Equity method investments

6 Months Ended

Jun. 30, 2021

Equity method investments [Abstract]

12.

Equity method investments

As a result of the Mergers, the Company acquired investments in Centrais Elétricas de Sergipe Participações S.A. (“CELSEPAR”) and Hilli LLC, both of which have been recognized as equity method investments. The Company has a 50% ownership interest in both entities. The investments are reflected in the Terminals and Infrastructure and Ships segments, respectively.

Changes in the balance of the Company’s equity method investments is as follows:

	June 30, 2021
Equity method investments as of December 31, 2020	$	-
Acquisition of equity method investments in the Mergers		1,161,391
Dividend		(7,386	)
Equity in earnings / losses of investees		38,941
Foreign currency translation adjustment		119,126
Equity method investments as of June 30, 2021	$	1,312,072

The carrying amount of equity method investments as of June 30, 2021 is as follows:

	June 30, 2021
CELSEPAR	$	952,965
Hilli LLC		359,107
Total carrying amount of equity method investments	$	1,312,072

As of June 30, 2021, the carrying value of the Company’s equity method investments exceeded its proportionate share of the underlying net assets of its investees by $939,551. In conjunction with the preliminary purchase accounting for the Mergers, the basis difference was allocated to tangible assets, identifiable intangible assets, liabilities and goodwill, and the basis difference attributable to amortizable net assets is amortized to Income from equity method investments over the remaining estimated useful lives of the underlying assets.

CELSEPAR

CELSEPAR is jointly owned and operated with Ebrasil Energia Ltda. (“Ebrasil”), an affiliate of Eletricidade do Brasil S.A., and the Company accounts for this 50% investment using the equity method. CELSEPAR owns 100% of the share capital of Centrais Elétricas de Sergipe S.A. (“CELSE”), the owner and operator of the Sergipe Power Plant.

Hilli LLC

The Company acquired an interest of 50% of the Hilli Common Units as part of the acquisition of GMLP. The ownership interests in Hilli LLC are represented by three classes of units, the Hilli Common Units, the Series A Special Units and the Series B Special Units. The Company did not acquire any of the Series A Special Units or Series B Special Units. The Hilli Common Units provide the Company with significant influence over Hilli LLC. The Hilli is currently operating under an 8-year liquefaction tolling agreement (“LTA”) with Perenco Cameroon S.A. and Société Nationale des Hydrocarbures.

Within 60 days after the end of each quarter, GLNG, the managing member of Hilli LLC, shall determine the amount of Hilli LLC’s available cash and appropriate reserves, and Hilli LLC shall make a distribution to the unitholders of Hilli LLC (“Hilli Unitholders”) of the available cash, subject to such reserves. Hilli LLC shall make distributions to the Hilli Unitholders when, as and if declared by GLNG; provided, however, that no distributions may be made on the Hilli Common Units on any distribution date unless Series A Distributions and Series B Distributions for the most recently ended quarter and any accumulated Series A Distributions and Series B Distributions in arrears for any past quarter have been or contemporaneously are being paid or provided for.

Series A Distributions are calculated based on cash received by Hilli Corp for any tolling fees under the LTA relating to an increase in the Brent Crude price above $60 per barrel, adjusted by incremental taxes and costs that arise from underperformance of the Hilli. Series B Distributions are calculated as 95% of “Revenues Less Expenses”, which is based on the cash receipts as a direct result of the employment of more than the first 50% of LNG production capacity for the Hilli, adjusted for incremental operating expenses, capital costs, financing and tax costs associated with making more than 50% capacity available and costs that arise from underperformance. The Hilli Common Units may receive 5% of Revenues less Expenses received by Hilli Corp during such quarter.

The Company is required to reimburse other investors in Hilli LLC for 50% of the amount, if any, by which certain operating expenses and withholding taxes of Hilli LLC are below an annual threshold for up to $20,000 in the aggregate through 2026. Other investors are required to reimburse the Company for 50% of the amount, if any, by which certain operating expenses and withholding taxes are above an annual threshold for up to $20,000 in the aggregate through 2026. No operating expense reimbursements were included in distributions for the period after the GMLP Merger.

Hilli Corp is a party to a Memorandum of Agreement, dated September 9, 2015, with Fortune Lianjiang Shipping S.A., a subsidiary of China State Shipbuilding Corporation (“Fortune”), pursuant to which Hilli Corp has sold to and leased back from Fortune the Hilli under a 10-year bareboat charter agreement (the “Hilli Leaseback”). The Hilli Leaseback provided for postconstruction financing for the Hilli in the amount of $960 million. Under the Hilli Leaseback, Hilli Corp will pay to Fortune forty consecutive equal quarterly repayments of 1.375% of the construction cost, plus interest based on LIBOR plus a margin of 4.15%.