Maracc Annual Report-11

Annual Report2011

2 MARACC ANNUAL REPORT 2011

ContentsKey Figures 03

The Board of Directors annual report 05

Board of Directors 09

Annual Accounts 10

Income statement 11

Balance Sheet 12

Statement of changes in equity 14

Cash Flow Statement 15

Notes 16

Auditor’s Report 37

Shareholder Information 39

Corporate Governance Report 40

3

Profit and loss account 2011 2010 2009 2008 2007 2006

Operating income 0,1 0,0 0,0 0,0 0,0 0,0

Operating expenses 1,5 0,5 107,5 6,2 0,6 0,4

Operating profit -1,4 -0,5 -107,5 -6,2 -0,6 -0,4

Net financial items 0,0 195,9 0,0 0,0 0,0 0,0

Pre-tax profit -1,4 195,4 -107,5 -6,2 -0,6 -0,4

Balance sheet

Fixed assets 391,5 246,0 222,2 205,0 139,4 0,0

Current assets 4,0 18,7 42,2 97,0 129,9 0,1

Total assets 395,5 264,6 264,5 302,0 269,3 0,1

Equity capital 248,6 250,0 -25,4 82,5 77,9 0,1

Non current liabilities 0,0 0,0 210,7 206,7 186,0 0,0

Current liabilities 146,9 14,6 79,1 12,8 5,4 0,0

Liquidity

Liquid assets 2,6 17,0 40,5 96,0 128,5 0,1

Working capital (1) -142,9 4,1 -36,9 84,2 124,5 0,1

Capital

Total assets 395,5 264,6 264,5 302,0 269,3 0,1

Equity capital 248,6 250,0 -25,4 82,5 77,9 0,1

Equity ratio (2) 62,9 % 94,5 % -9,6 % 27,3 % 28,9 % 100,0 %

Definitions: (1) Current asstes - current liabilities (2) Equity capital as % of total assets

Figures in USD million

Key Figures

KEY FIGURES 3

5

1. The nature of businessThe purpose of Maracc – Marine Accurate Well ASA (hereinafter “Maracc” or “the Company”) is to build and operate rigs and appliances for support of operations in the offshore oil industry. The Company was founded in 2006. In February 2007 the Company ordered its first semi sub-mersible rig “Island Innovator” based on the GM 4000 design, under construc-tion at the Cosco Shipyard, China.

The Company’s registered office is in Stavanger.

2. Going ConcernA pre- and post delivery financing solution for the remaining 50 % of the total construction cost was secured in 2011. The financing, in a total amount of MUSD 280, was fully committed in March 2011, and the Company started drawing on the pre-delivery portion of the financing primo June, 2011. The financing is independent of whether or not the rig is secured long term employment.

The rig is 96% complete (end May 2012) and the commissioning process is well under way. Sea trial is planned to commence early August and expected delivery from the yard is end September, 2012.

An operational charter contract for the rig was signed with Lundin Norway AS

in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. Commence-ment window is April 1st – September 20th, 2013 with expected commence-ment date early April, 2013.

The current financing agreement requires a delivery date within 30th June 2012. The bank syndicate can demand repay-ment of the loan if the requirement is not met. In addition, the Company needs to secure additional funding to complete the ongoing commissioning process, the transport of the rig to its final destina-tion and the remaining start-up costs. The Company has had meetings with the bank syndicate discussing a potential increase in the loan amount and a waiver of the condition related to the June 30th, 2012 delivery date. On June 20th , 2012 an amended structure for the existing financing, accepting amongst others a postponed delivery of the rig, was approved by the bank syndicate. The Company is still working to secure the required additional financing for commissioning, transport and start up costs. Discussions are being held with both existing banks, and other financial institutions / providers of capital. It is anticipated that this will be possible to arrange given the term employment secured.

The conditions described above imply that there to a certain extent still is uncertainty about the going concern assumption. However, the Board of Directors’ opinion is that with the amended financing having been approved this uncertainty is manageable. The financial statements have therefore been prepared in accordance with the going concern assumption. If the Company does not succeed in securing additional financing to cover commissioning, transport and start up costs, the Company will not be able to continue its operations. In a situation with a forced sale of the rig under construction, the net realizable value of the rig could be lower than the book value.

3. Working environment and personnelThe Company had no employees as of 31st December 2011. The Company’s needs for competence and accompanying recourses have been secured through a long-term full-service management agreement with Island Offshore Manage-ment AS (IOM). According to the agreement IOM shall assist the Company within administration, construction supervision and later operation services.

In addition to the agreement with IOM, further agreements were entered into in H2/2011 with Odfjell Drilling AS (ODAS), an experienced offshore drilling company, to further strengthen the competence

The Board of Directors annual report 2011

DIRECTORS REPORT 5


and quality of the personnel needed in the commissioning and start up phase. ODAS will also assist, and supply personnel in the final construction supervision period – and will take over the full responsibility for the rig in the operation mode. ODAS is now also actively assisting IOM / Maracc in the marketing of the rig.

No Lost-Time Incidents, resulting in greater material damages or personal injuries, has been reported during the year. Maracc has contributed through several programs to encourage a safety awareness culture with our suppliers.

The working environment is considered good, and continuous efforts for improve-ment are carried out.

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

The Board consists of 5 members, three men and two women.

The Company satisfies the requirement of representation of both sexes according to the Norwegian asal § 6-11a (the Norwegian Public Limited Companies Act).

5. Environmental reporting The Company’s business as of 31st December 2011 is not regulated by licenses or public orders. The business does not pollute the external environment over and above what is customary for this kind of operation.

6. Future development Maracc was established in 2006 with an aim to bring forward a semi-submers-ible rig solution for heavy well interven-tion activities for subsea wells and drilling. The rig is tailor made for Norwegian operations but able to work globally.

Maracc has one semi-submersible drilling and intervention rig under construction at the Cosco Shipyard Group Ltd. in China. The rig, named Island Innovator, is based on the GM 4000 design.

The rig is the first purpose built drilling and well intervention rig, and is currently prepared for the full range of services such as Conventional Drilling, Coil Tubing and Through Tubing Rotary Drilling (TTRD) down to 750 meters water depth. Drilling in 1 200 m water depth may be achieved with minor modifications, while 3 000 m water depth can be achieved in inter-vention mode.

7. GM4000 – Project status The rig is laying key side at the Qidong yard for final Outfitting, Mechanical Completion and Commissioning. Efforts are now focused on completing the topside commissioning and prepare for sea trials this summer. The sea trials are scheduled for August and delivery for September 2012. Following the delivery from the Cosco yard in China the rig will be moved to Bintan, Indonesia to have the burner booms installed and the BOP lifted onboard prior to continuing the sailing to Norway. Transportation will be by own thrusters and it is anticipated that the voyage will take 80 days from Bintan. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction – and as from Q1/2012 strengthened with personnel from ODAS. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored.

The project is now, based on the pre- and post delivery financing described above, fully funded through to comple-tion from the yard as far as the yard and

Island Innovatorin dock at Qidong yard.

7

the Owner Furnished Equipment (OFE) suppliers are concerned.

However, there is still a need to get additional funding in place to finance the commissioning, mobilization/transport- and start up costs related to the first charter. As described under 2. Going Concern increased and amended loan facilities have been confirmed by the bank syndicate and the Company is in the process of documenting this additional funding.

8. Market UpdateThe oil service market has recovered from a period suffering from low oil prices and rig rates. Several new contracts in the mid water segment has been entered into over the last year. With the recent award to Maracc by Lundin Norway AS, the rig is expected to commence operations during 2nd quarter 2013. The Contract is for a minimum of 12 wells, however Lundin has options for another 3 x 4 wells and thus this may develop into a long term contract.

9. Achievement, cash flow, investments, financing and liquidity The Board of directors is of the opinion that the annual accounts give a true and

fair view of Maracc’s assets and liabilities, financial position and result. Besides the contract with Lundin, there have not been any significant incidents after the 31.12.11 that has not been considered in the annual accounts, or that is of importance to assess the Company’s result or financial position.

The Company had no turnover in 2011. The result before taxes showed a deficit of TUSD 1 436. The deficit equals the operating profit, i.e. it is mainly the operating expenses for the year (TUSD 1 501).

The Company has no expenditures related to Research and Development.

Total cash flow from operational activities in the Company was minus TUSD 1 436, in accordance with the operating loss. Total investments relating to plant and equipment in 2011 were TUSD 139 963.

The Company’s cash position was TUSD 2 635 as of 31.12.11. TUSD 145 000 of the total TUSD 280 000 pre- and post-delivery financing had been drawn down as at 31.12.2011, i.e. a further TUSD 135 000 was still available.

The Company’s short-term debt was TUSD 146 896 as of 31.12.11, including

the TUSD 145 000 drawn down under the pre-delivery tranche of the TUSD 280 000 loan facility. The total capital at year end was TUSD 395 464. The equity capital was TUSD 248 569 as of 31.12.11.

10. Financial risk

10.1 Market riskThe Company is generally exposed to market risk; however a long-term operating contract for the vessel under construction has now been entered into. Thus the market risk is significantly reduced – and not present until the end of the fixed charter agreement and any optional work periods ended.

10.2 Currency riskThe Company is to some extent exposed to changes in the foreign exchange markets. The charter contract entered into is in USD, all long term debt will be drawn down in USD and a significant part of the Company’s expenses is in USD. Some suppliers of Owner Furnished Equipment are however payable in NOK – as are some of the operational expenses when the rig commences its work.

Island Innovatorquayside Qidong yard.

DIRECTORS REPORT 7


10.3 Interest riskThe Company is exposed to changes in the interest rate level, since the pre- and post delivery loans have floating interest. However, the Company has an option to secure the interest rates long term.

10.4 Credit riskThe risk related to opposite parties not having the means to fulfill their obligations is seen as low, as the Company does not have unsettled claims. To reduce risks in relation to large suppliers’ delivery obligations the company has obtained performance guarantees from the relevant suppliers’ banks. The company has received a repayment guarantee from Bank of China in connection with the Construction Contract with Cosco

shipyard. Set off agreements or similar financial instruments in order to minimize the credit risk have not been entered into by the Company.

10.5 Liquidity riskAs at year end 2011, the Company had obtained financing of approximately 100 % of the total project costs (construction-, supervision- and financing costs during the construction phase).

The cash position is continuing to be a challenge, even though further amounts were available under the pre- and post delivery portion of the loans as at year end. As mentioned above, there is still a need to secure additional funding to carry through the commissioning; the mobilization of the rig to its final destina-

tion and the necessary working capital in relation to the start-up phase until the operations produces a positive cash flow. However, it is anticipated that this will be possible to arrange given the term employment secured.

11. Annual results and disposalsThe Board suggests the following disposal of the annual result in the Company amounting minus TUSD 1 436:

From share Premium: TUSD - 1 436

The Company had no distributable reserve at the end of 2011.

Oslo, 22nd June 2012

Øivind Lund Morten Ulstein Dionne Chouest Austin Paal Espen Johnsen Berit Rynning Asle SolheimChairman of the Board Board Member Board Member Board Member Board Member Chief Executive Office

9BOARD OF DIRECTORS 9

Board of Directors

1. Øivind LundChairman of the Board Has held various senior positions with ABB over the last 10 years including CEO of ABB in Norway and president & country manager in Turkey. Member of the board of directors of Yara (chairman). Holds an MSc and a PhD in electrical engineering and a degree in industrial economy.

2. Morten UlsteinBoard MemberOver 25 years experience in the offshore and marine sectors – both as investor and in various CEO positions (Rolls Royce Marine, Vickers Ulstein Marine Systems, Ulstein Industrier). Founder and chairman of Island Offshore – the most successful and fastest growing well intervention company to date. Responsible for manag ing the Ulstein family’s invest-ment companies.

1 2 3 4 5 6

3. Dionne Chouest AustinBoard MemberOwner and officer of several of the Edison Chouest Offshore group companies. Has held the position of general counsel of the Edison Chouest Offshore group since 1993. Holds a BSc in accounting from Nicholls State University and a law degree from Tulane Law School.

4. Paal Espen JohnsenBoard MemberMSc. from Norwegian School of Econom- ics and Business Administration (NHH). CEO of investment companies Alden AS and Trekka AS, and Chairman of Hades Capital AS. Previously Partner, Senior Investment Banking Executive and Senior Financial Analyst in Carnegie ASA, and Analyst in Handelsbanken Capital Markets. Johnsen is currently boardmember in Mamut ASA.

5. Berit RynningBoard MemberShe has more than 35 years of experience from the oil and gas sector. She has held several senior positions within Statoil-Hydro, including regional director for Kazakhstan, Mexico and Venezuela and country manager in Mexico, government relations manager in Venezuela and project manager in Algeria.

6. Asle SolheimChief Executive OfficerHas 20 years of relevant experience including Managing Director of ABB Offshore Systems in the UK. Has since 2005 been involved in developing subsea riserless well intervention solutions with with FMC and Island Offshore. Educated mechanical engineer from the University of Wisconsin at Madison, USA.


Annual accounts2011

11

Note 2011 2010

Revenues

Other income 65 -

Salaries 6 -218 -147

Impariment of fixed assets - -

Other operating expenses 7 -1 283 -306

Operating profit -1 436 -453

Financial income and expenses

Finance income 7,10 - 196 558

Finance expense 7,13 - -706

Net financial items - 195 853

Profit before tax -1 436 195 400

Income tax expense 8 - -

Profit for the year -1 436 195 400

Other comprehensive income

Other comprehensive income for the year - -

Total comprehensive income for the year -1 436 195 400

Earnings per share (USD)

Earnings per share 15 0,00 0,34

Diluted earnings pr share 15 0,00 0,32

Transfers

Transfer from share premium 11 -1 436 -42 615

Transfer from other paid in equity 11 - -27 868

Transfer to/from uncovered loss 11 - 265 883

Total transfers -1 436 195 400

Income statementIn USD thousands

ANNUAL ACCOUNTS 11


Fixed assets Note 2011 2010

Intangible assets

Deferred tax asset 8 - -

Total intangible assets - -

Property, plant and equipment

Rig under construction 9 391 478 245 984

Total tangible assets 391 478 245 984

Total fixed assets 391 478 245 984

Current assets

Receivables

Other short term receivables 7 1 351 1 609

Total receivables 1 351 1 609

Cash and cash equivalents 11 2 635 16 974

Total current assets 3 986 18 583

Total assets 395 464 264 567

Balance sheet Assets In USD thousands

13

Equity Note 2011 2010

Paid in equity

Share capital 12 18 227 18 227

Share premium 230 341 231 777

Other paid in equity/Equity from conversion right - -

Total paid in equity 248 569 250 005

Retained earnings

Retained earnings - -

Total retained earnings - -

Total equity 248 569 248 569

Liabilities

Other long term liabilities

Bond loans 10 - -

Total long term liabilities - -

Current liabilities

Borrowings 10 141 008 -

Accounts payable 5 876 12 281

Other short term liabilities 11 2 281

Total current liabilities 146 896 14 562

Total liabilities 146 896 14 562

Total equity and liabilities 395 464 264 567

Balance sheet Equity and Liabilities In USD thousands

ANNUAL ACCOUNTS 13

Oslo, 22 June 2012

Øivind Lund Paal Espen Johnsen Berit Rydning Dionne Chouest Austin Morten Ulstein Asle SolheimChairman of the Board Board Member Board Member Board Member Board Member Chief Executive Officer


Statement of changes in equityIn USD thousands

NoteShare

capitalShare

premiumOther paid

in equityRetained earnings

Total equity

Balance at 1 January 2010 2 891 - 27 868 -56 162 -25 403

Profit for the year - -42 615 -28 574 266 589 195 400

Other comprehensive income for the year - - - - -

Total comprehensive income for the year - -42 615 -28 574 266 589 195 400

Reduction of share capital to cover previous losses 12 -2 602 - - 2 602 -

Conversion of bonds 10,12 10 510 249 816 - -213 029 47 298

Proceeds from shares issued (cash contribution) 7 428 25 998 - - 33 425

Cost related to conversion of bonds and cash contribution -1 421 -1 421

Excercised subscribtion rights 13 - - 706 - 706

Total contributions by and distributions to shareholders 15 336 274 393 706 -210 427 80 008

Balance 31 December 2010 18 227 231 777 - - 250 005

Balance 1 January 2011 18 227 231 777 - - 250 005

Profit for the year -1 436 - - -1 436

Other comprehensive income for the year - - - - -

Total comprehensive income for the year - -1 436 - - -1 436

Contributions by and distri-butions to shareholders - - - - -

Total contributions by and distributions to shareholders - - - - -

Balance 31 December 2011 18 227 230 341 - - 248 569

15

Cash flow from operating activities Note 2011 2010

Profit before tax -1 436 195 400

Impairment of fixed assets 9 - -

Gain related to conversion of bonds 10 - -196 558

Change in fair value for derivative financial instruments 13 - 706

Net cash flow from operating activities -1 436 -453

Cash flows from investing activities

Additions related to rig under contruction 6 -139 963 -9 174

Changes in accounts payable and other accruals related to rig under construction -8 417 -45 953

Net cash flows from investing activities -148 380 -55 127

Cash flow from financing activities

Proceeds from issuance of shares 139 199 -

Interest and guarantees paid - net 11 -3 722 -

Proceeds from issuance of shares 11 - 33 425

Cost related to issuance of shares and convesion of bonds - -1 421

Net cash flow from financing activities 135 477 32 004

Net change in cash and cash equivalents -14 338 -23 575

Cash and cash equivalents at beginning of year 16 973 40 549

Cash and cash equivalents at end of year 9 2 635 16 973

Of which restricted cash - 14 969

Cash flow statementIn USD thousands

ANNUAL ACCOUNTS 15


Notes2011

17NOTES 17

Maracc – Marine Accurate Well ASA (“the Company) is a public limited company incorporated and domiciled in Norway and OTC listed in Oslo. The address of its registered office is Lagerveien 23, 4033 Stavanger, Norway.

These separate financial statements were approved by the Board of Directors 3 May 2012.

The purpose of the Company, is to build and operate rigs and appliances for support of operations in theoffshore oil industry. The Company has currently one rig under construction at the Cosco Shipyard in China.

The principal accounting policies applied in the prepara-tion of these separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of PreparationThe separate financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The separate financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in note 4.

2.1.1 Changes in accounting policy and disclosures(a) New and amended standards adopted

by the Company There are no IFRSs or IFRIC interpretations that

are effective for the first time for the financial year beginning on or after 1 January 2011 that would be expected to have a material impact on the Company.

(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011 and not early adopted IAS 19, ‘Employee benefits’ was amended in June 2011. The changes will not have any impact on the company since the Company has no employees.

1

2

General information

Summary of significant accounting policies

IFRS 9, ‘Financial instruments’, addresses the classifi-cation, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other compre-hensive income rather than the income statement, unless this creates an accounting mismatch. The Company is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2013.

IFRS 10, ‘Consolidated financial statements’. The new standard will not have any impact on the Company, since the Company does not present consolidated financial statements.

IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrange-ments, associates, special purpose vehicles and other off balance sheet vehicles. The new standard will not have any impact on the Company, since the Company does not have any interest in other entities.

IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source

All amounts in USD thousands unless otherwise stated


of fair value measurement and disclosure require-ments for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Company is yet to assess IFRS13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company.

2.2 Foreign currency translation(a) Functional and presentation currency Items included in the financial statements

are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). USD is both the func-tional currency and the presentation currency for the Company.

(b) Transactions and balances Foreign currency transactions are translated

into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other compre-

hensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses are presented in the income statement within ‘finance income or cost’.

2.3 Rig under constructionThe Company has one rig under construction. The rig is stated at historical cost. Historical cost includes expenditure that is directly attributable to the acquisition. Cost is recognised as part of the rig when the Company receives an invoice from the different vendors. The agreed invoicing plans are considered to be reasonable approximation to the project progress.

Subsequent costs will be included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future

economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

As the rig is under construction there are no deprecia-tions in either 2010 or 2011. Useful life for the rig will be estimated at delivery

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

2.4 Impairment of non-financial assetsAssets that are subject to amortisation and assets under construction are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.5 Financial assets

2.5.1 ClassificationThe Company classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired.

Management determines the classification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss

are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

(b) Loans and receivables

19NOTES 19

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receiv-ables comprise ‘account receivables and other receivables’ and ‘cash and cash equivalents’ in the balance sheet

2.5.2 Recognition and measurementRegular purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset. Invest-ments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘other (losses)/gains – net’ in the period in which they arise.

2.6 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.7 Derivative financial instruments and hedging activitiesThe Company does not use hedge accounting.

2.8 Cash and cash equivalentsIn the statement of cash flows and balance sheet, cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.2.9 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.10 Accounts payableAccounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.11 BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subse-quently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre- payment for liquidity services and amortised over the period of the facility to which it relates.

2.12 Borrowing costsGeneral and specific borrowing costs directly attribut-able to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary invest-ment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

2.13 Current and deferred income tax


The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other compre-hensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appro-priate on the basis of amounts expected to be paid to the tax authorities

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transac-tion affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only

to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.14 ProvisionsProvisions for environmental restoration, restructuring costs and legal claims are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

2.15 Dividend distributionDividend distribution to the company’s shareholders is recognised as a liability in the group’s financialstatements in the period in which the dividends are approved by the company’s shareholders.

2.16 Cash flow statementThe statement of cash flows is reported using the indirect method.

21NOTES 21

Financial risk management 3 3.1 Financial risk factorsThe Company’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. The Company’s risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.

(a) Market risk(i) Foreign exchange riskThe Company operates internationally and is exposed to foreign exchange risk arising from various currencyexposures, primarily with respect to USD/NOK. Foreign exchange risk arises from accounts payables, cash and cash equivalents and future commercial transactions.

Management seeks to minimize the effects of foreign exchange risk by balancing cash deposits held in different currencies and to some extent by using derivative financial instruments.

A change in the USD/NOK currency rate would not have any significant impact on the Company’s financial statements.

(ii) Cash flow interest rate riskBorrowings issued at variable rates expose the group to cash flow interest rate risk which is partially offset by cash held at variable rates

All the Company’s borrowings are issued at variable rates. Since all interest income and expense are capital-ized as borrowing cost, a change in interest rate would not have any effect on the Company’s profit or equity.

(b) Credit riskThe Company’s credit risk exposure is limited to bank deposits. All bank deposits are held with DnB Bank ASA.

The bank has credit rating A.

(c) Liquidity riskManagement makes cash flow forecasts to ensure that the Company has sufficient cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants. Such forecasting takes into consideration the Company’s debt financing plans and covenant compliance.

The table below analyses the group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undis-counted cash flows

Less than 3 months

Between 3 months

and 1 year

At 31 December 2011 1 545 147 654

Borrowings, 1)

Accounts payable and other payables 5 888 -

At 31 December 2010

Accounts payable and other payables 14 562 -

1) Since the company did not control whether the rig will be

ready for delivery within 30 June 2012, the principal amount

of the loans has been included as a contractual cash flow

between 3 months and 1 year. See note 10 for the expected

repayment profile for the loan.

3.2 Capital managementThe group’s objectives when managing capital are to safeguard the group’s ability to continue as a goingconcern in order to provide returns for shareholders and benefits for other stakeholders and to maintain anoptimal capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Management monitors capital on the basis of the equity ratio, since the debt covenants requires an equity ratio of minimum 30%. The equity ratios at 31 December 2011 and 2010 were as follows

2011 2010

Total assets 395 464 264 567

Total equity 248 569 250 005

Equity ratio 63 % 94 %

3.3 Fair value estimationThe Company did not have any financial instruments or liabilities carried at fair value at 31 December 2011 and 2010.


Critical accounting estimates and judgements

Segment information

Segment information is not considered relevant, since all the activities of the Company are within the same segment.

4

5

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circum-stances.

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjust-ment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Estimated impairment of rig under constructionAn impairment at 110 MUSD for the rig under construction was made in 2009. The impairment has been evaluated on each balance sheet date after the impairment. The impairment was not changed in 2010 because both a value in use calculation and estimated fair value less cost to sell was considered consistent with the impairment made in 2009.

The Company has reevaluated the impairment charge at year end 2011, by estimating the recoverable amount. The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. There have been several bids/pursuit processes in which Island Innovator

has been presented and actively tendered to several oil companies for drilling operations in the North Sea and outside. The Company has estimated fair value less cost to sell, to be approximately equal to the carrying value. The basis for the estimate is observed transac-tion prices in the rig market, obtained relevant pricing models for rigs and management assumtions. Value in use has not been calculated, since it has not been possible to give reliable estimates for the future cash flows. The impairment charge from 2009 has not been changed.

The estimated value is uncertain, since none of the observed transactions involve rigs with the samespecifications as the Island Innovator. A sales transac-tion involving the Island Innovator could result in a sales price less cost to sell that differs from the estimated fair value less cost to sell with a significant amount.

(b) Deferred tax assetThe deferred tax asset has not been recognised in the balance sheet since the probability of future taxableprofit in Norway is considered to be too low.

23NOTES 23

Employee benefits expense, number of employees, loans to employees and auditor’s fee

The Company has not had any employees during 2010 and 2011.

2011 2010

Remuneration to the Board of Directors 149 132

Employers Tax on BoD remunertation 21 15

Other personnell cost 47 0

Total salaries cost 218 147

Management and Boad of Directors remunerationIn connection with hiring a CEO from another company, the Company has paid fees and travelling expenses amounted to USD 407 thousands in 2011 (2010: USD 378 thousands)

In 2010 the payments was capitalized as part of the cost of the rig under constructions, as it was considered that the CEO used most of his time related to the construction project. In 2011 the payments has been expensed as other operating expenses, since the CEO in 2010 has mainly worked with marketing, financing and other general administrative assingments.

Renumaration to the board of directors 2011 2010

Chairman of the Board - Øyvind Lund 37 33

Boad member - Berit Rydning 28 25

Boad member - Morten Ulstein 28 25

Boad member - Paal Espen Johnsen 28 -

Boad member - Dionne Rochelle Chouest 28 25

Board member - Øyvind Jordanger 0 25

Total 149 132 No loans/securities have been granted to the CEO, chairman of the board or other related parties.

The CEO and Boad of Directors have no post employment agreements.

Auditor fee 2011 2010

- Statutory Audit 63 43

- Other assurance services 0 3

- Tax advisory fee 19 12

- Other advisory services 15 26

Total auditor fee 97 84 VAT is not included in the fee specified above.

The company’s chosen auditor is PricewaterhouseCoopers AS.

6


Tax

Components of the Income Tax Expense 2011 2010

Tax payable - -

Changes in deferred tax - -

Changes in deferred tax to equity - -

Total income tax expense - -

Deferred tax / (deferred tax asset)

Fixed assets

Borrow-ings

Tax losses carried forwad

Deferred tax asset

not recog-nised

Deffered tax /

(deffered tax asset)

1 January 2010 -2 685 - -27 529 30 214 -

Change in deferred tax during the period 746 - -396 -350 - 31 December 2010 -1 939 - -27 925 29 864 -

Change in deferred tax during the period 4 399 1 430 -5 510 -318 - 31 December 2011 2 461 1 430 -33 436 29 545 -

8

Specifications

Finance income 2011 2010

Gain on renegotiation and convertion of bonds - 196 558

Total - 196 558

Finance expense 2011 2010

Loss on issued subsription rights (see note 13) - 706

Total - 706

Other operating expenses 2011 2010

Auditor fee 97 84

Consultant’s fee 784 125

Legal costs 197 32

Other 206 65

Total 1 283 306

Other short-term receivables 2011 2010

Prepaid expenses 1 072 1 071

Other short term recivables - 30

Outstanding VAT 279 508

Total 1 351 1 609

7

25NOTES 25

Explanation why profit before tax differs from the amount that would arise using the 28% tax rate:

2011 2010

Profit/loss before income tax -1 436 195 400

28 % of profit before income tax -402 54 712

Permanent differences 720 -54 362

Not recognised change in deferred tax asset -318 -350

Total income tax expense 0 0

Effective tax rate in % 0,0 % 0,0 %

* ) Permanent differences consist of non deductible costs, currency translation effects since the tax return

is prepared in NOK, and net gain related to conversion of bonds and subscription rights (2010).

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

Tangible assets

2010Heavy well

intervention unitTotal

Tangible assetsAcquisition cost at 01.01.10 332 245 332 245

Additions 9 174 9 174

Disposals - -

Additions capitalized financial costs 14 565 14 565

Acquisition cost 31.12.10 355 984 355 984

Accumulated depreciation 31.12.10 - -

Accumulated impairment loss 31.12.10 -110 000 -110 000

Reversed impairment loss 31.12.10 - -

Net carrying value at 31.12.10 245 984 245 984

Depreciation of the year - -

Impairment loss of the year - -

Accumulated capitalized finance cost 74 534

9


2011Heavy well

intervention unitTotal

Tangible assetsAcquisition cost at 01.01.11 355 984 355 984

Additions 139 963 139 963

Disposals - -

Additions capitalized financial costs 5 531 5 531

Acquisition cost 31.12.11 501 478 501 478

Accumulated depreciation 31.12.11 - -

Accumulated impairment loss 31.12.11 -110 000 -110 000

Reversed impairment loss 31.12.11 - -

Net carrying value at 31.12.11 391 478 391 478

Depreciation of the year - -

Impairment loss of the year - -

Accumulated capitalized finance cost 80 066 80 066

All expenses which are related to construction of the rig are capitalized. This includes management fee from Island Offshore Management AS. The management fee is mainly consisting of construction supervision. According to IAS 16.19 administration expenses and general service expenses are not capitalized.

All interest on borrowings and bonds has been capitalized. Interest income on bank deposits has according to IAS 23.15 reduced capitalized finance cost. As the rig is under construction there are no depreciations in either 2011 or 2010. Useful life for the rig is not yet estimated. The company will estimate useful life and residual values of the rig at delivery.

In 2009 there was made an impairment of the rig under construction at 110 MUSD based on estimated fair value less cost to sell. The impairment was not changed in 2010 because both a value in use calculation and estimated fair value less cost to sell was considered consistent with the impairment made in 2009.

The Company has reevaluated the impairment charge at year end 2011, by estimating the recoverable amount. The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. There have been several bids/pursuit processes in which Island Innovator has been presented and actively tendered to several oil companies for drilling operations in the North Sea and outside. The Company has estimated fair value less cost to sell, to be approxi-mately equal to the carrying value. The basis for the estimate is observed transaction prices in the rig market, obtained relevant pricing models for rigs and management assumtions. Value in use has not been calculated, since it has not been possible to give reliable estimates for the future cash flows. The impairment charge from 2009 has not been changed

The estimated value is uncertain, since none of the observed transactions involve rigs with the same specifi-cations as the Island Innovator. A sales transaction involving the Island Innovator could result in a sales price less cost to sell that differs from the estimated fair value less cost to sell with a significant amount.

27NOTES 27

GM4000 – Project status The project at Cosco Shipyard Group is currently (early May 2012) 96% complete with the original scope. The additional scope of topside installation is currently 80% complete. The rig is laying key side at the Qidong yard for final Outfitting, Mechanical Completion and Commissioning. Efforts are now focused on completing the topside commissioning and prepare for sea trials this summer. The sea trials are scheduled for August and delivery for September 2012. Following the delivery from the Cosco yard in China the rig will be moved to Bintan, Indonesia to have the burner booms installed and the BOP lifted onboard prior to continuing the sailing to Norway. Transportation will be by own thrusters and it is anticipated that the voyage will take 80 days from Bintan. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction – and as from Q1/2012 strengthened with personnel from ODAS. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored. The project is now, based on the pre- and post delivery financing described above, fully funded through to completion from the yard as far as the yard and the Owner Furnished Equipment (OFE) suppliers are concerned. However, there is still a need to get additional funding in place to finance the commissioning, mobilization/transport- and start up costs related to the first charter.

The table below shows the estimated remaining cost to complete the rig, and available liquidity and drawing rights.

USD

Estimated cost at completion including finance cost 633 120

Acquisition cost 31.12.2011 501 478

Remaining acquisition cost including finance cost 131 642

Account payable related to the rig 31.12.2011 5 876

Remaining payments to complete the rig 137 518

Bank deposits 31.12.2011 2 635

Unused drawing rights 31.12.2011 135 000

Available liquidity 137 635

Required financing for commissioning, mobilization/transport and start op costs are not included in the calculation.


Bond loans and borrowings

The company had three bond loans in USD with a nominal value of respectively 80 MUSD (maturity 9 July 2012), 120 MUSD (maturity 27 February 2012) and 30 MUSD (maturity 8 October 2013). There was a conversion right connected to the loans with a nominal value of 80 MUSD and of 30 MUSD. The fair value of this conversion right was recognized as equity in the balance sheet when the loans were granted. The bond loan with a nominal value of 120 MUSD was secured by a pledge in the rig under construction (building contract and assignment of refund guarantee).

The bond loans were renegotiated during 2010. As a consequence of the renegotiation, both the convertible bonds and the secured bond were converted into shares in June 2010. Unpaid accrued interests were also converted. Prior to the conversion, the bonds owned by the company (loan 1 – nominal value of own bonds 1 MUSD) were canceled.

Conversion of bond loans in 2010 Loan 1 Loan 2 Loan 3 TotalNominal value of loan 119 000 80 000 30 000 229 000

Book value of bond loan at time of conversion 119 000 72 402 21 127 212 530

Accrued interest at time of conversion 11 545 14 398 5 383 31 326

Total recognised debt to be converted 130 545 86 801 26 510 243 855

Fair value of issued shares 36 431 7 903 2 962 47 297

Gain 94 114 78 897 23 548 196 558

Borrowings 2011 2010

Non-currentBank borrowings - -

CurrentBank borrowings 141 008 -

The carrying value of the bank borrowings are specified below

2011 2010

Nominal value of bank borrowings 145 000 -

Payments included in calculation of amortised cost (5 537) -

Accrued interests 1 545 -

Total 141 008 -

The exposure of the Company’s borrowings to interest rate changes at the end of the reporting period are as follows:

2011 2010

6 monhts og less 141 008 -

10

29NOTES 29

The carrying amounts of the Company’s borrowings are denominated in the following currencies:

2011 2010

USD 141 008 -

The Company has the following undrawn borrowing facilities:

2011 2010

Floating rate - Expiring within one year 135 000 -

The fair value of the bank borrowings are considered to be approximately equal to the nominal value of the loans plus accrued interests

The Company entered into a new loan agreement 13.05.2011. The loan agreement consists of two loans (A and B), totaling 280 MUSD, which can be drawn upon until the completion of the rig. As of 31.12.2011, 145 MUSD of the loan facility were used.

Loan A constitutes 180 MUSD of the 280 MUSD loan facility. As of 31.12.2011 the company had used 93,2 MUSD of the facility. The interest terms for the loan is LIBOR 3 months + 0,57%. The loan is secured by a first priority pledge in the rig under construction. In addition, GIEK has given a guarantee for the loan. The Company pays a 2% p.a. guarantee commission for the drawn amount, and a 0,75% p.a. guarantee commission for the undrawn amount. The guarantee is included in the loan agreement. Since the company pays the guarantee commission to the loan agent, the guarantee has been included in the calculation of effective interest. Effective interest for the loan is approximately LIBOR 6 months+ 3,0% including the guarantee.

Loan B constitutes 100 MUSD of the 280 MUSD loan facility. As of 31.12.2011 the company had used 51,8 MUSD of the facility. The interest terms for the loan is LIBOR 6 months + 4,0%. The loan is secured by a second priority pledge in the rig under construction. In addition, some of the Company’s shareholders have given a guarantee for the loan. The Company pays a 2% p.a. guarantee commission for the guarantee given. Details about the guarantees are given in note 14. The guarantee commissions are paid directly to the shareholders. Effective interest for the loan is approximately LIBOR 6 months + 4,7% excluding the guarantee.

A summary of the covenants for the loans is given below:- The rig can’t be delivered to the Company later than 30.06.2012.- Market value of the rig is required to be minimum 150% of the loans.- Free liquidity to cover next twelve months installments (post delivery).- Working capital > 0, where 50% of next twelve months installments are included in the calculation of working capital (post delivery).- EBITDA/total loan payments next twelve months > 1,25 (post delivery).- Equity ratio > 30%.- Book equity for Alpha Marine Services LLC (shareholder guarantor) > 120 MUSD, and free liquidity > 10 MUSD.- Change of control clauses.- No dividend payments without the concent of the lenders

As of 31.12.2011 the rig was not ready for delivery. Since the final delivery date of the rig was not controlled by the Company by this date, the loans have been classified as current liabilities. The Company was in compliance with the other covenants. Given that the rig will be delivered within 30.06.2012, or the lenders accepts a later delivery date, the repayment


profile will be as described in the table below. The effective interest rates disclosed above have been calculated based on this repayment profile

2012 2013 2014 2015 2016Subse-

quent Total

Loan A 10 588 21 176 21 176 21 176 21 176 84 706 180 000

Loan B 5 882 11 765 11 765 11 765 11 765 47 059 100 000

Total instalments 16 471 32 941 32 941 32 941 32 941 131 765 280 000

2011 2010

Debts secured by pledges 141 008 0

Pledged assets:Rig under construction 391 478 0

Sum 391 478 0

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

Cash and cash equivalents

2011 2010

Bank deposits 2 635 16 974

The company does not have credit facilities. Of the total bank deposits, the following is restricted:

2011 2010

to the benefit of Cosco - 9 750

to the benefit of Global Maritime - 1 843

to the benefit of Nymo AS - 3 377

to the benefit of Vetco Grey AS - -

to the benefit of Cameron - -

Total - 14 969

The company has no employees, consquently there is no restricted bank deposists regarding payroll tax.

11

31NOTES 31

Share capital and shareholder information

The share capital of the company is registered in Norwegian Kroner (NOK). The share capital in the financial statement is calculated in USD. There is only one class of shares, and all shares have the same rights.

The share capital consists of: SharesNominal

valueRegistered

in NOKBook value

in USDShares 01.01.2010 17 640 000 1 17 640 000 2 891 027

Reduction of nomial value to cover losses -0,9 -15 876 000 -2 601 924

Conversion of bonds 677 922 620 0,1 67 792 262 10 510 468

Issue of new shares, cash contribution 479 097 896 0,1 47 909 790 7 427 874

Shares 31.12.2010 1 174 660 516 0,1 117 466 052 18 227 445Changes in 2011 - - - -

Shares/share capital 31.12.2011 1 174 660 516 - 117 466 052 18 227 445

The largest shareholdings as at 31.12.10. Shares Ownership Voting rightsIsland offshore v as 361 668 135 30,8 % 30,8 %

Euroclear bank s.A./N.V. (‘Ba’) (nom) 197 991 811 16,9 % 16,9 %

Trond mohn 114 247 646 9,7 % 9,7 %

Rig invest l.L.C 113 790 680 9,7 % 9,7 %

Skagen vekst 67 652 076 5,8 % 5,8 %Island offsxhore xii as 61 987 351 5,3 % 5,3 %Alden as 53 305 655 4,5 % 4,5 %

Citigroup global markets ltc. (nom) 35 390 381 3,0 % 3,0 %

Glaamene industrier as 28 611 888 2,4 % 2,4 %

Ivar Erik Tollefsen 19 746 275 1,7 % 1,7 %

Island offshore invest as 14 711 627 1,3 % 1,3 %

Naustneset as 13 598 509 1,2 % 1,2 %

Bank of new york mellon sa/nv (nom) 12 111 153 1,0 % 1,0 %

Bakkevig, bjørn 9 495 253 0,8 % 0,8 %

Mp pensjon pk 8 153 720 0,7 % 0,7 %

Arne loen as 6 441 324 0,5 % 0,5 %

State street bank and trust co 4 424 250 0,4 % 0,4 %

Skagen vekst iii 3 468 985 0,3 % 0,3 %

Pelments as 3 285 754 0,3 % 0,3 %

Erik Martin Vik 2 902 045 0,2 % 0,2 %

Total 20 largest shareholders 1 132 984 518 96,5 % 96,5 %

Other shareholders 41 675 998 3,5 % 3,5 %

Total 1 174 660 516 100,0 % 100,0 %

In addition to the 113 790 860 shares owned directly, Rig Invest LLC owns an additional 164 868 032 shares through nominee accounts in Euroclear Bank.

Rig Invest LLC also have a non-controlling interest in Island Offshore V AS, which in return owns 30,80% of the shares in Maracc. Rig Invest owns 44,45 % of the shares in Island Offshore V AS

12


Morten Ulstein owns shares indirectly through his indirect ownership in Island Offshore V AS, Island Offshore Management AS, Island Offshore Invest AS, Island Offshore XII Ship AS, Naustneset AS and Sneingen AS.

Dionne Chouest owns shares directly through her owner-ship in Rig invest LLC, and indirectly through her ownership in Island Offshore V AS and Island Offshore Management AS.

Asle Solheim owns 363 205 shares indirectly through his ownership in Timetall Holding AS.

Rig Invest LLC is a subsidiary of Alpha Marine Services LLC, which has an indirect non-controlling interest in Island Offshore XII AS, which in turn owns 5,3% of the shares in Maracc.

Shares owned by Members of the board and CEOMorten Ulstein See below

Dionne Chouest See below

Asle Solheim See below

Other financial instruments

The company did not have any derivative financial instruments at the balance sheet date 31.12.2011 and 31.12.2010.

In connection with the refinancing in 2010, the company issued 35 541 000 freestanding subscription rights to its shareholders and bondholders. The subscription rights had 3 years duration. Since the company has USD as functional currency, and the shares are denominated in NOK, the subscription rights are considered as derivative financial instruments. The fair value of the subscription rights, USD 705 610, was recognized at fair value when they were issued, and presented as finance expense in the statement of comprehensive income. The subscription rights have been exercised during 2010. The fair value of the subscription rights at the exercise date was estimated to be equal to the fair value when the subscription rights was issued.

13

33NOTES 33

Related parties

The Company has hired managment services and construction supervision from the company Island Offshore Managment AS, a related party of the company Island Offshore V AS, who owns 30,8 % of the shares in Maracc.

The Company pays a fixed mothly rate for management and construction supervision. In addition the Company pays for travel expenses and other out of pocket expenses.

The following transactions were carried out with related parties:

Purchase of services: 2011 2010

Management and supervision of construction from Island Offshore Management AS

8 012 6 814

Sum 8 012 6 814

2011 2010

Guarantees given by shareholders (see note 10)

Guarantee amount

Guarantee commission

paidGuarantee

amount

Guarantee commission

paid

Alpha Marine Services LLC 55 500 1 110 - -

Borgstein AS 18 500 370 - -

Meteva AS 18 500 370 - -

Alden AS 7 500 150 - -

Sum 100 000 2 000 - -

The guanrantee commission paid relates to the period 01.06.2011-31.05.2012. The payment has been recog-nised as part of the cost of the rig under construction.

Year end balances arising from transactions with related parties:

2011 2010

Other short-term receivables from related parties 0 30

Account payable to Island Offshore Management AS 859 810

14


Earnings per share

Earnings pr share is calculated by dividing the result attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Diluted earnings pr share is calculated by taking into account the number of shares connected to convertible bonds as if conversion has occurred. There are no expenses solely connected to the convertible bonds in the financial statement.

The expenditures connected to the convertible bonds are capitalized as part of fixed assets.

2011 2010

Result for the year attributable to shareholders -1 436 -107 932 074

Weighted average number of ordinary shares 1 174 660 516 577 265 250

Weighted average number of shares for calculation of dilluted earnings

1 174 660 516 604 694 708

Earnings pr. share (USD) 0,00 0,34

Diluted earnings pr. share (USD) 0,00 0,34

15

Financial assets and liabilities

2011 2010

Financial assets Category Book value Fair value Book value Fair value

Receivables* 1) 0 0 30 30Bank deposits 1) 2 635 0 16 974 16 974

Sum 2 635 0 17 003 631 17 003 631

2011 2010

Financial liabilities Category Book value Fair value Book value Fair value

Accounts payables and other payables** 3) 5 786 5 786 12 279 12 279

Borrowings, incl accrued interest 3) 141 008 146 545 0 0

Sum 146 794 152 331 12 279 12 279

1): Loans and receivables

2): Fair value through profit and loss

3): Other financial liabilities, amortised cost

The fair value estimates are not based on observable market data (level 3)

* Prepayments and V.A.T receivable are excluded from receivables as this analysis

is only required for financial instruments.

** Statutory liabilities are excluded from accounts payables and other payables as this analysis

is only required for financial instruments.

16

35NOTES 35

Subsequent events

An operational charter contract for the rig was signed with Lundin Norway AS in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. The rig is expected to commence operations during 2nd quarter 2013

In June 2012 the Company obtained a waiver from the banks providing the 280 MUSD loan, were the banks accepts delivery after 30 June 2012.

First time adoption of IFRS

These are the Company’s first financial statements prepared in accordance with IFRS

The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 31 December 2011, the comparative information presented in these financial statements for the year ended 31 December 2010 and in the preparation of an opening IFRS balance sheet at 1 January 2010 (the Company’s date of transition).

In preparing its opening IFRS balance sheet, the Company has evaluated the amounts reported previously in financial statements prepared with the Norwegian simplyfied IFRS. The transition has not had any effects for the statement of comprehensive income, balance sheet or statement of cash flow. The statement of financial position for the transition date is presented below.”

Reconciliation of shareholders equity as of 1 January 2010

Assets Simplyfied IFRS Trasition IFRS

Non current assetsRig under construction 222 245 - 222 245

Current assetsOther short term receivables 1 674 - 1 674

Cash and cash equivalents 40 549 - 40 549

Total assets 264 467 - 264 467

Equity and liabilities

EquityShare capital 2 891 - 2 891

Other paid in equity/Equity from conversion right 27 868 - 27 868

Retained earings/uncovered loss (56 162) - (56 162)

Total equity (25 403) - (25 403)

17

18


Liabilitites

Non-current liabilitiesBond loans 210 721 - 210 721

Current liabilitiesAccounts payable 60 697 - 60 697

Other short term liabilities 18 453 - 18 453

Total liabilities 289 870 - 289 870

Total equity and liabilities 264 467 - 264 467

Going Concern

”A pre- and post delivery financing solution for the remaining 50 % of the total construction cost was secured in 2011. The financing, in a total amount of MUSD 280, was fully committed in March 2011, and the Company started drawing on the pre-delivery portion of the financing primo June, 2011. The financing is independent of whether or not the rig is secured long term employment.

The rig is 96% complete (end May 2012) and the commissioning process is well under way. Sea trial is planned to commence early August and expected delivery from the yard is end September, 2012.

An operational charter contract for the rig was signed with Lundin Norway AS in May 2012 - securing work for the rig for a 12 well drilling campaign (estimated to 2 year (plus) fixed period) plus options for an additional 3 x 4 wells on the Norwegian continental shelf. Commencement window is April 1st – September 20th, 2013 with expected commencement date early April, 2013.

The current financing agreement requires a delivery date within 30th June 2012. The bank syndicate can demand repayment of the loan if the requirement is not met. In addition, the Company needs to secure additional funding to complete the ongoing commissioning process, the transport of the rig to its final destination and the remaining start-up costs. The Company has had meetings with the bank syndicate discussing a potential increase in the loan amount and a waiver of the condition related to the June 30th, 2012 delivery date. On June 20th , 2012 an amended structure for the existing financing, accepting amongst others a postponed delivery of the rig, was approved by the bank syndicate The Company is still working to secure the required additional financing for commissioning, transport and start up costs. Discussions are being held with both existing banks, and other financial institutions / providers of capital. It is anticipated that this will be possible to arrange given the term employment secured.

The conditions described above imply that there to a certain extent still is uncertainty about the going concern assumption. However, the Board of Directors’ opinion is that with the amended financing having been approved this uncertainty is manageable. The financial statements have therefore been prepared in accordance with the going concern assumption. If the Company does not succeed in securing additional financing to cover commis-sioning, transport and start up costs, the Company will not be able to continue its operations. In a situation with a forced sale of the rig under construction, the net realizable value of the rig could be lower than the book value. ”.

19

37NOTES 37

1 174 660 516Number of outstanding shares 31.12.2011

0.50Share price low(NOK)

0.9Share price high(NOK)

117 466Share capital 31.12.2011 (NOK 1 000)

763 529Market capitalisation (NOK 1 000)

0.65Market price 31.12.2011 (NOK)

Definition: Market capitalisation = Total shares* share price at 31.12.2011


39

1,0

0,9

0,8

0,7

0,6

0,5

0,4

0,3

0,2

0,1

0,0

jan 2011

feb 2011

mar 2011

april 2011

may 2011

jun 2011

jul 2011

aug 2011

sep 2011

oct 2011

nov 2011

dec 2011

Share price development

14 000 000

12 000 000

10 000 000

8 000 000

6 000 000

4 000 000

3 000 000

0Q1

2011Q2

2011Q3

2011Q4

2011

Traded volume per quarter 2011

Shareholder InformationMaracc ASA was founded in 2006 and listed on the OTC list on the Oslo Stock Exchange in February 2007.The shares of Maracc are all of one class with identical voting rights. All shares are equal.

As Maracc is within the establishment phase, dividends will not be considered in the short term. The Company’s dividend policy will be re-evaluated once the company is generating positive cash flow and is able to maintain compliance with its financial covenants.

The 20 largest shareholders of Maracc held 97,0 % of the outstanding shares by year end 2011, and approximately 31,9 % of the shares was owned by investors located outside Norway. The largest shareholder is Island Offshore V AS, which holds at date 361.668.135 shares ( 30,8 %).

At December 31, 2011 the share price was NOK 0,65 which correspond to a increase of 30,0 % from 1st January 2011.

Information about the Company is published at the Company’s website www.maracc.no, and under the Company’s ticker-code MARA on www.newsweb.no.

SHAREHOLDERS INFORMATION 39


Marine Accurate Well ASA (‹Maracc› or ‹the Company›) is a Norwegian company organized according to the Norwegian Public Limited Companies Act. The Company has no employees and has therefore entered into a Management Agreement with Island Offshore Management AS to be responsible for a major part of the business and administration services. The company’s corporate governance policy is approved by the Board of Directors.

The Board of Directors bases its corporate governance practices on the principles set forth in the Norwegian Code of Practice for Corporate Gover-nance based on the latest revision dated December 2007. According to the Code of Practice, departures from the recommendations are commented on.

1. Reporting on Corporate GovernanceThe Board has adopted instructions for the Board itself and the Chief Executive Officer (CEO). The Company’s objective is to create value for its owners by knowing customers’ needs, being professional in the construction phase and later carry out profitable operations and business development. Key elements of the Company’s strategy are to develop the Company’s position within the intervention sector, and to develop a leading intervention contractor business.

Deviation from the Code of Practice: The Board has not drawn up a special policy for corporate governance.

2. OperationsMaracc is currently developing a special purpose and first of its kind semi-submersible rig for drilling and heavy well intervention operations and increased oil recovery.

The Company’s business is defined in § 3 of the Articles of Association of the Company, which reads: ‘The Compa-ny’s objective is to construct, market, sell and operate vessels for supporting subsea operations and accommodation connected to the oil industry, including to participate in other companies, acquisition and sale of property and what is connected with this.’

3. Equity and dividendsThe Company’s equity is appropriate for its goals, strategy and risk profile. The equity as per 31.12.2011 was USD 248.6 million, which corresponds to 62.9%.

As Maracc is within the establishment phase, dividends will not be considered in the short term. The Company’s dividend policy will be reevaluated once the Company is generating positive cash flow and is able to maintain compliance with its financial covenants. The Company has issued 15.7 million warrants to subscribe up to 15.7 million shares in the Company.

4. Equal treatment of shareholders and transactions with close associatesMaracc’s shares are all of one class with identical voting rights. All shares are equal.

A Management Agreement and a Con struction Supervision Agreement is entered into between Maracc (the Company) and Island Offshore Management AS (the Manager). The Manager owns 0.05% of the Company’s shares – under which the Company has requested the Manager to provide it with certain management services, including construction super-vision, technical operation of the rig, commercial management services/marketing related to the rig, corporate governance services, investor relations, budgets reports, accounting, auditing, company records, stock exchange, government relations, taxes, finance and treasury functions. The manage-ment fee is based on market terms.

The CEO and CFO of the Company are employees of Island Offshore Shipping AS and Borgstein AS respectively and their services are seconded to Marine Accurate Well ASA pursuant to the Management Agreement described above. Morten Ulstein is a board member of Maracc and the chairman and substantial owner of Island Offshore Management AS and Island Offshore V AS. Dionne Chouest is a member of the Board of Maracc and is related to indirect ownership interests in Island Offshore Manage-ment AS and Island Offshore V AS.

5. Freely negotiable sharesThe shares of Maracc ASA are freely negotiable.

Corporate Governance Report

41CORPORATE GOVERNANCE REPORT 41

6. General meetingsThe Annual General Meeting is the forum where the Company’s share-holders participate in the Company’s major decisions. According to the Norwegian law the general meeting must also appoint the auditor and approve the auditor’s fee. All share-holders of Maracc ASA are guaranteed participation in the annual general meeting.

The annual meeting will normally be held in May each year, but at the latest 30th June. Notification of the general meeting is sent out at least two weeks in advance.

7. Nomination committeeDeviation from the Code of Practice: Maracc ASA has not established a nomination committee.

8. Corporate assembly and board of directors: composition and independenceCorporate assembly is not applicable nor binding to the Company since there are no employees.

The Board comprises 3-7 directors in accordance with the Articles of Association, and currently it consists of five members, three men and two women. All directors are appointed by the shareholders at the annual general meeting, and are elected for two years terms. The chairmen of the Board was appointed by the shareholders meeting. The Board does not include representa-tives of the Company’s executive management.

The Board’s task is regulated by Norwegian law and includes the overall administration and management of the Company. Members of the Company’s management are not members of the Board, although the Company’s management does attend Board meetings.

9. The work of the Board of DirectorsThe Board meetings are held six to eight times per year on a regular basis, and additional meetings are called as required. The Board of Directors does prepare a meeting plan within January each year, of the ordinary Board meetings for such year. Board meeting agendas are set by the Chairman of the Board in consultation with the CEO.

The Board of Directors reviews the Company’s objectives, strategy and implementation on a regular basis, and at least annually. Once a year the Board of Directors evaluate its own working methods, meeting plans and similar. The Board has adopted instruction for their own work and for the work of the CEO.

10. Risk management and internal controlThe Board, in conjunction with the management, evaluates the risks inherent in the business operations of Maracc. Currently these risks are limited to the construction and financing of one intervention rig. The risks are managed through control systems which carefully handle the supervision of the construction process

and the safety reporting systems at yard.

Construction supervision and business management services are taken care of by Island Offshore Management AS through a Management Agreement (full service provider). Maracc may terminate the agreement in the event of change of control occurring in Island Offshore Management or Island Offshore, or in case Island Offshore reduces its ownership in Maracc to below 10% of the share capital.

The Board receives updated cash flow statements in every ordinary Board meeting, and has close follow-up discussions with the management between the meetings as needed. The Board can raise questions with regard to financial reporting in the annual meeting with the auditor.

The Board is also presented financial statement on quarterly bases which are carefully reviewed with manage-ment and the external auditors.

11. Remuneration of the Board of DirectorsNone of the Board members have other assignments in Maracc ASA except for the position of being a Board member. The general meeting approves the remunerations paid to the members of the Board of Directors annually.


12. Remuneration of the executive managementThe remuneration of the Chief Executive Officer forms part of the remuneration under the Management Agreement with Island Offshore Management AS.

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

13. Information and communicationsMaracc ASA does openly provide shareholders and the market with relevant information about its business and corporate governance practices, to assist investors in making informed decisions about their interest in the Company.

The Company’s objectives are to ensure equal treatment of all shareholders and to provide balanced, complete and correct information regularly to

all shareholders and bondholders, financial analysts, media and other interested parties. Information about the Company is published to the Company’s website www.maracc.no.

14. Take-oversThe Company’s share is publicly traded on the OTC list. Island Offshore Manage-ment may terminate the management agreement in the event of change of control occurring in Maracc. Given the current shareholders structure the likelihood of a takeover bid being made for the Company is regarded as small. The Board has therefore not drawn up any main principles for how it would act in the event of a takeover bid being made.

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

15. AuditorPriceWaterhouseCoopers AS is responsible for the financial auditing of the Company. The auditor is present during the board meeting that deals with the annual accounts. The Board can meet auditors without the manage-ment being present if this so desired

Design: F A S E T T Photo Board of Directors: Bjørn Eivind Årthun

Marine Accurate Well ASA Lagerveien 234033 Forus, NorwayTel +47 51 81 71 00Fax +47 51 81 71 01www.maracc.no

Maracc Annual Report-11

Documents

Transcript of Maracc Annual Report-11