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New Fortress Energy Inc. - Quarter Report: 2021 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to__________

Commission File Number: 001-38790

New Fortress Energy Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware
 
83-1482060
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

111 W. 19th Street, 8th Floor
New York, NY
 
10011
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (516) 268-7400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
Accelerated filer 
Non-accelerated filer
 
Smaller reporting company
   
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock
“NFE”
Nasdaq Global Select Market

As of August 3, 2021, the registrant had 206,698,564 shares of Class A common stock outstanding.






TABLE OF CONTENTS

ii
 
 
iii
 
 
1
 
 
Item 1.
1
 
 
 
Item 2.
40
 
 
 
Item 3.
62
 
 
 
Item 4.
63
 
 
 
64
 
 
Item 1.
64
 
 
 
Item 1A.
64
 
 
 
Item 2.
113
 
 
 
Item 3.
113
 
 
 
Item 4.
113
 
 
 
Item 5.
113
 
 
 
Item 6.
113
 
 
 
116


i

GLOSSARY OF TERMS

As commonly used in the liquefied natural gas industry, to the extent applicable and as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the terms listed below have the following meanings:

Btu
the amount of heat required to raise the temperature of one avoirdupois pound of pure water from 59 degrees Fahrenheit to 60 degrees Fahrenheit at an absolute pressure of 14.696 pounds per square inch gage
   
CAA
Clean Air Act
   
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act
   
CWA
Clean Water Act
   
DOE
U.S. Department of Energy
   
FERC
Federal Energy Regulatory Commission
   
GAAP
generally accepted accounting principles in the United States
   
GHG
greenhouse gases
   
GSA
gas sales agreement
   
Henry Hub
a natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the New York Mercantile Exchange
   
ISO container
International Organization of Standardization, an intermodal container
   
LNG
natural gas in its liquid state at or below its boiling point at or near atmospheric pressure
   
MMBtu
one million Btus, which corresponds to approximately 12.1 gallons of LNG
   
MW
megawatt. We estimate 2,500 LNG gallons would be required to produce one megawatt
   
NGA
Natural Gas Act of 1938, as amended
   
non-FTA countries
countries without a free trade agreement with the United States providing for national treatment for trade in natural gas and with which trade is permitted
   
OPA
Oil Pollution Act
   
OUR
Office of Utilities Regulation (Jamaica)
   
PHMSA
Pipeline and Hazardous Materials Safety Administration
   
PPA
power purchase agreement
   
SSA
steam supply agreement
   
TBtu
one trillion Btus, which corresponds to approximately 12,100,000 gallons of LNG

ii


CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements regarding, among other things, our plans, strategies, prospects and projections, both business and financial. All statements contained in this Quarterly Report other than historical information are forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance or our projected business results. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “targets,” “potential” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:

our limited operating history;
loss of one or more of our customers;
inability to procure LNG on a fixed-price basis, or otherwise to manage LNG price risks, including hedging arrangements;
the completion of construction on our LNG terminals, facilities, power plants or Liquefaction Facilities (as defined herein) and the terms of our construction contracts for the completion of these assets;
cost overruns and delays in the completion of one or more of our LNG terminals, facilities, power plants or Liquefaction Facilities, as well as difficulties in obtaining sufficient financing to pay for such costs and delays;
our ability to obtain additional financing to effect our strategy;
We may be unable to successfully integrate the businesses and realize the anticipated benefits of the Mergers;
failure to produce or purchase sufficient amounts of LNG or natural gas at favorable prices to meet customer demand;
hurricanes or other natural or manmade disasters;
failure to obtain and maintain approvals and permits from governmental and regulatory agencies;
operational, regulatory, environmental, political, legal and economic risks pertaining to the construction and operation of our facilities;
inability to contract with suppliers and tankers to facilitate the delivery of LNG on their chartered LNG tankers;
cyclical or other changes in the demand for and price of LNG and natural gas;
failure of natural gas to be a competitive source of energy in the markets in which we operate, and seek to operate;
competition from third parties in our business;
inability to re-finance our outstanding indebtedness;
changes to environmental and similar laws and governmental regulations that are adverse to our operations;
inability to enter into favorable agreements and obtain necessary regulatory approvals;
the tax treatment of us or of an investment in our Class A shares;
the completion of the Exchange Transactions (as defined below);
a major health and safety incident relating to our business;
increased labor costs, and the unavailability of skilled workers or our failure to attract and retain qualified personnel;
risks related to the jurisdictions in which we do, or seek to do, business, particularly Florida, Jamaica, Brazil and the Caribbean; and
other risks described in the “Risk Factors” section of this Quarterly Report.

All forward-looking statements speak only as of the date of this Quarterly Report. When considering forward-looking statements, you should keep in mind the risks set forth under “Item 1A. Risk Factors” and other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Annual Report”), this Quarterly Report and in our other filings with the Securities and Exchange Commission (the “SEC”). The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, projections or achievements.


iii


PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements.

New Fortress Energy Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2021 and December 31, 2020
(Unaudited, in thousands of U.S. dollars, except share amounts)

 
June 30, 2021
   
December 31, 2020
 
Assets
           
Current assets
           
Cash and cash equivalents
 
$
143,138
   
$
601,522
 
Restricted cash
   
57,353
     
12,814
 
Receivables, net of allowances of $90 and $98, respectively
   
121,962
     
76,544
 
Inventory
   
61,491
     
22,860
 
Prepaid expenses and other current assets, net
   
92,010
     
48,270
 
Total current assets
   
475,954
     
762,010
 
                 
Restricted cash
   
29,827
     
15,000
 
Construction in progress
   
692,745
     
234,037
 
Property, plant and equipment, net
   
2,038,738
     
614,206
 
Equity method investments
   
1,312,072
     
-
 
Right-of-use assets
   
139,136
     
141,347
 
Intangible assets, net
   
225,668
     
46,102
 
Finance leases, net
   
606,108
     
7,044
 
Goodwill
   
748,602
     
-
 
Deferred tax assets, net
   
6,221
     
2,315
 
Other non-current assets, net
   
117,004
     
86,030
 
Total assets
 
$
6,392,075
   
$
1,908,091
 
                 
Liabilities
               
Current liabilities
               
Current portion of long-term debt
 
$
204,551
   
$
-
 
Accounts payable
   
97,455
     
21,331
 
Accrued liabilities
   
192,723
     
90,352
 
Current lease liabilities
   
30,077
     
35,481
 
Due to affiliates
   
6,060
     
8,980
 
Other current liabilities
   
104,598
     
35,006
 
Total current liabilities
   
635,464
     
191,150
 
                 
Long-term debt
   
3,326,303
     
1,239,561
 
Non-current lease liabilities
   
89,673
     
84,323
 
Deferred tax liabilities, net
   
293,073
     
2,330
 
Other long-term liabilities
   
45,643
     
15,641
 
Total liabilities
   
4,390,156
     
1,533,005
 
                 
Commitments and contingencies (Note 20)
   
     
 
                 
Stockholders’ equity
               
Class A common stock, $0.01 par value, 750.0 million shares authorized, 206.7 million issued and outstanding as of June 30, 2021; 174.6 million issued and outstanding as of December 31, 2020
   
2,060
     
1,746
 
Additional paid-in capital
   
1,932,318
     
594,534
 
Accumulated deficit
   
(273,450
)
   
(229,503
)
Accumulated other comprehensive income
   
101,422
     
182
 
Total stockholders' equity attributable to NFE
   
1,762,350
     
366,959
 
Non-controlling interest
   
239,569
     
8,127
 
Total stockholders' equity
   
2,001,919
     
375,086
 
Total liabilities and stockholders' equity
 
$
6,392,075
   
$
1,908,091
 

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

1


New Fortress Energy Inc.
Condensed Consolidated Statements of Operations and Comprehensive (Loss)
For the three and six months ended June 30, 2021 and 2020
(Unaudited, in thousands of U.S. dollars, except share and per share amounts)
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Revenues
                       
Operating revenue
 
$
102,836
   
$
76,177
   
$
194,032
   
$
139,679
 
Vessel charter revenue
   
64,561
     
-
     
64,561
     
-
 
Other revenue
   
56,442
     
18,389
     
110,930
     
29,417
 
Total revenues
   
223,839
     
94,566
     
369,523
     
169,096
 
                                 
Operating expenses
                               
Cost of sales
   
101,430
     
69,899
     
198,101
     
138,115
 
Vessel operating expenses
   
15,400
     
-
     
15,400
     
-
 
Operations and maintenance
   
18,565
     
9,500
     
34,816
     
17,983
 
Selling, general and administrative
   
44,536
     
31,846
     
78,152
     
60,216
 
Transaction and integration costs
   
29,152
     
-
     
40,716
     
-
 
Contract termination charges and loss on mitigation sales
   
-
     
123,906
     
-
     
124,114
 
Depreciation and amortization
   
26,997
     
7,620
     
36,886
     
12,874
 
Total operating expenses
   
236,080
     
242,771
     
404,071
     
353,302
 
Operating loss
   
(12,241
)
   
(148,205
)
   
(34,548
)
   
(184,206
)
Interest expense
   
31,482
     
17,198
     
50,162
     
31,088
 
Other (income) expense, net
   
(7,457
)
   
999
     
(8,058
)
   
1,610
 
Loss on extinguishment of debt, net
   
-
     
-
     
-
     
9,557
 
Net loss before income from equity method investments and income taxes
   
(36,266
)
   
(166,402
)
   
(76,652
)
   
(226,461
)
Income from equity method investments
   
38,941
     
-
     
38,941
     
-
 
Tax provision
   
4,409
     
117
     
3,532
     
113
 
Net loss
   
(1,734
)
   
(166,519
)
   
(41,243
)
   
(226,574
)
Net (income) loss attributable to non-controlling interest
   
(4,310
)
   
29,094
     
(2,704
)
   
80,851
 
Net loss attributable to stockholders
 
$
(6,044
)
 
$
(137,425
)
 
$
(43,947
)
 
$
(145,723
)
                                 
Net loss per share – basic and diluted
 
$
(0.03
)
 
$
(2.40
)
 
$
(0.23
)
 
$
(3.49
)
                                 
Weighted average number of shares outstanding – basic and diluted
   
202,331,304
     
57,341,215
     
189,885,473
     
41,771,849
 
                                 
Other comprehensive loss:
                               
Net loss
 
$
(1,734
)
 
$
(166,519
)
 
$
(41,243
)
 
$
(226,574
)
Currency translation adjustment
   
(101,690
)
   
(520
)
   
(100,693
)
   
(151
)
Comprehensive income (loss)
   
99,956
     
(165,999
)
   
59,450
     
(226,423
)
Comprehensive (income) loss attributable to non-controlling interest
   
(4,637
)
   
29,009
     
(2,157
)
   
81,082
 
Comprehensive income (loss) attributable to stockholders
 
$
95,319
   
$
(136,990
)
 
$
57,293
   
$
(145,341
)

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

2


New Fortress Energy Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and six months ended June 30, 2021 and 2020
(Unaudited, in thousands of U.S. dollars, except share amounts)

 
Class A shares
   
Class B shares
   
Class A common stock
   
Additional
paid-in
   
Accumulated
   
Accumulated other
comprehensive
   
Non-
controlling
   
Total
stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
(loss) income
   
interest
   
equity
 
Balance as of December 31, 2020
   
-
   
$
-
     
-
   
$
-
     
174,622,862
   
$
1,746
   
$
594,534
   
$
(229,503
)
 
$
182
   
$
8,127
   
$
375,086
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(37,903
)
   
-
     
(1,606
)
   
(39,509
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(123
)
   
(874
)
   
(997
)
Share-based compensation expense
   
-
     
-
     
-
     
-
     
-
     
-
     
1,770
     
-
     
-
     
-
     
1,770
 
Issuance of shares for vested RSUs
   
-
     
-
     
-
     
-
     
1,335,787
     
-
     
-
                             
-
 
Shares withheld from employees related to share-based compensation, at cost
   
-
     
-
     
-
     
-
     
(638,235
)
   
-
     
(27,571
)
   
-
     
-
     
-
     
(27,571
)
Dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
(17,598
)
   
-
     
-
     
-
     
(17,598
)
Balance as of March 31, 2021
   
-
   
$
-
     
-
   
$
-
     
175,320,414
   
$
1,746
   
$
551,135
   
$
(267,406
)
 
$
59
   
$
5,647
   
$
291,181
 
Net (loss) income
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(6,044
)
   
-
     
4,310
     
(1,734
)
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
101,363
     
327
     
101,690
 
Share-based compensation expense
   
-
     
-
     
-
     
-
     
-
     
-
     
1,613
     
-
     
-
     
-
     
1,613
 
Shares issued as consideration in business combinations
   
-
     
-
     
-
     
-
     
31,372,549
     
314
     
1,400,470
     
-
     
-
     
-
     
1,400,784
 
Issuance of shares for vested RSUs
   
-
     
-
     
-
     
-
     
8,930
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
-
     
-
     
-
     
-
     
(3,329
)
   
-
     
(164
)
   
-
     
-
     
-
     
(164
)
Non-controlling interest acquired in business combinations
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
229,285
     
229,285
 
Dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
(20,736
)
   
-
     
-
     
-
     
(20,736
)
Balance as of June 30, 2021
   
-
   
$
-
     
-
   
$
-
     
206,698,564
   
$
2,060
   
$
1,932,318
   
$
(273,450
)
 
$
101,422
   
$
239,569
   
$
2,001,919
 

 
Class A shares
   
Class B shares
   
Class A common stock
   
Additional
paid-in
   
Accumulated
   
Accumulated other
comprehensive
   
Non-
controlling
   
Total
stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
(loss) income
   
interest
   
equity
 
Balance as of December 31, 2019
   
23,607,096
   
$
130,658
     
144,342,572
   
$
-
     
-
   
$
-
   
$
-
   
$
(45,823
)
 
$
(30
)
 
$
302,519
   
$
387,324
 
Cumulative effect of accounting
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,533
)
   
-
     
(7,780
)
   
(9,313
)
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(8,466
)
   
-
     
(51,757
)
   
(60,223
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(53
)
   
(316
)
   
(369
)
Share-based compensation expense
   
-
     
2,508
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,508
 
Issuance of shares for vested RSUs
   
1,212,907
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
(583,508
)
   
(6,132
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(6,132
)
Balance as of March 31, 2020
   
24,236,495
   
$
127,034
     
144,342,572
   
$
-
     
-
   
$
-
   
$
-
   
$
(55,822
)
 
$
(83
)
 
$
242,666
   
$
313,795
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(137,425
)
   
-
     
(29,094
)
   
(166,519
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
435
     
85
     
520
 
Share-based compensation expense
   
-
     
1,922
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,922
 
Issuance of shares for vested RSUs
   
11,529
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
(3,250
)
   
(40
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(40
)
Exchange of NFI units
   
144,342,572
     
206,587
     
(144,342,572
)
   
-
     
-
     
-
     
-
     
-
     
-
     
(206,587
)
   
-
 
Balance as of June 30, 2020
   
168,587,346
   
$
335,503
     
-
   
$
-
     
-
   
$
-
   
$
-
   
$
(193,247
)
 
$
352
   
$
7,070
   
$
(149,678
)

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

3


New Fortress Energy Inc.
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
(Unaudited, in thousands of U.S. dollars)

 
Six Months Ended June 30,
 
   
2021
   
2020
 
Cash flows from operating activities
           
Net loss
 
$
(41,243
)
 
$
(226,574
)
Adjustments for:
               
Amortization of deferred financing costs and debt guarantee, net
   
(6,290
)
   
6,965
 
Depreciation and amortization
   
37,462
     
13,324
 
Earnings of equity method investees
   
(38,941
)
   
-
 
Dividends received from equity method investees
   
7,386
     
-
 
Sales-type lease payments received in excess of interest income
   
2,388
     
-
 
Change in market value of derivatives
   
(7,073
)
   
(294
)
Contract termination charges and loss on mitigation sales
   
-
     
124,114
 
Loss on extinguishment and financing expenses
   
-
     
9,557
 
Deferred taxes
   
2,447
     
15
 
Change in value of Investment of equity securities
   
(88
)
   
2,217
 
Share-based compensation
   
3,383
     
4,430
 
Other
   
275
     
1,201
 
Changes in operating assets and liabilities, net of acquisitions:
               
(Increase) in receivables
   
(38,018
)
   
(9,214
)
(Increase) in inventories
   
(35,458
)
   
(4,794
)
Decrease (Increase) in other assets
   
3,679
     
(9,446
)
Decrease in right-of-use assets
   
2,072
     
17,781
 
Increase in accounts payable/accrued liabilities
   
24,732
     
13,655
 
(Decrease) in amounts due to affiliates
   
(2,919
)
   
(3,666
)
Increase (Decrease) in lease liabilities
   
133
     
(19,873
)
(Decrease) Increase in other liabilities
   
(25,279
)
   
279
 
Net cash used in operating activities
   
(111,352
)
   
(80,323
)
                 
Cash flows from investing activities
               
Capital expenditures
   
(235,324
)
   
(95,422
)
Cash paid for business combinations, net of cash acquired
   
(1,586,042
)
   
-
 
Entities acquired in asset acquisitions, net of cash acquired
   
(8,817
)
   
-
 
Other investing activities
   
(750
)
   
78
 
Net cash used in investing activities
   
(1,830,933
)
   
(95,344
)
                 
Cash flows from financing activities
               
Proceeds from borrowings of debt
   
1,652,500
     
832,144
 
Payment of deferred financing costs
   
(20,989
)
   
(13,600
)
Repayment of debt
   
(15,864
)
   
(506,402
)
Payments related to tax withholdings for share-based compensation
   
(29,717
)
   
(6,117
)
Payment of dividends
   
(41,346
)
   
-
 
Net cash provided by financing activities
   
1,544,584
     
306,025
 
Impact of changes in foreign exchange rates on cash and cash equivalents
   
(1,317
)
   
-
 
Net (decrease) increase in cash, cash equivalents and restricted cash
   
(399,018
)
   
130,358
 
Cash, cash equivalents and restricted cash – beginning of period
   
629,336
     
93,035
 
Cash, cash equivalents and restricted cash – end of period
 
$
230,318
   
$
223,393
 
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Changes in accounts payable and accrued liabilities associated with construction in progress and property, plant and equipment additions
 
$
85,513
   
$
(3,084
)
Liabilities associated with consideration paid for entities acquired in asset acquisitions
   
9,959
     
-
 
Consideration paid in shares for business combinations
   
1,400,784
     
-
 

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

4


1.
Organization

New Fortress Energy Inc. (“NFE,” together with its subsidiaries, the “Company”), a Delaware corporation, is a global integrated gas-to-power infrastructure company that seeks to use natural gas to satisfy the world’s large and growing power needs and is engaged in providing energy and development services to end-users worldwide seeking to convert their operating assets from diesel or heavy fuel oil to LNG. The Company has liquefaction, regasification and power generation operations in the United States, Jamaica and Brazil. Subsequent to the Mergers (defined below), the Company now has marine operations with vessels operating under time charters and in the spot market globally.

On April 15, 2021, the Company completed the acquisitions of Hygo Energy Transition Ltd. (“Hygo”) and Golar LNG Partners LP (“GMLP”); referred to as the “Hygo Merger” and “GMLP Merger,” respectively and, collectively, the “Mergers”. NFE paid $580 million in cash and issued 31,372,549 shares of Class A common stock to Hygo’s shareholders in connection with the Hygo Merger. NFE paid $3.55 per each common unit of GMLP outstanding and for each of the outstanding membership interests of GMLP’s general partner, totaling $251 million. The Company also repaid certain outstanding debt facilities of GMLP in conjunction with closing the GMLP Merger. The results of operations of Hygo and GMLP have been included in the Company’s condensed consolidated financial statements for the period subsequent to the Mergers.

As a result of the Mergers the Company acquired one operating FSRU terminal in Sergipe, Brazil (the “Sergipe Facility”), a 50% interest in a 1.5GW power plant in Sergipe, Brazil (the “Sergipe Power Plant”), as well as two other FSRU terminals in development in Pará, Brazil (the “Barcarena Facility”) and Santa Catarina, Brazil (the “Santa Catarina Facility”).

The Company acquired the Nanook, a newbuild FSRU moored and in service at the Sergipe Facility.  In addition to the Nanook, the Company acquired a fleet of six other FSRUs, six LNG carriers and an interest in a floating liquefaction vessel, the Hilli Episeyo (the “Hilli”), which liquefies and stores LNG at sea and transfers it to LNG carriers that berth while offshore, each of which are expected to help support our existing facilities and international project pipeline. The majority of the FSRUs are operating in Brazil, Kuwait, Indonesia, Jamaica and Jordan under time charters, and uncontracted vessels are available for short term employment in the spot market.

The Company currently conducts its business through two operating segments, Terminals and Infrastructure and Ships. The business and reportable segment information reflect how the Chief Operating Decision Maker (“CODM”) regularly reviews and manages the business.

2.
Significant accounting policies

The principal accounting policies adopted are set out below.

(a)
Basis of presentation and principles of consolidation

The accompanying unaudited interim condensed consolidated financial statements contained herein were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all normal and recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position, results of operations and cash flows of the Company for the interim periods presented. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned consolidated subsidiaries. The ownership interest of other investors in consolidated subsidiaries is recorded as a non-controlling interest. All significant intercompany transactions and balances have been eliminated on consolidation.

A variable interest entity (“VIE”) is an entity that by design meets any of the following characteristics: (1) lacks sufficient equity to allow the entity to finance its activities without additional subordinated financial support; (2) as a group, equity investors do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses or do not have the right to receive residual returns of the entity; or (3) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the economic activities of the VIE that most significantly impact the VIE’s economic performance; and (2) through its interest in the VIE, the obligation to absorb the losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.

5

The sale and leaseback financings for certain vessels acquired in the GMLP Merger and Hygo Merger were consummated with VIEs. As part of these financings, the asset was sold to a single asset entity of the lending bank and then leased back. While the Company does not hold an equity investment in these entities, these entities are VIEs, and the Company has a variable interest in the entities due to the guarantees and fixed price repurchase options that absorb the losses of the VIE that could potentially be significant to the entity. The Company has concluded that it has the power to direct the economic activities that most impact the economic performance as it controls the significant decisions relating to the assets and it has the obligation to absorb losses or the right to receive the residual returns from the leased asset. As NFE has no equity interest in these VIEs, all equity attributable to these VIEs is included in non-controlling interests in the condensed consolidated financial statements.

(b)
Revenue recognition

Terminals and Infrastructure

Within the Terminals and Infrastructure segment, the Company’s contracts with customers may contain one or several performance obligations usually consisting of the sale of LNG, natural gas, power and steam, which are outputs from the Company’s natural gas-fueled infrastructure. The transaction price for each of these contracts is structured using similar inputs and factors regardless of the output delivered to the customer. The customers consume the benefit of the natural gas, power and steam when they are delivered by the Company to the customer’s power generation facilities or interconnection facility. Natural gas, power and steam qualify as a series with revenue being recognized over time using an output method, based on the quantity of natural gas, power or steam that the customer has consumed. LNG is typically delivered in containers transported by truck to customer sites. Revenue from sales of LNG delivered by truck is recognized at the point in time at which physical possession and the risks and rewards of ownership transfer to the customer, either when the containers are shipped or delivered to the customers’ storage facilities, depending on the terms of the contract. Because the nature, timing and uncertainty of revenue and cash flows are substantially the same for LNG, natural gas, power and steam, the Company has presented Operating revenue on an aggregated basis.

The Company has concluded that variable consideration included in its agreements meets the exception for allocating variable consideration. As such, the variable consideration for these contracts is allocated to each distinct unit of LNG, natural gas, power or steam delivered and recognized when that distinct unit is delivered to the customer.

The Company’s contracts with customers to supply natural gas or LNG may contain a lease of equipment, which may be accounted for as a finance or operating lease. For the Company’s operating leases, the Company has elected the practical expedient to combine revenue for the sale of natural gas or LNG and operating lease income as the timing and pattern of transfer of the components are the same. The Company has concluded that the predominant component of the transaction is the sale of natural gas or LNG and therefore has not separated the lease component. The lease component of such operating leases is recognized as Operating revenue in the condensed consolidated statements of operations and comprehensive loss. The Company allocates consideration in agreements containing finance leases between lease and non-lease components based on the relative fair value of each component. The fair value of the lease component is estimated based on the estimated standalone selling price of the same or similar equipment leased to the customer. The Company estimates the fair value of the non-lease component by forecasting volumes and pricing of gas to be delivered to the customer over the lease term.

The current and non-current portion of finance leases are recorded within Prepaid expenses and other current assets and Finance leases, net on the condensed consolidated balance sheets, respectively. For finance leases accounted for as sales-type leases, the profit from the sale of equipment is recognized upon lease commencement in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The lease payments for finance leases are segregated into principal and interest components similar to a loan. Interest income is recognized on an effective interest method over the lease term and included in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The principal component of the lease payment is reflected as a reduction to the net investment in the lease.

In addition to the revenue recognized from the finance lease components of agreements with customers, Other revenue includes revenue recognized from the construction, installation and commissioning of equipment, inclusive of natural gas delivered for the commissioning process, to transform customers’ facilities to operate utilizing natural gas or to allow customers to receive power or other outputs from our natural gas-fueled power generation facilities. Revenue from these development services is recognized over time as the Company transfers control of the asset to the customer or based on the quantity of natural gas consumed as part of commissioning the customer’s facilities until such time that the customer has declared such conversion services have been completed. If the customer is not able to obtain control over the asset under construction until such services are completed, revenue is recognized when the services are completed and the customer has control of the infrastructure. Such agreements may also include a significant financing component, and the Company recognizes revenue for the interest income component over the term of the financing as Other revenue.

6

The timing of revenue recognition, billings and cash collections results in receivables, contract assets and contract liabilities. Receivables represent unconditional rights to consideration; unbilled amounts typically result from sales under long-term contracts when revenue recognized exceeds the amount billed to the customer. Contract assets are comprised of the transaction price allocated to completed performance obligations that will be billed to customers in subsequent periods. Both unbilled receivables and contract assets are recognized within Prepaid expenses and other current assets, net and Other non-current assets, net on the condensed consolidated balance sheets. Contract liabilities consist of deferred revenue and are recognized within Other current liabilities on the condensed consolidated balance sheets.

Shipping and handling costs are not considered to be separate performance obligations. These costs are recognized in the period in which the costs are incurred and presented within Cost of sales in the condensed consolidated statements of operations and comprehensive loss. All such shipping and handling activities are performed prior to the customer obtaining control of the LNG or natural gas.

The Company collects sales taxes from its customers based on sales of taxable products and remits such collections to the appropriate taxing authority. The Company has elected to present sales tax collections in the condensed consolidated statements of operations and comprehensive loss on a net basis and, accordingly, such taxes are excluded from reported revenues.

The Company elected the practical expedient under which the Company does not adjust consideration for the effects of a significant financing component for those contracts where the Company expects at contract inception that the period between transferring goods to the customer and receiving payment from the customer will be one year or less.

Ships

Charter contracts for the use of the FSRUs and LNG carriers acquired as part of the Mergers are leases as the contracts convey the right to obtain substantially all of the economic benefits from the use of the asset and allow the customer to direct the use of that asset.

At inception, the Company makes an assessment on whether the charter contract is an operating lease or a finance lease. In making the classification assessment, the Company estimates the residual value of the underlying asset at the end of the lease term with reference to broker valuations. None of the vessel lease contracts contain residual value guarantees. Renewal periods and termination options are included in the lease term if the Company believes such options are reasonably certain to be exercised by the lessee. Generally, lease accounting commences when the asset is made available to the customer, however, where the contract contains specific customer acceptance testing conditions, the lease will not commence until the asset has successfully passed the acceptance test. The Company assesses leases for modifications when there is a change to the terms and conditions of the contract that results in a change in the scope or the consideration of the lease.

For charter contracts that are determined to be finance leases accounted for as sales-type leases, the profit from the sale of the vessel is recognized upon lease commencement in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The lease payments for finance leases are segregated into principal and interest components similar to a loan. Interest income is recognized on an effective interest method over the lease term and included in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The principal component of the lease payment is reflected as a reduction to the net investment in the lease. Revenue related to operating and service agreements in connection with charter contracts accounted for as sales-type leases are recognized over the term of the charter as the service is provided within Vessel charter revenue in the condensed consolidated statements of operations and comprehensive loss.

Revenues include fixed minimum lease payments under charters accounted for as operating leases and fees for repositioning vessels. Revenues generated from charters contracts are recorded over the term of the charter on a straight-line basis as service is provided and is included in Vessel charter revenue in the condensed consolidated statements of operations and comprehensive loss. Fixed revenue includes fixed payments (including in-substance fixed payments that are unavoidable) and variable payments based on a rate or index. For operating leases, the Company has elected the practical expedient to combine service revenue and operating lease income as the timing and pattern of transfer of the components are the same. Variable lease payments are recognized in the period in which the circumstances on which the variable lease payments are based become probable or occur.

7

Repositioning fees are included in Vessel charter revenues and are recognized at the end of the charter when the fee becomes fixed. However, where there is a fixed amount specified in the charter, which is not dependent upon redelivery location, the fee will be recognized evenly over the term of the charter.

Costs directly associated with the execution of the lease or costs incurred after lease inception but prior to the commencement of the lease that directly relate to preparing the asset for the contract are capitalized and amortized in Vessel operating expenses in the condensed consolidated statements of operations and comprehensive loss over the lease term.

Two of the Company’s LNG carriers participate in a LNG carrier pool collaborative arrangement with Golar LNG Limited, referred to as the Cool Pool. The Cool Pool allows the pool participants to optimize the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing. Under the Pool Agreement, the Pool Manager is responsible, as an agent, for the marketing and chartering of the participating vessels and paying certain voyage costs such as port call expenses and brokers' commissions in relation to employment contracts, with each of the Pool Participants continuing to be fully responsible for fulfilling the performance obligations in the contract.

The Company is primarily responsible for fulfilling the performance obligations in the time charters of vessels owned by the Company, and the Company is the principal in such time charters. Revenue and expenses for charters of the Company’s vessels that participate in the Cool Pool are presented on a gross basis within Vessel charter revenues and Vessel operating expenses, respectively, in the condensed consolidated statements of operations and comprehensive loss. The Company’s allocation of its share of the net revenues earned from the other pool participants' vessels, which may be either income or expense depending on the results of all pool participants, is reflected on a net basis within Vessel operating expenses in the condensed consolidated statements of operations and comprehensive loss.

(c)
Business combinations

Business combinations are accounted for under the acquisition method. On acquisition, the identifiable assets acquired and liabilities assumed are measured at their fair values at the date of acquisition. Any excess of the purchase price over the fair values of the identifiable net assets acquired is recognized as goodwill.  Acquisition related costs are expensed as incurred. The results of operations of acquired businesses are included in the Company’s condensed consolidated statements of operations and comprehensive loss from the date of acquisition.

If the assets acquired do not meet the definition of a business, the transaction is accounted for as an asset acquisition and no goodwill is recognized. Costs incurred in conjunction with asset acquisitions are included in the purchase price, and any excess consideration transferred over the fair value of the net assets acquired is reallocated to the identifiable assets based on their relative fair values.

(d)
Equity method investments

The Company accounts for investments in entities over which the Company has significant influence, but do not meet the criteria for consolidation, under the equity method of accounting. Under the equity method of accounting, the Company’s investment is recorded at cost, or in the case of equity method investments acquired as part of the Mergers, at the acquisition date fair value of the investment. The carrying amount is adjusted for the Company’s share of the earnings or losses, and dividends received from the investee reduce the carrying amount of the investment. The Company allocates the difference between the fair value of investments acquired in the Mergers and the Company’s proportionate share of the carrying value of the underlying assets, or basis difference, across the assets and liabilities of the investee. The basis difference assigned to amortizable net assets is included in Income (loss) from equity method investments in the condensed consolidated statements of operations and comprehensive loss. When the Company’s share of losses in an investee equals or exceeds the carrying value of the investment, no further losses are recognized unless the Company has incurred obligations or made payments on behalf of the investee.

(e)
Lessor expense recognition

Vessel operating expenses, which are recognized when incurred, include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses and third-party management fees. Voyage expenses principally consist of fuel consumed before or after the term of time charter or when the vessel is off hire. Under time charters, the majority of voyage expenses are paid by customers. To the extent that these costs are a fixed amount specified in the charter, which is not dependent upon redelivery location, the estimated voyage expenses are recognized over the term of the time charter.

Initial direct costs include costs directly related to the negotiation and consummation of the lease are deferred and recognized in Selling, general and administrative over the lease term.

8

(f)
Guarantees

Guarantees issued by the Company, excluding those that are guaranteeing the Company’s own performance, are recognized at fair value at the time that the guarantees are issued and recognized in Other current liabilities and Other non-current liabilities on the condensed consolidated balance sheets. The guarantee liability is amortized each period as a reduction to Selling, general and administrative expenses. If it becomes probable that the Company will have to perform under a guarantee, the Company will recognize an additional liability if the amount of the loss can be reasonably estimated.

(g)
Derivatives

As part of the Mergers, the Company acquired derivative positions that were used to reduce market risks associated with interest rates and foreign exchange rates. All derivative instruments are initially recorded at fair value as either assets or liabilities on the condensed consolidated balance sheets and subsequently remeasured to fair value, regardless of the purpose or intent for holding the derivative.

Where the fair value of a derivative instrument is a net liability, the derivative instrument is classified in Other current liabilities or Other long-term liabilities on the condensed consolidated balance sheets. Where the fair value of a derivative instrument is a net asset, the derivative instrument is classified in Other current assets or Other non-current assets on the condensed consolidated balance sheets depending on its maturity. The Company has not designated any derivates as cash flow or fair value hedges; however, certain instruments may be considered economic hedges.

(h)
Property, plant and equipment, net

Property, plant and equipment is recorded at cost. Expenditures for construction activities and betterments that extend the useful life of the asset are capitalized. Vessel refurbishment costs are capitalized and depreciated over the vessels' remaining useful economic lives. Refurbishment costs increase the capacity or improve the efficiency or safety of vessels and equipment. Expenditures for routine maintenance and repairs for assets in the Terminals and Infrastructure segment are charged to expense as incurred within Operations and maintenance in the condensed consolidated statements of operations and comprehensive loss; such expenditures for assets in the Ships segment that do not improve the operating efficiency or extend the useful lives of the vessels are expensed as incurred within Vessel operating expenses.

Major maintenance and overhauls of the Company’s power plant and terminals are capitalized and depreciated over the expected period until the next anticipated major maintenance or overhaul. Drydocking expenditures are capitalized when incurred and amortized over the period until the next anticipated drydocking, which is generally five years. For vessels, the Company utilizes the "built-in overhaul" method of accounting. The built-in overhaul method is based on the segregation of vessel costs into those that should be depreciated over the useful life of the vessel and those that require drydocking at periodic intervals to reflect the different useful lives of the components of the assets. The estimated cost of the drydocking component is amortized until the date of the first drydocking following acquisition of the vessel, upon which the cost is capitalized and the process is repeated. If drydocking occurs prior to the expected timing, a cumulative adjustment to recognize the change in expected timing of dry docking is recognized within Depreciation and amortization in the condensed consolidated statements of operations and comprehensive loss.

The Company depreciates property, plant and equipment less the estimate residual value using the straight-line depreciation method over the estimated economic life of the asset or lease term, whichever is shorter using the following useful lives:

 
Useful life (Yrs)
Vessels
5-30
Terminal and power plant equipment
4-24
CHP facilities
4-20
Gas terminals
5-24
ISO containers and associated equipment
3-25
LNG liquefaction facilities
20-40
Gas pipelines
4-24
Leasehold improvements
2-20

9

The Company reviews the remaining useful life of its assets on a regular basis to determine whether changes have taken place that would suggest that a change to depreciation policies is warranted.

Upon retirement or disposal of property, plant and equipment, the cost and related accumulated depreciation are removed from the account, and the resulting gains or losses, if any, are recorded in the condensed consolidated statements of operations and comprehensive loss. When a vessel is disposed, any unamortized drydocking expenditure is recognized as part of the gain or loss on disposal in the period of disposal.

(i)
Transaction and integration costs

Transaction and integration costs are comprised of costs related to business combinations and include advisory, legal, accounting, valuation and other professional or consulting fees. This caption also includes gains or losses recognized in connection with business combinations, including the settlement of preexisting relationships between the Company and an acquired entity. Financing costs which are not deferred as part of the cost of the financing on the balance sheet are recognized within this caption including fees associated with debt modifications.

3.
Adoption of new and revised standards

(a)
New standards, amendments and interpretations issued but not effective for the year beginning January 1, 2021:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for public companies for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption of all amendments in the same period permitted. The Company is currently assessing the impact of adoption of this guidance.

(b)
New and amended standards adopted by the Company:

In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, including removing certain exceptions related to the general principles in ASU 740, Income Taxes. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The adoption of this guidance in the first quarter of 2021 did not have a material impact on the Company’s financial position, results of operations or cash flows.

4.
Acquisitions

Hygo Merger

On April 15, 2021, the Company completed the acquisition of all of the outstanding common and preferred shares representing all voting interests of Hygo, a 50-50 joint venture between Golar LNG Limited (“GLNG”) and Stonepeak Infrastructure Fund II Cayman (G) Ltd., a fund managed by Stonepeak Infrastructure Partners (“Stonepeak”), in exchange for 31,372,549 shares of NFE Class A common stock and $580,000 in cash. The acquisition of Hygo expands the Company’s footprint in South America with three gas-to-power projects in Brazil’s large and fast-growing market.

10

Based on the closing price of NFE’s common stock on April 15, 2021, the total value of consideration in the Hygo Merger was $1.98 billion, shown as follows:

Consideration
       
As of
April 15, 2021
 
Cash consideration for Hygo Preferred Shares
 
$
180,000
       
Cash consideration for Hygo Common Shares
   
400,000
       
Total Cash Consideration
         
$
580,000
 
Merger consideration to be paid in shares of NFE Common Stock
   
1,400,784
         
Total Non-Cash Consideration
           
1,400,784
 
Total Consideration
         
$
1,980,784
 

The Company has determined it is the accounting acquirer of Hygo, which will be accounted for under the acquisition method of accounting for business combinations. The total purchase price of the transaction has been allocated to identifiable assets acquired, liabilities assumed and non-controlling interests of Hygo based on their respective estimated fair values as of the closing date.

The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The Company is in the process of finalizing the valuation of assets acquired, liabilities assumed and non-controlling interests of Hygo, and therefore the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement as the evaluation of the underlying inputs and assumptions of third-party valuations and the assessment of acquisition-related income taxes are finalized. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired, liabilities assumed and non-controlling interests of Hygo as described above. The preliminary estimates may be subject to adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the acquisition date.  To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur. Preliminary fair values assigned to the assets acquired, liabilities assumed and non-controlling interests of Hygo as of the closing date were as follows:

Hygo
 
As of
April 15, 2021
 
Assets Acquired
     
Cash and cash equivalents
 
$
26,641
 
Restricted cash
   
48,183
 
Accounts receivable
   
5,126
 
Inventory
   
1,022
 
Other current assets
   
8,095
 
Assets under development
   
128,625
 
Property, plant and equipment, net
   
385,389
 
Intangible assets, net
   
44,702
 
Equity method investments
   
805,391
 
Finance leases, net
   
601,000
 
Deferred tax assets, net
   
1,065
 
Other non-current assets
   
52,996
 
Total assets acquired:
 
$
2,108,235
 
Liabilities Assumed
       
Current portion of long-term debt
 
$
38,712
 
Accounts payable
   
3,059
 
Accrued liabilities
   
39,149
 
Other current liabilities
   
13,495
 
Long-term debt
   
455,165
 
Deferred tax liabilities, net
   
241,177
 
Other non-current liabilities
   
21,520
 
Total liabilities assumed:
   
812,277
 
Non-controlling interest
   
62,111
 
Net assets acquired:
   
1,233,847
 
Goodwill
 
$
746,937
 

11

The fair value of Hygo’s non-controlling interest (“NCI”) as of April 15, 2021 was $62,111, including the fair value of the net assets of VIEs that Hygo has consolidated. These VIEs are special purpose vehicles (“SPV”) for the sale and leaseback of certain vessels, and Hygo has no equity investment in these entities. The fair value of NCI was determined based on the valuation of the SPV’s external debt and the loan receivable asset associated with the sales leaseback transaction with Hygo’s subsidiary, using a discounted cash flow method.

The fair value of receivables acquired from Hygo is $8,009, which approximates the gross contractual amount; no material amounts are expected to be uncollectible.

Goodwill is calculated as the excess of the purchase price over the net assets acquired. Goodwill represents access to additional LNG and natural gas distribution systems and power markets, including a local workforce that will allow the Company to rapidly develop and deploy LNG to power solutions.

The Company’s results of operations for the first three and six months of 2021 include Hygo’s result of operations from the date of acquisition, April 15, 2021, through June 30, 2021. Revenue and net income (loss) attributable to Hygo during this period was $17,812 and $36,977, respectively.

GMLP Merger

Also on April 15, 2021, the Company completed the acquisition of all of the outstanding common units, representing all voting interests, of GMLP in exchange for $3.55 in cash per common unit and for each of the outstanding membership interest of GMLP’s general partner. In conjunction with the closing of the GMLP Merger, NFE simultaneously extinguished a portion of GMLP’s debt for total consideration of $1.15 billion.

With the acquisition of GMLP, the Company gains vessels to support the existing terminals and business development pipeline, as well as an interest in a floating natural gas facility (“FLNG”), which is expected to provide consistent cash flow streams under a long-term tolling arrangement. The interest in the FLNG facility also provides the Company access to intellectual property that will be used to develop future FLNG solutions.

The consideration paid by the Company in the GMLP Merger was as follows:

Consideration
       
As of
April 15, 2021
 
GMLP Common Units ($3.55 per unit x 69,301,636 units)
 
$
246,021
       
GMLP General Partner Interest ($3.55 per unit x 1,436,391 units)
   
5,099
       
Partnership Phantom Units ($3.55 per unit x 58,960 units)
   
209
       
Cash Consideration
         
$
251,329
 
GMLP debt repaid in acquisition
   
899,792
         
Total Cash Consideration
           
1,151,121
 
Cash settlement of preexisting relationship
   
(3,978
)
       
Total Consideration
         
$
1,147,143
 

The Company has determined it is the accounting acquirer of GMLP, which will be accounted for under the acquisition method of accounting for business combinations. The total purchase price of the transaction has been allocated to identifiable assets acquired, liabilities assumed and non-controlling interests of GMLP based on their respective estimated fair values as of the closing date.

12

The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The Company is in the process of finalizing the valuation of assets acquired, liabilities assumed and non-controlling interests of GMLP, and therefore the purchase price allocation should be considered preliminary. The preliminary purchase price allocation may be subject to further refinement as the evaluation of the underlying inputs and assumptions of third-party valuations and the assessment of acquisition-related income taxes are finalized. The goodwill balance may be adjusted pending the completion of the valuation of the assets acquired, liabilities assumed and non-controlling interests of GMLP as described above. The preliminary estimates may be subject to adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the acquisition date.  To the extent that significant changes occur in the future, the Company will disclose such changes in the reporting period in which they occur. Preliminary fair values assigned to the assets acquired, liabilities assumed and non-controlling interests of GMLP as of the closing date were as follows:

GMLP
 
As of
April 15, 2021
 
Assets Acquired
     
Cash and cash equivalents
 
$
41,461
 
Restricted cash
   
24,816
 
Accounts receivable
   
3,195
 
Inventory
   
2,151
 
Other current assets
   
2,789
 
Equity method investments
   
356,000
 
Property, plant and equipment, net
   
1,063,215
 
Intangible assets, net
   
120,000
 
Deferred tax assets, net
   
963
 
Other non-current assets
   
4,400
 
Total assets acquired:
 
$
1,618,990
 
Liabilities Assumed
       
Current portion of long-term debt
 
$
185,681
 
Accounts payable
   
3,019
 
Accrued liabilities
   
17,226
 
Other current liabilities
   
73,774
 
Deferred tax liabilities, net
   
16,008
 
Other non-current liabilities
   
10,630
 
Total liabilities assumed:
   
306,338
 
Non-controlling interest
   
167,174
 
Net assets to be acquired:
   
1,145,478
 
Goodwill
 
$
1,665
 

The fair value of GMLP’s NCI as of April 15, 2021 was $167,174, which represents the fair value of other investors’ interest in the Mazo, GMLP’s preferred units which were not acquired by the Company and the fair value of net assets of an SPV formed for the purpose of a sale and leaseback of the Eskimo. The fair value of GMLP’s preferred units and the valuation of the SPV’s external debt and the loan receivable asset associated with the sale leaseback transaction have been estimated using a discounted cash flow method.

The fair value of receivables acquired from GMLP is $4,797, which approximates the gross contractual amount; no material amounts are expected to be uncollectible.

13

The Company acquired favorable and unfavorable leases for the use of GMLP’s vessels. The fair value of the favorable contracts is $120,000 and the fair value of the unfavorable contracts is $13,400. The total weighted average amortization period is approximately three years with the favorable contract weighted average amortization period of approximately three years and the unfavorable contract weighted average amortization period of approximately one year.

The Company and GMLP had an existing lease agreement prior to the GMLP Merger. As a result of the acquisition, the lease agreement and any associated receivable and payable balances are effectively settled. The lease agreement also included provisions that required a subsidiary of NFE to indemnify GMLP to the extent that GMLP incurred certain tax liabilities as a result of the lease. A loss of $3,978 related to settlement of this indemnification provision has been recognized in Transaction and integration costs in the condensed consolidated statements of operations and comprehensive loss.

The Company’s results of operations for the first three and six months of 2021 include GMLP’s result of operations from the date of acquisition, April 15, 2021, through June 30, 2021. Revenue and net income (loss) attributable to GMLP during this period was $56,802 and $39,267, respectively.

Acquisition costs associated with the Mergers of $21,909 and $33,472 for the three and six months ended June 30, 2021 were included in Transaction and integration costs in the Company's condensed consolidated statements of operations and comprehensive loss.

Unaudited pro forma financial information

The following table summarizes the unaudited pro forma condensed financial information of the Company as if the Mergers had occurred on January 1, 2020.

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Revenue
 
$
239,554
   
$
188,149
   
$
474,990
   
$
342,274
 
Net income (loss)
   
4,438
     
(150,337
)
   
(48,746
)
   
(297,267
)
Net income (loss) attributable to stockholders
   
3,904
     
(125,983
)
   
(46,146
)
   
(226,343
)

The unaudited pro forma financial information is based on historical results of operations as if the acquisitions had occurred on January 1, 2020, adjusted for transaction costs incurred, adjustments to depreciation expense associated with the recognition of the fair value of vessels acquired, additional amortization expense associated with the recognition of the fair value of favorable customer contracts for vessel charters, additional interest expense as a result of incurring new debt and extinguishing historical debt, elimination of a pre-existing lease relationship between the Company and GMLP, and a step-up of the equity method investments and a favorable power purchase agreement contract.

Adjustments for non-recurring items increased pro forma net income by $25,887 and $37,450 for the three and six months ended June 30, 2021, respectively and decreased pro forma net income by $0 and $37,450 for the three months and six months ended June 30, 2020, respectively. Transaction costs incurred and the elimination of a pre-existing lease relationship between the Company and GMLP are considered to be non-recurring. The unaudited pro forma financial information does not give effect to any synergies, operating efficiencies or cost savings that may result from the Mergers.

Asset acquisitions

On January 12, 2021, the Company acquired 100% of the outstanding share quota of CH4 Energia Ltda. ("CH4"), an entity that owns key permits and authorizations to develop an LNG terminal and an up to 1.37 GW gas-fired power plant at the Port of Suape in Brazil. The purchase consideration consisted of $903 of cash paid at closing in addition to potential future payments contingent on achieving certain construction milestones of up to approximately $3,600. As the contingent payments meet the definition of a derivative, the fair value of the contingent payments of $3,047 is included as part of the purchase consideration and is recognized in Other non-current liabilities on the condensed consolidated balance sheets. The selling shareholders of CH4 may also receive future payments based on gas consumed by the power plant or sold to customers from the LNG terminal.  For the three and six months ended June 30, 2021, the Company recognized loss from the change in fair value of the derivative liability of $53, which is presented in Other (income) expense, net in the condensed consolidated statements of operations and comprehensive loss.

14

The purchase of CH4 has been accounted for as an asset acquisition. As a result, no goodwill was recorded, and the Company’s acquisition-related costs of $295 were included in the purchase consideration. The total purchase consideration of $5,776, which includes a deferred tax liability of $1,531 recognized as a result from the acquisition, was allocated to permits and authorizations acquired and was recorded within Intangible assets, net. In addition, the Company recognized a deferred tax liability of $1,531 that resulted from the acquisition.

On March 11, 2021, the Company acquired 100% of the outstanding shares of Pecém Energia S.A. (“Pecém”) and Energetica Camacari Muricy II S.A. (“Muricy”). These companies collectively hold grants to operate as an independent power provider and 15-year power purchase agreements for the development of thermoelectric power plants in the State of Bahia, Brazil. The Company is seeking to obtain the necessary approvals to transfer the power purchase agreements in connection with the construction the gas-fired power plant and LNG import terminal at the Port of Suape.

The purchase consideration consisted of $8,041 of cash paid at closing in addition to potential future payments contingent on achieving commercial operations of the gas-fired power plant at the Port of Suape of up to approximately $10.5 million.  As the contingent payments meet the definition of a derivative and the fair value of the contingent payments of $7,473 was included as part of the purchase consideration and is recognized in Other non-current liabilities on the condensed consolidated balance sheets. The selling shareholders may also receive future payments based on power generated by the power plant in Suape, subject to a maximum payment of approximately $4.6 million. For the three and six months ended June 30, 2021, the Company recognized a loss from the change in fair value of the derivative liability of $416, which is presented in Other (income) expense, net in the condensed consolidated statements of operations and comprehensive loss.

The purchases of Pecém and Muricy were accounted for as asset acquisitions. As a result, no goodwill was recorded, and the Company’s acquisition-related costs of $1,275 were included in the purchase consideration. Of the total purchase consideration, $16,585 was allocated to acquired power purchase agreements and recorded in Intangible assets, net on the condensed consolidated balance sheets; the remaining purchase consideration was related to working capital acquired.

5.
VIEs

Lessor VIEs

The Company assumed sale leaseback arrangements for four vessels as part of the Mergers. The counterparty to each of these sale leaseback arrangements is a VIE, and these lessor VIEs are SPVs wholly owned by financial institutions.

China Merchants Bank Lending (“CMBL”)

In November 2015, the Eskimo was sold to a subsidiary of CMBL, Sea 23 Leasing Co. Limited, and subsequently leased back under a bareboat charter for a term of ten years. The Company has options to repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the third anniversary of the commencement of the bareboat charter, with an obligation to repurchase the vessel at the end of the ten-year lease period.

CCB Financial Leasing Corporation Limited (“CCBFL”)

In September 2018, the Nanook was sold to a subsidiary of CCBFL, Compass Shipping 23 Corporation Limited, and subsequently leased back on a bareboat charter for a term of twelve years. The Company has options to repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the third anniversary of the commencement of the bareboat charter, with an obligation to repurchase the vessel at the end of the twelve-year lease period.

Oriental Shipping Company (“COSCO”)

In December 2019, the Penguin was sold to a subsidiary of COSCO, Oriental Fleet LNG 02 Limited, and subsequently leased back on a bareboat charter for a term of six years. The Company has options to repurchase the vessel throughout the charter term at fixed pre-determined amounts, commencing from the first anniversary of the commencement of the bareboat charter, with an obligation to repurchase the vessel at the end of the six-year lease period.

AVIC International Leasing Company Limited (“AVIC”)

In March 2020, the Celsius was sold to a subsidiary of AVIC, Noble Celsius Shipping Limited, and subsequently leased back on a bareboat charter for a term of seven years. The Company has options to repurchase the vessel throughout the charter term at fixed predetermined amounts, commencing from the first anniversary of the commencement of the bareboat charter, with an obligation to repurchase the vessel at the end of the seven-year lease period.

15

While the Company does not hold an equity investment in the above SPVs, the Company has a variable interest in these SPVs. The Company is the primary beneficiary of these VIEs and, accordingly, these VIEs are consolidated into the Company’s financial results for the period after the Mergers. The effect of the bareboat charter arrangements is eliminated upon consolidation of the SPVs. The equity attributable to CMBL, CCBFL, COSCO and AVIC in their respective VIEs are included in non-controlling interests in the condensed consolidated financial statements. As of June 30, 2021, the Eskimo, Penguin and Celsius are recorded as Property, plant and equipment, net on the condensed consolidated balance sheet. As of June 30, 2021, the Nanook was recognized in Finance leases, net on the condensed consolidated balance sheet.

The following table gives a summary of the sale and leaseback arrangements, including repurchase options and obligations as of June 30, 2021:

Vessel
End of lease term
Date of next
repurchase option
Repurchase price
at next repurchase
option date
Repurchase obligation
at end of lease term
Eskimo
$November 2025
$November 2021
$189,100
$128,250
Nanook
September 2030
September 2021
205,133
94,179
Penguin
December 2025
December 2021
92,761
63,040
Celsius
March 2027
March 2022
98,290
45,000

A summary of payment obligations under the bareboat charters with the lessor VIEs as of June 30, 2021, are shown below:

Vessel
 
Remaining 2021
   
2022
   
2023
   
2024
   
2025
   
_2026+
 
Eskimo
 
$
8,164
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Nanook
   
10,833
     
21,207
     
20,631
     
20,078
     
19,478
     
84,673
 
Penguin
   
5,901
     
11,581
     
11,247
     
10,894
     
7,956
     
-
 
Celsius
   
7,930
     
15,444
     
14,908
     
14,383
     
13,836
     
12,699
 

The 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 lease term.

The assets and liabilities of these lessor VIEs that most significantly impact the condensed consolidated balance sheet as of June 30, 2021 are as follows:

 
Eskimo
   
Nanook
   
Penguin
   
Celsius
 
Assets
                       
Restricted cash
 
$
-
   
$
14,713
   
$
5,599
   
$
25,131
 
Liabilities
                               
Long-term debt - current portion
 
$
172,452
   
$
-
   
$
14,652
   
$
5,942
 
Long-term debt - non-current portion
   
-
     
207,048
     
81,914
     
118,631
 

The most significant impact of the lessor VIEs operations on the Company’s condensed consolidated statement of operations is a reduction to interest expense of $6,635 for the period subsequent to the completion of Mergers. Upon assumption of the debt held by VIEs in conjunction with the Mergers, the Company recognized the liabilities assumed at fair value, and the amortization of the premium of $9,707 has been recognized as a reduction to interest expense incurred of $3,072. The most significant impact of the lessor VIEs cash flows on the condensed consolidated statements of cash flows is net cash used in financing activities of $15,823 for the period subsequent to the completion of the Mergers.

Other VIEs

Hilli LLC

The Company acquired an interest of 50% of the common units of Hilli LLC (“Hilli Common Units”) as part of the acquisition of GMLP. Hilli LLC owns Golar Hilli Corporation (“Hilli Corp”), the disponent owner of the Hilli. The Company determined that Hilli LLC is a VIE, and the Company is not the primary beneficiary of Hilli LLC. Thus, Hilli LLC has not been consolidated into the financial statements and has been recognized as an equity method investment.

16

As of June 30, 2021 the maximum exposure as a result of the Company’s ownership in the Hilli LLC is the carrying value of the equity method investment of $359,107 and the outstanding portion of the Hilli Leaseback (defined below) which have been guaranteed by the Company.

6.
Revenue recognition

Operating revenue includes revenue from sales of LNG and natural gas as well as outputs from the Company’s natural gas-fueled power generation facilities, including power and steam. Other revenue includes revenue for development services as well as interest income from the Company’s finance leases and other revenue. The table below summarizes the balances in Other revenue:

 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Development services revenue
 
$
46,589
   
$
17,495
   
$
100,660
   
$
27,566
 
Interest income and other revenue
   
9,853
     
894
     
10,270
     
1,851
 
Total other revenue
 
$
56,442
   
$
18,389
   
$
110,930
   
$
29,417
 

Development services revenue recognized in the three and six months ended June 30, 2021 included $43,771 and $89,390, respectively, for the customer’s use of natural gas as part of commissioning their assets.

Under most customer contracts, invoicing occurs once the Company’s performance obligations have been satisfied, at which point payment is unconditional. As of June 30, 2021, and December 31, 2020, receivables related to revenue from contracts with customers totaled $98,201 and $76,431, respectively, and were included in Receivables, net on the condensed consolidated balance sheets, net of current expected credit losses of $90 and $98, respectively. Other items included in Receivables, net not related to revenue from contracts with customers represent leases which are accounted for outside the scope of ASC 606 and receivables associated with reimbursable costs.

The Company has recognized contract liabilities, comprised of unconditional payments due or paid under the contracts with customers prior to the Company’s satisfaction of the related performance obligations. The performance obligations are expected to be satisfied during the next 12 months, and the contract liabilities are classified within Other current liabilities on the condensed consolidated balance sheets. Contract assets are comprised of the transaction price allocated to completed performance obligations that will be billed to customers in subsequent periods. The contract liabilities and contract assets balances as of June 30, 2021 and December 31, 2020 are detailed below:

 
June 30, 2021
   
December 31, 2020
 
Contract assets, net - current
 
$
6,354
   
$
3,673
 
Contract assets, net - non-current
   
32,353
     
23,972
 
Total contract assets, net
 
$
38,707
   
$
27,645
 
                 
Contract liabilities
 
$
5,530
   
$
8,399
 
                 
Revenue recognized in the year from:
               
Amounts included in contract liabilities at the beginning of the year
 
$
3,283
   
$
6,542
 

Contract assets are presented net of expected credit losses of $521 and $372 as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, the Company has unbilled receivables, net of current expected credit losses, of $6,640, of which $356 is presented within Other current assets and $6,284 is presented within Other non-current assets on the condensed consolidated balance sheet. These unbilled receivables represent unconditional right to payment subject only to the passage of time.

17

The Company has recognized costs to fulfill a contract with a significant customer, which primarily consist of expenses required to enhance resources to deliver under the agreement with the customer. As of June 30, 2021, the Company has capitalized $11,283, of which $604 of these costs is presented within Other current assets and $10,679 is presented within Other non-current assets on the condensed consolidated balance sheets. As of December 31, 2020, the Company had capitalized $11,276, of which $588 of these costs was presented within Other current assets and $10,688 was presented within Other non-current assets on the condensed consolidated balance sheets. In the first quarter of 2020, the Company began delivery under the agreement and started recognizing these costs on a straight-line basis over the expected term of the agreement.

Transaction price allocated to remaining performance obligations

Some of the Company’s contracts are short-term in nature with a contract term of less than a year. The Company applied the optional exemption not to report any unfulfilled performance obligations related to these contracts.

The Company has arrangements in which LNG, natural gas or outputs from the Company’s power generation facilities are sold on a “take-or-pay” basis whereby the customer is obligated to pay for the minimum guaranteed volumes even if it does not take delivery. The price under these agreements is typically based on a market index plus a fixed margin. The fixed transaction price allocated to the remaining performance obligations under these arrangements represents the fixed margin multiplied by the outstanding minimum guaranteed volumes. The Company expects to recognize this revenue over the following time periods. The pattern of recognition reflects the minimum guaranteed volumes in each period:

Period
 
Revenue
 
Remainder of 2021
 
$
215,722
 
2022
   
514,566
 
2023
   
515,175
 
2024
   
510,664
 
2025
   
503,493
 
Thereafter
   
8,323,179
 
Total
 
$
10,582,799
 

For all other sales contracts that have a term exceeding one year, the Company has elected the practical expedient in ASC 606 under which the Company does not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. For these excluded contracts, the sources of variability are (a) the market index prices of natural gas used to price the contracts, and (b) the variation in volumes that may be delivered to the customer. Both sources of variability are expected to be resolved at or shortly before delivery of each unit of LNG, natural gas, power or steam. As each unit of LNG, natural gas, power or steam represents a separate performance obligation, future volumes are wholly unsatisfied.

Lessor arrangements

The Company’s vessel charters of LNG carriers and FSRUs can take the form of operating or finance leases. Property, plant and equipment subject to vessel charters accounted for as operating leases is included within Vessels within Note 14 Property, plant and equipment, net. The following is the carrying amount of property, plant and equipment that is leased to customers under operating leases:

 
June 30, 2021
   
December 31, 2020
 
Property, plant and equipment
 
$
1,268,716
   
$
18,394
 
Accumulated depreciation
   
(9,093
)
   
(932
)
Property, plant and equipment, net
 
$
1,259,623
   
$
17,462
 

The components of lease income from vessel operating leases for the three and six months ended June 30, 2021 were as follows:

 
June 30, 2021
 
Operating lease income
 
$
62,026
 
Variable lease income
   
1,370
 
Total operating lease income
 
$
63,396
 

18

The Company’s charter of the Nanook to CELSE and certain equipment leases provided in connection with the supply of natural gas or LNG are accounted for as finance leases.

The Company recognized interest income of $9,681 for the three months and six months ended June 30, 2021 related to the finance lease of the Nanook included within Other revenue in the condensed consolidated statements of operations and comprehensive loss.  The Company recognized revenue of $1,165 for the three months and six months ended June 30, 2021 related to the operation and services agreement within Vessel charter revenue in the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2021, there were outstanding balances due from CELSE of $7,965, of which $5,822 is recognized in Receivables, net and a loan to CELSE of $2,143 is recognized in Prepaid expenses and other current assets, net on the condensed consolidated balance sheets. CELSE is an affiliate due to the equity method investment held in CELSE’s parent, CELSEPAR, and as such, these transactions and balances are related party in nature.

The following table shows the expected future lease payments as of June 30, 2021, for the remainder of 2021 through 2025 and thereafter:

 
Future cash receipts
 
   
Financing leases
   
Operating leases
 
Remainder of 2021
 
$
24,956
   
$
143,806
 
2022
   
49,951
     
245,023
 
2023
   
50,616
     
144,016
 
2024
   
51,442
     
103,461
 
2025
   
51,876
     
25,961
 
Thereafter
   
1,102,841
     
-
 
Total minimum lease receivable
 
$
1,331,682
   
$
662,267
 
Unguaranteed residual value
   
107,000
         
Gross investment in sales-type lease
 
$
1,438,682
         
Less: Unearned interest income
   
827,687
         
Less: Current expected credit losses
   
1,550
         
Net investment in leased vessel
 
$
609,445
         
                 
Current portion of net investment in leased asset
 
$
3,337
         
Non-current portion of net investment in leased asset
   
606,108
         

7.
Leases, as lessee

The Company has operating leases primarily for the use of LNG vessels, marine port space, office space, land and equipment under non-cancellable lease agreements. The Company’s leases may include multiple optional renewal periods that are exercisable solely at the Company’s discretion. Renewal periods are included in the lease term when the Company is reasonably certain that the renewal options would be exercised, and the associated lease payments for such periods are reflected in the ROU asset and lease liability.

19

The Company’s leases include fixed lease payments which may include escalation terms based on a fixed percentage or may vary based on an inflation index or other market adjustments. Escalations based on changes in inflation indices and market adjustments and other lease costs that vary based on the use of the underlying asset are not included as lease payments in the calculation of the lease liability or ROU asset; such payments are included in variable lease cost when the obligation that triggers the variable payment becomes probable. Variable lease cost includes contingent rent payments for office space based on the percentage occupied by the Company in addition to common area charges and other charges that are variable in nature. The Company also has a component of lease payments that are variable related to the LNG vessels, in which the Company may receive credits based on the performance of the LNG vessels during the period.

As of June 30, 2021 and December 31, 2020, right-of-use assets, current lease liabilities and non-current lease liabilities consisted of the following:

 
June 30, 2021
   
December 31, 2020
 
             
Operating right-of-use assets
 
$
130,534
   
$
141,347
 
Finance right-of-use assets (1)
   
8,602
     
-
 
Total right-of-use assets
 
$
139,136
   
$
141,347
 
                 
Current lease liabilities:
               
Operating lease liabilities
 
$
28,811
   
$
35,481
 
Finance lease liabilities
   
1,266
     
-
 
Total current lease liabilities
 
$
30,077
   
$
35,481
 
Non-current lease liabilities:
               
Operating lease liabilities
 
$
84,000
   
$
84,323
 
Finance lease liabilities
   
5,673
     
-
 
Total non-current lease liabilities
 
$
89,673
   
$
84,323
 

(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $61 as of June 30, 2021.

20

For the three and six months ended June 30, 2021 and 2020, the Company’s operating lease cost recorded within the condensed consolidated statements of operations and comprehensive loss were as follows:

 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Fixed lease cost
 
$
9,036
   
$
6,596
   
$
20,781
   
$
16,863
 
Variable lease cost
   
503
     
74
     
1,196
     
713
 
Short-term lease cost
   
1,507
     
330
     
2,229
     
616
 
                                 
Lease cost - Cost of sales
 
$
8,993
   
$
6,109
   
$
20,029
   
$
15,460
 
Lease cost - Operations and maintenance
   
549
     
440
     
1,106
     
828
 
Lease cost - Selling, general and administrative
   
1,504
     
451
     
3,071
     
1,904
 

For the three and six months ended June 30, 2021, the Company has capitalized $2,313 and $3,512 of lease costs, respectively, for vessels and port space used during the commissioning of development projects in addition to short-term lease costs for vessels chartered by the Company to bring inventory from a supplier’s facilities to the Company’s storage locations which are capitalized to inventory.

Beginning in the second quarter of 2021, leases for ISO tanks and a parcel of land that transfer the ownership in underlying assets to the Company at the end of the lease have commenced, and these leases are treated as finance leases. For the three and six months ended June 30, 2021, the Company recognized interest expense related to finance leases of $50, which are included within Interest expense, net in the condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2021, the Company recognized amortization of the right-of-use asset related to finance leases of $61, which is included within Depreciation and amortization in the condensed consolidated statements of operations and comprehensive loss.

Cash paid for operating leases is reported in operating activities in the condensed consolidated statements of cash flows. Supplemental cash flow information related to leases was as follows for the six months ended June 30, 2021 and 2020:

 
Six Months Ended June 30,
 
   
2021
   
2020
 
Operating cash outflows for operating lease liabilities
 
$
18,354
   
$
23,257
 
Financing cash outflows for financing lease liabilities
   
654
     
-
 
Right-of-use assets obtained in exchange for new operating lease liabilities
   
3,706
     
128,592
 
Right-of-use assets obtained in exchange for new financing lease liabilities
   
8,663
     
-
 

The future payments due under operating and finance leases as of June 30, 2021 are as follows:

 
Operating Leases
   
Finance Leases
 
Due remainder of 2021
 
$
17,906
   
$
844
 
2022
   
33,276
     
1,395
 
2023
   
26,604
     
1,465
 
2024
   
20,234
     
1,484
 
2025
   
11,810
     
1,484
 
Thereafter
   
55,156
     
1,640
 
Total lease payments
 
$
164,986
   
$
8,312
 
Less: effects of discounting
   
52,175
     
1,373
 
Present value of lease liabilities
 
$
112,811
   
$
6,939
 
                 
Current lease liability
 
$
28,811
   
$
1,266
 
Non-current lease liability
   
84,000
     
5,673
 

As of June 30, 2021, the weighted-average remaining lease term for operating leases was 7.8 years and finance leases was 6.3 years. Because the Company generally does not have access to the rate implicit in the lease, the incremental borrowing rate is utilized as the discount rate. The weighted average discount rate associated with operating leases as of June 30, 2021 was 8.4%. The weighted average discount rate associated with finance leases as of June 30, 2021 was 5.3%.

21

The Company has entered into several leases for ISO tanks that have not commenced as of June 30, 2021 with noncancelable terms of 5 years and including fixed payments of approximately $16 million.

8.
Financial instruments

Interest rate and currency risk management

In connection with the Mergers, the Company has acquired financial instruments that GMLP and Hygo used to reduce the risk associated with fluctuations in interest rates and foreign exchange rates. Interest rate swaps are used to convert floating rate interest obligations to fixed rates, which from an economic perspective hedges the interest rate exposure. The Company also acquired a cross currency interest rate swap to manage interest rate exposure on the Debenture Loan and the foreign exchange rate exposure on the US dollar cash flows from the charter of the Nanook to CELSE that guarantees the repayments of the Brazilian Real-denominated Debenture Loan.

The Company does not hold or issue instruments for speculative or trading purposes, and 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, the Company does not anticipate non-performance by any counterparties.

The following table summarizes the terms of interest rate and cross currency interest rate swaps as of June 30, 2021:

Instrument
 
Notional Amount
 
Maturity Dates
Fixed
 Interest Rate
Forward Foreign
Exchange Rate
Interest rate swap
 
$
372,750,000
 
March 2026
_2.86%
_n/a
Cross currency interest rate swap - Debenture Loan, due 2024
 
BRL 255,600,132
 
September 2024
_5.90%
_5.424

The mark-to-market gain or loss on our interest rate and foreign currency swaps that are not designated as hedges for accounting purposes for the period are reported in the condensed consolidated statements of operations and comprehensive loss in Other (income) expense, net.

Fair value

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:

Level 1 – observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.

Level 3 - unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:

Market approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Income approach – uses valuation techniques, such as the discounted cash flow technique, to convert future amounts to a single present amount based on current market expectations about those future amounts.

Cost approach – based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

22

The following table presents the Company’s financial assets and financial liabilities that are measured at fair value as of June 30, 2021 and December 31, 2020:

_
Fair Value
Hierarchy
 
June 30, 2021
Carrying Value
   
June 30, 2021
Fair Value
   
December 31, 2020
Carrying Value
   
December 31, 2020
Fair Value
 
Valuation Technique
Non-Derivatives:
                                
Cash and cash equivalents
Level 1
 
$
143,138
   
$
143,138
   
$
601,522
   
$
601,522
 
Market approach
Restricted cash
Level 1
   
87,180
     
87,180
     
27,814
     
27,814
 
Market approach
Investment in equity securities
Level 1
   
245
     
245
     
256
     
256
 
Market approach
Investment in equity securities
Level 3
   
1,849
     
1,849
     
1,000
     
1,000
 
Market approach
Long-term debt(1)
Level 2
   
3,563,734
     
3,626,972
     
1,250,000
     
1,327,488
 
Market approach
Derivatives:
                                        
Derivative liability(2)(3)
Level 3
   
31,923
     
31,923
     
10,716
     
10,716
 
Income approach
Equity agreement(3)(4)
Level 3
   
20,430
     
20,430
     
22,768
     
22,768
 
Income approach
Cross currency interest rate swap asset(5)(6)
Level 2
   
2,135
     
2,135
     
-
     
-
 
Income approach
Interest rate swap liability(5)(6)
Level 2
   
28,474
     
28,474
     
-
     
-
 
Income approach


 (1)Long-term debt is recorded at amortized cost on the condensed consolidated balance sheets, and is presented in the above table gross of deferred financing costs of $32,880 and $10,439 as of June 30, 2021 and December 31, 2020, respectively.

 (2)Consideration due to the sellers in assets acquistions when certain contingent events occur. The liability associated with the derivative liabilities is recorded within Other long-term liabilities on the condensed consolidated balance sheets.

 (3)The Company estimates fair value of the derivative liability and equity agreement using a discounted cash flows method with discount rates based on the average yield curve for bonds with similar credit ratings and matching terms to the discount periods as well as a probability of the contingent event occurring.

 (4)To be paid at the earlier of agreed-upon date or the date on which the valid planning permission is received for the facility in development in Shannon, Ireland. The liability associated with the equity agreement is recorded within Other current liabilities on the condensed consolidated balance sheets.

 (5)Cross currency interest rate swap asset is presented within Prepaid expenses and other current assets and interest rate swap liability is presented within Other current liabilities on the condensed consolidated balance sheets.

 (6)The fair value of certain derivative instruments, including interest rate swaps, is estimated considering current interest rates, foreign exchange rates, closing quoted market prices and the creditworthiness of counterparties.

As part of the Hygo Merger, the Company assumed liabilities for payments due to sellers in asset acquisitions completed prior to the Hygo Merger, and these liabilities are reflected as derivative liabilities. Activity during the six months ended June 30, 2021 also included the recognition of additional derivative liabilities from transactions accounted for as asset acquisitions of $10,520 (Note 4). During the three and six months ended June 30, 2021 and 2020, the Company had no settlements of the equity agreement or derivative liabilities or any transfers in or out of Level 3 in the fair value hierarchy.

23

The table below summarizes the fair value adjustment to instruments measured at Level 3 in the fair value hierarchy, the derivative liability and equity agreement, as well as the cross currency interest rate swap and the interest rate swap; adjustments have been recorded within Other (income) expense, net in the condensed consolidated statements of operations and comprehensive loss, for the three and six months ended June 30, 2021 and 2020:

 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Derivative liability/Equity agreement - Fair value adjustment - (Gain) loss
 
$
(288
)
 
$
1,323
   
$
(713
)
 
$
(294
)
Interest rate swap - Fair value adjustment (gain)
   
(346
)
   
-
     
(346
)
   
-
 
Cross currency interest rate swap - Fair value adjustment (gain)
   
(6,014
)
   
-
     
(6,014
)
   
-
 

Under the Company’s interest rate swap, the Company is required to provide cash collateral, and as of June 30, 2021, $12,500 of cash collateral is recognized as restricted cash on the condensed consolidated balance sheets.

9.
Restricted cash

As of June 30, 2021 and December 31, 2020, restricted cash consisted of the following:

 
June 30, 2021
   
December 31, 2020
 
Cash held by lessor VIEs
 
$
45,443
   
$
-
 
Collateral for interest rate swaps
   
12,500
     
-
 
Collateral for performance under customer agreements
   
15,000
     
15,000
 
Collateral for LNG purchases
   
-
     
11,664
 
Collateral for letters of credit and performance bonds
   
13,231
     
900
 
Other restricted cash
   
1,006
     
250
 
Total restricted cash
 
$
87,180
   
$
27,814
 
                 
Current restricted cash
 
$
57,353
   
$
12,814
 
Non-current restricted cash
   
29,827
     
15,000
 

Restricted cash does not include minimum consolidated cash balances of $30,000 required to be maintained as part of the financial covenants for sale and leaseback financings that is included in Cash and cash equivalents on the condensed consolidated balance sheets as of June 30, 2021.

10.
Inventory

As of June 30, 2021 and December 31, 2020, inventory consisted of the following:

 
June 30, 2021
   
December 31, 2020
 
LNG and natural gas inventory
 
$
47,637
   
$
13,986
 
Automotive diesel oil inventory
   
4,751
     
3,986
 
Bunker fuel, materials, supplies and other
   
9,103
     
4,888
 
Total inventory
 
$
61,491
   
$
22,860
 

24

Inventory is adjusted to the lower of cost or net realizable value each quarter. Changes in the value of inventory are recorded within Cost of sales in the condensed consolidated statements of operations and comprehensive loss. No adjustments were recorded during the six months ended June 30, 2021 and 2020.

11.
Prepaid expenses and other current assets

As of June 30, 2021 and December 31, 2020, prepaid expenses and other current assets consisted of the following:

 
June 30, 2021
   
December 31, 2020
 
Prepaid LNG
 
$
24,568
   
$
11,987
 
Prepaid expenses
   
7,268
     
4,941
 
Due from affiliates
   
2,797
     
1,881
 
Other current assets
   
57,377
     
29,461
 
Total prepaid expenses and other current assets, net
 
$
92,010
   
$
48,270
 

Other current assets as of June 30, 2021 and December 31, 2020 primarily consists of receivables for recoverable taxes and deposits.

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.

25

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%.

13.
Construction in progress

The Company’s construction in progress activity during the six months ended June 30, 2021 is detailed below:

 
June 30, 2021
 
Balance at beginning of period
 
$
234,037
 
Acquisition of construction in progress from business combinations
   
128,625
 
Additions
   
315,970
 
Impact of change in FX rates
   
17,172