Subsea 7 Annual Report 2008 - Morningstar, Inc.

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Subsea 7 Annual Report 2008

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Subsea 7 Annual Report 2008 2

Who We AreSubsea 7 is one of the world’s leading subsea engineering and construction companies servicing the oil and gas industry. Our skilled and experienced multinational workforce of about 5,800, supports our onshore and offshore operations in the North Sea, North America, Brazil, Africa and Asia Pacifi c.

Our Values: Safe, Clean, Smart, Fair, Anywhere

Investing in Strong FoundationsSince 2005, Subsea 7 has pursued a focused investment programme in new assets, training and development of its people, and new business systems and processes to improve project execution and delivery. Some examples of these investments are shown below.

Investment in vessels, equipment and onshore facilities

Increase in overall fleet size

Technical Centres of Excellence

Critical Supply Networks

New pipeline fabrication spoolbases serving key regional markets(2 OPERATIONAL; 1 CURRENTLY UNDER CONSTRUCTION)

New deepwater pipelay vessels(4 OPERATIONAL; 1 CURRENTLY UNDER CONSTRUCTION)

People recruited into graduate training schemes and apprenticeships

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Contents

Who We AreWhat We DoFinancial ResultsMessage from the ChairmanMessage from the Chief Executive OfficerThrough the Year A Vision Built on Strong Foundations Executive Management TeamFinancial ReportVessel FleetOperational Bases

2.4.6.8.

10.12.14.24.26.80.82.

2008 Financial HighlightsOur fi nancial performance has benefi ted from our focused investment programme.

$521m$2,373m2008

2008

2008

2008

2007

2007

2007

2007

$392m

$214m $384m

$264m $449m

$2,187m

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Precise positioning services•

Drill support ROV services•

Conceptual design•

*Subsea Engineering Solutions is a 75% owned subsidiary group, with the other 25% owned by Richtech International Holding Inc.

What We DoSubsea 7 has a strong focus on the growing high-tech and high-value deepwater Subsea Umbilical, Riser and Flowline (SURF) sector, but also retains a leading role in the key shallow water markets in the North Sea and Asia Pacifi c.

Subsea 7 offers the full spectrum of products and capabilities to deliver Subsea Field Developments and Life-of-Field (LoF)services to our clients.

Exploration and Appraisal Development

Project management with a focus on Engineering, • Procurement, Installation and Commissioning (EPIC) projects

Front-End Engineering Design (FEED) •

Detailed design and engineering•

Design, fabrication and installation of rigid flowlines and risers•

Design, fabrication and installation of steel catenary risers • (SCR)

Installation of flexible flowlines and risers•

Installation of umbilicals•

Trenching and burial services•

Design, fabrication and installation of subsea structures•

Subsea construction and tie-ins (diving and diverless)•

Commissioning•

Diving services •

ROV and tooling solutions•

Precise positioning services•

Seismic DrillingConceptual

Design

FEED andDetailed Design

Procurementand Fabrication

Installation andCommissioning

Subsea Field Development

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Production Decommissioning

Project management•

Engineering and preparation•

Environmental engineering•

Pipeline, riser, umbilical and subsea structure • removal

Disposal and recycling•

Diving services•

ROV and tooling solutions•

Precise positioning services •

Project management•

Integrity management•

Survey and inspection•

Data management, analysis and reporting•

Repair and maintenance•

Emergency pipeline repair systems•

Diving services•

ROV, AUV and tooling solutions•

Precise positioning services •

IntegrityManagement

Survey and Inspection

Repair and Maintenance

Removal DisposalEngineering

Life-of-Field Life-of-Field

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Financial Results

Year ended 31 December(In $ millions, except per share data)

Revenue

Operating expenses

Net operating profit

Net financial items

Profit before tax

Net profit attributable to equity shareholders

Earnings per share ($)

- Basic

- Diluted

As at 31 December

Shareholders’ equity

Backlog

2008

2,373

(1,948)

425

(43)

395

264

1.80

1.74

690

3,268

2007

2,187

(1,871)

316

(3)

315

214

1.45

1.44

820

4,215

Summary

Regional ResultsREVENUE 20072008 PROFIT BEFORE TAX 20072008

Africa$m

$m$m

$m $m

$514

m $75m

$462

m

$115

m

600

300

0

North America

$152

m $30m

$166

m

$42m

200

100

0

North Sea

$1,0

25m $2

29m

$1,0

51m $2

35m

1,200

600

0

Asia Pacifi c*

$167

m

$36m

$73m

$40m

200

100

0

Brazil

$323

m

($27

m)

$621

m

$28m

700

350

0

* The year-on-year decrease in revenue is attributable to a greater proportion of joint venture activities of Technip Subsea 7 Asia Pacific, being accounted for on an equity basis.

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2009

$1,701m

2010

$794m

2011

$558m

2012-2014

$215m

Projected year of execution

$668m $615m $493m $215m

$65m

$179m

$1,033m

TOTAL

DAY-RATELUMP-SUM

Backlog at 31 December 2008: $3,268 million

REVENUE YEAR-ON-YEAR

+8%

2008

$2,373m

YEAR-ON-YEARNET PROFIT

+23%

2008

$264m

CAPITALEXPENDITURE YEAR-ON-YEAR

+17%

2008

$449m

YEAR-ON-YEAREBITDA

+33%

2008

$521m EBITDA is calculated as net profi t adjusted for taxation, net fi nancial items, depreciation, amortisation, impairments and profi ts or losses on disposals of property, plant and equipment.

2006

2006

2006

2006

2007

2007

2007

2007

2008 $2,373m

$521m

$264m

$449m

$2,187m

$392m

$214m

$384m

$1,670m

$265m

$138m

$265m

2008

2008

2008

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Message from the Chairman

2008 was an important year for Subsea 7 for a number of reasons. We enjoyed strong operational and financial performance with satisfactory growth in revenue, delivering strong margins and record profitability. The commissioning of further new assets from our long-term capital investment programme began to make a significant contribution to our operational and financial performance. The business improvement initiatives addressing the way we bid for and execute projects also began to deliver efficiencies in terms of schedule and cost.

Revenue increased by 8% to $2,373m (2007: $2,187m), net operating profit increased by 34% to $425m (2007: $316m) and earnings per share increased by 24% to $1.80 (2007: $1.45). Our financial results and excellent operational performance were achieved without compromising our

Kristian Siem, Chairman

commitment to safety. Our performance in 2008 has been underpinned by the quality of the people in Subsea 7 and the effectiveness of the teamwork between many different disciplines, various examples of which are cited in this report. I thank everyone at Subsea 7 for their dedication and congratulate them on the results they have delivered.

We are confident that our investment programme is providing us with the right vessels, infrastructure and capabilities to meet our clients’ future needs and to deliver sustainable value for our shareholders. Many new contracts from our existing clients reaffirm this view, and I thank them for their continued business. I also thank our shareholders for their continuing support and belief in our reinvestment strategy.

We are confi dent that our investment programme is providing us with the right vessels, infrastructure and capabilities to meet our clients’ future needs and to deliver sustainable value for our shareholders.

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Kristian SiemChairman

In the last few months, the global economy has been affected by unprecedented turbulence and uncertainty. In the latter part of 2008, we began to see some impact of this on the subsea market. It is very encouraging, however, that most of the national oil companies and major international oil companies which represent the majority of Subsea 7’s client base are maintaining investment levels. Any delayed investment decisions and project postponements are mostly related to the smaller independent oil companies. While these companies are very important to our overall mix of clients, on the whole, they account for a small proportion of Subsea 7’s global business. It is our view that the medium to long-term fundamentals of global oil and gas demand are strong, and that this will continue to drive substantial capital investment to develop new oil and gas reserves. We also believe that the subsea market will play an increasingly important role in future oil and gas development.

Through our investment strategy, we have built a modern and fit-for-purpose asset base. We have invested substantially in our organisation and business processes to improve our efficiency and effectiveness. We have also developed closer, longer-term and mutually beneficial relationships with key suppliers. All of these initiatives together have created a stronger, leaner, and more efficient organisation which is better prepared to deal with the challenges of the current economic climate and market conditions.

Although I believe that Subsea 7 is well-prepared, it is important that we work in collaboration with our clients and our supply chain to face economic and market challenges together. Pressure on the supply chain purely to reduce prices may well deliver short-term results for the buyer but it is ultimately unsustainable.

A broader and more measured approach is required which addresses the overall business model and relationships between the parties in order to seek synergies and efficiencies. The manner in which we conduct our business must be such that it protects the long-term interests of all parties. Maintaining acceptable profit margins is vital if contractor investment in new assets and supplier investment in product and service innovation are to continue.

This long-term approach to effective supply chain management is the route that Subsea 7 has chosen to follow and we urge our clients and suppliers to work with us to achieve its aims for our mutual benefit.

We still have hard work ahead of us. Nevertheless, I look back at 2008 with satisfaction as a key year in which the Company reached a level of maturity and laid the solid foundations on which we will continue to build the business and face with confidence both the challenges and the exciting opportunities which lie ahead.

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Message from the Chief Executive Offi cer

2008 was a year in which Subsea 7 made further strides towards the vision of being the “Subsea Partner of Choice”. Our ability to execute complex projects globally has continued to improve without any compromise to our focus on safety and we have delivered record EBITDA of $521m on revenues of $2,373m, representing an EBITDA margin of 21.9%.

Our state-of-the-art pipelay and construction vessel, the Seven Seas, entered the fleet and made significant contributions to projects in Norway and Brazil. She was joined in the fleet by other vessels on long-term charter, including the multi-purpose subsea construction vessel, the Seven Sisters, which supported several projects in Norway and the UK.

Mel Fitzgerald, Chief Executive Officer

In order for Subsea 7 to be truly successful, the drive for effi ciencies and cost-effectiveness in our business must be ingrained into our behaviours and shape all aspects of how we work.

We confirmed our belief in our long-term market by acquiring the pipelay vessel, the Seven Navica, which had previously been on charter. Our deepwater installation capabilities in the Gulf of Mexico were greatly enhanced by the commissioning of a Vertical Lay System on one of our chartered vessels.

Onshore, the new North Sea pipeline fabrication spoolbase commenced operations at Vigra in Norway. Construction of our new North America spoolbase began at Port Isabel, Texas, quickly followed by the award of the first contract it will support, for the Marathon Droshky development. In Brazil, we expanded the capacity of the Ubu spoolbase through the addition of a second fabrication line. We also acquired a site at Paranaguá in Brazil for future development, to support the anticipated pre-salt projects in this region.

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Mel FitzgeraldChief Executive Officer

In addition to our ongoing capital investment programme on new assets, we have spent the last few years building a business model which focuses on the safe, timely, efficient and cost-effective delivery of our projects. This Annual Report provides many examples of the tangible impact these initiatives are having on our business.

We have organised our tendering expertise to ensure we can win work based on well-planned, risk-assessed and cost-effective bids. Our technical specialists in many different disciplines have been harnessed to deliver their collective expertise to bids and projects through our 17 Centres of Excellence. Vessel Support Teams bring retained knowledge, consistency and reliability both to tendering and to the operational activities of our major vessels. For key third-party goods and services, our 15 Critical Supply Networks have sought to optimise delivery lead times and value through mutually beneficial long-term supply chain relationships.

All of the above are underpinned by a learning culture supported by our Knowledge Management teams and systems, and by our investment in a new Business Management System which provides the governing framework for the way we work.

With regard to our safety performance, this year the Subsea Viking reached the milestone of eight years of operations without a single Lost Time Incident (LTI). Very close behind, on seven years LTI-free, were the Kommandor Subsea and the Rockwater 2. I congratulate the crews and project teams involved in this achievement. This demonstrates what is possible and sets a benchmark for all our vessels and

operational sites. We were pleased to receive two awards from one of our major clients, Chevron, for “Safety Excellence” on the Agbami project in Nigeria and the “Outstanding Contractor Award” to i-Tech’s ROV team on the Ocean Bounty drilling rig in Australia.

While we welcome these awards as acknowledgements of the great efforts our people are making towards continuously improving the safety of everyone involved in our business, we must remain focused on improving safety throughout the Company.

In order for Subsea 7 to be truly successful, the drive for efficiencies and cost-effectiveness in our business must be ingrained into our behaviours and shape all aspects of how we work. This represents sound business practice for sustainable and profitable business under all economic conditions. The current economic climate merely emphasises its importance. We believe we have started to take the right steps to address inefficiencies and reduce non-value-adding costs to make Subsea 7 fit for the future.

Finally, I am proud of the many achievements in 2008 by the people in Subsea 7. None of these would have been possible without their skills and dedication. They have delivered for all of our stakeholders on several fronts – overall financial results, projects, delivery of new assets, and business efficiencies. I thank them for their efforts.

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Through the Year:Building Blocks of Success

March

$200m EPIC contract for Sul Capixaba project in Brazil awarded by Petrobras. The challenging project includes a horizontally-drilled shore approach.

February

Major new technology project announced for development of next-generation Autonomous Underwater Vehicle (AUV) with partner SeeByte and part-funding from BP and Chevron.

May

Announcement of plans for our new spoolbase in Port Isabel, Texas, followed in August by award of the first contract for the spoolbase, from Marathon for the Droshky development.

January

Successful offshore completion of Saxi Batuque project in Angola for ExxonMobil.

April

Our new North Sea spoolbase in Vigra, Norway, commenced operations on its first project, a gas pipeline for StatoilHydro from Kollsnes processing plant to Mongstad refinery.

June

The Seven Seas, our state-of-the-art pipelay and construction vessel, started work on its first project, StatoilHydro’s Yttergryta field in the Norwegian sector of the North Sea.

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September

New Aberdeen office campus opened, facilitating better integration and greater efficiencies for the UK business unit and global support functions.

August

First-ever “Global Time-out for Safety” meeting held simultaneously on all our vessels and operational sites around the world.

July

Award of framework agreement with BP in support of Block 31 development programme. A contract for the first project, valued on award at an estimated $460m, was also confirmed.

December

Milestone of 60 pipeline bundle projects reached at Wick fabrication yard with successful launch and installation of a bundle for BP’s Machar field in the UK sector of the North Sea.

November

The Seven Oceans and the Seven Seas undertook joint operations for Shell on the BC-10 project in the Campos basin, Brazil.

October

The Skandi Neptune’s new Vertical Lay System was used for the first time to install umbilicals on the Chevron Tahiti project, in the USA.

Awards & Achievements

Subsea UK Company of the Yearawarded in February 2009

Chevron Australia Outstanding Contractor Award - i-Tech’s Ocean Bounty ROV teamawarded in December 2008

Oil & Gas UK Supply Chain Innovationawarded in November 2008 (in conjunction with Venture Production plc)

The Subsea Viking completed eight years LTI-freeachieved in November 2008

Chevron Project Resources Company Contractor Safety Excellence Award - Agbami projectawarded in October 2008

The Kommandor Subsea and the Rockwater 2 both completed seven years LTI-freeachieved in May and June 2008

Scottish Offshore Achievement Awards - Export Achievementawarded in March 2008

Scottish Offshore Achievement Awards - Overall Excellenceawarded in March 2008

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A Vision Built on Strong Foundations

We have launched a range of measures to help us attract, retain and reward the right people to drive our business improvement initiativesand to deliver our projects. Highlights in2008 included the following:

Engineering pool has been boosted globally 1. to support operations

100 people commenced either graduate, 2. trainee or apprenticeship schemes

98% of eligible workforce received a formal 3. performance appraisal

Maintained one of the lowest employee 4. turnover rates in the industry

Expanded and improved training facilities5.

Over $10m spent on training 6.

In order to achieve our vision, it is essential that Subsea 7 has:

skilled people and effective • teamwork;

the right assets and • supporting infrastructure;

excellent project delivery and • execution.

During 2008, we continued ourmulti-year programme of investment and business improvement initiatives addressing these three key areas in order to further our progress towards becoming the Subsea Partner of Choice. Each of these areas is actively led by a member of our executive management team.

Subsea 7 will be the Subsea Partner of Choice in the challenging and exciting global oil and gas industry. We will build our business around a motivated and valued workforce. We will be the recognised leader in safety and quality, delivering exceptional performance with the appropriate technical solutions and creating sustainable value for all our stakeholders.

WORKFORCE COMPOSITIONapproximate fi gures at 31 Dec 2008

1,200

1,500

ON

SH

OR

E P

ER

SO

NN

EL

OFFS

HO

RE

PE

RS

ON

NE

L

Staff2,400Staff

Contractors

700Contractors

TOTAL

5,800

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We have implemented a range of initiatives to optimise the way we are organised and the way we work to provide an improved framework for tendering and project execution.Highlights in 2008 included the following:

17 GLOBAL CENTRES OF EXCELLENCE

Gateway bidding team played a key role in 1. awards of BP Block 31 and Petrobras Sul Capixaba contracts

Critical Supply Networks achieved 2. i) improved frame agreements for linepipe, and ii) lead time reduction and cost-saving for valves through standardisation

Centres of Excellence overcame technical 3. challenges on major projects and bids (narrow pipelay corridor, steel catenary riser welding, drilled shore approach and pipe-in-pipe technology)

Vessel Support Team created for Seven Seas 4. improving operational efficiency

New Business Management System5.

Bundles1.

Corrosion, Coatings 2. and Field Joints

Flexibles3.

Geotechnical4.

Lay Equipment5.

Lifting6.

Pressure Testing and 7. Pre-commissioning

Risk and Reliability8.

ROV Technology and 9. Remote Tasks

Survey and Positioning10.

Valves and Flanges11.

Wire Ropes12.

Pipeline Welding and Non-13. Destructive Examination

Pipeline Design14.

Cranes15.

Riser Design16.

Umbilicals and Controls17.

Since 2005, we have invested $1.2 billion in vessels, equipment and onshore facilities to enable us to service our clients’ needs effectively and effi ciently around the world. Highlights in 2008 included the following:

Three new vessels joined the fleet: Seven 1. Seas, Seven Sisters and Skandi Seven

Acquired Seven Navica (previously on charter)2.

New-build deepwater pipelay and 3. construction vessel ordered: Seven Pacific

New North Sea spoolbase began operations 4. at Vigra in Norway; construction began on Port Isabel spoolbase in Texas

Paranaguá site acquired in Brazil for future 5. development, to service anticipated pre-salt projects

New Vertical Lay System installed on Skandi 6. Neptune in Gulf of Mexico

New Aberdeen office campus opened; 7. work started on new Stavanger campus

2008 CAPITAL EXPENDITURE

$351m $87m

$11m

Land and buildings

Plant and equipment

Vessels and marine equipment

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People and Teamwork

The Brazilian market is extremely important for Subsea 7. The Company has a long history of working in the country and has a well-established infrastructure. The two main challenges during 2008 were to return the business to profi tability and to prepare and position the Company strategically for the exciting growth opportunities that lie ahead.

The successful achievement to date of these goals was a result of the efforts of our people in Brazil and the focus by executive management on further strengthening the local team, supported by excellent integration and teamwork between the Brazilian organisation and global business improvement initiatives.

2008 was Subsea 7’s busiest-ever year in Brazil. The Company worked on seven major projects and laid 737km of rigid and flexible pipelines. Offshore operations featured nine different vessels from the global fleet, including all three of the new pipelay vessels – the Seven Seas, the Seven Oceans and the Normand Seven. Over 30 workclass ROVs were employed in construction operations and in i-Tech’s drilling support operations.

Subsea 7’s main offices in Brazil are situated in Niterói, near Rio de Janeiro. To the north of Niterói lies the Ubu spoolbase, which is strategically positioned to serve projects in the Campos Basin, which has traditionally been the most active of the oil and gas basins offshore Brazil. Further north again, the Vila Velha site is used for subsea structure fabrication including jumpers for projects such as Shell’s BC-10.

Further investment in 2008 to support the growth in activity included expansion of the Niterói offices, a new office and logistics base at Macaé, a new logistics base at Rio das Ostras and construction of a second welding production line at the Ubu spoolbase.

“Subsea 7’s business in Brazil has grown substantially due to our investment in assets and infrastructure to serve our clients’ needs. Equally importantly, we have invested in our people to develop a strong, indigenous team. We are well-placed to take advantage of the great opportunities in the coming years.”

Victor Bomfi m,Vice PresidentBrazil

Brazil - investing in people and process

The Seven Seas (left) and the Seven Oceans working for Shell on the BC-10 project offshore Brazil.

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Financial growth and return to profi tability

Organisational growth and global teamwork

2008 was a pivotal year for Subsea 7 in Brazil, with a growth in revenue of 92% as compared to 2007. More importantly, however, our Brazilian business returned to profi tability.

This welcome turnaround was the result of focused effort by the entire Brazilian team, ably supported by the global organisation and the Company's business improvement initiatives. Further investment in the local organisation strengthened operational performance and business controls. A further key feature was the successful shift towards a better balance of the business portfolio from mostly day-rate contracts to include more lump-sum contracts. The shift towards lump-sum contracts, although demanding stronger project controls and risk management, has also provided the opportunity for improved returns.

Subsea 7’s strategy in Brazil is to build a strong local organisation. In 2008, this grew to over 1,000 people. Several important steps were taken during the year to consolidate this growth and drive improved performance.

The management team was strengthened with the addition of personnel in key positions. The capacity of the engineering function was increased by 25%. Its capabilities continued to develop with several novel engineering challenges successfully overcome, such as installation of lazy-wave steel catenary risers and installation of heavy manifolds in deep water. In addition, support from the Centres of Excellence and the Vessel Support Teams greatly benefited bids and project operations.

The pre-salt discoveries are expected to feature prominently in future growth opportunities in Brazil. Estimates of recoverable reserves vary from around 50 to 80 billion barrels. Subsea 7 has acquired a substantial site for future development near Paranaguá, approximately 1,000km south of Rio de Janeiro.

This site is strategically positioned close to the pre-salt region of the Santos Basin, which is expected to be the first to be developed. This extensive 2,400 hectare site, which has a 5km seafront, is large enough to accommodate a spoolbase and support fabrication and logistics activities.

Ubu spoolbase

Subsea 7's people in Brazil

Subsea 7's infrastructure in Brazil and the pre-salt province

Pre-salt growth and strategic positioning

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Assets and Infrastructure

June 2008 saw Subsea 7’s new-build pipelay and construction vessel, the Seven Seas, join the fl eet on time and on budget.

The Seven Seas is a sister vessel of the Seven Oceans, but rather than having a rigid reel and lay tower, she is equipped with a highly versatile multi-lay tower and twin underdeck carousels. With a top tension capacity of 400t, the vessel can operate in flexlay and rigid J-lay mode in water depths of up to 3,000m, enabling Subsea 7 to offer J-lay capability to our customers for the first time.

In addition, her 1,750m2 deck area and 400t crane capacity mean she is ideally suited to installing the large structures associated with deepwater subsea field developments. She quickly proved her versatility and worth by working in quick succession on the Yttergryta project for StatoilHydro in Norway and for Shell on the BC-10 project in Brazil.

From inception to delivery in under 24 months, the Seven Seas is the second of four vessels being built through a successful, long-term partnership between Subsea 7, Merwede Shipyard and pipelay equipment specialist Huisman (the first being the Seven Oceans, which was delivered in 2007, and the next two being a state-of-the-art diving support vessel, the Seven Atlantic, and an additional pipelay and construction vessel, the Seven Pacific).

The close working relationships and repeat business between the parties in this partnership have generated many benefits. These have included cost-efficiencies, a reduction in duplicate design work and consistent on-time and on-budget delivery.

Including the Seven Seas, Subsea 7 has invested $1.2 billion since 2005 to ensure that it has the right assets, equipment and infrastructure in the global organisation so that it is strongly positioned for future growth.

“We worked hard to develop an effective team ethic which combined project and marine crews into one integrated team. We received great support from all supervisory staff in our efforts to make the vessel operate as a single entity, rather than a collection of unconnected departments.”Bryan Woodward, Captain of theSeven Seas

Seven Seas - a cornerstone of the fl eet strategy

Saturday 26th April 2008 saw the offi cial inauguration of Subsea 7’s deepwater pipelay and construction vessel, the Seven Seas, at Merwede Shipyard in The Netherlands.

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In July 2008, Subsea 7 was awarded a framework agreement with BP Angola Ltd in support of BP’s development programme in Block 31. A contract for the fi rst project, valued on award at an estimated $460m, was also confi rmed.

The Seven Seas’ multi-purpose capabilities were designed specifically for this type of large, remote and technically challenging deepwater project. The vessel will be deployed on the first project for over 400 days, commencing in 2010.

In addition to supporting the African business unit to secure the contract award, the Gateway team also worked closely with BP to develop the novel commercial model designed to reward both parties for performance improvements and efficiencies.

Subsea 7 was awarded the engineering, fabrication and installation contract by Shell Brasil Ltda for the development of the BC-10 fi elds. This project was the fi rst to utilise both of Subsea 7’s new pipelay vessels, the Seven Oceans and the Seven Seas.

Most of the engineering and project management was conducted in Subsea 7’s Brazilian offices, with a high proportion of local engineering talent in the project team. In water depths of 1,900m, the scope of work included installation of 11 steel pipelines, 7 lazy-wave steel catenary risers, 5 umbilicals, 4 manifolds and 25 rigid jumpers.

StatoilHydro's Yttergryta fi eld in the Norwegian sector of the North Sea went from exploration to production in a mere 16 months. This required robust technical solutions and safe execution by Subsea 7 of the main subsea installation scope, together with a remarkable team effort and excellent co-operation with the client and other key subcontractors.

The extensive capabilities offered by the Seven Seas made it possible to complete a range of construction activities, including installation of heavy structures, reel pipelay with a piggy-backed umbilical and installation of several rigid spools in a highly efficient programme. This was an important factor which helped the Yttergryta project to achieve first production in January 2009, four months ahead of target.

Seven Seas - the shape of things to comeBlock 31 - BP, Angola

Seven Seas' fi rst deepwater projectBC-10 - Shell, Brazil

Seven Seas’ maiden projectYttergryta - StatoilHydro, Norway

An alternative sea-fastening method for spools on deck reduced risk and saved cost

The Seven Seas working alongside her sister ship, the Seven Oceans, on Shell’s BC-10 project offshore Brazil

Executives from BP Angola and Subsea 7 at BP’s offi ce in London on the award of the Block 31 project.

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Project Execution and Delivery:Putting Business Improvement into Action

Subsea Field DevelopmentTombua Landana - Chevron, Angola

Subsea 7 combined its extensive engineering and project management experience with established in-country resources and infrastructure, and vessel capability, to deliver the Tombua Landana EPIC project for Cabinda Gulf Oil Company Limited (a wholly owned subsidiary of Chevron Corporation) in Block 14, offshore Angola.

Jan Willem van der Graaf, Subsea 7 ’s Vice President Africa, said: “The Tombua Landana project team delivered significant operating performance efficiencies by engaging directly with a number of our specialist in-house support

teams, including the Vessel Support Teams (VST), technical Centres of Excellence (CoE) and Critical Supply Networks (CSN).”

Experienced engineering resources from the rigid pipelay VST supported the project team to help meet critical deadlines by transferring knowledge from previous projects.

Invaluable input and guidance from the Umbilicals and Controls CoE helped to ensure high-quality output during umbilical manufacturing.

Expertise from the Corrosion, Coatings and Field Joints CoE contributed greatly towards overcoming technical challenges during pre-qualification trials at a new pipeline coating plant in Angola.

The Luanda spoolbase facility underwent an extensive multi-million dollar upgrade to improve workstations for welding, non-destructive examination and field joint coating. A substantial investment in training and development of Angolan nationals enabled welding activity to be provided by an in-country team of over 50 personnel.

Close relationships with key suppliers forged over multiple projects by the CSN proved invaluable in securing the supply of critical materials, such as flexible pipe for the project, during a period of high market demand.

Duration2006 - 2009

Main scope of workDesign, procurement, fabrication, installation and pre-commissioning of subsea tie-back facilities

AssetsLuanda Spoolbase

VesselsSeven OceansToisa Perseus

LocationBlock 14, Angola

Water depth270m - 370m

ClientChevron (Cabinda Gulf Oil Company Limited)

The Seven Oceans spooling pipe at 1. Luanda

Subsea 7 Angolan welders at work2.

11

22222222222222222

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CamarupimPetrobras, Brazil

Sul CapixabaPetrobras, Brazil

MacharBP, UK

The challenge was to install a 12” diameter rigid pipeline in a narrow, uneven seabed corridor with high slopes of up to 30o, near an existing operating line.

In such conditions, it was necessary to ensure that the stresses and strains experienced by the pipeline during installation were kept well below critical levels. The installation analysis undertaken by Subsea 7 ’s Pipeline Design CoE and the high-resolution bathymetric survey performed under the guidance of the Survey and Positioning CoE played a crucial role in defining the difficult pipelay procedure which was performed by the Seven Oceans.

The important contribution from the CoE successfully mitigated potentially costly risks and helped to ensure that installation operations were completed on schedule.

The Subsea 7 project team had to manage a nine-month schedule on this 1.3km pipeline bundle project, which marked Subsea 7’s 60th successful pipeline bundle launch.

The partnering strategy developed by Subsea 7’s CSN succeeded in negotiating a lead time reduction from 26 to 22 weeks for valves, one of the longest lead time items on the project. The valves were also delivered under budget.

The Pressure Testing and Pre-commissioning CoE devised the novel solution of the first-ever bundle with “pre-flooded” water injection and production pipelines. This solution reduced the offshore schedule by two days during the highly weather-sensitive December installation window.

Subsea 7 was awarded this EPIC contract in 2008 for installation in 2009 and 2010 which involves laying a 12” pipeline 78km from the Jubarte fi eld to shore. Two main technical risks needed to be addressed in the tender: pipeline on-bottom stability and a horizontally-drilled shore approach.

An excellent example of Subsea 7 teamwork between the CoE, the Seven Oceans VST and CSN, marshalled by the Brazilian team and Gateway, ensured the contract was secured against a robust tender. The pipeline and coating specifications were determined by the respective CoE, the pipelay method and schedule approved by the VST, and costs for key suppliers fixed at the time of main contract award by the CSN. Members of Subsea 7's Sul Capixaba project team

Launch of the Machar bundle from the Wester site near Wick

High-resolution digital terrain model of the Camarupim pipeline route (water depth from 65m - 710m)

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Project Execution and Delivery:Putting Business Improvement into Action

BP’s Foinaven and Schiehallion fi elds lie in the hostile, deepwater environment West of Shetland (WoS) in the north-east Atlantic Ocean. Subsea 7’s long association with these fi elds goes back to pre-sanction days in 1994. Subsea 7’s current contract was awarded in 2006 covering all construction, repair and maintenance services for a period of fi ve years.

Robin Davies, Subsea 7’s Vice President - North Sea, said: “West of Shetland is an excellent example of Subsea 7 establishing a long-term relationship with a client and delivering operating efficiencies with bespoke technical solutions.”

Subsea 7’s project team works in close cooperation with its BP counterpart, which enables seamless and effective delivery of day-to-day operations.

Extensive knowledge of the fields’ facilities and environment has been accumulated by Subsea 7 over many years. This is applied to ensure routine tasks are undertaken efficiently and any recurring problems can be resolved as soon as possible.

A further benefit to both Subsea 7 and BP is the opportunity to share this accumulated knowledge with other projects. Lessons learned on WoS are now being implemented on BP’s Block 18 project in Angola, for which Subsea 7 has a Life-of-Field (LoF) support services contract.

Subsea 7’s ROV Technology and Remote Tasks Centre of Excellence (CoE) has developed a number of novel solutions such as ROV-deployed laser-based inspection to meet the demands and challenges on WoS.

Many years of working in this demanding environment have been achieved by Subsea 7 while maintaining a strong commitment to safety. The Subsea Viking, the vessel which supports the WoS contract, achieved eight years of operations without a single Lost Time Incident (LTI) in November 2008 - a tribute to the exceptional safety culture of her crew and of the whole project.

Duration2007 - 2011

Main scope of workPipeline and umbilical installation, general construction, inspection, repair and maintenance

VesselsSubsea VikingSeven Navica

LocationWest of Shetland

Water depth395m to 455m

ClientBP Exploration Operating Company Ltd.

Life-of-FieldSubsea Construction Services - BP, UK

ROV intervention on production manifold1.

The Subsea Viking at work West of 2. Shetland

11111

22222

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Since 2005, Subsea 7 has worked together with Venture Production plc in a unique agreement supporting all Venture's subsea engineering, construction and IRM work in the UK. This award-winning partnership has to date generated total benefi ts to the client, including project cost savings and early production revenues, worth over $300m.

Under the stewardship of Subsea 7’s rigid pipelay Vessel Support Team (VST), the Seven Navica pipelay vessel was upgraded to handle flexible as well as rigid pipelay.

The vessel’s enhanced capabilities were proven on the Stamford project. By using only one vessel to deliver a varied workscope of a flexible flowline, rigid pipeline and a static umbilical, cost savings were achieved.

In 2006, Subsea 7 was awarded two separate six-year contracts by Shell, commencing in 2008. These contracts cover a broad range of manned and unmanned subsea services spanning IRM, light construction and limited well treatment operations for all of Shell’s European subsea oil and gas infrastructure.

In 2008, work offshore was supported by the Toisa Polaris, the Skandi Bergen and the Skandi Seven. Two new vessels, currently under construction, will support these contracts. The Normand Subsea ROV support vessel will be taken on charter to replace the Skandi Seven. The Seven Atlantic, which will be owned by Subsea 7, will replace the Toisa Polaris and provide a state-of-the-art diving and intervention capability.

Subsea 7 was awarded a contract by BP Angola (Block 18) BV to provide LoF support services for the Block 18 Greater Plutonio development, offshore Angola. This long-term contract (three years plus a two-year option) was one of the fi rst such deepwater LoF contracts to be awarded in Africa.

Subsea 7’s scope of work includes ROV-based IRM and light construction. This contract builds upon the relationship Subsea 7 has developed with BP West of Shetland (WoS). The experience gained and the lessons learned there are being applied to Block 18.

The project has already benefited from the valuable support of Subsea 7’s CoE. One programme of repair work was successfully completed with key input from the ROV Technology and Remote Tasks CoE and the Geotechnical CoE.

Engineering, Construction, Inspection, Repair and MaintenanceVenture, UK

Block 18 Life-of-FieldBP, Angola

Underwater Services ContractShell, Europe

Overboarding of rigid production jumper

The Skandi Seven mobilising in Norway for Shell operations

Subsea 7 and Venture Production management teams during a visit to the Seven Navica at the Vigra spoolbase, August 2008

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Executive Management Team

Mel FitzgeraldChief Executive OfficerBorn: 1950

Mel has been involved in the oil industry since he joined Brown & Root in 1974 as a Project Engineer and has worked in a number of locations including Malaysia, Indonesia, Singapore, Bahrain, Egypt and the UK, progressing through various technical and commercial positions until he joined European Marine Contractors (EMC) in 1988. He held a number of management positions with EMC before joining Halliburton Subsea as a Vice President in 2000, a position he held until January 2001, when he then took up the role of UK Vice President for Halliburton’s Energy Services Group. Mel joined Subsea 7 as Chief Executive Officer in July 2004. Mel has a Bachelor of Engineering Degree from Galway University of Ireland and a Masters in Business Administration from the University of Kingston, UK.

John EvansChief Operating OfficerBorn: 1963

John has over 20 years’ experience in the engineering and contracting sector as a Senior Manager and Chartered Engineer. During 18 years with Kellogg Brown & Root (KBR) and European Marine Contractors (EMC) he built a successful record in general management, commercial and operational roles in the offshore oil and gas industry. Between 2002 and mid-2005 John was Chief Operating Officer for KBR Infrastructure business in Europe and Africa. John joined Subsea 7 as Chief Operating Officer in July 2005. John has a B Eng (Tech) in Mechanical Engineering from the University of Wales, Cardiff and is a Chartered Mechanical and Marine Engineer.

Barry MahonChief Financial OfficerBorn: 1962

Barry has over 25 years' experience in finance and general management. He commenced his professional career with KPMG in Dublin and qualified as a Chartered Accountant in 1987 before moving to Perth, Western Australia where in 1992 he joined an Australian publicly-listed company, Orbital Engine Corporation Ltd, as its Group Financial Controller and then became Company Secretary. In 1996 he joined Halliburton as its Shared Services Manager with responsibility for all business support functions for their operations in Australia and New Zealand. In 2000 he accepted a posting to Aberdeen for Halliburton Subsea as its Shared Services Director. Barry joined Subsea 7 as Chief Financial Officer in July 2004. Barry has a Bachelor of Commerce degree from University College Dublin.

David CassieExecutive Vice President- CommercialBorn: 1956

David is a Chartered Quantity Surveyor with over 25 years’ oil and gas experience in both commercial and operational roles. He began his career with Construction John Brown and Press & Worley Offshore and from there moved to Britoil before moving into the subsea sector with Wharton Williams in 1985. After joining Stena Offshore in 1987 as Commercial Manager, David held a number of posts including Managing Director for the merged company Coflexip Stena Offshore, and latterly at Technip where he was Senior Executive Vice President, responsible for the North Sea, Canada and Caspian Region. David joined Subsea 7 as Executive Vice President - Commercial, in October 2002.

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Global Leadership Team

REGIONAL MANAGEMENT TEAM

GLOBAL MANAGEMENT TEAM

Dave Adams

Vice PresidentProject Management & Engineering

Victor Bomfi m

Vice PresidentBrazil

Jackie Doyle

Head of Communications

Craig Broussard

Vice President Asia Pacific

Nina El-Imad

Group Financial Controller

Ian Cobban

Vice PresidentNorth America

Neill Kelly

DirectorStrategic Development

Dick Martin

Vice PresidentLife-of-Field Services

Steph McNeill

Vice PresidentVessel and Equipment Management Group

Neil Milne

Managing Directori-Tech

Graeme Murray

General Counseland Vice PresidentCommercial & Procurement

Mike O’Meara

Vice PresidentHealth, Safety,Environment, Quality

Martin Ridley

Vice PresidentGlobal Business Acquisition

Graham Sharland

Chief Operating OfficerAfrica

Dr Stuart N Smith

Vice PresidentTechnology & Asset Development

Russell Stewart

Vice PresidentHuman Resources

Robin Davies

Vice PresidentNorth Sea

Judith Tocher

Vice PresidentLegal

Tor Espedal

Vice PresidentNorway

Steve Wisely

Vice PresidentBusiness AcquisitionAsia Pacific

Jan Willem van der Graaf

Vice PresidentAfrica

Andy Woolgar

Vice PresidentOperations

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Financial Report

CONTENTS

27 Board of Directors

28 Board of Directors’ Report

31 Corporate Governance Report

35 Directors' Responsibility Statement

36 Report of the Independent Auditor

37 Income Statements

38 Balance Sheets

39 Statements of Changes in Shareholders’ Equity

41 Cash Flow Statements

42 Notes to the Financial Statements

79 Financial Calendar

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Board of DirectorsPursuant to the Company’s Articles of Association, the board of directors of Subsea 7 Inc. shall have from three to seven shareholder-elected members. All directors served for the full year.

Mr Siem is the chairman of Subsea 7 Inc. and is also chairman of Siem Offshore Inc., Siem Industries Inc., Siem Industrikapital AB, and a director of Star Reefers Inc., and North Atlantic Smaller Companies Investment Trust plc. Mr Siem is a citizen of Norway.

Mr Fitzgerald, who is also the chief executive officer of Subsea 7 Inc., is a qualified civil/structural engineer and has over thirty years of industry experience, having worked in Malaysia, Indonesia, Singapore, Bahrain, Egypt and the UK for Brown & Root before holding several management positions at European Marine Contractors and Halliburton Subsea. He has an MBA from the University of Kingston and is an Irish citizen.

Mr Delouche is the president and secretary of Siem Industries Inc. and is responsible for the financial and corporate management function. He is in charge of the company’s operations at the head office in George Town, Cayman Islands. Mr Delouche holds a civil engineering degree and an MBA and was previously an audit manager with KPMG Peat Marwick LLP. He is a US citizen.

Kristian SiemChairman of the BoardBorn: 1949

Mel Fitzgerald*Board Member (independent)Born: 1950

Michael DeloucheBoard MemberBorn: 1957

Mr Stevens has extensive marine and financing experience, previously holding senior executive positions with Great Lakes Transport Limited, McLean Industries Inc. and Sea-Land Service Inc. Mr Stevens is chairman of Trailer Bridge Inc. He is a graduate of the University of Michigan and Harvard Law School and is a US citizen.

Mr Schultz has been in several leading positions within shipping, chartering and broking and, since 1980, has been conducting his own business within project financing and consulting. He has an MBA from the University of Utah, USA. Mr Schultz is a Norwegian citizen.

Allen L StevensBoard Member (independent)Born: 1943

Arild SchultzBoard Member (independent)Born: 1944

*Independent of the Company’s main shareholder but a member of the Company’s executive management team

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Board of Directors’ Report

The directors of Subsea 7 Inc. present their report for the year ended 31 December 2008 together with the financial statements of the Group and Company for the year. The financial statements and related notes on pages 37 to 79 were authorised for issue by the board of directors (the ‘board’) on 27 March 2009 and will be laid before the shareholders at the Annual General Meeting (the ‘AGM’) to be held on 8 May 2009.

Results and dividendIn 2008 the Group recorded revenues of $2,373 million and a net profit of $264 million, compared to revenues of $2,187 million and a net profit of $214 million in 2007.

Net operating profit for the year ended 31 December 2008 was $425 million compared to $316 million for the same period in 2007. Net operating margins as a percentage of revenue increased to 17.9% in 2008 from 14.5% in 2007. Reasons for the year-on-year improvement in margins included improved pricing and good project execution. Net financial expense for the year ended 31 December 2008 was $43 million compared to $3 million for the year ended 31 December 2007. The significant year-on-year increase in expense is primarily due to a charge of $34 million representing changes in the fair value of derivative financial instruments, of which $12 million is related to the marking-to-market of foreign exchange contracts and $22 million is related to the re-measurement at fair value of the embedded option contained within the Acergy S.A. convertible loan notes.

Taxation expense for the year ended 31 December 2008 was $131 million (2007: $101 million) which equates to an effective rate of 33.1% (2007: 32.0%)

Net profit attributable to equity shareholders for the year ended 31 December 2008 was $264 million, or $1.80 per share, compared to a net profit of $214 million, or $1.45 per share, for the year ended 31 December 2007.

The directors do not recommend the payment of a dividend for the year (2007: nil), preferring that the Group’s profit is reinvested in the business.

Financing activitiesIn January 2008, the Company repurchased 890,000 of its own shares at an average price of NOK 98.04 per share (equivalent to $17.66 per share). These shares have been cancelled and form part of the authorised but un-issued share capital of the Company.

During the year, the Group negotiated a revolving credit facility with Siem Industries Inc. for $100 million. This facility, which is on market terms, was used to partially fund the investments that were made in Acergy S.A. As at 31 December 2008, $50 million of the Siem Industries Inc. revolving credit facility remained undrawn.

In January 2009 the Group concluded an amendment to its revolving credit and guarantee facilities with DnB NOR Bank ASA dated 20 December 2004, increasing the revolving credit facility from $100 million to $150 million.

Financial risk managementThe Group’s multinational operations and debt financing expose it to a variety of financial risks. The Group has in place risk management policies that seek to limit the adverse effects of these risks on the financial performance of the Group. Further details explaining the Group’s financial risk management are detailed in note 2 to the financial statements.

Share optionsDuring 2008, no new awards under the share option scheme for employees were made by the board. During the year, 64,400 share options awarded through previous option schemes were exercised. Further details relating to these share options can be found in note 21 to the financial statements.

ShareholdersThe Company’s authorised share capital is $2 million divided into 200,000,000 ordinary shares of a nominal value of $0.01 each. The issued share capital at 27 March 2009 was $1,469,194 divided into 146,919,380 shares. The shares of the Company are listed on the Oslo Stock Exchange with the ticker code SUB. Over the course of 2008 the share price fell from NOK 121.50 on the first day of trading to NOK 40.50 on the last.

Earnings per share for 2008 was $1.80 (diluted: $1.74) compared to earnings per share of $1.45 (diluted: $1.44) in 2007.

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The Company’s 20 largest shareholders at 25 March 2009 were as follows:

ShareholderNumber of shares Owner

interest %

Siem Industries Inc. * 54,109,045 36.83%Clearstream Banking SA 10,281,919 7.00%DNB Nor Bank ASA 5,700,000 3.88%DNB Nor Bank ASA 5,620,000 3.83%Bank of New York 5,088,491 3.46%JPMBLSA 3,784,670 2.58%JP Morgan Chase Bank 3,106,337 2.11%Citibank n.a. New York Branch 2,929,569 1.99%State Street Bank and Trust Co. 2,139,778 1.46%Bank of New York 2,136,591 1.45%MP Pensjon 2,112,500 1.44%Nordea Bank Denmark AS 1,965,669 1.34%RBC Cees Trustee Limited 1,789,990 1.22%Bank of New York 1,614,530 1.10%JP Morgan Chase Bank 1,588,588 1.08%Credit Suisse Securities 989,279 0.67%JP Morgan Chase Bank 959,269 0.65%State Street Bank and Trust Co. 920,985 0.63%Brown Brothers Harriman & Co. 890,953 0.61%Waterman Holding Inc. 845,000 0.58%

Total 20 largest shareholders 108,573,163 73.90%

*Siem Industries Inc. is the beneficial owner of 65,429,045 shares which represent 44.5% of the total issued shares. This excludes 4,680,000 shares in Subsea 7 Inc. that were borrowed by Lehman Brothers International (Europe), which is currently in administration, and have not been redelivered.

Directors and board committeesThe names of the current directors and their biographical details are presented on page 27. The directors are subject to re-election by the shareholders every two years and, accordingly, Mr Siem, Mr Delouche and Mr Schultz will be standing for re-election at the AGM. Information on the audit and compensation committees is included in the corporate governance report on pages 31 to 34.

Health, safety and environmentSubsea 7 is committed to upholding the highest standards of health, safety and environmental protection for the benefit of its employees, the public at large and the environment. The Group has a formal health and safety policy and an environmental policy which are brought to the attention of every employee and contractor. The Group’s policy for working on clients’ sites is that industry best practice is observed as a minimum, even when local requirements fall short of these standards. Safety issues, together with the control measures in place, form part of the Group’s risk based internal control system. The board receives regular reports on health and safety issues.

Employees and equal opportunitySubsea 7 promotes equal opportunity and addresses unfair discrimination in every aspect of its operations. This is reflected in the Group’s corporate governance, management systems, and operational activities.

The Group recognises that this goal can only be achieved by establishing a clear policy agenda which is then implemented and enforced by systematic management action. The Group’s equal opportunities and diversity in employment policy is supported by encouraging open communications through line management, employee forums and environment committees. This is further underpinned by the provision of a confidential whistle-blowing helpline and training which focuses on the application of the Subsea 7 code of business conduct. The Group has invested in open communications with the workforce through a variety of channels including regular newsletters and updates. In addition to day-to-day line manager briefings, this is achieved by formal employee representative and environment committee forums.

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Offshore, competence assessment and appraisals are conducted regularly whilst onshore a comprehensive performance management system is deployed.

The Group holds a number of ‘town hall’ presentations every year which are hosted by the CEO. These meetings are delivered around the organisation. At a local level, there are various meetings to address safety and operational issues as well as localised department and function meetings as appropriate.

Considerable effort is applied to ensure all employees are both informed and aware of organisational performance and goals for the future.

Going concernThe financial statements have been prepared under the assumption of going concern. This assumption is based on the level of cash and cash equivalents at the year end, the credit facilities in place, the forecast cash flows for the Group and the backlog position at 31 December 2008.

Market outlookThe financial crisis and economic downturn during 2008 has created greater uncertainty about the market outlook, however, it remains too early to say with any certainty how this downturn will affect the Group’s operations and markets. Whilst the market outlook will retain a larger degree of uncertainty for the medium term as a result of the current economic climate, there has been no dramatic deterioration in the subsea market sector.

Current indications are that national oil companies and major operators are generally maintaining spending levels. However, as expected, the anticipated spending of smaller operators has been reduced and, as a consequence, a number of development plans have been re-evaluated and deferred. This has particularly affected the UK sector of the North Sea and North America where a number of tie-back projects have been postponed.

There are indications of decreases in costs throughout the supply chain and, in conjunction with this, the Group is focused on reducing its costs and improving efficiencies in order to remain competitive in the current market.

Board of Subsea 7 Inc.27 March 2009

Kristian Siem, Chairman Michael Delouche Mel Fitzgerald

Arild Schultz Allen L Stevens

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Corporate Governance Report

As a Company incorporated in the Cayman Islands, Subsea 7 Inc. is subject to Cayman Islands laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English law. Further, as a consequence of being listed on the Oslo Stock Exchange, the Company must comply with certain aspects of Norwegian securities law and is also obligated to adhere to the Norwegian Code of Practice for Corporate Governance (‘the code’) on a “comply or explain” basis.

Subsea 7 Inc. is committed to ensuring that high standards of corporate governance are maintained and supports the principles set out in the code. However, since the Company is governed by Cayman Islands laws and regulations, certain practices are applied which deviate from some of the recommendations of the code.

The Group’s corporate governance policies and procedures are explained below, with reference to the principles of corporate governance as set out in the sections identified in the code.

Implementation and reporting on corporate governanceSubsea 7 Inc. acknowledges the division of roles between shareholders, the board of directors and the executive management team. The Group further ensures good governance is adopted by holding regular board meetings which the executive management team attend to present on strategic, operational and financial matters.

BusinessAs stated, Subsea 7 Inc. is subject to Cayman Islands laws and regulations which do not require the objects clause of the Company’s Memorandum and Articles of Association to be clearly defined. The Company’s Articles of Association can be referred to on the Company’s website: www.subsea7.com.

Subsea 7 provides all the products and services required for subsea field development, including project management, design and engineering, procurement, fabrication, survey, installation, and commissioning of production facilities on the seabed and the tie-back of these facilities to fixed or floating platforms or to the shore.

The Group also delivers a suite of services to support the maintenance and integrity management of these assets throughout their producing life including survey, inspection, repair and maintenance, integrity management and decommissioning.

Equity and dividendsEquityTotal shareholders’ equity at 31 December 2008 was $689,666,000 (2007: $819,757,000) which the directors believe is satisfactory given the Group’s strategy and objectives.

Dividend policyIt is Subsea 7’s objective to give the Company’s shareholders a competitive return on their invested capital over time. The return is to be achieved through a combination of an increase in the value of the shares and dividend payments. In recent years the Company has retained all earnings to support and develop operations and, therefore, has not paid dividends.

Equity mandatesThe board of directors’ mandate to increase the Company’s issued share capital is limited only to the extent of the authorised share capital of the Company in accordance with the Company’s Memorandum and Articles of Association which are in accordance with Cayman Islands law.

The board of directors can approve the purchase of Company shares up to a limit of 10% of the issued share capital in any 12 month period in accordance with the Articles of Association. The board’s right to acquire the Company’s own shares is conditional on such purchases being made in open market transactions through the Oslo Stock Exchange.

Equal treatment of shareholders and transactions with close associatesThe Company has one class of shares which are listed on the Oslo Stock Exchange. Each share carries equal rights including an equal voting right at annual or extraordinary general meetings of shareholders of the Company. The Articles of Association contain no restrictions on voting rights.

Related party transactionsAny transactions between the Group and members of the board of directors, executive management or close associates are detailed as related party transactions in note 32 to the financial statements.

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The Group’s code of business conduct requires any director or employee to declare if they hold any direct or indirect interest in any transaction entered into by the Group.

Freely negotiable sharesThe Articles of Association contain no form of restriction on the negotiability of shares in the Company.

Annual general meetingThe annual general meeting (“AGM”) is held each year in the Cayman Islands. The notice of meeting and agenda documents for the AGM are posted on the Group’s website at least 21 days prior to the meeting and this information is sent to shareholders at least 14 days prior to the meeting. Documentation from previous AGMs can be found on the Group’s website.

All shareholders that are registered with the Norwegian Central Securities Depository System receive a written notice of the AGM. Subject to the procedures described in the Articles of Association all shareholders have the right to submit proposals and may vote either directly or by proxy. The registration deadline is at least 24 hours prior to the commencement of the AGM.

The chairman of the board of directors ordinarily chairs the AGM. However, if a majority of the shareholders request an independent chairman, one would be appointed.

All directors are encouraged to attend the AGM. The AGM of shareholders elects the board of directors, approves the Annual Report and financial statements of the Group and Company, appoints the external auditor and determines the remuneration of the board and auditor. The chairman of the board is elected by the directors annually.

Nomination committeeThe appointment of a nomination committee is not a requirement under Cayman Islands law and the Company has so far not seen sufficient reason to appoint such a committee.

Corporate assembly and board of directors: composition and independenceAs a Cayman Islands registered entity, the Company does not have a corporate assembly.

The board comprises five directors at 27 March 2009, three of whom are independent of the Company’s main shareholder. Mr Fitzgerald, the Chief Executive Officer (‘CEO’), was appointed to the board in May 2007. The board operates controls to ensure that no conflicts of interest exist in this regard including, but not limited to, the establishment of the compensation committee and audit committee. Mr Fitzgerald does not sit on either of these committees. The composition of the Company’s board of directors, including the controls to avoid conflicts of interest, is in accordance with both Cayman Islands company law and good corporate governance practice.

The board endeavours to ensure that it is constituted by directors with a varied background and with the necessary expertise, diversity and capacity to ensure that it can effectively function as a cohesive body. Prior to proposing candidates to the general meeting for election to the board, the board of directors seeks to consult with the Company’s major shareholders. The directors of the board are elected by the shareholders of the Company at the AGM for a two-year term, following which they can stand for re-election. Biographies of the individual directors are detailed on page 27 of this Annual Report.

The directors of the board are encouraged to hold shares in the Company which the board believes promotes a common financial interest between the members of the board and the shareholders of the Company.

The work of the board of directorsEach December the board of directors sets a plan for its work for the following year which includes a review of strategy, objectives and their implementation, the review and approval of the annual budget and review and monitoring of the Group’s current year financial performance. The board is scheduled to meet in person approximately four times a year, and four times by telephone conference, but the schedule is flexible to react to operational or strategic changes in the market and Group circumstances.

The board of directors has overall responsibility for the management of the Group and has delegated the daily management and operations of the Group to the CEO, Mr Fitzgerald, who is appointed by and serves at the discretion of the board of directors. The CEO is supported by the other members of the executive management team which consists of Mr Cassie (Executive Vice President - Commercial), Mr Evans (Chief Operating Officer) and Mr Mahon (Chief Financial Officer), further details of whom are available on page 24 of this Annual Report. The executive management team has the collective duty to implement Subsea 7’s strategic, financial and other objectives, as well as to safeguard the Group’s assets, organisation and reputation.

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The board receives appropriate, precise and timely information on the operations and financial performance of the Group from the executive management team, which is imperative for the board to perform its duties.

The board has established a compensation committee and an audit committee, each of which has formal terms of reference approved by the board of directors. Matters are delegated to the committees as appropriate. The directors appointed to these committees are selected based on their experience and to ensure the committees operate in an effective manner. The minutes of all committee meetings are circulated to all directors. The work of these committees is explained in the sections below on ‘Remuneration of the executive management’ and ‘Auditor’ respectively.

In the event that the chairman of the board cannot attend a meeting or is conflicted in leading the work of the board, a deputy chairman will be appointed.

Attendance by directors, either in person or via telephone conference, at the meetings of the board and its committees during 2008 is summarised below:

Meeting BoardAudit

committeeCompensation

committeeNumber of meetings 18 2 2Attendance by:Kristian Siem1 2 17 2 2Michael Delouche1 17 2 1*Arild Schultz2 3 14 - 2Allen L Stevens3 17 - -Mel Fitzgerald4 17 - 1*

1 Member of audit committee2 Member of compensation committee3 Independent of the Company’s main shareholder and the Company’s executive management4 Independent of the Company’s main shareholder but a member of the Company’s executive management team* Attended part of the meeting

The performance of the board of directors is constantly monitored and reviewed to ensure the composition and the way in which the directors function both individually and as a collegiate body is effective and efficient.

Risk management and internal controlThe board acknowledges its responsibility for the Group’s system of internal control and for reviewing its effectiveness. The Group’s system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss.

The Group adopts internal controls appropriate to its business and culture. The key components of the Group’s system of internal control are described below.

The Group has in place clearly defined lines of responsibility and limits of delegated authority. Comprehensive procedures provide for the appraisal, approval, control and review of capital expenditure. The executive management team meet with the global leadership team on a regular basis to discuss particular issues affecting each region and business unit, including their key risks, health and safety statistics, legal and financial matters. The Group maintains a comprehensive annual planning and management reporting system and a detailed annual budget is prepared in advance of each year and supplemented by revised forecasts during the course of the year. In addition, a five year strategic plan is updated annually. Actual financial results are reported monthly and compared to budget, revised forecasts and prior year results. The board reviews and approves all reports on projected and actual financial performance.

The board derives further assurances from the reports from the audit committee. The audit committee has been delegated responsibility to review the effectiveness of the internal financial control systems implemented by management and is assisted by internal audit and the external auditors where appropriate.

Remuneration of the board of directorsThe Company’s directors receive remuneration in accordance with their individual roles. The remuneration of the CEO is detailed in note 6 to the financial statements. For all other directors, remuneration is not linked to the performance of the Company but is based on participation at meetings and sub-committees. The directors are encouraged to own shares in the Company but do not participate in any incentive or share option schemes, with

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the exception of Mr Fitzgerald. The remuneration of the board of directors is approved at the AGM annually and is disclosed in note 6 to the financial statements.

Directors are not permitted to undertake specific assignments for the Group unless this has been disclosed and approved in advance by the full board of directors.

Remuneration of the executive managementThe compensation committee is responsible for determining and reviewing the remuneration and terms and conditions of the members of executive management. Subsea 7 is committed to offering executive management competitive remuneration based on current market conditions, Group and individual performance.

During 2005, the Company’s AGM approved the implementation of a share option plan designed to promote value creation and align the interests of executive management and other senior employees with those of the shareholders. Options vest in equal proportions on a quarterly or annual basis over a period of time, generally five years. Options vested cannot be exercised until at least one year after grant. Refer to note 21 to the financial statements for further details of the share option schemes.

All proposals to issue share options under the scheme are presented and approved by the board of directors prior to issue. The number of options awarded is monitored due to the share option plan restriction that options issued within any 12 month period ending on and including the proposed date of issue cannot exceed 1% of the issued share capital of the Company at the proposed date of issue.

Further details on the remuneration of executive management are contained in note 6 to the financial statements.

Information and CommunicationSubsea 7 Inc.’s board of directors concurs with the principles of equal treatment of all shareholders and the Company is committed to reporting financial results and other information that is open, accurate and timely. The Company provides information to the market through quarterly and annual reports, investor and analyst presentations which are open to the media, and by making operational and financial information available on the Group’s website. Announcements are released through notification to the Oslo Stock Exchange's company disclosure system and simultaneously on the Group’s website. As a listed company, the Company complies with the relevant regulations regarding disclosure. Information is only provided in English.

Take-oversSubsea 7 Inc.’s board will strive to ensure that complete information is provided in all situations affecting the shareholders’ interests.

AuditorThe audit committee is responsible for ensuring that the Group has an independent and effective external audit process. The audit committee supports the board of directors in the administration and exercise of its responsibility for supervisory oversight of financial reporting and internal control matters and to maintain appropriate relationships with the Group’s auditor. The audit committee charter details the terms of reference for the audit committee. The Group’s auditor meets the audit committee annually regarding the planning and preparation of the annual accounts and subsequently to present their report on the internal control procedures. The audit committee members hold separate discussions with the external audit partner once during the year without executive management being present. The scope, resources and the level of fees proposed by the external auditor in relation to the Group’s audit are approved by the audit committee.

The audit committee recognises that it is occasionally in the interests of the Group to engage its auditor to undertake certain other non-audit assignments. Fees paid to the auditor for audit and non-audit services are presented and approved at the AGM. The audit committee also requests the Group’s auditor to confirm annually in writing that the auditor is independent.

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Directors’ Responsibility Statement

We confirm that, to the best of our knowledge, the financial statements for the period from 1 January to 31 December 2008 have been prepared in accordance with current applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group taken as a whole. We also confirm, to the best of our knowledge, that the Annual Report includes a true and fair overview of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties facing the Company and the Group.

Board of Subsea 7 Inc.27 March 2009

Kristian Siem, Chairman Michael Delouche Mel Fitzgerald

Arild Schultz Allen L Stevens

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Report of the Independent Auditor

We have audited the Group and Parent Company financial statements (the ‘‘financial statements’’) of Subsea 7Inc (the “Group”) for the year ended 31 December 2008 which comprise the Group and Parent Company Income Statements, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Shareholders’ Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein.

Respective responsibilities of directors and auditorsThe directors are responsible for preparing the financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, in accordance with the regulations of the Oslo Stock Exchange.

Our responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Group’s members as a body and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come, save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statements give a true and fair view. We also report to you if the Group has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the: Financial Results; Message from the Chairman; Message from the Chief Executive Officer; Board of Directors’ Report; Corporate Governance Report and all other information listed in the contents on page 3. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances and have been consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:

the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the • European Union, of the state of the Group’s affairs as at 31 December 2008 and of its profit and cash flows for the year then ended; the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by • the European Union, of the state of the Parent Company’s affairs as at 31 December 2008 and of its loss and cash flows for the year then ended; andthe financial statements have been properly prepared in accordance with the regulations of the Oslo Stock • Exchange.

PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsAberdeen27 March 2009

Notes:The maintenance and integrity of the Subsea 7 Inc website is the responsibility of the directors; the work carried out by the auditors does not involve(a)

consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.(b)

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Income StatementsFor the year ended 31 December 2008

Group Company

(Amounts in $1,000) Note 2008 2007 2008 2007

Revenue 2,373,252 2,187,354 18,478 10,741Project and vessel expenses (1,322,882) (1,300,271) - -Employee benefits 6 (476,200) (425,637) - -Other operating expenses (65,249) (72,086) (8,775) (7,750)Depreciation, amortisation and impairments 11, 12 (95,300) (76,927) - -Profit on disposal of property, plant and equipment

11,671 3,654 - -

Total operating expenses (1,947,960) (1,871,267) (8,775) (7,750)

Net operating profi t 425,292 316,087 9,703 2,991

Changes in fair value of derivative financial instruments

18, 19 (34,177) (2,032) (34,143) 2,547

Net currency gain/(loss) 18,761 14,957 (108,012) (3,793)Finance income 7 5,881 8,843 22,042 23,118Finance expense 7 (33,014) (25,238) (34,704) (25,149)Net fi nancial items (42,549) (3,470) (154,817) (3,277)

Share of post tax profit from joint ventures 14 11,768 1,165 - -Share of post tax (loss)/profit from associates 15 (8) 998 - -Profi t/(loss) before tax 394,503 314,780 (145,114) (286)

Taxation 8 (130,506) (100,659) - -Net profi t/(loss) attributable to equity shareholders

263,997 214,121 (145,114) (286)

Earnings per share, in $ per share- basic- diluted

99

1.801.74

1.451.44

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Balance SheetsAs at 31 December 2008

Group Company

(Amounts in $1,000) Note 2008 2007 2008 2007

ASSETSNon-current assetsGoodwill 10 98,533 98,533 - -Other intangible assets 11 1,130 1,780 - -Property, plant and equipment 12 991,408 906,551 - -Deferred tax assets 25 15,113 3,454 - -Investment in subsidiary undertaking 13 - - 113,785 109,145Investments in joint ventures 14 12,582 814 - -Investments in associates 15 1,601 1,609 - -Amounts due from group companies - - 368,715 297,970

1,120,367 1,012,741 482,500 407,115Current assetsInventories 16 22,567 25,209 - -Trade and other receivables 17 659,097 659,139 531,639 2,344,000Available-for-sale financial assets 18 85,414 - 85,414 -Derivative financial instruments 19 1,483 5,120 1,225 2,797Cash and cash equivalents 20 114,066 167,657 49,959 85,966

882,627 857,125 668,237 2,432,763TOTAL ASSETS 2,002,994 1,869,866 1,150,737 2,839,878

SHAREHOLDERS' EQUITY AND LIABILITIESShareholders’ equityShare capital 21 1,469 1,477 1,469 1,477Share premium reserve 21 271,238 286,508 271,238 286,508Shares held by Employee Share Trust 21 (9,430) - - -Other reserves 22 (225,650) 152,362 11,920 83,721Retained earnings 652,039 379,410 (149,498) (9,024)Total shareholders’ equity 689,666 819,757 135,129 362,682

Non-current liabilitiesBorrowings 24 559,737 387,301 559,737 387,301Deferred tax liabilities 25 99,610 57,823 - -Retirement benefit obligations 26 1,002 1,789 - -Other non-current liabilities 27 4,237 4,384 37,900 -

664,586 451,297 597,637 387,301Current liabilitiesTrade and other payables 23 605,358 548,770 407,315 2,089,645Current tax liabilities 32,728 47,366 - -Derivative financial instruments 19 10,656 2,282 10,656 250Finance lease obligations 24 - 394 - -

648,742 598,812 417,971 2,089,895Total liabilities 1,313,328 1,050,109 1,015,608 2,477,196TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES

2,002,994 1,869,866 1,150,737 2,839,878

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Statements of Changes in Shareholders’ EquityFor the year ended 31 December 2008

Group

(Amounts in $1,000)Share

capitalShare

premium

Shares held by

Employee Share Trust

Other reserves

Retained earnings Total

At 1 January 2008 1,477 286,508 - 152,362 379,410 819,757

Foreign currency translation - - - (302,219) - (302,219)Available-for-sale financial assets – fair value adjustment

- - - (71,801) - (71,801)

Total expense recognised directly in equity

- - - (374,020) - (374,020)

Net result for the year - - - - 263,997 263,997Total income and expense for the year

- - - (374,020) 263,997 (110,023)

Share based payments - - - - 4,640 4,640Shares issued – exercise of options 1 437 - - - 438Depreciation on re-valued assets - - - (3,992) 3,992 -Purchase of own shares (9) (15,707) - - - (15,716)Shares purchased by Employee Share Trust

- - (9,430) - - (9,430)

At 31 December 2008 1,469 271,238 (9,430) (225,650) 652,039 689,666

At 1 January 2007 1,473 283,682 - 88,196 158,585 531,936

Foreign currency translation - - - 20,066 - 20,066Total income recognised directly in equity

- - - 20,066 - 20,066

Net result for the year - - - - 214,121 214,121Total income for the year - - - 20,066 214,121 234,187

Share based payments - - - - 2,785 2,785Shares issued – exercise of options 4 2,826 - - - 2,830Depreciation on re-valued assets - - - (3,919) 3,919 -

Convertible notes 2007-2017 equity component

- - - 48,019 - 48,019

At 31 December 2007 1,477 286,508 - 152,362 379,410 819,757

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Statements of Changes in Shareholders’ Equity - continuedFor the year ended 31 December 2008

Company

(Amounts in $1,000)Share

capitalShare

premiumOther

reservesRetained earnings Total

At 1 January 2008 1,477 286,508 83,721 (9,024) 362,682

Available for sale financial assets – fair value adjustment

- - (71,801) - (71,801)

Total expense recognised directly in equity

- - (71,801) - (71,801)

Net result for the year - - - (145,114) (145,114)

Total income and expense for the year - - (71,801) (145,114) (216,915)

Share based payments - - - 4,640 4,640Shares issued – exercise of options 1 437 - - 438Purchase of own shares (9) (15,707) - - (15,716)At 31 December 2008 1,469 271,238 11,920 (149,498) 135,129

At 1 January 2007 1,473 283,682 35,702 (11,523) 309,334

Net result for the year - - - (286) (286)Total income for the year - - - (286) (286)

Share based payments - - - 2,785 2,785Shares issued – exercise of options 4 2,826 - - 2,830

Convertible notes 2007-2017 equity component

- - 48,019 - 48,019

At 31 December 2007 1,477 286,508 83,721 (9,024) 362,682

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Cash Flow StatementsFor the year ended 31 December 2008

Group Company

(Amounts in $1,000) Note 2008 2007 2008 2007

Cash fl ows from operating activitiesCash generated from / (used in) operations 28 590,414 323,827 (1,122) (106,584)Finance income received 6,237 8,489 22,042 23,118Finance expense paid (10,578) (8,677) (12,268) (8,565)Taxation paid (115,016) (35,616) - -Net cash from / (used in) operating activities 471,057 288,023 8,652 (92,031)

Cash fl ows from investing activitiesDeferred consideration on acquisition of subsidiary - (1,136) - -Proceeds from sale of property, plant and equipment

26,073 4,287 - -

Purchase of property, plant and equipment (449,282) (383,690) - -Purchase of available-for-sale financial assets (179,381) - (179,381) -Purchase of intangible assets - (501) - -Net cash used in investing activities (602,590) (381,040) (179,381) -

Cash fl ows from fi nancing activitiesNet proceeds from issue of ordinary share capital 438 2,830 438 2,830Purchase of own shares (15,716) - (15,716) -Proceeds from issue of convertible notes - 175,000 - 175,000Shares purchased by Employee Share Trust (9,430) - - -Drawdown of loans 150,000 - 150,000 -Government grants received 15 83 - -Finance lease principal payments (394) (767) - -Net cash from financing activities 124,913 177,146 134,722 177,830

Effects of exchange rate changes (46,971) (3,057) - -

Net (decrease) / increase in cash and cash equivalents

(53,591) 81,072 (36,007) 85,799

Cash and cash equivalents at 1 January 167,657 86,585 85,966 167Cash and cash equivalents at 31 December 114,066 167,657 49,959 85,966

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Notes to the Financial Statements

1 Summary of signifi cant accounting policies

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

Basis of preparationSubsea 7's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by the European Union and the regulations of the Oslo Stock Exchange. The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investments and financial assets and financial liabilities at fair value through profit or loss. The financial statements have been prepared on the going concern basis.

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the year. The estimates and judgments which are most significant or complex are disclosed in note 3 to the financial statements.

Disclosure of impact of changes to existing standardsThe following standards, amendments and interpretations to published standards, which are of relevance to the Group’s and Company's operations, were mandatory for the year ended 31 December 2008:

IFRIC 11 ‘IFRS 2 - Group and Treasury Share Transactions’ This interpretation requires that when an employee is granted rights to the Group’s equity instruments that this right is accounted for as an equity-settled scheme, even if the Group buys the instruments from another party, or the shareholders provide the equity instruments needed.

IFRIC 12 ‘Service Concession Arrangements’ This interpretation provides guidance on the accounting by operators of public-to-private service concession agreements. It has no impact on the Group.

IFRIC 14 ‘IAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction’ This interpretation addresses how to limit, under IAS 19 Employee Benefits, the amount of surplus that can be recognised as an asset, particularly when a minimum funding requirement exists.

The adoption of IFRIC 11 and IFRIC 14 did not have a material impact on these financial statements.

Disclosure of impact of future accounting standardsRelevant new standards, amendments and interpretations issued by the International Accounting Standards Board (IASB), but not yet effective and not applied in these financial statements, are as follows.

Effective for fi nancial years beginning on or after 1 July 2008, to be adopted by the Group from 1 January 2009:

IAS 39 and IFRS 7 ‘Reclassifi cation of Financial Assets’This amendment allows the reclassifications of certain financial instruments from the 'held for trading' and 'available-for-sale' categories. No adjustments are expected on initial application of the amendment, but any future reclassifications would be affected with additional disclosure required.

Effective for fi nancial years beginning on or after 1 January 2009, to be adopted by the Group from 1 January 2009:

IFRS 2 (Amendment) ‘Share Based Payment – vesting conditions and cancellations’The amendment clarifies that only service conditions and performance conditions are vesting conditions, and other features of a share based payment scheme are not vesting conditions. In addition, it specifies that all cancellations, whether by the Group or by other parties, should receive the same accounting treatment. On adoption, all option conditions will be reassessed to determine if they are vesting conditions. To the extent any conditions previously considered to be vesting conditions are now considered non-vesting, Subsea 7 will consider whether the grant date fair value of the award needs to be changed retrospectively. This is not expected to have a material impact on the reported income or net assets.

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IFRS 8 ‘Operating Segments’ The standard requires a ‘management approach’ to reporting financial performance. Alternative disclosures regarding segmental performance are required on adoption.

IAS 1 (Revised) ‘Presentation of Financial Statements’Separate presentation of owner and non-owner changes in equity will be required through the introduction of the statement of comprehensive income. Whenever there is a restatement or reclassification, an additionalbalance sheet, as at the beginning of the earliest period presented, will be required. The adoption of the revised standard will not impact reported income or net assets, but revised disclosure is required.

IAS 23 ‘Borrowing Costs’ (Revised)The standard requires capitalisation of borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset. On adoption there may be a decrease in borrowing costs charged to the Income Statement, with a corresponding increase in assets.

IAS 27 ‘Consolidated and Separate Financial Statements – Cost of an investment in a subsidiary, jointly controlled entity or associate (Amendments)’The amendments require that all dividends received are treated as income, and this receipt may trigger an impairment review. The amendments also clarify the cost of investment where, in reorganisations, a new parent is inserted above an existing parent in the group. These amendments are relevant to Company’s accounts prospectively only.

Improvements to IFRSs In May 2008 the IASB issued an omnibus of amendments to its standards, primarily to remove inconsistencies and clarify wording. No material impact on reported income or net assets is expected on initial application of the improvements.

Effective for fi nancial years beginning on or after 1 July 2009, to be adopted by the Group from 1 January 2010:

IFRS 3 ‘Business Combinations (Revised)’The standard changes the scope of the previous business combinations standard. It introduces some changes to the existing treatment of acquisitions, including expensing of all transaction costs and revised treatment of contingent consideration. The standard applies only to business combinations after the effective date.

IAS 27 ‘Consolidated and Separate Financial Statements (Amendment)'This amendment requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. Such transactions will no longer result in goodwill gains or losses. When control is lost, any remaining interest in the entity is remeasured to fair value and a gain or loss recognised in the profit and loss. No material impact expected on initial application.

The following standards, amendments and interpretations are not expected to apply to the Group’s or Company’s financial statements:

Title Effective DateIFRIC 13 ‘Customer Loyalty Programmes’ 1 July 2008IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’ 1 October 2008IAS 32 and IAS 1 ‘Puttable Financial Instruments and Obligations Arising on Liquidation’ 1 January 2009IFRIC 15 ‘Agreements for the Construction of Real Estate’ 1 January 2009IAS 39 'Financial Instruments: Recognition and Measurement – Eligible hedged items' 1 July 2009 IFRIC 17 ‘Distributions of Non-Cash Assets to Owners’ 1 July 2009 IFRIC 18 ‘Transfers of Assets from Customers’ 1 July 2009

Principles of consolidationIn preparing the consolidated financial statements, the Group is treated as one economic entity. Inter-company transactions and inter-company balances are eliminated.

SubsidiariesSubsidiaries, consisting of those entities in which the Group has either an interest of more than one half of the voting rights or otherwise has the power to exercise control over the operations, are consolidated. The financial statements of subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Investments in subsidiaries are consolidated according to the purchase method. All inter-company transactions, balances and unrealised gains on transactions between

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Group companies are eliminated. The purchase price is assigned to identifiable assets and liabilities in the subsidiary, and is included in the consolidated financial statements at fair value at the time of purchase. Any premium paid over and above the market value of the identifiable assets and liabilities at the acquisition date is recognised as goodwill in the balance sheet. Other entities’ interests in subsidiaries not wholly owned by the Group are reflected as minority interests based on the book value of the subsidiaries’ net assets.

Joint venturesA joint venture is a commercial business governed by an agreement between two or more participants, giving them joint control over the business.

In the consolidated financial statements, joint ventures are consolidated according to the equity method. The share of earnings recorded in the consolidated income statement is the after tax earnings of the joint ventures.

Jointly controlled operationsA jointly controlled operation is an operation involving two or more participants where each participant uses its own resources and carries out its own part of the operations separately from the activities of the other participant(s). Each participant owns and controls its own resources that it uses in the joint operation and incurs its own expenses and raises its own financing. Rules are established governing how revenues and any common expenses are shared among the participants. Jointly controlled operations do not involve the establishment of a corporation, partnership, entity, or a financial structure that is separate from the investors themselves.

Jointly controlled operations are accounted for as if the operations were conducted independently. The Group accounts for its share of the assets, liabilities and cash flows arising from the operations in its own accounting records, with no further adjustments or consolidation procedures being necessary.

AssociatesAn associate is an entity over which an investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee entity but not control or joint control over those policies.

In the consolidated financial statements, associates are consolidated according to the equity method. The share of earnings recorded in the consolidated income statement is the after tax earnings of the associates.

Segment reportingSegment reporting follows the Group’s internal reporting structure and accordingly, its primary segment reporting is geographical areas with secondary segment information reported by business.

A geographical segment is engaged in providing products or a service within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments.

The Group is organised into main geographic regions which are the primary business segments: North Sea, Africa, Brazil, North America, Asia Pacific, and Global. The secondary reporting segments are the two core divisions in which the Group operates being Construction and IRM (Inspection, Repair and Maintenance), and i-Tech.

Functional and presentation currencyItems included in the financial statements of each entity of the Group are measured using the currency of the primary economic environment in which each entity operates (the functional currency). The United States dollar ($) is the functional currency of Subsea 7 Inc. and is the currency in which the consolidated financial statements are presented. All amounts in these consolidated financial statements are in $1,000 unless otherwise stated.

Foreign currency translationIncome statements of entities in the Group that prepare their results in a currency other than the United States dollar are translated into United States dollars at the weighted average exchange rates for each period and balance sheets are translated at the exchange rates ruling at year-end. The cumulative translation adjustments arising from the re-translation of the net investment in such entities are included in shareholders’ equity.

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

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The main exchange rates used throughout the Group at the balance sheet date, compared to $, were as follows:

GBP: 0.66990EUR: 0.71844NOK: 7.01459

GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets and liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

Represents the lowest level within the Group at which the goodwill is monitored for internal management • purposes; andIs not larger than a segment based on either the Group’s primary or secondary reporting format • determined in accordance with IAS 14 ‘Segment Reporting’.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units), to which the goodwill relates. Recoverable amounts are determined based on value in use calculations using discounted cash flow projections based on financial budgets approved by executive management. The discount rate applied to the cash flow projections is the Group’s cost of capital at the impairment test date, adjusted for an appropriate margin and risk factors. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Other intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

A summary of the policies applied to intangible assets is as follows:

Intellectual property and patent rights – finite lived – duration of licence or rightsCustomer contracts – finite lived – contract duration, 2 to 5 years

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Property, plant and equipmentProperty, plant and equipment are stated at initial cost including any directly related costs of acquisition, less accumulated depreciation and accumulated impairments in value. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Depreciation is provided on all property, plant and equipment at annual rates calculated to write off the cost of each asset to its estimated residual value evenly over its expected useful life as follows:

Buildings – 25 yearsPlant and equipment – 3 to 10 yearsVessels and marine equipment – 5 to 20 years

Assets under construction and land are not depreciated.

Expenditure incurred during inspections, major repairs or dry-docking is recognised in the carrying amount of property, plant and equipment as a replacement if the recognition criteria are satisfied. Dry-docking costs are considered a separate component of the vessels’ cost that have a different pattern of economic benefits and are therefore depreciated separately. Dry-docking expenses are amortised over the period until the next scheduled dry-docking, up to a maximum of 5 years.

Upon retirement or disposal of property, plant and equipment, the costs and related accumulated depreciation are derecognised and any gain or loss arising (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement.

Investments in subsidiary undertakingsInvestments in subsidiaries are included in the financial statements at cost less provisions for impairment.

InventoriesInventories are stated at the lower of cost or net realisable value. Cost is computed using standard cost which approximates actual cost, on a first in, first out basis. The Group makes inventory provisions for impairment based on an assessment of excess and obsolete inventories.

Trade and other receivablesTrade and other receivables are recognised initially at fair value and subsequently at amortised cost less provision for impairment. Provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

Available-for-sale fi nancial assetsAvailable-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale. Where these assets include a convertibility option, this option is considered to be an embedded derivative. The fair value of any such embedded derivative is determined by using a Black-Scholes model.

After initial measurement, available-for-sale financial assets (excluding any embedded derivatives) are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is derecognised or determined to be impaired, at which time the cumulative loss recorded in equity is recognised in the income statement.

For available-for-sale financial assets, the Group assesses at each balance sheet date whether there is objective evidence that an asset or group of assets is impaired.

In the case of equity shares classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss previously recognised in the income statement, is removed from equity and recognised in the income statement.

Impairment losses on equity shares are not reversed through the income statement; increases in their value after impairment are recognised directly in equity.

Embedded DerivativesAfter initial measurement, embedded derivatives are recognised at fair value with unrealised gains or losses recognised in the income statement.

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The Group will only reassess the existence of an embedded derivative if the terms of the host financial instrument change significantly.

Derivative fi nancial instrumentsDerivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The Group has not elected to account for any of its derivative financial instruments as hedges for accounting purposes as prescribed in IAS 39 and, accordingly, all changes in the fair value of derivative financial instruments are recognised in the income statement when they occur.

The fair values of derivative financial instruments are classified as either current or non-current assets or liabilities according to the maturity dates of the derivative contracts.

Cash and cash equivalentsCash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call with banks and other short-term highly liquid investments, less bank overdrafts. Deposits held with banks with interest rate maturities up to 12 months have been classified as cash equivalents where deposits could be repaid within 3 months without penalty.

BorrowingsConvertible notesThe fair value of the liability component of a convertible note is determined using a market interest rate for an equivalent non-convertible note. This amount is recorded as a liability, on an amortised cost basis, until extinguished on conversion, redemption or maturity. The remainder of the proceeds of a convertible note represents the estimated fair value of the equity conversion option at inception and this component of the note is recorded in shareholders’ equity.

Borrowing costsInterest costs are recognised as an expense when incurred. Loan issue and arrangement expenses are capitalised and amortised over the term of the loan on a straight line basis.

LeasesFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance expense and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expense is charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.

Government grantsGovernment grants are recognised as income over the periods necessary to match them with the costs which they are intended to compensate. Grants which are related to assets are credited to deferred income on receipt and released to the income statement over the expected useful life of the related asset. Grants which are of a revenue nature are credited to the income statement so as to match them with the expenditure to which they relate.

Deferred considerationDeferred consideration relates to the future cash consideration payable in respect of acquisitions which is contingent on the outcome of future events. When an acquisition agreement provides for an adjustment to the consideration contingent on future events, provision is made for that amount if the adjustment is probable and can be measured reliably. The amount provided is included in the cost of the acquisition. When the final amount payable is determined, or when revised estimates are made, the acquisition cost and provision are adjusted accordingly. Deferred consideration is recorded at its fair value.

Retirement benefi tsThe Group operates a number of defined contribution schemes. These schemes are administered separately from the Group and the Group has no further obligations in respect of these schemes once the contributions have been paid. Contributions to these schemes are recognised as an expense when incurred.

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The Group closed one of the defined benefit pension schemes during the year. At 31 December 2008 the Group operated two defined benefit schemes in Norway. One of the schemes is funded through payments to an insurance company determined by periodic actuarial calculations and one scheme is unfunded.

The liability recognised in the balance sheet in respect of the defined benefit schemes is the excess of the present value of the schemes’ obligations at the balance sheet date over the fair value of the schemes’ assets at the balance sheet date, together with adjustments for unrecognised actuarial gains or losses. The schemes’ obligations are calculated annually at the balance sheet date by independent actuaries using the projected unit credit method. The present value of the schemes’ obligations is calculated by discounting the estimated cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the pensions will be paid and that have terms to maturity approximating to the terms of the schemes’ liabilities.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of the schemes’ assets or 10% of the schemes’ obligations are charged or credited to the income statement over the schemes members’ expected average remaining working lives.

Share-based payment transactionsCertain employees (including executive management) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’).

Equity-settled transactionsThe cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using a Black-Scholes model, further details of which are given in note 21.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Shares held by Employee Share TrustOwn equity instruments which are reacquired by the Subsea 7 Employee Share Trust are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Sale of goodsProduct revenue is generally recognised when a signed contract or other persuasive evidence of an arrangement exists, the product has been shipped, the fee is fixed or determinable and collection of resulting receivables is reasonably assured.

Rendering of servicesService revenue consists primarily of revenue received from billings that provide for specific services for customers, material and equipment charges which accrue daily and are billed periodically, ranging from weekly to monthly billing for the delivery of subsea services to customers over a contractual term. Service revenue is generally recognised when a signed contract or other persuasive evidence of an arrangement exists, the service

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has been provided, the fee is fixed or determinable and collection of resulting receivables is reasonably assured.

Construction contractsThe Group follows the generally accepted practice of accounting for long-term construction, engineering and project management contracts on the percentage of completion basis as costs are incurred. Under this method, revenue is recognised according to the stage of completion reached in the contract by reference to the value of work done. If a contract can be split into sub-projects, each sub-project is treated separately.

For all contracts, no profit is recognised before the outcome of the contract can be measured reliably, and generally this will mean no profit is recognised until progress has reached at least 20% of completion. The estimated cost used to determine profit at completion reflects all facts or occurrences expected to affect the final cost of the contract. The entire amount of any estimated contract loss is recognised when it first becomes evident.

For contracts which satisfy certain criteria, profit is recognised in accordance with the risk profile of the contract as assessed by management instead of being recognised in accordance with the simple percentage of total costs principle. The pattern of revenue recognition for these contracts depends on individual contract circumstances and terms, but generally the application of this policy may result in there being a requirement for a larger percentage of completion prior to any profit being recognised, the application of variable profit margins at separately identifiable stages of the contract, and the majority of profit being recognised in the later stages of the contract.

On a contract or sub-project basis, the amount by which costs incurred plus recognised profit exceeds progress billings is presented as accrued income, and the amount by which progress billings exceed total costs incurred plus recognised profit is presented as deferred income.

TaxationCurrent taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred taxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability • in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; andIn respect of taxable temporary differences associated with investments in subsidiaries, associates • and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

Where the deferred income tax asset relating to the deductible temporary difference arises from the • initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; andIn respect of deductible temporary differences associated with investments in subsidiaries, • associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Sales taxRevenues, expenses and assets are recognised net of the amount of sales tax except:

Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation • authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; andReceivables and payables that are stated with the amount of sales tax included.•

The net amount of sales tax recoverable from, or payable to, the taxation authorities is included as part of receivables or payables in the balance sheet.

2 Financial risk management

The Group’s multinational operations and debt financing expose it to a variety of financial risks. The Group has in place risk management policies that seek to limit the adverse effects of these risks on its financial performance. The board of directors has overall responsibility for the establishment and oversight of the Group’s financial risk management framework. The responsibility for managing and monitoring the day-to-day financial risks is delegated to the treasury department with an authorisation matrix agreed with the Chief Financial Officer. The risk management policies are implemented by the treasury department which receives regular reports from all the operating companies to enable prompt identification of financial risks so that appropriate action may be taken.

(a) Foreign exchange riskThe Group is exposed to foreign exchange risk arising on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of individual Group entities which are principally United States dollars ($), United Kingdom pounds (GBP), Brazil real (BRL), Norwegian krone (NOK) and Euros (EUR). As the Group’s presentation currency is $, it is also subject to foreign exchange translation risk in respect of the results and underlying net assets of foreign operations.

Techniques in managing foreign exchange risk include, but are not limited to, foreign currency borrowing and investing and the use of currency derivative instruments. The Group selectively manages significant exposures to potential foreign exchange losses considering current market conditions, future operating activities and the associated cost in relation to the perceived risk of loss.

The Group manages currency exposures through the use of currency derivative instruments related to the major currencies, which are generally the currencies of the countries of the majority of the Group’s international business. These contracts generally have an expiration date of two years or less. Forward exchange contracts, which are commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are the primary derivative instruments used to manage identifiable foreign currency commitments and generally relate to long-term engineering and construction projects. While derivative instruments are subject to fluctuations in value, the fluctuations are generally offset by the value of the underlying exposures being managed. The use of some contracts may limit the ability of the Group to benefit from favourable fluctuations in foreign exchange rates.At 31 December 2008, if the $ had strengthened/weakened by 10% against GBP with all other variables held constant, net profit attributable to equity shareholders and correspondingly, total shareholders’ equity would have been $5,046,000 (2007: $798,000) lower/higher, mainly as a result of foreign exchange losses/gains on the re-measurement of GBP denominated trade receivables, trade payables, short-term inter-company receivables, short-term inter-company payables and cash and cash equivalents.

(b) Cash fl ow and fair value interest rate riskThe Group has interest rate risk arising from long-term borrowings. Borrowings at variable rates expose the Group to cash flow interest rate risk and borrowings at fixed rates expose the Group to fair value interest rate risk.

During 2008 and 2007, the Group had fixed rate borrowings in the form of convertible notes, further details of which are set out in note 24.

At 31 December 2008 the Group had access to variable rate borrowings in the form of two $100 million revolving credit and guarantee facilities. The Group is able to draw down on these facilities, as needed, any amount which is a multiple of $2.5 million (DnB NOR Bank ASA) or $10 million (Siem Industries Inc.), for contractually specified or other negotiated periods of time, at interest rates determined with reference to LIBOR at the time of borrowing. Further details of these facilities are set out in note 24.

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On 30 January 2009, the Group signed an amendment to its existing revolving credit and guarantee facilities with DnB NOR Bank ASA, increasing the revolving credit facility from $100 million to $150 million.

The Group has no significant interest bearing assets other than cash and cash equivalents and the Acergy convertible loan notes, therefore the Group’s income and operating cash flows are substantially independent of changes in market interest rates. Cash and cash equivalents are invested for short maturity periods, generally less than one week, which mitigates the potential interest rate risk.

The Group monitors its exposure to interest rate risk as part of its overall monitoring of financial risk management, but has not entered into any interest rate derivatives to manage its cash flow and fair value interest rate risks.

(c) Credit riskFinancial instruments that potentially subject the Group to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents, primarily composed of deposits and investments in money market funds, are maintained with a number of major financial institutions in each of the regions that the Group operates. The Group has, from time to time, significant short-term credit exposure from receivables from major companies in the oil and gas exploration and production sector. Credit risk from the ordinary course of trade activities is managed by the regional business units applicable to where the receivables are located. The Group performs ongoing credit evaluations of its customers and generally does not require collateral from its customers.

Concentration of counterparty risk:At 31 December 2008, 92% of cash and cash equivalents were invested with five counterparties based in four countries.

The table below shows the concentration of trade receivables counterparty risk at the balance sheet date by ranking customers by size of receivable balance at the balance sheet date. Further details of the evaluation of counterparty risk are set out in note 17.

2008 2007Total receivables from customers ranked 1-5 90,693 94,554Total receivables from customers ranked 6-10 41,932 47,090Total receivables from customers ranked 11-15 22,431 27,750Total receivables from customers ranked 16-20 10,963 15,877Total receivables from customers ranked 21-25 8,488 12,718Total receivables from other customers 28,217 18,108

202,724 216,097

(d) Liquidity riskThe Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure the Group has sufficient available funds for operations and planned expansions. Further details of the composition of funding are set out in note 24.

The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining contractual period at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows.

Less than 1 year

Between 1 and 2 years


More than 5 years

At 31 December 2008Convertible notes 2007-2017 - - - 192,397Convertible notes 2006-2011 8,400 8,400 304,200 -Derivative financial instruments 10,656 - - -Trade and other payables 605,358 - - -At 31 December 2007Convertible notes 2007-2017 - - - 192,397Convertible notes 2006-2011 8,400 8,400 312,600 -Derivative financial instruments 2,032 - - -Trade and other payables 548,770 - - -

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The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining contractual period at the balance sheet date. The amounts disclosed are the contractual undiscounted cash flows.

Less than 1 year



More than 5 years

At 31 December 2008Forward foreign currency contracts - outflow 182,969 - - -Currency swaps - outflow 1,973 - - -At 31 December 2007Forward foreign currency contracts - outflow 46,221 12,896 - -Currency swaps - outflow 22,208 - - -

(e) Other price riskThe Group is exposed to other price risk arising due to market fluctuations on the Group’s investment in Acergy S.A., which includes $107 million (par value) 2.25% Convertible Notes due 2013, 1,603,400 shares and 2,979,485 American Depositary Receipts (ADRs).

At 31 December 2008, if the Acergy S.A. convertible loan notes, shares and ADR prices had been 10% higher/lower with all other variables held constant, the value of the total investment would have been $8,541,000 (2007: $nil) higher/lower.

Capital risk managementThe objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure the Group may, amongst other things, adjust the amount of dividends paid to shareholders, issue new shares, repurchase existing shares, or sell assets to reduce debt. There were no changes to the Group’s approach to capital management in the year.

Capital for the Group is total shareholders' equity and is detailed in the Group's statement of changes in shareholders' equity on page 39.

The Group is subject to externally imposed capital requirements through covenants in place under the DnB NOR Bank ASA revolving credit facility. All covenants are tested quarterly and the Group complied with the covenants throughout 2008 and 2007.

Fair value estimationThe carrying value of certain of the Group’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities, approximates fair value because of their short maturities.

The fair value of borrowings is determined by discounting future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

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3 Critical accounting estimates and judgments

The most important estimates and judgments are discussed below. Estimates and judgments are continually evaluated and are based on historical experience and other factors management believe to be reasonable under the circumstances.

Revenue recognitionThe Group accounts for long-term construction, engineering and project management contracts using the percentage of completion basis as costs are incurred. Under this method, revenue is recognised according to the stage of completion reached in the contract by reference to the value of work done as a proportion of the total work to be performed, and for certain contracts also with reference to the risk profile of the contract. The calculation of the stage of completion on contracts requires estimates to be made, especially regarding the cost to complete, and actual results may differ from these estimates. Further details relating to amounts recorded for construction contracts can be found in notes 5, 17 and 23.

TaxationThe Group is subject to taxes in numerous jurisdictions and significant judgement is required in calculating the consolidated tax provision. There are many transactions for which the ultimate tax determination is uncertain and for which the Group makes provisions based on an assessment of internal estimates and appropriate external advice, including decisions regarding whether to recognise deferred tax assets in respect of tax losses. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax charge in the period in which the outcome is determined. Further details relating to taxation can be found in notes 8 and 25.

Goodwill carrying valueAn impairment review has been performed for all goodwill balances held across the Group on a cash generating unit basis. The impairment review is performed on a value-in-use basis which requires estimation of future net operating cash flows and the time period over which they will occur. Further details relating to the impairment review can be found in note 10.

Defi ned benefi t pension schemeA qualified actuary undertakes the estimation of the present value of the Group’s obligations under defined benefit pension schemes using assumptions taken from a range of possible actuarial assumptions. These assumptions may not be borne out in practice, especially due to the long timescales involved. The valuation of scheme assets is based on the fair value at the balance sheet date. As these assets are not intended to be sold in the short term, their value may change significantly prior to realisation. Further details relating to the defined benefit pensionscheme can be found in note 26.

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4 Segment reporting

Segment reporting follows the Group’s internal reporting structure and, accordingly, its primary segment reporting is geographical areas with secondary segment information reported by business.

Primary reporting format – Geographic segments

Group

Year ended 31 December 2008North

Sea Africa BrazilNorth

AmericaAsia

Pacifi c Global Group

RevenueExternal customers 1,051,462 461,564 620,577 166,192 73,409 48 2,373,252

Inter-segment 406,585 212 3,270 13,472 4,550 18,625 446,714

Total revenue 1,458,047 461,776 623,847 179,664 77,959 18,673 2,819,966

ResultsSegment result 234,757 114,719 27,908 42,068 28,100 (22,260) 425,292


- - - - - (34,177) (34,177)

Net currency gain - - - - - 18,761 18,761

Finance income - - - - - 5,881 5,881

Finance expense - - - - - (33,014) (33,014)

Share of post tax profit from joint ventures

- - - - 11,768 - 11,768

Share of post tax loss from associates

- - - - - (8) (8)

Profit/(loss) before tax 234,757 114,719 27,908 42,068 39,868 (64,817) 394,503

Taxation (93,735) (15,638) (1,098) (11,693) (7,010) (1,332) (130,506)

Net profi t/(loss) attributable to equity shareholders

141,022 99,081 26,810 30,375 32,858 (66,149) 263,997

Assets and liabilitiesTotal segment assets 954,849 339,285 345,218 47,239 59,698 256,705 2,002,994

Total segment liabilities 436,399 92,959 146,403 40,205 25,792 571,570 1,313,328

Other segment itemsCapital expenditure 329,289 64,751 34,044 13,563 3,380 4,255 449,282

Depreciation & impairment ofproperty, plant and equipment

35,475 18,702 30,645 889 4,456 4,594 94,761

Amortisation of intangible assets 508 - - - 31 - 539

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Primary reporting format – Geographic segments

Group

Year ended 31 December 2007North

Sea Africa BrazilNorth

AmericaAsia

Pacifi c Global Group

RevenueExternal customers 1,025,031 514,280 323,411 152,394 167,353 4,885 2,187,354

Inter-segment 312,846 746 880 11,128 243 - 325,843

Total revenue 1,337,877 515,026 324,291 163,522 167,596 4,885 2,513,197

ResultsSegment result 229,077 75,179 (27,053) 29,615 34,684 (25,415) 316,087


- - - - - (2,032) (2,032)

Net currency gain - - - - - 14,957 14,957

Finance income - - - - - 8,843 8,843

Finance expense - - - - - (25,238) (25,238)

Share of post tax profit from joint ventures

- - - - 1,165 - 1,165

Share of post tax profit from associates

- - - - - 998 998

Profit/(loss) before tax 229,077 75,179 (27,053) 29,615 35,849 (27,887) 314,780

Taxation (59,194) (33,574) - (3,202) (3,945) (744) (100,659)

Net profi t/(loss) attributable to equity shareholders

169,883 41,605 (27,053) 26,413 31,904 (28,631) 214,121

Assets and liabilitiesTotal segment assets 1,120,481 149,237 228,793 55,172 92,212 223,971 1,869,866

Total segment liabilities 295,981 147,480 137,848 29,794 45,852 393,154 1,050,109

Other segment itemsCapital expenditure 165,628 153,027 63,236 420 1,379 - 383,690

Depreciation & impairment ofproperty, plant and equipmentAmortisation of intangible assets 597 - 151 10 40 - 798

At 31 December 2008, the Group was organised into five geographic segments and a “Global” segment as follows:

North SeaThis covers all operations in the UK, Norway, Denmark, the Netherlands and any other works offshore continental Europe. There are regional project management and engineering organisations in Aberdeen, Scotland and Stavanger, Norway. There is a spoolbase in Vigra, Norway and a bundle fabrication site at Wick, Scotland.

AfricaThis covers operations in the continent of Africa. There are offices established in London, England; Lagos, Nigeria; and both an office and a spoolbase in Luanda, Angola.

BrazilThis covers all works in Brazil. There is a project management and engineering organisation based in Rio de Janeiro, Brazil, and a logistics support base near Macae, Brazil and a spoolbase at Ubu, Brazil.

North AmericaThis covers all works in North America, the Gulf of Mexico and offshore Mexico. There is a project management and engineering organisation based in Houston, USA supporting all operations and a spoolbase under construction at Port Isabel, USA.

32,840 6,036 23,178 608 4,256 9,211 76,129Depreciation & impairment ofproperty, plant and equipment

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Asia Pacifi cThis covers operations in Asia Pacific. There is an office in Perth, Australia, and a project management and engineering organisation based in Singapore.

GlobalThis comprises the global support functions, including the vessel and equipment management group. Finance income and expense, derivative instrument fair value changes, net currency items and profits or losses on disposals of property, plant and equipment are also allocated to this segment.

Secondary reporting format – Business segments

Group

Revenue Segment assets Capital expenditure

2008 2007 2008 2007 2008 2007

Construction and IRM 2,203,554 2,039,612 1,943,338 1,806,391 427,947 362,518i-Tech 169,698 147,742 59,656 63,475 21,335 21,172

2,373,252 2,187,354 2,002,994 1,869,866 449,282 383,690

At 31 December 2008, the Group had two main business segments consisting of seven specialist activities as follows:

Construction and Inspection, Repair and Maintenance (IRM)Construction and IRM relates to subsea engineering, installation, construction, inspection, repair and • maintenance of all upstream oil and gas applications.Deepwater Services and Technology provides a team of engineers which develops new technology to • design and install systems and facilities in the deeper water areas of the world.Pipelay Services provides rigid and flexible pipeline and riser systems executed by dedicated reel-lay • vessels.Towed Production Services is the complete design, construction, tow-out and installation of pipeline • bundles. Technological development continues on in-house projects such as ‘open’ and ‘intelligent’ bundles, and installation of Steel Catenary Risers.Survey and Positioning provides advanced technology and techniques from our fleet of specialist vessels • and those of our clients, offering highly sophisticated data acquisition, processing and data presentation.Remote Technology Group provides specialist engineering expertise and practical knowledge to support • construction, IRM and ROV activities.

i-TechROV Services relates to a fleet of Remotely Operated Vehicles. Using the latest tooling intervention • techniques, engineers provide a complete ROV service from concept to maintenance.

CompanyThe Company operates as a holding company and provides support and treasury services to the Group. Its results are therefore reported within a single segment.

5 Construction contracts

Group2008 2007

All construction contractsAmount of contract revenue recognised as revenue in the year 2,172,857 2,005,727

Construction contracts in progress at 31 DecemberAmount of revenue recognised in the year 1,234,038 1,298,757Amount of costs incurred and recognised losses in the year (1,096,125) (1,134,084)

137,913 164,673

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6 Employee benefi ts

Group

Employee costs for the Group during the year

2008 2007Wages and salaries 419,286 372,917Social security costs 35,033 30,396Pension costs – defined contribution schemes 16,948 18,390Pension costs – defined benefit schemes (note 26) 4,933 3,934

476,200 425,637

Executive management compensation

Salaries andshort-term employee

benefi ts

Post employment

benefi ts

Share based payments (note 21) Total

Year ended 31 December 2008Chief Executive Officer 975 - 332 1,307Other executive management 2,349 150 644 3,143

3,324 150 976 4,450Year ended 31 December 2007Chief Executive Officer 1,017 - 229 1,246Other executive management 2,599 118 396 3,113

3,616 118 625 4,359

Directors’ feesThe annual fees payable to each of the directors who served during the year, excluding Mr Siem, Mr Delouche and Mr Fitzgerald were $25,000 (2007: $25,000). The fees payable to Mr Siem and Mr Delouche are included in fees totalling $800,000 (2007: $800,000) payable to Siem Industries Inc., a related party, for services rendered during the year. Mr Fitzgerald does not receive a director's fee.

With the exception of Mr Fitzgerald, none of the directors had any entitlement to share options.

7 Finance income and expense

Group Company2008 2007 2008 2007

Finance income:Interest receivable on bank deposits 5,881 8,843 3,269 3,741Interest receivable on inter-company balances - - 18,773 19,377Total fi nance income 5,881 8,843 22,042 23,118

Finance expense:Interest payable on loans (1,870) (132) (1,870) -Interest payable on bank overdrafts (300) (58) (8) (165)Interest payable on finance leases (8) (64) - -Interest payable on convertible notes (8,400) (8,400) (8,400) (8,400)Accretion on convertible notes (22,436) (16,584) (22,436) (16,584)Interest payable on inter-company balances - - (1,990) -Total fi nance expense (33,014) (25,238) (34,704) (25,149)

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8 Taxation

Group2008 2007

Current Tax- current tax 97,596 69,381- adjustments in respect of prior periods 2,782 4,075

100,378 73,456Deferred tax (note 25) 30,128 27,203Total taxation 130,506 100,659

The tax for the period is lower (2007: higher) than the weighted average statutory rate of corporation tax for the Group of 38.7% (2007: 29.0%). The weighted average rate of corporation tax for the Group is approximated through reference to the statutory rates prevailing in the respective jurisdictions in which the Group operates. The differences are explained below:

2008 2007Profit before tax 394,503 314,780

Profit before tax multiplied by the weighted average rate of corporation tax for the Group of 38.7% (2007: 29.0%)

152,576 91,420

Effects of:Adjustments to tax in respect of prior periods (1,481) (141)Previously unrecognised tax losses (9,362) -Unrecoverable foreign tax 12,063 6,403Expenses not deductible for tax purposes 4,213 299Deferred tax assets not recognised 9,891 17,276Losses brought forward - (99)Adjustment for rate change in UK - (4,324)Other including income not taxable (37,394) (10,175)Total taxation 130,506 100,659

9 Earnings per share

GroupBasic earnings per share amounts are calculated by dividing the profit or loss attributable to equity shareholders of the Group by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the profit or loss attributable to equity shareholders of the Group (adjusted where applicable for interest and other costs associated with any dilutive securities) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive securities into ordinary shares.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

Earnings

Weighted average

number of shares

Per share$

Basic EPS 2008 263,997 146,938,202 1.80Effect of dilutive securitiesShare options - 430,863 -Convertible notes 2006-2011 15,288 11,395,232 -Convertible notes 2007-2017 7,412 6,210,695 -Diluted EPS 2008 286,697 164,974,992 1.74

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Earnings

Weighted average

number of shares

Per share$

Basic EPS 2007 214,121 147,412,580 1.45Effect of dilutive securitiesShare options - 720,697 -Convertible notes 2006-2011 14,878 11,395,232 -Convertible notes 2007-2017 3,529 2,484,278 -Diluted EPS 2007 232,528 162,012,787 1.44

10 Goodwill

Group2008 2007

Cost and net book amountAt 1 January 98,533 98,543Petrology Limited deferred consideration adjustment - (10)At 31 December 98,533 98,533

During the year, goodwill was tested for impairment in accordance with IAS 36. The impairment test based on the recoverable amounts of the cash-generating units to which the goodwill relates resulted in no impairment charge.The carrying amounts of goodwill allocated to the cash-generating units are as follows:

2008 2007North Sea 62,368 62,368Africa 18,750 18,750Brazil 17,415 17,415

98,533 98,533

All of the recoverable amounts were determined based on value in use calculations using discounted cash flow projections based on financial budgets approved by executive management covering a four year period. The discount rate applied to the cash flow projections was 10%.

The cash flow projections are based on the assets’ current condition and project expenditure plus related inflows that will improve or enhance the assets’ performance. The cash flow does not include cash flows from financing activities.

The cash flows include projections of:cash inflows from continuing use of the assets or the activities of the region• cash outflows necessarily incurred to generate the cash inflows from continuing use of the asset or region • that are directly attributablecash outflows indirectly attributable but that can be allocated on a reasonable and consistent basis• cash outflows to maintain the operating capacity of existing assets, including repairs and maintenance•

The projected revenue growth is based on regional forecasts and market expectations.

9 Earnings per share - continued

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11 Other intangible assets

Group

Intellectual property

and patent rights

Customer contracts Total

CostAt 1 January 2008 506 12,516 13,022Additions at cost - - -Exchange adjustments (132) - (132)At 31 December 2008 374 12,516 12,890Aggregate amortisation and impairmentAt 1 January 2008 38 11,204 11,242Charge for the year 54 485 539Exchange adjustments (21) - (21)At 31 December 2008 71 11,689 11,760Net book amount at 31 December 2008 303 827 1,130

CostAt 1 January 2007 - 12,516 12,516Additions at cost 501 - 501Exchange adjustments 5 - 5At 31 December 2007 506 12,516 13,022Aggregate amortisation and impairmentAt 1 January 2007 - 10,444 10,444Charge for the year 38 760 798At 31 December 2007 38 11,204 11,242Net book amount at 31 December 2007 468 1,312 1,780

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12 Property, plant and equipment

Group

Land and buildings

Plant and equipment

Vessels and

marine equipment Total

CostAt 1 January 2008 75,097 5,959 1,022,490 1,103,546Additions at cost 87,610 11,060 350,612 449,282Disposals - - (36,751) (36,751)Exchange adjustments (24,763) (3,833) (277,136) (305,732)At 31 December 2008 137,944 13,186 1,059,215 1,210,345Accumulated depreciationAt 1 January 2008 5,889 4,821 186,285 196,995Charge for the year 4,153 9,375 81,233 94,761Disposals - - (26,109) (26,109)Exchange adjustments (2,845) (2,307) (41,558) (46,710)At 31 December 2008 7,197 11,889 199,851 218,937Net book amount at 31 December 2008 130,747 1,297 859,364 991,408

CostAt 1 January 2007 37,377 3,600 654,100 695,077Additions at cost 34,080 1,101 348,509 383,690Disposals - - (2,817) (2,817)Exchange adjustments 3,640 1,258 22,698 27,596At 31 December 2007 75,097 5,959 1,022,490 1,103,546Accumulated depreciationAt 1 January 2007 2,806 2,096 113,682 118,584Charge for the year 2,597 2,104 71,428 76,129Disposals - - (2,184) (2,184)Exchange adjustments 486 621 3,359 4,466At 31 December 2007 5,889 4,821 186,285 196,995Net book amount at 31 December 2007 69,208 1,138 836,205 906,551

Included in the table above are assets under construction of $262,373,000 (2007: $438,668,000) for which expenditure in the current year amounted to $202,696,000 (2007: $305,699,000).

Operating lease charges included in the income statement amount to:

2008 2007Vessels 138,434 143,421Land and buildings 13,278 8,712Plant and machinery 1,455 742

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Assets held under finance leases had the following net book amounts:

Plant and equipment

Vessels and

marine equipment Total

At 31 December 2008Cost - - -Aggregate depreciation - - -Net book amount - - -At 31 December 2007Cost 18 22,273 22,291Aggregate depreciation (5) (19,948) (19,953)Net book amount 13 2,325 2,338

13 Investment in subsidiary undertaking

The Company’s principal subsidiaries as at 31 December 2008 are detailed in note 34.

Company2008 2007

At 1 January 109,145 106,360Additions due to share based payments 4,640 2,785At 31 December 113,785 109,145

14 Investments in joint ventures

The Group’s principal joint ventures as at 31 December 2008 are detailed in note 34.

Group2008 2007

Net assets at 1 January 814 -Share of post tax profit 11,768 814Net assets at 31 December 12,582 814

In relation to the Group’s interests in joint ventures, the Group’s net share of the assets, liabilities, income and expenses are shown below:

2008 2007Current assets 42,169 23,485Non-current assets - 1,019Current liabilities (29,587) (23,690)Non-current liabilities - -Net assets 12,582 814

Income 92,922 38,392Expenses (73,217) (37,356)Profit before tax 19,705 1,036Taxation (charge)/credit (5,753) 129Net profit after tax 13,952 1,165Exchange adjustment (2,184) -Share of post tax profit from joint ventures 11,768 1,165

The joint ventures have no significant contingent liabilities to which the Group is exposed nor has the Group any significant contingent liabilities in relation to its interests in the joint ventures.

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15 Investments in associates

The Group’s principal associates as at 31 December 2008 are detailed in note 34.

Group2008 2007

Net assets at 1 January 1,609 611Share of post tax (loss)/profit (8) 998Net assets at 31 December 1,601 1,609

In relation to the Group’s associate, the Group’s net share of assets, liabilities, income and expenses are shown below:

2008 2007Current assets 3,481 2,333Non-current assets 2,273 601Current liabilities (786) (593)Non-current liabilities (3,367) (732)Net assets 1,601 1,609

Income 1,432 1,359Expenses (1,440) (361)(Loss)/Profit before tax (8) 998Taxation - -(Loss)/Profit after tax (8) 998

The associate has no significant contingent liabilities to which the Group is exposed nor has the Group any significant contingent liabilities in relation to its interest in the associate.

16 Inventories

Group2008 2007

Consumables and spares 22,567 25,209

The Group’s inventories consist of consumable items held in support of workshops and project operations and ROV and marine equipment spares. All inventories are carried at cost less a provision for slow moving and obsolete items.

The cost of inventories recognised as an expense in the current year was $42,492,000 (2007: $47,363,000). The amount recognised as an expense in the current year as a provision for slow moving and obsolete items was $468,000 (2007: $nil).

17 Trade and other receivables

Group Company2008 2007 2008 2007

Trade receivables 202,724 216,097 110 117Provision for impairment of receivables (1,003) (4,735) - -Trade receivables – net 201,721 211,362 110 117Amounts due from Group companies (note 32) - - 516,061 2,336,815Amounts due from related parties (note 32) 5,807 11,094 3 -Amounts due from the Employee Share Trust - - 9,979 -Other receivables 126,746 102,134 529 -Prepayments and accrued income 59,239 82,876 4,957 7,068Amounts due from customers for contract work 264,878 248,509 - -Retentions 706 3,164 - -

659,097 659,139 531,639 2,344,000

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The fair values of trade and other receivables approximate their carrying values due to the short period of time to maturity.

GroupAt 31 December 2008, Group trade receivables of $1,003,000 (2007: $4,735,000) were impaired. The amount of the provision was $1,003,000 (2007: $4,735,000).

The ageing of these receivables was as follows:

2008 2007Less than 3 months 879 -Between 3 and 6 months - -More than 6 months 124 4,735

1,003 4,735

The movements in the Group’s provision for impairment of trade receivables were as follows:

2008 2007At 1 January (4,735) (4,028)Unused amounts reversed 4,077 -Utilised 658 -Provision for impairment (1,003) (707)At 31 December (1,003) (4,735)

CompanyThe Company had no trade receivables which were impaired.

At 31 December 2008, the following amounts were past due but not impaired. The receivables relate to customers for whom there is no recent history of default. The ageing of these receivables was as follows:

Group Company2008 2007 2008 2007

Less than 3 months 45,770 42,650 5 -Between 3 and 6 months 5,745 1,789 7 -More than 6 months 186 3,349 64 -

51,701 47,788 76 -

The carrying amounts of the Group’s trade receivables were denominated in the following currencies:

Group Company2008 2007 2008 2007

United States dollars 87,575 87,701 - 117United Kingdom pounds 62,972 98,005 - -Norwegian krone 8,041 11,335 - -Brazil real 31,569 10,485 - -Euros 8,265 4,014 - -Australian dollars 3,929 1,734 110 -Singapore dollars 56 735 - -Other currencies 317 2,088 - -

202,724 216,097 110 117

The other classes of receivables within trade and other receivables did not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. Neither the Group nor the Company hold any collateral as security.

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18 Available-for-sale fi nancial assets

Group and Company2008 2007

Quoted equity shares 26,157 -Quoted debt securities – non derivative element 47,465 -Quoted debt securities – embedded derivative 11,792 -

85,414 -

The Company has investments in listed equity shares and debt securities. The fair value of the quoted equity shares and debt securities is determined by reference to published price quotations in an active market, the embedded derivative is valued using a Black-Scholes model. The net loss on embedded derivatives recognised in the income statement is $22,166,000 (2007: $nil).

19 Derivative fi nancial instruments

Group CompanyAssets Liabilities Assets Liabilities

At 31 December 2008Currency swaps 27 (3) 27 (3)Forward foreign currency contracts 1,456 (10,653) 1,198 (10,653)

1,483 (10,656) 1,225 (10,656)At 31 December 2007Currency swaps - (250) - (250)Forward foreign currency contracts 5,120 (2,032) 2,797 -

5,120 (2,282) 2,797 (250)

The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet.

GroupThe net loss on financial assets and liabilities at fair value through profit and loss is $12,011,000 (2007: $2,032,000).

(a) Forward foreign exchange contractsThe notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2008 were $182,969,000 (2007: $112,118,000). Changes in the fair value of forward foreign exchange contracts are recognised in the income statement line item 'changes in fair value of derivative financial instruments' when they occur.

(b) Currency swapsThe notional principal amounts of the outstanding currency swap contracts at 31 December 2008 were $1,973,000 (2007: $22,208,000). Changes in the fair value of currency swaps are recognised in the income statement line item 'changes in fair value of derivative financial instruments' when they occur.

Company The net loss on financial assets and liabilities at fair value through profit and loss is $11,977,000 (2007: net gain of $2,547,000).

(a) Forward foreign exchange contractsThe notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2008 were $170,072,000 (2007: $36,336,000). Changes in the fair value of forward foreign exchange contracts are recognised in the income statement line item 'changes in fair value of derivative financial instruments' when they occur.

(b) Currency swapsThe notional principal amounts of the outstanding currency swap contracts at 31 December 2008 were $1,973,000 (2007: $22,208,000). Changes in the fair value of currency swaps are recognised in the income statement line item 'changes in fair value of derivative financial instruments' when they occur.

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20 Cash and cash equivalents

Group Company2008 2007 2008 2007

Cash at bank and in hand 69,678 44,691 14,840 2,136Short-term bank deposits 44,388 122,966 35,119 83,830

114,066 167,657 49,959 85,966

Short-term bank deposits have an average maturity of less than one week.

21 Share capital, share premium reserve and shares held by Employee Share Trust

Group

Number of shares

Share capital

Share premium

reserve

Shares held by

Employee Share Trust Total

At 1 January 2008 147,737,480 1,477 286,508 - 287,985Allotted under share option schemes 64,400 1 437 - 438Purchase of own shares (890,000) (9) (15,707) - (15,716)Shares purchased by employee share trust

- - - (9,430) (9,430)

At 31 December 2008 146,911,880 1,469 271,238 (9,430) 263,277

At 1 January 2007 147,261,524 1,473 283,682 - 285,155Allotted under share option schemes 475,956 4 2,826 - 2,830At 31 December 2007 147,737,480 1,477 286,508 - 287,985

Company

Number of shares

Share capital

Share premium

reserve Total

At 1 January 2008 147,737,480 1,477 286,508 287,985Allotted under share option schemes 64,400 1 437 438Purchase of own shares (890,000) (9) (15,707) (15,716)At 31 December 2008 146,911,880 1,469 271,238 272,707

At 1 January 2007 147,261,524 1,473 283,682 285,155Allotted under share option schemes 475,956 4 2,826 2,830At 31 December 2007 147,737,480 1,477 286,508 287,985

Group and CompanyThe total authorised number of ordinary shares is 200,000,000 shares (2007: 200,000,000 shares) with a par value of $0.01 per share. All issued shares are fully paid.

In January 2008, the Company repurchased 890,000 of its own shares at an average price of NOK 98.04 per share (equivalent to $17.66 per share). These shares have been cancelled and form part of the authorised but un-issued share capital of the Company.

GroupShares held by Employee Share Trust

This represents the cost of shares held by the Subsea 7 Employee Share Trust (‘the Trust’) at 31 December 2008. The number of shares held by the Trust at 31 December 2008 was 1,789,990 (2007: nil).

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Share based payments

(a) Share option planCertain employees of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’). The options are only exercisable within seven days after the announcement of quarterly results. The options awarded are subject to employment status and a change of control event.

The Group had 2,513,020 options issued to employees as at 31 December 2008. The details and terms of the options issued were as follows:

Award date5 Jan2005

15 Jun2005

10 May2006

12 Jul2006

25 Apr2007

17 Sep2007

Share options awarded

1,190,000 270,000 602,000 140,000 288,000 1,113,500

Share options outstanding

Total

Chief Executive Officer 166,500 - - 28,620 - 70,000 265,120

Other executive management

104,000 72,000 - 105,000 - 170,000 451,000

Other employees 222,500 40,000 472,900 - 251,000 810,500 1,796,900

493,000 112,000 472,900 133,620 251,000 1,050,500 2,513,020

Last exercise dateAfter Q4

2014results

After Q4 2014

results

After Q2 2016

results

After Q2 2016

results

After Q2 2017

results

After Q3 2017

results

Exercise price (NOK per share)

29.49 44.85 113.25 110.90 121.87 144.25

Awards dated 5 January 2005 and 15 June 2005Options vest each quarter with 5% of the total number of options granted. Vested options may be exercised within seven days after the announcement of quarterly results but no options were permitted to be exercised in the first year after the award date. Seven days after the announcement of the results for the fourth quarter of 2014, all options not exercised will lapse without further notice. For options not exercised after the announcement of the results for the fourth quarter 2009, the exercise price shall be subject to a quarterly increase equal to 3 months NIBOR +1% margin per annum. During 2008, 47,500 share options were exercised with respect to the 5 January 2005 award. In addition, 12,500 share options were exercised and 50,000 share options were forfeited with respect to the 15 June 2005 award.

Awards dated 10 May 2006 and 12 July 2006Options vest each year with 20% of the total number of options granted. Vested options may be exercised within seven days after the announcement of quarterly results. Seven days after the announcement of the results for the second quarter of 2016, all options not exercised will lapse without further notice. During 2008, 4,400 share options were exercised and 66,500 share options were forfeited with respect to the 10 May 2006 award, and no share options were exercised with respect to the 12 July 2006 award.

Awards dated 25 April 2007 and 17 September 2007Options vest each year with 20% of the total number of options granted. Vested options may be exercised within seven days after the announcement of quarterly results. Seven days after the announcement of the results for the second quarter of 2017 and the third quarter of 2017 respectively, all options not exercised will lapse without further notice. During 2008, no share options were exercised and 37,000 share options were forfeited with respect to the 25 April 2007 award. In addition, no share options were exercised and 63,000 share options were forfeited with respect to the 17 September 2007 award.

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The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the year:

2008 2007

Number

Weightedaverageexercise

price (NOK) Number

Weightedaverageexercise

price (NOK)

Outstanding at 1 January 2,793,920 105.91 1,924,376 63.48Granted - - 1,401,500 139.65Forfeited (216,500) 107.95 (56,000) 113.25Exercised (64,400) 38.19 (475,956) 32.89Outstanding at 31 December 2,513,020 107.46 2,793,920 105.91Exercisable at 31 December 758,020 90.23 245,620 75.61

The weighted average share price for the dates options were exercised was NOK 133.37 (2007: NOK 146.78).

The fair value of equity-settled share options granted is estimated at the date of grant using a Black-Scholes model, taking account of the terms and conditions upon which the options were granted.

The total charge for the year relating to the share option plan was $4,344,000 (2007: $2,654,000), all of which related to equity-settled share based payment transactions.

(b) Employee share purchase planOn 12 July 2006, the annual general meeting of shareholders approved an employee share purchase plan (ESPP) in order to attract, retain and incentivise employees. The ESPP allows participating employees, depending on their governing tax jurisdiction, to acquire shares in the Company at a discount to the market price and to receive additional matching shares paid for by the Group.

Employees must remain in continuous service with the Group for a period of three years in order to receive the additional matching shares.

The total charge for the year relating to the ESPP was $296,000 (2007: $131,000), all of which related to equity-settled share based payment transactions.

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22 Other reserves

Group

Other reserve

Net unrealised gains and

losses reserve

Revaluation reserve

Cumulative translation

reserve

Convertible notes equity component Total

At 1 January 2008 (27,563) - 17,333 51,308 111,284 152,362

Currency translation differences

- - - (302,219) - (302,219)

Depreciation on re-valued assets transfer to retained earnings

- - (3,992) - - (3,992)

Available for sale financial assets – fair value adjustment

- (71,801) - - - (71,801)

At 31 December 2008 (27,563) (71,801) 13,341 (250,911) 111,284 (225,650)

At 1 January 2007 (27,563) - 21,252 31,242 63,265 88,196

Currency translation differences

- - - 20,066 - 20,066

Convertible bond 2007-2017 equity component

- - - - 48,019 48,019

Depreciation on re-valued assets transfer to retained earnings

- - (3,919) - - (3,919)

At 31 December 2007 (27,563) - 17,333 51,308 111,284 152,362

Company

Other reserve

Net unrealised gains and

losses reserve

Convertible notes equity component Total

At 1 January 2008 (27,563) - 111,284 83,721Available for sale financial assets – fair value adjustment

- (71,801) - (71,801)

At 31 December 2008 (27,563) (71,801) 111,284 11,920

At 1 January 2007 (27,563) - 63,265 35,702Convertible notes 2007-2017 equity component - - 48,019 48,019

At 31 December 2007 (27,563) - 111,284 83,721

Other reserveThe other reserve was created on transition to IFRS with a reclassification from the share premium reserve. This was offset during 2005 by an adjustment arising on the demerger of the non-subsea business.

Net unrealised gains and losses reserveThis reserve records fair value changes on available-for-sale financial assets.

Revaluation reserveThe revaluation reserve was used to record increases in the fair value of assets on acquisition of Subsea 7 Holding Inc. The revaluation gains are depreciated and a reclassification made between the revaluation reserve and retained earnings to offset the depreciation charge in retained earnings.

Cumulative translation reserveThe cumulative translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Convertible notes equity component This is the equity component of the convertible notes issued in 2006 and 2007 (see note 24).

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23 Trade and other payables

Group Company2008 2007 2008 2007

Trade payables 74,450 42,496 629 4Other tax and social security payable 55,883 28,018 - -Amounts due to Group companies (note 32) - - 405,211 2,088,619Amounts due to related parties (note 32) 2,421 868 - -Other payables and accruals 293,426 305,150 1,475 1,022Amounts due to customers for contract work 179,158 172,212 - -Deferred income 20 26 - -

605,358 548,770 407,315 2,089,645

24 Borrowings

Group Company2008 2007 2008 2007

Non-currentConvertible notes 2006-2011 267,900 255,532 267,900 255,532Convertible notes 2007-2017 141,837 131,769 141,837 131,769DnB NOR Bank ASA Revolving Credit Facility 100,000 - 100,000 -Siem Industries Inc. Revolving Credit Facility 50,000 - 50,000 -

559,737 387,301 559,737 387,301CurrentFinance lease obligations - 394 - -

- 394 - -Total borrowings 559,737 387,695 559,737 387,301

Group and CompanyConvertible notes 2006-2011The Group has issued $300 million of convertible notes with the following characteristics:

Oslo Stock Exchange ticker SUB01Interest per annum: 2.80% couponMaturity: 6 June 2011Term: 6 June 2006 - 6 June 2011Conversion price: $26.3268 per shareConversion dates: The period from 17 July 2006 to the close of business seven days prior to the final maturity date, or seven days before any redemption date indicated by the Company.

Convertible notes 2007-2017The Group has issued $175 million of convertible notes with the following characteristics:

Oslo Stock Exchange ticker SUB02Interest per annum: zero couponYield to maturity: 0.95% per annumMaturity: 29 June 2017Term: 29 June 2007 - 29 June 2017Conversion price: $28.1772 per shareConversion dates: The period from 9 August 2007 to the close of business seven days prior to the final maturity date, or seven days before any redemption date indicated by the Company.Redemption options: The bonds may be redeemed at their accreted principal amount at the option of the holder on each of 29 June 2010, 29 June 2012 and 29 June 2014, and at the option of the Company on or after 13 July 2012.

At 31 December 2008, and at the date of this report, none of the convertible notes had been converted into new shares.

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The values of the liability component and the equity conversion component for each bond were determined at the issuance of each bond. The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible note. The residual amount, representing the value of the equity conversion option, is included in shareholders’ equity in other reserves (note 22).

The convertible notes recognised in the balance sheet are calculated as follows:

Convertible notes 2006-2011Face value of convertible notes issued on 6 June 2006 300,000Equity component (63,265)Liability component on initial recognition 236,735Interest expense 52,165Interest paid (21,000)Liability component at 31 December 2008 267,900

Convertible notes 2007-2017Face value of convertible notes issued on 29 June 2007 175,000Equity component (48,019)Liability component on initial recognition 126,981Interest expense 14,856Interest paid -Liability component at 31 December 2008 141,837

The fair values of the liability components of the convertible notes 2006-2011 and the convertible notes 2007-2017 at 31 December 2008 were $277,621,000 and $150,055,000 respectively, calculated using expected cash flows discounted based on a borrowing rate of 8.5%.

LoansDuring the year, the Company negotiated a revolving credit facility with Siem Industries Inc. for $100 million. This facility, which is on market terms, was used to partially fund the investments that were made in Acergy S.A. As at 31 December 2008, $50 million of the Siem Industries Inc. revolving credit facility remained undrawn.

In January 2009 the Group concluded an amendment to its revolving credit and guarantee facilities with DnB NOR Bank ASA dated 20 December 2004, increasing the revolving credit facility from $100 million to $150 million. The amended facilities include a first priority mortgage over three of the Group’s vessels with a carrying value at 31 December 2008 of $94,911,000 (2007: $104,579,000). The facilities have no mandatory reduction mechanisms with any outstanding debt repayable on 13 February 2012.

At 27 March 2009 the maximum revolving credit facilities available were $250 million of which the Group had drawn down $150 million.

GroupFinance lease obligationsLease obligations are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

The minimum lease payments due by the Group under finance leases fall due as follows:

2008 2007No later than one year - 402Future finance charges on finance leases - (8)Present value of fi nance lease obligations - 394

The present value of finance lease obligations is as follows:

2008 2007No later than one year - 394

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25 Deferred tax

GroupDeferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and the taxes relate to the same fiscal authority. The amounts after offsetting are as follows:

2008 2007Deferred tax assets to be recovered after more than 12 months (13,124) (3,262)Deferred tax assets to be recovered within 12 months (1,989) (192)Deferred tax assets (15,113) (3,454)Deferred tax liabilities due after more than 12 months 88,370 46,993Deferred tax liabilities due within 12 months 11,240 10,830Deferred tax liabilities 99,610 57,823Deferred tax liabilities - net 84,497 54,369

The gross movement on the deferred tax account is as shown below:

2008 2007At 1 January 54,369 27,166Charged to income statement 30,128 27,203At 31 December 84,497 54,369

The movements in deferred tax assets and liabilities during the period, prior to any offset of balances within the same jurisdiction, are shown below.

Deferred tax liabilities Acceleratedtax

depreciation Provisions Other TotalAt 1 January 2008 57,130 - 693 57,823Charged/(credited) to income statement 30,295 12,185 (693) 41,787At 31 December 2008 87,425 12,185 - 99,610

Deferred tax assets

Tax losses

Depreciation in excess of capital

allowances Provisions Other Total

At 1 January 2008 (2,902) - - (552) (3,454)(Charged)/Credited to income statement

(9,362) (1,330) (1,519) 552 (11,659)

At 31 December 2008 (12,264) (1,330) (1,519) - (15,113)

Deferred tax assets are recognised for tax losses carried forward to the extent that it is probable that a tax benefit will be realised in the future. The Group has gross unrecognised tax losses of $117,220,000 (2007: $114,459,000) to carry forward against future taxable income of which $117,220,000 (2007: $114,459,000) do not expire.

A deferred tax asset of $9,703,000 has been recognised for Subsea 7 do Brasil Servicos Ltda. The subsidiary made a loss in 2007 but has made a profit in 2008 and financial projections indicate that further profits are anticipated in the coming years.

26 Retirement benefi t obligations

GroupThe Group has two (2007: three) defined benefit pension schemes for employees in Norway. The number of employees included in these schemes is 42 (2007: 419). During the year the Group closed one of the defined benefit pension schemes completely. All previous members of this pension scheme received paid-up defined benefit policies effective from 31 December 2008. From 1 January 2009 these employees are now members of a replacement defined contribution scheme.

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2008 2007Balance sheet obligation for pension benefits 1,002 1,789

2008 2007Income statement charge for pension benefits 4,933 3,934

The amounts recognised in the balance sheet were determined as follows:

2008 2007Present value of funded obligations 1,197 31,757Fair value of scheme assets (1,213) (19,536)

(16) 12,221Present value of unfunded obligations 1,466 1,701Unrecognised actuarial losses (448) (12,133)Liability in the balance sheet 1,002 1,789

The movement in the defined benefit obligation over the year was as follows:

2008 2007At 1 January 33,458 20,815Current service cost 4,631 3,512Interest cost 135 960Actuarial (gains)/losses (114) 5,555Exchange differences (891) 3,140Settlement (34,476) -Benefits paid (80) (524)At 31 December 2,663 33,458

The movement in the fair value of scheme assets over the year was as follows:

2008 2007At 1 January 19,536 14,238Expected return on scheme assets 93 834Actuarial losses (182) (315)Exchange differences (433) 1,950Employer contributions 4,951 3,075Settlement (22,673) -Benefits paid (79) (246)At 31 December 1,213 19,536

The amount recognised in the income statement was as follows:

2008 2007Current service cost 4,631 3,555Interest cost 135 960Expected return on scheme assets (93) (834)Net actuarial losses recognised during the year 10 248Past service costs 21 5Settlement 229 -Total, included in note 6 4,933 3,934

The actual return on plan assets was an $89,000 loss (2007: $519,000 gain).

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The principal actuarial assumptions used were as follows:

2008 2007Discount rate 4.30% 4.70%Expected return on scheme assets 6.30% 5.75%Future salary increases 4.50% 4.50%Future pension increases 2.00% 2.00%

Assumptions regarding future mortality experience are set based on advice in accordance with published statistics and experience. The average life expectancy in years of a pensioner retiring at 60, on the balance sheet date, is as follows:

2008 2007Male 21.4 21.4Female 25.1 25.1

The average life expectancy in years of a pensioner retiring at 60, 20 years after the balance sheet date, is as follows:

2008 2007Male 22.3 22.3Female 25.5 25.5

The scheme assets at each balance sheet date are comprised as follows:

2008 2007Equity 5.0% 30.0%Debt - 1.3%Property 35.4% 16.3%Other 59.6% 52.4%

The expected return on scheme assets was determined by considering the expected returns available on the assets underlying the current investments. Expected yields on fixed interest investments are based on gross redemption yields at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.

Expected employer contributions to the scheme for the year ending 31 December 2009 are $152,885.

Amounts for the current and previous periods were as follows:

2008 2007 2006 2005Defined benefit obligation (2,663) (33,458) (20,815) (16,486)Fair value of scheme assets 1,213 19,536 14,238 11,361Deficit (1,450) (13,922) (6,577) (5,125)

Experience adjustments on scheme liabilities 114 (5,555) 488 (4,072)Experience adjustments on scheme assets (182) (315) (1,327) (766)

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27 Other non-current liabilities

Group Company2008 2007 2008 2007

Deferred government grant income 341 488 - -Deferred consideration on acquisitions 3,896 3,896 - -Amounts due to Group companies - - 37,900 -

4,237 4,384 37,900 -

Deferred consideration relates to amounts payable in respect of the acquisition of Petrology Limited, the amount and timing of which is dependent upon the continued employment of certain personnel and the future performance of the acquired company.

28 Cash fl ow from operating activities

Reconciliation of net profit to net cash generated from operating activities:

Group Company2008 2007 2008 2007

Net profit attributable to equity shareholders 263,997 214,121 (145,114) (286)Adjustments for:Taxation charge 130,506 100,659 - -Depreciation and amortisation 95,300 76,927 - -Profit on disposal of property, plant and equipment (11,671) (3,654) - -Share based payment charge 4,640 2,785 - -Deferred government grant income (39) (25) - -Finance income (5,881) (8,843) (22,042) (23,118)Finance expense 33,014 25,238 34,704 25,149Loss on embedded derivative within convertible loan notes

22,166 - 22,166 -

Share of post tax profit from joint ventures (11,768) (1,165) - -Share of post tax loss/(profit) from associates 8 (998) - -

Changes in working capital (excluding the effects of acquisitions and disposals of subsidiaries):

Decrease in inventories 2,642 2,974 - -Decrease/(increase) in trade and other receivables 3,325 (191,544) 1,743,188 (1,944,622)Increase/(decrease) in payables 64,175 107,352 (1,634,024) 1,836,293Cash generated from / (used in) operations 590,414 323,827 (1,122) (106,584)

29 Operating lease commitments

GroupThe Group has entered into a number of vessel charters and also has various plant and equipment including ROVs and motor vehicles under non-cancellable operating lease agreements. The Group also leases offices, warehouses and other work sites. The leases have various terms, escalation clauses and renewal rights. The minimum commitments under non-cancellable operating leases fall due as follows:

2008 2007Within one year 125,452 163,972Later than one year and no later than five years 310,469 447,463Later than five years 37,037 90,102

472,958 701,537

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30 Capital and other fi nancial commitments

Group2008 2007

Contracts placed for future capital expenditure not provided for in the financial statements

276,085 206,977

The Group had no such capital or other financial commitments in respect of its interests in joint ventures in either year.

31 Contingent liabilities

Group and CompanyThere were no contingent liabilities at 31 December 2008.

32 Related party transactions

GroupThe following table provides the total value of transactions which have been entered into with related parties for the relevant financial years as well as the outstanding balances at each financial year end. Transactions were at arm’s length and in the ordinary course of business. Key management compensation is disclosed in note 6 and therefore has not been shown below.

Sales to related parties

Purchases from

related parties

Amounts owed by

related parties

Amounts owed to related parties

2008Joint ventures in which the Group was a venturerTechnip Subsea 7 Asia Pacific Pty Limited 7,577 - 1,246 -Technip Subsea 7 Asia Pacific Singapore Pte Limited 6,739 189 1,288 189Technip Subsea 7 Asia Pacific BV 15,125 - 3,273 -Associates of the GroupDeep Seas Insurance Limited - 6,945 - 172Directors’ InterestsSiem Industries Inc. - 800 - 50,800Siem Offshore Rederi AS - 1,260 - 1,260DSND Bygg AS - 263 - -Luster Mekaniske Industri AS - 12 - -2007Joint ventures in which the Group was a venturerTechnip Subsea 7 Asia Pacific Pty Limited 9,163 - 2,226 -Technip Subsea 7 Asia Pacific Singapore Pte Limited 4,081 - 1,894 -Technip Subsea 7 Asia Pacific BV 16,657 - 6,974 -Associates of the GroupDeep Seas Insurance Limited - 4,358 - 68Directors’ InterestsSiem Industries Inc. - 800 - 800DSND Bygg AS - 876 - -Luster Mekaniske Industri AS - 3,079 - -

Ultimate parent and ultimate controlling partyThe Company did not have an ultimate parent or ultimate controlling party at 31 December 2008 or 31 December 2007.

Joint ventures in which the Group is a venturerSales in relation to vessel and equipment hire and associated costs and employee services totalling $29,441,000

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were made to joint venture companies during the year (2007: $29,901,000). Purchases in relation to employee services totalling $189,000 were made from joint venture companies during year (2007: $nil).

Associates of the GroupPurchases in relation to insurance policies totalling $6,945,000 were made from associate companies during the year (2007: $4,358,000). In addition the Group had claims paid of $1,083,000 ($2007: $231,000).

Directors’ interestsGroup and CompanySiem Industries Inc. is controlled through trusts where certain members of Mr Siem’s family are potential beneficiaries. Mr Siem is the Company chairman. Payments in relation to the services of Mr Siem and Mr Delouche as directors, the provision of an office in the Cayman Islands, and other services totalling $800,000 were made during the year (2007: $800,000). In addition at 31 December 2008 the Group had an outstanding balance of $50,000,000 on the loan facility described in note 24 to the financial statements.

GroupDSND Bygg AS is ultimately controlled by Siem Industries Inc. Purchases from DSND Bygg AS in relation to the rental of office accommodation totalling $263,000 were made during the year (2007: $876,000). Siem Industries Inc. exercises significant influence over Siem Offshore Rederi AS. Purchases from Siem Offshore Rederi AS relating to vessel charter costs totalling $1,260,000 were made during the year (2007: $nil).

Mr Siem exercises significant influence over Luster Mekaniske Industri AS. Purchases from Luster Mekaniske Industri AS in relation to pipeline welding services totalling $12,000 were made during the year (2007: $3,079,000).

CompanyThe following table provides the total value of transactions which have been entered into with related parties for the relevant financial years as well as the outstanding balances at each financial year end. Transactions were at arm’s length and in the ordinary course of business.

Sales to related parties

Purchases from

related parties

Amounts owed by

related parties

Amounts owed to related parties

2008Group EntitiesSubsidiary undertakings 18,182 3,639 884,776 443,111Joint ventures 297 - 3 -Directors’ InterestsSiem Industries Inc. - 800 - 50,800Other Related PartiesSubsea 7 Employee Share Trust - - 9,979 -2007Group EntitiesSubsidiary Undertakings 10,603 3,994 2,634,785 2,088,619Directors’ InterestsSiem Industries Inc. - 800 - 800

Directors’ fees as disclosed in note 6 to the financial statements are borne by the Company.

Subsidiary undertakings and joint ventures The Company provides parent company guarantees on behalf of the Group. A charge for this is invoiced to subsidiary undertakings and joint ventures. A subsidiary undertaking incurs costs on behalf of the Company and invoices the Company for these services. The Company pays and charges interest on amounts due to and from Group companies. These amounts are detailed in note 7 to the financial statements.

Subsea 7 Employee Share Trust In 2006, the Subsea 7 Employee Share Trust (“Trust”) was established with RBC Cees Trustee Ltd as trustee to administer the Company’s share plans. In December 2008, the Company lent $9,979,000 to the Trust, out of which it purchased 1,789,990 shares as described in note 21 to the financial statements. These shares were acquired for the purpose of future awards under a new share plan, subject to approval by shareholders at the forthcoming AGM.

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33 Post balance sheet events

On 2 February 2009 the Group announced that the Technip Subsea 7 Asia Pacific joint ventures are to be dissolved once all existing projects and tendered work have been completed.

34 Principal subsidiaries, joint ventures and associates

Group and CompanySubsidiary undertakingsThe subsidiaries of the Group at 31 December 2008, all of which are consolidated in these financial statements, were as follows:

Company name Ownership % Country of registrationDSND Coreco Inc.* 100 Cayman IslandsSubsea 7 Holding Inc. 100 Cayman IslandsSubsea 7 (Cayman Vessel Company) Limited 100 Cayman IslandsSubsea 7 do Brasil Servicos Ltda 100 BrazilSubsea 7 (US) LLC 100 USASubsea 7 (UK Service Company) Limited 100 ScotlandSubsea 7 Limited 100 EnglandSubsea 7 (Vessel Company) Limited 100 EnglandSubsea 7 (Luxembourg) Sarl 100 LuxembourgSubsea 7 (Vessel Company) BV 100 The NetherlandsSubsea 7 BV 100 The NetherlandsSubsea 7 Shipping AS 100 NorwaySubsea 7 Nigeria Limited 100 NigeriaSubsea 7 Marine LLC 100 USASubsea 7 (Singapore) Pte Limited 100 SingaporeSubsea 7 Australia Pty Limited 100 AustraliaSubsea 7 International Limited 100 Cayman IslandsSubsea 7 Contractors Limited 100 Cayman IslandsSubsea 7 Procurement Limited 100 Cayman IslandsSubsea 7 Installation Limited 100 Cayman IslandsSubsea 7 Construction Limited 100 EnglandSubsea 7 Engineering Limited 100 EnglandSubsea 7 Deep Sea Limited 100 ScotlandSevenseas Angola Limited 100 Cayman IslandsSubsea 7 Ireland Finance Limited 100 IrelandSubsea 7 Luxembourg Finance Sarl 100 LuxembourgSubsea 7 West Delta Deep Marine IV Limited 100 Cayman IslandsPetrology Limited 100 ScotlandSubsea 7 Eiendom AS 100 NorwaySevenseas Contractors S. de R.L. de C.V. 100 MexicoSubsea 7 Port Isabel LLC 100 USAEngineering Subsea Solutions Limited 75 ScotlandSES - Subsea Engineering Solutions Inc. 75 USA

* held directly by the Company, all other subsidiaries, associates and joint ventures held by subsidiary undertakings

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Joint venturesAt 31 December 2008, the active joint ventures of the Group, all of which were equity accounted in these financial statements, were as follows:

Joint venture name Ownership % Country of registrationTechnip Subsea 7 Asia Pacific Pty Limited 45 AustraliaTechnip Subsea 7 Asia Pacific Singapore Pte Limited 45 SingaporeTechnip Subsea 7 Asia Pacific UK Limited 45 EnglandTechnip Subsea 7 Asia Pacific BV 45 The Netherlands

AssociatesAt 31 December 2008, the Group had one associate, equity accounted in these financial statements, details of which were as follows:

Associate name Ownership % Country of registrationDeep Seas Insurance Limited 49 Cayman Islands

Financial Calendar

Quarterly resultsThe Group will release its financial figures on the following dates in 2009:

Tuesday 21 April 2009 First quarter 2009 resultTuesday 28 July 2009 Second quarter 2009 resultTuesday 27 October 2009 Third quarter 2009 resultFebruary 2010 Fourth quarter 2009 and preliminary full year result

Annual general meetingThe AGM of the shareholders of Subsea 7 Inc. will be held at 10.00am local time, 8 May 2009, at the offices of the Company located at Maples and Calder, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.

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Vessel Fleet

The Kommandor 3000 is a pipelay vessel with an extensive and purpose built pipelay system to install flexible pipelines in up to 1,000m water depth with a top tension capacity of 200t.

The Lochnagar is a pipelay vessel specifically equipped for the installation of flexible pipelines in up to 2,000m water depth with a top tension capacity of 255t.

The Seven Navica is a pipelay vessel capable of both rigid and flexible pipelay in water depths of up to 2,000m with a top tension capacity of 205t.

The Seven Pacifi c is a state-of-the-art pipelay and construction vessel for installing flexible flowlines and umbilicals, capable of operating in water depths of up to 3,000m. The vessel is equipped with a Vertical Lay System (260t top tension capacity), twin underdeck carousels, a 250t crane and twin 3000m rated ROVs.

Delivery Q4 2010

The Seven Sisters is a multi-purpose subsea construction vessel and is capable of working in water depths of up to 3,000m.

The Seven Oceans is a state-of-the-art purpose built deepwater rigid pipelay vessel fitted with an advanced reeled pipelay system, capable of operating in water depths up to 3,000m with a top tension capacity of 400t.

The Skandi Neptune is a pipelay and construction vessel equipped with a Vertical Lay System (100t top tension capacity) and can support flexible pipelay and umbilical installation and deepwater construction.

The Skandi Seven is a subsea construction and maintenance vessel equipped with state-of-the-art ROV and module handling systems.

The Normand Seven is a state-of-the-art pipelay vessel fitted with an advanced flexible pipelay system capable of operating in water depths of up to 2,000m with a top tension capacity of 300t.

The Seven Seas is a state-of-the-art pipelay and construction vessel fitted with an advanced rigid and flexible pipelay system capable of operating in water depths of up to 3,000m with a top tension capacity of 400t (rigid J-lay mode) and 430t (flexlay mode).

The Toisa Perseus is a pipelay and construction vessel fitted with a Vertical Lay System for deployment of a range of flexible products, capable of operating in water depths of up to 3,000m with a top tension capacity of 110t.

The Subsea Viking is a multi-purpose subsea support vessel with multi functional capabilities including flexible pipelay, construction, module handling, ROV support and well abandonment.

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The Rockwater 1 is a diving support vessel with multi-purpose capabilities. The vessel has an 18 man single-bell saturation dive system consisting of three chambers and a hyperbaric lifeboat.

The Rockwater 2 is a diving support vessel with multi-purpose capabilities. The vessel has a 16 man single-bell saturation diving system rated to 300m, consisting of three living chambers and a self propelled hyperbaric lifeboat. A single centreline moonpool is provided for diving operations.

The Seven Atlantic is one of the largest and most capable diving support vessels in the world, featuring a state-of-the-art 24-man saturation diving system. The system is rated to 350m and includes twin diving bells orientated port and starboard with two hyperbaric lifeboats.

Delivery Q3 2009

The Seven Pelican is a diving support vessel with multi-purpose capabilities. An 18 man twin-bell saturation diving system rated to 370m provides a flexible platform for subsea operations. The system consists of three chambers and two 16 man hyperbaric lifeboats.

The Seven Spray is a modern, highly manoeuvrable, safe and compact shallow diving support vessel. The relatively small footprint and its autonomous diving capability allows access to areas around jackets and alongside FPSOs. The Seven Spray can be deployed from any suitable mother vessel.

The Toisa Polaris is a diving support vessel with multi-purpose capabilities. The vessel has an 18 man twin-bell saturation diving system rated to 300m, consisting of three twin-lock and a single triple lock chamber with an 18 man self propelled hyperbaric lifeboat. Forward and aft moonpools are provided.

The Amazonia is an ROV, survey and subsea support vessel, designed and built for world-wide operations but with an emphasis on deepwater activities.

The Seisranger is a multi-purpose offshore support vessel, with a primary ROV support function. The main workclass ROV has the capability to operate in deepwater locations up to 2,000m, deployed through the vessel’s centreline moonpool.

The Kommandor Subsea is an ROV support vessel with an extensive ROV spread onboard. Fitted as standard are a centreline moonpool launched workclass ROV and a port side door launched observation class ROV.

The Normand Subsea is a new ROV support vessel equipped with a suite of state-of-the-art ROVs capable of operating in water depths of up to 1,200m. The ROV suite includes two workclass and four eyeball ROV systems. A handling system is under cover and adjusts to suit a range of modules.

Delivery Q4 2009

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Operational Bases

Vigra spoolbase

NORWAY

The Vigra spoolbase is located beside Ålesund airport, Vigra, on the north west coast of Norway. The base runs 3.7km across the island and includes a purpose built deepwater quay, covering a total area of 284,505m². This makes it one of the longest spoolbase facilities of its type in the world.

Ubu spoolbase

BRAZIL

The Ubu spoolbase is located in Espirito Santo state, within the Samarco iron ore processing plant, one hour flying time north of Rio de Janeiro, Brazil. The base runs 2,225m (including spooling line to vessel) and covers an area of 88,000 m2.

Luanda spoolbase

ANGOLA

The spoolbase is located within the Sonils Oil Service Centre in the Port of Luanda, Angola. The base covers an area of 65,376m2 and is 715m long including a 75m load-out jetty.

Wick bundle fabrication yard

UK

Established in 1978, Subsea 7’s pipeline bundle fabrication yard is located 6 miles north of the town of Wick, Caithness, in the far North of Scotland. This unique site runs 7.8km inland, covers a total area in excess of 300,000m² and has a sheltered bay in which to launch the pipeline bundles.

Port Isabel spoolbase

USA (opening June 2009)

The spoolbase is located in Cameron County on the US/Mexico border of Texas. The base covers an area of 58 acres and is 5,000ft in length (4,000ft stalk rack and 1,000ft fabrication building).

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Subsea 7 Annual Report 2008 - Morningstar, Inc.

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Transcript of Subsea 7 Annual Report 2008 - Morningstar, Inc.