6-K 1 golarlngpartners6-kq12018.htm 6-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
 
Commission File Number:  1-35123
 
GOLAR LNG PARTNERS LP
(Translation of registrant’s name into English)
 
2nd Floor
S.E. Pearman Building
9 Par-la-Ville Road
Hamilton HM 11
Bermuda
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F ý       Form 40-F o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes o No ý.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes o No ý.


GOLAR LNG PARTNERS LP
 
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018
 
INDEX
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 

2


Exhibit


THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENTS ON FORM F-3 (333-219065 AND 333-214241) OF THE REGISTRANT


3

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
GOLAR LNG PARTNERS LP
 
 
 
 
Date:
July 9, 2018
By:
/s/ Brian Tienzo
 
 
Name:
Brian Tienzo

 
 
Title:
Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer

4

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 
This Report on Form 6-K for the period ended March 31, 2018 contains certain forward-looking statements concerning future events and our operations, performance and financial condition, including, in particular, the likelihood of our success in developing and expanding our business. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “forecasts,” “will,” “may,” “potential,” “should,” and similar expressions are forward-looking statements. These forward-looking statements reflect management’s current views only as of the date of this Report and are not intended to give any assurance as to future results. As a result, unitholders are cautioned not to rely on any forward-looking statements.
 
Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to:
 
•
market trends in the floating storage and regasification unit (“FSRU”), liquefied natural gas (“LNG”) carrier and floating liquefied natural gas vessel (“FLNG”) industries, including charter rates, factors affecting supply and demand, and opportunities for the profitable operations of FSRUs, LNG carriers and FLNGs;
•
the ability of Golar LNG Partners LP (“Golar Partners,” “we,” “us” and “our”) and Golar LNG Limited (“Golar”) to retrofit vessels as FSRUs or FLNGs and the timing of the delivery and acceptance of any such retrofitted vessels by their respective charterers;
•
our ability to maintain cash distributions on our units and the amount of any such distributions;
•
our ability to consummate the Hilli Acquisition on a timely basis or at all;
•
our ability to integrate and realize the expected benefits from acquisitions and potential acquisitions, including the anticipated acquisition (the “Hilli Acquisition”) of 50% of the common units of Golar Hilli LLC (“Hilli LLC”), which, through its wholly owned subsidiary, will be the disponent owner of the Hilli Episeyo (“Hilli”);
•
the future share of earnings relating to the Hilli, which we expect to be initially accounted for under the equity method;
•
our ability to realize the expected benefits from the new charter in the Atlantic Basin;
•
our anticipated growth strategies;
•
the effect of a worldwide economic slowdown;
•
turmoil in the global financial markets;
•
fluctuations in currencies and interest rates;
•
general market conditions, including fluctuations in charter hire rates and vessel values;
•
the liquidity and creditworthiness of our customers;
•
changes in our operating expenses, including drydocking and insurance costs and bunker prices;
•
our future financial condition, results of operations, revenues and expenses;
•
the repayment of debt and settling of interest rate swaps;
•
our ability and Golar's ability to make additional borrowings and to access debt and equity markets;
•
planned capital expenditures and availability of capital resources to fund capital expenditures;
•
our ability to maintain long-term relationships with major LNG traders;
•
our ability to leverage the relationships and reputation of Golar and Golar Power Limited (“Golar Power”) in the LNG industry;
•
our ability to purchase vessels from Golar and Golar Power in the future;
•
our continued ability to enter into long-term time charters, including our ability to re-charter the FSRUs and LNG carriers following the termination or expiration of their time charters;
•
our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
•
timely purchases and deliveries of newbuilding vessels;

5

•
future purchase prices of newbuilding and secondhand vessels;
•
our ability to compete successfully for future chartering and newbuilding opportunities;
•
acceptance of a vessel by its charterer;
•
termination dates and extensions of charters;
•
the expected cost of, and our ability to comply with, governmental regulations, maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business;
•
availability of skilled labor, vessel crews and management;
•
our general and administrative expenses and our fees and expenses payable under the fleet management agreements and the management and administrative services agreement;
•
the anticipated taxation of our partnership and distributions to our unitholders;
•
challenges by authorities to tax benefits we previously obtained;
•
estimated future maintenance and replacement capital expenditures;
•
our and Golar's ability to retain key employees;
•
customers’ increasing emphasis on environmental and safety concerns;
•
potential liability from any pending or future litigation;
•
potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;
•
our business strategy and other plans and objectives for future operations; and
•
other factors listed from time to time in the reports and other documents that we file with the U.S. Securities and Exchange Commission (the “SEC”).
 

Forward looking statements in this Report on Form 6-K are based upon estimates reflecting the judgment of management and involve known and unknown risks and uncertainties. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, these forward-looking statements should be considered in light of various important factors, including those set forth in our Annual Report on Form 20-F for the year ended December 31, 2017 (our “2017 Annual Report”) under the caption “Item 3—Key Information—D. Risk Factors”.

All forward-looking statements included in this Report on Form 6-K are made only as of the date of this Report on Form 6-K. We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. We make no prediction or statement about the performance of our common units or our 8.75% Series A Cumulative Redeemable Preferred Units (our “Series A Preferred Units”). The various disclosures included in the Report on Form 6-K and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations should be carefully reviewed and considered.








6

Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Unless the context otherwise requires, references in this report to “Golar Partners,” the “Partnership,” “we,” “our,” “us” or similar terms refer to Golar LNG Partners LP, a Marshall Islands limited partnership, or any one or more of its subsidiaries, or to all of such entities. Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Important Information Regarding Forward-Looking Statements” on page 5 for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.
 
This section should be read in conjunction with the interim financial statements presented in this report, as well as the historical consolidated financial statements and notes thereto of Golar LNG Partners LP included in our 2017 Annual Report.
 
General
 
We were formed in 2007 by Golar, a leading independent owner and operator of LNG carriers and FSRUs, to own and operate FSRUs and LNG carriers under long-term charters that generate long-term stable cash flows. As of March 31, 2018, our fleet consisted of six FSRUs and four LNG carriers. We expect to make additional accretive acquisitions of FSRUs, LNG carriers and FLNGs from Golar and third parties in the future as market conditions permit.
 
Recent Developments

Since January 1, 2018, the significant developments that have occurred are as follows:

Hilli Acquisition

On August 15, 2017, Golar Partners Operating LLC, our wholly owned subsidiary, entered into a purchase and sale agreement (the “Hilli Purchase Agreement”) for the acquisition from Golar and affiliates of Keppel Shipyard Limited (“Keppel”) and Black and Veatch (“B&V”) of 50% of the common units (the “Acquired Interests”) in Hilli LLC, which will, on the closing date of the Hilli Acquisition, own Golar Hilli Corp., the disponent owner of the Hilli.

The closing of the Hilli Acquisition is subject to the satisfaction of certain closing conditions which include, among others, the formation of Hilli LLC and the related Pre-Closing Contributions. The Hilli has completed commissioning and has been accepted by Perenco and SNH. In addition, in connection with the closing, we expect to provide a several guarantee of 50% of Hilli Corp’s indebtedness under the Hilli Facility.

Upon the closing of the Hilli Acquisition, which is expected to occur on or around July 11, 2018, Golar, Keppel and B&V will sell 50% of the common units of Hilli LLC to us in return for the payment by us of the net purchase price of between approximately $178 and $190 million. We will apply the $107.2 million Deferred Purchase Price receivable from Golar in connection with the Tundra Put Sale and the $70 million deposit paid against the net purchase price and will pay the balance with cash on hand.

We do not expect to initially consolidate Hilli LLC or Hilli Corp and expect to account for our initial investment under the equity method.

ATM Program

In September 2017, we entered into an equity distribution agreement with a sales agent pursuant to which we may, from time to time, issue common units with an aggregate offering price up to $150.0 million (“ATM Program”). During the three months ended March 31, 2018, we sold 617,969 common units at an average gross sales price of $23.15 per unit and received net proceeds of $13.9 million. During the three months ended March 31, 2018, we paid an aggregate of approximately $0.1 million in sales commissions to the sales agent. In connection with such sales, our general partner acquired 12,548 additional general partner units, at an average price of $23.15 per unit for an aggregate sales price of $0.3 million.

Common Unit Repurchase Program

In March 2018, our Board of Directors approved a common unit repurchase program of up to $25.0 million of our outstanding common units in the open market over a two year period. As of March 31, 2018, we had repurchased a total of 439,672 common units, at an average price of $18.18 per unit for an aggregate amount of $8.0 million.


7

Financing

In February 2018, we entered into a new interest rate swap with notional value of $480.0 million. In April 2018, we entered into new interest rate swaps with notional value of $157.2 million and restructured an interest rate swap with a notional value of $100 million.

In March 2018, we entered into an agreement extending the maturity of the NR Satu Facility from November 2019 to the earliest to occur of (i) November 30, 2022; (ii) the expiration date of the current time charter in respect of the NR Satu (the “NR Satu Charter”); or (iii) when all the amounts outstanding under the NR Satu Facility have been repaid.

In March 2018, we also repaid $75.0 million of the revolving credit facility under our $800 million credit facility.

Organizational Changes

On March 19, 2018, Brian Tienzo replaced Graham Robjohns as our Chief Executive Officer. Mr. Robjohns currently serves as the Chief Financial Officer and Deputy Chief Executive Officer of Golar, having served as our Chief Executive Officer since July 2011. In addition to serving as our Chief Executive Officer, Mr. Tienzo will continue to serve as our Chief Financial Officer and our Principal Accounting Officer.

Cash Distributions

In February 2018, we paid a cash distribution of $0.5775 per common unit in respect of the three months ended December 31, 2017 to unitholders of record as of February 7, 2018, amounting to $41.5 million in the aggregate. We also paid a cash distribution of $0.63802 per Series A Preferred Unit for the period from October 31, 2017 through February 14, 2018 to our Series A Preferred Units of record as of February 8, 2018, amounting to $3.5 million in the aggregate.

In May 2018, we paid a cash distribution of $0.5775 per common unit in respect of the three months ended March 31, 2018, to unitholders of record as of May 7, 2018, amounting to $41.2 million in the aggregate. We also paid a cash distribution of $0.546875 per Series A Preferred Unit in respect of the period, from February 15, 2018 through May 14, 2018, to holders of record of our Series A Preferred Units as of the close of business on May 8, 2018, amounting to $3.0 million in the aggregate.





8

Results of Operations
 
Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
 
The following table presents details of our consolidated revenues and expense information for our two reportable segments; FSRUs and LNG carriers for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. See Note 5 “Segment Information” for additional information on our segments.
 
FSRU Segment
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
Change
 
% Change
Statement of Operations Data:
(dollars in thousands except Average Daily TCE)
Total operating revenues
$
62,547

 
$
73,997

 
$
(11,450
)
 
(15
)%
Vessel operating expenses
(11,080
)
 
(12,387
)
 
1,307

 
(11
)%
Voyage and commission expenses
(1,517
)
 
(1,507
)
 
(10
)
 
1
 %
Administrative expenses(1)
(2,001
)
 
(1,673
)
 
(328
)
 
20
 %
Depreciation and amortization
(19,597
)
 
(19,205
)
 
(392
)
 
2
 %
Operating income
28,352

 
39,225

 
(10,873
)
 
(28
)%
 
 
 
 
 
 
 
 
Average daily TCE(2) (to the closest $100)
$
154,500

 
$
150,100

 
$
4,400

 
3
 %

(1) Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on the number of vessels). See the discussion under “—Other Operating Results” below.
(2) Average Daily TCE is a non-GAAP financial measure. See “—Non-GAAP Measure” for a computation of Average Daily TCE and a reconciliation to total operating revenues, the most directly comparable U.S. GAAP Measure.

Operating revenues: Total operating revenues decreased by $11.5 million to $62.5 million for the three months ended March 31, 2018 compared with $74.0 million for the same period in 2017. The decrease is primarily due to a $11.0 million reduction in revenue from the Golar Spirit following the early termination of her time charter with Petrobras in June 2017.

The average daily time charter equivalent rate (“TCE”), for the three months ended March 31, 2018 increased by $4,400 to $154,500 compared to $150,100 for the same period in 2017, primarily as a result of increased hire rates for the Golar Winter. The Golar Spirit has been in lay-up since August 2017, thus, the decrease in revenues from the Golar Spirit does not affect TCE in 2018 as days when vessels are in lay-up are also considered scheduled off-hire days.

Vessel operating expenses: The decrease of $1.3 million in vessel operating expenses to $11.1 million for the three months ended March 31, 2018, as compared to $12.4 million for the three months ended March 31, 2017 was primarily due to a $1.1 million reduction in operating expenses from the Golar Spirit following her lay-up in August 2017.

LNG Carrier Segment
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
Change
 
% Change
Statement of Operations Data:
(dollars in thousands except Average Daily TCE)
Total operating revenues
$
11,667

 
$
27,388

 
$
(15,721
)
 
(57
)%
Vessel operating expenses
(5,280
)
 
(4,689
)
 
(591
)
 
13
 %
Voyage and commission expenses
(1,370
)
 
(554
)
 
(816
)
 
147
 %
Administrative expenses(1)
(1,251
)
 
(898
)
 
(353
)
 
39
 %
Depreciation and amortization
(6,052
)
 
(5,551
)
 
(501
)
 
9
 %
Operating income
(2,286
)
 
15,696

 
(17,982
)
 
(115
)%
 
 
 
 
 
 
 
 
Average daily TCE(2) (to the closest $100)
$
28,600

 
$
80,100

 
$
(51,500
)
 
(64
)%

9


(1) Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on the number of vessels). See the discussion under “—Other Operating Results” below.
(2) Average Daily TCE is a non-GAAP financial measure. See “—Non-GAAP Measure” for a computation of Average Daily TCE and a reconciliation to total operating revenues, the most directly comparable U.S. GAAP Measure.

Operating revenues: Total operating revenues decreased by $15.7 million to $11.7 million for the three months ended March 31, 2018 compared with $27.4 million for the same period in 2017. This is primarily due to:

•
a $14.6 million reduction in revenue from the Golar Mazo and the Golar Maria as a result of the expiration of their charters in December 2017 and November 2017, respectively; and

•
a $1.1 million reduction in revenue from the Golar Grand due to the expiration of the charter back to Golar in November 2017. The hire rate under the Golar Grand's time charter with the new charterer is lower than the previous hire rate with Golar.

The average daily TCE, for the three months ended March 31, 2018 decreased by $51,500 to $28,600 compared to $80,100 for the same period in 2017, due to: (i) the Golar Mazo and Golar Maria being offhire following the expiration of their charters in December 2017; and (ii) lower hire rates for the Golar Grand pursuant to the expiration of the charter back arrangement with Golar in November 2017.

Voyage and commission expenses: Voyage and commission expenses increased by $0.8 million to $1.4 million for the three months ended March 31, 2018 compared to $0.6 million for the three months ended March 31, 2017, primarily due to incremental positioning cost of $1.2 million incurred by the Golar Mazo and Golar Maria which were subsequently recouped from the charterer, following their entry into spot charters in the three months ended March 31, 2018.

Other operating results

The following details our other consolidated results for the three months ended March 31, 2018 compared to the three months ended March 31, 2017:

 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
Change
 
% Change
 
(dollars in thousands)
Administrative expenses(1)
$
(3,252
)
 
$
(2,571
)
 
$
(681
)
 
26
 %
Interest income
3,482

 
1,173

 
2,309

 
197
 %
Interest expense
(20,314
)
 
(18,247
)
 
(2,067
)
 
11
 %
Other financial items, net
9,591

 
(6,903
)
 
16,494

 
(239
)%
Taxes
(3,923
)
 
(3,491
)
 
(432
)
 
12
 %
Non-controlling interests
(147
)
 
(3,899
)
 
3,752

 
(96
)%
(1) Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on the number of vessels).

Administrative expenses: Administrative expenses increased by $0.7 million to $3.3 million for the three months ended March 31, 2018, compared to $2.6 million for the three months ended March 31, 2017. We are party to a management and services agreement with Golar Management Limited (“Golar Management”), a wholly owned subsidiary of Golar, under which Golar Management provides certain management and administrative services to us and is reimbursed for costs and expenses incurred in connection with these services at a cost plus 5% basis (the “Management and Administrative Services Agreement”). Under the Management and Administrative Services Agreement, for the three months ended March 31, 2018 and 2017, we incurred charges of $1.9 million and $1.4 million, respectively. The remaining balance of administrative expenses amounting to $1.4 million and $1.2 million for the for the three months ended March 31, 2018 and 2017, respectively relate to corporate expenses such as legal, accounting and regulatory compliance costs.

Interest income: Interest income increased by $2.3 million to $3.5 million for the three months ended March 31, 2018, compared to $1.2 million in 2017. This was principally due to the $2.2 million interest income earned on the $107.2 million Deferred Purchase Price relating to the Tundra Put Sale and the $70 million deposit paid upon execution of the Hilli Purchase Agreement, for which we earned interest at a rate of 5% per annum.

10


Interest expense: Interest expense increased by $2.1 million to $20.3 million for the three months ended March 31, 2018, compared to $18.2 million for the three months ended March 31, 2017. This was primarily due to:

•
a $0.7 million increase in interest on the Eskimo SPV debt;

•
$0.7 million of incremental interest and amortization of deferred financing costs as a result of our refinancing of the NR Satu debt facility; and

•
$0.4 million of additional interest as a result of the $125 million drawn under our revolving credit facilities in August 2017.

Other financial items, net: Other financial items, net reflects a gain of $9.6 million and a loss of $6.9 million for the three months ended March 31, 2018 and 2017, respectively, as set forth in the table below:
 
 
Three Months Ended March 31,
 
 
 
 
(in thousands of $)
2018
 
2017
 
$ Change
 
% Change
Mark-to-market gains for interest rate swaps
$
10,693

 
$
2,650

 
$
8,043

 
304
 %
Interest expense on un-designated interest rate swaps
(458
)
 
(2,278
)
 
1,820

 
(80
)%
Net unrealized and realized gains on interest rate swaps
10,235

 
372

 
9,863

 
2,651
 %
Losses on repurchase of 2012 High-Yield Bonds
—

 
(3,777
)
 
3,777

 
100
 %
Premium paid on bond repurchase
—

 
(2,744
)
 
2,744

 
100
 %
Other
(644
)
 
(754
)
 
110

 
(15
)%
Total
$
9,591

 
$
(6,903
)
 
$
16,494

 
(239
)%
 
Net unrealized and realized gains on interest rate swaps: Net unrealized and realized gains on interest rate swaps resulted in a net gain of $10.2 million for the three months ended March 31, 2018, compared to a net gain of $0.4 million in 2017 due to the increase in long-term swap interest rates in 2018 which has resulted in gains on the mark-to-market valuation of our interest rate swaps.

Losses on repurchase of 2012 High-Yield Bonds: In 2017, as a consequence of the cessation of hedge accounting for the related cross currency interest rate swap (entered into as a hedge against our Norwegian Kroner (“NOK”) denominated 2012 High-Yield bonds (our “2012 High-Yield Bonds”), we reclassified to the statement of operations $5.0 million of accumulated mark-to-market losses previously recorded within accumulated other comprehensive income. We also recognized foreign exchange losses of $2.9 million arising from the repurchase of our 2012 High-Yield Bonds and $4.1 million mark-to-market gains on the cross currency interest rate swaps in our statement of operations. There is no comparable cost for the three months ended March 31, 2018.

Premium paid on repurchase of 2012 High-Yield Bonds: This pertains to the premium paid upon the repurchase of the 2012 High-Yield Bonds for the three months ended March 31, 2017. There is no comparable cost for the three months ended March 31, 2018.

Non-controlling interests: Non-controlling interests decreased by $3.8 million to $0.1 million for the three months ended March 31, 2018, compared to $3.9 million for the three months ended March 31, 2017, mainly due to the reduction in net income from the Golar Mazo as a result of the expiration of her charter in December 2017.

Liquidity and Capital Resources
 
Liquidity and Cash Needs
 
We operate in a capital-intensive industry and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of borrowings from, and leasing arrangements with, commercial banks, cash generated from operations and debt and equity financings. In addition to paying distributions, our other short-term liquidity requirements relate to servicing interest on our debt, scheduled repayments of long-term debt, funding working capital requirements, including drydocking, and maintaining cash reserves against fluctuations in operating cash flows.


11

Our funding and treasury activities are intended to maximize investment returns while maintaining appropriate liquidity. Cash and cash equivalents are held primarily in U.S. Dollars with some balances held in other currencies. We have not used derivative instruments other than for interest rate and currency risk management purposes.

Short-Term Liquidity and Cash Requirements

Sources of short-term liquidity include cash balances, restricted cash balances, short-term deposits, available amounts under revolving credit facilities and receipts from our charters. Revenues from the majority of our time charters are received monthly in advance. In addition, we benefit from low inventory requirements (consisting primarily of fuel, lubricating oil and spare parts) due to fuel costs, which represent the majority of these costs being paid for by the charterer under time charters.
 
As of March 31, 2018, our cash and cash equivalents, including restricted cash was $329.7 million. The majority of our restricted cash balances (excluding $7.7 million in performance bonds relating to certain of our charters) contribute to our short and medium term liquidity as they are used to fund payment of certain debts, swaps and capital leases which would otherwise be paid out of our unrestricted cash balances. Since March 31, 2018, significant transactions impacting our cash flows include:

•
payment of a cash distribution of $0.5775 per unit ($41.2 million in aggregate) to all common and general partner unitholders with respect to the quarter ended March 31, 2018, in May 2018;

•
payment of a cash distribution of $0.546875 per Series A Preferred Unit ($3.0 million in the aggregate), in respect of the period, from February 15, 2018 through May 14, 2018, in May 2018;

•
we repurchased 96,100 common units in June 2018 under our common unit repurchase program for an aggregate price of $1.5 million. All repurchased shares were subsequently cancelled in accordance with our common unit repurchase program; and

•
scheduled loan principal repayments amounting to $16.7 million.

As of March 31, 2018, our current liabilities exceeded current assets by $130.8 million. This was principally due to the inclusion of Eskimo SPV debt of $213.5 million, which relates to our long-term Golar Eskimo sale and leaseback financing arrangement. Eskimo SPV, is deemed to be a VIE, and thus we are required to consolidate the results of Eskimo SPV, including its debt, even though we have no control over its funding arrangements. Accordingly, as of March 31, 2018, we have presented Eskimo SPV debt as short-term on our balance sheet. For further detail refer to note 4 to our financial statements.

Together with proceeds from our 2017 financing activities, available funds under our revolving credit facility (which as of March 31, 2018, amounted to $75.0 million) and cash to be generated from our operations (assuming the current rates earned from existing charters continue until charter termination or expiration, where applicable) will be sufficient to cover our operational cash outflows and our ongoing obligations under our financing commitments to pay loan interest, make scheduled loan repayments and make cash distributions. Accordingly, we believe our current resources are sufficient to meet our working capital requirements for our current business for at least the next twelve months.

Cash Flows
 
The following table summarizes our net cash flows from operating, investing and financing activities for the periods presented:
 
 
Three months ended
  March 31,
 
 
 
 
(in thousands of $)
2018

 
2017 (1)

 
$ Change

 
% Change

Net cash provided by operating activities
$
28,197

 
$
77,811

 
$
(49,614
)
 
(64
)%
Net cash used in investing activities
(1,673
)
 
—

 
(1,673
)
 
100
 %
Net cash used in financing activities
(131,157
)
 
(3,856
)
 
(127,301
)
 
3,301
 %
Effect of exchange rate changes on cash
4,490

 
1,899

 
2,591

 
136
 %
Net (decrease)/increase in cash, cash equivalents and restricted cash
(100,143
)
 
75,854

 
(175,997
)
 
(232
)%
Cash, cash equivalents and restricted cash at beginning of period
429,887

 
228,125

 
201,762

 
88
 %
Cash, cash equivalents and restricted cash at end of period
329,744

 
303,979

 
25,765

 
8
 %

12

 
(1) Following the adoption of the amendments to ASC 230, the statement of cash flows presents the change in the period in total cash, cash equivalents and restricted cash. These amendments have been applied retrospectively for the three months ended March 31, 2017.

Net Cash Provided by Operating Activities
 
Net cash provided by operating activities decreased by $49.6 million to $28.2 million for the three months ended March 31, 2018 compared to $77.8 million for the same period in 2017. The decrease was primarily due to:

•
a $27.1 million decrease in revenue from charterers for the three months ended March 31, 2018 compared to the same period in 2017 following the expiration of a number of long-term charters in the fourth quarter of 2017;

•
a $2.9 million increase in drydock expenditure in the three months ended March 31, 2018, compared to the same period in 2017 as long-lead items have been purchased ahead of the scheduled drydockings of the Golar Freeze and the Methane Princess which are expected later in 2018; and

•
differences in the general timing of working capital in the three months ended March 31, 2018, compared to the same period in 2017.

Net Cash Used in Investing Activities

Net cash used in investing activities of $1.7 million for the three months ended March 31, 2018 was due to capital expenditures for the Golar Igloo and Golar Freeze. There were no comparable expenditures in the three months ended March 31, 2017.

Net Cash Used in Financing Activities
 
Net cash provided by and used in financing activities is principally generated from funds from equity and debt offerings, new debt and lease financings and contributions from owners, offset by cash distributions, unit repurchase payments, debt and lease repayments.

Net cash used in financing activities during the three months ended March 31, 2018 of $131.2 million was primarily due to the following:

•
$91.6 million of repayment of long-term debt and revolving credit facilities;

•
payment of $45.0 million in cash distributions;

•
payment of $8.0 million of cash in connection with our common unit repurchase program; and

•
payment of $1.7 million of financing costs related to the refinancing of the NR Satu Facility.

This was partially offset by net proceeds of $13.9 million raised from our ATM program in January 2018.

Net cash used in financing activities during the three months ended March 31, 2017 of $3.9 million was primarily due to the following:

•
$151.8 million repayment of long-term debt and lease obligations;

•
$41.2 million of cash distributions, $3.4 million of which were distributions to non-controlling interests; and

•
$4.7 million of financing and debt settlement costs paid mainly in connection with issuance of our 2017 Norwegian Bonds.

This was partially offset by:

•
$250.0 million of proceeds from the issuance of our 2017 Norwegian Bonds, $175.7 million of which were used to redeem our 2012 High-Yield Bonds and terminate the corresponding share of the related cross currency interest rate swap; and

•
$119.4 million net proceeds from our February 2017 common unit issuance and the related issuance of general partner units to our general partner so that it could maintain its 2% general partner interest in us.

13


Borrowing Activities
 
Long-Term Debt.  As of March 31, 2018 and December 31, 2017, our long-term debt, net of deferred finance charges consisted of the following:
 
(in thousands of $)
March 31,
2018
 
December 31,
2017
 
 
 
 
$800 million Credit Facility
$
584,000

 
$
672,000

2017 Norwegian Bonds
250,000

 
250,000

2015 Norwegian Bonds
150,000

 
150,000

NR Satu Facility
99,925

 
103,500

Eskimo SPV Debt
213,502

 
212,084

Total debt
$
1,297,427

 
$
1,387,584

Less: Deferred financing costs
(15,668
)
 
(16,550
)
Total debt net of deferred financing costs
$
1,281,759

 
$
1,371,034

 
Our outstanding debt of $1,297.4 million as of March 31, 2018, is repayable as follows:
 
Period Ending December 31,
(in thousands of  $)
 
2018 (nine months ending December 31, 2018)
$
50,063

2019
280,252

2020
216,750

2021
705,750

2022 and thereafter
44,612

Total
$
1,297,427

 
The significant developments relating to our debt in the period after December 31, 2017 are set forth below.

In March 2018, we entered into an agreement extending the maturity of the NR Satu Facility to the earliest to occur of (i) November 30, 2022; (ii) the expiration date of the NR Satu Charter; or (iii) when all the amounts outstanding under the NR Satu Facility have been repaid. In addition, the margin on LIBOR was changed from 3.50% to 2.35%. The facility requires certain cash balances to be held on deposit for the duration of the loan. As of March 31, 2018, the value of the restricted cash deposit secured against the loan was $13.6 million.

Capital Lease Obligations.  As of March 31, 2018, we are committed to make minimum rental payments under our remaining capital lease, as follows:
 
Period Ending December 31,
 (in thousands of $)
Methane
Princess
Lease

2018 (nine months ending December 31)
$
6,143

2019
8,506

2020
8,831

2021
9,174

2022
9,522

2023 and thereafter
174,015

Total minimum lease payments
216,191

Less: Imputed interest
(83,674
)
Present value of minimum lease payments
$
132,517

 

14

Methane Princess Lease.  In August 2003, Golar entered into a lease arrangement (the “Methane Princess lease”) with a UK bank (the “Methane Princess lessor”). Our obligation to the Methane Princess lessor is primarily secured by a letter of credit, which is itself secured by a cash deposit which was placed with the Methane Princess Lessor since June 2008. The value of the restricted cash deposit used to obtain a letter of credit to secure the lease obligation as of March 31, 2018, was $123.9 million.

In the event of any adverse tax changes to legislation affecting the tax treatment of the lease for the Methane Princess lessor or a successful challenge by the UK Revenue authorities to the tax assumptions on which the transactions were based, or in the event that we terminate the Methane Princess lease before its expiration, we would be required to return all or a portion of, or in certain circumstances significantly more than, the upfront cash benefits that we have received or that have accrued over time, together with the fees that were financed in connection with our lease financing transaction, post additional security or make additional payments to our lessor which would increase the obligations noted above. The Methane Princess Lessor has a second priority security interest in the Methane Princess, the Golar Spirit and the Golar Grand to secure these potential obligations. Golar has agreed to indemnify us against any of these increased costs and obligations. Refer to note 11 to our unaudited condensed consolidated financial statements included herein.
 
Debt and Lease Restrictions
 
Our existing financing agreements (debt and lease) impose certain operating and financing restrictions on us and our subsidiaries that are described in our 2017 Annual Report under Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt and Lease Restrictions.
 
As of March 31, 2018, we were in compliance with all covenants of our various debt and lease agreements.

Capital Commitments
 
Possible Acquisitions of Other Vessels

We assess potential acquisition opportunities on a regular basis. Pursuant to our omnibus agreements with Golar and Golar Power, we will have the opportunity to purchase additional FSRUs and LNG carriers in the future from Golar and Golar Power when those vessels are fixed under charters of five or more years upon their expiration of their current charters.  Subject to the terms of our loan agreements, we could elect to fund any future acquisitions with equity or debt or cash on hand or a combination of these forms of consideration. Any debt incurred for this purpose could make us more leveraged and subject us to additional operational or financial covenants.

Hilli Acquisition

On August 15, 2017, we entered into the Hilli Purchase Agreement for the Acquired Interests of Golar Hilli LLC, which will, on the closing date of the Hilli Acquisition, through its wholly owned subsidiary, be the disponent owner of the Hilli. See ‘Recent Developments’ on page 7 for more information.

Upon the closing of the Hilli Acquisition, which is expected to occur on or around July 11, 2018, Golar, Keppel and B&V will sell 50% of the common units of Hilli LLC to us in return for the payment by us of the net purchase price of between approximately $178 and $190 million. We will apply the $107.2 million Deferred Purchase Price receivable from Golar in connection with the Tundra Put Sale and the $70 million deposit referred to above against the net purchase price and will pay the balance with cash on hand.

We are in preliminary discussions with Golar regarding the potential acquisition of additional common units of Hilli LLC. No assurance can be given that we will acquire any additional common units in Hilli LLC, and any such acquisition will be subject to, among other things, agreement as to the purchase price and the approval of the Board of Directors of Golar and our Board of Directors and Conflicts Committee.


15

Drydockings

From March 31, 2018 until December 31, 2022, eight of the vessels in our current fleet will undergo their scheduled drydockings. We estimate that we will spend in total approximately $62.2 million for drydocking and classification surveys on these vessels (including the cost of installation of ballast water treatment systems, as discussed below), with approximately $27.7 million expected to be incurred in 2018, $13.0 million in 2019, $nil in 2020, $6.5 million in 2021 and $15.0 million in 2022. We reserve a portion of cash generated from our operations to meet the costs of future drydockings. As our fleet matures and expands, our drydocking expenses will likely increase. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and society classification survey costs or are a component of our operating expenses. 

Ballast Water Management Convention

The International Maritime Organization (IMO) adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (or the BWM Convention) in February 2004. The Convention entered into force on September 8, 2017, however IMO later decided to postpone the compliance date for existing vessels by 2 years, i.e. until the first renewal survey following September 8, 2019. The U.S. Coast Guard has decided to maintain the 2017 effective date. This makes all vessels constructed before the entry into force date “'existing” vessels, and requires the installation of a Ballast Water Treatment System (“BWTS”) on such vessels at the first renewal survey following the entry into force date. Installation of BWTS will be needed on all our active LNG carriers. As long as our FSRUs are operating as FSRUs and kept stationary, they will not need installation of a BWTS. However, under its time charter, the Golar Winter may be required to trade as a LNG carrier. If the vessel charterer should choose to trade the Golar Winter internationally as an LNG carrier, the vessel will have to be equipped with a BWTS and the cost of the related modifications will be split between the charterer and owner. Ballast water treatment technologies are now becoming more mature, although the various technologies are still developing. The additional costs of complying with these rules, relating to all our active LNG carriers are estimated to be in the range of $1.9 million and $2.0 million per vessel and will be phased in over time in connection with the renewal surveys that are required.
 
Critical Accounting Policies
 
The preparation of our condensed consolidated interim financial statements in accordance with U.S. GAAP requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For a description of our material accounting policies that involve a higher degree of judgment, please refer to note 2 (Significant Accounting Policies) to our consolidated financial statements included in our 2017 Annual Report.
 
Contractual Obligations
 
The following table sets forth our contractual obligations for the periods indicated as of March 31, 2018 (in millions):
 
(in millions of $)
Total
Obligation
 
Due in the
remainder of
2018
 
Due in
2019-2020
 
Due in
2021-2022
 
Due
Thereafter
Debt(1)
$
1,297.4

 
$
50.1

 
$
497.0

 
$
750.3

 
$
—

Interest commitments on long-term debt - floating and other interest rate swaps (2)
179.0

 
51.2

 
103.9

 
23.9

 
—

Capital lease obligations
132.5

 
1.0

 
3.8

 
5.7

 
122.0

Interest commitments on capital lease obligations (2)(3)
83.7

 
5.1

 
13.5

 
13.0

 
52.1

Total
$
1,692.6

 
$
107.4

 
$
618.2

 
$
792.9

 
$
174.1

 
(1) Amounts shown gross of deferred financing costs of $15.7 million.
(2) Our interest commitment on our long-term debt and interest rate swaps is calculated based on assumed USD LIBOR of between 1.79% and 3.12%, and taking into account our various margin rates and interest rate swaps associated with each debt. Our interest commitment on our capital lease obligation is calculated on an assumed average Pound Sterling LIBOR of 5.2%.
(3) In the event of any adverse tax rate changes or rulings, our lease obligation could increase significantly. However, Golar has agreed to indemnify us against any such increase.
 


16




17

Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to various market risks, including interest rate and foreign currency exchange risks. We enter into a variety of derivative instruments and contracts to maintain the desired level of exposure arising from these risks.
 
Our policy is to hedge our exposure to risks, where possible, within boundaries deemed appropriate by management.
 
A discussion of our accounting policies for derivative financial instruments is included in note 2 — Significant Accounting Policies to our audited consolidated financial statements included in our 2017 Annual Report.  Further information on our exposure to market risk is included in note 23 — Financial Instruments to our audited consolidated financial statements included in our 2017 Annual Report.
 
The following analyses provide quantitative information regarding our exposure to foreign currency exchange rate risk and interest rate risk. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates change instantaneously.
 
Interest rate risk.  A significant portion of our debt is subject to adverse movements in interest rates. Our interest rate risk management policy permits economic hedge relationships in order to reduce the risk associated with adverse fluctuations in interest rates. We use interest rate swaps and fixed rate debt to manage the exposure to adverse movements in interest rates. Interest rate swaps are used to convert floating rate debt obligations to a fixed rate in order to achieve an overall desired position of fixed and floating rate debt. Credit exposures are monitored on a counterparty basis, with all new transactions subject to senior management approval.
 
Assuming a 1% increase in the interest rate (including the effect of interest rates under the related interest rate swap agreements) as applied against our floating rate debt balance as of March 31, 2018, this would decrease our interest expense by $4.0 million per annum. We have calculated our floating rate debt as the principal outstanding on our bank debt and net capital lease obligations (net of related restricted cash balances). For disclosure of the fair value of the derivatives and debt obligations outstanding as of March 31, 2018, please read note 9 to the condensed consolidated interim financial statements for the period ended March 31, 2018.

Foreign currency risk.  A substantial amount of our transactions, assets and liabilities are denominated in currencies other than U.S. Dollars, such as Pound Sterling, in relation to the administrative expenses we will be charged by Golar Management in the UK and operating expenses incurred in a variety of foreign currencies, and Brazilian Real in respect of our Brazilian subsidiary which receives income and pays expenses in Brazilian Real. Based on our Pound Sterling expenses for the three months ended March 31, 2018, a 10% depreciation of the U.S. Dollar against Pound Sterling would have increased our expenses by approximately $0.1 million. Based on our Brazilian Real revenues and expenses for the three months ended March 31, 2018, a 10% depreciation of the U.S. Dollar against the Brazilian Real would have increased our net revenue and expenses by approximately $0.1 million.
 
The base currency of the majority of our seafaring officers’ remuneration is the Euro, Brazilian Real or Indonesian Rupiah. Based on the crew costs for the three months ended March 31, 2018, a 10% depreciation of the U.S. Dollar against the Euro, the Brazilian Real and the Indonesian Rupiah would have increased our crew cost by approximately $0.6 million.

We are exposed to some extent in respect of the lease transaction entered into with respect to the Methane Princess, which is denominated in Pound Sterling, although it is hedged by the Pound Sterling cash deposit that secures the obligations under the lease. We use cash from the deposits to make payments in respect of the lease transaction entered into with respect to the Methane Princess. Gains or losses that we incur are unrealized unless we choose or are required to withdraw monies from or pay additional monies into the deposit securing this obligation. Among other things, movements in interest rates give rise to a requirement for us to adjust the amount of the Pound Sterling cash deposit. Based on this lease obligation and the related cash deposit as of March 31, 2018, a 10% appreciation in the U.S. Dollar against Pound Sterling would give rise to a net foreign exchange gain of approximately $0.9 million.
 



18

Non-GAAP measure
 
Average Daily TCE
 
It is standard industry practice to measure the revenue performance of a vessel in terms of average daily TCE. For time charters, this is calculated by dividing total operating revenue less voyage and commission expenses by the number of calendar days minus days for scheduled off-hire. Where we are paid a fee to position or reposition a vessel before or after a time charter, this additional revenue, less voyage and commission expenses, is included in the calculation of net time charter revenues. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. We include average daily TCE, a non-U.S. GAAP measure, as we believe it provides additional meaningful information in conjunction with total operating revenues, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of average daily TCE may not be comparable to that reported by other companies. The following table reconciles our total operating revenues by segment to average daily TCE.
 
 
FSRU
 
LNG Carrier
 
Three Months Ended March 31,
 
Three Months Ended March 31,
(in thousands of $, except number of days and average daily TCE)

2018

 
2017

 
2018

 
2017

Total operating revenues
$
62,547

 
$
73,997

 
$
11,667

 
$
27,388

Voyage and commission expenses
(1,517
)
 
(1,507
)
 
(1,370
)
 
(554
)
 
61,030

 
72,490

 
10,297

 
26,834

Calendar days less scheduled off-hire days(1)
395

 
483

 
360

 
335

Average daily TCE (to the closest $100)
$
154,500

 
$
150,100

 
$
28,600

 
$
80,100


(1) Scheduled off-hire days includes days when vessels are in lay-up or undergoing dry dock.


19

Golar LNG Partners LP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended March 31,
(in thousands of $, except per unit amounts) 
Notes
2018
2017
Time charter revenues
5
74,214

98,203

Time charter revenues from related parties 
10
—

3,182

Total operating revenues
 
74,214

101,385

 
 
 
 
Vessel operating expenses
10
(16,360
)
(17,076
)
Voyage and commission expenses
 
(2,887
)
(2,061
)
Administrative expenses
10
(3,252
)
(2,571
)
Depreciation and amortization
 
(25,649
)
(24,756
)
Total operating expenses
 
(48,148
)
(46,464
)
 
 
 
 
Operating income
 
26,066

54,921

 
 
 
 
Financial income (expenses)
 
 

 

Interest income
10
3,482

1,173

Interest expense
 
(20,314
)
(18,247
)
Other financial items, net
6
9,591

(6,903
)
Net financial expenses
 
(7,241
)
(23,977
)
 
 
 
 
Income before tax
 
18,825

30,944

Tax
7
(3,923
)
(3,491
)
Net income
 
14,902

27,453

Net income attributable to non-controlling interests
 
(147
)
(3,899
)
Net income attributable to Golar LNG Partners LP Owners
 
14,755

23,554

 
 
 
 
General partner's interest in net income (1)
 
236

471

Preferred unitholders’ interest in net income
 
2,985

—

Common unitholders’ interest in net income
 
11,534

23,083

 
 
 
 
Earnings per unit
 
 

 

Common unit (basic)
13
$
0.16

$
0.35

Common unit (diluted)
13
$
0.16

$
0.34

 
 
 
 
Cash distributions declared and paid per common unit in the period
 
$
0.58

$
0.58





The accompanying notes are an integral part of these condensed consolidated interim financial statements.

20

Golar LNG Partners LP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended March 31,
(in thousands of $) 
2018
2017
Net income
14,902

27,453

Other comprehensive income:


 

Unrealized net gain on qualifying cash flow hedging instruments
—

105

Amount reclassified from accumulated other comprehensive income to statements of operations

(26
)
4,985

Other comprehensive (loss)/income
(26
)
5,090

Comprehensive income
14,876

32,543

 
 
 
Comprehensive income attributable to:


 

Golar LNG Partners LP Owners
14,729

28,644

Non-controlling interests
147

3,899

 
14,876

32,543

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

21

Golar LNG Partners LP
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
March 31,
December 31,
(in thousands of $)
Note
2018
2017
 
 
Unaudited

Audited

ASSETS
 
 

 

Current
 
 

 

Cash and cash equivalents
 
142,629

246,954

Restricted cash and short-term deposits
 
28,752

27,306

Other current assets
 
15,962

26,105

Amount due from related parties
10
6,209

7,625

Inventories
 
3,625

3,506

Total Current Assets
 
197,177

311,496

Non-current
 
 

 

Restricted cash and short term deposits
 
158,363

155,627

Vessels and equipment and vessel under capital lease, net
 
1,677,398

1,694,868

Other non-current assets
 
28,714

14,927

Intangible assets, net
 
69,997

73,206

Amounts due from related parties
10
177,247

177,247

Total Assets
 
2,308,896

2,427,371

 
 
 
 
LIABILITIES AND EQUITY
 
 
 

Current
 
 

 

Current portion of long-term debt and short-term debt
8
275,608

118,850

Current portion of obligation under capital lease
 
2,696

1,276

Other current liabilities
 
49,718

59,961

Total Current Liabilities
 
328,022

180,087

Non-current
 
 

 

Long-term debt
8
1,006,151

1,252,184

Obligation under capital lease
 
129,821

126,805

Other non-current liabilities
 
20,980

20,694

Total Liabilities
 
1,484,974

1,579,770

Equity
 
 

 

Partners' capital:
 
 

 

Common unitholders
 
561,943

585,440

Preferred unitholders
 
132,991

132,991

General partner interest
 
52,297

52,600

Total Partners' capital
 
747,231

771,031

Accumulated other comprehensive income
 
—

26

Total before non-controlling interests
 
747,231

771,057

Non-controlling interests
 
76,691

76,544

Total Equity
 
823,922

847,601

Total Liabilities and Equity
 
2,308,896

2,427,371



The accompanying notes are an integral part of these condensed consolidated interim financial statements.

22

Golar LNG Partners LP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended March 31,
(in thousands of $) 
 
2018
2017 (1)
OPERATING ACTIVITIES
 
 

 

Net income
 
14,902

27,453

Adjustments to reconcile net income to net cash provided by operating activities:
 




Depreciation and amortization
 
25,649

24,756

Movement in deferred tax liability

 
440

525

Utilization of deferred tax asset
 
—

1,458

Amortization of deferred charges
 
2,580

1,637

Drydocking expenditure
 
(3,207
)
(272
)
Foreign exchange losses
 
262

285

Realized loss on bond repurchase
 
—

6,520

Unit options expense
 
58

65

Interest element included in obligation under capital lease, net
 
39

(32
)
Change in assets and liabilities:
 
 
 
Trade accounts receivable
 
10,229

9,516

Inventories
 
(119
)
(118
)
Other current assets and other non-current assets
 
(13,858
)
(2,178
)
Amount due from related parties
 
1,252

6,496

Trade accounts payable
 
(2,825
)
(571
)
Accrued expenses
 
(6,819
)
3,019

Other current liabilities
 
(386
)
(748
)
Net cash provided by operating activities
 
28,197

77,811

 
 
 
 
INVESTING ACTIVITIES
 
 

 

Additions to vessels and equipment
 
(1,673
)
—

Net cash used in investing activities
 
(1,673
)
—

 
 
 
 
FINANCING ACTIVITIES
 
 

 

Proceeds from issuance of equity, net of issue costs
 
13,854

119,438

Repayment of debt, including related parties
 
(91,575
)
(151,752
)
Repurchase of high-yield bonds and related swaps
 
—

(175,699
)
Proceeds from debt
 
1,419

250,000

Repayments of obligation under capital lease
 
(317
)
(142
)
Advances from/(releases to) related parties for Methane Princess lease security deposit
 
164

172

Dividend paid to non-controlling interest
 
—

(3,400
)
Cash distributions paid
 
(45,000
)
(37,757
)
Financing costs paid
 
(1,699
)
(4,716
)
Common units buy-back and cancellation
 
(8,003
)
—

Net cash used in financing activities
 
(131,157
)
(3,856
)
Effect of exchange rate changes on cash
 
4,490

1,899

Net (decrease)/increase in cash, cash equivalents and restricted cash (1)
 
(100,143
)
75,854

Cash, cash equivalents and restricted cash at beginning of period (1) (2)
 
429,887

228,125

Cash, cash equivalents and restricted cash at end of period (1) (2)
 
329,744

303,979

(1) Following the adoption of the amendments to ASC 230, the statement of cash flows presents the change in the period in total cash, cash equivalents and restricted cash. These amendments have been applied retrospectively for the three months ended March 31, 2017. Included within restricted cash are security deposits for our capital lease, debt facility and performance guarantees issued to the charterers.

23

(2) The following table identifies the balance sheet line-items included in 'cash, cash equivalents and restricted cash' presented in the consolidated statements of cash flows:
 
March 31,
December 31,
March 31,
December 31,
(in thousands of $) 
2018
2017
2017
2016
 
 
 
 
 
Cash and cash equivalents
142,629

246,954

166,908

65,710

Restricted cash and short-term deposits - current
28,752

27,306

17,764

44,927

Restricted cash and short-term deposits - non-current
158,363

155,627

119,307

117,488

 
329,744

429,887

303,979

228,125


The accompanying notes are an integral part of these condensed consolidated interim financial statements.

24

Golar LNG Partners LP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(in thousands of $)
Partners’ capital
Accumulated
Other Comprehensive
(Loss)/Income
Total Before
Non-Controlling
Interest
Non-Controlling
Interest
Total Equity
Preferred units
Common
 Units
General Partner Units and IDRs (2)

Consolidated balance at December 31, 2016
—

490,564

50,942

(5,053
)
536,453

67,976

604,429

Net income
—

23,083

471

—

23,554

3,899

27,453

Other comprehensive income
—

—

—

5,090

5,090

—

5,090

Cash distributions
—

(37,002
)
(755
)
—

(37,757
)
(3,400
)
(41,157
)
Net proceeds from equity issuances

—

116,646

2,147

—

118,793

—

118,793

Grant of unit options
—

65

—

—

65

—

65

Consolidated balance at March 31, 2017
—

593,356

52,805

37

646,198

68,475

714,673


(in thousands of $)
Partners’ capital
Accumulated
Other Comprehensive
Income/(Loss)
Total Before
Non-Controlling
Interest
Non-Controlling
Interest
Total Equity
Preferred units
Common
 Units
General Partner Units and IDRs (2)

Consolidated balance at December 31, 2017
132,991

585,440

52,600

26

771,057

76,544

847,601

Net income
2,985

11,534

236

—

14,755

147

14,902

Other comprehensive loss
—

—

—

(26
)
(26
)
—

(26
)
Cash distributions (1)
(2,985
)
(40,649
)
(830
)
—

(44,464
)
—

(44,464
)
Net proceeds from equity issuances
—

13,563

291

—

13,854

—

13,854

Grant of unit options

—

58

—

—

58

—

58

Common units acquired and cancelled
—

(8,003
)
—

—

(8,003
)
—

(8,003
)
Consolidated balance at March 31, 2018
132,991

561,943

52,297

—

747,231

76,691

823,922


(1) This includes accrued distributions to Series A Preferred Unitholders.

(2) As of March 31, 2018, the carrying value of the equity attributable to the IDR holders was $32.5 million (December 31, 2017: $32.5 million).

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

25

Golar LNG Partners LP
Notes to Unaudited Condensed Consolidated Financial Statements
 
1.                                      GENERAL
 
Golar LNG Partners LP (the “Partnership,” “we,” “our,” or “us”) is a publicly traded Marshall Islands limited partnership initially formed as a subsidiary of Golar LNG Limited (“Golar”) in September 2007, to own and operate LNG carriers and FSRUs under long-term charters. As of March 31, 2018, we have a fleet of four LNG carriers and six FSRUs.


2.                                      ACCOUNTING POLICIES
 
Basis of accounting
 
The accompanying condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The footnotes are condensed as permitted by the requirements for interim financial statements and, accordingly, do not include all of the information and disclosures required under U.S. GAAP for complete financial statements. Therefore, these condensed consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2017, which are included in our Annual Report on Form 20-F.

Significant accounting policies
 
The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those followed in the preparation of our audited consolidated financial statements for the year ended December 31, 2017, except for the recently adopted accounting policies as disclosed in note 3.

Use of estimates

The preparation of financial statements in accordance with U.S. GAAP requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

As of March 31, 2018, we leased one (December 31, 2017: one) vessel under a finance lease from a wholly-owned special purpose vehicle (the “lessor SPV”) subsidiary of a financial institution in connection with our sale and leaseback transaction. While we do not hold any equity investment in the lessor SPV, we have determined that we are the primary beneficiary of the entity and accordingly, we are required to consolidate the lessor SPV into our financial results. The key line items impacted by our consolidation of the lessor SPV are short-term and long-term debt, restricted cash and short-term deposits, and interest expense. In consolidating the lessor SPV, on a quarterly basis, we must make assumptions regarding (i) the debt amortization profile; (ii) the interest rate to be applied against the lessor SPV’s debt principal; and (iii) the lessor SPV’s application of cash receipts. Our estimates are therefore dependent upon the timeliness of receipt and accuracy of financial information provided by the lessor SPV. Upon receipt of the audited annual financial statements of the lessor SPV, we will make a true-up adjustment for any material differences.


3.                                      RECENTLY ISSUED ACCOUNTING STANDARDS
 
Adoption of new accounting standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”) 2014-09 “Revenue from Contracts With Customers (Topic 606)” and subsequent amendments. The standard provides a single, comprehensive revenue recognition model and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this guidance on January 1, 2018. There is no impact on the adoption of this standard on our Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which made targeted improvements to the recognition, measurement, presentation and disclosure of financial instruments. We adopted the amendments to this ASU on January 1, 2018 under a modified retrospective

26

approach except for equity securities without a determinable fair value, for which a prospective approach is prescribed. The adoption of this ASU did not have a material impact on the Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the disclosure and classification of certain items within the statements of cash flows. We adopted this ASU on January 1, 2018 under a retrospective approach, resulting in presentational changes to our Consolidated Statement of Cash Flows. The adoption of this ASU did not have a material impact on the Consolidated Financial Statements.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statement of cash flows. We adopted this ASU on January 1, 2018 under a retrospective approach, resulting in presentational changes to our Consolidated Statement of Cash Flows and related disclosures. The adoption changed how restricted cash is reported in the consolidated statement of cash flows as follows for the three months ended March 31, 2017:

 
 
Three months ended
March 31, 2017
(in thousands of $)
Cash Flow Line Items
As previously reported
Adjustments Increase/(Decrease)
As Adjusted
OPERATING ACTIVITIES
Interest element included in obligation under capital lease
137

(169
)
(32
)
FINANCING ACTIVITIES
Restricted cash and short-term investments
27,246

(27,074
)
172

Effect of exchange rate changes on cash
—

1,899

1,899

 
 
 
 
As a result of the above changes, the following subtotals as retrospectively restated are as follows:

Net increase/(decrease) in cash, cash equivalents and restricted cash 
101,198

(25,344
)
75,854

Cash, cash equivalents and restricted cash at beginning of period 
65,710

162,415

228,125

Cash, cash equivalents and restricted cash at end of period 
166,908

137,071

303,979


In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted this ASU prospectively from January 1, 2018. As a result, this increases the likelihood that future vessel dropdowns may be considered the acquisition of an asset rather than a business combination. However, this will be dependent upon the facts and circumstances of each prospective transaction. We do not expect a material impact on the adoption of this ASU on our Consolidated Financial Statements and disclosures for prospective dropdowns will be significantly reduced.

Accounting pronouncements that have been issued but not adopted

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” and subsequent amendments. The standard requires a lessee to recognize right-of-use assets and lease liabilities on its balance sheet for all leases with terms longer than 12 months and introduces additional disclosure requirements. Lessors are required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition and provides guidance for sale and leaseback transactions. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The standard will become effective on a modified retrospective basis for us on January 1, 2019. We are evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures. Due to the transition provisions for lessors, the most significant impact of the adoption of this standard will be the recognition of lease assets and lease liabilities on our balance sheet for those leases where we are a lessee that are currently classified as operating leases.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which requires recognition and measurement of expected credit losses for financial assets and off balance sheet credit exposures. The guidance is effective on a modified retrospective basis for us on January 1, 2020 with early adoption permitted. We are evaluating the impact of this standard on our Consolidated Financial Statements and related disclosures.


4. VARIABLE INTEREST ENTITIES (“VIEs”)

27


Eskimo SPV

As of March 31, 2018, we leased one vessel from a VIE under a finance lease with a wholly-owned subsidiary, Sea 23 Leasing Co. Limited (“Eskimo SPV”) of China Merchants Bank Leasing (“CMBL”). Eskimo SPV is a special purpose vehicle (SPV).

In November 2015, we sold the Golar Eskimo to Eskimo SPV and subsequently leased back the vessel under a bareboat charter for a term of ten years. From the third year anniversary of the commencement of the bareboat charter, we have an annual option to repurchase the vessel at fixed pre-determined amounts, with an obligation to repurchase the vessel at the end of the ten year lease period.
 
While we do not hold any equity investment in Eskimo SPV, we have determined that we have a variable interest in Eskimo SPV and that Eskimo SPV is a VIE. Based on our evaluation of the bareboat agreement we have concluded that we are the primary beneficiary of Eskimo SPV and, accordingly, have consolidated Eskimo SPV into our financial results. We did not record any gain or loss from the sale of the Golar Eskimo to Eskimo SPV, and we continued to report the vessel in our consolidated financial statements at the same carrying value, as if the sale had not occurred.

The equity attributable to CMBL in Eskimo SPV is included in non-controlling interests in our consolidated results. As of March 31, 2018, the Golar Eskimo is reported under “Vessels and equipment, net” in our consolidated balance sheet.
 
The following table gives a summary of the sale and leaseback arrangement, including repurchase options and obligation as of March 31, 2018:

Vessel
Effective from
Sales value (in $ millions)
First repurchase option (in $ millions)
Month of first repurchase option
Repurchase obligation at end of lease term
   (in $ millions)
End of lease term
Golar Eskimo
November 2015
285.0
225.8
November 2018
128.3
November 2025

A summary of our payment obligations under the bareboat charter with Eskimo SPV as of March 31, 2018 is shown below:
(in thousands of $)
2018(1)
2019
2020
2021
2022
After 2022
Golar Eskimo*
20,211
26,663
25,798
24,620
23,429
60,240

(1) For the nine months ending December 31, 2018.
*This payment obligation table above includes variable rental payments due under the lease based on an assumed LIBOR plus margin, but excludes the repurchase obligation at the end of the lease term.

The impact of Eskimo SPV’s liabilities on our condensed consolidated balance sheet is as follows:
(in thousands of $)
March 31,
2018
December 31,
2017
Liabilities
 
 
Short-term debt (refer to note 8)
213,502

—

Long-term debt (refer to note 8)
—

212,084


The most significant impact of consolidation of Eskimo SPV’s operations on our condensed consolidated statement of operations is interest expense of $2.1 million and $1.8 million for the three months ended March 31, 2018 and 2017, respectively. The most significant impact of consolidation of Eskimo SPV’s cash flows on our condensed consolidated statement of cash flows is net cash of $1.4 million provided by and $6.0 million used in financing activities for the three months ended March 31, 2018 and 2017, respectively.

PT Golar Indonesia

We consolidated PT Golar Indonesia (“PTGI”), which owns the NR Satu, in our consolidated financial statements effective September 28, 2011. PTGI became a VIE and we became its primary beneficiary upon our agreement to acquire all of Golar’s

28

interests in certain subsidiaries that own and operate the NR Satu on July 19, 2012. We consolidate PTGI as we hold all of the voting stock and control all of the economic interests in PTGI.


5.                                      SEGMENT INFORMATION
 
A segment is a distinguishable component of the business that is engaged in business activities from which we earn revenues and incur expenses whose operating results are regularly reviewed by the chief operating decision maker, and which are subject to risks and rewards that are different from those of other segments. In prior quarters, we reported that we operated in one reportable segment, “LNG Market”; however, based on our maturity (following expiration of a number of long-term charters) in tandem with management’s strategic objectives, and changes in our methods of internal reporting and management structure, management has concluded that we provide two distinct services and operate in the following two reportable segments: LNG carriers and FSRUs.

• LNG carriers are vessels that transport LNG and are compatible with many LNG loading and receiving terminals globally. Four of our vessels are LNG carriers; and
• FSRUs are vessels that are permanently located offshore to regasify LNG. Six of our vessels are FSRUs.

The split of the organization of our business into two reportable segments is based on differences in our current management structure and reporting, economic characteristics, customer base, asset class and contract structure. Segment results are evaluated based on operating income. There are no transactions between reportable segments. The accounting principles for the segments are the same as for our consolidated financial statements.

As a result of the change to two reportable segments, the segment information for the three months ended March 31, 2017 has been retrospectively restated.
 
 
Three months ended March 31,
 
 
2018
 
2017
(in thousands of $)
 
FSRU
LNG Carrier
Unallocated/ Elimination

(1)
Total
 
FSRU
LNG Carrier
Unallocated/ Elimination

(1)
Total
Statement of operations:
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
62,547

11,667

—

74,214

 
73,997

27,388

—

101,385

Depreciation and amortization
 
(19,597
)
(6,052
)
—

(25,649
)
 
(19,205
)
(5,551
)
—

(24,756
)
Other operating expenses (2)
 
(14,598
)
(7,901
)
—

(22,499
)
 
(15,567
)
(6,141
)
—

(21,708
)
Operating income
 
28,352

(2,286
)
—

26,066

 
39,225

15,696

—

54,921

 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
December 31, 2017
(in thousands of $)
 
FSRU
LNG Carrier
Unallocated/ Elimination

(1)
Total
 
FSRU
LNG Carrier
Unallocated/ Elimination

(1)
Total
Balance sheet:
 
 
 
 
 
 
 
 
 
 
Total assets (3)
 
1,137,523

539,832

631,541

2,308,896

 
1,149,595

545,225

732,551

2,427,371


(1) Relates to items not allocated to a segment, but included for reconciliation purposes; and eliminations required for consolidation purposes.
(2) Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on the number of vessels).
(3) Total assets by segment refers to our principal asset being that of our vessels.



29

6.                                      OTHER FINANCIAL ITEMS, NET
 
Other financial items are comprised of the following:
 
 
Three months ended
March 31,
(in thousands of $)
2018
2017
Mark-to-market adjustments for interest rate swap derivatives
10,693

2,650

Interest expense on un-designated interest rate swaps
(458
)
(2,278
)
Losses on repurchase of 2012 High-Yield Bonds and related cross currency interest rate swap(1)
—

(3,777
)
Premium paid on repurchase of 2012 High-Yield Bond
—

(2,744
)
Foreign exchange losses on operations
(281
)
(362
)
Foreign exchange losses on capital lease obligation and related restricted cash
(152
)
(98
)
Others
(211
)
(294
)
Total
9,591

(6,903
)
 
(1) This includes foreign exchange loss arising from the early repurchase of our 2012 High-Yield Bonds of $2.9 million and the reclassification of a $5.0 million loss from the Accumulated Other Comprehensive Loss upon cessation of hedge accounting for the related cross currency interest rate swap. This is offset by the mark to market gain on the cross currency interest rate swaps of $4.1 million.


7. TAXATION


As of March 31, 2018, a net deferred tax liability of $5.7 million ($5.3 million at December 31, 2017) was recognized, due to the deferred tax liability from tax depreciation in excess of the accounting depreciation for the Golar Eskimo exceeding the deferred tax asset related to net operating loss carryforwards generated from our Jordan operations.

Tax charge

The tax charge for the three months ended March 31, 2018 included current tax charges in respect of our operations in the United Kingdom, Brazil, Kuwait, Indonesia and Barbados. The Partnership does not currently incur any corporate income tax in respect of operations in Jordan given the availability of brought forward tax losses which can be utilized against taxable profits.

The total tax charge for the three months ended March 31, 2018 includes a net deferred tax charge of $0.4 million in relation to the utilization of brought forward tax losses and tax depreciation in excess of accounting depreciation in Jordan. As a result, the deferred tax liability balance as of March 31, 2018 is $5.7 million.

Uncertain tax positions

As of March 31, 2018, we recognized a provision of $3.3 million ($3.1 million at December 31, 2017) for certain risks in various jurisdictions.


8.                                      DEBT

As of March 31, 2018 and December 31, 2017, we had total long-term debt outstanding of $1,281.8 million and $1,371.0 million, respectively, net of deferred debt financing costs of $15.7 million and $16.6 million, respectively.

In March 2018, the existing NR Satu debt facility was extinguished and subsequently refinanced which extended the maturity of the NR Satu Facility to the earliest to occur of (i) November 30, 2022; (ii) the expiration date of the NR Satu Charter; or (iii) when all the amounts outstanding under the NR Satu Facility have been repaid. In addition, the margin on LIBOR was changed from 3.50% to 2.35%.


30

During the three months ended, March 31, 2018, we repaid $75.0 million of the revolving credit facility under the $800 million credit facility, resulting in an undrawn balance of $75.0 million as of March 31, 2018.

Eskimo SPV Debt

Eskimo SPV is the legal owner of the Golar Eskimo, that we consolidate as a VIE. Although we have no control over the funding arrangements negotiated by Eskimo SPV, we consider ourselves the primary beneficiary and we are therefore required to consolidate its loan facilities into our results. See Note 4.

In March 2018, Eskimo SPV entered into a secured financing arrangement that is repayable on demand by the lender. Accordingly, as of March 31, 2018, the Eskimo SPV debt facility has been classified as short-term.


9.                                      FINANCIAL INSTRUMENTS
 
Interest rate risk management
 
In certain situations, we may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. We have entered into swaps that convert floating rate interest obligations to fixed rates, which, from an economic perspective, hedge our interest rate exposure. We do not hold or issue instruments for speculative or trading purposes. The counterparties to such contracts are major banking and financial institutions. Credit risk exists to the extent that the counterparties are unable to perform under the contracts; however, we do not anticipate non-performance by any of our counterparties.
 
We manage our debt and capital lease portfolio with interest rate swap agreements in U.S. dollars to achieve an overall desired position of fixed and floating interest rates. Certain interest rate swap agreements qualify and are designated for accounting purposes as cash flow hedges. Accordingly, the net gains and losses have been reported in a separate component of accumulated other comprehensive income to the extent the hedges are effective. The amount recorded in accumulated other comprehensive income will subsequently be reclassified into earnings in the same period as the hedged items affect earnings. As of March 31, 2018, we no longer have interest rate swaps agreements that are designated for accounting purposes as cash flow hedges.

Fair values
 
We recognize our fair value estimates using a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy has three levels based on reliability of inputs used to determine fair value as follows:
 
Level 1: Quoted market prices in active markets for identical assets and liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
 
The carrying value and estimated fair value of our financial instruments as of March 31, 2018 and December 31, 2017 are as follows:
 
 
 
March 31, 2018
December 31, 2017
(in thousands of $)
Fair value 
Hierarchy
Carrying 
Value
Fair 
Value
Carrying 
Value
Fair 
Value
Non-Derivatives:
 
 

 

 

 

Cash and cash equivalents
Level 1
142,629

142,629

246,954

246,954

Restricted cash and short-term deposits
Level 1
187,115

187,115

182,933

182,933

2015 and 2017 Norwegian Bonds (1)
Level 1
400,000

401,378

400,000

392,445

Short and long-term debt — floating (2)
Level 2
897,427

897,427

987,584

987,584

Obligation under capital lease (2)
Level 2
132,517

132,517

128,081

128,081

 
 
 
 
 
 
Derivatives:
 
 

 

 

 

Interest rate swaps asset (3) (4)
Level 2
25,912

25,912

11,962

11,962

Interest rate swaps liability (3) (4)
Level 2
4,900

4,900

1,618

1,618

Earn-out units liability (5)
Level 2
7,400

7,400

7,400

7,400


31


(1) This pertains to the 2015 and 2017 Norwegian bonds with a carrying value of $400.0 million (December 31, 2017: $400.0 million) as of March 31, 2018, which are included under long-term debt on the balance sheet. The fair value of the bonds as of March 31, 2018 was $401.4 million (December 31, 2017: $392.4 million), which is 100.3% of their face value (December 31, 2016: 98.1%).

(2) Our short-term and long-term debt and capital lease obligations are recorded at amortized cost in the consolidated balance sheets. The long-term debt is presented gross of deferred financing cost of $15.7 million as of March 31, 2018 (December 31, 2017: $16.6 million).
 
(3)  Derivative liabilities are captured within other current liabilities and derivative assets are captured within long-term assets on the balance sheet.

(4) As of March 31, 2018, we no longer have interest rate swap agreements that are designated as cash flow hedges. The fair value/carrying value of interest rate swap agreements that qualify and are designated as cash flow hedges as of December 31, 2017 was $0.1 million (with a notional amount of $72.5 million) This designated interest rate agreement matured in February 2018.

(5) This relates to the Earn Out units issuable in connection with the IDR exchange transaction in October 2016. The fair value of the Earn Out units was determined using a Monte-Carlo simulation method.  This simulation was performed within the Black Scholes option pricing model then solved via an iterative process by applying the Newton-Raphson method for the fair value of the earn out units, such that the price of a unit output by the Monte Carlo simulation equaled the price observed in the market.  The method took into account the historical volatility, distribution yield as well as the trading price of common units at the balance sheet date.

The credit exposure of interest rate swap agreements is represented by the fair value of contracts with a positive fair value at the end of each period, reduced by the effects of master netting agreements. It is our policy to enter into master netting agreements with the counterparties to derivative financial instrument contracts, which give us the legal right to discharge all or a portion of amounts owed to that counterparty by offsetting them against amounts that the counterparty owes to us.
 
March 31, 2018
 
December 31, 2017
(in thousands of $)
Gross amounts presented in the consolidated balance sheet
 
Gross amounts not offset in the consolidated balance sheet subject to netting agreements
 
Net amount
 
Gross amounts presented in the consolidated balance sheet
 
Gross amounts not offset in the consolidated balance sheet subject to netting agreements
 
Net amount
Total asset derivatives
25,912

 
(2,107
)
 
23,805

 
11,962

 
(1,618
)
 
10,344

Total liability derivatives
4,900

 
(2,107
)
 
2,793

 
1,618

 
(1,618
)
 
—


As of March 31, 2018, we have entered into the following interest rate swap transactions involving the payment of fixed rates in exchange for LIBOR as summarized below:
 
Instrument
 (in thousands of $)
Notional  amount
Maturity Dates
Fixed Interest Rates
Interest rate swaps:
 

 
 
 
 

 
 
Receiving floating, pay fixed
1,683,750

2019
to
2026
1.070
%
to
2.864%

In February 2018, we entered into a new interest rate swap for a period of eight years, effective March 31, 2018. The swap has an initial notional value of $480.0 million. During the three months ended March 31, 2018, we terminated swaps with a notional value of $122.5 million.

As of March 31, 2018, the notional principal amount of the swap agreements relating to the debt and capital lease obligations outstanding was $1,683.8 million (December 31, 2017: $1,335.3 million).


10.             RELATED PARTY TRANSACTIONS
 
Net income from related parties:
 

32

 
Three Months Ended
March 31,
(in thousands of $)
2018
2017
Transactions with Golar and affiliates:
 

 

Time charter revenues (a)
—

3,182

Management and administrative services fees (b)
(1,889
)
(1,443
)
Ship management fees (c)
(1,300
)
(996
)
Income on deposits paid to Golar (d)
2,247

680

Distributions to Golar (e)
(13,088
)
(12,797
)
Transactions with others:
 
 
Dividends to China Petroleum Corporation (f)
—

(3,400
)
 
Receivables from related parties:
 
As of March 31, 2018 and December 31, 2017, balances with related parties consisted of the following:
 
(in thousands of $)
March 31,
2018
 
December 31,
2017
Deposits paid to Golar (d)
177,247

 
177,247

Balances due from Golar and affiliates (g)
2,886

 
4,138

Methane Princess lease security deposit movements (h)
3,323

 
3,487

Total
183,456

 
184,872


(a) Time charter revenues from related parties - This consisted of revenue from the charter of the Golar Grand. In February 2015, we exercised our option requiring Golar to charter in the Golar Grand for the period from February 2015 until November 2017 at approximately 75% of the hire rate that would have been payable by the charterer. Following the cessation of the arrangement in November 2017, there is no comparable revenue earned in 2018.

(b) Management and administrative services agreement - We are party to a management and administrative services agreement with Golar Management Limited (“Golar Management”), a wholly-owned subsidiary of Golar, pursuant to which Golar Management provides to us certain management and administrative services. The services provided by Golar Management are charged at cost plus a management fee equal to 5% of Golar Management’s costs and expenses incurred in connection with providing these services. We may terminate the agreement by providing 120 days’ written notice.
 
(c) Ship management fees - Golar and certain of its affiliates charged ship management fees to us for the provision of technical and commercial management of the vessels. Each of our vessels is subject to management agreements pursuant to which certain commercial and technical management services are provided by certain subsidiaries of Golar, including Golar Management. We may terminate these agreements by providing 30 days’ written notice.
 
(d) Income on deposits paid to Golar/Deposits paid to Golar - In May 2016, we completed the acquisition from Golar of
Tundra Corp. (“Tundra Corp”), the owner of the Golar Tundra (the “Tundra Acquisition”), and paid total cash purchase consideration of $107.2 million. Pursuant to the letter agreement that we entered into in connection with the Golar Tundra Acquisition (the “Tundra Letter Agreement”), of the amount we received under the agreement, we accounted for $nil and $0.7 million as interest income for the three months ended March 31, 2018 and 2017, respectively. In May 2017, we elected to exercise our right (the “Tundra Put Right”) under the Tundra Letter Agreement to require Golar to repurchase Tundra Corp at a price equal to the original purchase price. In connection with the exercise of the Tundra Put Right, we and Golar entered into an agreement pursuant to which we agreed to sell Tundra Corp to Golar on the date of the closing of the sale to Golar of Tundra Corp pursuant to the Tundra Put Option (the “Put Sale Closing Date”) on October 17, 2017 in return for Golar's promise to pay an amount equal to $107.2 million (the “Deferred Purchase Price”) plus an additional amount equal to 5% per annum of the Deferred Purchase Price (the “Additional Amount”). The Deferred Purchase Price and the Additional Amount shall be due and payable by Golar on the earlier of (a) the date of the closing of the Hilli Acquisition (as defined) and (b) July 11, 2018.

On August 15, 2017, Golar Partners Operating LLC, our wholly owned subsidiary, entered into a purchase and sale agreement (the “Hilli Purchase Agreement”) for the Hilli Acquisition from Golar and affiliates of Keppel Shipyard Limited and Black and Veatch of common units (the “Acquired Interests”) in Hilli LLC, which will, on the closing date of the Hilli Acquisition, indirectly own the Hilli. The Acquired Interests represent the equivalent of 50% of the two liquefaction trains, out of a total of four, that are

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contracted to Perenco Cameroon S.A. and Société Nationale des Hydrocarbures (together, the “Customer”) under an eight-year liquefaction tolling agreement. The purchase price for the Acquired Interests is $658 million less net lease obligations under the financing facility for the Hilli (the “Hilli Facility”), which are expected to be between $468 and $480 million. Concurrently with the execution of the Hilli Purchase Agreement, we paid a $70 million deposit to Golar, upon which we will receive interest at a rate of 5% per annum. The closing of the Hilli Acquisition is subject to the satisfaction of certain closing conditions, which include among other things, the delivery to and acceptance by the Customer of the Hilli, and the commencement of commercial operations under the Liquefaction Tolling Agreement.

We have accounted for $2.2 million and $nil as interest income for the three months ended March 31, 2018 and 2017, respectively, on the Deferred Purchase Price and $70 million deposit.

(e) Distributions to Golar - During the three months ended March 31, 2018 and March 31, 2017, we paid total distributions to Golar of $13.1 million and $12.8 million, respectively in respect of the common units and general partner units owned by it.
 
(f) Dividends to China Petroleum Corporation - During the three months ended March 31, 2018 and March 31, 2017, Faraway Maritime Shipping Co., which is 60% owned by us and 40% owned by China Petroleum Corporation (“CPC”), paid total dividends to CPC of $nil and $3.4 million, respectively. The decrease is mainly due to reduction in revenue from the Golar Mazo as a result of the expiration of her charter in December 2017.

(g) Balances due (to)/from Golar and its affiliates - Receivables and payables with Golar primarily comprise of unpaid fees and expenses for management and administrative services and vessel management services performed by Golar and its affiliates, and other related party arrangements including the Golar Grand time charter and the Tundra Letter Agreement. In addition, certain receivables and payables arise when we pay an invoice on behalf of a related party and vice versa. Receivables and payables are generally settled quarterly in arrears. Trading balances due from Golar and its affiliates are unsecured, interest-free and intended to be settled in the ordinary course of business.

(h) Methane Princess lease security deposit movements - This represents net advances to Golar since our initial public offering in April 2011, which correspond with the net release of funds from the security deposits held relating to the Methane Princess lease. This is in connection with the Methane Princess tax lease indemnity provided by Golar under the Omnibus Agreement that we entered into with Golar at the time of our initial public offering. Accordingly, these amounts held with Golar will be settled as part of the eventual termination of the Methane Princess lease.

Other transactions

Agency agreement with PT Pesona Sentra Utama (or PT Pesona) - PT Pesona, an Indonesian company owns 51% of the issued share capital in our subsidiary, PTGI, the owner and operator of NR Satu, and provides agency and local representation services for us with respect to NR Satu. During the three months ended March 31, 2018 and March 31, 2017, PT Pesona received an agency fee of $0.1 million and $0.1 million, respectively.


11.          OTHER COMMITMENTS AND CONTINGENCIES
 
 Assets pledged
  
(in thousands of $)
At March 31, 2018
 
At December 31, 2017
Book value of vessels secured against long-term loans and capital leases
1,539,297

 
1,555,092

 
Other contractual commitments and contingencies
 
Insurance

We insure the legal liability risks for our shipping activities with Gard and Skuld, which are mutual protection and indemnity associations. As a member of a mutual association, we have inquired to the associations based on our claims record in addition to the claims records of all other members of the association. A contingent liability exists to the extent that the claims records of the members of the association in the aggregate show significant deterioration, which results in additional premiums on the members.

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Tax lease benefits

As of March 31, 2018, we have one UK tax lease (relating to the Methane Princess). A termination of this lease would realize the accrued currency gain or loss recorded against the lease liability, net of the restricted cash. As of March 31, 2018, there was a net accrued gain of approximately $0.9 million. 

Under the terms of the leasing arrangement, the benefits are derived primarily from the tax depreciation assumed to be available to the lessor as a result of their investment in the vessel. As is typical in these leasing arrangements, as the lessee, we are obligated to maintain the lessor’s after-tax margin. Accordingly, in the event of any adverse tax changes or a successful challenge by the UK Tax Authorities (“HMRC”) with regard to the initial tax basis of the transactions, or in the event of an early termination of the Methane Princess lease or in relation to the other vessels previously financed by UK tax leases, we may be required to make additional payments principally to the UK vessel lessor. We would be required to return all, or a portion of, or in certain circumstances significantly more than the upfront cash benefits that Golar received in respect of the lease financing transaction.

HMRC has been challenging the use of similar lease structures and has been engaged in litigation of a test case for some years. In August 2015, following an appeal to the Court of Appeal by the HMRC which set aside previous judgments in favor of the tax payer, the First Tier Tribunal (“UK court”) ruled in favor of HMRC. The judgments of the First Tier Tribunal do not create binding precedent for other UK court decisions and therefore the ruling in favor of HMRC is not binding in the context of our leases. Further, we consider there are differences in the fact pattern and structure between this test case and our leasing arrangements and therefore, the judgement is not necessarily indicative of any outcome should HMRC challenge us. We believe that our fact pattern is sufficiently different to succeed if we are challenged by HMRC. HMRC have written to our lessor to indicate that they believe the Methane Princess lease may be similar to the lease in the case noted above. We have reviewed the details of the case and the basis of the judgment with our legal and tax advisers to ascertain what impact, if any, the judgment may have on us and the possible range of exposure has been estimated at approximately $nil to $30 million (£22.5 million). However, under the indemnity provisions of the Omnibus Agreement, Golar has agreed to indemnify us against any liabilities incurred as a consequence of a successful challenge by the UK Revenue Authorities with regard to the initial tax basis of the Methane Princess lease and in relation to other vessels previously financed by UK tax leases. Golar is currently in conversation with HMRC on this matter, presenting the factual background of Golar's position.

Legal proceedings and claims

We may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision will be recognized in the financial statements only where we believe that a liability will be probable and for which the amounts are reasonably estimable, based upon the facts known prior to the issuance of the financial statements.

In November and December 2015, the Indonesian tax authorities issued letters to our subsidiary, PTGI, to, among other things, revoke a previously granted VAT importation waiver in the approximate amount of $24.0 million for the NR Satu. In April 2016, PTGI initiated an action in the Indonesian tax court to dispute the waiver cancellation. The final hearing took place in June 2016 and we received the verdict of the Tax Court in November 2017, which rejected PTGI’s claim. In February 2018, PTGI filed a Judicial Review with the Supreme Court of Indonesia. In the event that the revocation of the waiver is upheld by the Supreme Court and a liability arises, which we do not believe to be probable, we believe PTGI will be indemnified by PTNR for any VAT liability as well as related interest and penalties under our time charter party agreement entered into with them.


12. EQUITY

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The following table summarizes the issuances/repurchase of common units and general partner units during the three months ended March 31, 2018:

Date
 
Number of Common Units Issued/(Repurchased)
 
Unit Price
 
Net Proceeds(1)/(Cost) (in thousands of $)
 
Golar's Ownership after the Offering/Repurchase (2)
 
Use of Proceeds
January 2018
 
617,969
 
$23.15
 
13,854
 
31.55%
 
General partnership purposes
March 2018
 
(439,672)
 
$18.18
 
(8,003)
 
31.75%
 
Not applicable
______________________________
(1) Includes General Partner's 2% proportionate capital contribution.
(2) Includes Golar's 2% general partner interest in the Partnership.

The following table shows the movement in the number of preferred units, common units and general partner ("GP") units during the three months ended March 31, 2018:

(in units)
Preferred units
Common Units
GP Units
As of December 31, 2017
5,520,000

69,768,261

1,423,843

ATM program issuances
—

617,969

12,548

Unit repurchase program
—

(439,672
)
—

As of March 31, 2018
5,520,000

69,946,558

1,436,391


In March 2018, the Board approved a common unit repurchase program of up to $25.0 million of our outstanding common units in the open market over a two year period. As of March 31, 2018, 439,672 common units had been repurchased.


13.          EARNINGS PER UNIT AND CASH DISTRIBUTIONS
 
The calculations of basic and diluted earnings per common unit are presented below:
 

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Three months ended
March 31,
(in thousands of $, except per unit data)
2018
2017
Common unitholders' interest in net income
11,534

23,083

Less: distributions paid (1)
(40,525
)
(39,991
)
Over distributed earnings
(28,991
)
(16,908
)
 
 
 
Basic:
 
 
Weighted average common units outstanding (in thousands)
70,173

66,718

Diluted:
 
 
Weighted average common units outstanding (in thousands)
70,173

66,718

Earn-out units(2)
374

749

Common unit and common unit equivalents
70,547

67,467

 
 
 
Earnings per unit (basic and diluted):
 

 

Basic - Common unitholders
$
0.16

$
0.35

Diluted - Common unitholders
$
0.16

$
0.34

 
 
 
Cash distributions declared and paid in the period per common unit(3):
$
0.58

$
0.58

Subsequent event: Cash distributions declared and paid per common unit relating to the period(4):
$
0.58

$
0.58

 ______________________________________
(1) Refers to distributions made or to be made in relation to the period, irrespective of the declaration and payment dates, and is based on the weighted average number of common units outstanding in the period.

(2) This relates to the Earn-Out units issuable in connection with the IDR exchange transaction in October 2016 in which we exchanged our old Incentive Distribution Rights (“IDRs”) for new IDRs.
  
(3) Refers to cash distribution declared and paid during the period.

(4) Refers to cash distribution declared relating to the period and paid subsequent to the period end.

As of March 31, 2018, of our total number of common units outstanding, 68.25% were held by the public and the remaining common units were held by Golar.
 

14.          SUBSEQUENT EVENTS

In May 2018, we paid a distribution of $0.5775 per common unit in respect of the quarter ended March 31, 2018, amounting to $41.2 million in the aggregate. We also paid a cash distribution of $0.546875 per Series A Preferred Unit in respect of the period February 15, 2018 through May 14, 2018 to unitholders of record as of May 8, 2018, amounting to $3.0 million in the aggregate.

In March 2018, our Board approved a common unit repurchase program of up to $25.0 million of the outstanding common units of the Partnership in the open market over a two year period. During June 2018, we repurchased a total of 96,100 common units for an aggregate cost of $1.5 million. All repurchased shares were subsequently cancelled in accordance with our common unit repurchase program.






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