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 | ||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the fiscal year ended | ||||||||
| OR | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| 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 | |||||
| For the transition period from | to | ||||||||||
| Commission file number | ||||||||
| (Exact name of Registrant as specified in its charter) | ||
| (Translation of Registrant’s name into English) | ||
| | ||
| (Jurisdiction of incorporation or organization) | ||
| (Address of principal executive offices) | ||
Telephone: +1 ( | ||||||||||||||
(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 | Trading Symbol | Name of each exchange on which registered | ||||||
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.
As of December 31, 2023, the registrant had | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| 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 or 15(d) of the Securities Exchange Act 1934.
| Yes | 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.
| 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).
| X | No | ||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
| 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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
| Yes | No | ||||||||||
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
| Yes | No | ||||||||||
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
| Yes | No | X | |||||||||
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | 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 | ||||||||||||||||
(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. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| ITEM 4A. | ||||||||
| ITEM 5. | ||||||||
| ITEM 6. | ||||||||
| ITEM 7. | ||||||||
| ITEM 8. | ||||||||
| ITEM 9. | ||||||||
| ITEM 10. | ||||||||
| ITEM 11. | ||||||||
| ITEM 12. | ||||||||
| PART II | ||||||||
| ITEM 13. | ||||||||
| ITEM 14. | ||||||||
| ITEM 15. | ||||||||
| ITEM 16A. | ||||||||
| ITEM 16B. | ||||||||
| ITEM 16C. | ||||||||
| ITEM 16D. | ||||||||
| ITEM 16E. | ||||||||
| ITEM 16F. | ||||||||
| ITEM 16G. | ||||||||
| ITEM 16H. | ||||||||
ITEM 16I. | ||||||||
| ITEM 16J. | ||||||||
ITEM 16K. | ||||||||
| PART III | ||||||||
| ITEM 17. | ||||||||
| ITEM 18. | ||||||||
| ITEM 19. | ||||||||
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”, “projected”, “plan”, “potential”, “continue”, “will”, “may”, “could”, “should”, “would”, “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 ability and that of our counterparty to meet our respective obligations under the 20-year lease and operate agreement (the “LOA”) with BP Mauritania, a subsidiary of BP p.l.c (“BP”), entered into in connection with the Greater Tortue Ahmeyim Project (the “GTA Project”), including the timing of various project infrastructure deliveries to site such as the floating production, storage and offloading unit (“FPSO”). Delays to contracted deliveries to site could result in incremental costs to both parties to the LOA, delay commissioning works and the start of operations for our floating liquefaction natural gas vessel (“FLNG”) Gimi (“FLNG Gimi”);
•continuing uncertainty resulting from our claim for certain pre-commissioning contractual prepayments that we believe we are entitled to receive from BP pursuant to the LOA, including timing of eventual resolution, whether our claim will be upheld and any eventual recovery or amounts that we may be required to settle;
•the recoverability of other pre-commissioning contractual prepayments that we believe we could be entitled to receive from BP;
•our ability to meet our obligations under the liquefaction tolling agreement (the “LTA”) entered into in connection with the Hilli Episeyo (“FLNG Hilli”);
•our ability to recontract the FLNG Hilli once her current contract ends in July 2026 and other competitive factors in the FLNG industry;
•that an attractive deployment opportunity, or any of the opportunities under discussion for the Mark II FLNG (“Mark II”), one of our FLNG designs, will be converted into a suitable contract. Failure to do this in a timely manner or at all could expose us to losses on our investments in a donor vessel for a prospective Mark II project, the Fuji LNG (the “Fuji LNG”), long-lead items and engineering services to date. Assuming a satisfactory contract is secured, changes in project capital expenditures, foreign exchange and commodity price volatility could have a material impact on the expected magnitude and timing of our return on investment;
•continuing uncertainty resulting from potential future claims from our counterparties of purported force majeure (“FM”) under contractual arrangements, including but not limited to our future projects and other contracts to which we are a party;
•failure of shipyards to comply with schedules, performance specifications or agreed prices;
•failure of our contract counterparties to comply with their agreements with us or other key project stakeholders;
•our ability to close potential future transactions in relation to equity interests in our vessels, including the Golar Arctic, FLNG Hilli and FLNG Gimi or to monetize our remaining equity method investments on a timely basis or at all;
•increases in operating costs as a result of inflation, including but not limited to salaries and wages, insurance, crew provisions, repairs and maintenance, spares and redeployment related modification costs;
•continuing volatility in the global financial markets, including but not limited to commodity prices, foreign exchange rates and interest rates;
•global economic trends, competition and geopolitical risks, including impacts from the length and severity of future pandemic outbreaks, rising inflation and the ongoing conflicts in Ukraine and the Middle East, recent attacks on vessels in the Red Sea and the related sanctions and other measures, including the related impacts on the supply chain for our conversions or commissioning works, the operations of our charterers and customers, our global operations and our business in general;
•changes in our relationship with our equity method investments and the sustainability of any distributions they pay us;
•claims made or losses incurred in connection with our continuing obligations with regard to New Fortress Energy Inc. (“NFE”), Energos Infrastructure Holdings Finance LLC (“Energos”), Cool Company Ltd (“CoolCo”) and Snam S.p.A. (“Snam”);
•the ability of Energos, CoolCo and Snam to meet their respective obligations to us, including indemnification obligations;
•changes in our ability to retrofit vessels as FLNGs or floating storage and regasification units (“FSRUs”) and our ability to secure financing for such conversions on acceptable terms or at all;
•changes to rules and regulations applicable to liquefied natural gas (“LNG”) carriers, FLNGs or other parts of the natural gas and LNG supply chain;
•changes to rules and regulations applicable to companies with securities listed on an European Union (“EU”) regulated market, or with an EU presence, including but not limited to the European Union’s Corporate Sustainability Reporting Directive ("CSRD");
•changes in the supply of or demand for LNG or LNG carried by sea for LNG carriers or FLNGs and the supply of natural gas or demand for LNG in Brazil;
•a material decline or prolonged weakness in charter rates for LNG carriers or tolling rates for FLNGs;
•increased tax liabilities in the jurisdictions where we are currently operating or have previously operated;
•changes in general domestic and international political conditions, particularly where we operate, including in Senegal, or where we seek to operate;
•changes in the availability of vessels to purchase and in the time it takes to build new vessels or convert existing vessels and our ability to obtain financing on acceptable terms or at all;
•actions taken by regulatory authorities that may prohibit the access of LNG carriers and FLNGs to various ports; and
•other factors listed from time to time in registration statements, reports or other materials that we have filed with or furnished to the U.S. Securities and Exchange Commission (the “Commission”), including our annual report on Form 20-F.
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.
All forward-looking statements included in this report are made only as of the date of this report and, except as required by law, we assume no obligation to revise or update any written or oral forward-looking statements made by us or on our behalf as a result of new information, future events or other factors. If one or more forward-looking statements are revised or updated, no inference should be drawn that additional revisions or updates will be made in the future.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Throughout this report, 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 to “Golar Partners” or “GMLP” refer, depending on the context, to our former affiliate Golar LNG Partners LP (previously listed on Nasdaq: GMLP) and to any one or more of its subsidiaries. References to “Hygo” refer to our former affiliate Hygo Energy Transition Ltd 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. References to “NFE” refer to New Fortress Energy Inc. (Nasdaq: NFE), the third-party purchaser of Golar Partners and Hygo, which acquisition closed on April 15, 2021. References to “CoolCo” refer to Cool Company Ltd (Euronext Growth/NYSE: CLCO) 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. Reserved
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The risk factors summarized and detailed below could materially and adversely affect our business, our financial condition, our results of operations and the trading price of our common shares. We have categorized the risks we face based on whether they arise from our FLNG business, projects, financing and operational activities or from the industry in which we operate. We have listed these risks based on management’s assessment of priority. Where relevant, we have grouped together related risks into the following categories:
◦Risks related to our FLNGs and our FLNG growth projects
■Our ability to meet our continuing obligations under the LOA entered into in connection with the FLNG Gimi;
■Continuing uncertainty on the recoverability of certain pre-commissioning contractual prepayments claim pursuant to the LOA;
■Our ability to meet our continuing obligations under the LTA entered into in connection with the FLNG Hilli;
■Our ability to recontract the FLNG Hilli once her current contract ends;
■Our operating revenue is dependent on a high customer concentration wherein a loss of any of our customers could have an adverse effect on our earnings, cash flows and financial condition;
■Our efforts to manage commodity and financial risks through derivative instruments could adversely affect our results of operations and financial condition;
■Our ability to convert Mark II commercial leads into a long-term profitable contract;
■Our ability to complete a Mark II conversion could have a material adverse effect on our business, financial condition, results of operations, cash flow, liquidity and future prospects;
■Our ability to secure funding for our Mark II project; and
■Our heavy reliance on a limited number of contractors and shipyards with relevant specialized experience, given the sophisticated nature of FLNG conversions.
1
◦Risks related to the financing of our business
■We may not be able to obtain new financings 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;
■We are exposed to volatility in the Secured Overnight Financing Rate (“SOFR”) and the derivative contracts we have entered into to hedge our exposures to fluctuations in interest rates could result in charges against our results of operations, being higher than market interest rates;
■Most of our financing agreements are secured by our vessels and contain operating and financial restrictions and other covenants that may restrict our business and financing activities;
■We entered into guarantees for certain parties. If these parties are unable to service their debt requirements or comply with certain provisions contained in their loan agreements, this may have a material adverse effect on us;
■The inability of certain parties to satisfy their indemnity obligations to us could have a material adverse effect on our financial condition and results of operations;
■If the Hilli letter of credit (the “Hilli LC”) is not extended, the results of operations and financial condition of Golar Hilli Corp. (“Hilli Corp”) could suffer;
■Servicing our debt agreements substantially limits our funds available for other purposes and our operational flexibility;
■Our consolidated lessor variable interest entity (“VIE”) may enter into different financing arrangements, which could affect our financial condition, results of operations and cash flows; and
■Our cash and cash equivalents and restricted cash are dependent on a limited number of financial institutions, wherein a collapse of any of these financial institutions could have an adverse effect on our cash flows and financial condition.
◦Risks related to our operations
■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 may experience increased labor costs, the unavailability of skilled workers or the failure to attract and retain qualified key personnel, which may negatively impact the effectiveness of our management and our results of operations;
■A cyber-attack could materially impact our reputation, operations or financial performance;
■Our operations face several 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;
■Technical operational risk, human operational errors and wear and tear of equipment may impact uptime and have an associated impact on financial performance of our FLNGs;
■We are subject to the economic, political, social and other conditions in the jurisdictions where we operate;
■Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the Bribery Act of the UK (the “UK Bribery Act”) and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, and contract terminations;
■Vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of vessels or a decrease in their estimated future cash flows during our recoverability assessment, we may incur a loss which will have a material adverse effect on our results of operations;
■We will have to make additional contributions to our pension scheme because it is underfunded;
■We are exposed to U.S. Dollar, Euro, Norwegian Krone, British Pound, Brazilian Real and other foreign currency fluctuations and devaluations that could harm our results of operations;
■We are subject to the risk related to Macaw Energies’ business which may not achieve anticipated profitability as expected or at all; and
■Our equity method investments may not result in sufficient profitability to justify our investment, and could lead to future impairment.
◦Risks related to our industry
■Our results of operations and financial condition depend on demand for natural gas, LNG, FLNGs and LNG carriers;
■Our operations are subject to extensive and changing laws, regulations, reporting requirements and environmental and social attitudes towards fossil fuel, may have an adverse effect on our business; and
■Environmental, social and governance (“ESG”) and sustainability considerations may adversely impact our operations and markets.
2
◦Risks related to our common shares
■The declaration and payment of dividends or repurchases of our own shares are at the discretion of our board of directors;
■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 and could lead to a loss of all or part of a shareholder’s investment;
■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;
■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 a U.S. company; and
■Because our offices and most of our assets are outside the U.S., our shareholders may not be able to bring a suit against us, or enforce a judgment obtained against us in the United States.
◦Risks related to tax
■As a Bermuda exempted company incorporated under Bermuda law with subsidiaries in the Marshall Islands and other offshore jurisdictions, our operations may be subject to economic substance requirements;
■A change in tax laws in any country in which we operate could adversely affect us;
■We could be treated as or become a passive foreign investment company (“PFIC”), which could have adverse U.S. federal income tax consequences to U.S. shareholders;
■We may have to pay tax on certain U.S. source income, which would have a negative effect on our business and reduce cash available for distribution; and
■The recent enactment of a corporate income tax in Bermuda could adversely affect us.
Risks related to our FLNGs and our FLNG growth project
•Our ability to meet our continuing obligations under the LOA entered into in connection with the FLNG Gimi.
In February 2019, we entered into the LOA with BP for the lease and operation of FLNG Gimi, for the first phase of the GTA Project, situated off the coast of Mauritania and Senegal, for a period of 20 years. As of March 15, 2024, the FLNG Gimi is awaiting connection to the feedgas pipeline and start of commissioning activities.
Given the GTA Project’s complexity and the interdependencies of certain activities required during project mobilization and commissioning leading to commencement of commercial operations ("COD"), significant delays could result in incremental costs to both parties to the LOA and delay the unlocking of FLNG Gimi Adjusted EBITDA backlog of approximately $4.3 billion, of which we have a 70% ownership interest. If FLNG Gimi does not meet its anticipated profitability or generate sufficient cash flow on time or at all, our cash flows and results of operations may be adversely affected.
In the duration of the LOA, we are exposed to various risks, which encompass BP’s right to terminate the LOA due to specified events of default, non-payment by BP due to disagreements or disputes, assumption of unanticipated liabilities, losses, or costs, and potential financial repercussions in the event the FLNG Gimi fails to meet contracted capacity. Additionally, there is a risk of incurring significant charges such as asset devaluation or restructuring charges. Any of these circumstances or events could have a material adverse effect on our results of operations, cash flow and financial condition.
•Continuing uncertainty on the recoverability of certain pre-commissioning contractual prepayments claim pursuant to the LOA.
As described under note 18 of our audited consolidated financial statements included herein, a LOA contract interpretation dispute regarding parts of pre-commissioning contractual cash flows currently exists between us and BP, regarding Project Delay Payments (“PDPs”) due from BP to Gimi MS Corporation (“Gimi MS”). Gimi MS initiated arbitration proceedings in August 2023. The resolution of this matter is expected to take several months or years, with no guarantee of a favorable outcome for our claim. Pursuing such legal proceedings may incur significant time and legal expenses. In the event of a favorable resolution, we may be entitled to recover all or a portion of our legal costs and fees incurred, from BP. Conversely, an unfavorable resolution may result in the potential forfeiture of our claim in part or in full and we may be required to reimburse all or a portion of BP’s legal costs and fees incurred which could have a material adverse impact on our business, financial position, and results of operations. Additionally, these legal actions carry the risk of negative publicity, potentially impacting our reputation and, consequently, our operational results. As of March 15, 2024, the dispute remains unresolved.
3
•Our ability to meet our continuing obligations under the LTA entered into in connection with the FLNG Hilli.
The FLNG Hilli is currently operating under the terms of the LTA by and between Perenco Cameroon S.A. (“Perenco”) and Société Nationale des Hydrocarbures (“SNH”) (together the “Customer”) which ends in mid-July 2026.
During the duration of the LTA, we are exposed to various risks, including potential challenges in realizing the benefits of the LTA. These risks encompass the Customer’s right to terminate the agreement due to specified events of default, non-payment by the Customer due to financial constraints or disagreements, assumption of unanticipated liabilities, losses, or costs, and potential financial repercussions in the event the FLNG Hilli fails to meet the annual contracted capacity. Additionally, there is a risk of incurring significant charges such as asset devaluation or restructuring charges. Any of these circumstances or events could have a material adverse effect on our results of operations, cash flow and financial condition.
•Our ability to recontract the FLNG Hilli once her current contract ends.
We may be unable to redeploy the FLNG Hilli on another long-term contract at the end of the current LTA. Our inability to redeploy the FLNG Hilli on a new long-term charter may result in increased downtime and decreased revenue, which could adversely impact our financial performance and overall business outlook. Additionally, regulatory changes, competition, or technological advancements, may further influence the vessel’s redeployment prospects. Accordingly, there can be no assurance that the FLNG Hilli meets its anticipated profitability or generates sufficient cash flow to justify our investment.
•Our operating revenue is dependent on a high customer concentration wherein a loss of any of our customers could have an adverse effect on our earnings, cash flows and financial condition.
Our future revenue is dependent on a limited number of customers. The loss of a key customer or a substantial decline in the amount of services requested by a key customer, or the inability of a customer to pay for our services, could have a material adverse effect on our results of operations, cash flows and financial condition. We could lose a customer or the benefits of a contract if:
•the customer fails to make payments because of its financial inability, disagreements with us or otherwise;
•we breach the relevant contract and the customer exercises certain rights to terminate the contract;
•the customer terminates the contract because we fail to deliver the vessel or provide the service within a contracted period of time, the vessel is lost or damaged beyond repair or incurs prolonged periods of off-hire, or we default under the contract;
•the customer terminates the contract due to prolonged FM affecting the customer, including damage to or destruction of relevant facilities, war or geopolitical unrest preventing us from performing services for that customer; or
•the customer becomes subject to sanction laws which directly or indirectly prohibits our ability to lawfully charter our vessel to such customer.
If we lose a key customer or if a customer exercises its right to terminate the contract or charter, we may be unable to acquire an adequate replacement which could have a material adverse effect on our results of operations, cash flows and financial condition.
•Our efforts to manage commodity and financial risks through derivative instruments could adversely affect our results of operations and financial condition.
We use derivative instruments to manage commodity, currency and financial market risks. The extent of our derivative position at any given time depends on our assessments of the markets for these commodities and related exposures. We currently account for all derivatives at fair value, with immediate recognition of changes in the fair value in our earnings. These transactions and other derivative transactions have resulted and may continue to result in substantial volatility in reported results of operations, particularly in periods of significant commodity, currency or financial market variability, or as a result of ineffectiveness of these contracts. Changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. In addition, our liquidity may be adversely impacted by the cash margin requirements of the commodities exchanges or the failure of a counterparty to perform in accordance with a contract.
4
•Our ability to convert Mark II commercial leads into a long-term profitable contract.
The successful conversion of commercial leads into long-term profitable contracts for our new Mark II, one of our FLNG designs, represents a critical aspect of our business growth strategy. However, this process is subject to various uncertainties and challenges that may impact our ability to secure profitable contracts, attractive financing and achieve sustainable operating cash inflows.
The inherent uncertainty in the energy market, including fluctuations in commodity prices and regulatory changes, may impact the decision-making processes of potential customers. Economic downturns, geopolitical events, or shifts in energy policies can introduce unpredictability and volatility, making it challenging to forecast and convert commercial leads into profitable long-term contracts. Difficulties in converting opportunities to a binding commercial agreement with a counterparty for the deployment of a Mark II design conversion could result in additional costs and could negatively impact our future project prospects.
•Our ability to complete a Mark II conversion could have a material adverse effect on our business, financial condition, liquidity and future prospects.
The intricacies and scale of the FLNG conversion process pose risks, including unforeseen technical challenges or complexities in the Mark II design, especially with the integration of new technologies or modifications to the original design. Delays in the FLNG conversion schedules beyond agreed-upon timelines may impact our ability to meet contractual obligations, resulting in potential financial penalties, strained customer relationships and reputational damage. Such delays may be caused by various factors, including unforeseen technical issues, supply chain disruptions, adverse weather conditions, or regulatory hurdles.
Moreover, the failure of shipyards to adhere to performance specifications could compromise the operational efficiency and effectiveness of the converted FLNG units. This may lead to suboptimal performance, increased maintenance costs, and potential liabilities if the delivered product fails to meet industry standards or regulatory requirements. Deviations from agreed-upon prices with suppliers can result in unexpected financial burdens. Additionally, the global nature of the shipbuilding industry exposes us to geopolitical and economic risks, wherein changes in trade policies, geopolitical tensions, or economic downturns in key regions, may affect the availability of skilled labor, essential materials, and financing, leading to increased project costs and delays.
In addition, changes in regulatory requirements, unexpected permitting delays or the need to comply with evolving environmental, safety, and operational standards may require modifications to the project plan. In the event of non-compliance by shipyards, our ability to enforce contractual terms and secure timely remedies may be subject to legal and regulatory complexities, further exacerbating the adverse impact on our results of operations, cash flow and financial condition.
•Our ability to secure funding for our Mark II project.
The conversion of a FLNG, such as Mark II, takes a number of years and requires a substantial capital investment that is dependent on sufficient funding and commercial interest, among other factors. The availability and cost of financing in the capital markets can be influenced by various external factors, including economic conditions, interest rates, investor sentiment, contingencies and uncertainties that are beyond our control. Unforeseen changes in these factors may lead to fluctuations in the cost of debt or equity financing, potentially affecting the overall financial feasibility of the Mark II project. Further, the complexity and scale of the Mark II may present challenges in structuring financing arrangements. Lenders and investors may have stringent requirements related to project viability, risk allocation, and financial returns, which may necessitate protracted negotiations and due diligence processes. We may be required to use cash from operations, incur additional borrowings or raise capital through the sale of debt or additional equity securities to fund the conversion. Our failure to obtain funds for future capital expenditures could impact our results of operations, cash flow, financial condition and growth prospects.
5
•Our heavy reliance on a limited number of contractors and shipyards with relevant specialized experience, given the sophisticated nature of FLNG conversions.
The conversion of our Mark II design will be the first of its kind. Due to its novelty and the highly technical process related to FLNG conversions, we are reliant on a limited number of contractors and shipyards with relevant FLNG conversion experience. A change of appointed contractors for any reason would likely result in higher costs and a significant delay to any delivery schedules. Our future FLNG vessels may not able to meet certain performance requirements or perform as intended and we may have to accept reduced rates, not be able to contract FLNG vessel or we may be required to recognize an impairment expense in our financial statements in the future. Any of these possibilities would have a negative impact, which could be significant, on our results of operations, cash flow and financial condition.
Risks related to the financing of our business
•We may not be able to obtain new financings, 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 projects, increased working capital levels or other capital expenditures, we may be required to use cash from operations, incur additional borrowings or raise capital through the issuance of debt or additional equity securities.
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. Our failure to obtain funds for future capital expenditures could impact our results of operations, financial condition and our ability to pay dividends. Furthermore, our ability to access capital, the overall economic conditions and our ability to secure new customers on a timely basis could limit our ability to fund our growth plans and capital expenditures. If we are successful in issuing equity in order to raise capital, the issuance of additional equity securities would dilute existing shareholders’ equity interests 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.
•We are exposed to volatility in SOFR and the derivative contracts we have entered into to hedge our exposures to fluctuations in interest rates could result in charges against our results of operations, being higher than market interest rates.
As of December 31, 2023, we had total outstanding debt of $1.2 billion, of which $0.8 billion was exposed to a floating interest rate based on SOFR, which 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, 2023, we have interest rate swaps with a notional amount of $0.7 billion representing 88.5% of our total floating rate debt. While we are economically hedged, we do not apply hedge accounting and therefore interest rate swap 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 condition or results of operations.
6
•Most of our financing agreements are secured by our vessels and contain operating and financial restrictions and other covenants that may restrict our business and financing activities.
Most of our obligations are secured by our vessels and guaranteed by our subsidiaries holding the interests in our vessels. Our loan agreements impose, and future financial obligations may impose, operating and financial restrictions on us. These restrictions may require the consent of our lenders, or may prevent or otherwise limit our ability to, among other things: merge into or consolidate with any other entity; to sell or otherwise dispose of, all or substantially all of our assets; make or pay equity distributions, repurchase our own shares; incur additional indebtedness; incur or make any capital expenditures; materially amend, or terminate, any of our current vessel contracts or management agreements.
Our loan agreements and lease financing arrangements also require us to maintain specific financial ratios, including minimum amounts of unrestricted cash, minimum ratios of current assets to current liabilities, excluding but not limited to the current portion of long-term debt, VIE balances, 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 new financing, which would impair our ability to continue to conduct our business.
Events beyond our control, including changes in the economic and business conditions in the industries in which we operate, interest rate developments, changes in the funding costs of our banks, changes in vessel earnings and asset valuations, outbreaks of epidemic and pandemic diseases and war or geopolitical unrest, may affect our ability to comply with these financial covenants. We cannot provide any assurance that we will continue to meet these ratios or satisfy our financial or other covenants or that our lenders will waive any failure to do so.
•We entered into certain guarantees for certain parties. If these parties are unable to meet the requirements or comply with certain provisions contained in the agreements, this may have a material adverse effect on us.
We entered into agreements to provide stand-ready guarantees in connection with commercial bank indebtedness, claims, damages or liabilities imposed by governmental authorities for certain parties, including but not limited to Golar Partners, Hygo, Energos, CoolCo, Avenir and Macaw Energies and its investments. Failure by any of these parties to comply with any provisions contained in the agreements, may lead to an event of default under these agreements. In such case, we would need to satisfy the obligations or indemnify the losses of the respective party.
Additionally, if a default occurs under a loan agreement, the lenders could accelerate the outstanding borrowing and declare all amounts outstanding due and payable. In this case, if such party is unable to obtain a waiver or an amendment to the applicable provisions of the loan agreement, or do not have enough cash on hand to repay the outstanding borrowing, the lenders may, among other things, foreclose their liens on the respective asset, or seek repayment of the loan from such party or from us under the guarantee that we have provided.
The occurrence of any of the events described above would have a material adverse effect on our business, results of operations and financial condition, reduce our ability or make us unable to pay dividends to our shareholders for so long as such default is continuing, and may impair our ability to continue as a going concern.
•The inability of certain parties to satisfy their indemnity obligations to us could have a material adverse effect on our financial condition and results of operations.
Pursuant to the entry into agreements to provide stand-ready guarantees to certain parties, we are counter indemnified by certain parties, including CoolCo, NFE and Energos for certain losses we may incur in connection with providing guarantees and indemnities. These parties' abilities may be affected by events beyond either of our control, including prevailing economic, financial, geopolitical and industry conditions. If they are unable to meet their indemnification obligations, our results of operations, financial condition and ability to make cash distributions to our shareholders could be materially adversely affected.
7
•If the Hilli LC is not extended, the results of operations and financial condition of Hilli Corp could suffer.
Pursuant to the terms of the LTA, a financial institution issued a performance guarantee on behalf of Hilli Corp guaranteeing certain payments of Hilli Corp, as required under the LTA. The Hilli LC had an initial expiry date of December 31, 2019, which automatically extended and will extend for successive one-year periods until the tenth anniversary of the final acceptance of the FLNG Hilli under the LTA, unless the financial institution elects to not extend the Hilli LC. The financial institution may elect to not extend the Hilli LC by giving notice at least 90 days prior to December 31, in any subsequent year. If the Hilli LC (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 $100 million. Accordingly, if the financial institution elects at some point in the future to not extend the Hilli LC, Hilli Corp’s financial condition could be materially and adversely affected.
•Servicing our debt agreements substantially limits our funds available for other purposes and our operational flexibility.
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, regulatory, war or geopolitical unrest and other factors, some of which are beyond our control. If our cash inflows are 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 VIE may enter into different financing arrangements, which could affect our results of operations, cash flow and financial condition.
Following the sale and leaseback transaction we have entered into with a subsidiary of a Chinese financial institution that was determined to be lessor VIE, where we are deemed to be the primary beneficiary, we are required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) to consolidate the lessor VIE into our financial results. Although consolidated into our results, we have no control over the funding arrangements negotiated by the lessor VIE such as interest rates, maturity and repayment profiles. The funding arrangements negotiated by the lessor VIE could adversely affect our results of operations, cash flow and financial condition. For additional detail refer to note 5 “Variable Interest Entities” of our consolidated financial statements included herein.
•Our cash and cash equivalents and restricted cash are dependent on a limited number of financial institutions, wherein a collapse of any of these financial institutions could have an adverse effect on our cash flows and financial condition.
As of December 31, 2023, we have $679.2 million of cash and cash equivalents, of which are $481.7 million held in short-term money market deposits carried with a limited number of financial institutions. The collapse of any financial institution or the inability of a financial institution to obtain necessary funding when required, or a banking crisis, could have a material adverse effect on our cash flows and financial condition.
Risks related to our operations
•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 entered into agreements for the provision of certain technical, crew, transitional corporate and administrative services and have subcontracted the provision of certain corporate and administrative services to ship managers. Such agreements expose us to subcontractor counterparty risks. The ability of each of our subcontractors to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the overall financial condition of our subcontractors, the condition of the maritime and offshore industries and work stoppages or other labor disturbances. Should our subcontractors fail to honor their obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our business, reputation, results of operations, cash flow and financial condition.
8
•We may experience increased labor costs, the unavailability of skilled workers or the failure to attract and retain qualified key personnel, which may negatively impact the effectiveness of our management and our results of operations.
We are dependent upon the available labor pool of skilled employees. We compete with other employers to attract and retain qualified personnel with the technical skills and experience required to construct and operate our FLNGs and to provide our customers with the highest quality service. A shortage in the labor pool of skilled workers, remote FLNG locations, increasing cost of living or other general inflationary pressures, changes in applicable laws and regulations or labor disputes could make it more difficult for us to attract and retain qualified personnel and could require an increase in the salaries, wages and benefits packages that we offer, thereby increasing our operating costs. Any increase in our operating costs could materially and adversely affect our business, contracts, results of operations, cash flow and financial condition.
Our success depends, to a significant extent, upon the skills and efforts of our senior executives and certain key employees. While we believe that we have an experienced team, the loss or unavailability of one or more of our senior executives and/or our key employees for any extended period of time could have an adverse effect on our business and results of operations.
•A cyber-attack could materially impact our reputation, operations or financial performance.
We rely on information and operational technology systems and networks in our operations and the administration of our business. The energy industry has become increasingly dependent on digital technologies to conduct day-to-day operations, and the use of mobile communication devices has rapidly increased. Industrial control systems such as supervisory control and data acquisition (“SCADA”) systems now control large-scale processes that can include multiple sites across long distances. In addition, cybersecurity attacks are also becoming more sophisticated and include, but are not limited to, ransomware, credential stuffing, spear phishing, social engineering, use of deepfakes (i.e., highly realistic synthetic media generated by artificial intelligence) and other attempts to gain unauthorized access to data for purposes of extortion or other malfeasance. Our technologies, systems, networks and business partners may become the target of cybersecurity attacks or security breaches.
We have experienced attempted cybersecurity attacks, but have not suffered any material adverse impacts to our business and operations as a result of such unsuccessful attempts. We have implemented security measures that are designed to detect and protect against cyberattacks. No security measure is infallible. Despite these measures and any additional measures, we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, have been and are vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, misdirected wire transfers including security breaches caused by human errors, and other adverse events. Our efforts to improve security and protect data may also identify previously undiscovered instances of security breaches or bad actors with present access to our systems.
Cyber-attacks have increased in number and sophistication in recent years. Our operations could be targeted by individuals or groups seeking to sabotage, compromise or disrupt our information or operational technology systems and networks, to steal or corrupt data, or otherwise disrupt our operations. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breaches of our information technology and operational technology systems could have a material adverse effect on our business, results of operations, cash flow and financial condition, and may result in the loss of sensitive, confidential information or other assets, as well as litigation, including individual claims or class actions, regulatory enforcement actions, violation of privacy or securities laws and regulations, and remediation costs.
9
•Our operations face several 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 are exposed to a range of risks, including marine disasters, epidemic and pandemic diseases, piracy, environmental accidents, adverse weather conditions, mechanical failures, and geopolitical events like war and terrorism. Recent attacks in the Red Sea highlight potential consequences, including injury, property loss, and environmental damage. These events have the potential to disrupt cargo delivery, services, routine maintenance, inspections, and equipment management, leading to loss of hire, contract termination, governmental fines, and business restrictions. Additionally, our vessels could be requisitioned during national emergencies, exposing us to higher insurance premiums, potential coverage inadequacy, and uncertainties in claims settlements. Operating in regions designated as "war risk" zones could also increase insurance costs. Uninsured repair costs and the unpredictability of vessel repair cost could pose substantial financial challenges. Environmental incidents, including those from sandstorms, could lead to cleanup liabilities, penalties, and negative media coverage. All of these factors have the potential to materially impact our business, results of operations, cash flows, weaken our financial condition and negatively affect our ability to pay dividends.
•Technical operational risk, human operational errors and wear and tear of equipment may impact uptime and associated impact on financial performance of our FLNGs.
FLNGs are complex floating operation platforms dependent on multiple systems to work in parallel to obtain efficient operations. The various equipment onboard has different operational procedures and maintenance cycles. A breakdown of critical component(s) may adversely impact the overall performance of our FLNG operations, which may lead to economic impacts. Human operational errors, out of cycle maintenance of equipment, failure to routinely conduct maintenance, wear and tear and external impacts may negatively impact our operations and results of operations.
•We are subject to the economic, political, social and other conditions in the jurisdictions in which we operate.
Our main operations located in Cameroon, Senegal, Mauritania and Brazil are subject to various challenges arising from economic, political, social and other conditions and developments in these jurisdictions. Some of these countries have experienced political, security, and social economic instability in recent years and may experience instability in the future, including changes, sometimes frequent or marked, in energy policies or the personnel administering them, expropriation of property, cancellation or modification of contract rights, changes in laws and policies governing operations of foreign-based companies, unilateral renegotiation of contracts by governmental entities, redefinition of international boundaries or boundary disputes, foreign exchange restrictions or controls, currency fluctuations, royalty and tax increases and other risks arising out of governmental sovereignty over the areas in which our operations are and will be conducted, as well as risks of loss due to acts of social unrest, terrorism, corruption and bribery. The governments in certain of these jurisdictions differ widely with respect to structure, constitution, political, economic and social stability and some countries lack mature legal and regulatory systems. As our operations depend on governmental approval and regulatory decisions, we may be adversely affected by changes in the political structure or government representatives in each of the countries in which we operate. In addition, these jurisdictions, particularly emerging countries, are subject to risk of contagion from the economic, political and social developments in other emerging countries and markets.
Furthermore, some of the regions in which we operate have been subject to significant levels of terrorist activity, social and political unrest, particularly in the shipping and maritime industries. In addition to acts of terrorism, vessels trading in these and other regions have also been subject, in limited instances, to piracy. In addition, the ongoing political instability in Ukraine and Middle East may impact our business. Tariffs, trade embargoes and other economic sanctions by the U.S. or other countries against countries in the Middle East, Southeast Asia, Africa or elsewhere as a result of terrorist attacks, hostilities or otherwise may limit trading activities with those countries. This could have a material adverse effect on our business, results of operations, financial condition and our ability to pay cash distributions to our shareholders.
10
•Failure to comply with the FCPA, the UK Bribery Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, and contract terminations.
We may operate in several 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 FCPA and the UK Bribery Act. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA and the UK Bribery Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
To effectively compete in some foreign jurisdictions, we utilize local agents and/or establish entities with local operators or strategic partners. All 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 subjected to, 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.
•Vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of vessels or a decrease in their estimated future cash flows during our recoverability assessment, we may incur a loss which will have a material adverse effect on our results of operations.
Vessel values can fluctuate substantially over time due to several different factors, including:
•prevailing economic and market conditions in the natural gas and energy markets;
•a substantial or extended decline in demand for LNG;
•increases in the supply of vessel capacity without a commensurate increase in demand;
•the type, size and age of a vessel;
•competition from more technologically advanced vessels; and
•the cost of new buildings 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.
The carrying values of our vessels may not represent their fair market value at any point in time because the market prices of secondhand vessels tend to fluctuate with changes in charter rates, the cost of new build vessels and supply/demand for secondhand vessels. Our vessels are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment charges recognized in our consolidated financial statements could negatively affect our business, results of operations, financial condition or the trading price of our common shares and publicly listed debt.
•We will have to make additional contributions to our pension scheme because it is underfunded.
We have two defined benefit pension plans for certain of our current and former marine employees. Members do not contribute to the pension scheme plans and these pension schemes are closed to new entrants. As of December 31, 2023, one of the plans is underfunded by $25.2 million. The underfunded pension liability could change depending on market conditions, interest rate volatility and other key actuarial assumptions. We may need to increase our contributions in order to meet the scheme’s 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.
11
•We are exposed to U.S. Dollar, Euro, Norwegian Krone, British Pound, Brazilian Real and other foreign currency fluctuations and devaluations that could harm our results of operations.
Our principal currency for our operations and financing is the U.S. Dollar. We generate most of our revenues in the U.S. Dollar. Apart from the U.S. Dollar, we incur 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 but not limited to the Euro, the Norwegian Krone (“NOK”), the British Pound (“GBP”) and the Brazilian Real (“BRL”), which could affect our earnings. We may use financial derivatives to hedge some of our currency exposures. 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 and cash flows.
•We are subject to the risks related to Macaw Energies' business which may not achieve anticipated profitability as expected or at all.
As of March 15, 2024, we have invested $18.2 million in Macaw Energies, our wholly owned subsidiary, focused on decarbonizing natural gas production through the monetization of flared gas. Macaw Energies has acquired ownership interests in MGAS Comercializadora de Gás Natural Ltda. (“MGAS”) and Logística e Distribuição de Gás S.A. (“LOGAS”). The value of our equity method investments are subject to a variety of risks, including, among others, the risks related to Macaw Energies’ business, such as the risks inherent in the compression of natural gas, risks associated to the effectiveness of Macaw Energies’ technology (flare to gas mobile kit or F2X), inability of Macaw Energies to identify new customers and enter into profitable contracts, inability of Macaw Energies to obtain sufficient financing for any new project it identifies, and other industry, regulatory, economic and political risks similar in nature to the risks faced by us.
•Our equity method investments may not result in sufficient profitability to justify our investment, and could lead to future impairment.
As of December 31, 2023, we held investments in Avenir, Aqualung Carbon Capture AS (“Aqualung”), Egyptian Company for Gas Services S.A.E. (“ECGS”), MGAS and LOGAS. The value of our investments and the income generated from our investments are subject to a variety of risks, including, among others, the inability of our investments to identify and enter into appropriate projects, inability of our investments to obtain sufficient financing for any project it identifies, failure of our investments’ current projects, and other industry, regulatory, economic and political risks impacting our investments’ operations. These may result in future impairment of our equity method investments which may have a material adverse effect on our results of operations in the period that the impairment charges may be recognized.
Risks related to our industry
•Our results of operations and financial condition depend on demand for natural gas, LNG, FLNGs and LNG carriers.
Our results of operations and financial condition depend on continued global and regional demand for LNG, FLNGs and LNG carriers, which could be negatively affected by several factors, including but not limited to geopolitical unrest or war, such as the conflicts in Ukraine and the Israel-Gaza region, fluctuations in natural gas, crude oil and petroleum product prices, changes in the cost and availability of natural gas relative LNG, global oversupply or insufficiency of natural gas liquefaction or receiving capacity.
Other potential risks include technological advancements in land-based regasification and liquefaction systems, developments in alternative floating liquefaction technologies, increase in low-cost natural gas production, expansions of pipeline systems, adverse economic or political conditions in LNG-consuming regions, regulatory changes, incidents involving LNG carriers or facilities, tax or regulatory burdens affecting LNG production, a rise in the number of available FLNGs and LNG carriers, interest rate increases, financing challenges for FLNG projects, and obstacles in obtaining governmental approvals or community acceptance. Any decline in demand for LNG, liquefaction, or transportation, or constraints on LNG production capacity, could have a material adverse effect on prevailing tolling fees, charter rates or the market value of our vessels, which could have a material adverse effect on our results of operations and financial condition.
12
•Our operations are subject to extensive and changing laws, regulations, reporting requirements and social attitudes towards fossil fuel, may have an adverse effect on our business.
Our operations are affected by extensive and changing laws, regulations, reporting requirements and stakeholders’ social attitudes that could create greater reporting obligations and compliance requirements, including those related to environmental protection, handling, use, disposal, and generation of hazardous substances, occupational health and safety, and other matters. We or our customers may be required to obtain permits, licenses, or other authorizations to operate under such laws, which could be costly and time-consuming. Additionally, compliance with these laws, regulations, treaties, conventions, and other requirements, may increase our costs, limit our operations or access to new opportunities or have an adverse effect on our business. Failure to comply can 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.
•ESG and sustainability considerations may adversely impact our operations and markets.
There is an increasing focus from regulators and stakeholders related to ESG matters. The regulations requirements and stakeholder expectations continue to evolve and criteria used to evaluate ESG practices and metrics may change rapidly at any time, which could result in increased expectations and may cause us to undertake costly initiatives to satisfy any new requirements. Non-compliance with these emerging regulations or a failure to address stakeholder and societal expectations may result in potential cost increases, litigation, fines, penalties, production and sales restrictions, brand or reputational damage, loss of customers, failure to retain and attract talent, lower valuation and higher investor activism activities.
Further, 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 influence demand for our services and could have a significant adverse financial and operational impact on our business that we cannot predict with certainty at this time. For example, 197 countries including Cameroon, Mauritania, Senegal, and the United States, have signed the United Nations-sponsored “Paris Agreement,” agreeing to limit their greenhouse gas (“GHG”) emissions through non-binding, individually determined reduction goals every five years after 2020. Further, in 2023 countries gathered at the 28th Conference of the Parties on the UN Framework Convention on Climate Change (“COP28”), where they entered into an agreement to transition away from fossil fuels in energy systems and increase renewable energy capacity, though no timeline for doing so was set. While non-binding, the agreements coming out of COP28 could result in increased pressure among financial institutions and various stakeholders to reduce or otherwise impose more stringent limitations on funding for and increase potential opposition to the production and use of fossil fuels.
While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures will be based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring, and reporting on many ESG matters. Additionally, while we may also announce various voluntary ESG targets in the near future, such targets are aspirational and we may not be able to meet such targets in the manner or on a timeline as initially contemplated.
In addition, the European Union’s CSRD that became effective in January 2023 significantly expands mandatory sustainability reporting in accordance with European Sustainability Reporting Standards (“ESRS”), for U.S. companies with operations in the EU. While CSRD rules are prescriptive for the types of data to be reported, the standards to quantify and qualify such data are still evolving and uncertain, and may impose increased costs on us related to complying with our reporting obligations and increase risks of non-compliance with ESRS and the CSRD. We are closely monitoring the rules and regulations related to CSRD and anticipate to fall under the CSRD's scope from 2025, with the initial reporting expected in 2026. Additionally, the Commission released its final rule on climate-related disclosures on March 6, 2024, requiring the disclosure of certain climate-related risks and financial impacts, as well as GHG emissions. Large accelerated filers such as us, will be required to incorporate the applicable climate-related disclosures into their filings beginning in fiscal year 2025, with additional requirements relating to the disclosure of Scope 1 and 2 GHG emissions, if material, and attestation reports for certain large accelerated filers subsequently phasing in. While we are still assessing our obligations under the rule, complying with such obligations may result in increased costs.
13
Risks related to our common shares
•The declaration and payment of dividends or repurchases of our own shares are at the discretion of our board of directors.
The declaration and payment of dividends to holders of our common shares or the repurchase of shares from holders of our common shares will be at the discretion of our board of directors in accordance with applicable law. In determining whether to declare and pay a dividend, or to repurchase our shares, our board of directors will take into account various factors, including actual results of operations, liquidity and financial condition, net cash provided by operating activities, restrictions imposed by applicable law and our debt agreements, our taxable income, our operating expenses, the share price, and other factors our board of directors deem relevant. There can be no assurance that we will resume the payment of dividends in amounts or on a basis consistent with prior distributions, if at all, or approve new share repurchase programs, or pursue share repurchases, even if such a program has been approved. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries and our ability to receive distributions from our subsidiaries may be limited by the financing agreements to which they are subject.
•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 and could lead to a loss of all or part of a shareholder’s investment.
The market price of our common shares has fluctuated widely since they began trading on the NASDAQ Global Select Market (“Nasdaq”). We cannot assure that an active and liquid public market for our common shares will continue.
The market price of our common shares may experience extreme volatility in response to many factors, including factors that may be unrelated to our operating performance or prospects 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 within our industry, market conditions in the natural gas and LNG industry, developments in our FLNG investments, shortfalls in our results of operations from levels forecast by securities analysts, announcements concerning us or our competitors, business interruptions, the general state of the securities market, and other factors, many of which are beyond our control.
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. Therefore, there can be no guarantee that our share price will remain at current prices, and 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.
•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, mergers and strategic alliances, vessel conversions, future vessel acquisitions, repayment of outstanding indebtedness or our equity incentive plan, in each case without shareholder approval in several circumstances.
Our issuance of additional common shares or other equity securities could have the following effects:
•our existing shareholders’ proportionate ownership interest in us may 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.
14
•Because we are a Bermuda exempted company, our shareholders may have less recourse against us or our directors than shareholders of a U.S. company have against the directors of a U.S. company.
Because we are a Bermuda exempted company, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws (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 discharge 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 material contract entered into by our company or any of its subsidiaries with third parties. Our directors and officers are also required to disclose their material interests in any corporation or other entity which is party to a material contract with our company or any of its subsidiaries. A director who has disclosed his or her interests in accordance with Bermuda law may participate in any meeting of our board and may vote on the approval of a material contract, notwithstanding that he or she has a material interest.
•Because our offices and most of our assets are outside the U.S., 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.
15
Risks related to tax
•As a Bermuda exempted company incorporated under Bermuda law with subsidiaries in the Marshall Islands and other offshore jurisdictions, 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 Council of the European Union (the “Council”) approved and published Council conclusions containing a list of “non-cooperative jurisdictions” for tax purposes. The Council periodically reviews and updates the list of “non-cooperative jurisdictions”. On March 12, 2019, the Council adopted a revised list of non-cooperative jurisdictions (the “2019 Conclusions”). In the 2019 Conclusions, the European Union (“E.U.”) placed Bermuda and the Republic of the Marshall Islands, among others, on its list of non-cooperative jurisdictions for tax purposes for failing to implement certain commitments previously made to the E.U. by the agreed deadline. It was announced by the Council on May 17, 2019 and on October 10, 2019 that Bermuda and the Marshall Islands, respectively, had been removed from the list of non-cooperative jurisdictions, but the Marshall Islands was reinstated to the list of “non-cooperative jurisdictions” for tax purposes on February 14, 2023 owing to concerns that this jurisdiction, which has a zero or only nominal rate of corporate income tax, is attracting profits without real economic activity (in particular, the Marshall Islands were found to be lacking in the enforcement of economic substance requirements). On October 17, 2023, the Marshall Islands was removed from the list of non-cooperative jurisdictions because it had made significant progress in enforcement of economic substance requirements. The E.U. member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits, controlled foreign company rules, non-deductibility of costs incurred in a listed jurisdiction, withholding taxes, special documentation requirements and anti-abuse provisions. The European Commission has stated it will continue to support member states’ efforts to develop a more coordinated approach to sanctions for the listed countries. E.U. legislation prohibits E.U. funds from being channeled or transited through entities in non-cooperative jurisdictions.
Both Bermuda and the Marshall Islands have enacted economic substance laws and regulations with which we may be obligated to comply. For example, on December 17, 2018, the House of Assembly of Bermuda passed the Economic Substance Act 2018 of Bermuda (the “Economic Substance Act”), which became operative on December 31, 2018, along with the Economic Substance Regulations 2018 of Bermuda. The Economic Substance Act requires each registered entity to maintain a substantial economic presence in Bermuda and provides that a registered entity that carries on a relevant activity must comply with economic substance requirements set out in the legislation. Regulations were also adopted in the Marshall Islands, through Economic Substance Regulations 2018 which came into force in January 2019, and with Guidance Notes being published in October 2019, requiring certain entities that carry out activities to comply with an economic substance test and satisfy certain reporting obligations, beginning with the financial period which ended in 2020.
If we fail to comply with our obligations under this legislation, as it may be amended from time to time, or any similar or supplemental law applicable to us in these or any other jurisdictions, we could be subject to financial penalties and spontaneous disclosure of information to foreign tax officials, or could be removed from the register of companies, in related jurisdictions. Any of the foregoing could be disruptive to our business and could have a material adverse effect on our business, results of operations and financial condition.
•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, in any country in which we or any of our subsidiaries operates, or in which we or any of our subsidiaries is organized, could result in us incurring a materially higher tax expense or having a higher effective tax rate on our earnings. Any such changes in the applicable tax laws, treaties and regulations could adversely affect our business, results of operations and financial condition.
16
Further, the Organization for Economic Co-Operation and Development has adopted a set of international tax model rules known as the “Pillar Two” framework, a central component of which is the imposition of a global minimum corporate tax rate of 15%. Certain countries in which we or any of our subsidiaries operates, or in which we or any of our subsidiaries is organized, have enacted legislation implementing, and other countries are in the process of introducing legislation to implement, the Pillar Two minimum tax directive. In general, the Pillar Two minimum tax directive applies to entities that are members of a multinational group that has annual revenue of €750 million (approximately $828 million as of December 31, 2023) or more in the consolidated financial statements of their ultimate parent in at least two of the four fiscal years immediately preceding the fiscal year in which the test is applied.
Although we cannot predict with any certainty when we will reach the applicable revenue threshold for the application of the Pillar Two rules (or the corresponding legislation enacted in any particular country) to us, we do not expect to reach such threshold in the current year. To the extent we reach the Pillar Two applicable revenue threshold in the future, the Pillar Two rules could increase tax compliance complexity and uncertainty and result in additional administrative costs and income tax liabilities in those taxing jurisdictions that have implemented the Pillar Two minimum tax directive, including Bermuda.
•We could be treated as or become a PFIC, which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation will be treated as a PFIC for U.S. federal income tax purposes if either (i) at least 75% of its gross income during the taxable year consists of “passive income” or (ii) at least 50% of the average value of the corporation’s assets during such taxable year produce or are held for the production of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, capital gains and rents derived other than in the active conduct of a rental 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 an adverse U.S. federal income tax regime with respect to 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.
To date, we and our subsidiaries have derived most of our income from the LTA of FLNG Hilli, as well as time and voyage charters for our legacy shipping operations. We believe this income should be treated as services income, and not as “passive income” for PFIC purposes. While there is substantial legal authority supporting our conclusion, including pronouncements by the United States Internal Revenue Service (“U.S. IRS”) concerning the characterization of income derived from time charters as services income, there is also authority that characterizes such time charter income as rental income rather than services income for other tax purposes. The U.S. IRS or a court could disagree with our position. Because PFIC status depends upon the composition of a company’s income and assets and the market value of its assets from time to time, and because there is no controlling authority for determining whether certain types of our income constitute passive income for PFIC purposes, there can be no assurance that we will not be considered a PFIC for the current or any future taxable year.
Based on the foregoing, we believe that we were not a PFIC with respect to any prior taxable year. If we were a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. tax consequences and certain information reporting requirements regardless of whether we remain a PFIC in subsequent years. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC, we cannot assure that the nature of our assets, income, and operations will not change, or that we can avoid being treated as a PFIC for any taxable year. Furthermore, the PFIC rules may change, which could result in us being treated as a PFIC in the future as a result of such change in law.
Under the PFIC rules, unless those shareholders make a certain U.S. federal income tax election (which election could itself have adverse consequences for such shareholders), such shareholders would be liable to pay U.S. federal income tax at the then-prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common shares. Please see the section of this annual report entitled “Taxation” under “Item 10. Additional Information - E. Taxation” for a more comprehensive discussion of the U.S. federal income tax consequences if we were to be treated as a PFIC.
17
•We may have to pay tax on certain U.S. source income, which would have a negative effect on our business and reduce cash available for distribution.
Under the U.S. Internal Revenue Code of 1986, as amended (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 U.S. (“U.S. Source International Transportation Income”) may be subject to a 4% U.S. federal income tax imposed without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code (the “Section 883 Exemption”).
We expect that we and each of our subsidiaries generating transportation income will qualify for the Section 883 Exemption. However, there are factual circumstances beyond our control that could cause us not to qualify for the Section 883 Exemption and thereby become subject to U.S. federal income tax on our U.S. source income. Our qualifying for the Section 883 Exemption is not free from doubt, and we can provide no assurances that the Section 883 Exemption will apply to us or our subsidiaries.
In general, if we and/or our subsidiaries are not eligible for the Section 883 Exemption for any taxable year, we or our subsidiaries could be subject to an effective 4% U.S. federal income tax on our U.S. Source International Transportation Income in such taxable year. The imposition of this tax would have a negative effect on our business and reduce the cash available for distribution to our shareholders. Please see “Item 10. Additional Information - E. Taxation” for a more comprehensive discussion of the Section 883 Exemption.
•The recent enactment of a corporate income tax in Bermuda could adversely affect us.
Prior to 2023, there was 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. However, on December 27, 2023, Bermuda enacted the Corporate Income Tax Act (the “CIT Act”) under which, for taxable years beginning on or after January 1, 2025, Bermuda will impose a 15% corporate income tax on Bermuda organized entities and businesses that are constituent parts of multinational groups with annual revenue of at least €750 million (approximately $828 million as of December 31, 2023) for two out of the last four fiscal years. While we had previously obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 (the “EUTP Act”) 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 or other obligations, the CIT Act specifically provides that it applies notwithstanding any assurance given pursuant to the EUTP Act. Based on a number of operational, economic and regulatory assumptions with respect to the current year, we do not expect to have consolidated revenue sufficient for us to fall within scope of the CIT Act in 2025. To the extent our revenue is sufficient for us to be within the CIT Act thresholds in the future, the resulting tax liability could adversely affect our business, results of operations and financial condition.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Overview
Our operations have evolved from LNG shipping, floating regasification and combined cycle gas fired power plant to focus on floating liquefaction operations. We design, convert, own and operate marine infrastructure for the liquefaction of natural gas and the regasification, storage and offloading of LNG. We believe that natural gas has a critical role to play in providing cleaner energy for many years to come. Our pioneering infrastructure solutions provide safe, competitive and sustainable ways of liquefying, transporting and turning gas into energy across the world. Our mission is to be recognized as an organization with an outstanding reputation for safe, reliable and cost-effective operations; to employ and develop talented people who can see the impact of what they do; to develop a portfolio of new FLNG infrastructure opportunities and convert the best opportunities into world class projects; and to be a great business partner, where combining skills and resources make a big difference.
18
Timeline of our business from 2016 onwards:
Over the course of 2021, 2022 and 2023, we divested our investments in Golar Partners, Hygo and our legacy LNG carrier and FSRU asset portfolio, delivering on our objectives to simplify and focus our business, crystallize underlying value and de-lever our balance sheet:
•Golar Partners and Hygo: In 2021, we completed the disposals of our investments in Golar Partners and Hygo to NFE for net consideration of $876.3 million and a gain on disposal of $574.9 million;
•CoolCo and Golar Tundra: In 2022, we completed the disposals of most of our LNG carriers (namely the Golar Seal, Golar Crystal, Golar Bear, Golar Frost, Golar Glacier, Golar Snow, Golar Kelvin and Golar Ice) and our FSRU, the Golar Tundra, for net consideration of $697.8 million and a gain on disposal of $113.2 million;
•NFE listed equity securities: In 2022, we sold 13.3 million of our Class A NFE common shares (“NFE Shares”) at a price ranging from $40.80 to $58.29 per share for aggregate consideration of $625.6 million. In 2023, we sold 1.2 million of our NFE Shares at a price ranging from $36.90 to $40.38 per share for aggregate consideration of $45.6 million. In 2023, we also completed the reacquisition of NFE’s common units in Golar Hilli LLC (“Hilli LLC”) in exchange for our remaining 4.1 million NFE Shares and $100.0 million of cash as well as retrospective distribution rights to January 1, 2023 attributed to these common units resulting in a loss on disposal of $251.2 million;
•CoolCo shares: In 2022, we sold 8.0 million of our CoolCo shares for NOK 130/$12.16 per share for net consideration of $97.9 million. In 2023, we sold our remaining 4.5 million CoolCo shares for NOK 130/$12.60 per share for net consideration of $56.1 million and a gain on disposal of $0.8 million; and
•Gandria: In 2023, we completed the disposal of our LNG carrier, Gandria, for net consideration of $15.2 million and a loss on disposal of $0.5 million.
The proceeds received from these divestments provided significant balance sheet flexibility with focus on maximizing shareholder returns through development of attractive new FLNG growth opportunities, we expect the first of which to involve conversion of the LNG carrier Fuji LNG into our first Mark II.
19
We are listed on Nasdaq under the ticker “GLNG”. We are 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 our registered office is 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 office is located at 6th Floor, The Zig Zag, 70 Victoria Street, London, SW1E 6SQ, United Kingdom and our telephone number at that address is +44 207 063 7900. The Commission maintains an internet site that contains reports, proxy and information statements, and other information that we file electronically with the Commission and this can be obtained from the Commission’s website at (http://www.sec.gov) or from the “SEC filings” tab in the “Investor Relations” section of our website (www.golarlng.com). Information contained on our website does not constitute part of this annual report.
B. Business Overview
Our strategy is to provide market leading FLNG operations and focus our balance sheet flexibility to maximize shareholder returns through accretive FLNG projects. We offer gas resource holders a proven, quick and low-cost delivering solution to monetize stranded gas reserves. Our industry leading FLNG operational track record and FLNG growth prospects allow gas resource holders, developers and customers a low-cost, low-risk, quick-delivering solution for natural gas liquefaction.
FLNG projects are a solution for stranded gas reserves (such as lean gas sourced from offshore fields) for which geographical, technical and economic limitations restrict the ability to convert these gas reserves into LNG. Our standardized FLNG units can be redeployed to new opportunities after producing a field and offer a viable economic alternative to the traditional giant land-based projects. Our liquefaction solution and quick execution model place liquefaction technology onboard an existing LNG carrier into a fully commissioned FLNG. We are currently the only company able to deliver FLNG as a service to gas resource owners.
The FLNG industry is in the early stages of development, and we do not currently face significant competition from other providers of FLNG services. There are currently eight FLNGs on the water, including our two that provide liquefaction as a service (FLNG Hilli and FLNG Gimi), five FLNGs being used to liquefy the resource holder’s own gas and one being used to liquefy gas to service its downstream portfolio. We anticipate that other companies will enter the FLNG industry at some point in the future, resulting in greater competition.
As of March 15, 2024, our fleet is comprised of two LNG carriers (the Golar Arctic, which is currently operational, and the Fuji LNG, which is a conversion candidate) and two FLNGs (FLNG Hilli and the FLNG Gimi).
We operate in three distinct reportable segments: FLNG, Corporate and other and Shipping. Refer to “Item 5. Operating and Financial Review and Prospects” for further discussion on the respective performance of our reportable segments.
As of March 15, 2024, an overview of our assets and key investments is as follows:
20
| Vessel Name | Year of Delivery from Shipyard | Capacity (Cubic Meters) | Flag | Type | Ownership | Counterparty | Current Contract Expiration | ||||||||||||||||
FLNG Hilli | 2017 | 125,000 | Marshall Islands | FLNG Moss | 94.6% of the common units 89.1% of each of the Series A and Series B units | Perenco/SNH | July 2026 | ||||||||||||||||
FLNG Gimi | 2023 | 125,000 | Marshall Islands | FLNG Moss | 70% | BP | 20 years from COD | ||||||||||||||||
Fuji LNG | 2004 | 148,000 | Malta | Moss | 100% | Conversion candidate | Not applicable | ||||||||||||||||
| Golar Arctic | 2003 | 140,000 | Marshall Islands | LNG carrier Membrane | 100% | Spot and short-term market | Not applicable | ||||||||||||||||
FLNG Hilli
The FLNG Hilli conversion was completed in the shipyard in 2017, and commenced operations following her successful commissioning in July 2018. Pursuant to the LTA, FLNG Hilli's contracted liquefaction capacity is 1.2 million tonnes per annum (“mtpa”). In 2021, we entered into the third amendment to the LTA (“LTA Amendment 3”) with the Customer, which included a 0.2 mtpa capacity increase for the 2022 contract year, and an option to use additional capacity of up to 0.4 mtpa for the 2023 contract year through to the end of the LTA term (of which the Customer opted to use 0.2 mtpa), resulting in an increase in the utilization of FLNG Hilli to 1.4 million tonnes per annum from January 2022 to the end of the LTA in July 2026.
As of March 15, 2024, FLNG Hilli has offloaded a total of 109 LNG cargoes and produced around 7.6 million tonnes of LNG since the start of operations.
FLNG Gimi
In 2019, Gimi MS Corporation (“Gimi MS”) and our subsidiary Golar MS Operator S.A.R.L entered into the LOA (which was subsequently amended and restated in 2021) in connection with the employment of the FLNG Gimi as part of the first phase of BP’s GTA Project situated off the coast of Mauritania and Senegal. FLNG Gimi is designed to produce approximately 2.7 mtpa, with the total gas resources in the field estimated to be around 15 trillion cubic feet.
The LOA provides for the construction and conversion of the Gimi to a FLNG, transit, mooring and connection to BP’s project infrastructure, commissioning with BP’s upstream facilities including its FPSO, completing specified acceptance tests, followed by COD. Following COD, we will operate and maintain FLNG Gimi and make her capacity exclusively available for the liquefaction of natural gas from the GTA Project and offloading of LNG produced for a period of twenty years. The total FLNG Gimi conversion cost including financing costs is approximately $1.7 billion, of which $700.0 million is funded by the Gimi debt facility.
In November 2023, FLNG Gimi sailed away from Singapore’s Seatrium shipyard and arrived at the GTA field offshore Mauritania and Senegal on January 10, 2024 and was subsequently escorted into her 20-year GTA hub location by BP. The FLNG Gimi is awaiting connection to the feed gas pipeline and start of commissioning activities. First gas is expected in Q3 2024, subject to final completion of upstream activities and installation of the FPSO, as advised by BP. The commissioning period is expected to be approximately six months, with anticipated COD thereafter. Pre-COD, we expect contractual cash flows to be deferred on the balance sheet. COD triggers the start of the 20-year LOA term that unlocks the equivalent of around $3 billion of Adjusted EBITDA backlog to Golar and recognition of the contractual day rate comprised of capital and operating elements.
21
Pre-commissioning contractual cash flows under the LOA commenced in March 2023 and resulted in a payment of liquidated damages to BP. Following FLNG Gimi’s arrival at the GTA hub offshore Mauritania and Senegal on January 10, 2024, we are of the view that under the terms of the LOA, from this date pre-commissioning contractual liquidated damages due to BP should cease. A LOA contract interpretation disputes regarding this and certain other contractual prepayments exist and we have initiated the dispute resolution process as prescribed by the LOA in respect of these. As of March 15, 2024, the dispute remains unresolved, and we are in continued discussions with BP to identify alternative contractual arrangements to replace parts of the existing pre-COD contractual arrangements, including parts of the disputed contract mechanisms. There is no guarantee that we can reach alignment around a potential alternative contractual and commercial arrangement.
Future FLNG Projects
We actively work to develop FLNG projects around the globe. Our FLNG projects under development broadly fall into one of three commercial categories: (i) tolling, (ii) gas sale and purchase (“GSA”) and (iii) integrated projects. Tolling projects are our core business today, with both FLNG Hilli and FLNG Gimi under long term charter agreements where we are a FLNG service provider. In the case of FLNG Hilli, a key part of our unique value proposition to potential tolling is to trade fixed toll for exposure to the price of an underlying commodity, such as LNG or oil reference indices. GSA projects would typically not require the deployment of capital directly into an upstream oil and gas development but increases our commodity exposure, as we would be a purchaser of natural gas and a seller of LNG. Integrated projects combine upstream and FLNG infrastructure for joint delivery of a future FLNG project. Development of any major FLNG project involves multiple stakeholders, including but not limited to, resource owners, national and international energy companies, governments, contractors, technology providers, regulators, and various international organizations and the speed of development of any future FLNG project is not always directly within our control.
We have developed three FLNG designs, as follows:
Mark I
The FLNG Hilli and FLNG Gimi are both Mark I FLNGs. Mark I has a nameplate capacity of up to 2.7 mtpa and is based on the conversion of a Moss-type LNG carrier. Sponsons that create the necessary deck space to house the liquefaction and gas processing topside equipment must first be built and added to either side of the LNG carrier before the topside equipment can be installed. In normal circumstances, conversion, delivery and commissioning of the FLNG takes around four years. To date, we have been successful in executing our Mark I program together with our contractors, Seatrium (formerly Keppel Shipyard) and Black & Veatch, we delivered the FLNG Hilli and completed the conversion of FLNG Gimi.
Mark II
This FLNG design has a nameplate capacity of up to 3.5 mtpa and is also based on the conversion of a Moss-type LNG carrier. The Mark II design involves the construction of a new mid-ship section containing the liquefaction equipment that can be inserted between the two sections of the carrier that has been ‘cut in half’. The higher maximum nameplate capacity is possible because the mid-ship addition also allows for a more efficient configuration of the liquefaction equipment. This modularized approach to the conversion reduces the time required for conversion, delivery and commissioning of the Mark II design compared to our other two FLNG designs. This approach also increases the number of shipyards and fabricators that are capable of executing the conversion. This competition between contractors can reduce the construction cost per ton of capacity delivered, increase the number of yard slots available and helps us secure more attractive payment terms, financing solutions and other benefits. The Fuji LNG has been earmarked as the donor vessel for our first Mark II design FLNG. In 2022, our board of directors approved up to $406.0 million of capital expenditure, inclusive of the donor vessel for a future Mark II conversion. As of March 15, 2024, we have spent $252.3 million of capital expenditures which includes engineering services, multiple long lead items and the acquisition price of the Fuji LNG carrier.
As of March 15, 2024, we have executed a framework agreement with a potential customer for a long-term opportunity that could utilize either Mark II or FLNG Hilli at the end of her current charter. We are also progressing discussions for additional FLNG charter opportunities with 12 to 20 year contract durations, towards mutually acceptable terms with gas resource owners and other FLNG project stakeholders.
22
Mark III
Targeting large field developments and representing a competitive alternative to land-based LNG projects, this FLNG design has a larger nameplate capacity of up to 5.0 mtpa, more storage than the Mark I or Mark II designs, and is a newbuild hull that does not involve the conversion of an existing Moss-type LNG carrier. We expect construction, delivery and commissioning of a Mark III FLNG to take around four years.
Our key investments
Our key investments include our interests in Avenir and Macaw Energies, which are discussed further below.
Avenir
Avenir is a joint investment, in which we hold a 23.5% interest, with Stolt-Nielsen Ltd (an entity affiliated with our director Niels Stolt-Nielsen) and Höegh LNG Holdings Limited, for the pursuit of opportunities in small-scale LNG, including the delivery of LNG to areas of stranded gas demand and the development of LNG bunkering services and supply to the transportation sector. Avenir currently has five small-scale LNG carriers and an LNG terminal and distribution facility in the Italian port of Oristano, Sardinia.
Macaw Energies
Macaw Energies, our wholly owned subsidiary, is focused on environmental innovation with its land-based small-scale pilot flare to LNG (or “F2X”) technology. This pioneering solution which is in a pilot testing phase, captures flare gas, a prevalent byproduct of oil and gas operations, and converts it into LIQUIDFLARE®, offering a sustainable, low-carbon alternative to traditional fuels. The F2X technology adopts circular economy principles by repurposing waste into a valuable energy resource, significantly cutting GHG emissions.
Substantial progress has been made with the design, manufacturing, and assembly of the first F2X unit at Macaw Energies’ Houston, Texas facility. This technology is uniquely engineered to be cost-effective, scalable, and adaptable to various flare gas compositions. Its scalability allows for customization to specific site needs, from capturing as low as 0.5 million standard cubic feet per day (“mmscfd”) of flare gas to handling over 30 mmscfd flare volumes by stacking units for larger operations.
A third-party GHG assessment conducted by Suez Consulting validates F2X technology’s potential to significantly reduce the carbon footprint of oil and gas operations. The assessment demonstrates that integrating F2X can lead to a 55% reduction in CO2 emissions, preventing the release of roughly 21,000 tonnes of CO2 annually from a single unit. During 2024, Macaw Energies plans to deploy the F2X solution in the state of Texas in the USA and initiate a global scale-up to amplify its decarbonization impact, with a vision extending to leveraging F2X for methane venting, stranded gases and biogases, enhancing efficiency, and promoting broader adoption across the industry.
We have also acquired ownership interests in Brazilian gas trading and gas transportation infrastructure companies, as an operational platform for small-scale LNG market growth in South America.
As of March 15, 2024, we have spent $18.2 million of capital expenditures in relation to Macaw Energies which includes engineering services and long lead items.
Seasonality
Historically, LNG trade, and therefore commodity prices and charter rates, increased in the winter months and eased in the summer months, as demand for LNG for heating in the Northern Hemisphere increased in colder weather and declined in warmer weather. 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. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results that may be realized on an annual basis.
23
Vessel Maintenance
Safety is our top operational priority. Our vessels are operated in a manner intended to protect the health and safety of our employees, the general public and the environment. We carry out inspections of our vessels on a regular basis which 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.
We also actively work to manage the risks inherent in our business and are committed to preventing incidents that may compromise safety, such as fires, environmental spills or any harm to people. Additionally, we are committed to minimizing emissions and waste and have established key performance indicators to facilitate regular monitoring of operational performance, including lost time injury frequency monitoring, total recordable case frequency reporting, carbon dioxide, sulfur oxide (“SOx”), nitrogen oxide, methane and particulate matter emissions, total waste disposed of, spills, and crew retention rates, amongst others. We set targets to drive continuous improvement, and regularly review performance indicators to determine if remedial action is necessary to reach our targets.
Our operations utilize a 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 to emergency response organizations. Golar Management AS renewed its ISO 9001 certification for a quality management system, ISO 14001 certification for an environmental management system and ISO 45001 certification for an occupational health and safety management system and is certified in accordance with the IMO’s International Safety Management (“ISM”), on a fully integrated basis. The ISO 27001 certification for Golar Management AS’s IT Department, was also renewed.
All our vessels are currently “in class”. The FLNG Hilli and FLNG Gimi are certified by Det Norske Veritas, the Golar Arctic is certified by the American Bureau of Shipping and the Fuji LNG is certified by Class NK. These class certificates are renewed every five years.
The commercial and technical management of our LNG carriers and our contractual vessel management obligations have been outsourced to third-party ship managers. Outsourcing this non-core aspect of our operations affords operational and cost efficiency and provides appropriate access to supporting administrative functions.
Risk of Loss and Insurance
The operation of any vessel, including FLNGs and LNG carriers 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 or pandemics. 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 have obtained:
•property damage (also known as hull and machinery) insurance on all of our vessels to protect us 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 in the event of a claim. We have also obtained additional total loss coverage for each vessel. This provides us additional coverage in the event of the total loss of a vessel;
•business interruption insurance to protect us against loss of income in the event one of our vessels cannot be employed due to property damage that is covered under the terms of the insurance. Under our business interruption 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 eligible damage. The maximum coverage varies from 120 days to 360 days, depending on the vessel. The number of deductible days varies from 30 days to 90 days, depending on the vessel; and
24
•protection and indemnity insurance, which covers our third-party legal liabilities in connection with our vessel activities, is provided by mutual protection and indemnity associations (“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 $1.0 billion per vessel per incident. The twelve P&I clubs that comprise the International Group of Protection and Indemnity Clubs (the “International Group”) insure approximately 90% of the global 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 $8.9 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.
We have also obtained ship manager’s liability insurance to protect us against contractual liabilities with one of our customers.
We believe that our current 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 premiums.
Environmental and Other Regulations
General
Our operations 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. Such laws and regulations cover a variety of topics, including but not limited to air, oil and water pollution, waste and hazardous material management, protection of natural resources, biodiversity conservation and protection of worker health and safety, which may 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 our operations and responsibility for all damages arising from any violation.
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. Similar or more stringent laws may also apply to our customers, including oil and gas exploration and production companies, which may impact demand for our services.
•Environmental regulations in Cameroon
Our operation in Cameroon is governed by the Ministry of Environment, Nature Protection and Sustainable Development, which, among other things, administers the National Environmental Management Plan, requires environmental impact assessments for any development which may endanger the environment, and regulates pollution to the air, water, and other biological resources, including maritime activities. Cameroon is a signatory to international agreements regarding climate change and greenhouse gases including the Paris Agreement and the UN Framework Convention on Climate Change (“UNFCCC”).
25
•Environmental regulations in Mauritania and Senegal
Our operation in Mauritania and Senegal is governed by various government bodies, primarily the Ministry of Environment and Sustainable Development in Mauritania and Senegal and the Department of Environment and Classified Establishments in Senegal. Mauritania and Senegal have also entered into several international conventions, protocols and bilateral agreements which establish environmental quality standards for waste management, including discharge of chemicals to the marine environment. Mauritania and Senegal are also signatories to the Paris Agreement and the UNFCCC.
Separately, the United Nations Economic Commission for Europe, in cooperation with the United Nations Economic Commission for Africa, is undertaking a review of Mauritania under its Environmental Performance Program. The results of this review and any actions taken in response to its findings cannot be predicted at this time.
•Environmental regulations in Brazil
Our operations in Brazil are governed by various environmental laws and regulations, including the Brazilian Institute for the Environment and Renewable Natural Resources, the National Environmental Council, and state environmental agencies. These agencies regulate environmental licensing for activities that could cause significant environmental impact, water use permitting, and quality standards for air, water, and soil. Brazil is also a signatory to the Paris Agreement and the UNFCCC.
•U.S. and International Maritime Regulations of LNG carriers
Our activities in the shipping industry are governed by international regulations set forth by the International Maritime Organization (“IMO”). Compliance with key regulations such as the International Safety Management Code, International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (IGC Code”), and amendments to the International Convention for the Safety of Life at Sea and the International Ship and Port Facility Security Code is imperative. Additionally, the IMO’s Marine Pollution standards, comprising six annexes including its amendments, impose environmental regulations on aspects like limits on sulfur and nitrogen oxide emissions, oil spills, harmful substances, sewage, and garbage management. While new emission control measures may arise, our vessels are powered by means other than heavy fuel oil and are not anticipated to incur significant operational costs. However, the evolving nature of IMO regulations poses uncertainties, and non-compliance may result in increased liability, penalties, insurance coverage reductions, or port access issues.
In U.S. waters, we are subject to various federal, state, and local laws and regulations relating to the protection of the environment, including the Oil Pollution Act, Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, and the Clean Air Act. In some cases, these laws and regulations require governmental permits and authorizations before conducting certain activities. These environmental laws and regulations may impose substantial penalties for noncompliance and substantial liabilities for pollution. Failure to comply with these laws and regulations may result in substantial civil and criminal fines and penalties.
Sustainability reporting
We have published our annual Environmental, Social and Governance (“ESG”) Report on our website commencing in 2020.
However, the European Union’s CSRD, implemented in January 2023, significantly expands mandatory sustainability reporting for U.S. companies with operations in the EU. We expect to fall under the CSRD’s scope commencing in 2025, with initial reporting expected in 2026, subject to criteria, received advice, and certain assumptions about future events. The Commission released its final rule on climate-related disclosures on March 6, 2024, requiring the disclosure of certain climate-related risks and financial impacts, as well as GHG emissions. Large accelerated filers will be required to incorporate the applicable climate-related disclosures into their filings beginning in fiscal year 2025, with additional requirements relating to the disclosure of Scope 1 and 2 GHG emissions, if material, and attestation reports for certain large accelerated filers subsequently phasing in.
C. Organizational Structure
For a list of our significant subsidiaries, 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, Hilli Corp and Gimi MS.
26
D. Property, Plant and Equipment
For information on our fleet, please see the section of “Item 4 - B. Business Overview”.
We do not own any interest in real estate. As of December 31, 2023, we lease the following office spaces: 10,700 square feet in London, England; 27,100 square feet in Oslo, Norway; 2,500 square feet in Hamilton, Bermuda; 2,100 square feet in Douala, Cameroon; and 415 square feet in Nouakchott, Mauritania.
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 consolidated financial statements 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.
Significant Developments since January 1, 2024
Financing
•Dividends
In February 2024, we declared a dividend of $0.25 per share in respect of the three months ended December 31, 2023 to shareholders of record on March 12, 2024, which was paid on March 20, 2024.
FLNG business development
•Delivery of Fuji LNG
In March 2024, we completed the acquisition of the Fuji LNG, a donor vessel for a prospective Mark II project, for a total consideration of $77.5 million.
•Gimi LOA Dispute
As of the date of this report, we are in continued discussions with BP to identify alternative contractual arrangements to replace parts of the existing pre-COD contractual arrangements, including parts of the disputed contract mechanisms. There is no guarantee that we can reach alignment around a potential alternative contractual and commercial arrangement.
Factors Affecting Our Future Results of Operations and Financial Condition
Our historical results of operations may not be indicative of our future results of operations which may be principally affected for the following reasons:
•Timely completion of the FLNG Gimi commissioning and acceptance. The commissioning of a FLNG requires highly specialized contractors and is subject to risk of delay or other factors outside our control such as labor shortages, supply chain disruptions or timing of various project infrastructure delivery to site. Further, we are required to meet certain obligations under the GTA Project, including the delivery schedules and performance specifications. In the event the contractors, the customer or us are unable to perform under the terms of the respective construction agreements or the LOA, it may adversely impact our results of operations, our future cash flows owing to delays in unlocking our Adjusted EBITDA backlog, breach certain bank covenants which will obligate us to repay the outstanding debt principal and associated interest and penalties and harm our reputation as a FLNG company.
27
•Resolution of the on-going Gimi LOA contract interpretation dispute and continued discussions to amend certain contractual arrangements. The resolution of the on-going LOA contract interpretation dispute and our continuing discussions with BP regarding existing contract amendments is subject to our reaching alignment around a potential alternative contractual and commercial amendment. In the event that we are unable to reach a mutual resolution, we may incur significant costs (including legal costs and fees) and we may not be entitled to receive amounts of pre-COD contractual cash flows that we believe we are entitled to receive, which could adversely affect our results of operation, financial condition and cash flows.
•Utilization of FLNG Hilli and her future redeployment. In the event FLNG Hilli is unable to meet her contracted capacity in a given year or if we fail to secure a new contract once her current contract ends in July 2026, our earnings and cash flows will be adversely affected.
•Conversion and deployment of Mark II. We have entered into agreements for engineering services and materials and purchased a LNG carrier for a future conversion to our Mark II design without a commercial contract or project in place. Should the future deployment opportunities require additional bespoke specifications, we may incur significant unplanned project costs which could adversely affect our cash flows and the timeliness of our ability to realize the full potential of this asset and maximize returns of our investment.
•Our results are affected by fluctuations in the fair value of our derivative instruments. The change in fair value of our derivative instruments, which includes oil and gas derivatives, commodity swaps and interest rate swaps, are included in our net income. These changes may fluctuate significantly as interest rates, foreign exchange rates and the price of commodities fluctuate.
•Risk of breach of certain debt covenants. Our loan agreements and lease financing arrangements 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 certain covenants are breached, we may be required to make further principal repayments ahead of our loan maturity, which would reduce our available cash.
•Our long-lived assets' net book value may be impaired. Our vessels, including asset under development, are reviewed for impairment whenever events or changes in circumstances, may indicate that the carrying amount may not be recoverable. In assessing the recoverability of our long-lived assets’ carrying amounts, we make assumptions regarding estimated undiscounted future cash flows, the vessels’ economic useful life and estimates in respect of residual or scrap value. In the case of asset under development, we make assumptions regarding future returns from the project. If the market value of our vessels declines or the forecast returns of our asset under development deteriorates, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations and financial condition.
•The ongoing conflicts between Russia and Ukraine and Israel and Hamas and recent attacks on vessels in the Red Sea could have material adverse effects on our business, results of operations, or financial condition. The ongoing conflict between Russia and Ukraine and Israel and Hamas and recent attacks on vessels in the Red Sea, in addition to the sanctions imposed by the U.S. and several European and world leaders, may adversely impact our business, given Russia's and Qatar’s roles as a major global exporters of crude oil and natural gas. Our business could be harmed by trade tariffs, trade embargoes or other economic sanctions. While much uncertainty remains regarding the global impact of the ongoing conflicts, it is possible that the hostilities could adversely affect our business, financial condition, results of operation and cash flows. Furthermore, it is possible that third parties with whom we have charter contracts or business arrangements may be impacted by these events, which could adversely affect our operations and financial condition.
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.
28
Important Financial and Operational Terms
We use a variety of financial and operational terms when analyzing our performance. These include but are not limited to the following:
Liquefaction services revenue. For the FLNG Hilli LTA, we consider the provision of liquefaction services capacity as a single performance obligation recognized evenly over time. We consider our services (the receipt of customer’s gas, treatment and temporary storage on board our FLNG and delivery of LNG to waiting carriers) to be 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. Overproduction and underutilization arrangements in the LTA are variable consideration, estimated using the expected value method and recognized using the output method to the extent it is probable that a significant reversal will not occur.
FLNG tariff, net. FLNG tariff, net is a non-U.S. GAAP financial measure and is calculated by taking the liquefaction services revenue adjusted for the amortization of deferred commissioning period revenue and Day 1 gains on deferred revenues, the unwinding of liquidated damages, accrued underutilization, accrued overproduction revenue and the realized gains on oil and gas derivative instruments. FLNG tariff, net reflects the cash earnings of FLNG Hilli in a given period which consists of the base tolling fees, oil linked fees, gas linked fees, billed overproduction revenue and underutilization adjustment invoiced to the customer. Management believes that FLNG tariff, net increases the comparability of our FLNG performance from period to period and against the performance of other operational FLNGs. FLNG tariff, net should not be considered as an alternative to net income or any other measure of our financial performance calculated in accordance with U.S. GAAP. See the section of this Item 5 entitled “A. Operating Results” included herein for a reconciliation of FLNG tariff, net to total operating income, the most comparable U.S. GAAP financial measure.
Adjusted EBITDA. Adjusted EBITDA is a non-U.S. GAAP financial measure and is calculated by taking net income/(loss) before net income/(loss) from discontinued operations, net (losses)/income from equity method investments, income taxes, other financial items net, net (losses)/gains on derivative instruments, interest expense, net, interest income, other non-operating income/(losses), realized and unrealized mark-to-market (losses)/gains on our investment in listed equity securities, unrealized movements on the oil and gas derivative instruments, impairment of long-lived assets and depreciation and amortization. Adjusted EBITDA is a financial measure used by management and investors to assess our total financial and operating performance. Management believes that Adjusted EBITDA assists management and investors by increasing the comparability of our total performance from period to period against the performance of other companies. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of our financial performance calculated in accordance with U.S. GAAP. See the section of this Item 5 entitled “A. Operating Results” included herein for a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP financial measure.
Adjusted EBITDA backlog. Adjusted EBITDA backlog is a non-U.S. GAAP financial measure and represents the share of contracted fee income for executed contracts less forecast operating expenses for these contracts. Adjusted EBITDA backlog should not be considered as an alternative to net income or any other measure of our financial performance calculated in accordance with U.S. GAAP.
29
A. Operating Results
Reconciliations of the 2023 and 2022 consolidated net (loss)/income to Adjusted EBITDA are as follows:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Net (loss)/income | (2,850) | 939,057 | ||||||
Income tax expense/(benefit) | 1,870 | (438) | ||||||
| (Loss)/income before income taxes | (980) | 938,619 | ||||||
| Depreciation and amortization | 50,294 | 51,712 | ||||||
| Impairment of long-term assets | 5,021 | 76,155 | ||||||
| Unrealized loss/(gain) on oil and gas derivative instruments, net | 284,658 | (288,977) | ||||||
Realized and unrealized mark-to-market losses/(gains) on our investment in listed equity securities | 62,308 | (400,966) | ||||||
Other non-operating income, net | (9,823) | (11,916) | ||||||
| Interest income | (46,061) | (12,225) | ||||||
Interest expense, net | — | 19,286 | ||||||
| Losses/(gains) on derivative instruments, net | 7,227 | (71,497) | ||||||
| Other financial items, net | 900 | 5,380 | ||||||
Net loss/(income) from equity method investments (1) | 2,520 | (19,041) | ||||||
Net (income)/loss from discontinued operations (2) | (293) | 76,450 | ||||||
| Adjusted EBITDA | 355,771 | 362,980 | ||||||
(1) Please refer to the individual reportable segments below for discussions on net (loss)/income from equity method investments.
(2) See note 6 “Segment information” and note 14 “Assets and liabilities held for sale and discontinued operations” of the consolidated financial statements included herein for additional information on our segments and discontinued operations.
Discussed below are the financial statement line items of our consolidated results of operations for the years ended December 31, 2023 and 2022 that are not covered by the segmental analysis presented later in this section:
Depreciation and amortization: Depreciation and amortization decreased by $1.4 million in 2023 compared to 2022. This is primarily due to a decrease in depreciation charge in Golar Arctic for the year ended December 31, 2023 compared to 2022 as a result of a $76.2 million impairment charge on Golar Arctic in May 2022.
Impairment of long-lived assets: The impairment charge of $5.0 million in 2023 is associated with our LNG carrier, Gandria. In May 2023, we entered into the Gandria SPA with Last Voyage, DMCC for the sale and recycling of the Gandria, which completed in November 2023, for net consideration of $15.2 million. The transaction triggered an immediate impairment test as the carrying value of the vessel was higher than the fair value less costs to sell, consequently, an impairment charge was recognized at the measurement date.
The impairment charge of $76.2 million in 2022 is associated with our LNG carrier, the Golar Arctic. In May 2022, we entered into agreements with Snam for the future sale of the Golar Arctic following her conversion into a FSRU (“Arctic SPA”) subject to receipt of notice to proceed which triggered an impairment test and resulted in an impairment of the vessel at the measurement date.
Unrealized (loss)/gain on the oil and gas derivative instruments, net:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
Unrealized (loss)/gain on FLNG Hilli’s gas derivative instrument | (142,521) | 121,959 | ||||||
Unrealized (loss)/gain on FLNG Hilli’s oil derivative instrument | (76,847) | 55,315 | ||||||
| Unrealized mark-to-market adjustment for commodity swap derivatives | (65,290) | 111,703 | ||||||
Unrealized (loss)/gain on oil and gas derivative instruments, net | (284,658) | 288,977 | ||||||
30
•Unrealized (loss)/gain on FLNG Hilli’s gas derivative instrument: In July 2022, the Customer exercised the option to increase the annual capacity utilization of FLNG Hilli by 0.2 mtpa for the period from January 2023 to the end of the term of the LTA in July 2026, which together with the 0.2 mtpa annual capacity increase for the 2022 contract year (both pursuant to the LTA Amendment 3 entered into in July 2021), brought the total annual base capacity to 1.4 mtpa from January 2022 to the end of the LTA in July 2026. The unrealized (loss)/gain reflects the mark-to-market (“MTM”) movements related to the changes in the fair value of the FLNG Hilli’s gas derivative instrument embedded in the LTA which we estimated using the discounted future cash flows of the additional payments due to us for the 0.2 mtpa incremental LNG capacity over the remaining term of the LTA which is linked to the Dutch Title Transfer Facility (“TTF”) gas prices and forecast Euro/USD exchange rates. The increase of $264.5 million unrealized loss in 2023 compared to an unrealized gain in 2022, was primarily driven by the volatility in the future TTF linked gas price curves over the LTA’s remaining term.
•Unrealized (loss)/gain on FLNG Hilli’s oil derivative instrument: This reflects the MTM movements related to the changes in the fair value of the FLNG Hilli’s oil derivative instrument embedded in the LTA which we estimated using the discounted future cash flows of the additional payments due to us as a result of Brent linked crude oil prices moving above a contractual oil price floor over the remaining term of the LTA. The increase of $132.2 million unrealized loss in 2023 compared to an unrealized gain in 2022, was largely driven by the volatility in the future Brent linked crude oil price curves over the LTA’s remaining term.
•Unrealized MTM adjustment for commodity swap derivatives: We entered into commodity swaps to hedge our exposure to the TTF linked earnings (100% of which are attributable to us). The increase of $177.0 million unrealized MTM loss in 2023 compared to an unrealized gain in 2022, was due to additional commodity swaps entered into in the first quarter of 2023 which exposed us to the volatility of TTF linked gas price curves. We have economically hedged our exposure by swapping variable cash receipts that are linked to the TTF index for anticipated future production volumes with fixed payments from our TTF swap counterparties of which the resultant adjustments are presented in “Realized MTM adjustment on commodity swap derivatives,” in the consolidated statements of operations.
Realized and unrealized (losses)/gains on our investment in listed equity securities: This reflects the MTM movements related to changes in the fair value of the NFE Shares.
In 2023 and 2022, we sold 1.2 million and 13.3 million of our NFE shares at a price range between $36.90 and $40.38 per share and $40.80 and $58.29 per share for an aggregate consideration of $45.6 million and $625.6 million, which resulted in realized MTM losses of $62.3 million and realized MTM gains of $50.1 million, respectively. Further in 2023, we used our remaining 4.1 million NFE shares as partial payment for the reacquisition of NFE’s 1,230 common units in Hilli LLC. There was no comparable transaction in 2022.
In 2022, we recognized $350.9 million unrealized MTM gains due to a significant increase in the NFE share prices to $42.42 per share at December 31, 2022, compared to $24.14 per share for 2021.
Other non-operating income, net:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Dividend income from our investment in listed equity securities | 9,823 | 4,768 | ||||||
| UK tax lease liability | — | 7,148 | ||||||
Other non-operating income, net | 9,823 | 11,916 | ||||||
•Dividend income from our investment in listed equity securities: This reflects the dividend income received in relation to our NFE Shares prior to disposal. The increase of $5.1 million in dividend income in 2023 compared to 2022, was mainly due to higher dividend per share of $3.00 on 5.3 million NFE shares held within 2023, compared to $0.10 per share on 18.6 million NFE shares held within 2022.
•U.K. tax lease liability: In 2022, we settled our liability of $66.4 million to the HMRC in full, inclusive of fees, released the remaining liability recognized of $5.3 million and recognized a foreign exchange movement of $1.8 million. There was no comparable income in 2023.
31
Interest income: The increase of $33.8 million interest income in 2023 compared to 2022, was primarily due to an extended duration the cash was maintained in short-term money-market deposits and a higher interest rate, partially offset by a reduced short-term money-market deposit balance in 2023 compared to 2022. As of December 31, 2023 and 2022, the cash held in short-term money-market deposits amounted to $481.7 million and $634.2 million, respectively.
Interest expense, net: The decrease in net interest expense of $19.3 million in 2023 compared to 2022, was primarily due to:
•$10.3 million net decrease in interest expense following $140.7 million and $20.4 million repurchases of our $300.0 million senior unsecured bonds (“Unsecured Bonds”) in 2022 and 2023, respectively, partially offset by the re-issuance of $61.1 million in 2023;
•$9.2 million increase in capitalized interest expense on our borrowing cost in relation to our qualifying investment in our asset under development, the Gimi;
•$3.3 million net decrease in interest expense, including amortization of deferred finance charges driven by the redemption of our convertible senior unsecured notes in February 2022 and the repayments of the Corporate Revolving Credit Facility (the “Corporate RCF”) in November 2022; and
•$2.9 million increase in interest expense due to higher reference rates on the debt facility of our consolidated VIE.
(Losses)/gains on derivative instruments, net:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
Net income/(expense) on undesignated IRS (“IRS”) derivatives | 8,356 | (772) | ||||||
Unrealized MTM adjustment for interest rate swap derivatives | (15,583) | 72,269 | ||||||
(Losses)/gains on derivative instruments, net | (7,227) | 71,497 | ||||||
•Net interest income/(expense) on undesignated IRS derivatives: This reflects the net interest exposure in relation to our IRS derivatives. The increase of $9.1 million net interest income in 2023 compared to 2022, was driven largely by the movements in reference rates.
•Unrealized MTM adjustment for IRS derivatives: This reflects the MTM movements related to the changes in the fair value of our IRS derivatives. As of December 31, 2023 and 2022, we have an IRS portfolio with a notional amount of $709.4 million and $740.0 million respectively, none of which are designated as hedges for accounting purposes. The increase of $87.9 million unrealized MTM loss in 2023 compared to an unrealized gain in 2022, was driven by the decrease in long-term swap rates, notional values of our swap portfolio, partially offset by fair value adjustments reflecting our creditworthiness and that of our counterparties.
Other financial items, net:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Amortization of debt guarantees | 2,019 | 2,657 | ||||||
| Financing arrangement fees and other related costs | (1,667) | (9,340) | ||||||
Foreign exchange (loss)/gain on operations | (941) | 1,598 | ||||||
| Other | (311) | (295) | ||||||
| Other financials items, net | (900) | (5,380) | ||||||
•Amortization of debt guarantees: This relates to fees earned from debt guarantees provided to existing and former related parties. The decrease of $0.6 million amortization of debt guarantees in 2023 compared to 2022, was driven by a decrease in various debt guarantees provided.
•Financing arrangement fees and other related costs: The decrease in financing arrangement fees and other related costs of $7.7 million in 2023 compared to 2022, was due to:
•$4.9 million write-off of deferred finance charges and expenses in relation to our undrawn corporate bilateral facility which expired in June 2022;
32
•$2.0 million reduction in the loss on extinguishment is attributed to a lower volume of Unsecured Bonds repurchased in 2023 of $20.4 million compared to $140.7 million of Unsecured Bonds in 2022;
•$1.4 million commitment fee in relation to the undrawn portion of the Corporate RCF which was cancelled in November 2022; and
•partially offset by $0.6 million loss on re-issuance of $61.1 million Unsecured Bonds in 2023.
•Foreign exchange gain/(loss) on operations: The increase of $2.5 million loss in 2023 compared to 2022, was driven by unfavorable foreign exchange movements of the GBP and Singapore Dollar against the U.S. Dollar.
Net (losses)/income from equity method investments: This represents our share of earnings from our equity accounted investments in Aqualung, Avenir, CoolCo, ECGS, MGAS and LOGAS. The increase of $21.6 million net loss in 2023 compared to 2022, was mainly due to $22.3 million decrease in our share in the net earnings from CoolCo in 2023 of $1.5 million compared to $23.8 million in 2022, partially offset by $0.4 million increase in gain on disposal of our CoolCo shares in 2023 of 4.5 million compared to 8.0 million of our CoolCo shares in 2022.
Net income/(loss) from discontinued operations: This relates to the CoolCo Disposal and the TundraCo Disposal:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| The CoolCo Disposal | ||||||||
Income/(loss) from discontinued operations | 266 | (194,500) | ||||||
Gain/(loss) on disposal | 27 | (10,060) | ||||||
Net income/(loss) from discontinued operations | 293 | (204,560) | ||||||
Net income/(loss) from discontinued operations: The net income of $0.3 million in 2023 was in relation to our vessel operations in Malaysia which was sold to CoolCo in May 2023. The net loss of $204.6 million in 2022 was in relation to the disposals of nine of our wholly owned subsidiaries and the commercial and technical management entities to CoolCo in June 2022.
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| The TundraCo Disposal | ||||||||
Income from discontinued operations | — | 4,880 | ||||||
| Gain on disposal | — | 123,230 | ||||||
Net income from discontinued operations | — | 128,110 | ||||||
Net income from discontinued operations: The net income of $128.1 million in 2022 was due to the completion of the TundraCo Disposal in May 2022. There was no comparable transaction in 2023.
33
The following details our operating results and the resultant Adjusted EBITDA for our reportable segments for the years ended December 31, 2023 and 2022.
FLNG segment
This relates to activities of the FLNG Hilli and our other FLNG projects.
December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Total operating revenues | 245,418 | 214,825 | ||||||
Realized gain on oil and gas derivative instruments, net | 199,907 | 232,020 | ||||||
| Vessel operating expenses | (65,748) | (58,583) | ||||||
| Voyage, charterhire and commission expenses | (583) | (600) | ||||||
Administrative (expenses)/income | (417) | 22 | ||||||
| Project development expenses | (4,151) | (5,335) | ||||||
Other operating income/(losses) | 15,542 | (15,417) | ||||||
| Adjusted EBITDA | 389,968 | 366,932 | ||||||
| Other Financial Data: | ||||||||
| Total operating revenues | 245,418 | 214,825 | ||||||
| Vessel management fees and other revenues | — | (855) | ||||||
Liquefaction services revenue | 245,418 | 213,970 | ||||||
Amortization of deferred commissioning period revenue, amortization of Day 1 gains, accrued overproduction revenue(1), underutilization adjustment and other | (36,228) | (6,077) | ||||||
| Realized gain on oil and gas derivative instruments, net | 199,907 | 232,020 | ||||||
| FLNG tariff, net | 409,097 | 439,913 | ||||||
(1) Accrued overproduction revenue relates to revenue accrued for production in excess of the FLNG Hilli’s annual contracted base capacity pursuant to LTA Amendments 2 and 4 (as defined herein).
Total operating revenues:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Base tolling fee | 204,501 | 204,501 | ||||||
| Amortization of deferred commissioning period revenue | 4,120 | 4,120 | ||||||
| Amortization of Day 1 gains | 12,541 | 22,608 | ||||||
Overproduction/(underutilization) | 20,129 | (20,089) | ||||||
| Incremental base tolling fee | 5,000 | 5,000 | ||||||
| Other | (873) | (1,315) | ||||||
Total operating revenues | 245,418 | 214,825 | ||||||
•Base tolling fee: Under the terms of the LTA, we invoice and recognize base tolling fees up to the contracted annual base capacity so long as actual production is 95% of the contracted base capacity, provided that there are no services unavailability considered our fault in a given contract year.
•Amortization of Day 1 gains: This relates to the amortization of the FLNG Hilli’s deferred Day 1 gains on the oil and gas derivative instruments embedded in the LTA. In July 2021, we entered into LTA Amendment 3 which increased the annual capacity utilization of FLNG Hilli by 0.2 mtpa of LNG for the contract year 2022. This resulted in the recognition of TTF linked Day 1 gain of $28.3 million, amortized over one year, given the Customer had not exercised the option to maintain the increased annual contracted volume of 1.4 million tonnes from January 2023 until July 2026 (the “2023+ expansion capacity”). In July 2022, the Customer exercised the 2023+ expansion capacity resulting to the extension to the initial amortization profile of the TTF linked Day 1 gain until July 2026.
34
•Overproduction/underutilization: In March 2021, we entered into the second amendment to the LTA (“LTA Amendment 2”) which changed the contract term from one linked to fixed capacity of 500.0 billion cubic feet to one of a fixed term, terminating on July 18, 2026. This amendment also permits billing adjustments for amounts over or under the annual contracted capacity in a given contract year (“overproduction” or “underutilization”, respectively), commencing from contract year 2019. Amounts for overproduction were invoiced at the end of a given contract year, while amounts for underutilization (which is capped per contract year) will be a reduction against our final invoice to the Customer at the end of the LTA in July 2026. Pursuant to LTA Amendment 2, we have accrued overproduction revenue in relation to excess production over contracted annual contracted capacity during contract year 2023.
In 2022, due to a combination of upstream technical issues and maintenance works, we recognized underutilization of $35.8 million, which is bifurcated on our consolidated statement of operations presentation, as reductions to the “Liquefaction services revenue” and “Other operating income” financial statement line items, amounting to $20.1 million and $15.7 million, respectively. In April 2023, we entered into the fourth amendment to the LTA (“LTA Amendment 4”) where we agreed with the Customer to increase contract year 2023 annual contracted capacity by 0.04 million tonnes (from 1.4 million tonnes to 1.44 million tonnes) resulting from the inclusion of contract year 2022 underutilization into contract year 2023 annual LNG production. The increased contract year 2023 annual LNG production was fully met and we have subsequently unwound the contract year 2022 underutilization liability of $35.8 million, bifurcated between “Liquefaction services revenue” and “Other operating income” line items in the consolidated statements of operations, amounting to $20.1 million and $15.7 million, respectively.
Realized gain on oil and gas derivative instrument, net:
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
Realized MTM adjustment on commodity swap derivatives | 87,555 | (18,605) | ||||||
Realized gain on FLNG Hilli’s oil derivative instrument | 73,120 | 110,696 | ||||||
Realized gain on FLNG Hilli’s gas derivative instrument | 39,232 | 139,929 | ||||||
Realized gain on oil and gas derivative instruments, net | 199,907 | 232,020 | ||||||
•Realized MTM adjustment for commodity swap derivatives: We entered into commodity swaps to hedge our exposure to a portion of FLNG Hilli’s tolling fee that is linked to the TTF index pursuant to the LTA Amendment 2 (100% of which were attributable to us). The increase of $106.2 million in 2023 compared to 2022, was driven by the additional commodity swaps entered into in the first quarter of 2023 which economically hedged our exposure by swapping variable cash receipts that are linked to the TTF index for anticipated future production volumes with fixed payments from our TTF swap counterparties.
•Realized gain on FLNG Hilli’s gas derivative instrument: This reflects the tolling fee in excess of the contractual floor rate, linked to TTF and the Euro/USD foreign exchange movements. The decrease of $100.7 million in 2023 compared to 2022, was driven by the decreased TTF prices based on one-month look-back average price of €47.7 for 2023 compared to €132.0 for 2022, partially offset by favorable foreign exchange movements of the Euro against the U.S. Dollar of an average 1.078 in 2023 compared to 1.056 in 2022.
•Realized gain on FLNG Hilli’s oil derivative instrument: This reflects the billings above the FLNG Hilli’s base tolling fee when the Brent linked crude oil price is greater than $60 per barrel. The decrease of $37.6 million in 2023 compared to 2022, was driven by the decreased three-month look-back average oil price of $83.42/barrel for 2023 compared to $99.76/barrel for 2022.
FLNG tariff, net: The decrease of $30.8 million in FLNG tariff, net in 2023 compared to 2022, was primarily due to the decrease in realized gains on oil and gas derivative instruments, net.
Vessel operating expenses: The increase of $7.2 million in vessel operating expenses in 2023 compared to 2022, was primarily due to an increase in repairs, spares, stores and consumables incurred during the 2023 planned extended maintenance window.
Project development expenses: This comprised of non-capitalizable project-related expenses such as legal, professional and consultancy costs for FLNG projects in the exploratory stages. The decrease of $1.2 million in project development expenses in 2023 compared to 2022, was driven by new business development costs incurred to assess and pursue various FLNG growth opportunities in 2022.
35
Corporate and other segment
This relates to our activities including administrative and ship operation and maintenance services. We have offices in Bermuda, London, Douala and Oslo that provide FLNG commercial, operational and technical support, crew management services and supervision, corporate secretarial, accounting, treasury, HR and legal services.
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Total operating revenues | 35,086 | 43,230 | ||||||
Vessel operating expenses | (19,248) | (6,578) | ||||||
Voyage, charterhire and commission expenses | (19) | (34) | ||||||
| Administrative expenses | (33,031) | (38,224) | ||||||
Project development expenses | (34,909) | (2,637) | ||||||
Other operating income | 7,817 | - | ||||||
| Adjusted EBITDA | (44,304) | (4,243) | ||||||
Total operating revenues: The decrease of $8.1 million in total operating revenues in 2023 compared to 2022, was primarily due to:
•$15.2 million decrease in vessel management and administrative service fees, mainly charged to our former equity method investments, Golar Partners, Hygo and CoolCo;
•$0.6 million decrease in revenue from the development agreement entered into in 2022 to provide drydocking, site commissioning and hook-up services for the Golar Tundra, which completed in 2023 (the “Development Agreement”); and
•$8.2 million increase in vessel management fees for the Golar Tundra, which commenced in November 2022.
Vessel operating expenses: The vessel operating expenses relate to the cost to operate and maintain the FSRU LNG Croatia and the Golar Tundra. The increase of $12.7 million in vessel operating expenses in 2023 compared to 2022, was primarily due to:
•$6.0 million increase due to the commencement of the Operation and Maintenance Agreement for the Golar Tundra with Snam from May 2023 (the “O&M Agreement”). There were no comparable expenses for the same period in 2022;
•$3.5 million increase in 2023 for the Golar Tundra during her drydocking, site commissioning and hook-up services in relation to the Development Agreement; and
•$2.8 million increase mainly due to repairs and maintenance works for the LNG Croatia during 2023.
Administrative expenses: The decrease of $5.2 million in administrative expenses in 2023 compared to 2022, was primarily due to:
•$7.9 million reduction in professional and consultancy fees as a result of the disposals in 2022; and
•partially offset by a $2.7 million increase in share options and restricted stock units expenses following additional stock awards in 2023.
Project development expenses: The increase in project development expenses of $32.3 million in 2023 compared to 2022 was primarily due to:
•$22.5 million increase in professional fees and cost of materials in 2023 to complete the drydocking, site commissioning and hook-up services for the Golar Tundra in relation to the Development Agreement;
•$7.8 million of professional fees incurred in relation to the Arctic SPA which was terminated in June 2023 when Snam’s option to exercise the notice to proceed lapsed; and
•$2.0 million increase in professional and consultancy fees for other business development opportunities.
Other operating income: In 2022, we received the first advance payment of $7.8 million pursuant to the Arctic SPA. In June 2023, the option to exercise the notice to proceed lapsed, consequently, we retained and recognized the non-refundable first advance payment as income. There was no comparable income in 2022.
36
Shipping segment
This comprises of the operations of LNG transportation. We have historically operated and subsequently chartered out LNG carriers on fixed terms to customers.
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Total operating revenues | 17,925 | 9,685 | ||||||
| Vessel operating expenses | (6,153) | (7,641) | ||||||
| Voyage, charterhire and commission expenses, net | (1,581) | (1,810) | ||||||
Administrative (expenses)/income | (14) | 102 | ||||||
Project development expenses | (70) | (45) | ||||||
| Adjusted EBITDA | 10,107 | 291 | ||||||
Total operating revenues: The increase of $8.2 million in total operating revenues in 2023 compared to 2022 was primarily due to higher daily charterhire rates and 22% higher utilization of the Golar Arctic in 2023.
Vessel operating expenses: The decrease in vessel operating expenses of $1.4 million in 2023 compared to 2022 was primarily due to the war risk insurance rebate receipt in March 2023.
Please refer to Golar LNG Limited’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on March 31, 2023, Item 5 Operating and Financial Review and Prospects - A. Operating Results, for the management discussion and analysis of the operating results for 2022 compared to 2021.
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 and investments and equity capital. Our liquidity requirements relate to servicing our debt, funding our conversion projects, funding investment in the development of our project portfolio, funding working capital requirements, payment of dividends and share repurchases 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 in accordance with our established corporate policies to maximize investment returns while maintaining appropriate liquidity for our working capital requirements. Cash and cash equivalents are held primarily in U.S. Dollars with some balances held in GBP, NOK, Singapore Dollars, Euros, BRL and Central African Francs (“XAF”). We have used derivative instruments for interest rate, foreign currency and commodity risk management purposes.
Our short-term liquidity requirements are primarily for the servicing of our debt, payment of dividends, working capital, potential investments, contracted FLNG conversion projects (FLNG Gimi for the LOA) and Mark II project related commitments. We believe that our existing cash and cash equivalents and short-term bank deposits, together with cash flow from operations, will be sufficient to support our liquidity and capital requirements for at least the next 12 months.
As of December 31, 2023, we had cash and cash equivalents (including short-term deposits) of $771.5 million, of which $92.2 million is restricted cash. Included within restricted cash is $61.0 million in respect of the issuance of the Hilli LLC by a financial institution in relation to the FLNG Hilli, $18.1 million cash belonging to the lessor VIE, $12.1 million in respect of the LNG Hrvatska O&M Agreement and $1.1 million relating to office leases. Refer to note 15 “Restricted Cash and Short-term Deposits” of our consolidated financial statements included herein for additional details.
Since December 31, 2023, significant transactions impacting our cash flows include:
Receipts of:
•$20.0 million proceeds from First FLNG Holdings’ subscription of equity interest in Gimi MS Corporation (“Gimi MS”); and
37
•$19.9 million of scheduled receipts in relation to net settlement of our commodity swap arrangements.
Payments of:
•$62.0 million relating to the final payment to acquire the Fuji LNG for Mark II conversion;
•$36.3 million of additions to the asset under development, the FLNG Gimi;
•$35.0 million by Gimi MS of pre-commissioning contractual cash flows in relation to the Gimi LOA;
•$26.0 million relating to the quarterly dividend;
•$14.5 million of capital expenditure on the Mark II, comprised of engineering services and long lead items;
•$14.2 million relating to share repurchased under the share buyback program; and
•$10.0 million of scheduled loan and interest repayments, including net settlement of our interest rate swaps.
Medium to Long-term Liquidity and Cash Requirements
Our medium and long-term liquidity requirements are primarily for funding future investments and our conversion projects and repayment of long-term debt balances. Sources of funding for our medium and long-term liquidity requirements include new loans, refinancing of existing debt arrangements, and public and private debt or equity offerings.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.
| December 31, | ||||||||
| (in thousands of $) | 2023 | 2022 | ||||||
| Net cash provided by continuing operations | 134,606 | 279,054 | ||||||
| Net cash provided by/(used in) discontinued operations | 276 | (60,673) | ||||||
| Net cash (used in)/provided by investing activities | (131,709) | 498,423 | ||||||
| Net cash provided by discontinued investing activities | — | 569,298 | ||||||
Net cash used in financing activities | (244,953) | (533,363) | ||||||
| Net cash used in discontinued financing activities | — | (158,280) | ||||||
Net movement in cash and cash equivalents, restricted cash and short-term deposits within assets held for sale | 369 | 80,500 | ||||||
Net (decrease)/increase in cash and cash equivalents, restricted cash, short-term deposits and cash within assets held for sale | (241,411) | 674,959 | ||||||
| Cash and cash equivalents, restricted cash and short-term deposits at the beginning of the period | 1,012,881 | 337,922 | ||||||
| Cash and cash equivalents, restricted cash and short-term deposits at the end of the period | 771,470 | 1,012,881 | ||||||
Continuing and discontinued operations
The decrease in net cash provided by continuing operations of $144.4 million for the year ended December 31, 2023 compared to 2022 was mainly due to the decreasing oil and gas prices, drydocking expenditure incurred for the Golar Arctic during 2023 and expenditures on our Mark II FLNG project which include engineering costs and long lead items. This is partially offset by the increase in interest income from our short-term money-market deposits for year ended December 31, 2023.
The increase in the net cash provided by discontinued operations of $60.9 million for the year ended December 31, 2023 compared to net cash used in 2022 was due to the completion of the CoolCo Disposal and TundraCo Disposal between March and June 2022.
38
Investing activities
Net cash flows used in investing activities for the year ended December 31, 2023 of $131.7 million and net cash flows provided by investing activities for the year ended December 31, 2022 of $498.4 million, is mainly comprised of:
2023:
•$308.0 million of additions in relation to the FLNG Gimi’s FLNG conversion;
•$80.0 million proceeds from First FLNG Holdings’ subscription of 30% additional equity interest in Gimi MS;
•$56.1 million net proceeds from the sale of 4.5 million CoolCo shares;
•$45.6 million net proceeds from the sale of 1.2 million NFE Shares;
•$15.5 million deposit paid for Fuji LNG, a donor vessel in relation to our Mark II project;
•$15.2 million of net proceeds from the sale of Gandria;
•$9.8 million net dividends received from our NFE Shares, prior to disposal;
•$9.7 million of equity contribution to our investments in MGAS and LOGAS;
•$3.6 million revolving shareholder loan advanced to our related parties; and
•$1.6 million of additions to leasehold improvements.
2022:
•$625.8 million net proceeds from the sale of our 13.3 million NFE shares;
•$267.4 million of additions in relation to the FLNG Gimi’s conversion;
•$97.8 million net proceeds from the sale of our 8.0 million CoolCo shares;
•$39.3 million proceeds from First FLNG Holdings’ subscription of 30% additional equity interest in Gimi MS;
•$5.3 million of dividends received from our NFE Shares; and
•$2.4 million of equity contribution to our investment in Aqualung.
Net cash provided by discontinued investing activities of $569.3 million for the year ended December 31, 2022 relates to net proceeds from the completion of the CoolCo Disposal and TundraCo Disposal. There was no comparable payment for the year ended December 31, 2023.
Financing activities
Net cash flows used in financing activities for the years ended December 31, 2023 and 2022 were $245.0 million and $533.4 million, respectively and is mainly comprised of:
2023:
•$105.5 million of scheduled debt repayments which includes $98.2 million of repayments made by our lessor VIE;
•$102.9 million total dividends paid, which comprised $79.5 million to the stockholders of Golar and $23.5 million to the equity holders of Hilli LLC;
•$100.0 million paid to reacquire 1,230 common units of Hilli LLC from NFE;
•$95.0 million collective drawdown from the Gimi facility;
•$61.7 million paid to repurchase our own shares under our share repurchase program;
•$61.0 million proceeds from re-issuance of Unsecured Bonds in November 2023 and December 2023;
•$20.4 million partial repurchases of our Unsecured Bonds in March 2023 and April 2023; and
•$10.5 million financing costs paid predominantly in relation to amendment fees for FLNG Hilli’s sale and leaseback facility, the Unsecured Bonds and the Gimi facility.
2022:
•$315.6 million redemption of the outstanding face value of our 2017 Convertible Bonds in February 2022;
•$140.7 million partial redemption of our Unsecured Bonds at par in December 2022;
•$132.6 million of scheduled debt repayments which includes $123.5 million of repayments made by our lessor VIE;
•$131.0 million repayment of our Corporate RCF in May 2022;
•$131.0 million drawdown from our Corporate RCF in February 2022;
•$125.0 million collective drawdowns from the $700 million Gimi facility;
•$55.2 million dividend payment to the equity holders of Hilli LLC;
•$25.5 million paid to repurchase our own shares under our share repurchase program;
•$20.6 million borrowings made by our lessor VIE; and
•$9.6 million financing costs paid predominantly in relation to fees on the Gimi facility, our undrawn corporate bilateral facility which expired in June 2022 and our Corporate RCF facility which was canceled in November 2022.
39
Net cash used in discontinued financing activities of $158.3 million for the year ended December 31, 2022 relates to $158.0 million of scheduled debt repayments and $0.3 million financing cost paid predominately in relation to the Golar Tundra facility. There was no comparable payment for the year ended December 31, 2023.
Please refer to Golar LNG Limited’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022 filed on March 31, 2023, Item 5 Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Cash Flows, for the management discussion and analysis of the operating results for 2022 compared to 2021.
Borrowing Activities
As of December 31, 2023, we were in compliance with all our covenants under our various loan agreements. See note 21 “Debt” in our consolidated financial statements included herein for additional information.
Derivatives
We use financial instruments to reduce the risk associated with fluctuations in interest rates, commodity prices and foreign currency exchange rates. See note 27 “Financial Instruments” in our consolidated financial statements included herein for additional information.
Capital Commitments
Our capital commitments predominately relate to the FLNG Gimi, moored at the GTA field offshore Mauritania and Senegal, ready for connection and our Mark II, further described in note 18, “Asset Under Development” and note 29, “Commitments and Contingencies”, respectively of our consolidated financial statements included herein for additional information.
Contractual Obligations
The following table sets forth our contractual obligations for the periods indicated as at December 31, 2023:
| (in millions of $) | Total Obligation | Due in 2024 | Due in 2025 – 2026 | Due in 2027 – 2028 | Due Thereafter | ||||||||||||||||||||||||
| Financing | |||||||||||||||||||||||||||||
Gross Golar long-term and short-term debt (1) | 844.5 | 43.8 | 316.5 | 116.7 | 367.5 | ||||||||||||||||||||||||
| Capital lease obligations between Golar and the lessor VIE | 396.1 | 300.0 | 96.1 | — | — | ||||||||||||||||||||||||
Interest commitments on long-term debt and other interest rate swaps (2) | 184.4 | 17.9 | 78.3 | 56.0 | 32.2 | ||||||||||||||||||||||||
Capital expenditure commitments (4) | |||||||||||||||||||||||||||||
FLNG Gimi (3) | 292.2 | 278.1 | 14.1 | — | — | ||||||||||||||||||||||||
Mark II FLNG | 211.2 | 183.7 | 27.5 | — | — | ||||||||||||||||||||||||
| Total | 1,928.4 | 823.5 | 532.5 | 172.7 | 399.7 | ||||||||||||||||||||||||
(1)The obligations under long-term and short-term debt above are presented gross of deferred finance charges and exclude accrued interest. Refer to note 21 of our audited consolidated financial statements included herein for additional information.
(2)Our interest commitment on our long-term debt is calculated based on assumed SOFR rates of between 3.24% to 5.37% and takes into account our various margin rates and interest rate swaps associated with each financing arrangement.
(3)Pursuant to the LOA, we expect certain delays in advance of COD to result in contractual prepayments between the parties. Given the complexity and interdependencies of the activities required during the project mobilization and commissioning leading to COD, it is difficult for us to reasonably estimate eventual net payments/receipts. Refer to note 18 of our audited consolidated financial statements included herein for additional information.
40
(4)This excludes our outstanding committed funding to Macaw Energies amounting to $9.0 million for the design, manufacturing, and assembly of its F2X technology.
C. Research and Development, Patents and Licenses
Not applicable.
D. Trend Information
Other than as described elsewhere in this Annual Report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition.
See the sections of this Item 5 entitled “Factors Affecting Our Future Results of Operations and Financial Condition” and “A. Operating Results” included herein for additional information.
E. Critical Accounting Estimates
The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates, judgments and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in our consolidated financial statements. Our accounting policies are summarized in note 2 to our consolidated financial statements included herein. The following are estimates that we believe involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of our operations.
Impairment of long-lived assets
Description: We continually monitor events or changes in circumstances that could indicate that the carrying amounts of the long-lived assets may not be fully recoverable. When we identify an impairment indicator, we assess recoverability by comparing the carrying value of our long-lived assets to its projected undiscounted cash flows. If our projected undiscounted net cash flows are lower than the long-lived assets’ carrying value, we recognize an impairment loss measured for the difference.
As of December 31, 2023, the Golar Arctic's (see note 19 “Vessels and Equipment, net” of our consolidated financial statements included herein) carrying value was higher than its estimated market value (based on third party average ship broker valuations). As a result, we concluded that an impairment trigger existed and performed a recoverability assessment. However, no impairment loss was recognized as the projected undiscounted net cash flows was significantly higher than the carrying value.
Judgments and estimates: We make estimates, judgments and assumptions in our continuous identification of impairment indicators and our estimate of future undiscounted cash flows used in our recoverability assessment. Our estimates of market value assume that our long-lived assets are all in good, seaworthy condition without need for repair and, if inspected, would be certified in class without notations of any kind and able to meet the requirements of their current contracts. These market values received from third-party ship brokers are based on the inherent value of the current contract, which is commonly used and accepted by our lenders for determining compliance with the relevant covenants in our credit facilities. These values can be highly volatile, such that our estimates may not be indicative of the current or future market value of our long-lived assets 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 long-lived assets.
For FLNG Hilli, significant judgment was applied in assessing whether the ship brokers’ valuation methodologies and assumptions were appropriate given the uncertainty with respect to the utilization of FLNG Hilli after expiry of its current contract in mid-July 2026, as a new contract has not yet been agreed.
41
Effect if actual results differ from assumptions: Although we believe the underlying assumptions supporting our impairment assessment are supporting this assessment are reasonable and appropriate at the time they were made, if the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement 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. While we intend to hold and operate our long-lived assets, our estimates of its market values may not be indicative of the current or future market value or prices that we could achieve, if we were to sell them and a material loss might be recognized upon the sale of our long-lived assets.
Impairment of asset under development
Description: We continually monitor events or changes in circumstances that could indicate that the carrying value of FLNG Gimi, our asset under development, may not be fully recoverable. We calculate forecasted returns on the undiscounted cash flows for the project from initial construction and through commercial operations with the customer. This uses estimated forecasted returns which are highly subjective and dependent on future events. If there is a significant change in the expected return, this could constitute an impairment indicator. When we identify an impairment indicator, we perform a recoverability assessment by comparing the carrying value of FLNG Gimi to projected undiscounted cash flows. If the projected cash flow is less than the FLNG Gimi’s carrying value, we recognize an impairment loss.
Judgments and estimates: Significant judgment was applied in determining the estimated forecasted returns which includes the duration of the commissioning profile, pre-commissioning contractual cash flows, estimated commercial operation date, future production, capital and operational costs.
Effect if actual results differ from assumptions: Although we believe the underlying assumptions supporting our impairment assessment are appropriate at the time they were made, if the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement 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.
Recently Issued Accounting Standards
See Item 18. Financial Statements: note 3 “Recently Issued Accounting Standards”.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Directors
The following provides information about each of our directors as of the date of this annual report.
| Name | Age | Position | ||||||||||||
| Tor Olav Trøim | 61 | Chairman of our Board and Director | ||||||||||||
| Daniel Rabun | 69 | Director, Audit Committee member, Compensation Committee member and Nomination Committee member | ||||||||||||
| Thorleif Egeli | 60 | Director and Audit Committee member | ||||||||||||
| Carl Steen | 73 | Director, Compensation Committee Chairperson and Nomination Committee member | ||||||||||||
| Niels Stolt-Nielsen | 59 | Director and Compensation Committee member | ||||||||||||
| Lori Wheeler Naess | 53 | Director and Audit Committee Chairperson | ||||||||||||
| Georgina Sousa | 73 | Director | ||||||||||||
42
Tor Olav Trøim has served as a director since September 2011 and was appointed as the Chairman of the Board in September 2017. Mr. Trøim is founder and sole shareholder of Magni Partners (Bermuda) Limited (“Magni Partners”). He is the senior partner (and an employee) of Magni Partners’ subsidiary, Magni Partners Limited, in the UK. Mr. Trøim is a beneficiary of the Drew Trust, and the sole shareholder of Drew Holdings Limited. Mr. Trøim has over 30 years of experience in energy related industries in various positions. Before founding Magni Partners in 2014, Mr. Trøim was a Director of Sea Tankers Management Co. Ltd. from 1995 until September 2014. During this period, he was also Chief Executive Officer ("CEO") at Seadrill Limited, Frontline Ltd., Ship Finance International Limited and Golar LNG Partners LP. He was CEO of DNO AS from 1992 to 1995 and an Equity Portfolio Manager with Storebrand ASA from 1987 to 1990. Mr. Trøim graduated with a Master of Science (“MSc”) degree in naval architecture from the University of Trondheim, Norway in 1985. Mr. Trøim is a Norwegian citizen and a resident of the UK. Other directorships and management positions include Magni Partners (Founding Partner), Borr Drilling Limited (Chairman), Stolt-Nielsen Limited (Director) and Magni Sports AS (Director).
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, Compensation Committee and Nomination Committee. He joined Ensco plc in March 2006 as President and as a member of its Board of Directors. Mr. Rabun was appointed to serve as Ensco plc’s CEO from January 2007 and was elected Chairman of the Board of Directors in May 2007. Mr. Rabun retired from Ensco plc as President and CEO in May 2014 and as Chairman in May 2015. Prior to joining Ensco plc, 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 currently serves as a member of the Audit Committee and the Corporate Responsibility, Governance and Nominations Committee of APA Corporation (formerly Apache Corp.) and also serves as a director and a member of the Compensation Committee of Borr Drilling Limited since April 2023. In May 2018, Mr. Rabun became Chairman of the Board, a member of the Management Development and Compensation Committee and Chairman of the Governance and Nominations Committee of ChampionX Corporation. He has been a U.S. 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 Doctor Degree from Southern Methodist University.
Thorleif Egeli was appointed as a director and as member of the Audit Committee in September 2018 and February 2023, respectively. Until May 2018, Mr. Egeli was Vice President of Schlumberger Production Management – North America managing the non-operating Exploration & Production 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 with Schlumberger in 1990 as a field engineer. 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 ("COO"); before re-joining Schlumberger in 2013. Appointed in June 2018, Mr. Egeli also serves on the Board of Directors of Stimline, an international well intervention and completion company headquartered in Kristiansand, Norway. Mr. Egeli holds MSc in Mechanical Engineering and an MBA from Rotterdam School of Management, Holland.
Carl Steen was appointed as a director in January 2015. Mr. Steen was also appointed as the Compensation Committee Chairperson and currently serves on our Nomination Committee. Mr. Steen stepped down from our Audit Committee in February 2023. From August 2012 until the completion of GMLP merger with NFE, Mr. Steen served as a director of GMLP. Mr. Steen graduated in 1975 from ETH Zurich Switzerland with MSc 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 Himalaya Shipping Ltd, Wilhelmsen Holding ASA and Belships ASA.
Niels G. Stolt-Nielsen joined the board in September 2015. He is also a Chairman and director of Stolt-Nielsen, which includes world-leading business in global bulk-liquid and chemical logistics, an innovative business in land-based aquaculture and a number of LNG joint ventures and investments. Mr. Stolt-Nielsen is the Chairman of Avenir LNG. He brings with him extensive shipping, logistical and strategic leadership experience.
Lori Wheeler Naess was appointed as a director and Audit Committee Chairperson in February 2016. Ms. Naess also serves on the Board, Corporate Governance Committee, Nominating Committee and Audit Committee of Opera Limited, a U.S.-listed company. Ms. Naess was a director at 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 (inactive).
43
Georgina Sousa was appointed as a director in September 2019. She also served as company secretary from May 2019 until March 2022. She currently serves as a director of Himalaya Shipping Ltd. Ms. Sousa was employed by Golar Management (Bermuda) Limited (GMBL) as Managing Director from January 2019 until her retirement in March 2022. She previously served as a director and company secretary of Borr Drilling Limited and 2020 Bulkers Ltd from February 2019 to February 2022. Prior to joining GMBL, Ms. Sousa was employed by Frontline Ltd. as Head of Corporate Administration from February 2007 until December 2018. She previously served as a director of Frontline Ltd., North Atlantic Drilling Ltd., Sevan Drilling, Northern Drilling Ltd., Flex LNG LTD and Seadrill. Ms. Sousa served as secretary for all the above-mentioned companies at various times during the period between 2005 and 2018. Until January 2007, Ms. Sousa was Vice-President Corporate Services of Consolidated Services Limited, a Bermuda Management Company, having joined the firm in 1993 as Manager of Corporate Administration. From 1976 to 1982 Ms. Sousa was employed by the Bermuda law firm of Appleby, Spurling & Kempe as secretary and from 1982 to 1993, she was employed by the Bermuda law firm of Cox & Wilkinson as senior company secretary. Ms. Sousa is a UK citizen and resides in Bermuda.
Board diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
| Board Diversity Matrix | ||||||||||||||
| Country of Principal Executive Office: | Bermuda | |||||||||||||
| Foreign Private Issuer | Yes | |||||||||||||
| Disclosure Prohibited under Home Country Law | No | |||||||||||||
| Total Number of Directors | 7 | |||||||||||||
| Female | Male | Non-Binary | Did Not Disclose Gender | |||||||||||
| Part I: Gender Identity | ||||||||||||||
| Directors | 2 | 5 | — | — | ||||||||||
| Part II: Demographic Background | ||||||||||||||
| Underrepresented Individual in Home Country Jurisdiction | — | |||||||||||||
LGBTQ+ | — | |||||||||||||
Did Not Disclose Demographic Background | — | |||||||||||||
Executive Officers
The following provides information about each of our executive officers as of the date of this annual report:
| Name | Age | Position | ||||||||||||
| Karl Fredrik Staubo | 37 | Chief Executive Officer – Golar Management AS | ||||||||||||
| Eduardo Maranhão | 40 | Chief Financial Officer – Golar Management Ltd | ||||||||||||
| Ragnar Nes | 56 | Chief Operating Officer – Golar Management AS | ||||||||||||
| Erik Svendsen | 52 | Chief Technical Officer – Golar Management AS | ||||||||||||
Karl Fredrik Staubo was appointed as our CEO in May 2021. Prior to this role he acted as our Chief Financial Officer ("CFO") from September 2020 and as CEO of Golar Partners from May 2020 until the closing of the GMLP Merger. Mr. Staubo has over 14 years of experience advising and investing in shipping, energy and infrastructure companies. Mr. Staubo worked in the Corporate Finance division of Clarkson’s Platou Securities, including as Head of Shipping, from June 2010 until September 2018. Subsequent to his time at Clarkson’s, Mr. Staubo has worked as a partner at Magni Partners Ltd since October 2018. During his time with Magni Partners Ltd, Mr. Staubo worked as an advisor to the Golar group. He has an MA in