IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the Prospectus attached to this electronic transmission and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Prospectus. In accessing the attached Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. Confirmation of your representation: By accessing this Prospectus you have confirmed to the Managers, the Company and the Selling Shareholder, that (i) you have understood and agree to the terms set out herein, (ii) (a) you and the electronic mail address you have given to us are not located in the United States, its territories and possessions or (b) you are a person that is a “qualified institutional buyer” within the meaning of Rule 144A under the U.S. Securities Act, (iii) you consent to delivery by electronic transmission, (iv) you will not transmit the attached Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Managers and (v) you acknowledge that you will make your own assessment regarding any legal, taxation or other economic considerations with respect to your decision to purchase the Offer Shares. You are reminded that the attached Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this Prospectus, electronically or otherwise, to any other person and in particular to any U.S. address. Failure to comply with this directive may result in a violation of the U.S. Securities Act of 1933 (the “U.S. Securities Act”) or the applicable laws of other jurisdictions. Restrictions: NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. ANY OFFER SHARES BEING SOLD HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE U.S. SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QIB THAT IS ACQUIRING SUCH OFFER SHARES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBs, OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE ATTACHED PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION OF THE ATTACHED PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. Under no circumstances shall this Prospectus constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Offer Shares in any jurisdiction in which such offer, solicitation or sale would be unlawful. Recipients of this Prospectus who intend to purchase any Offer Shares are reminded that any such purchase may only be made on the basis of the information contained in the Prospectus.
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Transcript
IMPORTANT NOTICE
IMPORTANT: You must read the following disclaimer before continuing. The following
disclaimer applies to the Prospectus attached to this electronic transmission and you are therefore
advised to read this disclaimer carefully before reading, accessing or making any other use of the
attached Prospectus. In accessing the attached Prospectus, you agree to be bound by the following
terms and conditions, including any modifications to them from time to time, each time you receive
any information from us as a result of such access.
Confirmation of your representation: By accessing this Prospectus you have confirmed to the
Managers, the Company and the Selling Shareholder, that (i) you have understood and agree to the
terms set out herein, (ii) (a) you and the electronic mail address you have given to us are not located
in the United States, its territories and possessions or (b) you are a person that is a “qualified
institutional buyer” within the meaning of Rule 144A under the U.S. Securities Act, (iii) you consent to
delivery by electronic transmission, (iv) you will not transmit the attached Prospectus (or any copy of
it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person
except with the consent of the Managers and (v) you acknowledge that you will make your own
assessment regarding any legal, taxation or other economic considerations with respect to your
decision to purchase the Offer Shares.
You are reminded that the attached Prospectus has been delivered to you on the basis that you are a
person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of
the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this
Prospectus, electronically or otherwise, to any other person and in particular to any U.S. address.
Failure to comply with this directive may result in a violation of the U.S. Securities Act of 1933 (the
“U.S. Securities Act”) or the applicable laws of other jurisdictions.
Restrictions: NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF
SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS
UNLAWFUL TO DO SO.
ANY OFFER SHARES BEING SOLD HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.
SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER
JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER
THE U.S. SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS
BEHALF REASONABLY BELIEVES IS A QIB THAT IS ACQUIRING SUCH OFFER SHARES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBs, OR (2) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE OR
LOCAL SECURITIES LAWS.
THE ATTACHED PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON
AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION
OF THE ATTACHED PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY
WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OR THE
APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS.
Under no circumstances shall this Prospectus constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of the Offer Shares in any jurisdiction in which such offer, solicitation
or sale would be unlawful. Recipients of this Prospectus who intend to purchase any Offer Shares are
reminded that any such purchase may only be made on the basis of the information contained in the
Prospectus.
This Prospectus is being distributed only to and is directed only at persons in member states of the
European Economic Area (with the exception of Norway) who are “qualified investors” within the
meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC), as amended, and any
relevant implementing measure in each Member State of the European Economic Area. This
Prospectus is being distributed only to and is directed only at (i) persons who are outside the United
Kingdom; or (ii) investment professionals falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”); or (iii) high net worth
entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a)
to (d) of the Order (all such persons in (ii) and (iii) being referred to as “relevant persons”). The Offer
Shares are available only to, and any invitation, offer or agreement to purchase or otherwise acquire
the Offer Shares will be engaged in only with, relevant persons. Any person who is within the United
Kingdom and not a relevant person should not act or rely on this Prospectus or any of its contents.
This Prospectus has been sent to you in an electronic form. You are reminded that documents
transmitted via this medium may be altered or changed during the process of electronic transmission
and consequently none of the Managers, any person who controls any of the Managers, the Company
or the Selling Shareholder, any director, officer, employee or agent of any of them or any affiliate of
any such person accepts any liability or responsibility whatsoever in respect of any difference between
the Prospectus distributed to you in electronic format and the hard copy version of the Prospectus.
The materials relating to the offering do not constitute, and may not be used in connection with, an
offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction
requires that the offering be made by a licensed broker or dealer and the Managers or any affiliate of
the Managers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be
made by the Managers or such affiliate on behalf of the Selling Shareholder in such jurisdiction.
None of the Managers or any of their respective affiliates or any of their respective directors, officers,
employees or agents accepts any responsibility whatsoever as to the accuracy, completeness or
verification of the information in this document. The Managers and any of their respective affiliates
accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they
might otherwise have in respect of such document. Any decision to purchase the Offer Shares in the
offer should be made solely on the basis of information contained in this document. No representation
or warranty, express or implied, is made by any of the Managers or any of their respective affiliates as
to the accuracy, completeness or verification of the information set out in this document.
The Managers are acting exclusively for Odfjell Drilling Ltd and BCB Paragon Trust Limited as trustee
of the Larine Trust (as the Selling Shareholder) and no one else in connection with the offer. They will
not regard any other person (whether or not a recipient of this document) as their client in relation to
the offer and will not be responsible to any other person for providing the protections afforded to their
clients nor for giving advice in relation to the offer or any transaction or arrangement referred to
herein.
ODFJELL DRILLING LTD
(An exempted company limited by shares incorporated under the laws of Bermuda)
Initial public offering of up to 56,000,000 Shares with an indicative price range of NOK 37 to NOK 48 per Share
Listing of the Company’s shares on the Oslo Stock Exchange
This prospectus (the ―Prospectus‖) has been prepared in connection with the initial public offering (the ―Offering‖) of up to 56,000,000
common shares (the ―Sale Shares‖) of Odfjell Drilling Ltd (the ―Company‖), an exempted company limited by shares incorporated under the
laws of Bermuda (together with its consolidated subsidiaries, ―Odfjell Drilling‖ or the ―Group‖), and the related listing (the ―Listing‖) on
Oslo Børs, a stock exchange operated by Oslo Børs ASA (the ―Oslo Stock Exchange‖) of the Company‘s shares, each with a par value of
USD 0.01 (the ―Shares‖). The Offer Shares (as defined below) are offered by BCB Paragon Trust Limited, as trustee of the Larine Trust (the
―Selling Shareholder‖). The Company will not receive any of the proceeds of the Offering.
The Offering consists of: (i) a private placement to (a) investors in Norway, (b) investors outside Norway and the United States of America
(the ―U.S.‖ or the ―United States‖), subject to applicable exemptions from the prospectus requirements, and (c) ―qualified institutional
buyers‖ (―QIBs‖) in the United States as defined in, and in reliance on, Rule 144A (―Rule 144A‖) under the U.S. Securities Act of 1933, as
amended (the ―U.S. Securities Act‖) (the ―Institutional Offering‖), and (ii) a retail offering to the public in Norway (the ―Retail
Offering‖). All offers and sales outside the United States will be made in compliance with Regulation S under the U.S. Securities Act
(―Regulation S‖). In addition, the Selling Shareholder has granted DNB Markets, on behalf of the Managers (as defined below), an option to
purchase up to 4,000,000 additional Shares (the ―Additional Shares‖ and, together with the Sale Shares, the ―Offer Shares‖), equal to up
to approximately 7% of the number of Sale Shares sold in the Offering (representing up to 2% of the Shares in issue in the Company),
exercisable, in whole or in part, within a 30-day period commencing at the time at which ―if sold‖ trading in the Shares commences on the
Oslo Stock Exchange, expected to be on 30 September 2013, to cover any over-allotments made in connection with the Offering on the terms
and subject to the conditions described in this Prospectus (the ―Over-Allotment Option‖). Assuming the Over-Allotment Option is exercised
in full, the Offering will amount to 60,000,000 Shares.
The price (the ―Offer Price‖) at which the Offer Shares are expected to be sold will be between NOK 37 and NOK 48 per Offer Share (the
―Indicative Price Range‖). The Offer Price may be set within, below or above the Indicative Price Range. The Offer Price will be determined
through a bookbuilding process and will be set by the Selling Shareholder in consultation with the Company and the Joint Bookrunners.
Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such
investors. The Offer Price, and the number of Offer Shares sold in the Offering, is expected to be announced through a stock exchange notice
on or before 30 September 2013 at 07:30 hours (Central European Time, ―CET‖). The offer period for the Institutional Offering (the
―Bookbuilding Period‖) will commence at 09:00 hours (CET) on 16 September 2013 and close at 15:00 hours (CET) on 27 September
2013. The application period for the Retail Offering (the ―Application Period‖) will commence at 09:00 hours (CET) on 16 September 2013
and close at 12:00 hours (CET) on 27 September 2013. The Bookbuilding Period and the Application Period may be shortened or extended
beyond the set times by the Company, in consultation with the Selling Shareholder and the Joint Bookrunners, but will in no event be
shortened to expire prior to 12:00 hours (CET) on 23 September 2013 or extended beyond 15:00 hours (CET) on 11 October 2013.
The Shares, including the Sale Shares and any Additional Shares, will be registered in the Norwegian Central Securities Depository (the
―VPS‖) in book-entry form. All Shares will rank in parity with one another and carry one vote per Share.
Investing in the Offer Shares involves a high degree of risk. See Section 2 ―Risk factors‖ beginning on page 17.
The Offer Shares have not been, and will not be, registered under the U.S. Securities Act or with any securities regulatory authority of any
state or other jurisdiction in the United States, and are being offered and sold: (i) in the United States only to persons who are QIBs in
reliance on Rule 144A or another exemption from the registration requirements under the U.S. Securities Act; and (ii) outside the United
States in compliance with Regulation S. The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions
may be restricted by law. Persons in possession of this Prospectus are required to inform themselves about and to observe any such
restrictions. See Section 19 ―Selling and transfer restrictions‖.
Prior to the Offering, the Shares have not been publicly traded. The Company applied for the Shares to be admitted for trading and listing on
the Oslo Stock Exchange on 12 September 2013, and completion of the Offering is subject to the approval of the listing application by the
board of directors of the Oslo Stock Exchange.
The due date for the payment of the Offer Shares is expected to be on or about 2 October 2013 and 3 October 2013 in the Retail Offering and
the Institutional Offering, respectively. Delivery of the Offer Shares is expected to take place on or about 2 October 2013 and 3 October 2013
in the Retail Offering and the Institutional Offering, respectively, through the facilities of the VPS, Euroclear Bank S.A./N.V. as operator of the
Euroclear System and Clearstream Banking S.A. Trading in the Shares on the Oslo Stock Exchange is expected to commence on or about 30
September 2013, on an ―if sold‖ basis, under the ticker code ―ODL‖. If closing of the Offering does not take place on such dates or at all, the
Offering may be withdrawn, resulting in all applications for Offer Shares being disregarded, any allocations made being deemed not to have
been made and any payments made being annulled. All dealings in Shares prior to settlement and delivery are at the sole risk of the parties
concerned.
Joint Global Coordinators
and Joint Bookrunners
ABG Sundal Collier DNB Markets Goldman Sachs International
Co-Lead Managers
Arctic Securities Danske Bank Markets Swedbank First Securities
The date of this Prospectus is 13 September 2013
Odfjell Drilling Ltd - Prospectus
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IMPORTANT INFORMATION
This Prospectus has been prepared in connection with the Offering of the Offer Shares and the Listing of the Shares on the Oslo Stock Exchange. For the
definitions of certain technical terms and other terms used in this Prospectus, see Section 22 ―Definitions and glossary‖.
This Prospectus has been prepared to comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the ―Norwegian Securities Trading
Act‖) and related secondary legislation, including the Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European
Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses, as amended (the ―EU Prospectus Directive‖), and
as implemented in Norway. This Prospectus has been prepared solely in the English language. However, a summary in Norwegian has been prepared in
Section 21 ―Norwegian Summary (Norsk Sammendrag)‖. The Financial Supervisory Authority of Norway (Nw.: Finanstilsynet) (the ―Norwegian FSA‖)
has reviewed and approved this Prospectus in accordance with Sections 7-7 and 7-8 of the Norwegian Securities Trading Act. The Norwegian FSA has not
controlled or approved the accuracy or completeness of the information included in this Prospectus. The approval by the Norwegian FSA only relates to
the information included in accordance with pre-defined disclosure requirements. The Norwegian FSA has not made any form of control or approval
relating to corporate matters described or referred to in this Prospectus.
The Company has engaged ABG Sundal Collier, DNB Markets, part of DNB Bank ASA, and Goldman Sachs International as Joint Global Coordinators and
Joint Bookrunners (together, the ―Joint Bookrunners‖) and Arctic Securities, Danske Bank Markets and Swedbank First Securities, as Co-Lead Managers
(together, the ―Co-Lead Managers‖). The Joint Bookrunners and the Co-Lead Managers are jointly referred to as the ―Managers‖.
The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions may be restricted by law. This
Prospectus does not constitute an offer of, or an invitation to purchase, any of the Offer Shares in any jurisdiction in which such offer or
sale would be unlawful. Neither this Prospectus nor any advertisement or any other offering material may be distributed or published in
any jurisdiction except under circumstances that will result in compliance with applicable laws and regulations. Persons in possession of
this Prospectus are required to inform themselves about and to observe any such restrictions. In addition, the Shares are subject to
restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable securities laws and
regulations. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of
time. Any failure to comply with these restrictions may constitute a violation of applicable securities laws. See Section 19 ―Selling and
transfer restrictions‖.
This Prospectus and the terms and conditions of the Offering as set out herein and any sale and purchase of Offer Shares hereunder shall be governed by
and construed in accordance with Norwegian law. The courts of Norway, with Oslo as legal venue, shall have exclusive jurisdiction to settle any dispute
which may arise out of or in connection with the Offering or this Prospectus.
In making an investment decision, prospective investors must rely on their own examination, and analysis of, and enquiry into the Group
and the terms of the Offering, including the merits and risks involved. None of the Company, the Selling Shareholder or the Managers, or any of
their respective representatives or advisers, is making any representation to any offeree or purchaser of the Offer Shares regarding the legality of an
investment in the Offer Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Each investor should consult with his
or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Offer Shares.
All Sections of the Prospectus should be read in context with the information included in Section 4 ―General information‖.
Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for
the issue and transfer of the Shares to and between residents and non-residents of Bermuda for exchange control purposes provided that
the Shares are listed on the Oslo Stock Exchange. In granting such consent, neither the Bermuda Monetary Authority nor any other
relevant Bermuda authority or government body accepts any responsibility for the Company’s financial soundness or the correctness of
any of the statements made or opinions expressed in this Prospectus.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF
NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT
NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY
OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO INVESTORS IN THE UNITED STATES
Because of the following restrictions, prospective investors are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer
of the Shares. The Offer Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any
state or other jurisdiction in the United States and may not be offered, sold, pledged or otherwise transferred within the United States except pursuant to
an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable state
securities laws. Accordingly, the Offer Shares will not be offered or sold within the United States, except in reliance on the exemption from the
registration requirements of the U.S. Securities Act under Rule 144A. The Offer Shares will be offered outside the United States in compliance with
Regulation S. Prospective purchasers are hereby notified that sellers of Offer Shares may be relying on the exemption from the provisions
of Section 5 of the U.S. Securities Act provided by Rule 144A under the U.S. Securities Act. See Section 19.2.1 ‖United States‖.
Any Shares offered or sold in the United States will be subject to certain transfer restrictions as set forth under Section 19.3.1 ―United States‖.
The securities offered hereby have not been recommended by any United States federal or state securities commission or regulatory authority.
Furthermore, the foregoing authorities have not passed upon the merits of the Offering or confirmed the accuracy or determined the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense under the laws of the United States.
In the United States, this Prospectus is being furnished on a confidential basis solely for the purposes of enabling a prospective investor to consider
purchasing the particular securities described herein. The information contained in this Prospectus has been provided by the Company and other sources
Odfjell Drilling Ltd - Prospectus
iii
identified herein. Distribution of this Prospectus to any person other than the offeree specified by the Managers or their representatives, and those
persons, if any, retained to advise such offeree with respect thereto, is unauthorised and any disclosure of its contents, without prior written consent of
the Company, is prohibited. This Prospectus is personal to each offeree and does not constitute an offer to any other person or to the public generally to
purchase Offer Shares or subscribe for or otherwise acquire any Shares.
ENFORCEMENT OF CIVIL LIABILITIES
The Company is an exempted company limited by shares incorporated under the laws of Bermuda. As a result, the rights of holders of the Shares will be
governed by Bermuda law and the Company‘s memorandum of association and Bye-Laws. The rights of shareholders under Bermuda law may differ from
the rights of shareholders of companies incorporated in other jurisdictions. With one exception, none of the Interim Directors or members of the New
Board of Directors are residents of the United States, and a substantial portion of the Company‘s assets are located outside the United States. As a result,
it may be difficult for investors in the United States to effect service of process on the Company or its directors and executive officers in the United States
or to enforce in the United States judgments obtained in U.S. courts against the Company or those persons, including judgments based on the civil
liability provisions of the securities laws of the United States or any State or territory within the United States. It is doubtful whether courts in Norway or
Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against the Company or its directors or officers under the
securities laws of those jurisdictions or entertain actions in Bermuda against the Company or its directors or officers under the securities laws of other
jurisdictions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may not be enforceable in Norway or
Bermuda. The United States does not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitral
awards) in civil and commercial matters with either Norway or Bermuda.
AVAILABLE INFORMATION
The Company has agreed that, for so long as any of the Offer Shares are ―restricted securities‖ within the meaning of Rule 144(a)(3) under the U.S.
Securities Act, it will during any period in which it is neither subject to Sections 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the
―U.S. Exchange Act‖), nor exempt from reporting pursuant to Rule 12g3-2(b) under the U.S. Exchange Act, provide to any holder or beneficial owners
of Shares, or to any prospective purchaser designated by any such registered holder, upon the request of such holder, beneficial owner or prospective
owner, the information required to be delivered pursuant to Rule 144A(d)(4) of the U.S. Securities Act.
NOTICE TO UNITED KINGDOM INVESTORS
This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling
within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ―Order‖) or (iii) high net worth entities, and
other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as
―Relevant Persons‖). The Offer Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such
Shares will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its
contents.
NOTICE TO INVESTORS IN THE EEA
In any member state of the European Economic Area (the ―EEA‖) that has implemented the EU Prospectus Directive, other than Norway (each, a
―Relevant Member State‖), this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning
of the EU Prospectus Directive. The Prospectus has been prepared on the basis that all offers of Offer Shares in any Relevant Member State outside
Norway will be made pursuant to an exemption under the EU Prospectus Directive from the requirement to produce a prospectus for offers of shares.
Accordingly, any person making or intending to make any offer within any Relevant Member State (other than Norway) of Offer Shares which are the
subject of the Offering contemplated in this Prospectus may only do so in circumstances in which no obligation arises for the Company or any of the
Managers to publish a prospectus or a supplement to a prospectus under the EU Prospectus Directive for such offer. Neither the Company nor the
Managers have authorised, nor do they authorise, the making of any offer of Shares through any financial intermediary, other than offers made by
Managers which constitute the final placement of Offer Shares contemplated in this Prospectus.
Each person in a Relevant Member State other than, in the case of paragraph (a), persons receiving offers contemplated in this Prospectus in Norway,
who receives any communication in respect of, or who acquires any Offer Shares under, the offers contemplated in this Prospectus will be deemed to
have represented, warranted and agreed to and with the Managers and the Company that:
a) it is a qualified investor as defined in the EU Prospectus Directive, and
b) in the case of any Offer Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the EU Prospectus Directive,
(i) such Offer Shares acquired by it in the Offering have not been acquired on behalf of, nor have they been acquired with a view to their
offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the EU Prospectus
Directive, or in circumstances in which the prior consent of the Managers has been given to the offer or resale; or (ii) where such Offer
Shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Offer
Shares to it is not treated under the EU Prospectus Directive as having been made to such persons.
For the purposes of this provision, the expression an ―offer to the public‖ in relation to any of the Offer Shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor
to decide to purchase any of the Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the EU
Prospectus Directive in that Relevant Member State, and the expression ―EU Prospectus Directive‖ means Directive 2003/71/EC (and amendments
thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing
measure in each Relevant Member State and the expression ―2010 PD Amending Directive‖ means Directive 2010/73/EU.
See Section 19 ―Selling and transfer restrictions‖ for certain other notices to investors.
Odfjell Drilling Ltd - Prospectus
iv
STABILISATION
In connection with the Offering, DNB Markets (the ―Stabilisation Manager‖), or its agents, on behalf of the Managers, may engage in transactions that
stabilise, maintain or otherwise affect the price of the Shares for up to 30 days from the commencement of ―if sold‖ trading of the Offer Shares on the
Oslo Stock Exchange. Specifically, the Stabilisation Manager may over-allot Offer Shares or effect transactions with a view to supporting the market price
of the Offer Shares at a level higher than that which might otherwise prevail. The Stabilisation Manager and its agents are not required to engage in any
of these activities and, as such, there is no assurance that these activities will be undertaken; if undertaken, the Stabilisation Manager or its agents may
end any of these activities at any time but in any case must end at the end of the 30-day period mentioned above. Save as required by law or regulation,
the Stabilisation Manager does not intend to disclose the extent of any stabilisation transactions under the Offering.
ADDITIONAL IMPORTANT INFORMATION
For additional important information, including on the presentation of financial information in this Prospectus, forward-looking statements and the
sourcing of industry data included herein, and exchange rate data, see Section 4 ―General information‖.
Profit/(loss) for the period .................................... (9.2) 13.0 12.3 45.6 116.9 121.3
Odfjell Drilling Ltd - Prospectus
7
As of and for the three
months ended
30 June
As of and for the six
months ended
30 June
As of and for the year
ended
31 December
(In USD millions)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2012
(IFRS)
(audited)
2011
(IFRS)
(audited)
Consolidated statement of financial
position
Total non-current assets ...................................... - - 2,231.1 2,307.8 2,323.4 2,158.4
Total current assets ............................................. - - 509.1 414.4 480.9 582.2
Total assets ........................................................ - - 2,740.2 2,722.2 2,804.4 2,740.6
Total equity ........................................................ - - 1,083.6 1,079.9 1,154.3 1,032.8
Total non-current liabilities ................................... - - 1,285.3 1,327.3 1,233.7 1,410.6
Total current liabilities ......................................... - - 371.3 315.0 416.4 297.2
Total liabilities .................................................... - - 1,656.7 1,642.3 1,650.1 1,707.8
Total equity and liabilities ..................................... - - 2,740.2 2,722.2 2,804.4 2,740.6
Consolidated statement of cash flow
Net cash generated from operating activities .......... 61.1 62.6 115.9 145.4 267.2 197.6
Net cash used in investing activities ...................... 23.2 (155.0) 4.4 (237.6) (305.9) (213.0)
Net cash used in financing activities ...................... (60.2) (49.7) (78.0) (49.7) (61.0) 66.0
Net change in cash and cash equivalents ............... 24.0 (142.1) 42.3 (141.9) (99.7) 50.6
Cash and cash equivalents at period end ................ 245.2 161.8 245.2 161.8 200.6 303.1
As of and for the year
ended
31 December
(In NOK millions)
2011
(NGAAP)
(audited)
2010
(NGAAP)
(audited)
Consolidated statement of income
Total operating income ................................................................................................................. 5,939.9 4,750.9
Total operating expenses .............................................................................................................. 4,833.8 4,756.2
Net profit for the year ................................................................................................................... 653.1 305.3
Consolidated statement of financial position
Total fixed assets ......................................................................................................................... 12,653.5 12,144.4
Total current assets ...................................................................................................................... 3,736.0 3,159.1
Total assets ................................................................................................................................. 16,389.5 15,303.4
Total equity ................................................................................................................................. 6,416.7 5,944.7
Total non-current liabilities ............................................................................................................ 8,866.3 8,033.8
Total current liabilities .................................................................................................................. 1,106.6 1,325.0
Total liabilities ............................................................................................................................. 9,972.9 9,358.7
Total equity and liabilities .............................................................................................................. 16,389.5 15,303.4
Consolidated statement of cash flow
Net cash generated from operating activities ................................................................................... 698.7 134.6
Net cash used in investing activities ............................................................................................... (957.5) (3,025.4)
Net cash used in financing activities ............................................................................................... 475.9 1,567.0
Net change in cash and cash equivalents ........................................................................................ 217.1 (1,323.8)
Cash and cash equivalents at 31.12 ............................................................................................... 1,822.4 1,605.3
B.8 Selected key pro forma
financial information
Not applicable. There is no pro forma financial information.
B.9 Profit forecast or estimate Not applicable. No profit forecast or estimate is made.
Odfjell Drilling Ltd - Prospectus
8
B.10 Audit report qualifications Not applicable. There are no qualifications in the audit reports.
B.11 Insufficient working
capital
Not applicable. The Company is of the opinion that the working capital
available to the Group is sufficient for the Group‘s present requirements,
for the period covering at least 12 months from the date of this
Prospectus.
Section C - Securities
C.1 Type and class of
securities admitted to
trading and identification
number
The Company has one class of shares in issue, and all shares in that
class have equal rights to all such other shares in that class as set out in
the Company‘s Bye-Laws. The Shares have been created under the
Bermuda Companies Act and are registered in the VPS under ISIN
BMG671801022.
C.2 Currency of issue The Shares are issued in USD, but will be quoted and traded in NOK on
the Oslo Stock Exchange.
C.3 Number of shares in issue
and par value
At the date of this Prospectus, the Company‘s authorised share capital is
USD 2,300,000 consisting of 230,000,000 Shares with a par value of
USD 0.01 each, of which 200,000,000 Shares have been issued.
C.4 Rights attaching to the
securities
Pursuant to the Bye-Laws, the holders of Shares have no pre-emptive,
redemption, conversion or sinking fund rights. The holders of Shares are
entitled to one vote per Share on all matters submitted to a vote of the
holders of Shares.
Under Bermuda law, a company may not declare or pay dividends if
there are reasonable grounds for believing that: (i) the company is, or
would after the payment be, unable to pay its liabilities as they become
due; or (ii) that the realisable value of its assets would thereby be less
than its liabilities. Under the Company‘s Bye-Laws, each of the Shares
are entitled to dividends, as and when dividends are declared by the
Board of Directors, subject to any preferred dividend right of the holders
of any preference shares.
C.5 Restrictions on transfer The Bye-Laws provide that the Board of Directors may decline to
register the transfer of any interest in any Share in the register of
members or decline to direct any registrar, appointed by the Company,
to register the transfer where such transfer would result in 50% or more
of the shares or votes in the Company being held, controlled or owned
directly or indirectly by individuals or legal persons resident for tax
purposes in Norway or connected to a Norwegian business activity, in
order to avoid the Company being deemed a ―Controlled Foreign
Company‖ as such term is defined under the Norwegian tax rules.
Subject to the above, but notwithstanding anything else contrary in the
Bye-Laws, shares that are listed or admitted to trading on an Appointed
Stock Exchange may be transferred in accordance with the rules and
regulations of such exchange. All transfers of uncertificated shares shall
be made in accordance with and be subject to the facilities and
requirements of the transfer of title to shares in that class by means of
the VPS or any other relevant system concerned and, subject thereto, in
accordance with any arrangements made by the Board of Directors in
accordance with the Bye-Laws. The Board of Directors shall refuse any
transfer unless the registration of such transfer satisfies all applicable
consents, authorisations and permissions of any governmental body or
Odfjell Drilling Ltd - Prospectus
9
agency in Bermuda. The Board of Directors may also refuse to recognise
an instrument of transfer of a share unless it is accompanied by the
relevant share certificate (if one has been issued) and such other
evidence of the transferor's right to make the transfer as the Board of
Directors shall reasonably require.
Please also see Section 19 ―Selling and transfer restrictions‖.
C.6 Admission to trading On 12 September 2013, the Company applied for admission to trading
of its Shares on the Oslo Stock Exchange. It is expected that the board
of directors of the Oslo Stock Exchange will approve the listing
application of the Company on 25 September 2013, subject to certain
conditions being met. See Section 18.12 ―Conditions for completion of
the Offering – Listing and trading of the Offer Shares‖.
The Company currently expects commencement of trading in the Shares
on the Oslo Stock Exchange on an ―if sold‖ basis, on or around 30
September 2013, and on an ordinary basis on or around 3 October
2013. The Company has not applied for admission to trading of the
Shares on any other stock exchange or regulated market.
C.7 Dividend policy The Company aims to ensure that shareholder returns reflect the
Company‘s value creation and will consist of both dividends and a
positive share price development. The Company will target a long term
dividend annual pay-out representing approximately 30 – 40% of its net
profit on a consolidated basis. Since the Company is in a phase involving
considerable investments, there is no plan for dividend payment for the
financial year ended 31 December 2013. The Company has a high focus
on value creation and will have a dividend policy that will preserve the
interest of the Company and its shareholders.
When deciding whether to declare and pay an annual dividend, the
Board of Directors will take into consideration market outlook, contract
backlog, cash flow generation, capital expenditure plans and funding
requirements whilst maintaining adequate financial flexibility. The Board
of Directors may revisit the dividend policy from time to time. The
proposal in any year to pay any dividend is subject to: (i) the limitations
found in the terms of certain loans made to the Group and (ii)
sufficiency of distributable reserves.
Section D - Risks
D.1 Key risks specific to the
Company or its industry
Risks relating to the industry in which the Group operates
(i) The Group‘s business depends on the level of activity in oil and
gas exploration, as well as the identification and development of
oil and gas reserves and production in offshore areas worldwide,
particularly in harsh and ultra-deep water environments. In
particular, oil and gas prices and market expectations of potential
changes in these prices significantly affect the level of exploration
and production activity by oil and gas companies. Due to the
significant investments in exploration and, often, production
made by the Group‘s clients at or before the time they contract
for services provided by the MODU segment and the Platform
Drilling business area, these businesses are typically impacted by
longer term E&P spending decisions based on long-term price
trends, whereas the Technology business area and the Well
Services segment are more sensitive to E&P spending decisions
Odfjell Drilling Ltd - Prospectus
10
by clients made in response to short-term fluctuations in oil and
gas prices. Any decrease in demand for any of the Group‘s
business segments‘ services could have a material adverse effect
on the Group‘s business, results of operations, cash flow and
financial condition.
(ii) Uncertainty relating to global economic conditions and
development may reduce demand for the Group‘s Drilling Units
and services or result in contract delays or cancellations. Any
decrease in demand caused by this uncertainty could have a
material adverse effect on the Group‘s results of operations, cash
flow and financial condition.
(iii) An over-supply of drilling units or rental equipment may lead to a
reduction in day rates for the MODU segment and prices for the
Well Services segment. Periods of excess drilling unit supply
intensify the competition in the industry and can result in drilling
units being idle for long periods of time. An over-supply of drilling
units could be caused by the entry into service of new and
upgraded units or by competitors shifting drilling units into those
regions where the Group‘s Drilling Units operate. Oversupply of
the equipment that the Group rents to clients (Rental
Equipment), as offered by the Well Services segment, could lead
to that segment experiencing decreased prices and/or client
orders for its Rental Equipment. Either of these occurrences may
materially impact the Group‘s results of operations.
(iv) The oil and gas services industry in which the Group operates is
highly competitive and fragmented and includes both large and
small competitors that compete with the Group. The Group‘s
operations may be materially adversely affected if its current
competitors or new market entrants introduce new products or
services with characteristics similar to, or better than, the
Group‘s products and services or expand into service areas where
the Group operates. Competitive pressures or other factors that
result in significant price competition, particularly during industry
downturns, could have a material adverse effect on the Group‘s
business, results of operations, cash flow and financial condition.
(v) The Group‘s business is subject to numerous operating hazards
the occurrence of which could also subject the Group to property,
environmental and other damage claims by third parties. The
Group‘s insurance policies and contractual rights to indemnity
may not adequately cover losses and the Group does not have
insurance coverage or rights to an indemnity for all risks. The
occurrence of a significant accident or other adverse event which
is not fully covered by the Group‘s insurance or any enforceable
or recoverable indemnity from a client could result in substantial
losses for the Group.
(vi) The Group‘s segments operate in various jurisdictions which
subjects the Group to risks inherent in international operations
that may be beyond the Group‘s control such as war, natural
disasters, political unrest, public health threats and the
inconsistent application of foreign laws and regulations. Some of
these risks could disrupt the Group‘s operations and thereby have
a material adverse effect on the Group‘s business, results of
Odfjell Drilling Ltd - Prospectus
11
operations, cash flow and financial condition. Moreover, the
Group operates in many developing market countries which
brings with it the inherent risks associated with fraud, bribery,
corruption and international sanctions regimes. Failure to comply
with such laws could result in material fines and penalties and
damage the Group‘s reputation.
Risks relating to the Group
(i) The Group‘s backlog may not be realised due to a number of
reasons including the actions of its clients or its own inability to
perform its obligations under its contracts. The Group‘s backlog
represents the contracted future revenue under contracts for
Drilling Units and services provided by its MODU segment and
Platform Drilling business area. The Group presents backlog both
inclusive and exclusive of any priced optional periods exercisable
by clients calculated to reflect the nominal value of the contract,
as detailed in Section 11.2.3 ―Backlog‖. Backlog does not provide
a precise indication of the time period over which the Group is
contractually entitled to receive such revenues and there is no
assurance that such revenue will be actually realised in the time
frames anticipated, or at all. If the Group is unable to realise
backlog amounts this could have a material adverse effect on the
Group‘s results of operations, cash flows and financial condition.
(ii) The Group‘s future performance depends on its ability to renew
and extend existing contracts and to win new contracts. The
Group‘s ability to renew or extend existing contracts or sign new
contracts will largely depend on prevailing market conditions. If
the Group is unable to sign new contracts that start immediately
after the end of its current contracts, or in the case of the MODU
segment or the Platform Drilling business area, if new contracts
are entered into at day rates or prices substantially below the
existing day rates or prices, or on terms otherwise less
favourable compared to existing contract terms, or which leave
the Group with mobilisation or demobilisation costs that cannot
be fully recovered, the Group‘s business, results of operations,
cash flow and financial condition may be adversely affected.
Risks relating to operations
(i) The Group, in particular the MODU segment and the Platform
Drilling business area, is subject to client concentration risk. If
any of the Group‘s major clients fail to compensate the Group,
terminate their contracts, fail to renew their existing contracts or
refuse to award new contracts to the Group, and the Group is
unable to enter into contracts with new clients at comparable day
rates, this could have a material adverse effect on the Group‘s
results of operations.
(ii) The Group‘s operating and maintenance costs will not necessarily
fluctuate in proportion to changes in operating revenues. In a
situation where a Drilling Unit faces longer idle periods,
reductions in costs may not be immediate as some of the crew
may be required to prepare Drilling Units for the idle period.
Thus, there can be no assurance that the Group will be successful
in reducing its operating costs under circumstances where its
revenues may also have decreased. To the extent changes in the
Group‘s operating and maintenance costs are not proportionate
Odfjell Drilling Ltd - Prospectus
12
to changes in operating revenues it could have a material
adverse effect on the Group‘s business, results of operations,
cash flow and financial condition.
(iii) The Group‘s newbuild drilling unit construction projects are
subject to risks of delay, quality issues, damage to personnel,
equipment and environment or cost overruns inherent in any
large construction project due to numerous factors. The Group
also provides consultancy and project management services on
other newbuild projects where it may or may not have an
ownership interest. Significant cost overruns or delays in projects
may result in loss of revenue, potential penalties from the client
or cancellation by the client. If any of these risks materialises,
this could have a material adverse effect on the Group‘s results
of operations, cash flow and financial condition.
(iv) The Group conducts a portion of its operations through joint
ventures and is, therefore, subject to the risks and uncertainties
associated with participating in joint ventures. Differences in
views among joint venture partners may result in delayed
decisions or failures to agree on major issues. Should a joint
venture partner sell its shares in the joint venture, a change of
control event may be triggered under the bonds used to the
finance the joint ventures, unless the Group purchases those
shares. Further, if the Group‘s partners do not meet their
contractual obligations, the respective joint venture may be
unable to adequately perform and deliver its contracted services,
requiring the Group to make additional investments or perform
additional services. The Group could be liable for both its own
obligations and those of its partners, which may result in reduced
profits or, in some cases, significant losses on the project. These
factors could have a material adverse effect on the business
operations of the joint venture and, in turn, the Group‘s business
operations and reputation.
(v) The operation and development of the Group‘s business depends
on its retention of key personnel and its ability to recruit, retain
and develop skilled personnel for its business. Shortages of
qualified personnel or the Group‘s inability to obtain and retain
qualified personnel could have a material adverse effect on the
Group‘s business.
(vi) A loss of a major tax dispute or a successful tax challenge to the
Group‘s operating structure or to the Group‘s tax payments,
among other things, could result in a higher tax rate on the
Group‘s earnings, which could have a material adverse effect on
the Group‘s earnings and cash flows. From time to time, the
Group‘s tax payments may be subject to review or investigation
by tax authorities of the jurisdictions in which the Group
operates. Specifically, the Group is currently subject to an
ongoing tax audit pertaining to Deepsea Atlantic (which may
have a negative impact on liquidity in the amount of
approximately USD 50 million) and a tax dispute pertaining to
Deepsea Bergen (where if the district court‘s verdict is upheld on
appeal, the USD 62.8 million loss (already expensed as of 30
June 2013) for the Group will be final).
Odfjell Drilling Ltd - Prospectus
13
Risks related to Group structure
(i) The Group currently conducts its operations through, and most of
the Group‘s assets are owned by, the Group‘s subsidiaries. As
such, the cash that the Group obtains from its subsidiaries is the
principal source of funds necessary to meet its obligations. The
inability to transfer cash from the Group‘s subsidiaries or joint
ventures may mean that the Group may not be permitted to
make the necessary transfers from its subsidiaries or joint
ventures to meet its obligations or pay dividends to its
shareholders. A payment default by the Group, or any of the
Group‘s subsidiaries, on any debt instruments would have a
material adverse effect on the Group‘s business, results of
operations, cash flow and financial condition.
D.3 Key risks specific to the
securities
Risks relating to the Shares
(i) Following completion of the Offering, it is expected that Odfjell
Partners Ltd. will remain the major shareholder of the Group and
will, accordingly, continue to have a majority of the shareholder
vote. Thereby, it is expected that Odfjell Partners Ltd. will have
the ability to significantly influence the outcome of matters
submitted for a vote of the Company‘s shareholders, including
election of members of the Board of Directors. There can be no
assurance that the commercial goals of Odfjell Partners Ltd. and
the Company will always remain aligned, and that this
concentration of ownership will always be in the best interest of
the Group‘s other shareholders. Further, while it is expected that
Odfjell Partners Ltd. will remain the major shareholder of the
Company after the Offering, no assurance can be given that this
will continue on a permanent basis. If Odfjell Partners Ltd. was
not to remain a major shareholder of the Company, or if its
commercial goals were not in the best interest of the Group, this
could have a material adverse effect on the market value of the
Shares.
(ii) After completion of the Offering there will only be a limited free
float of the Shares. The limited free float may have a negative
impact on the liquidity of the Shares and may result in a low
trading volume of the Shares, which could have an adverse effect
on the then prevailing market price for the Shares.
Risks related to the Company’s incorporation in Bermuda
(i) The Bye-Laws contain provisions that could make it more difficult
for a third party to acquire the Company without the consent of
the Board of Directors. These provisions could make it more
difficult for a third party to acquire the Company, even if the third
party‘s offer may be considered beneficial by many shareholders.
Section E - Offer
E.1 Net proceeds and
estimated expenses
The Selling Shareholder will receive the proceeds of the Offering.
The total costs and expenses of, and incidental to, the Listing and the
Offering are estimated to amount to NOK 89 million (excluding VAT) if
all Offer Shares are sold by the Selling Shareholder and the Company
decides to pay the discretionary fee in full (based on a price of NOK
Odfjell Drilling Ltd - Prospectus
14
42.50 per Share – which is the mid-point of the Indicative Price Range).
The costs and expenses will be paid by the Company.
E.2a Reasons for the Offering
and use of proceeds
(i) To facilitate a sustainable shareholding structure which supports
the Company‘s long-term strategy, by offering the Selling
Shareholder an opportunity to sell all of its Shares.
(ii) To enhance the Company‘s financing sources, thereby increasing
its strategic flexibility for future growth opportunities.
(iii) To enhance the Company‘s ability to attract talent by raising the
profile of the Group and its brand.
The estimated net amount of proceeds of the Offering is NOK 2,461
million.
The Selling Shareholder will receive the proceeds of the Offering. The
Company will not receive any of the proceeds of the Offering.
E.3 Terms and conditions of
the Offering
The Offering consists of up to 56,000,000 Sale Shares, all of which are
existing, validly issued and fully paid-up registered Shares with a par
value of USD 0.01, offered by the Selling Shareholder. The Sale Shares
represent, and will upon completion of the Offering represent, up to
28% of the Shares in issue in the Company. In addition, the Joint
Bookrunners may elect to over-allot up to 4,000,000 Additional Shares,
equalling up to approximately 7% of the number of Sale Shares
(representing up to 2% of the Shares in issue in the Company). The
Selling Shareholder has granted DNB Markets, on behalf of the
Managers, an Over-Allotment Option to purchase a corresponding
number of Additional Shares to cover any such over-allotments.
Assuming the Over-Allotment Option is exercised in full, the Offering will
amount to up to 60,000,000 Shares, representing up to 30% of the
Shares.
The Offering consists of:
An Institutional Offering, in which Offer Shares are being
offered (a) to investors in Norway, (b) investors outside
Norway and the United States, subject to applicable exemptions
from the prospectus requirements, and (c) in the United States
to QIBs, as defined in, and in reliance on Rule 144A of the U.S.
Securities Act. The Institutional Offering is subject to a lower
limit per application of NOK 2,500,000.
A Retail Offering, in which Offer Shares are being offered to the
public in Norway subject to a lower limit per application of an
amount of NOK 10,500 and an upper limit per application of
NOK 2,499,999 for each investor. Investors in the Retail
Offering will receive a discount of NOK 1,000 on their
aggregate amount payable for the Offer Shares allocated to
such investors. Investors who intend to place an order in
excess of NOK 2,499,999 must do so in the Institutional
Offering. Multiple applications by one applicant in the Retail
Offering will be treated as one application with respect to the
maximum application limit and the discount.
All offers and sales outside the United States will be made in compliance
with Regulation S.
Odfjell Drilling Ltd - Prospectus
15
The Bookbuilding Period for the Institutional Offering is expected to take
place from 16 September 2013 at 09:00 hours (CET) to 27 September
2013 at 15:00 hours (CET). The Application Period for the Retail Offering
will take place from 16 September 2013 at 09:00 hours (CET) to 27
September 2013 at 12:00 hours (CET). The Company, in consultation
with the Selling Shareholder and the Joint Bookrunners, reserves the
right to shorten or extend the Bookbuilding Period and Application Period
at any time.
The Managers expect to issue notifications of allocation of Offer Shares
in the Institutional Offering on or about 30 September 2013, by issuing
contract notes to the applicants by mail or otherwise. DNB Markets,
acting as settlement agent for the Retail Offering, expects to issue
notifications of allocation of Offer Shares in the Retail Offering on or
about 30 September 2013, by issuing allocation notes to the applicants
by mail or otherwise.
Payment by applicants in the Institutional Offering will take place
against delivery of Offer Shares. Delivery and payment for Offer Shares
in the Institutional Offering is expected to take place on or about 3
October 2013.
The due date of payment in the Retail Offering is on or about 2 October
2013. Subject to timely payment by the applicant, delivery of the Offer
Shares allocated in the Retail Offering is expected to take place on or
about 2 October 2013.
E.4 Material and conflicting
interests
The Managers or their affiliates have provided from time to time, and
may provide in the future, investment and commercial banking services
to the Company and its affiliates in the ordinary course of business, for
which they may have received and may continue to receive customary
fees and commissions. The Managers do not intend to disclose the
extent of any such investments or transactions otherwise than in
accordance with any legal or regulatory obligation to do so.
The Selling Shareholder will receive the proceeds of the Offering.
Beyond the abovementioned, the Company is not aware of any interest
of natural and legal persons involved in the Offering.
E.5 Selling shareholders and
lock-up agreements
The Selling Shareholder is BCB Paragon Trust Limited, as trustee of the
Larine Trust. Marianne Odfjell is a beneficiary of the trust. As of the date
of this Prospectus, the Selling Shareholder holds 60,000,000 Shares in
the Company, corresponding to 30% of the issued and outstanding
Shares.
Following completion of the Offering, the Selling Shareholder will not
hold any Shares, assuming (i) the Offering is fully subscribed, (ii) the
Additional Shares are allotted and (iii) the Over-Allotment Option is
exercised in full. To the extent the Stabilisation Manager, on behalf of
the Managers, redelivers any of the Shares borrowed pursuant to the
Lending Option to the Selling Shareholder at the end of the stabilisation
period, the Selling Shareholder has the right to require Odfjell Partners
Ltd. to purchase 50% of such redelivered Shares from the Selling
Shareholder and Odfjell Partners Ltd. has a corresponding right to
require the Selling Shareholder to sell 50% of any redelivered Shares.
In connection with the Purchase Agreement, Odfjell Partners Ltd., the
Odfjell Drilling Ltd - Prospectus
16
Selling Shareholder, the Company and Simen Lieungh (the President
and CEO of Odfjell Drilling) will give an undertaking that will restrict
their ability to issue, sell or transfer Shares for nine months after the
date of the Purchase Agreement. For more information about these
restrictions, please see Section 18.14 ―Lock-up‖.
E.6 Dilution resulting from the
Offering
Not applicable. No new shares will be issued in the Offering.
E.7 Estimated expenses
charged to investor
Not applicable. The expenses related to the Offering will be paid by the
Company.
Odfjell Drilling Ltd - Prospectus
17
2 RISK FACTORS
Investing in the Shares involves inherent risks. Before deciding whether or not to participate in the Offering, an
investor should consider carefully all of the information set forth in this Prospectus, and in particular, the specific
risk factors set out below. An investment in the Shares is suitable only for investors who understand the risk
factors associated with this type of investment and who can afford a loss of all or part of their investment.
If any of the risks described below materialise, individually or together with other circumstances, they may have a
material adverse effect on the Group’s business, results of operations, cash flow and financial condition, which may
cause a decline in the value and trading price of the Shares that could result in a loss of all or part of any
investment in the Shares.
The order in which the risks are presented below is not intended to provide an indication of the likelihood of their
occurrence or of their severity or significance.
2.1 Risks relating to the industry in which the Group operates
2.1.1 Market conditions
The Group’s business, results of operations and financial condition depend on the level of exploration,
development and production activity in the oil and gas industry, which is significantly affected by,
among other things, volatile oil and gas prices
The Group‘s business depends on the level of activity in oil and gas exploration, as well as the identification and
development of oil and gas reserves and production in offshore areas worldwide, particularly in harsh and ultra-
deepwater environments. The availability of quality drilling prospects, exploration success, relative production
costs, the stage of reservoir development, political concerns and regulatory requirements all affect the Group‘s
clients‘ levels of expenditure and drilling campaigns. In particular, oil and gas prices and market expectations of
potential changes in these prices significantly affect the level of exploration and production (―E&P‖) activity by oil
and gas companies.
Oil and gas prices are volatile and cyclical and are affected by numerous factors beyond the Group‘s control,
including, but not limited to:
• worldwide demand for oil and gas as well as industrial services and power generation and the
competitive position of oil and gas as an energy source compared with alternative fuels;
• the cost of exploring for, developing, producing and delivering oil and gas;
• capital expenditures by major national and international oil companies;
• current oil and gas production, consumer capacity and price levels and expectations regarding future
energy prices;
• the ability of the Organisation of Petroleum Exporting Countries (―OPEC‖) to set and maintain
production levels and impact pricing, as well as the level of production in non-OPEC countries;
• government laws and regulations;
• political, economic and weather conditions and incidents, including conflicts and natural disasters in
oil producing countries and their impact on the world‘s financial and commercial markets;
• major accidents in the industry, including major spills, blowouts and explosions, and any resulting
changes to regulations, or client safety requirements; and
• technological advances affecting both exploration, development and production technology and
energy consumption.
Odfjell Drilling Ltd - Prospectus
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The demand for the Group‘s services and, accordingly, the prices its Well Services segment and Drilling &
Technology segment can achieve and, in the long term, the day rates the Group‘s MODU segment can achieve
depend on the level of E&P activity and expenditure by clients, and are therefore affected by trends in oil and gas
prices.
Due to the significant investments in exploration and, often, production made by the Group‘s clients at or before
the time they contract for services provided by the MODU segment and the Platform Drilling business area, these
businesses are typically impacted by longer term E&P spending decisions based on long-term price trends, whereas
the Well Services segment and the Technology business area are more sensitive to E&P spending decisions by
clients made in response to short-term fluctuations in oil and gas prices. Moreover, given the high E&P costs in
ultra-deepwater and harsh environments, a significant decrease in oil and gas prices over a protracted period
(rather than the short term) may result in such projects becoming uneconomical for the Group‘s clients. This may
result in a decrease in demand for the MODU segment and the Platform Drilling business area‘s services. Any of
these developments affecting demand in any of the Group‘s business segments could have a material adverse
effect on the Group‘s business, results of operations, cash flow, financial condition and, ultimately, ability to pay
dividends.
Uncertainty relating to global economic conditions and development may reduce demand for the
Group’s Drilling Units and services or result in contract delays or cancellations
Continued volatility and sustained weakness in general economic conditions and global or regional financial
markets have negatively affected and may continue to negatively affect oil and gas prices and/or create
uncertainty that can cause oil and gas companies to cut E&P spending budgets. Limitations on the availability of
capital or higher costs of capital for financing expenditures, or the desire to preserve liquidity, may cause potential
clients to make additional reductions in future capital budgets and outlays and could result in project modifications,
delays and/or cancellations. Such adjustments could reduce demand for drilling services generally, and the Group‘s
Drilling Units and services specifically, which could have a material adverse effect on the Group‘s results of
operations, cash flow and financial condition.
An over-supply of drilling units or rental equipment may lead to a reduction in day rates for the MODU
segment and prices for the Well Services segment, which may materially impact the Group’s results of
operations
The oil and gas services industry in which the Group operates is characterised by periods of high demand for
drilling units, short drilling unit supply and high day rates, followed by periods of low demand, excess drilling unit
supply, and low day rates and utilisation, largely owing to changes in oil and gas prices and their impact on client
expenditures. Periods of excess drilling unit supply intensify the competition in the industry and can result in
drilling units being idle for long periods of time.
In the past, significant spikes in oil and gas prices have led to high levels of drilling unit construction orders in the
offshore market. Significant spikes in oil and gas prices have been and could be followed by periods of sharp and
sudden declines in oil and gas prices, which in turn may result in declines in utilisation and day rates, and an
increase in the number of idle drilling units without long-term contracts.
The entry into service of new and upgraded ultra-deepwater units will increase supply and could lead to a reduction
in the utilisation and day rates of existing drilling units as new drilling units are absorbed into the market. Further,
a lack of visibility as to planned orders for new drilling units beyond 2015 makes it difficult to predict the extent of
the potential oversupply, which may exacerbate the risk of excess drilling unit supply. In addition, oil and gas
companies may delay agreeing new contracts or contracts extensions pending the expected availability of this
additional capacity with the expectation that increased capacity will allow them to obtain lower day rates.
The risk of decreased day rates is significant for the MODU segment. Revenue for the MODU segment represented
56.9% of the Group‘s operating revenue 1 in the year ended 31 December 2012 and 55.8% of the Group‘s
operating revenue for the six months ended 30 June 2013. In periods of excess drilling unit supply, the MODU
segment may be required to maintain idle Drilling Units or enter into contracts at lower day rates until market
conditions improve. The Group may also experience an over-supply in its markets as a result of competitors
shifting drilling units or equipment into those regions where the Group‘s Drilling Units may then be located. These
1 Operating revenue before group eliminations and corporate overheads.
Odfjell Drilling Ltd - Prospectus
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events could materially adversely affect the Group‘s results of operations, cash flow and financial condition.
Further, prolonged periods of low utilisation and/or day rates could also have a material adverse effect on the value
of the Drilling Units.
Oversupply of the equipment that the Group rents to clients (―Rental Equipment‖), as offered by the Well
Services segment (this segment represented 17.1% of the Group‘s operating revenue2 for the year ended 31
December 2012 and 17.5% of the Group‘s operating revenue for the six months ended 30 June 2013), could lead
to that segment experiencing decreased prices and/or client orders for its Rental Equipment. Currently, the Group
has a limited number of competitors in this segment, although that may change in the future. There can be no
assurances that the Well Services segment will not experience oversupply and, as a result, a decrease in day rates,
lump sum payments and/or client orders for its Rental Equipment in the future.
Competition within the oil and gas services industry may have a material adverse effect on the Group’s
ability to market its services
The oil and gas services industry is highly competitive and fragmented and includes several large competitors in
the markets the Group serves, or will serve, as well as numerous small competitors that compete with the Group
on a local basis. The Group‘s operations may be materially adversely affected if its current competitors or new
market entrants introduce new products or services with features, performance, prices or other characteristics
similar to, or better than, the Group‘s products and services or expand into service areas where the Group
operates. Competitive pressures or other factors that result in significant price competition, particularly during
industry downturns, could have a material adverse effect on the Group‘s business, results of operations, cash flow
and financial condition.
Certain of the MODU segment‘s competitors for drilling unit contracts are significantly larger than the Group, both
in respect of fleet size and financial position. Such competitors‘ greater resources could allow them to better
withstand industry downturns, compete more effectively on the basis of the size of their fleet, financial strength,
technology and geographic scope, and retain skilled personnel.
Further, as a result of declining demand for new ships in the shipbuilding sector, shipyards are offering drilling unit
rig construction at reduced rates and accelerated build schedules, which could offer both existing players and new
market entrants a quicker and less costly route into the drilling sector and increase competition. Any further
construction of new drilling units could increase supply and competition and exacerbate the negative impact on
utilisation and day rates for the Group‘s MODU segment.
The Well Services segment has a limited number of global competitors, but competes with various local and smaller
suppliers in each of its geographic markets. Such smaller suppliers may be in a preferred position locally as they
may be able to offer lower prices and may also have longer existing relationships with local clients. The increase in
competition may result in a loss of market share for the Well Services segment, which could have a negative
impact on the segment‘s or the Group‘s revenue.
The Group‘s Platform Drilling business area currently has only two main competitors in the markets the Group
serves, although no assurances can be given that this will not change in the future.
The Group‘s Technology business area operates in a highly competitive market and may, as a consequence, suffer
periods of low utilisation and/or lower day rates. Further, there can be no assurance that competition will not
increase in the future.
2.1.2 Legal, regulatory and environmental risks
Governmental laws and regulations relating to the oil and gas industry could hinder or delay the
Group’s operations, increase the Group’s operating costs, reduce demand for its services and/or
restrict the Group’s ability to provide its services or operate its Drilling Units
As the Group depends on demand for services from oil and gas companies, it is also affected by changing laws and
regulations relating to its clients and the oil and gas industry. The Group is also exposed to changes in
recommended industry practices and applicable standards, including classification requirements regarding the
design, construction and maintenance of mobile offshore drilling units, and materials, equipment and machinery.
2 Operating revenue before group eliminations and corporate overheads.
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The laws and regulations affecting the Group‘s business include, among others, laws and regulations relating to:
• protection of the environment;
• quality of health and safety (including in relation to mandatory or recommended replacement or
modifications of drilling unit equipment on drilling units);
• employment and labour actions;
• import-export quotas, wage and price controls, imposition of trade barriers, income and capital
repatriation controls and other forms of government regulation and economic conditions;
• the imposition of moratoriums on drilling in certain locations (as were implemented in the Gulf of
Mexico following the Macondo incident (as discussed below)), which can lead to increased drilling unit
capacity in other geographic markets and ultimately increased global competition; and
• taxation and subsidies.
The Group and its clients are required to invest financial and managerial resources to comply with these laws and
regulations. The Group cannot predict the future costs of complying with these laws and regulations, and any new,
or changes to current, laws or regulations could materially increase the Group‘s expenditures in the future.
Existing laws or regulations, or the adoption of new laws or regulations limiting exploration or production activities
by oil and gas companies or imposing more stringent restrictions on such activities, could have a material adverse
effect on the Group by increasing its operating costs, reducing the demand for its services and restricting its ability
to provide its services or operate its Drilling Units. Further, the Group‘s clients may, as a consequence of certain
new laws and regulations, have the contractual right to request changes to the Drilling Units and/or Rental
Equipment, the implementation of which may increase the Group‘s operating costs.
Regulatory authorities may exercise discretion in monitoring compliance and in interpreting and enforcing
applicable laws and regulations. Future inspections by regulatory authorities may conclude that the Group has
violated applicable laws or regulations. If the Group is unable to refute these conclusions or to remedy these
violations, the regulatory authorities may impose fines, criminal and/or administrative penalties or other sanctions,
including compelling the Group to cease certain of its business activities. The resulting loss of profits could have a
material adverse effect on the Group‘s business, results of operations, cash flow and financial condition.
The impact of the Macondo incident led to an aggressive overhaul of the oil and natural gas regulatory
process that has significantly impacted oil and gas development in the US Gulf of Mexico and may also
lead to further regulations that may impact drilling operations in other regions
On 20 April 2010, the ultra-deepwater floater ―Deepwater Horizon‖ sank after a blowout of the Macondo well in the
Gulf of Mexico off the coast of the United States which caused a fire and an explosion on the rig (the ―Macondo
incident‖). In response to this incident, the US government has undertaken an aggressive overhaul of the offshore
oil and natural gas regulatory process that has significantly impacted oil and gas development in the US Gulf of
Mexico. Although the new compliance regulations are only related to drilling operations in the US Gulf of Mexico,
the repercussions of the incident have caused and may continue to cause a general increase in industry regulation
and/or operating costs with respect to drilling activities in the countries in which the Group operates. While the
Group does not expect to experience any material impact on its operations as a result of these events in the short
term, there is no assurance that its operations will not be adversely affected by future developments in the
industry or related regulation. In response to the Macondo incident and the related regulatory changes and scrutiny
of offshore drilling, oil and gas clients or industry regulators could impose additional equipment or procedural
requirements. These additional requirements could impact the capital cost of the Drilling Units and Rental
Equipment, and the operating costs of the Group, which could in turn have a material adverse effect on the Group‘s
business, results of operations, cash flow and financial condition.
Odfjell Drilling Ltd - Prospectus
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The Group may be subject to contractual environmental liability and liability under environmental laws
and regulations, which could have a material adverse effect on the Group’s business, results of
operations and financial condition
The Group‘s operations are subject to regulations controlling the discharge of materials into the environment,
requiring removal and clean-up of materials that may harm the environment, controlling carbon dioxide emissions
or otherwise relating to the protection of the environment. The Group incurs, and expects to continue to incur,
capital and operating costs to comply with environmental laws and regulations. The technical requirements of
environmental laws and regulations are becoming increasingly expensive, complex and stringent.
As an owner of mobile offshore drilling units and provider of services to oil and gas companies, the Group may be
liable (under applicable laws and regulations or contractually) for damages and costs incurred in connection with
spills of oil and other chemicals and substances related to the operations of its Drilling Units and the provision of its
services. The Group may also be subject to significant fines in connection with spills, which could have a material
adverse effect on the Group‘s business, results of operations, cash flow and financial condition.
Generally, laws and regulations protecting the environment have become more stringent in recent years. Although,
generally, the Group‘s clients are the primary parties responsible for compliance, laws and regulations may, in
some cases, impose direct and strict liability, rendering a company or a person liable for environmental damage
without regard to negligence. For example, the Group may be subject to the Norwegian Pollution Act of 13 March
1981 and the Norwegian Maritime Act of 24 June 1994. These laws and regulations may expose the Group to
liability for the conduct of, or conditions caused by, third parties (including clients and contractors), or for acts that
were in compliance with all applicable laws at the time they were performed. The application of these requirements
or the adoption of new requirements could have a material adverse effect on the Group‘s business, results of
operations, cash flow and financial condition.
In accordance with industry practice, the Group‘s clients take primary responsibility for any environmental pollution
as a result of the client‘s use of the Drilling Units under the Group‘s contracts, although, in accordance with
customary industry practice, the Group, through the Well Services segment, typically assumes liability for pollution
emanating from its own Rental Equipment. The Group has generally been able to obtain some degree of
contractual indemnification pursuant to which its clients agree to protect, hold harmless and indemnify the Group
against liability for pollution, well and environmental damage, including, in the case of well services, for exposure
beyond pollution from its Rental Equipment. However, generally in the oil and gas services industry there is
increasing pressure from clients to pass on a larger portion of the liabilities to contractors, such as the Group, as
part of their risk management policies. There can be no guarantee that the Group will be able to prevent or
mitigate the increased apportionment of risk for environmental liabilities to contractors. Further, there can be no
assurance that the Group can obtain indemnities in its contracts or that, in the event of extensive pollution and
environmental damage, its clients would have the financial capability to fulfil their contractual obligations. Further,
such indemnities may be deemed legally unenforceable based on relevant law, including as a result of public policy.
For example, a US court, in connection with certain litigation related to the Macondo incident, recently held that an
indemnity was unenforceable on these grounds.
Failure to comply with the complex laws and regulations governing international trade could adversely
affect the Group’s operations
The shipment of goods, services and technology by each of the Group‘s business segments across international
borders subjects the Group to extensive trade laws and regulations. Import activities are governed by unique
customs laws and regulations in each of the Group‘s countries of operation. Moreover, many countries control the
export and re-export of certain goods, services and technology and impose related export recordkeeping and
reporting obligations. Governments also may impose economic sanctions or embargoes against certain countries,
persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and
economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended,
enforced or interpreted in a manner that materially impacts the Group‘s operations. Shipments can be delayed and
denied export or entry for a variety of reasons, some of which are outside the Group‘s control and some of which
may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could
cause unscheduled operational downtime or delay in deliverables. Any failure to comply with applicable legal and
regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines,
Odfjell Drilling Ltd - Prospectus
22
imprisonment, debarment from government contracts, seizure of shipments and loss of import and export
privileges.
2.1.3 Operational and country risks
The Group’s business involves numerous operating hazards. If a significant accident or other event
occurs, and is not fully covered by the Group’s insurance or any enforceable or recoverable indemnity,
it could materially adversely affect the Group’s results of operations, cash flows and financial condition
The Group‘s operations are subject to hazards inherent in drilling for oil and gas, such as blowouts, reservoir
damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, craterings, fires,
explosions and pollution. Contract drilling and the provision of well services require the use of heavy equipment
and exposure to hazardous conditions. In particular, the MODU segment‘s operations are subject to hazards
inherent in marine operations, such as capsizing, grounding, navigation errors, collision, oil and hazardous
substance spills, damage from severe weather conditions and marine life infestations.
Damage to the environment could also result from the Group‘s operations and services, particularly from spillage of
fuel, lubricants or other chemicals and substances used in drilling operations, or extensive uncontrolled fires. The
Group may also be subject to property, environmental and other damage claims by oil and gas companies.
In addition, accidents or other operating hazards could result in the suspension of operations because of related
machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or
services, or personnel shortages, which may in turn have a material adverse effect on the Group‘s business, results
of operations, cash flow and financial condition.
The Group‘s insurance policies and contractual rights to indemnity may not adequately cover losses, and the Group
does not have insurance coverage or rights to an indemnity for all risks. In addition, the Group‘s insurance
coverage will not provide sufficient funds in all situations to protect the Group from all liabilities that could result
from its operations, the amount of the Group‘s insurance cover may be less than the related impact on enterprise
value after a loss, and the Group‘s coverage also includes policy limits. As a result, the Group retains the risk
through self-insurance for any losses in excess of these limits. The Group may also decide to retain substantially
more risk through self-insurance in the future.
Although it is the Group‘s policy to obtain contractual indemnities, it may not always be able to negotiate such
provisions. Further, indemnities that the Group receives from clients may not be easily enforced and may be of
limited value if the relevant clients do not have adequate resources to indemnify the Group.
No assurance can be made that the Group has, or will be able to maintain in the future, adequate insurance or
indemnity against certain risks, and there is no assurance that such insurance or indemnification agreements will
adequately protect the Group against liability from all of the consequences of the hazards and risks described
above. The occurrence of a significant accident or other adverse event which is not fully covered by the Group‘s
insurance or any enforceable or recoverable indemnity from a client could result in substantial losses for the Group
and could materially adversely affect the Group‘s results of operations, cash flow and financial condition.
Please see Section 8.13 ―Insurance‖ for a discussion of the Group‘s insurance and indemnities.
The Group’s business segments operate in various jurisdictions, thereby exposing the Group to risks
inherent in international operations and subjecting the Group to compliance with the laws and
regulations of the jurisdictions in which it operates
The Group currently operates in more than 20 countries, thereby exposing it to risks that are inherent to
conducting international operations
The Group‘s international operations involve additional risks due to factors beyond the Group‘s control, including:
• terrorist acts, war and civil disturbances;
• seizure, nationalisation or expropriation of property or equipment;
• political unrest or revolutions;
Odfjell Drilling Ltd - Prospectus
23
• actions by environmental organisations;
• natural disasters;
• pollution or environmental damage;
• public health threats;
• claims by employees, third parties or clients;
• the inability to repatriate income or capital;
• complications associated with repairing and replacing equipment in remote locations;
• delays or difficulties in obtaining necessary visas and work permits for its employees;
• wage and price controls, imposition of trade barriers and other forms of government regulation and
economic conditions; and
• country-specific regulatory or financial requirements.
Some of these risks, which may require or result in evacuation of personnel, cancellation of contracts or the loss of
personnel or assets, could limit or disrupt the Group‘s operations and thereby have a material adverse effect on the
Group‘s business, results of operations, cash flow and financial condition.
International oil and gas service providers are subject to various laws and regulations in various countries and
jurisdictions, including laws and regulations relating to:
• the equipment requirements for, and operation of, drilling units, fixed installations and provision of
well services;
• repatriation of foreign earnings;
• oil and gas exploration and development;
• taxation of offshore earnings and the earnings of expatriate personnel;
• customs duties on the importation of drilling units and equipment;
• the use and compensation of local employees; and
• the use of local suppliers, contractors, representatives and/or agents by the Group.
Some foreign governments favour or require (i) the awarding of drilling contracts to local contractors or to drilling
units and/or equipment completely or partially owned by their own citizens, (ii) the use of a local
representative/agent, (iii) the use of local suppliers, (iv) local registration of companies or branches of the operator
and/or (v) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These
practices, known as ―local content requirements‖, may, to the extent that there is a limited supply of local
suppliers, partners and contractors qualified for the Group‘s services, materially adversely affect the Group‘s ability
to compete or to operate in those regions as well as the Group‘s costs and ultimately its results of operations.
It is difficult to predict what governmental regulations may be enacted in the future or how the local authorities‘
implementation, interpretation or enforcement of such regulations could adversely affect the international drilling
industry and the Group‘s business. Further, failure to comply with applicable laws and regulations, including those
relating to sanctions and export restrictions, may subject the Group to exclusion from the relevant market, loss of
future and existing contracts, and criminal sanctions or civil remedies, including fines, denial of export privileges,
injunctions or seizures of assets. While the Group maintains policies designed to comply with various foreign laws
and regulations, it may not be possible for the Group to detect or prevent every violation in every jurisdiction in
Odfjell Drilling Ltd - Prospectus
24
which its employees, agents, sub-contractors or joint venture partners are located. The Group or its directors,
officers, and employees may therefore be subject to civil and criminal penalties and to reputational damage.
Physical infrastructure and logistics systems in some of the areas where the Group operates are in poor
condition
Physical infrastructure and logistics systems, such as roads, air transport facilities and lines of communication, in
certain areas of the world, including certain parts of Africa where the Group operates, may be under developed and
may not have been adequately funded and maintained. This may have an effect on the efficiency and safety of the
Group‘s operations in these regions due to reduced efficiency, predictability and safety in the transportation of
equipment and personnel.
Breakdowns or failures of any part of the physical infrastructure or logistics systems in the areas where the Group
operates may disrupt the Group‘s normal business activities, cause the Group to suspend operations or result in
environmental damage to the surrounding areas.
Such circumstances, or any further deterioration of the physical infrastructure in the areas where the Group
operates, may increase the costs of doing business and interrupt business operations, any or all of which could
have a material adverse effect on the Group‘s business, results of operations, cash flow and financial condition. In
addition, as many new discoveries of oil are made in areas of the world that may still be developing the relevant
infrastructure, the Group‘s exposure to this risk may increase in the future.
The Group’s international operations are exposed to the risk of acts of piracy, which could result in
increasing costs of operations
Acts of piracy on ocean-going vessels have increased in frequency in recent years, including significantly in the Gulf
of Aden off the coast of Somalia and in West Africa‘s Gulf of Guinea. The Gulf of Aden has, since 14 October 2008,
been listed as a conditional trading area of a war risk zone and a higher premium has been paid to insurers since 1
December 2008. The Drillship Deepsea Metro I operates offshore of the East Coast of Africa, specifically Tanzania,
under a drilling contract with BG and Deepsea Stavanger operates offshore of Angola in West Africa under a drilling
contract with BP. Their operations and costs of operations may thus be affected by these circumstances. For
example, insurance premiums payable could increase significantly and insurance coverage may be more difficult to
obtain if the piracy risk spreads geographically or continues to increase in frequency. In addition, crew costs could
also increase in such circumstances. The foregoing could have a material adverse effect on the Group‘s business,
results of operations, cash flows and financial condition, which could be exacerbated should the Group expand its
operations in countries subject to the risk of piracy or if acts of piracy begin to impact geographic markets in which
the Group operates.
The Group does business in jurisdictions with inherent risks relating to fraud, bribery and corruption
Doing business in international developing markets brings with it inherent risks associated with enforcement of
obligations, fraud, bribery and corruption. Fraud, bribery and corruption are more common in some jurisdictions
than in others, and certain of the countries in which the Group operates and conducts business may experience
high levels of government and business corruption. In addition, the oil and gas industries have historically been
vulnerable to corrupt or unethical practices.
While the Group maintains anti-corruption training programmes, codes of conduct and other safeguards designed
to prevent the occurrence of fraud, bribery and corruption, it may not be possible for the Group to detect or
prevent every instance of fraud, bribery and corruption in every jurisdiction in which its employees, agents, sub-
contractors or joint venture partners are located. The Group and/or its directors, officers and employees may
therefore be subject to civil and criminal penalties, including significant fines, and to reputational damage.
Furthermore, alleged or actual involvement in corrupt practices or other illegal activities by the Group‘s joint
venture partners or others with which the Group conducts business could also damage the Group‘s reputation and
business. Due to the Group‘s international expansion, Odfjell Drilling is increasingly exposed to these risks through
its use of various agents and representatives for whose actions on the Group‘s behalf Odfjell Drilling remains
responsible. Instances of fraud, bribery and corruption, and violations of laws and regulations in the jurisdictions in
which the Group operates, including the UK Bribery Act and provisions of the Norwegian Criminal Act of 22 May
1902 No. 10, could have a material adverse effect on its results of operations and financial condition. In addition,
as a result of the Group‘s anti-corruption training programmes, codes of conduct and other safeguards, there is a
risk that the Group could be at a commercial disadvantage and may fail to secure contracts within certain
Odfjell Drilling Ltd - Prospectus
25
jurisdictions, to the benefit of other companies who may not have, or comply with, such anti-corruption
safeguards.
The Group does business in jurisdictions that are subject to sanction regimes
The Group has conducted business in certain jurisdictions that are subject to US trade embargoes and sanctions by
the US Office of Foreign Assets Control, including countries which have been designated by the US government as
state sponsors of terrorism, and may conduct business in jurisdictions that are subject to analogous Norwegian and
European Union sanctions. The Group has typically generated revenue in some of these countries through the
performance of well services and the rental of well equipment. The Group has recently completed contracts with
clients in Cuba and Iran. The Group has no current commitments in such countries or in other countries subject to
sanctions, but there can be no assurance that the Group will not expand its operations into countries subject to
sanctions. Further, there can be no assurance that the relevant sanction regimes will not be expanded to include
countries in which the Group currently operates. Failure to comply with sanctions could result in material fines and
penalties, and damage to the Group‘s reputation. This could negatively affect the market price of the Shares. While
the Group believes that it is in compliance with all applicable sanctions and embargo laws and regulations, and
intends to maintain such compliance, there can be no assurance that the Group will be in compliance in the future,
particularly as the scope of certain laws may be unclear and may be subject to changing interpretations.
2.2 Risks relating to the Group
The Group’s backlog may not be ultimately realised
As of 30 June 2013, the Group had a backlog in its MODU segment and Platform Drilling business area of
approximately USD 5,704 million inclusive of priced optional periods. The Group‘s backlog represents the
contracted future revenue under contracts for the Drilling Units and services provided by its MODU segment and
Platform Drilling business area. The Group presents backlog both inclusive and exclusive of any priced optional
periods exercisable by clients calculated to reflect the nominal value of the contract, detailed in Section 11.2.3
―Backlog‖. Backlog does not provide a precise indication of the time period over which the Group is contractually
entitled to receive such revenues and there is no assurance that such revenue will be actually realised in the
timeframes anticipated or at all.
Backlog is computed based on contractual terms with the relevant client; however, revenue included in the backlog
may be subject to price indexation clauses.
There are a number of reasons why the Group may fail to realise expected backlog, including:
• cancellation, early termination or successful renegotiation of contracts by clients as a result of, among
other reasons, adverse market conditions and, where the MODU segment enters into management
contracts for newbuilds, delay in the delivery of such newbuilds;
• clients‘ discretionary invocation of suspension periods;
• clients‘ exercise of variation provisions, for example for the modification of a Drilling Unit;
• an inability of the Group to perform its obligations under contracts, including for reasons beyond its
control; and
• a default by a client and failure to pay amounts owed.
Some of the Group‘s clients may experience liquidity issues, which could worsen if oil and gas prices decline to
lower levels for an extended period of time. Liquidity issues could encourage clients who are experiencing financial
difficulties to seek to repudiate, cancel or renegotiate agreements with the Group or result in such client‘s
bankruptcy, insolvency or similar actions. The ability of the Group‘s clients to perform their obligations under their
contracts with the Group may also be negatively impacted by uncertainty surrounding the development of the
world economy and credit markets.
The Group‘s inability to realise backlog amounts could have a material adverse effect on the Group‘s results of
operations, cash flows and financial condition.
Odfjell Drilling Ltd - Prospectus
26
The Group’s contracts may be subject to early termination due to certain events
Some of the Group‘s existing clients have, and future clients may have, the right to terminate their contracts
without cause in compliance with applicable notice periods. In addition, under certain circumstances, the Group‘s
existing contracts permit, and future contracts may permit, a client to terminate its contract early without the
payment of any termination fee, as a result of non-performance, delay, quality of deliverables, or force majeure
events. Many of these events are beyond the Group‘s control. Early termination of contracts may decrease the
MODU segment‘s or the Platform Drilling business area‘s utilisation levels and reduce the revenue received by any
businesses affected by the termination.
Although in relation to contracts for the MODU segment, clients may be required to pay the Group an early
termination fee in certain circumstances, termination fees are generally not available under contracts for the Well
Services segment, the Platform Drilling business area or the Technology business area. Even if the Group is entitled
to early termination payments, such payments may not fully compensate the Group for the loss of the contract or
the costs associated with the contract that it cannot fully eliminate.
During periods of challenging market conditions, the Group may be subject to an increased risk of its clients
seeking to repudiate or delay commencement of their contracts, including through claims of non-performance.
If the Group‘s clients cancel their contracts with the Group and the Group is unable to secure new contracts on a
timely basis and on substantially similar terms, or if contracts are suspended for an extended period of time, the
Group‘s backlog could be reduced, which may have a material adverse effect on the Group‘s results of operations,
cash flow and financial condition. See Section 11.2.3 ―Backlog.‖
The Group’s future business performance depends on its ability to renew and extend existing contracts,
and to win new contracts
The Group‘s revenue is derived from contractual arrangements and its business areas use various contractual
formats.
Contracts for the MODU segment, the Well Services segment and the Platform Drilling business area are
customarily for fixed lengths of time, although the MODU segment‘s Drilling Units may also have well-based
contracts, which are contracts defined by completion of a specific service rather than the performance of a service
for a fixed period of time. Currently, all of the Group‘s drilling unit contracts are for fixed lengths of time. Contracts
for the MODU segment and the Platform Drilling business area may include extension options that are exercisable
at the discretion of the client. The extension options do not represent guaranteed commitments from clients to
extend the period of the contract and there can be no assurance that the Group‘s clients will exercise the extension
options or that the work performed under such extension options will be at prevailing market day rates or prices at
the time the option to extend is exercised, as the Group agrees the day rates and prices for extension periods at
the time of signing the original contract.
While the Group actively markets its Drilling Units prior to the end of a contract in anticipation of a client choosing
not to exercise its extension option(s), if the client decides not to exercise the option(s), then the Group will need
to secure a new contract for that Drilling Unit and any time lag in doing so could lead to a period of non-utilisation.
Although the MODU segment‘s most recent contracts include a one-year notice period for non-renewal, some of its
older contracts include a six-month notice period, which the Group regards as a tight timeframe for agreeing a new
contract. Further, similar challenges may arise in relation to well-based contracts, as the timing and completion of
services may be difficult to predict for such contracts.
For most of its businesses, particularly for the MODU segment, the Well Services segment and the Platform Drilling
business area, the Group is primarily awarded contracts and, in certain circumstances, successfully renews certain
existing contracts by participating in tender processes. However, some of the Group‘s contracts, especially the
Technology business area‘s contracts, are entered into following direct negotiations with clients. Where the Group
tenders for contracts, it is generally difficult to predict whether the Group will be awarded contracts on favourable
terms or at all. The tenders are affected by a number of factors beyond the Group‘s control, such as market
conditions, competition (including the intensity of the competition in a particular market), financing arrangements
and governmental approvals required by clients.
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In addition, the MODU segment is often required to pre-qualify to participate in tender processes by meeting
certain thresholds of operational performance, including quality, health, safety and environment (―QHSE‖)
requirements, and by demonstrating its ability to provide available equipment and sufficiently comply with local
requirements. Generally, these thresholds and requirements for inclusion on pre-approved tender lists have
become more stringent in recent years. If the Group fails to be pre-approved by clients for participation in tender
processes, the Group will not be considered for inclusion in certain tender processes, the Group‘s business activities
and/or utilisation may drop below expected levels, and its business, results of operations, cash flow and financial
position may be adversely affected.
Certain of the MODU segment‘s contracts are due to expire in the next two years: one contract with BP on Deepsea
Stavanger will expire during 2014; one contract with Statoil on Deepsea Atlantic will expire during 2015; one
contract with BG on Deepsea Metro I will expire during 2014; and one contract with Petrobras on Deepsea Metro II
will expire during 2015. These contracts include provisions for extension, but there can be no guarantee that such
options will be exercised. Also, certain of the Well Services and Drilling & Technology segments‘ contracts are due
to expire in the next two years. For further information on these contracts, see Section 8.5.2.3 ―Key contracts‖ and
Section 8.5.3.3 ―Key contracts‖.
The Group‘s ability to renew or extend existing contracts or sign new contracts will largely depend on prevailing
market conditions. If the Group is unable to sign new contracts that start immediately after the end of its current
contracts or, in the case of the MODU segment or the Platform Drilling business area, if new contracts are entered
into at day rates or prices substantially below the existing day rates or prices, or on terms otherwise less
favourable compared to existing contract terms, or which leave the Group with mobilisation or demobilisation costs
that cannot be fully recovered, the Group‘s business, results of operations, cash flow and financial condition may
be adversely affected.
Unforeseen or unanticipated risks, costs or timing when bidding on or managing contracts could
adversely affect the Group’s business, results of operations and financial condition
In preparation for a tender of a new contract, the Group assesses its current capacity, and, if it is awarded the
contract, it determines how to deploy resources in order to perform its obligations under the contract. The Group‘s
financial and operating performance depends on making accurate assumptions and estimates, as well as identifying
key issues and risks (including, but not limited to, the degree of complexity of the project assumptions regarding
rig efficiency or utilisation of equipment, operational expenses, mobilisation costs, tax payments, availability of
skilled personnel and availability of critical equipment with long lead times) with respect to potential projects at the
tender stage of the project, and ensuring that the pricing and contractual arrangements in relation to each project
adequately safeguard the Group against, or compensate it for, such risks. Assumptions are particularly necessary
when tendering for a new client or entering new product or geographic markets, as the Group does not yet have
the experience on which it can base its assumptions for the tender. The Group must manage project risks
efficiently and adapt to changes that occur during the life of a project. Even when a risk is properly identified, the
Group may be unable to or may not accurately quantify it. Unforeseen or unanticipated risks, incorrect
assumptions when bidding for a contract or unexpected client variation orders under contractual variation
provisions (including, for example, orders for the modification of a Drilling Unit) may lead to increased costs for the
Group and could adversely affect the Group‘s business, results of operations, cash flow and financial condition.
2.3 Risks relating to operations
The Group, and in particular the MODU segment and the Platform Drilling business area, is exposed to
client concentration risk
The Group currently has three rigs and two drillships in operation. As of 30 June 2013, four clients, Statoil, BP, BG
(including a relevant assignment to Ophir) and Petrobras, account for all of the MODU segment‘s backlog. In
addition, as of 30 June 2013, five clients, Statoil, BP, Talisman, TAQA and Wintershall, account for all of the
Platform Drilling business area‘s backlog.
A number of factors could lead to a deterioration in the Group‘s relationships with its major clients, including, for
example, any disputes between the Group and its clients with regard to, among other things, contract terms, non-
performance, quality of deliverables or additional costs exceeding the contract price or for work performed but not
included in the original contract specifications. These types of claims can arise for a number of reasons, including
delays to or changes from the initial project scope. The Group‘s client concentration may exacerbate the impact of
these disputes on the Group.
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The Group‘s results of operations and cash flows could be materially adversely affected if any of its major clients
fail to compensate the Group for its services, were to terminate their contracts with or without cause, fail to renew
their existing contracts or refuse to award new contracts to the Group and the Group is unable to enter into
contracts with new clients at comparable day rates.
The Group’s operating and maintenance costs will not necessarily fluctuate in proportion to changes in
operating revenues
In a situation where a Drilling Unit faces longer idle periods, reductions in costs may not be immediate as some of
the crew may be required to prepare Drilling Units for the idle period. Should Drilling Units be idle for a longer
period, the Group may seek to redeploy crew members who are not required to maintain the Drilling Units to active
Drilling Units to the extent possible. However, there can be no assurance that the Group will be successful in
reducing its costs under circumstances where its revenues may also have decreased.
Rental Equipment maintenance costs fluctuate depending upon the type of activity the drilling unit is performing
and the age and condition of the Rental Equipment.
To the extent that changes in the Group‘s operating and maintenance costs are not proportionate to changes in
operating revenues there may be a material adverse effect on the Group‘s business, results of operations, cash
flow and financial condition.
The Group’s newbuild projects are subject to risks which could cause delays or cost overruns and have
a material adverse effect on the Group’s business, results of operation, cash flows and financial
condition
The Group currently has an interest in newbuild projects, including the construction of Deepsea Aberdeen with
Daewoo Shipbuilding & Marine Engineering Co., Ltd. (―DSME‖) and the construction of three drillships in Brazil
through the joint venture Odfjell Galvão B.V. Deepsea Aberdeen is expected to be delivered in May 2014 and,
following mobilisation to location, it is expected to commence its seven-year contract for BP Exploration in the UK
West of Shetland region in the fourth quarter of 2014. The Group also provides consultancy and project
management services on other newbuild projects where it may or may not have an ownership interest in the
project, such as the Island Innovator where the owner‘s completion of the construction and commencement of
operations has been delayed due to an incident at the yard during the pre-operations phase. The provision by the
Group of such consultancy and management services will be subject to potential liabilities toward contracting
parties, third parties and relevant authorities. Any contractual liabilities could include increased project cost and
other incurred costs and also liability for delayed commencement. The Group will also consider additional newbuild
projects in the future, as appropriate. All present or future newbuild construction projects are or will be subject to
risks of delay, quality issues, damage to personnel, equipment and environment, or cost overruns inherent in any
large construction project due to numerous factors, including:
• shortages of equipment, materials or skilled labour;
• unscheduled delays in the delivery of ordered materials and equipment or shipyard construction;
• failure of equipment to meet quality and/or performance standards;
• financial or operating difficulties experienced by equipment vendors or the shipyard;
• lack of capacity at shipyards;
• unanticipated actual or purported change orders;
• inability to obtain required permits or approvals;
• unanticipated cost increases between order and delivery;
• design or engineering changes;
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• the occurrence of accidents/incidents or other safety hazards;
• work stoppages and other labour disputes; and
• adverse weather conditions or any other events of force majeure.
Significant cost overruns or delays in projects under construction could materially adversely affect the Group‘s
results of operations, cash flow and financial condition. Additionally, failure to complete a project on time or failure
to meet technical or operational requirements imposed by relevant regulations or regulatory authorities may result
in the delay or loss of revenue from that drilling unit and potential penalties from the client or cancellation by the
client. While the Group seeks to allow a sufficient window after delivery of a drilling unit from the shipyards to
customise the drilling unit according to client specifications and to mobilise the drilling unit as required for
commencement of the contract, there can be no assurance that commencement will occur within the agreed
delivery window. Should the Group fail to meet the delivery requirements in order to commence the contract, it
could be liable for liquidated damages and other contractual remedies, or the client may cancel the contract. New
drilling units may experience start-up difficulties following delivery or other unexpected operational issues that
could result in uncompensated downtime or the cancellation or termination of drilling contracts, which could also
materially adversely affect the Group‘s results of operations, cash flow and financial condition.
The Group must maintain and repair its Drilling Units, including maintaining the classification of the
Drilling Units, which may lead to increased costs and loss of income
The operation of the Drilling Units requires effective maintenance routines and functioning equipment. Certain
pieces of equipment are critical for the Drilling Units‘ performance of the drilling services as required in client
contracts. While efforts are made to continuously identify the need for critical spare parts and equipment, there
exists a risk of unpaid downtime resulting from the time needed to repair or replace equipment which may have a
long delivery time should there not be readily available spare parts. In addition, downtime and suspension periods
may be prolonged due to complications with repairing or replacing equipment as the Drilling Units may be situated
in remote locations.
The Drilling Units go through an off-hire period in connection with the special period survey (―SPS‖) each fifth year
to obtain re-classification. This is normally done at a shipyard. There is a risk that the duration of the yard stay is
longer than scheduled, with a potential impact on utilisation, and that the costs related to the required work
exceed its budget.
The decreased utilisation would typically result in decreased day rates for the Drilling Units and any cost overruns
may have a material adverse effect on the Group‘s results of operations, cash flows and financial condition. See
Section 11.2.2 ―Revenue generation.‖
Disruptions of deliveries by the Group’s suppliers could increase operating costs, decrease revenues
and adversely impact the Group’s operations. In addition, consolidation of suppliers may limit the
Group’s ability to obtain supplies and services when needed at an acceptable cost or at all
The Group relies, and will in the future continue to rely, on a significant supply of consumables, spare parts and
equipment to operate, maintain, repair and upgrade its fleet of Drilling Units and maintain and develop its Well
Services segment‘s business. Certain parts and equipment the Group uses in its operations may be available from
only a small number of suppliers, manufacturers or service providers, or in some cases must be sourced through a
single supplier, manufacturer or service provider. A disruption in the deliveries from such third-party suppliers,
manufacturers or service providers, capacity constraints, production disruptions, price increases, quality control
issues, recalls or other decreased availability of parts and equipment could adversely affect the Group‘s ability to
meet its commitments to clients, adversely impact the Group‘s operations and revenues or increase the Group‘s
operating costs.
In addition, during the last decade the number of available suppliers for drilling packages to the MODU segment‘s
Drilling Units has reduced due to industry consolidation, resulting in fewer alternatives for sourcing key supplies,
replacement parts, and services. The drilling packages for the Drilling Units are complicated and require a long lead
time to deliver, so proper management of procurement is required and, once selected, the Group must continue to
use the same supplier for replacement parts. Further, certain key equipment used in the Group‘s business may be
protected by patents and other intellectual property of the suppliers, sub-suppliers or others. This may limit the
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Group‘s ability to obtain supplies and services when needed, at an acceptable cost or at all. Cost increases, delays
or unavailability could materially adversely affect the Group‘s future operations and result in higher rig downtime
due to delays in repair and maintenance of the Group‘s fleet, which may in turn have a material adverse effect on
the Group‘s business, results of operations, cash flow and financial condition.
The Group conducts a portion of its operations through joint ventures, exposing it to risks and
uncertainties, many of which are outside its control
The Group conducts a portion of its operations through large, project-specific joint ventures, where control may be
shared with unaffiliated third parties, such as the joint venture in connection with its ultra-deepwater drillships
Deepsea Metro I and II (in which it has a 40% share ownership) and the Group‘s 50% share ownership in the
Odfjell Galvão B.V. joint venture, which holds 20% of the shares of three Dutch special purpose companies, each of
which has entered into an engineering, procurement and construction contract for the construction of a drillship in
Brazil. Please see Section 8.1.1 ―Mobile Offshore Drilling Units (MODU)‖ for more information on the Group‘s joint
venture in Brazil.
As with any joint venture arrangement, differences in views among the joint venture participants may result in
delayed decisions or in failures to agree on major issues. The Group‘s obligations in respect of, and the Group‘s
ability to receive any dividends from, its joint ventures depend on the terms and conditions of its shareholders‘
agreements and its relationships with its respective joint venture partners. There can be no assurance that the
Group will continue its relationships with its joint venture partners or that its joint venture partners will want to
pursue the same strategies as the Group. If a joint venture partner sells its shares in the joint venture, a change of
control event may be triggered under the bonds used to finance the joint venture, unless the Group purchases
those shares. For example, Chloe Marine has issued a USD 150 million bond loan (the net proceeds from which
were used, among other things, to pay the delivery instalment for Deepsea Metro II) which contains a put option
exercisable by a holder if any person other than the joint venture partners or an investment grade company
operating in the oil and gas industry becomes an owner of 50% or more of Deep Sea Metro. See Section 11.8.1
―Material borrowings‖.
The Group also cannot control the actions of its joint venture partners, including any non-performance, default or
bankruptcy of such partners, and the Group typically shares liabilities on a joint and several basis with its joint
venture partners under these joint venture arrangements. If the Group‘s partners do not meet their contractual
obligations, the joint venture may be unable to adequately perform and deliver its contracted services, requiring
the Group to make additional investments or perform additional services to ensure the adequate performance and
delivery of services to the client. The Group could be liable for both its own obligations and those of its partners,
which may result in reduced profits or, in some cases, significant losses on the project. Additionally, these factors
could have a material adverse effect on the business operations of the joint venture and, in turn, the Group‘s
business operations, reputation, results of operations, cash flows and financial condition.
Operating through joint ventures in which the Group has a minority interest could result in the Group having
limited control over many decisions made with respect to projects and internal controls relating to projects. These
joint ventures may not be subject to the same requirements regarding internal controls and internal control
reporting that the Group follows. As a result, internal control issues may arise, which could have a material adverse
effect on the Group‘s financial condition and results of operation. Additionally, in order to establish or preserve
relationships with joint venture partners, the Group may agree to risks and contributions of resources that are
proportionately greater than the returns the Group could receive, which could reduce its income and returns on
these investments compared to what the Group may have received if the risks and resources the Group contributed
were always proportionate to its returns.
The Group relies on third parties, including subcontractors, to complete some parts of its projects and
may be adversely affected by the sub-standard performance or non-performance of those third party
subcontractors
The Group engages third-party subcontractors to perform some parts of its projects, primarily for certain elements
of the Technology business area‘s engineering projects. The Group may not have the skills to perform the work
undertaken by its subcontractors and any inability to hire qualified subcontractors could hinder the successful
completion of a project. Further, the Group‘s employees may not be able to monitor or control the performance of
these subcontractors as efficiently as they could if that work was performed by the Group itself. The Group may
suffer losses on contracts if the amounts it is required to pay for subcontractor services exceed its original
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estimates. While the Group seeks to mitigate the risks associated with subcontractors by imposing contractual
obligations on its subcontractors that mirror those it has with its clients, obtaining insurance cover for the entire
project and (in some cases) requesting bank guarantees to cover non-performance by subcontractors of the
relevant parts of the projects, the subcontracting of work exposes the Group to risks associated with non-
performance, delayed performance or sub-standard performance.
The Group’s purchase of existing drilling units, spare parts and equipment carries risks associated with
the quality of such assets
The Group has in the past acquired existing equipment, supplies and replacement parts as a way of renewing parts
of its Drilling Units and Rental Equipment, and may acquire existing drilling units, equipment, supplies and
replacement parts in the future. Unlike newly built assets, existing assets purchased by the Group will typically not
carry warranties with respect to their condition. While the Group generally inspects any existing assets prior to
purchase, such an inspection would normally not provide the Group with as much knowledge of its condition as it
would possess if the asset had been built for the Group and operated by the Group during its life. Repairs and
maintenance costs for existing assets are difficult to predict and may be more substantial than for newly built
equipment. These costs could have a material adverse effect on the Group‘s business, results of operations, cash
flow and financial condition.
The Group may not be able to successfully implement its strategies
The Group‘s strategies as described in Section 8.3 ―Overall strategy‖ are: (i) to continue to focus on the harsh
environment and ultra-deepwater markets; (ii) to increase cost efficiencies without compromising on health and
safety standards; (iii) to expand prudently; and (iv) to achieve a balanced portfolio that includes a diversity of
clients, a mix of medium- and long-term contacts and growth across all of its segments. Maintaining and expanding
the Group‘s operations and achieving its other objectives involve inherent costs and uncertainties and there is no
assurance that the Group will achieve its objectives. There is no assurance that the Group will be able to undertake
these activities within its expected time-frame, that the cost of any of the Group‘s objectives will be at expected
levels or that the benefits of its objectives will be achieved within the expected timeframe or at all. The Group‘s
strategies may also be affected by factors beyond its control, such as volatility in the world economy and in each of
its markets, the capital expenditure and investment by its clients and the availability of acquisition opportunities in
a market. Any failures, material delays or unexpected costs related to the implementation of the Group‘s strategies
could have a material adverse effect on its business, financial condition, cash flow and results of operations.
Loss of key personnel or the failure to obtain or retain highly skilled personnel could materially
adversely affect the Group’s operations
The Group‘s success depends on its retention of key personnel and its ability to recruit, retain and develop skilled
personnel for its business. The demand for personnel with the capabilities and experience required in the oil and
gas services industries is high, and success in attracting and retaining such employees is not guaranteed. There is
intense competition for skilled personnel and there are, and may continue to be, shortages in the availability of
engineers and other appropriately skilled people at all levels. Shortages of qualified personnel or the Group‘s
inability to obtain and retain qualified personnel could have a material adverse effect on the Group‘s business,
results of operations, cash flow and financial condition, and particularly on the Drilling & Technology segment due
to the engineering and technical experience required in this segment.
Labour interruptions could have a material adverse effect on the Group’s operations
As of 30 June 2013, the Group had approximately 1,000 employees in its MODU segment (including employees of
its Deep Sea Metro joint venture in Brazil), 450 employees in its Well Services segment and 1,500 employees in its
Drilling & Technology segment. Labour interruptions in any of these segments may materially impact the Group. In
particular, the Group‘s Drilling Units are operated with offshore crews and onshore personnel, many of whom are
organised in labour unions. Although the Group has not experienced any labour disruptions in connection with its
own personnel since 2004, there can be no assurance that labour disruptions by the Group‘s employees will not
occur in the future. Further, unionised employees of third parties on whom the Group relies may be involved in
strikes or other forms of labour unrest, causing operational disruptions for the Group. For example, unionised
employees of private security companies at airports in Norway went on strike in 2012, which resulted in increased
operational costs for the Group because timely crew changes were prevented by a lack of transportation to offshore
rigs. Such industrial actions could result in additional costs to the Group, as well as limitations on the Group‘s
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ability to operate its Drilling Units or provide services to its clients, which may have a material adverse impact on
its business, results of operations, cash flow and financial condition.
The Group’s labour costs and related operating costs could increase as a result of a number of factors
A number of factors could increase the Group‘s labour costs and potentially affect other costs of operations. For
example, high growth within the industry in recent years has increased the cost of qualified personnel and
equipment. There may also be increased costs related to local content requirements.
Although the Group‘s contracts with clients typically include price escalation clauses, which establish agreed annual
rate increases typically linked to a relevant index to cover the Group‘s increased costs, there can be no assurance
that such clauses will be sufficient to fully compensate the Group for the higher personnel expenses or related
operational costs. Further, certain countries where the Group operates may lack a suitable price escalation index,
which makes it difficult for the Group to negotiate an acceptable escalation clause. The Group‘s incurrence of
additional labour related costs could have a material adverse effect on the Group‘s business, results of operations
cash flow and financial condition.
Damage to the Group’s reputation and business relationships may have an adverse effect beyond any
monetary liability
The Group‘s business depends on client goodwill, the Group‘s reputation and on maintaining good relationships
with its clients, joint venture partners, suppliers, employees and regulators. Any circumstances that publicly
damage the Group‘s goodwill, injure the Group‘s reputation or damage the Group‘s business relationships may lead
to a broader adverse effect on its business and prospects than solely the monetary liability arising directly from the
damaging events by way of loss of business, goodwill, clients, joint venture partners and employees.
The Group relies on information technology systems to communicate with its Drilling Units and conduct
its business, and disruption, failure or security breaches of these systems could adversely affect its
business and results of operations
The Group relies heavily on information technology (―IT‖) systems in order to communicate with its Drilling Units
and achieve its business objectives, such as replication technology that allows each Drilling Unit‘s maintenance
support system to remain operative even if the central maintenance system is non-operative. The Group relies
upon industry accepted security measures and technology such as access control systems to securely maintain
confidential and proprietary information maintained on its IT systems, and market standard virus control systems.
However, the Group‘s portfolio of hardware and software products, solutions and services and its enterprise IT
systems may be vulnerable to damage or disruption caused by circumstances beyond its control, such as
catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses,
cyber attacks or other malicious software programmes. The failure or disruption of the Group‘s IT systems to
perform as anticipated for any reason could disrupt the Group‘s business and result in decreased performance,
significant remediation costs, transaction errors, loss of data, processing inefficiencies, downtime, litigation, and
the loss of suppliers or clients. A significant disruption or failure could have a material adverse effect on the
Group‘s business operations, financial performance and financial condition.
The Group may not be able to keep pace with a significant step change in technological development
The market for the Group‘s services is affected by significant technological developments that have resulted in, and
will likely continue to result in, substantial improvements in equipment functions and performance throughout the
industry. As a result, the Group‘s future success and profitability will be dependent in part upon its ability to:
• improve existing services, Drilling Units and Rental Equipment;
• address the increasingly sophisticated needs of its clients; and
• anticipate major changes in technology and industry standards and respond to technological
developments on a timely basis.
If the Group is not successful in acquiring new equipment or upgrading its existing Drilling Units or Rental
Equipment, or the technical skill set of its employees, on a timely and cost-effective basis in response to
technological developments or changes in industry standards, or if a significant step change in technology provides
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an alternative method for drilling, this could have a material adverse effect on the Group‘s business, results of
operations, cash flow and financial condition.
Policies, procedures and systems to safeguard employee health, safety and security may not be
adequate or sufficiently implemented or adhered to
The Group has detailed and specialised policies, procedures and systems to safeguard employee health, safety and
security. The Group aims to follow best practices for employee health, safety and security in every country in which
the Group operates. However, if these policies, procedures and systems are not adequate, or employees or
contractors do not receive adequate training or instructions, or the Group‘s safety policies are not implemented
properly in local jurisdictions, the consequences could be severe including injury or loss of life, which could impair
the Group‘s reputation and operations and cause it to incur significant liability. Distance from certain principal
locations can create further difficulty for the Group in implementing and impressing upon local workforces its
policies on matters such as health and safety, and can present challenges in the supervision of its sub-contracted
employees.
Further, the Group‘s clients and/or other third parties are generally responsible for securing the areas surrounding
the Drilling Units and the onshore bases from which the Group operates. Accordingly, the Group may have limited
to no control over security measures and other systems designed to avoid or mitigate such hazards and must rely
on third parties to ensure the security of the Drilling Units from risks. Although the Group‘s clients generally
assume the responsibility and costs for security, there can be no assurance that the Group will not be required to
assume the responsibility and costs for security in the areas surrounding its Drilling Units and onshore bases in the
future.
Failure to deliver consistently high standards across all fields of operations could create risks for the Group,
including legal action and reputational risks, and could impact its success in winning future contracts.
2.4 Risks relating to laws, regulation and litigation
The Group may be subject to litigation that could have a material adverse effect on the Group’s
business, results of operations, cash flow and financial condition
The operating hazards inherent in the Group‘s business expose the Group to litigation, including personal injury
litigation and environmental litigation. Providing drilling and well services, project management, engineering and
construction services involves the risk of contractual and professional errors, omissions, warranty claims and other
liability claims, as well as negative publicity that may adversely affect the Group‘s business, financial condition and
results of operations. The Group is also exposed to intellectual property and tax litigation as well as maritime
lawsuits, which could result in the possible seizure of the Drilling Units as security. While the Group is currently not
involved in any litigation that, in its view, may have a material adverse effect on the Group‘s financial position or
profitability, there can be no assurance that the Group may not become involved in such litigation in the future.
The Group cannot predict with certainty the outcome or effect of any claim or other litigation matter. Any future
litigation may have a material adverse effect on the Group‘s business, results of operations, cash flow, financial
condition and have a potential negative outcome. There also may be significant costs associated with bringing or
defending such lawsuits, and management‘s attention to these matters may divert their attention from the Group‘s
operations.
Technology disputes involving the Group, the Group’s suppliers or sub-suppliers could impact the
Group’s operations
The services provided by the Group utilise patented or otherwise proprietary technology, and consequently involve
a potential risk of infringement of third party rights. It is not uncommon for industry participants to pursue legal
action to protect their intellectual property. For example, Transocean has recently sued certain competitors for
allegedly infringing its US patent for dual activity drilling. In 2009, the Norwegian courts ruled that Transocean‘s
two patents on dual activity drilling in Norway were invalid, but Transocean may continue to pursue similar patent
actions in other jurisdictions, creating a risk that other oil and gas services companies operating in these
jurisdictions may be subject to legal action. The Group is not currently aware of other patents that create the risk
of the Group infringing third party rights. However, there can be no assurance that other industry participants,
including Transocean, will not pursue legal action against the Group to protect intellectual property that the Group
utilises in Norway or in other jurisdictions in which the Group operates. Where such industry participants pursue
Odfjell Drilling Ltd - Prospectus
34
legal action, it could result in limitations on the Group‘s ability to use the patented technology or require the Group
to pay a fee for the continued use of intellectual property.
The majority of the intellectual property rights relating to the Drilling Units and related Rental Equipment are
owned by the Group‘s suppliers or sub-suppliers. In the event that one of the Group‘s suppliers or sub-suppliers, or
the Group, becomes involved in a dispute over infringement of intellectual property rights relating to assets owned
or used by the Group, the Group may lose access to repair services, replacement parts, or could be required to
cease use of the relevant assets or intellectual property. The Group could also be required to pay royalties for the
use of such assets or intellectual property. The consequences of technology disputes involving the Group‘s
suppliers could materially adversely affect the Group‘s business, results of operations and financial condition.
Certain of the Group‘s contracts with its suppliers provide the Group with contractual rights to indemnity from the
supplier against intellectual property lawsuits on a limited basis. However, such contractual rights to indemnity
may not adequately cover losses or cover all risks, and no assurances can be given that the Group‘s suppliers will
be willing or financially able to indemnify the Group against these risks, or that such contractual indemnities will
protect the Group from adverse consequences of such technology disputes.
In addition, the Group, and in particular its Well Services segment (which has the most established intellectual
property portfolio of the Group‘s business segments), may choose to pursue legal action to protect the Group‘s
intellectual property. If the Group is unable to protect and maintain its intellectual property rights, or if there are
any successful intellectual property challenges or infringement proceedings against the Group, its ability to
differentiate its service offerings could diminish. There are currently no such cases ongoing, but there is no
guarantee that such cases or claims will not be raised in the future.
In addition, from time to time, the Group may pursue action to challenge patents of competitors, suppliers and
others. Should these cases not succeed, the Group may be subject to legal costs and may not be able to use the
patented technology or may have to pay a fee for the continued use of such patents.
The consequences of any of the intellectual property disputes with third parties described above could materially
adversely affect the Group‘s business, results of operations and financial condition.
The Group is exposed to risk due to its use of certain trademarks such as the ―Odfjell‖ name
The Group has the right to use the ―Odfjell‖ name, logo and domain and has registered the trademarks ―Odfjell
Drilling‖, ―Deepsea‖ and its corporate logo in multiple jurisdictions in which it operates. However, there are other
companies unrelated to the Group that may have similar names or marks, including Odfjell SE, a shipping group
that also has the right to use the ―Odfjell‖ name.
The Group can make no assurances that in the future it will retain the right to continue to use its trademarks in its
operations and marketing in any jurisdiction, particularly where unrelated companies using the same name already
hold a relevant trademark. Further, the Group has no control over the actions of other such companies using the
―Odfjell‖ name. Actions by such companies could harm the Group‘s reputation, which could in turn materially
adversely affect the Group‘s business, results of operations, cash flow and financial condition.
A change in tax laws of any country in which the Group operates from time to time, or complex tax
laws associated with international operations which the Group may undertake from time to time, could
result in a higher tax expense or a higher effective tax rate on the Group’s earnings
The Group will from time to time conduct operations through various subsidiaries in countries throughout the
world. Tax laws and regulations are highly complex and subject to interpretation and change. For example, if
Norwegian shareholders control a company (i.e. directly or indirectly own or control at least 50% of the shares or
the capital of the company) resident in a low tax jurisdiction, such Norwegian shareholders may be subject to
Norwegian taxation according to the Norwegian Controlled Foreign Corporations regulations (Norwegian CFC-
regulations). Such taxation could apply with respect to certain of the subsidiaries of the Group if the Group
becomes subject to the control of Norwegian shareholders. If the Norwegian shareholders of the Group are subject
to Norwegian CFC taxation, such Norwegian shareholders are taxed in Norway on their proportionate share of the
net profits generated by the relevant foreign company, calculated according to Norwegian tax regulations. The
income will be subject to Norwegian taxation, currently at a rate of 28%. For the purposes of minimising this risk,
the Company‘s Bye-Laws provide that the Board of Directors may decline to register the transfer of any interest in
any Share in the register of members or decline to direct any registrar, appointed by the Company, to register the
Odfjell Drilling Ltd - Prospectus
35
transfer where such transfer would result in 50% or more of the shares or votes in the Company being held,
controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or
connected to a Norwegian business activity, in order to mitigate the possibility that the Company is deemed a
―Controlled Foreign Company‖ as such term is defined under the Norwegian tax rules. Norwegian tax legislation
may, however, be subject to changes which can also possibly be made on a retrospective basis, and there can be
no assurance that this approach will continue to mitigate the impact of the relevant tax legislation in the future.
A loss of a major tax dispute or a successful tax challenge to the Group’s operating structure or to the
Group’s tax payments, among other things, could result in a higher tax rate on the Group’s earnings,
which could have a material adverse effect on the Group’s earnings and cash flows
From time to time, the Group‘s tax payments may be subject to review or investigation by tax authorities of the
jurisdictions in which the Group operates. If any tax authority successfully challenges the Group‘s operational
structure, intercompany pricing policies, the taxable presence of its subsidiaries in certain countries, or if the Group
loses a material tax dispute in any country, or any tax challenge of the Group‘s tax payments is successful, the
Group‘s effective tax rate on its earnings could increase substantially and the Group‘s earnings and cash flows from
operations could be materially adversely affected. There are, for instance, several transactions taking place
between the companies in the Group, which must be carried out in accordance with arm‘s length principles in order
to avoid adverse tax consequences. Statutory documentation on a transfer pricing policy with the aim of
determining arm‘s length prices for intercompany transactions has been established in order to minimise this risk.
However, there can be no assurance that the tax authorities will conclude that the Group‘s transfer pricing policy
calculates correct arm‘s length prices for intercompany transactions, which could lead to an adjustment of the
agreed price, which would in turn lead to an increased tax cost for the Group.
In relation to the tax audit pertaining to Deepsea Atlantic, the Norwegian tax authorities have notified Odfjell
Invest AS, a subsidiary of the Company, that Odfjell Invest AS was not entitled to a claimed tax deduction under
Norwegian tax rules, resulting in an increase of the taxable income for 2009 of NOK 103,305,720 and for 2010 of
NOK 520,607,220. The notice of reassessment also states that there is an omission of declaring a payment of hire
from Statoil as income, resulting in an increase in income for 2010 of NOK 6,552,467. Furthermore, the Norwegian
tax authorities have notified Odfjell Invest AS that the bareboat charter between Odfjell Invest AS and Odfjell
Invest I is not in accordance with the arm‘s length principle, resulting in a reduction of NOK 209,434,800 in
bareboat hire for the 2009 to 2012 period. The potential tax exposure in relation to the tax investigations relating
to Deepsea Atlantic amounts to USD 39.0 million, excluding interest cost. Estimated potential interest cost
amounts to USD 9 million at the date of this Prospectus but is subject to increase depending on the actual timing of
potential payment. Odfjell Invest AS intends to dispute any assessment based on the notification, and hence no
expense is recognised in the Interim Financial Information for the six months ended 30 June 2013, as the
Company‘s best estimate of the amount it will ultimately pay is nil. Odfjell Invest AS will revert to the tax
authorities within the deadline for response. However, as Odfjell Invest AS will need to pay the full amount
immediately upon the receipt of the final claim amount from the Norwegian tax authorities, there may be a
negative impact on liquidity in the amount of USD 50 million if the Norwegian tax authorities do not change their
assessment based on input from Odfjell Invest AS. If the Norwegian tax authorities do not change their assessment
and Odfjell Invest AS reclaims the full amount through the court system there may be a temporary liquidity impact
even if Odfjell Invest AS is ultimately successful in the dispute.
In relation to the tax dispute pertaining to Deepsea Bergen, there is currently a dispute between Odfjell Rig Ltd.
and the Norwegian tax authorities as to whether Odfjell Rig Ltd., a subsidiary of the Company, has a limited tax
liability in Norway as a result of its participation interest in Deep Sea Drilling Company II KS (―DSDCII‖), the
owner of the rig Deepsea Bergen. The disputed amount (before-tax income) is approximately NOK 387,000,000 for
2009, 2010 and 2011. The district court presiding over the dispute concluded that the bareboat charter business of
DSDCII was carried out from Norway, and thus a limited tax liability exists for the owner Odfjell Rig Ltd. The
district court also concluded that a tax exemption under Norwegian tax rules was not applicable. The Company will
appeal this case. If the district court‘s verdict is upheld on appeal, the USD 62.8 million loss (already expensed as
of 30 June 2013) for the Company will be final. The loss is comprised of USD 24.5 million in payable tax (which has
already been paid) and USD 38.3 million in deferred tax. The additional impact on cash in such scenario will be
20% of the deferred tax to be paid in 2014 with the remaining balance to be paid on a declining basis (i.e. 20% of
the remaining balance) each year.
Odfjell Drilling Ltd - Prospectus
36
For further discussion of the tax audit case and tax court case related to Odfjell Invest AS and Odfjell Rig Ltd,
respectively, see Section 8.10 ―Litigation and disputes‖. In addition to the tax court case and the tax audit case
described in Section 8.10 ―Litigation and disputes‖, the tax authorities have notified that they are looking into
whether the capital asset pricing model (CAPM) applied in 2009 and 2010 under the bareboat charter between
Deep Sea Drilling Company II KS, as owner of the rig Deepsea Bergen, and Deep Sea Drilling Company KS is in
accordance with the arm‘s length principle, as they consider the CAPM method poorly fit in this case. The outcome
of the tax audit is currently pending.
2.5 Risks related to financing and market risk
In order to execute the Group’s growth strategy, the Group may require additional capital in the future,
which may not be available
The Group‘s MODU and Well Services segments are capital intensive and, to the extent the Group does not
generate sufficient cash from operations, the Group may need to raise additional funds through debt or additional
equity financings to execute the Group‘s growth strategy and to fund capital expenditures, including for the
construction of any newbuild Drilling Units. Adequate sources of capital funding may not be available when needed
or may not be available on favourable terms. The Group‘s ability to obtain such additional capital or financing will
depend in part upon prevailing market conditions as well as conditions of its business and its operating results, and
those factors may affect its efforts to arrange additional financing on satisfactory terms. If the Group raises
additional funds by issuing additional shares or other equity or equity-linked securities, it may result in a dilution of
the holdings of existing shareholders. If funding is insufficient at any time in the future, the Group may be unable
to fund maintenance requirements and acquisitions, take advantage of business opportunities or respond to
competitive pressures, any of which could adversely impact the Group‘s results of operations, cash flow and
financial condition.
The Group’s existing or future debt arrangements could limit the Group’s liquidity and flexibility in
obtaining additional financing, in pursuing other business opportunities or the Company’s ability to
declare dividends to its shareholders
As at 30 June 2013, the book value of the Group‘s current and non-current borrowings was USD 1.358.6 million,
representing 49.6% of its total equities and liabilities. See Section 9 ―Capitalisation and indebtedness‖. The current
indebtedness and future indebtedness that the Group may incur could affect the Group‘s future operations, as a
portion of the Group‘s cash flow from operations will be dedicated to the payment of interest and principal on such
debt and will not be available for other purposes. Covenants contained in the Group‘s debt agreements require the
Company, its subsidiaries and/or the Group to meet certain financial measures. These may affect the Group‘s
flexibility in planning for, and reacting to, changes in its business and limit the Group‘s ability to dispose of assets
or use the proceeds from such dispositions, withstand current or future economic or industry downturns or
compete with others in the industry for strategic opportunities. In addition, such financial measures do and could
further place restrictions on the Group‘s ability to declare dividends to its shareholders. See Section 11.8.1
―Material borrowings‖ for further information on any restrictive covenants pertaining to the Group‘s existing debt
arrangements. The Group‘s ability to meet its debt service obligations and to fund planned expenditures, including
construction costs for its newbuild project(s), will be dependent upon the Group‘s future performance, which will be
subject to general economic conditions, industry cycles and financial, business and other factors affecting the
Group‘s operations, many of which are beyond the Group‘s control. The Group‘s future cash flows may be
insufficient to meet all of its debt obligations and contractual commitments, and any such insufficiency could
adversely affect the Group‘s business. To the extent that the Group is unable to repay its indebtedness as it
becomes due or at maturity, the Group may need to refinance its debt, raise new debt, sell assets or repay the
debt with the proceeds from equity offerings.
Additional indebtedness or equity financing may not be available to the Group in the future for the refinancing or
repayment of existing indebtedness, and the Group may not be able to complete asset sales in a timely manner
sufficient to make such repayments.
If the Group is unable to comply with the restrictions and the financial covenants in the agreements
governing its indebtedness, there could be a default under the terms of these agreements, which could
result in an acceleration of repayment of funds that have been borrowed
If the Group is unable to comply with the restrictions and covenants in the agreements governing its indebtedness
or in current or future debt financing agreements, there could be a default or cancellation under the terms of those
Odfjell Drilling Ltd - Prospectus
37
agreements. The Group‘s ability to comply with these restrictions and covenants, including meeting financial ratios
and measures, is dependent on its future performance. See Section 11.8.1 ―Material borrowings‖ for further
information on any restrictive covenants pertaining to the Group‘s existing debt arrangements. If a default occurs
under these agreements, lenders could terminate their commitments to lend or accelerate the outstanding loans
and declare all amounts borrowed due and payable. Borrowings under debt arrangements that contain cross-
acceleration or cross-default provisions may also be accelerated and become due and payable. In addition, certain
of the Group‘s financing agreements include change of control provisions which if triggered could result in the
Group having to immediately prepay all amounts, including interest, accrued and owing under the relevant facility.
If any of these events occur, the Group cannot guarantee that its assets will be sufficient to repay in full all of its
outstanding indebtedness, and the Group may be unable to find alternative financing. Even if the Group could
obtain alternative financing, that financing might not be on terms that are favourable or acceptable. The
occurrence of such events may have a material adverse effect on the Group‘s results of operations, cash flow and
financial condition.
Interest rate fluctuations could affect the Group’s cash flow and financial condition
The Group has incurred, and may in the future incur, significant amounts of debt. The Group is exposed to interest
rate risk primarily in relation to its long-term borrowings issued at floating interest rates. The Group evaluates the
share of interest rate hedging based on an assessment of the Group‘s total interest rate risk and currently has a
combination of borrowings that bear interest at fixed and floating rates in order to limit exposure to interest rate
risk. Close to 50% of the Group‘s long-term debt was hedged at the time of the Prospectus. There can be no
assurance that such hedging arrangements will be effective or that all of the Group‘s interest rate exposure will be
hedged. See Section 11.8.1 ―Material borrowings‖. As such, movements in interest rates could have material
adverse effects on the Group‘s cash flow and financial condition.
Fluctuations in exchange rates and non-convertibility of expenses could result in financial losses for
the Group
The Group has currency exposure to both transaction risk and translation risk.
Transaction risk arises when future commercial transactions or recognised assets or liabilities are denominated in a
currency that is not the entity‘s functional currency. The Group is exposed to transaction risks due to fluctuations in
exchange rates as it receives revenue primarily in USD but its relevant operating expenses are primarily in local
currencies. In certain markets where the Group operates, it may experience currency exchange losses when
revenue is received and expenses are paid in non-convertible currencies or when the Group does not hedge an
exposure to the relevant foreign currency. The Group may also incur losses as a result of an inability to collect
revenue due to a shortage of convertible currency available in the country of operation or controls over currency
exchange.
Translation risk arises due to the conversion of amounts denominated in foreign currencies to USD, the Group‘s
reporting and functional currency. Given the international nature of the Group‘s business, a significant portion of its
assets, liabilities, revenues and expenses are denominated in currencies other than USD. In addition, some of the
Group‘s subsidiaries have other reporting and functional currencies, including NOK, GBP and EUR. Consequently,
any change in exchange rates between its operating subsidiaries‘ functional currencies and USD affects its
consolidated income statement and balance sheet when the results of those operating subsidiaries are translated
into USD for reporting purposes. Because the Company does not hedge its exposure to such currency translation
risks, decreases in the value of its operating subsidiaries‘ functional currencies against the USD may reduce those
operating subsidiaries‘ contributions in USD terms to the Company‘s business, financial condition, results of
operations and cash flow.
2.6 Risks related to Group structure
The Company is a holding company and is dependent upon cash flow from subsidiaries to meet its
obligations and in order to pay dividends to its shareholders
The Group currently conducts its operations through, and most of the Group‘s assets are owned by, the Group‘s
subsidiaries. As such, the cash that the Group obtains from its subsidiaries is the principal source of funds
necessary to meet its obligations. Contractual provisions or laws, including laws or regulations related to the
repatriation of foreign earnings, as well as the Group‘s subsidiaries‘ financial condition, operating requirements,
restrictive covenants in its debt arrangements and debt requirements, may limit the Group‘s ability to obtain cash
Odfjell Drilling Ltd - Prospectus
38
from subsidiaries or joint ventures that it requires to pay its expenses or meet its current or future debt service
obligations or to pay dividends to its shareholders. For example, the Norwegian Limited Liability Companies Act
imposes certain legal restrictions on dividends, loans and advances from Norwegian subsidiaries that may affect
the ability of the Group‘s subsidiaries to transfer funds to the Company. Applicable tax laws may also subject such
payments to the Group by subsidiaries to further taxation. See Section 11.8.1 ―Material borrowings‖ for further
information on any restrictive covenants pertaining to the Group‘s existing debt arrangements.
The inability to transfer cash from the Group‘s subsidiaries or joint ventures may mean that, even though the
Group may have sufficient resources on a consolidated basis to meet its obligations or to pay dividends to its
shareholders, the Group may not be permitted to make the necessary transfers from its subsidiaries or joint
ventures to meet such obligations or to pay dividends to its shareholders. Likewise, the Group may not be able to
make necessary transfers from its subsidiaries in order to provide funds for the payment of its obligations, for
which the Group is or may become responsible under the terms of the governing agreements of the Group‘s
indebtedness. A payment default by the Group, or any of the Group‘s subsidiaries, on any debt instrument would
have a material adverse effect on the Group‘s business, results of operations, cash flow and financial condition.
The Group’s financial condition may be materially adversely affected if the Group fails to successfully
integrate acquired assets or businesses, or is unable to obtain financing for acquisitions on acceptable
terms
The Group believes that acquisition opportunities may arise from time to time, and that any such acquisition could
be significant. At any given time, discussions with one or more potential sellers may be at different stages.
However, any such discussions may not result in the consummation of an acquisition transaction, and the Group
may not be able to identify or complete any acquisitions or make assurances that any acquisitions the Group
makes will perform as expected or that the returns from such acquisitions will support the investment required to
acquire or develop them. The Group cannot predict the effect, if any, that any announcement or consummation of
an acquisition would have on the trading price of the Shares.
Any future acquisitions could present a number of risks, including:
• the risk of using management time and resources to pursue acquisitions that are not successfully
completed;
• the risk of failing to identify material problems during due diligence;
• the risk of over-paying for assets;
• the risk of failing to arrange financing for an acquisition as may be required or desired;
• the risk of incorrect assumptions regarding the future results of acquired operations;
• the risk of failing to integrate the operations or management of any acquired operations or assets
successfully and timely; and
• the risk of diversion of management‘s attention from existing operations or other priorities.
In addition, the integration and consolidation of acquisitions requires substantial human, financial and other
resources, including management time and attention, and may depend on the Group‘s ability to retain the acquired
business‘ existing management and employees or recruit acceptable replacements. Ultimately, if the Group is
unsuccessful in integrating any acquisitions in a timely and cost-effective manner, the Group‘s results of
operations, cash flow and financial condition could be materially adversely affected.
The Group has engaged in divestments that may subject it to associated risks and liabilities
The Group has provided certain representations, warranties and indemnities in connection with the businesses it
has sold, including in connection with the recent disposal of its rig mooring business, Deep Sea Mooring AS and
related mooring equipment in May 2013. As a result, the Group may be subject to the risk of liability for breach of
representations and warranties and/or indemnity obligations in favour of the respective buyers. For example, in the
sale and purchase agreement related to the sale of the rig mooring business, the Group agreed to provide certain
Odfjell Drilling Ltd - Prospectus
39
representations and warranties regarding the operations of Deep Sea Mooring AS and the condition of the related
equipment. While the Group does not currently believe there will be claims under these representations, warranties
and indemnities, it is possible that claims could be made against the Group in the future. If such a claim or claims
were successful, it could have a material adverse effect on the Group‘s results of operations, cash flows and
financial position.
The market value of the Drilling Units and Rental Equipment and/or those the Group may acquire in the
future may decrease, which could cause the Group to incur losses due to impairment of book values or
if it decides to sell assets
The fair market value of the Drilling Units and Rental Equipment currently owned by the Group and/or those the
Group may acquire in the future, may increase or decrease depending on a number of factors, including:
• general economic and market conditions affecting the offshore contract drilling industry, including
competition from other offshore contract drilling companies;
• types, sizes and ages of the Drilling Units and Rental Equipment;
• supply and demand for drilling units and equipment;
• cost of newbuilds;
• prevailing level of drilling services contract day rates;
• Drilling Unit day rates and utilisation rates;
• government laws and regulations, including environmental protection laws and regulations and such
laws becoming more stringent due to, inter alia, accidents such as the Macondo incident; and
• technological advances.
If the book value of any Drilling Unit or Rental Equipment exceeds the fair market value, the Group may suffer
impairment of the book value of its assets and consequently suffer a loss. Further, an impairment may cause a
breach of the Group‘s equity level and equity ratio under the financial covenants of certain of its financing
arrangements. See Section 11.8.1 ―Material borrowings‖. Also, should the Group sell any Drilling Unit or Rental
Equipment when prices have fallen, the sale may be at a loss. The book value of the Drilling Units, including
construction in progress and periodic maintenance represented 58.9% of the Group‘s total assets as at 31
December 2012. Such loss could have a material adverse effect on the Group‘s business prospects, results of
operations, cash flow and financial condition. See Section 2.1.2 ―Risks relating to the industry in which the Group
operates — Legal, Regulatory and Environmental Risks — The impact of the Macondo incident led to an aggressive
overhaul of the oil and natural gas regulatory process that has significantly impacted the oil and gas development
in the US Gulf of Mexico and may also lead to further regulations that may impact drilling operations in other
regions‖ and Section 2.1.1 ―Risks Relating to the Industry in which the Group Operates — Market Conditions — An
over-supply of drilling units or Rental Equipment may lead to a reduction in day rates for the MODU segment and
prices for the Well Services segment, which may materially impact the Group‘s results of operations‖.
2.7 Risks relating to the Shares
Odfjell Partners Ltd. will remain the controlling shareholder of the Company at completion of the
Offering and will have significant voting power and the ability to influence matters requiring
shareholder approval
Following completion of the Offering, it is expected that Odfjell Partners Ltd. will remain the major shareholder of
the Group and will, accordingly, continue to have a majority of the shareholder vote, thereby having the ability to
significantly influence the outcome of matters submitted for the vote of the Company‘s shareholders, including the
election of members of the Board of Directors. The commercial goals of Odfjell Partners Ltd. as a shareholder, and
those of the Group, may not always be aligned and this concentration of ownership may not always be in the best
interest of the Group‘s other shareholders. For example, Odfjell Partners Ltd. could delay, defer or prevent a
change of control, impede a merger, deny a potential future equity offering, amalgamation, consolidation, takeover
or other business combinations involving the Group, or discourage a potential acquirer from attempting to obtain
Odfjell Drilling Ltd - Prospectus
40
control of the Group. Although it is expected that Odfjell Partners Ltd. will remain the major shareholder of the
Company after the Offering, no assurance can be given that this will continue on a permanent basis. If Odfjell
Partners Ltd. were no longer a major shareholder of the Company, or if its commercial goals were not in the best
interest of the Group, this could have a material adverse effect on the market value of the Shares.
The price of the Shares may fluctuate significantly
The trading price of the Shares could fluctuate significantly in response to a number of factors beyond the Group‘s
control, including, but not limited to, quarterly variations in operating results, adverse business developments,
changes in financial estimates and investment recommendations or ratings by securities analysts, or any other risk
discussed herein materialising or the anticipation of such risk materialising.
In recent years, the global stock markets have experienced extreme price and volume fluctuations. This volatility
has had a significant impact on the market price of securities issued by many companies, including companies in
the oil and gas services industry. Those changes may occur without regard to the operating performance of these
companies. The price of the Shares may therefore fluctuate based upon factors that have little or nothing to do
with the Group, and these fluctuations may materially affect the price of the Shares.
There is no existing market for the Shares, and an active trading market may not develop
Prior to the Listing, there was no public market for the Shares, and there can be no assurance that an active
trading market will develop, or be sustained or that the Shares may be resold at or above the Offer Price. The
market value of the Shares could be substantially affected by the extent to which a secondary market develops for
the Shares following the completion of this Offering.
Future sales, or the possibility for future sales, of substantial numbers of Shares may affect the Shares’
market price
The Company cannot predict what effect, if any, future sales of the Shares, or the availability of Shares for future
sales, will have on their market price. Sales of substantial amounts of the Shares in the public market following the
Offering, including by Odfjell Partners Ltd. (which, following the Offering, will hold approximately 70% of the
shares of the Company), or the perception that such sales could occur, may adversely affect the market price of
the Shares, making it more difficult for holders to sell their Shares at a time and price that they deem appropriate.
Although Odfjell Partners Ltd., as of the date of this Prospectus, is subject to an agreement with the Joint
Bookrunners that, subject to certain conditions and exceptions, restricts its ability to sell or transfer its Shares for a
period of nine months after the first time of sale relating to the Offering, the representatives of the Joint
Bookrunners may, in their sole discretion and at any time, waive the restrictions on sales or transfer during this
period. Additionally, following this period, all Shares owned by Odfjell Partners Ltd. will be eligible for sale in the
public market, subject to applicable securities laws restrictions.
Future issuances of Shares or other securities may dilute the holdings of shareholders and could
materially affect the price of the Shares
It is possible that the Company may in the future decide to offer additional Shares or other securities in order to
finance new capital-intensive projects, in connection with unanticipated liabilities or expenses or for any other
purposes. See Section 2.2 ―Risks relating to the Group‖. There can be no assurance the Company will not decide to
conduct further offerings of securities in the future. Depending on the structure of any future offering, certain
existing shareholders may not be able to purchase additional equity securities. If the Company raises additional
funds by issuing additional equity securities, holdings of existing shareholders may be diluted.
Exchange rate fluctuations could adversely affect the value of the Shares and any dividends paid on the
Shares for an investor whose principal currency is not NOK
The Shares will be priced and traded in NOK on the Oslo Stock Exchange and, although any future payments of
dividends on the Shares will be denominated in USD, such dividends will be distributed through the VPS in NOK.
Investors registered in the VPS whose address is outside Norway and who have not supplied the VPS with details of
any NOK account, will however receive dividends by check in their local currency, as exchanged from the NOK
amount distributed through the VPS. If it is not practical in the sole opinion of DNB Bank ASA, being the Company's
VPS registrar, to issue a check in a local currency, a check will be issued in U.S. dollars. The issuing and mailing of
checks will be executed in accordance with the standard procedures of DNB Bank ASA, Foreign Payments
Department. The exchange rate(s) that is applied will be DNB Bank ASA's exchange rate on the date and time of
Odfjell Drilling Ltd - Prospectus
41
day for execution of the exchange for the issuance of cheque. Exchange rate movements of NOK will therefore
affect the value of these dividends and distributions for investors whose principal currency is not NOK.
Furthermore, the market value of the Shares as expressed in foreign currencies will fluctuate in part as a result of
foreign exchange fluctuations. This could affect the value of the Shares and of any dividends paid on the Shares for
an investor whose principal currency is not NOK.
Investors may not be able to exercise their voting rights for Shares registered in a nominee account
Beneficial owners of the Shares that are registered in a nominee account (such as through brokers, dealers or
other third parties) may not be able to vote such Shares unless their ownership is re-registered in their names with
the VPS prior to the general meetings. The Group can provide no assurances that beneficial owners of the Shares
will receive the notice of a general meeting in time to instruct their nominees to either effect a re-registration of
their Shares or otherwise vote their Shares in the manner desired by such beneficial owners.
The transfer of Shares is subject to restrictions under the securities laws of the United States and other
jurisdictions
The Shares have not been registered under the U.S. Securities Act or any U.S. state securities laws or any other
jurisdiction outside Norway and Bermuda and are not expected to be registered in the future. As such, the Shares
may not be offered or sold except pursuant to an exemption from the registration requirements of the U.S.
Securities Act and applicable securities laws. See Section 19 ―Selling and transfer restrictions‖. In addition, there
can be no assurance that shareholders residing or domiciled in the United States will be able to participate in future
capital increases or rights offerings.
Bermuda law permits the transfer of shares listed or admitted to trading on an appointed stock exchange (as such
term is defined in the Companies Act 1981, as amended, of Bermuda (the ―Bermuda Companies Act‖) (an
―Appointed Stock Exchange‖)) such as the Oslo Stock Exchange, to be effected in accordance with the rules of
such stock exchange without a written instrument of transfer. Further, the Bermuda Monetary Authority pursuant
to the Exchange Control Act 1972 and associated regulations has granted (i) its consent for the issue and transfer
of the Shares to and between residents and non-residents of Bermuda for exchange control purposes provided that
the Shares are listed on the Oslo Stock Exchange or any other Appointed Stock Exchange on or within fourteen
days, or the relevant issue or transfer, and (ii) a general permission for the issue and transfer of shares and/or
securities in companies incorporated in Bermuda from and/or to a non-resident of Bermuda where such company
has any ―Equity Securities‖ (meaning a share issued by a Bermuda company which entitles the holder to vote for or
to appoint one or more directors or a security which by its terms is convertible into a share which entitles the
holder to vote for or appoint one or more directors) listed on an Appointed Stock Exchange. Accordingly, the
Shares can be registered in the VPS and title to the Shares can be evidenced and transferred without a written
instrument and the consent and the general permission of the Bermuda Monetary Authority for the issuance and
transfer of shares shall apply as long as the Shares are listed and traded on the Oslo Stock Exchange. If the Shares
are no longer listed or admitted to trading on the Oslo Stock Exchange or any other Appointed Stock Exchange, or
if the Oslo Stock Exchange ceases to be an Appointed Stock Exchange, the Shares may only be transferred by
written instrument in accordance with the terms of the Bye-Laws of the Company and with the prior consent of the
Bermuda Monetary Authority.
The Company may be unwilling or unable to pay any dividends in the future
Pursuant to the Company‘s dividend policy, dividends are only expected to be paid if certain conditions described in
Section 6.1 ―Dividend policy‖ are fulfilled. In addition, the Company may choose not, or may be unable, to pay
dividends in future years. The amount of dividends paid by the Company, if any, for a given financial period, will
depend on, among other things, the Company‘s future operating results, cash flows, financial position, capital
requirements, the sufficiency of its distributable reserves, the ability of the Company‘s subsidiaries to pay
dividends to the Company, credit terms, general economic conditions and other factors that the Company may
deem to be significant from time to time.
The Shares are listed on an ―if sold‖ basis until delivery of the Shares, which could result in all
conditional trades being reversed
The Shares will be listed on the Oslo Stock Exchange on an ‖if sold‖ basis. Therefore, the Shares will be tradeable
on the Oslo Stock Exchange before the Shares are delivered to each investor. If the Purchase Agreement is
terminated due to certain force majeure events, the Shares will not be delivered to the investors. All trades with
Odfjell Drilling Ltd - Prospectus
42
the Shares will be cancelled and reversed. Such events could adversely affect the participants in the Offering and
those who trade in the Shares during the period of conditional trading.
The limited free float of the Shares may have a negative impact on the liquidity of and market price for
the Shares
After completion of the Offering, 28% of the Company‘s issued and outstanding share capital (30% of the issued
and outstanding share capital if the Over-Allotment Option is exercised in full) will be publicly held if the Offering is
fully subscribed. Approximately 70% of the issued and outstanding share capital is expected to be held by Odfjell
Partners Ltd. The limited free float may have a negative impact on the liquidity of the Shares and result in a low
trading volume of the Shares, which could have an adverse effect on the then prevailing market price for the
Shares.
2.8 Risks related to the Company’s incorporation in Bermuda
Investors in the United States may have difficulty enforcing any judgment obtained in the United
States against the Company or its directors or executive officers
The Company is an exempted company limited by shares incorporated under the laws of Bermuda. As a result, the
rights of holders of the Shares will be governed by Bermuda law and the Company‘s memorandum of association
and Bye-Laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of
companies incorporated in other jurisdictions. With one exception, the Company‘s Interim Directors and members
of the New Board of Directors are not residents of the United States, and a substantial portion of the Company‘s
assets are located outside the United States. As a result, it may be difficult for investors in the United States to
effect service of process on the Company or its directors and executive officers in the United States or to enforce in
the United States judgments obtained in US courts against the Company or those persons, including judgments
based on the civil liability provisions of the securities laws of the United States or any State or territory within the
United States. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions,
including the United States, against the Company or its directors or officers under the securities laws of those
jurisdictions or entertain actions in Bermuda against the Company or its directors or officers under the securities
laws of other jurisdictions. The United States and Bermuda do not currently have a treaty providing for reciprocal
recognition and enforcement of judgments (other than arbitral awards) in civil and commercial matters.
The Company has anti-takeover provisions in its Bye-Laws that may discourage a change of control
The Company‘s Bye-Laws contain provisions that could make it more difficult for a third party to acquire the
Company without the consent of the Board of Directors. These provisions provide that:
• the Board of Directors can decline to register certain transfers of shares where the transfer would
result in 50% or more of the issued and outstanding shares or votes of the Company being held,
controlled by or owned directly or indirectly by individuals or legal persons resident for tax purposes
in Norway or such shares or votes being effectively connected to a Norwegian business activity, in
order to avoid the Company being deemed a ‖Controlled Foreign Company‖ pursuant to Norwegian
tax rules; and
• the Board of Directors can, subject to prior approval of the Company‘s shareholders, determine the
powers, preferences and rights of the Company‘s shares including any preference shares and, subject
to prior shareholder approval, to issue the shares and/or preference shares without further
shareholder approval.
These provisions could make it more difficult for a third party to acquire the Company, even if the third party‘s
offer may be considered beneficial by many shareholders.
Various conditions may cause an adverse tax effect for the shareholder if the Company pays dividends
Dividends declared and paid by a Bermuda company may be subject to local tax in the investor‘s home country,
and each investor should make such investigations for himself/herself. Norwegian investors will be subject to
taxation as dividends will be deemed as taxable income for the receiver, and such dividends will be subject to 28%
tax and the same tax rate will apply with respect to capital gains for such investors. See Section 17 ―Taxation‖
below for more details.
Odfjell Drilling Ltd - Prospectus
43
3 RESPONSIBILITY FOR THE PROSPECTUS
3.1 The Board of Directors of Odfjell Drilling Ltd
This Prospectus has been prepared in connection with the Offering described herein and the Listing of the Shares
on the Oslo Stock Exchange.
The Board of Directors of Odfjell Drilling Ltd accepts responsibility for the information contained in this Prospectus.
The members of the Board of Directors confirm that, after having taken all reasonable care to ensure that such is
the case, the information contained in this Prospectus is, to the best of their knowledge, in accordance with the
facts and contains no omission likely to affect its import.
13 September 2013
The Board of Directors of Odfjell Drilling Ltd
Helene Odfjell
Chairman
Marianne Odfjell
Director
Kirk L. Davis
Director
Carl-Erik Haavaldsen
Director
Bengt Lie Hansen
Director
3.2 The Selling Shareholder
The Selling Shareholder confirms that the Offer Shares are being offered free of any liens or encumbrances.
13 September 2013
For BCB Paragon Trust Limited, as trustee of the Larine Trust
Neil W. de ste Croix
Director
Luciano Aicardi
Director
Odfjell Drilling Ltd - Prospectus
44
4 GENERAL INFORMATION
4.1 Other important investor information
The information contained herein is current as of the date hereof and subject to change, completion and
amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, significant
new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are
capable of affecting the assessment by investors of the Offer Shares between the time of approval of this
Prospectus by the Norwegian FSA and the Listing of the Offer Shares on the Oslo Stock Exchange, will be included
in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, nor the sale of any
Offer Share, shall under any circumstances imply that there has been no change in the Group‘s affairs or that the
information herein is correct as of any date subsequent to the date of this Prospectus.
No person is authorised to give information or to make any representation concerning the Group or in connection
with the Offering or the sale of the Offer Shares other than as contained in this Prospectus. If any such information
is given or made, it must not be relied upon as having been authorised by the Company or the Managers or by any
of the affiliates, representatives, advisors or selling agents of any of the foregoing.
The Company has furnished the information in this Prospectus. No representation or warranty, express or implied
is made by the Managers as to the accuracy, completeness or verification of the information set forth herein, and
nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation in this respect,
whether as to the past or the future. The Managers assume no responsibility for the accuracy or completeness or
the verification of this Prospectus and accordingly disclaim, to the fullest extent permitted by applicable law, any
and all liability whether arising in tort, contract or otherwise which they might otherwise be found to have in
respect of this Prospectus or any such statement.
None of the Company, the Selling Shareholder or the Managers, or any of their respective affiliates,
representatives, advisers or selling agents, is making any representation to any offeree or purchaser of the Offer
Shares regarding the legality of an investment in the Offer Shares. Each investor should consult with his or her
own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Offer Shares.
In connection with the Offering, each of the Managers and any of their respective affiliates, acting as an investor
for its own account, may take up Offer Shares in the Offering and in that capacity may retain, purchase or sell for
its own account such securities and any Offer Shares or related investments and may offer or sell such Offer
Shares or other investments otherwise than in connection with the Offering. Accordingly, references in the
Prospectus to Offer Shares being offered or placed should be read as including any offering or placement of Offer
Shares to any of the Managers or any of their respective affiliates acting in such capacity. None of the Managers
intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal
or regulatory obligation to do so.
4.2 Presentation of financial and other information
4.2.1 Financial information
The Group‘s audited consolidated financial statements as of and for the year ended 31 December 2012, with
comparable figures as of and for the year ended 31 December 2011, have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union (―IFRS‖) (the ―IFRS Financial
Statements‖), while the Group‘s audited consolidated financial statements as of and for the year ended 31
December 2011 and 2010 are prepared in accordance with Norwegian General Accepted Accounting Principles
(―NGAAP‖) (the ―NGAAP Financial Statements‖) (collectively referred to as the ―Financial Statements‖). The
Group‘s unaudited interim financial statements as of and for the three and six month periods ended 30 June 2013
and 2012 (the ―Interim Financial Statements‖), has been prepared in accordance with International Accounting
Standard (―IAS‖) 34. The Financial Statements and Interim Financial Statements are attached hereto as Appendix
B and Appendix C, respectively. The Financial Statements for the years ended 31 December 2012, 2011, and 2010
have been audited by PricewaterhouseCoopers AS, as set forth in their report thereon included herein.
PricewaterhouseCoopers AS has issued a review report of the Interim Financial Statements for the three and six
month periods ended 30 June 2013 and 2012, as set forth in their report thereon included herein. The Financial
Statements and the Interim Financial Statements are together referred to as the ―Financial Information‖.
Odfjell Drilling Ltd - Prospectus
45
For a discussion of the material differences between IFRS and NGAAP, please see Section 10.10 ―Analysis of
material differences between IFRS and NGAAP‖. Please refer to note 26 of the Financial Statements for the year
ended 31 December 2012 for a reconciliation of IFRS to NGAAP. Potential investors should consult their own
professional advisers for an understanding of the differences between IFRS and NGAAP, and how these differences
might affect the Financial Information herein.
Odfjell Drilling presents the Financial Information in USD (presentation currency), other than the NGAAP Financial
Statements which have been presented in NOK. In this Prospectus, the 2009 and 2010 numbers that are presented
in NOK have been converted to USD with a USD/NOK rate of 6.282 and 6.045 – the Norges Bank average for 2009
and 2010, respectively.
4.2.2 Non-IFRS financial measures
In this Prospectus, the Company presents certain non-IFRS financial measures and ratios, including CAGR, interest
coverage, net interest bearing debt, interest bearing debt and return on invested capital (which is measure of the
Company‘s achieved return on its investments, including businesses recently disposed).
The non-IFRS financial measures presented herein are not measurements of performance under IFRS or other
generally accepted accounting principles and investors should not consider any such measures to be an alternative
to: (a) operating revenues or operating profit (as determined in accordance with generally accepted accounting
principles), as a measure of the Group‘s operating performance; or (b) any other measures of performance under
generally accepted accounting principles. The non-IFRS financial measures presented herein may not be indicative
of the Group‘s historical operating results, nor are such measures meant to be predictive of the Group‘s future
results. The Company believes that the non-IFRS measures presented herein are commonly reported by companies
in the markets in which it competes and are widely used by investors in comparing performance on a consistent
basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon
accounting methods (particularly when acquisitions have occurred) or based on non-operating factors. Accordingly,
the Group discloses the non-IFRS financial measures presented herein to permit a more complete and
comprehensive analysis of its operating performance relative to other companies and across periods, and of the
Group‘s ability to service its debt. Because companies calculate the non-IFRS financial measures presented herein
differently, the Group‘s presentation of these non-IFRS financial measures may not be comparable to similarly
titled measures used by other companies.
4.2.3 Industry and market data
In this Prospectus, the Company has used industry and market data obtained from independent industry
publications, market research, and other publicly available information, including from The Norwegian Petroleum
Directorate3, International Energy Agency (―IEA‖)4, Rystad Energy5, IHS Petrodata database6, KCA Deutag7,
Archer 8 , Petoro 9 and other publicly available information. While the Company has compiled, extracted and
reproduced industry and market data from external sources, the Company has not independently verified the
correctness of such data. Further, although certain graphs in Section 7 ―Industry and market overview‖ are based
on IHS Petrodata information, IHS Petrodata has not taken part in the preparation of these graphs. The Company
cautions prospective investors not to place undue reliance on the above mentioned data. Unless otherwise
indicated in the Prospectus, the basis for any statements regarding the Group‘s competitive position is based on
the Company‘s own assessment and knowledge of the market in which it operates.
Although the industry and market data is inherently imprecise, the Company confirms that where information has
been sourced from a third party, such information has been accurately reproduced and that as far as the Company
is aware and is able to ascertain from information published by that third party, no facts have been omitted that
would render the reproduced information inaccurate or misleading. Where information sourced from third parties
has been presented, the source of such information has been identified.
3 Information from this source in the Prospectus is available at http://www.npd.no/en/. 4 Information from this source in the Prospectus is available by subscription at www.worldenergyoutlook.org/. 5 Information from this source in the Prospectus is available by subscription at www.rystadenergy.com. 6 Information from this source in the Prospectus is available by subscription at www.ihs.com/info/en/a/ods-petrodata/index.aspx. 7 Information from this source in the Prospectus is available at www.kcadeutag.com. 8 Information from this source in the Prospectus is available at www.archerwell.com. 9 Information from this source in the Prospectus is available at www.petoro.no.
Odfjell Drilling Ltd - Prospectus
46
Industry publications or reports generally state that the information they contain has been obtained from sources
believed to be reliable, but the accuracy and completeness of such information is not guaranteed. The Company
has not independently verified and cannot give any assurances as to the accuracy of market data contained in this
Prospectus that was extracted from these industry publications or reports and reproduced herein. Market data and
statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market
conditions. Such statistics are based on market research, which itself is based on sampling and subjective
judgments by both the researchers and the respondents, including judgments about what types of products and
transactions should be included in the relevant market.
As a result, prospective investors should be aware that statistics, data, statements and other information relating
to markets, market sizes, market shares, market positions and other industry data in this Prospectus (and
projections, assumptions and estimates based on such information) may not be reliable indicators of the Group‘s
future performance and the future performance of the industry in which it operates. Such indicators are necessarily
subject to a high degree of uncertainty and risk due to the limitations described above and to a variety of other
factors, including those described in Section 2 ―Risk factors‖ and elsewhere in this Prospectus.
4.2.4 Other information
In this Prospectus, all references to ―NOK‖ are to the lawful currency of Norway, all references to ―USD‖ are to the
lawful currency of the United States, all references to ―GBP‖ are to the lawful currency of the United Kingdom, all
references to ―EUR‖ are to the lawful common currency of the EU member states who have adopted the Euro as
their sole national currency and all references to ―BRL‖ are to the lawful currency of Brazil.
4.2.5 Rounding
Certain figures included in this Prospectus have been subject to rounding adjustments (by rounding to the nearest
whole number or decimal or fraction, as the case may be). Accordingly, figures shown for the same category
presented in different tables may vary slightly. As a result of rounding adjustments, the figures presented may not
Contract law ........................................................................ English Norwegian
1 All manager‘s direct and indirect onshore support cost and offshore personnel cost to be paid by Golden Close and Chloe Marine in addition to the
fees for Deepsea Metro I and Deep Sea Metro II, respectively.
2 All manager‘s direct and indirect onshore support cost and offshore personnel cost to be paid by Maracc in addition to the fees.
Odfjell Drilling Ltd - Prospectus
75
The Group‘s management contract for Dalian Developer was terminated by Dalian Deepwater Developer Ltd on 4
September 2013 following a 30-day grace period as a result of Dalian Deepwater Developer Ltd‘s termination of its
construction contract for the drillship.
The Construction Contract
Odfjell Rig III Ltd. is party to a construction contract signed 12 November 2011, effective 20 December 2011, with
DSME for the construction and delivery of Deepsea Aberdeen, with scheduled delivery in May 2014 (the
―Construction Contract‖).
The contract price is approximately USD 622 million, subject to variations due to adjustments or modifications. The
payments of the contract price are as follows:
(i) The first instalment in the amount of USD 94,002,700 (approximately 15% of the contract price) was
paid in the first quarter of 2012.
(ii) The second instalment in the amount of USD 527,850,000 (approximately 85% of the contract price) will
be due upon delivery, subject to variations due to adjustments or modifications, if any. Please see
Section 11.8.1 ―Material borrowings‖ for a description of the bank loan facility agreement related to the
second instalment.
Additional project costs are estimated to be USD 91 million (net of the mobilisation fee of USD 35 million), and
include costs relating to operational preparation (approximately USD 58.6 million), project management
(approximately USD 25 million), contingencies and variation orders (approximately USD 19.1 million) and
projected financing costs (approximately USD 23.6 million. As of 30 June 2013, USD 28 million of these additional
project costs had been paid; the remainder is expected to be financed with cash on the balance sheet. Accordingly,
the all-in ready to drill cost of Deepsea Aberdeen is approximately USD 713 million. As of the date of this
Prospectus, construction of Deepsea Aberdeen is on schedule.
Odfjell Rig III Ltd. is entitled to liquidated damages if Deepsea Aberdeen is delivered more than 60 days after the
contractual delivery date, as extended by permissible delays, and/or in the event of deficiencies in the variable load
capacity of Deepsea Aberdeen. In the event of a delay of more than 240 days, Odfjell Rig III Ltd. is entitled to
terminate the Construction Contract. A refund guarantee from Korea Eximbank covers the total amount of USD
94,002,700.
DSME is entitled to terminate the Construction Contract in the event that (a) Odfjell Rig III Ltd. fails to pay any of
the instalments; (b) Odfjell Rig III Ltd. fails to take delivery of the rig; (c) Odfjell Rig III Ltd. fails to comply with
any of its material obligations under the contract; or (d) Odfjell Rig III Ltd. and/or the corporate guarantor
becomes insolvent.
Shareholders‘ agreement and shareholder loan agreement regarding Deep Sea Metro
In connection with the establishment of the Deep Sea Metro joint venture, the Company entered into a
shareholders‘ agreement with Metro Exploration and Deep Sea Metro on 10 October 2008. The shareholders‘
agreement provides, inter alia, that the Company is entitled to appoint two out of the five members of the board of
directors and that all decisions at board and shareholders‘ meetings must be approved by at least one
representative of each joint venture partner. Odfjell Drilling has a right of first refusal and a tag-along right upon
sale of shares in Deep Sea Metro. There are no drag-along obligations. In a deadlock situation, Odfjell Drilling may
require Metro Exploration to purchase all of its shares in Deep Sea Metro at their fair market value.
On 4 May 2012, the Company through its wholly-owned subsidiary Odfjell Offshore Ltd., as lender, entered into a
loan agreement with Deep Sea Metro. The shareholder loan was made available to fund working capital and other
funding requirements in relation to Deepsea Metro II, which was delayed in its initial operations. The shareholder
loan was initially in the principal amount of USD 80 million, but was reduced to USD 53 million after part of the
loan was converted into shares in Deep Sea Metro following several shareholder capital calls in 2012 under the
shareholders‘ agreement. In June 2013, the shareholder loan was increased by USD 12 million. As of 30 June
2013, the outstanding balance of the shareholder loan was USD 65 million excluding accrued interest.
Odfjell Drilling Ltd - Prospectus
76
Under the terms of the loan agreement, Deep Sea Metro is required to repay the shareholder loan in full on the
final maturity date in May 2015. Interest is payable at the rate of 12% per annum, payable semi-annually in May
and November. The shareholder loan is prepayable if certain events occur, including if any material assets of Deep
Sea Metro are sold or if a surplus of cash is received as a result of a refinancing of the Deep Sea Metro group‘s
debt. As of 30 June 2013, total gross interest bearing debt on the balance sheet of Deep Sea Metro was USD 973.5
million (net of capitalised fees).
Further, Metro Exploration has pledged its 60% interest in the shares of Deep Sea Metro in favour of the lender.
The shareholder loan restricts the payment of dividends by Deep Sea Metro prior to the full repayment of the
shareholder loan.
The table below sets out the key financial data for Deep Sea Metro on a 100% basis from Deep Sea Metro‘s audited
consolidated financial statements for the financial years ended 31 December 2012 and 2011, and from Deep Sea
Metro‘s unaudited financial information for the six months period ended 30 June 2013 and 2012, prepared in
accordance with simplified IFRS pursuant to section 3-9 of the Norwegian Accounting Act and with the Directives of
simplified IFRS specified by the Norwegian Ministry of Finance on 21 January 2008.
Deep Sea Metro (100%) Six months ended 30 June Year ended 31 December
(USD millions)
2013
(simplified IFRS)
(unaudited)
2012
(simplified IFRS)
(unaudited)
2012
(Simplified IFRS)
(audited)
2011
(Simplified IFRS)
(audited)
Total operating income ........................................................................................................... 166.1 96.4 246.4 2.4
Current liabilities .................................................................................................................... 75.7 40.6 78.5 78.8
Total equity and liabilities ................................................................................................... 1,771.4 1,816.1 1,820.6 1,771.7
Joint venture agreement with Galvão Oil and Gas Holding B.V. regarding Odfjell Galvão B.V.
In connection with the establishment of Odfjell Galvão B.V, Odfjell Drilling Netherlands B.V. entered into a joint
venture agreement with Galvão Oil and Gas Holding B.V. on 20 July 2012 for the purpose of governing the 50/50
ownership in Odfjell Galvão B.V. The joint venture agreement provides, inter alia, that the board of directors shall
consist of up to four directors to be jointly appointed by the shareholders, and that certain reserved matters
require a unanimous resolution by the shareholders. Furthermore, there are certain transfer restrictions, including
a lock-up period, right of first offer and a tag along right.
On 29 August 2012, Odfjell Galvão B.V. invested in 20% of the shares in each of the three Dutch special purpose
companies, Guarapari Drilling B.V., Itaoca Drilling B.V. and Siri Drilling B.V., whereby each has entered into an
engineering, procurement and construction contract for the construction of a drillship with the Jurong shipyard. The
remaining 80% ownership is held by Sete Brasil, through Sete International GmbH. Odfjell Galvão B.V is also the
owner of Odfjell Galvão Perfurações Ltda, a company established under the laws of Brazil which will provide
management services in connection with the three drillships under construction at the Estaleiro Jurong Aracruz
shipyard. All three special purpose companies have entered into a fifteen-year charter contract with Petrobras and
Odfjell Galvão Perfurações Ltda has entered into corresponding service agreements with Petrobras.
Odfjell Drilling Ltd - Prospectus
77
8.5.2 Well Services
8.5.2.1 Main assets
The Well Services segment‘s assets mainly consist of casing and tubular running and rental drilling, wellbore
cleaning and fishing equipment which is rented to rig sites from the Well Services segment‘s bases around the
world. It also employs skilled technicians providing casing and tubing running, fishing and wellbore cleanout
services. The drill tool rental equipment includes a broad range of high performance drilling tools covering all
drilling phases from exploration to completion and intervention.
Below is an overview of the capex of the Well Services segment and the book value of the Rental Equipment of the
Well Services segment for the years 2010 to 2012. In addition, Rental Equipment typically has a value beyond the
length of its life for depreciation purposes, as it can be utilised in regions with less demanding environmental and
regulatory requirements. The average age of the Rental Equipment is 4 to 5 years.
(In USD million) Year ended 31 December1
2012 2011 2010
Capex of the Well Services segment................................................................... ...................... 68 52 34
of which relates to the divested mooring business ..................................................... 11 13 6
Book value of Rental Equipment ....................................................................... 173 139 133
of which relates to the divested mooring business ..................................................... 41 37 34
Accumulated cost price of Rental Equipment ..................................................... 406 319 283
of which relates to the divested mooring business ..................................................... 67 55 45
1 The 2010 numbers are not directly comparable with the 2011 and 2012 numbers as the 2010 numbers were prepared using NGAAP and the 2011
and 2012 numbers were prepared using IFRS. The 2010 numbers were reported in NOK and have been converted to USD using an exchange rate
of USD/NOK 6.045 from Norges Bank average exchange rate for the year.
8.5.2.2 Main clients and competitors
Statoil, Shell, Schlumberger, BP, Songa, Dragon Oil, Baker Hughes, Halliburton, Maersk and Petrom are Odfjell
Drilling‘s largest external clients within the Well Services segment, accounting for 60% of the Well Services
segment‘s total revenues in the year ended 31 December 2012. The Group has developed good long-term
relationships with its clients in the Well Services segment, which include the most active operators and drilling
contractors in the North Sea. For example, the Group‘s client relationships with Shell, Statoil and BP within the Well
Services segment date back to more than a decade. Approximately 80% of Odfjell Drilling‘s main clients were also
clients of the Group‘s Well Services segment five years ago.
Odfjell Drilling‘s main competitors within the Well Services segment in the North Sea are Weatherford, Frank‘s
International and a number of smaller local service providers. Globally, competitors include Weatherford, Frank‘s
International, ITS, Tesco, Workstrings, Schlumberger, Baker Hughes and various local service providers.
8.5.2.3 Key contracts
The contract portfolio of the Well Services segment consists of a combination of exclusive and non-exclusive
framework agreements, under which the clients may call upon services to be provided periodically on pre-agreed
terms, as well as exclusive service agreements priced at day rates or for lump sum payments. The Well Services
segment‘s contract portfolio consists mainly of contracts where the Group is the primary provider. However, under
some contracts the Group is the secondary provider or the back-up provider. Most rental service contracts do not
impose a delivery obligation on the Group, while most casing contracts do impose such an obligation.
The rental service contracts are for rental of equipment only, with the exception of fishing contracts which also
include hire of an operator. Casing and tubular running contracts are a combination of equipment rental and
personnel hire with teams of personnel on rotation to operate the casing running.
Odfjell Drilling Ltd - Prospectus
78
Below is an overview of Odfjell Drilling‘s key service contracts. The estimated total revenues of these contracts,
calculated from 30 June 2013 to the expiry of the relevant contracts, are approximately USD 123 million.
Client
Scope of work
Commencement date
Expiry date
(incl options)
Statoil Casing Running Services –
MODU rigs (Norway)
10 December 2008
31 December
2014
(2nd option)
Shell
Casing running services
(Norway, UK, Netherlands,
Ireland)
1 March 2013
1 March 2019
(NO)
30 April 2021
(UK/NL/IR)
BP Casing running services
(Norway) 1 June 2010 1 June 2015 (2nd
option)
Schlumberger Rental of stabilisers, subs,
collars etc. (Europe) 1 September 2007 31 December
2014
Dragon Oil
Casing Running Services,
fishing and rental of drilling
tools (Turkmenistan)
10 December 2009 30 November
2013
Halliburton Rental of stabilisers, subs,
collars etc. (Europe) 1 October 2004 30 September
2013
Maersk Drilling
Rental of drill pipe and
accessories (Norway and
Denmark)
25 August 2010
25 August 2016
OMV Petrom Rental of drilling jars, casing
scrapers etc. (Romania) 1 April 2012
9 February 2017
(fishing and
milling) / 31
March 2017
(tubular running)
8.5.3 Drilling & Technology
8.5.3.1 Main assets
The main assets of the Drilling & Technology segment are human resources and system capital. The Platform
Drilling business area has approximately 1,100 employees, both offshore and onshore, located in Norway and the
UK, while the Technology business area has approximately 400 employees, whereof more than 300 engineers in
Norway, the UK, South Korea, the Philippines and the Middle East, in addition to approximately 90 contractors.
Drilling & Technology‘s management system combines experience, technology and core values. The management
system comprises the Group‘s consolidated procedures and guidelines for each type of operation the Drilling &
Technology segment undertakes globally, including installation specific procedures and checklists. Further, the
systems also include environments for measurement, controlling and validation of QHSE-performance,
maintenance and drilling operations.
8.5.3.2 Main clients and competitors
Odfjell Drilling‘s clients in the Drilling & Technology segment are typically large oil and gas companies. The main
clients within this segment are Statoil, BP and Talisman, accounting for 74% of the Drilling & Technology segment‘s
total revenues in 2012. However, based on newly awarded contracts under which operations will commence in
2013, TAQA and Wintershall will also be key clients in this segment going forward.
Odfjell Drilling‘s main competitors within the Platform Drilling business area are Archer and KCA Deutag. The
Technology business area‘s competitors are mainly local yards and smaller engineering companies specialising in
drilling services. None of these engineering companies are associated with a drilling contractor and hence cannot
offer the same overall engineering and operational services as Odfjell Drilling.
8.5.3.3 Key contracts
Platform drilling contracts
Below is an overview of Odfjell Drilling‘s key platform drilling contracts on the NCS and UKCS:
Each of the Group‘s local offices are encouraged to source and train its own local workforce rather than use
expatriate personnel and the Group utilises in-house training schemes to promote this. In most jurisdictions, the
senior workforce consists of expatriates, while the local workforce is trained onsite. The Company is of the opinion
that its employee relations are good and has experienced neither significant labor-related work stoppages nor high
turnover rates in each of 2012, 2011 and 2010 or in the six months ended 30 June 2013.
The Group has specific procedures for screening, hiring, monitoring and training contractors. During the period of
hire, the contractors are assigned an internal sponsor that follows the contractors during training and deliveries
through an onboard programme to secure the correct level of quality in deliveries and utilisation. The onboard
programme is based on a defined checklist.
8.9 Dependency on contracts, patents and licences
It is the Company‘s opinion that the Group‘s existing business or profitability is not dependent upon any contracts
other than the rig contracts, as further described in Section 8.5.1.3 ‖Key contracts – Rig contracts‖ and the
financing agreements, as further described in Section 11.8.1 ―Material borrowings‖.
It is further the opinion of the Company that the Group‘s existing business or profitability is not dependant on any
patents or licences.
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8.10 Litigation and disputes
From time to time, the Company and other companies in the Group are involved in litigation, disputes and other
legal proceedings arising in the normal course of its business. During the course of the preceding twelve months,
the Group has been and is currently involved in the following tax cases:
8.10.1 Tax court case
Odfjell Rig Ltd. is a company incorporated in Bermuda, and its ultimate shareholder is the Company. During the
years 2009 to 2011 Odfjell Rig Ltd. was the owner (limited partner) of 52.913% of Deep Sea Drilling Company II
KS (DSDCII), which was the owner of the rig Deepsea Bergen. The general partner of DSDCII was Deep Sea
Drilling Company AS, and additionally there were two other limited partners. The rig Deepsea Bergen has operated
on the NCS since spring 2006 under a bareboat charter with Deep Sea Drilling Company KS. All main decisions
pertaining to the rig (purchase, sale, financing etc) are made by the partnership meeting of DSDCII. The company
Odfjell Drilling AS – resident in Norway – has been contracted to carry out the day-to-day operations/management
of the bareboat charter.
The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. has a limited tax
liability to Norway as a result of its ownership in DSDCII. The tax authorities made their decision for the years
2009 to 2010 on 29 June 2012, and later also for 2011. The case for 2009 to 2011 was brought before the
Norwegian courts by Odfjell Rig Ltd. pursuant to a writ of summons on 20 December 2012, and the district court
made its decision on 12 July 2013. For all three income years, the disputed amount (before-tax income) is
approximately NOK 387,000,000.
The district court concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus a
limited tax liability exists for the owner Odfjell Rig Ltd. on the basis of the Norwegian Tax Act section 2-3 para. 1,
letter b. The district court came to this conclusion inter alia on the basis that the day-to-day management of the
bareboat charter by Odfjell Drilling AS in Bergen involves considerable activity in Norway on behalf of DSDCII, and
also that the rig Deepsea Bergen has been deployed within Norwegian jurisdiction (i.e. on the NCS). Furthermore,
the district court concluded that a tax exemption in the Norwegian Tax Act section 2-34 was not applicable as this
only relates to ―international business‖ which in the court‘s opinion is not the case as long as the rig is operated on
the NCS.
The Company will appeal the district court‘s judgement, however, if the district court‘s verdict is upheld on appeal,
the USD 62.8 million loss (already expensed as of 30 June 2013) for the Company will be final. The loss is
comprised of USD 24.5 million in payable tax (which already has been paid) and USD 38.3 million in deferred tax.
The additional impact on cash will be 20% of the deferred tax to be paid in 2014 with the remaining balance to be
paid on a declining basis (i.e. 20% of the remaining balance) each year.
8.10.2 Tax audit case
Odfjell Invest I Ltd. (Odfjell Invest I), a wholly-owned subsidiary of the Group incorporated in Bermuda, is the
owner of the rig Deepsea Atlantic, which has been leased to Odfjell Invest AS under a bareboat charter at a fixed
day rate of USD 300,000. Odfjell Invest AS has in turn entered into a drilling contract with Statoil for the provision
of drilling services to Statoil on the NCS. Soon after commencement of drilling services under the drilling contract,
Statoil stopped paying the operating rate based on the contention that Odfjell Invest AS was not able to provide
the drilling services as contemplated by the drilling contract. Odfjell Invest AS challenged Statoil‘s decision to stop
payment of the operating rate and instigated legal proceedings to recover lost income. Odfjell Invest AS lost the
court case in the first instance. As part of a settlement with Statoil, Odfjell Invest AS decided not to appeal the
decision. Odfjell Invest AS has taken the position that it had no legal basis for stopping payment of bareboat hire
to Odfjell Invest I under the bareboat charter during the period of non-payment of the operating rate by Statoil
under the drilling contract.
The tax authorities have notified that they do not consider Odfjell Invest AS as entitled to a tax deduction under
the Norwegian Tax Act section 6-1, resulting in an increase of the taxable income for 2009 of NOK 103,305,720
and for 2010 of NOK 520,607,220. Following the tax audit (report dated 5 July 2013) the notice of reassessment
also relates to the omission of taking a payment of hire from Statoil as income, resulting in an increase of the
income for 2010 of NOK 6,552,467. Furthermore, the tax authorities have notified that they do not consider the
bareboat charter between Odfjell Invest AS and Odfjell Invest I to be in accordance with the arm's length principle.
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This results in a total reduction of bareboat hire for the years 2009 to 2012 of NOK 209,434,800. The above
notifications from the tax authorities have not yet resulted in any decision of reassessment.
The potential tax exposure amounts to USD 39.0 million excluding interest cost. Estimated potential interest cost
amounts to USD 9 million as per the date of this Prospectus, but is subject to increase depending on actual time of
a potential payment. Odfjell Invest AS will dispute any assessment based on the notification, and hence no tax
expense is recognised in the Interim Financial Statements for the six months period ended 30 June 2013, as the
Company‘s best estimate of the amount it will ultimately pay is nil. Odfjell Invest AS will revert to the tax
authorities within the deadline for response. However, as Odfjell Invest AS will need to pay the full amount
immediately upon the receipt of the final claim amount from the Norwegian tax authorities, there may be a
negative impact on liquidity in the amount of USD 50 million if the Norwegian tax authorities do not change their
assessment based on input from Odfjell Invest AS. If the Norwegian tax authorities do not change their assessment
and Odfjell Invest AS reclaims the full amount through the court system there may be a temporary liquidity impact
even if Odfjell Invest AS is ultimately successful in the case.
For the first half year of 2013, there is an additional tax exposure of USD 2 million related to the transfer pricing
issue of Deepsea Atlantic as described above.
Other than this, the Company nor any other company in the Group are, nor have been during the course of the
preceding twelve months involved in any legal, governmental or arbitration proceedings which may have, or have
had in the recent past, significant effects on the Group‘s financial position or profitability, and the Company is not
aware of any such proceedings which are pending or threatened.
8.11 Regulation
The Group is subject to a large number of national and international regulatory and environmental laws and
regulations governing all business activities of the Group in the respective jurisdictions.
This includes, in particular, provisions on (i) permitting, (ii) energy operations, (iii) waste treatment, (iv) water
protection and (v) the handling, storage and transport of hazardous goods and chemical substances. Further, the
Group is subject to requirements on occupational health and safety as well as export control regulations. Also, laws
relating to the import and operation of drilling rigs and related onshore and offshore equipment, currency
conversions and repatriation, taxation of offshore earnings and earnings of expatriate personnel or the use of local
employees and suppliers by foreign contractors may be affected.
The application of the various laws and regulations depends on the specific facilities, installations and activities at
the business locations in the relevant jurisdictions. For example, the permits of public authorities required for a
specific business operation depend on many individual factors, including the specific purpose of the facility, its
capacity and physical structure, the environmental impacts originating from the facility, and the existence of any
auxiliary facilities. Operational sites may have to comply with several environmental and regulatory requirements.
In addition, environmental liabilities can occur due to public or civil environmental laws.
Generally, the provisions under environmental and regulatory laws applicable to the Group‘s operations are
regularly subject to change. They are continuously being adapted, at the national and international levels, in
particular by the European Union, to the level of technical sophistication and the increased need for safety and
environmental protection in the energy sector. Due to the broad geographical scope of the Group‘s business
operations, the contents and details as well as the practice of enforcement of the applicable legal framework varies
throughout the different jurisdictions concerned. Generally, non-compliances may result in administrative (e.g.
fines or suspension or withdrawal of permits) or criminal sanctions.
The Group‘s offshore activities are subject to numerous specific laws and regulations in the form of international
conventions and treaties, national, state and local laws, in particular relating to the maritime environment, and
national and international regulations in force in the jurisdictions in which the Group operates or is registered.
These regulations include, but are not limited to, the International Convention for the Safety of Life at Sea 1974,
the International Convention for the Prevention of Pollution from Ships 1973, the International Safety Management
Code for the Safe Operation of Ships and for Pollution Prevention, the International Convention on Civil Liability for
Oil Pollution Damage 1969, the International Convention on Civil Liability for Bunker Oil Pollution Damage 2001,
Odfjell Drilling Ltd - Prospectus
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the International Convention for the Control and Management of Ships‘ Ballast Water and Sediments 2004, which is
expected to enter into force in the course of the year 2014, the Convention on the Prevention of Marine Pollution
by Dumping of Waste and other Matters 1972 (as amended by the 1996 London Protocol) and the International
Convention on Standards of Training, Certification and Watchkeeping for Seafarers 1978. These laws and standards
govern safety and the discharge of materials into the environment or otherwise relate to environmental protection.
In certain circumstances, these laws may impose strict liability, rendering companies in the Group liable for
environmental and natural resource damages without regard to negligence or fault on the part of the Group.
Implementation of new environmental laws or regulations that may apply to the oil and gas or offshore
accommodation industries may impact on the Group‘s business activity, financial condition or results of operations.
For example, a number of countries have announced that they are undertaking a review of the regulation of the
offshore drilling industry following the Macondo incident in the Gulf of Mexico in 2010. Please see Section 2 ―Risk
factors‖ for an overview of risk factors relating to environmental laws and regulations applicable to the Group.
8.12 Intellectual property and information technology
The intellectual property rights relating to the Drilling Units and related equipment are the proprietary rights of the
Group‘s suppliers or sub-suppliers. Please see Section 2.4 ―Risk relating to laws, regulation and litigation –
Technology disputes involving the Group, the Group‘s suppliers or sub-suppliers could impact the Group‘s
operations‖ for an overview of risk factors relating to potential technology disputes.
The Group has several trademarks registered in countries all over the world, including among others the name
―Odfjell Drilling‖, ―Deepsea‖ and the Odfjell Drilling logo. Further, although not material to the business of the
Group as a whole, the Well Services segment has several patents registered and applications pending with the
intention of patenting various processes relating to operational aspects and improvements.
The Group further relies on information technology systems to communicate with its Drilling Units and conduct its
business. The Group has implemented customary virus control systems and access control systems, and
continuously evaluates its information technology and information security. Information technology systems that
support for instance maintenance processes are implemented so that each Drilling Unit‘s system is operative
independently of whether the central system is operative or not (replication technology). The Group also relies
upon security measures and technology to securely maintain confidential and proprietary information maintained
on its information technology systems.
8.13 Insurance
As is customary in the oilfield services industry, the Group mitigates its exposure to the risks normally associated
with a drilling contractors operation such as environmental damage and accidents through indemnification
arrangements and insurance policies.
The Group‘s charter and service contracts generally contain contractual indemnities against liability for pollution,
well and environmental damages, damages to equipment and property, and personal injury. These indemnities
provide that the Group‘s clients, the oil and gas companies, will retain liability and indemnify the Group for (i)
environmental pollution caused by any oil, gas, water or other fluids and pollutants originating from below the
seabed, (ii) damage to client and third-party equipment and property including any damage to the sub-surface and
reservoir, and (iii) personal injury to or death of client personnel.
The Group also carries insurance coverage for its operations and is self-insured for certain claims in amounts that
the Company believes to be customary and reasonable to retain for its own account. The Group maintains
insurance worldwide for liability arising from its operations, and its insurance covers all of its material assets,
including all capital items such as the Drilling Units and Rental Equipment. Among the risks insured are loss of, or
damage to, the Drilling Units (hull and machinery), third-party property, death or injury to employees and/or third
parties (protection and indemnity insurance and third party liability insurance) and statutory workers‘
compensation.
To cover the Group‘s charter contracts, it maintains the following insurance coverage: (i) hull and machinery, (ii)
protection and indemnity, and (iii) war risk insurance.
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86
To protect the Group‘s service contracts, the Group has an insurance policy for general third party- and product
liability. The policy covers NOK 130 million per occurrence of legal liability for damage caused to a third party and
an annual aggregate limit of NOK 50 million for professional indemnity as a result of faulty product design,
feasibility or engineering studies etc. Odfjell Drilling‘s general third party- and product liability insurance policy
does, however, expressly exclude coverage for certain types of environmental damages normally being the
responsibility of the Group‘s clients, the oil and gas companies. In all locations, except North America, the policy
covers only environmental damages that are the direct and unavoidable consequences of a sudden, unforeseen and
identifiable event and, in the case of recoverable pollution damage, the policy also covers clean-up related
expenses imposed by public authorities.
The Group also maintains an insurance policy for transport and storage of the Group‘s equipment (excluding the
Drilling Units) for coverage of up to NOK 53 million per occurrence.
The determination of the appropriate level of insurance coverage is made on an individual asset basis taking into
account several factors, including the age, market value, cash flow value and replacement value of the asset in
hand. However, there can be no assurance that the amount of insurance the Group‘s carries is sufficient to protect
the Group fully in all events, and a successful liability claim for which the Group‘s is underinsured or uninsured
could have a material adverse effect on the Group. Additionally, insurance rates have in the past been subject to
wide fluctuations, and changes in coverage could result in less coverage, increases in cost or higher deductibles
and retentions. See Section 2 ―Risk factors‖.
Odfjell Drilling has not made any material insurance claims under any of its insurance policies during 2012, 2011
and 2010 or in the six-month period ended 30 June 2013.
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9 CAPITALISATION AND INDEBTEDNESS
9.1 Capitalisation
The tables below should be read in conjunction with the information included elsewhere in this Prospectus,
including Section 10 ―Selected financial information‖ and the Financial Statements and the Interim Financial
Statements and related notes, included in Appendix B and Appendix C of this Prospectus.
The following table sets forth information about the Group‘s unaudited consolidated capitalisation as of 30 June
2013. There has been no material change since 30 June 2013.
As of 30 June 2013
(In USD millions) Actual
(unaudited)
Indebtedness
Current financial debt:
Guaranteed and secured ..................................................................................................................... -
Guaranteed but unsecured .................................................................................................................. -
Secured but unguaranteed1 ................................................................................................................. 180.9
Unguaranteed and unsecured .............................................................................................................. -
Non-current financial debt:
Guaranteed and secured ..................................................................................................................... -
Guaranteed but unsecured .................................................................................................................. -
Secured but unguaranteed1 ................................................................................................................. 1,177.6
Unguaranteed and unsecured .............................................................................................................. -
Total indebtedness .......................................................................................................................... 1,358.6
Shareholders‘ equity
Share capital ..................................................................................................................................... -2
Other contributed capital..................................................................................................................... 331.8
Other reserves ................................................................................................................................... (75.3)
Total equity ..................................................................................................................................... 1,083.6
Total capitalisation .......................................................................................................................... 2,442.2
1 Secured by pledges either on receivables and bank deposits or plant and equipment. Please also see Section 11.8.1 ―Material borrowings‖.
2 The share capital of the Company as of the date of this Prospectus is USD 2,000,000. Please see Section 15.4 ―Share capital history‖ for the
development in the Company‘s issued share capital following 30 June 2013.
The Group is not aware of any indirect or contingent indebtedness other than the tax audit case described in
Section 8.10 ―Litigation and disputes‖.
9.2 Indebtedness
The following table sets forth information about the Group‘s unaudited net indebtedness as of 30 June 2013.
(B) Time deposits ............................................................................................................................... 104.6
The table below sets out selected data from the Group‘s audited consolidated income statement for the years
ended 31 December 2011 and 2010.
Year ended
31 December
(In NOK millions)
2011
(NGAAP)
(audited)
2010
(NGAAP)
(audited)
Operating income ......................................................................................................................... 5,924.9 4,724.9
Gain on sale of assets ................................................................................................................... 15.0 26.0
Income from associates ................................................................................................................ (41.6) 25.7
Net financial items ....................................................................................................................... (272.3) 280.8
Profit/loss before tax ................................................................................................................ 833.8 275.5
Income taxes .............................................................................................................................. (180.6) 29.8
Profit/(loss) for the period ....................................................................................................... 653.1 305.3
Attributable to non-controlling interests .......................................................................................... 69.8 59.7
Attributable to owners of Odfjell Drilling Ltd .................................................................................... 583.4 245.6
10.4 Condensed consolidated statement of comprehensive income
The table below sets out selected data from the Group‘s audited consolidated statement of comprehensive income
for the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim statement of
comprehensive income for the three and six month periods ended 30 June 2013 and 2012. As the statement of
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91
comprehensive income does not exist under NGAAP, the figures for the year ended 31 December 2010 are not
included in the table.
Three months ended
30 June
Six months ended
30 June
Year ended
31 December
(In USD millions)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2012
(IFRS)
(audited)
2011
(IFRS)
(audited)
Profit/(loss) for the period .............................. (9.2) 13.0 12.3 45.6 116.9 121.3
Total non-current assets ........................................................................................................... 12,653.5 12,144.4
Spare parts ................................................................................................................................. 269.1 164.0
Other current assets ..................................................................................................................... 149.5 153.5
Cash and bank deposits ................................................................................................................ 1,816.6 1,605.3
Total current assets .................................................................................................................. 3,736.0 3,159.1
Total assets ............................................................................................................................... 16,389.5 15,303.4
Total paid-in capital ...................................................................................................................... 1,989.5 1,986.0
Other equity ................................................................................................................................ 4,290.9 3,803.1
Total equity ............................................................................................................................... 6,416.6 5,944.7
Other current liabilities ................................................................................................................. 900.7 1,123.7
Total current liabilities .............................................................................................................. 1,106.6 1,325.0
Total liabilities .......................................................................................................................... 9,972.9 9,358.7
Total equity and liabilities ......................................................................................................... 16,389.5 15,303.4
period .............................................................. 245.2 161.8 245.2 161.8 200.6 303.1
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The table below sets out selected data from the Group‘s audited consolidated statements of cash flows for the
years ended 31 December 2011 and 2010.
Year ended
31 December
(In NOK millions)
2011
(NGAAP)
(audited)
2010
(NGAAP)
(audited)
Cash flow from operating activities
Profit before income tax ................................................................................................................ 833.8 275.5
Adjustments for:
Depreciation and impairment ......................................................................................................... 822.1 474.4
Unrealised loss on interest rate swaps ............................................................................................ (144.4) -
Share of (profit)/loss from joint ventures ........................................................................................ 41.6 (25.7)
Net (gain)/loss on sale of shares .................................................................................................... (221.9) -
Net (gain)/loss on sale of tangible fixed assets ................................................................................ (15.0) (26.0)
Post-employment benefit expenses less post employment benefit payments ....................................... 9.0 69.5
Changes in working capital:
Spare parts ................................................................................................................................. (105.2) (107.6)
Other accruals ............................................................................................................................. (187.5) (178.8)
Cash generated from operations ............................................................................................... 772.5 351
Income tax paid ........................................................................................................................... (73.8) (216.2)
Net cash generated from operating activities............................................................................ 698.7 134.6
Cash flows from investing activities:
Purchase of property, plant and equipment ..................................................................................... (589.0) (2,516.2)
Proceeds from sale of property, plant and equipment ....................................................................... 29.7 41.8
Other long term receivables .......................................................................................................... (6.0) 177.3
Purchase of shares incl. joint ventures ........................................................................................... (624.4) (795.3)
Proceeds from sale of shares and bonds .......................................................................................... 187.8 67.1
Net cash used in investing activities ......................................................................................... (1,001.9) (3,025.4)
Cash flows from financing activities:
Net proceeds from debt to financial institutions ................................................................................ 656.67 1,679.5
Dividends paid to owners of the parent ........................................................................................... (45.0) (40.0)
Dividends paid to non-controlling interests ...................................................................................... (90.8) (72.4)
Net cash used in financing activities ......................................................................................... 520.8 1,567.0
Net change in cash and cash equivalents .................................................................................. 217.1 (1,323.8)
Cash and cash equivalents 01.01 ................................................................................................... 1,605.3 2,929.1
Cash and cash equivalents at 31.12 .......................................................................................... 1,822,4 1,605.3
10.7 Condensed consolidated statement of changes in equity
The table below sets out selected data from the Group‘s audited consolidated statements of changes in equity for
the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim statement of changes
in equity for the six months ended 30 June 2013 and 2012.
Six months ended 30
June
Year ended 31
December
(In USD millions)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2012
(IFRS)
(audited)
2011
(IFRS)
(audited)
Balance at the beginning of the period ................................................. 1,154.3 1,032.8 1,032.8 968.8
Profit/(loss) for the period ........................................................................ 12.3 45.6 116.9 121.3
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Six months ended 30
June
Year ended 31
December
(In USD millions)
2013
(IFRS)
(unaudited)
2012
(IFRS)
(unaudited)
2012
(IFRS)
(audited)
2011
(IFRS)
(audited)
Other comprehensive income for the period ............................................... (10.3) 7.4 21.3 (34.6)
Total comprehensive income for the period ......................................... 2.1 53.0 138.1 86.7
Profit/(loss) before tax .......................................................................................................... 148.0 153.5
Income tax income/(expense) .................................................................................................... (31.2) (32.2)
Profit/(loss) for the period .................................................................................................... 116.9 121.3
Of which attributable to the equity holders of the parent ................................................................ 102.5 108.8
Of which non-controlling interests ............................................................................................... 14.3 12.4
1 Operating revenue in the Group includes reimbursed salary and personnel expenses for crews on Drilling Units with management agreements.
2 Share of profit/loss from Deep Sea Metro is reported net under share of profit/losses from joint ventures in the Group‘s consolidated income
statement. This differs from the Group‘s segmental revenue, EBITDA, depreciation and EBIT for the MODU segment as reported in note 4 to the
IFRS Financial Statements, where the Group‘s share of revenue, EBITDA, depreciation and EBIT from Deep Sea Metro are included on a line-by-
line basis.
3 Other financial items consists of currency gains, other financial income, currency loses, gain/loss on interest rate swaps and other financial
expenses.
Operating revenue
Operating revenue for the year ended 31 December 2012 was USD 1,093.8 million compared to USD 1,056.7
million for the year ended 31 December 2011, an increase of USD 37.1 million, or 3.5%. The increase in operating
revenue was primarily attributable to an increase in operating revenues from the MODU and Well Services
segments. This was partially offset by a decrease in the Drilling & Technology segment‘s operating revenues.
The total eliminations for operating revenue in 2012 were USD (123.8) million, of which USD (98.6) million related
to Deep Sea Metro and USD (25.3) million related to other revenue, including inter-segment revenue. The total
eliminations for operating revenue in 2011 were USD (31.0) million, of which USD (0.9) million related to Deep Sea
Metro and USD (30.1) million related to other revenue, including inter-segment revenue.
MODU
Total operating revenue for the MODU segment for the year ended 31 December 2012 was USD 693.4 million (of
which USD 98.6 million was related to Deep Sea Metro) compared to USD 573.6 million (of which USD 0.9 million
was related to Deep Sea Metro) for the year ended 31 December 2011, an increase of USD 119.8 million, or
20.9%. The increase was primarily attributable to the first full year of operations in 2012 for Deepsea Metro I, as
well as the commencement of operations for Deepsea Metro II in May 2012. Deepsea Metro I was delivered from
the shipyard in June 2011 and commenced operations in December 2011. Deepsea Stavanger‘s contract with Ophir
ended in April 2011 and the drilling unit was mobilised from April to November 2011, a period which included a
yard stay for client modifications.
Well Services
Total operating revenue for the Well Services segment for the year ended 31 December 2012 was USD 208.2
million compared to USD 192.9 million for the year ended 31 December 2011, an increase of USD 15.3 million, or
7.9%. The increase was primarily attributable to new client contracts and increased orders under framework
agreements as a result of the Group‘s increased investments in Rental Equipment.
Drilling & Technology
Total operating revenue for the Drilling & Technology segment for the year ended 31 December 2012 was USD
316.0 million compared to USD 321.2 million for the year ended 31 December 2011, a decrease of USD 5.2 million,
or 1.6%. The decrease was primarily due to the sale of the well management and consulting business in 2011.
Operating revenues were otherwise stable between the periods.
Other gains/losses
Other gains for the year ended 31 December 2012 were USD 3.4 million compared to USD 46.0 million for the year
ended 31 December 2011, a decrease of USD 42.6 million, or 92.6%. The gain in 2012 was due to gain on
disposals of casing, mooring and Rental Equipment as a result of payments by clients for loss or damage to
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equipment, while the gain in 2011 was primarily due to the disposal of the well management and consulting
business.
Share of loss from joint ventures
Share of loss from joint ventures for the year ended 31 December 2012 was USD (13.4) million compared to USD
(6.8) million for the year ended 31 December 2011, an increase of USD 6.6 million. The increase in share of loss
from joint ventures was primarily attributable to an increased loss in the Deep Sea Metro group. Operational costs
are generally higher in the start-up phase of drilling unit operations, and 2012 was the first full year of operations
for Deepsea Metro I, and Deepsea Metro II commenced operations in May 2012. In particular, financing costs
increased for Deep Sea Metro in 2012 following the new borrowing facilities in connection with delivery of the two
drillships Deepsea Metro I and II from the shipyard in 2011, which also contributed to the increased share of loss.
Personnel expenses
Personnel expenses for the year ended 31 December 2012 were USD (486.2) million compared to USD (465.7)
million for the year ended 31 December 2011, an increase of USD 20.5 million, or 4.4%. The increase in personnel
expenses was primarily attributable to: (i) increases in wages in certain markets due to increased activity and
higher competition for qualified personnel in those jurisdictions; and (ii) increased personnel costs for the
management of Deepsea Metro I and Deepsea Metro II under the management agreement with Deep Sea Metro,
reflecting the full year of operations for Deepsea Metro I in 2012 and the commencement of operations of Deepsea
Metro II in May 2012. The increase was partly offset by a reduction in personnel costs following the expiration of
the Songa Delta and Songa Trym management contracts in mid 2012.
Depreciation and impairment
Depreciation and impairment for the year ended 31 December 2012 was USD (147.3) million compared to USD
(145.0) million for the year ended 31 December 2011, an increase of USD 2.3 million, or 1.6%. There were no
impairments in either 2011 or 2012. The increase in depreciation and impairment was primarily attributable to
depreciation on additions of property, plant and equipment in 2012 as a result of additional Rental Equipment and
upgrades on Drilling Units.
Other operating expenses
Other operating expenses for the year ended 31 December 2012 were USD (266.6) million compared to USD
(247.8) million for the year ended 31 December 2011, an increase of USD 18.8 million, or 7.6%. The increase in
other operating expenses was primarily due to the Group's Drilling Units starting up operations in new geographical
areas at the end of 2011 and over the course of 2012. This included an increase in other operating expenses such
as training costs and travel expenses in connection with the mobilisation of Drilling Units outside the NCS (i.e., in
Brazil, Angola and Tanzania).
Operating profit (EBIT)
EBIT for the year ended 31 December 2012 was USD 183.7 million compared to an EBIT of USD 237.4 million for
the year ended 31 December 2011, a decrease of USD 53.7 million or 22.6%. The decrease was due to higher
other gains in 2011 as a result of the disposal of the well management and consulting business and increased
personnel costs and increased share of losses from joint ventures in 2012, which more than offset the increase in
revenue in the MODU and Well Services segments in 2012.
The total eliminations and corporate items for EBIT in 2012 were USD (50.3) million, of which USD (23.5) million
related to Deep Sea Metro, USD (23.3) million related to corporate overheads, USD (13.4) million related to the
other joint ventures and disposals and USD 9.9 million related to accounting differences. The total eliminations for
EBIT in 2011 were USD 23.6 million, of which USD 3.4 million related to Deep Sea Metro, USD (16.5) million
related to corporate overheads and USD 36.4 million related to the other joint ventures and disposals.
MODU
EBIT for the MODU segment for the year ended 31 December 2012 was USD 162.3 million (of which USD 23.5
million related to Deep Sea Metro) compared to EBIT of USD 132.1 million (of which USD (3.4) million related to
Deep Sea Metro) for the year ended 31 December 2011, an increase of USD 30.2 million or 22.9%. The increase in
EBIT for MODU was primarily attributable to growth in revenue reflecting the first full year of operations in 2012 for
Odfjell Drilling Ltd - Prospectus
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Deepsea Stavanger and Deepsea Metro I, as well as the commencement of operations in May 2012 for Deepsea
Metro II, which was partially offset by higher costs associated with the initial operations of these Drilling Units.
Well Services.
EBIT for the Well Services segment for the year ended 31 December 2012 was USD 52.7 million compared to USD
48.9 million for the year ended 31 December 2011, an increase of USD 3.8 million, or 7.7%. The increase was
primarily attributable to increased revenue (as described above) and stable margins.
Drilling & Technology
EBIT for the Drilling & Technology segment for the year ended 31 December 2012 was USD 19.0 million compared
to USD 32.8 million for the year ended 31 December 2011, a decrease of USD 13.8 million, or 42.0%. The
decrease was primarily attributable to the disposal of the higher margin well management and consulting business.
Margins were also affected by the Platform Drilling business area‘s contract with Statoil which, in 2012 included
work on two new platforms which carry higher start-up costs associated with the initial part of the contract period.
Interest income
Interest income for the year ended 31 December 2012 was USD 7.4 million compared to USD 3.6 million for the
year ended 31 December 2011, an increase of USD 3.7 million. The increase primarily reflected an increase in
interest income from a shareholder loan provided by the Group to Deep Sea Metro in 2012. See Section 8.5.1.3
―Key contracts – Shareholders‘ agreement and shareholder loan agreement regarding Deep Sea Metro‖.
Borrowing cost
Borrowing cost for the year ended 31 December 2012 was USD (64.0) million compared to USD (80.5) million for
the year ended 31 December 2011, a decrease of USD 16.5 million, or 20.5%. The decrease was primarily
attributable to the reversal of capitalised borrowing expenses following the refinancing of long-term borrowings in
2011. See Section 11.8.1 ―Material borrowings‖.
Other financial items
Other financial items for the year ended 31 December 2012 consisted of a gain of USD 20.9 million compared to a
loss of USD (7.1) million for the year ended 31 December 2011. The gain in 2012 was primarily attributable to a
gain on interest rate swaps of USD 1.6 million in 2012 compared to a loss of USD (26.2) million on interest rate
swaps that were disallowed under hedge accounting policies following the refinancing of long-term borrowings in
2011. Other financial items in 2012 also consisted of a net currency gain of USD 22.8 million and other net
financial expenses of USD (3.4) million that were in line with 2011.
Income tax expense
Income tax expense for the year ended 31 December 2012 was USD (31.2) million compared to USD (32.2) million
for the year ended 31 December 2011, a decrease of USD 1.0 million, or 3.2%. The decrease was primarily due to
reduced profit before taxation. The Group‘s effective tax rate was 21.1% in 2012 compared to 21.0% in 2011.
Income tax expenses are mainly paid in Norway, while withholding tax expenses are mainly paid in Angola. There
is no withholding tax in Brazil.
Profit/(loss) for the year
Profit from continuing operations for the year ended 31 December 2012 was USD 116.9 million compared to profit
of USD 121.3 million for the year ended 31 December 2011, a decrease of USD 4.4 million. The decrease was
primarily attributable to the factors noted above.
11.6 Explanation of NGAAP income statement line items
Operating income. Operating income primarily consists of revenue generated under the Group‘s contracts.
Operating income includes lump sum fees for mobilisation and demobilisation recognised over the contract period
and reimbursed salary and personnel expenses for crews on Drilling Units with management agreements. There is
no difference between revenue recognition in the Group's IFRS Financial Statements and the NGAAP Financial
Statements.
Gain on sale of assets. Gain on sale of assets primarily consists of gains on disposals of well services equipment.
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Personnel expenses. Personnel expenses primarily consist of salaries and wages, including bonuses, and
employer‘s national insurance contributions, pension expenses, other benefits and hired personnel (for the Group‘s
operators).
Depreciation and write-offs. Depreciation and write-offs primarily consists of depreciation of property, plant and
equipment, amortisation of goodwill and other intangible-assets and impairment of non-current assets.
When the market value of the assets increases above the book value, previous write-downs will be reversed
according to the original depreciation plan.
Depreciation and write-offs consist of change in provisions for bad debt related to trade receivables, as well as loss
on bad debt during the year.
Bad debts. Bad debts primarily consist of incurred losses on trade receivables and change in provisions for bad
debt related to trade receivables.
Other operating expenses. Other operating expenses consists primarily of administrative expenses, hired
services and subcontractors (including consultants and subcontractors for specific projects), hired well service
equipment, inspection and repair and maintenance.
Income from associates. Income from associates consists of the Group‘s share of profit from investments in
associated companies. The share of profit is measured using the equity method and comes mainly from the Deep
Sea Metro group and the Ross Holding AS group. Income from associates is classified as share of profit from joint
ventures in the IFRS Financial Statements as an operating item.
Other net financial items. Other net financial items consists primarily of interest income, other financial income,
interest expense to related parties, interest expenses and other financial expenses. Other financial income includes
gains on disposals of subsidiaries that are classified as other gains and losses under IFRS.
Tax on ordinary result. Income tax (expense) income consists primarily of (i) income tax at domestic tax rates
applicable to profits in countries where the Group operates, (ii) change in deferred tax and (iii) withholding tax on
border crossing gross income generated in Angola.
11.6.1 Year ended 31 December 2011 compared to the year ended 31 December 2010
11.6.1.1 Income statement
The table below is extracted from the Group‘s NGAAP Financial Statements for the years ended 31 December 2011
and 2010.
Year ended
31 December
In NOK million 2011
(audited)
2010
(audited)
Operating income ...................................................................................................................... 5,924.9 4,724.9
Gain on sale of assets ................................................................................................................ 15.0 26.0
Total operating income .......................................................................................................... 5,939.9 4,750.9
Depreciation and write-offs ........................................................................................................ (822.1) (538.3)
Bad debts ................................................................................................................................ (15.3) (673.6)
Other operating expenses .......................................................................................................... (1,382.0) (999.5)
Total operating expenses ....................................................................................................... (4,833.8) (4756.2)
Six months ended 30 June 2013 compared to the six months ended 30 June 2012
Net cash outflow from financing activities for the six months ended 30 June 2013 was USD 78.0 million compared
to USD 49.7 million for the six months ended 30 June 2012, an increase of USD 28.3 million. The increase was
primarily attributable to refinancing of loan facilities following the acquisition of non-controlling interests,
acquisition of non-controlling interests and dividends paid in 2013. In January 2013, the Group acquired all of its
minority shares for a total of USD 64.3 million. For the purpose of completing the Group's acquisition of the
minority shares in January 2013, the Group entered into a short-term loan facility agreement of USD 80 million
with DNB Bank ASA on 24 January 2013, and repaid the facility on 20 February 2013 with proceeds from a new
loan agreement of USD 270 million. In addition, the Group prepaid two loan facilities related to Deepsea Bergen
and paid scheduled instalments on other existing facilities. Total dividends paid in the six months ended 30 June
2013 totalled USD 14.8 million, while no dividends were paid in the six months ended 30 June 2012.
Year ended 31 December 2012 compared to the year ended 31 December 2011
Net cash outflow from financing activities for the year ended 31 December 2012 was USD (61.0) million compared
to a net cash inflow of USD 66.0 million for the year ended 31 December 2011. The Group‘s net cash outflow from
financing activities for 2012 primarily reflected the payment of instalments of USD 99.9 million, which were only
partially offset by an inflow of USD 49.4 million in relation to additional drawdowns from the USD 132.5 million
facility agreement for Odfjell Rig Ltd. Of the USD 99.9 million paid in instalments, USD 75 million were made under
the USD 950 million facility described below, in Section 11.8.1 ―Material borrowings‖. The remaining instalments
were related to previous loan facilities for Deepsea Bergen, which were repaid in full in February 2013 following the
acquisition of non-controlling interests in Deepsea Bergen. Financing activities resulted in a net cash inflow in 2011
due to a significant refinancing with the establishment of the USD 300 million facility for Odfjell Drilling Services
Ltd. and the USD 950 million facility for Odfjell Invest Ltd., as described below in Section 11.8.1 ―Material
borrowings‖. In addition, the Group paid total dividends of USD 10.5 million in 2012 compared with dividends of
USD 23.7 million in 2011.
11.7.6 NGAAP Financials
The following table summarises the Group‘s historical cash flows under NGAAP, and is extracted from the Group‘s
NGAAP Financial Statements for each of the financial periods presented:
Year ended
31 December
In NOK million 2011
(audited) 2010
(audited) Net cash from/(used in) operating activities .............................................................................. 698.7 134.6 Net cash from/(used in) investment activities ............................................................................ (957.5) (3,025.4) Net cash from/(used in) financing activities ............................................................................... 475.9 1,567.0 Net cash and cash equivalents for the year ............................................................................... 217.1 (1,323.8)
1 The rig mooring business contributed approximately USD 11 million, USD 13 million and NOK 37 million in the years ended 31 December 2012,
2011 and 2010, respectively, to Well Services capital expenditure. The average age of the Rental Equipment is between four and five years.
In the six months ended 30 June 2013, capital expenditure on the Drilling Units included construction in progress
of USD 9 million for Deepsea Aberdeen and USD 8 million in investments on the other Drilling Units. In the same
period, capital expenditure on Rental Equipment was USD 22 million and included replacement of Rental Equipment
in addition to new investments, of which USD 3 million was attributable to Deep Sea Mooring.
In the year ended 31 December 2012, capital expenditures on Drilling Units included USD 109 million paid in
instalments for Deepsea Aberdeen. The Group‘s other capital expenditures related to Drilling Units in 2012 were
related to upgrades and modifications on existing Drilling Units. Capital expenditures related to Drilling Units in the
year ended 31 December 2011 were primarily related to modifications and upgrades of existing Drilling Units. In
the year ended 31 December 2010, capital expenditures on Drilling Units amounted to NOK 2,279 million, and were
related to the delivery of Deepsea Stavanger and the purchase of a new BOP for Deepsea Atlantic.
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Capital expenditures for well services equipment amounted to USD 68 million in the year ended 31 December
2012, USD 52 million in the year ended 31 December 2011 and NOK 212 million in the year ended 31 December
2010, of which USD 11 million, USD 13 million and NOK 37 million, respectively, were attributable to Deep Sea
Mooring. Capital expenditures in well services equipment included replacement of scrapped equipment, in addition
to new investments following the increased growth in the well services business. The Group estimates that
approximately USD 20 – 25 million in 2012 (or 10 – 12% of revenues of the Well Services segment) was related to
maintenance capital expenditures.
Other capital expenditure in the periods under review was mainly related to office equipment, software, machinery
and workshop facilities. For a discussion of investments in joint ventures, please see Section 11.2.6 ―Investments
in joint ventures and disposals‖.
There have been no other material investments since 30 June 2013.
11.8.5 Future investments
11.8.5.1 Future capital commitments
As of 30 June 2013, the Group had total committed capital expenditures of USD 637.1 million, composed of USD
626.3 million of new building commitments and USD 10.8 million of commitments in respect of rental, casing and
mooring commitments. For a discussion of capital commitments to joint ventures, please see Section 11.2.6
―Investments in joint ventures and disposals‖.
The USD 626.3 million of new building commitments relate to the contract the Group has signed with DSME to
build a new semi-submersible drilling unit Deepsea Aberdeen for use in the UK‘s West of Shetland region under a
contract with BP. This commitment will be financed by the USD 530 million loan facility with the remainder funded
from cash from the Group. For further discussion of this commitment, please see Section 8.5.1.3 ―Key contracts‖.
This is an ongoing investment and the Drilling Unit is scheduled for delivery in May 2014 and is scheduled to
commence operations for BP during the fourth quarter of 2014. The commitments related to the new building
programme are summarised in the table below and are not deducted with the mobilisation fee of USD 35 million to
be paid by BP:
In USD million
As of
30 June
2013
Due in year 1 .................................................................................................................................................... 596.3
Due in year 2 .................................................................................................................................................... 30.1
Due in year 3 .................................................................................................................................................... -
Value of new building commitments ............................................................................................................... 626.3
Capital expenditure other than new buildings contracted for at the end of the reporting period but not yet incurred
is as follows:
In USD million
As of
30 June
2013
Rental, casing and mooring equipment, due in year 1 ............................................................................................. 10.8
11.8.5.2 Future operating lease commitments - Group company as lessee
The Group leases various offices under non-cancellable operating lease arrangements. The lease terms are
between one and 10 years, and the majority of the lease arrangements are renewable at the end of the lease
period at market rates. The lease agreements for the Group‘s offices in Bergen and Stavanger, which are the
largest offices of the Group in terms of space and number of employees, consist of:
• Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related
parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices and a workshop at
Hammaren 29 in Tananger, Norway. The annual lease is NOK 1.0 million (exclusive of VAT). The lease
Odfjell Drilling Ltd - Prospectus
128
agreement replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS and
is on the same terms and conditions as that agreement.
• Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related
parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices at Hammaren 21 in
Tananger, Norway. The annual lease is NOK 5.3 million (exclusive of VAT). The lease agreement
replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS and is on the
same terms and conditions as that agreement.
• Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related
parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices, a workshop and a
building site at Hammaren 19 in Tananger, Norway. The annual lease is NOK 4.6 million (exclusive of
VAT). The lease agreement replaced a former lease agreement between Kokstad Invest AS and
Odfjell Drilling AS and is on the same terms and conditions as that agreement.
• Lease agreement between Kokstad Invest AS and Odfjell Drilling AS dated 15 November 2012
regarding lease of offices at Sandslimarka 61/63 in Bergen, Norway. The annual lease is NOK
10,354,002 (exclusive of VAT). The lease agreement replaced a former lease agreement between
Kokstad Invest AS and Odfjell Drilling AS.
• Lease agreement between Sandslimarka 185 AS and Odfjell Drilling AS regarding lease of offices at
Sandslimarka 185 in Bergen, Norway. The annual lease is NOK 6.1 million (exclusive of VAT).
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
In USD million
As of
31 December
2012
No later than 1 year ........................................................................................................................................... 4.5
Later than 1 year and no later than 5 years ........................................................................................................... 12.6
Later than 5 years .............................................................................................................................................. 4.7
Netto resultat for året ................................................................................................................... 653,1 305,3
Konsolidert balanse
Totale anleggsmidler .................................................................................................................... 12 653,5 12 144,4
Totale omløpsmidler ..................................................................................................................... 3 736,0 3 159,1
Totale eiendeler ........................................................................................................................... 16 389,5 15 303,4
Total egenkapital ......................................................................................................................... 6 416,7 5 944,7
Total langsiktig gjeld .................................................................................................................... 8 866,3 8 033,8
Total kortsiktig gjeld ..................................................................................................................... 1 106,6 1 325,0
Total gjeld ................................................................................................................................... 9 972,9 9 358,7
Total egenkapital og gjeld ............................................................................................................. 16 389,5 15 303,4
Konsolidert kontantstrømoppstilling
Netto kontanter generert fra operasjonelle aktiviteter ....................................................................... 698,7 134,6
Netto kontanter brukt til investeringsaktiviteter ............................................................................... (957,5) (3 025,4)
Netto kontanter brukt til finansielle aktiviteter ................................................................................. 475,9 1 567,0
Netto endring i kontanter og kontantekvivalenter ............................................................................. 217,1 (1 323,8)
Kontanter og kontantekvivalenter per 31.12 .................................................................................... 1 822,4 1 605,3
Odfjell Drilling Ltd - Prospectus
190
B.8 Utvalgt pro forma
finansiell
nøkkelinformasjon
Ikke aktuelt. Det finnes ingen pro forma finansiell informasjon.
B.9 Resultatprognose eller
estimat
Ikke aktuelt. Det er ikke utarbeidet noen resultatprognose eller estimat.
B.10 Forbehold i
revisjonsrapporten
Ikke aktuelt. Det er ingen forbehold i revisjonsrapportene.
B.11 Utilstrekkelig
arbeidskapital
Ikke aktuelt. Selskapet er av den oppfatning at arbeidskapitalen som er
tilgjengelig for Konsernet er tilstrekkelig for Konsernets nåværende
behov, for en periode som dekker minst 12 måneder fra datoen for dette
Prospektet.
Punkt C - Verdipapirene
C.1 Type og klasse verdipapir
tatt opp til notering og
identifikasjonsnummer
Selskapet har én aksjeklasse utstedt, og samtlige aksjer i denne klassen
har like rettigheter som alle andre aksjer i samme klasse i henhold
Selskapets Vedtekter (‖Bye-Laws‖). Aksjene har blitt utstedt i henhold til
Bermuda Companies Act og er registrert i VPS under ISIN
BMG671801022.
C.2 Valuta på utstedelse Aksjene er utstedt i USD, men vil bli notert og handlet i NOK på Oslo
Børs.
C.3 Antall aksjer utstedt og
pålydende verdi
Per datoen for dette Prospektet er Selskapets autoriserte aksjekapital
USD 2 300 000 bestående av 230 000 000 aksjer, hver pålydende USD
0,01, hvorav 200 000 000 Aksjer er utstedt.
C.4 Rettigheter knyttet til
verdipapirene
I henhold til Vedtektene har eierne av Aksjene ingen forkjøpsrett,
innløsningsrett, konverteringsrett eller såkalte ‖sinking fund‖ rettigheter.
Eierne av Aksjene er berettiget til å stemme en gang per Aksje i alle
saker som skal forelegges aksjeeierne for avstemning.
I henhold til Bermuda rett har et selskap ikke adgang til å fastsette eller
utbetale utbytte dersom det er rimelig grunn til å tro at: (i) selskapet er,
eller etter utbetalingen av utbyttet vil være, ute av stand til å gjøre opp
sine forpliktelser etter hvert som de forfaller; eller (ii) den realiserbare
verdien av selskapets eiendeler deretter ville blitt mindre enn dets
forpliktelser. I henhold til Selskapets Vedtekter har hver Aksje rett til
utbytte på det tidspunkt utbytte fastsettes av Styret, likevel slik at
eventuell fortrinnsrett til utbytte til eiere av preferanseaksjer går foran.
C.5 Begrensninger i
verdipapirenes
omsettelighet
I henhold til Selskapets Vedtekter kan styret nekte å registrere
overføring av enhver interesse i enhver Aksje i aksjeeierboken, eller
nekte å instruere enhver registerfører oppnevnt av Selskapet til å
registrere en overføring, der en slik overføring vil resultere i at 50 %
eller flere av Aksjene eller stemmene i Selskapet, innehas, kontrolleres
eller eies direkte eller indirekte av fysiske eller rettslige personer, som
skatterettslig anses bosatt i Norge eller tilknyttet norsk
næringsvirksomhet, for å unngå at Selskapet blir ansett å være et
―kontrollert utenlandske foretak‖ slik dette begrepet er definert i norske
skatteregler.
Med forbehold om ovennevnte, men uavhengig av avvikende
bestemmelser i Vedtektene, kan aksjer som er notert eller tatt opp til
handel på en angitt børs overføres i henhold til reglene og forskriftene til
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191
en slik børs. Alle overdragelser av usertifiserte aksjer må gjøres i
henhold til, og være underlagt, adgangen og kravene til overdragelse av
eierskap til aksjer i den klassen i henhold til VPS eller ethvert annet
relevant system og i henhold til enhver ordning satt opp av Styret i
henhold til Vedtektene. Styret skal nekte en overdragelse med mindre
registreringen av slik overdragelse oppfyller alle gjeldende krav til
samtykker, autorisasjoner og tillatelser fra enhver myndighet eller
ethvert organ på Bermuda. Styret kan også nekte å anerkjenne en
overdragelsesmetode av en aksje med mindre det relevante
aksjebeviset (hvis utstedt) samt slikt annet bevis for overdragers rett til
å gjennomføre overdragelsen som Styret med rimelighet kan kreve er
vedlagt.
Vennligst også se punkt 19 ‖Selling and transfer restrictions‖.
C.6 Opptak til notering Den 12. september 2013 søkte Selskapet om notering av Aksjene på
Oslo Børs. Det er forventet at styret i Oslo Børs godkjenner
noteringssøknaden til Selskapet den 25. september 2013, betinget av at
enkelte vilkår oppfylles. Se punkt 18.12 ―Conditions for completion of
the Offering – Listing and trading of the Offer Shares‖.
På nåværende tidspunkt forventer Selskapet oppstart av handel i
Aksjene på Oslo Børs på ‖hvis solgt‖ basis, på eller rundt 30. september
2013 og på vanlig basis på eller rundt 3. oktober 2013. Selskapet har
ikke søkt om notering av Aksjene på noen annen børs eller regulert
market.
C.7 Utbyttepolitikk Selskapet tar sikte på å sikre at aksjeeiernes avkastning reflekterer
Selskapets verdiskapning, og at denne vil bestå av både utbytte og en
positiv utvikling i aksjekursen. Selskapet sikter mot en langsiktig årlig
utbytteutbetaling som representerer omtrent 30 – 40 % av dets
konsoliderte nettoresultat. Ettersom Selskapet er i en fase som
involverer betydelige investeringer, er det ikke planlagt utbytte for
regnskapsåret som avsluttes 31. desember 2013. Selskapet har høy
fokus på verdiskapning og vil ha en utbyttepolitikk som ivaretar
interessene til Selskapet og dets aksjeeiere.
Ved beslutningen om det skal vedtas og utbetales et årlig utbytte, vil
Styret ta i betraktning markedsutsiktene, ordrereserve (backlog),
kontantstrøm, investeringsplaner og finansieringsbehov samtidig som
tilstrekkelig finansiell fleksibilitet skal opprettholdes. Styret kan revidere
utbyttepolitikken over tid. Forslag om i ethvert år å betale utbytte er
underlagt: (i) de begrensninger som følger av vilkårene i enkelte av
Konsernets lån, og (ii) at det er tilstrekkelig fri egenkapital.
Punkt D - Risiko
D.1 Vesentlige risiki knyttet til
Selskapet eller dets
bransje
Risiko knyttet til bransjen som Konsernet opererer i
(i) Konsernets virksomhet beror på aktivitetsnivået innenfor olje- og
gassleting samt identifikasjon og utvikling av olje- og
gassreservoarer og produksjon i offshoreområder i hele verden,
særlig i krevende og ultradype farvann. Særlig påvirker olje- og
gasspriser, og markedets forventinger til potensielle endringer i
disse prisene, aktivitetsnivået til olje- og gasselskapenes lete- og
produksjonsdrift i vesentlig grad. Som følge av de betydelige
investeringer som gjøres i leting og, ofte i produksjonen som
utføres av Konsernets kunder på eller før tidspunktet de
Odfjell Drilling Ltd - Prospectus
192
kontraherer tjenester som ytes av MODU segmentet og
forretningsområdet Platform Drilling, er disse virksomhetene
typisk påvirket av langsiktige E&P spending beslutninger basert
på langsiktige pristrender, mens forretningsområdet Technology
og Well Services segmentet er mer utsatt for beslutninger knyttet
til E&P spending som kundene tar som følge av kortsiktig
fluktuasjon i olje- og gassprisene. Enhver nedgang i
etterspørselen etter noen av tjenestene til Konsernets segmenter
kan ha en betydelig negativ innvirkning på Konsernets
virksomhet, driftsresultater, kontantstrøm og finansielle stilling.
(ii) Usikkerhet knyttet til globale økonomiske forhold og utvikling kan
redusere etterspørselen etter Konsernets Boreenheter og
tjenester, eller resultere i forsinkelser eller kanselleringer av
kontrakter. Enhver nedgang i etterspørselen forårsaket av slik
usikkerhet kan ha en betydelig negativ innvirkning på Konsernets
driftsresultater, kontantstrøm og finansielle stilling.
(iii) Overproduksjon av boreenheter eller utleieutstyr kan føre til en
reduksjon av dagratene for MODU segmentet og prisene for Well
Services segmentet. Perioder med overskudd av tilgang på
boreenheter intensiverer konkurransen i bransjen, og kan
resultere i at boreenheter er inaktive i lange perioder av gangen.
Overskudd på tilgang av boreenheter kan være forårsaket av at
det tas i bruk nye og oppgraderte enheter eller av at
konkurrenter flytter boreenheter til de regionene hvor Konsernets
Boreenheter opererer. For stor tilgang på utstyret Konsernet leier
ut til klienter (Utleieutstyr), som tilbys av Well Services
segmentet, kan føre til at dette segmentet opplever reduserte
priser og / eller kundebestillinger for sitt Utleieutstyr. Enhver av
disse hendelsene kan få vesentlig betydning for Konsernets
driftsresultater.
(iv) Olje- og gasservicebransjen Konsernet opererer i er svært
konkurranseutsatt og fragmentert, og omfatter både små og
store aktører som konkurrerer med Konsernet. Konsernets
virksomhet kan bli vesentlig negativt påvirket dersom dagens
konkurrenter eller nye deltakere i markedet introdusere nye
produkter eller tjenester med egenskaper som ligner på, eller er
bedre enn, Konsernets produkter og tjenester, eller utvider sin
virksomhet til tjenesteområder Konsernet opererer innenfor.
Konkurransepress eller andre faktorer som resulterer i betydelig
priskonkurranse kan, særlig i industrielle nedgangstider, ha en
betydelig negativ innvirkning på Konsernets virksomhet,
driftsresultater, kontantstrøm og finansielle tilstand.
(v) Konsernets virksomhet er underlagt en rekke operasjonelle farer
som også kan utsette Konsernet for eiendoms-, miljømessige- og
andre skadeserstatningskrav fra tredjeparter dersom de
materialiserer seg. Konsernets forsikringer og kontraktsmessige
rett til erstatning vil ikke nødvendigvis dekke tap i tilstrekkelig
grad, og Konsernet har ikke forsikringsdekning eller
skadesløsholdelser for enhver risiko. Inntrer en betydelig ulykke
eller annen alvorlig hendelse som ikke er fullt ut dekket av
Konsernets forsikring eller skadesløsholdelser fra en kunde som
kan håndheves eller inndrives, kan dette medføre betydelige tap
Odfjell Drilling Ltd - Prospectus
193
for Konsernet.
(vi) Konsernets segmenter opererer i ulike jurisdiksjoner, hvilket
utsetter Konsernet for den risiko som ligger i internasjonale
virksomheter og som kan være utenfor Konsernets kontroll, slik
som krig, naturkatastrofer, politisk uro, offentlige helsetrusler og
inkonsekvent bruk av utenlandske lover og forskrifter. Noen av
disse risikofaktorene kan forstyrre Konsernets drift og dermed ha
en betydelig negativ innvirkning på Konsernets virksomhet,
driftsresultater, kontantstrøm og finansielle stilling. Videre
opererer Konsernet i mange utviklingsland, hvilket medfører
risiko forbundet med svindel, bestikkelser, korrupsjon og
internasjonale sanksjonsregimer. Unnlatelse av å overholde slike
lover kan resultere i vesentlige bøter og straffer og kan skade
Konsernets omdømme.
Risiko knyttet til Konsernet
(i) Konsernets ordrereserve (backlog) vil kanskje ikke kunne
realiseres på grunn av en rekke årsaker, herunder kundenes
handlinger eller Konsernets manglende evne til å oppfylle sine
forpliktelser i henhold til sine kontrakter. Konsernets
ordrereserve (backlog) representerer den kontraktsfestede
fremtidige inntekten under kontrakter for Boreenhetene og
tjenester som tilbys av MODU-segmentet og forretningsområdet
third generation rigs ........................... Rigs built from 1982 to 1986, designed to operate in water depths up to 2,500
feet.
UK ................................................... The United Kingdom.
UKCS ............................................... UK Continental Shelf.
ultra-deepwater ................................. Water depths of 7,500 feet or more.
U.S. or United States .......................... The United States of America.
U.S. Exchange Act ............................. The U.S. Securities Exchange Act of 1934, as amended.
U.S. Securities Act ............................. The U.S. Securities Act of 1933, as amended.
USD ................................................. United States Dollars, the lawful currency in the United States.
VPS .................................................. The Norwegian Central Securities Depository (Nw Verdipapirsentralen).
VPS account ...................................... An account with VPS for the registration of holdings of securities.
Odfjell Drilling Ltd - Prospectus
202
working capital .................................. Non-interest bearing current assets plus non-interest bearing current liabilities.
Appendix A
Bye-Laws of Odfjell Drilling Ltd
A1
BYE-LAWS OF
ODFJELL DRILLING LTD
A2
TABLE OF CONTENTS
1. DEFINITIONS
2. POWER TO ISSUE SHARES
3. POWER OF THE COMPANY TO PURCHASE ITS SHARES
4. RIGHTS ATTACHING TO SHARES
5. CALLS ON SHARES
6. FORFEITURE OF SHARES
7. DEPOSITARY INTEREST
8. SHARE CERTIFICATES
9. FRACTIONAL SHARES
10. REGISTER OF MEMBERS
11. REGISTERED HOLDER ABSOLUTE OWNER
12. TRANSFER OF REGISTERED SHARES
13. TRANSMISSION OF REGISTERED SHARES
14. COMPULSORY PURCHASE OF SHARES
15. POWER TO ALTER CAPITAL
16. VARIATION OF RIGHTS ATTACHING TO SHARES
17. DIVIDENDS
18. POWER TO SET ASIDE PROFITS
19. METHOD OF PAYMENT
20. CAPITALISATION
21. ANNUAL GENERAL MEETINGS
22. SPECIAL GENERAL MEETINGS
23. REQUISITIONED GENERAL MEETINGS
24. NOTICE
25. GIVING NOTICE AND ACCESS
26. POSTPONEMENT OR CANCELLATION OF GENERAL MEETING
27. ELECTRONIC PARTICIPATION AND SECURITY IN MEETINGS
28. QUORUM AT GENERAL MEETINGS
29. CHAIRMAN TO PRESIDE AT GENERAL MEETINGS
30. VOTING ON RESOLUTIONS
31. POWER TO DEMAND A VOTE ON A POLL
32. VOTING BY JOINT HOLDERS OF SHARES
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Odfjell Drilling Ltd Page 1 33. INSTRUMENT OF PROXY
34. REPRESENTATION OF CORPORATE MEMBER
35. ADJOURNMENT OF GENERAL MEETING
36. WRITTEN RESOLUTIONS
37. DIRECTORS’ AND THE AUDITOR’S ATTENDANCE AT GENERAL MEETINGS
38. MOTION FOR INQUIRY
39. ELECTION OF DIRECTORS
40. NUMBER OF DIRECTORS
41. TERM OF OFFICE OF DIRECTORS
42. ALTERNATE DIRECTORS
43. REMOVAL OF DIRECTORS
44. VACANCY IN THE OFFICE OF DIRECTOR
45. REMUNERATION OF DIRECTORS
46. DEFECT IN APPOINTMENT
47. DIRECTORS TO MANAGE BUSINESS
48. POWERS OF THE BOARD OF DIRECTORS
49. REGISTER OF DIRECTORS AND OFFICERS
50. APPOINTMENT OF OFFICERS
51. APPOINTMENT OF SECRETARY
52. DUTIES OF OFFICERS
53. REMUNERATION OF OFFICERS
54. CONFLICTS OF INTEREST
55. RELATED PARTY TRANSACTIONS
56. INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS
57. BOARD MEETINGS
58. NOTICE OF BOARD MEETINGS
59. ELECTRONIC PARTICIPATION IN MEETINGS
60. QUORUM AT BOARD MEETINGS
61. BOARD TO CONTINUE IN THE EVENT OF VACANCY
62. CHAIRMAN TO PRESIDE
63. WRITTEN RESOLUTIONS
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Odfjell Drilling Ltd Page 2 64. VALIDITY OF PRIOR ACTS OF THE BOARD
65. MINUTES
66. PLACE WHERE CORPORATE RECORDS KEPT
67. FORM AND USE OF SEAL
68. RECORDS OF ACCOUNT
69. FINANCIAL YEAR END
70. ANNUAL AUDIT
71. APPOINTMENT OF AUDITOR
72. REMUNERATION OF AUDITOR
73. DUTIES OF AUDITOR
74. ACCESS TO RECORDS
75. FINANCIAL STATEMENTS
76. DISTRIBUTION OF AUDITOR’S REPORT
77. VACANCY IN THE OFFICE OF AUDITOR
78. WINDING-UP
79. CHANGES TO BYE-LAWS
80. CHANGES TO THE MEMORANDUM OF ASSOCIATION
81. DISCONTINUANCE
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Odfjell Drilling Ltd Page 3
INTERPRETATION
1. Definitions
1.1 In these Bye-laws, the following words and expressions shall, where not inconsistent with the context, have the following meanings, respectively:
Act the Companies Act 1981 as amended from time to time;
Alternate Director an alternate director appointed in accordance with these Bye-laws;
Auditor includes an individual or partnership;
Board the board of directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the directors present at a meeting of directors at which there is a quorum;
Chairman the Director of the Company appointed by the Board in accordance with these Bye-laws to perform any or all of the duties of the chairman of the Company;
Company the company for which these Bye-laws are approved and confirmed;
Director a director of the Company and shall include an Alternate Director;
Member the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means the person whose name stands first in the Register of Members as one of such joint holders or all of such persons, as the context so requires;
notice written notice as further provided in these Bye-laws unless otherwise specifically stated;
Officer any person appointed by the Board to hold an office in the Company;
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Odfjell Drilling Ltd Page 4
Register of Directors and Officers the register of directors and officers referred to in these Bye-laws;
Register of Members the register of members referred to in these Bye-laws;
Resident Representative any person appointed to act as resident representative and includes any deputy or assistant resident representative;
Secretary the person appointed to perform any or all of the duties of secretary of the Company and includes any deputy or assistant secretary and any person appointed by the Board to perform any of the duties of the Secretary; and
Treasury Share a share of the Company that was or is treated as having been acquired and held by the Company and has been held continuously by the Company since it was so acquired and has not been cancelled.
1.2 In these Bye-laws, where not inconsistent with the context:
(a) words denoting the plural number include the singular number and vice versa;
(b) words denoting the masculine gender include the feminine and neuter genders;
(c) words importing persons include companies, associations or bodies of persons whether corporate or not;
(d) the words:
(i) “may” shall be construed as permissive; and
(ii) “shall” shall be construed as imperative; and
(e) unless otherwise provided herein, words or expressions defined in the Act shall bear the same meaning in these Bye-laws.
1.3 In these Bye-laws expressions referring to writing or its cognates shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in visible form.
1.4 Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof.
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Odfjell Drilling Ltd Page 5
SHARES 2. Power to Issue Shares
2.1 Subject to these Bye-laws, and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the Board shall, subject to prior approval given by resolution of the Members, have the power to issue any unissued shares on such terms and conditions as it may determine and any shares or class of shares may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital, or otherwise as the Company may by resolution of the Members prescribe.
2.2 Subject to the Act, any preference shares may be issued or converted into shares that (at a determinable date or at the option of the Company or the holder) are liable to be redeemed on such terms and in such manner as may be determined by the Board (before the issue or conversion).
3. Power of the Company to Purchase its Shares
3.1 The Company may purchase its own shares for cancellation or acquire them as Treasury Shares in accordance with the Act on such terms as the Board shall think fit.
3.2 The Board may exercise all the powers of the Company to purchase or acquire all or any
part of its own shares in accordance with the Act. 4. Rights Attaching to Shares
4.1 Subject to any resolution of the Members to the contrary (and without prejudice to any special rights conferred thereby on the holders of any other shares or class of shares), the share capital shall be divided into shares of a single class the holders of which shall, subject to these Bye-laws:
(a) be entitled to one vote per share;
(b) be entitled to such dividends as the Board may from time to time declare;
(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and
(d) generally be entitled to enjoy all of the rights attaching to shares.
4.2 All the rights attaching to a Treasury Share shall be suspended and shall not be exercised by the Company while it holds such Treasury Share and, except where required by the Act and any other applicable laws and regulations, all Treasury Shares
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shall be excluded from the calculation of any percentage or fraction of the share capital, or shares, of the Company.
5. Calls on Shares
5.1 The Board may make such calls as it thinks fit upon the Members in respect of any moneys (whether in respect of nominal value or premium) unpaid on the shares allotted to or held by such Members (and not made payable at fixed times by the terms and conditions of issue) and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.
5.2 Any amount which by the terms of allotment of a share becomes payable upon issue or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all the purposes of these Bye-laws be deemed to be an amount on which a call has been duly made and payable on the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of these Bye-laws as to payment of interest, costs and expenses, forfeiture or otherwise shall apply as if such amount had become payable by virtue of a duly made and notified call.
5.3 The joint holders of a share shall be jointly and severally liable to pay all calls and any interest, costs and expenses in respect thereof.
5.4 The Company may accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up or become payable.
6. Forfeiture of Shares
6.1 If any Member fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Member, the Board may, at any time thereafter during such time as the call remains unpaid, direct the Secretary to forward such Member a notice in writing in the form, or as near thereto as circumstances admit, of the following:
Notice of Liability to Forfeiture for Non-Payment of Call [ ] (the "Company")
You have failed to pay the call of [amount of call] made on the [ ] day of [ ], 20[ ], in respect of the [number] share(s) [number in figures] standing in your name in the Register of Members of the Company, on the [ ] day of [
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Odfjell Drilling Ltd Page 7
], 20[ ], the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of [ ] per annum computed from the said [ ] day of [ ], 20[ ] at the registered office of the Company the share(s) will be liable to be forfeited.
Dated this [ ] day of [ ], 20 [ ]
[Signature of Secretary] By Order of the Board
6.2 If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine. Without limiting the generality of the foregoing, the disposal may take place by sale, repurchase, redemption or any other method of disposal permitted by and consistent with these Bye-laws and the Act.
6.3 A Member whose share or shares have been so forfeited shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture, together with all interest due thereon and any costs and expenses incurred by the Company in connection therewith.
6.4 The Board may accept the surrender of any shares which it is in a position to forfeit on such terms and conditions as may be agreed. Subject to those terms and conditions, a surrendered share shall be treated as if it had been forfeited.
7. Depositary Interest
The Directors shall, subject to the Act, any other applicable laws and regulations, the facilities and requirements of the system maintained by Verdipapirsentralen ASA or any relevant system concerned and these Bye-laws, have the power to implement and/or approve any arrangements they may, in their absolute discretion, deem fit in relation to (without limitation) the evidencing of title to and the transfer of depository or similar interests in shares in the capital of the Company in the form of depositary interests or similar interests, instruments or securities. The Directors may from time to time take such actions and do such things as they may, in their absolute discretion, think fit in relation to the operation of any such arrangements including, without limitation, treating holders of any depository or similar interests relating to shares as if they were the holders directly thereof for the purposes of compliance with any obligations imposed under these Bye-laws on Members.
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Odfjell Drilling Ltd Page 8 8. Share Certificates
8.1 No share certificates shall be issued by the Company unless, in respect of a class of shares, the Board has either for all or for some holders of such shares (who may be determined in such manner as the Board thinks fit) determined that the holder of such shares may be entitled to share certificates. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all.
8.2 Subject to being entitled to a share certificate under the provisions of Bye-law 8.1, the Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the person to whom the shares have been allotted.
8.3 If any share certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid, or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.
8.4 Notwithstanding any provisions of these Bye-laws:
(a) the Board shall, subject always to the Act and any other applicable laws and regulations and the facilities and requirements of the relevant system concerned, have power to implement any arrangements it may, in its absolute discretion, think fit in relation to the evidencing of title to and transfer of uncertificated shares by means of the system maintained by Verdipapirsentralen ASA or any other relevant system, and to the extent such arrangements are so implemented, no provision of these Bye-laws shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of shares in uncertificated form; and
(b) unless otherwise determined by the Board and as permitted by the Act and any other applicable laws and regulations, no person shall be entitled to receive a certificate in respect of any share for so long as the title to that share is evidenced otherwise than by a certificate and for so long as transfers of that share may be made otherwise than by a written instrument.
9. Fractional Shares
The Company may issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding-up.
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Odfjell Drilling Ltd Page 9
REGISTRATION OF SHARES
10. Register of Members
10.1 The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Act. Subject to the provisions of the Act, the Company may keep one or more branch registers in any place in or outside of Bermuda, and the Board may make, amend and revoke any such regulations as it may think fit respecting the keeping of such branch registers. The Board may authorise any share on the Register of Members to be included in a branch register or any share registered on a branch register to be registered on another branch register, provided that at all times the Register of Members is maintained in accordance with the Act.
10.2 The Register of Members shall be open to inspection without charge at the registered office of the Company on every business day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each business day be allowed for inspection. The Register of Members may, after notice has been given in accordance with the Act, be closed for any time or times not exceeding in the whole thirty days in each year.
11. Registered Holder Absolute Owner
The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable claim or other claim to, or interest in, such share on the part of any other person.
12. Transfer of Registered Shares
12.1 Subject to the Act and to such of the restrictions contained in these Bye-Laws as may be applicable, any Member may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other form which the Board may approve. No such instrument shall be required on the redemption of a share or on the purchase by the Company of a share. All transfers of uncertificated shares shall be made in accordance with and be subject to the facilities and requirements of the transfer of title to shares in that class by means of the system maintained by Verdipapirsentralen ASA or any other relevant system concerned and, subject thereto, in accordance with any arrangements made by the Board pursuant to Bye-Law 8.
12.2 The instrument of transfer of a share shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been registered as having been transferred to the transferee in the Register of Members.
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12.3 The Board may refuse to recognise any instrument of transfer unless it is accompanied by the certificate in respect of the shares (if one has been issued) to which it relates and by such other evidence as the Board may reasonably require to prove the right of the transferor to make the transfer.
12.4 The joint holders of any share may transfer such share to one or more of such joint holders, and the surviving holder or holders of any share previously held by them jointly with a deceased Member may transfer any such share to the executors or administrators of such deceased Member.
12.5 The Board may decline to register a transfer of any share in the Register of Members, or if required, refuse to direct any registrar appointed by the Company the transfer of any interest in a share where such transfer would result in 50% or more of the issued and outstanding shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or, alternatively, such shares or votes being effectively connected to a Norwegian business activity, in order to avoid the Company being deemed a “Controlled Foreign Company” pursuant to Norwegian tax rules.
12.6 The Board shall refuse to register a transfer unless all applicable consents, authorisations and permissions of any governmental body or agency in Bermuda have been obtained. If the Board refuses to register a transfer of any share the Secretary shall, within three months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.
12.7 Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act.
12.8 Subject to Bye-law 12.5, but notwithstanding anything else contrary in these Bye-laws, shares that are listed or admitted to trading on an appointed stock exchange may be transferred in accordance with the rules and regulations of such exchange.
13. Transmission of Registered Shares
13.1 In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only persons recognised by the Company as having any title to the deceased Member's interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other persons. Subject to the Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a deceased Member or such other person as the Board may, in its absolute discretion, decide as being properly authorised to deal with the shares of a deceased Member.
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13.2 Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favour of such nominee an instrument of transfer in writing in the form, or as near thereto as circumstances admit, of the following:
Transfer by a Person Becoming Entitled on Death/Bankruptcy of a Member [ ] (the "Company")
I/We, having become entitled in consequence of the [death/bankruptcy] of [name and address of deceased/bankrupt Member] to [number] share(s) standing in the Register of Members of the Company in the name of the said [name of deceased/bankrupt Member] instead of being registered myself/ourselves, elect to have [name of transferee] (the "Transferee") registered as a transferee of such share(s) and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee, his or her executors, administrators and assigns, subject to the conditions on which the same were held at the time of the execution hereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions.
DATED this [ ] day of [ ], 20 [ ]
Signed by: In the presence of:
Transferor Witness
Transferee Witness
13.3 On the presentation of the foregoing materials to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member. Notwithstanding the foregoing, the Board shall, in any case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Member before such Member's death or bankruptcy, as the case may be.
13.4 Where two or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be absolutely entitled to such share or shares and the Company shall
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recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.
14. Compulsory Purchase of Shares
14.1 If a Member holds more than nine tenths of the shares in the Company and an equivalent of the votes which may be cast at a general meeting of the Company (a “Majority Shareholder”), each of the other Members (each a “Selling Shareholder”) may require that the Majority Shareholder purchases all of its, his or her respective shares in the Company by written notice to the Company and the Majority Shareholder.
14.2 In the absence of an amicable agreement on the price payable by the Majority Shareholder for the relevant shares pursuant to a notice under Bye-law 14.1, the price shall be fixed at fair market value by a reputable and independent financial institution, auditor or accountancy firm (the “Appraiser”). In the event the parties are unable to agree on the identity of the Appraiser, the price shall be fixed at fair market value by arbitration conducted under the Bermuda International Conciliation and Arbitration Act 1993. The parties agree that there shall be a single arbitrator who shall be an accountant or specialist in the field of valuation (the “Arbitrator”). In the absence of an amicable agreement on the selection of the Arbitrator, the Supreme Court of Bermuda shall select the Arbitrator. The price fixed pursuant to this Bye-law 14.2 shall be binding for all purchase requests by the Members of the Company pursuant to Bye-law 14.1 for a period of three months from the date the price is fixed.
ALTERATION OF SHARE CAPITAL 15. Power to Alter Capital
15.1 The Company may if authorised by resolution of the Members increase, divide, consolidate, subdivide, change the currency denomination of, diminish or otherwise alter or reduce its share capital in any manner permitted by the Act.
15.2 Where, on any alteration or reduction of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit.
16. Variation of Rights Attaching to Shares
If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class at which meeting the necessary quorum shall be two persons at least holding or
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representing by proxy one-third of the issued shares of the class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
DIVIDENDS AND CAPITALISATION
17. Dividends
17.1 The Board may, subject to these Bye-laws and in accordance with the Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets. No unpaid dividend shall bear interest as against the Company.
17.2 The Board may fix any date as the record date for determining the Members entitled to receive any dividend.
17.3 The Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others.
17.4 The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company. No unpaid distribution shall bear interest as against the Company.
18. Power to Set Aside Profits
The Board may, before declaring a dividend, set aside out of the surplus or profits of the Company, such amount as it thinks proper as a reserve to be used to meet contingencies or for equalising dividends or for any other purpose.
19. Method of Payment
19.1 Any dividend, interest, or other moneys payable in cash in respect of the shares may be paid through the system maintained by Verdipapirsentralen ASA or any other relevant system, or by cheque or draft sent through the post directed to the Member at such Member's address in the Register of Members, or to such person and to such address as the holder may in writing direct.
19.2 In the case of joint holders of shares, any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the address of the holder first named in the Register of Members, or to such person and to such address as the joint holders may in writing direct. If two or more persons are registered as joint holders of any shares any one of them can give an effectual receipt for any dividend paid in respect of such shares.
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19.3 The Board may deduct from the dividends or distributions payable to any Member all moneys due from such Member to the Company on account of calls or otherwise.
19.4 Any dividend and or other moneys payable in respect of a share which has remained unclaimed for 7 years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company. The payment of any unclaimed dividend or other moneys payable in respect of a share may (but need not) be paid by the Company into an account separate from the Company's own account. Such payment shall not constitute the Company a trustee in respect thereof.
19.5 The Company shall be entitled to cease sending dividend cheques and warrants by post or otherwise to a Member if those instruments have been returned undelivered to, or left uncashed by, that Member on at least two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish the Member's new address. The entitlement conferred on the Company by this Bye-law 19.5 in respect of any Member shall cease if the Member claims a dividend or cashes a dividend cheque or warrant.
20. Capitalisation
20.1 The Board may capitalise any amount for the time being standing to the credit of any of the Company's share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such amount in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Members (except in connection with the conversion of shares of one class to shares of another class).
20.2 The Board may capitalise any amount for the time being standing to the credit of a reserve account or amounts otherwise available for dividend or distribution by applying such amounts in paying up in full, partly or nil paid shares of those Members who would have been entitled to such amounts if they were distributed by way of dividend or distribution.
MEETINGS OF MEMBERS 21. Annual General Meetings
The annual general meeting of the Company shall be held in each year (other than the year of incorporation) at such time and place as the Chairman or any two Directors or any Director and the Secretary or the Board shall appoint.
22. Special General Meetings
The Chairman or any two Directors or any Director and the Secretary or the Board may convene a special general meeting whenever in their judgment such a meeting is necessary.
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Odfjell Drilling Ltd Page 15 23. Requisitioned General Meetings
The Board shall, on the requisition of Members holding at the date of the deposit of the requisition not less than one-twentieth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings, forthwith proceed to convene a special general meeting and the provisions of the Act shall apply.
24. Notice
24.1 At least 21 days' notice of an annual general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting.
24.2 At least 21 days' notice of a special general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting.
24.3 Subject to Bye-law 24.5, the Board may fix any date as the record date for determining the Members entitled to receive notice of and to vote at any general meeting.
24.4 A general meeting shall, notwithstanding that it is called on shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting.
24.5 The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.
24.6 Notwithstanding any other provisions of these Bye-laws, in relation to any general meeting, or any class meeting of the Members or any adjourned meeting or any poll taken at a meeting or adjourned meeting of which notice is given, the Board may specify in the notice of the meeting or adjourned meeting or in any document sent to the Members by or on behalf of the Board in relation to the meeting, a time and date (a “Record Date”) which is not more than five (5) days before the date fixed for the meeting (the “Meeting Date”) and notwithstanding any provision in these Bye-laws to the contrary, in such case:
(a) each person entered in the Register of Members at the Record Date as a Member, or a Member of the relevant class (a “Record Date Holder”) shall be entitled to attend and vote at the relevant meeting and to exercise all of the rights and
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privileges of a Member or a Member of the relevant class, as applicable, in relation to that meeting in respect of the shares, or the shares of the relevant class, registered in such Member’s name in the Register of Members (including, for the avoidance of doubt, a branch register) at the Record Date;
(b) as regards any shares, or shares of the relevant class, which are registered in the name of a Record Date Holder at the Record Date but are not so registered at the meeting date (the “Relevant Shares”), each holder of any Relevant Shares at the meeting date shall be deemed to have irrevocably appointed that Record Date Holder as his proxy for the purpose of attending and voting in respect of those Relevant Shares at the relevant meeting (with power to appoint, or to authorise the appointment of, some other person as proxy), in such manner as the Record Date Holder in his absolute discretion may determine;
(c) accordingly, except through his proxy pursuant to this Bye-law 24.6, a holder of Relevant Shares at the meeting date who is not a Record Date Holder, shall not be entitled to attend or to vote at the relevant meeting, or to exercise any of the rights or privileges of a Member or a Member of the relevant class, in respect of the Relevant Shares at that meeting; and
(d) the entry of the name of a person in the Register of Members as a Record Date Holder shall be sufficient evidence of his appointment as proxy in respect of any Relevant Shares for the purposes of this Bye-law 24.6, but all the provisions of these Bye-laws relating to execution and deposit of an instrument appointing a proxy or any ancillary matter (including the Board’s powers and discretions relevant to such matter) shall apply to any instrument appointing any person other than the Record Date Holder as proxy in respect of any Relevant Shares.
25. Giving Notice and Access
25.1 A notice may be given by the Company to a Member:
(a) by delivering it to such Member in person; or
(b) by sending it by letter mail or courier to such Member's address in the Register of Members; or
(c) by transmitting it by electronic means (including facsimile and electronic mail, but not telephone) in accordance with such directions as may be given by such Member to the Company for such purpose; or
(d) by delivering it in accordance with the provisions of the Act pertaining to delivery of electronic records by publication on a website.
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25.2 Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.
25.3 Any notice delivered in accordance with Bye-law 25.1(a), 25.1(b) or 25.1(c) shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted or sent by courier, and the time when it was posted, delivered to the courier, or transmitted by electronic means. Any notice delivered in accordance with Bye-law 25.1(d) shall be deemed to have been delivered at the time when the requirements of the Act in that regard have been met.
26. Postponement or Cancellation of General Meeting
The Secretary may, and on the instruction of the Chairman or the chairman of such meeting the Secretary shall, postpone or cancel any general meeting called in accordance with these Bye-laws (other than a meeting requisitioned under these Bye-laws) provided that notice of postponement or cancellation is given to each Member before the time for such meeting. Fresh notice of the date, time and place for the postponed or cancelled meeting shall be given to each Member in accordance with these Bye-laws.
27. Electronic Participation and Security in Meetings
25.1 Members may participate in any general meeting by such telephonic, electronic or other communication facilities or means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.
25.2 The Board may, and at any general meeting, the chairman of such meeting may, make any arrangement and impose any requirement or restriction it or he considers appropriate to ensure the security of a general meeting including, without limitation, requirements for evidence of identity to be produced by those attending the meeting, the searching of their personal property and the restriction of items that may be taken into the meeting place. The Board and, at any general meeting, the chairman of such meeting are entitled to refuse entry to a person who refuses to comply with any such arrangements, requirements or restrictions.
28. Quorum at General Meetings
28.1 At any general meeting two or more persons present in person and representing in person or by proxy in excess of one-third of the total issued voting shares in the Company throughout the meeting shall form a quorum for the transaction of business,
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provided that if the Company shall at any time have only one Member, one Member present in person or by proxy shall form a quorum for the transaction of business at any general meeting held during such time.
28.2 If within half an hour from the time appointed for the meeting a quorum is not present, then, in the case of a meeting convened on a requisition, the meeting shall be deemed cancelled and, in any other case, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine. Unless the meeting is adjourned to a specific date, time and place announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws.
29. Chairman to Preside at General Meetings
Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the Chairman shall act as chairman at all general meetings at which such person is present. If the Chairman is absent, a chairman shall be appointed or elected by those present at the meeting and entitled to vote.
30. Voting on Resolutions
30.1 Subject to the Act and these Bye-laws, any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with these Bye-laws and in the case of an equality of votes the resolution shall fail.
30.2 No Member shall be entitled to vote at a general meeting unless such Member has paid all the calls on all shares held by such Member.
30.3 At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to these Bye-laws, every Member present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his hand.
30.4 In the event that a Member participates in a general meeting by telephone, electronic or other communication facilities or means, the chairman of the meeting shall direct the manner in which such Member may cast his vote on a show of hands.
30.5 At any general meeting if an amendment is proposed to any resolution under consideration and the chairman of the meeting rules on whether or not the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling.
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30.6 At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to these Bye-laws, be conclusive evidence of that fact.
31. Power to Demand a Vote on a Poll
31.1 Notwithstanding the foregoing, a poll may be demanded by any of the following persons:
(a) the chairman of such meeting; or
(b) at least three Members present in person or represented by proxy; or
(c) any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all the Members having the right to vote at such meeting; or
(d) any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total amount paid up on all such shares conferring such right.
31.2 Where a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have one vote for each share of which such person is the holder or for which such person holds a proxy and such vote shall be counted by ballot as described herein, or in the case of a general meeting at which one or more Members are present by telephone, electronic or other communication facilities or means, in such manner as the chairman of the meeting may direct and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands. A person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
31.3 A poll demanded for the purpose of electing a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and in such manner during such meeting as the chairman (or acting chairman) of the meeting may direct. Any business other than that upon which a poll has been demanded may be conducted pending the taking of the poll.
31.4 Where a vote is taken by poll, each person physically present and entitled to vote shall be furnished with a ballot paper on which such person shall record his vote in such manner as shall be determined at the meeting having regard to the nature of the
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question on which the vote is taken, and each ballot paper shall be signed or initialled or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. Each person present by telephone, electronic or other communication facilities or means shall cast his vote in such manner as the chairman of the meeting shall direct. At the conclusion of the poll, the ballot papers and votes cast in accordance with such directions shall be examined and counted by a committee of not less than two Members or proxy holders appointed by the chairman of the meeting for the purpose and the result of the poll shall be declared by the chairman of the meeting.
32. Voting by Joint Holders of Shares
In the case of joint holders, the vote of the senior who tenders a vote (whether in person or by proxy) shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.
33. Instrument of Proxy
33.1 A Member may appoint a proxy by an instrument which shall be in writing in substantially the following form or such other form as the chairman of the meeting shall accept:
Proxy [ ] (the "Company")
I/We, [insert names here], being a Member of the Company with [number] shares, HEREBY APPOINT [name] of [address] or failing him, [name] of [address] to be my/our proxy to vote for me/us at the meeting of the Members to be held on the [ ] day of [ ], 20[ ] and at any adjournment thereof. (Any restrictions on voting to be inserted here.)
Signed this [ ] day of [ ], 20[ ]
Member(s)
33.2 The instrument appointing a proxy must be received by the Company at the registered office or at such other place or in such manner as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting at which the person named in the instrument appointing a proxy proposes to vote, and an instrument appointing a proxy which is not received in the manner so prescribed shall be invalid.
33.3 A Member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf in respect of different shares.
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33.4 The decision of the chairman of any general meeting as to the validity of any appointment of a proxy shall be final.
33.5 In addition to the right to be represented by a proxy, a Member may bring up to two advisers to any general meeting and may grant one such adviser the right to speak.
34. Representation of Corporate Member
34.1 A corporation which is a Member may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting and any person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Member, and that Member shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives.
34.2 Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Member.
35. Adjournment of General Meeting
35.1 The chairman of any general meeting at which a quorum is present may with the consent of Members holding a majority of the voting rights of those Members present in person or by proxy (and shall if so directed by Members holding a majority of the voting rights of those Members present in person or by proxy), adjourn the meeting.
35.2 In addition, the chairman of a general meeting may adjourn the meeting to another time and place without such consent or direction of the Members if it appears to him that:
(a) it is likely to be impractical to hold or continue that meeting because of the number of Members wishing to attend who are not present; or
(b) the unruly conduct of persons attending the meeting prevents, or is likely to prevent, the orderly continuation of the business of the meeting; or
(c) an adjournment is otherwise clearly necessary so that the business of the meeting may be properly conducted.
34.3 The chairman of a general meeting may, with the consent of the Members at any general meeting at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting. Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws.
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Odfjell Drilling Ltd Page 22 36. Written Resolutions
36.1 Subject to these Bye-laws, anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Members may, without a meeting be done by written resolution in accordance with this Bye-law.
36.2 Notice of a written resolution shall be given, and a copy of the resolution shall be circulated to all Members who would be entitled to attend a meeting and vote thereon. The accidental omission to give notice to, or the non-receipt of a notice by, any Member does not invalidate the passing of a resolution.
36.3 A written resolution is passed when it is signed by, or in the case of a Member that is a corporation, on behalf of, the Members who at the date that the notice is given represent such majority of votes as would be required if the resolution was voted on at a meeting of Members at which all Members entitled to attend and vote thereat were present and voting.
36.4 A resolution in writing may be signed in any number of counterparts.
36.5 A resolution in writing made in accordance with this Bye-law is as valid as if it had been passed by the Company in general meeting or by a meeting of the relevant class of Members, as the case may be, and any reference in any Bye-law to a meeting at which a resolution is passed or to Members voting in favour of a resolution shall be construed accordingly.
36.6 A resolution in writing made in accordance with this Bye-law shall constitute minutes for the purposes of the Act.
36.7 This Bye-law shall not apply to:
(a) a resolution passed to remove an Auditor from office before the expiration of his term of office; or
(b) a resolution passed for the purpose of removing a Director before the expiration of his term of office.
36.8 For the purposes of this Bye-law, the effective date of the resolution is the date when the resolution is signed by, or in the case of a Member that is a corporation whether or not a company within the meaning of the Act, on behalf of, the last Member whose signature results in the necessary voting majority being achieved and any reference in any Bye-law to the date of passing of a resolution is, in relation to a resolution made in accordance with this Bye-law, a reference to such date.
37. Directors’ and the Auditor’s Attendance at General Meetings
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The Directors and Chief Executive Officer shall be entitled to receive notice of, attend and be heard at any general meeting, and the Chairman of the Board and the Chief Executive Officer shall attend general meetings where possible. The auditor of the Company shall receive notice of, attend and be heard at any general meeting in which the nature of the matters on the agenda so requires, and the auditor has for any general meeting a right to receive notice, attend and be heard.
38. Motion for Inquiry
A Member may submit a motion requiring an inquiry into the Company’s incorporation, management or further specified aspects of the management or the accounts of the Company by written notice to the Company one week prior to the notice of the annual general meeting or the special general meeting being sent to Members. The motion may be submitted at an annual general meeting or at a special general meeting of the Company for which the convening notice states that an item on such an inquiry is to be discussed. If the motion is approved by Members holding at least one-twentieth of the share capital and voting rights represented at the general meeting and is based on reasonable grounds, the Company shall engage one or more independent persons to conduct the inquiry. The persons conducting the inquiry shall submit a written inquiry report to the Company. The Company shall convene a general meeting to discuss the inquiry report, and the report must be sent to each Member with a known address no later than one week prior to the meeting.
DIRECTORS AND OFFICERS
39. Election of Directors
39.1 The Board shall be elected or appointed in the first place at the statutory meeting of the Company and thereafter, except in the case of a casual vacancy, at the annual general meeting or at any special general meeting called for that purpose.
39.2 Only persons who are proposed or nominated in accordance with this Bye-law 39 shall be eligible for election as a Director. Subject to these Bye-laws, any Member, the Board or the nomination committee may propose any person for re-election or election as a Director in accordance with this Bye-law 39.
39.3 Where any person, other than a Director retiring at the meeting or a person proposed for re-election or election as a Director by the Board or the nomination committee, is to be proposed for election as a Director, notice must be given to the Company of the intention to propose him and of his willingness to serve as a Director. Whether a Director is to be elected at an annual general meeting or a special general meeting, that notice must be given not less than 21 days before the date of such general meeting.
39.4 The Company in general meeting shall appoint a nomination committee (the “nomination committee”), comprising such number of persons as the Members may determine in general meeting from time to time, and members of the nomination
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committee shall be appointed by resolution of the Members. Members and the Board may suggest candidates for the election of Directors to the nomination committee provided such suggestions are in accordance with any nomination committee guidelines or corporate governance rules adopted by the Company in general meeting from time to time and Members, Directors and the nomination committee may also propose any person for election as a Director in accordance with Bye-laws 39.2 and 39.3. The nomination committee may or may not recommend any candidates suggested or proposed by any Member or the Board in accordance with any nomination committee guidelines or corporate governance rules adopted by the Company in general meeting from time to time. The nomination committee may provide recommendations on the suitability of candidates for the Board, as well as the remuneration of the members of the Board. The Members at any general meeting may stipulate guidelines for the duties of the nomination committee.
39.5 Where persons are validly proposed for re-election or election as a Director, the persons receiving the most votes (up to the number of Directors to be elected) shall be elected as Directors, and an absolute majority of the votes cast shall not be a prerequisite to the election of such Directors.
39.6 At any general meeting the Members may authorise the Board to fill any vacancy in their number left unfilled at a general meeting.
40. Number of Directors
The Board shall consist of not less than five Directors or such number in excess thereof as the Members may determine.
41. Term of Office of Directors
Directors shall hold office for such term as the Members may determine or, in the absence of such determination, until the annual general meeting held in the second year after the appointment or until their successors are elected or appointed or their office is otherwise vacated.
42. Alternate Directors
42.1 At any general meeting, the Members may elect a person or persons to act as a Director in the alternative to any one or more Directors or may authorise the Board to appoint such Alternate Directors.
42.2 Unless the Members otherwise resolve, any Director may appoint a person or persons to act as a Director in the alternative to himself by notice deposited with the Secretary.
42.3 Any person so elected or appointed pursuant to this Bye-law shall have all the rights and powers of the Director or Directors for whom such person is elected or appointed in
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the alternative provided that such person shall not be counted more than once in determining whether or not a quorum is present.
42.4 An Alternate Director shall be entitled to receive notice of all meetings of the Board and to attend and vote at any such meeting at which a Director for whom such Alternate Director was appointed in the alternative is not personally present and generally to perform at such meeting all the functions of such Director for whom such Alternate Director was appointed.
42.5 An Alternate Director’s office shall terminate –
(a) in the case of an alternate elected by the Members:
(i) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to the Director for whom he was elected to act, would result in the termination of that Director; or
(ii) if the Director for whom he was elected in the alternative ceases for any reason to be a Director, provided that the alternate removed in these circumstances may be re-appointed by the Board as an alternate to the person appointed to fill the vacancy; and
(b) in the case of an alternate appointed by a Director:
(i) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to his appointor, would result in the termination of the appointor’s directorship; or
(ii) when the Alternate Director’s appointor revokes the appointment by notice to the Company in writing specifying when the appointment is to terminate; or
(iii) if the Alternate Director’s appointor ceases for any reason to be a Director.
43. Removal of Directors
43.1 Subject to any provision to the contrary in these Bye-laws, the Members entitled to vote for the election of Directors may, at any special general meeting convened and held in accordance with these Bye-laws, remove a Director provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served on such Director not less than 14 days before the meeting and at such meeting the Director shall be entitled to be heard on the motion for such Director's removal.
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43.2 If a Director is removed from the Board under this Bye-law the Members may fill the vacancy at the meeting at which such Director is removed. In the absence of such election or appointment, the Board may fill the vacancy.
44. Vacancy in the Office of Director
44.1 The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law;
(b) is or becomes bankrupt, or makes any arrangement or composition with his creditors generally;
(c) is or becomes of unsound mind or dies; or
(d) resigns his office by notice to the Company.
44.2 The Board shall have the power to appoint any person as a Director to fill a vacancy on the Board occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board and to appoint an Alternate Director to any Director so appointed.
45. Remuneration of Directors
The remuneration (if any) of the Directors shall be determined by the Company in general meeting and shall be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other expenses properly incurred by them in attending and returning from the meetings of the Board, any committee appointed by the Board, general meetings, or in connection with the business of the Company or their duties as Directors generally.
46. Defect in Appointment
All acts done in good faith by the Board, any Director, a member of a committee appointed by the Board, any person to whom the Board may have delegated any of its powers, or any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person acting as aforesaid, or that he was, or any of them were, disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director or act in the relevant capacity.
47. Directors to Manage Business
47.1 The business of the Company shall be managed and conducted by the Board. In managing the business of the Company, the Board may exercise all such powers of the
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Company as are not, by the Act or by these Bye-laws, required to be exercised by the Company in general meeting.
47.2 The affairs of the Company shall not be conducted in a manner oppressive or prejudicial to the interests of some part of the Members. In the event the affairs of the Company are conducted in such a manner, any Member may make an application to the Supreme Court of Bermuda pursuant to the Act.
48. Powers of the Board of Directors
The Board may:
(a) appoint, suspend, or remove any manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties;
(b) exercise all the powers of the Company to borrow money and to mortgage or charge or otherwise grant a security interest in its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party;
(c) appoint one or more Directors to the office of managing director or chief executive officer of the Company, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company;
(d) appoint a person to act as manager of the Company's day-to-day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business;
(e) by power of attorney, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney;
(f) procure that the Company pays all expenses incurred in promoting and incorporating the Company and listing the shares of the Company;
(g) delegate any of its powers (including the power to sub-delegate) to a committee of one or more persons appointed by the Board which may consist partly or entirely of non-Directors, provided that every such committee shall conform to
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such directions as the Board shall impose on them and provided further that the meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board;
(h) delegate any of its powers (including the power to sub-delegate) for a specific purpose to any person on such terms and in such manner as the Board may see fit, including any restrictions that the Board may determine at the time of delegation;
(i) present any petition and make any application in connection with the liquidation or reorganisation of the Company;
(j) in connection with the issue of any share, pay such commission and brokerage as may be permitted by law; and
(k) authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any deed, agreement, document or instrument on behalf of the Company.
49. Register of Directors and Officers
The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act.
50. Appointment of Officers
The Board may appoint such Officers (who may or may not be Directors) as the Board may determine for such terms as the Board deems fit.
51. Appointment of Secretary
The Secretary shall be appointed by the Board from time to time for such term as the Board deems fit.
52. Duties of Officers
The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time.
53. Remuneration of Officers
The Officers shall receive such remuneration as the Board may determine.
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Odfjell Drilling Ltd Page 29 54. Conflicts of Interest
54.1 Any Director, or any Director's firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Director's associated firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorise a Director or Director's firm, partner or company to act as Auditor to the Company.
54.2 A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Act.
54.3 Following a declaration being made pursuant to this Bye-law, and unless disqualified by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting.
55. Related Party Transactions
All transactions between the Company and its Members, Directors or Officers shall be based on arms’ length terms and conditions. In the event of any material transactions between the Company and its Members, Directors or Officers, the Company shall arrange for a valuation to be obtained from a reputable and independent financial institution, auditor or accountancy firm.
56. Indemnification and Exculpation of Directors and Officers
56.1 The Directors, Resident Representative, Secretary and other Officers (such term to include any person appointed to any committee by the Board) acting in relation to any of the affairs of the Company or any subsidiary thereof and the liquidator or trustees (if any) acting in relation to any of the affairs of the Company or any subsidiary thereof and every one of them (whether for the time being or formerly), and their heirs, executors and administrators (each of which an “indemnified party”), shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and no indemnified party shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss,
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misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty in relation to the Company which may attach to any of the indemnified parties.
56.2 The Company may purchase and maintain insurance for the benefit of any Director or Officer against any liability incurred by him under the Act in his capacity as a Director or Officer or indemnifying such Director or Officer in respect of any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or Officer may be guilty in relation to the Company or any subsidiary thereof.
56.3 The Company may advance moneys to a Director or Officer for the costs, charges and expenses incurred by the Director or Officer in defending any civil or criminal proceedings against him, on condition that the Director or Officer shall repay the advance if any allegation of fraud or dishonesty in relation to the Company is proved against him.
MEETINGS OF THE BOARD OF DIRECTORS
57. Board Meetings
The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit. Subject to these Bye-laws, a resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes the resolution shall fail.
58. Notice of Board Meetings
A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally (including in person or by telephone) or otherwise communicated or sent to such Director by post, electronic means or other mode of representing words in a visible form at such Director's last known address or in accordance with any other instructions given by such Director to the Company for this purpose.
59. Electronic Participation in Meetings
Directors may participate in any meeting by such telephonic, electronic or other communication facilities or means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.
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Odfjell Drilling Ltd Page 31 60. Quorum at Board Meetings
The quorum necessary for the transaction of business at a meeting of the Board shall be the majority of the Directors in office.
61. Board to Continue in the Event of Vacancy
The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting; or (ii) preserving the assets of the Company.
62. Chairman to Preside
Unless otherwise agreed by a majority of the Directors attending, the Chairman shall act as chairman at all meetings of the Board at which such person is present. If the Chairman is absent, a chairman shall be appointed or elected by the Directors present at the meeting.
63. Written Resolutions
A resolution signed by all the Directors, which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which the last Director signs the resolution. For the purposes of this Bye-law only, "the Directors" shall not include an Alternate Director.
64. Validity of Prior Acts of the Board
No regulation or alteration to these Bye-laws made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made.
CORPORATE RECORDS
65. Minutes
The Board shall cause minutes to be duly entered in books provided for the purpose:
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and
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(c) of all resolutions and proceedings of general meetings of the Members, meetings of the Board, meetings of managers and meetings of committees appointed by the Board.
66. Place Where Corporate Records Kept
Minutes prepared in accordance with the Act and these Bye-laws shall be kept by the Secretary at the registered office of the Company.
67. Form and Use of Seal
67.1 The Company may adopt a seal in such form as the Board may determine. The Board may adopt one or more duplicate seals for use in or outside Bermuda.
67.2 A seal may, but need not, be affixed to any deed, instrument or document, and if the seal is to be affixed thereto, it shall be attested by the signature of (i) any Director, or (ii) any Officer, or (iii) the Secretary, or (iv) any person authorised by the Board for that purpose.
67.3 A Resident Representative may, but need not, affix the seal of the Company to certify the authenticity of any copies of documents.
ACCOUNTS
68. Records of Account
68.1 The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:
(a) all amounts of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) all assets and liabilities of the Company.
68.2 Such records of account shall be kept at the registered office of the Company, or subject to the Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours.
69. Financial Year End
The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31st December in each year.
AUDITS
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Odfjell Drilling Ltd Page 33 70. Annual Audit
Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to the Act, the accounts of the Company shall be audited at least once in every year.
71. Appointment of Auditor
71.1 Subject to the Act, at the annual general meeting or at a subsequent special general meeting in each year, an independent representative of the Members shall be appointed by them as Auditor of the accounts of the Company.
71.2 The Auditor may be a Member but no Director, Officer or employee of the Company shall, during his continuance in office, be eligible to act as an Auditor of the Company.
71.3 A Member or Members representing at least one-twentieth of the share capital may request in writing to the Company that the Board appoints an additional auditing firm to review the accounts of the Company in addition to the Company’s Auditor appointed pursuant to Bye-law 71.1 or Bye-law 77 as applicable if such request is based on reasonable grounds. For the avoidance of doubt, an auditing firm appointed pursuant to this Bye-law 71.3 is not the Company’s auditor for the purposes of the Act. The remuneration of an auditing firm appointed pursuant to this Bye-law 71.3 shall be fixed by the Board.
72. Remuneration of Auditor
Save in the case of an Auditor appointed pursuant to Bye-law 77, the remuneration of the Auditor shall be fixed by the Company in general meeting or in such manner as the Members may determine. In the case of an Auditor appointed pursuant to Bye-law 77, the remuneration of the Auditor shall be fixed by the Board.
73. Duties of Auditor
73.1 The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards.
73.2 The generally accepted auditing standards referred to in this Bye-law may be those of a country or jurisdiction other than Bermuda or such other generally accepted auditing standards as may be provided for in the Act. If so, the financial statements and the report of the Auditor shall identify the generally accepted auditing standards used.
74. Access to Records
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Odfjell Drilling Ltd Page 34 The Auditor shall at all reasonable times have access to all books kept by the Company and to
all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers for any information in their possession relating to the books or affairs of the Company.
75. Financial Statements
Subject to any rights to waive laying of accounts pursuant to the Act, financial statements as required by the Act shall be laid before the Members in general meeting annually. A resolution in writing made in accordance with Bye-law 36 receiving, accepting, adopting, approving or otherwise acknowledging financial statements shall be deemed to be the laying of such statements before the Members in general meeting.
76. Distribution of Auditor’s Report
The report of the Auditor shall be submitted to the Members in general meeting.
77. Vacancy in the Office of Auditor
The Board may fill any casual vacancy in the office of the auditor.
VOLUNTARY WINDING-UP AND DISSOLUTION
78. Winding-Up
If the Company shall be wound up the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in the trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability.
CHANGES TO CONSTITUTION
79. Changes to Bye-laws
No Bye-law may be rescinded, altered or amended and no new Bye-law may be made save in accordance with the Act and until the same has been approved by a resolution of the Board and by a resolution of the Members including the affirmative vote of not less than two-thirds of the shares and votes represented in the general meeting.
80. Changes to the Memorandum of Association
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No alteration or amendment to the Memorandum of Association may be made save in accordance with the Act and until same has been approved by a resolution of the Board and by a resolution of the Members.
81. Discontinuance The Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside Bermuda pursuant to the Act.
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Appendix B
Financial statements for the years ended 31 December 2012, 2011 and 2010
BOARD OF DIRECTORS REPORT Odfjell Drilling Ltd., is a privately owned international drilling, engineering and well services company, with nearly 2,800 employees and operations in more than 20 countries worldwide. The Odfjell Drilling Group generated revenues of USD 1.1 billion in 2012 and a net profit of approximately USD 117 million. Group structure Odfjell Drilling Ltd., is the parent company of the Odfjell Drilling Group, an integrated provider of mobile drilling units, platform drilling services, engineering, project management services and well services. The Company was incorporated in Hamilton, Bermuda in November 2005, based on 40 years experience in the offshore drilling industry. The operating entities in the Group are based in Norway, the UK, the Netherlands, Brazil, the Middle East, Romania, and the Philippines, as wholly or partly owned subsidiaries or joint ventures. Odfjell Drilling’s vision is to become a recognised leader in the offshore drilling market. The Group aims to continue strengthening its presence in the North Sea, Brazil and Africa in addition to further broadening the geographical scope of its operations. Important developments in 2012 The Group’s activities are organised in three main business areas: Mobile Offshore Drilling Units (MODU), Drilling & Technology and Well Services. In recent years the MODU business area has grown considerably, with three mobile drilling units mobilised for international operations in Angola, Tanzania and Brazil. The business area is destined to grow further as a result of the delivery of the ultra-deepwater rig Deepsea Aberdeen in 2014 and through new activities under the auspices of Odfjell Galvão, a 50/50 joint venture between Odfjell Drilling and Galvão Enghenaria in Brazil. Odfjell Galvão was awarded substantial contracts for project management and drilling services by Sete Brazil and Petrobras in July 2012. Under the contracts Odfjell Galvão will own 20 per cent of three new drillships holding long term drilling service contracts with Petrobras. The operated fleet also increased when Odfjell Drilling signed a management agreement with Maracc ASA in 2012 for the semisubmersible Island Innovator. The rig is presently being mobilised for drilling services for Lundin Petroleum Norway with start-up in the summer of 2013. This will strengthen the Group’s presence in the mobile drilling market on the Norwegian continental shelf and positions the Group as a supplier to a new E&P company in the region. In the Drilling & Technology business area, the Group was awarded an important contract with Statoil in 2012 for integrated platform drilling and engineering services on eight production facilities in the North Sea. This strengthens the Group’s market position in platform drilling in the North Sea and provides opportunities for additional sales of engineering and project management services to the largest E&P company in the region. Drilling & Technology has in 2012 delivered project management and engineering services in connection with two extensive yard stays for Deepsea Bergen and Songa Trym. It also mobilised project management services for the Group’s South Korea newbuild project in addition to delivering project management and engineering services in connection with major
B5
modification projects on production facilities. In 2012 the biggest projects in this category were related to modifications to Statoil’s Veslefrikk and Heidrun platforms. The Well Services business area is experiencing high demand in all regional markets for all of their range of products and services. Odfjell Well Services further expanded its geographical scope significantly in 2012 by winning contracts in Jordan, Thailand and Kurdistan. One of Odfjell Drilling Ltd.’s subsidiaries, Odfjell Rig Ltd., was notified by the Norwegian Tax Administration (Tax Norway West) in late 2011 of a tax ruling that affects the Company. It was ruled that income from its direct 52.913 percent participation in KS Deep Sea Drilling Company II (KS DSDC II) was deemed taxable in Norway for the income years 2009-2010. In 2012 the Norwegian Tax Administration also deemed Odfjell Rig Ltd., to be taxable for the income year 2011. In 2012 the Norwegian Tax Administration taxed Odfjell Rig Ltd., as if the Company were taxable for the income years 2009-2011. Total tax paid per this ruling was classified as a long-term receivable because of Odfjell Rig Ltd.’s argument that it is not taxable for that period. The total taxes paid and interest on taxes for the income years 2009-2011 amounts to NOK 110.3 million, NOK 2 million of which is interest on the tax amount for all three income years. The receivable of USD 19.8 million is classified as a long-term receivable because of the estimated duration of the court case. As a consequence of the disagreement with the Norwegian Tax Administration decision, Odfjell Rig Ltd., in 2012 initiated proceedings to resolve the dispute about whether Odfjell Rig Ltd., is taxable for the income years 2009-2011. The start of the trial is scheduled for June 2013. Odfjell Rig Ltd., argues that the tax authorities’ assertion is based on incorrect assumptions as to the factual circumstances of the case relating to its participation in KS DSDC II. Odfjell Rig Ltd., considers the probability of winning the case, in the final court, to be in their favour. Important developments in 2013 In January 2013 the Group acquired all of the shares owned by minority shareholders in the Deepsea Bergen structure. As of the end of January 2013, the company has no minority interests. As part of the acquisition and the ensuing re-structuring of the Deepsea Bergen ownership, several of the companies involved were merged in February 2013. As part of the acquisition of minority shareholdings in 2013, the Group signed a new long-term loan agreement for USD 270 million. Going concern assumption The financial statements have been prepared on the basis of the going concern assumption and in accordance with Norwegian Accounting Act Section 3-3 the Directors have confirmed that this was realistic at the time the accounts were approved. The basis for the assumption is the positive status of the Company’s equity, debt funding and secured contract portfolio. The parent company and the Group are in good financial position for future growth in each of their respective business areas. Consolidated accounts The below discussion comments on the major items in the Odfjell Drilling Group financial statements for 2012.
B6
Income statement Odfjell Drilling generated operating income of USD 1,093.8 million in 2012, an increase of 3.5 percent over 2011. The operating profit (EBIT) amounted to USD 183.7 million in 2012, (2011: USD 237.4 million). EBIT in 2011 included a USD 43.3 million gain relating to the sale of shares in a subsidiary; Odfjell Well Management AS. EBIT was affected by losses from joint ventures which were USD 13.4 million in 2012 (2011: USD 6.8 million). This increased loss was primarily caused by growing losses in the joint venture with the Deep Sea Metro Ltd., Group. Net financial costs amounted to USD 35.7 million in 2012 (2011: USD 83.9 million). Financial costs included interest income of USD 7.4 million (2011: USD3.6 million), borrowing costs of USD -64.0 million (2011: USD -80.5 million) and other financial items totaling USD 20.9 million (2011 a loss of USD7.1 million). The change in other financial items is primarily the result of a gain on interest rate swaps of USD 1.6 million in 2012 (2011: loss of USD 26.1 million). Pre-tax profit amounted to USD 148.0 million in 2012 (2011: USD 153.5 million). The tax expenses amounted to USD 31.2 million in 2012, (2011: USD 32.2 million) and the net profit for the Group declined to USD 116.9 million (2011: USD 121.3 million). USD 102.5 million of the net profit was attributable to the owners of the parent company (2011 USD108.8 million) while USD 14.3 million was attributable to non-controlling interests (2011 USD12.4 million). The latter are primarily non-controlling interests in the Deepsea Bergen structure. Total comprehensive income in 2012 was USD 138.1 million (2011: USD 86.7 million). Balance sheet Consolidated total assets amounted to USD 2,804.4 million on 31 December 2012 (2011: USD 2,740.6 million). The increase primarily relates to non-current assets increasing as a result of investments in newbuild programmes. Total non-current assets amounted to USD 2,323.4 million (2011: USD 2,158.4 million) and this increase is mainly due to a higher property, plant and equipment base as well as higher investments in joint ventures, mainly the Deep Sea Metro Ltd., Group and the Odfjell Galvão joint venture in Brazil. Current assets amounted to USD 480.9 million (2011: USD 582.2 million), USD 200.6 million of which was cash and cash equivalents (2011: USD 303.1 million). The decline in cash and cash equivalents is largely a result of our investment programme and a reduction in gross borrowings. Total equity amounted to USD 1,154.3 million (2011: USD1, 032.8 million), of which equity attributable to the owners of the parent company amounted to USD 1,125.5 million (2011 USD 1,010.1 million). The equity ratio was 41.2 percent at the end of 2012 (2011: 37.7 percent). Total liabilities amounted to USD 1,650.1 million at the end of 2012 (2011: USD 1,707.8 million), reflecting a decrease of post-employment benefits of USD 24.8 million and a decrease in net interest-bearing debt of USD 56.0 million. Non-current liabilities decreased
B7
by USD 176.9 million to USD 1,233.7 million after repayments and the transfer to current borrowings of payments due in 2013 plus a decrease in post-employment benefits liabilities. Total current liabilities increased by USD 119.2 million to USD 416.4 million, mainly reflecting an increase in short-term interest-bearing debt and an increase in current income tax of USD 19.0 million. Net interest bearing debt amounted to USD 1,351.8 million (2011: USD 1,407.8 million). Cash flow Cash flow from operating activities amounted to USD 267.2 million (2011: USD 197.6 million). The increase mainly reflected a decrease in trade receivables from 2011 to 2012, compared with an increase from 2010 to 2011, as well as lower increase in other accruals from 2011 to 2012 compared with the increase from 2010 to 2011. The cash outflow from investing activities amounted to USD 305.9 million (2011: USD 213.0 million). The main investments in 2012 being in well services equipment, the investment in the semi-submersible drilling unit Deepsea Aberdeen and a subordinated loan (originally for USD 80 million) to the joint venture company; Deep Sea Metro Ltd. The cash outflow from financing activities amounted to USD 61.0 million (2011: inflows of USD 66.0 million). This mainly reflected the net repayment of debt to financial institutions of USD 44.3 million (2011: net increase USD 89.8 million). Parent company accounts The business of the parent company; Odfjell Drilling Ltd., is as a holding company for investments in both wholly and partly owned subsidiaries and joint ventures. The parent company reported a profit of USD 5.4 million, (2011: USD 83.2 million). This result primarily reflected that there were no dividends from subsidiaries in 2012 (2011: USD 53.3 million), as well as a decrease in net currency gains during 2012 of USD 33.1 million. Dividends from subsidiaries are recognised as financial income and were USD zero in 2012 (2011: USD 53.3 million). Total assets in the parent company amounted to USD 1, 376.1 million, as of 31 December 2012 (2011: USD 1,298.8 million). The increase mainly reflected an increase of USD 112.6 million in loans to Group companies. Equity in the parent company stood at USD 969.0 million (2011: USD 971.5 million), corresponding to an equity ratio of 70.4 percent (2011: 74.8 percent). Cash flow from operating activities was USD 4.9 million (2011: USD 67.2 million). The change was mainly a reflection of the decrease in profit from 2011 to 2012. Cash flow from investing activities was down by USD 113.0 million in 2012 (2011: USD 132.0 million). This change reflected a net increase in long-term loans to subsidiaries in 2012 compared with a net decrease in long term loans to subsidiaries - as well as repayments of short term receivables from group companies in 2011. Cash flow from financing activities was USD 71.6 million (2011: decrease of USD 185.6 million). This change mainly reflected a net increase in long-term loans from subsidiaries in 2012 and a combination of increase in loans from subsidiaries and repayments of short term liabilities to group companies in 2011.
B8
Allocation of profits The parent company had distributable equity of USD 968.9 million as of 31December 2012. The Board of Directors proposes the following allocation of the net profit of USD 5.4 million in 2012: Transferred to other equity: USD 5,421,335 Total allocated: USD 5,421,335 Segment reporting Odfjell Drilling has organised its activities into three main business areas in order to keep the Group at the forefront of both the operational and technological arenas: 1. Mobile Offshore Drilling Units 2. Drilling & Technology 3. Well Services Mobile Offshore Drilling Units (MODU) Odfjell Drilling has 40 years of experience in design, ownership and operational management of semisubmersible rigs, drillships, jack-ups and modular drilling units. In recent years, the Group has invested in a renewal of the fleet with state-of-the-art sixth generation deepwater drilling units featuring harsh environment capabilities. The total income in the MODU business area increased by USD 119.8 million in 2012 to USD 693.4 million, with the growth mainly reflecting that the drillships Deepsea Metro I and Deepsea Metro II started up on contracts in 2012, as well as higher financial rig uptime for the group’s fully owned mobile drilling units compared with 2011. EBITDA increased by USD 58.2 million in 2012 to USD 285.0 million. MODU was responsible for the operation of five owned and partly owned mobile drilling units in addition to two units under a management agreement with Songa Offshore. Deepsea Atlantic is a sixth generation ultra-deepwater and harsh environment semisubmersible on a long-term contract for Statoil on Gullfaks (on the Norwegian continental shelf). The contract runs until 2014, with a 1 + 2 years option. Deepsea Stavanger is a sixth generation ultra-deepwater and harsh environment semisubmersible delivered by the Daewoo yard in July 2010. The rig is on contract to BP for drilling operations off the coast of Angola. The contract expires in November 2013, with 3x1 years options. Deepsea Bergen drilled for Statoil on the Norwegian continental shelf in 2012. The semisubmersible is owned by KS Deep Sea Drilling Company II, which was 71.5 percent owned by Odfjell Drilling at the end of 2012. In 2012 the drilling service contract with Statoil was extended until 2017 and in September 2012 the rig was modified to enable drilling operations on fields in Statoil’s portfolio of “fast track”- developments. In January 2013 Odfjell Drilling purchased all outstanding shares in the rig owning entity and now owns 100 percent of the rig .
B9
Deepsea Metro I is an ultra-deepwater drillship of Gusto P-10000 design delivered by Hyundai Heavy Industries in South Korea during June 2011. Deepsea Metro I currently operates off the coast of Tanzania for the BG Group, on a one-year drilling contract that expires in June 2013. The rig is currently being marketed to new clients. Deepsea Metro II is an ultra-deepwater drillship of Gusto P-10000 design, delivered by Hyundai Heavy Industries in South Korea in November 2011. Deepsea Metro II currentlyoperates on a three year contract, with Petrobras in Brazil, which expires in May 2015. Deepsea Metro I and Deepsea Metro II are both owned by the Deep Sea Metro Group, a joint venture between Odfjell Offshore (40 percent) and MetroExploration (60 percent). Odfjell Drilling operates the vessels under individual management agreements. Deepsea Aberdeen is a semisubmersible under construction by Daewoo Shipbuilding & Marine Engineering (DSME) in South Korea, with delivery scheduled for May 2014. This sixth generation rig will be a sister rig to Deepsea Atlantic and Deepsea Stavanger, built to the enhanced GVA 7500 harsh environment design. A seven-year contract was signed with BP in January 2012, for start-up west of Shetland (UK sector) during Q4 2014. Managed drilling units In addition to the wholly and partly owned units, the Group manages the rig Island Innovator under a management agreement with Marine Accurate Well ASA (Maracc). The management agreement comprises project management, marketing and operation of the rig, including responsibility for crew, quality systems and technical operation. Rig owner Maracc and Lundin Norway AS have signed a contract to drill 12 wells over a period of approximately two years with start-up in the summer of 2013. The management agreements for Songa Delta and Songa Trym were terminated in 2012, with management responsibilities for the rigs being handed over to the owner Songa Offshore in June and August 2012, respectively. Odfjell Galvão Drillship Projects comprise three drillships to be built by Jurong in Singapore and Estaleiro Jurong Aracruz in Brazil, scheduled for delivery from 2016 onwards. In July 2012 Odfjell Galvão entered into agreements for the construction, mobilisation and operation of the three drillships. All vessels have been designed and will be constructed in accordance with Petrobras’ requirements. They have all been contracted to Petrobras on 15 years contracts with five-year extension options. Drilling & Technology The Drilling & Technology business area is responsible for platform drilling, project management and engineering services. This business unit is a leading company in platform drilling in the North Sea region and is responsible for integrated drilling services on 20 fixed and floating production drilling platforms off the coast of Norway and the UK. The business area provides production drilling, completion, workovers, slot recovery, P&A and maintenance and modification. The business area is focusing on engineering services towards Mobile Drilling Units, fixed platforms, core business support services and project management. Drilling & Technology operates from offices in Bergen, Stavanger, Aberdeen and Stjørdal.
B10
Total income in this business area decreased by USD 5.5 million to USD 316.0 million in 2012. EBITDA declined by USD 13.1 million to USD 24.9 million, due to lower demand for engineering services, higher operating expenses and lower margins on both engineering services and platform drilling services in 2012 compared with 2011. The Drilling & Technology business area offers a broad range of project management and engineering services for both owners of mobile drilling units and drilling facilities on production facilities. The broad range of services provided for mobile drilling units include design, engineering, building supervision, classification, authorities compliance, yard stays, technical support, marine operations, lifting operations, subsea services, project support, supply chain management, maintenance systems, and drilling technology. The business area offers its services to both internal and external clients. In 2012, services related to the yard stays for Deepsea Bergen and Songa Trym represented the most important projects in the business area’s portfolio. The business area provides engineering services for drilling facilities on production installations. The services include drilling modules, specific drilling support modules and associated drilling equipment, concept studies, FEED, detailed engineering, purchasing, construction, supervision, installation, commissioning (EPCI), operation/P&A, project support and maintenance systems. Several large scale projects were executed in 2012, with the EPCI on Veslefrikk and the Heidrun Well intervention unit being the most important. The Drilling & Technology business area currently runs platform drilling operations for Statoil, BP and Talisman Sinopec Energy on a total of 20 platforms in Norway and the UK. In 2012, Odfjell Drilling was awarded a four year contract with Statoil for eight platforms in Norway, with options for 3x2 years extensions. The new contract added two platforms to the previous contract arrangement, boosting the Group’s already strong market position on the NCS. In 2012, Talisman Sinopec Energy UK exercised all remaining 3x1 years options for seven platforms in the UK sector and amended the contract with options for 2x1 years extensions. The contract with BP for five platforms on the UK sector runs until 2014, with options for 3x2 years extensions. Drilling & Technology hired over 100 new engineers in 2012 to deliver on existing contracts and to meet expected market growth. Recruiting and retaining technical expertise is crucial in relation to meeting the growing demand for the Group’s services and it will still remain a focus area for the Group in 2013. Well Services Odfjell Well Services provides a wide range of services to the oil industry, including mooring services, drill tool rental, fishing services, well bore cleaning, tubular, casing and tubular running services. Total income in the Well Services business area increased by USD 15.3 million in 2012 to USD 208.2 million, with the growth mainly due to higher demand in the market during 2012 compared with 2011. EBITDA increased by USD 4.8 million in 2012 to USD 95.3 million. Odfjell Well Services’ strategy is to become an international service provider with the safest and most efficient solutions for tubular running services and down-hole tools, while offering a service level that meets the highest quality standards in the oil and gas industry.
B11
The business area aims at sustaining rapid growth through continuous improvement of existing service areas, expansion into new service areas and continued internationalisation. Odfjell Well Services has established operating bases in 11 countries in recent years and it operates in more than 25 countries worldwide. A high level of innovation and technology development will be crucial in relation to supporting both existing business activities and entry into new areas. Odfjell Well Services is a technology leader in the field of remotely-operated equipment that is designed to enhance both safety and efficiency. To further strengthen its technological competitiveness, Odfjell Well Services is currently building an in-house development department that will focus on new down-hole tools technology related to the core business. Organisation, health, safety and environment The Group’s operational activities are carried out in a number of wholly or partially owned subsidiaries and joint ventures in Norway, the UK, the Netherlands, Brazil, UAE, Romania and the Philippines. Odfjell Drilling’s vision is to become a recognised leader within the global offshore drilling market, aiming for leadership in QHSE, operational efficiency, technological achievements, and profitable growth. Odfjell Drilling had a total of 2,793 employees at the end of 2012. Working environment and personnel The working environment in Odfjell Drilling is considered to be good and sustaining a healthy working environment is seen as crucial to achieving continuous improvements in all aspects of the Group’s operations. The Group has conducted annual working environment and organisational surveys since 2005. These surveys provide the Group with valuable information about the workings of the organisation and they are important tools for promoting and developing the working environment. Odfjell Drilling had a personnel turnover of 9 percent in 2012 which was a slight reduction from 10 percent in 2011, but still high compared to previous years. The high turnover can be explained partly by a generally tight labour market, in particular in the oil and gas industry. The Group also experienced reduced activity after the expiry of the management agreements for Songa Delta and Songa Trym in summer 2012. Measures are being taken to maintain a low sick absence rate. At Group level, sickness absence was reported at 3.5 percent in 2012. The absence rate compares well with the average sickness absence rate of 4.5 percent reported for industry workers in Norway in 2012. Odfjell Drilling is a competence-intensive company that is dependent on a high level of expertise and technological knowhow amongst its employees. The Group offers extensive training to ensure that this expertise is continuously updated and to promote career development for individual employees. During 2012, Odfjell Drilling also strengthened its focus on leadership training at all levels. Several programmes and courses were offered to managers both onshore and offshore,
B12
including a Business Management program, local courses in different regions and the QHSE Safety Leadership Development programme. The latter is an internal self-development programme based on Odfjell Drilling’s vision, culture, values, strategy and management principles that offers tailor-made training adjusted to the distinctive characteristics of each of the business areas. Measures to promote equality and prevent discrimination Odfjell Drilling emphasises that all activities, irrespective of country of operation, shall comply with the applicable legislation and the Group’s Code of business conduct. Its Personnel policy states that the Odfjell Drilling Group shall recruit and develop staff based on merit and equal opportunities, regardless of ethnicity, religion, national origin, gender, age, sexual orientation, marital status, or disability. Equality is an integral part of the Group’s Personnel Policy that ensures that all employees are given the same opportunities for employment, pay, as well as professional development in terms of training and promotion. The Group works actively and systematically through internal Governing documents, employee training and various other measures to prevent any form of discrimination. Such measures include recruitment policies and practise, salary- and working conditions, personal development opportunities, promotions and shelter against harassment. Although it is emphasised that equality and non-discrimination are ultimately the management’s responsibility, all parties in the enterprise have a responsibility for ensuring and to safeguarding equality. All employees have access to the Group’s governing documents through Odfjell Drilling's intranet, which includes information about the ethics and business culture in Odfjell Drilling, the Group’s management system, managers’ guide, employee handbook etc. The governing documents also confirm the Group`s commitment to freedom of association and the right to collective bargaining, which is continuously followed up in all activities. The Group complies with internationally recognised labour standards covering areas such as wages, working hours, disciplinary practices, employment contracts and working conditions. The above requirements are also enforced in contracts with suppliers, business partners, agents etc. The Group employs people from a diverse range of ethnic backgrounds and 58 different nationalities. Odfjell Drilling’s employees also have a wide age distribution, ranging from 19 to 67 years with an average age of 40.8 years. Of a total of 2,793 employees at the end of 2012, there were 2,434 male (91 percent) and 242 female (9 percent) employees, with an unchanged gender composition compared to the previous year. The onshore organisation employs 25 per cent females compared with 1 percent in the offshore organisation. Top management consists of ten persons, of whom one is female. Two of the five board members are female, including the Chair. There are elected employee representatives on the boards of five of the major management companies in the Group. The employees in these companies represent more than 70 per cent of the total number of employees in the Group. Health, Safety and Environment Odfjell Drilling strives continuously to improve health, safety and security towards a zero fault target and to minimize the impact of its activities on the environment. In 2012, Odfjell Drilling continued to focus on the following main QHSE topics:
B13
• Prevention of major accidents • CMS improvements & simplification • Safety leadership & compliance • ISO 9001 certification • Quality improvement of all key processes
In recent years the level of risk in Odfjell Drilling has decreased and most HSE trends show a positive trend. Both the lost-time injury frequency and total recordable incident rate have improved steadily in 2012 as did the trend for high-potential incidents and reportable spills to sea. There were seven accidents, none of which caused serious personnel injuries. The injuries were four arm injuries, two finger injuries and one fractured wrist. The incidence rate relating to the dropping of objects remains too high and the Group has developed and implemented the DROPS programme to prevent such incidents. The Group’s QHSE Safety Management Leadership programme covers a range of important topics, including HSE culture and management, compliance with procedure, HSE rules and the establishment of safety contracts and understanding of risk. The model is based on Odfjell Drilling’s existing principles of continuous improvement at all levels and in all business areas. Odfjell Drilling has further strengthened the Safety Leadership Training concept in its global operations. The concept involves both offshore and onshore management, in the belief that the leadership behaviour of managers often has an important influence on risk management. Leadership and compliance are fundamental elements in building and maintaining a strong QHSE culture. In 2013, Odfjell Drilling’s QHSE programme will focus on the following elements:
• Risk and change managements • Quality improvements • Groups exposed to risk • Dropped objects • Major accident risk • Safety leadership & compliance • ISO 14001 certification
Environmental reporting Odfjell Drilling has a goal of zero environmentally hazardous discharges to sea. This includes eliminating or significantly reducing discharges of defined environmental toxins and substantially reducing the risk of harm from the use and discharge of chemicals. In 2012, Odfjell Drilling continued its efforts to influence employees' knowledge, attitudes and behaviour. Odfjell Drilling is in the process of certifying all business areas globally to the Environmental Management Standard ISO 14001. In 2012 we completed base line audits within all business areas and the certification process will take place in November 2013. Both the number and volume of reportable incidental spills to sea have been reduced in 2012 compared to 2011. Preventive actions have focused on identifying onboard processes where spills to sea are possible and on strengthening related barriers to prevent spills. In addition measures have been implemented to improve communication and interaction with supply vessels and to optimise related work procedures. R&D activities
B14
The Group’s activities are based on high competence and experience in offshore drilling activities. Odfjell Drilling shall develop and implement technological knowhow and solutions to achieve its strategic objective of becoming a leading and preferred drilling services contractor and engineering and well service provider. The Group’s technology strategy for 2012-2015 focuses on four core technological areas: ��Conceptual development ��Effective operations ��Availability of machinery ��Asset traceability The technology strategy also supports the zero fault objectives and aims to improve the HSE level of the Group’s operations, as well as reducing the impact on the environment. Risk factors Operational and industrial risk factors Odfjell Drilling provides drilling and maintenance services for the oil and gas industry, which historically has been cyclical in its development. The level of activity in the offshore oil and gas industry will depend, among other things, on the general climate in the global economy, oil and gas prices, investment level for oil and gas exploration, production and drilling and regulatory issues relating to operational safety and environmental hazards. Financial performance will also depend on the balance of supply and demand for mobile drilling units. The Group seeks to mitigate these risks by securing long-term contracts, for its main assets and services, with reputable customers. However, all offshore contracts are associated with considerable risk and responsibilities, including technical, operational, commercial and political risks. The Group will take out the insurance coverage deemed adequate to limit these risks. The Group’s activities also entail risks related to its new-builds, including construction risks, the risk of cost overruns, risk of delays, etc. These risks will be minimised through construction contracts, active participation plus monitoring and insurance. Financial risk factors The Group is exposed to currency risks, particularly since charter contracts are typically denominated in USD whereas operating expenses are primarily incurred in local currencies. The Group seeks to minimise these risks through currency hedging. The Group may also be exposed to currency risk relating to debt financing in foreign currencies and it may also seek to mitigate these risks through currency swaps, hedges or other derivatives. The Group is exposed to interest rate risk relating to its debt financing and its holding of interest bearing assets and cash and cash equivalents. None of the Group’s borrowings are at fixed interest rates and interest rate risks are mitigated by using financial instruments such as interest rate swap agreements. The Group’s commercial counterparts are primarily large international E&P companies, and the credit risk is limited. Provisions for bad debt amounted to 3.4 percent of accounts receivable in the balance sheet at year end 2012. Odfjell Drilling held cash and cash equivalents amounting to USD 200.6 million at the end of 2012 and unused credit lines of USD 0. This is deemed to be sufficient funding for the Group’s current activity levels and committed capital expenditures. The Group has scheduled instalment payments, on long-term borrowings, of USD 257.1 million in 2013. Please refer to note 12 in the financial statements for an overview of borrowings and maturity profiles.
Of which attributable to the owners of the parent 102 549 108 833Of which attributable to non-controlling interests 14 309 12 447
Basic earnings per share (USD) 19 0,07 0,08 Diluted earnings per share (USD) 19 0,07 0,08
B17
Odfjell Drilling Ltd.
Consolidated Statement of Comprehensive Income
USD thousands Note 2012 2011
Profit for the year 116 858 121 280
Other comprehensive income:Items that will not be reclassified to profit or loss:Actuarial gain/(loss) on post employment benefit obligations 13 15 726 -16 281
15 726 -16 281
Items that are or may be reclassified to profit or loss:Interest rate swaps, reclassified to profit or loss 2 0 23 476Forward foreign exchange contracts, reclassified to profit or loss 0 -4 635Cash flow hegdes 2 -1 707 -110Currency translation differences 11 7 234 -37 019
5 528 -18 289
Other comprehensive income, net of tax 21 254 -34 569
Total comprehensive income 138 112 86 710
Attributable to:Owners of the parent 123 362 75 411Non- controlling interests 14 750 11 300Total comprehensive income for the period 138 112 86 710
Items in the statement above are disclosed net of tax. The income tax relating to each item of other comprehensive income is disclosed in note 15Items in the statement above are disclosed net of tax. The income tax relating to each item of other comprehensive income is disclosed in note 15
B18
B19
Consolidated Statement of Cash Flows
USD thousands 2012 2011
Cash flows from operating activities:Profit before income tax 148 033 153 493
Adjustments for:Depreciation and impairment 147 318 144 998 Unrealised loss on interest rate swaps -1 616 23 366 Interest expense - net 50 271 51 875 Borrowing cost 4 588 24 418 Share of (profit)/loss from joint ventures 13 399 6 834 Net (gain)/loss on sale of shares 0 -45 972 Net (gain)/loss on sale of tangible fixed assets -2 629 426 Post-employment benefit expenses less post-employment benefit payments -6 518 6 708 Foreign exchange losses/(gains) on operating activities -21 907 -25 710 Impairment of investments in shares 893 -
Changes in working capital:Spare parts 710 -280 Trade receivables 8 373 -39 358 Trade payables 1 672 -4 Other accruals -5 230 -35 024 Cash generated from operations 337 355 265 770 Interest paid -55 672 -49 063 Income tax paid -14 476 -19 154 Net cash generated from operating activities 267 207 197 553
Cash flows from investing activities:Purchase of property, plant and equipment -210 867 -148 836 Proceeds from sale of property, plant and equipment 6 081 2 981 Loans granted to employees 118 -645 Sub-ordinated loan to related parties -80 000 - Other long term receivables -21 244 - Purchase of shares incl. joint ventures - -92 893 Proceeds from sale of shares and bonds - 26 423 Net cash used in investing activities -305 911 -212 970
Cash flows from financing activities:Proceeds from debt to financial institutions 49 408 1 413 781 Repayments of debt to financial institutions -99 928 -1 324 000 Dividends paid to owners of the parent -1 765 -7 509 Dividends paid to non-controlling interests -8 698 -16 234 Net cash from financing activities -60 983 66 038
Net change in cash and cash equivalents -99 688 50 621
Cash and cash equivalents 01.01 303 137 274 112 Exchange gains/(losses) on cash and cash equivalents -2 813 -21 596 Cash and cash equivalents at 31.12 200 635 303 137
B20
Odfjell Drilling Ltd.
Consolidated Statement of Changes in Equity
USD thousands Share capitalOther contributed
capitalOther
reservesRetained earnings Total
Non- controlling
interest Total equityBalance at 1 January 2011 14 339 095 -18 841 621 935 942 203 26 586 968 789
Profit/(loss) for the period 0 0 0 108 833 108 833 12 447 121 280Other comprehensive income for the year 0 0 -17 142 -16 281 -33 422 -1 147 -34 569Total comprehensive income for the year 0 0 -17 142 92 552 75 411 11 300 86 710
Balance at 1 January 2012 14 339 095 -35 982 706 978 1 010 104 22 727 1 032 831
Profit/(loss) for the period 0 0 0 102 549 102 549 14 309 116 858Other comprehensive income for the year 1 -7 301 5 087 23 026 20 813 441 21 254Total comprehensive income for the year 1 -7 301 5 087 125 574 123 362 14 750 138 112
Balance at 31 December 2012 15 331 794 -30 896 824 610 1 125 524 28 779 1 154 303
Attributable to owners of the parent
B21
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles
General informationOdfjell Drilling Ltd. and its subsidiaries (together 'the Group') operates mobile offshore drilling units in addition to well services and drilling & technology, and operates in Norway and around the world.
Odfjell Drilling Ltd. is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
Basis of preparationThe consolidated financial statements of Odfjell Drilling Ltd. for the year ended December 31, 2012, will be the first annual financial statements that comply with IFRS. In these financial statements, the term "Norwegian GAAP" refer to Norwegian GAAP in use before the adoption of IFRS.
Subject to certain transition elections and exceptions disclosed in note 26, the Group has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2011 throughtout all periods presented, as if these policies had always been in effect. Note 26 discloses the impact of the transition to IFRS on the Group's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Group's consolidated financial statements for the year ended December 31, 2011 prepared under Norwegian GAAP.
Going concernThe Group has adopted the going concern basis in preparing its consolidated financial statements. When assessing this assumption, management has assessed all available information about the
Standards effective after 1 January 2013 that have been early adopted by the GroupIAS 19 (revised), effective for annual periods beginning on or after January 1, 2013 has been early adopted. The corridor approach was eliminated and all actuarial gains and losses recognised in OCI as they occur. All past service costs are recognised immediatelyand interest costs and expected return on plan assets are replaced with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset).
The Group has early adopted IFRS 11, 'Joint arrangements', on January 1, 2012. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Under IFRS 11, proportional consolidation of joint ventures is no longer allowed, and the Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.
IFRS 10 "Consolidated financial statements" and IFRS 12 "Disclosures of interests in other entities" have been early adopted, whitout any material effects on the Financial Statements.
New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012 and not early adoptedA number of new standards and amendments to standards and interpretations are effective for annual periods beginning after
The Group has adopted the going concern basis in preparing its consolidated financial statements. When assessing this assumption, management has assessed all available information about the future. This comprises information about net cash flows from existing time charter contracts, drilling management contracts, other service contracts, debt service and obligations under existing newbuilding contracts. Forecasts take into consideration expected future net income from assets under construction. After making such assessments, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future.
Basis of measurementThe consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets and derivative instruments, which are measured at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving higher degree of judgement or complexity, or areas where the assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.
and not early adoptedA number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2012 and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except the following set out:
IFRS 9, ‘Financial Instruments’. IFRS 9 introduces new requirements for classifying and measuring financial assets. The standard is not applicable until January 1, 2013 but is available for early adaptation. However, the standard has not yet been endorsed by the EU, and IASB has made a suggestion to delay the implementation to period starting after January 1, 2015 . Group is yet to assess IFRS 9’s full impact.
IFRS 13 “Fair value Measurement”. The Group intend to adopt IFRS 13 from the accounting period beginning January 1, 2013.
B22
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)
ConsolidationSubsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the aquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquistion date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are
as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Joint ventures are accounted for using the equity method. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquistion.
When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recongised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may indicate that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
The Consolidated Financial Statements are presented on the basis of the following group structure:
Odfjell Drilling Ltd (parent company)-Odfjell Offshore Ltd (100%)--Odfjell Invest Ltd (100%)-----Odfjell Invest I Ltd (100%)-----Odfjell Invest II Ltd (100%)
date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.
Goodwill is initially measured as the excess of the aggregate consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is
--Odfjell Invest Ltd (100%)-----Odfjell Invest I Ltd (100%)-----Odfjell Invest II Ltd (100%)-----Odfjell Invest AS (100%)--Odfjell Rig Ltd (100%)-----Odfjell Drilling Bergen AS (100%)-----Odfjell Rig AS (100%)-----KS AS Bergen Drillpart AS (72.375%)-----AS Bergen Drillpart (100%)-----Deep Sea Drilling Company AS (100%)-----Deep Sea Drilling Company II AS (100%)-----KS Deep Sea Drilling Company I (71.52%)-----KS Deep Sea Drilling Company II (71.52%)--Odfjell Rig II Ltd (100%)--Odfjell Rig III Ltd (100%)---Odfjell Drilling Shetland Ltd (100%)-Odfjell Drilling Services Ltd. (100%)--Odfjell Drilling AS (100%)---Deep Sea Management AS (100%)---Odfjell Drilling Management AS (100%)---Deep Sea Rig AS (100%)---Odfjell Drilling (UK) Ltd (100%)---Odfjell Drilling US AS (100%)--Odfjell Operations Ltd. (100%)
B23
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)---Deep Sea Management FZE Ltd. (100%)----Odfjell Drilling Deep Sea Management DMCC (100%)----Odfjell Services (Thailand) FLC (100%)---Odfjell Arabia Drilling Services LLC (100%)--Odfjell Partners Invest Ltd. (100%)---Odfjell Well Services Europe AS (100%)---Odfjell Casing Services AS (100%)---Odfjell Rental Services AS (100%)---Deep Sea Mooring AS (100%)---Odfjell Well Services Ltd. (100%)---Odfjell Well Services II Ltd. (100%)--Odfjell Technology Ltd. (100%)---Odfjell Technology AS (100%)---Odfjell Technology Manila Corporation (100%)--Odfjell Drilling Cooperatief UA (100%)---Odfjell Invest Holland BV (100%)---Odfjell Well Services SRL (100%)---Odfjell Perfuracoes e Servicos Ltda (100%)---Odfjell Drilling Netherlands BV (100%)----Odfjell Galvao II BV (100%)
Segment reportingOperating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board who makes the strategic decisions.
Foreign currency translation
(a) Functional and presentation currencyItems included in the separate financial statements of each of the
currency (USD) are translated into the presentation currency as follows:- Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;- Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and - All resulting exchange differences are recognised in other comprehensive income.
Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Intangible assetsGoodwill arises on the acquistion of subsidiaries and represents the excess of the consideration transferred over the Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of non-controlling interst in the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGUs), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential
(a) Functional and presentation currencyItems included in the separate financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Consolidated Financial Statements are presented in USD (in thousands), which is the Group’s presentation currency.
b) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses are presented in the income statement within ‘other financial items’.
(c) Group companiesThe results and financial position of all the Group's entities that have a functional currency different from the presentation
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.
Property, plant and equipmentProperty, plant and equipment comprise mainly mobile offshore drilling units and machinery and equipment.
Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes its purchase price, any directly attributable costs of bringing the asset to working condition and borrowing costs.
Subsequent costs for day-to-day repairs and maintenance are expensed as incurred. The cost of modernisation and rebuilding projects is included in the asset’s carrying amount when it is probable that the Group will derive future financial benefits and the cost of the item can be measured reliably.
B24
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)
The carrying amount of the replaced part is derecognised. Modernisation and rebuilding projects are depreciated over the remaining useful life of the related assets.
Depreciation is calculated on a straight-line basis over the useful life of the asset or component. Depreciable amount equals historical cost less residual value. Items of property, plant and equipment withcomponents that have substantially different useful lives is treated separately for depreciation purposes.
The useful lives of assets and the depreciation method are reviewed periodically in order to ensure that the method and period of depreciation are consistent with the expected pattern of financial benefits from the asset.
When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement as gain on sale of assets.
Residual value for mobile offshore drilling units are determined based on the market prices for steel and second hand prices for drilling equipment. Any changes are accounted for prospectively as a change in the accounting estimate. The estimated useful life of the rig could change, resulting in different depreciation amounts in the future. Residual value for other property, plant and equipment are estimated to be 0.
Rig and equipment are depreciated over a period of 5 - 30 years. Periodic maintenance is depreciated over the expected period to next docking, estimated to 5 years.
arm’s length transaction less costs associated with the disposal.Value in use represents the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
Recoverable amounts are estimated for individual assets or, if this is not possible, for the CGU. For mobile offshore drilling units, each unit is deemed to be a CGU.
The value in use is determined on the basis of the total estimated discounted cash flow, excluding financing expenses and taxes. In determining impairment of mobile offshore drilling units and other fixed assets, the management must make judgements and estimates to determine whether the discounted cash flows generated by those assets are less than their carrying amount, including determining the appropriate discount rate to be used. The data necessary for the execution of the impairment test are based on management’s estimates of future cash flows, which require estimates to be made for future day rates, utilisation rates and profit margins.
The assumptions used in estimating these cash flows are consistent with internal forecasts. Market outlook and day rate considerations provided by an independent third party are used to support management’s estimates. These considerations are mainly based on the oil price.
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Financial assets
Periodic maintenance is depreciated over the expected period to next docking, estimated to 5 years.
Estimated useful life for machinery and equipment is 3 - 5 years.
NewbuildingsNewbuildings under construction are capitalised as fixed assets during the construction as installments are paid to the yard.
Capitalised costs include contractual costs and costs related to the monitoring of the project during the construction period. Contractual costs include costs related to the project for the duration of the contract, i.e. from signing of the contract to final completion of the contractual work. Any costs incurred prior to the signing of the contract that relate to the procurement of the contract are regarded as a purchase of contractual assistance and are included in contractual costs.
Impairment of non-financial assetsAll non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an
reporting date.
Financial assetsThe Group classify financial assets in the following categories: trading financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets.
Management determines the classification of financial assets at their initial recognition.
Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Derivatives are placed in this category unless designated as hedges. Assets in this category are classified as current.
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.
Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets.
B25
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)
Loans and receivables are recognised initially at their fair value plus transaction costs. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or are transferred, and the Group has transferred by and large all risks and rewards from the financial asset.
Realised gains and losses are recognised in the income statement as finance income in the period they arise.
Impairment of financial assetsFor assets carried at amortised cost, the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount
difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.
Derivative financial instruments and hedgingDerivatives are recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured on a continuous basis at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of highly probable forecast transactions (cash-flow hedges). At the date of the hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as well as the object of its risk management and the strategy underlying the various hedge transactions. The Group also documents the extent to which the derivatives used are effective in smoothing the changes in fair value or cash flow associated with the hedge items. Such assessments are documented both initially and on an ongoing basis.
The effective portion of changes in the fair value of derivatives designated as cash-flow hedges are recognised in other comprehensive income (net of tax). Gain and loss on the ineffective portion is recognised immediately in the income statement.
Amounts recognised directly in other comprehensive income areFor loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occuring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.
For assets classified as available for sale the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A significant or prolonged decline in the fair value of an equity security below its cost is evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the
portion is recognised immediately in the income statement.
Amounts recognised directly in other comprehensive income are reclassified as income or expense in the income statement in the period when the hedged liability or planned transaction will affect the income statement.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial income/expenses.
Current and deferred income tax, withholding taxThe tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
B26
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks, other current highly-liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown under borrowings in current liabilities in the balance sheet.
BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortisedcost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Trade payablesTrade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at face value, due to short time to maturity
basis.
Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement.
Trade receivablesTrade receivables and other receivables, that have fixed or determinable payments that are not quoted in an active market are classified as receivables.
If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Receivables are initially recognised at fair value and subsequentlyat amortised cost using the effective interest method, less provision for impairment. Provision for impairment is made to specified receivable items when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the receivable, the estimated future cash flows of the investments have been affected.
InventoriesInventories are stated at the lower of cost and net realisable value. Cost is attributed using the first-in, first-out (FIFO) method. The costs of inventories comprise the purchase price, import duties and other taxes, transport and handling and other costs directly attributable to the acquisition of the goods. Trade discounts, rebates and other similar items are deducted in determing cost.
subsequently measured at face value, due to short time to maturity.
Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable. Revenue is stated net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
The Group's revenues are derived from day-rate based drilling contracts and day-rates from management drilling contracts and other service contracts.
Revenue from management drilling contracts and other service contracts is recognised when the services are performed and at the rates specified in the contracts.
Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both day-rate based and lump sum fee revenues are recognised ratably over the contract
B27
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 1 > Accounting Principles (cont.)
period when services are rendered. Under some contracts, the Group is entitled to additional payments for exceeding performance targets. Such additional payments are recognised when any uncertainties are resolved or upon completion of the drilling program.
Mobilisation costs incurred as part of a contract are capitalised as receivable and recognised as expense over the contract term, excluding option periods not exercised.
Earnings per shareEarnings per share is calculated based upon the weighted average number of oustanding shares in Odfjell Drilling Ltd.
B28
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 2 > Financial risk management
Financial risk factors The Group is exposed to a range of financial risks: market risk (including currency risk, interest rate risk, and price risk), credit risk and liquidity risk.
The financial risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. To some extent, the Group uses derivative financial instruments to reduce certain risk exposures.
Risk management is carried out on a Group level. The Group identifies, evaluates and hedges financial risks in close co-operation with the Group's operational units. The board of Odfjell Drilling Ltd Group has established written principles for risk management of foreign exchange risk, interest rate risk and use of derivative financial instruments.
a) Market riskMarket risk is the risk of change in market prices and demand, hereunder changes in currency exchange rates and interest levels.
i) Foreign exchange risk The consolidated subsidaries' reporting and functional currency are USD, NOK, GBP, EUR, BRL, RON and PHP.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD and NOK. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. The group is exposed to risks due to fluctuations in exchange rates especially as charter contracts
The Group had 11 interest rate swap agreements at December 31, 2012. Market inputs have been used to determine the fair value of the swap agreements at the end of the year. The fair value of the interest swap agreements is confirmed by the financial institution with which the company has entered into the agreements.
During 2012 a gain from change in market value of interest rate swaps was recongised at USD 1.6 million in the income statement, as compared to the negative market value of USD 23.0 million during 2011. In addition, a loss of USD 0.1 million was classified as a component of the equity as of December 31, 2011 relating to interest rate swaps qualified for hedge accounting. In 2012 the loss of USD 1.7 million was classified as a component of the equity as of December 31, 2012 relating to interest rate swaps qualified for hedge accounting.
The Group monitors its interest rate exposure on a dynamic basis. The Group calculates the impact on profit and loss of a defined interest rate shift.
The result of the calculation on sensitivities returns the following expected values: - If interest is increased by 1.0 %, the effect will be an increase in financing costs of USD 8,5 million for 2012, compared to USD 8.4 million in 2011.
b) Credit riskThe Group operates in three core business areas: Mobile offshore drilling units (MODU), Drilling & Technology and Well Services (OWS). The market for the Group’s services is the offshore oil and gas industry, and the customers consist
2012 2011Current receivables -27 226 11 196 Cash -19 951 6 508 Current liabilities 21 319 -1 833 Net effect on profit before tax -25 858 15 870
functional currency. The group is exposed to risks due to fluctuations in exchange rates, especially as charter contracts are normally in USD while most of the operating expenses are in local currency.
If USD is weakend by 10 % against other relevant currencies, on the balance-sheet date, we can expect the following effect on profit before tax in USD thousands:
( ) pthe offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Group performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Group believes this risk is limited as the counterparties mainly havea high credit quality.
The maximum exposure regarding trade receivables is the carrying amount of USD 242 million.
c) Liquidity riskThe Group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the Group's strategic plan.
With regular forecasts and liquidity analysis updates, the Group will ensure sufficient available liquidity to fulfill its
ii) Interest rate risk The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations at floating interest rates. The Group evaluates the share of interest rate hedging based on assessment of the Group’s total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure.
B29
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 2 > Financial risk management (cont.)
duties at loan maturity, without unacceptable loss or risk of damaging the Group’s reputation.
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available.
The Group’s cash flow forecasting is performed by Group finance. Group finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient head-room on it’s undrawn committed borrowing facilities at all times, so that the Group does not breach borrowing limits or covenants on any of it’s borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans and covenant compliance.
Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group treasury. Group treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable debt securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.
At the reporting date December 31, 2012, the Group held time deposits of USD 4 million that are expected to generate cash inflows for managing liquidity risk, compared to USD 157.7million in 2011.million in 2011.
Reference is made to note 12 on maturity of debt.
d) Other risks
Rig ratesThe Group has signed long-term contracts for Deepsea Atlantic and Deepsea Bergen at fixed rates. The rate consists of a USD element and a NOK element; the latter is annually escalated to reflect the increased costs of staffing and maintenance. Both rigs are contracted to Statoil ASA. Deepsea Atlantic has a contract with fixed duration to August 2014 with 1 + 2 years options, the first option with duration of 1 year and the second option with a duretion of 2 years.
The drilling contract with Statoil for Deepsea Bergen expired in June 2012, and a new drilling contract of five years has been entered into with Statoil ASA, which commenced immediately after expiry of the previous contract. Statoil ASA declared the fixed period of the new contract to be 5 years.
The drilling contract for the drillship Deepsea Metro I in the joint venture company Deep Sea Metro Ltd Group expires in June 2013, and the companies is currently seeking engagements with major oli companies. No drilling contract has been signed os of this date, but the company currently follows several leads for engagements.
B30
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 2 > Financial risk management (cont.)
The Group had the following financial instruments at each reporting period:
Assets at 31.12.2012 Level 1 Level 2 Level 3 TotalAvailable-for-sale financial assets- Other non-current assets 22 22
Loans and receivables- Sub-ordinated loan to related parties 52 069 52 069 - Other non-current assets 38 387 38 387 - Trade receivables 242 055 242 055 - Other current receivables 35 289 35 289 - Cash and cash equivalents 200 636 200 636
Total assets - - 568 458 568 458
Liabilities at 31.12.2012 Level 1 Level 2 Level 3 TotalDerivatives held at fair value through profit or loss- Other non-current liabilities 24 574 24 574
Derivatives held as hedge instrument- Other non-current liabilities 1 817 1 817
Financial liabilities at amortised cost -
The tables below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2)- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount. As the time horizon is due in short term, future cash flows are not discounted.
Financial liabilities at amortised cost - Interest-bearing debt 1 351 814 1 351 814 - Other non-current liabilities 4 606 4 606 - Trade payables 36 033 36 033 - Other current liabilities 110 324 110 324
Total liabilities - 26 390 1 502 777 1 529 168
Assets at 31.12.2011 Level 1 Level 2 Level 3 TotalAvailable-for-sale financial assets- Other non-current assets 914 914
Loans and receivables - - Other non-current assets 17 144 17 144 - Trade receivables 250 429 250 429 - Other current receivables 15 045 15 045
Total assets - - 283 531 283 531
Liabilities at 31.12.2011 Level 1 Level 2 Level 3 TotalDerivatives held at fair value through profit or loss- Other non-current liabilities 26 190 26 190
Derivatives held as hedge instrument- Other non-current liabilities 110 110
Financial liabilities at amortised cost- Interest-bearing debt 1 407 797 1 407 797 - Other non-current liabilities 6 495 6 495 - Trade payables 34 361 34 361 - Other current liabilities 108 858 108 858
Total liabilities - 26 300 1 557 510 1 583 811
B31
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 2 > Financial risk management (cont.)
Assets Liabilities Assets Liabilities
- -24 574 - -26 190 - -1 817 - -110
Total - -26 390 - -26 300
Less non-current portion -26 390 - -26 300
Current portion - - - -
As of 31.12. Odfjell Drilling Ltd. held the following interest rate derivatives:
Instrument Fixed rate Floating rateNotional amount Effective from Duration Market value
Interest rate swaps - cash flow hegdes under hedge accounting
2012
Interest rate swaps - cash flow hedges
2011
The Group had 11 interest rate swap agreements at December 31, 2012. Market values have been used to determine the fair value of the swap agreements at the end of the year. The Group has applied hedge accounting for three of the swap agreements entered into in2012. The instrument were documented as cash flow hedges, and changes in fair value were recognised directly in equity.
As of 2012, the reduction in loss from negative market value of the swaps was recognised at USD 1.6 million in the income statement. A loss of USD 1.7 million was classified as component of the equity.
31.12.2011Interest rate swaps 1,705%-2,89% USD-LIBOR-BBA 483 150 2008-2015 3-4 years -26 190 Interest rate swaps under hedge accounting 0,968 % USD-LIBOR-BBA 75 000 09/02/2012 4 years -110
B32
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 3 > Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecasted profitability over time, and expectations about external factors such as interest rates, foreign exchange rates and other which are outside the Group’s control. The resulting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
RevenueThe Group's revenues are derived from day rate based drilling contracts, management drilling contracts and other service contracts. Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation.
Both day rate based and lump sum fee revenues are recognized ratably over the contract period when services are rendered.
Income taxThe Group is subject to income tax in many jurisdictions. Various tax systems have required some use of judgement for certain countries in determining income tax for all countries taken together in the consolidated financial statements. The final tax liability for some transactions and calculations will be uncertain.
Impairment of non-financial assetsAssets that have an indefinite useful life, i.e. goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation, i.e. mobile drilling units, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
If available, estimated fair value of an asset is obtained externally. In addition, the Group has financial models which calculate and determine the value in use through a combination of actual and expected cash-flow generation discounted to present value. The expected future cash-flow generation and models are based on assumptions and estimates.
The discount factor applied in the cash flow budgets is a pre-tax weighted average cost of capital. Beyond the period covered by the business plan, a growth factor which varies between 0 % and 5 % is applied, with an expectation that gross margins will not weaken substantially over time.
in the consolidated financial statements. The final tax liability for some transactions and calculations will be uncertain.
The Group recognises tax liabilities associated with future decisions in tax cases/disputes, based on estimates of the likelihood that additional income tax will fall due.
Should the final outcome of these cases vary from the amount of the original provision, this variance will affect the stated tax expense and provision for deferred tax in the period when the final outcome is determined.
The parent company recognises tax liabilities when these are incurred. In other words, the tax expense is related to the accounting profit/loss before tax. The tax expense comprises tax payable and the change in net deferred tax. Reference is made to note 21 relating to disclosed information related to dispute with Norwegian Tax Authorities, and hence the classification of paid tax as long term receivable.
Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement.
B33
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Mobile Offshore Drilling Units Drilling & Technology Well services
The Group provides drilling and related services to the offshore oil and gas industry, and has three main business areas, the operation of mobile drilling units, drilling & technology and well services.
The board is the Group's chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units (MODU), Drilling & Technology and Odfjell Well Services (OWS) has been determined as the operating segments.
In accordance with the internal financial reporting, the Group's 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 7.
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 5 > Goodwill (cont.)
The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-taxcash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyondthe five-year period are extrapolated using the estimated growth rates stated below.
The key assumptions used for value-in-use calculations in 2012 are as follows:
These assumptions have been used for the analysis of each CGU within the operating segment.
Management determined budgeted EBIT margin based on past performance and its expectations of market development. The weightedaverage growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant operating segments.
B36
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Useful lifetime 5 - 35 years 5 years 3 - 10 yearsDepreciation schedule Straight line Straight line Straight line
B37
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 6 > Tangible fixed assets (cont.)
Mobile drilling units The Group owns three mobile drilling units.
Odfjell Drilling Group entered into a construction contract on February 24, 2006 with the shipyard DSME to design and build Deepsea Atlantic, a semi-submersible drilling rig of GVA 7500 design, and the delivery of the rig took place on February 6, 2009. The Group also entered into a building contract on February 27, 2006 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Atlantic was carried out at DSME before the said delivery took place from the shipyard.
On February 24, 2007 Odfjell Offshore Group entered into a construction contract with the shipyard DSME to design and build Deepsea Stavanger, a semisubmersible drilling rig of GVA 7500 design, and the delivery of the rig took place on July 8, 2010. The Group also entered into a building contract on February 27, 2007 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Stavanger was carried out at DSME before the said delivery took place from the shipyard.
The Group has invested in additional 2,500m riser for Deepsea Stavanger. This additional riser will increase Deepsea Stavanger's flexibility in connection with possible operations in ultra-deep water.
The paid installments, including initial project costs, project management cost under the Project Management Agreements, costs of variation orders, costs for preparations for operation and interest cost have been capitalised on the rigs.
Deepsea Bergen is a semisubmersible drilling rig with Aker H-3.2 design, built in 1983. Deepsea Bergen has completed a 5 year classification in 2010 and got a renewal of the certificate “Samsvarsuttalelse” (SUT) from Norwegian Petroleum Directorate.
NewbuildingsThe Group has signed a construction contract with Daewoo Shipbuilding & Marine Engineering Co. Ltd on November 12, 2011 for building of ultra semisubmursible deepwater rig Deepsea Aberdeen with expected delivery date in May 2014.
Expected basis for depreciation/ allocation of expenditureDeepsea Atlantic was delivered from the shipyard DSME on February 6, 2009 and commenced on the contract with Statoil Petroleum AS on August 4, 2009. The total expenditures on the rig are decomposed into groups of components that have different expected useful lifetime. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetime The main group of component is expected to have andifferent expected useful lifetime. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetime.The main group of component is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion on August 4, 2009. When calculating depreciation, estimated residual value is taken into consideration.
Deepsea Stavanger was delivered from the shipyard DSME on July 8, 2010 and commenced on the contract with Ophir Services Energy Ltd. on September 16, 2010. The total expenditures on the rig are decomposed into groups of components that have different expected useful lifetime. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetime. The main group of component is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion on September 16, 2010. When calculating depreciation, estimated residual value is taken into consideration.
Deepsea Bergen was built in 1983. The rig is on a contract with Statoil. The contract commenced June 15, 2009 and has duration on three years. The group has also entered into a new contract commencing in June 2012 with duration of three-five years. The main group of component is expected to have an economic useful lifetime of 35 years. The rig is depreciated using the straight line method. When calculating depreciation, estimated residual value is taken into consideration.
B38
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 7 > Investments in joint ventures
Deep Sea Metro Ltd.
Odfjell Galvão BV
PSW Group AS
Ross Holding
Group AS TotalDeep Sea
Metro Ltd.PSW
Group AS
Ross Holding
Group AS TotalBook value of equity at 01.01 298 679 - - 14 573 313 253 211 607 1 978 - 213 585 Investments/ Aquisitions during the year 28 397 2 024 - - 30 421 92 000 892 14 971 107 863 Share of profits -17 581 -30 - 4 283 -13 329 -4 928 -795 912 -4 811 Share of OCI result -114 - - - -114 Depreciation of excess value -70 - - - -70 Impairment of excess value - - - - - - -2 023 - -2 023 Other changes - - - -547 -547 - - - - Currency deviations 185 33 - 1 312 1 530 - -51 -1 310 -1 361
Book value of equity at 31.12 309 496 2 026 - 19 621 331 144 298 679 0 14 573 313 253
The group’s share of the results, aggregated assets and liabilities in its joint ventures, are as follows:
Deep Sea Metro Ltd GroupDeep Sea Metro Ltd Group is owned by Odfjell Offshore Ltd Group (40%) and Metro Exploration (60%) and managed by the joint venture agreement signed in 2008. Deep Sea Metro Ltd Group is incorporated in Bermuda. Of book value investment in joint venture Deep Sea Metro Ltd as per 31.12.2012, excess value of 2 576 523 USD is included. Excess value is derpreciated over life time of the drillships owned by the Deep Sea Metro Ltd Group. Depreciation of e cess al e in 2012 amo nt to 70 TUSD and is incl ded in the profit from joint ent res in the income statement
in 2008. Deep Sea Metro Ltd Group is incorporated in Bermuda. Of book value investment in joint venture Deep Sea Metro Ltd as per 31.12.2012, excess value of 2 576 523 USD is included. Excess value is derpreciated over life time of the drillships owned by the Deep Sea Metro Ltd Group. Depreciation of excess value in 2012 amount to 70 TUSD, and is included in the profit from joint ventures in the income statement.
Petro Service West Group AS Petro Services West Group AS was incorporated in Norway in March 2010, and is owned by Odfjell Drilling Technology Ltd (50 %) and Dalseide & Fløysand AS (50 %).
PSW Group's subsidiaries are PSW Consultants AS (former name Deep Fjord Consultants AS), PSW Property AS, Fedje Sikkerhetssenter AS and PSW Subsea & Drilling AS.
At December 31 2011 the investment in the joint venture has been written down to USD 0, which is considered the lowest of share of equity and fair value of the investment as per 31.12.2012. The write down in 2011 relates to loss and negative fair value of the investment. There is no recognition of profit in the joint venture PSW Group AS in 2012.
Ross Holding Group AS Ross Holding Group AS is owned by Odfjell Drilling Ltd Group (50 %) and Ross Offshore Invest AS (50 %).
Ross Holding AS owns 79.82 % of the shares in Ross Offshore AS. Ross Offshore AS owns 100 % of the shares in Ross Well Management AS (former Odfjell Well Management AS) and Ross Well Management Consultants AS (former Odfjell Well Management Consultants AS) as per December 31, 2012. Ross Holding AS Group is incorporated in Norway.
Odfjell Galvão BVOdfjell Galvvão BV is owned by Odfjell Drilling Netherlands BV (50%) and Galvvão Oil & Gas Holding BV (50%). Odfjell Galvvão was a former subsidiary of Odfjell Drilling Cooperatief U.A. as per 31.12.2011. 50% of the shares in Odfjell Galvvo BV was sold to Galvvão Oil & Gas Holding BV in 2012 for 9 000 EUR.
Odfjell Galvvão BV owns shares in Siri Drilling (20%), Itaoca Drilling BV (20%) and Guarapiri Drilling BV (20%) as per 31.12.2012.
B39
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 7 > Investments in joint ventures (cont.)
Summarised financial information - according to the Group's ownership in DSM Ltd:
USD thousands 2012 2011Share of total income 98 551 944 Share of operating expenses -75 022 -4 390 Share of net financial items -33 407 -1 389 Share of profit/(loss) before tax -9 879 -4 835
Share of taxes -7 702 -93 Share of profit/(loss) for the year -17 581 -4 928
USD thousands 2012 2011Share of non-current assets 658 405 640 916 Share of cash 46 275 54 896 Share of current assets 23 578 12 864 Total assets 728 257 708 676
Share of equity 01.01 296 226 209 170 Share of profit/(loss) for the period -17 581 -4 928 Capital contribution 28 397 92 000 Currency deviation -123 -15 Share of equity 31.12 306 920 296 226
Share of non-current liabilities 389 950 380 936 Share of current liabilities 31 387 31 513 Total liabilities 421 338 412 450 Total equity and liabilities 728 257 708 676
For the investment in Deep Sea Metro Ltd, the figures according to ownership share (using the line-by-line method) are as follows:
B40
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 8 > Trade receivables and other receivables
Trade receivables 2012 2011Trade receivables 222 114 220 695 Earned, not yet invoiced operating revenues 28 119 37 338 Provision for impairment of accounts receivable -8 177 -7 604 Trade receivables - net 242 055 250 429
Other current receivables 2012 2011Reimbursable expenses 11 995 3 402 Prepayments 10 695 12 660 VAT- receivables 9 626 7 022 Other short term receivables 2 973 1 864 Total other current receivables 35 289 24 947
Other non-current receivables 2012 2011Loans to employees 417 536 Loans to related-parties 15 902 15 464 Tax paid to norwegian tax authorities (disputed) 19 824 - Other non-current receivables 2 244 1 144 Total other non-current receivables 38 387 17 144
The fair value of trade receivables and other receivables are as follows: 2012 2011Trade receivables 242 055 250 429 Other Receivables 73 676 42 091Total 315 732 292 519
As the accounts receivables are due in short term, the value is approximately equal to the carrying amount, and the future cash flows are not discounted.
The carrying amounts of the trade receivables are denominated in the following currencies:2012 2011
USD 78 584 109 871 NOK 138 596 109 933 Other 24 875 30 624 Total 242 055 250 429
The ageing of the trade receivables, past due but not impaired: 2012 20110 to 3 months 26 965 42 936 3 to 6 months 1 253 1 990 Over 6 months 2 933 1 730 Total 31 151 46 656
The ageing of the trade receivables, past due and impaired: 2012 20110 to 3 months - - 3 to 6 months - - Over 6 months 8 177 7 604 Total 8 177 7 604
Movements on the provision for impairment of trade receivables are as follow:2012 2011
Pr 01.01 7 604 7 285 This years change in provisions 573 319 Pr 31.12 8 177 7 604
B41
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 9 > Cash and cash equivalents
2012 2011
Cash in bank 180 957 117 876
Time deposits 4 056 157 691 Restricted capital 15 623 27 569 Total 200 636 303 137
2012 2011Restricted bank deposits regarding payroll tax: 15 623 14 688 Restricted capital regarding advance from customers 12 881 Total restricted capital 15 623 27 569
Restricted capital regarded to advance from customers is restricted to management of rigs.
B42
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 10 > Share Capital
Odfjell Drilling Ltd was founded 16 November 2005 with a share capital of USD 12 000. The company has 1 376 687 078 shares pr 31.12.2012 with nominal value USD 0,00001 per share. The share capital in USD was originally recorded when the parent company had NOK as it's funtional currency. As per 1 January 2012 the parent company converted it's functional currency from NOK to USD.This explains the difference between the book value of share capital and nominal value of the share capital.
Share capital and shareholders
The share capital and information about shareholders:Number Nominal value Book value
Overview of shareholders as per 31.12.12:Shares Participating
interests/ share of votes
Odfjell Drilling Holding Ltd. 1 376 687 078 100,0 %Total number of shares 1 376 687 078 100,0 %
Helene Odfjell controls 69,67% of the shares, the Larine Trust (of which Marianne Odfjell is beneficiary) controls 25,9% of the shares, Elin Odfjell controls 3,96% of the shares, and the CEO controls 0,47% of the shares in Odfjell Drilling Holding Ltd.
B43
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 11 > Other reserves
Note Financial instruments
Translation difference
Total
At 1 January 2011 -18 841 -18 841 Interest rate swap, previously under hedge accounting 2 23 476 23 476 Forward foreign exchange contracts, used -4 635 -4 635 Cash flow hegdes 2 -110 -110 Currency translation difference Group -35 966 -35 966 Currency translation difference joint ventures 94 94 At 31 December 2011 -110 -35 872 -35 982
Interest rate swap, under hedge accounting -1 707 -1 707 Currency translation difference Group 5 924 5 924 Currency translation difference joint ventures 869 869 At 31 December 2012 -1 817 -29 079 -30 896
B44
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows which includes expected interest payments.
The interest-bearing debt is a combination of secured debt, unsecured debt and bond loans. Interest rates are generally based on LIBOR-rates.
Total per 31.12.12 257 095 249 766 342 686 671 310 - -
The fair value of non-current borrowings equals their carrying amount, as the loans has floating rate and credit margin has been stablefrom the loan raising.
The Group has the following undrawn borrowing facilties:2012 2011
Floating rate:- Expiring within one year - - - Expiring beyond one year - - Total - -
Carrying amount Fair value
The undrawn borrowing facilities have been arranged to help finance the construction of drillships and mobile drilling units.
B46
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 12 > Interest-bearing debt (cont.)
The borrowing facility in Odfjell Drilling Group includes the following financial covenants:
Odfjell Invest Ltd – USD 950 million facility The Odfjell Drilling Group has agreed to maintain, at all times, a minimum liquidity (cash and cash equivalents) requirement of USD 50,000,000 and minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling Group 12 months prior to delivery of any investment in excess of USD 100,000,000 has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100,000,000 in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling Group has agreed to maintain an equity ratio (equity to total assets) of minimum 30 per cent at all times until and including 30 September 2012, and thereafter minimum 35 per cent, at all times from 30 June 2012 to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that the ratio of current assets to current liabilities at all times being minimum 1.00:1.00. From the date that Odfjell Drilling Ltd. is released as guarantor under the facility agreement, the abovementioned financial covenants shall no longer apply to the Odfjell Drilling Group, but shall instead apply equally to the Odfjell Offshore Group.
Deep Sea Drilling Company II KS – USD 70 million facility The main restrictive covenants are i) a fair market value covenant in which the value of Deepsea Bergen shall at all times cover at least 250% of the outstanding amount under the loan, ii) a provision that the uncalled capital of DSDC II KS shall remain at at least NOK 100 million and iii) an ownership covenant under which DSDC II KS shall be owned with minimum 71.52% directly or indirectly by Odfjell Rig Ltd.
Odfjell Rig Ltd. – USD 170 million facility The main restrictive covenants are i) a fair market value covenant in which the value of Deepsea Bergen shall at all times cover at least 160% of the combined outstanding amount under the loan and the USD 70 million loan to DSDC II KS, ii) a minimum free cash requirement of USD 50 million and iii) total cash is minimum 5% of interest bearing debt at all times, of which the free cash requirement is subject to increase to USD 100 million in the event of any unfinanced capital expenditures in excess of USD 100 million 12 month prior to delivery of such investments, iv) the ratio of book equity to total book assets shall be minimum 35%, v) the ratio of EBITDA to net interest expenses shall not, from 30 June 2012, be less than 2.50, vi) dividend payments from the Company are restricted to maximum 50% of net income for each financial year (however, any amounts permitted to be distributed, but which are not distributed in one year may be carried forward and distributed in subsequent years). The Facility was amended and restated to a USD 170 million facility on 23 August 2012.
Odfjell Drilling Services - USD 300 millionThe main restrictive covenants are i) free cash shall not fall below USD 50 million in the Odfjell Drilling Group or below USD 15 million in the Odfjell Drilling Services Group In addition free cash shall at minimum be 5 % of total interest bearing debt for both groups ii) equity ratio
Odfjell Drilling Services - USD 300 millionThe main restrictive covenants are i) free cash shall not fall below USD 50 million in the Odfjell Drilling Group or below USD 15 million in the Odfjell Drilling Services Group. In addition free cash shall at minimum be 5 % of total interest bearing debt for both groups, ii) equity ratio shall at all times during the period from and including September 30, 2012, up to, but excluding September 30, 2013, not fall below 30 % for the Odfjell Drilling Group and 35 % for the Odfjell Drilling Services Group, and thereafter not fall below 35 % for the Odfjell Drilling Group and 30 % for the Odfjell Drilling Services Group, iii) for the Odfjell Drilling Services Group, adjusted leverage ratio I (ratio of interest bearing debt plus undrawn and available amounts under the revolving facility, divided by EBITDA on a twelve-month rolling basis) shall not increase above 2.40 for USD less than 100 million, or above 3.00 for USD more than 100 million. Adjusted leverage ratio II (the same deifinition as adjusted leverage ratio I but divided by EBITDA less USD 40 million), shall not increase above 3.75 for USD less than 100 million, or above 4.50 for USD more than 100 million, iv) ratio of current assets to current liabilities in the Odfjell Drilling Services Group shall at all times be minimum 1.00, and v) equity for the Odfjell Drilling Group shall not fall below USD 750 million.
For the financial years 2011 and 2012 the Group has not been in violation of the covenants.
B47
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 13 > Post employment benefits
The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. The pension plans are measured and presented according to IAS 19 (revised 2011).
Pension obligationsA defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan.
Typically defined benefit plans define an amount of pension benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the definedbenefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that aredenominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms ofthe related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in income.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Defined benefit pension plans
Amounts recognised in the balance sheet:
2012 2011Present value of funded obligations 150 667 167 102 Fair value of plan assets 119 189 110 577 Deficit of funded plans 31 477 56 525 Present value of unfunded obligations 30 670 30 466 Total deficit of defined benefit pension plans 62 148 86 990
as an asset to the extent that a cash refund or a reduction in the future payments is available.
Defined benefit pension plansThe Group has a pension scheme covering a total of 1 662 persons, of which 110 pensioners. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. The liabilities are covered through an insurance company (funded).
The Group also has a contractual pension agreement (CPA) covering 1 322 persons, of which 46 pensioners. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer's contribution to these amounts to 20 % of the pension paid. These liabilities are not covered through an insurance company (unfunded).
A number of the Norwegian subsidiaries in the Group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act.
B48
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 13 > Post employment benefits (cont)
Movement in the net defined benefit obligation over the years:
Present value of obligation
Fair value of plan assets Total
At 1 January 2012 197 568 -110 577 86 990 Current service cost -1 892 15 292 13 399 Interest expense/ (income) 4 732 -3 066 1 666 Pension expense 2 840 12 225 15 065 Remeasurements:Return on plan assets, excluding amounts included in interest expense/(income)Total actuarial (gain)/loss -30 930 9 088 -21 842
The significant actuarial assumptions were as follows:2012 2011
Discount rate 3.8% 2.6%Salary growth rate 0% - 3.5% 3.5%Expected growth in G (base social security amount) 3.25% 3.75%Pension growth rate 0.2% - 3.25% 0.1%
B49
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 13 > Post employment benefits (cont)
The sensitivity of the defined benefit obligation to changes in the weigthed principal assumptions is:
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate 1 % Decrease by 17% Increase by 22%Salary growth rate 1 % Increase by 11% Decrease by 10%Pension growth rate 1 % Increase by 13% Decrease by 1%*
*Assumption is here that pension growth rate is decreased from 0.1 % to 0 %.
Total pension expenses (including defined benefit and defined contribution scheme) are splitted to the following:
2012 2011Pension expenses from defined benefit scheme 15 065 20 771 Pension expenses from defined contribution scheme 4 645 5 823 Total pension expense 19 710 26 594
See also note 17 for further information regarded to personnel expenses.
Impact on defined benefit obligation
B50
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 14 > Other liabilities
Other non-current liabilities2012 2011
Non-current liabilties under related-party agreement 2 563 7 255 Other non-current liabilities 2 043 79 Total other non-current liabilities 4 606 7 334
Other current liabilities2012 2011
Prepayments from customers 3 407 31 727 Deferred revenue 3 724 546 Accrued salaries 14 357 13 882 Holiday pay 22 875 20 339 Employee bonus provisions 21 428 18 210 Other accrued expenses 44 532 24 154 Total other current liabilities 110 324 108 858
B51
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 15 > Tax
In USD thousands
Specification of tax expenses for the year 2012 2011Withholding tax -7 453 0Payable tax, ordinary taxation -26 075 -13 865Adjustments in respect of prior years 320 -314Change in deferred tax 2 033 -18 034Total tax -31 176 -32 213
Tax reconciliation 2012 2011Profit before tax 148 033 153 493Tax calculated at domestic tax rates applicable to profits in respective countries* -33 398 -32 494Non-taxable income 2 223 281Taxes -31 176 -32 213
* Domestic tax rates applicable to the Group varies between 0 % and 28 %
Effective tax rate 21,1 % 21,0 %
The tax (charge)/credit relating to components of the comprehensive income is as follows:
2012
Before taxTax (charge)/
credit After taxActuarial loss on post employment benefit obligations 21 842 (6 116) 15 726 Cash flow hegdesCurrency translation differencesOther comprehensive income 21 842 -6 116 15 726 Current tax - - - Deferred tax - -6 116 -
2011
Before taxTax (charge)/
credit After taxActuarial loss on post employment benefit obligations -22 612 6 331 -16 281 Cash flow hegdes - - - Currency translation differences - - - Other comprehensive income -22 612 6 331 -16 281 Current tax - - - Deferred tax - 6 331 -
B52
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 15 > Tax (cont.)
In USD thousandsThe gross movement on the deferred tax account is as follows: 2012 2011Net deferred tax assets/(deferred tax liabilities) at 01.01 5 303 15 886Income statement charge 2 033 -18 034Charged directly to equity -6 116 6 331Group contribution -846 0Currency translation differences 460 1 120Net deferred tax assets/(deferred tax liabilities) at 31.12 835 5 303
Deferred tax assets
In USD thousands Current assets Net pension
liabilities Loss carried
forward Total 2012Opening balance 01.01. 741 24 357 0 25 098Income statement charge -433 -2 587 846 -2 174Charged directly to equity 0 -6 116 0 -6 116Use of losses for the year 0 0 -846 -846Currency translation differences 37 1 747 0 1 78431.12. 344 17 401 0 17 746
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 16 > Combined items, income statement
USD thousands
Other gains and losses 2012 2011
Gain on disposals of casing, mooring and rental equipment 3 371 2 677 Disposal of subsidiary - 43 295 Gain on sale of other assets 67 - Gain on sale of assets 3 438 45 972
Other operating expenses 2012 2011
Consumption of purchased goods for resale -1 436 -3 389 Hired services, subcontractors and stand-in employees -58 137 -64 204 Hired casing, mooring and rental services -16 518 -15 934 Tools, fixtures and fittings, and working plant -49 036 -45 950 Repair and maintenance -18 976 -18 484 Insurance, guarantee and service costs -7 192 -7 589 Loss on disposal of machinery and bad debt -619 -3 103 Course expenses (fees. rent of premises etc.) -7 524 -7 794 Freight. transport and insurance -11 834 -7 931 Office rent and warehouses -13 514 -9 642 Fees for financial and legal assistance -6 298 -5 706 Inspection -4 184 -4 384 Travel expenses -38 418 -25 333 Other operating and administrative expenses -32 366 -28 323 Total other operating expenses -266 051 -247 766
Financial income/expenses 2012 2011
Interest incomeInterest income 2 171 3 635 Interest income from related parties 5 198 - Total interest income 7 369 3 635
Borrowing costInterest incurred -57 639 -55 510 Interest expenses to related parties - -258 Other borrowing expenses -6 315 -24 682 Total borrowing cost -63 955 -80 451
Other financial itemsCurrency gain 43 201 58 742 Other financial income 6 643 - Currency loss -20 449 -35 966 Gain/loss on interest rate swaps 1 616 -26 190 Other financial expenses -10 075 -3 703 Total other financial items 20 936 -7 118
B54
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Helene Odfjell 59 59 Marianne Odfjell 29 29 Kirk L. Davis 45 45 Carl-Erik Haavaldsen 29 29 Bengt Lie Hansen 29 29 Total remuneration Board of non executive directors 192 192
B56
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 19 > Earnings per share
2012 2011
Profit/ (Loss) attributable to equity holders of the company 102 549 108 833
Weighted average number of ordinary shares in issue 1 376 687 078 1 376 687 078
Earnings per share 0,07 0,08
The basic and diluted earnings per share are the same, as the Company has no convertible bond loan or stock option plan. Earnings per share is calculated as net result allocated to shareholders for the year divided by the weighted average number of outstanding shares.
B57
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 20 > Securities and mortgages
Odfjell Invest Ltd. – USD 950 million Facility AgreementAs security for the loan, substantially all of the assets of Odfjell Invest Ltd. and its subsidiaries have been pledged in favour of the lenders. This includes the shares in Odfjell Invest I Ltd., Odfjell Invest II Ltd. and the charter company Odfjell Invest AS, mortgages over the semi-submersible drilling rigs "Deepsea Stavanger" and "Deepsea Atlantic" and assignment of rights to revenue, interestproceeds and bank accounts. In addition, the shares in Odfjell Invest Ltd. have been pledged by Odfjell Offshore Ltd. in favour of the lenders. Also, Odfjell Invest I Ltd., Odfjell Invest II Ltd., Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed as and for its own debt the due and punctual observance and performance of the obligors' obligations under the finance documents, however such that Odfjell Drilling Ltd. may be released as guarantor under the facility agreement upon the occurrence of either an initial public offering or a private placement of Odfjell Offshore Ltd.
Deep Sea Drilling Company II KS. – USD 70 million facilityDeep Sea Drilling Company II KS entered into a facility with DNB Bank ASA as Agent on behalf of several banks on 26 April 2011. The assets of DSDC II KS, including Deepsea Bergen, DSDC II KS’ rights under a bareboat charter party and its bank accounts have been pledged as security for the loan, together with a sub-pledge of Deep Sea Drilling Company KS’ i) rights underthe charter with Statoil and ii) bank accounts, and the Company has provided an unconditional and irrevocable on-demand guarantee for Odfjell Rig Ltd.’s share of the uncalled capital of DSDC II KS. Odfjell Offshore Ltd has provided an uncalled capital guarantee towards Deep Sea Drilling Company II KS for Odfjell Rig Ltd's part of the uncalled capital requirement according to the loan agreement . Odfjell Offshore Ltd’s liability under this guarantee is limited to NOK 71,520,000 plus interest and costs. In addition, shares in Deep Sea Drilling Company II KS are pledged as security for the facility.
Odfjell Rig Ltd. – USD 170 million facilityAs security, Odfjell Rig Ltd. pledges its shares in DSDC II KS and Odfjell Drilling Bergen AS and its bank accounts, and gives an assignment of intra-group receivables. Further, the Company has pledged all its shares in Odfjell Rig Ltd. The guarantee from Odfjell Drilling will be released following a private placement or listing of the Company. The Facility was amended and restated to a USD 170 million facility on 23 August 2012. The company furnishes the following securities for the loan: account pledge over the company’s bank accounts with DNB Bank ASA ; and pledge of the company’s shares in Deep Sea Drilling Company II KS and Odfjell Drilling Bergen AS. In addition, the company's shares has been pledged in favour of DNB Bank ASA as Agent on behalf of the lenders in the USD 170 million loan agreement.
Odfjell Drilling Services Ltd. – USD 300 million facilityUSD 300 million term loan facility agreement entered into on 4 November 2011 with Odfjell Drilling Services Ltd as borrower andOdfjell Drilling Services Ltd. – USD 300 million facilityUSD 300 million term loan facility agreement entered into on 4 November 2011 with Odfjell Drilling Services Ltd as borrower and DNB Bank ASA and Danske Bank A/S as lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 330 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement.
B58
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 21 > Contingencies
One of Odfjell Drilling Ltd’s subsidiaries, Odfjell Rig Ltd, was notified by Norwegian Tax Authorities (Skatt Vest) late 2011 that income from its direct 52.913% participation in KS Deep Sea Drilling Company II (KS DSDC II) is deemed taxable in Norway for the income years 2009-2010. In 2012 the Norwegian Tax Authorities also deemed Odfjell Rig Ltd taxable for the income year 2011.
The Norwegian Tax Authorities have in 2012 taxed Odfjell Rig Ltd as if the company was taxable for the income years 2009-2011. Total tax is classified as long term receivable due to the argumentation of Odfjell Rig Ltd of not beeing taxable for the income years 2009-2011.
Total paid taxes and interests on taxes for the income years 2009-2011 are NOK 110 350 400, whereof NOK 1 972 831 are interests on tax amount for all three income years. The receivable of USD 19 824 375 is classified as long term receivable, hence the estimated duration of the trial.
Due to not agreeing with Norwegian Tax Authorities' decision, Odfjell Rig Ltd in 2012 commenced proceedings against Norwegian Tax Authorities which relates to dispute of Odfjell Rig Ltd beeing taxable for the income years 2009-2011. It is uncertain the time for start up of the trial.
Odfjell Rig Ltd is arguing that the tax authorities’ assertion is based on wrong assumptions as to the factual circumstances in the case of its participation in KS DSDC II. Odfjell Rig Ltd considers that the probability of winning the trial is higher than loosing the trial in the final court.
B59
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 22 > Commitments
USD thousands 2012 2011
Due in year 1 53 047 101 503 Due in year 2 598 000 - Due in year 3 - 527 850 Value of new building commitments 651 047 629 353
2012 2011Rental, casing and mooring equipment, due in 1 year 15 989 13 683 Total 15 989 13 683
Operating lease commitments - group company as lessee
The Group leases various offices under non-cancellable operating lease arrangements. The lease terms are between 1 and 10 years,and the majority of the lease arrangements are renewable at the end of the lease period at market rates.
Capital Commitments
The Group has signed a contract with Daewoo Shipbuilding & Marine Engineering (DSME) to build a new semi-submersible drilling rig DeepSea Aberdeen for the use in the UK's West of Shetland region under a future contract with BP. The commitments related to the newbuilding programme are summarised in the table below:
Capital expenditure other than newbuildings contracted for at the end of the reporting period but not yet incurred is as follows:
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2012 2011No later than 1 year 4 457 2 546 Later than 1 year and no later than 5 years 12 635 10 184 Later than 5 years 4 715 8 525 Total 21 806 21 255
B60
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 23 > Capital Disclosures
Capital ManagementThe primary objective of the Group`s capital management is to ensure that it maintains healthy capital ratios and liquidity available to take advantage of investment opportunities and generally support the business. Capital management should be such that the capital structure is sufficiently robust to withstand prolonged adverse conditions in significant risk factors,such as long-term down-cycles in our markets and unfavourable conditions in financial markets. Capital management also comprise securing the company to be in compliance with covenants on interest bearing debt. Reference is made to note 12 which disclose information about covenants on long term interest bearing liabilities.
The Group will manage the capital structure and make adjustments to it, to maintain an optimal structure adapted to current economic conditions. In order to maintain or adjust the capital structure, the Group may adjust dividend payments, buy treasury shares, return capital to shareholders or issue new shares.
Deposits / placementsThe liquidity management has four main objectives:- Matching of surplus funds against borrowing requirements.- Secure a high level of liquidity (a targeted minimum of two months cash flow) in order to meet future plans of the OdfjellDrilling.- Limitation of credit risks. - Maximise return on liquid assets.
Accordingly, investments may only be made in securities with a rating of Investment grade, Baa (Moodys) , BBB-(Standard and Poors and Fitch IBCA) or better.
For companies not rated by international rating bureaus, investments may be made in accordance with DnB’s rating BBB or better.
A list of counter party exposure limits shall be established by the CFO, and be reported to the Board of Odfjell Drilling on a yearly basis.
The following instruments are allowed for short term placements;- Deposits in banks
Cash and cash equivalents 185 013 275 567 Available drawing facilities - - Total available liquidity 185 013 275 567
The following instruments are allowed for short term placements;- Deposits in banks - Loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt)- Certificates- Money-market funds- Equity
Working CapitalThe company's policy is to have working capital corresponding to 2 months’ operating expenses.
Interest Rate RiskThe administration is authorised to hegde up to 50% of the interest payments of the external financing based on an approval from the Finance Committee (CEO, CFO and VP Finance). Status is to be reported to the Board on a yearly basis.
B61
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 24 > Transactions with related parties
2012 2011Sales of services:- Entities controlled by Odfjell Partners Ltd. (management services) 26 289 - Associates 93 191 24 400 Total 93 217 24 689
The Group is 100% controlled by Odfjell Drilling Holding Ltd. Odfjell Drilling Holding Ltd. is controlled by Odfjell Partners Ltd., which owns 69.67% of the company's shares. The remaining shares are owned by the Larine Trust (25.90%), Elin Odfjell (3.96%) and Simen Lieungh (0.47%).
The following transactions were carried out with related parties:
Key management compensationKey management includes directors (executive and non-executive). The compensation paid or payable to key management foremployee services is shown in Note 18 - Remuneration.
Year-end balances arising from purchase of services
Current receivables from related parties: 2012 2011Current receivables from related parties: 14 285 58 098 Total 14 285 58 098
Current liabilities to related parties: 2012 2011Current liabilities to related parties 349 - Current liabilities to parent company 6 286 Total 6 635 -
Non-current loans from related parties 2012 2011Non-current liability under related party agreement - 7 255 Total - 7 255
Non-current receivables from related parties 2012 2011Non-current receivable under related-party agreement 52 069 - Non-current receivable Odfjell Capital Ltd 15 902 15 464 Total 67 970 15 464
B62
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 24 > Transactions with related parties (cont.)
Commitments
The Group leases various offices under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years,and the majority of lease agreements are renewable at the end of the lease period at market rate.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2012 2011No later than 1 year 1 911 4 432 Later than 1 year and no later than 5 years 7 543 17 630 Later than 5 years 4 715 15 040 Total 14 169 37 103
B63
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 25 > Events after the reporting period
There are not identified events after the reporting period with effect for the financial statement for 2012.
B64
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Effect of transition to IFRSDecember 31, 2011 January 1, 2011
These financial statements are the Group's first annual financial statements prepared in accordance with IFRS. This note discloses the impact of the transition to IFRS on the Group's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Group's consolidated financial statements for the year ended December 31, 2011 prepared under Norwegian GAAP.
Reconciliation of consolidated statement of financial position as previously reported under Norwegian GAAP to IFRS:
Other comprehensive income (net of tax):Interest rate swap, previously under hedge accounting e - 23 476 23 476 Forward foreign exchange contracts, used f - -4 635 -4 635 Change in fair value of cash flow hegdes f - -110 -110 Post-employment benefits - actuarial gains and losses b - -16 281 -16 281 Currency translation differences g - -37 019 -37 019 Other comprehensive (loss) income for the period - -34 569 -34 569 Total comprehensive income 116 487 -29 776 86 711
2011
B66
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 26 > First-time adoption of IFRS (cont.)
Reconciliation of comprehensive income as previously reported under Norwegian GAAP to IFRS:
Note 2011Comprehensive income as reported under Norwegian GAAP 116 487
Increase (decrease) in net income for:Adjusted gain on sale of subsidiary a 2 431 Post-employment benefits-adjustment on service cost b 642 Post-employment benefits-adjustment on interest cost b -1 916 Reversal of amortisation on goodwill c 3 051 Reversal of amortisation on goodwill relating to investment in joint venture d 586
4 793 Increase (decrease) in other comprehensive income for: - Interest rate swap, previously under hedge accounting e 23 476 Forward foreign exchange contracts, settled during the year e,f -4 635 Change in fair value of cash flow hegdes f -110 Post-employment benefits - actuarial gains and losses b -16 281 Currency translation differences g -37 019
-34 569
Total comprehensive income as reported under IFRS 86 710
Reconciliation of equity as previously reported under Norwegian GAAP to IFRS:
IFRS adjustmentsFinancial instruments, forward foreign exchange contracts e,f 4 635 - Financial instruments, interest rate swaps e,f -23 476 -110 Reversal of amortisation on goodwill c - 2 854 Change in pension liability (net of tax) b -26 870 -43 398 Change in cost of investment in Ross Holding a - 2 751 Reclassification of currency translation g -35 872Total adjustments -45 711 -73 775 Total adjustments above were reclassified within equity g - 35 872 Total equity reported under IFRS 969 371 1 032 831
B67
Odfjell Drilling Ltd.Notes to the consolidated Financial Statements
(All amounts are in USD thousands unless otherwise stated)
Note 26 > First-time adoption of IFRS (cont.)
a) The Group disposed a subsidiary in 2011 with a consolidated gain under Norwegian GAAP of USD 40.8 million. Part of the consideration was shares in Ross Holding AS, which became a joint venture for the Group. Under Norwegian GAAP this gain was proportionately recognised as the Group retained ownership in the new joint venture. Under IFRS, the full gain were recognised in accordance with IAS 27.34d, and the gain increased to USD 43.2 million.
b) The Group has early adopted IAS19 (revised) when accounting for employee benefits. Under IAS19 (revised) the corridor approach is eliminated and all actuarial gains and losses recognised in OCI as they occur. All past service costs are recognised and interest costs and expected return on plan assets are replaced with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The interest expense has been reclassified as a finance item.
As at 31 December this adjustment has increased the pension liability (net of tax) by USD 26.8 million. Service cost decreased by USD 0.6 million and interest cost related to future employee benefits increased with USD 1.9 million.
c) Under Norwegian GAAP, goodwill is amortised over its estimated useful life. Under IFRS goodwill is not subject to amortisation. This resulted in a reversal of USD 3 million.
d) Goodwill amortisation related to investment in joint venture is reversed due to the difference between Norwegian GAAP and IFRS as explained above.
) Th G h d i t t th t d i t d h
g) As allowed by IFRS, the company reset its cumulative translation adjustment account to zero at January 1, 2011. The translation adjustment at December 31 classified as retained earnings under Norwegian GAAP, has under IFRS been reclassified to Other reserves through other comprehensive income.
h) As a result of tax effect on IFRS adjustments, deferred income tax asset/liability has been changed.
i) In accordance with IFRS, current portion of non-current interest bearing debt has been reclassified from non current to current liabilities.
Adjustments to the statement of cash flows
The transition from Norwegian GAAP to IFRS had no significant impact on the cash flow statement except for some reclassifications and specifications required under IFRS. In addition, IFRS adjustments to P&L and Statement of Financial position have been adjusted for in the Cash flow statement as there are no cash flow effects from the IFRS adjustments.
gIFRS as explained above.
e) The Group had instruments that were designated as cash flow hedges directly in equity until Q4 2011. Due to refinancing of loans during second half of the year, it was concluded that hedge accounting no longer could be applied as the forecast transaction is no longer expected to occur. The cumulative loss in other comprehensive income was immediately reclassified from equity to profit or loss in accordance with IAS 39.101c.
f) Under Norwegian GAAP, interest rate swaps were recognised at cost. Under IFRS interest rate swaps are recognised at fair value, and the change in fair value of cash flow hedges is recognised. This resulted in a loss of USD 0.11 million recognised in other comprehensive income.
CASH FLOW STATEMENT Odfjell Drilling Ltd.for the year ended 31 December
(All figures in USD)
2012 2011Profit/(loss) before tax 5 421 335 77 861 088Adjustments for:Decrease/(increase) in trade accounts receivable and other receivables 20 235 -7 479 833Decrease/(increase) in trade accounts payable and other current liabilities 121 603 -3 132 228Changes in net intercompany short-term liabilities and receivables -681 638 0Cash flows from operating activities 4 881 536 67 249 026
Cash flows from investing activitiesInvestments in group companies 0 -1 568 462Investments in associated companies 0 0Long term loan to group companies -112 578 375 38 877 704Decrease/increase in net intercompany short-term liabilities and receivables 0 87 809 401Subordinated loan 0 1 161 008Long-term bonds 0 3 709 733Long-term loan -438 297 2 046 806Other short-term investments 0Net cash flow used in investing activities -113 016 672 132 036 190
Cash flows from financing activitiesLong term debt -4 692 524 -3 744 443Changes in long term debt group companies 78 077 877 314 269 512Short term loan 0 -488 627 831Paid out dividende -1 765 000 -7 509 136Net cash flow from financing activities 71 620 353 -185 611 898
Net increase/(decrease) in cash and cash equivalents -36 514 784 13 673 318Cash and cash equivalents at beginning of period 38 818 752 25 145 434Cash and cash equivalents at end of period 2 303 968 38 818 752
B72
Odfjell Drilling Services Ltd.
Notes 2012
Note 1 Accounting principles
The accounting information includes profit and loss statement, balance sheet statement, notes and cashflow statement.The accounts are prepared in accordance with Norwegian GAAP. Figures are reported in USD.The company is located at Bermuda.
Recognition of incomeThe company is a single purpose company with the only interest of owning its shares in subsidiaries. Any dividend received or other financial income are recognised as financial income.
Classification of balance sheet itemsAssets identified as being permanently owned or used, are classified as fixed assets. Other assets are classified as current assets. Liabilities due more than one year after they are incurred are classified as long-term liabilities.First year instalment on long-term loans are classified as long-term liabilities.Liabilities due less than one year after being incurred are classified as short-term liabilities. Accounts receivable Trade debtors and other receivables are accounted for at net value after deductions for expected losses.
Foreign currencyBalance sheet items in foreign currencies are translated to USD at the currency rate at the balance date.Profit and loss transactions in other currencies, are translated to USD at the currency rate at the transaction day.
Cash and bank depositsCash and bank deposits also include other liquid investments with a period to maturity of 90 days or lessfrom the date of issue.
Impairment of assetThe asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever the carrying amount of an asset exceedsits recoverable amount, an impairment loss is recognised in the income statement.The assets are tested annually for impairment at each reporting date.
Cash flow statement
Change of funtional and presentation currency
Balance sheet items and cash flow statement as per 31.12.2011 are converted from NOK to USD with exchange rate
Proit and loss statement items are converted from NOK to USD with average exchange rate NOK/USD for 2011which were 5,6070. Difference between average exchange rate and year end exchange rate for 2011 profit is presented ascurrency difference in the equity reconciliation.
The cash flow statement is prepared using the indirect method.
As per 1 January 2012 the company changed its functional and presentation currency from NOK to USD.
Repayment and interest conditions:Loan from Odfjell Drilling Services Ltd : Final maturity date 9 November 2018, applicable interest is 3 months LIBOR + 3,63% marginLoan given to Odfjell Offshore Ltd: Final maturity date 9 May 2013, applicable interest is fixed annual 6,95%
Short term: Receivables Liabilities Receivables Liabilities2012 2012 2011 2011
The table below summarises the maturity profile of the company's financial liabilities at 31 December 2012:
Less than 3 months 3 to 12 months 1 to 5 years > 5 yearsLong term debt 2 562 819Long term loan from subsidiary 397 474 200Intercompany long term liabilitiesIntercompany short-term liabilities 6 831 681Total 7 139 171 2 562 819 397 474 200
As per a novation agreement entered into on 2 July 2010, two interest rate swaps were novated from Odfjell Capital (Bermuda) Ltd to Odfjell Drilling Ltd.
Due to the agreed division of rights and obligations of the interest rate swaps between Odfjell Capital (Bermuda) Ltd and Odfjell Drilling Ltd.,the principles of hedge accounting are not used in relation to the swaps.
Market values have been used to determine the fair value of the interest rate swap agreements. At year end these interest rate swap agreementshad a negative market value of USD 2,56 million. The market value has been posted as debt in the company's books at year end. The negative market value in addition to the net interest paid by Odfjell Drilling Ltd since 2 July 2010 in relation to the swaps are also posted as a receivable.
Interest swap agreements at 31 December 2012:Fixed interest rate in % Due date Fair value 31.12.12
Interest swap agreement, USD 165 million 3.64 29.03.2013 (2 498 229) Interest swap agreement, USD 5 million 3.20 29.03.2013 (64 590) Total fair value pr 31.12.12 (2 562 819)
B78
THE
ODFJELL DRILLING GROUP
Financial statements2011
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B80
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•
•
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•
•
•
B85
B86
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B92
THE ODFJELL DRILLING GROUP
Profit and loss statement - GroupAll figures in NOK
Cash and bank deposits 2 1 816 606 249 1 605 307 703
Total current assets 3 735 989 857 3 159 070 735
TOTAL ASSETS 16 389 510 805 15 303 431 673
B94
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THE ODFJELL DRILLING GROUP
Cash flow statement - GroupAll figures in NOK
Cash flow from activities 2011 2010
Profit before tax 833 760 758 275 485 711
Adjustments to reconcile profit before taxwith net cash flow from operations:Depreciation 822 116 858 538 317 166Write off shares in limited partnership 0 -63 952 260Loss on financial instruments -144 423 026Income from associates 41 605 539 -25 697 310Net (gain)/loss on sale of shares -221 926 068 - Net (gain)/loss on sale of tangible fixed assets -15 010 257 -26 002 408Changes in pension liabilities 8 991 922 69 475 760Changes in assets and liabilities:Accounts receivable -264 629 211 -173 403 881Spare parts -105 178 674 -107 564 659Tax payable -73 809 941 -216 153 417Trade creditors 4 658 211 42 872 339Other accruals -187 477 184 -178 795 768Net cash flow from operating activities 698 678 924 134 581 273
Cash flow from investment activities:
Investments in intangible and tangible fixed assets -588 974 340 -2 516 244 241Investments in long-term receivables -6 000 145 383 053 517R l i bl 0 205 763 666Repayment long-term receivables 0 -205 763 666Investments in shares incl. associated companies -624 432 845 -535 865 645Aquisition shares subsidiary 0 -259 460 404Investments in bonds and other short term investments 0 61 151 568Devestments in bonds and other short term investments 22 231 319 0Sale of shares 210 000 000 5 899 465Sale of fixed assets 29 684 366 41 842 143Net cash flow from investment activities -957 491 645 -3 025 387 263
Cash flow from financing activities:
Net changes in long-term liabilities 656 612 015 1 679 472 326Sale of shares - reduction of cash -44 840 381 0Dividends (paid) -45 000 000 -40 000 000Capital paid to minorities -90 839 428 -72 449 183Net cash flow from financing activities 475 932 206 1 567 023 143
Net change in cash and cash equivalents for the year 217 119 486 -1 323 782 847
Cash and bank deposits as per 01.01 1 605 307 703 2 929 090 552Cash and bank deposits as per 31.12 1 822 427 189 1 605 307 703
B96
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
General The accounting information presented here reflects the financial position of Odfjell Drilling Ltd. and its subsidiaries, which have been consolidated (group accounts). The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. Accounts for subgroups in the group are prepared for the subgroups Odfjell Offshore Ltd, Odfjell Drilling Services Ltd, Odfjell Invest Ltd, Odfjell Drilling AS and Odfjell Drilling Bergen AS. Accounts are not prepared for the other subgroups in the group, cf. the exception in the Norwegian Accounting Act section 3 –7. Consolidation principles The consolidated accounts show the total financial result and the total financial position when the parent company Odfjell Drilling Ltd. and its controlling interests in other companies are presented as one financial unit . A controlling interest is normally obtained when the group owns more than 50% of the shares in the company and can exercise control over the company. Minority interests are included in the group’s equity. Transactions between group companies have been eliminated in the consolidated financial statement. The consolidated financial statement has been prepared in accordance with the same accounting principles for both parent and subsidiary. The subsidiaries' accounts are incorporated into the consolidated accounts with effect from the date they were acquired. The cost price of the shares is eliminated against the equity of the respective subsidiaries using the acquisition method. Excess values over and above book values are recognised at gross value with provision being made for deferred tax, and any residual value is assigned to goodwill. Goodwill and permanent excess values relating to operating assets are depreciated over the expected useful life of the asset. An associate is an entity in which the group has a significant influence but does not control the management of its finances and operations (normally when the group owns 20%-50% of the company). The consolidated financial statements include the group’s share of the profits/losses from associates, accounted for using the equity method, from the date when a significant influence is achieved and until the date when such influence ceases. When the group’s share of a loss exceeds the group’s investment in an associate, the amount carried in the group’s balance sheet is reduced to zero and further losses are not recognised unless the Group has an obligation to cover any such loss. Investment in other companies than subsidiaries, associates and joint ventures are accounted for using the cost method. All companies that are defined as subsidiaries are included 100 per cent in the income statement and balance sheet. The minority interests' share of profit/loss and equity is specified. Group companies reporting in foreign currency are converted into NOK using the average currency rate on profit-and loss statement, and year end rates in the balance sheet. Currency differences related to consolidating the subsidiaries and the associates are adjusted against the group’s equity. Through the elimination of internal accounts receivable and accounts payable, exchange rate differences are offset directly against equity. Recognition of income Most of the group's income is based on day rates from drilling contracts and other service contracts. The income is recognised in the income statement when the services are performed and at the rates specified in the contract.
B97
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
Construction contracts Construction contracts are recognised in accordance with the percentage of completion method. The income is allocated in accordance with the progress of the contracts, if the outcome of the construction contracts can be estimated in a reliable manner. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts, when reliable estimates are available. When outcome of the contracts cannot be reliably estimated, only the income corresponding to the accrued costs will be entered as an income. In the period it is identified that a contract will give negative outcome, the estimated deficit on the contract will be fully allocated. Foreign currency Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period. Financial risk - General The group's principal financial liabilities comprise bank loans, subordinated loan capital and trade payables. The main purpose of these financial liabilities is the financing of the group's operations. The group has financial assets such as cash, short-term investments and trade receivables. The group has also entered into derivative transactions, primarily currency forward contracts and interest rate swaps. The purpose is to manage the currency exposure arising from the group's operations and exposure of fluctuations in interest level. (I) Credit risk The market for the Company’s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Company believes this risk is remote as the counterparties are of high credit quality parties. (II) Interest-rate risk The group's exposure to the risk of changes in market interest rates relates primarily to the group's long-term debt obligations at floating interest rates. The group evaluates the share of interest rate hedging based on assessment of the group’s total interest rate risk. . (III) Liquidity risk The group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the group's strategic plan. The group monitors its liquidity risk using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets and projected cash flow from operations. (IV) Exchange-rate risk Most of the group's operating costs are in NOK, while investments and revenues are primarily in USD. The group has entered into forward currency contracts to manage the currency exposure arising from the group's operations. The group’s main currency policy is that income in USD equivalent to the amount of all working expenses in NOK, are to be hedged in such manner that at all times minimum 50% of the total amount of income that cover the matching working expenses are hedged.
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The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
Capital management The group has adopted financial guidelines for the handling of deposits and placements. The objective of these guidelines is to reduce the risk of capital loss while maintaining maximum liquidity and availability of cash to fund the group's operations. The group shall at all times maintain a low risk profile, and shall maintain necessary funds in operating accounts or time deposits. The following instruments are allowed for short term placements: deposits in banks, loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt), certificates, money market funds. Use of estimates The management has used estimates and assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway. Classification of balance sheet items Assets identified as being permanently owned or used are fixed assets. Other assets are current assets. Liabilities which fall due more than one year after they are incurred are entered as long-term liabilities. Therefore, the first year's instalments on long-term loans are included in long-term liabilities. Liabilities which fall due for payment less than one year after being incurred are classified as short-term liabilities. Tangible assets and goodwill Tangible assets and goodwill are entered in the accounts at acquisition cost minus accumulated depreciation and write-downs. Depreciation is linear over the expected useful life of the asset. Write-downs are done when fair value is lower than the book value and this is not expected to be temporary. The group's mobile units are expected to have a residual value at the end of their useful life. For other tangible assets no account has been taken of possible scrap value when calculating depreciation. When the market value of the assets increases above the book value, previous write-downs will be reversed according to the original depreciation plan. Periodic maintenance The group capitalises periodic maintenance on the group's mobile units and depreciates this until the next major planned maintenance. Spare parts Spare parts are recognised at the lower of cost price and market value. Spare parts are presented net after write-downs for obsolescence. Accounts receivable Trade debtors and other receivables are valued at net value after deductions for expected losses. Shares, bonds and money market funds Shares, bonds and money market funds are recognised at market value at year end. The group recognises losses during the period if market value is lower than book value. Cash and bank deposits Cash and bank deposits also include other liquid investments with a period to maturity of less than 90 days from the date of issue. Pensions Pension costs and pension liabilities are calculated on the basis of linear earnings based on assumptions regarding the discount rate, future wage increases, pensions and national insurance benefits, future returns on pension assets and actuarial assumptions about mortality, voluntary retirement etc. Pension assets are valued at fair value and deducted in net pension liabilities in the balance sheet. Changes in the liability that are due to changes in the pension plans are taken over the result with full effect in the
B99
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
accounting year. When the accumulated effects of changes in estimates, changes in assumptions and deviation of actuarial assumptions are above 10 % of the larger gross pension liabilities and pension assets, the excess amount are recognized in the income statement over the estimated average remaining service period. A linear earning profile and expected salary on retirement are used in the accounts as the earnings basis. Leasing Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Cost of borrowings Costs in connection with borrowings are charged to income in the period during which the loan is drawn on, on a linear basis. Tax The tax expense in the accounts includes both tax payable for the period and change in deferred tax. Deferred tax is calculated at 28 per cent on the basis of the temporary differences that exist between accounting and tax values. Tax-increasing and tax-reducing temporary differences that are reversed or can be reversed in the same period are assessed and recognised at net value. Cash flow statement The cash flow statement is prepared using the indirect method.
Events after the balance sheet date New information on the group's position on the balance sheet date is taken into account in the financial statements. Events after the balance sheet date that do not affect the group's position on the balance sheet date but which will affect the group's position in the future, are stated if they are significant.
Book value as per 31.12.2011 144 829 260 217 702 8 966 618 518 441 869 546 1 099 810 642 10 653 345 668
Useful life 5/20 years 3 years 35 years 5 years 3 - 12 yearsDepreciation plan Linear Linear Linear Linear Linear
Leasing expenses operating assets - - - - -
The recoverable amount for Deepsea Bergen are higher than carrying value.
2002 2004 2005
The residual value of the rig Deepsea Bergen has been set at NOK 100 mill. at the end of the useful life.
Goodwill relates to excess values in acquired subsidiaries. In accordance with NGAAP assumed financial life time is estimated to 5-20 years from acquisition date. The group is a leading company in the current business areas and is building the business activities in the future on the acquired experience. According to the group's long term business view, the main part of the goodwill are recognised on a straight-line basis over the useful life of 20 years.
GoodwillGroup
restructuringAquisition
Drilltools AS Aquisition Ntera Ltd. Total
Book value as per 31.12.2010 139 167 438 2 821 000 19 946 233 161 934 671
Depreciation (12 372 281) (217 000) (4 516 128) (17 105 411)Write-down - Book value as per 31.12.2011 126 795 157 2 604 000 15 430 105 144 829 260
Useful life 20 20 10Depreciation plan Linear Linear Linear
The share capital consists of No. of shares Nominal value Tot. book value
Shares 1 376 687 078 USD 0,00001 91 231
Total 1 376 687 078 USD 0,00001 91 231
List of shareholders as per 31.12.2011Shares Participating interests/
Share of votes
Odfjell Drilling Holding Ltd 1 376 687 078 100 %
Total number of shares 1 376 687 078 100 %
Helene Odfjell controls 69% through Odfjell Partners Ltd. Marianne Odfjell family controls 25,9% of the shares in Odfjell Drilling Holding Ltd.Elin Odfjell controls 3,96% through the company ASEO Ltd and the CEO in Odfjell Drilling controls0,47% personally.
Note 6 Long-term liabilities
Debt to credit institutions and other long-term liabilities
31.12.2011 31.12.2010S b di t d l it l 0 30 723 441
All shares carry equal voting rights.
Subordinated loan capital 0 30 723 441Loans in USD presented in NOK 8 404 730 448 7 748 118 433Other long-term liabilities 195 870 643 68 052 615Total 8 600 601 091 7 846 894 489
Loans in USD are stated at the year-end exchange rate.
The group's interest-bearing loans from credit institutions have the following settlement structure:
The group short -term liabilities are all due within one year after the balance sheet date.
31.12.2011 31.12.2010Construction contracts under completion 0 90 801 805Advances received 0 156 486 663Net advance payment from customer 0 -65 684 858
Construction contractsThe Odfjell Drilling Group had in 2010 a few fixed price contruction contracts, and the revenue was recognised on the percentage of completion method. The stage of completion was measured by portion of costs incurred to date bear to the estimated total costs of the contracts.
The fixed price construction contracts are presented as a net advance payment from customer, together with other short-term liabilities.
Pr 31.12.2011 all construction contracts has been completed, and hence there are no advance payments from customer in the balance related to construction contracts.
B104
The Odfjell Drilling Group
NOTES 2011
Note 9 Tax
Tax expenses for the year are as follows: 2011 2010
The tax expenses 2011 are related to the legal entities in the Norwegian Tax regime.
Deferred taxDeferred tax shows the effect of temporary differences that occur when assets and liabilities are valued for financial accounting and tax accounting purposes respectively. Deferred tax relates to the following main items.
31.12.2011 31.12.2010Negative temporary differencesTax-related loss carryforward -500 994 745 Receivables -3 328 166 Current assets -12 523 183 -2 343 146 Net pension liabilities -160 094 886 -150 799 875 Net negative temporary differences -175 946 235 -654 137 766
Positive temporary differencesFixed assets 100 922 941 133 124 205 Share in limited partnership 993 631 14 246 464 Share in limited partnership 993 631 14 246 464 Profit and loss account 321 715 912 393 354 946 Net positive temporary differences 423 632 484 540 725 615
Net temporary differences 247 686 249 (113 412 151)
Odfjell Rig Ltd, a wholly owned subsidiary of the Company incorporated in Bermuda, was notified by Norwegian Tax Authorities (Skatt Vest) late 2011 that income from its direct 52.913% participation in KS Deep Sea Drilling Company II (KS DSDC II) is deemed taxable in Norway for the income years 2009-2010. KS DSDC II is the owner of the rig Deepsea Bergen, which has been leased to KS Deep Sea Drilling Company (KS DSDC) under a bareboat charter at a fixed dayrate of USD 171,557.
KS DSDC has, in turn, entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the Norwegian Continental Shelf. Odfjell Rig Ltd has not received response to its reply to the tax authorities, arguing that the tax authorities’ assertion is based on wrong assumptions as to the factual circumstances in the case. There can be no assurances that the Norwegian Tax Authorities will accept the arguments set forth by Odfjell Rig Ltd and conclude that the company is not taxable in Norway for its participation in KS DSDC II. Hence, there is a risk that Odfjell Rig Ltd. will be deemed taxable in Norway for the income years 2009-2010 (and/or subsequent years should the Norwegian Tax Authorities successfully challenge the company’s tax treatment for these years).
The group has a pension scheme covering a total of 1,665 persons, of which 105 pensioniers. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. These liabilities are covered through an insurance company (funded).
The group also has a contractual pension agreement (CPA) covering 817 persons, of which 28 pensioniers. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer`s contribution to these benefits amounts to 20% of the pension paid. These liabilities are not covered through an insurance company (unfunded).
A number of the Norwegian subsidiaries in the group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act.
The defined benefit plans' pension expenses and liabilities are presented according to the Norwegian Accounting Standard no. 6 (NRS 6).
In addition, the group has several defined pension contribution arrangement. By 31.12.2011, these arrangements involve 607 employees.Employer's contribution 2011; NOK 22 668 342.
Weighted-average investment profile for plan assets at year end:
The Group's pension schemes are with the life assurance company DNB Liv ASA.
The actuarial assumptions are based on generally used assumptions in the insurance industry with respect to demographic factors and retirement. The above calculations are based on annual actuarial calculations.
Note 12 Remuneration of the board of directors, CEO and auditor
Remuneration CEO Board of DirectorsSalary 3 932 845Bonus 0Other benefits 20 595Pension costs 58 602
Board of directors' fee 0 1 075 000
4 012 042 1 075 000
No loans or guarantees have been given to the CEO, members of the Board or their related parties. Employee loans amount to a total of NOK 3 208 908 pr 31.12.2011.
Fee to the auditor: 2011 2010Statutory audit fee 1 622 429 1 528 100Assurance services 113 372 198 037Tax and legal advisory services 834 142 745 477Other services, not part of the auditing (ex. Legal consultancy) 3 221 736 0Total 5 791 679 2 471 614
All fees to auditor presented above are without VAT.
Note 13 Other financial income/expenses
2011 2010Realised exchange rate gains long term debt 0 0Unrealised exchange rate gains long term debt 0 283 883 050Realised exchange rate gain other 303 599 545 268 867 257Unrealised exchange rate gain other 56 678 798 0Gain from sale of subsidiary 221 926 068Other financial income 27 161 791 50 158 952Total other financial income 609 366 202 602 909 259
Realised exchange rate loss long term debt 0 80 804 700Unrealised exchange rate loss long term debt 30 911 758 0Realised exchange rate loss other 194 462 054 0Unrealised exchange rate loss other 0 158 998 666Other financial expenses 322 424 654 -38 651 732Total other financial expenses 547 798 466 201 151 634
Note 14 Spare parts
Inventory of spare parts is carried at cost price and is written down when its assumed market value is lower than the cost price.
Note 15 Hedging of income
Some of the subsidiaries had forward contracts during 2011.As per 31.12.2011, there are no active forward contracts since alle contracts were closed in January 2011. Normally profit/loss related to the forward contracts are booked in the same period as the income is earnedwhen forward contracts qualify as hedging instruments. When forward contracts qualify as hedging instrumentsthe contracts are not capitalised and not presented in the balance sheet.
B107
The Odfjell Drilling Group
NOTES 2011
Note 16 Group companies
Companies Main office Voting and owning interest
SubsidiariesBergen Drillpart AS Bergen, Norway 100.00 %Deep Sea Drilling Company AS Bergen, Norway 100.00 %Deep Sea Drilling Company II AS Bergen, Norway 100.00 %Deep Sea Management AS Bergen, Norway 100.00 %Deep Sea Management Ltd. FZE UAE 100.00 %Deep Sea Mooring AS Sola, Norway 100.00 %Deep Sea Rig AS Bergen, Norway 100.00 %Odfjell Casing Services AS Sola, Norway 100.00 %Odfjell Drilling (UK) Ltd Aberdeen, UK 100.00 %Odfjell Drilling AS Bergen, Norway 100.00 %Odfjell Drilling Coöperatief U.A. Amsterdam, the Netherlands 100.00 %Odfjell Drilling Management AS Bergen, Norway 100.00 %Odfjell Drilling Shetland Ltd Aberdeen, UK 100.00 %Odfjell Drilling Technology AS Bergen, Norway 100.00 %Odfjell Drilling Technology Ltd Hamilton, Bermuda 100.00 %Odfjell Invest AS Bergen, Norway 100.00 %Odfjell Invest Holland BV Amsterdam, the Netherlands 100,00 %Odfjell Invest I Ltd Hamilton, Bermuda 100,00 %Odfjell Invest II Ltd Hamilton, Bermuda 100,00 %Odfjell Invest Ltd Hamilton, Bermuda 100,00 %Odfjell Operations Ltd Hamilton, Bermuda 100.00 %Odfjell Partners Invest Ltd Hamilton, Bermuda 100.00 %Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil 100,00 %Odfjell Rental Services AS Sola, Norway 100.00 %Odfjell Rig AS Bergen, Norway 100.00 %Odfjell Rig Ltd Hamilton, Bermuda 100.00 %Odfjell Technology Manila Corporation Manila, Philippines 100.00 %Odfjell Well Services Europe AS Bergen, Norway 100.00 %Odfjell Well Services Ltd British Virgin Islands 100.00 %
Limited partnershipsDeep Sea Drilling Company KS Bergen, Norway 71.53 %Deep Sea Drilling Company II KS Bergen, Norway 71.53 %KS AS Bergen Drillpart Oslo, Norway 72.38 %
The following group companies were acquired/established in 2011:Odfjell Arabia Drilling Services LLC Saudi Arabia 100.00 %Odfjell Drilling Bergen AS Bergen, Norway 100.00 %Odfjell Drilling Netherlands BV Amsterdam, the Netherlands 100.00 %Odfjell Galvão BV Amsterdam, the Netherlands 100.00 %Odfjell Offshore Ltd Hamilton, Bermuda 100.00 %Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil 100.00 %Odfjell Rig II Ltd Hamilton, Bermuda 100.00 %Odfjell Rig III Ltd Hamilton, Bermuda 100.00 %Odfjell Well Services II Ltd Hamilton, Bermuda 100.00 %Odfjell Well Services SRL Bucharest, Romania 100.00 %
The following companies were sold in 2011:Odfjell Drilling Services LLC Saudi Arabia 80.00 %Odfjell Invest Holland II BV Amsterdam, the Netherlands 100.00 %Odfjell Well Management AS Bergen, Norway 100.00 %Odfjell Well Management Consultants AS Bergen, Norway 100.00 %
B108
The Odfjell Drilling Group
NOTES 2011
Note 17 Subordinated loan capital
Subordinated loans including accrued interest 2011 2010Odfjell Partners Ltd. NOK 0 30 723 441Total NOK 0 30 723 441
The loan from Odfjell Partners Ltd.was defined as a subordinated loan and was subordinated other secured liabilities .
Interest for 2011 of NOK 1,447,941 was accumulated to the loan balance and paid at repayment of loan.
Note 18 Guarantees and loans
Odfjell Drilling Ltd. has furnished guarantees with joint and several liability for the outstanding loan amount in thegroup's loan agreements.
Note 19 Minority interests
Minority interests represent external shares in Odfjell Drilling subsidiaries.
The minority interests have developed as follows:Minority interests as per 01.01. 155 696 506 168 479 373Minority interests' share of the year's profit/loss 69 788 717 59 666 316Capital payments to minority interests -90 839 428 -72 449 183Currency differences 1 550 435Minority interests as per 31.12. 136 196 230 155 696 506
Note 20 Operating income
2011 2010
(in NOK '000) (in NOK '000)Operations, drilling units 3 425 521 3 238 075 Well services 915 154 801 474 Odfjell Drilling & Technology 1 397 840 646 753 Other 186 423 38 607 Operating income 5 924 938 4 724 909
(in NOK '000) (in NOK '000)Norway 4 611 489 3 810 484 UK 505 068 404 686 Denmark 1 4 744 Europe, other countries 94 608 119 016 Middle East 157 097 126 845 Phillipines 1 327 141 Africa 555 348 258 993 Operating income 5 924 938 4 724 909
By business area
By geography
B109
The Odfjell Drilling Group
NOTES 2011
Note 21 Investment in associates
Company Acquisition Registered office Share ownership Voting rightsPetro Services West Group AS 2010 Bergen, Norway 50,00 % 50,00 %Ross Holding AS Group 2011 Stavanger, Norway 50,00 % 50,00 %Deep Sea Metro Ltd 2008 Hamilton, Bermuda 40,00 % 40,00 %
The associated companies PSW Group AS, Ross Holding AS Group and Deep Sea Metro Ltd. are valued and presented by using the equity method in the consolidated financial statements.The 50% share in Ross Holding Group AS was acquired as a part of the sale of the subsidiary Odfjell Well Management AS in 2011. As a part of the payment from sale of Odfjell Well Management AS, Odfjell Drilling Group received 50% of the shares in Ross Holding AS Group.
PSW Group AS Ross Holding Group AS Deep Sea Metro Ltd Total PSW Group AS Deep Sea Metro Ltd TotalBook value of equity at 01.01 11 581 356 - 1 239 734 016 1 251 315 372 - 748 652 818 748 652 818 Investments/Aquisitions during the year 5 000 000 68 104 445 551 328 400 624 432 845 16 596 777 516 312 645 532 909 422 Share of profits (4 456 044) 6 028 628 (27 766 856) (26 194 272) (3 590 359) -12 898 221 (16 488 580) Currency translation effect NOK/USD - 26 599 795 26 599 795 - -12 333 226 (12 333 226) Amortization of excess value (1 710 075) (3 285 948) (4 996 023) (1 425 062) (1 425 062) Write down of excess value (10 415 237) (10 415 237) Book value of equity at 31.12 - 70 847 125 1 789 895 355 1 860 742 480 11 581 356 1 239 734 016 1 251 315 372
Note 22 Investment in other companies
Financial fixed assetsAcquisition/
formation date Registered office
Share ownership/ Percentage of
votes Book valueMeland Golfklubb Meland, Norway 20 000 Westfal-Larsen Chemical Carriers I KS 2006 Bergen, Norway 7,14 % 5 458 571 Total 5 478 571
As per 31.12.2011, the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS amounts to NOK 11 041 649.
2011 2010
B110
The Odfjell Drilling Group
NOTES 2011
Note 23 Other operating expenses
Other operating expenses 2011 2010
Consumption of purchased goods for resale 19 003 001 20 673 423
Hired services and subcontractors 335 096 267 210 456 944
Hire machines, fixtures and fittings 89 344 568 92 615 450
Tools, fixtures and fittings, and working plant 257 641 885 199 154 538
Repair and maintenance 103 637 460 70 754 950
Insurance, guarantee and service costs 42 551 830 27 882 591
Loss 2 139 456 1 265 040
Other operating and administrative expenses 532 547 850 376 664 346
Total 1 381 962 317 999 467 282
Note 24 Other long term receivables
Other long term receivables 2011 2010
Loan to employees 3 208 908 3 109 077Loan to associate 1 620 116 0Other long term accruals 92 876 487 88 596 289Total 97 705 511 91 705 366
Note 25 Related parties transactionsNote 25 Related parties transactions
Management services Kokstad Invest AS Related parties 1 500 000 Management services Kokstad Invest Holding AS Related parties 30 000 Management services Kokstad Eiendom AS Related parties 30 000 Management services Sandslimarka 185 AS Related parties 60 000 Total 1 620 000
Interest expenses Odfjell Partners Ltd Related party 1 447 941 Office rent Kokstad Invest AS Related partyOffice rent Sandslimarka 185 AS Related party
B111
B112
1
B113
B114
B115
B116
Odfjell Drilling Ltd.
Notes 2011
Helene Odfjell controls 69,67% through Odfjell Partners Ltd, Marianne Odfjell controls 25,9% personally,
Abraham Odfjell controls 3,96% though the company ASEAO Ltd and the CEO in Odfjell Drilling controls 0,47% personally.
B117
Odfjell Drilling Ltd.
Notes 2011
B118
Odfjell Drilling Ltd.
Notes 2011
Interest Subsidiary
Interest Subsidiary
Interest Subsidiary
Interest Subsidiary
Interest Subsidiary
Interest Odfjell Invest Ltd Subsidiary
Interest Subsidiary
Interest Subsidiary
Management services Odfjell Drilling AS Subsidiary
Interest Odfjell Rig Ltd Subsidiary
Interest Odfjell Drilling Services Ltd Subsidiary
B119
Odfjell Drilling Ltd.
Notes 2011
Loan agreement in Odfjell Drilling Services LtdLoan agreement in Odfjell Invest Ltd
Net change in cash and cash equivalents for the year -1 323 782 847 228 812 002
Cash and bank deposits as per 01.01 2 929 090 552 2 700 278 550Cash and bank deposits as per 31.12 1 605 307 705 2 929 090 552
B136
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
General The accounting information presented here reflects the financial position of Odfjell Drilling Ltd. and its subsidiaries, which have been consolidated (group accounts). The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. Accounts for subgroups in the group are only prepared for the subgroup Odfjell Drilling AS. Accounts are not prepared for the other subgroups in the group, cf. the exception in the Norwegian Accounting Act section 3 –7. Consolidation principles The consolidated accounts show the total financial result and the total financial position when the parent company Odfjell Drilling Ltd. and its controlling interests in other companies are presented as one financial unit . A controlling interest is normally obtained when the group owns more than 50% of the shares in the company and can exercise control over the company. Minority interests are included in the group’s equity. Transactions between group companies have been eliminated in the consolidated financial statement. The consolidated financial statement has been prepared in accordance with the same accounting principles for both parent and subsidiary. The subsidiaries' accounts are incorporated into the consolidated accounts with effect from the date they were acquired. The cost price of the shares is eliminated against the equity of the respective subsidiaries using the acquisition method. Excess values over and above book values are recognised at gross value with provision being made for deferred tax, and any residual value is assigned to goodwill. Goodwill and permanent excess values relating to operating assets are depreciated over the expected useful life of the asset. An associate is an entity in which the group has a significant influence but does not control the management of its finances and operations (normally when the group owns 20%-50% of the company). The consolidated financial statements include the group’s share of the profits/losses from associates, accounted for using the equity method, from the date when a significant influence is achieved and until the date when such influence ceases. When the group’s share of a loss exceeds the group’s investment in an associate, the amount carried in the group’s balance sheet is reduced to zero and further losses are not recognised unless the Group has an obligation to cover any such loss. Investment in other companies than subsidiaries, associates and joint ventures are accounted for using the cost method. All companies that are defined as subsidiaries are included 100 per cent in the income statement and balancesheet. The minority interests' share of profit/loss and equity is specified. Group companies reporting in foreign currency are converted into NOK using the average currency rate on profit-and loss statement, and year end rates in the balance sheet. Currency differences related to consolidating the subsidiaries and the associates are adjusted against the group’s equity. Through the elimination of internal accounts receivable and accounts payable, exchange rate differences are offset directly against equity. Recognition of income Most of the group's income is based on day rates from drilling contracts and other service contracts. The income is recognised in the income statement when the services are performed and at the rates specified in the contract.
B137
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
Construction contracts Construction contracts are recognised in accordance with the percentage of completion method. The income is allocated in accordance with the progress of the contracts, if the outcome of the construction contracts can be estimated in a reliable manner. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts, when reliable estimates are available. When outcome of the contracts cannot be reliably estimated, only the income corresponding to the accrued costs will be entered as an income. In the period it is identified that a contract will give negative outcome, the estimated deficit on the contract will be fully allocated. Foreign currency Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period. Financial risk - General The group's principal financial liabilities comprise bank loans, subordinated loan capital and trade payables. The main purpose of these financial liabilities is the financing of the group's operations. The group has financial assets such as cash, short-term investments and trade receivables. The group has also entered into derivative transactions, primarily currency forward contracts. The purpose is to manage the currency exposure arising from the group's operations. (I) Credit risk The market for the Company’s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Company believes this risk is remote as the counterparties are of high credit quality parties. (II) Interest-rate risk The group's exposure to the risk of changes in market interest rates relates primarily to the group's long-term debt obligations at floating interest rates. The group evaluates the share of interest rate hedging based on assessment of the group’s total interest rate risk. . (III) Liquidity risk The group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the group's strategic plan. The group monitors its liquidity risk using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets and projected cash flow from operations. (IV) Exchange-rate risk Most of the group's operating costs are in NOK, while investments and revenues are primarily in USD. The group has entered into forward currency contracts to manage the currency exposure arising from the group's operations. The group’s main currency policy is that income in USD equivalent to the amount of all working expenses in NOK, are to be hedged in such manner that at all times minimum 50% of the total amount of income that cover the matching working expenses are hedged.
B138
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
Capital management The group has adopted financial guidelines for the handling of deposits and placements. The objective of these guidelines is to reduce the risk of capital loss while maintaining maximum liquidity and availability of cash to fund the group's operations. The group shall at all times maintain a low risk profile, and shall maintain necessary funds in operating accounts or time deposits. The following instruments are allowed for short term placements: deposits in banks, loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt), certificates, money market funds. Use of estimates The management has used estimates and assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway. Classification of balance sheet items Assets identified as being permanently owned or used are fixed assets. Other assets are current assets. Liabilities which fall due more than one year after they are incurred are entered as long-term liabilities. Therefore, the first year's instalments on long-term loans are included in long-term liabilities. Liabilities which fall due for payment less than one year after being incurred are classified as short-term liabilities. Tangible assets and goodwill Tangible assets and goodwill are entered in the accounts at acquisition cost minus accumulated depreciation and write-downs. Depreciation is linear over the expected useful life of the asset. Write-downs are done when fair value is lower than the book value and this is not expected to be temporary. The group's mobile units are expected to have a residual value at the end of their useful life. For other tangible assets no account has been taken of possible scrap value when calculating depreciation. When the market value of the assets increases above the book value, previous write-downs will be reversed according to the original depreciation plan. Periodic maintenance The group capitalises periodic maintenance on the group's mobile units and depreciates this until the next major planned maintenance. Spare parts Spare parts are recognised at the lower of cost price and market value. Spare parts are presented net after write-downs for obsolescence. Accounts receivable Trade debtors and other receivables are valued at net value after deductions for expected losses. Shares, bonds and money market funds Shares, bonds and money market funds are recognised at market value at year end. The group recognises losses during the period if market value is lower than book value. Cash and bank deposits Cash and bank deposits also include other liquid investments with a period to maturity of less than 90 days from the date of issue. Pensions Pension costs and pension liabilities are calculated on the basis of linear earnings based on assumptions regarding the discount rate, future wage increases, pensions and national insurance benefits, future returns on pension assets and actuarial assumptions about mortality, voluntary retirement etc. Pension assets are valued at fair value and deducted in net pension liabilities in the balance sheet. Changes in
B139
The Odfjell Drilling Group
ACCOUNTING PRINCIPLES
the liability that are due to changes in the pension plans are taken over the result with full effect in the accounting year. When the accumulated effects of changes in estimates, changes in assumptions and deviation of actuarial assumptions are above 10 % of the larger gross pension liabilities and pension assets, the excess amount are recognized in the income statement over the estimated average remaining service period. A linear earning profile and expected salary on retirement are used in the accounts as the earnings basis. Leasing Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Cost of borrowings Costs in connection with borrowings are charged to income in the period during which the loan is drawn on, on a linear basis. Tax The tax expense in the accounts includes both tax payable for the period and change in deferred tax. Deferred tax is calculated at 28 per cent on the basis of the temporary differences that exist between accounting and tax values. Tax-increasing and tax-reducing temporary differences that are reversed or can be reversed in the same period are assessed and recognised at net value. Cash flow statement The cash flow statement is prepared using the indirect method. Events after the balance sheet date New information on the group's position on the balance sheet date is taken into account in the financial statements. Events after the balance sheet date that do not affect the group's position on the balance sheet date but which will affect the group's position in the future, are stated if they are significant.
The trade debtors are primarily major national and international oil and gas companies. At year end there were provisons for bad debts in total of MNOK 42,7. Of these, MNOK 8,3 are related to Odfjell Drilling Technology ASand MNOK 26,8 are related to Odfjell Well Services Ltd. The group expensed bad debts of MNOK 673,6 in 2010, mostly related to receivables that Odfjell Invest AS had towards Statoil ASA.
The group receivables are all due within one year after the balance sheet date.
Other receivables consist of the following main items:31.12.2010 31.12.2009
Book value as per 31.12.2010 161 934 669 364 456 8 961 361 735 521 594 750 1 060 816 149 10 706 071 759
Useful life 5/20 years 3 years 35 years 5 years 3 - 12 yearsDepreciation plan Linear Linear Linear Linear Linear
Leasing expenses operating assets - - - -
The residual value of the rig Deepsea Atlantic has been set at 100 MUSD at the end of the useful life. The recoverable amount for Deepsea Atlantic are higher than carrying value.
The residual value of the rig Deepsea Stavanger has been set at 100 MUSD at the end of the useful life. The recoverable amount for Deepsea Stavanger are higher than carrying value.
Goodwill2002 Group
restructuring2004 Acquisition
Drilltools AS 2005 Acquisition
Ntera Ltd. Total
Book value as per 31.12.2009 151 539 719 3 038 000 24 462 361 179 040 080
The residual value of the rig Deepsea Bergen has been set at NOK 100 mill. at the end of the useful life. The recoverable amount for Deepsea Bergen are higher than carrying value.
Goodwill relates to excess values in acquired subsidiaries. In accordance with NGAAP assumed financial life time is estimated to 5-20 years from acquisition date. The group is a leading company in the current business areas and is building the business activities in the future on the acquired experience. According to the group's long term business view, the main part of the goodwill are recognised on a straight-line basis over the useful life of 20 years.
Write-down - Book value as per 31.12.2010 139 167 438 2 821 000 19 946 233 161 934 669
Useful life 20 20 10Depreciation plan Linear Linear Linear
Mobile drilling units
Year of construction Part as per 31.12.2010 Investments 2010 Depreciation 2010 Book value incl PM as per 31.12.2010
The mobile drilling unit Deepsea Trym was sold to Songa Offshore ASA in 2007, and was bareboat chartered by the owners to Group company Deep Sea Rig AS until ending the curent StatoilHydro contract the 2 February 2009. The mobile unit changed name to Songa Trym during 1Q 2009.
The Odfjell Drilling Group has a lease and management agreement with Songa Offshore regarding Songa Delta (former Deepsea Delta) which has been effective throughout the year 2010.
B142
The Odfjell Drilling Group
NOTES 2010
Note 5 Share capital and shareholder information
The share capital consists of No. of shares Nominal value Tot. book value
Shares 1 376 687 078 USD 0,00001 91 231
Total 1 376 687 078 USD 0,00001 91 231
List of shareholders as per 31.12.2010Outstanding shares Participating interests/
Share of votes
Odfjell Drilling Holding Ltd 1 376 687 078 100 %
Total number of shares 1 376 687 078 100 %
Helene Odfjell controls 69,67% through Odfjell Partners Ltd, Marianne Odfjell controls 25,9% personally,Abraham Odfjell controls 3,96% though the company ASEAO Ltd and the CEO in Odfjell Drilling controls 0,47% personally.
Note 6 Long-term liabilities
Debt to credit institutions and other long-term liabilities
31.12.2010 31.12.2009Subordinated loan capital 30 723 441 0Loans in USD in NOK 7 892 127 807 1 444 175 000Other long-term liabilities 68 052 615 13 332 546Total 7 990 903 863 1 457 507 546
Loans in USD are stated at the year-end exchange rate.
The group's interest-bearing loans from credit institutions have the following settlement structure:
Approx. MNOK 66 of other long-term liabilities consists of negative fair market values on two interest swaps agreement entered into by Odfjell Drilling Ltd.
B143
The Odfjell Drilling Group
NOTES 2010
Note 7 Secured liabilities and partnership capital not called
31.12.2010 31.12.2009
Secured liabilities 7 892 127 807 1 444 175 000
Book value of assets pledged as securityMobile drilling units 9 482 956 488 613 538 795Receivables 180 316 681 291 513 418Bank deposits 423 934 955 8 556 143Total 10 087 208 123 913 608 356
Partnership capital not calledAs per 31.12.2010, the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS to NOK 11,471,429.
The group short -term liabilities are all due within one year after the balance sheet date.
Construction contractsThe Odfjell Drilling Group has a few fixed price construction contracts, and the revenue is recognised on the percentage of completion method. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts.
31.12.2010 31.12.2009Construction contracts under completion 90 801 805 259 028 010Advances received 156 486 663 350 058 528Net advance payment from customer -65 684 858 -91 030 518
The Odfjell Drilling Group has a few fixed price construction contracts, and the revenue is recognised on the percentage of completion method. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts.
The fixed price construction contracts are presented as a net advance payment from customer, together with other
The stage of completion per 31 Dec 2010 : 51%
B144
The Odfjell Drilling Group
NOTES 2010
Note 9 Tax
Tax expenses for the year are as follows: 2010 2009
Tax payable 69 650 633 147 833 417 Tax payable prior periods -1 846 500 -3 497 676 Tax expenses prior periods - 446 636 Adjustment from prior periods - -2 711 938 Change in deferred tax -97 586 753 -32 971 123 Total tax income/expenses (-/+) -29 782 620 109 099 316
The tax income in 2010 are related to the legal entities in the Norwegian Tax regime.
Deferred taxDeferred tax shows the effect of temporary differences that occur when assets and liabilities are valued for financial accounting and tax accounting purposes respectively. Deferred tax relates to the following main items.
31.12.2010 31.12.2009Negative temporary differencesTax-related loss carryforward -500 994 745 - Long term liabilities in foreign currency - -3 042 000 Provisions in accordance with NGAAP - -370 411 Current assets -2 343 146 - Net pension liabilities -150 799 875 -81 481 095 Net negative temporary differences -654 137 766 -84 893 506
Positive temporary differencesFixed assets 133 124 205 168 597 314 Current assets - 11 592 359 Share in limited partnership 14 246 464 8 997 958 Profit and loss account 393 354 946 241 078 048 Net positive temporary differences 540 725 615 430 265 679
Net temporary differences (113 412 151) 345 372 173
The group has a pension scheme covering a total of 1,650 persons, of which 106 pensioniers. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. These liabilities are covered through an insurance company (funded).
The group also has a contractual pension agreement (CPA) covering 1,442 persons, of which 38 pensioniers. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer`s contribution to these benefits amounts to 20% of the pension paid. These liabilities are not covered through an insurance company (unfunded).
A number of the Norwegian subsidiaries in the group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act.
The defined benefit plans' pension expenses and liabilities are presented according to the Norwegian Accounting Standard no. 6 (NRS 6).
In addition, the group has several defined pension contribution arrangement. By 31.12.2010, these arrangements involve 409 employees.Employer's contribution 2010; NOK 17 435 330.
Weighted-average investment profile for plan assets at year end:
The Group's pension schemes are with the life assurance company Vital Forsikring ASA.
The actuarial assumptions are based on generally used assumptions in the insurance industry with respect to demographic factors and retirement. The above calculations are based on annual actuarial calculations.
Note 12 Remuneration of the board of directors, CEO and auditor
Remuneration CEO Board of Directors
Salary 3 529 472
Bonus 4 161 353
Other benefits 136 703
Pension costs 197 932
Board of directors' fee 833 750
8 025 460 833 750
No loans or guarantees have been given to the CEO, members of the Board or their related parties. Employee loans amount to a total of NOK 4 432 132.
Fee to the auditor: 2010 2009Statutory audit fee ex VAT 1 528 100 2 419 069Assurance services ex VAT 198 037 59 708Tax and legal advisory services ex VAT 745 477 2 838 802
Note 13 Other financial income/expenses
2010 2009
Realised exchange rate gains long term debt - 22 710 000Unrealised exchange rate gains long term debt 283 883 050 22 630 000Realised exchange rate gain other 268 867 257 57 956 378Unrealised exchange rate gain other - - Other financial income 50 158 952 5 377 308Total other financial income 602 909 259 108 673 686
Realised exchange rate loss long term debt 80 804 700 - Unrealised exchange rate loss long term debt - - Realised exchange rate loss other - 53 716 964Unrealised exchange rate loss other 158 998 666 206 392 331Change in value market based short term financial investments - - Other financial expenses -38 651 732 1 224 476Write off shares in limited partnership - - Total other financial expenses 201 151 634 261 333 771
Note 14 Spare parts
Inventory of spare parts is carried at cost price and is written down when its assumed market value is lower then the cost price.
Note 15 Hedging of income
Some of the subsidiaries have signed forward contracts on part of the income in USD against NOK. As per 31.12.2010, the amount of the income sold was USD 31.5 mill. at an average exchange rate of USD/NOK 7.2. The signed contracts mature between 15 January 2011 and 15 July 2013.Unrealised gain related to the forward contracts amounts to MNOK 38 at year end 2010.Profit/loss related to the forward contracts are booked in the same period as the income is earned.The signed forward contrcats are not capialised and presented in the balace sheet.
B147
The Odfjell Drilling Group
NOTES 2010
Note 16 Group companies
Companies Main office Voting and owning interest
SubsidiariesBergen Drillpart AS Bergen, Norway 100.00 %Deep Sea Drilling Company AS Bergen, Norway 100.00 %Deep Sea Drilling Company II AS Bergen, Norway 100.00 %Deep Sea Management AS Bergen, Norway 100.00 %Deep Sea Management Ltd. FZE UAE 100.00 %Deep Sea Mooring AS Sola, Norway 100.00 %Deep Sea Rig AS Bergen, Norway 100.00 %Odfjell Casing Services AS Sola, Norway 100.00 %Odfjell Drilling AS Bergen, Norway 100.00 %Odfjell Drilling Management AS Bergen, Norway 100.00 %Odfjell Drilling Services LLC Saudi Arabia 80.00 %Odfjell Drilling Technology AS Bergen, Norway 100.00 %Odfjell Drilling Technology Ltd Hamilton, Bermuda 100.00 %Odfjell Drilling (UK) Ltd Aberdeen, UK 100.00 %Odfjell Operations Ltd Hamilton, Bermuda 100.00 %Odfjell Partners Invest Ltd Hamilton, Bermuda 100.00 %Odfjell Rental Services AS Sola, Norway 100.00 %Odfjell Rig AS Bergen, Norway 100.00 %Odfjell Rig Ltd Hamilton, Bermuda 100.00 %Odfjell Technology Manila Corporation Manila, Philippines 100.00 %Odfjell Well Management AS Bergen, Norway 100.00 %Odfjell Well Services Ltd British Virgin Islands 100.00 %Odfjell Well Services Europe AS Bergen, Norway 100.00 %
Limited partnershipsDeep Sea Drilling Company KS Bergen, Norway 71,52 %Deep Sea Drilling Company II KS Bergen, Norway 71,52 %KS AS Bergen Drillpart Oslo, Norway 72.38 %
The following companies were established in 2010:Odfjell Consulting AS Bergen, Norway 100.00 %Odfjell Drilling Caspian Ltd. Aberdeen, UK 100,00 %Odfjell Drilling Coöperative U.A. Coevorden, the Netherlands 100,00 %Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil 100,00 %Odfjell Well Management Consultants AS Bergen, Norway 100.00 %
The following company was sold in 2010:Odfjell Consulting AS Bergen, Norway 100,00 %
The following companies were bought in 2010:Odfjell Invest Ltd Hamilton, Bermuda 100,00 %Odfjell Invest I Ltd Hamilton, Bermuda 100,00 %Odfjell Invest II Ltd Hamilton, Bermuda 100,00 %Odfjell Invest Holland BV Coevorden, the Netherlands 100,00 %Odfjell Invest Holland II BV Coevorden, the Netherlands 100,00 %PSW Group AS Bergen, Norway 50,00 %
B148
The Odfjell Drilling Group
NOTES 2010
Note 17 Subordinated loan capital
Subordinated loans including accrued interest 2010 2009Odfjell Partners Ltd. NOK 30 723 441 0Total NOK 30 723 441 0
The loan from Odfjell Partners Ltd.was defined as a subordinated loan and was subordinated other secured liabilities .Interest for 2010 of NOK 723 441 was accumulated to the loan balance and paid at repayment of loan.
Note 18 Guarantees and loans
Odfjell Drilling Ltd. has furnished guarantees with joint and several liability for the outstanding loan amount in thegroup's loan agreements.
Note 19 Minority interests
Minority interests represent external shares in Odfjell Drilling subsidiaries.
The minority interests have developed as follows:Minority interests as per 01.01. 168 479 373 170 201 652Changes in minotity interests 568 303Minority interests' share of the year's profit/loss 59 666 316 51 105 944Capital payments to minority interests -72 449 183 -53 396 525Currency differences 0Minority interests as per 31.12. 155 696 506 168 479 373
Note 20 Operating income
2010 2009
(in NOK '000) (in NOK '000)Operations, drilling units 3 238 075 2 722 884 Well services 801 474 883 980 Technology 646 753 698 872 Other 38 607 236 282 Operating income 4 724 909 4 542 018
(in NOK '000) (in NOK '000)Norway 3 810 484 3 981 680 UK 404 686 253 380 Denmark 4 744 47 850 Europe, other countries 119 016 146 929 Middle East 126 845 112 179 Phillipines 141 - Tanzania 258 993 - Operating income 4 724 909 4 542 018
By business area
By geography
B149
The Odfjell Drilling Group
NOTES 2010
Note 21 Investment in associates
Company Acquisition Registered office Share ownership Voting rightsPetro Services West Group AS 2010 Bergen, Norway 50,00 % 50,00 %Deep Sea Metro Ltd 2008 Hamilton, Bermuda 40,00 % 40,00 %
The associated companies Deep Sea Metro Ltd. and PSW Group AS are valued and presented by using the equity method in the consolidated financial statements.
PSW Group AS Deep Sea Metro Ltd Total Odfjell Invest Ltd Deep Sea Metro Ltd Total
Book value of equity at 01.01 0 748 652 818 748 652 818 629 940 661 780 462 994 1 410 403 655Investments/Aquisitions during the year 16 596 777 516 312 645 532 909 422 332 375 335 114 798 960 447 174 295Share of profits -3 590 359 -12 898 221 -16 488 580 -4 667 857 -7 283 356 -11 951 213Convertion from IFRS to NGAAP 0 - 3 760 779 3 760 779Currency translation effect NOK/USD 0 -12 333 226 -12 333 226 -134 400 307 -139 325 780 -273 726 087Amortization of excess value -1 425 062 -1 425 062Book value of equity at 31.12 11 581 356 1 239 734 016 1 251 315 372 827 008 611 748 652 818 1 575 661 429
Odfjell Invest Ltd
Petro Service West Group AS
Deep Sea Metro Ltd.
2010 2009
PSW Group AS was incorporated in March 2010, and is owned by Odfjell Drilling Technology Ltd (50%) and Dalseide & Fløysand AS (50%).PSW Group's subsidiaries are PSW Consultants AS, PSW Property AS, Fedje Sikkerhetssenter AS and PSW Subsea & Drilling AS.Former subsiduary of Odfjell Drilling Technology Ltd, Deep Fjord Consultants AS has changed name to PSW Consultants AS.
At 31st of December 2010, excess value amounts to 7 125 312 NOK. Excess value is amortized over 5 years from aquisition of the shares in PSW Group AS pr March 2010. The amortization of excess value for 2010 amounts to 1 425 062 NOK. Aquisition cost of the shares in PSW Group AS was 16,6 MNOK. The equity in PSW Group AS pr 01.03.2010 (aquisition date) was 16,1 MNOK.
Deep Sea Metro Ltd was incorporated in September 2008, and is own by Odfjell Drilling Ltd (40%) and Metro Exploration Holding Corp., Liberia (60%).Deep Sea Metro's subsidiaries Golden Close Maritime Corp. Ltd and Chloe Maritime Corporation Ltd has entered into shipbuilding contracts for one drillship each, with Hyundai Heavy Industries Co., South Korea. The two ultradeepwater drillships are to be delivered in 2nd and 4th quarter 2011.
At 31 December 2010, excess value amounts to NOK 14,751,727. Excess value is not amortized in 2008, 2009 or 2010. Amortization will start when Deep Sea Metro's drillships are in operation.
Th h h ld h i d MUSD 210 6 i h d i 2010 hi h f MUSD 84 3 b Odfj ll D illi L d (40%)
Odfjell Drilling Ltd aquired 70,754% of the shares in Odfjell Invest Ltd pr 1st of July 2010. Pr 31.12.2010 Odfjell Invest Ltd is a 100% owned subsidiary of Odfjell Drilling Ltd. Odfjell Invest Group was incorporated in the Odfjell Drilling group pr 01.07.2010. Negative excess value on 63 952 260 NOK is related to the uncertainty of the outcome of the dispute between Odfjell Invest AS and Statoil ASA. Since the dispute is solved pr 31.12.2010, the negative excess value has been taken as income in 2010. The share of profits related to Odfjell Invest Ltd as an associated company for first half of 2010 is 43 498 896 NOK. Share of profits for first half of 2010 has been taken as income in the financial statement for 2010.
Note 22 Investment in other companies
Financial fixed assetsAcquisition/
formation date Registered office
har Book value
Meland Golfklubb Meland, Norway 20 000 Westfal-Larsen Chemical Carriers I KS 2006 Bergen, Norway 5 458 572 Total 5 478 572
As per 31.12.2010, the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS amounts to NOK 11,471,429.
At 31 December 2010, excess value amounts to NOK 14,751,727. Excess value is not amortized in 2008, 2009 or 2010. Amortization will start when Deep Sea Metro's drillships are in operation.
The shareholders have invested MUSD 210,6 in the company during 2010, which of MUSD 84,3 by Odfjell Drilling Ltd. (40%).
B150
The Odfjell Drilling Group
NOTES 2010
Note 23 Other operating expenses
Other operating expenses 2010 2009
Consumption of purchased goods for resale 20 673 423 24 129 007
Hired services and subcontractors 210 456 944 177 799 130
Hire machines, fixtures and fittings 92 615 450 98 814 422
Tools, fixtures and fittings, and working plant 199 154 538 177 922 681
Repair and maintenance 70 754 950 77 699 435
Insurance, guarantee and service costs 27 882 591 12 009 408
Loss 1 265 040 3 469 199
Other operating and administrative expenses 376 664 346 399 521 572
Total 999 467 283 971 364 854
Note 24 Subordinated loan to associated company Odfjell Invest Ltd.
2010 2009
Subordinated loan to Odfjell Invest Ltd. including accrued interest - 383 053 517 Total - 383 053 517
This is no longer treated as subordinated loan to Odfjell Invest Ltd. as Odfjell Drilling Ltd now controls100% of the borrower.
Note 25 Investments in bonds, long term
Currency Market value USD Book value NOK Interest rate Term to maturity Date of payment DescriptionBonds USD 5 393 203 22 231 319 11 % 07.12.2011 07.12.2011 Fixed Call
Condensed Consolidated Statement of Comprehensive Income:
Note Q2 13 Q2 12 YTD 13 YTD 12 FY 12
Profit/(loss) for the period (9 210) 12 978 12 327 45 573 116 858
Items that will not be reclassified to profit or loss:Actuarial gain/(loss) on post employment benefit obligations - 3 468 - 7 303 15 726 Total - 3 468 - 7 303 15 726
Items that are or may be reclassified to profit or loss:Cash flow hedges 3 667 81 4 179 (503) (1 707) Currency translation differences (4 736) (4 640) (14 434) 639 7 234 Total (1 069) (4 559) (10 255) 136 5 528
Total other comprehensive income, net of tax (1 069) (1 091) (10 255) 7 439 21 254
Comprehensive income for the period (10 279) 11 887 2 072 53 012 138 112
Profit or loss for the period attributable toNon-controlling interests - 4 522 1 360 8 071 14 309 Owners of Odfjell Drilling Ltd. (9 210) 8 456 10 967 37 502 102 549
Comprehensive income for the period attributable toNon-controlling interests - 4 253 984 8 023 14 750 Owners of Odfjell Drilling Ltd. (10 279) 7 634 1 087 44 989 123 362
Earnings per share (USD)Basic earnings per share 7 -0,01 0,01 0,01 0,03 0,07Diluted earnings per share 7 -0,01 0,01 0,01 0,03 0,07
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C10
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Condensed Consolidated Statement of Financial Position
Borrowings 9 180 944 144 888 211 270 Trade payables 38 544 30 796 36 033 Other current liabilities 151 837 139 301 169 091 Total current liabilities 371 324 314 985 416 394
Total liabilities 1 656 660 1 642 312 1 650 082
Total equity and liabilities 2 740 214 2 722 197 2 804 385
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C11
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Condensed Consolidated Statement of Changes in Equity
Share capital
Other contributed
capitalOther
reservesRetained earnings Total
Non- controlling
interest Total equityBalance at 1 January 2012 14 339 095 (35 982) 706 978 1 010 104 22 727 1 032 831
Profit/(loss) for the period - - - 37 502 37 502 8 071 45 573 Other comprehensive income for the period 1 (7 301) 185 14 603 7 488 (48) 7 439 Total comprehensive income for the period 1 (7 301) 185 52 105 44 989 8 023 53 012
Balance at 30 June 2012 15 331 794 (35 797) 759 083 1 055 094 24 791 1 079 885
Total comprehensive income for the period Q3-Q4 - - 4 902 73 471 78 373 6 727 85 100 Transactions with owners for the period Q3-Q4 - - - (7 943) (7 943) (2 739) (10 681)
Balance at 1 January 2013 15 331 794 (30 896) 824 610 1 125 524 28 779 1 154 303
Profit/(loss) for the period - - - 10 967 10 967 1 360 12 327 Other comprehensive income for the period - - (9 879) - (9 879) (376) (10 255) Total comprehensive income for the period (9 879) 10 967 1 087 984 2 072
Balance at 30 June 2013 15 331 794 (75 270) 827 016 1 083 555 - 1 083 554
Reference is made to Note 9 regarding acquisition of minority shares in Deepsea Bergen.
Attributable to owners of the parent
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C12
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Condensed Consolidated Statement of Cash Flows
Note Q2 13 Q2 12 YTD 13 YTD 12 FY 12Cash flows from operating activities:Profit before income tax 61 723 20 233 89 534 61 929 148 033
Adjustments for:Depreciation and impairment 36 078 35 847 73 718 72 294 147 318 Unrealised (gain)/loss on interest rate swaps (4 358) 226 (7 016) (148) (1 616) Interest expense - net 12 065 13 061 24 522 26 824 50 271 Borrowing cost 1 347 1 314 6 011 2 685 4 588 Share of (profit)/loss from joint ventures 2 277 1 678 4 640 3 296 13 399 Net (gain)/loss on sale of shares (3 112) - (3 112) - - Net (gain)/loss on sale of tangible fixed assets (17 990) (687) (18 299) (1 178) (2 629) Post-employment benefit expenses less post-employment benefit payments - (3 058) (1 374) (6 336) (6 518) Foreign exchange losses/(gains) on operating activities (1 997) 20 073 (2 733) 8 296 (21 907) Profit earned during period by disposed subsidary 81 - 81 - - Impairment of investments in shares - - - - 893
Changes in working capital (excluding the effect of acquisition and exchange differences on consolidation):Spare parts (1 354) 453 (1 307) 324 710 Trade receivables (1 146) 11 115 14 437 43 917 8 373 Trade payables 5 817 895 2 511 (3 565) 1 672 Other accruals (10 687) (24 539) (20 956) (35 382) (5 230) Cash generated from operations 78 746 76 613 160 658 172 956 337 357 Interest paid (14 539) (13 152) (28 004) (24 738) (55 672) Income tax paid (3 145) (820) (16 710) (2 803) (14 476) Net cash generated from operating activities 61 061 62 642 115 943 145 416 267 207
Cash flows from investing activities:Purchase of property, plant and equipment (22 061) (75 892) (38 825) (158 073) (210 867) Proceeds from sale of property, plant and equipment 60 390 (1 257) 62 642 941 6 081 Loans granted to employees 23 (222) 52 (129) 118 Sub-ordinated loan to related parties (12 183) (78 400) (12 183) (78 400) (80 000) Other long term receivables (4 713) 740 (8 239) (1 906) (21 244) Purchase of shares incl. joint ventures (3 354) - (4 083) - - Proceeds from sale of shares and bonds 5 051 - 5 051 - - Net cash used in investing activities 23 152 (155 032) 4 415 (237 566) (305 911)
Cash flows from financing activities:Proceeds from debt to financial institutions - - 347 764 - 49 408 Repayments of debt to financial institutions (51 667) (43 750) (346 667) (43 750) (99 928) Acquisition shares non-controlling interests - - (64 259) - - Dividends paid to owners of the parent (8 561) - (14 847) - (1 765) Dividends paid to non-controlling interests - (5 959) - (5 959) (8 698) Net cash from financing activities (60 228) (49 709) (78 009) (49 709) (60 983)
Net change in cash and cash equivalents 23 986 (142 099) 42 349 (141 859) (99 688)
Cash and cash equivalents at beginning of period 218 912 305 521 200 636 303 137 303 137 Exchange gains/(losses) on cash and cash equivalents 2 289 (1 593) 2 202 551 (2 813) Cash and cash equivalents at period end 245 187 161 829 245 187 161 829 200 636
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C13
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 1 | Accounting Principles
Use of estimatesThe preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2012, except for income taxes and post-employment benefits.
Income tax expense and deferred income tax liability is calculated by applying a weighted average of the expected effective tax rates across jurisdictions, in addition to specific accruals for the gain incurred by the internal restructuring of the ownership in Deepsea Bergen, while in annual financial statements income tax expense and deferred income tax liability is calculated by applying the tax rate for each individual jurisdiction to measures of income for each jurisdiction.
When accounting for uncertain tax positions, the company applies the general measurement principles in IAS 12. Under IAS 12, uncertain tax positions (whether assets or liabilities) are reflected at the amount expected to be recovered from or paid to the taxation authorities. The amount expected to be paid, is calculated by using the single best estimate of the most likely outcome. A change in estimate is recognized in the period when new information occurs. Where an entity has paid more than the amount it believes is payable under the relevant tax legislation, it
General informationOdfjell Drilling Ltd. ('the Company') and its subsidiaries (together 'the Group') operate mobile offshore drilling units in addition to providing well services and engineering services, in Norway and around the world.
Odfjell Drilling Ltd. is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
There has not been any significant changes in the Group structure since year end, except for acquisition of minority shares in Deepsea Bergen and that the Group sold their subsidiary Deep Sea Mooring AS including mooring equipment in May 2013. Reference is made to note 9 and 12 respectively.
These condensed interim financial statements were approved by the Board of Directors for issue on 19 August 2013 and have been reviewed, not audited.
Basis for preparation These condensed interim financial statements for the three and six month periods ended 30 June 2013 have been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed interim financial statements should be read in conjunction with the annual audited financial statements for the year ended 31 December 2012, which have been prepared in accordance with IFRS.
Going concernThe Group has adopted the going concern basis in preparing its interim financial statements. When using this assumption,
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outcome. A change in estimate is recognized in the period when new information occurs. Where an entity has paid more than the amount it believes is payable under the relevant tax legislation, it will estimate the recovery of a tax asset.
Present value of defined benefit obligations and the fair value of plan assets at the end of each interim reporting period is estimated by extrapolation of the latest actuarial valuation, while in the annual financial statements this estimate is based on an updated actuarial valuation.
Going concernThe Group has adopted the going concern basis in preparing its interim financial statements. When using this assumption, management has assessed all available information about the future. This comprises information about net cash flows from existing contracts, debt service and obligations under existing new building contracts. Forecasts also take into consideration expected future net income from assets under construction. After making such assessments, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future.
Accounting principlesThe accounting policies adopted are consistent with those of the previous financial year except that income tax expense is recognised in each interim period using the expected weighted average annual income tax rate for the full financial year. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.The following new standards have been adopted from 1 January 2013:
- IFRS 13 "Fair value measurement" are applicable for the December 2013 year end. The adoption of IFRS 13 did not have an material impact on the Groups results. The Group has included the disclosures required by IAS 34 para 16A(j). See Note 2.
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C14
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 2 | Financial risk management and Financial instruments
The Group had the following financial instruments that are measured at fair value as at 30 June 2013:
Level 1 Level 2 Level 3 TotalAssetsAvailable-for-sale financial assets 22 22 Derivatives used for hedging 3 295 3 295 T t l t 3 295 22 3 317
Financial risk factorsThe Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; consequently they should be read in conjunction with the Group's annual audited financial statements as at 31 December 2012. There are no material changes compared to the description in the year-end financial statements.
Calculation of the Group’s sensitivity to interest rate fluctuations showed that the effect of an increase in interest rates by one percentage point (e.g. from 4.0% to 5.0%) was approx. USD 8.5 million for 2012, including interest rate swaps. There is no material change in the Group’s interest rate sensitivity compared to year-end.
Liquidity riskCompared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities, except changes in non-current liabilities disclosed in note 9.
Fair value estimationThe table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2)- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount. As the time horizon is due in short term, future cash flows are not discounted.
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Total assets 3 295 22 3 317 LiabilitiesDerivatives held at fair value through profit or loss 17 550 17 550 Derivatives used for hedging 933 933 Total liabilities 18 483 18 483
During the quarter there have been no transfers between levels of the fair value hierarchy.
The Group had the following financial instruments that are measured at fair value as at 30 June 2012:
Level 1 Level 2 Level 3 TotalAssetsAvailable-for-sale financial assets 914 914 Total assets 914 914 LiabilitiesDerivatives held at fair value through profit or loss 26 093 26 093 Derivatives used for hedging 1 184 1 184 Total liabilities 27 278 27 278
The Group had the following financial instruments that are measured at fair value as at 31 December 2012:
Level 1 Level 2 Level 3 TotalAssetsAvailable-for-sale financial assets 22 22 Total assets 22 22 LiabilitiesDerivatives held at fair value through profit or loss 24 574 24 574 Derivatives used for hedging 1 817 1 817 Total liabilities 26 391 26 391
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C15
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Valuation techniques used to derive Level 2 fair valuesLevel 2 derivatives held at fair value through profit or loss and hedging derivatives comprise interest rate swaps. Interest rate swaps are fair valued using forward interest rates extracted from observable yield curves. The effects of discounting are generally insignificant for Level 2 derivatives.
Fair value of financial assets and liabilities measured at amortised costThe fair value of borrowings are as follows:
The fair value of the following financial assets and liabilities approximate their carrying amount:- Trade and other receivables- Other current financial assets- Cash and cash equivalents (excluding bank overdrafts)- Trade and other payables
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C16
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Mobile OffshoreDrilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated
The Group provides drilling and related services to the offshore oil and gas industry, and has three main business areas; the operation of mobile drilling units, drilling & technology and well services.
The Board is the Group's chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units (MODU), Drilling & Technology and Odfjell Well Services (OWS) have been determined as the operating segments.
In accordance with the internal financial reporting, the Group's 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 8.
- Mobile Offshore Drilling Units (MODU): In the MODU segment, the Group operates drilling units owned by the Group and by third parties. The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups; mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation.
- Platform Drilling & Engineering (OD&T): Within the Drilling & Technology segment, the Platform Drilling business area provides integrated drilling and maintenance services for fixed platform drilling rigs in the North Sea. The Technology business area offers engineering services, including design, project management and operation and support.
- Well Services (OWS): The Well Services segment provides casing and tubular running services as well as drilling tool and tubular rental services both for exploration wells and for production purposes.
The Group's internal reporting is prepared accordring to Norwegian GAAP. This gives nature to differences between the measurements of segment disclosures and comparable items disclosed in this financial report. Such differences are identified and reconciled in the tables below.
In accordance with the internal financial reporting, the Group’s 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 8.
Reconciliations: Q2 13 Q2 12 YTD 13 YTD 12 FY 12Total EBIT for reportable segments 69 608 51 927 138 033 106 151 233 966 Corporate / Eliminations (2 665) (5 121) (9 364) (9 208) (23 258) Gain from sale of Mooring business unit incl. equipment 20 649 - 20 649 - - 40% share of EBIT DSM Ltd. Group (8 657) (3 264) (17 522) (10 915) (23 528) Share of profit from JV (2 277) (1 678) (4 640) (3 296) (13 399) Accounting differences 518 3 061 1 045 6 132 9 902 EBIT Total Group 77 174 44 924 128 201 88 864 183 683
Net financial items (15 451) (24 691) (38 666) (26 935) (35 650) Profit before tax Group 61 723 20 233 89 534 61 929 148 032
Mobile OffshoreDrilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated
Mobile OffshoreDrilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 4 | Tangible fixed assets
Mobile drilling units
Periodic maintenance
Construction in progress
Well Services equipment
Machinery & equipment
Total fixed assets
Six months ended 30 June 2013Opening net book amount as at 1 January 2013 1 484 995 57 682 109 119 176 035 44 067 1 871 897 Additions 4 992 2 980 8 665 22 217 2 466 41 320 Disposals - - - (2 914) (616) (3 530) Disposal - Mooring business area (Note 12) - - - (41 560) - (41 560) Depreciation and amortisation (38 635) (11 703) - (20 545) (2 836) (73 718) Currency translation differences (2 085) (40) - (11 176) (3 217) (16 518) Closing net book amount as at 30 June 2013 1 449 267 48 920 117 784 122 057 39 864 1 777 891
Six months ended 30 June 2012Opening net book amount as at 1 January 2012 1 537 499 73 735 - 140 194 43 367 1 794 795 Additions 2 495 1 642 100 410 34 621 4 528 143 697 Disposals 1 375 - - (2 019) 2 063 1 418 Depreciation and amortisation (36 732) (10 969) - (20 622) (3 972) (72 294) Currency translation differences 45 (7) - (276) (168) (407) Closing net book amount as at 30 June 2012 1 504 681 64 400 100 410 151 898 45 818 1 867 209
Useful lifetime 5 - 35 years 5 years 3 - 10 years 3 - 10 yearsDepreciation schedule Straight line Straight line Straight line Straight line
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 5 | Commitments
The Group has signed a contract with Daewoo Shipbuilding & Marine Engineering (DSME) to build a new semi-submersibledrilling rig named Deepsea Aberdeen, for use in the UK's West of Shetland region under contract with BP. Expected deliveryfrom the yard is May 2014. The commitments related to the new building programme are summarised in the table below:
30.06.2013 30.06.2012 31.12.2012Due in year 1 596 289 27 936 53 047 Due in year 2 30 055 626 344 598 000 Total 626 344 654 280 651 047
Capital expenditure other than new buildings contracted for at the end of the reporting period but not yet incurred was as follows:
30.06.2013 30.06.2012 31.12.2012Well Services equipment, due in 1 year 10 785 26 697 15 989 Total 10 785 26 697 15 989
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 6 | Paid dividends
The group has paid out dividends of USD 14.8 million in 2013, of which USD 6.3 million was resolved in 2012 and distributed in 2013.
Note 7 | Earnings per share
Earnings per share is based on the issued number of shares in Odfjell Drilling Ltd., which were 1 376 687 078 shares as atJune 30, 2013.
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 8 | Financial fixed assets
30.06.2013 30.06.2012 31.12.2012Investment in joint ventures 331 485 309 755 331 144 Subordinated loan to joint venture 64 251 80 000 52 069 Long term receivable related parties 15 904 15 705 15 902 Other long term receivables 14 684 5 313 22 485 Investments in shares 22 914 22 Total financial fixed assets 426 345 411 687 421 622
The group has maintained its ownership interests in joint ventures during the interim period.
30.06.2013 30.06.2012 31.12.2012Opening net book amount as at beginning of the period 331 144 313 253 313 253 Investments/ Aquisitions during the year 6 624 - 30 421 Share of profits (4 597) (3 296) (13 329) Share of OCI result 152 (146) (114) Depreciation of excess value (43) - (70) Other changes - - (547) Currency translation differences (1 795) (56) 1 530 Closing net book amount as at end of period 331 485 309 755 331 144
Deep Sea Metro Ltd.The Group's most significant joint venture investment is in the Deep Sea Metro Ltd Group, which is owned 40% by Odfjell Offshore Ltd., and60% by Metro Exploration. The investment is accounted for using the equity method of accounting, while in the segment figures as reportedin note 3 the Group's share of revenue, EBITDA, depreciation and EBIT from Deep Sea Metro are included in the MODU segment usingthe line-by-line method. The Group's share of profit and loss using the line-by-line method is as follows:
Q2 13 Q2 12 YTD 13 YTD 12 FY 12Share of total income 33 713 20 254 66 451 38 548 98 551 Share of operating expenses (25 056) (16 990) (48 929) (27 633) (75 022) Share of net financial items (9 651) (7 364) (18 903) (13 744) (33 407) Share of profit/(loss) before tax (994) (4 100) (1 381) (2 830) (9 879)
Share of taxes (2 347) (1 320) (4 574) (2 619) (7 702) Share of profit/(loss) for the year (3 340) (5 420) (5 955) (5 449) (17 581)
The Group's share of assets and liabilities in Deep Sea Metro Ltd. using the line-by-line method is as follows:
30.06.2013 30.06.2012 31.12.2012Share of non-current assets 646 973 663 020 658 405 Share of cash 32 436 31 997 46 275 Share of current assets 29 156 31 417 23 578 Total assets 708 565 726 434 728 257
Share of equity 01.01 306 920 296 226 296 226 Share of profit/(loss) for the period (5 955) (5 430) (17 581) Capital contribution 1 273 - 28 397 Currency deviation (44) (155) (123) Share of equity 31.12 302 194 290 641 306 920
Share of non-current liabilities 376 062 419 589 389 950 Share of current liabilities 30 310 16 203 31 387 Total liabilities 406 372 435 793 421 338 Total equity and liabilities 708 565 726 434 728 257
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Movements in non current borrowings are analysed as follows:
Six months ended 30 June 2013Opening amount as at 1 January 2013 1 140 544 New bank loan raised 350 000 Repayment bank loan (346 667) Reclassified to current portion of noncurrent borrowings 30 834 Change in transaction cost, unamortised 2 930 Closing amount as at 30 June 2013 1 177 641
Six months ended 30 June 2012Opening amount as at 1 January 2012 1 289 995 Repayment bank loan (43 750) Reclassified to current portion of noncurrent borrowings (25 000) Change in transaction cost, unamortised 2 208 Closing amount as at 30 June 2012 1 223 453
The Group has the following undrawn borrowing facilities:
30.06.13 30.06.12 31.12.12Floating rate: 530 000 - - - expiring beyond one year
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The undrawn borrowing facility of USD 530 million will be available at the time of delivery of the mobile drilling unit,Deepsea Aberdeen, in 2014.
New and repaid bank loans in 2013For the purpose of completing the group's acquisition of the minority shares, Odfjell Offshore Ltd. entered into a short-term facility agreement of USD 80 million with DNB Bank ASA on 24 January 2013. The facility was repaid on 20 February 2013 together with Odfjell Rig Ltd.’s USD 132.5 million loan balance and Deep Sea Drilling Company II KS’ USD 57.5 million loan balance. These repayments were effected after the drawdown of a new long-term senior secured loan agreement of USD 270 million entered into by Odfjell Rig II Ltd. as borrower, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. as guarantors and DNB Bank ASA, ABN AMRO Bank N.V., SpareBank 1 SR-Bank ASA and Swedbank AB (publ) as mandated lead arrangers on 15 February 2013. The facility shall be repaid by August 2018, latest.
Covenants for USD 270,000,000 Senior Secured Term Loan Facility The Odfjell Drilling group has agreed to maintain, at all times, a minimum liquidity (cash and cash equivalents) requirement of USD 50 million and a minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling group 12 months prior to delivery of any investment in excess of USD 100 million has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100 million in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling group has agreed to maintain an equity ratio (equity to total assets) of a minimum 35 per cent at all times, to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that theratio of current assets to current liabilities at all times being not less then 1.00:1.00. From the date that Odfjell Drilling Ltd. is released as guarantor under the facility agreement, the above mentioned financial covenants shall no longer apply to the OdfjellDrilling group, but shall instead apply equally to the Odfjell Offshore group.
For the financial year 2012 and the interim period ended 30 June 2013, The Group has not been in violation of any covenants related to borrowing agreements.
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to date 30 June 2013 is 16%, excluding disputed payable from tax previous years.
Payable tax prior years, disputed, is tax paid by Odfjell Rig Ltd. for it's participation in Deep Sea Drilling Company II KS for theyears 2009, 2010 and 2011. Due to negative outcome of trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities, the Group has changed their estimate regarding the expected amount to be paid in this case. It is now assessed that the most likely outcome will be to pay the full amount that is disputed, and as a result the tax receivable booked at 31.12.2012 is expensed. Odfjell Rig Ltd. still disputes the Norwegian Tax Authorities view that Odfjell Rig Ltd. is taxable for its participation in Deep Sea Drilling Company II KS. The case will be appealed through the court system.
Change in deferred tax, disputed, is recognised as tax expense due to the outcome of trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities mentioned above. The change in deferred tax expense relates to Odfjell Rig Ltd.'s ownership in Deep Sea Drilling Company II KS, and the remaining gain and loss account generated from the sale of the drilling unit Deepsea Bergen by Deep Sea Drilling Company II KS to Odfjell Rig II Ltd. in January 2013.
TAX COURT CASEOdfjell Rig Ltd. is a company incorporated in Bermuda, and the sole shareholder is Odfjell Drilling Ltd. During the years 2009 – 2011 Odfjell Rig Ltd. was the owner (limited partner) of 52.913% of Deep Sea Drilling Company II KS (DSDCII), which in turn was the owner of the rig Deepsea Bergen. The general partner of DSDCII was Deep Sea Drilling Company II AS, and additionally there were two other limited partners. The rig Deepsea Bergen has operated on the Norwegian Continental Shelf since spring 2006 under a bareboat charter with Deep Sea Drilling Company KS. All main decisions pertaining to the rig (purchase, sale, financing etc) are made by partnership meeting of DSDCII. The company Odfjell Drilling AS – resident in Norway – has been contracted to carry out the day-to-day operations/management of the bareboat charter.
The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. has a limited tax liability to Norway as a result of its
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ca y out t e day to day ope at o s/ a age e t o t e ba eboat c a te
The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. has a limited tax liability to Norway as a result of its ownership in DSDCII. The tax authorities made their decision for the years 2009 – 2010 on 29 June 2012, and later also for 2011. The case for 2009 – 2011 was brought before the Norwegian courts by Odfjell Rig Ltd. pursuant to a writ of summons on 20 December 2012, and the district court made its decision on 12 July 2013. For all three income years, the dispute amount (before-tax income) is approximately NOK 387,000,000.
The district court concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus a limited tax liability exists for the owner Odfjell Rig Ltd. on the basis of the Norwegian Tax Act section 2-3 para. 1, letter b. The district court came to this conclusion inter alia on the basis that the day-to-day management of the bareboat charter by Odfjell Drilling AS in Bergen involves considerable activity in Norway on behalf of DSDCII, and also that the rig Deepsea Bergen had been deployed within Norwegian jurisdiction (i.e. on the Norwegian Continental Shelf). Furthermore, the district court concluded that a tax exemption in the Norwegian Tax Act section 2-34 was not applicable as this only relates to “international business” which in the court’s opinion is not the case as long as the rig is operated on the Norwegian Continental Shelf.
TAX AUDIT CASEOdfjell Invest I Ltd. (Odfjell Invest I), a wholly-owned subsidiary of the Group incorporated in Bermuda, is the owner of the rig Deepsea Atlantic, which has been leased to Odfjell Invest AS under a bareboat charter at a fixed day rate of USD 300,000. Odfjell Invest AS has in turn entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the Norwegian Continental Shelf. Soon after commencement of drilling services under the drilling contract, Statoil stopped paying the operating rate based on the contention that Odfjell Invest AS was not able to provide the drilling services as contemplated by the drilling contract. Odfjell Invest AS challenged Statoil’s decision to stop payment of the operating rate and instigated legal proceedings to recover lost income. Odfjell Invest AS lost the court case in the first instance. As part of a settlement with Statoil, Odfjell Invest AS decided not to appeal the decision. Odfjell Invest AS has taken the position that it had no legal basis for stopping payment of bareboat hire to Odfjell Invest I under the bareboat charter during the period of non-payment of the operating rate by Statoil under the drilling contract.
The tax authorities have notified that they do not consider Odfjell Invest AS as entitled to a tax deduction under the Norwegian Tax Act section 6-1, resulting in an increase of the taxable income for 2009 with NOK 103,305,720 and for 2010 with NOK 520,607,220. Following the tax audit (report dated 5 July 2013) the notice of reassessment also relates to the omission of taking a payment of hire from Statoil as income, resulting in an increase of the income for 2010 with NOK 6,552,467. Furthermore, the tax authorities have notified that they do not consider the bareboat charter between Odfjell Invest AS and Odfjell Invest I in accordance with the arm's length principle. This results in a reduction of bareboat hire for the years 2009 – 2012 with in total NOK 209,434,800. Note that the above notifications from the tax authorities have not yet resulted in any decision of reassessment.
The potential tax exposure amounts to USD 39.0 million excluding interest cost. Calculated potential interest cost amounts to USD 8.0 milion. Odfjell Invest AS will dispute any assessment based on the notification, and hence no tax expense is recognised in the financial statements pr 30.06.2013, as the Company'sbest estimate of the amount it will ultimately pay is zero. Odfjell Invest AS will revert within the deadline for response.
For the first half year of 2013, there is an additional tax exposure of USD 2.0 million related to to the transfer pricing issue of Deepsea Atlantic as described above.
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 11 | Contingencies
Note 12 | Disposal of Deep Sea Mooring
On 16 April 2013, the Group agreed to sell it's Mooring business unit, including shares in Deep Sea Mooring ASand property, plant and equipment related to the operations of the unit, which consist of well services and rentalof mooring equipment. The transaction was completed on 16 May 2013 with a total net gain of USD 20.6 million.
The business is not presented in this interim financial information as a discontinued operation, as it doesnot represent a separate major line of business.
Financial information relating to the mooring business area is set out below:
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 14 | Related-parties transactions
The Group is 70.00% owned by Odfjell Partners Ltd., controlled by Helene Odfjell. The remaining 30.00 % of the shares are owned by the Larine Trust of which Marianne Odfjell is beneficiary.
The Group had the following material transactions with related parties:
Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Note 15 - Important events occurring after the reporting period
There have not been any important events after the end of the second quarter which affects the financial statements for the second quarter 2013.
By 1 August 2013, Statoil ASA had exercised a one year option for hire of the mobile drilling unit Deepsea Atlantic. The option period is from 5 August 2014 to 4 August 2015.
As per 5 July 2013 Odfjell Drilling Ltd. has increased the share capital with USD 1 986 233.13. The number of shares issued in Odfjell Drilling Ltd. as per 5 July 2013 is 200 000 000 with par value of USD 0.01.
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Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013
(All amounts are in USD thousands unless otherwise stated)
Responsibility statement
We confirm, to the best of our knowledge, that the condensed set of consolidated financial statements for the period 1 January to 30 June 2013 has been prepared in accordance with IAS 34 – Interim Financial Reporting, and gives a true and fair view of the Group's assets, liabilities, financial position and profit or loss as a whole.
We also confirm, to the best of our knowledge, that the interim management report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related parties transactions.
Bermuda, 19 August 2013Board of Directors of Odfjell Drilling Ltd.
Helene Odfjell Marianne Odfjell Kirk L. DavisChairman Director Director(Sign.) (Sign.) (Sign.)
General information: The terms and conditions for the Retail Offering are set out in the prospectus dated 13 September 2013 (the “Prospectus”), which has been issued by Odfjell Drilling Ltd (the “Company”) in connection with the secondary sale of shares in the Company by BCB Paragon Trust Limited, as trustee of the Larine Trust (the “Selling Shareholder”) and the listing of the Company’s Shares on the Oslo Stock Exchange. All capitalised terms not defined herein shall have the meaning as assigned to them in the Prospectus.
Application procedure: Applicants in the Retail Offering who are residents of Norway with a Norwegian personal identification number may apply for Offer Shares by using the following internet pages: www.abgsc.no, www.dnb.no/emisjoner, www.arcticsec.no and www.swedbank.no. Applications in the Retail Offering can also be made by using this Retail Application Form (see definition in Section 18.4 of the Prospectus). Retail Application Forms must be correctly completed and submitted by the applicable deadline to one of the following application offices (the “Application Offices”):
The applicant is responsible for the correctness of the information filled in on this Retail Application Form. Retail Application Forms that are incomplete or incorrectly completed, electronically or physically, or that are received after expiry of the Application Period, and any application that may be unlawful, may be disregarded without further notice to the applicant. Subject to any shortening or extension of the Application Period, applications made through the VPS online application system must be duly registered by 12:00 hours (CET) on 27 September 2013, while applications made on Retail Application Forms must be received by one of the Application Offices by the same time. None of the Company, the Selling Shareholder or any of the Managers may be held responsible for postal delays, unavailable fax lines, internet lines or servers or other logistical or technical matters that may result in applications not being received in time or at all by any of the Application Offices. All applications made in the Retail Offering will be irrevocable and binding, and cannot be withdrawn, cancelled or modified by the applicant upon registration of the application in the VPS online application system, or in the case of applications on Retail Application Forms, receipt of a duly completed Retail Application Form by an Application Office (the “Registration”), irrespective of any shortening or extension of the Application Period.
Price of Offer Shares: The indicative price range (the “Indicative Price Range”) for the Offering is from NOK 37 to NOK 48 per Offer Share. The Selling Shareholder will, in consultation with the Company and the Joint Bookrunners, determine the final Offer Price on the basis of orders received and not withdrawn in the Institutional Offering during the bookbuilding process and the number of applications received in the Retail Offering. The Offer Price will be determined on or about 27 September 2013. The Offer Price may be set below or above the Indicative Price Range. Each applicant in the Retail Offering will be permitted, but not required, to indicate in the VPS online application system or on the Retail Application Form that the applicant does not wish to be allocated Offer Shares should the Offer Price be set higher than the highest price in the Indicative Price Range. If the applicant does not expressly stipulate such reservation in the VPS online application system or on the Retail Application Form, the application will be binding regardless of whether the Offer Price is set within or above (or below) the Indicative Price Range. Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors.
Allocation, payment and delivery of Offer Shares: DNB Markets, acting as settlement agent for the Retail Offering, expects to issue notifications of allocation of Offer Shares in the Retail Offering on or about 30 September 2013 by issuing allocation notes to the applicants by mail or otherwise. Any applicant wishing to know the precise number of Offer Shares allocated to it may contact one of the Application Offices from on or about 30 September 2013 during business hours. Applicants who have access to investor services through an institution that operates the applicant’s VPS account should be able to see the number of Offer Shares they have been allocated from on or about 30 September 2013. In registering an application through the VPS online application system or by completing and submitting a Retail Application Form, each applicant in the Retail Offering will authorise DNB Markets (on behalf of the Managers) to debit the applicant’s Norwegian bank account for the total amount due for the Offer Shares allocated to the applicant. Accounts will be debited on or about 2 October 2013 (the “Payment Date”), and there must be sufficient funds in the stated bank account from and including 1 October 2013. Applicants who do not have a Norwegian bank account must ensure that payment for the allocated Offer Shares is made on or before the Payment Date. Further details and instructions will be set out in the allocation notes to the applicant to be issued on or about 30 September 2013, or can be obtained by contacting DNB Markets at +47 23 26 81 01. DNB Markets (on behalf of the Managers) is only authorised to debit each account once, but reserves the right (but has no obligation) to make up to three debit attempts through 8 October 2013 if there are insufficient funds on the account on the Payment Date. Should any applicant have insufficient funds on its account, or should payment be delayed for any reason, or if it is not possible to debit the account, overdue interest will accrue and other terms will apply as set out under the heading “Overdue and missing payment” below. Subject to timely payment by the applicant, delivery of the Offer Shares allocated in the Retail Offering is expected to take place on or about 2 October 2013 (or such later date upon the successful debit of the relevant account).
Guidelines for the applicant: Please refer to the second page of this Retail Application Form for further application guidelines.
Applicant’s VPS-account (12 digits): I/we apply for shares for a total of NOK (minimum NOK 10,500 and maximum NOK 2,499,999)
Applicant’s bank account to be debited (11 digits):
OFFER PRICE: My/our application is conditional upon the final Offer Price not being set above the upper end of the Indicative Price Range (insert cross) (must only be completed if the application is conditional upon the final Offer Price not being set above the upper end of the Indicative Price Range):
I/we hereby irrevocably (i) apply for the number of Offer Shares allocated to me/us, at the Offer Price, up to the aggregate application amount as specified above subject to the terms and conditions set out in this Retail Application Form and in the Prospectus, (ii) authorise and instruct each of the Managers (or someone appointed by any of them) acting jointly or severally to take all actions required to transfer the Offer Shares allocated to me/us and ensure delivery of such Offer Shares to me/us in the VPS, on my/our behalf, (iii) authorise DNB Markets to debit my/our bank account as set out in this Retail Application Form for the amount payable for the Offer Shares allotted to me/us, and (iv) confirm and warrant to have read the Prospectus and that I/we are eligible to apply for and purchase Offer Shares under the terms set forth therein.
Date and place*: Binding signature**:
* Must be dated during the Application Period. ** The applicant must be of legal age. If the Retail Application Form is signed by a proxy, documentary evidence of authority to sign must be attached in the form of a Power of Attorney or Company Registration Certificate.
DETAILS OF THE APPLICANT — ALL FIELDS MUST BE COMPLETED
First name Surname/Family name/Company name
Home address (for companies: registered business address) Zip code and town
Identity number (11 digits) / business registration number (9 digits) Nationality
Telephone number (daytime) E-mail address
D2
GUIDELINES FOR THE APPLICANT
THIS RETAIL APPLICATION FORM IS NOT FOR DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL. OTHER RESTRICTIONS ARE APPLICABLE. PLEASE SEE “SELLING RESTRICTIONS” BELOW. Regulatory issues: Legislation passed throughout the EEA pursuant to the Markets and Financial Instruments Directive (“MiFID”) implemented in the Norwegian Securities Trading Act, imposes requirements in relation to business investment. In this respect the Managers must categorise all new clients in one of three categories: Eligible counterparties, Professional and Non-professional clients. All applicants applying for Offer Shares in the Offering who/which are not existing clients of one of the Managers will be categorised as Non-professional clients. The applicant can by written request to the Managers ask to be categorised as a Professional client if the applicant fulfils the provisions of the Norwegian Securities Trading Act. For further information about the categorisation the applicant may contact the Managers. The applicant represents that it has sufficient knowledge, sophistication and experience in financial and business matters to be capable of evaluating the merits and risks of an investment decision to invest in the Company by applying for Offer Shares, and the applicant is able to bear the economic risk, and to withstand a complete loss of an investment in the Company.
Execution only: As the Managers are not in the position to determine whether the application for Offer Shares is suitable for the applicant, the Managers will treat the application as an execution only instruction from the applicant to apply for Offer Shares in the Offering. Hence, the applicant will not benefit from the corresponding protection of the relevant conduct of business rules in accordance with the Norwegian Securities Trading Act.
Information barriers: The Managers are securities firms, offering a broad range of investment services. In order to ensure that assignments undertaken in the Managers’ corporate finance departments are kept confidential, the Managers’ other activities, including analysis and stock broking, are separated from their corporate finance departments by information barriers known as “Chinese walls”. The applicant acknowledges that the Managers’ analysis and stock broking activity may act in conflict with the applicant’s interests with regard to transactions in the Offer Shares as a consequence of such Chinese walls.
VPS account and anti-money laundering procedures: The Offering is subject to applicable anti-money laundering legislation, including the Norwegian Money Laundering Act No. 11 of 6 March 2009 and the Norwegian Money Laundering Regulation No. 302 of 13 March 2009 (collectively the “Anti-Money Laundering Legislation”). Applicants who are not registered as existing customers of one of the Managers must verify their identity to one of the Managers in accordance with requirements of the Anti-Money Laundering Legislation, unless an exemption is available. Applicants who have designated an existing Norwegian bank account and an existing VPS account on the Retail Application Form are exempted, unless verification of identity is requested by a Manager. Applicants who have not completed the required verification of identity prior to the expiry of the Application Period will not be allocated Offer Shares. Participation in the Offering is conditional upon the applicant holding a VPS account. The VPS account number must be stated in the Retail Application Form. VPS accounts can be established with authorised VPS registrars, who can be Norwegian banks, authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA. Establishment of a VPS account requires verification of identity to the VPS registrar in accordance with the Anti-Money Laundering Legislation. However, non-Norwegian investors may use nominee VPS accounts registered in the name of a nominee. The nominee must be authorised by the Norwegian FSA.
Selling restrictions: The Offering is subject to specific legal or regulatory restrictions in certain jurisdictions, see Section 19 “Selling and transfer restrictions” in the Prospectus. Neither the Company nor the Selling Shareholder assumes any responsibility in the event there is a violation by any person of such restrictions. The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or under any securities laws of any state or other jurisdiction of the United States and may not be taken up, offered, sold, resold, transferred, delivered or distributed, directly or indirectly, within, into or from the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with the securities laws of any state or other jurisdiction of the United States. There will be no public offer in the United States. The Offer Shares will, and may, not be offered, sold, resold, transferred, delivered or distributed, directly or indirectly, within, into or from any jurisdiction where the offer or sale of the Offer Shares is not permitted, or to, or for the account or benefit of, any person with a registered address in, or who is resident or ordinarily resident in, or a citizen of, any jurisdiction where the offer or sale is not permitted, except pursuant to an applicable exemption. In the Retail Offering, the Offer Shares are being offered and sold to certain persons outside the United States in offshore transactions within the meaning of and in compliance with Rule 903 of Regulation S under the U.S. Securities Act.
The Company has not authorised any offer to the public of its securities in any Member State of the EEA other than Norway. With respect to each Member State of the EEA other than Norway and which has implemented the EU Prospectus Directive (each, a “Relevant Member State”), no action has been undertaken or will be undertaken to make an offer to the public of the Offer Shares requiring a publication of a prospectus in any Relevant Member State. Any offers outside Norway will only be made in circumstances where there is no obligation to produce a prospectus.
Stabilisation: In connection with the Offering, DNB Markets (as the “Stabilisation Manager”) (or persons acting on behalf of the Stabilisation Manager) may over-allot shares or effect transactions with a view to supporting the market price of the shares at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilisation Manager (or persons acting on behalf of the Stabilisation Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the final price of the Offer Shares is made and, if begun, may be ended at any time, but it must end no later than 30 days after allotment of the Offer Shares.
Investment decisions based on full Prospectus: Investors must neither accept any offer for, nor acquire any Offer Shares, on any other basis than on the complete Prospectus.
Terms and conditions for payment by direct debiting - securities trading: Payment by direct debiting is a service provided by cooperating banks in Norway. In the relationship between the payer and the payer’s bank the following standard terms and conditions apply. 1. The service “Payment by direct debiting — securities trading” is supplemented by the account agreement between the payer and the payer’s bank, in particular Section C of the account agreement, General terms and conditions for deposit and payment instructions. 2. Costs related to the use of “Payment by direct debiting — securities trading” appear from the bank’s prevailing price list, account information and/or information is given by other appropriate manner. The bank will charge the indicated account for incurred costs. 3. The authorisation for direct debiting is signed by the payer and delivered to the beneficiary. The beneficiary will deliver the instructions to its bank who in turn will charge the payer’s bank account. 4. In case of withdrawal of the authorisation for direct debiting the payer shall address this issue with the beneficiary. Pursuant to the Financial Contracts Act, the payer’s bank shall assist if payer withdraws a payment instruction which has not been completed. Such withdrawal may be regarded as a breach of the agreement between the payer and the beneficiary. 5. The payer cannot authorise for payment a higher amount than the funds available at the payer’s account at the time of payment. The payer’s bank will normally perform a verification of available funds prior to the account being charged. If the account has been charged with an amount higher than the funds available, the difference shall be covered by the payer immediately. 6. The payer’s account will be charged on the indicated date of payment. If the date of payment has not been indicated in the authorisation for direct debiting, the account will be charged as soon as possible after the beneficiary has delivered the instructions to its bank. The charge will not, however, take place after the authorisation has expired as indicated above. Payment will normally be credited the beneficiary’s account between one and three working days after the indicated date of payment/delivery. 7. If the payer’s account is wrongfully charged after direct debiting, the payer’s right to repayment of the charged amount will be governed by the account agreement and the Financial Contracts Act.
Overdue and missing payments: Overdue payments will be charged with interest at the applicable rate under the Norwegian Act on Interest on Overdue Payments of 17 December 1976, No. 100, which at the date of the Prospectus is 9.50% per annum. Should payment not be made when due, the Offer Shares allocated will not be delivered to the applicant, and the Managers reserve the right, at the risk and cost of the applicant, to cancel at any time thereafter the application and to re-allot or otherwise dispose of the allocated Offer Shares, on such terms and in such manner as the Managers may decide (and that the applicant will not be entitled to any profit therefrom). The original applicant will remain liable for payment of the Offer Price for the Offer Shares allocated to the applicant, together with any interest, costs, charges and expenses accrued, and the Selling Shareholder and/or the Managers may enforce payment of any such amount outstanding.
D3
Appendix E
Application form for the Retail Offering in Norwegian
E1
BESTILLINGSBLANKETT FOR DET OFFENTLIGE TILBUDET
Generell informasjon: Vilkårene og betingelsene for det Offentlige Tilbudet fremgår av prospektet datert 13. september 2013 (“Prospektet”), som er utarbeidet av Odfjell Drilling Ltd (”Selskapet”) i forbindelse med BCB Paragon Trust Limiteds, som forvalter for Larine Trust, (“Selgende Aksjonær”) salg av aksjer og noteringen av Selskapets Aksjer på Oslo Børs. Prospektet inneholder også et norsk sammendrag. Alle definerte ord og uttrykk (angitt med stor bokstav) som ikke er definert i denne bestillingsblanketten, skal ha samme innhold som i Prospektet. Bestillingsprosedyre: Bestillere i det Offentlige Tilbudet som er norske statsborgere med et norsk personnummer kan foreta bestilling av Tilbudsaksjer gjennom følgende internettsider: www.abgsc.no, www.dnb.no/emisjoner, www.arcticsec.no og www.swedbank.no. Bestillinger i det Offentlige Tilbudet kan også foretas ved å bruke denne bestillingsblanketten som er vedlagt Prospektet som Appendix E (Application Form for the Retail Offering in Norwegian) eller Appendix D (Application form for the Retail Offering). Korrekt utfylt bestillingsblankett må være mottatt av en av de følgende bestillingskontorer før utløpet av den relevante fristen (”Bestillingskontorene”):
Danske Bank Markets Stortingsgaten 6 Postboks 1170 Sentrum N-0161 OSLO Norge Tel: +47 85 40 90 00 Faks: +47 85 40 79 92
Swedbank First Securities Filipstad Brygge 1 Postboks 1441 Vika N-0115 OSLO Norge Tel: +47 23 23 80 00 Faks: +47 23 23 81 11
Bestilleren er ansvarlig for riktigheten av informasjonen som er fylt inn i bestillingsblanketten. Bestillingsblanketter som er ufullstendige eller uriktig utfylt, elektronisk eller på papir, eller som mottas etter utløpet av Bestillingsperioden, og enhver bestilling som kan være ulovlig, kan bli avvist uten nærmere varsel til bestilleren. Bestillinger som gjøres gjennom det VPS nettbaserte bestillingssystemet må være registrert, og bestillinger som gjøres på bestillingsblanketter må være mottatt av en av Bestillingskontorene, innen kl 12.00 norsk tid den 27. september 2013, med mindre Bestillingsperioden forkortes eller forlenges. Verken Selskapet, Selgende Aksjonær eller noen av Tilretteleggerne kan holdes ansvarlig for forsinkelser i postgang, utilgjengelige fakslinjer, internettlinjer eller servere eller andre logistikk- eller tekniske problemer som kan resultere i at bestillinger ikke blir mottatt i tide, eller i det hele tatt, av noen av Bestillingskontorene. Alle bestillinger i det Offentlige Tilbudet er ugjenkallelige og bindende og kan ikke trekkes, kanselleres eller endres av bestilleren etter at bestillingen er registrert i VPS’ nettbaserte bestillingssystem eller hvis bestilling gjøres på bestillingsblankett, når komplett utfylt bestillingsblankett er mottatt av et av Bestillingskontorene (”Registreringen”), uavhengig av en eventuell forkortelse eller forlengelse av Bestillingsperioden. Pris på Tilbudsaksjene: Det indikative prisintervallet (det “Indikative Prisintervallet”) i Tilbudet er fra NOK 37 til NOK 48 per Tilbudsaksje. Den endelige prisen per Tilbudsaksje vil bli fastsatt av Selgende Aksjonær, i samråd med Selskapet og Tilretteleggerne, på basis av ordre som mottas og ikke trekkes tilbake i det Institusjonelle Tilbudet gjennom bookbuilding-prosessen og antallet bestillinger mottatt i det Offentlige Tilbudet. Tilbudsprisen vil fastsettes rundt den 27. september 2013. Prisen per Tilbudsaksje kan fastsettes over eller under det Indikative Prisintervallet. Hver bestiller i det Offentlige Tilbudet kan, men må ikke, indikere i VPS’ nettbaserte bestillingssystem eller på bestillingsblanketten at bestilleren ikke ønsker å bli tildelt Tilbudsaksjer dersom prisen per Tilbudsaksje blir fastsatt høyere enn den høyeste prisen i det Indikative Prisintervallet. Dersom bestilleren ikke uttrykkelig gir uttrykk for en slik reservasjon i VPS’ nettbaserte bestillingssystem eller på bestillingsblanketten, vil bestillingen være bindende uavhengig av om prisen per Tilbudsaksje fastsettes innenfor eller over (eller under) det Indikative Prisintervallet. Investorer i det Offentlige Tilbudet vil få en rabatt på NOK 1 000 på den samlede kjøpesummen for Tilbudsaksjene tildelt slike investorer. Allokering, betaling og levering av Tilbudsaksjer: DNB Markets, som oppgjørsagent for det Offentlige Tilbudet, forventer å gi beskjed om tildeling av Tilbudsaksjer i det Offentlige Tilbudet rundt 30. september 2013 per post eller på annen måte. Bestillere som ønsker å få opplyst det eksakte antallet Tilbudsaksjer som denne er tildelt, kan kontakte et av Bestillingskontorene fra rundt den 30. september 2013 innenfor ordinær åpningstid. Bestillere som har tilgang til investorservice gjennom en institusjon som er kontofører for bestillerens VPS-konto, skal fra rundt den 30. september 2013 kunne se antall Tilbudsaksjer de er tildelt. Ved å registrere en bestilling i VPS’ nettbaserte bestillingssystem eller ved å fylle ut og sende inn en bestillingsblankett, gir hver bestiller i det Offentlige Tilbudet fullmakt til DNB Markets (på vegne av Tilretteleggerne) til å debitere bestillerens norske bankkonto for et beløp som tilsvarer den samlede kjøpesummen for de Tilbudsaksjene som bestilleren blir tildelt. Bankkontoen vil debiteres på eller rundt den 2. oktober 2013 (”Betalingsdatoen”), og det må være tilstrekkelige innestående på den aktuelle kontoen fra og med 1. oktober 2013. Bestillere som ikke har en norsk bankkonto må forsikre seg om at betaling for tildelte Aksjer foretas senest på Betalingsdatoen. Ytterligere betalingsdetaljer og instruksjoner vil fremgå av tildelingsbrevet som sendes ut rundt den 30. september 2013, og kan også fås ved å kontakte DNB Markets på +47 23 26 81 01. DnB Markets (på vegne av Tilretteleggerne) er bare berettiget til å belaste kontoen én gang, men forbeholder seg retten (men har ingen forpliktelse) til å gjøre inntil tre debiteringsforsøk frem til og med 8. oktober 2013 dersom det er utilstrekkelig med midler på kontoen på Betalingsdatoen. Dersom en bestiller ikke har tilstrekkelig innestående på den aktuelle bankkontoen, eller betaling er forsinket av en eller annen årsak, eller dersom det ikke er mulig å debitere kontoen, vil det påløpe forsinkelsesrente og andre vilkår vil gjelde som fastsatt under overskriften “Forsinket og manglende betaling” under. Dersom betaling for tildelte Tilbudsaksjer er mottatt rettidig, vil levering av tildelte Tilbudsaksjer i det Offentlige Tilbudet foretas rundt den 2. oktober 2013 (eller på slik senere dato ved vellykket debitering av den relevante kontoen). Retningslinjer for bestilleren: Vennligst se side 2 av denne bestillingsblanketten for ytterligere retningslinjer for bestillingen.
Bestillerens VPS-konto (12 siffer):
Jeg/vi bestiller herved aksjer for totalt NOK (minimum NOK 10 500 og maksimum NOK 2 499 999):
Bestillerens bankkonto som skal debiteres (11 siffer):
TILBUDSPRISEN: Min/vår bestilling er betinget av at den endelige prisen for Tilbudsaksjene ikke fastsettes over det øvre nivået i det Indikative Prisintervallet (kryss av) (Dette feltet skal kun fylles ut dersom bestillingen er betinget av at den endelige Tilbudsprisen ikke fastsettes over den øvre prisen i det Indikative Prisintervallet):
Herved (i) foretar jeg/vi, i henhold til vilkårene og betingelsene som fremgår av denne bestillingsblanketten og av Prospektet, en ugjenkallelig bestilling av det antall Tilbudsaksjer tildelt meg/oss til Tilbudsprisen, opp til det samlede bestillingsbeløpet angitt ovenfor, (ii) gir jeg/vi hver av Tilretteleggerne (eller noen utpekt av dem) ugjenkallelig fullmakt og instruerer hver av dem til, sammen eller hver for seg, å gjennomføre enhver handling som er nødvendig for å overføre Tilbudsaksjene som tildeles meg/oss og sikre levering av disse Tilbudsaksjene i VPS på mine/våre vegne, (iii) gir jeg/vi DNB Market ugjenkallelig fullmakt til å debitere min/vår bankkonto som angitt i bestillingsblanketten for den samlede kjøpesummen for de Tilbudsaksjene som jeg/vi får tildelt, og (iv) bekrefter og garanterer jeg/vi ugjenkallelig å ha lest Prospektet og at jeg/vi er kvalifiserte til å bestille og kjøpe Tilbudsaksjer på de vilkår som der fremgår. Dato og sted*:
Bindende signatur**:
* Må være datert i Bestillingsperioden. **Undertegneren må være myndig. Dersom bestillingsblanketten undertegnes på vegne av bestilleren, må det vedlegges dokumentasjon i form av firmaattest eller fullmakt for at undertegner har slik kompetanse.
INFORMASJON OM BESTILLEREN — ALLE FELT MÅ FYLLES UT
Fornavn Etternavn/Foretaksnavn
Adresse (for foretak: registrert forretningsadresse) Postnummer og sted
DENNE BESTILLINGSBLANKETTEN SKAL IKKE DISTRIBUERES ELLER OFFENTLIGGJØRES, VERKEN DIREKTE ELLER INDIREKTE, I ELLER TIL USA, CANADA, AUSTRALIA ELLER JAPAN ELLER NOEN ANNEN JURISDIKSJON DER SLIK DISTRIBUSJON ELLER OFFENTLIGGJØRING VIL VÆRE ULOVLIG. ANDRE RESTRIKSJONER GJELDER OGSÅ, SE PUNKTET ”SALGSRESTRIKSJONER” NEDENFOR.
Regulatoriske forhold: I overensstemmelse med EU-direktivet “Markets in Financial Instruments” (“MiFID”), oppstiller lov 29. juni 2007 nr 75 om verdipapirhandel (“Verdipapirhandelloven”) med tilhørende forskrifter, krav relatert til finansielle investeringer. I den forbindelse må Tilretteleggerne kategorisere alle nye kunder i en av tre kategorier; kvalifiserte motparter, profesjonelle og ikke-profesjonelle kunder. Alle bestillere som bestiller Tilbudsaksjer i det Offentlige Tilbudet og som ikke allerede er kunde hos en av Tilretteleggerne, vil bli kategorisert som ikke-profesjonell kunde. Bestilleren kan ved skriftlig henvendelse til Tilretteleggerne anmode om å bli kategorisert som profesjonell kunde dersom Verdipapirhandellovens vilkår for dette er oppfylt. For ytterligere informasjon om kundekategorisering kan bestilleren kontakte Tilretteleggerne. Bestilleren bekrefter herved å inneha tilstrekkelig kunnskap og erfaring om finansielle og forretningsmessige forhold for å kunne evaluere risikoen ved å investere i Selskapet gjennom å bestille Tilbudsaksjer i det Offentlige Tilbudet, og bestilleren bekrefter å være i stand til å ta den økonomiske risikoen og tåle et fullstendig tap av sin investering i Selskapet.
Kun ordreutførelse: Tilretteleggerne vil behandle bestillingen av Tilbudsaksjer som en instruksjon om utførelse av ordre (“execution only”) fra bestilleren, ettersom Tilretteleggerne ikke vil være i stand til å avgjøre om bestillingen er hensiktsmessig for bestilleren. Bestilleren vil derfor ikke kunne påberope seg Verdipapirhandellovens regler om investorbeskyttelse.
Informasjonsbarrierer: Tilretteleggerne er verdipapirforetak som tilbyr et bredt spekter av investeringstjenester. For å sikre at oppdrag som gjennomføres av Tilretteleggernes “corporate finance”-avdelinger holdes konfidensielle, er disse avdelingene adskilt fra Tilretteleggernes andre avdelinger, herunder avdelinger for analyse og aksjemegling, gjennom bruk av informasjonsbarrierer også kjent som “chinese walls”. Bestilleren erkjenner at som en konsekvens av dette kan Tilretteleggernes analyse- og aksjemeglingsavdelinger komme til å opptre i strid med bestillerens interesser i forbindelse med transaksjoner i Aksjene.
VPS-konto og pålagte hvitvaskingingsprosedyrer: Det Offentlige Tilbudet er underlagt gjeldende hvitvaskingslovgivning, herunder kravene i lov 6. mars 2009 nr 11 om tiltak mot hvitvasking og terrorfinansiering samt hvitvaskingsforskriften av 13. mars 2009 nr. 302 (“Hvitvaskingslovgivningen”). Bestillere som ikke er registrert som kunde hos en av Tilretteleggerne må bekrefte sin identitet til en av Tilretteleggerne, i samsvar med Hvitvaskingslovgivningen, med mindre det gjelder spesielle unntak. Bestillere som har oppgitt en eksisterende norsk bankkonto og en eksisterende VPS-konto på bestillingsblanketten er unntatt med mindre verifikasjon av bestillerens identitet blir krevet av en av Tilretteleggerne. Bestillere som ikke har gjennomført tilstrekkelig verifikasjon av identitet før utløpet av Bestillingsperioden vil ikke bli tildelt Tilbudsaksjer. Deltakelse i Tilbudet er beting av at bestilleren har en VPS konto. VPS kontonummeret må være angitt i bestillingsblanketten. En VPS- konto kan etableres ved en autorisert VPS-kontofører som kan være en norsk bank, autorisert verdipapirforetak i Norge og norske avdelinger av finansinstitusjoner i EØS. Etablering av en VPS-konto krever bekreftelse på identitet overfor kontoføreren i henhold til Hvitvaskingslovgivningen. Utlandske investorer kan imidlertid benytte en forvalterkonto registrert i VPS i forvalterens navn. Forvalteren må være autorisert av Finanstilsynet.
Salgsrestriksjoner: Tilbudet er underlagt salgsrestriksjoner i enkelte jurisdiksjoner, se kapittel 19 “Selling and transfer restrictions” i Prospektet. Verken Selgende Aksjonær eller Selskapet påtar seg noe ansvar dersom noen bryter disse restriksjonene. Tilbudsaksjene har ikke vært, og vil ikke bli, registrert i henhold til United States Securities Act av 1933 som endret (“U.S. Securities Act”) eller i henhold til noen verdipapirlovgivning i noen stat eller annen jurisdiksjon i USA og kan ikke tas opp, tilbys, selges, videreselges, overføres, leveres eller distribueres, verken direkte eller indirekte, innenfor, til eller fra USA bortsett fra i henhold til et gjeldende unntak fra, eller i en transaksjon som ikke er underlagt, registreringsbestemmelsene i U.S. Securities Act og i overensstemmelse med verdipapirlovgivningen i enhver stat eller annen jurisdiksjon i USA. Det vil ikke forekomme noe offentlig tilbud i USA. Tilbudsaksjene vil, og kan ikke, tilbys, selges, videreselges, overføres, leveres eller distribueres, verken direkte eller indirekte, innenfor, til eller fra noen jurisdiksjon der tilbud eller salg av Tilbudsaksjer ikke er tillatt, eller til, eller på vegne av eller til fordel for, enhver person med registrert adresse i, eller som bor eller vanligvis bor i, eller er innbygger i, noen jurisdiksjon der tilbud eller salg ikke er tillatt, bortsatt fra i henhold til et gjeldende unntak. I det Offentlige Tilbudet tilbys og selges Tilbudsaksjene til enkelte personer utenfor USA i ”offshore transactions” innenfor betydningen av og i overensstemmelse med Rule 903 i Regulation S i U.S. Securities Act.
Selskapet har ikke gitt tillatelse til noe offentlig tilbud av dets verdipapirer i noe medlemsland av EØS bortsett fra Norge. Når det gjelder andre medlemsland i EØS enn Norge som har implementert Prospektdirektivet (“Aktuelle Medlemsland”), har det og vil det ikke bli gjort noe for å fremsette et offentlig tilbud av Tilbudsaksjene som krever publisering av et prospekt i noen Aktuelle Medlemsland. Alle tilbud utenfor Norge vil derfor skje i henhold til unntak fra krav om prospekt.
Stabilisering: I forbindelse med Tilbudet kan DNB Markets (som “Stabiliserende Tilrettelegger”) (eller personer som opptrer på vegne av Stabiliserende Tilrettelegger) overtildele aksjer eller utføre transaksjoner med tanke på å støtte markedskursen på aksjene til et høyere nivå enn det som ellers kan tenkes å ville gjelde. Det er imidlertid ingen sikkerhet for at Stabiliserende Tilrettelegger (eller personer som opptrer på vegne av Stabiliserende Tilrettelegger) vil foreta stabiliserende handlinger. Stabilisering kan begynne på eller etter datoen for når informasjon om den endelige tilbudsprisen er tilfredsstillende offentliggjort og, hvis stabilisering begynner, kan den avsluttes når som helst, men senest innen 30 dager fra allokering av Tilbudsaksjene.
Investeringsbeslutninger må baseres på Prospektet: Investorer må verken akseptere noe tilbud om, eller erverv av, verdipapirer i Selskapet på annet grunnlag enn det fullstendige Prospektet. Vilkår for betaling med engangsfullmakt — verdipapirhandel: Betaling med engangsfullmakt er en banktjeneste tilbudt av samarbeidende banker i Norge. I forholdet mellom betaler og betalers bank gjelder følgende standard vilkår:
1. Tjenesten ”Betaling med engangsfullmakt — verdipapirhandel” suppleres av kontoavtalen mellom betaler og betalers bank, se særlig kontoavtalen del C, Generelle vilkår for innskudd og betalingsoppdrag. 2. Kostnader ved å bruke ”Betaling med engangsfullmakt — verdipapirhandel” fremgår av bankens gjeldende prisliste, kontoinformasjon og/eller opplyses på annen egnet måte. Banken vil belaste oppgitt konto for påløpte kostnader. 3. Engangsfullmakten signeres av betaler og leveres til betalingsmottaker. Betalingsmottaker vil levere belastningsoppdraget til sin bank som igjen kan belaste betalers bank. 4. Ved et eventuelt tilbakekall av engangsfullmakten skal betaler først ta forholdet opp med betalingsmottaker. Etter finansavtaleloven skal betalers bank medvirke hvis betaler tilbakekaller et betalingsoppdrag som ikke er gjennomført. Slikt tilbakekall kan imidlertid anses som brudd på avtalen mellom betaler og betalingsmottaker. 5. Betaler kan ikke angi et større beløp på engangsfullmakten enn det som på belastningstidspunktet er disponibelt på konto. Betalers bank vil normalt gjennomføre dekningskontroll før belastning. Belastning ut over disponibelt beløp skal betaler dekke inn umiddelbart. 6. Betalers konto vil bli belastet på angitt belastningsdag. Dersom belastningsdag ikke er angitt i engangsfullmakten vil kontobelastning skje snarest mulig etter at betalingsmottaker har levert oppdraget til sin bank. Belastningen vil likevel ikke skje etter engangsfullmaktens gyldighetsperiode som er angitt foran. Betaling vil normalt være godskrevet betalingsmottaker én til tre virkedager etter angitt belastningsdag/innleveringsdag. 7. Dersom betalers konto blir urettmessig belastet på grunnlag av en engangsfullmakt, vil betalers rett til tilbakeføring av belastet beløp bli regulert av kontoavtalen og finansavtaleloven. Forsinket og manglende betaling: Forsinket betaling belastes med gjeldende forsinkelsesrente i henhold til forsinkelsesrenteloven av 17. desember 1976 nr. 100, som per dato for Prospektet er 9,50 % p.a. Dersom betaling ikke skjer ved forfall, vil Tilbudsaksjene ikke bli levert til bestilleren, og Tilretteleggerne forbeholder seg retten til å, for tegnerens regning og risiko, når som helst kansellere og reallokere eller på annen måte disponere over de allokerte Tilbudsaksjene, på de vilkår og på den måten Tilretteleggerne bestemmer (og bestilleren ikke vil være berettiget til noe overskudd derfra). Den opprinnelige bestilleren vil fortsette å være ansvarlig for betaling av Tilbudsprisen for Tilbudsaksjene tildelt bestilleren, sammen med enhver rente, kostnader, gebyrer og utgifter påløpt, og Selgende Aksjonær og/eller Tilretteleggerne kan inndrive betaling for alle utestående beløp.