0004 seva aarsport 09 final

Annu

Al r

epor

t Se

vAn

MAr

ine

2008

ContentSLetter from CEO 4The Company 52008 Key Figures 62008 in Brief 7Contract Status 8Project Status 9

The Sevan FPSOs 10FPSO Sevan Piranema 12FPSO Sevan Hummingbird 14FPSO Sevan Voyageur 16Sevan 1000 FPSO (Goliat) 18FPSO Sevan 300 no. 4 and 5 19

The Sevan Drilling Units 20Sevan Driller 22Sevan Driller II and Sevan Driller III 22Operations 24

Topside and Process Technology 26Kanfa Group of Companies 28

The Sevan Technology 30The Sevan Technology 32New Applications 35

A Global Company – a Global Market 36Market Outlook 38Board of Directors’ Statement on Policy for Corporate Governance 40Business Strategy 43Shareholder Information 44QHSE Management 46Focus on Building a Company 47

Editor:Sevan Marine ASA

Design and Production:Sør Stangebye Reklamebyrå AS, RRA 21

Photo and 3D illustrations:Sevan Marine ASA

Print:Birkeland Trykkeri AS

FinAnCiAL STATEMEnTS 48Board of Directors’ Report 50

Sevan Marine GroupBoard of Directors 55Consolidated Balance Sheet 56Consolidated Income Statement 57Consolidated Statement of Changes in Equity 58Consolidated Cash Flow Statement 59Notes to the Consolidated Financial Statements 60

Sevan Marine ASABalance Sheet 94Income Statement 96Cash Flow Statement 97Notes to the Financial Statements 98

Auditor´s Report 116Responsibility Statement 117

AnnuAl report SevAn MArine08 3

tiMe for ConSolidAtion

It has been twelve challenging months for Sevan Marine. Although we have seen a continuous improvement in our operations and projects, the financial crisis has had a signi ficant impact. Solid contracts with reputable clients are no longer easy to finance. It is difficult to find both debt and equity financing for our projects. This is an unprecedented situation; something we have never experi-enced before and hopefully never will experience again. In times like this, our priority is to consolidate our position, manage through the difficult times and be prepared when the market turns.

In the middle of the financial world going sour, there have been several significant events for Sevan Marine during the last year. Perhaps the most important event, and the one with the most wide ranging effects, was the award of the Goliat contract. This market is not only the entry into the market for large FPSOs, it was also our first FPSO contract in the Norwegian market. The Goliat project will be a key project for Sevan in the next four years (and hopefully also in the operations phase). Following the start-up of FPSO Sevan Piranema in 2007, our second FPSO, the Sevan Hummingbird, produced its first oil in September 2008 in the central North Sea. Both units have demonstrated excellent uptime, thanks to very qualified crews supported by good motion behavior (in line with model testing and analyses).

Our third FPSO, the Sevan Voyageur, was ready to start oil pro-duction in the North Sea in January 2009, following a success-ful construction project (on schedule), when the client reported financial difficulties. This was a big disappointment to all of us. Fortunately, an MOU has been signed with a new client – Premier Oil – and we are all looking forward to start production on the Shelley field as soon as possible.

On the drilling side, we celebrated mid-2008 by signing two long-term drilling contracts with Petrobras and ONGC. This celebration proved to be premature as we have been struggling

letter froM tHe Ceo

Sevan Marine ASA is listed on Oslo Børs (ticker SEVAN) and is specializing in building, owning and operating floating units for offshore applications. The Company has developed a cylinder shaped floater, suitable in all offshore environments. Presently, Sevan Marine is focusing its business on floating production and drilling.

Sevan Marine’s vision is to be a world-class company in the technologically challenging segments of the offshore market.

Sevan Marine shall utilize its competitive advantages within design, engineering, project execution and operations to offer cost-efficient, innovative products and solutions, based on its proprietary Sevan technology.

Priority shall always be given to safety and environment. The Company shall aim at maintaining a local presence in international markets.

tHe CoMpAnY

since then to find financing for the two units. The first drilling unit, the Sevan Driller, will be heading towards Brazil later this year, teaming up with FPSO Sevan Piranema. The operations in Brazil are very important to us, and we hope to add more business there in the years to come.

Kanfa, our gas and oil processing team, continues to deliver strong results. Kanfa Aragon’s contract with Samsung for the development of a liquified natural gas production topside to the world’s first Floating LNG vessel market a break through for us in this growth area.

In challenging times like this we also need to put seeds in the ground to harvest in the future. We will therefore continue to focus on research and development within our core business areas. The R&D activity is a key contributor to our continued success. On the back of the Goliat contract, we are experiencing that several (also new) clients are interested in our technology. I see this as a token of the good performance we have had on our three FPSOs and the quality of our personnel.

During the year we have regularly met with shareholders and potential investors. We will continue to prioritize these investor rela-tions activities, which are important, not least in challenging times.

I would like to thank our employees for the loyalty that you are showing. I am impressed with the energy you are putting in and very proud of the results that we have achieved together. If we continue like this, we will come out even stronger. On behalf of the Sevan Marine team I would like to thank our clients, vendors, shareholders and financiers for a good cooperation and your continued confidence and support.

April 30, 2009Jan Erik TveteraasCEO

topside and process technology

floating production

Sevan Marine ASA

Corporate

drilling

Corporate structure


inCOME STATEMEnT 2008 2007 2006 2005Amounts in USD million

Operating income 120.5 82.2 21.9 22.4

Total operating expense -219.0 -175.6 -45.9 -29.7

EBiTDA -98.5 -93.4 -24.0 -7.3Depreciation/write-down -31.6 -13.2 -0.7 -0.7

Operating profit/(loss) -130.1 -106.6 -24.8 -8.0Financial income 138.6 53.2 10.4 0.2

Financial expense -122.4 -98.3 -6.6 -0.1

Share of profit/(loss) from associates 0.8 1.0 0.4 0.5

net financial gain/(loss) 17.0 -44.0 4.3 0.6Profit/(loss) before tax -113.1 -150.6 -20.5 -7.5Tax income/(expense) 5.2 35.6 5.1 1.2

Annual net profit/(loss) -107.9 -115.0 -15.4 -6.2 BALAnCE SHEET ASSETS Sevan capital assets 1 693.0 1 079.2 472.9 144.8

Other fixed assets 38.7 36.1 40.1 0.7

Intangible assets 16.6 15.1 10.7 8.3

Investment in associate 1.3 1.8 1.0 0.5

Deferred tax assets 65.4 55.3 12.2 3.7

Other non-current assets 13.2 67.7 5.3 0.1

Total non-current assets 1 828.2 1 255.2 542.2 158.1 Trade and other receivables 36.2 28.6 10.4 25.5

Inventory 12.1 6.3 0.0 0.0

Derivative financial instruments 0.0 1.1 0.3 0.4

Cash and cash equivalents 50.3 222.8 309.2 72.1

Total current assets 98.5 258.8 320.0 98.0Total assets 1 926.7 1 514.0 862.2 256.0 EQUiTY AnD LiABiLiTiES Share capital 6.2 5.5 4.3 2.7

Other equity 694.3 559.7 353.7 98.7

Total shareholders’ equity 700.5 565.2 358.1 101.4Minority interest 38.6 6.5 7.8 7.2Total equity 739.1 571.7 365.9 108.6 Interest-bearing loans and borrowings 950.7 789.6 406.1 104.1

Derivative financial instruments 14.9 8.6 0.0 0.3

Retirement benefit obligations 0.6 0.7 0.7 0.7

Deferred tax liabilities 0.9 0.0 0.0 0.0

Provisions for other liabilities and charges 0.0 0.0 0.4 0.2

Total non-current liabilities 967.0 799.0 407.1 105.2 Interest-bearing loans and borrowings 14.0 4.9 0.0 0.0

Trade and other payables 177.1 82.2 69.0 21.1

Other current liabilities 28.8 52.0 0.0 0.0

Provisions 0.7 4.1 20.3 21.1

Total current liabilities 220.6 143.2 89.2 42.2Total equity and liabilities 1 926.7 1 514.0 862.2 256.0


On May 19, Sevan Marine ASA signed a Letter of Intent (LOI) with Eni Norge, the operator of the Goliat license (PL229), for the Goliat FPSO Design Competition FEED Phase. Under the LOI, Sevan undertook to further mature the Sevan FPSO for the proposed Goliat offshore solution based on Sevan’s proprietary technology.

On June 11, a private placement of 17,804,000 shares was completed at a subscription price of NOK 68.00 per share, raising gross proceeds of approximately NOK 1.2 billion in accordance with the proxy established at the Company’s General Meeting held on April 30, 2008. The proceeds of the transaction were to be applied towards projects within floating oil production and floating LNG production and for general corporate purposes. On June 13, Sevan received a firm order from India’s Oil and Natural Gas Corporation LTD (`ONGC`) for the charter hire of an ultra deepwater drilling unit based on a drilling contract of a fixed term of three years, starting from December 31, 2010, with expected revenues over the three year period of approximately USD 569 million including mobilization. On August 5, Petrobras S.A. and a subsidiary of Sevan Drilling AS, signed a firm six-year drilling contract for a new build drilling unit intended for operations off the coast of Brazil, in water depths down to 2,400 m with start-up by end-2011 and with expected revenues of approximately USD 975 million, including a bonus arrangement and mobilization fee. On September 21, the FPSO Sevan Hummingbird commenced oil production on Venture’s Chestnut field, in the central UK North Sea. On October 29, Sevan Drilling ASA, a wholly-owned subsidiary of Sevan signed a mandate letter with two leading financial institutions to arrange construction financing, intended to part-finance the construction of two deepwater drilling units (Sevan Driller II and III) that have been contracted to Petrobras and ONGC on charter contracts. On October 29, Sevan advised that the syndication of a USD 300 million senior debt project finance facility for the FPSO Sevan Voyageur had been successfully completed.

2008 in Brief2008 KeY fiGureS2009On January 22, Kanfa Aragon AS, a subsidiary of Sevan, signed a contract with Samsung Heavy Industries Co., LTD in Korea for the development of a liquefied natural gas production topside to the world’s first Floating Liquefied Natural Gas (FLNG) Production Vessel. The contract value is approximately USD 200 million. On February 2, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. On February 27, Sevan announced that it had received an offer from an industry player for one of its units. The offer, which is subject to documentation and final agreement, represents a pur-chase price reflecting the book value of the unit. Sevan engaged Pareto Securities and SEB Enskilda as financial advisors to assist in exploring and assessing strategic options. On March 13, with reference to an article in Upstream regarding FPSO Sevan no. 4 and 5, Sevan informed that negotiations were ongoing with the Jiangsu Hantong Ship Heavy Industry shipyard about the further progress of the construction of the two units. On March 26, Eni Norge AS and Sevan signed a firm contract for the Post Feed Engineering for the Sevan 1000 FPSO for the Goliat field in the Barents Sea. The value of the contract is approximately NOK 150 million from February to September 2009. On April 13, Sevan Production UK Ltd, a wholly-owned subsidiary of Sevan entered into a Memorandum of Understanding (“MOU”) with Premier Oil and Gas Services Ltd (“Premier”), for the conti-nued provision and operation of the FPSO Sevan Voyageur by Sevan for the development of the Shelley field, in the event that Premier or one of its affiliates becomes the successful purchaser of either Oilexco North Sea Ltd or the Shelley field. The FPSO Sevan Voyageur will be opera ted under a production sharing con-tract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field. On April 16, Eni Norge and Sevan Marine ASA signed a firm Technology License agreement for the Sevan 1000 FPSO for the development of the Goliat field in the Barents Sea. On April 22, Sevan Marine ASA completed a convertible bond issue of USD 12 million directed towards Luxor Capital Group, LP.

fpSo Sevan piranemapetrobras S.A.

fpSo Sevan Hummingbirdventure production ltd.

fpSo Sevan voyageur Mou with premier oil and Gas Services ltd

Sevan 1000 fpSoeni norge AS

Sevan 300 no. 4

Sevan 300 no. 5

Sevan driller petrobras S.A.

Sevan driller ii onGC

Sevan driller iii petrobras S.A.

11 years fixed + 6 x 1 year options + 5 x 1 year mutually agreed

2.5 years fixed + options

life of field

licensed to eni norge AS o&M contract at eni’s option

Marketed to clients

Marketed to clients

6 years fixed

6 years fixed

3 years fixed

Year 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29FPSOs

Drilling units Year 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

project phase fixed period option Available

ContrACt StAtuS fpSo/drillinG unitS

projeCt StAtuS

The Company has 6 Sevan units contracted to clients, three Sevan 300 floating, production and storage units (FPSOs) and three Sevan 650 drilling units, all based on the Sevan technology. In addition, the Company has one technology licence for a Sevan 1000 FPSO.


FPSO Sevan PiranemaThe FPSO Sevan Piranema is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil processing capacity of 30,000 bbls, and a daily gas injection capacity of 3.6 million m3. The unit may carry up to 21 risers and umbilicals.

Petrobras S.A is a national oil company founded in 1953 by the Brazilian government. Petrobras has been ranked as the world’s 8th biggest oil company and closed 2008 with a production of 1,855 million barrels per day of oil and 32 million m3 per day of gas.

FPSO Sevan HummingbirdThe FPSO Sevan Hummingbird is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil processing capacity of 30,000 bbls, and a daily water injection capacity of 20,000 bbls. The unit may carry up to 3 risers and umbilicals.

Venture Production Plc is a leading new generation oil & gas company focused on recapturing the potential of stranded reserves, using advanced technologies and modern operating practices. At the end of 2008, Venture produced 45,000 barrels per day.

FPSO Sevan VoyageurThe FPSO Sevan Voyageur is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil process capacity of 30,000 barrels, and a daily water injection capacity of 20,000 barrels. The unit may carry up to 10 risers and umbilicals.

Premier Oil and Gas Services Ltd is integrated in the Premier Oil plc group which was founded in Scotland in 1934. The Group has interests in 11 countries around the world, and has significant operations in the North Sea where it acquired its first interest in 1971. At the end of 2008, Premier produced 36,500 barrels of oil equivalents per day.

The Sevan 1000 FPSO (Goliat)The Sevan 1000 FPSO for the Goliat development in the Barents Sea will be owned by Eni Norge AS under a license model. The unit will have an oil production capacity of 100,000 bbls/day, a gas production of 3.9 million Sm3/day and an oil storage capacity of 1 million bbls. The FPSO will be especially designed for environ-mentally friendly operations and energy recovery. The specially designed winterisation solution will provide good working condi-tions for the crew.

Eni norge AS is owned by the Italian energy company Eni and is one of the largest operators on the Norwegian Continental Shelf. The company was established in Norway in 1965, and has a daily production of approximately 140,000 barrels of oil equivalents. Eni is operator of 14 licenses, including the Goliat field in the Barents Sea.

The Sevan 300 no. 4The FPSO Sevan 300 no. 4 is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls. The hull is currently under construction and is marketed to clients. Process capabilities will be tailored following determination of field location.

FPSO Sevan 300 no. 5The FPSO Sevan 300 no. 5 is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls. The hull is currently under construction and is marketed to clients. Processing capabilities will be tailored following determination of field location.

Sevan DrillerThe Sevan Driller has a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls.

Sevan Driller is contracted to Petrobras S.A.

Sevan Driller ii The Sevan Driller II will have a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls.

Oil and natural Gas Corporation Limited (OnGC) has been ranked as the world’s 20th largest amongst publicly listed energy companies and holds the largest share of hydrocarbon acreages in India. ONGC contributes to approximately 80% of India’s oil and gas production.

Sevan Driller iii The Sevan Driller III will have a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls.

Sevan Driller III is contracted to Petrobras S.A.

AnnuAl report SevAn MArine 11

tHe SevAn fpSos

08

FPSO Sevan Piranema has performed with consistently high production uptime levels since its start up in October 2007. At end of March 2009, the unit has performed at an average of 99.9% efficiency in the production systems over the last 12 months and with no lost time incidents over the same period.

The unit, which is the first cylindrical FPSO ever to commence operations, is operating for Petrobras S.A. on the Piranema field, located in the deep waters of the Brazilian state of Sergipe. Installed at a 1,100 m water depth, the FPSO Sevan Piranema is currently interconnected to three wells; two producing wells, and one gas injection well. Current daily production levels are approximately 5,000 bbls of produced oil and 800,000 m3 of gas re-injection.

During 2009, another three wells will be connected to the unit, of which two are dedicated to gas injection and the third to production. This marks the completion of the first phase of the Piranema development project. Subsequent daily production levels are expected to increases to 15,000 bbls of produced oil and 2 million m3 of gas-reinjection.

At the end of 2008, the FPSO Sevan Piranema’s accumulated production reached 3.5 million barrels of petroleum. 17 offl oading operations to export tanker had been carried out; all of them with a high level of efficiency.

fpSo SevAn pirAneMA


2008 was an eventful year for FPSO Sevan Hummingbird. Fol lowing completion of the mooring operations and offshore commissioning, first oil was finally achieved on September 20, 2008.

FPSO Sevan Hummingbird was the first cylindrical FPSO to be installed in the North Sea and actual measurements from the unit during her first winter offshore, confirmed performance in accordance with model tests and theoretical analysis. In addition, the ability to take delivery of helicopters even during severe winter storms and no processing restriction experienced in relation to weather conditions, has additionally demonstrated the suitability of the Sevan design for operations in harsh environments.

An important milestone was achieved on October 10, when the first cargo off-take was completed from the unit. By end of March 2009, a total of 8 cargoes and approximately 2.0 million bbls of oil had been offloaded from the unit.

fpSo SevAn HuMMinGBird

On December 16, the unit had its first anniversary offshore. A committed crew and contractors have demonstrated excellent health safety and environmental awareness with no lost time incidents experien ced during the year.

This first year of offshore activities has included the implemen-tation of support systems like maintenance and integrity manage-ment systems and health, safety and environmental reporting systems. These systems will assist in maintaining the focus on the FPSO’s technical integrity and follow-up of safety critical equipment as well as verification of performance standards.

At the end of 2008, FPSO Sevan Hummingbird had achieved stable production and water injection on the Chestnut field. In March 2009, a second production well was interconnected and increased daily production to 12,000 bbls.


The construction of the hull of the FPSO Sevan Voyageur was completed at Yantai Raffles Shipyard in China in November 2007. On December 16, 2007, the unit arrived at Keppel Verolme in Rotterdam, Holland. During her stay at Keppel Verolme, 3,000 tonnes of modules, equipment, piping and cables were installed onboard.

Having completed a less than 12 months period of hook up and commissioning of the topside and marine systems, the unit left the shipyard in Holland early in the morning on November 29, 2008, only 19 months after the contract signature with Oilexco North Sea Ltd.

In order to achieve such results within this short time frame, all involved parties have worked with intensity, drive and enthusiasm. Experience from previous project executions was a valuable resource as the project team from both Sevan and Keppel Verolme consisted mainly of personnel who had been involved in the execution of the two earlier Sevan projects carried out at the same shipyard; namely FPSO Sevan Piranema and FPSO Sevan Hummingbird. Early involvement of the crew and personnel with operation experience from FPSO Sevan Humming-bird added further important knowledge to the project.

The FPSO Sevan Voyageur was moored at the Shelley field in early 2009. Following the commencement of the sales process of Oilexco North Sea Limited, a Memo-randum of Understanding between Sevan and Premier Oil and Gas Services Ltd for the continued provision and operation of the FPSO Sevan Voyageur for the development of the Shelley field was entered into. The hook-up of the field subsea facilities is expected to take place mid-2009 to enable production start up of the Shelley field. The FPSO Sevan Voyageur will be operated under a production sharing contract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field.

fpSo SevAn voYAGeur


fpSo SevAn 300 no. 4 And 5tHe SevAn 1000 fpSo (GoliAt)

September 2008 - Slipway launching of Sevan 300 no. 4

november 2008 - Hull erection of fpSo Sevan 300 no. 5

From February through December 2008 Sevan has participated in the design competition arranged by Eni Norge AS (Eni) for the Goliat development where the Sevan concept with its proprietary cylindrical steel hull was competing with alternative concepts. Following several feed-phases involving 50-150 Sevan engineers during 2008, the Sevan 1000 FPSO was selected as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. Sevan was subsequently awarded a Post Feed Engineering contract and a Licence Agreement and will continue to work closely with Eni during 2009 to further optimize the concept for a safe and efficient operation at the Goliat field and develop the documentation to be used as basis for the EPC phase.

The Goliat field developmentThe Goliat field is located in the Barents Sea, 85 km North West of Hammerfest in the PL 229 and the PL 229B license areas. The present owners of the Goliat licence are Eni Norge AS (65% and operator of the field) and StatoilHydro ASA (35%).

The field will be developed with subsea wells drilled from eight subsea templates and tied back to the Sevan 1000 FPSO. The well stream will be routed to the FPSO for separation, oil stabilization and gas conditioning. Stabilized crude oil will be directly offloaded from the FPSO unit to shuttle tankers with VOC recovery. The gas will be re-injected for pressure support. The Sevan concept satisfies the very strict HSE requirements specified by Eni and is designed to withstand the harsh environmental conditions at the Goliat field.

FPSO Sevan 300 no. 4 and 5 are sister hulls both under construction at Hantong Shipyard in China. The hulls are being marketed to clients and expected delivery of complete units are approximately 18 months following definitive contracts being achived.


tHe SevAn drillinG unitS


Sevan drillerExecution of the Sevan Driller project has been organised in two dedicated teams of specialized personnel. The Operations team is handling the pre-operational activities and will be responsible for the day to day operation of the unit following delivery, and the Project team is handling for engineering, procurement, construc-tion, and commissioning activities. In order to safeguard the opera tional aspects already in the construction phase, and to properly train the crew for the unit, the Operations team has been involved in all stages of the project; from initial design to commissioning.

By the end of 2008, all key equipment was delivered for installation on the unit in China. The main milestones achieved during the year include launching of the hull, installation of the diesel generators, construction of hull up to main deck, installation of living quarter, installation of drill floor, erection and installation of the bottom derrick section, and erection of middle and top derrick sections.

Due to height limitations of a bridge downstream its original location, the Sevan Driller was relocated to Cosco yard, Qidong Shipyard, in March 2009 for installation of the middle and top derrick sections. Mechanical completion and commissioning is ongoing and is powered by the rig’s own diesel generators. Following completion of the installation of thrusters, the unit is scheduled for sea trials and acceptance by the Operations team, DNV and the client.

The unit was originally intended for operations in the US Gulf of Mexico for drilling at 5,000 feet for the first year of operations and 8,000 feet from the second year onwards. However, in 2008 Petrobras requested for the unit to be relocated to the Santos Basin off the Brazilian coastline and equipped for drilling at 10,000 feet at commencement date. Subsequent changes in the specifications caused a resche-duling of delivery of the unit to end of third quarter of 2009 at location in Brazil.

Sevan driller ii and iiiDuring 2008, Sevan was awarded two more contracts for drilling units by ONGC in India and Petrobras in Brazil respectively. These units will be based on the Sevan 650 hull design for operations in water depths up to 10.000 feet. The units will be constructed at Cosco shipyard in China.

No further capital expenditure or liabilities will be entered into relating to Sevan Driller II or Sevan Driller III untill the following conditions are met:• Securing of a longer contract with ONGC and one year postponement of delivery

time for Sevan Driller II• Reduce the need for equity and defer equity payments during the construction phase• Reduce the expected cost to complete to USD 650 million for each unit• Raise the required equity in Sevan Drilling

In the event that these criterias are not met, Sevan will not be able to pursue the two drilling contracts at this stage.

SevAn drillinG


november 2007 - double bottom layer erection on construction barge

April 2008 - Continued construction floating

july 2008 - loadout of the drillfloor from nymo yard in norway for transporation to Cosco nantong Shipyard in China

january 2008 - Sevan driller ready for launching off construction barge

April 2009 - Sevan driller on towing from nantong to Qidong for the last commissioning

April 2009 - Sevan driller quayside at Cosco Qidong ShipyardApril 2009 - Sevan driller being towed under the Sutong bridge

operationsDuring 2008, the Operations team has mainly concentrated its efforts on the preparation for the commencement of operations of the Sevan Driller and has continued its development into a highly qualified organisation of personnell with extensive experience from deepwater drilling.

At the end of 2008, the recruitment processes were on schedule with a majority of the key personnel already employed. The expe-rience held by these employees satisfies the high qualification requirements for deepwater operations as defined both by client Petrobras and the relevant Brazilian authorities. A further addition to the current organization is in process by recruitment of additional Brazilian nationals for the operations to commence in Brazilian waters. The members of the Operations team have been recruited at an early stage in order to ensure that their experience is utilized also during the construction phase for Sevan Driller as well as for the purpose of executing pre-operational activities and training.

Sevan has defined and established detailed qualification require-ments and job descriptions for each key position for the offshore organization, which forms the basis for the selection process for recruitment. To further ensure and complement the competencies of the employees, a detailed Competency Development Program has been developed and defines the plan for both the “external training” (mandatory regulatory training) and “internal training” for each position onboard. This training plan has formed the basis for the training program executed throughout 2008 and for the training plan for 2009 to ensure that all personnell are fully prepared for the commencement of operations.

Throughout 2008, the key pre-operational activities have included the following main elements:

• Design and construction project interface activities• Rig operations preparations activities including - Recruitment of personnel - Competency development and training - Planned maintenance system development and implementation - Operational spare parts/inventory/stock control system

development and implementation• Regulatory compliance process activities• Development and implementation of QHSE management

system and operational documentation• Client interface activities

The pre-operational activities have progressed in accordance with schedule. As Sevan Driller is currently undergoing mechani-cal completion and commissioning, the majority of the Operations team are currently at the site in China for hands-on support to the construction project.

The bulk of the corporate and unit-specific QHSE management system for Sevan Drilling has been developed by the Operations team during 2008, and is expected to be finalized during first quarter of 2009. This documentation will be subject to review by DNV as part of the ISO, ISM and ISPS certification processes accordingly. Detailed implementation of the QHSE management system and procedures will continue throughout the first half of 2009, ensuring that the system will be fully implemented and certified prior to commencement of operations.

During 2009, the Operations team will continue these processes and to be ready for a safe and successful start-up of operations of Sevan Driller according to plan.



topSide And proCeSS teCHnoloGY

KAnFA Group of Companies’ ProductsKAnFA AS• The liquid and gas EPC provider• Process equipment and systems for FPSOs

Kanfa-Tec AS• Thermal Energy equipment and systems;

WHRU and HRSG

Mator AS• Separation and chemical experts,

operational phase

Kanfa Aragon AS• The FLNG EPC provider

KAnfA Group of CoMpAnieS

The KANFA group of companies (KANFA) includes KANFA AS (100%), Mator AS (100%), Kanfa Aragon AS (50%), and Kanfa-Tec AS (49,9%) and is a process design and engineering group offer-ing services to the international Oil & Gas offshore industry. The group of companies is located in Oslo, Porsgrunn, and Bergen in Norway.

KANFA’S business idea is to remain a leading supplier of EPC contract to the international Oil and Gas, FLNG and FPSO markets.

KANFA’s strategy is to remain a world leader within its techno-

logical areas, focus on demanding projects, and expand within existing product areas.

KANFA shall continue to provide superior financial returns.

KANFA has a unique position in the market handling both Sevan Marine projects as well as other FPSO and FLNG clients like Teekay Petrojarl AS, Aker Floating Production ASA, FlexLNG ASA and Fred. Olsen Production ASA – oil companies like BP, Statoil, Maersk, Venture Production, Total, Eni – and major equipment suppliers like Dresser-Rand, Solar and GE.

Key KAnFA Projects in 2008:Client Field Scope Fred. Olsen Production/Allan Pte/CNR The Olowi, Gabon Complete topside, FPSOSevan Marine ASA/Oilexco NSL Shelley, UK North Sea Complete topside, FPSOAbu Dhabi Gas/Nouvo Pignone OAG, Abu Dhabi 2 x 10,7 MW WHRUBP/Dresser-Rand Angola Block 31 PSVM 3 x 22 MW WHRUFlexLNG/Samsung Heavy Industries Generic Complete topside, FLNG


tHe SevAn teCHnoloGY


The Sevan technology developed for offshore installations meets the oil and gas industry’s long standing challenge for versatility, flexibility, and fast deployment. The Sevan design has proved to be an efficient basis for Floating Production, Storage and Offloading (FPSO) units as well as for deep water Mobile Offshore Drilling Units (MODU). The three Sevan FPSO’s currently installed at their respective locations; FPSO Sevan Piranema in Brazil, and FPSO Sevan Hummingbird and FPSO Sevan Voyageur in the North Sea, have demonstrated to meet these challenges and provide confidence that the Sevan technology will continue to perform successfully also on future developments. The first Sevan drilling unit, Sevan Driller, is in its final construction phase and is ready for operation in second half of 2009.

The main components of the Sevan FPSO’s and MODU are the cylindrical hull. The FPSOs utilize the hull for cargo storage and segregated ballast tanks as well as for marine and utility systems.

The MODU has mud and drillwater storage in the hull as well as cargo and ballast tanks. Pumps and other utility systems related both to the drilling equipment and to the marine systems are located inside the hull. A large moonpool is arranged in the centre of the MODU hull. The Sevan hull is suitable for operation in water depths ranging from 30 m to more than 3,000 m and Sevan units may operate in both benign and harsh environments. Model tests have been made for the most extreme North Atlantic conditions as well as for the toughest cyclonic conditions with excellent results.

Main features of the design are:• Circular hull with symmetry of the design• High capacity for oil storage and deck loads• No turret or swivel• Any number of risers may be carried by the FPSOs• Excellent motion characteristics• High safety standards

The symmetry of the design and the simplicity of the structural arrangement make the construction of the hull simple and efficient. No special facilities or infrastructure are required, thus standard shipyard facilities existing worldwide are sufficient to construct Sevan units.

Sevan FPSOThe Sevan FPSO has all the facilities related to accommodation, utility systems and the process plant located on a “process deck” which is elevated above the main deck. The “topside” process systems are separated from the living quarter and utility areas

by the provision of a blast and fire wall. The process facilities for treating and stabilizing the incoming oil and gas are located at an elevated deck. Gas compression for export or reinjection as well as produced water treatment and reinjection are normally included in the process plants. The processed crude oil is dropped into the cargo tanks for later offloading to shuttle tankers. The pro cess systems are modularized and may be fabricated at different yards and transported and lifted on board the hull for integration and completion. As the hull, accommodation, utility systems, and the process plant only to a limited extent are integrated, the construction, hook-up and commissioning of a Sevan FPSO may be completed within a short time frame.

Sevan MODUThe Sevan MODU is using the upper part of the main hull as a part of the “topside” structure. This upper section is carrying the main power generation plants, mudhandling systems, derrick and drilling equipment and storage for risers, drill-string, casings, etc. A large accommodation block is located in the “bow” section of the unit. The drilling operation is made through the centre moonpool. At this location the drilling riser and related equipment is well protected and the unit may safely operate even in areas with ice. The station keeping of the MODU is based on a Dynamic Positioning (DP) system by use of azimuth thrusters. For operation in more shallow water depths a conventional mooring system may be installed in combination with the DP system.

Design Principles Sevan Marine has through experience and effective recruitment developed a competent engineering and construction department covering all disciplines such as Safety, EIT, Marine and Process systems, Structural Design and Marine Analysis including Mooring and Riser design. The team is encouraged to be innovative and also develop new applications for the Sevan technology. This philosophy has resulted in the development of Sevan Driller, as well as other potential applications like floating LNG production (FLNG), and offshore power plant (Gas to Wire, GTW).

Hull Structure The aim in the development of the Sevan technology was to provide a unit that would provide ample cargo storage in tanks within the hull, be able to carry a significant topside load and at the same time give favorable motions and accelerations when exposed to harsh wave environments such as the North Sea wave climate. The cylindrical Sevan unit with its characteristic bilge box offers these capabilities.

The development of the hull and tank configuration is a joined effort requiring competencies on hydrodynamics and stability as

well as on structural design. The design is made with focus on safety and robustness, operability and efficiency in construction.

Advanced tools such as the CATIA V5 and the DNV SESAM pack-age including GeniE, WADAM, SESTRA, PULS and XRACT are applied in an iterative process to end up with a design that puts the steel “in the right place”. In addition to the yield and buckling check used as the basis for determining the main scantlings such as plate thickness and stiffener cross section, extensive fatigue analysis is also included in the design process to explicitly control the fatigue life of critical details such as stringers/girder terminations and side structure subject to dynamic sea pressures.

Once completed, the basic design (main scantling level) is forwar-ded to Class for approval and passed on to the shipyard for development of fabrication drawings. As a part of the verification process, the Sevan Structure Section reviews both the fabrication drawings and closely follows the yard during the construction phase to ensure that the unit is built in accordance with the design specifications.

Marine and Utility SystemsThe marine systems onboard the Sevan units are in general based on conventional technology used onboard any ship (e.g. an oil tanker), FPSO, or drilling unit. However, the cylindrical shaped platform offers advantages compared to a ship shaped or column

stabilized unit. With the pump room located in a shaft in the middle of the unit, the amount of piping required for cargo handling is significantly reduced compared to a ship shaped unit.

The design development of the marine systems has focused on incorporating the experiences obtained from years of operating FPSO’s in the North Sea. One example is the introduction of a hydrocarbon blanketing system (HC blanketing) as standard on the Sevan FPSOs. The HC blanketing system uses hydrocarbon gas from the process plant to inert the cargo tanks as opposed to using inert gas from an inert gas generator, making the cargo system a fully closed system with no emissions to the atmosphere. All VOC release is routed back into the gas handling system in the process plant. FPSO Sevan Hummingbird is the first FPSO on the UK Shelf fitted with a HC blanketing system.

FPSO Topside Process SystemsThe process plant on the Sevan FPSOs is designed with basis in specification for the actual operation at a defined oil field. The main separation is normally designed as a generic unit that may serve a certain range of operational requirements. The gas treatment as well as the water treatment part of the process plant will to a larger extent be tailor made for the actual location. This design philosophy reduces the modification costs when a unit is relocated. For more long term installations, an optimized tailored process plant will be installed, e.g. as on the Sevan Piranema FPSO.

the centershaft pumproom

tHe SevAn teCHnoloGY


The design of the topside processing plant is made by the in-house expertise in Sevan Marine, Kanfa, Kanfa Aragon, Mator and Kanfa-Tec.

Functional description documents as FFD, P&IDs, cause and effect diagrams, commissioning procedures and operational man uals are established as a basis for the procurement of equipment, construction, functional testing, pre-commissioning, hook-up and commissioning of the topside modules.

The process system is constructed in modules, including the inlet and export manifold module, the separation, the gas treatment and the water treatment and injection module, the utility modules (chemical injection, flare and drain systems), etc. The way of arrang-ing the modules depends on the complexity of the process and the functional requirements.

The basic arrangement of the modules is in ‘open air’ resulting in good venitlation of any gas release. The Sevan FPSOs designed for operation in arctic areas will be built with a cover creating a good working environment for the crew and protecting the equipment from exposure to the arctic climate. The cover has a transperancy sufficient for maintaining natural ventilation.

FPSO Process FlowThe process flow in the process plant is starting by receiving oil from flexible risers running from the producing well to riser connections at the hull. From the risers, the well-stream is routed via the inlet manifold to the 1st stage separator. The well-stream normally consisting of gas, oil and produced water is separated into three phases in the 1st stage separator. The gas is routed to the gas treatment module, the produced water to further treatment and the produced oil is transferred to the 2nd stage separator for further gas removal and stabilizing. The 2nd stage separator has a reduced pressure thus releasing most of the gas still present in the crude oil. The gas is routed via a gas recompression unit back to the gas treatment module. Crude oil from the 2nd stage separator is drained into the cargo tanks. The gas treatment module may be a gas compression for reinjection (as on FPSO Sevan Piranema), gas compression for export to a pipeline, or the gas may be used for “gas lift” to improve the well stream flowgas lift.

Some of the gas will also be routed to the fuel gas module to be used for power production. In the fuel gas module the received gas is cleaned and compressed as required for the gas turbines used for power production.

in house stress analyses of local and global structural elements

Sevan fpu-iCe sucessfully tested in 2 m surface ice and 20 m deep ice ridges

The produced water is treated normally for reinjection into the reservoir. The treatment may include filtration, de-aeration, chemical treatment, etc. A flare system is required for flaring gas in case of shutdown in the process systems or if any unexpected gas releases are experienced. Both on the process side and on the utility side of the process deck a drain system is arranged to enable an operation with zero discharge. MODU Topside ArrangementA drilling unit is designed and optimized for drilling operations. The Sevan drilling units are equipped for deep water drilling operations and are operated as DP units. A typical drilling opera-tion includes activities as top hole drilling and casing operations, cementing, riser and BOP (Blow Out Preventer) installation, drill-ing, mud operation, logging, well completion, etc. A major part of the operations include handling of pipes, e.g. casing, drillpipes, riser joints, etc.

The Sevan MODU is prepared for well testing after the well is completed. The hull has ample storage for a normal well testing operation.

(Floating LnG Production)Sevan FLNG is applying in-house technology to process, liquify, store and offload LNG, LPG and condensate in exportable parcels.

(Gas to Wire)Sevan GTW is a floating gas driven powerplant. The unit will be configured with a modularized set of gas and steam turbines ensuring maximum plant efficiency. CO2 can be extracted from the feed gas for injection into subsea reservoirs.

GtW

flnG

neW AppliCAtionS


A GloBAl CoMpAnY A GloBAl MArKet

the Sevan cylindrical hull provides competitive advantages related to the requirements of the various regions of the world:

GulF OF MexicOSevan focus:Modu, (fpSo)

BRASilSevan focus:fpSo, Modu, GtW, flnG

WeST AFRicASevan focus:fpSo, Modu, GtW, flnG

RuSSiASevan focus:fpSo, (Modu)

iNDiASevan focus:

fpSo, Modu, GtW

AuSTRAliASevan focus:fpSo, flnG

SOuTHeAST ASiASevan focus:fpSo, Modu

NW euROPeSevan focus:fpSo, GtW

Avoiding turret in Avoid disconnecting in High potential for Suitable for Drilling in

harsh environments cyclonic environments local content arctic operations deepwater areas

Brazil

Gulf of Mexico

North West Europe

Russia

India

South East Asia

Australia

West Africa


Forecasted market development for floating drilling units (MODU) and FPSOs are shown in the graphs below.

Sevan’s cylindrical FPSO offers some very significant benefits such as avoiding the turret and swivel system of a ship shaped FPSO. This particular feature has proven very valuable for developments requiring transfer of large amounts of gas or electric power, which is highly relevant for upcoming gas field developments and for fields to be run on external electric power.

For both of the Sevan units currently in operation; FPSO Sevan Piranema and FPSO Sevan Hummingbird, the operational expe-rience and in particular the production uptime has been very good. These references are now bringing Sevan into position with the larger and more conservative oil companies.

The recent announcement from Eni Norge AS of the selection of the Sevan 1000 as FPSO for the Goliat development in the harsh and sub arctic Norwegian Barents Sea proves the value of the conceptual benefits and is an excellent reference case.

Effected by the recent financial turmoil, a slowdown in contract awards for floating drilling units (MODU) and floating production and storage units (FPSO) was seen towards the end of 2008.

G lobal F P S F leetWorking/Contracted Vessels 1995-2011*

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OTHERSPARSEMIFSOFPSO TLP

*Calculations for future years are made on the basis of the present fleet, vessels under construction, visible demand and minimum 3-year contract extensions on ½ of contract expirations

Source: odS petrodata, March 2009

*Calculations for future years are based on the current fleet plus the addition of rigs presently on order and under construction

Global FPSO Fleet Working/Contracted Vessels 1995-2011*

Global FPSO Fleet Regional Presence – Working Vessels Global Floating Rig Fleet 1995 – 2011* Global Floating Rig Fleet Regional Presence

G lobal F P S F leetRegional Presence - Working Vessels

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OTHERSPARSEMIFSOFPSO TLP

G lobal F loating R ig F leet1995-2011*

SEMI DRILLSHIP

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G lobal F P S F leetRegional Presence - Working Vessels

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SEMI DRILLSHIP

It is broadly accepted that the main undiscovered hydro carbon reserves are to be found in Arctic waters. Sevan has during 2008 performed a comprehensive study developing an ice breaking

version of its cylindrical hull. The results are demonstrating the superiority of the Sevan design also in these challenging environments with level ice, ice ridges and ice bergs.

For MODUs, the challenging financial markets have already led to cancellation of construc-

tion contracts, adding to the current shortage of ultra deepwater drilling units. Drilling programs in ultra deep waters may therefore be postponed due to shortage of available units, and due to this situation, rates are expected to stay at the current high level for at least another five years.

Sevan’s MODUs are targeted at the same areas as the traditional drillships and semisubmersibles, but with significant competi-tive advantages including: better motion characteristics than a drillship, higher carrying capacity and storage volume for oil than a semisubmersible as well as better suitability for arctic and ice infested environments.

The Sevan Driller is, due to the cylindrical hull form, combining the best features from the two competing concepts as well as avoiding the disadvantages. The Sevan Driller is also significantly more construction friendly due to the simple hull shape and the clear cut between hull and drilling system.

The increased demand for LNG is calling for floating produc-tion units (FLNG) with the potential of releasing stranded gas

resources and Sevan has during 2008 matured its FLNG concept with the same conceptual advantages as seen in the other application areas.

Another promising emerging market is offshore power generation (GTW) where Sevan has developed a modular floating powerplant with potential for onboard CO2 extraction and injection.

Besides being well positioned for new jobs in the established markets, Brazil and UK, Sevan has during 2008 been awarded its first projects in Norway and India. During 2008, Sevan has also carried out study work for projects in Australia and West Africa, thereby positioning the company for jobs in these regions as well.

There are several advantages with the Sevan concept that can facilitate a higher local content, even in areas with limited existing construction facilities. Examples of this are the potential for hull construction on a barge (selected method for the Sevan Driller) and the very low water depth requirements for outfitting of the unit quayside.

Fredrik Major, Vice President Business Development/R&D

MArKet outlooK


BoArd of direCtorS’ StAteMent on poliCY for CorporAte GovernAnCe

Corporate Governance in Sevan MarineThe Company shall be managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. Sevan Marine follows the Norwegian Code of Practice for Corpo-rate Governance of 2007.

The following sections provide an explanation of how Sevan Marine addresses the various issues covered by the Norwegian Code of Practice.

BusinessSevan Marine’s vision is to be a world-class company in the technologically challenging segments of the offshore market. Sevan shall utilize its competitive advantages within design, engineering, project execution and operations to offer cost- efficient and innovative products and solutions to its clients, based on the patented Sevan technology.

The Company shall aim at maintaining a local presence in international markets. Growth is to be achieved mainly through organic development and partnership arrangements.

The Board believes that the business objectives laid down in the Company’s Articles of Association provide predictability and direction for the Company’s business strategy and the activities that it may acquire or initiate. The Articles of Association of Sevan Marine is posted at the corporate website.

Equity and DividendThe Company shall aim at establishing a sound financial structure, reflecting the capital intensive nature of its business, the offshore market fluctuations, and the duration of the contract portfolio for the Sevan units. In this respect, the Company shall ensure that its equity basis is sufficient.

The Company shall provide its shareholders with a competitive return on investment over time. The Company’s target is that the underlying values shall be reflected in the share price. Long-term, the Company shall aim at paying a dividend to its shareholders on a regular basis. Near-term, the Company’s focus will be on expanding the fleet of Sevan units based on the proprietary Sevan design and on growth in the Company’s share price, based on the market’s valuation of existing and future earnings.

Authorisations granted to the Board of Directors with regards to increasing the share capital shall specify its purpose. The authorizations granted to issue new shares in connection to the financing of capital requirements related to its business activities, stock based incentive schemes, acquisition of treasury shares

and issuance of convertible loans are outlined in more detail in the minutes from the Annual General Meeting on April 30, 2008, which are available at the corporate website. The authorization to issue new shares in connection to the employee stock option programme granted at the Annual General Meeting in April 2008 is effective for the maximum statutory period of two years and is not limited to the time of the next Annual General Meeting. This is because the rights granted under the employee stock option programme are effective also for the period following the next Annual General Meeting.

Equal Treatment of Shareholders and Transactions with Close AssociatesThe Company has only one class of shares and each share entitles the holder to one vote at General Meetings. Transactions with close associates shall be on an arms-length basis, and always according to the Norwegian Public Limited Companies Act.

A private placement of 17.8 million new shares at NOK 68.00 per share with gross proceeds of NOK 1.2 billion was carried out in June 2008. The share issue was carried out pursuant to the authorization to the Board of Directors granted at the Annual General Meeting in April 2008. The private placement was effected in order for the Company to part finance its capital requirements including those relating to projects within floating oil production and floating LNG production and for general corporate purposes.

In relation to the private placement effected during 2008, the Board of Directors considered the prevailing market conditions and was of the view that the additional equity should be raised in a share issue directed towards large investors with a limited subscription period. Also, the amount of equity desired dictated that professional investors beyond the existing group of share-holders should be invited to participate. Based on this, the Board of Directors concluded that derogation from existing shareholders’ preferential right to subscribe for the new shares as set out in the Public Limited Liability Companies Act were in the best interest of the Company and the shareholders in general. The subscription price was decided taking into consideration the current reported share price on Oslo Børs, the likelihood of placing the shares and recommendations from the lead managers of the offering.

During 2008, the Company has issued a total of 899,767 new shares in connection to the exercise of options under the Company’s employee stock option programme. The issuance of 248,647 shares in March 2008 was made pursuant to the Board’s authorisations given at the General Meeting in May 2007. All other share issuances under the Company’s employee stock option programme, a total of 651,120, were made pursuant to

the authorisations given to the Board of Directors at the General Meeting in April 2008. The subscription prices for these issues were based on stock options previously awarded to employees, where the exercise prices were set equal to the market prices at the time of the awards.

Freely negotiable SharesAll the shares of the Company are freely negotiable.

General MeetingsThe General Meeting is the Company’s supreme corporate body. It elects the Board members and the auditor and is the forum for presentation and discussion of other issues of general interest to shareholders. Every shareholder of the Company has the right to attend the General Meetings.

The date of the Annual General Meeting is published as a part of the Financial Calendar for the year, no later than October each preced-ing year. The Financial Calendar is posted at the Company’s web-site. Notice of the Annual General Meeting is given three weeks in advance at the corporate website. All shareholders are notified two weeks in advance at the address under which they are registered in the Register of Shareholders.

Attendance forms may be sent to the Company until the day before the General Meeting in order to enable as many share-holders as possible to attend. If any shareholder is unable to attend, he or she may attend by proxy.

The minutes from the General Meeting are published as soon as possible at the corporate website.

nomination CommitteeA Nomination Committee, which works under the mandate and authority of the General Meeting, makes preparations and recommends candidates for the General Meeting’s election of the Board members, as well as proposing the remuneration of the Board of Directors.

Pursuant to the Articles of Association, the Nomination Commit-tee consists of the Chairman of the Board of Directors and two members elected by the General Meeting. The members elected by the General Meeting are appointed for two years. Currently, the Nomination Committee consists of Arne Smedal (in capacity of being the Chairman of the Board), Mimi Kristine Berdal, and Christel Borge.

Mimi Kristine Berdal works as a lawyer in private practice. Christel Borge is a business and management graduate and works with strategic development at the Telenor group. Within three weeks prior to the General Meeting, the Nomination Committee will provide contact information for its members and any deadlines for submitting proposals to the committee at the corporate website.

Corporate Assembly and Board of DirectorsAs of today, the Company is not required to have a Corporate Assembly.

The Company’s Board of Directors shall pursuant to the Articles

of Association consist of five to nine members. Two members shall be elected by and amongst the employees in the Sevan Marine Group and the remaining members shall be elected by the General Meeting. The members are normally elected for a period of two years. During 2008, the Board of Directors has consisted of seven members (five elected by the General Meeting and two by and amongst the employees). Biographical information on each Director is outlined on page 55 of the annual report.

All Board members are independent of the Company’s main shareholders, whilst three out of five Board members elected by the shareholders are independent of the Company’s senior management and material business contacts. The Company aims at complying with applicable gender requirements for Board composition as required.

The Work of the Board of DirectorsThe Board of Directors is ultimately responsible for administer-ing the Company’s affairs and for ensuring that the Company’s operations are organized in a satisfactory manner. Moreover, the Board is responsible for establishing supervisory systems and for overseeing that the business is run in accordance with the Company’s core values and ethical guidelines.

The Board of Directors established an Audit Committee in 2008 consiting of Board member Hilde Drønen and Deputy Chairman Vibeke Strømme. The Audit Committee assists the Board of Directors in matters relating to the integrity of the Company’s financial statements, financial reporting processes and internal controls, and the qualifications, independence and performance of the external auditor.

The Board of Directors meets a minimum of 6 times a year and more frequently if required.

Risk Management and internal ControlThe Board of Directors shall ensure that the Company has good internal control fuctions and appropriate systems for risk management tailored to its operations and in accordance with the Company’s core values and ethical guidelines. A review of the Company’s most important risk areas and its internal control functions is conducted by the Board on an annual basis.

The Group’s activities expose it to a variety of risks; including mar-ket risks, financial risks and operational risks. The Group’s overall risk management programme seeks to minimize the potential adverse effects on the Group’s financial performance likely to be caused by its exposure to such risk factors, including but not lim-ited to the use of derivative financial instruments and development of sound health, safety and environment (HSE) principles as well as prudent monitoring of constructional and operational activities.

Remuneration of the Board of DirectorsThe remuneration of the Board of Directors is determined on a yearly basis by the General Meeting. The Directors may also be reimbursed for travelling, hotel and other expenses incurred by them in attending Board meetings or in connection with the business of the Company.


Sevan Marine’s vision is to be a world-class company in the technologically challenging segments of the offshore market. Sevan shall utilize its competitive advantages within design, engineering, project execution and operations to offer cost-efficient and innovative products and solutions, based on the proprietary Sevan technology. Priority shall always be given to safety and environment. The Company shall aim at maintaining a local presence in international markets.

The Company has so far concentrated its efforts in utilizing the Sevan unit for floating production and drilling purposes. However, due to its versatility, the Sevan design may also be used in con-nection with applications such as a floating LNG (FLNG) and gas to wire (GTW).

The business model has traditionally been based on a build-own-operate scheme, whereby the Company takes the responsibility for the construction, ownership and operation of the Sevan units. co-ownership in the units may be considered if it is deemed beneficiary. Operations may be carried out by in-house personnel or in cooperation with recognized O&M. Under this model, the Sevan units will typically be leased to clients under multi-year contracts whereby Sevan undertakes to carry out the production or drilling activities on a specific offshore location.

Under the build-own-operate scheme, the Company’s remune-ration typically consists of an agreed day rate, which the client (i.e. the oil company) pays for the bareboat or time charter of the unit. Such day rate will consist of an operating element and a capital element. The Company aims at minimizing the amount of reservoir risk in the remuneration it receives.

The license model is an alternative business model which is parti cularly attractive in the current financial market conditions. Should the client prefer to be the owner of a Sevan unit, the Company will evaluate this on a case-by-case basis, taking into consideration factors like risk, remuneration, and construction and engineering capacity.

BuSineSS StrAteGY

deSiGn

rAt

ion

Ale

foCu

S• Proprietary technology• In-house expertise

- Hull - topside (Kanfa)

• The Sevan Technology forms the basis for the Company’s core competencies and competitive advantages

• In-house marine and process expertise provides optimization and flexibility through project execution

• Long-term construction capacity secured with key yards

• In-house expertise in project management and execution

• Ownership to be decided on a case-by-case basis

• Ownership of units (BOO) or license model

• Operation & maintenance (o&M) responsibility

• Combining internal and external resources

• Lease contracts

• Retain full control of own technology

• Depends on size of project and availability of financing sources

• In-house O&M expertise secures ownership and feedback from operations (lessons learnt)

• Construction capacity is a critical success factor

• Construction program requires key competence in execution

enGineerinG ConStruCtion oWnerSHip operAtion

At the Company’s Annual General Meeting in April 2008, the remuneration of the Board of Directors for the financial year 2007 was set to NOK 400,000 for the Chairman, NOK 275,000 for the Deputy Chairman and NOK 225,000 for each of the Board members. Remuneration of each of the Employee representatives was set to NOK 112,500 with equivalent amounts reserved in an ‘Employe Benefit Fund’ to benefit all employees in Sevan.

A Director who has been given a special assignment, besides his or her normal duties as a Director, in relation to the business of the Company, may be paid such additional remuneration as the Directors may determine. The members of the Audit Committee will be separately remunerated for duties relating to the committee responsibilites.

Remuneration of the Senior ManagementThe Board of Directors has established guidelines for the remuneration of the members of the Senior Management team. These guidelines are communicated to the Annual General Meeting and are described in the ‘Statement Regarding Estab-lishment of Salary and Other Benefits for Senior Management in Sevan Marine According to the Joint Stock Public Companies Act § 6-16A First and Second Article’, and is outlined in further detail on page 54.

information and CommunicationSevan Marine has establish guidelines for the Company’s reporting of financial and other information based on openness and taking into account the requirements for equal treatment of all participants in the securities market.

In order to ensure equal treatment of its shareholders, an important aim for Sevan Marine is to make sure that the securities market is in possession of correct, clear and timely information about the Company’s operations and condition at all times. This is essential for an efficient pricing of the shares and bonds and for the market’s confidence in the Company.

Approaches taken to meet this aim include timely and comprehensive reporting of the Company’s interim results, and the distribution of the annual and quarterly financial reports. In addition, information of significance for assessing the Company’s underlying value and prospects is reported through Oslo Børs and are made available at the Company’s website as well as distributed to email-subscribers. Further details, such as contact names, addresses and news about the Company, are available at the corporate website.

The Company will also strive to ensure that its progress is monitored by securities analysts. The Company has established a designated Investor Relations position for relations with share-holders, bondholders, Oslo Børs, analysts and investors in general. The Company shall seek to clearly communicate its long-term potential, including its strategy, value drivers and risk factors.

The Company shall maintain an open and proactive investor relations policy, a best practice website and shall give presenta-tions regularly in connection with interim financial reports. Sevan Marine has been awarded the Oslo Børs’ Information and English

symbols. These symbols have been established to identify issuers working professionally and systematically to make financial information readily available to investors and other market players, both nationally and internationally.

The Company’s Financial Calendar is available at the corporate website. Shareholder information is published at the website as well as sent directly to email-subscribers.

Take-OversThe Board will handle any possible take-over in accordance with Norwegian corporate law. There are no mechanisms against take-over bids in the Articles of Association or in any underlying steering document, nor are any measures to limit the opportunity to acquire shares in the Company implemented. The Board will not seek to hinder or obstruct an offer for the Company’s activities or shares unless there are particular reasons for this.

AuditorThe Board of Directors has established an Audit Committee. The auditor participates in relevant agenda items at meetings with the Audit Committee and meet with the committee at least once each year. The auditor annually reports the main features of the plan for the audit of the Company to the Audit Committee.

Once a year, the auditor presents a review of the Company’s internal control procedures, including identifying weaknesses and proposals for improvement. The auditor presents the view on inter nal control procedures through the annual management letter.

In connection with the issue of the auditor’s report, the auditor provides the Board with a declaration of independence and objec-tivity, and the auditor participates in the Board meeting at which the Board approves the annual accounts. The proposal for approval of the remuneration paid to the auditor provides a breakdown of the total remuneration related to statutory audit tasks and other assignments and is reported to the Annual General Meeting.


Shareholder PolicyThe Company shall aim at making the shares of the Company an attractive investment object.

The Company shall provide its shareholders with a competi-tive return on investment over time, in terms of dividend and development in the share price. The Company’s target is that the underlying values shall be reflected in the share price.

The Company shall be managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. The Company shall seek to clarify its long-term potential, includ-ing its strategy, value drivers, and risk factors.

The Company shall maintain an open and proactive investor rela-tions policy, a best-practice website, and shall give presentations regularly in connection with interim results.

The Company shall provide shareholders, Oslo Børs, and the market as a whole with timely and accurate information. Such information will take the form of annual reports, quarterly interim reports, press releases, stock exchange notifications, and investor presentations, as applicable.

Dividend PolicyLong-term, the Company shall aim at paying a dividend to its shareholders on a regular basis.

Near term, the Company’s focus will be on expanding the fleet of Sevan units, based on the proprietary Sevan technology, and on growth in the Company’s share price based on the market’s valuation of existing and future earnings.

In the last five years, there has been no payout of dividends from the Company.

investor Relations PolicyIn order to treat all its shareholders equally, an important aim for Sevan Marine is to ensure that the securities market at all times is in possession of correct and complete information about the Company’s operations and condition, and thereby contribute to the most accurate pricing of its shares.

Approaches taken to meet this aim include prompt and comprehensive reporting of the Company’s interim results and the distribution of annual and quarterly reports. In addition, information of significance for assessing the Company’s under-lying value and prospects is reported to the Oslo Børs and made available at the corporate website.

Presentations are given in connection with the publication of the quarterly results and throughout the year, both nationally and internationally, to inform existing and potential investors about the Company and its activities.

Holding norwegian shareholders Foreign shareholders Total shareholders

From To no of no of % of no of no of % of no of no of % of

share- shares shares share- shares shares share- shares shares

holders holders holders

1 1 000 2 743 1 623 203 0.83% 56 29 556 0.02% 2 799 1 652 759 0.84%

1 001 10 000 3 630 15 227 678 7.76% 109 478 904 0.24% 3 739 15 706 582 8.01%

10 001 100 000 1 167 32 993 061 16.82% 95 3 326 589 1.70% 1 262 36 319 650 18.52%

100 001 1 000 000 94 21 766 565 11.10% 52 16 998 007 8.67% 146 38 764 572 19.76%

1 000 001 < 11 26 591 701 13.56% 12 77 093 184 39.31% 23 103 684 885 52.87%

Total 7 645 98 202 208 50.00% 324 97 926 240 50.00% 7 969 196 128 448 100.00%

Shareholder Distribution

As at April 14, 2009

Shareholder structure

The 20 largest shareholders as at April 14, 2009

Shareholder no of share Ownership share %

GOLDMAN SACHS & CO - Equity 33 986 072 17.33%

JP MORGAN CLEARING Corp. 16 031 772 8.17%

BANK OF NEW YORK, Brussels Branch 4 730 724 2.41%

CLEARSTREAM BANKING 4 570 957 2.33%

SMEDAL ARNE 3 698 703 1.89%

MORGAN STANLEY & CO. 3 506 628 1.79%

BR INVESTERING AS 3 475 400 1.77%

PENSJONSKASSEN STATOILHYDRO 3 119 350 1.59%

SUPERNOVA AS 2 893 444 1.48%

HALLINGEN AS 2 821 296 1.44%

AASEN AS 2 804 036 1.43%

DEUTSCHE BANK AG LONDON 2 665 166 1.36%

BANK OF NEW YORK, Brussels Branch 2 619 246 1.34%

MP PENSJON 2 555 263 1.30%

JPMORGAN CHASE BANK 2 399 291 1.22%

EUROCLEAR BANK S.A./N.V 2 085 406 1.06%

STATE STREET BANK AND TRUST CO. 1 650 211 0.84%

SOCIETE GENERALE GLOBAL SEC. 1 601 713 0.82%

AVANSE NORGE (II) VPF 1 443 759 0.74%

STATOIL FORSIKRING A.S 1 386 347 0.71%

20 largest shareholders 100 044 784 51.01%

Remaining 96 083 664 48.99%

Total 196 128 448 100.00%

20082007200620050

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Sevan Marine ASA

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Sevan Marine promotes and supports the “HSE zero mindset”, and we believe that all accidents resulting in harm to people and environment can be prevented by a proactive approach to QHSE.

The corporate quality policy promotes and supports customer focus and commitment to the activities undertaken by Sevan Marine, and continuous improvement is one of the key principles of the policy.

Sevan Marine has implemented a QHSE Management System (MS) that is electronically based and available and accessible on the corporate webpage. Supporting IT systems are implemented to assure the quality of QHSE processes as well as business processes. The QHSE MS is designed on the basis of the principles found in both legislation and internationally recognized standards. The QHSE MS is certified by DNV to the listed standards below.

Diversity and competence has been, are, and will continue to be two of Sevan’s key factors to success. A wide range of nations are represented through employment in Sevan, and during 2008 new employees and additional nations have become a part of our organization.

The increase in number of employees during the year is largely contributed by the operations part of the Sevan organization. We currently have own employees, as well as contractors, both on the English sector of the North Sea, as well as in Brazil. This means new and exiting challenges to HR, and we are look-ing forward to continue to develop our organization through increasing our staff with competent personnel as well as continue to improve our systems.

During 2008, Sevan has continued the preparations for the com-mencement of operations for the first Sevan drilling unit and are organizing for doing this with our own crew on board. The change of location of the Sevan Driller from the Gulf of Mexico to Brazil has constituted new challenges that the Brazilian part of the Sevan organization is looking forward to take on in collaboration with the other areas of the Sevan organization.

Motivated and competent employees are one of the key com-petitive advantages for Sevan. We will continue to develop our efforts to enable our employees to be fit to meet new challenges. Commitment and creation of opportunities to make use of, and continue to develop, each individual’s skills are key factors we aim to stimulate.

Our goal is to utilize the workforce as well as organizational tools for creating a stimulating environment, developing and encourag-ing all employees to make the utmost of their skills and talents for the best for each employee as well as for Sevan. In this way we shall succeed in building Sevan even stronger, and remain competitive with regards to each individual employee’s success as well as Sevan’s success.

SEVAn MARinE GROUP QHSE POLiCYEnsuring the safety and health of our employees, protecting the environment, and deliver quality in everything we do, are core business principles of Sevan. The QHSE Management System was established with participation from employees from different sections of the organization, ensuring acknowledgement and commitment to its principles:

Health We shall evaluate and mitigate the risks to reduce the hazards at work places to an acceptable level. We shall monitor occupational health for our employees.

Safety We shall manage our activities based on international recognized safety standards. We shall focus on the communication and implementation of these standards.

Basis for the QHSE MS: ISO 9001:2000 Quality Management System DNV Certified in 2007ISO 14001:2004 Environmental Management System DNV Certified in 2008OHSAS 18001:2007 Occupational Health and Safety Assessment Series DNV Certified in 2008ISM Code International Safety Management DNV Certified in 2008ISPS Code International Ship and Port Facility Security DNV Certified in 2008Achilles Joint Qualification System Certified in 2007FPAL (First Point Assessment) Certified in 2008

Environment We shall protect the environment and minimize the amount and effect of discharges, emissions and waste disposals from our activities.

Quality Management We shall fulfill our customers’ needs and expectations and make commitments we fully understand.

Continuous improvement We shall verify that our operations meet agreed requirements. We shall monitor and continuously improve our operational activities and the organization’s performance at large.

Sevan Marine shall comply with HSE legal requirements as well as any other requirements applicable to our operations.

numbers of employees (Group)

Reidun B Olsen Vice President QHSE

Hanna Moland Vice President Human Resource & Administration

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finAnCiAl StAteMentS

Board of Directors’ Report 50Statement regarding Salary and Benefits for Senior Management 54Board of Directors 55

SEVAn MARinE GROUP

Consolidated Balance Sheet 56Consolidated Income Statement 57Consolidated Statement of Changes in Equity 58Consolidated Cash Flow Statement 59

notes to the Consolidated Financial Statements 60Note 1 General Information 60Note 2 Summary of Significant Accounting Policies 61Note 2.1 Basis of Preparation 61Note 2.2 Consolidation 61Note 2.3 Segment Reporting 62Note 2.4 Foreign Currency Translation 62Note 2.5 Property, Plant and Equipment 62Note 2.6 Construction in Progress 63Note 2.7 Construction Contracts 63Note 2.8 Intangible Assets 63Note 2.9 Impairment of Non-Financial Assets 63Note 2.10 Financial Assets 63Note 2.11 Inventory 64Note 2.12 Trade Receivables 64Note 2.13 Cash and Cash Equivalents 64Note 2.14 Share Capital 64Note 2.15 Borrowings 64Note 2.16 Deferred Income Tax 64Note 2.17 Employee Benefits 64Note 2.18 Provisions 65Note 2.19 Revenue Recognition 65Note 2.20 Leases 65Note 2.21 Dividend Distribution 65

Note 3 Financial Risk Management 66Note 3.1 Financial Risk Factors 66Note 3.2 Fair Value Estimation 66Note 4 Critical Accounting Estimates and Judgements 67Note 4.1 Critical Accounting Estimates and Assumtions 67Note 4.2 Critical Judgements in Applying the Entity’s Policies 67Note 5 Segment Information 68Note 6 Property, Plant and Equipment 70Note 7 Intangible Assets 71Note 8 Investments in Associates 72Note 9 Derivative Financial Instruments 73Note 9a Financial Instruments by Category 73Note 9b Credit Quality of Financial Assets 74Note 10 Trade and Other Receivables 75Note 11 Cash and Cash Equivalents 76Note 12 Share Capital 76Note 13 Share-based Payments 77Note 14 Trade and Other Payables 78Note 15 Borrowings 79Note 16 Deferred Income Tax 80Note 17 Retirement Benefit Obligations 81Note 18 Provisions for Other Liabilities and Charges 83Note 19 Construction Contracts 83Note 20 Employee Benefit Expense 84Note 21 Financial Income and Financial Expense 87Note 22 Income Tax Expense 87Note 23 Earnings per Share 88Note 24 Dividend per Share 88Note 25 Cash Generated from Operations 88Note 26 Contingencies 89Note 27 Commitments 89Note 28 Related-party Transactions 90Note 29 Operating Leases 90Note 30 Events after Balance Sheet Date 91Note 31 Other Expense 92Note 32 Inventory 92Note 33 Other Long Term Receivables 92Note 34 Revenues 92Note 35 Business Combinations 92

SEVAn MARinE ASA

Balance Sheet 94Income Statment 96Cach Flow Statement 97

notes to the Financial Statements 98Note 1 Equity 100Note 2 Taxes 101Note 3 Tangible and Intangible Fixes Assets 102Note 4 Investments in Subsidaries and Receivables and Liabilities to Companies within the Group 103Note 5 Receivables and Liabilities 105Note 6 Cash and Bank Deposits 105Note 7 Shares and Shareoptions owned or Controlled by the Board of Directors and Senior Management 105Note 8 Shareholder Information 106Note 9 Employee Benefit Expense 107Note 10 Pension Liabilities 108Note 11 Other Operating Expense 110Note 12 Rental and Lease Agreements 110Note 13 Earnings Per Share 110Note 14 Construction Contracts 110Note 15 Share Based Incentive Plans 111Note 16 Related-party Transactions 112Note 17 Financial Risk 112Note 18 Contingencies 113Note 19 Events After Balance Sheet Date 113Note 20 Borrowings 114Note 21 Derivate Financial Instruments 115Note 22 Financial Income and Financial Expense 115Note 23 Inventory 115

Auditor´s Report 116Responsibility Statement 117


Sevan Marine ASA (the “Company”) and its subsidiaries (together with the Company; the “Group”) is a leading company within floating production and also has activities within deepwater drilling, based on its proprietary cylindrical hull technology. The Company is also developing other applications, including floating LNG production and power plants with CO2 capture.

The Group’s business is based on a build-own-operate model. Alternatively, a license model may be applied.

The Company is a Norwegian public limited liability company. Several of its unit-owning subsidiaries are Singaporean private companies with registered office in Singapore. The Company also has offices in Brazil and UK.

In 2008 the most significant event was the award by Eni Norge AS of the Goliat contract in the Barents Sea, marking the Company’s entry into the segment for large FPSOs in sub-Arctic conditions.

Two new drilling contracts were awarded in June, for Petrobras and ONGC. The Board will continue to evaluate strategic options for the drilling activities including, but not limited to, a possible de-merging into a separate listed entity.

Unprecedented difficult financial markets during the last year caused challenges for the Company. In spite of the firm drilling contracts awarded with significant counterparties, it has proven difficult to secure the required financing. The working capital posi-tion of the Group has suffered, mainly due to higher-than-expected costs for completing Sevan Driller, commissioning and start-up costs for FPSO Sevan Hummingbird and deferred income from the FPSO Sevan Voyageur, due to the liquidation of Oilexco North Sea Ltd. Although to some extent mitigated by income from the Goliat post-feed contract, these events have in total adversely affected the financial condition of the Group.

The Company has evaluated and invested significant efforts in exploring the possibilities of securing necessary funding by way of equity raising, asset sales, alternative financing schemes and attracting investors to its drilling business. These efforts are ongo-ing. The total capital requirement is estimated to a minimum of USD 125-150 million, including a Group working capital requirement of USD 75-100 million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. The Company is aiming at financing as much as possible of the capital requirements by way of asset sales.

As of the date of this report, the Group has four FPSO contracts with clients, including the Goliat Sevan 1000 FPSO.

FPSO Sevan Piranema, the Group’s first cylindrical FPSO, continued to demonstrate high efficiency with a 99.9% produc-tion uptime during the last 12 months. The FPSO is operating for Petrobras on the Piranema field in Brazil.

During 2008, FPSO Sevan Hummingbird became the Group’s first FPSO to operate in the North Sea. Following some delays relating to problems with the ballast piping which occurred during the commissioning, oil production commenced on the Chestnut field in the central UK North Sea on September 20, 2008, for Venture Production Plc. The FPSO has been exposed to severe weather and motions were in line with model testing and analyses. For its first six months of operation, the unit had an average technical availability of 97.6%.

The Group’s third FPSO, the Sevan Voyageur, started mobilization for the Shelley field in the Central UK North Sea on November 29, 2008. The unit left the shipyard 19 months after signing the contract with the client. Early 2009, the client was taken under administration. In March 2009, Sevan entered into a Memorandum of Understanding with Premier Oil and Gas Services Ltd for the continued provision and operation of the FPSO Sevan Voyageur on the Shelley field. The FPSO is currently moored on the field. Hook-up of the field subsea facilities is expected to take place mid-2009. The unit will be operating under a production sharing contract whereby Sevan will be compensated for its actual opera-ting cost and additionally receive a tariff payment based on actual monthly revenue from oil production from the field.

In February 2009, Eni Norge AS selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the parties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement.

The hulls for FPSO Sevan 300 no. 4 and 5 are under construction at the Jiangsu Hantong Shipyard in China. The units are currently marketed to clients and expected delivery time for complete units is approximately 18 months after contract award. The Group has as of the date of this report only entered into commitments in relation to the construction of the hulls for the two units. Negotiations are on-going with the shipyard regarding construction scope and progress.

As of the date of this report, the Group has entered into three drilling contracts with clients.

The commissioning of the Sevan Driller, which is contracted to Petrobras under a six-year contract, is ongoing at COSCO’s ship-yard in Nantong, China. The drilling unit which will operate in Brazil

was originally intended to go to the US Gulf. The relocation has caused a rescheduling of the delivery of the unit to third quarter of 2009. Petrobras will cover any additional costs relating to change of location.

In June 2008, Sevan was awarded two additional drilling contracts. Sevan Driller II was contracted to ONGC for three years with delivery end-2010, and Sevan Driller III was contracted to Petrobras S.A. for six years with delivery by mid-2012. Sevan is working to secure financing for the two units. The required capital and related pro-cesses is described in further detail in the ‘Capital and Financing’ section of this report.

These contracts will only be pursued if financing can be raised. Should the contracts be terminated, estimated future termination cost amounts to USD 50 million in total.

In January 2009, Kanfa Aragon AS and Samsung Heavy Industries signed a contract for the supply of a liquefied natural gas production topside to the world’s first Floating Liquefied Natural Gas (FLNG) production vessel.

income Statement and Balance SheetConsolidated revenues for 2008 totaled USD 120 million. The Group incurred an operating loss of USD 130 million, an increase of USD 23 million from 2007, mostly related to certain one-off items inclu-ding expensing of the mobilization of FPSO Sevan Hummingbird of USD 61 million as well as a provision made for receivables from Oilexco North Sea Ltd of USD 4 million. Net loss came to USD 108 million, compared to a loss of USD 115 million in 2007. At December 31, 2008, total consolidated assets amounted to USD 1,927 million, of which Sevan capital assets amounted to USD 1,693 million and USD 50 million was cash and cash equivalents. At year end, the equity ratio was 38%.

The Group has prepared the financial statements in accordance with International Financial Reporting Standards (IFRS).

Research and DevelopmentBetween 2001 and 2008, Sevan invested a total of USD 20-25 million in relation to the development of the Sevan Technology which was expensed through the Profit and Loss as incurred. USD 0.5 million of this amount was expensed in 2008. In addition, Sevan has capitalized USD 3 million in relation to development of the Sevan design for production, storage and offloading of LNG during 2008. The Group expects to capitalize on those expenses in the future.

Capital and Financing Net consolidated cash flow for 2008 was minus USD 173 million. Cash flow from operations amounted to minus USD 157 million, cash flow from investments amounted to minus USD 538 million and cash flow from financing amounted to USD 522 million.

In June, the Company completed a share issue with gross proceeds of USD 224 million in order to part-finance the Company’s projects within floating oil production and floating LNG production and for general corporate purposes.

In April 2009, Luxor Capital Partners, LP and Luxor Capital Partners Offshore, Ltd. or affiliates thereof (“Luxor”) agreed to subscribe for a USD 12 million convertible bond to be issued by the Company, pursuant to the proxy given in the general meeting on April 30, 2008. Subject to the approval by shareholders in an extraordinary general meeting (EGM) to be held on May 4, 2009, Luxor has also undertaken to subscribe for convertible bonds in the amount of an additional USD 12 million. In addition, Luxor will have the right to subscribe for additional convertible bonds up to the amount of USD 24 million within 30 days of the EGM (which period may be extended by the Company to 60 days). The convertible bond has a term of four years and a fixed coupon of 15 per cent p.a. Interest payments may, at the Company’s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD 1.0454 at the day of the exercise of the conversion right. The net proceeds of the Bonds shall be used for general corporate purposes. The convertible bond issue is a part of the Company’s strategy of establishing a sound financial basis for its activities.

Limited availability of funding has resulted in a tight financial position for the Group. This has adversely affected the Group’s ability to finance its ongoing projects. The Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD 1.3-1.4 billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. Should the contracts be terminated, estimated future termination cost amounts to USD 50 million in total.

For the other business of the Group (including the construction of Sevan Driller), the Board estimates the capital requirement, to be in the order of USD 75-100 million. The Company is in the process of securing the required funding. The Company has received an offer for one of its units and is also experiencing interest from investors to invest in its floating production and drilling business. The received offer for purchase of a unit is subject to documentation and final agreement and represents a purchase price in line with book values. In total, it is the Board’s opinion that the measures taken will be sufficient to raise the required capital, including covering the working capital need, and continue the operations as a going concern.

Going ConcernIn accordance with the Norwegian Accounting Act’s section 3-3, the Board confirms that the annual accounts have been prepared based on the going concern assumption. The basis for this assump tion is the Company’s strategic plan, financial prognoses and successful outcome of the ongoing financing initiatives.

As described in further detail above, the estimated minimum total capital requirement is USD 125-150 million. Over the last year, the Company has evaluated several possibilities of securing necessary funding, and is aiming at financing as much as possible of the capi-tal requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD 12-36 million directed towards Luxor may be sub-scribed subject to approval by the EGM on May 4, 2009.

BoArd of direCtorS’ report 2008


The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group’s assets in a strained situation are lower than book values.

RiskThe Company was founded in 2001 and has since its inception focused on the engineering, construction and the subsequent operation of the Sevan units, based on its proprietary technology. The Group’s new-building program requires continuous monitoring and ability to control and adapt to inherent risks.

Following more than 18 months operation in Brazil and six months in the North Sea, the Sevan Technology is proven in these areas and the technology risk is therefore reduced. Recorded motions have been in line with model testing and analyses.

The Group’s activities expose it to a variety of financial risks, inclu-ding market risks, credit risks and liquidity risks. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse ef-fects of such risks on the financial performance of the Company. The Company will therefore continue to manage its currency and interest exposures through certain derivative financial instruments in accordance with market practice and to maintain flexibility in funding by keeping committed credit lines available.

The Company utilizes a combination of equity and bank/bond financing to finance the construction of the Sevan units. Obtaining such financing may be subject to market risks and other risks that may influence the availability, structure and terms of such finan-cing. When the financial markets do not function properly, this risk becomes particularly prevailing for a capital intensive company like Sevan which is not yet in a position to support its new building program with cash flow from operations.

Historically, demand for offshore exploration, development and production has been volatile and closely linked to the price of hydrocarbons. The demand for the Group’s services in connection with production and exploration in the offshore oil and gas sector is particularly sensitive to price decreases, fluctuations in produc-tion levels and disappointing exploration results. Contracts in the offshore sector require high standards of performance and safety, entailing considerable risks and responsibilities. These include technical, operational, commercial and political risks. There is often considerable uncertainty as to the duration of offshore charters because most of the agreements give the operator extension options. Changes in the legislative and fiscal framework, including tax rules, governing the activities of the oil companies could have material impact on exploration, production and development activity or affect the Company’s operations directly.

The clients of the Group are generally oil companies with a strong financial basis, but – as with suppliers and customers in general – there is always a risk that unforeseen financial difficulties on the client’ side may arise which could have material adverse effects on the financial condition, the cash flows and/or the prospects of the Group.

Parts of the Group’s loan financing carry floating interest rates, which adjust with the market on a periodic basis. The Group may therefore be exposed to risks due to fluctuations in interest rates for any unhedged portion of such exposure. The value of the Group’s charter contracts may be affected by changes in currency exchange rates or exchange control regulations. Currency exchange rates are determined by forces of supply and demand in the currency exchange markets.

In addition to the capital required to fund existing projects and operations, the Group may require additional capital in the future due to unforeseen liabilities or potential acquisitions, joint ventures or other business opportunities that may be presented to it. There can be no assurance that the Company will be able to obtain neces-sary financing in a timely manner on acceptable terms, particularly given the prevailing turmoil in the global financial markets.

In connection with the construction of the Sevan units, the Com-pany has used its best efforts to prepare proper specifications, including the supply and installation of equipment. Despite these efforts, there can be no assurances that delays and cost overruns will not occur and such events, if occurring, could have an adverse impact on the Company’s financial position. The cost of construc-ting offshore units has increased considerably over the recent years. Delays have incurred on several projects. Although the cost escalations in the industry is expected to stabilize going forward, it is not possible to fully hedge against such cost increases and delays, as the Group’s construction contracts contain both fixed price elements and variable elements, including the use of labour and materials. The cost of the Sevan units has therefore increased more than expected, and some delays have occurred, although the relative cost advantage and competitiveness compared to conven-tional units has, in the Company’s opinion, been kept. The expe-rience gained to date by Sevan, the shipyards and main suppliers, is expected to benefit the construction of future units. However, the Company cannot guarantee that cost overruns and delays will not occur in the future.

HSE and Corporate GovernanceDeveloping sound health, safety and environment (HSE) principles is a critical success factor for the Company.

The Company has an environmentally friendly profile and continually seeks new ways to reduce the environmental impacts of its opera-tions. Sick leave came to 2.4% for the Company and 1.8% for the Group. No serious work incidents or accidents resulting in personal injuries or damages to materials or equipment occurred in 2008. The Company is certified according to several ISO standards with respect to concept development, design, engineering, procurement, construction, installation and operation of mobile offshore units, including ISO 9001:2000 (quality), ISO 14001:2004 (environment), OHSAS 180001:2007 (health and safety), as well as ISM (interna-tional safety code) and ISPS (international ship and port facility security code). The Company is also registered in the FPAL and Achilles supplier management information systems.

The working environment is good. The Board and the management continue to focus on equal positions and opportunities for men and women among its employees and Board members. 35% and 24%

of the employees in the parent company and the Group respectively, are women. Four of twelve members of the senior management team are women. Two of five board members elected by the shareholders are women.

The Company aims at maintaining sound corporate governance routines that provide the basis for long-term value creation, to the benefit of shareholders, employees, other interested parties and the society at large.

As a basis for its conduct of corporate governance, the Company uses the national Norwegian Code of Practice for Corporate Gover-nance of December 2007. The status of corporate governance is addressed in a separate section of the annual report.

During 2008, the number of employees increased from 242 to 343.

The BoardThere has been no change in the composition of the Board during the financial year.

OutlookThe main focus for Sevan is to consolidate its ongoing business in light of the challenging market conditions. As a part hereof, prio-rity is given to optimize the current contract portfolio, secure the

required financing for existing commitments, reduce operating cost and maintain a high uptime on operating units. A special focus is given to the execution of the Sevan Driller new-building contract. Several oil companies have announced a reduction in E&P budgets. However, the Board still sees opportunities for cost efficient solu-tions. For new projects, focus will be on securing contracts for the Sevan 300 no. 4 and 5 hulls. The Board would like to thank the employees for the great efforts and achievements during a challenging year.

Annual Results and Year-End AppropriationsThe Board proposes the following appropriation of the annual loss of USD 13,473,731 in the parent company Sevan Marine ASA:

Loss transferred from other equity : USD 13,473,731 Total appropriation : USD 13,473,731

The Company had unrestricted equity of USD 339,431,720 as of December 31, 2008.

Arendal, April 30, 2009The Board Directors of Sevan Marine ASA

Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member

Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO





Arne SmedalChairman Mr. Smedal holds an MSc in hydro dynamics from the Norwegian institute of Techno logy (NTNU) in Trondheim. Mr. Smedal has previous experience as President and CEO of Navis ASA 1997 to 2001, Executive Vice President of Hitec ASA from 1996 to 1997,

founder and President of Marine Consulting Group and Advanced Production and Loading (APL) from 1989 to 1996, as well as various positions, incl. President at Pusnes from 1979 to 1988. Before this, Mr. Smedal worked for Det Norske Veritas (DNV) from 1974 to 1979, and has been a Board member of various companies within shipping and electronics industry. Mr. Smedal is a Norwegian citizen with residence in Arendal, Norway.

Vibeke Strømme Deputy ChairmanMrs. Strømme holds an MSc in petroleum technology engineering and an MBA from IMD, Lausanne. Mrs. Strømme is Senior Vice President of Mesta AS and has previously held leading positions in Philips Petroleum Company Norway AS, Viken Engerginett AS

and Hafslund ASA. She also has experience within managment consulting. Mrs. Strømme has experience from several Boards of Directors and is a Norwegian citizen with residence in Oslo, Norway.

Kåre Syvertsen Board member and Vice President Technology Mr. Syvertsen holds an MSc in ship construction from the Norwegian Institute of Technology (NTNU) in Trondheim from 1973. Mr. Syvertsen was previously Vice President Technology of Navis from 1997 to 2001, Vice

President Technology of Advanced Production Loading (APL) from 1994 to 1997, Project Manager of Marine Consulting Group from 1990 to 1994 and Professor in Marine Technology at the Norwegian Institute of Technology (NTNU), Trondheim, from 1976 to 1990. Mr. Syvertsen is a Norwegian citizen with residence in Kristiansand, Norway.

Hilde Drønen Board memberMrs. Drønen holds a Business Administration degree from the Norwegian School of Mana-gement (BI) from 1989. Mrs. Drønen works as CFO of DOF ASA and has, inter alia on this basis, extensive experience from the offshore sector. Mrs. Drønen is represented in several

other Boards of Directors; inter alia the Board of Directors of Tide ASA and DOF Subsea ASA. Mrs. Drønen is a Norwegian citizen with residence in Bekkjarvik, Norway.

Stephan M. Zeppelin Board memberMr. Zeppelin holds a Bachelor of Science degree in Business Administration with emphasis on finance from the University of Colorado, Leeds School of Business (1997). From 2004 to 2009 he worked as Director of Research at Wexford Capital LLC focusing on

oil services, shipping and shipbuilding. Mr. Zeppelin has previous experience as Analyst/Associate at Bear Stearns & Co., New York, from 2000 to 2004, as Associate at Globecon Group Ltd from 1999 to 2000 and as Associate at Bankers Trust, New York, from 1998 to 1999. Mr. Zeppelin is an American citizen with residence in CT, USA.

Kristin Urdahl Employee representative of the Board and Senior EngineerMrs. Urdahl holds an MSc in Mechanical Engineering from South Dakota School of Mines and Technology, USA, from 1991. Since 2005, she has been employed as Senior Engineer for Sevan Marine ASA.

Mrs. Urdahl worked for Det Norske Veritas from 1991 to 2005. She has broad experience from various departments within DNV, including Manager and Safety Consultant/Class Surveyor towards both the Maritime- and the offshore Industries. Mrs. Urdahl is a Norwegian citizen with residence in Arendal, Norway.

Kjetil Soma Employee representative of the Board and ControllerMr. Soma holds a BA in Business and Administration from the University of Stavanger, Norway. Since 2006, Mr. Soma has been employed as Controller for Sevan Marine ASA. Mr. Soma has previous experi-

ence as Auditor in PricewaterhouseCoopers from 1998 to 2006. Mr. Soma is a Norwegian citizen with residence in Sandnes, Norway.

The Board of Directors of Sevan Marine ASA has in accordance with the Joint Stock Public Companies Act § 6-16a first and second article prepared a statement that includes instructions for establishment of salary and other benefits to CEO and senior management.

information Regarding Senior ManagementSenior management include the following employees:

Jan Erik Tveteraas, CEOOskar Mykland, CFOBirte Norheim, Vice President FinanceErling Ronglan, Vice President OperationsFredrik Major, Vice President Business Development/R&DHelle Hundseid, Vice President ProjectsErskine Rozario, Vice President Engineering and ConstructionHanna Moland, Vice President HR & Administration Reidun B. Olsen, Vice President QHSEStein Giljarhus, President Sevan DrillingAslak Hjelde, Managing Director Kanfa ASGerson Peccioli, President Sevan Brazil

Salary and Payment-in-KindThe major objectives of the Company’s salary policy for senior management is to provide a framework for remuneration, contribute to the recruitment of the skills required and secure relevant com-petence development. The salary package for the CEO and other senior management includes company car, along with news papers, mobile phone and refund of internet subscription, in accordance with common market practice. Senior management participates in the Company’s bonus, stock option, collective pension and insurance schemes along with all employees in the Group.

The Company’s salary system is based on defined roles and responsibilities, clear goals and performance indicators, combined with evaluation of results and performance. The total salary package

shall be at a level that corresponds to the market median in the different markets in which the Company operates.

The annual wage and salary regulation is set to July 1, and shall be based on the general wage and salary development in the market, combined with an evaluation of the previous year’s results and performance. Any individual salary adjustment shall be based on the Company’s Annual Performance Appraisal.

Bonus Program, Performance incentives and Pension PlanThe Group’s and the business areas’ results, both financial and non-financial, form the basis of the bonus program. The relevant performance targets are tied to the Group’s main objectives. The Company’s bonus system rewards all employees when the objec-tives are met, and may constitute up to 20-50% of the yearly base salary, pending on work tasks and responsibilities. Bonus is paid annually, based on a performance appraisal linked to the previous year’s results, following the approval of the Board of Directors.

The Board’s intention with the bonus program is to realign objectives between the Company and the employees, increase motivation, enthusiasm and team spirit in the organization, as well as reward good leadership and internal cooperation.

Stock Option ProgramThe Company uses stock options as a part of the remuneration package for the senior management. Any distribution of stock options is subject to authorization from the Annual General Meeting.

Severance PayThe CEO will receive 18 months salary following termination, subject to certain conditions. Consequences for the Company and the ShareholdersThe Board has confidence in the employees and their motivation and capacity to contribute to the Company’s results. The Board believes that the Company’s future success depends to a high degree on highly motivated, qualified and competent staff. An established and well defined salary and compensation program allows the Company to remain competitive in the market. The employee remuneration is considered an essential contributor to the strategy of creating shareholder value.

STATEMEnT REGARDinG ESTABLiSHMEnT OF SALARY AnD OTHER BEnEFiTS FOR SEniOR MAnAGEMEnT in SEVAn MARinE ASA ACCORDinG TO THE JOinT STOCK PUBLiC COMPAniES ACT § 6-16A FiRST AnD SECOnD ARTiCLE

tHe BoArd of direCtorS


Figures in USD 1,000 note 2008 2007

ASSETS

non-current assets

Sevan capital assets 6 1 692 958 1 079 183

Other fixed assets 6 38 686 36 142

Intangible assets 7 16 597 14 978

Investments in associates 8 1 290 1 838

Deferred tax assets 16 65 434 55 328

Other non-current assets 33 13 245 67 737

Total non-current assets 1 828 210 1 255 206

Current assets

Trade and other receivables 10,19 36 156 28 639

Inventory 32 12 087 6 260

Derivative financial instruments 9 0 1 076

Cash and cash equivalents 11 50 268 222 777

Total current assets 98 511 258 752

Total assets 1 926 721 1 513 958

EQUiTY

Capital and reserves attributable to equity holders of the Company

Share capital 12 6 187 5 467

Other equity 694 307 559 739

Total shareholders’ equity 700 493 565 206

Minority interest 38 590 6 533

Total equity 739 084 571 740

LiABiLiTiES

non-current liabilities

Interest-bearing loans and borrowings 15 950 662 789 633

Derivative financial instruments 9 14 881 8 642

Retirement benefit obligations 17 628 744

Deferred tax liability 16 853 0

Total non-current liabilities 967 024 799 019

Current liabilities

Interest-bearing loans and borrowings 15 13 965 4 917

Trade and other payables 14 177 143 82 212

Other current liabilities 14,19 28 808 52 012

Provisions 18 697 4 059

Total current liabilities 220 613 143 200

Total liabilities 1 187 638 942 219

Total equity and liabilities 1 926 721 1 513 958


Operating income 5,19,34 120 455 82 163

Operating expense 5,33 -114 908 -84 459

Depreciation, amortisation and impairment 6,7 -31 571 -13 175

Employee benefit expense 20 -32 514 -24 041

Other operating expense 31 -76 240 -61 715

Net operational currency gain/(loss) 4 710 -5 357

Total operating expense -250 524 -188 747

Operating profit/(loss) -130 069 -106 584

Financial income 21 138 610 53 250

Financial expense 21 -122 481 -98 259

Share of profit/(loss) from associates 8 824 1 039

net financial profit/(loss) 16 953 -43 970

Profit/(loss) before tax -113 116 -150 554

Tax income/(expense) 22 5 192 35 553

Annual net profit/(loss) -107 923 -115 001

Attributable to:

Equity holders of the Company -94 482 -113 456

Minority interest -13 442 -1 545

Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share):

- Basic 23 -0.50 -0.72

- Diluted 23 -0.50 -0.72

ConSolidAted BAlAnCe SHeet AS At deCeMBer 31 ConSolidAted inCoMe StAteMent





Figures in USD 1.000 Attributable to equity holders of the Company

Other equity

Share Share CTA Retained Minority Total

note capital premium earnings interest equity

Balance at January 1, 2008 12 5 467 331 958 2 777 225 004 6 533 571 740

Total proceeds from share issues 720 236 740 45 600 283 060

Share issue costs -8 746 -8 746

Tax effect of share issue costs 2 449 2 449

Net loss for the year -94 482 -13 442 -107 923

Expensed portion of value of share options 2 858 2 858

Currency translation adjustment (CTA) -4 252 -101 -4 354

Balance at December 31, 2008 12 6 187 562 401 -1 475 133 381 38 590 739 084

Figures in USD 1.000 Attributable to equity holders of the Company

Other equity

Share Share CTA Retained Minority Total

note capital premium earnings interest equity

Balance at January 1, 2007 12 4 326 10 155 -225 343 803 7 810 365 869

Total proceeds from share issues 1 141 321 977 323 118

Minority interest through acquisition 413 413

Share issue costs -11 969 -11 969

Reclassification from prior years 8 440 -8 440 0


Net loss for the year -113 310 -1 690 -115 001

Expensed portion of value of share options 2 951 2 951

Currency translation adjustment (CTA) 3 002 3 002

Balance at December 31, 2007 12 5 467 331 958 2 777 225 004 6 533 571 740


Cash flows from operating activities

Cash from operations 25 -118 769 -130 947

Income from associates 8 824 903

Interest paid -38 895 -26 089

net cash generated from operating activities -156 840 -156 133

Cash flows from investment activities

Acquisition of subsidiary, net of cash acquired 0 -2 930

Purchases of property, plant and equipment (PPE) 6 -534 248 -620 527

Purchases of intangible assets 7 -3 832 -2 527

net cash for investment activities -538 080 -625 984

Cash flows from financing activities

Proceeds from issuance of ordinary shares 276 763 314 503

Proceeds from borrowings 15 255 000 486 783

Repayments of borrowings 15 -5 000 -108 985

Exchange rate changes foreign subsidiary 0 376

Exchange rate effects -4 354 3 002

net cash from financing activities 522 410 695 679

net cash flows for the period -172 510 -86 438

Cash and cash equivalents at the beginning of the year 11 222 777 309 214

Cash and cash equivalents at the end of the year 11 50 268 222 777

ConSolidAted StAteMent of CHAnGeS in eQuitY ConSolidAted CASH floW StAteMent


Subsidiaries Registered office interest held Equity Profit/(loss) 2008Kanfa AS Asker 100% 19 578 4 578Mator AS Porsgrunn 100% -354 134Kanfa Aragon AS Bergen 50% 1 230 1 015Sevan Production Pte Ltd Singapore 100% 161 841 -23 243Sevan Marine do Brasil Ltda Brazil 100% 671 -2 296Piranema Servicos de Petroleo Ltda Brazil 100% -96 -3 538Sevan Production AS Arendal 100% 55 064 -34 535Sevan Invest AS Arendal 100% 252 364 -39Sevan Production General Partnership Singapore 80% 222 580 -42 303Sevan Production Services Ltd UK 80% -34 023 -27 442Sevan Production UK Ltd UK 100% -4 949 -7 000Sevan Pte Ltd Singapore 100% -2 029 -939Sevan Drilling AS Arendal 100% 140 303 18 426Sevan Drilling Rig Pte Ltd Singapore 100% -478 -467Sevan Drilling Pte Ltd Singapore 100% 232 222 -23 362Sevan 300 Pte Ltd Singapore 100% 202 752 -1 541Sevan Drilling ASA Arendal 100% -122 -678Sevan Holding I AS Arendal 100% 42 532 -12Sevan Holding II AS Arendal 100% 12 192 -8Sevan Holding III AS Arendal 100% 11 -5Sevan Holding IV AS Arendal 100% 11 -5Sevan Holding I Pte Ltd Singapore 100% -76 9Sevan Holding II Pte Ltd Singapore 100% 226 254Sevan Holding III Pte Ltd Singapore 100% -44 -34Sevan Holding IV Pte Ltd Singapore 100% -40 -34Sevan Drilling Limited UK 100% 0 0Sevan Marine Servicos de Perfuracao Ltda Brazil 100% -14 -14Sevan Services AS Arendal 100% 12 -7Sevan Drilling Rig AS Arendal 100% 14 -5Sevan Drilling Rig II AS Arendal 100% 14 -6Sevan Drilling Rig IV AS Arendal 100% 14 -6Sevan Drilling Rig V AS Arendal 100% 14 -6Sevan Drilling Rig VI AS Arendal 100% 14 -6Sevan Drilling Rig VII AS Arendal 100% 14 -6Sevan Drilling Rig VIII AS Arendal 100% 14 -6Sevan Drilling Rig IX AS Arendal 100% 14 -6Sevan Drilling Rig II Pte Ltd Singapore 100% 675 675Sevan Drilling Rig IV Pte Ltd Singapore 100% -10 -10Sevan Drilling Rig V Pte Ltd Singapore 100% -4 -4Sevan Drilling Rig VI Pte Ltd Singapore 100% -4 -4Sevan Drilling Rig VII Pte Ltd Singapore 100% -4 -4Sevan Drilling Rig VIII Pte Ltd Singapore 100% -4 -4Sevan Drilling Rig IX Pte Ltd Singapore 100% -4 -4 Associated Companies Registered office interest held Equity Profit/(loss) 2008Kanfa-Tec AS Asker 49.99% 2 411 1 648

nOTE 1 – CORPORATE inFORMATiOn

Sevan Marine ASA (the “Company”) and its subsidiaries (together with the Company the “Group”) are engaged in development, construction, ownership, and chartering of floating production units and drilling units, which are based on the proprietary technology of the Company. The Group is also developing other application types for its cylindrical Sevan hull, including floating LNG production and power plants with CO2 capture.

The Company is a public limited liability company incorporated and domiciled in Norway. The address of its registered office is Kittelsbuktveien 5, 4836 Arendal.

The Company’s shares are listed on the Oslo Stock Exchange.

These consolidated financial statements were approved by the Board of Directors on April 30, 2009.

Overview of the Group’s structure as of December 31, 2008:

nOTE 2 - SUMMARY OF SiGniFiCAnT ACCOUnTinG POLiCiES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all financial years presented. The presentation currency applied is USD and is corresponding with the functional currency in the main part of the underlying group companies. All numbers are in USD 1,000 unless otherwise stated.

2.1 Basis of PreparationThe consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by EU and valid as of 31.12.2008. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation available-for-sale financial assets and 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 judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assump-tions and estimates are significant to the consolidated financial statements are disclosed in note 4.

Amendments to published standards effective in 2008• IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum

funding requirements and their interaction’ effective from January 1, 2008. IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognized as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding require-ment. Adoption of this standard and interpretation did not have any effect on the financial performance or position of the Group and did not give rise to additional disclosures.

Standards early adopted by the GroupThe Group has no early adopted standards.

Standards, amendments and interpretations effective in 2008 but not relevant to the Group:The following standards, amendments and interpretations to issued standards are mandatory for accounting periods beginning on or after January 1, 2008:• IFRIC 11 IFRS 2 –‘Group and Treasury Share Transactions’

effective from January 1, 2008. IFRIC 11 applies to arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The Group has not issued instruments caught by this interpretation.

• IFRIC 12, ‘Service concession arrangements’ effective from January 1, 2008. IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the develop-ment, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group’s operations because none of the Group’s companies provide for public sector services.

• IFRIC 13, ‘Customer loyalty programmes’ effective from July 1, 2008. IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example loyalty points or free products), the arrangement is a multiple-

(Amounts in the table above have been prepared in local GAAP and presented in USD 1,000)

element arrangement and the consideration receivable from the customer is allocated between the components of the arrange-ment using fair values. IFRIC 13 is not relevant to the Group’s operations because none of the Group’s companies operate any loyalty programmes.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group:The following standards, amendments and interpretations to existing standards have been issued and are mandatory for the Group’s accounting periods beginning on or after January 1, 2009, or later periods, but the Group has not early adopted them: • IFRS 2 ‘Share-based Payment’ (Revised) effective from 1

January 2009. The IASB issued an amendment to IFRS 2 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled.

• IAS 23 ‘Borrowing costs’ (Revised) effective from January 1, 2009. The standard requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrow-ing costs will be removed. As the Group capitalizes interest during the construction period, the Group’s financial statements will not be affected by this change.

• IFRS 8, ‘Operating segments’ effective from January 1, 2009. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures about segments of an enterprise and related information’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as the segmentation used for internal reporting purposes. Presenta-tion of segment data is currently performed at operational basis. Geographical segmentation is still under assessment (see note 2.3).

2.2 ConsolidationSubsidiariesSubsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convert-ible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consoli-dated from the date that control ceases.

The Group uses the purchase method to account for the acquisi-tion of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the differ-ence is recognized directly in the income statement.

Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unreal-ized losses are also eliminated but considered an impairment

SevAn MArine GroupnoteS to tHe ConSolidAted finAnCiAl StAteMent


indicator of the asset transferred. Accounting policies of subsidi-aries are changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions and minority interestsThe Group applies a policy of treating transactions with minor-ity interests as transactions with parties external to the Group. Disposals to minority interests resulting in gains and losses for the Group are recorded in the income statement. Purchases of shares in subsidiaries from minority interests may result in good-will, being the difference between any considerations paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in as-sociates are accounted for using the equity method of account-ing and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impair-ment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-ac-quisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions be-tween the Group and its associates are eliminated to the extent of the Group’s ownership share in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates were changed where necessary to ensure consistency with the policies adopted by the Group.

2.3 Segment ReportingA business segment is a Group of assets and operations en-gaged in providing products or services that are subject to risks and returns that are different from those of other business seg-ments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of seg-ments operating in other economic environments.

Business segmentsThe Group is organized in four business areas, “Floating Produc-tion”, “Drilling”, “Topside and Process Technology” (previously “Equipment and Systems”), and “Corporate”.

The activities within the segment Floating Production are related to the design, engineering, construction, and operation of the Sevan platforms.

The activities within the Drilling segment are related to the design, engineering and construction of the Sevan Drilling units. The segment Topside and Process Technology consists of the activities of Kanfa AS and subsidiaries which are related to the provision of services and equipment to the processing plants of the Sevan units. The segment also serves external clients. The activities within Corporate are related to general administra-tion and marketing activities including studies made for clients and licensing of the Sevan proprietary technology.

Geographical segmentsThe Group’s business segments operate in the global offshore market and have common marketing and senior management functions. Currently, the Group does not divide its operations into geographical segments. As further units are completed and start operations, dividing into main geographical areas (segments) will be assessed.

2.4 Foreign Currency TranslationFunctional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (‘the functional cur-rency’). The consolidated financial statements are presented in USD, which is the Group’s presentation currency.

Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions (realized items) and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies (unrealized items) are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges.

Translation differences are recognized in equity.

Group companiesThe results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows:

• Assets and liabilities for each balance sheet presented are translated at the closing rate at balance sheet date.

• Income and expenses for each income statement are trans-lated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions).

• All resulting exchange differences are recognized as a separate component of equity.

Upon consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of bor-rowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a for-eign operation is sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5 Property, Plant and EquipmentFixed assets are stated at historic cost less accumulated depre-ciation. The Group has not used, and has no plans of utilizing the revaluation option in IAS 16. Depreciation is calculated using the straight-line method. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverabil-ity of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated discounted future cash flows, an impairment charge is recognized.

Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Borrowing costs are capitalized when the cost is directly attribut-able to the construction of a qualifying asset.

Each major component of the Sevan units is depreciated sepa-rately when the platforms are available for intended use. A major component is defined as a part with a cost that is significant in relation to the total cost. An estimation of useful lives indicates an average depreciation period of 20-30 years for the units.

Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives, 3-10 years.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.

2.6 Construction in ProgressConstruction contracts are capitalized as construction in progress based on installments paid to the yard and other sup-pliers.

Insurance and net financial expenses during the construction period are capitalized as construction in progress. Cost related to man-hours directly attributable to the construction of the Sevan units are also capitalized.

Cost related to training, manning and other pre-operational ac-tivities are expensed as incurred.

2.7 Construction Contracts Contract costs are recognized when incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent that contract costs incurred are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

The Group uses the ‘percentage of completion method’ to deter-mine the appropriate amount to recognize in a given period. The stage of completion is estimated, using judgmental assessment, of the progress of completion of subcomponents of identified milestone deliverables in each contract up to the balance sheet date as a percentage of total identified contract milestone deliv-erables. The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognized profits (less recognized losses) exceed progress billings. Progress billings not yet paid by customers and retention are included as ‘trade and other receivables’. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress

for which progress billings exceed costs incurred plus recognized profits (less recognized losses).

2.8 intangible AssetsGoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘in-vestments in associates’. Separately recognized goodwill is test-ed annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not re-versed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Computer softwareAcquired computer software are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (3-5 years). Costs associated with developing or maintaining compu-ter software programs are recognized through the income state-ment as incurred.

Customer contracts/production backlogCustomer contracts/production backlog acquired in business combinations are recorded in the balance sheet on the basis of their estimated fair values. These intangible assets are amortized over their estimated useful lives/production periods (normally 3-12 months).

Research and DevelopmentCosts associated with research are expensed as incurred. Quali-fying cost associated with development activities are capitalized and depreciated over expected useful life. Cost related to man-hours directly attributable to the construction of the Sevan units, are capitalized as construction in progress.

2.9 impairment of non-Financial AssetsAssets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized 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 impairment are reviewed for possible reversal of the impairment at each reporting date.

2.10 Financial AssetsThe Group classifies its financial assets as loans and receivables measured at fair value at transaction date, subsequently remeas-ured at amortized cost. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are included in current assets, except for those with maturities greater than 12 months after the balance sheet date, in which case they are clas-sified as non-current assets.


Derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured at fair value. The method of recogniz-ing the resulting 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 Group designates derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge).

Hedge accounting has not been applied in 2008 or 2007.

2.11 inventoryInventory are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes related borrowing costs.

2.12 Trade ReceivablesTrade receivables are recognized initially at fair value less provi-sion for impairment. A provision for impairment of trade receiva-bles is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The provision is recognized in the income statement as ‘other operating expenses’.

2.13 Cash and Cash EquivalentsCash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

2.14 Share CapitalOrdinary shares are classified as equity. 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. Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity hold-ers until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received is net of any directly attributable incremental transac-tion costs and the related income tax effects, and is included in equity attributable to the Company’s equity holders.

2.15 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred and including the value of embedded call options. Borrowings are subsequently stated at amortized cost; any differ-ence between the proceeds (net of transaction costs and embed-ded value of call options) and the nominal value is recognized in the income statement over the period of the borrowings using the effective interest method. The value of call options embedded in bond borrowings are treated as separate financial assets and are initially recognized at fair value at issue date and subsequently

re-measured at fair value each balance date. Related gains and losses are recognized in the income statement immediately. Borrowings are presented net of the separated financial asset and are classified as current liabilities unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date.

2.16 Deferred income TaxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the 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 and 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 realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Tax base included in the calcu-lation of deferred income tax is calculated in local currency and translated into USD at prevailing market rates at December 31.

2.17 Employee BenefitsPension obligationsThe companies in the Group operate both defined benefit and defined contribution plans. A defined contribution plan is a pen-sion plan under which the Group pays fixed contributions into a separate juridical entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to em-ployee service in the current and prior periods. Cost associated with defined contribution plans are expensed as incurred.

A defined benefit plan is a pension plan that is not a defined con-tribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension expenses and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected salaries, the amount of benefits from the National Insurance Scheme, future return on pension assets, and actuarial calcula-tions relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted from the net pension obligation in the balance sheet. Changes in the pen-sion obligation due to changes in the pension plans are amortized over the expected remaining service period.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past-service costs are recognized immediately in income.

Share-based compensationThe Group operates a share-based compensation plan. In line with IFRS 2, the cost represented by the fair value at award date

is expensed over the vesting period. The fair value at the time of the award is confirmed by a third party calculation using the Black & Scholes option-pricing model.

Cost represented by employer’s tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of its stock. Profit-sharing and bonus plansThe Group recognizes a provision where contractually obliged or where there is a constructive obligation.

2.18 ProvisionsA provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by consider-ing the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expected expenditures required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

2.19 Revenue RecognitionRevenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown, net of value-added tax, es-timated returns, rebates and discounts and after eliminated sales within the Group. Revenue is recognized as follows:

• Other operating revenues are recognized in line with the devel-opment of projects.

• Sales of goods are recognized when delivered and accepted by the customer.

• Sale of services is recognized in accordance with the under-lying contracts under the percentage of completion (POC) method. Under the POC method, revenue is generally recog-nized based on the services performed to date as percentage of the total services to be performed. Note 2.7 describes the treatment of construction contracts in further detail.

• Interest income is recognized on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognized using the original effective interest rate.

• Royalty income is recognized on an accrual basis in accord-ance with the substance of the relevant agreements.

• Dividend income is recognized when the right to receive pay-ment is established.

• Mobilization revenue and expenses are recognized using the straight line method over the full fixed term period of the under-lying contract.

• Charter revenues are recognized on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts.

2.20 LeasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operat-ing leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

When assets are leased to clients under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized in accordance with the underlying contract.

2.21 Dividend DistributionDividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividend is approved by the Company’s shareholders.


nOTE 3 - FinAnCiAL RiSK MAnAGEMEnT

3.1 Financial Risk FactorsThe Group’s activities expose it to a variety of financial risks: mar-ket risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the un-predictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance

Risk management is carried out by the Finance department under policies approved by the Board of Directors. The Finance department identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instru-ments and non-derivative financial instruments, and investment of excess liquidity.

3.1.1 Market RiskForeign exchange riskThe Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, USD, EURO and UK pound. Foreign exchange risk arises from future commercial transactions, recog-nized assets or liabilities, and net investments in foreign operations.

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. To manage foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities within the Group use forward contracts and similar instruments.

External foreign exchange contracts are evaluated at Group level to perform hedges of foreign exchange exposures on a gross ba-sis. The Group’s risk management policy is to hedge anticipated transactions in each major currency.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

Price riskThe Group is exposed to commodity price risk at two main levels; • The demand for Sevan units is sensitive to oil price develop-

ments, fluctuations in production levels, exploration results and general activity within the oil industry.

• The cost of construction for future units is sensitive to changes in market prices for the inputs.

3.1.2 Credit RiskCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentrations of credit risk towards finan-cial institutions and has policies that limit the amount of credit exposure to any single financial institution. The credit exposures to customers are mainly concentrated around the underlying charter contracts in the Group.

3.1.3 Liquidity RiskPrudent liquidity risk management implies maintaining sufficient cash and/or marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in funding by keeping committed credit lines available.

As of December 31, 2008, the estimated minimum total capital requirement is USD 125-150 million, including a Group working capital requirement of USD 75-100 million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. Over the last year, the Company has evaluated several pos-sibilities of securing necessary funding, and is aiming at financing as much as possible of the capital requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD 12-36 million directed towards Luxor may be subscribed subject to approval by the extraordinary general meeting on May 4, 2009. In addition, the Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD 1.3-1.4 billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group’s assets in a strained situation are lower than book values.

3.1.4 Cash Flow and Fair Value interest Rate RiskThe Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s policy is to maintain part of its borrowings in fixed rate borrowing facilities. During 2007 and 2008, the Group’s borrowings were denominated in USD and NOK.

The Group simulates various scenarios taking into consideration refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

3.2 Fair Value EstimationThe fair value of forward foreign exchange contracts is determined using valuation techniques. The assumptions in the calculations are based on market conditions existing at each balance sheet date.

The fair value of call options embedded in bond loans is determined using valuation techniques. The assumptions in the calculations are based on market conditions existing at each balance sheet date.

The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values.

The fair values of the bond loans for disclosure purposes are based on the market price for the bonds at each balance sheet date.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments.

nOTE 4 - CRiTiCAL ACCOUnTinG ESTiMATES AnD JUDGMEnTS

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 current circumstances.

4.1 Critical Accounting Estimates and AssumptionsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, sel-dom equal the related actual results. The estimates and assump-tions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of unitsThe Group has tested whether the units have suffered any impair-ment, in accordance with the accounting policy stated in note 2.5. The recoverable amounts of the units have been determined based on value-in-use calculations. These calculations require the use of estimates

Estimated impairment of goodwillThe Group annually tests whether goodwill has suffered any im-pairment, in accordance with the accounting policy stated in note 2.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calcula-tions require the use of estimates.

Income taxes The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The accounting for deferred income taxes relies upon manage-ment’s judgment of the Group companies’ ability to generate future positive taxable income, and of the estimated value-in-use of the balance sheet item.

Revenue recognitionThe Group uses the percentage-of-completion method in accounting for its sales of construction contracts. Use of the percentage-of-completion method requires the Group to esti-mate the services performed to date as a proportion of the total services to be performed. This relates to estimates of progress, total costs, and final revenues from each contract.

Share based paymentThe Group uses estimates when calculating the costs of share-based payment through options. The main assumptions subject to estimates are the duration of the option and the assumed stock volatility.

CommitmentsThe Group uses estimates in calculating the remaining commit-ments concerning work in process.

WarrantiesThe Group uses estimates in calculating the provision for warran-ties to customers.

Option periods for bareboat- and charter-contractsSome bareboat- and charter-contracts have embedded options for the customer to extend the contractual period. This is taken into consideration when assessing value-in-use for the relevant asset.

Depreciations related to units in operationThe Group uses estimates when assessing an assets useful life and its residual value to decide the depreciation plan for units in operation.

4.2 Critical Judgments in Applying the Entity’s PoliciesA 5% increase in the volatility of options awarded during the year would increase the option value cost by 103. A reduction in the volatility of 5% would reduce the option value option cost by 103. The actual option value cost as included in the financial figures for the year, is 2,858.

Determination of WACC and estimation of expected future cash flows after contract period are relevant assumptions used in the impairment testing of the units. A decrease in WACC would increase the net present value of the tested units. An increase in WACC would decrease the net present value of the tested units. Increase of expected future cash flows after contract period would increase the net present value of the tested units. A de-crease in expected future cash flows after contract period would decrease the net present value of the tested units.


nOTE 5 - SEGMEnT inFORMATiOn

Primary reporting format – business segmentsThe Group is organized in four business areas, “Floating Production”, “Drilling”, “Topside and Process Technology”, and “Corporate”.

Revenue in the Floating Production segment first started in 2007 when FPSO Sevan Piranema went on standby rate in March 2007. The unit produced first oil in October 2007. FPSO Sevan Hummingbird produced first oil in September 2008. It is expected that FPSO Sevan Voyageur will start generating revenues during 2009. FPSO Sevan 300 no. 4 and FPSO Sevan 300 no. 5 are currently under construction.

The Topside and Process Technology segment consists of the activities of Kanfa AS, Kanfa Aragon AS, Mator AS and Kanfa-Tec AS whose primary business activities are related to the provision of services and equipment to the processing plants for the Sevan plat-forms. In addition, the Kanfa group also serves external clients.

The main activities in the Drilling segment during 2008 have related to the construction and preparation for operations of the Sevan Driller, which is expected to start generate revenues in 2009. In June 2008, Sevan was awarded another two contracts for new build drilling units. Sevan Driller II was contracted to ONGC for 3 years of operation and delivery end-2010, and Sevan Driller III was con-tracted to Petrobras S.A. for 6 years of operation and delivery by mid-2012.

Segment results:

Year ended December 31, 2008 Floating Drilling Topside and Corporate Group

Production Process Technology

Total gross segment sales 65 088 0 55 160 52 699 172 947

Sales across segments -577 0 -14 211 -37 704 -52 492

Total operating income 64 511 0 40 949 14 995 120 455

Operating profit/(loss) -93 918 -21 645 11 024 -25 530 -130 069

Net financial profit/(loss) 16 129

Share of profit/(loss) from associates 824

Profit/(loss) before tax -113 116

Tax income/(expense) 5 192

net profit/(loss) -107 923



Total gross segment sales 16 525 0 117 726 16 814 151 065

Sales across segments -790 0 -52 111 -16 000 -68 901

Total operating income 15 735 0 65 615 814 82 163

Operating profit/(loss) -77 263 -5 471 748 -24 598 -106 584

Net financial profit/(loss) -45 009

Share of profit/(loss) from associates 1 039

Profit/(loss) before tax -150 554

Tax income/(expense) 35 553

net profit/(loss) -115 001



Depreciation 24 177 514 302 782 25 776

Amortization 167 0 0 2 046 2 213

Impairment charge 0 3 582 0 0 3 582

Total 24 344 4 096 302 2 828 31 571



Depreciation 10 790 516 60 582 11 947

Amortization 51 0 113 1 063 1 228

Impairment charge 0 0 0 0 0

Total 10 841 516 173 1 645 13 175

December 31, 2008 Floating Drilling Topside and Corporate Group


Assets 1 304 727 544 255 22 800 53 649 1 925 431

Investment in associates 0 0 1 290 0 1 290

Total assets 1 304 727 544 255 24 089 53 649 1 926 721

Liabilities 205 335 404 898 11 390 566 013 1 187 638

Capital expenditures 369 857 272 761 1 537 5 534 649 688

December 31, 2007 Floating Drilling Topside and Corporate Group


Assets 978 309 326 188 61 500 90 795 1 456 792

Investment in associates 0 0 1 838 0 1 838

Total assets 978 309 326 188 63 338 90 795 1 458 630

Liabilities 54 876 58 158 47 343 781 841 942 219

Capital expenditures 463 626 155 774 1 760 4 824 625 984

Specification of certain segment items included in the income statement:

Segment assets consist primarily of property, plant and equipment, intangible assets (including goodwill and software) and cash and cash equivalents. Intercompany balances are not included. Deferred tax assets are not included in 2007 figures.

Segment liabilities comprise operating liabilities and borrowings and exclude intercompany balances.

Capital expenditures comprise additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

Secondary reporting format – geographical segmentsThe Group’s business segments operate in the global offshore market and have common marketing and senior management functions. Currently, the Group does not divide its operations into geographical segments. The accounting principles applied for segmentation are outlined in note 2.

The segment assets and liabilities, and yearly capital expenditure are as follows:


Construction in FPSO Sevan Capital Machinery Total Fixed

Progress (CiP) Assets /Fixtures Assets

Year ended December 31, 2008

Book value January 1 803 174 276 009 1 079 183 36 142 1 115 324

Asset reclassified from ‘CIP’ to FPSO -752 560 752 560 0 0 0

Currency translation adjustments 0 0 0 0 0

Additions 607 676 28 453 636 129 9 727 645 856

Disposals 0 0 0 -179 -179

Equipment reclassified to ‘Inventory’ 0 0 0 0 0

Impairment charge 0 0 0 -3 582 -3 582

Depreciation charge 0 -22 354 -22 354 -3 422 -25 776

Book value December 31 658 290 1 034 668 1 692 958 38 686 1 731 643

At December 31, 2008:

Cost or valuation 658 290 1 067 745 1 726 035 47 595 1 769 641

Accumulated depreciation and impairment 0 -33 077 -33 077 -8 909 -37 997

Book value December 31 658 290 1 034 668 1 692 958 38 686 1 731 643

Construction in FPSO Sevan Capital Machinery Total Fixed

Progress (CiP) Assets /Fixtures Assets


Book value January 1 472 897 0 472 897 40 124 513 020

Asset reclassified from ‘CIP’ to FPSO -265 284 265 284 0 0 0

Currency translation adjustments 0 0 0 -224 -224

Additions 595 561 21 448 617 009 3 518 620 527

Disposals 0 0 0 0 0

Equipment reclassified to ‘Inventory’ 0 0 0 -6 053 -6 053


Depreciation charge 0 -10 723 -10 723 -1 224 -11 947

Book value December 31 803 174 276 009 1 079 183 36 142 1 115 324

At December 31, 2007:

Cost or valuation 803 174 286 732 1 089 906 38 046 1 127 952

Accumulated depreciation 0 -10 723 -10 723 -1 905 -12 628

Book value December 31 803 174 276 009 1 079 183 36 142 1 115 324

Goodwill Software Contract value Development Total


Book value January 1 11 315 3 663 0 0 14 978

Currency translation adjustments -175 0 0 0 -175

Additions 0 1 401 0 2 606 4 007


Amortization charge 0 -1 852 0 -361 -2 213

Book value December 31 11 140 3 212 0 2 245 16 597

At December 31, 2008

Cost or valuation 11 140 6 583 113 2 606 20 442

Accumulated amortization and impairment 0 -3 371 -113 -361 -3 845

Book value December 31 11 140 3 212 0 2 245 16 597

Goodwill Software Contract value Development Total


Book value January 1 8 402 2 251 0 0 10 653

Currency translation adjustments 1 470 0 0 0 1 470

Additions 1 443 2 527 113 0 4 083


Amortization charge 0 -1 115 -113 0 -1 228

Book value December 31 11 315 3 663 0 0 14 978


Cost or valuation 11 315 5 182 113 0 16 610

Accumulated amortization and impairment 0 -1 519 -113 0 -1 632



Floating Drilling Topside and Pro- Corporate Group

Production cess Technology

Europe 0 0 11 140 0 11 140

South America 0 0 0 0 0

Asia 0 0 0 0 0

Total goodwill 0 0 11 140 0 11 140

nOTE 6 - PROPERTY, PLAnT AnD EQUiPMEnT

The impairment charge of machinery/fixtures of 3,582 in 2008 is related to an asset which is not in use by the Group at balance sheet date. The value of the asset is estimated at fair value less costs of selling the asset.

Security arrangements related to construction in progress assets are described in note 26. Capitalized interest is described in note 21, and commitments related to capital expenditures are described in note 27.

nOTE 7 - inTAnGiBLE ASSETS

A segment-level summary of goodwill allocations:

Research and developmentExpensed portion of research and development (R&D) charges amounts to 548 (2007:401). Accounting principles regarding treatment of R&D are described in note 2.8.

impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to geographical region of operation and business segment.


Europe South America Asia

Profit before tax* 21 129 0 0

Growth rate ** 5% 0 0

Discount rate *** 11% 0 0

2008 2007

Book value January 1, 1 838 955

Acquisition of associates 0 0

Share of profit/(loss) from associates 824 1 039

Currency translation adjustments -530 180

Dividends paid -843 -337

Book value December 31, 1 290 1 838

2008 2007

Current portion Assets Liabilities Assets Liabilities

Floating-to-fixed interest rate swaps 0 0 0 0

Forward foreign exchange contracts 0 0 1 076 0

Total current portion 0 0 1 076 0

non current portion

Floating-to-fixed interest rate swaps 0 14 881 0 8 642

Forward foreign exchange contracts 0 0 0 0

Total non current portion 0 14 881 0 8 642

net position 14 881 7 566

Loans and Assets at fair Derivatives Available Total

receivables value through used for for sale

December 31, 2008 profit and loss hedging

Assets

Available-for-sale financial assets 0 0 0 0 0


Trade and other receivables 36 156 0 0 0 36 156

Other financial assets at fair value through profit and loss 0 0 0 0 0

Cash and cash equivalents 50 268 0 0 0 50 268

Total financial assets 86 424 0 0 0 86 424

name Country of Assets Liabilities Revenues Profit/(loss) % interest

incorporation 100% 100% 100% 100% held

Kanfa-Tec AS 2007 Norway 9 791 6 309 12 143 2 039 49.99%

Kanfa-Tec AS 2008 Norway 7 350 4 939 11 680 1 648 49.99%

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets.

Key assumptions used for value-in-use calculations:

* Budgeted result before tax for year 1 (2009).** Weighted average growth rate used for extrapolating cash flows in the five-year budget period. For the purpose of impairment testing, zero growth was assumed beyond the budget period.*** Pre-tax discount rate applied to the cash flow projections.

These assumptions were used for the analysis of each CGU within the business segment. The budgeted results are based on past performance and expectations for future market developments. The discount rate applied is pre-tax and reflects specific risks relating to the relevant segments.

nOTE 8 - inVESTMEnTS in ASSOCiATES

nOTE 9 - DERiVATiVE FinAnCiAL inSTRUMEnTS

Forward foreign exchange contractsThere were no outstanding forward foreign exchange contracts at balance sheet date. The notional principal amount of the outstanding forward foreign exchange contracts at December 31, 2007, was USD 59 million.

Floating-to-fixed interest rate swapsThe notional principal amount of the open interest swap positions contracted into at December 31, 2008, was USD 341 million (2007: USD 362 million).

Embedded call optionsIn December 2006, Sevan Drilling AS, a wholly-owned subsidiary of the Company, carried out a bond issue of NOK 1 billion (USD 143 million equivalent), at an interest rate of Nibor +5%. The bond has a term of 6 years with a call option window of 6-12 months following acceptance of Sevan Driller at 104%. The fair value of the option was estimated at USD 6.7 million at balance sheet date (2007: USD 8.5 million).

In December 2006, the Company carried out a bond issue of USD 140 million, at a fixed interest of 9.25%. The bond has a term of 5 years, with one call option in December 2009 at 103%, and one call option in December 2010 at 102%. The fair value of these options was estimated at USD 2.3 million at balance sheet date (2007: USD 4.5 million).

In May 2007, the Company carried out a bond issue of USD 270 million, at an interest rate of Libor+3%. The bond has a term of 6 years, with two embedded call options at 103.5% and 102.5% which can be exercised in May 2010 and in May 2011 respectively. The fair value of these options was estimated at USD 2.1 million at balance sheet date (2007: USD 8.5 million).

In October 2007, the Company carried out a bond issue of NOK 870 million (USD 157 million equivalent), at an interest rate of Nibor+5.5%. The bond has a term of 5 years, with three embedded call options at 105%, 104% and 103.25% which can be exercised 6-12 months following completion of FPSO Sevan Voyageur, in October 2010 and in October 2011 respectively. The fair value of these options was estimated at USD 6.4 million at balance sheet date (2007: USD 5.4 million).

Effects in the income statement for changes in the estimated fair value of the embedded call option are described in note 21.The balance at December 31, 2008, relates to investment in Kanfa-Tec AS.

The gross balance sheet and income statement numbers for the Group’s associates are listed in the table below. The Group’s share of ownership is disclosed in the last column. 9A FinAnCiAL inSTRUMEnTS BY CATEGORY

The accounting principles for financial instruments have been applied to the line items below as indicated:


Floating Drilling Topside and Pro- Corporate Group

Production cess Technology

Europe 0 0 11 315 0 11 315

South America 0 0 0 0 0

Asia 0 0 0 0 0

Total goodwill 0 0 11 315 0 11 315


Loans and Assets at fair Derivatives Available Total

receivables value through used for for sale

December 31, 2007 profit and loss hedging

Assets

Available-for-sale financial assets 0 0 0 0 0


Trade and other receivables 28 639 0 0 0 28 639

Other financial assets at fair value through profit and loss 0 1 076 0 0 1 076

Cash and cash equivalents 197 649 0 0 25 128 222 777

Total financial assets 226 288 1 076 0 25 128 252 492

Other Liabilities at fair Derivatives Available Total

financial value through the used for for sale

December 31, 2008 liabilities profit and loss hedging

Liabilities

Borrowings 966 554 0 0 0 966 554

Account payables and other payables 177 143 0 0 0 177 143

Derivative financial instruments 0 14 881 0 0 14 881

Total financial liabilities 1 143 697 14 881 0 0 1 158 578

Other Liabilities at fair Derivatives Available Total

financial value through the used for for sale

December 31, 2007 liabilities profit and loss hedging

Liabilities

Borrowings 794 550 0 0 0 794 550

Account payables and other payables 82 212 0 0 0 82 212

Derivative financial instruments 0 8 642 0 0 8 642

Total financial liabilities 876 762 8 642 0 0 885 404

Trade receivables – Counterparty with external credit rating 2008 2007

AA 7 189 874

A 19 2 478

BBB 3 733 5 719

BB 388 0

Total 11 329 9 071

Trade receivables – Counterparty without external credit rating 2008 2007

Group 1 533 8 478

Group 2 10 703 1 411

Group 3 0 0

Total 11 236 9 889

Total trade receivables 22 565 18 960

Group 1 - New customers (less than 6 mths)Group 2 - Existing customers (more than 6 mths) with no defaults in the pastGroup 3 - Existing customers (more than 6 mths) with some defaults in the past

9B CREDiT QUALiTY OF FinAnCiAL ASSETS

The credit quality of financial assets that are neither past due nor impaired have been assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:

Cash at bank and short-term bank deposits 2008 2007

AA 36 159 155 870

A 0 767

BBB 0 1 122

No rating available 14 109 65 018

Total cash and cash equivalents 50 268 222 777

Derivative financial assets 2008 2007

AA 0 0

A 0 0

No rating available 0 1 076

Total derivative financial assets 0 1 076

2008 2007

Trade receivables* 26 865 18 960

Less: provision for impairment of receivables -4 300 0

Trade receivables – net 22 565 18 960

Prepayments 9 262 6 300

Other receivables 4 330 3 380

Loans to related parties 0 0

Trade and other receivables 36 156 28 639

Less non-current portion: loans to related parties 0 0

Current portion 36 156 28 639

nOTE 10 - TRADE AnD OTHER RECEiVABLES

* Trade receivables include receivables from related parties (Kanfa-Tec AS) amounting to 7 (2007: 29)

During 2008, the Group has made a provision of 4,300 (2007:0) relating to a receivable from Oilexco North Sea Ltd. The Group has not made any actual losses on receivables during 2007 or 2008.

The fair values of trade and other receivables are as follows:

Fair values 2008 2007

Trade receivables 22 565 18 960

Prepayments 9 262 6 300


Total trade and other receivables 36 156 28 639

Trade receivables that are less than three months past due are not considered for impairment. As of December 31, 2008, trade receivables of 11,323 (2007: 8,712) were past due but not impaired. These receivables relate to a number of independent customers for whom there is no history of default related to the Group.


Trade receivables 2008 2007

Before due date 11 242 10 248

Up to 3 months after due date 10 788 8 712

Between 3 and 6 months after due date 16 0

More than 6 months after due date 519 0

Total trade receivables - net 22 565 18 960

name number of shares Ownership-share (%)

GOLDMAN SACHS & CO - SECURITY CLIENT SEGR. 30 425 292 15.51%

BEAR STEARNS SECURIT A/C CUSTOMER SAFE KE 15 539 459 7.92%

GOLDMAN SACHS INT. - SECURITY CLIENT SEGR. 8 589 185 4.38%

MORGAN STANLEY & CO. CLIENT EQUITY ACCOUNT 6 648 609 3.39%


CLEARSTREAM BANKING CID DEPT, FRANKFURT 4 560 548 2.33%

JP MORGAN CHASE BANK S/A F+C INVEST TRUST 4 294 269 2.19%

SMEDAL ARNE 3 698 703 1.89%

PENSJONSKASSEN STATOIL JP MORGAN CHASE BANK 3 034 670 1.55%

SUPERNOVA AS, JAN ERIK TVETERAAS 2 893 444 1.48%

HALLINGEN AS, KÅRE SYVERTSEN 2 821 296 1.44%

AASEN AS, ARNE SMEDAL 2 804 036 1.43%

JP MORGAN CHASE BANK S/A ESCROW ACCOUNT 2 789 461 1.42%


MP PENSJON 2 555 263 1.30%

JP MORGAN CHASE BANK BT PENSION SCHEME 2 170 000 1.11%

CREDIT SUISSE SECURI (EUROPE) LTD./FIRMS 2 101 925 1.07%

EUROCLEAR BANK S.A./ 25% CLIENTS 1 904 359 0.97%

GOLDMAN SACHS INT. - SECURITY CLEARANCE 1 792 554 0.91%

SIX SIS AG 25PCT 1 421 431 0.72%

20 largest shareholders 107 350 553 54.73%

Remaining 88 777 895 45.27%

Total 196 128 448 100.00%

The ageing of these trade receivables is as follows:

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

Currency 2008 2007

USD 10 458 6 738

UK pound 1 086 5 830

NOK 10 552 4 439

Other currencies 469 1 955

Total trade receivables - net 22 565 18 960

2008 2007

Cash at bank and in hand 16 069 125 908

Restricted employees’ tax deduction fund 1 445 1 153

Restricted short-term bank deposits 32 754 18 571

Short-term bank deposits 0 51 940

Available for sale financial instruments 0 25 204

Total cash and cash equivalents 50 268 222 777

number of Shares Share capital Share premium Total

January 1, 2008 177 424 681 5 467 331 958 337 426

Proceeds from shares issued 18 703 767 720 236 742 237 462

Cost of share issues, net of tax -6 299 -6 299

December 31, 2008 196 128 448 6 187 562 401 568 589

number of Shares Share capital Share premium Total

January 1, 2007 144 670 708 4 326 10 155 14 481

Proceeds from shares issued 32 753 973 1 141 321 977 323 118

Reclassified from prior years 8 440 8 440

Cost of share issues, net of tax -8 615 -8 615

December 31, 2007 177 424 681 5 467 331 958 337 426

2008 2007

Average no. of Average no. of

exercise price options exercise price options

(nOK per share) (nOK per share)

January 1, 44.39 7 470 211 22.35 5 741 243

Granted 63.68 408 000 56.52 4 140 500

Exercised 24.83 899 767 9.99 2 157 781

Lapsed/forfeited 56.54 324 167 37.37 253 751

December 31, 47.70 6 654 277 44.39 7 470 211

nOTE 11 - CASH AnD CASH EQUiVALEnTS

Cash and cash equivalents include the following:

nOTE 12 - SHARE CAPiTAL

The total authorized number of ordinary shares was 196.1 million (2007: 177.4 million) with a par value of NOK 0.20 per share. All issued shares were fully settled at balance sheet date.

At balance sheet date, 15,850 (2007: 14,185) of the cash balance were collateralized in relation to derivative contracts, and 16,904 (2007: 4,386) were collateralized relating to guarantees made towards suppliers and clients.

At December 31, 2008, Sevan Marine ASA had 6,740 shareholders. 63% of the share capital was owned by shareholders residing outside of Norway.

20 largest shareholders as at December 31, 2008:

nOTE 13 – SHARE-BASED PAYMEnTS

Share optionsShare options awarded to employees have an exercise price equal to the market price of the shares at the time of the award. 4.3 million of the remaining options can be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.4 million of the remaining options can be exercised provided fulfillment of certain criteria and expire five years following the award. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options remaining and their related weighted average exercise prices are as follows:

Of the 6.6 million remaining options (2007: 7.5 million), 2.4 million options were exercisable (2007: 2.8 million). Options exercised during 2008 resulted in 0.9 million shares being issued (2007: 2.2 million shares) at an average of NOK 24.83 (2007: NOK 9.99). The weighted average market price at the time of exercise was NOK 65.85 per share (2007: NOK 46.80). There was no related transaction cost for the Group.


Share options remaining at the end of the year have the following expiration dates and exercise prices:

The average fair value of options awarded during the year, determined using the Black-Scholes option-pricing model, was NOK 14.68 (2007: NOK 5.68). The significant inputs into the model were share price at the award dates, exercise price shown above, standard deviation of expected share price returns of 30% (2007: 30%), dividend yield of 0% (2007: 0%) estimated option life based on vesting period, and annual risk-free interest rate of 4.5% (2007: 4.6 – 5.2%).

As of December 31, 2008 none of the outstanding share options are in-the-money.

Year of expiration Exercise price in Share options remaining

nOK per share at end of year

2008 2007

2009 9.80 2 751 233 172

2010 16.60 16 667 16 667

2010 15.00 20 335 20 335

2010 15.50 20 335 100 004

2010 19.30 192 126 222 592

2010 24.00 690 902 849 169

2010 30.90 270 318 401 036

2011 38.40 336 935 404 334

2011 38.80 383 338 466 668

2011 37.90 308 734 357 400

2011 35.20 150 001 158 334

2011 33.50 33 334 100 000

2012 37.60 128 834 140 500

2012 53.00 63 667 90 000

2012 57.25 3 500 000 3 800 000

2012 58.75 65 000 55 000

2012 58.25 55 000 55 000

2012 37.90 8 000 0

2013 62.75 383 000 0

2013 78.00 25 000 0

Total 6 654 277 7 470 211

2008 2007

Trade payables* 164 781 74 917

Accrued expenses 12 362 7 295

Total trade and other payables 177 143 82 212

Interest-bearing loans and borrowings - current portion 13 965 4 917

Income tax payable 369 0

Social security and other taxes 10 187 13 896

Other payables 18 252 38 116

Provisions 697 4 059


2008 2007

nominal Amortized Fair nominal Amortized Fair

value value value value value value

Bank borrowings 296 505 283 055 296 505 56 000 47 927 56 000

Bond 704 784 685 114 398 777 786 291 768 602 786 740

Value of embedded call options -33 060 -17 507 -17 507 -35 699 -26 896 -26 896

non current borrowings 968 229 950 662 677 775 806 592 789 633 815 844

Bank borrowings 9 495 9 115 9 495 0 0 0

Bond 5 000 4 850 2 700 5 000 4 917 5 150

Current borrowings 14 495 13 965 12 195 5 000 4 917 5 150

Total borrowings 982 724 964 627 689 970 811 592 794 550 820 994

Borrowings are nominated in the following currencies:

Bank borrowings, USD nominated 306 000 56 000

Bond, USD nominated 410 000 410 000

Bond, NOK nominated 266 724 345 592

982 724 811 592

2008 2007

nominal Amortized nominal Amortized

1-2 years 145 266 142 630 25 376 22 675

2-5 years 822 963 790 027 578 716 565 162

More than 5 years 0 0 202 500 201 796

Total non-current borrowings 968 229 950 662 806 592 789 633

2008 2007

nOK USD nOK USD

Bank borrowings (FPSO Sevan Voyageur)* 4.60%

Bank borrowings (Sevan Driller) 5.29% 7.18%

Bond (NOK 1,000 million) 9.75% 10.94%

Bond (USD 140 million) 9.68% 8.77%

Bond (NOK 870 million) 10.55% 11.15%

Bond (USD 270 million) 6.54% 7.74%

nOTE 15 - BORROWinGS

Reference is made to note 2.15 for description of the accounting principles applied for borrowings.

The fair value of the bank loan is estimated by discounting the contractual cash flows at a rate reflecting the underlying risk. The fair values of the bond loans are based on market rates of the bonds at balance sheet date.

The Group is exposed to changes in the interest rates for a NOK 870 million bond loan (3-month Nibor + margin) and a NOK 1,000 million bond loan (6-month Nibor + margin) as well as for a USD 270 million bond loan (6-month Libor + margin) and the bank borrow-ings (3-month Libor + margin). The Group has entered into floating-to-fixed interest rate swaps for a portion of these borrowings. The Group is exposed to fair value interest rate risk for a USD 140 million bond loan at a fixed rate.

The effective interest rates at balance sheet date are as follows:

The maturities of non-current borrowings are as follows:

* Effective from April 17, 2008

Any effect of interest-rate swaps is included in the calculation of the effective interest rates at balance sheet date.

nOTE 14 - TRADE AnD OTHER PAYABLES

*Trade payables include payables to related parties (Kanfa-Tec AS) amounting to 411 (2007: 4)


The Group has the following un-drawn borrowing facilities: The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

The Group did not recognize deferred income tax assets of 5,280 (2007: 4,114) in respect of losses in Sevan Marine do Brasil Ltda.

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through the future taxable profits is probable. At balance sheet date, the Group has entered into a total of 6 contracts for chartering of units and one license contract, that will generate taxable profits which the deferred tax assets can be offset towards.

nOTE 17 - RETiREMEnT BEnEFiT OBLiGATiOnS

The companies in the Group operate both defined benefit and defined contribution plans.

The amounts recognized in the balance sheet are determined as follows:

The movement in the liability recognized in the balance sheet is as follows:

The un-drawn borrowing facilities are converted into USD using exchange rates prevailing at balance sheet date.

nOTE 16 - DEFERRED inCOME TAx

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities.

The offset amounts are as follows:

Floating rate 2008 2007

– Expiring within one year * 94 000 3 696

– Expiring beyond one year 0 344 000

Fixed rate 2008 2007

– Expiring within one year 0 0

– Expiring beyond one year 0 0

Total un-drawn borrowing facilities 94 000 347 696

Specification of deferred tax assets/deferred tax liabilities 2008 2007

Unrealized profit, hedging instrument 0 301

Unrealized currency gain/(loss) 0 11 191

Other short term assets 0 15 542

Fixed assets 29 539 975

Establishment fee bond loans 1 241 2 157

Total deferred tax liabilities 30 780 30 166

Employer’s tax related to options 0 -1 099

Pension liabilities -142 -208

Accounting provisions -249 0

Losses carry forward -94 970 -84 186

Losses carry forward related to Brazil -5 280 -4 114

Valuation allowance 5 280 4 114

Total deferred tax assets -95 361 -85 493

Defined benefit plan 2008 2007

Present value of funded obligations 2 170 2 803

Fair value of plan assets -1 273 -1 940

Present value of unfunded obligations 897 863

Unrecognized actuarial losses -392 -179

Social security related to pension liabilities 123 59

Liability in the balance sheet 628 744

2008 2007

January 1, 744 653

Exchange differences -95 0

Liabilities acquired in a business combination 0 0

Total expense charged to the income statement 1 082 901

Contributions paid -1 103 -810

December 31, 628 744

Deferred tax assets 2008 2007

– Deferred tax asset to be recovered after more than 12 months 95 112 85 493

– Deferred tax asset to be recovered within 12 months 249 0

Total deferred tax assets 95 361 85 493

Deferred tax liabilities 2008 2007

– Deferred tax liability to be recovered after more than 12 months -30 780 -18 673

– Deferred tax liability to be recovered within 12 months 0 -11 492

Total deferred tax liabilities -30 780 -30 166

net deferred tax assets/(liabilities) 2008 2007

– Deferred tax asset to be recovered after more than 12 months 64 332 66 820

– Deferred tax liability to be recovered within 12 months 249 -11 492

net deferred tax assets/liabilities 64 581 55 328

The gross movement on the deferred income tax account:

2008 2007

Book value January 1, 55 328 12 217

Exchange differences -290 -182

Income statement charge 5 192 35 553

Gross revenue tax and ‘Withholding tax’ booked as tax expense 1 902 1 803

Tax payable 0 2 639

Tax charged to equity 2 449 3 298



The principal actuarial assumptions used were as follows:

Actual return on pension assets for 2008 is not yet known. Actual return on pension assets for 2007 was 5.89%.

Average life expectancy for a person retiring at 67 years of age:

The amounts recognized in the income statement are as follows:

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

nOTE 18 - PROViSiOnS FOR OTHER LiABiLiTiES AnD CHARGES

nOTE 19 - COnSTRUCTiOn COnTRACTS

Included in the 2007 figures are contract revenue and contract cost for activities within the Group. In the figures for 2008 are included only contract revenue and contract cost for activtities relating to external projects.

WarrantiesProvisions for warranties are based on historical experience.

The expected pension cost for 2009 regarding the defined benefit plan is estimated to 1,145.

2008 2007

Discount rate 4.30% 4.35%

Expected return on plan assets 6.30% 5.40%

Future salary increase 4.50% 4.50%

Expected G-regulation 4.25% 4.25%

Future pension increases 2.75% 2.75%

Future turnover 10.00% 10.00%

Employer contribution tax 14.10% 14.10%

Defined contribution plan 2008 2007

Pension costs 1 101 551

Pension cost, defined contribution plan 1 101 551

No. of employees included 143 80

Total pension cost for the Group

Pension cost, defined benefit plan 1 082 901

Pension cost, defined contribution plan 1 101 551

Total pension cost 2 183 1 452

Warranties Profit-sharing & bonuses Total

January 1, 2008 591 3 468 4 059

Arising during the year 106 0 106

Used during year 0 -3 468 -3 468

December 31, 2008 697 0 697

Warranties Profit-sharing & bonuses Total

January 1, 2007 352 0 352

Arising during the year 239 3 468 3 707

Used during year 0 0 0

December 31, 2007 591 3 468 4 059

Analysis of total provisions: 2008 2007

Non-current 0 0

Current 697 4 059

Total provisions 697 4 059

2008 2007

Contract revenues 48 393 116 738

Contract cost -39 011 -104 738

net profit on construction contracts 9 382 12 000

2008 2007

Recognized, not yet invoiced for ongoing projects 231 1 253

Invoiced in advance 0 3 312

Incurred cost on ongoing projects included in current liabilities 2 950 32 841

2008 2007

Male 17.7 16.1

Female 20.1 18.3

The actuarial calculations for the Group’s defined benefit plans were carried out by independent actuaries. In 2008 the calculated pension obligation is based on the mortality table K2005 (2007: K1963). Using an updated mortality table gave small negative effect which is included in the actuarial gains/losses. The disability table used for both 2008 and 2007 is K1963 adjusted for observed developments.

The Group’s pension schemes satisfy the requirements in the Norwegian legislation regarding mandatory occupational pension.


Net present value of current year’s pension earned 834 787

Interest cost on pension liabilities 128 80

Expected return on pension assets -108 -96

Estimate changes 43 -26

Administration cost 37 41


Pension cost, defined benefit plan 1 082 901

No. of employees included 48 43

Plan asset mix 2008 2007

Equities 6% 20%

Property 23% 17%

Fixed bonds 48% 34%

Liquid bonds 22% 24%

Other 1% 5%

Totalt 100% 100%


nOTE 20 - EMPLOYEE BEnEFiT ExPEnSE

Remuneration to the Board of Directors is paid the year following board duties rendered.

* Stephan M. Zeppelin was elected member of the Board during 2007. Kristin Urdahl and Kjetil Soma also entered the Board during 2007 as Employee representatives. ** Salaries and other benefits paid to Kåre Syvertsen, Arne Smedal, Kristin Urdahl and Kjetil Soma as employees of Sevan Marine ASA is included only for the year(s) for which each has been a member of the Board:

in addition, senior management has been awarded the following stock options during their tenure:

* Can be exercised provided the fulfillment of certain criteria

2008 2007

Wages and salaries 46 080 26 268

Employer’s share of social security 6 594 4 638

Expensed portion of value of share options at the time of the award 2 858 2 951

Employer’s tax relation to options -3 265 4 158

Pension cost 2 183 1 452

Other employee related expense 3 734 4 294

Total employee expense 58 184 43 761

Employee expense allocated to construction in progress -25 670 -19 719

net employee expense through the income statement 32 514 24 041

No. of man-years 346 225

Remuneration of the Board of Directors, as paid 2008 2007

Hilde Drønen 40 34

Vibeke Strømme, Deputy Chairman 49 34

Stephan M. Zeppelin* 40 0

Kristin Urdahl, (Employee representative)*/** 20 0

Kjetil Soma (Employee representative)*/** 20 0

Arne Smedal, Chairman** 71 34

Kåre Syvertsen** 40 34

Total 280 136

Salaries and other benefits paid to Board members as employees 2008 2007

Salaries Other Salaries Other

benefits benefits

Kristin Urdahl 208 261 148 1

Kjetil Soma 126 1 97 1

Arne Smedal, Chairman 763 36 530 34

Kåre Syvertsen 703 17 510 16

no. of Year of Strike/ Remaining

options award nOK no. of options

at balance

sheet date

Jan Erik Tveteraas 100 000 2002 0.20 0

Jan Erik Tveteraas 179 500 2002 3.00 0

Birte Norheim 50 000 2005 15.00 16 668

Birte Norheim 50 000 2007 57.25 50 000

Fredrik Major 50 000 2005 19.30 16 668

Fredrik Major 300 000 2007* 57.25 300 000

Helle Hundseid 25 000 2006 35.20 16 667

Helle Hundseid 300 000 2007* 57.25 300 000

Erskine Rozario 50 000 2005 30.90 16 668

Erskine Rozario 300 000 2007* 57.25 300 000

Erling Andreas Ronglan 50 000 2005 16.60 16 667

Erling Andreas Ronglan 300 000 2007* 57.25 300 000

Hanna Moland 50 000 2005 15.50 16 667

Hanna Moland 50 000 2007 57.25 50 000

Reidun Beate Olsen 50 000 2006 38.40 33 334

Reidun Beate Olsen 100 000 2007 57.25 100 000

Gerson Peccioli 50 000 2005 30.90 50 000

Gerson Peccioli 300 000 2007* 57.25 300 000

Aslak Hjelde 50 000 2005 24.00 50 000

Total options/average strike 2 404 500 45.04 1 933 339

Remuneration of senior management, as paid 2008

Salaries Retirement Other

benefits benefits

Jan Erik Tveteraas CEO 862 25 16

Oskar Mykland* CFO 0 0 0

Birte Norheim VP Finance 211 9 1

Fredrik Major VP Business Development / R&D 325 26 19

Helle Hundseid VP Projects 319 9 1

Erskine Rozario VP Engineering and Construction 244 25 233

Erling Andreas Ronglan VP Operations 399 9 41

Hanna Moland VP Human Resources & Administration 185 28 2

Reidun Beate Olsen VP QHSE 191 9 104

Gerson Peccioli President Sevan Brazil 472 1 6

Aslak Hjelde Managing Director Kanfa AS 328 19 15

Stein Giljarhus** President Sevan Drilling 84 0 25

Total 3 620 160 463

Remuneration of senior management, as paid 2007

Salaries Retirement Other

benefits benefits

Jan Erik Tveteraas CEO 578 24 28

Oskar Mykland* CFO 0 0 0

Birte Norheim VP Finance 163 12 149

Fredrik Major VP Business Development / R&D 236 26 17

Helle Hundseid VP Projects 167 14 46

Erskine Rozario VP Engineering and Construction 168 24 7

Erling Andreas Ronglan VP Operations 300 12 26

Hanna Moland VP Human Resources & Administration 120 27 113

Reidun Beate Olsen VP QHSE 139 14 2

Gerson Peccioli President Sevan Brazil 610 0 2

Aslak Hjelde Managing Director Kanfa AS 224 18 2

Stein Giljarhus** President Sevan Drilling 0 0 0

Total 2 705 171 392

* First day of employment was January 1, 2009** First day of employment was November 1, 2008

Salaries and other benefits included above are based on actual period of employment translated at average exchange rate for this period.Senior management is included in the Group’s collective retirement benefit plans. No loans have been granted to senior management or any member of the Board in 2008.


Board of DirectorsArne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 2,804,036 shares through his wholly owned company Aasen AS, and 147,261 shares through Elvheim AS, where he holds a controlling ownership interest.

Kåre Syvertsen, Board member and Vice President Technology, owns 428,704 shares directly, and 2,821,296 shares through his wholly owned company Hallingen AS.

Vibeke Strømme, Deputy Chairman of the Board, owns 4,000 shares.

Hilde Drønen, Board member, owns 1,400 shares directly and 4,600 shares through her wholly owned company Djupedalen AS.

Stephan M. Zeppelin, Board member, owns no direct shares. Mr. Zeppelin is an employee of Wexford Capital LLC, which is the manager and investment sub-advisor to Wexford Catalyst Inves-tors LLC and Wexford Spectrum Trading Limited, respectively. Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited own an aggregate of 2,383,300 shares.

Kristin Urdahl, Employee representative on the Board and Senior Engineer owns 33,300 shares directly, and holds 16,700 options with a strike of NOK 24.00 and 300,000 options with a strike price of NOK 57.25.

Kjetil Soma, Employee representative on the Board and Control-ler , owns 10,166 shares directly, and holds 33,334 share options with a strike of NOK 30.90

Senior ManagementJan Erik Tveteraas, CEO, owns 56,556 shares directly and 2,893,444 shares through his wholly owned company Supernova AS.

Erling Ronglan, Vice President Operations, owns 23,333 shares and holds 16,667 share options with a strike price of NOK 16.60 and 300,000 share options with a strike price of 57.25. Fredrik Major, Vice President Business Development, owns 27,333 shares and holds 16,667 share options with a strike price of NOK 19.30 and 300,000 share options with a strike price of NOK 57.25.

Erskine Rozario, Vice President Engineering and Construction, owns 27,332 shares and holds 16,668 share options with a strike price of NOK 30.90 and 300,000 share options with a strike price of NOK 57.25.

Hanna Moland, Vice President Administration & HR, owns 12,667 shares and holds 16,667 share options with a strike price of NOK 15,50 and 50,000 share options with a strike price of NOK 57.25.

Reidun B. Olsen, Vice President HSEQ, owns 16,666 shares and holds 33,334 options with a strike price of NOK 38.40 and 100,000 share options with a strike price of NOK 57.25.

Birte Norheim, Vice President Finance, owns 5,000 shares and holds 16,668 options with a strike price of NOK 15.00 and 50,000 share options with a strike price of NOK 57.25.

Helle Hundseid, Vice President Projects, holds 16,667 options with a strike price of NOK 35.20 and 300,000 share options with a strike price of NOK 57.25.

Stein E. Giljarhus, Managing Director Sevan Drilling, owns 39,600 shares directly and 70,000 shares through his wholly owned com-pany Segal Holding AS.

Gerson Peccioli, President Sevan Brazil, holds 50,000 share op-tions with a strike price of NOK 30.90 and 300.000 share options with a strike price of NOK 57.25.

Aslak Hjelde, Managing Director Kanfa AS, owns 228,246 shares directly and 68,077 shares through his wholly owned company Fekja Invest AS. A. Hjelde holds 50,000 share options with a strike price of NOK 24.00.

Reference is made to the ’Statement regarding establishment of salary and other benefits for senior management’ for further details of remuneration of senior management.

Shares and options owned or controlled by the Board of Directors and Senior Management As of December 31, 2008, the following Board members and senior management owned or controlled shares in the Company:

nOTE 21 - FinAnCiAL inCOME AnD FinAnCiAL ExPEnSE

Currency gains and losses related to operational activities are classified as operational expense and are not included in the table below.

Changes in the fair value of embedded call options related to bond borrowings are recognized in the income statement as indicated.

Net project specific borrowing costs incurred for the construction of any qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed as incurred.

Borrowing costs of 43,410 (2007: 38,908) arising from financing specifically for the construction of the Sevan units were capitalized during the year and are included in ‘Additions’ in property plant and equipment. The capitalization represents the net borrowing cost for financing of each project during the construction period.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

The weighted average applicable tax is 18.9% (2007: 28.5%).

nOTE 22 - inCOME TAx ExPEnSE

Financial income: 2008 2007

Interest income 2 852 7 241

Amortization of embedded call options and transaction cost related to borrowings 2 984 1 470

Currency gain 119 748 44 539

Gain on interest swap 8 300 0

Other financial income 4 726 0

Total financial income 138 610 53 250

Financial expense: 2008 2007

Interest expense 30 318 19 711

Currency loss 64 854 62 904

Loss on value of call options embedded in bonds 8 612 7 429

Loss on interest swap 14 562 8 182

Other financial expenses 4 135 33

Total financial expense 122 481 98 259

2008 2007

Current tax -1 948 -4 442

Deferred tax 7 140 39 995

net tax income/(expense) 5 192 35 553

2008 2007

Profit before tax -113 116 -150 554

Tax calculated at domestic tax rates applicable to profits in the respective countries 21 356 42 920

Income not subject to tax 0 296

Currency transalation adjustment -11 648 -2 179

Expenses not deductible for tax purposes -2 568 -1 779

Tax losses for which no deferred income tax asset was recognized 0 -1 902

net income tax 7 140 37 356

Gross revenue tax -1 105 -495

Withholding tax -843 -1 307

Total tax income/(expense) 5 192 35 553


nOTE 23 - EARninGS PER SHARE

Basic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares.

Diluted earnings per shareThe dilution effect is caused by awarded options that have not been exercised at balance sheet date. The number of shares calculated assumes exercise of all outstanding share options. The options are weighted according to time of award. As of December 31, 2008, none of the outstanding share options are in-the-money.

Due to net losses for the periods reported, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share are calculated as earnings per share for these periods.

nOTE 24 - DiViDEnD PER SHARE

No dividend was paid in 2008 or 2007. No dividend for current year is to be proposed at the Annual General Meeting on May 25, 2009.

nOTE 25 - CASH GEnERATED FROM OPERATiOnS

nOTE 27 - COMMiTMEnTS

Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

2008 2007

Profit attributable to equity holders of the Company (1,000 USD) -94 482 -113 456

Weigthed average number of ordinary shares in issue (thousands) 187 438 160 730

Basic earnings per share (USD per share) -0.50 -0.72

2008 2007

Profit attributable to equity holders of the Company (1,000 USD) -94 482 -113 456

Profit used to determine diluted earnings per share (1,000 USD) -94 482 -113 456

Weighted average number of ordinary shares in issue (thousands) 187 438 160 732

Total remaining share options at balance date (thousands) 6 654 7 470

Weighted average number of shares for diluted earnings per share (thousands) 191 919 166 968

Diluted earnings per share (USD per share) -0.50 -0.72

2008 2007


Adjustments for:

– Depreciation 29 358 11 947

– Amortisation of intangible assets 2 213 1 228

– Net movements in provisions for liabilities and charges* -17 375 19 601

– Expensed portion of value of options at the time of the award 2 858 2 951

Changes in working capital:

– Inventory -5 828 -6 260

– Trade and other receivables -7 517 -18 193

– Other financial assets at fair value through profit or loss 7 314 0

– Trade and other payables -16 677 8 333

Cash generated from operations -118 769 -130 947

2008 2007

Property, plant and equipment 259 400 495 251

Intangible assets 0 0

Total capital commitments 259 400 495 251

nOTE 26 - COnTinGEnCiES

The Group has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. The Group has made a provision for guarantees amounting to 697 (2007: 591) for the year. This guarantee relates to the external operation of Kanfa AS. No additional payments are anticipated at balance sheet date.

The Group has entered into the following security arrangements:

Security arrangements related to loans:FPSO Sevan Piranema: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 270 million bond loan agreement described in note 15.

FPSO Sevan Hummingbird: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 140 million bond loan agreement described in note 15.

FPSO Sevan Voyageur: The Company has issued a bond loan, secured by 2nd priority securities pursuant to the terms of the NOK 870 million bond loan agreement and provided certain securities on 1st priority in accordance with terms of a USD 150/300 million bank financing facility to Sevan 300 Pte Ltd. described in note 15.

Sevan Driller: The Company has provided certain securities on 1st priority in accordance with terms of a the USD 250/400 million bank financing facility to Sevan Drilling Ptd. Ltd. and provided a guarantee on 2nd priority in accordance with terms of a NOK 1,000 million bond loan agreement to Sevan Drilling AS.

Security arrangements related to construction contracts:Sevan Driller:The Company has issued a guarantee related to construction contracts. Security arrangements related to equipment supplies and related services:FPSO Sevan Piranema, FPSO Sevan Hummingbird, FPSO Sevan Voyageur, FPSO Sevan 300 no. 4, Sevan Driller, Sevan Driller ii and Sevan Driller iii:The Company has issued guarantees for the subsidiaries’ cor-rect fulfillment of their contractual commitments as purchasers towards vendors.

Kanfa AS:The Company has issued a performance guarantee for Kanfa AS’ delivery of a process plant and compression packages to client.

Security arrangements related to operations:FPSO Sevan Piranema:The Company has granted a performance guarantee towards the technical manager. FPSO Sevan Hummingbird:The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager.

FPSO Sevan Voyageur:The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager.

FPSO Sevan 300 no. 4:The Company has guaranteed for correct fulfillment of the contract with the end-charterer.

Sevan Driller iii:The Company has guaranteed for correct fulfillment of the contract with the end-charterer.

Of the total capital commitments of USD 259,400, USD 26,900 fall due in 2010 and USD 53,900 fall due in 2011. The remaining capital commitments fall due in 2009.

*The net movement in 2008 includes expensing of former capitalized mobilization and installation cost of 57,144.


nOTE 28 - RELATED-PARTY TRAnSACTiOnS

The Group is widely held (reference is made to note 12).

Related-party transactions were made on an arm’s length basis, and include the following:

nOTE 29 – OPERATinG LEASES

Operating leases – Group company is lessee

The Group has entered into several lease/rental agreements for rental of offices, software, ASP solutions, and cars. The agreements are entered into on ordinary operational terms.

The Group’s annual lease expenses for rental offices, software, ASP solutions and cars amounted to 7,386 in 2008 (2007: 2,033).

For lease/rental contracts entered into at balance sheet date, the Group has lease obligations to rental expenses as follows:

Operating leases – Group company is lessor

The Group leases units under various agreements with fixed terms that end at different times during 2010-2018. None of the arrange-ments include any form of option to buy the units following end of contractual period.

The overview includes charter revenue for the fixed lease periods for the six contracted units. It excludes lease payments for option periods.

At balance date, the book value of charter revenue generating assets was USD 1,035 millions (2007: USD 276 millions).

nOTE 30 - EVEnTS AFTER BALAnCE SHEET DATE

• In January 2009, the functions of the Board of Directors of Sevan’s original client for FPSO Sevan Voyageur, Oilexco North Sea Limited, was taken under administration following difficulties for Oilexco in renewing its financing facilities. A sales process for Oilexco’s assets commenced shortly thereafter. In April 2009, Sevan entered into a Memorandum of Understanding (MOU) with Premier Oil and Gas Serv-ices Ltd (Premier), for the continued provision and operation of the FPSO Sevan Voyageur by Sevan for the development of the Shelley field. The FPSO Sevan Voyageur will be operated under a production sharing contract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field.

• In February 2009, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the parties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement.

• In February 2009, Sevan received an offer from an industry player for one of the Sevan units. The offer, which is subject to documen-tation and final agreement, represents a purchase price in line with the book value of the unit.

• A directed convertible bond issue of USD 12 million was completed in April 2009. The convertible bond was directed towards Luxor Capital Group, LP and has a term of four years and a fixed coupon of 15 per cent per annum. Interest payments may, at the Compa-ny’s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD 1.0454 at the day of exercise of the conversion right. The proceeds from the issue will be used for general corporate purposes.

Sales of goods and services to associates 2008 2007

Kanfa-Tec AS 74 140

Purchases from associates 2008 2007

Kanfa-Tec AS 8 27

Unit Client Fixed term (years) Option periods (years) Commencement

FPSO Sevan Piranema Petrobras S.A. 11 6 x 1 Q1-2007

FPSO Sevan Hummingbird Venture Production Plc 2.5 4 x 0.5 + 3 x 1 Q3-2008

FPSO Sevan Voyageur Oilexco North Sea Ltd* 5 5 x 1 EQ2-2009

Sevan Driller Petrobras S.A. 6 N/A EQ3-2009

Sevan Driller ii Oil and Natural Gas Corporation Ltd (ONGC) 3 N/A EQ1-2011

Sevan Driller iii Petrobras S.A. 6 N/A EQ2-2012

Rental expense 2008 2007

No later than 1 year 755 1 143

Between 1-5 years 6 556 1 303

Later than 5 years 18 025 0

Total minimum future rental obligations 25 336 2 446

The future minimum lease payments receivable under non-cancellable charter contracts are: 2008 2007

No later than 1 year 157 396 81 531

Between 1-5 years 2 288 337 1 630 088

Later than 5 years 861 977 475 177

Total minimum future charter revenues 3 307 710 2 186 796

Year-end balances arising from sales/purchases of goods/services:

Receivable from associate parties 2008 2007

Kanfa-Tec AS 7 3

Payable to associate parties 2008 2007

Kanfa-Tec AS 411 4

* Figures are based on the contract with Oilexco North Sea Ltd. Subsequently, Sevan has entered into a Memorandum of Understanding with Premier Oil and Gas Services Ltd in April 2009 (see note 30).

Order back-log for charter revenue (fixed term only):


nOTE 35 - BUSinESS COMBinATiOnS

There have not been any business combinations in 2008.

During January 2007, the Group acquired 50% of the shares in Kanfa Aragon AS. The company provides environmentally sound solutions and systems for recovery, conditioning, conversion and transport of natural gas and oil for FPSOs. Kanfa Aragon AS serves external clients as well as working in close cooperation with other group companies with ongoing projects and is included in the Topside and Process Technology segment

Details of net assets acquired and goodwill are as follows:

During June 2007, the Group acquired 100% of the shares in Mator AS. Mator AS provides services to the oil and gas industry world wide within the areas of primary separation, gas handling and water treatment for increased production efficiency and improved equipment regularity. Mator AS is included in the Topside and Process Technology segment.

Details of net assets acquired and goodwill are as follows:

For both Kanfa Aragon AS and Mator AS the goodwill is related to the workforce of the acquired business and expected synergies following the acquisition.

Kanfa Aragon AS 2007

Purchase price: 492

Allocated to goodwill: 238

Mator AS 2007

Purchase price: 2 067

Allocated to goodwill: 1 205

nOTE 33 – OTHER nOn-CURREnT ASSETS

The Group has other non-currents assets of 13,245 (2007: 67,737). During 2008, a one-off cost of mobilizing and installing the FPSO Sevan Hummingbird on the Chestnut field, amounting to 60,729 was expensed and classified as “operating expenses” in the income statement. The majority of these mobilization and installation cost (57,144) has previously been capitalized as “other non-current assets”.

nOTE 34 - REVEnUES

Operational income 2008 2007

Sales from Topside and Process Technology segment 55 120 65 615

Operational income 64 511 15 735

Other operational income 825 813

Total operational income 120 455 82 163

nOTE 32 – inVEnTORY

Inventory consists of spare parts. The cost of usage of Inventory is classified as “operating expense” in the income statement.

inventory 2008 2007

Materials to be used during operations 12 087 6 260

nOTE 31 – OTHER ExPEnSE

Other expense 2008 2007

Pre-operational expense 46 871 53 589

Other operational- and administration expense 29 369 8 126

Total other expense 76 240 61 715



ASSETS

non-current assets

intangible assets

Intangible assets 3 9 733 10 555

Deferred tax assets 2 2 968 11 755

Total intangible assets 12 701 22 310

Tangible assets

Equipment, fixtures and fittings 3 1 629 1 582

Total tangible assets 1 629 1 582

Financial assets

Investments in subsidiaries 4 865 718 650 777

Other receivables 5 124 158

Total financial assets 865 842 650 935

Total non-current assets 880 172 674 827

Current assets

inventory

Inventory 23 103 207

Total inventory 103 207

Receivables

Debtors 884 464


Receivables from companies within the Group 4 596 338 606 633

Total receivables 602 863 611 374

investments

Derivative financial instruments 21 0 1 076

Total investments 0 1 076

Cash, cash equivalents and bank deposits

Cash, cash equivalents and bank deposits 6 34 242 66 069

Total cash, cash equivalents and bank deposits 34 242 66 069

Total current assets 637 208 678 726

Total assets 1 517 380 1 353 553


EQUiTY

Share capital 1,8 6 187 5 467

Share premium reserve 1 562 401 331 958

Other equity 1 349 186 360 099

Total equity 917 774 697 524

LiABiLiTiES

Provisions

Retirement benefit obligations 10 398 744

Total provisions 398 744

Other non current liabilities

Borrowings 20 528 091 565 867


Total other non current liabilities 541 511 574 049

Total non current liabilities 541 909 574 793

Current liabilities

Borrowings 20 4 850 4 917

Trade creditors 4 945 1 274

Public duties payable 2 655 2 380

Liabilities to companies within the Group 4 32 977 60 257

Other current liabilities 12 270 12 408


Total liabilities 599 606 656 029

Total equity and liabilities 1 517 380 1 353 553

SevAn MArine ASABAlAnCe SHeet AS At deCeMBer 31






Operating income 16 53 327 33 899

Operating expense -18 879 -8 496

Employee benefit expense 9 -28 789 -25 655

Depreciation and amortization expense 3 -3 878 -1 597

Other operating expense 11 -15 518 -10 530

Net operational currency gain/(loss) 981 -2 698

Total operating expense -66 083 -48 976

Operating profit -12 756 -15 077

Financial income 16,22 106 707 62 488

Financial expense 16,22 -95 445 -61 039

net financial profit/(loss) 11 262 1 449


Tax income/(-expense) 2 -11 980 4 672

Annual net profit/(loss) -13 474 -8 956

Brought forward:

Loss brought forward 13 474 8 956

Profit to other equity 0 0

net brought forward 13 474 8 956

Basic earnings (USD per share) -0.07 -0.06

Diluted earnings (USD per share) -0.07 -0.06


Cash flows from operating activities

Income/-loss before tax -1 494 -13 627

Taxes paid during the period 2 -692 0

Depreciation/amorization 3 3 878 1 597

Current year’s expensed portion of value of optins at grant date 15 2 561 2 116

Change in embedded derivative related to bond loan/interest swap 21,22 9 125 14 081

Net change in pension liabilities 10 -345 279

Change in accounts receivable -419 -217

Change in accounts payable 3 670 315

Change in trade related to companies within the group 4 -16 985 -12 954

Change in inventory 103 0

Change in borrowing related to currency -37 775 0

Change in other accruals -6 605 -10 315

net cash generated from operating activities -44 978 -18 725

Cash flows from investment activities

Investment in subsidiaries 4 -214 942 -290 652

Investment in intangible fixed assets 3 -2 301 -5 670

Investment in tangible fixed assets 3 -802 -3 069

Change in other long term receivables 33 0

net cash used for investment activities -218 012 -299 391

Cash flows from financing activities

Proceeds from borrowings 20 0 430 784

Repayments of borrowings 20 0 -98 985

Proceeds from share issues 1 231 163 314 503

Funding related to companies within the group 4 0 -358 334

net cash from financing activities 231 163 287 968

net cash flows for the period -31 827 -30 148

Cash and cash equivalents at the beginning of the year 66 069 96 217

Cash and cash equivalents at the end of the year 34 242 66 069

SevAn MArine ASAinCoMe StAteMent

SevAn MArine ASACASH floW StAteMent


Accounting PoliciesSevan Marine ASA’s (‘the Company’) annual accounts have been prepared in accordance with the Accounting Act and generally accepted accounting principles in Norway.

The Company changed its functional currency from NOK to US dollar (USD) effective January 1, 2006. The change was based on an evaluation of the economic environment in which the Com-pany operates and the predominance of USD in expected future cash flows.

All numbers are in USD 1,000 unless otherwise stated.

Use of EstimatesThe preparation of financial statements in accordance with generally accepted accounting principles requires management to use estimates and assumptions, which affect the value of the assets and liabilities, and disclosure notes. Such estimates and assumptions may have significant impact on the reported revenues and costs for a specific reporting period. The actual amounts may deviate from the estimates.

Contingent losses, which are likely to occur and quantifiable, are expensed when incurred.

Principal Rule for Evaluation and Classification of Assets and LiabilitiesAssets intended for long term ownership or use, are classified as fixed assets. Assets relating to the operating cycle are classified as current assets. Receivables are classified as current assets if they are to be repaid within one year after the transaction date. Similar criteria apply to liabilities.

Current assets are valued at the lower of purchase cost and net realizable value. Short-term liabilities are reflected in the balance sheet at nominal value at the establishment date.

Fixed assets are valued at purchase cost. Fixed assets whose value will decline are depreciated on a straight-line basis over the asset’s estimated useful life. The fixed assets are written down to net realizable value if a value reduction occurs that is expected to be permanent. Long-term liabilities are reflected in the balance sheet at nominal value on the establishment date.

Trade Receivables and other ReceivablesTrade receivables and other receivables are reflected in the balance sheet at nominal value provision for estimated loss. Estimated loss are provided for on the basis of an individual as-sessment of each debtor.

Tangible Fixed AssetsFixed assets are reflected in the balance sheet and depreciated over the asset’s expected useful life on a straight-line basis. Direct maintenance of an asset is expensed under operating expense as incurred. Additions or improvements are added to the

asset’s cost price and depreciated together with the asset. When changes in circumstances indicate that the carrying value of an asset may not be recoverable, an impairment charge is recog-nized, and the asset is written down to recoverable amount (the highest of net sales value and value in use). Value in use is the net present value of the expected future cash flows generated from the asset.

intangible Assets - GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifi-able assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘investments in associates’. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-gener-ating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Shares in subsidiaries and associated companies In the parent company accounts, investments in subsidiaries and associated companies are recorded under the cost method. Investments are written down to fair value when a reduction in value is expected to be permanent.

Dividends are recognized as income in the year the provision is made in the subsidiary. If the dividends exceed retained earnings, the excess represents repayment of invested capital, and the dividends are deducted from the book value of the investment in the balance sheet.

Research and Development Costs associated with research activities are expensed as incurred. Qualifying expense associated with development activi-ties are capitalized and depreciated over expected useful life. Di-rect and indirect costs of man-hours relating to the construction of the Sevan units are charged to the asset-owning entities where the cost are capitalized as construction-in-progress.

Cash and Bank DepositsCash and bank deposits include cash in hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less.

CurrencyCash and bank deposits, current assets, and short-term liabilities nominated in foreign currencies are converted to exchange rates that prevail on the balance sheet date. Realized and unrealized exchange gains and losses on assets and liabilities in foreign

SevAn MArine ASAnoteS to tHe finAnCiAl StAteMentS

currencies are included as financial or operational items in the income statements depending on the characteristics of the un-derlying asset or liability, except for deposits designated as cash flow hedges (ref. foreign currency hedge note).

Derivative Financial instruments and Hedging ActivitiesDerivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-meas-ured at their fair value. The method of recognizing the resulting 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 derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge).

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for under-taking hedge transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of derivative instruments used for hedging pur-poses are disclosed in note 21, and movements on the hedging reserve in shareholders’ equity are specified. The full fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recog-nized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity related to cash flow hedges designated to the purchase of assets are added to the initial cost of the asset. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement.

Hedge accounting has not been applied in 2008 and 2007.

Pension PlansThe Company operates both defined benefit and defined contri-bution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate en-tity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Cost associated with the defined contribution plans are expensed as incurred.

A defined benefit plan is a pension plan that is not a defined con-tribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension expense and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected

salaries, the amount of benefits from the National Insurance Scheme, future return on pension assets, and actuarial calcula-tions relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted from the net pension obligation in the balance sheet.

TaxesDeferred income taxes provided using the liability method on temporary difference at the balance sheet date between the tax basis of assets and liabilities and their carrying amounts for finan-cial reporting purpose. Tax-reducing temporary differences and losses carried forward are offset against tax-increasing tem-porary differences that are reversed in the same time intervals. Taxes consist of taxes payable (taxes on current year taxable income), and change in net deferred taxes. Tax base included in the calculation of deferred income tax is calculated in local cur-rency and translated into USD as at December 31.

Earnings per ShareEarnings per share are calculated by dividing the net income/loss by the weighted average of the total number of outstanding shares. Shares issued during the year are weighted in relation to the period they have been outstanding.

Share Based incentive PlansThe Company operates a share-based compensation plan. In line with generally accepted accounting principles in Norway, the cost represented by the fair value at grant date is expensed over the vesting period. The fair value at grant date is confirmed by a third party calculation using the Black & Scholes option-pricing model.

Cost represented by employer’s tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of the stock.

Cash Flow StatementThe cash flow statement is prepared in accordance with the indirect method.

Borrowings Borrowings are recognized initially at fair value, net of transac-tion costs incurred and including the initially measured value of embedded call options. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs and embedded value of call options) and the nominal value is recognized in the income statement over the period of the borrowings using the effective interest method. The value of call options embedded in bond borrowings are treated as separate financial assets and are initially recognized at fair value at issue date and subsequently re-measured at fair value each balance date. Related gains and losses are recognized in the income statement immediately. Borrowings are presented net of the separated financial asset and are classified as current liabilities unless the Company has an unconditional right to defer settlement for more than 12 months after the balance sheet date.

Segment ReportingA business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The accounting figures of the Company are consolidated as part of the ‘Corporate’ segment of the consolidated group accounts.


Revenue RecognitionRevenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Company’s activities. Revenue is shown net of value-added tax and discounts.

The Company recognizes revenue when the amount of revenue can be reliably measured and in accordance with the underlying contracts.

a) Royalty income Royalty income is recognized on an accrual basis in accord-ance with the substance of the relevant agreements.

b) Interest income Interest income is recognized on a time-proportion basis using the effective interest method.

c) Sales of services Sale of services is recognized in accordance with the under-lying contracts under the percentage of completion (POC) method. Under the POC method, revenue is generally recog-nized based on the services performed to date as percentage of the total services to be performed.

LeasesLeases in which a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. All lease agreements entered into by the Company are considered to be operational leases.

inventoryInventory are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related produc-tion overheads (based on normal operating capacity). It excludes related borrowing costs.

Share Share Other Total

capital premium equity equity

Equity January 1, 2008 5 467 331 958 360 099 697 524

Capital Increase - February 9 896 905

Capital Increase - May 14 1 953 1 967

Capital Increase - June 689 232 906 233 595

Capital Increase - August 8 987 995

Share issue cost -8 749 -8 749


Expensed portion of value of options at the time of the award 2 561 2 561

Net result for the year -13 474 -13 474

Equity December 31, 2008 6 187 562 401 349 186 917 774

Share Share Other Total

capital premium equity equity

Equity January 1, 2007 4 326 11 092 374 443 389 861

Capital Increase - February 47 986 1 033

Capital Increase - March 479 120 690 121 169

Capital Increase - May 11 1 928 1 939

Capital Increase - August 6 639 645

Capital Increase - October 589 196 747 197 336

Capital Increase - October 5 523 528

Capital Increase - November 4 463 467

Share issue cost -11 969 -11 969


Expensed portion of value of options at the time of the award 2 116 2 116

Reclassification from prior years 7 504 -7 504 0

Net result for the year -8 956 -8 956

Equity December 31, 2007 5 467 331 958 360 099 697 524

nOTE 1 – EQUiTY

2008 2007


Permanent differences -4 350 -10 094

Permanent currency differences 18 860 -5 967

Changes in temporary differences 38 852 -41 567

Tax basis 51 868 -71 255

Loss to be brought forward -51 868 71 255

Basis for taxes payable 0 0

Taxes payable 0 0

Witholding tax payable -760 -679

Change in deferred tax assets from income statement -11 220 5 351

Tax expense/(-income) 11 980 -4 672

nOTE 2 – TAxES

Temporary differences 2008 2007

Unrealized profit hedging instrument 0 1 076

Net unrealized currency gain/(loss) 0 39 967

Fixed assets 1 729 229

Goodwill 880 1 438

Inventory -100 0

Employer’s tax related to options 0 -3 926

Pension liabilities -398 -744

Provisions -200 0

Value of call options included in bond -21 821 -28 274

Fair value of call options at balance date 10 839 18 439

Establishment fee related to borrowings 13 010 14 587

net temporary differences 3 939 42 792

Losses carry forward related to income statement 0 -59 263

Basis for deferred tax assets from the income statement 3 939 -16 471

Deferred tax assets related to income statement 1 103 -4 612

Losses carry forward related to cost directly posted in balance -14 538 -25 508

Basis for deferred tax assets -10 599 -41 979

Deferred tax assets in balance sheet 2 968 11 755

Deferred tax assets are recognized at nominal value based on expectations of future taxable profits.


2008 2007


Expected tax charge -418 -3 816

Tax charge in the income statement 11 980 -5 351

Difference -12 398 1 535

Tax effect of expensed portion of value of options at grant date -560 620

Adjustment from prior years 590 -84

Tax effect of other permanent differences -36 65

Permanent currency difference -11 632 935

Withholding tax -760 0

Explained difference -12 398 1 535

Tangible fixed assets

Machinery, fixtures: 2008 2007

Cost price January 1, 2 558 1 717

Additions 802 841

Disposals 0 0

Cost price December 31, 3 360 2 558

Accumulated depreciations December 31, -1 731 -976


Depreciations current year 755 533

Economic life/depreciation rates 3-5 years / 20-30% 3-5 years / 20-30%

intangible assets Goodwill Software Development Total


Book value January 1 7 140 3 415 0 10 555

Additions 0 1 200 2 606 3 805

Disposals -1 504 0 0 -1 504

Amortization charge -1 094 -1 668 -361 -3 123



Cost or valuation 5 635 6 083 2 606 14 324

Accumulated amortization and impairment -1 094 -3 136 -361 -4 591


Economic life/depreciation rates 5 years / 20% 3 years / 30% 5 years / 20%

nOTE 3 – TAnGiBLE AnD inTAnGiBLE FixED ASSETS

intangible assets Goodwill Software Development Total


Book value January 1 0 2 251 0 2 251

Additions 7 140 2 228 0 9 367

Disposals 0 0 0 0

Amortization charge 0 -1 064 0 -1 064

Book value December 31 7 140 3 415 0 10 555


Cost or valuation 7 140 4 883 0 12 023

Accumulated amortization and impairment 0 -1 468 0 -1 468

Book value December 31 7 140 3 415 0 10 555

Capitalization of costs related to development are mainly due to commercialisation of Sevan technology for production, storage and offloading of LNG.

Booked value of goodwill as per December 31, is related to acquisition of Kanfa AS.

nOTE 4 – inVESTMEnTS in SUBSiDiARiES AnD RECEiVABLES AnD LiABiLiTiES TO COMPAniES WiTHin THE GROUP

investments in subsidiaries

2008

Company name Office Cost no of Equity Book Profit/ Ownership-

location price shares value (loss) share

Kanfa AS Asker 14 287 2 500 19 578 14 287 4 578 100%

Sevan Production AS Arendal 178 007 100 000 55 064 178 007 -34 535 100%

Sevan Marine do Brasil Ltda Brazil 10 286 32 199 800 671 10 286 -2 296 100%

Sevan 300 Pte Ltd Singapore 205 309 205 308 263 202 752 205 309 -1 541 100%

Sevan Invest AS Arendal 252 504 100 252 364 252 504 -39 100%

Sevan Drilling AS Arendal 150 018 100 140 303 150 018 18 426 100%

Sevan Drilling ASA Arendal 494 3 000 000 -122 494 -678 100%

Sevan Holding I AS Arendal 42 549 100 42 532 42 549 -12 100%

Sevan Holding II AS Arendal 12 202 100 12 192 12 202 -8 100%

Sevan Holding III AS Arendal 18 100 11 18 -5 100%

Sevan Holding IV AS Arendal 18 100 11 18 -5 100%

Sevan Services AS Arendal 26 100 12 26 -7 100%

Total book value 865 718 865 718

Reconciliation between expected tax charge based on the nominal Norwegian statutory tax rate of 28% and actual tax charge:


(Amounts in the table above have been prepared in local GAAP and are presented in USD 1,000, except number of shares)

investments in subsidiaries

2007

Company name Office Cost no. of Equity Book Profit/ Ownership-

location price shares value (loss) share

Kanfa AS Asker 14 287 2 500 22 258 14 287 5 035 100%

Sevan Production AS Arendal 29 563 100 000 -58 845 29 563 -74 565 100%

Sevan Marine do Brasil Ltda Brazil 8 246 19 699 800 955 8 246 -2 912 100%

Sevan 300 Pte Ltd Singapore 185 990 185 989 512 184 975 185 990 -336 100%

Sevan Invest AS Arendal 227 438 100 227 336 227 438 -99 100%

Sevan Drilling AS Arendal 150 018 100 121 877 150 018 -27 677 100%

Sevan Drilling ASA Arendal 494 3 000 000 557 494 78 100%

Sevan Holding I AS Arendal 22 503 100 22 498 22 503 -2 100%

Sevan Holding II AS Arendal 12 202 100 12 200 12 202 -1 100%

Sevan Holding III AS Arendal 18 100 16 18 -1 100%

Sevan Holding IV AS Arendal 18 100 16 18 -1 100%

Total book value 650 777 650 777

Current receivables from companies within the Group 2008 2007

Receivable from Sevan Production AS 321 089 404 277

Receivable from Sevan Production General Partnership 3 435 5 161

Receivable from Kanfa AS 368 752

Receivable from Sevan Production Services Limited 85 185 54 778

Receivable from Sevan Drilling AS 2 660 1 280

Receivable from Sevan Drilling Pte Ltd 4 668 3 779

Receivable from Sevan Drilling Rig II Pte Ltd 2 748 0

Receivable from Sevan Drilling Rig Pte Ltd 20 373 0

Receivable from Sevan Pte Ltd 4 961 866

Receivable from Sevan Drilling ASA 352 8

Receivable from Sevan Invest AS 182 209

Receivable from Sevan Holding I Pte Ltd 894 8

Receivable from Sevan Holding II Pte Ltd 0 16

Receivable from Sevan Holding I AS 10 0

Receivable from Sevan 300 Pte Ltd 9 461 1 022

Receivable from Kanfa Aragon AS 186 0

Receivable from Mator 324 0

Receivable from Sevan Production UK Limited 2 188 0

Receivable from Piranema Servicios de Petroleo Ltd 63 0

Receivable from Sevan Marine do Brasil Ltda 61 0

Receivable from Sevan Services AS 2 0

Receivable from Sevan Production Pte Ltd 137 128 134 477

Total current receivables from companies within the Group 596 338 606 633

Short term liabilities to companies within the Group 2008 2007

Liabilities to Sevan 300 Pte Ltd 1 157 620

Liabilities to Sevan Drilling Pte Ltd 1 246 1 935

Liabilities to Sevan Pte Ltd 33 577

Liabilities to Sevan Holding I AS 31 0

Liabilities to Sevan Production General Partnership 147 11 818

Liabilities to Sevan Production Pte Ltd 72 0

Liabilities to Sevan Drilling AS 16 346 36 839

Liabilities to Kanfa AS 8 010 8 278

Liabilities to Sevan Holding II Pte Ltd 3 713 165

Liabilities to Sevan Production AS 2 026 0

Liabilities to Sevan Holding I Pte Ltd 144 0

Liabilities to Sevan Marine do Brasil Ltda 11 0

Liabilities to Kanfa Aragon AS 41 25

Total short term liabilities to companies within the Group 32 977 60 257

Receivables due later than one year 2008 2007

Other receivables 124 158

Total receivables due later than one year 124 158

nOTE 5 – RECEiVABLES AnD LiABiLiTiES

nOTE 6 – CASH AnD BAnK DEPOSiTS

Included in cash and bank deposits are restricted cash related to taxes withheld from employees of 1,218 (2007: 963). At balance sheet date 14,480 (2007: 6,800) of the cash was collateralized in relation to a derivative contract, 1,000 (2007: 4,386) was collateralized in relation to a guarantee made on behalf of Sevan Drilling Pte Ltd and 16,014 (2007: 0) was collateralized in relation to a guarantee made on behalf of Sevan Drilling Rig Pte Ltd.

nOTE 7 – SHARES AnD SHARE OPTiOnS OWnED OR COnTROLLED BY THE BOARD OF DiRECTORS AnD SEniOR MAnAGEMEnT

As of December 31, 2008, the following Directors and senior management owned or controlled shares in the Company:

Arne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 2,804,036 shares through his wholly owned company Aasen AS, and 147,261 shares through Elvheim AS, where he holds a controlling ownership interest.

Kåre Syvertsen, Board member and Vice President Technology owns 428,704 shares directly, and 2,821,296 shares through his wholly owned company Hallingen AS.

Vibeke Strømme, Deputy Chairman of the Board, owns 4,000 shares.

Hilde Drønen, Board member, owns 1,400 shares directly and 4,600 shares through her wholly owned company Djupedalen AS.

Stephan M. Zeppelin, Board member, owns no direct shares. Mr. Zeppelin is an employee of Wexford Capital LLC, which is the manager and investment sub-advisor to Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited, respec-tively. Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited own an aggregate of 2,383,300 shares.

Kristin Urdahl, Employee representative of the Board and Senior Engineer, owns 33,300 shares directly, and holds 16,700 options with a strike of NOK 24.00 and 300,000 options with a strike price of NOK 57.25.

Kjetil Soma, Employee representative of the Board and Controller, owns 10,166 shares directly, and holds 33,334 share options with a strike of NOK 30.90.

Jan Erik Tveteraas, CEO, owns 56,556 shares directly and 2,893,444 shares through his wholly owned company Supernova AS.

Erling Ronglan, Vice President Operations, owns 23,333 shares and holds 16,667 share options with a strike price of NOK 16.60 and 300,000 share options with a strike price of 57.25.


Fredrik Major, Vice President Business Development/R&D, owns 27,333 shares and holds 16,667 share options with a strike price of NOK 19.30 and 300,000 share options with a strike price of NOK 57.25.

Erskine Rozario, Vice President Engineering and Construction, owns 27,332 shares and holds 16,668 share options with a strike price of NOK 30.90 and 300,000 share options with a strike price of 57.25.

Hanna Moland, Vice President HR & Administration, owns 12,667 shares and holds 16,667 share options with a strike price of NOK 15,50 and 50,000 share options with a strike price of NOK 57.25.

Reidun Beate Olsen, Vice President QHSE, owns 16,666 shares and holds 33,334 options with a strike price of NOK 38.40 and 100,000 share options with a strike price of NOK 57.25.

Birte Norheim, Vice President Finance, owns 5,000 shares and holds 16,668 options with a strike price of NOK 15.00 and 50,000 share options with a strike price of NOK 57.25.

Helle Hundseid, Vice President Projects, holds 16,667 options with a strike price of NOK 35.20 and 300,000 share options with a strike price of NOK 57.25.

nOTE 8 – SHAREHOLDER inFORMATiOn

At December 31, 2008, Sevan Marine ASA had 6,740 shareholders. 63% of the share capital was owned by shareholders residing outside of Norway.

The 20 largest shareholders as at December 31, 2008, were:

nOTE 9 – EMPLOYEE BEnEFiT ExPEnSE

name number of shares Ownership-share (%)

GOLDMAN SACHS & CO - SECURITY CLIENT SEGR. 30 425 292 15.51%

BEAR STEARNS SECURIT A/C CUSTOMER SAFE KE 15 539 459 7.92%

GOLDMAN SACHS INT. - SECURITY CLIENT SEGR. 8 589 185 4.38%

MORGAN STANLEY & CO. CLIENT EQUITY ACCOUNT 6 648 609 3.39%


CLEARSTREAM BANKING CID DEPT, FRANKFURT 4 560 548 2.33%

JP MORGAN CHASE BANK S/A F+C INVEST TRUST 4 294 269 2.19%

SMEDAL ARNE 3 698 703 1.89%

PENSJONSKASSEN STATOIL JP MORGAN CHASE BANK 3 034 670 1.55%

SUPERNOVA AS, JAN ERIK TVETERAAS 2 893 444 1.48%

HALLINGEN AS, KÅRE SYVERTSEN 2 821 296 1.44%

AASEN AS, ARNE SMEDAL 2 804 036 1.43%

JP MORGAN CHASE BANK S/A ESCROW ACCOUNT 2 789 461 1.42%


MP PENSJON 2 555 263 1.30%

JP MORGAN CHASE BANK BT PENSION SCHEME 2 170 000 1.11%

CREDIT SUISSE SECURI (EUROPE) LTD./FIRMS 2 101 925 1.07%

EUROCLEAR BANK S.A./ 25% CLIENTS 1 904 359 0.97%

GOLDMAN SACHS INT. - SECURITY CLEARANCE 1 792 554 0.91%

SIX SIS AG 25PCT 1 421 431 0.72%

20 LARGES SHAREHOLDERS 107 350 553 54.73%

REMAINING 88 777 895 45.27%

TOTAL 196 128 448 100.00%

2008 2007

Salaries and vacation pay 23 283 12 792

Employer’s share of social security 3 480 2 407

Employer’s tax relating to options -2 977 3 609

Pension costs 1 742 1 204

Expensed portion of value of options at the time of award 2 561 2 116

Other salary related costs 700 3 527

Total employee benefit expense 28 789 25 655

Average number of man-years 169 96

Remuneration of senior management, as paid 2008 2007

Salaries Retirement Other Salaries Retirement Other

benefits benefits benefits benefits

Jan Erik Tveteraas, CEO 862 25 16 578 24 28

Oskar Mykland, CFO* 0 0 0 0 0 0

Birte Norheim, Vice President Finance 211 9 1 163 12 149

Erling Andreas Ronglan, Vice President Operations 399 9 41 300 12 26

Fredrik Major, Vice President Business and

Development/ R&D 325 26 19 236 26 17

Helle Hundseid, Vice President Projects 319 9 1 167 14 46

Hanna Moland, Vice President HR & Administration 185 28 2 120 27 113

Reidun Beate Olsen, Vice President QHSE 191 9 104 140 14 2

Erskine Rozario, Vice President Engineering

and Construction 244 25 233 168 24 7

Total 2 736 140 417 1 872 153 388

* First day of employment was January 1, 2009.

Salaries and other benefits are based on actual period of employment.

Remuneration of the Board of Directors, as paid 2008 2007

Hilde Drønen 40 34

Vibeke Strømme, Deputy Chairman 49 34

Stephan M. Zeppelin * 40 0

Kristin Urdahl, Employee representative */** 20 0

Kjetil Soma, Employee representative */** 20 0

Arne Smedal, Chairman ** 71 34

Kåre Syvertsen ** 40 34

Total 280 136

Remuneration to the Board of Directors is paid the year following board duties rendered.

* Stephan M. Zeppelin was elected member of the Board during 2007. Kristin Urdahl and Kjetil Soma also entered the Board during 2007 as Employee representatives. ** Salaries and other benefits paid to Kåre Syvertsen, Arne Smedal, Kristin Urdahl and Kjetil Soma as employees of Sevan Marine ASA is included only for the year(s) for which each has been a member of the Board:

2008 2007

Salaries Other Salaries Other

benefits benefits

Kristin Urdahl 208 261 148 1

Kjetil Soma 126 1 97 1

Arne Smedal, Chairman 763 36 530 34

Kåre Syvertsen 703 17 510 16


Reference is made to note 7 for further information about options and shares owned or controlled by the Board of Directors and senior management.

CEO has an agreement for post service remuneration of 18 months of salary from the date of resignation.

No loans or guarantees have been granted to the senior management or any member of the Board.

Reference is made to the Statement regarding establishment of salary and other benefits for senior management for further details of remuneration of senior management.

nOTE 10 – PEnSiOn LiABiLiTiES

The Company operates both defined benefit and defined contribution plans that together include all employees.

Defined benefit plan:The defined benefit plan gives the holder right to defined future benefits. These benefits are mainly dependent on the number of years of service, salary level at pension age, and the amount of benefits from the National Insurance Scheme. The commitment is covered through an insurance company.

Spesification of auditor’s fees 2008 2007

Audit fees 89 131

Other attestation services 2 0

Tax consultancy 9 137

Other services 196 163

Fees charged directly to equity -4 0

Total auditor’s fees through the income statement 292 431

Specification of pension costs:


Net present value of current year’s pension earned 652 571

Interest cost of the pension liabilities 109 51

Expected return on pension assets -91 -62

Fees charged 27 28

Estimate changes charged to the income statement -166 -28

Social security related to pension plans 109 83

Pension costs including social security, defined benefit plan 640 642

net pension liabilities 2008 2007

Estimated incurred liabilities 1 860 1 852

Estimated value pension assets -1 090 -1 579

Estimated net pension liabilities 770 273

Effect of changes on estimates not recorded to the income statement -482 214

Pension liabilities transferred through acquisition 0 218


net pension liabilities, including employer’s tax 398 744

No. of employees included in the defined benefit plan 30 21

Financial assumptions at January 1 2008 2007

Discount rate 4.30% 4.35%

Expected return on assets 6.30% 5.40%

Expected pension increases / G-regulation 4.25% 4.25%

Expected salary increases 4.50% 4.50%

Future pension increases 2.75% 2.75%

Future turnover 10.00% 10.00%

Employer contribution tax 14.10% 14.10%

Average life expectancy for a person retiring at 67 years of age

Male 17.7 16.1

Female 20.1 18.3

For demographic assumptions and turnover rates, commonly used assumptions in the insurance industry have been applied.

The actuarial calculation for the Company’s defined benefit plan was carried out by an independent actuary. For 2008, the calculated pension obligation was based on the mortality table K2005 (2007: K1963). Using an updated mortality table gave small negative effect which was included in the actuarial gains/losses. The disability table used for both 2008 and 2007 was K1963 adjusted for observed developments.

Defined contribution plan:The defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

Defined contribution plan 2008 2007

Pension costs 1 101 562

Pension cost for the defined contribution plan 1 101 562

No. of employees included in the defined contribution plan 138 91

Total pension cost for defined benefit plan and defined contribution plan 1 742 1 204

The movement in the liability recognized in the balance sheet is as follows 2008 2007

January 1, 744 465

Liabilities acquired in a business combination 0 218

Exchange differences -161 -22

Total expense charged to the income statement 641 642

Contributions paid -826 -559

December 31, 398 744


nOTE 12 – REnTAL AnD LEASE AGREEMEnTS

The Company has entered into several agreements for rental for offices. Current year’s rental expenditure for offices amounted to 1,301 (2007: 834). The Company has entered into obligations relating to a 10 year lease agreement for new build offices in Arendal with associated annual lease expenses of 2,400 from 2011.

The Company has also entered into rental agreements for various software, ASP solutions and cars. Related annual rental for 2008 amounted to 554 (2007: 521). All lease agreements are operating leases.

nOTE 14 – COnSTRUCTiOn COnTRACTS

nOTE 15 – SHARE BASED inCEnTiVE PLAnS

The Company has various share option plans that are treated in line with IFRS 2 for accounting purposes. The estimated market values of the options at the time of the award are expensed as payroll expense over the vesting periods. The estimated market values are an imputed cost without any cash effect, and the offsetting entry is an increase in equity.

The cost relating to the estimated value of options at the time of the award was 2,561 for the year. The comparable amount for 2007 was 2,116.

Share options awarded to employees have an exercise price equal to the market price of the shares at the time of the award. 4.3 mil-lion of the remaining options can be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.4 million of the remaining options can be exercised provided fulfillment of certain criteria and expire five years following the award. The Company has no legal or constructive obligation to repurchase or settle the options in cash.

The activities defined as construction contract are mainly related to Joint Industry Projects where the Company is able to recover certain expenses relating to further development and testing of the Sevan technology.

The dilution effect is caused by awarded options that have not been exercised at balance sheet date. Exercise price is lower than marked price at balance date. Due to net losses for 2007 and 2008, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share are calculated as earnings per share for these periods.

nOTE 13 – EARninGS PER SHARE

2008 2007

Net profit/(loss) (USD 1,000) -13 474 -8 956

Earnings per share (USD) -0.07 -0.06

Earnings per share diluted (USD) -0.07 -0.06

Average no. of outstanding shares (thousands) 187 438 160 732

Weighted avg. no. of ordinary shares for diluted earnings per share (thousands) 191 919 166 968

2008 2007

Contract revenue 11 959 0

Contract cost -13 305 0

net profit/(loss) on construction contracts -1 346 0

Recognized, not yet invoiced for ongoing projects 0 0

Invoiced in advance 0 0

Incurred cost on ongoing projects, included in current liabilities 1 779 0

2008 2007

Average exercise price no. of Average exercise price no. of

(nOK per share) options (nOK per share) options

January 1, 44.39 7 470 211 22.35 5 741 243

Granted 63.68 408 000 56.52 4 140 500

Exercised 24.83 899 767 9.99 2 157 781

Lapsed/forfeited 56.54 324 167 37.37 253 751

December 31, 47.70 6 654 277 44.39 7 470 211

nOTE 11 – OTHER OPERATinG ExPEnSE

2008 2007

Purchase of services and other fees 6 033 4 315

Rental of offices and fixed assets 1 929 1 355

Travel expense 2 687 1 828

Office expense 3 604 2 189

Other operating expense 1 265 843

Total operating expense 15 518 10 530

Year of Exercise price in Share options remaining

expiration nOK per share at end of year

2008 2007

2009 9.80 2 751 233 172

2010 16.60 16 667 16 667

2010 15.00 20 335 20 335

2010 15.50 20 335 100 004

2010 19.30 192 126 222 592

2010 24.00 690 902 849 169

2010 30.90 270 318 401 036

2011 38.40 336 935 404 334

2011 38.80 383 338 466 668

2011 37.90 308 734 357 400

2011 35.20 150 001 158 334

2011 33.50 33 334 100 000

2012 37.60 128 834 140 500

2012 53.00 63 667 90 000

2012 57.25 3 500 000 3 800 000

2012 58.75 65 000 55 000

2012 58.25 55 000 55 000

2012 37.90 8 000 0

2013 62.75 383 000 0

2013 78.00 25 000 0

Total 6 654 277 7 470 211

Movements in the number of share options remaining and their related weighted average exercise prices are as follows:

Of the 6.6 million remaining options (2007: 7.5 million), 2.4 million options were exercisable (2007: 2.8 million). Options exercised during 2008 resulted in 0.9 million shares being issued (2007: 2.2 million shares) at an average of NOK 24.83 (2007: NOK 9.99). The weighted average market price at the time of exercise was NOK 65.85 per share (2007: NOK 46.80). There was no related transaction cost for the Company.


nOTE 16 – RELATED-PARTY TRAnSACTiOnS

2008Operating income of total 53,327 includes income from Group companies amounted to 38,291.

The Company charged companies within the Group 2,200 for design fees during 2008. The Company charged companies within the Group 26,891 for hour-based services, and 9,200 for management services, engineering and site supervision fees dur-ing the year.

The Company charged companies within the Group 39,407 for interest relating to loans during 2008, and was charged 2,866 for interest relating to borrowings from companies within the Group during the year.

The Company charged companies within the Group 3,399 relat-ing to guarantees during the year, and was charged 3,182 relating to guarantees from companies within the Group.

The Company received group contribution of 3,075 during 2008.

2007Operating income of total 33,899 includes income from Group companies amounted to 33,085.

The Company charged companies within the Group 4,500 for design fees during 2007. The Company charged companies within the Group 17,085 for hour-based services, and 11,500 for management services, engineering and site supervision fees during 2007.

The Company charged companies within the Group 35,204 for interest relating to loans during 2007, and was charged 4,943 for interest relating to borrowings from companies within the Group during the year.

The Company charged companies within the Group for 1,312 relating to guarantees during the year, and was charged 1,158 relating to guarantees from companies within the Group.

nOTE 17 – FinAnCiAL RiSK

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial perform-ance. The Company uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by the Finance department under policies approved by the Board of Directors. The Finance depart-ment identifies, evaluates and hedges financial risks in close co-operation with the its operating units. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

Market riskForeign exchange riskThe Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to NOK, EURO and UK pound. Foreign exchange risk arises from future commercial transactions, recognized as-sets or liabilities, and net investments in foreign operations.

Foreign exchange risk arises when future commercial transac-tions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. To manage foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Company uses forward contracts and similar instruments.

External foreign exchange contracts are designated at Group level to perform hedges of foreign exchange exposures on a gross basis. The Group’s risk management policy is to hedge anticipated transactions in each major currency.

The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

Price riskThe Company is exposed to commodity price risk at two main levels:• The demand for Sevan units is sensitive to oil price develop-ments, fluctuations in production levels, exploration results and general activity within the oil industry.• The construction price of future Sevan units is exposed to potential changes in market price of the inputs.

The Company’s policy is to maintain liquidity through placement of excess cash as bank-deposits and/or short-term, marketable investments at limited risk.

Cash flow and fair value interest rate riskThe Company’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. The Company’s policy is to maintain part of its borrowings in fixed rate borrowing facilities. During 2007 and 2008 the Company’s borrowings were denominated in USD and NOK.

The Company simulates various scenarios taking into consid-eration, refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

Credit riskCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial insti-tutions, as well as credit exposures to customers. The Company has no significant concentrations of credit risk towards financial institutions and has policies that limit the amount of credit expo-sure to any single financial institution.

Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability

to close out market positions. The Company aims to maintain flexibility in funding by keeping committed credit lines available.

As of December 31, 2008, the estimated minimum total capital requirement is USD 125-150 million, including a Group working capital requirement of USD 75-100 million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. Over the last year, the Company has evaluated several pos-sibilities of securing necessary funding, and is aiming at financing as much as possible of the capital requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD 12-36 million directed towards Luxor may be subscribed subject to approval by the extraordinary general meeting on May 4, 2009. In addition, the Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD 1.3-1.4 billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group’s assets in a strained situation are lower than book values.

nOTE 18 – COnTinGEnCiES

The Company has entered into the following security arrangements:Security arrangements related to loans:FPSO Sevan Piranema: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 270 million bond loan agreement described in note 20.

FPSO Sevan Hummingbird: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 140 million bond loan agreement described in note 20.

FPSO Sevan Voyageur: The Company has issued a bond loan, secured by 2nd priority securities pursuant to the terms of the NOK 870 million bond loan agreement described in note 20, and provided certain securities on 1st priority in accordance with terms of a USD 150/300 million bank financing facility to Sevan 300 Pte Ltd.

Sevan Driller: The Company has provided certain securities on 1st priority in accordance with terms of a the USD 250/400 million bank financ-ing facility to Sevan Drilling Ptd Ltd and provided a guarantee on 2nd priority in accordance with terms of a NOK 1,000 million bond loan agreement to Sevan Drilling AS.

Security arrangements related to construction contracts:Sevan Driller:The Company has issued a guarantee related to construction contracts regarding Sevan Driller.

Security arrangements related to equipment supplies and related services:FPSO Sevan Piranema, FPSO Sevan Hummingbird, FPSO Sevan Voyageur, FPSO Sevan 300 no. 4, Sevan Driller, Sevan Driller ii and Sevan Driller iii:The Company has issued guarantees for the subsidiaries’ correct fulfillment of their contractual commitments as purchasers towards vendors.

Kanfa AS:The Company has issued a performance guarantee for Kanfa AS’ delivery of a process plant and compression packages to client.

Security arrangements related to operations:FPSO Sevan Piranema:The Company has granted a performance guarantee towards the technical manager. FPSO Sevan Hummingbird:The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager.

FPSO Sevan Voyageur:The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager.

FPSO Sevan 300 no. 4:The Company has guaranteed for correct fulfillment of the contract with the end-charterer.

Sevan Driller iii:The Company has guaranteed for correct fulfillment of the con-tract with the end-charterer.

nOTE 19 – EVEnTS AFTER BALAnCE SHEET DATE

• In February 2009, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the par-ties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement.

• In February 2009, Sevan received an offer from an industry player for one of the Sevan units. The offer, which is subject to documentation and final agreement, represents a purchase price reflecting the book value of the unit.

• A directed convertible bond issue of USD 12 million was completed in April. The convertible bond was directed towards Luxor Capital Group, LP and has a term of four years and a fixed coupon of 15 per cent per annum. Interest payments may, at the Company’s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD 1.0454 at the day of exercise of the conversion right. The proceeds from the issue will be used for general corporate purposes.


Any effect of interest-rate swaps is included in the calculation of the effective interest rates at balance sheet date.

In December 2006, the Company carried out a bond issue of USD 140 million, at a fixed interest rate of 9.25%. The bond has a term of 5 years, with one call option in December 2009 at 103%, and one call option in December 2010 at 102%. The fair value of these options was estimated at USD 2.3 million (2007: USD 4,5 million) at balance sheet date.

In May 2007, the Company carried out a bond issue of USD 270 million, at an interest rate of Libor+3%. The bond has a term of 6 years, with two embedded call options at 103.5% and 102.5% which can be exercised in May 2010 and in May 2011 respectively. The fair value of these options was estimated at USD 2.1 million (2007: USD 8,5 million) at balance sheet date.

In October 2007, the Company carried out a bond issue of NOK 870 million (USD 157 million equivalent), at an interest rate of Nibor+5.5%. The bond has a term of 5 years, with three embedded call options at 105%, 104% and 103.25% which can be exercised 6-12 months following completion of FPSO Sevan Voyageur, in October 2010 and in October 2011 respectively. The fair value of these options was estimated at USD 6.4 million (2007: USD 5,4 million) at balance sheet date.

Customary covenants and information requirements are tied to the loans. Securities and guarantees related to the bond loans are described in note 18.

nOTE 20 – BORROWinGS

2008 2007

norminal Amortized Fair nominal Amortized Fair

value value value value value Value

Bond loan 140 MUSD 140 902 136 851 75 182 140 902 139 584 143 551

Bond loan 270 MUSD 283 907 276 279 137 114 283 907 278 509 277 159

Bond loan 870 MNOK 128 706 125 800 87 102 163 213 166 213 171 840

Value of embedded call options -24 424 -10 839 -10 839 -25 806 -18 439 -18 439

non current borrowings 529 091 528 091 288 559 562 216 565 867 574 111

First year payable 5 000 4 850 2 700 5 000 4 917 5 150

Total borrowings 534 091 532 941 291 259 567 216 570 784 579 261

The debt is nominated in the following currencies (nominal values):

NOK 124 091 157 216

USD 410 000 410 000

534 091 567 216

The maturity of non-current borrowings is (as follows):

2008 2007

nominal Amortized nominal Amortized

1-2 years 46 000 45 579 7 500 59 126

2-5 years 483 091 482 512 554 716 506 741

More than 5 years 0 0 0 0

Total non current borrowings 529 091 528 091 562 216 565 867

The effective interest rates at balance sheet date are (as follows):

2008 2007

nOK USD nOK USD

Bond (USD 140 millions) 9.68% 8.77%



2008 2007

Current Assets Liabilities Assets Liabilities

Forward foreign exchange contracts 0 0 1 076 0

Total current portion 0 0 1 076 0

non-current

Floating-to-fixed interest rate swaps 0 13 420 0 8 182

Total non-current position 0 13 420 0 8 182

net position of derivative financial instruments 0 13 420 0 7 106

nOTE 21 – DERiVATiVE FinAnCiAL inSTRUMEnTS

Forward foreign exchange contractsThere were no outstanding forward foreign exchange contracts at balance sheet date. The notional principal amount of the outstanding forward foreign exchange contracts at December 31, 2007, was USD 59 million.

Floating-to-fixed interest rate swapsThe notional principal amount of the outstanding interest swap agreements at December 31, 2008, was USD 270 million (2007: USD 270 million).

All positions in foreign currency are valued at market rates at balance date.

Financial income: 2008 2007

Interest income from companies within the Group 39 407 35 204

Other financial income from companies within the Group 3 399 1 312

Other interest income 1 818 3 930

Received group contribution 3 075 0

Currency gain 56 921 20 057

Amortization of embedded call options and transaction cost related to borrowings 2 087 1 985

Total financial income 106 707 62 488

Financial expense: 2008 2007

Interest cost from companies within the Group 2 866 4 943

Other interest expense 53 783 29 678

Other financial expense from companies within the Group 3 182 1 158

Loss on financial investments 1 961 0

Loss of interest swap 5 238 8 182

Loss on value of call options embedded in bonds 5 975 7 307

Currency loss 22 419 9 643

Other finance cost 21 128

Total financial expense 95 445 61 039

inventory: 2008 2007

Materials to be used during operations 103 207

Inventory consists of spare parts. The cost of usage of inventory is classified “operating cost” in the income statement.

nOTE 22 – FinAnCiAL inCOME AnD FinAnCiAL ExPEnSE

nOTE 23 – inVEnTORY


Auditor’S report




We confirm, to the best of our knowledge, that the financial statements for the period January 1 to December 31, 2008, have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit and loss of Sevan Marine ASA as well as the consolidated group.

We also confirm that the Board of Directors’ Report includes a true and fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncer tainties facing the Company and the Group.

reSponSiBilitY StAteMent

PricewaterhouseCoopers ASForus Atrium Postboks 8017 NO-4068 Stavanger Telephone +47 02316 Telefax +47 23 16 10 00

Alta Arendal Bergen Bodø Drammen Egersund Florø Fredrikstad Førde Gardermoen Gol Hamar Hammerfest Hardanger Harstad Haugesund Kongsberg Kongsvinger Kristiansand Lyngseidet Mandal Mo i Rana Molde Mosjøen Måløy Namsos Oslo Sandefjord Sogndal Stavanger Stryn Tromsø Trondheim Tønsberg Ulsteinvik Ålesund PricewaterhouseCoopers navnet refererer til individuelle medlemsfirmaer tilknyttet den verdensomspennende PricewaterhouseCoopers organisasjonen Medlemmer av Den norske Revisorforening • Foretaksregisteret: NO 987 009 713 • www.pwc.no

To the Annual Shareholders' Meeting of Sevan Marine ASA

Auditor’s report for 2008

We have audited the annual financial statements of Sevan Marine ASA as of December 31, 2008, showing a loss of USD 13 474 000 for the parent company and a loss of USD 107 923 000 for the group. We have also audited the information in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss. The annual financial statements comprise the financial statements of the parent company and the group. The financial statements of the parent company comprise the balance sheet, the statements of income and cash flows and the accompanying notes. The financial statements of the group comprise the balance sheet, the statements of income and cash flows, the statement of changes in equity and the accompanying notes. The regulations of the Norwegian accounting act and accounting standards, principles and practices generally accepted in Norway have been applied in the preparation of the financial statements of the parent company. International Financial Reporting Standards as adopted by the EU have been applied in the preparation of the financial statements of the group. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with laws, regulations and auditing standards and practices generally accepted in Norway, including standards on auditing adopted by The Norwegian Institute of Public Accountants. These auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and auditing standards an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, • the financial statements of the parent company have been prepared in accordance with the law and regulations and

give a true and fair view of the financial position of the company as of December 31,2008 and the results of its operations and its cash flows for the year then ended, in accordance with accounting standards, principles and practices generally accepted in Norway

• the financial statements of the group have been prepared in accordance with the law and regulations and give a true and fair view of the financial position of the group as of December 31, 2008, and the results of its operations and its cash flows and the changes in equity for the year then ended, in accordance with International Financial Reporting Standards as adopted by the EU

• the company's management has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information in accordance with the law and good bookkeeping practice in Norway

• the information in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss are consistent with the financial statements and comply with the law and regulations.

Without qualifying our opinion, we draw attention to the fact that material uncertainties exists which may cast significant doubt about the Company’s ability to continue as a going concern. If a sale of the company’s assets is forced, a significant risk exists that assets are sold at prices lower than book value. The above-mentioned uncertainties are further described in the board of director’s annual report and in the financial statements.

Stavanger, April 30, 2009 PricewaterhouseCoopers AS

Torbjørn Larsen State Authorised Public Accountant (Norway)

Note: This translation from Norwegian has been prepared for information purposes only.


Sevan Marine – Rio de Janeiro Palácio Austregésilo de Athayde building Avenida presidente Wilson 231/1003, CEP 20030-021 Rio de Janeiro – RJ, Brasil.Phone: +55 21 3861 7979Fax: +55 21 3861 7999

Sevan Marine - Piranema OperationsAv. Pedro Paes de Azevedo,34, Salgado Filho - Aracaju - Sergipe (SE)49020-450 - BrazilPhone: +55 79 3226 6150

Sevan Marine - ArendalKittelsbuktveien 54836 ArendalNorway Phone: +47 37 40 40 00Fax: +47 37 40 40 99 Sevan Marine - Tananger Hammaren 234056 TanangerNorwayPhone: +47 51 94 49 60Fax: +47 51 94 49 61

nORWAY

BRAZiL SinGAPORE SiTE OFFiCES

Sevan Marine - Singapore 72 Anson RoadAnson House #13-03 Singapore 079911Phone: +65 62 20 13 14Fax: +65 62 20 13 15

UniTED KinGDOM

Sevan Marine - UKWood Group Engineering (North Sea) Ltd,New Telecom House,73-75 College Street,Aberdeen AB116FDScotland, UK

Sevan Marine - Trondheim Postboks 1218 Pirsenteret7462 TrondheimNorway Phone: +47 73 10 84 00Fax: +47 73 10 84 99

Sevan Marine – Oslo / Kanfa ASNye Vakås vei 801395 HvalstadNorwayPhone: +47 64 00 18 00Fax: +47 64 00 18 01

CHinA

Hantong ChinaHantong Shipyard and Heavy Industries Co.LtdBuyu Harbor Sluicegate, Wujie Town,Tongzhou City Jiangsu Province 631004Peoples Republic of China Cosco nantongNo.1 Zhongunan RoadNantong 226006Peoples Republic of China

Mator AS Herøya Næringspark3936 PorsgrunnNorwayPhone: +47 35 57 49 00Fax: +47 35 57 49 10 Kanfa Aragon Fantoftvegen 425072 BergenNorwayPhone: +47 906 23 065


www.sevanmarine.com

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