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
OR
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended
December 31, 2018
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
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.
101,302,404 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 every Interactive Data File required to be submitted
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 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.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting
Standards Board to its Accounting Standards Codification after April 5, 2012.
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
INDEX TO REPORT ON FORM 20-F
PART I
PAGE
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
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
ITEM 17.
FINANCIAL STATEMENTS
ITEM 18.
FINANCIAL STATEMENTS
ITEM 19.
EXHIBITS
SIGNATURES
1
1
1
27
48
48
70
75
75
76
76
87
88
88
88
88
89
89
89
90
91
91
91
93
93
93
94
97
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:
•
•
our inability and that of our counterparty to meet our respective obligations under the Lease and Operate Agreement entered
into in connection with the BP Greater Tortue Ahmeyim project;
changes in liquefied natural gas, or LNG, carrier, floating storage and regasification unit, or FSRU, or floating liquefaction
natural gas vessel, or FLNG, or small-scale LNG market trends, including charter rates, vessel values or technological
advancements;
• Golar Power Limited's ("Golar Power") ability to successfully complete and start up the Sergipe power station project and
related FSRU contract;
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;
our ability to close potential future sales of additional equity interests in Golar Hilli LLC on a timely basis or at all;
changes in the supply of or demand for LNG carriers, FSRUs, FLNGs or small-scale LNG infrastructure;
a material decline or prolonged weakness in rates for LNG carriers, FSRUs, FLNGs or small-scale LNG infrastructure;
changes in the performance of the pool in which certain of our vessels operate and the performance of our joint ventures,
including changes related to potential divestitures, spin-offs or new partnerships;
changes in trading patterns that affect the opportunities for the profitable operation of LNG carriers, FSRUs, FLNGs or small-
scale LNG infrastructure;
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;
challenges by authorities to the tax benefits we previously obtained under certain of our leasing agreements;
a decline or continuing weakness in the global financial markets;
changes in general domestic and international political conditions, particularly where we operate;
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 our investments and acquisitions;
changes in our ability to sell vessels to Golar LNG Partners LP ("Golar Partners") or Golar Power;
changes in our relationship with Golar Partners, Golar Power or Avenir LNG Limited ("Avenir") and the sustainability of any
distributions they may pay to us;
changes to rules and regulations applicable to LNG carriers, FSRUs, FLNGs or other parts of the LNG supply chain;
actions taken by regulatory authorities that may prohibit the access of LNG carriers, FSRUs, FLNGs or small-scale LNG
vessels to various ports;
changes in our ability to obtain additional financing on acceptable terms or at all;
increases in costs, including, among other things, crew wages, insurance, provisions, repairs and maintenance; 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.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
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. References to "Avenir" refer to our affiliate
Avenir LNG Limited (Norwegian OTC: AVENIR) 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 statements of income (loss) data for each of
the years in the three-year period ended December 31, 2018 and the balance sheet data as of December 31, 2018 and 2017 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 income (loss) data with respect to the years ended December 31, 2015 and 2014 and the
selected balance sheet data as of December 31, 2016, 2015 and 2014 have been derived from our audited 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,
2018
2017
2016
(in thousands of U.S. $, except number of shares, per common share
data, fleet data and other financial data)
2015
2014
Statements of Income Data:
Total operating revenues
Vessel operating expenses
Voyage, charterhire and commission expenses
(including collaborative arrangement)
Total operating expenses
Operating income (loss)
Net financial expense
Equity in net (losses) earnings of affiliates
Net loss attributable to the stockholders of Golar LNG
Limited
Loss 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
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) provided by investing activities
Net cash provided by financing activities
Fleet Data:
Number of vessels at end of year
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
430,604
96,860
143,537
55,946
80,257
53,163
102,674
56,347
106,155
49,570
105,826
369,607
114,486
(123,797)
(157,636)
61,292
244,094
(85,457)
(32,788)
(25,448)
47,563
221,364
(141,091)
(59,541)
47,878
69,042
234,604
(36,380)
(174,619)
55,985
27,340
146,488
(2,116)
(87,852)
42,220
(231,428)
(179,703)
(186,531)
(171,146)
(48,017)
(2.30)
(2.30)
0.28
(1.79)
(1.79)
0.20
(1.99)
(1.99)
0.60
(1.83)
(1.83)
1.35
(0.55)
(0.55)
1.80
217,835
332,033
154,393
571,782
20,000
3,271,379
4,806,595
730,257
1,835,102
1,825,791
101,303
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
231,821
180,361
541,565
501,022
2,598,771
4,269,198
693,123
1,342,084
1,916,179
93,547
191,410
74,162
425
746,263
345,205
1,648,888
3,899,742
112,853
1,241,133
2,237,422
93,415
116,674
(202,492)
177,402
(35,089)
(419,895)
427,443
(115,387)
3,852
234,336
(92,458)
(202,893)
546,770
4,922
(1,361,275)
1,470,460
14
4,202
14
3,885
14
4,034
17
4,481
13
2,059
$
$
43,700 $
18,955 $
17,500 $
11,374 $
10,100 $
10,359 $
14,900 $
11,783 $
33,100
23,240
(1) Basic loss per share is 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 loss per share
assumes the conversion of potentially dilutive instruments.
2
(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 facilities, letter of credit facilities in connection
with our tolling agreement, and 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: The average TCE rate of our fleet is a measure of the average daily revenue performance
of a vessel. TCE is calculated only in relation to our vessel operations segment. For time charters, TCE is calculated by dividing
total operating revenues (including revenue from the Cool Pool, but excluding liquefaction services revenue and vessel and other
management fees), less any voyage and commission 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 an entity'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, 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 its vessels and in evaluating their financial performance. Our calculation of TCE may not be comparable to that reported
by other entities. The following table reconciles our total operating revenues to average daily TCE:
Total operating revenues
Less: Liquefaction services revenue
Less: Vessel and other management fees
Net time and voyage charter revenues
Voyage and commission expenses (i)
Calendar days less scheduled off-hire days (ii)
Average daily TCE rate (to the closest $100)
Years Ended December 31,
2018
2017
2016
2015
2014
(in thousands of U.S. $, except number of shares, per common
share data, fleet and other financial data)
430,604
(127,625)
(24,209)
278,770
(104,463)
174,307
3,987
43,700
143,537
—
(26,576)
116,961
(48,933)
68,028
3,885
17,500
80,257
102,674
106,155
—
(14,225)
66,032
(25,291)
40,741
4,034
10,100
—
(12,547)
90,127
(23,434)
66,693
4,481
14,900
—
(10,756)
95,399
(27,340)
68,059
2,059
33,100
(i) "Voyage and commission expenses" is derived from the caption "Voyage, charterhire and commission expenses" and "Voyage,
charterhire and commission expenses - collaborative arrangement" less (i) charterhire expenses (net of the effect of the related
guarantee obligation) of $nil, $12.4 million and $22.3 million for the years ended December 31, 2018, 2017 and 2016, respectively,
which arose on the charter-back of the Golar Grand from Golar Partners, and (ii) voyage and commission expenses in relation to
the Hilli Episeyo of $1.4 million, $nil and $nil for the years ended December 31, 2018, 2017 and 2016, respectively.
(ii) 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.
B. Capitalization and Indebtedness
Not applicable.
3
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. We have categorized the risks we face based on whether they arise
from our business activities or from the industry in which we operate and listed these based on management’s assessment of
priority. Where relevant, we have grouped together related risks.
Risks arising from our Business Activities
Risks Related to Future FLNG projects
• We cannot guarantee that our agreement with BP will progress favorably.
In February 2019, we entered into a 20-year Lease and Operate Agreement with BP Mauritania Investments Ltd (“BP”) for
the charter of the FLNG unit, the Gimi, to service the Greater Tortue Ahmeyim field. The Gimi’s conversion to a FLNG is
expected to commence in April 2019 and the Gimi is expected to commence operations under the Lease and Operate Agreement
in 2022. The estimated cost of Gimi’s conversion is $1.3 billion, which we plan to fund through multiple financing facilities,
including a $700 million long term financing facility that is currently in its final stages and that we plan to have available to
us during construction. Once the Gimi is accepted under the contract, we anticipate annual contracted revenues less forecasted
operating costs of approximately $215 million per year.
There can be no guarantee that the Lease and Operate Agreement will progress favorably or last for the anticipated term. In
addition to containing conditions precedent that could prevent performance of the contract altogether, the Lease and Operate
Agreement provides both parties with the right to suspend or terminate the agreement under certain circumstances after
performance has begun. Should we be unable to meet our obligations under the Lease and Operate Agreement in a manner
that gives rise to a right to terminate the agreement by BP, we could be obligated to pay substantial damages to BP which
would have a negative impact on our earnings and cash flow and could make it difficult to induce counterparties to contract
with us for FLNG conversions in the future.
•
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 the Gimi into a FLNG. We have also entered into an agreement for the conversion of the
Gandria into a FLNG. See "Item 4. Information on the Company".
In the event the shipyards do not perform under these agreements and we are unable to enforce certain refund guarantees with
third party banks for any reason, in connection with the conversions of the Gimi or the Gandria, we may lose part or all of
our investment, which would have a material adverse effect on our results for operations, financial condition and cash flows.
In addition, the conversions 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
crises 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.
• Due to the new and sophisticated nature of FLNG conversions, we are reliant on a small number of contractors with
relevant experience.
4
The highly technical work related to FLNG conversions is only capable of being performed by a limited number of contractors,
and due to the new nature of the technology only a very limited number of contractors have relevant experience with FLNG
conversions. 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 of the FLNG vessels.
Furthermore, if any future 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. Either of these possibilities would have a negative impact, which could be significant, on our cash flows and
earnings.
• Due to the locations in which we operate, a number of our current and potential future projects are subject to higher
political and security risks than operations in other areas of the world.
We operate in, or are pursuing projects which could lead to future operations in, areas of the world where there are heightened
political and security risks. We identify higher risk countries in which we operate through our experiences, the experiences
of our partners and publicly available third party information such as Transparency International, the World Bank and TRACE
International, and monitor the specific risks associated with countries in which we operate.
In particular, the operations of Golar Hilli Corp ("Hilli Corp") in Cameroon under the Liquefication Tolling Agreement (“LTA")
is 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 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 incidental 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.
Risks Related to Hilli Episeyo
• Golar Hilli LLC may not result in anticipated profitability or generate cash flow sufficient to justify our investment. In
addition, our investment exposes us to risks that may harm our business, financial condition and operating results.
In July 2018, we, Keppel and Black & Veatch completed a sale of 50% of the common units in Golar Hilli LLC ("Hilli LLC"),
the disponent owner of the FLNG Hilli Episeyo, to Golar Partners. However, we still hold a significant portion of the outstanding
ownership interests in Hilli LLC. The retained interests expose us to risks that we may:
•
•
•
•
•
•
fail to obtain the benefits of the LTA if Perenco Cameroon S.A. ("Perenco") and Société Nationale de Hydrocarbures
(‘‘SNH’’) (together the "Customer") exercises certain rights to terminate the charter upon the occurrence of specified
events of default;
fail to obtain the benefits of the LTA if the Customer fails to make payments under the LTA because of its financial
inability, disagreements with us or otherwise;
incur or assume unanticipated liabilities, losses or costs;
be required to pay damages to the Customer or suffer a reduction in the tolling fee in the event that the Hilli Episeyo
fails to perform to certain specifications;
incur other significant charges, such as asset devaluation or restructuring charges; or
be unable to re-charter the FLNG on another long-term charter at the end of the LTA.
5
• Utilization of the full capacity of Hilli Episeyo
The FLNG Hilli Episeyo commenced commercial operations in June 2018, when under the terms of the LTA by and between
Perenco and SNH.
The LTA commits the capacity of two of the four liquefaction trains (Train 1 and Train 2) of the Hilli Episeyo. The remaining
half of the Hilli Episeyo’s capacity is not yet contracted. This allows for significant upside in relation to revenues from the
Hilli Episeyo however delays in contracting Train 3 and Train 4 capacity could adversely affect our financial performance.
Factors which could cause delays in contracting the full capacity include delays in negotiations with potential counterparties,
and also include factors outside of our control such as the growth of LNG demand and the price of LNG, affecting when
counterparties seek to bring additional production to the market.
• Due to the new and sophisticated technology utilized by the Hilli Episeyo, the operations of the Hilli Episeyo are subject
to risks that could negatively affect our business 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 Episeyo may lead to Hilli LLC experiencing a loss of revenue or higher than
anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business,
financial condition and ability to make cash distributions to our unitholders.
•
If the letter of credit is not extended, the earnings and financial condition of Hilli Corp could suffer.
Pursuant to the terms of the LTA, Golar obtained a letter of credit issued by a financial institution that guarantees certain
payments Hilli Corp is required to make under the LTA. The letter of credit was set to expire on December 31, 2018, but it
automatically extends for successive one year periods until the tenth anniversary of the acceptance of the Hilli Episeyo 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,
2019 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 LTA may
be terminated and Hilli Corp may be liable for a termination fee of up to $300 million. Accordingly, if the financial institution
elects at some point in the future to not extend the letter of credit, Hilli Corp's financial condition could be materially and
adversely affected.
Risks Related to other projects
• We cannot guarantee that the conversion of the Golar Viking and the accompanying agreement with LNG Hrvatska will
progress favorably.
We have entered into an agreement with a Croatian project developer, LNG Hrvatska d.o.o., or LNG Hrvatska, to convert the
Golar Viking, built in 2005, into a FSRU, sell the converted vessel, and then operate and maintain the FSRU for a minimum
of ten years. The conversion will be funded by stage payments from LNG Hrvatska under the agreement. Commencement of
the project is subject to certain conditions precedent, including confirmation of project funding, receipt of a Notice to Proceed
from LNG Hrvatska and our ability to enter into refinancing on favorable terms for the vessel.
We cannot guarantee that this agreement will progress favorably or that the relevant conditions precedent will be satisfied.
Some of the possible risks relating to this transaction include the inability of our counterparties to perform under the agreement,
our inability to obtain the necessary refinancing on favorable terms or at all, our inability to deliver the converted vessel in a
condition satisfactory to LNG Hrvatska and delays in the conversion of the Golar Viking. Should we be unable to meet our
obligations under the agreement, we could be obligated to pay damages to LNG Hrvatska which could have a negative impact
on our earnings and cash flow and could make it difficult to induce counterparties to contract with us for FSRU conversions
in the future.
Risks associated with our investments in Joint Ventures and Affiliates
• We have a substantial equity investment in our former subsidiary, Golar Partners, which since 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, 2018, we had an ownership interest of 32.0% (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.
6
The aggregate carrying value of our investments in Golar Partners as of December 31, 2018 was $271.2 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, 2018, had a quoted unit price of $10.80. 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. Due to continued decline in the share price, we
have impaired the value of our investment as at December 31, 2018, which had a material adverse non-cash impact on our
results of operations. Future impairment charges 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 $48.4 million
for the year ended December 31, 2018. 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 $15.0 million for the year ended December 31, 2018.
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 March 15, 2019 Golar Partners had a fleet
of 10 vessels, six of which currently operate under medium to long-term charters with a concentrated number of charterers,
and an interest in the FLNG Hilli Episeyo which we manage under the management agreements referred to above. Accordingly,
a significant risk to Golar Partners is the loss of any of these customers, charters or vessels, including re-chartering 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.
• A decline in the market value of Golar Partners’ common unit price could result in breaches of our Margin Loan Facility.
During July 2018, amendments to the existing margin loan facility, secured by units in Golar Partners, were completed.
Although most of the existing terms remain substantially unchanged, the facility will no longer amortize. Previously the
dividend cash received from the pledged Partnership units was first used to service the interest on the loan, any excess cash
was then used to prepay a portion of the principal. Under the modified agreement, any excess cash after servicing the interest
will be returned to us. If certain covenants are breached, we may be required to make further principal repayments ahead of
loan maturity in March 2020, which would reduce our available cash flow.
• 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 Infrastructure Partners ("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.
Golar Power has a 50% interest in a Brazilian corporation, Centrais Eléctricas de Sergipe S.A. ("CELSE"), that was formed
for the purpose of constructing and operating a power plant in the State of Sergipe in Brazil, which we refer to as the Sergipe
Project. 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,
7
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 Brazilian Real for CELSE. 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 have an equity investment in Avenir that is subject to the risks related to Avenir’s business.
In October 2018, we invested $24.8 million in Avenir LNG Ltd, a joint venture with Stolt-Nielsen Ltd ("Stolt Nielsen") (an
entity affiliated with our director Niels Stolt Nielsen) and Höegh LNG Holdings Ltd ("Höegh"), as part of a combined $182
million commitment for the pursuit of opportunities in small-scale LNG. The value of our investment and the income generated
from our investment are subject to a variety of risks, including the risks related to Avenir’s business. In turn, Avenir’s business
is subject to a variety of risks, including, among others, any inability of the joint venture partners to successfully work together
in the shared management of Avenir, any inability of Avenir to identify and enter into appropriate projects, any inability of
Avenir to obtain sufficient financing for any project it identifies, any failure of small-scale LNG projects Avenir has invested
in, and other industry, regulatory, economic and political risks similar in nature to the risks faced by us.
• We may guarantee the indebtedness of our joint ventures and/or affiliates.
We may provide guarantees to certain banks with respect to commercial bank indebtedness of our joint ventures and/or
affiliates. Failure by any of our joint ventures and/or affiliate to service their debt requirements and comply with any provisions
contained in their commercial loan agreements, including paying scheduled instalments and complying with certain covenants,
may lead to an event of default under the related loan agreement. As a result, if our joint ventures and/or affiliates 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. Either of these possibilities could
have a material adverse effect on our business. Further, by virtue of our guarantees with respect to our joint ventures and/or
affiliates, this may reduce our ability to gain future credit from certain lenders.
• Golar Partners and its affiliates may compete with us.
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.
Risks Related to the Financing of our Business
Our business is capital intensive, and therefore we are exposed to several key financing risks, relating both to our ability to secure
sufficient financing to meet existing obligations and future projects and also the impact financing terms and covenants could have
on our business.
• We may not be able to obtain financing, to meet our obligations as they fall due or 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
8
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 on a timely
basis could limit our ability to fund our growth and capital expenditures. If we are successful in issuing equity in order to
raise capital, 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 Golar Tundra lease financing with CMBL of $140.1million, which is secured on the vessel, is for the
FSRU to be employed under an effective charter. Under the terms of our sale and lease back facility for the Golar Tundra,
by virtue of our prior termination of the WAGL charter, we are required to find a replacement charter by June 30, 2019, or
we could be required to refinance the FSRU. We are currently exploring our refinancing options, including extension of the
lenders’ deadline for satisfaction of such. While we believe we will be able to refinance or extend the lenders' deadline, failure
to do so could have a material adverse effect on our results of operations, cash flows, financial condition and ability to pay
dividends. However, included within our debt obligation is an amount of $121.7 million relating to the Golar Tundra VIE's
loan, which we are required to consolidate into our financial results.
• We are exposed to volatility in the London Interbank Offered Rate (“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.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at
times. These conditions are the result of the disruptions in the international credit markets. Because the interest rates borne
by our outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to occur, it would affect the amount
of interest payable on our debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow.
Furthermore, interest in most financing agreements in our industry has been based on published LIBOR rates. Recently,
however, there is uncertainty relating to the LIBOR calculation process, which may result in the phasing out of LIBOR in the
future. As a result, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR
as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future
financing agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability,
earnings and cash flow.
As of December 31, 2018, we had total outstanding debt of $2.6 billion, of which $0.8 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, 2018, we have interest rate swaps with a notional amount of $950 million representing
125.8% 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 derivative transactions
is inherently risky and presents various possibilities for incurring significant expenses. The derivative 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.
• Reforms, including the potential phasing out of LIBOR after 2021, may adversely affect us.
We have floating rate debt, the interest rate of which is determined based on the London Interbank Offered Rate (‘‘LIBOR’’).
LIBOR and other ‘‘benchmark’’ rates are subject to ongoing national and international regulatory scrutiny and reform. For
example, on July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks
to submit rates for the calculation of the LIBOR rates after 2021 (the ‘‘FCA Announcement’’). The Alternative Reference
Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an
alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or “SOFR.”
We are unable to predict the effect of the FCA Announcement or other reforms, whether currently enacted or enacted in the
future. They may result in the phasing out of LIBOR as a reference rate. The impact of such transition away from LIBOR
could be significant for us because of the number of our financing arrangements that are linked to LIBOR and our substantial
9
indebtedness. The outcome of reforms may result in increased interest expense to us, may affect our ability to incur debt on
terms acceptable to us and may result in increased costs related to amending our existing debt instruments, which could
adversely affect our business, results of operations and financial condition.
•
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, 2018, our net indebtedness (including loan debt, net of restricted cash and short-term deposits and net of cash
and cash equivalents) was $1.9 billion and our ratio of net indebtedness to total capital (comprising net indebtedness plus
shareholders' equity) was 0.52.
Our consolidated debt could increase substantially. We will likely 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 to competitive pressures or a downturn in our industry or the economy in general as
compared to our competitors with less debt; 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.
• Our consolidated lessor variable interest entities (“VIEs”), 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 affiliates of Chinese financial institutions
that are determined to be lessor VIEs, where we are deemed to be the primary beneficiary, we are required by United States
generally accepted accounting principles ("GAAP") to consolidate these lessor VIEs into our financial 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 into our financial results, we must make
assumptions regarding the debt amortization profile and the interest rate to be applied against the lessor VIEs’ debt principal.
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, 2018, we consolidated lessor VIEs in connection with the lease financing transactions
for eight of our vessels. For descriptions of our current financing arrangements including those of our lessor VIEs, please
read "Item 5. Operating and Financial Review-B. Liquidity and Capital Resources-Borrowing Activities." The funding
arrangements negotiated by these lessor VIEs could adversely affect our financial accounting results.
• 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:
10
• 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.
• We previously entered into six UK tax leases, of which one lease for the Methane Princess remains. 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.
As described under note 30 of our audited consolidated financial statements filed with our Annual Report on Form 20-F for
the year ended December 31, 2018, 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 (before deduction of fees).
Of these six leases we have since terminated five, with one lease remaining, 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, 2018, 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 (a UK court) ruled in favor of HMRC. The tax payer in this particular ruling has the
election to appeal the court's decision, but no appeal has been filed. The judgments of the First Tier Tribunal do not create
binding precedent for other UK court decisions and therefore the ruling in favor of HMRC is not binding in the context of
11
our structures. Further, we consider there to be differences in the fact pattern and structure of this case from our 2003 leasing
arrangements and therefore it is not necessarily indicative of any outcome should HMRC challenge us. 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 £115 million. We are currently in conversation with
HMRC on this matter, as well as continuing to present the factual background of Golar's position, and are progressing the
possibility of bringing this inquiry to a mutually satisfactory conclusion. Given the complexity of these discussions, it is
impossible to quantify the reasonably possible loss, however we continue to estimate the possible range of exposures as set
out above.
• 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 March 15,
2019, 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, 2018, cash collateral of $82.9 million has been provided and is reflected
in "restricted cash" in our Consolidated Balance Sheet. In the event the share price declines, the cash collateral requirements
could adversely affect our liquidity and financial position.
Risks Related to Revenue
• The market for LNG transportation and regasification services is competitive and we, our Joint Ventures and our affiliates
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 lower charter rates and more modern fleets. If we are not able to compete successfully, our earnings could be adversely
affected. Competition may also prevent us from achieving our goal of profitably expanding into other areas of the LNG
industry.
• Our 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;
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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
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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.
• 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 March 15, 2019, we had seven 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" 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.
Risks Related to Our Operations
• The operation of FSRUs, FLNGs and LNG carriers is inherently risky, and our vessels face a number of industry risks
and events which could cause damage or loss of a vessel, loss of life or environmental consequences that could harm our
reputation and ongoing business operations.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, acts of piracy,
environmental accidents, bad weather, mechanical failures, grounding, fire, explosions and collisions, human error, national
emergency and war and terrorism. Incidents such as these have historically affected companies in our industry, and such an
event or accident involving any of our vessels could result in any of the following:
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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;
a government requisitioning for title or seizing our vessels (e.g. in a time of war or national emergency)
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. In particular:
• 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.
If piracy attacks or military action results in regions in which our vessels are deployed being characterized as “war
risk” zones by insurers or the 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.
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• 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.
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 distributions.
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• An increase in costs could materially and adversely affect our financial performance.
Our vessel operating expenses and dry-dock 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. The price and supply of fuel is unpredictable and fluctuates based on events outside of our control, including
geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries,
or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional productions patterns
and environmental concerns. Fuel costs may fluctuate significantly, and 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.
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 and adversely affect
our business, financial condition and results of operations. In particular 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.
• 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 operations.
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 and Golar Power, 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 (“FCPA”),
and the Bribery Act 2010 of the United Kingdom (“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.
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• A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks, the majority of which are provided by Golar Management, in our
operations and the 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, and the availability of our vessels and facilities 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.
We are subject to laws, directives, and regulations relating to the collection, use, retention, disclosure, security and transfer
of personal data. These laws, directives, and regulations, and their interpretation and enforcement continue to evolve and may
be inconsistent from jurisdiction to jurisdiction. For example, the General Data Protection Regulation (“GDPR”), which
regulates the use of personally identifiable information, went into effect in the European Union (“EU”) on May 25, 2018,
applies globally to all of our activities conducted from an establishment in the EU, to related products and services that we
offer to EU customers and to non-EU customers which offer services in the EU. Complying with the GDPR and similar
emerging and changing privacy and data protection requirements may cause us to incur substantial costs or require us to
change our business practices. Noncompliance with our legal obligations relating to privacy and data protection could result
in penalties, fines, legal proceedings by governmental entities or others, loss of reputation, legal claims by individuals and
customers and significant legal and financial exposure and could affect our ability to retain and attract customers.
Changes in the nature of cyber-threats and/or changes to industry standards and regulations might require us to adopt 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.
• Changing corporate laws and reporting requirements could have an adverse impact on our business.
Changing laws, regulations and standards could create greater reporting obligations and compliance requirements on
companies such as ours. Whilst the regulatory environment continues to evolve, we have invested in, and intend to continue
to invest in, reasonably necessary resources to comply with evolving standards and maintain high standards of corporate
governance and public disclosure. Recent examples of increased regulation include the UK Modern Slavery Act 2015 and
the GDPR. The GDPR, for instance, 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.
Non-compliance with such regulation could result in governmental or other regulatory claims or significant fines that could
have an adverse effect on our business, financial condition, results of operations, cash flows, and ability to pay distributions.
• 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 in the future may enter into, 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 flow.
• 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.
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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 will have to make additional contributions to our pension schemes because it is underfunded.
We provide pension plans for certain of our current and former marine employees. Members do not contribute to the plans
and they are closed to any new members. As of December 31, 2018, one of the plans is underfunded by $35.4 million. We
may need to increase our contributions in order to meet the schemes' liabilities as they fall due, or, to reduce the deficit. Such
contributions could have a material and adverse effect on our cash flows and financial condition.
• 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:
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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.
• 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.
• Further technological advancements and other innovations affecting LNG carriers could reduce the charter hire rates we
are able to obtain when seeking new employment for our existing vessels, which could adversely impact the value of our
assets and our results of operations and cash flows.
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The charter rates, asset value and operational life of an LNG carrier are determined by a number of factors, including the
vessel’s efficiency, operational flexibility and physical life. Efficiency is reflected in unit freight costs, which are driven by
the size of the vessel, its fuel economy and the rate at which LNG in the cargo tanks naturally evaporates. Flexibility is
primarily driven by the size of the vessel and includes the ability to enter harbors, utilize related docking facilities and pass
through canals and straits. Physical life is related to the original design and construction, the ongoing maintenance and the
impact of operational stresses on the vessel. LNG carrier designs are continually evolving. At such time, as newer designs
are developed and accepted in the market, these newer vessels may be more efficient or more flexible or have longer physical
lives than our vessels. Competition from these more technologically advanced LNG carriers compared to our existing vessels
could adversely affect our ability to charter or re-charter our these vessels and the charter hire rates we will be able to secure
when we seek to charter or re-charter these vessels, and could also reduce the resale value of these vessels. This could adversely
affect our revenues and cash flows, including cash available for dividends to our shareholders, as well as our ability to obtain
debt financing for LNG carriers with older technology whose market values have experienced a significant decline.
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If we cannot meet our charterers' quality and compliance requirements, we may not be able to operate our vessels profitably,
which could have an adverse effect on our future performance, results of operations, cash flows and financial position.
Customers, and in particular those in the LNG industry, have a high and increasing focus on quality and compliance standards
with their suppliers across the entire value chain, including the shipping and transportation segment. Our continuous compliance
with these standards and quality requirements is vital for our operations. Related risks could materialize in multiple ways,
including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels and/or a continuous
decrease in the quality concerning one or more LNG carriers occurring over time. Moreover, continuously increasing
requirements from LNG industry constituents can further challenge our ability to meet the standards. Any noncompliance by
us, either suddenly or over a period of time, on one or more LNG carriers, or an increase in requirements by our charterers
above and beyond what we deliver, may have a material adverse effect on our future performance, results of operations, cash
flows and financial position.
Risks Related to Our Industry
Due to the nature of our business, our performance is subject to the development of the LNG industry, adverse changes or
developments in the LNG carrier, FSRU, and FLNG, the LNG industry as a whole or in the offshore energy infrastructure business
financial condition, results of operations and ability to pay dividends to shareholders. Specific industry risks include:
• 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:
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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;
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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; 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 have a material adverse effect on our results of operations and financial condition.
• 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:
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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.
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If the number of vessels available in the short-term or spot LNG carrier charter market continues to expand and results
in reduced opportunities to secure multi-year charters for our vessels, our revenues and cash flows may become more
volatile and may decline following expiration or early termination of our current charter arrangements.
Most shipping requirements for new LNG projects continue to be provided on a multi-year basis, though the level of spot
voyages and short-term time charters of less than 12 months in duration has grown in the past few years. If the number of
vessels available in the short-term or spot charter market continues to expand and results in reduced opportunities to secure
multi-year charters for our vessels, we may only be able to enter into short-term time charters upon expiration or early
termination of our current charters. As a result, our revenues and cash flows may become more volatile. In addition, an active
short-term or spot charter market may require us to enter into charters based on changing market prices, as opposed to contracts
based on fixed rates, which could result in a decrease in our revenues and cash flows, including cash available for dividends
to our shareholders, especially if we enter into charters during periods when charter rates are depressed.
• 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. In addition, certain of our charterers may be subject to sanctions that could, if
expanded, have a material adverse affect on our business.
Although no vessels operated by us have called on ports located in countries in violation of sanctions and embargoes imposed
by the U.S. government or countries identified by the U.S. government as state sponsors of terrorism, in the future our vessels
may call on ports in these countries from time to time on our charterers’ instructions. 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.
U.S. sanctions against Russia include “sectoral sanctions,” which target specific industries. Transactions with companies
designated under the Sectoral Sanctions Identifications List (“SSI List”) are not prohibited in all cases. Under the United
States Office of Foreign Assets Control’s (OFAC) 50 percent rule, a company owned 50 percent or more by an SSI-Listed
entity is also to be treated as an SSI-Listed entity.
One of our charter counterparties, a major oil and gas company, may be deemed to be designated an SSI by virtue of the 50
percent rule described above. Although the charter counterparty does not appear on either of OFAC’s list of U.S. Specially
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Designated Nationals List (“SDN List”) or the SSI List, certain companies with more than 50 percent ownership in this charter
counterparty may be identified as an SSI-Listed entity subject to Directive 4 of OFAC’s Ukraine/Russia-related sanctions.
Such charter counterparty may thus also be subject to Directive 4.
Directive 4 prohibits U.S. persons from engaging in any activity involving the provision, exportation, or reexportation, directly
or indirectly, of goods, services (except for financial services), and technology in support of exploration or production for
deepwater, Arctic offshore, or shale projects that, among other things, have the potential to produce oil in the Russian federation
and that involve a Directive 4 SSI-Listed entity or their property or interests in property, or that are initiated after January 29,
2018 and have the potential to produce oil in any location and a Directive 4 SSI-Listed entity or their property or interests in
property has a 33 percent or greater interest or ownership of a majority of the voting interests. Although the sectoral sanctions
do not directly apply to non-U.S. persons, Countering America’s Adversaries Through Sanctions Act (“CAATSA”) prohibits,
among other things, non-U.S. persons from facilitating “significant transactions” for or on behalf of SDNs and SSI-Listed
entities, as well as entities owned 50 percent or more by such entities.
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. 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 U.S. embargoed countries or countries identified by the U.S. government as state sponsors
of terrorism and certain financial institutions may have policies against lending or extending credit to companies that have
contracts with U.S. embargoed countries or 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 shares or the determination by these financial
institutions not to offer financing may adversely affect the price at which our common shares trade. 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 shares may be adversely
affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding
countries.
• Maritime claimants could arrest our vessels, which could interrupt our cash flow.
If we are in default on certain kinds of obligations, such as those to our lenders, crew members, suppliers of goods and services
to our vessels or shippers of cargo, these parties may be entitled to a maritime lien against one or more of our vessels. In many
jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. In a few
jurisdictions, claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another
of our vessels. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay to
have the arrest lifted. Under some of our present charters, if the vessel is arrested or detained (for as few as 14 days in the
case of one of our charters) as a result of a claim against us, we may be in default of our charter and the charterer may terminate
the charter. This would negatively impact our revenues and reduce our cash available for distribution to unitholders.
• An economic slowdown or changes in the economic and political environment in the Asia Pacific region could have a
material adverse effect on our business, financial condition and results of operations.
We anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging
of LNG in ports in the Asia Pacific region. As a result, any negative changes in economic conditions in any Asia Pacific
country, particularly in China, may have a material adverse effect on our business, financial condition and results of operations,
as well as our future prospects. Before the global economic financial crisis that began in 2008, China had one of the world's
fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand.
The quarterly year-over-year growth rate of China's GDP was approximately 6.5% for the year ended December 31, 2018, as
compared to approximately 6.9% for the year ended December 31, 2017, and continues to remain below pre-2008 levels. We
cannot assure you that the Chinese economy will not experience a significant contraction in the future.
Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese
government is reducing the level of direct control that it exercises over the economy through state plans and other measures.
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There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and
management and a gradual shift in emphasis to a "market economy" and enterprise reform. Limited price reforms were
undertaken with the result that prices for certain commodities are principally determined by market forces. Many of the reforms
are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such
experiments. If the Chinese government does not continue to pursue a policy of economic reform, the level of imports to and
exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well
as by changes in political, economic and social conditions or other relevant policies of the Chinese government, such as
changes in laws, regulations or export and import restrictions. Notwithstanding economic reform, the Chinese government
may adopt policies that favor domestic companies and may hinder our ability to compete with them effectively. For example,
China imposes a tax for non-resident international transportation enterprises engaged in the provision of services of passengers
or cargo, among other items, in and out of China using their own, chartered or leased vessels. The regulation may subject
international transportation companies to Chinese enterprise income tax on profits generated from international transportation
services passing through Chinese ports. This tax or similar regulations, such as the recently promoted environmental taxes
on coal, by China may result in an increase in the cost of raw materials imported to China and the risks associated with
importing raw materials to China, as well as a decrease in any raw materials shipped from our charterers to China. This could
have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their
ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.
Moreover, an economic slowdown in the economies of the European Union and other Asian countries may further adversely
affect economic growth in China and elsewhere.
In addition, concerns regarding the possibility of sovereign debt defaults by European Union member countries, including
Greece, have in the past disrupted financial markets throughout the world, and may lead to weaker consumer demand in the
European Union, the United States, and other parts of the world. The possibility of sovereign debt defaults by European Union
member countries, including Greece, and the possibility of market reforms to float the Chinese renminbi, either of which
development could weaken the Euro against the Chinese renminbi, could adversely affect consumer demand in the European
Union. Moreover, the revaluation of the renminbi may negatively impact the United States' demand for imported goods, many
of which are shipped from China. Future weak economic conditions could have a material adverse effect on our business,
results of operations and financial condition and our ability to pay dividends to our stockholders. Our business, financial
condition, results of operations, ability to pay dividends as well as our future prospects, will likely be materially and adversely
affected by another economic downturn in any of the aforementioned countries and regions.
• Political instability, terrorist attacks and international hostilities can affect the seaborne transportation industry, which
could adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial
condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and
government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in
a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current
political instability in the Middle East and the South China Sea region and other geographic countries and areas, geopolitical
events such as the withdrawal of the U.K. from the European Union, or “Brexit,” terrorist or other attacks, and war (or
threatened war) or international hostilities. Terrorist attacks and the continuing response of the United States and others to
these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world’s
financial markets and may impact our business, operating results and financial condition. Continuing conflict and recent
developments in the Middle East, and the presence of U.S. or similar forces in Iraq, Syria, Afghanistan and various other
regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic
instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional
financing on terms acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating
results, revenues and costs.
Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing
shipping demand. In particular, leaders in the United States have indicated that the United States may seek to implement more
protective trade measures. President Trump was elected on a platform promoting trade protectionism. The results of the
presidential election have thus created significant uncertainty about the future relationship between the United States, China
and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. For example,
on January 23, 2017, President Trump signed an executive order withdrawing the United States from the Trans-Pacific
Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian
countries. In March 2018, President Trump announced tariffs on imported steel and aluminum into the United States that
could have a negative impact on international trade generally. Most recently, in January 2019, the United States announced
sanctions against Venezuela, which may have an effect on its oil output and in turn affect global oil supply. Protectionist
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developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and
may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods
exported from regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting
goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs
and other associated costs, which could have an adverse impact on the shipping industry, and therefore, our charterers and
their business, operating results and financial condition and could thereby affect their ability to make timely charter hire
payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect
on our business, results of operations, financial condition and our ability to pay any cash distributions to our stockholders.
• The results of the U.K.’s referendum on withdrawal from the European Union may have a negative effect on global
economic conditions, financial markets and our business.
In June 2016, a majority of voters in the U.K. elected to withdraw from the EU in a national referendum, and in March 2017,
the government of the U.K. formally initiated the process. The referendum was advisory, and the terms of any withdrawal are
subject to a negotiation period that could last at least two years after the March 2017 initiation. There is currently no agreement
in place regarding the withdrawal, creating significant uncertainty about the future relationship between the U.K. and the EU,
including with respect to the laws and regulations that will apply as the U.K. determines which EU derived laws to replace
or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other EU member
states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue
to have a material adverse effect on global economic conditions and the stability of global financial markets, and may
significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial
markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material
adverse effect on our business and on our consolidated financial position, results of operations and our ability to pay
distributions. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign
exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters
could in turn adversely impact our business and operations.
Risks Related to Industry Regulation
Our industry is subject to a number of regulations, particularly in relation to Health and Safety, environmental protection and
maritime conduct. Changes to these regulations could impact our business, our financial position and our operations. In particular:
• Regulations relating to ballast water discharge coming into effect during September 2019 may adversely affect our revenues
and profitability.
The International Maritime Organization ("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.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”) program
and U.S. National Invasive Species Act (“NISA”) are currently in effect to regulate ballast discharge, exchange and installation,
the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018, requires that the U.S. Coast
Guard develop implementation, compliance, and enforcement regulations regarding ballast water within two years. The new
regulations could require the installation of new equipment, which may cause us to incur substantial costs.
• Our operations are subject to various international, federal, state and local environmental, climate change and greenhouse
gas emissions laws and regulations. Compliance with these obligations, and any future changes to environmental legislation
and regulation applicable to international and national maritime trade, may have an adverse effect on our business.
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 response to and liability for
oil spills, discharges to air and water, and the handling and disposal of hazardous substances and wastes. In some cases, these
laws and regulations require us to obtain governmental permits and authorizations before we may conduct certain activities.
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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. The
International Convention for the Prevention of Pollution from Ships of 1973, as modified by the Protocol of 1978 relating
thereto, collectively referred to as MARPOL 73/78 (“MARPOL”), which regulates air emissions, oil pollution and other
discharges to the environment, 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.
Laws that apply to our operations change from time to time. For example, 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. Compliance with the IGF Code is mandatory under
the International Convention for the Safety of Life at Sea of 1974 (“SOLAS”) through adopted amendments incorporating
the IGF Code into SOLAS. 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. 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.
In addition, due to concern over the risk of climate change, a number of countries, the United States, the EU 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. These could have a negative impact on our business
if such laws, regulations, treaties or international agreements reduce the worldwide demand for oil and gas.
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. Such
legislation or regulations may require additional capital expenditures or operating expenses. Please see "Item 4. Information
on the Company-B. Business Overview-Environmental and Other Regulations" below for a more detailed discussion on these
topics.
• 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 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. Also, a treaty may be adopted in the future that requires the adoption of 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.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the
environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation
of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create
greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry
could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this
time. Please read “Item 4. Information on the Company-B. Business Overview-Environmental and Other Regulations” below
for a more detailed discussion.
• 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 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, the Gimi and the
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Gandria. The Gimi has entered into the shipyard for her conversion into a FLNG vessel, whereas the Gandria is in lay-up
and proposed to be converted into a FLNG vessel.
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 on board once every year to verify that the maintenance of the equipment on
board is done correctly. Each of the vessels in our existing fleet is required to be qualified within its respective classification
society for dry-docking 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.
Risks Related to Our Common Shares
• 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.
•
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 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
•
dry-dock 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 2018, the closing market price of our common shares on Nasdaq ranged from a low of $21.36 on December
20, 2018 to a high of $34.74 per share on May 21, 2018. As of March 15, 2019, the closing market price of our common
shares on Nasdaq was $21.81 per share. 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
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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.
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.
• 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.
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• 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 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.
Tax Risks
• A change in tax laws in any country in which we operate could adversely affect us
Tax laws, treaties 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 the 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.
• 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 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 a certain
election available (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
25
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.
• 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 that this tax exemption will apply to us or to 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.
• 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.
• As a Bermuda exempted company incorporated under Bermuda law with subsidiaries in another offshore jurisdiction,
our operations may be subject to economic substance requirements.
On December 5, 2017, following an assessment of the tax policies of various countries by the Code of Conduct Group for
Business Taxation of the European Union (the “COCG”), the Council of the European Union approved and published Council
conclusions containing a list of non-cooperative jurisdictions for tax purposes (the “Conclusions”). Although at that time not
considered “non-cooperative jurisdictions,” certain countries, including Bermuda, were listed as having “tax regimes that
facilitate offshore structures which attract profits without real economic activity.” In connection with the Conclusions, and
to avoid being placed on the list of “non-cooperative jurisdictions,” the government of Bermuda, among others, committed
to addressing COCG proposals relating to economic substance for entities doing business in or through their respective
jurisdictions and to pass legislation to implement any appropriate changes by the end of 2018. The Economic Substance Act
2018 and the Economic Substance Regulations 2018 of Bermuda (the “Economic Substance Act” and the “Economic Substance
Regulations”, respectively) became operative on December 31, 2018. The Economic Substance Act applies to every registered
entity in Bermuda that engages in a relevant activity and requires that every such entity shall maintain a substantial economic
presence in Bermuda. A relevant activity for the purposes of the Economic Substance Act is banking business, insurance
business, fund management business, financing business, leasing business, headquarters business, shipping business,
distribution and service centre business, intellectual property holding business and conducting business as a holding entity,
which may include a pure equity holding entity. The Economic Substance Act provides that a registered entity that carries on
a relevant activity complies with economic substance requirements if (a) it is directed and managed in Bermuda, (b) its core
income-generating activities (as may be prescribed) are undertaken in Bermuda with respect to the relevant activity, (c) it
maintains adequate physical presence in Bermuda, (d) it has adequate full time employees in Bermuda with suitable
qualifications and (e) it incurs adequate operating expenditure in Bermuda in relation to the relevant activity.
26
A registered entity that carries on a relevant activity is obliged under the Economic Substance Act to file a declaration in the
prescribed form (the “Declaration”) with the Registrar of Companies (the “Registrar”) on an annual basis. The Economic
Substance Regulations provide that minimum economic substance requirements shall apply in relation to an entity if the entity
is a pure equity holding entity which only holds or manages equity participations, and earns passive income from dividends,
distributions, capital gains and other incidental income only. The minimum economic substance requirements include a)
compliance with applicable corporate governance requirements set forth in the Bermuda Companies Act 1981 including
keeping records of account, books and papers and financial statements and b) submission of an annual economic substance
declaration form. Additionally, the Economic Substance Regulations provide that a pure equity holding entity complies with
economic substance requirements where it also has adequate employees for holding and managing equity participations, and
adequate premises in Bermuda.
Certain of our subsidiaries may from time to time be organized other jurisdictions identified by the COCG based on global
standards set by the Organization for Economic Co-operation and Development with the objective of preventing low-tax
jurisdictions from attracting profits from certain activities. These jurisdictions, including the Marshall Islands, have also
enacted economic substance laws and regulations which we may be obligated to comply with. If we fail to comply with our
obligations under the Economic Substance Act or any similar law applicable to us in any other jurisdiction, we could be subject
to financial penalties and spontaneous disclosure of information to foreign tax officials in related jurisdictions and may be
struck from the register of companies in Bermuda or such other jurisdiction. Any of these actions could have a material adverse
effect on our business, financial condition and results of operations.
• Bermuda’s continued presence on a list of non-cooperative jurisdictions by the European Union could harm our business.
On March 12, 2019, Bermuda was placed by the EU on its list of non-cooperative jurisdictions for tax purposes due to an
issue with Bermuda's economic substance legislation which was not resolved in time for the EU's deadline. At present, the
impact of being included on the list of non-cooperative jurisdictions for tax purposes is unclear. While Bermuda has now
amended its legislation which the Bermuda Government has stated has addressed this issue and expects to be removed from
the list of non-cooperative jurisdictions at the EU's Economic and Financial Affairs Council's next meeting which is scheduled
for May 2019, there can be no assurance that Bermuda will be removed from such list. If Bermuda is not removed from the
list and sanctions or other financial, tax or regulatory measures were applied by European Member States to countries on the
list or further economic substance requirements were imposed by Bermuda, our business could be harmed.
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, FSRUs and FLNGs and
the development of LNG projects through our subsidiaries, affiliates and joint venture.
As of March 15, 2019, we, together with our affiliates Golar Partners and Golar Power, have a combined fleet of twenty-
seven vessels, comprised of eighteen LNG carriers, eight FSRUs and one FLNG. Of these vessels, six of the FSRUs and four of
the LNG carriers are owned by Golar Partners and one of the FSRUs and two of the LNG carriers are owned by Golar Power.
Most of the Golar Partners owned vessels are on long-term time charters. Seven of our LNG carriers, one of our FSRUs and two
of Golar Power's LNG carriers are participating in the LNG carrier pool, referred to as the Cool Pool. Of the remaining vessels,
two of our LNG carriers are on shorter-term time charters, the Gandria is being contemplated for conversion into a FLNG and
the Gimi entered Keppel Shipyard Limited's ("Keppel") shipyard in early 2019 to commence initial work for her conversion into
a FLNG to service the Greater Tortue Ahmeyim project.
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 venture's
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 Episeyo, into a FLNG and commenced
conversion of another, the Gimi. In addition, we have entered into a definitive contract with Keppel and Black & Veatch for the
conversion of another LNG carrier, the Gandria, into a FLNG. Our aim is to find strong strategic partners that have an interest in
utilizing one or more of our FLNGs.
27
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 The Zig Zag, 70 Victoria
Street, London, SW1E 6SQ, United Kingdom and our telephone number at that address is +44 207 063 7900.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information that
we file electronically with the SEC, can be obtained from the SEC’s website at (http://www.sec.gov) or from “SEC fillings” tab
in the “Investor Relations” section of our website (www.golarlng.com).
Investments
Since January 1, 2016, we own interests in the following companies which we account for using the equity method:
a.
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, 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 March 15, 2019, we own 100%
of the general partner units and 30.6% of the common units in Golar Partners, in addition to 100% of the IDRs.
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 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. 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 prior period. The remaining Earn-Out Units ("second tranche") would be issued if Golar Partners paid 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. Having not satisfied the minimum quarterly distribution over all of these quarters, the second tranche did
not vest.
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 March 15, 2019, Golar Partners had a fleet of ten vessels acquired from or contributed by us to provide funding
for our projects as well as our growth.
In July 2018, we and the affiliates of Keppel Shipyard Limited ("Keppel") and Black & Veatch Corporation ("B&V")
(together, the "Sellers"), completed the sale ("Hilli Disposal") to Golar Partners of common units in our consolidated subsidiary
Hilli LLC (the "Hilli Common Units"), which owns Golar Hilli Corp. ("Hilli Corp"), the disponent owner of the Hilli Episeyo.
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.
28
b.
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. The cost of constructing the power plant and related terminal, including taxes and financing costs, is estimated at $1.7
billion. In April 2018, CELSE reached financial closing of its $1.3 billion non-recourse debt facility, which fully funds the project.
As of March 15, 2019, the construction of the Sergipe power plant remains on track for commencement of operations early 2020.
Golar Power also owns a FSRU, the Golar Nanook, constructed at Samsung shipyard, delivered to Golar Power in
September 2018 and has arrived in Brazil, 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. In connection with the financial close of the Sergipe
Project funding, Golar Power has also executed contracts with CELSE to charter the FSRU Golar Nanook for a period of 25 years.
Golar Power has also 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.
c.
Avenir LNG Limited (“Avenir”)
In October 2018, Avenir issued a private placement of 99 million shares at a par price of $1.00 per share, which was
successfully completed at a subscription price of $1.00 per share. Of the 99 million shares placed, we subscribed for 24.8 million
shares, representing an investment of $24.8 million, or 25%. The investment is part of a combined commitment of up to $182.0
million from Stolt-Nielsen (an entity affiliated with one of our directors, Niels Stolt-Nielsen), Höegh and Golar for the pursuit of
opportunities in small-scale LNG, including the delivery of LNG to areas of stranded gas demand, the development of LNG
bunkering services and supply to the transportation sector. Following the initial equity offering Stolt-Nielsen, Höegh and Golar
are committed to fund $72.0 million, of which our commitment is $18.0 million.
Avenir currently has four small-scale LNG newbuildings under construction at Keppel Singmarine in Nantong, China
and another two on order from Sinopacific Offshore Engineering in Nantong, China. Avenir also holds 80% ownership in an LNG
terminal and distribution facility under development in the Italian port of Oristano, Sardinia. Avenir is currently listed on the
Norwegian OTC market. Subsequent to the placement of additional 11 million shares with other investors in November 2018, we
and Höegh each currently hold a 22.5% share in Avenir, with Stolt-Nielsen holding 45%, and the remaining 10% being held by a
group of institutional and other professional investors.
d.
OneLNG
In July 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.
In accordance with the joint venture and shareholders' agreement, Golar holds 51% and Schlumberger the remaining 49% of
OneLNG. The delays in finalizing a debt financing package for the Fortuna FLNG project, together with other capital and resource
priorities, has resulted in a decision from Schlumberger to end their participation in the project. Golar and Schlumberger, as a
result of this, have commenced the winding down of OneLNG and will work on FLNG projects as required on a case-by-case
basis. As a result, we have written down our investment in OneLNG to $nil as at December 31, 2018.
Disposals
Since January 1, 2016, we have entered into the following sale and purchase transactions:
•
In May 2016, we sold our equity interests in the company ("Golar LNG NB13 Corporation") 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
29
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 were 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 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 Episeyo; and
• On July 12, 2018 (the "Closing Date"), we and the affiliates of Keppel and Black & Veatch Corporation, completed the
Hilli Disposal to Golar Partners of common units in our consolidated subsidiary Hilli LLC (the "Hilli Common Units"),
which owns Hilli Corp, the disponent owner of Hilli Episeyo (the "Hilli"). The selling price for the Hilli Disposal was
$658 million, less 50% of our net lease obligations under the Hilli Facility on the Closing Date and working capital
adjustments. On August 15, 2017, concurrently with our entry into the purchase and sale agreement for the Hilli Disposal
(the "Hilli Sale Agreement"), we received a deposit from Golar Partners, which, together with accrued interest, equaled
$71.9 million on the Closing Date (the "Hilli deposit"), combined with Golar Partners’ payment for its exercise of the
Tundra Put Right, which, together with accrued interest, equaled $110.1 million on the Closing Date (the "Deferred
Purchase Price"). We applied the Hilli Deposit, the Deferred Purchase Price and interest accrued thereon as payment for
the Hilli Disposal. Please see note 6 "Disposal of Long Lived Assets" of our consolidated financial statements included
herein.
In addition:
•
In connection with the formation of the Golar Power joint venture, we contributed to it our former subsidiaries that: (i)
owned the Golar Penguin and the Golar Celsius; (ii) held the FSRU newbuilding contract with Samsung, which was
subsequently delivered and named Golar Nanook; and (iii) held 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, 2016, we have also refinanced certain of our vessels pursuant to sale and leaseback arrangements as
further described in note 5 "Variable Interest Entities" of our consolidated financial statements included herein.
B. Business Overview
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 areas of strategic focus 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 6.4 years. Seven 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. We also manage carriers on behalf of our affiliate companies, Golar Partners and Golar Power. A potential
separation or spin-off of our LNG shipping fleet is under consideration. This may reduce volatility in our future cash
flows and better position our long-term contracting business for infrastructure investors.
• 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
30
currently seeking new FSRU projects and power station opportunities in addition to building an integrated gas to power
project at Sergipe in Brazil.
• Capture new FLNG opportunities using our unique skills as a developer, owner and operator of FLNG vessels: Our
FLNG investment proposition is built on a sound technical and commercial offering, derived from structurally lower unit
capital costs and short lead times. FLNG allows smaller resource holders to enter the LNG business and occupy a legitimate
space alongside the largest resource holders, major oil companies and world-scale LNG buyers. For established LNG
industry participants, the prospect of our low-cost, low-risk, fast-track FLNG solution provides a compelling alternative
to traditional land-based projects.
•
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 closed the sale of
an interest in the Hilli Episeyo. We invested a substantial portion of the sale proceeds in newbuild and asset conversion
projects that we expect will generate attractive returns over the coming years. As of March 15, 2019, we have a 32.0%
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 Liquefied Natural Gas (“LNG”) Industry
The need to transport natural gas over long distances across oceans led to the development of the international LNG trade.
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 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:
31
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 FSRUs), the LNG is returned to its gaseous state, or
regasified. It may also be transferred to small scale LNG vessels that deliver LNG to users nearby.
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. To address the escalating costs, more cost competitive FLNG solutions across a spectrum
of project sizes have been developed by a handful of major oil companies and also by Golar. We believe that 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.
Our Operations
We reported three reportable segments since 2017:
• Vessel operations - We operate and subsequently charter out vessels on fixed terms to customers. We also provide technical
vessel management services for our fleet as well as the fleets of Golar Partners and Golar Power.
• FLNG - In 2014, we ordered our first FLNG based on the conversion of our existing LNG carrier, the Hilli. The Hilli
FLNG conversion was completed and the vessel was accepted by the customer under the LTA. In February 2019 we
entered into an agreement with BP for the charter of a FLNG, which will be converted from our existing LNG carrier,
the Gimi, for a 20-year period expected to commence production in 2022. The Gimi was relocated from layup to Keppel
Shipyard to proceed with the conversion.
• 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 a FSRU and associated terminal and power generation infrastructure.
Vessel Operations
As of March 15, 2019, our current fleet comprises two LNG carriers undergoing or being contemplated for conversions
into FLNGs, 10 LNG carriers and one FSRU.
LNG Carriers
LNG carriers are designed to transport LNG between liquefaction facilities and import terminals for regasification after
the natural gas is liquefied. Our LNG carriers utilize the LNG that naturally boils off during transportation in their propulsion
system.
According to Fearnleys, 33.6 metric tons of additional supply of LNG mainly from the United States will be available
in 2019, much of which will be sold to the Far East. The associated increase in ton miles is expected to quickly absorb all available
LNG carriers on the water. It has been estimated that the current global fleet of LNG carriers and those LNG carriers expected to
be delivered in 2019 are insufficient to carry this expected new production. The market is currently expected to remain short of
LNG carriers until the second half of 2021.
32
FSRUs
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,
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. 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. 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 a FSRU. 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.
FSRU Golar Freeze undergoing drydocking prior to deployment
The following table lists our current fleet of LNG carriers and FSRU as of March 15, 2019:
33
Vessel Name
Gimi (1) (5)
Gandria (1)
Golar Arctic (2)
Golar Viking(4)
Golar Seal (3)
Golar Crystal (3)
Golar Bear (3)
Golar Glacier
Golar Frost (3)
Golar Snow (3)
Golar Ice (3)
Golar Kelvin (3)
Golar Tundra (3)
Year of
Delivery
Capacity
Cubic
Meters
Flag
Type
Moss
Moss
125,000 Marshall Islands
126,000 Marshall Islands
140,000 Marshall Islands
Membrane
140,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
162,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
160,000 Marshall Islands
Membrane
162,000 Marshall Islands
Membrane
170,000 Marshall Islands
FSRU
Membrane
1976
1977
2003
2005
2013
2014
2014
2014
2014
2015
2015
2015
2015
Charterer/
Pool
Arrangement
Current
Charter
Expiration
Charter
Extension
Options
n/a
n/a
n/a
A major oil and
gas company
Cool Pool
Cool Pool
Cool Pool
A major
Japanese trading
company
Cool Pool
Cool Pool
Cool Pool
Cool Pool
Cool Pool
n/a
n/a
n/a
2019
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
(1) The Gandria is currently in lay-up and earmarked for conversion into a FLNG vessel. The Gimi entered Keppel's shipyard in Singapore in early 2019 to
commence her conversion into a FLNG. The conversion agreements for the Gimi and the Gandria are both subject to certain payments and lodging of a full
Notice to Proceed.
(2) Golar Arctic is currently not assigned to a charter.
(3) As of March 15, 2019, we have eight vessels operating in the Cool Pool. See "Cool Pool" below.
(4) Golar Viking is currently serving a short-term contract, due to expire in December 2019. Golar has also entered into binding agreements with a Croatian
project developer, LNG Hrvatska d.o.o., to convert the 2005 built Golar Viking into a FSRU, sell the converted vessel, and then operate and maintain the
FSRU for a minimum of 10 years. Conversion capital expenditure will be predominantly funded by stage payments under the agreements. Commencement
of this project is subject to certain conditions precedent, including confirmation of project funding and receipt of a Notice to Proceed from LNG Hrvatska
d.o.o.
In February 2019, we entered into a 20 year Lease and Operate Agreement with BP for the charter of a FLNG unit, the Gimi, to service the Greater Tortue
Ahmeyim project. These and other agreements are subject to certain conditions precedent which if not satisfied, or waived by the customer, may result in
termination prior to or after employment commences.
(5)
Vessel Operations Revenue
During the year ended December 31, 2018, we received the majority of our vessel operations revenue from the Cool
Pool.
a. Cool Pool
In October 2015, we entered into an LNG carrier pooling arrangement with GasLog Carriers Ltd ("GasLog") and Dynagas
Ltd ("Dynagas") to market our vessels operating in the LNG shipping spot market. In June 2018, Dynagas exited the pooling
arrangement. As of December 31, 2018, the Cool Pool comprised of 16 vessels, of which eight vessels were contributed by us,
six vessels by GasLog and two vessels by Golar Power. The vessel owner continues to be fully responsible for the manning and
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 and GasLog.
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.
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.
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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.
b. Management Services
Golar Management, our wholly-owned subsidiary which has its primary offices in London, Oslo, Kuala Lumpur and
Split, provides commercial, operational and technical support, crew management services 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 and Golar Power, 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 and Golar Power; (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.
FLNG
Compared to onshore terminals, the FLNG regasification industry is fairly young. FLNG projects are a solution for
stranded reserves (such as lean gas sourced from offshore fields) for which geographical, technical and economic limitations
restrict the ability to convert these gas reserves to LNG. In addition, FLNGs offer a more viable economic solution to the traditional
giant land-based projects as they are able to be re-deployed. Golar’s liquefaction solution places liquefaction technology on board
an existing LNG carrier using a rapid low-cost execution model resulting in a vessel conversion time of approximately three years.
Golar was also the first company to enter into an agreement for the long-term employment of a FLNG based on the conversion
of an existing LNG carrier.
The following table lists our FLNG as of March 15, 2019:
Vessel Name
Hilli Episeyo (1)
Year of
Delivery
2017
Capacity
2.4 mtpa
Flag
Marshall
Islands
Type
FLNG Moss
Charterer/
Pool
Arrangement
Perenco/SNH
Current
Charter
Expiration
2026
Charter
Extension
Options
n/a
(1) The Hilli Episeyo was converted into a FLNG from a LNG carrier which was originally constructed in 1975. She commenced her operations under the LTA
with the Customer in May 2018. The existing LTA is for two of the four liquefaction trains and provides the Customer the option to increase liquefaction
production.
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Hilli Episeyo
FLNG Hilli Episeyo shortly before departure from Singapore
The Hilli Episeyo conversion was completed in October 2017 and she arrived in Cameroon on November 20, 2017.
We tendered her notice of readiness on December 3, 2017 upon completion of pre-commissioning activities, starting the
commissioning period. The Hilli Episeyo started earning commissioning payments at a reduced rate from January 4, 2018. First
LNG was produced from the Hilli Episeyo in mid-March. The Hilli Episeyo completed her commissioning and was accepted by
the customer in May 2018 (the “Acceptance Date”).
The LTA with the Customer was executed on November 29, 2017 and considered legally effective on December 19, 2017
when all conditions precedent were met.
Under the LTA, the Hilli Episeyo is scheduled to provide liquefaction services until the earlier of (i) eight years from the
Acceptance Date, or (ii) the time of receipt and processing by the Hilli Episeyo of 500 billion cubic feet of feed gas. Under the
terms of the LTA, the Hilli Episeyo is required to make available 1.2 million tonnes of liquefaction capacity per annum, this
capacity will be spread evenly over the course of each contract year. The Customer will pay Hilli Corp a monthly tolling fee,
which consists of a fixed element of hire and also an element related to the price of Brent crude oil where we receive incremental
tolling fees when the price rises above $60.
The Customer has an option to require us to increase production 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 termination
payments 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 termination by Customer
of Hilli Corp’s underperformance or non-performance. If the LTA is terminated by Hilli Corp in respect of a breach by the Customer
prior to the second anniversary of the Acceptance Date, the Customer is obligated to pay Hilli Corp $500 million, with termination
payments decreasing if the LTA is terminated after the second anniversary of the Acceptance Date.
On August 15, 2017, we entered into the Hilli Sale Agreement with Golar Partners for the Hilli Disposal from Golar and
affiliates of Keppel and Black and Veatch of common units (the “Disposal Interests”) in Golar Hilli LLC. As of the closing on
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July 12, 2018, of the Hilli Disposal, Hilli LLC became indirectly (via its wholly owned subsidiary) the disponent owner of the
Hilli Episeyo. The sale price for the Disposal Interests was $658 million less net lease obligations under the financing facility for
the Hilli Episeyo (the “Hilli Facility”). 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. Additionally, in connection with the
closing of the Hilli Disposal, Golar Partners provided a several guarantee of 50% of Hilli Corp’s indebtedness under the Hilli
Facility. Upon the closing of the Hilli Disposal, we, along with Keppel and Black and Veatch, sold 50% of the Disposal Interests
to Golar Partners in return for the payment by Golar Partners of the net purchase price of $199.7 million.
Future FLNGs projects
a. BP Greater Tortue Ahmeyim project
In October 2014, we entered into agreements for the conversion of the Gimi into a FLNG. The primary vessel conversion
contract was entered into with Keppel in December 2018. The Gimi was delivered to Keppel shipyard in Singapore in early 2019
to undergo initial works in connection with her conversion.
In February 2018 the Inter-Governmental Cooperation Agreement between Mauritania and Senegal was signed, enabling
further development of the cross-border Tortue Ahmeyim natural gas field to continue. In April 2018, we entered into a Preliminary
Agreement and exchanged Heads of Terms for a Charter Agreement with BP Mauritania Investments Ltd and BP Senegal
Investments Ltd (together “BP") in their capacity as block operators. The Heads of Terms committed the parties to translate the
terms into an agreement and proceed with Front End Engineering Design (“FEED”¨) on the provision of a FLNG vessel to support
the development of Phase 1A of the Greater Tortue/Ahmeyin field, located offshore Mauritania and Senegal. In December 2018,
we received a Limited Notice to Proceed from BP in connection with this project.
In February 2019, Golar entered into a Lease and Operate Agreement ("LOA") with BP for the charter of a FLNG unit,
Gimi, to service the Greater Tortue Ahmeyim project for a 20-year period expected to commence in 2022. The FLNG Gimi will
liquefy gas as part of the first phase of the Greater Tortue Ahmeyim Project and will be located at an innovative near-shore hub
located on the Mauritania and Senegal maritime border. FLNG Gimi is designed to produce an average of approximately 2.5
million tonnes of LNG per annum, using the Black & Veatch "Prico" liquefaction process, with the total gas resources in the field
estimated to be around 15 trillion cubic feet. Concurrent with entering into the LOA, we entered into a Subscription Agreement
(subject to closing conditions) with First FLNG Holdings Pte. Ltd., an indirect wholly-owned subsidiary of Keppel Capital, in
respect of their participation in a 30% share of FLNG Gimi.
b. Delfin LNG
Progress continues to be made on development of the first FLNG for the US Gulf of Mexico "Delfin LNG" project. When
connected to Delfin's existing pipeline infrastructure, Golar's FLNG could deliver a low cost liquefaction solution in North America
giving Delfin and Golar an early mover advantage marketing a relatively small parcel of LNG into a demand driven market. Work
continues to establish the right gas supply and offtake combination to enable a financing and yard commitment before the end of
2019.
Power
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.
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 scheduled to deliver power to 26 committed off-takers for 25 years from
2020.
The construction of the Sergipe power plant remains on track for commencement of operations in early 2020.
Further FSRU-power opportunities are being pursued in by Golar Power in Brazil and elsewhere. License approvals for
projects are making good progress, including a recently gazetted Barcarena project. These licenses put Golar Power in a strong
position to develop FSRU terminal projects, to win future power auctions, and to distribute LNG locally.
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Competition
We operate in markets that are highly competitive and based primarily on supply and demand. As the FSRU market
continues to grow and mature there are new competitors entering the market. A number of our competitors have also ordered
FSRUs. Expectations of rapid growth in the FSRU market has also 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 charters is based primarily on price, operational track record, LNG storage capacity, efficiency of
the regasification process, vessel availability, size, age and condition of the vessel, relationships with LNG carrier users and
reputation of the operator. In addition, FSRUs may operate as LNG carriers during periods of increased FSRU competition.
The FLNG industry is in an early stage of development, and we do not currently face significant competition from other
providers of FLNG services. There are currently only two operating FLNGs in the world. We anticipate that other companies,
including marine transportation companies with strong reputations and extensive resources and experience, will enter the FLNG
industry at some point in the future, resulting in greater competition.
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 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. There is however a
tendency for a weaker vessel market in the periods between winter and summer.
Vessel Maintenance
Safety is our top operational priority. Our vessels are operated in a manner intended to protect the safety and health of
our employees, the general public and the environment. We actively manage the risks inherent in our business and are committed
to eliminating incidents that threaten safety, such as groundings, fires and collisions. We are also committed to reducing emissions
and waste generation. We have established key performance indicators to facilitate regular monitoring of our operational
performance. We set targets on an annual basis to drive continuous improvement, and we review performance indicators monthly
to determine if remedial action is necessary to reach our targets.
Under our charters, we are responsible for the technical management of the vessels which our subsidiaries assist us by
managing our vessel operations, maintaining a technical department to monitor and audit our vessel manager operations and
providing expertise in various functions critical to our operations. This affords an efficient and cost effective operation and, pursuant
to administrative services agreements with certain of our subsidiaries, access to human resources, financial and other administrative
functions.
These functions are supported by on board and onshore systems for maintenance, inventory, purchasing and budget
management. In addition, our day-to-day focus on cost control will be applied to our operations. To some extent, the uniform
design of some of our vessels and the adoption of common equipment standards should also result in operational efficiencies,
including with respect to crew training and vessel management, equipment operation and repair, and spare parts ordering.
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.
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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.
The current protection and indemnity insurance coverage for pollution is $250 million per incident for the Hilli Episeyo
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 $8.2 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.
Classification, Inspection and Maintenance
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
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.
For maintenance of the class certificate, regular and extraordinary surveys of hull, machinery, including the electrical
plant and any special equipment classed, are required to be performed by the classification society, to ensure continuing compliance.
Vessels are drydocked at least once during a five-year class cycle for inspection of the underwater parts and for repairs related to
inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the
shipowner within prescribed time limits. The classification society also undertakes on request 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.
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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,
Golar Viking and Golar Bear are certified by the American Bureau of Shipping. All of our other vessels are certified by Det Norske
Veritas GL. All three 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
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, and the Gandria is currently layed up.
We carry out inspections of the vessels on a regular basis; both at sea and while the vessels are in port. The results of
these inspections, which are conducted both in port and while underway, result in a report containing recommendations for
improvements to the overall condition of the vessel, maintenance, safety and crew welfare. Based in part on these evaluations, we
create and implement a program of continual maintenance and improvement for our vessels and their systems.
Environmental and Other Regulations
General
Our business and the operation of our vessels are subject to various international treaties and conventions and to the
applicable local national and subnational laws and regulations of the countries in which our vessels operate or are registered. These
local laws and regulations might require us to obtain governmental permits and authorizations before we may conduct certain
activities. Failure to comply with these laws or to obtain the necessary business and technical licenses could result in sanctions
including suspension and/or freezing of the business and responsibility for all damages arising from any violation.
The local governments may also periodically revise their environmental laws and regulations or adopt new ones, and the
effects of new or revised laws and regulations on our operations cannot be predicted. Although we believe that we are substantially
in compliance with applicable environmental laws and regulations and have all permits, licenses and certificates required for our
vessels, future non-compliance or failure to maintain necessary permits or approvals could require us to incur substantial costs or
temporarily suspend the operation of one or more of our vessels. There can be no assurance that additional significant costs and
liabilities will not be incurred to comply with such current and future laws and regulations, or that such laws and regulations will
not have a material effect on our operations.
International environmental treaties and conventions and U.S. environmental laws and regulations that apply to the
operation of our vessels are described below. Other countries in which we operate or in which our vessels are registered have or
may in the future have laws and regulations that are similar in nature to the U.S. laws referenced below. GMN provides technical
management services for our vessels, is certified in accordance with the IMO standard for ISM and operates in compliance with
the International Standards Organization (“ISO”) Environmental Management Standard for the management of significant
environmental aspects associated with the ownership and operation of our fleet.
International Maritime Regulations of LNG Vessels
The IMO provides international regulations governing shipping and international maritime trade. Among other
requirements, Chapter IX of SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution
Prevention ("the ISM Code") requires the party with operational control of a vessel to develop an extensive safety management
system and the adoption of a policy for safety and environmental protection setting forth instructions and procedures for operating
its vessels safely and also describing procedures for responding to emergencies. Our ship manager holds a document of compliance
under the ISM Code for operation of Gas Carriers.
Vessels that transport gas, including LNG carriers and FSRUs, are also subject to the International Gas Carrier Code
(“IGC”) which 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. 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.
The IMO also promulgates ongoing amendments to SOLAS which provides rules for the construction of and equipment
required for commercial vessels and includes regulations for safe operation. It requires the provision of lifeboats and other life-
saving appliances, requires the use of the Global Maritime Distress and Safety System which is an international radio equipment
and watch keeping standard, afloat and at shore stations, and relates to the International Convention on the Standards of Training
and Certification of Watchkeeping Officers (“STCW”) also promulgated by the IMO. The SOLAS and other IMO regulations
concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment
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and the global maritime distress and safety system, are applicable to our operations. Flag states that have ratified the SOLAS and
STCW generally employ the classification societies, which have incorporated the SOLAS and STCW requirements into their class
rules, to undertake surveys to confirm compliance.
In the wake of increased worldwide security concerns, the IMO amended SOLAS and added the International Ship and
Port Facility Security Code (“ISPS Code”), which came into effect on July 1, 2004, to detect security threats and take preventive
measures against security incidents affecting vessels or port facilities. GMN has developed security plans and appointed and trained
ship and office security officers. In addition, all of our vessels have been certified to meet the ISPS Code and the security requirements
of the SOLAS and the Maritime Transportation Security Act (“MTSA”).
The United States Coast Guard ("USCG") regulations, intended to align with international maritime security standards,
exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid International Ship
Security Certificate that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code.
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 United States Environmental Protection Agency (the "EPA"). Future security measures could
have a significant financial impact on us. GMN has developed security plans, appointed and trained ship and office security officers
and all of our vessels have been certified to meet the ISPS Code and the security requirements of the SOLAS and the MTSA.
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 regulation may have on our operations. Non-compliance with the
IGC Code or other applicable IMO regulations may subject a shipowner or a bareboat charterer to increased liability or penalties,
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.
Air Emissions
The IMO adopted MARPOL, which imposes environmental standards on the shipping industry relating to marine
pollution, including oil spills, management of garbage, the handling and disposal of noxious liquids, sewage and air
emissions. MARPOL is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil
leakage or spilling and applies to various vessels delivered on or after August 1, 2010. It includes requirements for the protected
location of the fuel tanks, performance standards for accidental oil fuel outflow, a tank capacity limit and certain other maintenance,
inspection and engineering standards. IMO regulations also require owners and operators of vessels to adopt Shipboard Oil Pollution
Emergency Plans. Periodic training and drills for response personnel and for vessels and their crews are required. Annexes II and
III relate to harmful substances carried in bulk, in liquid or in packaged form, respectively, and Annexes IV and V relate to sewage
and garbage management, respectively.
MARPOL Annex VI regulations for the “Prevention of Air Pollution from Ships”, adopted in September 2017, apply to
all vessels, fixed and floating drilling rigs and other floating platforms. Annex VI sets limits on sulfur oxide and nitrogen oxide
emissions from vessel exhausts, emissions of volatile compounds from cargo tanks, incineration of specific substances, and
prohibits deliberate emissions of ozone depleting substances. Annex VI also includes a global cap on sulfur content of fuel oil and
allows for special areas to be established with more stringent controls on sulfur emissions. The certification requirements for
Annex VI depend on size of the vessel and time of the periodic classification survey. Ships weighing more than 400 gross tons
and engaged in international voyages involving countries that have ratified the conventions, or vessels flying the flag of those
countries, are required to have an International Air Pollution Certificate (“IAPP Certificate”). Annex VI came into force in the
United States on January 8, 2009. All our vessels delivered or drydocked since May 19, 2005 have been issued IAPP Certificates.
Amendments to Annex VI to the MARPOL Convention that took effect in 2010 require progressively stricter limitations
on sulfur emissions from vessels. As of January 1, 2012, fuel used to power vessels may contain no more than 3.5% sulfur for
areas outside of designated emission control areas (“ECAs”). This cap will then decrease progressively until it reaches 0.5% on
January 1, 2020. The amendments also establish new tiers of stringent nitrogen oxide emissions standards for new marine engines,
depending on their date of installation. The European directive 2005/33/EC bans the use of fuel oils containing more than 0.10%
sulfur by mass by any merchant vessel while at berth in any EU country. Our vessels have achieved compliance, where necessary,
by being modified to burn gas only in their boilers when alongside a berth. Except for one of Golar Partners' vessels, we have
modified the boilers on all our vessels to also allow operation on low sulfur diesel oil, or LSDO.
More stringent emission standards could apply in coastal areas designed as “Emission Control Areas” (“ECAs”), such
as the United States and Canadian coastal areas designated by the IMO’s Marine Environment Protection Committee ("MEPC"),
as discussed in “U.S. Clean Air Act” below. These areas include certain coastal areas of North America and the United States
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Caribbean Sea. Annex VI Regulation 14, which came into effect on January 1, 2015, set a 0.10% sulfur limit in areas of the Baltic
Sea, North Sea, North America and United States Caribbean Sea ECAs. Ocean-going vessels operating in these areas will be
subject to stringent emission controls that may cause us to incur additional costs. The approval of other ECAs or other stringent
requirements relating to emissions from marine diesel engines or port operations by vessels may require significant capital
expenditures for compliance.
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 produced by vessels 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 became 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. The IMO intends to use such data as the first step in its roadmap
(through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive
emission control systems. Because our vessels are largely powered by means other than fuel oil we do not anticipate that any
emission limits that may be promulgated will require us to incur any material costs for the operation of our vessels, but that
possibility cannot be eliminated.
Safety Management System Requirements
Under 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 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.
Amendments to SOLAS 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's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code
for Ships Operating in Polar Water (the “Polar Code”). The Polar Code, which entered into force on January 1, 2017, covers design,
construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships
operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention
as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January
1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first
intermediate or renewal survey.
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
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cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021.
This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses
and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Anti-Fouling Requirements
Our vessels are subject to the IMO’s International Convention on the Control of Harmful Anti-fouling Systems on Ships,
or the Anti-fouling Convention, which 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 must obtain an International
Anti-fouling System Certificate and undergo a survey before the vessel is put into service or when the anti-fouling systems are
altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels, and we do not believe that maintaining
such certificates will have an adverse financial impact on the operation of our vessels.
Oil Pollution Act and The Comprehensive Environmental Response Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA 90”) established an extensive regulatory and liability regime for environmental
protection and clean up of oil spills. OPA 90 affects all owners and operators whose vessels trade with the United States or its
territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial waters and
the 200 nautical mile exclusive economic zone of the United States. The Comprehensive Environmental Response, Compensation,
and Liability Act (“CERCLA”) applies to the release or discharge of hazardous substances whether on land or at sea. While LNG
is generally excluded from the current definition of "hazardous substances" under OPA 90 and CERCLA, these regulatory
frameworks may nevertheless affect us because we carry oil as fuel and lubricants for our engines, and the release or discharge
of these could cause an environmental hazard. Under OPA 90, vessel operators, including vessel owners, managers and bareboat
or “demise” charterers, are “responsible parties” who are all liable regardless of fault, individually and as a group, for all containment
and clean-up costs and other damages arising from oil spills from their vessels. These “responsible parties” would not be liable if
the spill results solely from the act or omission of a third party, an act of God or an act of war. The other damages aside from clean-
up and containment costs are defined broadly to include:
•
•
•
•
•
•
injury to, destruction or loss of, or loss of use of, natural resource and the costs of assessment thereof;
injury to, or economic losses resulting from, the destruction of real and personal property;
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;
loss of subsistence use of natural resources that are injured, destroyed or lost;
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.
The limits of OPA liability are the greater of $2,200 per gross ton or $18.8 million for any tanker other than single-hull
tank vessels, over 3,000 gross tons (subject to possible adjustment for inflation) (relevant to ours and Golar’s LNG carriers). These
limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction
or operating regulations, or by the responsible party's gross negligence or willful misconduct. These limits likewise do not apply
if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal
activities. OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for discharge of
pollutants within their waters. In some cases, states, which have enacted their own legislation, have not yet issued implementing
regulations defining ship owners’ responsibilities under these laws.
CERCLA, which also applies to owners and operators of vessels, contains a similar liability regime and provides liability
for releases of “hazardous substances”, including for clean up, 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 the same, and health assessments
or health effect studies. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying
hazardous substances as cargo or residue, and the greater of $300 per gross ton or $500,000 for any other vessel. As with OPA,
these limits of liability 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
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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. We believe that we are in substantial compliance with OPA, CERCLA
and all applicable state regulations in the ports where our vessels call.
OPA requires owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility
sufficient to meet the limit of their potential strict liability under OPA/CERCLA. Under the regulations, evidence of financial
responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA regulations, an owner or
operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount
equal only to the financial responsibility requirement of the vessel having the greatest maximum liability under OPA/
CERCLA. Each of our ship owning subsidiaries that has vessels trading in U.S. waters has applied for, and obtained from the U.S.
Coast Guard National Pollution Funds Center three-year certificates of financial responsibility, or COFR, supported by guarantees
which we purchased from an insurance based provider. We believe that we will be able to continue to obtain the requisite guarantees
and that we will continue to be granted COFRs from the USCG for each of our vessels that is required to have one.
Compliance with any new requirements of OPA, or other laws or regulations, may substantially impact our cost of
operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. For example, in
July 2016, the U.S. Department of the Interior’s Bureau of Safety and Environmental Enforcement ("BSEE") finalized new
regulations imposing well control requirements on offshore oil and gas drilling. However, this measure and others like it are being
reevaluated by promulgating agencies pursuant to Executive Orders 13783 and 13795, which promote energy exploration and
production. As part of this reevaluation, in May 2018, BSEE issued a proposal to revise or eliminate certain of the requirements
under the 2016 well control rule. Additional legislation or regulation applicable to the operation of our vessels that may be
implemented in the future could adversely affect our business and ability to make distributions to our unitholders.
Bunker Convention/CLC State Certificate
The International Convention on Civil Liability for Bunker Oil Pollution 2001, or the Bunker Convention entered into
force on November 21, 2008. The Convention provides a liability, compensation and compulsory insurance system for the victims
of oil pollution damage caused by spills of bunker oil. The Convention imposes strict liability on ship owners (including the
registered owner, bareboat charterer, manager or operator) for pollution damage (including the cost of preventive measures) caused
in the territory, including the territorial sea of a State Party, as well as its economic zone or equivalent area. Registered owners of
any sea going vessel and seaborne craft over 1,000 gross tonnage, of any type whatsoever, and registered in a State Party, or
entering or leaving a port in the territory of a State Party, will be required to maintain insurance which meets the requirements of
the Convention and to obtain a certificate issued by a State Party attesting that such insurance is in force. The State Party issued
certificate must be carried on board at all times. P&I Clubs in the International Group issue the required Bunkers Convention
“Blue Cards” to enable signatory states to issue certificates. All of our vessels have received “Blue Cards” from their P&I Club
and are in possession of a Civil Liability Convention (CLC) State-issued certificate attesting that the required insurance cover is
in force.
Ballast Water Management Convention, Clean Water Act and National Invasive Species Act
The IMO has negotiated international conventions that impose liability for pollution in international waters and the
territorial waters of the signatories to such conventions. The EPA and USCG, have also enacted rules relating to ballast water
discharge for all vessels entering or operating in United States waters. Compliance 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 cost, and/or otherwise restrict our vessels from entering United States waters.
a. Ballast Water Management Convention
In February 2004, the IMO adopted an International Convention for the Control and Management of Ships'
Ballast Water and Sediments (“BWM Convention”). 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 implementing regulations call for a phased introduction of mandatory ballast water
exchange requirements to be replaced in time with mandatory concentration limits. The BMW Convention entered into
force on September 8, 2017, however IMO later decided to postpone the compliance date for existing vessels by 2 years,
i.e. until the first renewal survey following September 8, 2019. Furthermore, in October 2014 the MEPC met and adopted
additional resolutions concerning the BWM Convention’s implementation. Upon entry into force of the BWM Convention,
mid-ocean ballast water exchange became mandatory for our vessels.
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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. At MEPC 72, the G8 guidelines were converted into a mandatory code for approval of ballast water
management systems, which enters into force in October 2019. 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. For most ships, compliance with the D-2 standard will involve installing on-board
systems to treat ballast water and eliminate unwanted organisms. Ballast Water Management systems, which include
systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical
characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). Costs of
compliance with these regulations may be substantial.
Once mid-ocean ballast exchange ballast water treatment requirements become mandatory under the BWM
Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations.
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.
b. Clean Water Act
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil or hazardous substances 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. In addition, 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.
The EPA regulates the discharge of ballast and bilge water and other substances in United States waters under
the CWA. The EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and
recreational vessels) comply with a permit that regulates ballast water discharges and other discharges incidental to the
normal operation of certain vessels within United States waters - the Vessel General Permit for Discharges Incidental to
the Normal Operation of Vessels, (“VGP”). In March 2013, the EPA re-issued the VGP. The 2013 VGP focuses on
authorizing discharges incidental to operations of commercial vessels and contains ballast water discharge limits for most
vessels to reduce the risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers and
the use of environmentally acceptable lubricants. In December 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 December 2018, the Vessel Incidental Discharge
Act (VIDA) was signed into law and restructured the EPA and the USCG programs for regulating incidental discharges
from vessels. Rather than requiring CWA permits, the discharges will be regulated under a new CWA Section 312(p)
establishing Uniform National Standards for Discharges Incidental to Normal Operation of Vessels. Under VIDA, VGP
provisions and existing USCG regulations will be phased out over a period of approximately four years and replaced
with National Standards of Performance ("NSPs") to be developed by EPA and implemented and enforced by the USCG.
Although the 2013 VGP was scheduled to expire in December 2018, under VIDA the provisions of the 2013 VGP will
remain in place until the new regulations are in place.
c. National Invasive Species Act
The USCG regulations adopted under the U.S. National Invasive Species Act (“NISA”) require the USCG's
approval of any technology before it is placed on a vessel. As a result, the USCG has provided waivers to vessels which
could not install the then as-yet unapproved technology. In May 2016, the USCG published a review of the practicability
of implementing a more stringent ballast water discharge standard. The results concluded that technology to achieve a
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significant improvement in ballast water treatment efficacy cannot be practically implemented. In February, 2016, the
USCG issued a new rule amending the Coast Guard’s ballast water management record-keeping requirements. Effective
February 22, 2016, vessels with ballast tanks operating exclusively on voyages between ports or places within a single
Captain of the Port zone were required to submit an annual report of their ballast water management practices. However,
on September 19, 2018, the USCG published a final rule eliminating the requirement. Moreover, as discussed above,
under VIDA, existing USCG ballast water management regulations will be phased out over a period of approximately
four years and replaced with NSPs to be developed by EPA and implemented and enforced by the USCG.
Installation of ballast water treatments systems (“BWTS”), 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 BWTS. The additional costs of complying with
these rules, relating to all our vessels, are estimated to be in the range of $1.8 million and $2.1 million per vessel and will be phased
in over time in connection with the renewal surveys that are required. We have therefore decided to install BWTS on all our LNG
Carriers on their first drydocking after 2017. The installation of the BWTS on the Golar Seal was completed in 2018.
Clean Air Act
The U.S. Clean Air Act of 1970 (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile
organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain
cargos when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards
for so-called “Category 3” marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently
limited to new engines beginning with the 2004 model year. On April 30, 2010, the EPA promulgated final emission standards for
Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. The emission standards
apply in two stages: near-term standards for newly-built engines apply from 2011, and long-term standards requiring an 80%
reduction in nitrogen dioxides, or NOx, apply from 2016. Compliance with these standards may cause us to incur costs to install
control equipment on our vessels in the future.
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.
Regulation of Greenhouse Gas Emissions
In February 2005, the Kyoto Protocol entered into force. Pursuant to the Kyoto Protocol, adopting countries are required
to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected
of contributing to global warming. Currently, the emissions of greenhouse gases from international transport are not subject to the
Kyoto Protocol. In December 2009, more than 27 nations, including the United States and China, signed the Copenhagen Accord,
which includes a non-binding commitment to reduce greenhouse gas emissions. In addition, in December 2011, the Conference
of the Parties to the United Nations Convention on Climate Change adopted the Durban Platform which calls for a process to
develop binding emissions limitations on both developed and developing countries under the United Nations Framework
Convention on Climate Change applicable to all Parties. The Paris Agreement, which resulted from the 2015 United Nations
Climate Change Conference in Paris, does not directly limit greenhouse gas emissions from vessels (e.g., there are no mandatory
initiatives affecting the shipping industry in the Paris Agreement); however the IMO has agreed on a plan to reduce carbon emissions
from marine vessels, as part of the shipping industry’s contribution to the Paris Agreement, which was adopted in April 2018 (see
further discussion below).
In addition to the voluntary strategies to reduce greenhouse gas emissions through the United Nations climate process,
our operations may be impacted by mandatory requirements imposed by the IMO. As of January 1, 2013, all vessels, including
rigs and drillships, must comply with mandatory requirements adopted in July 2011 by the MEPC relating to greenhouse gas
emissions, including the Energy Efficiency Design Index ("EEDI") and the Ship Energy Efficiency Management Plan ("SEEMP"),
which are technical and operational measures to improve energy efficiency and reduce greenhouse gas emissions. The regulations
apply to all vessels of 400 gross tonnage and above. The IMO also adopted a mandatory requirement in October 2016 that ships
of 5,000 gross tonnage and above record and report their fuel oil consumption. The requirement entered into force in March 2018.
These new rules will likely affect the operations of vessels that are registered in countries that are signatories to MARPOL Annex
VI or vessels that call upon ports located within such countries. The implementation of the EEDI and SEEMP standards could
cause us to incur additional compliance costs. The IMO is also considering the implementation of a market-based mechanism for
greenhouse gas emissions from vessels.
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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, in April 2018,
nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies
“levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through
implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an
average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission
levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts
towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources
for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional
substantial expenses.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.
The European Union has indicated that it intends to propose an expansion of the existing European Union emissions
trading scheme to include emissions of greenhouse gases from marine vessels and in January 2012, the European Commission
launched a public consultation on possible measures to reduce greenhouse gas emissions from vessels. In April 2015, a regulation
was adopted requiring that large vessels (over 5,000 gross tons) calling at European ports from January 2018 collect and publish
data on carbon dioxide omissions.
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 that 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 certain weather events.
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, as of January 1, 2018, subject to some exclusions, requires companies
with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, 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
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.
Other Regulations
Our LNG vessels may also become subject to the HNS Convention. The HNS Convention introduces strict liability for
the ship owner and covers pollution damage as well as the risks of fire and explosion, including loss of life or personal injury and
damage to property. HNS includes, among other things, liquefied natural gas.
The April 2010 Protocol sets up a two-tier system of compensation composed of compulsory insurance taken out by ship
owners and an HNS fund that comes into play when the insurance is insufficient to satisfy a claim or does not cover the
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incident. Under the 2010 Protocol, if damage is caused by bulk HNS, claims for compensation will first be sought from the ship
owner up to a maximum of 100 million Special Drawing Rights, or SDR. SDR is a potential claim on the freely usable currencies
of the IMF members. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115
million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The
April 2010 Protocol has yet entered into effect as the required minimum number of consenting states has not been met. We cannot
estimate the costs that may be needed to comply with any such requirements that may be adopted with any certainty at this time.
In June 2015 the IMO formally adopted the IGF Code, which is designed to minimize the risks involved with ships using
low flashpoint fuels, including LNG. Compliance with the IGF Code is mandatory under SOLAS through adopted amendments.
The IGF Code and the amendments to SOLAS became effective January 1, 2017.
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 LLC
and Hilli Corp.
D. Property, Plant and Equipment
For information on our fleet, please see the section of this item entitled "Vessel Operations".
We do not own any interest in real property. We lease approximately 10,700 square feet of office space in London, 32,000
square feet of office space in Oslo, for our ship management operations, 4,100 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.
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 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 Our Results of Operations and Future Results
Our historical results of operations and cash flows may not be indicative of results of operations and our results may be
principally affected for the following reasons:
•
•
Conversion of our vessels to FLNG. The Gimi was delivered to Keppel's shipyard in early 2019 to commence
her conversion into a FLNG. FLNG conversions require highly specialized contractors and are subject to risk
of delay or default by shipyards. In the event the shipyards do not perform under these agreements and we are
unable to enforce certain refund guarantees with third party banks, we may lose part or all of our investment.
Utilization of the Hilli's full capacity. The Hilli Episeyo is the world’s first converted FLNG vessel. FLNG
vessels are complex and their operations are technically challenging and subject to mechanical risks. Accordingly,
delays in contracting Train 3 and Train 4 capacity could adversely affect our financial performance.
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•
•
•
•
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 by US GAAP 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. As of December 31,
2018, we consolidated lessor VIEs in connection with the lease financing transactions for eight of our vessels.
Refer to note 5 "Variable Interest Entities" and note 22 "Debt" of our consolidated financial statements included
herein.
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 oil derivative instrument. 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. Refer to note 27 “Financial Instruments” in our
Consolidated Financial Statements.
Our results will be dependent in part on the performance of the Cool Pool. We, along with GasLog and Golar
Power, are in a Cool Pool arrangement to market our vessels which are currently operating in the LNG shipping
spot market. As of March 15, 2019, we had contributed eight (2017: eight) of the 16 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.
Our investment in joint ventures and affiliates may not result in anticipated profitability or generate cash
flow sufficient to justify our investment. In November 2018, Golar Partners announced a distribution cut which
failed to translate into an improved share price. Given the failure of the share price to recover and the sustained
period of the suppressed share price, we recorded an other than temporary impairment charge of $149.4 million.
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:
Liquefaction services revenue. Liquefaction services revenue is generated from a LTA entered into with our customer.
Our provision of liquefaction services capacity includes the receipt of the customer’s gas, treatment and temporary storage on
board our FLNG, and delivery of LNG to waiting carriers. We recognize revenue when obligations under the terms of our contract
are satisfied.
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 idle, that is, off-hire, for several reasons: scheduled
drydocking or special survey or vessel upgrade or maintenance or inspection, 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, maintenance, operational deficiencies,
equipment breakdown, 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, which we refer to as
unscheduled off-hire.
49
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. Charterhire 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.
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, 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 this benefit will vary with the movement of actuarial variables and the value of the pension fund assets.
Project development expenses. These include the costs associated with pursuing future contracts and developing our
pipeline of activities that have not met our internal threshold for capitalization.
Realized and unrealized gain on oil derivative instrument. In December 2017, we recognized a derivative asset in relation
to the 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 "Realized and
unrealized gain on oil 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.
50
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.
(Losses) gains on derivative instruments. (Losses) gains on derivative instruments include market valuation adjustments
for interest rate swap derivatives, realized interest income/(expense) on interest rate swaps and market valuation adjustments on
Earn-Out Units. 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 may be required to be posted. As at December 31, 2018 cash collateral amounting to $82.9
million has been provided against our Total Return Swap (see note 14 "Restricted Cash and Short-term Deposits" of our consolidated
financial statements included herein).
Other financial items. Other financial items include financing fee arrangement costs such as commitment fees on credit
facilities, foreign exchange gains/losses and other realized gains/(losses) on our financial instruments. Foreign exchange gains or
losses arise due to the retranslation of our capital lease obligations and the cash deposits securing those obligations. Any gain or
loss represents an unrealized gain or loss and will arise over time as a result of exchange rate movements. Our liquidity position
will only be affected to the extent that we choose or are required to withdraw monies from or pay additional monies into the
deposits securing our capital lease obligations.
Equity in net earnings or losses of affiliates. This includes our share of the earnings or losses of our 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. These 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. 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. 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". The basis difference will then be amortized through the consolidated statements of income.
Non-Controlling Interest. Non-controlling interest refers to the 44.6% interest in Hilli LLC. In addition, we have entered
into various sale and leaseback arrangements with wholly-owned special purpose vehicles (“lessor SPVs”) of financial institutions.
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.
Thus, the equity attributable to these financial institutions is included in our non-controlling interest. For additional details, see
note 5 “Variable Interest Entities” to our Consolidated Financial Statements included herein.
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, 2018, 2017 and 2016 were affected by several key factors:
•
Interest costs of $43.9 million, $72.4 million and $50.3 million were capitalized in 2018, 2017 and 2016, respectively,
in relation to the FLNG conversion of the Hilli, the investment in our affiliate, Golar Power and our newbuilding
under construction;
• The realized and unrealized gains and losses on mark-to-market adjustments for our derivative instruments, excluding
the Hilli embedded derivative, of $30.5 million loss, $20.7 million gain and $16.5 million gain in 2018, 2017 and
2016, respectively;
51
• Mark-to-market loss of $16.8 million and gain of $15.1 million in 2018 and 2017, respectively, on the embedded
derivative in relation to the Hilli LTA.
•
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 subsequently underwent commissioning. In 2018, she
completed commissioning and was accepted under the LTA with the Customer and is now in full commercial operation.
• Other operating income for the year ended December 31, 2018 includes $50.7 million recovered from West Africa
Gas Limited in relation to amounts due under the charter agreement. In addition, subsequent to the decision to wind
down OneLNG, we have written off $12.7 million of the trading balance with OneLNG as we deem it to be no longer
recoverable.
• Other-than-temporary impairment on our investment in Golar Partners amounting to $149.4 million was recognized
for the year ended December 31, 2018 in the line item Equity in net (losses) earnings of affiliates;
• Charterhire expenses of $nil, $17.4 million and $28.4 million for the year ended December 31, 2018, 2017 and 2016,
respectively, arising from the charter-back of the Golar Grand 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;
• Our vessels were affected by commercial waiting time;
•
•
Share options expense on options granted during 2018, 2017 and 2016;
Project expenses such as those relating to FLNG project development;
• Deconsolidation of Golar Power in July 2016, which resulted in the recognition of a loss of $8.5 million on loss of
control; and
•
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.
The impact of these factors is discussed in more detail below.
A. Operating Results
Year ended December 31, 2018, compared with the year ended December 31, 2017
As of December 31, 2018, 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 7 "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, 2018 and 2017:
Vessel operations segment
52
(in thousands of $, except average daily TCE)
2018
2017
Change
% Change
December 31,
Total operating revenues
Vessel operating expenses
Voyage, charterhire and commission expenses (including
expenses from collaborative arrangement)
Administrative expenses (2)
Project development expenses (2)
Depreciation and amortization
Other operating gains
Operating income (loss)
302,979
(70,543)
(104,463)
(51,716)
(5,165)
(65,496)
50,740
56,336
143,537
(55,944)
(61,171)
(36,296)
(9,796)
(76,522)
—
(96,192)
159,442
(14,599)
(43,292)
(15,420)
4,631
11,026
50,740
152,528
111 %
26 %
71 %
42 %
(47 )%
(14 )%
100 %
(159)%
Equity in net (losses) earnings of affiliates
(138,677)
1,503
(140,180)
(9,327 )%
Other Financial Data:
Average Daily TCE (1) (to the closest $100)
Calendar days less scheduled off-hire days
43,700
3,987
17,500
3,885
26,200
102
150 %
3 %
(1) TCE is a non-GAAP financial measure. For a reconciliation of TCE, please see “Item 3. Key Information-A. Selected Financial Data."
(2) With effect from quarter ended June 30, 2018, we presented new line item, "Project development expenses", which includes costs associated with pursuing
future contracts and developing our pipeline of activities that have not met our internal threshold for capitalization. Previously, these costs were presented within
"Administrative expenses" along with our general overhead costs. This presentation change has been retrospectively adjusted in prior periods. See note 2 "Accounting
Policies" of our consolidated financial statements included herein.
Total operating revenues: Operating revenues increased by $159.4 million to $303.0 million for the year ended December 31,
2018 compared to $143.5 million in 2017. This was principally due to an increase of:
•
•
$144.8 million as a result of improved utilization and daily hire rates, including repositioning fees, from our vessels
operating within the Cool Pool during the year ended December 31, 2018 compared to the same period in 2017; and
$16.0 million as a result of the Golar Glacier commencing her new 12 month charter in February 2018.
Average daily TCE: As a result of an overall increase in charter rates and utilization of most of our vessels within the period, we
had a higher daily TCE for the year ended December 31, 2018 of $43,700 compared to $17,500 for the same period in 2017.
Vessel operating expenses: Vessel operating expenses increased by $14.6 million to $70.5 million for the year ended December 31,
2018, compared to $55.9 million for the same period in 2017, primarily due to an increase of:
•
•
$6.2 million in operating costs in relation to our vessels operating within the Cool Pool; and
$7.8 million of reactivation and operating costs of the Golar Viking as she was taken out of lay-up in January 2018.
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
$43.3 million to $104.5 million for the year ended December 31, 2018 compared to $61.2 million for the same period in 2017, is
principally due to an increase of:
•
•
$52.2 million of voyage expenses that arose from the increased utilization of our vessels participating within the Cool
Pool, for which we receive credit under the Cool Pool arrangement (further described in note 28(d) "Related Parties" of
our consolidated financial statements included herein); and
$3.2 million due to the Golar Viking being taken out of lay-up.
This was partially offset by the $12.7 million decrease in charterhire expense relating to the charter back of the Golar Grand from
Golar Partners. As the charter back of the Golar Grand was completed in November 1, 2017, there was no comparable charterhire
expense in 2018.
53
Administrative expenses: Administrative expenses increased by $15.4 million to $51.7 million for the year ended December 31,
2018 compared to $36.3 million for the same period in 2017, principally due to an increase in salaries and employee benefits
(including share options expenses).
Project development expenses: Project development expenses decreased by $4.6 million to $5.2 million for the year ended
December 31, 2018 compared to $9.8 million for the same period in 2017, principally due to a decrease in non-capitalized project-
related expenses comprising of legal, professional and consultancy costs.
Depreciation and amortization: Depreciation and amortization decreased by $11.0 million to $65.5 million for the year ended
December 31, 2018 compared to $76.5 million for the same period in 2017, principally due to a decrease of:
•
•
$7.8 million in Golar Tundra depreciation as a result of a $9.7 million catch-up charge recognized upon the vessel ceasing
to be classified as held-for-sale in March 2017; and
$3.3 million in the Gandria depreciation as she reached the end of her useful economic life at December 31, 2017, and
accordingly, no further depreciation expense was recognized in 2018.
Other operating gains: This represents initial amounts recovered in connection with the ongoing arbitration proceedings arising
from the delays and the termination of the Golar Tundra time charter with a former charterer.
Equity in net earnings of affiliates:
(in thousands of $)
Share in net earnings in Golar Partners
December 31,
2018
2017
Change
% Change
7,001
17,702
(10,701)
Impairment of investment in Golar Partners
(149,389)
—
(149,389)
Net loss on deemed disposal of investments in Golar
Partners
Share of net earnings (loss) in other affiliates
—
3,711
(138,677)
(16,992)
793
1,503
16,992
2,918
(140,180)
(60)%
100 %
100 %
368 %
(9,327)%
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 2018. As a result, during the year ended December 31, 2018, we recognized an impairment charge of $149.4
million. The year ended December 31, 2017 included a deemed loss on disposal of $17.0 million as a result of a dilution in our
holding in Golar Partners due to further issuances of common units by Golar Partners in February 2017. As of December 31, 2018,
we held a 32.0% (2017: 31.8%) ownership interest in Golar Partners (including our 2% general partner interest) and 100% of
IDRs.
The share of net earnings in other affiliates represents our share of equity in Egyptian Company for Gas Services S.A.E
("ECGS") and Avenir LNG Limited ("Avenir"). During the year ended December 31, 2018 we recognized negative goodwill of
$3.8 million in equity in net earnings of affiliates to reflect our bargain purchase of Avenir. Refer to note 16 "Investment in
Affiliates" of our Consolidated Financial Statements included herein for further details.
54
FLNG segment
(in thousands of $)
Total operating revenues
Vessel operating expenses
Voyage expenses
Administrative expenses (1)
Project development expenses (1)
Depreciation and amortization
Other operating gains
Operating gain
December 31,
2018
127,625
2017
Change
% Change
—
127,625
100 %
(26,317)
(1,363)
175
(16,526)
(28,193)
2,749
58,150
(2)
(121)
(1,736)
(2,506)
—
15,100
10,735
(26,315)
(1,242)
1,911
(14,020)
(28,193)
(12,351)
47,415
1,315,750 %
1,026 %
(110)%
559 %
100 %
(82)%
442 %
Equity in net losses of affiliates
(2,047)
(8,153)
6,106
(75)%
(1) With effect from quarter ended June 30, 2018, we presented new line item, "Project development expenses", which includes costs associated with pursuing
future contracts and developing our pipeline of activities that have not met our internal threshold for capitalization. Previously, these costs were presented within
"Administrative expenses" along with our general overhead costs. This presentation change has been retrospectively adjusted in prior periods. See note 2 "Accounting
Policies" of our consolidated financial statements included herein.
Total operating revenues: On May 31, 2018, the Hilli was accepted by the Customer and, accordingly, commenced
operations. As a result, she generated $127.6 million total operating revenues in relation to her liquefaction services for the year
ended December 31, 2018.
Vessel operating expenses: This represents the vessel operating expenses incurred by the Hilli since she commenced operations.
Project development expenses: This relates to non-capitalized project-related expenses comprising of legal, professional and
consultancy costs. The increase for the twelve months ended December 31, 2018 was primarily as a result of increased engineering
consultation fees and front-end engineering and design costs in relation to the Greater Tortue Ahmeyim project.
Depreciation: Subsequent to the Customer's acceptance of the Hilli, we determined her to be operational and, therefore, depreciation
commenced during the second quarter of 2018 .
Other operating gains: Includes the realized and unrealized gain on the oil derivative instrument. In 2018, we recognized a realized
gain of $26.7 million, and an unrealized fair value loss of $10.0 million, relating to the LTA oil derivative instrument as a result
of the increased price of Brent Crude during the year. The derivative asset was recognized upon the LTA becoming effective in
December 2017. In 2017, we recognized an unrealized fair value gain of $15.1 million.
For the year ended December 31, 2018, this is partially offset by a $1.3 million write off of capitalized conversion costs in relation
to the Gandria. In addition, subsequent to the decision to wind down OneLNG, we have written off $12.7 million of the trading
balance with OneLNG as we deem it to be no longer recoverable.
Equity in net losses of affiliates: Pursuant to the formation of OneLNG in July 2016, we equity account for our share of net losses
in OneLNG. Given the difficulties in finalizing an attractive debt financing package along with other capital and resource priorities,
in April 2018, Golar and Schlumberger decided to wind down OneLNG and work on FLNG projects as required on a case-by-
case basis. As a result, activity levels have been substantially reduced for the year ended December 31, 2018 and the carrying
value of the investment was written down to $nil.
Power segment
(in thousands of $)
2018
2017
Change
% Change
December 31,
Equity in net (losses) of Golar Power
(16,913)
(18,798)
1,885
(10)%
55
Pursuant to the formation of Golar Power in July 2016, we have accounted for our 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 28 "Related Parties" of our consolidated
financial statements included herein) and the administrative cost of business development activities from Golar Power's Brazilian
subsidiaries. The main Brazilian activity relates to the CELSE project, which is not yet operational as the power plant is still under
construction.
Other non-operating results
The following details our other consolidated results for the years ended December 31, 2018 and 2017:
(in thousands of $)
2018
2017
Change
% Change
December 31,
Total other non-operating expense
Interest income
Interest expense
(Losses) gains on derivative instruments
Other financial items, net
Income taxes
Net income attributable to non-controlling interests
—
10,133
(101,908)
(30,541)
(1,481)
(1,267)
(63,214)
(81)
5,890
(59,305)
20,696
(69)
(1,505)
(34,424)
81
4,243
(42,603)
(51,237)
(1,412)
238
(28,790)
(100)%
72 %
72 %
(248)%
2,046 %
(16)%
84 %
Interest income: Interest income increased by $4.2 million to $10.1 million for the year ended December 31, 2018,
compared to $5.9 million for the same period in 2017 due to returns on our fixed deposits that had been made in 2018, and income
derived from the lending capital of our lessor VIEs, that we are required to consolidate under U.S. GAAP.
Interest expense: Interest expense increased by $42.6 million to $101.9 million for the year ended December 31, 2018
compared to $59.3 million for the same period in 2017. In addition to higher LIBOR rates, this was primarily due to:
•
•
•
•
$22.7 million increase in interest expense arising on the loan facilities of our consolidated lessor VIEs (refer to note 5
"Variable Interest Entities ("VIE")" of our consolidated financial statements included herein), in particular on the Hilli
post-delivery sale and leaseback arrangement entered into during June 2018;
$21.7 million lower capitalized interest on borrowing costs in relation to our investment in the Hilli FLNG conversion
prior to acceptance of the vessel;
$7.0 million increase in amortization of deferred financing costs in relation to the Hilli facility; and
$1.4 million increase in interest expense in relation to the $402.5 million convertible bond issued in February 2017,
resulting in a full year of interest incurred in 2018.
This was partially offset by a decrease of:
•
•
$5.9 million in interest expense relating to the Hilli disposal;
$5.0 million higher capitalized interest on borrowing costs in relation to our investment in Golar Power.
Losses on derivative instruments: Losses on derivative instruments increased by $51.2 million to a loss of $30.5 million
for the year ended December 31, 2018 compared to a gain of $20.7 million for the same period in 2017. The movement was
primarily due to:
Net unrealized and realized gains on interest rate swap agreements: As of December 31, 2018, we have an interest rate
swap portfolio with a notional amount of $950 million, none of which are designated as hedges for accounting purposes. Net
unrealized gains on the interest rate swaps decreased to a gain of $0.6 million for the year ended December 31, 2018 compared
to a gain of $6.6 million for the same period in 2017, due to an improvement in the long-term swap rates, offset by the decreased
notional value of the swap portfolio over the period. Realized gains on our interest rate swaps increased to a gain of $8.1 million
for the year ended December 31, 2018, compared to a loss of $3.8 million for the same period in 2017. The increase was primarily
due to higher LIBOR rates for the year ended December 31, 2018.
56
Unrealized (losses) gains on total return swap (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 extended to June 2019. The equity swap derivatives mark-to-market adjustment resulted in a net
loss of $30.7 million recognized in the year ended December 31, 2018 compared to a gain of $16.6 million for the same period
in 2017. The loss in 2018 is due to the fall in the Company's share price during 2018.
Unrealized mark-to-market losses on Earn-Out Units: This relates to the mark-to-market movement on the Earn-Out
Units issuable in connection with the IDR reset transaction in October 2016, which we recognize as a derivative asset in our
consolidated financial statements. The decrease in Golar Partners' quarterly distribution to $0.4042 per common unit on October
24, 2018 resulted in the contingent Earn-Out Units arising out of the IDR reset transaction in October 2016 not crystallizing and,
accordingly, we recognized a mark-to-market loss of $7.4 million for the year ended December 31, 2018, effectively reducing the
derivative asset to $nil at December 31, 2018, compared to a gain of $0.4 million for the same period in 2017.
Net income attributable to non-controlling interests: The net income attributable to non-controlling interests comprises
of (i) $19.7 million and $1.5 million in relation to the non-controlling shareholders who hold interests in Hilli LLC and Hilli Corp
(prior to the incorporation of Hilli LLC) for the year ended December 31, 2018 and 2017, respectively, and (ii) $43.5 million and
$32.9 million in relation to the equity interests in our lessor VIEs for the year ended December 31, 2018 and 2017, respectively.
We are party to sale and leaseback arrangements for eight vessels with these 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, 2017, compared with the year ended December 31, 2016
The following details our consolidated revenues and expense information for the three segments for each of the years
ended December 31, 2017 and 2016:
57
Vessel operations segment
(in thousands of $, except average daily TCE)
2017
2016
Change
% Change
December 31,
Total operating revenues
Vessel operating expenses
Voyage, charterhire and commission expenses (including
expenses from collaborative arrangement)
Administrative expenses (2)
Project development expenses (2)
Depreciation and amortization
Impairment of non-current assets
Other operating gains - LNG trading
Operating loss
143,537
(55,944)
(61,171)
(36,296)
(9,796)
(76,522)
—
—
(96,192)
80,257
(53,163)
(47,563)
(37,302)
(5,082)
(72,972)
(1,706)
16
(137,515)
63,280
(2,781)
(13,608)
1,006
(4,714)
(3,550)
1,706
(16)
41,323
79 %
5 %
29 %
(3 )%
93 %
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."
(2) With effect from quarter ended June 30, 2018, we presented new line item, "Project development expenses", which includes costs associated with pursuing
future contracts and developing our pipeline of activities that have not met our internal threshold for capitalization. Previously, these costs were presented within
"Administrative expenses" along with our general overhead costs. This presentation change has been retrospectively adjusted in prior periods. See note 2 "Accounting
Policies" of our consolidated financial statements included herein.
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.
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.
58
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 decreased by $1.0 million to $36.3 million for the year ended
December 31, 2017 compared to $37.3 million in 2016. This was due to a general decrease following a change in the classification
of fleet management related administrative costs to vessel operating expenses.
Project development expenses: Project expenses increased by $4.7 million to $9.8 million for the year ended December 31,
2017 compared to $5.1 million in 2016. This was primarily due to an increase in salaries and benefits, 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; and (ii) a decrease in administration expenses due to greater capitalization of certain
costs directly associated with the conversion of the Hilli into a FLNG.
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.
Equity in net earnings of affiliates:
(in thousands of $)
Share of net earnings in Golar Partners
Loss on disposal of investments in Golar Partners
Share of net earnings (loss) in other affiliates
December 31,
2017
2016
Change
% Change
17,702
(16,992)
793
1,503
37,716
—
(372)
37,344
(20,014)
(16,992)
1,165
(35,841)
(53)%
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
59
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 $)
Total operating expenses
Unrealized gain on oil derivative instrument
Operating gain (loss)
Equity in net loss of affiliates
December 31,
2017
2016
Change
% Change
(4,365)
15,100
10,735
(8,153)
(3,576)
—
(3,576)
(789)
15,100
14,311
22 %
100 %
(400)%
—
(8,153)
100 %
Total operating expenses: This relates to non-capitalized project related expenses comprising of legal, professional and
consultancy costs.
Unrealized gain on oil 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 2 "Basis of Preparation and
Significant Accounting Policies" 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.
Power segment
(in thousands of $)
2017
2016
Change
% Change
December 31,
Equity in net (losses) earnings of affiliates
(18,798)
10,534
(29,332)
(278)%
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 28 "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.
60
Other non-operating results
The following details our other consolidated results for the years ended December 31, 2017 and 2016:
(in thousands of $)
2017
2016
Change
% Change
December 31,
Total other non-operating expense
Interest income
Interest expense
Gains on derivative instruments
Other financial items, net
Income taxes
Net income attributable to non-controlling interests
(81)
5,890
(59,305)
20,696
(69)
(1,505)
(34,424)
(8,615)
2,969
(71,201)
16,491
(7,800)
589
(25,751)
8,534
2,921
11,896
4,205
7,731
(2,094)
(8,673)
(99)%
98 %
(17)%
25 %
(99)%
(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.
Gains on derivative instruments: Gains on derivative instruments increased by $4.2 million to a gain of $20.7 million
for the year ended December 31, 2017, compared to a gain of $16.5 million for the same period in 2016. The movement was
primarily due to:
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.
Other financial items, net: Other financial items, increased by $7.7 million to a loss of $0.1 million for the year ended
December 31, 2017 compared to a loss of $7.8 million for the same period in 2016. The movement was primarily due to:
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
61
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.
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 and our oil derivative instrument.
Our short-term liquidity requirements are primarily for the servicing of debt, working capital requirements, potential
investments in our joint ventures and affiliates, and conversion project related commitments due within the next 12 months. Over
the last 12 months the outlook in the LNG shipping market has improved. Whilst certain challenges remain, the Company's forward
view of the market remains positive despite current volatility. Vessel deliveries are expected to slow, from record levels in 2018,
heading into 2019. At the same time, new liquefaction capacity ramps up at close to its fastest pace in history with approximately
35mtpa of new LNG scheduled to come on line in 2019 versus 30mtpa in 2018. The market may be prone to further periods of
volatility 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 $47.9 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 March 15, 2019, we have a fleet of 14 vessels, of which three vessels are on short-term charters or operating on
the spot market, eight vessels are operating on the spot market (via the Cool Pool) and one vessel is in lay-up, one vessel entered
Keppel’s shipyard in early 2019 to commence her conversion into a FLNG, and one FLNG vessel, the Hilli, is operating on a long-
term tolling agreement.
As of December 31, 2018, we had cash and cash equivalents (including short-term deposits) of $704.3 million, of which
$486.4 million is restricted cash. Included within restricted cash is $174.6 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, $82.9 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 14 "Restricted Cash and Short-term Deposits" of our consolidated financial statements included herein for additional
details.
62
Since December 31, 2018, significant transactions impacting our cash flows include:
Receipts:
•
receipt of $9.2 million in February 2019, in respect of cash distributions for the quarter ended December 31, 2018,
from Golar Partners in relation to our interests in its common and general partner units held at the relevant record
date, albeit $1.7 million was used to satisfy interest payments on the Margin Loan Facility as a result of 21,226,586
of Golar Partners common units held by us being pledged as security for the obligations under the facility.
Payments:
•
•
•
payments of $15.1 million, in cash distributions to our shareholders in January 2019 in respect of the quarter ended
September 30, 2018;
payment of $5.0 million in March 2019 to the non-controlling shareholders in Hilli LLC in relation to the Hilli
Disposal, representing a working capital adjustment to the net purchase price received from Golar Partners;
payment of $13.0 million to an entity of CCBFL, in January 2019, for the extension of the put-option under the
finance lease for the Golar Seal; and
•
payment of $19.3 million of scheduled loan and interest repayments.
Golar Viking is currently serving a short-term contract, due to expire in December 2019. Golar has also entered into
binding agreements with a Croatian project developer, LNG Hrvatska d.o.o., to convert the 2005 built Golar Viking into a FSRU,
sell the converted vessel, and then operate and maintain the FSRU for a minimum of 10 years. Conversion capital expenditure
will be funded by stage payments under the agreement. Commencement of this project is subject to certain conditions precedent,
including confirmation of project funding and receipt of a Notice to Proceed from LNG Hrvatska d.o.o.
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. Under the terms of
our sale and lease back facility for the Golar Tundra, by virtue of our prior termination of the WAGL charter, we are required to
find a replacement charter by June 30, 2019 or we could be required to refinance the FSRU. 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, 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.
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 joint venture, 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
additional sales of interests in Hilli LLC), 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.
On February 26, Golar entered into an agreement with BP for the charter of a FLNG unit, Gimi, for a 20-year period
expected to commence in the second half of 2022. LNG carrier Gimi has been relocated from layup to Keppel Shipyard where a
site team has been assembled. Golar also entered into a Shareholders Agreement with Keppel Capital in respect of their participation
in a 30% share of the project. Total conversion works, which incorporate lessons learned from FLNG Hilli Episeyo including some
improvements and modifications, are expected to cost approximately $1.3 billion. We anticipate annual contracted revenues less
forecasted operating costs of approximately $215 million per year. Golar is in the final stages of receiving an underwritten credit
63
commitment for a $700 million long-term financing facility with a syndicate of international banks that will also be available
during construction.
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) provided by investing activities
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Net cash provided by (used in) operating activities
Year ended December 31,
2018
2017
2016
116.7
(202.5)
177.4
91.6
612.7
704.3
(35.1)
(419.9)
427.4
(27.5)
640.2
612.7
(115.4)
3.9
234.3
122.8
517.4
640.2
Cash provided by operating activities increased by $151.8 million to $116.7 million in 2018 compared to cash utilized
of $35.1 million in 2017. The increase in cash generated in 2018 was primarily due to:
•
•
•
•
higher contributions recognized from our participation in the Cool Pool as a result of improved utilization and daily hire
rates from the Cool Pool vessels;
lower charterhire payments as a result of the expiry of the charter-back arrangement of the Golar Grand from Golar
Partners in November 2017;
$50.7 million in cash receipts in connection with arbitration proceedings with a former charterer of the Golar Tundra;
and
the improvement on the general timing of working capital in 2018 compared to the same period in 2017.
Cash utilized by operating activities decreased by $80.3 million to $35.1 million in 2017 compared to $115.4 million in
2016. The decrease in cash utilized 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;
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
the improvement on the general timing of working capital in 2017 compared to the same period in 2016.
Net cash (used in) provided by investing activities
Net cash used in investing activities of $202.5 million in 2018 comprised mainly of:
•
•
•
the addition of $116.7 million to asset under development relating to payments made in respect of the conversion of the
Hilli into a FLNG;
additions of $95.5 million to investments in affiliates, which relates principally to capital contributions made to Golar
Power of $55.0 million and our investment in Avenir of $24.8 million; and
additions to vessels and equipment of $33.1 million.
64
This was partially offset by:
•
•
•
•
•
•
receipt of $9.7 million from Golar Partners in relation to the Hilli Disposal; and
dividends received from Golar Partners. Following the adoption of amendments in ASC 230, we have adopted the
cumulative earnings approach in relation to the classification of dividends received from our equity method investees in
our statements of cash flows. Accordingly, although $49.0 million in dividends was received from Golar Partners in 2018,
of this, $33.2 million has been classified in investing activities with the balance in operating activities.
Net cash used in investing activities of $419.9 million in 2017 comprised mainly of:
the addition of $390.6 million to asset under development relating to payments made in respect of the conversion of the
Hilli into a FLNG; and
additional capital contributions of $111.0 million in respect of our investment in Golar Power.
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; and
dividends received from Golar Partners. Following the adoption of amendments in ASC 230, we have adopted the
cumulative earnings approach in relation to the classification of dividends received from our equity method investees in
our statements of cash flows. Accordingly, although $52.7 million in dividends was received from Golar Partners in 2017,
which is comparable to that which was received in the same period in 2016, of this, $25.1 million has been classified in
investing activities with the balance in operating activities.
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 $177.4 million in 2018 arose primarily due to proceeds
of $1.2 billion from our debt facilities, including:
•
•
•
•
•
$115.0 million further drawdown on the pre-delivery financing in relation to the conversion of the Hilli into a FLNG;
$960.0 million drawdown on the post-acceptance Hilli sale and leaseback financing in relation to the Hilli Facility; and
$101.0 million of debt proceeds drawn down by the lessor VIE, which owns the Golar Crystal, upon refinancing of its
debt into a long-term loan facility. See note 8 "Variable Interest Entities" of our consolidated financial statements included
herein.
This was partially offset by:
loan repayments of $994.9 million, which includes (i) the repayment of $640.0 million on the pre-delivery financing in
relation to the conversion of the Hilli into a FLNG, (ii) payment of $105.0 million in connection with the refinancing of
the Golar Crystal facility mentioned above, (iii) payments of $76.9 million in connection with the Golar Tundra financing
arrangement and (iv) scheduled repayments on our remaining debt facilities; and
payment of dividends of $42.9 million.
Net cash provided by financing activities of $427.4 million in 2017 arose primarily due to proceeds 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; and
65
•
payment of dividends of $20.4 million.
Borrowing Activities
As of December 31, 2018, we had total outstanding borrowings, gross of capitalized borrowing costs, of $2.6 billion,
secured by, among other things, our vessels, our ownership in Golar Partners, and unsecured convertible bonds outstanding of
$353.7 million. Please refer to note 20 "Debt" of our consolidated financial statements included herein for further detailed
information on our borrowings as of December 31, 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, 2018, we have interest rate swaps with a notional amount of $950 million representing approximately
37.0% of our total debt. Our swap agreements have expiration dates between 2019 and 2021 and have fixed rates of between
1.23% and 1.94%. The total unrealized gain recognized in the consolidated statement of operations relating to our interest rate
swap agreements in 2018 was $0.6 million.
Total Return Swap agreement
In December 2014 we entered into a 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. The total
unrealized loss recognized in the consolidated statement of operations relating to our TRS agreement in 2018 was $30.7 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, 2018.
Hilli LTA
Following the 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,
2018 was $84.7 million (2017: $94.7 million) and, as a result, the total unrealized loss recognized in the consolidated statement
of operations relating to this this derivative was $10.0 million.
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 vessels' 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.
66
Capital Commitments
FLNG conversion
Our FLNG conversion commitments are described in Item 18 - Financial Statements: note 29, "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.
Liquefaction services revenue is generated from a LTA entered into with our customer. Our provision of liquefaction
services capacity includes the receipt of the customer’s gas, treatment and temporary storage on board our FLNG, and delivery
of LNG to waiting carriers. The liquefaction services capacity provided to our customer is considered a single performance
obligation recognized evenly over time as our services are rendered. We consider our services a series of distinct services that are
substantially the same and have the same pattern of transfer to our customer. We recognize revenue when obligations under the
terms of our contract are satisfied. We have applied the practical expedient to recognize liquefaction services revenue in proportion
to the amount we have the right to invoice.
Revenues generated from management fees are recorded rateably over the term of the contract as services are provided.
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, 2018, for nine 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.
67
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/FSRUs.
Effect if actual results differ from assumptions: As of December 31, 2018, 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.
Consolidation of lessor VIE entities
Description: As of December 31, 2018, we leased eight 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 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.
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.
68
Impairment of our equity investment in the Partnership
Description: The Company’s investment in the Partnership consists of Common Units, GP Units and IDRs. We account
for our investment in the Partnership as an equity method investment meaning that the asset is recorded at historical cost adjusted
for our proportionate share of the Partnership's earnings and reduced by distributions received from the Partnership. The day one
cost of the investment was the fair value of the units on the date of deconsolidation. We are required to review our investment for
impairment whenever events or changes indicate that the carrying amount of the investment might not be recoverable. The supressed
Common Unit share price throughout 2018 coupled with the Partnership’s distribution cut announced in November, led management
to conclude that the decline in the value of the Partnership was “other than temporary”.
Judgments and estimates: In calculating the fair value of the Partnership, the Company applied a Monte Carlo Simulation
model to estimate the total equity value of the Partnership that then in turn determines the total distribution payment to all unit
holders including Common, GP and IDR. The key inputs into the model are the valuation date share price (31 December 2018:
$10.80), the long term volatility curve and the long-term dividend yield of the Partnership. The long term volatility curve takes
into accounts movements in the Partnership’s share price since IPO and the long-term dividend yield was benchmarked against
the Partnership’s historical dividend yield.
Effect if actual results differ from assumptions: Although we believe that the underlying assumptions supporting the
impairment are reasonable, if a different long-term dividend yield (+/- 2%) was used then this could have led to a different value
of the IDR and GP units, however, the difference is not considered material in the context of the overall valuation.
Recently Issued Accounting Standards
See Item 18. Financial Statements: note 3 "Recently Issued Accounting Standards".
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 committed to make rental payments under operating leases for office premises. 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, 2018:
(in millions of $)
Long-term and short-term debt (1)
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
Due in
2019
732.2
84.9
5.4
—
21.5
—
844.0
Due in
2020 –
2021
349.6
142.5
6.4
—
—
—
498.5
Due in
2022 –
2023
561.6
103.6
4.5
—
—
—
669.7
Due
Thereafter
938.8
120.7
4.1
—
—
—
1,063.6
Total
Obligation
2,582.2
451.7
20.4
—
21.5
—
3,075.8
69
(1) The obligations under long-term and short-term debt above are presented gross of deferred finance charges and
exclude interest. Included in these amounts are balances relating 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 "Variable Interest Entities ("VIE")" and note 20 "Debt" of our consolidated
financial statements included herein).
(2) Our interest commitment on our long-term debt is calculated based on assumed LIBOR rates of between 2.41% to
2.95% 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 leased offices, equipment and other assets.
(4) As at December 31, 2018, 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) We have a contract with Keppel and Black & Veatch for the conversion of our LNG carrier, the Gimi into a FLNG.
The Gimi has recently entered the Keppel shipyard to commence its conversion to a FLNG. The conversion agreement
for the Gimi is subject to certain payments and lodging of a full Notice to Proceed.
Subsequently, in February 2019, we entered into a 20 year Lease and Operate Agreement with BP for the charter of
a FLNG unit, Gimi, to service the Greater Tortue Ahmeyim project. Subject to certain conditions precedent, the
estimated conversion cost of the Gimi is approximately $1.3 billion.
(6) Our consolidated balance sheet as of December 31, 2018, includes $145.6 million classified as "Other non-current
liabilities" of which $63.8 million represents the FLNG deferred revenue, being the corresponding liability upon
initial recognition of the LTA derivative asset, $33.0 million represents liabilities under our pension plans, $14.8
million represents other guarantees provided to Golar Partners and Golar Power and $27.1 million represents estimated
costs to decommission the mooring to which the Hilli will be attached for the duration of the LTA. 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 23 ''Other Non-current Liabilities'' of our consolidated
financial statements included herein for additional information regarding our other non-current liabilities.
(7) We have excluded any capital commitments in relation to the conversion of the Golar Viking into a FSRU as
commencement of this project is subject to certain conditions precedent.
For details of the Company's outstanding legal proceedings and claims, please see note 30 "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
70
Directors
The following provides information about each of our directors as of March 15, 2019.
Name
Tor Olav Trøim
Daniel Rabun
Thorleif Egeli
Carl Steen
Niels Stolt-Nielsen
Lori Wheeler Naess
Michael Ashford
Age
56
64
55
68
54
48
72
Position
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 non-executive
director and a member of the Management Development and Compensation Committee and the Governance and Nominations
Committee of Apache Corporation. In May 2018, Mr. Rabun became Chairman of the Board and a member of the Governance
and Nomination Committee of Apergy 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 from the University of
Houston and a Juris Doctorate Degree from Southern Methodist University.
Thorleif Egeli was appointed as director in September 2018. Mr. Egeli is a member of the Board of Directors in Stimline
AS and Hicor and also serves as President on the board of directors at Norwegian American Chamber of Commerce, South West
Chapter in Houston, Texas. Mr. Egeli served as Vice President of Schlumberger Production Management - North America, where
he managed the non-operating E&P assets for Schlumberger in the US, Canada and Argentina. Prior to this he held a number of
senior positions within Schlumberger having begun his career as a Field Engineer in 1990. Between October 2009 and April 2013
Mr. Egeli held a number of positions within Archer including President Latin America, Corporate Marketing and Chief Operating
Officer before re-joining Schlumberger in 2013. Mr. Egeli holds a Master of Science (M.Sc) in Mechanical Engineering and an
MBA from Rotterdam School of Management, Holland.
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
71
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 also
serves on the Board and Audit Committee of Opera Limited, a U.S.-listed company and Klaveness Combination Carriers ASA, a
privately-held shipping company in Norway. 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 March 15, 2019.
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
Morten Daviknes
Age
57
54
58
53
Position
Chief Executive Officer – Golar Management
Chief Financial Officer and Deputy Chief Executive Officer – Golar Management
Chief Operating Officer – Golar Management Norway
Chief Technical Officer – Golar Management Norway
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.
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. Mr. Robjohns is a member of the Institute of Chartered Accountants in England and Wales and has a BSc degree
in Economics with Politics from Loughborough University.
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.
72
Morten Daviknes joined Golar in 2010. Prior to his appointment as Chief Technical Officer in 2018, Mr. Daviknes served
as Project Manager for the company’s first integrated FSRU conversion and mooring, the Nusantara Regas Satu, and more recently
as Project Director for the world’s first FLNG conversion, Hilli Episeyo. Prior to joining Golar, Morten held various engineering
and project management positions overseeing the conversion of 4 FPSO’s at Sea Production Limited and BW Offshore. Shortly
after leaving university Morten also worked on the conversion of a platform for the multi-national spacecraft launch service, Sea
Launch. Mr. Daviknes has a M.Sc degree from the NTNU technical university in Trondheim.
B. Compensation
For the year ended December 31, 2018, we paid to our directors and executive officers aggregate cash compensation
(including bonus) of $4.0 million and an aggregate amount of $0.1 million for pension and retirement benefits. During the year
ended December 31, 2018, we granted options covering 0.5 million common shares at a weighted average exercise price of $27.57
with an expiration date of 2023. 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 2018 we also recognized an expense of $3.7 million relating to stock options
issued to certain of our directors and executive officers. See note 25 “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.
D. Employees
As of December 31, 2018, we employed approximately 194 people in our offices in Bermuda, Cameroon, Croatia, London,
Malaysia and Oslo. We also employ approximately 706 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 March 15, 2019. 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.
73
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
*
*
Carl Steen
—
—
Niels Stolt-Nielsen
2,421,313(2)
2.39%
Lori Wheeler Naess
Michael Ashford
Iain Ross
Graham Robjohns
Øistein Dahl
Thorleif Egeli
Morten Daviknes
—
—
—
—
*
*
*
—
—
—
—
*
*
*
Total
number of
options
Exercise price
Expiry date
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
3,950
300,000
45,000
4,600
29,250
11,200
75,000
6,100
50,000
8,400
—
50,000
4,400
33,000
4,500
$ 55.48
$ 21.03
$ 26.74
$ 27.20
$ 21.03
$ 26.74
$ 27.20
$ 21.03
$ 26.74
$ 27.20
$ 21.03
$ 26.74
$ 27.20
$ 21.03
$ 26.74
$ 27.20
$ 27.20
$ 20.81
$ 55.48
$ 55.48
$ 22.88
$ 27.20
$ 55.48
$ 55.48
$ 22.88
$ 27.20
N/A
$ 55.48
$ 55.48
$ 22.88
$ 27.20
2019
2021
2022
2023
2021
2022
2023
2021
2022
2023
2021
2022
2023
2021
2022
2023
2023
2022
2019
2020
2021
2023
2019
2020
2021
2023
N/A
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 2,421,313 shares which are owned by Stolt-Nielsen Limited, a company controlled by Niels Stolt-Nielsen.
Our directors and executive officers have the same voting rights as all other holders of our common shares.
Option Plans
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.
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As of December 31, 2018, 2.5 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
25 "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 March 15, 2019.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major shareholders
The following table presents certain information as of March 15, 2019 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
Orbis Investment Management Ltd (1)
FMR LLC (2)
Barrow, Hanley, Mewhinney and Strauss, LLC (3)
Common Shares
Number
Percent
8,924,611
7,405,457
5,760,565
8.81%
7.31%
5.69%
(1) Information derived from the Schedule 13G of Orbis Investment Management Ltd filed with the Commission on February 14, 2019.
(2) Information derived from the Schedule 13G/A of FMR LLC filed with the Commission on February 13, 2019.
(3) Information derived from the Schedule 13G of Barrow, Hanley, Mewhinney and Strauss LLC filed with the Commission on February 11,
2019.
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 a 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 his or her interest in the
contract or proposed contract.
The related party transactions that we were party to between January 1, 2018 and December 31, 2018 are described in
note 28 "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
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.
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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, and are progressing the possibility of bringing this inquiry to a mutually satisfactory conclusion. See note 30 “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 2018, our board of directors declared quarterly dividends in May 2018, August 2018, November 2018 and February
2019 in the aggregate amount of $48.1 million, or $0.475 per share.
For 2017, our board of directors declared quarterly dividends in May 2017, August 2017, November 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 March
2017 in the aggregate amount of $19.5 million, or $0.20 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 31 ''Subsequent Events'' of our consolidated financial statements included herein.
ITEM 9. THE OFFER AND LISTING
C. Markets
Our common shares have traded on the Nasdaq since December 12, 2002 under the symbol "GLNG".
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.
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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.
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.
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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.
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.
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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.
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.
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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. Engineering, Procurement and Construction Contract, dated July 21, 2015 by and between Golar Gandria N.V. and Keppel
Shipyard Limited.
6. Memorandum of Agreement, dated September 9, 2015, by and between Golar Hilli Corporation and Fortune Lianjiang
Shipping S.A.
7. Bareboat charter by and between Golar Hilli Corp. and Fortune Lianjiang Shipping S.A., dated September 9, 2015.
8. Additional Clauses to the Bareboat Charter Party dated September 9, 2015 between Golar Hilli Corp. and Fortune Lianjiang
Shipping S.A.
9. Common Terms Agreements, by and between Golar Hilli Corp. and Fortune Lianjiang Shipping S.A., dated September
9, 2015.
10. Management and Administrative Services Agreement, effective as of April 1, 2016, between Golar LNG Partners LP and
Golar Management Limited.
11. Share Purchase Agreement, dated June 17, 2016, by and between Golar LNG and Stonepeak Infrastructure Fund II
Cayman (G) Ltd.
12. 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.
13. Second Amended and Restated Agreement of Limited Partnership of Golar LNG Partners LP dated October 19, 2016.
14. Exchange Agreement, dated October 13, 2016, by and among Golar LNG Partners LP, Golar LNG Limited and Golar
GP LLC.
15. Indenture, dated February 17, 2017, between Golar LNG Limited and Deutsche Bank Trust Company Americas as a
Bond Trustee.
16. Loan Agreement, dated March 3, 2017, by and between Golar ML LLC and Citibank N.A.
17. General Management Agreement, dated April 4, 2017, by and between Golar Management Ltd and Golar Power Limited.
18. 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.
19. 2017 Long-Term Incentive Plan.
20. Liquefaction Tolling Agreement, dated November 29, 2017, between Societe Nationale de Hydrocarbures, Perenco
Cameroon SA, Golar Hilli Corporation and Golar Cameroon SASU.
21. Amendment Agreement, dated March 23 2018, relating to the Purchase and Sale Agreement by and between Golar LNG
Partners LP, Golar LNG Limited, KS Investments Pte. Ltd. and Black & Veatch International Company.
22. Amended and Restated Limited Liability Company Agreement of Golar Hilli LLC, dated July 12, 2018.
23. Golar LNG Partners LP Guarantee Agreement, dated as of July 12, 2018.
24. Amended and Restated Loan Agreement, dated July 20, 2018, by and between Golar ML LLC and Citibank N.A.
25. Guarantee by and among Golar Power Limited, Golar LNG Limited and Compass Shipping 23 Corporation Limited
dated September 25, 2018.
26. Amended and Restated Engineering, Procurement and Construction Contract, dated December 13, 2018, by and between
Golar Gimi Corporation and Keppel Shipyard Limited.
27. Lease and Operate Agreement, dated February 26, 2019, by and between Gimi MS Corporation and BP Mauritania
Investments Limited.
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
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Shareholders and Related Party Transactions-B. Related Party Transactions" and “Item 10. Additional Information--E. Taxation.”
Other than as discussed in this Annual Report, we have no material contracts, other than contracts entered into in the ordinary
course of business, to which we or any of our subsidiaries are a party.
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 and Bermuda 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
partnerships 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, persons required to recognize income for U.S. federal income tax purposes no
later than when such income is included on an “applicable financial statement” and investors that own, actually or under applicable
constructive ownership rules, 10% or more (by vote or value) 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.
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.
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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 the following three conditions
are met:
• we and each subsidiary are organized in a jurisdiction outside the United States that grants an equivalent exemption from
tax to corporations organized in the United States with respect to the types of U.S. source international transportation
income that we earn (or an equivalent exemption);
• we satisfy the publicly traded test or the qualified shareholder stock ownership test as described in the Section 883
Regulations; and
• we meet certain substantiation, reporting and other requirements.
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 2018.
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.
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
2018. 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 2018, we were not subject to the 5% Override Rule for 2018. Therefore, we believe
that we satisfied the Publicly-Traded Requirement for 2018 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.
82
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 and such U.S. source shipping income is not considered to be "effectively connected"
with the conduct of a U.S. trade or business, 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 2018, we
and our subsidiaries would be subject to $nil aggregated tax under section 887 of the Code if applicable.
In addition, our U.S. source shipping income that is considered to be “effectively connected” with the conduct of a U.S. trade or
business is subject to the U.S. corporate income tax currently imposed at a rate of 21% (net of applicable deductions). In addition,
we may be subject to the 30% U.S. “branch profits” tax on earnings effectively connected with the conduct of such trade or
business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the
conduct of our U.S. trade or business.
Our U.S. source shipping income would be considered effectively connected with the conduct of a U.S. trade or business only if:
• we had, or were considered to have, a fixed place of business in the United States involved in the earning of our U.S. source
shipping income; and
• substantially all of our U.S. source shipping income was attributable to regularly scheduled transportation, such as the operation
of a ship that followed a published schedule with repeated sailings at regular intervals between the same points for voyages that
begin or end in the United States.
We believe that we will not meet these conditions because we will not have, or permit circumstances that would result in
having, such a fixed place of business in the United States or any ship sailing to or from the United States on a regularly
scheduled basis.
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. If the sale is considered to occur within the United States,
any gain on such sale may be subject to U.S. federal income tax as "effectively connected" income.
U.S. Taxation of U.S. Holders
The term "U.S. Holder" means a beneficial owner of our common shares that is a U.S. citizen or resident, U.S. corporation
or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions of the trust, and owns our common shares as a
capital asset, generally, for investment purposes.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are urged
to consult your tax advisor.
83
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. Subject
to the discussion below under "Passive Foreign Investment Company", 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. Dividends paid on our common shares will be income from sources outside the United
States and will generally constitute "passive category income" or, in the case of certain U.S. Holders, "general category income"
for U.S. foreign tax credit limitation purposes.
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. A U.S. Holder's gain or
loss will generally be treated (subject to certain exceptions) as gain or loss from source within the United States for U.S. foreign
tax credit limitation purposes.
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 our proportionate share
of 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.
84
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. The amounts
allocated to the taxable year of the sale or other disposition and to any year during such holding period before we became a PFIC
would be taxed as ordinary income. 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 or "qualified electing fund" 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.
U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Shares
A beneficial owner of our common shares (other than a partnership) that is not a U.S. Holder is referred to herein as a
Non-U.S. Holder. It is assumed for purposes of this section that the Non-U.S. Holder (1) is not engaged in the conduct of a United
States trade or business and (2) (a) if an individual, is not treated as a U.S. resident pursuant to the substantial presence test
(generally treating a non-resident individual alien as a resident if such person is present in the United States for more than a
weighted sum of 183 days during a three-year period and the nonresident alien is present for at least 31 days in the current year)
and is not present in the United States for 183 days or more in the taxable year of disposition of the notes or common shares or
(b) if not a natural person, has not made any election to subject itself to, or is otherwise subject to, U.S. federal income taxation
on a net basis.
Subject to the discussion below regarding backup withholding, a Non-U.S. Holder will generally not be subject to U.S.
federal income tax upon receipt, holding, or sale or disposition of, or receipt of dividends paid in respect of, the common shares.
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.
85
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.
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. Furthermore, the recent passing of
the Economic Substance Act 2018 in Bermuda as well being placed on the EU list of non-cooperative jurisdictions for tax purposes,
highlights the increasing scrutiny the existing regime is subject to.
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.
86
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.
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
27 “Financial Instruments” of our consolidated financial statements included herein.
The following analysis provides quantitative information regarding our exposure to foreign currency exchange rate risk
and interest rate risk. There are certain shortcomings inherent in the sensitivity analysis 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, 2018, the notional amount of interest rate swaps outstanding in respect of our debt obligation was
$1.0 billion. The principal of our floating rate loans outstanding as of December 31, 2018 was $755.0 million. Based on our floating
rate debt at December 31, 2018, a one-percentage point increase in the floating interest rate would increase our interest expense
by $6.7 million per annum. For disclosure of the fair value of the derivatives and debt obligations outstanding as of December 31,
2018, see note 27 “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, operating expenses and capital expenditure projects incurred in a
variety of foreign currencies. Based on our GBP expenses for 2018, a 10% depreciation of the U.S. Dollar against GBP would
have increased our expenses by approximately $3.5 million.
We operate a branch in Norway, where the majority of expenses are incurred in NOK. Based on our NOK administrative
expenses incurred in 2018, 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 2018, a 10% depreciation of the U.S. Dollar against the Euro would have increased our crew cost for 2018 by approximately
$3.2 million.
Equity risk. As of December 31, 2018, 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 2019. The weighted average reference price was $45.01 per
common share. As of December 31, 2018, we had also entered into a forward contract for the acquisition of 107,000 shares in
Golar Partners at an average price of $20.53. The open position of both contracts at December 31, 2018, 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, 2018, would generate an adverse mark-to-market adjustment of approximately $6.6 million, which would be
recorded in our consolidated statement of operations.
87
Commodity price risk. As of December 31, 2018, we have a derivative asset in relation to the 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, 2018, the value of this asset is $84.7 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.
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, 2018. At the time our Annual Report on Form 20-F for the year ended December 31, 2018 was filed on March 29,
2019, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective
as of December 31, 2018.
(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.
88
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, 2018, 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, 2018, 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, 2018 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.
(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, 2018
Fiscal year ended December 31, 2017
$
$
1,558,539
1,479,984
Total audit fees incurred with respect to Ernst & Young LLP were approximately $1.4 million and $1.5 million for 2018
and 2017, respectively.
89
(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, 2018
Fiscal year ended December 31, 2017
(c) Tax Fees
$
$
106,491
608,312
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, 2018
Fiscal year ended December 31, 2017
(d) All Other Fees
$
$
91,913
145,010
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, 2018
Fiscal year ended December 31, 2017
(e) Audit Committee's Pre-Approval Policies and Procedures
$
$
30,629
223,752
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 2018 and 2017 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.
90
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
Average price
paid per share
Total number of
shares
purchased as
part of publicly
announced plans
or programme
Maximum
number of
shares that may
be purchased
under the plans
or programme (1)
300,000
200,000
500,000
$
$
$
40.90
41.07
40.97
300,000
200,000
500,000
4,400,000
4,200,000
—
(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,
2018, the counterparty to the equity swap transactions had acquired 3.0 million shares in the Company at an average price of
$45.01. The effect of our Total Return Swap in our consolidated statement of operations as at December 31, 2018 is an unrealized
mark-to-market loss of $30.7 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.
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, five of the seven members of the board of directors, Daniel Rabun, Lori Wheeler Naess, Carl Steen, Niels Stolt-Nielsen
and Thorleif Egeli 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.
91
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. However,
the committee is currently comprised of Carl Steen and Niels Stolt-Nielsen, who are both independent. The primary responsibility
of this committee is to review, approve and make recommendations to the board regarding compensation for directors and
management.
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.
92
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-67 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, 2018, 2017 and 2016 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, 2018 and, accordingly, the financial statements of Golar Partners for the
year ended December 31, 2018 as filed in the Annual Report on Form 20-F of Golar Partners, filed with the Commission on
March 29, 2019, are hereby incorporated by reference and considered to be filed as part of this Annual Report on Form 20-F.
93
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report:
Number Description of Exhibit
1.1**
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.
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**
4.10**
4.11**
4.12**
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.
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.
Bareboat charter by and between Golar Hilli Corp. and Fortune Lianjiang Shipping S.A., dated September 9, 2015,
incorporated by reference to Exhibit 4.2 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on
August 31, 2018.
Additional Clauses to the Bareboat Charter Party dated September 9, 2015 between Golar Hilli Corp. and Fortune
Lianjiang Shipping S.A., incorporated by reference to Exhibit 4.3 to Golar LNG Limited’s Report of Foreign Issuer
on Form 6-K filed on August 31, 2018.
Common Terms Agreements, by and between Golar Hilli Corp. and Fortune Lianjiang Shipping S.A., dated
September 9, 2015, incorporated by reference to Exhibit 4.4 to Golar LNG Limited’s Report of Foreign Issuer on
Form 6-K filed on August 31, 2018.
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.
94
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*/+
8.1*
11.1**
12.1*
12.2*
13.1*
13.2*
15.1*
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.
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, incorporated by reference to Exhibit 4.29 of
Golar LNG Limited Annual Report on Form 20-F for the fiscal year ended December 31, 2017.
Amendment Agreement, dated March 23 2018, relating to the Purchase and Sale Agreement by and between Golar
LNG Partners LP, Golar LNG Limited, KS Investments Pte. Ltd. and Black & Veatch International Company,
incorporated by reference to Exhibit 4.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on
July 30, 2018.
Amended and Restated Limited Liability Company Agreement of Golar Hilli LLC, dated July 12, 2018, incorporated
by reference to Exhibit 4.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on August 31, 2018.
Golar LNG Partners LP Guarantee Agreement, dated as of July 12, 2018, incorporated by reference to Exhibit 4.5
to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on August 31, 2018.
Amended and Restated Loan Agreement, dated July 20, 2018, by and between Golar ML LLC and Citibank N.A.,
incorporated by reference to Exhibit 4.1 to Golar LNG Limited’s Report of Foreign Issuer on Form 6-K filed on
November 16, 2018.
Guarantee by and among Golar Power Limited, Golar LNG Limited and Compass Shipping 23 Corporation Limited
dated September 25, 2018, incorporated by reference to Exhibit 4.2 to Golar LNG Limited’s Report of Foreign Issuer
on Form 6-K filed on November 16, 2018.
Amended and Restated Engineering, Procurement and Construction Contract, dated December 13, 2018, by and
between Golar Gimi Corporation and Keppel Shipyard Limited.
Lease and Operate Agreement by and between Gimi MS Corporation and BP Mauritania Investments Limited.
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.
Certification of the Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal Executive Officer.
Certification under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal Financial Officer.
Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP.
_________________________
* Filed herewith.
** Incorporated by reference.
+ Certain portions have been omitted pursuant to a pending confidential treatment request. Omitted information has been
separately filed with the Securities and Exchange Commission.
95
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
96
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.
SIGNATURES
Date
March 29, 2019
By
Golar LNG Limited
(Registrant)
/s/ Graham Robjohns
Graham Robjohns
Chief Financial Officer and Deputy Chief Executive Officer
97
GOLAR LNG LIMITED
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2018,
2017 AND 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31,
2018, 2017 AND 2016
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2017
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2017
AND 2016
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31,
2018, 2017 AND 2016
NOTES TO THE AUDITED 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, 2018
and 2017, the related consolidated statements of income, comprehensive loss, cash flows and changes in equity for each of the
three years in the period ended December 31, 2018 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2018, 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, 2018, 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 March 29, 2019, 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
March 29, 2019
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, 2018, 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, 2018, 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 2018 consolidated financial statements of the Company and our report dated March 29, 2019 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
March 29, 2019
F-3
GOLAR LNG LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND
2016
(in thousands of $, except per share amounts)
Notes
Time and voyage charter revenues
Time charter revenues - collaborative arrangement
Liquefaction services revenue
Vessel and other management fees
Total operating revenues
Vessel operating expenses
Voyage, charterhire and commission expenses
Voyage, charterhire and commission expenses - collaborative
arrangement
Administrative expenses
Project development expenses
Depreciation and amortization
Impairment of non-current assets
Total operating expenses
Other operating income
Other operating income
Realized and unrealized gain on oil derivative instrument
Other operating gains - LNG trading
Operating income (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
(Losses) gains on derivative instruments
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 Limited
Loss per share attributable to Golar LNG Ltd stockholders
Per common share amounts:
Loss per share – basic and diluted
Cash dividends paid
7, 28
28
28
2
2
18
9
28, 30
2
6
28
28
10
10
11
16
12
2018
204,839
73,931
127,625
24,209
430,604
96,860
22,625
83,201
51,542
21,690
93,689
—
2017
88,634
28,327
—
26,576
143,537
55,946
22,511
38,781
38,031
12,303
76,522
—
2016
52,302
13,730
—
14,225
80,257
53,163
36,423
11,140
37,302
8,658
72,972
1,706
369,607
244,094
221,364
36,722
16,767
—
114,486
—
—
—
10,133
(101,908)
(30,541)
(1,481)
(123,797)
(9,311)
(1,267)
(157,636)
(168,214)
(63,214)
(231,428)
—
15,100
—
—
—
16
(85,457)
(141,091)
—
(81)
(81)
5,890
(59,305)
20,696
(69)
(32,788)
(8,483)
(132)
(8,615)
2,969
(71,201)
16,491
(7,800)
(59,541)
(118,326)
(209,247)
(1,505)
(25,448)
(145,279)
(34,424)
(179,703)
589
47,878
(160,780)
(25,751)
(186,531)
$
$
(2.30) $
0.28
$
(1.79) $
0.20
$
(1.99)
0.60
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GOLAR LNG LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2018,
2017 AND 2016
(in thousands of $)
COMPREHENSIVE LOSS
Net loss
Other comprehensive income (loss):
Gain (loss) associated with pensions, net of tax
Share of affiliates comprehensive (loss) income
Comprehensive loss
Comprehensive loss attributable to:
Stockholders of Golar LNG Limited
Non-controlling interests
Comprehensive loss
Notes
2018
2017
2016
(168,214)
(145,279)
(160,780)
24, 26
26
3,581
(24,324)
(20,743)
157
1,616
1,773
(556)
3,606
3,050
(188,957)
(143,506)
(157,730)
(252,171)
(177,930)
(183,481)
63,214
34,424
25,751
(188,957)
(143,506)
(157,730)
(1) No tax impact for the years ended December 31, 2018, 2017 and 2016.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GOLAR LNG LIMITED
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2017
(in thousands of $, except share amounts)
Notes
2018
2017
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
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 101,302,404 common shares of $1.00 each issued and outstanding
(2017: 101,118,289)
Treasury shares
Additional paid-in capital
Contributed surplus
Accumulated other comprehensive loss
Retained losses
Total stockholders' equity
Non-controlling interests
Total equity
Total liabilities and equity
14
28
15
14
16
17
18
19
20
21
28
22
20
28
23
29, 30
25
5
217,835
332,033
64,918
9,425
7,006
18,720
649,937
154,393
571,782
20,000
3,271,379
139,104
4,806,595
730,257
9,701
133,234
5,417
121,529
1,000,138
1,835,102
—
145,564
2,980,804
101,303
(20,483)
1,857,196
200,000
(28,512)
(364,379)
1,745,125
80,666
1,825,791
4,806,595
214,862
222,265
14,980
7,898
7,408
6,047
473,460
175,550
703,225
1,177,489
2,077,059
157,504
4,764,287
1,384,933
70,430
105,895
8,734
62,282
1,632,274
1,025,914
177,247
132,548
2,967,983
101,119
(20,483)
1,538,191
200,000
(7,769)
(95,742)
1,715,316
80,988
1,796,304
4,764,287
* This includes amounts arising from transactions with related parties (see note 28).
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GOLAR LNG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND
2016
(in thousands of $)
Operating activities
Net loss
Notes
2018
2017
2016
(168,214)
(145,279)
(160,780)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization
18
Amortization of deferred charges and debt guarantees
Equity in net losses (earnings) of affiliates
Net loss on loss of control of Golar Power
Dividends received
Compensation cost related to stock options
Net foreign exchange losses
Change in fair value of derivative instruments
Change in fair value of oil derivative instrument
Amortization of deferred tax benefits on intra-group transfers
Impairment of non-current assets
Impairment of loan receivable
Change in assets and liabilities:
Trade accounts receivable
Inventories
Other current and non-current assets
Amounts due to related companies
Trade accounts payable
Accrued expenses
Other current and non-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
Additions to investments in affiliates
Dividends received
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
6
2
2
9
2
2
6
6
93,689
7,734
157,636
—
15,837
11,481
1,997
38,610
9,970
—
—
—
(49,938)
402
(13,532)
(16,540)
(24,813)
12,191
40,164
116,674
(33,111)
—
(116,715)
(95,503)
33,185
—
9,652
—
Net cash (used in) provided by investing activities
(202,492)
(419,895)
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)
Financing costs paid
Cash dividends paid
Proceeds from exercise of share options
Purchase of treasury shares
F-7
1,177,748
—
(994,874)
(1,817)
(42,873)
2,686
—
928,432
(31,194)
(446,626)
(1,564)
(20,438)
(1,167)
—
76,522
(900)
25,448
—
27,553
8,991
1,620
(24,498)
(15,100)
—
—
—
(11,413)
(151)
(80,897)
(27,130)
1,593
28,666
99,886
72,972
13,732
(47,878)
8,483
26,515
5,816
1,429
(26,644)
—
(1,715)
1,706
7,627
(567)
987
14,615
(9,444)
(28,511)
(3,410)
9,680
(35,089)
(115,387)
(1,349)
—
(390,552)
(123,107)
25,113
—
70,000
—
(14,477)
(19,220)
(200,821)
(10,200)
29,002
(1,000)
107,247
113,321
3,852
405,817
—
(271,858)
(8,372)
(54,348)
1,435
(8,214)
Proceeds from issuance of equity
Acquisition of non-controlling interests
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
—
36,532
177,402
91,584
612,677
704,261
—
—
427,443
(27,541)
640,218
612,677
169,876
—
234,336
122,801
517,417
640,218
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest paid, net of capitalized interest
Income taxes paid
29,832
1,469
34,479
1,240
24,828
555
(1) Includes accretion of discount on convertible bonds of $13.5 million, $11.8 million and $5.7 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
Supplemental note to the consolidated statements of cash flows
The following table identifies the balance sheet line-items included in cash, cash equivalents and restricted cash presented in the
consolidated statements of cash flows:
(in thousands of $)
Cash and cash equivalents
Restricted cash and short-term deposits (current portion)
Restricted cash (non-current portion)
2018
217,835
332,033
154,393
704,261
2017
214,862
222,265
175,550
612,677
2016
224,190
183,693
232,335
640,218
2015
105,235
231,821
180,361
517,417
F-8
GOLAR LNG LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018, 2017
AND 2016
(in thousands of $)
Notes
Share
Capital
Treasury
Shares
Additional
Paid-in
Capital
Contributed
Surplus
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
(Losses)
Non-
controlling
Interests
Total
Equity
Balance at December 31, 2015
93,547
(12,269)
1,317,806
200,000
(12,592)
308,874
20,813
1,916,179
Net loss
Dividends
Exercise of share options
Employee stock compensation
Forfeiture of share options
Net proceeds from issuance of
shares
Other comprehensive income
Treasury shares
25
26
25
—
—
59
—
—
7,475
—
—
—
—
—
—
—
—
—
(8,214)
—
—
1,376
7,865
(892)
162,401
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,050
—
(186,531)
25,751
(160,780)
(18,693)
—
—
—
—
—
—
—
—
—
—
—
—
—
(18,693)
1,435
7,865
(892)
169,876
3,050
(8,214)
Balance at December 31, 2016
101,081
(20,483)
1,488,556
200,000
(9,542)
103,650
46,564
1,909,826
Net loss
Dividends
Exercise of share options
Employee stock compensation
Forfeiture of share options
Other comprehensive income
Issuance of convertible bonds
26
20
—
—
38
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,204)
11,098
(120)
—
39,861
—
—
—
—
—
—
—
—
—
—
—
—
1,773
—
(179,703)
34,424
(145,279)
(19,689)
—
—
—
—
—
—
—
—
—
—
—
(19,689)
(1,166)
11,098
(120)
1,773
39,861
Balance at December 31, 2017
101,119
(20,483)
1,538,191
200,000
(7,769)
(95,742)
80,988
1,796,304
Net loss
Dividends
Exercise of share options
Employee stock compensation
Forfeiture of share options
Effect of consolidating Hilli
Lessor VIE
Sale of equity interest in common
units
Conversion of debt to equity (see
note 20)
Other comprehensive income
5
6
20
26
—
—
184
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,502
14,125
(2,090)
—
304,468
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(20,743)
(231,428)
63,214
(168,214)
(37,076)
(20,882)
(57,958)
—
(133)
—
—
—
—
—
—
—
—
2,686
13,992
(2,090)
28,703
28,703
(126,491)
177,977
55,134
55,134
—
(20,743)
Balance at December 31, 2018
101,303
(20,483)
1,857,196
200,000
(28,512)
(364,379)
80,666
1,825,791
The accompanying notes are an integral part of these consolidated financial statements.
F-9
GOLAR LNG LIMITED
NOTES TO THE AUDITED 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, which was owned by World Shipholding
Limited.
As of December 31, 2018, 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 three vessels.
Collectively with Golar Partners and Golar Power, our combined fleet is comprised of 18 LNG carriers, eight 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.
Going Concern
The financial statements have been prepared on a going concern basis.
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. Under the terms of our sale and
lease back facility for the Golar Tundra, by virtue of our prior termination of the WAGL charter, we are required to find a replacement
charter by June 30, 2019 or we could be required to refinance the FSRU. 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, 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.
To address our anticipated working capital requirements over the next 12 months, we remain in ongoing negotiations with financial
institutions for funding the investments for our conversion projects including potential investments into our joint venture, 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, and potential sales of our interests in
our vessel owning subsidiaries operating under long-term charters.
In February 2019, Golar entered into an agreement with BP for the charter of a FLNG unit, Gimi, for a 20-year period expected
to commence in the second half of 2022. LNG carrier Gimi has been relocated from layup to Keppel Shipyard where a site team
has been assembled. Golar also entered into a Shareholders Agreement with Keppel Capital in respect of their participation in a
30% share of the project. Total conversion works, which incorporate lessons learned from FLNG Hilli Episeyo including some
improvements and modifications, are expected to cost approximately $1.3 billion. We anticipate annual contracted revenues less
forecasted operating costs of approximately $215 million per year. Golar is in the final stages of receiving an underwritten credit
commitment for a $700 million long-term financing facility with a syndicate of international banks that will also be available
during construction.
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 March 29, 2019 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.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.
F-10
2.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America ("U.S. GAAP").
The accounting policies set out below have been applied consistently to all periods in these consolidated financial statements,
unless otherwise noted.
Principles of consolidation
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.
The accompanying consolidated financial statements include the financial statements of the entities listed in notes 4 and 5.
Investments in entities 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 VIE's activities or entitled to receive a majority of the entity's residual returns, or both. All inter-company balances
and transactions are eliminated. The non-controlling interests of the above-mentioned subsidiaries were included in the consolidated
balance sheets and statements of income as "Non-controlling interests".
Changes in our ownership interest while we retain a controlling financial interest in a subsidiary are accounted for as equity
transactions. The carrying amount of the non-controlling interest is adjusted to reflect our changed ownership interest, with any
difference between the fair value of consideration and the amount of the adjusted non-controlling interest being recognized in
equity.
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".
When a consolidated subsidiary issues preferred stock, they are classified as equity. Preferred stock issued by a consolidated
subsidiary to non-controlling interests are recorded as non-controlling interests for the amount of the proceeds received upon
issuance.
Foreign currencies
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 incurred in U.S. dollars. Our reporting currency is U.S. dollars. Transactions in foreign currencies during the year
are translated into U.S. dollars at the exchange rates in effect at the date of the transaction. Monetary assets and liabilities are
translated using exchange rates at the balance sheet date. Non-monetary assets and liabilities are translated using historical exchange
rates. Foreign currency transaction and translation gains or losses are included in the consolidated balance sheets and consolidated
statements of income.
F-11
Use of estimates
The preparation of financial statements in accordance with US 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, 2018, we leased eight vessels 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, interest income and interest expense. In consolidating these
lessor 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 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,
estimates in respect of residual or scrap value, charter rates, ship operating expenses, utilization and drydocking requirements.
In relation to the oil derivative instrument (see note 27), the fair value 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
liquefaction tolling agreement ("LTA"). Significant inputs used in the valuation of the oil derivative instrument 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 oil derivative instrument is recognized in each
period in current earnings in "Realized and unrealized gain on oil derivative instrument".
The realized and unrealized gain on oil derivative instrument is as follows:
(in thousands of $)
Realized gain on oil derivative instrument
Unrealized (loss) gain on oil derivative instrument
Year Ended
December 31,
2018
26,737
(9,970)
16,767
2017
—
15,100
15,100
The unrealized gain results from movement in oil prices above a contractual floor price over term of the LTA; the realized gain
results from monthly billings above the base tolling fee under the LTA.
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
Time charter agreements
Revenues include minimum lease payments under time charters, fees for positioning and repositioning vessels, and gross pool
revenues. Revenues generated from time charters, which we generally 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.
Initial direct costs (those directly related to the negotiation and consummation of the lease) are deferred and allocated to earnings
over the lease term. Rental income and expense are amortized over the lease term on a straight-line basis.
F-12
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.
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.
Liquefaction services revenue
Liquefaction services revenue is generated from a LTA entered into with our customer. Our provision of liquefaction services
capacity includes the receipt of the customer’s gas, treatment and temporary storage on board our FLNG, and delivery of LNG to
waiting carriers.
The liquefaction services capacity provided to our customer is considered a single performance obligation recognized evenly over
time as our services are rendered. We consider our services a series of distinct services that are substantially the same and have
the same pattern of transfer to our customer.
Contractual payment terms for liquefaction services is monthly in arrears, after services have been provided, generally resulting
in the recognition of contract assets. Contract assets are regularly assessed for impairment. Contract liabilities arise when the
customer makes payments in advance of receiving services. The term between when invoicing and when payment is due is not
significant.
We recognize revenue when obligations under the terms of our contract are satisfied. We have applied the practical expedient to
recognize liquefaction services revenue in proportion to the amount we have the right to invoice.
Management fees
Management fees are generated from commercial and technical vessel-related services and corporate and administrative services.
Commercial and technical vessel-related services include vessel maintenance, providing vessel crew, making arrangements for
vessel insurance, bunkering, provisions and stores, invoicing and collecting vessel hire. Corporate and administrative services
include corporate services, group accounting, treasury, legal, tax, consultancy and other administrative services.
These services are provided to our customers Golar Partners and Golar Power. Our contracts generally have an initial contract
term of one year or less, after which the arrangement continues with a short notice period to end the contract, ranging from 30
days to 180 days. Our management services provided are considered a single performance obligation recognized evenly over time
as our services are rendered. We consider our services a series of distinct services that are substantially the same and have the
same pattern of transfer to the customer.
Contractual payment terms for management fees generally allow for billing and payment in advance of services being provided.
However, contract liabilities did not arise because there was no billing in recognition for services rendered in future periods at the
reporting date. Contract assets arise when we render management services in advance of receiving payment from our customers.
Contract assets are regularly assessed for impairment.
The transaction price is generally considered variable consideration given the key driver of consideration is actual costs incurred
in a given period, which varies each period according to activity levels. The entire amount of the transaction price is allocated to
the single performance obligation identified.
We recognize revenue when obligations under the terms of our contracts with our customers are satisfied. We have applied the
practical expedient to recognize management fee revenue in proportion to the amount we have the right to invoice.
F-13
Cool Pool
Pool revenues and expenses under the Cool Pool arrangement have been accounted for in accordance with the guidance for
collaborative arrangements.
In relation to our vessels participating within 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.
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, charterhire and commission expenses". For pool net revenues generated by the other participants in the pooling
arrangement, these will be presented separately in revenue and expenses from collaborative arrangements. Refer to note 28 for an
analysis of the income statement effect for the pooling arrangement.
Project development expenses
With effect from the year ended December 31, 2018, we presented a new line item in operating expenses on the face of the
statements of income. The new line item, "Project development expenses", includes the costs associated with pursuing future
contracts and developing our pipeline of activities that have not met our internal threshold for capitalization. Previously, these
costs were presented within "Administrative expenses" along with our general overhead costs. We believe that the introduction
of this new line item in the statements of income provides users of our financial statements greater transparency over a key element
of our business. This presentation change has been retrospectively restated in prior periods. The change in presentation for the
years ended December 31, 2017 and 2016 are as follows:
(in thousands of $)
December 31, 2016
Administrative expenses
Project development expenses
December 31, 2017
Administrative expenses
Project development expenses
Cash and cash equivalents
As previously
reported
Adjustments
(decrease)
increase
As adjusted
45,960
—
50,334
—
(8,658)
8,658
(12,303)
12,303
37,302
8,658
38,031
12,303
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.
F-14
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. Any negative goodwill is recognized immediately in the income statement as a gain on bargain purchase.
The basis difference will then be amortized through the consolidated statements of income 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 we have 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.
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 income 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. 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.
The cost of building mooring equipment is capitalized and depreciated over the initial lease term of the related agreement.
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.
F-15
Useful lives applied in depreciation are as follows:
Vessels (excluding converted FSRUs and FLNG)
40 years
Vessels - converted FSRUs
Vessels - FLNG
Drydocking expenditure
Deferred drydocking expenditure - FLNG
Mooring equipment - FLNG
Office equipment and fittings
Asset under development
20 years from conversion date
30 years from conversion date
5 years
20 years
8 years
3 to 6 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.
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 capitalization
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 capitalize 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 all
of 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.
F-16
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 income for the period in which the criterion for held-for-sale was not met.
Impairment of long-lived assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not
be recoverable. 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. When such events or changes in circumstances are present, we
assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, 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 to be other-than-temporary impairment, we will recognize an impairment loss in the period
in the line item "Equity in net (losses) earnings of affiliates" the consolidated statements of income.
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 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.
F-17
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 current assets" and "Other non-current assets", as appropriate, in the
consolidated balance sheets. The changes in fair value of derivative financial instruments (excluding the oil derivative instrument)
are recognized each period in current earnings in "(Losses) gains on derivative instruments" in the consolidated statements of
income. We do not apply hedge accounting.
The fair value of the oil derivative instrument 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 oil derivative instrument 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 oil derivative instrument is recognized in each period in current earnings in "Realized and unrealized gain on oil derivative
instrument".
Cash flows from economic hedges are classified in the same category as the items subject to the economic hedging relationship.
Changes in presentation of fair value of derivative instruments and oil derivative instrument
With effect from the year ended December 31, 2018, we presented two new line items in operating activities on the face of the
statements of cashflows. Given the significance of the oil derivative instrument in current year, we believe that the introduction
of this new line item in the statements of cashflows provides users of our financial statements greater transparency over a key
element of our business. This presentation change has been retrospectively restated in prior periods. The change in presentation
for the years ended December 31, 2017 and 2016 are as follows:
(in thousands of $)
December 31, 2016
Change in fair value of derivative instruments
Change in assets and liabilities:
Other current and non-current assets
Other current and non-current liabilities
December 31, 2017
Change in fair value of derivative instruments
Change in assets and liabilities:
Other current and non-current assets
Change in fair value of oil derivative instrument
Other current and non-current liabilities
(Losses) gains on derivative instruments
As previously
reported
Adjustments
(decrease)
increase
As adjusted
—
(26,644)
(26,644)
14,924
(17,273)
(309)
26,953
14,615
9,680
—
(24,498)
(24,498)
(102,453)
—
81,844
21,556
(15,100)
18,042
(80,897)
(15,100)
99,886
With effect from the year ended December 31, 2018, we presented a new line item under financial income (expense) on the face
of the statements of income. The new line item, "(Losses) gains on derivative instruments", includes the movement of our derivative
instruments. Previously, these items were presented within "Other financial items, net" along with our general finance costs. We
believe that the introduction of this new line item in the statements of income provides users of our financial statements greater
transparency over a key element of our business. This presentation change has been retrospectively restated in prior periods. The
change in presentation for the years ended December 31, 2017 and 2016 are as follows:
F-18
(in thousands of $)
December 31, 2016
Gains (losses) on derivative instruments
Other financial items, net
December 31, 2017
Gains (losses) on derivative instruments
Other financial items, net
Convertible bonds
As previously
reported
Adjustments
decrease
As adjusted
—
8,691
16,491
(16,491)
16,491
(7,800)
—
20,627
20,696
(20,696)
20,696
(69)
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.
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 income.
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
is an amount equal to 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.
F-19
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
We expense the fair value of stock options issued to employees and non-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 individuals are required to provide
service in exchange for the reward - the requisite service (vesting) period. No compensation cost is recognized for stock options
for which the individuals do not render the requisite service. The fair value of 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.
Leases as lessee
Rentals under operating leases where we are the lessee are recognized as an operating expense evenly over the lease term.
Contingent rentals are recognized as an operating expense when incurred. The useful life of any leasehold improvements is
limited to the shorter of the lease term or economic life of the leased asset. Lease incentives, uneven payments and initial
direct costs are recognized evenly over the lease term. Agreements which include renewal options are included in the lease
term when considered reasonably assured.
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 income.
Penalties and interest related to uncertain tax positions are recognized in “Income taxes” in the consolidated statements of income.
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.
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.
F-20
3.
RECENTLY ISSUED ACCOUNTING STANDARDS
Adoption of new accounting standards
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC 606 and subsequent amendments (Topic 606).
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. We adopted this guidance on January 1, 2018, under a modified retrospective
approach - see note 8 for further details. The adoption of this guidance impacts presentation and disclosure of our management
fee revenue only, there is no impact to recognition or measurement.
In January 2016, the FASB issued ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities, which made targeted improvements to the recognition, measurement, presentation
and disclosure of financial instruments. We adopted the amendments to this ASU on January 1, 2018 under a modified retrospective
approach except for equity securities without a determinable fair value, for which a prospective approach is prescribed. The
adoption of this ASU did not have a material impact on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments, which provides guidance on the disclosure and classification of certain items within the statements of cash
flows. We adopted this ASU on January 1, 2018 under a retrospective approach, resulting in presentational changes to our
consolidated statements of cash flows. Following the adoption of the amendments to ASC 230, we have made an accounting policy
election to classify distributions received from equity method investees using the "cumulative earnings approach" and, as a result,
certain of the dividends received have been retrospectively reclassified, where required, as cash inflows from investing activities.
We reclassified $25.1 million and 29.0 million for the years ended December 31, 2017 and 2016, respectively.
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 statements of cash flows. We adopted this ASU on January 1, 2018 under a retrospective approach,
resulting in presentational changes to our consolidated statements of cash flows and related disclosures. The adoption changed
how restricted cash is reported in the consolidated statements of cash flows as follows for the twelve months ended December 31,
2017 and 2016:
F-21
As previously
reported
Adjustments
decrease
As adjusted
(in thousands of $)
Cash flow line item
December 31, 2016
OPERATING ACTIVITIES Restricted cash and short-term deposits
INVESTING ACTIVITIES
Restricted cash and short-term deposits
FINANCING ACTIVITIES Restricted cash and short-term deposits
47,834
22,928
(74,608)
As a result of the above changes, the following subtotals as retrospectively restated are as follows:
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
December 31, 2017
OPERATING ACTIVITIES Restricted cash and short-term deposits
INVESTING ACTIVITIES
Restricted cash and short-term deposits
FINANCING ACTIVITIES Restricted cash and short-term deposits
118,955
105,235
224,190
57,110
11,239
(50,136)
As a result of the above changes, the following subtotals as retrospectively restated are as follows:
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
(9,328)
224,190
214,862
(47,834)
(22,928)
74,608
3,846
412,182
416,028
(57,110)
(11,239)
50,136
(18,213)
416,028
397,815
—
—
—
122,801
517,417
640,218
—
—
—
(27,541)
640,218
612,677
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying 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. We adopted this ASU prospectively from January 1, 2018. As a result, this increases the
likelihood that future vessel dropdowns may be considered the sale of an asset rather than a business. However, this will be
dependent upon the facts and circumstances of each prospective transaction. There was no material impact on the adoption of this
ASU on 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. This ASU clarifies the scope of guidance applicable to sales of non-financial assets and also provides guidance on partial
sales of such assets. We adopted this ASU prospectively from January 1, 2018. We expect any gain or loss on sale from future
dropdowns, accounted for as a disposal, will be recognized in full on the disposal date, however this will be dependent on the facts
and circumstances of each prospective transaction. There was no material impact to our consolidated financial statements and
related disclosures on adoption of this standard.
Accounting pronouncements that have been issued but not adopted
In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) and subsequent amendments. Topic 842 modifies the definition
of a lease, requires periodic reassessment of the lease term and requires new disclosures. Lessors are required to classify leases
as sales-type, direct financing or operating, with classification affecting the pattern of income recognition and provides guidance
for sale and leaseback transactions. Topic 842 requires a lessee to recognize leases on its balance sheet by recording a lease liability
(representing the obligation to make future lease payments) and a right of use asset (representing the right to use the asset for the
lease term). Leases for lessees will be classified as either financing or operating with classification affecting the pattern of expense
recognition in the income statement.
Topic 842 will become effective for us on January 1, 2019. We have applied the modified retrospective transition approach. We
will elect all available practical expedients which among other things allow us to carry forward prior conclusions relating to lease
identification, classification and lease term. Our election of the practical expedient providing transition relief will result in our
prior periods not being restated and will continue to be represented in accordance with Topic 840. Our minimum commitments
relating to our existing operating leases are outlined in note 13 to the consolidated financial statements.
F-22
The most significant impact of Topic 842 relates to our accounting for our office leases which will be recorded as assets and
liabilities on our Balance Sheet from adoption. We do not believe that Topic 842 will have a notable impact on our liquidity and
our debt covenant compliance under our current arrangements.
For contracts where we are the lessor, the practical expedients we have elected results in no change to our Balance Sheet on
adoption. Our legacy leases will continue to be classified in accordance with Topic 840, while modifications and subsequent
accounting will follow the accounting under Topic 842. Leases entered into on or after January 1, 2019 will be assessed under the
requirements of Topic 842. New lessor presentation and disclosure requirements are introduced and will be applied to our new
and existing lease agreements in our subsequent reporting.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments and subsequent amendment ASU 2018-19 Codification Improvements to Topic 326 ‘‘Financial
Instruments-Credit Losses”, 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 July 2018, the FASB issued ASU 2018-09 Codification improvements. The amendments in this ASU cover a wide range of
topics covering primarily minor corrections, clarifications and codification improvements. We are evaluating the impact of these
amendments on our consolidated financial statements and related disclosures, which is not expected to have material impact on
our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. These amendments change the disclosures for fair value measurements -
removing or modifying certain existing disclosure requirements, and adding new disclosure requirements. The guidance is effective
for us commencing January 1, 2020 with early adoption permitted. We are evaluating the impact of these amendments on our
consolidated financial statement disclosures.
In August 2018, the FASB issued ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic
715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. These amendments change
the disclosures for defined benefit plans - removing or clarifying certain existing disclosure requirements, and adding new disclosure
requirements. The guidance is effective on a retrospective basis for us on January 1, 2021 with early adoption permitted. We are
evaluating the impact of these amendments on our consolidated financial statement disclosures.
In August 2018, the FASB issued ASU 2018-15 Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. These
amendments change the definition of a hosting arrangement and requires the capitalization of certain implementation costs. The
guidance is effective on either a retrospective or prospective basis for us on January 1, 2020 with early adoption permitted. We
are evaluating the impact of these amendments on our consolidated financial statement disclosures.
In October 2018, the FASB issued ASU 2018-17 Consolidation (Topic 810) - Targeted Improvements to Related Party Guidance
for Variable Interest Entities. This amendment clarifies guidance for considering whether indirect interests held through related
parties under common control are considered variable interests, increasing consistency of guidance for common control
arrangements. 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 these amendments on our consolidated financial statement disclosures.
In November 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (Topic 808) - Clarifying the Interaction between
Topic 808 and Topic 606. This amendment clarifies the interaction between Topic 808 ‘Collaborative Arrangements’ and Topic
606 ‘Revenue from Contracts with Customers’. 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 these amendments on our consolidated financial statement
disclosures.
F-23
4.
SUBSIDIARIES
The following table lists our significant subsidiaries and their purpose as at December 31, 2018. 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. BDH.
Golar Management Norway AS
Golar Management D.O.O
Jurisdiction of
Incorporation
Marshall Islands
United Kingdom
Malaysia
Norway
Croatia
Golar GP LLC – Limited Liability Company
Marshall Islands
Golar LNG Energy Limited
Golar Gimi Corporation
Golar Hilli Corp. *
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 LNG NB13 Corporation
GVS Corporation
Golar Shoreline LNG Limited
Golar Hilli LLC *
Bermuda
Marshall Islands
Marshall Islands
Curaçao
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Bermuda
Marshall Islands
Purpose
Owns and operates Golar Arctic
Management company
Vessel management company
Vessel management company
Vessel management company
Holding company
Holding company
Owns Gimi
Owns Hilli Episeyo ("Hilli")
Owns and operates Golar Gandria
Leases Golar Seal**
Leases Golar Crystal**
Owns and operates Golar Bear
Leases Golar Snow**
Leases Golar Ice**
Leases Golar Glacier**
Leases Golar Kelvin**
Owns and operates Golar Frost
Leases Golar Tundra**
Owns and operates Golar Viking
Holding company
Holding company
* In February 2018, Golar Hilli LLC was incorporated with Golar as sole member. In July 2018, shares in Golar Hilli Corp. (a 89% owned
subsidiary of Golar Hilli LLC) were exchanged for Hilli Common Units, Series A Special Units and Series B Special Units. See note 6 for further
details.
** 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. See note 5 for further details.
5.
VARIABLE INTEREST ENTITIES ("VIEs")
As of December 31, 2018, we leased eight vessels (December 31, 2017: seven vessels) from VIEs as part of sale and leaseback
agreements, 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; one with a COSCO Shipping entity, or
COSCO and one with a China State Shipbuilding Corporation entity, or CSSC.
F-24
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 pre-determined 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.
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.
CSSC Lessor VIE
In June 2018, we sold the Hilli to a CSSC 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.
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. Similarly, the effect of the bareboat charter arrangement is
eliminated upon consolidation of the SPV. The equity attributable to ICBCL, CMBL, CCBFL, COSCO and CSSC in their respective
VIEs are included in non-controlling interests in our consolidated financial statements. As of December 31, 2018 and 2017, 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, 2018:
Vessel
Golar Glacier
Golar Kelvin
Golar Snow
Golar Ice
Effective from
October 2014
January 2015
January 2015
February 2015
Golar Tundra
November 2015
Golar Seal
Golar Crystal
Hilli
March 2016
March 2017
June 2018
Sales value
(in $ millions)
First
repurchase
option
(in $ millions)
204.0
204.0
204.0
204.0
254.6
203.0
187.0
1,200.0
173.8
173.8
173.8
173.8
168.7
132.8
97.3
633.2
Date of first
repurchase option
October 2019
January 2020
January 2020
February 2020
November 2018 (1)
March 2021
March 2020
June 2023
Repurchase
obligation at end
of lease term
(in $ millions)
135.1
135.1
135.1
135.1
76.4
87.4
50.6
300.0
End of lease
term
October 2024
January 2025
January 2025
February 2025
November 2025
March 2026
March 2027
June 2028
(1) We did not exercise the first repurchase option relating to the Golar Tundra.
F-25
A summary of our payment obligations (excluding repurchase options and obligations) under the bareboat charters with the lessor
VIEs as of December 31, 2018, are shown below:
(in thousands of $)
Golar Glacier
Golar Kelvin
Golar Snow
Golar Ice
Golar Tundra (1)(2)
Golar Seal (2)
Golar Crystal (1)
Hilli (1)
2019
17,100
17,100
17,100
17,100
22,437
13,754
12,441
2020
17,147
17,147
17,147
17,147
21,548
13,717
12,335
2021
17,100
17,100
17,100
17,100
20,610
13,717
12,175
2022
17,100
17,100
17,100
17,100
19,697
13,717
12,050
2023
17,100
17,100
17,100
17,100
18,784
13,754
11,907
2024+
12,884
15,695
15,695
18,599
32,079
27,433
37,601
128,418
123,526
118,800
114,075
109,463
412,055
(1) The payment obligations relating to the Golar Tundra, Golar Crystal and Hilli above include variable rental payments due under the lease
based on an assumed LIBOR plus a margin.
(2) The payment obligations relating to the Golar Tundra and the Golar Seal above have been prepared on the assumption that we are able to
secure a replacement charter for these two vessels, to ensure continuation of these financing arrangements. Refer to note 1 for further details.
The assets and liabilities of the lessor VIEs that most significantly impact our consolidated balance sheets as of December 31,
2018 and 2017, are as follows:
(in thousands of $)
Assets
Restricted cash and short-
term deposits (see note 14)
Liabilities
Debt:
Current portion of long-term
debt and short-term debt (1)
Long-term interest bearing
debt - non-current portion (1)
Golar
Glacier
Golar
Kelvin
Golar
Snow
Golar
Ice
Golar
Tundra
Golar
Seal
Golar
Crystal
Hilli
2018
Total
2017
Total
21,170
71,924
19,294
8
— 3,405
3,186
57,441
176,428
130,063
39,319 182,540
30,404 117,888 121,741
— 5,741
148,880
646,513
833,664
114,093
— 123,267
—
— 123,524
90,790
749,100 1,200,774
252,691
153,412 182,540 153,671 117,888 121,741 123,524
96,531
897,980 1,847,287 1,086,355
(1) Where applicable, these balances are net of deferred finance charges (see note 20).
The most significant impact of the lessor VIEs operations on our consolidated statements of income is interest expense of $61.5
million, $37.4 million and $44.1 million for the years ended December 31, 2018, 2017 and 2016, 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
$761.2 million, $51.5 million and $154.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Subsequent to the sale of common units in Golar Hilli LLC (see note 6 for further information), we have retained sole control over
the most significant activities and the greatest exposure to variability in residual returns and expected losses from the Hilli.
Accordingly, management have concluded Hilli LLC is a VIE and that we are the primary beneficiary. The assets and liabilities
of Hilli LLC that most significantly impact our consolidated balance sheet as of December 31, 2018, are as follows:
F-26
(in thousands of $)
Assets
Cash and short-term deposits
Restricted cash and short-term deposits
Vessels and equipment, net
Other non-current assets
Liabilities
Current portion of long-term debt and short-term debt (1)
Long-term interest bearing debt - non-current portion (1)
Hilli LLC (2)
85,238
57,441
1,301,279
91,431
1,535,389
148,880
749,100
897,980
(1) Where applicable, these balances are net of deferred finance charges.
(2) As Hilli LLC is the primary beneficiary of the Hilli Lessor VIE (see above) the Hilli LLC balances include the Hilli Lessor VIE.
The most significant impact of Hilli LLC VIE's operations on our consolidated statements of operations is liquefaction services
revenue of $127.6 million and realized and unrealized gain on oil derivative instrument of $16.8 million for the period July 12,
2018 to December 31, 2018. The most significant impact of lessor VIE's cash flows on our consolidated statements of cash flows
is net payments of $30.3 million in financing activities for the period July 12, 2018 to December 31, 2018.
6.
DISPOSAL OF LONG-LIVED ASSETS
6.1
Partial disposal of the Hilli
On July 12, 2018 (the "Closing Date"), we and affiliates of Keppel Shipyard Limited ("Keppel") and Black & Veatch Corporation
("B&V") (together, the "Sellers"), completed the sale ("Hilli Disposal") to Golar Partners of common units in our consolidated
subsidiary Golar Hilli LLC ("Hilli LLC") (the "Hilli Common Units"), which owns Golar Hilli Corp. ("Hilli Corp"), the disponent
owner of the Hilli. The Hilli Disposal resulted in the following changes to our ownership interest in our consolidated subsidiary
Hilli LLC in our equity:
(in thousands of $)
Net loss attributable to stockholders of Golar LNG Limited
Transfer to the non-controlling interests: increase in Golar LNG Limited’s paid-in capital for sale of
1,096 Hilli Common Units in July 2018
Changes from net income attributable to stockholders of Golar LNG Limited and transfers to non-
controlling interests
December 31, 2018
(231,428)
304,468
73,040
The selling price for the Hilli Disposal was $658 million, less 50% of our net lease obligations under the Hilli Facility (see note
20) on the Closing Date and working capital adjustments. On August 15, 2017, concurrently with our entry into the purchase and
sale agreement for the Hilli Disposal (the "Hilli Sale Agreement"), we received a deposit from Golar Partners, which, together
with accrued interest, equaled $71.9 million on the Closing Date (the "Hilli deposit"), combined with Golar Partners’ payment for
its exercise of the Tundra Put Right, which, together with accrued interest, equaled $110.1 million on the Closing Date (the
"Deferred Purchase Price"). We applied the Hilli Deposit, the Deferred Purchase Price and interest accrued thereon as payment
for the Hilli Disposal.
We entered into the Amended and Restated Limited Liability Company Agreement of Hilli LLC (the "LLC Agreement") on July
12, 2018. The ownership interests in Hilli LLC are represented by three classes of units, the Hilli Common Units, the Series A
Special Units and the Series B Special Units. After the Hilli Disposal, we own:
•
•
44.6% of the Hilli Common Units, with the remaining Hilli Common Units owned by Golar Partners, Keppel and B&V
(50.0%, 5.0% and 0.4%, respectively);
89.1% of the Series A Special Units, with the remaining Series A Special Units owned by Keppel and B&V (10.0% and
0.9%, respectively); and
F-27
•
89.1% of the Series B Special Units, with the remaining Series B Special Units owned by Keppel and B&V (10.0% and
0.9%, respectively).
We are the managing member of Hilli LLC and are responsible for all operational, management and administrative decisions
relating to Hilli LLC’s business and, as a result, we continue to consolidate both Hilli LLC and Hilli Corp. All three classes of
ownership interests in Hilli LLC have certain participating and protective rights. We reflect Keppel and B&V’s ownership in Hilli
LLC’s Series A Special Units and Series B Special Units as non-controlling interests in our financial statements.
The LLC Agreement provides that within 60 days after the end of each quarter (commencing with the quarter ending September
30, 2018), we, in our capacity as the managing member of Hilli LLC, shall determine the amount of Hilli LLC’s available cash
and appropriate reserves (including cash reserves for future maintenance capital expenditures, working capital and other matters),
and Hilli LLC shall make a distribution to the unitholders of Hilli LLC (the "Hilli Unitholders") of the available cash, subject to
such reserves. Hilli LLC shall make distributions to the Hilli Unitholders when, as and if declared by us; provided, however, that
no distributions may be made on the Hilli Common Units on any distribution date unless Series A Distributions (defined below)
and Series B Distributions (defined below) for the most recently ended quarter and any accumulated Series A Distributions and
Series B Distributions in arrears for any past quarter have been or contemporaneously are being paid or provided for.
Series A Special Units:
The Series A Special Units rank senior to the Hilli Common Units and on par with the Series B Special Units. Upon termination
of the LTA, Hilli LLC has a right to redeem the Series A Special Units from legally available funds at a redemption price of $1
plus any unpaid distributions. There are no conversion features on the Series A Special Units. "Series A Distributions" reflect all
incremental cash receipts by Hilli Corp during such quarter when Brent Crude prices rise above $60 per barrel with contractually
defined adjustments.
Series B Special Units:
The Series B Special Units rank senior to the Hilli Common Units and on par with the Series A Special Units. There are no
conversion or redemption features on the Series B Special Units. Incremental returns generated from future vessel expansion
capacity (currently uncontracted and excluding the exercise of additional capacity under the existing LTA) include cash receipts
and contractually defined adjustments. Of such vessel expansion capacity distributions ("Series B Distributions"):
•
•
holders of Series B Special Units are entitled to 95% of these distributions, and
holders of Hilli Common Units are entitled to 5% of these distributions.
Hilli Common Units:
Distributions attributable to Hilli Common Unitholders are not declared until any accumulated Series A Special Units and Series
B Special Units distributions have been paid. As discussed above, Hilli Common Unitholders are entitled to receive a pro rata
share of 5% of the vessel expansion capacity distributions.
Impact of partial disposal:
Hilli LLC is an entity where the economic results are allocated based on the LLC Agreement rather than relative ownership
percentages. This is due to the different classes of equity within the Hilli LLC entity, as discussed above (Hilli Common Units,
Series A Special Units, Series B Special Units). As the LLC Agreement is a substantive contractual arrangement that specifies the
allocation of cash proceeds, management has allocated the results of the Hilli LLC entity based on this.
The main assumption made in the above exercise was to make certain assumptions about the allocation of non-cash components.
Specifically, the unrealized mark-to-market movement in the oil derivative instrument is allocated to the Series A Special Unit
holders only as they are the only unit holders who benefit from the oil-linked revenues, and the cost of the Hilli asset is allocated
between the Hilli Common Unit holders and the Series B Special Unit holders. This split follows the allocation of cash revenues
associated with the capacity of the asset to the Hilli Common Unit holders and the Series B Special Unit holders.
F-28
6.2
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.
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
As of July 6, 2016
116,000
(3,000)
113,000
(b)
Fair value of the retained investment in Golar Power
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-29
(d)
Carrying value of Golar Power's net assets
The table below shows the underlying carrying value of Golar Power's 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
The guarantees issued by us in respect of Golar Power and its subsidiaries 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 28.
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
F-30
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 28.
7.
SEGMENT INFORMATION
We are a marine LNG infrastructure provider and a project development company. We own and operate LNG carriers, a FLNG
and FSRUs and provide these services under time charters under varying periods. As of December 31, 2018, we have completed
the commissioning of 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
operating income. The accounting principles for the segments are the same as for our consolidated financial statements. "Project
development expenses" are allocated to each segment based on the nature of the project. 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, 2018, we operate in the
following three reportable segments:
•
•
•
Vessel operations – We operate and subsequently charter out vessels on fixed terms to customers. We also provide technical
vessel management services for our fleet as well as the fleets of Golar Partners and Golar Power.
FLNG – In 2014, we ordered our first FLNG based on the conversion of our existing LNG carrier, the Hilli. The Hilli FLNG
conversion was completed and the vessel was accepted by the customer under the LTA. In February 2019 Golar entered
into an agreement with BP for the charter of a FLNG, which will be converted from our existing LNG carrier, the Gimi, for
a 20-year period expected to commence in 2022. The Gimi was relocated from layup to Keppel Shipyard in early 2019 to
proceed with the conversion.
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. As a result we report the equity in net losses of OneLNG in the FLNG segment. In May 2018, it was decided that
Golar and Schlumberger will wind down OneLNG and work on FLNG projects as required on a case-by-case basis.
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-31
December 31, 2018
December 31, 2017
December 31, 2016 (3)
Vessel
Operations FLNG
Power
Other (1) Total
Vessel
operations
FLNG
Power
Other (1) Total
Vessel
operations
FLNG
Power
Other (1) Total
302,979
127,625
(65,496)
(28,193)
(231,887)
(44,031)
50,740
2,749
56,336
58,150
335
—
56,671
58,150
—
—
—
—
—
—
—
— 430,604
143,537
— (93,689)
(76,522)
—
—
— (275,918)
(163,207)
(4,365)
—
53,489
—
15,100
— 114,486
(96,192)
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)
(335)
—
4,568
—
—
(4,568)
—
275
—
(335)
114,486
(91,624)
10,735
—
(4,568)
(85,457)
(137,240)
(3,576)
—
—
—
—
—
—
—
—
80,257
— (72,972)
— (148,392)
—
16
— (141,091)
(275)
—
(275)
(141,091)
(138,676)
(2,047)
(16,913)
— (157,636)
1,503
(8,153)
(18,798)
— (25,448)
37,344
—
10,534
—
47,878
(in thousands
of $)
Statement of
Operations:
Total operating
revenues
Depreciation
and
amortization
Other operating
expenses
Other operating
gains and
losses
Operating
income (loss)
Inter segment
operating
income (loss)(2)
Segment
operating (loss)
income
Equity in net
(losses)
earnings of
affiliates
Balance sheet:
Total assets
2,990,506 1,555,389
266,151
(5,451) 4,806,595
3,025,244 1,515,463
228,696
(5,116) 4,764,287
3,152,311
978,614
126,534
(548) 4,256,911
Investment in
affiliates
Capital
expenditures
305,631
— 266,151
— 571,782
472,482
2,047
228,696
— 703,225
512,046
10,200
126,534
— 648,780
22,978
116,715
—
— 139,693
1,349
390,552
—
— 391,901
33,698
200,820
—
— 234,518
(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, 2018 our vessels operated predominately within the Cool Pool and under our LTA with
Perenco Cameroon S.A. ("Perenco") and Société Nationale des Hydrocarbures ("SNH"), (together, the "Customer").
In the years ended December 31, 2018, 2017 and 2016, revenues from the following customers accounted for over 10% of our
consolidated time and voyage charter revenues:
(in thousands of $)
The Cool Pool (1)
Perenco and SNH (note 8)
An energy and logistics company
2018
2017
2016
251,070
127,625
9,235
62%
31%
2%
106,302
—
9,235
91%
—%
8%
51,075
—
7,975
77%
—%
12%
(1) The 2018 Cool Pool revenue of $251.1 million includes revenue of $73.9 million that is separately disclosed in the consolidated statements
of operations as from a collaborative arrangement. The balance of $177.2 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 28.
The above revenues exclude vessel and other management fees from Golar Partners (see note 28).
Geographic data
The following geographical data presents our revenues from customers and fixed assets with respect only to our FLNG, while
operating under the LTA, in Cameroon. 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-32
(in thousands of $)
Cameroon
Liquefaction services revenue
Total assets
8.
REVENUE
2018
2017
2016
127,625
—
1,535,389
1,515,463
—
—
Contract assets arise when we render services in advance of receiving payment from our customers. Contract liabilities arise when
the customer makes payments in advance of receiving the services. Changes in our contract balances during the period are as
follows:
(in thousands of $)
Opening balance on January 1, 2018
Payments received for services billed
Services provided and billed in current period
Payments received for services billed in current period
Impairment
Deferred commissioning period revenue
Closing balance on December 31, 2018
(1) Relates to management fee revenue and liquefaction services revenue, see a) and b) below.
(2) Relates to liquefaction services revenue, see b) below.
a) Management fee revenue:
Contract assets (1) Contract liabilities (2)
—
—
33,763
—
—
(2,467)
31,296
17,245
(14,558)
143,670
(120,975)
(1,006)
—
24,376
By virtue of an agreement to offset intercompany balances entered into between us and Golar Partners, of our total contract asset
balances above:
• $3.1 million is included in balance sheet line item "Amounts due from related parties" under current assets ($7.2 million at
December 31, 2017), and
• $4.3 million is included in "Amounts due to related parties" under current liabilities ($10.0 million at December 31, 2017).
Refer to note 28 for further details of our management fee revenue and contract terms.
b) Liquefaction services revenue:
The Hilli is moored in close proximity to the Customer’s gasfields, providing liquefaction service capacity over the term of the
LTA. Liquefaction services revenue recognized comprises the following amounts:
(in thousands of $)
Base tolling fee (1)
Amortization of deferred commissioning period revenue (2)
Amortization of Day 1 gain (3)
Other
Total
Year Ended
December 31,
2018
119,677
2,467
5,817
(336)
127,625
2017
—
—
—
—
—
(1) The LTA bills at a base rate in periods when the oil price is $60 or less per barrel (included in "Liquefaction services revenue" in the consolidated statements
of income), and at an increased rate when the oil price is greater than $60 per barrel (recognized as a derivative and included in "Realized and unrealized gain on
oil derivative instrument" in the consolidated statements of income, excluded from revenue and from the transaction price).
(2) Customer billing during the commissioning period, prior to vessel acceptance and commencement of the contract term, of $33.8 million is considered an
upfront payment for services. These amounts billed are deferred (included in "Other current liabilities" and "Other non-current liabilities" in the consolidated
balance sheets) and recognized as part of "Liquefaction services revenue" in the consolidated statements of income evenly over the contract term.
(3) The Day 1 gain was established when the oil derivative instrument was initially recognized in December 2017 for $79.6 million (recognized in "Other current
liabilities" and "Other non-current liabilities" in the consolidated balance sheets). This amount is amortized and recognized as part of "Liquefaction services
revenue" in the consolidated statements of income evenly over the contract term.
F-33
We expect to recognize liquefaction services revenue related to the partially unsatisfied performance obligation at the reporting
date evenly over the remaining contract term of less than eight years, including the components of transaction price described
above.
9.
IMPAIRMENT OF NON-CURRENT ASSETS
Vessels
The following table presents the market values and carrying values of nine of our vessels that we have determined to have market
values that are less than their carrying values as of December 31, 2018. 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 Seal
Golar Bear
Golar Frost
Golar Viking
Golar Glacier
Golar Snow
Golar Ice
Golar Kelvin
2018 Market value (1)
76,750
2018 Carrying value
134,400
178,750
182,000
182,000
78,250
182,500
184,500
184,000
183,500
179,000
183,900
187,700
112,300
183,500
191,800
192,000
185,600
Deficit
57,650
250
1,900
5,700
34,050
1,000
7,300
8,000
2,100
(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
Investment in affiliates
2018
—
2017
—
2016
1,706
In November 2018, Golar Partners announced a distribution cut which failed to translate into an improved share price. Given the
failure of the share price to recover and the sustained period of the suppressed share price, we believe that the difference between
the carrying value and the fair value of our equity accounted investment is no longer temporary. On December 31, 2018, we
recorded an impairment charge of $149.4 million.
The fair value of our investment in Golar Partners is categorized within level 2 of the fair value hierarchy. The methodology
applied to arrive at the fair value was to apply a Monte Carlo Simulation model to estimate the total equity value of Golar Partners
which determines the total distribution payment to all unitholders including Common, GP units and IDRs. The key inputs into the
model are the valuation date share price, long term volatility curve and dividend yield of Golar Partners.
F-34
10.
(LOSSES) GAINS ON DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL ITEMS, NET
(Losses) gains on derivative instruments comprise of the following:
(in thousands of $)
Mark-to-market adjustment for interest rate swap derivatives (see note 27)
Mark-to-market adjustment for equity derivatives (see note 27)
Mark-to-market adjustment for foreign exchange swap derivatives
Unrealized mark-to-market (losses) gains on Earn-Out Units (see note 19)
Interest income (expense) on undesignated interest rate swaps (see note 27)
Other financial items, net comprise of the following:
(in thousands of $)
Impairment of loan (1)
Financing arrangement fees and other costs
Amortization of debt guarantee
Foreign exchange loss on operations
Other
2018
604
(30,663)
(1,151)
(7,400)
8,069
(30,541)
2018
—
(244)
861
(1,997)
(101)
(1,481)
2017
6,614
16,622
821
441
(3,802)
20,696
2017
—
(677)
1,548
(888)
(52)
(69)
2016
2,818
24,819
(993)
—
(10,153)
16,491
2016
(7,627)
(404)
1,563
(1,909)
577
(7,800)
(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.
11.
INCOME TAXES
The components of income tax expense (benefit) are as follows:
(in thousands of $)
Current tax expense
Deferred tax expense
Amortization of tax benefit arising on intra-group transfers of non-current assets
Total income tax expense (benefit)
Year ended December 31
2018
836
431
—
1,267
2017
1,478
27
—
1,505
2016
1,035
90
(1,714)
(589)
The income taxes for the years ended December 31, 2018, 2017 and 2016 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)
Year ended December 31
2018
—
2017
—
—
431
(369)
1,205
1,267
—
27
(5)
1,483
1,505
2016
—
(1,714)
90
(334)
1,369
(589)
F-35
Jurisdictions open to examination
The earliest tax year that remains subject to examination by the major taxable jurisdictions in which we operate are: UK (2017)
and Norway (2015).
12.
LOSS PER SHARE
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
2018
(231,428)
2017
(179,703)
2016
(186,531)
The components of the denominator for the calculation of basic and diluted EPS are as follows:
(in thousands)
Basic and diluted loss per share:
Weighted average number of common shares outstanding
2018
2017
2016
100,684
100,597
93,933
Loss per share are as follows:
Basic and diluted
2018
(2.30) $
2017
(1.79) $
2016
(1.99)
$
The effects of stock options and convertible bonds have been excluded from the calculation of diluted EPS for each of the years
ended December 31, 2018, 2017 and 2016 because the effects were 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, 2018, were
as follows:
Year ending December 31
(in thousands of $)
2019
Total
25,851
25,851
The cost and accumulated depreciation of vessels leased to third parties at December 31, 2018 and 2017 were $331.5 million and
$35.6 million; and $191.1 million and $53.6 million, respectively.
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Rental expense
We are committed to making rental payments under operating leases. The future minimum rental payments under our non-
cancellable operating leases are as follows:
Year ending December 31
(in thousands of $)
2019
2020
2021
2022
2023 and thereafter
Total minimum lease payments
Total
5,417
3,756
2,682
2,425
6,180
20,460
Total rental expense for operating leases was $8.2 million, $19.3 million and $29.6 million for the years ended December 31,
2018, 2017 and 2016, respectively. In prior years, the Golar Grand was chartered back from Golar Partners under agreements
executed at the time of its disposals to Golar Partners. The Golar Grand charter-back arrangement with Golar Partners ceased in
October 2017.
Total rental expense for operating leases for the year ended December 31, 2018 includes $6.1 million of minimum rental expense,
$2.2 million of contingent rental expense and sublease rental income of $0.1 million.
14.
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)
Collateral on the Margin Loan Facility (5)
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
2018
82,863
174,597
176,428
17,657
33,413
777
691
486,426
(332,033)
154,393
2017
58,351
174,737
130,063
33,752
—
813
99
397,815
(222,265)
175,550
(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. Collateral of 20% of the total purchase price is required and this is subsequently adjusted
with reference to the Company's share price (see note 27).
(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.
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, with no further reduction in 2018. It is expected that the letter of credit will further reduce
to $250.0 million during 2019.
F-37
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, 2018, the letter of credit automatically extends,
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.
(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) This refers to cash deposits required under the $1.125 billion debt facility (see note 20). 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.
(5) Collateral held against the Margin Loan Facility is required to satisfy one of the mandatory prepayment events within the
facility, with this having been triggered when the closing price of the Golar Partners common units pledged by us as security for
the obligations under the facility fell below a defined threshold. If certain requirements are met, the facility allows for the release
of the collateral (see note 20).
Restricted cash does not include minimum consolidated cash balances of $50.0 million (see note 20) required to be maintained
as part of the financial covenants for our loan facilities, as these amounts are included in "Cash and cash equivalents".
15.
OTHER CURRENT ASSETS
(in thousands of $)
Prepaid expenses
Other receivables
16.
INVESTMENTS IN AFFILIATES
2018
4,285
14,435
18,720
2017
3,045
3,002
6,047
At December 31, 2018 and 2017, 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)
Avenir LNG Limited ("Avenir")
2018
32.0%
50%
50%
51%
50%
22.5%
2017
31.8%
50%
50%
51%
33%
—
(1) As of December 31, 2018, we held a 32.0% (2017: 31.8%) 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. Following the exit of one participant from the pool in June 2018, our participation increased to50%.
F-38
The carrying amounts of our investments in our equity method investments as at December 31, 2018 and 2017 are as follows:
(in thousands of $)
Golar Partners
Golar Power
OneLNG
Avenir
Others (1)
Equity in net assets of affiliates
2018
271,160
266,151
—
28,710
5,761
571,782
2017
467,097
228,696
2,047
—
5,385
703,225
1 Others largely relate to our investment in ECGS amounting to $5.3 million and $5.4 million as at December 31, 2018 and 2017,
respectively.
The components of equity in net assets of non-consolidated affiliates are as follows:
(in thousands of $)
Cost
Dividends
Equity in net earnings of affiliates
Impairment of investment in affiliate
Share of other comprehensive income of affiliates
Equity in net assets of affiliates
2018
981,196
(336,286)
95,458
(149,389)
(19,197)
571,782
2017
877,810
(287,263)
107,553
—
5,125
703,225
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 (Common
Units, GP Units and IDRs) 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. Subsequently the day one value was adjusted for our share of
Golar Partners earnings and distributions received. On December 31, 2018, we recognized an impairment charge of $149.4 million.
See note 9 for further details.
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 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. 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 prior period. The remaining Earn-Out Units ("second tranche") would be issued if Golar Partners paid 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. Having not satisfied the minimum quarterly distribution over all of these quarters, the second tranche did not vest.
In relation to the IDR Reset transaction, we applied "carry over" accounting 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
F-39
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. The decrease in Golar Partners' quarterly distribution to $0.4042 per common
unit on October 24, 2018 resulted in the Earn-Out Units not crystallizing and, accordingly, we recognized a mark-to-market loss
of $7.4 million for the year ended December 31, 2018, effectively reducing the derivative asset to $nil.
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,
2018 and 2017 were $0.2 million and $nil, 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. During the year ended December 31, 2018, we contributed a further $55.0 million to Golar Power as a result of this agreement.
In addition, interest costs capitalized on the investment in Golar Power for the years ended December 31, 2018 and 2017, were
$10.5 million and $6.6 million, respectively.
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.
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. The delays in finalizing a debt financing package for the Fortuna FLNG project, together with
other capital and resource priorities, has resulted in a decision from Schlumberger to end their participation in the project. Golar
and Schlumberger, as a result of this, have commenced the winding down of OneLNG and will work on FLNG projects as required
on a case-by-case basis. As a result, we have written down our investment in OneLNG to $nil as at December 31, 2018.
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. In June 2018, Dynagas exited
the pooling arrangement. As of December 31, 2018, the Cool Pool comprised of 16 vessels, of which eight vessels were contributed
by us, six vessels by GasLog 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 and GasLog.
F-40
Avenir
On October 1, 2018, Avenir issued a private placement of 99 million shares at a par price of $1 per share, which was successfully
completed at a subscription price of $1 per share. Of the 99 million shares placed, we subscribed for 24.8 million shares, representing
an investment of $24.8 million, or 25%. The investment is part of a combined commitment of up to $182.0 million from Stolt-
Nielsen Limited ("Stolt-Nielsen") (an entity affiliated with our director Niels Stolt Nielsen), Höegh LNG Holdings Limited
("Höegh") and Golar for the pursuit of opportunities in small-scale LNG, including the delivery of LNG to areas of stranded gas
demand, the development of LNG bunkering services and supply to the transportation sector.
The consideration of $24.8 million, was deemed less than our proportionate share of net assets acquired in Avenir, at fair value.
Therefore, during the year ended December 31, 2018 we recognized negative goodwill of $3.8 million in equity in net (losses)
earnings of affiliates to reflect our bargain purchase.
Avenir intends to utilize the best-in-class capabilities of its anchor investors to build a global presence as the leading provider of
small-scale LNG, and it will be among the first movers in this market with a fleet of small-scale LNG carriers and terminals. The
market for small-scale LNG is rapidly expanding, with great potential to be realized in the off-grid power, transportation and
bunkering markets because of high-margin oil-to-gas switching, policy changes and environmental benefits of consuming LNG
relative to alternative fossil fuels. The forthcoming IMO 2020 regulations are one of many driving factors for increased small-
scale LNG consumption, and Avenir plans to introduce safe and efficient ship-to-ship bunkering services at key strategic ports to
meet and develop demand for LNG as a marine fuel.
Avenir was originally formed by Stolt-Nielsen in 2017 to provide LNG to markets lacking access to LNG pipelines. Stolt-Nielsen
will consolidate all its LNG activities into Avenir, including four small-scale LNG carriers currently under construction at Keppel
Singmarine in Nantong, China, two small-scale LNG carriers on order from Sinopacific Offshore Engineering in Nantong, China
and a 80% ownership in an LNG terminal and distribution facility under development in the Italian port of Oristano, Sardinia.
Avenir plans to source and ship LNG to the terminal using small LNG carriers, and distribute the LNG in trucks and through
regasification into the local gas grid.
On November 8, 2018, Avenir placed a further 11 million shares, also at a subscription price of $1 per share, with a group of
institutional and other professional investors and, subsequent to this placement, Stolt-Nielsen, Höegh and Golar have a 45%, 22.5%
and 22.5% participation in Avenir, respectively.
Avenir's shares were listed on the N-OTC with effect from November 14, 2018.
Summarized financial information of the affiliated undertakings shown on a 100% basis are as follows:
(in thousands of $)
December 31, 2018
December 31, 2017
ECGS
Golar
Partners
Pool
Manager
Golar
Power
OneLNG
Avenir
ECGS
Golar
Partners
Pool
Manager
Golar
Power
OneLNG
Balance Sheet
Current assets
Non-current assets
Current liabilities
Non-current
liabilities
Non-controlling
interests
Statement of
Operations
Revenue
22,955
164,529
98,448
79,029
4,884
78,591
37,476
311,496
40,661
61,374
14,955
244
2,076,288
—
955,100
—
20,840
333
2,115,875
— 713,646
—
11,510
323,508
98,448
285,447
8,741
1,760
25,836
180,087
40,661
60,033
10,941
1,203
1,157,792
—
79,902
—
—
149,114
1,541
—
—
—
—
1,203
1,399,683
— 174,656
—
76,544
—
—
—
—
487
(975)
44,052
433,102
159,460
7,354
—
1,047
144,848
—
(7,899)
(14,883)
30,596
346,650
346,170
78,732
7
Net income (loss)
207
76,548
—
(10,202)
(6,646)
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17.
ASSET UNDER DEVELOPMENT
(in thousands of $)
Purchase price installments
Interest costs capitalized
Other costs capitalized (1)
2018
—
—
20,000
20,000
2017
962,709
116,416
98,364
1,177,489
(1) Other capitalized costs relate to the carrying value of the vessel earmarked for conversion.
In May 2014, we entered into agreements for the conversion of the Hilli to a FLNG. The primary vessel conversion contract was
entered into with Keppel. The Hilli was delivered to Keppel in Singapore in September 2014 for the commencement of her
conversion. On completion of the Hilli FLNG conversion and commissioning, we reclassified the total balance to "Vessels and
equipment, net" in our consolidated balance sheet as of December 31, 2018.
In October 2014, we entered into agreements for the conversion of the Gimi to a FLNG. The primary vessel conversion contract
was entered into with Keppel in December 2018. In February 2019, Golar entered into an agreement with BP for the charter of a
FLNG unit, Gimi, to service the Greater Tortue Ahmeyim project for a 20-year period expected to commence in 2022. The Gimi
was delivered to Keppel shipyard in Singapore to undergo initial works in connection with her conversion in early 2019. Accordingly,
the carrying value of the Gimi of $20.0 million has been reclassified from "Vessels and equipment, net" to "Asset under development"
as of the reporting date.
F-42
18.
VESSELS AND EQUIPMENT, NET
(in thousands of $)
Cost
As of January 1
Additions
Transfer from asset under development (1)
Transfer to asset under development
Write-offs
As of December 31
Depreciation, amortization and impairment
As of January 1
Charge for the year (2)
Transfer to asset under development
Write-offs
As of December 31
Net book value as at December 31
2018
2017
2,431,136
11,304
1,296,431
(90,828)
(9,995)
3,638,048
(354,077)
(93,415)
70,828
9,995
(366,669)
3,271,379
2,438,720
1,349
—
—
(8,933)
2,431,136
(284,889)
(76,522)
—
7,334
(354,077)
—
2,077,059
(1) On completion of the Hilli FLNG conversion and commissioning, we reclassified the total balance from "Asset under development" in our
consolidated balance sheet as of December 31, 2018. Capitalized interest costs of $148.1 million are included in the cost amounts above as of
December 31, 2018.
(2) Depreciation and amortization charge for the year ended December 31, 2018 excludes $0.3 million of amortization charged to non-current
assets in relation to the Cameroon License fee.
Drydocking costs of $133.3 million and $37.4 million are included in the cost amounts above as of December 31, 2018 and 2017,
respectively. Accumulated amortization of those costs as of December 31, 2018 and 2017 were $26.0 million and $24.3 million,
respectively.
Depreciation and amortization expense for each of the years ended December 31, 2018, 2017 and 2016 was $93.4 million, $76.5
million and $73.0 million, respectively.
As at December 31, 2018 and 2017, vessels with a net book value of $3,244.3 million and $2,032.7 million, respectively, were
pledged as security for certain debt facilities (see note 30).
As at December 31, 2018 and 2017, included in the above amounts is office equipment with a net book value of $5.7 million and
$3.9 million, respectively.
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19.
OTHER NON-CURRENT ASSETS
(in thousands of $)
Oil derivative instrument (see note 27)
Other non-current assets (1)
Mark-to-market interest rate swaps valuation (see note 27)
OLT Offshore LNG Toscana S.p.A ("OLT–O") (2)
Derivatives - other (see note 16)
2018
84,730
40,729
6,298
7,347
—
2017
94,700
37,891
10,166
7,347
7,400
139,104
157,504
(1) "Other non-current assets" is mainly comprised of payments made relating to long lead items ordered in preparation for the
conversion of the Gimi into a FLNG vessel. As of December 31, 2018 and 2017, the aggregate carrying value was $31.0 million.
The Gimi conversion contract was executed on December 13, 2018 subsequent to the receipt of a limited Notice to Proceed from
BP in relation to the Greater Tortue Ahmeyim project.
(2) "Investment in OLT Offshore LNG Toscana S.p.A ("OLT-O")" refers to our investment in 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. In prior years, this investment was classified as a cost method investment. Following the adoption of
ASU 2016-01, we have applied the measurement alternative for measuring equity investments without readily determinable fair
values. As of December 31, 2018 and 2017, our investment in OLT-O was $7.3 million, representing a 2.7% interest in OLT-O’s
issued share capital.
20.
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
The outstanding debt as of December 31, 2018 is repayable as follows:
Year ending December 31
(in thousands of $)
2019
2020
2021
2022
2023
2024 and thereafter
Total
Deferred finance charges
Total
2018
2017
2,565,359
(730,257)
1,835,102
2,410,847
(1,384,933)
1,025,914
Golar debt
VIE debt (1)
Total debt
85,225
163,383
21,716
375,377
21,716
65,151
732,568
(14,494)
718,074
646,959
82,260
82,260
82,260
82,260
873,629
1,849,628
(2,343)
1,847,285
732,184
245,643
103,976
457,637
103,976
938,780
2,582,196
(16,837)
2,565,359
(1) 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).
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At December 31, 2018 and 2017, our debt was as follows:
(in thousands of $)
Golar Arctic facility
Golar Viking facility
2017 Convertible bonds
Margin Loan
FLNG Hilli facility
Hilli shareholder loans:
- Keppel loan
- B&V loan
$1.125 billion facility:
- Golar Bear facility
- Golar Frost facility
Subtotal (excluding lessor VIE loans)
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
CSSC VIE loan:
- Hilli facility
Total debt (gross)
Deferred finance charges
Total debt
2018
58,300
46,875
353,661
100,000
—
—
—
86,200
87,532
732,568
154,226
154,566
182,540
117,888
2017 Maturity date
65,600
52,083
340,173
119,125
525,000
44,066
5,000
96,975
98,474
1,346,496
161,876
162,566
182,540
134,954
2019
2020
2022
2020
2018
2027
2027
2024/2026*
2024/2026*
2018/2024**
2018/2025**
**
**
121,741
198,613
2026**
123,524
143,849
2026**
97,163
104,006
2027**
897,980
2,582,196
(16,837)
2,565,359
—
2028**
2,434,900
(24,053)
2,410,847
* 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. In October 2018, the maturity of the commercial tranche, and
consequently the option to the lenders, was extended by five years, to 2024.
** This represents the total loan facilities drawn down by subsidiaries of ICBCL, CMBL, CCBFL, COSCO and CSSC, which we consider to be VIEs. 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%.
F-45
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 was initially equal to 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.
During 2018, the quarterly dividends in respect of the second and third quarter results exceeded the dividend threshold and resulted
in an adjustment to the initial conversion rate. The distribution of the second quarter results, of $0.125 per share, increased the
conversion rate to 26.6102. This corresponds to a conversion price of $37.58. The distribution of the third quarter results, of $0.15
per share, further increased the conversion rate to 26.6375. This corresponds to a conversion price of $37.54.
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. This was
increased to 21,226,586 as part of the amendments to the facility in 2018.
During July 2018, amendments to the existing Margin Loan Facility were completed. Although most of the existing terms remain
substantially unchanged, the facility will no longer amortize, remaining at $100 million until maturity. Previously the dividend
cash received from the pledged Partnership shares was first used to service the interest on the loan, any excess cash was then used
to prepay a portion of the principal. Under the modified agreement, any excess cash after servicing the interest will be returned
to Golar. Subject to the satisfaction of certain covenants, no further principal repayments will be required ahead of loan maturity
in March 2020.
At December 31, 2018, collateral held against the Margin Loan Facility is required to satisfy one of the mandatory prepayment
events within the facility, with this having been triggered when the closing price of the Golar Partners common units pledged by
us as security for the obligations under the facility fell below a defined threshold. If certain requirements are met, the facility
allows for the release of the collateral. See note 14.
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
CSSC for a pre-delivery credit facility and post-delivery sale and leaseback financing.
Hilli pre-delivery facility
Under the pre-delivery credit facility, we entered into an agreement with a subsidiary of CSSC to 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 was
non-amortizing with the principal payable at the earlier of August 30, 2018 or sale of the converted Hilli to a subsidiary of CSSC
under the sale and leaseback arrangement (described below under "Hilli post-delivery sale and leaseback financing"). The facility
bore interest at a fixed rate of 6.25% per annum. Upon acceptance of the Hilli in June 2018, we repaid $640.0 million on the pre-
delivery credit facility and drew down $960.0 million on the post-acceptance sale and leaseback financing.
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Hilli post-delivery sale and leaseback financing
On May 31, 2018, the Hilli completed commissioning and acceptance testing procedures, was accepted under the LTA with Perenco
and SNH and is began full commercial operation. On June 24, 2018, we repaid $640.0 million on the pre-delivery credit facility
and drew down $960.0 million on the post-acceptance sale and leaseback financing in relation to the FLNG Hilli facility. The
proceeds of this sale and leaseback financing were used, in part, to pay off the Hilli pre-delivery financing described above. We
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 (see note 5).
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 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 as at December 31, 2017. The loan
bore interest at 6% per annum. Installment payments of 2.5% of the value of the loan were 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. Accordingly, as of December 31, 2017, the balance outstanding under the Keppel shareholder loan was
$44.1 million. This loan was converted to equity on the Closing Date of the Hilli Disposal (see note 6).
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 as at December 31, 2017. The loan
bore interest at 6% per annum. Installment payments of 2.5% of the value of the loan were payable on a six-monthly basis beginning
12 months after final acceptance of the FLNG with a balloon payment 120 months after final acceptance. This loan was converted
to equity on the Closing Date of the Hilli Disposal (see note 6).
$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
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. In October 2018, the
term of the commercial tranche, and consequently the option to K-Sure and KEXIM, was extended by 5 years. The facility is
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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, 2018, the aggregate balance of the facility was $173.7 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 6).
Lessor VIE debt
The following loans relate to our lessor VIE entities, including ICBCL, CMBL, CCBFL, COSCO and CSSC, 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. See note 5 for additional information.
ICBCL VIE loans
Golar Glacier facility
In October 2014, the SPV, Hai Jiao 1401 Limited, which owns the Golar Glacier, entered into secured financing agreements for
$184.8 million consisting of senior and junior loan 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 lien on the Golar Glacier. 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 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 lien 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 short-term
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.
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.
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A pre-condition of the Golar Tundra lease financing with CMBL 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, 2019 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,
2018.
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.
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 bore no interest and was repayable on
demand.
In April 2018, Oriental Fleet LNG 01 Limited, entered into a long-term loan facility for $101.0 million. The loan facility is provided
by a related party of COSCO Shipping. The loan facility is denominated in USD, is a 10 year loan, limited to the term of the
bareboat charter, bears interest at LIBOR plus a margin and is repayable in monthly installments with a balloon payment on
maturity.
CSSC VIE loan - Hilli facility
In June 2018, the SPV, Fortune Lianjiang Shipping S.A., which owns the Hilli, entered into a secured financing agreement for
$840.0 million. This loan facility is a 10 year non-recourse loan denominated in USD, bears interest at LIBOR plus a margin and
is repayable in quarterly installments with a balloon payment on maturity. In addition to this facility, the SPV entered into an
internal loan with CSSC for $120.0 million. This loan bears no interest and is repayable on demand.
Debt restrictions
Certain of our debts are collateralized by ship liens 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 minimum net worth 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, 2018 there are cross default provisions in certain
of our and Golar Partners' and Golar Power's loan and lease agreements.
In addition to lien security, some of our debt is also collateralized through pledges of equity shares by our guarantor subsidiaries.
As of December 31, 2018, we were in compliance with all our covenants under our various loan agreements.
F-49
21.
ACCRUED EXPENSES
(in thousands of $)
Vessel operating and drydocking expenses
Administrative expenses
Interest expense
Current tax payable
2018
24,041
11,042
97,688
463
2017
10,978
9,572
84,249
1,096
133,234
105,895
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 and insurances.
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 operating cost and charterhire revenue
Mark-to-market foreign exchange swaps valuation (see note 27)
Mark-to-market equity swaps valuation (see note 27)
Day 1 gain deferred revenue - current portion (see note 23)
Dividends payable
Other (1)
(1) This includes amounts owed to Keppel and B&V in relation to the Hilli Disposal.
23.
OTHER NON-CURRENT LIABILITIES
(in thousands of $)
Day 1 gain deferred revenue (1)
Deferred commissioning period revenue (2)
Pension obligations (see note 24)
Guarantees issued to Golar Partners and Golar Power (see note 28)
Other (3)
2018
8,206
1,322
70,804
9,950
16,762
14,485
121,529
2018
63,834
27,076
32,972
14,770
6,912
2017
1,044
223
40,141
7,463
5,032
8,379
62,282
2017
72,138
—
37,537
11,429
11,444
145,564
132,548
(1) This represents the corresponding liability upon recognition of the LTA derivative asset. This deferred gain is amortized and
recognized as part of "Liquefaction services revenue" in the consolidated statements of operations evenly over the LTA contract
term, with this commencing on the customer's acceptance of the Hilli. The initial amount recognized was $79.6 million, of which
$63.8 million is non-current at December 31, 2018. The current portion of the Day 1 gain deferred revenue is included in "Other
current liabilities" (see note 22).
(2) This represents customer billing during the commissioning period, prior to vessel acceptance and commencement of the contract
term, which is considered an upfront payment for services. These amounts billed are recognized as part of "Liquefaction services
revenue" in the consolidated statements of operations evenly over the LTA contract term, with this commencing on the customer's
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acceptance of the Hilli. The initial amount recognized was $33.8 million, of which $27.1 million is non-current at December 31,
2018. The current portion of Deferred commissioning period billing is included in "Other current liabilities" (see note 22).
(3) Included in "Other" is an asset retirement obligation of $4.4 million and $9.8 million for the years ended December 31, 2018
and 2017, respectively. The reduction of $5.4 million in the current year is as a result of a change in the estimated date on which
the obligation will be settled, which resulted in a decrease of $5.6 million in the provision, partially offset by $0.2 million of
accretion recognized for the current year ended December 31, 2018. The corresponding asset of $4.4 million is recorded within
vessels and equipment, net (see note 18).
24.
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, 2018, 2017 and 2016 was $1.9 million, $1.7 million and $1.3 million,
respectively.
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
2018
250
1,687
(926)
1,392
2,403
2017
313
1,901
(843)
1,182
2,553
2016
302
2,051
(806)
1,060
2,607
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, 2018 is $1.4 million (2017: $1.2 million).
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 (gain)/ loss
Foreign currency exchange rate changes
Benefit payments
Benefit obligation at December 31
2018
2017
51,171
250
1,687
(3,265)
(599)
(3,151)
46,093
50,376
313
1,901
873
1,008
(3,300)
51,171
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The accumulated benefit obligation at December 31, 2018 and 2017 was $45.3 million and $50.2 million, respectively.
(in thousands of $)
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1
Actual (loss)/ 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)
2018
2017
13,634
(249)
3,617
(730)
(3,151)
13,121
2018
(46,093)
13,121
(32,972)
12,503
1,039
2,316
1,076
(3,300)
13,634
2017
(51,171)
13,634
(37,537)
Employer contributions and benefits paid under the pension plans include $3.6 million (2017: $2.3 million) paid from employer
assets for the year ended December 31, 2018.
(1) Our plan comprises two schemes. The details of these schemes are as follows:
(in thousands of $)
Projected benefit obligation
Fair value of plan assets
Funded (unfunded) status at end of year
December 31, 2018
December 31, 2017
UK
Scheme
(9,818)
12,291
2,473
Marine
Scheme
(36,275)
830
(35,445)
Total
(46,093)
13,121
(32,972)
UK
Scheme
(11,654)
12,968
1,314
Marine
Scheme
(39,517)
666
(38,851)
Total
(51,171)
13,634
(37,537)
The fair value of our plan assets, by category, as of December 31, 2018 and 2017 were as follows:
(in thousands of $)
Equity securities
Debt securities
Cash
The amounts recognized in accumulated other comprehensive income consist of:
(in thousands of $)
Net actuarial loss (see note 26)
2018
12,291
—
830
2017
9,921
3,047
666
13,121
13,634
2018
9,218
2017
12,799
The actuarial loss recognized in other comprehensive income is net of tax of $0.4 million, $0.3 million, and $0.0 million for the
years ended December 31, 2018, 2017 and 2016, respectively.
The asset allocation for our Marine scheme at December 31, 2018 and 2017, by asset category are as follows:
Marine scheme
Cash
Total
2018 (%)
2017 (%)
100
100
10,000
100
F-52
The asset allocation for our UK scheme at December 31, 2018 and 2017, by asset category are as follows:
UK scheme
Equity
Bonds
Total
2018 (%)
2017 (%)
100
—
100
76.5
23.5
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, 2019, as follows:
(in thousands of $)
Employer contributions
We are expected to make the following pension disbursements as follows:
(in thousands of $)
2019
2020
2021
2022
2023
2024 - 2028
UK scheme
510
UK scheme
330
410
535
355
370
2,310
Marine
scheme
2,900
Marine
scheme
3,000
3,000
3,000
3,000
3,000
12,500
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
2018
3.90%
2.20%
2017
3.40%
2.32%
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
2018
3.40%
6.75%
2.32%
2017
3.87%
6.75%
2.38%
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, 2018 and 2017 is based on the weighted average of various returns on assets using the asset
allocation as at the beginning of 2018 and 2017. For equities and other asset classes, we have applied an equity risk premium over
ten year governmental bonds.
25.
SHARE CAPITAL AND SHARE OPTIONS
Our ordinary shares are listed on the Nasdaq Stock Exchange.
F-53
As at December 31, 2018 and 2017, our authorized and issued share capital is as follows:
Authorized share capital:
(in thousands of $, except per share data)
150,000,000 (2017: 150,000,000) common shares of $1.00 each
2018
150,000
2017
150,000
Issued share capital:
(in thousands of $, except per share data)
101,302,404 (2017: 101,118,289) outstanding issued common shares of $1.00 each
2018
101,303
2017
101,119
We issued 184,115 and 38,000 common shares upon the exercise of stock options for the years ended December 31, 2018 and
2017, respectively.
Contributed surplus
As at December 31, 2018 and 2017 we had contributed surplus of $200 million. Contributed surplus is capital that can be returned
to stockholders without the need to reduce share capital, thereby giving Golar greater flexibility when it comes to declaring
dividends.
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, 2018 and 2017, we repurchased
0.5 million shares for a consideration of $20.5 million and were party to a Total Return Swap, or TRS, indexed to 3.0 million of
Golar's shares at an average price of $45.01. 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, non-
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
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 2018 and 2017, the Company granted individuals 0.5 million and 0.4 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, 2018, 2017 and 2016, the number of options outstanding in respect of Golar shares was 3.8 million, 4.0 million
and 3.8 million, respectively.
F-54
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)
2018
2.5%
62.5%
0.0%
2017
1.8%
54.5%
0.0%
2016
1.8%
55.0%
0.0%
3.6 years
3.8 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, 2018 is presented below:
(in thousands of $, except per share data)
Options outstanding at December 31, 2017
Exercised during the year
Forfeited during the year
Lapsed during the year
Granted during the year
Options outstanding at December 31, 2018
Options exercisable at:
December 31, 2018
December 31, 2017
December 31, 2016
Shares
(in '000s)
Weighted
average
exercise price
$
4,017
(184) $
(521) $
(15) $
$
508
$
3,805
2,320
1,139
108
$
$
$
37.92
14.60
45.06
31.46
27.20
36.16
39.02
37.92
2.84
Weighted
average
remaining
contractual
term
(years)
3.0
2.4
1.96
2.53
0.83
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.
As at December 31, 2018, 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.
In $'000
Intrinsic value of share options exercised
Total fair value of share options fully vested in the year
Compensation cost recognized in the consolidated statement of operations
Share options cost capitalized*
F-55
Year ended December 31
2018
2,621
16,623
11,748
421
2017
286
13,601
8,777
1,823
2016
1,326
113
5,830
822
*These costs have been capitalized as part of the cost of the conversion of the Hilli, representing share options awarded to employees directly
involved in the conversion.
As of December 31, 2018, the total unrecognized compensation cost amounting to $11.3 million relating to options outstanding
is expected to be recognized over a weighted average period of 1.5 years.
26.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss
As at December 31, 2018, 2017 and 2016, our accumulated other comprehensive loss balances consisted of the following
components:
Pension and post
retirement benefit
plan adjustments
Share of affiliates
comprehensive
(loss) income
Total accumulated
comprehensive
(loss) income
(12,400)
(556)
(12,956)
157
(12,799)
3,581
(9,218)
(192)
3,606
3,414
1,616
5,030
(24,324)
(19,294)
(12,592)
3,050
(9,542)
1,773
(7,769)
(20,743)
(28,512)
Balance at December 31, 2015
Other comprehensive (loss) income
Balance at December 31, 2016
Other comprehensive income
Balance at December 31, 2017
Other comprehensive income (loss)
Balance at December 31, 2018
27.
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, 2018 and 2017, 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
Fixed interest rates
2018
2017
950,000
2019/ 2021
1,250,000
2018/ 2021
1.23% 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.
F-56
Foreign currency risk
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
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
following the effectiveness of the LTA. Golar bears no downside risk should the Brent Crude price move below $60.00.
Equity price risk
Our Board of 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, 2018, the
counterparty to the equity swap transactions had acquired 3.0 million shares in the Company at an average price of $45.01. In
addition, we entered into a forward contract for the acquisition of 107,000 shares in Golar Partners at an average price of $20.53.
The effect of our total return swap facilities in our consolidated statement of operations as at December 31, 2018 is a loss of $30.7
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 at December 31, 2018 and 2017 are as follows:
F-57
(in thousands of $)
Non-derivatives:
Cash and cash equivalents
Restricted cash and short-term deposits
Current portion of long-term debt and short-term debt (1)(2)
Long-term debt – convertible bonds (2)
Long-term debt (2)
Derivatives:
Oil derivative instrument (6)
Interest rate swaps asset (3)
Foreign exchange swaps asset (3)
Foreign exchange swaps liability (3)
Total return equity swap liability (3)(4)
Earn-Out Units asset (5)
Fair value
hierarchy
2018
Carrying
2018
2017
Carrying
2017
value Fair value
value Fair value
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
217,835
217,835
214,862
214,862
486,426
(732,184)
(353,661)
(1,496,351)
486,426
(732,184)
(373,029)
(1,496,351)
397,815
(1,393,229)
(340,173)
(701,498)
397,815
(1,393,229)
(430,361)
(701,498)
84,730
10,770
—
(1,322)
(70,804)
—
84,730
10,770
—
(1,322)
(70,804)
—
94,700
10,166
51
(223)
(40,141)
7,400
94,700
10,166
51
(223)
(40,141)
7,400
(1) The carrying amounts of our short-term debts and loans receivable approximate their fair values because of the near term maturity of these
instruments.
(2) 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 $16.8 million and $24.1 million at December 31, 2018 and December 31, 2017, respectively.
(3) 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.
(4) 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.
(5) The Earn-Out Units were issued to Golar in connection with the IDR Reset transaction between Golar and Golar Partners in October 2016.
In October 2018, Golar Partners reduced their quarterly distribution and, as such, the fair value of the Earn-Out Units was written down to
$nil. See note 16.
(6) The fair value of the oil derivative instrument 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 oil 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 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 of 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 value 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.
F-58
• 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 oil derivative instrument 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 oil derivative instrument 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 24).
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, 2018 and 2017:
(in thousands of $)
Asset derivatives
Oil derivative instrument
Earn-Out Units asset
Interest rate swaps
Foreign exchange swaps
Total asset derivatives
Liability derivatives
Foreign exchange swaps
Total return equity swap
Total liability derivatives
Balance sheet classification
2018
2017
Other non-current assets
Other non-current assets
Other current and non-current
assets
Other non-current assets
Other current liabilities
Other current liabilities
84,730
—
10,770
—
95,500
1,322
70,804
72,126
94,700
7,400
10,166
51
112,317
223
40,141
40,364
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, 2018 and 2017 would be
adjusted as detailed in the following table:
2018
Gross amounts
not offset in the
consolidated
balance sheet
subject to netting
agreements
Gross amounts
presented in the
consolidated
balance sheet
2017
Gross amounts
not offset in the
consolidated
balance sheet
subject to netting
agreements
Net amount
Gross amounts
presented in the
consolidated
balance sheet
Net amount
(in thousands of $)
Total asset derivatives
10,770
—
10,770
10,166
—
10,166
F-59
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, 2018
cash collateral amounting to $82.9 million has been provided (see note 14).
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, COSCO and CSSC 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, 2018, our ownership interest was 32.0% and the aggregate
carrying value of the investments recorded in our balance sheet as of December 31, 2018 was $271.2 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, 2018 had a fleet of ten vessels managed by us, under contract, with five of these vessels operating
under medium to long-term charters. During the year ended December 31, 2018, we recognized an impairment loss of $149.4
million on our investment in Golar Partners. Refer to note 9.
We also have a substantial equity investment in our joint venture, Golar Power. As of December 31, 2018, our ownership interest
was 50% and the aggregate carrying value of the investment recorded in our balance sheet as of December 31, 2018 was $266.2
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
B&V. 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-60
28.
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)
Charterhire expenses (iii)
Interest expense on short-term credit facility (iv)
Share options expense recharge (vi)
Interest expense on deposits payable (vii)
Total
2018
9,809
5,200
—
—
—
(4,779)
10,230
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, 2018 and 2017 consisted of the
following:
(in thousands of $)
Trading balances owed from/ (to) Golar Partners and subsidiaries (iv)
Methane Princess lease security deposit movements (v)
Deposit payable (vii)
Total
2018
4,091
(2,835)
—
1,256
2017
(4,144)
(3,464)
(177,247)
(184,855)
(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) Charterhire 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. On November 1, 2017, the Golar Grand guarantee concluded.
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 and $28.4 million for the year ended December 31, 2017 and 2016, respectively, in relation to
the Golar Grand.
The above disclosure excludes the net effect of the non-cash credit of $5.1 million and $6.1 million for the year ended December
31, 2017 and 2016, respectively. This relates to the Golar Grand guarantee obligation, which includes recognition of a loss on
remeasurement in 2017, less amortization of the guarantee obligation. The Golar Grand guarantee concluded on November 2017.
(iv) 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
F-61
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%.
(v) 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.
(vi) 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.
(vii) 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 $nil, $2.2 million and $2.0 million as interest expense
for the year ended December 31, 2018, 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
interest in Hilli Corp. We have accounted for $2.9 million and $1.1 million as interest expense for the year ended December 31,
2018, and 2017, respectively, 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 Perenco and SNH under an eight-year LTA.
The sale price for the Disposal Interests is $658 million less 50% of the net lease obligations under the financing facility for the
Hilli (the "Hilli Facility"), on closing date, plus post-closing purchase price adjustments. 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 $1.9 million and $1.3 million as interest expense for the year ended December 31, 2018, and
2017, respectively, in relation to the $70 million deposit from Golar Partners.
On July 12, 2018, we concluded the Hilli Disposal with Golar Partners, accordingly we applied the Deferred Purchase Price as
well as the deposit received from Golar Partners against the disposal.
Other transactions:
Golar Partners distributions to us - Golar Partners has declared and paid quarterly distributions totaling $48.4 million, $52.3
million, and $54.7 million to us for each of the years ended December 31, 2018, 2017 and 2016, respectively.
During the year ended December 31, 2018, Hilli LLC had declared quarterly distributions totaling $5.6 million in respect of the
Hilli Common Units owned by Golar Partners. As of December 31, 2018, we have a dividend payable of $3.6 million to Golar
Partners.
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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 16).
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, 2018, we recognized a liability of $11.5 million (2017: $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 and Golar Igloo: Under the Purchase, Sale and Contribution Agreements entered into between Golar
Partners and us on December 15, 2014 and December 5, 2013 in relation to the Golar Eskimo and the Golar Igloo, 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.
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.
e) Hilli cost indemnification: We (as one of the Sellers) have agreed to indemnify Golar Partners for certain costs incurred in Hilli
operations until August 14, 2025, when these costs exceed a contractual ceiling, capped at $20 million. Costs indemnified include
vessel operating expenses, taxes, maintenance expenses, employee compensation and benefits, and capital expenditures. See note
6.
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.
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b) Transactions with Golar Power and affiliates:
Net revenues: The transactions with Golar Power and its affiliates for the twelve months ended December 31, 2018, 2017 and
2016 consisted of the following:
(in thousands of $)
Management and administrative services revenue
Ship management fees income
Debt guarantee compensation (i)
Other
Total
2018
6,167
1,400
861
(247)
8,181
2017
5,711
824
775
135
7,445
2016
1,965
335
488
—
2,788
Payables: The balances with Golar Power and its affiliates as of December 31, 2018 and 2017 consisted of the following:
(in thousands of $)
Trading balances due to Golar Power and affiliates (ii)
Total
2018
(5,417)
(5,417)
2017
(935)
(935)
(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 $0.9 million
and $0.8 million income for the year ended December 31, 2018 and 2017, respectively.
(ii) 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
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 on the Golar Penguin and the Golar Celsius were previously issued by Golar to third
party banks in respect of certain secured debt facilities relating to Golar Power and subsidiaries. As described in (i) above we
receive compensation from Golar Power in relation to the provision of the guarantees. In addition, a debt guarantee was provided
on the newbuild Golar Nanook. 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,
2018 and 2017, the Company guaranteed $393.5 million and $182.3 million, respectively of Golar Power's gross long-term debt
obligations. The debt facilities are secured against specific vessels.
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. The shipyard guarantee expired on September 27, 2018 as a result of final
milestone payments made by Golar Power to the yard.
c) Transactions with OneLNG and subsidiaries:
Net revenues: The transactions with OneLNG and its subsidiaries for the year ended December 31, 2018 and 2017 consisted of
the following:
(in thousands of $)
Management and administrative services revenue
2018
1,399
2017
6,463
2016
586
Receivables: The balances with OneLNG and its subsidiaries as of December 31, 2018 and 2017 consisted of the following:
(in thousands of $)
Trading balances due from OneLNG (i)
2018
8,169
2017
7,898
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(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.
Subsequent to the decision to dissolve OneLNG, we have written off $12.7 million of the trading balance with OneLNG to 'Other
operating income' in our Consolidated statements of income as we deem it to be no longer recoverable. The trade receivables of
$8.2 million is net of this provision. In addition to the OneLNG trading balance write-off recognized in 'Other operating income',
we had an additional write-off of $1.3 million of capitalised conversion costs in relation to the Gandria.
d) Transaction with other related parties:
Net revenues (expenses): The transactions with other related parties for the years ended December 31, 2018, 2017 and 2016
consisted of the following:
(in thousands of $)
The Cool Pool (i)
Magni Partners (ii)
Total
2018
151,152
(375)
150,777
2017
59,838
(260)
59,578
2016
32,254
(4,282)
27,972
Receivables (Payables): The balances with other related parties as of December 31, 2018 and 2017 consisted of the following:
(in thousands of $)
The Cool Pool (i)
Magni Partners (ii)
Total
2018
43,985
(8)
43,977
2017
14,004
6
14,010
(i) The Cool Pool - For the year ended December 31, 2018 we recognized net income of $151.2 million from our participation in
the Cool Pool. Trade accounts receivable includes amounts due from the Cool Pool, amounting to $44.0 million as of December 31,
2018 (December 31, 2017: $14.0 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, charterhire expenses and commission expenses
Voyage, charterhire and commission expenses - collaborative arrangement
Net income from the Cool Pool
2018
177,139
73,931
(16,717)
(83,201)
151,152
2017
77,975
28,327
(7,683)
(38,781)
59,838
2016
37,345
13,730
(7,681)
(11,140)
32,254
(ii) 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 an agreement between Magni Partners Limited and a Golar subsidiary,
for the year ended December 31, 2018 and 2017, Golar was recharged $0.4 million and $0.3 million, respectively, 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, for the year ended
December 31, 2018 and 2017 Golar was recharged $0.04 million and $0.3 million, respectively, for travel relating to certain board
members. Furthermore, for the year ended December 31, 2017 Golar was recharged $0.3 million for other travel and out of pocket
expenses. All charges have been recharged to Golar at cost.
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29.
CAPITAL COMMITMENTS
Conversions
We have contracts with Keppel and Black & Veatch for the conversion of our LNG carrier, the Gimi into a FLNG, and we have
agreed contract terms for the conversion of the Gandria to a FLNG. The Gimi has recently entered the Keppel shipyard to commence
its conversion to a FLNG, whilst the Gandria is currently in lay-up awaiting delivery to Keppel for conversion. The conversion
agreements for the Gimi and the Gandria are both subject to certain payments and lodging of a full Notice to Proceed.
As at December 31, 2018, the estimated timing of the outstanding payments in connection with the Limited Notice to Proceed on
the Gimi conversion are as follows:
(in thousands of $)
Payable within 12 months to December 31, 2019
21,530
21,530
In February 2019, we entered into a 20 years Lease and Operate Agreement with BP for the charter of a FLNG unit, Gimi, to
service the Greater Tortue Ahmeyim project, subject to certain conditions precedent. The estimated conversion cost of the Gimi
is approximately $1.3 billion.
As we have not lodged our final Notice to Proceed on the Gandria conversion contract, we have excluded the Gandria capital
commitments in the above table. In addition we have excluded any capital commitments in relation to the conversion of the Viking
into a FSRU as commencement of this project is subject to certain conditions precedent.
30.
OTHER COMMITMENTS AND CONTINGENCIES
Assets pledged
(in thousands of $)
Book value of vessels secured against long-term loans
2018
3,244,291
2017
2,032,747
As at December 31, 2018 and 2017, Golar Partners common units of 21,226,586 and 20,852,291, respectively, were pledged as
security for the obligations under the Margin Loan Facility (see note 20).
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, 2018, 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.
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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
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 £115 million British Pounds. We are currently in conversation with HMRC on this matter and, as well as
continuing to present the factual background of Golar's position, we are progressing the possibility of bringing this inquiry to a
mutually satisfactory conclusion. Given the complexity of these discussions, it is impossible to quantify the reasonably possible
loss, however we continue to estimate the possible range of exposures as set out above.
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, 2018, 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 2019. 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.
In 2017, we commenced arbitration proceedings arising from the delays and the termination of the Golar Tundra time charter with
a former charterer. These proceedings are expected to conclude shortly. For the year ended December 31, 2018, we recovered
$50.7 million in charter earnings, recognized in 'Other operating income' in the consolidated statements of operations.
In relation to our investment in small-scale LNG services provider Avenir (see note 16), we are party to a combined commitment
of up to $182.0 million from initial Avenir shareholders Stolt-Nielsen, Höegh and us. In November 2018, Avenir was capitalised
with the placement of 110,000,000 new shares at a par price of US$1.00 per share. Following the initial equity offering, the
founding partners are committed to fund $72.0 million of which Golar is committed to approximately $18 million.
31.
SUBSEQUENT EVENTS
In January 2019, we entered into binding agreements with a Croatian project developer, LNG Hrvatska d.o.o., to convert the 2005
built Golar Viking into a FSRU, sell the converted vessel, and then operate and maintain the FSRU for a minimum of 10 years.
Commencement of this project is subject to certain conditions precedent, including confirmation of project funding and receipt
of a notice to proceed from LNG Hrvatska d.o.o.
In February 2019, we declared a dividend of $0.15 per share in respect of the quarter ended December 31, 2018 and paid this in
April 2019. In addition, Golar Partners made a final cash distribution of $0.40 per unit in February 2019 in respect of the quarter
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ended December 31, 2018, of which we received $9.2 million of dividend income in relation to our common and general partner
units held at the record date.
In February 2019, we entered into a 20 year Lease and Operate Agreement with BP Mauritania Investments Ltd (“BP”) for the
charter of the FLNG unit, the Gimi, to service the Greater Tortue Ahmeyim project. The Gimi’s conversion to a FLNG is expected
to commence in April 2019 and the Gimi is expected to commence operations under the Lease and Operate Agreement in 2022.
The estimated cost of the Gimi’s conversion is $1.3 billion, which we plan to fund through multiple financing facilities, including
a $700 million long term financing facility that is currently in its final stages and that we plan to have available to us during
construction. Once the Gimi is accepted under the contract, we anticipate annual contracted revenues less forecasted operating
costs of approximately $215 million per year.
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