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Contents

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Board of Directors’ Report 2010 4 Statement regarding Establishment of Salary and other Benefits for Senior Management 9 The Board of Directors 11 Board of Directors’ Statement on Policy for Corporate Governance12 16 Senior Management Auditor’s Report 89 Responsibility Statement 91

Sevan Marine Group Consolidated Balance Sheet Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement

18 19 20 20 21

Notes to the Consolidated Financial Statement Note 1 Note 2

Corporate Information Summary of Significant Accounting Policies

2.1 Basis of Preparation 2.1.1 Changes in Accounting Policy and Disclosures 2.2 Consolidation 2.3 Segment Reporting Foreign Currency Translation 2.4 2.5 Property, Plant and Equipment Construction in Progress 2.6 Construction Contracts  2.7 2.8 Intangible Assets Impairment of Non-Financial Assets 2.9 2.10 Financial Assets 2.11 Inventories 2.12 Trade Receivables 2.13 Cash and Cash Equivalents 2.14 Share Capital 2.15 Interest-Bearing Debt  Current and Deferred Income Tax 2.16 2.17 Employee Benefits 2.18 Provisions 2.19 Revenue Recognition 2.20 Leases 2.21 Dividend Distribution 2.22 Trade payables

Note 3 3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.2

Note 4 4.1 4.2

Note 5

22 23 23 23 24 25 25 26 26 26 26 27 27 27 27 27 27 27 27 28 28 29 29 29 29

Financial Risk Management

30

Financial Risk Factors Market Risk Credit Risk Liquidity Risk Cash Flow and Fair Value Interest Rate Risk Fair Value Estimation

30 30 30 30 30 31

Accounting Estimates and Judgments

32

Critical Accounting Estimates and Assumptions 32 Critical Judgments in Applying the Group’s Policies 32

Segment Information

33

Note 6 Note 7 Note 8 Note 9 9a 9b Note 10 Note 11 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Note 23 Note 24 Note 25 Note 26 Note 27 Note 28 Note 29 Note 30 Note 31 Note 32 Note 33 Note 34

Property, Plant and Equipment 36 Intangible Assets 37 Investment in Associates 38 Derivative Financial Instruments 39 Financial Instruments by Category 40 Credit Quality of Financial Assets  41 Trade and Other Receivables 42 Cash and Cash Equivalents 43 Share Capital 43 Share-Based Payments 45 Current Liabilities 46 Interest-Bearing Debt 46 Deferred Income Tax 49 Retirement Benefit Obligations 50 Provisions 52 Construction Contracts 52 Employee Benefit Expense 53 Financial Income and Financial Expense 56 Income Tax Expense  57 Earnings per Share 57 Dividend per Share 58 Cash Generated from Operations 58 Contingencies 59 Commitments 60 Related Party Transactions 60 Operating Leases 60 Foreign Exchange Gain/(Loss) Related to Financing61 Other Operating Expense 61 Inventories 62 Other Non-Current Assets 62 Events After Balance Sheet Date 62

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Sevan Marine ASA Balance Sheet Income Statement Cash Flow Statement

64 65 66

Notes to the Financial Statements Accounting Policies Note 1 Equity Note 2 Taxes Note 3 Fixed and Intangible Assets  Note 4 Investment in Subsidiaries and Receivables and Liabilities to Companies in the Group Note 5 Other Non-Current Assets Note 6 Cash and Cash Equivalents Note 7 Shares and Share Options Owned or Controlled by the Board of Directors and  Senior Management  Note 8 Shareholder Information Note 9 Employee Benefit Expense Note 10 Retirement Benefit Obligations

67 69 70 71 72 74 74 74 74 75 76 78

Note 11 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Note 23

Other Operating Expense Lease Agreements Earnings per Share Construction Contracts Share-Based Payments  Related Party Transactions  Financial Risk Management  Contingencies Operating Revenue Interest-Bearing Debt Provisions  Financial Income and Financial Expense Events After Balance Sheet Date

79 80 80 80 81 82 82 83 84 84 86 87 88

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Board of Directors’ Report 2010 Sevan Marine ASA (“Sevan Marine” or the “Company”) and its subsidiaries (together with the Company; “Sevan” or the “Group”) is a leading company within floating production of oil and gas and also has activities within deepwater drilling, based on the Company’s proprietary cylindrical hull design. The Company is also developing other applications, including floating LNG production and power plants with CO2 capture. The business is based on a build-own-operate model. Alternatively, a license model may be applied as in the case of the Sevan 1000 Goliat FPSO. The Company is a Norwegian public limited liability company. Several of its subsidiaries are Singaporean private companies with registered offices in Singapore. The Group also has operative subsidiaries in Brazil and UK.

Floating Production FPSO Sevan Piranema became the world’s first cylindrical FPSO to commence operation in October 2007, and continued to demonstrate high efficiency during 2010. Downtime in May relating to a short circuit problem and in November relating to a periodic maintenance exercise reduced the Technical Uptime for the year to 96.3%. Technical Uptime for the remaining 10 months was as high as 99.5%. However, continuing instabilities in the gas injection process of the processing plant resulted in higher operating expenses and penalties from Petrobras which reduced the Commercial Uptime to 85.1% for the year. Measures to rectify the situation was implemented during the year which gradually improved the level of operating expense. Normalized levels of Commercial Uptime are expected to be achieved during first half of 2011. The FPSO is operating for Petrobras S.A. on the Piranema field offshore Brazil under an 11 year fixed term contract plus extension options. In August 2008, FPSO Sevan Hummingbird became the first cylindrical FPSO to be installed in the North Sea. A high operating uptime, allowing helicopters to land on the FPSO even during severe winter storms and no processing restrictions experienced in relation to weather conditions, have demonstrated the suitability of the Sevan design for operations in harsh environments. FPSO Sevan Hummingbird continued to deliver stable operation and production throughout 2010, with Technical Uptime of 97.0% for the year and Commercial Uptime of 106.3% including bonus achieved for high production levels. The FPSO is operating for Centrica Energy Upstream (‘Centrica’) on the Chestnut field in the Central UK North Sea under a 2.5 year fixed term contract plus extension options. The first 0.5 year option was exercised in September, thus extending the fixed term of the contract to September 2011. In August 2010, Sevan acquired Centrica’s 20% equity interest in FPSO Sevan Hummingbird for a consideration of USD 39 million and thereby became the 100% owner of the FPSO.

The Group’s third FPSO, the FPSO Sevan Voyageur, commenced operations on the Shelley field in the Central UK North Sea on August 6, 2009. When Oilexco North Sea, the original client for the unit, was put under administration in early 2009, Sevan entered into a contract with Premier Oil and Gas Services Ltd in March 2009. Production at the Shelley decreased faster than originally anticipated and the FPSO departed from the field in August 2010. In November 2010, Sevan and E.ON Ruhrgas UK E&P entered into a contract for the lease of FPSO Sevan Voyageur for the Huntington field in the UK North Sea. The contract is for a fixed term of five years with extension options. The estimated contract value is USD 535 million for the fixed term. Installation of the FPSO on the Huntington field is expected to take place in the fourth quarter of 2011 with first oil targeted for the first quarter of 2012. Prior to installation on the field, the FPSO will be upgraded with two gas compression trains for gas export and gas lift as well as an increase in the water injection system. The cost of the upgrade has been estimated to approximate USD 90 million which will be financed through an increase of the 1st lien financing on the FPSO as described in the ‘Capital and Financing’ section below. The upgrade work commenced at the Nymo yard in Arendal in September 2010. The Technology License contract with ENI Norge AS relating to the FPSO Sevan 1000 for Goliat was made effective in February 2010 and activities relating to project management and engineering related to the Goliat Project continued during the year. During 2010, the hulls for FPSO Sevan 300 no. 4 and 5 were relocated to the Cosco Shipyard in China (‘COSCO’). By the end of the year, the Group had invested a total of USD 167 million in the two hulls. At the end of 2010, there was no debt associated with the construction of the hulls. The intention is to complete the construction of the units at COSCO upon securing contracts with clients. During 2010, Sevan Marine has continued work on a number of feasibility studies for various oil companies. The studies have focused on the potential application of the Sevan design for specific field developments. This includes demonstrating the feasibility of using the Sevan cylindrical FPSO bridge-linked to a wellhead platform as well as verifying the feasibility of using steel catenary risers (SCRs) for harsh deepwater applications. Results from the studies have been positive with successful model testing in significant wave heights of up to 22 meters.

Drilling In November 2009, the ultra deepwater drilling unit, Sevan Driller, was delivered from the COSCO 30 months after the start of steel cutting and started its voyage towards Brazil. The rig arrived in Brazil late March 2010, and commenced operation in the Campos basin in June 2010 under a six year fixed term contract for Petrobras S.A. During the initial period of operation, defects on third party equipment caused higher than anticipated downtime on the rig.

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The downtime in the third and the fourth quarter was mainly due to defects in the riser tensioning system and the BOP which reduced the Technical Uptime to 49.8% and the Commercial Uptime to 49.1% for 2010. Motions performance on the rig has been good and in accordance with model forecasts. The performance on the rig has rapidly improved following completion of the repair of the defected equipment. Technical Uptime for January and February of 2011 was 78.4% and 96.7% respectively. Commercial Uptime for January and February of 2011 was 77.9% and 102.1% respectively. The Construction of the Group’s second ultra deepwater drilling unit, the Sevan Brasil (previously referred to as Sevan Driller II), proceeds according to plan and budget at the date of this report at the COSCO Shipyard. Module fabrication has been completed up to 36.5 meters and the living quarter, derrick and drill floor has been integrated with the main hull. Sevan Brasil is of the same design as Sevan Driller and is scheduled for delivery from the shipyard during the first quarter of 2012. In June 2008, a third drilling unit was contracted to India’s ONGC with delivery at the end of 2010. During the global financial crisis, it proved difficult to secure the required financing, and construction on the rig subsequently never commenced. Sevan has issued a Notice of Arbitration to ONGC, informing ONGC of its intention to resolve certain disputes regarding the firm order for the deepwater drilling unit by reference to arbitration. ONGC called on a bank guarantee of USD 15.9 million in March 2011. As of the date of this report, the arbitration proceedings to determine whether ONGC is entitled to the funds have not been concluded. The Company is claiming for a refund of the payment made to ONGC under the Bank Guarantee. Potential liabilities relating to the ONGC contract are disclosed in Note 26 in the consolidated financial statements.

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At December 31, 2010, total consolidated assets amounted to USD 2,587 million (2009: USD 2,349 million), of which Sevan capital assets amounted to USD 2,146 million (2009: USD 1,904 million) and USD 116 million (2009: USD 163 million) was cash and cash equivalents. At year end, the equity ratio was 31% and the Group had undrawn bank facilities of USD 577 million and an undrawn long term vendor credit facility relating to Sevan Brasil of approximately USD 80 million. In December, Sevan additionally secured commitments, subject to documentation and conditions precedent, for a USD 480 million senior debt project finance facility for the Sevan Driller. The loan was executed in March 2011 and repaid the existing USD 250 million 1st lien bank facility and NOK 1 billion 2nd lien bond relating to the rig as well as for general corporate purposes. The Group has prepared the financial statements in accordance with International Financial Reporting Standards (IFRS).

Research and Development Between 2001 and 2010, Sevan invested a total of USD 20-25 million in relation to the development of the Sevan designwhich was expensed through the Profit and Loss when incurred. USD 0.1 million was expensed in 2010. In addition, Sevan Marine has capitalized USD 0.1 million in relation to development of the Sevan design for floating LNG during 2010. The Company expects to capitalize on those expenses in the future. In addition, the Company has recovered expenses relating to further development and testing of the Sevan designby compensation from clients relating to feasibility studies and FEED’s. Note 19 in the consolidated financial statements describes further details of such activities.

Capital and Financing Income Statement and Balance Sheet Consolidated revenue for the year totaled USD 256 million (2009: USD 195 million). The Group incurred an operating loss in 2010 of USD 34 million (2009: USD 83 million). The improvement of USD 49 million relates mostly to the increase in revenues as new units commenced operations as well as non-recurring expense items in 2009. Net financial loss for the year was USD 135 million (2009: USD 97 million). The increase was mainly due to expensing of non-recurring items including call premiums (USD 25 million) and changes in amortization schedules for financing fees (USD 19 million) following refinancing of debt during the year. In addition, an increase in interest expense relating to Sevan Driller (USD 28 million) was due to interest being expensed through profit and loss rather than capitalized as part of the construction cost following completion of the rig at the inception of 2010. These effects were partly offset by a reduction in unrealized financial currency losses (USD 36 million) from NOK nominated bonds. Net loss came to USD 157 million (2009: USD 143 millioner).

Net consolidated cash flow for 2010 was minus USD 47 million. Cash flow from operations amounted to minus USD 26 million. Cash flow to investment activities amounted to minus USD 215 million and cash flow from financing activities amounted to USD 195 million. A detailed cash flow statement is included in the financial statements and a specification of the cash flow from operating activities is included in Note 25 in the consolidated financial statements. During 2010, the Company continued to work on strengthening its balance sheet with an aim to improve on the alignment of repayment of debt to cash flows from operations as well as to achieve a reduction in its cost of capital and to strengthen the general liquidity position of the Group. Reference is made to Note 15 in the consolidated financial statements for further details of the credit facilities described below. In May 2010, Sevan secured commitment for a USD 525 million senior debt project finance facility for Sevan Brasil with ING Bank N.V. (‘ING’) as mandated lead arranger. The facility is structured as a

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limited recourse construction financing and is fully underwritten by ING, GIEK/Eksportfinans and Sinosure. The facility completes the construction financing of Sevan Brasil and the first drawdown under the credit facility was made in February 2011. In July, Sevan Marine carried out a bond issue consisting of two tranches of USD 100 million and NOK 625 million with fixed interest rates of 12.0% and 13.25% respectively. The bond has a term of 5 years with call options. The proceeds were used to refinance the previous USD 135 million 1st lien bond in full, thereby increasing the loan amount on FPSO Sevan Hummingbird and extending the maturity from 2011 to 2015; to acquire the 20% stake in FPSO Sevan Hummingbird from Centrica; and for general corporate purposes. Sevan secured the required financing to upgrade the FPSO Sevan Voyageur for Huntington operations in parallel to entering into the charter contract with E.ON. The term sheet for a USD 230 million senior secured credit facility was agreed between Sevan and ING in June 2010 and the fully documented loan agreement was completed and signed in November 2010. The net proceeds replaced the existing 1st lien financing of USD 150 million and completed the funding of the upgrade for the unit. In a bondholders meeting held in June, the bondholders in ISIN NO 001039164.2 (FRN Sevan Marine Senior Secured Callable Notes 2007/2012) consented to certain changes in the loan conditions, including the increase from USD 150 million to USD 230 million of the higher ranking bank facility and an increase in the applicable interest margin. The amendments became effective in November 2010 upon the first drawdown on the senior secured credit facility. NOK 740 million was outstanding on the bond at balance sheet date. In October, a USD 48 million senior secured callable convertible bond was repaid at 140% of par value and thereby removing a dilution potential of approximately 9.5%. The repurchase was funded by a new USD 83 million bank facility with Investec Bank plc, Standard Bank plc and Macquarie Bank Limited which is secured by an assignment of certain future contracted cash flows. In December 2010, Sevan secured commitments, subject to documentation and conditions precedent, for a USD 480 million senior debt project finance facility for the Sevan Driller with DVB Group Merchant Bank (Asia) Pte Ltd (‘DVB’), NIBC Bank N.V. (‘NIBC’) and ING as mandated lead arrangers. The facility is structured as a limited recourse financing and is fully underwritten by DVB, NIBC, ING, China Development Bank and GIEK/Eksportfinans. The loan was executed in March 2011 and repaid the existing USD 250 million 1st lien bank facility and NOK 1 billion 2nd lien bond; and for general corporate purposes. In December, Sevan Marine carried out a bond issue of NOK 700 million with a fixed interest rate of 14.0%. The bond has a term of

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four years with call options. Net proceeds were used for general corporate purposes. During 2011, the Company targets to strengthen its balance sheet with an aim to reduce the cost of capital and to strengthen the general liquidity position of the Group. The Board has prepared a strategy in this respect where different initiatives have been identified. In March 2011, the Board filed a listing application to the Oslo Stock Exchange for an IPO for the Group’s ultra deep water drilling business. The contemplated IPO of Sevan Drilling ASA will involve a combined secondary sale of shares currently owned by Sevan Marine ASA and an equity offering of new shares to be issued by Sevan Drilling ASA. The split between primary and secondary shares offered will be set to achieve satisfactory free float, appropriate capital structure, and required proceeds for both Sevan Drilling ASA and Sevan Marine ASA. The key objective of the listing and equity offering is to allow the drilling business to grow to its full potential, and raise capital to fund the construction of two additional drilling rigs. Furthermore, creating a focused ultra deepwater drilling company will increase the visibility of the value and versatility of the Sevan design as well as strengthen the balance sheet in Sevan Marine ASA and thereby improve its growth potential. Sevan Marine’s ownership interest in Sevan Drilling ASA is expected to be reduced to between 10 and 20 per cent following the transaction (depending on offer price and scope of primary and secondary sale, and effects of over-allotment/stabilization measures). The IPO is subject to bank approval of the change of control. In connection to the contemplated IPO, subsidiaries of Sevan Drilling ASA entered into LOIs with COSCO for the construction of two UDW drilling rigs based on the same design as Sevan Driller and Sevan Brasil. The rigs are to be delivered in the fourth quarter of 2013 and second quarter of 2014. The LOIs are for turn-key construction contracts with an estimated all-in price of USD 525 million per rig and a payment structure where 20% is payable upon signing of final construction contracts and 80% is payable upon delivery. The LOIs provide for options to build two additional UDW drilling rigs at the same terms with the exception of certain currency and inflation adjustments. Signing of the final construction contracts with COSCO is subject to listing of Sevan Drilling ASA. However, there is no assurance that the Group will be able to execute the contemplated IPO successfully nor that it will be able to obtain alternative sources of financing in a timely manner on acceptable terms.

Going Concern In accordance with the Norwegian Accounting Act’s section 3-3, the Board confirms that the annual accounts have been prepared based on the going concern assumption. The basis for this assumption is the Company’s strategic plan, financial prognoses and successful outcome of the financing measures described above.

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Risk The Company was founded in 2001 and has since its inception focused on the engineering, construction and the subsequent operation of the Sevan units, based on its proprietary design. The Group’s new-building projects require continuous monitoring and ability to control and adapt to inherent risks. Following more than 3.5 years of operation in Brazil and more than 2.5 years in the North Sea, the Sevan design is proven in these areas and the design risk is therefore reduced. Recorded motions for the FPSOs as well as the Sevan Driller have been in line with model testing and analyses. The Group’s activities expose it to a variety of financial risks, including market risks, credit risks and liquidity risks. The Companys risk management program includes focusing on the unpredictability of financial markets and seeks to minimize potential adverse effects of such risks on its financial performance. The Company will therefore continue to manage its currency and interest exposures through certain derivative financial instruments in accordance with market practice and to maintain flexibility in the liquidity by keeping committed credit lines available. Parts of the Group’s loan financing carry floating interest rates which fluctuates with the market. The Group may therefore be exposed to risks due to changes in interest rates for any unhedged portion of such exposure. The value of the Group’s charter contracts may be affected by changes in currency exchange rates or exchange control regulations.

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levels and disappointing exploration results. Contracts in the offshore sector require high standards of performance and safety, entailing considerable risks and responsibilities. These include technical, operational, commercial and political risks. There is often considerable uncertainty as to the duration of offshore charters because most of the agreements give the operator extension options. Changes in the legislative and fiscal framework, including tax rules, governing the activities of the oil companies, could have material impact on exploration, production and development activity or affect the Group’s operations directly. The clients of the Group are generally oil companies with a strong financial basis, but – as with suppliers and customers in general – there is always a risk that unforeseen financial difficulties on the counterparty’ side may arise which could have material adverse effects on the financial condition, the cash flows and/or the prospects of the Group. In connection with the construction of the Sevan units, the Group has used its best efforts to prepare proper specifications, including the supply and installation of equipment. Despite these efforts, there can be no assurances that delays and cost overruns will not occur and such events, if occurring, could have an adverse impact on the Company’s financial position. The experience gained to date by Sevan, the shipyards and main suppliers, is expected to benefit the construction of future units. However, the Company cannot guarantee that cost increases and delays in delivery of future units will not occur.

HSE and Corporate Governance The Group utilizes a combination of equity and bank/bond financing to finance the construction of the Sevan units. Obtaining such financing may be subject to market risks and other risks that may influence the availability, structure and terms of such financing. When the financial markets do not function efficiently, this risk becomes particularly prevalent for a capital intensive company like Sevan which is not yet in a position to support its new building program with cash flow from operations. In addition to the capital required to fund existing projects and operations, the Group may require additional capital in the future due to unforeseen operational issues, unforeseen liabilities or potential acquisitions, joint ventures or other business opportunities that may be presented to it. There can be no assurance that the Group will be able to obtain necessary financing in a timely manner on acceptable terms. Historically, demand for offshore exploration, development and production has been volatile and closely linked to the price of hydrocarbons. The demand for the Group’s services in connection with production and exploration in the offshore oil and gas sector is particularly sensitive to price decreases, fluctuations in production

Developing sound health, safety and environment (HSE) principles is a critical success factor for the Company. The Group has an environmentally friendly profile and continually seeks new ways to reduce the environmental impacts of its operations. Sick leave came to 1.8% for the Company and 2.0% for the Group for the year. No serious work incidents or accidents resulting in personal injuries or damages to materials or equipment occurred in 2010. There has been no Lost Time Incidents (LTI) during 2010, and the FPSO Sevan Piranema has been operating for more than 1,000 days without LTIs at the date of this report. The Company is certified according to several ISO standards with respect to concept development, design, engineering, procurement, construction, installation and operation of mobile offshore units, including ISO 9001:2008 (quality), ISO 14001:2004 (environment), OHSAS 18001:2007 (health and safety), as well as ISM (international safety code) and ISPS (international ship and port facility security code). The Company is also registered in the FPAL and Achilles supplier management information systems. The working environment is good. The Board and the management continue to focus on equal positions and opportunities for men and women among its employees and Board members. 38% and 22%

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of the employees in the Company and the Group, respectively, are women. Three of ten members of the senior management team are women. Three of seven Board members elected by the shareholders at the Ordinary General Meetings in 2010 were women. The Company strives to ensure that there is no discrimination due to ethnicity, national origin, descent, race, religion or functional disability. Currently, the Company has not implemented any specific measures in order to meet the objective of the Discrimination Act and of the Anti-discrimination and Accessibility Act. The need for specific measures in this respect is continuously considered by the Board of Directors, the management and the HR function. The Company aims at maintaining sound corporate governance routines that provide the basis for long-term value creation, to the benefit of shareholders, employees, other interested parties and the society at large. As a guiding basis for its conduct of corporate governance, the Company uses the national Norwegian Code of Practice for Corporate Governance of 2010. The status of corporate governance is addressed in a separate section of the English language annual financial report. During 2010, the number of employees increased from 404 to 506.

The Board of Directors May Britt Myhr resigned from the Board of Directors in October 2010. Mai-Lill Ibsen resigned from the Board of Directors in February 2011. Supplementary election will take place at the next Ordinary General Meeting.



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Management In connection to the IPO of the Company’s drilling business, Jan Erik Tveteraas, the current CEO Sevan Marine, will assume the position as CEO of Sevan Drilling ASA as from the first day of listing. Jon Wilmann, Vice President Drilling Sevan Marine, will assume the position of CFO. Sevan Marine is in the process of selecting a successor for Mr. Tveteraas.

Outlook The market outlook for deep water drilling and floating production continues to strengthen. The Company targets to strengthen its balance sheet during 2011. The planned IPO for the ultra deep water drilling business will be positive for the Group in such respect. The IPO will strengthen the balance sheet in Sevan Marine ASA and thereby improve its growth potential as well as positioning the drilling business for further growth. Furthermore, creating a focused ultra deepwater drilling company will increase the visibility of the value and versatility of the Sevan design. The Board would like to thank the employees for the great efforts and achievements during a challenging year.

Annual Results and Year-End Appropriations The Board proposes the following appropriation of the annual loss of USD 168,875,000 in the parent company Sevan Marine ASA: Loss transferred from other equity: Total appropriation:

USD 168,875,000 USD 168,875,000

The Company had unrestricted equity of USD 121,051,000 as of December 31, 2010.

Arendal, March 30, 2011 The Board of Directors of Sevan Marine ASA

_______________________ Arne Smedal Chairman

_______________________ Hilde Drønen Deputy Chairman

_______________________ Kåre Syvertsen Board member

_______________________ Aasulv Tveitereid Board member

_______________________ Stephan M. Zeppelin Board member

_______________________ Jorunn Haugen Employee representative

_______________________ Jørgen Skotnes Emloyee representative

_______________________ Jan Erik Tveteraas CEO

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Statement regarding Establishment of Salary and other Benefits for Senior Management Pursuant to § 6-16a of the Public Limited Liability Companies Act, the Board of Directors shall prepare a specific statement on the establishment of salary and other benefits to Senior Management. It is further stated in § 5-6 (3) of the Public Limited Liability Companies Act that an advisory voting shall be held at the Annual General Meeting regarding the Board of Directors’ guidelines for determining remuneration of Senior Management for the next accounting year (ref. (ii) below). To the extent the guidelines are linked to share-based incentive schemes, they will also be subject to approval by the General Meeting (ref. (iii) below).

(i) Remuneration and other Benefits to Senior Management for the Previous Accounting Year The Board of Directors adopts the terms and conditions for the CEO, as well as the principal resolutions regarding the Group’s remuneration policy and benefit schemes for all employees.

Information Regarding Senior Management Senior Management includes the following employees: Jan Erik Tveteraas, CEO Oskar Mykland, CFO Birte Norheim, Vice President Finance Erling Andreas Ronglan, Vice President Floating Production Fredrik Major, Vice President Business Development/R&D Helle Hundseid, Vice President Projects Hanna Moland, Vice President HR & Administration Morten Martens Breivik, Vice President QHSE Jon Helge Wilmann, Vice President Drilling Alf-Roger Skikstein, Vice President Engineering

Salary and Payment-in-Kind The main objective of the Company’s remuneration policy for Senior Management is to provide a framework for remuneration, contribute to the recruitment of senior personnel with the required skills and secure relevant development of expertise. In addition to the base salary, Senior Management participates in the Group’s bonus and stock option schemes along with other key employees. The compensation package for the CEO and Senior Management may also include a company car arrangement, newspapers, mobile phone and refund of expenses for internet subscription, all in accordance with common market practice. Senior Management further participates in the Group’s collective pension and insurance schemes along with all employees in the Group. The Board of Directors may grant loans from the Company to key employees. Satisfactory security arrangements shall be provided and the interest rate shall correspond to the current standard interest rate for loans granted to employees. The Company’s remuneration policy is based on defined roles and responsibilities, clear goals and key performance indicators, combined with evaluation of results and achievements. The total compensation package shall as a guideline be at a level that corresponds to the market median in the different markets and industries in which the Group operates. The annual wage and base salary adjustment takes place on July 1, and shall be based on the general development of wages in the market and relevant industries, combined with an evaluation of the previous year’s achievements and results. Any individual salary adjustment shall be based on the annual performance appraisal.

Bonus Scheme and Performance Incentives Remuneration of Senior Management for the accounting year 2010 is disclosed in Note 20 of the consolidated financial statements. The CEO will receive 6-24 months’ salary upon termination of employment, dependant on fulfillment of certain conditions. The guidelines for determination of remuneration of Senior Management and the allotment of options were discussed at the Annual General Meeting in May 2010. The Board of Directors has not deviated from these guidelines for the accounting year 2010.

(ii) Remuneration and other Benefits to Senior Management for the Next Accounting Year For advisory voting at the Annual General Meeting in 2011, the Board of Directors will present the following guidelines for determination of remuneration and other compensation to Senior Management for the next accounting year:

The Group’s and the business areas’ financial and non-financial results, shall form the basis for the collective bonus scheme. A bonus scheme tied to individual performance and results is also established for key employees. The collective and individual bonus schemes may in total constitute up to 20-50% of the base salary. Bonus may be paid annually, based on a performance appraisal of results and achievement and subject to approval by the Board of Directors The Board of Directors’ intention with the bonus scheme is to align objectives of the Company and the employees through increasing motivation, enthusiasm and team spirit in the organization, as well as rewarding strong leadership and cooperation across departments and disciplines. The Board of Directors may grant key employees a stay-on bonus measured over a three year period with a maximum payment of up to 20% of the base salary per year in the bonus period.

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Consequences for the Company and the Shareholders The Board of Directors has confidence in the employees and their motivation and capacity to contribute to the Company’s results. The Board of Directors is of the opinion that the Company’s future success to a high degree depends on highly motivated, qualified and competent staff. A well defined compensation program enables the Company to remain competitive. Remuneration of employees is considered an essential contributor to the strategy of creating shareholder value.

(iii) Particulars on Share-Related Incentive Schemes

Stock Option Scheme The Board of Directors proposes to continue the stock option scheme. The Company uses stock options as part of its compensation package for key employees. The general framework for the



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option scheme, including the number of options that may be awarded, is presented to the Annual General Meeting for approval every year. The number of stock options awarded shall not exceed 3-5% of the outstanding shares. The exercise price for stock options shall minimum correspond to the market price at the date of award. Within this framework, the Board of Directors is authorized to award options to key employees.

Bonus Linked to the Development in the Share Price The Board of Directors may grant key employees a bonus linked to the development of the price of the Company’s shares during a period of at least three years. The bonus amount shall not exceed 50% of the annual base salary. Within this framework, the Board of Directors is authorized to grant a bonus linked to the development of the Company’s share price to key employees.

Arendal, March 30, 2011 The Board of Directors of Sevan Marine ASA

_______________________ Arne Smedal Chairman

_______________________ Hilde Drønen Deputy Chairman

_______________________ Kåre Syvertsen Board member

_______________________ Aasulv Tveitereid Board member

_______________________ Stephan M. Zeppelin Board member

_______________________ Jorunn Haugen Employee representative

_______________________ Jørgen Skotnes Emloyee representative

_______________________ Jan Erik Tveteraas CEO

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The Board of Directors Arne Smedal (1947) Chairman Mr. Smedal has served as a member of the Board of Directors since the Company’s inception in 2001. Mr. Smedal holds an MSc in hydrodynamics from the Norwegian Institute of Technology (NTNU) in Trondheim. Mr. Smedal has previous experience as President and CEO of Navis ASA from 1997 to 2001; Executive Vice President of Hitec ASA from 1996 to 1997; founder and President of Marine Consulting Group and Advanced Production and Loading (APL) from 1989 to 1996; as well as various positions, incl. Project Manager, VP marketing and President, at Pusnes from 1979 to 1988; and Det Norske Veritas (DNV) from 1974 to 1979. Mr. Smedal has served as Board member of various companies within the shipping and electronics industries and is a Norwegian citizen with residence in Arendal, Norway.

Kåre Syvertsen (1950) Board member and Group Manager Technology Mr. Syvertsen has served as a member of the Board of Directors since the Company’s inception in 2001. Mr. Syvertsen holds an MSc in naval architecture from the Norwegian Institute of Technology (NTNU) in Trondheim. Mr. Syvertsen has previous experience as Vice President Technology of Navis from 1997 to 2001; Vice President Technology of Advanced Production and Loading (APL) from 1994 to 1997; Project Manager of Marine Consulting Group from 1990 to 1994; and Ass. Professor in Marine Technology at the Norwegian Institute of Technology (NTNU), Trondheim, from 1976 to 1990. Mr. Syvertsen is a Norwegian citizen with residence in Kristiansand, Norway.

Stephan M. Zeppelin (1974) Board member Mr. Zeppelin has served as a member of the Board of Directors since 2007. Mr. Zeppelin holds a Bachelor of Science degree in Business Administration with emphasis on finance from the University of Colorado, Leeds School of Business (1997). Mr. Zeppelin joined International Value Advisers in 2010 and has previous experience as Vice President of Wexford Capital LLC focusing on oil services, shipping and shipbuilding from 2004 to 2009; as Analyst/Associate at Bear Stearns & Co., New York, from 2000 to 2004; as Associate at Globecon Group Ltd, New York, from 1999 to 2000; and as Associate at Bankers Trust, New York, from 1998 to 1999. Mr. Zeppelin is a U.S. citizen with residence in CT, USA.

Hilde Drønen (1961) Deputy Chairman Mrs. Drønen has served as a member of the Board of Directors since 2006 and as Chairman of the Audit Committee since 2008. Mrs. Drønen holds a Business Administration degree from the Norwegian School of Management (BI) and is currently CFO of DOF ASA and has extensive experience from the offshore sector. Mrs. Drønen is represented in several other Boards of Directors; including the Board of Directors of DOF Subsea AS. Mrs. Drønen is a Norwegian citizen with residence in Bekkjarvik, Norway. Aasulv Tveitereid (1973) Board member Mr. Tveitereid has served as a member of the Board of Directors since 2010 and as a member of the Audit Committee since 2010. Mr. Tveitereid holds a degree from the Norwegian school of Economics and Business Administration (NHH) in Bergen. Mr. Tveitereid has 10 years experience as Oil & Oil Service Research Analyst in SEB Enskilda. Since 2008 he has been managing his own investment company; AAT Invest. Tveitereid is also a member of the Board of Noreco ASA. Mr. Tveitereid is a Norwegian citizen with residence in Oslo, Norway. Jørgen Skotnes (1971) Employee representative of the Board and Senior Structural Engineer Mr. Skotnes has served as a member of the Board of Directors since 2009. Mr. Skotnes holds a B.eng (Hons) in Naval Architecture and Offshore Engineering from University of Strathclyde, Glasgow from 1999. Mr. Skotnes has previous experience from working with oil, chemical and gas carriers with Det Norske Veritas AS from 2002-2007; Hitec Framnæs from 2001-2002; Cammell Laird from 1999-2001. Mr. Skotnes is a Norwegian citizen with residence in Revetal, Norway. Jorunn Haugen (1966) Employee representative of the Board and HR Coordinator Mrs. Haugen has served as a member of the Board of Directors since 2009. Mrs. Haugen holds a degree in Administration and Management from Høgskolen i Nord-Trøndelag. Mrs. Haugen has previous experience within the offshore industry from The Ugland Group from 1987 to 1995; Det Søndenfjeldsnorske Dampskibsselskap (DSND) from 1995 to 2002; Subsea 7 from 2002 to 2004; Atlantis Deepwater Technology AS from 2004 to 2005; and Aker Pusnes from 2006 to 2007. Mrs. Haugen has also worked as Lecturer at Folkeuniversitetet in Arendal from 2005 to 2006. Mrs. Haugen is a Norwegian citizen with residence in Arendal, Norway.

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Board of Directors’ Statement on Policy for Corporate Governance Corporate Governance in Sevan Marine Sevan Marine shall be managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. The Company follows the Norwegian Code of Practice for Corporate Governance (as amended on October 21, 2010). The management and Board of Directors annually review the principles for corporate governance and how they are implemented in the Group. The description below accounts for the Company’s compliance with the Norwegian Code of Practice.

Business Sevan Marine’s vision is to be a world-class company in the technologically challenging segments of the offshore market. The Company shall utilize its competitive advantages within design, engineering, project execution and operations to offer cost-efficient and innovative products and solutions to its clients, based on the proprietary Sevan design. The Company shall aim at maintaining a local presence in international markets. Growth is to be achieved mainly through organic development and partnership arrangements. The Board of Directors is of the opinion that the business objectives laid down in the Company’s Articles of Association provide predictability and direction for the Company’s business strategy and the activities that it may acquire or initiate. The Company’s Articles of Association is posted at the corporate website.

Ethics and Social Responsibility Policy Sevan Marine is committed to high ethical standards in its business dealings to ensure that the integrity of employees and the organization is maintained. Corporate social responsibility for Sevan Marine is an extension of the way the Company conducts its business. The Company’s ethics policy and social responsibility policy is posted at the corporate website.

Company’s share price based on the market’s valuation of existing and future earnings. At the Ordinary General Meeting on May 31, 2010, the shareholders, as proposed by the Board of Directors, granted the Board of Directors the authorizations described below. The authorizations are valid for a period ending at the next Ordinary General Meeting (in 2011), with exception of the authorization to issue share options and new shares to employees. The deviation from the Norwegian Code of Practice for Corporate Governance in respect of the authorization to issue new shares to employees for a period beyond the next Ordinary General Meeting is explained below. The authorizations granted to the Board of Directors during 2010 were restricted to defined purposes. The full details of the authorizations are set out in the minutes from the meeting which are available at the corporate website. - New shares, financing The Board of Directors was authorized to issue up to 52,606,998 new shares to part finance capital requirements of the Company, including capital requirements relating to engineering, construction, equipment and/or operations of Sevan units and acquisition of enterprises. - Share options and new shares to employees The Board of Directors was authorized to award up to 6,325,000 share options until the next Ordinary General Meeting and to issue up to 26,185,487 new shares in connection with exercise of awarded stock options and bonus programme. The authorization to issue the new shares is effective for the maximum statutory period of two years and is not limited to the time of the next Ordinary General Meeting. This is because the rights granted under the employee stock option programme are effective also for the period following the next Ordinary General Meeting. - Treasury shares The Board of Directors was authorized to acquire up to 52,606,998 treasury shares.

Equity and Dividend The Company shall aim at establishing a sound financial structure, reflecting the capital intensive nature of its business, the offshore market fluctuations and the duration of the contract portfolio for the fleet. In this respect, the Company shall ensure that its equity basis is sufficient. At December 31, 2010, the Group had total equity of 809 million. The Board of Directors continually reviews the capital situation in light of the Company’s targets, strategies and risk profile. The Company shall provide its shareholders with a competitive return on investment over time. The Company’s target is that the underlying values shall be reflected in the share price. Long-term, the Company shall aim at paying a dividend to its shareholders on a regular basis. Near-term, the Company’s focus will be on expanding the fleet of units based on the proprietary Sevan design and on growth in the

- Convertible loans The Board of Directors was authorized to obtain convertible loans in the aggregate amount of up to USD 200,000,000 which can be converted into up to 52,606,998 shares.

Equal Treatment of Shareholders and Transactions with Close Associates The Company has only one class of shares and each share entitles the holder to one vote at General Meetings. Transactions with close associates shall be on arm’s-length basis and always in compliance with the Norwegian Public Limited Companies Act. The Company did not issue any new shares during the year ended December 31, 2010. No derogations from the pre-emptive rights of

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the existing shareholders of the Company were made during the year.

Freely Negotiable Shares The Company’s shares are listed on Oslo Børs and are freely negotiable.

General Meetings The General Meeting is the Company’s supreme corporate body. It elects the Board of Directors and the auditor and is the forum for presentation and discussion of other issues of general interest to shareholders. Every shareholder of the Company has the right to attend the General Meetings. The date of the Ordinary General Meeting is published as a part of the Financial Calendar for the year, which is posted at the corporate website. Notice of the General Meetings shall be sent to shareholders no later than 21 days before the meeting is to be held; however at the Ordinary General Meeting held on May 31, 2010, a resolution was passed pursuant to which the Board of Directors could – until the next Ordinary General Meeting (in 2011) – resolve to send notice for Extraordinary General Meetings at the latest two weeks in advance of the meeting. This resolution was passed in order to give the Board of Directors the flexibility to – on a case-by-case basis – call for Extraordinary General Meetings at shorter notice than what would otherwise be required under the Norwegian Public Limited Liability Companies Act, should it be in the best interest of the Company. The Articles of Association stipulate that documents that are to be considered at a General Meeting may be published on the corporate website instead of being enclosed to the notice of the meeting. This also applies to documents which by law must be attached to the notice of the General Meeting. Individual shareholders are nonetheless entitled to have the documents sent to them free of charge, upon request to the Company. General Meetings of the Company may be held in Arendal or Oslo. Attendance forms may be sent to the Company until the day before the General Meeting in order to enable as many shareholders as possible to attend. If any shareholder is unable to attend, he or she may attend by proxy. The minutes from the General Meeting are published as soon as possible at the corporate website.

Nomination Committee A Nomination Committee, which works under the mandate and authority of the General Meeting, makes preparations and recommends candidates for the General Meeting’s election of the Board members, as well as proposes the remuneration of the Board of Directors. Pursuant to the Articles of Association, the Nomination Committee consists of the Chairman of the Board of Directors and two

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members elected by the General Meeting. The members elected by the General Meeting are appointed for two years. Currently, the Nomination Committee consists of Arne Smedal (in capacity of being the Chairman of the Board of Directors), Mimi Kristine Berdal, and Christel Borge. The Board of Directors has considered the current arrangement whereby the Chairman of the Board shall be one of the three members of the Nomination Committee. The Board of Directors was of the view that this alternative is in the best interest of the Company and the shareholders in general. The Board of Directors will address this issue in its annual evaluation of performance and expertise and continue to obtain and consider the views of the Nomination Committee. The report of the Board of Directors’ evaluation of performance and expertise is made available to the Nomination Committee. The Chairman of the Board, Arne Smedal, has desisted from participating in the process of nominating the Chairman of the Board of Directors for the recommendation published by the Nomination Committee for the Ordinary General Meeting in 2011. Mimi Kristine Berdal works as a lawyer in private practice. Christel Borge is a business and management graduate and works with strategic development at the Telenor group. Prior to the General Meeting, the Nomination Committee provides contact information for its members and any deadlines for submitting proposals to the committee at the corporate website.

Corporate Assembly and Board of Directors As of today, the Company is not required to have a Corporate Assembly. The Company’s Board of Directors shall, pursuant to the Articles of Association, consist of five to nine members. Two members shall be elected by and amongst the employees in the Group and the remaining members shall be elected by the General Meeting. The Chairman of the Board is appointed by the General Meeting. During 2010, the Board of Directors has consisted of up to nine members (seven elected by the General Meeting and two by and amongst the employees). One of the Directors – May Britt Myhr – withdrew from her position during the year (in October) and – Mai-Lill Ibsen withdrew from her position in February 2011. The Board of Directors decided to postpone the supplementary elections until the next Ordinary General Meeting (in 2011), as it still constituted a quorum, cf. § 6-8 of the Public Limited Liability Companies Act. No further changes to the composition of the Board of Directors have taken place since the Ordinary General Meeting in 2010. Biographical information on each Director is outlined on page “The Board of Directors” on page 11 of the 2010 Annual Report and at the corporate website.

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The Composition of the Board of Directors Since the Ordinary General Meeting in 2010 and Until December 31, 2010: Arne Smedal Chairman (15 meetings) Hilde Drønen Deputy Chairman (12 meetings) Stephan M. Zeppelin Board member (14 meetings) Kåre Syvertsen Board member (15 meetings) Mai-Lill Ibsen Board member (15 meetings) May Britt Myhr Board member (until Oct. 21, 2010) (2 meetings) Board member (15 meetings) Aasulv Tveitereid Jørgen Skotnes Employee representative (15 meetings) Jorunn Haugen Employee representative (15 meetings) All Directors elected by the shareholders are deemed to be independent of the Company’s main shareholders and material business contacts. Five out of seven Directors elected by the shareholders are deemed independent of the Company’s Senior Management. Smedal and Syvertsen are not deemed independent due their employment with and engagements for the Company.

The Work of the Board of Directors The Board of Directors is ultimately responsible for administering the Company’s affairs and for ensuring that the Company’s operations are organized in a satisfactory manner. Moreover, the Board is responsible for establishing supervisory systems and for overseeing that the business is run in accordance with the Company’s core values and ethical guidelines. The Board of Directors meets minimum six times a year and more frequently if required. A total of 24 Board meetings (including those by means telephone conferences) have been held in the course of the year ended December 31, 2010. The overview above shows the composition of the Board of Directors since the Ordinary General Meeting in 2010 and additionally includes information on the number of meetings for which each Director has participated.

Audit Committee The Board of Directors has established an Audit Committee. Since the Ordinary General Meeting in 2010, the Audit Committee has consisted of Board member, Aasulv Tveitereid, and Deputy Chairman, Hilde Drønen. The Audit Committee assists the Board of Directors in matters relating to the integrity of the Company’s financial statements, financial reporting processes and internal controls, and the qualifications, independence and performance of the external auditor. The members of the Audit Committee receive additional remuneration for duties relating to the committee responsibilities. Such remuneration is approved by the Ordinary General Meeting.

Risk Management and Internal Control The Board of Directors shall ensure that the Company has good internal control functions and appropriate systems for risk management tailored to its operations and in accordance with the Company’s

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core values, ethical guidelines and social responsibility policy. A review of the Company’s most important risk areas and its internal control functions is conducted by the Board on an annual basis. The Group’s activities expose it to a variety of risks; including market risks, financial risks and operational risks. The Group’s overall risk management programme seeks to minimize the potential adverse effects on the Group’s financial performance likely to be caused by its exposure to such risk factors, including but not limited to the use of derivative financial instruments and development of sound health, safety and environment (HSE) principles as well as prudent monitoring of constructional and operational activities.

Remuneration of the Board of Directors The remuneration of the Board of Directors is determined on a yearly basis by the Ordinary General Meeting. The Directors may also be reimbursed for travelling, hotel and other expenses incurred by them in attending Board meetings or in connection with the business of the Company. Remuneration of the Board of Directors, as proposed by the Nomination Committee and approved by the Ordinary General Meeting, is not linked to the Company’s performance nor based on stock options. At the Company’s Ordinary General Meeting in May 2010, the remuneration of the Board of Directors for the financial year 2009 was set to NOK 400,000 for the Chairman, NOK 265,000 for the Deputy Chairman and NOK 250,000 for each of the Board members. Remuneration of each of the Employee representatives was set to NOK 125,000 with equivalent amounts reserved in an ‘Employee Benefit Fund’ to benefit employees in the Group. The members of the Audit Committee received additional remuneration (NOK 60,000 to Hilde Drønen and NOK 30,000 to each of Stephan Zeppelin and Vibeke Strømme). The Board of Directors has authorized that, in principal, stock options may be awarded to the Directors Arne Smedal and Kåre Syvertsen due to their other engagements for the Company. On May 5, 2010, Arne Smedal was granted 2,000,000 stock options, and Kåre Syvertsen 1,000,000 stock options, pursuant to, and in accordance with, an authorization granted to the Board of Directors at the Ordinary General Meeting in 2009. The options have an exercise price of NOK 8.81; equal to the closing price for the share at the date of the award. The share options may be exercised with one third after one, two and three years respectively, and expire after five years. A Director who has been given a special assignment, besides his or her normal duties as a Director, in relation to the business of the Company, may be paid such additional remuneration as the Board of Directors may determine.

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Remuneration of the Senior Management The Board of Directors has established guidelines for the remuneration of Senior Management. These guidelines are presented to and approved by the Ordinary General Meeting and are described in the ‘Statement Regarding Establishment of Salary and Other Benefits for Senior Management’ which is included on page “Board of Directors’ Statement on Policy for Corporate Governance” on page 12 of the 2010 Annual Report.

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symbols have been established to identify issuers working professionally and systematically to make financial information readily available to investors and other market players, both nationally and internationally. The Company’s Financial Calendar is available at the corporate website. Shareholder information is published at the website as well as sent directly to email-subscribers.

Information and Communication

Takeovers

The Board of Directors has established guidelines for the Company’s reporting of financial and other information based on openness and taking into account the requirements for equal treatment of all participants in the securities market.

The Board of Directors will handle any possible takeover in accordance with Norwegian corporate law. There are no mechanisms against takeover bids in the Articles of Association or in any underlying steering document, nor are any measures to limit the opportunity to acquire shares in the Company implemented. The Board of Directors will not seek to hinder or obstruct an offer for the Company’s activities or shares unless there are particular reasons for this. The Board of Directors has otherwise so far chosen not to publish any explicit guiding principles for how it will act in the event of a takeover bid.

In order to ensure equal treatment of its shareholders, an important aim is to make sure that the securities market is in possession of correct, clear and timely information about the Company’s operations and condition at all times. This is essential for an efficient pricing of the shares and bonds and for the market’s confidence in the Company.

Auditor Approaches taken to meet this aim include timely and comprehensive reporting of the Company’s interim results and publication of the annual and quarterly financial reports. In addition, information of significance for assessing the Company’s underlying value and prospects is reported through Oslo Børs and are made available at the corporate website as well as distributed to email-subscribers. Further details, such as contact details and general updates and news about the Company, are available at the corporate website. The Company will also strive to ensure that its progress is monitored by securities analysts. The Company has established a designated Investor Relations position for relations with shareholders, bondholders, Oslo Børs, analysts and investors in general. The Company shall seek to clearly communicate its long-term potential, including its strategy, value drivers and risk factors. The Company shall maintain an open and proactive investor relations policy, a best practice website and shall give presentations regularly in connection with interim financial reports. Sevan Marine has been awarded the Oslo Børs’ Information and English symbols. These

The Board of Directors has established an Audit Committee. The auditor participates in relevant agenda items at meetings with the Audit Committee and meets with the committee at least once each year. In addition, and at least once a year, the Audit Committee meets with the auditor without any member of the Company being present. The auditor annually reports the main features of the plan for the audit to the Audit Committee. Once a year, the auditor presents a review of the Company’s internal control procedures, including identifying weaknesses and proposals for improvement. The auditor presents the view on internal control procedures through the annual management letter. In connection with the issue of the auditor’s report, the auditor provides the Board of Directors with a declaration of independence and objectivity, and the auditor participates in the Board meeting at which the annual accounts are approved. The proposal for approval of the remuneration of the auditor provides a breakdown of remuneration relating to statutory audit tasks and other assignments and is reported to the Ordinary General Meeting.

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Senior Management Jan Erik Tveteraas (1960) CEO Mr. Tveteraas holds an MBA from Norwegian School of Economics and Administration (NHH) in Bergen. Mr. Tveteraas has been the Company’s CEO since its inception in 2001 and has previous experience as Chief Financial Officer of Navis from 1998 to 2001; Vice President Corporate Planning of Sonat Offshore (Transocean Offshore), Houston, from 1996 to 1998; and Chief Financial Officer in Transocean AS from 1991 to 1996. From 1985 to 1991, Mr. Tveteraas held various management positions within the offshore industry. Mr. Tveteraas is a Board member of INTSOK and a Norwegian citizen with residence in Tananger, Norway.

Oskar Mykland (1966) CFO Mr. Mykland holds a Bachelor degree in Business and Administration from BI Norwegian School of Management (BI) in Skien from 1992. Mr. Mykland has previous experience as Chief Financial Officer of Siem Offshore from 2006 to 2009 and Finance Director of Viking Supply Ships AS from 1998 to 2006. From 1994 to 1998, Mr. Mykland held various management positions within the offshore industry. Mr. Mykland is a Norwegian citizen with residence in Kristiansand, Norway.

Fredrik Major (1950) Vice President Business Development/ R&D Mr. Major holds a BSc in Naval Architecture and an MSc in Computer Science from NTNU in Trondheim 1976. Mr. Major has previous experience as Vice President Business Development in Advanced Production and Loading from 1995 to 2005; Technical Director in Ericsson AS from 1994 to 1995; Founder and Managing Director of Semafor Data, later Semafor AS from 1983 to 1994 (acquired by Ericsson AS in 1994); Independent Consultant from 1979 to 1983; and Research Engineer at NSFI, The Ship Research Institute of Norway (now Marintek), from 1976 to 1979. Mr. Major is a Norwegian citizen with residence in Arendal, Norway.

Birte Norheim (1973) Vice President Finance Mrs. Norheim holds a Master of Applied Finance from Queensland University of Technology, Australia, from 2002. From 2005 to 2008, Mrs. Norheim was Group Controller for Sevan Marine ASA, and she has previous experience as Finance Analyst for MI-SWACO, Houston, from 2004 to 2005; Chief Accountant for MI-SWACO, Norway, from 2003 to 2004; and Accountant for Laerdal Medical AS from 1993 to 1999. Mrs. Norheim is a Norwegian citizen with residence in Sola, Norway.

Helle Hundseid (1965) Vice President Projects Mrs. Hundseid holds a Master of Science degree in Mechanical Engineering from NTNU from 1988. Mrs. Hundseid has 17 years experience from DNV within the onshore/offshore industry both nationally and internationally; including positions as Project Manager from 1990 to 2006; Section Leader for Safety from 1998 to 2002; Service Area Leader Norway from 2002 to 2004; Market Sector Leader - Upstream from 2004 to 2006; and Customer Service Manager from 2002 to 2006. Mrs. Hundseid has experience from several Boards of Directors and is a Norwegian citizen with residence in Asker, Norway.

Erling Andreas Ronglan (1969) Vice President Floating Production Mr. Ronglan holds an MSc from the Norwegian Institute of Technology, Faculty of Marine Technology. Mr. Ronglan has previous experience as Operations Manager for FPSO “Petrojarl I”, PGS Production AS since 2001; Operations Engineer for PGS Production AS from 1999 to 2001, Customer Service Manager for DNV Oslo from 1997 to 1999. Mr Ronglan is a Norwegian citizen with residence in Trondheim, Norway.

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Hanna Moland (1955) Vice President HR & Administration Mrs. Moland has previous experience as Administrative Services Manager, Advanced Production and Loading AS from 2003 to 2005; Human Resource Manager, Advanced Production and Loading AS from 2002 to 2003; and various positions within Hitec Marine AS from 1993 to 2002. Mrs. Moland is a Norwegian citizen with residence in Vegardshei, Norway.

Alf-Roger Skikstein (1963) Vice President Engineering Mr. Skikstein holds a degree in Subsea Systems from Kongsberg College of Engineering from 1987 and in Mechanical Engineering from Trondheim College of Engineering from 1986. From 2007 to 2010 Mr. Skikstein was Process Department Manager for Sevan Marine ASA. Mr. Skikstein has previous experience as Project Manager for KANFA AS, from 2000 to 2007; Manager - Oil and Gas Department for Kværner Process Systems a.s., from 1999 to 2000; Manager - Project Department for Kværner Process Systems a. s., from 1997 to 1999; Mechanical Engineer and Project Manager for Kværner Process Systems a.s., from 1990 to 1996; Mechanical Engineer for Read Process Engineering A/S, from 1987 to 1990. Mr. Skikstein is a Norwegian citizen with residence in Asker, Norway.

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Morten Martens Breivik (1969) Vice President QHSE Mr. Breivik holds a degree in Master Mariner and a Bachelor BA from Stord/ Haugesund University College and a Bachelor degree in Asset Management from Sør-Trøndelag University College. Mr. Breivik joined Sevan in 2007 and has previous experience as QHSE Manager in APL ASA from 2005 to 2007; and as Marine Superintendant in Hydro O&G from 2002 to 2005. From 1996 to 2002, Mr. Breivik held various management positions in operations in Smedvig Offshore. Mr. Breivik is a Norwegian citizen with residence in Arendal, Norway. Jon Helge Wilmann (1961) Vice President Drilling Mr. Wilmann holds an MBA from Mr. Wilmann holds an MBA from Norwegian school of Economics and Administration (NHH) in Bergen from 1985. Mr. Wilmann has previous experience as Managing Director and Head of Offshore Oil & Gas Financing in GE Transportation Finance (GE Capital) from 2002 to 2009; Senior Vice President Offshore Oil & Gas Financing in ABB Financial Services from 1998 to 2002; and Deputy General Manager Corporate Division in DnB NOR in Oslo and Luxembourg from 1985 to 1998. Mr. Wilmann is a Norwegian citizen with residence in Oslo, Norway.

Senior Management - Subsidiaries Aslak Hjelde (1953) Managing Director KANFA AS Mr Hjelde holds a degree in Mechanical engineering from 1979 and a degree in Economics from 1984. Mr. Hjelde has previous experience from Kongsberg Våpenfabrikk, Consultas Engineering, SB Verksted and Kvaerner Process Systems as designer, technical director, QA responsible, project manager and sales director. Mr. Hjelde is a Norwegian citizen with residence in Hokksund, Norway.

Heitor Gioppo (1959) President Sevan Brasil Mr. Gioppo holds a B.Sc. in Mechanical Engineering from Paraná Federal University in Brazil from 1981 and an MBA from Fundação Getulio Vargas FGV from 2001. From 2006 to 2008, Mr. Gioppo was General Manager for Sevan Piranema and from 2008 to 2010 he was Operations Director for Sevan Marine’s operations in Brazil. Mr. Gioppo also has previous experience as Project Manager for Schlumberger, from 1998 to 2005; and from various roles at Odebrecht, including Rig Superintendent, from 1982 to 1998. Mr. Gioppo is a Brazilian citizen with residence in Rio de Janeiro, Brazil.

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Consolidated Balance Sheet

Figures in USD 1,000 Note 2010 2009 ASSETS Non-current assets Sevan capital assets 6 2,145,614 1,904,282 Other fixed assets 6 38,691 48,918 Intangible assets 7 13,641 14,691 Investments in associates 8 1,148 1,406 Deferred income tax assets 16 124,062 109,087 33 76,101 31,801 Other non-current assets 2,399,257 2,110,184 Total non-current assets Current assets Inventories 32 14,507 21,306 Trade and other receivables 10,19 57,203 54,228 Derivative financial instruments 9 287 56 Cash and cash equivalents 11 116,140 163,019 Total current assets 188,136 238,609 Total assets 2,587,393 2,348,792 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 12 16,633 16,633 Other equity 791,457 957,913 Total shareholders’ equity 808,091 974,546 Non-controlling interest 729 37,969 Total equity 808,819 1,012,515 LIABILITIES Non-current liabilities Interest-bearing debt 15 1,245,604 85,868 17 1,938 1,708 Retirement benefit obligations 16 1,829 2,565 Deferred income tax liabilities 1,249,371 90,141 Total non-current liabilities Current liabilities Interest-bearing debt 15 188,000 1,103,005 Derivative financial instruments 9 28 0 Trade payables 14 248,985 100,345 Provisions 18 8,083 11,818 Other current liabilities 14,19 84,107 30,968 Total current liabilities 529,204 1,246,136 Total liabilities 1,778,574 1,336,277 Total equity and liabilities 2,587,393 2,348,792

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Consolidated Income Statement

Figures in USD 1,000 Note 2010 2009 Operating revenue 5,19 255,907 194,824 Operating expense -85,067 -117,014 Depreciation, amortization and impairment 5,6,7 -105,119 -64,697 Employee benefit expense 20 -69,908 -56,004 Other operating expense 31 -28,008 -33,520 Foreign exchange gain/(loss) related to operation -1,528 -6,654 -289,630 -277,889 Total operating expense Operating profit/(loss) -33,724 -83,065 Income from associated companies 8 13 389 Financial income 21 10,415 9,038 Financial expense 21 -145,167 -70,661 Foreign exchange gain/(loss) related to financing 30 -95 -36,045 Net financial items -134,833 -97,279 Profit/(loss) before tax -168,557 -180,344 Tax income/(expense) 22 11,709 36,931 Net profit/(loss) -156,848 -143,414 Attributable to: Equity holders of the Company -157,213 -142,793 Non-controlling interest 365 -621 Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share): - Basic 23 -0.30 -0.31 23 -0.30 -0.31 - Diluted



Arendal, March 30, 2011 The Board of Directors of Sevan Marine ASA

_______________________ Arne Smedal Chairman

_______________________ Hilde Drønen Deputy Chairman

_______________________ Kåre Syvertsen Board member

_______________________ Aasulv Tveitereid Board member

_______________________ Stephan M. Zeppelin Board member

_______________________ Jorunn Haugen Employee representative

_______________________ Jørgen Skotnes Emloyee representative

_______________________ Jan Erik Tveteraas CEO

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Consolidated Statement of Comprehensive Income Figures in USD 1,000 2010 2009 Net profit/(loss) -156,848 -143,414 Foreign currency translation 918 3,377 Comprehensive income -155,930 -140,037

Consolidated Statement of Changes in Equity Figures in USD 1,000

Attributable to equity holders of the Company Other equity

January 1, 2010

Note

Share capital

Share premium

Retained earnings

Noncontrolling interest

Total equity

12

16,633

954,132

3,782

37,969

1,012,515

-37,605

-39,000

-156,295

365

-155,930

-162,675

729

808,819

Value of share options

2,149

Purchase of non-controlling interest *

-1,395

Repayment of convertible bond

-10,916

Comprehensive income for the year December 31, 2010

2,149

12

16,633

954,132

-10,916

* During 2010, a Group subsidiary acquired the 20% equity interest in FPSO Sevan Hummingbird, previously owned by Centrica Energy Upstream, for a consideration of USD 39 million. Following the transaction, the Sevan Group became the 100% owner of the FPSO and the carrying value of the related non-controlling interest was derecognized.

Figures in USD 1,000

Attributable to equity holders of the Company Other equity

Note January 1, 2009

12

Total proceeds from share issues

Share capital

Share premium

Retained earnings

Noncontrolling interest

Total equity

6,187

562,401

131,906

38,590

739,084

10,446

407,414

417,859

-21,781

-21,781

6,099

6,099

Share issue costs Tax effect of share issue costs Expensed portion of value of share options

1,170

1,170

Convertible bond, equity portion

14,058

14,058

Tax effect of convertible bond, equity portion

-3,936

-3,936

Comprehensive income for the year December 31, 2009

12

16,633

954,132

-139,416

-621

-140,037

3,782

37,969

1,012,515

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Consolidated Cash Flow Statement Figures in USD 1,000 Note 2010 2009 Cash flows from operating activities Cash from operations 25 49,916 -29,155 Interest paid 21 -72,057 -74,118 Taxes paid 22 -4,264 -3,077 Net cash generated from operating activities -26,405 -106,350 Cash flows from investment activities Purchase of property, plant and equipment (PPE) 6 -175,634 -344,080 Acquisition of non-controlling interest -39,000 0 Purchases of intangible assets 7 -711 -555 Net cash flow from investment activities -215,345 -344,635 Cash flows from financing activities Net proceeds from issuance of ordinary shares 0 396,079 Net proceeds from interest-bearing debt 15 606,579 175,557 Repayments of interest-bearing debt 15 -414,608 -5,000 Purchase/sale of own bond loan 15 2,900 -2,900 Net cash flow from financing activities 194,871 563,736 Net cash flow for the period Cash balance at the beginning of the year 11 Cash balance at the end of the year 11

-46,879 112,751 163,019 50,268 116,140 163,019

10

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Sevan Marine group Notes to the Consolidated Financial Statement

22

Note 1 Corporate Information Sevan Marine ASA (the “Company”) and its subsidiaries (together with the Company the “Group”) are engaged in development, construction, ownership, and operation of floating production units and drilling units, which are based on the proprietary design of the Company. The Group is also developing other application types for its cylindrical Sevan hull, including floating LNG production and power plants with CO2 capture. The Company is a public limited liability company incorporated and domiciled in Norway. The address of its registered office is Kittelsbuktveien 5, 4836 Arendal. The Company’s shares are listed on the Oslo Stock Exchange. These consolidated financial statements were approved by the Board of Directors on March 30, 2011.

Overview of Group structure as of December 31, 2010:

Subsidiaries KANFA AS KANFA Mator AS KANFA Aragon AS Sevan Production Pte Ltd Sevan Marine do Brasil Ltda Sevan Piranema Servicios De Petroleo Ltda Sevan Production AS Sevan Invest AS Sevan Production General Partnership Sevan Production Services Ltd Sevan Production UK Ltd Sevan Pte Ltd Sevan Drilling AS * Sevan Drilling Rig Pte Ltd Sevan Drilling Pte Ltd Sevan 300 Pte Ltd Sevan Drilling ASA ** Sevan Holding I AS Sevan Holding II AS Sevan Holding III AS Sevan Holding IV AS Sevan Holding I Pte Ltd Sevan Holding II Pte Ltd Sevan Holding III Pte Ltd Sevan Holding IV Pte Ltd Sevan Drilling Limited Sevan Marine Servicos de Perfuracao Ltda Sevan Services AS Sevan Drilling Rig AS Sevan Drilling Rig II AS Sevan Drilling Rig IV AS Sevan Drilling Rig V AS Sevan Drilling Rig VI AS Sevan Drilling Rig VII AS Sevan Drilling Rig VIII AS Sevan Drilling Rig IX AS Sevan Drilling Rig II Pte Ltd Sevan Drilling Rig IV Pte Ltd Sevan Drilling Rig V Pte Ltd Sevan Drilling Rig VI Pte Ltd

Registered office Norway Norway Norway Singapore Brazil Brazil Norway Norway Singapore UK UK Singapore Norway Singapore Singapore Singapore Norway Norway Norway Norway Norway Singapore Singapore Singapore Singapore UK Brazil Norway Norway Norway Norway Norway Norway Norway Norway Norway Singapore Singapore Singapore Singapore

Interest held 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Equity 22,420 -516 1,163 186,910 1,758 -2,670 41,143 261,918 226,034 -35,960 -7,151 -3,525 198,129 -13,780 303,574 249,251 3,557 47,983 8,097 555 551 -3,291 -631 -65 -66 -3,992 -330 12 6 -3,974 14 13 14 14 14 10 122,935 -31 -22 -23

Profit/(loss) 2010 -273 -42 -8 -7,682 -5,726 -4,197 -10,392 -761 2,587 1,420 -674 -1,248 -8,368 -10,831 -54,144 -18,032 -800 -239 -4 -3 -3 -3,160 -631 -2 -3 -3,344 -4,129 -2 -3 -3,718 -2 -2 -2 -2 -2 -5 -2,569 -9 -9 -10

10

Sevan Marine Group Notes to the Consolidated Financial Statements

Sevan Drilling Rig VII Pte Ltd Sevan Drilling Rig VIII Pte Ltd Sevan Drilling Rig IX Pte Ltd Sevan Drilling Holding Pte Ltd Hummingbird Oil Pte Ltd

Singapore Singapore Singapore Singapore Singapore

100% 100% 100% 100% 100%

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-23 -22 -209 0 -747

23

-9 -9 -195 0 -774

* During March 2011, equity in Sevan Drilling AS was increased by conversion of debt by the Company of USD 75 million. Equity following the conversion amounted to USD 273 million. ** During March 2011, equity in Sevan Drilling ASA was increased by conversion of debt by the Company of USD 189 million. Equity following the conversion amounted to USD 193 million.

Associated Companies Registered office Interest held Equity Profit/(loss) 2010 KANFA-TEC AS Norway 49.995% 2,110 26 (Amounts in the tables above are prepared in local GAAP and presented in USD 1,000)

Note 2 Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all financial years presented. The presentation currency of the Group is USD which corresponds to the functional currency of the majority of the entities in the Group. All numbers are in USD 1,000 unless otherwise stated.

2.1 Basis of Preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union (EU) and valid as of December 31, 2010. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

2.1.1 Changes in Accounting Policy and Disclosures a) New and amended standards adopted by the Group The Group has adopted the following new and amended IFRS as of January 1, 2010: • IFRS 3 (revised), `Business combinations’, and consequential amendments to IAS 27, `Consolidated and separate financial statements’, IAS 28, `Investments in associates’, and IAS 31,

`Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed. IFRS 3 (revised) has had no impact on the current period. • IAS 27 (revised) requires the effect of all transaction with noncontrolling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in profit or loss. IAS 27 (revised) has had no impact on the current period, as none of the non-controlling interests have a deficit balance; there have been no transaction whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests. b) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the group (although they may affect the accounting for future transactions and events) • IFRIC 9, `Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess

10

Sevan Marine Group Notes to the Consolidated Financial Statements

whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the `fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety. • IAS 1 ‘Presentation of Financial Statements’ (amendment)The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. • IAS 36 (amendment) Impairment of assets, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purpose of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8. Operating segments (that is, before the aggregation of segments with similar economic characteristics). • IFRS 2 (amendments) Group cash-settled share-based payments transactions, effective from 1 January 2010. In addition to incorporating IFRIC 8, Scope of IFRS 2, and IFRIC 11, IFRS 2 Group treasury share transactions, the amendments expand on the guidance in IFRC 11 to address the classification of group arrangements that were not covered by that interpretation. • IFRS 5 (amendment) Noncurrent assets held for sale and discontinued operation. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group • IFRS 9, `Financial instruments’, issued in November 2009. This standard is the first step in the process to replace IAS 39, `Financial instruments: recognition and measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the group’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU. The adoption is not expected to have any material impact on the Group`s financial statements. • Classification of rights issues’ (amendment to IAS 32), issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights

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issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 `Accounting policies, changes in accounting estimates and errors’. The adoption is not expected to have any material impact on the Group`s financial statements. • IFRIC 19, `Extinguishing financial liabilities with equity instruments’, effective 1 July 2010. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognized in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The group will apply the interpretation from 1 January 2011, subject to endorsement by the EU. It is not expected to have any impact on the group or the parent entity’s financial statements. • Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). The amendments correct an unintended consequence of IFRIC 14, `IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognize as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The group will apply these amendments for the financial reporting period commencing on 1 January 2011.

2.2 Consolidation Subsidiaries Subsidiaries comprise all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and are de-consolidated from the date that control ceases. The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange. Acquisition-related costs are expenses as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the income statement immediately.

Sevan Marine Group Notes to the Consolidated Financial Statements

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group. Transactions and non-controlling interests The group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate. Associates Associates comprise all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Group and associates are eliminated to the extent of the Group’s ownership share in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates are changed where necessary to ensure consistency with the policies adopted by the Group.

2.3 Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to Senior Management and Board of Directors, responsible for making strategic decisions. Senior Management is responsible for allocating resources and assessing performance of the operating segments.

10

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Operating segments The Group is organized in four business areas, “Floating Production”, “Drilling”, “Topside and Process Technology”, and “Corporate”. The activities within the Floating Production segment relate to the design, engineering, construction, and operation of the Sevan platforms (FPSOs). This includes licensing of the Sevan proprietary design for floating production units. The activities within the Drilling segment relate to the design, engineering, construction and operation of the Sevan drilling units. The segment Topside and Process Technology consists of the activities of KANFA AS and subsidiaries which mainly relate to the provision of services and equipment to the processing plants of the Sevan FPSOs and external clients. The activities within Corporate relate to general administration and marketing activities including studies made for clients. Geographic perspective The Group’s operating segments operate in the global offshore market and have common marketing and Senior Management functions. Currently, the Group does not consider the business from a geographic perspective. As further units are completed and start operations, dividing business into main geographical areas will be assessed.

2.4 Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (‘the functional currency’). The consolidated financial statements are presented in USD, which is the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions (realized items) and from translation at exchange rates prevailing at balance sheet date of monetary assets and liabilities denominated in foreign currencies (unrealized items) are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges. Foreign exchange gains and losses relating to interest-bearing debt and cash and cash equivalents are presented (net) as a separate line item in the income statement within financial items. Foreign exchange gains and losses relating to operation are presented (net) as a separate line item in the income statement within operating expenses. Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows: • Assets and liabilities are translated at exchange rates prevailing at balance sheet date.

10

Sevan Marine Group Notes to the Consolidated Financial Statements

• Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at exchange rates prevailing at the dates of the transactions). • All resulting exchange differences are recognized as a separate component of equity. Upon consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5 Property, Plant and Equipment Fixed assets are stated at historic cost less accumulated depreciation. The Group has not used, and has no plans of utilizing the revaluation option in IAS 16. Depreciation is calculated using the straight-line method. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated discounted future cash flows, an impairment charge is recognized. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent cost are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement as incurred. Borrowing cost is capitalized when the cost is directly attributable to the construction of a qualifying asset. Each major component of the Sevan Capital Assets is depreciated separately when the units are available for intended use. A major component is defined as a part with a cost that is significant in relation to the total cost of the asset. An estimation of useful lives indicates an average depreciation period of 20-30 years. Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.

2.6 Construction in Progress Construction contracts are capitalized as construction in progress based on installments payable to the yard and other suppliers.

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26

Insurance and net financial expense during the construction period are capitalized as construction in progress. Cost of labor directly attributable to the construction of the Sevan units is also capitalized. Cost of training, manning and other pre-operational activities are expensed as incurred.

2.7 Construction Contracts Contract cost is recognized when incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent that contract cost incurred is likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract. When it is probable that total contract cost will exceed total contract revenue, the expected total loss is recognized as an expense immediately. The Group uses the ‘percentage of completion method’ (POC) to determine the appropriate amount to recognize in a given period. The stage of completion is estimated, using judgmental assessment, of the progress of completion of subcomponents of identified milestone deliverables in each contract up to the balance sheet date as a percentage of total identified contract milestone deliverables. The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which cost incurred plus recognized profits (less recognized losses) exceed progress billings. Progress billings not yet paid by customers and retention are included as ‘trade and other receivables’. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed cost incurred plus recognized profits (less recognized losses).

2.8 Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘investments in associates’. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Computer software Acquired computer software is capitalized on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives, ranging from three to five years. Cost associated with developing or maintaining computer software programs are recognized in the income statement as incurred. Research and Development Cost associated with research is expensed as incurred. Qualifying cost associated with development activities are capitalized and depreciated over expected useful life.

10

Sevan Marine Group Notes to the Consolidated Financial Statements

2.9 Impairment of Non-Financial Assets Assets that have an indefinite useful life are not subject to amortization but are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels at which separate cash flows are identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that has suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.10 Financial Assets The Group classifies its financial assets as fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired: Management determines the classification of its financial assets at initial recognition. Loans and receivables are measured at fair value at transaction date, subsequently remeasured at amortized cost. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are included in current assets, except for those with maturities greater than 12 months after balance sheet date, in which case they are classified as non-current assets. Derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). Hedge accounting has not been applied in 2010 or 2009.

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27

cash flows, discounted at the effective interest rate. The provision is recognized in the income statement as ‘other operating expense’.

2.13 Cash and Cash Equivalents In the consolidated statement of cash flow, cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within interest-bearing debt in the current liabilities section in the balance sheet.

2.14 Share Capital Ordinary shares are classified as equity. Incremental cost directly attributable to the issue of new shares is shown in equity as a deduction, net of tax, from the proceeds. Where any Group company acquires the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable cost (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction cost and income tax, is included in equity attributable to the Company’s equity holders.

2.15 Interest-Bearing Debt Interest-bearing debt is initially recognized at fair value, net of transaction cost incurred and including the value of any embedded call options. Interest-bearing debt is subsequently stated at amortized cost; any difference between the proceeds (net of transaction cost and embedded value of call options) and the redemption value is recognized in the income statement over the period of the interestbearing debt using the effective interest method. The value of call options embedded in bond loans are treated as separate financial assets and are initially recognized at fair value and subsequently remeasured at fair value each balance sheet date. Gains and losses are recognized in the income statement immediately. Interest-bearing debt is presented net of the separated financial asset and is classified as current liabilities unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date.

2.11 Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the average cost method.

2.12 Trade Receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as noncurrent assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future

Compound financial instruments issued by the Group comprise convertible bonds that can be converted to share capital at the option of the holder, where the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have en equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction cost is allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition except on conversion or expiry.

2.16 Current and Deferred Income Tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent

10

Sevan Marine Group Notes to the Consolidated Financial Statements

that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and legislation) that have been enacted or substantially enacted by balance sheet date and are expected to apply when the deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at foreign exchange rates prevailing at balance sheet date. Deferred income tax asset and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The Group has been granted Approved International Shipping Enterprise (AIS) status under Singapore tax law for qualifying entities and Approved Network Company (ANC) status for qualifying related entities. Under the AIS and ANC regime, income from shipping activity under the Singapore Income Tax Act Section 13 F is exempt from corporate taxation. Also, payment of charter hire to registered related entities is exempt from Singapore withholding tax and dividends from the ANC entities is tax exempt in Singapore. The AIS and ANC status is pegged to the status of the Singapore management and administration entity Sevan Production Pte Ltd. The status is granted on the basis of existing and planned activity in Singapore, including rig management, administrative activity and spending on Singapore trade infrastructure. There is regular reporting and status updates with grantor, the Maritime and Port Authority of Singapore. The AIS status applies for 10 years from 2008. Extensions may be granted.

2.17 Employee Benefits Pension obligations Group companies operate both defined benefit and defined contribution plans. The schemes are funded through payments to

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insurance companies. For defined contribution plans, the group pays contribution to privately administrated pension insurance plans. The group has no further payment obligation once the contribution has been paid. The contribution are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset in the extent that a cash refund or a reduction in the future payments is available. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates on government bonds in the currency which the benefit will be paid, and that have terms to maturity approximating to the terms of the related obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past-service cost is expensed immediately. Share-based compensation The Group operates a share-based compensation plan. In line with IFRS 2, the cost represented by the fair value at award date is expensed over the vesting period. The fair value at the date of the award is supported by a third party calculation using the Black & Scholes’ option-pricing model. Cost represented by employer’s contribution tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of the Company’s shares. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Profit-sharing and bonus plans The Group recognizes a provision where contractually obliged or where there is a constructive obligation. The provision takes into account the incurred portion of the measurement period and shall be based on a ‘best estimate’ of the expected achievements of the key performance indicators as set out in the actual bonus program.

2.18 Provisions A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated.

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Sevan Marine Group Notes to the Consolidated Financial Statements

Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured as the present value of the expected expenditures required to settle the obligation using a pre-tax discount rate that accounts for time value of money and risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

2.19 Revenue Recognition Revenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group. The group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the group’s activities as described below. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognized as follows: • Other operating revenues are recognized in line with the development of the underlying projects. • Sale of services: The group sells design and engineering services to other oil service companies and oil companies. These services are provided on a time basis or as a fixed-price-contract, with contract terms generally ranging from less than one year to three years. Revenue from services that according to the underlying contract is a fixed-price-contract is recognized under the percentage of completion (POC) method. Under the POC method, revenue is generally recognized based on the services performed to date as percentage of the total services to be performed. Reference is made to Note 2.7 for further details of accounting treatment of construction contracts. If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenue or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by management. • Interest income is recognized on a time-proportion basis using the effective interest method. • Design fee/license revenue is recognized in accordance with the substance of the relevant agreements. • Dividend income is recognized when the right to receive payment is established. • Mobilization expenses are offset by mobilization revenues and recognized using the straight line method over the full fixed term of the underlying charter contract.

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• Charter revenues are recognized on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts. • Penalties imposed as compensation to client for delivery of a unit later than contractually agreed shall be accrued for on a separate account in the balance sheet at the date the charter contract commences. If any part of the penalties is recoverable from vendors due to directly correlated delays caused by them, the penalty recoverable from the vendor shall offset the accrual of penalties payable to the client. Net accrued amount shall subsequently be amortized as a reduction of income over the fixed term of the charter contract.

2.20 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. When assets owned by the Group are leased to clients under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized in accordance with the underlying contract.

2.21 Dividend Distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividend is approved by the Company’s shareholders.

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

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Sevan Marine Group Notes to the Consolidated Financial Statements

Note 3 Financial Risk Management

3.1 Financial Risk Factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Risk management for the Group is carried out by Treasury under policies approved by the Board of Directors. Treasury identifies, evaluates and hedges financial risks in close co-operation with the operating units within the Group. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity.

3.1.1 Market Risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, USD, EURO, Reais and GBP. Foreign exchangerisk arises from future commercial transactions, recognized assets or liabilities, and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not an entity’s functional currency. The Group aims at achieving a natural hedge between cash inflows and cash outflows and manages remaining foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, by forward contracts and similar instruments as appropriate. Hedging of foreign exchange exposures are executed on a gross basis and foreign exchange contracts with third parties generally designated at Group level. The Group’s risk management policy is to hedge anticipated transactions in each major currency. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. If the NOK exchange rate was 10% stronger/weaker against the USD at balance sheet date than actual exchange rate (all other variables held constant), before-tax profit for the year would have been 42,353 (2009: 27,879) higher/lower than actual profit/(loss) before tax mainly as a result of foreign exchange gains/losses on translation of trade receivables, cash and cash equivalents and interest-bearing debt nominated in NOK. Profit/(loss) before tax was more sensitive to movements in exchange rates in 2010 than 2009 due to an increase in interest-bearing debt nominated in NOK during the year. Price risk The Group is exposed to commodity price risk at two main levels; • The demand for Sevan units is sensitive to oil price developments, fluctuations in production levels, exploration results and general activity within the oil industry. • The cost of construction of future units is sensitive to changes in market prices of the input factors.

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3.1.2 Credit Risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institution. Credit exposures to customers are mainly concentrated around the charter contracts.

3.1.3 Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available. The Group has implemented routines to continuously update its cash flow forecast when changes to main assumptions relating to repayment schedules, interest rates changes etc to be able to foresee the necessary actions to taken to rectify any potential adverse effects on its future liquidity position. Reference is made to Note 15 for a maturity analysis of the Group’s financial liabilities. During 2011, the Company targets to strengthen its balance sheet with an aim to reduce the cost of capital and to strengthen the general liquidity position of the Group. The Board has prepared a strategy in this respect where different initiatives have been identified. In March 2011, the Board filed a listing application to the Oslo Stock Exchange for an IPO for the Group’s ultra deep water drilling business. The contemplated IPO of Sevan Drilling ASA will involve a combined secondary sale of shares currently owned by Sevan Marine ASA and an equity offering of new shares to be issued by Sevan Drilling ASA. The split between primary and secondary shares offered will be set to achieve satisfactory free float, appropriate capital structure, and required proceeds for both Sevan Drilling ASA and Sevan Marine ASA.

3.1.4 Cash Flow and Fair Value Interest Rate Risk The Group’s interest rate risk arises from non-current debt. Debt subject to floating interest rates exposes the Group to cash flow interest rate risk. Debt subject to fixed interest rates exposes the Group to fair value interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s policy is to maintain part of its debt at fixed rates. The Group simulates various scenarios taking into consideration refinancing and renewal of current positions, alternative financing and hedging. Based on the different scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of conversion from floating interest rates to fixed interest rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals the difference between fixed interest rates and floating interest rates calculated by reference to the agreed notional amounts. The Group’s policy is to maintain liquidity through placement of excess cash at bank-deposits and/or short-term, marketable investments at limited risk. If interest rates during the year had been 0.1 percentage point higher/ lower than actual interest rates, the impact on profit/(loss) before tax would have been a reduction/increase of 792 (2009: 951).

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Sevan Marine Group Notes to the Consolidated Financial Statements

3.2 Fair Value Estimation

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Financial instruments measured in the balance sheet at fair value are disclosed by level of the following measurement hierarchy:

• Level 2 - Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 3 - Inputs that are not based on observable market data (that is, unobservable inputs)

The Group’s assets and liabilities which are measured at fair value: December 31, 2010 Level 1 Level 2 Level 3 Total Assets Financial assets at fair value through profit or loss - Floating-to-fixed interest rate swaps 0 287 0 287 - Forward foreign exchange contracts 0 0 0 0 - Call options bond loans 0 6,103 0 6,103 Total assets 0 6,390 0 6,390

December 31, 2010 Level 1 Level 2 Level 3 Total Liabilities Financial liabilities at fair value through profit or loss - Floating-to-fixed interest rate swaps 0 0 0 0 - Forward foreign exchange contracts 0 28 0 28 - Call options bond loans 0 0 0 0 Total liabilities 0 28 0 28

December 31, 2009 Level 1 Level 2 Level 3 Total Assets Financial assets at fair value through profit or loss - Floating-to-fixed interest rate swaps 0 0 0 0 - Forward foreign exchange contracts 0 56 0 56 - Call options bond loans 0 4,214 0 4,214 Total assets 0 4,270 0 4,270 At December 31, 2009, the Group does not have any financial liabilities at fair value through profit or loss. The fair value of financial instruments traded in active markets is based on quoted market prices at each balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on arm’s-length basis. Such instruments are classified as level 1. At balance sheet date, the Group does not have any level 1 financial instruments. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on estimates specific to the Group. If all significant inputs required to estimate the fair value of an instrument are observable, the instrument is classified as level 2. The Group uses valuation techniques in determining the fair value of forward foreign exchange contracts and call options embedded in bond loans. Assumptions in the calculations are based on market conditions prevailing at each balance sheet date. If one or more of the significant inputs is not based on observable market data, the instrument is classified as level 3. At balance sheet date, the Group does not have any level 3 financial instruments. Reference is made to Note 9 and 15 for further details of financial instruments. Fair value of bond loans is based on the market price of the bonds at balance sheet date. Reference is made to Note 15 for further details of fair value of bonds. Fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments.

Sevan Marine Group Notes to the Consolidated Financial Statements

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Note 4 Accounting Estimates and Judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are assumed to be reasonable under current circumstances.

4.1 Critical Accounting Estimates and Assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below. Estimated impairment of Sevan Capital Assets The Group has tested whether the Sevan Capital Assets have suffered any impairment, in accordance with the accounting policy stated in Note 2.5. The recoverable amounts of the assets have been determined based on value-in-use calculations. These calculations require the use of estimates. Estimated impairment of goodwill The Group annually tests whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

Commitments The Group uses estimates regarding assessment of remaining commitments. Warranties The Group uses estimates in calculating the provision for warranties to customers. Option periods for charter contracts Some charter contracts include options for the client to extend the contractual period at predefined terms. Option periods are taken into consideration when assessing value-in-use for each asset. Option periods are not included in the order back-log in Note 29. Depreciation of units in operation The Group uses estimates when assessing a Sevan capital asset’s useful life and residual value to determine the depreciation plan for each unit in operation. Approved International Shipping Enterprise (AIS) Should one or more Sevan entities leave the AIS regime by choice or because it no longer qualifies, the tax exemption will cease to apply going forward. The current tax implications of this would depend on the taxable status of each individual company. There are currently no indications of an imminent exit from the AIS regime.

4.2 Critical Judgments in Applying the Group’s Policies Income taxes The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. During the ordinary course of business, transactions and calculations occur for which the ultimate tax effect is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The accounting for deferred income tax asset relies upon management’s judgment of the Group’s ability to generate future positive taxable income in each respective jurisdiction. Revenue recognition The Group uses the percentage-of-completion method in accounting for its sales of construction contracts. Use of the percentage-ofcompletion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. This accounting methodology relies on estimates of progress, total cost, and final revenues from each contract. Share-based payment The Group uses estimates when calculating the cost of share-based payment through options. The main assumptions subject to estimates include the duration of the option and the volatility of the share price. The estimated market values are an imputed cost without any cash effect, and the offsetting entry being an increase in equity.

Assumptions applied for the purpose of impairment testing of Sevan Capital Assets include estimated WACC and expected future cash flows. Due to the inverse relationship between discount rate and net present value, a decrease in WACC will increase the net present value and an increase in WACC will decrease the net present value. An increase in estimated future cash flows will increase the net present value and a decrease in estimate expected future cash flows will decrease the net present value. Estimation of WACC is based on determination of an average WACC for the Group of 10.2% which is differentiated for specific assets if the underlying asset risk is viewed as being different to that of an average Sevan Capital Asset. Estimated WACC applied in the FPSO segment ranges between 8.5% - 10.5% for the different FPSOs. Estimated WACC applied in the Drilling segment is 10.5% for both rigs. Estimation of future cash flows is based on several assumptions, including forecasted operational expense, utilization and day rates which are based on actual contracts as well as forecasts beyond the contracted periods.

Sevan Marine Group Notes to the Consolidated Financial Statements

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Note 5 Segment Information

Operating segments considered from a business perspective The Group is organized in four business areas, “Floating Production”, “Drilling”, “Topside and Process Technology”, and “Corporate”. Determination of the operating segments based on the same grouping of activities as applied in the financial reports to Senior Management and Board of Directors, who are responsible for making the strategic decisions in the Group. Revenue in the Floating Production segment consists of the activities relating to the operation of FPSO Sevan Piranema, FPSO Sevan Hummingbird, FPSO Sevan Voyageur, hulls Sevan 300 no. 4 and 5 as well as the Goliat license contract and related services. FPSO Sevan Piranema has been operating at the Piranema field offshore Brazil under an 11 year fixed contract plus extension options for Petrobras S.A. since October 2007. FPSO Sevan Hummingbird has been operating at the Chestnut field in the UK North Sea under a 2.5 year fixed contract plus extension options for Centrica Energy Upstream (‘Centrica’) since September 2008. In September 2010, Centrica exercised a 0.5 year option, thus extending the fixed contract period until September 2011. FPSO Sevan Voyageur operated under a ‘life of field’ contract with Premier Oil and Gas Services Ltd oil at the Shelley field in the UK North Sea from August 2009 until July 2010. In November 2010, Sevan and E.ON Ruhrgas UK E&P (‘E.ON’) signed a contract for the FPSO Sevan Voyageur to operate on the Huntington field in the

UK North Sea. The contract is for a fixed term of five years plus extension options. Installation of the FPSO on the Huntington field is expected to take place in the fourth quarter of 2011 with first oil targeted for the first quarter of 2012. Prior to installation on the field, the FPSO will be upgraded with two gas compression trains for gas export and gas lift as well as an increase in the water injection system. The upgrade work commenced at the Nymo yard in Arendal in September 2010. The hulls for FPSO Sevan 300 no. 4 and 5 are currently available for potential clients. The Topside and Process Technology segment consists of the activities of KANFA AS, KANFA Aragon AS, KANFA Mator AS and KANFA-TEC AS whose primary business activities relate to the provision of services and equipment to processing plants for FPSOs. The main activities in the Drilling segment relate to the preparation for and operations of the Sevan Driller as well as to the construction of Sevan Brasil (Sevan Driller II) which commenced at the COSCO Shipyard in July 2009. Sevan Driller commenced operation offshore Brazil in June 2010 under a fixed six year contract for Petrobras S.A. Sevan Brasil is also contracted to Petrobras S.A. for a six year fixed term and is scheduled for delivery by mid-2012. The activities within Corporate segment relate to general administration and marketing activities, including studies made for clients.

Sevan Marine Group Notes to the Consolidated Financial Statements

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Segment results: Topside Floating and Process Year ended December 31, 2010 Production Technology Corporate Drilling Eliminations Group Revenue 202,248 5,864 7,156 40,639 0 255,907 Intragroup revenue 0 1,795 24,289 0 -26,084 0 Total operating revenue 202,248 7,659 31,445 40,639 -26,084 255,907 EBITDA 102,592 -820 -24,253 -4,288 -1,835 71,395 Operating profit/(loss) 44,907 -1,000 -26,863 -44,296 -6,472 -33,724 Net financial profit/(loss) -134,846 Share of profit/(loss) from associates 13 Profit/(loss) before tax -168,558 Tax income/(expense) 11,709 Net profit/(loss) -156,848 Topside Floating and Process Year ended December 31, 2009 Production Technology Corporate Drilling Eliminations Group Revenue 177,829 14,272 2,084 638 0 194,824 Intragroup revenue 1,343 1,431 23,957 10 -26,741 0 Total operating revenue 179,172 15,703 26,042 648 -26,741 194,824 EBITDA 28,804 -513 -13,958 -30,447 -2,253 -18,368 Operating profit/(loss) -28,456 -738 -17,045 -32,545 -4,281 -83,065 Net financial profit/(loss) -97,668 Share of profit/(loss) from associates 389 Profit/(loss) before tax -180,345 Tax income/(expense) 36,931 Net profit/(loss) -143,414

Specification of certain segment items included in the income statement: Topside Floating and Process Year ended December 31, 2010 Production Technology Corporate Drilling Eliminations Group Depreciation 53,385 180 900 32,223 4,636 91,324 Amortization 0 0 1,710 0 0 1,710 Impairment charge 4,300 0 0 7,785 0 12,085 Total 57,685 180 2,610 40,008 4,636 105,119 Topside Floating and Process Year ended December 31, 2009 Production Technology Corporate Drilling Eliminations Group Depreciation 52,636 225 157 541 2,028 55,588 Amortization 0 0 2,461 0 0 2,461 Impairment charge 4,624 0 468 1,557 0 6,649 Total 57,260 225 3,086 2,098 2,028 64,697

Sevan Marine Group Notes to the Consolidated Financial Statements

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Segment assets and liabilities, and yearly capital expenditure were as follows: Topside Floating and Process December 31, 2010 Production Technology Corporate Drilling Eliminations Group Assets 1,638,396 27,953 2,281,493 1,112,154 -2,473,751 2,586,245 Investment in associates 0 1,148 0 0 0 1,148 Total assets 1,638,396 29,101 2,281,493 1,112,154 -2,473,751 2,587,393 Liabilities 865,497 5,713 869,186 1,049,869 -1,011,691 1,778,574 Capital expenditures 57,116 0 1,360 278,280 -1,578 335,178 Topside Floating and Process December 31, 2009 Production Technology Corporate Drilling Eliminations Group Assets 1,333,457 28,108 1,936,670 912,838 -1,863,687 2,347,386 Investment in associates 0 1,406 0 0 0 1,406 Total assets 1,333,457 29,513 1,936,670 912,838 -1,863,687 2,348,792 Liabilities 808,957 5,246 640,121 762,452 -880,499 1,336,277 Capital expenditures 39,217 0 1,394 228,597 15,162 284,370 Segment assets consist primarily of property, plant and equipment, intangible assets (including goodwill and software) and cash and cash equivalents. Intercompany balances were not included. Segment liabilities comprise operating liabilities and non-current liabilities and exclude intercompany balances. Capital expenditures comprise additions to property, plant and equipment and intangible assets.

Operating segments considered form a geographic perspective The Group’s business segments operate in the global offshore market and have common marketing and Senior Management functions. Currently, the Group does not divide its operations into geographical segments. Accounting principles applied for segmentation are outlined in Note 2.

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Note 6 Property, Plant and Equipment

Sevan Other Total Construction in Unit in Operation Capital Fixed Fixed Progress (CIP) (UIO) Assets Assets Assets Year ended December 31, 2010 Book value January 1 894,073 1,010,209 1,904,282 48,918 1,953,200 Asset reclassified from ‘CIP’ to ‘UIO’ -646,175 646,175 0 0 0 Asset reclassified from ‘Other Fixed Assets’ to ‘UIO’ 0 7,537 7,537 -7,537 0 Additions 244,450 82,485 326,935 7,529 334,464 Disposals 0 0 0 0 0 Impairment -6,875 -910 -7,785 -4,300 -12,085 Depreciation 0 -85,355 -85,355 -5,919 -91,274 Book value December 31 485,474 1,660,141 2,145,614 38,691 2,184,305 At December 31, 2010 Cost 498,529 1,830,654 2,329,183 62,702 2,391,885 Accumulated impairment -13,056 -910 -13,966 -4,300 -18,266 Accumulated depreciation 0 -169,603 -169,603 -19,712 -189,314 Book value December 31 485,474 1,660,141 2,145,614 38,691 2,184,305 Sevan Other Total Construction in Unit in Operation Capital Fixed Fixed Progress (CIP) (UIO) Assets Assets Assets Year ended December 31, 2009 Book value January 1 658,290 1,034,668 1,692,958 38,686 1,731,644 Asset reclassified from ‘CIP’ to ‘UIO’ 0 0 0 0 0 Asset reclassified from ‘Other Fixed Assets’ to ‘UIO’ 0 0 0 0 0 Additions 241,964 26,711 268,675 15,115 283,791 Disposals 0 0 0 0 0 Impairment -6,181 0 -6,181 -468 -6,649 Depreciation 0 -51,171 -51,171 -4,416 -55,587 Book value December 31 894,073 1,010,209 1,904,282 48,918 1,953,200 At December 31, 2009 Cost 900,253 1,094,456 1,994,710 62,710 2,057,421 Accumulated impairment -6,181 0 -6,181 0 -6,181 Accumulated depreciation Book value December 31

0 894,073

-84,248 1,010,209

-84,248 1,904,282

-13,793 48,918

-98,040 1,953,200

The impairment charge for Construction in Progress (CIP) of 6,875 in 2010 relates to a discontinued project as described in Note 26. Following the write-down, the capitalized value of the discontinued project was zero. The impairment charge for Unit in Operation (UIO) of 910 in 2010 relates to defect equipment which has been replaced. A warranty settlement for repair of the thrusters system on Sevan Driller was received from a third party and recognized as operating revenue in 2010. Warranty claims relating to repair of the DAT cylinders and the BOP on Sevan Driller were still ongoing at balance sheet date and therefore not recognized in the financial statements. The impairment charge for Construction in Progress (CIP) of 6,181 in 2009 relates to the decision not to build the Sevan FPSO 650 (4,624) as well as the cancellation of a vendor contract (1,557). The impairment charge for Other Fixed Assets of 468 in 2009 relates to an asset which subsequently was scrapped. Security arrangements relating to construction in progress assets are described in Note 26. Capitalized interest is described in Note 21, and commitments relating to capital expenditure are described in Note 27.

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Note 7 Intangible Assets

Goodwill Software Development Total Year ended December 31, 2010 Book value January 1 11,119 1,657 1,915 14,691 Additions 0 651 60 711 Impairment charge 0 0 0 0 Amortization 0 -1,148 -612 -1,760 Book value December 31 11,119 1,160 1,363 13,641 At December 31, 2010 Cost 11,119 7,555 2,921 21,595 Accumulated amortization and impairment 0 -6,395 -1,558 -7,953 Book value December 31 11,119 1,160 1,363 13,641 Goodwill Software Development Total Year ended December 31, 2009 Book value January 1 11,119 3,212 2,245 16,576 Additions 0 321 255 576 0 0 0 0 Impairment charge 0 -1,876 -585 -2,461 Amortization 11,119 1,657 1,915 14,691 Book value December 31 At December 31, 2009 Cost 11,119 6,904 2,861 20,884 Accumulated amortization and impairment 0 -5,247 -946 -6,193 Book value December 31 11,119 1,657 1,915 14,691

Expensed research and development (R&D) Between 2001 and 2010, the Group invested a total of 20-25 million in relation to the development of the Sevan design which was expensed through the Income Statement when incurred. 68 was expensed in 2010 (2009: 302). Accounting principles regarding treatment of R&D are described in Note 2.8. In addition, Sevan Marine has recovered expenses relating to further development and testing of the Sevan design by compensation from clients relating to feasibility studies and FEED’s. Note 19 describes further details of such activities.

Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to geographical region of operation and business segment.

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Segment-level summary of goodwill allocations:

Topside & Floating Process Year ended December 31, 2010 Production Drilling Technology Corporate Group Europe 0 0 11,119 0 11,119 South America 0 0 0 0 0 Asia 0 0 0 0 0 Total goodwill 0 0 11,119 0 11,119 Topside & Floating Process Year ended December 31, 2009 Production Drilling Technology Corporate Group Europe 0 0 11,119 0 11,119 South America 0 0 0 0 0 Asia 0 0 0 0 0 Total goodwill 0 0 11,119 0 11,119 The recoverable amount of a Cash Generating Unit (CGU) was determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets.

Key assumptions for value-in-use calculations: Europe Profit before tax* 4,973 Growth rate ** 5% Discount rate *** 10% * Budgeted result before tax year 1 (2011) ** Weighted average growth rate used for extrapolating cash flows in the five-year budget period. For the purpose of impairment testing, zero growth was assumed beyond the budget period *** Pre-tax discount rate applied to the cash flow projections

Budgeted results were based on past performance and expectations for future developments. The discount rate applied was pre-tax and reflects the specific risks of the operating segment.

Note 8 Investment in Associates Book value January 1, Income from associated companies Currency translation adjustments Dividend paid Book value December 31,

2010 2009 1,406 1,290 13 389 57 246 -328 -519 1,148 1,406

KANFA-TEC AS was the Group’s only associate company during 2009 and 2010.

Gross balance sheet, gross income statement and the Group’s share of ownership in associates: Country of Assets Liabilities Revenue Profit/(loss) % interest Name Year incorporation 100% 100% 100% 100% held KANFA-TEC AS 2010 Norway 3,873 1,763 5,265 26 49.995% KANFA-TEC AS 2009 Norway 6,900 4,791 8,448 887 49.995%

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Note 9 Derivative Financial Instruments

2010 2009 Current portion Assets Liabilities Assets Liabilities Forward foreign exchange contracts 0 28 56 0 Floating-to-fixed interest rate swaps 287 0 0 0 Total current portion 287 28 56 0

Forward foreign exchange contracts The notional principal amount of outstanding forward foreign exchange contracts at balance sheet date was GBP 0.8 million (2009: GBP 1.3 million).

Floating-to-fixed interest rate swaps The notional principal amount of interest rate swap positions at balance sheet date was USD 177.9 million. The interest rate swap expires in November 2016. There were no outstanding interest rate swaps at balance sheet date in 2009.

Embedded call options In December 2010, the Company carried out an unsecured bond issue of NOK 700 million, at a fixed interest rate of 14.0%. The bond has a term of 4 years, with European call options at 107.0%, 106.0%, 105.0% and 104.0% after 24, 30, 36 and 42 months respectively. Fair value of the options at balance sheet date was estimated to 0.5 million. In August 2010, the Company carried out a bond issue consisting of two tranches of 100 million and NOK 625 million, at fixed interest rates of 12.0% and 13.25% respectively. The bond has a term of 5 years and American call options at 108.0%, 106.5% and 105.0% during year 3, 4 and 5 respectively. Fair value of the call options at balance sheet date was estimated to 0.6 million and 1.1 million respectively. In October 2007, the Company carried out a bond issue of NOK 870 million, at an interest rate of Nibor+5.5%. The bond has a term of 5 years, and an American call option at 105%. NOK 740 million remained outstanding on the loan at balance sheet date. Fair value of the option at balance sheet date was estimated to 3.8 million (2009: 2.1 million). In May 2007, the Company carried out a bond issue of 270 million, at an interest rate of Libor+3.0%. The bond has a term of 6 years, with one remaining European call option at 102.5% which can be exercised in May 2011. 250 million remained outstanding on the loan at balance sheet date. Fair value of the option at balance sheet date was estimated to be nil (2009: 1.3 million). In December 2006, Sevan Drilling AS, a wholly-owned subsidiary of the Company, carried out a bond issue of NOK 1 billion, at an interest rate of Nibor+5.0%. The bond has a term of 6 years with a call option window of 6-12 months following acceptance of Sevan Driller at 104%. The fair value of the option was estimated to be nil at balance sheet date (2009: nil). In August 2010, the Company prepaid an outstanding bond of 135 million at a call price of 102.5%. In November 2010, the Company prepaid an outstanding 48 million convertible bond at a call price of 140%. The impact on the income statement for changes in the estimated fair value of embedded call options are described in Note 21.

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9a Financial Instruments by Category

Accounting principles for financial instruments were applied to the line items below as indicated:

Assets at fair Derivatives Loans and value through used for Available December 31, 2010 receivables profit and loss hedging for sale Total Financial assets Derivative financial instruments 287 0 0 0 287 Trade and other receivables 57,203 0 0 0 57,203 Cash and cash equivalents 116,140 0 0 0 116,140 Total financial assets 173,630 0 0 0 173,630 Assets at fair Derivatives Loans and value through used for Availeble December 31, 2009 receivables profit and loss hedging for sale Total Financial assets Derivative financial instruments Trade and other receivables Cash and cash equivalents Total financial assets

56 0 0 0 56 54,228 0 0 0 54,228 163,019 0 0 0 163,019 217,303 0 0 0 217,303 Liabilities at fair Derivatives Other financial value through the used for Availeble December 31, 2010 liabilities profit and loss hedging for sale Total Financial liabilities Interest-bearing debt 1,433,604 0 0 0 1,433,604 Trade payables 248,985 0 0 0 248,985 Derivative financial instruments 28 0 0 0 28 Total financial liabilities 1,682,616 0 0 0 1,682,616 Liabilities at fair Derivatives Other financial value through the used for Availeble December 31, 2009 liabilities profit and loss hedging for sale Total Financial liabilities Interest-bearing debt 1,188,873 0 0 0 1,188,873 Trade payables 100,345 0 0 0 100,345 Derivative financial instruments 0 0 0 0 0 Total financial liabilities 1,289,218 0 0 0 1,289,218

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9b Credit Quality of Financial Assets

The credit quality of financial assets that were neither past due nor impaired was assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:

Trade receivables - Counterparty with external credit rating 2010 2009 AA 0 3,843 AA- 2,214 0 A+ 7,134 0 A 1,667 0 A- 5,352 0 BBB 0 2,726 BBB- 5,068 0 Total 21,434 6,569 Trade receivables - Counterparty without external credit rating 2010 2009 378 1,280 Group 1 7,305 12,467 Group 2 0 0 Group 3 7,683 13,747 Total Total trade receivables 29,117 20,316 Group 1 - New customers (less than 6 months) Group 2 - Existing customers (more than 6 months) with no defaults in the past Group 3 - Existing customers (more than 6 months) with some defaults in the past Cash at bank and short-term bank deposits 2010 2009 AA 36,899 77,567 AA- 1,904 7,020 A+ 1,316 580 A 14,238 3,161 A- 61,652 0 BBB 0 335 No rating available 131 74,356 Total cash and cash equivalents 116,140 163,019 Derivative financial assets 2010 2009 AA- 287 56 287 56 Total derivative financial assets

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Note 10 Trade and Other Receivables

Trade receivables* Provision for impairment of receivables Trade receivables – net Prepayments Other receivables Accrued income Trade and other receivables

2010 2009 29,117 28,996 0 -8,680 29,117 20,316 4,950 7,623 9,036 2,177 14,100 24,112 57,203 54,228

* Trade receivables includes receivables from related parties (KANFA-TEC AS) amounting to 56 (2009: 493)

At balance sheet date in 2009, total provisions relating to receivables from Oilexco North Sea Ltd. (Oilexco) amounted to 8,680. During 2010, the Group received a final settlement for claims towards Oilexco of 9,841. The settlement included 496 relating to the outstanding receivables and the provision was reversed accordingly. 9,345 related to compensation for loss of future revenues under the charter contract and which was recognized as operating revenues in the Income Statement. The Group has not made any other actual losses on receivables during 2010 or 2009. The Group did not make any new provisions relating to receivables during 2010.

Fair value of trade and other receivables were as follows: Trade receivables Prepayments Other receivables Accrued income Total trade and other receivables

2010 2009 29,117 20,316 4,950 7,623 9,036 2,177 14,100 24,112 57,203 54,228

Trade receivables that are less than three months past due are generally not considered for impairment. At balance sheet date, trade receivables of 8,864 (2009: 4,765) were past due but not impaired. These overdue receivables relate to several independent customers with whom the Group has no history of default.

Ageing of trade receivables was as follows: Before due date Up to 3 months after due date Between 3 and 6 months after due date More than 6 months after due date Total trade receivables - net

2010 2009 20,253 15,551 3,068 4,581 252 184 5,544 0 29,117 20,316

Carrying amounts of trade receivables were denominated in the following currencies: USD GBP NOK BRL Other currencies Total trade receivables - net

2010 2009 16,414 8,792 4,308 5,369 6,935 5,632 981 521 479 3 29,117 20,316

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Note 11 Cash and Cash Equivalents

Cash and cash equivalents include the following: Cash at bank and in hand Restricted employees’ tax deduction fund Restricted short-term bank deposits Total cash and cash equivalents

2010 2009 88,351 144,156 2,524 1,737 25,265 17,126 116,140 163,019

15,904 (2009: 15,904) of restricted cash was collateralized in relation to a guarantee made on behalf of Sevan Drilling Rig Pte Ltd. 9,241 (2009: 0) was reserved as ‘Debt Service’ in relation to a bank facility for Sevan Drilling Pte Ltd. 2,524 (2009: 1,737) relates to customary income taxes withheld from employees, and 102 (2009: 97) relates to deposit for rental of offices. 1,000 of the restricted cash at balance sheet date in 2009 was collateralized in relation to a guarantee made on behalf of Sevan Drilling Pte Ltd. The amount was no longer collateralized at balance sheet date in 2010. At balance sheet date, the Group has an unused bank overdraft facility of 3.4 million (2009: 3.5 million).

Note 12 Share Capital

The total authorized number of ordinary shares was 526.1 million (2009: 526.1 million) with a par value of NOK 0.20 per share. All issued shares were fully paid at balance sheet date. Number of shares Share capital Share premium Total January 1,2010 526,069,982 16,633 954,132 970,765 Proceeds from shares issued 0 0 0 0 Cost of share issues, net of tax 0 0 0 0 December 31, 2010 526,069,982 16,633 954,132 970,765 Number of shares Share capital Share premium Total January 1,2009 196,128,448 6,187 562,400 568,588 Proceeds from shares issued 329,941,534 10,446 407,414 417,859 Cost of share issues, net of tax 0 0 -15,682 -15,682 December 31, 2009 526,069,982 16,633 954,132 970,765 At December 31, 2010, the Company had 10,288 shareholders (2009: 10,941 shareholders). 52% of the share capital was owned by shareholders residing outside of Norway (2009: 57%).

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Number of shares 27,565,034 20,173,142 20,003,805 12,350,000 11,021,226 10,159,579 9,675,000 8,310,034 7,582,816 6,546,278 6,503,428 6,384,500 5,642,089 5,599,897

Ownershipshare (%) 5.24 3.83 3.80 2.35 2.10 1.93 1.84 1.58 1.44 1.24 1.24 1.21 1.07 1.06

5,075,300 5,000,000 4,720,000 4,675,417 4,596,000 4,434,022 186,017,567 340,052,415 526,069,982

0.96 0.95 0.90 0.89 0.87 0.84 35.36 64.64 100.00

Number of shares 21,281,549 16,812,066 15,021,863 13,828,690 9,989,287 8,900,000 8,828,963 8,416,122 8,209,078 8,052,428 7,462,472 7,258,000 6,384,500 6,333,616 5,925,752 5,599,897 5,588,300 5,537,000 5,450,000 5,205,875 180,085,458 345,984,524 526,069,982

Ownershipshare (%) 4.05 3.20 2.86 2.63 1.90 1.69 1.68 1.60 1.56 1.53 1.42 1.38 1.21 1.20 1.13 1.06 1.06 1.05 1.04 0.99 34.23 65.77 100.00

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20 largest shareholder accounts at December 31, 2010: Name BANK OF NEW YORK MELLON S/A STATE STREET BANK AND TRUST CO JPMORGAN CHASE BANK NA A/C FIDELITY SEB ENSKILDA ASA CITIBANK N.A. NEW YORK BRANCH FIDELITY FUNDS-EUROPEAN SKAGEN VEKST JPMORGAN CHASE BANK NORDEA STATE STREET BANK & TRUST CO. A/C STATE STREET BANK AND TRUST CO. A/C BANK OF NEW YORK MELLON S/A BANK OF NEW YORK MELLON SA/NV EUROCLEAR BANK S.A./N.V. BNP PARIBAS SECS SERVICES PARIS FID. FUNDS-EU. BLUE FIRST SECURITIES AS VARMA MUTUAL PENSION BANK OF NEW YORK MELLON SA/NV BANK OF NEW YORK MELLON SA/NV CLEARSTREAM BANKING 20 largest shareholder accounts Remaining shareholders Total shareholders

20 largest shareholder accounts at December 31, 2009: Name BANK OF NEW YORK MELLON S/A JPMORGAN CHASE BANK STATE STREET BANK AND TRUST CO JPMORGAN CHASE BANK FIDELITY FUNDS-EUROPEAN AGGRESSIVE FUND SKAGEN VEKST JPMORGAN CHASE BANK STATE STREET BANK AND TRUST CO. A/C DNB NOR BANK ASA EGENHANDELSKONTO MORGAN STANLEY & CO FIDELITY FUNDS HOLBERG NORGE BANK OF NEW YORK MELLON SA/NV BANK OF NEW YORK MELLON S/A GOLDMAN SACHS & CO BNP PARIBAS SECS SERVICES PARIS FID. FUNDS-EU. BLUE STATE STREET BANK & TRUST CO. A/C CITIBANK N.A. (LONDON) BANK OF NEW YORK MELLON SA/NV 20 largest shareholder accounts Remaining shareholders Total shareholders

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Note 13 Share-Based Payments

The exercise prices of share options awarded to employees was at minimum equal to the market price of the share at the time of the award.16.3 million of the remaining options may be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.1 million of the remaining options may be exercised provided fulfillment of certain criteria and expire five years following the award. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Remaining share options and weighted average exercise prices were as follows: January 1 Granted Exercised Lapsed/forfeited December 31

2010 2009 Average Average exercise price No. of exercise price No. of (NOK per share) options (NOK per share) options 47.71 6,239,156 47.70 6,654,277 8.81 14,125,000 0 0 0 0 0 0 25.18 -2,013,515 47.45 -415,121 25.77 18,350,641 47.71 6,239,156

Of the 18.4 million remaining options (2009: 6.2 million), 2.5 million options were exercisable (2009: 3.2 million). No options were exercised during 2009 and 2010.

Expiration dates and average exercise prices for the remaining share options:

Share options Exercise price remaining at the end of year Year of expiration (NOK per share) 2010 2009 2010 16.60 0 16,667 2010 15.00 0 20,335 2010 15.50 0 16,667 2010 19.30 0 192,126 2010 24.00 0 640,902 2010 30.90 0 270,318 2011 38.40 303,601 303,601 2011 38.80 366,670 366,670 2011 37.90 258,734 258,734 2011 35.20 125,001 125,001 2011 33.50 33,334 33,334 2012 37.60 128,834 128,834 2012 53.00 53,667 53,667 2012 58.25 52,000 53,500 2012 57.25 3,050,000 3,350,000 2012 58.75 58,800 58,800 2012 37.90 8,000 8,000 2013 62.75 312,000 317,000 2013 78.00 25,000 25,000 2015 8.81 13,575,000 0 Total 18,350,641 6,239,156

The average fair value of options awarded during 2010, determined using the Black-Scholes’ option-pricing model, was NOK 2.09. The significant inputs into the model were share price at the award dates, exercise prices as shown above, standard deviation of expected share price returns of 30%, dividend yield of 0%, estimated option life, and annual risk-free interest rate of 3.0%. No options were awarded during 2009. As of December 31, 2010, none of the remaining share options were ‘in-the-money’.

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Note 14 Current Liabilities Trade payables * Accrued expenses relating to trade payables Total trade payables Interest-bearing debt, current portion Derivative Financial Instruments Income tax payable Employer’s contribution tax and other taxes Other payables Provisions Total current liabilities

2010 2009 206,528 89,432 42,457 10,913 248,985 100,345 188,000 1,103,005 28 0 5,534 2,339 5,825 3,620 72,748 25,009 8,083 11,818 529,204 1,246,136

* At balance sheet date in 2009,16 was payable to related parties (KANFA-TEC AS) (2010: nil)

Note 15 Interest-Bearing Debt

2010 2009 * Nominal Amortized Fair Nominal Amortized Fair value value value value value value Bank debt 428,871 422,378 428,871 0 0 0 Vendor credit 0 0 0 51,890 51,890 51,890 Convertible bond 0 0 0 48,000 33,978 52,263 Bond 847,024 829,314 818,792 0 0 0 Value of embedded call options -18,362 -6,088 -6,088 0 0 0 Interest-bearing debt, non current 1,257,533 1,245,604 1,241,576 99,890 85,868 104,153 Bank debt 66,331 65,687 66,331 357,375 344,493 357,375 Vendor credit 77,835 77,835 77,835 25,945 25,945 25,945 Bond 58,605 44,493 42,603 761,705 736,781 627,844 Value of embedded call options -13,907 -14 -14 -35,891 -4,214 -4,214 Interest-bearing debt, current 188,864 188,000 186,754 1,109,134 1,103,005 1,006,950 Total interest-bearing debt 1,446,396 1,433,604 1,428,330 1,209,024 1,188,873 1,111,103 * As described in the Board of Director’s Report in the Financial Statements of 2009, while the Board of Directors was of the firm opinion that the outstanding debt at balance sheet date in 2009 in reality was non-current in nature, the accounting regulations require that amounts which formally could be held to be mandatorily repayable as at the balance sheet date be classified as current irrespective of whether such repayment was required by the lenders or the basis therefore has subsequently been eliminated. Accordingly, relevant liabilities were classified as current in the 2009 financial statements. All necessary actions were resolved during 2010 and the debt was classified back to non-current by balance sheet date in 2010.

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Repayment schedule as per December 31, 2010: Nominal 2016 and value 2011 2012 2013 2014 2015 onwards Bond loan (USD 100 million) 100,000 0 0 7,500 7,500 85,000 0 Bond loan (NOK 625 million) 106,721 0 0 8,004 8,004 90,713 0 Bond loan (USD 270 million) 250,000 22,500 25,000 202,500 0 0 0 Bond loan (NOK 870 million) * 126,357 22,198 108,813 0 0 0 0 Bond loan (NOK 1 000 million) ** 170,753 0 170,753 0 0 0 0 Bond loan (NOK 700 million) 119,527 0 0 0 119,527 0 0 Bank debt (USD 82.3 million) 72,072 41,493 30,579 0 0 0 0 Bank debt (USD 230 million) 177,900 0 35,580 35,580 35,580 35,580 35,580 Bank debt (USD 250 million) ** 245,230 33,323 35,822 38,509 41,397 44,502 51,679 Vendor credit (USD 77.8 million) *** 77,835 77,835 0 0 0 0 0 Total nominal value 1,446,396 197,349 406,547 292,093 212,008 255,794 87,259 Estimated interest payments **** 107,586 92,189 58,177 49,819 27,926 2,162 * Matures in 2012 at 105% of the remaining value ** The loan was repaid in March 2011 (ref. Note 34) *** The repayment schedule was changed after balance sheet date. The new repayment schedule is USD 25.9 million in 2011 and USD 51.9 in 2012. ****Estimates based on LIBOR and NIBOR spot rates at December 31, 2010

Interest-bearing debt was nominated in the following currencies (nominal values): Bank debt, USD nominated Vendor credit, USD nominated Convertible bond, USD nominated Bond, USD nominated Bond, NOK nominated Total interest-bearing debt

2010 2009 495,202 357,375 77,835 77,835 0 48,000 350,000 402,100 523,359 323,714 1,446,396 1,209,024

Fair value of bank loans was estimated by discounting the contractual cash flows at a rate reflecting the underlying risk. Fair value of bond loans was based on market rates of the bonds at balance sheet date. The Group was exposed to changes in interest rates for a NOK 740 million bond loan (3-month Nibor + margin), a NOK 1,000 million bond loan (6-month Nibor + margin), a USD 250 million bond loan (6-month Libor + margin) and bank debt for a total nominal amount of USD 245.2 million (3-month Libor + margin).

Effective interest rates at balance sheet date *: 2010 2009 NOK USD NOK USD Bank debt (USD 150 million) NA 8.1% Bank debt (USD 230 million) 6.4% NA Bank debt (USD 250 million) 6.5% 9.1% Bank debt (USD 82.3 million) 12.6% NA Vendor credit (USD 77.8 million) 4.5% 4.5% Convertible bond (USD 48 million) NA 25.6% Bond (NOK 1,000 million) 9.7% 9.8% Bond (USD 140 million) NA 9.7% Bond (NOK 870 million) ** 11.8% 11.0% Bond (USD 270 million) 5.4% 6.9% Bond (NOK 700 million) 15.3% NA Bond (NOK 625 million) 14.4% NA Bond (USD 100 million) 12.9% NA * Estimates based on LIBOR and NIBOR spot rates at December 31, 2010 ** In a bondholders meeting held in June, the bondholders consented to certain changes in the loan conditions, including the increase from USD 150 million to USD 230 million of a higher ranking bank facility and an increase in the applicable interest margin from Nibor+5.50% to Nibor+10.0% which became effective in November 2010 upon the first drawdown on the senior secured credit facility.

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The Group has the following undrawn debt facilities:

2010 2009 Floating rate – Expiring within one year 0 46,087 – Expiring beyond one year 577,100 0 Fixed rate – Expiring within one year 0 0 – Expiring beyond one year 80,000 80,000 Total undrawn debt facilities 657,100 126,087 * Undrawn borrowing facilities were converted into USD using prevailing exchange rates at balance sheet date

Convertible bond In April, May and June 2009 the Company issued senior secured callable convertible bonds in aggregate nominal value of USD 48 million. The term of the convertible bonds was four years and coupon was fixed at 15% p.a. of parity value to conversion price. The values of the liability component and the equity conversion component were determined at the time of the issuance of the bond. Fair value of the liability component at issue date, classified as interest-bearing debt, was calculated using a market interest rate for an equivalent non-convertible bond. The market interest rate applied was based on third party valuations. The residual amount, representing the value of the equity conversion option, was classified as shareholders’ equity in “other equity” net of income taxes. The USD 48 million convertible bond was repaid at 140% of par value in November 2010.

Convertible bond recognized in the balance sheet was calculated as follows: Face value of convertible bond Issue cost Equity component Liability component on initial recognition Financial expense Coupon interest incurred Liability component at December 31

2010 2009 0 48,000 0 -1,476 0 -14,058 0 32,466 0 6,312 0 -4,800 0 33,978

Fair value of the liability component of the convertible bond amounted to USD 52.3 million at December 31, 2009. Fair value was calculated using cash flows discounted at an assumed marked interest rate for an equivalent non-convertible bond. The assumed market interest rate was based on third party valuations.

Covenants Security arrangements related to financing are described in Note 26. The bank loans have conceptually been structured on a project finance basis, however, guaranteed by the Company in whole or in part. The agreements reflect that the respective borrowers are single purpose companies, with extensive security arrangements and customary limitations, restrictions and obligations as regards actions and operations. Accordingly, no borrower may cease to carry on its business, make disposals or restructurings or otherwise enter into arrangements which may adversely affect its ability to fulfil its obligations towards the lenders or the security granted in their favour. Certain of the finance documents include financial covenants at borrower or group level (as the case may be), such as a minimum debt service coverage ratio of no less than 1.1, an equity ratio of minimum 25%, minimum liquidity of USD 50 million and a leverage ratio from 6 to 4 (stepwise reduced over the term of the facilities). The finance documents include restrictions on ownership changes and dividend distributions, affecting the ability of subsidiary borrowers to upstream funds to the Company, as well as cross default and material adverse change provisions. The bond loan agreements contain customary covenants and conditions, including cross default, material adverse effect and other restrictive provisions. Certain agreements also provide for mandatory prepayment in case of a “change of control” event and require that the Company must have an equity ratio of 30% on a consolidated basis.

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Note 16 Deferred Income Tax Deferred income tax assets and liabilities are offset when a legally enforceable right to offset current tax assets against current tax liabilities exists.

Offsetting amounts were as follows:

Deferred tax assets 2010 2009 – Deferred tax asset to be recovered after more than 12 months 168,862 141,327 – Deferred tax asset to be recovered within 12 months 0 411 Total deferred tax assets 168,862 141,738 Deferred tax liabilities 2010 2009 – Deferred tax liability to be settled after more than 12 months -41,963 -35,216 – Deferred tax liability to be settled within 12 months -4,666 0 Total deferred tax liabilities -46,629 -35,216 Net deferred tax assets/(liabilities) 2010 2009 – Deferred tax asset to be recovered after more than 12 months 126,899 106,111 – Deferred tax asset/(liability) to be recovered/(settled) within 12 months -4,666 411 Net deferred tax assets/(liabilities) 122,233 106,522

Gross movement on the deferred income tax account was as follows: Book value January 1 Exchange differences Income statement charge relating to deferred tax assets Tax charged to equity Book value December 31

2010 2009 106,535 64,581 -574 874 16,272 38,904 0 2,163 122,233 106,522

Specification of deferred tax assets/deferred tax liabilities:

2010 2009 Deferred tax asset 124,062 109,087 Deferred tax liability -1,829 -2,565 Net deferred tax assets/(liabilities) 122,233 106,522 2010 2009 Unrealized currency gain/(loss) -11,484 -12,315 Convertible bond -792 -3,958 Fixed assets -26,119 -18,401 -4,666 0 Accounting provisions -3,568 -542 Establishment fee bond loans -46,629 -35,216 Total deferred tax liabilities Pension liabilities 545 264 Accounting provisions 2,495 411 Losses carry forward 165,822 141,063 Losses carry forward related to Sevan Marine do Brasil Ltda 20,344 7,426 Valuation allowance -20,344 -7,426 Total deferred tax assets 168,862 141,738 The Group did not recognize deferred income tax assets of 20,344 (2009: 7,426) in respect of losses in Sevan Marine do Brasil Ltda. Group entities incorporated in Singapore have been accepted under the local tax exemption regime. As a consequence, no deferred tax asset resulting from losses carried forward from entities incorporated in Singapore were recognized in the financial statements. Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the tax benefit through the future taxable profits is probable. At balance sheet date, expected future taxable profits from existing contracts in the Norwegian tax jurisdiction were insufficient to utilize the tax advantage in Norway in full. If taxable profits from anticipated and/or potential activities in Norway should not materialize, the Board will carry out necessary reorganization of the existing fleet to enable Sevan to take advantage of the tax position in Norway.

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Note 17 Retirement Benefit Obligations Companies in the Group operate both defined benefit and defined contribution plans.

Defined benefit plan: Amounts recognized in the balance sheet were determined as follows: Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognized actuarial losses Employer’s contribution tax relating to pension liabilities Liability in the balance sheet

2010 2009 6,942 5,559 -4,797 -3,542 2,145 2,017 -528 -593 321 284 1,938 1,708

Movements in the liability recognized in the balance sheet: January 1 Exchange differences Implementation actuarial calculation group company Expense charged to the income statement Contributions paid, including employer’s contribution tax December 31

2010 2009 1,708 628 -15 210 0 255 1,324 1,391 -1,079 -776 1,938 1,708

Principal actuarial assumptions: Discount rate Expected return on plan assets Future salary increase Expected G-regulation Future pension increases Future turnover Employer’s contribution tax

2010 2009 3.20% 4.40% 4.60% 5.60% 4.00% 4.25% 3.75% 4.00% 1.10% 2.10% 10.00% 10.00% 14.10% 14.10%

At the date of this report, actual return on pension assets for 2010 was not yet known. Actual return on pension assets for 2009 was 5.26%. The actuarial calculations for the Group’s defined benefit plans were carried out by an independent actuary. Calculated pension obligation was based on mortality table K2005 and disability table K1963 adjusted for observed developments.

Average life expectancy for a person retiring at 67 years of age: Male Female

2010 2009 17.7 17.7 20.1 20.1

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Amounts recognized in the income statement were as follows: 2010 2009 Net present value of current year’s pension earned 1,060 1,113 Interest cost on pension liabilities 234 191 Expected return on pension assets -213 -193 Estimate changes 30 67 Implementation actuarial calculation group company 0 224 Administration cost 53 48 Pension cost, defined benefit plan 1,164 1,450 Employer’s contribution tax relating to implementation 0 31 Employer’s contribution tax relating to pension liabilities 160 164 Pension cost, including employer’s contribution tax 1,324 1,645 No. of employees included 43 45 Expected pension cost for 2011 for the defined benefit plan was estimated to 1,129.

Major categories of plan assets as a percentage of fair value of total plan assets: Equities Property Fixed bonds Liquid bonds Other Total plan assets

2010 2009 14% 7% 20% 21% 45% 45% 19% 26% 2% 1% 100% 100%

Defined contribution plan:

2010 2009 Pension costs, defined contribution plan 1,595 1,255 Employer’s contribution tax relating to contributions paid 225 168 Pension cost, including social security 1,820 1,423 No. of employees included 163 162

Total pension cost: Pension cost, defined benefit plan Pension cost, defined contribution plan Total pension cost

2010 2009 1,164 1,450 1,595 1,255 2,759 2,705

The Group’s pension schemes satisfy the requirements in the Norwegian legislation regarding mandatory occupational pension.

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Note 18 Provisions

Decommissioning Warranties Bonus cost Total January 1, 2010 558 0 11,260 11,818 Currency translation adjustments 26 0 0 26 Arising during the year 0 2,351 0 2,351 Reversed during the year 0 0 -5,760 -5,760 Used during year -352 0 0 -352 December 31, 2010 232 2,351 5,500 8,083 Decommissioning Warranties Bonus cost Total January 1, 2009 599 0 0 599 Currency translation adjustments 128 0 0 128 Arising during the year 0 0 11,260 11,260 0 0 0 0 Reversed during the year Used during year -169 0 0 -169 December 31, 2009 558 0 11,260 11,818

Warranties Provision for warranties was based on historical experience.

Bonus Provision for bonus was based on a defined bonus program for employees in the Sevan Group for the measurement period July 1, 2010, to June 30, 2011. The provision was based on a ‘best estimate’ of the expected achievements of the key performance indicators as set out in the bonus program and takes into account the incurred portion of the measurement period at balance sheet date.

Decommissioning cost The provision for decommissioning cost relates to the estimated cost of removing the suction anchors and mooring system for FPSO Sevan Voyageur from the Shelley field. All provisions in 2010 and 2009 were current.

Note 19 Construction Contracts

2010 2009 Contract revenues 1,956 27,725 Contract cost -1,783 -20,811 Net profit on construction contracts 173 6,914 2010 2009 Recognized, not yet invoiced for ongoing projects 143 57 Incurred cost on ongoing projects included in current liabilities 161 1,025 Activities defined as construction contracts mainly relate to Joint Industry Projects, feasibility studies and Front End Engineering and Design activities (FEED’s). Under the activities defined as construction contracts, the Group was able to recover certain expenses relating to further development and testing of the Sevan design. Construction activities in 2009 include to FEED’s relating to the Goliat project.

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Note 20 Employee Benefit Expense

2010 2009 Wages and salaries 59,650 52,518 Employer’s contribution tax 9,715 7,554 Expensed portion of value of share options 2,182 1,170 Pension cost 2,759 2,705 Other employee benefit expense 5,466 3,896 Total employee benefit expense 79,772 67,842 Allocated to construction in progress -9,864 -11,838 Net employee benefit expense 69,908 56,004 No. of man-years 506 404

Remuneration of Senior Management, as paid: 2010 Retirement Other Salaries benefits benefits CEO 977 28 33 Jan Erik Tveteraas Oskar Mykland CFO 313 13 1 Birte Norheim Vice President Finance 301 13 1 Fredrik Major Vice President Business Development / R&D 344 30 23 Helle Hundseid Vice President Projects 290 15 1 Alf Roger Skikstein Vice President Engineering 264 26 1 Erling Andreas Ronglan Vice President Floating Production 419 13 33 Hanna Moland Vice President HR & Administration 202 32 1 Morten Martens Breivik Vice President QHSE 197 13 1 Jon Helge Wilmann * Vice President Drilling 313 14 35 Total remuneration paid 3,620 197 130

Remuneration of Senior Management, as paid: 2009 Retirement Other Salaries benefits benefits Jan Erik Tveteraas CEO 882 24 1 Oskar Mykland CFO 245 8 2 Birte Norheim Vice President Finance 248 8 1 Fredrik Major Vice President Business Development / R&D 277 25 24 Helle Hundseid Vice President Projects 233 8 4 Alf Roger Skikstein Vice President Engineering 108 26 1 Erling Andreas Ronglan Vice President Floating Production 373 8 4 Hanna Moland Vice President HR & Administration 160 27 1 Morten Martens Breivik Vice President QHSE 154 8 2 Jon Helge Wilmann * Vice President Drilling 103 8 9 Total remuneration paid 2,783 150 49 * First day of employment was August 1, 2009

Salaries and other benefits included above were based on actual period of employment and translated at average exchange rates for each year.

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Senior Management is included in the Group’s collective retirement benefit plans. During 2010, the Chairman of the Board of Directors received bonus of 124 (2009: 173) and the CEO received bonus of 134 (2009: 173). At balance sheet date, the Group has an outstanding loan of 173 to the CEO (2009: 173). Acceptable security has been provided. No other loans were granted to Senior Management or any member of the Board of Directors in 2010 or 2009. The CEO will receive 6-24 months’ salary upon termination of employment, dependant on fulfilment of certain conditions.

In addition, Senior Management was awarded the following stock options: Remaining no. of options at balance No. of options Year of award Strike/NOK sheet date Jan Erik Tveteraas 2,000,000 2010 8.81 2,000,000 Oskar Mykland 400,000 2010 8.81 400,000 Birte Norheim 50,000 2007 57.25 50,000 Birte Norheim 400,000 2010 8.81 400,000 Fredrik Major 300,000 2007* 57.25 300,000 Fredrik Major 500,000 2010 8.81 500,000 Helle Hundseid 25,000 2006 35.20 16,668 300,000 2007* 57.25 300,000 Helle Hundseid Helle Hundseid 450,000 2010 8.81 450,000 Alf Roger Skikstein 150,000 2010 8.81 150,000 Erling Andreas Ronglan 300,000 2007* 57.25 300,000 Erling Andreas Ronglan 500,000 2010 8.81 500,000 Hanna Moland 50,000 2007 57.25 50,000 Hanna Moland 300,000 2010 8.81 300,000 Morten Martens Breivik 10,000 2008 62.75 10,000 Morten Martens Breivik 300,000 2010 8.81 300,000 Jon Helge Wilmann 400,000 2010 8.81 400,000 Total options/average exercise price 6,435,000 16.50 6,426,668 * May be exercised provided the fulfillment of certain criteria

Remuneration of the Board of Directors, as paid: Arne Smedal, Chairman Hilde Drønen, Deputy Chairman Kåre Syvertsen Stephan M. Zeppelin Aasulv Tveitereid Jorunn Haugen, Employee Representative * Jørgen Skotnes, Employee Representative * Total

2010 2009 66 64 51 36 41 36 49 36 0 0 21 0 21 0 249 172

* Jorunn Haugen and Jørgen Skotnes entered the Board of Directors as Employee Representatives on May 25, 2009

Remuneration of the Board of Directors was paid in the year following duties rendered.

Salaries and other benefits paid to Directors as employees: 2010 2009 Retirement Other Retirement Other Salaries benefits benefits Salaries benefits benefits Arne Smedal, Chairman 949 43 40 791 28 36 Kåre Syvertsen 812 38 23 577 24 23 Jorunn Haugen 90 6 1 80 3 0 Jørgen Skotnes 157 10 3 126 7 4

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Shares and options owned or controlled by the Board of Directors and Senior Management As of December 31, 2009, the following Board members and Senior Management owned or controlled shares in the Company:

Board of Directors

Senior Management

Arne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 3,263,297 shares through Elvheim AS, where he holds a controlling ownership interest. Mr. Smedal also holds 2,000,000 share options with a strike price of NOK 8.81.

Jan Erik Tveteraas, CEO, owns 57,556 shares directly and 2,993,444 shares through his wholly owned company Supernova AS. Mr. Tveteraas also holds 2,000,000 share options with a strike price of NOK 8.81.

Kåre Syvertsen, Board member and Group Manager Technology, owns 428,704 shares directly, and 2,877,296 shares through his wholly owned company Hallingen AS. Mr. Syvertsen also holds 1,000,000 share options with a strike price of NOK 8.81.

Oskar Mykland, CFO, owns 100,000 shares and holds 400,000 share options with a strike price of NOK 8.81.

Hilde Drønen, Deputy Chairman, owns 2,800 shares directly and 44,200 shares through her wholly owned company Djupedalen AS. Stephan M. Zeppelin, Board member, owns 55,000 shares. Aasulv Tveitereid, Board member, owns 150,000 shares through his wholly owned company AAT Invest. Jørgen Skotnes, Employee representative of the Board and Senior Structural Engineer, owns 5,100 shares and holds 10,000 share options with a strike price of NOK 58.75 and 75,000 share options with a strike price of NOK 8.81. Jorunn Haugen, Employee representative of the Board and HR Coordinator, holds 25,000 share options with a strike price of NOK 8.81.

Birte Norheim, Vice President Finance, owns 35,000 shares and holds 50,000 share options with a strike price of NOK 57.25 and 400,000 share options with a strike price of NOK 8.81. Fredrik Major, Vice President Business Development/R&D, owns 47,332 shares and holds 300,000 share options with a strike price of NOK 57.25 and 500,000 share options with a strike price of NOK 8.81. Helle Hundseid, Vice President Projects, holds 30,000 shares and holds 16,668 share options with a strike price of NOK 35.20, 300,000 share options with a strike price of NOK 57.25 and 450,000 share options with a strike price of NOK 8.81. Erling Andreas Ronglan, Vice President Floating Production, owns 30,000 shares and holds 300,000 share options with a strike price of NOK 57.25 and 500,000 share options with a strike price of NOK 8.81. Hanna Moland, Vice President HR & Administration, owns 13,667 shares and holds 50,000 share options with a strike price of NOK 57.25 and 300,000 share options with a strike price of NOK 8.81. Morten Martens Breivik, Vice President QHSE, owns 2,000 shares and holds 10,000 share options with a strike price of NOK 62.75 and 300,000 share options with a strike price of NOK 8.81. John Helge Wilmann, Vice President Drilling, owns 165,000 shares and holds 400,000 share options with a strike price of NOK 8.81. Alf-Roger Skikstein, Vice President Engineering, owns 240,523 shares through his wholly owned company Knuten AS and holds 150,000 share options with a strike price of NOK 8.81. Reference is made to the ’Statement regarding establishment of salary and other benefits for Senior Management’ for further details of remuneration of Senior Management.

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Note 21 Financial Income and Financial Expense Currency gains and losses relating to operational activities were classified as a separate line item as an operational expense in the Income Statement and are not included in the tables below. Currency gains and losses relating to financing activities were presented as separate line item as a financial income/(expense) in the Income Statement and are specified in Note 30. Net project specific borrowing cost incurred for construction of any qualifying asset was capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing cost was expensed as incurred. Borrowing cost of 428 (2009: 34,366) arising from financing specifically for the construction of the Sevan Capital Assets was capitalized during the year and was included in ‘Additions’ in property plant and equipment. The capitalization represents the net borrowing cost for financing of each project during the construction period. Reference is made to Note 6 for further details on construction in progress.

Financial income 2010 2009 Interest income 373 1,633 Amortization of embedded call options 9,923 4,499 Interest swap 112 2,660 Other financial income 7 246 Total financial income 10,415 9,038 Financial expense 2010 2009 Interest expense 85,632 57,072 Value of call options embedded in bonds 1,459 7,311 Amortization of fee related to interest-bearing debt 31,425 5,605 Call premium 24,778 0 Other financial expenses 1,873 674 Total financial expense 145,167 70,661 19.2 million of the expensed call premium in 2010 relates to the early repayment of a USD 48 million senior secured callable convertible bond at 140% of par value, 2.2 million relates to the early repayment of a USD 45 million 1st lien bond at 105% of par value and 3.4 million relates to the early repayment of a USD 135 million 1st lien bond at 102.5% of par value. Approximately USD 13.5 million of the amortization of fees related to interest-bearing debt in 2010 relates to an acceleration in amortization schedules for financing fees following early repayment of the credit facilities relating to FPSO Sevan Voyageur and to the convertible bond. In addition, and following a refinancing facility of USD 480 million being fully underwritten in December 2010, the carrying value of fees on existing financing on Sevan Driller of USD 5.5 million was expensed in full as the refinancing is expected to be executed during the first quarter of 2011.

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Note 22 Income Tax Expense Current tax Deferred tax Net tax income/(expense)

2010 2009 -4,450 -1,973 16,159 38,904 11,709 36,931

Reconciliation between tax charge based on the nominal Norwegian statutory tax rate of 28% and actual tax charge:

2010 2009 Profit/(loss) before tax -168,557 -180,345 Tax calculated at domestic tax rates applicable to profits in each respective countries 2,422 38,033 Income not subject to tax 23,776 153 Currency translation adjustment -1,224 15,637 Expenses not deductible -9,099 -9,171 Tax losses for which no deferred income tax asset was recognized 19 -3,623 Tax income/(expense) 15,893 41,029 Gross revenue tax -2,478 -1,027 Tax charge relating to previous years 80 -1,021 Tax permanent establishment -301 -100 Withholding tax -1,485 -1,950 Net tax income/(expense) 11,709 36,931 The weighted average applicable tax rate for the consolidated Group was 7.0% (2009: 21.1%).

Note 23 Earnings per Share Profit/(loss) attributable to equity holders of the Company (1,000 USD) Weighted average number of ordinary shares on issue (thousands) Basic earnings per share (USD per share)

2010 2009 -157,213 -142,793 526,070 455,868 -0.30 -0.31

Basic earnings per share Basic earnings per share were calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year.

Diluted earnings per share Due to net losses for the periods reported, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share was calculated as earnings per share. Profit/(loss) attributable to equity holders of the Company (1,000 USD) Profit/(loss) used to determine diluted earnings per share (1,000 USD) Weighted average number of ordinary shares on issue (thousands) Total remaining share options at balance date (thousands) Weighted average number of shares for diluted earnings per share (thousands) Diluted earnings per share (USD per share)

2010 2009 -157,213 -142,793 -157,213 -142,793 526,070 455,868 18,351 6,239 526,070 455,868 -0.30 -0.31

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Note 24 Dividend per Share

No dividend was paid in 2010 or 2009. No dividend is to be proposed at the Annual General Meeting on April 15, 2011.

Note 25 Cash Generated from Operations

2010 2009 Profit/(loss) before tax -168,557 -180,344 Adjustments for: – Depreciation and impairment 103,359 62,236 – Amortization of intangible assets 1,760 2,461 – Interest expense 85,632 57,072 – Unrealized forex loss/(gain) relating to NOK nominated bonds 956 56,991 -203 -14,937 – Other financial assets at fair value through profit and loss 2,149 1,170 – Expensed portion of value of options at the time of the award Changes in working capital: – Inventories 6,799 -9,219 – Trade and other receivables -2,975 -18,072 – Trade and other payables -10,190 -16,510 – Other current liabilities, provisions and charges 31,186 29,997 Cash generated from operations 49,916 -29,155

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Note 26 Contingencies

The Group has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business. The Group has made a provision for guarantees amounting to 232 at balance sheet date (2009: 558) relating to external deliveries from KANFA AS.

Sevan Brasil: The Company has issued guarantees for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors.

Discontinued project (Sevan Driller III): At balance sheet date, the Group is party to the following security arrangements: Security arrangements relating to financing:

FPSO Sevan Piranema: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 270 million (USD 250 million outstanding at balance sheet date) bond loan agreement described in Note 15.

The Company has issued guarantees for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors. Maximum exposure for the Group for cancellation fees to vendors was estimated to USD 3.8 million. Should a third drilling rig be ordered, no cancellation fee is expected to incur in relation to the discontinued project.

KANFA AS: The Company has issued a performance guarantee for KANFA AS’ delivery of a process plant and compression packages to a client.

FPSO Sevan Hummingbird: The Company has issued two tranches of a bond loan, secured by 1st priority securities pursuant to the terms of the USD 100 million and NOK 625 million bond loan agreement described in Note 15.

KANFA Aragon AS: The Company has issued a performance guarantee for KANFA Aragon AS’ delivery of a processing facility for LNG to a client.

FPSO Sevan Voyageur: The Company has issued a bond loan, secured by 2nd priority securities pursuant to the terms of the NOK 870 million (NOK 740 million outstanding at balance sheet date) bond loan agreement. Sevan 300 Pte Ltd has entered into a bank financing facility secured by 1st priority securities pursuant to the terms of the USD 230 million (USD 177.9 million drawn at balance sheet date) term loan agreement. Both credit facilities are further described in Note 15.

Sevan Driller: The Company has provided securities on 1st priority in accordance with the terms of the USD 250 million (USD 245.2 million outstanding at balance sheet date) bank financing facility to Sevan Drilling Pte Ltd and provided a guarantee on 2nd priority in accordance with terms of the NOK 1,000 million bond loan agreement to Sevan Drilling AS. Both credit facilities are further described in Note 15. In addition, the Company has provided a guarantee in accordance with terms of a vendor credit facility of USD 78 million as described in Note 15.

Security arrangements relating to operations:

FPSO Sevan Piranema: The Company has granted a performance guarantee to the technical manager.

FPSO Sevan Hummingbird: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee to the technical manager.

FPSO Sevan Voyageur: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee to the technical manager.

Sevan Brasil: The Company has guaranteed for correct fulfillment of the contract with the end-charterer.

Sevan Brasil (Sevan Driller II): The Company has provided securities on 1st priority in accordance with the terms of the USD 525 million bank financing facility (undrawn at balance sheet date) to Sevan Drilling Rig II Pte Ltd as described in Note 15.

Discontinued project:

Sevan Driller:

The Company has guaranteed for correct fulfillment of the contract with the end-charterer. During the global financial crisis, it proved difficult to secure the required financing for the newbuild project, and construction on the rig subsequently never commenced. Sevan has issued a Notice of Arbitration to the end-charter (ONGC), informing ONGC of its intention to resolve certain disputes regarding the firm order for the deepwater drilling unit by reference to arbitration. In the arbitration, Sevan is disputing ONGC’s right to call on a bank guarantee for the sum of USD 15.9 million. At balance sheet date, the arbitration proceedings were not yet concluded. Estimation with sufficient probability (higher than 50% likelihood) of the possible outcome of these proceedings was not achievable. No liability was therefore recognized in the balance sheet as of December 31, 2010.

The Company has issued guarantees for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors.

Reference is made to Note 34 for events after balance sheet date regarding the discontinued project.

Future contracted cash flows The Company has entered into a credit facility, secured by 1st priority securities pursuant to the terms of the USD 83 million (USD 72 million outstanding at balance sheet date) bank loan agreement described in Note 15.

Security arrangements relating to equipment supplies and services:

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Note 27 Commitments

Capital expenditure contracted for at balance sheet date, but not yet incurred, were as follows: Property, plant and equipment Total capital commitments

2010 2009 281,435 218,258 281,435 218,258

Capital commitments include unconditional commitments that the Group has entered into by balance sheet date which were not reflected in the financial statements. Of the total capital commitments of 281 million, 172 million falls due in 2011. The remaining capital commitments fall due in 2012 or later.

Note 28 Related Party Transactions

The Group is widely held (reference is made to Note 12).

Related-party transactions were made on an arm’s-length basis, and include the following:

Sales of goods and services to associates 2010 2009 KANFA-TEC AS 82 63 Purchases from associates 2010 2009 KANFA-TEC AS 0 95

Year-end balances arising from sales/purchases of goods/services:

Receivable from associate parties 2010 2009 KANFA-TEC AS 56 3 Payable to associate parties 2010 2009 KANFA-TEC AS 0 16

Note 29 Operating Leases

Operating leases: Group company as lessee The Group has entered into several lease- and rental-agreements for rental of offices, software, ASP solutions, and cars. The agreements were entered into on ordinary operational terms. The Group’s lease expense for rental of offices, software, ASP solutions and cars amounted to 2,928 for the year (2009: 2,658).

At balance sheet date, the Group has entered into lease- and rental-obligations as follows: Lease- and rental obligations No later than 1 year Between 1-5 years Later than 5 years Total lease and rental-obligations

2010 2009 2,928 2,154 10,083 8,518 23,018 25,057 36,029 35,729

Operating leases-Group company is lessor The Group charters out units under various agreements with fixed terms that end at different times during 2011-2018. None of the arrangements include any form of option to buy the units following end of contractual period.

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Future lease payments receivable under charter contracts: No later than 1 year Between 1-5 years Later than 5 years Total future charter revenues *

2010 2009 266,171 249,253 2,257,992 2,217,854 301,821 555,413 2,825,984 3,022,520

* The third drilling charter was included in the 2009, but not in the 2010 estimate of future lease payments receivable under charter contracts as the project has been discontinued. Reference is made to Note 26 for further information of the discontinued project.

The overview includes charter revenue for the fixed lease periods for the five units on charter-hire. License revenue and potential charter revenue for option periods not yet exercised was not included. At balance sheet date, book value of assets generating charter revenue was 1,660 million (2009: 1,010 million).

Order back-log for charter revenue: Unit Client FPSO Sevan Piranema Petrobras S.A. FPSO Sevan Hummingbird * Centrica Energy Upstream FPSO Sevan Voyageur ** E. ON Ruhrgas UK E&P LTD Sevan Driller Petrobras S.A. Sevan Driller II (‘Sevan Brasil’) Petrobras S.A.

Fixed term Option periods (years) (years) Commencement 11 6 x 1 Q1-2007 2.5 4 x 0.5 + 1 x 3 + 2 x 1 Q3-2008 5 Evergreen EQ4-2011 6 NA Q2-2010 6 NA EQ2-2012

* The first option period of 0.5 years was exercised in 2010, thus extending the fixed term untill Q3-2011 ** Option periods are automatically renewed until termination at 12 months’ notice (‘Evergreen’)

Note 30 Foreign Exchange Gain/(Loss) Related to Financing Foreign exchange gain/(loss) related to financing is mainly due to the impact of changes in the relationship between NOK and US dollars on the NOK nominated bonds, as well as to cash and cash equivalents nominated in foreign currency. Reference is made to Note 15 for further details regarding the NOK nominated bonds. Foreign exchange gain/(loss) related to financing: Realized gain/(loss) Unrealized gain/(loss) Total foreign exchange gain/(loss) related to financing

2010 2009 480 -409 -575 -35,636 -95 -36,045

Note 31 Other Operating Expense Other operating expense Pre-operational expense Cost of hired personnel Office cost (IT, rental etc) Consultancy (audit, tax and legal)* Marketing Other Total other operating expense

*Specification of auditor’s fee (excl. VAT): Statutory audit Audit related services Tax related service Other services Total auditor’s fee

2010 2009 0 12,701 3,175 962 8,194 6,348 5,939 4,221 737 991 9,963 8,297 28,008 33,520

2010 2009 973 573 3 24 130 37 0 128 1,106 761

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Note 32 Inventories Inventories consist of spare parts for FPSO Sevan Piranema and Sevan Driller. Inventory for FPSO Sevan Hummingbird and FPSO Sevan Voyageur is owned and maintained by the technical manager. The cost of usage of inventory was classified as “operating expense” in the income statement. Write-down of inventories during the year resulted in an increase in operating expense of 176 (2009: 1,103). Inventories Materials and spare parts for use during operations Provision for stock obsoleteness Inventories - net

2010 2009 14,807 21,430 -300 -124 14,507 21,306

Note 33 Other Non-Current Assets Net mobilization expense Net late delivery penalties Prepaid financing fees Prepaid agency fees Other Total other non-current assets

2010 2009 23,824 26,832 13,249 0 30,921 0 7,491 4,950 616 19 76,101 31,801

Net mobilization expense includes mobilization expense for FPSO Sevan Piranema and Sevan Driller, offset by mobilization fee received from the client. Net capitalized mobilization expense will amortize over the fixed contract period as an increase in operating expense. Net late delivery penalties include penalties incurred for FPSO Sevan Piranema and Sevan Driller, offset by directly correlated penalties recoverable from vendors. Net late delivery penalties will amortize over the fixed contract period as a reduction in operating revenue. Prepaid financing fees include prepaid fees on undrawn credit facilities. Such fees will be reclassified to interest-bearing debt upon first drawdown and will subsequently amortize as a financial expense over the term of the loan. Prepaid agency fees relate to the Group’s drilling activities. Agency fees will amortize over the fixed contract periods as a reduction in operating revenue.

Note 34 Events After Balance Sheet Date In December 2010, Sevan additionally secured commitments, subject to documentation and conditions precedent, for a USD 480 million senior debt project finance facility for the Sevan Driller. The loan was executed in March 2011 and repaid the existing USD 250 million 1st lien bank facility and NOK 1 billion 2nd lien bond relating to the rig as well as for general corporate purposes. On March 17, 2011, the Indian Supreme Court resolved to not grant the Company’s application for an order preventing ONGC from calling on the Bank Guarantee for the sum of USD 15.9 million until after the disputes between the Company and ONGC relating to a firm order of a deepwater drilling unit was been resolved by way of arbitration. ONGC has subsequently called on the bank guarantee. As of the date of this report, the arbitration proceedings to determine whether ONGC is entitled to the funds were not yet concluded. The Company is claiming for a refund of the payment made to ONGC under the bank guarantee. Potential liabilities relating to the ONGC contract are disclosed in Note 26 in the consolidated financial statements. In March 2011, the Board filed a listing application to the Oslo Stock Exchange for an IPO for its ultra deep water drilling business. The contemplated IPO of Sevan Drilling ASA will involve a combined secondary sale of shares currently owned by Sevan Marine ASA and an equity offering of new shares to be issued by Sevan Drilling ASA. The IPO is subject to bank approval of the change of control. In connection to the IPO of the Company’s drilling business, Jan Erik Tveteraas, the current CEO Sevan Marine, will assume the position as CEO of Sevan Drilling ASA as from the first day of listing and Jon Wilmann, Vice President Drilling Sevan Marine, will assume the position of CFO. Sevan Marine is in the process of selecting a successor for Mr. Tveteraas.

Sevan Marine ASA Notes to the Financial Statements

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SEVAN MARINE ASA Balance Sheet

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Figures in USD 1,000 Note 2010 2009 ASSETS Non-current assets Fixed assets 3 873 1,288 Intangible assets 3 4,676 6,859 Investment in subsidiaries 4 951,220 1,054,432 Deferred income tax assets 2 37,373 30,457 Receivable from companies in the Group 4 552,877 440,291 Other non-current assets 5 349 338 Total non-current assets 1,547,367 1,533,664 Current assets Trade and other receivables 10,379 6,788 Receivables from companies in the Group 4 356,261 381,585 Cash and cash equivalents 6 75,791 55,401 Total current assets 442,431 443,774 Total assets 1,989,798 1,977,438 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 1,8 16,633 16,633 Share premium reserve 1 954,132 954,132 Other equity 1 162,467 340,178 Total equity 1,133,230 1,310,943

LIABILITIES Non-current liabilities Interest-bearing debt 20 680,368 33,978 Retirement benefit obligations 10 1,018 931 Total non-current liabilities 681,386 34,909 Current liabilities Interest-bearing debt 20 85,279 556,102 Trade payables 3,263 1,936 Payables to companies within the Group 4 59,872 56,843 Provisions 23 2,001 0 Other current liabilities 24,768 16,704 Total current liabilities 175,182 631,585 Total liabilities 856,568 666,495 Total equity and liabilities 1,989,798 1,977,438

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Figures in USD 1,000 Note 2010 2009 Operating revenue 16,14,19 85,770 53,811 Operating expense 2,708 12,218 Depreciation, amortization and impairment 3 3,218 3,944 Employee benefit expense 9 42,266 31,398 Other operating expense 11 10,510 9,838 Foreign exchange gain (loss) related to operation 365 4,077 Total operating expense 59,067 61,475 Operating profit/(loss) 26,703 -7,664 Financial income 22 53,152 48,011 Financial expense 22 -252,971 -70,944 Foreign exchange gain (loss) related to financing -1,561 -13,102 Net financial profit/(loss) -201,381 -36,033 Profit/(loss) before tax -174,678 -43,697 Tax income/(expense) 2 5,802 23,611 Net profit/(loss) -168,875 -20,085 Attributable to: Equity holders of the Company -168,875 -20,085 Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share): - Basic 13 -0.03 -0.04 - Diluted 13 -0.03 -0.04



Arendal, March 30, 2011 The Board of Directors of Sevan Marine ASA

_______________________ Arne Smedal Chairman

_______________________ Hilde Drønen Deputy Chairman

_______________________ Kåre Syvertsen Board member

_______________________ Aasulv Tveitereid Board member

_______________________ Stephan M. Zeppelin Board member

_______________________ Jorunn Haugen Employee representative

_______________________ Jørgen Skotnes Emloyee representative

_______________________ Jan Erik Tveteraas CEO

SEVAN MARINE ASA Cash Flow Statement

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Figures in USD 1,000 Note 2010 2009 Cash flows from operating activities Profit/(loss) before tax -174,678 -43,697 Adjustment for: Depreciation/amortization 3 3,218 3,944 Write-down of investment in subsidiaries 4 156,430 4,089 Interest expense 22 53,296 48,624 Unrealized forex loss/(gain) relating to NOK nominated bonds -3,394 26,158 Expensed portion of value of share options at the time of award 9 2,081 956 Change in working capital: Inventory 0 103 Receivable and payables relating to companies in the Group 4 -84,233 -201,672 Trade and other receivables -3,591 -275 Trade payables 1,327 -3,008 Other liabilities, provisions and charges 30,411 -6,167 Cash generated from operations -19,133 -170,945 Cash flows from operating activities Cash from operations -19,133 -170,945 Tax paid during the period 2 -1,112 -714 Interest paid -44,537 -48,798 Net cash flow from operating activities -64,782 -220,458 Cash flows from investment activities Investment in subsidiaries 4 -53,218 -192,803 Purchase of intangible assets 3 -254 -396 Purchase of tangible assets 3 -365 -334 Net cash flow from investment activities -53,837 -193,532 Cash flows from financing activities Net proceeds from issuance of ordinary shares 1 0 396,079 Net proceeds from interest-bearing debt 20 438,808 46,970 Repayment of interest-bearing debt 20 -299,799 -5,000 Purchase/sale of own bond loan 20 0 -2,900 Net cash flow from financing activities 139,009 435,149 Net cash flows for the period 20,390 21,160 Cash balance at the beginning of the year 6 55,401 34,242 Cash balance at the end of the year 75,791 55,401

SEVAN MARINE ASA Notes to the Financial Statements Accounting Policies Sevan Marine ASA’s (‘the Company’) financial statements have been prepared in accordance with the Accounting Act and generally accepted accounting principles in Norway. Sevan Marine ASA is the parent company of the Sevan Marine Group (‘the Group’). The Company`s functional currency is US dollar (USD). All numbers in the financial statements are in USD 1,000 unless otherwise stated.

Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to use estimates and assumptions that impact the value of assets and liabilities as well as disclosure notes. Such estimates and assumptions may have significant impact on reported revenue and cost for a specific reporting period. Actual amounts may therefore deviate from the estimates. Contingent losses, which are likely to occur as well as quantifiable, are expensed when incurred.

Principal Rule for Evaluation and Classification of Assets and Liabilities Assets intended for long term ownership or use, are classified as fixed assets. Assets relating to the operating cycle are classified as current assets. Receivables are classified as current assets if they are to be repaid within one year after balance sheet date. Equivalent criteria apply to liabilities. Current assets are valued at the lower of purchase cost and net realizable value. Current liabilities are reflected in the balance sheet at nominal value at establishment date. Fixed assets are valued at purchase cost. Fixed assets whose value will decline are depreciated on a straight-line basis over the asset’s estimated useful life. Fixed assets are written down to net realizable value if a value reduction occurs that is expected to be permanent. Long-term liabilities are reflected in the balance sheet at nominal value on establishment date.

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settle the obligation and the amount has been reliably estimated. Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured as the present value of the expected expenditures required to settle the obligation using a pre-tax discount rate that accounts for time value of money and risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

Tangible Fixed Assets Fixed assets are reflected in the balance sheet and depreciated over the asset’s expected useful life on a straight-line basis. Maintenance cost is expensed as incurred. Additions or improvements are added to the asset’s cost price and depreciated with the asset. When changes in circumstances indicate that the carrying value of an asset may not be recoverable, an impairment charge is recognized and the asset is written down to recoverable amount (being the highest of net sales value and value in use). Value in use is the net present value of the expected future cash flows generated from the asset.

Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in ‘intangible assets’. Goodwill on acquisitions of associates is included in ‘investment in associates’. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Trade Receivables and Other Receivables Trade receivables and other receivables are reflected in the balance sheet at nominal value less provision for estimated losses. Estimated losses are provided for on the basis of an individual assessment of each debtor.

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

Computer software Acquired computer software is capitalized on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives, ranging from three to five years. Cost associated with developing or maintaining computer software programs are recognized in the income statement as incurred. Research and Development Cost associated with research activities are expensed as incurred. Qualifying expense associated with development activities are capitalized and depreciated over expected useful life.

Shares in Subsidiaries and Associated Companies Provisions A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to

In the parent company’s accounts, investments in subsidiaries and associated companies are recorded under the cost method. Investments are written down to fair value when a reduction in value is expected to be permanent.

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Dividend is recognized as income in the year the provision is made in the subsidiary. If the dividend exceeds retained earnings, the excess represents repayment of invested capital, and dividend is deducted from the book value of the investment in the balance sheet.

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with generally accepted accounting principles in Norway, the cost represented by the fair value at the date of the award is expensed over the vesting period. The fair value at the date of the award is confirmed by a third party calculation using the Black & Scholes’ option-pricing model.

Cash and Bank Deposits Cash and bank deposits include cash in hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less.

Cost represented by employer’s contribution tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of the stock.

Currency Cash and bank deposits, current assets, and current liabilities nominated in foreign currencies are converted to exchange rates prevailing at balance sheet date. Realized and unrealized exchange gains and losses on assets and liabilities in foreign currencies are included as financial or operational items in the income statement depending on the characteristics of the underlying asset or liability.

Pension Plans The Company operates both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Cost associated with the defined contribution plans are expensed as incurred. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension expense and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected salaries, the amount of benefits from the National Insurance Scheme, future return on pension assets, and actuarial calculations relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted from the net pension obligation in the balance sheet.

Taxes Deferred income taxes is provided using the liability method on temporary difference at balance sheet date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purpose. Tax-reducing temporary differences and losses carry forward are offset against tax-increasing temporary differences that are reversed in the same time intervals. Taxes consist of taxes payable (taxes on current year taxable income) and change in net deferred taxes. Tax base included in the calculation of deferred income tax is calculated in local currency and translated to USD at currency rates prevailing at balance sheet date.

Cash Flow Statement The cash flow statement is prepared in accordance with the indirect method.

Interest-Bearing Debt Interest-bearing debt is initially recognized at fair value, net of transaction cost incurred and including the value of any embedded call options inherent in bonds. Interest-bearing debt is subsequently stated at amortized cost; any difference between the proceeds (net of transaction cost and embedded value of call options) and the nominal value is recognized in the income statement over the period of the interest-bearing debt using the effective interest method. The value of call options embedded in bond loans are treated as separate financial assets and are initially recognized at fair value and subsequently remeasured at fair value each balance sheet date. Gains and losses on fair value of call options are recognized in the income statement immediately. Interest-bearing debt is presented net of the separated financial asset and is classified as current liabilities unless the Company has an unconditional right to defer settlement for more than 12 months after the balance sheet date. Compound financial instruments issued by the Company comprise convertible bonds that can be converted to share capital at the option of the holder, where the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have en equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction cost is allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition except on conversion or expiry.

Segment Reporting

Earnings per share are calculated by dividing net profit/loss by the weighted average of number of outstanding shares. Shares issued during the year are weighted in relation to the period they have been outstanding.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The accounting figures of the Company are consolidated as part of the ‘Corporate’ segment with exception of revenue and expense relating to the Goliat project which are consolidated as part of the ‘Floating Production’ segment.

Share Based Incentive Plans

Revenue Recognition

The Company operates a share-based compensation plan. In line

Revenue comprises the fair value of the consideration receivable for

Earnings per Share

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the sale of goods and services in the ordinary course of business. Revenue is shown net of value-added tax and discounts.

lease. All lease agreements entered into by the Company at balance sheet date are considered to be operational leases.

The Company recognizes revenue when the amount of revenue can be reliably measured and in accordance with the underlying contracts.

Construction Contracts

a) Design fee/license revenue Design fee/license revenue is recognized on in accordance with the underlying contracts. b) Interest income Interest income is recognized on a time-proportion basis using the effective interest method. c) Sales of fixed price contracts Sale of fixed price contracts is recognized in accordance with the underlying contracts under the percentage of completion (POC) method. Under the POC method, revenue is generally recognized based on the services performed to date as percentage of the total services to be performed. d) Sales of services Service income is recognized in line with the underlying contracts and the amount of work executed.

Leases Leases in which a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the

Contract cost is recognized when incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent that contract cost incurred is likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract. When it is probable that total contract cost will exceed total contract revenue, the expected total loss is recognized as an expense immediately. The Group uses the ‘percentage of completion method’ (POC) to determine the appropriate amount to recognize in a given period. The stage of completion is estimated, using judgmental assessment, of the progress of completion of subcomponents of identified milestone deliverables in each contract up to the balance sheet date as a percentage of total identified contract milestone deliverables. The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which cost incurred plus recognized profits (less recognized losses) exceed progress billings. Progress billings not yet paid by customers and retention are included as ‘trade and other receivables’. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed cost incurred plus recognized profits (less recognized losses).

Note 1 Equity Share Share Other Total capital premium equity equity January 1, 2010 16,633 954,132 340,178 1,310,943 Value of share options 0 0 2,081 2,081 Repayment of convertible bond 0 0 -10,916 -10,916 Net profit/(loss) 0 0 -168,875 -168,875 December 31, 2010 16,633 954,132 162,467 1,133,230 Share Share Other Total capital premium equity equity January 1, 2009 6,187 562,401 349,186 917,774 Total proceeds from share issues - June 4,284 167,064 0 171,348 Total proceeds from share issues - July 5,169 201,576 0 206,744 Total proceeds from share issues - August 994 38,774 0 39,769 Share issue cost 0 -21,781 0 -21,781 0 6,099 0 6,099 Tax effect of share issue cost Value of share options 0 0 956 956 Convertible bond 0 0 14,058 14,058 Tax effect of convertible bond, equity portion 0 0 -3,936 -3,936 Net profit/(loss) 0 0 -20,085 -20,085 December 31, 2009 16,633 954,132 340,178 1,310,943

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Note 2 Taxes

Profit/(loss) before tax Permanent differences Currency translation adjustment Changes in temporary differences Tax basis Loss to be brought forward Basis for taxes payable Taxes payable (PE tax) Withholding tax payable Change in deferred tax assets from income statement Tax income/(expense)

2010 2009 -174,678 -43,697 145,488 -18,414 5,876 -36,972 3,014 9,220 -20,300 -89,862 20,300 89,862 0 0 -108 -100 -1,004 -1,615 6,914 25,327 5,802 23,611

Temporary differences:

2010 2009 Fixed assets -392 510 Goodwill 92 623 Inventory -239 -234 Pension liabilities -1,018 -901 Amortization bond 25,101 14,136 Call options embedded in bond -22,272 -21,547 Fair value options embedded in bond and convertible bond 6,104 17,803 Net temporary differences 7,376 10,390 Losses carry forward relating to income statement -77,324 -56,857 Basis for deferred tax assets from the income statement -69,948 -46,467 Losses carried forward relating to items posted directly in the balance sheet -63,523 -62,308 Basis for deferred tax assets -133,471 -108,775 Deferred tax assets 37,373 30,457 At balance sheet date, expected future taxable profits from existing contracts in the Norwegian tax jurisdiction were insufficient to utilize the tax advantage in Norway in full. If taxable profits from anticipated and/or potential activities in Norway should not materialize, the Board will carry out necessary reorganization of the existing fleet to enable Sevan to take advantage of the tax position in Norway.

Reconciliation between tax charge based on the nominal Norwegian statutory tax rate of 28% and actual tax charge:

2010 2009 Profit before tax -174,678 -43,697 Expected tax charge -48,910 -12,235 Tax charge in the income statement - 5,802 - 23,611 Difference - 43,108 11,376 Tax effect of expensed portion of value of share options -608 -296 Other permanent differences 40,737 -1,157 Permanent currency difference 4,091 -8,208 Withholding tax -1,112 -1,715 Explained difference 43,108 -11,376

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Note 3 Fixed and Intangible Assets

Machinery, fixtures Year ended December 31, 2010 Book value January 1 1,288 Additions 365 Disposals 0 Depreciation -781 Book value December 31 873 At December 31, 2010 Cost or valuation 3,974 Accumulated depreciation and impairment -3,101 Book value December 31 873 Machinery, fixtures Year ended December 31, 2009 Book value January 1 1,629 Additions 334 Depreciation -675 Book value December 31 1,288 At December 31, 2009 Cost or valuation 3,694 Accumulated depreciation and impairment -2,406 Book value December 31 1,288 Economic life 3-5 years Goodwill Software Development Total Year ended December 31, 2010 Book value January 1 3,568 1,417 1,874 6,859 Additions 0 217 37 254 Amortization charge -1,008 -828 -601 -2,437 Book value December 31 2,561 806 1,309 4,676 At December 31, 2010 Cost 5,635 6,488 2,851 14,973 Accumulated amortization and impairment -3,075 -5,682 -1,542 -10,298 Book value December 31 2,561 806 1,309 4,676 Goodwill Software Development Total Year ended December 31, 2009 Book value January 1 4,541 2,947 2,245 9,733 Additions 0 187 208 396 Amortization charge -973 -1,717 -580 -3,269 Book value December 31 3,568 1,417 1,874 6,859 At December 31, 2009 Cost 5,635 6,271 2,814 14,720 Accumulated amortization and impairment -2,067 -4,853 -940 -7,861 Book value December 31 3,568 1,417 1,874 6,859 Economic life 5 years 3 years 5 years

Capitalization of development expense mainly relates to cost of developing the Sevan design for production, storage and offloading of LNG. Expensed research and development cost of purchases from third parties amounted to 68 for the year (2009: 132). Goodwill relates to the acquisition of KANFA AS.

Sevan Marine ASA Notes to the Financial Statements

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Note 4 Investment in Subsidiaries and Receivables and Liabilities to Companies in the Group

Figures in the tables below were prepared in local GAAP and presented in USD 1,000 with exception of number of shares. 2010 Office Cost No of Book Profit/ OwnershipCompany name location price shares Equity value (loss) share KANFA AS Norway 14,287 2,500 22,420 14,287 273 100% Sevan Production AS * Norway 178,007 100,000 41,143 41,143 -10,392 100% Sevan Marine do Brasil Ltda ** Brazil 21,324 42,614,614 1,758 1,758 -5,726 100% Sevan 300 Pte Ltd Singapore 313,556 313,556,070 249,251 313,556 -18,032 100% Sevan Invest AS Norway 262,840 100 261,918 262,840 -761 100% Sevan Drilling AS *** Norway 259,620 100 198,129 259,620 -8,368 100% Sevan Drilling ASA *** Norway 494 3,000,000 3,557 494 -800 100% Sevan Drilling Holding Pte Ltd Singapore 0 1 0 0 0 100% Sevan Holding I AS Norway 48,259 100 47,983 48,259 -239 100% Norway 12,202 100 8,097 8,113 -4 100% Sevan Holding II AS Sevan Holding III AS Norway 565 100 555 565 -3 100% Sevan Holding IV AS Norway 561 100 551 561 -3 100% Sevan Services AS Norway 26 100 12 26 -2 100% Total 1,111,740 951,220 * The Company recognized a write-down of 136,864 regarding its investments in Sevan Production AS during 2010 ** The Company recognized a write-down of 19,566 regarding its investments in Sevan Marine do Brasil Ltda during 2010 *** Reference is made to Note 23 for disclosure on conversion of debt to equity executed after balance sheet date. By the conversion, the equity in Sevan Drilling AS was increased by USD 75 million to USD 273 million, and equity in Sevan Drilling ASA was increased by USD 189 million to USD 193 million.

2009 Office Cost No of Book Profit/ OwnershipCompany name location price shares Equity value (loss) share KANFA AS Norway 14,287 2,500 23,087 14,287 229 100% Sevan Production AS Norway 178,007 100,000 51,535 178,007 -3,529 100% Sevan Marine do Brasil Ltda Brazil 14,336 32,199,800 520 14,336 -4,221 100% Sevan 300 Pte Ltd Singapore 267,325 267,325,131 221,037 267,325 -43,732 100% Sevan Invest AS Norway 262,840 100 262,680 262,840 -19 100% Sevan Drilling AS Norway 259,620 100 206,358 259,620 -43,547 100% Sevan Drilling ASA Norway 494 3,000,000 4,496 494 4,618 100% Sevan Holding I AS Norway 48,259 100 48,222 48,259 -19 100% Sevan Holding II AS * Norway 12,202 100 8,100 8,113 -4,092 100% Sevan Holding III AS Norway 565 100 558 565 -1 100% Sevan Holding IV AS Norway 561 100 554 561 -1 100% Sevan Services AS Norway 26 100 14 26 1 100% Total 1,058,521 1,054,432 * The Company recognized a write-down of 4,089 regarding its investments in Sevan Holding II AS during 2009

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Non-current receivables from companies in the Group: Sevan Production AS Sevan Drilling ASA Sevan Drilling Rig II AS Sevan Invest AS Total non current receivables from companies in the Group

2010 2009 337,219 337,219 105,358 103,072 61,232 0 49,068 0 552,877 440,291

Current receivables from companies in the Group: Sevan Production AS Sevan Production General Partnership KANFA AS Sevan Production Services Limited Sevan Drilling AS Sevan Drilling Pte Ltd Sevan Drilling Rig II Pte Ltd Sevan Drilling Rig Pte Ltd Sevan Drilling ASA Sevan Holding I Pte Ltd Sevan Holding I AS Sevan 300 Pte Ltd KANFA Mator AS Sevan Production UK Limited Piranema Servicios De Petroleo Ltd Sevan Marine do Brasil Ltda Sevan Production Pte Ltd Sevan Drilling Limited Other companies within the Group Total current receivables from companies in the Group

2010 2009 3,984 1,694 12,621 12,506 532 622 58,418 78,502 92,235 60,085 13,093 6,571 6,848 64,893 9,149 9,197 308 0 1,383 55 9,854 48 2,548 440 31 358 1,966 2,563 172 113 182 128 142,009 143,504 686 0 245 305 356,261 381,585

Current payables to companies in the Group: Sevan 300 Pte Ltd Sevan Pte Ltd Sevan Holding II AS Sevan Holding III AS Sevan Holding IV AS Sevan Invest AS Sevan Drilling AS Sevan Drilling ASA KANFA AS Sevan Production AS Sevan Holding I Pte Ltd Other companies within the Group Total current payables from companies in the Group

2010 2009 39,111 286 202 251 196 0 500 0 501 0 189 0 0 15,423 0 26,083 16,960 13,981 1,925 510 202 251 86 59 59,872 56,843

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Note 5 Other Non-Current Assets Deposit Loan to employees Other prepaid Total other non-current assets

2010 2009 151 150 183 173 15 15 349 338

Note 6 Cash and Cash Equivalents Cash at bank and in hand Restricted employees’ tax deduction fund Restricted bank deposits Total cash and cash equivalents

2010 2009 57,496 36,907 2,289 1,493 16,006 17,001 75,791 55,401

15,904 (2009: 15,904) of the restricted cash was collateralized in relation to a guarantee made on behalf of Sevan Drilling Rig Pte Ltd. 1,000 of restricted cash in 2009 was collateralized in relation to a guarantee made on behalf of Sevan Drilling Pte Ltd. The amount was no longer collateralized at balance sheet date in 2010. 102 (2009: 97) of the restricted cash relates to deposit for rental of offices.

Note 7 Shares and Share Options Owned or Controlled by the Board of Directors and Senior Management As of December 31, 2010, the following Directors and Senior Management owned or controlled shares in the Company:

Oskar Mykland, CFO, owns 100,000 shares and holds 400,000 share options with a strike price of NOK 8.81.

Board of Directors

Birte Norheim, Vice President Finance, owns 35,000 shares and holds 50,000 share options with a strike price of NOK 57.25 and 400,000 share options with a strike price of NOK 8.81.

Arne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 3,263,297 shares through Elvheim AS, where he holds a controlling ownership interest. Mr. Smedal also holds 2,000,000 share options with a strike price of NOK 8.81. Kåre Syvertsen, Board member and Group Manager Technology owns 428,704 shares directly, and 2,877,296 shares through his wholly owned company Hallingen AS. Mr. Syvertsen also holds 1,000,000 share options with a strike price of NOK 8.81. Hilde Drønen, Deputy Chairman, owns 2,800 shares directly and 44,200 shares through her wholly owned company Djupedalen AS. Stephan M. Zeppelin, Board member, owns 55,000 shares. Aasulv Tveitereid, Board member, owns 150,000 shares through his wholly owned company AAT Invest. Jørgen Skotnes, Employee representative of the Board and Senior Structural Engineer, owns 5,100 shares and holds 10,000 share options with a strike price of NOK 58.75 and 75,000 share options with a strike price of NOK 8.81. Jorunn Haugen, Employee representative of the Board and HR Coordinator, holds 25,000 share options with a strike price of NOK 8.81.

Fredrik Major, Vice President Business Development/R&D, owns 47,332 shares and holds 300,000 share options with a strike price of NOK 57.25 and 500,000 share options with a strike price of NOK 8.81. Helle Hundseid, Vice President Projects, holds 30,000 shares and holds 16,668 share options with a strike price of NOK 35.20 and 300,000 share options with a strike price of NOK 57.25 and 450,000 share options with a strike price of NOK 8.81. Erling Andreas Ronglan, Vice President Floating Production, owns 30,000 shares and holds 300,000 share options with a strike price of NOK 57.25 and 500,000 share options with a strike price of NOK 8.81. Hanna Moland, Vice President HR & Administration, owns 13,667 shares and holds 50,000 share options with a strike price of NOK 57.25 and 300,000 share options with a strike price of NOK 8.81. Morten Martens Breivik, Vice President QHSE, owns 2,000 shares and holds 10,000 share options with a strike price of NOK 62.75 and 300,000 share options with a strike price of NOK 8.81.

Senior Management

Jon Helge Wilmann, Vice President Drilling, owns 165,000 shares and holds 400,000 share options with a strike price of NOK 8.81.

Jan Erik Tveteraas, CEO, owns 57,556 shares directly and 2,993,444 shares through his wholly owned company Supernova AS. Mr. Tveteraas also holds 2,000,000 share options with a strike price of NOK 8.81.

Alf-Roger Skikstein, Vice President Engineering, owns 240,523 shares through his wholly owned company Knuten AS, and holds 150,000 share options with a strike price of NOK 8.81.

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Note 8 Shareholder Information At December 31, 2010, the Company had 10,288 shareholders (2009: 10,941 shareholders). 52% of the share capital was owned by shareholders residing outside of Norway (2009: 57%).

20 largest shareholder accounts at December 31, 2010: Name BANK OF NEW YORK MELLON S/A STATE STREET BANK AND TRUST CO JPMORGAN CHASE BANK NA A/C FIDELITY SEB ENSKILDA ASA CITIBANK N.A. NEW YORK BRANCH FIDELITY FUNDS-EUROPEAN SKAGEN VEKST JPMORGAN CHASE BANK NORDEA STATE STREET BANK & TRUST CO. A/C STATE STREET BANK AND TRUST CO. A/C BANK OF NEW YORK MELLON S/A BANK OF NEW YORK MELLON SA/NV EUROCLEAR BANK S.A./N.V. BNP PARIBAS SECS SERVICES PARIS FID. FUNDS-EU. BLUE FIRST SECURITIES AS VARMA MUTUAL PENSION BANK OF NEW YORK MELLON SA/NV BANK OF NEW YORK MELLON SA/NV CLEARSTREAM BANKING 20 largest shareholder accounts Remaining shareholders Total shareholders

Number of shares 27,565,034 20,173,142 20,003,805 12,350,000 11,021,226 10,159,579 9,675,000 8,310,034 7,582,816 6,546,278 6,503,428 6,384,500 5,642,089 5,599,897 5,075,300 5,000,000 4,720,000 4,675,417 4,596,000 4,434,022 186,017,567 340,052,415 526,069,982

Ownershipshare (%) 5.24 3.83 3.80 2.35 2.10 1.93 1.84 1.58 1.44 1.24 1.24 1.21 1.07 1.06 0.96 0.95 0.90 0.89 0.87 0.84 35.36 64.64 100.00

Number of shares 21,281,549 16,812,066 15,021,863 13,828,690 9,989,287 8,900,000 8,828,963 8,416,122 8,209,078 8,052,428 7,462,472 7,258,000 6,384,500

Ownershipshare (%) 4.05 3.20 2.86 2.63 1.90 1.69 1.68 1.60 1.56 1.53 1.42 1.38 1.21

20 largest shareholder accounts at December 31, 2009: Name BANK OF NEW YORK MELLON S/A JPMORGAN CHASE BANK STATE STREET BANK AND TRUST CO JPMORGAN CHASE BANK FIDELITY FUNDS-EUROPEAN AGGRESSIVE FUND SKAGEN VEKST JPMORGAN CHASE BANK STATE STREET BANK AND TRUST CO. A/C DNB NOR BANK ASA EGENHANDELSKONTO MORGAN STANLEY & CO FIDELITY FUNDS HOLBERG NORGE BANK OF NEW YORK MELLON SA/NV BANK OF NEW YORK MELLON S/A GOLDMAN SACHS & CO BNP PARIBAS SECS SERVICES PARIS FID. FUNDS-EU. BLUE STATE STREET BANK & TRUST CO. A/C CITIBANK N.A. (LONDON) BANK OF NEW YORK MELLON SA/NV 20 largest shareholders accounts Remaining shareholders Total shareholders

6,333,616 1.20 5,925,752 1.13 5,599,897 1.06 5,588,300 1.06 5,537,000 1.05 5,450,000 1.04 5,205,875 :3D illustration of Sevan the FLNG concept 0.99 180,085,458 34.23 345,984,524 65.77 526,069,982 100.00

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Note 9 Employee Benefit Expense

2010 2009 Wages and salaries 32,286 24,185 Employer`s contribution tax 4,894 3,762 Pension costs 2,017 1,762 Expensed portion of value of share options 2,081 956 Other employee benefit expense 988 733 Total employee benefit expense 42,266 31,398 Number of man-years 170 167

Remuneration of Senior Management, as paid: 2010 2009 Retirement Other Retirement Other Salaries benefits benefits Salaries benefits benefits Jan Erik Tveteraas, CEO 977 28 33 882 24 1 Oskar Mykland, CFO 313 13 1 245 8 2 Birte Norheim, Vice President Finance 301 13 1 248 8 1 Erling Andreas Ronglan, Vice President Floating Production 419 13 33 373 8 4 Fredrik Major, Vice President Business Development/ R&D 344 30 23 277 25 24 Helle Hundseid, Vice President Projects 290 15 1 233 8 4 Alf Roger Skikstein, Vice President Engineering 264 26 1 108 26 1 Hanna Moland, Vice President HR & Administration 202 32 1 160 27 1 Morten Martens Breivik, Vice President QHSE 197 13 1 155 8 1 Jon Wilmann, Vice President Drilling* 313 14 35 103 8 9 Total remuneration paid 3,620 197 130 2,784 150 48 * First day of employment was August 1, 2009

Salaries and other benefits included above were based on actual period of employment and translated at average exchange rates for each year. Senior Management is included in the Group’s collective retirement benefit plans. During 2010, the Chairman of the Board of Directors received bonus of 124 (2009: 173) and the CEO received bonus of 134 (2009: 173). At balance sheet date, the Group has an outstanding loan of 173 to the CEO (2009: 173). Acceptable security has been provided. No other loans were granted to Senior Management or any member of the Board of Directors in 2010 or 2009. The CEO will receive 6-24 months’ salary upon termination of employment, dependant on fulfilment of certain conditions. Reference is made to the ‘Statement regarding establishment of salary and other benefits for Senior Management’ for further details of remuneration of Senior Management.

Sevan Marine ASA Notes to the Financial Statements

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Remuneration of the Board of Directors, as paid: Arne Smedal, Chairman Hilde Drønen, Deputy Chairman Kåre Syvertsen Stephan M. Zeppelin Aasulv Tveitereid Jorunn Haugen, Employee representative * Jørgen Skotnes, Employee representative * Total remuneration paid

2010 2009 66 64 51 36 41 36 49 36 0 0 21 0 21 0 249 172

* Jorunn Haugen and Jørgen Skotnes entered the Board of Directors as Employee Representatives on May 25, 2009

Remuneration of the Board of Directors was paid in the year following duties rendered.

Salaries and other benefits paid to Directors as employees: 2010 2009 Retirement Other Retirement Other Salaries benefits benefits Salaries benefits benefits Arne Smedal, Chairman 949 43 40 791 28 36 Kåre Syvertsen 812 38 23 577 24 23 Jorunn Haugen 90 6 1 80 3 0 Jørgen Skotnes 157 10 3 126 7 4 Reference is made to Note 7 for further information about options and shares owned or controlled by the Board of Directors and Senior Management.

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Note 10 Retirement Benefit Obligations

The Company operates both defined benefit and defined contribution plans that together include all employees.

Defined benefit plan: Amounts recognized in the balance sheet were determined as follows: Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognized actuarial losses Employer`s contribution tax relating to pension liabilities Liability in the balance sheet Movements in the liability recognized in the balance sheet were as follows: January 1 Exchange differences Expense charged to the income statement Contributions paid, including employer`s contribution tax December 31 Principal actuarial assumptions were as follows: Discount rate Expected return on plan assets Future salary increase Expected G-regulation Future pension increases Future turnover Employer`s contribution tax

2010 2009 4,547 3,806 -3,432 -2,487 1,115 1,319 -270 -574 173 186 1,018 931

2010 2009 931 398 -100 121 887 889 -702 -475 1,018 931

2010 2009 3.20% 4.40% 4.60% 5.60% 4.00% 4.25% 3.75% 4.00% 1.10% 2.10% 10.00% 10.00% 14.10% 14.10%

At the date of this report actual return on pension assets for 2010 was not yet known. Actual return on pension assets for 2009 was 5.26%. The actuarial calculations for the Company’s defined benefit plans were carried out by an independent actuary. Calculated pension obligation was based on mortality table K2005 and disability table K1963 adjusted for observed developments. Average life expectancy for a person retiring at 67 years of age: Male Female

2010 2009 17.7 17.7 20.1 20.1

Amounts recognized in the income statement were as follows:

2010 2009

705 714 Net present value of current year’s pension earned 160 128 Interest cost on pension liabilities -143 -141 Expected return on pension assets 31 58 Estimate changes 30 26 Administration cost 783 785 Pension cost, defined benefit plan Employer`s contribution tax relating to pension liabilities 106 103 Pension cost, including employer`s contribution tax 889 888 No. of employees included 28 30 Expected pension cost for 2011 for the defined benefit plan was estimated to 710.

Sevan Marine ASA Notes to the Financial Statements

Major categories of plan assets as a percentage of the fair value of total plan assets were as follows: Equities Property Fixed bonds Liquid bonds Other Total plan assets

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2010 2009 14% 7% 20% 21% 45% 45% 19% 26% 2% 1% 100% 100%

Defined contribution plan:

2010 2009 Pension costs, defined contribution plan 1,235 977 Employer`s contribution relating to contributions paid 174 129 1,409 1,106 Pension cost, including employer`s contribution No. of employees included 143 137

Total pension cost: Pension cost, defined benefit plan Pension cost, defined contribution plan Total pension cost

2010 2009 782 785 1,235 977 2,017 1,762

The Company’s pension schemes satisfy the requirements in the Norwegian legislation regarding mandatory occupational pension.

Note 11 Other Operating Expense Cost of hired personnel Office cost (IT, rental etc) Consultancy (audit, tax and legal)* Marketing Other Total other operating expense

2010 2009 165 801 4,250 4,363 1,708 1,816 287 177 4,100 2,682 10,510 9,838

* Specification of auditor’s fee (excl. VAT): 2010 2009 Statutory audit 363 151 Tax related service 38 6 Other services 0 116 Fees charged directly to equity 0 12 Total auditor’s fees 401 286

Sevan Marine ASA Notes to the Financial Statements

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Note 12 Lease Agreements

The Company has entered into several agreements for rent of offices. Lease expense for offices amounted to 1,118 for the year (2009: 1,038). The Company has entered into a lease agreement for rent of offices in Arendal of 10 years duration and commencement in 2014, with an annual lease expense of 2,877. The Company has entered into lease agreements for various software, ASP solutions and cars for which the expense for the year amounted to 319 (2009: 358). All lease agreements entered into by balance sheet date were based on ordinary operational terms.

At balance sheet date the Company has entered into the following lease obligations: No later than 1 year Between 1 and 5 years Later than 5 years Total lease obligations

2010 2009 1,456 1,354 7,984 7,239 23,018 25,037 32,458 33,630

Note 13 Earnings per Share Net profit/(loss) (USD 1,000) Earnings per share (USD) Earnings per share diluted (USD) Average no. of outstanding shares (thousands) Weighted avg. no. of ordinary shares for diluted earnings per share (thousands)

2010 2009 -168,875 -20,085 -0.03 -0.04 -0.03 -0.04 526,070 455,868 526,070 455,868

Basic earnings per share Basic earnings per share were calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year.

Diluted earnings per share Due to net losses for the periods reported, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share was calculated as earnings per share.

Note 14 Construction Contracts

2010 2009 Contract revenue 1,956 27,725 Contract cost -1,783 -21,517 Net profit/(loss) 173 6,208 2010 2009 Recognized, not yet invoiced 143 57 Incurred cost on ongoing projects, included in current liabilities 161 1,025 Activities defined as construction contracts mainly relate to Joint Industry Projects, feasibility studies and Front End Engineering and Design activities (FEEDs). Under the activities defined as construction contracts, the Company was able to recover certain expenses relating to further development and testing of the Sevan design. Construction activities in 2009 include FEEDs relating to the Goliat project.

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Note 15 Share-Based Payments

The exercise prices of share options awarded to employees was at minimum equal to the market price of the share at the time of the award. 14.7 million of the remaining options may be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.1 million of the remaining options may be exercised provided fulfillment of certain criteria and expire five years following the award. The Company has no legal or constructive obligation to repurchase or settle the options in cash.

Remaining share options and weighted average exercise prices were as follows:

January 1 Granted Exercised Lapsed/forfeited December 31

2010 2009 Average Average exercise price No. of exercise price No. of (NOK per share) options (NOK per share) options 47.57 5,384,521 47.44 5,679,691 8.81 12,500,000 0 0 0 0 0 0 24.24 -1,054,848 45.07 -295,170 20.24 16,829,673 47.57 5,384,521

Of the 16.8 million remaining options (2009: 5.4 million), 2.1 million options were exercisable (2009: 1.9 million). No options were exercised during 2010 and 2009.

Expirations dates and average exercise prices for the remaining share options: Year of Exercise price Share options remaining expiration in NOK per share at end of year 2010 2009 2010 16.60 0 16,667 2010 15.00 0 16,668 2010 15.50 0 16,667 2010 19.30 0 192,126 2010 24.00 0 590,902 2010 30.90 0 220,318 2011 38.40 246,768 246,768 2011 38.80 316,670 316,670 2011 37.90 225,400 225,400 2011 35.20 58,334 58,334 2011 33.50 16,667 16,667 2012 37.60 116,667 116,667 2012 53.00 53,667 53,667 2012 58.25 47,000 48,500 2012 57.25 3,000,000 3,000,000 2012 58.75 10,000 10,000 2013 62.75 213,500 213,500 2013 78.00 25,000 25,000 2015 8.81 12,500,000 0 Total 16,829,673 5,384,521 The average fair value of options awarded during 2010, determined using the Black-Scholes’ option-pricing model, was NOK 2.12. The significant inputs into the model were share price at the award dates, exercise prices as shown above, standard deviation of expected share price returns of 30%, dividend yield of 0%, estimated option life, and annual risk-free interest rate of 3.0%. No options were awarded during 2009. As of December 31, 2010, none of the outstanding share options were in-the-money.

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Sevan Marine ASA Notes to the Financial Statements

Note 16 Related Party Transactions

2010 Total operating revenue of 85,770 includes revenue from Group companies amounting to 19,842. The Company charged companies within the Group 1,000 for design fee/license revenue during 2010. The Company charged companies within the Group 16,163 for services relating to management, engineering and site supervision, and 2,679 for management fees. The Company charged companies within the Group 37,475 for interest relating to loans during 2010, and was charged 860 for interest relating to borrowings from companies within the Group during the year. The Company charged companies within the Group 4,709 relating to guarantees during the year, and was charged 3,892 relating to guarantees from companies within the Group. The Company received Group contribution of 212 during 2010.

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Market risk Foreign exchange risk The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to NOK, EURO and GBP. Foreign exchange risk arises from future commercial transactions, recognized assets or liabilities, and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. The Company aims at achieving a natural hedge between cash inflows and cash outflows and manages remaining foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, by forward contracts and similar instruments as appropriate. Hedging of foreign exchange exposures are executed on a gross basis and foreign exchange contracts with third parties generally designated at Group level. The Group’s risk management policy is to hedge anticipated transactions in each major currency. The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

2009 Total operating revenue of 53,811 includes revenue from Group companies amounting to 24,003. The Company charged companies within the Group 1,500 for design fee/license revenue during 2009. The Company charged companies within the Group 20,433 for services relating to management, engineering and site supervision, and 2,070 for management fees. The Company charged companies within the Group 32,622 for interest relating to loans during 2009, and was charged 1,139 for interest relating to borrowings from companies within the Group during the year. The Company charged companies within the Group 4,181 relating to guarantees during the year, and was charged 3,527 relating to guarantees from companies within the Group. The Company received Group contribution of 510 during 2009.

Note 17 Financial Risk Management

Financial risk factors The Company’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. Risk management is carried out by Treasury under policies approved by the Board of Directors. Treasury identifies, evaluates and hedges financial risks in close co-operation with its operating units. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity.

Price risk The Company is exposed to commodity price risk at two main levels: • The demand for Sevan units is sensitive to oil price developments, fluctuations in production levels, exploration results and general activity within the oil industry. • The cost of construction price of future units is sensitive to changes in market price of the input factors.

Cash flow and fair value interest rate risk The Company’s interest rate risk arises from non-current debt. Debt subject to floating interest rates exposes the Company to cash flow interest rate risk. Debt subject to fixed interest rates exposes the Company to fair value interest rate risk. The Company’s policy is to maintain part of its debt at fixed rate. The Company simulates various scenarios taking into consideration, refinancing, and renewal of current positions, alternative financing and hedging. Based on the different scenarios, the Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of conversion from floating interest rates to fixed interest rates. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals the difference between fixed contract interest rates and floating-rate interest amounts calculated by reference to the agreed notional amounts. The Company’s policy is to maintain liquidity through placement of excess cash as bank-deposits and/or short-term, marketable investments at limited risk.

Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Company has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institution.

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Sevan Marine ASA Notes to the Financial Statements

Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Company aims to maintain flexibility in its liquidity by keeping committed credit lines available. The Company has implemented routines to continuously update its cash flow forecast when changes to main assumptions relating to repayment schedules, interest rates changes etc to be able to foresee the necessary actions to taken to rectify any potential adverse effects on its future liquidity position. Reference is made to Note 20 for a maturity analysis of the Company’s financial liabilities.

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accordance with the terms of the USD 525 million bank financing facility (undrawn at balance sheet date) to Sevan Drilling Rig II Pte Ltd.

Future contracted cash flows The Company has entered into a credit facility, secured by 1st priority securities pursuant to the terms of the USD 83 million (USD 72 million outstanding at balance sheet date) bank loan agreement described in Note 20.

Security arrangements relating to equipment supplies and services:

KANFA AS: The Company has issued a performance guarantee for KANFA AS’ delivery of a process plant and compression packages to a client.

Note 18 Contingencies

KANFA Aragon AS: The Company has issued a performance guarantee for KANFA Aragon AS’ delivery of a process facility for LNG to a client.

The Company has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business.

At balance sheet date the Company is part to the following security arrangements:

Sevan Driller: The Company has issued guarantees for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors.

Sevan Brasil: Security arrangements relating to financing:

FPSO Sevan Piranema: The Company has issued a bond loan, secured by own and related entity 1st priority securities pursuant to the terms of the USD 270 million (USD 250 million outstanding at balance sheet date) bond loan agreement descripted i Note 20.

FPSO Sevan Hummingbird: The Company has issued two tranches in a bond loan, secured by own and subsidiary’s 1st priority securities pursuant to the terms of the USD 100 million plus NOK 625 million bond loan agreement descripted i Note 20.

The Company has issued a guarantee for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors.

Discontinued project (Sevan Driller III): The Company has issued guarantees for the subsidiary’s correct fulfillment of its contractual commitments as purchaser towards vendors. Maximum exposure for the Group for cancellation fees to vendors was estimated to USD 3.8 million. Should a third drilling rig be ordered, no cancellation fee is expected to incur in relation to the discontinued project.

FPSO Sevan Voyageur:

Security arrangements relating to operations:

The Company has issued a bond loan, secured by own and subsidiary’s 2nd priority securities pursuant to the terms of the NOK 870 million (USD 740 million outstanding at balance sheet date) bond loan agreement descripted i Note 20. The Company has provided certain securities on 1st priority in accordance with the terms of a USD 230 million (USD 177.9 million drawn at balance sheet date) term loan agreement to Sevan 300 Pte Ltd.

FPSO Sevan Piranema: The Company has granted a performance guarantee to the technical manager.

FPSO Sevan Hummingbird: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee to the technical manager.

Sevan Driller: The Company has provided certain securities on 1st priority in accordance with terms of the USD 250 million (USD 244 million outstanding at balance sheet date) bank financing facility to Sevan Drilling Pte Ltd and provided a guarantee on 2nd priority in accordance with terms of the NOK 1,000 million bond loan agreement to Sevan Drilling AS. In addition, the Company has provided a guarantee in accordance with terms of a vendor credit facility of USD 78 million.

FPSO Sevan Voyageur:

Sevan Brasil (Sevan Driller II):

Discontinued project:

The Company has provided certain securities on 1st priority in

The Company has guaranteed for correct fulfillment of the contract

The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee to the technical manager.

Sevan Brasil: The Company has guaranteed for correct fulfillment of the contract with the end-charterer.

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Sevan Marine ASA Notes to the Financial Statements

with the end-charterer. During the global financial crisis, it proved difficult to secure the required financing for the newbuild project, and construction on the rig subsequently never commenced. Sevan has issued a Notice of Arbitration to the end-charter (ONGC), informing ONGC of its intention to resolve certain disputes regarding the firm order for the deepwater drilling unit by reference to arbitration. In the arbitration, Sevan is disputing ONGC’s right to call on a bank guarantee for the sum of USD 15.9 million. At balance sheet date,

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the arbitration proceedings were not yet concluded. Estimation with sufficient probability (higher than 50% likelihood) of the possible outcome of these proceedings was not achievable. No liability was therefore recognized in the balance sheet as of December 31, 2010. Reference is made to Note 23 for events after balance sheet date regarding the discontinued project.

Note 19 Operating Revenue

Revenue from companies in the Group License fee Other revenue Total operating revenue

2010 2009 19,842 24,003 44,000 0 21,928 29,808 85,770 53,811

Note 20 Interest-Bearing Debt 2010 2009 * Nominal Amortized Fair Nominal Amortized Fair value value value value value value Bond loan 665,789 656,347 642,917 0 0 0 Bank debt 30,579 30,110 30,579 0 0 0 Convertible bond 0 0 0 48,000 33,978 52,263 Value of embedded call options -7,881 -6,089 -6,089 0 0 0 Interest-bearing debt, non current 688,487 680,368 667,408 48,000 33,978 52,263 Bond loan* 58,604 44,435 42,603 603,524 560,316 475,507 Bank loan 41,493 40,858 41,493 Value of embedded call options -13,907 -14 -14 -25,410 -4,214 -4,214 Interest-bearing debt, current 86,190 85,279 84,082 578,114 556,102 471,293 Total interest-bearing debt

774,677 765,647 751,489 626,114 590,080 523,556

* As described in the Board of Director’s Report in the Financial Statements of 2009, while the Board of Directors was of the firm opinion that the outstanding debt at balance sheet date in 2009 in reality was non-current in nature, the accounting regulations require that amounts which formally could be held to be mandatorily repayable as at the balance sheet date be classified as current irrespective of whether such repayment was required by the lenders or the basis therefore has subsequently been eliminated. Accordingly, relevant liabilities were classified as current in the 2009 financial statements. All necessary actions were resolved during 2010 and the debt was classified back to non-current by balance sheet date in 2010.

Repayment schedule as per December 31, 2010: Nominal value 2011 2012 2013 2014 2015 Bond loan (USD 100 million) 100,000 0 0 7,500 7,500 85,000 Bond loan (NOK 625 million) 106,721 0 0 8,004 8,004 90,713 Bond loan (USD 270 million) 250,000 22,500 25,000 202,500 0 0 Bond loan (NOK 870 million)* 126,357 22,198 108,813 0 0 0 Bond loan (NOK 700 million) 119,527 0 0 0 119,527 0 Bank debt (USD 82,3 million) 72,072 41,493 30,579 0 0 Total nominal value 774,677 86,190 164,392 218,004 135,031 175,713 Estimated interest payments ** 73,169 63,805 46,216 40,914 22,219 * Matures in 2012 at 105% of the remaining value ** Estimated interest payments are based on prevalling LIBOR and NIBOR spot rates at December 31, 2010

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Interest-bearing debt are nominated in the following currencies (nominal values): NOK USD Total interest-bearing debt

2010 2009 226,248 455,701 548,429 170,413 774,677 626,114

Fair value of bank loans was estimated by discounting the contractual cash flows at a rate reflecting the underlying risk. Fair value of bond loans was based on market rates of the bonds at balance sheet date. At balance sheet date, the Company was exposed to changes in interest rates for an outstanding bond loan balance of NOK 740 million (3-month Nibor + margin) and a outstanding bond loan balance of USD 250 million (6-month Libor + margin).

Effective interest rates at balance sheet date *: 2010 2009 NOK USD NOK USD Bank debt (USD 82.3 million) 12.6% NA Convertible bond (USD 48 million) NA 25.6% NA Bond (USD 140 million) 9.7% 11.0% Bond (NOK 870 million) ** 11.7% 5.4% Bond (USD 270 million) 6.9% Bond (NOK 700 million) Bond (NOK 625 million) Bond (USD 100 million)

15.3% NA NA 14.4% 12.9% NA

* Estimated interest payments are based on prevalling LIBOR and NIBOR spot rates at December 31, 2010 ** In a bondholders meeting held in June, the bondholders consented to certain changes in the loan conditions, including the increase from USD 150 million to USD 230 million of a higher ranking bank facility and an increase in the applicable interest margin from Nibor+5.50% to Nibor+10.0% which became effective in November 2010 upon the first drawdown on the senior secured credit facility.

Embedded call options In December 2010, the Company carried out an unsecured bond issue of NOK 700 million, at a fixed interest rate of 14.0%. The bond has a term of 4 years, with European call options at 107.0%, 106.0%, 105.0% and 104.0% after 24, 30, 36 and 42 months respectively. Fair value of the options at balance sheet date was estimated to 0.5 million. In August 2010, the Company carried out a bond issue consisting of two tranches of USD 100 million and NOK 625 million, at fixed interest rates of 12.0% and 13.25% respectively. The bonds have a term of 5 years and American call options at 108.0%, 106.5% and 105.0% during year 3, 4 and 5 respectively. Fair value of the call options at balance sheet date was estimated to 0.5 million and 1.1 million respectively. In October 2007, the Company carried out a bond issue of NOK 870 million, at an interest rate of Nibor+5.5%. The bond has a term of 5 years, and an American call option at 105%. NOK 740 million remained outstanding on the loan at balance sheet date. Fair value of the option at balance sheet date was estimated at 3.8 million (2009: 2.1 million). In May 2007, the Company carried out a bond issue of USD 270 million, at an interest rate of Libor+3.0%. The bond has a term of 6 years, with one remaining European call options at 102.5% which can be exercised in May 2011. USD 250 million remained outstanding on the loan at balance sheet date. Fair value of the option at balance sheet date was estimated at nil (2009: 1.3 million). In August 2010, the Company prepaid an outstanding bond of 135 million at a call price of 102.5%. In November 2010, the Company prepaid an outstanding 48 million convertible bond at a call price of 140%.

Convertible bond In April, May and June 2009 the Company issued senior secured callable convertible bonds in aggregate nominal value of USD 48 million. The term of the convertible bonds was four years and coupon was fixed at 15% p.a. of parity value to conversion price. The values of the liability component and the equity conversion component were determined at the time of the issuance of the bond. Fair value of the liability component at issue date, classified as interest-bearing debt, was calculated using a market interest rate for an equivalent non-convertible bond. The market interest rate applied was based on third party valuations. The residual amount, representing the value of the equity conversion option, was classified as “other equity” net of income taxes. The USD 48 million convertible bond was repaid at 140% of par value in November 2010.

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Convertible bond recognized in the balance sheet was calculated as follows: Face value of convertible bond Issue cost Equity component Liability component on initial recognition Financial expense Coupon interest incurred Liability component at December 31

2010 2009 0 48,000 0 -1,476 0 -14,058 0 32,466 0 6,312 0 -4,800 0 33,978

Fair value of the liability component of the convertible bond amounted to USD 52.3 million on December 31, 2009. Fair value was calculated using cash flows discounted at an assumed marked interest rate for an equivalent non-convertible bond. The assumed market interest rate was based on third party valuations.

Covenants In addition to the loans taken up by the Company as described earlier in this note, reference is made to Note 15 in the Consolidated Financial Statements for an overview of the Group’s interest-bearing debt facilities. Security arrangements related to financing are described in Note 18. The Company’s loan agreements contain customary covenants and conditions, including cross default, material adverse effect and other restrictive provisions, including limitations on dividend distributions to shareholders. Certain agreements also provide for mandatory prepayment in case of a “change of control” event and require that the Company must have an equity ratio of 30% on a consolidated basis.

Note 21 Provisions January 1, 2010 Currency translation adjustments Arising during the year Reversed during the year Used during year December 31, 2010

Bonus Total 0 0 0 0 2,001 2,001 0 0 0 0 2,001 2,001

Bonus Provision for bonus was based on a defined bonus program for employees in the Company for the measurement period July 1, 2010, to June 30, 2011. The provision was based on a ‘best estimate’ of the expected achievements of the key performance indicators as set out in the bonus program and takes into account the incurred portion of the measurement period at balance sheet date. The bonus provision was classified as a current liability. There was no provisions at balance sheet date in 2009.

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Note 22 Financial Income and Financial Expense Currency gains and losses relating to operational activities were classified as a separate line item as an operational expense in the Income Statement and are not included in the tables below. Currency gains and losses relating to financing activities were presented as separate line item as a financial income/(expense) in the Income Statement.

Financial income 2010 2009 Interest income 211 743 Amortization of embedded call options 8,174 4,499 Value of call options embedded in bonds 2,371 2,556 Interest swap 0 2,660 Other financial income 0 240 Received group contribution 212 510 Financial income from companies within the Group 42,184 36,803 Total financial income 53,152 48,011 Financial expense 2010 2009 52,435 48,624 Interest expense 3,830 9,867 Loss on value of call options 65 0 Financial investments 9,469 3,603 Amortization of fee related to interest-bearing debt 156,430 4,089 Write-down investment in subsidiary 24,778 0 Call premium Other financial expense Financial expense from companies within the Group Total financial expense

1,211 96 4,753 4,666 252,971 70,944

USD 19.2 million of the expensed call premium in 2010 relates to the early repayment of a USD 48 million senior secured callable convertible bond at 140% of par value, USD 2.2 million relates to the early repayment of a USD 45 million 1st lien bond at 105% of par value and USD 3.4 million relates to the early repayment of a USD 135 million 1st lien bond at 102.5% of par value. Amortization of interest-bearing debt and embedded call options in 2010 includes amortization of all remaining fees and embedded call options related to refinanced debt.

Sevan Marine ASA Notes to the Financial Statements

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Note 23 Events After Balance Sheet Date

During March 2011, equity in Sevan Drilling AS was increased by conversion of debt by the Company of USD 75 million. Equity in Sevan Drilling AS following the conversion amounted to USD 273 million. During March 2011, equity in Sevan Drilling ASA was increased by conversion of debt by the Company of USD 189 million. Equity in Sevan Drilling ASA following the conversion amounted to USD 193 million. On March 17, 2011, the Indian Supreme Court resolved to not grant the Company’s application for an order preventing ONGC from calling on the Bank Guarantee for the sum of USD 15.9 million until after the disputes between the Company and ONGC relating to a firm order of a deepwater drilling unit was been resolved by way of arbitration. ONGC has subsequently called on the bank guarantee. As of the date of this report, the arbitration proceedings to determine whether ONGC is entitled to the funds were not yet concluded. The Company is claiming for a refund of the payment made to ONGC under the bank guarantee. Potential liabilities relating to the ONGC contract are disclosed in Note 26 in the consolidated financial statements. In March 2011, the Board filed a listing application to the Oslo Stock Exchange for an IPO for its ultra deep water drilling business. The contemplated IPO of Sevan Drilling ASA will involve a combined secondary sale of shares currently owned by Sevan Marine ASA and an equity offering of new shares to be issued by Sevan Drilling ASA. The IPO is subject to bank approval of the change of control. In connection to the IPO of the Company’s drilling business, Jan Erik Tveteraas, the current CEO Sevan Marine, will assume the position as CEO of Sevan Drilling ASA as from the first day of listing and Jon Wilmann, Vice President Drilling Sevan Marine, will assume the position of CFO. Sevan Marine is in the process of selecting a successor for Mr. Tveteraas.

Auditor’s Report

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PricewaterhouseCoopers AS Forus Atrium Postboks 8017 NO-4068 Stavanger Telefon 02316

To the Annual Shareholders' Meeting of Sevan Marine ASA

Independent auditor’s ’s report Report on the Financial Statements We have audited the accompanying financial statements of Sevan Marine ASA, which comprise the financial statements of the parent company and the financial statements of the group. The financial statements of the parent company comprise the balance sheet as at 31 December 2010, and the income statement for the year then then ended, and a summary of significant accounting policies and other explanatory information. The financial statements of the group comprise the balance sheet at 31 December 2010, income statement, statement of comprehensive income, changes in equity, cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors and the Managing Director’s Responsibility for the Financial Statements The Board of Directors and the Managing Director Director are responsible for the preparation and fair presentation of the financial statements of the parent company in accordance with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the financial statements of the group in accordance with International Financial Reporting Standards as adopted by EU and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the pre preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance dance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reason reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and d fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient s nt and appropriate to provide a basis for our audit opinion.

Alta Arendal Bergen Bodø Drammen Egersund Florø Fredrikstad Førde Gardermoen Gol Hamar Hardanger Harstad Haugesund Kongsberg Kongsvinger Kristiansand Kristiansund Larvik Lyngseidet Mandal Mo i Rana Molde Mosjøen Måløy Namsos Oslo Sandefjord Sogndal Stavanger Stryn Tromsø Trondheim Tønsberg Ulsteinvik Ålesund PricewaterhouseCoopers navnet refererer til individuelle medlemsfirmaer tilknyttet den verdensomspennende PricewaterhouseCoopers PricewaterhouseCoopers organisasjonen Medlemmer av Den norske Revisorforening orening • Foretaksregisteret: NO 987 009 713 • www.pwc.no

10

ANNUAL REPORT

SEVAN MARINE

90

Opinion on the financial statements of the parent company In our opinion, the financial statements of the parent company give a true and fair view of the financial position for Sevan Marine ne ASA as at 31 December 2010, and of its financial performance for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. Opinion on the financial statements of the group In n our opinion, the financial statements of the group give a true and fair view of the financial position of the group Sevan Marine ASA as at 31 December 2010, and of its financial performance and its cash flows for the year then ended in accordance with International International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report and account of corporate governance principles and practices Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report and account of corporate governance principles and practices concerning the financial statements and the going concern assumption, and the proposal for coverage of the loss is consistent with the financial statements and complies with the law and regulations. Opinion on Registration and documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements ISAE 3000 “Assurance Engagements Other than Audits or Reviews of Historical Financial Information”, it is our opinion that the company’s management has fulfilled its duty to produce a pro proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.

Stavanger, 30 March 2011 PricewaterhouseCoopers AS

Torbjørn Larsen State Authorised Public Accountant (Norway) Note: This translation from Norwegian has been prepared for information purposes only.

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10

ANNUAL REPORT

SEVAN MARINE

91

Responsibility Statement We confirm, to the best of our knowledge, that the financial statements for the period January 1 to December 31, 2010, have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit and loss of Sevan Marine ASA as well as the consolidated group.



We also confirm that the Board of Directors’ Report includes a true and fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncer¬tainties facing the Company and the Group.

Arendal, March 30, 2011 The Board of Directors of Sevan Marine ASA

_______________________ Arne Smedal Chairman

_______________________ Hilde Drønen Deputy Chairman

_______________________ Kåre Syvertsen Board member

_______________________ Aasulv Tveitereid Board member

_______________________ Stephan M. Zeppelin Board member

_______________________ Jorunn Haugen Employee representative

_______________________ Jørgen Skotnes Emloyee representative

_______________________ Jan Erik Tveteraas CEO

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Norway Sevan Marine - Arendal

ANNUAL REPORT

SEVAN MARINE

92

Kittelsbuktveien 5 4836 Arendal NORWAY Phone: (+47) 37 40 40 00 Fax: (+47) 37 40 40 99

Sevan Marine - Trondheim Business address: Havnegata 9, Brattøra (Pir 1, C4) 7011 Trondheim NORWAY Postal address: Postboks 1282, Sluppen 7462 Trondheim NORWAY Phone: (+47) 73 10 84 00 Fax: (+47) 73 10 84 99

KANFA AS / KANFA-TEC AS/ Sevan Marine ASA - Oslo

KANFA Aragon AS/ Sevan Marine - Bergen

Nye Vakås vei 80 1395 Hvalstad NORWAY Phone: (+47) 64 00 18 00 Fax: (+47) 64 00 18 01

Fantoftveien 42 5072 Bergen NORWAY Phone: (+47) 37 40 40 00 Fax: (+47) 37 40 40 99

KANFA Mator AS Tormod Gjestlandsvei 16 3936 Porsgrunn NORWAY Phone: (+47) 35 57 49 00

BRAZIL

SINGAPORE

SITE OFFICE CHINA

Sevan Marine – Rio de Janeiro

Sevan Marine - Singapore

Palácio Austregésilo de Athayde Avenida Presidente Wilson No 231 suite 1003 20030-905 Rio de Janeiro - RJ BRASIL Phone: (+55) 21 38 61 79 79 Fax: (+55) 21 38 61 79 99

350 Orchard Road Shaw House # 15-18 SINGAPORE 238868 Phone: (+65) 62 20 13 14 Fax: (+65) 62 20 13 15

Sevan Marine at Cosco Qidong

Sevan Marine – Piranema operations, Aracaju

Sevan Marine – UK

Av. Pedro Paes de Azevedo 34, Salgado Filho-Aracaju-Sergpipe (SE) 49020-450 BRASIL Phone: (+55) 79 32 26 61 50 Fax: (+55) 79 32 26 61 70

UNITED KINGDOM C/O Wood Group Engineering (North Sea) Ltd Trafalgar House, Altens Aberdeen AB12 3LE SCOTLAND, UK Phone: (+47) 37 40 40 00 Fax: (+47) 37 40 40 99

Cosco (Qidong) Offshore Shipyard Yinyang Town Qidong 22 62 00 REPUBLIC OF CHINA