Maracc Annual Report 2010

Annual Report2010

2 MARACC ANNUAL REPORT 2010

Contents2010

Key Figures 03

Directors’ Report 2009 04

The Board of Directors annual report 07

Board of Directors 11

Annual Accounts 12

Income statement 13

Balance Sheet 14

Cash Flow Statement 16

Notes 18

Auditor’s Report 33

Shareholder Information 34

Corporate Governance Report 36

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Profit and loss account 2010 2009 2008 2007

Operating income - - - -

Operating expenses 0,5 107.5 6.2 0.6

Operating profut -0,5 -107.5 -6.2 -0.6

Net financial items 195,9 - - -

Pre tax profit 195,4 -107.5 -6.2 -0.6

Balance sheet

Fixed assets 246,0 222.2 205.0 139.4

Current assets 18,7 42.2 97.0 129.9

Total assets 264,6 264.5 302.0 269.3

Equity 250,0 -25.4 82.5 77.9

Non current liabilities 0,0 210.7 206.7 186.0

Current liabilities 14,6 79.1 12.8 5.4

Liquidity

Liquid assets 17,0 40.5 96.0 128.5

Working capital (1) 4,1 -36.9 84.2 124.5

Capital

Total assets 264,6 264.5 302.0 269.3

Equity 250,0 -25.4 82.5 77.9

Equity ratio (2) 94,5 % -9.6 % 27.3 % 28.9 %

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

Figures in USD million

KEY FIGURES

Key Figures


Over the recent years there has been a decline in oil reserves on the Norwegian Continental Shelf (NCS) and a decline in discoveries. This has lead to high focus from both the Norwegian Government, governmental bodies and the E&P companies to recover more oil particu-larly from mature fields. In order to succeed, the oil companies have a set of tools. These are all important to increase oil recovery, and includes methods such as; drilling more wells, improved seismic data, water and chemi-cal injection – and more well maintenance. Maracc is in the business of providing assets for drilling more wells and performing heavy well maintenance.

To improve wells Maracc has identified a missing service solution between light intervention vessels and conventional rigs and jack-ups. The solution is a semi submersible rig, the “Island Innovator” for drilling and heavy well intervention operations, including Coil Tubing opera-tions, Through Tubing Rotary Drilling (TTRD). With our submersible rig we can offer a wider range of services, and be more mobile and flexible than conventional drilling rigs.

The concept of “Island Innovator” is based on the fact that subsea wells generally recover less oil than ordinary dry platform wells. The main reasons being less maintenance on subsea wells due to high cost and low availability of vessels for such purpose.

“Island Innovator” will have great impact on oil recovery for operators with subsea wells. The new rig has the highest safety

standards, and satisfies the high demands for operating particularly on the NSC. Further, the rig is especially build and equipped for operations in mid water depth, which makes the Unit ideal for the mature Norwegian sector of the North Sea basin.

In operation from 2012 The “Island Innovator” will be available for operations from summer 2012. Due to the rig’s flexibility two options are considered. The rig can either be con - tracted as a conventional drilling rig for exploratory drilling or drilling and completion of production wells with intervention capabilities. Alternatively the rig can be offered as a dedicated intervention Unit with small bore riser. With its flexibility, the rig can easily be equipped for both modes of operation, although not at the same time.

Over the last year we have seen increasing rates for drilling and intervention vessels. Based on the high oil price and the operators’ plans for 2012 and onwards, we see potential for securing long term and good contracts in Norway or elsewhere.

Large opportunity in mature fieldsCalculations made by the Norwegian Petroleum Directorate indicate that around 50 percent of the oil resources remain in the ground when the field is plugged and left. This calls for new ways of thinking.

Increased recovery is the lowest cost additional oil. The reserves are already identified, the infrastructure is installed and the cash flow will be immediate.

A good well makes a longer tail

Asle SolheimChief Executive Officer

5

Island Innovator keyside Qidong Yard, China

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

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

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

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

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

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

CEO


1. Engine room number one

2. Installation work in Living Quarter

3. Finalizing the exterior of the bridge

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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 submersible 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. Continued operation In accordance with the Norwegian accounting act § 3-3a it is confirmed that the presumptions for continued operation are present. Behind this presumption there are still elements of uncertainty; even though a pre- and post delivery financing solution for the remaining 50 % of the total project cost has now been secured. The financing, in the total amount of MUSD 280, was fully committed in March 2011, and the documentation process is well under way. It is anticipated that the Company may start drawing on the pre-delivery portion of the financing primo / medio May, 2011. The financing is independent of whether or not the rig is secured long term employment.

However, there is still some uncertainty as to the final delivery date for the rig from the yard in China, and no operational contract for the rig post delivery has been signed to date. The company’s cash position is unsatisfactory until drawdown’s can be made under the loan facilities, and the company is overdue with pay-ments to certain vendors. However,

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

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

Even though the elements of uncertainty are still considered significant, and make the presumption for continued operation somewhat uncertain, the Board of Direc-tors, based on the efforts made and the resources laid down, consider the presump -tion for continued operation still to be present. However, should this not be the case the book value of the rig may be affected. For further information see section 6.

3. Working environment and personnelThe Company had no employees as of 31st December 2010. The Company’s needs for competence and accompa-nying recourses have been secured through a full-service long-term manage-ment agreement with Island Offshore Management AS (IOM). According to

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

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 Norwe-gian Public Limited Companies Act).

5. Environmental reporting The Company’s business as of 31st December 2010 is not regulated by licenses or public orders. The business does not pollute the external environ-ment over and above what is customary for this kind of operation.

6. Future development Maracc was established in 2006 with an aim to bring forward a semi-submersible rig solution for drilling and heavy well intervention activities for subsea wells.

The Board of Directors annual report 2010

DIRECTORS REPORT


The rig is tailor made for Norwegian operations but able to work globally.

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

The plan was and still is to address the issue of increased oil recovery (IOR) from subsea wells and the need for more service related work for a steady increasing number of subsea wells around the world. The basis is to build on the experiences gained from Light Well Intervention Services performed by Island Offshore in the North Sea. Island Offshore will manage and operate the rig when in operation as a well intervention unit, while other alternatives may be pursued if the rig should be used for conventional drilling.

The rig is the first purpose built drilling and well intervention rig, and is currently prepared for the full range of services such as Conventional Drilling, Coil Tubing and Through Tubing Rotary Drilling (TTRD) down to 750 meters water depth. Drilling in 1300 m water depth is achieved with minor modifica-tions, while 3000 m water depth can be achieved in intervention mode.

GM4000 – Project status The project at Cosco Shipyard Group is currently (early May 2011) 85% complete. The rig is laying keyside at the Qidong yard for Outfitting, Mechan-ical Completion and Commissioning. Efforts are now focused around completing piping, HVAC, cabling and

living quarter. Mechanical Completion is well underway and Commissioning has started. The project at Cosco is running late according to the original plan. In 2010, Maracc entered into an Agreement with Cosco to fully complete the rig including the drilling module installation. Due to delays in achieving project financing, the topside from Nymo will arrive China end of June 2011 and the rig should be ready for delivery from the yard in Q2 2012. A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored.

The project is now, based on the pre- and post delivery financing described above, fully funded through to completion from the yard. A total of MUSD 93,8 has been paid into the Company as Equity, a further MUSD 230 of bond loans have been converted to paid in equity and finally a total funding of MUSD 280 has been secured by way of long term loans. The long term loans are a combination of a 1.st priority MUSD 180 loan provided by Eksportfi-nans ASA / GIEK and a 2.nd priority MUSD 180 loan provided by a commer-cial bank syndicate, with DnBNOR Bank ASA as agent. The documentation has not been finalized, but it is anticipated that the loans will be available for drawing primo/medio May 2011. As a consequence, the total gross funding amounts to MUSD 603,8.

With the participation required from commercial banks now in place, the Company is continuing the work to secure a long term contract for the rig either in Norway or internationally.

Market Update The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. Several of the prospects targeted for Island Innovator have been delayed and particularly Statoil have deferred contract awards in the Category B segment which was a particular target for this unit. There are currently several bids/pursuit processes in which Island Innovator is presented, and Island Innovator is now actively tendered to several oil compa-nies for drilling operations in the North Sea and outside. It is expected that more opportunities will arise, and that significant awards will be made during and towards the end of second half of 2011. If the world economy continues to develop in a positive direction a significant market improvement can be expected for 2012. With the financing now in place and very few new midwater rigs available or under construction coupled with the Operators’ committed drilling plans, the Board considers the current market as prosperous – however bearing in mind that significant risk elements are still present.

7. Achievement, cash flow, investments, financing and liquidity The Board of directors is of the opinion that the annual accounts give a true and fair view of Maracc’s assets and

9DIRECTORS REPORT

liabilities, financial position and result. Beyond the incidents described in Note 18 there have not been any significant incidents after the 31.12.2010 that has not been considered in the annual accounts, or that is of importance to assess the Company’s result or financial position.

The Company had no turnover in 2010. The result before taxes showed a profit of USD 195 400 024. The profit is mainly a result of the conversion process completed in June 2010. By converting all of the Bond loans and accrued interest, totaling USD 243,9 million, to 677 922 620 new shares in Maracc at a fair value of USD 47,3 million (NOK 0,45 per share), the Company obtained a profit of USD 196,6 million. The gain related to the conversion did not have any cash effect, but is presented in the Profit and Loss statement to inform the shareholders of the book value obtained through the conversion.

The Company has no expenditures related to Research and Development.

Total cash flow from operational activities in the Company was minus USD 452 744, in accordance with the operating loss. Total investments relating to plant and equipment in 2010 were USD 21 539 645.

The Company’s cash position was USD 16 973 645 as of 31.12.10. New liquidity amounting USD 280 million will be available primo/medio May 2011.

The Company’s short-term debt was USD 12 278 829 as of 31.12.10. The total capital at year end was USD 262 448 510. The equity capital was USD 250 004 940 as of 31.12.10.

7.1 The restructuring processAs mentioned above issuing new equity and restructuring the Company’s balance sheet was carried through in 2010. The process involved three elements: Firstly the share capital was reduced

with MNOK 15,88, by reducing the par value of the Company’s 17.640.000 shares from NOK 1 to NOK 0.10. Following this reduction a capital

increase through converting all of the outstanding bond loans was carried through:

- MUSD 120 secured bond, incl. interest as at 31st May 2010, a total of MUSD 130,5 was converted to 522,2 million new shares based on a conver-sion price of USD 0,25- MUSD 80 (first) convertible bond, incl. interest as at 31st May 2010, a total of MUSD 94,4 was converted to 113,3 million new shares based on a conversion price of USD 0,8333- MUSD 30 (second) convertible bond, incl. interest as at 31st May 2010, a total of MUSD 35,4 was converted to 42,5 million new shares based on a conversion price of USD 0,8333- In total the share capital of the Company was increased by MNOK 67,6 through the conversion of the bond loans- Finally a share issue was carried through according to which 479.097.893 new shares each with a nominal value of NOK 0,10 was issued at an issue price of NOK 0,45, giving total new equity of MNOK 215,6. The share capital was increased by MNOK 47,9 as a consequence of the share issue.

The restructuring was finalized in June 2010.

8. Financial risk

8.1 Market riskThe Company is exposed to market risk as no long-term operating contract for the vessel under construction has been entered into. However, the Company is in discussions with several oil compa-nies regarding potential term charters. The company’s aim was to enter into a long-term contract within 2008, however the revised ambitions is to enter into a long-term contract before year end 2011.

8.2 Currency riskThe Company is to some extent exposed to changes in the foreign exchange markets. All long term debt will be drawn down in USD and a significant part of the Company’s expenses is in USD. Some suppliers of Owner Furnished Equipment are however payable in NOK, and at this stage is not determined whether future employment contracts will be denomi-nated in USD, NOK or other currencies.

8.3 Interest riskThe Company has no significant exposure to changes in the interest rate level, since all the Bond loans were converted to Equity in June 2010. The Company’s bank deposits have floating interest.

8.4 Credit riskThe risk related to opposite parties not having the means to fulfill their obliga-tions 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’

Electrical system.


banks. The company has received a repayment guarantee from Bank of China in connection with the Construc-tion Contract with Cosco shipyard. Set off agreements or similar financial instruments in order to minimize the credit risk have not been entered into by the Company.

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

commitments for the MUSD 280 needed to fund the completion of the rig at the yard in China in March 2011.

In addition, bondholders meetings in all of the three bond loans taken up by the company were convened in June 2010 approving conversion of all of the loans, including interest up until May 31st, 2010 to equity. The non payment of interest as a consequence of the conversion to equity has improved the company’s cash position.

The cash position is a challenge until the loan documentation is in place, and the amounts under the pre-delivery portion of the loans are made available.

9. Annual results and disposalsThe Board suggests the following disposal of the annual result in the

Company amounting USD 195 400 024:

From share Premium: USD -42 615 189,-From other paid in equity: USD -27 868 128,-Uncovered loss: USD 265 883 341,-

The Company had no distributable reserve at the end of 2010.

Oslo, 2 May 2011

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

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Board of Directors

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. Respon-sible for managing the Ulstein family’s investment companies.

1 2 3 4 5 6

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

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

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 develop-ing subsea riserless well intervention solutions with with FMC and Island Offshore. Educated mechanical engi-neer from the University of Wisconsin at Madison, USA.


Annual accounts2010

13ANNUAL ACCOUNTS

Note 2010 2009

Salaries 3 146 718 142 522

Impariment of fixed assets 6 - 110 000 000

Other operating expenses 3,15 306 026 386 707

Total operating expenses 452 744 110 529 229

Operating profit -452 744 -110 529 229

Financial income and expenses

Net other financial items 12,13 195 852 768 3 037 295

Net financial items 195 852 768 3 037 295

Profit before tax 195 400 024 -107 491 934

Income tax expense 5 - 440 140

Profit for the year 195 400 024 -107 932 074

Earnings pr share 16 0,34 -6,12

Diluted earnings pr share 16 0,32 -6,12

Transfers

Transfer from share premium 11 -42 615 189 -58 951 535

Transfer from other paid in equity 11 -27 868 128 -

Transfer to/from uncovered loss 11 265 883 341 -48 980 539

Total transfers 195 400 024 -107 932 074

Income statementIn USD


Fixed assets Note 2010 2009

Intangible assets

Deferred tax asset 5 - -

Total intangible assets - -

Property, plant and equipment

Rig under construction 6,8,15 245 984 055 222 244 802

Total tangible assets 245 984 055 222 244 802

Financial fixed assets

Long term financial instruments 7 - -

Total financial fixed assets - -

Total fixed assets 245 984 055 222 244 802

Current assets

Receivables

Other short term receivables 4, 17 1 690 409 1 673 859

Total receivables 1 690 409 1 673 859

Cash and cash equivalents 9,17 16 973 654 40 548 703

Total current assets 18 664 063 42 222 562

Total assets 264 648 118 264 467 365

Balance sheet Assets In USD

15

Equity Note 2010 2009

Paid in equity

Share capital 10,11 18 227 446 2 891 027

Share premium 11 231 777 494 -

Equity from convertion right 11 - 27 868 128

Total paid in equity 250 004 940 30 759 155

Retained earnings

Uncovered loss 11 - -56 162 041

Total retained earnings - -56 162 041

Total equity 250 004 940 -25 402 885

Liabilities

Other long term liabilities

Bond loans 7,8,17 - 210 720 549

Total long term liabilities - 210 720 549

Current liabilities

Accounts payable 17 12 281 310 60 696 503

Other short term debts 17, 18 2 280 868 18 453 199

Total current liabilities 14 562 178 79 149 702

Total liabilities 14 562 178 289 870 251

Total equity and liabilities 264 567 118 264 467 365

Balance sheet Equity and Liabilities In USD

Oslo, 2 May 2011

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

ANNUAL ACCOUNTS


Cash flow from operating activities Note 2010 2009

Profit before tax 195 400 024 -107 491 934

Impairment of fixed assets 6 - 110 000 000

Gain related to conversion of bonds 12 -196 558 379

Change in fair value for derivative financial instruments 12,13 705 610 -3 037 295

Net cash flow from operating activities -452 744 -529 229

Cash flow from investing activities

Purchases of property, plant and equipment 6 -21 539 644 -127 683 408

Other investments 7 - 3 037 295

Changes in accounts payable and other accruals related to investments -33 586 925 69 728 727

Net cash flows from investing activities -55 126 569 -54 917 386

Cash flow statementIn USD

17

Cash flow from financing activities Note 2010 2009

Proceeds from issuance of shares 11 33 425 434 -

Cost related to issuance of shares and convesion of bonds 11 -1 421 170 -

Net cash flow from financing activities 32 004 264

Net change in cash and cash equivalents -23 575 049 -55 446 615

Cash and cash equivalents at beginning of year 40 548 703 95 995 319

Cash and cash equivalents at end of year 9 16 973 654 40 548 703

Of which restricted cash 14 969 452 34 220 606

ANNUAL ACCOUNTS


Notes2010

19NOTES

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

The financial statements have been prepared in accordance with simplified IFRS (International Financial Reporting Standards) pursuant to section 3-9 of the Norwegian Accounting Act and with the Directives of simplified IFRS specified by the Norwegian Ministry of Finance on 21. of January 2008. This implies that estimates and measure-ments follows IFRS, and that presentation and notes to the financial statement are in accordance with the Norwegians Accounting Act and generally accepted accounting principles in Norway . 1.1 Simplified IFRSThe Company has applied all relevant simplifica-tions in regard to IFRS, including:

- Dividend is treated in accordance with the Norwegian Accounting Act and deviates form IAS 10 no. 12 and 13.

1.2 Basis of preparationThe financial statements have been prepared under the pricipals of historical cost, with the following exceptions :

- Available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

1.3 Currency The financial statements are presented in “US dollars” (USD) which is the Company’s functional and presentation currency. The Company use USD as functional currency since it operates in an envirionment where USD is the dominating currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. The assets and liabilities of non-USD monetaty assets and liabilities are translated into USD at the rate of exchange as of the balance sheet date.

1.4 Accounting estimates and judgmentsThe preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Estimates and judgments are continually

evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in accounting estimates are accounted for in the same period as the change occurs. The changes concerns future periods, the effects of the changes will be spread throughout current and future periods.

The majority of the company’s estimates are related to the construction of the rig, its progres-sion and any need for impairment, as well as deferred tax asset.

1.5 Revenue recognitionAs this is a start-up period for the Company, the Company does not have operating revenues in 2010 and 2009. Interest income is recognised on a time-proportion basis using the effective interest method.

1.6 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. The capital-ised amount is net after return on funds. Other borrowing costs are expensed.

1.7 Income taxThe tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities.

Deferred tax is calculated as expected future tax rate of temporary differences and the tax effect of tax losses carried forward.

Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilized.

Taxes payable and deferred taxes are recognised directly in equity to the extent that they relate to equity transactions.

1.8 Fixed assetsFixed assets are valued at cost, less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Costs for maintenance are expensed as incurred, whereas costs for improving

1 Accounting principles


and upgrading property, plant and equipment are added to the acquisition cost and depreciated with the related asset. When carrying value of a fixed asset exceeds the estimated recoverable amount, the asset is written down to its recoverable amount. The recoverable amount is the greater of the net realisable value and value in use. Value in use is calculated by estimating future discounted cash flows.

Property, plant and equipment under construction are classified as fixed assets. Additions on property, plant and equipment under construction are recognised when the Company receives invoices for the construction work.

As the Company is in a start-up period and all of the fixed assets are under processing, there are no deprecitations for 2010 and 2009.

1.9 Financial instrumentsIn accordance to IAS 39, the Company classifies its financial instruments in the following four categories: at fair value through profit or loss, loans and receivables, available for sale and other obligations, with the exceptions described in note 1.1.

Financial instruments at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Liabilities in this category are classifies as current liabilities.

Financial assets with specific or determinable cash flows that are not listed in an active market is classified as loans and receivables, with excep-tions of instruments that the Company has classified as at fair value carried through profit or loss, or available for sale. Loans and receivables are carried at amortised cost using the effective interest method. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

All other financial assets are classified as available for sale. Assets classifies as available for sale is measured at fair value with changes in fair value recognised in equity and reversed to profit or loss at time of derecognition or impairment. They are included in non-current assets unless manage-

ment intends to dispose of the investment within 12 months of the balance sheet date.

Financial obligations that are not held for trading and classified as at fair value through profit or loss are classified as other liabilities. Other liabilities are carried at amortised cost using the effective interest method.

Holdings of own bonds are presented as net obligations.

1.10 Derivative financial instruments and hedging activitiesDerivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either:(a) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge);(b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge); or(c) hedges of a net investment in a foreign opera-tion (net investment hedge).

The entity has not applied hedge accounting in 2009 or 2010.

1.11 Derivates financial instruments not used in hedging activitiesDerivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

An embedded derivative is separated and accounted for as a separate financial instrument provided that the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the host contract is not accounted for at fair value. Embedded derivatives are classified both in profit and loss and on the balance sheet based on the derivatives’ underlying nature.

1.12 Impairment of assetsAssets that are subject to depreciation or amorti-sation are reviewed for impairment whenever events or changes in circumstances indicate that

21NOTES

the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The Heavy Well Intervention Unit is seen as one cash-generating unit. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Impairment of financial assetsThe Company assesses at each balance sheet date whether there is objective evidence that a financial asset classified as loans and receivables or available for sale or a group of financial assets classified as loan and receivable is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is consid-ered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisi-tion cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

1.13 Cash and cash equivalentsCash and cash equivalents includes cash, bank deposits and all other monetary instruments with a maturity of less than three months from the date of acquisition.

Cash and cash equivalents, as defined for reporting purposes in the statement of cash flows, consist of cash and cash equivalentsas defined above, net of outstanding bank over-drafts connected to cash management activities.

1.14 EquityFinancial instruments are classified as debt or equity in accordance to the underlying economic reality.

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

as equity are accounted directly towards equity.

Convertible obligations and similurar instruments, that includes both debt and equity elements, are divided into two components by emission, and accounted seperately as respectively debt and equity.

Cost of equity transactions:Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Other equity:(a) Fund of valuation varianceThe fund includes the unified net-change in fair value of financial instruments that is classified as available for sale, until investment is disposed or where it has been determined that the investement has no value.

1.15 Year-end provisionsA provision is accounted when the Company has obligation (legal og self-imposed) as a conse-quence of a former incident, it is probable (more likely than not) that an economic settlement will occur as a consequense of the obligation and the amount can be reliably measured. If the effect is substantial, the provision would be estimated by disconting expected future cashflows with a discount rate before tax that reflects the market price of cash and, if relevant, risks spesifically attached to the obligation.

1.16 Contigent liabilities and assetsContigent liabilities are not accounted in the financial statement. Substantial contigent liabili-ties, except contigent liabilities where the prob-ability of the liabality is low, are reported.Contigent assets are not accounted in the financial statement, but reported if there exists a certain probability that the Company will accrue an advantage.

1.17 Events after the balance sheet dateNew information after the balance sheet date concerning the Company’s financial standing is taken into account in the financial statement. Events after the balance sheet date that not affect the Company’s financial standing on the balance sheet date, but will affect the Company in the future are reported if it is considered substantial.


Auditor 2010 2009

-Statutory Audit 43 206 39 934

-Other assurance services 3 035 13 764

-Tax advisory fee 12 489 13 764

-Other advisory services 25 604 0

Total auditor fee 84 334 67 463

VAT is not included in the fee specified above.

Specification of other operating costs 2010 2009

Auditor fee 84 334 67 464

Consultant's fee 125 058 134 955

Legal costs 31 968 40 255

Other 64 666 144 033

Total 306 026 386 707

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

2010 2009

Prepaid costs 1 071 341 1 071 341

Other short term recivables 29 985 29 985

Outstanding VAT 508 083 572 532

Total 1 609 409 1 673 858

Other short-term receivables

Segment information

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

2

3

4

The Company has not had any employees during 2010. The Board of Directors have received remuneration for their work amounted to USD 131 583 in 2010. Social expenses amounts to USD 15 135. The same remunera-tions and expenses in 2009 was USD 130 683 and USD 10 840. Salaries to leading personnel In connection with hiring a CEO from another company, the Company has paid fees and travelling expenses amounted to USD 378 211 in 2010 and USD 322 076 in 2009. The expense has been capitalized as the expense is considered obtained as a part of acquiring fixed assets.

Management remuneration No loans/securities have been granted to the CEO, chairman of the board or other related parties. There are no obligations regarding post employment benefits.

23NOTES

Components of the Income Tax Expense 2010 2009

Tax payable - -

Changes in deferred tax - 440 140

Changes in deferred tax to equity - -

Total income tax expense - 440 140

Tax base calculation

Profit/loss before income tax 195 400 024 -107 491 934

Permanent differences *) -194 150 290 1 023 361

Changes in temporary differences -2 664 480 71 082 614

Basis for the tax expense of the year -1 414 746 -35 385 959

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

Temporary diefferences 2010 2009

Fixed assets -6 923 465 -9 587 945

Tax losses carried forward -99 732 687 -98 317 941

Sum -106 656 152 -107 905 886

28 % deferred tax -29 863 723 -30 213 648

Deferred tax (asset) not in the balance sheet -29 863 723 -30 213 648

Deferred tax (asset) in the balance sheet - -

Explanation why profit before tax differs from the amount that would arise using the 28% tax rate: 2010 200928 % of profit before income tax 54 712 007 -30 097 742

Insufficient/excess provision last year 37 693

Expenses not deductible for tax purposes -54 362 081 286 541

Not recognised change in deferred tax asset -349 925 30 213 648

Total income tax expense - 440 140

Effective tax rate in % 0,0 % -0.4 %

* ) Permanent differences consist of non deductible costs, and net gain related

to conversion of bonds and subscription rights.

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

Tax 5


2010Heavy well

intervention unitTotal

Tangible assetsAcquisition cost at 01.01.10 332 244 802 332 244 802

Additions 9 616 678 9 616 678

Disposals - -

Additions capitalized financial costs 14 122 574 14 122 574

Acquisition cost 31.12.10 355 984 055 355 984 055

Accumulated depreciation 31.12.10 - -

Accumulated impairment loss 31.12.10 -110 000 000 -110 000 000

Reversed impairment loss 31.12.10 - -

Net carrying value at 31.12.10 245 984 055 245 984 055

Depreciation of the year - -

Impairment loss of the year - -

2009Heavy well

intervention unitTotal

Tangible assetsAcquisition cost at 01.01.09 204 561 394 204 561 394

Additions 100 419 434 100 419 434

Disposals - -

Additions capitalized financial costs 27 263 974 27 263 974

Acquisition cost 31.12.09 332 244 802 332 244 802

Accumulated depreciation 31.12.09 - -

Accumulated impairment loss 31.12.09 -110 000 000 -110 000 000

Reversed impairment loss 31.12.09 - -

Net carrying value at 31.12.09 222 244 802 222 244 802

Depreciation of the year - -

Impairment loss of the year -110 000 000 -110 000 000

Tangible assets 6

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

25NOTES

USD

Estimated cost at completion (excl. financing cost new financing) 612 896 000

Acquisition cost 31.12.2010 355 984 055

Remaining acquisition cost (excl. financing cost new financing) 256 911 945

Account payable related to the rig 31.12.2010 12 281 310

Remaining payments to complete the rig 269 193 255

Bank deposits 31.12.2010 16 973 654

Minimum required financing 31.12.2010 252 219 601

See Note 18 regarding new financing in 2011.

A project team consisting of about 30 persons doing construction supervision has been established in China under IOM’s direction. The team, located at the yard, has daily contact with the yard management in relation to engineering, progress and quality which is closely monitored.

In 2010 capitalized financial costs includes capitalized interest on bond loans by a total of USD 14 689 965 (2009: USD 26 807 381). Interest income on bank deposits has according to IAS 23.15 reduced capitalized financial costs by a total of USD 243 140 in 2009 (2009: USD 427 566) and thus net interest expenses are capitalized.

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

The oil service market has recovered from a period suffering from low oil prices. Rig rates have come up, and several rigs have been fixed in the mid water segment over the last year. Several of the prospects targeted for Island Innovator have been delayed and particularly Statoil have deferred contract awards in the Category B segment which was a particular target for this unit.

As the rig is under construction there are no depreciations in either 2010 or 2009. Economical life for the rig is not yet estimated. The company will estimate economical lifetime of the rig at delivery.

The table below shows the estimated remaining cost to coplete the rig, and the need for additional financing at the balance sheet date.


Bond loans

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

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

8

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

Book value of bond loan at time of conversion

119 000 000 72 402 419 21 127 125 212 529 544

Accrued interest at time of conversion 11 544 814 14 398 121 5 382 827 31 325 762

Total recognised debt to be converted 130 544 814 86 800 540 26 509 951 243 855 305

Fair value of issued shares 36 431 111 7 903 415 2 962 402 47 296 927

Gain 94 113 703 78 897 125 23 547 550 196 558 379

2009Company Currency Book value Market value

Right of redemption of own bonds USD 0 0

Total 0 0

Right of redemption own bonds and other financial assets 7The company had a right of redemption for two of their bond loans. Fair value of the redemption right was estimated to be zero, 31.12.2009. The redemption right is no longer applicable since the bond loans were converted in 2010.

27NOTES

2010 2009

Debts secured by pledges 0 120 000 000

Pledged assets:

Property, plant, and equipment 0 222 244 802

Total 0 222 244 802

Bond loans 2009

Nominal value

Book value

Loan 1 120 000 000 120 000 000 *3m LIBOR

+5.0 %3m LIBOR

+5.0 %

Holdings of own bonds (loan 1) -1 000 000 -962 602 *

3m LIBOR +5.0 %

3m LIBOR +5.0 %

Net Loan 1 119 000 000 119 037 398

Loan 2 (convertible) 80 000 000 71 234 435 * 9.0 % 14.3 %

Loan 3 (convertible) 30 000 000 20 448 716 * 12.0 % 25.4 %

Total 229 000 000 210 720 549

*The fair value of the bond loans have not been calculated as of 31.12 09, because it was not possible to give a reliable

estimate of the value at the balance sheet date. See information regarding the conversion of the bonds above.

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

refund guarantee.

2010 2009

Bank deposits 16 973 653 40 548 703

2010 2009

to the benefit of Cosco 9 750 000 19 500 000

to the benefit of Global Maritime 1 842 693 -

to the benefit of Nymo AS 3 376 759 5 167 471

to the benefit of Vetco Grey AS - 1 815 362

to the benefit of Cameron - 7 737 773

Total 14 969 452 34 220 606

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

Cash and cash equivalents 9


11The 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) 232 943 385 19,8 % 19,8 %

Trond mohn (nom) 114 247 646 9,7 % 9,7 %

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

Skagen vekst 71 891 376 6,1 % 6,1 %Island offsxhore xii as 61 987 351 5,3 % 5,3 %Alden as 53 305 655 4,5 % 4,5 %

Tollefsen, ivar erik 19 746 275 1,7 % 1,7 %

Glaamene industrier as 19 611 888 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 12 011 153 1,0 % 1,0 %

Deutsche bank ag london 11 842 749 1,0 % 1,0 %

Bakkevig, bjørn 8 495 253 0,7 % 0,7 %

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 3 633 985 0,3 % 0,3 %

Terra total vpf 3 510 448 0,3 % 0,3 %

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

Total 20 largest shareholders 1 139 301 163 97,0 % 97,0 %

Other shareholders 35 359 353 3,0 % 3,0 %

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

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.

10The share capital consists of: Shares

Nominal value

Registered in NOK

Book value in USD

Shares 31.12.2009 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

Convesion 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 18 227 445

29NOTES

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 Austin owns shares directly through her ownership in Rig invest LLC, and indirectly through her ownership in Island Offshore V AS and Island Offshore Management AS.

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

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

Dionne Chouest Austin See below

Asle Solheim See below

Equity11 Share capital

Share premium

Equity from conversion

rightUncovered

loss TotalEquity 31.12.2008 2 891 027 58 951 535 27 868 128 -7 181 501 82 529 189

Profit for the year - -58 951 535 - -48 980 539 -107 932 074

Equity 31.12 2009 2 891 027 - 27 868 128 -56 162 040 -25 402 885

Reduction of share capital

(2 601 924) - - 2 601 924 -

Conversion of bonds 10 510 468 249 816 294 - (213 028 835) 47 297 927

Issue of new shares cash contribution

7 427 874 25 997 560 - - 33 425 434

Cost related to conver-sion of bonds and cash contribution

- (1 421 170) - - (1 421 170)

Exercised subscription rights

- - - 705 610 705 610

Profit for the year - (42 615 189) (27 868 128) 265 883 341 195 400 024

Equity pr 31.12 2010 18 227 445 231 777 495 - 0 250 004 940

Net other financial items12 2010 2009

Loss on issued subsription rights -705 610 -

Gain on renegotiation and convertion of bonds 196 558 379 -

Change in fair value of forwards contracts - 3 037 295

Total 195 852 768 3 037 295


Other financial instruments

The company did not have any derivative financial instruments at the balance sheet date 31.12.2010 and 31.12.2009.

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

13

Financial risk

Market risk The Company is exposed to market risk since no long-term operating contract for the vessel under construc-tion has been entered into.

Currency risk The Company is to some extent exposed to changes in the foreign exchange markets. The majority of the companys’s expences are in USD, but the company has also entered into contracts with suppliers in other currencies.

Interest risk The Company is exposed to changes in the interest rate level though floating interest on bank deposits.

Credit risk The risk related to opposite parties not having the means to fulfil their obligations is seen as low, as the Company does not have unsettled claims. To reduce risks in relation to large suppliers’ delivery obligations the company has obtained performance guarantees from the relevant suppliers’ banks. The company has received a repayment guarantee from Bank of China in connection with the Construction Contract with Cosco shipyard. Set off agreements or similar financial instruments in order to minimize the credit risk have not been entered into by the Company.

Liquidity risk As at year end 2010, the Company had obtained financing of approximately 50 % of the total project costs (construction-, supervision- and financing costs during the construction phase as well as mobilization / start up costs). The Company had unsatisfactory cash reserves and additional financing needed to be secured (see Note 6). In March, 2011 an additional USD 280 mill. was secured through a bank syndicate - see Note 18 Subsequent Events.

14

Related parties15 Purchase of services: 2010 2009

Management and supervision of construction from Island Offshore Management AS

6 814 306 9 450 783

Engineering services from Island Offshore Subsea AS 202 338 009

Sum 6 814 508 9 788 792

All transactions with related parties is based upon market terms.

31NOTES

Earnings per share

Earnings pr share is calculated by dividing the result attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Diluted earnings pr share is calculated by taking into account the number of shares connected to convertible bonds as if conversion has occurred. There are no expenses solely connected to the convertible bonds in the financial statement. The expenditures connected to the convertible bonds are capitalized as part of fixed assets (see note 6).

162010 2009

Result for the year attributable to shareholders 195 400 024 -107 932 074

Weighted average number of ordinary shares 577 265 250 17 640 000

Weighted average number of shares for calculation of dilluted earingns

604 694 708 17 640 000

Earnings pr. share 0,34 -6.12

Diluted earnings pr. share 0,32 -6.12

2010 2009

Financial assets Category Book value Fair value Book value Fair value

Receivables* 1) 29 986 29 986 29 986 29 986Bank deposits 1) 16 973 645 16 973 645 40 548 703 40 548 703

Sum 17 003 631 17 003 631 41 650 030 41 650 030

2010 2009

Financial liabilities Category Book value Fair value Book value Fair value

Accounts payables and other payables**

3) -12 278 829 -12 278 829 -60 696 503 -60 710 900

Accrued interest 3) -18 482 190 -18 430 282

Currency futures 2) -8 519 -8 519

Bond loans, se note 8 for spesifications 3) -210 720 549 ***Sum -12 278 829 -12 278 829 -229 211 258

Financial assets and liabilities17

1): Loans and receivables

2): Fair value through profit and loss

3): Other financial liabilities, amortised cost

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

for financial instruments.

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

is only required for financial instruments.

*** It was not possible to give a reliable estimate of fair value of the bond loan 31.12.2009.


Subsequent events

FinancingIn March, 2011, the Company successfully secured a fully committed financing package for the remaining construction costs, including the top-side, through to delivery of the rig.

The financing package, totaling MUSD 280 and consisting of both pre- and post delivery financing, will be arranged by DnBNOR Bank ASA, and consist of export credit agency funding combined with commercial bank funding and loan guarantees. The financing is furthermore supported by Maracc’s major owners.

The bank funding is obtained at significantly more favorable terms than the terms achievable in the bond market.

Legal claimsOn February 16, 2011 Gulating Lagmannsrett pronounced a judgment in the appeal case between the Company and Global Maritime AS (“GM”). The dispute was whether the design of the rig designed by GM contained a defect. GM corrected the error, but argued that it was not a legal defect, and invoiced the Company for the additional cost. Gulating Lagmannsrett confirmed the verdict from Stavanger Tingrett from February 22, 2010. The verdict implies that the Company is held liable to pay NOK 12.881.786 to GM. There has been made a provision in the financial statements at USD 2.199.608 under other current liabilities. The provision is considered to be part of the cost of the rig.

18

2010 2009

Foreign currency Currency USD Currency USD

Receivables USD 29 986 USD 29 986

Bank deposits USD 10 227 954 USD 29 020 340

NOK 6 707 865 NOK 9 618 857

Other 37 385 Other 1 909 506

Total 16 973 204 Total 40 548 703

Accounts paybles and other paybles USD -1 894 574 USD -48 921 662

NOK -8 925 076 NOK -10 274 272

Other -1 459 179 Other -1 514 966

Total -12 278 829 Total -60 710 900

Accrued interest USD - USD -18 430 282

Bond loans USD - USD -210 720 549

33NOTES


1 174 660 516Number ofoutstanding shares

0.25Share price low(NOK)

3.0Share price high(NOK)

117 466Share capital 31.12.2010 (NOK 1 000)

587 330Market capitalisation (NOK 1 000)

0.5Market price 31.12.2010 (NOK)

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

35

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

SHAREHOLDERS INFORMATION

new equity of NOK 215,6. The share capital increased by MNOK 47,9 as a consequence of the share issue.

In March, 2011, the Company sucess-fully secured a fully committed financing package for the remaining construction costs, including the top-side, through to delivery of the rig.

The 20 largest shareholders of Maracc held 97,0 % of the outstanding shares by year end 2010, and approximately 31,9 % of the shares was owned by investors located outside Norway. The largest shareholder is Island Offshore V AS, which holds at date 361.668.135 shares ( 30,8 %).

At December 31, 2010 the share price was NOK 0,5 which correspond to a decrease of 83,3 % from 1st January 2010.

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

3,25

3,00

2,75

2,50

2,25

2,00

1,75

1,50

1,25

1,00

0,75

0,50

0,25

0,00jan

2010feb

2010mar 2010

april 2010

may 2010

jun 2010

jul 2010

aug 2010

sep 2010

oct 2010

nov 2010

dec 2010

Share price development

7 000 000

6 000 000

5 000 000

4 000 000

3 000 000

2 000 000

1 000 000

0Q1

2010Q2

2010Q3

2010Q4

2010

Traded volume per quarter 2010


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

The Board of Directors bases its corporate governance practices on the principles set forth in the Norwegian Code of Practice for Corporate 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 Execu-tive 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 Company’s objective is to construct, market, sell and operate vessels for supporting subsea operations and accommodation connected to the oil industry, including to participate in other companies, acquisition and sale of property and what is connected with this.’

3. Equity and dividendsThe Company’s equity is appropriate for its goals, strategy and risk profile. The equity as per 31.12.2010 was USD 250 million, which corresponds to 94.5%. As Maracc is within the establishment phase, dividends will not be considered in the short term. The Company’s dividend policy will be reevaluated once the Company is gene rating 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 Construction Supervision Agreement is entered into between Maracc (the Company) and Island Offshore Manage-ment AS (the Manager). The Manager owns 0.05% of the Company’s shares – under which the Company has requested the Manager to provide it with certain management services, including construction supervision, technical operation of the rig, commercial manage-ment ser-vices/marketing related to the rig, corporate governance services, investor relations, Budgets – Reports, Accounting, auditing, company records, stock exchange, government relations – taxes, finance and treasury functions. The management fee is based on market terms. The CEO and CFO of the Company are employees of Island Offshore Shipping AS and Borgstein AS respectively and their services are seconded to Marine Accurat Well ASA pursuant to the Management Agree-ment described above. Morten Ulstein is a board member of Maracc and the chairman and substantial owner of Island Offshore Management AS and Island Offshore V AS. Dionne Chouest is a member of the Board of Maracc and is related to indirect ownership interests in Island Offshore Management AS and Island Offshore V AS.

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

Corporate Governance Report

37

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 indepen-denceCorporate assembly is not applicable nor binding to the Company since there are no employees. The Board comprises 3-7 directors in accordance with the Articles of Association, and currently it consists of five members, three men and two women. All directors are appointed by the shareholders at the annual general meeting, and are elected for two years terms. The chairmen of the Board was appointed by the shareholders meeting. The Board does not include representatives of the Company’s executive management.

The Board’s task is regulated by Norwegian law and includes the overall administration and management of the Company. Members of the Company’s management are not members of the Board, although the Company’s manage-ment 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 review the Company’s objectives, strategy and implementation on a regular basis, and at least annually. Once a year the Board of Directors evaluate its own working methods, meeting plans and similar. The Board has adopted instruction for their own work and for the work of the CEO.

10. Risk management and internal controlThe Board, in conjunction with the management, evaluates the risks in- herent 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 Manage-ment AS through a Management Agreement (full service provider). Maracc may terminate the agreement in the event of change of control occurring in Island Offshore Manage-ment 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 maanage-ment and the external auditors.

CORPORATE GOVERNANCE REPORT


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 Execu-tive Officer forms part of the remunera-tion 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 share-holders 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 share-holders and to provide balanced, complete and correct information regu-larly to all shareholders and bond-holders, 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 Management may terminate the management agreement in the event of change of control occurring in Maracc. Given the current shareholders structure the likelihood of a takeover bid being made for the Company is regarded as small. The Board has therefore not drawn up any main principles for how it would act in the event of a take over bid being made.

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

15. AuditorPriceWaterhouseCoopers AS is respon-sible 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.

39NOTES

1. Rig internal

2. Loading Topside Drilling Module onto transportation vessel at Nymo Grimstad

3. Bridge

1

2

3

Design: F A S E T T Photo Board of Directors: Bjørn Eivind Årthun Print: Bryne Stavanger Offset

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

Maracc Annual Report 2010

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Transcript of Maracc Annual Report 2010