Annual Report
2011
Contents Key Figures
03
The Board of Directors annual report 05 Board of Directors
09
Annual Accounts
10
Income statement
11
Balance Sheet
12
Statement of changes in equity
14
Cash Flow Statement
15
Notes
16
Auditor’s Report
37
Shareholder Information
39
Corporate Governance Report
40
2 MARACC ANNUAL REPORT 2011
Key Figures Figures in USD million
2011
2010
2009
2008
2007
2006
Operating income
0,1
0,0
0,0
0,0
0,0
0,0
Operating expenses
1,5
0,5
107,5
6,2
0,6
0,4
-1,4
-0,5
-107,5
-6,2
-0,6
-0,4
0,0
195,9
0,0
0,0
0,0
0,0
-1,4
195,4
-107,5
-6,2
-0,6
-0,4
391,5
246,0
222,2
205,0
139,4
0,0
4,0
18,7
42,2
97,0
129,9
0,1
Total assets
395,5
264,6
264,5
302,0
269,3
0,1
Equity capital
248,6
250,0
-25,4
82,5
77,9
0,1
0,0
0,0
210,7
206,7
186,0
0,0
146,9
14,6
79,1
12,8
5,4
0,0
2,6
17,0
40,5
96,0
128,5
0,1
-142,9
4,1
-36,9
84,2
124,5
0,1
Total assets
395,5
264,6
264,5
302,0
269,3
0,1
Equity capital
248,6
250,0
-25,4
82,5
77,9
0,1
62,9 %
94,5 %
-9,6 %
27,3 %
28,9 %
100,0 %
Profit and loss account
Operating profit Net financial items Pre-tax profit Balance sheet Fixed assets Current assets
Non current liabilities Current liabilities Liquidity Liquid assets Working capital (1)
Capital
Equity ratio (2)
Definitions: (1) Current asstes - current liabilities (2) Equity capital as % of total assets
KEY FIGURES 3
4 MARACC ANNUAL REPORT 2011
The Board of Directors annual report 2011 1. The nature of business The purpose of Maracc – Marine Accurate Well ASA (hereinafter “Maracc” or “the Company”) is to build and operate rigs and appliances for support of operations in the offshore oil industry. The Company was founded in 2006. In February 2007 the Company ordered its first semi submersible rig “Island Innovator” based on the GM 4000 design, under construction at the Cosco Shipyard, China. The Company’s registered office is in Stavanger. 2. Going Concern A pre- and post delivery financing solution for the remaining 50 % of the total construction cost was secured in 2011. The financing, in a total amount of MUSD 280, was fully committed in March 2011, and the Company started drawing on the pre-delivery portion of the financing primo June, 2011. The financing is independent of whether or not the rig is secured long term employment. The rig is 96% complete (end May 2012) and the commissioning process is well under way. Sea trial is planned to commence early August and expected delivery from the yard is end September, 2012. An operational charter contract for the rig was signed with Lundin Norway AS
in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. Commencement window is April 1st – September 20th, 2013 with expected commencement date early April, 2013. The current financing agreement requires a delivery date within 30th June 2012. The bank syndicate can demand repayment of the loan if the requirement is not met. In addition, the Company needs to secure additional funding to complete the ongoing commissioning process, the transport of the rig to its final destination and the remaining start-up costs. The Company has had meetings with the bank syndicate discussing a potential increase in the loan amount and a waiver of the condition related to the June 30th, 2012 delivery date. On June 20th , 2012 an amended structure for the existing financing, accepting amongst others a postponed delivery of the rig, was approved by the bank syndicate. The Company is still working to secure the required additional financing for commissioning, transport and start up costs. Discussions are being held with both existing banks, and other financial institutions / providers of capital. It is anticipated that this will be possible to arrange given the term employment secured.
The conditions described above imply that there to a certain extent still is uncertainty about the going concern assumption. However, the Board of Directors’ opinion is that with the amended financing having been approved this uncertainty is manageable. The financial statements have therefore been prepared in accordance with the going concern assumption. If the Company does not succeed in securing additional financing to cover commissioning, transport and start up costs, the Company will not be able to continue its operations. In a situation with a forced sale of the rig under construction, the net realizable value of the rig could be lower than the book value. 3. Working environment and personnel The Company had no employees as of 31st December 2011. The Company’s needs for competence and accompanying recourses have been secured through a long-term full-service management agreement with Island Offshore Management AS (IOM). According to the agreement IOM shall assist the Company within administration, construction supervision and later operation services. In addition to the agreement with IOM, further agreements were entered into in H2/2011 with Odfjell Drilling AS (ODAS), an experienced offshore drilling company, to further strengthen the competence
DIRECTORS REPORT 5
Island Innovator in dock at Qidong yard.
and quality of the personnel needed in the commissioning and start up phase. ODAS will also assist, and supply personnel in the final construction supervision period – and will take over the full responsibility for the rig in the operation mode. ODAS is now also actively assisting IOM / Maracc in the marketing of the rig. No Lost-Time Incidents, resulting in greater material damages or personal injuries, has been reported during the year. Maracc has contributed through several programs to encourage a safety awareness culture with our suppliers. The working environment is considered good, and continuous efforts for improvement are carried out. 4. Equal opportunities The Company is aiming to be a working place where equal opportunities prevail between sexes, races and religious orientation. The Board consists of 5 members, three men and two women. The Company satisfies the requirement of representation of both sexes according to the Norwegian asal § 6-11a (the Norwegian Public Limited Companies Act).
6 MARACC ANNUAL REPORT 2011
5. Environmental reporting The Company’s business as of 31st December 2011 is not regulated by licenses or public orders. The business does not pollute the external environment over and above what is customary for this kind of operation. 6. Future development Maracc was established in 2006 with an aim to bring forward a semi-submersible rig solution for heavy well intervention activities for subsea wells and drilling. The rig is tailor made for Norwegian operations but able to work globally. Maracc has one semi-submersible drilling and intervention rig under construction at the Cosco Shipyard Group Ltd. in China. The rig, named Island Innovator, is based on the GM 4000 design. The rig is the first purpose built drilling and well intervention rig, and is currently prepared for the full range of services such as Conventional Drilling, Coil Tubing and Through Tubing Rotary Drilling (TTRD) down to 750 meters water depth. Drilling in 1 200 m water depth may be achieved with minor modifications, while 3 000 m water depth can be achieved in intervention mode.
7. GM4000 – Project status The rig is laying key side at the Qidong yard for final Outfitting, Mechanical Completion and Commissioning. Efforts are now focused on completing the topside commissioning and prepare for sea trials this summer. The sea trials are scheduled for August and delivery for September 2012. Following the delivery from the Cosco yard in China the rig will be moved to Bintan, Indonesia to have the burner booms installed and the BOP lifted onboard prior to continuing the sailing to Norway. Transportation will be by own thrusters and it is anticipated that the voyage will take 80 days from Bintan. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction – and as from Q1/2012 strengthened with personnel from ODAS. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored. The project is now, based on the preand post delivery financing described above, fully funded through to completion from the yard as far as the yard and
Island Innovator quayside Qidong yard.
the Owner Furnished Equipment (OFE) suppliers are concerned. However, there is still a need to get additional funding in place to finance the commissioning, mobilization/ transport- and start up costs related to the first charter. As described under 2. Going Concern increased and amended loan facilities have been confirmed by the bank syndicate and the Company is in the process of documenting this additional funding. 8. Market Update The oil service market has recovered from a period suffering from low oil prices and rig rates. Several new contracts in the mid water segment has been entered into over the last year. With the recent award to Maracc by Lundin Norway AS, the rig is expected to commence operations during 2nd quarter 2013. The Contract is for a minimum of 12 wells, however Lundin has options for another 3 x 4 wells and thus this may develop into a long term contract. 9. Achievement, cash flow, investments, financing and liquidity The Board of directors is of the opinion that the annual accounts give a true and
fair view of Maracc’s assets and liabilities, financial position and result. Besides the contract with Lundin, there have not been any significant incidents after the 31.12.11 that has not been considered in the annual accounts, or that is of importance to assess the Company’s result or financial position.
the TUSD 145 000 drawn down under the pre-delivery tranche of the TUSD 280 000 loan facility. The total capital at year end was TUSD 395 464. The equity capital was TUSD 248 569 as of 31.12.11.
The Company had no turnover in 2011. The result before taxes showed a deficit of TUSD 1 436. The deficit equals the operating profit, i.e. it is mainly the operating expenses for the year (TUSD 1 501).
10.1 Market risk The Company is generally exposed to market risk; however a long-term operating contract for the vessel under construction has now been entered into. Thus the market risk is significantly reduced – and not present until the end of the fixed charter agreement and any optional work periods ended.
The Company has no expenditures related to Research and Development. Total cash flow from operational activities in the Company was minus TUSD 1 436, in accordance with the operating loss. Total investments relating to plant and equipment in 2011 were TUSD 139 963. The Company’s cash position was TUSD 2 635 as of 31.12.11. TUSD 145 000 of the total TUSD 280 000 pre- and post-delivery financing had been drawn down as at 31.12.2011, i.e. a further TUSD 135 000 was still available.
10. Financial risk
10.2 Currency risk The Company is to some extent exposed to changes in the foreign exchange markets. The charter contract entered into is in USD, all long term debt will be drawn down in USD and a significant part of the Company’s expenses is in USD. Some suppliers of Owner Furnished Equipment are however payable in NOK – as are some of the operational expenses when the rig commences its work.
The Company’s short-term debt was TUSD 146 896 as of 31.12.11, including
DIRECTORS REPORT 7
10.3 Interest risk The Company is exposed to changes in the interest rate level, since the preand post delivery loans have floating interest. However, the Company has an option to secure the interest rates long term. 10.4 Credit risk The risk related to opposite parties not having the means to fulfill their obligations is seen as low, as the Company does not have unsettled claims. To reduce risks in relation to large suppliers’ delivery obligations the company has obtained performance guarantees from the relevant suppliers’ banks. The company has received a repayment guarantee from Bank of China in connection with the Construction Contract with Cosco
shipyard. Set off agreements or similar financial instruments in order to minimize the credit risk have not been entered into by the Company. 10.5 Liquidity risk As at year end 2011, the Company had obtained financing of approximately 100 % of the total project costs (construction-, supervision- and financing costs during the construction phase). The cash position is continuing to be a challenge, even though further amounts were available under the pre- and post delivery portion of the loans as at year end. As mentioned above, there is still a need to secure additional funding to carry through the commissioning; the mobilization of the rig to its final destina-
tion and the necessary working capital in relation to the start-up phase until the operations produces a positive cash flow. However, it is anticipated that this will be possible to arrange given the term employment secured. 11. Annual results and disposals The Board suggests the following disposal of the annual result in the Company amounting minus TUSD 1 436: From share Premium: TUSD - 1 436 The Company had no distributable reserve at the end of 2011.
Oslo, 22nd June 2012
Øivind Lund Chairman of the Board
Morten Ulstein Board Member
8 MARACC ANNUAL REPORT 2011
Dionne Chouest Austin Board Member
Paal Espen Johnsen Board Member
Berit Rynning Board Member
Asle Solheim Chief Executive Office
Board of Directors 1. Øivind Lund Chairman of the Board Has held various senior positions with ABB over the last 10 years including CEO of ABB in Norway and president & country manager in Turkey. Member of the board of directors of Yara (chairman). Holds an MSc and a PhD in electrical engineering and a degree in industrial economy.
3. Dionne Chouest Austin Board Member Owner and officer of several of the Edison Chouest Offshore group companies. Has held the position of general counsel of the Edison Chouest Offshore group since 1993. Holds a BSc in accounting from Nicholls State University and a law degree from Tulane Law School.
2. Morten Ulstein Board Member Over 25 years experience in the offshore and marine sectors – both as investor and in various CEO positions (Rolls Royce Marine, Vickers Ulstein Marine Systems, Ulstein Industrier). Founder and chairman of Island Offshore – the most successful and fastest growing well intervention company to date. Responsible for managing the Ulstein family’s investment companies.
4. Paal Espen Johnsen Board Member MSc. from Norwegian School of Economics and Business Administration (NHH). CEO of investment companies Alden AS and Trekka AS, and Chairman of Hades Capital AS. Previously Partner, Senior Investment Banking Executive and Senior Financial Analyst in Carnegie ASA, and Analyst in Handelsbanken Capital Markets. Johnsen is currently boardmember in Mamut ASA.
1
2
3
4
5. Berit Rynning Board Member She has more than 35 years of experience from the oil and gas sector. She has held several senior positions within StatoilHydro, including regional director for Kazakhstan, Mexico and Venezuela and country manager in Mexico, government relations manager in Venezuela and project manager in Algeria. 6. Asle Solheim Chief Executive Officer Has 20 years of relevant experience including Managing Director of ABB Offshore Systems in the UK. Has since 2005 been involved in developing subsea riserless well intervention solutions with with FMC and Island Offshore. Educated mechanical engineer from the University of Wisconsin at Madison, USA.
5
6
BOARD OF DIRECTORS 9
Annual accounts
2011
10 MARACC ANNUAL REPORT 2011
Income statement In USD thousands
Note
2011
2010
65
-
-218
-147
-
-
-1 283
-306
-1 436
-453
Revenues Other income Salaries
6
Impariment of fixed assets Other operating expenses
7
Operating profit Financial income and expenses Finance income
7,10
-
196 558
Finance expense
7,13
-
-706
-
195 853
-1 436
195 400
-
-
-1 436
195 400
-
-
-1 436
195 400
Net financial items Profit before tax Income tax expense
8
Profit for the year Other comprehensive income Other comprehensive income for the year Total comprehensive income for the year Earnings per share (USD) Earnings per share
15
0,00
0,34
Diluted earnings pr share
15
0,00
0,32
Transfer from share premium
11
-1 436
-42 615
Transfer from other paid in equity
11
-
-27 868
Transfer to/from uncovered loss
11
-
265 883
-1 436
195 400
Transfers
Total transfers
ANNUAL ACCOUNTS 11
Balance sheet Assets In USD thousands
Fixed assets
Note
2011
2010
8
-
-
-
-
391 478
245 984
Total tangible assets
391 478
245 984
Total fixed assets
391 478
245 984
1 351
1 609
1 351
1 609
2 635
16 974
3 986
18 583
395 464
264 567
Intangible assets Deferred tax asset Total intangible assets Property, plant and equipment Rig under construction
9
Current assets Receivables Other short term receivables
7
Total receivables Cash and cash equivalents Total current assets Total assets
12 MARACC ANNUAL REPORT 2011
11
Balance sheet Equity and Liabilities In USD thousands
Equity
Note
2011
2010
12
18 227
18 227
230 341
231 777
-
-
248 569
250 005
Retained earnings
-
-
Total retained earnings
-
-
248 569
248 569
-
-
-
-
141 008
-
5 876
12 281
11
2 281
Total current liabilities
146 896
14 562
Total liabilities
146 896
14 562
Total equity and liabilities
395 464
264 567
Paid in equity Share capital Share premium Other paid in equity/Equity from conversion right Total paid in equity Retained earnings
Total equity Liabilities Other long term liabilities Bond loans
10
Total long term liabilities Current liabilities Borrowings
10
Accounts payable Other short term liabilities
Oslo, 22 June 2012
Øivind Lund Chairman of the Board
Paal Espen Johnsen Board Member
Berit Rydning Board Member
Dionne Chouest Austin Board Member
Morten Ulstein Board Member
Asle Solheim Chief Executive Officer ANNUAL ACCOUNTS 13
Statement of changes in equity In USD thousands
Note Balance at 1 January 2010
Share capital
Share Other paid premium in equity
Retained earnings
Total equity
2 891
-
27 868
-56 162
-25 403
Profit for the year
-
-42 615
-28 574
266 589
195 400
Other comprehensive income for the year
-
-
-
-
-
Total comprehensive income for the year
-
-42 615
-28 574
266 589
195 400
12
-2 602
-
-
2 602
-
10,12
10 510
249 816
-
-213 029
47 298
7 428
25 998
-
-
33 425
Reduction of share capital to cover previous losses Conversion of bonds Proceeds from shares issued (cash contribution) Cost related to conversion of bonds and cash contribution Excercised subscribtion rights
-1 421 13
-1 421
-
-
706
-
706
Total contributions by and distributions to shareholders
15 336
274 393
706
-210 427
80 008
Balance 31 December 2010
18 227
231 777
-
-
250 005
Balance 1 January 2011
18 227
231 777
-
-
250 005
-1 436
-
-
-1 436
Profit for the year Other comprehensive income for the year
-
-
-
-
-
Total comprehensive income for the year
-
-1 436
-
-
-1 436
Contributions by and distributions to shareholders
-
-
-
-
-
Total contributions by and distributions to shareholders
-
-
-
-
-
Balance 31 December 2011
18 227
230 341
-
-
248 569
14 MARACC ANNUAL REPORT 2011
Cash flow statement In USD thousands
Cash flow from operating activities
Note
2011
2010
-1 436
195 400
9
-
-
Gain related to conversion of bonds
10
-
-196 558
Change in fair value for derivative financial instruments
13
-
706
-1 436
-453
-139 963
-9 174
Changes in accounts payable and other accruals related to rig under construction
-8 417
-45 953
Net cash flows from investing activities
-148 380
-55 127
139 199
-
Profit before tax Impairment of fixed assets
Net cash flow from operating activities Cash flows from investing activities Additions related to rig under contruction
6
Cash flow from financing activities Proceeds from issuance of shares Interest and guarantees paid - net
11
-3 722
-
Proceeds from issuance of shares
11
-
33 425
-
-1 421
Net cash flow from financing activities
135 477
32 004
Net change in cash and cash equivalents
-14 338
-23 575
16 973
40 549
2 635
16 973
-
14 969
Cost related to issuance of shares and convesion of bonds
Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
Of which restricted cash
9
ANNUAL ACCOUNTS 15
Notes
2011
16 MARACC ANNUAL REPORT 2011
All amounts in USD thousands unless otherwise stated
1
General information Maracc – Marine Accurate Well ASA (“the Company) is a public limited company incorporated and domiciled in Norway and OTC listed in Oslo. The address of its registered office is Lagerveien 23, 4033 Stavanger, Norway. These separate financial statements were approved by the Board of Directors 3 May 2012. The purpose of the Company, is to build and operate rigs and appliances for support of operations in the offshore oil industry. The Company has currently one rig under construction at the Cosco Shipyard in China.
2
Summary of significant accounting policies The principal accounting policies applied in the preparation of these separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation The separate financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The separate financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in note 4. 2.1.1 Changes in accounting policy and disclosures (a) New and amended standards adopted by the Company There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2011 that would be expected to have a material impact on the Company. (b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011 and not early adopted IAS 19, ‘Employee benefits’ was amended in June 2011. The changes will not have any impact on the company since the Company has no employees.
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Company is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2013. IFRS 10, ‘Consolidated financial statements’. The new standard will not have any impact on the Company, since the Company does not present consolidated financial statements. IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The new standard will not have any impact on the Company, since the Company does not have any interest in other entities. IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source
NOTES 17
of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Company is yet to assess IFRS13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.
economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
2.2 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). USD is both the functional currency and the presentation currency for the Company.
2.4 Impairment of non-financial assets Assets that are subject to amortisation and assets under construction are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other compre hensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses are presented in the income statement within ‘finance income or cost’. 2.3 Rig under construction The Company has one rig under construction. The rig is stated at historical cost. Historical cost includes expenditure that is directly attributable to the acquisition. Cost is recognised as part of the rig when the Company receives an invoice from the different vendors. The agreed invoicing plans are considered to be reasonable approximation to the project progress. Subsequent costs will be included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future
As the rig is under construction there are no depreciations in either 2010 or 2011. Useful life for the rig will be estimated at delivery
2.5 Financial assets 2.5.1 Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. (b) Loans and receivables
18 MARACC ANNUAL REPORT 2011
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as noncurrent assets. The Company’s loans and receivables comprise ‘account receivables and other receivables’ and ‘cash and cash equivalents’ in the balance sheet 2.5.2 Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘other (losses)/gains – net’ in the period in which they arise. 2.6 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.7 Derivative financial instruments and hedging activities The Company does not use hedge accounting. 2.8 Cash and cash equivalents In the statement of cash flows and balance sheet, cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.9 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. 2.10 Accounts payable Accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.11 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. 2.12 Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 2.13 Current and deferred income tax
NOTES 19
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only
20 MARACC ANNUAL REPORT 2011
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 2.14 Provisions Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. 2.15 Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders. 2.16 Cash flow statement The statement of cash flows is reported using the indirect method.
3
Financial risk management 3.1 Financial risk factors The Company’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. The Company’s risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures. (a) Market risk (i) Foreign exchange risk The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD/NOK. Foreign exchange risk arises from accounts payables, cash and cash equivalents and future commercial transactions. Management seeks to minimize the effects of foreign exchange risk by balancing cash deposits held in different currencies and to some extent by using derivative financial instruments. A change in the USD/NOK currency rate would not have any significant impact on the Company’s financial statements. (ii) Cash flow interest rate risk Borrowings issued at variable rates expose the group to cash flow interest rate risk which is partially offset by cash held at variable rates All the Company’s borrowings are issued at variable rates. Since all interest income and expense are capitalized as borrowing cost, a change in interest rate would not have any effect on the Company’s profit or equity. (b) Credit risk The Company’s credit risk exposure is limited to bank deposits. All bank deposits are held with DnB Bank ASA.
The table below analyses the group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows
At 31 December 2011 Borrowings, 1) Accounts payable and other payables
Between 3 months and 1 year
1 545
147 654
5 888
-
14 562
-
At 31 December 2010 Accounts payable and other payables
1) Since the company did not control whether the rig will be ready for delivery within 30 June 2012, the principal amount of the loans has been included as a contractual cash flow between 3 months and 1 year. See note 10 for the expected repayment profile for the loan.
3.2 Capital management The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Management monitors capital on the basis of the equity ratio, since the debt covenants requires an equity ratio of minimum 30%. The equity ratios at 31 December 2011 and 2010 were as follows
The bank has credit rating A. (c) Liquidity risk Management makes cash flow forecasts to ensure that the Company has sufficient cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants. Such forecasting takes into consideration the Company’s debt financing plans and covenant compliance.
Less than 3 months
Total assets Total equity Equity ratio
2011 395 464 248 569 63 %
2010 264 567 250 005 94 %
3.3 Fair value estimation The Company did not have any financial instruments or liabilities carried at fair value at 31 December 2011 and 2010.
NOTES 21
4
Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (a) Estimated impairment of rig under construction An impairment at 110 MUSD for the rig under construction was made in 2009. The impairment has been evaluated on each balance sheet date after the impairment. The impairment was not changed in 2010 because both a value in use calculation and estimated fair value less cost to sell was considered consistent with the impairment made in 2009.
has been presented and actively tendered to several oil companies for drilling operations in the North Sea and outside. The Company has estimated fair value less cost to sell, to be approximately equal to the carrying value. The basis for the estimate is observed transaction prices in the rig market, obtained relevant pricing models for rigs and management assumtions. Value in use has not been calculated, since it has not been possible to give reliable estimates for the future cash flows. The impairment charge from 2009 has not been changed. The estimated value is uncertain, since none of the observed transactions involve rigs with the same specifications as the Island Innovator. A sales transaction involving the Island Innovator could result in a sales price less cost to sell that differs from the estimated fair value less cost to sell with a significant amount. (b) Deferred tax asset The deferred tax asset has not been recognised in the balance sheet since the probability of future taxable profit in Norway is considered to be too low.
The Company has reevaluated the impairment charge at year end 2011, by estimating the recoverable amount. The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. There have been several bids/pursuit processes in which Island Innovator
5
Segment information Segment information is not considered relevant, since all the activities of the Company are within the same segment.
22 MARACC ANNUAL REPORT 2011
6
Employee benefits expense, number of employees, loans to employees and auditor’s fee The Company has not had any employees during 2010 and 2011.
Remuneration to the Board of Directors Employers Tax on BoD remunertation Other personnell cost Total salaries cost
2011 149 21 47 218
2010 132 15 0 147
Management and Boad of Directors remuneration In connection with hiring a CEO from another company, the Company has paid fees and travelling expenses amounted to USD 407 thousands in 2011 (2010: USD 378 thousands) In 2010 the payments was capitalized as part of the cost of the rig under constructions, as it was considered that the CEO used most of his time related to the construction project. In 2011 the payments has been expensed as other operating expenses, since the CEO in 2010 has mainly worked with marketing, financing and other general administrative assingments.
Renumaration to the board of directors Chairman of the Board - Øyvind Lund Boad member - Berit Rydning Boad member - Morten Ulstein Boad member - Paal Espen Johnsen Boad member - Dionne Rochelle Chouest Board member - Øyvind Jordanger Total
2011 37 28 28 28 28 0 149
2010 33 25 25 25 25 132
No loans/securities have been granted to the CEO, chairman of the board or other related parties. The CEO and Boad of Directors have no post employment agreements.
Auditor fee - Statutory Audit - Other assurance services - Tax advisory fee - Other advisory services Total auditor fee
2011 63 0 19 15 97
2010 43 3 12 26 84
VAT is not included in the fee specified above. The company’s chosen auditor is PricewaterhouseCoopers AS.
NOTES 23
7
8
Specifications Finance income Gain on renegotiation and convertion of bonds Total
2011 -
2010 196 558 196 558
Finance expense Loss on issued subsription rights (see note 13) Total
2011 -
2010 706 706
Other operating expenses Auditor fee Consultant’s fee Legal costs Other Total
2011 97 784 197 206 1 283
2010 84 125 32 65 306
Other short-term receivables Prepaid expenses Other short term recivables Outstanding VAT Total
2011 1 072 279 1 351
2010 1 071 30 508 1 609
2011 -
2010 -
Tax Components of the Income Tax Expense Tax payable Changes in deferred tax Changes in deferred tax to equity Total income tax expense
Deferred tax / (deferred tax asset) 1 January 2010 Change in deferred tax during the period 31 December 2010 Change in deferred tax during the period 31 December 2011
24 MARACC ANNUAL REPORT 2011
Deferred tax asset not recognised 30 214
Deffered tax / (deffered tax asset) -
Fixed assets -2 685
Borrowings -
Tax losses carried forwad -27 529
746 -1 939
-
-396 -27 925
-350 29 864
-
4 399 2 461
1 430 1 430
-5 510 -33 436
-318 29 545
-
Explanation why profit before tax differs from the amount that would arise using the 28% tax rate:
Profit/loss before income tax 28 % of profit before income tax Permanent differences Not recognised change in deferred tax asset Total income tax expense Effective tax rate in %
2011 -1 436 -402 720 -318 0 0,0 %
2010 195 400 54 712 -54 362 -350 0 0,0 %
* ) Permanent differences consist of non deductible costs, currency translation effects since the tax return is prepared in NOK, and net gain related to conversion of bonds and subscription rights (2010).
The deferred tax asset has not been recognised in the balance sheet, since the probability of future taxable profit in Norway is considered to be too low.
9
Tangible assets Heavy well intervention unit 332 245 9 174 14 565 355 984
Total Tangible assets 332 245 9 174 14 565 355 984
Accumulated depreciation 31.12.10 Accumulated impairment loss 31.12.10 Reversed impairment loss 31.12.10
-110 000 -
-110 000 -
Net carrying value at 31.12.10
245 984
245 984
-
-
2010 Acquisition cost at 01.01.10 Additions Disposals Additions capitalized financial costs Acquisition cost 31.12.10
Depreciation of the year Impairment loss of the year Accumulated capitalized finance cost
74 534
NOTES 25
2011 Acquisition cost at 01.01.11 Additions Disposals Additions capitalized financial costs Acquisition cost 31.12.11 Accumulated depreciation 31.12.11 Accumulated impairment loss 31.12.11 Reversed impairment loss 31.12.11 Net carrying value at 31.12.11 Depreciation of the year Impairment loss of the year Accumulated capitalized finance cost
Heavy well intervention unit 355 984 139 963 5 531 501 478
Total Tangible assets 355 984 139 963 5 531 501 478
-110 000 -
-110 000 -
391 478
391 478
-
-
80 066
80 066
All expenses which are related to construction of the rig are capitalized. This includes management fee from Island Offshore Management AS. The management fee is mainly consisting of construction supervision. According to IAS 16.19 administration expenses and general service expenses are not capitalized. All interest on borrowings and bonds has been capitalized. Interest income on bank deposits has according to IAS 23.15 reduced capitalized finance cost. As the rig is under construction there are no depreciations in either 2011 or 2010. Useful life for the rig is not yet estimated. The company will estimate useful life and residual values of the rig at delivery. In 2009 there was made an impairment of the rig under construction at 110 MUSD based on estimated fair value less cost to sell. The impairment was not changed in 2010 because both a value in use calculation and estimated fair value less cost to sell was considered consistent with the impairment made in 2009. The Company has reevaluated the impairment charge at year end 2011, by estimating the recoverable amount. The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. There have been several bids/pursuit processes in which Island Innovator has been presented and actively tendered to several oil companies for drilling operations in the North Sea and outside. The Company has estimated fair value less cost to sell, to be approximately equal to the carrying value. The basis for the estimate is observed transaction prices in the rig market, obtained relevant pricing models for rigs and management assumtions. Value in use has not been calculated, since it has not been possible to give reliable estimates for the future cash flows. The impairment charge from 2009 has not been changed The estimated value is uncertain, since none of the observed transactions involve rigs with the same specifications as the Island Innovator. A sales transaction involving the Island Innovator could result in a sales price less cost to sell that differs from the estimated fair value less cost to sell with a significant amount.
26 MARACC ANNUAL REPORT 2011
GM4000 – Project status The project at Cosco Shipyard Group is currently (early May 2012) 96% complete with the original scope. The additional scope of topside installation is currently 80% complete. The rig is laying key side at the Qidong yard for final Outfitting, Mechanical Completion and Commissioning. Efforts are now focused on completing the topside commissioning and prepare for sea trials this summer. The sea trials are scheduled for August and delivery for September 2012. Following the delivery from the Cosco yard in China the rig will be moved to Bintan, Indonesia to have the burner booms installed and the BOP lifted onboard prior to continuing the sailing to Norway. Transportation will be by own thrusters and it is anticipated that the voyage will take 80 days from Bintan. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction – and as from Q1/2012 strengthened with personnel from ODAS. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored. The project is now, based on the pre- and post delivery financing described above, fully funded through to completion from the yard as far as the yard and the Owner Furnished Equipment (OFE) suppliers are concerned. However, there is still a need to get additional funding in place to finance the commissioning, mobilization/ transport- and start up costs related to the first charter.
The table below shows the estimated remaining cost to complete the rig, and available liquidity and drawing rights.
Estimated cost at completion including finance cost Acquisition cost 31.12.2011 Remaining acquisition cost including finance cost
USD 633 120 501 478 131 642
Account payable related to the rig 31.12.2011 Remaining payments to complete the rig
5 876 137 518
Bank deposits 31.12.2011 Unused drawing rights 31.12.2011 Available liquidity
2 635 135 000 137 635
Required financing for commissioning, mobilization/transport and start op costs are not included in the calculation.
NOTES 27
10
Bond loans and borrowings The company had three bond loans in USD with a nominal value of respectively 80 MUSD (maturity 9 July 2012), 120 MUSD (maturity 27 February 2012) and 30 MUSD (maturity 8 October 2013). There was a conversion right connected to the loans with a nominal value of 80 MUSD and of 30 MUSD. The fair value of this conversion right was recognized as equity in the balance sheet when the loans were granted. The bond loan with a nominal value of 120 MUSD was secured by a pledge in the rig under construction (building contract and assignment of refund guarantee). The bond loans were renegotiated during 2010. As a consequence of the renegotiation, both the convertible bonds and the secured bond were converted into shares in June 2010. Unpaid accrued interests were also converted. Prior to the conversion, the bonds owned by the company (loan 1 – nominal value of own bonds 1 MUSD) were canceled.
Conversion of bond loans in 2010 Nominal value of loan
Loan 1 119 000
Loan 2 80 000
Loan 3 30 000
Total 229 000
Book value of bond loan at time of conversion Accrued interest at time of conversion Total recognised debt to be converted Fair value of issued shares Gain
119 000 11 545 130 545 36 431 94 114
72 402 14 398 86 801 7 903 78 897
21 127 5 383 26 510 2 962 23 548
212 530 31 326 243 855 47 297 196 558
Borrowings Non-current Bank borrowings Current Bank borrowings
2011
2010
-
-
141 008
-
2011 145 000 (5 537) 1 545 141 008
2010 -
2011 141 008
2010 -
The carrying value of the bank borrowings are specified below
Nominal value of bank borrowings Payments included in calculation of amortised cost Accrued interests Total
The exposure of the Company’s borrowings to interest rate changes at the end of the reporting period are as follows:
6 monhts og less
28 MARACC ANNUAL REPORT 2011
The carrying amounts of the Company’s borrowings are denominated in the following currencies:
USD
2011 141 008
2010 -
2011 135 000
2010 -
The Company has the following undrawn borrowing facilities:
Floating rate - Expiring within one year
The fair value of the bank borrowings are considered to be approximately equal to the nominal value of the loans plus accrued interests The Company entered into a new loan agreement 13.05.2011. The loan agreement consists of two loans (A and B), totaling 280 MUSD, which can be drawn upon until the completion of the rig. As of 31.12.2011, 145 MUSD of the loan facility were used. Loan A constitutes 180 MUSD of the 280 MUSD loan facility. As of 31.12.2011 the company had used 93,2 MUSD of the facility. The interest terms for the loan is LIBOR 3 months + 0,57%. The loan is secured by a first priority pledge in the rig under construction. In addition, GIEK has given a guarantee for the loan. The Company pays a 2% p.a. guarantee commission for the drawn amount, and a 0,75% p.a. guarantee commission for the undrawn amount. The guarantee is included in the loan agreement. Since the company pays the guarantee commission to the loan agent, the guarantee has been included in the calculation of effective interest. Effective interest for the loan is approximately LIBOR 6 months+ 3,0% including the guarantee. Loan B constitutes 100 MUSD of the 280 MUSD loan facility. As of 31.12.2011 the company had used 51,8 MUSD of the facility. The interest terms for the loan is LIBOR 6 months + 4,0%. The loan is secured by a second priority pledge in the rig under construction. In addition, some of the Company’s shareholders have given a guarantee for the loan. The Company pays a 2% p.a. guarantee commission for the guarantee given. Details about the guarantees are given in note 14. The guarantee commissions are paid directly to the shareholders. Effective interest for the loan is approximately LIBOR 6 months + 4,7% excluding the guarantee. A summary of the covenants for the loans is given below: - The rig can’t be delivered to the Company later than 30.06.2012. - Market value of the rig is required to be minimum 150% of the loans. - Free liquidity to cover next twelve months installments (post delivery). - Working capital > 0, where 50% of next twelve months installments are included in the calculation of working capital (post delivery). - EBITDA/total loan payments next twelve months > 1,25 (post delivery). - Equity ratio > 30%. - Book equity for Alpha Marine Services LLC (shareholder guarantor) > 120 MUSD, and free liquidity > 10 MUSD. - Change of control clauses. - No dividend payments without the concent of the lenders As of 31.12.2011 the rig was not ready for delivery. Since the final delivery date of the rig was not controlled by the Company by this date, the loans have been classified as current liabilities. The Company was in compliance with the other covenants. Given that the rig will be delivered within 30.06.2012, or the lenders accepts a later delivery date, the repayment
NOTES 29
profile will be as described in the table below. The effective interest rates disclosed above have been calculated based on this repayment profile
Loan A Loan B Total instalments
2012 10 588 5 882 16 471
2013 21 176 11 765 32 941
2014 21 176 11 765 32 941
2015 21 176 11 765 32 941
2016 21 176 11 765 32 941
Subsequent 84 706 47 059 131 765
Total 180 000 100 000 280 000
Debts secured by pledges
2011 141 008
2010 0
Pledged assets: Rig under construction Sum
391 478 391 478
0 0
Until the rig has been delivered the pledge consists of assignment of building contract and assignment of refund guarantee.
11
Cash and cash equivalents Bank deposits
2011 2 635
2010 16 974
2011 -
2010 9 750 1 843 3 377 14 969
The company does not have credit facilities. Of the total bank deposits, the following is restricted:
to the benefit of Cosco to the benefit of Global Maritime to the benefit of Nymo AS to the benefit of Vetco Grey AS to the benefit of Cameron Total
The company has no employees, consquently there is no restricted bank deposists regarding payroll tax.
30 MARACC ANNUAL REPORT 2011
12
Share capital and shareholder information The share capital of the company is registered in Norwegian Kroner (NOK). The share capital in the financial statement is calculated in USD. There is only one class of shares, and all shares have the same rights.
The share capital consists of: Shares 01.01.2010 Reduction of nomial value to cover losses Conversion of bonds Issue of new shares, cash contribution Shares 31.12.2010 Changes in 2011 Shares/share capital 31.12.2011
The largest shareholdings as at 31.12.10. Island offshore v as Euroclear bank s.A./N.V. (‘Ba’) (nom) Trond mohn Rig invest l.L.C Skagen vekst Island offsxhore xii as Alden as Citigroup global markets ltc. (nom) Glaamene industrier as Ivar Erik Tollefsen Island offshore invest as Naustneset as Bank of new york mellon sa/nv (nom) Bakkevig, bjørn Mp pensjon pk Arne loen as State street bank and trust co Skagen vekst iii Pelments as Erik Martin Vik Total 20 largest shareholders Other shareholders Total
Shares 17 640 000 677 922 620 479 097 896 1 174 660 516 1 174 660 516
Shares 361 668 135 197 991 811 114 247 646 113 790 680 67 652 076 61 987 351 53 305 655 35 390 381 28 611 888 19 746 275 14 711 627 13 598 509 12 111 153 9 495 253 8 153 720 6 441 324 4 424 250 3 468 985 3 285 754 2 902 045 1 132 984 518 41 675 998 1 174 660 516
Nominal Registered value in NOK 1 17 640 000 -0,9 -15 876 000 0,1 67 792 262 0,1 47 909 790 0,1 117 466 052 - 117 466 052
Ownership 30,8 % 16,9 % 9,7 % 9,7 % 5,8 % 5,3 % 4,5 % 3,0 % 2,4 % 1,7 % 1,3 % 1,2 % 1,0 % 0,8 % 0,7 % 0,5 % 0,4 % 0,3 % 0,3 % 0,2 % 96,5 % 3,5 % 100,0 %
Book value in USD 2 891 027 -2 601 924 10 510 468 7 427 874 18 227 445 18 227 445
Voting rights 30,8 % 16,9 % 9,7 % 9,7 % 5,8 % 5,3 % 4,5 % 3,0 % 2,4 % 1,7 % 1,3 % 1,2 % 1,0 % 0,8 % 0,7 % 0,5 % 0,4 % 0,3 % 0,3 % 0,2 % 96,5 % 3,5 % 100,0 %
In addition to the 113 790 860 shares owned directly, Rig Invest LLC owns an additional 164 868 032 shares through nominee accounts in Euroclear Bank. Rig Invest LLC also have a non-controlling interest in Island Offshore V AS, which in return owns 30,80% of the shares in Maracc. Rig Invest owns 44,45 % of the shares in Island Offshore V AS
NOTES 31
Rig Invest LLC is a subsidiary of Alpha Marine Services LLC, which has an indirect non-controlling interest in Island Offshore XII AS, which in turn owns 5,3% of the shares in Maracc.
Shares owned by Members of the board and CEO Morten Ulstein Dionne Chouest Asle Solheim
Morten Ulstein owns shares indirectly through his indirect ownership in Island Offshore V AS, Island Offshore Management AS, Island Offshore Invest AS, Island Offshore XII Ship AS, Naustneset AS and Sneingen AS.
13
Dionne Chouest owns shares directly through her ownership in Rig invest LLC, and indirectly through her ownership in Island Offshore V AS and Island Offshore Management AS.
See below See below See below
Asle Solheim owns 363 205 shares indirectly through his ownership in Timetall Holding AS.
Other financial instruments The company did not have any derivative financial instruments at the balance sheet date 31.12.2011 and 31.12.2010. In connection with the refinancing in 2010, the company issued 35 541 000 freestanding subscription rights to its shareholders and bondholders. The subscription rights had 3 years duration. Since the company has USD as functional currency, and the shares are denominated in NOK, the subscription rights are considered as derivative financial instruments. The fair value of the subscription rights, USD 705 610, was recognized at fair value when they were issued, and presented as finance expense in the statement of comprehensive income. The subscription rights have been exercised during 2010. The fair value of the subscription rights at the exercise date was estimated to be equal to the fair value when the subscription rights was issued.
32 MARACC ANNUAL REPORT 2011
14
Related parties The Company has hired managment services and construction supervision from the company Island Offshore Managment AS, a related party of the company Island Offshore V AS, who owns 30,8 % of the shares in Maracc. The Company pays a fixed mothly rate for management and construction supervision. In addition the Company pays for travel expenses and other out of pocket expenses.
The following transactions were carried out with related parties:
Purchase of services:
2011
2010
Management and supervision of construction from Island Offshore Management AS
8 012
6 814
Sum
8 012
6 814
2011 Guarantees given by shareholders (see note 10) Alpha Marine Services LLC Borgstein AS Meteva AS Alden AS Sum
Guarantee amount 55 500 18 500 18 500 7 500 100 000
Guarantee commission paid 1 110 370 370 150 2 000
2010 Guarantee amount -
Guarantee commission paid -
The guanrantee commission paid relates to the period 01.06.2011-31.05.2012. The payment has been recognised as part of the cost of the rig under construction. Year end balances arising from transactions with related parties:
Other short-term receivables from related parties Account payable to Island Offshore Management AS
2011 0 859
2010 30 810
NOTES 33
15
Earnings per share Earnings pr share is calculated by dividing the result attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Diluted earnings pr share is calculated by taking into account the number of shares connected to convertible bonds as if conversion has occurred. There are no expenses solely connected to the convertible bonds in the financial statement. The expenditures connected to the convertible bonds are capitalized as part of fixed assets.
Result for the year attributable to shareholders Weighted average number of ordinary shares Weighted average number of shares for calculation of dilluted earnings
2011 -1 436 1 174 660 516
2010 -107 932 074 577 265 250
1 174 660 516
604 694 708
0,00 0,00
0,34 0,34
Earnings pr. share (USD) Diluted earnings pr. share (USD)
16
Financial assets and liabilities Financial assets Receivables* Bank deposits Sum
Financial liabilities Accounts payables and other payables** Borrowings, incl accrued interest Sum
Category 1) 1)
Category
2011 Book value 0 2 635 2 635 2011 Book value
Fair value 0 0 0
2010 Book value Fair value 30 30 16 974 16 974 17 003 631 17 003 631
Fair value
2010 Book value
3)
5 786
5 786
12 279
12 279
3)
141 008 146 794
146 545 152 331
0 12 279
0 12 279
1): Loans and receivables 2): Fair value through profit and loss 3): Other financial liabilities, amortised cost
The fair value estimates are not based on observable market data (level 3) * **
Prepayments and V.A.T receivable are excluded from receivables as this analysis is only required for financial instruments. Statutory liabilities are excluded from accounts payables and other payables as this analysis is only required for financial instruments.
34 MARACC ANNUAL REPORT 2011
Fair value
17
Subsequent events An operational charter contract for the rig was signed with Lundin Norway AS in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. The rig is expected to commence operations during 2nd quarter 2013 In June 2012 the Company obtained a waiver from the banks providing the 280 MUSD loan, were the banks accepts delivery after 30 June 2012.
18
First time adoption of IFRS These are the Company’s first financial statements prepared in accordance with IFRS The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 31 December 2011, the comparative information presented in these financial statements for the year ended 31 December 2010 and in the preparation of an opening IFRS balance sheet at 1 January 2010 (the Company’s date of transition). In preparing its opening IFRS balance sheet, the Company has evaluated the amounts reported previously in financial statements prepared with the Norwegian simplyfied IFRS. The transition has not had any effects for the statement of comprehensive income, balance sheet or statement of cash flow. The statement of financial position for the transition date is presented below.” Reconciliation of shareholders equity as of 1 January 2010
Assets Non current assets Rig under construction Current assets Other short term receivables Cash and cash equivalents Total assets Equity and liabilities Equity Share capital Other paid in equity/Equity from conversion right Retained earings/uncovered loss Total equity
Simplyfied IFRS
Trasition
IFRS
222 245
-
222 245
1 674 40 549
-
1 674 40 549
264 467
-
264 467
2 891
-
2 891
27 868 (56 162) (25 403)
-
27 868 (56 162) (25 403)
NOTES 35
19
Liabilitites Non-current liabilities Bond loans
210 721
-
210 721
Current liabilities Accounts payable Other short term liabilities Total liabilities
60 697 18 453 289 870
-
60 697 18 453 289 870
Total equity and liabilities
264 467
-
264 467
Going Concern ”A pre- and post delivery financing solution for the remaining 50 % of the total construction cost was secured in 2011. The financing, in a total amount of MUSD 280, was fully committed in March 2011, and the Company started drawing on the pre-delivery portion of the financing primo June, 2011. The financing is independent of whether or not the rig is secured long term employment. The rig is 96% complete (end May 2012) and the commissioning process is well under way. Sea trial is planned to commence early August and expected delivery from the yard is end September, 2012. An operational charter contract for the rig was signed with Lundin Norway AS in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. Commencement window is April 1st – September 20th, 2013 with expected commencement date early April, 2013. The current financing agreement requires a delivery date within 30th June 2012. The bank syndicate can demand repayment of the loan if the requirement is not met. In addition, the Company needs to secure additional funding to complete the ongoing commissioning process, the transport of the rig to its final destination and the remaining start-up costs. The Company has had meetings with the bank syndicate discussing a potential increase in the loan amount and a waiver of the condition related to the June 30th, 2012 delivery date. On June 20th , 2012 an amended structure for the existing financing, accepting amongst others a postponed delivery of the rig, was approved by the bank syndicate The Company is still working to secure the required additional financing for commissioning, transport and start up costs. Discussions are being held with both existing banks, and other financial institutions / providers of capital. It is anticipated that this will be possible to arrange given the term employment secured. The conditions described above imply that there to a certain extent still is uncertainty about the going concern assumption. However, the Board of Directors’ opinion is that with the amended financing having been approved this uncertainty is manageable. The financial statements have therefore been prepared in accordance with the going concern assumption. If the Company does not succeed in securing additional financing to cover commissioning, transport and start up costs, the Company will not be able to continue its operations. In a situation with a forced sale of the rig under construction, the net realizable value of the rig could be lower than the book value. ”.
36 MARACC ANNUAL REPORT 2011
NOTES 37
0.50 Share price low (NOK)
117 466 Share capital 31.12.2011 (NOK 1 000)
1 174 660 516 Number of outstanding shares 31.12.2011
763 529 Market capitalisation (NOK 1 000)
0.65 Market price 31.12.2011 (NOK)
0.9 Share price high (NOK)
38 MARACC ANNUAL REPORT 2011
Definition: Market capitalisation = Total shares* share price at 31.12.2011
Shareholder Information Maracc ASA was founded in 2006 and listed on the OTC list on the Oslo Stock Exchange in February 2007. The shares of Maracc are all of one class with identical voting rights. All shares are equal.
At December 31, 2011 the share price was NOK 0,65 which correspond to a increase of 30,0 % from 1st January 2011.
As Maracc is within the establishment phase, dividends will not be considered in the short term. The Company’s dividend policy will be re-evaluated once the company is generating positive cash flow and is able to maintain compliance with its financial covenants.
Information about the Company is published at the Company’s website www.maracc.no, and under the Company’s ticker-code MARA on www.newsweb.no.
The 20 largest shareholders of Maracc held 97,0 % of the outstanding shares by year end 2011, and approximately 31,9 % of the shares was owned by investors located outside Norway. The largest shareholder is Island Offshore V AS, which holds at date 361.668.135 shares ( 30,8 %).
Traded volume per quarter 2011
Share price development 1,0
14 000 000
0,9
12 000 000
0,8
10 000 000
0,7 0,6
8 000 000
0,5
6 000 000
0,4 0,3
4 000 000
0,2 3 000 000
0,1 0,0
0 jan 2011
feb 2011
mar 2011
april 2011
may 2011
jun 2011
jul 2011
aug 2011
sep 2011
oct 2011
nov 2011
dec 2011
Q1 2011
Q2 2011
Q3 2011
Q4 2011
SHAREHOLDERS INFORMATION 39
Corporate Governance Report Marine Accurate Well ASA (‹Maracc› or ‹the Company›) is a Norwegian company organized according to the Norwegian Public Limited Companies Act. The Company has no employees and has therefore entered into a Management Agreement with Island Offshore Management AS to be responsible for a major part of the business and administration services. The company’s corporate governance policy is approved by the Board of Directors. The Board of Directors bases its corporate governance practices on the principles set forth in the Norwegian Code of Practice for Corporate Governance based on the latest revision dated December 2007. According to the Code of Practice, departures from the recommendations are commented on. 1. Reporting on Corporate Governance The Board has adopted instructions for the Board itself and the Chief Executive Officer (CEO). The Company’s objective is to create value for its owners by knowing customers’ needs, being professional in the construction phase and later carry out profitable operations and business development. Key elements of the Company’s strategy are to develop the Company’s position within the intervention sector, and to develop a leading intervention contractor business. Deviation from the Code of Practice: The Board has not drawn up a special policy for corporate governance.
40 MARACC ANNUAL REPORT 2011
2. Operations Maracc is currently developing a special purpose and first of its kind semisubmersible rig for drilling and heavy well intervention operations and increased oil recovery. The Company’s business is defined in § 3 of the Articles of Association of the Company, which reads: ‘The Company’s objective is to construct, market, sell and operate vessels for supporting subsea operations and accommodation connected to the oil industry, including to participate in other companies, acquisition and sale of property and what is connected with this.’ 3. Equity and dividends The Company’s equity is appropriate for its goals, strategy and risk profile. The equity as per 31.12.2011 was USD 248.6 million, which corresponds to 62.9%. As Maracc is within the establishment phase, dividends will not be considered in the short term. The Company’s dividend policy will be reevaluated once the Company is generating positive cash flow and is able to maintain compliance with its financial covenants. The Company has issued 15.7 million warrants to subscribe up to 15.7 million shares in the Company. 4. Equal treatment of shareholders and transactions with close associates Maracc’s shares are all of one class with identical voting rights. All shares are equal.
A Management Agreement and a Construction Supervision Agreement is entered into between Maracc (the Company) and Island Offshore Management AS (the Manager). The Manager owns 0.05% of the Company’s shares – under which the Company has requested the Manager to provide it with certain management services, including construction super vision, technical operation of the rig, commercial management services/ marketing related to the rig, corporate governance services, investor relations, budgets reports, accounting, auditing, company records, stock exchange, government relations, taxes, finance and treasury functions. The management fee is based on market terms. The CEO and CFO of the Company are employees of Island Offshore Shipping AS and Borgstein AS respectively and their services are seconded to Marine Accurate Well ASA pursuant to the Management Agreement described above. Morten Ulstein is a board member of Maracc and the chairman and substantial owner of Island Offshore Management AS and Island Offshore V AS. Dionne Chouest is a member of the Board of Maracc and is related to indirect ownership interests in Island Offshore Management AS and Island Offshore V AS. 5. Freely negotiable shares The shares of Maracc ASA are freely negotiable.
6. General meetings The Annual General Meeting is the forum where the Company’s shareholders participate in the Company’s major decisions. According to the Norwegian law the general meeting must also appoint the auditor and approve the auditor’s fee. All shareholders of Maracc ASA are guaranteed participation in the annual general meeting. The annual meeting will normally be held in May each year, but at the latest 30th June. Notification of the general meeting is sent out at least two weeks in advance. 7. Nomination committee Deviation from the Code of Practice: Maracc ASA has not established a nomination committee. 8. Corporate assembly and board of directors: composition and independence Corporate assembly is not applicable nor binding to the Company since there are no employees. The Board comprises 3-7 directors in accordance with the Articles of Association, and currently it consists of five members, three men and two women. All directors are appointed by the shareholders at the annual general meeting, and are elected for two years terms. The chairmen of the Board was appointed by the shareholders meeting. The Board does not include representatives of the Company’s executive management.
The Board’s task is regulated by Norwegian law and includes the overall administration and management of the Company. Members of the Company’s management are not members of the Board, although the Company’s management does attend Board meetings. 9. The work of the Board of Directors The Board meetings are held six to eight times per year on a regular basis, and additional meetings are called as required. The Board of Directors does prepare a meeting plan within January each year, of the ordinary Board meetings for such year. Board meeting agendas are set by the Chairman of the Board in consultation with the CEO. The Board of Directors reviews the Company’s objectives, strategy and implementation on a regular basis, and at least annually. Once a year the Board of Directors evaluate its own working methods, meeting plans and similar. The Board has adopted instruction for their own work and for the work of the CEO. 10. Risk management and internal control The Board, in conjunction with the management, evaluates the risks inherent in the business operations of Maracc. Currently these risks are limited to the construction and financing of one intervention rig. The risks are managed through control systems which carefully handle the supervision of the construction process
and the safety reporting systems at yard. Construction supervision and business management services are taken care of by Island Offshore Management AS through a Management Agreement (full service provider). Maracc may terminate the agreement in the event of change of control occurring in Island Offshore Management or Island Offshore, or in case Island Offshore reduces its ownership in Maracc to below 10% of the share capital. The Board receives updated cash flow statements in every ordinary Board meeting, and has close follow-up discussions with the management between the meetings as needed. The Board can raise questions with regard to financial reporting in the annual meeting with the auditor. The Board is also presented financial statement on quarterly bases which are carefully reviewed with management and the external auditors. 11. Remuneration of the Board of Directors None of the Board members have other assignments in Maracc ASA except for the position of being a Board member. The general meeting approves the remunerations paid to the members of the Board of Directors annually.
CORPORATE GOVERNANCE REPORT 41
12. Remuneration of the executive management The remuneration of the Chief Executive Officer forms part of the remuneration under the Management Agreement with Island Offshore Management AS.
all shareholders and bondholders, financial analysts, media and other interested parties. Information about the Company is published to the Company’s website www.maracc.no.
13. Information and communications Maracc ASA does openly provide shareholders and the market with relevant information about its business and corporate governance practices, to assist investors in making informed decisions about their interest in the Company.
14. Take-overs The Company’s share is publicly traded on the OTC list. Island Offshore Manage ment may terminate the management agreement in the event of change of control occurring in Maracc. Given the current shareholders structure the likelihood of a takeover bid being made for the Company is regarded as small. The Board has therefore not drawn up any main principles for how it would act in the event of a takeover bid being made.
The Company’s objectives are to ensure equal treatment of all shareholders and to provide balanced, complete and correct information regularly to
Articles of association providing for a mandatory offer obligation triggered at 40% in accordance with the Norwegian Securities Trade Act.
The remuneration to the CEO is described in the annual accounts of the Company.
42 MARACC ANNUAL REPORT 2011
15. Auditor PriceWaterhouseCoopers AS is responsible for the financial auditing of the Company. The auditor is present during the board meeting that deals with the annual accounts. The Board can meet auditors without the management being present if this so desired
43
Marine Accurate Well ASA Lagerveien 23 4033 Forus, Norway Tel +47 51 81 71 00 Fax +47 51 81 71 01 www.maracc.no
Design: F A S E T T Photo Board of Directors: Bjørn Eivind Årthun