Maracc Annual Report 2010 by Fasett AS

Annual Report

2010

Contents 2010

Key Figures

Directors’ Report 2009

The Board of Directors annual report 07

2 MARACC ANNUAL REPORT 2010

Board of Directors

Annual Accounts

Income statement

Balance Sheet

Cash Flow Statement

Notes

Auditor’s Report

Shareholder Information

Corporate Governance Report

Key Figures Figures in USD million

2010

2009

2008

2007

0,5

107.5

6.2

0.6

-0,5

-107.5

-6.2

-0.6

Net financial items

195,9

Pre tax profit

195,4

-107.5

-6.2

-0.6

246,0

222.2

205.0

139.4

18,7

42.2

97.0

129.9

Total assets

264,6

264.5

302.0

269.3

Equity

250,0

-25.4

82.5

77.9

0,0

210.7

206.7

186.0

14,6

79.1

12.8

5.4

17,0

40.5

96.0

128.5

4,1

-36.9

84.2

124.5

Total assets

264,6

264.5

302.0

269.3

Equity

250,0

-25.4

82.5

77.9

94,5 %

-9.6 %

27.3 %

28.9 %

Profit and loss account Operating income Operating expenses Operating profut

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

A good well makes a longer tail Over the recent years there has been a decline in oil reserves on the Norwegian Continental Shelf (NCS) and a decline in discoveries. This has lead to high focus from both the Norwegian Government, governmental bodies and the E&P companies to recover more oil particularly from mature fields.

Asle Solheim Chief Executive Officer

In order to succeed, the oil companies have a set of tools. These are all important to increase oil recovery, and includes methods such as; drilling more wells, improved seismic data, water and chemical injection – and more well maintenance. Maracc is in the business of providing assets for drilling more wells and performing heavy well maintenance. To improve wells Maracc has identified a missing service solution between light intervention vessels and conventional rigs and jack-ups. The solution is a semi submersible rig, the “Island Innovator” for drilling and heavy well intervention operations, including Coil Tubing opera tions, Through Tubing Rotary Drilling (TTRD). With our submersible rig we can offer a wider range of services, and be more mobile and flexible than conventional drilling rigs. The concept of “Island Innovator” is based on the fact that subsea wells generally recover less oil than ordinary dry platform wells. The main reasons being less maintenance on subsea wells due to high cost and low availability of vessels for such purpose. “Island Innovator” will have great impact on oil recovery for operators with subsea wells. The new rig has the highest safety

4 MARACC ANNUAL REPORT 2010

standards, and satisfies the high demands for operating particularly on the NSC. Further, the rig is especially build and equipped for operations in mid water depth, which makes the Unit ideal for the mature Norwegian sector of the North Sea basin. In operation from 2012 The “Island Innovator” will be available for operations from summer 2012. Due to the rig’s flexibility two options are considered. The rig can either be contracted as a conventional drilling rig for exploratory drilling or drilling and completion of production wells with intervention capabilities. Alternatively the rig can be offered as a dedicated intervention Unit with small bore riser. With its flexibility, the rig can easily be equipped for both modes of operation, although not at the same time. Over the last year we have seen increasing rates for drilling and intervention vessels. Based on the high oil price and the operators’ plans for 2012 and onwards, we see potential for securing long term and good contracts in Norway or elsewhere. Large opportunity in mature fields Calculations made by the Norwegian Petroleum Directorate indicate that around 50 percent of the oil resources remain in the ground when the field is plugged and left. This calls for new ways of thinking. Increased recovery is the lowest cost additional oil. The reserves are already identified, the infrastructure is installed and the cash flow will be immediate.

Island Innovator keyside Qidong Yard, China

Effective and flexible In developing “Island Innovator” we are focusing on reducing operators’ cost.

Added up, this provides the operators with a tool to increase the performance ratio for the invested capital.

Therefore, the rig has been designed with two main aims, to be effective and flexible during both drilling and service operations. As a result, the rig can shift from wireline operations, coil tubing operations and drill pipe operations in a fraction of time compared with conventional rigs.

We know that for operators on the NCS a decision to take advantage of new technology and methods, must harmonize to existing technology, working processes and means of production. We are patient and know that market penetration will take some time; meanwhile we will continuously work hard to receive a quality rig to Maracc on schedule.

Furthermore, the unit will be an effective tool for Conventional Drilling, Through Tubing Rotary Drilling (TTRD) and Coil Tubing (CT) operations.

The most important issue in the short term is to be operational from day one. In the mid-term we will see “Island Innovator” develop into an effective drilling and maintenance rig.

CEO

1. Engine room number one 2. Installation work in Living Quarter 3. Finalizing the exterior of the bridge

6 MARACC ANNUAL REPORT 2010

The Board of Directors annual report 2010 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. Continued operation In accordance with the Norwegian accounting act § 3-3a it is confirmed that the presumptions for continued operation are present. Behind this presumption there are still elements of uncertainty; even though a pre- and post delivery financing solution for the remaining 50 % of the total project cost has now been secured. The financing, in the total amount of MUSD 280, was fully committed in March 2011, and the documentation process is well under way. It is anticipated that the Company may start drawing on the pre-delivery portion of the financing primo / medio May, 2011. The financing is independent of whether or not the rig is secured long term employment. However, there is still some uncertainty as to the final delivery date for the rig from the yard in China, and no operational contract for the rig post delivery has been signed to date. The company’s cash position is unsatisfactory until drawdown’s can be made under the loan facilities, and the company is overdue with payments to certain vendors. However,

the relevant vendors are informed of the situation, and there are and have been a constructive dialogue between the parties in order to establish amended payment schedules. An equity issue of NOK 215,6 million was carried through in June 2010. The new equity funded the company through 2010, based on the amended payment schedules with the vendors. A restructuring of the balance sheet where all of the outstanding bonds were converted to equity was carried through simultaneously with the equity issue. This is further described in sections 6, 7 and 8 below.

the agreement IOM shall assist the Company within administration, construction supervision and later operation services.

The strengthening of the financial markets and the general status of the world economy has led to rig rates and rig values having increased over the last 6 – 12 months, and the future prospects for the rig has improved in Q2/2011 compared to one year ago.

4. Equal opportunities The Company is aiming to be a working place where equal opportunities prevail between sexes, races and religious orientation.

Even though the elements of uncertainty are still considered significant, and make the presumption for continued operation somewhat uncertain, the Board of Directors, based on the efforts made and the resources laid down, consider the presumption for continued operation still to be present. However, should this not be the case the book value of the rig may be affected. For further information see section 6. 3. Working environment and personnel The Company had no employees as of 31st December 2010. The Company’s needs for competence and accompanying recourses have been secured through a full-service long-term management agreement with Island Offshore Management AS (IOM). According to

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.

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). 5. Environmental reporting The Company’s business as of 31st December 2010 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 drilling and heavy well intervention activities for subsea wells.

DIRECTORS REPORT

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 plan was and still is to address the issue of increased oil recovery (IOR) from subsea wells and the need for more service related work for a steady increasing number of subsea wells around the world. The basis is to build on the experiences gained from Light Well Intervention Services performed by Island Offshore in the North Sea. Island Offshore will manage and operate the rig when in operation as a well intervention unit, while other alternatives may be pursued if the rig should be used for conventional drilling. 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 1300 m water depth is achieved with minor modifications, while 3000 m water depth can be achieved in intervention mode. GM4000 – Project status The project at Cosco Shipyard Group is currently (early May 2011) 85% complete. The rig is laying keyside at the Qidong yard for Outfitting, Mechanical Completion and Commissioning. Efforts are now focused around completing piping, HVAC, cabling and

8 MARACC ANNUAL REPORT 2010

living quarter. Mechanical Completion is well underway and Commissioning has started. The project at Cosco is running late according to the original plan. In 2010, Maracc entered into an Agreement with Cosco to fully complete the rig including the drilling module installation. Due to delays in achieving project financing, the topside from Nymo will arrive China end of June 2011 and the rig should be ready for delivery from the yard in Q2 2012. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction. 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. A total of MUSD 93,8 has been paid into the Company as Equity, a further MUSD 230 of bond loans have been converted to paid in equity and finally a total funding of MUSD 280 has been secured by way of long term loans. The long term loans are a combination of a 1.st priority MUSD 180 loan provided by Eksportfinans ASA / GIEK and a 2.nd priority MUSD 180 loan provided by a commercial bank syndicate, with DnBNOR Bank ASA as agent. The documentation has not been finalized, but it is anticipated that the loans will be available for drawing primo/medio May 2011. As a consequence, the total gross funding amounts to MUSD 603,8.

With the participation required from commercial banks now in place, the Company is continuing the work to secure a long term contract for the rig either in Norway or internationally. Market Update 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. Several of the prospects targeted for Island Innovator have been delayed and particularly Statoil have deferred contract awards in the Category B segment which was a particular target for this unit. There are currently several bids/pursuit processes in which Island Innovator is presented, and Island Innovator is now actively tendered to several oil companies for drilling operations in the North Sea and outside. It is expected that more opportunities will arise, and that significant awards will be made during and towards the end of second half of 2011. If the world economy continues to develop in a positive direction a significant market improvement can be expected for 2012. With the financing now in place and very few new midwater rigs available or under construction coupled with the Operators’ committed drilling plans, the Board considers the current market as prosperous – however bearing in mind that significant risk elements are still present. 7. 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

Electrical system.

liabilities, financial position and result. Beyond the incidents described in Note 18 there have not been any significant incidents after the 31.12.2010 that has not been considered in the annual accounts, or that is of importance to assess the Company’s result or financial position. The Company had no turnover in 2010. The result before taxes showed a profit of USD 195 400 024. The profit is mainly a result of the conversion process completed in June 2010. By converting all of the Bond loans and accrued interest, totaling USD 243,9 million, to 677 922 620 new shares in Maracc at a fair value of USD 47,3 million (NOK 0,45 per share), the Company obtained a profit of USD 196,6 million. The gain related to the conversion did not have any cash effect, but is presented in the Profit and Loss statement to inform the shareholders of the book value obtained through the conversion. The Company has no expenditures related to Research and Development. Total cash flow from operational activities in the Company was minus USD 452 744, in accordance with the operating loss. Total investments relating to plant and equipment in 2010 were USD 21 539 645. The Company’s cash position was USD 16 973 645 as of 31.12.10. New liquidity amounting USD 280 million will be available primo/medio May 2011. The Company’s short-term debt was USD 12 278 829 as of 31.12.10. The total capital at year end was USD 262 448 510. The equity capital was USD 250 004 940 as of 31.12.10.

7.1 The restructuring process As mentioned above issuing new equity and restructuring the Company’s balance sheet was carried through in 2010. The process involved three elements: Firstly the share capital was reduced with MNOK 15,88, by reducing the par value of the Company’s 17.640.000 shares from NOK 1 to NOK 0.10. Following this reduction a capital increase through converting all of the outstanding bond loans was carried through: - MUSD 120 secured bond, incl. interest as at 31st May 2010, a total of MUSD 130,5 was converted to 522,2 million new shares based on a conversion price of USD 0,25 - MUSD 80 (first) convertible bond, incl. interest as at 31st May 2010, a total of MUSD 94,4 was converted to 113,3 million new shares based on a conversion price of USD 0,8333 - MUSD 30 (second) convertible bond, incl. interest as at 31st May 2010, a total of MUSD 35,4 was converted to 42,5 million new shares based on a conversion price of USD 0,8333 - In total the share capital of the Company was increased by MNOK 67,6 through the conversion of the bond loans - Finally a share issue was carried through according to which 479.097.893 new shares each with a nominal value of NOK 0,10 was issued at an issue price of NOK 0,45, giving total new equity of MNOK 215,6. The share capital was increased by MNOK 47,9 as a consequence of the share issue. The restructuring was finalized in June 2010.

8. Financial risk 8.1 Market risk The Company is exposed to market risk as no long-term operating contract for the vessel under construction has been entered into. However, the Company is in discussions with several oil companies regarding potential term charters. The company’s aim was to enter into a long-term contract within 2008, however the revised ambitions is to enter into a long-term contract before year end 2011. 8.2 Currency risk The Company is to some extent exposed to changes in the foreign exchange markets. 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, and at this stage is not determined whether future employment contracts will be denominated in USD, NOK or other currencies. 8.3 Interest risk The Company has no significant exposure to changes in the interest rate level, since all the Bond loans were converted to Equity in June 2010. The Company’s bank deposits have floating interest. 8.4 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’

DIRECTORS REPORT

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. 8.5 Liquidity risk As at year end 2010, the Company had obtained financing of approximately 50 % of the total project costs (construction-, supervision- and financing costs during the construction phase as well as mobilization / start up costs). The Company had unsatisfactory cash reserves and additional financing needed to be secured. As described under 2. Continued Operations above the company was able to secure

commitments for the MUSD 280 needed to fund the completion of the rig at the yard in China in March 2011. In addition, bondholders meetings in all of the three bond loans taken up by the company were convened in June 2010 approving conversion of all of the loans, including interest up until May 31st, 2010 to equity. The non payment of interest as a consequence of the conversion to equity has improved the companyâ&#x20AC;&#x2122;s cash position.

Company amounting USD 195 400 024: From share Premium: USD -42 615 189,From other paid in equity: USD -27 868 128,Uncovered loss: USD 265 883 341,The Company had no distributable reserve at the end of 2010.

The cash position is a challenge until the loan documentation is in place, and the amounts under the pre-delivery portion of the loans are made available. 9. Annual results and disposals The Board suggests the following disposal of the annual result in the

Oslo, 2 May 2011

Ă&#x2DC;ivind Lund Chairman of the Board

Morten Ulstein Board Member

10 MARACC ANNUAL REPORT 2010

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.

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.

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.

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.

BOARD OF DIRECTORS 11

Annual accounts

2010

12 MARACC ANNUAL REPORT 2010

Income statement In USD

2010 146 718

2009 142 522

110 000 000

306 026

386 707

452 744

110 529 229

-452 744

-110 529 229

195 852 768

3 037 295

Net financial items

195 852 768

3 037 295

Profit before tax

195 400 024

-107 491 934

440 140

195 400 024

-107 932 074

Salaries

Note 3

Impariment of fixed assets

Other operating expenses

3,15

Total operating expenses Operating profit Financial income and expenses Net other financial items

Income tax expense

12,13

Profit for the year Earnings pr share

0,34

-6,12

Diluted earnings pr share

0,32

-6,12

Transfer from share premium

-42 615 189

-58 951 535

Transfer from other paid in equity

-27 868 128

Transfer to/from uncovered loss

265 883 341

-48 980 539

195 400 024

-107 932 074

Transfers

Total transfers

ANNUAL ACCOUNTS 13

Balance sheet Assets In USD

Fixed assets Intangible assets Deferred tax asset

Note 5

Total intangible assets

2010

2009

245 984 055

222 244 802

245 984 055

222 244 802

245 984 055

222 244 802

1 690 409

1 673 859

1 690 409

1 673 859

16 973 654

40 548 703

18 664 063

42 222 562

264 648 118

264 467 365

Property, plant and equipment Rig under construction

6,8,15

Total tangible assets Financial fixed assets Long term financial instruments

Total financial fixed assets Total fixed assets Current assets Receivables Other short term receivables

4, 17

Total receivables Cash and cash equivalents Total current assets Total assets

14 MARACC ANNUAL REPORT 2010

9,17

Balance sheet Equity and Liabilities In USD

Equity Paid in equity

Note

2010

2009

Share capital

10,11

18 227 446

2 891 027

Share premium

231 777 494

Equity from convertion right

27 868 128

250 004 940

30 759 155

-56 162 041

250 004 940

-25 402 885

210 720 549

12 281 310

60 696 503

17, 18

2 280 868

18 453 199

Total current liabilities

14 562 178

79 149 702

Total liabilities

14 562 178

289 870 251

264 567 118

264 467 365

Total paid in equity Retained earnings Uncovered loss

Total retained earnings Total equity Liabilities Other long term liabilities Bond loans

7,8,17

Total long term liabilities Current liabilities Accounts payable Other short term debts

Total equity and liabilities Oslo, 2 May 2011

Øivind Lund Chairman of the Board

Paal Espen Johnsen Board Member

Berit Rynning Board Member

Dionne Chouest Austin Board Member

Morten Ulstein Board Member

Asle Solheim Chief Executive Officer

ANNUAL ACCOUNTS 15

Cash flow statement In USD

Cash flow from operating activities

Note

Profit before tax

2010

2009

195 400 024

-107 491 934 110 000 000

Impairment of fixed assets

Gain related to conversion of bonds

-196 558 379

Change in fair value for derivative financial instruments

12,13

Net cash flow from operating activities

705 610

-3 037 295

-452 744

-529 229

Cash flow from investing activities Purchases of property, plant and equipment

-21 539 644

-127 683 408

Other investments

3 037 295

Changes in accounts payable and other accruals related to investments

-33 586 925

69 728 727

Net cash flows from investing activities

-55 126 569

-54 917 386

16 MARACC ANNUAL REPORT 2010

Cash flow from financing activities

Note

2010

2009

Proceeds from issuance of shares

33 425 434

Cost related to issuance of shares and convesion of bonds

-1 421 170

Net cash flow from financing activities

32 004 264

Net change in cash and cash equivalents

-23 575 049

-55 446 615

40 548 703

95 995 319

16 973 654

40 548 703

14 969 452

34 220 606

Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Of which restricted cash

ANNUAL ACCOUNTS 17

Notes

2010

18 MARACC ANNUAL REPORT 2010

Accounting principles Maracc – Marine Accurate Well ASA 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, Norge. The financial statements have been prepared in accordance with simplified IFRS (International Financial Reporting Standards) pursuant to section 3-9 of the Norwegian Accounting Act and with the Directives of simplified IFRS specified by the Norwegian Ministry of Finance on 21. of January 2008. This implies that estimates and measurements follows IFRS, and that presentation and notes to the financial statement are in accordance with the Norwegians Accounting Act and generally accepted accounting principles in Norway . 1.1 Simplified IFRS The Company has applied all relevant simplifications in regard to IFRS, including: - Dividend is treated in accordance with the Norwegian Accounting Act and deviates form IAS 10 no. 12 and 13. 1.2 Basis of preparation The financial statements have been prepared under the pricipals of historical cost, with the following exceptions : - Available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. 1.3 Currency The financial statements are presented in “US dollars” (USD) which is the Company’s functional and presentation currency. The Company use USD as functional currency since it operates in an envirionment where USD is the dominating currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. The assets and liabilities of non-USD monetaty assets and liabilities are translated into USD at the rate of exchange as of the balance sheet date. 1.4 Accounting estimates and judgments The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Estimates and judgments 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. Changes in accounting estimates are accounted for in the same period as the change occurs. The changes concerns future periods, the effects of the changes will be spread throughout current and future periods. The majority of the company’s estimates are related to the construction of the rig, its progression and any need for impairment, as well as deferred tax asset. 1.5 Revenue recognition As this is a start-up period for the Company, the Company does not have operating revenues in 2010 and 2009.

Interest income is recognised on a time-proportion basis using the effective interest method. 1.6 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. The capitalised amount is net after return on funds. Other borrowing costs are expensed. 1.7 Income tax The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities.

Deferred tax is calculated as expected future tax rate of temporary differences and the tax effect of tax losses carried forward. Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilized. Taxes payable and deferred taxes are recognised directly in equity to the extent that they relate to equity transactions. 1.8 Fixed assets Fixed assets are valued at cost, less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Costs for maintenance are expensed as incurred, whereas costs for improving

NOTES 19

and upgrading property, plant and equipment are added to the acquisition cost and depreciated with the related asset. When carrying value of a fixed asset exceeds the estimated recoverable amount, the asset is written down to its recoverable amount. The recoverable amount is the greater of the net realisable value and value in use. Value in use is calculated by estimating future discounted cash flows. Property, plant and equipment under construction are classified as fixed assets. Additions on property, plant and equipment under construction are recognised when the Company receives invoices for the construction work. As the Company is in a start-up period and all of the fixed assets are under processing, there are no deprecitations for 2010 and 2009. 1.9 Financial instruments In accordance to IAS 39, the Company classifies its financial instruments in the following four categories: at fair value through profit or loss, loans and receivables, available for sale and other obligations, with the exceptions described in note 1.1.

Financial instruments 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. Liabilities in this category are classifies as current liabilities. Financial assets with specific or determinable cash flows that are not listed in an active market is classified as loans and receivables, with exceptions of instruments that the Company has classified as at fair value carried through profit or loss, or available for sale. Loans and receivables are carried at amortised cost using the effective interest method. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. All other financial assets are classified as available for sale. Assets classifies as available for sale is measured at fair value with changes in fair value recognised in equity and reversed to profit or loss at time of derecognition or impairment. They are included in non-current assets unless manage-

20 MARACC ANNUAL REPORT 2010

ment intends to dispose of the investment within 12 months of the balance sheet date. Financial obligations that are not held for trading and classified as at fair value through profit or loss are classified as other liabilities. Other liabilities are carried at amortised cost using the effective interest method. Holdings of own bonds are presented as net obligations. 1.10 Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either: (a) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge); or (c) hedges of a net investment in a foreign operation (net investment hedge).

The entity has not applied hedge accounting in 2009 or 2010. 1.11 Derivates financial instruments not used in hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

An embedded derivative is separated and accounted for as a separate financial instrument provided that the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the host contract is not accounted for at fair value. Embedded derivatives are classified both in profit and loss and on the balance sheet based on the derivativesâ&#x20AC;&#x2122; underlying nature. 1.12 Impairment of assets Assets that are subject to depreciation or amortisation 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). The Heavy Well Intervention Unit is seen as one cash-generating unit. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Impairment of financial assets The Company assesses at each balance sheet date whether there is objective evidence that a financial asset classified as loans and receivables or available for sale or a group of financial assets classified as loan and receivable is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for availablefor-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. 1.13 Cash and cash equivalents Cash and cash equivalents includes cash, bank deposits and all other monetary instruments with a maturity of less than three months from the date of acquisition.

Cash and cash equivalents, as defined for reporting purposes in the statement of cash flows, consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts connected to cash management activities. 1.14 Equity Financial instruments are classified as debt or equity in accordance to the underlying economic reality.

as equity are accounted directly towards equity. Convertible obligations and similurar instruments, that includes both debt and equity elements, are divided into two components by emission, and accounted seperately as respectively debt and equity. Cost of equity transactions: Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Other equity: (a) Fund of valuation variance The fund includes the unified net-change in fair value of financial instruments that is classified as available for sale, until investment is disposed or where it has been determined that the investement has no value. 1.15 Year-end provisions A provision is accounted when the Company has obligation (legal og self-imposed) as a consequence of a former incident, it is probable (more likely than not) that an economic settlement will occur as a consequense of the obligation and the amount can be reliably measured. If the effect is substantial, the provision would be estimated by disconting expected future cashflows with a discount rate before tax that reflects the market price of cash and, if relevant, risks spesifically attached to the obligation. 1.16 Contigent liabilities and assets Contigent liabilities are not accounted in the financial statement. Substantial contigent liabilities, except contigent liabilities where the probability of the liabality is low, are reported. Contigent assets are not accounted in the financial statement, but reported if there exists a certain probability that the Company will accrue an advantage. 1.17 Events after the balance sheet date New information after the balance sheet date concerning the Company’s financial standing is taken into account in the financial statement. Events after the balance sheet date that not affect the Company’s financial standing on the balance sheet date, but will affect the Company in the future are reported if it is considered substantial.

Interest, dividend, gains or loss related to a financial instrument classified as debt are presenteted as cost or revenue. Distributions to bearers of financial instruments that are classified

NOTES 21

2 3

Segment information The Company’s business activities in 2010 has been in conjunction to the building of one rig, see note 6. The Company did not have operating income in 2010 or 2009, segment information is hence not relevant.

Employee benefits expense, number of employees, loans to employees and auditor’s fee The Company has not had any employees during 2010. The Board of Directors have received remuneration for their work amounted to USD 131 583 in 2010. Social expenses amounts to USD 15 135. The same remunerations and expenses in 2009 was USD 130 683 and USD 10 840. Salaries to leading personnel In connection with hiring a CEO from another company, the Company has paid fees and travelling expenses amounted to USD 378 211 in 2010 and USD 322 076 in 2009. The expense has been capitalized as the expense is considered obtained as a part of acquiring fixed assets. Management remuneration No loans/securities have been granted to the CEO, chairman of the board or other related parties. There are no obligations regarding post employment benefits.

Auditor -Statutory Audit -Other assurance services -Tax advisory fee -Other advisory services Total auditor fee

2010 43 206 3 035 12 489 25 604 84 334

2009 39 934 13 764 13 764 0 67 463

2010 84 334 125 058 31 968 64 666 306 026

2009 67 464 134 955 40 255 144 033 386 707

2010 1 071 341 29 985 508 083 1 609 409

2009 1 071 341 29 985 572 532 1 673 858

VAT is not included in the fee specified above.

Specification of other operating costs Auditor fee Consultant's fee Legal costs Other Total

Other short-term receivables Prepaid costs Other short term recivables Outstanding VAT Total

22 MARACC ANNUAL REPORT 2010

Tax Components of the Income Tax Expense Tax payable Changes in deferred tax Changes in deferred tax to equity Total income tax expense Tax base calculation Profit/loss before income tax Permanent differences *) Changes in temporary differences Basis for the tax expense of the year

2010 -

2009 440 140 440 140

195 400 024 -194 150 290 -2 664 480 -1 414 746

-107 491 934 1 023 361 71 082 614 -35 385 959

2010 -6 923 465 -99 732 687 -106 656 152 -29 863 723

2009 -9 587 945 -98 317 941 -107 905 886 -30 213 648

-29 863 723 -

-30 213 648 -

2010 54 712 007 -54 362 081 -349 925 -

2009 -30 097 742 37 693 286 541 30 213 648 440 140

0,0 %

-0.4 %

Tax payable (28%) of the tax base of the year

Temporary diefferences Fixed assets Tax losses carried forward Sum 28 % deferred tax Deferred tax (asset) not in the balance sheet Deferred tax (asset) in the balance sheet Explanation why profit before tax differs from the amount that would arise using the 28% tax rate: 28 % of profit before income tax Insufficient/excess provision last year Expenses not deductible for tax purposes Not recognised change in deferred tax asset Total income tax expense Effective tax rate in % * ) Permanent differences consist of non deductible costs, and net gain related to conversion of bonds and subscription rights.

Deferred tax asset: The deferred tax asset has not been recognised in the balance sheet, since the probability of future taxable profit is considered to be too low.

NOTES 23

Tangible assets Heavy well intervention unit 332 244 802 9 616 678 14 122 574 355 984 055

Total Tangible assets 332 244 802 9 616 678 14 122 574 355 984 055

Accumulated depreciation 31.12.10 Accumulated impairment loss 31.12.10 Reversed impairment loss 31.12.10

-110 000 000 -

Net carrying value at 31.12.10

245 984 055

Heavy well intervention unit 204 561 394 100 419 434 27 263 974 332 244 802

Total Tangible assets 204 561 394 100 419 434 27 263 974 332 244 802

Accumulated depreciation 31.12.09 Accumulated impairment loss 31.12.09 Reversed impairment loss 31.12.09

-110 000 000 -

Net carrying value at 31.12.09

222 244 802

Depreciation of the year Impairment loss of the year

-110 000 000

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

2009 Acquisition cost at 01.01.09 Additions Disposals Additions capitalized financial costs Acquisition cost 31.12.09

The project at Cosco Shipyard Group is currently (early May 2011) 85% complete. The rig is laying keyside at the Qidong yard for Outfitting, Mechanical Completion and Commissioning. Efforts are now focused around completing piping, HVAC, cabling and living quarter. Mechanical Completion is well underway and Commissioning has started. The project at Cosco is running late according to the original plan. Maracc has entered into an Agreement with Cosco to fully complete the rig including the drilling module installation. Due to delays in achieving project financing, the topside from Nymo will arrive China end of June 2011 and the rig should be ready for delivery from the yard in Q2 2012.

24 MARACC ANNUAL REPORT 2010

A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored. In 2010 capitalized financial costs includes capitalized interest on bond loans by a total of USD 14 689 965 (2009: USD 26 807 381). Interest income on bank deposits has according to IAS 23.15 reduced capitalized financial costs by a total of USD 243 140 in 2009 (2009: USD 427 566) and thus net interest expenses are capitalized. 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. 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. Several of the prospects targeted for Island Innovator have been delayed and particularly Statoil have deferred contract awards in the Category B segment which was a particular target for this unit. As the rig is under construction there are no depreciations in either 2010 or 2009. Economical life for the rig is not yet estimated. The company will estimate economical lifetime of the rig at delivery. The table below shows the estimated remaining cost to coplete the rig, and the need for additional financing at the balance sheet date.

Estimated cost at completion (excl. financing cost new financing) Acquisition cost 31.12.2010 Remaining acquisition cost (excl. financing cost new financing)

USD 612 896 000 355 984 055 256 911 945

Account payable related to the rig 31.12.2010 Remaining payments to complete the rig

12 281 310 269 193 255

Bank deposits 31.12.2010 Minimum required financing 31.12.2010

16 973 654 252 219 601

See Note 18 regarding new financing in 2011.

NOTES 25

Right of redemption own bonds and other financial assets Company Right of redemption of own bonds Total

Currency USD

2009 Book value 0 0

Market value 0 0

The company had a right of redemption for two of their bond loans. Fair value of the redemption right was estimated to be zero, 31.12.2009. The redemption right is no longer applicable since the bond loans were converted in 2010.

Bond loans 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 1 119 000 000

Loan 2 80 000 000

Loan 3 30 000 000

Total 229 000 000

Book value of bond loan at time of conversion

119 000 000

72 402 419

21 127 125

212 529 544

Accrued interest at time of conversion Total recognised debt to be converted Fair value of issued shares Gain

11 544 814 130 544 814 36 431 111 94 113 703

14 398 121 86 800 540 7 903 415 78 897 125

5 382 827 26 509 951 2 962 402 23 547 550

31 325 762 243 855 305 47 296 927 196 558 379

26 MARACC ANNUAL REPORT 2010

Bond loans 2009

Nominal value

Book value

Loan 1

120 000 000

3m LIBOR +5.0 %

Holdings of own bonds (loan 1) Net Loan 1 Loan 2 (convertible) Loan 3 (convertible) Total

-1 000 000 119 000 000 80 000 000 30 000 000 229 000 000

-962 602 119 037 398 71 234 435 20 448 716 210 720 549

3m LIBOR +5.0 %

* *

9.0 % 12.0 %

14.3 % 25.4 %

*The fair value of the bond loans have not been calculated as of 31.12 09, because it was not possible to give a reliable estimate of the value at the balance sheet date. See information regarding the conversion of the bonds above.

Debts secured by pledges Pledged assets: Property, plant, and equipment Total

2010 0

2009 120 000 000

0 0

222 244 802 222 244 802

Until the rig has been delivered the pledge consists of assignment of building contract and assignment of refund guarantee.

Cash and cash equivalents Bank deposits

2010 16 973 653

2009 40 548 703

2010 9 750 000 1 842 693 3 376 759 14 969 452

2009 19 500 000 5 167 471 1 815 362 7 737 773 34 220 606

The company does not have credit facilities. Of the total bank deposits at a nominal value of USD 40 548 703, 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

NOTES 27

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 31.12.2009 Reduction of nomial value to cover losses Convesion of bonds Issue of new shares, cash contribution Shares 31.12.2010

The largest shareholdings as at 31.12.10. Island offshore v as Euroclear bank s.A./N.V. (‘Ba’) (nom) Trond mohn (nom) Rig invest l.L.C Skagen vekst Island offsxhore xii as Alden as Tollefsen, ivar erik Glaamene industrier as Island offshore invest as Naustneset as Bank of new york mellon sa/nv Deutsche bank ag london Bakkevig, bjørn Mp pensjon pk Arne loen as State street bank and trust co Skagen vekst iii Terra total vpf Pelments as Total 20 largest shareholders Other shareholders Total

28 MARACC ANNUAL REPORT 2010

Shares 17 640 000 677 922 620 479 097 896 1 174 660 516

Shares 361 668 135 232 943 385 114 247 646 113 790 680 71 891 376 61 987 351 53 305 655 19 746 275 19 611 888 14 711 627 13 598 509 12 011 153 11 842 749 8 495 253 8 153 720 6 441 324 4 424 250 3 633 985 3 510 448 3 285 754 1 139 301 163 35 359 353 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

Ownership 30,8 % 19,8 % 9,7 % 9,7 % 6,1 % 5,3 % 4,5 % 1,7 % 1,7 % 1,3 % 1,2 % 1,0 % 1,0 % 0,7 % 0,7 % 0,5 % 0,4 % 0,3 % 0,3 % 0,3 % 97,0 % 3,0 % 100,0 %

Book value in USD 2 891 027 -2 601 924 10 510 468 7 427 874 18 227 445

Voting rights 30,8 % 19,8 % 9,7 % 9,7 % 6,1 % 5,3 % 4,5 % 1,7 % 1,7 % 1,3 % 1,2 % 1,0 % 1,0 % 0,7 % 0,7 % 0,5 % 0,4 % 0,3 % 0,3 % 0,3 % 97,0 % 3,0 % 100,0 %

Shares owned by Members of the board and CEO Morten Ulstein Dionne Chouest Austin 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.

Equity

Dionne Chouest Austin 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.

Asle Solheim owns shares indirectly through his ownership in Timetall Holding AS.

Share capital 2 891 027 2 891 027

Share premium 58 951 535 -58 951 535 -

Equity from conversion right 27 868 128 27 868 128

Uncovered loss -7 181 501 -48 980 539 -56 162 040

Total 82 529 189 -107 932 074 -25 402 885

Reduction of share capital

(2 601 924)

2 601 924

Conversion of bonds

10 510 468

249 816 294

- (213 028 835)

47 297 927

7 427 874

25 997 560

33 425 434

Cost related to conversion of bonds and cash contribution

(1 421 170)

Exercised subscription rights

705 610

18 227 445

(42 615 189) 231 777 495

(27 868 128) -

265 883 341 0

195 400 024 250 004 940

Equity 31.12.2008 Profit for the year Equity 31.12 2009

Issue of new shares cash contribution

Profit for the year Equity pr 31.12 2010

See below See below See below

Net other financial items Loss on issued subsription rights Gain on renegotiation and convertion of bonds Change in fair value of forwards contracts Total

2010 -705 610 196 558 379 195 852 768

2009 3 037 295 3 037 295

NOTES 29

Other financial instruments The company did not have any derivative financial instruments at the balance sheet date 31.12.2010 and 31.12.2009. 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 net other financial items in the profit and loss statement. 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.

Financial risk Market risk The Company is exposed to market risk since no long-term operating contract for the vessel under construction has been entered into. Currency risk The Company is to some extent exposed to changes in the foreign exchange markets. The majority of the companys’s expences are in USD, but the company has also entered into contracts with suppliers in other currencies. Interest risk The Company is exposed to changes in the interest rate level though floating interest on bank deposits. Credit risk The risk related to opposite parties not having the means to fulfil 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. Liquidity risk As at year end 2010, the Company had obtained financing of approximately 50 % of the total project costs (construction-, supervision- and financing costs during the construction phase as well as mobilization / start up costs). The Company had unsatisfactory cash reserves and additional financing needed to be secured (see Note 6). In March, 2011 an additional USD 280 mill. was secured through a bank syndicate - see Note 18 Subsequent Events.

Related parties Purchase of services:

2010

2009

Management and supervision of construction from Island Offshore Management AS

6 814 306

9 450 783

Engineering services from Island Offshore Subsea AS Sum

202 6 814 508

338 009 9 788 792

All transactions with related parties is based upon market terms.

30 MARACC ANNUAL REPORT 2010

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 (see note 6).

Result for the year attributable to shareholders Weighted average number of ordinary shares Weighted average number of shares for calculation of dilluted earingns

2010 195 400 024 577 265 250

2009 -107 932 074 17 640 000

604 694 708

17 640 000

0,34 0,32

-6.12 -6.12

Earnings pr. share Diluted earnings pr. share

Financial assets and liabilities Financial assets Receivables* Bank deposits Sum

Category 1) 1)

Financial liabilities Accounts payables and other payables**

Category 3)

Accrued interest Currency futures

3) 2)

Bond loans, se note 8 for spesifications Sum

2010 Book value Fair value 29 986 29 986 16 973 645 16 973 645 17 003 631 17 003 631

2009 Book value Fair value 29 986 29 986 40 548 703 40 548 703 41 650 030 41 650 030

2010 Book value

2009 Book value

-12 278 829

Fair value -12 278 829

-12 278 829

Fair value

-60 696 503

-60 710 900

-18 482 190 -8 519

-18 430 282 -8 519

-210 720 549 -229 211 258

***

1): Loans and receivables 2): Fair value through profit and loss 3): Other financial liabilities, amortised cost * 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. *** It was not possible to give a reliable estimate of fair value of the bond loan 31.12.2009.

NOTES 31

2010 Foreign currency Receivables

Currency USD

2009 USD 29 986

Currency USD

USD 29 986

Bank deposits

USD NOK Other Total

10 227 954 6 707 865 37 385 16 973 204

USD NOK Other Total

29 020 340 9 618 857 1 909 506 40 548 703

Accounts paybles and other paybles

USD NOK Other Total

-1 894 574 -8 925 076 -1 459 179 -12 278 829

USD NOK Other Total

-48 921 662 -10 274 272 -1 514 966 -60 710 900

Accrued interest

USD

-18 430 282

Bond loans

USD

-210 720 549

Subsequent events Financing In March, 2011, the Company successfully secured a fully committed financing package for the remaining construction costs, including the top-side, through to delivery of the rig. The financing package, totaling MUSD 280 and consisting of both pre- and post delivery financing, will be arranged by DnBNOR Bank ASA, and consist of export credit agency funding combined with commercial bank funding and loan guarantees. The financing is furthermore supported by Maracc’s major owners. The bank funding is obtained at significantly more favorable terms than the terms achievable in the bond market. Legal claims On February 16, 2011 Gulating Lagmannsrett pronounced a judgment in the appeal case between the Company and Global Maritime AS (“GM”). The dispute was whether the design of the rig designed by GM contained a defect. GM corrected the error, but argued that it was not a legal defect, and invoiced the Company for the additional cost. Gulating Lagmannsrett confirmed the verdict from Stavanger Tingrett from February 22, 2010. The verdict implies that the Company is held liable to pay NOK 12.881.786 to GM. There has been made a provision in the financial statements at USD 2.199.608 under other current liabilities. The provision is considered to be part of the cost of the rig.

32 MARACC ANNUAL REPORT 2010

NOTES 33

0.25 Share price low (NOK)

117 466

3.0 Share price high (NOK)

587 330 Market capitalisation (NOK 1 000)

Share capital 31.12.2010 (NOK 1 000)

1 174 660 516 Number of outstanding shares

0.5 Market price 31.12.2010 (NOK)

Definition: Market capitalisation = Total shares* share price at 31.12.2010

34 MARACC ANNUAL REPORT 2010

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. 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. The Company carried through a restructuring of the balance sheet in 2010. First the share capital was reduced with MNOK 15,88, by reducing the par value of the shares from NOK 1 to NOK 0,1. Following this a capital increase was carried trough by converting all the outstanding bond loans to 678 million new shares. Finally a share issue was carried through were 479 million new shares each with a nominal value of NOK 0,1 was issued at an issue price of NOK 0,45, giving total

new equity of NOK 215,6. The share capital increased by MNOK 47,9 as a consequence of the share issue. In March, 2011, the Company sucessfully secured a fully committed financing package for the remaining construction costs, including the top-side, through to delivery of the rig. The 20 largest shareholders of Maracc held 97,0 % of the outstanding shares by year end 2010, 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 %). At December 31, 2010 the share price was NOK 0,5 which correspond to a decrease of 83,3 % from 1st January 2010. 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.

Share price development

Traded volume per quarter 2010

3,25

7 000 000

3,00 2,75

6 000 000

2,50 5 000 000

2,25 2,00

4 000 000

1,75 1,50

3 000 000

1,25 1,00

2 000 000

0,75 0,50

1 000 000

0,25 0,00

0 jan 2010

feb 2010

mar 2010

april 2010

may 2010

jun 2010

jul 2010

aug 2010

sep 2010

oct 2010

nov 2010

dec 2010

Q1 2010

Q2 2010

Q3 2010

Q4 2010

SHAREHOLDERS INFORMATION 35

Corporate Governance Report Marine Accurate Well ASA (‹Maracc› or ‹the Company›) is a Norwegian company organised 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.

36 MARACC ANNUAL REPORT 2010

2. Operations Maracc is currently developing a special purpose and first of its kind semi-submersible 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 31.12.2010 was USD 250 million, which corresponds to 94.5%. 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 supervision, technical operation of the rig, commercial management ser-vices/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 Accurat 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 review 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.

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 maanagement and the external auditors.

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.

CORPORATE GOVERNANCE REPORT 37

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. 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. The remuneration to the CEO is described in the annual accounts of the Company. 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.

38 MARACC ANNUAL REPORT 2010

The Company’s objectives are to ensure equal treatment of all shareholders and to provide balanced, complete and correct information regularly to 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. 14. Take-overs The Company’s share is publicly traded on the OTC list. Island Offshore Management 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 take over bid being made.

Articles of association providing for a mandatory offer obligation triggered at 40% in accordance with the Norwegian Securities Trade Act. 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.

1. Rig internal 2. Loading Topside Drilling Module onto transportation vessel at Nymo Grimstad 3. Bridge

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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 Print: Bryne Stavanger Offset