Annual Report for. Global Geo Services ASA. Annual Report Global Geo Services ASA

Transcription

1 Annual Report Global Geo Services ASA 1. Business and location Global Geo Services ASA s (GGS) core business is collecting, processing, marketing, and sale of seismic data. GGS uses chartered vessels and personnel in its seismic surveys focused on the global market for exploration for petroleum resources. GGS began equipping a new seismic vessel in, which will be collecting data on a 5-year bare boat charter. The ship was finished, equipped, and put to work during the first fiscal quarter of The subsidiary Spectrum Energy and Information Technology Ltd (Spectrum), acquired on 28 December, also has an extensive global seismic library and processing business covering many parts of the world. The GGS Group runs its business from the head office in Oslo, as well as through various subsidiary companies and joint venture enterprises. These companies are - Continuity Solutions Pte Ltd (CSPL, Singapore, and Hong Kong), GeoBridge (Singapore), Spectrum (United Kingdom and USA), and NESCOS AS (Norway). NESCOS AS focuses on increasing the recovery ratio of oil by developing intelligent valves for use in oil wells. Using valves from NESCOS AS, oil companies can control well production quantities in a new and better manner. Annual Report for The Parent Company, GGS ASA, operates from the Company s head office at Bygdøy in Oslo. The Company s organization number is The subsidiary CSPL, together with the joint venture enterprise (50 %) GeoBridge are located in Singapore, while NESCOS AS is located in Ålgård, Rogaland. The Spectrum head office is located in Woking, near London, with its main branch offices in Houston and Cairo. In addition, the group now has offices in Dubai, Tripoli, Buenos Aires, New Delhi, and Beijing, which, together, give good global coverage close to the Company s focus areas. 2. Organisation Company management during the period consisted of Trond Christoffersen as CEO and Janne Sølvi Weseth as CFO. The board of directors consisted of Morten Andersen as Chairman, Egil Bergsager, Ivar B. Ramberg, and Liu Tielong. On 28 November, the Company acquired the shares of Continuity Solutions Pte Ltd (CSPL) - registered in Singapore. Andy Cunningham has been CEO of CSPL during this period, while Morten Andersen has been the Chairman. The Company was established on 5 December, together with BGP Geo Bridge Ltd, which is a 50/50 owned company registered in Singapore. Liu Tielong has been Chief Executive Officer during this period, while Morten Andersen has been Chairman. Global Geo Services ASA The Company took over the shares in the UK registered company Spectrum Energy and Information Technology Ltd (Spectrum) on 28 December. Len Reece has been CEO of Spectrum during this period, while Morten Andersen has been Chairman since the takeover. David Rowlands has been Director of Spectrum s activities during this period, with responsibility for the running the Woking office. Derek Skoyles has been Director of Spectrum activities during this period, with responsibility for running the Houston office. The Company chose a new Board of Directors during an extraordinary general assembly on 29 March Morten Andersen (the previous chairman of the board) and Ivar Ramberg both left the board at this time. As new board members, Morten Garman was elected as the new chairman, while Tone Bjørnov and Elen Roaldset were elected as new board members. Egil Bergsager and Liu

2 Tielong were re-elected. Egil Bergsager and Liu Tielong left the board during an extraordinary general assembly on 18 June 2007, and were replaced by Gunnar Hvammen and Øystein Stray Spetalen. The Company appointed Eddie Berglund as new CEO on 14 May. It was agreed that the previous CEO Trond Christoffersen would continue to work for the Company in a leading position until the end of Company financing Having reduced the Company s debt from approximately 340 MNOK in 2002 to 228 MNOK prior to the takeover, the Company debt financed the MNOK acquisition of Spectrum. A loan of 77 MNOK, with term to maturity of up to 2 years, was signed with Atlas Capital Management, and a convertible loan with maturity 31 December was signed in for MNOK, with a conversion rate of NOK 8.79 was agreed with the sellers of Spectrum. The Company carried out a private placement on 15 March, where 5.5 million new shares were issued at a rate of NOK 6.65, which implies an injection of 37 MNOK in new capital, which was spent to repay the Company s debt and to finance investments. In justifying the recommendation to agree on authorizing the board to increase the share capital at the Company s general assembly held 30 June, the board expressed its goal to bring in between 100 and 150 MNOK in new capital in, as well as signing convertible loans amounting to 150 million and 200 MNOK. The general assembly gave the board the authority requested, with votes votes were entered against the board s recommendation. The board continued working to re-finance the Company in a satisfactory fashion during the year and the early months of 2007, without finishing this work. Therefore, the Company entered into concurrent agreements with Atlas Capital Management concerning the postponement of maturity dates on all loans the Company had with the lender. The board members at the time of 30 January 2007 proclaimed the termination of the re-financing process, through an agreement to sign a bond loan of 100 MNOK at 12.6 % interest, combined with the issuance of 10 million share subscription rights - conditional on carrying out a share issue of at least 60 MNOK. On 31 January, the Company announced that a share issue of 100 MNOK had been carried out at a rate of NOK 3 per share, which was also to be the strike price for the subscription rights associated with the bond loan. The lenders were Bank2 and Atlas Capital Management, with 50 MNOK each. This capital increase gave the Company 94 MNOK. The money was spent to repay the loan from Atlas Capital Management at an amount of 50 MNOK, and to cover overruns at GGS Atlantic, of about 30 MNOK. The rest of the 14 MNOK was spent to pay operational costs and suppliers. The new board, together with management, has worked during this period to find a superior solution for the Company and its shareholders. Work has been done simultaneously in order to work through and solve short-term liquidity challenges, as well as taking into consideration to creditor rights, searching for industrial and financial solutions. In this context, the possibility of realising assets was evaluated. As an element in this work, the Company began studying a project for rigging a 3D seismic boat for use, and evaluating the possible financial models for this. The new board of directors regards the Company s economic situation as being considerably more critical than described by the previous board. Therefore, the new board has placed all its focus on carrying out a satisfying and sustainable re-capitalization of the Company, in the short time this board has been working together. The new board decided to present their recommendation for a private placing of 200 MNOK to Spencer Energy AS and Ferncliff AS on 31 May, at an exchange price of NOK 1. Spencer Energy AS and AS Ferncliff wished to sign for 100 million shares each. Spencer Energy AS and AS Ferncliff gave a guarantee to sign for a further 200 MNOK at a following preferential rights repair share issue of NOK 1. This preferential rights repair share issue was to occur without issuing subscription rights, and without the right to oversubscription. For each share owned by the existing shareholders, they could sign for shares. This recommendation was presented during an extraordinary general assembly on 18 June The board s recommendation was passed with a majority of 2/3. Through this share issue, GGS will be provided with capital amounting to 385 MNOK. This allows the Company to redeem all interest-bearing debts, at the same time as allowing the Company to become more offensive after a difficult financial period. Re-financing, and new major industrial shareholders, will create a good basis for further company development. Assuming that all the shareholders sign for their apportioned shares in the preferential rights repair share issue, each of the new owners will reach an ownership interest of %. With the above-mentioned financing in place, the board considers the financial risk for the Company and the Group as satisfying. 4. Business activities in Since, the Company has had a goal of operating in several countries, with different political regimes, and with a prospect of expanding its project portfolio through both large and small projects, which should secure a more even stream of income and a lower risk profile. This led to, among other things, the Company carrying out projects in East Timor, Indonesia, and in the JPDA (Joint Petroleum Development Area, administered in co-operation between Australia and East Timor). In the second half of, GGS commenced a new strategic project collecting seismic data in the eastern Gulf of Mexico, off the coast of Florida. Progress in this project has been characterized by delays associated with completion and operation of GGS Atlantic. The first phase of this project was completed in June The area covered by Phase 1 is not open to exploration activity by American authorities. The Company expects this to occur no earlier than the year As a result, there is a great deal of uncertainty related to book values for this project, amounting to 36 MNOK. On 18 May, the Company made public that it had agreed to purchase the former seismic boat Jeff Chouest, for rigging as a state-of-the-art 2D boat. Furthermore, a 5-year bare-boat charter for resale and back-leasing of the boat on was concluded with Spencer Energy AS (later transported to Songa Shipping Pte. Ltd). Spencer Energy AS was to manage the financing, while GGS was to have the operative responsibilities for the rigging. The decision of rigging the boat, given the name GGS Atlantic, was taken partly based on the tense seismic market that made it both expensive and difficult for the Company to procure enough boat capacity for its own multi-client projects, with particular emphasis on the needs west of Florida in the eastern Mexico Gulf region. This decision also represented a desire for GGS to expand its base for revenue flow, with help from the profitable contract market. On 2 April 2007, the Company announced that the boat s rigging was finished, and that GGS had begun seismic data collection west of Florida. The Company had a sale related to PC 2000 in. Additionally, sales from and so far in 2007 have been very disappointing. Political uncertainty, unsatisfying conditions for extraction of oil in Iran have influenced sales negatively, and the same trend is expected if operating parameters do not change. Through the take-over of Spectrum at the end of, the group got its hands on a substantial global seismic library. Significant areas covered by the Spectrum library include the Mediterranean, West

3 Africa, Latin America, and the southern Atlantic, in addition to significant amounts of re-processed data from important explorations in various countries, for example Libya. The Company is beginning to integrate marketing techniques, and developing the group s combined libraries. The group sold seismic data in for 106 MNOK, compared to 44 MNOK in. In addition there were revenues from sales of contracts and other income amounting to 89 MNOK in. 5. The Company s position and result of operations Short-term debt increased by 58 MNOK from to at GGS ASA. The Company s long-term debts at the end of were 7 MNOK (23 MNOK for the entire group). The Company s turnover in was 50 MNOK, down from 56 MNOK in. The Company s results from operating activities in were -34 MNOK (-67 MNOK for the entire group). The Company s result after taxes in were -147 MNOK (-121 MNOK for the entire group). At the release of this annual report, the Company s equity capital was lost, in its entirety. Continued operations, however, are ensured through capital increase as described in item 6 below. 6. Continued operation The Company s annual accounts are given with the assumption of continued operations. At the extraordinary general assembly on 18 June 2007, the Company approved two share issues of all together TNOK. The first share issue was a directed share issue, and the Company had an introduction of TNOK. The second share issue will be a repair share issue, which is guaranteed fully subscribed by Ferncliff AS and Spencer Energy AS. The second share issue is to be completed in the month of July Based on this supply of capital, the board of directors confirms that the assumption of continued operations exists. 7. Orders from Kredittilsynet and valuation of seismic and patent rights Kredittilsynet (the Financial Supervisory Authority of Norway) has partly invalidated the Company s annual report and accounts for. The grounds for this invalidation are a reversal of the write-down of the Company s patent rights, and weaknesses in the write-down assessment of seismic data. The Banking, Insurance, and Securities Commission concluded that the Company should reverse the write-downs for patent rights that were recorded as TNOK as of 31 December. Further demands from the Banking, Insurance, and Securities Commission were that the Company undertook a re-assessment of the value of PC 2000, including Pseudo 3D. After having done such an assessment, based among other things, on today s knowledge of sales developments and uncertainties associated with the political risks and operating parameters, the new board have concluded that the multi-client library connected to Iran should be written down with TNOK. Furthermore, the new board decided to write down goodwill related to CSPL and the multi-client library in Spectrum, in line with the same principles, respectively with TNOK and TNOK. A new annual report and accounts have been made for based on this. The above-mentioned write-downs carried out in the new annual accounts for have influenced the annual accounts for significantly, in the form of lower balance sheet values and equity capital of 1 January, and lower amortisations in than if the original accounts had been unaltered. The Company has 29 % female employees. The Company s daily administrative management consists of the CEO and a CFO. The CFO is a woman. There are no women in operational management positions in the Company. 9. External environment The Company s business does not directly pollute the external environment. However, the business may have an impact on the environment through the collection of seismic data. The Company cooperates with sub-contractors with the intention of avoiding any form of environmental consequences and operates within relevant legislation and regulations. 10. Future development One of our ambitions is to re-position the Company after the capital increase of 400 MNOK. The board will work to improve the Company s margins, both through reductions in costs, and through an increase in sales in existing and new markets. 11. The board s proposal for covering the loss The board proposes that the loss for the Parent Company of TNOK is covered by a transfer from the share premium reserves of TNOK , and that the remaining TNOK is allocated to uncovered losses. The Company has no free capital as of 31 December. 31 December Oslo 21 June 2007 Morten Garman Øystein Stray Spetalen Elen Roaldset Chair of the board Gunnar Hvammen Tone Bjørnov Eddie Berglund CEO 8. Working environment The Company s Board consists of five members, where two of these are women. Legislative requirements regarding gender distribution for board of directors in companies listed on the stock exchange have thus been fulfilled. The group has 150 employees after the take-over of Spectrum. GGS ASA has a good working environment, with seven employees. No serious injuries or accidents associated with business activities have been reported. Sick leave has been at XX percent in.

4 CONSOLIDATED INCOME STATEMENT Notes IFRS 2004 Operating income Revenue MCS Revenue Contract Seismic Revenue Other Total operating income Operating expenses Expenses contract seismic Payroll expenses Amortisation Depreciation Write-down goodwill Write-down patents Other operating expenses 7, Total operating expenses Operating result Financial income and expenses Interest income Interest expenses Net Exchange loss/ profit Other financial items Net financial items Profit/ -loss before tax Income tax expense Net profit/ -loss Earnings/loss per share Diluted earnings/loss per share Average basic shares outstanding Average diluted shares outstanding CONSOLIDATED BALANCE SHEET Note IFRS 2004 Non current assets Intangible assets Patent rights Goodwill Multi- client library Total intangible assets Tangible assets Machinery and equipment Total tangible assets Financial assets Investments 19,20, Prepaid charter hire 13, Other receivables Total financial assets Total non current assets Current assets Inventory Accounts receivable Other receivables Cash and cash equivalents Total current assets TOTAL ASSETS Note IFRS 2004 Debt and Equity Paid-in equity Share capital 9, Share premium Reserve Other paid in capital Not registered capital increase Total paid-in capital Retained earnings Other equity Total equity Long-term liabilities Deferred tax Commitments Other long-term interest bearing liabilities 11,15, Total long-term liabilities Short-term liabilities Short-term interest bearing liabilities 11, Taxes payable Deferred Income Other short-term liabilities Total short-term liabilities TOTAL SHAREHOLDERS EQUITY AND LIABILITIES

5 31 December Oslo 21 June 2007 Morten Garman Tone Bjørnov Øystein Stray Spetalen Chairman of the board Consolidated Statement of Changes in Equity GGS Group Share Paid in Not registered premium Other paid Other equity debt conversion reserve in equity equity Total Shareholders equity at , NGAAP Elen Roaldset Eddie Berglund CEO Gunnar Hvammen Effect of transition to IFRS - Equity at , IFRS Share issue Conversion of debt Not registered debt conversion Profit / -loss for the year Adjustment repurchase of subsidiary Equity at , IFRS CONSOLIDATED CASH FLOW IFRS NOK 1000 Note 2004 Cash flow from operating activities Profit/ -loss before tax Depreciation, amortisation and write-down Gain from sales of operating assets -611 Changes in working capital Cash flow from operating activities Cash flow from investing activities Investments machinery and equipment Investments in multi-client library Investments in subsidiaries Operating assets sales Cash flow from investing activities Share issue Conversion of debt Equity value convertible loan Equity value convertible loan Equity value options Profit / -loss for the year Currency translation difference Equity at , IFRS Share issue Profit / -loss for the year Currency translation difference Equity at , IFRS Cash flow from financing activities - Paid-in share capital Net increase / -decrease loan Cash flow from financing activities Changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The cash flow statement is presented using the indirect method. Cash and cash equivalents consist of cash and bank deposits. Restricted cash deposits are included and amount for the group is TNOK 859 in. Paid interest

6 NOTES TO THE ANNUAL FINANCIAL STATEMENTS Information to the financial statements It has been prepared new financial statements for the year where book values for MC library and patents are significantly written down. This has substantial effect on the financial statements of through reduced book values and equity as of 1 January and reduced amortizations in. The income statement for 2004 and are not comparable to the income statement due to the fact that GGS ASA acquired Spectrum and CSPL late. Accounting principles Global Geo Services ASA is a limited company incorporated and domiciled in Norway. The address of the domicile is Dronningen, 0211 Oslo. The consolidated financial statements for the year comprise of Global Geo Services ASA (GGS) and its subsidiaries Nescos AS, Continuity Solutions Pte Ltd, Continuity Solutions HK Ltd, Spectrum Information Technology Ltd, Spectrum Information Technology Inc and Spectrum Geopex- Libya Ltd. The Group also has a 50 % share in the joint ventures GeoBridge Ltd, African Spectrum Ltd and Spectrum Geopex-Egypt Ltd. See note 19, 20 and 21. The financial statements were approved by the Board of Directors on 21 June The consolidated financial statements for with corresponding figures have been prepared in accordance with IFRS, as adopted by the EU. The Group reported in accordance with IFRS for the first time in. The effect of the implementation is described in the financial report of. The consolidated financial statements have been prepared on a historical cost basis except for financial instruments. The consolidated financial statements of GGS ASA (Parent Company) and its 100% owned and controlled subsidiaries (The Group) are prepared according to consistent principles for similar transactions. The income statement is presented by the art of revenues and costs. Basis for preparation The financial statements are presented in NOK, rounded to the nearest thousand. NOK is also the functional currency for the Parent Company. The preparation of financial statements in conformity with IFRS requires that the management make judgement, estimates and assumptions that affect the application of accounting principles and reported amounts of assets and liabilities, revenues and expenses. Estimates and underlying assumptions are based on historical experience and other elements that seem reasonable. These estimates are the basis for judgements of the carrying amounts of assets and liabilities which does not appear directly from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in estimates will be recognised in the period the changes occur only if applicable in the current period. If the changes also concern future periods, the effect is distributed over both the current and future periods. It is especially the value judgement and the amortisation of the seismic library that is subject to estimates. In addition, patents, recognition of deferred tax, recognition of convertible loans, allocations of value added through acquisition and also the judgement whether a lease is an operational or a finance lease, are affected by estimates and judgements made by management. Management judgements regarding the application of the IFRS standards, which has substantial effect on the financial statements and estimates with substantial risk for significant adjustments in the subsequent financial year, are disclosed in note 24. Basis of Consolidation Subsidiaries Subsidiaries are all entities where the Group has controlling interest. Controlling interest is normally attained when the Group holds, directly or indirectly, more than 50% of the voting rights and is capable of exercising financial and operational control over the Company. If the actual control is assumed to be temporary the Company is not recognised as a subsidiary. The subsidiaries are consolidated from the date on which control is transferred to the Group. Correspondingly, they are deconsolidated from the date the control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The purchase method implies that the cost of acquisition is allocated to the acquired assets and liabilities according to fair value on the acquisition date. Minority interests are the share of the profit and equity that is not held by the Group. Minority interests are reported separately in the income statement and under equity in the consolidated financial statements. Cost exceeding fair value of identified assets and liabilities is recorded as goodwill and judgements are made annually whether the carrying amount can be justified based on future earnings. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. See note 19. Associates Investments in associates where the Group holds or controls from 20 % to 50 % of the voting rights, and has significant influence, but not actual control, are accounted for by the equity method. The consolidated financial statements include the Group s share of profit and loss from the date in which significant influence is attained and until such influence ceases. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Joint Ventures Joint Ventures are contractual arrangements whereby two or more parties undertake an economic activity that is subject to joint control. The Group recognises its interests using proportionate consolidation which implies that the Group s investments are recorded to initial cost and the proportionate share of the revenue earned by the Company. The consolidated financial statements include the Group s share of profit and loss from the date of which significant influence is attained and until such influence ceases. See note 20. Elimination of transactions Intra-group balances, unrealized profit and losses or income and expenses resulting from intra-group transactions are eliminated through consolidation. Transactions between associates are eliminated according to the Group s interest. Unrealised loss is not eliminated if the transaction provides evidence of an impairment of the asset. Foreign currency translation Foreign currency transactions Transactions in foreign currency are translated using the currency rate at the date of transaction. Monetary assets and liabilities in foreign currency are translated into NOK using the currency rate on the balance sheet date. Exchange differences arising from translations are recorded in the income statement. Non-monetary assets and liabilities measured at historical cost in foreign currency are translated using the currency rate at the date of transaction. Non-monetary assets and liabilities denominated in foreign currency, and recognised to fair value, are translated into NOK using the currency rate prevailing at the date of the determination of the fair value. Financial statements for foreign entities The financial statements for all Group entities using a currency different from the presentation currency of the Group are translated into the presentation currency as follows: 1. Assets and liabilities are translated at the closing rate at the date of the balance sheet; 2. Income and expenses are translated at average exchange rates; and 3. All resulting exchange differences are recognised as a separate component of equity 4. When an investment in a foreign subsidiary is sold the accumulated exchange differences are recognised in the income statement. 5. Receivables and liabilities to foreign entities with expected settlement within reasonable time, exchange differences are recorded through the income statement. Revenue recognition of multi-client projects Multi-client projects are projects where the Group, on their own risk and account, conducts all or parts of the collection of geophysical data. The data can be sold to an unlimited number of customers. Multi-client revenues are recorded when earned and when the Group has a binding agreement with the customer. Revenue from ongoing surveys is recognised according to the degree of completion. Determination of the degree of completion is based on the amount of accrued expenses relative to the estimated total cost for the survey. The survey is defined as completed at the date when the seismic is collected and the vast majority of the data is processed. Future recognition of revenue follows the principles of completed projects.

7 The Company recognises the sale of seismic for completed projects on the date of delivery. The process up to delivery comprises ordinary collection, processing and delivery. Delivery of seismic could be contingent of permission from authorities and can only be conducted when such permission is given. Contract seismic Contract seismic projects are projects where the Company collects predefined geophysical services on behalf of a customer. Revenue from contractual seismic is recognised when earned and according to the degree of completion. Processing Revenue from the processing of seismic data is recognised at delivery. Balance sheet classification Current assets and liabilities comprise items due within one year and items relating to the commodity cycle. The current part of the long term debt is classified as current liability. Remaining items are classified as fixed assets/non-current liabilities. Intangible assets Goodwill All business combinations are recognised according to the purchase method. Goodwill is the excess value arising from acquisition of subsidiaries, associates and joint ventures. Goodwill is the difference between the purchase price on the transaction date and the fair value of net identifiable assets and liabilities acquired. Goodwill is recognised in the balance sheet at initial cost, less accumulated loss of impairment. Goodwill is tested for impairment annually. Carrying value of the Group s assets is assessed for impairment on the balance sheet date if there is indication of impairment. Research and development Expenses regarding research are recognised as they occur. An intangible asset arising from development costs regarding a specific project is recognised only when: the Group can assure that the project is technical feasible the product will be held for sale or can be used in the Company there is an intention of completing the project the asset will generate future economic benefits there are available resources for completing the project a reliable measurement of the projects costs during the development period is possible If the project satisfies the requirements for recognition, the development costs are recorded at cost less depreciation. Capitalized development costs are amortised over the expected sale period and is recognised in the income statement as an additional expense related to the project. Carrying value of development costs are annually reviewed for impairment when the project is not completed and more frequently if circumstances indicate that the carrying value may be impaired. Multi-client library The multi-client library comprises completed projects and projects under development that can be licensed to a number of customers. All direct costs related to data collection, processing and completion of seismic projects are activated. The multi-client library is capitalised at cost less accumulated amortisation. Amortisation is calculated according to accrued revenues for each survey as a share of the estimated total revenue for each project relative to estimated total cost for each project. This implies that the amortisation of the project is finished when the estimated total revenues are attained. Estimated revenues are reviewed continuously. Judgement about the estimated revenues has to be made when determining the amortisation rate and these can change over time according to changes in market conditions. The amortisation of the multi-client library can therefore change according to actual recording of revenue and estimated remaining income. According to the principles stated above the accumulated amortisation shall always be equal or above a minimum amortisation so that the carrying value one year after completion is at a maximum 60% of cost. This maximum level is reduced with 20 percentage points for each of the three subsequent years. Major 2D-projects are amortised over 7 years. Tangible assets Tangible assets are stated at cost, less accumulated depreciation and any accumulated impairment in value. Depreciation is made on a straight line basis over the useful lives of the asset and is taken to the income statement. Calculated depreciations take into account the expected remaining value if not insignificant. Expenses regarding major replacement and renewal are activated, while all other replacements, renewals, maintenance and repairs are charged to the income statement. Estimated useful lives are as follows: Office machinery 3-4 years Vehicles and furniture 6-7 years Seismic equipment 10 years Impairment of assets and intangible assets Fixed assets and intangible assets are assessed for impairment at each reporting period and always when events occur or changes in circumstances indicate that the carrying value of the asset may not be recoverable. When impairment is considered, the assets are grouped at the lowest level for which there are separate identifiable cash generating units. Impairment is calculated as the difference between the assets carrying value and the recoverable amount. The recoverable amount is the highest of the assets net selling price and the value in use for the Company. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. When it is assumed that the asset s value is lower than its carrying value, the asset is written down to recoverable amount. The impairment amount is recognised in the income statement in those expense categories consistent with the type of the impaired asset. Previously recognised impairment loss is reversed only if there have been changes in the estimates used to determine the recoverable amount. The reversed amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. Impairment of goodwill is not reversed. Trade and other receivables Trade and other receivables are recognised initially at fair value less provision for impairment. The Group review, on a regular basis, trade receivables and provision for impairment of trade, based on the maturity, information about the customer s financial position and other relevant information. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits and other highly liquid investments. Cash and cash equivalents are recognised at current values. Restricted deposits are included in cash and cash equivalents. Bank overdraft is recognised as short term debt. Inventories Inventories are stated at the lower of average purchasing cost and net realisable value. Net realisable value is the estimated selling price less estimated selling expenses. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that the obligation has to be settled and that a reliable estimate of the obligation can be made. Convertible loans Convertible loans that can be converted to share capital based on an option given to the lender, and where the number of shares is not subject to change as a result of changes in fair value of the loan, are treated as combined financial instruments. The equity component of the convertible loans is calculated as the excess of the issue proceeds over the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option. The interest expense recognised in the income statement is calculated using the effective interest method. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are initially recognised at fair value. In subsequent periods, interest-bearing liabilities are measured at amortised cost using the effective interest method. Not-amortised costs of transactions are recognised together with the loan and the amortisation costs are reflected in the income statement as interest cost. Gains and losses are recognised in net profit or loss when the liabilities are derecognised and through the amortisation process. The interest costs are expensed continuously. Trade and other payables Trade and other payables are recognised at cost. Development support The subsidiary, Nescos AS, receives development support. Development support, where no royalty obligations are attached and where the expenses the support shall cover are recognised as costs, are recognised as a cost reduction in the same period. The other type of support is related to projects developing new technology where obtained commercialisation of the technology implies an obligation to pay royalty to the provider of the support. Such support is

8 not recognised as income in the year the support is granted, but presented as deferred revenue under long-term debt. If the actual technology appears not to be commercialised the support will be recognised as a cost reduction at that time. Leases The Group classifies leases as operational and finance leases. Operational lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Finance leases are presented in the financial statements as assets and liabilities, and the annual lease payments are divided into an interest element and instalment. Leases are classified as finance leases if the term of the lease agreement transfer substantially all the risks and benefits incidental to ownership of the leased item. Pensions The Group has defined contribution plans. The defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligation 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. The Group pays contributions to publicly or privately administered pension plans. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that the cash refund or reduction in future payments is available. Share-based compensation Options in GGS represent a right for employees and management to acquire shares in GGS at a future date to a predetermined subscription rate. The fair value of the options granted is recognised as a payroll expense with a corresponding increase in equity. Fair value of granted options is measured at the date at which they are granted. Option schemes earned at grant date are immediately recognised as costs while other option schemes are recognised on a straight line basis. All the granted options can be exercised without future obligations for the employees. Payroll tax related to the taxable benefit for the holder of a right is charged as an expense over the time of acquirement based on the degree of acquirement and intrinsic value on the balance-sheet date. Segment Reporting The Group has two business segments; seismic and sale of well equipment. Further, the Group is organised in geographical segments. Income from transactions between segments is eliminated through consolidation. Income tax Tax expense comprises both tax payable and changes in net deferred tax. The tax include expected tax payable on the year s taxable income using existing tax rates on the balance sheet date and any corrections on previously tax payables. Deferred tax is calculated using 28% taxation rate on the basis of temporary differences existing between the values in the accounts and the tax-related values. The calculation also includes tax-related carry-forward deficit at the end of the financial year. Tax increasing and tax reducing temporary differences that are reversed or can be reversed in the same period are netted in the balance sheet. Deferred tax asset are recognised in the balance sheet when it is probable that the Company will have sufficient profit for tax purposes to utilise the tax asset. Uncertain liabilities and contingent assets Accounting of events with uncertain outcome is done by using the best judgement and must be based on a probability consideration. When it is highly probable that the unsecured liability will be settled, and if its value can be reliably measured, the liability will be recognised. Contingent assets are normally not accounted for. Subsequent events New information regarding events existing at year-end is accounted for in the estimates. Information regarding events after year-end is disclosed in the notes. New IFRS standards and interpretations The Group has not adopted the following IFRS and IFRIC interpretations issued but not effective as of 31 December : IAS 1 (amendment) Presentation of Financial Statements. The standard is effective for the period beginning on or after 1 January 2007 and requires further disclosure regarding the Group s objectives, policies and processes for managing capital. IFRS 7 Financial Instruments. The standard is effective for the period beginning on or after 1 January 2007 and introduces new requirements regarding improved information on financial instruments. IFRS 8 Operating segments. IFRS 8 replaces IAS 14 ( Segment Reporting ) and is effective for the period beginning on or after 1 January The standard requires improved information about segments. IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies. The standard is effective for the period beginning on or after 1 January 2007 IFRIC 8 Scope of IFRS 2. The standard is effective for the period beginning on or after 1 January 2007 and requires that the Group consider whether the issuance of equity instruments is within the scope of IFRS 2. IFRIC 9 Reassessment of Embedded Derivatives. The standard is effective for the period beginning on or after 1 January 2007 and requires the Group to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative. IFRIC 10 Interim Financial Reporting and Impairment. The standard is effective for the period beginning on or after 1 January 2007 and prohibits reversal of an impairment loss of certain assets recognised in a previous interim period. IFRIC 11 Group and Treasury Share Transactions. The standard is effective for the period beginning on or after 1 January The standard addresses how to recognise transactions regarding share based payment. IFRIC 12 Service Concession Arrangements. The standard is effective for the period beginning on or after 1 January 2008 and addresses how to account for concession arrangements. An implementation of these IFRS and IFRIC interpretations are not expected to have material impact on the Group s financial position. Equity Purchase of own shares When buying own shares the purchase price inclusive related costs is recognised as changes in equity. The nominal value of own shares is deducted in the share capital. Differences between the nominal value and the purchase price of own shares, together with gains and losses is recognised directly in equity. Dividends Proposed dividends are recognised as a liability in the financial statements when approved by the shareholders at the Annual General Meeting. Exchange differences Exchange differences includes all the currency differences arising from the translation of financial statements of foreign subsidiaries with functional currency other than NOK, and also any currency differences arising from translating obligations that secure the Company s net investment in a foreign entity. Equity transactions Costs directly related to increase in share capital and mergers are regarded as a reduction in paid-in capital, and are directly recognised in equity. The tax effect of items recognised directly in equity is also taken to the equity. Cash Flow Statement The cash flow statement is prepared using the indirect method. Restricted bank deposits related to the operation are included in cash equivalents. Shares are considered to have high risk and are not classified as cash equivalents.

9 Note 1 - Segment information Segment information is given for the business segment and for the geographical segment. The primary reporting format, the business segment, is divided into geophysical services and well solutions, as each segment represents a strategic business unit offering different products. The secondary reporting segment is divided into geographical regions. The geophysical services segment is a global operation, while well services have so far only been offered in South America. There have been no transactions between the individual segments in the reporting period. Global Geo Services ASA (GGS) and its subsidiaries Continuity Solutions (CSPL) and Spectrum Energy & Information Technology Ltd (Spectrum) offer geophysical services, including the collection, processing, sale and marketing of seismic data. Its fully-owned subsidiary Nescos has developed a completion system for smart oil wells. Related products include zone isolation packages for divided reservoirs, a rotation sleeve for flow control and a sensor system for measuring reservoir characteristics. The table below shows figures for the geophysical services (GGS, Spectrum, CSPL and GeoBridge) well solutions segments (Nescos). Geophysical services Well Unallocated solutions items Total GGS consolidated Geophysical services Well Unallocated solutions items Total GGS consolidated Total Assets Total liabilities Investments made in period Cashflow from operations Cashflow from investments Operating revenues Depreciation, amortisation, write-downs Geophysical services Well solutions Total GGS consolidated Geophysical services Well solutions Total GGS consolidated Cashflow from financing Geophysical services Well Unallocated solutions items Total GGS consolidated 2004 Total Assets Operating expenses Total Liabilities Profit/-loss before tax, finance costs and finance revenues Investment made in period Cashflow from operations Operating revenues Geophysical services 2004 Well solutions 2004 Total GGS consolidated Cashflow from investments Cashflow from financing Depreciation, amortisation, write-downs Operating expenses Profit/-loss before tax, finance costs and finance revenues Table 1- primary segment information Profit and loss Table 2-primary segment information Balance sheet Asia Middle East, Africa and Europe North America South America General adm. Multi-client revenues Contract revenues Other revenues Table 3- secondary segment information Profit and loss Total

10 Asia Middle East, Africa and Europe North America Total Multi-client revenues Processing revenues Contract revenues Other revenues Table 4- secondary segment information. Profit and loss The geographical distribution of earnings is determined by the location in which the data was collected. Operating costs relating to general operations, including general administration costs and head office costs within the various companies in the corporation, are assigned to the region in which the relevant company has its office. Asia Middle -East, Africa and Europe North America Unallocated items Investments Book value assets Table 5 secondary segment information. Balance sheet Asia Middle-East, Africa and Europe North America Unallocated items Investments Book value assets Table 6 secondary segment information. Balance sheet Note 2 Financial market risk General The corporation supplies products to the international oil industry. Financial market risk is the risk that currency fluctuations, interest rates and other market-related conditions could affect the value of the Company s assets, commitments and future cash flow. In order to reduce and control these risks, the management examines and assesses the Company s greatest financial market risks. The corporation has not carried out any hedging transactions. Currency risk Earnings and costs are given mostly in USD. The management considers the currency risk to be limited. Therefore no currency hedging transactions have been made. The Company s available liquid assets are held in NOK, GBP or USD. As of 31 December foreign currency debts totalled TUSD and TGBP Foreign currency receivables totalled TUSD 6 707, TGBP and TSGD 1. The Company s total debts amount to TNOK Total Total Interest rate risk Most of the corporation s interest-bearing debt is subject to fixed rates of interest, and the management considers the interest rate risk to be very low. Liquidity risk The Company is working continuously to improve its liquidity. As of 31 December the Company held TNOK in cash, it was due TNOK in short-term receivables and owed TNOK in short-term debts. The corporation s debt structure has put pressure on its liquidity. In Q the Company therefore decided on and carried out a directed share issue to the value of TNOK A subsequent repair share issue worth TNOK was also decided. Credit risk A credit risk is posed by the fact that the corporation first makes its investment before receiving payment from customers. However, the corporation s strategy means that new multi-client projects should be covered by a minimum of 50% pre-financing. The corporation is also working to implement new contracts that ensure the Company receives advance payment from customers. Note 3 - Salaries and other remuneration Consolidated Consolidated Consolidated 2004 Salaries Option costs Employer s insurance contribution Pension costs Other remuneration Total Average number of employees Table 7 salaries and other remuneration to employees Cost reductions linked to options include the refund of employer s national insurance contributions due to a fall in the share price since the shares were issued. The Company has launched a bonus scheme for its employees. The scheme, which came into force in 2001, means employees are entitled to a bonus if the Company achieves return on equity above a certain level. This level was not reached in. GGS is obliged to operate a pension scheme, in accordance with the law on obligatory pension schemes. GGS runs a contribution-based scheme, which meets the requirements stipulated by the law. Costs relating to this scheme totalled TNOK 89 in. Contributions of NOK 0 were made for the chairman and members of the board, TNOK 23 for the CEO and T NOK 23 for the CFO. Changes were made to the composition of the board at the general meeting on 29 March The board now comprises Morten Garman (chairman), Egil Bergsager, Liu Tielong, Elen Roaldset and Tone Bjørnov. Eddie Berglund was appointed CEO on 14 May Remuneration for the Company management in the accounting year is detailed below. Until the corporation comprised GGS ASA and Nescos AS. Contributions to new subsidiaries will not be listed until these have been consolidated from. Consolidated Consolidated Consolidated 2004 GGS ASA Salary CEO Other remuneration CEO Salary CFO Other remuneration CFO Fees and remuneration, board members Consultancy fees to former Chairman Morten Andersen Consultancy fees to other former members of the board Table 8 salaries and remuneration of management and board of directors Annual remuneration of TNOK 200 is paid to the chairman of GGS ASA. Board members receive TNOK 150 per year. The CEO s salary includes remuneration of TNOK 400 for serving as an executive director and board member of Nescos AS. The Company has reached a severance pay agreement with CEO Trond Christoffersen. The deal entitles Mr Christoffersen to a monthly salary equivalent to TNOK 100 until 31 December He is required to work during this period. In Q the Company terminated its consulting agreement with former chairman of the board Morten Andersen and will demand that some of his remuneration is repaid. Morten Andersen has rejected the Company s claim and demands that a further payment of approx. TNOK 900 is made, relating to travel expenses and severance pay.