ITEM 4.  INFORMATION ON THE COMPANY

A.  History and Development of the Company

Golar LNG Limited is a midstream LNG company engaged primarily in the transportation, regasification and liquefaction and trading of LNG.  We are engaged in the acquisition, ownership, operation and chartering of LNG carriers and FSRUs through our subsidiaries and affiliates and the development of LNG projects.  

We were incorporated as an exempted company under the Bermuda Companies Act of 1981 in the Islands of Bermuda on May 10, 2001 and maintain our principal executive headquarters at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda.  Our telephone number at that address is 1 (441) 295-4705.  Our principal administrative offices are located at One America Square, 17 Crosswall, London, United Kingdom and our telephone number at that address is +0 44 207 063 7900.

Our business was originally founded in 1946 as Gotaas-Larsen Shipping Corporation, or Gotaas-Larsen. Gotaas-Larsen entered the LNG shipping business in 1970 and in 1997 was acquired by Osprey Maritime Limited, or Osprey, then a Singapore listed publicly traded company.  In May 2001, World Shipholding, a company indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family, acquired Osprey, which was subsequently delisted from the Singapore Stock Exchange.  On May 21, 2001, we acquired the LNG shipping interests of Osprey and we listed on the Oslo Stock Exchange in July 2001 and traded under the symbol "GOL". We subsequently delisted from the Oslo Stock Exchange on August 30, 2012. We continue to be listed on the Nasdaq Global Select Market or Nasdaq since December 2002 and trade under the symbol "GLNG".  As of December 31, 2013, World Shipholding owned 45.61% of our issued and outstanding common shares.

Our strategy to become a LNG floating solution provider began in 2002 when we undertook a study to consider the conversion of an existing LNG carrier into FSRU and continued in 2004 with a similar study for the conversion into a floating power generation plant, or FPGP. In December 2005, Keppel Shipyard Limited of Singapore signed a contract with us for the first ever conversion of an existing LNG carrier into a FSRU. In April 2007, we were awarded long-term charters by Petrobras to employ Golar Winter and Golar Spirit as FSRUs, our first firm FSRU charters.

Golar Partners

In September 2007, we formed Golar Partners under the laws of the Republic of the Marshall Islands as a wholly-owned subsidiary. Golar Partners was formed to own vessels with long-term charters typically five years or longer through wholly- owned subsidiaries in order to distribute the different risk profiles of the different vessel types of total fleet controlled or affiliated with Golar. Golar Operating LLC, or the General Partner, our wholly-owned subsidiary was also formed in September 2007 to act as the general partner of Golar Partners under the limited partnership agreement and received a 2% general partner interest and 100% of the incentive distributions rights or IDRs in Golar Partners.

Our interests in the vessel-owning subsidiaries which owned the LNG carrier, the Golar Mazo , and which leased the LNG carrier, the Methane Princess , and the FSRU, the Golar Spirit were transferred to Golar Partners in November 2008. In April 2011, our interests in the subsidiaries which leased the FSRU, the Golar Winter were also transferred to Golar Partners. These four vessels represented the initial fleet of Golar Partners.

In April 2011, we completed the initial public offering (the "IPO") of Golar Partners. In the IPO, we sold 13.8 million common units (including 1.8 million common units issued after the exercise of an over-allotment option) of Golar Partners, at a price of $22.50 per unit, receiving net proceeds of $287.8 million. As a result of the IPO, our ownership in Golar Partners was reduced to 65.4% (including our 2% general partner interest). Golar Partners is listed on the Nasdaq Global Market or Nasdaq under the symbol "GMLP".

We entered into the following agreements with Golar Partners in connection with its IPO: (a) a management and administrative services agreement pursuant to which Golar Management, one of our wholly-owned subsidiaries, provides certain management administrative support services; (b) fleet management agreements pursuant to which certain commercial management and technical management services are provided by our affiliates including Golar Management and Golar Wilhelmsen; and (c) an omnibus agreement with Golar governing, among other things when the Company and Golar Partners may compete against each other as well as rights of first offer on certain FSRUs and LNG carriers.

Under the provisions of Golar Partners' partnership agreement, the general partner irrevocably delegated the authority to Golar Partners' board of directors to have the power to oversee and direct the operations of, manage and determine the strategies and policies of the Partnership. During the period from the IPO of Golar Partners in April 2011 until the time of its first annual general meeting on December 13, 2012, we retained the sole power to appoint, remove and replace all members of Golar Partners' board of directors. As of the first annual general meeting of Golar Partners, the majority of the board members became electable by common unitholders and accordingly, from this date we no longer retain the power to control the board directors of Golar Partners. As a result, from December 13, 2012, Golar Partners has been considered as an affiliate entity and not as our controlled subsidiary.

Since the IPO of Golar Partners, they have conducted four follow-on offerings, such that as of April 25, 2014 our ownership interest has fallen to 41.4%.

Since the IPO of Golar Partners, we have sold equity interests in the following five vessels to Golar Partners, the Golar Freeze , the NR Satu , the Golar Grand, the Golar Maria , and more recently, the Golar Igloo (in March 2014) for an aggregate value of $1.5 billion. Accordingly, as of April 25, 2014, Golar Partners had a fleet of nine vessels acquired from or contributed by us.

The majority of the proceeds received from the sales of these vessels to Golar Partners have been used to make installment payments under our newbuilding program. Furthermore, the sale of these assets has made Golar Partners a more profitable company which has resulted in increased dividend payments to unitholders of Golar Partners. As a major shareholder of Golar Partners and the beneficial owner of Golar Partners' IDRs, we have benefited from the increased dividend payments.

As of April 25, 2014, together with the fleet held by Golar Partners, we own and operate seventeen vessels comprising of five FSRUs and twelve LNG carriers, including a 60% interest in the vessel-owning subsidiary that owns the Golar Mazo which is owned through a joint venture arrangement between Golar Partners and the Chinese Petroleum Corporation, the Taiwanese state-owned oil and gas company.

Golar Energy

In August 2009, our wholly-owned subsidiary, Golar Energy, completed a private placement offering for 59.8 million new ordinary shares at a price of $2 per share, for net proceeds of $115.4 million. As a result of the offering our ownership in Golar Energy was reduced to 68%.

In mid 2011, in a series of transactions we re-acquired 92.3 million shares in Golar Energy, thus increasing our ownership to 100%. Of the shares acquired, 70.3 million were exchanged for newly issued shares in Golar (amounting to 11.6 million Golar shares) and the balance acquired at a price of $5 per share amounting to $110 million. On July 4, 2011, Golar Energy was delisted from the Norwegian stock exchange, Oslo Axess.

Vessel acquisitions, disposals, conversions and other significant transactions

 

During the three years ended December 31, 2013, we invested $1.4 billion in our vessels, equipment and newbuildings.

During 2008 and 2009, we entered into time charter agreements which required the conversion or modification of two LNG carriers, the Golar Winter and the Golar Freeze into FSRUs.  We entered into 10-year time charter agreements with Petrobras for Golar Winter and with DUSUP for the Golar Freeze that commenced upon delivery of each of these vessels.  Employment commenced in September 2009 for the Golar Winter and May 2010 for the Golar Freeze . Of which Golar Winter formed part of Golar Partners' initial fleet.

In April 2011, we entered into a time charter agreement with PT Nusantara Regas ("PTNR") for the West Java FSRU project which required the retrofit of the NR Satu into an FSRU and the provision of associated mooring infrastructure.  The vessel completed its FSRU retrofitting in April 2012. The project represents our fourth FSRU project and is on charter for a period of approximately 11 years with automatic conditional extension options up to 2025. In July 2012, we sold our interests in the companies that own and operate the NR Satu to Golar Partners for $385 million.

In July 2012, we entered into a 10 year time charter agreement with Gas Atacama Spa ("Gas Atacama"). Although the Chilean project remains subject to indeterminate delays, Golar LNG continues to engage in discussions with Gas Atacama and remains the exclusive FSRU provider. As the start-up of this project is now likely delayed beyond 2015, an additional newbuild FSRU will be considered and pricing under the contract shall be reviewed at the point in time in which the project is ready to go firm. Significant uncertainties are however linked to completion and possible start-up of this project  

In October 2012, the Company announced that it had reached an agreement for the development of our first floating liquefied natural gas vessel with Keppel Shipyard Limited. The agreement contemplates the initial conversion of one existing LNG carrier in Golar's current fleet and includes option for further two vessel conversions.

In November 2012, we sold our interests in the wholly-owned subsidiaries that lease and operate the Golar Grand to Golar Partners for $265 million.

In November 2012, we entered into a five-year time charter agreement with LNG Shipping S.p.A. for our LNG carrier, the Golar Maria . In February 2013, we sold our equity interest on the company that owns and operates the Golar Maria to Golar Partners for $215 million.     

In July 2013, we executed an agreement for a ten year time charter for the FSRU Golar Eskimo which is currently under construction with Samsung Heavy Industries. The charter, with the Government of the Hashemite Kingdom of Jordan, is expected to commence in the first quarter of 2015.

    

As of April 25, 2014, we have taken delivery of three of the thirteen contracted newbuildings, the Golar Seal , the Golar Celsius and the Golar Igloo . Accordingly, ten vessels (including two FSRUs) remain to be delivered and $1.4 billion of the newbuilding installments remain outstanding. All but one are scheduled to be delivered in 2014, with the final delivery timed for 2015 subject to outcome of negotiations with Samsung to delay deliveries of certain vessels.

Investments

During the three years ended December 31, 2013 and through April 25, 2014, we acquired and divested interests in a number of companies including:

In August 2012, we purchased 17,255 shares in GasLog for $0.2 million, a company established in Marshall Islands and listed in the New York Stock Exchange. The company is an owner, operator and manager of LNG carriers. In November 2013, we sold our interest in Gaslog.

In July 2008, we invested an initial sum of $22.0 million in a (50:50) Dutch Antilles incorporated joint venture named Bluewater Gandria N.V., ("Bluewater Gandria"), with Bluewater Energy Services B.V., or ("Bluewater"), formed for the purposes of pursuing opportunities to develop offshore LNG FSRU projects.  The initial equity investment was used to acquire the 1977 built LNG carrier, the Gandria for conversion and use as a FSRU.  In January 2012, Bluewater Gandria became a wholly-owned subsidiary of the Company pursuant to our acquisition of the remaining 50% equity interest for $19.5 million.

In December 2005, we entered into an agreement with The Egyptian Natural Gas Holding Company, ("EGAS"), and HK Petroleum Services to establish a jointly owned company ECGS, to develop hydrocarbon businesses in Egypt and in particular LNG related businesses.  In March 2006, the Company acquired 500,000 common shares in ECGS at a subscription price of $1 per share.  This represented a 50% interest in the voting rights of ECGS. ECGS is an incorporated unlisted company, which has been set up to develop hydrocarbon business and in particular LNG related business in Egypt. ECGS is jointly owned and operated together with other third parties.  Accordingly, the Company has adopted the equity method of accounting for its 50% investment in ECGS, as it considers it to have joint significant influence.  During December 2011, ECGS called up its remaining share capital amounting to $7.5 million. Of this, we paid $3.75 million in December 2011 to maintain our 50% equity interest.

 

LNG trading – business segment

During 2010, Golar established a wholly owned subsidiary, Golar Commodities which positioned the company in the market for managing and trading LNG cargoes. Activities include structured services to outside customers, the buying and selling of physical cargoes as well as proprietary trading. During the third quarter of 2011 Golar determined that, due to unfavorable market conditions, Golar Commodities would wind down its trading activities until such time as opportunities in this sector improved. Golar Commodities did not enter into any trades during the years ended December 31, 2013 and 2012.

During the first quarter of 2014, we entered into a Purchase and Sales Agreement to buy and sell LNG cargo. The LNG cargo was acquired and subsequently sold on a delivered basis to Kuwait Petroleum Corporation to facilitate the commissioning of the Golar Igloo which entered in her long term charter with KNPC in March 2014.  The transaction was the first for the Company since 2011 when we scaled back our LNG trading actives but it’s now our intention to position ourself for managing and trading a number of LNG cargoes for the Golar Igloo during the course of her charter with KNPC.

B.      Business Overview

Together with our affiliate, Golar Partners, we are a leading independent owner and operator of LNG carriers and FSRUs.  Collectively, our fleet is comprised of twelve LNG carriers and five FSRUs.  As of April 25, 2014, we have remaining newbuilding commitments for the construction of eight LNG carriers and two FSRUs with scheduled deliveries during 2014 and early 2015. Our vessels provide and have provided LNG shipping, storage and regasification services to leading players in the LNG industry including BG Group, ENI, Petrobras, Dubai Supply Authority, Pertamina and many others. Our business is focused on providing highly reliable, safe and cost efficient LNG shipping and FSRU operations.  We seek to further develop our business in other midstream areas of the LNG supply chain with particular emphasis placed on innovative floating liquefaction solutions (FLNG) and participating as a gas off-taker from mid-scale liquefaction projects.

We intend to build on our relationships with existing customers and continue to develop relationships with other industry players. Our target is to earn higher margins through maintaining strong service-based relationships combined with flexible and innovative LNG shipping and FSRU solutions. We believe our customers will have the confidence to place their confidence in our shipping services based on the reliable and safe way we conduct our ship and FSRU operations.

In line with our desire to take control of a greater share of the value chain, we are looking to invest in a small scale LNG project in Canada amongst others and have completed a Front End Engineering and Design (FEED) study for the conversion of three of our oldest carriers into small-mid scale floating liquefaction units. Notwithstanding this, we remain firmly committed to growing our core business by way of the newbuild assets referred to above.

As well as growing our core business and pursuing new opportunities along our value chain, we also offer commercial and technical management services for Golar Partner's fleet. As of April 25, 2014, Golar Partner's fleet included five FSRUs and four LNG carriers (which are included within the combined fleet of seventeen vessels above). Pursuant to a Partnership Agreement, Golar Partners will reimburse Golar for all of the operating costs in connection with the management of their fleet. In addition, Golar also receives a management fee equal to 5% of our costs and expenses incurred in connection with the provision of these services. These management fees have been eliminated through the consolidation of Golar Partners until December 13, 2012 when Golar Partners was deconsolidated.

Lastly, we intend to maintain our relationship with Golar Partners and pursue mutually beneficial opportunities that we believe will include the sale of assets to Golar Partners to provide support for our LNG projects as well as to further our growth.

Our Business Strategy

Our primary business objective is to grow our business and to provide significant returns to our shareholders while providing safe, reliable and efficient LNG shipping, FSRU and other floating midstream services to our customers. We aim to meet this objective by executing the following strategies:

 

We can provide no assurance, however, that we will be able to implement our business strategies described above. For further discussion of the risks that we face, please read "Item 3 - Key Information - Risk Factors".

The Natural Gas Industry

Predominantly used to generate electricity and as a heating source, natural gas is one of the "big three" fossil fuels that make up the vast majority of world energy consumption. As a cleaner burning fuel than both oil and coal, natural gas has become an increasingly attractive fuel source in the last decade. As more emphasis is placed on reducing carbon emissions, Organization for Economic Cooperation and Development ("OECD") nations have come to view natural gas as a way of reducing their environmental footprint, particularly for electricity where natural gas-fired facilities have been gradually replacing oil, coal and older natural gas-fired plants. More recently, China has indicated a strong desire to address air quality issues that have arisen following a rapid expansion in the use of coal fired power plants. Gas fired electricity generation is expected to feature prominently in their efforts to address environmental issues as ageing coal fired plants are gradually replaced and to meet additional incremental electricity generation requirements.

According to the EIA International Energy Outlook for 2013, worldwide energy consumption is projected to increase by 56% from 2010 to 2040, with total energy demand in non-OECD countries increasing by 90%, compared with an increase of 17% in OECD countries. Natural gas consumption worldwide is forecast to increase by 63%, from 113 trillion cubic feet (or Tcf) in 2010 to 185 Tcf in 2040. Reduced emphasis placed on nuclear power which previously played a more prominent role in Japan and South Korea’s planned energy mix or its subsequent phasing out in other countries such as Germany together with a concerted effort by China to address domestic coal induced air quality issues over the coming years will see natural gas feature more prominently as the substitution fuel of choice. The lower carbon intensity of natural gas relative to coal and oil also make it the favored fuel for industrial and electric power sectors in an increasing number of other countries where governments are introducing policies to reduce greenhouse gasses.

The primary factors contributing to the growth of natural gas demand include:

These factors, in addition to overall global economic growth, are expected to contribute to an increase in the consumption of natural gas. There is a growing disparity between the amount of natural gas produced and the amount of natural gas consumed in many major consuming countries, which will likely cause those countries to rely on imports for a greater portion of their natural gas consumption. Importers must either import natural gas through a pipeline or, alternatively, in the form of LNG aboard ships. LNG is natural gas that has been converted into its liquid state through a cooling process, which allows for efficient transportation by sea. Upon arrival at its destination, LNG is returned to its gaseous state by either an FSRU or land based regasification facilities for distribution to consumers through pipelines.

Natural gas is an abundant fuel source, with the EIA estimating that, as of January 1, 2013, worldwide proved natural gas reserves were 6,793 Tcf having grown by 39% over the past 20 years.  Almost three-quarters of the world's natural gas reserves are located in the Middle East and Eurasia.  Russia, Iran and Qatar accounted for 55% of the world's natural gas reserves as of January 1, 2013, and the United States, the fifth largest holder of natural gas reserves, will see an increase in production growth from 21.2 tcf in 2010 to 33.1 tcf in 2040.  Production in the Australia/New Zealand region is forecast to increase from 1.9tcf in 2010 to 6.7tcf in 2040 with most originating from Australia and much of this coming to market over the next 5-6 years.  More recently, sizeable new discoveries are being made on the east coast of Africa in countries including Mozambique, Tanzania and Kenya.

The EIA predicts a substantial increase in the production of "unconventional" natural gas, including tight gas, shale gas and coalbed methane. Shale gas production is now underway outside the US (Canada) and is slated to commence elsewhere including China, Australia, Mexico, Britain and other parts of OECD Europe. Although reserves of unconventional natural gas are unknown, a 2013 EIA report on relatively near term technically recoverable shale gas indicates 7,299tcf of estimated risked recoverable resource. This estimate is 10% higher than that included in their 2011 report. Interestingly, the resource estimate for China is 13% lower than the 2011 expectation as a result of a downward revision to reserves in one particular basin. Much of the resource in this basin is deeper than what is currently considered to be commercially recoverable. Future advances in drilling technology have the potential to reverse this.

Although the growth in production of unconventional domestic natural gas has resulted in a reduced rate of growth in LNG demand in the U.S., the long-term impact of shale gas and other unconventional natural gas production on the global LNG trade is unclear. Substantial increases in the extraction of US shale gas in 2008-9 initially suppressed demand for US bound LNG and therefore shipping. Since 2010 there have been a number of cargoes redirected to the Far East which has increased LNG ton miles and demand for LNG shipping. The more recent grant of non-FTA export permits in respect of six US projects representing around 70 million tons of LNG per year raises the prospect of significant additional volumes being exported out of the US, the vast majority of would be transported on an LNG carrier.

The reduced rate of growth in LNG demand in the U.S. has been offset by increased demand for LNG in other nations, especially non-OECD countries. China, India and Latin America all represent significant areas of increasing demand and future growth prospects. China has significant shale gas reserves of its own however the economics of extracting this remain unclear. Many of the known reserves are at great depth which has the potential to constrain the economics of extraction, at least in the near term. Demand from two important and established OECD LNG importers, Japan and South Korea also has the potential to increase further over time following decisions in these respective countries to reduce the future role of nuclear in their energy mix. Additionally, due to recent developments in Ukraine, Europe is once again under pressure to reduce its dependence on piped gas from Russia. This has the potential to be a positive development for LNG demand.

Liquefied Natural Gas

Overview

The need to transport natural gas over long distances across oceans led to the development of the international LNG trade. The first shipments were made on a trial basis in 1959 between the United States and the United Kingdom, while 1964 saw the start of the first commercial-scale LNG project to ship LNG from Algeria to the United Kingdom. LNG shipping provides a cost-effective and safe means for transporting natural gas overseas. The LNG is transported overseas in specially built tanks on double-hulled ships to a receiving terminal, where it is offloaded and stored in heavily insulated tanks. In regasification facilities at the receiving terminal, the LNG is returned to its gaseous state (or regasified) and then carried by pipeline for distribution to natural gas customers.

The following diagram displays the flow of natural gas and LNG from production to regasification.

LNG Supply Chain

The LNG supply chain involves the following components:

Gas Field Production and Pipeline: Natural gas is produced and transported via pipeline to natural gas liquefaction facilities located along the coast of the producing country. The advent of floating liquefaction will in some cases see the gas transported to a marine based liquefaction facility.

Liquefaction Plant and Storage: Natural gas is cooled to a temperature of minus 260 degrees Fahrenheit, transforming the gas into a liquid, which reduces its volume to approximately 1/600th of its volume in a gaseous state. The reduced volume facilitates economical storage and transportation by ship over long distances, enabling countries with limited natural gas reserves or limited access to long-distance transmission pipelines to meet their demand for natural gas.

Shipping: LNG is loaded onto specially designed, double-hulled LNG carriers and transported overseas from the liquefaction facility to the receiving terminal.

Regasification: At the regasification facility (either onshore or aboard specialized LNG carriers), the LNG is returned to its gaseous state, or regasified.

Storage, Distribution and Marketing: Once regasified, the natural gas is stored in specially designed facilities or transported to natural gas consumers and end-use markets via pipelines.

The basic costs of producing, liquefying, transporting and regasifying LNG are much higher than in an equivalent oil supply chain. This high unit cost of supply has, in the recent past, led to the pursuit of ever-larger land based facilities in order to achieve improved economies of scale. In some cases, even these large projects have cost substantially more than anticipated and this has resulted in increasingly detailed research into the viability of both large and small scale floating liquefaction. Results of these studies carried out by both oil and gas majors as well as independents including Golar support both the technical and economic feasibility of a floating liquefaction solution across a spectrum of project sizes. Previously uneconomic pockets of gas can now be monetized and this will add to reserves and further underpin the long term attractiveness of gas.

According to Poten and Partners ("Poten"), LNG Liquefaction delivered to market was 103 million tonnes per annum in 2000.  This increased to 240 million tonnes by 2011.  An unusually large number of unscheduled plant disruptions along with feedgas limitations prevented many export facilities from producing at, or in some cases, even near their nameplate capacity in 2012. This resulted in the 2012 global LNG trade dropping for the first time since 1980.  Data from Poten indicates a further reduction in LNG liquefaction to 235 million tonnes in 2013.   Although there were small reductions to production across a number of countries, most of the 2013 decline was due to Egypt’s lack of feedgas and a gas-starved domestic market, Nigeria LNG’s gas supply force majeure and Atlantic LNG’s scheduled maintenance.  Poten indicate that liquefaction capacity is however expected to resume its growth trajectory over the coming years with approximately 117 million tonnes of capacity currently under construction and approximately 72 million tonnes scheduled to deliver between now and 2017.  By 2020, Poten forecast long-term global LNG supply reaching approximately 360 million tonnes, an approximately 53% increase over 2013.

The LNG Fleet

As of the end of March 2014, the world LNG carrier fleet consisted of 397 LNG carriers (including 16 FSRUs and 17 vessels less than 18,000m3). By the end of March 2014, there were orders for 128 new LNG carriers (including 11 FSRUs and 4 floating production, storage and offloading ("FPSO")), the majority of which will be delivered between now and 2016.

The order book has now defined the next generation of tradeable tonnage in regards to size and propulsion. The current ”standard” size for LNG carriers is approximately 165,000 cbm, up from 125,000 cbm during the 1970s, while propulsion preference has shifted from a steam turbine to the more efficient Dual/Trifuel Disesel Electric (D/TFDE).

While there are a number of different types of LNG vessels and "containment systems," there are two dominant containment systems in use today:

Illustrations of these systems are included below:

Of the vessels currently trading and on order, approximately 74% employ the Membrane containment system, 24% employ the Moss system and the remaining 2% employ other systems. Most newbuilds (89%) on order employ the membrane containment system, because it most efficiently utilizes the entire volume of a ship's hull. In general, the construction period for an LNG carrier is approximately 28-34 months.

Seasonality

Historically, LNG trade, and therefore charter rates, increased in the winter months and eased in the summer months as demand for LNG in the Northern Hemisphere rose in colder weather and fell in warmer weather. In general, the tanker industry including the LNG vessel industry, has become less dependent on the seasonal transport of LNG than a decade ago. The advent of FSRUs has opened up new markets and uses for LNG, spreading consumption more evenly over the year. There is a higher seasonal demand during the summer months due to energy requirements for air conditioning in some markets or reduced availability of hydro power in others and a pronounced higher seasonal demand during the winter months for heating in other markets.

Floating LNG Regasification

Floating LNG Storage and Regasification Vessels

Floating LNG regasification vessels are commonly known as FSRUs. The figure below depicts a FSRU.

    

The FSRU regasification process involves the vaporization of LNG and injection of the natural gas directly into a pipeline. In order to regasify LNG, FSRUs are equipped with vaporizer systems that can operate in the open-loop mode, the closed-loop mode or in both modes. In the open-loop mode, seawater is pumped through the system to provide the heat necessary to convert the LNG to the vapor phase. In the closed-loop system, a natural gas-fired boiler is used to heat water circulated in a closed-loop through the vaporizer and a steam heater to convert the LNG to the vapor phase. In general, FSRUs can be divided into four subcategories:

        

Our business model to date has been focused on FSRUs that are permanently offshore or near shore and provide continuous regasification service.

Demand for Floating LNG Regasification Facilities

The long-term outlook for global natural gas supply and demand has stimulated growth in LNG production and trade, which is expected to drive a necessary expansion of regasification infrastructure. While worldwide regasification exceeds worldwide liquefaction capacity, a large portion of the existing global regasification capacity is concentrated in a few markets such as Japan, Korea and the U.S. Gulf Coast. There remains a significant demand for regasification infrastructure in growing economies in Asia, Middle-East and Central/South America. We believe that the advantages of FSRUs compared to onshore facilities make them highly competitive in these markets. In the Middle East, Caribbean and South America almost all new regasification projects use an FSRU. FSRUs are also beginning to penetrate Asian markets led by Golar's NR Satu in Jakarta, Indonesia and a variety of projects in India and South East Asia.

Floating LNG regasification projects first emerged as a solution to the difficulties and protracted process of obtaining permits to build shore-based LNG reception facilities (especially along the North American coasts). Due to their offshore location, floating facilities are less likely than onshore facilities to be met with resistance in local communities, which is especially important in the case of a facility that is intended to serve a highly populated area where there is a high demand for natural gas. As a result, it is typically easier and faster for FSRUs to obtain necessary permits than for comparable onshore facilities. More recently, cost

and time have become the main drivers behind the growing interest in the various types of floating LNG regasification projects. FSRUs projects can typically be completed in less time (2 to 3 years compared to 4 or more years for land based projects) and at a significantly lower cost (20-50% less) than land based alternatives.

In addition, FSRUs offer a more flexible solution than land based terminals. They can be used as an LNG carrier, a regasification shuttle vessel or permanently moored as an FSRU. FSRUs can be used on a seasonal basis, as a short-term (1-2 years) regasification solution or as a long-term solution for up to 20 years. FSRUs offer a fast track regasification solution for markets that need immediate access to LNG supply. FSRUs can be utilized as bridging solutions until a land-based terminal is constructed. In this way. FSRUs are both a replacement for and complement to land-based regasification alternatives.

Floating LNG Regasification Vessel Fleet Size and Ownership

Compared to onshore terminals, the floating LNG regasification industry is fairly young. There are only a limited number of  companies, including Golar as well as Exmar, Excelerate Energy, and Hoegh LNG that are operating  FSRU terminals for LNG importers around the world. Golar was the first company to enter into an agreement for the long-term employment of an FSRU based on the conversion of an existing LNG carrier.

Competition – LNG Carriers and FSRUs

As the FSRU market continues to grow and mature new competitors are entering the market. In addition to Hoegh LNG, Excelerate and Golar, BW Gas and MOL have recently ordered FSRUs. The rapid growth of the FSRU market is giving owners the confidence to place orders for speculative regasification tonnage. The expansion and growth of the FSRU market has led to more competition for mid- and long-term LNG charters. Competition for these long-term charters is based primarily on price, vessel availability, size, age and condition of the vessel, relationships with LNG carrier users and the quality, LNG experience and reputation of the operator.  In addition, vessels may operate in the emerging LNG carrier spot market that covers short-term charters of one year or less.

We believe that, together with Golar Partners, we are one of the world's largest independent LNG carrier and FSRU owners and operators. Together with Golar Partners, our existing fleet includes 16 vessels (eleven LNG carriers and five FSRUs) and a newbuilding order book of ten vessels: eight LNG carriers and two FSRUs. Our remaining LNG carrier newbuildings are scheduled to be delivered from 2014 into early 2015 with storage capacity of approximately 160,000 m ³ to 162,000 m ³ storage; 0.1% boil-off rate; tri-fuel engines; and capable of charter speeds of up to 19.5 knots.  Our newbuild FSRUs range in capacity from 160,000 m ³ to 170,000 m ³ and can provide regasification throughput of up to 750 MCFD (or 5.8 MTA). The FSRUs can, subject to the customer's requirements, remain classified as an LNG Carrier, flexible for LNG carrier service or be classified for as an offshore unit, remaining permanently moored at site for a long contract duration.

    

We compete with other independent shipping companies who also own and operate LNG carriers.

In addition to independent LNG operators, some of the major oil and gas producers, including Royal Dutch Shell, BP, and BG own LNG carriers and have in the recent past contracted for the construction of new LNG carriers.  National gas and shipping companies also have large fleets of LNG vessels that have expanded and will likely continue to expand.  These include Malaysian International Shipping Company, or MISC, National Gas Shipping Company located in Abu Dhabi and Qatar Gas Transport Company, or Nakilat.

         

Floating Liquefaction Vessels

In late 2012, we entered into FEED agreements to develop our first FLNG production vessel. The agreements were based on the conversion of one of our existing Moss type vessels and include options for two further Moss vessel conversions. Golar are working with Keppel and Black & Veatch (“B&V”) to design the FLNG vessel. Keppel has previously worked with Golar converting comparable Moss type vessels into FSRUs.

Our FLNG strategy is very much analogous to what we were able to create in the FSRU side of our business and utilizes proven on-shore technology, quick and a low-cost execution model with a conversion time of less than three years. We are currently in the final phases of negotiating definitive agreements with Keppel and B&V for the conversion of the Hilli to an FLNG vessel at the Keppel shipyard in Singapore. When converted, the Hilli will have a production capacity of up to 2.8 million tonnes per annum and on board storage of approximately 125,000 m ³ of LNG.

We are targeting liquefaction projects to convert pipeline quality gas and unconventional natural gas reserves (such as coal bed methane and shale gas or lean gas sourced from offshore fields), to LNG. These feed gas streams require little to no gas processing prior to liquefaction.

Customers

During the year, we received the majority of our revenues from charter agreements with the following customers: BG Group, Gdf Suez, ENi SpA and a major Japanese trading company.

Following the deconsolidation of Golar Partners, our customer profile has changed and the following customers are now with Golar Partners: Petrobras, DUSUP, Pertamina and PT Nusantara Regas. BG Group continues to be a customer of both ours and the Golar Partners. We continue to maintain our relationship with these customers by virtue of the various management agreements entered into with Golar Partners. We also continue to develop relationships with other major players in the LNG industry and with new customers.

Since 2012, we have chartered vessels to a major Japanese trading company. Our revenues from this company were $47.7 million (53%) and $40.0 million (9%) for the years ended 2013 and 2012, respectively.

Since 2000, we have chartered vessels to BG Group.  Our revenues from BG Group were $13.1 million (14%), $96.2 million (23%) and $25.1 million (8%) for the years ended 2013, 2012 and 2011, respectively. Two vessels in the Partnership's fleet are currently on charters with the BG Group.

Revenues from Gdf Suez and ENi Spa were under short-term charters, which commenced in in 2011 and 2013, respectively.

    

Since July 2008, we have chartered vessels to Petrobras under 10-year charters. Our revenues from Petrobras for the years ended 2013, 2012 and 2011 were $nil, $90.3 million (22%) and $93.7 million (31%) . Petrobras currently charters two vessels from Golar Partners.

    

We had charters with DUSUP since 2010. Our revenues from DUSUP were $nil, $46.0 million (11%) and $47.1 million (16%) for the years ended 2013, 2012 and 2011, respectively. The Partnership continues to charter a vessel to DUSUP.

Since 1989, we have chartered vessels to Pertamina, Our revenues from Pertamina were $nil, $35.5 million (9%) and $37.8 million (13%) for the years ended 2013, 2012 and 2011, respectively. The Partnership continues to charter a vessel with Pertamina.     

Charters with Qatar Gas commenced in 2011. Our revenues from Qatar Gas were $nil, $23 million (6%) and $35.5 million (12%) for the years ended 2013, 2012 and 2011, respectively. The Partnership has one vessel currently on charter with Qatar Gas.     

During 2012 we commenced chartering vessels to PT Nusantara Regas. Our revenue from PT Nusantara Regas for the years ended 2013 and 2012 was $nil and $38.8 million (9%) respectively. The Partnership currently has one vessel on charter with PT Nusantara Regas.