange coupling of the
LNG loading arms at the FLNG Facility.
“ LNG Heel Transfer Date ” shall have the meaning set out in Clause Error! Reference source not found. .
“ LNG SPAs ” means any contract between the Customer as seller and a Third Party as buyer for the sale of LNG produced by the FLNG Facility.
“ LNG Specification ” has the meaning given to it in Clause 11.2.
“ LNG Storage Capacity ” shall mean the usable storage capacity in the LNG storage tanks at the FLNG Facility within which Golar and Golar Cam
stores Customer’s LNG inventory on a temporary basis in accordance with the provisions of this Agreement.
“ LNG Vessel ” means an ocean-going vessel used or to be used by Customer or its LNG buyer for a Lifting at the FLNG Facility.
“ Marine Operations Industry Practice ” means those recognized practices in the LNG industry applying to LNG loading and transportation from
LNG terminals, including but not limited to the standard of incoming LNG Vessels, LNG Vessel nominations, notice of readiness, berthing assignment,
loading time, purging and cool down operations, gas onboard the LNG Vessel, LNG Vessel not ready for loading and excess berth time.
“ Marine Operations Manual ” shall have the meaning set out in Clause 4.1(a).
“ Measurement and Testing Procedures ” shall have the meaning set out in Clause 4.2.
“ MMBTU ” means one million (1,000,000) BTUs.
“ MMBTU Base Capacity ” shall be the MMBTU equivalent of the Base Capacity, and shall be calculated by multiplying the Base Capacity [*****]
“ MMTPA ” means one million (1,000,000) metric tonnes per annum.
“ MMSCF ” means one million (1,000,000) standard cubic feet.
“ Maximum Aggregate Amount ” shall have the meaning set out in Clause 17.2(a).
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“ Monthly Base Capacity ” means the Base Capacity divided by the Monthly Component.
“ Monthly Component ” means twelve (12); provided, however, that for the first and last Contract Year, Monthly Component shall mean the number of
months in the respective Contract Year with the first and last months in such Contract Year being prorated based upon the number of days in such month
(if the first and last months are not full calendar months).
“ Monthly Update ” shall have the meaning set out in Clause 12.3(a).
“ Mooring ” means the soft yoke mooring system (together with all associated plant, equipment, facilities and infrastructure) to be designed, constructed
and installed at the FLNG Site by Golar.
“ Notice of Imbalance ” shall have the meaning set out in Clause 12.5(b).
“ Notice of Readiness ” or “ NOR ” shall have the meaning set out in Clause 15.5(a).
“ OCIMF ” means the Oil Companies International Marine Forum.
“ Off-Spec Feed Gas ” shall have the meaning set out in Clause 10.4(a).
“ Off-Spec LNG ” shall have the meaning set out in Clause 11.4(a).
“ Operations Retainage Limit ” has the meaning given to it in Clause 5.2(b).
“ P&I Insurance ” shall have the meaning set out in Clause 20.2(a)(ii).
“ Party ” and “ Parties ” has the meaning given to each term in the Preamble.
“ Perenco Credit Support ” has the meaning given to it in Clause 17.2(a).
“ Person ” means any individual, corporation, partnership, trust, unincorporated organization or other legal entity, including any Governmental
Authority.
“ Pilot ” means any Person engaged by a Transporter to come on board an LNG Vessel to assist the Master in piloting, mooring and unmooring such
LNG Vessel.
“ Port Charges ” means all Third Party charges of whatsoever nature in respect of an LNG Vessel entering, leaving or utilizing the FLNG Site and/or
the FLNG Facility, including (a) rates, tolls and dues of any description, (b) charges imposed by or otherwise payable to fireboats, tugs and escort
vessels, a Pilot and any other Person assisting an LNG Vessel to enter, leave or utilize the FLNG Facility and (c) dockage and mooring fees, port use
fees, through-put charges and any other charges imposed by any Governmental Authorities having jurisdiction over the FLNG Site.
“ Preliminary Annual Feed Gas Schedule ” means the preliminary schedule of Customer’s Daily Feed Gas deliveries for a Contract Year issued by
Golar pursuant to Clause 12.2(c).
“ Preliminary Commercial Operations Manual ” shall have the meaning set out in Clause 4.2(c).
“ Preliminary Lifting Programme ” shall have the meaning set out in Clause 12.2(c).
“ Preliminary Marine Operations Manual ” shall have the meaning set out in Clause 4.1(c).
“ Progress Reports ” shall have the meaning set out in Clause 8.3.
“ Project ” has the meaning set out in Recital (A).
“ Purging and Cool Down Fee ” shall have the meaning set out in Clause 5.1(c).
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“ Reasonable and Prudent Operator ” means a Person seeking in good faith to perform its contractual obligations, and in so doing, and in the general
conduct of its undertaking, exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a
skilled and experienced operator complying with all applicable laws and engaged in the same type of undertaking under the same or similar
circumstances and conditions.
“ Recipient ” shall have the meaning set out in Clause 24.1(a).
“ Regardless of Cause ” means whether or not any Liabilities are asserted to have arisen by virtue of tort (including negligence to any degree), breach
of statutory duty, breach of contract (including repudiation of this Agreement), strict liability, breach of representation of warranty (express or implied),
breach of any laws, regulations, rules or orders of any Governmental Authority or other authority having jurisdiction, or otherwise, on the part of the
Party or other Person seeking indemnity or of any other Person; except where expressly stated to the contrary, Regardless of Cause also means whether
or not any Claim is asserted to have arisen by virtue of (i) Gross Negligence, (ii) Wilful Misconduct or (iii) deliberate repudiatory breach of this
Agreement or any other contract, on the part of the Party or other person seeking indemnity or of any other person.
“ Representatives ” means the officers, directors, employees, contractors, consultants, advisers and agents of a Person.
“ Retainage ” shall mean the amount of LNG and/or Gas (expressed in MMBTUs) that is retained by Golar as compensation for any LNG or Gas that is
(i) required by Golar in connection with the operation of the FLNG Facility (including for use as fuel); and/or (ii) lost or unaccounted for as a result of
ordinary operational losses during operations at the FLNG Facility.
“ RMQ ” has the meaning set out in Clause 13.3(d)(i).
“ Sanaga Sud PSC ” means the “Sanaga-Sud” Production Sharing Agreement entered into by the State, SNH and Perenco on 7 March 2006, as
amended on 13 October 2015.
“ SCF ” or “ Standard Cubic Foot ” means standard cubic foot, being in relation to Gas, the volume of Gas, free of water vapour, at a temperature of
60 degrees Fahrenheit (60°F) and a base pressure of fourteen point six nine six (14.696) pounds per square inch absolute, contained in a volume of one
cubic foot.
“ Scheduled Arrival Window ” means the [*****] hour period as specified in the Lifting Programme for a particular Lifting.
“ Scheduled Commissioning Start Date ” means [*****], and as may be extended in accordance with this Agreement, or any other date agreed in
writing between the Parties.
“ Scheduled Downtime ” has the meaning given to it in Clause 13.1
“ Scheduling Principles ” shall have the meaning set out in Clause 12.1.
“ Scheduling Representative ” means the individual appointed by Customer in accordance with Clause 12.7.
“ Second Notice ” shall have the meaning set out in Clause 15.4(b)(ii).
“ Services ” shall have the meaning set out in Clause 3.1.
“ Services Period ” shall have the meaning set out in Clause 5.1.
“ Services Unavailability ” shall have the meaning set out in Clause 13.3(a).
“ SIGTTO ” means the Society of International Gas Tanker and Terminal Operators.
15
“ SNH Credit Support ” has the meaning given to it in Clause 17.2(b).
“ Sole and Exclusive Remedy ” means that a Party shall not be able to claim any other type of remedy whatsoever, notwithstanding any breach of
representation or warranty, either expressed or implied, or the negligence (of any degree) or fault of the other Party or any member of the other Party’s
Group, latent defects and any liability based upon any theory of tort, breach of contract or strict liability.
“ Sole Opinion ” means an opinion, judgment or discretion of a Party, acting as a Reasonable and Prudent Operator.
“ SPA Costs ” shall have the meaning set out in Clause 13.3(d)(v).
“ State ” means the Republic of Cameroon, including any Governmental Authority thereof.
“ Taxes ” means all customs, taxes, royalties, excises, fees, duties, levies, sales and use taxes and value added taxes, charges and all other assessments,
which may now or hereafter be enacted, levied or imposed, directly or indirectly, by a Governmental Authority, except Port Charges.
“ Term ” shall have the meaning set out in Clause 2.1.
“ Third Notice ” shall have the meaning set out in Clause 15.4(b)(iii).
“ Third Party ” means any Person other than any Golar Indemnified Person and any Customer Indemnified Person.
“ Tolling Fee ” has the meaning given to it in Clause 5.1(a).
“ Transport Pipelines ” means all Gas pipelines transporting Gas for delivery to the Gas Receipt Point at the FLNG Facility.
“ Transporter ” means any Person who owns or operates an LNG Vessel which receives LNG at the LNG Delivery Point.
“ USD ” or “ US Dollars ” or “ $ ” shall mean the lawful currency of the United States of America.
“ Vetting Entity ” shall have the meaning set out in Clause 26.4(c).
“ Wilful Misconduct ” means any intentional wrongful act (or intentional wrongful failure to act) with knowledge that such act (or failure to act) is
wrongful and which is intended to cause injury to a person or physical loss of or damage to property.
1.2
Interpretation
For purposes of this Agreement:
(a)
(b)
(c)
The titles, headings, and numbering are included for convenience only and will have no effect on the construction or interpretation of this
Agreement.
References to Clauses, sub-paragraphs and Annexes are to those of this Agreement unless otherwise indicated. References to this Agreement
and to any other agreements, contractual instruments or relevant documents will be deemed to include all exhibits, schedules, appendices,
annexes, and other attachments thereto and all subsequent amendments and other modifications to such instruments, to the extent such
amendments and other modifications are not prohibited by the terms of this Agreement.
The word “ include ” or “ including ” will be deemed to be followed by “without limitation”.
16
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
The word “ will ” has the same meaning as “shall” and thus imposes an obligation.
Whenever the context so requires, the singular includes the plural and the plural includes the singular, and the gender of any pronoun includes
the other gender.
Unless otherwise indicated, references to any statute, regulation or other law will be deemed to refer to such statute, regulation or other law as
amended or modified, or any successor law.
All references to a Person shall include such Person’s successors and permitted assigns.
A “ Party ” to this Agreement includes its permitted assignees (if any) and/or the successors in title to that part of its undertaking which
includes this Agreement.
The word “ writing ” includes any methods of representing words in a legible form (other than writing on an electronic or visual display
screen) or other writing in non-transitory form.
Unless otherwise indicated, any reference to currency shall be to the lawful currency from time to time of the United States of America.
Unless otherwise indicated, any reference to a time of day shall be to West Africa Time Zone (UTC+01:00).
For the purpose of this Agreement, rounding shall be made to four (4) decimal places according to ISO-80000-1:2009(en), Annex B, related
to rules for the rounding of numbers unless otherwise stated herein.
1.3
Contract Language
This Agreement, together with any Annexes hereto, shall be made and originals executed in the English language. In case of any difference in meaning
between the English language original version and any translation thereof, the English language original version shall be applicable.
2
2.1
TERM AND EFFECTIVENESS
Term
The term of this Agreement (the “ Term ”) shall commence on the Effective Date and shall expire on the earlier of:
the eighth (8 th ) anniversary of the Acceptance Date;
receipt and processing of five hundred (500) BCF of Feed Gas at the Gas Receipt Point and delivery of the resultant LNG at the LNG
Delivery Point; or
termination pursuant to Clause 18.
(a)
(b)
(c)
[*****].
2.2
Extension of Term
Save in respect of termination of this Agreement pursuant to Clause 2.1(c) or at law, the Customer may elect to extend the Term for a period that is
commensurate with the period of extension of the term of a relevant LNG SPA, where such LNG SPA has been extended to enable the Customer to
tender for delivery quantities of LNG scheduled for delivery during the term of such LNG SPA but which were not tendered due to Force Majeure. The
Customer shall notify Golar of any such election not later than [*****] days
17
prior to the expiry of the Term failing which the Term shall not be extended unless the Parties otherwise agree in writing.
2.3
Conditions Precedent
The rights and obligations of the Parties under Clause 1 (Definitions, Interpretation and Language), this Clause 2.3 (Conditions Precedent), Clause 17
(Credit Support), Article 21 (Representations and Warranties), Clause 24 (Confidentiality), Clause 25 (Business Principles), Clause 29 (Choice of Law
and Dispute Resolution), Clause 30 (Communications and Notices) and Clause 31 (Miscellaneous), save for Clauses 31.11, 31.14, and 31.15, shall be
binding and effective as of the date hereof, and all other terms of this Agreement are conditional, and shall only become effective, upon satisfaction or
waiver of all of the following conditions precedent (each a “ Condition Precedent ”):
(a)
(b)
(c)
provision by Golar to Perenco of the Golar Credit Support;
provision by the Customer to Golar of the Perenco Credit Support; and
provision by the Customer to Golar of the SNH Credit Support,
provided that the Condition Precedent under paragraph (a) above may be waived only by the Customer, and the Conditions Precedent under paragraphs
(b) and (c) above may be waived only by Golar. Each Party shall use its best endeavours to satisfy the Conditions Precedent for which they are
responsible in relation to the foregoing and shall provide reasonable assistance to the other as is required.
3
3.1
SCOPE OF SERVICES
Services to be Provided by Golar and Golar Cam
During the Services Period, Golar and/or Golar Cam shall provide the following services to the Customer utilising the FLNG Facility (the “ Services ”)
in respect of the Base Capacity and in the manner and to the extent set out in this Agreement:
(a)
(b)
(c)
(d)
(e)
(f)
the receipt of Feed Gas at the Gas Receipt Point;
the treatment and liquefaction of Gas;
the temporary storage of Customer’s Inventory;
the purging and cool down or cool down only of LNG Vessels;
the delivery of LNG meeting the LNG Specification at the LNG Delivery Point, in accordance with Clause 12; and
other activities related to performance of the foregoing.
Each of Golar and Golar Cam shall act as a Reasonable and Prudent Operator in performing the Services and their other obligations under this
Agreement.
3.2
Activities Outside Scope of Services
The Parties confirm that the following activities are not part of Services to be provided by Golar or Golar Cam (or any of their Affiliates) to the
Customer pursuant to the terms of this Agreement:
(a)
(b)
the production, purchase or other acquisition of Feed Gas and related activities;
the delivery of Feed Gas to the Gas Receipt Point and related activities;
18
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
the construction, operation, ownership, maintenance, repair and removal of facilities upstream of the Gas Receipt Point;
overall security at the FLNG Site, including the provision of any security vessels and services;
harbour, mooring and escort services to LNG Vessels, including those relating to Pilots, tugs, service boats, fire boats and other escort
vessels, provided that Golar and/or Golar Cam will use reasonable efforts to assist Customer in obtaining such services at Customer’s expense
if requested by the Customer;
the construction, operation, ownership, maintenance, repair or servicing of Downstream Facilities;
the provision of LNG for the purposes of purging and/or cool down of LNG Vessels;
the provision of nitrogen to LNG Vessels;
the provision of, or assistance in securing, bunker fuel, vessel repairs or the delivery of ship’s stores or spare parts for LNG Vessels;
the disposal of waste in any form from an LNG Vessel, light dues, LNG Vessel ballast, bunkering services, fresh water supply, liberty
launches for the crews of LNG Vessels, shore leave for LNG Vessels’ crews, port mooring personnel for line handling (if any), independent
cargo surveyor services, except as provided in Clause 15.3 any vetting activities or condition assessments in relation to LNG Vessels, any
maritime authority fees or any Port Charges in relation to any LNG Vessel; and
the marketing of Gas and/or LNG and all activities related thereto,
and if any costs in connection with the foregoing are incurred by Golar, Golar shall invoice the Customer in accordance with Clause 6.2 and the
Customer shall reimburse Golar for the reasonable, actual and documented costs incurred. Golar shall use its reasonable efforts to minimise costs to be
borne by the Customer under this Clause 3.2.
3.3
Performance of Services
Golar and/or Golar Cam shall have the right to perform any of the Services itself or through any Affiliate(s), or subject to the Customer’s approval
[*****] to cause such performance through another Person (other than an Affiliate), including operating any portion of the FLNG Facility through one
or more Persons, provided that (a) such Person has sufficient experience operating and maintaining facilities in the hydrocarbon transportation,
processing or terminalling industries, and the financial and operational capability to perform the responsibilities delegated by Golar and/or Golar Cam
and (b) Golar and/or Golar Cam remains responsible for the performance of the Services and for the acts and omissions of such Person, notwithstanding
any such delegation.
4
4.1
OPERATION MANUALS AND MEASUREMENT
Marine Operations Manual
(a)
General. Golar and Customer shall develop and maintain a marine operations manual for the FLNG Facility, which manual shall contain
implementation procedures applicable to LNG Vessels and Transporters in accordance with Marine Operations Industry Practice and in line
with the design parameters of the FLNG Facility (excluding matters governed by the Commercial Operations Manual and/or the
Measurement and Testing Procedures) (the “ Marine Operations Manual ”). It is acknowledged that each Party shall be responsible for
developing certain sections of the Marine Operations Manual.
19
(b)
(c)
(d)
(e)
Compliance. The Parties shall comply, and Customer shall cause all LNG Vessels and Transporters utilising the FLNG Facility to comply,
with the Marine Operations Manual in all material respects.
Development. In developing such Marine Operations Manual, Golar shall provide the Customer with a preliminary draft of the same (the “
Preliminary Marine Operations Manual ”) no later than [*****] days in advance of the Scheduled Commissioning Start Date. If the
Customer desires to consult with Golar regarding the contents of the Preliminary Marine Operations Manual, the Customer shall, no later than
[*****] days from delivery of the Preliminary Marine Operations Manual by Golar, request to meet with Golar by providing notice thereof to
Golar, and Golar shall, no later than [*****] days after receipt of such notice, meet with the Customer to discuss the Preliminary Marine
Operations Manual. If the Parties are able during such meeting to arrive at a common approach to revising the draft, then such draft, as so
revised (and as amended from time to time), shall constitute the Marine Operations Manual. If the Parties are unable during such meeting to
arrive at a common approach upon revisions to the Preliminary Marine Operations Manual, then [*****].
Amendment. Either Party may request amendments to the Marine Operations Manual and the Parties shall consult with each other in good
faith about any such proposed amendments; provided that any amendments shall require the consent of the other Party (such consent not to be
unreasonably withheld, conditioned or delayed). Golar shall deliver to the Customer a copy of the Marine Operations Manual and any
amendments thereto promptly after they have been finalised or amended, as the case may be.
Priority. In the event of a conflict between the provisions of this Agreement and the Marine Operations Manual, the provisions of this
Agreement shall prevail.
4.2
Commercial Operations Manual
(a)
(b)
(c)
(d)
General. Golar and Customer shall develop and maintain a commercial operations manual for the FLNG Facility, which manual shall contain
commercial implementation procedures relating to provision of the Services (excluding matters governed by the Marine Operations Manual
and/or the Measurement and Testing Procedures) (the “ Commercial Operations Manual ”).
Compliance. The Parties shall comply with the Commercial Operations Manual in all material respects.
Development. In developing such Commercial Operations Manual, Golar shall provide the Customer with a preliminary draft of the same
(the “ Preliminary Commercial Operations Manual ”) no later than [*****] days in advance of the Scheduled Commissioning Start Date.
If the Customer desires to consult with Golar regarding the contents of the Preliminary Commercial Operations Manual, the Customer shall,
no later than [*****] days from delivery of the Preliminary Commercial Operations Manual by Golar, request to meet with Golar by
providing notice thereof to Golar, and Golar shall, no later than [*****] days after receipt of such notice, meet with the Customer to discuss
the Preliminary Commercial Operations Manual. If the Parties are able during such meeting to arrive at a common approach to revising the
draft, then such draft, as so revised (and as amended from time to time), shall constitute the Commercial Operations Manual. If the Parties are
unable during such meeting to arrive at a common approach upon revisions to the Preliminary Commercial Operations Manual, then [*****].
Amendment. Either Party may request amendments to the Commercial Operations Manual and the Parties shall consult with each other in
good faith about any such proposed amendments; provided that any amendments shall require the consent of the other Party (such consent not
to be unreasonably withheld, conditioned or delayed). Golar shall deliver to the Customer a copy of the Commercial Operations Manual and
any amendments thereto promptly after they have been finalised or amended, as the case may be.
20
(e)
Priority. In the event of a conflict between the provisions of this Agreement and the Commercial Operations Manual, the provisions of this
Agreement shall prevail. In the event of a conflict between the provisions of the Commercial Operations Manual and the Marine Operations
Manual or the Measurement and Testing Procedures, the provisions of the Commercial Operations Manual shall prevail.
4.3
Measurement and Testing Procedures
(a)
(b)
(c)
(d)
General. Any measurement and/or testing of Feed Gas delivered to Golar at the Gas Receipt Point and LNG delivered to the Customer at the
LNG Delivery Point required in the performance of this Agreement, shall be carried out in accordance with the measurement and testing
procedures developed by Golar and agreed between the Parties pursuant to this Clause 4.3 (the “ Measurement and Testing Procedures ”).
Development. Golar shall provide the Customer with a preliminary draft set of Measurement and Testing Procedures by no later than [*****]
days prior to the Scheduled Commissioning Start Date. Golar and the Customer shall agree on the Measurement and Testing Procedures
within [*****] days thereafter; provided that if Golar and the Customer are unable to agree on the Measurement and Testing Procedures
within such [*****] days, [*****]. The Measurement and Testing Procedures shall comply with applicable International LNG Terminal
Standards and any legal requirement in Cameroon applicable in respect of metering.
Amendment. Subject to the Customer’s consent (not to be unreasonably withheld or delayed), Golar may amend the Measurement and
Testing Procedures from time to time. It shall be reasonable for the Customer to withhold or delay its consent where any amendments
proposed by Golar are inconsistent, or would conflict, with the measurement and testing procedures agreed in any LNG SPA. Golar shall
reasonably consider changes to the Measurement and Testing Procedures that are requested by the Customer and consult with Customer about
such changes.
Priority. In the event of a conflict between the provisions of this Agreement and the Measurement and Testing Procedures, the provisions of
this Agreement shall prevail. In the event of a conflict between the provisions of the Measurement and Testing Procedures and the Marine
Operations Manual, the provisions of the Measurement and Testing Procedures shall prevail.
5
5.1
COMPENSATION FOR SERVICES
Fees
Customer shall, as compensation for the performance by Golar and Golar Cam of the Services, pay to Golar the sum of the following components (such
sum collectively referred to as the “ Fee ”) in respect of the period from the Acceptance Date until the end of the Term (the “ Services Period ”):
(a)
A monthly fee (the “ Tolling Fee ”) payable in arrears in an amount equal to (1) the MMBTU Base Capacity for the applicable Contract Year
divided by (2) the Monthly Component and multiplied by (3) the price per MMBTU (based on Gross Heating Value), which shall be
calculated as follows:
(i)
(ii)
Brent Crude Price > [*****].
Brent Crude Price > USD60 but [*****].
(iii) Brent Crude Price < USD60: [*****].
The “ Brent Crude Price ” shall be the un-weighted arithmetic average (expressed in USD per barrel) of the Dated Brent Index values for the
three (3) months immediately preceding (but excluding) the calendar month in respect of which the Tolling Fee is calculated and for which
21
payment is due pursuant to Clause 5.1. “ Dated Brent Index ” means, for a calendar month, the un-weighted arithmetic average (expressed in
USD per barrel) of all Dated Brent values for each quoted day of such calendar month; and “ Dated Brent ” means the daily arithmetic
average of the high and low assessment prices (expressed in USD per barrel) published on a given quoted day in Platts Oilgram Price Report
under the heading “Crude price assessments ($/bbl)” under the “International” Clause for the “Brent (DTD)” quotation (Platts code:
PCAAS00).
The above Tolling Fee shall be applicable in all circumstances, save only where Customer has exercised the option to increase the
liquefaction capacity of the FLNG Facility under Clause 5.1(b) in which case the Tolling Fee shall be calculated in accordance with Clause
5.1(b).
(b)
The Customer shall have [*****] to instruct Golar to increase the LNG liquefaction capacity of the FLNG Facility up to a maximum of
[*****] MMTPA Golar shall comply with such instructions within such [*****] month period (or a shorter time period which can be
reasonably accommodated given the operational limitations of the FLNG Facility) provided that it is reasonable to do so in accordance with
International LNG Terminal Standards, the Gas Agreement and applicable law. Once Golar are able to achieve the LNG liquefaction capacity
notified by the Customer, Golar shall notify the Customer in writing, following which the Tolling Fee shall be calculated as follows
(commencing on the first day of the calendar month following such notification by Golar):
(i)Brent Crude Price > [*****].
(ii)
Brent Crude Price >USD60 [*****].
(iii) Brent Crude Price < USD60: [*****].
Provided always that for the purposes of calculating the MMBTU Base Capacity and the Tolling Fee following the above notification by
Golar, the Base Capacity shall be deemed to be [*****] MMTPA.
(c)
Purging and Cool Down Fee. If the Customer receives purging and cool down pursuant to Clause 15.9(a) [*****] (“ Purging and Cool
Down Fee ”). The Purging and Cool Down Fee shall be payable in arrears and invoiced pursuant to Clause 6.2. For the avoidance of doubt,
[*****].
5.2
Retainage
Retainage shall be dealt with as follows:
(a)
Retainage during Commissioning Period. Golar shall be entitled to retain, deduct from the Customer’s Inventory, and use without cost,
Retainage up to the Commissioning Retainage Limit.
In the event that Retainage exceeds the Commissioning Retainage Limit on an energy basis in all periods that the Customer delivered Feed
Gas to the FLNG Facility during the Commissioning Period, Golar shall pay a Retainage allowance for such additional Retainage in the
amount of [*****] over the first [*****] years (or to the date on which this Agreement is terminated, if such termination occurs prior to the
expiry of the [*****] year) of the Services Period [*****] in accordance with Clause 5.1(a) multiplied by the excess Retainage at the end of
the [*****] year of the Services Period or earlier termination of this Agreement.
(b)
Retainage during Services Period . Golar shall be entitled to retain, deduct from the Customer’s Inventory, and use without cost the
Retainage in accordance with Annex 4 (the “ Operations Retainage Limit ”).
22
In the event that Retainage exceeds the Operations Retainage Limit on an energy basis of the Feed Gas quantity during the Services Period,
[*****] multiplied by the excess Retainage at the end of the Services Period or earlier termination of this Agreement.
In the event that Retainage is less than the Operations Retainage Limit on an energy basis of the Feed Gas quantity during the first [*****]
years of the Services Period, Golar shall be entitled to deduct from any amount payable in respect of Retainage during the Commissioning
Period an amount equal to [*****] over the first [*****] years of the Services Period [*****] multiplied by the difference between the actual
Retainage and the Operations Retainage Limit at the end of the first [*****] years of the Services Period or earlier termination of this
Agreement.
Golar and Golar Cam shall use their best endeavours to perform the Services using the most efficient train configuration so as to minimise
Retainage.
6
6.1
INVOICING AND PAYMENT
Monthly Invoices
Golar will submit an invoice in United States Dollars (USD) for Services within five (5) days of the end of each calendar month in respect of such
calendar month.
6.2
Other Invoices
If any other amount is due from one Party to the other hereunder and if provision for the invoicing of that amount due is not made elsewhere in this
Clause 6, then the Party to whom such amount is due shall furnish an invoice in USD for that amount to the other Party, along with pertinent information
showing the basis for the calculation of the amount due. Upon request, the Party who issued an invoice under this Clause 6 shall provide reasonable
supporting documentation to substantiate any amount claimed to be due.
6.3
Payment Due Dates
(a)
(b)
(c)
Due Date for Monthly Invoice. Each monthly invoice submitted by Golar pursuant to Clause 6.1 shall become due and payable [*****]
days after delivery of such monthly invoice, provided that if such day is not a Business Day, it shall become due and payable on the next
Business Day. If the amount of the monthly invoice calculated pursuant to Clause 6.1 is a negative amount, such negative amount shall be
carried forward to the next monthly invoice until fully applied towards the fees and charges due from the Customer.
Due Date for Other Invoices. Each invoice submitted pursuant to Clause 6.2 shall become due and payable on the [*****] day after the date
on which it is received, provided that if such payment due date is not a Business Day, the due date for such payment shall be extended to the
next Business Day.
Interest. If the full amount of any invoice is not paid when due, the unpaid amount thereof shall bear interest at the rate of [*****] above
LIBOR, compounded annually, from and including the day following the due date up to and including the date when payment is received.
6.4
Payment
(a)
Obligation. Each Party shall pay, or cause to be paid, in USD, in immediately available funds, all amounts that become due and payable by
such Party pursuant to any invoice issued hereunder, to a bank account or accounts designated by and in accordance with instructions issued
by the invoicing Party.
23
(b)
Payment in Full. Each payment of any amount owing under this Clause 6 shall be in the full amount due without reduction or offset for any
reason (except as expressly allowed under this Agreement (including Clause 6.6) or in the case of manifest error, which error the paying Party
shall report to the invoicing Party as soon as reasonably practicable), including Taxes, exchange charges, or bank transfer charges. In case of
manifest error the incorrect invoice shall be deemed withdrawn and the invoicing Party shall issue a corrected invoice to the paying Party.
The due date for payment of such corrected invoice shall be in accordance with Clause 6.3.
6.5
Non-payment
(a)
(b)
(c)
Right to Suspend Performance. If any amount in excess of [*****] (United States Dollars [*****]) due by Customer under this Agreement
remains outstanding for more than [*****] days after Golar notifies Customer of such payment default, Golar may immediately suspend
performance of its obligations under this Agreement upon notice to the Customer until such undisputed amount, with interest in accordance
with Clause 6.3(c), has been paid in full.
For the avoidance of doubt, if Golar suspends performance pursuant to Clause 6.5(a), the Customer shall continue to be liable for the Fee and
all other amounts owing by the Customer under this Agreement.
Termination Right. If any amount in excess of [*****] (United States Dollars [*****]) owed by Customer under this Agreement remains
outstanding for more than [*****] days after Golar notifies Customer of such payment default, then Golar shall have the right to terminate
this Agreement in accordance with Clause 18.1(b)(v).
6.6
Disputed Invoices
In the event of disagreement concerning any invoice, the Customer or Golar (as the case may be) shall make payment of the total amount claimed to be
due and owing under such invoice, provided that in the case of a manifest error the correct amount shall be paid disregarding such error. Subject to
Clause 6.7, invoices may be contested only if, within a period of two (2) years after a Party’s receipt thereof, such Party serves on the other Party notice
questioning their correctness. If no such notice is served, invoices shall be deemed correct and accepted by both Parties. Promptly after resolution of any
Dispute relating to an invoice, the amount of any overpayment or underpayment (plus interest as provided in Clause 6.3(c)), if applicable, shall be paid
by Golar or the Customer to the other (as the case may be) and if such disagreement related to any allocations or credits to be made or applied under any
invoice, the amount of such allocation or credit shall be adjusted in subsequent invoices.
6.7
Final Settlement
Within sixty (60) days after expiration of the Term, Golar and Customer shall determine the amount of any final reconciliation payment. After the
amount of the final settlement has been determined, Golar shall send an invoice to the Customer, or the Customer shall send an invoice to Golar, as the
case may be, in USD for amounts due under this Clause 6.7, and Golar or the Customer, as the case may be, shall pay such final invoice no later than
twenty (20) days after the date of receipt thereof.
7
TAXES
[*****]
(a)
If either Party (for the purpose of this Clause 7, the “ indemnified Party ”) becomes aware of any circumstance which may result in the
indemnified Party having a claim against the other Party (for the purpose of this Clause 7, the “ indemnifying Party ”) in respect of a Tax
liability against which the indemnified Party is indemnified and held harmless under Clause 7(a) or 7(b), as applicable, then:
24
(i)
the indemnified Party shall promptly notify the indemnifying Party in writing and the indemnifying Party shall be entitled (A) to
take and/or require the indemnified Party to take any action the indemnifying Party might reasonably request to resist such Tax
liability, in the name of the indemnified Party but at the cost and expense of the indemnifying Party, and (B) to have conduct of
any appeal, dispute, compromise of the matter and of any incidental negotiations for the aforesaid purposes; and
(ii)
the indemnified Party shall give the indemnifying Party all co-operation, access and assistance for the purpose of resisting such
Tax liability as the indemnifying Party may reasonably require.
8
8.1
FLNG FACILITY
Description
Without prejudice to Clause 8.2 below, Golar shall act as a Reasonable and Prudent Operator to ensure that the FLNG Facility shall at all times during
the Services Period comply with the description at Annex 1, save only in respect of an Insubstantial Non Conformity.
In addition, Golar shall act as a Reasonable and Prudent Operator to facilitate any necessary interconnections with Transport Pipeline(s) (or
modifications thereto) requested by Customer at the Gas Receipt Point, provided that Customer shall reimburse Golar for the reasonable, actual and
documented costs incurred beyond the costs of interconnecting with additional pipeline capacity required to allow delivery by Golar of the Base
Capacity. Golar shall use its reasonable efforts to minimise costs to be borne by the Customer under this Clause 8.1. Golar shall invoice the Customer
for any such costs in accordance with Clause 6.2.
8.2
Standard of Operation
Golar shall at all times man, operate, maintain and modify (or cause to be manned, operated, maintained and modified) the FLNG Facility as a
Reasonable and Prudent Operator and in accordance with International LNG Terminal Standards and applicable laws, requirements and regulations as
they may be promulgated, amended or modified from time to time. Without in any way limiting the foregoing:
(a)
(b)
(c)
(d)
Approvals and Documentation. The FLNG Facility shall comply with the regulations of, and obtain all Approvals required by,
Governmental Authorities to carry out all operations at the FLNG Site. The FLNG Facility shall at all times have on board valid
documentation evidencing all such Approvals. The FLNG Facility shall comply fully with the International Safety Management Code for the
Safe Operation of Ships and Pollution Prevention effective 1 July 1998 (the “ISM Code”), and at all times be in possession of a valid safety
management certificate issued in accordance with the ISM Code.
Condition. The FLNG Facility, including its manifold arrangement, shall be in compliance with the Marine Operations Manual and with
International LNG Terminal Standards. The FLNG Facility shall be (i) fitted in every way with adequate facilities for the liquefaction of Feed
Gas and the storage and unloading of LNG and (ii) otherwise seaworthy.
Classification Society. The FLNG Vessel shall at all times be maintained in class with DNV-GL or any other member of the International
Association of Classification Societies that is agreed in writing by the Parties.
Construction. The FLNG Facility shall have been constructed to all applicable International LNG Terminal Standards.
25
(e)
(f)
Operation and Maintenance. The FLNG Facility shall comply with, and shall be fully equipped, supplied and maintained to comply with,
all applicable International LNG Terminal Standards.
ISPS Code. The FLNG Vessel shall hold a valid International Ship Security Certificate. Golar shall comply with the guidelines contained in
its Ship Security Plan as defined in the ISPS Code to ensure that the appropriate security level is maintained at all times on board the FLNG
Vessel.
8.3
FLNG Vessel Personnel
(a)
Training and Qualifications. As of the Commercial Start Date and throughout the Term, and without prejudice to Article 11 of the Gas
Agreement Golar shall ensure that the FLNG Vessel shall have a competent operational team onboard at all times with the ability, experience,
licences and training commensurate with the performance of their duties in accordance with International LNG Terminal Standards and as
required by Governmental Authorities having jurisdiction over the FLNG Vessel or her crew. Without in any way limiting the foregoing:
(i)
(ii)
All marine personnel shall possess valid and current certificates of competence and/or documents issued or approved by the Flag
State and in accordance with the requirements of any applicable Cameroon law;
the senior marine personnel shall be trained and certified to a standard customary for Reasonable and Prudent Operators of such
floating liquefaction facilities and in compliance with the relevant provisions of the International Convention on Standards of
Training, Certification and Watchkeeping for Seafarers, 1978 (as amended in 1995) or any additions, modifications or
subsequent versions thereof and SIGTTO publication “Crew Safety Standards and Training for Large LNG Carriers”;
(iii) within the operational team there shall be a master mariner who shall have documented previous experience with side-by-side
LNG operations (in the capacity of being the Master of an LNG vessel or an FSRU vessel);
(iv)
(v)
the operational team onboard shall be fluent in written and oral English and shall maintain all records and provide all reports with
respect to the FLNG Vessel in English; and there shall otherwise be on board sufficient personnel with a good working
knowledge of the English language to enable, loading, and liquefaction of Gas and cargo handling and discharge of LNG, as well
as bunkering operations, to be carried out efficiently and safely and to enable communications between the FLNG Vessel and
those loading the LNG Vessel or accepting discharge therefrom to be carried out quickly and efficiently; and
none of the FLNG Vessel’s Master, officers or crew shall, while serving on the FLNG Vessel, abuse the use of drugs or alcohol,
and Golar shall maintain a written policy to such effect, such policy to meet or exceed the standards of the Oil Companies
International Marine Forum’s Guidelines for the Control of Drugs and Alcohol Aboard Ship, 1995, as amended from time to
time. If any Master, officer or crew member abuses the use of drugs or alcohol, such individual shall be dismissed from service
on the FLNG Vessel.
(b)
Professional Histories. Prior to the Commercial Start Date, Golar shall provide the Customer with professional histories of the key marine
personnel onboard, who shall have a minimum of twelve (12) months’ seagoing experience.
8.4
Conversion Progress Reports
26
Each month until the Acceptance Date, Golar shall furnish to Customer a report on conversion progress (collectively, the “ Progress Reports ”). Each
Progress Report shall include the status and progress of conversion activity (including any events of Force Majeure affecting the conversion or otherwise
claimed by any contractor), an update of the conversion schedule and any other information which the Customer has reasonably requested to enable the
Customer to evaluate the status and progress of said conversion, testing and operational start-up.
8.5
Modifications to FLNG Facility
(a)
(b)
(c)
(d)
Should modifications to the FLNG Facility be required following the Effective Date by the FLNG Vessel’s Classification Society or by the
Flag State or as a result of implementation or application of any international convention or regulation by any Governmental Authority to
whose rules the FLNG Vessel is or may become subject, the costs of or arising from such modifications shall be for the account of Golar. If
such modifications occur after the Acceptance Date, the Fee shall not be payable for the period of time taken to implement such modifications
and any resulting undelivered LNG quantities shall not count towards a Services Unavailability. If the modifications required pursuant to this
Clause 8.5(a) can be accomplished during Scheduled or Unscheduled Downtime then Golar shall use reasonable endeavours to carry out the
modifications at that time, failing which the Customer shall have the right to make changes to the Lifting Programme in accordance with
Clause 12.4(c), to take into account the reasonable requirements of any LNG buyer under an LNG SPA.
If, following the Effective Date, modifications to the FLNG Facility are required as a result of local law or regulations of Cameroon (other
than those which implement international conventions or regulations pursuant to Clause 8.5(a) above) Golar shall promptly notify [*****] If
the modifications required pursuant to this Clause 8.5(b) can be accomplished during Scheduled or Unscheduled Downtime then Golar shall
use reasonable endeavours to carry out the modifications at that time, failing which the Customer shall have the right to make changes to the
Lifting Programme in accordance with Clause 12.4(c), to take into account the reasonable requirements of any LNG buyer under an LNG
SPA.
If, following the Effective Date, modifications to the FLNG Facility are reasonably required by the Customer, Customer shall promptly notify
Golar and the cost of such modifications shall be for the account of Customer. It is agreed by Golar that it shall be reasonable for Customer to
require such modifications in consequence of a modification of an LNG Vessel pursuant to a change in International LNG Vessel Standards
or applicable law with which an LNG Vessel is required to comply. [*****] the Fee shall continue to be payable for the period of any
reasonable time taken to implement such modifications and any resulting undelivered LNG quantities shall not count towards a Services
Unavailability, provided, however, that any modifications required under this Clause 8.5(c) shall only be undertaken if they do not jeopardise
the FLNG Vessel’s compliance with the applicable requirements of its Classification Society and/or Flag State. If the modifications required
pursuant to this Clause 8.5(c) can be accomplished during Scheduled or Unscheduled Downtime then, subject to Golar’s own maintenance
requirements, Golar shall use reasonable endeavours to carry out the modifications at that time, failing which the Parties shall meet to discuss
any modifications to the Lifting Programme to be agreed in accordance with Clause 12.4(a).
Notwithstanding the foregoing provisions of this Clause 8.5, Golar shall at any time after the Effective Date have the right, but not the
obligation, from time to time to modify the FLNG Facility, including its specifications or the type or location of its facilities for any reason;
provided that the costs of or arising from such modifications shall be for the account of Golar. Any such modifications shall be subject to (i)
such modifications not rendering the FLNG Facility incompatible with an LNG Vessel that was previously compatible with the FLNG
Facility, (ii) such modifications not reducing the Services except as allowed in Clause 13.1 and (iii) such modifications not resulting in the
FLNG Facility failing to comply with Clause 8.1. Notwithstanding (i) but subject to (ii) and (iii) in the foregoing sentence, Golar may make
such
27
modifications in a manner that would render the FLNG Facility incompatible with an LNG Vessel that was previously compatible with the
FLNG Facility, provided that:
(i)
(ii)
such modification is made pursuant to a change in International LNG Terminal Standards; or
the LNG Vessel is capable of being modified to maintain compatibility with both the FLNG Facility and the LNG receiving
terminal in the LNG Vessel’s normal trade and, in connection with a modification (other than pursuant to sub-paragraph (i)
above), Golar reimburses the Customer for the reasonable actual costs incurred by Customer in causing Transporter to modify
the LNG Vessel to maintain compatibility with the FLNG Facility as so modified; provided, further, that the Customer shall use
its reasonable efforts to cause its LNG buyer or the relevant Transporter to minimise costs to be borne by Golar hereunder, where
so informed by its LNG buyer or the relevant Transporter, shall notify Golar as soon as reasonably practicable in advance of the
nature and expected cost of all such LNG Vessel modifications by Transporter, and shall invoice Golar in accordance with
Clause 6.2 for all costs incurred for which such reimbursement from Golar is requested.
If the modifications required pursuant to this Clause 8.5(d) can be accomplished during Scheduled or Unscheduled Downtime then Golar
shall use reasonable endeavours to carry out the modifications at that time, failing which the Customer shall have the right to make changes to
the Lifting Programme in accordance with Clause 12.4(c), to take into account the reasonable requirements of any LNG buyer under an LNG
SPA. For the avoidance of doubt, if any modifications carried out pursuant to this Clause 8.5(d) reduce the Services, except as allowed in
Clause 13.1, any resulting undelivered LNG quantities shall be considered as not made available due to a Services Unavailability.
(e)
Upon becoming aware of the need for any modifications under Clauses 8.5(a) to (d) above, the relevant Party requiring the modification shall
promptly notify the other Party in writing of:
(i)
(ii)
(iii)
(iv)
the nature and extent of the modification required;
the latest date by which such modification is expected to be reasonably completed;
in the case of any modification notified by Golar for which Customer is liable for the cost thereof, the estimated cost of such
modification; and
in the case of any modification required by either Party, Golar shall notify Customer of the estimated time required for
completing such modification taking into account the date requested in sub-paragraph (ii) above.
8.6
Customer Inspection Rights
Upon obtaining Golar’s prior written consent, which consent shall not be unreasonably withheld or delayed, and subject to any applicable restrictions or
conditions under any licence or other agreements relating to the design or construction of the FLNG Facility, Customer’s designated representatives, not
to exceed a total of two (2), may from time to time (including during the period of conversion of the FLNG Vessel) inspect such construction and the
operation of the FLNG Facility so long as such inspection occurs from 8:00 a.m. to 5:00 p.m. on a Business Day. Any such inspection shall be at
Customer’s sole risk and expense. The Customer (and its designees) shall carry out any such inspection without any interference with or hindrance to the
safe and efficient construction or operation of the FLNG Facility. The Customer’s right to inspect and examine the FLNG Facility shall be limited to
verifying Golar’s compliance with Golar’s obligations under this Agreement. Golar shall afford the Customer’s designated representatives all necessary
co-operation and accommodation on board the FLNG Vessel for the purposes of this Clause 8.6, and it is agreed that the Customer’s designated
representatives may be permanently stationed on the
28
FLNG Vessel during operation. Neither any inspection (or lack thereof) of the FLNG Facility by the Customer hereunder, nor any requests or
observations made to Golar or its representatives by or on behalf of the Customer in connection with any such inspection, shall (a) modify or amend
Golar’s obligations, representations, warranties and covenants under this Agreement or under any agreement or instrument contemplated by this
Agreement or (b) constitute an acceptance or waiver by the Customer of Golar’s obligations under this Agreement. Customer may designate
representatives of its Transporters or LNG purchasers as its representatives under this Clause 8.6.
Any cost incurred by or in connection with such permanent stationing of the Customer’s designated representatives on board the FLNG Vessel and/or
their inspection hereunder shall be for the Customer’s account.
Golar shall provide information about its current and past operations as may be reasonably requested by the Customer, a Transporter or an LNG
purchaser for purposes of conducting inspection under this Clause 8.6, provided that the provision of such information (other than to Customer) may be
subject to the recipient’s execution of a confidentiality agreement that is reasonably acceptable to Golar and such recipient.
8.7
Removal of the Mooring
The Customer shall at the end of the Term use reasonable endeavours to undertake the removal of the Mooring [*****].
9
9.1
START-UP
Commissioning Start Date
(a)
(b)
The Commissioning Period will commence on the Scheduled Commissioning Start Date. The Parties shall use reasonable endeavours to agree
a Scheduled Commissioning Start Date earlier than [*****].
Delay Caused by Force Majeure. Should an event of Force Majeure occur that has the effect of delaying the acceptance of the FLNG
Facility, then, upon notice of such effect from Golar, the Scheduled Commissioning Start Date shall be postponed or delayed to fully address
the effects of such event. For greater certainty, Golar shall take all such actions required under Clause 16 to address any such event of Force
Majeure delaying the Scheduled Commissioning Start Date, including notice of such event to be provided in accordance with Clause 16.3.
9.2
Commissioning Period
(a)
(b)
(c)
The Commissioning Period shall be limited to one hundred and eighty (180) days from the Scheduled Commissioning Start Date, subject to
any extension of up to an additional [*****] days in accordance with Clause 9.2(k) below, and any extensions pursuant to Clause 9.4(a).
No later than [*****] days before the Scheduled Commissioning Start Date Golar shall deliver to the Customer (1) a draft programme for the
site commissioning of the FLNG Facility, including the carrying out of the Commissioning Activities (other than the Acceptance Tests)
during the Commissioning Period (the “ Commissioning Programme ”) and (2) a draft proposal regarding acceptance testing of the FLNG
Facility in order to ascertain whether or not the FLNG Facility meets the Acceptance Minimum Requirements (the “ Acceptance Test
Protocol ”).
The Commissioning Programme shall include, in reasonable detail, operational information relevant to the production and delivery of LNG
during the Commissioning Period, including but not limited to:
[*****]
29
provided always that any estimates contained in the Commissioning Programme, including the estimates at (i)-(iv) above, and any
information stated to be “ for
informational
purposes
only
” shall be provided to the Customer for informational purposes only and shall not
be binding on Golar.
Golar shall provide the Customer with an updated Commissioning Programme at least [*****] days before the Scheduled Commissioning
Start Date (or such alternative date as the Parties otherwise agree). If the Customer desires to consult with Golar regarding the contents of the
Commissioning Programme, the Customer shall, no later than [*****] days from delivery of the draft proposal by Golar, request to meet with
Golar by providing notice thereof to Golar, and Golar shall, no later than [*****] days after receipt of such notice, meet with the Customer to
discuss the Commissioning Programme. Subject to Clause 9.2(e), [*****].
The Parties shall co-operate to schedule lifting of commissioning cargoes and Golar shall use reasonable endeavours to provide Customer
with at least [*****] days’ notice of each commissioning cargo (or otherwise as much advance notice as possible given the increased level of
uncertainty regarding LNG production, loading rates and laytimes during the Commissioning Period). In each notice to Customer identifying
an available commissioning cargo Golar shall specify:
[*****]
provided always that any estimates contained in the notice pursuant to this Clause 9.2(e), including the estimates at (i)-(v) above, and any
information stated to be “ for
informational
purposes
only
” shall be provided to the Customer for informational purposes only and shall not
be binding on Golar. [*****]
The Acceptance Test Protocol shall include, in reasonable detail, technical and operational information relevant to the Acceptance Tests and
shall meet the principles detailed at Annex 5. The Parties shall use all reasonable endeavours to agree and conclude the Acceptance Test
Protocol at least [*****] days before the Scheduled Commissioning Start Date (or such alternative date as the Parties otherwise agree) and
shall comply with the Acceptance Test Protocol thereafter.
Any periods of delay primarily attributable to a Customer Delay Event or to an event of Force Majeure properly notified and reported in
accordance with Clause 16 shall not count towards the Commissioning Period, and the Commissioning Period shall be suspended during such
periods of delay.
Golar shall tender a notice of readiness to Customer upon arrival and mooring of the FLNG Vessel at the FLNG Site and completion of the
Hook-Up Activities (a “ Golar Notice of Readiness ”) and shall, after using all reasonable endeavours to make operational any equipment for
flushing and leak testing in advance, ensure that the FLNG Facility is ready to commence Commissioning Activities by the later of (a) tender
of Golar Notice of Readiness or (b) the Scheduled Commissioning Start Date. If Golar becomes aware that the FLNG Vessel is not going to
reach the FLNG Site by the Scheduled Commissioning Start Date, Golar shall provide the Customer with a notice stating when it expects the
FLNG Vessel to arrive at the site, the reasons for the delay and the steps which Golar is taking to minimise the delay.
Following installation of the Mooring (which shall include Golar’s connection pipe), Customer shall securely interconnect its hook-up spool
with Golar’s connection pipe at the Gas Receipt Point.
Customer shall be responsible for ensuring that by the Scheduled Commissioning Start Date the Customer’s Facilities are of a specification
envisaged by this Agreement and compatible for the safe operation of the FLNG Facility and the carrying out of the Services as envisaged by
this Agreement.
(d)
(e)
(f)
(g)
(h)
(i)
(j)
30
(k)
(l)
(m)
If, except where due to Golar’s Gross Negligence or Wilful Misconduct, the production and offloading operations test specified in the
Acceptance Test Protocol has not been successfully completed by the date that is [*****] days before the end of the Commissioning Period,
then Golar shall have the right to notify the Customer of the extension of the Commissioning Period for an additional period as is necessary to
complete such production and offloading operations test but not exceeding [*****] days and the Commercial Start Date shall be adjusted
accordingly.
The Customer shall use reasonable endeavours to ensure that any relevant LNG Vessel loading commissioning cargoes arrives at the FLNG
Facility with the temperature in its tanks sufficiently cold to permit the continuous loading of LNG at the rate required by the Customer. If
any such LNG Vessel arrives at the FLNG Facility with sufficiently cold tanks Golar shall nonetheless provide cool down services where
required by the Customer due to any delays occurring during the loading of the relevant commissioning cargo (without the Purging and Cool
Down Fee or reduction in the Customer’s Inventory Account under Clause 15.9 in circumstances where such delays have been caused
primarily by the negligence or fault of Golar).
Golar shall give the Customer reasonable notice of the scheduled time of the Acceptance Tests performed during the Commissioning Period.
If, pursuant to any right granted to the Customer or the Customer’s Representative(s) under this Agreement to participate in or witness any
testing contemplated by this Clause 9.2 or retesting contemplated by Clause 9.4(f), the Customer or the Customer’s Representative is
unavailable to attend a test or retest at the scheduled time, Golar shall proceed with the testing or retesting without unreasonable delay and
shall report the results of the testing or retesting promptly to the Customer.
9.3
Compensation During Commissioning Period
(a)
The applicable calculation mechanism for the monthly compensation fee payable to Golar in arrears during the Commissioning Period, as
further defined in Clauses 9.3(b) to 9.3(d) below, shall be (1) the MMBTU Base Capacity divided by (2) the Monthly Component and
multiplied by (3) the price per MMBTU (based on Gross Heating Value), which shall be calculated as follows:
(i)
(ii)
Brent Crude Price [*****];
Brent Crude Price > USD60 but [*****];
(iii) Brent Crude Price < USD60: [*****]; or
(iv)
as otherwise specified in Clause 9.3(c);
where “ Brent Crude Price ” has the meaning given in Clause 5.1(a).
(b)
Compensation shall be payable by the Customer to Golar for the [*****] of the Commissioning Period or, if Golar Notice of Readiness has
not been tendered by the Scheduled Commissioning Start Date, for the [*****] from tender of Golar Notice of Readiness plus, in the event
that Golar has exercised its option at clause 9.6(a)(ii), the time taken for transferring the LNG Cool Down Cargo, being the time taken from
when the LNG carrier starts pumping LNG until the earlier of (x) the transfer of the LNG Cool Down Cargo is completed and it stops
pumping or [*****] after the LNG carrier starts pumping LNG (the “ LNG Cool Down Cargo Transfer Time ”) (or up to Acceptance, if
Acceptance occurs prior to the [*****] of the Commissioning Period from tender of Golar Notice of Readiness plus any LNG Cool Down
Cargo Transfer Time), save for any period of delay primarily attributable to a Customer Delay Event, in respect of all LNG made available
for delivery in an amount per MMBTU (based on Gross Heating Value) set out in Clause 9.3(a), payable in arrears. For the avoidance of
doubt, if Golar has exercised its option at clause 9.6(a)(ii) and the transfer of the LNG Cool Down Cargo is not completed by the time which
is [*****] after the LNG carrier starts pumping LNG Golar shall continue to carry out the Commissioning Activities in accordance with this
Agreement but
31
(c)
(d)
(e)
without completing the transfer of the LNG Cool Down Cargo, except as the Customer may otherwise agree in its sole discretion.
Following expiry of the [*****] period referred to at Clause 9.3(b) above (together with any applicable LNG Cool Down Cargo Transfer
Time), monthly compensation shall be payable by the Customer to Golar for the [*****] of the Commissioning Period, save only in respect
of LNG Cool Down Cargo Transfer Time in the event that Golar transfers the LNG Cool Down Cargo in such [*****], (or up to Acceptance,
if Acceptance occurs prior to the expiry of such [*****], save for any period of delay primarily attributable to the Customer, at a rate
equivalent to [*****] of the amount calculated in accordance with Clause 9.3(a) based on an amount of [*****] (based on Gross Heating
Value), together with compensation in respect of all LNG made available for delivery in excess of [*****] of the Base Capacity divided by
twelve, in an amount per MMBTU (based on Gross Heating Value) set out in in Clause 9.3(a), payable monthly in arrears.
Following expiry of the [*****] period referred to at Clause 9.3(c) above, monthly compensation shall be payable by the Customer to Golar
in the remainder of the Commissioning Period (save for any period of delay primarily attributable to a Customer Delay Event) [*****].
Provided that Golar has tendered Golar Notice of Readiness, where the Commissioning Period is suspended due to periods of delay primarily
attributable to a Customer Delay Event, the Customer shall pay liquidated damages to Golar in accordance with the following schedule:
Cumulative Days of Suspension
Liquidated Damages Payable (% of the Tolling Fee pro rata
for each day (or part thereof) of suspension, based on a unit
price of [*****] .)
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
The payment of liquidated damages to Golar pursuant to this Clause 9.3(e), together with the termination right at Clause 18.1(b)(vi), shall be
Golar’s Sole and Exclusive Remedy for any suspension of the Commissioning Period.
9.4
Commercial Start Date
(a)
(b)
The date falling on the earlier of (a) one hundred and eighty (180) days days after the Scheduled Commissioning Start Date, or (b) the
Acceptance Date, shall be deemed the “ Commercial Start Date ”, provided that the Commercial Start Date shall be extended by any period
of delay primarily attributable to a Customer Delay Event, an event of Force Majeure, or in accordance with Clause 9.2(k).
The Parties shall use all reasonable endeavours to procure that as soon as reasonably practicable, and in any event no later than the
Commercial Start Date, all Acceptance Tests are completed in accordance with the Acceptance Test Protocol.
32
(c)
(d)
(e)
(f)
(g)
(h)
Where the FLNG Facility passes the Acceptance Tests on or before the Commercial Start Date, Customer shall accept that the FLNG Facility
meets the Acceptance Minimum Requirements and the Parties shall execute and deliver a Certificate of Acceptance in accordance with
Clause 9.4(h) below.
Where the FLNG Facility has not passed the Acceptance Tests by the Commercial Start Date (including as a result of delay or failure in
delivery), Daily LDs shall be payable as provided in Clause 9.4(e) below from the Commercial Start Date until and including the date on
which the Parties have executed and delivered a Certificate of Acceptance in accordance with Clause 9.4(h) below (subject to the provisions
of Clause 9.4(e)).
In the event that Daily LDs are payable pursuant to Clause 9.4(d) above, Golar shall pay Customer Daily LDs at the following rates, up to a
maximum aggregate total of [*****]:
Number of Days of delay in passing Acceptance
Tests
Daily LDs amount
Payment
and Termination Balloon
[*****]
[*****]
[*****]
Daily LDs of [*****]
Daily LDs of [*****]
Daily LDs of [*****]
Termination Balloon Payment
pursuant to clause 18.1(c)(ii)
on termination
[*****]
[*****]
In circumstances where the FLNG Facility fails any Acceptance Test, Golar shall correct any defect or nonconformity causing such failure (a
“ Defect ”). Until each Defect has been remedied to a standard that permits the FLNG Facility to pass the relevant Acceptance Test, Customer
shall have the right, in its Sole Opinion, to refuse to accept that the FLNG Facility meets the Acceptance Minimum Requirements under this
Agreement. Any repairs, modifications or other work required to remedy any Defect pursuant to this Clause 9.4(f) shall be carried out at
Golar’s cost. Golar shall keep Customer reasonably informed of the progress of the remediation of all Defects and notify Customer in writing
when each Defect has been remedied to a standard that permits the FLNG Facility to pass the relevant Acceptance Test. Customer shall allow
retesting immediately following notice that Golar has remedied all Defects to a standard that permits the FLNG Facility to pass the relevant
Acceptance Test and is in a position to retest. Where the FLNG Facility passes the outstanding Acceptance Test(s) following retesting, as
reported by Golar to Customer, Customer shall accept that the FLNG Facility meets the Acceptance Minimum Requirements and the Parties
shall execute and deliver a Certificate of Acceptance in accordance with Clause 9.4(h).
Notwithstanding 9.4(f) above, Customer retains the right to accept that the FLNG Facility meets the Acceptance Minimum Requirements
when an Acceptance Test has been failed. If Customer exercises such right, the Parties shall execute and deliver a Certificate of Acceptance
in accordance with Clause 9.4(h) (in which event any Daily LDs otherwise payable by Golar to Customer under this Agreement shall cease to
be payable from the date on which the Parties have executed and delivered a Certificate of Acceptance in accordance with Clause 9.4(h)).
The Parties shall record the date on which Customer accepts the FLNG Facility as meeting the Acceptance Minimum Requirements in a
certificate of acceptance (the “ Certificate of Acceptance ”), which shall be in the form of Annex 6 and signed by or on behalf of the
Customer
33
promptly upon the FLNG Facility being accepted by Customer as meeting the Acceptance Minimum Requirements, or Customer being
obliged to accept the FLNG Facility, pursuant to this Clause 9.4. A Certificate of Acceptance will be deemed executed if, notwithstanding the
passing of the Acceptance Tests, the Customer fails to execute a Certificate of Acceptance.
9.5
Termination for Extended Delay
Termination for extended delay in completing the Acceptance Tests is permitted only in accordance with Clause 18.1(c)(ii).
9.6
Loading LNG Cool Down Cargo
(a)
Subject to giving notice to the Customer at least five (5) days prior to the FLNG Vessel’s arrival at the FLNG Site, Golar shall have the
option either:
(i)
(ii)
to load a cargo of LNG on the FLNG Vessel (the “ LNG Cool Down Cargo ”) so as to arrive cold at the FLNG Site; or
to load the LNG Cool Down Cargo on the FLNG Vessel at the FLNG Site as soon as reasonably practicable within the
Commissioning Period following tendering of Golar Notice of Readiness, provided that Golar must obtain in advance all
Approvals required by Governmental Authorities to enable such operation to take place at the FLNG Site.
No later than three (3) days prior to the FLNG Vessel’s arrival at the FLNG Site, Golar shall notify the Customer of:
(i)
(ii)
(iii)
the expected LNG quality of the LNG Cool Down Cargo;
a non-binding estimate of the quantity of the LNG Cool Down Cargo and the Heel LNG Quantity; and
if applicable, the status of obtaining all required Approvals for the loading of the LNG Cool Down Cargo onto the FLNG Vessel
at the FLNG Site (and Golar shall respond promptly to the Customer’s reasonable requests for information in connection
therewith, including providing copies of any required Approvals).
(b)
The Parties shall cooperate in good faith to agree the terms on which a volume of the LNG Cool Down Cargo (the “ LNG Commissioning
Heel ”), shall pass from Golar to the Customer, with the following principles to apply:-
(i)
(ii)
Golar and the Customer to agree a date for transfer of title in the LNG Commissioning Heel (the “ LNG Heel Transfer Date ”).
The quantity of LNG Commissioning Heel on board as at the LNG Heel Transfer Date (the “ Heel LNG Quantity ”) to be based
on in tank measurements.
(iii) At the end of the Term, a quantity of LNG equal to the Heel LNG Quantity shall be returned to Golar in accordance with Clause
2.1.
(c)
(d)
Any LNG delivered to the LNG Delivery Point in the Commissioning Period which contains LNG Commissioning Heel shall be subject to
the provisions of Clause 11.4.
Notwithstanding any other provision of this Agreement, Golar shall be solely responsible for, and shall protect, defend, indemnify and hold
harmless each Customer Indemnified Person from any and all Liabilities (save for any Consequential Loss of any Customer Indemnified
Person)
34
arising in connection with the loading, part loading or failure to load, of the LNG Cool Down Cargo on the FLNG Vessel at the FLNG Site.
10
10.1
RECEIPT OF GAS
Upstream Arrangements
(a)
(b)
The Customer shall design, build and operate production facilities (or cause the same to be done) to ensure the supply of Feed Gas to enable
Golar to deliver the Base Capacity in accordance with this Agreement, no later than the Scheduled Commissioning Start Date, subject to any
delay or postponement of such date in accordance with Clause 9.1(b).
The Customer shall exercise due diligence acting as a Reasonable and Prudent Operator to maintain, or procure the maintenance of, all
facilities in connection with the Project which are upstream and downstream of the FLNG Facility at the FLNG Site.
10.2
Feed Gas Quality and Specification
Customer shall ensure that all Feed Gas delivered at the Gas Receipt Point shall conform to the feed gas specification and the feed gas inlet conditions
appearing in Annex 2 (the “ Feed Gas Specification ”).
10.3
Measurements and Testing
Golar shall maintain and operate facilities onboard the FLNG Vessel to monitor the quantity and quality of Feed Gas at the Gas Receipt Point.
Customer’s Feed Gas shall be measured and tested in accordance with the Measurement and Testing Procedures.
10.4
Off-Spec Feed Gas
(a)
(b)
(c)
(d)
General. Any Feed Gas not conforming to the Feed Gas Specification shall be “ Off-Spec Feed Gas ”.
Notice. Each Party shall provide notice to the other Parties as soon as reasonably practicable if it becomes aware of any existing or
anticipated delivery of Off-Spec Feed Gas, such notice to include, to the extent known or ascertainable, details of the nature and expected
magnitude of the variance, the cause of the non-compliance and the probable duration thereof. If notified by Customer, or if Golar otherwise
becomes aware that Off-Spec Feed Gas is being or could be delivered at the Gas Receipt Point, Golar shall as soon as reasonably practicable
but within forty-eight (48) hours (i) inform Customer whether it intends to reject any such Off-Spec Feed Gas (or any further delivery if Off-
Spec Feed Gas has already been received at the Gas Receipt Point) (but shall if so requested by the Customer use its reasonable endeavours to
accept such Off-Spec feed Gas) and (ii) if Golar intends to accept any such Off-Spec Feed Gas, Golar shall inform Customer of Golar’s good-
faith estimate of the reasonable and actual incremental costs and other Liabilities that Golar or any of Golar’s Affiliates may incur in
connection with receiving and treating Off-Spec Feed Gas by such means as are appropriate. As soon as practicable after receiving an
estimate in accordance with (ii) above, Customer shall instruct Golar either (1) to proceed to accept such Off-Spec Feed Gas or (2) to reject
such Off-Spec Feed Gas. Golar shall reject any Off-Spec Feed Gas which it is instructed to reject by Customer.
Effect. Without prejudice to any other rights and remedies of Golar hereunder, subject to Clause 10.4(b), Golar shall have the right (but not
the obligation) to reject delivery of any or all Off-Spec Feed Gas.
No Continuing Waiver. Acceptance of Off-Spec Feed Gas shall not prevent Golar from refusing future receipts of Off-Spec Feed Gas. No
waiver by Golar of any default by Customer of the Feed Gas Specification in this Clause 10 shall ever operate as a continuing waiver of such
Feed Gas specification or as a waiver of any subsequent default, whether of a like or different character.
35
(e)
(f)
Delivery of Off-Spec Feed Gas. If Golar receives delivery of Off-Spec Feed Gas for the Customer’s account which it would otherwise be
entitled to reject, (including, for the avoidance of doubt, where Golar accepts Off-Spec Feed Gas at the request of the Customer) Customer
shall bear the financial responsibility for all reasonable and actual incremental costs and other Liabilities incurred by Golar or any of Golar’s
Affiliates in connection with receiving and treating such Off-Spec Feed Gas by such means as are appropriate, with Golar using reasonable
efforts to minimise such costs and Liabilities.
Sole and Exclusive Remedy. The remedy set out in Clause 10.4(e) shall be Golar’s Sole and Exclusive Remedy for delivery of Off-Spec
Feed Gas for the Customer’s account.
11
11.1
DELIVERY OF LNG
LNG Delivery Point
LNG shall be delivered by Golar to Customer at the LNG Delivery Point, and Customer shall cause such LNG to be Lifted in accordance with Clause
13.
11.2
LNG Quality and Specification
Provided always that the Customer has delivered Feed Gas at the Gas Receipt Point in accordance with the Feed Gas Specification, Golar shall ensure
that all LNG delivered at the LNG Delivery Point for Customer’s account shall conform to the specification appearing in Annex 3 (the “ LNG
Specification ”).
11.3
Measurements and Testing
LNG delivered to Customer at the LNG Delivery Point shall be measured and tested in accordance with the Measurement and Testing Procedures.
11.4
Off-Spec LNG
(a)
(b)
(c)
(d)
(e)
(f)
General. Any LNG delivered to the LNG Delivery Point in relation to the Services that does not conform to the LNG Specification shall be “
Off-Spec LNG ”.
Notice. Each Party shall provide notice, as soon as reasonably practicable, to the other Parties if it has information reasonably indicating that
any Off-Spec LNG is to be loaded, is being loaded, or has been loaded, onto an LNG Vessel; such notice to include, to the extent known or
ascertainable, details of the nature and expected magnitude of the variance from the specifications, the cause of such non-compliance and the
probable duration of such variance.
Effect. Without prejudice to any other rights and remedies of Customer hereunder, subject to Clauses 11.4(d) and 11.4(f), Customer shall
have the right (but not the obligation) to reject delivery of any or all Off-Spec LNG.
Reasonable Efforts to Accept. The Customer shall use reasonable efforts to accept any Off-Spec LNG to be loaded onto an LNG Vessel
where:
[*****]
No Continuing Waiver. Acceptance of Off-Spec LNG shall not prevent Customer from refusing future receipts of Off-Spec LNG. No waiver
by Customer of any default by Golar of the LNG Specification in this Clause 11 shall ever operate as a continuing waiver of such LNG
Specification or as a waiver of any subsequent default, whether of a like or different character.
Rejection; Suspension of Loading. Without limitation to Clause 11.4(h):
36
(i)
(ii)
if a notice under Clause 11.4(b) of Off-Spec LNG occurs before commencement of loading of the LNG Vessel, Customer shall
notify Golar as soon as reasonably practicable (but in no event later than forty-eight (48) hours after receiving such notice, failing
which Customer shall be deemed to have rejected delivery of the Off-Spec LNG) whether Customer will, after using its
reasonable efforts in accordance with Clause 11.4(d)(i), either: (x) take delivery of the Off-Spec LNG; or (y) reject delivery of
the Off-Spec LNG; and
if a notice under Clause 11.4(b) of Off-Spec LNG occurs after commencement of LNG loading but before Completion of
Loading, Golar shall immediately suspend loading after Golar becomes aware thereof or receives such notice from Customer, as
the case may be, and Customer shall notify Golar as soon as reasonably practicable thereafter (but in no event later than forty-
eight (48) hours after suspension of loading, failing which Customer shall be deemed to have rejected further delivery of the Off-
Spec LNG, the loading of the Off-Spec LNG shall be discontinued and, if possible, the Off-Spec LNG shall be unloaded)
whether Customer will, after using reasonable efforts in accordance with Clause 11.4(d)(ii), either: (x) take further delivery of
the Off-Spec LNG and complete loading; or (y) not take further delivery of the Off-Spec LNG, discontinue loading the Off-Spec
LNG and, if possible, unload the Off-Spec LNG.
(g)
Effect of Rejection of Off-Spec LNG.
(i)
If, despite using reasonable efforts to do so in accordance with Clause 11.4(d), Customer does not take delivery of Off-Spec LNG
or otherwise rejects Off-Spec LNG in accordance with Clause 11.4(f), any undelivered quantities (including any quantities
unloaded from the receiving LNG Vessel and returned to the FLNG Vessel) shall be considered as not made available due to
Services Unavailability, and will not be deemed as a Failure to Lift. Title to and risk of loss in such undelivered quantities of Off-
Spec LNG remaining onboard the FLNG Vessel shall pass to Golar on receipt of Customer’s notification of rejection (or on
deemed notification of rejection) in accordance with Clause 11.4(f)(i). Title to, possession and control of and risk of loss in any
quantities of Off-Spec LNG that are to be unloaded from an LNG Vessel shall pass to Golar on completion of such unloading. At
its own cost Golar shall comply with any reasonable request from Customer or the Master of the receiving LNG Vessel to
facilitate any such unloading from an LNG Vessel. For the avoidance of doubt, Golar shall be solely responsible for dealing with
any Off-Spec LNG to which it takes title pursuant to this sub-clause (i), including any and all costs, expenses and other
Liabilities incurred by Golar in connection with offloading, disposing and/or otherwise dealing with such Off-Spec LNG
(including for the avoidance of doubt all costs and expenses in connection with additional unloading and storage arrangements
for any quantities of Off-Spec LNG unloaded from the receiving LNG Vessel) and Golar shall hold Customer harmless in respect
of any such costs, expenses and other Liabilities.
(ii) Notwithstanding the foregoing, if such Off-Spec LNG is due to delivery of Off-Spec Feed Gas by or on behalf of Customer or
due to ageing of the LNG on board the FLNG Vessel (where such ageing is primarily attributable to the fault or negligence of the
Customer), then such quantities (including any unloaded Off-Spec LNG) shall not constitute a Services Unavailability and title
shall not pass to Golar pursuant to sub-clause (i) above. In such circumstances, the Parties shall cooperate in good faith regarding
arrangements for removal and/or disposal of such Off-Spec LNG quantities rejected by Customer, provided always that
Customer shall be solely responsible for and shall hold Golar harmless in respect of any and all costs, expenses and other
Liabilities in connection with offloading, disposing and/or otherwise dealing with such Off-Spec LNG following rejection of
same by Customer, including for the avoidance of doubt all costs and expenses in connection
37
with additional unloading and storage arrangements for any quantities of Off-Spec LNG unloaded from the receiving LNG
Vessel. In the event of a shutdown, or any other event or circumstance, affecting the FLNG Facility which is not primarily
attributable to the fault or negligence of the Customer, and such shutdown or other event or circumstance may result in the LNG
on board the FLNG Vessel becoming Off-Spec LNG due to ageing, then, as soon as practicable after the cessation of such
shutdown or other event or circumstance affecting the FLNG Facility, the Customer shall use reasonable endeavours to (a) Lift
the LNG (even where such LNG is not an Expected Lifting Quantity and/or in connection with a Lifting), and Golar shall use
reasonable endeavours to provide solutions to enable the Customer to Lift such LNG, including but not limited to the provision
by Golar of LNG Vessels to Lift the LNG, and (b) supply Feed Gas of a quantity and specification to seek to avoid the LNG
already on board the FLNG Facility becoming Off-Spec LNG.
(h)
(i)
Adjustments to Allowed Laytime. Customer agrees that Golar will make an appropriate adjustment to the Allowed Laytime to
accommodate the time taken by Customer to provide its response in accordance with Clause 11.4(f)(i) or 11.4(f)(ii).
Reimbursement of Costs for Off-Spec LNG.
(i)
If Customer receives Off-Spec LNG which it would otherwise be entitled to reject (including, for the avoidance of doubt, any Off-
Spec LNG which cannot be offloaded from an LNG Vessel following Customer’s notification (or deemed notification) of rejection in
accordance with Clause 11.4(f)(ii)), Golar shall bear the financial responsibility for all reasonable and actual incremental costs and
other Liabilities incurred by Customer in connection with receiving and treating Off-Spec LNG by such means as are appropriate, with
Customer using reasonable efforts to minimise such costs and Liabilities provided that Golar’s aggregate liability under this sub-
paragraph (i) during the Term shall not exceed [*****] per MMBTU multiplied by the volume of the Off-Spec LNG, Regardless of
Cause; and
(ii) Notwithstanding sub-paragraph (i), no indemnity and/or reimbursement shall be due in respect of Off-Spec LNG that is due to delivery
of Off-Spec Feed Gas by or on behalf of Customer or due to ageing of the LNG on board the FLNG Vessel, where such ageing is
primarily attributable to the fault or negligence of Customer.
(j)
Sole and Exclusive Remedy. [*****].
12
12.1
SCHEDULING
Scheduling Principles
All scheduling activities under this Clause 12 shall be in accordance with the following principles (the “ Scheduling Principles ”):
(a)
(b)
(c)
the Expected Lifting Quantity for each Lifting shall be not more than [*****] Cubic Metres;
based upon the Customer’s Proposed Lifting Programme, and assuming Retainage of no greater than the Operations Retainage Limit for the
Expected Lifting Quantity, the Annual Feed Gas Schedule or the relevant Firm Feed Gas Schedule, as applicable, shall be issued by Golar;
Scheduled Arrival Windows and Allowed Laytimes for the Customer will be scheduled on a reasonably rateable basis throughout the
Contract Year (excluding any periods of Scheduled Downtime to or modification of the FLNG Facility as permitted under Clause 8.5), and
with a period between the end of a Scheduled Arrival Window and the start of the following Scheduled Arrival Window of at least [*****]
days);
38
(d)
(e)
(f)
(g)
sufficient Scheduled Arrival Windows will be made available to permit the Customer to Lift the Base Capacity for the Contract Year utilising
the LNG Vessels proposed by the Customer, subject to rounding up or rounding down the Base Capacity so as to schedule the last Lifting of a
Contract Year in a Full Cargo Lot;
the Parties’ issuance of the Lifting Programme shall be determined, inter alia, by the capacity of the FLNG Facility;
neither Party shall be obligated to accommodate a request which may violate any Approval or result in the shutdown of the FLNG Facility;
and
such other principles as the Parties agree are appropriate, acting as a Reasonable and Prudent Operators and which are included in the
Commercial Operations Manual pursuant to Clause 4.2(a).
12.2
Lifting Programme and Annual Feed Gas Schedule
(a)
(b)
(c)
(d)
Golar Forecast. No later than [*****] days prior to the first day of each Contract Year, Golar shall issue to the Customer a non-binding
written forecast of Scheduled Downtime for such Contract Year. Golar shall consult with Customer in scheduling downtime for maintenance
and act as a Reasonable and Prudent Operator to accommodate the requests of Customer in respect thereto, including using reasonable
endeavours not to plan maintenance during the months of January, February, June, July, August and December. No later than [*****] days
prior to the first day of each Contract Year, Golar shall issue to the Customer a good faith written estimate of the available LNG production
capacity of the FLNG Facility each day during such Contract Year (expressed in cubic metres of LNG and MMBtu), together with an updated
non-binding written forecast of Scheduled Downtime for such Contract Year.
Customer’s Proposed Lifting Programme. According to the Scheduling Principles and no later than [*****] days prior to the beginning of
each Contract Year, the Customer shall submit in writing to Golar a proposal (“ Customer’s Proposed Lifting Programme ”) which
includes the following:
[*****]
Under such forecast, all Liftings proposed by Customer shall be scheduled on a generally rateable basis over the Contract Year, except for
periods of Scheduled Downtime identified by Golar pursuant to Clause 12.2(a), and Customer shall take into consideration the Scheduling
Principles.
Preliminary Lifting Programme and Preliminary Annual Feed Gas Schedule. Golar shall take into consideration the Customer’s
Proposed Lifting Programme and shall no later than [*****] days prior to the beginning of each Contract Year, issue to the Customer Golar’s
preliminary Lifting Programme for such Contract Year (the “ Preliminary Lifting Programme ”) showing all Liftings for the Customer and
any open lifting windows, along with a preliminary Feed Gas schedule for such Contract Year (the “ Preliminary Annual Feed Gas
Schedule ”) determined in accordance with Clause 12.3(b) and taking into account Golar’s current forecast of when Scheduled Downtime
will occur in the relevant Contract Year. In preparing the Preliminary Lifting Programme, Golar shall act as a Reasonable and Prudent
Operator to accommodate the Customer’s Proposed Lifting Programme, including the Customer’s proposed Expected Lifting Quantity for
each Lifting.
Issuance of Lifting Programme and Annual Feed Gas Schedule. No later than [*****] days prior to the beginning of each Contract Year,
the Parties shall issue the Lifting Programme and the Annual Feed Gas Schedule for such Contract Year, each of which shall incorporate any
revisions to the Preliminary Lifting Programme and the Preliminary Annual Feed Gas Schedule made pursuant to Clause 12.2(c) and/or the
Scheduling Principles.
39
(e)
Initial Contract Year. For the initial Contract Year, development of the Lifting Programme shall be conducted pursuant to the provisions of
this Clause 12.2, provided that:
(i)
Golar shall provide the information required by Clause 12.2(a), Customer shall provide the Customer’s Proposed Lifting
Programme and the Parties shall use their reasonable endeavours to discuss in good faith the setting of a Preliminary Lifting
Programme and Preliminary Feed Gas Schedule during the period which is reasonably anticipated by Golar to be not less than
[*****] days prior to the expected Acceptance Date;
(ii) where the Parties agree such Preliminary Lifting Programme pursuant to sub-paragraph (i) above, they shall use their reasonable
endeavours to agree and determine the Lifting Programme for such first Contract year as soon as reasonably practicable after the
Scheduling Time commences pursuant to sub-paragraph (iii) below;
(iii)
the Scheduling Time for such Lifting Programme shall begin on the day after the earlier of: (i) the day after the Acceptance Date
and (ii) [*****] and end no later than [*****] days thereafter;
(iv) Golar shall update the information required by Clause 12.2(a) within [*****] Business Days following commencement of the
Scheduling Time;
(v)
the Customer shall update the Customer’s Proposed Lifting Programme within [*****] Business Days following commencement
of the Scheduling Time;
(vi) Golar shall update the Preliminary Lifting Programme within [*****] Business Days following commencement of the
Scheduling Time; and
(vii)
the Parties shall update the Lifting Programme within [*****] days following commencement of the Scheduling Time.
In any event, the Lifting Programme for the initial Contract Year shall be finalised by no later than [*****] days prior to the start of
the Scheduled Arrival Window for the first Cargo to be delivered in such Contract Year.
12.3
Rolling Schedule
(a)
Monthly Update. No later than [*****] days prior to the first day of each month, the Parties shall issue an updated Lifting Programme (the “
Monthly Update ”) for the [*****] days beginning on the first day of such month (the “[*****] -Day Period ”). The Monthly Update shall
consist of:
(i)
(ii)
a firm schedule of all Liftings in such [*****]-Day Period (the “[*****] -Day Schedule ”), reflecting the Lifting Programme and
any revisions made thereto pursuant to Clause 12.4 (which shall supersede the provisions of the applicable Lifting Programme
and any previous [*****]-Day Schedule for the days specified in such [*****]-Day Schedule);
any updates on the expected availability of Services (including Scheduled Downtime and Unscheduled Downtime) and any
additional excess quantity projected to be available; and
(iii)
such additional information as the Parties may agree.
(b)
Firm Feed Gas Schedule. Along with each Monthly Update, Golar shall issue to the Customer a firm schedule of the Feed Gas quantity to be
delivered by or on behalf of the Customer to the
40
Gas Receipt Point for each Day in the [*****]-Day Period (the “ Firm Feed Gas Schedule ”), of which:
(i)
(ii)
the Feed Gas quantity for each Day in the first month of the [*****]-Day Period constitutes the quantity that the Customer shall
deliver, or cause to be delivered, to Golar rateably over such Day (as may be further adjusted pursuant to Clause 12.6, the “ Daily
Feed Gas Quantity ”); and
the Feed Gas quantity specified in the Firm Feed Gas Schedule for each Day in the remainder of the [*****]-Day Period is
provided for planning purposes only.
The Firm Feed Gas Schedule shall reflect the Annual Feed Gas Schedule, adjusted as appropriate to reflect any changes made to the Lifting
Programme.
12.4
Modifications to the Lifting Programme
(a)
Modifications by Agreement. Subject to Clause 12.5, the Customer may propose reasonable changes to the Lifting Programme, including
revision of an Expected Lifting Quantity, rescheduling or cancellation of a Lifting, [*****], provided that Golar:
may condition its agreement to any change on appropriate adjustments to the Daily Feed Gas Quantity for one or more Days
prior to the applicable Scheduled Arrival Window to fully accommodate such change, and shall not be obligated to approve any
request for which corresponding adjustments to the Daily Feed Gas Quantity are not possible;
shall not be obligated to accommodate a request which does not comply with the Scheduling Principles;
shall not be obligated to accommodate a request which may violate any Approval;
shall have the right to reject any request from Customer which may require Golar to shut down or reduce production at the FLNG
Facility; and
(i)
(ii)
(iii)
(iv)
[*****]
(b)
(c)
For the avoidance of doubt, a modification of the Lifting Programme pursuant to this Clause 12.4(a) shall not be deemed a Failure to Lift or a
Services Unavailability.
Additional Rights of Golar. Notwithstanding the foregoing provisions, Golar shall have the right at any time to modify the Lifting
Programme pursuant to Clause 13.3(c) (but without prejudice to any liability that may arise with respect thereto pursuant to this Agreement).
Additional Rights of Customer. Notwithstanding the foregoing provisions, Customer shall have the right at any time to modify the Lifting
Programme pursuant to Clauses 8.5(a), 8.5(b) or 8.5(d) (but without prejudice to any liability that may arise with respect thereto pursuant to
this Agreement).
12.5
Imbalances
(a)
Creation of an Imbalance. If, as a result of (i) a request by the Customer pursuant to Clause 12.4(a) or (ii) a Failure to Lift, there is a
modification to the Lifting Programme such that the Customer does not Lift the Expected Lifting Quantity as originally stated in the Monthly
Update for a particular month, the difference between (1) the amount of LNG actually Lifted and (2) the Expected Lifting Quantity in the
Monthly Update, shall be recorded as an imbalance (expressed in MMBTUs) in Customer’s Inventory Account (an “ Imbalance ”).
41
(b)
Elimination of Imbalance. Upon the occurrence of an Imbalance, Golar shall send the Customer a notice informing the Customer of the
amount of such Imbalance (the “ Notice of Imbalance ”). The Customer shall eliminate its Imbalance position as soon as reasonably
practicable and in any event by the end of the [*****] month following the month in which the Notice of Imbalance is received. Subject to
available LNG Storage Capacity and operational constraints, the Customer may request to eliminate the prior month’s Imbalance through a
further modification to the Lifting Programme pursuant to Clause 12.4 or adjustments of the Daily Feed Gas Quantity pursuant to Clause
12.6, as applicable, for the following month.
12.6
Adjustments to Daily Feed Gas Quantity
The Daily Feed Gas Quantity for any given Day may be adjusted (upward or downward) for the following:
(a)
(b)
a change in quantity requested by one Party and approved by the other Party, such approval not to be unreasonably withheld so long as such
change will not require the other Party to incur any material additional costs; and
pursuant to Clauses 12.5(b) and 13.3(c).
12.7
Scheduling Representative
By no later than one (1) month prior to the Commercial Start Date, the Customer shall appoint an individual to act as Scheduling Representative for the
purposes of this Clause 12; provided, however, that Customer shall have the right to change the identity of the Scheduling Representative at any time by
notice to Golar. Unless otherwise stated herein, the Customer hereby authorizes the Scheduling Representative to do and perform any and all acts for
and on behalf of Customer with regard to scheduling matters provided for in this Clause 12.
12.8
Communications
All communications or exchanges of information between the Parties relating to the provisions of this Clause 12 shall be in compliance with the
Commercial Operations Manual.
13
13.1
INTERRUPTION TO SERVICES
Scheduled Curtailment or Temporary Discontinuation of Services
Golar shall have the right to curtail or temporarily discontinue the Services, in whole or in part, during the allotted time period specified in the
applicable Lifting Programme for maintenance to or modification of the FLNG Facility (“ Scheduled Downtime ”), but only to the extent required by
such maintenance or modification and provided that Scheduled Downtime (i) shall last no more than [*****] days in the aggregate during each Contract
Year, and (ii) shall not affect Golar’s obligation to schedule and make available the Base Capacity. During any period of Scheduled Downtime, Golar
shall use reasonable efforts to update Customer, from time to time, on the expected progress towards completing the maintenance or modification,
whichever is applicable. The Parties shall use reasonable endeavours to discuss and agree a mutually convenient time for Scheduled Downtime to occur,
save that where the Parties cannot agree, Golar shall in its Sole Opinion determine when it shall occur.
13.2
Unscheduled Curtailment or Temporary Discontinuation of Services
In addition to the rights set out in Clause 13.1, Golar shall have the right to curtail or temporarily discontinue the Services, in whole or in part, at any
time in order to (a) repair any portion of the FLNG Facility or (b) protect persons and property, including the FLNG Facility, from harm or damage due
to operational or safety conditions (“ Unscheduled Downtime ”). Golar shall use reasonable efforts to provide Customer with as much advance notice
of Unscheduled Downtime as is reasonable under the circumstances, and such notice may be issued for a specific period of time or until further notice is
given. Golar shall use reasonable efforts to minimise the impact of any Unscheduled Downtime on Services to the Customer
42
and the Customer shall use reasonable efforts to accommodate any requests from Golar pursuant to Clause 12.4 or Clause 12.6; however, if, as a result
of any Unscheduled Downtime, Golar fails to make the Expected Lifting Quantity (or any part thereof) available for any Lifting in accordance with the
Lifting Programme, the terms of Clause 13.3 shall apply. The provisions of this Clause 13.2 shall have no effect on Golar’s obligations under Clauses
15.7(c) and 15.7(d).
13.3
Services Unavailability
(a)
(b)
(c)
Defined. If Golar fails to make the Expected Lifting Quantity (or any part thereof) available for any Lifting in accordance with the Lifting
Programme for any reason, and such failure is not primarily attributable to a Customer Delay Event, a request for purging and cool down
operations or cool down only operations pursuant to Clause 15.9, or an event of Force Majeure, then such failure constitutes a “ Services
Unavailability ” without regard to whether Golar gives Customer notice thereof, provided that no Services Unavailability shall be deemed to
occur if the quantity of LNG actually delivered in a Lifting is at least [*****].
Notice. Golar shall give Customer notice of a Services Unavailability, or an expected Services Unavailability as soon as reasonably
practicable. If requested by Customer, Golar shall hold a meeting with Customer to sufficiently explain the cause of any Services
Unavailability and discuss measures Golar is taking to mitigate such Services Unavailability. Such meeting shall be held in Douala or any
alternative location that is mutually agreeable to the Parties.
Actions Available to Address Services Unavailability. To address the expected effects of any Services Unavailability, Golar may, subject
to the final paragraph of this Clause 13.3(c), take one or more of the following actions (not necessarily in the following priority of order):
(i)
(ii)
require Customer to reduce deliveries of Feed Gas at the Gas Receipt Point or, in the absence of such reduction, reject deliveries
of Feed Gas at the Gas Receipt Point; and/or
any such other actions as a Reasonable and Prudent Operator would take under such circumstances, including actions which are
aimed at maintaining operational integrity of the FLNG Facility.
Golar shall act as a Reasonable and Prudent Operator to (A) consult with the Customer in advance of taking any such action (except in the
event of an emergency threatening the safety or security of persons or property, as determined by Golar, in which case such consultation is
not required), (B) accommodate the Customer’s requests as to the nature and timing of such actions and (C) minimise the costs incurred by
the Customer as a result of such actions.
(d)
Consequences of Services Unavailability.
(i)
If Golar delivers to the Customer, in a calendar month, less than [*****] of the lesser of (a) the Monthly Base Capacity or (b) the
quantity of LNG actually required by Customer to be delivered (the lesser of the Monthly Base Capacity or actual required
quantity in a calendar month being the “ RMQ ”), and such failure is primarily attributable to Services Unavailability, then,
subject to Clauses 13.3(ii), (iii) and (iv) below, the Customer shall be entitled to make a deduction from the Tolling Fee for the
applicable calendar month which is [*****].
(ii) Within thirty (30) days of the end of each Contract Year, there shall be a reconciliation undertaken to calculate the extent to
which Services Unavailability over the Contract Year resulted in a shortfall against the aggregated Customer’s RMQs over a
Contract Year (the “ Contract Year Reconciliation ”), and a balancing amount shall be due from Golar to the Customer, or
from the Customer to Golar, as the case may be, and shall be invoiced in accordance with Clause 6.2.
43
(iii)
(iv)
If the aggregate delivered quantity of all Liftings (or part thereof) in a calendar month or over a Contract Year is equal to or
greater than [*****] of the RMQ or ARQ for that calendar month or Contract Year respectively, no deduction shall be made
against the Tolling Fee in respect of the relevant calendar month or the Contract Year, as the case may be.
If the aggregate delivered quantity of all Liftings (or part thereof) in a calendar month or over a Contract Year is below [*****]
of the RMQ or ARQ for that calendar month or Contract Year respectively, no Tolling Fee shall be paid by the Customer in
respect of the relevant calendar month or the Contract Year, as the case may be.
(v)
[*****]
(vi)
[*****].
(vii) A termination fee shall be payable by Golar to the Customer in the event of termination pursuant to Clause 18.1(c)(iv) below for
substantial and prolonged Service Unavailability [*****], in accordance with Clause 18.2(a). For the avoidance of doubt, in the
event that the Customer is entitled to terminate under both Clause 18.1(c)(iv)(a) and Clause 18.1(c)(iv)(b) only one termination
fee is payable, pursuant to Clause 18.2(a).
(viii) Save in respect of termination pursuant to Clause 18.1(c)(iv) and the termination fee payable by Golar to the Customer pursuant
to Clause 18.2(a), the remedies set out in Clause 13.3(d)(i), Clause 13.3(d)(iii), Clause 13.3(d)(iv) and Clause 13.3(d)(v) shall be
the Customer’s Sole and Exclusive Remedy for Services Unavailability
(ix) For the avoidance of doubt, in the event that any Lifting scheduled in the Lifting Programme for a relevant calendar month
occurs (wholly or partially) in the subsequent calendar month (a “ Late Lifting ”), and such Late Lifting is not primarily
attributable to a Services Unavailability, then such Late Lifting shall count towards the quantity of LNG delivered to the
Customer in the relevant calendar month, and shall not result in a deduction from the Tolling Fee for the relevant calendar
month.
(e)
[*****]
13.4
Failure to Deliver Feed Gas
In the event of any failure by the Customer to deliver the Daily Feed Gas Quantity in accordance with the terms of this Agreement and provided that
such failure is not primarily due to any fault, negligent act or omission of Golar or any Golar Indemnified Person, Golar shall have the right to make a
corresponding reduction in the Expected Lifting Quantity of one or more Liftings.
13.5
Failure to Lift
(a)
(b)
Defined. If the Customer fails to Lift the Expected Lifting Quantity of any Lifting (or part thereof) in accordance with the Lifting Programme
and such failure is not due to Services Unavailability or Force Majeure, then such failure constitutes a “ Failure to Lift ”. The Customer shall
be deemed to have failed to Lift the Expected Lifting Quantity if (i) the Customer notifies Golar of a Failure to Lift or expected Failure to Lift
pursuant to Clause 13.5(b) or (ii) Golar cancels or terminates a Lifting pursuant to Clause 13.5(d)).
Notice. The Customer shall give Golar notice as soon as reasonably practicable of a Failure to Lift or an expected Failure to Lift.
44
(c)
(d)
Effects. In the event of a Failure to Lift the Customer shall pay the Tolling Fee for the relevant month as though the Failure to Lift had not
occurred.
[*****]
14
14.1
INVENTORY MANAGEMENT
Inventory Management Principles
Golar shall manage the Customer’s Inventory to enable the Lifting of LNG in accordance with the Lifting Programme and Scheduling Principles.
14.2
Customer’s Inventory Account
(a)
(b)
Golar shall maintain for the Customer a current inventory account (expressed in MMBTUs) (“ Inventory Account ”) for the purpose of
balancing (i) the amount of Feed Gas delivered at the Gas Receipt Point for the account of the Customer; (ii) the amount of LNG Lifted at the
LNG Delivery Point for the account of the Customer; (iii) Retainage; (iv) return Gas from an LNG Vessel to the FLNG Facility (with
measurement to be supplied by the Customer), in each case without double counting; and (v) any quantities of rejected Off-Spec LNG to
which Golar takes title pursuant to Clause 11.4(g); and
Golar shall provide the Customer with a daily report on aggregate LNG and Gas inventory levels at the FLNG Facility and on the Customer’s
Inventory Account.
14.3
Title, Custody and Risk of Loss
(a)
(b)
Title to the Customer’s Inventory. Save in respect of (i) the Heel LNG Quantity and any Customer’s Inventory (excluding the Heel LNG
Quantity) remaining on board at expiry of the Term, which shall pass to Golar in accordance with Clause 2.1, and (ii) any quantities of
rejected Off-Spec LNG to which Golar takes title pursuant to Clause 11.4(g), title to the Customer’s Inventory will not transfer to Golar or
Golar Cam during periods when it is in the possession and control of Golar (including while held in storage at the FLNG Facility), and,
subject to Clause 5.2, neither Golar nor Golar Cam shall at any time whatsoever suffer, permit or cause Golar, Golar Cam, any Lender or any
other legal or natural person to create or acquire any rights, title or interest in, or Encumbrance or any other right or interest whatsoever, in or
over the Customer’s Inventory or any part thereof.
Possession, Risk of Loss and Control. Possession, risk of loss and control of the Customer’s Feed Gas shall pass from the Customer to
Golar upon delivery of same at the Gas Receipt Point. Save in respect of any quantities of rejected Off-Spec LNG to which Golar takes title in
accordance with Clause 11.4(g), possession, risk of loss and control of the Customer’s Inventory shall pass from Golar to the Customer upon
proper delivery of same at the LNG Delivery Point.
14.4
No Encumbrance
(a)
(b)
Customer’s Covenants. The Customer warrants to Golar that the Customer has title to all Feed Gas delivered to the Gas Receipt Point for
Customer’s account. The Customer covenants that the Customer’s Inventory shall remain free of all encumbrances therefor, and that no
circumstances will exist which could give rise to any encumbrances relating thereto other than those that may be caused by acts or omissions
of any Golar Indemnified Person. The Customer agrees to fully defend, indemnify and hold Golar and its Affiliates harmless against all
Encumbrances regarding the Customer’s Inventory, except to the extent that any Encumbrances are caused by acts or omissions of Golar.
Golar’s Covenants. Golar and Golar Cam warrant to the Customer that they will deliver to the Customer, at the LNG Delivery Point, the
Customer’s Inventory free from all Encumbrances
45
relating thereto. Golar and Golar Cam covenant that the Customer’s Inventory, while in Golar’s possession or control, shall remain free of all
Encumbrances, and that no circumstances will exist which could give rise to any Encumbrances relating thereto other than those that may be
caused by the Customer’s acts or omissions. Golar and Golar Cam agree to fully defend, indemnify and hold the Customer and its Affiliates
harmless from and against all Encumbrances regarding the Customer’s Inventory delivered to the Customer, except to the extent that any
Encumbrances are caused by the acts or omissions of the Customer.
(c)
Each warranty and covenant in Clause 14.4(b) is subject to the provisions of Clause 5.2.
14.5
Annual Statement
No later than sixty (60) days following the end of each Contract Year, Golar shall deliver to the Customer an annual statement setting forth the
following:
(a)
(b)
(c)
(d)
(e)
(f)
the total quantity of Feed Gas received from the Customer during such Contract Year;
the total quantity of LNG Lifted by the Customer during such Contract Year;
Retainage during such Contract Year;
the total quantity of return Gas from LNG Vessels to the FLNG Facility during such Contract Year (with measurement to be supplied by the
Customer);
the total quantity of Off-Spec LNG (if any) to which Golar has taken title pursuant to Clause 11.4(g); and
the end of Contract Year balance of the Customer’s Inventory Account.
15
LNG LOADING AND TRANSPORTATION
15.1
General
(a)
(b)
(c)
Downstream Arrangements. Subject to the terms and conditions of this Agreement, the Customer shall be responsible for Lifting of all
LNG made available for lifting by Golar hereunder in accordance with each Lifting Programme and shall cause LNG Vessels to be provided
for the transportation of all such LNG. The Customer shall be responsible for the marketing or other disposition of all LNG hereunder and all
contractual and other arrangements relating to the Lifting, marketing or other disposition of LNG lifted or to be lifted from the FLNG
Facility.
LNG Vessel Capacity. At the commencement of loading at the FLNG Facility, each LNG Vessel shall have sufficient empty LNG cargo
containment capacity to Lift the Expected Lifting Quantity scheduled for such Lifting. Any inability to Lift the Expected Lifting Quantity as a
result of insufficient LNG cargo containment capacity shall be deemed a Failure to Lift but shall not constitute grounds for rejection of the
LNG Vessel by Golar. Regardless of the LNG cargo containment capacity of the LNG Vessel, in no event shall Golar have any obligation to
permit the Lifting of more than the Expected Lifting Quantity.
Fireboats, Tugs, Escort Vessels, Security Vessels and Port Charges. The Customer shall arrange for, or cause the appropriate Person to
arrange for, such number and types of fireboats, tugs, escort vessels and security vessels as are required by Governmental Authorities in
Cameroon and the Marine Operations Manual to attend the LNG Vessel so as to permit safe and efficient movement of the LNG Vessel
within the maritime safety areas located in the approaches to and from the FLNG Facility and to permit safe and efficient berthing of the LNG
Vessel at the FLNG Facility. The Customer shall pay, or cause to be paid, all Port Charges directly to the appropriate Person. If Customer or
Transporter fails to pay Port Charges when
46
properly due, and Golar makes payment of such Port Charges on behalf of the Customer, the Customer shall reimburse and hold harmless
Golar for any such Port Charges and Golar shall invoice the Customer pursuant to Clause 6.1 or Clause 6.2 for any such payment by Golar.
(d)
[*****]
15.2
LNG Vessels
(a)
(b)
Customer to Cause LNG Vessels to Comply. The Customer shall cause each LNG Vessel to comply with the requirements of this Clause 15
in all material respects. Golar acknowledges that the LNG Vessels listed in Annex 8 have been identified by the Customer as LNG Vessels
intended for Customer’s use for the transportation of LNG under this Agreement.
Approvals and Documentation. Each LNG Vessel shall comply with the regulations of, and obtain all Approvals required by, Governmental
Authorities to enable such LNG Vessel to enter, leave and carry out all operations at the FLNG Facility. Each LNG Vessel shall at all times
have on board valid documentation evidencing all such Approvals. Each LNG Vessel shall comply fully with the applicable provisions of the
International Safety Management Code for the Safe Operation of Ships and Pollution Prevention effective 1 July 1998 (the “ ISM Code ”),
and at all times be in possession of a valid safety management certificate issued in accordance with the ISM Code.
(c)
Compatibility with FLNG Facility.
(i)
(ii)
Except as otherwise agreed in writing by the Parties, each LNG Vessel shall be compatible with the FLNG Facility in all material
respects.
In the event an LNG Vessel meets the requirements under sub-paragraph 15.2(c)(i) above, but a Governmental Authority or Pilot
prohibits or otherwise hinders the utilisation of such LNG Vessel, the Customer’s obligations under this Agreement shall not be
excused or suspended by reason of the Customer’s inability (pursuant to the foregoing) to use such a vessel as an LNG Vessel.
(d)
(e)
(f)
(g)
(h)
Condition of the LNG Vessel. Each LNG Vessel, including its manifold arrangement, shall be in compliance with the Marine Operations
Manual and International LNG Vessel Standards. The location of the loading manifold shall allow a safe margin for movement of the arms
within the operating envelope. Each LNG Vessel shall be (i) fitted in every way for the loading, unloading, handling and carrying of LNG in
bulk and (ii) tight, staunch, strong and otherwise seaworthy with cargo handling and storage systems (including instrumentation) necessary
for the loading, unloading, handling, carrying and measuring of LNG in good order and condition.
Adequate Facilities. Each LNG Vessel shall be equipped with adequate facilities for mooring, unmooring and handling cargo consistent with
the recommendations of OCIMF and SIGTTO.
Compression of Boil-Off Gas. Each LNG Vessel shall compress boil-off gas to the extent required to maintain the Gas pressure in its tanks
as well as any vapour return lines within allowable operating limits during loading.
SIRE. Unless otherwise agreed by Golar, each LNG Vessel shall have a valid and current (not older than twelve (12) months) Vessel
Inspection Report (VIR) and an accurate updated Harmonised Vessel Particulars Questionnaire (HVPQ) on file and available for download
from the OCIMF Ship Inspection Report Programme (SIRE) database. Such VIR shall demonstrate that there are no material deficiencies in
the safety or operability of such LNG Vessel.
Classification Society. Each LNG Vessel shall at all times be maintained in class with a classification society being a member of the
International Association of Classification Societies.
47
(i)
(j)
(k)
(l)
Construction. Each LNG Vessel shall have been constructed to all applicable International LNG Vessel Standards (including the
International Code For the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk).
Operation and Maintenance. Each LNG Vessel shall comply with, and shall be fully equipped, supplied and maintained to comply with, all
applicable International LNG Vessel Standards. Unless approved by Golar in writing, an LNG Vessel shall be prohibited from engaging in
any maintenance, repair or in-water surveys while berthed at the FLNG Facility.
ISPS Code. Each LNG Vessel shall hold a valid International Ship Security Certificate. The Customer shall ensure that each Transporter
complies with the guidelines contained in its Ship Security Plan as defined in the ISPS Code to ensure that the appropriate security level is
maintained at all times on board the LNG Vessel.
Crew. The officers and crew of each LNG Vessel shall have the ability, experience, licences and training commensurate with the
performance of their duties in accordance with internationally accepted standards as adopted on first-class LNG vessels and as required by
Governmental Authorities and any labour organisation having jurisdiction over the LNG Vessel or her crew. Without in any way limiting the
foregoing:
(i)
(ii)
(iii)
(iv)
(v)
all shipboard personnel shall hold valid certificates of competence in accordance with the requirements of the law of the flag state
of the LNG Vessel and any applicable requirements of Cameroon laws;
the senior officers, including the Master, chief officer, chief engineer, chief mate and cargo engineer (and such other officers of
the LNG Vessel having responsibilities associated with the preparation of the LNG Vessel for loading), shall be trained and
certified to a standard customary for an operator of a first-class LNG vessel of the type and tonnage of the LNG Vessel and in
compliance with the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1995 and
SIGTTO publication “ Crew
Safety
Standards
and
Training
for
Large
LNG
Carriers
”;
the Master of each LNG Vessel shall have documented previous experience with side-by-side LNG operations (in the capacity of
being the Master of an LNG vessel) and have undergone simulator training relevant for this FLNG Facility.
the Master, chief officer, chief engineer, all cargo engineers, and all deck officers shall be fluent in written and oral English and
shall maintain all records and provide all reports with respect to the LNG Vessel in English, and there shall otherwise be on
board sufficient personnel with a good working knowledge of the English language to enable cargo handling and loading to be
carried out efficiently and safely and to enable communications between the LNG Vessel and those Persons engaged in loading
the LNG Vessel to be carried out quickly and efficiently; and
none of the LNG Vessel’s Master, officers or crew shall, while serving on the LNG Vessel, abuse the use of drugs or alcohol, and
Transporter shall maintain a written policy to such effect, such policy to meet or exceed the standards of the Oil Companies
International Marine Forum’s Guidelines for the Control of Drugs and Alcohol Aboard Ship, 1995, as amended from time to
time. If any Master, officer or crew member abuses the use of drugs or alcohol, such individual shall be dismissed from service
on the LNG Vessel.
(m)
Communications. Each LNG Vessel shall have communication equipment complying with applicable regulations of Governmental
Authorities and permitting such LNG Vessel to be in constant communication with the FLNG Facility and with other vessels in the area
(including
48
fireboats, tugs, escort vessels and other vessels employed in port operations), including an approved vessel automatic identification system.
(n)
Pumping Rate; Back Pressure. Each LNG Vessel shall be designed, equipped and manned so as to safely and reliably accept loading of a
full cargo at a steady pumping rate of not less than [*****] Cubic Metres per hour at a normal operating pressure as defined in the Marine
Operations Manual, with three loading arms, subject to the FLNG Facility being capable of receiving all return vapour from an LNG Vessel
that may be generated when loading the LNG Vessel at the minimum bulk transfer rate. Time for connecting, cooling, stripping and
disconnecting, and cooling of liquid arms shall not be included in the computation of the pumping rate.
(o)
Capacity : Each LNG Vessel shall have a minimum cargo capacity of [*****] Cubic Metres.
15.3
LNG Vessel Inspections; Right to Reject LNG Vessel
(a)
Inspections. During the Term, on prior reasonable notice to the Customer, Golar and/or Golar Cam may, at its sole risk, send its
representatives (including an independent internationally recognised maritime consultant) to inspect during normal working hours any LNG
Vessel which the Customer has indicated it intends to or may use to Lift cargoes at the FLNG Facility as Golar may consider necessary to
ascertain whether the LNG Vessel complies with the provisions of this Agreement. Golar or Golar Cam shall bear the costs and expenses in
connection with any inspection conducted hereunder. Any such inspection may include, as far as is practicable having regard to the LNG
Vessel’s operational schedule, examination of the LNG Vessel’s hull, cargo and ballast tanks, machinery, boilers, auxiliaries and equipment;
examination of the LNG Vessel’s deck and engine fair copy/official log books; review of records of surveys by the LNG Vessel’s
classification society and relevant Governmental Authorities; and review of the LNG Vessel’s operating procedures and performance of
surveys, both in port and at sea. Any inspection carried out pursuant to this Clause 15.3(a): (i) shall not interfere with, or hinder, any LNG
Vessel’s safe and efficient construction or operation; and (ii) shall not entitle Golar or Golar Cam or any of its representatives to make any
request or recommendation directly to Transporter except through the Customer. No inspection (or lack thereof) of an LNG Vessel hereunder
shall (x) modify or amend the Customer’s obligations, representations, warranties and covenants under this Agreement or under any
agreement or instrument contemplated by this Agreement or (y) constitute an acceptance or waiver by Golar of the Customer’s obligations
under this Agreement.
(b)
Right to Reject LNG Vessel. Golar shall have the right to reject any LNG Vessel if such LNG Vessel does not comply materially with the
provisions of Clause 15.2, provided that:
(i)
(ii)
neither the exercise nor the non-exercise of such right shall reduce the responsibility of the Customer to Golar in respect of such
vessel and her operation, nor increase Golar’s responsibilities to the Customer or third parties for the same; and
the Customer’s obligations under this Agreement shall not be excused or suspended by reason of the Customer’s inability
(pursuant to the foregoing provisions of this Clause 15.3(b)) to use a vessel as an LNG Vessel.
If Golar rejects an LNG Vessel the Parties shall meet to discuss any such rejection and co-operate to develop an agreed action plan for
Customer to rectify the concerns. Once a rejected LNG Vessel’s failure to comply has been cured, such LNG Vessel shall be eligible to be
berthed at the FLNG Facility.
15.4
Advance Notices Regarding LNG Vessel and Cargoes
(a)
LNG Vessel Nomination. As soon as practicable prior to arriving at the FLNG Facility, the Customer shall notify Golar, or cause its LNG
buyer to notify Golar, of the name of the LNG
49
Vessel that the Customer intends to use for a Lifting and to the extent not previously provided, in reasonable detail, the age, dimensions,
specifications, operator, safety record and condition of such LNG Vessel. Customer shall use its reasonable endeavours to ensure that such
notice is given within [*****] hours of the departure of the relevant LNG Vessel from its last port of call. In the event the Customer has a
reason to foresee a change in the foregoing information, the Customer shall promptly provide notice thereof to Golar. However, if the vessel
that the Customer proposes to use as an LNG Vessel has not, within the two Contract Years immediately preceding the Contract Year of the
Scheduled Arrival Window, transported LNG to or from the FLNG Facility, the Customer shall endeavour to notify Golar thereof as soon as
possible but in no event later than [*****] days prior to the first day of the applicable Scheduled Arrival Window.
(b)
LNG Vessel Movements. With respect to each cargo of LNG to be Lifted hereunder, the Customer shall give, or cause the Master of the
LNG Vessel to give, Golar notice upon the departure of the LNG Vessel from the unloading port, dry-dock, repair port or other point of
departure en-route to the FLNG Facility and the following notices:
(i)
(ii)
(iii)
(iv)
(v)
a first notice (“ First Notice ”), which shall be sent [*****] hours prior to the estimated time of arrival of the LNG Vessel at the
Arrival Location (“ ETA ”). If, thereafter, such ETA changes by more than six (6) hours, the Customer shall give promptly, or
cause the Master of the LNG Vessel to give promptly, to Golar, notice of the corrected ETA;
a second notice (“ Second Notice ”), which shall be sent [*****] hours prior to the ETA set out in the First Notice (as corrected),
confirming or amending such ETA. If, thereafter, such ETA changes by more than six (6) hours, the Customer shall give
promptly, or cause the Master of the LNG Vessel to give promptly, to Golar, notice of the corrected ETA;
a third notice (“ Third Notice ”), which shall be sent [*****] hours prior to the ETA set out in the Second Notice (as corrected),
confirming or amending such ETA. If, thereafter, such ETA changes by more than one (1) hour, the Customer shall give
promptly, or cause the Master of the LNG Vessel to give promptly, to Golar, notice of the corrected ETA;
a final notice (“ Final Notice ”), which shall be sent by email [*****] hours prior to the LNG Vessel’s arrival at the Arrival
Location; and
an NOR, which shall be given at the time prescribed in Clause 15.5 below.
The notice under this Clause 15.4(a) must also contain the following information and changes thereof:
(1)
(2)
(3)
(4)
(5)
a statement of tank condition, including the estimated Arrival Temperature, tank pressure and heel quantity;
any deficiencies in the LNG Vessel that may affect its operation at the FLNG Facility including any need for purging and/or cool
down operations;
the arrival and expected departure draft of the LNG Vessel;
other relevant information reasonably required by Golar and specified in the Marine Operations Manual; and
the earliest possible ETA of the LNG Vessel.
15.5
Notice of Readiness
50
(a)
(b)
Issuance. The Master of an LNG Vessel or its agent shall give to Golar its notice of readiness to load (berth or no berth) (“ Notice of
Readiness ” or “ NOR ”) upon arrival of such LNG Vessel at Arrival Location and after all necessary clearances required for the LNG Vessel
to proceed to berth have been obtained.
Effectiveness. An NOR given under Clause 15.5(a) shall become effective as follows:
(i)
(ii)
for an NOR given at any time before the start of the relevant Scheduled Arrival Window, the NOR shall be deemed effective at
the earlier of [*****]; or [*****];
for an NOR given at any time during the Scheduled Arrival Window, the NOR shall become effective [*****]; or
(iii) without limitation to Clause 15.6(c), for an NOR given at any time after the expiration of the Scheduled Arrival Window, the
NOR shall become effective [*****].
15.6
Berthing Assignment
(a)
(b)
(c)
General Rule. Golar shall determine the berthing sequence of all LNG Vessels and other vessels at the FLNG Facility in order to ensure
compliance with the Lifting Programme, with priority given to on-time LNG Vessels and other vessels and among (i) on-time LNG Vessels
and other vessels in order of their respective Scheduled Arrival Windows, and (ii) LNG Vessels and other vessels that arrive after their
respective Scheduled Arrival Windows on a first-come-first-served basis. Subject to Clause 15.9, if an LNG Vessel arrives not ready to load
for any reason (including arriving with its tanks above the Arrival Temperature), Golar may refuse to allow it to berth.
Night-time Berthing Operations. In no event shall Golar be obligated to allow night-time berthing operations at the FLNG Facility if Golar
determines that such operations during night-time hours could pose safety or operational risks to the FLNG Facility, an LNG Vessel or
another Person.
Late Arrival. If an LNG Vessel arrives or is expected to arrive after its Scheduled Arrival Window, Golar shall act as a Reasonable and
Prudent Operator to accommodate the late arrival of such LNG Vessel, including consideration of any reasonable request from the Customer
to reschedule the Scheduled Arrival Window in accordance with Clause 12.4. If Golar (acting as a Reasonable and Prudent Operator) is
unable to accommodate the arrival of such late LNG Vessel, Golar shall have the right to reject such LNG Vessel in accordance with Clause
13.5(d), and the late arrival shall constitute a Failure to Lift. If Golar does not exercise its right of rejection, Golar will berth the LNG Vessel
at the first opportunity that Golar reasonably determines such LNG Vessel will not interfere with loading or unloading by any other scheduled
vessel at the FLNG Facility, in accordance with normal shipping industry practice and priority arrangements as included in the Marine
Operations Manual.
15.7
Laytime
(a)
Allowed Laytime. The allowed laytime for each LNG Vessel (“ Allowed Laytime ”) shall be as stated in Annex 9, subject to extensions for:
(i)
(ii)
reasons primarily attributable to the Customer, a Pilot, a Governmental Authority, Customer’s LNG buyer, the LNG Vessel or its
Master, crew, owner or operator;
an LNG Vessel that is directed to vacate the berth pursuant to Clause 15.11(a);
(iii) Adverse Weather Conditions;
51
(iv) Force Majeure;
(v)
(vi)
night time berthing or transit restrictions in force at the FLNG Facility; and
the time used to undertake and complete any purging and cool down operations or cool down only operations for such LNG
Vessel pursuant to Clause 15.9 or for reasons primarily attributable to the Customer.
(b)
Actual Laytime. The actual laytime for each LNG Vessel (“ Actual Laytime ”) shall commence:
(i)
(ii)
(iii)
if the LNG Vessel arrives at the Arrival Location and notifies NOR during the Scheduled Arrival Window, on the earlier of (1)
[*****] hours after the NOR is issued; or (2) the time at which [*****];
if the LNG Vessel arrives at the Arrival Location and tenders the NOR before the Scheduled Arrival Window, at such time as the
[*****];
if the LNG Vessel arrives at the Arrival Location and tenders the NOR after the Scheduled Arrival Window, at such time as the
[*****],
and shall end on [*****].
(c)
Demurrage at the FLNG Facility.
(i)
(ii)
In the event Actual Laytime exceeds Allowed Laytime (including any extension in accordance with Clause 15.7(a)) (“
Demurrage Event ”), Golar shall pay to the Customer, the lower of (A) demurrage per day as stated in Annex 9 ( pro
rated
for
any partial day) and (B) [*****], in each case solely in respect of the Demurrage Event, provided that, to the extent that
demurrage is not payable to [*****] arising out of a Demurrage Event, no demurrage shall be payable hereunder.
Subject to the proviso expressed in Clause 15.7(c)(i) above, if a Demurrage Event occurs, and provided that the Customer has
provided Golar with documentary evidence that demurrage has been paid to [*****], the Customer shall invoice Golar for such
demurrage pursuant to Clause 6.2 and, subject to Clause 15.7(d), such demurrage shall be the Customer’s Sole and Exclusive
Remedy with respect to a Demurrage Event unless the provisions of Clause 13.3(e) apply.
(d)
Failure to Meet Arrival Temperature. If an LNG Vessel arrives at the Arrival Location meeting the Arrival Temperature, but is delayed in
berthing at the FLNG Facility or in commencement of loading due to an event occurring at the FLNG Facility and for a reason that would not
result in an extension of Allowed Laytime under Clause 15.7(a), and if, as a result thereof, the LNG Vessel no longer meets the Arrival
Temperature, then Golar shall act as a Reasonable and Prudent Operator to berth and provide cool down of such LNG Vessel [*****] as soon
as is practicable.
15.8
Loading at the FLNG Facility
(a)
(b)
Efficiency. Golar shall co-operate with Transporters (or their agents) and with the Master of each LNG Vessel to facilitate the continuous and
efficient loading of LNG hereunder.
Vapour Return Line. During loading or cool down operation of each cargo of LNG, Golar shall accept return Gas from the LNG Vessel to
the FLNG Facility in such quantities as are necessary for the safe loading of the LNG at such rates, pressures and temperatures as may be
required by the design of the LNG Vessel.
15.9
Purging and Cool Down Operations and Cool Down Only Operations
52
(a)
(b)
Purging and Cool Down; Cool Down Only. The Customer may submit to Golar requests for purging and cool down operations or cool
down only operations for any LNG Vessel that will be arriving at the FLNG Facility, any such requests to be submitted promptly after
receiving notification from an LNG buyer that an LNG Vessel requires such operations. Golar and/or Golar Cam [*****].
LNG Quantities for Purging and Cool Down or Cool Down Only. [*****]
[*****]
15.10
Gas Onboard LNG Vessel
Golar shall have the right to dispose of Gas returned to the FLNG Facility during loading and make any corresponding increase or reduction in the
Customer’s Inventory Account.
Notwithstanding the above, Golar will act as a Reasonable and Prudent Operator in re-liquefying such Gas or using it as fuel. If such Gas does not
conform to the quality specifications in the Marine Operations Manual (“ Off-Spec Return Gas ”), the Customer shall bear the financial responsibility
for all reasonable and actual incremental costs and other Liabilities incurred by Golar in connection with accepting, treating, handling, disposing or
using such Off-Spec Return Gas by such means as are appropriate, with Golar using reasonable efforts to minimise such costs and Liabilities.
15.11
LNG Vessel Not Ready for Loading; Excess Berth Time
(a)
Vessel Not Ready for Loading. If any LNG Vessel, previously believed to be ready for loading, is determined to be not ready after being
berthed, and this would disrupt the operation of the FLNG Facility, Golar may direct the LNG Vessel’s Master to vacate the berth and
proceed to anchorage, whether or not other LNG vessels are awaiting the berth, and the LNG Vessel shall promptly vacate the berth unless
the Master determines that it would be unsafe to do so. When an unready LNG Vessel at anchorage becomes ready for loading, its Master
shall so notify Golar. Such LNG Vessel may only re-berth with Golar’s consent, which consent shall not be unreasonably withheld subject to
ability to load and berth availability. Upon the reberthing of any LNG Vessel previously required to vacate the berth pursuant to this Clause
15.11(a), the Customer shall be responsible for any reasonable actual incremental operating costs incurred by Golar as a result of such LNG
Vessel not being ready for loading, with Golar using reasonable efforts to minimise such costs, and Golar shall invoice the Customer for such
costs pursuant to Clause 6.2.
(b)
Berth Limitations.
(i)
An LNG Vessel shall complete loading and vacate the berth as soon as possible but not later than [*****] hours after completion
of loading a parcel of Cargo (if not Completion of Loading) or Completion of Loading (in each case, the “ Allotted Berth Time
”), subject to extension for: (1) reasons attributable to any Golar Indemnified Person; (2) reasons attributable to a Pilot or to a
Governmental Authority; (3) Adverse Weather Conditions; (4) Force Majeure; (5) night-time transit restrictions; (6) not used;
and (7) the time used to undertake and complete any purging and/or cool-down operations pursuant to Clause 15.7(d) or Clause
15.9.
(ii)
For purposes of determining compliance with the Allotted Berth Time, the actual berthing time for each LNG Vessel shall
commence when [*****] and shall end [*****].
(iii) Subject to any extensions granted under Clause 15.11(b)(i), if an LNG Vessel fails to depart at the end of its Allotted Berth Time
and such delay would disrupt the
53
operation of the FLNG Facility, Golar may (subject to the safety of the LNG Vessel) direct the LNG Vessel to vacate the berth
and proceed to sea at utmost dispatch.
(iv)
If an LNG Vessel fails to vacate the berth after expiration of its Allotted Berth Time after receipt of Golar’s notice to do so under
this Clause 15.11, the Customer shall reimburse Golar, pursuant to Clause 6.2, for any and all reasonable costs incurred by Golar
as a result thereof, and Golar shall not be liable for any excess Retainage caused by the failure of the LNG Vessel to vacate the
berth.
16
FORCE MAJEURE
16.1
Definition
(a)
(b)
The term “ Force Majeure ” shall mean any event or circumstance or combination of events or circumstances that materially and adversely
affects the performance by a Party (the “ Affected Party ”) of its obligations in accordance with the terms of this Agreement (including
preventing, hindering or delaying such performance), but only if and to the extent that such events and circumstances are not within the
Affected Party’s reasonable control and the effects of which the Affected Party could not have prevented by acting as a Reasonable and
Prudent Operator.
Force Majeure circumstances and events shall include, but not be limited to, the following events to the extent that they or their consequences
satisfy the requirements of Clause 16.1(a):
(i)
flood, lightning, named hurricane/tornado/cyclone, earthquake, tsunami or other natural physical disasters;
(ii) wars, blockades (of countries, ports or airports), public international trade sanctions, embargoes, insurrections, riots, civil
disturbances, terrorism, sabotage, or seizure of power by non-legal means;
(iii)
(iv)
(v)
(vi)
(vii)
strike, lockout or industrial disturbance (unless only related to the crew of the FLNG Vessel or affecting only or caused solely by
Golar or Golar Cam or their contractors (or their subcontractors of any tier and persons employed by the Customer for the
purposes of the Project) at a port or other facility at which the FLNG Vessel is moored or to which or from which the FLNG
Vessel transits;
chemical or radioactive contamination or ionising radiation;
seizure of the FLNG Vessel or cargo under legal process where security is promptly furnished to release the FLNG Vessel or
cargo, but the FLNG Vessel or cargo is not released;
fire, accident, structural collapse or explosion;
shipwreck, navigational and maritime perils;
(viii) the nationalisation, confiscation, expropriation, compulsory acquisition, arrest or restraint of any assets by any Governmental
Authority of Cameroon;
(ix)
any delay, modification, revocation, withdrawal, cancellation, termination, denial, or refusal to issue, renew or re-issue or amend,
any Approval, unless such action by any Governmental Authority was due to the default of the Affected Party and such default
could be expected by a Reasonable and Prudent Operator to result in the above action or inaction by a Governmental Authority;
(x)
epidemic, plague or quarantine;
54
(xi)
changes to, or changes to the interpretation or implementation of, any general or local statute, ordinance, decree, or other law, or
any regulation or bye-law of any local or other duly constituted authority or the introduction of any such statute, ordinance,
decree, law, regulation or bye-law; and
(xii) evacuation of the FLNG Vessel.
(c)
Subject to Clauses 16.1(d) and 16.1(e), any event or circumstance which affects a Third Party, and which prevents, impedes or delays the
performance by a Party of its obligations under this Agreement, shall constitute Force Majeure affecting such Party only to the extent that:
(i)
(ii)
such event or circumstance is of a kind or character that, had it primarily affected such Party, would have come within the
definition of Force Majeure under Clauses 16.1(a) and 16.1(b); and
such Party is rendered unable by such event or circumstance from carrying out all or a material part of its obligations under this
Agreement; and
such event or circumstance affects the Third Parties set out in Clauses 16.1(d) and 16.1(e).
(d)
Any Force Majeure affecting facilities or a Third Party in accordance with Clause 16.1(c) shall constitute Force Majeure affecting the
Customer only if such event or circumstance affects the following facilities and Third Parties:
(i)
(ii)
the FLNG Site; or
any contractors or subcontractors involved in the engineering, procurement, and/or construction, or for the operation and/or
maintenance, of Customer’s Facilities (including Pilots, tugs, service vessels, fire vessels, security vessels and escort vessels); or
(iii) Customer’s Facilities.
(e)
Any event or circumstance affecting facilities or a Third Party in accordance with Clause 16.1(c) shall constitute Force Majeure affecting
Golar or Golar Cam only if such event or circumstance affects the following facilities and Third Parties:
(i)
(ii)
the FLNG Facility; or
any contractors or subcontractors involved in the engineering, procurement, and/or conversion, or for the operation and/or
maintenance, of the FLNG Facility.
16.2
Events not constituting Force Majeure
(a)
No Force Majeure relief shall be available in respect of:
(i)
(ii)
(iii)
(iv)
a Party’s inability to finance its obligations or unavailability of funds;
ability of either Party to obtain preferential economic terms for the Services;
changes in either Party’s market factors or other commercial, financial or economic conditions;
breakdown of the FLNG Facility or the Customer’s Facilities caused by a failure to properly maintain, operate or design the
FLNG Facility or the Customer’s Facilities;
55
(v)
[*****].
16.3
Notice and Reporting Requirements
(a)
A Party intending to seek relief under this Clause 16 shall as soon as reasonably practicable after it becomes aware of the relevant Force
Majeure event:
(i)
(ii)
(iii)
(iv)
notify the other Party of the event and furnish reasonable full particulars thereof, if available;
give a bona fide good faith estimate of when it will be able to resume full performance of its obligations;
give the particulars of the programme to be implemented to resume full performance hereunder, and
provide interim reports concerning the event for continued invocation of this Clause 16 and an estimate of the anticipated
duration of the Force Majeure relief which it seeks.
(b)
The Affected Party shall, throughout the period during which it is prevented from performing its obligations under this Agreement, allow the
other Party (at such other Party’s risk and cost) to have access to such information, facilities, sites and personnel in the possession, control or
employment of the Affected Party as the other Party may reasonably request in connection with such Force Majeure event.
16.4
Consequences of Force Majeure
(a)
(b)
The obligations of the Parties under this Agreement to the extent performance thereof is prevented or impeded by the event of Force Majeure,
shall be suspended and the Parties shall not be liable for the non-performance thereof for the duration of the period of Force Majeure.
Notwithstanding the foregoing, during the [*****] Tolling Fee shall continue to be payable, without deduction, unless the FLNG Facility is
otherwise unavailable due to an event of Services Unavailability.
Where a Force Majeure has been continuing for a [*****], either Party shall have the option to terminate this Agreement on written notice
with immediate effect. In case of Force Majeure, the FLNG Vessel shall have liberty to comply with any directions or recommendations as to
departure, arrival, routes, ports of call, stoppages, destinations, zones, waters, delivery or in any other way whatsoever given by a
Governmental Authority of the Flag State or any other Governmental Authority having, under the terms of the war risks insurance on the
FLNG Vessel, the right to give any such directions or recommendations.
16.5
Obligations Following Force Majeure
(a)
To the extent either Party is entitled to relief from its obligations under this Agreement on grounds that an event or circumstance constitutes
Force Majeure, the Affected Party shall, as soon as reasonably possible, take the measures which a Reasonable and Prudent Operator would
take to bring the Force Majeure event to an end and to overcome and/or minimise the effects and consequences thereof which prevent,
impede or delay such Affected Party’s ability to resume performance hereunder. An Affected Party shall not be entitled to relief hereunder or,
having become entitled, shall cease to be so entitled, and an event or circumstance originally constituting Force Majeure shall cease to be
treated as Force Majeure, to the extent that the Affected Party claiming Force Majeure relief fails to comply with this Clause 16.5, unless such
failure is itself caused by an event of Force Majeure.
56
(b)
As soon as an Affected Party ceases to be so affected by Force Majeure and is no longer prevented from complying with its obligations under
this Agreement, such Affected Party shall:
notify the other Party accordingly; and
use all reasonable endeavours to recommence performance of such obligations as soon as reasonably practicable.
(i)
(ii)
17
17.1
CREDIT SUPPORT
Golar Credit Support
(a)
Golar shall provide a bank guarantee issued by an internationally recognised bank and acceptable to the Customer, guaranteeing the
obligations of Golar to pay Daily LDs and the Termination Balloon Payment under Clause 9.4(e) above, [*****], and termination fees under
Clause 18.2(a), capped at a maximum of USD300,000,000 (United States Dollars Three Hundred Million), and which reduces in accordance
with the termination fees set out at Clauses 18.2(a)(ii) and 18.2(a)(iii) below (the “ Golar Credit Support ”).
17.2
Customer Credit Support
(a)
(b)
Perenco shall provide bank guarantees issued by three (3) or more internationally recognised banks acceptable to Golar (each a “ Bank
Guarantee ” and together the “ Perenco Credit Support ”), guaranteeing (on a pro-rated basis) the obligations of Perenco to pay termination
fees under Clause 18.2(b) below, capped at a maximum aggregate amount of [*****] (the “ Maximum Aggregate Amount ”). Both the
Maximum Aggregate Amount and the maximum amount of each Bank Guarantee shall reduce (on a pro-rated basis) in accordance with the
termination fees at Clause 18.2(b) below. Golar undertakes that it shall not make a demand for payment under some but not all of the Bank
Guarantees, and that the amount of any demand pursuant to an individual Bank Guarantee will be calculated by Golar on a pro rata basis,
meaning such amount shall bear the same proportion to the aggregate total amount demanded under the Perenco Credit Support in respect of
the termination event or repudiatory breach in question, as the maximum amount of the relevant Bank Guarantee bears to the Maximum
Aggregate Amount (each as amended from time to time).
SNH shall provide a guarantee guaranteeing SNH’s obligations to pay termination fees under Clause 18.2(b) below, [*****], and which
reduces in accordance with the termination fees at Clause 18.2(b) below, or alternative security reasonably acceptable to Golar (the “ SNH
Credit Support ”).
18
18.1
TERMINATION
Early Termination Events
(a)
(b)
Not Used.
Termination by Golar. Golar may terminate this Agreement by notice to Customer for any of the following events and as further provided
below:
(i)
(1) any of the Customer’s Credit Supports ceases to be in full force and effect or (2) if a bank which issued a bank guarantee
forming part of the Perenco Credit Support gives notice of election not to extend the bank guarantee in question, unless
replacement security acceptable to Golar, acting reasonably, is provided (x) within [*****] days of the relevant Perenco Credit
Support ceasing to be in full force and effect or (y) no later than [*****] days prior to the expiry of notice period set out in the
relevant bank’s notice of election not to extend the relevant bank guarantee, as the case may be;
57
(ii)
(iii)
(iv)
(v)
(vi)
for Perenco or SNH, or Perenco’s or SNH’s guarantor’s, Insolvency;
if Perenco or SNH is in breach of Clause 22 or Clause 23;
if the State withdraws the Customer’s LNG Export Licence pursuant to the Gas Convention, or otherwise terminates the Gas
Convention, for breach by the Customer, and the cause of the withdrawal of the LNG Export Licence and/or breach by the
Customer of the Gas Convention is not primarily attributable to any member of Golar’s Group or Force Majeure;
as provided in Clause 6.5(c);
the Commissioning Period is suspended for more than [*****] months due to periods of delay primarily attributable to the
Customer or any member the Customer’s Group; or
(vii) Force Majeure has been declared by either Party and has continued uninterrupted for [*****].
(c)
Termination by Customer. The Customer may terminate this Agreement by notice to Golar for any of the following events and as further
provided below:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
if (1) the Golar Credit Support ceases to be in full force and effect, or (2) if the bank which issued the Golar Credit Support gives
notice of election not to extend the Golar Credit Support, unless replacement security acceptable to the Customer, acting
reasonably, is provided (x) within [*****] days of the Golar Credit Support ceasing to be in full force and effect or (y) no later
than [*****] days prior to the expiry of notice period set out in the relevant bank’s notice of election not to extend the Golar
Credit Support, as the case may be;
if no Certificate of Acceptance is executed and delivered (or deemed executed) in accordance with Clause 9.4(h) within [*****]
months beyond the Commercial Start Date, save that any period of delay due to Customer’s failure to fulfil its obligations under
this Agreement (including as a result of a Customer Delay Event) or as a result of Force Majeure shall not count for the purposes
of calculating the [*****] months beyond the Commercial Start Date;
if Force Majeure has been declared by either Party and has continued uninterrupted for [*****];
on [*****] days’ notice by the Customer to Golar after the Acceptance Date, if (a) a Services Unavailability has occurred and
continued uninterrupted for [*****], and such Services Unavailability has resulted in Golar making available less than [*****]
of the Expected Lifting Quantity on average throughout such period, or (b) [*****];
if Golar or Golar Cam is in breach of Clause 22 or Clause 23;
if the State withdraws Golar Cam’s Liquefaction License pursuant to the Gas Convention or otherwise terminates the Gas
Convention for breach by Golar or Golar Cam, and the cause of the withdrawal of the Liquefaction License and/or breach by
Golar or Golar Cam of the Gas Convention is not primarily attributable to any member of the Customer’s Group or Force
Majeure; or
(vii)
for Golar or Golar Cam or Golar’s guarantor’s Insolvency.
58
18.2
Consequences of Termination
(a)
Termination Fees for Golar’s and Golar Cam’s Liability for Default. In the event that the Customer terminates this Agreement pursuant
to Clause 18.1(c)(i), 18.1(c)(iv), 18.1(c)(v), 18.1(c)(vi), or 18.1(c)(vii) or at law in the event of Golar’s or Golar Cam’s repudiatory breach, a
termination fee shall be payable by Golar to the Customer as follows:
(i)
(ii)
Termination occurs before the FLNG Vessel has produced 1.2 million tonnes of LNG (including, for the avoidance of doubt,
LNG produced during the Commissioning Period) —[*****], less [*****] (including the Termination Balloon Payment);
Termination occurs at a time when the FLNG Vessel has produced between 1.2 million tonnes and 3.6 million tonnes of LNG
(including, for the avoidance of doubt, LNG produced during the Commissioning Period) —[*****]; or
(iii) Termination occurs at a time when the FLNG Vessel has produced over 3.6 million tonnes of LNG (including, for the avoidance
of doubt, LNG produced during the Commissioning Period) —[*****];
The above termination fee shall be the Customer’s Sole and Exclusive Remedy on termination for Golar’s or Golar Cam’s default pursuant to
Clause 18.1(c)(i), 18.1(c)(iv), 18.1(c)(v), 18.1(c)(vi), or 18.1(c)(vii) or at law in the event of Golar’s or Golar Cam’s repudiatory breach.
(b)
Termination fees for the Customer’s Liability for Default. In the event that Golar terminates this Agreement pursuant to Clause 18.1(b)
(but excluding Clause 18.1(b)(vii)) or at law in the event of the Customer’s repudiatory breach, a termination fee shall be payable by the
Customer to Golar as follows:
(i)
Until the second (2nd) anniversary of the Acceptance Date: USD [*****] payable by Perenco; and
(ii) Until the second (2nd) anniversary of the Acceptance Date: [*****] payable by SNH;
(iii) As from the second (2nd) anniversary of the Acceptance Date: the amount specified in Clause 18.2(b)(i) will [*****] (as at the
time of termination) payable for the remaining duration of this Agreement; and
(iv) As from the second (2nd) anniversary of the Acceptance Date: the amount specified in Clause 18.2(b)(ii) will [*****] (as at the
time of termination) payable for the remaining duration of this Agreement.
(c)
(d)
The above termination fee shall be the Golar and Golar Cam’s Sole and Exclusive Remedy on termination for the Customer’s default
pursuant to Clause 18.1(b) (but excluding Clause 18.1(b)(vii)) or at law in the event of the Customer’s repudiatory breach.
Previously Accrued Rights and Remedies. All rights or remedies which may have accrued to the benefit of either Party pursuant to this
Agreement (and any of this Agreement’s provisions necessary for the exercise of such accrued rights or remedies) prior to the termination or
expiration of this Agreement shall survive such termination or expiration.
Survival Clauses. The provisions of Clause 6 (Invoicing and Payment), Clause 7 (Taxes), this Clause 18 (Termination), Clause 19
(Liabilities and Indemnification), Clause 29 (Choice Law and Dispute Resolution), Clause 24 (Confidentiality), Clause 30 (Communications
and Notices) and Clause 31 (Miscellaneous) shall survive the termination or expiration of this Agreement.
59
19
LIABILITIES AND INDEMNIFICATION
19.1
General
(a)
Save as otherwise expressly agreed in this Agreement, Golar shall be solely responsible for, and shall protect, defend, indemnify and hold
harmless each Customer Indemnified Person for any Liabilities (save for any Consequential Loss of any Customer Indemnified Person)
arising as a result of:
(i)
(ii)
physical loss or damage to the FLNG Facility and any property owned, leased, chartered, hired or borrowed by any Golar
Indemnified Person; and
the sickness, death of, or personal injury suffered by, any Golar Indemnified Person as a result of an event in connection with the
performance or non-performance of this Agreement,
in each case, Regardless of Cause.
(b)
Save as otherwise expressly agreed in this Agreement, the Customer shall be solely responsible for, and shall protect, defend, indemnify and
hold harmless each Golar Indemnified Person for any Liabilities (save for any Consequential Loss of any Golar Indemnified Person) arising
as a result of:
(i)
(ii)
physical loss or damage to the Customer’s Facilities and any property owned, leased, chartered, hired or borrowed by any
Customer Indemnified Person (except the FLNG Facility in whole or in part) and, in each case, used in connection with the
performance of this Agreement; and
the sickness, death of, or personal injury suffered by, any Customer Indemnified Person as a result of an event in connection with
the performance or non-performance of this Agreement,
in each case, Regardless of Cause
19.2
Exclusions of Liability
(a)
(b)
(c)
Except as otherwise expressly provided in this Agreement, neither Party (nor any member of its Group) shall be liable to the other Party (or
any member of its Group), and shall be indemnified by the other Party in respect of any Consequential Loss suffered by the other Party or any
member of its Group, whether or not foreseeable at the time of entering into this Agreement and Regardless of Cause.
The Parties intend that their respective rights, obligations and liabilities as provided for in this Agreement shall be exhaustive of the rights,
obligations and liabilities between them arising out of or in connection with this Agreement. Accordingly, the remedies expressly stated in
this Agreement shall be the Sole and Exclusive Remedies of the Parties for liabilities to one another arising out of or in connection with this
Agreement, Regardless of Cause and notwithstanding any remedy otherwise available at law or in equity, other than termination at law for
repudiatory breach.
Subject to Clause 19.1(b), Golar shall be responsible for the raising, removal, destruction or marking of the FLNG Facility, or any equipment,
bunkers or cargo owned by or contracted to Golar or any Golar Indemnified Person and lost as a result of a casualty, insofar as the raising and
other operations are compulsory by law or necessary to avoid or remove a hazard or obstruction to navigation.
60
(d)
(e)
Subject to Clause 19.1(b), Golar shall be solely responsible for, and shall protect, defend, indemnify and hold harmless all Customer
Indemnified Persons from and against any and all Liabilities (excluding Consequential Losses of any Customer Indemnified Person), arising
as a result of any pollution or contamination originating from the FLNG Facility in respect of this Agreement, Regardless of Cause, provided
that the Golar’s aggregate liability for each accident or occurrence under this Clause 19.2(d) shall not exceed the Applicable Amount.
Subject to Clause 19.1(a), Customer shall be responsible for and shall protect, defend, indemnify and hold harmless all Golar Indemnified
Persons from and against any and all Liabilities (excluding Consequential Loss of any Golar Indemnified Person), Regardless of Cause,
arising as a result of any pollution or contamination created by or arising or emanating from or directly related to the operation of the
Customer’s Facilities (excluding the FLNG Facility) or any LNG Vessel(s), and any pollution or contamination originating from the FLNG
Facility over and above the Applicable Amount.
19.3
Mitigation of Loss
A Party establishing or alleging a breach of contract or a right to be indemnified in accordance with this Agreement shall take all necessary measures to
mitigate the loss that has or may occur, provided that it can do so without unreasonable inconvenience or unreasonable cost.
20
INSURANCE
20.1
Golar Insurance
(a)
Golar shall be responsible for obtaining and maintaining, directly or through its Affiliates:
(i)
insurance for the FLNG Facility to the extent required by applicable law and the Definitive Financing Agreements (but always to
a level and extent not less than would generally be taken out by a Reasonable and Prudent Operator on vessels of its type,
including hull and machinery protection and indemnity, pollution and such other coverage as is customary and usual in the LNG
shipping industry); and
(ii)
additional insurance, as is reasonably necessary and available on reasonable commercial terms, against such other risks and at
such levels as a Reasonable and Prudent Operator would obtain.
(b)
Evidence of Insurance. Golar shall furnish to Customer evidence of all insurance required under Clause 20.1(a) for the FLNG Facility prior
to the commencement of Lifting from the FLNG Facility and thereafter at least once each Contract Year. The receipt of such information
shall not impose any obligation on Customer.
20.2
Customer’s Insurance
(a)
LNG Vessel Insurance. The Customer shall ensure that each LNG Vessel procures and maintains insurance consistent with the standards
which a shipowner operating reputable LNG vessels, as a Reasonable and Prudent Operator, should observe in insuring LNG vessels of
similar type, size, age and trade as such LNG Vessel, and to include:
(i)
(ii)
Hull and Machinery Insurance placed and maintained with reputable marine underwriters;
Protection & Indemnity Insurance (“ P&I Insurance ”) placed and maintained as an unlimited entry, if such entry is available,
with and subject to and on the basis of the rules of any of the reputable P&I insurance associations who are members of the
International Group of P&I Clubs and experienced in providing P&I Insurance for LNG vessels (“ Approved Provider ”); and
61
(iii)
to the extent not provided under clause 20.2(a)(ii) above, coverage for pollution liability in the maximum coverage amount per
incident made available by an Approved Provider.
(b)
Evidence of Insurance. Customer shall furnish to Golar evidence of all insurance required under Clause 20.2(a) for each LNG Vessel prior
to the commencement of Lifting from the FLNG Facility and thereafter at least once each Contract Year. The receipt of such information
shall not impose any obligation on Golar.
20.3
Conditions of Use Agreement
(a)
Notwithstanding any other provision of this Agreement and any rights that a Transporter may have under applicable law in relation to
Liabilities for incidents involving an LNG Vessel occurring at the FLNG Facility, the Customer:
(i)
(ii)
shall, provided the Conditions of Use Agreement is acceptable to the International Group of P&I Clubs into which the LNG
Vessel is entered, cause the Transporter to duly sign the Conditions of Use Agreement in the form set out at Annex 7; or
in the event a Transporter fails to duly execute and deliver such Conditions of Use Agreement prior to the LNG Vessel’s arrival
at the FLNG Facility, Golar shall not be obliged to deliver any LNG to such LNG Vessel until the Transporter has duly executed
and delivered such Conditions of Use Agreement.
(b)
If Golar proposes to amend the Conditions of Use Agreement, Golar shall promptly give notice to the Customer and, as soon as reasonably
practicable thereafter, Golar and the Customer shall discuss the effect of any such proposed change may have on the Customer. Golar agrees
not to amend the Conditions of Use Agreement to the extent Customer demonstrates to Golar that an LNG Vessel’s Approved Provider will
not accept such amendment (such acceptance not to be unreasonably withheld or delayed). Subject to the foregoing, Customer shall cause
each Transporter to duly execute and deliver the amended Conditions of Use Agreement.
21
21.1
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Perenco and SNH
As of the date hereof and until the expiration of this Agreement, each of Perenco and SNH represents, undertakes and warrants that:
(a)
(b)
(c)
it is and shall remain duly organised and in good standing under the laws of the place of its incorporation and registration, duly qualified to do
business in those jurisdictions where the nature of its activities or property requires such qualification and to perform its obligations under this
Agreement;
it has taken all necessary action to authorise the execution, delivery and performance of its obligations hereunder; and
neither the execution, delivery nor performance of this Agreement, nor the consummation of any action contemplated herein, conflicts or will
conflict with, results or will result in a breach of, or constitutes or will constitute a default under, any provision of its constitutive instruments
or any law, judgment, order, decree, rule or regulation of any court, administrative agency or other instrumentality of any Governmental
Authority (except to the extent as may have been agreed in the Gas Agreement) or of any other agreement or instrument to which it is a party.
21.2
Representations and Warranties of Golar and Golar Cam
62
As of the date hereof and until the expiration of this Agreement, each of Golar and Golar Cam represents, undertakes and warrants that:
(a)
(b)
(c)
it is and shall remain duly organised and in good standing under the laws of the place of its incorporation and registration, duly qualified to do
business in those jurisdictions where the nature of its activities or property requires such qualification and to perform its obligations under this
Agreement;
it has taken all necessary action to authorise the execution, delivery and performance of its obligations hereunder; and
neither the execution, delivery nor performance of this Agreement, nor the consummation of any action contemplated herein, conflicts or will
conflict with, results or will result in a breach of, or constitutes or will constitute a default under, any provision of its constitutive instruments
or any applicable law, judgment, order, decree, rule or regulation of any court, administrative agency or other instrumentality of any
Governmental Authority (except to the extent as may have been agreed in the Gas Agreement) or of any other agreement or instrument to
which it is a party.
22
22.1
ASSIGNMENT
Restrictions on Assignment and Novation
Except as otherwise provided in this Clause 22, neither this Agreement nor any rights or obligations hereunder may be assigned or novated by any Party
without the prior written consent of the other Parties.
22.2
Permitted Assignments
(a)
(b)
(c)
Affiliates of Parties. Notwithstanding the provisions of Clause 22.1, a Party may novate its rights and obligations under this Agreement in
whole (but not in part) to one or more Affiliates (including, in the case of Golar and Golar Cam, one or more Affiliates of Golar LNG
Limited) with the requisite financial and technical capacity to perform the obligations of the assigning Party under this Agreement (including
the provision of Credit Support) upon notice to, but without requiring the consent of the other Parties.
Financing by Golar. Notwithstanding the provisions of Clause 22.1, Golar may assign, mortgage, or pledge all or any of its rights, interests,
and benefits under this Agreement to one or more Lenders to secure payment of any indebtedness or working capital incurred or to be
incurred in connection with the conversion, procurement, financing, refinancing and operation of any portion of the FLNG Facility or any
modifications thereto, provided that such an assignment to Lenders shall not relieve Golar of any Liabilities or obligations hereunder. In
relation to the foregoing, Customer shall provide and/or enter into any reasonably required consent letters, acknowledgements and direct
agreements, subject to their approval, not to be unreasonably withheld or delayed.
Financing by the Customer. Notwithstanding the provisions of Clause 22.1, Customer may assign, mortgage, or pledge all or any of its
rights, interests, and benefits under this Agreement to one or more Lenders to secure payment of any indebtedness or working capital incurred
or to be incurred in connection with the Project, provided that such an assignment to Lenders shall not relieve Customer of any Liabilities or
obligations hereunder. In relation to the foregoing, Golar and Golar Cam shall provide and/or enter into any reasonably required consent
letters, acknowledgements and direct agreements, subject to their approval, not to be unreasonably withheld or delayed.
23
CHANGE IN CONTROL
63
No Party shall be entitled to undergo a Change in Control without the written consent of the other Parties, such consent not to be unreasonably withheld
or delayed, save that it is hereby acknowledged and agreed, for the avoidance of doubt, that Golar and/or Golar Cam may become a direct or indirect
subsidiary of Golar LNG Partners LP after the Effective Date. For the avoidance of doubt, it shall be deemed to be a reasonable withholding of consent
if in the opinion of a Party, acting reasonably,
(a)
(b)
following a proposed Change in Control, the Credit Support of the Party proposing the Change in Control would be prejudiced in any way,
without such Party providing alternative and adequate replacement security at least equal to the relevant Credit Support in its place; or
following a proposed Change in Control, the Gas Convention may be terminated, cancelled, cease to be in full force and effect or would
otherwise be prejudiced in any way.
24
24.1
CONFIDENTIALITY
Confidentiality Obligation
(a)
(b)
(c)
(d)
Confidential Information that comes into the possession of a Party (the “ Recipient ”) by means of, or on behalf of, the other Party (the “
Discloser ”) shall not be used by the Recipient except in connection with the performance of activities to be conducted pursuant to or for the
purposes of this Agreement.
The Recipient agrees to keep Confidential Information strictly confidential and shall not sell, trade, publish or otherwise disclose to any
Persons (other than the Parties) in any manner whatsoever, including by, but not limited to, means of photocopy or reproduction, without the
prior consent written of the Discloser.
The provisions of this Clause 24 shall not apply to Confidential Information which:
(i)
(ii)
(iii)
is already in possession of the public or becomes available to the public other than through the act or omission of the Recipient in
breach hereof;
is developed independently by the Recipient without reliance on the Confidential Information disclosed by the Disclosing Party
and such fact can be reasonably demonstrated by the Recipient; or
is required to be disclosed in order to comply with the requirements of any law, rule or regulation of any Governmental Authority
or regulatory body having jurisdiction over this Agreement or the parties hereto, or of any relevant stock exchange (provided that
the Recipient shall give written notice to the Disclosing Party prior to such disclosure unless restricted from doing so by any
applicable law or governmental decree, regulation or rule).
Notwithstanding the provisions of Clause 24.1(a) and Clause 24.1(b), and subject to Clause 24.1(e), either Party shall have the right to
disclose Confidential Information without obtaining the other Party’s prior consent to the following Persons if and to the extent such Persons
need to know such Confidential Information and provided that such Persons are informed of the confidential nature of the Confidential
Information:
(i)
(ii)
to accountants, auditors, advisers, legal counsel, other professional consultants, or underwriters, provided such disclosure is
solely to assist the purpose for which the aforesaid were so engaged;
to the Party’s employees, officers and directors provided they have a bona fide business need for such information;
64
(iii)
(iv)
(v)
(vi)
financial advisers, investment bankers, underwriters, brokers, lenders or other financial institutions advising on, providing or
considering the provision of financing to a Party or its Affiliates;
a Lender’s potential transferee of an interest in its financing arrangements to enable such potential transferee to conduct due
diligence;
to bona fide prospective purchasers of all or a part of a Party’s or its Affiliate’s business and bona fide prospective assignees of
all or part of a Party’s interest in this Agreement;
to the operator of a Transport Pipeline, suppliers of Feed Gas, Transporters and LNG purchasers, in each case only in respect of
such Confidential Information as necessary and to the extent required for the administration of the disclosing Party’s contracts
with such Persons;
(vii)
to its Affiliates and their employees, officers and directors , provided that such Affiliate and, as applicable, their employees,
officers and directors, has a bona fide business need for such information;
(viii) to any Governmental Authorities to the extent such disclosure assists Golar and/or Golar Cam and/or Customer in obtaining
Approvals;
(ix)
to an arbitration tribunal in connection with the resolution of a Dispute under Clause 29.2.
(e)
(f)
(g)
The Recipient shall be responsible for ensuring that any Person to whom Confidential Information is disclosed pursuant to Clause 24.1(d)
shall keep such information confidential in accordance with the terms of this Agreement and shall not disclose, divulge or use such
Confidential Information in violation of this Agreement, and the Recipient shall be liable to the Disclosing Party for any failure in this regard.
The Disclosing Party hereby represents and warrants that it has the right and authority to disclose the Confidential Information to the
Recipient. The Disclosing Party, however, makes no representations or warranties, express or implied, as to the quality, accuracy and
completeness of the Confidential Information disclosed hereunder unless expressly represented or warranted pursuant to any other agreement.
The Disclosing Party, its Affiliates, and their officers, directors and employees shall have no liability whatsoever with respect to the use of or
reliance upon the Confidential Information by the Recipient.
The obligations of this Clause 24 shall terminate three (3) years after the termination or expiration of this Agreement.
24.2
Public Announcements
(a)
(b)
General. No Party may issue or make any public announcement, press release or statement regarding this Agreement unless, prior to the
release of the public announcement, press release or statement, such Party furnishes the other Party with a copy of such announcement, press
release or statement, and obtains the written approval of the other Party (such consent not to be unreasonably withheld or delayed), provided
that, notwithstanding any failure to obtain such approval, no Party shall be prohibited from issuing or making any such public announcement,
press release or statement if it is necessary to do so in order to comply with the applicable laws or legal proceedings of any Governmental
Authority, legal proceedings or stock exchange having jurisdiction over such Party.
Promotional Materials. Notwithstanding any provision in Clause 24.2(a) to the contrary, either Party may, provided the other Parties have
given their prior written consent (such consent not
65
to be unreasonably withheld or delayed) use the following in external announcements and publications: (i) information concerning the signing
of this Agreement; (ii) the general nature of the Services; and (iii) the general nature of Customer’s involvement in the FLNG Facility project;
provided, however, that the Party making such external announcement or publication shall not, in doing so, use the trademark, service mark
and trade name of the another Party without such other Party’s prior written consent (such consent not to be unreasonably withheld or
delayed).
24.3
Intellectual Property
Neither Golar, Golar Cam nor the Customer shall have the right of use other than for the purposes of this Agreement, whether directly or indirectly, of
any Intellectual Property Rights or related information disclosed hereunder or otherwise in connection with this Agreement. It is expressly agreed that
no Intellectual Property Rights relating to the Liquefaction Project shall be or become the property of or shall be or become licensed to Customer by
operation of this Agreement; and Golar hereby indemnifies and undertakes to keep indemnified the Customer against any Liabilities the Customer might
incur as a result of the FLNG Facility or any part thereof or the operation or maintenance of the FLNG Facility infringing the Intellectual Property
Rights of any Third Party or any claim of such infringement unless such infringement results from the Customer’s breach of this Clause or this
Agreement.
25
25.1
BUSINESS PRINCIPLES
Compliance with Laws
Each Party, in the performance of this Agreement and the business resulting therefrom, shall comply, and ensure compliance by their Affiliates, with all
laws and regulations which apply to such Party.
25.2
Anti-Bribery and Anti-Corruption
(a)
(b)
(c)
No Party shall pay any fee, commission, rebate or anything of value to or for the benefit of any employee of any other Party, nor will any
Party do business with any Persons knowing the results might directly benefit an employee of another Party. All Parties shall use their best
efforts not to permit any of its employees, servants, agents or representatives to engage in any activities contrary or detrimental to the best
interests of another Party.
The Parties mutually agree that, in connection with this Agreement and the activities contemplated herein, none of them nor any of their
respective employees, servants, agents, representatives or Affiliates will take action, or omit to take any action, that would cause another
Party to be in violation of any applicable anti-bribery laws related to the other Party’s business practices, including but not limited to the U.S
Foreign Corrupt Practices Act, the UK Bribery Act 2010, the OECD Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions or any similar laws of any Governmental Authority.
Each Party mutually warrants and undertakes to the other Parties that, in connection with this Agreement and the activities contemplated
herein, it shall comply and cause its respective employees, servants, agents, representatives or Affiliates to comply with all applicable laws,
regulations, rules and requirements of any country having jurisdiction over it relating to anti-bribery and anti-money laundering, including but
not limited to the U.S Foreign Corrupt Practices Act, the UK Bribery Act 2010, the OECD Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions or any similar laws of any Governmental Authority, (together “ Anti-Bribery Laws ”)
and that neither it nor its respective employees, servants, agents, representatives or Affiliates shall take any action, or omit to take any action,
which would subject another Party to fines or penalties under Anti-Bribery Laws.
(d)
Notwithstanding the generality of the foregoing, each Party represents, warrants and undertakes to the other Parties that in connection with
this Agreement neither it nor any officer, director,
66
commissioner, shareholder, employee, servant, agent or representative thereof shall, directly or indirectly:
(i)
make or cause to be made any payment, loan, or gift of any monies or other things of value to:
(A)
(B)
(C)
(D)
(E)
(F)
any officials, officers or employees of a Government Authority or any department, agency or instrumentality of any
Government Authority;
an officer or employee of a public international organisation;
any person acting in an official capacity for or on behalf of any government or department, agency, or instrumentality of such
government or of any public international organisation;
any political party or official thereof, or any candidate for political office;
any director, officer, employee or agent/representative of any of its actual or prospective counterparty, supplier or customer; or
any other Person at the suggestion, request or direction or for the benefit of any of the above-described Persons; or
(ii)
engage in such other acts or transactions in violation of or inconsistent with Anti-Bribery Laws.
25.3
Compliance with Standards
Each Party shall at all times during the Term act as a Reasonable and Prudent Operator and comply with and shall ensure compliance by its Affiliates, its
officers, employees and agents and the officers, employees and agents of its Affiliates with all applicable operating and safety rules and procedures of
Golar as set out in the Commercial Operations Manual and the Marine Operations Manual, with Marine Operations Industry Practice and with all
applicable international standards and applicable laws.
26
HEALTH AND SAFETY
26.1
Compliance
Golar and Golar Cam shall strictly comply with applicable laws and regulations pertaining to health, safety and environmental protection applicable to
the FLNG Vessel’s operations and comply with International LNG Terminal Standards.
26.2
HSSE Policy
(a)
(b)
Golar and Golar Cam shall establish a health, safety and environmental policy (the “ HSSE Policy ”) in respect of the FLNG Vessel’s
operations, along with related standards on environmental management, pollution, health and safe working procedures.
Golar warrants that the HSSE Policy meets or exceeds the standards set out in the “ Guidelines
for
the
Control
of
Drugs
and
Alcohol
On
Board
Ship
” as published by the Oil Companies International Marine Forum (OCIMF) dated June 1995 (or any subsequent modification,
version, or variation of these guidelines).
26.3
HSSE Management System
67
(a)
(b)
Throughout the Agreement Period, Golar and Golar Cam will operate a Health, Safety and Environment (HSSE) Management System (“
HSSE Systems ”) which is certified to comply with the ISM Code.
The HSSE System will address all phases of the contract including:
(i)
(ii)
pre-mobilisation and mobilisation of crew;
operation of the FLNG Vessel;
(iii)
re-positioning of the FLNG Vessel; and
(iv)
decommissioning.
(c)
The HSSE System will include and develop at a minimum the following topics:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
leadership and commitment;
policy and strategic objectives;
organisation, responsibilities, resources, standards and documentation;
evaluation and risk management;
planning and procedures;
implementation and performance monitoring;
(vii) auditing and review;
(viii) compliance with local rules and regulations; and
(ix)
compliance with local rules and regulations.
(d)
(e)
The Customer may monitor compliance with the HSSE System and perform routine check up and audits to verify such compliance at any
point in time.
Golar will submit quarterly HSSE reports to the Customer.
26.4
Audit Rights
(a)
(b)
Golar and Golar Cam shall maintain HSSE records sufficient to demonstrate compliance with the requirements of their HSSE System and this
Agreement. The Customer reserves the right to confirm compliance with HSSE requirements specified in this Agreement by audit of Golar
and Golar Cam.
During the course of the Agreement and for a period ending two (2) years thereafter, the Customer shall have the right to audit at all
reasonable times and, upon reasonable request, take copies of all of Golar and Golar Cam’s records, books, accounts, correspondence,
memoranda, receipts, vouchers and other papers of every kind relating to any provision of this Agreement under which Golar or Golar Cam
has obligations, the performance of which is capable of being verified by audit. Notwithstanding this provision, Golar or Golar Cam shall not
be obliged to comply with a request from the Customer pursuant to this Clause if to do so would breach any applicable data protection laws
and/or regulations.
68
(c)
The Customer shall have the right following the Acceptance Date, at its own cost, to audit Golar’s and Golar Cam’s management system not
more than two (2) times per annum on the provision of fourteen (14) Days’ notice. The vetting standards which the Customer shall apply shall
be equivalent to those applied by a first class operator in the oil and gas industry, and the entity used by the Customer (the “ Vetting Entity ”)
to conduct such vetting on its behalf shall be an internationally recognised member of the oil and gas industry. The Customer shall require
such Vetting Entity to act solely in its capacity as a vetting entity without regard to the interests of any Affiliates of the Vetting Entity and
shall use all reasonable endeavours to ensure that execution of the audit does not adversely affect the operations and/or management of the
FLNG Vessel. Golar and Golar Cam shall provide all cooperation reasonably necessary to enable such audit to be carried out to the
satisfaction of the Vetting Entity. Should the audit reveal any defects in the management system which prevents safe operation of the FLNG
Vessel, the Customer (by itself or by the Vetting Entity) will serve a list of such defects (“ Audit Defects ”) on Golar and Golar and Golar
Cam shall within a reasonable time period from receipt of such notice make such alterations to the management system as are required.
(d)
Emergency Response
The organisational details and names of personnel together with their relevant telephone/facsimile/e-mail/telex numbers, including the names
and contact details of individuals who may be contacted on a twenty four (24) hour basis in the event of oil spills or emergencies are as
follows:
(i)
Golar Contact Details
Name: John Johansen
Address:
Telephone: +47 911 80 718
Mobile: +47 911 80 718
Fax : + 47 23 11 41 21
Email: john.johansen@golar.com
24 hour emergency number: +47 911 80 718
Fridtjof Nansens Plass 4, NO-0160 Oslo, Norway
(ii)
Customer Contact Details
Name: [*****]
Address:
Telephone: [*****]
Mobile: [*****]
Fax: [*****]
Email: [*****]
24 hour emergency number: [*****]
[*****]
27
QUALITY ASSURANCE AND QUALITY CONTROL
Golar and Golar Cam shall implement, comply with and maintain throughout the Service Period a quality assurance and quality control system (the “
QA/QC System ”), to be in accordance with International LNG Terminal Standards and the ISM Code, which system shall be completed, implemented
and submitted to Customer by the Scheduled Commissioning Start Date. The QA/QC System shall cover all management activities in relation to the
FLNG Vessel and its operation. Golar shall supply documentation sixty (60) Days after the end of each calendar quarter confirming such maintenance of
the QA/QC System. Golar and Golar Cam shall procure shall verify compliance with the QA/QC System by way of an internal audit at least every
twelve (12) months and by way of an independent audit at least every twelve (12) months.
28
ISPS CODE
69
(a)
(b)
(c)
(d)
(e)
This Clause makes reference to the International Code for the Security of Ships and of Port Facilities and the relevant amendments to Chapter
XI of SOLAS (the “ ISPS Code ”), in relation to the FLNG Vessel only.
Golar shall procure that both the FLNG Vessel and “the Company” (as defined by the ISPS Code) shall comply with the requirements of the
ISPS Code relating to the FLNG Vessel and “the Company”. Upon request, Golar shall provide documentary evidence of compliance with
this Clause 28(b).
Except as otherwise provided in this Agreement, loss, damage, expense or delay, caused by failure on the part of Golar to comply with the
requirements of the ISPS Code or this Clause shall be for Golar’s account.
Costs or expenses related to security regulations or measures required by the port facility or any relevant authority in accordance with the
ISPS Code including, but not limited to, security guards, launch services, tug escorts, port security fees or taxes and inspections, shall be for
the Customer’s account, unless such costs or expenses result solely from Golar’s negligence in which case such costs or expenses shall be for
Golar’s account. All measures required by Golar to comply with the security plan required by the ISPS Code shall be for Golar’s account.
If either Party makes any payment, which is for the other Party’s account according to this Clause, the other Party shall reimburse the paying
Party in accordance with Clause 6.2.
29
CHOICE OF LAW AND DISPUTE RESOLUTION
29.1
Choice of Law
This Agreement (and any non-contractual obligations which may arise out of or in connection with it) shall be governed by and construed in accordance
with English law, without regard to its rules of conflict of laws that would require the application of laws of a different jurisdiction.
29.2
Arbitration
Any Dispute arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration under the LCIA Rules (the “
Rules ”) of the LCIA Court (formerly the London Court of International Arbitration), save that the Parties do not waive their right to any form of appeal
to any state court or other legal authority.
29.3
Procedure for Arbitration.
(a)
(b)
(c)
The arbitral tribunal shall consist of three (3) arbitrators. The claimant shall nominate one arbitrator; the respondent shall nominate the second
arbitrator; and a third arbitrator, who shall serve as chairman, shall be appointed by the LCIA Court within fifteen (15) days of the
appointment of the second arbitrator.
For the avoidance of any doubt, SNH and Perenco shall only be entitled to collectively appoint one arbitrator, and Golar and Golar Cam shall
only be entitled to collectively appoint one arbitrator. If SNH or Perenco commences arbitration otherwise than jointly with the other, the
arbitrator appointed by it shall be deemed to have been appointed with the agreement of the other. If Golar or Golar Cam commences
arbitration otherwise than jointly with the other, the arbitrator appointed by it shall be deemed to have been appointed with the agreement of
the other.
In the event the claimant or the respondent shall fail to nominate an arbitrator within the time limits specified in the Rules, such arbitrator
shall be appointed by the LCIA Court within fifteen (15) days of such failure. In the event that both the claimant and the respondent fail to
nominate an arbitrator within the time limits specified in the Rules, all three arbitrators shall be appointed
70
by the LCIA Court within fifteen (15) days of such failure who shall designate one of them as chairman.
If both parties so agree, there shall be a sole arbitrator appointed by the LCIA Court within fifteen (15) days of such agreement.
The seat of arbitration shall be Geneva, Switzerland, and the language of the arbitration shall be English.
(d)
(e)
30
COMMUNICATIONS AND NOTICES
30.1
Form of Notice
(a)
Except as otherwise specifically provided, any notice, invoice or other communication from one Party to another that is required or permitted
to be made by the provisions of this Agreement shall be:
(i)
in the English language;
(ii) made in writing;
(iii)
delivered by hand or sent by courier to the address of the other Party which is shown below, or to such other address as such
other Party shall by notice require, or sent by facsimile or electronic mail to the facsimile number or email address of the other
Party which is shown below; provided that any notice, invoice or communication sent by electronic mail shall also be delivered
in hard copy or by facsimile; and
(iv) marked for the attention of the Person(s) there referred to or to such other Person(s) as the other Party shall by notice require.
(b)
Oral communication does not constitute notice for purposes of this Agreement, and telephone numbers are listed below as a matter of
convenience only. The foregoing notwithstanding, notices given from LNG Vessels at sea may be given by radio.
30.2
Address for Notices
The addresses of the Parties for service of notices (and copies thereof) are as follows:
Société Nationale des Hydrocarbures
[*****]
[*****]
TEL: [*****]
FAX: [*****]
Attention: [*****]
Perenco Cameroon SA
[*****]
[*****]
TEL: [*****]
FAX: [*****]
Attention: [*****]
Golar Hilli Corporation
c/o Golar Management Ltd
13 th Floor, One America Square
17 Crosswall
71
London EC3N 2LB
TEL: +44 (0) 207.063.79.00
FAX: +44 (0) 207.063.79.01
Attention: Dudley Poston, Representative
Golar Cameroon SASU
c/o Golar Management Ltd
13 th Floor, One America Square
17 Crosswall
London EC3N 2LB
TEL: +44 (0) 207.063.79.00
FAX: +44 (0) 207.063.79.01
Attention: Andreas Lavik Lie, General Manager
Each Party shall have the right to change its address at any time or designate that copies of all such notices be directed to another Person at another
address, by giving written notice thereof to the other parties.
30.3
Effective Date of Notice
A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and
the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. “ Received ”
for purposes of this Clause 30 shall mean:
(a)
(b)
(c)
if delivered by hand or by courier, on the day on which it is received at that Party’s address; or
if sent by facsimile or electronic mail, when actually received by the intended recipient in a readable form; or
in the event notice was given by radio from an LNG Vessel at sea, actual receipt of the communication by radio,
provided, that if any such notice, invoice or other communication would otherwise be deemed, in accordance with sub-paragraph (a) or (b) above, to be
received on a day that is not a Business Day, or on a Business Day but outside of normal working hours, then such notice, invoice or other
communication shall be deemed to be received on the next Business Day.
31
31.1
MISCELLANEOUS
Amendments and Modifications
This Agreement may not be amended, modified, varied or supplemented except by an instrument in writing signed by the Parties.
31.2
Approvals
Each Party shall maintain in force all of its respective Approvals necessary, and to obtain any Approvals that become necessary, for its performance
under this Agreement. The Parties shall co-operate with each other wherever necessary for this purpose.
31.3
Exclusion of Waiver
No failure to exercise or delay in exercising any right or remedy arising from this Agreement shall operate or be construed as a waiver of such right or
remedy. Performance of any condition or obligation to be performed hereunder shall not be deemed to have been waived or postponed except by an
instrument in writing signed by the Party who is claimed to have granted such waiver or postponement. No waiver by either Party shall operate or be
construed as a waiver in respect of any failure or default not expressly
72
identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.
31.4
No Third Party Beneficiaries
The interpretation of this Agreement shall exclude any rights under legislative provisions conferring rights under a contract to Persons not a party to that
contract including the Contracts (Rights Of Third Parties) Act 1999. Subject to Clauses 6.1 (Monthly Invoices), 7 (Taxes), Clause 10 (Receipt of Gas),
Clause 13 (Interruption to Services), Clause 14 (Inventory Management), Clause 15 (LNG Loading and Transportation) and Clause 19 (Liabilities and
Indemnification), the Parties do not intend, and nothing in this Agreement shall otherwise be construed, to create any duty to, or standard of care with
reference to, or any obligation or liability to, or any right of action or claim by, any Person other than a Party.
31.5
Rules of Construction
(a)
(b)
Drafting. Each provision of this Agreement shall be construed as though all Parties participated equally in the drafting of the same.
Consequently, the Parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting Party
shall not be applicable to this Agreement.
Priority. In the event of a conflict between the provisions of this Agreement excluding all Annexes (after such exclusion, the “ Base
Agreement ”) and the provisions of any Annex, all provisions of the Base Agreement shall take precedence over any Annex.
31.6
Rights and Remedies
Except where this Agreement expressly provides to the contrary, the rights and remedies contained in this Agreement are cumulative and not exclusive
of any rights and remedies provided by law.
31.7
Joint and Several Liability
Save in respect of Clause 17.2 and Clause 18.2(b), SNH and Perenco shall be jointly and severally liable for all the Customer’s obligations and
Liabilities arising under or in connection with this Agreement.
31.8
Disclaimer of Agency
It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a partnership, joint venture or other association
or a trust. This Agreement shall not be deemed or construed to authorise any Party to act as an agent, servant or employee for the other Party for any
purpose whatsoever except as explicitly set out in this Agreement. In their relations with each other under this Agreement, the Parties shall not be
considered fiduciaries.
31.9
Severance of Invalid Provisions
If and for so long as any provision of this Agreement shall be deemed to be invalid for any reason whatsoever, such invalidity shall not affect the
validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such
invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.
31.10
Expenses
Each Party shall be responsible for and bear all of its own costs and expenses incurred in connection with the preparation and negotiation of this
Agreement.
31.11
Genuine Pre-Estimate of Loss
73
All amounts payable by way of liquidated damages pursuant to Clause 9.3(e), Clause 13.3(d), Clause 15.7(c), Clause 18.2(a) and Clause 18.2(b) are
agreed by both Parties to represent a genuine pre-estimate of the Liabilities which may be sustained by the innocent Party in the event that the other
Party fails in its obligations under this Agreement, and not a penalty.
31.12 Waiver of Immunity
Each Party (to the fullest extent permitted by law) irrevocably and unconditionally:
(a)
(b)
(c)
agrees not to claim any immunity from proceedings brought against it by the other Party in relation to this Agreement, and to ensure that no
such claim is made on its behalf;
waives all rights of immunity in respect of it and its assets; and
consents generally in respect of such proceedings to the giving of relief or the issue of any proceeds in connection with such proceedings.
31.13
Indemnity
Wherever in this Agreement a Party is obligated to indemnify and hold the other Party harmless from and against claims and liabilities, then such
obligations shall be to indemnify and hold harmless such Party and each of their respective directors, officers, employees, agents and subcontractors.
31.14
Liquefaction Licence
The Parties acknowledge, and Golar Cam hereby confirms, that Golar Cam shall be the holder of the Liquefaction License in accordance with Clause
4.1.1 of the Gas Convention and shall assist Golar, as may be requested by Golar, in the performance of the Services hereunder, provided that Golar
acknowledges that it shall at all times remain solely responsible to the Customer for the performance of the Services in accordance with this Agreement.
The Customer shall have no obligations or liability to Golar Cam except as expressly set out in this Agreement.
31.15
Entire Agreement
(a)
Subject to Clause 31.18, each Party acknowledges and agrees with the other Party that:
(i)
(ii)
this Agreement constitutes the entire agreement between the Parties and supersedes and extinguishes all previous agreements,
promises, assurances, representations, warranties and understandings between them, whether written or oral, relating to the
Project; and
no Party has been induced to enter into this Agreement in reliance upon, nor have they been given, any warranty, representations,
statement, assurance, covenant, agreement, undertaking, indemnity or commitment of any nature whatsoever other than as are
expressly set out in this Agreement and, to the extent that any of them have been, it unconditionally and irrevocably waives any
claims, rights or remedies which any of them might otherwise have had in relation thereto,
provided that the provisions of this Clause 31.15 shall not exclude any liability which any of the Parties would otherwise have to any other
Party or any right which either Party may have to rescind this Agreement in respect of any statements made fraudulently by the other Party
prior to execution of this Agreement or any rights which either Party may have in respect of fraudulent concealment by the other Party.
31.16
Counterpart Execution
74
This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes,
provided that no Party shall be bound to this Agreement unless and until both Parties have executed a counterpart.
31.17
Excess Capacity
The Parties agree to cooperate together in good faith in respect of using the FLNG Facility’s spare capacity to process additional gas (beyond five
hundred (500) BCF) that is not dedicated to any other project, always within the framework of the Cameroon national gas master plan, and in doing so
the Parties recognize that they may all benefit from such efficiencies of scale, subject to further agreement.
31.18
Binding Term Sheet
This Agreement supersedes the Binding Term Sheet which shall terminate on and from the Effective Date but without prejudice to any rights, remedies,
obligations or liabilities of the Parties that have accrued under the Binding Term Sheet up to the date of termination.
IN WITNESS whereof, each of the Parties has caused this Agreement to be duly executed and signed by its duly authorised officer as of the date hereof.
75
EXECUTION PAGE
SIGNED for and on behalf of SOCIÉTÉ NATIONALE DES HYDROCARBURES
By:
Name:
Position:
[*****]
[*****]
[*****]
SIGNED for and on behalf of PERENCO CAMEROON SA
By:
Name:
Position:
[*****]
[*****]
[*****]
SIGNED for and on behalf of GOLAR HILLI CORPORATION
By:
Name:
Position:
/s/Iain Ross
IAIN ROSS
ATTORNEY-IN-FACT
SIGNED for and on behalf of GOLAR CAMEROON SASU
By:
Name:
Position:
/s/John Johansen
JOHN JOHANSEN
GENERAL MANAGER
76
Item
Ships name
Builder and Yard
Hull No.
Year Built
Port of Registry and Flag State
IMO Number
Call Sign
Classification Society
PRINCIPAL PARTICULARS:
Length Overall
Length Between Perpendiculars
Breadth
Depth Moulded
Draught Scantling
Complement
GENERIC FLNG BASIC OF DESIGN:
Rules and Regulations
Design Life/Operational Life
Feed Gas Inlet Conditions (at the inlet of the pre-
treatment facilities):
Liquefaction
Pre-Treatment Facilities
Power Generation
LNG Offloading
Vapour Return
Storage Tanks
LNG Vessels
Purging
Communications
Emergency Shutdown System
Annex 1
FLNG Vessel Specifications
Detail
Hilli Episeyo
Rosenberg Verft (original builder)
Keppel Shipyard (FLNG conversion)
198
1975 (originally built)
2017 (conversion)
Marshall Islands
7382720
V7VR8
DNV-GL
293.74 m
281.25 m
62.60 m
25.00 m
11.7 m
Max. 118
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
77
Annex 2
Project Specifications
Minimum
Maximum
FEED GAS SPECIFICATION
Component,
Mol%
CO2
Nitrogen
Methane
Ethane
Propane
i-Butane
n-Butane
i-Pentane
n-Pentane
C6+
Benzene
Toluene
H20
Eglycol
m-Mstyrene
MW
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
The above minimum and maximum levels are derived from the following [*****]:
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
CO2
[*****]
[*****]
[*****]
Nitrogen
[*****]
[*****]
[*****]
Methane
[*****]
[*****]
[*****]
Ethane
[*****]
[*****]
[*****]
Propane
[*****]
[*****]
[*****]
i-Butane
[*****]
[*****]
[*****]
n-Butane
[*****]
[*****]
[*****]
i-Pentane
[*****]
[*****]
[*****]
n-Pentane
[*****]
[*****]
[*****]
n-Hexane
[*****]
[*****]
[*****]
Benzene
[*****]
[*****]
[*****]
C_6*
[*****]
[*****]
[*****]
Toluene
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
C_7*
C_8*
C_9*
C_10*
C_11*
C_12*
C_13*
C_14*
C_15*
C_16*
H2O
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
EGlycol
[*****]
[*****]
[*****]
n-Heptane
[*****]
[*****]
[*****]
n-Octane
[*****]
[*****]
[*****]
n-Nonane
[*****]
[*****]
[*****]
n-Decane
[*****]
[*****]
[*****]
E-Benzene
[*****]
[*****]
[*****]
m-MStyrene
[*****]
[*****]
[*****]
TOTAL
[*****]
[*****]
[*****]
=>C6
MW
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
78
FEED GAS INLET CONDITIONS (GAS RECEIPT POINT)
• Maximum Feed Gas inlet rate: [*****]
• Normal operating pressure: [*****]
[*****][*****][*****]
FLNG SITE
FLNG Site is defined by the following coordinates (with reference point being the FLNG Vessel’s soft yoke mooring swivel):
UTM Zone 32N, CM 9°E, Manoca
1962 Datum
X (m) 593 089
Y (m) 333 292
WIND, WAVES AND CURRENT DATA
Wind, waves and current data are defined in the following reports prepared by BMT Argoss:
•
•
“Extreme wave conditions near Kribi (Cameroon)”, reference RP_A15123, revision 1, dated 4 June 2015
“Metocean conditions near Kribi (Cameroon)”, reference RP_A15143, revision 1, dated 1 September 2015.
79
MOORING FACILITIES
Soft yoke mooring system
80
Annex 3
LNG Specification
LNG delivered by the sellers to the buyer under the LNG SPA shall conform with the following specifications:
Item
Methane
Ethane
Propane
Butane
C5+
Nitrogen
H2S
Total sulphur
Mercury
Solid and impurities
HHV
Wobbe index
Unit
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
Min
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
Range
Max
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
The quality of the LNG is measured in the gas chromatograph on the FLNG Vessel.
HHV and Wobbe index shall be calculated in accordance to ISO 6976 (1995) at reference temperature and pressure conditions of 15°C and 1 atm.
[*****]
81
The following table shall provide the Operations Retainage Limit when the Feed Gas rate is in accordance with the Daily Feed Gas Quantity, which Golar shall be
entitled to retain, deduct from the Customer’s Inventory, and use without cost.
Annex 4
Retainage
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****][*****]
[*****]
[*****]
Feed Gas rate
(MMscfd)
Operations Retainage Limit
(% of Feed Gas rate (expressed in MMBTUs))
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
82
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
Annex 5
Acceptance Test Principles
83
[*****]
[*****]
[*****]
[*****]
84
Annex 6
Form of Acceptance Certificate
Date ●
[Letterhead of the Customer]
Golar Hilli Corporation
c/o Golar Management Ltd
13 th Floor, One America Square
17 Crosswall
London EC3N 2LB
Cameroon Floating Liquefied Natural Gas Export Project – Acceptance Certificate
Pursuant to Clause 9.4(●) of the Liquefaction Tolling Agreement dated [●] it is hereby certified that the FLNG Facility has passed the Acceptance Tests required
by that Agreement. Please confirm your receipt of this Acceptance Certificate by signing and returning the enclosed copy.
SIGNED for and on behalf of Société Nationale des Hydrocarbures:
By:____________________
Name:
Position:
SIGNED for and on behalf of Perenco Cameroon SA:
By:____________________
Name:
Position:
_______________________
ACNKOWLEDGED AND AGREED for and on behalf of Golar Hilli Corporation :
By:____________________
Name:
Position:
85
Annex 7
Conditions of Use
All Terminal Facilities, Terminal Services and other assistance of any kind whatsoever provided to a vessel calling at the Terminal are provided subject to all
Applicable Laws and to these Conditions of Use. These Conditions of Use shall (a) apply to each vessel calling at the Terminal regardless of whether any such
vessel pays or owes amounts to Golar or Sanaga Partners, and (b) be deemed to have been expressly accepted by each vessel calling at the Terminal regardless of
whether such acceptance has been acknowledged in writing or otherwise.
For purposes of these Conditions of Use, the following definitions shall apply:
“ Affiliates ” means, in relation to any person or entity, another person or entity who, either directly or indirectly, Controls, is controlled by or is under the common
Control of such first mentioned party. For the purposes of this definition, " Control " means the beneficial ownership of more than fifty percent (50%) of the issued
share capital or the legal power to direct or cause the direction of the general management of the company, partnership or other person in question, and “
Controlled ” shall be construed accordingly;
“ Applicable Laws ” means any law, regulation, administrative and judicial provision, constitution, decree, judgment, legislation, order, ordinance, regulation,
code, directive, statute, treaty or other legislative measure, in each case of any Governmental Authority from time to time in force, which is legally binding on a
party;
“ FLNG Unit ” means the floating LNG liquefaction unit “Hilli Episeyo” with IMO number 7382720;
“ Golar ” means Golar Hilli Corporation and Golar LNG Limited, and their respective Affiliates and Representatives;
“ Golar's Facilities ” means the FLNG Unit and any infrastructure and equipment on board the FLNG Unit and the soft yoke mooring;
“ Governmental Authority ” means in respect of any country, any national, federal, regional, state, municipal, or other local government, any subdivision, agency,
department, commission, authority or any other executive, legislative or administrative entity thereof, or any instrumentality, ministry, agency or other authority,
acting within its legal authority;
“ Hazard ” shall have the meaning given in condition 5 below;
“ LNG Facility ” means Sanaga Partners’ Facilities and Golar's Facilities;
“ Limited Amount ” is defined in condition 11;
“ Master ” means, with respect to any vessel, the duly licensed master, captain or other person lawfully in command of such vessel;
“ Representative of Sanaga Partners ” or “ Representative of Golar ” means any director, officer, employee, contractor, and duly authorised servant, consultant,
advisor, agent or representative of Sanaga Partners or Golar as applicable in whatever capacity they may be acting, and their respective officers, directors,
employees, contractors and agents, or any other person acting on behalf of Sanaga Partners or Golar;
“ Sanaga Partners ” means Société Nationale des Hydrocarbures and Perenco Cameroon and each of their Affiliates and Representatives;
“ Sanaga Partners’ Facilities ” means all fixed and moveable assets which Sanaga Partners uses and/or controls and operates from time to time for the purpose of
performance of Sanaga Partners’ LNG supply and delivery operations including, without limitation, [●];
“ Terminal ” means the site with the following coordinates [●], at which the Terminal Facilities are located;
86
“ Terminal Facilities ” means all the infrastructure, facilities, equipment, installations, anchorages and approaches of and to the Terminal, including, without
limitation, the LNG Facility and any other channels, channel markings, buoys, jetties, berths, lines and gangways at the Terminal;
“ Terminal Manual ” means the terminal manual detailing Terminal guidelines, procedures and emergency response;
“ Terminal Services ” means any service tendered or provided by the Terminal or Sanaga Partners to a vessel, including, pilotage, towage, tug assistance, mooring
and other navigational services, whether for consideration or free of charge; and
“ Third Parties ” means any person or entity other than Sanaga Partners or Golar.
All vessels calling at the Terminal must be capable of operating within the physical limitations of the Terminal Facilities’ berth dimensions, loading arm envelopes
and mooring equipment as detailed in the Terminal Manual, or as advised from time to time by Sanaga Partners or Golar. In addition to the requirements of
Applicable Laws, the following conditions shall apply to each vessel calling at the Terminal:
1.
2.
3.
4.
4.1
4.2
4.3
4.4
4.5
The Master of a vessel shall at all times and in all circumstances remain solely responsible on behalf of the vessel's owners and operators for the safety
and proper navigation and operation of his vessel and shall at all times comply with the Terminal regulations, all Applicable Laws and the Terminal
Manual.
Neither Sanaga Partners nor Golar make any warranty (whether express or implied) with respect to Terminal Facilities or to the rendering of Terminal
Services and any use thereof shall be at the sole risk of the vessel Master and owners and operators. Neither Sanaga Partners nor Golar shall be
responsible for any loss or damage to a vessel, actual or consequential, or any loss or damage to the vessel’s owners or operators or the vessel’s cargo or
any part thereof, or any loss or injury suffered by the Master, officers or crew of the vessel, which is related to Terminal Facilities or to Terminal Services
provided to a vessel regardless of any act, omission, fault or negligence of Sanaga Partners or Golar, or any fault or defect in the Terminal Facilities, save,
in respect of loss or damage to the vessel’s cargo or any part thereof, where caused by the sole negligence of Sanaga Partners or Golar.
Neither Sanaga Partners nor Golar shall be responsible to any vessel or to its owners or operators for any loss related to strikes or other labour
disturbances, regardless of whether Sanaga Partners or Golar are parties thereto, and regardless of any act, omission, fault or negligence of Sanaga
Partners or Golar.
The vessel and its owners and operators shall in all circumstances hold harmless and indemnify Sanaga Partners and Golar as applicable against any and
all losses, claims, damages, costs and expenses Sanaga Partners or Golar may incur or has incurred arising out of or in connection with:
any damage to the Terminal Facilities or injury to its personnel related to the vessel's use of the Terminal Facilities and involving the fault, wholly or
partially, of the Master, officers or crew of the vessel, including negligent navigation;
any loss suffered by Third Parties with respect to damage to their property or injury to their personnel related to the vessel's use of the Terminal Facilities
and involving the fault, wholly or partially, of the Master, officers or crew of the vessel, including negligent navigation;
any Hazard under condition 5 hereof and involving the fault, wholly or partially, of the Master, officers or crew of the vessel, including negligent
navigation;
any loss or damage to the vessel while at the Terminal, including consequential losses and all claims, damages and costs arising therefrom regardless of
any act, omission, fault or negligence by Sanaga Partners or Golar; and
any personnel injury or property loss suffered by the Master, officers or crew of the vessel while at the Terminal, including consequential losses and all
claims, damages and costs arising therefrom regardless of any act, omission, fault or negligence by Sanaga Partners or Golar.
87
5.
6.
7.
8.
9.
10.
11.
12.
If the vessel or any object on the vessel becomes or is likely to become an obstruction, threat, or danger to navigation, operations, safety, health,
environment or security of the Terminal (a “ Hazard ”), the Master and the owners and operators shall, at the option of the Terminal, take immediate
action to clear, remove or rectify the Hazard as the Terminal may direct, and if the Master and/or the owners and/or operators fail to take such action, the
Terminal shall be entitled to take such measures as it may deem appropriate to clear, remove or rectify the Hazard, and the Master and owners and
operators shall be responsible for all costs and expenses associated therewith.
In the event of any escape or discharge of oil or oily mixture or contaminants from any vessel or from any hose or other discharging device connected to
such vessel (from whatsoever cause such escape or discharge may arise and irrespective of whether or not such escape or discharge has been caused or
contributed to by the negligence or default on the part of the vessel or her owners or operators), either of Sanaga Partners or Golar by itself or by its
subcontractors or by any other person whatsoever shall have the right to take any measures it deems fit to clean up the pollution resulting from such
escape or discharge and to recover the full cost thereof from such vessel, its owners and operators, for which cost the vessel, its owners and operators shall
be jointly and severally liable to Sanaga Partners and Golar (as the case may be).
Without prejudice to the limitation of liability of the Master and owners and operators under condition 11, each of the owners and operators of the vessel
hereby waives any right it may have to limit its liability for liabilities arising under this contract whether in conformity with any international maritime or
shipping convention or any other statutory provision now or hereinafter enacted affording ship owners a right to limit their liability. The waiver herein
contained applies to all persons claiming through owners or operators.
Any liability incurred by the Master or owners or operators by operation of these Conditions of Use shall be joint and several.
Without prejudice to the limitation of liability of the Master and owners and operators at condition 11, the Master shall immediately report to Sanaga
Partners and Golar any accident, incident, claim, damage, loss or unsafe condition or circumstance. Any such report shall be made in writing and signed
by the Master. Sanaga Partners and Golar shall be entitled to inspect and investigate any such report but without prejudice to the foregoing.
These Conditions of Use shall be construed, interpreted and applied in accordance with laws of England and, if so requested by Sanaga Partners and
Golar, the vessel and her owners and operators shall submit to the exclusive jurisdiction of the courts of England and Wales.
Subject to condition 12, any liability of the Master and owners and operators to Sanaga Partners and Golar by virtue of the operation of these Conditions
of Use shall be limited to USD [*****] (the “ Limited Amount ”) in aggregate for all liabilities arising from any one accident or occurrence. In the event
that any loss or damage in respect of which the vessel and her owners and operators are liable to indemnify Sanaga Partners and/or Golar exceeds the
Limited Amount then the Master and owners and operators shall indemnify Sanaga Partners and/or Golar, in aggregate not exceeding the Limited
Amount, by paying each a sum, which equates to the ratio of loss or damage suffered by each to the total loss or damage suffered by each.
The limit of liability set out in condition 11 shall not limit, restrict or prejudice any claim or right that Sanaga Partners or Golar has or may have against
the Master or owners or operators under general principles of law or equity. For the avoidance of doubt, said limit of liability shall only apply with respect
to, and to the extent of, a claim by Sanaga Partners or Golar against the Master or owners or operators under these Conditions of Use.
ACKNOWLEDGEMENT
Name of vessel: _______________
As Master of the abovenamed vessel, I acknowledge for and on behalf of the vessel's owners and operators that the above Conditions of Use of the Terminal
govern the use by such vessel of the Terminal Facilities.
88
Signed:
By Master for and on behalf of the owners and operators of vessel
Date: _______________
89
Annex 8
Approved LNG Vessels
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
90
Annex 9
Allotted Loading Times and Demurrage Rates for LNG Vessels
Allotted Loading Times
Scheduled Loading
Quantity (m3)
115,000
120,000
125,000
130,000
135,000
140,000
145,000
150,000
155,000
160,000
165,000
170,000
Demurrage Rates
Allowed Laytime
(days)
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
[*****]
LNG Vessel Cargo Capacity (Gross)
LNG Vessels less than 135,000m 3 (steam turbine)
135,000m 3 and above (steam turbine)
145,000 to 154,000m 3 (duel fuel diesel electric)
LNG Vessels greater than 154,000m 3 (duel fuel diesel electric)
Demurrage Rate USD per Day
[*****]
[*****]
[*****]
[*****]
91
The following table lists the Company’s significant subsidiaries as at April 16, 2018. Unless otherwise indicated, the Company owns a 100% controlling interest in
each of the following subsidiaries.
Exhibit 8.1
Name
Jurisdiction of Incorporation
Golar LNG 2216 Corporation
Golar Management Limited
Golar Management Malaysia Sdn. Bhd.
Golar Management Norway AS
Golar Management D.O.O
Golar GP LLC – Limited Liability Company
Golar LNG Energy Limited
Golar Gimi Corporation
Golar Hilli Corporation (89%)*
Golar Gandria N.V.
Golar Hull M2021 Corporation
Golar Hull M2022 Corporation
Golar Hull M2027 Corporation
Golar Hull M2047 Corporation
Golar Hull M2048 Corporation
Golar LNG NB10 Corporation
Golar LNG NB11 Corporation
Golar LNG NB12 Corporation
Golar Tundra Corporation
GVS Corporation
Golar Shoreline LNG Limited
*Golar has approximately 89% ownership of this company.
Marshall Islands
United Kingdom
Malaysia
Norway
Croatia
Marshall Islands
Bermuda
Marshall Islands
Marshall Islands
Netherlands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Bermuda
Exhibit 12.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
I, Iain Ross, 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 13a-15(f) and 15d-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; and
(d) Disclosed in this report any change in the company's internal control 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 control over financial reporting; and
5. The company's other certifying officer 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 functions):
(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 16, 2018
/s/ Iain Ross
Iain Ross
Principal Executive Officer
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 13a-15(f) and 15d-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; and
(d) Disclosed in this report any change in the company's internal control 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 control over financial reporting; and
5. The company's other certifying officer 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 functions):
(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 16, 2018
/s/ Graham Robjohns
Graham Robjohns
Principal Financial Officer
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
Exhibit 13.1
In connection with this Annual Report of Golar LNG Limited (the "Company") on Form 20-F for the year ended December 31, 2017 as filed with the Securities
and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Iain Ross, 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.
April 16, 2018
/s/ Iain Ross
_____________________________________________
Iain Ross
Principal Executive Officer
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
Exhibit 13.2
In connection with this Annual Report of Golar LNG Limited (the "Company") on Form 20-F for the year ended December 31, 2017 as filed with the Securities
and Exchange Commission (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.
April 16, 2018
/s/ Graham Robjohns
_____________________________________________
Graham Robjohns
Principal Financial Officer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form F-3 No. 333- 219095) of Golar LNG Limited and in the
related Prospectus and in the Registration Statement (Form S-8 No. 333-221666) pertaining to Long-Term Incentive plan of Golar LNG
Limited, of our reports dated April 16, 2018 with respect to the consolidated financial statements of Golar LNG Limited, and the
effectiveness of internal control over financial reporting of Golar LNG Limited, included in this Annual Report (Form 20-F) for the year
ended December 31, 2017.
Exhibit 15.1
/s/ Ernst & Young LLP
London, United Kingdom
April 16, 2018
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following:
a) This Annual Report (Form 20-F) of Golar LNG Limited for the year ended December 31, 2017,
b) Registration Statement (Form F-3 No. 333-219095) of Golar LNG Limited and in the related Prospectus, and
c) Registration Statement (Form S-8 No. 333-221666) pertaining to Long-Term Incentive plan of Golar LNG Limited,
of our reports dated April 16, 2018, with respect to the consolidated financial statements and the effectiveness of internal control over
financial reporting of Golar LNG Partners LP, included in the Annual Report (Form 20-F) of Golar LNG Partners LP for the year ended
December 31, 2017, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
London, United Kingdom
April 16, 2018