CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 SOLVEIG GAS GROUP

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 SOLVEIG GAS GROUP

2 Table of content 2017 BOARD OF DIRECTORS REPORT... 4 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Solveig Gas Group Consolidated Financial Statements for the year ended 31 December General information Basis of preparation Principal accounting policies Critical accounting judgements and the sources of estimation uncertainty Financial risks and risk management Segment information Operating expenses Employee benefit expense and auditor's fees Finance income and cost Income tax Current and deferred tax balances Property, plant and equipment Investment in associates Trade and other receivables Cash and cash equivalents Share capital and Other reserves External borrowings Derivative financial instruments Trade and other payables Decommissioning Interest in Joint Operations Financial instruments by category and credit quality of financial assets Related parties and Key management remuneration Commitments and contingencies Subsequent events Financial Statements for the year ended 31 December 2017 Solveig Gas Holdco AS Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements for the year ended 31 December General information Solveig Gas Group Page 2 of 63

3 2. Basis of presentation Principal accounting policies Critical accounting judgements and the sources of estimation uncertainty Financial risk management Administrative expenses and finance income and cost Income tax Current and deferred tax balances Investment in subsidiary Cash and cash equivalents Share capital Intercompany payables Financial instruments by category Related parties and Key management remuneration External audit report.. 63 Solveig Gas Group Page 3 of 63

4 SOLVEIG GAS GROUP 2017 BOARD OF DIRECTORS REPORT The Solveig Gas Group which comprises the holding company Solveig Gas Holdco AS (Holdco) and its 100% owned subsidiary Solveig Gas Norway AS (the Company, or Solveig ) owns a direct % interest in Gassled, together with corresponding interests in the Dunkerque Terminal DA, the Zeepipe Joint Venture. Solveig Gas Norway AS is the second largest owner after Petoro AS, which owns % of Gassled and which is 100% owned by the Norwegian State. Gassled is an unincorporated joint venture comprising a number of terminals, platforms and pipelines, which together with the Dunkerque terminal and the Zeepipe joint venture, are operated by Gassco AS (a Norwegian state-owned entity), for and on behalf of 8 owners. Gassled transports and processes gas from the Norwegian Continental Shelf to buyers in Continental Europe and in the United Kingdom. Solveig Gas Norway AS receives revenues via Gassco, in the form of tariff payments from the oil and gas companies which ship gas from various producing fields on the Norwegian Continental Shelf through the network of pipelines, processing plants and receiving terminals, to the end users. The Solveig Gas Group s offices are located in Stavanger, Norway. KEY EVENTS IN 2017 Tariff reductions As a result of the tariff reductions announced by the Norwegian Government in June 2013, Solveig chose to initiate legal action together with three other owners in Gassled. Having lost the Oslo City Court proceedings in September 2015, the four companies appealed the decision and the appeal was heard by the Appeals Court in early The Appeals Court ruling was announced at the end of June 2017 and the Court once again found in favour of the Government. The four companies together appealed this decision to the Norwegian Supreme Court which announced that it would hear the case, in May A ruling from the Supreme Court is expected around the end of June Rating The Company s rating was reviewed by Moody s in early autumn Moody s credit opinion which was issued in early November, confirmed the current Baa2 rating with a stable outlook. Norsea Gas Norsea Gas 2.261% interest in Gassled was transferred proportionately to its four shareholders with an effective date of 1 January Solveig previously owned % in Norsea Gas. For accounting purposes, the transfer took place as of 30 th June Solveig s share in Gassled consequently increased from % to % with corresponding increases in the Dunkerque terminal and the Zeepipe joint venture. Norsea Gas is currently in the process of being liquidated. Solveig Gas Group Page 4 of 63

5 Gassled performance Gassled has had another successful year in 2017 with all-time high exports of gas to the European continent and to the UK with deliverability at 99.48%. Gas exported at billion scm was 7.3% higher than in In addition, Gassco as operator of the Gassled system has seen positive developments in its own cost structure and the number of HSE incidents has been reduced compared to FINANCIAL STRENGTH The Company is required to report compliance with certain ratios to its lenders on a semi-annual basis. As of 31 st December 2017, the Company s forward looking Debt Service Coverage Ratio is 1.44x and its Concession Life Coverage Ratio is 1.63x. The Company is in therefore in compliance with the debt covenants in this respect. REVIEW OF ANNUAL ACCOUNTS The Solveig Gas Group prepares and presents its accounts in accordance with IFRS. The Board of Directors believes that the annual accounts provide a satisfactory description of the Group s and the parent company s financial positions as of 31 st December 2017 and the results for the year then ended. The comparative figures from 2016 are shown in brackets. Solveig Gas Holdco has virtually no activity nor employees so the comments below on the major income statement and balance sheet headings relate solely to Solveig Gas Norway AS, the Company. INCOME STATEMENT The Company s turnover for the whole of 2017 as per the financial statements was NOK million ( NOK million). Solveig s share of Gassled s costs plus our own insurance amounted to NOK million ( million). Gross profit at NOK million ( NOK million), was NOK 100 million lower than in Depreciation and amortisation of NOK million ( NOK million) includes depreciation of the original purchase prices of the two interests acquired, which are depreciated over the license period to 2028, and depreciation of new capital expenditures incurred since acquisition, which are depreciated over the assets expected useful lives, which in most cases is the same as the remainder of the license period as well as depreciation of Solveig s share of the assets acquired from Norsea Gas. With shorter and shorter periods over which to depreciate new capital expenditures, the depreciation charge will increase every year towards Finance income of NOK 23 million ( NOK 28 million) includes interest received on bank accounts and interest received from the Company s working capital position at Gassco. Finance costs of NOK 559 million (2016 NOK 607 million) represent interest and swap costs on the bank loans, NOK bonds, US notes and shareholder interest as well as finance costs and exchange losses relating to the joint operations. The Company has hedged 100% of its floating interest rate and foreign currency exchange exposure on its external debt. Accordingly, all movements in exchange rates on the USD notes and interest Solveig Gas Group Page 5 of 63

6 rates flow through the Other comprehensive income/(loss) section of the income statement and from there, directly to equity. Share of profits from associates of NOK 9 million (2016 NOK 28 million) represents Solveig s share of the profits of Norsea Gas in 2017, less the amortisation of the excess purchase price. Income tax expense NOK million ( NOK million) includes both current tax of NOK million, an increase in deferred tax of NOK 118 million and a prior year adjustment of NOK 122 million A significant portion of the depreciation on the offshore part of the purchase prices of the Statoil and ENI transactions is viewed as a permanent difference which does not give rise to a current or a deferred tax deduction and which accordingly results in a very high effective tax rate. In addition, the vast majority of net finance costs are deductible in the onshore tax regime only. The main elements of the deferred tax movement relate to timing differences on depreciation, both onshore and offshore, capitalised interest which has been expensed for tax purposes and refinancing costs which are included in the loan balances but which have been expensed for tax purposes. The offshore deferred tax liability on fixed assets has increased by NOK 343 million in 2017 ( NOK 176 million) due in part to the addition of deferred tax on the assets acquired from Norsea Gas. Other comprehensive income/(loss) NOK 3 million ( NOK -3 million) shows the after-tax effects of the application of hedge accounting in BALANCE SHEET Property, plant and equipment amounted to NOK million (2016 NOK million) and represents the value of the acquired assets from Statoil and ENI as of the closing dates of these two transactions plus additional capital expenditure acquired since these acquisitions, less accumulated depreciation. In addition, the book value of the Norsea Gas assets acquired in June 2017 is included. Solveig s share of Capex incurred during 2017 amounted to NOK 379 million ( NOK 407 million) plus NOK 5 million of capitalised interest ( NOK 14 million). Capex includes both Project investments as well as Operating investments, which because of their long-term nature require to be capitalised for accounting purposes. Capitalised interest has decreased in 2017 compared to 2016 due to the reduced value of work in progress during the year. Long term Decommissioning receivables NOK 80 million, ( NOK 27 million) represent the long term part of future costs of decommissioning expected to be recoverable from the shippers as part of tariff income. The Company also shows a long term Decommissioning liability of 109 million (2016 NOK 24 million) representing the Company s requirement to fund decommissioning costs before they are recovered from the shippers. The liability at the end of 2017 also includes estimated costs relating to Norsea Gas removal responsibilities which will not be recovered from the shippers. The majority of these costs are expected to be paid before the end of the license period in The Company s share of the equity in Associates NOK 307 million ( NOK 347 million) represents the purchase price of its 35.25% interest in Norsea Gas AS. Norsea Gas has initiated liquidation proceedings and is expected to be liquidated in 2018 at which time any remaining funds will be transferred to the four shareholders. Solveig Gas Group Page 6 of 63

7 Trade and other receivables NOK 662 million ( NOK 665 million) represent primarily December 2017 s tariff income received in January 2017 (NOK 547 million) together with working capital balances with Gassco. Restricted cash of NOK 637 million ( NOK 620 million) mainly represents amounts set aside in the Debt Service Reserve Account as security for the next six months external debt costs, in accordance with the financing documents. The Company has external long term and short term bank borrowings including capitalised financing costs and accrued interest of NOK million ( NOK million), USD 650 million ( USD 650 million) of USD notes valued at the year end exchange rate and NOK million ( NOK million) of Norwegian kroner bonds. In addition to external debt, the Company has debt to shareholders amounting to NOK million ( NOK million). The US notes have an accumulated unrealised loss at the 2017 year end of NOK million ( NOK million), where the Company has claimed tax deduction for approximately half of this amount. The bank debt has been reduced by scheduled amortisation payments in 2017 of NOK 811 million (2016 NOK 769 million) and the shareholder loans have been reduced by NOK 230 million in 2017 ( NOK 278 million) resulting from total repayments of NOK 425 million which include accrued interest of NOK 195 million. The net mark to market valuation of outstanding derivative contracts at the 2017 year end is NOK 894 million, ( NOK million), and comprises a receivable of NOK million on the cross currency swaps and NOK 601 million on the interest rate swaps. Deferred tax NOK million ( NOK million) represents the tax effect of timing differences between the accounts and the tax return at the tax rates which will apply when the timing differences are expected to reverse. The Company is subject to two different tax regimes with an onshore tax rate of 24% and a total tax rate on offshore income of 78%. As of 2018, the onshore rate changed to 23% with a total tax rate of 78% on offshore income. The new rates have been applied to the deferred tax balances. The tax effect of timing differences relating to accelerated tax depreciation amounts to NOK million ( NOK million) for both onshore and offshore assets. Other timing differences relate to capitalised interest and borrowing costs and the Company has a deferred tax liability of NOK 205 million on the derivative contracts, offset by a deferred tax asset from the currency difference between the accounting and the tax values of the USD notes. Trade and other payables of NOK 444 million ( NOK 218 million) include Solveig s trade payables, its share of current liabilities in the joint operations and a payable to Norsea Gas in connection with a pre-liquidation pay-out, which will be settled on liquidation against the investment in Norsea Gas. Taxes payable of NOK million ( NOK million) represent primarily the remaining six months tax liability on 2017 s activities, payable in Solveig Gas Group s profit for 2017 before Other comprehensive income/(loss) was NOK 193 million ( NOK 350 million) and the equity at 31 December 2017 was NOK million ( NOK million). Solveig Gas Group Page 7 of 63

8 As a result of the tariff adjustments implemented in June 2013 which took effect from October 2016, the Company has assessed the need to make an impairment write down of the carrying value of its fixed assets at the 2017 year end (see also Notes 3 and 4). In the impairment testing, tariff revenues through the license period are assumed to be at the levels in accordance with current legislation. Although a positive outcome of the Supreme Court s hearing would positively affect future tariff revenues, a negative outcome will not change the forecasted tariff revenues for impairment testing purposes or the Debt service coverage ratio or the Concession life coverage ratio as these ratios are calculated using tariffs currently enacted. Solveig Gas Holdco Solveig Gas Holdco s accounts include activities relating to its function as the parent company in the Solveig Group. Accordingly, the income statement includes NOK million (2016 NOK million) of interest received on intercompany loans from Solveig Gas Norway AS and a payment of the same amount to the shareholders. The balance sheet shows Holdco s investment in Solveig Gas Norway AS of NOK million (2016 NOK million) together with an intercompany receivable of NOK million (2016 NOK million). Holdco has a corresponding liability to its shareholders of the same amount. The annual accounts have been presented on a going concern basis. Pursuant to 3-3 of the Norwegian Accounting Act the Board of Directors confirms that the conditions for continued operations as a going concern are present. The Group has not been involved in any research and development activities during the year other than those carried out by Gassco on behalf of the Gassled owners. ALLOCATION OF LOSS FOR THE YEAR The Board of Directors proposes that the accounting loss of Solveig Gas Holdco AS of NOK 409 thousand (NOK 553 thousand in 2016) is transferred to Accumulated deficit. STAFF MEMBERS, THE ENVIRONMENT AND COMMUNITY RELATIONS Strong organisation The organisation totals five people, all with significant experience of the oil and gas and gas transport industries and with a strong focus on the technical and HSE aspects of the Gassled operations. Holdco has no employees and all administrative activities are performed by the Company on its behalf. There have been no changes in the Company s staff in There has only been a minimal amount of absence caused by sickness during the year. The Company is aware and supportive of the measures to promote gender equality. The Company has established stringent HSE policies and procedures and is active in its follow-up of Gassco in its role as operator of the Gassled operations. The Company has established internal processes and controls to minimise the risk of errors related to the production of the annual financial statements and other financial and governmental reporting. The primary accounting functions, tasks and responsibilities are outsourced to reputable accounting firms, who have well-established internal controls, quality review processes and which ensure segregation of Solveig Gas Group Page 8 of 63

9 duties. Management is actively involved in the internal controls connected with the financial reporting and presents a summary financial report to the Board of Directors on a quarterly basis. Corporate social responsibility The management system in the Company has defined policies for procurement, employee rights, employee conduct and anti-corruption practices. The Company is actively engaged in the Gassled related HSE activities which include focus on emissions and discharges to the external environment. SHAREHOLDER MATTERS Through wholly owned Luxembourg subsidiaries, Solveig Gas Holdco AS is ultimately owned 30% by Allianz SE, 40% by Canada Pension Plan Investment Board and 30% by Infinity Investments S.A., a wholly owned subsidiary of the Abu Dhabi Investment Authority. BOARD OF DIRECTORS The Board of Directors currently consists of eight persons. Board members are nominated by the owners through the general meeting and serve for a period of two years from their initial appointments in line with the general rule set forth in section 6-6 of the Norwegian Companies Act. Six of the board members are employees of the shareholders organisations. The Board is responsible for approving all significant transactions of the Group, such as debt refinancing, acquisitions and disposals, and the issuance of additional equity shares. The Board meets regularly with top management. Andrew Cox and Juan Ruiz Vazquez were appointed to the board during 2017 to replace Jaroslava Korpancova and Melchior Stahl. SUBSEQUENT EVENTS In early March 2018, the Company received a warning from the Norwegian Oil Taxation Office (OTO) which states that the OTO is considering reducing the level of interest which is deductible for tax purposes on the shareholder loans, covering the years The OTO claims that the interest rates have not been set on an arms-length basis, something which the Company disputes. Nevertheless, the Company has chosen to make an accrual of NOK 120 million for additional, but as yet unassessed taxes, including interest. As an assessment issued by the OTO requires to be paid, pending resolution of the dispute, the Company has assumed that it will be paid in 2018 and has adjusted the DSCR accordingly. OUTLOOK Projected tariff income as shown in Gassco s budgets for 2018, will ensure that the Company will meet all of its 2018 obligations. Solveig Gas Group Page 9 of 63

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11 Consolidated Statement of Profit or Loss and Other Comprehensive Income NOK millions Note Tariff income Operating expenses 7, Gross profit Administrative expenses 8, Depreciation Operating profit Finance income Finance cost 9, 12, Share of profit from associates Profit before income tax Income tax expense Profit for the year Items that may be subsequently reclassified to profit Other comprehensive income/(loss) (net of tax) Total comprehensive income Attributable to owner The notes are an integral part of these consolidated financial statements. Solveig Gas Group Page 11 of 63

12 Consolidated Statement of Financial Position NOK millions Note 31 December December 2016 ASSETS Property, plant and equipment 12, Derivative financial instruments 5, 18, Decommissioning receivables 20, Investments in associates Non-current assets Trade and other receivables 14, Restricted cash 15, Cash and cash equivalents 15, Current assets Total assets EQUITY AND LIABILITIES Share capital Other reserves Hedging reserves Retained earnings Total equity Bank borrowings 5, 17, Bonds borrowings 5, 17, Borrowings from shareholders and related parties 5, 22, Derivative financial instruments 5, 18, Decommissioning liabilities 5, 20, Deferred tax liabilities Non-current liabilities Bank borrowings 5, 17, Decommissioning liabilities 5, 20, Trade and other payables 5, 19, Taxes payable Current liabilities Total liabilities Total equity and liabilities The notes are an integral part of these consolidated financial statements. Solveig Gas Group Page 12 of 63

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14 Consolidated Statement of Changes in Equity NOK millions Share capital Other reserves Hedging reserves Retained earnings /(accumulated deficit) Total equity Balance at 1 January Profit/(loss) for the year Other comprehensive income/(loss) (net of tax) Total comprehensive income for the period Repayment of paid-in capital Balance at 31 December Share capital Other reserves Hedging reserves Retained earnings/ (accumulated deficit) Total equity Balance at 1 January Profit/(loss) for the year Other comprehensive income/(loss) (net of tax) Total comprehensive income for the period Repayment of paid-in capital Balance at 31 December The notes are an integral part of these consolidated financial statements. Solveig Gas Group Page 14 of 63

15 Consolidated Statement of Cash Flows NOK millions Cash generated from operating activities Note Profit before income tax Adjusted for: Finance costs, net Share of profit from associates Depreciation Other external finance costs paid Tax paid on operating activities Change in working capital: Changes in trade and other receivables Changes in trade and other payables Net cash generated from / (used in) operating activities Cash flows from investing activities Dividends received from Norsea Gas Purchase of property plant and equipment Change in restricted cash Interest received Net cash generated from / (used in) investing activities Cash flows from financing activities Repayments of borrowings Repayments of shareholder loan Repayment of paid-in capital Interest paid 9, Prepayment Cross currency swaps Net cash generated from / (used in) financing activities Net (decrease) / increase in cash and cash equivalents Cash, cash equivalents and bank overdrafts at start of the period Exchange gains/(losses) on cash and cash equivalents 0 0 Cash and cash equivalents at end of the period The notes are an integral part of these consolidated financial statements. Solveig Gas Group Page 15 of 63

16 Notes to the Solveig Gas Group Consolidated Financial Statements for the year ended 31 December General information Solveig Gas Holdco AS and its wholly owned subsidiary Solveig Gas Norway AS (together, the Group ) were established in April The Group was established up by a consortium of three infrastructure investors, CPP Investment Board European Holdings S.a.r.l, Allianz Infrastructure Luxembourg I S.a.r.l and Infinity Investments S.A., a wholly owned subsidiary of the Abu Dhabi Investment Authority. The Group owns 25.55% direct participating interest in Gassled, together with corresponding interests in the Dunkerque Terminal DA (16.61%) and the Zeepipe JV (12.52%) ("the Participating Interest. Gassled is an unincorporated entity, comprising a number of terminals, platforms and pipelines which, together with the Dunkerque Terminal DA and the Zeepipe JV, is operated by Gassco (a Norwegian state-owned entity) under contract, for and on behalf of 8 investors. On 13 th March 2017, the four shareholders of Norsea Gas AS including Solveig Gas Norway agreed to acquire proportionately Norsea Gas 2.261% interest in Gassled, with tax effect from 1 January This transfer was approved by the Ministry of Petroleum and Energy in June 2017 and for accounting purposes, closing occurred on 30 th June As a result, Solveig Gas Norway s direct interest in Gassled increased from % to % with corresponding increases in the Group s interests in the Dunkerque Terminal DA and the Zeepipe JV. Subsequently Norsea Gas initiated liquidation proceedings and it is expected that the company will be liquidated in early 2018 at which time the final liquidation settlements will take place with the four owners. The corporate headquarters of Solveig Gas Norway AS and Solveig Gas Holdco AS are located in Stavanger, Norway, at the following address: Solveig Gas Holdco AS Hospitalsgt Stavanger The consolidated financial statements can be obtained, if requested, at the address above. The financial statements were authorised for issue by the Annual General Meeting on 10 April After the authorisation no one has the authority to amend the financial statements. 2. Basis of preparation These financial statements for the year ended 31 December 2017 have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) and adopted by the European Union. The consolidated financial statements have been prepared under the historical cost convention modified by the accounting for derivative instruments which are measured at fair value. The carrying values of recognised liabilities that are designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. The financial statements have been prepared under the assumption of going concern. The functional currency of Solveig Gas Group is the Norwegian kroner (NOK). The consolidated accounts are presented in NOK. All amounts in the financial statements are shown in millions of Norwegian kroner unless stated otherwise. Solveig Gas Group Page 16 of 63

17 3. Principal accounting policies The following description of accounting principles applies to the Group's 2017 financial reporting, including all comparative figures. See note 2 Basis of presentation and note 4 Critical accounting judgment and key sources of estimation uncertainty for additional information related to the presentation, classification and measurement of the Group's financial reporting. a) Basis of consolidation i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Generally, subsidiaries represent entities with shareholding of more than one half of the voting rights. Solveig Gas Group has one subsidiary, Solveig Gas Norway AS, which is owned 100% and fully consolidated. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. ii) Associates Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between % of the voting rights. The equity method is used to account for investments in associates and these investments are initially recognised at cost. The Group s share of the net assets of its associates is included in the Consolidated Statement of Financial Position. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment in the associate and its carrying value and recognises the amount as part of 'Share of profit from associates' in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. iii) Investments in Gassled JV, Dunkerque DA and Zeepipe JV (Joint arrangements) The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. It is the Group s opinion that no individual partner can be considered to control the assets, as the ownership of the integrated set of assets and liabilities is regulated by contractual agreements giving the contracting parties joint control of these investments. The Group has evaluated its investment in the joint arrangements of Gassled, Dunkerque and Zeepipe, and concluded that these investments should be accounted for similar to joint operations, as the Group has the right to its share of the respective assets and an obligation for its share of the liabilities. Hereafter, the investment in the joint arrangements of Gassled, Dunkerque and Zeepipe is referred to as joint operations. The Group recognises, in connection with these joint operations, its share of the joint operations individual revenue and expenses, as well as the assets, liabilities and cash flows of the joint operations, on a line-by-line basis with similar items in the Group s consolidated financial statements. At the balance sheet date, the interests in the joint operations are included in the following lines in the Consolidated Statement of Profit or Loss and Other Comprehensive Income: Tariff income, Operating expenses, Finance income, and Finance cost. The joint operation ownership interests are included in the following lines in the Consolidated Statement of Financial Position: Property, plant and equipment, Trade and other receivables and Trade and other payables. Solveig Gas Group Page 17 of 63

18 b) Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is: Expected to be realised or intended to be sold or consumed in the normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the reporting period Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. c) Foreign currency translation i) Functional and presentation currency All amounts in the financial statements are presented in millions of Norwegian kroner (NOK), unless otherwise stated. The functional currency of the Group and associate is NOK as this is the currency of the primary economic environment in which the Group operates. ii) Foreign currency Transactions in currencies other than the Group s functional currency are recognised at the exchange rate prevailing at the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are revalued into NOK at the exchange rates prevailing at that date. d) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised 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. Depreciation is recognised rateably over the useful lives of the assets. Repairs and maintenance cost are charged to the income statement during the financial reporting period in which they are incurred. Depreciation is calculated using the straight-line method over the assets' estimated useful lives. The assets residual values and useful lives are reviewed, and adjusted if appropriate, on an annual basis. An asset s carrying amount is written down immediately after an impairment test to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within Other (losses)/gains net in the income statement. Ownership interests in assets which are shared by other owners (undivided interests) are accounted for by analogy to IAS 16 Property, plant and equipment. Solveig Gas Group Page 18 of 63

19 e) Impairment Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). This is defined as the whole asset Group for the gas infrastructure. Prior impairments are reviewed for possible reversal at each financial reporting date. f) Decommissioning liabilities Some of the gas grid assets in which the Group holds an undivided interest are expected to be decommissioned during the current license period. For these assets the decommissioning liability is the net present value of the expected costs of decommissioning. Some of the gas grid assets in which the Group holds an undivided interest are expected to be in use for a period that extends beyond the current license period. For these assets the decommissioning liability is the net present value of the expected costs of decommissioning the relevant gas grid assets taking into consideration the probability that the State might take over the decommission liability at the expiry of the current license period or that the decommissioning might happen in an extended license period. The discount rate used when calculating the net present value of the decommissioning liability includes the credit risk of the Group not being able to fund the decommissioning giving regard to any reimbursement rights from the shippers (see (g) below) held by the Group at the time of decommissioning. Subsequent changes to the decommissioning liability are calculated in accordance with IFRIC 1. In connection with the acquisition of a portion of Norsea Gas interest in Gassled, Solveig Gas has assumed removal responsibilities from Norsea Gas which cannot be passed on to the shippers. These liabilities relate primarily to removal costs for the old Emden processing facilities which are expected to be removed within the current license period. g) Decommissioning assets Although the Group has the formal responsibility to pay for decommissioning costs incurred during the license period by way of payments of cash calls to Gassco (as operator of the Gassled system), these costs generally are passed on to the shippers in proportion to their individual shares of shipped quantities throughout the assets lives. The Group records a Decommissioning asset at each balance sheet date based on its assessment of the credit risk associated with not being refunded future decommissioning costs from the shippers who have used the Gassled system and the extent to which the Group will not be able to recover all decommissioning costs from the shippers. h) Financial assets Regular purchases and sales of financial assets are recognised on the trade-date, being the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets and liabilities are only off-set and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. i) Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of a particular risk associated with the future cash outflows connected to a recognised liability (cash flow hedge). During 2017 and 2016 all derivative instruments entered into by the Group were designated as hedging instruments. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are Solveig Gas Group Page 19 of 63

20 used in hedging transactions are highly effective, (both prospectively and retrospectively) in offsetting changes in the hedged cash flows. The fair values of the derivative instruments used for hedging purposes are disclosed in note 18. Movements in the hedging reserves in Other comprehensive income are also disclosed in note 18. The full fair value of a hedging derivative is classified as a non-current asset or liability when the maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in Other comprehensive income, net of taxes. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within Gains/losses derivatives. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted interest payment that is hedged takes place). Upon reclassification, the gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within Finance cost. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecasted transaction is ultimately recognised in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Consolidated Statement of Profit or Loss and Other Comprehensive Income. j) Capitalised spare parts Capitalised spare parts are stated at the lower of cost and net realisable value. Cost is determined based on historical cost and charged to the income statement when put into use. The Group s capitalised spare parts arise through the joint operations, which are proportionately consolidated. k) Trade receivables Trade receivables are amounts related to gas transportation and gas processing through the joint operations. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. l) Cash and cash equivalents In the Consolidated Statement of Financial Position and the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand and deposits held at call with banks and excludes cash held in restricted bank accounts. m) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds of the equity injection. n) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. Prepaid financing fees are deferred until the draw-down occurs. If there no longer is evidence that the facility will be drawn down, deferred fees are expensed. o) Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Solveig Gas Group Page 20 of 63

21 All other borrowing costs are recognised in profit or loss in the period in which they are incurred. p) Financial liabilities Financial liabilities, other than those recognised at fair value though profit and loss, are initially recognised at fair value less direct transaction costs. Subsequent to initial recognition, interest-bearing liabilities are measured at amortised cost with any difference between cost and redemption being recognised in the statement of income over the expected duration of the loan. q) 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 recognised initially at fair value and subsequently measured at amortised cost. r) Revenue The Group recognises revenue when it is probable that future economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at fair value, and represents amounts receivable from gas transportation and gas processing in line with underlying agreements with the users of the gas grid assets ( the Shippers ). s) Finance income and costs Finance income comprises interest income on bank deposits and foreign exchange gains, and gains on derivatives not designated as hedging instruments. Finance costs comprise interest expense on borrowings and foreign exchange losses, and losses on derivatives not designated as hedging instruments. t) Current and deferred income tax The tax expense for the period comprises current and deferred tax. 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 Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The Group is subject to the provisions of the Petroleum Taxation Act. Revenues from activities on the Norwegian Continental Shelf are subject to ordinary tax at 24 percent (23 percent from 2018) and special tax at 54 percent (55 percent from 2018). The Group is granted a special allowance against the special tax base called Uplift, which is calculated as 21,6 percent on existing qualifying offshore assets as from Previously the uplift rate was 22 percent. The Uplift is allocated on a linear basis against the special tax base over 4 years. The uplift rate from 2018 is 21.2 percent. u) Dividend income Dividend income is recognised when the right to receive payment is established. Solveig Gas Group Page 21 of 63

22 v) Dividend distribution Dividend distribution to the Group s shareholders is recognised as a liability in the Group s financial statements in the period in which the dividends are approved by the Group s shareholders. w) Cash flow statement The Consolidated Statement of Cash Flows is prepared using the indirect method. x) Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date, and will not restate comparative information. During 2018, the Group will perform a detailed impact assessment of all three aspects of IFRS 9. This assessment will be based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial position and equity. The main impact will be related to increased disclosures related to financial assets and liabilities and hedge accounting as discussed below. a) Classification and measurement The Group does not expect a significant impact on its income statement, balance sheet or equity when applying the classification and measurement requirements of IFRS 9, as described for each class of financial assets below. Under IFRS 9, classification of debt assets will be determined by the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A debt instrument is measured at amortised cost if: a) the objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and b) the contractual cash flows under the instrument solely represent payments of principal and interest. All other debt and equity instruments, including investments in complex debt instruments and equity investments, must be recognised at fair value. Currently the Group does not have any investments in debt financial instruments. Under IFRS 9, all fair value movements on financial assets are taken through the statement of profit or loss, except for equity investments that are not held for trading, which may be recorded in the statement of profit or loss or in other comprehensive income (OCI) (without subsequent recycling to profit or loss). Currently the Group does not have any equity investments not held for trading. For financial liabilities that are measured under the fair value option under IFRS 9, an entity will need to recognise the part of the fair value change that is due to changes in its own credit risk in Other comprehensive income rather than profit or loss. Currently the Group does not have or intends to designate financial liabilities at fair value over the profit or loss. Solveig Gas Group Page 22 of 63

23 b) Impairment IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The new impairment approach for investments in debt instruments under IFRS 9 is based on an expected credit loss (ECL) model. A simplified approach is permitted for financial assets that do not have a significant financing component, for example trade receivables. On initial recognition, entities will record a day-1 loss equal to the 12 month ECL (or lifetime ECL for trade receivables), unless the assets are considered credit impaired. The Group will use the simplified approach for trade receivables, and does not expect any receivable impairment loss upon adoption of IFRS 9. c) Hedge accounting The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not have a significant impact on Group s financial statements. The new hedge accounting rules align hedge accounting more closely with common risk management practices. As a general rule, it will be easier to apply hedge accounting going forward. IFRS 9 allows the option to continue current hedge accounting under the IAS 39 rules or, upon adoption of IFRS 9, document the existing hedges to be compliant with IFRS 9. Currently the Group has interest rate cash flow and cross currency hedges and is evaluating its options given the IFRS 9 hedging rules. The IFRS 9 adoption effect on the financial statements related to the hedge accounting is not expected to be material. Overall, adoption of IFRS 9 is not expected to have a material impact on the financial statements, but will increase the required disclosures related to financial assets and liabilities and hedge accounting. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014, and amended in April 2016 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It is based on the principle that revenue is recognised when control of a good or service transfers to a customer. This concept of control replaces the existing IAS 18 notion of risks and rewards and is a broader concept that includes the transfer of risk and reward as one of the control criteria. Under IFRS 15, the five-step process used to evaluate all customer contracts to determine revenue recognition and measurement are: 1. identify contracts with customers, 2. identify the separate performance obligations, 3. determine the transaction price of the contract, 4. allocate the transaction price to each of the separate performance obligations, and 5. recognise the revenue as each performance obligation is satisfied. Solveig Gas Group receives revenues via Gassco, in the form of tariff payments from the oil and gas companies which ship gas from various producing fields on the Norwegian Continental Shelf through the network of pipelines, processing plants and receiving terminals, to the end users. See note 1 General Information and the Board of Directors Report for additional details. Revenue is recognised in the profit or loss statement based on the joint venture ownership interests held by Solveig Gas Group in accordance with IFRS 11 Joint Arrangements. Joint arrangement activities falling within the scope of IFRS 11 are specifically scoped out of IFRS 15. As of 31 December 2017 the Group does not have any revenue contracts within the scope of IFRS 15. Solveig Gas Group Page 23 of 63

24 IFRS 15 permits entities to apply the guidance retrospectively, which means restating and disclosing 2017 comparative financial statements upon adoption (full retrospective approach). Alternatively, an entity is permitted to recognise the cumulative effect of initially applying the guidance as an opening balance sheet adjustment to equity in the period of initial application (modified approach, and 2017 is not restated). Solveig Gas Group will adopt IFRS 15 as of 1 January 2018 using the full retrospective approach. The implementation of IFRS 15 is not expected to have a material effect on total reported revenues, costs, assets or liabilities. IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees leases of low-value assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-ofuse asset. The accounting by lessors will not significantly change. Some differences may arise as a result of the new guidance on the definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 must be adopted no later than 1 January It is possible to adopt earlier, if the Group also adopts IFRS 15 Revenue from Contracts with Customers at the same time. The Solveig Gas Group will not adopt IFRS 16 early. In 2018, the Group will continue to assess the potential effect of IFRS 16 on its consolidated financial statements. The expectation is that the effect of implementation will not be material. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective. IFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. This standard is not applicable to the Group. Solveig Gas Group Page 24 of 63

25 IFRS 17 Insurance Contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group. Transfers of Investment Property Amendments to IAS 40 The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management s intentions for the use of a property does not provide evidence of a change in use. Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if it is possible without the use of hindsight. Effective for annual periods beginning on or after 1 January Early application of the amendments is permitted and must be disclosed. This standard is not applicable to the Group. Annual Improvements Cycle (issued in December 2016) These improvements include: IFRS 1 First-time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for firsttime adopters Short-term exemptions in paragraphs E3 E7 of IFRS 1 were deleted because they have now served their intended purpose. The amendment is effective from 1 January This amendment is not applicable to the Group. IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice The amendments clarify that: An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. The amendments should be applied retrospectively and are effective from 1 January 2018, with earlier application permitted. If an entity applies those amendments for an earlier period, it must disclose that fact. These amendments are not applicable to the Group. Solveig Gas Group Page 25 of 63

26 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periods beginning on or after 1 January An entity may elect the overlay approach when it first applies IFRS 9 and apply that approach retrospectively to financial assets designated on transition to IFRS 9. The entity restates comparative information reflecting the overlay approach if, and only if, the entity restates comparative information when applying IFRS 9. These amendments are not applicable to the Group. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability relating to to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognised on or after: i. The beginning of the reporting period in which the entity first applies the interpretation, or; ii. The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. The Interpretation is effective for annual periods beginning on or after 1 January Early application of interpretation is permitted and must be disclosed. However, since the Group s current practice is in line with the Interpretation, the Group does not expect any effect on its consolidated financial statements. IFRIC Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates How an entity considers changes in facts and circumstances An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the Group operates in a complex multinational tax environment, applying the Interpretation may affect its consolidated financial statements and the required disclosures. In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis. Solveig Gas Group Page 26 of 63

27 4. Critical accounting judgements and the sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The following critical judgements have been made by management in the process of applying the Group s accounting policies: a) Infrastructure assets Impairment The Group reviews periodically whether its non-financial assets have suffered any impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset is written down to its recoverable amount when the recoverable amount is lower than the carrying value of the asset. The recoverable amounts of the non-financial assets have been determined based on the highest of fair value less cost to sell and valuein-use calculations. The recoverable amount calculations are based on contractual cash flows and estimates of future cash flows over the useful lives of the assets. The recoverable amount is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. Calculation of the recoverable amount requires use of estimates. The non-financial assets tested for impairment are defined as the entire investment in the gas infrastructure (Gassled, including the acquired interest from Norsea Gas AS), which consists of Property, plant and equipment (PP&E). This asset investment group is defined as a single cash-generating unit (CGU Gassled) for purposes of impairment testing. The carrying value of the CGU Gassled is measured as the PP&E acquisition cost less accumulated depreciation. Calculating the recoverable amount of the CGU is based on estimated discounted cash flows. The cash flow horizon is consistent with the license period for the investment. Cash outflows relate to operating expenses, which are estimated based on Gassco s budgets and the Group s board approved management model. The model for cash outflows is comprehensive and cash outflows have a high level of predictability. The CGU Gassled cash inflows primarily represent future tariff revenue. In the impairment testing, tariff revenues through the license period are assumed to be at the levels in accordance with current legislation. The outcome of the impairment test is most sensitive to the assumptions related to the future level of tariff revenue, as tariff revenue constitutes the majority of the cash inflows. Although a positive outcome of the Supreme Court s hearing would positively affect future tariff revenues, a negative outcome will not change the forecasted tariff revenues for impairment testing purposes. All impairment assessment calculations require a high degree of estimation, including assessments of the expected cash flows arising from the CGU and the estimation of applicable discount rates. These estimates are subject to change from accounting period to accounting period. The estimation of the CGU recoverable amount is based on assumptions regarding the future levels of tariff revenues and the weighted average cost of capital. Tariff revenues may not be linear over the license period. The carrying value of the asset at any point in time is dependent on the amount of accumulated depreciation to date. Depreciation of infrastructure assets is calculated using the straight-line method over the license period, which is a linear measurement. If the straight-line depreciation charge underestimates the value of the asset consumed in a given accounting period, the carrying value of the asset could be higher than the recoverable amount and recognition of an impairment loss would be triggered due to the interaction of the linear deprecation method and tariff revenue cash inflows which are not linear. There were no impairments in the periods presented. However, changes to the model estimates as discussed above, in particular changes to forecasted tariff revenues and the weighted average cost of capital, could have a significant impact on such conclusions and the amounts recognised in these and future financial statements. Depreciation The depreciation recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income depends on the estimated useful lives of the assets, the usage pattern of the assets within individual periods and residual values at the end of useful lives. The estimated useful lives are based on contractual periods of the agreements Solveig Gas Group Page 27 of 63

28 governing the use and operation of the assets and the assets are considered to be consumed linearly over their lives. This is based on current practice on the Norwegian Continental Shelf, together with previous experience and knowledge of the manner in which those assets will be used and retired from use. Changes in the pattern of use or other variations from the pattern of expected use from these estimates would significantly impact such conclusions and the amounts recognised in these financial statements, and future changes may lead to adjustments in the carrying value or estimated lives of the assets. The majority of the acquired infrastructure assets are under a license agreement expiring in The license agreement may or may not be extended beyond this period. The Group has decided to depreciate all of the infrastructure assets on a straight line basis over the period to 2028 taking into account any expected residual value. Residual values are based on the expected amounts to be received at the end of the license period if the assets are taken over by the State in Capitalised expenditures are depreciated over the expected useful life of the assets acquired. Any changes to the expected remaining useful life of the assets, for example as a consequence of a license extension, would significantly affect depreciation. Depreciation on other non-gassled assets is calculated using the straight line method to allocate their cost less residual values over their estimated useful lives. Changes in the pattern of use or other variations from the expected pattern of use from these estimates would significantly impact such conclusions and the amounts recognised in these financial statements, and future changes may lead to adjustments in the carrying value or estimated lives of the assets. b) Decommissioning liability and related decommissioning asset As an owner of participating interests in the Gassled JV, the Group has the principal responsibility to bear the costs of decommissioning the gas grid assets when the assets are no longer in use. At the same time, the Group has a right to reclaim any cost incurred in connection with the decommissioning of gas grid assets from the users of the gas grid assets ( the Shippers ). In connection with the acquisition of a portion of Norsea Gas interest in Gassled, Solveig Gas has assumed removal responsibilities from Norsea Gas which cannot be passed on to the shippers. These liabilities relate primarily to removal costs for the old Emden processing facilities and which are expected to be removed within the current license period. Provision is made for decommissioning based on the expected timing of when the dismantlement of infrastructure assets is expected to take place. The decommissioning liability and asset are recognised as the net present value of future expected costs and recoverable amounts as outlined in the Group s accounting policies above. The provision recognised represents the best estimate of the costs that will be incurred by the Group. The discount rate applied in the calculation is an estimate of the effect of time value of money on those costs and the risks specific to the liability over the period to complete removal. Significant judgement is required in estimating the cost of decommissioning, the timing of the decommissioning, the probability that the Norwegian state will require removal of the infrastructure assets at the end of the current license period and the discount rate applied. Changes in these assessments may significantly affect the decommissioning liability and the corresponding right of reimbursement. Estimates are reviewed annually and changes in cost estimates, discount rates, and the probability of the Norwegian state requiring removal at the end of the license period or an extension to the existing license period could all result in changes to the provision from period to period. The Group has made a thorough judgment based on current contract provisions that the rights to reclaim the decommissioning costs from the shippers are recognisable assets of principally the same amounts as the liability with the exception of the additional liability assumed on the acquisition of Norsea Gas interest in Gassled. See also note 20. Solveig Gas Group Page 28 of 63

29 5. Financial risks and risk management In support of the desired capital structure and targeted debt-equity ratio, and in order to support the financing of business operations, the Group utilises external financing (third party debt financing). The following forms of financing have been obtained: Term financing funding to part-finance the acquisition of the Group s stake in Gassled and related investments Bond financing funding to part-finance the acquisition of the Group s stake in Gassled and related investments Group Working capital financing funding to finance capital expenditure elements of cash calls and temporary working capital requirements Additional or alternative financing shall be secured in line with objectives and guidelines set forth by the Board of Directors and with due consideration to financing costs, repayment terms and the ability to satisfy lender covenant requirements. Overriding principles The Group s Board of Directors is responsible for defining the Group s risk profile and for ensuring that appropriate risk management and governance is exercised by the Group. As a guiding principle, the Group s strategy is to meet its stated objectives without exposing itself to material financial risk. Furthermore, the Group will not seek to increase profitability through actively seeking to increase its financial risk exposure, but will instead seek to ensure that financial risks are managed to within acceptable thresholds. a) Liquidity risk and cash management The Group s strategy is at all times to have access to sufficient liquidity to meet anticipated cash needs, through detailed liquidity forecasts and utilisation of available free-cash resources, or available credit line headroom, with an acceptable liquidity margin. Any excess liquidity is utilised to best effect, either to repay/offset borrowings, so as to reduce interest costs or is invested in risk free instruments with an acceptable rate of return. The table below analyses the Group s non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period between the balance sheet date and the contractual maturity dates. The amounts disclosed in the table below are the financial liability contractual undiscounted cash flows at 31 December 2017: NOK millions Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Bank borrowings* Bonds* Borrowings from shareholders and related parties Trade & other payables Decommissioning liabilities Derivatives designated as hedging instruments Total at 31 December Total * The amounts related to bank borrowings and USD Bonds are the actual financial liability contractual undiscounted cash flows at 31 December 2017 (note 18). The amounts disclosed in the table below are the financial liability contractual undiscounted cash flows at 31 December 2016: Solveig Gas Group Page 29 of 63

30 NOK millions Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Bank borrowings* Bonds* Borrowings from shareholders and related parties Trade & other payables Decommissioning liabilities Derivatives designated as hedging instruments Total at 31 December * The amounts related to bank borrowings and USD Bonds are the actual financial liability contractual undiscounted cash flows at 31 December 2016 (note 18). b) Market risk: Interest rate risk Interest rate risk is the risk of potential reduction in asset value and profitability arising through adverse variations in interest rates. The Group is exposed to significant interest rate risk, primarily as a consequence of its third party bank debt that is offered on floating rate terms. The Group monitors its interest rate exposure and has reduced its interest rate risk through converting 100 % of its floating interest rate exposure to fixed rates. The Group s interest rate management policy is largely defined by requirements imposed by its lenders. In accordance with the Group s risk management policy and as part of the facilities' covenants, Solveig has entered into fixed/floating interest rate swaps to mitigate the Group s floating interest rate exposure. Due to the issuance of the USD fixed interest rate bonds in June 2012, the Group entered into cross currency swaps for both the amortising loan amount of USD 650 million and the semi-annual USD interest payments. All of the derivative financial instruments are designated as hedging instruments and changes in fair value are charged against Other comprehensive income. The Group had a total unrealised gain of NOK -198 million and NOK 117 million as of 31 December 2017 and 2016, respectively. See note 18 for additional information. Total c) Market risk: Exchange rate risk The Group is exposed to a limited degree of currency exchange risk, due to payments for certain of its operating expenses and investments being paid in EUR and GBP. Given the anticipated relatively modest nature of non-nok denominated operational cash flows as a whole, the Group does not seek to hedge net-exposures where the annual net exposure per currency is expected to be less than the NOK-equivalent of NOK 50 million per year. For net exposures above NOK-equivalents of NOK 50 million per year, the Group will seek to hedge cash flows when the timing of the cash flows can be determined with a high degree of certainty. As the Group s exposure to changes in GBP and EUR is limited, the impact on full year post tax profit of a 10% movement in either the EUR or GBP exchange rate will not have material effect on the Group s financial statements. As the Group s borrowing facilities are NOK-denominated or have been swapped to Norwegian kroner, there is no currency risk related to borrowings. However, should the Group in the future face exchange rate exposure in a currency other than NOK, the Group would plan to hedge between % of such exposure to NOK. Such exchange rate exposure is monitored and reported internally to the Board of Directors and the Group s lenders as required. See note 18 for additional information. d) Credit risk Credit risk is the risk of potential loss arising when a counterparty is unable to fulfil its obligations. The Group has assessed that it is exposed to credit risk in relation to: Payment of tariff revenues - This risk is considered to be low, given the state-owned nature of Gassco and the financial status of the underlying gas shipper companies. Solveig Gas Group Page 30 of 63

31 Obligations of counterparties in relation to settlements due under derivative contracts This risk is considered to be low given the financial standing of the financial institutions with which derivative contracts have been placed, however, periodic monitoring of such counterparties credit worthiness is undertaken. Obligations due from other third parties, e.g. payment of insurance proceeds - This risk is considered to be low given the financial standing of the financial institutions with which insurance contracts are undertaken, however, periodic monitoring of these institutions credit worthiness is undertaken. Decommissioning This risk is considered to be low, given that the credit ratings of the large corporate counterparties, that are the shippers, are high. The Group monitors credit risk by periodic assessments of the credit worthiness of its counterparties and considers adequate corrective actions in case of negative developments in credit worthiness. See note 22 for additional information. e) Fair value estimation The Group analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e, as prices) or indirectly (i.e, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs) (Level 3). The Group only has financial instruments carried at fair value in level 2. The financial derivatives (assets) designated as hedging instruments had a fair value of NOK million and NOK million as of 31 December 2017 and 2016, respectively. Financial derivatives (liabilities) designated as hedging instruments had a fair value of NOK -601 million and NOK -723 million as of 31 December 2017 and 2016, respectively. See note 18 for additional information. f) Financial instruments by category For more information on financial instruments by category, please refer to Note Segment information For management purposes, the Group is organised as one business unit with one operating segment and the internal reporting is structured thereafter. The Group does not report segment information. 7. Operating expenses Specification of operating expenses NOK millions Operating expenses - Joint Operations General and administrative charges - Joint Operations Insurance Total operating expenses Solveig Gas Group Page 31 of 63

32 8. Employee benefit expense and auditor's fees Employee benefit expense and auditor's fees are included in administrative expenses in the Consolidated Statement of Profit or Loss. Employee benefit expense Specification of employee benefit expenses NOK thousands Payroll expense Social security contribution Pensions Other personnel expenses Total employee benefit expense Total number of employees at year end 5 6 Pensions The Group has a defined contribution pension plan for its employees, which satisfies the statutory requirements in Norwegian law relating to occupational pension ("Lov om obligatorisk tjenestepensjon"). See Note 23 for information about remuneration to key management and the board of directors. Auditor's fees Specification of auditor's fees NOK thousands (excluding VAT) Statutory audit Other assurance services Tax advisory services Total auditor remuneration Tax advisory services for both years were delivered by Deloitte Advokater DA and primarily relate to tax reviews and preparation of tax returns. Specification of administrative expenses NOK thousands Total employee benefit expense Total auditor remuneration Total other cost including legal fees related to tariff lawsuit Total administrative expenses Solveig Gas Group Page 32 of 63

33 9. Finance income and cost NOK millions Finance income Interest income on short term bank deposits Other finance income* Finance income Finance cost Other finance cost * Interest expense on external borrowings** Interest expense on related party borrowings (note 23) Net foreign exchange loss Amortised finance cost Finance costs * Of the net Other finance income/cost, NOK 7 million and NOK 10 million for 2017 and 2016, respectively, relate to the joint operations. See note 21. ** Interest expense on external borrowings is net of capitalised borrowing cost of NOK 5 million and NOK 14 million for 2017 and 2016, respectively. See note Income tax Income tax recognised in the Statement of Profit or Loss and Other Comprehensive Income NOK millions Current taxes for the year Deferred tax liabilities/(benefit) recognised in the period Deferred tax liabilities/(benefit) effect of change in tax rate* Current taxes for prior year Deferred tax liabilities /(benefit) recognised in prior year Income tax expense Income tax recognised in Other comprehensive income/(loss) NOK millions Other comprehensive income/(loss) 4-4 Tax effect -1 1 Other comprehensive income/(loss) (net of tax) 3-3 *Temporary differences related to deferred tax assets and liabilities will be taxed within the ordinary tax system at a rate of 23% (24% in 2016). Temporary differences related to offshore deferred tax assets and liabilities will be taxed at an additional rate of 55% (54% in 2016). The effect of the changes in these rates are included in this line. Solveig Gas Group Page 33 of 63

34 The income tax expense recognised in the Statement of Profit or Loss and Other Comprehensive Income can be reconciled as follows: NOK millions Profit/(loss) before income tax Tax calculated at the domestic rate (24%/25%) Tax calculated at the petroleum tax rate (54%/53%) Tax effects of: Expenses not deductible for tax purposes Permanent difference due to PPA Financial items Onshore items Uplift Effect of change in tax rate Over/under accrual prior years Income tax expense Profit/(loss) before income tax Effective income tax rate 91 % 90 % For 2017/2016 the Group is taxable in accordance with the Petroleum Taxation Act which gives rise to an additional petroleum tax on offshore income at a rate of 54%/53%, giving a total tax rate of 78%. 11. Current and deferred tax balances Specification of deferred tax liability /(asset) NOK millions 31 December December 2016 Property, plant and equipment Capitalised borrowing cost Decommissioning receivable/payable Borrowings and swap contracts - hedged Currency adjustment USD-bond Amortised finance cost Total deferred tax liabilities/(assets)* Temporary differences related to deferred tax assets and liabilities will be taxed within the ordinary tax system at a rate of 23% (24% in 2016). Temporary differences related to offshore deferred tax assets and liabilities will be taxed at an additional rate of 55% (54% in 2016). Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Specification of taxes payable NOK millions 31 December December 2016 Taxes payable 1 January Current taxes for the year** Taxes paid in the period Prior year adjustments Total taxes payable * Includes MNOK 188 transferred from Norsea Gas AS in 2017 Solveig Gas Group Page 34 of 63

35 **Includes MNOK 41 transferred from Norsea Gas AS in Property, plant and equipment NOK millions Infrastructure assets offshore Infrastructure assets onshore Construction in progress Other PP&E Cost Cost 1 January Capital additions during the year Transferred from Construction in progress Capitalised borrowing costs Cost 31 December Total - 14 Depreciation Accumulated at 1 January Depreciation for the year Accumulated Depreciation 31 December Carrying amount 31 December Cost Cost 1 January Capital additions during the year Transferred from Construction in progress Transfer from Norsea Gas AS (note 1) Capitalised borrowing costs Cost 31 December Depreciation Accumulated at 1 January Depreciation for the year Accumulated Depreciation 31 December Carrying amount 31 December Office equipment (useful life): Onshore additions (remaining useful life is the license period; license period expires in 2028): Offshore additions (remaining useful life is the license period; license period expires in 2028): Acquired Infrastructure assets (remaining useful life is the license period; license period expires in 2028): 3-8 years 11 years 11 years 11 years The Group capitalised borrowing costs amounting to NOK 5 million and NOK 14 million on qualifying assets in 2017 and 2016, respectively. Borrowing costs were capitalised at the weighted average rate of the Group's general borrowings of 5,6% and 5,6% in 2017 and 2016, respectively. All the property, plant and equipment are pledged as collateral for the long-term borrowings. Infrastructure assets are reviewed for impairment on a regular basis. There is no impairment loss recognised on infrastructure assets in 2017 or See note 4 for a discussion of the critical accounting judgements related to infrastructure assets. Solveig Gas Group Page 35 of 63

36 13. Investment in associates The Group s Investment in Associates NOK 307 million as of 31 December 2017 (NOK 347 million in 2016) is accounted for using the equity method and represents the purchase price of its 35.25% interest in Norsea Gas AS adjusted for the Group s share of post acquisition profits and losses less dividends received less the accumulated amortisation of the excess of the purchase price over the equity value of the investment. The Group acquired its proportionate share of the Norsea Gas AS interest in Gassled with corresponding interests in Dunkerque and Zeepipe. Please see note 1 for further information NOK millions Type 1 January October 2016 Dividend -62 Total ownership 322 Estimated share of profit in the period 45 Additional depreciation of depreciable assets based on their fair values at the acquisition date -20 Total Investment in Associate at 31 December January Estimated share of profit in the period 19 Additional depreciation of depreciable assets based on their fair values at the acquisition date -10 Transfer of excess purchase price to PP&E in connection with Acquisition from Norsea Gas AS -49 Total Investment in Associate at 31 December The table below shows information derived from the latest available financial information from Norsea Gas AS for 2017 and 2016, and is presented for 100% of Norsea Gas AS. The estimated share of profit for 2017 is calculated based on Norsea Gas AS unaudited financial information. Country of incorporation Assets Liabilities Revenues Profit % interest held Name 31 December 2017 Norsea Gas AS Norway % 31 December 2016 Norsea Gas AS Norway % 14. Trade and other receivables The fair value of Trade and other receivables approximates the carrying values. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable shown below. The Group does not hold any collateral relating to receivables. NOK millions 31 December December 2016 Accrued Tariff income Current receivables related to overcall in joint operations (note 21) 0 19 Share of other current receivables in joint operations (note 21) Financial instrument receivable Other receivables 2 3 Trade and other receivables No trade receivables were impaired or written off during 2017 or As of 31 December 2017 and 31 December 2016, there were no trade receivables which were past due. Solveig Gas Group Page 36 of 63

37 15. Cash and cash equivalents 31 December December 2016 Cash and cash equivalents: Customary employee salary withholding tax bank account (NOK) 1 1 Bank deposit (NOK) Cash and cash equivalents Restricted Bank Deposits: Debt service reserve account Top management restricted pension contribution accounts 4 3 Restricted bank deposits The Group has established a separate bank account to facilitate compliance with Norwegian payroll tax law. The debt service reserve account consists of cash posted as security for the next six months of external debt payments. Top management restricted pension contribution accounts consist of cash contributed to a fund account for future pension payments to top management (see note 23). These restricted cash balances are not included in the cash flow statement as cash and cash equivalents. 16. Share capital and Other reserves Capital management The primary objectives of the Group s capital management policy are to ensure that the Group complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. The Group manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board. The Group has A shares and B shares at 31 December 2017 and 31 December 2016 each with a nominal value of NOK 5. Ordinary A shares carry full economic rights (as to dividends and capital), and full voting rights on all matters, except for resolutions for the appointment and removal of directors. Ordinary B shares carry a right to a limited dividend (NOK 10 per share per year) and a limited participation of NOK 100 per share in the winding up of the Group, but no other economic rights. They have full voting rights on all matters, including the appointment and removal of directors. Shareholders as of 31 December 2017 A-shares Ownership B-shares Ownership CPP Investment Board European Holdings S.a.r.l % % Allianz Infrastructure Norway Holdco I S.a.r.l % % Infinity Investments S.A % % Total % % Solveig Gas Group Page 37 of 63

38 Issued capital and reserves Authorised Thousands Thousands A shares of NOK 5 each B shares of NOK 5 each Ordinary shares Thousands Thousands Issued and fully paid: At 1 January Issued 0 0 At 31 December External borrowings As of 31 December 2017 the existing facility agreements consist of two individual facilities (A and D) as described below: Facility Type Limit (NOK million) Facility A Term Facility Facility D Capex and Revolving Credit Facility Total As of 31 December 2017 and 2016, the Group had the following external long-term debt: Loan Currency Nominal amount (million) Maturity Facility A NOK June 2021 Bond loan USD USD December 2027 Bond loan NOK NOK December 2027 No further draw-downs can be made on Facility A which has a final maturity in June 2021, with semi-annual repayment instalments. Any drawings on Facility D which are not made for the purpose of financing capital expenditure, are required to be paid down annually. Facility D s final maturity is also in June Both the NOK and the USD bonds have repayment profiles which commence in 2019, with the final principal payments due in December See note 5 for the repayment schedule. All the bank facilities carry a floating three month NIBOR interest rate on the outstanding amount plus a margin which is both time and rating dependent. A commitment fee is calculated as a percentage of the loan margin on the undrawn, non-cancelled amount of commitments under Facility D. Both the US and the NOK bonds have fixed interest rates. To mitigate the floating interest rate risk and currency risk the Group has entered into cross currency swap agreements. Therefore, all of the Group s long-term loans are denominated in Norwegian kroner or have been hedged with currency swaps to Norwegian kroner, see Notes 5 and 18. All borrowings under the agreements are secured by the Solveig Group s assets, in addition to a negative pledge covenant. The Common Term Agreement contains the following financial ratio covenants: Covenant: Trigger event Event of default Debt service coverage ratio Concession life coverage ratio Solveig Gas Group Page 38 of 63

39 The Debt Service Coverage Ratio is calculated as cash flow available for debt service divided by debt service both 12 months forward looking and 12 months backward looking. The Concession Life Coverage Ratio is calculated as the discounted cash flow available for debt service throughout the lifetime of the Gassled licenses' concession, divided by the total net debt at the calculation date. At the year-end the Group was compliant with the financial ratio covenants listed above. Any additional financial indebtedness must comply with the requirements in the financing agreements. The 2017 and 2016 year-end balances on external borrowings were as follows: NOK millions Book value 31 December 2017 Fair Value 31 December 2017 * Book value 31 December 2016 Fair Value 31 December 2016 * Non-current Bank borrowings Bond borrowings Total, non-current Current Bank borrowings Bond borrowings Total current Total borrowings *USD bond fair value is estimated based on the estimated fair value of the NOK bond. Both bonds have the same payment structure and are regulated under the same Common Terms Agreement which results in a similar risk profile. The fair value of the bank borrowings is based on a discounted cash flow model. NOK millions Book value 31 December 2017 Book value 31 December 2016 Bank borrowings Bank borrowings principal amount unamortised Financing fees and establishment costs Current bank borrowings Long-term bank borrowings Bond borrowings Bond borrowings principal amount unamortised Financing fees and establishment costs Long-term bond borrowings Total long-term borrowings All of the Group s loans are denominated in Norwegian kroner or have been swapped to Norwegian kroner, see Notes 5 and 18 for additional information. The Group has the following undrawn borrowing facilities: 31 December December 2016 Floating rate: - Expiring beyond one year (Facility D) Total Solveig Gas Group Page 39 of 63

40 18. Derivative financial instruments The Group has entered into cross currency interest rate swaps (CCRS) and interest rate swaps (IRS) to hedge all currency and floating interest rate risks on its borrowings. Solveig is exposed to currency risk through its 650 million USD fixed rate bond, and to interest rate risk on its NOK floating rate bank facilities. To hedge currency risk, Solveig has entered into fixed USD-to-floating NOK CCRS on which Solveig receives fixed USD interest and pays floating NOK interest payments. The IRS contracts swap floating NOK interest into fixed NOK interest payments. The IRS contracts hedge the risk of both the Group's NOK floating rate bank borrowing as well as the NOK floating rate exposure resulting from the CCRS contracts. The Group uses hedge accounting for the foreign currency risk of the USD bond where USD fixed rate borrowings are swapped into a fixed rate NOK exposure. These forecast transactions consist of future payments on the USD bond, and are highly probable. The cash flows are expected to occur and affect the income statement regularly in accordance with the contractual terms of the bond until the bond s maturity in Quantitative effectiveness tests are performed quarterly using the dollar offset method, where changes in the fair value of the hedging instruments are compared to changes in the net present value of the hedged bonds attributable to the hedged risk. The cash flows of the hedging instruments are closely linked to the cash flows of the hedged item, which reduces the likelihood that the hedge should become ineffective in the near future. The fair value of the cross currency interest rate swaps and interest rates vary with the USD/NOK currency rate and with USD and NOK interest rates. The Group has entered into the following swap agreements: Remaining Notional Type Effective date Termination date Amount (NOK millions) Designate maturity Fixed rate Floating rate NOK NOK/USD Fixed rate Interest rate swaps months 3.74 % Swaps from USD fixed rate to NOK floating rate months 4.00 % NIBOR 3 month Not % margin applicable NIBOR 3 month % margin 6.03 The table below shows end-of-reporting period fair values of the derivatives used as hedging instruments: NOK millions Assets Liabilities Assets Liabilities Cross currency interest rate swaps designated 31 July 2014 as hedge accounting instruments under IAS Interest rate swaps designated 31 July 2014 as hedge accounting instruments under IAS Total non-current position The table below depicts the amounts recognised in 'Other comprehensive income' in the Consolidated Statement of Profit or Loss and Other Comprehensive Income during the period, as well as the balance on the hedging reserves: NOK millions Hedging reserves 1 January Change in year-end fair value of designated hedging instruments Prepayment of Cross currency swaps Currency gains/losses on hedged USD Bond Net P&L-effect allocated to Other comprehensive income from hedged payments Tax effect -1 1 Net recognised in other comprehensive income during reporting period 3-3 Hedging reserves 31 December No hedge ineffectiveness was recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in 2017 or Solveig Gas Group Page 40 of 63

41 19. Trade and other payables NOK millions 31 December December 2016 Trade payables 1 2 Trade payables, related parties (note 23) 2 2 Share of other current liabilities in joint operations (note 21) Accrued expenses 2 3 Debt to Norsea Gas AS Total The average credit period taken for trade payables is approximately 30 days. After the due date most of the suppliers charge interest on the outstanding balance at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the agreed terms of payment and prior to the due date. The fair value of trade payables closely approximates their respective amortised cost carrying values. 20. Decommissioning The decommissioning liability is the net present value of the expected costs of decommissioning the relevant gas grid assets, taking into consideration the probability that the Norwegian State might take over the decommissioning liability at the expiry of the current license period or that the decommissioning might happen later than 2028 due to an extension of the license period. The Group has also recognised an asset that represents the Group s future claims on Shippers related to their respective shares of the liability for future decommissioning. The amount receivable from each Shipper is discounted with an interest rate taking into consideration the relevant credit spread of each Shipper. Year-end balances: NOK millions 31 December December 2016 Asset retirement reimbursement, non-current Asset retirement reimbursement, current - - Total asset retirement reimbursement Asset retirement obligation, non-current Asset retirement obligation, current - - Total provision, asset retirement obligation The change in decommissioning assets and liabilities is due to the following: NOK millions Decommissioning liability Decommissioning asset At 1 January Decommissioning Expense/Income 1-2 Estimate change of provision Interest adjustment -3 3 At 31 December At 1 January Decommissioning Expense/Income Estimate change of provision 8-8 Transfer from Norsea Gas AS Interest adjustment -3 2 At 31 December Solveig Gas Group Page 41 of 63

42 21. Interest in Joint Operations The Group has the following ownership in joint operations: Joint operation Participating interests in the Gassled JV % % Participating interests in Dunkerque DA % % Participating interests in Zeepipe JV % % The following table shows the proportional consolidated amounts from the joint operation reflected in the Group's Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss and Other Comprehensive Income. NOK millions Balance sheet Assets PP&E (Note 12) Current receivables (Note 14) Total assets Liabilities Current liabilities (Note 19) Total liabilities Net assets Consolidated Statement of Profit or Loss Tariff income Operating expenses (Note 7) Finance income (Note 9) Finance expense (Note 9) -5-3 Net profit before tax There are no contingent liabilities relating to the Group s interests in the joint operations, and no contingent liabilities in the ventures themselves. Solveig Gas Group Page 42 of 63

43 22. Financial instruments by category and credit quality of financial assets Financial instruments by category The Group had the following financial instruments by category as at 31 December 2017: Financial assets NOK millions Loans and receivables Assets at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Non-financial assets Total Trade and other receivables Derivative designated as hedging instruments Decommissioning receivables Cash and cash equivalents Restricted cash Total Financial liabilities NOK millions Liabilities at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Other financial liabilities at amortised cost Non-financial liabilities Bank, Bond & Shareholder borrowings Derivative designated as hedging instruments Decommissioning liabilities Trade and other payables Total Total The Group had the following financial instruments by category as at 31 December 2016: Financial assets NOK millions Loans and receivables Assets at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Non-financial assets Total Trade and other receivables Derivative designated as hedging instruments Decommissioning receivables Cash and cash equivalents Restricted cash Total Financial liabilities NOK millions Liabilities at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Other financial liabilities at amortised cost Non-financial liabilities Bank, Bond & Shareholder borrowings Derivative designated as hedging instruments Decommissioning liabilities Trade and other payables Total Total Credit quality of financial assets The credit quality of financial assets that are neither due nor impaired are assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. Solveig Gas Group Page 43 of 63

44 NOK millions 31 December December 2016 Counterparty (Gassco AS AA rating)* Counterparties not rated Total unimpaired financial assets Bank deposits at DnB ASA with A+ rating ( Standard & Poor's) Total cash at bank and short-term bank deposits, incl. restricted cash *Gassco AS financial receivables consist of one month of accrued tariff income (2017: MNOK 547; 2016 MNOK 542) and a long-term decommissioning receivable (2017: MNOK 80; 2016: MNOK 25). See note 14 Trade and other receivables for a specification of all other financial receivables. 23. Related parties and Key management remuneration Related parties Related parties transactions were as follows (in NOK millions): Transactions during 2017 Transactions during 2016 Related party Type of transaction CPP Investment Board European Holdings S.a.r.l Repayment of paid-in capital Allianz Infrastructure Norway Holdco I S.a.r.l Repayment of paid-in capital Infinity Investments S.A. Repayment of paid-in capital CPP Investment Board European Holdings S.a.r.l Loan repayments Allianz Infrastructure Norway Holdco I S.a.r.l Loan repayments Infinity Investments S.A. Loan repayments CPP Investment Board European Holdings S.a.r.l Accrued interest expense Allianz Infrastructure Norway Holdco I S.a.r.l Accrued interest expense Infinity Investments S.A. Accrued interest expense Interest expense, cash CPP Investment Board European Holdings S.a.r.l payment Interest expense, cash Allianz Infrastructure Norway Holdco I S.a.r.l payment Interest expense, cash Infinity Investments S.A. payment Total Two shareholder loan agreements were entered into in order for the Group to partly fund the acquisition of the Gassled assets and for general working capital purposes. Both loans carry interest on arm's length conditions and are subordinated to all other liabilities of the Group whether incurred prior to or after the shareholder loan agreements were entered into, but shall rank pari passu with any other shareholder loans. The shareholder loans consist of: MNOK Nominal amount Loan 31 December 2017 MNOK Nominal amount 31 December 2016 Maturity Category Shareholder loan December 2030 Amortised cost Shareholder loan December 2030 Amortised cost Total shareholder debt The Group has the right to repay the loans in part or full at any time up to the final maturity date. Solveig Gas Group Page 44 of 63

45 Year-end balances related parties Lender (NOK millions) Type and ownership % 31 December December 2016 Non-Current related party debt CPP Investment Board European Holdings S.a.r.l Shareholder loan 40% Allianz Infrastructure Norway Holdco I S.a.r.l Shareholder loan 30% Infinity Investments S.A. Shareholder loan 30% Total non-current related party debt Current related party debt CPP Investment Board European Holdings S.a.r.l Accrued interest - - Allianz Infrastructure Norway Holdco I S.a.r.l Accrued interest - - Infinity Investments S.A. Accrued interest - - Key Management Top hat pension 2 2 Total current related party debt 2 2 Total outstanding related parties debt Key management remuneration Key management compensation 2017 Position (NOK thousands) Salary and Bonus Pension Contribution Other Remuneration Total 2017 Total* Key management compensation 2016 Position (NOK thousands) Salary and Bonus Pension Contribution Other Remuneration Total 2016 Total* *The key management consist of the CEO, CFO and the Technical Director Policy statement concerning salaries and other remuneration of senior employees The Board has established guidelines for salaries and other remuneration to the CEO and other senior employees. Senior employees receive a basic salary, adjusted annually. The Group s senior employees participate in the general arrangements applicable to all the Group s employees for defined contribution pension plans as well as an additional top management pension plan, and other payments in kind such as newspaper subscriptions, internet connection at home and mobile telephone subscription shown above as Other Remuneration. The specification above is for the actual amount of compensation received during the calendar year. Key management compensation is classified under Administrative expenses in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. It is up to the Board to decide whether to pay bonuses, based on the previous year s performance. Bonuses of NOK 599 thousand paid in January 2017 relating to 2016 performance are included in the 2017 specification above. Bonuses of NOK 888 thousand paid in January 2016 relating to 2015 performance are included in the 2016 specification above. Bonuses paid in January 2018 relating to 2017 are not included in the 2017 specification above. The Group has a top hat pension scheme for its senior management for salaries exceeding 12 times the National Insurance basic amount (G). These pension contributions are included in the above Total Pension Contribution specification. This additional pension scheme has a 3-year vesting period, and pension payments begin when the employee reaches 65 years of age. The three members of senior management have termination clauses that allow for termination payments in the event that the Group requests the manager to resign as a result of events out with the control of the manager. All three have a six month notice period and six months of severance payments. Solveig Gas Group Page 45 of 63

46 Key management remuneration and compensation to Board of Directors are included in Administrative expenses. Compensation to Board of Directors The Board received the following remuneration: Name (amounts in NOK thousands) Role Represents Director s fee 2017 Director s fee 2016 Johan Nic Vold Chairman James Bryce Board member CPP - - Liv Monica Stubholt Board member CPP - - Susan Bellingham Board member CPP - - Juan Vazquez Ruiz Board member Allianz - - Andrew Julian Fredrick Cox Board member Allianz - - Guy Lambert Board member ADIA - - Andrew Nowell Board member ADIA - - Total Commitments and contingencies The Group s operations are related to managing its interest in the Gassled infrastructure assets. It is the opinion of management that there are no material contingent liabilities in respect of legal claims arising in relation to the operations of its interests. However, in connection with the on-going legal process against the Ministry of Petroleum and Energy (MPE) relating to the 2013 tariff reductions, the Court of Appeal awarded legal costs to the MPE. The Group s share of these costs will only become payable if the Supreme Court upholds the Court of Appeal s ruling and any payment made will be deductible for tax. Committed future obligations: The Group has through its participating interest in the Gassled joint operation committed to participate in project investments where the Group s share of remaining committed capital expenditure is estimated to be approximately NOK 305 million. Planned investments The Group s estimated participating interest in the four year plan of the Gassled joint operation is presented in the table below. The estimates are based on cost and time for discretionary projects, and therefore do not necessarily represent a committed liability. (NOK millions) Total Planned investments Subsequent events In early March 2018, the Group received a warning from the Norwegian Oil Taxation Office (OTO) which states that the OTO is considering reducing the level of interest which is deductible for tax purposes on the shareholder loans, covering the years The OTO claims that the interest rates have not been set on an arms-length basis, something which the Group disputes. Nevertheless, the Group has chosen to make an accrual of NOK 120 million for additional, but as yet unassessed taxes, including interest. As an assessment issued by the OTO requires to be paid, pending resolution of the dispute, the Group has assumed that it will be paid in 2018 and has adjusted the DSCR accordingly. Solveig Gas Group Page 46 of 63

47 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 SOLVEIG GAS HOLDCO AS Financial Statements for the year ended 31 December 2017 Solveig Gas Holdco AS Solveig Gas Group Page 47 of 63

48 Statement of Profit or Loss and Other Comprehensive Income NOK million Note Other revenue - - Gross profit - - Administrative expenses 6, Operating profit/(loss) Finance income Finance cost Profit/(loss) before income tax Income tax expense Profit/(loss) for the year Total comprehensive income/(loss) Attributable to owner The notes are an integral part of these financial statements. Solveig Gas Group Page 48 of 63

49 Statement of Financial Position NOK millions Note 31 December December 2016 ASSETS Deferred tax asset Investments in subsidiary Shareholder loan 13, Non-current assets Cash and cash equivalents 10, Current assets Total assets EQUITY AND LIABILITIES Share capital Other reserves Accumulated deficit Total equity Borrowings from shareholders and related parties 5, 13, Non-current liabilities Intercompany payables 12, 13, Tax payable Current liabilities Total liabilities Total equity and liabilities The notes are an integral part of these financial statements. Solveig Gas Group Page 49 of 63

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51 Statement of Changes in Equity NOK millions Share capital Other reserves Retained earnings/ (accumulated deficit) Total equity Balance at 1 January Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income for the period Repayment of paid-in capital Balance at 31 December Share capital Other reserves Retained earnings/ (accumulated deficit) Total equity Balance at 1 January Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income for the period Repayment of paid-in capital Balance at 31 December The notes are an integral part of these financial statements. Solveig Gas Group Page 51 of 63

52 Statement of Cash Flows NOK millions Cash generated from operating activities Note Profit/(loss) before income tax Adjusted for: Change in working capital: Changes in Intercompany payables Net cash generated from / (used in) operating activities Cash flows from investing activities Interest received from Solveig Gas Norway AS Loan repayments from Solveig Gas Norway AS Repayment of paid-in capital from Solveig Gas Norway AS 9, 11, Net cash generated from investing activities Cash flows from financing activities Interest paid to shareholders Loan repayments to shareholders Repayment of paid-in capital 11, Net cash used in financing activities Net (decrease) / increase in cash and cash equivalents Cash, cash equivalents and bank overdrafts at start of the period Cash and cash equivalents at end of the period The notes are an integral part of these financial statements. Solveig Gas Group Page 52 of 63

53 Solveig Gas Holdco AS Notes to the Financial Statements for the year ended 31 December General information Solveig Gas Holdco AS was established by a consortium of three infrastructure investors, CPP Investment Board European Holdings S.a.r.l, Allianz Infrastructure Luxembourg I S.a.r.l and Infinity Investments S.A., a wholly owned subsidiary of the Abu Dhabi Investment Authority, to purchase 100% of the shares in the company Solveig Gas Norway AS. The purpose of Solveig Gas Norway AS is to own 25,55% direct participating interest in Gassled, together with corresponding interests in the Dunkerque Terminal DA (16.61%) and the Zeepipe JV (12.52%) ("the Participating Interest") Gassled is an unincorporated entity comprising a number of terminals, platforms and pipelines which, together with the Dunkerque Terminal DA and the Zeepipe JV, is operated by Gassco (a Norwegian state owned entity) under contract, for and on behalf of 9 investors. On 13th March 2017, the four shareholders of Norsea Gas AS including Solveig Gas Norway agreed to acquire proportionately Norsea Gas 2.261% interest in Gassled, with tax effect from 1 January This transfer was approved by the Ministry of Petroleum and Energy in June 2017 and for accounting purposes, closing occurred on 30th June As a result, Solveig Gas Norway s direct interest in Gassled increased from % to % with corresponding increases in the Company s interests in the Dunkerque Terminal DA and the Zeepipe JV. Norsea Gas has initiated liquidation proceedings and it is expected that the company will be liquidated in early 2018 at which time the final liquidation settlements will take place with the four owners. Solveig Gas Holdco AS is located in Stavanger, Norway, at the following address: Solveig Gas Holdco AS Hospitalsgt Stavanger The financial statements can be obtained, if requested, at the address above. The financial statements were authorised for issue by the Annual General Meeting on 10 April After the authorisation no one has the authority to amend the financial statements. 2. Basis of presentation These financial statements for the year ended 31 December 2017 have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB) and adopted by the European Union. The financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Company financial statements are disclosed in note 4. The financial statements have been prepared under the assumption of going concern. The functional currency of Solveig Gas Holdco AS is the Norwegian kroner (NOK). The accounts are presented in NOK. All amounts in the financial statements are shown in millions of Norwegian kroner unless stated otherwise. Solveig Gas Group Page 53 of 63

54 3. Principal accounting policies The following description of accounting principles applies to the Company 2017 financial reporting, including all comparative figures. See note 2 Basis of presentation and note 4 Critical accounting judgment and key sources of estimation uncertainty for additional information related to the presentation, classification and measurement of the Company financial reporting. a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Solveig Gas Holdco has one subsidiary, Solveig Gas Norway AS, which is owned 100% and therefore consolidated in the Group financial statements. In the Company financial statements, shares in subsidiaries are presented at cost less any impairment. When the estimated recoverable amount is lower than the carrying value of the individual shares and intercompany in the subsidiaries, Solveig Gas Holdco AS recognises impairment charges. If and when estimated recoverable amounts increase, impairment charges are reversed. b) Foreign currency translation i) Functional and presentation currency All amounts in the financial statements are presented in millions of Norwegian kroner (NOK), unless otherwise stated. The functional currency of the Company and associate is NOK as this is the currency of the primary economic environment in which the Company operates. ii) Foreign currency Transactions in currencies other than the Company s functional currency are recognised at the exchange rate prevailing at the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are revalued into NOK at the exchange rates prevailing at that date. c) Financial assets Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets and liabilities are only offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis. d) Cash and cash equivalents In the Company Statement of Financial Position, cash and cash equivalents includes cash on hand and deposits held at call with banks. e) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds of the equity injection. f) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. Prepaid financing fees are deferred until the draw-down occurs. If there no longer is evidence that the facility will be drawn down, deferred fees are expensed. Solveig Gas Group Page 54 of 63

55 g) 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 recognised initially at fair value and subsequently measured at amortised cost. h) Finance income and costs Finance income comprises interest income on bank deposits, interest income on shareholder loan to Solveig Gas Norway AS. Finance costs comprise interest expense on borrowings for shareholders. i) Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the Statement of Profit or Loss and Other Comprehensive Income. 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 operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. j) Dividend income Dividend income is recognised when the right to receive payment is established. k) Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the Company s financial statements in the period in which the dividends are approved by the Company s shareholders. l) Standards issued but not yet effective For a description of new standards, please refer to Note 3 in the consolidated financial statements. The adoption of these standards and amendments are not expected to have any impact on the financial statement at the date of the adoption, and is not likely to affect future periods. 4. Critical accounting judgements and the sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. For 2017 and 2016, no critical judgements have been made by management. Solveig Gas Group Page 55 of 63

56 5. Financial risk management In support of the desired capital structure in the Company, and in order to support the financing of the business operations in Solveig Gas Company, the Company utilises financing from the shareholders. Additional financing shall be secured in line with objectives and guidelines set forth by the Board of Directors and with due consideration to financing costs, repayment terms and the ability to satisfy lender covenant requirements. Overriding principles The Company s Board of Directors is responsible for defining the Company s risk profile and for ensuring that appropriate risk management and governance is exercised by the Company. a) Liquidity risk and cash management The Company s strategy is at all times to have access to sufficient liquidity to meet anticipated cash needs. The table below analyses the Company s non-derivative financial liabilities into relevant maturity groupings based on the remaining period between the balance sheet date and the contractual maturity dates. The amounts disclosed in the table below are the contractual undiscounted cash flows at 31 December 2017: NOK millions Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total Borrowings from shareholders Intercompany payables Total at 31 December The amounts disclosed in the table are the contractual undiscounted cash flows at 31 December 2016: NOK millions Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total Borrowings from shareholders Intercompany payables Total at 31 December b) Market risk: Interest rate risk Interest rate risk is the risk of potential reduction in asset value and profitability arising through adverse variations in interest rates. The Company is not exposed to interest rate risk as the shareholder loans to Solveig Gas Norway and the loans from shareholders have identical lending terms. c) Market risk: Exchange rate risk The Company is not exposed to material currency exchange risk. d) Credit risk Credit risk is the risk of potential loss arising when a counterparty is unable to fulfil its obligations. The Company has no material credit risk, based on the credit rating of Solveig Gas Norway AS. e) Fair value estimation The Company has no fair value estimation in the financial statement Solveig Gas Group Page 56 of 63

57 6. Administrative expenses and finance income and cost Specification of administrative expenses NOK millions General and administrative expenses Total operating expenses Auditor remuneration Specification of auditor's fees NOK millions Statutory audit Total auditor remuneration The presented figures are exclusive of VAT. Finance income and costs NOK millions Finance income Interest income on long term borrowings Interest income on short term bank deposits Finance income Finance cost Interest expense on long term borrowings Finance costs Net finance income/costs The Company had no employees in 2017 and Solveig Gas Group Page 57 of 63

58 7. Income tax Income tax recognised in the Statement of Profit or Loss NOK millions Tax Payable - - Deferred tax liabilities/(benefit) recognised in the period(note 8) - - Total Income tax in the Statement of Profit or Loss - - The income tax expense recognised in the Statement of Profit or Loss can be reconciled as follows: NOK millions Profit/(loss) before income tax Tax calculated at the domestic rate (24 %/25 %) Tax effects of: Unrecognised tax losses not recognised as deferred tax asset Total income tax expense recognised in the Statement of Profit or Loss - - Profit/(loss) before income tax Effective income tax rate 0 % 0 % The tax rate used for the 2017 and 2016 reconciliations above is the ordinary corporate tax rate of 24 %/25 % payable by the Company in accordance with Norwegian tax law. 8. Current and deferred tax balances Source NOK millions 31 December December 2016 Tax loss carried forward Total deferred tax liabilities/(assets) 0 0 The deferred tax assets and liabilities relate to temporary differences which will be taxed within the ordinary tax system in Norway at a future tax rate of 23 %/24 %. Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Solveig Gas Group Page 58 of 63

59 9. Investment in subsidiary The Company's investment in Solveig Gas Norway AS amounts to NOK million. The table below shows the latest available financial statements of Solveig Gas Norway AS from 2017, and is presented for 100% of Solveig Gas Norway AS. Country of incorporation Number of shares owned Owner ship Share capital (NOK) Transaction cost (NOK) Total investment Equity as at Profit for the period ending 31 December 31 December 2016 Solveig Gas Norway AS Norway % December 2017 Solveig Gas Norway AS Norway % Cash and cash equivalents NOK millions 31 December December 2016 Bank Deposit - NOK Total Cash and cash equivalents Share capital Capital management For a description of capital management, please refer to Note 11 in the consolidated financial statements. The Company has A shares and B shares at 31 December 2017 and 31 December 2016 each with a nominal value of NOK 5. Ordinary A shares carry full economic rights (as to dividends and capital), and full voting rights on all matters, except for resolutions for the appointment and removal of directors. Ordinary B shares carry a right to a limited dividend (NOK 10 per share per year) and a limited participation of NOK 100 per share in the winding up of the Company, but no other economic rights. They have full voting rights on all matters, including the appointment and removal of directors. Shareholders as of 31 December 2017 A-shares Ownership B-shares Ownership CPP Investment Board European Holdings S.a.r.l % % Allianz Infrastructure Norway Holdco I S.a.r.l % % Infinity Investments S.A % % Total % % Solveig Gas Group Page 59 of 63

60 Issued capital and reserves Authorised Thousands Thousands A shares of NOK 5 each B shares of NOK 5 each Ordinary shares Thousands Thousands Issued and fully paid: At 1 January Issued 0 0 At 31 December Intercompany payables NOK millions 31 December December 2016 Intercompany payables Total The Company has financial risk management policies in place to ensure that all payables are paid within the agreed terms of payments. The fair values of trade payables and accrued expenses approximate their respective carrying values. 13. Financial instruments by category Financial instruments by category The Company had the following financial instruments by category as at 31 December 2017: Financial assets NOK millions Loans and receivables Assets at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Non-financial assets Shareholder loans Cash and cash equivalents Total Financial liabilities NOK millions Liabilities at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Other financial liabilities at amortised cost Non-financial liabilities Borrowings from shareholders Intercompany payables Total The Company had the following financial instruments by category as at 31 December 2016: Financial assets NOK millions Loans and receivables Assets at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Non-financial assets Shareholder loans Cash and cash equivalents Total Total Total Total Solveig Gas Group Page 60 of 63

61 Financial liabilities NOK millions Liabilities at fair value through the profit and loss Derivatives designated as IAS 39 hedging instruments Other financial liabilities at amortised cost Non-financial liabilities Borrowings from shareholders Intercompany payables Total Total 14. Related parties and Key management remuneration Related parties transactions were as follows: Related party NOK millions Type of transaction Transactions during 2017 Transactions during 2016 Borrower Solveig Gas Norway AS Cost allocation Solveig Gas Norway AS Repayment of paid-in capital Solveig Gas Norway AS Loan repayments Solveig Gas Norway AS Payment and accrued interest Solveig Gas Norway AS Lender CPP Investment Board European Holdings S.a.r.l Repayment of paid-in capital Allianz Infrastructure Norway Holdco I S.a.r.l Repayment of paid-in capital Infinity Investments S.A. Repayment of paid-in capital CPP Investment Board European Holdings S.a.r.l Loan repayments Allianz Infrastructure Norway Holdco I S.a.r.l Loan repayments Infinity Investments S.A. Loan repayments CPP Investment Board European Holdings S.a.r.l Payment and accrued interest Allianz Infrastructure Norway Holdco I S.a.r.l Payment and accrued interest Infinity Investments S.A. Payment and accrued interest Total Listed above are the ultimate controlling parties. Two shareholder loan agreements have been entered into in order for the Company to partly fund the acquisition of the Gassled assets in Solveig Gas Norway AS and for general working capital purposes. Both loans carry interest on arm's length conditions, and are subordinated to all other liabilities of the Company whether incurred prior to or after the shareholder loan agreements were entered into, but shall rank pari passu with any other shareholder loans. The shareholder loans consist of: MNOK Nominal amount Loan 31 December 2017 MNOK Nominal amount 31 December 2016 Maturity Category Shareholder loan December 2030 Amortised cost Shareholder loan December 2030 Amortised cost Total shareholder debt The Company has the right to repay the loans in part or full at any time up to the final maturity date. The fair value of the borrowings at balance sheet date approximates their carrying values. Solveig Gas Group Page 61 of 63

62 Year-end balances related parties NOK millions Type Amount Non-Current related party receivables Solveig Gas Norway AS Shareholder loan Loan repayments -230 Accrued interest 157 Payment of interest -195 Solveig Gas Norway AS Total non-current related party receivables NOK millions Type and ownership % 31 December December 2016 Non-Current related party debt CPP Investment Board European Holdings S.a.r.l Shareholder loan 40% Allianz Infrastructure Norway Holdco I S.a.r.l Shareholder loan 30% Infinity Investments S.A. Shareholder loan 30% Total non-current related party debt Current related party debt Solveig Gas Norway AS Intercompany payables 3 2 Total current related party debt 3 2 Total outstanding related party debt Key management remuneration The Company had no employees in 2017 and The Chairman of the Board received a remuneration of NOK 108 thousand for Solveig Gas Group Page 62 of 64

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