PROSAFE
> Annual report 2002 ANNUAL REPORT 2002
> Contents The Prosafe group
4
Key financial figures
6
The year in brief
7
President’s review
8
Directors’ report
10
Corporate governance
18
Offshore Support Services
22
Drilling Services
26
Floating Production
30
HSE and quality
34
Analytical information
36
Accounts, Prosafe group
40
Accounts, parent company
58
Auditor's report
63
Fleet
64
Corporate management
66
Addresses
67
> The Prosafe group
Prosafe is a company with an exciting history, characterised by controlled and market-tailored growth over three decades. Today’s Prosafe was formed in 1997 through a merger between listed companies Safe Offshore ASA and Procon Offshore ASA. The company has subsequently expanded through organic growth and acquisitions.
PROSAFE’S MISSION is to offer its customers innovative and cost-effective solutions in order to maximise shareholder value and to create a challenging and motivating workplace.
PROSAFE’S VISION is to be a leading and innovative supplier of products and services in selected niches of the global oil and gas industry.
OFFSHORE SUPPORT SERVICES currently has five rigs in the Gulf of Mexico. Two rigs are being upgraded and will start charters in the North Sea during March and April 2003 respectively. Safe Caledonia is being mobilised to the Timor Sea off Australia and will start work in May 2003.
From 1997-2002, the company has consolidated the global market for accommodation/service rigs and now owns eight such units. These operate in the North Sea and the Gulf of Mexico. Its acquisition of Nortrans Offshore Ltd (now Prosafe Production Pte Ltd) in 2001 made it a substantial player in the conversion, chartering and operation of floating production and storage units (FPSOs/FSOs) in Asia and Africa. Prosafe also occupies a leading position in production drilling from fixed installations on the Norwegian continental shelf, with about 50 per cent of the market. The company has consciously opted to focus on activities in the operation, production and maintenance sectors, and accordingly works in that part of the value chain which is most robust in relation to oil price fluctuations. See the value chain on page 5. This strategy ensures a stable revenue flow for the company and permits growth in selected niches.
The company comprises three independent divisions: Offshore Support Services, Drilling Services and Floating Production.
DRILLING SERVICES holds contracts for production drilling on Gullfaks, Snorre, Heidrun, Jotun, Oseberg, Ringhorne and Kvitebjørn (from 2003). The company also owns and operates the Rubicon rig, a modularised unit for drilling and well workover. In addition, it provides technical services relating to technology development, upgrading and optimisation of drilling and process facilities. FLOATING PRODUCTION owns and/or operates a fleet of
seven FPSO/FSO vessels, and has operations off Gabon, Indonesia, India, Egypt, the Ivory Coast and Nigeria.
IMPORTANT EVENTS OVER THE PAST FIVE YEARS
2002 > Prosafe acquires the Polyconcord accommo-
> > > 2001 >
>
4
dation/service rig (now Safe Hibernia) from Norway’s Rasmussen group The company’s FPSO Espoir Ivoirien starts a 10-year charter off the Ivory Coast Prosafe is awarded an eight-year FPSO charter for the Abo field off Nigeria, starting in 2003 The company delivers its best-ever results Prosafe brings together all its subsidiaries under a common name A commitment is made to the subsea well intervention market
> Prosafe acquires Nortrans Offshore Ltd 2000 > MSV Regalia is acquired from Halliburton 1999 > Prosafe acquires Polycrown (now Safe Scandinavia) 1998 > Prosafe merges with Discoverer ASA, which owns
Jasminia and Safe Regency 1997 > Procon Offshore ASA is formed through a demerger
from Transocean, and is listed on the Oslo Stock Exchange > Safe Offshore ASA, which owns/operates three accommodation/service rigs (Safe Britannia, Safe Caledonia and Safe Lancia) is formed and listed on the Oslo Stock Exchange > Procon Offshore ASA and Safe Offshore ASA merge
•• •••••••
•
HOUSTON
• ••
•••
•
BERGEN STAVANGER ABERDEEN
•
GULF OF MEXICO
IVORY COAST
•• •
GULF OF SUEZ
•
INDIA
NIGERIA
SINGAPORE
••
JAVA TIMOR SEA
GABON
• • • •
•
(FROM MAY 2003)
OFFICE FPSO / FSO ACCOMMODATION / SERVICE RIG DRILLING OPERATION
Value chain SEISMIC SURVEYS
PROSAFE E & D DRILLING
PRE-ENG./ CONCEPT STUDIES
FABRICATION/ INSTALLATION
OPERATION AND MAINTENANCE
ABANDONMENT
Group structure Prosafe ASA
Offshore Support Services
Floating Production
Drilling Services
5
> Key financial figures
NOTE
2002
2001
2000
1 946
PROFIT
NOK million
1 200
Operating revenues
NOK million
2 893
2 418
EBITDA
NOK million
1 064
883
794
EBIT
NOK million
702
510
597
Net profit Earnings per share Average USD/NOK exchange rate
NOK million
524
375
484
600
15.39
11.66
18.39
400
8.00
9.00
8.78
200
1
NOK
1 000 800
0 2002
CASH FLOW
Cash flow Capital expenditure Cash flow per share
2 3
NOK million
836
825
672
NOK million
1 596
2 925
1 031
EBIT
NOK
24.55
25.67
25.42
Net profit
NOK million
7 245
6 511
3 777
NOK million
386
667
683
BALANCE SHEET
Total assets Working capital Cash and deposits Interest-bearing debt Net interest-bearing debt 4 Book equity USD/NOK exchange rate at year-end
2001
2000
40%
NOK million
726
763
627
30%
NOK million
2 985
2 679
1 399
20%
NOK million
2 259
1 916
772
NOK million
3 305
3 068
1 861
6.97
9.01
8.85
36.5
40.8
EBITDA margin
%
36.8
EBIT margin
%
24.3
21.1
30.7
Return on capital employed 5 Return on equity 6 Equity ratio 7 Number of outstanding shares Av. no outstanding and potential shares
%
12.1
12.1
22.2
%
16.4
15.2
26.1
%
45.6
47.1
49.3
1 000 shares
33 958
33 719
26 179
1 000 shares
34 059
32 139
26 439
NOK million
3 209
4 046
3 560
NOK million
4 820
5 351
3 054
NOK million
5 468
5 962
4 332
NOK
94.50
120.00
136.00
NOK
97.33
90.99
71.09
NOK
141.94
158.69
116.67
3.0
4.6
4.5
4.6
7.9
6.0
6.1
10.8
7.4
3.8
4.9
5.3
VALUATION
6
2000
50%
KEY FIGURES
Market capitalisation Value adjusted equity 8 Enterprise value 9 Share price Book equity per share 10 Value adjusted equity per share Market cap. / EBITDA Market cap. / EBIT Market cap. / Net profit Market cap. / Cash flow Market cap. / Book equity Market cap. / Value-adjusted equity
2001
EBITDA
1.0
1.3
1.9
0.7
0.8
1.2
10% 0 2002
EBITDA margin Return on capital employed Return on equity
NOTES 1 Net profit / Average no. of outstanding and potential shares 2 Cash flow from operating activities 3 Cash flow / Average no. of outstanding and potential shares 4 Interest-bearing debt - Cash and deposits 5 EBIT + Interest income / Average total assets - Average interest free debt 6 Net profit / Average book equity 7 Book equity / Total assets 8 Book equity adjusted for market value of vessels as per broker estimates and market value of debt 9 Market capitalisation + Net interest-bearing debt 10 Book equity / Number of outstanding shares
> The year in brief
January 2002 > Prosafe is awarded an eight-year FPSO charter with Agip on the deepwater Abo field off Nigeria, starting in the spring of 2003. > The charter for FSO Endeavor is extended until July 2002.
October 2002 > The charters for Safe Lancia and Safe Britannia are extended until April 2003 and June 2003 respectively. > Statoil extends the drilling contract on Gullfaks by one year until April 2004.
February 2002 > FPSO Espoir Ivoirien starts production on the Espoir field off the Ivory Coast. This charter has a fixed duration of 10 years. > Offshore Support Services is awarded a two-three week contract by Statoil to provide flotel services on the Gullfaks field, starting in April 2003. > Prosafe agrees with K/S Rasmussen Offshore A/S to acquire the semi-submersible accommodation/ service rig Polyconcord (now Safe Hibernia).
November 2002 > The Jasminia charter in the Gulf of Mexico is extended to the end of 2002. > Work starts at the yard in Sandnes to upgrade MSV Regalia for subsea well intervention.
April 2002 > ConocoPhillips charters Safe Caledonia from Prosafe over an eight-month period for use on Bayu Undan in the Timor Sea between Australia and East Timor. > Prosafe secures a one-year charter for Safe Hibernia in the Gulf of Mexico. June 2002 > Norsk Hydro extends the contract to use Rubicon on the Snorre tension leg platform by one year, to August 2003. July 2002 > The drilling contracts on the Snorre TLP and Snorre B are extended by two years, to October 2004. > The Safe Lancia charter in the Gulf of Mexico is extended until mid-October 2003.
December 2002 > Abo FPSO is named at the Singapore yard on 4 December, and lays a course for Nigeria on the 22nd. > Statoil extends the drilling contract on Heidrun to June 2004.
January 2003 > The Jasminia and Safe Regency charters in the Gulf of Mexico are extended to March 2003 and April 2003 respectively. > Abo FPSO arrives on the field off Nigeria. February 2003 > The FSO Endeavor’s charter off India is extended by one year to July 2004. > The upgrade of MSV Regalia is completed at the yard in Sandnes, on time and within budget. March 2003 > Prosafe receives a letter of intent from Ocean Oil regarding two five-year bareboat charters for Jasminia and Safe Britannia in the Gulf of Mexico.
7
> President’s review
PROSAFE IS A HIGH-PROFILE PLAYER in the Norwegian
petroleum cluster and a substantial contractor in important international offshore markets. On the basis of our vision of being "a leading and innovative supplier of products and services in selected niches of the global oil and gas industry", we have achieved a leading position through organic growth and strategic acquisitions in most of our divisions. This focused strategy provided the foundation which allowed the company to deliver its best results to date in 2002. One of the most fundamental reasons for the success of our strategy is that we have a highly-educated, motivated and multi-cultural workforce, with the right balance between long experience and development potential. More than 1 800 people from 32 countries are now employed in the group. During the year, we continued and intensified integration efforts in the company with the aim of creating a common identity across organisational and national boundaries in line with our core values of profitability, respect, innovation, safety, ambition, focus and the environment. Safe and profitable operation is achieved in part by basing all our work on these core values. Prosafe also continued to develop its corporate governance during the year. We want our investors to know about and be confident in our internal control and management mechanisms, and place great emphasis on an open information policy. By keeping the stock market informed about our financial performance, our prospects and other conditions which might be relevant, we create the best possible basis for a correct valuation of the company. You can read more about our corporate governance on page 18. WE MADE A PURPOSEFUL COMMITMENT in 2002 to achieving further improvements in our health, safety and environmental results. Meetings of responsible personnel held at the various subsidiaries have led to a common platform of goals and definitions, which permits unified reporting and follow-up.
Considerable work was also devoted to creating a shared HSE culture. Sickness absence has been substantially reduced over the past few years, and now stands at 2.6 per cent for the group. The lost-time injury frequency1) for the group has declined by more than 50 per cent over the past few years and was 1.97 in 2002 – which must be characterised as a very good result for the offshore industry. We contributed in 2002 to substantial value creation for our customers and the community without serious HSE consequences. That is a matter of pride to us. Prosafe has a "zero mindset", however, and we must not settle for "good enough". We will accordingly continue to focus great attention on this important work. All our divisions contributed to achieving the good result. DRILLING SERVICES recorded its best-ever performance as a result of high efficiency and well-executed work. Norsk Hydro exercised a one-year option to use the modularised Rubicon drilling and intervention rig on the Snorre TLP, and the first of two two-year options for platform drilling on the Snorre TLP and Snorre B. Statoil exercised one-year options for platform drilling on Gullfaks and Heidrun respectively. Platform drilling represents a stable activity on the Norwegian continental shelf (NCS), and Prosafe intends to maintain its expansion in this segment by continuing to develop its existing portfolio of contracts, offering related supplementary services and making a commitment to selective internationalisation. An important step in our commitment to internationalisation is the formation of PDS (UK) Ltd, which will market our services to companies operating on the UK continental shelf. delivered a strong result in 2002. Rig utilisation was 84 per cent, and the 2003 order book is already well filled. After acquiring the semisubmersible accommodation/service rig Polyconcord from K/S Rasmussen Offshore A/S, we now have a modern OFFSHORE SUPPORT SERVICES
1)
8
LTI frequency = [LTIs per 1 000 000 work hours] / [Exposure hours]
fleet of eight such units. Polyconcord was renamed Safe Hibernia, and has secured a one-year charter in the Gulf of Mexico. In March 2003, Prosafe received a letter of intent from Ocean Oil regarding two five-year bareboat charters for Jasminia and Safe Britannia in the Gulf of Mexico. These contracts will secure continuous employment from the expiry of their current assignments until March and October 2008 respectively. The combined value of the contracts is around USD 118 million. MSV Regalia has been outfitted for subsea well intervention and will start its first contract in this area for Statoil in April 2003. That marks an important milestone for Prosafe. We have received confirmation that innovatory thinking and combining expertise from different parts of the company have allowed us to create a new concept, which will help to meet the ever-growing need for subsea well workovers in a cost-efficient way. Prosafe’s strategy is to expand in new geographical areas, and an important milestone in that context was the contract from ConocoPhillips to provide flotel services on the Bayu Undan field in the Timor Sea off Australia. In coming years, Prosafe will continue to develop a strategy based on a flexible fleet for use in selected niches and geographical areas. Prosafe’s entry into the floating production sector has given us access to a strongly expanding market. An eightyear contract was secured by FLOATING PRODUCTION in January 2002 to provide an FPSO to Agip’s Abo field in 550 metres of water off Nigeria. Suezmax tanker M/T Grey Warrior was converted during 2002 into Abo FPSO. We have confirmed once again that we are able to implement large and demanding projects within budget and on schedule. Floating Production moreover secured a one-year extension to the charter for FSO Endeavor, and has acquired the Suezmax tanker M/T Serene Sky with a view to future conversion into an FPSO.
NORWEGIAN OIL OUTPUT
has peaked, but reserves on the NCS remain sufficient to produce oil for another 50 years and gas for a century to come. Prosafe will participate in this business, not least through the solutions we have devised for subsea well intervention to ensure improved recovery and a longer producing life for the fields. Internationally, oil production is primarily expanding in the deepwater areas off west Africa, Brazil and south-east Asia, and in the Gulf of Mexico. We want to participate in developing each of these geographical areas, perhaps particularly within floating production. Future assignments will continue to demand a healthy balance between the need for low costs, design flexibility, standardisation and reliable technical solutions, and naturally a strong emphasis on HSE. We are convinced that our company is well equipped to meet these challenges. Our goal is to offer expertise and technology which solve the challenges facing our customers, and which bring us ever closer to our vision of being the leader in all our selected businesses.
Arne Austreid President and CEO
9
> Directors’ report
Prosafe had its best year to date in 2002, with all the divisions reporting growth in both revenues and results. During 2002, the company expanded its rig fleet with the acquisition of Safe Hibernia and won a charter for Safe Caledonia in the Timor Sea. Prosafe also brought FPSO Espoir Ivoirien on stream off the Ivory Coast and secured a new FPSO charter for the deepwater Abo field off Nigeria. Important drilling contracts in the North Sea were also extended.
The past year was affected by weak capital markets, poor stock market performances globally and big exchange rate fluctuations – particularly between the USD and the NOK. Taken together, these trends also contributed to a stock market decline in Norway, where a number of companies are exposed to exchange rate fluctuations when converting to NOK. The average USD/NOK rate in 2002 was 8.00 as against 9.00 in 2001. Despite this, Prosafe experienced the best year in its history. "Leadership through innovation" is the company’s motto, and a number of interesting development projects were launched during 2002. Prosafe combined equipment and expertise from two of its divisions, made investments to enhance cost-efficiency and initiated a collaboration with other contractors which allows it to offer a complete intervention service for subsea-completed wells. The company also pursued further development of its own technology for floating production systems, and undertook focused and cost-effective investment in technical solutions relating to underbalanced drilling operations and well plugging. PROFIT AND LOSS ACCOUNT. Consolidated revenues rose by 20 per cent compared with 2001, from NOK 2 418 million to NOK 2 893 million. The Floating Production division had its first full operating year in 2002. This business became part of the group in the second quarter of 2001, when Prosafe acquired Nortrans Offshore Ltd. Otherwise, the rise in revenues reflected the start of charters for Safe Hibernia and FPSO Espoir Ivoirien in May and February respectively, and increased activity in Drilling Services. Operating profit before depreciation rose by 20 per cent, from NOK 883 million to NOK 1 064 million, while operating profit increased from NOK 510 million to NOK 702 million. This
10
improvement reflects better utilisation of the accommodation/ service rigs, the addition of Safe Hibernia to the fleet, the charter for FPSO Espoir Ivoirien and high efficiency in Drilling Services. The results were also affected by extending the estimated economic lifetime of the rigs from 30 to 35 years. A weaker USD against the NOK had a negative effect on operating profit compared with 2001. Net interest expenses totalled NOK 98 million as against NOK 122 million in 2001. This decline primarily reflects the lower USD/NOK exchange rate and reduced interest rates. Taxes came to NOK 40 million, an increase of NOK 11 million from 2001. The group’s low tax costs are a result of special tax regimes for shipowning companies resident in Norway and Singapore. Net profit amounted to NOK 524 million as against NOK 375 million in 2001, while earnings per share fully diluted were NOK 15.39 as against NOK 11.66 the year before. Adjusted for NOK 68 million in goodwill amortisation, operating profit came to NOK 770 million, net profit was NOK 592 million and earnings per share fully diluted totalled NOK 17.38. CAPITAL. Prosafe had a total interest-bearing debt of NOK
2 985 million, or USD 383 million, at 31 December 2002, of
which USD 128 million related directly to the company’s rigs, USD 115 million to corporate purposes – including the acquisition of Nortrans Offshore Ltd in March 2001 – and USD 140 million to the company’s FSO/FPSO units. The average interest rate for the group’s overall debt in 2002, including interest hedging contracts, was 4.7 per cent. During the first quarter of 2003, Prosafe refinanced its borrowings with a new group credit facility of USD 400 million. This includes a post-mobilisation tranche relating to Abo FPSO,
which will first be drawn down when production starts. The intention is to lay a solid foundation for the company’s future development. At the same time, parallel facilities derived from acquisitions were consolidated. This refinancing has resulted in an efficient and competitive bank syndicate, comprising seven banks with a focus on the offshore sector. The group facility has three components, with Prosafe ASA as the borrower for two of the tranches and Prosafe Rigs AS as the borrower for the third. The Prosafe ASA tranches consist of USD 115 million for corporate purposes (tranche A) and USD 157 million for FSO/FPSO financing (tranche B), while the Prosafe Rigs AS tranche amounts to USD 128 million (tranche C). The repayment profile of the FSO/FPSO tranche is eight years with a balloon payment of USD 44 million after six years. Repayment of the USD 115 million loan for Prosafe ASA extends over 2.5 years. The Prosafe Rigs AS loan has a three-year grace period, and will then be reduced to zero over six years. As a result, the total repayment structure for the USD 115 million and USD 128 million loans is virtually identical to a six-year profile, but with slightly faster repayment in the first part of the period. In all, this provides a weighted repayment profile of 6.8 years for the company’s total interestbearing debt today. Since its formation in 1997, the company has been through a period of major investments and profitable development. Its first FPSO conversion was carried out in 2001-2002 following the acquisition of Nortrans Offshore Ltd, when M/T White Sea became FPSO Espoir Ivoirien. This vessel started production for Canadian Natural Resources in February 2002. M/T Grey Warrior was converted to Abo FPSO in 2002-2003. Substantial strategic investments were made in Offshore Support Services during 2002. The Safe Hibernia accommodation/ service rig (ex Polyconcord) was acquired in February 2002 and started a one-year charter in the Gulf of Mexico during May. In addition, MSV Regalia was upgraded in 2002-2003 to maintain subsea wells. This upgrading has not affected the rig’s accommodation and service capabilities. Safe Scandinavia also underwent substantial upgrading, with berths increased from 327 to 583.
The group’s total assets increased by NOK 734 million during 2002 to NOK 7 245 million, primarily as a result of the investments mentioned above. At the same time, the change in the book value of the company’s assets is influenced by the use of the USD as the functional currency in the Floating Production business, and the conversion of these assets at 31 December with a USD/NOK rate of 6.96 as against 9.01 at 1 January. At 31 December, Prosafe had NOK 726 million in liquid assets and a book equity ratio of 46 per cent. Interest-bearing debt increased by USD 66 million during 2002, from USD 317 million to USD 383 million.
THE DIVISIONS DRILLING SERVICES. Prosafe has operations on Gullfaks, Heidrun, the Snorre TLP, Snorre B, Oseberg South, Oseberg East, Oseberg C, Jotun B and Ringhorne. The company also holds the drilling contract for Kvitebjørn, which is due to start up during the third quarter of 2003. Prosafe’s lightweight Rubicon rig is a flexible, modular unit which can be used for both drilling and well workovers. The technical services department does modification and upgrade work on drilling units, primarily for those offshore installations where Prosafe provides drilling services. The company has also invested modest amounts in technology relating to underbalanced operations and well plugging. This represents strategic spending prompted by development aspects and expected trends in demand, which thereby aims to strengthen the company’s competitiveness over time.
Activity increased and earnings improved for Drilling Services during 2002. The company began drilling for Esso on Ringhorne in October 2002. At the same time, it secured extensions to important contracts which expired in 2002. These include the assignments on Snorre B and the Snorre TLP as well as the contract for Rubicon on the latter. The contracts on Gullfaks and Heidrun were also extended until the summer of 2004.
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Operating revenues came to NOK 1 459 million (2001: NOK 1 252 million), and operating profit to NOK 109 million (2001: NOK 82 million), which is the best result so far achieved by this division. A high level of efficiency was the most important reason for the improved performance. OFFSHORE SUPPORT SERVICES. Prosafe currently owns eight accommodation/service rigs, which were engaged during 2002 in the North Sea and the Gulf of Mexico. From May 2003, however, the company will have one of its rigs in the Timor Sea, which could become a new and lasting geographic market. In overall terms, the rigs can operate in three different areas of application: accommodation, subsea construction and subsea well intervention. Four of the company’s units – Safe Britannia, Safe Lancia, Jasminia and Safe Regency – worked throughout the year on charters in the Gulf of Mexico. Safe Caledonia was on charter in that region until May, and then started work for Statoil in the Sleipner area under a charter which ran until November. Safe Hibernia (ex Polyconcord), which was acquired by the company in February, started a one-year charter in the Gulf of Mexico during May. Safe Scandinavia was on charter for Chevron on Alba in the UK sector from April to July, and then for Statoil on Statfjord from August to October. It was brought in during November to increase berth capacity. MSV Regalia worked under charters with Statoil on Åsgard and BP west of Shetland. In October, this rig was brought in to Sandnes for upgrading to handle subsea well intervention. It left the yard in February 2003, and the project was completed on time and within budget. Operating revenues for Offshore Support Services totalled NOK 990 million (2001: NOK 918 million), while operating profit came to NOK 513 million (2001: NOK 416 million). Rig utilisation was 84 per cent (2001: 80 per cent). The improvement in operating profit primarily reflects better utilisation of Safe Britannia, the charter for Safe Hibernia and reduced depreciation following the extension of the estimated economic lifetime of the rigs from 30 to 35 years. Factors with the opposite effect on results are the lower USD exchange rate and reduced utilisation of Safe Caledonia and MSV Regalia because of mobilisation from the Gulf of Mexico to the North Sea and on to the Timor Sea in the first case, and upgrading work in the second.
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FLOATING PRODUCTION. Prosafe owns and operates four floating production and storage units – Abo FPSO, which will begin operation in the spring of 2003, FPSO Espoir Ivoirien, FPSO Petróleo Nautipa (owned 50 per cent by Prosafe) and FSO Endeavor. In addition, it owns 50 per cent of FSO Madura Ayu and FSO Madura Jaya. The company also operates FPSO Al Zaafarana, which is owned by the client. This division had an eventful year in 2002. FPSO Espoir Ivoirien started a 10-year charter with Canadian Natural Resources off the Ivory Coast in February. Prosafe secured a charter from Agip in January for an FPSO on Nigeria’s Abo field, which ranks as the first charter in deep water off that country. Conversion of the Suezmax tanker M/T Grey Warrior to Abo FPSO was completed on time and within budget, and this vessel arrived on the field at the end of January 2003 – 12 months after the award of the charter. FPSO Petróleo Nautipa completed its charter with Canadian Natural Resources on the Kiame field off Angola in April 2002, and started a 2+3x1 year charter for Vaalco off Gabon in September. FSO Endeavor, FSO Madura Ayu and FPSO Al Zaafarana operated throughout the year off India, off Indonesia and in the Gulf of Suez respectively. Floating Production generated operating revenues of NOK 460 million (2001: NOK 253 million) in 2002, while operating profit before goodwill amortisation came to NOK 103 million (2001: NOK 84 million). This improvement reflects the charter for FPSO Espoir Ivoirien off the Ivory Coast. Factors with the opposite effect were the lower USD/NOK exchange rate and the sale in October of FPSO Ruby Princess, which had been in work throughout 2001.
RISK
Prosafe is primarily exposed to risk in three areas, which it thereby addresses. These are operational, financial and project risk. OPERATIONAL RISK. Prosafe’s business focuses primarily on the final phase in an oil field’s life cycle. Operations in this part of the value chain are concentrated on production and improved recovery, where the capital is already invested or committed, and thereby form the revenue base for the operator companies.
This means that activities in this phase are less sensitive to oil price fluctuations than those in the earlier exploration and development phases. Prosafe's business is also based almost wholly on firm dayrate contracts where compensation is independent of oil prices and production volumes. In addition, the company will at any given time have a portfolio of long-, mediumand short-term contracts, which provides stability and predictability combined with upside potential. Following Prosafe's entry into the floating production market, its income base has also been extended to include the world’s most important offshore regions. This means that the company also has a far higher degree of operational security than before in geographic terms. Prosafe operates in the global oil and gas industry, and its customers are almost entirely large privately- or state-owned oil companies. The Gulf of Mexico, where Pemex is the ultimate customer, accounted for 20 per cent of the group’s revenues in 2002. Statoil and Norsk Hydro each accounted for just over 20 per cent of revenues. In line with standard industry practice, the group's charters normally contain clauses which give the customer the right of early termination in specified circumstances. Provided that such action is not due to negligence on Prosafe's part, however, the effect on earnings can normally be balanced wholly or partly against a financial settlement to the company’s benefit. The charters in the Gulf of Mexico contain a termination clause which gives the ultimate customer the right to terminate a charter at 30 days notice without compensation if the Mexican authorities cancel the financing of the project. This clause derives from the crisis in Mexico during the 1980s, and will in the company’s view only become relevant if the Mexican economy again enters a deep and extended crisis. Prosafe does not regard that as a realistic scenario, given the high level of activity in the Gulf of Mexico and the importance of production in that area for Mexico’s economic development. Some of the charters in Floating Production provide the customer with a purchase option. The option price primarily reflects the estimated remaining future cash flow from the vessel at the termination date.
FINANCIAL RISK. Prosafe is a Norwegian company and prepares its consolidated accounts in accordance with Norwegian accounting standards. Roughly 55 per cent of the company's revenues are generated in NOK. However, the share of operating profit before depreciation which is denominated in foreign currencies, primarily USD, stands in the order of 85-90 per cent. The company’s ships and rigs are valued, bought/sold, and financed in USD. Investments such as upgrading and converting rigs and ships will mainly be denominated in USD. To the extent that such investments are denominated in currencies other than the USD or NOK, the cash flow will be hedged with the aid of currency forwards. Historically, a large part of the cash flow from operations has been reinvested and applied to servicing debt, so that the net cash flow available for hedging is limited. As a consequence of this, and of the fact that it is increasingly becoming a USD company, Prosafe has opted to hedge its cash flows towards the USD as the base currency. This will reduce fluctuations in the company’s profit and loss account and balance sheet as a result of exchange rate volatility. However, it will mean a modest increase in USD exposure for NOK-based investors if they do not arrange their own currency hedging for their investment. In this context, the company is making preparations for a possible conversion to the USD as the functional and reporting currency for the group as a whole at a later date. A strong USD against the NOK would be advantageous for Prosafe in light of the relative contribution made by the USD to results and the denomination of significant assets in this currency. Given today’s turnover volume and currency composition, and that the revenues flows generated by the company today are unhedged, a rise of NOK 0.10 in the USD/NOK exchange rate would increase operating profit by NOK 10-12 million. A growth in revenue flows would correspondingly increase sensitivities. This will be partly offset by the opposite effect on net interest costs, so that the effect on net profit of an NOK 0.10 rise in the USD/NOK exchange rate would be about NOK 8-10 million. The company’s net interest costs are also subject to fluctuations in the level of US rates because its debt is denominated
13
in USD. The USD debt provides a hedge in relation to the underlying assets and contractual cash flow. In this context, the company utilises hedging instruments such as interest rate swap agreements and interest rate collars. The degree of interest hedging is assessed in relation to the borrowing volume, repayment profile, contract reserves and forecasts for cash in hand. Prosafe’s financial strategy otherwise aims at securing a sensible capital structure and management, which ensure that it can avoid financial problems even in a persistently weak market. PROJECT RISK. Four principal risk factors are primarily assessed when evaluating and tendering for FPSO/FSO charters:
> > > >
country/political risk the customer’s creditworthiness the field’s production profile and reservoir risk the project’s profitability in light of residual value considerations.
Country/political risk could become relevant when operating globally. In this context, the company primarily seeks guarantees and secondly payment in USD to recognised banks in politically stable nations. It is also the case that Prosafe’s units operate fairly far out to sea, and as such may not necessarily be affected by possible internal unrest in a country. In addition, the company has good emergency response plans. Political unrest was experienced during 2002 in the Ivory Coast, where the company’s FPSO Espoir Ivoirien operates. The company’s operations, assets and employees were – and are – unaffected. However, certain precautions have been taken in close cooperation with the customer, Canadian Natural Resources, should they prove necessary. Credit rating of customers and suppliers forms part of Prosafe’s project assessments and risk analyses. The company seeks as far as possible to guard against potential credit risk via parent company or bank guarantees. A field’s expected production profile and reservoir risk are taken into account in that the company has so far only accepted charters on the basis of firm dayrates over fixed periods, which are independent of both oil price variations and production volumes. Charters also contain provisions for compensation
14
payments in the event of early termination, which are intended as far as possible to protect the company’s investment and expected earnings. When assessing a project’s profitability, account is taken of residual value, the technical lifetime of individual components, the length of the firm charter and option periods, and the likelihood that options will be exercised. The vessel’s direct redeployability to other types of field will also be assessed, taking realistic account of the need for upgrading/modifications in such a case. On a general basis, each unit is completed for a technical lifetime of up to 20 years. Given that fixed charters in this sector tend to run for five to 10 years, each unit is accordingly built to serve for at least two charters. Prosafe takes a conservative approach to depreciation, and a large proportion of its project investments will always be depreciated over the initial firm period of a charter. In the event of contract extensions, the depreciation profile will be extended in time. In addition, a conservative depreciation approach will ensure that the company’s units remain competitive for new projects even when necessary upgrading/modifications are taken into account. Combined with good charters and a good maintenance programme, a conservative depreciation profile will contribute to the quality of earnings, a sound balance sheet, and a high level of predictability and transparency. Taken together, this reduces risk and helps to ensure long-term value creation for the shareholders. HSE AND ORGANISATION. Health, safety and the environment (HSE) represent key concepts in Prosafe's core values and business philosophy, and consequently define the way its resources are managed and its operations are planned and executed. The company is also committing ever-larger resources to training, safety measures and monitoring. In 2002, it had a lost-time injury frequency of 1.97. This means that Prosafe has more than halved this frequency over the past three years. Such results are motivational for the continuous improvement processes being pursued, and are actively used in experience transfer and in reporting, prequalification and tendering. Awards in-house, from customers and to subcontractors also help to raise awareness and motivation for further development of the preventive HSE programmes being continuously pursued.
Prosafe’s offshore operations involve a risk of accidental emissions/discharges to the natural environment. The company’s clear goal is to reduce these to zero. Possible incidents are reported immediately and investigated in the same way as injuries/damage or incidents with a potential for harming people or material assets. Prosafe strives to work proactively and constructively with customers and suppliers in setting in-house targets, continuous improvement of its own routines, and awareness-raising efforts with the aim of protecting the natural environment from pollution by its own activities and those of its partners. Nevertheless, Prosafe experienced some minor accidental discharges to the sea in 2002. The largest, which accounted for about 95 per cent of total accidental discharges, involved roughly 29 cubic metres of drilling fluid on the Oseberg field and resulted from a technical failure. However, no damage to the natural environment was recorded as a result of the discharges, which are included in reporting by the operator companies together with regulated discharges of produced water and emissions of exhaust fumes and other gases to the air. The group had 1 824 employees at 31 December 2002, including 1 228 in Drilling Services, 133 in Offshore Support Services, 452 in Floating Production and 11 in the parent company, Prosafe ASA. Relations between employees, unions, management and the board were again good in 2002 . Reduced injury statistics and a further decline in sickness absence from 3.4 per cent in 2001 to 2.6 per cent provide a good indication of a sound and safe working environment in the company. Prosafe will actively build further on the experience gained and results achieved in 2002. A survey covering the whole workforce world-wide was carried out in 2002 to establish what employees think of Prosafe. No less than 90 per cent of them expressed satisfaction with the company as an employer and would recommend it to others. Many employees took the opportunity to provide suggestions and feedback. The detailed proposals and advice have been considered by the respective Prosafe companies as part of their on-going improvement processes. This survey forms part of a continuous process, and a similar exercise will be carried out during 2003.
Prosafe is concerned to provide equal opportunities for women and men. The number of women directors increased in 2002 from one to two. With a total of nine directors, this corresponds to a female representation of 22 per cent. There are no women in the group management, but women are represented in the management teams for all three of the company’s divisions. PROSPECTS. Activity in DRILLING SERVICES has been high in
recent periods. During the first quarter of 2003, activity on Oseberg C and Oseberg East declined. However, it is expected to remain stable at a high level on the other installations – although that depends in part on continued work for Rubicon after the present contract expires in August. A steady increase in activity is expected in relation to the Kvitebjørn project, where Prosafe is due to start drilling for Statoil in August 2003. During the fourth quarter, Drilling Services opened an office in Aberdeen with the intention of monitoring future drilling opportunities on the UK continental shelf. Prosafe is one of the bidders for Norsk Hydro’s new field contract for Oseberg C, Oseberg East, Oseberg South (from the summer of 2004), Oseberg B, Njord and Brage, which is expected to be clarified in the near future. A focus on resource management and utilisation among both customers and the authorities represents an importance framework condition and demand driver for the type of services offered by Drilling Services. Improved recovery from existing fields is an important source of security for future oil supplies, in addition to developing new discoveries. Clear targets for improved recovery from existing fields provide this industry with long-term prospects and new challenges, which the company is actively pursuing through such measures as the introduction of technology and services relating to its present core business. Investment forecasts for the Norwegian continental shelf (NCS) indicate a declining trend over the next few years, but the focus on spending and consumption relating to operation and maintenance will be maintained. Prosafe accordingly regards the prospects for this division to be good, and expects the NCS to remain a good market in coming years.
15
REIDAR LUND Chair
16
EGIL BERGSAGER
CHRISTIAN BRINCH
RONNY JOHAN LANGELAND
BRIT K S RUGLAND
Within OFFSHORE SUPPORT SERVICES , the first quarter of 2003 continued to be affected by the fact that two of the company’s rigs – MSV Regalia and Safe Scandinavia – were being upgraded and that Safe Caledonia was being mobilised to East Timor. MSV Regalia was due to start testing and operational preparations during March, ahead of its first intervention contract on four subsea wells for Statoil in April. The rig will then prepare for an accommodation contract with Norsk Hydro on Fram at the end of the second quarter and early in the third quarter. Work was completed on Safe Scandinavia at the Gothenburg yard in March 2003. This rig is due to start a contract for Statoil on Gullfaks in April, followed by a 152day charter with Norsk Hydro on Grane which starts in May. Safe Caledonia is expected to start its charter with ConocoPhillips on Bayu Undan in May. In addition, five of Prosafe’s rigs – Safe Lancia, Safe Britannia, Safe Regency, Safe Hibernia and Jasminia – are working off Mexico. In March 2003, Prosafe received a letter of intent regarding two five-year charters for Jasminia and Safe Britannia off Mexico, with a combined value of USD 118 million. The other three units have charters which run to March/May 2003. Activity off Mexico is high. Pemex has an expressed goal of increasing oil recovery from the country’s offshore sector, and a number of tenders for accommodation charters relating to development as well as operation and maintenance are outstanding. Prosafe and its partner, Cotemar, which is responsible for operating the company’s rigs off Mexico, take a realistically optimistic view of opportunities for further charters in the area. In addition, the company assumes that the level of activity in the North Sea will remain generally high for the limited number of units providing accommodation, subsea construction and – to a growing extent – subsea well intervention services in this region. The focus on new regions will be maintained, and the company would not exclude the possibility that opportunities for this type of service could arise in such markets as Brazil.
years. In addition, FSO Madura Ayu has been replaced by the rather larger FSO Madura Jaya with effect from the end of January 2003. Efforts are now being made to find new work for FSO Madura Ayu. The charter for FSO Endeavor has been extended until July 2004. Activity in the segment for floating production solutions is high. At present, some 120 floating production systems are operational globally. Of these, roughly 80 are FPSOs. Production ships with storage capacity, combined with short construction time, low removal /cessation costs and redeployment opportunities, are expected to be a preferred solution on many of the fields which will be developed and brought on stream in coming years. Prosafe accordingly continues to believe that this business will show the strongest expansion of any offshore segment in the immediate future. Given its organisation, experience and market position, the company thereby sees good opportunities for being able to achieve the focused and controlled growth of a quality fleet over time.
In FLOATING PRODUCTION , the start-up of Abo FPSO is approaching. This unit, the company’s third FPSO, will have a daily production capacity of 40 000 barrels and operate in 550 metres of water. The charter has a firm duration of eight
The company has a strong business model based on three divisions which are all the leader or among the leading players in their segments. In addition, Prosafe has demonstrated that strategic market synergies exist between its divisions and
The general prospects on the NCS are positive for the segments in which Prosafe operates. Despite an overall decline in the pace of investment, forecasts indicate that substantial sums will continue to be spent in coming years on operation and maintenance. A growing focus on improved recovery from fields in production, and the tie-in of satellite discoveries to existing installations, will be powerful driving forces. Internationally, similar attention is being focused on improved recovery. In addition comes the potential for new discoveries as the industry moves into deeper water. Development solutions based on floating concepts and subsea technology, and costeffective solutions such as FPSOs for developing marginal fields, represent other important trends. Taken together with the continued growth in global demand for oil and gas, this makes it reasonable to expect that prospects for the segments served by Prosafe will remain good.
KARL URDSHALS
TORILD R ALVHEIM
JON M FJOSE
provide opportunities to develop new services and also occupy leading positions in new niches by combining equipment and expertise from the divisions. The commitment to subsea well intervention is a specific example of this, where the combination of Drilling Services and Offshore Support Services will allow the company to execute a first intervention contract on four subsea-completed wells for Statoil in the spring of 2003. In addition, Prosafe is currently present in most of the world’s important offshore regions. This provides both stability and business opportunities. The company has a clear vision and a focused strategy. Taken together with its focus on the value chain, this provides a good basis for financial strength and long-term cash flow combined with opportunities for further profitable development.
OLAV GJESTELAND
ARNE AUSTREID President and CEO
Prosafe ASA had distributable reserves of NOK 232 million at 31 December 2002. The parent company showed a net loss of NOK 57.3 million for 2002, which the board proposes to cover as follows: Group contribution Dividend Transferred from other equity Total
27.7 million NOK (101.9 million ) NOK NOK
131.5 million
NOK
57.3 million
Tananger, 19 March 2003
SHAREHOLDERS. The shareholder register at 31 December
2002 showed that no single shareholder controlled more than 10 per cent of the company's shares. Its 10 largest shareholders owned 42 per cent of the shares in total, with the remaining stock being held by just over 3 000 different investors. Foreigners owned 44 per cent. After 31 December 2002, the company’s largest shareholder – J Christer Ericsson – has increased his holding to more than 10 per cent. In addition, Star Navigation Ltd has flagged a shareholding of more than five per cent. DIVIDEND PROPOSAL. Since its formation in 1997, Prosafe
has focused on profitable development of the company and has accordingly paid no dividend. The company had its best year to date in 2002. In light of this progress, the board has found it appropriate to change the dividend policy. Prosafe’s shareholders will achieve a competitive return on their shares through a combination of price development and directly in the form of dividend. The latter should show a steady development in line with the growth in Prosafe’s results, while simultaneously taking account of opportunities for further value creation through profitable investment. On that basis, the board of Prosafe ASA will propose to the annual general meeting on 5 May 2003 that a dividend of NOK 3 per share be paid for fiscal 2002.
17
> Corporate governance
Prosafe’s corporate governance ensures capital adequacy and sustainable development for the company. "Respect" is one of Prosafe’s core values. This means that we will show respect not only for the individual and their views at all times, but also for the assets we manage on behalf of our owners. It also means that we will loyally observe the laws and regulations governing our business. Prosafe gives emphasis to transparency and has established ethical guidelines for the company. SHAREHOLDER POLICY. Prosafe’s principal objective is to pro-
vide its shareholders with a maximum return on their capital in a long-term perspective, so that it remains an attractive investment object for both Norwegian and foreign investors. The company’s management will actively further the development of the company and manage its assets in such a way that its value is as clear as possible at all times. Since its formation in 1997, Prosafe has focused on profitable development of the company and has accordingly paid no dividend. The company had its best year to date in 2002. In light of this progress, the board has found it appropriate to change the dividend policy. Prosafe’s shareholders will achieve a competitive return on their shares through a combination of price development and directly in the form of dividend. The latter should show a steady development in line with the growth in Prosafe’s results, while simultaneously taking account of opportunities for further value creation through profitable investment. The board has been authorised by the general meeting to buy back up to 10 per cent of the company’s shares. This authority runs until 3 November 2003. Prosafe owned 230 900 of its own shares at 31 December, corresponding to 0.68 per cent of the shares.
nection with the publication of the quarterly results. In addition, senior officers give road shows every year to brief existing and potential investors about the company’s status and ambitions. Prosafe ASA distributes all press releases and quarterly reports via the Hugin financial information service at www.huginonline.no. Further details, including contact names, addresses and news about the company, are available on www.prosafe.com. SHARE CAPITAL AND SHAREHOLDERS. The company’s share capital totalled NOK 339 million at 31 December 2002, divided between 33.9 million shares with a nominal value of NOK 10. The company has only one class of share, and all the shares are freely transferable. They are listed on the Oslo Stock Exchange’s main list, with ticker code PRS. Prosafe had 3 142 shareholders at 31 December 2002, when 44 per cent of its shares were owned by foreign investors. The company aims to increase the proportion of foreign owners in order to increase the liquidity of its shares and thereby achieve a more accurate pricing. Directors and senior executives held the following shares at 31 December 2002:
DIRECTORS :
Reidar Lund *
Chair
59 740
Egil Bergsager
Director
0
Christian Brinch
Director
0
Ronny J Langeland
Director
2 500
Brit K S Rugland
Director
0
Karl Urdshals
Director
48 600
Torild R Alvheim
Worker director
0
Jon M Fjose
Worker director
80
Olav Gjesteland
Worker director
0
COMMUNICATION WITH THE MARKET. In order to treat all its
shareholders equally, an important aim for Prosafe is to ensure at all times that the stock market is in possession of correct and complete information about the company’s operations and condition, and thereby to contribute to the most accurate possible pricing of its shares. Approaches taken to meet this aim include prompt and comprehensive reporting of the company’s interim results and the distribution of annual and quarterly reports. In addition, information of significance for assessing the company’s underlying value and prospects is reported to the Oslo Stock Exchange and made available on the company’s internet site. Presentations are given to analysts and journalists in con-
18
SENIOR EXECUTIVES:
Arne Austreid
President and CEO
12 500
Stig Christiansen
Exec VP and CFO
1 499
Trygve Arnesen
President Offshore Support Services
305
Roy Hallås
Exec VP corporate relations
80
Bjørn Henriksen
President Floating Production
Petter Tomren *
President Drilling Services
* incl shares owned by related parties and/or through the company.
80 160
The largest shareholders / shareholder groups at 31 December were: 1
JCE
3 363 367
9.9 %
2
Odin
2 038 478
6.0 %
3
Folketrygdfondet
1 845 450
5.4 %
4
Kartron Investments
1 454 355
4.3 %
5
Sinberg Invest Ltd
1 063 834
3.1 %
6
Nordea
977 752
2.9 %
7
Storebrand
973 356
2.9 %
8
Perny Ltd
940 034
2.8 %
9
2.5 %
GMO
845 960
10
Brown Brothers Harriman & Co.
780 550
2.3 %
11
Kristiansands Tankrederi
746 100
2.2 %
12
State Street Bank & Trust Co
620 759
1.8 %
13
Royal Trust Corporation of Canada
560 300
1.6 %
14
Gjensidige NOR
550 897
1.6 %
15
Vital
548 265
1.6 %
16
Denver Investment Advisors
531 406
1.6 %
17
JP Morgan Chase Bank, GBR
524 810
1.5 %
18
Chase Manhattan Bank
511 400
1.5 %
19
DnB
445 506
1.3 %
20
Avanse Total 20 largest shareholders
396 654
1.2 %
19 719 233
58.1 %
BOARD MEMBERSHIP AND MODE OF WORKING
The board of Prosafe ASA comprises nine directors, including six elected by the shareholders and three representing the workforce. Continuity on the board is ensured by staggering the election of directors and by providing newly-elected directors with a thorough briefing about the company’s history, status and challenges. The board gives weight to avoiding conflicts of interest between the directors, the senior officers, their related parties and external players with whom the company collaborates. It also seeks to ensure that the directors and senior officers possess expertise, both broad-based and in-depth, relevant to the company’s challenges and the operations it pursues in different market segments nationally and internationally. The annual general meeting in 2002 resolved that the company should have an election committee consisting of three members and an alternate, with one member elected by the
board and the other two plus an alternate elected by the general meeting for a period of two years commencing from the AGM in May 2003. When directors are to be elected by the shareholders, the election committee will meet and make a recommendation to the general meeting on such elections. Where possible, the election committee’s recommendation will be sent to the shareholders together with the notification of the general meeting. In addition to an appropriate combination of expertise and experience, the election committee will give weight when nominating new directors to the guidelines issued by Norway’s minister of industry for increasing the proportion of women directors in Norwegian companies. The chair of the board, Reidar Lund, the worker directors and another director, Karl Urdshals, are up for election at the AGM in May 2003. See the table below.
ELECTED FIRST TIME
END OF CURRENT PERIOD
Reidar Lund
1998
2003
Egil Bergsager
1997
2004
Christian Brinch
1997
2004
Ronny J Langeland
2002
2004
Brit K S Rugland
2002
2004
Karl Urdshals
2001
2003
Torild R Alvheim
2000
2003
Jon M Fjose
1998
2003
Olav Gjesteland
1998
2003
DIRECTOR
The chair is the former president and CEO of Prosafe ASA and receives a pension from the company. Apart from this, and the status of the worker directors as employees of Prosafe Drilling Services AS, the directors are independent of the company and its senior officers. Shares held by the directors are shown on page 18. The board meets eight to 12 times a year, but its work schedule is flexible and adapted to such considerations as the need for relevant strategic guidance and priorities as well as risk management. The board works at a detailed level, but is not concerned with details.
19
> Corporate governance REMUNERATION OF DIRECTORS AND SENIOR MANAGERS
Remuneration paid to the board and president and CEO is shown in note 3 to the consolidated accounts. Director’s fees are fixed and determined by the AGM every year. With effect from 1 January 2003, the company has introduced a bonus scheme for the corporate management as well as the management teams in each division – a total of some 35 people. Extraordinary results relating to HSE, earnings and the attainment of strategic targets – and, for the corporate management, development of the share price – will generate a bonus payment of up to NOK 8 million per year, including payroll taxes. In addition, the company will match bonus payments in the ratio of 1:1 with three year’s delay – in other words, with the first payment falling due in 2006 on the basis of the 2003 results – as a long-term incentive to secure continuity among managers. The company’s new remuneration model does not embrace share options or subscription rights. In connection with the acquisition of Nortrans Offshore Ltd in 2001, however, the senior managers in Floating Production were allocated subscription rights in the company by converting share options in Nortrans Offshore to subscription rights in Prosafe. Similarly, certain other employees still hold subscription rights from the incentive scheme established in 1998. For further details of that scheme, see note 20 to the consolidated accounts. Managers are assessed through regular dialogues as well as annual goal-setting and development discussions. MANAGEMENT MODEL. The management will actively develop the company and manage its assets in such a manner that the company’s value is visualised in the best possible way. Prosafe has a simple and comprehensible management model, which lays the foundation for long-term, controlled and strategic development of the company. The main elements in this management model are:
> a clear and consistent vision, mission and strategy – see page 4 in this annual report – which provides the basis for annual strategy and budgetary processes and for decisions on long-term ambitions
20
> a corporate culture based on common core values, which in turn provides the basis for behavioural norms on collaboration in each division > organisational development with the focus on making the company’s intellectual capital clear through innovation, recruiting and developing employees, maintaining efficient structures and systems, and pursuing a close dialogue with all customers to enhance relations with them even further > clear corporate requirements from the parent company which set guidelines for management systems, operation and internal control in all the divisions > a clear organisational model with effective follow-up systems from the parent company, based on dialogue, reporting and regular operational reviews. CORPORATE PROCEDURES . Parent company employees are
responsible in part for ensuring that the subsidiaries observe the group’s established procedures, that economies of scale are achieved wherever possible and that best practice is transferred across companies. The following corporate procedures have been established: > management and corporate governance > reporting to the parent company > guarantees > authorisations > accounting policies > insider trading > financing and liquidity
> > > >
insurance information technology design manual risk management and review of tenders and contracts > investment and return on capital invested.
The president of a division is responsible for ensuring that the corporate procedures are implemented in each subsidiary. Any departure from procedures currently in force must be approved in advance by the parent company. AUDITOR. The company’s elected auditor is Ernst & Young,
represented by partner Jostein Johannessen in Stavanger.
Ernst & Young has served as the company’s auditor since 1997. Auditor’s fees expensed in 2002 total NOK 1 044 000, including fees to the former auditor of Floating Production. Consultancy fees paid to the company’s elected auditor and expensed in 2002 came to NOK 655 000 on a consolidated basis. These fees relate virtually entirely to accounting and tax-related issues. Prosafe uses several companies for tax advice, including Ernst & Young when and where appropriate. FINANCE. The finance function in the group operationalises
the targets defined in Prosafe’s financial strategy, which is set by the board. The main purpose of the financial strategy is to manage Prosafe’s financial resources and ensure that the company does not expose its financial position to unnecessary risk, and to secure a healthy financial structure which supports profitable and controlled development. This includes securing competitive borrowing terms and returns on liquid assets. The financial strategy is also intended to help reduce the risks presented by fluctuating interest charges and exchange rates. Companies in the group report their liquidity holdings once a week, and supply a 12-month rolling liquidity forecast monthly. These reports provide the basis for decisions on currency hedging, liquidity management and finance planning in relation to investment decisions, as specified in the company’s strategy. In accordance with internal group regulations, the board has set authorisation limits for investment, asset sales and tenders. Each president is responsible for establishing and maintaining appropriate authorisation procedures for their own division which accord with the corporate authorisation limits. CORE VALUES. Our business operations will be pursued in
a professional manner to meet the interests of customers, shareholders and employees – and always on the basis of our core values.
Profitability | Respect | Innovation Safety | Ambition | Focus | Environment
These core values are the result of more than 30 years of learning about our own business, and reflect in many respects the company’s success factors and culture. We do not want anyone in Prosafe to compromise on the core values for shortterm gain. They also form an important part of the foundation for our existence. They are not subject to annual negotiation and revision, but are set in stone. Our customers, shareholders and other stakeholders can be confident that our core values underpin everything we do. Our web site provides more information on understanding the core values in a broad perspective. All the divisions have established specific behavioural norms under the umbrella of the group’s core values. Our obligations for ensuring sustainable development of the company in HSE terms are also outlined in the HSE&Q section of this annual report. BUSINESS ETHICS. Prosafe’s reputation is our most valuable asset, and is determined by the way we behave. Our shareholders, customers and other stakeholders expect us to maintain the highest ethical standards, honour our undertakings and behave with complete integrity, always on the basis of our core values – which are not to be compromised. Prosafe carries out regular surveys into the confidence which the company inspires in our customers, employees and principal suppliers. Each Prosafe company and all Prosafe personnel must observe our business ethics as well as relevant laws and regulations in those countries in which the company operates. We insist on honesty and fairness in all aspects of our business, and expect the same from our partners. The Prosafe group has a decentralised organisation in which all the companies have a certain degree of freedom to take their own commercial decisions. Corporate requirements on business ethics – including conflicts of interest, confidentiality, insider trading and corruption – represent part of our corporate culture and our obligations. Uniform observation is essential, and every employee is responsible for acting in accordance with these principles. Advisors and others who gain access to inside information on the company must sign a declaration of confidentiality, and accept an insider position if the information is not known to the market.
21
> Offshore Support Services
22
OPERATING REVENUES
EBITDA
ASSETS
EMPLOYEES
7% 34 %
62 %
Offshore Support Services
43 %
Other divisions of Prosafe
Prosafe is the world’s leading owner and operator of semi-submersible accommodation/service rigs. The company’s eight units of this type operated in 2002 on bareboat charters in the Gulf of Mexico and on time charters in the North Sea. The head office for this division is in Aberdeen.
KEY FIGURES
EBITDA NOK million
(Financial figures in NOK million)
Operating revenues EBITDA EBIT Assets Investments Fleet utilisation Employees
2002 990 659 513 3 106 679 84 % 133
2001 918 614 416 2 612 95 80 % 122
2000 982 722 557 2 800 923 84 % 69
800 600 659 400
722 614
200 0 2002
2001
CONTRACTS
2000
Contracts
Safe Britannia
Options
OCT. 2008
MEXICO
Safe Caledonia
MEXICO
TIMOR SEA
Safe Scandinavia
NORTH SEA
Safe Lancia
MEXICO
Safe Regency
MEXICO
Jasminia
MARCH 2008
MEXICO
MSV Regalia
NORTH SEA
Safe Hibernia
MEXICO
1997
1998
1999
2000
2001
2002
2003
2004
2005
23
> Offshore Support Services Operations Prosafe has consolidated the global market for accommodation/ service rigs over the past few years. When the company was formed in 1997, it had three rigs which were deployed in the traditional North Sea flotel market. Today, it owns eight units and is involved in three geographical regions – the North Sea, the Gulf of Mexico and the Timor Sea – and can operate from an overall perspective in three different areas of application – accommodation, subsea construction and subsea well intervention. The rigs are chartered on bareboat terms in the Gulf of Mexico, while they work under time charters in the North and Timor Seas. Accommodation / service rigs are traditionally utilised to meet requirements for additional offshore living quarters, workshop and storage capacity. Such needs can arise, for instance, when installing and testing new facilities, upgrading or maintaining platforms, tying satellite fields to existing infrastructure and removing installations. The rigs can be connected to other installations via gangways, or personnel can be transported to and from by boat. Power and fresh water can be supplied by the rigs when connected to an installation. These rigs boast a large number of berths and cranes, and can also provide welfare and catering services. MSV Regalia is a flexible rig with the best available dynamic positioning system (DP3). In addition to the traditional flotel segment, this unit can also be deployed in the markets for subsea construction and – since 2003 – subsea well intervention. Strategy The company’s strategy is to maintain its position as the world’s leading player in the market for semi-submersible accommodation/ service rigs. At the same time, it will continue to assess new areas of application and geographical markets to ensure the highest possible utilisation of the rigs at all times.
24
Activity in 2002 (Figures in brackets relate to 2001) Four of the company’s units, Safe Britannia, Safe Lancia, Jasminia and Safe Regency, have been employed in the Gulf of Mexico throughout the year. Safe Caledonia worked a charter in these waters until May and then began a charter with Statoil in the Sleipner area, which continued until November. Acquired by the company in February, Safe Hibernia (ex Polyconcord) began a one-year charter in the Gulf of Mexico in May. Safe Scandinavia was chartered by Chevron for its Alba field on the UKCS from April to June. It was then employed by Statoil on Statfjord from August to October. The rig was brought in during November to increase its berth capacity. MSV Regalia worked under contracts with Statoil on Åsgard and with BP west of Shetland. It was brought in during October for upgrading to handle subsea well intervention. This work was finalised in February 2003 on time and within budget. Operating revenues for Offshore Support Services totalled NOK 990 million (NOK 918 million), while operating profit came to NOK 513 million (NOK 416 million). Rig utilisation was 84 per cent (80 per cent). The improvement in operating profit primarily reflects increased utilisation of Safe Britannia, the Safe Hibernia charter and lower depreciation because the estimated economic lifetime of the rigs has been extended from 30 to 35 years. Factors with the opposite effect on the results included the weakening of the USD exchange rate as well as lower utilisation of Safe Caledonia and MSV Regalia – in the first case because of mobilisation from the Gulf of Mexico to the North Sea and on to the Timor Sea, and in the second because of upgrading work. With effect from 1 January 2002, the company changed the estimated economic lifetime of its accommodation /service
rigs to 35 years. This estimate had been set at 30 years when the company was formed in 1997. After the acquisition of Safe Hibernia, which is now the oldest unit in the fleet, Prosafe saw that the rigs have a significantly longer lifetime and, in order to obtain a more sensible matching of its investment costs with estimated future revenues, has adjusted their estimated economic lifetime. For the same reason, the company has simultaneously taken account of the estimated scrap value of NOK 26 million per rig when determining the depreciation plan. The scrap value for all the rigs was previously set at zero. The change in estimate means that depreciation for 2002, excluding Safe Hibernia, is NOK 72 million lower than it would have been under the previous depreciation plan. Prosafe secured a 241-day charter from ConocoPhillips in April 2002 for Safe Caledonia on the Bayu Undan field in the Timor Sea between East Timor and Australia. This charter starts in May 2003, and has an overall value of USD 24 million. The traditional market for semi-submersible service rigs has been focused on the North Sea and the Gulf of Mexico. This charter accordingly represents an important milestone in the company’s strategy of growing in new geographical areas. Activities in Offshore Support Services are organised through a rig-owning company, which is eligible for the special tax scheme applied by Norway to shipping companies. This means that the rig-owning company’s operating profits are not taxed until distributed as dividends or the company leaves the scheme. Net financial income in the company is not covered by these rules, and accordingly taxed on a regular basis. Markets and outlook The market in the Gulf of Mexico is characterised by continuous field development and longer-term charters than in the North Sea.
Competitors in these waters are primarily Borgholm Dolphin, Jupiter I and Iolair. Demand in the North Sea is driven to a greater extent by tie-back of subsea completed wells, maintenance turnarounds and upgrading requirements, which have a shorter horizon than continuous development. The company will start its first charter in the Timor Sea during 2003, while other potential markets are Brazil and south-east Asia. The first quarter of 2003 will be affected by the fact that two of the company’s rigs – MSV Regalia and Safe Scandinavia – are being upgraded and that Safe Caledonia is being mobilised for East Timor. MSV Regalia is due to start testing and operational preparations during March, ahead of its first intervention contract on four subsea wells for Statoil in April. The rig will then prepare for an accommodation contract from Norsk Hydro on Fram in the summer. Safe Scandinavia will be ready from the Gothenburg yard in March, and is then due to start preparations for its contract with Statoil on Gullfaks. This will be followed by a 152-day contract for Norsk Hydro on Grane, starting in May. Safe Caledonia is expected to commence its charter on Bayu Undan during May. Prosafe otherwise has five of its rigs – Safe Lancia, Safe Britannia, Safe Regency, Safe Hibernia and Jasminia – off Mexico. In March 2003 Prosafe received a letter of intent regarding two five-year bareboat charters for Jasminia and Safe Britannia in the Gulf of Mexico. The charters for the other three units run until March/May 2003. The level of activity in Mexico is high. Pemex has stated that it wants to improve oil recovery on the Mexican continental shelf, and a number of accommodation contracts relating to development, operation and maintenance are out to tender. Prosafe and its partner Cotemar, which is responsible for operating the company's rigs off Mexico, take a realistically optimistic view of opportunities for winning more assignments in these waters.
25
> Drilling Services
26
OPERATING REVENUES
EBITDA
ASSETS
EMPLOYEES
11 %
14 % 50 %
67 %
Drilling Services
Other divisions of Prosafe
Prosafe is the leading platform drilling contractor on the NCS, with about 50 per cent of the market. The core business of Drilling Services is production drilling from fixed oil company installations. The divisional head office is in Bergen. In addition, the company has branch offices in Stavanger, Stjørdal and Aberdeen.
KEY FIGURES
EBITDA NOK million
(Financial figures in NOK million)
Operating revenues EBITDA EBIT
2002 1 459 152 109
Assets
2001 1 252 118 82
832
Investments Employees
2000 991 96 66
718
150
100
118
68
46
97
1 152
1 001
0 2002
CONTRACTS
Project
Rubicon 1
BP
Jotun
SHELL
Drilling/maintenance
Options
ESSO
Oseberg C Oseberg East
NORSK HYDRO
Oseberg South
2013
NORSK HYDRO 1990 NORSK HYDRO / STATOIL
Snorre B 1
NORSK HYDRO / STATOIL 1986
STATOIL
Heidrun
STATOIL
Kvitebjørn
STATOIL
1992
1
2000
NORSK HYDRO / STATOIL
NORSK HYDRO
Gullfaks
2001
ESSO
Ringhorne
Snorre TLP 1
96
50
662
1 228
152
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Statoil replaced Norsk Hydro as operator on Snorre with effect from 1 January 2003.
27
> Drilling Services Operations The company pursues drilling operations on Gullfaks, Heidrun, the Snorre TLP, Snorre B, Oseberg South, Oseberg East, Oseberg C, Jotun B and Ringhorne. It also holds the drilling contract for Kvitebjørn, where work is due to start in the third quarter of 2003. These contracts are based on dayrates, but most also contain a performance-related incentive element. Crew size depends on the drilling unit’s dimensions and type, but an average of 30 people will usually be employed offshore for each operation. In addition come about five support personnel on land. The company’s lightweight Rubicon rig is a flexible modular unit which can be used for drilling, well workovers and snubbing. Its design allows the rig to be mobilised quickly by supply ship to a fixed or floating installation, lifted into place as modules by the installation’s own cranes and become operational in about four weeks. Since only a small crew is required, Rubicon is more cost-effective than other drilling units. It can also – as on the Snorre TLP – be utilised as a second rig to ensure increased production from a field. The technical services department does modification and upgrade work on drilling units, primarily for those offshore installations where Prosafe provides drilling services.
28
Technical services projects are pursued in close cooperation with customers, and attention is focused on efficiency and HSE. Strategy Drilling Services aims to retain its leading position in production drilling on the NCS. As part of this strategy, the company will continue to emphasise further improvements in operational efficiency and HSE results. It will also consider developing related services which can enhance profitability, and continuously assess selective internationalisation within the core business. Activity in 2002 (Figures in brackets relate to 2001) Drilling Services enjoyed increased activity and improved earnings in 2002. The company started drilling on Ringhorne for Esso in October 2002. At the same time, it has secured the extension of important contracts which expired in 2002. That applied to the contracts on Snorre B and the Snorre TLP as well as the contract for using Rubicon on the Snorre TLP. In addition, the contracts on Gullfaks and Heidrun were extended until the summer of 2004.
Operating revenues in 2002 totalled NOK 1 459 million (NOK 1 252 million) and operating profit came to NOK 109 million
(NOK 82 million). This result is the best ever for the division. The most important reason for the improvement was high efficiency. Markets and outlook Drilling Services operates in a stable to slowly growing market. New field developments are constantly being initiated on the NCS, while the producing life of existing fields is being steadily extended through improved technology, tie-ins of satellite fields and a focus on improved recovery. In addition, the need for maintenance and modifications is rising as the installations age and production profiles are extended.
tracking opportunities for future drilling assignments on the UKCS. Prosafe is among the bidders for Norsk Hydro’s new field contract for Oseberg C, Oseberg East, Oseberg South (from the summer of 2004), Oseberg B, Njord and Brage. This assignment is expected to be clarified in the near future. The company is also making a commitment to underbalanced drilling operations, both on the NCS and on the UKCS.
The level of activity in Drilling Services was high throughout 2002. There will be a reduction on Oseberg C and Oseberg
East during the first quarter of 2003, while work on the other installations is expected to remain stable and high. A steady increase is also expected in activity relating to the Kvitebjørn project, where Prosafe is due to start drilling for Statoil in August 2003. Drilling Services established representation in Aberdeen during the fourth quarter of 2002 with the aim of
29
> Floating Production
30
OPERATING REVENUES
EBITDA
16 %
ASSETS
EMPLOYEES
26 %
25 % 44 %
Floating Production
Other divisions of Prosafe
Prosafe is a leading owner and operator of floating production and storage vessels (FPSOs/FSOs) outside the North Sea. It operates a fleet of seven units off Africa and Asia. The history of this business goes back to 1982, when it was established as Nortrans Offshore Ltd. Prosafe acquired it in March 2001, and the divisional head office is in Singapore.
KEY FIGURES
EBITDA NOK million
2002 460 275 105 3 153 839 452
(Financial figures in NOK million)
Operating revenues EBITDA EBIT Assets Investments Employees
2001 253 170 33 2 825 719 251
300
200
275
170
100
0 2002
2001 (FROM 1 APRIL)
CONTRACTS
Contracts
Al Zaafarana
Options
ZAAFARANA OIL COMPANY
Madura Ayu
KODECO ENERGY
Madura Jaya
KODECO ENERGY
Endeavor
ABAN LOYD CHILES OFFSHORE LTD
Petróleo Nautipa
CAN. NATURAL RESOURCES
Espoir Ivoirien
VAALCO CANADIAN NATURAL RESOURCES
Abo
2022
AGIP
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2022
31
> Floating Production Operations The core business for Floating Production is the design, engineering and conversion of oil tankers into FPSO/FSO units and subsequent operation of these vessels. Four units are owned and operated by the company: FPSO Espoir Ivoirien, Abo FPSO, FPSO Petróleo Nautipa (owned 50 per cent) and FSO Endeavor. In addition, Prosafe owns 50 per cent of FSO Madura Ayu and FSO Madura Jaya. It also operates FPSO Al Zaafarana, which is owned by the customer. These vessels operate off the Ivory Coast, Nigeria, Gabon, India, Indonesia and Egypt (Gulf of Suez) respectively. All have been converted to FPSOs/ FSOs by Prosafe, and all were delivered on time and within budget.
Activity in 2002 (Figures in brackets relate to 2001) This division had an eventful year in 2002. FPSO Espoir Ivoirien started a 10-year charter with Canadian Natural Resources off the Ivory Coast in February. Prosafe secured a charter from Agip in January for an FPSO on Nigeria’s Abo field, which ranks as the first contract in deep water off this country. Conversion of the Suezmax tanker M/T Grey Warrior was completed on time and within budget, and this vessel arrived on the field at the end of January 2003 – 12 months after the award of the charter. Abo FPSO will have a production capacity of 40 000 barrels per day and operate in 550 metres of water. The charter has a fixed duration of eight years.
The company possesses substantial in-house engineering resources and expertise in project management. Mooring systems used on the vessels have been designed by its own engineers. In addition, Prosafe supplies mooring systems and related offshore equipment to external customers.
FPSO Petróleo Nautipa completed its charter with Canadian Natural Resources on the Kiame field off Angola in April 2002, and started a 2+3x1 year charter for Vaalco off Gabon in September. FSO Endeavor, FSO Madura Ayu and FPSO Al Zaafarana operated throughout the year off India, off Indonesia and in the Gulf of Suez respectively.
Strategy The company’s aim is to strengthen its position as a leading owner and operator of FPSO/FSO vessels outside the North Sea. This goal will be achieved by delivering, owning and operating cost-effective vessels on the basis of an integrated and cost-effective organisation, a history of delivering on time and within budget, and the introduction of technology developed in-house.
32
Floating Production generated operating revenues of NOK 460 million (NOK 253 million) in 2002, while operating profit before goodwill amortisation came to NOK 103 million (NOK 84 million). This improvement reflects the charter for FPSO
Espoir Ivoirien off the Ivory Coast. Factors with the opposite effect were the lower USD exchange rate against the NOK
and the sale in October of FPSO Ruby Princess, which had been in work throughout the year before. Goodwill arising from the acquisition of Nortrans Offshore Ltd in 2001 is being amortised over 20 years. The company’s vessels are depreciated over fixed charter periods, with account being taken of their estimated residual value. Most of these units come under a special tax scheme for shipping companies resident in Singapore, which means the company is not liable to Singapore tax on income from chartering and operating the vessels. The company pays source-deductible taxes to most of the countries in which it operates. FPSO Petróleo Nautipa is subject to the special Norwegian tax scheme for shipping companies.
ing a number of bids, and sees interesting opportunities for new contracts in coming periods. Moreover, FSO Madura Ayu has been replaced by the rather larger FSO Madura Jaya with effect from late January 2003. Efforts are being made to find new employment for FSO Madura Ayu.
Markets and outlook The market for FPSO vessels is the fastest-growing segment in the offshore industry, with the biggest expansion expected outside the North Sea in areas such as west Africa, Asia, Brazil and – in the longer term – the Gulf of Mexico. Demand for FPSOs as a development concept is driven by cost-effective, integrated fast-track solutions. The FPSO concept also reduce abandonment costs at the end of a field’s producing life and allows units to be redeployed on new fields. Activity in the segment for floating production solutions is high, although some projects are being delayed. Prosafe is assess-
33
> Health, safety, the environment and quality
We contributed in 2002 to substantial value creation for our customers and the community without serious consequences for health, safety and the environment. That is a source for pride to us. Many years of experience from demanding offshore operations have equipped us to achieve constant improvements in our HSE results while simultaneously improving efficiency. Prosafe is characterised overall today by high regularity, a low injury frequency, little sickness absence and a good reputation.
vioural norms, through resource allocation and management systems, and not least through each Prosafe employee’s daily work. Drilling Services initiated an wide-ranging HSE culture project during the year, with the main emphasis on safe behaviour. Identifying "best practice" for crane and lifting operations and prevention of falling objects are high on the agenda for this project. Much of the work of building an HSE culture involves interaction and coexistence. This cannot be dictated, but must be cultivated in a long-term perspective.
HSE CULTURE. "Safety" and "the environment" are two of
Prosafe’s fundamental core values. We believe in the zero mindset – in other words, that active preventive efforts will allow our business to be pursued without negative consequence for human life and health, the natural environment, material assets, knowledge or information. At the same time, we are realistic and know from experience that unforeseen incidents will occur. With openness as our starting point, we can learn and grow from undesirable incidents. Although we achieved good HSE results in 2002, we have been reminded of the forces which can be unleashed when barriers fail. The loss of a production riser on the Heidrun TLP and the emergency shutdown of production on FPSO Ruby Princess as a result of fire are examples – even though these incidents did not harm either people or the environment, in part because they were professionally handled. HSE is followed up at all levels in the company, and strongly emphasised in current organisational and management development processes. An active and visible involvement by management is a key factor in achieving our goal of realising the zero mindset. Prosafe has devoted substantial resources to training in recent years, which has reduced undesirable incidents while encouraging a rise in preventive reporting. Through the participation and contribution of the whole workforce, and through open and close collaboration with customers and the authorities, we are creating proprietary attitudes, an understanding of the whole picture and continuous improvement. This not only has a value in itself, but also enhances competitiveness. We purposefully continued our efforts to develop the company’s HSE culture during 2002. A sound HSE culture is promoted through integrating HSE into core values and beha-
34
CERTIFIED MANAGEMENT SYSTEMS. All the divisions have
systems for quality management certified to the international ISO 9001 quality standard. Offshore Support Services was
recertified to the process-oriented ISO 9001:2000 standard in 2001, while the technical services department in Drilling Services was recertified in the second half of 2002. Floating Production will be formally recertified to ISO 9001:2000 during the first quarter of 2003. Safety management systems for the rig fleet and the production ships are approved to the International Safety Management (ISM) code. HSE management in Drilling Services is based on the E&P Forum’s international guidelines. Floating Production has started work to have its environmental management systems certified to ISO 14001. The company was not served with enforcement notices by any regulatory authority during 2002. All the divisions carry out quality audits of work processes, both in-house and external. SICKNESS ABSENCE LOWER THAN EVER. Sickness absence
has shown a clearly declining trend in recent years. The average for 2002 was 2.6 per cent as against 3.4 per cent in 2001 and 4.1 per cent in 2000. In our view, good collaborative relationships in-house and externally have made an important contribution to this development. Drilling Services has the highest sickness absence, at 5.8 per cent. This was unchanged from 2001 and, to the best of our knowledge, on a par with similar operations on the NCS. The company is working to prevent sickness absence. Reducing it would be significant for the individual’s well-being, while also having a positive financial effect for the company.
SICKNESS ABSENCE 1997-2002
LOST-TIME INJURY FREQUENCY (H1) 1997-2002
6%
6
4%
4
2%
2
0%
0 1997
1998
1999
2000
2001
2002
ZERO MINDSET REALISTIC. Floating Production demonstrated
that the zero mindset is realistic by recording no lost-time injuries during 2002. The lost-time injury frequency for the group has declined by more than 50 per cent over the past five years, and stood at 1.97 in 2002 – which must be characterised as a very good result for the offshore industry. The injury frequency was 13 for the group as a whole. The drilling business achieved one of its best-ever results, which continued a clear trend. In a historical perspective, the lost-time injury frequency in Drilling Services has declined by 90 per cent over the past 15 years. No serious personal injuries were suffered during 2002. However, we consider that certain incidents had the potential to cause more serious consequences than actually ensued. Prosafe is continuing to develop an HSE culture based on the zero mindset. We will not settle for "good enough". CUSTOMER RECOGNITION. A number of our customers have
recognised our good HSE work during 2002: > Esso awarded Prosafe Drilling Services an HSE prize for four years of drilling work on Jotun B without a lost-time injury. > Statoil awarded Prosafe Drilling Services its HSE prize in the second half of 2002 for modification projects in the Gullfaks drilling areas.
1997
1998
1999
2000
2001
2002
NATURAL ENVIRONMENT. Prosafe’s offshore operations involve a risk of accidental discharges or emissions to the natural environment. We aim not to cause any such discharges /emissions, and possible incidents are reported and followed up in the same way as personal injuries and material damage. Prosafe cooperates actively with customers and suppliers on setting in-house goals, making continuous improvements to its own routines and shaping attitudes to protect the natural environment from pollution by its own operations and those of its partners. We nevertheless suffered some minor accidental discharges to the sea during 2002. The largest of these, which represented about 95 per cent of the total volume accidentally discharged, involved some 29 cubic metres of drilling fluid on Oseberg, resulting from a technical failure. However, no damage to the natural environment was registered as a result of the discharges. These are included in the operator company’s reporting together with permitted discharges of produced water and emissions of exhaust fumes and other gases to the air. CONTINGENCY PLANNING. Prosafe has established contingency plans to limit harm to people, the environment and material assets and to ensure that adequate and quality-assured information is provided to the outside world if and when required. We did not experience incidents in 2002 which were so serious that these plans had to be put into effect.
TRUST AND RESPECT IN THE WORKING ENVIRONMENT.
Prosafe had 1 824 employees at 31 December 2002. We give weight to offering everyone a challenging and motivating job. A survey of all employees world-wide was carried out during the year to establish what they think about Prosafe. The response rate was 51 per cent, and the results were overwhelming. No less than 90 per cent of our personnel are satisfied with Prosafe as an employer and would recommend it to others. Many employees took the opportunity to make suggestions and give feedback. The detailed comments and advice have been incorporated by the respective Prosafe divisions into existing improvement processes. This survey formed part of a continuous process, and a corresponding poll will be conducted in 2003.
DEFINITIONS LOST-TIME INJURY (LTI): Occupational injury which causes the employee to be absent from work for one complete shift, i.e 12 hours. NON-LTI: Occupational injury, not classified as LTI, which requires the employee to receive medical treatment. EXPOSURE HOURS: Total hours worked; based offshore on a 12-hour shift. LTI FREQUENCY (H1) = [LTIs per 1 000 000 work hours] / [Exposure hours] INJURY FREQUENCY (H2) = [(LTIs + non-LTIs) per 1 000 000 work hours] / [Exposure hours] SICKNESS ABSENCE [%] = [working days lost owing to sickness or injury] / [working days available] SERIOUS INCIDENT: Accident or incident with the potential to cause 1) fatality 2) life-threatening injury 3) material damage worth more than USD 250 000 4) fires or explosions 5) oil spills greater than 50 barrels 6) chemical spills
35
> Analytical information
VALUATION. Prosafe does not want to provide guidance on
assessments or methodologies for judging the underlying value of the its business. The company prefers to leave a valuation of the company to the capital market, based on independent evaluations of operations, developments, market prospects and other information in the public domain. A key aim at Prosafe is to encourage the broadest possible coverage of and interest in the company by ensuring a steady flow of information to the stock market. Prosafe’s operations are pursued by independent but complementary divisions. Offshore Support Services and Floating Production are capital-intensive, while Drilling Services is more labour-intensive. As a result, the capital market has traditionally based its valuation of Prosafe on a combination of net asset value and earnings-based methods. The information below is intended as a supplement for shareholders and other interested parties who want to make their own calculations and assessments. Prosafe commissions value estimates for its vessels from brokers twice a year. The estimates for December 2002 are shown in the table below. The figures to the right refer to estimates obtained in January 2002 and January 2001 respectively. Estimates from the brokers are based on the sale of the units without charters. The table shows the average of valuations from two independent brokers. (USD million) Total value of the rigs
Dec 2002 Jan 2002 501 433
Jan 2001 396
The rig fleet today comprises Safe Britannia, Safe Caledonia, Safe Hibernia, Safe Lancia, Jasminia, Safe Regency, Safe Scandinavia and MSV Regalia. Safe Hibernia (ex Polyconcord) was acquired in February 2002 and is therefore not included in the figures for January 2002 and January 2001.
36
At a USD/NOK exchange rate of 7.00, the rigs had a total market value of NOK 3 507 million. By comparison, the book value of this fleet is NOK 2 709 million. The broker valuations are accordingly 29 per cent above book value. Broker estimates obtained in December 2002 and January 2002 for the fleet of FPSO/FSO units were as follows: (USD million) Total value of the FPSO/FSO units
Dec 2002 Jan 2002 297 212
This fleet consists today of FPSO Espoir Ivoirien, Abo FPSO, FSO Endeavor, FPSO Petróleo Nautipa (50 per cent), FSO Madura Ayu (50 per cent) FSO Madura Jaya (50 per cent) and M/T Serene Sky. The valuations for January 2002 did not include Abo FPSO, FSO Madura Jaya or M/T Serene Sky, but did cover FPSO Ruby Princess, which was sold in October 2002. At a USD/NOK exchange rate of 7.00, the FPSO/FSO units had a market value of NOK 2 079 million. The book value of this fleet at 31 December was NOK 1 666 million. The broker valuations are accordingly 25 per cent above book value. When the valuations for rigs and FPSO/FSO units are combined, the broker estimates are NOK 1 211 million higher than the book value. The group’s total interest-bearing debt at 31 December came to USD 383 million, which has been booked as NOK 2 985 million. Converting the debt at an exchange rate of NOK 7.00 to the USD gives a market value of NOK 2 681 million, which is NOK 304 million below book value. Assuming that the group’s balance sheet contains no other unrealised gains, its value-adjusted equity – including goodwill – at 31 December totalled NOK 4 820 million or NOK 142 per share.
SHARE PRICE 2002
160 140 PRS
120
OSEBX 100
ENERGY
80
FINANCIAL CALENDAR. Prosafe will publish its interim
results on the following dates: > > > >
1st quarter 2003: 9 May 2003 2nd quarter 2003: 6 August 2003 3rd quarter 2003: 29 October 2003 4th quarter 2003: 5 February 2003
RISK SCHEME FOR NORWEGIAN TAXPAYERS. To prevent double taxation of shareholders/companies, the RISK scheme allows Norwegian shareholders to adjust the cost of shares for capital gains tax purposes in line with changes in taxed capital in the company. The annual RISK adjustment applies only to those who held the shares on 1 January of the relevant year. The following RISK amounts have been calculated for Prosafe ASA:
> > > > >
1 1 1 1 1
January January January January January
2002: NOK 1.15 per share 2001: NOK 1.86 per share 2000: NOK 0.60 per share 1999: NOK 1.45 per share 1998: NOK 1.49 per share
Because Prosafe was formed in 1997, RISK amounts have not been calculated for earlier years. Discoverer ASA was merged with Prosafe Rigs AS in December 1998 in exchange for shares in Prosafe ASA. The RISK adjustment factor, based on an exchange ratio of 1:0.7205, comes to 1.38792. This adjustment factor should be applied by former shareholders in Discoverer ASA when calculating the redistributed RISK at 1 January 1998. The redistributed RISK at 1 January 1998 comes to NOK 0.69. Foreign shareholders will be taxed under the rules applying in their home countries, and are accordingly unaffected by the Norwegian RISK rules.
JAN ‘03
DEC
NOV
OCT
SEPT
AUG
JULY
JUNE
MAY
APRIL
MARCH
FEB
JAN
DEC ‘01
60
SHARE PRICE AND LIQUIDITY. Prosafe’s share price at 31 December 2002 was NOK 94.50, giving the company a market capitalisation of NOK 3.2 billion. That represents a decline of 21 per cent from the year before. By comparison, the Oslo Stock Exchange benchmark and energy indices declined by 31 and 16 per cent respectively over the same period. The graph above shows the performance of Prosafe’s share price from 31 December 2001 to 31 January 2003, and the concurrent development of the Oslo Stock Exchange benchmark and energy indices over the same period. As the graph shows, the Prosafe share made positive progress in January 2003, while the benchmark and energy indices declined.
KEY SHARE DATA
Number of shareholders
2002
2001 CHANGE
3 142
3 118
44
43
94.50
120.00
Shares issued at 31 Dec (1 000) 33 958
33 719
239
Market cap. at 31 Dec (NOKm)
4 046
(837 )
Foreign ownership (%) Share price at 31 Dec (NOK)
Turnover (NOKm)
3 209
24 1 (25.50 )
2 832
2 405
427
Shares traded (1 000)
24 025
20 085
3 940
Average daily trading volume
96 486
80 663 15 823
118
120
(2 )
Number of transactions
12 738
13 326
(588 )
Shares per transaction
1 886
1 507
379
71
66
5
Average share price (NOK)
Turnover rate (%)
37
> Analytical information INVESTMENT. Since its formation in 1997, the company has been
through a period of major investments and strong growth. During 1998-2001, it acquired Discoverer ASA and Nortrans Offshore Ltd for a total of NOK 2 687 million, and the Safe Scandinavia and MSV Regalia rigs at a combined cost of USD 147 million. In 2001-02, the company carried out its first FPSO conversion following the acquisition of Nortrans Offshore Ltd, when M/T White Sea became FPSO Espoir Ivoirien. This vessel started production for Canadian Natural Resources in February 2002. M/T Grey Warrior was converted to Abo FPSO in 2002-03. Offshore Support Services also made substantial, strategic investments in 2002. The Safe Hibernia accommodation/service rig (ex Polyconcord) was acquired in February 2002 and started a one-year charter in the Gulf of Mexico during May. MSV Regalia was also converted in 2002-03 and is now ready to maintain subsea wells, while retaining its capabilities as an accommodation/service rig. Safe Scandinavia was also substantially upgraded to increase its berths from 327 to 583. Offshore Support Services invests about USD 2-3 million annually to maintain each of its rigs. Drilling Services spends roughly NOK 10-25 million at the start-up of each new drilling contract. The company recoups these equipment investments through the dayrates charged to the customer. Otherwise, normal annual capacity investment by Drilling Services will generally be in line with depreciation. Investment by Floating Production other than on new conversion projects or upgrading existing units for new contracts will be limited. ORDER BACKLOG . Orders in hand for Offshore Support Services at 31 December 2002 totalled NOK 607 million at the prevailing USD/NOK exchange rate. At the beginning of 2003, the rigs were assured of 36 per cent utilisation for the coming year. In March 2003, Prosafe received a letter of intent from Ocean
38
Oil regarding two five-year bareboat charters for Jasminia and Safe Britannia in the Gulf of Mexico. The combined value of the contracts is around USD 118 million. Floating Production had orders in hand at 31 December worth NOK 3 850 million at the prevailing USD/NOK exchange rate. Of this, NOK 499 million related to 2003. The bulk of the order backlog relates to FPSO Espoir Ivoirien and Abo FPSO. The first of these units started a 10-year charter, with a further 10 one-year options, for Canadian Natural Resources in February 2002, while Abo FPSO is due to start an eight-year charter for Agip off Nigeria in the near future. Agip has an option to extend this charter for two one-year periods. Aban Loyd Chiles Offshore extended its charter for FSO Endeavor by a year until July 2004. Where Drilling Services is concerned, the contract for its lightweight Rubicon rig expires in August 2003. The fixed part of the drilling contracts for Norsk Hydro on Oseberg East and Oseberg C run until June 2003, while the contract on Oseberg South and Snorre runs until June 2004. Prosafe holds drilling contracts from Statoil for Snorre, Gullfaks, Heidrun and Kvitebjørn. The fixed part of these contracts runs until November 2004 for Snorre, April 2004 for Gullfaks, May 2004 for Heidrun and August 2006 for Kvitebjørn. Statoil has options to extend the contracts on Gullfaks and Heidrun by a year, on Snorre by up to two years and on Kvitebjørn by up to three years. Prosafe holds drilling contracts from Esso on Jotun and Ringhorne. The fixed part of these contracts expires in January 2007, but Esso has options to extend them by four years on Jotun and six on Ringhorne. Excluding extension options, Drilling Services had orders in hand at 31 December worth an estimated NOK 1 400 million, of which NOK 745 million related to 2003. Further details on contracts held by the various divisions can otherwise be found on pages 23, 27 and 31.
SENSITIVITY ANALYSIS AND RISK MANAGEMENT OIL PRICES .
Since it is largely dictated by oil price trends, the level of activity in the oil and gas industry has historically been cyclical. However, activity levels at Prosafe have traditionally been relatively robust in relation to this volatility because its operations generally focus on production and maintenance in combination with long-term fixed dayrate charters.
Dayrates for accommodation/ service rigs and FPSO/FSO units are primarily denominated in USD. An increase of USD 1 000 in the dayrate for each rig would increase annual earnings by NOK 20 million (NOK 0.60 per share), assuming full utilisation of all rigs and a USD/NOK exchange rate of 7.00. A five per cent increase in rig utilisation would increase annual operating profit by NOK 33.5 million (NOK 0.99 per share), assuming average daily earnings of USD 33 000 before depreciation. DAYRATES AND RIG UTILISATION.
About 55 per cent of Prosafe’s revenues are currently generated in NOK. However, 85-90 per cent of operating profit before depreciation derives from foreign currency earnings, primarily USD. The company’s vessels and rigs are valued, bought/sold and financed in USD. Investments such as upgrading and conversion of ships and rigs will primarily be in USD. To the extent that such investments are nominated in currencies other than USD or NOK, the cash flow will be hedged with the aid of currency forwards. Historically, a large part of the cash flow from operations has been reinvested, so that the net cash flow available for currency hedging has been relatively limited. Prosafe has therefore chosen to hedge its cash flows against the USD as the base currency. This will reduce fluctuations in the company’s profit and loss account and balance sheet as a result of exchange rate volatility. However, it will yield a small increase in USD exposure for NOK-based investors if they do not arrange their own currency hedging for the investment. EXCHANGE AND INTEREST RATES.
A strong USD against the NOK is beneficial to Prosafe, given that a high proportion of its profits derive from USD revenues and that its most important assets are traded in USD. Assuming that revenue flows are not hedged, an increase of NOK 0.10 in the value of the USD against the NOK would increase operating profit by around NOK 10-12 million. In line with the group's financial strategy, the share of its interest-bearing debt which should be hedged is continuously assessed. The proportion of interest-rate hedging is evaluated in relation to the volume of borrowing, the repayment profile of the loans, cash reserves and forecasts for cash holdings. The share hedged will normally fluctuate between 50 and 65 per cent of the current loan volume. At 31 December 2002, the group had hedged about 45 per cent of its total debt through a combination of swaps to convert floating interest rates to fixed, and interest collars with cap and floor. The proportion hedged will increase to about 53 per cent of total interest-bearing debt during the first quarter of 2003. Thereafter, the proportion will vary between 50 and 60 per cent until the first quarter of 2007 on the basis of the new debt structure described in note 23 to the consolidated accounts.
39
> Accounts
> Profit and loss account PROSAFE GROUP
NOK million
Charter revenues Other operating revenues Total operating revenues Wages and other personnel expenses Goodwill amortisation Depreciation Other operating expenses Total operating expenses
NOTE
2002
2001
2000
4
1 303 1 590 2 893
1 047 1 371 2 418
864 1 082 1 946
1 231 68 294 598 2 191
1 066 51 322 469 1 908
789 0 197 363 1 349
702
510
597
31 (169 ) (138 )
36 (183 ) (147 )
56 (122 ) (66 )
564
363
531
0
41
564
404
496
40
29
12
524
375
484
15.48 15.39
11.77 11.66
18.57 18.39
17.49 17.38
13.38 13.25
18.57 18.39
7,8 10 10 3,9
Operating profit Financial income Financial expenses Net financial items
11 12
Profit before other items Other items
13
Profit before taxes Taxes
14
Net profit EPS (in NOK) EPS fully diluted (in NOK) Excl goodwill amortisation: EPS (in NOK) EPS fully diluted (in NOK)
15
(35 )
41
> Balance sheet PROSAFE GROUP
NOTE
2002
2001
2000
10 10 10 10
1 243 2 873 1 666 190 14 5 987
1 309 2 379 1 323 158 1 5 169
18 2 487 0 140 5 2 650
16 17 18
40 388 103 726 1 258
52 412 116 763 1 342
48 337 115 627 1 127
4
7 245
6 511
3 777
Share capital Other equity Total equity
19 19
337 2 968 3 305
337 2 731 3 068
262 1 599 1 861
Pension liabilities Other provisions Total provisions
8 22
47 36 83
43 46 89
32 41 73
Interest-bearing long-term debt Total long-term debt
23
2 985 2 985
2 679 2 679
1 399 1 399
102 770 872
0 675 675
0 444 444
7 245
6 511
3 777
NOK million
ASSETS
Goodwill Rigs Ships Other tangible assets Long-term receivables Total fixed assets Stocks Accounts receivable Other current receivables Cash and deposits Total current assets Total assets
EQUITY AND LIABILITIES
Dividends Interest-free current liabilities Total current liabilities Total equity and liabilities
42
24
> Cash flow statement PROSAFE GROUP
2002
2001
2000
564 0 0 363 (29) 12 24 12 173 (101) (182) 836
404 0 (60) 378 (25) (6) (62) (63) 234 31 (5) 825
496 (20) (20) 207 (21) (12) (85) (21) 132 13 2 672
167 (1 596) 0 (19) 0 0 260 (1 188)
1 (878) 118 0 (929) 230 0 (1 458)
96 (1 031) 71 0 0 0 0 (864)
New interest-bearing long-term debt Repayment of interest-bearing long-term debt Paid-in capital from share issues Net cash flow from financing activities
850 (551) 16 315
1 430 (666) 6 770
1 424 (1 030) 20 414
Net change in cash and deposits Cash and deposits at 01.01 Cash and deposits at 31.12
(37) 763 726
136 627 763
NOK million
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxes Gain on sale of fixed assets Gain on sale of shares Depreciation and amortisation Taxes paid Change in stocks Change in accounts receivable Change in other current receivables Change in interest-free current liabilities Change in other cut-off items Change in translation difference foreign subsidiaries Net cash flow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of tangible assets Acquisition of tangible assets Proceeds from sale of shares Buy-back of own shares Acquisition of subsidiary Cash in subsidiary at acquisition Change in translation difference on fixed assets in foreign subsidiaries Net cash flow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
222 405 627
43
> Accounting policies PROSAFE GROUP
GENERAL. The consolidated accounts are prepared in accor-
Payroll taxes are included in liabilities arising from non-insured
dance with the Norwegian accounting act and generally accepted
schemes. The value of the pension funds is the estimated actuarial
accounting policies in Norway.
value. This is adjusted every year in accordance with statements provided by the insurance companies.
SEGMENT REPORTING. The segmentation is based on the various
The effect of changes in estimates and pension plans is
types of products and services that the group provides. The group
amortised over the average remaining service period. The effect
comprises three divisions: Offshore Support Services, Drilling
of changes in estimates is only recognised in the profit and loss
Services and Floating Production. No material transactions take
account when such changes exceed 10 per cent of gross pension
place between the divisions. Non-allocated expenses relate to
liabilities or pension funds, whichever is the higher. Net pension
corporate administration and other expenses that cannot reasonably
expenses are classified as wages and other personnel expenses.
be allocated to the divisions. Non-allocated balance sheet items relate mainly to cash and deposits owned by the parent company.
Net pension expenses include the present value of pension earnings for the period, interest expenses on pension obligations incurred, expected return on the pension funds and the amortised
CONSOLIDATION PRINCIPLES. The consolidated accounts include
effect of changes in estimates and plans. Payroll taxes relating to
Prosafe ASA and subsidiaries. All subsidiaries are wholly owned.
group pension schemes are recorded as expenses on the basis of
The subsidiaries' accounts are included in the consolidated accounts
pension premiums paid. In the balance sheet, underfunded schemes
from the acquisition date. The acquisition cost of the shares is
are classified as a provision and overfunded schemes as a long-
set off against the equity in the subsidiaries in accordance with the
term receivable.
acquisition method. Any value in excess of book value is entered into the accounts at gross value with a provision for deferred tax.
SUBSCRIPTION RIGHTS. At the time when subscription rights
Any residual value is recorded as goodwill. Goodwill and other excess
were awarded under the company's initial incentive scheme,
value are amortised /depreciated over their estimated useful lives.
the exercise price was set equal to the share price. Thus, the intrin-
All transactions and balances between the companies included in
sic value of the subscription rights was zero and no costs were
the consolidation are eliminated. When consolidating foreign sub-
expensed at the date of award. Payroll taxes on the estimated
sidiaries, the profit and loss account is translated into NOK at the
time value of outstanding subscription rights are expensed over
average exchange rate for the year, while balance sheet items are
the exercise period. Changes in estimates are recognised in the
translated at the exchange rate prevailing at year end. Translation
same period as such changes are established.
differences are taken directly to equity. Investments in joint ventures are accounted for by proportionate consolidation.
GOODWILL AND TANGIBLE FIXED ASSETS are stated at acqui-
sition cost less cumulative amortisations, depreciations and writeRECOGNITION OF REVENUES AND EXPENSES. Revenues are
downs. Assets are amortised /depreciated on a straight-line basis
recognised as earned. They derive mainly from dayrates based
over their estimated economically useful lives. When fixing depre-
on charters and drilling contracts. Costs are expensed in the
ciation rates, allowance is made for any residual value at the end
same period as related revenue.
of the depreciation period. Depreciation is suspended in the event that a rig or a ship is undergoing substantial upgrade work. Write-
CLASSIFICATION OF BALANCE SHEET ITEMS. Assets for long-
downs are made if the fair value of a fixed asset is lower than its
term ownership or use are classified as fixed assets. Other assets
book value and this is not considered to be a temporary reduction.
are classified as current assets. Liabilities which fall due more than
A write-down is reversed to the extent that the basis for the write-
one year after being incurred, are classified as long-term liabilities.
down is no longer present.
Next year's instalment of long-term debt is included in long-term liabilities. Liabilities which fall due less than one year after they
CLASSIFICATION AND PERIODIC MAINTENANCE. With effect
are incurred, are classified as current liabilities.
from 1 January 2002, Prosafe changed its accounting policy with respect to classification costs relating to the company’s accom-
44
PENSIONS. Pension liabilities are based on the present value
modation / service rigs. Such costs are now capitalised when
of future pension benefits earned at the balance sheet date.
incurred and amortised over the period to the next classification.
The company is also responsible for classification and maintenance
MONETARY ITEMS IN FOREIGN CURRENCY. Bank deposits,
of parts of the drilling equipment on the fixed installations owned
receivables and liabilities in foreign currencies are translated at
by clients, and makes provisions to cover these costs. The provisions
year-end exchange rates with exception of long-term USD loans.
are classified as long-term or current liabilities depending on the
At year-end, the group’s loans in USD were allocated between
planned dates for classification and maintenance.
the various companies and divisions as follows:
FINANCIAL INSTRUMENTS. Currency forwards which secure con-
1 Loan in Prosafe Rigs AS to finance the company’s
tractual cash flows are treated as financial hedging for accounting purposes. Cash flow from a fixed contract is booked at the exchange rate fixed under a currency forward contract. The difference between the spot rate when entering into the currency forward contract and the currency forward contract rate is recognised at the realisation of the currency forward contract. Interest rate swap agreements which meet the requirements
accommodation/service rigs. 2 Loan in the parent company Prosafe ASA to finance the acquisition of Nortrans Offshore Ltd (now the Floating Production division). 3 Loans within the Floating Production division (in which USD is the functional currency) to finance the company’s FPSO/FSO vessels.
for hedging are booked as an adjustment to interest costs in the initial loan agreement.
USD loans were previously revalued in line with USD/NOK fluctua-
tions. With effect from 1 January 2002, Prosafe will no longer BORROWING COSTS. As a general rule, fees incurred in connec-
revalue USD loans which finance the accommodation /service
tion with the arrangement of loan facilities are capitalised and amor-
rigs (item 1 above) and the acquisition of Nortrans Offshore Ltd
tised over the loan term. When assets are constructed internally,
(item 2 above). These USD loans are now translated at draw-down
a proportional part of the financing costs is allocated to the cost
rates, and the company consequently does not recognise unrealised
of the asset and depreciated in accordance with the depreciation
currency gain/loss in the profit and loss account. Realised currency
plan for the asset. The residual proportion is capitalised and amor-
gain/loss is taken to the profit and loss account when an instalment
tised over the remaining loan term. Interest on construction loans
is paid. Loans within the Floating Production division (item 3 above)
is capitalised as part of the cost of the investment and amortised
are translated to NOK at the USD/NOK exchange rate prevailing
in accordance with the depreciation plan for the asset.
at the balance sheet date. Translation differences are taken directly to equity.
TAXES in the profit and loss account include taxes payable and
The rationale behind the change of accounting policy is that
changes in deferred tax. Deferred tax is calculated on the basis of
the aforementioned assets and business mainly generate revenues
temporary differences between book and tax values that exist at
in USD, and that estimated future cash flow is sufficient to cover
the end of the financial period. The accommodation /service rigs
interests and repayments in USD. In addition, both the accommo-
and one FPSO are subject to taxation based on the special rules for
dation/service rigs and the vessels within the Floating Production
taxation of shipping companies in Norway. This system of taxation
division are valued and traded in USD. Consequently, the future
leads to a deferment of taxation from the time when profit is earned
cash flow and the company’s main assets are considered natural
until the time when it is distributed as a dividend or when the company
hedges for the loans in USD.
ceases to be subject to the taxation scheme for shipping companies. Net financial income is taxed on an ordinary basis, in accordance
CASH AND DEPOSITS include cash, bank deposits and other
with the rules in the Norwegian tax act. No provision is made for the
liquid investments with a maturity of three months or less.
deferred tax relating to retained earnings, because Prosafe intends to remain in the regime and because dividends will not be paid by the rig-owning company in the foreseeable future. STOCKS are valued at purchase cost or estimated net sales value,
whichever is the lower. Goods manufactured internally are valued at manufacturing cost or estimated net sales value, whichever is the lower.
45
> Notes PROSAFE GROUP
ALLE TALL ER I NOK MILL DERSOM IKKE ANNET ER OPPGITT.
All figures in NOK million unless otherwise stated.
NOTE 1: CHANGES OF ACCOUNTING POLICIES AND COMPARATIVE FIGURES
The comparative figures are adjusted to reflect the change of accounting policies for evaluating long-term debt in USD and for accounting of classification costs relating to the company's accommodation/service rigs. The changes are described in detail under accounting policies in the sections on classification and periodic maintenance and monetary items in foreign currency. ANNUAL REPORT ADJUSTMENTS 2001
Operating revenues Operating expenses EBITDA Depreciation and amortisation EBIT Financial income Financial expenses Profit before other items Other items Profit before taxes Taxes Net profit
2 418 (1 530) 888 (373) 515 36 (213) 338 41 379 (29) 350
0 (5) (5) 0 (5) 0 30 25 0 25 0 25
ADJUSTED FIGURES
2 418 (1 535) 883 (373) 510 36 (183) 363 41 404 (29) 375
The effect on equity of the change of accounting policies is shown in note 19. If the company had not changed its policy for evaluating long-tem USD debt, the company would have reported an unrealised currency gain of NOK 465 million in 2002. The change of policy for accounting of classification costs relating to the rigs had only a marginal effect on the figures for 2002.
NOTE 2: COMPANIES INCLUDED IN THE CONSOLIDATED ACCOUNTS
46
COMPANY NAME
COUNTRY
Prosafe ASA Prosafe Rigs AS Prosafe Offshore AS Prosafe Offshore Norge AS Prosafe (UK) Holdings Ltd Prosafe Rigs Ltd Prosafe Offshore Ltd Prosafe Drilling Services AS Prosafe Production Services Pte Ltd Prosafe Production Pte Ltd GW Shipping Pte Ltd Sky Shipping Pte Ltd
Norway Norway Norway Norway United Kingdom United Kingdom United Kingdom Norway Singapore Singapore Singapore Singapore
NOK NOK NOK NOK GBP GBP GBP NOK USD SGD USD USD
SHARE CAPITAL (IN 1 000)
OWNERSHIP
339 579 272 000 51 50 11 000 0 0 77 000 6 056 4 000 1 1
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
COMPANY NAME
COUNTRY
SHARE CAPITAL
OWNERSHIP
(IN 1 000)
Prosafe Services Cote d'Ivoire Pte Ltd Egyptian Winlines Shipping Co SAE Offshore Mooring Services Ltd Prosafe Production Corporation Prosafe Production Inc Prosafe Production do Brazil Ltda Prosafe Production Nigeria Ltd Consafe (Burntisland) Ltd Consafe (Azerbaijan) Ltd Consafe (Caspian) Ltd Consafe Recruitment Ltd Tinworth Ltd Shaun Investments S.A. Madura FSO Pte Ltd OCS Services Ltd CleanUp AS Sandaband Well Plugging AS
Singapore Egypt Liberia Liberia USA Brazil Nigeria United Kingdom United Kingdom United Kingdom United Kingdom Bermuda Panama Singapore British Virgin Islands Norway Norway
USD USD USD USD USD USD USD GBP GBP GBP GBP USD USD USD USD NOK NOK
1 350 0 0 1 18 0 600 0 1 14 6 0 250 4 138 152
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 50 % 50 % 50 % 50 % 39 % 34 %
Voting rights equal ownership share.
NOTE 3: REMUNERATION TO DIRECTORS, PRESIDENT & CEO AND AUDITORS (NOK 1 000)
Directors Chair of the board President and CEO Auditor (audit) Auditor (other services)
2002 1 436 2 225 1 909 1 044 655
2001 1 437 1 336 1 740 1 287 565
The president and CEO exercised 50 000 subscription rights during 2002. The actual value amounted to NOK 3 015 000, and is not
included in the table above. Remuneration to the chair of the board (former president and CEO) includes pension and director’s fees.
Presidents in the corporate management team (see note 19), hold agreements covering salary payments following the termination of their employment contracts. The agreements specify that the company guarantees two years of remuneration after the six-month period of notice if the appointment ceases. With the exception of the agreement with the president and CEO, the agreements specify that salary and other remuneration received from other sources in the period will be deducted.
NOTE 4: OPERATING REVENUES AND TOTAL ASSETS BY GEOGRAPHICAL AREAS
Operating revenues
Norway Mexico United Kingdom Ivory Coast Vietnam India Egypt Gabon Angola Indonesia Other countries Total operating revenues
2002
2001
1 599 593 243 242 89 44 27 22 20 10 5 2 893
1 344 480 341 0 140 35 21 0 48 7 1 2 418
Assets
Norway Singapore Mexico Nigeria Ivory Coast United Kingdom Gabon India Indonesia Vietnam Egypt Angola Other countries Total assets
2002
2001
2 313 1 478 1 029 769 731 481 108 40 10 8 7 0 270 7 245
2 119 1 520 981 0 925 573 0 67 18 178 9 108 14 6 511
47
NOTE 5: SEGMENT INFORMATION
2002
2001
2000
990 (331) (146) 513
918 (304) (198) 416
982 (260) (165) 557
Offshore Support Services
Operating revenues Operating expenses Depreciation Operating profit Assets Liabilities Investments
3 106 1 177 679
2 612 1 053 95
2 800 1 264 923
Floating Production
Operating revenues Operating expenses Goodwill amortisation Depreciation Operating profit Assets Liabilities Investments
460 (185) (68) (102) 105
253 (83) (51) (86) 33
3 153 1 336 839
2 825 1 045 719
1 459 (1 307) (1) (42) 109
1 252 (1 134) 0 (36) 82
-
Drilling Services
Operating revenues Operating expenses Goodwill amortisation Depreciation Operating profit Assets Liabilities Investments
832 503 68
718 444 46
991 (895) 0 (30) 66 662 400 97
Corporate expenses and eliminations
Operating revenues Operating expenses Depreciation Operating profit
(16) (6) (4) (26)
Assets Liabilities Investments
154 822 12
(5) (14) (2) (21) 356 900 18
(27) 3 (2) (26) 315 252 11
Prosafe consolidated
48
Operating revenues Operating expenses Goodwill amortisation Depreciation Operating profit
2 893 (1 829) (68) (294) 702
2 418 (1 535) (51) (322) 510
1 946 (1 152) 0 (197) 597
Assets Liabilities Investments
7 245 3 838 1 596
6 511 3 443 878
3 777 1 916 1 031
NOTE 6: QUARTERLY RESULTS
4Q 02
Operating revenues Operating expenses Goodwill amortisation Depreciation Operating profit Net financial items Profit before taxes Taxes Profit for the period
664 (445) (17) (66) 136 (33) 103 (15) 88
3Q 02
772 (469) (17) (78) 208 (15) 193 (10) 183
2Q 02
775 (467) (17) (77) 214 (45) 169 (9) 160
1Q 02
682 (448) (17) (73) 144 (45) 99 (6) 93
2002 2 893 (1 829) (68) (294) 702 (138) 564 (40) 524
NOTE 7: WAGES AND OTHER PERSONNEL EXPENSES
2002
2001
Wages and holiday pay Pension expenses Other remunerations Payroll taxes Hired-in personnel Other personnel expenses Total wages and other personnel expenses
864 29 37 114 142 45 1 231
695 26 15 97 187 45 1 066
Number of employees (quarterly average)
1 790
1 572
NOTE 8: PENSION LIABILITIES
Employees in the Norwegian companies are covered by pension schemes which entitle them to future pension benefits (defined benefit plans). The major proportion of the liability is covered by means of investment plans in life insurance companies. A total of 975 employees are members of these schemes. Prosafe has also pension liabilities in respect of the chair of the board which partly are financed from operations. Foreign subsidiaries have pension schemes which accord with local practice and legislation. The pension schemes are formalised by the subsidiary making an agreed contribution to the individual’s pension fund (defined contribution plans), and are consequently not recognised in the balance sheet. Pension expenses – benefit plans:
Present value of current year earnings Interest expenses on pension liabilities incurred Expected return on pension funds Allocated effect of changes in estimates and pension plans Pension expenses – benefit plans
2002
21 22 (16) 3 30
Pension liabilities:
2002
Estimated pension liabilities incl future wage growth Value of pension funds Estimated net pension liabilities Non-amortised plan changes Non-amortised estimate variance Net pension liabilities
356 (230) 126 (2) (77) 47
2001
19 19 (15) 1 24 2001
302 (212) 90 (2) (45) 43
49
Assumptions:
Discount rate Expected return on pension funds Expected wage growth Expected pension adjustment Expected national insurance base rate adjustment Expected annual utilisation of AFP (early retirement from the age of 62)
2002 7.0 % 8.0 % 3.5 % 3.0 % 3.0 % 15.0 %
2001 7.0 % 8.0 % 3.5 % 3.0 % 3.0 % 5.0 %
2002
2001
54 24 30 131 598
49 22 20 96 469
LAND
TOTAL
NOTE 9: OTHER OPERATING EXPENSES
Materials Repair and maintenance Travel Catering offshore Office and administration
2002
2001
85 119 97 27 31
55 90 88 22 28
Leasing Fees Insurance Other Total operating expenses
NOTE 10: TANGIBLE FIXED ASSETS AND GOODWILL
RIGS
Acquisition cost 01.01.02 Additions Disposals at acquisition cost Translation differences Acquisition cost 31.12.02 Cum. depreciation 01.01.02 Cum. depreciation on disposals Depreciation for the year Translation differences Cum. depreciation 31.12.02
SHIPS
INVENTORY, EQUIPMENT
BUILDINGS
GOODWILL
3 035 650 0 0 3 685
1 408 835 (218) (270) 1 755
259 78 (23) 0 314
61 32 (30) 0 62
1 360 3 0 0 1 363
11 0 (11) 0 0
6 134 1 596 (282) (270) 7 178
656 0 155 0 811
85 (87) 101 (10) 89
159 (20) 38 0 177
15 (8) 1 0 8
51 0 69 0 120
0 0 0 0 0
966 (114) 362 (10) 1 206
Net book value 31.12.02
2 873
1 666
137
54
1 243
0
5 972
Depreciation rate (%) Economically useful life (years)
6-8 20-35
7-33 3-15
20-30 3-5
3 30
5 20
-
-
0 0
18 0
0 40
0 13
0 0
0 0
18 53
Capitalised borrowing costs Leasing expenses
With effect from 1 January 2002, the company revised the estimates for the economically useful life of its accommodation/service rigs from 30 to 35 years. The estimate for economically useful life was set at 30 years when the company was established in 1997. In connection with the acquisition of Safe Hibernia, which is now the oldest rig in the fleet, Prosafe made a more detailed assessment and saw that the rigs have a longer economically useful life. The company has revised the estimate of the economically useful life in order to achieve a more correct matching of investments with estimated future revenues. For the same reason, the company has also allowed for an estimated scrap value of NOK 26 million per rig. Previously, the scrap value for all the rigs was set at zero. The change in the estimates means that depreciation for 2002, excl Safe Hibernia, is NOK 72 million lower than it would have been under the previous depreciation plan. Estimated economically useful life for the Rubicon lightweight rig is 20 years. FSO/FPSO vessels are depreciated over their fixed contract period to their estimated residual value. Goodwill relates to Nortrans Offshore Ltd, which was acquired in March 2001.
50
NOTE 11: FINANCIAL INCOME
Interest income Total financial income
2002
2001
31 31
36 36
2002
2001
129 37 3 169
158 17 8 183
NOTE 12: FINANCIAL EXPENSES
Interest expenses Currency loss Other financial expenses Total financial expenses
NOTE 13: OTHER ITEMS
2002
Operating revenues Operating expenses Depreciation Discontinuation expenses Gain on sale Net other items
2001
241 (236) (5) (19) 60 41
Other items in 2001 relate to the sale of Procon Engineering AS, the sale of the module business in Aberdeen and the liquidation of the business in Azerbaijan.
2002
2001
Other tax issues:
471 94 564
349 55 404
0 0 0 0 0 0
NOTE 14: TAXES
Specification of taxes in the profit and loss account:
Profit before taxes in Norway Profit before taxes abroad Total profit before taxes Taxes payable in Norway Taxes payable abroad Changes in deferred tax in Norway Total taxes
32 19 (11) 40
19 15 (6) 29
Specification of taxes in the balance sheet statement:
2002 Temporary differences: Fixed assets 36 Current assets (15) Pension liabilities (47) Long-term liabilities 42 Current liabilities (1) Basis for calculation of deferred tax 15 Deferred tax 4
2001
36 (10) (43) 76 (4) 55 15
The rig-owning company within Offshore Support Services and Tinworth Ltd, which owns FPSO Petroleo Nautipa, are subject to taxation based on the special rules for taxation of shipping companies in Norway. The other vessels in Floating Production, except for FSO Madura Ayu, are subject to taxation based on the special rules for taxation of shipping companies in Singapore. Profit from these charters is not taxable to Singapore, but the company pays tax deducted at source in the countries in which it operates.
51
NOTE 15: EARNINGS PER SHARE (FULLY DILUTED)
Earnings per share (fully diluted) is calculated on the basis of net profit and average outstanding and potential shares during the year. The average number of outstanding and potential shares was 34 058 632 for 2002 and 32 138 615 for 2001.
NOTE 16: ACCOUNTS RECEIVABLE
2002
Accounts receivable at gross value Provision for expected loss Net accounts receivable
393 (4) 388
2001
412 0 412
NOTE 17: OTHER CURRENT RECEIVABLES
2002
2001
46 57 103
81 35 116
TRANSLATION DIFFERENCE
TOTAL
Revenues earned Other current receivables Total other current receivables
NOTE 18: CASH AND DEPOSITS
Restricted cash (taxes withheld) amounted to NOK 37 million.
NOTE 19: EQUITY SHARE CAPITAL
Equity 31.12.01 Change of accounting policies Equity 01.01.02 Profit for the year New equity Buy-back of own shares Dividends Change in translation difference Equity 31.12.02
Number of shares: 33 957 900 Holdings of own shares: 230 900
52
337 337 2 (2) 337
OTHER EQUITY
2 552 175 2 727 524 14 (17) (102) 3 146
Par value: 10 Number of shareholders: 3 142
4 4 (182) (178)
2 893 175 3 068 524 16 (19) (102) (182) 3 305
20 LARGEST SHAREHOLDERS / GROUPS OF SHAREHOLDERS AT 31.12.02:
JCE Odin Folketrygdfondet Kartron Investments Sinberg Invest Ltd Nordea Storebrand Perny Ltd GMO Brown Brothers Harriman & Co Kristiansands Tankrederi State Street Bank & Trust Co Royal Trust Corporation of Canada Gjensidige NOR Vital Denver Investment Advisors JP Morgan Chase Bank, GBR Chase Manhattan Bank DnB Avanse Total 20 largest shareholders / groups of shareholders
NO. OF SHARES
SHARE
3 363 367 2 038 478 1 845 450 1 454 355 1 063 834 977 752 973 356 940 034 845 960 780 550 746 100 620 759 560 300 550 897 548 265 531 406 524 810 511 400 445 506 396 654 19 719 233
9.9 % 6.0 % 5.4 % 4.3 % 3.1 % 2.9 % 2.9 % 2.8 % 2.5 % 2.3 % 2.2 % 1.8 % 1.6 % 1.6 % 1.6 % 1.6 % 1.5 % 1.5 % 1.3 % 1.2 % 58.1 %
Foreign shareholders Norwegian shareholders
43.5 % 56.5 %
SHARES AND SUBSCRIPTION RIGHTS OWNED BY SENIOR EXECUTIVES AND DIRECTORS AT 31.12.02:
SHARES
SUBSCRIPTION RIGHTS
12 500 1 499 80 160 305 80
0 50 000 0 50 000 0 0
59 740 48 600 0 0 2 500 0 0 80 0
0 0 0 0 0 0 0 0 0
Senior executives:
Arne Austreid - president and CEO Stig Christiansen - executive VP and CFO Bjørn Henriksen - president Floating Production Petter Tomren - president Drilling Services Trygve Arnesen - president Offshore Support Services Roy Hallås - executive VP corporate relations Board of directors:
Reidar Lund *) - chair Karl Urdshals - director Egil Bergsager - director Christian Brinch - director Ronny J. Langeland - director Brit K. S. Rugland - director Torild R. Alvheim - worker director Jon M. Fjose - worker director Olav Gjesteland - worker director *) Shares owned privately and / or through companies.
53
NOTE 20: SUBSCRIPTION RIGHTS
In connection with the initial incentive scheme in Prosafe established by the general meeting of 28 February 1998 and the conversion of share options in Nortrans Offshore Ltd on 20 April 2001, the following subscription rights were outstanding at 31 December 2002: DATE OF AWARD
NUMBER OF RIGHTS
EXERCISE PRICE (NOK)
EXERCISE PERIOD
13.09.00
250 000
150.00
25.08.2001 - 31.12.2003
08.02.01
80 000
128.00
08.02.2002 - 08.02.2004
20.04.01
157 020
24.76
01.04.2001 - 30.04.2004
20.04.01
74 068
40.66
01.05.2002 - 30.04.2005
20.04.01
83 040
148.50
01.05.2003 - 30.04.2006
Within the initial scheme established by the general meeting of 28 February 1998, the exercise price of a subscription right equals the share price at the time of the award + one per cent per month until the subscription rights are exercised for awards made before 2001. Following the acquisition of Nortrans Offshore Ltd (NOL), share options in NOL were converted to 423 861 subscription rights in Prosafe on 20 April 2001 at a price below the share price at the time of the award. Of these, 341 128 were outstanding at 31 December 2002. Exercise of a subscription right means that the company issues a new share. A total of 239 000 subscription rights were exercised during 2002. The actual value of these subscription rights amounted to NOK 13.9 million. The number of outstanding subscription rights at December 2002 was 644 128 with an estimated total value of NOK 14.2 million. The actual value is calculated as the difference between the share price and the exercise price.
NOTE 21: JOINT VENTURES
COMPANY NAME
COUNTRY
Sandaband Well Plugging AS CleanUp AS Tinworth Limited Shaun Investments S.A. Madura FSO Pte Ltd
Norway Norway Bermuda Panama Singapore
NOK NOK USD USD USD
SHARE CAPITAL (IN 1 000)
OWNERSHIP
152 138 6 0 250
34 % 39 % 50 % 50 % 50 %
Specification of items from joint ventures included by proportionate consolidation: Profit and loss account:
Operating revenues Profit before taxes Net profit
2002
2001
49 8 2
55 25 21
122 14 136 86 4 90 46
89 33 122 34 35 69 53
Balance sheet:
Fixed assets Current assets Total assets Long-term liabilities Current liabilities Total liabilities Equity
54
NOTE 22: OTHER PROVISIONS
Deferred revenues Deferred tax Other provisions Total other provisions
2002
2001
0 4 32 36
14 15 17 46
2002 2 985 2 985
2001 2 679 2 679
NOTE 23: INTEREST-BEARING LONG-TERM DEBT
Loans in USD Total interest-bearing long-term debt
At 31 December 2002, total interest-bearing long-term debt amounted to USD 383.2 million, of which USD 128.1 million related to the company’s rigs (fleet loan), USD 115 million related to general group purposes (of which USD 80 million related to the acquisition of Nortrans Offshore Ltd), and USD 140.1 million to the company’s FSO/FPSO vessels. The fleet loan and the debt for general purposes were booked using the exchange rate at draw down, while the FSO/FPSO loan was translated to NOK at the USD/NOK exchange rate prevailing at 31 December 2002. See accounting policies. During the first quarter of 2003, the loans - with exception of loans of USD 5.1 million in joint ventures and the pre-mobilisation loan on Abo FPSO of USD 60 million - were refinanced into a new group facility of USD 400 million. The group facility is divided into three tranches, with Prosafe ASA as borrower for two of these and with Prosafe Rigs AS as borrower for the third. Prosafe ASA’s tranches are USD 115 million for group purposes (tranche A) and USD 156.9 million for financing of FSO/FPSO vessels (tranche B). Prosafe Rigs AS’ tranche is USD 128.1 million (tranche C). The loan of USD 115 million in Prosafe ASA will be repaid over 2.5 years. The profile of the FSO/FPSO tranche is eight years with a balloon payment of USD 44.2 million after six years from draw down. Tranche C has a grace period of three years, and is thereafter reduced to zero after six years. The total combined repayment profile of the USD 115 million and USD 128.1 million loans constitutes approximately six years, but with slightly higher reductions during the first part of the period. Debt which falls due later than 31 December 2007 amount to USD 128.5 million or NOK 895.4 million translated at the exchange rate prevailing at 31 December 2002. In 2002, the average interest cost for total interest-bearing debt in the group, including interest hedging agreements was 4.7 per cent. The interest margin on the new facility is set in accordance with a grid which depends on the ratio of total debt to EBITDA. The new loan facility is subject to the following financial covenants: NET WORTH RATIO: Net worth / (Net worth + Total debt) shall be a minimum of 0.4 LEVERAGE RATIO: Total debt / EBITDA shall not exceed 4.0 LIQUIDITY: Minimum USD 40 million, out of which minimum USD 15 million in Prosafe ASA MARKET VALUE OF ACCOMMODATION AND SERVICE RIGS: Market value of accommodation and service rigs / Debt in Prosafe Rigs AS and the loan for general purposes in Prosafe ASA shall be a minimum of 1.7 MARKET VALUE ACCOMMODATION AND SERVICE RIGS AND FSO/FPSO VESSELS: Market value of accommodation and service rigs and FSO/FPSO vessels / Total outstanding amounts under the facility shall be a minimum of 1.6 = Interest-bearing debt + bank guarantees issued + net liabilities on interest hedging agreements
TOTAL DEBT
55
NOTE 24: INTEREST FREE CURRENT LIABILITIES
Accounts payable Holiday pay and accrued wages Public taxes Taxes payable Classification and maintenance of drilling equipment Interest costs Other accrued costs Other interest free current liabilities Total interest free current liabilities
2002
2001
400 127 71 43 23 5 100 2 770
353 105 62 23 11 15 99 7 675
NOTE 25: MORTGAGES AND GUARANTEES
In line with industry practice, Prosafe has issued bank guarantees to customers in connection with the award and performance of contracts. Total bank guarantees issued amounted to NOK 36.1 million at year-end. The interest-bearing long-term debt of NOK 2 985 million, see note 23, is guaranteed by first priority ship mortgages on the accommodation/service rigs, accounts receivable and bank deposits in Offshore Support Services, ships in Floating Production and bank deposits in Drilling Services. The book value of assets pledged as security (NOK million): Accommodation / service rigs Accounts receivable Ships Bank deposits Total
2 709 388 1 666 689 5 453
NOTE 26: FINANCIAL MARKET RISK
Prosafe operates internationally and in a capital intensive industry, and is exposed to market risk relating to the development of foreign exchange rates and interest rates. FOREIGN CURRENCY. Prosafe’s reporting currency is NOK, and today about 55 per cent of the operating revenues are generated in NOK. However, as much as 85-90 per cent of the total operating profit before depreciation and amortisation (EBITDA) is generated in foreign currencies, with USD being the main currency. The company's rigs and ships are valued, traded and financed in USD. Investments such as upgrading and conversion of rigs and ships are also mainly in USD. To the extent that investments are carried out in other currencies than USD and NOK, the cash flow will be hedged through forward exchange contracts. Historically, a large part of the cash generated has been reinvested, thus reducing the net cash flow available for hedging. As a result of this, and due to the fact that it is increasingly becoming a USD company, Prosafe has chosen to hedge the net cash flow against the USD as the base currency. This will reduce the sensitivity to currency movements in the company’s profit and loss account and balance sheet if these are converted to USD. However, this will modestly increase the USD / NOK exposure for NOK-based investors if they do not hedge their investments against currency movements. In this context, Prosafe is making preparations for a potential future conversion to the USD as the functional and reporting currency for the group as a whole.
56
A strong USD / NOK rate will be favourable for Prosafe, given the relative contribution of USD to profit, as well as the fact that the company’s most valuable assets are valued in USD. Given the current level of turnover and currency composition, and under the assumption that operating revenues are not hedged against currency movements, an increase of NOK 0.10 in the USD / NOK exchange rate will increase the operating profit by about NOK 10-12 million. Higher revenues will increase sensitivity correspondingly. This will be partly offset by the opposite effect on net interest costs, and the effect on profit before tax would accordingly be around NOK 8-10 million from an increase of 0.10 in the USD / NOK exchange rate. At year-end, the group had entered into the following forward exchange contracts: Forward purchase of SGD 22 million against USD 12.6 million at an average rate of 1.74 Forward purchase of GBP 11.9 million against USD 18.2 million at an average rate of 1.53 Converted at a USD / NOK rate 6.9657, the value of these transactions amounts to NOK 214.9 million. INTEREST RATES. According to Prosafe’s financial strategy, the company will continuously assess its interest hedge levels and evaluate the need for further hedging. The degree of interest rate hedging is evaluated on the basis of loan volume, repayment profiles, contract reserves and cash forecasts. Interest rate hedging will normally vary between 50 per cent and 65 per cent of total debt. At year-end, 45 per cent of total debt in the group was fixed by a combination of interest rate swap agreements and interest rate collars (cap / floor structures). Interest rate hedging will increase to cover about 53 per cent of total interest-bearing debt during the first quarter of 2003. From that point until the first quarter 2007, interest rate hedging will vary within an interval of 50 per cent to 65 per cent based on a new debt structure as described in note 23. Under the assumption that the debt in Prosafe is carrying an unhedged floating interest rate, an increase in the USD interest rate of one percentage point would - based on the current interestbearing debt - amount to some USD 3.83 million in increased interest costs per year, equivalent to NOK 26 million based on the USD/NOK exchange rate prevailing at 31 December 2002. With 50 per cent hedging through interest rate swaps, interest sensitivity will be correspondingly halved and amount to about USD 1.92 million - equivalent to NOK 13 million - with a change of one percentage point in USD interest rates.
NOTE 27: POTENTIAL LIABILITIES
In 2002, the company received a legal claim of about USD 10 million from one of its former partners. The board considers the probability that this claim will materialise to be very low, and no provision has been made for potential costs relating to this claim. Prosafe has entered a counterclaim.
NOTE 28: MATERIAL SINGLE TRANSACTIONS
In January 2002, the module business in Aberdeen was sold to leading personnel in Consafe. The sale had no impact on Prosafe’s consolidated profit. In February 2002, Prosafe acquired the semi-submersible accommodation / service rig Safe Hibernia (Polyconcord) for USD 34.5 million. In October 2002, the FPSO Ruby Princess was sold to PetroVietnam in accordance with a contractual purchase option. The sale proceeds equalled the book value of the ship at the transaction date, and the sale itself had no impact on the profit and loss account.
NOTE 29: PRO FORMA ACCOUNTS INCL FLOATING PRODUCTION
Pro forma accounts for Prosafe are provided below under the assumption that the acquisition of Nortrans Offshore Ltd took effect from 1 January 2001. Profit and loss account
Operating revenues Operating expenses EBITDA
Goodwill amortisation Depreciation EBIT
Interest income
2001 2 506 (1 563 ) 943 (68 ) (355 )
520 38
Interest expenses Other financial items Profit before other items Other items Profit before taxes Taxes Profit for the period
(185 ) (25 ) 347 41 388 (26 ) 362
57
> Accounts PARENT COMPANY
BALANCE SHEET AT 31.12
PROFIT AND LOSS ACCOUNT
(NOK 1 000)
Note
Operating revenues Operating expenses 2,3
2002
2001
2 263
1 670
Note
2002
2001
Tangible fixed assets
4
35 560
26 959
Shares in subsidiaries
7 3 034 853 3 025 637 8
(NOK 1 000)
23 462
24 282
4
3 224
2 556
Other fixed assets
Total operating expenses
26 686
26 838
Total fixed assets
Operating loss
(24 423 )
(25 168 )
Other current assets
(55 511 )
(26 491 )
Cash and deposits
(79 934 )
(51 659 )
Total current assets
22 667
10 211
(57 267 )
(41 448 )
Depreciation
Net financial items
5
Loss before taxes Taxes
6
Net loss
Equity transfers and allocations: Group contribution
27 665
56 247
75 076
3 182 355
3 127 672
9
44 860
78 282
10
142 877
212 323
187 737
290 605
3 370 092
3 418 277
337 270
337 189
Total assets
Share capital
11
Share premium reserve
11
Other equity
11
Total equity
Dividends
(101 874 )
Other equity
131 476
(14 799 )
Pension liabilities
3
57 267
41 448
Deferred tax liability
6
Total
0
111 942
Total provisions Interest-bearing long-term debt
13
Total long-term debt
CASH FLOW STATEMENT
Dividends (NOK 1 000)
2002
232 048
380 174
2 283 273
2 415 945
5 358
5 050
6 117
18 025
11 475
23 075
960 596
960 596
960 596
960 596
101 874
0
14 874
18 661
116 748
18 661
3 370 092
3 418 277
2001
Interest-free current liabilities Net cash flow from:
Total current liabilities
Operating activities
(48 340 )
(104 235 )
Investing activities
(76 869 )
(508 964 )
Financing activities
55 763
781 545
and deposits
(69 446 )
168 346
Cash and deposits 01.01
212 323
43 977
Cash and deposits 31.12
142 877
212 323
Net change in cash
58
1 711 955 1 698 582
Total equity and liabilities
12
> Notes PARENT COMPANY
All figures in NOK 1 000 unless otherwise stated.
NOTE 1: ACCOUNTING POLICIES
The accounting policies for the consolidated accounts also apply for the parent company accounts. Investments in subsidiaries are treated in accordance with the cost method. Group contribution received is booked net against equity.
NOTE 2: OPERATING EXPENSES
Wages and holiday pay Pension expenses Remuneration to directors Other remunerations Payroll taxes Hired-in personnel Other personnel expenses Other operating expenses Total operating expenses Average number of employees
2002 5 887 1 317 1 436 1 036 3 212 637 344 9 593 23 462
2001 5 798 1 230 1 437 911 2 956 483 512 10 955 24 282
14
17
NOTE 3: PENSION LIABILITIES
Prosafe ASA has pension schemes for employees which entitle them to future pension benefits (defined benefit plans). The number of people included in this scheme is 17. The company also has pension liabilities in respect of the chair of the board which are partly financed from operations. For assumptions underlying the actuarial calculation, see note 8 to the consolidated accounts.
Pension expenses in the profit and loss account:
Present value of current year earnings Interest expenses on pension liabilities incurred Expected return on pension funds Allocated effect of changes in estimates and pension plans Pension expenses for the year Pension liabilities in the balance sheet:
Estimated pension liabilities incl future wage growth Value of pension funds Estimated net pension liabilities Non-amortised plan changes Non-amortised estimate variance Net pension liabilities
2002
2001
491 1 454 (749) 266 1 462
439 1 424 (860) 342 1 346
2002 21 764 (9 474) 12 290 137 (7 069) 5 358
2001 22 735 (11 960) 10 775 0 (5 725) 5 050
59
NOTE 4: TANGIBLE FIXED ASSETS MACHINERY, EQUIPMENT
BUILDINGS
LAND
TOTAL
7 228 6 215 0 13 443
30 545 5 610 0 36 155
821 0 0 821
38 594 11 825 0 50 419
Cum. depreciation 01.01.02 Cum. depreciation on disposals Depreciation for the year Cum. depreciation 31.12.02
5 088 0 1 900 6 988
6 547 0 1 324 7 871
0 0 0 0
11 635 0 3 224 14 859
Net book value 31.12.02
6 455
28 284
821
35 560
Depreciation rate (%)
20-30
3
-
-
182
1 874
-
2 056
Acquisition cost 01.01.02 Additions Disposals at acquisition cost Acquisition cost 31.12.02
Leasing expenses
NOTE 5: FINANCIAL ITEMS
2002 2 406 7 113 0 (44 863) (24 892) 0 4 725 (55 511)
907 6 525 60 017 (69 901) (1 580) (15 050) (7 409) (26 491)
Loss before taxes Permanent differences Changes in temporary differences Utilisation of tax loss carried forward Basis for taxes payable in the profit and loss account Group contribution received Taxable income
2002 (79 934 ) (371 ) 42 527 (646 ) (38 424 ) 38 424 0
2001 (51 659 ) (736 ) (24 471 ) 0 (76 866 ) 76 866 0
Taxes payable Changes in deferred tax Total taxes
(10 759 ) (11 908 ) (22 667 )
(17 063 ) 6 852 (10 211 )
Interest receivable from group companies Other interest income Gain on sale of subsidiary Interest expenses Realised currency loss - net Write-down of receivable from subsidiary Other financial items Net financial items
2001
NOTE 6: TAXES
Specification of taxes in the profit and loss account:
Specification of deferred tax in the balance sheet:
Temporary differences relating to: Fixed assets Current liabilities Long-term liabilities Pension liabilities Basis for calculation of deferred tax liability Deferred tax liability
60
2002
(3 294 ) 0 30 499 (5 358 ) 21 847 6 117
2001
(4 084 ) (2 230 ) 75 738 (5 050 ) 64 374 18 025
NOTE 7: SHARES IN SUBSIDIARIES SHARE CAPITAL (1 000)
NUMBER OF SHARES
BOOK VALUE (1 000)
OWNERSHIP
NOK
272 000
272 000
954 515
100 %
NOK
51
51
1 829
100 %
GBP
11 000
11 000 001
159 001
100 %
NOK
77 000 15 400 000
COMPANY
Prosafe Rigs AS Prosafe Offshore AS Prosafe (UK) Holdings Ltd Prosafe Drilling Services AS Prosafe Offshore Norge AS Prosafe I AS Prosafe Production Services Pte Ltd Offshore Mooring Services Ltd Prosafe Production do Brazil Ltda Shaun Investments S.A.
130 171
100 %
NOK
50
50
50
100 %
NOK
50
50
50
100 %
USD
6 056
11 000 000
1 751 266
100 %
USD
0
500
10 803
100 %
USD
18
50 000
161
100 %
USD
0
250
27 007
50 %
Total book value
3 034 853
NOTE 8: OTHER FIXED ASSETS
2002 111 942 111 942
2001 75 076 75 076
2002 42 550 2 310 44 860
2001 75 606 2 676 78 282
OTHER EQUITY
TOTAL
1 698 582
325 643
2 361 414
-
54 531
54 531
1 698 582
380 174
2 415 945
Long-term receivables from group companies Total other fixed assets
NOTE 9: OTHER CURRENT ASSETS
Current receivables from group companies Other current receivables Total other current assets
NOTE 10: CASH AND DEPOSITS
Restricted cash (taxes withheld) was NOK 1 318 000.
NOTE 11: EQUITY SHARE CAPITAL
SHARE PREMIUM RESERVE
Equity 31.12.01 Change of accounting policies Equity 01.01.02 New equity Buy-back of own shares Loss for the year Dividends Group contribution received (net) Equity 31.12.02
337 189
337 189 2 390 (2 309 ) 337 270
13 373 -
(16 651 )
15 763 (18 960 )
-
(57 267 )
(57 267 )
-
(101 874 )
(101 874 )
-
27 665
27 665
1 711 955
232 048
2 281 273
Number of shares: 33 957 900 Holdings of own shares: 230 900 Par value: 10
61
NOTE 12: INTEREST FREE CURRENT LIABILITIES
2002 2 494 2 642 4 586 5 152 14 874
Current liabilities to group companies Accounts payable Public taxes Other interest current liabilities Total interest current liabilities
2001 2 988 2 537 3 421 9 715 18 661
NOTE 13: MORTGAGES, INTEREST-BEARING LOANS AND GUARANTEES
In line with industry practice, Prosafe ASA has issued bank guarantees and parent company guarantees (performance guarantees) on behalf of subsidiaries in connection with the award and performance of contracts. Total issued bank guarantees amounted to NOK 36.1 million at year-end. At year-end, Prosafe ASA had two long-term loans of USD 35 million and USD 80 million respectively. The loan of USD 35 million was guaranteed by security in the shares in Prosafe Drilling Services AS. The remaining long-term loan of USD 80 million related to the investment in Floating Production, and was guaranteed by security in the shares in Prosafe Production Services Pte Ltd and the shares in Prosafe Rigs AS. In the first quarter 2003, both loans were refinanced into one new facility (tranche A) which is guaranteed by security in the shares in Prosafe Drilling Services AS, the shares in Prosafe Production Services Pte Ltd and the shares in Prosafe Rigs AS. In addition, Prosafe ASA undertook a new loan from a subsidiary of USD 157 million (tranche B) which relates to the vessels in Floating Production. This loan is guaranteed by security in the shares in Prosafe Drilling Services AS, the shares in Prosafe Production Services Pte Ltd and the shares in Prosafe Rigs AS. Tranche B is also secured by guarantees from Sky Shipping Pte Ltd and Prosafe Services Cote d'Ivoire Pte Ltd and by a guarantee from Prosafe Production Services Pte Ltd, which is guaranteed by security in the shares in Sky Shipping Pte Ltd and the shares in Prosafe Services Cote d'Ivoire Pte Ltd. The book value of pledged assets in Prosafe ASA amounted to NOK 2 836 million at 31 December 2002.
Tananger, 19 March 2003
62
Reidar Lund Chair
Egil Bergsager
Christian Brinch
Karl Urdshals
Ronny Johan Langeland
Brit K S Rugland
Torild R Alvheim
Jon M Fjose
Olav Gjesteland
Arne Austreid President and CEO
> Auditor's report
the annual financial statements of Prosafe ASA as of 31 December 2002, showing a loss of NOK 57 267 000 for the parent company and a profit of NOK 523 957 000 for the Group. We have also audited the information in the Directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the consolidated accounts. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors. WE HAVE AUDITED
audit in accordance with the Norwegian Act on Auditing and Auditors and auditing standards and practices generally accepted in Norway. Those standards and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and auditing standards,
WE CONDUCTED OUR
an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. IN OUR OPINION,
> the financial statements have been prepared in accordance with law and regulations and present the financial position of the Company and of the Group as of 31 December 2002, and the results of its operations and its cash flows for the year then ended, in accordance with accounting standards, principles and practices generally accepted in Norway > the Company's management has fulfilled its duty to properly register and document the accounting information as required by law and accounting standards, principles and practices generally accepted in Norway > the information in the Directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss is consistent with the financial statements and comply with law and regulations. Stavanger, 19 March 2003 ERNST & YOUNG AS
Jostein Johannessen State Authorised Public Accountant (Norway)
Note: The translation to English has been prepared for information purposes only.
63
> Fleet
64
SAFE BRITANNIA
SAFE CALEDONIA
SAFE LANCIA
JASMINIA
Design
Design
Design
Design
Pacesetter (enhanced)
Pacesetter
Pacesetter
GVA 2000
Built
Built
Built
Built
1980
1982
1982
1982
Yard
Yard
Yard
Yard
GVA, Sweden
GVA /Kockums, Sweden
GVA /Kockums, Sweden
GVA, Sweden
Beds
Beds
Beds
Beds
812
550
550
535
Station keeping
Station keeping
Station keeping
Station keeping
DP2 / TAMS
DP1/ TAMS
TAMS
–
Thrusters
Thrusters
Thrusters
Thrusters
4 x 2.4 MW + 2 x 1.5 MW
4 x 2.4 MW
4 x 2.4 MW
2 x 2.4 MW
SAFE REGENCY
SAFE SCANDINAVIA
MSV REGALIA
SAFE HIBERNIA
Design
Design
Design
Design
Pacesetter
Aker H-3.2E
GVA 3000 (enhanced)
Aker H-3 (modified)
Built
Built
Built
Built
1982
1984
1985
1977
Yard
Yard
Yard
Yard
FELS, Singapore
Aker Verdal, Norway
GVA, Sweden
Rauma Repola, Finnland
Beds
Beds
Beds
Beds
771
583
380
500
Station keeping
Station keeping
Station keeping
Station keeping
TAMS
–
DP3
–
Thrusters
Thrusters
Thrusters
Thrusters
4 x 2.4 MW
–
6 x 2.64 MW
4 x 2.4 MW
ESPOIR IVOIRIEN
ABO
PETRÓLEO NAUTIPA
ENDEAVOR
Built 1975
Built 1976
Built 1975
Built 1971
Yard Mitsubishi, Japan
Yard Mitsubishi, Japan
Yard Nippon Kokan, Japan
Yard Bethlehem, USA
Original name
Original name
Original name
Original name
M/T White Sea Conversion FPSO 2001
M/T Grey Warrior Conversion FPSO 2002
M/T Knock Buie Conversion FPSO 1998
S/S Cove Endeavor Conversion FSO 1997
Yard Keppel, Singapore
Yard Keppel, Singapore
Yard Keppel, Singapore
Yard Keppel, Singapore
Length 280 m
Length 280 m
Length 266 m
Length 247 m
Breadth 54 m
Breadth 54 m
Breadth 44 m
Breadth 32 m
DWT 151 000
DWT 156 000
DWT 140 000
DWT 70 000
Storage (bbls)
Storage (bbls)
Storage (bbls)
Storage (bbls)
1 100 000
950 000
1 000 000
500 000
Processing (bpd/day)
Processing (bpd/day)
Processing (bpd/day)
Processing (bpd/day)
40 000
40 000
30 000
-
Ownership 100 %
Ownership 100 %
Ownership 50%
Ownership100 %
MADURA AYU
MADURA JAYA
SERENE SKY
AL ZAAFARANA
Built 1972
Built 1981
Built 1977
Built 1969
Yard Whyalla, Australia
Yard Uddevallavarvet, Sweden
Yard Mitsubishi, Japan
Yard Kawasaki Dockyard, Kobe, Japan
Original name
Original name
Original name
Original name
M/T Morando Conversion FSO 1992 Yard ST Marine, Singapore Length 171 m Breadth 25 m DWT 27 000
M/T Paris II Conversion FSO 2002
M/T Sky
S/S Kavo Langos
Conversion -
Conversion FSO 1991/ FPSO 1994
Yard Sembawang, Singapore
Yard -
Yard Jurong, Singapore
Length 228 m
Length 280 m
Length 260 m
Breadth 42 m
Breadth 54 m
Breadth 40 m
DWT 89 000
DWT 155 000
DWT 127 000
Storage (bbls)
Storage (bbls)
Storage (bbls)
Storage (bbls) 800 000
200 000
633 000
1 190 000
Processing (bpd/day) 30 000
Ownership 50 %
Ownership 50 %
Ownership 100 %
Ownership 0 % (operational contract only)
65
> Corporate management
ARNE AUSTREID President and CEO
STIG CHRISTIANSEN Executive vice president and CFO
ROY HALLÅS Executive vice president corporate relations
Mr Austreid, born 25 January 1956, has been president and CEO of Prosafe ASA since 1999.
Mr Christiansen, born 10 March 1968, has been chief financial officer of Prosafe ASA since November 2000.
Mr Hallås, born 4 April 1965, has been vice president corporate relations in Prosafe ASA since 2001.
Educated as a petroleum engineer, he also has an MBA from the University of Aberdeen. Mr Austreid joined Prosafe in 1998 as vice president marketing and business development. From 1982-98, he held a number of positions in Transocean ASA, both on land and offshore, and was president at his departure.
He has a BCom degree from the University of Birmingham (UK) and an MBA/Cand Merc degree in international business economics from Aalborg University Centre in Denmark. Mr Christiansen joined Transocean ASA in 1996, and has held a number of positions in that company and Prosafe. He was manager for finance and strategy at Prosafe ASA before his present job.
He has an engineering degree from the Norwegian University of Science and Technology in Trondheim. Mr Hallås joined Prosafe in May 1997, and has held a number of positions there. He was vice president for technology and engineering before his present job. Prior to joining Prosafe, he had a number of posts in Transocean, the Norwegian Petroleum Directorate and Norsk Hydro.
PETTER TOMREN President, Prosafe Drilling Services AS
TRYGVE ARNESEN President, Prosafe Offshore Ltd
Mr Tomren, born 4 May 1952, has been president of Prosafe Drilling Services AS since 2001.
Mr Arnesen, born 9 October 1957, has been president of Prosafe Offshore Ltd since 2001.
Educated as a petroleum engineer, he has an MSc from the University of Tulsa, USA. Mr Tomren worked for Statoil from 1980-97 in a number of positions, on land and offshore, and as vice president procurement at his departure. He then served as operations vice president at Odfjell Drilling in 1997-2000 and president of AGR EmiTeam from 2000-01.
He has a petroleum engineering degree from the Norwegian University of Science and Technology in Trondheim. Mr Arnesen joined Transocean in 1985 and has held a number of positions in that company and Prosafe, both on land and offshore. These include operations vice president in Transocean Petroleum Technology, president of Prosafe Drilling Services and vice president for well intervention.
BJØRN HENRIKSEN President, Prosafe Production Pte Ltd
Mr Henriksen, born 29 November 1961, has been president of Prosafe Production Pte Ltd since 2001. He graduated as a state-authorised accountant from the Norwegian School of Economics and Business Administration in Bergen. Mr Henriksen joined Transocean in 1992 and has held a number of positions there and in Prosafe, including chief financial officer of Transocean and Prosafe ASA, and president of Prosafe Offshore Ltd.
Prosafe ASA ARNE AUSTREID President and CEO
Prosafe ASA ROY HALLÅS Executive vice president corporate relations
Prosafe ASA STIG CHRISTIANSEN Executive vice president and CFO
Drilling Services PETTER TOMREN President Prosafe Drilling Services AS
66
Offshore Support Services TRYGVE ARNESEN President Prosafe Offshore Ltd
Floating Production BJØRN HENRIKSEN President Prosafe Production Pte Ltd
> Addresses Prosafe ASA Risavika havnering 224 Postbox 143 N-4098 Tananger Norway Telephone +47 51 64 25 00 Telefax +47 51 64 25 01
[email protected] Prosafe Offshore Ltd Greenwell Road East Tullos Industrial Estate Aberdeen AB12 3AX United Kingdom Telephone +44 1224 406 900 Telefax +44 1224 406 901
[email protected] Prosafe Production Pte Ltd 1 International Business Park #10-01 The Synergy Singapore 609917 Telephone +65 6665 6200 Telefax +65 6567 5110
[email protected]
FASETT Photo: Petter Hegre, Kjetil Alsvik (portrait photos) and Tom Haga (page 24-25, 28-29 and 32-33) Print: Aske trykkeri. Paper: Highland 300g /150g
Prosafe Production Inc 14825 St. Mary's Lane Suite 260 Houston TX 77079 USA Telephone +1 281 496 7001 Telefax +1 281 496 1877
[email protected] Prosafe Drilling Services AS Sandslimarka 185 Postbox 47 Sandsli N-5861 Bergen Norway Telephone +47 55 98 68 00 Telefax +47 55 98 68 01
[email protected]
www.prosafe.com
